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

All right. Welcome back, everybody. I'm Joe Moore, Morgan Stanley Semiconductor Research. Very happy to have the executive team of Silicon Labs here, Matt Johnson, President and CEO; and Giovanni Pacelli, Senior Director of Finance. So maybe if you guys could just start out, you have kind of a unique business model and strategy. Maybe just give us an overview of that and then we'll go into specific Q&A.

Sure. Maybe start at the top, just...

Sure.

Yes. For anyone not familiar with the company -- thank you all. Appreciate it. For anyone not familiar with the company, long story short, we are a company that's focused on embedded wireless IoT. It's a pure-play company. We're the largest in the world of what we do. And if you think about our products and solutions, the easy way to think about it is think of a wireless SoC that has the wireless capability, the compute and processing for general purpose compute, machine learning from an AI perspective integrated, power management security, all of that on one chip. And then on top of that, all the requisite software, development tools and customer support across multiple wireless technologies. So this is what we do across multiple end markets, whether it's home, life, industrial, commercial, smart cities. And what we do and why we're different is we have a platform approach. We're one of the only companies in the world that has all the requisite wireless technologies, and we know how to make them work well and work well together. And we have a platform approach, which is critical, that we release maybe 2, 3 or 4 wireless SoCs a year, and we do hundreds and hundreds of software products on top of those every year. So our end market, as a way to think about it, is growing outside of the cycle around 15% annually. And our goal is to always be gaining share within that market space, which we've done over the last decade consistently at, at least 20% growth on top. So that's a little bit of who we are and what we do as a company.

Yes. It's a really interesting model. And I mean you've been very disciplined about that. You've divested businesses that you could classify still as IoT because you want to stay focused in this kind of area.

What benefit does that give you when you're competing with much bigger companies that have more maybe breadth overall but you have this unique focus?

Yes. More than we thought is the honest answer. Like when we divested the nonwireless capability a few years ago now to Skyworks, we did that because of a mid- and long-term strategic view that it was big enough, it would be self-sustaining. We saw more opportunity than any of us had ever seen in our careers to go do something amazing. And we thought it would take many years to see the impact of that focus. In reality, it's paid off much sooner than we thought. Internally, having the entire team as one team, one mission and being obsessed with that mission, burning the boats and bridges has helped us tremendously. And it's also helped us externally. I think our story is much more understandable, much more clear in terms of what our focus is. Our suppliers love it because most of our suppliers want to index and have exposure to IoT. And we're the largest pure play that's focused on it, and that's helped as well. So I think it's still early days of the impact of that focus, but it's coming through. And versus our competitors, I think it serves us very well. We're the largest pure play and getting larger every year, we're gaining share. And the companies that have this as a side show, it doesn't give our customers confidence, right, that they're going to be able to bet the farm on one company that it may be a fair weather investment, they come into the market, out of the market, it might not be their core priority as a company. And that's what we saw during the supply crisis. A lot of the bigger companies retrenched and allocated supply elsewhere, really spooked our customer base. So the supply crisis was actually good for us, not the inventory build, but the crisis itself gave people even more confidence in us. So the focus has been good.

Yes. Maybe talk to the kind of cyclical aspects. I mean when companies do have high growth, you often are prone to these types of inventory corrections along the way. So yours was pretty severe, revenues falling, I think, almost 70% peak to trough. Can you talk to that, why that was so severe and whether that gives you any pause on that long-term growth trajectory that you talked about?

No, I think the end market hasn't fundamentally changed at all. I mean truly, the need for these types of products is almost accelerated in the sense that the adoption, the economics behind it is getting stronger. And our position in the market is getting stronger as well. I think in terms of the cyclicality of it, I mean, we can't deny that with tens of thousands of customers, it's very hard not to be influenced by the market ups and downs. We definitely have some strong secular trends within it. Good examples are, if you think in smart cities, like smart meter and gas, water, electric; in the commercial space, like digital shelf labels; or in health care, like continuous glucose monitoring. Those are powerful trends that can certainly ride through these economic cycles, but because we have so much customers elsewhere and such broad market exposure, we will go up and down with the tide. But what we'd say is no matter what it ends up being, we'll always grow faster than our competition. And like I said, we've done that for a decade now.

Yes. You mentioned to me after the last earnings call, you sort of talked about the fact that you hadn't seen these kinds of inventory corrections before. There's probably some learning that takes place when you go through this kind of thing. But can you talk about that a little bit and how you kind of plan to mitigate that in the future?

Yes. Quick answer is a ton of learning for sure. I mean this is the first time we went through anything this severe in terms of collectively, so many people thinking demand was higher, collectively building up so much inventory and then realizing the demand wasn't as strong and the inventory was too high. For us...

And to be fair, this is an extreme set of circumstances for anybody, yes.

But it was brutal, right? And so I think for us, multiple learnings. We learned we weren't carrying enough die bank, we weren't carrying enough distribution inventory in the channel. We learned that we -- obviously, we obsess over internal inventory and channel inventory. But tracking end customer inventory with this diligence and focus, that's not something we've had to do historically for us. So now we have mechanisms to do that, but too late, right? So I don't want to pretend next cycle, we got it dialed in. But I do think we've at least learned in this cycle a lot, and it positions us for whatever comes next. And I'm sure we'll have to learn more all over again.

Well -- and having a more severe drawdown and then a quick recovery is, in some ways, better than just dragging it out. So at least you kind of felt that pain early on.

Yes. And I mean that's part of what gives us confidence to -- we went out in Q4 and we definitely said, look, we're not calling the market bottom. But we are calling our bottom, and we can grow sequentially from here. I think people were surprised that we had the confidence to say that, but we know our consumption is well above our revenue level as people work down in inventory. We know that we have design wins ramping. We've won a tremendous amount of designs over the last few years that are just starting to come to fruition now. So you put those 2 things together, we don't need the market to recover to drive sequential growth from here, but the market will recover at some point, and that will give us additional lift as well.

Okay. And can you talk to the state of inventory, both in distribution and at the end customer?

Sure. So I'll even add a third one, internal inventory. We built up internal inventory intentionally. We have no contractual obligations to do so. That was just a learning from this cycle. And we need to give our customers confidence with all these design wins, we can support them as they ramp. So that's one. Channel inventory is low. In fact, our channel inventory in terms of revenue and units is the lowest it's been in the last 3 or 4 years, actually lower than it was in the supply chain crisis, which is a remarkable statement if you think about it, but it's low. I'd be worried that it's so low if we didn't have the internal die bank to give us the ability to respond on the other side. End customer inventory is still high. In Q4, we said that our customers are carrying an excess of a quarter, more than a quarter than they should. And last quarter, we said they'd work that down in both on the moving average and in the count of customers that have too much, but we're still working it down in Q1. And we've told people -- everyone wants to know what's the actual consumption right now. We haven't said that level. It's not precise, but we have said we know it's over $160 million a quarter.

Yes. Okay. So you're still -- you are kind of underearning relative to where the [indiscernible].

100%, for sure, yes.

Okay. Are you seeing any change to any of those dynamics? Are you seeing distribution want to restock? I mean are you a little -- I'm a little surprised to hear you talk about people drawing it down so low 1.5 years after there was a crisis around shortages.

No, we're all simple animals at the end of the day, right? I mean if you think about it, the -- we went too far. There was this -- this is unfair, but a little bit of groupthink that demand is high, kind of new level, and it's going to stay high forever, and everyone needs to get as much inventory as they could. I think we've all gone the other way and the pendulum swung the other way that everyone is worried about channel inventory, they're worried about end customer inventory, even internal inventory, so everyone is going the other way, right? And I think lead times are short. People are ordering within lead times. As an industry, we usually don't handle these well. So it will probably -- someone will place an order at some point, and the response will be further out than they want, and the industry will start going the other way again. So I think it's just everyone's trying to work it down. And everyone's been beaten up, right? So I think there's a lot of conservatism. And to be clear, we'd be pushing for more channel inventory if we didn't have our die banks.

Yes. Yes. And that die bank -- do you think that mitigates people from needing to build it over time? Or do you think, I mean, inevitably, [indiscernible]?

I think it gives us -- it's a tool to help navigate however this plays out. Because what we learned is simply said, lead times are long for a semicycle for building -- from when you do your starts to when you're actually shipping product, and it serves you well to have a strategic die bank to give you flexibility with your suppliers and with your customers, and we were carrying very little.

Okay. Okay. Great. Can you talk about pricing? And you've been very -- I feel like you've done a great job of being transparent through the upturn what the pricing was looking like, what -- you were passing along increases that you saw and not more than that. Can you talk about the role of pricing now? And you made some comments on the call about a more aggressive competitor. Nordic was here earlier talking about some of the low-end discrete Bluetooth pricing being weaker. Just what are you seeing in terms of the pricing dynamics?

Giovanni?

Yes. Like we said in the last call, like-for-like pricing has been pretty stable, right? In our space, really, what we see is price discoveries happening at the design win phase. Very rarely will we move pricing or get pressure to move pricing mid-ramp or once it's up and running. So as you alluded, in the last call, we did talk about one competitor who is maybe acting a little bit unusually on price at this point in the cycle. Very little overlap to us, but we're really just trying to give a fair picture of what we see out there. But the reality is pricing is pretty inelastic. And if you look at where revenue has gone in Q4, we would have bought our way out of it, if we could, right? Similarly, on the foundry cost side, right, we're not seeing a lot there. And as costs went up, prices went up. We're not seeing the reverse happen yet either.

Yes. Okay. Great. And then any of these dynamics different between the 2 segments that you guys report, the Home & Life and Industrial & Commercial?

Yes. Not as pronounced as one might think or might desire.

And one was earlier than the other.

Yes. I mean Home & Life was earlier in the cycle. So we believe it will be earlier out. Industrial & Commercial, a little bit later. Specifically, I think Home & Life, we started to see it in Q3 of 2022. Industrial & Commercial, we started to see it in Q2 of 2023. To answer your question, though, we are seeing bookings improve consistently over multiple months. Book-to-bill is improving. We're starting to see the discontinuation of pushout requests. Now we're seeing pull-in requests, and that's encouraging. Not saying we're out of the woods, but it's going in the right direction. And between Home & Life -- Home & Life, it's stronger, more pronounced, which makes sense because it was first in. But we're also seeing it in Industrial & Commercial, just not as pronounced because I think it started later and still has more to work through.

Okay. Great. And then can you talk about how all of this has affected your design win pipeline where you've had a lot of progress over the years? Does this -- do you have to make some adjustments because you're like, okay, demand for some of this isn't quite what we thought. So how do you think about that?

Yes. I mean you can't deny that this whole environment has been distorted on almost everything over the last few years. But big picture, the easy way to think about it, in 2021, 2022, we doubled our revenue during that time frame. And during that same time frame, we more than doubled our design win progress. And then last year, it was ugly, we were down 24%. Our design wins were still up, which is weird. Usually when -- there's some correlation there. We were still able to drive design wins. It's just on the strength of Series 2, in that portfolio and those products. That platform is cleaning up the industry in terms of its adoption, and it's really become the de facto standard for a lot of our customers. So we love that progress. And the impact of those designs really hasn't started yet. We're just starting to see the impact of those designs in 2024 ramping now. That's why we started to share -- when you're guiding in a trough like we were in Q4, we thought it would be helpful to share some of those ramps that we mentioned like the India smart metering rollout that's starting to ramp now. We've shared Samsung for smart TVs. We've shared Dexcom for CGMs. We said one of the largest 2 EV makers in the world is adopting our products and ramping those in '24. Those are all happening kind of in this quarter, next quarter as we move forward. And what really helps us have confidence that -- again, we don't need the market to recover. We just need the end inventory to come down so revenue goes up to consumption and those design wins to ramp, and it puts us in a meaningfully different place than we are right now.

Yes. Okay. Great. I mean you talked about a lot of examples just there. Anything that particularly excites you that you think -- you mentioned the medical could be a pretty big driver. What are the biggest dollar drivers that you sort of see over the next couple of years?

Sure. Yes. I think simply said, if you step back and look at the big picture, there's multiple vectors. One, I think, Matter and Amazon Sidewalk are still exciting and will help our industry over time and will ultimately be a growth catalyst for the industry and for us. If you go and look at it from a technology perspective, areas where we've historically been strong, 15.4 and sub gig, those are getting pulled into the mainstream. So our market leadership positions in IoT are getting pulled into the mainstream by some of the biggest companies in the world. That's exciting. I'd also say technology-wise, Bluetooth, we put our focus on Bluetooth 3, 4 years ago, made huge progress there. We are unequivocally gaining share and taking chunks out of competitors like Nordic who was up onstage earlier. And we see that continuing in the next few years. Wi-Fi earlier in, but we like the progress we're making. We've scaled that site that we acquired from 200 to 700. We just released our first product based on our combined technology called the 917. That brings power consumption to Wi-Fi that is new to industry, simply said, a Wi-Fi 6 product that has 45% to 50% less power consumption than any competing alternative. So if you put yourself in our consumers' shoes like us, that means you change your batteries way less often, and the battery life is meaningfully longer. So earlier days, but the opportunity potential is equal to what we're seeing in Bluetooth. So those are growth catalysts that we're excited about. And then if you look at it from an end market perspective, CGM is fantastic, right? CGM is a market that's helping people. It's doing good. At the same time, it's a market that has volume potential that is just somewhat astounding from a semiconductor perspective, right? It's disposable. The market penetration is low for these companies, but the need is great. So that's very exciting. Shelf labels, very exciting. Geo-wise, I think almost every major geo in the world is adopting. Most of the major retailers are adopting, and the volumes are substantial. So that's another one that we're very excited about. Smart metering, gas, water, electric. India is rolling out smart metering now. That's 250 million units over the next few years. All of those are awesome growth engines on top of everything else we've been doing all along.

Okay. Okay. That's great. You talked about Series 2 doing really well. Can you talk about what that brings to the market? And then maybe talk about Series 3 as well.

Sure. For those of you who aren't aware, Series 2 is probably poorly named because it's our fourth-generation technology. It's a platform approach that is taking all of our wireless technologies from a hardware perspective and creating a platform that we can easily move around, create derivatives and permutations of. And then on top of that, we do hundreds and hundreds of software products every year on that platform. What's unique about it? If you're a customer, if you use one, the next one is easier and more efficient from an R&D perspective. You get massive reuse. If you're a customer, you get multiple wireless technologies, all the requisite wireless technologies you need, not just the one that some company wants to push, right? Because most customers want Wi-Fi to talk to the cloud, they want Bluetooth to talk to their phone, they want sub gig to talk to the network, as an example. So that has been very powerful for us from a Series 2 perspective. On top of that, Series 2 brings, without any contest, industry-leading power consumption, industry-leading security, industry's leading wireless performance. So you have that platform that gives you a lot of reuse for customers for R&D efficiency. It has all the technologies they need, and it gives them a lot of reuse and customization through software. So it's just knocked it out of the park. That $18 billion pipeline that we have, the bulk of that is being driven by Series 2. The design win momentum over the last few years is being driven by Series 2. The revenue for us for the next 5, 6, 7 years, the bulk of that will be driven by Series 2. And we will keep investing in that for the next decade from a software perspective. You can -- that's awesome, that's cool. We're excited about it, but we can never get comfortable and complacent, and we got to stay paranoid. We are reinventing ourselves all over again with Series 3, which is where the bulk of our R&D is going right now, to take that platform, which is the de facto standard in the space, and make it meaningfully better and step function up. This isn't one product, and it's not leaning on just the process technology. It's taking literally almost 2 decades of knowledge, 4 generations and making our fifth generation something that's unstoppable in the industry from a performance perspective, a scalability perspective, a reuse perspective for our customers. So to make it real, compute, we're talking 100x improvement, general purpose and AI. Scalability, we get to reuse all of our code that customers have out there and can apply it to this generation. So if you're sitting there -- investment in Series 2 is also an investment in Series 3, which our customers love. So we're excited about it, but it's still early days. We're only sampling in the first half of this year. So we'll see growth in Series 2 for a long time while we're also seeing design wins and momentum building in Series 3.

And how much of that value proposition is the software? And like sort of how much software expertise do you have in your R&D?

So in terms of how much is the expertise, you can't separate it. I want to be clear about that. People say, oh, we monetize in hardware. You can say that technically, but our products don't do anything without the software that goes with them. We're really selling a solution that is an integration, a synthesis of those 2 things and they go well together, and they can't be separated. So that's important.

That's fairly unique, right? I mean if you don't [indiscernible].

We have meaningfully more software developers than IC designers, which most people don't realize because in our space, the market is too broad, too diffuse, too many applications customers to service it in hardware. You'd die of your own weight trying to do that many wireless SoCs. I mean we do 2 to 3x more wireless SoCs every generation or platform. It's not enough. That's why each year, we're doing over 500 software products, and that's scaling up quickly. That's how customers get the custom approach. That's how they get their application serviced and feel like, oh, wow, they had a solution that was for me, does exactly what I need it to do. So it's a critical part of our differentiation but tough to separate.

Yes. And if you have potential customers who are doing Wi-Fi solutions or Bluetooth solutions and you kind of want to sell this capability to them, you want to kind of broaden out -- is it difficult to find those people? Is it difficult to -- are people really struggling with these situations where they're trying to merge these different technologies?

It's been kind of fascinating. I'd say, if I go back 5 years ago, if I'm honest about it, most of our customers were really kind of picking point solutions. It's like, I want this product and I needed to do these things. And that was the vast majority of our opportunities. I'd say it's completely flipped now where the vast majority of our opportunities, they're picking the company, they're picking the platform and all the things that platform can do because some of our customers, without exaggeration, have over 200 designs. They can't work with multiple suppliers. If they can have one company that has all the requisite capability and technology and they get reuse within that, that's their win. So it's completely inverted now where most of the people are coming to us not for the product or the product still has to be the best, but it's -- they're picking the company, they're picking the platform, honestly, they're picking the management team. They want to know that they're betting their future because most of what we do is sole source. They want to know they're betting their future in a company they can bet on.

Yes. And I'm a bit surprised at just how broad the business is in that you talk about the things you're saying. I mean there are some customers who do a lot in these areas with lots of different products, I mean, like Amazons, guys like that.

Yes. Industrials, yes, yes.

Yes. Do you expect over time you'll actually have some higher customer concentration with like a lot of products at those customers?

If it happens, it's okay, but we're trying not to. I mean we're working both ends of it hard in terms of continuing to grow big customers, but we've invested tremendously in mass market and long tail to have a meaningful piece of our business that's low to no touch. If we don't do that, we can't scale as fast as we need to, right? If we have to white glove every opportunity, we'll never scale. So that piece, that doesn't happen by default. You have to invest in it. You have to be purposeful about it, and we're making awesome progress. I would argue there's no company in the world that is addressing as much mass market wireless as we are. And that's not a trivial statement. So we're excited about that, but it's critical. If someone grows super fast, great, but we're really trying to keep the diversification.

Yes. Okay. So maybe if we could talk about financials a little bit. Gross margins, I guess, a little lower than expected last quarter, but you have a lot of things going on within that number. Can you talk about the long-term trajectory of gross margin?

Sure. Giovanni, do you want to...

Yes. So with the revenue levels being what they were in Q4 and what we're anticipating in Q1, just anomalous things are going to pop out, right? Even though we're fabless, fixed cost absorption in our manufacturing organization, supply chain organization has become the topic that we never thought we'd talk about, right? And nothing has really changed, though, in terms of the longer term, right, as we get back to breakeven and back to consumption. Our model is still intact, right? I've heard Matt say many times at the peak -- at the trough, that's not the time to really change your gross margin model, right? So maybe high 50s...

And you didn't at the peak either, like, to your credit...

There's a lot of pressure, I tell you.

And remember, we had a 67% quarter, I don't know, 3, 4 quarters ago.

[indiscernible] people wanted you to...

You guys got to be north of 60. And so we're definitely holding to that model. At that level, it is a premium gross margin in the industry in our space. And we anticipate being able to maintain that. There's a little allowance for growth in Bluetooth and Wi-Fi, just structurally have slightly lower gross margin profiles. But that kind of gets lost in the wash with mix and with geos and end markets and that kind of thing. So we're very confident in that longer-term model.

Yes. And then OpEx, I mean, you have a pretty large opportunity in front of you but also pretty difficult conditions. I assume there's some controls on that.

Yes. I mean if you look at what we did in OpEx in 2023, it went down sequentially for 4 quarters, right? And what was interesting is each quarter, as we're looking at the next quarter, we thought the next quarter would be a growth quarter, right? As we got to Q3 and executed what we anticipated to be just temporary reductions, right? There were executive team pay cuts. We shut off the bonus plan, shut down travel, really slowed the pace of hiring to just a bare minimum. And as we started seeing how Q4 was taking shape, we had to convert a lot of that to structural changes, right? So we had the 10% reduction in force, biggest cuts that we've ever done, really painful but necessary, and recalibrated our cost structure. So as we look ahead in '24, we're going to start to open up spending a little bit. It's going to be calibrated to the pace of the recovery, to the slope of the recovery, not dollar for dollar but just incrementally as we go. Investments that we need to make, we've got to have sales teams traveling out visiting customers and maintaining our road map. So...

Yes, yes. Okay. And then last question for me [indiscernible] uses of cash. You talked about the 2024 buyback. Obviously, cash generation is not where you want it to be long term, but it will come back.

It will.

How are you thinking about that? Is there still M&A that you need to think about doing long term, things like that?

Yes. I mean from -- obviously, we're going to be cautious. We have our cash position for a reason, and it's coming in handy right now. I think that big picture, we've been acquiring about a company a year for the last decade to gain capability technology for our space. I now feel that we are not looking for SAM expansion. We don't need more market. There's plenty of opportunity, and we have all the requisite technologies. So what we do now from an M&A perspective would be about going faster, more aggressively in the spaces that we're in. So not expanding into new areas. We have what we need. It's about going faster in the areas we're in. If we saw something that we thought would be a good fit culturally and would allow us to step function in terms of scale in addressing these markets, that would be of interest. But not a lot going on out there either. So...

Yes. Right, for sure. Okay. Good. Question in the back.

Can you explain more about die bank and how that's a strategic asset? I don't know the concept. And given the new standards, maybe certainly new spectrum that comes in, like if you're holding all these die in a bank -- I understand the software application, but how do you manage the risk of obsolescence in this die bank?

Sure. So let's see, first things first, we have to have integrity in our statements. There's always risk, and it's not without risk. But as far as risk go in our space, it's relatively low risk, and I'll explain why. In the crisis, we learned that the die bank, we weren't carrying enough internally. Lead times are long for a fab cycle. And orders are coming in much faster than that. So to have some cushion in terms of managing your suppliers in terms of your starts and rates and servicing your customers, having that buffer margin in the middle is very powerful. That's one. Two, we don't have that many silicon products. Most of the change in differentiation in terms of customization is in software. So we have wireless SoCs that have thousands of customers, and they will last for a decade or more easily. Our products, we're still shipping in 110, 180, 90-nanometer as we still are ramping in 40. So that's the first thing that -- imagine that these are things that can last a long time. We're carrying right now, if you want to think it, about 1 turn. We were carrying 3 to 4 turns before. Something in the middle is probably where we're going to land, but we have to be ready to support these ramps. We've committed to these customers. These are mostly sole source. We do not want to let them down. So we'll -- I'm not saying it will be perfectly linear as our revenue comes out of this. We'll use it as a strategic tool as we see fit to support ramps and to support our suppliers in the best way possible. But over time, it will probably end somewhere in the middle of where it was. Yes?

I mean you're talking about being a wireless connectivity company. Cellular is kind of missing there. Some of your larger competitors probably have that. Do you think you need that longer term? Where is the market going? Just trying to understand if there is demand, how you would interpret.

Yes. So cellular, first of all, easy way to think about it, it is wireless, can't deny that. But it's apples and oranges, right? So if you think about cellular, you're talking order or orders of magnitude, more power consumption and cost. What we -- think of this, battery life days, if you're lucky, what we do, we're talking years and years on a watch battery, 7 to 10 years. It's not the same domain, so different application space, different needs. For us, where we see the biggest opportunity in volume is at the extreme edge where we could have hundreds, if not thousands of devices on the extreme edge taking benefit of that power consumption and cost point, talking to cellular. So cellular is meaningfully lower volume in the IoT. And I don't think there's anyone that debates that. It's orders of magnitude. And the cost, the power consumption, service models make it prohibitive in terms of scaling. And there's no one doing meaningful IoT cellular volume out there today. It's been talked about for over a decade or more. The only company that's really, I think, in our space, dipped their toe in that water, Semtech, we can debate how that's gone for them, but I don't think it's been transformative. And Nordic has been working on that for 7 or 8 years, and they're still spending more than they have for revenue. It's not something that we see as inherently strategic, asked for or needed by our customers. And for us to double or triple the company, we don't need cellular to go do that. That being said, if it ever did become relevant, we'd make or buy it, depending on what made the most sense. But right now, we are not seeing the demand, the need on the relatively near and midterm horizon, and there's no shortage of opportunities in the markets that we're in. So hopefully, that addresses that point.

I feel like I do get reports of Qualcomm trying to sell $50 chips into an $8 socket. [ How's it going after these couple of things ]...

Apples and oranges, yes.

But it does -- they are trying stuff...

Well, I mean that's -- when you have that, that's what the answer is, right? It's -- we have literally built a custom grounds-up capability for the extreme edge, which is where -- think of it this way, y'all. I mean you know the volumes in PCs and handsets and automotive. What we're talking about for this edge is billions and billions and billions of units annually. We've never seen this type of volume potential in the semiconductor space. Even just one application space like CGM is remarkable in terms of its potential. So that's exciting to us, and we don't need cellular to do that. But if we ever do, we have no problem going after it.

If I may, one add-on question on the Matter standard. Seems to be a bit underwhelming from the big players. Maybe you have a different view. So I would like to hear your view. And what do you think there is -- the reason there is maybe too much...

Hype?

Well, and too much probably buying ahead of consumers. So basically, it's hard to find a killer app.

Yes. I think -- let me be clear, never fast enough and never easy. But I think what Matter intends to do -- for anyone who's not familiar, Matter is, oversimplified, an application layer that goes over the top of Wi-Fi, Bluetooth and Thread to make it easier for the ecosystems of the hyperscalers to work together. Think of Apple, Google, Amazon, Samsung. Their ecosystems historically didn't work well. So as a consumer, you get something for one and it can only work within. The vision of Matter is that if you buy for one, it will work across the others. Not saying it will be fully enabled within each ecosystem, but it can work across, which is a much better user experience. And then from a developer perspective, you also get the benefit of developing for one, you're developing for all, which is much more efficient instead of having to do it individual. So that's going well. And what we love about Matter, full disclosure is it pulls one of our strong positions in 50 and 4 where we're a market leader. We actually invented the technology essentially, pulling that into the mainstream. So we're very supportive. We think net-net, it's good for the industry because it's easier to use, better consumer experience, better developer experience. And for us, it's a net positive pulling our technology into the light. But the problem is it's been talked about too much, right? I mean if we're honest about it, it came out in this hype and everyone was like, oh my gosh, this is going to be awesome. Haven't even started it yet, right? So have to go through that cycle of the hype, the valley of despair and then we're crawling out of it. And now it's becoming real. It's coming out in products. And for the next few years, you'll see more and more products coming out. Working through the warts and bugs that are inevitable with anything new. I think the fundamentals are sound. So I think you'll see, over time, continued growth and progress in Matter. But I would not think of it as a step function and everything is better. I think it's a long journey. And we're pretty far down the road. Biggest companies are working together. The standard is out there. It's being put into silicon, and it's being rolled out to customers. It just takes a while. All these things take longer than we all want. Any other questions? That was your question.

Anybody who wants to ask a question [indiscernible]. Okay, cool. We'll wrap it up there. Thank you, guys. Looking forward to you coming through this and seeing the pipeline come to fruition. Thank you.

Thanks. Really appreciate it.

Appreciate it. Yes, thank you.