Q3 2021 Sequans Communications SA Earnings Call
[music].
Greetings and welcome to <unk> Communications third quarter 2021 financial results Conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I'll now turn the conference over deals Kmart has abated.
<unk> may begin.
Thank you Shirley and thank you to everyone participating in today's call joining me on the call from sequence Communications are George Pan Chairman, and Chief Executive Officer, and Deborah <unk>, Chief Financial Officer before turning the call over to George I would like to remind all participants up.
The following important information on behalf of sequence.
She coins issued the earnings press release, this morning, which was posted to the company's website at www sequence Dotcom backslash investors under the news section.
Before we start I'd like to remind everyone that this conference call contains projections and other forward looking statements regarding future events or our future financial performance and potential financing sources, all statements other than present and historical facts and conditions contained in this call.
Any statements regarding future results of operations and financial positions business strategy and plans, including financing alternatives for our five cheap business expectations for massive Iot and portable router sales the impact of the COVID-19 on our supply chain and on customer demand.
The impact of component shortages and manufacturing capacity, our ability to convert our pipeline to revenue and our objection objectives for future operations are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 section 27, a of the Securities Act.
Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended these statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties and sub.
To change at any time, we operate in a very competitive and rapidly changing environment, new risks emerge from time to time, given these risks and uncertainties you should not rely on our place undue reliance on these forward looking statements actual events or results may differ materially from that.
As contained in the projections or forward looking statements more information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission.
And now I'd like to hand, the call over to George sure I'm Karen. Please go ahead George.
Thank you Kim.
Good morning, ladies and gentlemen, welcome to our third quarter 'twenty, One financial results conference call.
We are building momentum across all of our lines of business.
But I do think our strategy to focus on four five G for internet of things.
Year to date, our revenue was up 6%.
However, like the second quarter, we face external challenges in the third quarter, that's automatic jingle on our progress with all of our massive Iot and <unk> businesses.
We stated on the prior quarter earnings.
That's we anticipated an increased impact from these factors in the third quarter.
And this uncertainty.
Has also affected shareholder vote.
We believe it's important to Peel back the effect of the external factors.
The cost performance and provide evidence that customer demand is building and our massive Iot and shipyard as revenues.
The growing significance.
Stripping out the impact of Verizon Jetpack, we have grown total revenue, 86% and a product revenue 123% year to date.
Amid supply chain challenges that limited our ability to meet all our customers' demand.
The main growth drivers continue to be a massive Iot.
Increased 13% year to date.
And the broadband shipyard is that replaces almost half of the jetpack business that was originally expected this year.
We have significant competitive advantages across all our lines of business, where we bring material value to our customers and partners.
The growth of our pipeline and the increasing percentage of secured by design wins.
The Testament to our technology team Henry.
Looking to the supply situation impact, we feel confident that the impact of supply chain constraints.
In the fourth quarter of 2021, and the first quarter of 2022 are to some extent under control.
And we are actively working to secure our supply for the remainder of next year.
Our operations team has done a great job working with our suppliers and quantifying second sources.
I'll discuss the specifics of our supply chain challenges in further detail shortly.
But I would like to emphasize that the supply chain situation.
The entire industry and has not created a competitive disadvantage for sequels on the call.
Our customers appreciate our unique focus on Iot market.
And our ability to address their demands objectively with no distraction caused by prioritizing other market segments.
We remain the category leader and the market dynamics of <unk> cellular Iot auto, creating a sizable opportunity for our future growth.
We continue to have a strong backlog and are entering 2022 with another record level.
The visibility it gives us this visibility gives us a path to return to robust year over year to growth next year in line with our 50% target.
Turning now to review the third quarter.
As I have stated external factors in the third quarter hampered our overall financial results and.
An obscure the performance of a whole lot of business.
The biggest of these factors is that sense of sales for the Franklin in wireless jetpack.
Discontinued by Verizon in the second quarter of 2021.
I'll just ask sales peaked in the third quarter of 2020, making this quarter in.
Particularly challenging comparison year over year.
Stripping out the loss of jetpack revenue.
We used the strength of our business are sequenced continues to ride a wave of growing Iot adoption.
Increasingly there.
<unk> applications.
Looking at our financial results dissuade sequence I shoot another quarter of outstanding growth.
<unk> hundred 6% year over year.
And secured new design wins in all our primary industrial segments.
The increase would have been even higher if the supply chain constraints had not occurred our ability to meet all the demand.
Our outstanding performance this quarter and massive Iot.
<unk> hundred 18% compared to the same quarter last year.
And the growth in broadband and Iot driven by CBRE.
And up 135% year over year.
If we exclude jetpack.
Supports our strategy to leverage our core strengths and <unk> cellular connectivity and focus on Iot applications.
These gains achieved in the face of a challenging supply chain environment.
A testament to the strength of our technology strong demand for our products and the excellent performance of our operations team.
Let's look at the performance of our product categories.
Starting with massive Iot.
Yes.
Our cat one calliope continues to demonstrate building demand.
It's shipping in the U S and Japan and has excellent visibility and backlog for next year.
The development of our second generation Cat one Calliope two platform is advancing and we are on track to sample. The calliope two module to our initial customers in the first quarter of 2022.
I am, particularly encouraged by the continued expansion of customer engagements of this for this stuff.
Okay.
C class Cat, one calliope two platform.
<unk> Talwar cat M NB technologies, making our massive Iot product portfolio is very comprehensive and allowing us to address all Iot application segments and uniquely positions us in this market.
While many applications can be served we've kept them M B a.
A great number still require kept one for the higher speed and or voice support.
This year, we believe that kept one worldwide market.
Will be approximately 50 million units with more than half of this in China.
And expect this to grow to over 100 million units by 2023.
Addressing this market segment with our Calliope two.
New optimized cat one platform will.
We will allow us to add a new growth lever and further accelerate our massive Iot growth and increase our kept one market share.
I'll get them and B.
We are still shipping our first generation monarch platform to many customers.
However, the primary driver of our sales pipeline growth is our second generation monarch, two which we believe will significantly contribute to future growth.
We added more design wins dollar pipe in the third quarter.
With two of them in the metering segment.
And one in medical.
And continue to strengthen our position in these two segments.
In addition, we continued to build market share in smart home Smart city and are tracking applications with many current design wins.
While our two platform is shipping in volume to numerous customers this year.
And we are making excellent progress on the design win projects. We have in hand that are expected to launch next year.
We are confident that in 2022, we'll have several key customers each capable of potentially ordering over 1 million units per year. In addition to many smaller volume customers monarch.
<unk> two will be the main growth driver of our revenue in 2020.
Now turning to the performance of broadband Iot.
<unk> Cat four cat six business is the main growth driver of this category.
Thanks to the nice growth of private networks. This business is performing according to plan.
The significant progress we continue to make in this market, but we are shipping to various customers.
Very encouraging and supports our belief that we will make inroads into this large but fragmented market segment.
Recently, we announced the jacks tablet.
<unk> device, serving many private applications.
Which starting shipping in the third quarter.
This is a new and promising device category.
Pipeline keeps building with the new opportunities in <unk>.
Expect to see growth continuing next year.
Our legacy Cat four cat six emerging market business is flat, but we have secured a new design win that will move to mass production next year, adding growth to this category.
Lastly, we are working on new business opportunities for our high end <unk> application that we anticipate launching at the end of 2022 or early 2023.
This should bring further growth to this legacy product segment.
Yeah.
A quick update on <unk>.
The company continues to invest extensively in five years.
The strategic growth priority given its unique opportunity for our game changing are you did acknowledge.
We are making good progress with our <unk> platform development.
We are still targeting next year for something that technology.
Also the engagement, we have with our fortune global 500 partner.
On track and progressing very well.
The investment in <unk> is strategic for the long term. However, we recognize that rather than receiving credit for the long term value being created there.
Cash burden related to this investment negatively impacts the company's valuation.
We are actively exploring options to finance sequenced <unk> investment.
To minimize its cash burden with.
With the goals of our upholding our leadership and the massive Iot and maximizing value for shareholders over the long run.
Given the immense market traction we have on fiery Taurus.
We remain incredibly excited about our prospects and fashion.
Lastly commenced on vertical and strategic business.
In brief the vertical software services category has grown 31% year to date compared to the same period last year.
Despite quarter to quarter variability.
Note that this category includes all revenue generated by the contract with our Fortune Global 500 strategic partner.
We are progressing on all the vertical projects, including the one we signed last quarter.
We are engaged with the new satellite opportunities, but we aim to secure more design wins.
Now I would like to provide further clarification on the status of our supply chain.
And the last two quarters, we faced managing the dramatic increase in lead times for substrate.
We now feel this is under control.
Thanks to the second sourcing strategy and all the anticipation.
Also we have been in regular communication with TSMC.
And can confirm that our wafer allocation for Q4, and Q1 2022 aligns with our current target shipments.
We remain attentive to managing critical components.
Quieter for our modules as some of the suppliers.
They operate at 70% for the remainder of the year to deal with the recent China power country issues.
Wafer or location for Q2 2022.
And beyond remains in flux.
We believe the supply chain will begin to improve in Q4 2022.
Hence our primary focus is securing adequate supply for Q2 and Q3 to fulfill all the products moving to mass production in 2022.
We feel confident that we can work through this challenge and continue to communicate closely with TSMC to ensure adequate wafer supply next year.
Shifting to our go to market strategy.
Yeah.
The pivot in our go to market strategy.
Spend our distribution with MCU and channel partners has been a catalyst for our growth this year.
We continue to advance our relationship with all our MCU partners.
I am pleased to say that we are making headway with more engagements that we believe will be beneficial to further expanding our pipeline and our future growth.
But NSS has proven to be a valuable partner.
As evidenced by their success reselling modules based on our monarch platform.
Given the traction with the launch of the monarch one module.
NSS is now working on launching your monarch two based module.
In the third quarter, we delivered to them our first volume orders.
In 2022, we anticipate making grants us a critical go to market partner for us.
Thanks to their global presence they are playing a crucial role in addressing markets and customers that were otherwise not accessible to us.
Looking to the future.
Our product pipeline continues to build.
In the third quarter, we added new design opportunities and converted some of them to design wins.
While we are not formally revising the 600 plus million dollar pipeline size share the previously.
Now well over this amount.
With the New awards this quarter and metering medical.
Tracking and other industrial applications the portion of our pipeline secured by design wins increased almost $300 million representing.
Representing nearly 50% of the pipeline.
Massive Iot makes up the most significant portion of our pipeline and there are many promising opportunities in our broadband Iot category.
On a final note this quarter, we advanced on numerous design wins.
Giving better visibility on their move to mass production in 2022.
In summary.
We continued to execute our long term strategy on three fronts.
Increasing growth in massive Iot and <unk> broadband Iot.
Two continued expansion of our go to market channels and three ongoing development of our <unk> product line.
Many existing design wind projects continue to move forward.
Yeah.
We continue to move toward 2022 product launch.
We are ramping with several customers on our products with the potential run rate of over 1 million units per year.
We continue to see new exciting opportunities coming into the pipeline and massive Iot and broadband.
Our pipeline growth is also benefiting from projects coming from our MCU and channel partners like crisis.
We continue to believe that absent any major supplies issues. We are on track to grow an average of 50% per year for the following few years.
As the CEO and a significant sequence shareholder I'm frustrated by the impact of the external challenges I discussed today on the company this year.
Sequence has created a solid competitive position and today, we are better positioned in the Iot market space than ever.
The entire team at <unk> is working tirelessly to develop our technology grow our sales and expand our market presence.
We appreciate your commitment to <unk> and thank you for your continued confidence.
Entrust.
I'll now turn the call over to them.
Thank you George and good morning, everyone.
Our revenue for the third quarter of 2021 was $11 $9 million.
A decrease of 15, 8% versus Q3 2020 and <unk>.
Seven 5% sequentially.
Demand for our products continues to be robust, despite our third quarter growth being impeded by supply chain supply chain constraints from materials as George mentioned, leaving item into the supply chain challenges that are impacting many businesses.
Importantly, though we have a backlog of orders in hand that are awaiting fulfillment.
Revenue from massive Iot in Q3, 2021 continue to account for over half of our total revenue.
Both cat, one and cat M product revenue increased modestly quarter on quarter and increased exponentially compared to the prior year quarter.
Revenue from broadband Iot increased from Q2 2021, as Craig from CVR as private networks, it's going to pick up.
And there is no revenue from the jetpack business in the sequential comparison.
Compared to Q3 2020 as expected revenue in this portion of our business declined due to the absence of jetpack sales.
Our vertical category business, which includes service revenue generated by our major Franklin strategic deal.
Greased as expected in Q3 2021 compared to Q2 as a result of the pattern of revenue recognition kind of long term contracts.
For the quarter, we had three customers in one channel partner that each represented 10% or more of our revenue.
Massive Iot design wins move into production, we expect the number of end customers shared to diversify.
Gross margin in Q3 2020, when it was 49, 2%.
<unk> hundred 42% in Q3, 2020 and down from 56, 6% in the second quarter of 2021.
The year over year improvement, where the gateway shifting revenue mix that included a higher service revenue and a higher level chip sales versus modulus.
Sequentially, our gross margin declined as a result of higher product percentage mix of services and revenue mix.
It's expected to have quarter to quarter fluctuations in our gross margin due to shifts in revenue mix that we feel confident that the overall gross margin for 2021 will be about 50%.
<unk> reported operating expenses were $10 $9 million at two 6% from $10 7 million in Q2.
The second quarter of 2021 benefited from a one time net reduction in R&D expense of approximately $1 $2 million due to an R&D grant.
Year over year, I address operating expenses decreased to seven 6% compared to $11 8 million in Q3 2020.
Non <unk> operating expenses, which exclude stock based compensation expense were $9 9 million in Q3 2021 at $49 6 million in Q2.
Our third quarter operating loss was $5 $1 million.
Compared to an operating loss of $3 4 million in the second quarter of 2021 and five.
$5 9 million loss in the quarter at 2020.
Our net profit in Q3 with $192000 or less than one cent per avs.
And included noncash gains of $7 7 million from the revaluation of the embedded derivatives related to our convertible debt.
This compares to a net loss of $1 3 million or <unk> <unk> per diluted ads in Q2, which also included noncash gains on revaluation of the embedded derivative as well as on the reimbursement of debt, which totaled $6 $6 million in aggregate.
The net loss in the third quarter of last year was $9 million or <unk> 30 per <unk>, which included a noncash gain on revaluation of the embedded derivatives of $1 5 million.
On a non <unk> basis, our net loss for Q3 was $5 3 million or <unk> 14 per diluted EPS compared to a non <unk> net loss of $5 6 million, our 15th century and.
In the second quarter, and a net loss of $8 4 million or 28 cents per diluted ads in the third quarter of 2020.
In Q3, we had a gain on foreign exchange at $409000.
That one cents per eds, primarily related to revaluation of euro denominated net liabilities on the balance sheet.
This compares to a foreign exchange loss of 964000.
In Q2, 2021, and a loss of 885000 in Q3 2020.
Investors should be aware that possible changes in foreign exchange rates related to balance sheet items and the margin to market of the embedded derivative related to the convertible debt can cause significant differences in net income or loss from quarter to quarter.
While the impact of swings in the value of the embedded derivative is excluded from our non <unk> presentation foreign exchange gains and losses, whether it realized or annualized are not excluded.
Cash and short term deposits totaled $15 2 million at the end of Q3 compared to $30 3 million at the end of Q2.
Cash flow used by operations for the third quarter of 2021 was $10 $5 million of which five two came from working capital needs and increases in accounts receivable and inventories and a decrease in trade payables.
In addition, short term debt from financing receivables decreased to $9 4 million from $10 8 million at the end of Q2.
As George mentioned, we are actively exploring options to finance our <unk> investment.
It's cash burden and to reinforce our balance sheet.
Turning now to the outlook for Q4, we are targeting 15% sequential revenue growth for the fourth quarter, which takes into account the anticipated impact the supply chain challenges are expected to have on fulfilling our customer orders are.
Our current backlog gives a high level of confidence in our outlook.
We continue to expect that non <unk> operating expenses should average around $11 $5 million per quarter in the coming few quarters, assuming a stable euro dollar exchange rate.
And we expect non <unk> financial expenses to be around $1 $2 million in Q4, excluding any foreign exchange gain or loss.
For modeling purposes, the number at Aes outstanding today is $37 5 million.
At the conclusion of this call we will post a written version of our formal remarks in the Investor Relations section of our website on the webcast and presentations page the same location, where you will find the audio replay.
And now I'll turn the call back to George Thank.
Thank you Debra operator, we are now ready to open the call for Q&A. Please.
Thank you George and at this time, we'll be conducting a question and answer session.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
For a start to if you like to remove your question from Nicky for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Please while we poll for questions.
And our first question is from Scott Searle with Roth Capital. Please proceed with your question.
Hey, good morning, Thanks for taking my questions.
Nice job guys in terms of the outlook starting to build that visibility and supply chain. In addition to just seeing that backlog and pipeline of opportunities is growing.
Hey, maybe for starters just clarification in terms of the supply constraints in the current quarter how.
How much was left on the table and just wanted to clarify as we're looking into 2022, it sounds like that 50% growth numbers. So you're targeting mid 70, it's kind of coming out of the gate here.
I'm just kind of wondering what the visibility is in terms of what you've got with design wins in the backlog in the pipeline right. Now that gives you that sort of comfort I know were supply constrained.
Hi, Scott.
Thanks.
For being on the call.
First question on the Q4.
Obviously the the question is is never easy if you wanted to be because we are planning we anticipated already some limitation in our surf and remove some of the order we received more towards Q4.
In Q3, but that typically and on the last.
And every quarter, we are leaving is kind of $1 million.
And even sometimes in the last minute to leaving half a million dollars or so that we were thinking it will be able to do it and we're not doing it.
So this is what happened in Q3, we were Q3 was very tough from the beginning we know that many of the order will not be able to serve them and we move them to Q4 and Q1.
But despite this we left on the table a little bit of a small $1 million.
And this quarter our.
Regarding next year definitely I mean, you'll have two pieces of this question our comfort level for next year.
Big piece of it is really the backlog.
Backlog at record level as I said, not only for the quarter, but we didn't we didn't answer yet in 2022, we've never seen this before the end.
End of Q3, we have this strong visibility for in order to serve our customers Q3 next year. If you want so we have backlog covering.
Not only the first quarter and second quarter, but even going towards the second half of next year from existing customers. So obviously this is moving very well the piece of existing customer growing. This is one piece of it and the other one which is all the design wins that we have them in hand, and they are ramping and I mentioned like we're talking about a few of.
Even some of them with orders in other words, we have order from customer to whom we shipped but also have order from customer to whom we didn't ship yet big volume just because they want to secure like half a million units in advance for next year that we haven't gone head. So the two angle of it that you want the design win we have it in hand, and the progress of those design win.
Moving to initial order preproduction and some of them production order.
And give us the confidence to talk about this growth year to year.
Hey, George just to follow up on your comment related to TSMC in the fourth quarter of next year, So you're starting to get good allocation for the end of next year. So.
Given what you're seeing from a demand standpoint at a minimum that's where we should see a meaningful inflection as we go from fourth quarter 'twenty two into 'twenty three is that the correct interpretation.
TSMC to be honest, we have an allocation.
I want to have the people understand how they work they work with everybody like this you have a minimum allocation reserve to another or even if you don't have order because I hear hear some people say the secured with older unsold. It slipped because you are a small already at a big that you can get this right. I mean, you have your allocation. So I have a reserve allocation for Q1 Q2 Q3.
Q4 next year the picture of how it looks if you want is very manageable for Q1.
It's good in Q4 as weak in Q2, Q3, and the old game with them. If you want us to put in some of our capacity allocated for Q4 to Q2 and Q3 and we're honestly, we are making a lot of progress with them.
And I feel at least like we're.
We are heading into the right direction, even though it takes time because you need to work on this weekly based on other customers not taking their order some allocation freeing yearend debt. This is how we can get our allocation and keep in mind that Sikorsky by location is really very small versus the big players in this industry. So any small variation here and that it can.
Give us the ability to secure our capacity so thats why I remain.
More comfortable I will say managing this im not panicking at all but obviously I could not say like I don't have it all problem in Q3, Q2, Q3 as I am speaking to them.
Got you and if I could in terms of following up on the financing opportunities so to break that down a little bit. If we were to take out <unk> investment now is the massive Iot opportunity approaching breakeven results as we get into the fourth quarter and the first quarter and then as it relates to some of the strategic opportunities. It sounds like Theres. Some other things that are percolating.
And there I'm wondering if you could kind of wrap that into how youre thinking about that with the financing and any other elements that you could provide in terms of timing magnitude or otherwise.
If you wanted if you if you take the car if you consider the company with obviously the legacy which is mainly driven by massive Iot Unfortunately, the broadband get.
Weakened a little bit this year. This is really one of the challenges that we spoke about.
Led to the to the jetpack business.
But if you take all the legacy outside of the <unk> investment. The company is in good shape to be cash flow positive dissipate, obviously, we could get it faster if we didn't have the supply chain challenges, but I am expecting that for next year, we should be able to overcome all of this and be any any cash flow positive situation for this business taking into account.
Obviously, all the cost burden of the company right I mean being public and all the element of spending.
As far as you know we are unable to finance the project. So the only piece which is really.
The cash burden on the company as <unk>, which is a big piece of it is financed but still some more to figure out.
So if the rest of the business is able to generate cash we'll be in very good shape.
Finally cash flow positive, which is the scenario I'm working on.
And it will help the <unk> finance again and honestly the unique solution that we have that is attracting a lot of partners at all and we believe we should be able to find options. So the board took the decision because of the seriously.
And we are work on it and on a couple of options.
Great and lastly, if I could coming out of mobile World Congress last week in some other trade press articles really starting to talk about the opportunity for cap one.
You alluded to that earlier in terms of the opportunity. This year of 50 million units, largely China, but growing to a 100 million units in a couple of years.
When you are well positioned now with Kelly will be two solutions starting to come out. So I'm wondering if you could dig in a little bit more on that front. It sounds like NB Iot has been really marginalized in cat. One is gaining a tremendous amount of traction and you guys are the only solutions vendor with a new part that's coming available that really hits kind of the price points and the performance.
Under if you could dig in a little bit more of that opportunity how quickly that ramps for you and we can be expecting in 'twenty two.
Yes, I mean, Scott Indeed on Cat one first of all we are an established player and we have very nice market share two digit at least general no matter, how you take the numbers.
In the market to our work on outside of China and.
The way when we look to the Iot you have you still have a lot of application where the people have preference for catlin, even in our just people could be good.
It could be surprised by this but it seems that some of the metering application to high end metering application I call high end more of the main meter the electrical meter people likes like to see kept one as a solution for this and obviously <unk> is the only vendor a couple of bringing latest generation on bus.
And kept one on obviously and be part of the cattle offer that we have it.
So that's why it's really a good angle for us to increase our market share with this new platform, which will hit two objectives one.
Reduce the costs bring down debt platform.
Say two to a high single digit or low two digit if you want the pricing at the module level.
And be able to offer a comprehensive offer to our customer because we have many of our customers taking the metering space value they need cat M, but they need cat, one and obviously, having sequenced playing with that.
The two products that they have the same interfaces. They had the same software environment and so on makes it very appealing to our customers and help them driving their business and the other angle of it is really some obligation what do you need.
Our voice.
And here you have even saw application they need low power because you can use it on wearable application. So all of those segments and all of those applications are really requiring kept one.
Very.
Happy with the decision that we took like a year more than a year ago to develop this and invest in this cat one platform. We have the chip working as I said last quarter, we have it in hand, and it's in the lab on the testing and now we have the module ready under testing and we should start sampling to solar customer in Q1.
So this should be.
An engine of growth for US next year, obviously that should start generating revenue more towards the end of the next year, because we need to factor in take into account customers, taking the product developing that product and take it to market. So we should maybe shipped this new platform in Q4 next year and obviously a lot more in 2020.
Great. Thanks, so much.
Thanks Scott.
Okay.
And our next question is from Craig Ellis with B Riley. Please proceed with your question.
Yes, thanks for taking the question and George Congratulations on the growth you're getting in the pipeline.
And the visibility that's providing I wanted to follow up on Scott's question on supply.
Maybe pose it this way.
As you look at the way the supply dynamics.
Dynamics will unfold with your partner at TSMC.
Would you expect to get more visibility on <unk> and <unk> would that be after.
<unk> new year.
Before then or sometime thereafter.
No I believe on the Q2, but honestly I should have more visibility end of this quarter, hopefully and obviously there is no straight everyday that his work on the second tell you we had long weekend and that is yesterday and.
It was.
It took the.
One day off a little bit to relax and during this day I got a call from TSMC, asking me and working with me to guide to improve.
Q2, unwelcomed, nor are they are working very closely with us and honestly, it's not like we're missing.
We're missing more to support the growth if you want the challenge that we have that the company is growing as you know we're targeting 50% growth. So by definition, we need at least 50% more wafer.
And you know one one TSMC is making their location data, making this fairly flat or let's say that can give you a 5% to 10% growth and this is this my challenge.
And the way I am guessing this is not.
<unk>.
Securing secured in Q4, but thats Q2, and Q3, so I feel calm I don't know for Q3, it will be too early for towards the end of the year, but I am hoping I will start seeing much better Q2 at.
Okay.
Got it and then I would say, it's a longer term consideration do you have the ability to think about other front end fab options or or just given the IP and other.
Process related technology that TSMC offers is that not an option for us to clients.
I didn't get the academies.
Thank you.
Yes, I mean options that you could pursue or do you feel like you you need to stick with TSMC exclusively.
I mean, obviously, we're not exclusive so we have the choice to make if this supply station continue like this with I mean to be honest. The FMC is very very helpful and very supportive.
Indeed, we can go on make another foundry make the dual sourcing on the wafers, but on the but this takes time, it's not a question of IP, that's not the mission impossible, but you will not be ready it doesn't deliver the results before one year walk if you will so on this basis.
Sounds like at least assuming that.
Those challenges will go away and towards transitory.
Better toward more closely with TSMC on fixing next year and and keep relying on them as a key partner not exclusive but key partner.
Yes.
Yeah, and I understand all the complexities.
And making a fab change and certainly the feedback we're getting from others. Just that TSMC has been very engaged in trying to grow output moving on to another point in your prepared remarks. When you were talking about cat M. Gen. Two I think you mentioned that there were multiple hundred unit customer opportunities I was hoping you could provide.
More color on those maybe.
Types of applications.
And when those might be able to convert to design wins and preproduction production work potentially.
I mean, what I said is that we have.
Uh huh.
A few number of them that there will be more than 1 million units per year in order obviously.
It's industrial space and Im sure that the people are familiar that massive Iot is not about tens of millions of dollars per customer you don't see those kind of profile.
At least per project to say, maybe you could have a customer.
Many projects had they add up but if you take one application one projects. The big project is a million units per year and we have.
Uh huh.
A few of them like this and they are very advanced to be ready next year and generate those kind of revenue and obviously, we have a lot more in the few hundred thousands of units per year and those are what we call them smaller volume customers in terms of application without really talking horse.
Who is over here, because I would like a little bit to keep things under confidentiality little bit for our customer and for us as well.
But obviously, we are very successful in the smart metering.
Metering space. This is a space where sick losses really.
Making great success, thanks to the low power nature of those rigs.
A requirement that we have on monarch two because when you go to gas meets our water meter on obviously electrical meter. They don't have the same challenge, but once you are in a shop you can get all the all kinds of projects because it becomes competition on on the other type of performance. So our metering is really a key segment for us the medical.
Well, we're quite excited about share opportunity there and then we spoke about the.
All of the tracking device, mainly mainly in car and automotive related projects here we have.
If you couple of them big size.
And last but not least obviously the.
Smart home Smart city application. So we remain really on those four segments penetrating each we see many project and each of them and.
And we have a lot of wins there and this is really helping us to win more and increase our point.
That's helpful. And then one last one for me before I hop back in the queue. So appreciate the fact that five G as it.
It's very R&D intensive.
So the the points made about looking for funding options is understandable, but could you talk about one from a timing standpoint, when do you think something might.
Might occur and based on your preferences George what.
Wood wood.
Yeah.
<unk> solution look like in your view thanks.
Okay.
I mean, if at all.
There is no ideal solution <unk> solution is really to shake hands with a partner who is an ideal partner for you and it's a win win situation. Obviously, you know that the challenge there is really.
To have someone.
Helping in this financing and obviously you need to give him something which is fair.
To do so.
The lesson because he offer to take the risk so that it can scale from customer.
To a technology partner.
It can take different forms and also had a very very open minded on this keep.
Keep in mind, the very important that the <unk> for US is key to investments as Apache because when you talk about the <unk>.
About the <unk> technology in the company because this can can develop even domestic of Iot. Maybe you are hitting the terminology like cap, which is really taking the <unk> down into speed and so on so the investment of the company. There is no doubt that we need to invest into the <unk> and are pushing US now obviously for this high end platform that we're developing.
Taurus.
And it's it's.
Lot of demand of cash there and well work on it and.
We have a lot of support as we said because we have already a strategic partner there we have the French government, but we believe like adding one or two more this will be great, which one is the ideal but honestly.
Anything what sequence can keep control if you want to do with IBM and in terms of timing. There is no exact timing for this I would like to enter next year with this solid tissue, let's let me say it like this is a goal for me.
That's great. Thanks George.
Okay.
And our next question is from twisting Jeremy.
Please proceed with your question.
Hi, guys.
Going back to the th <unk> wafer indications, so you've mentioned that Q4 and Q1 align with your current target shipments.
Spending is that you would probably shipping.
Demand in the prior quarter, so does that mean that.
For Q4 embedded in the guidance, you're basically shipping to 100% of demand or are you just keep constrained even though.
Yes.
Does that mean that there is any type of catch up shipments.
In Q1, before you potentially get tight with capacity again.
I mean, you know.
We are not and let me say it like this it's we are good versus our guidance. If you want but obviously if I look to the demand the demand is higher.
What we are getting but we are not anymore type at 70% if I have to quantify it I mean, maybe maybe we are in the region of 10% if I need to.
If I am not limited in supply if you want.
This is how I look through it.
And again, it's really we feel good to serve the guidance more more than we have extra volume awful lot of things because if I have much more than they need and then I can use it to sort of my Q2, if you want them because they can be they can build inventory much more on this.
S holders.
Okay, that's useful and then.
How do you look at the opportunity for toys is that jetpack.
Back on the types of applications or is it really going to be something that has potential.
Applications, whether it's industrial to 4.0 automotive you know anything that's on the smelter and if you could characterize that opportunity relative to what you saw with U G. Martin.
No there isn't.
This is a very very good question. Obviously, we are developing this <unk> total <unk> platform, which is really supporting what we call the new regional <unk> high end capable of going to more than seven gigabit per second and obviously you can scale down just technology to serve even though one gigabit per second so so once you develop the technology you are able to very quickly.
I will say to have more than one product by the way to the market depending on the segment.
And here in terms of target that's exactly all what you mentioned is this is our our target is really our position is clear we are on every device, what we call. It Iot device, which means not the smartphone and obviously we're attacking this based on the go to market and the readiness of the market the timing and so on.
The first market that we believe really is happening and will be happening is more the FRG for fixed wireless application here you are talking about getaway at alder, whether at home or enterprise and also this is really the straightforward target you can go obviously to portable router like jetpack. This is again an easy Todd.
And then industrial is very important one afford that all that you mentioned is really key for us automotive Woodward, but automotive required a little bit other partners also to help us on this at least for the time being so in a nutshell. This platform is capable of addressing all of the markets you mentioned there.
Just a question of the go to market that we have and the ability of the company to take this technology to a given segment and obviously some of them are easy they order in hand of the company today and accessible someone need more work or more partnership to work on to attack.
Great. Thank you very much.
Yeah.
And just as a quick reminder, if you have any questions you May press star one to ask over the phone.
And our next question is from Roger.
Needham <unk> company. Please proceed with your question.
Hey, guys. Good morning. This is Dennis on for Rajeev. So I just wanted to ask a couple of questions.
The first one is going to be I mean, you guys talked about this 50 to 100 million unit opportunity for Calliope two could.
Could you.
Explain whether that's you know that's your expected sales for clients to for China or is that kind of like a total tam.
Can you just provide some more color please on those numbers.
Yes, I mean, Dennis Hi, this is.
No as I mentioned like the total market.
Today, the cat one market. If you look this year. It was around 50 million unit. I mean, you can look to any reports defense it varies a little bit.
And then 15% between between the various guys and based on our analysis as well bottom up we believe it's around 50 million unit what half of it is more than half, but if it was like 60%. This year was in China and this will be growing to $100 million total addressable market, obviously <unk> will be taking some percentage of Av.
Our market share there today I believe we are in the catalog business.
Are somewhere between 12 and 15% market share.
Side of China. This is this is a.
What we have and we believe calliope two will increase our market share because it gives us the differentiation and uniqueness with this platform because practically that is almost very limited competition. The only new platform kept one coming to the market as a Chinese platform.
And how.
Outside of China, No. One has developed this next generation platform in sequence.
Thank you and my second question is about.
Relates to wafers and TSMC. So what TSMC has recently increased prices by roughly 20 per cent per wafers are you planning to pass on these price increases to customers and if so why.
Will you be doing so.
We did obviously.
We could not keep absorbing those price increase I mean in the past we absorbed some of the price increase when it was about substrate and so on I mean, we.
We manage.
To stay with our commitment to customers, but obviously since this price increase will TSMC, which was.
Worldwide at large and some 20% we reflect the price increase as well to our customers.
Worldwide as well, obviously gaslog by customer there is some work on this but in general we will recover our margin we're not losing on automotive.
Got it that's all for me thanks.
Yeah.
Okay.
And our next question is from Craig Ellis from B Riley. Please proceed with your question.
Yes, thanks for taking the follow up George I, just wanted to look a little bit beyond the fourth quarter to the first quarter.
Not looking for specific guidance here, but but I think typically we would think about the business, having a seasonally down first quarter, but but given what's going on with the supply chain given the strength in the pipeline and the pipelines conversion capability I was just wondering if you could provide some color on.
What what we might expect for the first quarter just in high level terms rather than specific guidance. Thank you.
Yes.
Craig.
Obviously, we have some of our business, which is seasonal like everyone, but as you said as you mentioned I mean, there is there is some.
Oh.
Yes, there is some today, we don't see this down and let me say it like this we don't see it down versus Q4, because in any case, our Q4 was low and.
We received at least flat.
That's helpful. Thank you very much.
And we have reached the end of the question and answer session I'll now turn the call back over to Dr. George Karam for closing remarks.
Thank you again for joining the call and we look forward to catching up with you next year on our fourth quarter, earning call.
We are by the way, we are presenting company and the upcoming Roth capital Virtual Technology conference and our hosting one on one meetings on November 17 and 18.
And also in January 2022, we are participating in the Needham growth conference. So we look forward to connecting with you at one of these upcoming events. Thank you very much. Thanks operator.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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