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Silicon Laboratories Inc (NASDAQ:SLAB)
Q3 2019 Earnings Call
Oct 23, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Jamie and I will be your conference operator today. At this time, I would like to welcome everyone to Silicon Labs' Third Quarter Fiscal 2019 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

At this time, I'd like to turn the conference call over to Jalene Hoover, Director of Investor Relations and International Finance. Jalene, please go ahead.

Jalene Hoover -- Director of Investor Relations and International Finance

Thank you, Jamie. And good morning, everyone. Tyson Tuttle, Chief Executive Officer and John Hollister, Chief Financial Officer are on today's call. We will discuss our financial performance and review our business activities for the third quarter. After our prepared comments, we will take questions. Our earnings press release and the accompanying financial tables are available in the Investor Relations section of our website at www.silabs.com. This call is also being webcast and a replay will be available for 4 weeks. Our comments today will include forward-looking statements, subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future.

We encourage you to review our SEC filings which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the Company's earnings press release and also in the Investor Relations section of Silicon Labs' website. I would now like to turn the call over to Silicon Labs', Chief Financial Officer, John Hollister.

John Hollister -- Senior Vice President and Chief Financial Officer

Thanks, Jalene. Third quarter results ended stronger than we expected due to a combination of revenue upside, in line gross margins and favorable operating expenses. Revenue ended at $223 million, up 8% sequentially and at the high end of our guidance range. Non-GAAP earnings exceeded the top end of our guidance range, ending at $0.96 per share. IoT delivered another strong growth quarter, ending at 58% of total revenue or $129 million setting a new all-time record. Sales of wireless products, which now account for more than two-thirds of IoT revenue, led IoT growth with ramps in the home automation, security and lighting markets. Infrastructure revenue ended better than expected, up slightly to $45 million or 20% of our total revenue, primarily due to stronger results from isolation products, which benefited from ramps in the electric vehicle and solar energy markets.

Broadcast was up strongly in the quarter as expected to $34 million or 15% of total revenue due to seasonal strength in consumer on ramps and sales of video tuner products. Access was also up in the quarter to $15 million or 7% of revenue. Looking at third quarter revenue by end market, we saw sequential growth in all markets with the most significant increases in industrial, automotive and consumer. By geography, we saw the strongest third quarter growth in the Americas and APAC with Europe about flat. We continue to benefit from a broadly diversified business model. Our distribution revenue mix ended at 73% for the third quarter, which was flat to Q2. Distributor inventory days grew slightly on rising product sales ending at 41 days versus 39 days from the prior quarter. No end customer was greater than 10% of our revenue in the third quarter.

Non-GAAP gross margin was in line with expectations for the quarter at just above 60% which was down sequentially from Q2 as expected, primarily due to seasonal upside. Non-GAAP operating expenses were favorable for the quarter at $87 million. Non-GAAP R&D expenses were $49 million for Q3, which was better than expected due to lower spending on new product introduction costs. Non-GAAP SG&A ended at $38 million, which includes favorable spending on outside professional services. Non-GAAP operating margin for Q3 ended stronger than we expected at 21.1%. Our non-GAAP effective tax rate for Q3 was slightly favorable at 11.1% and non-GAAP earnings ended at $0.96 per share which was above the top end of our guidance range. Looking at our GAAP P&L results, gross margin ended the quarter at 60.1%. GAAP R&D expenses were $63 million. GAAP SG&A expenses were $48 million. GAAP operating margin was 10.7% for the quarter. Stock compensation expenses were $14 million and amortization of intangible assets was $9 million. Both in line with expectations. GAAP earnings per share ended at $0.45.

Turning now to the balance sheet. We ended the quarter with total cash and investments of $701 million. Accounts receivable increased to 76 days based on growth in the business with third quarter days outstanding holding at 31 days. Our inventory balance decreased to $71 million in Q3 due to effective supply chain management with inventory turns improving to 5x up from 4.3x in Q2. Operating cash flow was strong in the quarter, bringing the Q3 year-to-date total to $135 million. During Q3, we amended our bank credit facility to increase the overall amount of our borrowing capacity to an aggregate $650 million including $400 million in base borrowing and the $250 million extension. As part of the credit amendment, we also extended the maturity date of the facility to 2024 along with other improvements in the terms. This updated credit facility along with our strong organic cash balance provides us with a robust level of liquidity to execute our capital deployment strategies. Last week, our Board of Directors extended the term of our remaining $134 million buyback authorization to the end of fiscal 2020. In summary, our balance sheet continues to be very healthy.

I will now cover guidance for the fourth quarter. We expect Q4 revenue to be in the range of $217 million to $227 million with Infrastructure up, IoT flat and Broadcast and Access down. We expect non-GAAP gross margin to be approximately 60.5%. We expect non-GAAP operating expenses to be around $90 million. We expect our non-GAAP effective tax rate to be 11.5% and our non-GAAP earnings per share to be in the range of $0.84 to $0.94. On a GAAP basis, we expect gross margins to be 60.3%. We expect GAAP operating expenses to be $113 million and we expect GAAP earnings per share to be in the range of $0.33 to $0.43. As you are updating your financial models, I'd like to call out that our fiscal year 2020 will have 53 weeks with 14 weeks in Q1 rather than the typical 13. I will now turn the call over to Tyson.

Tyson Tuttle -- President and Chief Executive Officer

Thank you, John. Third quarter revenue was up 8% sequentially with growth across all major product categories and following a 10% sequential increase we realized in the second quarter. Despite macro headwinds, ongoing trade policy, uncertainties and current semiconductor industry market conditions, we are pleased to deliver two consecutive quarters of strong revenue growth and a return to target operating model profitability. Q3 year-to-date design win lifetime revenue was up more than 25% year-on-year, indicating a strong tailwind for future growth and a validation of our strategy. Third quarter IoT revenue reached an all-time high of $129 million. Wireless products established record revenue in Q3 with $15.4 million including Zigbee and Thread, proprietary and Z-Wave leading growth. We continue to strengthen our wireless portfolio adding new capabilities and driving differentiation, while advancing security and growing ecosystem partnerships. Our connectivity portfolio is gaining significant traction as we target low power wireless end nodes with a broad range of protocols in optimal combinations for home automation, security, lighting, metering, industrial and commercial applications.

We believe having multiple connectivity standards under one roof strengthens our influence on the evolution and adoption of wireless standards in targeted IoT market segments. Combining multiple capabilities in the same platform, developing our own standards-based wireless protocols rather than licensing stacks from third parties and optimizing our hardware and software that work seamlessly together are all examples of how we differentiate ourselves from the competition.

Silicon Labs' unique platform approach to supporting thousands of IoT applications is resonating with our customer base, enabling them to reuse more hardware and software in ways not possible with single point solutions. We see the proliferation of innovative platform-based customer designs across the IoT. Many customers are leveraging their investments through efficient reuse of tools and stacks, amplifying the stickiness of the software element of our platform solution and contributing to R&D efficiency.

We continue to expand our next generation Series 2 Wireless Gecko platform, offering best-in-class integration, wireless performance, security and cost. During the quarter, we launched a new portfolio of wireless modules based on the Series 2 platform and supporting Zigbee, Thread and Bluetooth Mesh as well as Bluetooth, low energy and multi-protocol connectivity. The new modules feature a powerful Arm Cortex-M33 processor, an integrated RF power amplifier for long-range connectivity, a dedicated security core and extended temperature operation for a wide range of applications including smart LED light bulbs.

During the quarter, we announced our collaboration with Allegion, a pioneer in security products to expand IoT capabilities into smart homes and commercial buildings. Allegion is transforming the industry with the addition of wireless connectivity to its locks and other security devices, making them simpler, stronger and more secure, while meeting complex compliance certification and market demands. A growing number of Allegion security solutions now use Silicon Labs' Wireless Gecko IoT platform, supporting Zigbee, Bluetooth and Z-Wave connectivity.

The Zigbee-Certified Schlage Connect smart lock is an example of a recent collaboration, when paired with an Amazon Key and Cloud Cam, homeowners can remotely grant access to visitors and enable in-home delivery.

Silicon Labs also enjoys a strong partnership with Chamberlain, a leading provider of access-control solutions, including garage door openers and one of our top IoT customers for several years.

In Q3, we were honored to receive the Chamberlain Group's Innovation and Technology Solutions supplier award based on our excellent technical support and collaboration. We continue to aggressively promote the Z-Wave alliance to drive increased adoption across multiple ecosystems, market expansion into new device types and the convergence of standards and in-nodes and gateways to simplify the end-user experience.

Earlier this month, the Z-Wave alliance hosted a Fall Summit in Austin, convening members, partners and thought leaders for a series of discussions, panels and workshops around the future of Z-Wave in the smart home market. Z-Wave's ecosystem comprises more than 3,000 certified devices and a member roster of more than 700 companies, including ADT, Alarm.com, ASSA ABLOY, Jasco Products, Leedarson, LG Uplus, Nortek, Amazon Ring and Samsung SmartThings.

Turning now to Infrastructure. Third quarter revenue exceeded expectations, increasing 3% sequentially due to strength and isolation products. We continue to expand our timing and isolation portfolios to address new markets in application need. For example, during the quarter we announced the expansion of our isolation portfolio with a family of compact, robust, isolated smart switches.

Programmable Logic Controllers or PLCs use smart switches to control the automated factory through digital outputs. Each output is isolated for safety using Silicon Labs' groundbreaking CMOS-based isolation technology, offering better reliability and performance in legacy after couple of base solutions.

The new smart switches are ideal for driving resistive and inductive loads such as solenoids, relays and lamps used in industrial control systems.

Moving on the timing, automotive developers traditionally use quartz crystal and oscillator timing solutions, which are prone to shock and vibration failure, degrading reliability. As vehicle automation systems add new features, they grow more complex and drive higher data rates. As a result, clocking requirements have become more demanding, requiring a more diverse mix of frequencies and lower jitter reference clock.

To meet these clocking needs, during the quarter, Silicon Labs has announced industry's broadest portfolio of automotive grade timing solutions including AEC-Q100-qualified clock generators, buffers and PCIe devices. The new portfolio targets a wide range of automotive applications, including Advanced Driver Assistance Systems or ADAS, camera subsystems, Radar and Lidar sensors, autonomous driving control units, infotainment systems and GPS and 5G connectivity.

We are excited to enter this growing market with our first automotive timing portfolio which further expands our SAM. Our newest timing devices help automotive developers to simplify clock 3 design, reduce points of failure, increase system reliability and optimize the performance of high-speed serial data transfer. These benefits enable automotive OEMs and Tier 1 suppliers to deliver innovations which are redefining how we drive, navigate and experience our cars.

Earlier this week, we announced our acquisition of Qulsar's IEEE 1588 precision time protocol, or PTP software and module assets, enabling Silicon Labs to simplify the development and adoption of IEEE 1588 synchronization in wireless, transport and access networks.

IEEE 1588 distributes time of day across packet-based networks to provide precise network synchronization for a wide range of fast growing applications spanning small cells, optical transport, smart grid, automotive and 5G wireless infrastructure. The financial impact of this transaction is not material.

Moving on to Broadcast, seasonal strength in third quarter TV tuner sales drove sequential growth in Broadcast consumer with Broadcast automotive up slightly. Total Q3 broadcast revenue increased 30%, sequentially. There is a growing need for automotive radio manufacturers to support all global digital radio standards with a common platform.

To address this need during the quarter, we introduced Silicon Labs' first automotive radio tuners supporting the digital radio mondiale, or digital DRM standard, which is prevalent in India, with trials under way in Russia and South Africa. Our new tuners include hybrid software-defined radio capabilities to deliver the highest integration and reception performance and the lowest volume cost of any automotive STR tuners in mass production today. Advanced digital radio features enable radio manufacturers to develop a single platform to demodulate and decode worldwide digital radio standards, greatly simplifying car radio designs and reducing system cost.

I am thrilled to welcome our new Chief Marketing Officer, Megan Lueders to our leadership team. Megan joined Silicon Labs with more than 20 years of high-tech executive experience in a variety of marketing disciplines, including brand awareness, corporate communications, channel and strategic partnerships and global demand generation. Megan has the strong leadership skills and business acumen we need to clearly communicate our vision, engineering excellence and culture of innovation to our customers, partners and the industry, as we scale our revenues into the next level.

Silicon Labs' strong track record of driving revenue growth starts with an innovative, passionate and collaborative team. I'm proud to report that for the third year in a row, we have been awarded the Great Place to Work certification. Most notably, employees regard Silicon Labs as a respectful workplace offering a high trust culture where they can bring their whole cells to work.

While macro headwinds continue and the level of policy uncertainty and market volatility remains high, we believe Silicon Labs is strategically well-positioned in long-term secular growth trends and with key ecosystem players.

Our role in the large and growing smart home, industrial IoT and Infrastructure markets is increasingly important as we offer a combination of innovative products, best-in-class software and scalable solutions.

Thank you for your time and attention. Before we take your questions, I'd like to turn the call back to Jalene. Jalene?

Jalene Hoover -- Director of Investor Relations and International Finance

Thank you, Tyson. Before we open the call for the question-and-answer session, I would like to announce our participation at Wells Fargo's third Annual Technology, Media and Telecommunications Summit and Las Vegas on December 4, NASDAQ's 41st Investor Conference in London, also on December 4 and Barclays Global Technology, Media and Telecommunications Conference in San Francisco on December 12.

We would now like to open the call up for your questions to accommodate as many people as possible before the market opens. We ask that you please limit your questions to one with one follow-up. Jamie?

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Cody Acree from Loop Capital. Please go ahead with your question.

Cody Acree -- Loop Capital -- Analyst

Yes. Thanks for taking my questions. Tyson, John, looking at TI's comments from last evening, they're talking about a further broad deceleration, cause of macro headwinds that was just the last 90 days, definitely, year-over-year, but even within the last 90 days. I would like to get your take on the last 90 as far as order rates and linearity, if you would?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes. Cody, this is John. We've seen fairly steady behavior in our ordering rates and a linear progression of our bookings through the course of the quarter. We are entering the fourth quarter with a decent level of bookings as we begin the quarter. All that said, we do have concerns around the overall policy environment and macro environment that we're remaining vigilant about. But clearly, we have some secular drivers in the business, including and some of our more broad-based product lines such as isolation that are powering through that, but it is something that we will continue to monitor carefully here at the company.

Cody Acree -- Loop Capital -- Analyst

And if you could maybe just give us any visibility that you can on expected seasonality, as we head into the beginning of next year, and just your thoughts on the possibility of 2020 revenue growth?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes. So we do expect first quarter to have a seasonal downtick. That's very common in the industry and in our own experience. On the 2020 business opportunity, we have a very strong opportunity pipeline and continue to work hard to convert those into new design wins, the macro of course, is a concern, but we feel good about where we are positioned in the business as we indicated in our prepared comments.

Cody Acree -- Loop Capital -- Analyst

All right. Thank you, guys.

Operator

Our next question comes from Gary Mobley from Wells Fargo Securities. Please go ahead with your question.

Gary Mobley -- Wells Fargo Securities -- Analyst

Good morning, everybody. Thanks for taking my questions. I wanted to ask about Broadcast and Access, realizing that these are not long-term growth businesses for Silicon Labs, but they certainly had robust sequential comps in the third quarter. So I was wondering if you could indicate whether or not, there were any buyheads [Phonetic] or one-time or lifetime buys related to those specific products, specifically, in TV?

Tyson Tuttle -- President and Chief Executive Officer

Yes. This is Tyson. In terms of Broadcast and Access, no, there were no last time buy activities. Actually, we saw relatively robust demand for TVs. We believe that the TV market this year will be about flat to last year and our market share continues to be about 75% in that for our tuners. So we're holding our long-term view there that that is maybe a 10% year-on-year. I think this last year, this last quarter was a little bit better than that. But overall, we feel that that's a stable set of businesses and Broadcast.

We have a growth path there on the automotive side. With our automotive radio tuners, we saw little tick up, although we do view the automotive market is being weak right now. So, demand is a little bit below where we would expect, but on the consumer side, we saw a strong uptick. We will see as we go into Q4, the Broadcast revenue on a seasonal basis, start to trend down. It tends to be highest in Q3 and lowest in Q1.

On the Access side, we have a stable business. There was the modems, are one part of that and that is continued to trend down. We've actually done pretty well with our slick [Phonetic] business and gaining some share there and had a little bit of upside in Q3 actually coming out of China, but holding our long-term view of the access market as well, with about 10% at both in Broadcast and Access looking at a 10% model, long-term model, decline year-on-year. And so this year, we've actually, I think, Q3 access was about 10% down year-on-year and Broadcast was down about 5,% but that it continues to hold that model going long-term, but there was nothing unusual in the quarter to drive those results.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. If I recall correctly, your initial expectation as far as the impact from Huawei was about $6 million a quarter, but I understand that you have been able to resume shipments for the most part to Huawei. But of course, there might be some supply chain bottlenecks along the way. So, I'm wondering if maybe you can quantify what the impact has been from Huawei, as we progress through the balance of the second half of 2019?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, Gary. This is John. This is an area that we continue to carefully evaluate. Of course, we're fully complying with the law. We've looked at the export control around our product supply, that we are able to ship most products, as a consequence of that. That said, the indirect impacts remains around that business opportunity related to complementary products and component product availability. So business there is still down some, but we have resumed shipments there.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay, all right. Thanks, everybody.

Operator

Our next question comes from Raji Gill from Needham Company. Please go ahead with your question.

Rajvindra Gill -- Needham & Company -- Analyst

Yes, thanks and congrats on good results in light of a very volatile environment. A question on the IoT business, specifically around smart metering, I know last year there was a pause as the industry transition to the SMETS 2 standard. Can you talk about the contribution of smart metering, reaccelerating this year to the IoT growth? And along those lines, smart lighting, how has that segment been trending throughout this year?

Tyson Tuttle -- President and Chief Executive Officer

Thank you, Raj, for the question. On the smart metering. We have resumed normal shipments into the smart metering market, there was a pause last year, as we went from the SMETS 1 to the SMETS 2 and, just as a reminder to everybody, this is a rollout in the UK. It's about a five-year rollout. There's about 120 million units. We've got about, about 85%, 90% of those. And, we're about halfway through that deployment. So, it is multiple suppliers within that chain that tend to move share back and forth a little bit, but overall, that is at a steady rate here, kind of back to normal rates in 2019. So, that's on the smart metering market in the UK. We also have smart metering business just in general, that's a strong category for us. They are adding connectivity, both for in-home monitoring and meter reading and with a variety of different technologies. And so that is a, what we view as a very high quality long-term strategic growth market for us.

On the lighting side, you've got really two segments on lighting. You've got the more consumer retail type of channel for smart lighting and we introduced our newest Gecko 2, Gecko Series 2 platform both the chip last quarter and earlier this year, and now the modules and that's targeting high volume bulbs with Zigbee and Bluetooth and 15.4 capability, and have a leadership position there in terms of our ability to drive their solutions. We see strong adoption in volumes and ramps in the lighting market. So, that's very good. You also have a very pretty diverse -- I mean, you just look at the conversion of lighting from older technology to LED and then from non-connected to connected, and this is across different types of fixtures. I mean, you look at commercial buildings and lots of different markets and so there is a lot of fairly broad range of deployments of lighting across a number of large lighting manufacturers that we're engaged in. So, the penetration rate today of connectivity into lighting is actually quite small, but we see that as a long-term growth driver for us as lighting and the features and the value that you can add by adding connectivity directly into the fixtures and bulbs makes sense. So that's a little bit of color for you on the lighting market.

Rajvindra Gill -- Needham & Company -- Analyst

Thanks, great. For my follow-up on the Infrastructure business, particularly around the 5G rollout, you had mentioned for several quarters now that you had wins at four of the top 5 based Asian vendors. I was wondering if you could describe what you're seeing in terms of the 5G roll it as we go into next year, does that continue to accelerate? How is your position with your Timing product compared to your competitors? Any color around the 5G rollout, it would be helpful. Thank you.

Tyson Tuttle -- President and Chief Executive Officer

Yes, our view is that actually the 5G rollout is -- that there has been some delay in 5G in terms of -- just capital deployments. We've got the situation over in China and some of the export controls have had some impact there. That being said, our position actually in 5G in terms of our products and this is mostly on the timing side with our clocks and oscillators is actually -- this is a strategic market for us and we continue to have a strong roadmap and solid engagements and design wins in this area. So we think that as 5G continues to roll out, we will have a growing contribution in our timing business from the 5G and wireless markets. So we have not traditionally participated in that area. Most of our business has been on the core infrastructure, optical networking, backhaul and now we're getting into the radio heads and into the base station units themselves with our timing product. So we feel good about our roadmap, feel good about our competitive position. Probably a little better on our competitive position than we were 6 months or a year ago. We've been driving some good wins and new products out into the market but still, we see a little bit of slowdown in terms of the deployment of this technology given some of the trade war dynamics.

Rajvindra Gill -- Needham & Company -- Analyst

Understood. Thank you.

Operator

Our next question comes from Ruben Roy from Benchmark. Please go ahead with your question.

Ruben Roy -- Benchmark -- Analyst

Thanks. Hi, guys. Tyson, I wanted to follow up on some of the IoT commentary. With your guide for Q4, it looks like the IoT business is going to be sort of in the mid-single-digit growth range and obviously, a lot of macro headwinds out there, etc. But it seems like the wireless portion of the business, which you guys said is now around two-thirds of the business, it seems like that's continuing to do well. Just wondering if you could parse out your thoughts on the wireless part of IoT versus microcontrollers and maybe revisit longer-term growth prospects for that segment. That would be great. Thank you.

Tyson Tuttle -- President and Chief Executive Officer

If you look at the IoT business, you've got now about a third of the business in microcontrollers and about two-thirds in wireless. On the microcontroller side, we are seeing similar trends to the other broad-based suppliers in terms of overall exposure to the macro and slow down in a lot of the industrial activity, both in Europe and in China. So that business on the microcontroller side is down, call it 15% or so year-on-year and this is on the backdrop of both 32-bit and 8-bit microcontrollers. We're actually seeing a little bit more strength on the 32-bit side, but the -- so microcontrollers are getting hit by the macro situation.

On the wireless side, we continue to see strong adoption on a lot of the -- I mean you've got 15.4 in Zigbee and Thread, you've got the addition of our Z-Wave products, you've got Bluetooth and the opportunities around Bluetooth Mesh and Bluetooth low energy and then a lot of the proprietary wireless stuff that we're doing that go into a lot of the industrial networks. And all of those businesses are in growth mode this year. I mean, we are seeing strong adoption of IoT technologies out into the market. You look at the smart home. We talked earlier about metering and lighting. And so that is really the wireless is kind of powering the strength there. It's a 15% to 20% growth this year on wireless, which is less than we thought it was going to be given the design win traction and the size of the markets and the growth but I think that is -- it is impacted a bit by the macro but we continue to see a lot of growth there. So we're really pleased with the fact that we drove record wireless revenue here in Q3 and continue to see wireless ramp as we move into 2020. So feel good about the long-term health of that market and the deployment in our position.

Ruben Roy -- Benchmark -- Analyst

That's very helpful detail. Thanks, Tyson. And then for a quick follow-up, the isolation strength is that company or geography-specific or is that more broad-based and is that what's driving the infrastructure uptick in Q4 again?

Tyson Tuttle -- President and Chief Executive Officer

Yes. The isolation business is also one of our broadly exposed businesses in terms of just a lot of different applications. It's quite industrial heavy. We saw a particular strength in electric vehicles and solar energy deployments. Despite some weakness out of China on electric vehicles, we had strong design win traction on electric vehicles and isolation and see that as a really healthy long-term trends for us. And so as companies move over to electric, this -- our isolators go into things like onboard chargers, battery monitoring systems and motor control units and there is a healthy content of isolation in those applications and we've been winning more than our fair share of design there. You also, there is actually the solar had a very good quarter. And we've been doing well on design wins, although I would say that the deployment of solar have been a little bit mixed out in the market. That is in the backdrop of a fairly broad industrial just weakness coming out of Europe and APAC and China but that was more than offset by the ramp in the electric vehicle and solar energy markets.

Ruben Roy -- Benchmark -- Analyst

Great. Thank you, guys.

Operator

Our next question comes from Matt Ramsay from Cowen. Please go ahead with your question.

Matt Ramsay -- Cowen -- Analyst

Thank you very much. Good morning, everybody. Tyson, I wanted to ask a couple of longer-term questions around topics. One is in the timing business, there has been a lot of focus on you guys pushing from wireline into 5G and compute, but I noticed there were some products and sort of direction announced around timing for automotive. Maybe you could talk a little bit about that a little bit. And the other topic I wanted to touch on on a similar long-term thing is I saw there was some partnerships around -- so there were IoT particularly LTE Cat-M. I guess some new markets there that are of interest. If you have any comment. Thank you.

Tyson Tuttle -- President and Chief Executive Officer

Let me take the first question on timing. We're pleased to see the -- to be able to enter into the automotive market with our products. This is really around getting the qualification and the AEC-Q100 and all that of a lot of our -- the same products that we're able to deploy into the base stations and into wireline, those same technologies are more and more applicable to the automotive market, as you're driving to higher data rates and you're driving to lower jitter and all the things that make our timing products great. And so we've seen a fair amount of demand from automotive makers and Tier 1 suppliers to get -- to go after our timing product. So being able to get those formerly released and qualified and really targeting the automotive market, we think that expands our SAM for the timing market. So it's a similar type technology. Overtime, we'll continue to introduce new products in this area, but being able to deliver the reliability and the performance levels and all of that is a big advantage for a lot of the systems that we talked about in the call like driver assistance stuff, cameras light. A lot of the stuff that's going into autonomous driving requires higher performance timing and both on the compute side as well as the sensors and the communication around the car. So that's an exciting opportunity in timing and a good application of our technology there. In terms of the LTE Cat-M and the wide area network stuff, we have focused our efforts in wireless on the personal area networks such as Bluetooth and then the local area networks such as 15.4 Zigbee, Thread and Z-Wave, as well as a lot of the proprietary stuff. These are more where you've got a gateway and a base station and you're connecting devices -- I'm sorry. A gateway where you're connecting client devices to that gateway. It's not using a long-distance base station like you would have in a cellular type network. And we view that as the highest volume most diverse part of the market.

I think that the stuff that's going on around Laura and around Cat-M is still in early phases. We do see some roll-off. It's a different set of applications, a different set of customers. It's something that we're monitoring very, very closely and is a very similar type technology to what we're offering today. But we've got more opportunity than we know what to do with on the wireless side. Just you look at the size of our funnel. We've got about an $8 billion funnel around IoT right now and are busy with that. So it's -- if you look long-term, I think that the wide-area network stuff is very interesting. It's going to be a huge market, it's going to be one of those technologies that takes decades to deploy out in all of the different applications. But the stuff that's going on right now in the local area and the personal area networks and driving the prioritization in the maturity of our platform and driving the roadmap there is our main focus here over the mid-term. I think that is sufficient size market to be able to take the company to a much larger position in the market than we are today without having to expand too far. So I think from a management standpoint, you've always got to balance the expansion of what you're doing with the focus and right now we're focusing on the opportunity right in front of us is what we're doing.

Matt Ramsay -- Cowen -- Analyst

Thanks, Tyson. I really appreciate the color there. I guess that was it -- it tails into my follow-up with all the opportunities out there. John, it looks like opex is going to be up 2-ish percent this year. Given the macro, any thoughts about how you guys are planning for 2020 on the cost side? Thanks.

John Hollister -- Senior Vice President and Chief Financial Officer

Yes. We're working through that. Now, Matt, we're having our AOP meetings this fall. Meeting with the management team and the Board of Directors. We should have some more color to provide on the January call. I will note that we have the extra week so that needs to be comprehended in the modeling, but the balance is -- the goal, of course, would be to stay in the model range. The macro will have an influence on our ability to do that and we do need to continue to invest for the long-term to be successful in this business, but we will endeavor to provide more color in January.

Matt Ramsay -- Cowen -- Analyst

Got it. Thanks, guys.

Operator

Our next question comes from Blayne Curtis from Barclays. Please go ahead with your question.

Blayne Curtis -- Barclays -- Analyst

Thanks for taking my question. Tyson, maybe if you just go back on the Infrastructure bucket as a whole. It's seeing some nice strength recently. Still off if you look back to previous highs last year. If you could just walk through those pieces because I know some of these businesses are now starting to come back. I'm just kind of looking at Delta when that business is over $50 million a quarter, an opportunity to get back and surpass that as we look to next year.

Tyson Tuttle -- President and Chief Executive Officer

Yes, I think the Infrastructure business last year had a really strong year. We were up 30% year-on-year and saw strong ramps on both the isolation and the timing side with particular strength in isolation. As we entered into this year, we saw slow down in terms of -- on the isolation side really kind of industrial demand for power supplies and motor controls and a lot of the industrial automation stuff that isolators are used in. So that one is down this year. We did talk about the growth vectors we've got in electric vehicles and solar and just overall penetration into the industrial market. So that is one that will track the isolation, will track the macro situation, coming off a pretty strong year last year. So we're in that kind of macro number of about 15% down year-on-year.

In this last quarter, we may be able to end the year a little bit better than that, but the isolation products, we're still quite bullish about those longer-term given the design win traction in the new markets that we're taking on. On the timing side kind of it's a -- there's I think another macro. You've got some of the trade tensions stuff that's in there. You've got a bit of a slow down on some of the capital deployments of new technology. So that one is in a reasonable shape but it's well-positioned in terms of growth vectors in data center and in wireless and now in automotive outside the core networking area. But again, that one is in timing we are again impacted by capex and macro situation. So off of a strong year last year, down a little bit this year in that 10% to 15% range and feel like both of those businesses are well-positioned to grow in the future as the economy and the macro situation would improve, but they definitely have an impact this year in terms of their performance.

Blayne Curtis -- Barclays -- Analyst

Thanks. And then maybe just for John with the [indecipherable] quarter obviously opex, you get it, mechanically, an extra week, then it goes back away. On the revenue side, I don't know if you want to venture, any thoughts on margin in general but then some people say it matters and then some people say with the seasonal transition you don't really get any credit for it. Just kind of thoughts on the revenue side with the extra week?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, I mean I understand and would tend to agree around the latter comment that you made that will of course will provide guidance in January for the first quarter suffice to say, as we indicated earlier in the discussion that first quarter, we would expect first quarter to come under pressure and would be down from fourth quarter as a general trend.

Blayne Curtis -- Barclays -- Analyst

Okay. Thanks, guys.

Operator

Our next question comes from Tore Svanberg from Stifel. Please go ahead with your question.

Tore Svanberg -- Stifel -- Analyst

Yes. Thank you and congratulations on the IoT record revenue. Tyson, could you elaborate a little bit more on the Gecko Series 2 modules? Whether that's from a competitive positioning or dollar content? Anything else that you can elaborate on how important that introduction is? That would be great.

Tyson Tuttle -- President and Chief Executive Officer

So, the Gecko Series 2 platform is a whole series of both chips and software, that's really, it's our second-generation IoT platform. Our first platform was a 90 nanometer technology and we rolled that out here over, I guess, from 2015 to about 2018, and then we've been introducing now additional products on the 40-nanometer platform, which is the Series 2. The Series 2 platform brings power consumption down, it adds features in terms of security, it brings our cost -- continues to drive cost and higher levels of integration. So, this is the cycles of learning going from Series 1 and Series 2, we have done some optimization in terms of cost and functionality for various high volume segments. The first version of the Series 2 being targeted at the high-volume lighting market and we've seen good success with that and the modules that we introduced in the last quarter, we're really targeted at taking that product into the broader market and to be able to -- whether it's a lighting design or something outside the lighting design market, to be able to get that into the broader market, typically, we can do a chip down on a high volume application where cost is really, really important.

And then the modules, we supply to the manufacturing and supply modules into the broader market as well. So, that was part of the announcement at this time, but we will continue to introduce new versions of the Series 2 that target different application areas and different points of optimization. And then, just on the software side, our software platform and our protocol stack run across all the Series 1 and Series 2. So, the simplicity studio software and all the protocol stacks to drive the wireless communication and the developer experience, we continue to enhance that as well. So there are improvements on the software side, as well as the hardware side, as we get the learning and get engaged with customers and do optimization. So it's all part our IoT strategy and the Series 2, it's quite exciting in terms of the improvements that it gets and the optimization that we're going to be able to achieve.

Tore Svanberg -- Stifel -- Analyst

Yes, thank you for that detail. That's very helpful. As my follow-up, the IoT business is now basically on a run rate basis more than a $0.5 billion business. It's been growing double-digits and that's kind of been your target all along. But as we now think about that size, right, more than $0.5 billion, are there any things that you can point to, to give us confidence that they can sustain the double-digit growth? And I know your funnel is $8 billion, but anything else that you could elaborate on to make sure that we feel confident with that double-digit growth rate going forward? That would be great. Thanks.

John Hollister -- Senior Vice President and Chief Financial Officer

We are at about a five-year, you're right, we're a little over $500 million run rate. We've got a strategic long-term growth target of 20% and feel comfortable with that as a long-term growth rate in this market. If you look at these statistics, the market statistics and serve the SAM around connected devices, the SAM this year for our IoT products is over 5 billion units and that is growing, probably about 2% to 2.5% or 2x to 2.5x here, over the next five to seven years. So, you've got strong growth in the deployment of units and this is across industrial and consumer applications for the most part, and I'm not including handsets or PCs. So, you've got -- we're going to 10 billion units a year here within the foreseeable future on IoT, and if you think about the increased functionality and basically, you're talking to $1 per unit to $2 per unit. So you're talking about a sum over the five-year time frame of $10 million, $15 billion, $20 million just for Wireless in IoT and this is across just the IoT applications in consumer and industrial.

And it's mostly industrial. It's about two-thirds industrial in terms of the number of units and that's where our big focus is. So, you step back and say OK, two-thirds of $500 million, that's a big number, but it's not that big of a number compared to a $10 billion or $15 billion SAM that we've got here over the next few years. So, we're trying to keep our eye on the ball in terms of where IoT is going and developing our platform and driving into the market, driving the channel and driving customer relationships, and we believe that it's got a very bright future to be a much bigger business than what we're sitting out here today at $500 million.

Tore Svanberg -- Stifel -- Analyst

Very helpful, thank you.

Operator

Our next question comes from Suji Desilva from ROTH Capital. Please go ahead with your question.

Suji Desilva -- ROTH Capital -- Analyst

Good morning, Tyson. Good morning, John. So, on the timing market with the 1588 acquisition, could you talk about maybe the content increased opportunity for you to increase your addressable market? And what end markets might the 1588 product being most needed for near-term?

Tyson Tuttle -- President and Chief Executive Officer

This is Tyson. On the timing side, 1588 it's a precision time protocol and it's doing time-stamp. So, think about an Ethernet-type network where each packet has-- you'd have to know precisely exactly what time those packets are sent and received and that's really important in 5G, as you're trying to drive very, very tight latency, it's important in automotive where you have autonomous driving and sensors, it's important to overall networking in general, so this is getting rolled out and it's not just a chip. There's actually software and in a lot of applications, there are modules that are required. We haven't talked specifically about the market opportunity. It is in the hundreds of millions of dollars. And it's the content -- it depends on the application. It's a pretty wide range, but you're talking 10 to 50 to even more for a high-end module in this area. So, it's a really exciting area. It's one that is very related to the type of functionality and performance that we're able to achieve with our timing devices and we've done some optimization. We've been working with Qulsar, with our products over a period of time to put together this system solution around this, which has both software, it has modules and bringing that software in those modules and those designs, in that capability into the company, where we can then drive the roadmap-we think is an important expansion of our timing business overtime.

John Hollister -- Senior Vice President and Chief Financial Officer

Yes. So Suji, this is John. Let me just add on a little bit. So, this was an important move for us. As Tyson said, it's an area with culture that we've been working on for a few years and had a multi-year partnership with them. 1588 is an area that we're already addressing, this augments and enhances our capability to be successful there, but it's relatively small from a financial perspective and the market opportunity is already comprehended in our SAM [Phonetic] data that we've had out there.

Suji Desilva -- ROTH Capital -- Analyst

Okay, that's helpful color guys. And then the other question I have is on the -- I didn't hear you guys mention much but the WiFi opportunity, this entry [Phonetic] acquisition; any update there -- is that still in early weight mode or is there any update in terms of rent potential there?

John Hollister -- Senior Vice President and Chief Financial Officer

So, we did this entry acquisition, which was really around WiFi software and cloud-type stuff and then we've also introduced a number of products around Wi-Fi 802.11n, so those continue to be in the design phases and we continue to drive the roadmap and thinking around Wi-Fi, as it migrates to Wi-Fi 6 and 802.11ax and driving into more integrated solutions, where you've got true SoCs. We currently do not have a full SoC around Wi-Fi, so that's something that we're keeping our eye on in terms of driving a higher level of integration around Wi-Fi and see that as a very exciting opportunity in the market, but today, our business around Wi-Fi is smaller than what we have on Bluetooth in the 15.4 in Z-Wave standards.

Suji Desilva -- ROTH Capital -- Analyst

Okay. All right, thanks guys.

Tyson Tuttle -- President and Chief Executive Officer

Thank you.

Operator

And ladies and gentlemen, at this point we're going to conclude today's question-and-answer session. I'd like to turn the conference call back over to Jalene Hoover for any closing remarks.

Jalene Hoover -- Director of Investor Relations and International Finance

Thank you, Jamie, and thank you all for joining us this morning. This concludes today's call.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Jalene Hoover -- Director of Investor Relations and International Finance

John Hollister -- Senior Vice President and Chief Financial Officer

Tyson Tuttle -- President and Chief Executive Officer

Cody Acree -- Loop Capital -- Analyst

Gary Mobley -- Wells Fargo Securities -- Analyst

Rajvindra Gill -- Needham & Company -- Analyst

Ruben Roy -- Benchmark -- Analyst

Matt Ramsay -- Cowen -- Analyst

Blayne Curtis -- Barclays -- Analyst

Tore Svanberg -- Stifel -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

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