Jalene Hoover - Head of Investor Relations Tyson Tuttle - President and Chief Executive Officer John Hollister - Chief Financial Officer

Craig Ellis - B. Riley Tore Svanberg - Stifel Blayne Curtis - Barclays Cody Acree - Drexel Hamilton Anil Doradla - William Blair Matt Ramsey - Canaccord Genuity Robert Mertens - Needham & Company

Good morning everyone. Thank you for taking the time to dial in.

Tyson Tuttle, President and Chief Executive Officer and John Hollister, Senior Vice President and Chief Financial Officer are on today's call. We will discuss our financial performance and review our business activities for the fourth quarter.

After our prepared comments, we will take questions. Our earnings press release and the accompanying financial tables are available on 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 or projections that involve substantial risks and uncertainties.

We base these forward-looking statements on information available to us as of the date of this conference call and that information will likely change over time. By discussing our current perception of our markets, the future performance of Silicon Labs and our products with you today we are not undertaking an obligation to provide updates in the future.

There are a variety of factors that we may not accurately predict or control that could have a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings which identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

In addition, it is not our intent that the non-GAAP financial measures discussed today replace the presentation of Silicon Labs’ GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations.

I would now like to turn the call over to Silicon Labs’ Chief Financial Officer, John Hollister.

Thank you, Jalene. We are delighted to cap off a very successful year for Silicon Labs with record revenue for the fourth quarter and full year.

Fourth quarter revenue was above the high end of our guidance range at $183 million, representing strong 14% year-on-year growth. For the year, total revenue grew 8% to $698 million.

Product revenue, excluding $5 million in Q2 patent sales, achieved $693 million or 7% growth, well above the industry growth rate. As expected, our overall product revenue growth rates accelerated in 2016 with the mix of business shifting favorably to faster growing product lines.

Looking into product details. IoT continued to deliver strong results with Q4 revenue reaching a new record at $85 million or 47% of total revenue.

For the full year, IoT achieved its 20% strategic annual growth target with revenue at $315 million or 45% of total product revenue, establishing itself as our largest product category. Leveraging our industry leading portfolio of wireless protocols, our connected device products delivered the highest growth rates in 2016 with particularly strength in ZigBee mesh networking, Bluetooth low energy SOCs and modules as well as sub-gigahertz products.

Looking forward, we expect our wireless products to continue to lead growth in IoT. Our infrastructure products also achieved excellent results contributing $143 million in 2016 product revenue and reflecting annual growth of 17%.

During 2016 we benefitted from stronger demand for our clock and oscillator products in core networking and data center applications, as well as widespread adoption of our isolation products in industrial and automotive markets. As guided following a record quarter in Q3, infrastructure revenue declined slightly in Q4 to $37 million or 20% of total revenues, with declines in timing more than offsetting growth in isolation.

Performance of our broadcast products exceeded expectations in 2016 contributing $158 million and declining only 2% for the year. Our global TV tuner market share increased to over 60% with lower ASPs driving a net decline for our broadcast consumer products.

Continued market penetration with our automotive radio products drove growth in broadcast automotive. Fourth quarter broadcast revenue was flat sequentially as expected at $41 million or 22% of total revenue.

Access revenue declined to 21% in 2016 to $78 million coming off an exceptionally strong 2015. Fourth quarter revenues were slightly better than expected at $20 million or 11% of total revenue with shrink across the portfolio including upside in our ProSLIC products.

Geographically, sequential increases in fourth quarter revenue were most significant in the APAC region with the Americas flat to Q3 and Europe down slightly. Looking at end markets, revenue from industrial increased in Q4 led by strength in our IoT and isolation products.

This growth was offset slightly by a decline in consumer. Worldwide distribution revenue increased more than $38 million during the year to around $470 million or 68% of total revenue.

Our top 10 customers represented 25% of our 2016 revenue, down from 29% in 2015 and reflecting a broadening customer base. No single customer represented 10% or more of 2016 revenue.

We are pleased with our gross margin performance for the year which was 60.8% on a non-GAAP basis. We held margins at the upper end of our range throughout 2016 and fourth quarter non-GAAP gross margin was 60.1% on a favorable product mix.

For the year total non-GAAP OpEx increased approximately 4% to $289 million. This was slightly favorable to our annual guide and also reflects the absorption of the Micrium acquisition into our 2016 OpEx structure.

Fourth quarter non-GAAP operating expenses increased as expected to just over $73 million. R&D expenses grew to $41 million reflecting higher tape-out activity and SG&A expenses were essentially flat at $32 million.

During 2016 the company posted a notable improvements in profitability with non-GAAP operating margin increasing over 200 basis points to 19%. For a second consecutive quarter in Q4 we delivered gross margins and operating margins in line with our target model.

The non-GAAP tax rate for Q4 and full year 2016 was 11.8% reflecting a favorable geographical mix of income. Non-GAAP EPS ended the year on a strong note with earnings outperforming expectations of $0.75 for the quarter and $2.78 for the full year, including a $0.09 contribution from patent sale revenue.

We are pleased to announce that 2016 non-GAAP earnings grew 24% on an 8% increase in revenue, reflecting disciplined financial management and operating model leverage. On a GAAP basis, fourth quarter and 2016 gross margins were 60% and 60.4% respectively.

R&D expenses were $51 million for Q4 and $200 million for the year. GAAP SG&A expenses were $39 million for Q4 and $155 million for 2016.

Stock based compensation expenses were $10 million for Q4 and $40 million for the full year. Amortization of intangible assets was $6 million and $27 million for Q4 and 2016 respectively.

Full year 2016 GAAP earnings per share increased over 100% to $1.45 per diluted share. Q4 GAAP earnings exceeded expectations at $0.47 per share.

Turning to the balance sheet. We ended the year with $300 million in cash and investments.

Operating cash flow increased 22% in 2016 to $129 million. During the year we acquired Micrium and also deployed $41 million of excess cash through our share repurchase program.

Last week, the Board of Directors approved a new $100 million share repurchase authorization for 2017. We will continue to be opportunistic in our stock buyback program during the course of this year.

The diluted share count for the quarter increased only slightly to 42.7 million shares and at 42.4 million for the year remains at a multi-year low. Accounts receivable declined sequentially to $74 million with days sales outstanding improving to 37.

Net inventory ended up slightly at $60 million with inventory turns of 4.9 in line with our operating model. Our total debt balance is unchanged at $73 million and we have a total of $300 million accessible through our credit facility.

I will now turn to guidance for the first quarter. We anticipate a seasonal decline in revenue to a range of $174 million to $179 million with an increase in infrastructure, IoT flat and declines in broadcast and access.

We expect non-GAAP gross margin to be 59%. We anticipate a seasonal increase in non-GAAP OpEx to between $74 million and $75 million primarily due to the annual payroll tax reset.

We expect our non-GAAP effective tax rate to be 12.5% and non-GAAP EPS to be in the range of $0.57 to $0.63. We anticipate GAAP EPS will be in the range of $0.21 to $0.27.

For the full year 2017, with continued financial discipline, we anticipate growth in OpEx of around 3%. Additionally a 12.5% non-GAAP effective tax rate is a reasonable assumption for the full year.

I will now turn the call over to Tyson.

Thank you, John. And good morning everyone.

We are very pleased to report outstanding fourth quarter and full year 2016 financial performance, including 14% year-on-year revenue growth in Q4 and 8% for the year. We're executing on our strategy focused on the Internet of Things and infrastructure markets and are seeing our efforts translate into strong financial results, achieving our target model for annual growth, gross margin and operating margins in the second half.

Over the last decade and through more than 2000 man-years of engineering effort and innovation, we have built our IoT portfolio of energy-friendly MCUs, multi protocol wireless system on chip ICs, wireless models, protocol and networking stacks, software development tools, targeting power sensitive size and cost constrained end node applications. The rapid development of the IoT throughout our society and the global economy now represents Silicon Labs’ largest and fastest growing market opportunity, with our IoT products approaching half of our total revenue and achieving growth of 20% in 2016, meeting our long term strategic target.

As the IoT proliferates across a broadening range of applications and customers, it presents a sustainable long term growth path where we can drive integration and functionality, deliver comprehensive hardware and software solutions, layer on additional differentiation and open up new opportunities to monetize our technology. The development of networking standards and application framework is a key enabler for the growth in the IoT.

ZigBee is the most established mesh networking standard for smart home, connected lighting and metering applications backed by a global membership and a diverse ecosystem of application profiles, platforms, products and support. For more than 15 years, first at Ember and now at Silicon Labs, we have established ourselves as the technology and market leader in wireless mesh networking, shipping more than 100 million ZigBee enabled devices worldwide to date.

Over the course of the year we saw increasing deployment of ZigBee in routers and gateways and growing momentum and interest in Thread. In Q4, we released a version 1.1 of our leading Thread mesh networking stack and are supporting hundreds of customers actively developing connected home and industrial products using this technology.

At CES, the ZigBee Alliance unveiled the extension of its interoperability technology with dotdot. dotdot enables the open, mature and widely supported application framework at the heart of the ZigBee to work as the universal language for the internet of things, making it possible for end node devices to work together on any IP-based network, including Thread, Wi-Fi and Ethernet.

During the quarter we announced a number of new solutions to make it easier for customers to add connectivity to virtually any product. We launched the industry’s smallest footprint Bluetooth low energy module with a built-in antenna supporting the miniaturization of endnote applications.

This is the first in a full line of ultra small form factor modules leveraging system in package or SiP technology offering customers benefits in terms of cost, size, ease of use and continuity with our IC based products. We introduced our new Thunderboard Sense development kit providing everything needed to create battery-powered wireless sensor nodes.

The kit includes six-onboard sensors, our wireless Gecko SOC for multi protocol cloud connectivity and wireless -- and ready-to-use mobile apps which make it easy to collect and view a wealth of real-time sensor data for cloud based analytics and business intelligence. We announced wireless occupancy sensors and smart outlet reference design expanding our mesh networking technology platform and simplifying the development of pre-certified Smart Home Products.

And we released a software and reference design solution providing everything needed to build Bluetooth enabled Apple Home Kit compliant devices. Ecosystems are playing an important role in the acceleration of the IoT as players like Amazon, Apple, Comcast and Google develop platforms for home automation and security, and Silicon Labs has been a foundational technology partner in this development.

We continue to broaden our connectivity portfolio. Last week we announced the acquisition of Zentri, an innovator in low power Wi-Fi modules with the goal of helping customers deploy and manage secure and cloud connected IoT end node products across a variety of industrial, commercial and consumer applications.

Zentri’s leadership position and engineering talent are valuable additions to our business as we drive innovation in embedded operating systems, Wi-Fi connectivity, security and cloud software technologies. We’re very excited about the capabilities of our team and our ability to execute on our IoT roadmap as we fill out our product portfolio, optimize cost and functionality for high volume applications, expand our multi protocol capabilities to a wider array of wireless connectivity options and extend our leadership in the growing IoT market in 2017 and beyond.

Moving on to infrastructure, our timing and isolation products achieved record revenue in 2016 with 17% annual growth, exceeding our 10% long term strategic growth target. In 2016 our timing products benefited from a number of mega trends, including the shift from enterprise to cloud computing in data centers, increasing demand for bandwidth, a shift in CapEx from wireless to wireline and 100 gig adoption in data center interconnect in metro area networks.

Our isolation products delivered an eight consecutive record revenue quarter as we take share from our competitors and replace legacy optocouplers. Our digital isolation technology offers higher performance, longer lifetimes and greater reliability than traditional optical based solutions.

We continue to invest in our isolation portfolio launching four new products in 2016 targeting a variety of applications, including highly efficient power supplies, electric and hybrid electric vehicles, advanced motor control and solar inverters. In 2016 we capped off an outstanding year by winning for the second year in a row the Global Semiconductor Alliance’s most respected public semiconductor company award.

It's a great honor to be chosen again for this prestigious award by our industry peers based on our reputation for innovation and strong financial performance. We are especially pleased with our solid 2016 financial results, outperforming the industry by delivering high single digit revenue growth.

We're increasing our shareholder value by targeting large and growing markets, maintaining our gross margins, managing our OpEx and increasing our bottom line. Last year we celebrated our twentieth anniversary as a company and I've never been more excited about our positioning and the opportunities that lie ahead.

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

Jalene?

Thank you, Tyson. Before we open the call for the question answer session, I would like to announce that we are holding our second Analyst Day on Monday, March 6 at the Intercontinental Times Square, New York.

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

Thank you for taking the question. And to kick it off, first guys congratulations on the growth rate that you are achieving as well as the very strong operating margin leverage.

It's really nice to see and I know the byproduct of many years of investment and focus. The first question is for you Tyson, a very strong year in IoT, 20% plus year-on-year growth.

Can you talk about the gives and takes to sustainability at that high level both on the application demand side and as you go forward you will increasingly fight the law of large numbers, so how do you see the growth profile evolving longer term?

We see the growth rate in IoT continuing to have strong momentum as we come into 2017. We have a very strong traction on the wireless side with our ZigBee devices with the traction we have with Thread, our growing portfolio of devices meeting different size, memory and functionality.

And there's a lot of growth in markets like metering in industrial, in home automation and security applications and we see that momentum continuing and if not, extending into new markets such as lighting. So we believe that 2017 that we can maintain that, that 20% growth rate that is a long term target and we believe that that is something that we can achieve here in 2017.

Thank you. And then the follow-up is for John.

Nice to see the full-year expense guidance at 3%, which would be down 100 basis points. What are the levers that you are pulling to keep expense growth at that level given that the business is showing much, much stronger revenue growth?

Yeah, Craig, it's really fundamentally controlling our headcount growth. We've invested a lot in the IoT over the last several years and really the bulk of the investment that we have is landed in the company now.

So while we continue to seek out software talents and add to the capabilities of the team we are doing so recently through a couple of the smaller near term acquisitions that we've completed which have brought in talented workforces as well as some revenues to add a nice offset to that. But fundamentally it's controlling our headcount and just having the full management team really exercise judicious expense control.

Craig, I'd like to add on to that just a bit. The challenge of addressing broad markets is both being able to scale on the R&D side and we use a platform approach to be able to build out a large portfolio of devices and also optimize those for specific applications and try to get as much reuse as possible among all those different devices, so that as the business grows we gain more and more leverage on the R&D side and that's a good thing in terms of expense control.

I would also say on the support side, the other challenge of the broad business is to support a wide range of customers, and our philosophy there has been to make our devices simple to use and easy to support. And it's actually quite complicated to take these very very complicated engineering products and communication protocols and make them easy to use and we've put a lot of effort into that to scale it across the channel and to scale our support resources and adding a lot of the techniques such as our web support and communities in that sort of thing.

So we believe that we've been making a lot of investments to be able to scale our business without having to add a proportionate amount of OpEx and I think that's an important aspect to the thesis of our investment in IoT.

Yes, thank you and congratulations on the strong results. First question is on gross margin guidance for Q1.

You are guiding for 59%. With infrastructure being the only growth business in that quarter, from a mix perspective I would think that's kind of favorable to you.

So can you just talk about the puts and takes on the 59% gross margin?

Yes, Tore, this is John. So we are pleased with the gross margin performance we experienced in 2016 and we’re really able to operate at the upper end of our overall model range in 2016.

Looking at fourth quarter we did see some favorable mix through the course of the quarter. We had strength in automotive products, strength in isolation products as well as just some additional favorability in the product mix within these broader categories that we talk about.

So we see the 59% and the overall range of 58% to 60% as a good zone for us to operate the company and it's really just reflecting overall product mix as the primary driver for first quarter.

Very good. And my follow-up question is for Tyson.

Tyson, you have always said by having a full suite of IP available for IoT you are positioned really well. You have added even more blocks now and, obviously, you have pretty impressive software.

How would you stack up SLAB's position now, especially with this latest acquisition in relation to the competitive landscape? Thank you.

I believe that we have a leadership position on the wireless, the mesh networking side. So -- and we can talk just specifically about wireless.

We also have a very solid solution for Bluetooth. And our strategy around IoT connectivity is similar to what you would see in mobile phones, you've got cellular connectivity for one application, you've got Wi-Fi to connect to your local network, you've got Bluetooth to connect to your audio devices.

In an IoT, you’re going to see a similar combination of wireless technologies for different applications. So for instance, you would use Bluetooth to commission a device and then have that device paired to a network either on Wi-Fi or Thread or ZigBee or other type of device protocols.

So the multi protocol capability, I believe that we again have a leading position on the ZigBee, Thread, Bluetooth side. You saw with the latest acquisition adding in Wi-Fi modules and as we move forward on our roadmap adding more and more capabilities to our multi protocol portfolio and also continuing to develop our simplicity and our development tools and our suite of network performance tools and such, I believe that we have a substantial lead right now and I think that as we move forward, that's only going to get stronger.

Hey guys, thanks for taking my question and nice results. I just want to follow-up on the acquisition of Zentri.

Is there any revenue associated with that? And then Tyson, maybe you can talk about it's using other people's Wi-Fi, I know you've said you don't really have that IP.

Just kind of your thoughts on Wi-Fi and your capabilities in Wi-Fi, and what's the long-term plan? Do you expect to continue to sell other peoples and you can make margin on the software or you need this as part of your portfolio or would you actually eventually be a Silicon spot on Wi-Fi?

So first with the revenue on the Zentri side, it's a modest amount of revenue. We've accommodated that within our guidance both in terms of OpEx and it's a modest amount of revenue.

So that is not -- that was not the rationale for the acquisition, it was really to bring in a complete set of Wi-Fi modules, these modules just like the ones that we sell today with Bluegiga use third party silicon, and we're layering on software differentiation on top of that in terms of an embedded operating system, cloud management, device management and such. So in terms of Wi-Fi, our near term strategy is to continue to leverage partner silicon on the -- within the modules and to continue to develop multi chip models and layer on software on top of that and longer term to integrate this functionality into our low power wireless Gecko multi protocol portfolio and technology platform.

So as we move forward, you'll see an expansion of our multi protocol capabilities and Wi-Fi is an important component of that and on top of that all of the software that we're developing will translate on to that platform.

Thanks for taking my questions and let me add my congratulations. Tyson, maybe just continuing with that theme, I guess when you look at the IoT portfolio, what else is there that you'd like to augment, any other blocks in the mix?

We are quite pleased with where we are right now in terms of our -- the completeness of our portfolio. We've got leading low power MCUs, we've got leading development tools, we've got a market leading position in 15.4 ZigBee and the upcoming Thread technology.

And then if you look up the stack in the application frameworks, we talked about dotdot today but there's a lot of other activity going on in terms of the operating system with Micrium, with the addition of Zentri and the cloud connectivity. So we believe that we have all of the components that we have really right now, we're focused on broadening the portfolio and on driving the technology roadmap, driving security, driving additional cost advantages, optimizing our solutions for high volume markets and continuing to take that technology and apply it more broadly as the market continues to evolve and you see ecosystems developing and a lot of the market starting to gain traction.

So we believe that we've got what we need and we've got our head down and are in execution mode

And then for 2017 how do we think about seasonality? And I guess just your comfort level at staying in this double digit growth range.

In 2017 we certainly as we go into Q1 see a seasonality on the consumer side and so you'll see that within the broadcast area with the TV and radio tuners. There is a certain portion of the IoT revenue that I would classify into the consumer space even though in Q1 we do anticipate that revenue being flat, so you can see the inherent growth rate in IoT exceeding the consumer seasonality which is a good sign.

And I think that that tees us up well to continue to maintain this momentum as we go into 2017. We've talked about a long term growth rate in IoT of 20%, a long term growth rate of 10% on infrastructure and then also on broadcast and access each of those product areas we’ve guided a 10% decline for each of those on an annual basis and we feel comfortable with those long term models as we come into 2017.

Hey guys, congrats from my end too. Just a quick clarification, Zentri was not part of the March quarter guidance, right?

It is, Anil. The deal closed toward the end of January, so there is a partial quarter included in the guide, yes.

Can you give us a sense how much was that contribution?

Modest. Anil, we're not breaking that out separately but it is modest.

And, Tyson, when you look at the business visibility, I mean there are a lot of moving parts here. How would you characterize the trends of business visibility for Silicon Labs now versus say a couple of years ago?

As you get into some of these IoT things do you think visibility is pretty much the same or you have better?

I think that our visibility continues to improve, if you -- look at the overall mix of IoT and infrastructure we're now north of two-thirds of the business within those two categories, those are a large number of customers and I would say that the visibility there, the booking rates everything is looking solid. And then with broadcast and access now being a smaller fraction and some of the larger customers especially on the broadcast side being smaller fraction of revenue, I think that overall that improves the visibility in new business.

Okay, great. And if you don't mind me squeezing one more, Tyson, when you look at the consolidated semiconductor industry, obviously, the big guys are focused on certain aspects of their financial engineering and so forth where smaller guys like you guys continue to be innovators.

Can you talk about when you compete with the big boys like TI and guys like that, what is the nature of the competitive dynamics with respect to design wins now versus how it was, call it, a couple of years ago when the dynamics were different? Can you just give us some qualitative sense?

I believe that our competitive position has never been stronger. One of the questions that we get asked is, do you need scale to be able to compete?

And from an R&D perspective we believe we can afford to do what we need. I think we get an unfair attention from the channel and we are engaged with industry leaders across the board.

We don't see a constraint in terms of the size of the company. In fact, I think it puts us in a position given our size the ability to grow and to see a substantial change in complexion over the company over the next three to five years and I think that that's very very exciting.

I think if you look at the consolidation we've seen many of the MCU players start to acquire each other. So you have Microchip and Atmel, you've got NXP and Freescale now going into Qualcomm, you saw an IoT player Broadcom spin out their IoT business to Cyprus and I think in each one of those cases that provides an opportunity for us to gain share as these companies go through integration and maybe you have to combine their R&D platforms while -- if you look at what we've done we've talked on the call about having put 2000 man years of effort into our IoT platform, into our Microcontroller or wireless connectivity, integrating the software making it easy to use, making it scalable across a broad range of applications and protocols.

And I think that that puts us in a very very strong position competitively and that's being recognized by many of the industry leaders that we're working with.

Good morning. Thank you very much.

Tyson, I guess when I look back to where my own estimates were and maybe many of my peers as well, I think the area where the company might have outperformed the most versus what I expected was in the infrastructure market, and that has big implications for the margins as well. Maybe you could talk about the competitive dynamics in that space today and the drivers of that business and maybe what we should think about as the sustainable growth rate.

I think you guys had talked about 10%, but you obviously did much, much better than that this year. Thanks.

The infrastructure business comprises our timing business and our isolation business, so let me let me take each of those separately. On the isolation side, we clicked in our eighth consecutive revenue quarter so that's an indication of both the optocouplers, this is a fundamental technology using CMOS to replace the legacy optocoupler design.

And the market continues to shift over to Digital Isolation technology for reliability and cost and performance reasons and we continue to see that trend moving along we compete with Analog Devices and TI in that market but you can see with our growth rates that we continue to hold our own and certainly likely gain share on the isolation side that is a probably our broadest business in terms of the number of customers and the number of applications it's everything from motor control hybrid, electric vehicles, motor controls power inverters lots of different lots of different applications there and we continue to invest in that roadmap. So we believe that that will continue to fuel.

You know solid steady growth on the isolation side. The larger component of the infrastructure revenue is still in our timing business and we also continue to invest there, we have expanded our product offering into the wireless side and into data center applications, this is with clock and oscillator products and again we sell broadly to all of the industry leaders there.

The majority of that revenue was on the wireline side and we did see a strength on the metro area networks the long haul networks and a lot of the boxes that we're in with our clock and an oscillator products in 2016. We think that those trends will continue as well as our ability to drive the new products into these new markets.

That being said, we believe that a 10% growth rate is a reasonable assumption for that. We do have solid margin profile within the infrastructure business in particular on the timing side so that that does help us overall in the corporate level but I think that the outperforming in 2016 -- 2017 was welcome, the navigation of the strength but I would stick with the 10% growth rate, here as we’ve come into 2017.

Thanks for that. That's really helpful.

Maybe, John, a quick one. I know there was a question earlier about gross margin in the first quarter.

Are you having any changes to your longer-term gross margin outlook? I know you've outperformed the recently updated range over the last two or three quarters.

Maybe that is due to mix, but any update on longer-term gross margin would be helpful. Thanks.

Yes, Matt, sure. No change on the strategic target for margin, as I said 58% to 60% remains our strategic growth model for gross margin.

We see quarter to quarter various shifts within the broad categories that really explains the variation that we’ve experienced but we’ve not made any updates to that model.

Hello and congrats on the results. Thanks for taking my question.

I just wanted to see if you could walk me through again some of the benefits from the recent Zentri acquisition. You mentioned that there was going to be modest revenue already baked into your Q1 estimates.

Can we sort of quantify this as ramping going forward, or is the main reason for the acquisition for the Wi-Fi technology?

Yeah. Robert, this is John.

I'll talk about the financial aspects first. It is modest in terms of the revenue profile.

That said, there is some growth potential in this module revenue and we look to that to be a component of our overall strategic annual growth target of 20%, but it is modest and we’re not breaking that out separately.

Robert, in terms of the benefits of the Zentri technology, it’s really couple things. You've got -- they've got a very competitive line of modules using third party silicon and we're going to continue to be out in the market marketing those but also a very unique embedded operating system which will be integrated with Micrium and then the cloud connectivity piece and the device management piece which as devices, as chips get connected to the Internet part of the product is in the cloud, part of the product is upgradable kind of the same way that your phone is upgradable with functionality.

And that's an important part of the value proposition of IoT. So that capability and more importantly a team of people that have been working on this for a decade and bringing them into the fold and having them work on our roadmap of multi protocol connectivity, I think that the main benefit here of Zentri is the long term leadership position that we believe we will be able to achieve on the connectivity side specifically focused around IoT and all the various applications that are there.

So we're very excited about the team, very excited about the technology, the 2017 contribution while modest on the R&D side is going to be significant. End of Q&A

Thank you, Scott. And thanks to everyone for joining us this morning.

This concludes today's call.