Earnings Call
Semtech Corp (SMTC)
Earnings Call Transcript - SMTC Q4 2021
Operator, Operator
Greetings. And welcome to Semtech Corporation’s Q4 Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Sandy Harrison, Vice President of Investor Relations. Thank you, Sandy. You may begin.
Sandy Harrison, Vice President of Investor Relations
Thank you, Paul. And welcome to Semtech’s conference call to discuss our financial results for our fourth quarter and fiscal year ‘21. Speakers for today’s call will be Mohan Maheswaran, Semtech’s President and Chief Executive Officer; and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results was issued after the market close 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. During the call, we will refer to non-GAAP financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. All references made to financial results in Mohan’s and Emeka'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. With that, I will turn the call over to Semtech’s Chief Financial Officer, Emeka Chukwu. Emeka?
Emeka Chukwu, CFO
Thank you, Sandy, and good afternoon, everyone. For Q4 fiscal ’21, net sales were $164.7 million, which came in above the upper end of our guidance. This represented a 7% sequential increase and a 19% growth over the same period a year ago. Despite the challenges presented earlier in the year by the pandemic, fiscal year ’21 net sales increased 9% to $595.1 million, driven by the strength of the underlying secular themes driving our growth engines. In Q4, shipments into Asia represented 79% of net sales, North America represented 12%, and Europe represented 9%. Total direct sales represented approximately 13% and sales to distribution represented approximately 87%. Our distribution business remains balanced, with 33% of the total POS coming from the high-end consumer end markets, 37% coming from the infrastructure end market, and 30% from the industrial end market. Q4 bookings increased significantly both on a sequential and year-over-year basis, and it was a new quarterly as well as an annual record for fiscal year ’21, resulting in a book-to-bill significantly above 1. POS bookings accounted for approximately 24% of shipments during the quarter. The booking trend has continued into Q1. Q4 GAAP operating expenses increased 12% sequentially due to the impact of the 14-week quarter, the impact of the weaker U.S. dollar, higher new product expenses, and stock-based compensation expense associated with an increase in our stock price. We expect our Q1 GAAP operating expenses to decline from Q4 and a return to a 13-week quarter and lower stock-based compensation expense, slightly offset by the customary reset of expenses associated with the start of the New Year, higher new product expenses, and the impact of the weaker U.S. dollar. Q4 GAAP order expenses were $2.7 million versus $1.6 million in Q3, primarily due to the impairment of some of our minority investments and higher foreign exchange losses due to the weaker U.S. dollar. In Q4, our GAAP tax rate was 5.5% as a result of a more favorable regional mix of income. In Q1, we expect our GAAP tax rate to range between 9% and 11%. Our GAAP tax rate forecast excludes consideration of any impact from discrete items, including excess tax benefit or deficiency from the exercise of stock options. Moving on to the non-GAAP results, which exclude the impact of share-based compensation, amortization of acquired intangibles, acquisition-related, and other non-recurring charges. Q4 non-GAAP gross margin of 61.5% was in line with our expectations and we expect Q1 non-GAAP gross margin to be generally flat with Q4 levels reflecting a high mix of consumer revenue. In fiscal year ’22, we expect our gross margins to trend higher from a more favorable mix as we expect much of our revenue growth to come from our higher margin growth platforms. We expect that any increase due to global supply chain constraints should be mitigated by slower customer pricing reductions or, in some cases, price increases. As a reminder, our long-term gross margin target model is between 58% and 63%. Q4 non-GAAP operating expenses increased 9% to $62.3 million, driven by the impact of the 14th week, the negative impact of the weaker U.S. dollar, and higher new product expenses. In Q1, we expect non-GAAP operating expenses to be approximately flat with Q4 levels, as the benefit of a normal 13-week quarter is offset by higher new product expenses, increased payroll expenses associated with the New Year, and the impact of a weaker U.S. dollar. For fiscal year '22, we expect our non-GAAP operating expenses to grow about half the rate of our revenue growth. In fiscal year '21, non-GAAP operating margin was 23.4%, a 50-basis-point increase from fiscal year '20. We expect to leverage revenue growth, stable and expanding gross margins, and reasonable operating expense growth to drive the operating margin to our target model of 32% to 36%. In Q4, our non-GAAP tax rate decreased to 9.5%, as a result of a favorable regional mix of income and discrete tax benefit. Beginning with our fiscal year 2022 results, we will use a non-GAAP normalized tax rate for the full fiscal year. We believe this will provide better comparability across our quarterly results by reducing the variability in non-GAAP tax rates that can occur throughout the year. We plan to update this tax rate annually at the beginning of each fiscal year. For fiscal year '22, our non-GAAP normalized tax rate is 13%. In fiscal year 2021, cash flow from operations was approximately $119 million or 20% of our net sales, and free cash flow was approximately $87 million or 15% of our net sales. Our long-term target for free cash flow is 25% to 30% of net sales. We repurchased approximately $71 million of our shares in fiscal '21, which represents 82% of our free cash flow. The Board recently increased our stock repurchase authorization by $350 million, resulting in approximately $389 million of outstanding authorization. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down our debt. Accounts receivable in Q4 represented 36 days of sales, which is below our target range of 40 days to 45 days. In Q4, net inventory increased 12% in absolute dollars from Q3, while days of inventory remained consistent at 118 days and remains above our target range of 90 days to 100 days. In Q1, we expect the net inventory to increase in absolute dollars and days to support higher sales and to address the tighter supply chain. In summary, we are very pleased with our solid financial performance in fiscal year '21, despite the many challenges from the pandemic. Our business fundamentals remain strong, and we are well-positioned to benefit from the secular drivers in the high-growth markets of IoT, communications infrastructure, and mobile devices. We expect to leverage our stable and expanding gross margin on well-controlled operating expenses to grow our earnings much faster than revenue and continue to generate strong cash flow. 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 '21 performance by end market and by product group and discuss our fiscal year '21 performance and then provide our outlook for Q1 of fiscal year '22. In Q4 fiscal year '21, net revenues increased 7% sequentially to $164.7 million. High demand across all three of our end markets drove better-than-seasonal Q4 results. We posted non-GAAP gross margin of 61.5% and non-GAAP earnings per diluted share of $0.51. In Q4 fiscal year 2021, net revenues from the high-end consumer market increased 10% sequentially and 32% over the prior year and represented 30% of total revenues. Approximately 19% of high-end consumer net revenues were attributable to mobile devices and approximately 11% were attributable to other consumer systems. Net revenue from the industrial end market increased 9% sequentially and 25% over the prior year and represented 33% of total net revenues. Net revenue from the infrastructure end market increased 3% sequentially and 7% over the prior year and represented 37% of total revenues. I will now discuss the performance of each of our product groups. In Q4 of fiscal year '21, our Signal Integrity Product Group grew 1% sequentially and represented 38% of total revenues. Stronger demand from our PON and wireless base station businesses contributed to the growth. In Q4, demand from the data center market remained soft, as customers continued to consume excess inventory following the strong first half. We believe inventory levels have reduced, and we expect data center revenues to grow in Q1. Customer activity around our Tri-Edge PAM4 CDRs remains high, and we now have multiple design wins that are in various stages of qualification in 100-gig, 200-gig, and 400-gig PAM4 optical modules. We expect our Tri-Edge revenues to increase nicely in FY '22 as customers move to full production. Our FiberEdge PMD platform, which complements our ClearEdge and Tri-Edge CDR platforms, as well as the DSPs, continues to gain solid momentum in 400-gig and 800-gig PAM4 optical systems. We are confident that Tri-Edge's lower power, lower cost, and lower latency, together with FiberEdge’s higher performance, will enable us to continue to grow our hyperscale data center business and achieve another record in fiscal year '22. In Q4 of FY '21, our PON business grew nicely, driven by record 10-gig PON revenues, as the ongoing demand for higher bandwidth connectivity is resulting in an increase in PON demand globally. While the China market is expected to lead PON deployment growth in FY '22, other global service providers, including in the U.S., India, and Europe, have also announced deployment plans that we believe bode well for our 2.5-gig and 10-gig PON platforms. Semtech remains the leading supplier to the global PON market, providing the most comprehensive PON PMD portfolio. We expect our PON business to continue to grow and achieve another record performance in FY '22. In Q4 of FY '21, revenue from our wireless base station business increased nicely, as our ClearEdge platform continued to establish a leadership position in 5G front haul optical modules. We also recently announced the availability of our new Tri-Edge 50-gig PAM4 platform targeted at 5G front haul optical modules. We believe our established position in 4G, along with the 5G momentum from our new ClearEdge and Tri-Edge platforms targeted at front-haul and mid-haul optical module applications, should enable our wireless base station business to deliver another record performance in FY '22. The underlying secular demand driven by the quest for higher bandwidth globally in data centers, PON, and wireless broadband networks is expected to drive solid growth from our Signal Integrity Product Group in Q1 and in fiscal year '22. Moving on to our Protection Product Group. In Q4 of fiscal year '21, net revenues from our Protection Product Group increased 15% sequentially and 26% over the same period last year and represented 29% of total revenues. In Q4, our Protection Consumer business experienced better than seasonal demand led by a recovery in smartphones, following the weak start to the year due to COVID. Stronger demand from our Asian smartphone customers, along with record revenue from our North American smartphone customers, contributed to the Q4 strength. In Q4, demand from the broad-based industrial markets was also stronger as our Protection Product Group continues to diversify into a broader range of industrial and communications markets, including the automotive and IoT markets. Semtech is the global leader in high-performance Protection solutions and our system design is used in more advanced process geometries. The need for more robust Protection to protect sensitive devices will continue to increase. In addition, many of today’s newer industrial systems and mobile platforms are using higher-speed interfaces and advanced charging solutions where high-performance Protection is required. We believe these secular trends will drive increasing adoption of our Protection platforms used in mobile systems, displays, accessories, and increasingly across broad-based industrial automotive and communications platforms. In Q1 of fiscal year '22, we expect our Protection revenues to be approximately flat. Turning to our Wireless and Sensing Product Group. In Q4 of fiscal year '21, revenues from our Wireless and Sensing Product Group increased 6% sequentially and 32% over the prior year to achieve a new quarterly record and represented 33% of total revenues. In Q4, our LoRa-enabled platforms also delivered a new quarterly record, and we announced several key initiatives that demonstrate the increasing acceptance of LoRa in low power IoT applications. These include the following: AWS announced the integration of the LoRaWAN protocol with AWS’ IoT Core, a fully managed service that enables IoT developers to easily connect low power LoRa-based sensors to the AWS Cloud. Swarm Technologies, a global satellite communications company, integrated LoRa into their platform that enables two-way communications to and from its LEO satellites. LoRa is well-suited for these long distance, low power applications, enabling satellite-based use cases for logistics, agriculture, connected cars, and energy. WITRAC, the developer of real-time location and telemetry capabilities, integrated LoRa into its global track and trace platform to enable customers to guarantee delivery times and maintain appropriate temperature of fresh food inside refrigeration units throughout the entire cold chain. And Ripl Networks, a provider of IP networking of low power devices, announced the use of LoRa in its IP Mesh 3D location tracking software to help secure naval ports, where 20-kilometer sensor connectivity range and 10-year battery life is required. These are just a few examples of the emerging use cases where LoRa’s low power, long distance, and flexibility demonstrate the value of LoRa technology in enabling a smarter, more connected, and sustainable planet. In Q4 fiscal year '21, we also experienced record quarterly demand for our proximity sensing platforms led by strength from our Asian smartphone customers. Global RF regulations are increasing the proximity sensing requirements on smartphone manufacturers that wish to compete on a global stage. We expect our proximity sensing business to benefit from these enhanced requirements and recent design win activity in new 5G smartphones, and the wearable devices where there are an increasing number of high-performance radios being used, indicate that our proximity sensing business will continue to grow nicely. For Q1 of fiscal year '22, we expect net revenues from our Wireless and Sensing Product Group to increase and deliver another record quarter led by growth from our LoRa business. Moving on to new products and design wins. In Q4 of fiscal year '21, we released 18 new products and achieved 3,080 new design wins. Now, let me comment briefly on our fiscal year '21 performance. In fiscal year '21, net revenues increased 9% to $595.1 million, driven by strength from all of our product groups. In FY '21 we had 56 new product releases and achieved a new design win record of 11,271 new design wins. In FY '21, our Signal Integrity Product Group grew 15% over the prior year as infrastructure spending increased. Our SIP Product Group achieved record bookings and had record 100-gig revenues, record 5G base station revenues, and record 10-gig PON revenues. We expect these businesses, along with our PAM4 and Pro AV businesses, to all achieve records in FY '22 and contribute to strong growth in our Signal Integrity Product Group in fiscal year '22. In FY '21, our Protection Product Group grew 3% over the prior year as the high-end consumer market strengthened and our diversification strategy began to yield results. We expect that Protection business to achieve double-digit growth in FY '22 as our diversification efforts continue to bear fruit in both the consumer market and the broader industrial automotive and communications markets. In FY '21, our Wireless and Sensing Product Group grew 6% over the prior year, despite the slow start to the year due to COVID, our LoRa-enabled revenue grew 19% to approximately $88 million in FY '21. In FY '21, our LoRa business met or exceeded most of the metrics we targeted at the beginning of the year. The number of countries with public lower networks in FY '21 grew to 100 countries from 91 at the end of FY '20. As LoRa is well established in most regions of the world, we will no longer report on this specific metric. The number of public or private LoRa network operators grew to 150 at the end of FY '21 from 133 in FY '20 and we expect 165 LoRa network operators by the end of FY '22. The number of LoRa gateways deployed more than doubled from 642,000 gateways in FY '20 to over 1.3 million gateways at the end of FY '21 and we expect the number of LoRa gateways deployed to increase to over 2 million by the end of FY '22. The cumulative number of LoRa end-nodes deployed increased to 178 million at the end of FY '21 from 135 million at the end of FY '20. We expect this number to exceed 235 million cumulative end-nodes by the end of FY '22. The LoRa opportunity pipeline, which includes both opportunities and leads, ended FY '21 at approximately $700 million. We anticipate that on average 40% to 50% of the opportunities currently in the pipeline will convert to deployments over a 24-month timeline. Our opportunity pipeline is geographically well-balanced with use cases primarily in smart utilities, smart logistics and asset tracking, smart home, and smart cities. At the end of FY '22, we are anticipating our total opportunity pipeline should exceed $850 million. In FY '21, our LoRa business achieved several major accomplishments. These include our partnership with Amazon on several projects, including the Amazon Sidewalk network, design for smart home, community, and consumer applications, providing low power, broad coverage for indoor and neighborhood area IoT devices. We expect revenues from our Amazon activities to start to ramp this fiscal year. Our LoRa global platform that uses a 2.4 gigahertz version of LoRa has been adopted in a number of global use cases that require higher bandwidth or connectivity in areas where LoRaWAN networks may not be present. And our LoRa Edge platform enabled our first device to cloud platform and associated cloud services. In FY '21, we launched our first LoRa Cloud Services, offering device provisioning, device management, and geolocation services. We have closed on our first cloud services agreements and expect initial cloud services revenues this fiscal year. We anticipate signing up over 20 cloud services agreements with customers by the end of fiscal year '22 as we fine-tune our capability and service offering. This is a new metric that we will report on quarterly. These accomplishments demonstrate the evolving maturity and acceptance of LoRa. The growing momentum, along with the continued influence of the LoRa alliance, we expect to continue to drive LoRa to become the de facto standard for the global LPWAN market in what we expect to be a multi-billion unit industry in the next five years. For FY '22, we are expecting positive momentum from our LoRa business and anticipate a 40% CAGR for our LoRa-enabled business over the next five years. Now let me discuss our outlook for the first quarter of fiscal year '22. Following a record bookings in Q4 and a record bookings year, we entered Q1 with record backlog. We are currently estimating Q1 net revenues to be between $164 million and $172 million. To attain the midpoint of our guidance range or approximately $168 million, we needed net terms orders of approximately 16% at the beginning of Q1. We expect our Q1 non-GAAP earnings to be between $0.49 per diluted share and $0.55 per diluted share. I will now hand the call back to the operator, and Sandy, Emeka, and I will be happy to answer any questions.
Operator, Operator
Thank you. Our first question comes from Tore Svanberg with Stifel. Please proceed with your question.
Tore Svanberg, Analyst
Yes. Thank you and congratulations on the record results. Mohan, you talked about targeting 20 service agreements by the end of fiscal ’22 for LoRa. Could you elaborate a little bit more on the size of those, I mean, are these kind of million-dollar agreements? Just trying to understand how quickly the services revenue can ramp, but I know eventually obviously your target is about $100 million, but just wanted to understand for fiscal ’22 how much is ramping?
Mohan Maheswaran, CEO
Yeah. The thinking, Tore, is that the agreements will really be focused on connecting devices and so obviously if there is a very high volume of devices and usage of those devices accessing the cloud services, then the revenues will go up. So it depends on the use case; it depends on the number of devices, so each one is kind of individual on its own. But that’s the way the thinking is. So the revenues will be generated by the number of times the algorithms are accessed and the number of devices, etc., things like that. So, obviously, FY ’22 for us is almost a trial year to see, make sure we fine-tune the system. I mentioned the three areas we are starting off with: device provisioning, which is about connectivity to the network and the cloud; device management, which is about monitoring the device itself, making sure the battery, telling you what the level of the battery is and things like that; and then geolocation, which is about locating the device and tracing it and things like that. So we have to demonstrate the value, but as we demonstrate the value, I think, as customers recognize the value of each of those aspects of the service, then they will be quite happy to pay for it and that’s the thinking, and we will see how it plays out.
Tore Svanberg, Analyst
Yeah. Thank you for that. And as my follow-up, you sound pretty confident that gross margin could expand this year, obviously driven by mix. Does that mean that your visibility in your infrastructure markets, including 5G and data center, is pretty decent right now? Because I know those markets have been a bit softer as of late? But it sounds like you have pretty good visibility out there though?
Emeka Chukwu, CFO
Yeah. Tore, this is Emeka. So, yeah, I think we feel very good about what is happening in the optical infrastructure space. We have continued to see a lot of design wins with some of our newer product platforms. And so the expectation on our side is that we have a lot of good things going on the gross margin side, a lot of new products driving the topline revenue. But speaking on the gross margin, the one thing that is still out there that we are trying to really assess is what is the impact of our cost increases within the supply chain. Although, our feeling is that any negative impact we get from there should be mitigated by not giving us much pricing reductions or actually, in some cases, going back and asking for higher prices from our customers. So to your point, it definitely, like I said before, I think it was last quarter, I am still anticipating the same gross margin expansion anywhere from 50 basis points to 100 basis points, and we are still pretty good about that based on the visibility that we have at this time.
Tore Svanberg, Analyst
Very good. Congrats again.
Operator, Operator
Thank you. Our next question comes from Tristan Gerra with Baird. Please proceed with your question.
Tristan Gerra, Analyst
Hi. Good afternoon. Just following up on the same topic, any concerns about the availability of any components or in terms of wafers for this year? And also have you implemented any type of non-cancellable order policies with your customers?
Mohan Maheswaran, CEO
So, Tristan, regarding the first part of your question, since the second half of last year, we have been building up our internal inventory due to longer lead times and supply chain issues. We don't expect any significant problems in at least the first half of the year and believe we will manage well throughout most of the year. Of course, we monitor demand closely. We have a few minor supply constraints, which I would classify as less than a few million dollars. We will continue to assess potential upside as needed. Our demand and inventory management strategies should keep us on track. Additionally, as Emeka mentioned, we recognize some supply constraints, and when costs increase on the supply side, we are proactively exploring options to offset those costs by potentially raising prices. We are also focusing on being disciplined in our partnerships. Overall, we don’t foresee immediate actions being necessary. The first half looks promising, but the second half will depend on demand strength and market improvements, which could require adjustments later. For now, we feel confident.
Tristan Gerra, Analyst
Great. Thank you.
Operator, Operator
Thank you. Our next question comes from Harsh Kumar with Piper Sandler. Please proceed with your question.
Harsh Kumar, Analyst
Yeah. Hey, guys. First of all, congratulations on some very good numbers and some very good guidance despite all the challenges in the market, so we do appreciate that as investors. I wanted to ask you, Mohan, if all the things that you see positive that are going on with the company, what are some of the things that you are the most excited about or you feel that will grow the fastest for you and then I have a follow-up?
Mohan Maheswaran, CEO
Well, this year, I think, is going to be the year where LoRa really moves into the mainstream. I have said that before, there will be catalysts, and I think we are starting to see that; obviously, the Amazon Sidewalk announcement was exciting. The Amazon AWS IoT Core announcement was exciting and the cloud services. The first time we have really gone out there with cloud services as a capability, and we are going to test them and check that out and see. But we are very excited about that; obviously, we will see how the results play out over the next few years, but that’s obviously exciting. All of our businesses in the infrastructure side on the Signal Integrity Product side are doing extremely well. Obviously, it’s largely due to the world moving to more higher bandwidth across different segments of the market. But because we play in all areas, data center, base stations, and on the access side with PON, we can see that there is demand in all areas, and one feeds the other. If you have core bandwidth increase, you need base station bandwidth increase. If you have base station bandwidth increase, you need access bandwidth increase, and so we are seeing that definitely play out. And I think the other thing that’s exciting about that is, that it’s becoming more global for a large part of our last five years, if you look at it, I mean, a lot of the growth has come from China and what we are seeing now is a lot more growth in other regions. Very excited by Tri-Edge, got great momentum with that, and so we will see how that plays out, but we are very excited by the work that’s going on with customers and on the feedback, and we started to get very good orders in that area. So that’s very exciting. And then, I think, the Protection business is, we made the decision to diversify a few years ago. That’s starting to play out nicely for us, and I think that could be extremely positive for us as well. So lots of areas, Harsh, it’s tough for me to pick out one. But I think if you have to pick out one, it would still be LoRa.
Harsh Kumar, Analyst
Awesome. Thank you, Mohan. And then thanks for mentioning Tri-Edge; I was going to ask about that. So I will ask you now about what kind of interests are you seeing regarding your cloud services from customers as you talk to the folks out there that are going to buy these services. Are they excited or is it just more of a push or show me the concept kind of thing at this point?
Mohan Maheswaran, CEO
It's a bit of both. Initially, there is a need for demonstration, but once potential customers see what we offer, there is considerable excitement. We have a very unique platform; we are the only providers of device to cloud services that deliver this kind of capability. We can ensure excellent security concerning device provisioning and network connections, as we are involved with both the end devices and the gateways and have collaborated with cloud service providers. Additionally, our device management capabilities are distinctive, allowing software updates throughout the year. Our geolocation services are also unique, utilizing WiFi and GPS sniffing to enable indoor and outdoor tracking of devices. There's a lot we have that is still in its early stages, but the opportunity is evident; the market is vast, and if we execute our strategy effectively, we should perform very well.
Harsh Kumar, Analyst
Thank you, Mohan.
Operator, Operator
Thank you. Our next question comes from Gary Mobley with Wells Fargo Securities. Please proceed with your question.
Gary Mobley, Analyst
Hey, guys. Let me extend my congratulations on a strong finish to the year. We have seen and heard out there in the marketplace about manufacturing constraints for automobiles; there’s a shortage of automotive semiconductors. We heard just yesterday Samsung talking about smartphone supply chain constraints. And so my question to you is, to what extent have you factored into your guidance any supply chain constraints unrelated to your specific products?
Mohan Maheswaran, CEO
Unrelated to our specific products is tricky, because we don’t really know until we hear about it right, Gary. But I would say, you can tell from our turns number required, we are obviously guiding to a number we feel comfortable with based on how much turns we need. The question really is whether our customers change their demand outlook and then reduce the need for the devices. I doubt that’s going to happen. If anything, I think it will go the other way, which is, as lead times continue to extend out, they will want more material and need more material if they are going to continue to be successful. And so I don’t think it changes much from our perspective; obviously, there could be a surprise if some customers come back and cancel phones and things like that. But the likelihood is, it’s just a temporary blip and the next quarter will probably be the stronger if they choose to grow their businesses, right?
Gary Mobley, Analyst
Okay. Appreciate that, Mohan. So a follow-up I had a couple of quick housekeeping questions. Could you share with us perhaps how much the extra week in the quarter impacted the sales; and as well could you give us an update on where your distribution, sorry, your distributor inventory stands in terms of days or weeks?
Emeka Chukwu, CFO
So, Gary, with regard to the impact of the 14-week on sales, it’s really kind of hard for us to estimate that. So I think what most people have basically done is just look at it on a linear basis, right? And in terms of distribution, we don’t announce the days publicly. But I can tell you that we are very pleased with where the distribution inventory is and is probably a little bit on the lower side, if I were to add some color to that.
Gary Mobley, Analyst
All right. Thanks, Emeka. Thanks, everybody.
Operator, Operator
Thank you. Our next question comes from Quinn Bolton with Needham. Please proceed with your question.
Quinn Bolton, Analyst
Hey guys. I will offer my congratulations as well and I apologize that my call dropped during the Q&A. So I apologize if somebody else asked the question. But Mohan, you talked about a strong outlook for the LoRa business in fiscal ’22, really starting to hit the mainstream and a 40% long-term five-year CAGR. I am wondering if there is any reason to think that the growth in fiscal ’22 for LoRa would be wildly off that 40% year-on-year rates implied by the longer-term CAGR you are looking at?
Mohan Maheswaran, CEO
Nothing I can think of, Quinn, other than macro events. This past year’s pandemic has created some uncertainty about current developments. However, the pipeline looks strong, and there’s good activity. We have more significant initiatives like those with Amazon that will be announced soon. Our cloud services are gaining great momentum, particularly in the LoRa and IoT sectors, with the LPWAN market emerging due to various use cases related to climate issues, energy savings, and green initiatives. I believe the momentum will improve, but for now, we are monitoring the situation closely on a case-by-case basis. We are examining all the use cases and proof of concepts in place to explore how we can convert these into revenue. There are numerous initiatives, such as the Amazon Sidewalk project, which, once it gains traction—likely in the second half of the fiscal year—has the potential to ramp up significantly. However, we will have to wait and see how it unfolds. But we remain confident about it.
Quinn Bolton, Analyst
And just a quick clarification, Mohan, on the Amazon Sidewalk, when you are talking about that second half of ‘21 ramp, is that more on the gateways or is that on the end-node side?
Mohan Maheswaran, CEO
Well, what we do know is that work is being done on both devices and gateways. From a use case perspective, it's essential to have the gateways in place first, as this will drive the need for more end-nodes and sensors. Once the gateways are established, you can add an unlimited number of sensors. Therefore, I believe that once the gateways are set up and there's an installed base out there, the next five to ten years will be fascinating to watch in terms of how many sensors get connected.
Quinn Bolton, Analyst
Great. The second question I have is just on the Protection business I think you said that you will look for growth in fiscal ’22 of 10% or better. I might have missed it, but did you give an outlook for Signal Integrity? It sounds like base station and data center are all going to be pretty good growth years. So just wondering if you had a kind of a fiscal year ’22 target for the Signal Integrity business?
Mohan Maheswaran, CEO
We expect it to have another record year, Quinn, and grow double digits again. So very strong, all areas of the business, I expect data center, base station, and PON will do very well. And then, as I mentioned, the PAM4 side of Tri-Edge is doing very well, so I expect that to grow very nicely in FY '22. And then some of the segments that have struggled in FY '21, particularly video, broadcast, the Pro AV stuff really struggled in FY '21 through COVID. I think some of that’s going to come back quite nicely in FY '22. We will see, it may be second half loaded. Again, as live events come back on and as more people start to get out there to sports, bars, and things like that. I do expect a ramp-up of Pro AV as well.
Quinn Bolton, Analyst
I will be rooting for the video broadcast business then. Thanks, Mohan.
Mohan Maheswaran, CEO
Thank you.
Operator, Operator
Thank you. Our next question comes from Karl Ackerman with Cowen. Please proceed with your question.
Karl Ackerman, Analyst
Yeah. Good afternoon, gentlemen. Appreciate you letting me ask the question. Two if I may. First, some 5G networking supply chain players have noted a pause in China infrastructure projects until tenders are granted. Given your unique position within the supply chain, I guess, what level of activity are you seeing in China infrastructure spending today and I guess also in the context of 10-gig PON order rates for the April quarter?
Mohan Maheswaran, CEO
We see strength in both areas, 10-gig PON and 5G base stations. As you know, PON is sometimes lumpy in one quarter here, sometimes you wait. But in general, everything is up into the right and that’s not a surprise; infrastructure across the globe is increasing, 5G base stations are increasing, and 4G also is increasing. PON is doing nicely, and as I mentioned, 10-gig PON specifically because of the bandwidth expansion needs is increasing quite nicely. The other thing is it’s not just China, and I think that’s an important takeaway: we are starting to see a lot more activity in both 5G and PON in North America and Europe and other regions of the world. So, which is also quite good and very positive. And remember, both 5G and PON we have more content than we have with 4G. So with 5G, obviously, we have now CDRs as well as PMD function. Also with 5G, there’s typically more front haul modules. And then you have expansion on the geographical side. And then on the PON side, not only do we have 2.5-gig and 10-gig PON, but in 10-gig PON, we also have OLT side, so ONU and OLT side, kind of the CPE and central office side, if you like, and that’s also giving us more content. So both of these segments of the market we are doing extremely well; I would say that both markets are also doing quite well though.
Karl Ackerman, Analyst
Got it. I appreciate that, Mohan. For my follow-up, you spoke about how the Protection business can grow double digits this year. How does automotive play into that outlook, and how should we think about the incremental revenues here, and I guess the margin profile for those as you look to expand into this area? Thank you.
Mohan Maheswaran, CEO
So Protection is doing very well in automotive. It does take longer though. This is all fairly new design wins in automotive and those take some time. So that they kind of have more of an industrial growth rate, I think; but yeah, I do expect to do well. And anything in any protection that goes into automotive or into IoT or into communications infrastructure or into broader industrial will be at either our corporate average or much higher actually. So in general, it’s the consumer protection business, that’s the lower margin for us. And so I think as Emeka pointed out, we get the right mix in both our different businesses, but across the company that should be accretive to gross margins.
Operator, Operator
Thank you. Our next question comes from Rick Schafer with Oppenheimer. Please proceed with your question.
Andy Hummel, Analyst
Hi. This is Andy Hummel on for Rick. Thanks for taking my question. The first one, just on with LoRa and some of the Amazon wins that you announced, but more specifically on the AWS IoT side, can you just talk a little bit more about the opportunity with that platform? What are some of the factors that Amazon has that helps you accelerate LoRa adoption and then more broadly, if you can just remind us what your revenue opportunity is with the Amazon partnership?
Mohan Maheswaran, CEO
Yeah. So, AWS IoT Core is really an important initiative. It’s taken several years, I think, to come up with and develop and create, but essentially it creates a plug-and-play experience for enterprise solution providers that enable them essentially to connect their IoT sensors directly to the Amazon Cloud. And why that’s important is essentially as a time-to-market thing and also a competence thing. Because AWS already has software developed for applications, has different unique kind of vertical application software that it can be applied to different segments. And so not only the connectivity enablement which is easier and faster, but then also the ability to provide a kind of end-to-end solution quicker is also important. So I would say that’s the key thing. And so for enterprise, it’s really an enterprise play different than Sidewalk, which is more of a kind of a smart home consumer play. That gateway connectivity directly to the cloud is really significant for large enterprises, and so we do expect that to be part of our $100 million in five years with Amazon, as tied to Sidewalk and some of it is tied to AWS IoT Core. But I think that’s kind of the goal.
Andy Hummel, Analyst
Okay. Great. Thanks. And then the follow-up, just on the depending upon market, do you have a sense for where customers are at in the upgrade cycle? Is there a way to clarify I guess like what percentage of customers that might end up upgrading at some point have already upgraded to 10-gig?
Mohan Maheswaran, CEO
Well, about 50% of our revenues that are coming in quarterly now are for 10-gig. So that’s a very rapid increase. I wouldn’t have expected that. And we knew 10-gig was going to ramp up. But that tells me that the market is moving to higher bandwidth PON quite quickly, and we are expecting that to continue to grow that way. So, yeah, it’s moving fast. I mean, if you think about a 10-gig as a natural hand-off for 5G. It’s also a natural connectivity point for HDTV, things like that. So it’s really a nice kind of data point; 10-gig PON has an option to do very well. And we look at it, if you have got a greenfield site certainly in China, but I think it’s also a place to other regions of the world, where you don’t have optical cable, but you are going to lay out optical cable, you would go with the higher bandwidth optical connectivity, right? So that’s why we will go with 10-gig PON or above even; we have customers who are looking at higher bandwidths as well, so which again will help Semtech.
Andy Hummel, Analyst
That’s great. Thanks. Appreciate it.
Operator, Operator
Thank you. Our next question comes from Craig Ellis with B. Riley Securities. Please proceed with your question.
Craig Ellis, Analyst
Yeah. Thanks for taking the question and congratulations on the results. Mohan, I wanted to start with LoRa, but before I ask the question, thanks for keeping the dashboard fresh and the metrics relevant to the things that are evolving in the business. The question on LoRa though is, if we look back a year ago, I think, it was a priority to really increase the next design win and engagement activity in U.S. and Europe, and the team clearly did that and did that well. As you look ahead to 2022, are there any areas of geographic emphasis as you look at pursuing some metrics that you talked about in this year’s LoRa dashboard?
Mohan Maheswaran, CEO
I think we still have to execute on that, Craig. I would say, it’s huge now, and so a lot of the opportunities are outside China. I don’t think that we necessarily are changing our strategy in China. Our momentum in China is still very good. It’s more a question of, let’s make sure we have momentum in other regions of the world, and clearly North America now with Amazon and some of the things that are going on in the enterprise space in North America is extremely good and in Europe as well. So I think it’s more of the same. We just want to keep doing that, executing on that. And now, as I mentioned, really LoRa is quite well adopted around the world globally. I mean, it’s really acknowledged as a great technology for LPWAN. So I think our focus now is on executing on the proof-of-concepts and making sure this end-to-end solutions there is enough sensors, there are enough gateways, there are high-quality software out there, and there’s cloud connectivity; those type of things. And really focusing now on the use cases; make sure that the customers themselves who are implementing those use cases are not having any challenges with the use of LoRa from an end-to-end solution standpoint and therein lies the opportunity with LoRa Cloud, I think, and with some of the things we are doing with Amazon on the AWS IoT Core, for example.
Craig Ellis, Analyst
Got it. And then the follow up, Emeka, is for you. In your prepared remarks, you mentioned rising input costs and the potential to make some pricing moves. And so I just want to dig into a little bit further on what was possible. For example, I would expect in some parts of the business it is not possible to raise prices due to your relationship with existing Tier 1 customers. But in other parts of the business, it may be more feasible. So can you just provide some further color on what the company might be able to do and when in fact the company might be able to make some moves if it chose to act in that direction? Thank you.
Emeka Chukwu, CFO
Thanks, Craig. We have already noticed some expenses where price increases are emerging from the supply chain, and we are evaluating that. It's likely to affect various product lines, and we will need to determine the impact of these increases. Each year, we typically plan for some ASP reductions, but we may decide to forgo those planned reductions. If the supply chain increases are significant, we might need to ask our customers to share some of those costs. I'm not in a position to provide specific details right now, but we believe there are opportunities to mitigate the effects of the cost increases we are encountering.
Mohan Maheswaran, CEO
One thing to remember, Craig, as I mentioned earlier is that we have done a really fantastic job in my view of building more inventory in anticipation of some of these issues. And so I think at least for the first half, I think where we feel pretty good about where we are from a supply standpoint. The question really is, in the second half, if demand increases and we need to go to our suppliers and get more material, then it’s going to come at a higher price, right? And for those, we may have to go to our customers and request higher pricing.
Craig Ellis, Analyst
Well certainly, you wouldn’t be the first doing so there, so guys thanks very much and good luck.
Operator, Operator
Thank you. Our next question comes from Chris Rolland with Susquehanna. Please proceed with your question.
Chris Rolland, Analyst
Hey guys. This one will be for Mohan. So I recently ordered a Helium hotspot. So I am back ordered on that. But if you look at the token value market cap implied by the network we are in the hundreds of millions now, which would imply this would be a real thing. So I was wondering, Mohan, if you could talk about this. Do you think this could be a real thing? Is this something that maybe you thought Comcast was going to be? Can you talk about kind of where we are now and if this is how you are viewing this whole network?
Mohan Maheswaran, CEO
Yeah. That’s a really interesting question, Chris. I would say that was our vision and dream with Comcast and for whatever reason they decided not to go down and continue to execute on that. They are still involved, but not with the ambition that we thought they initially had. We do think that that’s the same kind of concept which is Amazon Sidewalk has and others that are in the pipeline. Helium’s approach is very interesting and very unique and very creative, which obviously fits well with LoRa and all of the things that are going on. So, yeah, I think it could work to some extent with some of these networking approaches. It’s a beauty of LoRa, which is very flexible where you could have very low cost, very secure networks that connect together, and it just changes the world of networking to some extent, and I think that’s the ambition, right? So take it away from the big guys and give it to small guys and see what happens. And so we will see, it’s early and I think with Helium obviously being a startup. They have to execute. But we see this in several countries in the world going on. It’s not just in the U.S. And as I say, I think definitely the momentum is there. We will see how it plays out. The use cases are the key in my view as more and more use cases become available and make the network itself very valuable, then I think it could work for sure.
Chris Rolland, Analyst
Understood. My final question is around China both on the handset side and the optical side. I think you said, China handset was good; do you have any viewpoint on China inventories and how much you were helped by inventories that may have been built as Huawei has been struggling here, the other guys have been said to have been building inventory? And then secondly, on the 5G infra side, I think you mentioned some optical strength, is that where it came from, is it China Optical on 5G?
Mohan Maheswaran, CEO
I believe the current strength in 5G largely comes from China, but we are starting to see new opportunities emerging from other regions, which is very encouraging. It's widely recognized that companies in North America and Europe, such as Nokia, Samsung, Ericsson, and Cisco, are actively involved in building 5G systems and equipment, and we see a positive momentum globally. Regarding smartphones, demand has certainly increased in China, especially among non-Huawei manufacturers, who are looking to acquire more materials. We also see strength in North America, while Korea has been slightly weaker, though I expect it might rebound in the first quarter and beyond. For the fourth quarter, China showed strong performance, and this is likely to continue in the first half of the year. I’m not sure how much of this is driven by the supply chain; I don’t think it is. I believe we started seeing this trend in advance, possibly in anticipation of gaining some of Huawei’s business. Ultimately, we are closely monitoring demand across all of our customers and assessing how much material is available in the channel.
Chris Rolland, Analyst
Thanks guys.
Operator, Operator
Thank you. Our next question comes from Cody Acree with Loop Capital. Please proceed with your question.
Cody Acree, Analyst
Yeah. Thank you guys for taking my questions. If we can go back to maybe towards the beginning and just try to get a better sense of the velocity of your bookings level as we push here through the first part of the year, just on a linearity basis? And then what is that, is there a correlation between that bookings uptick and the expansion or the expanded lead times?
Mohan Maheswaran, CEO
Yeah. I would say that the demand came first. Cody, I mean we definitely start to see bookings, very strong bookings in October, November, December, I mean, very, very strong. Chinese New Year softened a little bit, but then bookings have been very strong since then. Lead times have been gradually increasing; supply lead times have gradually increasing, so customers obviously want to give you more visibility as they get concerned about supply constraints. But I think it’s a healthy position for someone like us. We have built inventory. We have enough material to support customers. It’s just a question now of making sure that the materials we ship out are being consumed effectively. And I think that’s what, as I said, we are keeping a close eye on. But that’s kind of how the way we think about it.
Cody Acree, Analyst
Mohan, based on your position, how much visibility do you have regarding the possibility of double ordering or inventory restocking efforts? We understand how this typically concludes, but what is your visibility? Also, why is the guidance for a 16% turn so high? Shouldn't it be higher if you are that well booked for the quarter?
Mohan Maheswaran, CEO
We have strong visibility, which is a positive aspect for us, and as mentioned, this isn't unexpected. The reason for the low percentage of turns primarily relates to consumption concerns. While customers are requesting more, we want to be careful to avoid excess inventory in the channel, so we focus heavily on that. As Emeka noted, we are operating at the lower end of our expectations, and I prefer to maintain that. Therefore, we are ensuring that all our shipments are being consumed properly without any issues like double ordering. We are taking specific measures to address this, and that's why our turns number is where it stands.
Cody Acree, Analyst
Great. Thank you, guys.
Operator, Operator
Thank you. Our next question comes from Tore Svanberg with Stifel. Please proceed with your question.
Tore Svanberg, Analyst
Yes. Thank you. I just had a few follow-up housekeeping ones. Mohan, you talked about the LoRa pipeline being $700 million. I believe in the past you have talked about the funnel and leads to the funnel. So is that $700 million now basically just adding those two up?
Mohan Maheswaran, CEO
Yes. Opportunities and leads, Tore. I would say this last year in FY '21; normally a lot of the leads come from shows, conferences, events, and things like that. And of course, we went in Q1 into a period where nothing was happening. So I think that’s going to change this next fiscal year when things start to get back to normal in terms of some conferences being open, shows starting to open up a little bit, and people traveling a little bit more. We will start to see those leads expand. But yeah, to answer your question, it’s a combination of both opportunities that are in the pipeline that are running proof-of-concepts and leads.
Tore Svanberg, Analyst
Got it. Got it. And then I just had a question on so of the math of the number of the gateways and the end-nodes versus your revenue. So I think end-nodes grew about 30%, gateways I think doubled year-over-year, your revenues grew 20%. So how should I just think about the math there, and of course, I am not looking at perfect tides here but...
Mohan Maheswaran, CEO
The installation of gateways involves creating networks, whether private or public. The end-nodes connect to these gateways through sensors. When we ship a device, it usually goes to a distributor, who then sends it to the customer. The customer incorporates the device, such as a radio component, into a complete sensor node, which is then linked to the gateway. There are various timing factors to consider. I mentioned these metrics because the number of gateways indicates the capacity to support LoRa technology. With 1.3 million gateways, we can support approximately 5 billion sensors, meaning there is ample network availability for sensors. Additionally, the total number of end-nodes shows how many are connected to the gateways. Our revenue is generated when we ship devices to our customers.
Tore Svanberg, Analyst
Right. Now that’s very helpful. Thank you so much.
Operator, Operator
Thank you. There are no further questions at this time. I would like to turn the call back over to Mohan for any closing comments.
Mohan Maheswaran, CEO
Okay. In closing, we were pleased with our strong Q4 and fiscal year '21 results. Despite the impacts of the pandemic, our multi-sourcing initiatives, our investments in IT operations, and sales infrastructure limited the impact of COVID on our business operations. We also benefited from the strengthening of several secular themes driving our key growth engines, targeted at the data center, Internet of Things, and mobile device segments. We remain committed to considering the impact of environmental, social and governance factors in our decision-making processes. Given our diverse product offering, balanced end market approach and strong customer relationships, we expect to see growth and a strong financial performance in fiscal year '22. 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. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.