Synaptics Inc. (NASDAQ:SYNA), a leading developer of human interface solutions, has announced its fourth-quarter fiscal year 2024 financial results, reporting a revenue of $247.4 million, which is above the midpoint of their guidance. The company has seen a 9% increase in total revenues year-over-year (YoY) and a 4% rise sequentially.
Non-GAAP net income for the quarter stood at $25.6 million, reflecting a 22% increase from the previous quarter and a 31% increase YoY. For the fiscal year 2024, the non-GAAP net income reached $89.4 million. Synaptics anticipates first-quarter revenues for 2025 to be around $255 million with a non-GAAP gross margin of 53.5% and net income per diluted share projected to be $0.75.
Key Takeaways
- Synaptics reported Q4 revenue of $247.4 million, surpassing their previous guidance.
- Non-GAAP net income for Q4 was $25.6 million, marking significant sequential and YoY growth.
- The company expects Q1 2025 revenues to be approximately $255 million.
- Core IoT products experienced substantial growth, particularly in wireless.
- The company resolved most of their inventory issues from the past six quarters.
- Revenue contributions for Q4 from Core IoT, Enterprise & Automotive, and Mobile products were 22%, 58%, and 20%, respectively.
- Synaptics ended the quarter with $877 million in cash and short-term investments.
Company Outlook
- Synaptics forecasts a slow and gradual recovery across all end markets.
- The company is focusing on managing operating expenses and prioritizing capital allocation.
- CEO Michael Hurlston anticipates a double normal growth rate for Core IoT, targeting a 10-12% increase on the top line.
Bearish Highlights
- The growth rate has been slower than expected due to muted end-demand recovery.
- Mobile product revenue was down both YoY and sequentially.
Bullish Highlights
- Significant growth in Core IoT products, particularly in wireless, with a growth rate over 20%.
- Enterprise & Automotive product revenue was up YoY and sequentially.
- The company has formed new module partnerships in the wireless business to reach more customers.
Misses
- The company is currently undershipping due to muted end demand but expects demand recovery to boost shipment levels.
Q&A Highlights
- The CEO acknowledged a correlation between limited IT budgets and increased AI spend but did not provide specific visibility into other companies' budgeting.
- Synaptics is exploring pricing and cost reduction strategies to improve gross margins and may raise prices in markets with strong positions.
In conclusion, Synaptics Inc. has demonstrated resilience in its fourth quarter, successfully navigating inventory challenges and showing growth in key product areas. The company remains cautious but optimistic about the future, with strategic partnerships and product mix improvements expected to drive growth and margin enhancement.
InvestingPro Insights
Synaptics Inc. (SYNA) has recently shared its financial outcomes for the fourth quarter of the fiscal year 2024, revealing an impressive revenue surge and a robust non-GAAP net income. To add further context to these results and the company’s financial health, here are some key InvestingPro Data metrics and InvestingPro Tips:
InvestingPro Data:
- Market Cap: Synaptics currently holds a market capitalization of $2.86 billion, illustrating the company's size and investor valuation in the market.
- Revenue and Growth: The company reported a revenue of $939.3 million over the last twelve months as of Q3 2024, although this represents a significant decline of 41.45%.
- P/E Ratio: The price-to-earnings (P/E) ratio stands at 22.89, which can offer insights into how the market values the company's earnings.
InvestingPro Tips:
- Share Buybacks: Management at Synaptics has been actively buying back shares, a move that can indicate confidence in the company's future performance and often serves to increase the value of remaining shares.
- Analyst Sentiment: Despite the company's positive performance in the last quarter, 8 analysts have revised their earnings expectations downwards for the upcoming period, suggesting potential challenges ahead.
For investors looking for a deeper dive into Synaptics' prospects and performance, there are 13 additional InvestingPro Tips available at https://www.investing.com/pro/SYNA. These tips provide a comprehensive view of the company's strategic moves, market position, and financial health, which can be valuable for making informed investment decisions.
In light of the recent financial disclosures, these InvestingPro insights offer a nuanced view of Synaptics' market position and future outlook, enriching the understanding of the company's performance and potential trajectory.
Full transcript - Synaptics Incorporated (SYNA) Q4 2024:
Operator: Good day, and thank you for standing by. Welcome to the Synaptics Inc. Fourth Quarter Fiscal Year 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Munjal Shah, Vice President of Investor Relations. Please go ahead.
Munjal Shah: Thank you. Good afternoon, and thank you for joining us today on Synaptics' fourth quarter fiscal 2024 conference call. My name is Munjal Shah and I am the Head of Investor Relations. With me on today's call are Michael Hurlston, our President and CEO; Ken Rizvi, our CFO and Matt Padfield, our Vice President of Finance. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at synaptics.com. In tradition to a supplemental slide presentation, we have also posted a copy of the prepared remarks on our investor relations website. In addition to the company's GAAP results, management will provide supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition related costs, and certain other non-cash, and recurring or non-recurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations section of the company's website at synaptics.com. Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Although Synaptics believes that estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. We refer you to the company's current and periodic reports filed with the SEC, including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.
Michael Hurlston: Thanks, Munjal. Well, I'd like to welcome everybody to today's call. We just closed our 2024 fiscal year, and while for the most part it didn't play out as we planned, we were able to accomplish some of our most important goals. During the year, we stabilized revenue and began to show incremental growth, though at a slower rate versus our prior expectations due to muted end-demand recovery. In addition, we were able to get largely clear of the inventory issues that plagued us for the last six quarters or so. Finally, Core IoT is on the right track, showing significant, albeit somewhat inconsistent, growth after bottoming in the fourth quarter of last year. As we enter fiscal 2025, we are in a better place overall to drive revenue and earnings growth. Moving to the June quarter, revenue was slightly above the midpoint of our guidance range with enterprise products incrementally above forecast. Non-GAAP gross margin came in at roughly the midpoint of our guidance, while non-GAAP OpEx was below target, resulting in non-GAAP EPS above the forecast provided in May. This quarter marked more success in our Core IoT products, which grew 63% year-over-year, primarily driven by wireless. We taped out our first broad-market device that features a more than 50% power reduction and a 40% decrease in die sizes compared to a similar high-performance device. Even with these advances, we maintain our overall throughput and interoperability advantages, thereby delivering the best overall solution in this product category. The chip is on track to sample to customers toward the end of the calendar year with revenue contribution expected to start in the middle of calendar 2025. Our first Wi-Fi 7 device is slightly ahead of schedule, and we expect to be sampling customers toward the end of this coming quarter. In addition, demand for our shipping Wi-Fi, Bluetooth combos, and GPS products continues to improve. Pre-production has started on several of our key design wins in product categories such as drones, sound systems, wearables, and OTT streamers. We have had success adding new module partners in Japan, Korea, and China, though progress to high-volume shipments has been slower than expected. We expect wireless revenue to continue to improve, and while quarter-over-quarter growth rates may vary, we continue to believe that double-digit increases will occur on a year-over-year basis. We are also making progress with our smart embedded processors. Following a successful launch last quarter, Astra, our embedded AI-enabled line of MPUs and MPCUs, has generated interest from a broad set of customers in product categories such as navigation devices, appliances, and security systems. Initial demand for Makina RDKs exceeded expectations, and we are ramping production for commercial availability. We made our software generally available, making it easier for customers to integrate, lowering barrier to adoption. Finally, we are building relationships with system integrators and system-on-module partners who enable us to scale significantly faster. In the quarter, we started sampling our SR series of smart MCUs for vision-based use cases. In addition, we are driving synergies in our compute and wireless portfolios and are sampling our first Astra-connected processor in a package, combining our Wi-Fi 660 device with our quad-core A55 processors. While Astra's customer traction is ahead of schedule, we haven't changed our outlook, and the products won't contribute materially until the second half of our fiscal 2026. While our smart embedded processors are the future, our operator solutions product family continues to generate revenue today. Our recently announced wins have started to ramp, and over the last quarter, we added new customers in Japan with production launches expected in calendar 2025. Moving to our enterprise and automotive products, revenue improved 7% on quarter, driven by improvement in our video interface and PC products. In PCs, we're gaining market share at multiple OEMs and driving higher content with larger touchpads and haptics technology. We do think that PC-TAM continues to grow as adoption of AI PCs and ARM-based platforms drives a refresh cycle. Our user presence detection solution has been awarded both mid-board and camera module platforms that are major customer, stepping up our share in model year 2025. We are working to sell these AI-based devices to additional customers and expect further adoption given the system's power savings they can deliver, translating to longer PC battery life. While we were able to grow enterprise product sales sequentially, we continue to be disappointed at the rate of recovery. IT spending on personal hardware remains well below historic norms as capital is being allocated toward AI infrastructure. In automotive, the overall market softness is slowing the adoption of new technology. This has been good for us as our existing TDI solutions are expected to remain in production longer. However, uptake of our new SmartBridge product is being pushed out, limiting our content gains near term. In addition, our legacy DDIC devices continue to moderate as production shifts away from older models. In mobile, our touch controllers are aligned with the high end of the Android market, which is seeing normal seasonal trends. We do see an opportunity for TAM expansion as flexible OLED displays come down in price and capture a higher percentage of the volume at a given OEM. Our technical advantages in extracting signal from a very noisy environment give us more than sufficient differentiation to garner high market share, both in China and Korea. We had multiple ramps and design wins across major Android smartphone OEMs this quarter. We remain confident in our market position and starting next year, we expect our mobile products to largely track the high end Android market. To conclude, we continue to be excited about our core IRT opportunity, particularly on processors and wireless. Through new product ramps and customer engagements, we have set ourselves up for a bright future. In addition, we have cleared most of the inventory problems that plagued our enterprise products for the last few quarters and positioned us for a steadier phase of growth. We have set the company up for earnings and cashflow growth in 2025 and beyond. Before I turn the call over to Matt for review of our fourth quarter financial results and our first quarter outlook, let me take a second to introduce our new CFO, Ken Rizvi. I'm pleased to have Ken join the team and I'm looking forward to getting his help in driving profitable growth for Synaptics. He's a seasoned finance and semiconductor executive having previously served as CFO of a public company. Ken, can you make a few comments?
Ken Rizvi: Thanks, Michael, and good afternoon to everyone. Several of you know me from my previous roles and I'm excited to join Synaptics at this stage of the company. Michael and the team have done a phenomenal job transforming the company into a leading IoT player. I'm looking forward to build upon that foundation and help the company drive long-term growth. I look forward to meeting you all in the upcoming weeks and months. And as it's only been a few weeks since I've joined, I'll hand the call over to my colleague, Matt, to review our financials. Matt?
Matt Padfield: Thanks, Ken, and good afternoon to everyone. I will focus my remarks primarily on our non-GAAP results which are reconciled to GAAP in the earnings release tables and in our investor materials on our website. Now let me turn to our financial results for fiscal 2024 and Q4. We completed our fiscal year 2024 with net revenue of $959 million, which was down 29% compared to $1.36 billion in the prior year, largely due to declines in our Core IoT and Enterprise & Automotive products, and partially offset by growth from our Mobile products. While demand in fiscal 2024 was soft across multiple end-markets, we were able to grow revenues into the second half of the year while also reducing channel inventories to near normal levels. Non-GAAP gross margin for fiscal 2024 came in at 53.0%. Non-GAAP net income for fiscal year 2024 was $89.4 million or $2.25 per diluted share. The company continues to be solidly cash flow positive generating $135.9 million in cash from operations in fiscal year 2024. Now let me turn to our Q4 results. Revenue for Q4 was $247.4 million, above the midpoint of our guidance, with sequential improvement in our Core IoT and Enterprise & Automotive products. Revenue from Core IoT, Enterprise & Automotive, and Mobile products were 22%, 58% and 20%, respectively. This was largely in line with our previous expectations, with Enterprise & Automotive products above our original forecast. Total Q4 revenues were up 9% on a year-over-year basis and benefitted from reduced inventory digestion and up 4% sequentially. In Q4, Core IoT product revenue was up 63% year-over-year due to reduced inventory digestion and up 15% sequentially reflecting a modest recovery in the wireless end-market. Enterprise & Automotive product revenue was up 2% year-over-year and up 7% sequentially. We saw our PC products improve seasonally on a sequential basis. While we expect the enterprise inventory correction to be largely behind us, end demand for these products continues to remain relatively soft. Mobile product revenue was down 6% year-over-year and 11% sequentially. The quarter-over-quarter performance was primarily due to seasonal trends and largely in line with our prior expectations. During the quarter, we had two customers greater than 10% of revenue, each at approximately 12%. Q4 non-GAAP gross margin was 53.4% and in-line with the mid-point of our guidance range. Our fourth quarter non-GAAP operating expense was $96.5 million and toward the low end of our guidance as we continue to maintain tight expense control. Non-GAAP net income in Q4 was $25.6 million, an increase of 22% from the prior quarter and a 31% increase from the same quarter a year ago. Non-GAAP EPS per diluted share of $0.64 was above the mid-point of our guidance range, helped in part by lower than anticipated operating expenses. Now turning to the balance sheet. We ended the quarter and fiscal year with $877 million of cash, cash equivalents, and short-term investments on hand; up $49 million from the preceding quarter. Cash flow from operations was $65 million. Capital expenditures were $7.7 million and depreciation for the quarter was $6.8 million. Receivables at the end of June were $142 million and days of sales outstanding were 52 days, down from 55 days last quarter. Our ending inventory balance was $114 million, flat compared to last quarter, as we continue to manage our inventory purchases. The calculated days of inventory on our balance sheet were 88. Our cash balance is at a healthy level with ample flexibility to navigate our capital deployment needs. We continue to prioritize our capital allocation between M&A, debt management and share repurchases. Now, let me turn to our first quarter of 2025 guidance. We expect revenues to be approximately $255 million at the mid-point, plus or minus $15 million. Our guidance for the first quarter reflects an expected revenue mix from Core IoT, Enterprise & Automotive, and Mobile products in the September quarter to be approximately 23%, 58% and 19%, respectively. We are seeing stabilization and return to normalcy in our business with order trends and pipeline starting to modestly improve. However, recovery continues to be slow and gradual in almost all our end markets. We expect non-GAAP gross margin to be 53.5% at the mid-point plus or minus 1%, consistent with the previous quarter. We expect non-GAAP operating expense in the September quarter to be $96 million at the mid-point plus or minus $2 million. Given the slower pace of recovery and continued macroeconomic uncertainties, we remain focused on managing our overall operating expenses. We expect non-GAAP net interest and other expense to be approximately $6.0 million in the September quarter. We recently completed a project that included the domestication of certain foreign subsidiaries and the onshoring of certain intellectual property. This is expected to reduce our non-GAAP tax rate to a range of 13-15%. Non-GAAP net income per diluted share is anticipated to be $0.75 per share at the mid-point plus or minus $0.20, on an estimated 40.3 million fully diluted shares. This wraps up our prepared remarks. I’d like to now turn the call over to the operator to start the Q&A session.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Kevin Cassidy with Rosenblatt Securities. The line is yours.
Kevin Cassidy: Yes, thanks for taking my question and congratulations on the good results. And also welcome, Ken. Looking forward to working with you again.
Ken Rizvi: Yes, thanks, Kevin.
Kevin Cassidy: You mentioned that enterprise spending is down, but the inventory has been cleared out. I'm wondering if you're hearing of any spending coming up, maybe starting a new year, anything that would be related to the video interface revenue. It seems that was strong growth for a few years. And just like, I think that would be positive. Also, just make sure it would be positive for gross margin also.
Michael Hurlston: Yes, Kevin. First, thanks for the question and good positive comments. We did see the video interface business come up a bit this quarter, which is encouraging. It's been probably six quarters or more of negative. So it was really good to see it come up, although off a much lower base. I think we would start seeing indications of buying patterns as IT budgets get reset in December, probably maybe late November, early December. Those are typically when things get reset. And I think we'd have a much better handle on how our back half looks then. But I think our -- to your point, I think our video interface business is probably finally bottomed. And I think we're expecting pretty decent year over year growth this year.
Kevin Cassidy: Okay, great. Thanks for that answer. And also you mentioned that AIPC is being a growth driver. And just wonder if you have any more exposure between the ARM-based AIPCs or x86, or are you neutral on that?
Michael Hurlston: Generally neutral. I'd say generally neutral. The one opportunity we're seeing on the ARM-based PCs is to add connectivity content. So generally we have zero connectivity content on the traditional PCs. We do think we have an opportunity to add connectivity on ARM-based PCs, particularly, non Qualcomm (NASDAQ:QCOM) ARM-based PCs who will bundle their own Wi-Fi, I would presume. But on the other platforms, we think there's a decent opportunity. But generally speaking, it's flat because our touchpad, fingerprint, the main content is neutral, Kevin, across the various platforms.
Kevin Cassidy: Okay, great. I'll get back in the queue, thanks.
Operator: Thank you for your question. Our next question comes from the line of Quinn Bolton of Needham, the line is yours.
Quinn Bolton: Sorry guys, I was on mute. I was going to say, I just wanted to echo my congratulations, Michael, and welcome Ken to Synaptics. I guess, you guys have had some momentum on the Core IoT business, mostly driven by wireless. I think in the script, Michael, you said you expected that business to be lumpy, but to still grow double digits as you come into next year. I guess, looking at the ramp off the bottom, double digits could actually, if it's low double digits might actually, imply some declines on a sequential basis. And so wondering if you might be able to give us, some thoughts on sequential growth rates in that business. I know you said it's lumpy, but would you expect the trend still to be up generally on a quarter-over-quarter basis?
Michael Hurlston: Yes, definitely. I'm sorry if we left you with that impression, Quinn, but I would say on a sequential basis, we'd expect strong growth. Obviously, we had a couple of quarters here on a backward looking basis that were really, really significant. As you correctly point out, it was off a low base, but, as we look forward, we would expect that growth to continue both on an annual and a sequential basis.
Quinn Bolton: Got it, perfect. And then I guess maybe just following up on the last question about the enterprise, the video interface, the PC business, how important or, how significant of a driver do you think an AI PC upgrade cycle would be? Do you think that it would pull through a lot of the video interface? Do you think it would just be primarily on the PC side, the touchpads and fingerprint sensors? Just can you give us your latest thoughts on, how much you might benefit from an AI PC upgrade cycle? And I'm probably thinking that happens more next year than second half of calendar 24, but, would love your latest thoughts.
Michael Hurlston: Yes, I think you sort of got the timing right. And if you remember in a last call, and you and I had this discussion, we have not yet seen ordering patterns that would be consistent with a big refresh cycle, whether that's AI PCs, whether that's ARM PCs, where that just has to do with sweating these PCs for a lot longer than they typically are. A typical refresh cycle is sort of three and a half to four years, and we're probably at, you know, four and a half to five at this point. So we would expect just a natural refresh happening there. But generally speaking, haven't seen it. It's a little bit early from our perspective to call it. The thing that you did hit on, which I would expect to be true, is that PC buying is going to pull through a lot of our other products. You typically see, and we saw it certainly during the pandemic, when PCs were going out the door at a relatively high rate, it was pulling through docking stations, it was pulling through headsets, it was pulling through monitors and other things that we have exposure to. So I think if it does happen, it's a nice tailwind for us, but we haven't seen it. We haven't seen the orders come in yet. We're seeing growth, but moderated growth. But we remain optimistic. We hear everybody else's calls talking about it, and we're certainly hopeful that that helps us in the ensuing quarters.
Quinn Bolton: Great, thank you.
Operator: Thank you for your question. Our next question comes from the line of Krish Sankar from TD Cowen. The line is yours.
Unidentified Analyst: Hey guys, this is Eddie [ph] for Krish. Michael, you shared your expectation of Wi-Fi growing double digit. You also talked about sampling Wi-Fi 7, I had a schedule and some of the design wins there. So it feels like there are some good tailwinds, but I wonder if you guys have a growth range that you can share in mind. Like when you say double digit, are we talking about somewhere in the teens? Or is there a possible scenario where revenues can grow 20%, 30% for IoT in fiscal 25?
Michael Hurlston: Okay, no, Eddie, thanks for the question. I think we've outlined generally speaking, we've outlined our sort of Core IoT growth rate at being double that of our normal growth rate. Our saying is a long-term forecast is sort of 10% to 12% on the top line. And we'd expect our Core IoT to be growing at twice that rate. So there's nothing that we've seen that would back us away from those comments and those projections that we outlined, a handful of quarters ago. In fact, our wireless business is doing better than that. Our processor business, as we said in the prepared remarks, kind of too early to tell, but we're seeing good early signs there. So, we feel like the wireless business is, 20 plus percent grower on aggregate. And again, nothing we've seen that would back us off of those projections.
Unidentified Analyst: That's super helpful. And just to follow up, I think you mentioned as well, partnering with new system integrators and that would significantly impact your “growth rate”. Maybe, Michael, can you talk a little bit about that? Like how big of a driver that can be and why these partnerships specifically can be significant to your growth rate going forward? Like are they focused on specific applications or geographies that you guys haven't had before? Just any color on that would be helpful. That's it for me. Thank you.
Michael Hurlston: Yes, Eddie, again, I appreciate the question. A good one. Two things, right? You've heard me talk about in the wireless business, these module partners in the past that really help us bring wireless to market much more rapidly. We've had one really key partner in the module area for wireless. And we said in the prepared remarks, we've added a couple more. Those represent significant opportunities because they're helping us reach a much broader set of customers much more quickly. In wireless, you have a situation whereby there's a lot of components, RF components and power amplifiers and other things that go in those modules. And that time to market that the module folks enable is critical. The comment you're referring to is on the processor side. And it's a very similar thing where you have a guy that's going to aggregate a system with a processor, with wireless connectivity, with software. And those system integrators are then able to reach out to a number of different customers and tweak the platform slightly for a given application. So, while in wireless, we have a lot of experience and ability to go scale to these module folks, in processors, less so. But I'm very optimistic that the same model prevails, that these processor scaling partners help us reach a much broader set of customers much more quickly. We can go one to many in a much easier fashion than we can if we have to deal with all these customers by ourselves.
Unidentified Analyst: Great, thank you, Michael.
Michael Hurlston: Thanks, Eddie.
Operator: Thanks for your question. One moment, please. Our next question comes from the line of Peter Peng from JPMorgan. The line is yours.
Peter Peng: Hey guys, thanks for taking my question and congrats on the results and welcome to the team, Ken.
Michael Hurlston: Thank you.
Peter Peng: Just on, you talked about that inventory digestion seems like it's kind of gone and inventory is quite clean. So, does that indicate that you're kind of shipping based on your guidance, you're shipping to end demand or do you still feel that we're still kind of shipping below end demand at this point?
Michael Hurlston: Yes, Peter, again, good question. I do think we're shipping below end demand. I think you have a sellout that's clearly larger than the sell-in because we've cleared out quite a significant amount of inventory. I'd be hesitant to size that, but it's clear that we're under shipping, right? Because the inventory in the channel has been worked down during the course of the year and you can see the level of our shipment. So, I'd say that under shipment phenomenon is there. There still is pretty muted end demand. So, the thing that surprised us, and I think we've talked about this for the last handful of quarters, is we'd expected once inventory to clear out to get to a much higher level of shipment. We're not there because I think that on top of the inventory problem, there has been a demand issue that's been underlying it. But clearly, our ship-in is less than ship-out, so we're under shipping. And I think that as this demand profile recovers or the demand environment recovers, we'll see a kind of a second uptick.
Peter Peng: Got it, thanks. And then this is kind of a gross margin trajectory. If I kind of look at your end market, it seems like you're most positive on the continual recovery in Core IT and enterprise and automotive and mobile may be kind of chugging along. So, I would think that there's going to be some product mix headwinds in your gross margin. So, can you just talk about how you think about gross margins over the next couple of quarters?
Michael Hurlston: Yes, I think that's right. We've set aside a target of 57, and 57 is really based on that enterprise and automotive shipping at full throat. The enterprise and automotive is clearly well above 57 in a basket from where we stand. Processors and wireless are at or slightly below that 57 number and then mobile is quite a bit below. So, the aggregate says that when we're shipping it, kind of full tilt on enterprise and automotive, we would expect that the whole basket goes up to 57 as Core IoT continues to do well. In opposition to the enterprise and automotive, you're right, there's a little bit of a downdraft on the gross margin.
Operator: Thank you for your question. [Operator Instructions] Our next question comes from the line of Jason Gitts [ph] from Munzo Securities. The line is yours.
Unidentified Analyst: Hey guys, thanks for letting me ask the question. You mentioned on the IT budgets reset November and December, and those preliminary conversations you have with customers, just wondering what kind of impressions are you getting on those budgets for next year? Do you think that they could maybe be stretched to include some more enterprise spend or do we need to see a pullback in that AI spend before enterprise can return?
Michael Hurlston: I mean, to the second part of the question, I don't think so. I mean, I think the two things have been very related that on more limited budgets, the allocation is very much going toward AI spend we would hope that generally you're going to be able to feed both sides of the equation as budgets get reset. But to the first part of your question, we really don't have visibility. We know our numbers internally and we're going through that budgeting cycle now with Ken and Matt, but we can't really tell what other companies are doing in that regard.
Unidentified Analyst: Got it, thanks. And then maybe a little bit of a follow-up question on the gross margin side. I get that mix is a big piece of it, but as we are kind of getting back to that enterprise demand do you see any levers that are more in your control that can help get a little bit of improvement as you track towards that 57%? Maybe something like pricing or just some more costs can come out, anything that could create some upside there?
Michael Hurlston: Yes, we're looking at all of that. I mean, I think that that's a fair point. We went through an environment of significant price ups during COVID. We've not seen a lot of revisions on the cost line from our Foundry and OSAT partners. But as we sort of look out and again, Ken coming on board, how we think about our pricing strategy, particularly in areas we have pricing power. I mean, if you remember, I've characterized the business as having a significant number of markets in which we play where we have sizable market share and the ability to command some level of pricing power. As we look out across the balance of this fiscal year, I think we're going to look at that a little more closely and see where we do have opportunity to potentially raise prices in markets where we have stronger positions. But all that's TBD. What I can tell you is I think on the cost line, marginally better, we're seeing marginally better pricing, but not enough to really favorably move the needle. Our number one needle mover, as we've talked about, is always mix. And then we may, if we don't see mix improving, we may look at pricing levers to see what we can do.
Unidentified Analyst: Got it, thank you very much.
Operator: Thank you for your question. At this time, I'm showing no further questions. This concludes the question-and-answer session. I would now like to turn it back to Michael Hurlston, Chief Executive Officer, for closing remarks.
Michael Hurlston: I'd like to thank everybody for their questions and for joining this call. And we look forward to speaking to you at upcoming investor events throughout the quarter. Thank you.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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