Earnings Call Transcript - SYNA Q4 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Synaptics Inc. Fourth Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Munjal Shah, Vice President of Investor Relations. Please go ahead.

Munjal Shah, Vice President of Investor Relations

Thank you for joining us today on Synaptics’ fourth quarter fiscal 2023 conference call. My name is Munjal Shah, and I am the Head of Investor Relations. Joining me are Michael Hurlston, our President and CEO, and Dean Butler, our CFO. This call is being broadcast live on the web and can be accessed from the Investor Relations section of our website at synaptics.com. We have also posted a copy of these prepared remarks along with a supplemental slide presentation 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 other non-cash or recurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results, available in the investor relations section at synaptics.com. We would also like to remind you that during this call, Synaptics will be making forward-looking statements, which reflect our current expectations and projections regarding our financial condition, results of operations, future performance, and business objectives. While we believe our estimates and assumptions are reasonable, they are subject to various risks and uncertainties beyond our control and may prove to be inaccurate. Actual results may differ materially from those suggested in any forward-looking statements. We recommend you review 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 impact actual results. Synaptics disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

Michael Hurlston, President and CEO

Thanks, Munjal. I’d like to welcome everyone to today’s call. We completed a difficult fiscal year where excess inventory led to topline revenue challenges. The good news is that we believe revenue has hit bottom. We can clearly measure inventory reductions in the channel and are seeing far fewer push-out requests. While some areas of our business are quarters away from a pronounced upturn, we are starting to see a return to normalcy in others, specifically PC and Mobile. During the quarter, we opportunistically shifted our capital allocation to share buybacks and repurchased approximately 1 million shares adding to the 1 million purchased earlier in the fiscal year, totaling out to about 5% of our shares outstanding. Before providing our normal quarterly update, let me highlight the key aspects of our recently announced agreement with Broadcom. Most importantly, we get critical Wi-Fi7 technology as part of the transaction, which represents a 30% ASP uplift over Wi-Fi6. It enables us to accelerate the high-performance part of our Wi-Fi/Bluetooth combo roadmap, allowing us to sample Wi-Fi7 products by the end of 2024. The agreement not only stretches our lead in high-performance Wi-Fi for IoT applications, but also allows us to focus our internal resources on the more critical low-power broad market part of the roadmap. In addition, the transaction gives us Bluetooth 6.0 and Bluetooth Enterprise, two important pieces that were on our technology roadmap. Finally, it gives us some market-leading devices to sell into our field of use, including a critical Bluetooth chip for enterprise headsets, a Bluetooth standalone device that opens new markets for us, and lastly, a Wi-Fi6E device that complements our existing high-performance IoT. As part of the agreement, we extend the exclusivity of our license to IoT markets by an additional three years. Coupled with our internal efforts, this new deal gives me additional confidence that we can achieve our $1 billion wireless revenue target. Moving to the June quarter, revenue was slightly above the mid-point of our guidance range with our IoT products beating our prior forecast. The mix within IoT continued to shift away from enterprise applications resulting in gross margin at the low end of the guide. We maintained our spending discipline and delivered non-GAAP EPS above the mid-point of the guidance range. As stated earlier, we made meaningful progress lowering customer and distributor inventories in the June quarter. We continue to under ship end demand, but still believe it will take the remainder of the calendar year for channel inventories to return to normal levels. Dean will talk about gross margins in his remarks, but we believe those too will return to our long-term target of 57% as our product mix shifts back to IoT. Finally, we initiated targeted headcount reductions to ensure that we don’t exceed our stated $100 million per quarter non-GAAP operating expense target while giving ourselves room to continue to hire into key investment areas. On the product front, we have started a journey to expand our existing processor portfolio into more deeply embedded applications. We have a few design wins now in this area, leveraging both existing software and hardware, differentiating with our AI capabilities. With limited investment, we believe we can unlock opportunities outside our traditional operator space in applications such as video conferencing, high-end smart appliances, point-of-sale terminals, factory automation and security solutions. We will also leverage work being done in human presence detection to introduce a chip that can serve as the basis for an M55-based processing device that has advanced AI features. While we begin some critical future product advancements, we are winning at present in both our traditional operator base with multimedia products, as well as in headset customers. Panasonic’s recently announced True Wireless earbuds feature two of our audio processing devices that offer our most advanced ANC and ENC algorithms. In Wireless, we continue to burn inventory at our key module partner and signed a one-time deal with a large customer to scrap parts in order to see order flow again. As we begin to work our way out of the inventory challenges, we continue to enjoy sales success, winning new customers on both our high-performance Wi-Fi/Bluetooth combo and GPS product lines. We have a number of design wins at key customers such as Cisco, Google, Honeywell, Verisure and are building market share in the security, smart speaker, action camera and wearable segments. Besides the traction we are seeing with our direct customers, we are also making progress in adding new module partners to extend our market reach. We believe our wireless business has bottomed and should return to growth in the next quarter or so. Automotive continues to be an area of relative strength with stable demand. Our pipeline continues to grow with new TDDI-based design wins for central information display at Toyota, General Motors, Daimler, Volkswagen, and Porsche. While our design-win momentum and competitive position is strong in this market, we are experiencing pricing pressure for future designs. We plan to navigate this environment by focusing on introducing value-enhanced solutions. In that vein, we are making progress with our SmartBridge product, which has vastly superior performance, particularly around local dimming and can save OEM customers between $10 and $15 on their bill of materials. Our enterprise sector has been a double-edged sword. While we are winning new designs at a remarkable clip, we are also experiencing significant inventory challenges. This quarter, we introduced our Carrera platform for enterprise docking stations. I am pleased to report that we already have 10 different designs kicking off at the world’s two largest docking station customers. In addition, our first wireless dock will be available for retail purchase later this month. We continue to do well in enterprise telephony, adding video conferencing and Wi-Fi to a couple of platforms that have recently gone to production. Unfortunately, this area of our business has been subject to inventory accumulation and while we were able to reduce levels in the channel, full recovery is somewhat dependent on corporate spending budgets. Moving to PCs, we are seeing demand recover with the June quarter marking the bottom. Customer inventories have come down to normal levels, but overall PC sales are somewhat muted, particularly in the enterprise notebooks where we have outsized exposure. We are using the lull in the market to build share in our core fingerprint and touchpad technologies, while also introducing our leading human presence solution to more platforms and customers. This feature extends notebook battery life by 20% or more, so we are optimistic that it will gain traction and will be sampling a new device later this year. In addition, we believe the advent of larger force-enabled touchpads, where we have a performance and technology lead, represents an opportunity for us to capture substantially higher ASPs and increase share. In Mobile, the China Android market is stabilizing with channel inventory for our Touch solutions returning to normal levels and our shipments are now more aligned with end demand. We are benefiting from a larger TAM as more phones switch to flexible OLED technology which requires our high-precision solution. We also continue to build momentum at Samsung with our first flagship phone launching a week or so ago, the Z-Flip 5. This phone features two of our Touch chips. We expect to build share with this customer during the next year. Core mobile strength is offset by the decline of our legacy DDIC business, which will continue to asymptote to zero over the next two years or so. To conclude, the business performed as we had anticipated in Q4 and our expectations for a gradual recovery going into 2024 remain. We remain enthusiastic about our wireless opportunity, particularly in light of the new agreement with Broadcom. We are increasing our processor opportunity by moving our high-end products into adjacent markets and by introducing a mid-tier solution that features a complex neural network and targets low-power applications. While the enterprise market is experiencing abnormally high inventory levels, we continue to be excited about the complete platforms we are introducing with numerous Synaptics semiconductors. I am looking forward to seeing you all at our Investor Day on September 7th in New York where we plan to update the investment community on our strategy to accelerate the IoT portfolio, provide insights into our investments and highlight our future growth opportunities. Now let me turn the call over to Dean for a review of our fourth quarter financial results and first-quarter outlook.

Dean Butler, CFO

Thanks Michael, and good afternoon to everyone. I’ll start with a review of our financial results for the recently completed fiscal year and then provide our current outlook. We completed our fiscal year 2023 with net revenue of $1.36 billion, which was down 22%, compared to $1.74 billion in the prior year, largely due to a 36% year-over-year decline in our Mobile and PC product groups and a 14% decline in our IoT products. Nearly all our market areas were affected by demand and inventory corrections throughout the fiscal year. Despite this revenue decline, we maintained a profitable business with non-GAAP gross margin at 60.1%, 10 basis points higher compared to the prior year, as our mix continued to be dominated by our IoT products. GAAP net income for the completed fiscal year was $73.6 million or $1.83 per diluted share, compared to $257.5 million or $6.33 per diluted share in the prior year. Non-GAAP net income for the completed fiscal year was $326.4 million or $8.12 per diluted share, compared to $551.2 million or $13.54 per diluted share in the prior year. Revenue for the recently completed June quarter was $227.3 million, above the midpoint of our guidance. Revenue from IoT, PC and Mobile were 58%, 19% and 23%, respectively. This was largely in line with our prior expectations, with our IoT products ending higher than forecast. Year-over-year, consolidated June quarter revenue was down 52% as the June 2023 quarter is now directly compared to our June 2022 peak revenue period of $476 million. June quarter IoT product revenue was down 60% year-over-year and down 43% sequentially reflecting soft demand across consumer and enterprise end markets and continued inventory depletion as previously discussed. In PC, our June quarter revenue was down 21% sequentially and down 48% year-over-year. We expect the June quarter represents the bottom for the PC market as customer inventories are largely depleted and normalization is likely to begin in the September quarter; a full and sustained recovery will be dependent on corporate enterprise IT spending trends given our higher mix in commercial notebooks. Our June quarter Mobile product revenue was up 26% sequentially and down 17% year-over-year, largely in line with our prior expectations. Android Smartphone sell-through, though volatile, has improved recently and inventory is returning to normal levels as we see near-term turns orders and occasional customer order escalations. We expect this area to remain volatile on a quarterly basis as the strength in our high-end Touch solutions offsets declines at our legacy Mobile customer. During the quarter, we had one customer greater than 10% of revenue, at approximately 14%. For the June quarter, our GAAP gross margin was 44.5%, which includes $24.5 million of intangible asset amortization and $1 of share-based compensation costs. June quarter non-GAAP gross margin of 55.7% was below our guidance range mainly due to product mix and some additional inventory write downs as forecasts continue to remain weak in some specific products. GAAP operating expenses in the June quarter were $139.2 million, which includes share-based compensation of $29.2 million, intangible asset amortization of $8.5 million and a vendor settlement accrual of $4 million. June quarter non-GAAP operating expense of $97.5 million was down from the preceding quarter and slightly below our guidance as we continue to maintain vigilant expense control. We had a GAAP tax benefit was $20.9 million for the quarter and non-GAAP tax expense of $4 million. June quarter GAAP net loss was $23.4 million or a GAAP net loss of $0.59 per share. Non-GAAP net income in the June quarter was $19.5 million, a decrease of 74% from the prior quarter and an 88% decrease from the same quarter a year ago. Non-GAAP EPS per diluted share of $0.49 was above the midpoint of our guidance range. Now turning to the balance sheet. We ended the quarter and fiscal year with $934 million of cash, cash equivalents and short-term investments on hand. This was unchanged from the preceding quarter. Cash flow from operations was $94 million. Capital expenditures were $5.2 million and depreciation for the quarter was $7.2 million. Receivables at the end of June were $164 million and days of sales outstanding were 65 days, up from 60 last quarter. Our ending inventory balance was $137 million, down $11 million as we continue reducing our inventory purchases. Given lower topline sales, the calculated days of inventory on our balance sheet was 122. We bought back approximately 1 million shares in the quarter for an aggregate cost of about $83 million. Our cash balance is at a healthy level even after the recently announced Broadcom transaction with ample flexibility to navigate our capital deployment needs. We continue to prioritize our capital allocation between M&A, share repurchases and debt management. Now, let me turn to our September quarter outlook. We remain consistent in our view of the near-term outlook and dynamics in our business. Our focus continues to be on reducing customer and distributor inventories further in the upcoming quarter, as the June quarter reduced inventory levels consistent with our expectations. By market area, inventory levels have returned close to normal levels in our PC and Mobile products as many customers appear to be moving in a positive direction on product orders. In IoT areas, where inventory levels were highest, we are still working through excess channel inventories, but are now seeing signs of meaningful depletion. Within IoT, demand for our consumer-facing applications has begun to stabilize, while enterprise-focused customer demand continues to be weak. The resulting mix shift is expected to be unfavorable to our gross margin profile. We expect the product mix to return to a more normal profile as recovery begins in early calendar 2024 and margins should correspondingly improve. Given these end market dynamics and expected channel inventory burn in the September quarter, we anticipate revenue to be in the range of $215 million to $245 million, roughly flat with the prior quarter as we expect that the lowest trough point is now behind us. We expect our revenue mix from IoT, PC, and Mobile products in the September quarter to be approximately 58%, 22% and 20%, respectively. We expect GAAP gross margin for the September quarter to be in the range of 43.5% to 47.5%. We expect non-GAAP gross margin in the range of 52% to 55%, a decline from the previous quarter due to the mix dynamics I highlighted earlier. We expect GAAP operating expenses in the September quarter to be in the range of $139 million to $147 million, which includes intangibles amortization, share-based compensation and restructuring costs. We expect non-GAAP operating expense in the September quarter to be in the range of $97 million to $100 million. In response to the demand environment, we are reallocating investments and deprioritizing certain projects, but ultimately believe a robust pipeline of new products will be critical in shaping our future success, therefore we plan to maintain roughly $100 million per quarter. The recently announced transaction with Broadcom is not expected to affect our financial outlook for the quarter. GAAP net loss per basic share for our September quarter is expected to be in the range of $0.55 to $0.95 and non-GAAP net income per diluted share is anticipated to be in the range of $0.15 to $0.55 per share on an estimated 39.5 million fully diluted shares. We expect non-GAAP net interest expense to be approximately $7.5 million in the September quarter. Finally, we expect our non-GAAP tax rate to remain unchanged in the range of 16% to 18%. This wraps up our prepared remarks. I’d like to now turn the call over to the Operator to start the Q&A session.

Operator, Operator

Thank you. Our first question is from Kevin Cassidy of Rosenblatt Securities.

Kevin Cassidy, Analyst

Thanks for taking my question. I have a couple of inquiries. First, last quarter, you mentioned you were under shipping demand by $75 million to $125 million. Can you tell me what it was for the June quarter? How much did you under ship, and are you anticipating more in the September quarter?

Michael Hurlston, President and CEO

Yeah. Kevin, you remember that correctly? We still maintain that as still approximate right, in the June quarter actually we landed about in that expectation. And like we said last quarter, we continue to range consistent this quarter, we think that range probably continues to persist throughout the calendar 2024 that’s probably consistent.

Kevin Cassidy, Analyst

Okay. Excuse me. And the new agreement with Broadcom, expect it will be just as successful as the last agreement. But this is IP-only, and I guess, the elephant in the room is what was the cost or what was the finances behind it?

Dean Butler, CFO

Yes, Kevin, it was $130 million. We believe we secured a very favorable price for the deal, which includes several components. As we mentioned, there are some finished chips that they have developed since our previous agreement that will now be utilized on our side. This includes the Wi-Fi 7 technology we discussed, as well as some Bluetooth technology, and an extension of the deal. All these factors combined, we feel this is a favorable transaction, and while Broadcom appreciates the deal, we are particularly pleased with it. We see this as a good price for all the components we received.

Kevin Cassidy, Analyst

Yeah. I agree with that. That’s much lower than I was expecting $130 million. Congratulations.

Michael Hurlston, President and CEO

Thanks, Kevin.

Operator, Operator

Thank you. Please hold for our next question. Our next question comes from Christopher Rolland of Susquehanna International Group.

Christopher Rolland, Analyst

Thanks, guys. So I didn’t quite follow everything on the channel inventory side. I wanted to know where you thought they were most acute and where they might have normalized. It sounded like PC and Mobile was high, but also you mentioned maybe enterprise, which I thought skewed towards IoT. So if you could put that all together? And then I think you mentioned some module deal on conductivity, where someone was scrapping parts and any commentary there would be great, too? Thanks.

Michael Hurlston, President and CEO

Yeah. A couple of pieces and I’ll have Dean follow. So number one, in terms of inventory, I would say, we still have a couple of quarters of burn to go through because of the over shipment problem. But that burn is now skewed to IoT. So we feel a lot better about where PC and Mobile inventories are. We’re feeling better about some aspects of IoT, but as you highlight in the question, enterprise which encompasses things like our documentation business, some enterprise telephony, there’s some issues in set-top box, we are still projecting that we are a couple of quarters away from burning through all of that inventory. So pretty good PC, Mobile, IoT a bit of a mixed bag, but IoT, for the most part is where the issue is and thus, as Dean characterized the overall drag on gross margin.

Christopher Rolland, Analyst

Okay.

Dean Butler, CFO

Yeah. So I’ll just take the last part of your question, Chris, which was around the scrap at a large customer. So we did enter into a one-time scrap agreement, which is a cost of goods charge to scrap a bunch of parts that are specific for their use. Does that answer is happy for you?

Christopher Rolland, Analyst

Okay. Yeah.

Michael Hurlston, President and CEO

It was on a module. I mean, your question sort of led to a module, it was a separate non-module customer. We are burning inventory in our large module customer. That’s more of an inventory situation and then as Dean talked to the scrap situation is a direct customer.

Christopher Rolland, Analyst

Thank you for the clarification. Regarding pricing pressure, was that specific to Automotive Touch, or did it encompass all of Touch? Are there other areas of your business experiencing pricing pressure as well, such as conductivity, considering the excess inventory? It seems that many in the conductivity sector are facing a decline due to overstocking. Are you witnessing pricing pressures in that area or any other parts of your business? Thank you.

Michael Hurlston, President and CEO

Yeah. So, Chris, the comment in the prepared remarks was very specifically pointed at automotive and we’re certainly seeing some pricing pressure in our automotive business, which has actually held up really, really well for us, but these are designs that would be shipping in multiple years in order to bid and win on those designs. We’re seeing quite a bit of price pressure. But to your question, we’re certainly seeing some pricing pressure, as you alluded to on Wi-Fi and a bit on our Touch technology. But overall, remember as we’ve sort of characterized on previous calls, our IoT business is largely pockets of strength, where we were sole sourced in many instances and we have some pricing power in areas that are more competitive, like the Wi-Fi, like the Touch and Mobile, we’re definitely seeing some pricing pressure.

Christopher Rolland, Analyst

Fantastic. Thank you, Michael.

Operator, Operator

Thank you. Please hold for our next question. Our next question comes from Nick Doyle of Needham.

Nick Doyle, Analyst

Hey, guys. Thanks for taking my question. For the COGS charge. Did you guys quantify the impact to the margins and do you anticipate any further write downs for other parts?

Michael Hurlston, President and CEO

Yeah. Nick, so we didn’t quantify, I mean, there’s, obviously, lots of moving pieces. I wouldn’t focus so much on what the COGS charge is for the scrap portion, the largest piece of the movement around gross margin, which I think is the thing that you want to just sort of get focused on is really around the imbalance of the mix of the products, specifically with some of the enterprise-focused customers actually driving that mix, even within IoT a little bit more unfavorable. So that is probably what I would sort of guide you to.

Nick Doyle, Analyst

Appreciate that. Yeah. I was trying to get a little sense there. When you’re talking about the Broadcom deal, there was a line that said, you’re trying to focus on the broad market part of the roadmap, can you just expand on what products that is?

Michael Hurlston, President and CEO

Our product line currently focuses on high performance, primarily transferring video between devices, which demands substantial bandwidth and performance. Over the next few years, we plan to shift our roadmap towards more basic connectivity solutions, such as point-to-point connections via Bluetooth, Zigbee, or Wi-Fi. This area represents a significant market opportunity that we have yet to explore. Our engineering investment is dedicated to realigning our roadmap to target this broader market. We anticipate future opportunities to integrate our SOCs and processors, potentially through bundling, allowing us to deliver more content across this wider market segment.

Operator, Operator

Thank you. Please hold for our next question. Our next question comes from Hadi Orabi of TD Cowen. Please go ahead.

Hadi Orabi, Analyst

Hey, guys. This is Hadi for Chris. Congrats on signing the deal with Samsung. Pretty interesting. It seems that the trend has been leaning more towards foldable phones, especially in Android. So can you remind us about Synaptics opportunity there, like what percentage of mobile revenues go to foldable phones and whether the competitive environment is different there than regular phones? And I have another question please.

Michael Hurlston, President and CEO

I’m not sure if we break out the specific revenue related to foldables, and I don't have that information readily available. However, I can say that we are heavily focused on flexible OLED displays, which dominate both the foldable and flip markets. As flexible OLED becomes a larger share of the market, we are seeing increased attachment rates, which is driving our strong performance. Regarding the Samsung deal, as noted earlier, we provide two Touch ICs: one for the front panel and another for when it transitions to the full panel. Currently, we are not involved in the foldables, but we see it as an opportunity as the trend towards foldable phones continues, playing to our strengths.

Hadi Orabi, Analyst

Got it. Thanks, Michael. And just on the Bluetooth 6 IP. First, just clarification, do you have a standalone Bluetooth product today for the Bluetooth 5? And second, you talked about Bluetooth 6 expanding product line to the enterprise handset market. Are there any other new markets that Wi-Fi7 and Bluetooth 6 can open for you, like in healthcare, industrial, et cetera? Thanks.

Michael Hurlston, President and CEO

Your question is a good one. Currently, we do not have a standalone Bluetooth offering before this transaction. We still need to enhance the Bluetooth engine to make it highly competitive. We can deliver to certain markets today, such as human interface devices and remote controls. This opens up several new markets for us, but to penetrate industrial, medical, and other sectors, we have plans to move in that direction. With the Bluetooth 6 technology, we are now much closer to our competitors than we were prior to this deal. We've significantly narrowed the gap on Bluetooth, and our aim is to tap into the markets you mentioned, including industrial, medical, and gaming, which we currently do not address with standalone Bluetooth.

Hadi Orabi, Analyst

Thanks, Michael. And just a quick follow-up, competitors in this market would be Silicon Labs and Nordic Semi, right?

Michael Hurlston, President and CEO

Yeah. Perfect. Perfect compare, Hadi.

Operator, Operator

Thank you. Please hold for our next question. Our next question comes from Gary Mobley of Wells Fargo.

Gary Mobley, Analyst

Hey, everyone. I appreciate you taking my question. Dean, earlier you mentioned a shift towards actual customer end demand by what I believe you referred to as the fourth calendar quarter of 2024. Did you mean the fourth quarter of fiscal year 2024, since that’s what I think you stated before? I’d like to confirm what is typical when you start shipping to actual customer end demand. Is that around $325 million to $330 million in revenue?

Dean Butler, CFO

I believe you are correct, Gary. It remains to be seen what the exact trajectory will be and which quarter marks the return to full, normal end consumption. We're already noticing that we're getting quite close on the PC front, and for Mobile, it appears that much of that inventory has been worked through. Specifically for PCs, it seems that situation is likely behind us, while Mobile is still somewhat volatile and fluctuating. However, IoT will take a few more quarters, as you mentioned, and as we discussed in the last quarter's call. Therefore, I think you'll observe inventory reduction over the next couple of quarters within the current range. After that, as the inventory decreases, we should start to see topline growth as we approach the end of demand in the following quarters.

Gary Mobley, Analyst

Okay. Thanks, Dean. With respect to gross margin. So your guidance implies that you’re going to run about 350 basis points below your long-term view and I get the mix within the mix headwind in IoT. But is there also a factor playing here in that, maybe it’s a little bit more difficult to pass along price inflation from your foundry partners? And in a world where your enterprise IoT business bounces back to its previous level? Do you still feel see 57% as a long-term gross margin target?

Michael Hurlston, President and CEO

I believe we are currently at the lower end of the gross margin outlook. This situation reflects a challenging mix, particularly with our enterprise-facing customers, who typically provide a better gross margin. As we work through inventory issues and the mix stabilizes, we expect to return to our long-term gross margin target of 57%. There's a chart available in our supplemental slides on the investor website that illustrates how gross margins correlate with our product mix. I am not particularly worried about the return of our gross margins as the IoT mix improves.

Gary Mobley, Analyst

Okay. And as far as offsetting higher foundry quotes, I’ve imagined, that’s not much of an issue any more or less of an issue, but maybe you can just talk about that, that ability to pass along price increases?

Michael Hurlston, President and CEO

Yeah. I mean, it’s lesser, Gary. And I think that sort of coming from our historic 60% run rate to 57% contemplates that. So I agree with what you said. We were running I think for the year, Dean gave the number of 60%, as we think about long-term, 57% contemplates input prices changing and it contemplates a much less ability. We do have pricing power, as I mentioned to a previous questioner, but I think our ability to pass on a significant majority of those increases, those days have gone.

Gary Mobley, Analyst

Thanks, guys. Appreciate it.

Michael Hurlston, President and CEO

Yeah. Thanks, Gary.

Operator, Operator

Thank you. Please hold for our next question. Our next question comes from Martin Yang of OpCo.

Martin Yang, Analyst

Hi. Good afternoon. Thank you for taking the question. My question is on a sign of recovery and the timing for recovery across different sectors. Definitely understand the PC dynamic where it could stay in bottom for a longer time. Do you see mobile recovering from the current bottom are normalized inventory much faster than the other two?

Michael Hurlston, President and CEO

Yeah. Martin, I mean, I think, what we were trying to get people oriented around is Mobile and PC have largely recovered. I think in PC we’ve seen inventory levels now close to normal. The complication is that the demand particularly from enterprise has not yet picked up. We forecasted picking up in the fourth quarter and then early next year, but it has not yet picked up. So although inventory is in pretty good shape. I think a demand still remains a question and that’s largely hinging on enterprise spending. In Mobile, we had a good quarter this quarter. I think we’ve got a tailwind with Samsung. We expect to do some additional business with Samsung in the ensuing quarters. As I think both Dean and I characterize the one headwind we’re experiencing in Mobile is not necessarily to do with inventory or to do with end demand. It’s to do with the roll-off of our display driver with our large customer. So that’s, as I said, it’s now an increasingly immaterial part of our business, but it’s still there. It’s still a piece of the business. So we have work to do to offset that as it asymptotes to zero as I said in my remarks.

Martin Yang, Analyst

How material is the legacy DDIC business to Mobile if you measured it on the last month basis?

Michael Hurlston, President and CEO

Yeah. It’s single-digit percentage, Martin.

Operator, Operator

Thank you. I’m showing no further questions at this time. I would now like to turn the conference back to Michael for closing remarks.

Michael Hurlston, President and CEO

Yeah. I’d like to thank all of you for joining us today and we certainly look forward to speaking to you at our upcoming investor conferences during the quarter, and more importantly, our Investor Day in September. Thank you.

Operator, Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.