Q1 2021 Dsp Group Inc Earnings Call
[music].
Welcome to the DSP group for first quarter 2021, and in this conference call. Please continue to stand by your conference will begin in approximately three minutes.
[music].
Good day, and thank you for standing by walking through the DSP group first quarter 2021, and in this conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question Joe and the session.
I need to press star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
And I like to hand, the conference over to speak its day, Kelly Chen Chief Business Officer. Please go ahead.
Thank you Heidi wood.
Good morning, ladies and gentlemen, I'm, Sally Chan Chief business Officer, and DSP group will come to our first quarter 2021 earnings conference call on today's call and we also have we lost Mr. Ofer, <unk>, Chief Executive Officer, and Mr. Dror Levy Chief Financial Officer before.
And we begin I would like to remind us and during this conference call, we will be making forward looking statements about our financial guidance for the second quarter of 2021 hour, believing the strategic importance and long term growth potential of our audio voice and connectivity technologies, which will become worse.
And shadows and uniquely position us to take advantage of strength stemming from the pandemic the recovery of our unified Communications segment and Nox.
The museum and both the solid demand for cordless phones and adoption of victory really and we're a unified communications smart voice and smart home market verticals as well as engagement pipeline and customer product launches all swiech underlying our believing a successful 2021 we assume no.
And to update the forward looking statement for more information about the risks and factors that could affect the forward looking statements may be ring. Please refer to the risk factors discussed in our 'twenty 'twenty, four and 10-K and and I never see theory sportswear find now I would like to turn the call over to offer a licking our chief.
Executive Officer Ofer the floor is yours.
Thank you Sally good.
Everyone and thanks for joining us today.
I hope that you have the opportunity to read our press release, which we distributed earlier this morning.
I would like to begin this call by reviewing the highlights of the first quarter.
And provide context for our outlook.
Growth, while Tony will provide you with an update on the progression of our business plan.
Followed by Dror, who will discuss our financial results for the first quarter and provide our projections for the second quarter.
Yes.
We are excited with our financial performance for the first quarter of 2021.
Which exceeded our guidance on most financial metrics.
We ended the quarter with revenues of $32 $6 million above the midpoint of our guidance range.
First quarter revenues grew by 16% year over year and by 2% sequentially.
These strong results were driven by exceptional demand for voice centric products across our different product categories.
And in particular and robust demand.
And our Io weighted businesses, which delivered despite supply shortages and record high revenues, reaching $28 million, representing 64% of total revenues.
Ah you weight, the revenues grew by 14% year over year and by 15% sequentially.
During the first quarter, we continued to make solid progress executing on.
On the key drivers of our business that should be the centerpiece of our continued success in the quarters and years ahead.
And the digitalization of everything markedly accelerated by the pandemic has stimulated innovation, while creating new models for work education and interaction.
And this trend highlights the strategic importance and long term value of DSP groups audio voice and connectivity technologies.
By leveraging on our core competence.
And expertise we have developed a world class technology portfolio.
That is uniquely positioned to play a pivotal role in three market verticals, namely unified communication Smart voice and smart home.
And unified communication.
During the past year to major trend had been merits.
These are essential to sustain business continuity and enhance workplace productivity and the enterprise.
The first is work from home and the second is virtue and collaboration.
These two trends show no signs of losing momentum.
Even as business is gradually transition back to the office.
Both trends are promising catalysts for stimulating the future growth of our U C franchise.
While the voice user interface and voice.
Of course user interface and became mainstream through its ubiquitous adoption across different application. In addition.
More local intelligence and real time processing.
Melissa rated edge AI usage.
The strength to stimulate demand and differentiation.
Our smartphone solutions, combining ultra low power with best in class performance.
Iot connectivity solutions, we have made an excellent entry into the security market.
And with a leading market participants realizing and benefiting from the unmatched value proposition presented by Dr. Julie.
Opening up for DSP group, a large and promising market segment. In addition.
The large installed base and.
And continued strong demand and predict Julian and enable the home gateways.
<unk>, Sweden to play an even bigger role and Iot.
We're excited about the instrumental role our technologies and solutions on a per hour.
Playing and addressing these emerging needs.
As reflected by robust demand across all over our I O 80 businesses, thereby driving and improved product mix and propelling our GAAP and non-GAAP gross margin to a record of 52% and 53, 7% respectively.
Moreover, in order to further expand and enhance our leadership role in voice and audio technologies and uncover the burgeoning opportunities introduced by the decentralization of everything we are focusing our R&D investments on developing and innovating solutions that.
Combined.
Intelligent sensing.
Leveraging Hai audio bill processing and smarter connectivity to offer advanced use cases, and differentiated technologies that will further expand our market reach.
I'm happy to share with you that during the first quarter, we inaugurated a state of the art.
<unk> and AI innovation and testing lab in Germany.
The lab is led by a world class team of audio and sound experts, bringing unique knowhow in voice and audio processing.
Well as algorithm development, including and speaker and non linear processing active noise cancellation and rapid prototyping to meet stringent customer expects.
So the lab also includes a dedicated automotive research and test that that allows us to address the specific needs of this market and collaborate with customers.
To meet their crops and in cabin and audio and voice user interface and active noise cancellation and requirement.
These are exciting times and DSP group.
And we expect the solid business momentum to continue in the second quarter.
And we're taking into account growth.
Demand across our different product line and considering the ongoing supply chain constraints, we expect to generate strong revenue growth.
For the second quarter and for revenues to be and the range of 34 million to $36 million.
The midpoint of this guidance range implies a year over year revenue growth of 24%.
We also expect debt, our Iot businesses will outperform and.
And drive our revenue growth in the second quarter.
And to account for 67% to 72% of our total revenues.
To summarize.
Right.
This shift towards voice and voice centric future is driving demand and growth for DSP groups products and technology.
We're thrilled about our business momentum and we're confident that our leadership in voice AI and Iot technologies and solutions will determine our future success.
Coming on the heels of a strong pipeline of design wins with a record number of new customers that are expected to contribute to solid performance and revenue growth this year.
Now I'd like to turn the call over to Charlie to discuss our performance in each of the products segments tally the free the floor is yours.
You have here I would like to begin by providing you with an update on our smart voice business.
And the quarter, we generated revenue of approximately $6 million from sales of smart voice products, reflecting a year over year increase of 50% and a sequential increase of 19%.
These results were fueled by increased demand for devices, incorporating voice user interfaces.
Underscoring shifting and consumer preference in favor of voice based interfaces.
We expect and this momentum to accelerate with the adoption of smart edge AI capabilities.
Further enhance the user experience by allowing greater flexibility accuracy and reliability.
This group is playing an instrumental and Aurora in addressing these needs with our smart voice portfolio and our edgy I suite of algorithms, which together are already powering a broad array of applications and products.
Moreover, during the quarter, we continued to expand our product reach and engagement with leading consumer electronic brands and.
Demonstrated by the following achievements.
In the entertainment domain, and leading TV and monitor and manufacturer chose our smart voice solution for smart display offering for bus and flow less far field voice control and activation as it allows the system to detect and respond to users issue income.
On from across the room.
In the tablet PC market and there's a record activity in the design and innovation of products leveraging our smart voice solution to deliver nature is robust and I quality far field voice activation with two way voice capabilities during the quarter Lenovo.
And Tcl and launched new tablet demand is leveraging our solutions supporting Googles Hot work.
Shipments coupled with the strong momentum and voice user interface and Ajay I position on where smart voice franchise is it people time and growth driver.
And developing a broad array of exciting and new application.
Moving on to the unified Communications segment.
And the first quarter, we generated revenues of $10 million, representing a year over year decrease of 3% and a sequential increase of 21%.
We are excited about the thrusters and expected market recovery, which began in Q4 2020 following the sudden shift towards work from home.
The market to revive and is propelled by two underlying trends there.
The first one is the comeback of the meeting room and Roger on a return to office spaces.
As businesses and education and institutes and prepare for further returned to Inc. Person interactions meaningful technology investments should follow to accommodate on Prem space to better cope with new hybrid working and learning and more of this.
Which rely heavily on video conferencing and other collaboration tools.
Connect with remote employees and geographic geographically dispersed teams.
In parallel both pandemic IDC estimates that the number of remote employees will double from 2019.
And this employees are likely to go into the office only two or three days a week and within the next six to 10 months is it true hybrid work force should emerge.
Such creating a seamless digitized parity if crush on particularly with respect to voice and video quality and ensuring that free mode and work from home employees and the.
Same set of connectivity and productivity tools is there in office counterparts.
This peer group is at the forefront of addressing these technology developments and is well positioned to intersect with these market trends through our best in class product offering for unified communications and points as well and portable terminals and headsets Iot voice user interface.
And Ajay I D.
Since we have secured during the first quarter of 2021 demonstrates our leadership in this key area for example, and.
Pier, one unified communications, Brent upgraded its dictates it with DSP group proprietary beat protection technology for the most reliable narrowband and wideband audio communication in dense wireless deployments, such as offices and even call centers.
And leading U S based POC brand chose our D V F platform for its next generation IP phones and.
And nowhere and coronary chose our voice communication engine for hybrid cooperation and point.
Most employees working from home take video of course, using a variety of popular platform on any given day, regardless of the platform voice quality is critical on such calls.
Video can become distorted or disappear yeah. The Cork and proceed but if voice quality and compromised course quickly come to and and must be rescheduled and best clothing delayed it's worth resulting in lost opportunities.
We remain highly confident in the continued recovery and growth prospects of this segment propelled by the market dynamics, we described coupled with remarkable pipeline of engagement and pending opportunities.
Now turning to our smart home product line.
During the first quarter, we delivered record revenues.
$4.8 million, representing a year over ear increase of 22%, while flattish on a sequential basis.
We are excited about the successful penetration of the UL and technology into the security market.
And during the quarter, we continued to enhance and strength and do you really position in this segment and are excited to share that and additional security service provider chose you will eat smart security offering.
And you will leave advantages include superior range interference free spectrum band and inherently reliable two way voice and audio support.
And all of these are crucial for security products and.
Reflected by the record number of security service providers in Europe, and North America, the trick organize day unique values for ridicule and knee offering.
Moreover on.
Or do you really technology is embedded in more than 50 million broadband gateways globally and.
Deliver higher quality of service more reliable communication and full home coverage and is ideally suited for carrying Iot and two way voice services. We are extremely excited about the newly launched Alexa and EBIT cordless handset, they British telecom this quarter and custom.
And I can simply stop the Alexa button and ask to listen to the news check the weather and controlled smart devices around the home.
On the heels on the increased usage of course at home and innovative use cases introduced by British Telecom. We believe this offering we prep and Marina weighted offerings by service providers to support their rising needs in the changing paradigm.
Additional exempted for use case, the leverage debt to elite on parallel technical merits.
<unk> door benefit was launched this quarter by vertical for the Japanese market and all.
For two way voice based on our debt to a lead technology.
To summarize the momentum behind debt to elite technology is strong and we expect these trends coupled with our growing engagement pipeline too few and acceleration of fewer Lee short and long term growth prospects.
And now for an update on the cordless phone market.
During the first quarter, we continued to experience solid demand for cordless product.
Revenues increased by 18% year over year, while declining 14% sequentially.
From home lifestyle are driving increased usage and voice, calling in all its forms propelling demand for cordless phone and we expect cordless revenues to remain at similar levels in the next quarter.
Now I would like to turn the call over to Dror to provide you with financial results and second quarter projections.
Thank you Sally.
I will now review the income statement for the first quarter of 2021 from top to bottom.
For each line item I will provide the U S. GAAP results as well as the equity based compensation expenses included in this line item and the expenses related to previous acquisitions.
Our revenues for the first quarter of 2021.
$32 6 million.
Gross margin for the quarter was 52%.
Gross margin for the quarter included equity based compensation expenses and then.
Out of <unk>, 1 million and amortization of intangible assets related to sound chip acquisition and the.
The amount of <unk> $1 million.
R&D expenses were $10 5 million, including $1 2 million of equity based compensation expenses and amortization expenses related to the acquisition.
Operating expenses for the quarter were $18 8 million, including equity based compensation expenses and the.
And out of $2 4 million and amortization expenses related to acquisition and the amount of $6 million.
Operating expenses on a pro forma basis, excluding these items mentioned above.
<unk> $15.8 million.
Financial income for the quarter was $6 million.
Financial income for the quarter included <unk> $4 million of exchange rate differences related to accounting Starbucks related to long term leases.
These exchange rate differences were excluded from our pro forma basis, and the financial income on a non-GAAP basis.
$12 million.
Income tax for the quarter was <unk> 2 million.
Income tax for the quarter included benefits on deferred taxes related to intangible assets and equity based compensation and the amount of <unk> 1 million.
The U S. GAAP net loss was $1 3 million.
Including equity based compensation expenses of $2 $5 million on.
Monetization expenses related to previous acquisitions of $7 million.
Income from exchange rate differences and the amount of <unk> 4 million and <unk>.
Tax benefits related to deferred taxes, and the amount of <unk> 1 million.
The non-GAAP net income excluding these items.
One $3 million for the quarter.
GAAP loss per share for the quarter was six 6%.
The negative impact of equity based compensation on the EPS was 10 cents.
And the negative impact of the amortization of acquired intangible assets was three.
And then.
The positive income on this agenda differences and vps.
Two things.
Non-GAAP diluted income per share excluding items and describe was five four reported.
And they see the current report on form 8-K, we filed with FERC. This morning for a fourth one affiliation of the non-GAAP is in addition to the Gulf presentation.
Now turning to the buttons.
Our accounts receivable event on the first quarter of 2021 and three.
Weighted to $11 2 million compared to $11 million and at the end of the fourth quarter of 'twenty growth.
Representing a level of 31 days on sales.
Inventories decreased from $9 1 million.
And the end of the fourth quarter of 2020 to seven 9 million, representing a level of 46 days.
Our cash and marketable securities increased by $45 million and do the first quarter and what is the level of $129 1 million as of March 31st 2021.
Our cash and marketable securities position during the quarter was affected by the phone line.
We generated $8 million of cash from operations.
<unk> 5 million of cash was used for first and support and equipment.
$8 million cash was provided by exercise of stock options and <unk> $6 million was the changed market price and amortization of marketable securities.
Now I would like to provide you with our projections for the second quarter of 2021.
Our second quarter projections, including free influx of equity based compensation expenses and acquisition related amortization expenses are as follows.
Our revenues are expected to be on the range of 34 million to.
And $36 million.
We expect GAAP gross margin to be on the range of 52% to 53%.
R&D expenses are expected to be and the range of 10 million to 11 5 million.
Operating expenses are expected to be and the range of 18 million to $21 million.
Financial income is expected to be on the range of two on $1000 to 300000.
And the taxes on income are expected to be approximately $400000 to $500000.
Oh sure on spending on a diluted basis.
Expect it to be 25 to 26 million shares.
This second quarter projections include <unk> 4 million Ofer.
What is there something tangible assets.
And these projections also include the following demand focus debt for equity based compensation expenses and intangible assets related to this acquisition.
Cost of goods include approximately $3 million.
R&D expenses include one two to $1 $4 million.
Sales and marketing point $8 million to $1 billion and G&A includes $7 million to $90 million.
Now I would like to open up the line for questions and answer.
Operator please.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
And Joe Your question press, the pound or Husky, please standby, while we compile the Q&A roster.
Yeah.
Your first question comes from the line of Jason Smith from Lake Street. Please ask your question.
Hey, guys. Thanks for taking my questions just wanted to start and if you saw any supply constraints and Q1, and then if you're baking in to see any sort of headwinds from those constraints here in Q2.
Hi, Jason and.
So with regard to supply chain constraints. So as we did the reported last time and this time there are definitely supply chain constraints and we.
And do see all of difficulty to supply and serve the demand that we're seeing so with demand is robust but is.
Somewhat impacted by our ability to deliver products and we do have a very strong backlog, but but unable to deliver all of it.
So we continue to see that.
We did see that and the first quarter, we are continuing to experience that in the second quarter.
And for now it does feel debt.
For the time being these supply chain constraints that are coming from.
And the foundries.
Foundry side as well as the <unk>.
Assembly testing areas.
And will remain with us.
<unk> is still the end of the second quarter.
Yeah.
Okay. That's helpful. And then just looking at the Smart voice segment as sorry, but your edge AI suite becomes a bigger part of the portfolio how should we think about.
That impact on pricing is that really just going to offset traditional ASP erosion or will you guys be able to see sort of a lift to overall pricing within that segment.
I think that the latter is probably the right way to model. It so I think that debt.
With the.
The adoption of our suite of Hai both.
Silicon as well as the company, Inc. Suite of algorithms, we will see.
The premium or basically content add to it.
Average selling prices.
We've already actually started selling and shipping is such products too.
Tier one Oems and.
And many of the U S market and.
And are seeing differently the benefit of the bundling both sage AI software and hardware.
Okay ill jump back into queue. Thanks, a lot.
Thank you Jason.
Thank you and your next question comes from the line of Matt Ramsay from Cowen. Please ask your question.
Thank you very much good morning, and good afternoon.
<unk>.
Ofer I Wonder if you might talk a little bit about what you and and her team are planning for.
Seasonality into the back half of the year given.
What's going on with COVID-19 and and all the supply chain issues I don't know that there is anything is typical seasonality for for anybody right now but.
Obviously, a good bit of upside to your second quarter guidance. So congrats for that and I just wanted to see about how youre thinking and a different business segments of that continuing into the second half of the year or if theres any sort of one time pops and and the second quarter numbers. Thanks.
Yes.
So thank you Matt for the question so with respect to the back half. So what we can see today is that we have.
Because of the backlog because of.
Everyone's aware about this on the supply chain constrains and.
We do see the difficulty to secure.
Components and <unk>.
And also a chipset and.
And anything related to the electronic arena.
And so right now the demand visibility is fairly robust low customers are willing to provide.
And a very long lead times, given the situation that we're in which is really unprecedented from and at least my point of view.
And what does remain.
And the blurry and uncertain is the amount of supply and it does depend on how the industry.
Will it trend in the back half of this year, whether we will see an easement.
And that the supply the severe supply chain club that we started seeing and the first quarter and also during the second.
We continue to see and experience in the second quarter.
We see some sort of an easement and a gradual return to normality I can tell you from conversation with some of the supply chain vendors. They do see that Inc.
And the constraints continuing into the back half, but but I do hope that debt is some easements and will be will be seen.
From a demand standpoint, as I said.
And the supply right now is uncertain and so I cannot really comment about how the back half would look like but from a demand standpoint, we continue to see fairly robust trends.
With the.
A product line continuing to.
And.
Accelerate in terms of in terms of growth. So we're very excited about the trends that we're seeing.
But of course, a lot of it will depend on our ability to secure capacity to deliver.
Based on the based on Visa Inc.
And the demand pattern that we that we see.
And <unk>.
Everything that we've provided in the third comment it can tell you that we feel.
It's very good in this environment, we believe that the penetration into it.
The security and market and the smartphone segment.
Delivering for us it fresh.
On a greenfield for growth.
We see it.
And the addition of Hai and ANC and also on new investment to further.
Proliferate our capabilities in the smart voice space and the ability to address.
More and.
And markets as well as.
And it extends the content that we're selling.
And I think that the same is also true for the unified Communications segment, which just hit a trough.
In the third quarter of last year, and you can see the level of gradual improvement and we believe that also this continues into the back half, but as I said a lot of what we at the end of the day be able to report does depend on our ability to fulfill it.
Demand to our supply chain partners.
Got it.
Appreciate all the all the color there.
George just a quick one and I'll jump back in the queue.
With all of the supply chain challenges that folks are facing different companies I've.
I guess given different commentary about input.
Input costs going up and their ability to pass those costs.
Or portions of those costs onto <unk>.
Customers through increased pricing and things like that how are you thinking about.
Is that a material thing for you guys and and over the next couple of quarters does it have an impact on gross margin.
Yeah. So thanks for the question so in a way the guidance that we've provided and the forecast for the second quarter already takes this into account and those are our results for the first quarter as you saw the record gross margin.
And so took into account and the fact that we did like all the industry had to face some price increase.
Increases from our supply chain and I think that what happens in our case is that the.
Mix and the changes the mix towards more and new products more flow.
That are coming with higher gross margins basically helps us to compensate for that.
Average price and our case and Christmas because we are selling like more content and product at our moura.
And innovative.
And this basically enables us to keep and live and improve the margins in this tough environment.
Thanks, guys I appreciate it.
Yes.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the timed <unk> K. Please standby, while we compile the Q&A cluster.
Thanks.
And your next question comes from the line of <unk> <unk> Silva from Roth Capital. Please ask your question.
And for Hydro italic congratulations on the progress here.
Yes.
Smart voice segment I was curious and I know not non smartphone and it's been growing and the mix curious where that is and specifically how the notebook market and maybe an opportunity for you guys. It's emerging with remote work and all and then headsets any update there as well.
Yeah, So I'll switch and thanks for the question so with respect to the composition of the Smart voice revenues.
The contribution of mobile is fairly small so.
Most of the vast majority 90% of the numbers are coming from the diversification efforts and as we said you know screen products, meaning tablets and going into and.
Hopefully.
In the PC market is definitely an opportunity.
I think we've reported to you guys during the last couple of quarters.
On the tablet market, which has become a more important and.
Piece for collaboration for having zoom Webex teams scored.
<unk> has gained a lot of momentum on both.
Incorporating a voice call capabilities as well as incorporating some more advanced thoughtful V y capabilities. Moreover.
Moreover, the design cycles, and the tablet business, especially the Google based type of tablets is fairly short compared to the PC cycle.
And the non let's say Android tablet type of cycle.
So that enables us to.
C diff.
And the design momentum as well as also generate the results and that has been a very strong growth driver I believe that is the PC notebook area does represent a very nice opportunity for us and I do believe that we're going to see a major <unk>.
<unk>.
In the notebook market going forward.
Notebooks do have a set of the microphones are camera, but this was just basically too.
Check the box on the ability to do video conferencing, but I think that.
The way in which everyone is working today does require much more advance.
In a cameras as well as the <unk>.
His voice capabilities.
And for US it means a lot more algorithms.
A more advanced algorithms that will basically support great productivity and the ability to have.
Many speakers attending from the same EPC, if necessary and just to make.
As we experience a less strategic and much more flexible.
And reliable and so we do we do see and.
<unk>.
And the transformation there and.
Also in the world of the accessory debt will basically complement such calls.
From cameras is that basically we will have better AI vision and they built a company with a lot of audio and voice AI capabilities to support and <unk>.
And provide voice as well as video as we said it.
And the collaboration call can continue and go on peacefully and perfectly even if the video is frozen, but you cannot handle it when the voices choppy or where you don't really hear the speakers will all let's say noise is being injected into the conference and so we believe that also on the accessory market we will see.
And it mainly new hardware that will be designed and already we announced a couple of these.
This quarter on.
The headset market, we continue to see them.
Very strong momentum both on AMC, a type of headsets as well as non AMC type of headsets, both sales for the personal meaning consumer grade as well as for call Center and enterprise grade.
We believe that we are bringing very strong capabilities.
And <unk>.
Best in class voice call performance as well as excellent ambient noise cancellation capabilities.
And also.
Building a lot of AI algorithms to complement that and enable more advanced features to really support best in class.
Collaboration capabilities.
Growth.
Let's say a household agnostic environment.
Okay and then thanks for all the detailed color for sure and then follow up curious on the German lab announcement, and specifically the automotive market.
Does the landscape today in terms of microphones or audio if there are any and who are the players and what is how do you see your opportunity forming and the auto market. It could be a very exciting Tam, but just curious how it develops.
Yes, so I think that debt today, there are simple silicon vendors that are supplying silicone mainly.
Either application processor or DSP to this market there is another layer on.
And of software vendors that are supplying algorithms and some of it is vertically integrated inside the.
Is this the tier ones and some of it comes from like.
Specific type of algorithm and software vendors.
And so the way we're looking at it is it is both from an angle of the software and the algo front as well as from the silicon front, meaning being able to sell and qualify our silicon and.
And right now where we're utilizing this new capability to transform and in a way kind of migrate a lot of what we have done in the enterprise conferencing far field side.
And dealing with a lot of noise suppression into the automotive arena, which has.
And some stimulus characteristic as well as some fairly different.
Firemen and the what we will and.
And need to do is in a way.
And be able to make such a transition and adaptation to our algorithms. So that we can.
Support that whether it comes on the more deterministic type of algorithms that we have but whether it comes in and much more from the AI side.
And so all of that is in the <unk>.
And I think it's very exciting and going to be a great journey and we're very happy with the new talent that we recently acquired.
And I believe we're at the right place at the right on.
Thanks, and congratulations again.
Thank you.
Thank you. Your next question comes from the line of Dennis Touch-me-not from Needham and company. Please ask your question.
Hi, guys just wanted to ask a question hereof for Rajiv Gill.
So with regards to growth and drivers for the VIP and kind of view will lead technologies on what are you guys kind of seeing can you add some color about what we can expect on and will be driving the growth down the line.
Yes, absolutely and so maybe we start with.
And the smart home or ULE growth drive growth.
Day.
We have in a way penetrated to sales.
Now, Tom and markets and designs and namely.
European large it service providers as well as sales.
Consumer type of the assistance.
On the security front.
We're already with a much larger presence in terms of the design pipeline and also the technology seems to bills.
And parallel fit for the needs and the requirements that are coming from this industry.
And what we're seeing is that this is a changing market landscape.
That is basically.
Requiring us to complement not just provide connectivity solutions, but in a way complement that with a lot of the.
And Mark voice and other capabilities that we're designing and so I think that our offering for that market for the.
Smartphone market or Iot markets with basically include not just the index Julie as the best in class connectivity, but also and we will be able to extend our content by also delivering.
And the.
A smart voice solution.
Okay.
The same thing.
Smart processing.
And then combined with the connectivity to deliver Iot type of element to the network, so sensing processing as well as communication.
We're also.
Now looking at the and.
Next generations of R.
E capabilities with respect to addressing a lot of the developing it standouts.
Standouts and requirements of this domain.
And so these are all and all.
Pipeline and and our in our roadmap of activities for the next day a couple of years.
On the unified communication or view IP space as we discussed we see and a way to.
In a way.
Different yet.
Converging trends one is the.
And the work from home that we believe will continue to exist and are in a major way in future years.
And <unk>.
And.
Eight.
The workplace becomes more hybrid than it used to be that means that.
And everyone will need to have the same set of tools or the same capabilities.
To be able to conduct the haynesville and it'll work.
Whether they are they are in the office or.
At home.
And that means.
And the investments in infrastructure and better software and algorithms and also in more hardware.
On the enterprise part on the on Prem part.
And this last year, we saw.
A complete and.
And the way it transition or.
The dislocation of the IP budgets away from the on Prem side as people were not really attending work and most of the work was done.
From the home.
And.
2021 I believe that we are starting to see the return of the <unk>.
Is it investment in order to create a workplace and on Prem workplace that could meet the needs of the hybrid and working environment that means and a lot of the meetings. We will have both participants that are sitting in the same room as well as other counterparts with are participating from.
Home and.
And that means a lot more collaboration capabilities will have to be.
Installed in more conference rooms and.
And that means both software as well as how the investments that we believe are great catalyst to extend and continue.
The growth of <unk>.
Of our franchise.
I think that from our customers, we continue to see that.
Even on the traditional side.
Customers are continuing to invest and bring to market, new hardware and meaning to the refresh and and.
And.
Engaging new designs for more advanced hardware that really see the change that has happened to it.
And to the workplace and the need to have a more.
More hybrid capabilities, so devices that can be installed both sales.
At home as well as in the office.
And it devices that can support it.
All operation.
And in very good productivity inside.
And meeting and conference rooms and.
And so I think that we do see that market continuing to on one and recover from.
And the trough that we saw in Q3 and and we definitely saw that in Q4 and now in Q1 and also based on the comments that we provided I think this is also the expectation for the second quarter as well as continue to grow as a result of the.
These very changing needs.
And <unk>.
The professional market.
So I hope that.
And so as your question Dennis Yes.
Yes, absolutely.
It was definitely a great amount of color and then for my follow up on.
And I'm looking here it looks like you're growing on your gross margins are definitely holding up.
Pretty well lately can you talk a little bit brought on and know what's driving the gross margins and if we can maybe expect them to kind of persist at this level.
And so as we said I think for Sterling.
Fairly long period of time debt.
We all know.
And the low Fifty's range, and we believe and from a long term.
Or I would say even mid term model, we believe that our gross margins.
And expand it well.
Well into the mid fifties.
And the day.
The main catalyst for that and I think you can see that fairly.
Certainly the domestically is the mix the mix of our products. So we say the more legacy traditional side of our business.
And is bringing to the table and lower <unk>.
Gross margin than our corporate average and <unk> businesses, and especially some of the new technologies are adding.
Very nice and much higher margin than the corporate average and all of that.
And in a way benefits once the mix is more favorably skewed towards.
Products, we do definitely see a day.
Margin expansion.
Playing out and so we do believe and also based on the Q2 guide you can see that we do believe that we can sustain it.
These levels and and perhaps.
And maybe even do better.
Especially in the next couple of years.
Great. Thank you very much.
Your next question comes from the line of Derek <unk> from <unk> Securities. Please ask your question.
Hi, everyone. Thanks for taking my questions Ofer, just in terms of engagements.
T cell and strong can you remind me maybe relative to a year ago, what your PC business looks like in terms of number of products there and.
How that's maybe changed over the last year and.
And how do you feel about that business as we look to the back half of the year and potentially beyond do you think we're sort of seeing a new normal and tcs demanding advanced audio.
And things like that and then I have a follow up.
Sure Hi, Derek and thanks for joining and for the question so with respect to the PC market and the way, we recap we categorize a and.
The tablet and PC market is one.
The applications segment inside our smart voice revenues and so far the main driver of the.
The growth in this application where these tablets.
Coming from some of the very large Oems the debt.
Are we shipping Inc.
Android based tablets.
Tablet and this has been the majority over revenues.
And I think that when we look ahead, especially following.
And what has happened and the.
And the different.
<unk> from the notebook computer, we definitely see that the need to at the risk better collaboration capabilities and more busty voices or interface capabilities are definitely in meat and the notebook PC market and we do hope that debt.
We'll play an active role.
And in this market as well and this is definitely a plant on the point of view of the engagement pipeline, but not yet and revenues and we definitely look forward to see that translating also into revenues for them.
Evaluation and technical evaluation to design and then into a mass shipment.
Got it got it and then just on demand trends.
I Wonder if you have maybe a sense for consumption rates.
Given guidance of pretty nice sequential growth there was the market consuming at this rate.
Do you have any.
And so there's double ordering or anything like that thanks.
Yes.
Thanks, So the second question, so with respect to the consumption.
From.
And the channel checks that we can conduct.
We do see that.
And in many of our categories.
And the demand is coming from new customers. So these are customers that are only now ramping up so I do believe that day.
Okay.
And definitely has to do with the ability.
The end market consumption capabilities and with the way.
Our customers are.
Ramping up.
These new products.
And in other cases, where mark these designs on these customers.
More weight and we have a lot more history, we are doing certain channel checks and so far we have not yet seen.
And.
It's a major build up.
Inventory, we are also serving some of these and.
And markets and definitely do see that the trend line doesn't index the consumption. The sellout data whether this is coming from.
Our professional business on the consumer businesses.
And so far we have.
And do not have indications of.
And.
And major accumulation.
<unk>.
No.
I can definitely say that these are.
Clearly unprecedented times for the point of view.
And the supply chain.
And the fact that we're here talking about.
Great visibility from the demand standpoint, however.
And certainly below and visibility from the supply side and so that could mean that in many cases and companies are looking to.
Bill.
And some level of cushion from.
The other.
A color that we're getting from customers, we do see that.
Many of them are increasing right there.
Inventory days on hand, and just in order to be able to allow for a much smoother supply chain and the ability to.
Feedback in terms of being able to supply it.
And to their customers.
And with.
Some sort of the standard lead times and not fairly extended lead times today, where.
We see that.
It takes our customers much longer to supply.
The orders and so that means they are supplying as much longer lead times, where supply and get much longer lead time. So at the moment, we do not see like big pockets of inventory and we believe that.
Right now the situation is healthy it is worth it.
Stefan on for Mike.
And where we sit and the supply chain. This is what we can and this is what we can tell.
Great. Thanks.
Thank you so that seems to be no further questions. So I'll hand back to Kelly Chen.
Thank you Heidi I would like to mention that during the coming months, we are scheduled to present at the following investor conferences.
And you try and Needham Tech and media conference on May 18, Cowen on watch Technology Media and Telecom conference on June 1st and Russ Their trial, London Conference on June 21st.
Thank you for listening in and your and for your interest in DSP Group and we look forward to report back to you in 90 days.
This concludes today's conference call. Thank you for participating you may now disconnect.
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