Q1 2020 Earnings Call
Ladies and gentlemen team get free standing by and.
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Thank you.
Good morning, ladies and gentlemen, I'm kind of each incorporate vice president and Chief marketing Officer in DC group will come to our first quarter 2020, <unk> earnings conference call on today's call. We also if we'd ask Mr. Ofer Elyakim, Chief Executive Officer, Mr., Dror Levy Chief Financial Officer, before we begin I would like to remind usage.
During this conference call, we wouldn't be making forward looking statement about the where financial guidance for the second whatever 2020 or believes that our technologies, namely unified communication voice user interface isn't when activity solutions, we've become more essential in uniquely position us to take advantage of trends associated with remote workers.
And then social distancing due to that they make and as a result will emerge a stronger company optimism about the adoption of fuel Dick and optimism and both are engagement pipeline and customer product launches. Furthermore, it wouldn't be noted to 14 booked to covert 19th and then continue to it falls as such.
Magnitude the dependent we live on the Companys financial condition liquidity and future recycle for protection is uncertain. The following discussion by the company management about the Companys financial condition is subject to the future affected <unk> 19 bundle.
You should probably 19th and they make important factors that could cause actual results to differ materially from the company's expectations are disclose under risk factors seem to company from 10-K and not to receive five.
Forward looking forward looking statements made on any of the date hereof expected otherwise required by law, we assume no obligation to update any forward looking statement.
Now I'd like to turned a corner over to offer linking our chief Executive Officer offered the floor is yours.
Thank you Tony Good morning, everyone and thanks for joining us today.
I hope that you have the opportunity to read our personally which we distributed earlier this morning.
I would like to open this call by thanking all of our employees customers and partners for their continued support during this unusual period.
The covered magazine, but then it presents an unprecedented global medical financial and human challenge.
Affecting every aspect of our lives including schools in the semiconductor industry in this call we shall elaborate on its implications for our business.
We begin by reviewing our results for the fourth quarter, then comments on the progression of our business plan and finally provide context for out.
Drag will then provide you would be too we beat the bulk of financial results for the fourth quarter and all projections for the second quarter.
For the Colbert my outbreak was confined solely from China, and mainly affected our customer supply chain operations.
<unk> through food reopen after the Chinese new year holiday.
Those factories experienced the prolong shutdown and gradually resumed operations in early March.
Moreover.
In March.
Outbreak expanded with.
And in compliance with social distancing and look down regulation aimed at lowering the spread over to cope with 19.
We move most of our employees worldwide to work from home model that transition that went quite smoothly.
Well, despite our ability to deliver products on time and serve our customers remain intact.
Meanwhile, by the end over the quarter and to a larger expense in what is now the second quarter demand for consumer electronics product, that's often due to those same social dispensing and sheltering place restrictions.
Despite these headwinds were able to generate $28.2 million unit revenues for the first quarter.
Coming within our original guidance range.
And essentially flat year over year, while declining by 3% sequentially.
Moreover.
Revenues from growth initiatives reached $18.2 million growing by 3% year over year, what declining by 7% sequentially and accounting for 64% thought the revenue.
This achievement drove our GAAP and non-GAAP gross margins to 50.9% and 51.4% respectively.
Moreover, during the quarter, we met an important milestone and taped out and integrate these ajay I still see reflecting our growing confidence index in the success of our business.
This also drove non-GAAP R&D expenses to peak at $9.6 million into first quarter.
The remainder of the year, we do expect our R&D expenses run at a much more moderate run rate aligned with our historical spending.
Why some effects on the pandemic on businesses and consumers we'd be tempering. This crisis, we certainly have long term applications for how we live work and interact.
In such an environment, we believe the DSP groups technologies will become even more essential.
We have developed world class technologies, and innovative solutions for three market verticals, namely unified communication Smart voice and smartphone.
We chose to become the growth engines over the company you too which is increasingly more important in the new paradigm under which we will be living and working now let me elaborate unified communication the global mandatory sheltering playful does have created the surge in the number of into food.
He was working from home or other remote locations. This has created an increased demand for you see products such as headsets phones video and audio conferencing systems to enhance workforce efficiency and productivity.
On the voice user interface, our smart solutions are already powering over 18 different products from tablets light switches remote controls cameras and many more.
Well positioned to benefit from the rising need for adding voices user interface to many more devices.
Due to increasing preference for contactless German free voice enabled human machine interface.
On our IP connectivity solutions are Dick and you really products are addressing the growing demand for reliable <unk> peak when activity and two way voice communications for the smartphone market.
And meet the covert 19 outbreak.
Voice calls made from home increased significantly.
Which should drive demand for the integration Dick's annually into home gateways to ensure high quality service and food home coverage.
Moreover, even our legacy called this business can fared much better and relies less will decline rate.
With a much increased usage or phones at all.
Why we're confident about our engagement pipeline and the potential for each of our growth initiative looking forward. We may save some near term soften mainly related to a shortfall in consumer spending.
In summary, we are enthused about having an important role to play in helping people everywhere transition to a safer and more productive work and home environment, we knew innovative tools for communication collaboration and touch free device control.
We will continue to execute.
Our technology solution based strategy.
Through this crisis and emerge as a much stronger company where anything.
No I would like to address each of the business segments, starting with small voice.
During the quarter, we generated revenues of approximately $4 million from sales of Smartpost products, reflecting a year over year decline of 4% in a sequential decline of 19%. We attribute the declined to two main factors. Both kopec 19 related the first is associated with the lower.
Manufacturing capacity in the first quarter as many of our customers manufacturing partners were forced to extend the Chinese new year factory shutdowns.
Encouragingly. These factories have gradually resumed production and capacity is increasing every week.
The second factor resulted from a collapse in retail food fall in Europe, and North America in March.
And the changing consumer behavior, resulting from social distancing and shuttering place restrictions.
We believe however that this weakness is temporary and that our smartphone solutions are more crucial now than ever.
Particularly with voice user interface moving from a useful feature to a necessity and meet the coping 19 breakout the centers for disease control and prevention in the U.S. and similar bodies in other countries recommend among other things to avoid touching surfaces in public places that.
Traditionally been hi, Scotch examples elevator buttons light switches and many more likewise the tone.
Ladies and advisable to avoid touching the surfaces well sure devices like remote controls, which is a long keep thoughts door handle smartphones and tablets. We strongly believe that voice user interface adoption will accelerate more rapidly at the results of this crisis.
As we embrace and develop new happy.
After then we would have otherwise.
As adoption accelerates, we expect voice user interface application to expand into additional products and use cases.
The group is playing an instrumental role in addressing these needs without smartpost portfolio, which is already powering a broad array of applications and product mix.
Moreover, during the quarter, we continue to expand our product reach and engagements with leading consumer electronics.
As demonstrated in the following the treatments.
The first we secured a strategic design win with a leading platform company that integrated our smart voice technology into its newly launched through wireless earbuds.
Our solution is ideally suited for such applications as it combines low power hands free operation Smart they I processing with robust active noise cancellation, enabling longer periods of play back and talk time, well accommodating the true wireless earbuds ever shrinking form factor.
In the tablet and PC market, we saw a record number of new and innovative product launched by key partner that leverage our smart with solutions to deliver a natural robots and high quality fall season voice activation and two way voice capability.
Novo launch the M than an intense class marked off with falloff in voice activation based on our smart voices, we'll see a leading mobile OEM launch a number of new tablet models and BBK launches as one doubling the tablet all integrating our smart voice SLC and incorporating far field.
Yes, activation and supporting multiple wakeboard simultaneously in the camera market, we continue to enhance our leadership position and were selected by leading security.
For its newly launched outdoor camera.
These achievements coupled with a unique momentum voices user interface adoption continues to demonstrate our ability to drive down power consumption, while raising the bar on quality and performance for edge devices.
We believe that's off mall business will continue to be a pivotal growth driver powering a broad array of exciting new application.
Go onto the unified Communications segment in the first quarter, we choose revenues of $10.2 million, Rick presenting a year over year increase of 9% in a sequential increase of 3%.
Even before the Cobiz 19 outbreak.
We saw a change in the workspace as it evolves towards ubiquitous screens and an increasing need for high quality voice and video communications now global remote work requirements and drove more than 600 million users to collaborate virtually using these tools.
Work from home is no longer option.
So it is imperative that the tools used be as reliable high quality and productive in the home as they are in the office.
It's imperative mix collaboration and communication tools and their underlying technology crucial to ensure.
Fishing enterprise operations and workforce productivity.
With so many have companies having rolled out work from home policies. Many experts as says that some of these policies will remain in place also after that and Danny.
Over the next few months, we believe that's more technology companies and unified communication providers will expand their offerings to better support the enterprise as they look to further seamlessly connect the growing remote workforce and facilitate their collaboration efforts.
DSP group is at the forefront of addressing these technology needs and is well positioned to intersect with these market trends to our best in class product offerings for the unified communication endpoints as well as portable terminals headset.
Voices user interface and they are on the edge.
In the first quarter of Twentytwenty, we accelerate we saw accelerated demand for debt headset portable terminals and conferencing system. In addition, during the first quarter, we continue to expand our again, our engagement pipeline and secure the following noteworthy win.
A tier one networking Oems selected our deck for an innovative headset product.
Gomo launched its and Goma H., then wireless headset based on our next solution and the scene launch a desktop voiceover IP phone with the Fourg LTE modem integrated based on our DCF solution remain highly confident into continued growth of this segment propelled by our strong.
Market position and our solid engagement pipeline.
Turning to our smart home product line.
During the first quarter, we generated approximately 4 million in revenues, representing a year over year decrease of 5% and a decrease of 15% on a sequential basis.
Negatively impacted by the factory shutdowns in China during the first quarter. Nevertheless, we believe in the strong momentum of our smartphone product line and the unique value proposition deck, Julie technology present.
To this current environment phone calls has made a come back and meet the corporate 19 outbreak in the U.S. Internet traffic in general is up around 25% from typical daily pattern at the same time the number of calls made from home has nearly tripled.
In response service providers are optimizing their infrastructure to deal with the growth in voice calls.
By integrating deck, you really into their gateway service providers can to provide higher quality of service.
Portability more reliable communications.
And for home coverage.
During the first quarter, we experienced strong demand for an interest in.
Next you really by service providers as reflected by the following noteworthy developments.
British Telecom.
Launch its digital and all IP voice offering and next generation home phone service based on our Dick Julie solutions.
BT subscribers, we benefit from highly reliable high definition calls throughout their homes. This offering also addresses of course.
UK communication regulators are commendation to leverage land lines at this time in order to get a more reliable connection.
Be teasing you offering includes newly launched branded content Q phones that connect directly to beat these home Gateway. In addition to these strategic achievements, we expanded our customer base as evidenced by two new service provider that selected our deck Julie solution.
And it were expected to launch DECT enabled home gateways in the second half of these years.
These service provider can now leverage the new infrastructure to offer LTE services. In addition to voice as an example, Korea telecom is in the process of leveraging its DECT ULE installed base to offer small businesses advanced I LTE services. They some are you willing technology.
We're also excited about the role that you really plays into security market. Yuelys advantages include superior range interference free spectrum and inherently reliable two way voice and no do support all of which are crucial for security product.
Additionally during emergencies.
When call center or 911 support is required we see increasing traction and interest amongst security service providers and in fact, the leading European securities provider.
Selected our deck Julie for its new all in one emergency voice communication system.
The momentum behind actually technology is strong and we expect these trends coupled with our strong engagement pipeline to fuel expansion of the uli ecosystem with additional products and brands, thereby resulting in its border adoption by leading service provider and talk to us.
Updates on the cordless phone market.
Our first quarter cordless phone revenues were inline with our expectations cordless revenues declined by 5% year over year to $10.1 million and accounted for 36%.
Our total revenues.
We continue to prudently manage.
Cash flow reach business and reinvest its profit to fuel future growth.
In our well performing growth initiatives.
Now for an update on our outlook for the second quarter.
Today, our backlog for the second quarter is solid.
And is indicative of a relatively healthy business activity. Despite.
Local downs and a deterioration in consumer demand. However, we do expect to see an uptick in market volatility and increased uncertainty in some of the markets. We serve due to a challenging macro environment, an unknown dimensions of this economic downturn.
And it's expected in fact can consumers and businesses. Hence we are taking a more cautionary view and widening our revenue guidance range to reflect these dynamics.
While maintaining financial discipline and by prudently managing our operating expenditures going forward.
We therefore expect our second quarter revenues to be in the range of 25 million to $31 million.
The midpoint of guidance range implies year over year revenue decline of 4% why flat on a sequential basis.
The midpoint of the guidance also implies growth initiatives should account for 63% to 67% of our second quarter revenues.
To summarize.
We are proud the DSP group has an important role to play in helping our customers transition to a safer and more productive work in home environment, we need with innovative tools for communication and collaboration and are excited by the market response to our products and technologies we.
Believes that these trends and accomplishments we solidify our success also during these challenging times and that we will emerge from this crisis as a much stronger company.
No I would like to turn the call over to draw or our Chief financial officer draw the floor is yours.
Thank you offer.
Ill now review the income statement for the first quarter on Twentytwenty from top to bottom.
For each line item I will provide the U.S GAAP results as well as equity based compensation expenses included in that line item and expenses related to previous acquisitions.
Our revenues for the first quarter of Twentytwenty were $28.2 million.
Gross margin for the quarter was 50.9% gross margin for the quarter included equity based compensation expenses in the amount of point $1 million.
R&D expenses were 10.4 million dollar, including equity based compensation expenses in the amount of point $8 million.
Operating expenses for the quarter were 17.8 million dollar, including equity based compensation expenses in the amount of 1.7 million dollar and amortization of acquired intangible assets the amount of point $1 million.
And that should income for the quarter $1.9 million.
That's inc. for the quarter included point 4 million dollar of Accenture differences related to the accounting standards associated with long term leases. This exchanges differences were excluded from our non-GAAP results for the quarter.
We didn't have tax benefit for the quarter Internet demo of <unk> point 1 million dollar that was mostly benefit resulting from changes in deferred taxes related to intangible assets and equity based compensation expense.
Net loss was $2.5 million, including equity based compensation expenses, the amount of 1.8 million dollar amortization of intangible assets of point 1 billion dollar.
Income foreign exchange rate differences in the amount of point 4 million dollar and the tax benefit effect of point $1 million.
Non-GAAP net loss, excluding these items such as described was $1 million.
GAAP loss per share for the quarter was 11 cents.
The negative impact of equity based compensation expenses on the loss per share was eight cents.
The negative impact of amortization of acquired intangible assets on the.
Loss per share was constant.
The positive impact on the income from exchange rate differences was two cents.
The non-GAAP loss per share excluding this item.
Well for thing.
Let's see the current report on form eight k. the too far do they see this morning for reconciliation of non-GAAP presentation.
The GAAP pension.
Now turning to the balance sheet.
Accounts receivable event of the first quarter decreased to $13.9 million compared to 15.4 million dollar as Ed on the fourth quarter of 2019.
Presenting a level of 44, there's a sense.
Our inventory increased from 7.5 million dollar event of the fourth quarter of $19 million to $8 million presenting a level of 53 days.
Our cash and marketable securities decreased by $2.9 million during the first quarter and whereas the level of 128.4 million dollar as of March 31st 2000.
Our cash amount with security position during the quarter was affected by the funding.
Launch non ambulant off cash was provided by operations.
Once we moved off cash was used for the purchase appropriated equipment.
Point 2 million of cash received from exercise of stock options by employees.
3.4 million total shares of category was used for purchase of 275000 shares at an average price of 12.2 dollars per share.
But really the dollar was the changing market value and amortization of multiples.
Now I would like to provide you with all projections for the second quarter Twentytwenty.
Our second quarter projections, including the impact of equity based compensation expenses and acquisition related amortization expenses are as follows.
Our revenues are expected to be.
Range of 25 million dollar to 31 million.
We expect our gross margin to be in the range of 51% and 52%.
R&D expenses are expected to be the range of 8 million dollar to $9 million.
Operating expenses are expected to being the range of 14 million dollar to $17 million.
Financial income is expected to be in the range of $400000 to $600000.
Income tax is expected to be approximately <unk> point 2 million dollar on the non-GAAP basis.
Our shares outstanding are expected to be in the range of 24 million shares to 25 minutes.
Our second quarter projections include point 1 million dollar of amortization of intangible assets.
This projection is also includes the following amar's forecasted for equity based compensation expenses.
Cost of goods sold includes point 1 million dollar.
R&D expenses include point $7 million 2.9 million dollar.
And operating expenses in total include 2.1 million dollar to $2.3 million.
Now we'd like to open the lines for questions analysis operator please.
Okay.
Operator, we can open up the lines for questions.
Thank you, ladies and gentlemen, I'll begin the question.
Okay and in some sense question.
Okay.
Your first question comes from the line as much.
Absolutely. Thanks.
Thanks, Thank you very much.
And I appreciate all the commentary.
Oh for given the unprecedented times we're in.
Just wanted to dig in a little bit on the.
Slide communications business.
To me it seems like there would be some some trends that might be.
In your favor and also some headwinds in that business with with the big work from home trends I mean, you guys have.
A fairly sizable business there with the big Polycom providers and office phone providers, but obviously the importance of voice calls on people working from home is going to drive some demand for maybe other pieces of that portfolio.
Maybe you could just walk us through a little bit.
Pieces of the unified communications business, how much of that goes into on Prem office business, how much of it you might have exposure to that could really transfer to our work from home environment, and what that pushes and pulls might be on that business. Thank you.
Hi, Matt and thanks for the question.
On the unified communication business are.
In a way our business is split between.
Sorry, the you've heard about the.
Deck it side of the of headsets, which are.
Extremely important a both working from home as well as folks from the office, we have the conferencing side. So conferencing system is mainly a voice.
And then we have the more traditional IP phones, we trust plate I would say about that and 60, 40% to 60% on Prem and 40% you cause however.
As ties progressive become.
Hey.
Let's turn to really distinguish between the two because a lot of the models that are being conducted an offer today are in a way offered into flavor as one for all from the other one for you got so I think the UK side, which is the growth driver in the unified communication front.
It will show stimulating all the market participants throughout for full a fully packages offering for it for that for that market as well.
So I can tell you that we have been them I get the at least what we're seeing from.
First quarter, and maybe little bit of what we've seen the second quarter, but but more so when we're talking with our customer and trying to better understand.
The way there.
Thinking about the demand.
So I think that.
Hey.
What has happened as happened fairly abruptly without any preparation by enterprises to accommodate work from home and am.
Mode.
And the in a way people or most employees.
Walked away from their office with the equipment that they thought they need it for for a moment and some other was already have.
Pre installed this and some some also working from home as as a standard practice.
But what I believe we see one way.
Operations resume and people resumed to two there to be office environment is that a lot of corporations will now invest.
Understanding.
That working from home and a return for the pandemic or any type of such event could could happen and so the need to equipped with the users with the employees with many more collaboration capabilities to guarantee.
People are as productive.
At home as they're in the office. This is something that will definitely be there.
Number two what we are also it getting and hearing is the fact that.
Since these endpoints are usually.
Or most of the time, we say probably 90% of the cases are used by individuals.
Then you know a sanitation will be also a number one priority and whenever you get a new person you also putting a new endpoint.
And so the way we're seeing the market evolving is that a.
Businesses will have to invest in these the productivity tools that you know are these endpoints, whether there are a headset in the conferencing system and IP phone as video communication tool.
Et cetera, et cetera to enable people to work from home and utilize the infrastructure that the work environment has invested in.
This is number one.
And then number two that we perhaps we'll see more.
More rapid replacement of the endpoints as a result of what I've said since this is.
First in the light them, a you may prefer to have a new.
Device sitting on their desks.
So.
In addition to that is just the thought that the number of hope you know desks in operation has grown considerably.
I would say would.
Also indicate to the to the idea that more products.
Should cover more and more desks.
So this is in a nutshell, what we're seeing.
What we saw in Q1 and I think that we're also seeing that.
In Q2.
I would say that theres definitely a greater demand for a headset.
There was last year. So this is for sure and you also saw from the some of the design win announcements.
But but other than that at this very moment, we do know to see a significant headwind, but but again as you can see that when we're looking forward. We're trying to be despite the fact that we are.
It's fairly robust backlog that in normal circumstances, we would be a lot more bullish we tried to be a little bit more cautious.
Because you know as things have happened in the World and you know shops are closed and people are at home and you know no one's really spending as much as they used to and that should definitely have an artifact also on our business.
But at least from you know the fundamentals that we're seeing and from the conversations that we're having these are the trends.
Got it.
Thank you.
A lot of moving parts.
Sure I wanted to ask a couple of questions with respect to the guidance and.
Obviously, the visibility is challenging here, but if you might.
I guess 28 million at the midpoint on revenue if you could give us a little color of how you're thinking about.
Each of the difference.
Line items on on revenue by Division and then it looks like the Opex guidance is down really sharply on a sequential basis I.
I think if memory serves over a couple of onetime costs in the March quarter, but also a pretty big drop off.
Into the June quarter from Opex, if you could talk us through the moving parts there that would be helpful. Thank you.
Yes, sure. So first start with the first wanted to ask about.
Distribution of the revenues between the different business segments. So.
Signaller repeat what what offers the lessons that we expect growth initiatives in totality, the unified communications Smart home and smart voice to account for.
The midpoint to 65% of.
Well the total revenues of of the second quarter.
This is for that one in terms of the Opex.
So we do expect the Opex in the first with the second quarter will be lower again, if you take the midpoint. It's about a two point some single almost $3 million lower than where we are in in the first quarter. A this is coming for two things first as you said there were like some one time and discretionary spending that.
We head into first quarter. We also had the chance to reveal our press release was related to that over there that R&D included.
Some spending.
Discretionary tape volatile for project is basically demonstrates our.
Our believes that we still need to investing in our future into twoq to invest in our growth initiatives.
So this was like the pick in the first quarter looking into the second quarter again, if you take the midpoint of the guidance R&D is around $8 million.
Which is.
Slightly below the run rate of 19, so maintain the one which was about 8.5 million.
Second quarter is expected to be around 8 million. This is coming both from the fact that we do not have like this question one time spending and also the fact that most people are working from home.
Also results in some degree is in the expenses relate. So for example travel facilities et cetera. So looking ahead.
We should see R&D.
Yes, I would say in the levels of 2019. So this is what we expect.
For the reminder of the you saw in a way the second quarter is about them and then we'll go back to the level that we used to say in.
In 2010 in 19, but of course, we will always be programs in the way that we run our opex.
We will need to see all things involved on the revenue.
Ron.
And taken action that we will be necessary.
Thank you very much for the color there I'll hop back in the queue. Thanks guys.
Next question comes on line.
Jason.
Thanks.
Hey, guys. Thanks for taking my questions just following up on the unified Communications segment over I know you talk about some maybe some structural shifts that are going on in that market, but just curious if you look at 20 Twond. If you think theres been any sort of whole in type.
Orders going on in that segment in the first half of this year.
Hi, Jason.
Yes, so with respect to the demand pattern. So I think that during the first half at least this is where we have visibility we see the unified communication performing well and as a segment it.
As it relates to demand.
Of course, not multiple customers are equal some modeling better some are doing.
Worth.
But a if you ask me with respect to you know pooling. So if you look let's say at Q1 as we've indicated.
It was that.
I would say.
Pretty moderate quarter from the capacity from the ability of the factories to deliver and make products.
You know some some facilities or not is an open today in the early major but most of them have resumed operational started to reason operation in early March so.
It was quite of a muted a quarter from a manufacturing standpoint.
You know I'm pretty sure that.
Our market participants are hoping for.
In two kind of increase market share and.
Are you know looking to produce more products and you know our are betting on time on an increased in a unified communication demand. Some are taking a more a cautious view and.
And our and our more conservative with respect to the demand.
If you want to ask me about the levels of the Lansing.
This is.
Quite fragmented type of the.
Okay chain from us to the manufacturers into the brand into their supply chain distributors and value added resellers up to the end customer.
I would not say that there is an accumulation saw in a pool in today because of.
Certain or.
Certain a degree of of say concern about the ability to manufacturing in the second up I right now do not see that actually think and based on the information that is Andy to us.
I cannot say can see significant pockets of inventories inventories could be here and there.
But I don't see that as a signal I think that everyone is carefully calculating each customer each brand is carefully calculating the that's with respect to there.
Future demand as well as a with respect to how much material. They want to to carry I think that in Q1 on if you ask me in March or May be April yes.
Companies did want to get like the tops both in the pecking order and perhaps this provides more orders or more rosy forecast, but I believe that when we look at where things are in early may I think everyone is trying to draw is there there are limits or what they want to hold and how much appetite.
For for ordering they out so I think everyone.
Paying attention close attention to what is happening.
Okay. That's very helpful. And then looking at the Smart voice business I mentioned, there's probably been some delays and push outs given the macro uncertainty, but have you seen any cancellations or programs.
And yes, so with respect to smart voice. So as you can imagine smart voices that certainly in diversified product portfolio.
You know it stretches from.
And I would say devices that are color.
In in high need the as we spoke about smart screens and.
Mobile accessories in the multi like Youtube as et cetera.
But but it ranges too many many different a consumer type of segments.
Yeah.
With the people being looked at home and.
Shelter in place restrictions them et cetera.
Certain consumer categories are getting hit or impacted by by the fact that.
And people are at home and the level of spending that behavior pattern of the survival mode versus you know our regular conns consuming mode. It changes so in some categories.
There could be.
Significant shifts and then and the slowdown in demand and button others for instance, the small screen, we actually see.
It's really nice revival in demand and actually a lot of products are actually out of stock.
Also in some of the collaborations side. If you asked me about total cancellations.
Yes.
All those are all those are usually.
Binding in advising thing so.
So far we have not we've not seen anything of that nature and the you know I would say that most of our customers or at least.
Majority of the customers we serve our in Irene.
Good condition, and we'll be able to and I think to navigate through the say uncertain at times.
Okay. Thanks, a lot guys.
Thank you.
Once again, please press star one on your telephone.
Next question comes on line, it's Charlie Anderson.
You May ask your question.
Yes. Thank you for taking my questions just going back to the backlog.
It was really good place there, but you're anticipating.
Some some weakness are being a little bit more cautious I wonder.
Would you be able to quantify the backlog at all maybe not numerically, but maybe on a.
Year over year perspective.
Sort of curious to date.
Dates have you seen anything.
From the backlog and that's why you're being extra conservative reduce make an assumption that some will not I've got to follow up.
Yes, Hi, Charlie and thanks for the question, so maybe I'll have a little bit from like the way the how the backlog is viewed and how we use it so.
I think that many many previous calls we did provide this example that usually.
Are the average lead time that we are for our product is roughly eight weeks.
So that would mean that.
Wherever we are let's say, if we're talking about now a month into the quarter.
You know we should be.
Fairly fairly close over two thirds.
I would say.
Well over two thirds.
And so it gives us the backlog basically in a way gives you the ability to understand.
Where you are a visit the different month or quarter, and what is really missing and do you see a certain pattern that with let's say alarm and tell you that perhaps things are not going as you would as you forecasted and also we have the missing.
Part of the backlog that we anticipate that weve coming in the form of the additional peos with the due date for the quarter. Since you know the averages the eight weeks. So there are certain items that out faster four weeks three weeks and some that are longer.
So I would say that when I say that that backlog is healthy it means that when I look at where we were at the same period last year.
Actually pretty the backlog.
Scenes.
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Hi, or more significant than let's say the same period, a last year, but given the the overall atmosphere. The fact that.
Most of the retail outlets in the Western World has been shut down now for almost two months and the ability to get product is limited to online many of the cat results also out of stock.
You know usually consumers are of course using online a lot, but online is not the only way to get products and in many of the categories that we saw they actually.
The offline is is the third way to consume these products and so it is just being a little bit more cautious given what we're seeing around us and this is was the first time that we're in.
Chip is such a scene, where you know.
Yes.
You know people have made it wise decision to basically shut down the economy and and this will have consequences. It's not that we have seen anything but I think that we need to be prepare that if we training and we also it get with here.
So this is what I meant by the fact that them. The backlog is them is fairly solid and strong at this period of time, however, it doesnt fulfill the entire.
Focused and because of the uncertainties, we don't really know how bookings will be between now and the end of the quarter all kinds of these unknowns.
And given also the very special circumstances that wherein we wanted to take a much more cautious stone.
And on one hand.
Widened the range because you know there could be requested to show that could be a lot of it seems that may happen.
But also to take a more conservative look at at the second quarter.
Okay, Great fair enough. Thank you for all the color on auto per so from my follow up question. I was curious you did mentioned the tape out of the new exit Ajay I see chip I wonder.
If you could speak to the strategic importance of that chip and the timeline to revenue.
On the new products like that thanks.
Yes sure.
So.
As we.
Participate in the market that we classify as smart voice of voices user interface. I think we are seeing an evolution, it's not necessarily just the world in which you need to operate wake words.
It is a world in which hold you input.
It gets process.
On edge devices for a variety of they have different use cases, a one could be for a wake will detection that others could be to listen to the environment and detect all kinds of sounds a for instance in our security business in the smartphone side one of our customers is now role.
Out the sound design detection to detect just biodiesel a lot of certain environmental sounds so that they are happening at home or or buildings in order to alert you know a emergency systems, let's say that build Larry.
You know it gunshot or whatever of these sounds all so it's really about a group of.
In order to inputs that gets process and analyze on the edge device rather than all the time, sending this traffic this heavy traffic into the cloud for processing and for that we have built and this is something that we've done gradually in the past.
Is basically equip our product portfolio with more capabilities to run.
These analyses in a much more I would say.
Dedicated.
Tightly coupled accelerators versus running that in softer to enable us a to deliver a lot more capabilities on an edge device, but also to significantly reduce the power consumption, especially in devices that about three operators.
This is a.
Real need them, just looking back at our script, we mentioned the new to wireless products that was recently launched.
This product one of the primary considerations was power consumption and these in these products is the power is not meeting the threshold of other competitive devices.
No one's going to make a product like that and so then the need is to put in a lot more analytics a lot more smart capabilities.
At the same time reduce the power consumption to enable longer so and playback time and this is indeed, what we're doing and it's not not just full at wireless is for any of the segments, which are battery operated and in our domain a lot of the devices that we serve our battery operated if you look at.
Cameras, if you look at tablets, if you look at I'll see if you look at smartphones.
Smartwatches glasses et cetera, et cetera. So there is a big need for both much low power, but much more advanced analytics.
And this is the that were pursuing than this is that in evolution of where we were in Smartvoice I hope this color helps.
Great. Thank you so much.
Your next question comes from right.
Sorry.
Chairman.
And then something answering questions.
Hey, that's already taking the question for Raj Gill.
So in the first talked about some of the supply chain disruptions you have experience yeah, you're talking about the nature magnitude of them and also how it's been going in the second quarter in terms of supply. Thank you.
Yes, hi area and thanks for the question so.
On the supply disruptions. So maybe I will first segment they'll to supply chains in our business. There is our supply chain the supply chain that gets involved in.
Taking the wafers and packaging testing and shipping them to our customers and and this supply chain so our supply chain.
Was intact.
All products that our customers needed were supplied on time.
So there is no issues on the contrary excellent execution.
On the supply chain of our customers. So from the point that where we ship the product into the factories and the factories have to produce and make out of them is finished and point.
There as we discussed during the first quarter, there's typically a Chinese new year holiday.
Lunar new year that takes place.
Usually in the first two months.
Over the quarter and the.
Right after that holiday.
The World started hearing about.
The news coming from.
Certain.
Parts of China about the new virus.
Very little one.
And.
A lot of the factories did not really open after Chinese new will try new is usually a wholly dale two weeks, roughly where where most of the factory. So I'll shut down and then after employees gradually come back and you know feeling the shifts and the these factor we started leasing operation.
Usually within a week or two they get back to full capacity. This year it didn't happen and in a way the shutdown go prolong than I would say almost one month or maybe one month of manufacturing was.
Hey, wiped out at least in in the places where we're familiar with.
In the second quarter right now I believed that the problem has slipped since I would say that right now it.
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From what I know the factories are mostly in operation trying to get to that the capacity.
Some are Steve you know struggling but but most of the ones that we know our already but the impact really comes from the end demand.
So I would say this is how we see the different supply chains in the in fact I would say Q1 is much more around manufacturing Q2 is some some impact and limitation in terms of NIM.
Demand.
End market demand.
Gotcha, that's very helpful and yes, you talked about the impact of front a virus on that your voice products, you've been seeing an uptick can you provide a bit more color on this and do you expect this to continue throughout the year particular wafer when line.
Yes, so with respect to.
Our optimism around that.
The larger use of land lines.
And I think that.
We have seen and there was a lot of press around it and around the the significant increase in the number of course made from home and also in the number of calls made from land line.
Yeah.
I think that if the such an environment will persist and people will continue.
To use their home offices, a lot more than they have used it in previous years.
And the need for more capabilities additional communication channels, we'd be required not everywhere at home.
Do you have is the right quality of service, whether it's coming from mobile network, where it's coming from wifely connection.
In certain cases highly reliable source of communication, where people can hear really will HD quality or also full.
Roger quality as well as is the ability to to to be hill really well is is the landline. This is one one of the sources.
We have seen a many service providers actually.
Leveraging.
The fact that people are utilizing more the land line and actually have went with all kinds of innovative packages to offer their subscribers is the ability for short term rentals of land line at the very nice packages.
So I do believe and also from what you've seen in our prepared comments, we did say that a number of new service providers are today.
Including deciding to include a DECT annually in their broadband offerings in order to facilitate and address these needs.
And I can also tell you that a lot of the networks out there we're not built fall for heavy voice traffic that will build for heavy data usage and also multimedia usage and.
The trend that has happened in the last two months is it is fairly.
Strained.
Or unplanned trend for LOE to be in network infrastructure isn't the way to accommodated in many cases, such as in Germany in the UK in Spain is to actually advocate by a lot of the regulators to utilize more land lines. If you really want to get the best the best quality.
And alleviate a lot of the other networks for conducting more data and multimedia.
So we don't really know where that will end up but at least from what we're saying we are optimistic and we believe that we're well positioned to benefit if.
Such a trend will actually really take place and happen.
So we think that this is where we are at this point.
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Already any more questions and if not the operator, we were we can take the next question.
Okay. Next question comes along the line of Cighi Desilva.
One thing you may ask your question.
Hi, all for hydro so.
Perhaps this question maybe hard to answer but is there any geographic color on the demand outlook Asia versus the U.S., you're up or is it kind of all mixed at this point.
Yes, hi, Suji, so with respect to the mix and in the mix.
I think the.
When you look at our mix, where we shipped to this is mostly Asia of course, like any other and chipsets and though but when you look at the end market demand I would say that probably.
In two thirds of our demand actually goes to the western world So that means.
In a way.
From Australia to in a euro U.S.
Latam.
And maybe once a basically gets utilized in in Asia excluding.
It's really up.
I would say that right now is from at least what we see the.
There would be some level of impact using the.
The macroeconomic reports with our coming with respect to with consumer spending.
In Asia.
I would say there is.
Less of that bad, but still I think there's a lot of lot of uncertainty and and caution.
With respect to it.
The job market et cetera, So I think that.
At least from from our point of view, we have a much stronger today dependency on you know Europe the Americas.
Then we have one leg of the domestic marketing in China for instance.
Okay. That's helpful and then for the segments. The second half 20, any any qualitative puts and takes on smart voice versus smart home versus unified communication I know, it's hard to actually guide given the visibility, but any thoughts there would be helpful.
So I think that at this very moment and again. This situation is very dynamic we it's very hard to predict exactly how it will evolve and what impact it will have on our product. What we did say that we believe we're positioned well to benefit from these trends.
Both in.
Got you Asian, where people are changing the working habits and their dividing there are times between home and office and also in regular time.
And when we tried to do it.
A deeper dive into the second derivative and look at each of the pull the categories.
I would say.
That's a.
In our smartphone business.
We do believe this is much more than a longer term.
Im.
A business.
Development It way, we're very optimistic about our ability to continue and penetrate the security market as we've already started to do and we've announced the that the win with with ABT. It we have a lot more in our pipeline that we believe will in.
In a lead to a design very nice and lucrative design wins that will help us.
In the field say much stronger footprint and also.
Much higher potential for revenues and revenue growth in that business. So I think that I don't see any concerns. There is there could be the quarterly volatility, but I think longer term very solid a engagement build up with very good.
And leading customers.
Unified communication as you can see right now and this is at least our expectation going forward.
We remain strong again as I said, a lot of dynamics and I think in Matts question. You also asked about that.
There are lot of lot of dynamics going on very hard to really predict.
And the endgame, but right now it does look strong also from our engagement pipeline. We feel very confident this business is moving ahead and we'll continue to grow.
And where there is I would say more volatility is really on the smart voice, which tends to be much more consumer driven business.
Right now despite the fact that I believe we are really will position in many of all of the different a product. We did see during this quarter or some categories that did better in some categories that did not as well.
And it is I think we'd be very hard to predict.
How exactly this will do in steel is very encouraged by.
The.
Prospects that we have that we're serving with some of the new products. We just announced this is to wireless I believe that this will signal our entry into the into wireless market, which is a burgeoning market opportunity with a lot of it.
Units and a great way too to build and develop our business I think that we are we will see locals in exciting opportunities come to fruition also in the entertainment market.
Hey tablets.
So.
I don't see a problem with the build up of of.
The design win and the engagement pipeline about the quarterly demand volatility probably you know we still be there. It's a hurdle for me. This is a much shorter lead time type of the segment.
It's not in the eight weeks, it's small in that.
Lets a number of weeks.
But but I think that right now I do not really see any concern.
But just trying to equip ourselves with the fact that hey, the world is shot.
You need to be prepared.
Okay. Thanks for the color.
Thank you.
There are no further questions.
Thank you. Thank you for listening in prayer interesting DSP group and we look forward to report back to you only 90 days.
Yes, good when it comes from today. Thank you all squash spanning all discussions.
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