Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Semtech Corporation (NASDAQ:SMTC)

Q1 2015 Earnings Conference Call

May 21, 2014 17:00 ET

Executives

Sandy Harrison - Director, Business Finance & IR

Mohan Maheswaran - President & CEO

Emeka Chukwu - CFO

Analysts

Ian Ing - MKM Partners

John Shen - Sterne Agee & Leach

Harsh Kumar - Stephens

Steven Smigie - Raymond James & Associates

Earl Hege - RBC Capital Markets

Operator

Good afternoon. My name is Tania and I will be your conference operator today. At this time I would like to welcome everyone to Semtech Corporation’s Q1 FY ’15 earnings release conference call. (Operator Instructions). Thank you. Sandy Harrison, Director of Business Finance and Investor Relations, you may begin your conference

Sandy Harrison

Thank you, Tania. Welcome to Semtech’s first quarter fiscal year 2015 conference call. I’m Sandy Harrison, Director of Business Finance and Investor Relations. Speakers for today’s call will be Mohan Maheswaran, Semtech’s President and Chief Executive Officer; and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results for the quarter ended April 27, 2014 was issued after the market closed today and is available on our website at www.semtech.com.

Today’s call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements. For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor Statement included in today’s press release, as well as the Other Risk Factor section of our most recent periodic reports on Forms 10-K filed with the Securities and Exchange Commission.

As a reminder, comments made on today’s call are current as of today only. Semtech undertakes no obligation to update the information in this call should facts or circumstances change. During the call we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principles.

A discussion of why the management team considers non-GAAP information useful, along with detailed reconciliations between GAAP and non-GAAP results, are included in today’s press release.

With that, I’ll now turn the call over to Semtech’s Chief Financial Officer, Emeka Chukwu. Emeka?

Emeka Chukwu

Thank you Sandy. Good afternoon everyone. Q1 of fiscal 2015 was a solid quarter for Semtech with net revenue of $132.9 million coming in at a upper end of our guidance range. This represented growth of 5% from the prior quarter and decline of 18% from the first quarter of fiscal 2014. A broad number of new platform ramps in high-end consumer and strength in enterprise computing from the wireless infrastructure and datacenter build outs contributed to the favorable results.

In Q1, sales into Asia represented 24% of revenue, North America represented 14% and Europe was 12% of total revenue. Due to the reduced OEM shipments as we exit the long haul for this business. Distribution sales now represents a greater portion of our revenue at 53% of total revenue, while direct sales represented approximately 47% of total revenue.

Bookings were strong in Q1 of fiscal 2015 resulting in a book-to-bill of greater than one. Sales booking accounted for approximately 52% of shipments during the quarter. Gross margin on a GAAP basis for Q1 of fiscal 2015 was 58.8% of which approximately 12 basis points came from the some of previously written-off inventory. This is an increase from 42.5% in Q4 of fiscal 2014, the improvement was driven largely by the absence of the special charges we took in Q4 of fiscal 2014 as a result of realignment of our businesses in Q4. This benefit was somewhat offset by the additional $1 million inventory reserve taken in Q1 as part of the realignment activity.

In Q2 of fiscal 2015 we expect GAAP gross margins to expand as a result of higher manufacturing volume due to stronger demand under normal occurrence of the special charges associated with the realignment efforts.

Operating expenses on a GAAP basis was $66.9 million compared to 220.5 million in the prior quarter. The decrease was mostly attributable to the lower level of special charges recovered in Q1 of fiscal 2015 as a result of the realignment actions taken in Q4 of 2014.

In Q2 of fiscal 2015 we expect operating expenses on a GAAP basis to be approximately down 2%, up 1% as increases in new product development expenses are offset by lowering restructuring expenses. In Q1 we recorded a GAAP tax provision of $1.6 million or 17%, there was a tax provision of $42.3 million in Q4 of fiscal 2014. As a remainder in Q4 of fiscal 2014 we recorded a $53.2 million valuation reserves against deferred tax assets due to utilization concerns.

For the remainder of fiscal 2015 we expect our GAAP tax rates to be between 13% and 15%. In Q1 on a non-GAAP basis excluding the impact of equity compensation, amortization of acquired intangible, acquisition related expenses and other onetime expenses. Gross margin was 59.8%, up from 20 basis points from Q4 due to a favorable product mix. At the mid-point of guidance we expect Q2 non-GAAP gross margin to be up approximately 30 basis points on higher manufacturing volumes driven by stronger demand.

Q1 non-GAAP operating expense was $52.2 million down approximately 5% sequentially reflecting the benefit of the realignment actions we took in Q4 of fiscal 2014. In Q2 we expect non-GAAP operating expense to be flat to up 3% sequentially driven by new product development expenses. Non-GAAP net income for Q1 was sequentially up 41% to $21.8 million or $0.42 per diluted share due to a 5% revenue growth and a 5% operating expense reduction.

Non-GAAP effective tax rate for Q1 was 15% and that is the rate we expect for the remainder of the year. On the balance sheet cash flow from operations during the quarter was up 33% from a year ago due to good management of working capital. Our cash balance at the end of the quarter was approximately $244 million of cash and investments down about 1% from Q4 of fiscal 2014 as the strong collections in the quarter were not enough to offset the traditionally higher Q1 cash disbursements.

Our priority for use of cash remains by impact of our stock opportunistically given our current stock price and turning down our debts. In Q1 we used a $10 million to repurchase approximately 385,000 shares of our stock. Our total remaining authorization is approximately $52.5 million. We also paid down our debt by approximately $5 million and the debt outstanding is approximately $287 million. The company acquired approximately $6.1 million of property, plant and equipment in the quarter.

In Q2 we expect to spend approximately $10 million primarily for manufacturing equipment as a result of stronger demand and for information technology infrastructure improvements. Depreciation for Q1 was approximately $5.3 million, in Q2, we expect depreciation to be approximately $5.5 million. Accounts receivables declined 7% sequentially in Q1 and our days sales outstanding increased to 44 days from 51 days in Q4 of fiscal 2014 in-line with our target range of 40 to 45 days.

Net inventory in dollar terms declined 8% sequentially to $55.3 million in Q1 of fiscal 2015. On days basis net inventory was up 13 days to 96 in Q1, the reflection of the impact of this special charges certainly in Q4, 2014.

We expect our Q3 inventory to increase slightly based on the stronger demand outlook. In summary Q1 was a solid quarter. We believe we have put challenges on the second half of fiscal 2014 behind us and we’re off to a good start in fiscal 2014. There is leverage in our model. Operating income is growing much faster than revenue as we see broader based strong demand for our products. Gross margin is stable at a high-end of our 55% to 60% target range and operating expenses are under control.

In addition we’re focused on driving free cash flow back to our target range of 20% to 25% of revenue.

I will now hand the call over to Mohan.

Mohan Maheswaran

Thank you Emeka. Good afternoon everyone. I will discuss our Q1 fiscal year 2015 performance by end market and by product group and then provide our outlook for Q2 of fiscal year 2015. In Q1 of fiscal year 2015 we achieved net revenues of 132.9 million, an increase of 5% from Q4 of fiscal year 2014 and a decrease of 18% from Q1 of fiscal year 2014. For the quarter our non-GAAP gross margin was 59.8% and our non-GAAP diluted earnings per share was $0.32 per share. In Q1 of fiscal year 2015 revenue from the high end consumer market increased from the prior quarter and represented 32% of total revenues. Approximately 24% of this revenue was attributable to hand-held devices and approximately 8% was attributable to other consumer systems. Revenue from the enterprise computing end-market increased from the prior quarter and represented 19% of total revenues. Revenue from the industrial end-market was flat and represented 25% of total company revenues.

Revenue from the communications end market decreased and represented approximately 24% of Semtech’s total revenue. I will now discuss the performance of each of our product groups. As a reminder we’re now reporting our results on the three product groups. Q1 of fiscal year 2015 was a solid quarter for our protection, power and high reliability product group which grew 11% sequentially and represented 47% of total revenues. We experienced strength from all end markets except for computing with particular strength from the high end consumer market driven by smartphones and from the communications end market where we benefited from increased demand from the wireless infrastructure build-out in China.

Our protection business continues to perform very well and grew approximately 19% sequentially. There are early indications that the demand from Samsung’s new S5 smartphone release will exceed original expectations which is promising for our Q2 and Q3 demand.

In addition we see the ongoing trends of more interfaces, higher bandwidth interfaces and advanced lithographies all driving the need for Semtech’s high performance protection products in both current and new emerging electronic applications. During the quarter we expanded our TClamp protection platform with the introduction of several new devices including the TClamp 1202P, the smallest high surge transient voltage protection array in it's class.

This new device protects two IO lines in an ultra-small package and it's targeted at safe guarding sensitive communications transceivers from electrostatic discharge events and lightening surges. Our Power Management and High Reliability business was down 10% sequentially in Q1 due to seasonality, however we’re excited by the improved execution in this business and the increasing product diversity that we expect to see this year. In Q1 we saw our industrial power business increase driven by an increase in automotive infotainment applications and we saw initial revenues from the alternative energy market driven by the use of micro-invertors and solar applications. Semtech’s new product execution engine is beginning to yield a number of new power platforms and we expect to reach many new power products in the next few quarters that will drive both revenue growth and gross margin expansion for our power and high reliability business.

In Q2 of fiscal year 2015 we expect revenue from our protection, power and high-reliability product group to be up nicely driven by all end of markets but with particular strength from the high-end consumer, industrial and communications markets.

Moving on to our signal integrity product group. This product group is the combination of our Gennum business and our Sierra Monolithic 40 gig, 100 gig long haul SerDes transport business.

In Q1 of fiscal year 2015 revenue declined 4% sequentially and represented 39% of total revenues. Our Gennum business increased 6% sequentially while our long-haul SerDes business declined 36% as anticipated. Strength from the enterprise computing end-market was driven by data center, cloud computing and palm applications where our broad Gennum portfolio of 1 gig, 10 gig and 25 gig physical media devices and clock data recovery platforms are better in class. These products have many customers in several different application spaces.

The strength in our Gennum business in Q1 was offset by continued weakness from our 40 [ph] gig and 100 gig long haul SerDes revenues. In Q1 we also saw demand improve in our video surveillance and video broadcast business driven by the increased deployments of both high-definition surveillance systems and the emerging ultra-high definition broadcast market. During the quarter at the National Association of Broadcasters show, we highlighted our first ultra-high-definition 6G Adaptive Cable Equalizer and 6G Reclocker adding to Semtech solutions for ultra-high-definition multi-ray connectivity.

These components enable multi-ray approach, the best in class reach at 6G ultra-high-definition, 3G high-definition and standard definition data rates at low power.

We expect the video broadcast market to continue it's transition to ultra-high-definition and contribute nicely to growth in our video products over the next few years. In Q1 of fiscal year 2015 we had record bookings for our Gennum business with order strength from enterprise computing, communications and industrial markets. In Q2 of fiscal year 2015 driven by very strong Gennum orders we expect our signal integrity product group revenue to increase significantly. This also assumes revenues for our long haul optical business to stabilize at around $5 million per quarter starting in Q2.

Turning to our Wireless Sensing and Timing Product group, revenue in Q1 of fiscal year 2015 increased 14% sequentially and represented 14% of total revenues. Wireless Sensing and Timing revenue was primarily driven by growth in the high-end consumer market from the ramp of our new proximity sensor platforms and initial prototype volumes of our new top sensing platform. In Q1 our wireless and sensing business grew sequentially 13%, in the sensing market we continue to see increasing interest and demand for our leading proximity sensing solutions. In Q1 of fiscal year 2015 we started to see an increase in revenues and increased design win momentum with Tier 1 tablet OEMs. In addition to the tablet segment we’re starting to see the potential use of proximity centers in both smartphone and other applications that have LTE based wireless connectivity.

During the quarter we also shipped prototype quantities of our new touch sensing platform and remain confident that this product should ramp and drive growth in the second half of this fiscal year for our Wireless Sensing and Timing Product group. We expect to be able to discuss more details about this technology on our Q2 earnings call. During the quarter our wireless business announced several important partnerships in the rapidly emerging internet of things eco-system. We announced that Homerider Systems, a specialist in environmental data collection is deploying a next generation system based on Semtech’s long range wireless technology known as LoRa.

Homerider Systems is a worldwide water utility lead-up offering a complete solution to improve efficiency with a broad range of capabilities and senses for leak detection, water quality analysis and pressure monitoring. Additionally we announced that our LoRa platform has been chosen by KERLINK M2M Technologies for few long range IoT gateway. This gateway enables IoT networks to provide bidirectional communication with thousands of sensors, automated meters and other connected devices located upto 10s of kilometers away. In addition two service providers are now in network files using LoRa technology and several others in different regions are in discussions on the timing of their own trials. These market opportunities are in the early stages but are expected to drive the demand for longer range low power battery driven wireless connectivity that is at the core of the Semtech RF Platforms. We’re very excited about the strong growth potential over the next few years from the increasing deployment of LoRa in the internet of things market.

During Q1 of fiscal year 2015 our timing business grew 19% sequentially as wireless base stations and aggregation boxes increasingly rely on timing and synchronization technology to operate the next generation LTE networks. We also continue to see increasing interest in our low jitter high performance frequency synthesizer timing products. These PLL products complement Semtech’s timing and synchronization platforms targeted at wireless base stations and high-end telecommunications infrastructure.

We continue to expect to see modest revenue growth in FY ’15 from our timing business. In Q2 of fiscal year 2015 we expect revenue from our Wireless Sensing and Timing Product group to be up significantly from Q1 and potentially achieve record revenues as we see growth across the consumer, communications and industrial end markets. In Q1 we saw distribution POS increase sequentially by approximately 3% to achieve a new quarterly POS record. Distributor inventory decreased two days from 59 days in Q4 of fiscal year 2014 to 57 days in Q1 of fiscal year 2015 and continues to be well below our target model of 70 to 80 days. And is at the lowest level in over 2.5 years, 43% of the total POS came from the consumer and computing end markets and 57% of the total POS came from the industrial and communications end markets.

Moving on to new products and design wins, in Q1 we released 23 new products and achieved 2209 new design wins. We believe Semtech’s focus of driving analog innovation into fast growing markets and focusing on key industry trends for analog semiconductors along with our breadth of analog mixed signal products serving multiple end markets positions us well to continue to benefit from growth in our industry and we’re very excited by the number and diversity of our new growth engines.

Now let me discuss our outlook for next quarter. Based on recent bookings trends and our backlog entering the quarter we’re currently estimating Q2 net revenue to be between a $138 million and a $146 million. To attain the midpoint of that guidance range or approximately a $142 million we needed net turns orders of approximately 34% at the beginning of Q2. We expect our Q2 GAAP earnings to be between $0.18 and $0.24 per diluted share and non-GAAP earnings to be between $0.36 and $0.42 per diluted share.

I will now hand the call back to the operator and Sandy and Emeka and I would be happy to answer questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Ian Ing from MKM Partners. Your line is open.

Ian Ing - MKM Partners

You got a nice wins here in the pipeline, tablets and smartphones, I mean how should we think of mix? Is there any mix should be causing this up [ph] in the next few quarters or is it largely top on revenue that drives gross margins?

Mohan Maheswaran

Gross margin is mostly a mix question for us, obviously some is driven by volume if we get the high revenue that drives high volumes for us but more industrial, also enterprise computing is a higher gross margin generated for us. So it's mostly mix Ian, but obviously the higher revenue drives higher volumes as well. Those are the most, the two biggest current contributors.

Ian Ing - MKM Partners

And then the low power wireless win, I think you refer to it as LoRa, I mean can you give us a sense of what product life cycles here are they very short? Like consumer or are they very multiyear?

Mohan Maheswaran

Yes the LoRa technology which is long range wireless technology has two components to it, one is really -- its really more industrial in nature so a little bit longer time to revenue but much longer lifecycle. But it's a both end so you’ve a kind of a gateway transceiver and then you also have the other side -- the device side and that can have a slightly shorter lifecycles but much higher volumes. So we’re seeing obviously a lot of opportunity in both sides and also in private and public network. So it really depends on the network itself. I would suggest in private networks the lifecycle would be much longer than the public networks.

Ian Ing - MKM Partners

And then my last question, it looks like, I just want to confirm ultra-long haul has stabilized here. It's down to 5 million a quarter. I think that’s even lower than some of your year’s [ph] target of $30 million a year or so. You’re still able to put up these results in guidance?

Mohan Maheswaran

It's within that range, I think $5 million to $7 million. We think that 5 million is kind of the low point and probably $7 million - $8 million is the high point and it's certainly in that range so that’s probably about right.

Operator

Our next question comes from the line of Andrew Huang from Sterne Agee. Your line is open.

John Shen - Sterne Agee & Leach

This is John Shen for Andrew. Thanks for taking the question and congrats on the good results. On improvement in bookings can you talk about which products you’re seeing the most strength?

Mohan Maheswaran

Well it's pretty broad, obviously our Gennum products bookings are very strongly, at a record bookings quarter as I mentioned there and that’s across the datacenter side also on the wireless base station side, the video side is also strong. So bookings in general in our Gennum business is very good. And then our protection business was driven by smartphones but also other areas within protection doing quite well, it was strong. And then on the wireless sensing side the sensing business is doing very well, the proximity sensing we mentioned our first orders and shipments of our touch sensing platform also. So, I would say in general across all of our businesses, the bookings were quite strong.

John Shen - Sterne Agee & Leach

And can you talk about the impacts of the ramp in China LTE on the businesses in Q1 and the rest of the year?

Mohan Maheswaran

Well certainly Q1 I mentioned it did impact us positively in both protection and power and our Gennum products as well. So very positive, we will continue to see good demand for Q2 fairly it's part of the reason why our Q2 guidance is strong and our indications are that actually the strength will be there for at least part of the second half -- we are not sure whether it's Q3 or Q4 certainly we’re anticipating some strength in second half also.

Operator

Your next question comes from the line of Harsh Kumar from Stephens, Inc. Your line is open.

Harsh Kumar - Stephens

Mohan, I had a quick question for you, you sound extremely optimistic about the prospects of the company in the second half. Can you tell us maybe just looking at everything which is the one area that you’re most optimistic about? Will that be wireless sensing or data center? Connectivity or any of the other areas you’re involved in?

Mohan Maheswaran

Well it's not just one area, I will and that’s the wireless and sensing area and that is because that’s new and fairly small for us today. So yes there as you know that’s obviously protection if we grow, we gain sockets, we grow in that business, the Gennum business it's now again a price computing driven and some video driven. There is some new stuff there as well in the video side but the biggest area the new emerging growth for us is clearly the wireless and sensing side and both the proximity sensing and the touch sensing side. So all three of those areas within that wireless and sensing business are pretty exciting for us and we’re just starting.

Harsh Kumar - Stephens

I just want to follow-up more on, can I ask you touch sensing? This is a product that I think was supposed to come out a few months ago, how optimistic are you that this will ramp in the second half at some point in time. What kind of visibility do you have and then also maybe talk about scope of how big this can be for you?

Mohan Maheswaran

Well first of all on the timing, the timing -- it was originally supposed to be kind of ramping in Q4, that pushed out and Q2 is now the initial prototype ramping and production Q3 of this year, that’s still the timing and we still anticipate that to be quite good. We do have pretty good visibility of the schedule and the revenue numbers. Obviously I’m not going to give you too much information there but we have said I think publically that this could be a $20 million - $30 million revenue business for us this year.

Operator

Your next question comes from the line of Rick Schafer from Oppenheimer. Your line is open.

Unidentified Analyst

This is Joe on for Rick. Let me add my congrats here. I was wondering if you could just give a little bit of a clarity on the 2K prospects timing of the ramp, how you see it from the linearity prospective and then where it could potentially be as far as size in the business? Thanks.

Mohan Maheswaran

Are you talking about the video business?

Unidentified Analyst

Correct, the broadcast yes.

Rick McVey

Broadcast video business, the nice thing about this for us is we already are obviously a leader in the video broadcast business and Gennum has historically got a very good brand recognition in this space. Have got a lot of product, very good relationship with the customers and it was just a question of whether the market was going to move from 3G to 6G and the timing of that and so what we’re starting to see is that most of the infrastructure customers are starting to now deploy and build and deploy 6G’s related equipment and that’s really positive sign for us. So we’re seeing good, lots of activity and lots of kind of promises of increased demand.

It's still early days, and I think it's still going to take some time and obviously the TVs and other equipment’s that have to lead the charge in terms of driving the -- putting the demand on the infrastructure. So we see that as potentially taking over basically replacing the old video equipment and it should drive good growth for us which would probably be in the high single digits.

Unidentified Analyst

And then on the (indiscernible) business, it seems like the headwinds are behind you, you’re down below that 30 million run-rate you have spoken about earlier. You think there is any growth in the business from here just where do you see it trending longer term now? Thanks.

Mohan Maheswaran

Well we just essentially exited, I mean we’re not planning on growing. If it is it will be opportunistic, as I said in the previous two calls it's a bit of surprise how quickly it came down but it is what it is. We think in the actions and moved out of it, we’re not putting a lot of R&D investment in the long-haul side of it. So if it comes back as I said it will be driven by CapEx infrastructure in the long haul side. We don’t see much at the moment, there is still promise that it maybe come out in the second half but we’re not counting on it.

Operator

Your next question comes from the line of Steven Smigie from Raymond James. Your line is open.

Steven Smigie - Raymond James & Associates

So can you talk a little bit more about the proximity sensor business especially the touch sensor business? So it's discussed, it had originally been pushed out and now it seems you’re getting the production orders. Have they told you at this point that the issues that they were facing in terms of the processor and software have been fixed and now it's just a matter of timing and not much they are [ph] actually selling their units.

Mohan Maheswaran

All that -- everything you have said is correct Steve, the only issue with smartphones as you know and it's the same with any smartphone manufacturer when they release the phone they have anticipation of a certain level of demand and then what transpires is are we all going to go out and buy the phone and so I would say that the forecast is quite conservative that we have been given. I don’t think that there is a huge expectation and so I think it's very doable but one has to wait and see. From an execution standpoint I think everything is on track.

Steven Smigie - Raymond James & Associates

And then on the proximity sensors, I think you touched on this a little bit already and I think I just missed part of the discussion but I think you guys had gotten some nice wins on some tablets, and I think it was maybe you were getting maybe three units per tablet. Can you talk about how that proliferates in other tablets or beyond tablets and is that right to think you’re sort of getting three per device and why would it be three just to give a dynamics around the potential there?

Mohan Maheswaran

Yes, so the number of units per device is really dependent on the architecture and what the manufacturer is doing. Essentially what the proximity sensing device is doing is determining how close the tablet or phone is to your hand or your ear or an inert material like a table or something like that. So that’s -- the number of devices is just really dependent on what they are trying to do. It isn't going into all tablets and all systems, it's really where you have a wireless connectivity, an LTE wireless connectivity. So there is a limitation there in terms of which tablet it goes in. But that’s what we see and it's most of the mobile devices are starting to have the connectivity. So that’s driving the growth for us.

Now today we have pretty good penetration of the tablet market, what’s emerging is that quite a lot of the other applications including smartphones is starting to look at proximity sensing for a number of different functions also just to again determine how close your hand is or your ears are to the phone and things like that.

Steven Smigie - Raymond James & Associates

And just turning to the gross margin as these sensors ramp, you obviously had pretty high gross margin that’s ramping down, some of the sturdy stuff. Is what’s ramping enough to keep us sort of at a 60% gross margin. It seems like more consumer oriented products might have somewhat less. I know you had a chance to sort of look at these products that they are ramping, any sense of what happens to the mix there?

Emeka Chukwu

So Steve, based on my prepared remarks I had said that we do expect our gross margins to stay towards the high end of our 55% to 60% range and the key drivers for that is that if you look at the mix of products that we have from Gennum, there is a very good high gross margin business. As we start to see more growth from the video products, those are excellent gross margin products and also Mohan did talk about being excited about business opportunities from our wireless and sensing. The lower products are also very distant gross margin business is significantly at the high end of our range. So definitely we do expect that we’re going to see a lot of growth from our consumer driven products and that has a softer gross margin. We expect that we see from all these other product areas, the Gennum products, the growth in the sensor business, the growth in the video business. I think that is enough mix there to allow us to maintain the current gross margins that we have and also in addition as we continue to see the ramp in revenue the higher manufacturing volumes would allow us to be able to absorb our fixed expenses a whole lot better.

Mohan Maheswaran

I think Steve also our power business is starting to reach new products and that should be -- all the new products that we’re releasing in power should be accretive to our gross margins as well.

Operator

Your next question comes from the line of Earl Hege from RBC Capital Markets. Your line is open.

Earl Hege - RBC Capital Markets

I’m calling on behalf of Doug Freedman. I guess with respect to the distributor channel, when do you guys expect an inflection there? Are you guys seeing any signs of that in the current quarter?

Mohan Maheswaran

Well POS for us is very strong, channel inventory is very low. So, to me the demand is quite good and we’re probably at risk of having too much -- too low inventory in the channel. So we’re just really making sure that we have the right mix to support our customers. I didn’t quite understand the question. Do you want to repeat that question?

Earl Hege - RBC Capital Markets

Sure, yes. I’m just wondering in terms of the distributor channel when do you see them building inventories again? At what point do you believe they are going to become comfortable?

Mohan Maheswaran

Okay, so yes, I think probably we should start to see that in Q3 and Q4, it depends again the POS, POS is very strong at the moment so replenishing the channel is kind of tough.

Earl Hege - RBC Capital Markets

And I guess looking through the year, what do you guys see for OpEx and in terms of linearity? How should we think about that?

Emeka Chukwu

Right. So during the call last quarter I think I had guided quarterly updates of about $50 million to $53 million. I still expect on an annual basis for it to average out in that range but there could be some quarter-over-quarter fluctuation. So it's possible that in some cases we maybe in the $52 to $54 million range which is what we’re currently guiding to. I think the key takeaway here is at the end of the year when you average it out on a quarter-over-quarter basis I still expect us to be in the $50 million to $53 million range per quarter.

Operator

There are no further questions at this time.

Mohan Maheswaran

In summary, Q1 marked a solid start to fiscal year 2015 for Semtech and set the stage for what we believe will be another solid year. Our strong design win momentum coupled with a strong backlog are positive indicators of continued traction. We remain confident that our position in the key markets where we compete, a balanced portfolio of highly differentiated products and our long standing partnerships with diverse customers will enable us to continue moving towards our goal of the billion dollars in revenue. With that we thank you for your continued support of Semtech and look forward to updating you all next quarter. Thank you.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Semtech's (SMTC) CEO Mohan Maheswaran on Q1 2015 Results - Earnings Call Transcript
This Transcript
All Transcripts