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Edited Transcript of DLG.DE earnings conference call or presentation 9-May-19 6:30am GMT

Q1 2019 Dialog Semiconductor PLC Earnings Call

LONDON May 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Dialog Semiconductor PLC earnings conference call or presentation Thursday, May 9, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jalal Bagherli

Dialog Semiconductor Plc - CEO & Executive Director

* Jose Cano

Dialog Semiconductor Plc - Head of IR

* Wissam Jabre

Dialog Semiconductor Plc - CFO & Senior VP of Finance

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Conference Call Participants

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* Achal Sultania

Crédit Suisse AG, Research Division - Director

* Adithya Satyanarayana Metuku

BofA Merrill Lynch, Research Division - Associate

* Andrew Michael Gardiner

Barclays Bank PLC, Research Division - Director

* David O'Connor

Exane BNP Paribas, Research Division - Analyst of IT Hardware and Semiconductors

* Mitchell Toshiro Steves

RBC Capital Markets, LLC, Research Division - Analyst

* Robin Brass

Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst

* Sandeep Sudhir Deshpande

JP Morgan Chase & Co, Research Division - Research Analyst

* Sébastien Sztabowicz

Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning, and welcome to Dialog Semiconductor's first quarter results call. My name is Nandaja, and I'm your coordinator today. (Operator Instructions)

I'll now hand over to Mr. Jose Cano, the Head of IR to begin.

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Jose Cano, Dialog Semiconductor Plc - Head of IR [2]

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Thank you. Good morning and thanks, everyone, for joining us a little bit earlier today. Our call is being hosted by Dr. Jalal Bagherli, Dialog's CEO; and Wissam Jabre, our CFO. In a moment, I will hand you over to Jalal to talk through the company's first quarter performance. First of all, I need to remind everyone that today's briefing and some of the answers to your questions may contain forward-looking statements. These statements reflect management's current views and there are risks associated with them. You can find a full explanation of these risks on Page 2 of the investor presentation. The interim report and the press release can also be found on our website.

I would now like to introduce Jalal, who will run through the business review. Jalal, over to you, please.

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [3]

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Thank you, José, and good morning to everyone. We started the year on a solid footing, posting revenue before the -- above the midpoint of our guidance range, delivering record underlying gross margin and continued strong cash flow generation.

First, let me outline some of the progress we have made since our Capital Markets Day in November on Slide 4. On 8 April 2019, we closed the landmark agreement with Apple, which strengthened our long-term partnership, while generating immediate value for certain PMIC technologies. At the Capital Markets Day, we said that from 2018 through 2022, we expect a CAGR of between 30% to 35% of those products not covered by the licensing agreement, and this growth is to be front-end loaded.

Revenue growth from our largest customer, excluding main PMIC licensed products, was up 92% year-on-year. Design win momentum is continuing there, and we are expecting revenue from new contracts to be realized over the course of the next 3 years. One of the strategic initiatives in power management is to leverage our technology into the automotive and computing and storage end markets, and there's plenty of fresh opportunities here.

To give you a few examples, we have increasing customer engagement from multiple product lines, such as Bluetooth low energy and power management. For infotainment and ADAS power management alone, we have now over 30 design engagements, including customers in Japan and China, with approximately half expected to be in production by end of 2020 as well as multiple engagements in gaming consoles and solid-state drives in Japan.

In consumer IoT, we made good progress in 3 separate fronts. First, we've expanded our customer base organically, making encouraging progress in connected health with our Bluetooth low-energy products, where we are currently engaged on projects with a number of Tier 1 pharmaceutical companies developing applications such as insulin pen. Second, we extended our Bluetooth low-energy offering with the launch of the latest member of the SmartBond family. To meet our customers' increasing requirements for wearables, we have doubled the processing power, doubled the battery lifetime compared to its predecessor. It is by far one of the most advanced feature-rich Bluetooth products we've developed to date. Third, on 7th of March, we announced a definitive agreement to acquire FCI, Silicon Motion's mobile communication product line, for $45 million. The acquisition provides Dialog with a rich portfolio of complementary connectivity-based products that includes ultra low power Wi-Fi SoCs and modules, which FCI began ramping production of in Q4 2018.

Turning to Slide 5. Let's take a close look at the acquisition of FCI and what that business adds to our portfolio. FCI has a 100-strong engineering team based in South Korea focused on the development of ultra low power Wi-Fi SoCs. These SoCs are primarily targeting battery-operated IoT applications. This is part of our IoT strategy to expand our product portfolio with complementary technologies, which create increasing value for our customers in high-growth segments of our target end markets. Our customers increasingly expect us to meet a number of use cases. Adding low-power Wi-Fi to our product portfolio allows us to target more effectively an increasing number of smart home applications, a high-growth segment of consumer IoT. We are the #2 player in Bluetooth low energy, and adding low-power Wi-Fi to our portfolio will help us meet a wider range of customer requirements.

Together with FCI, we can build our current products, offer combination Bluetooth and Wi-Fi solutions and continue to drive innovation and value for our customers. FCI is also the leader in mobile TV SoC, a long-standing business with a stable revenue stream and strong cash flow generation. FCI's product line reported approximately $30 million revenue in 2018 with an associated gross margin of approximately 51%. The transaction is expected to close later in 2019.

I would like to run through some further detail on FCI customers and technology on Slide 6. The ultra low-power Wi-Fi SoC developed by FCI was built from the ground up concerning the requirement of battery-operated IoT applications. It enabled the connection of IoT devices directly to the Internet. Many of the smart home applications used today still require an additional step before connecting so incorporating low-power Wi-Fi removes this step. There is a significant market opportunity available as the number of Wi-Fi enabled device increases with more objects becoming connected in your home. The Mobile Phone segment is already 90% Wi-Fi enabled but penetration in the smart home market is still in the low 20s. Examples of the type of applications we are targeting are smart door locks, bells with integrated security, IP security camera, smart speakers, wearables and point-of-sale cameras. FCI has had early access -- early success with multiple customers in Asia and North America, and there is a significant opportunity for FCI to leverage the power of Dialog sales and distribution channels to expand its customer reach, particularly with our existing Bluetooth low energy and streaming customers.

Before handing over to Wissam to cover the financial performance in Q2, let me summarize on Slide 7 why we are confident about the future of our business. The success of Dialog starts with the courses of capabilities, brand adopt and deep mixed-signal expertise and power efficient design, which has become increasingly important in today's connected world. We are continuing to build on that strong foundation, while sharpening our focus on the fast-growing segments of IoT, mobile, automotive and computing and storage. The close agreement with Apple positions Dialog for robust earnings and strong cash generation with visibilities through to 2022 as we continue to win design engagements with them. Our strong balance sheet gives us the financial flexibility to pursue our growth strategy, both through organic and inorganic investments, all of which gives me confidence that Dialog is well-positioned to create shareholder value over the long term.

Wissam, over to you, please

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [4]

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Thanks, Jalal. Good morning, everyone. First, let's take a look at an overview of our performance on Slide 9. We'll go into more details shortly but there are 3 points I would like to note here. First, Q1 2019 revenue of $295 million was above the midpoint of our March guidance range while down 11% year-on-year. Second, our underlying gross margin was 49.6%, 240 basis points above Q1 2018 and our highest on record. Third, we continue to deliver strong free cash flow of $28 million during the quarter, while continuing to invest in our business.

Our free cash flow margin was broadly in line with Q1 2018 at 9.5%. On the next slide, I would like to give you some additional color on our revenue performance during the quarter. On the right-hand side, you can see the first quarter revenue broken down in the same way we showed it at Capital Markets Day in November. Two key points I would like to highlight from this data. First, if you look at the blue section of the chart, as Jalal mentioned earlier, revenue from our largest customer, excluding main PMIC products, was up 92% year-on-year. Design win momentum is continuing, and we are expecting revenue from new contracts to be realized over the course of the next 3 years. Second, the combined revenue of Advanced Mixed Signal, connectivity, automotive and industrial and products not covered by the Apple licensing agreement was up 14% year-on-year. Our key growth technologies outside of mobile systems continued to perform well and attract increasing interest from customers. Despite challenging market conditions, revenue from CMICs was up 6% year-on-year. Revenue from new audio products more than doubled year-on-year albeit from a low base as consumer demand for a better audio experience requires more complex audio solutions, and market adoption of standard connectivity technologies such as Bluetooth low energy for consumer IoT products continues to increase.

Demand for BLE products was softer during the quarter, partly due to the expectation of new product launches. In Q2 2019, we expect Bluetooth low energy to grow sequentially. Finally, it is worth noting that while demand in China impacted volume across our RapidCharge products, we maintained a commanding market share in the segment. We expect market adoption of new charging technologies, like USBPD Type C, to accelerate in the second half of 2019.

Turning to Slide 11 to cover gross margin. Q1 2019 underlying gross margin was at a record level of 49.6%, up 90 basis points sequentially and up 240 basis points year-on-year. This is our highest gross margin on record. In Q1 2019, there were 2 nonrecurring items that resulted in a positive impact of 80 basis points. The remaining year-on-year increase was mostly due to product mix and lower manufacturing costs.

Before moving into operating expenses, I'd like to remind you that we adopted IFRS 16 leases, effective 1 January 2019. This had little impact to our Q1 2019 P&L, and you can find full details in Note 15 of the Q1 2019 Interim Report.

Let's now turn to Slide 12 to discuss operating expenses. Q1 2019 underlying operating expenses were $103.7 million, down 1% from Q1 2018 due to lower R&D expenses. Underlying R&D expenses in Q1 2019 decreased 1% compared to Q1 2018 to $72.3 million, mainly due to lower personnel costs. This also included $2.4 million of headwind from higher amortization and lower capitalized development costs. Excluding this, underlying R&D expenses would have dropped by approximately 6% year-on-year. We continue to invest in R&D programs that support new areas of revenue growth. Underlying SG&A expenses were in line with Q1 2018 at $31.4 million. As a percentage of revenue, SG&A was up 120 basis points from Q1 2018 at 10.6%, reflecting lower revenue. Finally, trailing 12 months operating expenses as a percent of sales was slightly above Q1 2018 at 29.1%.

Moving on to Slide 13 to run through profitability. In Q1 2019, underlying operating margin was up 20 basis points to 16%, while underlying operating profit was down 10% year-on-year. Lower operating profit was mostly the result of lower revenue partially offset by disciplined management of operating expenses. If you look at the chart showing the breakdown by business segment, underlying operating margin for Mobile Systems remained resilient at 20.3%. Underlying operating profit for Advanced Mixed Signals and Automotive and Industrial was $1.8 million and $1.1 million, respectively, both down year-on-year due to lower revenue.

Underlying operating profit in Connectivity increased from a low base to $5.3 million, and underlying operating margin improved to 17.1% compared to 1.2% in Q1 2018. The combined underlying operating margin of Advanced Mixed Signal, Connectivity and Automotive and Industrial was 20 basis points higher than Q1 2018. And lastly, corporate costs dropped by approximately 2/3 year-on-year to $3.8 million. Underlying effective tax rate in Q1 2019 was approximately 20.5%, down 50 basis points on Q1 2018. Underlying diluted earnings per share for the quarter was $0.49, 8% below Q1 2018.

From earnings, let's go to Slide 14 and take a closer look at inventory and cash. Compared to the previous quarter, inventory value increased 4% sequentially, representing a 33-day increase in our days of inventory. During Q2 2019, we expect inventory value to increase from Q1 2019 in line with seasonal trends, and days of inventory to remain broadly in line with Q1 2019.

At the end of Q1 2019, our cash and cash equivalents balance was $690 million. Cash flow from operating activities during the first quarter was approximately $42 million, 16% below Q1 2018, mainly due to working capital movements and timing of income tax payments. Free cash flow for Q1 2019 was $28 million, down 12% year-on-year.

Free cash flow margin was broadly in line with Q1 2018 at 9.5%. The share buyback program that started in early November is still running, and the appointed bank continues to buy shares for up to EUR 150 million. In summary, during the first quarter, we have delivered another set -- another solid set of results, with revenue above the midpoint of our guidance range, record gross margins and strong free cash flow generation, while investing in growing the business.

Before we open the call to questions, I would like to talk about the Q2 outlook. Our guidance is favorably impacted by the recently completed license and asset transfer transaction with Apple. As you have seen in the press release, in our Q2 revenue guidance, there is a material difference between IFRS and underlying, and it's driven by a one-off license revenue. In Q2 2019, we anticipate IFRS revenue to be in the range of $438 million to $478 million. This includes one-off license revenue of approximately $145 million, which will also impact Q2 2019 IFRS gross margin.

Q2 2019 underlying revenue is expected to be in the range of $293 million to $333 million, including approximately $6 million of ongoing license revenue. Q2 2019 underlying gross margin is expected to be flat to slightly above Q1 2019. Additionally, in Q2 2019, we expect approximately $9 million of nonrecurring engineering income relating to the Apple transaction within other operating income. In line with our March guidance, FY 2019 underlying revenue is expected to decline from FY 2018 by single-digit percentage points and to be second half weighted. We now expect full year 2019 underlying gross margin to be above that achieved in full year 2018.

Operator, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question on the phones comes from Andrew Gardiner from Barclays.

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Andrew Michael Gardiner, Barclays Bank PLC, Research Division - Director [2]

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So one main question, and I know it's just a quick follow-up on the license payment events, all right? So the second quarter, you're calling underlying revenue to be up quarter-on-quarter -- sorry, flat to up quarter-on-quarter, that's above normal seasonality we've seen for the last few years. Can you just talk about the drivers that you seeing within the end markets that is leading to that? And then quickly on the licensing payment, Wissam, you described the sort of one-off elements in the second quarter. Can you just confirm that, that is -- it's not impacting cash? Indeed, the $600 million payment already, sort of, is related to some of that one-off licensing that you're now seeing in the second quarter?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [3]

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All right. Let me take the first question. The -- so we are indeed guiding for a higher Q2 over Q1 sequential increase. And by the way, we expect the second half to be also higher than first half as we've said in the guidance. The reason for sequential increases, essentially, Q1 -- I think this was well sign-posted by everybody, not just us, was pretty soft, particularly in the mobile market and particularly in China. I think those effects are wearing off, and I think towards the end of the quarter, we started to see better take up and indeed, the flow that we see today is indication that we'll have a stronger Q2. Part -- outside the mobile, in the IoT, we mentioned, for example, our Connectivity products, et cetera -- well also in Q1. Part of that was because some of the products we are targeting also got production in Q2 -- start production in Q2, and we have a higher expectation of revenue in Q2 for also our Connectivity. And so one, I think, was Mobile China with things like USB-PD. Second was IoT connectivity, which is more related to product launches.

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [4]

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Let me cover the second part -- or your second question, Andrew. The license revenue in the second quarter is a result of the accounting treatment of the transaction with Apple. It is not additional cash, it is part of the $600 million on the transaction. It's just a part of how we're accounting for it. Our accounting hasn't yet -- is still not finalized, and we will be providing more details hopefully at the end of Q2 with a bit more clarity. But yes, that's not impacting cash. It's mostly a result of the accounting treatment.

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Operator [5]

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The next question comes from Sandeep Deshpande from JPMorgan.

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Sandeep Sudhir Deshpande, JP Morgan Chase & Co, Research Division - Research Analyst [6]

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Can we, I mean, understand, Wissam, how this $145 million one-off that you are also reporting in Q2, is this also some kind of accounting treatment associated with this thing? And how we should be looking at this whole transaction going forward? Because it's slightly confusing me about the cash generation from these different parts of it. That's the first point. The second point I have is on the business mix itself. I mean, Apple is declining as a percentage of your sales going forward. And with that, I would expect your gross margin continues to grow year-on-year for multiple years given that historically for most suppliers, Apple's gross margin is -- gross margin of products sold to Apple is lower. So would that be a correct way of looking at it? And then thirdly, with regard to the new Apple product, I mean is there going to be -- you talked about doubling that revenue from Q1 '18 to Q1 '19. Is there new design wins ramping up into the second half of this year? And thus, that non-PMIC Apple revenue -- or mini-PMIC Apple revenue continuing to grow at these sort of rates?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [7]

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Okay. So maybe I answer the last 2 questions and then Wissam will answer your cash generation question as the last thing, if that's okay. So I think you're talking about the Apple declining and will the gross margin be growing? I think that the business we have with Apple is -- gross margin is in line with what you would expect in the mobile market because of the volume. So I think a more probably better way of putting it is as we diversify Apple mobile into IoT, automotive and others, we expect the gross margin of the product portfolio to improve. So I think that assumption would be valid if the proportion of nonmobile revenue continued to grow more than the mobile revenue. So your last question was in terms of new Apple products. Absolutely, we have products going to production. Actually, late Q1, we have products coming in terms of sub-PMICs. They indicated that a while back the sub-PMICs continue to go to production with the new phones and new other products throughout the year. So yes, this is not a revenue from old products that we're reporting. These are constantly refreshed with new products and beginning new designs to work on as we've indicated in the press release. So this is why we indicated in the Capital Markets Day such a strong confidence in the sub-PMIC and other PMIC business portion to growth 30%, 35%-plus per year on average over the course of 2018 to 2022. But we also indicated that it would be front loaded. So we expect a lot of growth in the early years and as we then get to a larger number it starts -- the growth will decelerate but there will still be growth.

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [8]

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And Sandeep, for the first question, maybe I'll talk a little bit conceptually about how the accounting works. Given that it's still not final, I'd rather not talk about the exact numbers. So the way to think of it is if you recall, the transaction had the 2 elements: it had the $300 million there for licensed and employees and asset transfers; and another $300 million that relate to the prepayment. So the first $300 million relate to the license and asset transfer will be accounted for into really 3 main categories. One is, as part of the asset transfers, we do have also design centers that are transferring. And so those would have a certain value allocated to them. And the way it works is we will be, in Q2, recording gain on the sale of asset depending on what that value is minus the cost basis. The second category will be a one-off license revenue, which is what we're calling out, that 3D constituting the main difference between our IFRS revenue and underlying revenue in the second quarter. And then the third category would be an ongoing license revenue, which is what we're including -- a small portion that's included in our underlying revenue, and that is expected to last for a few years. And so this is really how to think of the accounting. As I said, we will be providing additional details as the accounting finalized. But at this point, we wanted to make sure that you guys have enough information for Q2 to model it correctly.

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Operator [9]

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The next question comes from Achal Sultania from Crédit Suisse.

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Achal Sultania, Crédit Suisse AG, Research Division - Director [10]

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Just a question on gross margins, Wissam, maybe. I think if I look at Q1, you had a 80 basis points of one-off benefit in your Q1 margins. Q2 will have a benefit from the $6 million licensing. If I take those 2 numbers out -- benefits out, it still seems that you're talking about a gross margin decline of about 100 bps unless your gross margin is up sequentially in Q2. So given that revenue is actually rising sequentially, just trying to understand why is your gross margin guidance not higher in Q2?

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [11]

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Thanks, Achal. Good question. So in Q1, we did call out the 80 basis points nonrecurring. So if you exclude that out of the 49.6% underlying gross margin, we ended at around 48.8%. And this was driven, as I noted on the call -- or in the prepared remarks by, mostly by the mix and the manufacturing cost. And so on the mix, we did mix to a slightly older -- more older products that help us -- that sort of helped expand a little bit our gross margin. As well as, we sold a lower content of the power conversion business with the China headwind, which as you guys know, typically has a slightly lower gross margin than our corporate average. And so that helped us. We did also improve manufacturing costs and we did see that our ASPs to be more resilient. So what we're guiding for Q2 is flat to slightly above, including around the $6 million of licensed revenue. And I wouldn't want to, sort of, go into whether it's flat or slightly above, and this is why the guidance had that. And so you could make the assumption that the underlying business, I would say, is still -- look, I'm not going to call it flat but, nonetheless, you can assume it's more or less flat. I don't know if that helps.

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Achal Sultania, Crédit Suisse AG, Research Division - Director [12]

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Just to understand it correctly. Like, you're basically assuming some headwind from product mix going into Q2. That is precisely what's causing the variability?

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [13]

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No, that's not what I'm saying. I'm saying if you adjust for the 80 basis points, you could assume that the business is more or less flat -- their gross margin, sorry, is more or less flat into Q2.

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [14]

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In the commentary, Achal, we pointed out 80 basis points sort of is a likely one-off positive in Q1. So if you remove that and you're still flat to up, that means that we're actually improving the mix. But we end up with flat from a numerical point of view, the Q1.

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Operator [15]

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The next question comes from Mitchell Steves from RBC.

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Mitchell Toshiro Steves, RBC Capital Markets, LLC, Research Division - Analyst [16]

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Can you hear me?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [17]

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Yes. Just about.

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Mitchell Toshiro Steves, RBC Capital Markets, LLC, Research Division - Analyst [18]

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Okay. Great. So I actually wanted to turn the conference a bit to the operating margin line. So even though the gross margin's been stable here, I think it's pretty difficult to figure out what the run rate OpEx is considering you guys are going to go through a transition with Apple. So is there any way you could walk us through how the employee count should look like post-Apple? If there's any sort of change you guys need to make? Or if this is kind of a steady-state quarterly OpEx we should expect over the next couple of years?

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [19]

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That's a good question. If you recall, when -- in prior calls, we did indicate and say clearly that the impact of the transaction itself would be around $35 million lower annualized OpEx, which would be estimated at around $8 million to $9 million per quarter on a run-rate basis. So the transaction closed on April 8. As you would expect, we start seeing benefit from the lower OpEx run rate in the second quarter, in this current -- basically, the second quarter to the tune of around, let's say, $6 million or so. We do have a bit of a headwind from slightly lower capitalized -- capitalization of development costs of around maybe $2 million. And so this is how I would think, transitionally, Q1 to Q2 on the R&D side, I would estimate benefit of around $4 million to $5 million. On an ongoing basis, as I said, the impact of the transaction itself is around $9 million on a quarterly basis. So that starting Q3, from the transaction, we should see around $9 million benefit or lower OpEx going into Q3 and Q4.

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Mitchell Toshiro Steves, RBC Capital Markets, LLC, Research Division - Analyst [20]

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Got it. Just to clarify that. So basically, if I were to assume that the operating margins expand greater than the gross margins this year, would that be a fair assumption?

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [21]

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That's -- let me...

Yes. To some extent, I would say it is a fair assumption, especially in the second half. Obviously, with the seasonal trends of the business, you would expect the operating margin to expand more than the gross margin. Keep in mind though that we're also calling out for the second quarter an NRE, and so that should help the operating margins quite a bit. But I'm talking -- in my comments, we're excluding NRE, that specific NRA.

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Operator [22]

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Robin Brass from Hauck & Aufhäuser has the next question.

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Robin Brass, Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst [23]

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Two questions also for me. First is the current acquisition pipeline. I mean after the acquisition of silicon [bausche], can you give us at least some indication how your short list of companies might look at -- look like? Or is anything planned, also maybe for summer? And secondly also for distribution of cash during the AGM, you got permission to buy back up to 15% of share. You mentioned you want to buy back shares going forward. What can we expect here?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [24]

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So let me take the first one. So yes, we are -- we haven't closed the FCI acquisition yet. So we have signed an agreement. We're waiting for the regulatory clearance, which should happen a little later in 2019, so we expect that to be done. Indeed, we are also looking at a number of other deals or targets in the pipeline. So I think they tend to be small to medium-sized types of companies as we've indicated before. And includes also [car route], like FCI was a [car router] for another company, in this case, Silicon Motion. So the market, we still find targets. And at any point in time, we look at 3 to 4 targets. But it does take rigorous analysis to decide the -- a particular target is what we're looking for. They tend to be in mixed-signal technologies. They tend to be in either mobile or IoT or automotive, not surprising because these are the areas we've indicated in our Capital Market Day we are focusing to grow. So we're trying to add to the portfolio of those areas. So that's all I can comment at this point.

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [25]

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And on the cash or the share buyback question. The -- we did -- maybe I'll reiterate that we -- the share buyback tranche that we announced early November of up to $150 million is being executed, and the broker is buying shares as we go. This one is expected to terminate on May 21 so we'd expect a few days after that to finalize and settle. At the AGM, we did request additional approval of up to 15% of the share capital of the company for the next -- for this current year. And so as we said, we do intend to launch another tranche as this one concludes. But in terms of size and timing in terms of maturity, we would be assessing that as it concludes, and we'll be, obviously, communicating it throughout -- after we discuss with our Board what is the right amount and maturity.

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Operator [26]

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The next question is from Adithya Metuku of Bank of America Merrill Lynch.

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [27]

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Actually, most of my questions have been answered but just a quick follow-up. I saw in your press release about some audio chips you're supplying into the Huawei FlyPods. I just wondered if you could give us a bit more color on what exactly these chips are. And any indication as to how big this opportunity could be, as you look at this market expanding -- the [clue] wireless market expanding over the next few years?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [28]

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So yes, I think we've been talking about our audio digital processing part before in the context of professional headset path. So we extended the portfolio into consumer or high-end consumer part, and these are chips that have the SP cores, plus a bunch of other interfaces, processing, power to do ANC and also the [kitted] that are low power codex, analog codex. So we supply that for headset. Increasingly, Huawei is one of the early adopters of that technology. And I think the opportunity is big. We just have to work through, as a newcomer, into that market through the various participants and show our value-add. In addition to the audio processing chips that goes into those headsets, we also interestingly have CMIC products going into those headsets. So that headset alone we got 3 different products. And we are launching this with other headset makers. Some adopt the audio processing. Some adopt the audio and the CMIC. So it varies, but certainly, it is a growth area for us. It's hard to project the exact value for it but as headsets also becomes almost a must-have accessory and get packed in the box with the phone, the volume starts to increase. I note that the one we announced is for a very high-end part of Huawei phone, so it's not necessarily a very big volume but it is a good entry point to a consumer mobile application for audio chips. And we expect the follow-on designs that we get will be for much higher volume and mid-to high end.

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [29]

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Understood. Just a quick follow-up. What is the TAM in a pair of headsets, as in for 2 ear buds?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [30]

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What is what, sorry?

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [31]

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What is the content you get into these ear buds?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [32]

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Content in terms of what it does or you mean price?

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Adithya Satyanarayana Metuku, BofA Merrill Lynch, Research Division - Associate [33]

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In terms of ASP, the other content.

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [34]

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Okay. Yes. I mean I can talk about average, I can't talk about specific customers. So the audio processing chips retail -- we sell those in the $1.5, $2 range. And then audio codex are typically about $0.40, $0.50 and CMICs are typically about $0.30.

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Operator [35]

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(Operator Instructions) We have another question from Sébastien Sztabowicz from Kepler.

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Sébastien Sztabowicz, Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research [36]

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On the Bluetooth low-energy business, could you tell us a little bit what was the base of decline in the first quarter? And should we understand that in Q2, you could already be back to year-on-year growth in the second quarter or it's just sequentially? And also on the Bluetooth low-energy market, you know target market to grow in the 19% range in the next couple of years. While I had in mind that the previous target was more Bluetooth low-energy market growing in the mid-20s previously. What was the reason behind this slight downward revision in Bluetooth low-energy forecast?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [37]

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Okay. I'm not aware -- I'm not familiar with the forecast you're talking about. Is that a market study you're talking about? Or...

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Sébastien Sztabowicz, Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research [38]

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Yes. The market forecast had...

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [39]

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Right.

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Sébastien Sztabowicz, Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research [40]

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It was more 24%, 25% growth.

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [41]

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Right, right. So I can comment from what I -- what we see rather than what the market service says. So the -- I think the Bluetooth low-energy is a very, very strong portfolio for us. So Q1 was purely seasonal and product-related reasons for it being down, meaning that some product launches will take place in Q2 rather than Q1. It was shifted by a couple of months, and that's the only reason. We retain our view on the strength of the market and our participation in the market. So we expect a growth year. And in fact, Q2 will be very strong sequentially to Q1. I don't want to give you more specifics versus other years because Q2 hasn't happened yet. But in terms of versus Q1, I can easily see that we will beat that and much, much more. And in the second half also, we expect higher growth because we already have designs, very, very high-volume designs, that are -- that will be going to production in Q3. So we have high confidence that our Bluetooth continues to have growth. So we look at it on an annual basis because quarterly product launches sometimes happen, sometimes they get shifted by a month or 2 but the fundamentals remain very strong. And we see the market for us to be growing in the 20%-plus range rather than below.

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Sébastien Sztabowicz, Kepler Cheuvreux, Research Division - Head of Tech - Equipment Research [42]

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Okay. And one additional question on the one-off licenses that you are -- that you will record in Q2. Should we expect other kind of very big sizable one-off licenses beyond Q2 2019? Or if you will be more recordings revenue, I would say, on under the way like assets from France and so on?

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Wissam Jabre, Dialog Semiconductor Plc - CFO & Senior VP of Finance [43]

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So Sebastian, the one-off license for Q2 is related to the license and asset transfer agreement with Apple, and I don't expect that to go beyond Q2.

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Operator [44]

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Our next question is from David O'Connor from Exane BNP Paribas.

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David O'Connor, Exane BNP Paribas, Research Division - Analyst of IT Hardware and Semiconductors [45]

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Maybe just one clarification, really, on the Apple business, the design win momentum that you spoke about there. Just to clarify, the -- so the existing sub-PMIC business or power management, the ASP rate for the next cycle. Is that as you would expect? Can that be set to the previous level? That's my first question. And then also this design-win momentum, is that really related to the existing business or wins you already had? Or is there some incremental new win in there?

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Jalal Bagherli, Dialog Semiconductor Plc - CEO & Executive Director [46]

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So I think the ASP varies by sub-PMIC. I think I've given a range before on this call. So some of them are in the $0.50, $0.60, some are in the $0.25, $0.30. We have multiple sub-PMICs, it's not one. So that's the answer to the first question. But is it similar to what we've had before? From a silicon complexity price ratio point of view, yes. So -- but if that's smaller, obviously the ASP would be lower, but in terms of proportionality, yes. It is in similar range of pricing. In terms of momentum, yes. We do not put momentum on a press release if it is an old product. You're talking about new design wins and new opportunities that come our way to bid for. That's what we're talking about. So the momentum continues. We are landing new designs every quarter.

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Operator [47]

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There are no further questions on the phone. So I hand over back to you, José.

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Jose Cano, Dialog Semiconductor Plc - Head of IR [48]

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Thank you. Just want to thank everyone for joining us today. And as usual, if you guys have any other questions, please don't hesitate to contact me or a member of the IR team. Thank you.