Q2 2020 DSP Group Inc Earnings Call
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They steimel bulky she'd been signed at least right. After the speakers presentation. There will be a question. That's a section to ask a question. During this session. You ended you press star one on your telephone I must advise you that this conference is being recorded to date and I would now like to have the confidential, but you also speak I got each and.
Please go ahead.
Thank you operator would morning, ladies and gentlemen, I'm, probably try incorporate vice president and Chief marketing go there at these people welcome to our second what their Twentytwenty earnings corner or when do they score. We also had was asked Mr. Ofer Elyakim Chief Executive Officer, and you are dror levy cheap or not.
He served before we begin now we'd like to remind you drink in front of course, we would it be making forward looking statements about over financial guidance for third quarter when it when our expectation for the prospects for our smart voice smartphone and unified Communications segment.
Our ability to leverage technological transformation accelerated by different dynamic in our believed that our innovative technologies and solution position us.
Well take advantage such screens in America, the stronger company material, but temporary down during the unified communications segmenting, the third quarter the acquisition of phone cheap substantially increasing our service addressable market optimism about the adoption of few any deck in market acceptance of a and C N neighbors.
True wireless stereo headsets, as well as optimism about or engagement pipeline and customer product launches.
Furthermore, it wouldn't be noted the depending on the east with was as there's got to food magnitude moved up and then we live on the company financial condition liquidity and future Recycle Corporation remain uncertain Andy Stein.
Following disclosure by management regarding the Companys financial condition and prospects are subject to the duration and severe T shirt 13, and other restriction related to the pandemic and impact on the global economy, and the semi conductor in consumer electronics industry specifically.
In addition to defend them make important factors that could cause actual results to differ materially for from the company expectations or do you disclose under risk factors seemed to company form 10-K. Another if you see fighting Forwardlooking statements were made only as of the date hero expected otherwise required by law with no.
In addition to our big any forward looking statement.
Before we begin I would like to take this opportunity I beat Q when it Chen changing their normal describes certain aspects of power business going forward.
In 2013 Eastgroup defined three initiative.
The growing market verticals, which aligns well with our expertise. We quoted this initiative unified communication Smart home and smart voice, which together will refer as gross he should be our strategy with respect to such you need to initiative proved successful starting in 2018 our growth initiatives.
Accounted for Mike George deal for a total revenues.
Reflecting our success in turning books and you should deep into our core expertise, we have decided to change the terminology Rossini should lead to Ethernet or you seeing or I always he businesses.
With that I would like to turn the call over to offer linking our chief Executive officer of Sir the floor is yours.
Thank you Charlie.
Good morning, everyone and thanks for joining us today.
I hope that you out the opportunity food or person.
Distributed earlier this morning.
As we reported second quarter results the world continues to face a major financial crises.
During this call will elaborate on its implications.
On our business.
We view our results for the second quarter comment a little bit progression of our business plan and finally provide context for ARPU.
Drove improve argue with details on our financial results for the second quarter and.
In all projections for the fourth quarter.
Despite the challenging environment.
In which we all operating we delivered solid quarter with revenues of 23 point $28.3 million head of the midpoint of our guidance range.
Second quarter revenues were largely flat sequentially.
Was down by 2% year over year.
We're pleased with the performance overall are you aware the businesses, which reached $18.4 million.
Despite the macro headwinds.
Businesses collectively grew by 4% year over year and accounted for 65% of our total revenues.
Benefited from solid demand for smart home and unified communications products.
GAAP and non-GAAP gross margins expanded by 60 70 basis points versus the second quarter 2019.
Reaching 50.3% and 50.8% respectively.
Gross margins did come in below.
Those were reported in the first quarter and were negatively impacted mainly by nonrecurring one time royalty expense.
We therefore expect our third quarter gross margins to improve and revert to the first quarter levels.
Non-GAAP operating expenses for $13.4 million reflects lower opex run rate versus the level of expenditures of $16 million into fourth quarter.
Mainly because of certain discretionary they both in other nonrecurring R&D expenses that were included in our first quarter Opex.
Moreover.
During the second quarter, we announced our entry into the rapidly growing here above market and strengthened our offering with the acquisition will sound too.
By combining our low power voice expertise wireless capabilities in high quality old your product design.
So cheap system level design expertise around ambient noise cancellation, we have essentially doubled our service available market.
This acquisition is an important milestone for our overall strategy to deliver the highest quality technologies and the most comprehensive solution for this burgeoning market.
I'm happy to update you that transaction closed in early July and sound shape is now an integral part of DSP group.
Moreover, the here a little revenue will be reported under our smart voice segment.
Looking forward.
We expect our revenues to decline in the third quarter.
Predominantly related to a shortfall in enterprise spending on IP in general and on unified communication endpoints more specifically.
We see two contradicting trends.
On one hand work from home is driving record spending on collaboration tools for home offices and on the other hand and to a larger extent businesses and especially those in a hard to heat industries, including travel manufacturing or retail are reducing IP and unified communication about.
Due to a softer macro environment and resulting in a temporary reduction in demand for unified communication products.
However.
We believe that this weakness is temporary.
And that our unified communication business will recover.
Always communication is essential.
Collaboration users regard voice has the most important element in carrying a productive online meeting.
And is their preferred method for communications.
And voice endpoints and accessories are critical factor in the success and expansion of the collaboration market today and into future.
Why we're not immune from the economic impact over global pandemic, we believe that our technologies and solutions have a unique opportunity to played an instrumental role.
In the new paradigm under which we are and will continue to be living and working.
In this new paradigm there is significantly more.
Work time.
Spent at home.
Its home offices more interactions via collaboration tools, substituting travel and face to face communications.
Which means more phone and video calls.
And the preference to control things with the voice instead of touch.
In addition, individuals and organizations now more than ever our focused on deploying more collaboration and communication tools necessary to maintain workforce productivity.
Our innovative technologies and solutions are well positioned to play a significant role.
These technological shifts that have accelerated as a result of the pandemic.
We are uniquely positioned to leverage our leadership in the audio 80 businesses to meet these needs and to emerge from this crisis.
Much stronger company.
In summary, we're excited about our portfolio of technologies and solutions that enable our customers to develop their upcoming lines of new products that aim to provide a safer and more productive environment.
Both at the office and at home, our leading voice I hear a bills the loyalty solutions.
Position us well for sustainable long term growth as we capitalized.
Well these accelerating market trends now I will address each business segment, starting with smart choice.
During the quarter, we generated revenues of approximately $3.9 million from sales for smart voice products.
Reflecting a year over year decline of 26% in a sequential decline of 1%.
We attribute the expected decline.
To the collapse in retail footfall in Europe.
In North America.
Exacerbated by the restrictions for social distancing.
And shelter in place.
However.
We're optimistic that based on our diversified portfolio of products and the solid momentum around the voice as user interface and edge AI.
Our smart voice business is on track for a record quarter.
And a full rebound during the second half of the year.
Voices user interface has transitioned from a useful feature to assess city.
The pandemic has brought about several technological transformations overnight.
One of them is the beginning of the contactless future.
As countries around the globe undergo complete or partial shutdowns to limit the spread of the Corona virus.
A switch to a touch us way of controlling things to avoid the past, Oregon transmission via surface the human contact makes perfect sense.
During the quarter, we continued to expand our product reach and engagements with leading consumer electronics brands as demonstrated in the following achievements.
In the tablet and PC market.
We continue to enhance our leadership position and reached a record of 29 different tablet models.
Currently shipping by the leading consumer brands using our smart growth technology.
Including new and innovative product launch by key customers, such as Lenovo BBK in a leading us retail brands that leverage our technologies to deliver a natural robust and far field voice activation as well as high quality two way voice communications.
In the home entertainment domain, and consumer electronics, leading Korean OEM.
Launches second generation hands free remote control for its highest training TV models.
Based on our smart voice as you'll see.
That supports multiple wafer detection simultaneously, including Alexa voice services in such applications low power consumption and far field performance are crucial.
Our smart voice solutions offer industry, leading performance has the lowest power consumption.
Lastly techniques and spend a sonic launched AMC unable to wireless stereo headsets based on our new family of advance hybrid AMC codecs incorporates incorporating sound chips on flex technology.
About 10 product reviews highlighted the superior in see performance and compared DNC performance to that of other flagship through wireless motors.
We're excited to leverage our knowledge and expertise in this burgeoning market.
The above noted achievements, coupled with solid momentum of voice user interface adoption and the growing traction in the here of the market increased our confidence that our smart boost business will continue to be a pivotal growth driver, enabling a broad array of exciting new applications.
Moving onto the unified communications segments.
In the second quarter, we achieved revenues of $10.1 million, representing a year over year increase of 15% in a sequential decrease of 1%.
And meet the pandemic work from home became mostly mandatory making collaborations and remote communication tools and their underlying technology essential for organizations to stay safe connected secure and carry on their business.
Organizations now more than ever a must focus on building resiliency agility and mobility.
And those who had already invested in these digital capabilities, we're able to make this shift to work from home more quickly and seamlessly.
Nevertheless.
We do expect demand for unified communication products to slow down in the third quarter, and we attribute the weakness to lower spending by enterprises.
We view the slowdown as temporary and we remain bullish on this category and its recovery.
We firmly believe that high quality voice will continue to be it a pivotal ingredient in the unified communication and collaboration market, which is in rapid growth.
Moreover.
Most of the collaboration endpoints.
We're in wide adoption already before the pandemic started.
Today, we see a new product lifecycle emerging.
With purpose built hardware to facilitate these needs presented by work from home.
Facebook Zoom Cisco and several other companies have already started launching dedicated at home video conferencing system.
With multi microphones and wide angle cameras.
DSP group is at the forefront of addressing these new technology needs.
And is well positioned to intersect with new product requirements to better suit work from home.
And these new market trends through our best in class product offerings for unified communication endpoints.
Moreover, in the second quarter, we continue to expand our engagement pipeline and secured the following noteworthy wins at tier one OEM.
Launch and premium conferencing phone with the best in class voice experience for smart meetings and sharing based on our DVF platform.
The tier one European networking OEM launch a new family overseas desktop IP phones, providing enterprise grade communication experience based on R&D VSS, we'll see.
In summary.
And despite.
The near term weakness.
Which is a consequence of the ongoing financial crisis, we believe.
The voice call is the preferred method of communications.
And the role or.
Most endpoints and accessories are essential to the existence and the proliferation of the collaboration market. We therefore believe the demand for unified communication products will rebound.
Turning to our smart home product line.
During the second quarter, we generated approximately four $4.3 million in revenues, representing a year over year increase of 18% and an increase of 9% on a sequential basis.
Growth reflect solid demand for our smart home solutions.
Particularly those going into DECT enabled broadband home gateways and you really.
Phone calls has made a comeback and meet the fact that we're spending more time at home.
In response.
Service providers are optimizing their infrastructure to deal with growth in voice calls by integrating DECT you really into their home gateways service providers can provide higher quality of service portability more reliable communication and the full on coverage while off.
Floating Wi Fi networks.
During the second quarter, we experienced strong demand for DECT enabled home gateways, including the leading European service provider that selected our security technology.
For its new smartphone gateway that is scheduled to launch later this year.
Which leverages our technology to offer reliable two way voice and IP services.
In addition.
Excited about the role that you really plays in a wider variety of applications and verticals as demonstrated by the following design wins and product launches.
Closure telecom and Orange launch, a new smart speaker that leverages, our DECT annually solution to offer reliable and high quality two way voice support.
And Orange extended its smart home device ecosystem and launched Uli enabled flooded sector.
The momentum behind deck, Julie technology is strong.
And we expect these trends coupled with our strong engagement pipeline with security and telecommunications service providers to fuel expansion of the DECT ULE ecosystem with additional products by leading brands, resulting in its broader adoption by leading service providers.
Now to an update on the cordless phone market.
Our second quarter revenues came in line with our expectations cordless revenues declined by 12% year over year and by 1% sequentially.
Reached $9.9 million accounted for 35% of total revenues.
Due to the evolving pandemic situation, resulting in social distancing.
And at Homebound workforce.
Usage of land bank continues to be on derived creating increased demand for cordless phone products and contributing to a slower decline in the cordless phone market.
No for an update on our outlook for the third quarter.
Taking into consideration the increasing uncertainty and the impact.
That's covered 19 continues to have on the end markets and our customers.
Demand.
As well as the expected near term weakness in the unified Communications segment.
We are broadening our revenue guidance range for the third quarter, while maintaining financial discipline.
Prudent management of our operating expenditures.
We expect our third quarter revenues to be in the range of 24 million to $28 million.
The midpoint of the guidance also implies that our I O 80 businesses should account for 57% to 61% of our third quarter revenues.
Summarize DSP group is both excited and humbled to have such an important role play in helping everyone transition to a safer and more productive work and home environment with innovative tools for communications and collaboration.
And by the market response to our product and technology, we believe that these trends and accomplishments we support our success. During this challenging times and that we will whether the crisis and emerge a much stronger company now I would like to turn the call over to draw our Chief Financial Officer.
Draw the floor is yours.
Thank you.
I will now review the income statement for the second quarter of flat Ytwenty from top to bottom.
For each line item will provide us GAAP results as well as equity based compensation expenses included in that line item as expenses related to previous acquisitions.
Our revenues for the second quarter Twentytwenty were $28.3 million.
Gross margin for the quarter was 50.3%.
Gross margin for the quarter included equity based compensation expenses in the amount of point 1 million.
R&D expenses were 8.5 million dollar, including equity based compensation expenses is a lot of point $8 million.
Operating expenses for the quarter were 16.6 million dollar, including equity based compensation expenses is the amount of 2.2 million dollar and amortization of acquired intangible assets in the amount of point $1 million.
Financial income for the quarter was point $3 million.
Financial income for the quarter included 3 million dollar of exchange rate differences related to accounting standout related to long term into.
This exchange differences were excluded from our non-GAAP results for the quarter.
With no income tax for the quarter and our net loss was 1.1 million dollar, including equity based compensation expenses of 2.3 million dollar amortization of intangible assets of point 1 million dollar and Accenture has different sets of point Threemillion goal.
Non-GAAP net income excluding these items as I described was 1.6 million long.
GAAP loss per share for the quarter was five cents.
The negative impact of equity based compensation expenses of EPS was nine cents.
The negative impact of amortization of acquired intangible assets on the EPS was one cents.
And the negative impact of Accenture differences on the test was another one cents.
Non-GAAP diluted income per share per share. Excluding these items as I described was six cents pressure.
Places like ours report on form 8-K that refinery vessel. This morning for a full reconciliation of non-GAAP presentation to the got presentation.
Now turning to the balance sheet.
Our accounts receivable as and over the second quarter Twentytwenty decreased to $10.6 million compared to 13.9 million dollar event of the first quarter, representing a level of 34 days of sense.
Our inventories slightly increased from $8 million and over first quarter to 8.1 million hall, representing a level of 52 days.
Our total cash and marketable securities increased by $9.2 million during the second quarter and where the level of 137.5 million dollar as of June 30.
Our cash and marketable security position was affected by the form.
8 million dollar cash flows provided from operations.
I want to swim in the Gulf cash was used for purchase a 4% equipment.
$1.3 million cash flows received from exercise of employee stock options.
And point Fourmillion lower cash was used for repurchase of 29000 shares.
Point 6 million dollar was the increase in market value and amortization marketable securities.
And now.
Got to provide you with our projections for the third quarter of Twentytwenty.
Our third quarter projections, including the impact of equity based compensation expenses and acquisition related amortization expenses are as follows.
Revenues are expected to be the range of $24 million and $28 million.
We expect our gross margin to be in the range of 50% to 52%.
R&D expenses are expected to be in the range of 8 million dollar to $9 million.
Operating expenses are expected to be in the range of 14 million dollar to $17 million.
Financial income is expected to be in the range of 400002 six targets.
Taxes on income are expected to be approximately <unk> point 1 million dollar on a non-GAAP basis.
Also outstanding are expected to be in the range of 25 million shares to 25.5 inches.
Our projections include point $1 million of amortization of intangible assets.
And this project has also include the following the mall forecast as for equity based compensation.
The cost of goods sold includes approximately <unk> point 2 million dollar.
R&D expenses include point 9 million dollar to 1.1 million dollar and total operating expenses include 2.2 million dollar to 2.4 million.
Now, we'd like to open the lines for questions and answers operator please.
Thank you, Sir ladies and gentlemen relating to begin the question answer session. If you wish to ask your question. Please press star one on you're taking such a sad and wait until your name to be announced you can cancel their request at any time waste.
Once again.
I'd ask a question.
First question comes from the line of Jason Smith Schmidt of Lakes James. Please go ahead.
Yes.
Hey, guys. Thanks for taking my questions just want to start with the unified Tom segment have you seen any projects.
The second half of this year get pushed out and Relatedly I know in the comment you said you expect air recovery within this segment just curious if you actually have a line of sight to that recovery in Q4.
Hi, Jason Thanks for the question, maybe I'll start with the first part about the any projects being pushed out.
And you know were.
Sitting in this very interesting time were when everyone is trying to conduct the work from home and entering the hardware businesses of course, much harder to do and.
And so the general scheme of things, yes hub of projects to there are taking longer to materialize and to to get to the finish line just because.
In many areas in many companies people are doing it and trying to collaborate online.
But to a specific extent in the unified communication market I can tell you that.
A certain programs that we are we're competing for that.
That all been concluding in decided on these days has not really.
We're not really pushed out so actually on the contrary, we actually see a lot of efforts.
Two designed to redesign by you know a tier ones that we're working with whether these are based in America and in Europe that so we don't really see that.
Yes.
From the general scheme of things, yes hardware programs today are taking longer and this is on this is effects.
And now to via a second part of your question about a recovering so.
I believe that Q3 will mark a trough.
With respect to this a correction right. So as you can understand them and also from the print that we just saw this morning hitting.
We are at the in the financial crises and probably many industries are getting hit by.
This slowdown.
By that time out that everyone to a late in March and May be started resuming more normality in June.
And so.
I think that perhaps in the end markets that weakness was already sales in the second quarter as you can see from our results in a way we did not really see that in our second quarter. Because we are part of the supply chain and you know we're shipping to the manufacture other manufacturers chips with the brands, which then.
Shifts to the value added resellers up until it gets to the to the end customers.
And so aim.
In a way most likely the channel today has a lot of excess material mainly in the form of finished goods.
And we believe that general during the third quarter, both the unit volumes all the volumes that we will shift to the manufacturers plus the depletion of the existing stock we signaled the trough from our perspective, maybe it's different when you look at our customers or the value of.
At reserves or or the other links in the supply chain and I believe that we will start to see some recovery in the fourth quarter I cannot tell you exactly by almost because we don't really have a good visibility. It what we do know and this is a fact, everyone is making a lot more phone calls.
Everyone is participating in a lot more meetings.
And.
Largest and most important common denominator to all of that his voice.
And high voice quality.
And reliable link.
And to here and to be heard loud and clear is going to be a very important part of the workforce and.
And in continuing to to work and the.
Part of a over business.
So we don't see is that as this weakness as any signal of anything that is about to come I think that what we're seeing is.
Reaction by cutting budget I see that is expected to IP budgets are expected decline this year by.
Mid teens to maybe 20%.
And I think that this is a very natural step that the companies that are in a hard hit industries, probably cutting more than others, but I think that.
Everything around this communication has just become a lot more valuable an important in carrying our our professional.
Mark.
So I think that we are from where we see it we believe that a recoveries coming the we will see a rebound. We're also going to see a lot more investments in new products and we're starting to see that and.
A lot more innovative unified communication devices that we freed the work from home style.
A using both the audio and video and a lot of sophisticated audio.
And that can really complement you know the video tracking and AI. So I think the form for where we see it. We are we're optimistic about the full rebound and that this business will continue to be a very important part.
Of our revenues going forward than deal. We also optimistic about our ability to continue in lead and you know when more designs.
And improve our market situation.
Okay.
I appreciate that color.
Did I hear correctly, you expect our record smartphone user revenue in Q3 I think.
Historical high with sort of.
5.3 million.
Yes, yes, so we do expect a record quarter.
In the third quarter of this year.
That.
It will be.
Our child and then what.
The previous record that as you stated correctly 5.3 in the second quarter of last year, yes.
Okay perfect. Thanks, a lot guys.
Thank you and your next question comes from the line US much from say of Cowen. Please go ahead.
That's your line is open please can you check you're not talking each.
Hey, guys, sorry about that.
Good morning, everybody and good afternoon over there.
Oh for I wanted to talking about I.
I guess unified communications or avoid business, obviously, you guys or kind of ramp a big product with Cisco.
This year and I, just wonder if you could give us a little more context as to.
What you're seeing and the trends there that guidance seems to imply that that business is down pretty materially.
Timber quarter, which I guess isn't a surprise given everything that's going on.
And how you might be shifting resources within the company too.
Or make up for that from our work from home headset.
In in house sales to support the workforce et cetera.
Just strategies are trying to balance those two as I noted.
Fluid situation. Thank you.
Hi, Matt and thanks, so with respect to be unified communications and the a major design wins that.
We won a last year around in a way started to ship the liquidated during 19, but to a much greater extent in Q1 and Q2 of this year and.
This is by far way.
The most valuable and design I think in in the industry.
We did achieve I think a full run rate or very close to full run rate in Q1 in Q2. However.
As we've indicated and very much aligned with the trend line that we see in Q3 in Q3, we're going to see a major.
A decline in the demand for for that product, but I think it said, it's it's a much wider weakness. So it's not just about one company a one OEM you know the same weakness existing in our Chinese customers that are no selling voice products in the American ones in the U.
In the European ones, it's a pretty much across the board and across the different product. So it from IP phones that usually find them on the desk. However, we know that a lot of people did take these IP phones in Reno told them in their home offices in order to have the access and the voice quality. This.
Speakerphone capabilities and all of the good things that you get with these devices, but we see it much more broadly we seek in conferencing solutions.
With video endpoint. So I think it's a broad it's really a broad based type of a correction I would call it to.
Coming from you know the.
The time that we're in right. After one of the there was a crisis is that that we've seen and you know if we attributed mainly to these.
I'd budget costs, and the fact that offices are shutdown, mostly or partially the usage of these offices the.
A much less so than it used to be and you know up until we see the gradual.
A shift back to the office to hop in these industries. The is the demand we continue to be lower than than average.
Now with respect to the second question so.
When we look at.
The.
Work from home side, and the fact that we are seeing a significant growth in devices that are going to warm offices and mainly headset.
Hey, but also personnel conferencing solution et cetera, a we do have today a lot of products and civil designs that are that are supporting that from a best in class.
Assets, whether these are AMC headsets and that could that came along with the sound chip acquisitions, whether these are the new through wireless.
Yes.
Within C.
So we're definitely shifting a lot of the investments.
And has been doing so also before I am in the cry. The crisis started into the here Bill domain and into our building our high quality and advanced Cody capabilities with a.
A within C.
And to really be little the best value proposition is from at the technological perspective to the headset market. This is point number one point number two were engaged today in many different over these new programs that are in a way bill for work from home.
So these are kind of collaboration endpoints inexpensive camera an array of microphones basically a enable as really a.
It is camera tracking and in all the complementary capabilities coming from regional falsely the audio and voice.
To conduct high quality voice calls the than when the person or the people sitting from afar.
And you know providing a really cannot.
Great user experience. So were also a today a busy in supporting our customers to to be these type of the of devices and so I think that the market that we're in a is evolving and changing and number one number two has gone through at a certain correct.
Action, giving the much lower economic activity that is is hitting probably a lot of industries and companies. Unfortunately.
So Matt I hope that answered the question.
No it and it did.
Thanks, Thanks, very much ofer.
I think chart to follow up.
On the moving pieces with.
The voice business on you guys had talked about that I guess historically as being a really strong gross margin franchise.
And with it down in the and the third quarter obvious.
I guess I was expecting the gross margin guidance to move into same direction.
But it looks really strong so maybe you could just.
Step back and remind us of gross margin.
On a relative basis by by segment of your business and has anything changed there on a relative basis in the last few quarters that.
But explain how margins are up.
Business potentially down thank you.
Yes, sure. So first you're right the unified commercial doesn't have like a relatively high gross margins, but there is like can you. Please in these positive. This is as acquisition will say assumption that we announced about a month to month ago and that does colleagues I think we also discussed is when we announced acquisitions at this does come.
Like with higher gross margin for the portion of the businesses. This is intense so when you're way as they somehow compensates for for the relative reduction in revenues identified communication. This is one thing. The other thing is as often mentioned earlier. This is the smart horse it's more voice also in.
As high margins at a higher than corporate average and again expecting a record number of revenues coming from smart voice in the third quarter. This also drives gross margins.
And then where it was in the second quarter more or less of the levers on the first quarter, which is again better than where we will in 2019.
Thanks, very much guys appreciate it.
Thank you and your next question comes from the line Suji Desilva of capital. Please go ahead.
Hi, all for hydro so are the couple of segment questions. The this service provider segment. The tech demand, you're seeing and gateways is that something that the growth you're seeing here you expect to be steady over the next few quarters or will that be lumpy.
Hi, Suji I think that you know, where maybe we kind of touched the home gateway side. So I think you are seeing from a lot of operators that are reporting that they do see very nice.
Strength in broadband mainly by customers upgrading ARPU increasing.
In today's world, where a lot of.
The work is done from warm and broadband is the infrastructure to enable you to work from home.
And you do need a better service and when you think about the different services that use voice is definitely one of them.
And so I think that.
The one plus one a really means that a lot of these whos providers are looking for ways to deliver better services. So it's not just about giving you any success sport, meaning a telephone report at the Gateway a bottom also to deliver you are really high quality of.
So this meaning if say for instance, where we're doing a a microsoft teams as room, a webex score a we should be enjoying a in a wide band wideband audio and you're used to is that ceilings. So way why would you settle on that on a narrow band a core when a with the deck.
Integrate indicate to you get even higher quality up to Super Wideband of course, assuming.
The other parties can support that.
So I think that it's really about their maxing out and enabling a much better user experience. So we are seeing the fairly strong trend that I think we already started talking about in the first quarter that we see.
More and more service providers that thing rethinking not only not only broadband, but also voice strategies and launching new gateways that can deliver and support a much better quality of service and in a way to do not trying to differentiate from the others. The don't provide that and you know trying to kind of churn a more more subscribers.
Come their way.
So this is a very clear it directions that we see I would tell you across the board were actually very surprised by the momentum, we're not expecting that and them and it's a really nice to see that service providers can act that quickly.
Hi.
With respect to the coldest front, which is more of a retail angle completely retail angle.
As there is much higher utilization of land lines.
People used to have these said there were.
At home and use them whenever you you needed to.
But now we spent a lot more time at home.
There is social distancing in place, we want to call a want to make calls.
Not everyone can have a perfect call with our mobile phone or using Wi Fi and many.
Do fine the land line as the best way to conduct length, because a where you know regular line never disconnects people don't hear you choppy. So the quality of service is steady and consistent and there we do see.
Around or an increased level of demand and we're seeing that both in there I think we spoke about it in when we reported Q1, we're speaking about it now.
And it does not mean, the cordless phone suddenly emerges to become a growth category, but it surely indicates at least in the.
This period of time that the.
Decline has less than that we're seeing I would see much slower decline.
With respect to the pace of the course telephony market.
And I think that.
We expect that to continue I cannot tell you. This is going to be sustainable or not I believe that at one point, we should [laughter] and we hope to resume.
The nor the old normal.
And then you know people, perhaps will remember that this is a great way too to have and conduct causing the qualities is terrific.
But the but I'm not sure how sustainable that is let's say for more than I would say a year or two but.
But so far so good to win Indecently helps to see that the declines have softened.
Okay, and staying on sort of the smart home arena. The these products like the Facebook portals, Wisconsin's hardware coming out what's the size of this addressable category and where are you, placing those revenues in your in your segments are some clear on that and.
And what what are the side there were like market traction here is it's going to be material market do you guys.
And.
Yes. Thank you so we're talking about these new.
Imaging product.
At our current specifically for this work from home environment, where were you need the background, where you need the camera to follow you where you know you want to appear as as best as you can form as video, but also from an audio perspective, you want to hear well and you want to be.
Here, the herd really well.
And for that you need a lot of tracking it like a very sophisticated beamformer tells you need a superb acoustic echo cancellation.
And you need all of like noise cleansing in order to mask out any any background noise.
So these products are now in design early may Paul So early products were launch.
There are selling and they're selling well, but they're not I cannot call them, a big volatile of rows of our revenues whether these are in the unified communication part or the smart will start.
I would say that a I think this for the future. Most of these products are going to be part of the unified communication a product line assuming that they take the algorithms that belong to the unified communication front.
The Facebook total disease actually part of our smart voice, but that doesn't mean that with the any new product that we that will be launched that will be the cake.
And I do expect that to become.
A category, especially if work from home continues and.
From my perspective, it will continue and so.
As a time elapses I think that we see more and more people substituting the quality that they get from their PC or they are I pad or.
The ways that they are doing the calls today to something that we deliver a much more robust experience and I think that this is what would you need we need to accomplish things. They are to work in them and you know you with it.
I would say much less travel and the need to.
A substitute the face to face with kind of virtual with the virtual domain and this is mandatory and this is I think the way to go and so I do believe that it will become a meaningful category and I would suspect that it could reach I would say one.
The quarter or even higher than that with respect to the overall mix of products in the U.S the market.
Okay. Thanks for the color.
Thank you.
Thank you once again, ladies and gentlemen, if you wish to ask your question. Please press star one on your telephone keypad and late state your name to be announced.
Next question comes on the line of Charlie.
Could you Securities. Please go ahead.
Yes. Thank you for taking my questions just sticking on unified Communications Ofer I Wonder if you had a view into what the true consumption trends are right now obviously, you're up 15% in Q2 and I think.
It sounds like from your commentary unlikely that the market was.
Consuming at that rate and obviously.
It looks from your guys like maybe you'll be below what the actual consumption and so I wondered maybe you could just level set us on.
People are working from home what those consumption trends look like as we sort of think about how you emerge from this another follow up.
Yes, it thanks Joanne.
Good question. So we're also scratching our head to figure out there these numbers, but from what we see indeed the consumption. So what we will ship out in the third quarter to our customers in our view is way less than would be end market is using and consuming in terms of purchases.
And as you rightfully said it is makes all the low a logical sense that also what we shipped in Q2.
And perhaps also in Q1 may be overstating or a much more than what the market really consumes because you know in March we did have a this in a period where end products will not purchased in China, because cope with it and in late March into April.
In May we had these global Lockdowns, which I would assume that also enterprises will not really you know pushing the gas pedal and installing these you'll see it devices in enterprises and at home.
And right now in a way from an end market perspective, we actually should see a recovery, which we are not seeing in our Q3, because we are just at the beginning of that food chains, where we shift the the the chipsets into the manufacturer that then ships to the brand that then chips to the value added resellers.
Then go to the end customers.
So I would suspect that the market is recovering right now the end market because we do see a lot more offices being open and I think that some of the industries are starting to two to recover and and resume operation.
For the year, you know from what at least we see in terms of the University spending budgets as I said in around mid teens type of decline this year.
You know probably if we had to kind of tick again, so I would say.
We should be down there may be you know in the Twentys type of a decline for this year. This will be my best estimate a full for all you see product set for this year.
However, as I indicated for the fourth quarter because.
Of the throw that we're in a it is very hard to get the visibility on how a Q4 would look like if possible. We're very early and you take around eight weeks a lead time you can understand the through it is still very little in the back also under normal circumstances, so the visibility.
I would say is in.
No there or not that clear at the moment and I think that.
They will have than much better idea.
When we report next MIM in late October and November I Hope that covers your question Charlie.
No. Thank you for all the color so.
Sticking on this point.
You made a lot of progress with smart voice on tablets, and then you mentioned, there's going to be these discrete products for kind of work from home associated with zoom and others.
I Wonder many of US are doing our calls and commerce is just on Rpcs today.
You remind us if you have an exposure on the PC or for presents an opportunity for you as more people just use that effectively as their communication tool.
And.
So I do think too we do have exposure. So we do have engagements on the PC front, as well and I and actually do believe that.
The fact that.
I would assume that also PC vendors with once you know it is share of this market, which today. They have just by the fact that people are using their Pcs to launch these collaboration tools and what's what's more simple than to the speakers and the mikes already connects the headset to it.
So I do believe that this actually presents a golden opportunity for us in the PC space.
Because when you compare the voice quality that you can get.
And also the video quality that you can get in a PC towards the able to get in China in a proper USI endpoints like let's say it both LTC or one of the new zoom products et cetera.
There is a world of difference in terms of the quality and in terms of the you know there both from image and two two old you on voice and a lot of that could also find its way into in an integration into the PC domain and with respect to ignore applying all of these algorithms.
Putting.
These voice capabilities in the video side.
So a we will see I think a Pcs also changing the PC domain has been chipping us say a these products for many years, where the camera was there. The microphones was there are the speakers with our but is no one intended and visit.
Online meetings to two to be.
The majority.
Overall work and then ill meetings and I think that now is there is this opportunity to upgrade.
And it both these devices as well as the the new hardware that a lot of the unified communication companies are going to launch or some of them already started launching.
Great. Thanks, so much.
Thank you and your next question comes on the line of Ali switch from enough Needham and company. Please go ahead.
This is already taken the question for Rajiv kill.
So first wanted to talk about Souchet, how has the integration other than progressing so far and I think you mentioned that you expect to realize the Qs increase and Tim.
Kind of walk us through when you expect to realize these increases so thank you.
Hi, everyone and thanks for the questions. So with respect to some chip acquisition and a we did this transaction will sign them in June a closed.
In early July and today.
The some chip team is an integral part of the DSP group team and you know, they're coming up to speed, despite a or b and travel restrictions and.
The other restrictions and I think thats going all the teams have been working for the last a two plus years together.
On many programs a one of which we spoke about in today's call. This is the Panasonic and the techniques.
To wireless a barge within see that are getting rave reviews, and getting compare to the top notch in the market.
And I think they will see and they will fare very nice success, we already start to see that.
And so I think we're very excited about a combining the two skillset together and forming a.
Value add with respect to acoustic design as well as analog design and semi conductor.
Together with our capabilities around the algorithm, which a we'd be very different from the competitive landscape and in a way customers will be able to get from us.
All the support that they need even though that our first to market with the within see those that has never really done in seen actually want to deliver best in class and see can get from DSPG with the collaborations will sound triple the expertise they from the acoustic design up to the production.
In line testing to enable those customers to realize not only a great design and great quality, but also the right yields and the right in a quality is when it comes to a manufacturing effectiveness.
So I think that the on that we're very happy.
With respect to the Sam that that I indicated in my prepared comments.
I would say that so far the some that we've indicated you can sit in the investor presentation, a when you.
When you multiply the unit volume with the I would say average selling prices you would get tool.
Tom of about.
Three or so billion dollars and the some that we're talking about right now is a today at least that if not much higher and it is built.
It is built based on the fact that.
The world is going to move a form this stereo units.
Which we've seen over the past couple of years.
It's way a much a logical a sum that will include a lot of these two wireless products that are going to aim it take and adopt a lot more technologies Inc. AMC is one of them, but this is just the beginning.
There will be a lot of intelligence that will be incorporated into these assets to understand you will environment.
To deliver you a lot of additional services to alert you.
To understand a youre hearing deficiency and six than in a lot of a these new in smart features using the elements that are enabling Nancy.
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And so we believe that in.
With where we're heading the if we say in our presentation that by 20 to 25, we will address some of about a 6.5 billion.
We believe that the that in the he'll have been market will give us a at least that in terms of some value but of course as we also move along.
We're also going to incorporate a lot more technologies into our here are the proposition. So that we are a one stop shop.
For the here Bill domain from the entry level to the very high end.
But of course, the thing that we will mainly compete for kind of the flagship the highest quality. It that you can find in the market. This is where we're heading I think that most of the market from a unit and also from a revenue perspective will be skew towards the very high end and I think that this at least it trend is clear.
Today, when you look at the market shares of the over the different companies into two waters domain people want quality people want more advanced technology and they want smallest to smaller headsets. They want them to last longer and I think that this is exactly the direction the tweel sharpening with respect to our offering.
In the mobile market.
Okay. Thank you and just a quick follow up so regarding your we adoption can you comment on your design win pipeline what trends you've been saying thank you.
Yes, absolutely so and as we discussed we're seeing a ulive being adopted much more widely today in Europe.
And if you look at it some of the commentary we made last quarter most with this quarter. This is exactly.
What we see there's a lot more realization that the technology. It does provide you a full infrastructure. If we're doing internet of things applications and then can deliver both the date of voice audio streaming full band and also imaging using one hour, which is you lean and delay.
Referring you the best propagation in an indoor environment, the best strange them interference free.
And I think that.
All of that also comes at very low power consumption. So I think that.
Okay. We are seeing a lot more in a penetration and also interest in newly product.
And this comes both from Smart home.
It providers as well as the security side in which we believe that you really we play a key role in the future. They already started with the launch of Blue by city, but this is just the beginning so we we definitely have is very high hopes and we are great believers in the role that too.
We will play a both in America as well as in Europe.
Thank you.
Thank you can once again, it's still a one to ask a question.
They all know say the questions coming free at this time I would like John Nicols Co set your Terry Chen Thank you.
Thank you for listening in prior interestingly it will we look forward to report that feeling 19 days.
Thank you, ladies and gentlemen that does conclude your content school such a day. Thank you. So participating in you may now disconnect.
Yeah.
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