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Semtech Corp (NASDAQ:SMTC)
Q4 2020 Earnings Call
Mar 11, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Semtech Corporation Fiscal Year '20 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sandy Harrison, Investor Relations. Please go ahead.

Sandy Harrison -- Director of Business, Finance and Investor Relations

Thank you, Hector and welcome to Semtech's conference call to discuss our financial results for the fourth quarter and fiscal year '20. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer; and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results was issued after the market closed today and is available on our website at semtech.com. Today's call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from results anticipated in these statements. For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor statement included in today's press release and in the Other Risk Factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only and Semtech undertakes no obligation to update the information from this call should facts or circumstances change.

During the call, we will refer to non-GAAP financial measures that are not prepared in accordance with the Generally Accepted Accounting Principles. Discussion of why the management team considers such non-GAAP financial measures useful along with the detailed reconciliations of such non-GAAP measures to the most comparable GAAP measures are included in today's press release. All references to financial results in Mohan's and Emeka's formal presentation on this call refer to non-GAAP measures unless otherwise noted. With that, I will turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu. Emeka?

Emeka Chukwu -- Executive Vice President and Chief Financial Officer

Thank you, Sandy. Good afternoon everyone. For Q4 fiscal year '20, net sales decreased 2% sequentially to $138 million, which was above the midpoint of our guidance. Fiscal year '20 net sales decreased 13% over the prior year driven by the challenging microenvironment the overall industry faced for most of the year fueled by the China tariffs and the Huawei ban. In Q4, shipments into Asia represented 78% of net sales. North America represented 13% and Europe represented 9%. Total direct sales represented approximately 24% and sales through distribution was approximately 76%. Our distribution business remains balanced with 55% of the total POS coming from the high-end consumer and enterprise computing end markets and 45% of total POS coming from the industrial and communications end markets. While bookings declined slightly over the prior quarter, book-to-bill was above 1. Those bookings accounted for approximately 37% of shipments during the quarter.

Q4 GAAP gross margin came in as expected at 61.1% and we expect our Q1 gross margin to be relatively flat sequentially. Q4 GAAP operating expense increased 8% sequentially due to higher pension expense, share-based compensation expense, and new product expense. In Q1, we expect GAAP operating expense to decrease between 8% to 12% sequentially primarily due to lower amortization of intangibles, lower share-based compensation expense, lower pension expense, and lower new product expenses. Q4 GAAP interest and other expenses increased to $3.1 million from $1.5 million in Q3 driven by the impairment of some of our minority investments and the write-off of previously capitalized debt issuance costs from our refinanced debt. Q4 GAAP tax rate was approximately 59%, up from 16% in Q3 primarily due to the impact of an internal asset transfer between tax jurisdictions. Note that there was no significant cash tax impact from this action. We expect our GAAP tax rate for Q1 of fiscal year '21 to be in the range of 23% to 27%. Our GAAP tax rate forecast excludes consideration of any impact from discrete items including excess tax benefit or deficiency from the exercise of stock options.

Moving on to the non-GAAP results, which exclude the impact of share-based compensation, amortization of acquired intangibles, acquisition-related and other non-recurring charges. As expected, Q4 non-GAAP gross margin declined slightly over the prior quarter to 61.5% and we expect our Q1 non-GAAP gross margin to be generally flat with Q4 levels. In fiscal year '21, we expect our non-GAAP gross margin to strengthen through the year as demand from our higher margin growth engines recover and overall demand improves. Q4 non-GAAP operating expense increased 2% sequentially to $53.9 million due to higher new product expenses. In Q1, we expect non-GAAP operating expense to be flat to down 4% sequentially mostly due to the timing of new product expenses. For fiscal year '21, we expect our non-GAAP operating expenses to increase at roughly half the rate of revenue growth, which is consistent with our target operating model. In Q4, our non-GAAP tax rate decreased to approximately 9% reflecting a favorable mix of regional income. We expect our Q1 and fiscal year '21 non-GAAP tax rates to remain in the 14% to 16% range.

In Q4, cash flow from operations increased to 33% of net sales, up from 24% in Q3. We repurchased approximately 546,000 shares or $27.6 million of stock in Q4 and approximately 1.5 million shares or $70.2 million of stock in fiscal year '20 and our stock repurchase authorization now stands at approximately $110 million. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down debt. In Q4, our cash and investments balance was $293 million and our debt balance was approximately $197 million resulting in a net cash position of $96 million. In Q4, accounts receivable represented 41 days of sales, which is at the lower-end of our target range of 40 days to 45 days. Net inventory was sequentially flat at 121 days and remains above our target range of 90 days to 100 days. In Q1, we expect net inventory to increase slightly because of the macro-driven uncertainties in demand.

In summary, we were pleased to deliver strong Q4 results despite all the macro uncertainties. Looking ahead, we believe that our secular growth drivers of hyperscale datacenter, 5G infrastructure and Internet of Things, our stable gross margin, our well-controlled operating expenses, our strong cash flow generation, and our efficient capital allocation provides us the platform for a strong financial performance in fiscal year '21. I will now hand the call over to Mohan.

Mohan Maheswaran -- President and Chief Executive Officer

Thank you, Emeka. Good afternoon everyone. I will discuss our Q4 fiscal year '20 performance by end market and by product group, discuss our fiscal year '20 performance, and then provide our outlook for Q1 of fiscal year '21. In Q4 of fiscal year '20, net revenues decreased 2% over the prior quarter to $138 million. Softer demand from the industrial and consumer end markets was offset by stronger demand from the enterprise computing and communications end markets, which contributed to better than seasonal results for Q4. We posted non-GAAP gross margin of 61.5% and non-GAAP earnings per diluted share of $0.40. In Q4 of fiscal year '20 net revenues from the enterprise computing end market increased sequentially and represented 32% of total net revenues. Net revenues from the communications end market increased sequentially and represented 10% of total net revenues. Net revenues from the industrial end market decreased sequentially and also represented 32% of total net revenues. Net revenues from the high-end consumer market decreased slightly over the prior quarter and represented 26% of total revenues. Approximately 18% of high-end consumer net revenues was attributable to mobile devices and approximately 8% was attributable to other consumer systems.

I will now discuss the performance of each of our product groups. In Q4 of fiscal year '20, net revenues from our Signal Integrity Product Group increased 1% sequentially and represented 43% of total revenues. Stronger demand from the data center and base station segments contributed to the sequential growth. In Q4, demand from the data center market increased nicely over the prior quarter led by record revenues from our CDR platforms. Strong demand for our ClearEdge CDRs used in 100 gig NRZ modules was driven by our hyperscale and cloud customers. We expect this strength to continue throughout fiscal year '21. Interest in our new Tri-Edge PAM4 CDRs remains very high. This week we received our first production order for our Tri-Edge products and we already have numerous customers going through system tests with our latest Tri-Edge PAM4 silicon. The advantages of analog PAM4 implementations are very clear as they are lower power, lower cost, and lower latency provides our data center customers with a compelling advantage over existing solutions. We expect to see our Tri-Edge revenues ramp throughout the year and hyperscale data center customers deploying 100 gig, 200 gig and 400 gig optical modules that require lower latency and lower power. The Open Eye MSA consortium that was formed to support and promote interoperability of analog CDR platforms has seen its membership more than double to 40 plus companies since its founding and includes key chip companies as well as software and systems vendors of next-generation PAM4 optical systems.

Our FiberEdge PMD devices also continue winning designs in PAM4 modules where we have collaborated with DSP providers to deliver optical module vendors a highly optimized solution. We recently announced the production of our newest quad linear 100 gig per channel TIA platform for 400 gig optical modules targeted at hyperscale data centers. Our FiberEdge products complement our ClearEdge and Tri-Edge CDR platforms, which we expect to continue to ramp this year. Following a relatively weak fiscal year '20 performance, we expect to see much stronger growth from the hyperscale data center market in fiscal year '21.

In Q4 of fiscal year '20, our PON business declined sequentially. Semtech remains a leading supplier to the PON market providing comprehensive offerings for 1 gig, 2.5 gig and 10 gig PON, OLT, and ONU systems. Recent macro events in China have limited our near-term visibility, but we expect the ongoing rollout of 10 gig PON deployments to accelerate in conjunction with 5G infrastructure build-outs and to drive growth in our PON business in fiscal year '21. We anticipate a 100% increase in 10 gig PON deployments in fiscal year '21 driven by China, Europe, and the U.S. In Q4 of fiscal year '20, demand from our wireless base station market increased sequentially as 5G infrastructure deployments start to accelerate. Our ClearEdge CDR platforms are gaining solid momentum in the 5G market and we have began early shipments of our ClearEdge CDRs into 5G base station front-haul and mid-haul optical modules. We expect both our ClearEdge and Tri-Edge platforms to gain momentum in 5G base stations as 5G infrastructure deployments increase globally. In fiscal year '21, we expect our base station revenues to increase as we expect to see continued 4G spending and a meaningful increase in spending for 5G where our market opportunity could triple versus 4G. The ever-increasing demand for higher data rates by data centers, passive optical networks, and wireless broadband networks is driving greater demand for Semtech's Signal Integrity Product platforms, which is a secular trend we expect to continue for some time and we remain very confident in our strategy and position in our target markets. In Q1 of fiscal year '21, we expect net revenues from our Signal Integrity Product Group to decline driven by softer demand across all segments driven primarily by the impact of the coronavirus. We do anticipate that this temporary demand softness will turn into stronger demand in the second half of fiscal year '21.

Moving on to our Protection Product Group. In Q4 of fiscal year '20, net revenues from our Protection Products group declined 6% sequentially and represented 27% of total revenues. In Q4 of fiscal year '20, our high-end consumer protection business experienced typical seasonal inventory reductions. While near-term smartphone demand has been impacted by macro events, the prospects for our protection platforms in mobile devices, displays, and accessories remains positive as 5G smartphones integrate higher performance interfaces and more advanced lithography devices. Our protection business continues to benefit from its successful diversification into key industrial markets including automotive, IoT, and broad-based industrial applications. In Q4, our Protection Product Group announced the latest member of its RClamp platform, a multi-line protection array that delivers outstanding protection for a broad range of high-speed interfaces and ports in industrial, IoT, and telecommunications applications. In Q1 of fiscal year '21, we are expecting our Protection revenues to be approximately flat.

Turning to our Wireless and Sensing Product Group, in Q4 of fiscal year '20, net revenues from our Wireless and Sensing Product Group decreased 2% sequentially and represented 30% of total revenues. Q4 was another quarter of strong achievements by our LoRa business. We recently announced several new use cases and partnerships that demonstrate the benefits and efficiencies of LoRa. A few of these announcements in Q4 included Wilhelmsen, the largest marine networking operator on the planet announced the use of 2.4 gigahertz LoRa to deliver IoT solutions to the maritime shipping industry on both land and at sea. LoRa will be deployed in ships for predictive maintenance, temperature monitoring, asset management, and asset tracking. Smart Seoul Network or S-NeT announced a LoRaWAN network to provide smart parking, smart street lighting solutions, and geolocation use cases in Seoul, Korea. Helium announced a new nationwide LoRaWAN network in the U.S. Their current network supports over 745 cities in the U.S. NSOFT, an Indian solutions provider is using LoRa to convert order metering solutions to new advanced metering infrastructure reducing waste and cost while increasing efficiency and L-measure [Phonetic] a utility metering developer and Clogie [Phonetic], a maker of long range sensor networks developed a new line of prepaid smart meters based on LoRa technology that tracks and reports usage data in real-time for precise billing and reduced energy wastage. These are just a few examples of the many new use cases introduced during the quarter that demonstrate the value of LoRa technology in enabling a smarter and more sustainable planet. In Q4 of fiscal year '20, demand for our proximity sensing platforms increased as global RF regulations and awareness of the dangers of RF signals continues to increase. We expect our proximity sensing business to grow in fiscal year '21 as we see solid design win progress in new 5G smartphones where there is an increase in the number of high-performance radios used. For Q1 of fiscal year '21, we expect net revenues from our Wireless and Sensing Product Group to decrease due to the impact of the coronavirus.

Moving on to new products and design wins, in Q4 of fiscal year '20, we released 26 new products and achieved 2,184 new design wins. Now, let me comment briefly on our fiscal year '20 performance. In fiscal year '20, net revenues declined 13% over the prior year's record performance driven primarily by geopolitical headwinds, which negatively impacted all of our product groups. In fiscal year '20, we have 74 new product releases and achieved another design win record of 9,909 new design wins. In FY '20, our Signal Integrity Product Group introduced several new disruptive platforms that should contribute to our long-term growth. These include our Tri-Edge PAM4 CDRs and FiberEdge PMD platforms for the data center and 5G wireless markets, our 10 gig PON platforms and our new Software Defined Video Over Ethernet platform targeted at the Pro AV market. In FY '20, our Protection Product Group continued its diversification into new broad based industrial verticals including the automotive and IOT markets where the increasing use of advanced lithography devices are making systems more susceptible to damage from transient events such as voltage spikes. In addition, our protection business from U.S. based smartphone manufacturers achieved a new annual revenue record further diversifying our mobile revenues geographically. In FY '20, our Wireless and Sensing Product Group made significant progress in advancing Semtech's LoRa technology to be the global de facto standard for the LPWAN market. Our LoRa enabled revenue declined approximately 5% to $74 million from $78 million in fiscal year '19 due to lower revenues from China.

However, our LoRa enabled POS grew by 7% from fiscal year '19 and represented a new POS record. In FY '20, our LoRa business met or exceeded all the metrics we targeted at the beginning of the year. These metrics included one, the number of countries with LoRa networks grew to more than 91 countries from 70 at the end of fiscal year '19. By the end of fiscal year '21, we expect over 100 countries to have LoRa networks. Two, the number of public or private LoRa network operators grew to 133 at the end of fiscal year '20 from 101 in FY '19. We expect 150 LoRa network operators by the end of fiscal year '21. The number of LoRa gateways deployed grew 164% from 243,000 gateways in fiscal year '19 to 642,000 gateways at the end of fiscal year '20. These gateways are capable of supporting approximately 2.5 billion connected end nodes. We expect the number of LoRa gateways deployed to increase to over 1 million by the end of fiscal year '21. The cumulative number of LoRa end nodes increased 55% to 135 million at the end of fiscal year '20 from 87 million at the end of fiscal year '19. We expect this number to continue to grow rapidly and exceed 180 million cumulative end nodes by the end of fiscal year '21. Five, the LoRa opportunity pipeline exceeded $500 million at the end of fiscal year '20 with an additional $200 million of leads feeding the opportunity pipeline. We anticipate that on average 40% to 50% of this pipeline will convert to full deployment over a 24-month timeline. Our pipeline remains geographically well-balanced with approximately 65% of the opportunities coming from the Americas and Europe and includes a growing number of use cases in the smart home and consumer markets where the volumes could be significantly higher and could drive deployments more rapidly than from industrial markets.

At the end of fiscal year '21, we are anticipating our opportunity pipeline will exceed $700 million with an additional $300 million of leads feeding these opportunities. We expect the strong momentum in our LoRa metrics to continue in fiscal year '21 as the LPWAN market starts to grow rapidly and as our new LoRa technology platforms are adopted. These new LoRa platforms include our LoRa Smart Home platform designed for LPWAN-based smart home, community, and consumer applications providing low power, broad coverage for indoor, neighborhood, and campus area IoT devices used for safety, environmental, and convenience use cases. Our LoRa global platform that uses a 2.4 gigahertz version of LoRa to enable global use cases requiring higher bandwidth and our LoRa Edge platform, which is a highly versatile and extremely low power software defined LoRa platform that enables a broad range of asset management applications targeted at industrial, building, home transportation and logistics segments. Our LoRa Edge platform includes Wi-Fi sniffing and GPS location features enabling the most versatile LPWAN geolocation platform in the industry. This platform will also drive our future cloud services business with the first service being a geolocation service for asset tracking applications. Armed with these new platforms, along with the increasing influence and momentum of the LoRa alliance, we expect to continue to drive LoRa to become the de facto standard for the global LPWAN market in what we expect to be a multibillion unit industry in the next five years. For FY '21, we are expecting our LoRa enabled revenues to be between $90 million and $120 million. Despite the ongoing headwinds in China and the uncertainties associated with the coronavirus, with the positive momentum from our LoRa metrics and growth in our opportunity funnel, we continue to anticipate a 40% CAGR for our LoRa enabled business over the next five years.

Now let me discuss our outlook for the first quarter of fiscal year '21. While the near-term visibility remains challenging and despite the ongoing headwinds associated with China demand, the Huawei ban, and the uncertainty associated with the coronavirus, we believe the underlying demand for our products remains very strong. Based on our backlog entering the quarter, we are currently estimating Q1 net revenues to be between $125 million and $135 million. This guidance assumes a $10 million negative impact due to the coronavirus and assumes no more direct shipments to Huawei this quarter. To attain the midpoint of our guidance range or approximately $130 million, we needed net turns [Phonetic] orders of approximately 27% at the beginning of Q1. We expect that Q1 non-GAAP earnings to be between $0.30 and $0.36 per diluted share. I will now hand the call back to the operator and Sandy, Emeka and I will be happy to answer any questions, operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna Financial Group. Please proceed with your question.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Hey guys, thanks for the question. Yeah, just any more details on LoRa. What percentage of LoRa today is China and where did it peak out. I'm just trying to get a sense of how this is diversifying outside of China and what gives you confidence in your outlook looking forward? Thanks.

Mohan Maheswaran -- President and Chief Executive Officer

Well, LoRa you know used to be about 60% of the revenue was from China. I think it's still close to that. It's definitely diversifying now and the opportunity pipeline has, as I mentioned about 65% of the opportunity pipeline is outside China. So that diversification across the different regions is happening. I would say though that China from being a headwind for us last year continues to actually be quite strong as we look at it now. Bookings are stronger and I think China in general may be the first region to kind of overcome all the coronavirus issues and as we see capacity coming back online, that seems to be strengthening the demand in China. So it's difficult to call out how the next year will play out, but I think going forward, definitely with the opportunities being more geographically balanced I think, we'll expect to get a little bit more, more of a balanced revenue geographically over the next few years here.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Great and then your guidance, it kind of looks like it's in line with others in terms of the effects from the virus. You also called out that this was probably mostly supply chain and less about demand disruption. Maybe you can talk about the supply chain, what you're seeing there, is it upstream, is it downstream and also what gives you confidence that demand comes back and that there is no actual demand disruption in the end. Thanks.

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, I would say first of all, I don't think yet we have really seen any major supply chain issues. I think what's clear is that China as a region struggling with the coronavirus and with the move out shift of Chinese New Year, that impacted the overall demand for sure and it's slowly coming back online. Maybe not somewhere around between 70% and 80% capacity I think. So the demand fully isn't there yet, but all indications prior to the coronavirus was that demand for Q1 was going to be strong. It's still remaining relatively strong I would say. Bookings have been pretty healthy. Our turns required is fairly low compared to what we've done historically. So that all gives us a fairly good feeling and then also when we see the different segments we play in, we see data center strength and we see 5G infrastructure strength and we see generally infrastructural areas doing quite well plus one would anticipate some type of stimulus both in Asia and maybe in other countries that will again impacts infrastructure. So yeah, we're anticipating once the the demand environment settles around after the coronavirus kind of stabilizes, we're expecting the demand to pick up again.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Thanks for the color.

Operator

Your next question comes from the line of Quinn Bolton with Needham & Company. Please proceed with your question.

Quinn Bolton -- Needham & Company -- Analyst

Hey guys, I just wanted to follow up on that, it sounds like you haven't seen any major supply chain constraints. Bookings are starting to recover especially in China as coronavirus there seems to be getting a little bit more under control. So I guess when we look at your April quarter guidance and the $10 million that you adjusted for coronavirus, where did that come from? Is that just sort of lost demand as factories were offline or just the near-term demand destruction within the China market in the month of February or are you anticipating potential cancellations or push outs or something in the March and April order book that you may not have seen yet but you're just being conservative and allowing for some potential push outs or cancellations over the next couple of months and then I've got a couple of follow-ups.

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, Quinn, it's a little bit of everything you said actually it's -- some data points suggest that some of the PON tenders and proof of concepts and LoRa being slightly pushed out. So we see a little bit of push outs of those. We haven't seen any cancellations or revenue demand push outs -- revenue push outs. We've seen more indications that things that just kind of being delayed. Clearly there is some softness, as I said because of Chinese New Year was delayed and some delay in just bringing up capacity in China, so that impacted it and clearly there is some nervousness and uncertainty around the coronavirus around the world and so I think all of those kind of gave us food for thought as we were planning our Q1 number and we anticipate a kind of approximately $10 million impact, which is reflected in our numbers.

Quinn Bolton -- Needham & Company -- Analyst

Great. And I just wanted to switch over to the data center market. It sounds like you're expecting a stronger year in fiscal '21. Just wanted to confirm that I heard that correctly and a follow-up on the Tri-Edge, it sounds like you got your first production order. So congratulations on that. Just wondering as you look through fiscal '21, does that ramp to any kind of meaningful level. I mean could it be a few million bucks a quarter by the end of the year. Could it be larger or is it a kind of a slower ramp? Any sort of magnitude of how quickly you think that business takes off could be -- would be helpful. Thank you.

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, Quinn. The -- actually the NRZ CDRs as I mentioned, we're still, that's doing extremely well, which suggests to us that the only the PAM4 stuff will be a little bit slower, but I think one of the compelling value propositions of Tri-Edge is the lower power and lower cost. So a lot will depend on how fast the customers want to transition I think, but we had planned on a stronger kind of second half. So maybe $3 million, $4 million in the second half of the year and then really ramping up next year.

Quinn Bolton -- Needham & Company -- Analyst

Great, thank you.

Operator

Your next question comes from the line of Karl Ackerman with Cowen and Company. Please proceed with your question.

Karl Ackerman -- Cowen and Company -- Analyst

Good afternoon, gentlemen. Two questions if I may. I know you guys don't want to go out on the limb and talk about a preliminary guide for fiscal '21, but I'm curious to the extent you could comment or willing to comment if it's too early to suggest that you can grow top line this year just given the strong growth opportunity across LoRa and your data center business and despite your view that opex will grow half the rate [Phonetic] of sales. I guess how flexible can opex be in the event growth turns out to be a little bit less than your current expectations and I have a follow-up?

Mohan Maheswaran -- President and Chief Executive Officer

So let me take the revenue line and then Emeka can talk about opex. I mean if we look at across our portfolio data center, I expect to still grow this year. It comes off a relatively light fiscal year '20. We're expecting 10 gig PON to grow this year mostly driven by China, but other regions as well. So that's our anticipation. It may not be as fast because of the coronavirus in the first half, but I expect second half for sure. 5G infrastructure we know is being pushed out there, launched in every region of the world and so we're expecting base station infrastructure to grow versus last year. Again, the timing is the key question. And then of course, if we look at our IoT business and LoRa, that's -- we still expecting that to grow. We have the pipeline and LoRa remember many of the use cases are really energy efficiency, productivity enhancements, cost reduction kind of approaches and even smart health kind of segment. So LoRa should in many ways still be able to grow I think regardless of what transpires at least from an annual standpoint and then in our Protection business, as you know we are slightly diversifying that business, diversifying both in the mobile area geographically and industrial area and so we are expecting that to also do reasonably well if the general macro does well and distributors replenish on their inventory at least again in the second half. And so, pretty much across the board, we are seeing all of our product groups -- we're expecting growth. Of course, a lot depends on what transpires over the next quarter here with the coronavirus. The indications are that in China things are improving and certainly we're seeing that from a demand standpoint. How sustainable that is and how over what period of time, we'll just have to wait and see, but at the moment I think we're more positive than negative on it.

Emeka Chukwu -- Executive Vice President and Chief Financial Officer

So Karl, with regards to the operating expenses. One of the things that we've actually been able to do very well in the history of the company is manage our operating expenses in line with what the top line is doing. One of the key things that I've always tried to call investors attention to is that about 20% of operating expenses is variable and so we do have a few opportunities that we can modulate depending on what's going on with the top line. Having said that though, we are really very excited about some of the growth opportunities that we have within the company, the investments we're making in those areas and so we still believe and the expectation is that those growth drivers would start to come to fruition right here and that there wouldn't be any need to take any drastic actions with regards to operating expenses.

Karl Ackerman -- Cowen and Company -- Analyst

I appreciate that, Mohan and Emeka, thank you. For my follow-up if I may, double clicking on sort protection for a moment, are there new opportunities you see growing protection and proximity sensing beyond your key South Korean OEM. You had mentioned on prior calls design wins around wearables. So, I was curious if any updated thoughts there. Thank you.

Mohan Maheswaran -- President and Chief Executive Officer

Yes, we actually, that's been a strategy of ours for a while. We've obviously been strong in Korea for some time, but a few years ago, we made the conscious decision that we're going to really go aggressively try to diversify and get smartphone business in China, smartphone business in North America, proximity sensing business as well as protection business in these areas and then look at smart phones and wearables and accessories and I would say we've been successful with all of those strategies. I mean if I look at the business today, we have a fairly balanced geographical spread of protection in mobile devices in Korea, in China, in Asia and also in North America, U.S. specifically and then also proximity sensing where it used to be just Korea is also starting to now spread its wings into Asia and into other U.S. manufacturers and not only in smartphones, but also in wearables as well. So that is our strategy. It continues to be a strategy and we are being quite successful with that strategy.

Operator

Your next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question. Yes, thank you. Let me start with the housekeeping. I think you mentioned 27% turns. Where is that number today kind of one -- more than a month since the quarter.

Mohan Maheswaran -- President and Chief Executive Officer

Tore, we can't give you that number, but what I can tell you is that the bookings have been pretty strong and we feel very good about where we are.

Operator

Okay. So it's not like you've seen strong bookings at the beginning of the quarter and those are now tailing off. You apparently [Phonetic] seeing steady linear bookings.

Mohan Maheswaran -- President and Chief Executive Officer

Correct.

Operator

Okay, thank you. Second question on LoRa. So you gave us all the metrics for the fiscal year. Thank you for that by the way. A lot of great information. It just seems like in all the categories, you know, there is growth. Obviously, your revenues did not grow. So can you just talk a little bit about that. I mean is this because of certain China customers going to NB [Phonetic] IoT or and help us understand a little bit why your business was down while all the other metrics were up for the year?

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, I think part of the thing you have to remember, which is why I mentioned it Tore, our POS did grow 7% and that's really the measure of deployments of end nodes, right. So our revenues, when we ship and we may calendar revenue when we ship in distribution, but if there's excess channel inventory or something like that, then we may not -- you may not get the full picture. So that's one thing to remember. The second thing to remember is that the reason I give out all these metrics is to indicate momentum and momentum is really the indicator of future revenue. When you look at how many gateways are deployed, use cases. How many end nodes are being deployed or how many countries are being deployed, the assumption is that customers are going to deploy once they've completed their proof of concepts and they go to full implementation, they're going to deploy more end nodes and more devices and that will drive revenue. So the timing of the revenues is quite challenging for us, especially when we had like we did last year one region of the world like China initially really in the first half just really struggled and kind of it was difficult to catch it up in the second half of the year. We don't think that will happen this year. We think that's going to be a little bit more stable and we're projecting reasonable growth this year and beyond.

Operator

Okay. Just one last question, your pipeline revenue increased $200 million year-over-year. I was just hoping you could talk a little bit about the mix of that $200 million again from a geographic perspective. I do appreciate that there is a much higher percentage outside of China, but if you could add a little bit more color on North America versus U.S. versus other countries. That'll be great.

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, let's see, so I would say about 30% is Americas. That includes North America, South America. About 36% is Europe and then the rest 11% about 11%, 12% is Rest of Asia and Japan, Korea, and then about 23% -- 25% is China, something like that, those are approximate figures Tore, but that will give you an idea of the opportunity pipeline.

Operator

That's really helpful. Thank you. Your next question comes from the line of Gary Mobley with Wells Fargo. Please proceed with your question. Hey, guys. I guess it's probably worth saying congratulations to a strong finish to the year and perhaps a better than feared start to this current fiscal year '21. My question relates to your turns business requirement embedded in your first quarter guidance. If my calculation is correct, you're assuming roughly $10 million to $12 million in lower turns requirement for the -- embedded in the midpoint of the revenue guide and I'm assuming much of that is related to Huawei. So my question is did you generate any turns business from Huawei in the just reported fourth quarter and what's sort of a best case scenario in terms of what you can actually shift to Huawei based on the current restrictions?

Mohan Maheswaran -- President and Chief Executive Officer

So remember, Gary -- so our guidance assumes no more shipments to Huawei. So we don't need any more turns to Huawei to get -- to achieve our number. Having said that, I think we plan on shipping every quarter about $10 million to Huawei. I think that's what we did last quarter at -- about $10 million last quarter and it's a mix of all the different products, and obviously it takes into consideration what we can and cannot ship and if the restriction is further squeezed, then we have to relook at it, but that's the reason why as we give out our guidance I made the decision not to communicate that we don't need any more turns from Huawei to make our numbers because we just don't know exactly what's going to happen with the restriction. As far as we're concerned, we're just assuming that the restriction will continue as it is.

Operator

Yeah, sure OK. And did I see a roughly $2 million restructuring in the non-GAAP reconciliation and what does that relate to? Is that an actual headcount reduction or are you refocusing your investment in perhaps a different area?

Emeka Chukwu -- Executive Vice President and Chief Financial Officer

No, no, it has mostly to do with an actuarial valuation of our defined benefit obligations and a few other things, but there was no restructuring in terms of letting people go and stuff like that during the quarter.

Operator

Got you. Okay, thank you guys. Your next question comes from the line of Tristan Gerra with Baird & Company. Please proceed with your question. Hi, good afternoon. From the $10 million impact in the current quarter guidance from China, is that pretty much allocated across all the businesses you have in China or would you say a majority of that is actually related to lower and in general, how much of a step back you think the situation in China is impacting your revenue growth assumption for lower revenue this fiscal year.

Mohan Maheswaran -- President and Chief Executive Officer

So Tristan, the $10 million is really a coronavirus impact and I think it actually a majority of it is impacting our Signal Integrity Product Group, at least probably 60% and then maybe the rest of it is split between our protection and our Wireless and Sensing business. So it's a broad impact that we've estimated there and then the second part of your question is, we believe that LoRa enabled business is going to do very well this year and China is going to come back and already we are seeing indications of that. It may take you know, the first quarter, as I mentioned because of Chinese New Year and because companies are not coming back at full capacity in China and because some of the proof of concepts are definitely going to be delayed because of that and just you know travel and people not being able to move around in China as much is going to push out some of the activity. That's why I mentioned that proof of concepts and some of the new tenders and things like that might be shifted, but I don't think it changes the underlying demand or the need out there and so that's why we feel that any loss of demand in Q1 probably will pick up assuming things get back to normal will be picked up in the second half.

Operator

Okay. That's useful and then as my follow-up question, in your quarter guidance, what changes in distribution inventories are you assuming, if any, are you assuming that inventories stay flat on relative basis at this stage or is your assumption for point of sale different from what's embedded in your guidance for this year [Phonetic].

Mohan Maheswaran -- President and Chief Executive Officer

No, I think it's the same assumption. POS has been doing quite well. As I mentioned, certainly for LoRa, it grew last year and so that's a positive sign. The one thing to remember is if the supply chain is impacted by coronavirus and we can't get enough material or lead times extend out, I would expect us to try to actually increase our inventory levels, both internally and in our channel, but at this point in time I don't think there's any reason to do that. I think at the moment, we would expect the same type of POS and channel inventory numbers.

Operator

Great, thank you. Your next question comes from the line of Craig Ellis with B Riley, FBR. Please proceed with your question. Yeah, thanks for taking the question. And guys, thanks for all the information on the call regarding LoRa and the other businesses. Mohan, I just wanted to start with a question with LoRa. First, just asking about the midpoint of this year's revenues at $105 million. As you've talked about the business potentially picking up some high volume design wins, do you forecast that any of that type of revenue conversion would be in the $105 million or how do we think about when some of those higher volume wins might hit?

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, we're anticipating higher volume kind of home consumer wins to be more second half, Craig and really they are not yet I think heavily in the numbers. So I would say that there is upside there, but the current numbers this guidance assumes continuation of the good progress in most of the smart metering, smart building, smart agriculture kind of more longer-term kind of use cases and industrial IoT and things like that. So, it's still pretty good growth, but obviously smart home and smart consumer starts to play and that could impact it and certainly, we believe that in the second half we'll start to be able to see some of that.

Operator

That's helpful and then the second question is really about the endpoints of the range. So at $90 million, sales would be up about $16 million or 22%, at 120 [Phonetic] $46 million or 62% year-on-year and as we look at those endpoints, what are some of the bigger swing factors from low-end to high-end. Is it macro, is it some of the high volume items before macro, if you can just help us sort that out, that would be quite helpful.

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, the macro, I don't think really plays into it other than if there is a really a big shift in something like we saw China first half of last year. I don't think that it is a such a huge impact. I think the bigger impact is in conversions, the POCs, the proof of concepts that the pipeline that we have, which is fairly substantial it's converting those into deployments and real revenue and we've already seen that that can be pushed out sometimes and obviously with the coronavirus and things like that, we are seeing a little bit of a delay in some of the proof of concepts and things like that. So I think that's probably the bigger impact than -- over anything else at the moment. We just have to wait and see how it plays out, but certainly in the second half we're anticipating that most of the kind of macro issues would have gone away, the coronavirus hopefully would be stabilized at least by that point and I think we should be in good shape to see kind of a return to regular -- what we consider normal growth for our IoT business and LoRa business.

Operator

Thank you. And then a couple of clarifications for Emeka. Emeka regarding the new product impact to opex in the fiscal fourth quarter. Was that in assets or was that something else? Can you just clarify what's going on there?

Emeka Chukwu -- Executive Vice President and Chief Financial Officer

Yeah. It mostly has to do with just the timing last year where we [Indecipherable]. So it had to do mostly with the mask sets.

Operator

Great and then with regards to gross margin, I think you'd indicated from the first quarter, you would expect gross margin to rise through the year. Can you provide some further color giving us a sense for the magnitude of increase that's possible and it seems like signal Integrity should build quite strongly through the year, is that really the primary variable or would it be the degree to which LoRa is either at the low-end or the high end of the range or other factors. Thank you.

Emeka Chukwu -- Executive Vice President and Chief Financial Officer

Yeah. So when we look at gross margins and I'm actually excited about it, because when I look at the growth drivers that we've talked about, we've talked about LoRa we've talked about in data center even within Protection we've talked about the industrial applications, hoping to see a lot of growth out of that for Protection. So all of those things that are things that are supposed to help drive our gross margin expansion. The only thing that we have as a headwind for gross margin expansion, if you will, is the fact that overall demand is at lower levels, right. So we still have some manufacturing equipment and people in our operations with some fixed expenses that we have to absorb. So my expectation would be that a combination of more revenue from our growth drivers and then seeing overall demand coming back, that should be pretty good for our gross margins as to the exact number at this point, I'll probably expect us to head more toward the 62% and hopefully depending on how things proceed we might actually exceed -- go above 62%.

Operator

That's helpful guys. Thank you. Your next question comes from the line of Mitch Steves with RBC Capital Markets. Please proceed with your question. Hey, thanks. I had two questions. The first one, just to clarify just on the guidance for the $10 million. I just want to be clear about what's in there. Is that entirely China or you guys making assumption that some demand will erode in the other geographies outside of China?

Mohan Maheswaran -- President and Chief Executive Officer

That's the total -- that's the global picture. So it's not just China, I would say that because China was the first to be exposed to the coronavirus, the impact is more easily measurable because they delayed New Year by a week it's been -- it's taken time for their capacity to come back online whereas other regions haven't really been impacted yet and I think that's still potentially to come, but I think across the board what we've seen is $10 million is about the right number for our Q1 demand.

Operator

Okay and then the second one is just on the overall kind of full year. I realize you guys are not going to guide a full year, but how do you -- how are you guys thinking about the smartphone shipment environment now for calendar year '20?

Mohan Maheswaran -- President and Chief Executive Officer

Yeah that's -- smartphones is a tough one, Mitch mostly because we're actually quite optimistic that the changing work landscape as people become more mobile and maybe do less social interaction will drive a need for more devices, particularly phones and tablets and PCs and that type of stuff and currently the demand looks looks fairly healthy from what we see. So, we're getting more positive I think not only the device -- mobile devices, smartphones, but also on kind of other peripheral wearables and accessories and that type of thing.

Operator

Perfect, thank you. Your next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Yeah. Hey, guys. Thank you for squeezing me in. Two questions. Couple of the companies that have sort of pre-announced have talked about demand in China going back to sort of normal levels or pre-coronavirus levels. I was curious if you have also seen that. Then I've got another question on LoRa.

Mohan Maheswaran -- President and Chief Executive Officer

Yeah, I would say Harsh that it's definitely improving. I'm not sure I would say it's back to pre-virus levels, but I think it's improving. Bookings are strong, the indications are strong, indications of potential stimulus is also there for infrastructure and as we know, typically when China invests in infrastructure, it's normally advanced technology kind of stuff, so we'd expect 5G and PON and data center and IoT and those types of things to get a heavy influx of monies and so that would be helpful, but yes, I would say that it's improving. Remember the coronavirus impact that China is just coming out of that. I mean it is improving and so they're not back at full capacity yet and I think that's important to understand. So I don't think the demand levels are quite what they were. I would say they're at best 70% to 80% at the moment.

Operator

Okay and then Mohan, thank you for all the color you gave on LoRa by funnel types et cetera. Maybe you could talk about what kind of applications you're seeing a pickup in or expect to see a pickup in this year, would it be mostly consumer or will it be mostly industrial and is this the year -- calendar year, call it 2020 that we see the U.S. inflection.

Mohan Maheswaran -- President and Chief Executive Officer

Yes, so the use cases I think are still more in metering, smart building, smart environment, smart water industrial IoT kind of applications Harsh at the moment, but the pipeline of opportunities we have suggests that we're going to add to that very quickly in the smart home area and I think that's predominantly a U.S. driven segment, some in Europe and then I think supply chain logistics, smart logistics, which is predominantly a European driven region. Europe is the major driver for that segment and then smart city which is fairly broadly spread. So encouraging thing about LoRa really is it really truly is a geographical -- a true global technology. We see use cases across every single region including likes of rest of Asia and Australia and Taiwan and Malaysia and Singapore and so very, very broad range of applications and a very broad geographical base and that's part of the goodness about the opportunity we have. Of course, there are some really big opportunities that will be the catalyst and as I mentioned before, when they happen. I think you'll see the impact of it, but at this point in time, I would just say that they are more U.S. based.

Operator

Got it. Thanks, Mohan. Your next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question. Hi, this is Vahid for Hamed. Thanks for taking my question. First one, you were mentioning the LoRa growth out of China, I was wondering if you could provide some color on what the growth looks like outside of China right now.

Mohan Maheswaran -- President and Chief Executive Officer

LoRa growth outside of China is looking positive. I think I would say that it's relatively small I mean depending, which region you look at, but China is still the biggest revenue driver for LoRa and so that's why I focused on it, but yeah, across the board, I would say LoRa is still doing quite well from a gateways deployed standpoint, from a number of networks deployed, the type of use cases we're seeing, the opportunity pipeline as I just mentioned is very broad geographically spread. In fact, if I take out -- China is about 23% to 25%, if you take out China, the rest of the 75% is spread across the different regions with Europe being the second largest region and then Americas and then the rest of the rest of Asia.

Operator

Okay, thank you for that and then the next question you've been saying about how there is -- you're seeing the recovery in China. I'm just curious what trends you're seeing outside of China, Italy and America and Europe in general, the last few days.

Mohan Maheswaran -- President and Chief Executive Officer

Outside China, as I say, I think it's a little bit difficult to call what demand -- what's going to happen with demand. We don't see a slowdown in data center market at the moment, we don't see a slowdown in IoT, but I think that in general, the U.S. and Europe are just kind of getting to grips with the coronavirus and so we may see some softness there I think and that's kind of why we've guided -- taken out $10 million of our Q1 guidance is really to try to ensure we encompass any of that because there will be some, we don't know exactly how much, right.

Operator

Okay, thank you very much. Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks.

Mohan Maheswaran -- President and Chief Executive Officer

So in closing, our fiscal year 2020 proved a challenging year for Semtech. We believe the strength of the secular drivers behind our key growth engines remain intact. We enter fiscal year '21 with a number of exciting new product platforms targeted at the data center, Internet of Things, and mobile segments. Given our diverse product offering, balanced end-market approach, and strong customer relationships, we expect to see another strong financial performance in FY '21. With that. we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you. [Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Sandy Harrison -- Director of Business, Finance and Investor Relations

Emeka Chukwu -- Executive Vice President and Chief Financial Officer

Mohan Maheswaran -- President and Chief Executive Officer

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Quinn Bolton -- Needham & Company -- Analyst

Karl Ackerman -- Cowen and Company -- Analyst

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