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Silicon Laboratories Inc (SLAB) Q4 2020 Earnings Call Transcript

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SLAB earnings call for the period ending February 2, 2021.

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Silicon Laboratories Inc (SLAB 3.66%)
Q4 2020 Earnings Call
Feb 3, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Keith. And I will be your conference operator today. At this time I'd like to welcome everyone to Silicon Labs' Third Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions]

I'd now like to turn the call over to Mr. George Lane, Director of Investor Relations & International Finance. George, please go ahead.

George Lane -- Director of Investor Relations and International Finance

Thank you, Keith. 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 for the fourth quarter and review our business activities. After our prepared comments we'll 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 four weeks.

Our comments today will include forward-looking statements, subject to risks and uncertainties and 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 prefer 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 in the Investor Relations section of Silicon Labs website.

I would now like to turn the call over to Silicon Labs, Chief Executive Officer, Tyson Tuttle.

Tyson Tuttle -- President and Chief Executive Officer

Thank you, George. In the fourth quarter, Silicon Labs had record revenue, bookings, design wins and the largest opportunity funnel we have ever had. Our IoT business had a second consecutive record revenue quarter with strong wireless growth. Our Infrastructure & Automotive business is also flourishing propelled by strong activity in the data center, solar energy and electric vehicle markets.

Looking back on the year, the pandemic softened demand in certain markets, starting in the second quarter. But by the fourth quarter, we saw demand returned across all markets in conjunction with the tightening of the supply chain. Currently, demand is greater than supply and we have made a significant investments to expand capacity and meet demand.

Looking forward, we believe our increasing demand trends are [Technical Issues] and the results have the acceleration of the digital transformation of our economy by several years. Meaning there will be a greater need for semiconductors going forward. We see clear evidence of this accelerating demand in our 2021 bookings, especially in markets such as smart home, portable medical, retail, industrial, automation, solar energy and electric vehicles.

Silicon Labs thrived in 2020, as we increased our ability to support customers, develop products and collaborate internally. Our execution has put us in an even stronger position as we enter a period of accelerating growth in 2021.

I will share more specific business results later. But now I would like to turn the call over to our Chief Financial Officer, John Hollister to review the results -- financial results. John?

John Hollister -- Senior Vice President and Chief Financial Officer

Thanks, Tyson. Revenue ended strong in the fourth quarter at $243 million, up 10% sequentially, which includes a catch-up adjustment of $12 million due to a change in accounting estimate for the returns allowance relating to distribution inventory.

Despite the challenges of the Coronavirus pandemic and its industrywide impact on both demand and supply, our full-year revenue was $887 million in fiscal 2020, an increase of 6%. IoT revenue for the quarter was higher-than-expected at $147 million, up 11% sequentially, led by growth in Wireless products, which were up 14% in the quarter, and 34% year-on-year. In the fourth quarter, we saw the strongest growth in our Industrial & Commercial IoT products with a broad-based recovery among industrial customers, ramps in commercial lighting and electronic shelf labels and a rebound in building starts.

Smart home and consumer products were also up in Q4. For the full-year IoT revenues $514 million, up 5%. Infrastructure & Automotive revenue in Q4 ended at $96 million, up 8% sequentially. Isolation and [Indecipherable] products were both up in Q4. Timing was about flat. Overall broadcast was also flat with consumer down seasonally, offset by a recovery in automotive. For the full-year, Infrastructure & Automotive revenue was $373 million, up about 7%.

Turning to end markets, revenue from Industrial, Communications and Automotive were up in the fourth quarter, while consumer revenue was roughly flat. Geographically, revenue in the Americas was strong in the fourth quarter on IoT growth. Sales into Europe and APAC also increased from the third quarter.

Distribution sales were 80% of total revenue in the fourth quarter and we ended Q4 with DSO at around 47 days, down from 48 days at the end of Q3. Bookings were very strong in Q4, due to healthy secular growth drivers in the business, particularly our IoT Wireless products combined with unusual customer ordering patterns based on the strength of the demand recovery, low customer inventory levels and a tight supply chain situation. We are experiencing increased manufacturing costs from our suppliers, which is negatively impacting our gross margin. And to mitigate the effect we have begun to implement price increases to our customers. We ended the quarter with bookings more than 50% greater than any previous quarter, and saw our lead times extend from around nine weeks to 17 weeks. We have bookings coverage well into fiscal 2021at this point.

Non-GAAP gross margin for the fourth quarter ended slightly below expectations at 58.6%. Gross margin for the full-year was 59.9%. Non-GAAP operating expenses in the quarter were $97 million, about $2 million higher-than-expected, primarily due to increased variable compensation on upside revenue. R&D expenses were $58 million or 23.8% of revenue in the quarter; and SG&A expenses were $39 million or 16.1% of revenue.

Non-GAAP operating profit in Q4 was $45 million or 18.7% of revenue. Our non-GAAP effective tax rate for the quarter was 15.2%, non-GAAP earnings ended at $0.84 per share on a fully diluted share count of 44.7 million shares. Earnings per share for the full-year ended at $3.01, down about 7% from 2019, due to continuing investment in IoT, lower gross margins and an increase in other income and expense related primarily to a decline in interest rates.

On a GAAP basis, gross margin was 58.4%. GAAP R&D expenses were $74 million and GAAP SG&A expenses were $50 million. GAAP operating profit was $18 million or 7% of revenue and GAAP earnings ended at $0.20 per share. For the full-year GAAP earnings were $0.28 per share.

Turning now to the balance sheet. We ended the year with cash and investments totaling $730 million. Our operating cash flow in fiscal 2020 was healthy at $136 million. Accounts receivable up on strong shipments in Q4, ending at $95 million. Our DSO remained stable at 35 days, inventory was relatively flat in Q4, driving our turns statistic up sharply to 6.1 times. This level of inventory turns is well ahead of our target.

During fiscal 2020, we retired approximately $260 million of our 2022 convertible notes. And earlier this month we issued a redemption notice to fully redeem the remaining balance of $141 million in the balance sheet. We expect to complete the redemption process by the end of March.

I will now cover guidance for the first quarter. We expect revenue in the first quarter to be in the range of $237 million to $247 million with both IoT and Infrastructure & Automotive approximately flat to fourth quarter. We expect non-GAAP gross margin to be approximately 58.2%. As we look ahead and see continued growth in our IoT mix, especially ramps of wireless products, combined with cost increases due to the industrywide supply chain situation, we are adjusting our model on gross margin to a range of 58% to 60%.

With the step up in seasonal French costs, we expect non-GAAP operating expenses to be approximately $100 million and we estimate non-GAAP operating expenses for the full-year will increase approximately 7% for the full-year of Redpine and as we return to more normal spending patterns in 2021, especially in the second half as the opex benefit from the pandemic relaxes.

We estimate our non-GAAP effective tax rate will be 13% for the first quarter and non-GAAP earnings per share to be in the range of $0.70 to $0.80. On a GAAP basis, we expect gross margin to be 58.1%, operating expenses to be $126 million and GAAP earnings per share to be in the range of $0.05 to $0.15.

I will now turn the call back to Tyson.

Tyson Tuttle -- President and Chief Executive Officer

Thank you, John. Despite a tumultuous year, our efforts produced record fourth quarter and 2020 revenue with 10% sequential growth on the quarter and 6% annual growth. Our business played a pivotal role in connecting the world from helping expand Internet capacity; to improving smart homes; enabling contactless retail and powering medical devices that help fight the Coronavirus.

In the fourth quarter, we set records for design win lifetime revenue, bookings and our opportunity funnel. Design win lifetime revenue for the fourth quarter was $670 million, up 10% from Q3, and annually it was $2.5 billion, up 10% from 2019. Our bookings were more than 50% greater than our previous record quarter and our total opportunity funnel is also at a record high, growing to $15 billion in lifetime revenue in the fourth quarter with IoT making up 65% of the total funnel at $9.7 billion.

Silicon Labs is a leading provider of Bluetooth Low Energy solutions and was first to market with Bluetooth Mesh and the first to support Bluetooth Direction Finding. Our Bluetooth revenue grew 23% and design win lifetime revenue grew 58% for the year. We expect accelerating growth rates for Bluetooth in 2021. In the fourth quarter, we introduced a new line of Bluetooth modules featuring cutting edge security and best-in-class performance with 10-year battery life on a coin cell. Mesh networking capability in sub one-meter direction finding accuracy.

In October, Silicon Labs won a prestigious 2020 LEAP Awards gold medal for Secure connectivity. We are leading the way to deliver Secure IoT Wireless solutions adding security from chip to cloud and protecting against threats throughout the entire product lifecycle. As security threats are identified our team's work in real-time to develop patches and updates so that we can deploy over the air units already in the field. Silicon Labs products with Secure Vault was the first wireless SoCs and modules to earn PSA Level 2 Security Certification. From turnkey to fully customizable, we offer secure solutions ideal for IoT applications.

In the fourth quarter, we announced Z-Wave Long Range called Z-Wave LR, which is backward compatible with our Z-Wave 700 Series, including the installed base. This is a significant expansion of the Z-Wave protocol to extend wireless connectivity beyond the home in the IoT markets requiring substantially greater range in penetration, such as commercial, multi-dwelling unit and hospitality applications. The new Z-Wave LR specification extends range of the several miles with scalability to support 1,000 of nodes from a single smart home network, eliminating the need for mesh repeaters and saving time and money for developers and end customers. Z-Wave LR complements the other long-range wireless solutions we are actively developing and supporting; including Wi-SUN and Amazon Sidewalk.

In 2020, we saw increased activity and interest in the smart home market where Silicon Labs plays a key role across the world's most popular ecosystems. In December, we announced a collaboration with Orvibo, a leading provider of artificial intelligence-driven smart home solutions to develop a new line of products leveraging Silicon Labs' Wireless Gecko Series 2 SOC. Our SOCs reliably connect smart home control panels and switches to many applications, including automated lighting, curtains, HVAC systems and wireless home security devices.

We are also excited by the IoT industry's growing collaboration around efforts that make IoT devices easier to use and more interoperable, both key elements to ensure the long-term growth and success of the market.

In November, the ZigBee Alliance announced the new working group focused on adding support for commercial buildings for the project connected home over IP or chip. Silicon Labs is committed along with more than 50 other companies to participate in the important effort to build a standard that enables connected devices from different vendors to work seamlessly between our work and home environments.

Turning now to Infrastructure & Automotive, this quarter we announced ClockBuilder Pro, a complete solution designed to simplify and accelerate implementation of IEEE 1588 in communications, smart grid and financial trading systems and industry applications. IEEE 1588 is the industry standard for ensuring a reliable, consistent time reference between devices operating over ethernet networks. And it is critical to all of today's network communications in an increasingly broad range of emerging applications where system designers have limited experience with timing and synchronization.

This quarter we also announced a new high reliability isolation partnership with Teledyne Technology, a leading provider of high performance, high reliability semiconductors for the aerospace and defense market. Under the new agreement, Teledyne will market custom high reliability solutions based on Silicon Labs isolated gate driver family.

Now I would like to discuss steps we're taking to ensure Silicon Labs as a diverse, equitable an inclusive marketplace and workplace. In 2020, we redesigned our DEI program to focus on building a strong foundation that will accelerate change in our organization. We formalized the toolkit to empower our employees to self-form in groups that serve as a resource and community for team members. We are creating more pathways for underrepresented talent and building a diverse candidate pipeline to help ensure the technology leaders of tomorrow more accurately reflect our communities.

We also began holding regular diversity, equity and inclusion workshops that are available to all our global employees, and we are partnering with external experts on understanding buyers and promoting inclusion. Silicon Labs is formalized a set of corporate DEI goals as part of our executive bonus program, and the leadership team is fully committed and accountable for driving long-term change.

2020 was filled with many challenges and also significant opportunities and achievements. As we focus on all the great things in front of us in 2021, I want to take the opportunity to extend thanks and appreciation to our global workforce for their incredible dedication focus displayed throughout the year as we rallied around the company's vision and values to uplift and support one another, our partners, our customers and the communities we live in.

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

George Lane -- 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 in Morgan Stanley's Technology, Media and Telecom Virtual Conference on March 3rd; and William Blair's Fifth Annual Technology Conference on March 11th, both will be on virtual platform.

Additionally, I'd like to take a moment to talk about ESG. During the fourth quarter, we disclosed additional information around Silicon Labs ESG efforts, including energy and water use, air emissions, water waste and work-related safety statistics. For further details, I encourage you to visit the Corporate Responsibility section of our webpage and ESG section of our Investor Relations webpage. The tenants of ESG have long been embedded in Silicon Labs' culture, and we look forward to expanding our disclosure efforts in 2021.

So we'd 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 limit your questions to one with one follow-up.

Questions and Answers:

Operator

Thank you. As mentioned, we will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Gary Mobley with Wells Fargo Securities.

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, good morning everybody. Thanks for taking my question. And congrats on a strong finish to the year. I want to start off by asking about some of the revenue related variables for fiscal year '21. Can you help me understand whether or not there is going to be maybe 200 basis point to 250 basis point growth headwind coming from the extra week in 2020, plus the $12 million in one-time related revenue in the fourth quarter. And then as well, just given how the fiscal year '21 starting now, is there any reason to think that seasonality will be atypical this year?

John Hollister -- Senior Vice President and Chief Financial Officer

Hey, Gary, this is John. I'll take this one. On the fiscal 2020 have the extra week, and it's hard to call it, it just really depends on how customers are managing their own supply chains, but maybe a 1% to 2% effect from that is rational to think about. There is some catch-up related to the change in returns allowance that we provided on the call.

And more broadly speaking, given the strength of bookings that we are seeing, we very well may see some atypical behavior in the shape of our quarterly progression here with what is clearly a strong first quarter. There is -- customers seeking to build some more inventories in their supply chains. Typically, first quarter is down in the industry and -- including for us. So that will have some effect. We'll see how the year plays out, but we certainly have very strong durable secular growth trends in the business as well. So we'll see how that shakes out as we work through the year.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. So my follow-up, I want to ask about the automotive end market. Is that end market now approaching 10% perhaps of your fiscal year '21 revenue? And can you characterize the strengths you're seeing from that end market and as well how are your timing products for automotive progression? Thank you.

Tyson Tuttle -- President and Chief Executive Officer

Yes, I can take that, and John can talk about the exact mix or give a flavor on that. We see strong return in demand from the automotive markets across electric vehicles, in particular. We see strong adoption of our isolation technology in things like on-board chargers and battery monitoring systems and motor controls, as well as like things like -- related things like power wall and solar energy type of applications. And then you've also got, on the infotainment side, the radios, we're seeing certainly as the factories ramp up -- ramp on that side. And then it's early on the timing side, we have a number of wins and our shipping, that's the smallest portion of that revenue.

But overall, we see very strong demand on the automotive side with -- and really excited about the electric vehicle opportunity as we see the penetration of electric vehicles go from low single-digits over the next five to 10 years, up to 25% to 30% of the market, if not more in this. It seems like the pandemic and a lot of the activity that's going out there continues to accelerate that transition. We're really well positioned on the electric vehicle side.

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, Gary, I'll just add auto mix for Q4 and for the year was roughly 8%, and that's about flat from where we ended the prior year 2019. And that's notable given that there was a pretty significant impact mid-year from the pandemic. We saw, of course, a good recovery there on the broadcast auto side. But the stabilization of that mix really speaks to the strength from the EV ramp that Tyson was referring to.

Gary Mobley -- Wells Fargo Securities -- Analyst

Thank you, guys.

John Hollister -- Senior Vice President and Chief Financial Officer

Sure.

Operator

Thank you. And the next question comes from Blayne Curtis with Barclays.

Blayne Curtis -- Barclays -- Analyst

Hey, good morning. Thanks for taking my question. Just kind of curious on the valuation allowance. Would that revenue impact one segment versus the other? And I guess as they look at a flat guide in March, I guess, shown some growth. Just any kind of color on the moving pieces there?

Tyson Tuttle -- President and Chief Executive Officer

Yes, Blayne, you got that right about first quarter. And the way to think about that obviously is the businesses that are more heavily distribution-focused would see more of that. So you've got IoT, as well as isolation some timing being the primary product lines related to that.

Blayne Curtis -- Barclays -- Analyst

Got you. And then...

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, I'd just also add Blayne that, that is revenue we would have realized through the year. Otherwise it was an accounting change in the way we account for distribution inventory that we were being a little conservative before, so it's real revenue for sure.

Blayne Curtis -- Barclays -- Analyst

Thanks. And then, Tyson, you made the comment that demand was exceeding supply. I was just kind of curious any color in terms of -- are you -- is that impacting any revenue in the March quarter? And kind of any -- kind of perspective as to when do you think you'll catch-up?

Tyson Tuttle -- President and Chief Executive Officer

Yes, I mean, our revenue in the March quarter is limited by our ability to supply. Certainly, our bookings right now are exceeding our ability to ship. We have secured capacity throughout the supply chain. They continue to support customers, but it's very tight right now. And I think that that's common throughout the industry. But the backend capacity, we've been able to secure sufficient back end capacity and really more now just limited on wafers and working through getting additional allocation to support the ramps of new products in the run rate of activity. So we're being very well supported by our foundry partners.

But for instance, TSMC is 40% to 50% over booked for the year. And that just makes it very tight. And we're all working through it to support customers and prevent line down situations and things like that. But it's -- we're working at a very, very low inventory level right now. And we could certainly do more revenue this quarter, if we could ship it. John, any comments on that?

John Hollister -- Senior Vice President and Chief Financial Officer

No, nothing further to add.

Blayne Curtis -- Barclays -- Analyst

Thanks, guys.

Operator

Thank you. And the next question comes from Matt Ramsay with Cowen.

Matt Ramsay -- Cowen & Company -- Analyst

Thank you very much. Good morning, guys. First question, I wanted to ask and this has been a theme of many of your peer company earnings calls, as well as higher input costs, due to the tightness that you guys have talked about in the supply chain and different management teams, I guess have taken different views of how quickly and how, I guess, fully to pass on those input costs to the customer base?

John, maybe you can give a little perspective on that relative to the change in your gross margin targets? Is this something that you guys can pass on pretty quickly and fully? Is this something you may pass on only partially in an attempt to gain some share or any thoughts that would be helpful? Thanks.

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, Matt, I mean, we definitely are seeing an effects of the supply chain situation and some higher input costs out of the fields. And we are taking steps to -- fairly broad-based in a manner to pass that on to the customer base. Some of that is well under way at this point. There is some more forthcoming through the course of next year, but that is an effort that's ongoing.

Tyson Tuttle -- President and Chief Executive Officer

Matt, I would just add that the costs that -- increases that we're seeing are modest in nature, while they are real. There is expedite charges, there are some to secure additional capacity by additional equipment a bit on the wafer side. But it's not that high, but it is impacting the gross margin and we are -- we do have pricing leverage. And certainly we have a lot of customers that have asked for additional components, and so working through all that with the customers. It's our goal to fully offset the cost increase that we're seeing in supply chain with the customers.

On top of that, just in terms of the gross margins, we have got product mix that's also in -- that is pulling -- IoT gross margins are on the high '50s. And as that product line ramps that tends to drag a bit on the gross margins. And then we've also had the Huawei situation where we -- our timing business, we're not shipping to Huawei. And so the timing mix is a little bit lower than it was in the past, and that was -- that's driving our change in the model.

Matt Ramsay -- Cowen & Company -- Analyst

Got it. No, that's helpful guys. Tyson, a bit of a longer-term technology question. I was interested in your comments about Z-Wave LR, maybe you could expand on the technology a little bit, how would you compare contrast it to things like Laura our LTE Cat 1, Cat M for wide area access? And what kind of end-market or industry partner sponsorship do you have for this new technology as it rolls out? Thanks.

Tyson Tuttle -- President and Chief Executive Officer

Z-Wave LR is really an extension of the Z-Wave protocol, which is really focused on the smart home and security applications. So you've got, let's say, you've got security system in your house and you want to connect another building or you want to connect something in your yard. It's really to extend the range of those to avoid having to install repeaters, and to open up a whole new class of devices, just in terms of battery life and ease of install and that sort of stuff. It's not meant to be competing with like an LTE technology, where you would be roaming around and creating an entire network. But the long-range nature of it does increase the desirability of Z-Wave and the technology it runs at a lower frequency. So it has a longer range just inherently being able to penetrate through walls and that sort of thing.

And the new Z-Wave LR technology runs at a higher output level and generates a longer range solution. So it really improves the robustness and increases the applicability of Z-Wave as the standard. It's not meant to be like a metro area type network, but it is a step in that direction. So if your dog gets out of the yard and how you'll be able to find the dog. If he runs too far, you might not be able to get it. But it's a nice addition, it's something that the customers have asked for a long time. And we're able to support that increased range on the existing products. And it's kind of an over-the-air update that we're able to deploy and certainly, offering that going forward.

Matt Ramsay -- Cowen & Company -- Analyst

Thanks, I appreciate the thoughts.

Operator

Thank you. And the next question comes from Craig Hettenbach with Morgan Stanley.

Craig Hettenbach -- Morgan Stanley -- Analyst

Yes, thanks. Can you talk about just how the Redpine acquisition is going? And particularly versus your initial expectations, whether it's design funnel and some of the momentum that you're seeing in that business?

Tyson Tuttle -- President and Chief Executive Officer

Yes. The Redpine acquisition, we completed that in April and they have fully integrated their products into our supply chain and their teams into our overall IoT engineering group. And we continue to support -- a number -- they came in with a fair number of design wins that we have continued to support and are starting to see the ramps of those products here as we enter into 2021. We're very pleased with the technology and are pushing forward on the roadmap driving toward 802.11ax, and fully integrated our SoCs and all the software and tools and everything that goes around that in expanding our engagement with the market. So we -- I don't have the exact numbers on the growth in the funnel. And we had about three quarters of revenue, and we came in about in line to what we had guided last year in the $10 million to $15 million range.

And certainly, we'll see significant growth on that. I don't have a specific number for you on growth. But as those new products ramp with the 9116 and then moving into the roadmap, we will certainly see the path and continue to be confident within that three year timeframe, getting up into $100 million range plus of revenue on Wi-Fi and continue to see Wi-Fi as a very important and key technology to be able to fully serve the IoT market in an expanding number of applications and see that is one of the most important IoT wireless connectivity technologies out there. So we're very pleased with the acquisition, extremely pleased with the team. The site in India, in Hyderabad is going to be an important part of our ability to efficiently scale the company's R&D and support and software efforts going forward, so that we can drive more leverage to the bottom line. And we'll continue to update you as we march through the year.

Craig Hettenbach -- Morgan Stanley -- Analyst

Got it, thanks. And then just as a follow-up within the communication market, can you talk about any trends you're seeing specific to kind of data center versus wireless?

Tyson Tuttle -- President and Chief Executive Officer

Certainly with the halting shipments to Huawei, the 5G component of the timing revenue is somewhat diminished. And so it's more focused on the core network and getting the ramps of 5G with other customers going, again, we're engaged with four out of the five vendors, I guess, you could say three out of the five, if Huawei is out of the picture on 5G, and then we ship broadly into the overall communications market, and also into the data center. We see strong activity in comp and data center, a lot of that pandemic or digital acceleration related. And that continues to drive -- predominantly, the main driver of the timing increases that we're looking at for the year.

Craig Hettenbach -- Morgan Stanley -- Analyst

Got it. Thank you.

Operator

Thank you. And the next question comes from Srini Pajjuri with SMBC Nikko Securities.

Srini Pajjuri -- SMBC Nikko Securities -- Analyst

Thank you. Good morning guys. Tyson, I think, last quarter you told is that your expectation for this year is to grow the business at a double-digit pace with the IoT, especially the wireless part of the IoT potentially growing 30%. And given the strong start that you're seeing, any update on that? And are you feeling better about that target? Or I mean, I don't want to say the target, but I don't know, are you feeling better, worse or the same compared to last quarter?

Tyson Tuttle -- President and Chief Executive Officer

Certainly, as we enter the year strong and Q1 is guiding seasonally flat on top of the revenue adjustment, we're actually seeing pretty significant growth coming here into Q1 and see that continuing into Q2. We think these demand trends are durable, and our ability to continue to drove. So you've got durable demand trends and then you've also got increasing adoption, in particular, in IoT and in the wireless area. I think that, that 30% target on wireless growth this year is certainly within range. It's not being able to overshoot that. We'll see how that -- how the year turns out in the second half.

And then you've got demand trends in electric vehicles and in some of the automotive applications and some of the timing applications as well. So we are feeling good about 2021 as we enter the year, that, you know, double-digit growth and getting up into model is certainly within range. It really depends on how the second half plays out, but right now our view is that the demand for semiconductors, the curve -- we've caught back up to the curve, we may be a little bit over the curve, but that curve has moved up and that pertains solid year in 2021 and even going into '22 based on the design win traction that we've been able to put forward last year and continuing into this year.

Srini Pajjuri -- SMBC Nikko Securities -- Analyst

Got it. And then, John, on the distri inventory, I think you said it's 47 days. Given the strong bookings, up 50%, compared to the previous, I guess, peak. Are you implementing any changes to your bookings or cancellation policies? And also if you, kind of, take a little bit longer-term view, do you think the current -- the severity of the shortages, do you think that's going to change the behavior at this stage? Or are you planning on increasing your inventory levels on a long-term basis going forward in the channel?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes. Srini, not really. I think we continue to operate on standard terms. And this will moderate both in terms of the strength of these bookings, as well as the tight supply chain situation. And we've got a -- definitely got a bubble out of the market, not just the peer companies that will, sort of, self-out over time here. And definitely we are not carrying the level of inventory that we want. And that will take some time, but over time, I expect our inventory levels to get back to a more normal level. Just got to work through this bubble situation that we're in.

Srini Pajjuri -- SMBC Nikko Securities -- Analyst

Got it. Thank you. Good luck.

Operator

Thank you. And the next question comes from Tore Svanberg with Stifel.

Tore Svanberg -- Stifel -- Analyst

Yes, thank you. First question for Tyson. Tyson you've been talking about security for a while. It sounds like Secure Vault is ready for prime time. How should we think about the financial impact of your security technology whether enhancing gross margin in the IoT business or whether it impacts the revenue profile for IoT?

Tyson Tuttle -- President and Chief Executive Officer

Security is an essential technology for the deployment of IoT. And we've been able to integrate class-leading security onto our devices. Think about is having payment grade security, integrated secure elements onto the devices, so you don't have to have one externally that leads to a higher selling price. We've been able to do that at an energy consumption that's industry leading. And so it gives us the higher level of differentiation. So I think it has both a gross margin and a revenue impact going forward. And this is a standard feature that we are enabling across our IoT portfolio.

So we -- and we continue to enhance the capabilities of that, integrate that into our supply chain, you have keys, we will have the ability to enable software and features in the field that we can charge incrementally more money for. We will have the ability to sell software. Those are the things that are not significantly impactful in 2021, but we see that as a significant long-term value creation and value that we can deliver to the customers as these devices are connected to the cloud in a secure manner and our individually addressable, and you can control the features and control the software that runs and manage the updates, basically device management. And there is significant opportunity in that, if you think it's like -- you're not just selling hardware, you're also selling services.

But that is something that we are dipping our toes into right now, I mean, mostly we're selling chips that are highly differentiated and they have a great set of features, but the ability to have this bullet proof security integrated onto a large number of devices creates additional business opportunities for us going forward.

Tore Svanberg -- Stifel -- Analyst

That's very helpful. And then one follow-up. You mentioned TSMC 40%, 50% overbooked and it doesn't sound like there's going to be some allegiance [Phonetic] there any time soon. So do you have contingency plans or at least starting to think about perhaps working with a few other foundries, because it sounds like the overbooking is going to stay around for a while?

Tyson Tuttle -- President and Chief Executive Officer

Yes, and I wouldn't say that, that situation is confined to TSMC. And I'm not sure that the folks or at other foundries are doing any better. And we -- look, we do work with multiple foundries depending on the product mix. TSMC has been a great partner for us for the history of the company in our -- and as we're entering the situation are a great partner for us, and helping us to secure additional capacity where possible. And we think that we will be able to manage through this in a manner that we could continue to serve the demand of the customers, very, very tight right now, and -- but to be able to navigate through this. You can't just move a design into a new foundry very quickly. But we certainly have the ability to do that long-term. But TSMC is a fantastic partner, and we are looking at how do we make sure and ensure really looking at this on a longer-term basis.

How do we make sure that we ensure the capacity that we need to grow the company from close to $1 billion rate today to $1.5 billion, $2 billion and making sure that we've got the partnerships in place to be able to drive the ramps and new products that we see in front of us. And so I have confidence that the fabulous model and the partners that we have, in particular on the foundry side and certainly on the test and packaging side that we will be able to execute on that.

Tore Svanberg -- Stifel -- Analyst

Sounds good. Thank you.

Operator

Thank you. And the next question comes from Rajvindra Gill with Needham & Company.

Rajvindra Gill -- Needham & Company -- Analyst

Yes. Thank you and congrats on the momentum. John, you talked about long lead times and bookings coverage well into 2021. I just wanted to raise the issue about double ordering. What are your thoughts there as a follow-up to Srini's question about extending the, kind of, cancellation window at your customers? How are you, kind of, managing through that potential risk of double ordering? I know the demand is extremely strong and it's probably going straight into production. But just wondering how you're thinking about that given the tight supply?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, Rajvi, I mean, it's really just ensuring that our customers are being served to the best possible extent given the strength in the broad recovery. I mean, really looking back, we saw the pandemic suppressed demand in the second quarter and the customer inventory levels get drawn down significantly. And, in reality, some of the demand drivers did not really settled back as much as people had concerns about back mid-year, and now that the demand has even increased from there. It's put a real strain on the overall supply chain. It's difficult to ascertain double ordering, certainly could be happening, but our goal right now is to maximize customer service and ensure that everybody is getting what they can and get what they need to the best possible extent.

Rajvindra Gill -- Needham & Company -- Analyst

And Tyson on the IoT growth, a lot of the trends that are happening there, particularly on the wireless side. Just a question on, kind of, the microcontroller component of it below that's 8-bit sold into China. Wondering what are your thoughts on there if there has been kind of rebound in that area post the trade war, post the kind of COVID? And how does that fit into your overall IoT strategy?

Tyson Tuttle -- President and Chief Executive Officer

Yes, well, first of all, you have to remember that all of our IoT products have an integrated microcontroller. So all the wireless stuff is just a wireless microcontroller, and we're providing the microcontroller functionality for that class of devices. The MCUs that we have are where you turn off the wireless component of that, we also have a strong 8-bit market. I mean, some of that's in China, it's sold globally. Our 8-bit product line is a 20-plus year product line with a lot of very high quality design. We actually did quite well and grew our -- both our 8-bit and 32-bit microcontroller products in 2020. We think that in 2021 that will moderate -- will probably be flat single-digit type numbers on the MCU side.

And certainly the focus in IoT in terms of the new product development. We are developing a few new 8-bit MCUs to continue to drive differentiation and opportunity in there, but the predominant growth and the focus for the company is on the wireless side. And again those all contained microcontrollers and security and sensor interfaces and all of that stuff, but that's where we're specializing our products, but our microcontroller revenue is going to hold in there solid, and we do continue to invest opportunistically in there where it makes sense, in particular on the 8-bit side. 8-bit still has long life and a very large market opportunity in front of us.

Rajvindra Gill -- Needham & Company -- Analyst

Very good. Thank you.

Operator

Thank you. [Operator Instructions] And the next question comes from Bill Peterson with JP Morgan.

Bill Peterson -- JP Morgan -- Analyst

Yes. Hi, thanks for taking the question, and nice job on the quarterly execution. I was hoping, if you can help us understand within the industrial and automotive or the Infrastructure & Automotive segment, where do you see strength versus weakness, I guess directionally in the first quarter? Should we assume access broadcast consumer down again broadcast auto and the isolation products up and then timing, of course, as well as another impact, especially to margins. Where does that go directly in the first quarter?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, Bill. This is John, so we expect some of the legacy access products to decline moderating a bit from the fourth quarter that would include the SLICs, which had a strong fourth quarter here. We expect timing to grow in the quarter and also see some continued strength in isolation. So it's consistent with the trends that you would expect for first quarter there.

Bill Peterson -- JP Morgan -- Analyst

Okay, great. And then I guess related to the questions on gross margin. You changed the target model, but I guess a lot of these things we can think about it, at least becoming, I guess better over time, the supply constraints and so forth, especially as we look into next year. So I guess, what's the strategy for changing that now? And should we assume you could get back into the 59% to 61% next year, assuming the supply constraints add from this?

John Hollister -- Senior Vice President and Chief Financial Officer

Yes, Bill, really it's a function of mix, as well as Tyson indicated earlier in the call with IoT and the Wireless IoT coming up, that I mean that mix could change. We saw something additional happened with Huawei or saw timing really take off. But at this at this point given the strength of IoT and how that's affecting the overall mix in addition to the cost situation we talked about earlier that we felt it prudent to go ahead and adjust the model.

Bill Peterson -- JP Morgan -- Analyst

Okay. Thanks for that.

Operator

Thank you. I would now like to turn the call back over to George Lane.

George Lane -- Director of Investor Relations and International Finance

Thank you, Keith [Speech Overlap] this morning. This concludes today's call.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

George Lane -- Director of Investor Relations and International Finance

Tyson Tuttle -- President and Chief Executive Officer

John Hollister -- Senior Vice President and Chief Financial Officer

Gary Mobley -- Wells Fargo Securities -- Analyst

Blayne Curtis -- Barclays -- Analyst

Matt Ramsay -- Cowen & Company -- Analyst

Craig Hettenbach -- Morgan Stanley -- Analyst

Srini Pajjuri -- SMBC Nikko Securities -- Analyst

Tore Svanberg -- Stifel -- Analyst

Rajvindra Gill -- Needham & Company -- Analyst

Bill Peterson -- JP Morgan -- Analyst

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