Earnings Call Transcript - SMTC Q4 2022

Operator, Operator

Greetings. Welcome to Semtech Corporation Conference Call to discuss the Fourth Quarter and Fiscal year 2022 Financial Results. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu, Semtech's Executive Vice President and Chief Financial Officer. Please note this conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I will now turn the call over to Semtech's Executive Vice President and Chief Financial Officer, Emeka Chukwu.

Emeka Chukwu, CFO

Thank you, Alex. A press release announcing our unaudited results was issued after the market closed today and is available on our website at semtech.com. Today's call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements. For a more detailed discussion of these risks and uncertainties, please review the safe harbor statement included in today's press release and in the other Risk Factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only, and Semtech undertakes no obligation to update the information from this call should facts or circumstances change. All references made to financial results in my prepared remarks and Mohan's prepared remarks during this call will refer to non-GAAP financial measures, unless otherwise noted. A discussion of why the management team considers such non-GAAP financial measures useful, along with detailed reconciliations of such non-GAAP measures to the most comparable GAAP financial measures are included in today's press release. In Q4 fiscal '22, the company delivered net sales of $190.6 million, a decrease of 2% sequentially and an increase of 15% year-over-year and was once again above the midpoint of our guidance. Fiscal '22 revenues grew 24% to a record $740.9 million while EPS grew 49% to a record $2.61 or more than two times the rate of net revenues growth. The strength of the secular drivers behind our growth engines contributed to the strong net sales performance, despite the challenges presented by COVID and supply constraints. In Q4, shipments into Asia, North America and Europe represented 78%, 13% and 9% respectively. While this represented the shipped to address for our distributors and customers, we estimate that approximately 33% of our shipments are consumed in China, 29% in the Americas, 19% in Europe and the balance over the rest of the world. Total direct sales represented approximately 11% of net sales while distribution net sales represented approximately 89%. Our distributor POS represented another quarterly record and the business remains balanced with approximately 42%, 32% and 26% of the total POS coming from the infrastructure, industrial, and high-end consumer end markets respectively. In Q4 of fiscal '22, net revenues from the high-end consumer market decreased 22% sequentially and 6% over the prior year and represented 25% of total revenues. Approximately 13% of high-end consumer net revenues was attributable to mobile devices and approximately 12% was attributable to other consumer systems. Net revenue from the industrial end market increased 10% sequentially and 38% over the prior year and represented 39% of total net revenues. Finally, the infrastructure end market increased 3% sequentially and 14% over the prior year and represented 36% of total revenues. Q4 bookings increased 35% sequentially and turns bookings accounted for approximately 3% of our Q4 shipments. Q4 gross margin increased 70 basis points sequentially to 64.5%, which represented the upper end of our guidance range and a new quarterly record, driven by a higher mix of our growth drivers that include LoRa-enabled, 10G PON, Tri-Edge PAM4 CDR, 5G wireless, and broad-based industrial protection products. For Q1, we expect gross margin to continue to expand reflecting the benefit of continued strength of our growth engines. In fiscal '23, we expect our gross margins to trend higher by 100 basis points to 200 basis points from a favorable return mix of our growth platforms. Q4 operating expense increased slightly to $68.7 million driven by higher new product development expenses. For Q1, we expect our operating expense to increase by 4% due to higher compensation expenses, which is typical at the start of the new calendar year. Looking ahead to fiscal '23, we expect our operating expense to trend back towards our target model of half the rate of revenue growth. In fiscal '22, operating profit grew 45%, approximately two times the rate of revenue growth led by the higher gross margin and represented a record operating profit. Operating margin expanded approximately 400 basis points to 27.4% and represented solid progress towards our 32% to 36% long-term target model. As expected, we are seeing the strong operating leverage expected from the success of our growth platforms. Our fiscal '23 non-GAAP normalized tax rate is 12%, slightly lower than the 13% in fiscal '22 due to a more favorable mix of regional income. In fiscal '22, cash flow from operations was a record $203 million up 71% from fiscal '21 and was 27.4% of net sales, which represented a 740 basis point expansion from fiscal '21. This is due to the record operating profit and good management of working capital. Correspondingly, free cash flow increased 105% to 24% of net sales around the low end of our long-term free cash flow target of 25% to 30% of net sales. The cash flow generation in fiscal '22 was very strong despite the strategic actions to maintain higher levels of inventory because of strong demand and supply constraints. In Q4, we repurchased approximately $33 million of our outstanding stock and for the full year we repurchased approximately $130 million or 2.7% of our outstanding stock and resulted in approximately $259 million remaining in our outstanding authorization. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down our debt. Q4 accounts receivable decreased 4% sequentially to $72 million while days of sales was in line with the prior quarter at 35 days. In Q4, net inventory in absolute dollar terms increased 8% sequentially and days of inventory increased 13 days sequentially to 146 days. We expect net inventory to remain above our target range of 90 days to 100 days to support the higher demand and the tighter supply chain environment. In summary, we are very pleased to deliver a record financial performance in fiscal '22, despite the supply chain constraints and continued pandemic headwinds. We are pleased to see our years of investment in technology platforms that enable a smarter, sustainable planet drive record revenues, record gross margin, record earnings per share and record cash flow from operations. The financial model is delivering strong leverage. In fiscal year '23, we believe the long-term secular nature of our growth of LoRa-enabled, Tri-Edge PAM4, 10G PON, 5G wireless, and broad-based industrial protection platforms positions us nicely for another record financial performance in fiscal '23. I will now hand the call over to Mohan.

Mohan Maheswaran, CEO

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year '22 performance by product group, discuss our fiscal year '22 performance and then provide our outlook for Q1 of fiscal year '23. In Q4 of fiscal year '22, net revenues of $190.6 million represented a 2.2% sequential decline, which was much better than our typical seasonality of 5% to 10% down. We posted record non-GAAP gross margins of 64.5% and non-GAAP earnings per diluted share of $0.70. In Q4 fiscal year '22, our signal integrity product group grew 21% over the prior year and achieved another quarterly record and represented 39% of total revenues. Record demand from our PON business contributed to the growth. Our data center demand remains soft as customers managed year-end inventory. However, Q4 data center bookings increased significantly in the quarter, and we are expecting data center revenues to rebound nicely in Q1 led by growth from our Tri-Edge short reach PAM4 platform. We have continued to attain new Tri-Edge design wins across multiple geographies in 100-gig, 200-gig, and 400-gig PAM4 optical modules. In FY '22 revenue from our Tri-Edge platform increased over 700% to approximately $14 million and we now expect our data center Tri-Edge revenues to triple in FY '23 as more customers move to full production and we increase our market share over DSP solutions in the 200-gig and 400-gig PAM4 segments. In addition, we are now sampling our long reach Tri-Edge platform targeted at 200-gig FR4 optical modules. These new parts approximately double our SAM in the hyperscale data center market. We are confident that Tri-Edge's ultralow power, low cost, and low latency together with the fiber edge higher performance will enable us to continue to grow our hyperscale data center business over the next few years. In Q4 of FY '22, revenue from our PON business represented another quarterly record driven by continued strength from our GPON platforms as global demand for higher access bandwidth remains strong. While the China market continues to lead PON demand, US, India, and European service providers have all announced PON deployments, which we believe bodes very well for future PON demand growth globally. Semtech is the leading PMD supplier to the global PON market providing the most comprehensive PON PMD portfolio. We recently announced our first 25 gig PON PMD device for 25 gig OLT applications, which has been designed to interface with Semtech's ClearEdge family of CDRs. As PON systems increase in bandwidth, we anticipate that the integration of CDR functions into PON modules will be necessary. We are also developing advanced PMD technologies for 50-gig PON systems that will partner with our leading-edge Tri-Edge PAM4 platform. As a result, we expect our PON business to continue to grow over the next few years. In Q4 of FY '22, revenue from our wireless base station business was approximately flat from Q3. We continue to win new designs for both ClearEdge and Tri-Edge in 5G base station front haul optical modules. We recently announced the industry's first 50-gig PAM4 CDR with integrated driver targeted at 5G wireless infrastructure, which is currently in field trials at several tier one system vendors. We expect the wireless base station market to strengthen in FY '23 and we believe our 5G momentum based on our ClearEdge and Tri-Edge wins should enable our wireless base station business to deliver solid growth in FY '23. The underlying secular demand strength we witnessed in FY '22, driven by the quest for higher bandwidth at the lowest power across all infrastructure segments is expected to continue into FY '23. In Q1, we expect our signal integrity product revenues to increase and deliver another quarterly record. Moving on to our protection product, in Q4 of fiscal year '22, net revenue from our protection product group decreased 7% sequentially as expected due to seasonality and increased 11% over the same period last year and represented 28% of total revenues. Demand from our consumer customers softened in Q4. However, as expected, bookings from the consumer market strengthened nicely and we expect our consumer protection business to increase in Q1. In Q4, demand from our broad-based protection products grew 33% from a year ago. Our protection business continues to diversify into a broader range of segments, including industrial, communications, automotive, and IoT. As more systems designers use chips with advanced process geometries, we expect demand for Semtech's high-performance protection to increase across all market segments. Our broad-based protection business continues to grow nicely and is a major contributor to our increasing gross margins. In Q1 of fiscal year '23, we expect our protection revenues to increase. Turning to our wireless and sensing product group, in Q4 of fiscal year '22 revenues from our wireless and sensing product group increased 13% over the prior year and represented 33% of total revenues. In Q4 our LoRa-enabled revenues achieved another quarterly record as the adoption of LoRa in low power IoT applications continued to accelerate. During the quarter, we announced several exciting use cases which included a joint initiative with Lacuna Space to further increase LoRaWAN coverage in areas of the world without cellular or Wi-Fi. Tencent Cloud, a leading technology company in China announced it has integrated our LoRa cloud geo-location services into the Tencent Cloud platform. The City of Cary in North Carolina is leveraging new LoRaWAN sensor connectivity and predictive data analytics from system integrator SAS together with Microsoft Azure to better monitor flood levels and provide additional community services to its citizens. ICT International's precision environmental sensors are leveraging LoRaWAN to enable smarter monitoring of the urban forest based on a data-centric approach and Elvexys, a designer of innovative energy transport and distribution networks in Europe together with a switch distributor of electricity, is leveraging LoRaWAN connectivity and integration into their existing SCADA system to monitor and fix power grid failures. Also in Q4, the LoRaWAN protocol was officially recognized as a global standard by the International Telecommunications Union (ITU). We expect this recognition to enable global interoperability and enable massive scaling of LoRaWAN. LoRa's low power, long-range, and network flexibility is enabling the connection of billions of sensors to enable a smarter, more connected, and sustainable planet. In Q4 of fiscal year '22 revenue from our proximity sensing platforms softened as expected due to lower seasonal demand following the strong first half. Global RF regulations targeted at protecting users from increasingly more powerful radios are expected to drive more stringent radio power requirements on smartphone and wearable manufacturers. We expect an expansion of these regulations in Asia towards the end of this fiscal year, which will benefit our proximity sensing business as 5G mobile devices proliferate over the next few years. For Q1 of fiscal year '23, we expect net revenues from our wireless and sensing product group to increase and deliver another record quarter led by our LoRa business. Moving on to new products and design wins, in Q4 fiscal year '22, we released 10 new products and achieved 3,237 new design wins. Now let me comment briefly on our fiscal year '22 performance. The fiscal year '22 net revenues increased 24% to a record $741 million driven by strength from all of our product groups. In FY '22, we had 55 new product releases and also achieved a record number of design wins of 13,083, representing a 16% increase from the prior year. In FY '22, our signal integrity product business grew 14% over the prior year to achieve record revenues. Global infrastructure demand remained strong leading to record PON revenues. Our SIP product group achieved record bookings in FY '22, and we expect our signal integrity product group to deliver another record in FY '23, driven by strong growth from our Tri-Edge PAM4 products for the hyperscale data center market and 5G wireless base station market, and continued strength from the PON market. In FY '22, our protection business grew 26% over the prior year, driven by our broad-based protection business, which grew 34% to achieve a new revenue record. We expect both our consumer protection and our broad-based protection businesses to continue to grow as the needs of the circular economy drive strong demand for Semtech protection products in the automotive, infrastructure, IoT, and consumer segments. We expect our protection business to achieve double-digit growth again in FY '23 and deliver record revenues in FY '23. In FY '22, our wireless and sensing business grew 39% over the prior year and achieved record revenues. Our LoRa-enabled revenues grew 53% annually to a record $134 million. In FY '22, our LoRa business continued to make solid progress on the growth metrics we have established. These metrics included the number of LoRa network operators growing to 166 at the end of FY '22, from 150 in FY '21. We expect 180 LoRa network operators by the end of FY '23. The number of LoRa gateways deployed increased 146% from 1.3 million gateways in FY '21 to 3.2 million at the end of FY '22. We expect the number of LoRa gateways deployed to increase to over 5 million by the end of FY '23. We are delighted with the large increase in gateways deployed globally as this LoRa infrastructure is critical to enable the broad range of industry use cases that are emerging. Pico cell gateway deployments increased over 190% versus FY '22. This increase in Pico cell gateway deployments is being driven by the smart home and smart campus segments as Amazon's sidewalk gateway deployments increased over 180% versus FY '21. In addition, the Helium people's network is growing very fast and deployment should accelerate nicely in FY '23. Both sidewalk and helium networks should drive an acceleration in end device deployments over the next few years. In addition to Pico cell deployments, our macro gateway deployments increased 43% over FY '21, driven by smart utility, smart logistics, and smart city initiatives globally and this infrastructure increase should also drive a rapid acceleration in endpoint deployments over the next few years. The cumulative number of LoRa end nodes deployed increased to 240 million at the end of FY '22, from 178 million at the end of FY '21. We expect this number to exceed 300 million cumulative end nodes by the end of FY '23. With continued network expansion globally, we expect end node deployments to accelerate rapidly over the next three to five years. The LoRa opportunity pipeline, which includes both opportunities and leads, ended FY '22 at approximately $950 million. We anticipate that on average 40% to 50% of the opportunities currently in the pipeline will convert to real deployments over a 24-month timeline. Our opportunity pipeline remains well-balanced with use cases primarily in smart utilities, smart logistics, asset tracking, industrial IoT, smart home, and smart cities. At the end of FY '23, we are anticipating our total opportunity pipeline to exceed $1.3 billion. For FY '23, we are expecting another record year from our LoRa business and anticipate a 40% CAGR for our LoRa-enabled business over the next several years. We also expect our wireless and sensing product group to achieve another revenue record in FY '23. Now we discuss our outlook for the first quarter of fiscal year '23. Following the very strong bookings in Q4 and entering Q1 with record backlog, we are currently estimating Q1 net revenues to be between $195 million and $205 million. To attain the midpoint of our guidance range or approximately $200 million, we needed zero turns orders at the beginning of Q1. We expect our Q1 non-GAAP earnings to be between $0.72 and $0.80 per diluted share. I will now hand the call back to the operator and Emeka and I will be happy to answer any questions.

Operator, Operator

Our first question comes from Tore Svanberg with Stifel. Please proceed with your question.

Tore Svanberg, Analyst

Yes. Thank you, Mohan and Emeka and congratulations on all the record metrics quite a few of them. First question you're expecting gross margin to expand 100 basis points to 200 basis points this year, and you attributed that primarily to mix. Should we infer by that that the signal integrity group will show the growth this year?

Emeka Chukwu, CFO

Sorry, can you repeat the last section of your question?

Tore Svanberg, Analyst

Yeah. Given your comment about mix and gross margin expanding this year, should we infer by that that the signal integrity group will show the strongest growth this year?

Emeka Chukwu, CFO

Will show the strongest growth? I think… I think we do expect all of the groups to grow very nicely. The LoRa enabled is still going to probably lead the way in terms of absolute dollars of growth. Signal integrity with our Tri-Edge platform and our 10-gig platform should grow very nicely for us. I don't know that it's going to be signal integrity, but I think both LoRa and the Tri-Edge the 10-gig PON, they're probably going to lead the way in terms of year-over-year growth.

Mohan Maheswaran, CEO

And the ITA business in protection, Tore. So as we get more broad-based protection business, that certainly also drives high gross margins.

Tore Svanberg, Analyst

Very good. And Mohan, this time around, you gave us a quarterly revenue for LoRa and you also gave us a number for the growth in PICO cell deployments. I'm assuming that that's sort of an indication that the technology's now really moving into more sort of the consumer world, but yeah, I was just hoping you could elaborate on why you decided to give us those two metrics this call.

Mohan Maheswaran, CEO

Well, the PICO cell gateways, I've been giving metrics out on gateway deployments, but I felt now it's gotten to a lot such a larger number that we'll start to break out a little bit the PICO cells and the macro. The macro does tend to be more industrial, smart utilities and smart cities and smart buildings. It's not to say the PICO cell doesn't go into those type of segments, but a large part of the volume is driven by smart home and smart campus. So I want you to provide that color because we do get that question a lot. And then I think in terms of the quarterly number, we won't give out the quarterly number. We'll continue to talk about 40% CAGR, but, obviously we'll try to give an indication of how we're doing against that and of course, for the annual number, we said that we were going to grow at least 40%. We grew 53%, so we wanted to share that information with you.

Operator, Operator

Thank you. Our next question comes from the line of Tristan Gerra with Baird & Co. Please proceed with your question.

Tristan Gerra, Analyst

Hi, good afternoon. In terms of what the pipeline. So I think the numbers you provided show over a 30% increase year over year. So is that how we should be looking at LoRa revenue for this year as well, and also if you could remind us of the exposure that you have in China for your LoRa business, which I know has been tracking in say 55% range of revenue in prior quarter last year.

Mohan Maheswaran, CEO

Yeah, let me start with that, Tristan. China is about 50% of the revenue. In terms of opportunity pipeline, it's about 30%. It's much more balanced as we've been saying the pipeline now North America is also in that range, but from a revenue standpoint, still 50% out is China. And then in terms of the opportunity funnel and revenue and gateway deployments, you really can't correlate these because their timing is different. When we ship products, we ship into distributors. When distributors ship into module providers, module guys, sometimes ship into the OEMs and then the OEMs build hardware and then deployments of networks. So part of the reason why we give out these metrics, is that the timing of these deployments and when we see the actual revenues versus when the deployments actually occur, it's different and it's difficult for us to exactly determine the exact timing. So we give an indication that each of the areas are growing nicely, which I think is what's important.

Tristan Gerra, Analyst

Okay, great. For my follow-up, I'd like to discuss what you're observing in China, especially since about half of your consumer base is in smartphones, with a significant portion being in China. You've mentioned expecting a consumer rebound; what are your insights regarding inventories in your China smartphone sector, and what is the likelihood that this inventory correction may persist over the next few quarters? Additionally, could this situation potentially affect your LoRa business? I realize LoRa has decreased in its share in China, but it still represents 50%. Could this be considered a near-term challenge for the upcoming quarters?

Mohan Maheswaran, CEO

China demand is still very important to us across all areas of our business and all product groups, and as we monitor it now, demand remains strong. Consumption is solid, and there are no signs of weakness in our specific segments. I mentioned that consumer demand typically decreases in Q4, and it did experience a decline. The second half of FY '22 was not particularly strong for consumers, but bookings have improved. We are anticipating a slight rebound in the first half. The second half is more uncertain, not just for China but globally with respect to demand and broader macro events. However, for the first half, we do not expect any issues.

Operator, Operator

Thank you. Our next question comes in the line of Craig Ellis with B. Riley. Please proceed with your question.

Craig Ellis, Analyst

Yeah, thanks for taking the questions I wanted to come back and follow up on LoRa, and do it this way, Mohan. So if we were to rewind the clock about a year and think about the momentum that LoRa has gained over the last four quarters, it really did seem to build each quarter. And then you had the very, very strong fiscal fourth quarter. So my question is this. I know the company has had for some time and retains the 40% growth target, but given the level we're exiting fiscal fourth quarter '22, why wouldn't we be seeing the potential for potentially materially above 40% year-on-year growth in fiscal '23 perhaps to the same degree that we did last year?

Mohan Maheswaran, CEO

No reason Craig, other than it's difficult to time exactly obviously the revenues, as I mentioned, the momentum sometimes in terms of network deployments and use cases being deployed gets ahead of when end nodes are being deployed and things like that. So, we had anticipated 40% growth, this last fiscal year, FY '22. Obviously, we did 53%. So we did significantly higher. There's nothing to suggest that we won't have another similar year, but I think in terms of the outlook for the next three to five years, 40% is a very good number that we feel good about given the different types of metrics and how the opportunity funnel is laying out. And remember our opportunities funnel we look at is real design opportunities, and we're looking for the conversion of those opportunities into real deployments. And that's really what drives our revenue model.

Craig Ellis, Analyst

Got it very helpful. And then I don't know if it's you or Emeka that I should congratulate for having a quarter's revenue guidance require zero turns, but nice to see that kind of backlog coverage guys, but Emeka, I wanted to flip it to you and actually talk about another line. It so very helpful to get the cal or excuse me, the fiscal '23 gross margin color that Tore asked about, but my question's this. So if we look at the last four or five quarters, we've had very material, sequential, gross margin improvement, and the color for fiscal '23 would imply I think just 20 to 30 basis points from here through the year. So what's happening within mix that can cause gross margins to expand, so materially over the trailing four or five quarters? And why would it not stay on that pace? And instead moderate to something that's more implied in the guidance? Thank you.

Emeka Chukwu, CFO

Yeah. So Craig, I think we've been saying this for a while that a lot of our investments have been going into markets that we expect to grow very fast and that we also expect to have very high gross margins. And it is very pleasing to actually see that beginning to play out the LoRa-enabled, tank export, and the protection industrial businesses. That is really very pleasing to see. As we go forward in FY '22, we saw about 180 basis points of gross margin expansion year over year, there is nothing that says that we cannot duplicate that in FY '23. And that's why the guidance for 100 to 200 basis points, but we have to see, we have to see, the expectation is that we will continue to see gross margin expansion, but we just have to see how things play out. Especially there are still things out there, I mean, with the war in Ukraine, we don't know what the impact is going to be on the supply chain that is already feeling a lot of heat and things like that, so, but we'll see, but we're very hopeful and we're very excited with our gross margin story.

Operator, Operator

Thank you. Our next question comes on the line of Quinn Bolton with Needham & Company. Please proceed with your question.

Quinn Bolton, Analyst

Hey guys, I'll offer my congratulations as well, and I guess really sort of a follow to the question on LoRa. If I just do the math you gave us the full year, you gave us the fourth quarter. It looks like LoRa in the fourth quarter, was 41.7. And for the average of the first three quarters of the year, it was closer to 31. So it looks like there was a pretty dramatic acceleration in the LoRa business in the fourth quarter. And I'm just wondering Mohan, if you can give us some sense, is that driven by just continued gateway deployments? Are you seeing a particular use case? Is it end nodes? What really drove that acceleration in the fourth quarter?

Mohan Maheswaran, CEO

Yeah, I would say at this moment, Quinn, it's more the infrastructure. So more gateways at the moment driving it, but I think that's the good news, which is for us that infrastructure is being deployed. And then, we'd expect end nodes to follow. The timing of which is, is difficult to call. But yeah, this is not unexpected. I mean, if you go back a couple of years ago, we were running at $10 million a quarter, and now we're running closer to $40 million a quarter. And so, it's been trending upwards and, and it's been trending upwards not by a mistake. I mean, it's infrastructure going in gateways, macro gateway deployments, real IoT use cases. We're seeing a LoRa ecosystem really expand. We're seeing LoRa Alliance has increased the number of companies in the Alliance, but also the types of companies. We now have, Microsoft Azure, Amazon really big players in the ecosystem that are now starting to drive use cases as well for us. So the whole machine is moving in the right direction. We set, it is going to happen. It's just a question of time. And now, as we're starting to see it, it's just really translating into deployments. And, and remember for us when we generate revenue, when we ship product into our customers, right. But the deployments take a little bit longer. And so we are monitoring that. And then the use cases get deployed and good thing is that really, if you look across the globe now LoRa is very well. I mentioned the ITU LoRaWAN being standard now in the recognized by ITU, that's really significant because now the whole globe can use LoRaWAN and knowing that there's interoperability there, we're starting to see roaming agreements across these networks. The pico-cell, I pointed that out because it drives different types of use cases, some of which we've been talking about for a while, like tags and things like that, but there hasn't been the infrastructure in place, and I think that's starting to change now. So very exciting to see that. Yeah.

Quinn Bolton, Analyst

And, and I guess that follow up to that was, I believe you had mentioned two applications, sidewalk, and helium network driving some of those gateway deployments in fiscal '22. Do you have line of sight into sort of the end nodes? Maybe not the exact timing of the ramp, but, but do you feel confident that those end nodes are being designed and it's sort of just a matter of, of time before we start to see, a pretty meaningful pickup in the end nodes on those particular networks?

Mohan Maheswaran, CEO

Well, what I know Quinn is that there would be no end nodes if we don't have the infrastructure in place. So now the infrastructure now, the infrastructure is going in and the gateways are going in and starting to get deployed. And sensors are being developed for these networks. I feel pretty confident about it. But, I think it's going to take a few years. I don't think it's something that's going to happen overnight. And these are the type of you know, these are type of use cases that can drive very, very high volumes very quickly. In other cases, it might take some time. So as I mentioned, a lot of use cases need density of network. And so by having these type of networks and there's new roaming agreements come into place, it does drive different use cases. So, so that's the exciting factor that I think we yet to see, which I think we will see over the next couple of years here.

Operator, Operator

Thank you. Our next question comes from the line of Richard Schafer with Oppenheimer. Please proceed with your question.

Richard Schafer, Analyst

Yes, thanks. Excuse me. I'll, I'll have my congratulations, guys. Just a, maybe a, a rather follow up on, on LoRa, but Mohan, I think you've spoken in the past about your long-term plans for that business. And you talked about moving to more of a licensing and royalty type model, and I was just curious if there were, sort of what metrics you need to see to consider opening LoRa up, as a standard and sort of making that shift away from Silicon as your primary source of revenue for LoRa. I think it's correct me if I'm wrong. I think still over 90% or so of, of, of revenue still coming from the, on the chip side. So is that sort of when we get to your $500 million kind of target in the next sort of three or four years, or just curious kind of how you're thinking about that business?

Mohan Maheswaran, CEO

So, so yeah, Rick, that's a good question. And first of all, yeah, most of the revenue is today just chip sales. We are starting to see IP royalties come in now a little bit. The key driver is the cloud services revenues, which we just started. It really has, it's just the early days, but we, I mentioned in my prepared remarks that we have signed a relationship with Tencent in China. We're starting to look at more relationships to see if we can get our cloud services revenues based on our LoRa edge chip platform starting to really grow. And the goal is to get that to $100 million of recurring revenues that's what I've said. We then trigger a discussion about, you know, is that a business that we can start to look at the chip business and the cloud separately, but I think we're a ways off that yet at least three years, but probably more like five years.

Richard Schafer, Analyst

Oh, thanks for that. And then on Tri-Edge, thanks a lot for the color on that business. I mean, $40 million $45 million this year, I think you said expected. That business seems to really be sort of taken off. I know we've talked about it the last couple of years. Were there any obvious hurdles that just needed to that needed to be overcome? Are we sort of at that tipping point now for that business and, and how do you look at it in terms of like, how do you size the market opportunity there, I guess for analog PAM4? Thanks.

Mohan Maheswaran, CEO

Yeah. Well, the good news here is that we were we didn't really have any PAM4 products until Tri-Edge. And so we were a little bit behind the DSP solutions out there. And so it's all share gains for us in this space. I think the way I look at it. And, and so with our first 50-gig PAM4 short reach products, we knew we had limitations on reach, but we knew that also the power consumption is going to be extremely beneficial to data center customers that cared about power and care about cost. And, and so we're starting to see that momentum now in the short reach side. And as I mentioned, we're just sampling now the longer reach products for 200-gig FR four modules, which is a two-kilometer kind of range which really opens up the whole data center space for us. And, and we're excited by that. And obviously, we have quite a few developments in this area as well, so more to come, but yeah, very exciting and we expect data centers to be quite strong for us over the next few years.

Operator, Operator

Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo. Please proceed with your question.

Gary Mobley, Analyst

Hey guys, thanks for taking my question. If I look at the midpoint of your Q1 revenue guide, it's about 4.9% sequential growth. I'm curious to know if that's benefited at all from point of purchase increase, or would you expect a commensurate increase in your point of sale as well?

Emeka Chukwu, CFO

So point of sale also records for us at the moment and, and we are expecting another record in Q1. So yeah, I think your question Gary was tied to ASP increases and, at the moment the way we're thinking about it was that any type of cost increases we get will pass on to our customers. But yes, we do expect POS to increase in correlation with that.

Gary Mobley, Analyst

Yeah, I mean, the, I guess it would encapsulate some, some price increases that I was really more so asking if it was a function of distributor inventory increasing?

Mohan Maheswaran, CEO

Oh, no, I think our POS is very strong. I think we mentioned on the call, it's a record and, supply chain cycle times have not changed. They are very extended at the moment. And so, you'll see our internal inventory has increased. I expect our channel inventory to increase a little bit, but at the end of the day, as long as POS is also increasing, in other words, the consumption is increasing, then I think we're in good shape.

Emeka Chukwu, CFO

Yeah. And did you just to clarify, did you say bookings were up 35% quarter-to-quarter, and it related to supply I presume with a 13 day increase quarter-to-quarter in your DOI and, and with a running above, historical levels that you're really not dealing with any supply constraints, and if that's the situation, how have you guys been able to escape this while there's everybody else in the industry is dealing with it? Yeah. So if I go back a couple of years here probably prior to the pandemic we had actually were anticipating to start seeing the ramp of some of these new product platforms that we were seeing now. So we did pay attention to our supply chain and in some cases we made sure we had a second sources and all that stuff all lined up. And so we are very fortunate in that way that when the pandemic hit, we're already in a very good position with regards to the supply chain. So, we've managed that very well. I think it doesn't mean that we don't have any supply constraints, all that little pockets here and there, but on average, I think we are in a very good position with where our inventory levels are. And I'm very pleased to see that we are able to supply to support a lot of the strong demand that we're seeing at this point.

Operator, Operator

Thank you. Our next question is a follow-up from Tore Svanberg with Stifel. Please proceed with your question.

Tore Svanberg, Analyst

Yes. Thank you. I just had a follow-up question on all the products that you introduced at the event. It was a pretty impressive line-up. And, and specifically in relation to PON that market has always been a bit volatile, especially because of China, but I think this is going to be your second consecutive year with very strong growth. How should we think about that market and, and your new products for that market as we go into fiscal '24?

Mohan Maheswaran, CEO

Yeah, I would say Tore your observation is exactly right. PON has become a totally different space. Now it's a totally different market. And, and I think what's really driven that is the pandemic. When we go look at the pandemic and what drove more access bandwidth, there were clearly bottlenecks in the access side. And so PON is a really good way to solve that problem. And I think China has demonstrated that and continues to demonstrate that, but the rest of the world has also now started to accept that. And so we're seeing North America, Europe, and India, as I mentioned, and other regions starting to really look at PON as their key access bandwidth. And so we've seen an acceleration of gig PON, we've seen an acceleration of 10-gig PON, obviously that's also helping gross margins and we are playing obviously in both OLT end and the ONU side, and then the other really intriguing thing for us, which is very exciting for us is the expansion into 25-gig PON and 25-gig PON. The modules, as I mentioned on my prepared remarks, will likely need CDR functionality as well. So that opens up more content for us. We're obviously leaders in the PMD side, one of the leaders in CDRs. And so the combination of the two in PON gives us a very, very good position there and we're even, I mentioned we, even have developments at 50-gig PON. So, so very exciting, generally, I would say it's a good space to be in now and probably for the next five to 10 years. This is a space that is going to get a lot of investment in. I suspect.

Tore Svanberg, Analyst

Very good Mohan glad again. Thank you.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question and answer session, and I will now turn a call over to Mohan Maheswaran for closing remarks.

Mohan Maheswaran, CEO

In closing, we were pleased with our strong Q4 and record fiscal year '22 results, despite the challenging pandemic and supply chain environment. We believe our multi-sourcing initiatives and our investments in infrastructure and tools have enabled us to maintain best-in-class business operations. Our key growth engines targeted at broadband infrastructure, creating a smarter planet, and enabling mobility are all doing very well, and we expect FY '23 to deliver another record year for Semtech. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you.

Operator, Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.