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Silicon Laboratories (NASDAQ:SLAB)

Q4 2012 Earnings Call

January 30, 2013 8:30 am ET

Executives

Shannon Pleasant

G. Tyson Tuttle - Chief Executive Officer, President and Director

Paul V. Walsh - Chief Financial Officer and Senior Vice President

Analysts

Craig A. Ellis - B. Riley & Co., LLC, Research Division

Ian Ing - Lazard Capital Markets LLC, Research Division

William Harrison - Wunderlich Securities Inc., Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Vernon P. Essi - Needham & Company, LLC, Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Blayne Curtis - Barclays Capital, Research Division

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Cody G. Acree - Williams Financial Group, Inc., Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Terence R. Whalen - Citigroup Inc, Research Division

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Auguste P. Richard - Piper Jaffray Companies, Research Division

Operator

Good morning. My name is Wendy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs Earnings Conference Call. [Operator Instructions] Thank you. Ms. Pleasant, you may begin your conference.

Shannon Pleasant

Thank you, Wendy, and good morning. This is Shannon Pleasant, Vice President of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results.

This call is being webcast-ed and will be archived for 2 weeks. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the investor page of our website at www.silabs.com.

I am joined today by Tyson Tuttle, President and Chief Executive Officer; and Paul Walsh, Chief Financial Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following our prepared remarks.

Our comments today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time. By discussing our current perception of our market and the future performance of Silicon Labs and our products with you today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

Also, the non-GAAP financial measurements, which are discussed today, are not intended to replace the presentation of Silicon Lab's GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations.

I would now like to turn the call over to Silicon Labs' Chief Executive Officer, Tyson Tuttle.

G. Tyson Tuttle

Good morning, everyone. I'm pleased to report Q4 revenue of $152.5 million, our third consecutive record quarter.

While a difficult year for the industry, Silicon Labs delivered record revenue of $563 million in 2012, representing 15% growth over 2011. Fourth quarter results were better than anticipated due to strength in our video and access products. The broad-based products were also up due to continued market share gains as well as seasonally strong orders in our legacy touch business. I'll talk more about the trends for the quarter after Paul reviews the financial results. Paul?

Paul V. Walsh

Thank you, Tyson.

Fourth quarter revenue of $152.5 million was up 2% sequentially and 20% year-over-year.

On a GAAP basis, fourth quarter gross margin was up meaningfully to 61.4%. R&D investment increased to $36 million and SG&A expense increased to $32.3 million, resulting in GAAP operating income of 16.6% or $25.3 million. GAAP earnings of $0.44 was slightly above our guidance and included charges related to executive separation agreements, credits associated with the Ember acquisition and $7.4 million of stock compensation expense.

Turning to our non-GAAP results. Gross margin improved to 61.6%, driven by growth in our Broad-based business, particularly Timing. Mix continues to influence our gross margins in the near term, and we expect gross margin to be in the range of 60% to 61% in Q1.

Operating expenses increased to $60.2 million due to additional R&D and sales activity as well as higher variable compensation tied to the strong performance in the quarter. R&D increased to $32.7 million and SG&A increased to $27.5 million. We expect operating expenses will be up seasonally $1 million to $2 million in Q1. We will endeavor to hold G&A expenses relatively flat beginning in Q2.

Operating income in Q4 continued to improve, ending at 22.1% of revenue. Other expense of $900,000 included a full quarter of interest payments resulting from the debt service on our credit facility. Net income in Q4 decreased slightly to $25.9 million or 17% of revenue.

The Q4 tax rate was 20.7%. We expect a significant tax benefit in Q1 from the 2012 U.S. R&D tax credit catch-up, resulting in an unusually low tax rate in the low to mid single digits for Q1 and a reduced tax rate of about 17% for Q2 and beyond.

Strong growth in gross margin enabled solid earnings performance. The company delivered earnings per share of $0.61 in Q4. For the full year, Silicon Labs' earnings of $2.16 were up 20%, demonstrating good leverage on the 15% top line growth.

Turning to the balance sheet. Accounts receivable increased to $78 million on 46 days sales outstanding, consistent with the growth in revenue. We continue to have no known or -- collection or bad debt problems.

Our inventory levels were up, ending at $49.6 million, consistent with the anticipated growth in video, wireless and microcontrollers. Channel inventory declined significantly to 44 days, so we continue to believe the inventories are relatively well balanced. We expect our own inventory levels to decline modestly in Q1.

Cash flow continues to be strong, with cash, cash equivalents and investments increasing to $293 million at the end of the quarter.

We repurchased 245,000 shares for $9 million. The current authorization is expiring and will be replaced with a $50 million authorization, approved by the Board of Directors, that runs through January of 2014. We plan to be -- we plan to continue to be opportunistic for share repurchase throughout 2013 as a key use of cash.

At this point, I will turn the call back to Tyson.

G. Tyson Tuttle

Thanks, Paul.

2012 was a great year for the company. We navigated through important product test transitions and acquired key technology. We launched strategic products in MCUs, sensors, isolations, Timing, wireless and video, and I think our competitive position is better than ever. We're expanding our Broad-based portfolio, solidifying our dominant position in Broadcast and managing the moderate decline anticipated in our Access business.

We are targeting very large markets with innovative technologies that are enabling key trends in the industry, for example, networking and computing infrastructure, low-power and green energy applications and the explosion of connected devices called the Internet of Things. Over the last several years, we've aligned our Broad-based product development to address these important industry trends. And now as we exit 2012, Broad-based represents nearly half the company's revenue. This business has an impressive design win momentum and an expanding customer base.

Broad-based products were up about 5% sequentially in Q4 and 30% for the full year. The largest piece of the Broad-based category is made up of our MCU products which represented 23% of total revenue in 2012. This category was down slightly in Q4, as expected, but up nearly 50% versus the same period last year. This is a result of both a successful acquisition and very strong organic execution.

You've heard us talk about the potential for the Internet of Things. The enthusiasm caught on at the Consumer Electronics Show this month, with the Internet of Things taking center stage. Customers have developed and are marketing hundreds of connected devices and there is a rapidly growing number of deployments in home, commercial and industrial applications.

We have an expanding portfolio of products for these markets. In Q4, we announced the latest addition to our sensors family: a highly integrated and highly reliable humidity and temperature sensor. Leveraging a patented design, this sensor-on-a-chip eliminates the calibration headaches associated with the existing humidity sensors that have limited widespread adoption. And when paired with our low-power MCUs and wireless connectivity products, we're able to provide complete solutions in thermostats, smoke detectors, food and asset tracking systems, weather stations and other climate control systems.

We expect the MCU products to be down in Q1 as the consumer demand declines seasonally, offset somewhat by a return to -- in the more industrial-oriented segments of the business. We believe MCU has the potential to continue to be a double-digit growth area for us in 2013. We're building on design win momentum in metering and home automation, in aftermarket peripherals and USB devices, in portable electronics, in industrial automation and in medical applications.

The 32-bit portfolio we've developed now has 4 families based on the ARM Cortex-M3 core, general-purpose MCUs targeting the industrial market, MCUs targeting USB-enabled products, the industry's lowest-power MCUs and our 32-bit ZigBee wireless MCUs. The rapid expansion of our portfolio in this area has been opening doors at new customers and providing us with additional momentum in the 8-bit market as we demonstrate our long-term roadmap.

We were able to grow the Timing business again in 2012 despite persistent demand weakness at communications infrastructure providers. Timing represented 13% of revenue for the full year driven by growth in markets, including industrial, storage and embedded consumer that more than offset demand -- the -- more than offset the soft comms demand.

Timing had a record quarter in Q4, growing 8% sequentially and 20% compared to Q4 of 2011. Design wins increased by 80% year-over-year in Q4. While many of these of new designs are in networking infrastructure, a good number are also in cloud computing for big data, broadcast video, industrial, medical and test and measurement. This expanded addressable market for our Timing products, combined with demand for 100-gig networks, supports the increasing market penetration we're forecasting.

For the time being, we're not expecting a bounce back in the comms market in 2013. We are forecasting a decline in Timing in Q1 as the embedded consumer revenue that ramped in the back half of 2012 pauses seasonally. But we believe the increasingly diversified customer base for our Timing products will result in another strong growth year in 2013, with the opportunity for acceleration when the comms market does recover.

Moving to Broadcast. The business was 1/3 of total revenue in 2012 and grew 10% year-over-year. Video was a tremendous revenue driver, with growth well ahead of our initial targets. We exceeded our market share goal, taking about 1/3 of the overall TV market with our silicon tuner in 2012, further securing our dominant position. Q4 video revenue was up sequentially by more than 10% due to stronger-than-anticipated demand from our Korean customers.

A crossover to our latest-generation devices is happening quickly, and we're pleased with the market reception from new and existing customers. Tier 1 design wins are essentially closed for 2013 models, and with the strong leadership position coming out of that design cycle and the tailwind of increasing silicon tuner penetration, we anticipate unit and revenue growth will result in further market share gains this year.

We're also going share among Taiwan ODMs serving the Japan market and China OEMs building TVs for domestic consumption and export, all new business for us. Near term, we expect video revenue in Q1 to be flat sequentially as our customers transition from 2012 to 2013 models.

Broadcast audio revenue in Q4 was down sequentially, as expected, and ended the year down by about 10%. Audio turned the quarter in 2012 as our handset business declined to 5% of revenue and our automotive products began ramping. We're expecting the overall audio business to return to growth in the low single digits in 2013 on the strength of automotive market penetration.

The Access business was up in Q4 and represented 19% of revenue for the full year. We were expecting a decline in the fourth quarter, but stability in our Voice over IP and modem products, combined with growth in Power over Ethernet resulted in sequential growth.

While we're pleased with the strength of the Access business and believe it demonstrates the longevity of our mixed-signal products, we expect the modem business will decline over time. As a result, we're anticipating the Access business in total will be down in Q1 and will likely decline around 10% in 2013.

Now for Q1 guidance. We're currently expecting a seasonal decline, with revenue down sequentially 4% to 8%. We expect Broadcast be flat and Broad-based and Access to be down. As Paul mentioned, we expect gross margin to be in the range of 60% to 61%. We anticipate that operating expenses will be up seasonally by $1 million to $2 million.

On a GAAP basis, we are projecting earnings of $0.34 to $0.40. And on a non-GAAP basis, we except earnings to be $0.51 to $0.57.

That's all we have for prepared comments. We'd now like to take your questions. Shannon?

Shannon Pleasant

Thank you, Tyson. We will now open the call for the question-and-answer session. [Operator Instructions] Operator, please review the question-and-answer instructions for our call participants.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Craig Ellis with B. Riley Caris.

Craig A. Ellis - B. Riley & Co., LLC, Research Division

Tyson, you talked about the diversification in the Timing business. Can you just scope the size of the non-communications part of that business on a revenue basis as we head into the first quarter? And as that business grows through the year, how should we expect the size of the non-communications business to expand over the course of 2013?

G. Tyson Tuttle

Right, so we've spent the last number of years investing in the Timing portfolio and now have a broad range of products targeting not just the communications market but things like servers and storage and even some consumer applications. We -- the size of the market that we're addressing outside of the communication market in clocks and oscillators, we believe, is between $500 million and maybe $800 million, $900 million of the total market. If you look -- the revenue is still largely dominated by the infrastructure, the communications infrastructure players, but I would say that the growth that we saw in the quarter was primarily in the non-communications pieces. And so we're not completely breaking it out or being specific about it, but we believe that we're addressing a substantially expanded market with these new products and we still have a very small share of that, so we do believe that, that will be one of the growth drivers that we see in 2013 even if we don't see the comms market recover.

Craig A. Ellis - B. Riley & Co., LLC, Research Division

And then the follow-up is perhaps to Paul. Paul, I think we've been expecting that -- as you move to the next-generation video products, that the gross margins on those products would improve. Is that still the case? And as we think about the first quarter guidance, is the sequential decrease in gross margin simply a function of the mix shift towards video and away from some of the higher-margin products? Were there -- or are there other factors in effect?

Paul V. Walsh

Well, Craig, yes, I think the -- you hit it right on the head. The decline in the guidance for Q1 for gross margin is largely a function of the mix at the company level as Broad-based and Access are expected to decline and Broadcast to hold flat. We expect that to impact the overall mix downward. There is improvement in the next-generation tuner, as we've talked about previously, and that is helping the top line -- on top -- I mean, the gross margin line.

Craig A. Ellis - B. Riley & Co., LLC, Research Division

And then lastly for me before I jump back in the queue. You're at 33% market share now. Where would you expect to exit the year with the TV tuner business? And the -- and what's the longer-term goal for market share?

G. Tyson Tuttle

Right. So on the broadcast video side, we exited the year with 33% share, so about 1/3 share last year. And we've said that we're going to be up both in terms of units and in terms of revenues. So with the expected decline in ASPs year-over-year, we think that we're going to be well positioned to take a larger share of the market in 2013. Where that will end up kind of depends on where some of the shares of our customers end up in the end market, but we feel pretty confident that we're going to expand the share going into 2013. We've also got some tailwinds in terms of the silicon tuner penetration overall as the -- more of the market will be switching to silicon tuners. We think that about half the market last year were silicon tuners, and we think it could be 2/3 or more silicon tuner penetration this year. So given our dominant position and the design win momentum, we think that we'll maintain our fraction of the market there for silicon tuners.

Operator

Your next question comes from the line of Ian Ing with Lazard Capital Management.

Ian Ing - Lazard Capital Markets LLC, Research Division

Could you -- you said handset touch was decent in the quarter. What percent of sales is handset touch right now, and expectations going forward?

G. Tyson Tuttle

Right, so the -- handset touch was a little stronger in Q4 than we had anticipated going into the quarter. It was somewhat less than 5%. And going into Q1, we -- that's one of the headwinds that we've got a little bit. It's probably about a 2% headwind going into Q1. So it was little bit stronger. We had thought that the handset touch would have wound down by the end of the year, and now we think it'll be winding down by midyear 2013. So it's got another step-down here in Q1 and then probably, most of the way, down beyond that in Q2.

Ian Ing - Lazard Capital Markets LLC, Research Division

Great. And my next question. You talked about strength in Timing embedded in industrial applications. How far are you in terms of building it up, more of the Timing products, for the higher volume, lower-cost opportunities following the SpectraLinear acquisition?

G. Tyson Tuttle

Right, so I mean, that dramatically increased our portfolio of devices across a wide range of additional applications. And we've continued to invest there and produce new variants of those products to more fully cover these areas. So the -- we've also been maintaining the pace of developments on the communications infrastructure side. So we think we've got a complete portfolio of parts to address a wide range of applications and a lot of flexibility to go after these, going forward. So we feel confident about our continued market share gain and product execution as we enter into 2013. The design win momentum in that area has also been record levels. So we were 80% up year-over-year in terms of design wins and that is largely a reflection of the increased breadth of that portfolio.

Operator

Your next question comes from the line of Sandy Harrison with Wunderlich.

William Harrison - Wunderlich Securities Inc., Research Division

So Tyson, you talked a little bit about the Internet of Things. It seems such a broad topic, and a lot of different ways to hit it. If you could just maybe spend a second highlighting how you guys are approaching it, what areas you think are going to sort of fill-in and be opportunistic first and how it is that your strategy is to come at this market.

G. Tyson Tuttle

Right, so the Internet of Things is a really important and strategic market for us. This is -- we're nearing 10% of our revenue, if you add up all of the applications around the Internet of Things. We've got a pretty strong presence in home security and automation, in some of those smart energy and metering applications. And we've got multiple technologies that come to bear into this market, which is what makes it really strategic for us. We've got low-power wireless MCUs, we've got sensors, we've got power products. So this is really an exciting opportunity going forward for us. And it's getting a lot of attention both, we've talked about the Consumer Electronics Show. But with a lot of these emerging applications, I think this is going to be a great growth driver for us going forward.

William Harrison - Wunderlich Securities Inc., Research Division

And then a quick follow-up for Paul. When you look at the margins in this business, is it in line with the corporate average? Is it better, lower or -- just what's the -- when you're talking billions of units of opportunity, how do you guys look at it from a margin perspective?

Paul V. Walsh

Sandy, this -- I would characterize this as basically being in line with the corporate average, for this opportunity.

Operator

Your next question comes from the line of Anil Doradla from William Blair.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Guys, a couple of questions. Tyson, you've talked about design wins being locked on for 2013. Can you walk us through what the implications are, I mean, from a pricing point of view? And do you expect to launch any new iterations of your chips during 2013?

G. Tyson Tuttle

Yes. So the design wins -- most of the design wins at the Tier 1 for 2013 are locked in. And I'd say, most of the China and Taiwan players, also locking down for 2013. So we -- I feel good about our position going into the year in terms of growth. We're certainly going to grow units and revenue, which means that we're going revenue -- growing units faster than the ASPs are coming down. We've seen maybe a 15% year-on-year historically in this, and I don't see anything different this year in terms of ASPs. And we've certainly got the cost productions in place to be able to support that. And we've broadened that portfolio to have specific targeted versions for some of the Tier 1s, as well as the various segments of the market, to match up to the various SSCs that you see out there. So certainly, we've got a couple portfolio to compete for 2013, and continuing momentum on the product development side as we march through the year.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

And on the Timing side, you said you don't expect any comeback, but would love to hear what you're picking up from your customer base. Any trends on a geographic basis or product cycle basis, 3G versus 4G or optical? Any thoughts would be helpful.

G. Tyson Tuttle

Well, we talked about the 100-gig rollout, and that's certainly a factor for us. The -- I'd say that we were probably a little stronger, in the U.S., in the North America area in terms of revenue in Q4. And the design wins are there. It's a little bit hard to -- not a lot of visibility out in the second half right now in terms of Timing. And I would characterize the environment right now as weak in that communications infrastructure piece. And I can't point to specific areas and say that we've got particular strength with any of those. But then I think -- given the design win momentum that we have, I think we're well positioned in that communications infrastructure piece to continue to take share in 2013 regardless of the macro situation out there.

Operator

Your next question comes from the line of Vernon Essi with Needham & Company.

Vernon P. Essi - Needham & Company, LLC, Research Division

I was wondering regarding the guidance and, of course, the channel inventory number you provided. You -- it seems like the channel is somewhat light. How is the tone out there? And I know you -- earlier you had talked about the headwind on the touch side, but can you just sort of flesh out the puts and takes of that guidance that you gave?

Paul V. Walsh

Vernon, this is Paul. The channel inventory of 44 days is -- I think it's a good level for us. I don't think it's necessarily light. It's in the target range that we've typically highlighted of 40 to 50 days. With regard to touch, as Tyson alluded to, it is touch has become like -- touch has been a headwind since we exited, and it will continue to be -- provides a little bit of resistance into Q1 for revenue as well. Then -- and that's part of the factor. Other than that, this is generally a seasonality impact that we're seeing in Q1.

Vernon P. Essi - Needham & Company, LLC, Research Division

But you would say that in the -- as far as you're concerned, from a channel perspective, things are sort of normal for this seasonal time of year?

Paul V. Walsh

Yes, I don't have any concerns about what our channel inventory is.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And then my second question. On the OpEx side, you've got a sequential gain of $1 million to $2 million on the guidance front. Where do you see that more falling, on the R&D or the SG&A side?

Paul V. Walsh

It's probably split relatively even. And we -- typically, we have a seasonal uptick in Q1 as all payroll tax and salary increases are reset. And that's pretty well understood, I believe. I would say we continue to have strong R&D activity and strong tape-out activity, and that will continue going forward. But our intention on the OpEx side really is -- as it was in 2012, is to gain leverage on the bottom line through top line growth.

Vernon P. Essi - Needham & Company, LLC, Research Division

Okay. And then finally, Tyson, you had an earlier question on the Internet of Things. I'm wondering, from your perspective, where do you see the biggest opportunity sort of in 2013? Do you still think it'll be the sort of vertical approach with customers, like a Control4? Or do you think you'll see more things kind of coming from just the -- you should almost call it the catalog side of the business?

G. Tyson Tuttle

Well, it's a fairly broad range of customers and hand devices that go into the Internet of Things. If you look at, for instance, someone like Lowe's or even some of the security providers, you've got the cable companies rolling out security systems, there's a variety of devices that get connected up into these networks, various sensors, various -- you've got lighting, you've got some of the home security and fire and environmental types of devices. And so you'd get a real different number of devices with chips in them and additional mixed-signal content for us. So I think that those are going to be the -- some of the primary areas, the home automation, home security and the energy type of applications, that are going to be really driving the growth in 2013. And I -- and it is an increasing customer base. And one of the goals that we have is to try to provide system-level solutions so that you can serve that broad channel of customers.

Vernon P. Essi - Needham & Company, LLC, Research Division

I mean, that's the gist of my question. I mean, is it more, at this point, still you see a systems-level sale? Or is it increasingly becoming less so?

G. Tyson Tuttle

I think it is a complete system that we're able to provide. And we have multiple components going into that system, as well as that software that wraps around it. So I think that we've got a very good position and a good value proposition to all the different customers that we're addressing.

Operator

Your next question comes from the line of Steven Eliscu wih UBS.

Steven Eliscu - UBS Investment Bank, Research Division

First question, around gross margin looking a little beyond Q1. Just -- you talked about your new generation of video getting good acceptance and the cost reductions you've talked about in the past related to that new family. And just for the growth of Broad-based and those products rolling out through the year, what is the opportunity to get gross margin above the low end of your range, which you been out since now the beginning of 2011? Could we expect it to get up to, let's say, 62% exiting the year?

Paul V. Walsh

Steve, this is Paul. Two bit, a few pieces of this, I'll take it in chunks. First, the -- there is improvement in the TV tuner gross margin, but as we've said all along, it's never going to get back to the corporate average. It just becomes less of a drag than it used to be. Second, the impact in Q1 is largely a mix or it is largely a function of the mix, with Broad-based and Access down and Broadcast flat. We saw this mix in 2012, but as Broadcast grew throughout 2012, you saw the list that we talked about taking place where gross margin basically expanded to almost close to 62% as we exited the year to 61.6% for Q4. Now I would expect that, as Broadcast -- as Broad-based recovers in 2Q and beyond, I would think we would begin to see a natural lift in gross margin towards more desirable levels. I'm not going to call a quarter of when that would be, but I think we will see improvement, like we did in '12.

Steven Eliscu - UBS Investment Bank, Research Division

So just kind of calibrating, if we look at the year-on-year improvement on Q1, that's kind of an indicator as to how we should think about the full year.

Paul V. Walsh

For gross margin?

Steven Eliscu - UBS Investment Bank, Research Division

Yes.

Paul V. Walsh

Yes, I think you can. I think one piece that still plays through, and that is growth. As Broad-based becomes an increasingly larger part of the company, that gross margin will begin to lift. And it's close to 50% of the company today. And once -- as we cross that line, it will definitely pull gross margin up with it.

Steven Eliscu - UBS Investment Bank, Research Division

And then just as a follow-up. If we think about 2013, Paul, you talked about wanting to gain operating leverage and holding OpEx fairly flat from Q2. If you are able to do that, clearly you will gain some leverage. But I -- we saw in 2012 you still felt you needed to do acquisitions to fill out your technology portfolio to address some of these secular trends such as Internet of Things. Are there any pieces this year you still think that you'd need to acquire, let's say, around wireless or sensor capabilities, an Ember-sized acquisition that may still be on -- that may still be ahead of us that may prevent realizing as much leverage as you're indicating?

Paul V. Walsh

Probably. We always look at -- we're always very -- I guess we're always constantly looking at acquisition opportunities. And we look for them really to be strategic type of opportunities that would help accelerate our growth going forward. I -- we believe the Ember acquisition was a great example of that. And we -- that's -- it's a core component of our capital strategy to continue to look at that going forward. Now how that impacts our operating leverage is -- it's only would be a guess at this point. I mean, our intent when we acquire companies that have a revenue stream or late-stage private is really to get them to be accretive in a 12-month time horizon.

G. Tyson Tuttle

Yes, Steve, this is Tyson. I just want to restate, our objective is that we are very much focused on organic growth, on making sure we select the right products on execution and gaining share. And the way we've approached our M&A activity and the way we're approaching it is to identify strategic gaps, like we did with the Ember acquisition in terms of the ZigBee portfolio, and use those to augment our portfolio to accelerate that growth going forward. So while we aren't ruling out anything and continue to be active and -- in the market out there, I think that our focus on organic growth remains our primary objective...

Steven Eliscu - UBS Investment Bank, Research Division

I guess, just -- you're -- do you feel essentially you're pretty well set and there may be other acquisitions you need to do? Or are there still some of the -- are there still some big gaps out there? I guess I'm just trying to get a sense as to the degree of that.

Paul V. Walsh

Yes, I think we're -- Steve this is Paul again. we're -- our focus is largely organic growth. I mean it historically has been that way. And we view acquisitions as opportunities to either acquire some key technology that would help accelerate the roadmap or something that would be equally strategic if it's a little bit more developed. But what -- the focus has been and remains organic growth.

Operator

Your next question comes from the line of Blayne Curtis with Barclays.

Blayne Curtis - Barclays Capital, Research Division

Just a follow-up on the video business. I know seasonality seems impossible to kind of trend here, but just you mentioned that you're seeing a transition over to the '13 models. So if you can take just a view as to how you see this year playing out. You've -- in the past, we've seen a big kind of first half and then it fades. And you've seen -- it's -- you should have some idea of where you stand. And then you talked about growth but didn't kind of quantify for this business line a specific number. I think you talked about revenue still growing. So can you talk about the moving pieces? It sounds like you are gaining a good bit of share and the market is moving your direction. But what are the moving pieces for the full year growth?

G. Tyson Tuttle

Right. I mean, we had a great year in 2012. We ended the year at record revenue. And while we're taking a little bit of a pause as the TV makers are moving into 2013, it's still quite strong. And I think that the market share gains that we've got means that we're well set up for the year as it goes through. I would say that, the video business, while it's targeting consumer applications, is not the -- it is not as cyclical -- or it doesn't have as much variation over the year, as some of the other types of businesses. So I don't expect through the year for there to be ups and downs. What we've seen in the past has largely been a function of market share gains. And so I think we're going to have pretty steady revenue on the video side given inventory and all of that out in the market staying in balance. But overall, from the visibility that we have right now which is somewhat limited, I would say that it's going to be fairly steady to -- or maybe steady to rising as we move through the year, in modest fashion.

Blayne Curtis - Barclays Capital, Research Division

And I know the touch business is going away. It spiked up in Q4. Can you talk about -- when you look at your decline into Q1, how much of that touch -- how much does touch represent of that decline? And I think -- I just want to clarify that you expect it to kind of be down into insignificant levels by kind of midyear. Is that correct?

G. Tyson Tuttle

Right, so we -- touch was a little bit under 5% of revenue in Q4, stronger than we thought it was going to be. I guess the handsets that we were designed into have a little bit longer life and are selling quite well. So we expect -- so out of that, we've got a pretty strong guide going into Q1, with the midpoint 6% down. And about 2% of that, so -- is out of the touch. So we've got about a 2% headwind going into Q2 and then we'll have maybe a similar type of decline going into -- I'm sorry, about a 2% headwind going into Q1 and probably another 1.5%, 2% going into Q2, and then it will down to small levels. So we think, by the middle of the year, touch will be 0.

Operator

Your next question comes from the line of Tore Svanberg with Stifel, Nicolaus.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

First question is, I know you usually don't give bookings data and backlog data, but could you just talk about sort of your relative visibility going into the March quarter? I'm just trying to understand, from a linearity perspective, is the environment still quite stable for you?

Paul V. Walsh

Tore, this is Paul. Yes, and typically, the way we build our guidance really is around how our bookings patterns and ordering patterns are trending, particularly relative to prior periods. And we study that carefully. So the -- what -- our guidance is really built on what we're seeing and what we've seen so far and what we're seeing going forward. I would say, like many out there, visibility is relatively limited. It seem -- the visibility doesn't seem to improve, but we feel a lot confident about our guidance based on what we've seen to date.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. And my follow-up question is for Tyson. Tyson, when we talk about Internet of Things, you obviously have most of the technology and components, whether that's low-power wireless, power, MCU. Is there anything else you feel like you need in your arsenal at this point to continue to grow into that market?

G. Tyson Tuttle

No, I think that we've got a lot of the key pieces and really uniquely positioned among the companies that are entering this space, given our sensors, our power products, the broad MCU portfolio that we are developing and the various wireless technologies that we're able to bring to bear. So I feel comfortable that we've got a leading portfolio of products. We've also got some of the leading software offerings in this area to pull the entire system together. So as these applications take off -- I mean, there was a lot of attention at the CES this year. And I think that we're going to continue to focus on driving the integration forward and driving the system-level value that we can provide to help drive the market and drive the growth. So I feel good about where we are in the Internet of Things and think that's a good area where mixed-signal is really an important and a key part of our value proposition and as part of these applications.

Operator

Your next question comes from the line of Cody Acree with Williams Financial.

Cody G. Acree - Williams Financial Group, Inc., Research Division

Could I get just one quick clarification? You did say that the TV business or tuner business was just likely to build a bit through the year and maybe only grow modestly.

G. Tyson Tuttle

The -- in general, the TV market is driven by model years. So you end up -- we've essentially won the 2013 models that we're going to win. Those are ramping into production here as we move through Q1. And so those will remain in production as the year goes on. And if you just look at the quarter-to-quarter variation in shipments in the TV market, it is reasonably consistent throughout the year. So we think that, overall, our business is going to be consistent throughout the year. There may be some opportunity for some additional market share gains as we move through the year, which would be responsible for any uptick.

Cody G. Acree - Williams Financial Group, Inc., Research Division

Got you. And when you look at the Tier 2 players as maybe some of the biggest place you can gain that share, what do you think your mix, Tier 1 to Tier 2, looks like as you exit the year, knowing what you know about design wins?

G. Tyson Tuttle

Well, we certainly have a dominant position at the Tier 1 suppliers. In particular, the leading -- the Korean makers have a long history and tight relationship with those vendors. And that -- given their position in the market and the high value of those products that we sell in there, it is -- I would say that it's more dominated by the Tier 1. But this year, our mix between the Tier 2 and Tier 3 providers, China, Taiwan, both ODM- and OEM-type designs, this is going to be a higher fraction of our revenue this year certainly as we gain share.

Cody G. Acree - Williams Financial Group, Inc., Research Division

Any color on how big that might be?

G. Tyson Tuttle

I don't have a specific number in terms of the revenue breakout, but a lot of the market share gain that we're going to see in the year will be largely driven out of the China and Taiwan increased volume.

Cody G. Acree - Williams Financial Group, Inc., Research Division

And then lastly, when we've talked throughout 2012, there were times when it sounded like be [indiscernible] market for you, the telecom infrastructure market. The niche that you were playing in was a little more insulated, maybe held up a little bit better. It sounds like maybe your tone in that market is now maybe a little bit more conservative. Has anything changed recently?

G. Tyson Tuttle

No. I -- we continued to have record design win momentum in that infrastructure piece across a wide range of applications and across really virtually, if not all, of the equipment makers in a variety of the applications. So we've increased our footprint within them, within those suppliers. It's just that, that has not translated into the revenue growth that we were hoping. And I think that that's an indication of just a broad weakness in across the comms market. And so it's not that we're addressing just a niche or that we're any more -- I said those boxes aren't shipping. We've got some rollout on the wireless infrastructure side, and that's not a place where we have played as much. We were mainly benefiting from a lot of the backhaul investments there. But as we move forward and as we've gotten design wins into more applications in the infrastructure market, we think that, that should provide a lever. But I think that where we're standing right now, the visibility is somewhat limited. But if those boxes do start shipping, we've been lining up the design wins. And we think we're well positioned to benefit from that.

Operator

Your next question comes from the line of Brendan Furlong with Miller Tabak.

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Question, kind of go back on the TV question yet again, unfortunately. But various program applicators, forecasters out there are seeing TV units flat to up to 2013, factoring in all the various moving parts, something around mid single digits, maybe a touch better what seems to be a realistic target for you guys for the year and from the revenue growth?

G. Tyson Tuttle

You mean in terms of the TV tuner revenue?

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Correct.

G. Tyson Tuttle

Yes, I mean, I think that our growth story, 2012 to 2013, is largely based on market share gains. We're not anticipating a large increase in the total number of units. And you've also got to remember that the silicon tuner penetration within that market is increasing, where we were about 50% last year. We're talking about it could be 2/3 or greater of silicon tuner penetration. So really, the growth that we're seeing, we haven't given specific targets on the exact number, but we will see revenue growth from '12 to '13 and we will feel very good about where we're entering the market in terms of market share.

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Got you. And then the last question is just a clarification. Did you say your total Access business will be down 10% in 2013, or just the voice part of that?

G. Tyson Tuttle

The total Access business, while we had a pretty -- were down 4% in '12, so we -- that's, I think, demonstrating some of the longevity of those products, but we do anticipate that modems will continue to unbundle out of the set-top boxes or go to lower speeds. And the total Access business 10% is a reasonable -- 10% or less, but that's the estimate we have right now.

Operator

Your next question comes from the line of Craig Berger with FBR Capital Markets.

Craig Berger - FBR Capital Markets & Co., Research Division

On the video stuff, have you given any indication what -- on the -- pricing trends did in 2012 or what you expect them to do in 2013?

G. Tyson Tuttle

We -- I mentioned earlier that we've seen historically about a 15% reduction in the ASPs overall in that market year-on-year and that we don't anticipate -- we don't see that being much different here in 2013.

Craig Berger - FBR Capital Markets & Co., Research Division

And then, I guess, a follow-up question is in the Timing business. Your -- one of your competitors was acquired maybe a couple of years ago. What are you seeing competitively in that market with the new operator of that Timing business, just competitive dynamics? And how do you feel you stack up?

G. Tyson Tuttle

Right, I mean, we view our main competitor in the timing market is primarily IDT. There's a number of other players out there. And we think that we've got a broad portfolio. We've continued to invest both extending the products into a wider variety of applications as well as broadening our portfolio on the infrastructure side. And we think we've got a leading offering against all of the competitors out there. So we think that we're well positioned to continue to gain share in this broader timing market.

Craig Berger - FBR Capital Markets & Co., Research Division

Last question. What are your priorities for uses of cash as cash does begin to build up? And when might the company consider returning some cash to shareholders?

Paul V. Walsh

Craig, this is Paul. Our -- historically, our 2 primary uses of excess cash have been in the areas of share repurchase and in acquisitions. And we've talked a little bit about acquisitions earlier today. And share repurchase, we've been historically very opportunistic over the years, retiring about 35% of the float and return -- and spending about over $800 million dollars in that area. And that remains the same. There's no change in that strategy. And we'll continue to be opportunistic where we can be and while under the constraints of what our domestic cash balances might be.

Operator

Your next question comes from the line of Terence Whalen with Citi.

Terence R. Whalen - Citigroup Inc, Research Division

The first question is on what you expect in terms of order patterns in the first quarter particularly with regard to unit before and after Chinese New Year.

Paul V. Walsh

Terence, this is Paul. Yes, there was an earlier question about visibility in our ordering patterns leading up to our guidance, and that's been the foundation of our guidance. But I think the Chinese New Year comes a little bit late this year, and it -- and Chinese New Year always tends to create a little bit of cloudiness around visibility into the second half of the year. So it's really something we can't predict at this moment.

Terence R. Whalen - Citigroup Inc, Research Division

Okay, fair enough. The other question that I have is, looking at 2013, were there any factors that would cause your microcontroller business to grow less than the rate of growth in '12? In other words, given that we are seeing an improving cyclical environment, what are some potential headwinds that would not enable the microcontroller business to grow as fast as it had in '12?

G. Tyson Tuttle

Right, I mean, I think that -- if you look at the broad offering that we've got in the microcontrollers, we've got our 8-bit business where we've had very good design win momentum and we're seeing some benefit of the other technologies that we have where we can come in with more a system sale. We just, in 2012, announced our 32-bit Precision32, the ARM Cortex-M3 products. And we continue to expand that portfolio and that's going to start contributing some revenue in 2013, so that's going to layer on. And then you've got all the wireless applications. We've been talking about the Internet of Things and how that's really starting to get some traction. And so we think that 2013 is going to be a double-digit growth year for us and driven by 32-bit, the Internet of Things. And then you look at the sensors and the other power products that we got and the synergy that, that has with our microcontroller business, so we feel like '13 is going to be a good year.

Operator

Your next question comes from the line of Srini Pajjuri with CLSA securities.

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Tyson, a couple of follow-ups. On the microcontroller side, you seem pretty optimistic about 32-bit. Could you give us some idea of what you expect the mix to be exiting this year in terms of 8-bit versus 32-bit?

G. Tyson Tuttle

Right, I -- we've talked in the past about how the 32-bit revenue would really be a second half story for revenue, as those products were introduced and you get through the design win patterns. So as we enter the year, the 8-bit is the dominant piece of the microcontroller business now that all of -- the wireless and the ZigBee wireless MCUs, those are all 32-bit as well, so that's already contributing at a good clip. So I think, if you -- it's hard to put an exact number on that, but you're going to see the mix shift over time. I think the 32-bit is going to be the faster-growth area and it's going to contribute meaningfully to the growth in 2013.

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

Okay. And do you expect any impact on ASPs or margins as the 32-bit ramps?

G. Tyson Tuttle

The -- well, certainly, the -- a lot of the 32-bit applications are coming at a higher ASP. And also when you look at the design wins, the revenue per design win tends to go up in those types of applications especially when we've got multiple technologies to bring to bear. So I -- from a margin perspective, I don't think that we're going to see a -- I think that's in-line. I think -- but I think, in terms of the dollar value and just the opportunity sitting in front of us, it dramatically expands the SAN that we're addressing and it is a key part of our growth going forth.

Srini Pajjuri - CLSA Asia-Pacific Markets, Research Division

And then finally, Tyson, can you talk about your outlook for the audio business for the year? I understand, and obviously the handset issues are behind you, but looking into automotive and other markets, what do you expect for that business this year?

G. Tyson Tuttle

Right, so we've had significant headwinds in the last number of years as our handset business wound down through the end of the year where handsets were about 5% of revenue in 2012. And now with the automotive products starting to see a nice, steady ramp going up, we think we're going to be back into a growth year in a low-single-digit growth in 2013. And I think that automotive revenue is just going to continue to build for years to come. The margins are good there. And we have a very competitive position, very good competitive position that continue to gain share, some good traction with the Tier 1 automotive makers. So I feel very confident that the audio business has turned a corner and we're back into growth mode and it's going to be a good part of the growth story going forward.

Operator

Our final question comes from the line of Gus Richard with Piper Jaffray.

Auguste P. Richard - Piper Jaffray Companies, Research Division

Tyson, I just wanted to talk to you a little bit about wireless standards on the Internet of Things, just there's quite a proliferation, Z-Wave, weightless, ZigBee, [indiscernible], et cetera. Then the 900 megahertz, some people are going proprietary, some people are going with standards. Sort of what do you see there are? Are all these standards going to work? And sort of what are your plans in terms of the wireless and standards that you're going to support?

G. Tyson Tuttle

Right, so there is a -- there are a variety of standards that are getting deployed. Certainly, we all know about Wi-Fi, and that certainly has its place. And that's a continually evolving standards. Our view is that, if you really -- our focus is on the embedded applications and on low-power, mixed-signal-intensive applications, so a lot of the sensors, a lot of the battery-powered applications where low-power and low-cost and mixed-signal integration are key. And in those areas, I think that ZigBee is going to be the winner, the 15.4 variance. And the -- ZigBee in particular is well positioned. It's the most mature of those low-power standards. It's the most secure, the most robust. And you see an accelerating momentum in terms of the deployments and the penetration out there. So I believe that for the low-power type of Internet of Things applications, I think ZigBee will be an important piece. If you have high data rate for transferring videos, and Wi-Fi is certainly going to have its place, and those will work side-by-side with each other. When you mentioned weightless, weightless is more of a white space and really addressing more of a machine-to-machine, larger-area type of standard. So I think you'll still see a number of different standards out there, but I believe that ZigBee will continue to gain momentum over Z-Wave which is provided just by a single company and has a number of performance and security issues. And especially as you see the operators, the Time Warner and Lowe's and Comcast, deploying these home security networks based on ZigBee, I think that that's -- that the installed base there is going to continue to have momentum certainly, and also in the energy medium. So we're very, very bullish on where we are and where ZigBee is positioned in the market.

Auguste P. Richard - Piper Jaffray Companies, Research Division

Got it. And then there are interoperability issues between, like say, a Lowe's and Comcast. Do you see that as being an issue? Or just are you going to have a bunch of parallel networks?

G. Tyson Tuttle

I think that's a problem that's being actively worked, and it's going to be solved.

Shannon Pleasant

All right, thank you very much for joining us today. This now concludes our call.

Operator

This concludes today's conference call. You may now disconnect.

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