Silicon Laboratories Inc. (SLAB) Earnings Call Transcript & Summary

Hello. My name is Bill Peterson. I work at JPMorgan Semiconductor Research team. Really pleased to have the team from Silicon Labs here with us, Tyson Tuttle, CEO; and John Hollister, the CFO. And we're going to go through a fireside chat. I've asked the team to share some opening comments, then I'll move on to some questions, prepared questions I have. We have asked a question function that please feel free to use, and I'll try to take a look at those and bring those into the discussion as well. There is a poll that you can use to kind of indicate the willingness to move towards more of a face-to-face format. This is our second year in a row of doing this virtually. Hoping to see you guys and see all of our clients as well as corporate soon. So I'm going to pass over to Tyson. Again, thanks for joining. It's great to have Silicon Labs as part of our conference this year.

Well, thank you, Bill. Thank you, everyone, out there for listening in and paying attention to Silicon Labs. It's exciting times for us. We just announced the divestiture of our infrastructure and automotive business to Skyworks for $2.75 billion back in April. And really happy for Skyworks and for the team and feel like we got a really good value for that. And that allows us to focus on a pure play on the Internet of Things, which is just a massive opportunity sitting in front of us. It's a $10 billion SAM that we're targeting, lots of revenue and runway for revenue growth. And we're really well positioned. And it's really been a journey of the company. I've been with the company for 24 years and 9 years in this seat. And the founding of the company was really around mixed-signal and RF integration. And so we did a number of hit products. We took the company public in 2000, went after the PC market and the handset market. And got 50% share in modems, got 25% share in mobile handsets, and that really propelled the company's first wave of growth. And then we did a number of other products, but we ended up divesting our handset business in 2007. And that was kind of a point of reflection for the company that we've been going after a bigger market. And it wasn't just the RF and mixed signal. And when I took up earlier, it was at the beginning of the decade. I was CTO, and we really sat down and said, we've got these great capabilities. We've had lots of successes in multiple markets, but where are semiconductors going for the next decade, 2 decades. And we saw the connectivity that's going into PCs and handsets is now going to get really embedded in everything. And we had a microcontroller business. We're doing well in our embedded microcontroller business. And we said the integration of wireless connectivity and building SoCs, the system on a chip, for all these embedded devices is going to be a huge opportunity. The number of connected devices is going to continue to go up, and we've seen that play out over the last decade. We've done a number of acquisitions around this to bring in talent and capabilities. So now it's not just our mixed-signal, it's also communications protocol stacks, it's networking, it's tools. And really the ability to go after the entirety of the IoT market opportunity. And this is where we're collecting data and doing command and control across thousands of different applications, and tens of thousands of customers. And being able to address that, it takes a lot of focus and requires a different approach than -- it's a microcontroller, but it's also got connectivity. And a lot of your customers are trying to figure out how to connect their devices. And -- but when you connect something, it adds inherent value to those devices. We're improving productivity. We're doing energy savings, cost savings, insurance savings. And this is really what's driving more and more IoT deployments. And we really reached a point here -- over the last year, we saw -- we made it through the trade wars and the pandemic and saw the adoption of this technology even accelerate. We were on a very nice revenue CAGR. We've grown that business for about $100 million to what will be about $650 million this year. And that's great, but there's a lot of room ahead. And we're seeing the accelerated deployment of a lot of these technologies. And we felt like that was the right time to divest our I&A business, which was a component level business was a different set of customers, a different supply chain and really focusing on this IoT opportunity to drive accelerated growth to really focus in on the investments in Silicon and on the software, and on the tools. And all of the various wireless connectivity standards that are necessary for success and drive for market leadership in what is just one of the biggest market opportunities certainly of my career. You look back at the PC industry and Intel dominated that. And you look at the mobile industry in Qualcomm came out ahead on that. And I think that we've got the opportunity in IoT to become in this broad, large, growing, long-lived diverse market, the chance to be the market leader. And we're bleeding in multiple segments, and there's a long way to go. And we are committed and focused and ready to move. So Bill, looking forward to your questions. Hopefully, that's a short introduction. And I know we've got a short time here, so we want to make sure we get to what you want to talk about.

The introduction was great. I guess maybe this wasn't a complex regulatory 8-quarter to get closed kind of deal. But can you update us on the regulatory environment? Any update on the timing? And when should we think of this transaction closing?

John, you're muted, that this is a typical Zoom...

Yes. You got me. Yes, no major updates for you, Bill, today. It's progressing. We've submitted our filings to the U.S. government. And at this point, expect the transaction to close on time toward the end of July, roughly that time frame.

No SAM required, no channel approval is required here. So it's -- and it's an all-cash deal, clean deal.

Yes, sure. Just curious, obviously, the strategy to become a pure play, that's the plan. But on the transaction, can you give us a feel from your conversations with investors, with your customers, I guess, with all your stakeholders, what kind of feedback have you been receiving on this announced deal?

Yes. Overall, it's been positive. And folks -- of course, it's a major transformative event, and people want to understand some of the background and rationale for it, as Tyson articulated in the opening there. But people understand. And they support the idea of doing this. They're pleased with the value that we're able to deliver for the I&A business and look forward to pivoting into a growth story here with the tremendous opportunity in IoT.

One of the things that I -- people are like, when they first hear this, they're like, well, this is the opposite of scale. It's like the companies are acquiring to get bigger scale. And one aspect of scale is if you're just bigger, okay, maybe you have a bigger footprint. But when you have 2 separate businesses that really don't have a lot in common, that's not scale. Like, for instance, if we grew the IoT business by a factor of two, that is scale just because you bolt something on that may not be related, but you get bigger, it doesn't necessarily lead to much scale. And kind of another way of looking at it, this thought exercise is that if we were a pure-play IoT company, and growing and focused in that area, and we had -- somehow had $3 billion in the bank, and we went out and bought this completely unrelated business. Everybody would be saying, what is -- what are you doing there? So it's that focus and really driving the growth here over multiple years. We'll be back to the size we were, and we'll be in much better shape and growing faster and ramping the profitability beyond where we were before. And that's really exciting. It's exciting for the team. It's exciting for investors. It's exciting for our suppliers. It's exciting for our customers to see that there's this commitment and momentum and excitement. And that clarity of message is really also a big part of the focus that we're trying to achieve.

And you mentioned that the team is excited too to be, I guess, under a new wing. So it sounds like it's, as you say, it's sort of a win-win for the same...

Win, win, win. Absolutely.

Yes. That's great. I guess you have had some discussions with investors. I guess, at this stage, with the proceeds you're getting, you guys have talked about the potential for, I guess, large share repurchase or special dividend. How is the -- I guess, the feedback from investors and is the team leaning towards any one of these more towards the other?

Yes. It's interesting, Bill. We've had a reasonable amount of feedback regarding whether there may be some M&A opportunities, suitable to proceed with on the basis of the proceeds. And the thing I remind everybody is the target would be to exit this process with roughly $1 billion in residual cash. So certainly, M&A will continue to be part of our strategy going forward. We have a pipeline that we continue to work and evaluate. But really thinking about how much cash to carry over more of an extended period of time, we felt that returning a good portion of that to the shareholders is an appropriate capital allocation strategy. As far as the form of that, there's a diversity of use. And I'm really pleased that we're getting a very open dialogue with the investor base on this topic. And I appreciate that folks are being very open with their feedback there. I'd say overall, share repurchase is probably more favored, although some folks are receptive to the dividend idea as well, but that's probably more of a minority of the viewpoints.

Yes. And it would be -- a share repurchase would probably take the form of more of like a tender offer rather than just an open market share repurchase, given the scope or the scale of the that. But yes, there's been a diversity of feedback there, and that's something that we're discussing with the Board. And no decisions made there. But certainly, it's soliciting input on the right path and working with these advisers as well.

Yes. No, I think that makes sense. And I wouldn't -- I'd say -- I'm not surprised that there's probably a bit of a lean more towards the share repurchase aspect. Let's move on to the business. I mean we've been -- I mean, basically starting most of our conversations with the near-term kind of supply and demand environment, which is kind of feels unprecedented, frankly, but really not speaking about your core IoT business since that's the one that people are going to focus on from here. Can you give us an update on the supply situation? It's pretty clear from the implied guidance and commentary in the last earnings that there's some kind of limited -- it's been -- growth is held back in the second half. And we've heard from some of your peers that have been discussing demand exceeding supply by 20%, 30%, sometimes 40-plus percent demand exceeding supply. So I guess, can you help us understand how much demand for your IoT products is currently exceeding supply?

Yes. I mean, I would put it at the north end of that scale. I mean we've got -- lead times have extended out and certainly in a supply-constrained situation. And it's a combination of a lot of new applications coming on board and the acceleration of that from the pandemic. So I mean, on the demand side, it's very, very strong and very, very solid, and kind of across the board, across all the segments. And in terms of supply, when we talked about our earnings and guidance, we gave annual guidance for the IoT business is up 25% to 30% for the year. And feel confident in that based on our supply commitments. All of us in the industry are hoping that this lightens up. But it's -- until we build some more fabs, it's going to be hard to really catch up. And so that we are in an environment where we're looking at pricing and adjusting pricing where necessary, if we're seeing input costs go up. And we're doing a diligent job of working with customers to understand what was their inherent run rate. If there was an upside, then what -- really trying to understand and push back so that we're not building inventory in any one area. We're really trying to ship to the true demand, and even there, it's tight. So not everyone's getting what they need. This is a common refrain within the industry. And it's -- I'm the kind of guy that likes to talk to customers about the future and long term. And when you're talking about how many parts you can ship next week, that's -- you know you're getting down to what's really necessary, and we're trying to do our best to navigate that in the most ethical way to allocate that fairly among everyone based on what they said they needed and a lot of the priorities. But it's a tough environment, and we're looking at securing additional supply here in the years ahead, make sure that we've got the capacity to support our growth. And feeling good about that, but that also takes some work. And really appreciate our partners are helping us wherever we can. It's mostly constraints on wafer side. So assembly and test is -- we've been able to secure the capacity we need there. We have our own test platform, which is a benefit for us. So we don't have to be out procuring testers. And so that's an advantage within the ASAT world or OSAT world. So it consists both. The -- so it's tough right now. And it's like nothing I've seen in my time in the industry last 30 years. But I think that as we move into 2022, hopefully, we get a little bit better line of sight as to additional sources supply. And John, if you can make a couple quick...

Yes. If I could just add on a couple of quick points here. I mean I know folks may have concern around overbooking or double booking and that type of thing. But another inherent advantage of our IoT portfolio is that it's very broad-based. We have a broad base of customers, and we can secure supply that has been applicable across that broad-based customers. So our inventory risk is really less than you may have in a very focused, 1 product 1 customer type business model. That's not the case with us. So it's more about the fair allocation of supply across the demand. We're not really concerned about inventory accumulation at this point.

Well, and that being said, there's no inventory anywhere right now.

Right.

That's the way that's reality for the semiconductor industry right now.

Yes. So you basically said -- so it sounds like it's on the foundry side, not so much on test. And I guess, secondarily, our lead times actually increasing even 4 weeks after the last quarter or any signs of stabilization?

Yes, it's stabilizing some. But that really indicates continued strong bookings, and that is what we're seeing is continued strong bookings. So -- yes, but not dramatic change from the last earnings cycle either direction.

Yes we've got bookings now well into 2022, and everybody is getting their orders in, making sure that they're booking the capacity. There's a lot of long-term planning going on.

Well, along those lines, you said through this year. So I mean, some companies are not even saying it could even go into the second half of next year. I mean when would you say is reasonable that supply would catch up with demand? And I think kind of to an earlier question, I mean, then you still have things like channel fill that is on top of kind of getting back to the...

Everybody's got to build up a little buffer again. I actually think that it's the end of next year, to be honest. There's hope. And then there's reality. And I think that it's until some of the new fabs get online, I think that the demand trends are durable in terms of -- at least in our world in terms of IoT. I just see the number of applications and the need for more and more connectivity continuing to be very strong. And I think that if you think -- one of the drivers of this is really as we've kind of come along in Moore's law, and so it's a combination of capital misallocation within the semiconductor industry, maybe an under investment in capital. And as Moore's law proceeds, building a 3-nanometer fab now or 5-nanometer fab is $20 billion. And it used to be that all the digital guys moved out of the prior node, and they all move to the next node and that opened up capacity in the older nets. And we've gotten to the point when we entered the pandemic, we were actually at the point where the mainstream nodes were full. And that's where we operate. We don't operate at the cutting-edge of Moore's law. We stay a couple of generations behind. And we've always kind of moved into an empty fab with tons of capacity. And so that ratio, it gets harder and more expensive to put -- to go to 7, and there's a lot of applications that don't need to go there. The industry is talking about chiplets and the fact that -- so there's more and more of the silicon content that's actually lagging behind into the rest of the semiconductor supply chain. And that means we've gotten to the first time where we're actually having to build mainstream fabs, older fabs. That are going to take up that supply. And that takes a couple of years. TSMC has announced substantial amounts of CapEx in there as well as others. But it's not just at the leading edge now. It's in the other nodes. And I think it's a reflection of the end of Moore's law or kind of the repercussions of pushing up against these financial constraints, which will ultimately be the limitation of Moore's law. That next node is going to be so expensive that it doesn't make sense to move into that node for -- there will be one fab and one customer at the end, right? And that will be more of a financial constraint than physics, is my view.

It makes sense. We collectively, in our group, cover the equipment guys, and their lead times are extended as well. Everybody's lead times are extended. So to think that all of a sudden, supply is going to magically show up in a quarter or 2 maybe incrementally better. But as you say, it might take longer than people think. Moving on IoT, the strong year-on-year growth, $650 million at the midpoint of your recent guidance. You're talking about a long-term market growth rate of around mid-teens, kind of 15%. In terms of the market opportunity, this matches up pretty well with a lot of work we've done, especially in terms of areas like Wi-Fi and Bluetooth. I guess, just maybe from a market perspective, especially given your long-term outlook, what are the protocols and wireless protocols? And I guess, maybe including that, not including the Iris protocols, but even end markets, would you say might outgrow that CAGR from a market perspective?

So from a market perspective, I mean, certainly, we have -- there are a lot of wireless protocols that are necessary in IoT, depending on the use case. And a lot of times people are using multiple wireless protocols. You'll use Bluetooth to talk to a handset, but then you'll connect to a mesh network with Zigbee or Thread or you'll connect to a Wi-Fi network. And there's a lot of proprietary networks that are supported as well. And we have a substantially -- substantial position in perpetual, which a lot of these industrial networks that get heavily optimized. And we've designed our platform to really support all of these protocols in a holistic way and being able to support multiple ones and update those over time. And we're committed to closely following all the standards and driving excellence in all of those. If you look there's a huge opportunity for us in Wi-Fi. That's kind of a more recent market entry, and we've got a lot of market share to gain there. But certainly, the Wi-Fi market, the Bluetooth market are going to continue to grow nicely. We see a lot of the mesh networking, 15.4 mesh networking. There was the matter, which is kind of more of the protocol that runs on top of the mesh network. And Thread and Zigbee, and we've got great positions there in the Z-Wave. Home automation is a really key application area. We see a lot of activity in energy meters and metering to be able to -- these are how you automate things in the mesh networking space, like building automation and sensors that go through commercial buildings and through houses and things like that. Portable medical applications. There's a lot of Bluetooth stuff going on in there. And just everything is getting connected, whether it's something that we're using in our life or in our house, commercial applications, industrial applications. I mean all of those are growing at substantial CAGRs that -- and it's in each one of those different wireless protocols that are there. So that's why it's really important for us from a platform approach and for our chips to be very flexible to be able to do that, but to be able to do it in a very efficient way. And then also have all the software be very consistent that sits on top of that and the tools so that our customers can get to market really quick.

Yes, that makes sense. A lot of sounds very broad-based across protocols as well as markets. In terms of market share, you pointed to outgrowing the markets by basically around 5 percentage points. So around 20% growth, which gets you to your target model. And I think that's really a key kind of tenet of the investment thesis is the outperformance to grow into the modeling you put forth. I assume this means that the existing portfolio doesn't include M&A that...

That would be an organic growth target.

Sure. Okay. I guess, what -- you obviously have a lot of confidence in your outgrowing the markets. Are there specific protocols that give you that confidence? I know you're underrepresented in Wi-Fi currently. So it represents a big opportunity. I think even Bluetooth is probably below, you have big opportunities there. But with that, like what kind of typical visibility do you get? I know you've talked about a lot the funnels and these opportunity pipelines and so forth. But what kind of visibility do you typically have that gives you the confidence to outgrow the market over a multiyear period?

Yes. So if you look at our design win pipeline, and the design win numbers, and we count that on a lifetime revenue basis. And we've been -- we set specific targets, and we've been exceeding those here over the last number of years. And so the size of our design win pipeline and the conversion rates that we see within that support that long-term model. And if you look within wireless protocol, certainly, we -- near term, we've got a big opportunity on Bluetooth. Lots of design wins in that area. We've got longer term, a substantial opportunity in Wi-Fi as that -- as we build out that product portfolio and we also driving into Wi-Fi 6, which is more optimized for IoT applications. And we have a leading position in terms of energy consumption that we can really leverage. And then as we move into our Series 3, our 22-nanometer platform, driving cost, driving integration, functionality and performance, that is going to be even enhance our differentiation and our ability to take share in the Wi-Fi space. And then you just look at all the mesh networking and all the proprietary protocols that we're supporting and just the proliferation and deepening of a lot of those relationships and those design wins, and that's solid as well. So that is going to be the core of the business that of our wireless business is very well positioned. And then we've got these expansion opportunities in Bluetooth and Wi-Fi. And then we also have our 8 bit and 32 microcontrollers. And those businesses are more stable. There's a lot of 32-bit business that actually converts to wireless. In the end, all of our wireless chips have a microcontroller on them, a 32-bit arm, and we're actually like 3 or 4 or 5. And so those are -- essentially everything as a microcontroller. But when you integrate the wireless together and put all the power management and the sensor interfaces and all the memory in the various configurations, that's really the sweet spot of what we're talking about in terms of controlling the integration path and really being able to drive differentiation value and shared.

Yes. Speaking of differentiation. One of the things -- it feels to me and certainly looking on your websites and some of the things you're doing with your developer community. You have a lot -- you seem to have a lot of software differentiation. You have your simplicity studio, the development environment. Security is an important aspect. How do these -- how does, like, for example, simplicity studio help you guys go to market? How worse is developer community? And then on the security side, which a lot of this is kind of embedded software. You discussed achieving PSA Level 3. This seems like another key differentiator for the company. How important are these aspects of from security into differentiate your product and obviously driving these outside share gains?

Yes. So we talked about differentiation before, and differentiation takes -- it's multidimensional. And really to be successful in IoT, you've got to put all these pieces together. And software is very sticky in terms of -- once customers designed in your chips and they're used to your tools and your tool chain, and they've got their application written. And we make that scalable from Series 1 to Series 2 to Series 3 and make that process easy. When you're dealing with tens of thousands of customers, you can't hold everyone's hand. You can't send an army in for every design win. And so that concept of simplicity, we're on our fifth generation of development tools and continue to make substantial investments in that to make it easier, which helps our customers get to market faster and helps us achieve wins, but also helps us to drive efficiency on our SG&A line. And so that's -- as the IoT business scales up, that's going to be one of the key drivers to our ability to increase our profitability over time to the targets that we've set out is to continue to drive efficiency and cycles of learning and solve one problem once and then that proliferates across. Another key aspect is just not forking the software. Everyone's on the same software release. And having a standard software release that not everybody uses every component of that, but we keep -- we don't fork it. Because if you start creating all this, then you start diverging, and over time, that's not sustainable. When you look at security is like essential. And people have to trust these devices. You've got to embed payment grade security and into these -- and as hardware and software security, there's both elements. We're integrating very sophisticated accelerators for security algorithms onto the chip, doing -- basically so you can't hack the chip. That's not a challenge to everybody, but it's -- that's a really important thing is that the hardware is really solid and that it's energy optimized. Because a lot of these applications are running off of batteries. And you got to run off of a wash battery for 10 years on a lot of these things. And so you've got to minimize the amount of data that you're transferring. And I'd add on top of that, artificial intelligence and the machine learning algorithm. So really what that helps you do is you have sensor data coming in, you've got to sort through it. You've got to have some intelligence to say, did I see something that matters? And then you want to transmit. Every time you -- the more intelligence you can make at the end node, the smarter it can be about when it actually Chris Wolf and says, "Hey, something's going on. There's water here underneath the sync or I just heard something or I saw something, those types of functions. And again, doing those, accelerating those, making them low cost, integrating them onto the chip and making them run at very, very low power is another very important key differentiator in the future. So every one of our chips that's coming out has an expanding range of AI and ML. So getting that -- the PSA level 3 certification, we're the first company to get that. That was a big deal. And this is all the way from the silicon to the cloud and being able to connect these devices, to update them, to upgrade them, to communicate with the device so that you know who you're talking to, you can -- it's got a unique identifier. And it's not getting spoofed or anything else. So those are really, really important things. But again, differentiation, it's not just RF and mixed-signal, it's all of this stuff, whether it's the connectivity protocol and being able to support all the aspects of a various Bluetooth standard or a Wi-Fi standard or one of those. And then networking, we have tons of ways of looking at energy consumption and networking performance. And we've really taken what was a chip company, and now it's a system company in terms of providing the complete solution and system to our customers. Bill, you're on mute.

One of the things I hear from investors is related to -- I think you guys have feel this question too is related to interoperability. So between IoT devices, the term Internet of silos comes to mind rather than Internet of Things. So I guess to that end, what is Silicon Labs doing in terms of standards and open sourcing? I guess a few weeks back, I saw a press release on what you call matter, which was formerly project connected home over IP or chip. What is matter? What companies are involved? And I guess, what is Silicon Labs' contribution initiatives and your views on interoperability?

I think we all have, during the pandemic, installed stuff in our house. And I don't know how many apps I have on my phone, but it's a lot. And things don't necessarily talk to one another. And if you want to make things intelligent, you want to get them to all kind of speak the same language and to be able to talk to. Your light switch needs to talk to your light ball. It's kind of that's the traditional way of describing it. But so the connected home over IP is a common language within, which IoT devices can communicate to each other. And so this interoperability. But between devices, it's Google and Amazon and Comcast and Apple, and a lot of contributors are rolling out Thread mesh networking. This also works over Wi-Fi. So these devices can communicate with each other at the gateway or at the device level so that they're not speaking different languages. The last thing you want is for your light switch to go to the cloud and then to come back and then when your Internet connection goes down, your lights don't work, right? So these types of application layers or the communication layers between devices, it's really important. We've been working on the standardization of this stuff since the beginning of the formation of that. And it's an important aspect to getting things to be easier to use and for -- it's really one of the -- I don't know, impediment to scale, but it's going to be an accelerator of deployment of IoT technologies.

Yes. Moving on to some of the financials. So you recently lowered your target model for stand-alone IoT for the year, which again, faster growth kind of makes sense. And then longer term, near to the kind of mid- 50s range. In the near term, you discussed raising prices, but you're also -- it seems like you're impacted by increasing cost and exit rate charges. Can you quantify the aspects of COVID related? What are the puts and takes here? That's the sort of near-term question. I guess longer term, why does it go down over time? Is it just because there's more of a consumer focus towards this? And why shouldn't they stay in the higher 50s range?

Yes. Bill, we don't have a precise quantification on the near-term effects. Suffice to say, we've got some input costs offset by price increases. And on balance, really the impact is not that large. Overall. But the more strategic topic on a longer-term view, it's really more just the natural evolution of the market. You see higher volumes kicking in, larger opportunities, with some additional price pressure on some of those larger opportunities. It's really not consumer, if you will. In fact, we see stronger growth opportunity on the industrial and commercial side of our business moving forward. I mean we think home and life has great growth drivers as well, but actually see more opportunity to grow the business on the I&C side. But you'll see ongoing competition and just a natural evolution of the market as it grows and price points come down over time and stimulate more adoption and more growth in the market overall. That's fairly normal in these businesses.

I think that the semiconductor industry in general is entering an era where costs aren't going to go down as much. And we actually have more pricing power than we've had in the past. And that's natural during a supply-constrained environment. But I think that, that's going to be more durable. I think to the extent that you can drive -- we can drive cost by moving into the next node. Our Series 3 will drive significant cost benefit, and we can integrate more. So the standard semiconductor value proposition will hold. But given that we have to build new fabs, right, the wafers, we were in fully different depreciated fabs. The cost will go down over time, that's -- that era is -- we're going to have to -- and that has to get reflected in the end pricing that ultimately gets paid by the consumers or the customers. And -- but if we're building a new fab, it's not depreciated. So this input cost to semiconductor company, not just that everybody is going to get -- and those -- the 5-nanometer and 3-nanometer, 1-nanometer, 2-nanometer is coming out. Those are all going to be more and more expensive. And so this is going to be one of the consequences, I think, of the end of Moore's law. And so how that reflects in the overall gross margin. When you have pricing power, you also have -- a lot of times there's elasticity, and there's going to be some big, high-volume stuff. And we don't want to tie our hands. It's not -- we feel comfortable in this 56% to 58% range in the near term. And we know how to sell our value. And we've got strong discipline around. We've had premium gross margins as a company. And you even look at the 55% target, and that's substantial premium and higher than many of the competitors. And we feel like we can outcompete the competitors and still get a premium on gross margin. But you don't want to tie your hands. You want to be able to have some room to really be aggressive and take market share, and that can drive into growth. And so being able to have some knobs there is important. But that being said, I feel -- I think we're entering a new era for semiconductors. And to the extent that you can drive the differentiation and really add value to these end applications, I think that I'm not -- I'm hoping that we can hold the gross margins up, but we also want to get ourselves a little bit of room.

That makes a lot of sense. Well, Tyson and John, thanks for joining us. This is a great discussion, and we look forward to watching and look at the great progress the team is making and becoming extra play in IoT company. Thanks for -- thanks, again.

Thank you, everybody.

Thank you for having us, Bill. Thanks a lot.