Silicon Laboratories Inc. Q1 FY2024 Earnings Call

Thank you for holding. My name is Jonathan and I will be your conference operator today. Welcome to Silicon Labs First Quarter Fiscal 2024 Earnings Call. Please note that today’s program is being recorded.

Thank you, Jonathan, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Interim Chief Financial Officer, Mark Mauldin. They will discuss our first quarter financial performance and review recent business activities. We'll take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of our website. I'll now turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt?

Thanks, Giovanni, and good morning, everyone. Silicon Labs reported solid first quarter results, with revenue and EPS exceeding the midpoint of our guidance. We are confident that Q4 represented the trough for us, and we expect revenue growth to accelerate from Q1 into Q2. Based on a sampling of our top customers, we believe they have made further progress in reducing excess inventory in the quarter. We also continue to see steady improvements in our weekly bookings levels, although still below the level we'd like to see. On a unit basis, channel inventory remains very low, decreasing again in the quarter. We are working closely with our distribution partners and key customers to manage lead times and increase order visibility as the demand environment begins to improve. I'm also incredibly excited about the senior leadership announcements that I will cover later in the call. Now I'll hand it over to Mark for the financial update. Mark?

Thanks, Matt, and good morning, everyone. First quarter revenue came in at $106 million, above the midpoint of our guidance and up 23% sequentially. Revenue was up for both business units. The Industrial & Commercial business ended at $65 million, up 9% sequentially with the broad industrial category experiencing the largest increase in the quarter. Home & Life revenue was up 51% sequentially at $41 million, driven by a rebound in smart home, particularly in home security applications. We are well positioned in the Home & Life markets as market initiatives such as Matter-enabled ecosystems and Connected Health gaining further traction. Overall, ASPs were about flat compared to the prior quarter and unit volume was up. Our regional revenue mix was also consistent in the quarter with EMEA and the Americas slightly outpacing APAC. Distribution revenue mix was about 66% for the first quarter, up from last quarter, but still below our typical levels. Channel inventory decreased to 61 days. On a unit basis, channel inventory was down almost 25% sequentially and 50% year-over-year. As Matt mentioned, we are working closely with our distribution partners and customers to bring order patterns within our standard lead times to improve demand visibility as the market recovers. Non-GAAP gross margin ended in line with guidance at 52%. As expected, customer mix was the largest headwind on our gross margin along with the impact of fixed costs over the lower revenue levels. We expect gross margin to increase toward targeted model as revenue further recovers. Non-GAAP operating expenses of $94 million were better than expected, largely due to slower-than-expected hiring and discretionary spending. Non-GAAP operating loss was $39 million, and our non-GAAP effective tax rate was 20%. Non-GAAP loss of $0.92 was at the top end of our guidance range, mainly driven by the OpEx favorability. On a GAAP basis, gross margin ended at 52%. GAAP operating expenses were $114 million, which was also better than expected. GAAP operating loss was $59 million for the first quarter. GAAP loss per share was $1.77 for the first quarter, above the top end of our guide. Turning to the balance sheet. We ended the year with cash and investments of $333 million. We repaid the $45 million outstanding on our revolving credit facility in the quarter and have no outstanding debt. Our DSO was approximately 30 days, and we continue to see no customer credit concerns. Our internal inventory was up slightly in Q1 at $198 million. Inventory turns ended at 1x, and we expect this represents our peak inventory level for the year. Importantly, the die bank inventory we strategically built over the past year positions us to address the channel efficiently as end market demand improves. Before returning the call to Matt, I will cover guidance for the second quarter. We expect revenue for the second quarter to be in the range of $135 million to $145 million. We anticipate both business units to be up sequentially. We expect non-GAAP gross margin in the second quarter to be approximately 53%. The gross margin for this quarter continues to reflect a temporary customer mix shift away from the channel and towards direct customers as distribution partners work to further reduce their inventory. We expect non-GAAP operating expenses in the second quarter to be approximately $102 million and the non-GAAP effective tax rate to be approximately 20%. Our non-GAAP loss per share for Q2 is expected to be in the range of $0.58 to $0.70. On a GAAP basis, we expect gross margins to be 53%. We expect GAAP operating expenses to be approximately $125 million and GAAP loss per share to be between $1.45 to $1.61. I will now turn the call back over to Matt. Matt?

Thanks, Mark. We continue to gain share in both Home & Life and Industrial & Commercial end markets with our industry-leading power efficiency, security and our performance as well as our leadership position in Matter. Last quarter in our Home business, we highlighted the release of Matter 1.2 by the CSA, which expands Matter's reach to include smart TVs, white goods and gateways. Matter 1.2 also extends Wi-Fi connectivity to a wide array of home devices such as appliances, home security systems and automation products, including battery-powered cameras, switches, sensors and window shades. As consumer interest and interoperability intensifies, more customers are embracing Matter-enabled ecosystems. Silicon Labs remains a trusted partner in this rapidly expanding market. Our commitment to building Matter infrastructure has well positioned both Silicon Labs and Thread technology moving forward. As an example of this, we are actively working with 24 of the 26 major ISPs in North America and Europe that are integrating Matter into their solutions. Earlier this month at Embedded World, we continued to build out our Series 2 platform with the unveiling of the xG26, our most advanced multi-protocol wireless device family yet, engineered to future-proof IoT technology. This new family ensures that manufacturers' current designs can keep pace with the escalating demand of sophisticated IoT applications. The xG26 enhances performance with advanced compute capabilities, embedded AI/ML acceleration for energy-efficient battery-operated devices, top-tier security, 2.4 gigahertz wireless connectivity, twice the flash and RAM and support for wireless protocols such as Matter, Bluetooth Low Energy and multiprotocol and Thread. Additionally, with Amazon Sidewalk moving through its initial rollout phases, we are guiding partnerships with manufacturers to facilitate their wireless development within this growing ecosystem. Though Amazon Sidewalk is still in the very early stages, we secured a design win in the quarter with one of North America's leading hot water heater manufacturers, providing a Wi-Fi dual band solution with Matter and Amazon Sidewalk capability. This win was directly related to our being a key Amazon partner on the development and rollout of Sidewalk, enabling us to leverage our technology leadership as the Sidewalk ecosystem continues expanding. In our Life business, we are excited to see further global expansion of our continuous glucose monitoring solutions. As an example, we have secured additional APAC design wins in the quarter for more than a dozen total design wins in the region, a few of which are starting to ramp in the quarter. In the industrial end markets, the integration of machine learning at the Edge is proving essential. As a reminder, we have multiple wireless SoCs in production with industry-leading integrated AI/ML capability. Our customers are enhancing the efficiency of connected equipment with wireless connectivity for applications such as Predictive Maintenance. We recently secured a design win with a leading connected equipment provider in the construction industry to facilitate real-time data analysis and location tracking. Similarly, AI/ML at the Edge is boosting efficiency in HVAC systems in Smart Buildings using Motion Sensing, while also enhancing vehicle safety with rear seat monitoring technologies. In the Smart Access sector, Chamberlain Group, a global leader in Intelligent Access has chosen our xG28 device for their 11 million plus myQ users because of its superior compute power and greater performance that delivers a more reliable user experience. Our position in smart cities remains strong, particularly in the Metering sector where wireless communication is making electric grid more efficient and sustainable. We are actively involved in developing solutions for low disaggregation or nonintrusive load monitoring that are maintaining our leadership in smart metering across various regions. In the Commercial domain, we are tapping into retail automation trends such as electronic shelf labeling, where emerging technologies like shelf cameras and stand-alone sensors. While the overall market penetration for electronic shelf labeling is still nascent, our multi-protocol solutions and design wins in this area reinforce our belief that this market will be an additional growth engine for us, driven by expanding deployments globally. Looking ahead, we are strategically allocating resources to initiatives that bolster our long-term growth and scalability. The rollout of Series 2 continues to progress well, like the xG26 that we just announced, and is contributing significantly to our current and future growth. At the same time, the development of Series 3 continues in parallel, helping position us for an even stronger future. We will begin sampling Series 3 to alpha customers this quarter. Series 3 introduces industry-leading wireless performance, compute and scalability on a multi-radio platform and a unified code base that will support over 30 new wireless SoCs. I want to thank Mark for stepping in as Interim CFO during the CFO transition, and I look forward to Dean Butler joining us on May 15. We also announced 2 additional leadership appointments. Rob Conrad, a long-time industry veteran, is stepping down from our Board of Directors to become our SVP of Worldwide Operations. Rob's expertise in rapidly scaling semiconductor businesses will be critical as we position to scale even faster. Additionally, Radhika Chennakeshavula joins Silicon Labs as our new Chief Information Officer. Radhika will oversee IT operations, enterprise applications, data analytics and critical digital transformation initiatives. I would also like to thank Sandeep Kumar for his role in leading our worldwide operations team for the last 18 years. Sandeep has been pivotal in leading Silicon Labs' operational strategies, including during the recent supply chain crisis. I would also like to express my gratitude to Karuna Annavajjala for her leadership in our IT organization over the last 4 years. Looking ahead, we remain laser-focused on executing on our new Series 2 and Series 3 products driving design wins and continuing to accelerate our position. As excess inventory at our customers corrects, our design wins ramp and end market demand improves, we're well positioned to drive revenue and profit growth throughout 2024 and beyond. I'll now hand it back over to Giovanni for Q&A.

Thanks, Matt. Before we open the call for questions, I would like to announce our participation in JPMorgan's Global TMT Conference in Boston on May 21 and Stifel's 2024 Cross Sector Insight Conference in Boston in early June.

And our first question comes from the line of Matt Ramsay from TD Cowen.

Matt, we're clearly experiencing the bottoming phase and now starting to see the beginning of recovery. You mentioned in the script that there might be a greater emphasis on direct sales compared to the channel during this transitional period. This makes sense as channel-supported customers are working through their own inventory. My question is, in the last few months, how much more insight have you gained into the customer-level inventories supported by the channel? Additionally, if you can share any examples or insights on trends by end market or geography regarding the direct customer inventory behind the channel, that would be very helpful.

Yes, thanks, Matt. In summary, both end customer inventory and channel distribution inventory are improving. We've focused on sampling our top customers extensively, and we've noticed a consistent trend from December to January and continuing to the present. The average amount of excess inventory has decreased, along with the number of customers holding excess inventory. However, this situation is not completely resolved, and the revenue guidance we provided does not reflect our consumption levels. Nonetheless, we appreciate the positive direction of these trends, and the same can be said for distribution inventory, which I believe is now at an appropriate level. While end customer inventory is heading in the right direction, it still has some way to go.

Got it. A couple of follow-up points, Matt. First, do you believe that coming out of this situation will result in deeper relationships and better visibility into the relationships the company will have over the next few years, including customer-level inventory behind the channel? I'm trying to understand if the experience you’ve had with your partners has led to any lasting change in visibility. Also, unrelated to that, you mentioned you might sample Series 3 to some key customers this quarter. Do you have any thoughts or insights on which industries or types of applications this might involve? That sounds like a significant milestone.

Yes, Matt, the answer is absolutely yes regarding stronger relationships and increased visibility. It's been a challenging cycle, and that has helped build our relationships. While it can work the other way, we've observed that the supply chain crisis and the inventory situation have strengthened those partnerships. I can say this with high confidence. Our understanding of end customer inventory has also improved significantly, although reporting it isn't straightforward like it is for internal or distribution inventory. We've gained valuable insights through these challenges and have become much better at seeing, understanding, and managing it. So, yes to that. As for Series 3, we are not disclosing those customers yet, but we are in the exciting phase of sampling, which is a significant milestone. It's important to remember that Series 2 is still in the early stages of its cycle and ramp-up, while we are also introducing our next generation. This may be a tough message for our investors since both Series 2 and 3 are performing well and making progress, and the journey for both is long. Ultimately, the combination of both positions us very well, and we are pleased with the progress on both fronts.

And our next question comes from the line of Gary Mobley from Wells Fargo Securities.

Matt, you mentioned back in March that you estimated your end customer consumption level for the first quarter to be around $160 million. This suggests you may have under-shipped the channel by $50 million. I hope that the $160 million target is on an upward trend. Given your June quarter revenue guidance of $140 million, how much are you currently under-shipping compared to end customer demand?

Yes. Thanks, Gary, for reminding me of the record. So the quick answer is what we said was, we see consumption at least $160 million as a data point there. And we didn't say it was at $160 million, we said it was at least at that number, so that was the data point we provided. So the easy way to think about it on, as I said earlier to the previous question, we are seeing revenue at $140 million is not indicative of consumption. And as we said in that conference, we think it's higher or at least $160 million as an easy way to think of it. So I don't think you can get to the math based on that of exactly what consumption is and exactly how much end customer inventory remains. But easy way to say it, they're going in the right direction. End inventory is going down, revenue is going up, getting closer to consumption, but still a ways to go.

Got it. And as a way to get a supporting metric for future revenue growth, hopefully, you had this number at your fingertips, but I'm curious what the measure of lifetime value of design wins captured in the first quarter may have been. And then embedded within that, what the pricing trends were like in those design wins on a like-for-like product basis or maybe even considering any sort of ASP shift associated with Gen 2?

Sure. I don't have all that information readily available. In the quarter, pricing on a like-for-like basis was essentially flat. There haven't been any changes with design wins; we are making good progress and are on track. Regarding pricing on design wins, as we've stated, there are no changes, but we are experiencing more pricing pressure on new business rather than on existing business, and we anticipate this trend to continue. What we're witnessing appears to be more typical than expected, and it almost seems like we're returning to pre-pandemic pricing behaviors, which indicate low to mid-single-digit pricing pressure annually, consistent with what we've observed in the past. We've always managed to offset that with new products and differentiated features. While we aren't fully there yet, it does seem that this is the direction we are heading.

And our next question comes from the line of Tore Svanberg from Stifel.

Congratulations on the continuous recovery here. So Matt, obviously, consumption is a number that we analysts have to decide at some point. But I just want to sort of understand now that you've gone through the upcycle and downcycle, and as we think about the consumption number, is the thought here that the business would grow about 20% going forward longer term? Just wanted to make sure that nothing has really changed with the upcycle and the downcycle fundamentally.

Yes, certainly. In short, our commitment to achieving a 20% compound annual growth rate for revenue remains unchanged. That is our target and model, and we are confident in our ability to reach it. However, while we are pleased with our guidance of $140 million, it's important to note that we are not taking a victory lap. We are focused on actions that support revenue growth, such as enhancing gross margins and profitability, which we achieved in the first quarter and expect to continue in the second quarter. Nonetheless, we are still facing challenges at the $140 million level, as there is a significant gap to our consumption levels. We need to see more design wins ramping up, which is starting to happen and is encouraging, as well as increased strength in the end market. We want to convey that, although we are optimistic about our progress and all indicators are positive, we still have a considerable journey ahead. Thus, we are not celebrating the $140 million; we will celebrate much larger figures.

Great. And as my follow-up. Beyond the cyclicality stuff, you've sort of highlighted at least 3 big growth engines this year. You mentioned some of the script, right? But the glucose meter, the smart meter and also the shelf labeling, any more details you could add on those 3 as far as ramps, types of customers, regions and so on and so forth?

Yes, sure. So nothing meaningful beyond what the scriptory except I'd say, to be clear, all 3 of those segments are ramping for us in 2024. That's important. And that's encouraging because that gives us growth beyond inventory destocking and whatever the end market demand dynamic ends up being.

Our next question comes from the line of Thomas O'Malley from Barclays.

I have a model question. Can you provide the percentage split between the two businesses in March, and what are your assumptions for June? Additionally, can you discuss the revenue linearity you are currently observing as you move throughout the year? It seems that the Disty channel is improving with better customer relationships.

Tom, it's Giovanni. I'll take the first part. Revenue is between the BUs for Q1. So it was $65 million for the Industrial & Commercial business unit, about $40 million, $41 million for Home & Life. And I'll let Mark pick up on the linearity as we get through the year.

Well, I think what we said in the script that we would expect both business units to continue to grow during the year. We're not providing specific guidance for each business unit for the second quarter.

Yes. I mean maybe a way to think about it, Thomas, is, in general terms, I'd characterize Home & Life as further through the cycle. Industrial & Commercial is still absolutely going in the right direction, but not as far through the cycle. I think that's important. And then in terms of inventory, I would definitely say that Q1 represents the peak for us in internal inventory that we have intentionally built to be ready for what's coming and as we move forward from here. So that's one. And as we've said, external inventory at our distributors and other end customers is working down and continues to work down. So I think the next piece is Disty inventory. We've assumed that, that's going to be flat. But at some point, distributors are trying to work it down. At some point, that's going to start coming up as we see increases in demand in the channel, as their end inventory works down and as they just start to ramp new designs and market strength continues. But we're not assuming that in our guidance right now.

Helpful. And then just on the gross margin side, as you see a normalization of your percent sales to kind of just being direct with direct coming back a bit down, how much do you have baked in for that normalization in the June quarter? And how quickly do you see that happening? Obviously, it's a tougher thing to kind of understand. It's a lot of different customers. But just in your base case assumption, we're kind of at the midpoint of your margin guidance, which is up, I think, 80 bps. What do you think that split looks like?

It's difficult to predict because part of that includes calls in the market, which isn't ideal for business. We are firm in our commitment to our gross margin model as well as our overall company model throughout the highs and lows of this cycle. We didn't raise our gross margin targets during the peak, and we aren't lowering them now. We have stated that as revenue increases each quarter, gross margins will also rise. We've observed this in Q1 and expect it to continue in Q2. Simply put, as revenue grows, gross margins will return to the levels we are familiar with. It's also important to note that as revenue rises, the impact of fixed cost absorption diminishes. This is evident, and currently, the main factor is the mix, as we mentioned in the script. Therefore, it's straightforward: with each quarter's increase in net revenue, you will also see a rise in gross margin.

Our next question comes from the line of Quinn Bolton from Needham & Company.

I just want to follow up first on the mix issue for gross margin. You kind of said that the mix shifts more to direct here in the near term. And it sort of feels like you're implying that that's a gross margin headwind. Just wanted to confirm that the Disty sales did carry higher margin than direct sales. And not sure if you will, but I'll ask if you could quantify how much of an impact is that channel mix having on near-term gross margins. And then I've got a second follow-up question.

So yes, Quinn, this is Matt. A quick answer is, generally, you do see channel or distribution gross margin is higher than direct. That's fairly typical. And for us, what we've also said is mix is now the major driver, a predominant driver of the gross margin being at the levels it is versus where it should and will be. So those are the 2, I think, answers to your question, hopefully helpful.

Got it. Yes. No, that helps. And then, I guess, I know you guys obviously aren't guiding beyond the current quarter. But given that you've stated that consumption level of $160 million or higher, I guess, kind of looked out to the second half of the year. The Street has got revenue close to $190 million in September, $220 million plus in December, that's significantly higher than that consumption level. And so I guess these aren't your numbers, but what has to happen for the business to get back to kind of where the Street is looking in the second half of the year? Do you think consumption can increase at that rapid of a pace? Is it really the 3 growth drivers you talked about, the smart metering, glucose monitoring, the electronic shelf labeling that gets you there? Or just any sort of thoughts on sort of that second half.

Sure, can you clarify what the main factors are for the situation? You mentioned the consumption figure of $160 million, which I understand is more of a baseline than your actual expectations. However, the projections for the second half suggest revenue may reach around $190 million in September and $220 million later. These figures are not your forecasts, but if the company were to achieve such revenue, what would be necessary to make that happen? Do you believe consumption can rise to those levels in the second half? Could new product opportunities that are emerging this year be a contributing factor? What would you need to see in the second half, considering the $160 million consumption number you've mentioned? Okay. So, yes, a couple of things. First, as you all know, we do not provide guidance beyond the current quarter, but I can discuss some dynamics that may be helpful. Just to remind you about the $160 million figure, that was meant to provide context regarding our operational expense reductions last year; it was a rough estimate of a breakeven point. The intent was to base our reductions on indicators that are reflective of our consumption, rather than on a steady state that would indicate losses. To your question, if I simplify it into three main categories: we are experiencing destocking due to excess inventory at customers, we have design wins ramping, and the end markets are showing uncertainty. Currently, from Q1 to Q2, most of what we observe is primarily destocking. While there are some ramps happening, they aren't the main driving factor. Even at $140 million, it does not reflect true consumption, indicating that there's still progress needed, which is positive, and we anticipate continued destocking. There are also the design wins, which we've been making good progress on this year in significant areas such as continuous glucose monitors, electronic shelf labels, and metering, all of which are gaining traction, offering additional revenue potential. However, predicting end market demand is more challenging due to uncertainty in the marketplace with conflicting signals. If conditions improve, that could provide an additional boost, but for now, we cannot rely on that happening.

And our next question comes from the line of Srini Pajjuri from Raymond James.

Matt, regarding the bookings, you mentioned that weekly bookings are improving. Could you provide more insight on whether this improvement is widespread across different markets or if a specific market is performing better than others? Also, have you observed any significant geographical variations in the bookings improvement?

Yes, I understand. The brief response is that bookings are improving at a steady and broad pace. This isn't just a few good weeks; it's been consistent improvement over many weeks and months, which is encouraging to see. While we haven't yet reached the levels we desire to confirm that we've fully overcome challenges, the trend is clear and positive. Regarding your other question, the improvement is broad across technology, geography, and application areas, which is what we like to see. I believe that Home & Life is a bit further along in recovery compared to Industrial & Commercial, but we are observing positive developments in both sectors. One caveat to mention is China. In the APAC region, we are seeing progress, but in China specifically, there are signs of improvement such as design wins and an uptick in PMI, although this has not yet translated into revenue. Therefore, we are not factoring in improvements from China in our forecasts. While there are some promising indicators, we haven’t seen concrete results yet. Hopefully, this provides clarity.

Yes, great. You mentioned that ASPs are returning to pre-pandemic levels or at least showing trends of annual declines. With your new product pipeline in mind, could you discuss the transition from Series 2 to Series 3? There's a lot of conversation around Edge, AI, etc. I'm curious about your adjusted ASPs. Looking ahead to the next 12 to 24 months, should we expect unit growth to drive revenue growth, or do you anticipate an increase in content as well? If content is indeed increasing, what are the key markets and applications that will drive that growth?

Sure, if we take a step back, Series 2 is beneficial for us regarding gross margins and pricing because it features new products that meet demand. Specifically, we have products that can efficiently deliver machine learning capabilities on battery-powered devices, which is a significant advantage for us. As Series 2 continues to roll out new best-in-class features, it supports our strategy. It’s important to note that this approach is not new for us; we’ve always focused on innovation, and Series 2 has been introducing new products recently. Looking ahead to Series 3, it will offer new industry capabilities and performance, which will also contribute to this strategy. However, it's essential to manage expectations as we won’t see an increase in average selling prices in the next couple of years with Series 3. Its ramping will take time, so the focus should be on how Series 2 is performing. Series 3 is more of a long-term initiative, but both series help in differentiation and enhancing performance features, which can positively impact ASPs and gross margins.

Our next question comes from the line of Cody Acree from The Benchmark Company.

Just quick thoughts on operating expenses as you're heading off the bottom here.

Yes, sure. So I mean, a reminder for everyone, as we were going through this cycle, as revenue is decreasing, we decreased our OpEx every quarter along with that. And then as we've shared, as revenue starts going up, we will increase our OpEx, although not at the same level moving forward. And some of those changes last year were structural, right, with reductions that we've shared in prior calls. That being said, the increase from Q1 to Q2 would be faster than that. And part of that is just one-time dynamics, for example, is we've added an annual merit cycle back for our employees that drives increases from Q1 to Q2. And then some of the temporary things from last year that have to come back, such as bonus accruals or travel that's driving an unusually high increase as well. But to be clear, as revenue was going down, we reduced OpEx every quarter. As it goes up, we will increase it at a lower rate; Q1 to Q2, a little bit higher than normal because of those one-time effects.

And maybe just continuing on there. What were the processes that you went through as you were going through the OpEx reductions during the cuts to make sure that you weren't impairing revenue growth?

Yes, sure. Looking at the big picture, it's challenging and not easy to navigate, to be honest. We've implemented several changes, including prioritizing our efforts. This means focusing on the most impactful areas and reducing work in lower-priority areas. We're also seizing opportunities despite the tough environment to initiate strategic shifts, such as reshoring or reallocating resources, and making leadership changes. For instance, the CIO announcement with Radhika came from our strategic decision to rethink our IT approach. This includes relocating employees and balancing our internal and external capabilities through decisions about making versus buying resources. In summary, while these cuts are painful, they also allow us to manage our portfolio differently. We're not merely reducing revenue; we aim to transform and restructure our operations. If we cut without strategy and just reinstate everything after the fact, we create significant inefficiency. Our philosophy is to make these hard changes and leverage them to improve and transform our capabilities. I believe this process will be transformative, although it is still early to notice the full effects. However, early signs, like the CIO announcement, suggest progress.

Our next question comes from the line of Peter Puk from JPMorgan.

Just want to follow up on the China point, where it seems like you guys are not seeing any improvement. How important is China recovery to that $160 million number that you guys talked about?

The quick answer is that it’s not included. Currently, China accounts for about 13% of our revenue, and we are supporting the region. There has been positive design win activity, but the revenue hasn’t significantly changed, and we are not assuming that it will. If it does improve, that would be great, but we are not counting on recovery in our projections.

And maybe just on some of these new design wins you eventually talked about, potentially coming in the second half, maybe you can help us understand maybe the size or the scope of these brands? And how meaningful is it to revenue in the second half of this year?

So we haven't provided that context, and we're not guiding beyond the current quarter. But easy way to think about it is we've shared over previous quarters, all of these ramps are, one, not single customer, they're end market across multiple customers and they are meaningful end segments for us and ramps. And I would characterize each of them also as relatively early phases for us in terms of their ramp and potential. But they will all ramp this year, which I think is important and will give us a tailwind, as I said earlier, to whatever that consumption number is. As we approach that, it gives us lift beyond that. And then, as I said, the end market as well when we see strength there. But no more color on the actual magnitude or size of those that we haven't provided that.

And our next question comes from the line of Joe Moore from Morgan Stanley.

Last quarter, you had talked about 1 competitor. I think it was isolating signals better than it had been pricing a little bit more aggressively. Can you give us an update there, any changes? Is that just the new normal? Or is there anything to report there?

Joe, I think it's been consistent that most of the industry market has been behaving as expected in this type of market environment. We did see one competitor who we thought was being more aggressive, and that hasn't changed. I'm not trying to convey anything specific; I just wanted to respond honestly, which is why I brought it up.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Giovanni Pacelli for any further remarks.

Thank you, Jonathan, and thank you all for joining our call this morning. This concludes today's call. Thanks.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.