SYNAPTICS Inc Q1 FY2024 Earnings Call

Good day and thank you for standing by. Welcome to the Synaptics Incorporated First Quarter 2024 Financial Results Conference Call. Please refer to the Operator Instructions. I would now like to hand the conference over to your first speaker today, Munjal Shah. Please go ahead.

Thanks, Jeda. Good afternoon and thank you for joining us today on Synaptics First Quarter Fiscal 2024 Conference Call. My name is Munjal Shah and I'm Head of Investor Relations. With me on today's call are Michael Hurlston, our President and CEO; and Dean Butler, our CFO. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at synaptics.com. In addition to a supplemental slide presentation, we have posted a copy of these prepared remarks on our Investor Relations website. In addition to the company's GAAP results, management will provide supplementary results on a non-GAAP basis, which excludes share-based compensation acquisition-related costs and certain other noncash or recurring or nonrecurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the Investor Relations section of the company's website at synaptics.com. Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. We refer you to the company's current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

Thanks, Munjal. I'd like to welcome everyone to today's call. I'd like to start by thanking our team in Israel for their continued effort during this difficult period in their country. Our team continues to work tirelessly in the face of worry for their families and colleagues. In the last few years, we've been fortunate enough to establish a meaningful presence in Israel, and our thoughts are with our team there. With that said, the main theme of today's discussion is that our business is lining up essentially as we've outlined over the past several months. In the quarter, we saw overall inventories come down in the channel as expected. Reductions are not uniform, and we still have some work to do, particularly in Enterprise. Margins continue to be below our target model due to product mix, but a return to normal Enterprise numbers should lead us back toward our long-term target. In short, we continue to believe we are at or have now passed the bottom in our business and should start to climb out during calendar 2024, with both top line and mix improvements. While visibility to the slope of the recovery is uncertain, customers have started to place orders again, engagements are increasing, and our pipeline is showing strength. Moving to the September quarter, revenue increased 5% compared to the 3 months prior and was slightly above the midpoint of our guidance range with our Enterprise PC products performing better than expected. Our product mix imbalance resulted in a drag on gross margins, putting us at the low end of the guide. We maintained our spending discipline and ultimately delivered non-GAAP EPS above the midpoint of guidance. As discussed at our Investor Day in September, we are redefining our product breakouts as Core IoT, Enterprise & Automotive, and Mobile. Beginning with our Core IoT products, we continue to make progress with multiple design wins and new product introductions. In wireless, we introduced a new cost-effective single-stream device, the SYN43711. This product adds to our current high-performance portfolio and is the first wireless device done from the ground up by the Synaptics team. I'm very proud to report that the device was a first-pass success and was delivered on schedule. The other three devices we introduced this year, the SYN43756E, a dual radio 2x2 WiFi 6E product, the SYN4381, a 1x1 Triple Combo, and the SYN4382, a 2x2 Triple Combo, are all beginning to ramp at customers. In addition, the development of our first dedicated Broad market chip is progressing as planned, and we expect to tape out the device next year. In the quarter, we saw the first orders from a new module partner, marking our initial channel expansion with the goal of extending our reach into the broader customer base. Finally, we won multiple designs in the high-performance IoT market, sports cameras, drones, and soundbars, and we are engaged in new opportunities in trucking and logistics, TVs, and industrial automation applications. All of these designs require the highest performance Wi-Fi, flawless interoperability, and unmatched Bluetooth coexistence. In our processor roadmap, we recently introduced a quad-core Linux-based, power-efficient and cost-optimized system on a chip, the DVF120. Like other SoCs in the processor portfolio, this device can be used to execute a variety of artificial intelligence applications. The DVF120 can run machine learning models on-chip, utilizing our standard toolkit and framework for rapid development and deployment. Early traction includes intelligent video and adaptive noise cancellation for the unified communications and collaboration market. The device also operates from our unified software development kit that supports existing Synaptics SoCs, demonstrating our extensible software platform. As with our wireless products, we had several wins in the quarter, some in our traditional operator customer base and others for more general-purpose applications. For example, our customer Swisscom launched their next-generation streaming device, TV-Box 5, that is 35% more energy efficient and half the size of its predecessor, helping them achieve strict European ESG goals. Soon, we expect to announce our new family of general-purpose SoCs, targeting a wide variety of IoT applications that will enable Synaptics to expand our addressable market. Our Enterprise & Automotive products had two diametrically opposed stories during the quarter, with our PC and Automotive products performing better than expected but continued softness in video interface and Enterprise headsets. Our Automotive products remained steady with new TDDI-based wins at Toyota, Tata Motors, Volkswagen, and Mercedes. The move to larger screen size is accelerating, but the corresponding ASP benefit is offset by continued competitive price pressure. Another favorable trend in Automotive is increased adoption of local dimming, which brings LCD screens, which already have pricing and longevity advantages, to the performance level of high-end OLED, giving us added confidence in our SmartBridge rollout. PC is a second bright spot with solid sequential growth in fiscal Q1. Customer inventories appear to be back to normal levels and demand is improving. Our touchpad and fingerprint solutions continue to perform well with design wins across major OEMs and smaller customers. In addition, we are seeing solid traction in several focus areas within Enterprise that we believe are long-term growth drivers. Our Human Presence Detection solution for laptops performed better than initially forecast as early attach rates were higher than projected. We had our first wireless headset launch with one of our leading customers, Logitech, introducing a product that utilizes our AI-based voice processing for near-field and far-field noise suppression as well as premium hybrid ANC algorithms. Our low-power Enterprise-class audio SoC enables up to 40 hours of battery life. However, the remainder of Enterprise is weak as inventory levels persist at relatively high levels. In addition, new product ramps are slower than normal, with engineering cutbacks at our customers affecting the timeline of initial introductions. In spite of this, customer interest, design wins, and momentum remain strong for our products, and it is only a matter of time before we see a return to normal run rate. In Mobile, we believe the majority of Android handset makers are shifting more of their models to flexible OLED, which plays to our strength. Our Chinese customers are doing better against foreign competitors in the domestic market. Outside China, we continue to build momentum at Samsung following the successful launch of the Z Flip5 phone, and we expect to see follow-on wins in the near future. To conclude, our business is stabilizing at current levels. We continue to expect a recovery starting in calendar 2024, though visibility to the strength and the slope of this recovery is still limited. We are confident that Enterprise inventories will return to normal levels over the next few quarters, improving our overall mix and margins. We are focused on executing our Core IoT opportunities and are already seeing traction with our initiatives to expand our addressable market. Now let me turn the call over to Dean for a review of our first quarter financial results and second quarter outlook.

Thanks, Michael, and good afternoon to everyone. Before I get started, I want to remind investors that we have reclassified our revenue into new categories: Core IoT, Enterprise & Automotive, and Mobile beginning this fiscal year. We believe this provides investors with better measurement of our focus areas and creates an easier and more direct comparison with similar peers. We have provided this reclassification on a historical basis in the supplemental slide presentation posted on our Investor Relations website. Now let me dive into the review of our financial results for the recently completed quarter, followed by our current outlook. Revenue for the September quarter was $237.7 million, which was above the midpoint of our prior guidance. Revenue from Core IoT, Enterprise, and Mobile were 16%, 65%, and 19%, respectively. While we did not guide to these categories during our August call, Q1 results were in line with our expectations of former IoT and former Mobile products, while our former PC products outperformed our forecast during the quarter. Year-over-year consolidated September quarter revenue was down 47% but more importantly, grew sequentially by 5% as we moved off what we believe to be the bottom of sales. On a consolidated basis, channel inventory depleted nicely in the quarter, and our distributors' point-of-sale indicated an increase relative to the prior quarter. Core IoT revenue increased by 15% sequentially but was down 66% year-over-year. This area has experienced the most acute channel inventory accumulation, which we believe is now near its bottom and should see its final depletion over the coming quarters. In Enterprise & Automotive, our September quarter revenue was up 9% sequentially but down 47% year-over-year. Sequential growth was driven almost entirely by recovery in PC product shipments. We are optimistic that this may be a directional indicator of overall corporate IT spending as we look forward into calendar year 2024. Automotive product shipments slowed modestly during the quarter but were largely in line with our expectations. We're continuing to work down inventory across the balance of the Enterprise portfolio, which will likely take place over the next few quarters. Mobile product revenue was down 15% sequentially in the September quarter and down 10% year-over-year. We are seeing modest improvements in Android shipments and are gaining share at Samsung. While recovery in Mobile is encouraging, as more customers adopt higher-end flexible OLED displays, we continue to believe the Mobile end market will ultimately remain volatile. During the quarter, we had two customers greater than 10% of revenue, at approximately 18% and 11%, respectively. For the September quarter, our GAAP gross margin was 45.1%, which includes $17.8 million of intangible asset amortization and $1.1 million of share-based compensation costs. September non-GAAP gross margin of 53% was below our midpoint but within our guidance range as product mix skewed us a bit lower. GAAP operating expenses in the September quarter were $142.3 million, which includes share-based compensation costs of $32.1 million and intangible asset amortization of $5.5 million. September quarter non-GAAP operating expenses of $96.7 million was down from the preceding quarter and below our guidance range as we continue to maintain vigilant expense control. The GAAP tax rate was negative, resulting in a tax expense of $15 million for the quarter and the non-GAAP tax rate was 17%. September quarter GAAP net loss was $55.6 million or a GAAP net loss of $1.43 per share. Non-GAAP net income in the September quarter was $20.3 million, an increase of 4% from the prior quarter and an 85% decrease from the same quarter one year ago. Non-GAAP earnings per diluted share of $0.52 was near the high end of our guidance range. Now turning to the balance sheet, we ended the quarter with $824 million of cash, cash equivalents, and short-term investments on hand, down from the preceding quarter as we completed the wireless licensing transaction in early fiscal Q1. Cash flow from operations was $45 million. Capital expenditures were $6.7 million and depreciation for the quarter was $7.2 million. Receivables at the end of September were $111 million and days of sales outstanding were 42 days, a decrease of 23 days from last quarter. This decline is primarily due to collection from short payment term customers and some front-end loaded linearity of our sales during the quarter. Our ending inventory balance was $132 million, down $5 million as we cautiously reduce our inventory purchases. Our calculated days of inventory on our balance sheet also declined at 105 compared to 122 at the end of the prior quarter. Now let me turn to our December quarter outlook. September saw good progress in reducing our inventory among our distributors with inventories depleting in line with our expectations. Point of sale at our distributors continue to hold up and in fact, increased versus the June quarter. As we look ahead, we continue to focus on reducing customer and distributor inventories further until full equilibrium is met. Demand shows signs of continued stabilization at the current levels with almost all our products shipping below historical 2019 levels. We expect to recover from these levels in 2024, but the timing and shape of recovery is still uncertain. We see improving strength in PC and Mobile end markets, which creates a gross margin headwind from a product mix perspective. Given these end market dynamics and expected channel inventory burn in the December quarter, we anticipate revenue to be in the range of $220 million to $250 million, roughly flat with the prior quarter. Core IoT is expected to be up slightly for the December quarter, Enterprise to be down on ongoing inventory corrections, and Mobile to be up as certain models are expected to ramp. We expect our revenue mix from Core IoT, Enterprise & Automotive, and Mobile products in the December quarter to be approximately 17%, 59%, and 24%, respectively. We expect GAAP gross margin for the December quarter to be in the range of 42% to 45%. We expect non-GAAP gross margin in the range of 51% to 54%, roughly similar to the prior quarter as mix remains unfavorable with Mobile ramps occurring faster than inventory depletion in the other areas. We expect GAAP operating expenses in the December quarter to be in the range of $135 million to $140 million, which includes intangible amortization and share-based compensation. We expect non-GAAP operating expenses in the December quarter to be in the range of $95 million to $99 million. GAAP net loss per basic share for our December quarter is expected to be in the range of $1.40 to $1.80, and non-GAAP net income per diluted share is anticipated to be in the range of $0.25 to $0.65 per share on an estimated 39.5 million fully diluted shares. We expect non-GAAP net interest expense to be approximately $6 million in the December quarter with the corresponding GAAP net interest expense of approximately $7 million. This wraps up our prepared remarks. I'd like to now turn the call back to the operator to start the Q&A session.

Our first question comes from Christopher Rolland of Susquehanna.

Thanks for the question, guys. I guess Enterprise, we're waiting for this to come back. Where are the pockets where you see the most inventory? And are there any products or areas that are now kind of clear of that inventory overhang and orders are starting to come back reasonably well?

Yes, Chris, this is Michael. Thanks for the question. I'd say two pockets of concern. One is around our docking station business, and that's obviously a great margin driver for us. We've seen some recovery in the DisplayPort side of the business. The DisplayLink, if you remember, that was one of our acquisitions, the one-to-many dock that has had quite a bit of inventory, and we're still going through that. The other area is audio. We did really well in business, and again, it's a gross margin accretive product for us. This one has been slow. We've started to see a little bit of orders, but I still think there's quite a bit of inventory in the channel. What's doing well? Obviously, PC now we're classifying in this area, and we had a good quarter in PC. We do think that's a solid leading indicator for docking stations, so it's just a matter of time for inventory to clear out. And frankly, it probably couples with these wired audio headsets as well. So on balance, I'd say relatively good news even in the Enterprise sector.

Excellent. Maybe one for Dean too. It sounds like mix is the big problem with gross margin here, but are there any other issues to consider, anything like pricing, et cetera? And then, maybe you could give us a timeline on when we might be able to return to 57% gross margin? Or your target gross margin, again. It seems like it might be pushed out a bit.

Yes, largely, this is mix-driven, Chris. As we talked about at Investor Day and even on prior earnings calls, the Enterprise business being a little softer is actually going to prevent us from having margins move immediately. I mean, there's some mild pricing pressure, but it's not materially factoring into our guide. Any pricing pressure really is about maybe new products that might ramp in a year or two from now. So that's not as much of a near-term concern. It's really all around mix. How do we get back to our target mix and our target margin model? Really what we need is for all of the areas to kind of move back into their normal mix. We think that Core IoT business has hit bottom and that's starting to move up. Enterprise probably is just a little bit behind that, while at the same time, actually, Mobile is starting to move faster and looks like it's up in the December quarter. So that's a headwind for us.

Your next question comes from Kevin Cassidy of Rosenblatt Securities.

Congratulations on the great quarter in this atmosphere. Interesting new wireless connectivity products you're introducing, can you give us an idea of what the ASP lift will be for those products versus the past generation?

Yes, good question. And thank you for the nice words. It does feel like, to your point, we're now really coming off the bottom. I'd say we sort of called the bottom relatively early in the cycle and now it feels like we're certainly moving off of it. Our wireless products, everything that we're doing right now is in the high-performance areas. We outlined in the Investor Day, these three categories for us: high performance, the broad market, and then the Bluetooth opportunity. So this one is in the high-performance area. It's a 1x1 product. Typically, a 2x2 product, to give you an idea, is in the sort of $3.5 to $5 range, a 1x1 product is in the sort of $2 to $3 range. What we get and benefit here, and I think you and I had talked about this before, is the idea of a lower die size. So our Core IoT business is from a gross margin perspective is sort of at the corporate model or maybe slightly below, as we outlined at Investor Day, this gives us an opportunity to improve and continue to see a build on gross margins by taking some of the cost out of this 1x1 device.

Great. With the smaller die and higher performance, are you steering clear of direct competition? What does the competitive landscape look like?

Yes, that's correct. In high performance, especially in the IoT market, we have a significant lead, particularly with security cameras, video streamers, and drones that transmit video wirelessly. Our competitive advantage comes from the superior quality of the signal we can produce. We're confident in our competitive position, and there aren't many companies that can consistently provide strong wireless performance over long distances. We believe we are very well positioned competitively, and this 1x1 device helps us reduce costs.

Your next question comes from Krish Sankar of TD Cowen.

Congrats on the good results and the guidance too in this environment. The first question, I was wondering, either for Michael or Dean, based on the bookings you're seeing so far in the quarter, can you give any color into March? Do you think it could be flattish? Or do you think there could be some seasonality impact on it? And then I had a follow-up.

Yes. Let me take that one, Krish. Based on what we see on bookings, we actually think we've hit bottom. In fact, if anything, it looks like things are looking more positive as we look forward. We're not guiding specifically into March or anything beyond the December quarter at this point, but it does look like based on bookings and what we can see into channel dynamics, et cetera, looks like bottom is actually behind us and likely moves up. I mean the open question is trajectory, right? We have less visibility on exactly what the slope looks like, but it seems to be positive rather than negative.

Got it. Got it. That's very helpful. And then I had a follow-up question on inventory. Is there a way to quantify how much excess inventory is there at your customers? Either in terms of days or what it is today relative to maybe 3 months ago or beginning of the year? And along the same path, Dean, you've done a great job reducing inventory days. What is the target? Do you want to go back to like 70 days, which it was historically? Or do you have an updated target for your own inventory days?

Yes, that's an interesting question, Krish. As we analyze the bookings, we're a bit cautious about the positive momentum moving forward and how much we should reduce our inventory. Typically, we would aim for around 75 days of inventory. However, this assumes a steady and predictable mix of business. I believe the number of days will continue to decrease slightly, but we want to be careful not to underestimate the situation by reducing inventory too much, which could lead us to mismanage the mix and hinder our ability to respond to any potential increases in bookings. Regarding channel shifting, we have been trying to ship less than we are shipping out, and for the first time last quarter in September, we noticed shipments from distributors began to increase compared to the June quarter. One data point does not indicate a trend, so we'll monitor that closely. In the coming quarters, we will continue to be cautious about what we are shipping into the channel until we see a consistent trend that allows us to return to normal channel operations. I hope that clarifies things, Krish.

Your next question comes from Quinn Bolton of Needham.

This is Nick Doyle for Quinn. Congratulations again on the performance in what appears to be a weak IoT environment. Can you elaborate on why you believe the increasing PC demand is a reliable sign of the Enterprise recovery? Is this demand coming from the same Enterprise customers who usually purchase your docking stations and audio products? I'm trying to confirm that it's not primarily a consumer-driven recovery.

Yes, you are heading in the right direction with your question. We definitely lean toward corporate spending and purchasing. In the areas where our Enterprise products, like audio headsets and docking stations, operate, they usually align closely with PC trends, as our PC focus is primarily on Enterprise. While there is some consumer involvement, over 50% of that focus is on Enterprise. For clarity, that majority is encompassed in our Enterprise category. To give you a rough estimate, historically, PCs account for about a third of this category, with the remaining two-thirds being related to Enterprise devices and Automotive products. I hope that helps with your understanding, Ambrish.

And then yes, we're talking a lot about inventory and gross margins on the call already, but I guess I'll ask it a little bit of a different way. Is there a way to get back to 56%, 58% without the Enterprise recovery?

Yes. I believe I will let Dean provide some additional insights. This is indeed a challenge. Our Enterprise business is currently our most profitable in terms of gross margin. If it doesn’t bounce back, it could pose more difficulties, but it's not impossible for us to improve. We are implementing numerous enhancements, especially in the Core IoT sector, aimed at boosting margins through cost reductions and similar strategies. However, I think achieving a gross margin improvement back to 57% or higher will heavily rely on the recovery of our Enterprise business.

Yes, Nick, I would just reiterate what Michael said. It does depend on Enterprise getting all the way back to normal. If Enterprise were not, you'd probably fall just a little bit shy of that target, but you would need Enterprise to recover from this inventory and get back to its normal level to get up to target or have any chances of moving back beyond that, like you said.

Your next question comes from Gary Mobley of Wells Fargo.

I hope your employees in Israel are safe and stay safe. Knowing that you have such a large employee base, I think primarily from the DSP Group acquisition, I wanted to ask about how many have been called to military duty? And given those circumstances, how you're managing those day-to-day operations and as well road maps that come out of that region?

Yes, Gary, thanks for the question. And obviously, I appreciate the sentiment. We've had slightly less than 10% of our employees called into service. Some of those that have been called actually are able to multitask a bit. They're doing backline jobs, meaning intelligence and some other sort of back-of-the-front-lines activity. So they're able to perform mostly as usual. That being said, obviously, there are really some important projects that are going through our Israel team, and we're trying to backfill those with engineers across the globe. I think right now, as it stands, we have a good plan for that, and we can keep most of our key projects very much on schedule.

Appreciate that, Michael. As my follow-up, I wanted to ask about some of the inflationary pressures or lack of in your supply chain. I appreciate the fact that mix is presenting a gross margin headwind, but presumably as well, some higher cost inventory flowing through the P&L statement. But as you think about the pricing terms that you're getting from current design wins as they're happening today. How does that match up with the trends and foundry quotes that you're seeing from your foundry partners as well? Does that fit into your goal at 57% gross margin?

Yes, Gary. I mean, on balance, our costs are going down modestly. In general, we're seeing relatively good cooperation from our foundry partners, not significantly, but modestly, we’re seeing decreases. And we're certainly working as well with our OSAT suppliers; our operations team is figuring out different strategies in the back end on packaging and testing to take cost out of the business. They've done a pretty remarkable job. I mean, there's no secret that foundry prices have been tough to move, and our biggest cost is wafers, but we have seen, I'd say, modest decreases in the supply chain. The question that keeps coming up over and over again on the pricing pressure, I mean, it's there. It's there to a certain extent, but that's why we've kind of come off the 60%, 61% gross margin and moved that target down to 57%. I think that contemplates a modest level of pricing pressure that Dean talked about and also what we're seeing in the supply chain, which, again, is some help, but I wouldn't call it. We're not doing jumping jacks yet.

Your next question comes from Ambrish Srivastava of BMO.

Dean and Mike, I am trying to understand the new segments in relation to what you had previously. Specifically, I want to know what portion of the Enterprise business is still facing challenges with inventory and has not yet stabilized. Additionally, where do consumer PCs currently stand? Are they part of Core IoT or have they been reallocated elsewhere?

Yes, Ambrish, I want to clarify that we are not planning to break down our new segments or quantify every detail. That said, our previous PC category is now fully included in the Enterprise & Automotive category. Historically, our PC business focused mainly on enterprise laptops, though there was some consumer involvement, the majority—over 50%—was enterprise-related. So, for simplicity, it's entirely reflected in our Enterprise buckets. To give you an initial idea, if you take the historical PC number and compare it to our new Enterprise & Automotive category, PCs represent about one-third of that bucket, with the remaining two-thirds consisting of enterprise and automotive-related devices. Hopefully, that helps you understand the mapping a bit better, Ambrish.

Yes, I understand. Regarding the stabilization from the peak to the trough, if we are indeed at the lowest point, it seems like we are. You noticed it earlier than others, but I believe you're off by 50%. I'm trying to grasp what other metrics you consider, as we've experienced many cycles that are never identical, yet a few metrics remain consistent. In terms of cancellation rates and bookings, what information can you provide to support the view that we are at the bottom?

Yes. Let me just outline some of the things that we look at from a quantitative standpoint. Certainly, there's a lot of qualitative customer conversations, design activity expected to go into ramp, et cetera. But from a quantitative standpoint, generally, we are looking at things like booking rates, hey, if booking rates accelerated, slowed, you look at book-to-bill ratios. What we've noticed is that actually bottomed a few quarters back. We look at cancellation rates and push-out requests on already booked backlog. What we've noticed over the last several quarters is that has significantly slowed. In fact, it's very little now, it's almost back to being sort of a normal rate. There's always some amount of noise in the system on people rescheduling their backlog, et cetera, it's a normal course of business. But what we've seen over probably the last 2 to 3 quarters is like the peak volume from these second-order metrics started to slow down in their magnitude. We saw a peak order as people tried to cancel and reschedule, and as you know, when we talked about it back in our May call, we started allowing people actually to reschedule on what they needed to do. We also worked with channel partners to do the same. So on balance, each quarter, we've seen that amplitude go down and get close to being sort of normal course of business. We do see this level as certainly sustainable. In fact, if anything, we're probably biased up rather than down as we look into '24. I think, credit to the business teams and sales teams at Synaptics for trying to make a call early on where the direction of inventory and forecasts are going. The internal team did a pretty good job.

Next question comes from Martin Yang from Opp Co.

Can you discuss how your module partners assist you in reaching new segments, geographies, or customer bases? Do you anticipate more of these partnerships forming in the medium term?

Yes, Martin, thanks for the question. The module partners are important for us because as we try to move into this broad market strategy that we outlined in the Investor Day, this is a really good first step. The customers that they can serve are not customers that we would be able to enable. So our business, like many semiconductor businesses, is built around big customers that we all know, but there's a huge market that these smaller customers represent that we simply can't service with our application engineers. So this module partner is really going after a bunch of customers that we couldn't service. There are applications in there like tags and inventory trackers and things like that, that these guys are getting into that are not things that we would normally do. But the more important issue is the customers that they serve versus customers we would serve. We would expect this particular module guy, like our first module partner, to become a meaningful component of our wireless business because they can serve a broad array of customers that we wouldn't otherwise touch.

So is it right to assume the impact on your business once the market recovers in earnest, and this new module partner maybe serve or impact our business similar to getting to a new distributor?

It's almost like that, Martin. Yes, it's pretty significant. I mean, the customer touch, and we've obviously monitored who they're talking to, and they report that out. The number of customers they're talking to are in the hundreds, and we would talk to 10. So it's a really multiplicative effect. Yes, ultimately, we would expect to see business on the level of a distributor because they act like that. They're obviously very technical. They have a tremendous amount of software support that goes with it. It's very focused on wireless modules, in our case, a combo module, but they're really specialists in taking the product, doing the work on it to modularize it and then reselling it. But on a magnitude basis, yes, it's like a distributor.

This concludes the question-and-answer session. I would now like to turn it back to Michael Hurlston for closing remarks.

I'd like to thank all of you for joining us today. We certainly look forward to speaking to you at our upcoming investor conferences during the quarter. Thanks, and have a good day.

This now concludes the conference. You may now disconnect.