Anthony Stoss: Got it. Thanks for that. And then as a follow-up, I’m curious if you’ve seen any change in behavior from your competitors on price. And then, secondly, maybe you guys haven’t talked about this in a while, but I think you’ve got a pretty decent roster of VR design wins. I’m curious your view on kind of when that comes to fruition?
Michael Hurlston: Yes. Maybe I’ll take the second one first. I mean, I think, on the VR piece, unfortunately, that’s where we’ve seen a lot – I think Raji asked a question before, a lot of weakness in our VR business. That was a big story for us in the first half of calendar 2022. And from a design win perspective, we’re still doing great. I mean, we’re winning virtually every goggle that’s out there. The problem is, that particular consumer facing segment just isn’t selling through. So – as well as we did in 2022, we’re simply not seeing those results in 2023, despite continuing to win almost everything that there is. Dean, I don’t know if you want to comment on the first part of the question.
Dean Butler: No, but maybe just let me add on to VR for a second, Tony, I think we’re – Synaptics is in a great position. When that market sort of does bounce back and – we’re a believer that actually these early markets do take a little while to develop. We’re actually in really great position. So I think when VR comes back, you’ll see Synaptics as a big participator on that.
Anthony Stoss: Thanks for the color, guys. Best of luck.
Michael Hurlston: Thanks a lot.
Operator: Thank you. Our next question comes from Krish Sankar with Cowen. You may proceed.
Q €“ Unidentified Analyst: Hey, guys. This is Eddie for Krish. Congrats on strong results in light of challenging environment. Just touching on the gross margin question. How should we think about the delta between the 61% you guided for March, and 57% long-term target? How much of that is due to higher input costs? And how much of it is due to weaker demand environment?
Dean Butler: Yes. Eddie I would say, I mean input cost is definitely a factor. I mean without precise quantification, input cost is not insignificant, we are in the face of rising input cost, which I think in a place we’re probably a little bit more limited than we were the last couple of years on be able to pass all of that along. So I do think there’ll be a little bit input cost that we end up getting caught with on this cycle. As far as competitive pressure, I mean, certainly there is some, but it differs by technology area. There are certain areas that we complete very heavily, there are certain areas we have a pretty dominant technology lead, where we don’t have to deal with such competitive pressures. And then in general, I mean mix as well.
So we continue to evolve the mix, push the portfolio forward, a lot of our designs come in both consumer facing, and then also enterprise facing. So as we continue to move the portfolio forward, balancing the mix between the two, you do see different growth rates between those two different dynamics. So hopefully that sort of helps give some color, Eddie.
Q €“ Unidentified Analyst: Yes, that does. Thanks a lot, guys. Good luck.
Michael Hurlston: Yes. Thank you.
Operator: Thank you. Our next question comes from Christopher Rolland with Susquehanna. You may proceed.
Christopher Rolland: Hey, guys. Thanks for the question. And I joined a little late, so sorry if this was asked. I heard something there about VR. I wanted to know about your opportunity in AR, whether you think you have one and the size of that, or if you could potentially size that for us. And then also the opportunity for set-top box. I don’t know if we’ve talked about that too much roughly? Thank you.
Dean Butler: Yes, Chris. I mean I think it depends – there is sort of two different classes of AR. I think with AR glasses as strict pass through. Honestly, our opportunity is fairly limited. And display drivers, it’s a different type and it’s relatively simple. There is opportunity in Wi-Fi and audio in those AR glasses, but the core business and where we’ve been very dominant in VR not so much. There are mixed goggles that are coming into the market. There the display drivers are fairly similar to what we would do for VR. And we would expect a very similar opportunity, again, depending on that market size, we would expect to do relatively well in kind of mixed AR,VR goggles. I think there was a second part of the question.
Christopher Rolland: On set top box or OTT boxes.
Dean Butler: Yes. Set-up box has been kind of mix for us. I mean, I think the good news for us with the wireless asset that we got some time back, we’ve been able to increase content per box, that actually story has gone relatively well. Where I’ve been a bit disappointed is our ability to pick up overall share. We’ve kind of held the sockets that we’ve had. We’ve held – we have gained one or two. So we’ve been pretty pleased with our ability here and there. But generally speaking, I would say that we’re not doing as well in terms of picking up share as we would have anticipated two years ago had you asked the question.
Christopher Rolland: Awesome. I always think that was a good – yes, sorry, go ahead.
Dean Butler: The other thing I would I would share, Chris, I mean, we talked about this set of deliverables on a processor piece of business, that’s actually engaging with an operator end market. So that’s sort of the set-top box processor technology. So it actually is progressing. I think, what we find ourselves, and you hear some of our comments, it just doesn’t grow as fast as some of our other opportunities in automotive, in wireless, in some of the video interface devices.
Christopher Rolland: For sure. Thanks, Dean. And for the second question, and again, I apologize if this was asked. But around connectivity a lot of others have kind of described this shortage situation moving to go lot fairly quickly for lack of a better word and a potential inventory overhang and potential pricing pressure even moving forward here. Would you guys kind of describe that similar situation or do you see something different?
Michael Hurlston: Yes. For sure, Chris. The inventory is a big problem. I mean, I think we highlighted this in the last call, our wireless business – in our IoT area, I’d say right now, we’ve talked about two problems. One is VR, demand just simply isn’t there. As Dean said, I think we’re positioned well when that recovers. Wireless is very much an inventory problem. There was a lot of shipping going on into various phases. And remember in our business, we depend on module partners to service a long tail. So we have an extra step in our supply chain, we go from ours to a distributor to a module guy to an end customer. And that created some visibility challenges for sure inventory there is high. I think we’re less subject to some of the pricing pressures because remember our products compete in this very high end, where we’re doing video transfer, where €“ in power sensitive applications like wearables.
So the pricing challenges there. We’re in a little bit of an island from a competitive standpoint. We’ve heard to list like you are that wireless is seeing competitive pricing challenges, but we have a bit of a safe harbor there, but inventory very much is part of our story.
Christopher Rolland: Awesome. Thank you, guys.
Operator: Thank you. Our next question comes from Kevin Cassidy with Rosenblatt Securities. You may proceed.
Kevin Cassidy: Yes. Thanks for letting me have a follow-up question. Just – when talking about your suppliers, when you first came over to Synaptics and start making the changes. One of the things you’re going to do is consolidate your number of suppliers, and of course, we had the shortage hit. Can you say where you stand with that now? Is there an opportunity for cost reductions by consolidating suppliers again?
Michael Hurlston: Yes. Good question. I think that what we’ve done Kevin is, we basically concentrated all our starts with one supplier. So any new product is essentially going to the largest manufacturer in the world, and for the most part we’ve stopped engaging with the long tail of suppliers that we have. Now, that said, it takes a long time, and we still, I think we’ve gone from 10 wafer partners to nine. So our supply chain and operations guys have a lot of problems. And as we become a diminishing part of these supply chain, these various suppliers, we’re obviously subject to pricing increases because we were just not meaningful to them. So when Dean says, hey, the big part of what we forecast out in the next x quarters is a glide path down to this 57% gross margin, that’s very reflective of input prices more than anything.
There is certainly some competitive pricing dynamics in there, but the long pole is to do with costs. As we concentrate, right now, we’re not seeing that pricing benefit that we would get from the one supplier where our starts are concentrated. I’m optimistic that we’re going to get some help there, and if that does happen, then perhaps our outlook changes. But right now, what we are seeing and what we’re forecasting is serious increases from places where de minimis customer and not a lot of help from the place where meaningful – very meaningful customer on a go-forward basis. So hopefully that answers the question, Kevin.
Kevin Cassidy: That’s a great answer. Thank you. Thank you for all that detail.
