Sivers Semiconductors AB (publ) (SIVE) Earnings Call Transcript & Summary

Good morning. This is Anders Storm, I'm the CEO of Sivers IMA, and very welcome to the fourth quarter webcast for Sivers IMA Holding. I'm going to take you through the report today, and I'm going to start focusing on the Q4 numbers. We're looking for October-December. We had an increase of 24% to SEK 25.4 million revenue. That is a comparison then with the IFRS adjustment that has been done, which is then maybe a bit difficult to understand, and we have some more information about that in -- further down in the report. But I'm going to try to help you because if you compare with the numbers from last year, the net revenue was actually up 56%, so there has been some adjustments on that side. The EBITDA is down a bit, minus SEK 3.8 million compared to last year. The main part of that is actually based on R&D capitalization that was done formally in the Photonics business actually once per year only in that quarter, which is then sort of now affecting since 2018. In 2019, we started doing it quarter-by-quarter, and you can see on the full year results that that's more even, so the comparison is a bit off. If you look at the operating income, it was minus SEK 5.8 million and that's also connected to the capitalized R&D as well as the numbers when it comes to write-offs, which has now, in 2019, increased a bit because some of the products have -- get into volume production and we're starting doing write-offs on those. You can look at the numbers comparing to K3 in the different colors, so you can actually see back on the difference how that looked like. So if we look at -- into those adjustments a bit, you can see that there is some revenue adjustments from K3 to IFRS, it's about almost SEK 4 million, and that is actually mostly a move within Wireless -- Wireless business, who has been moved from Q4, actually, 2017 and from the first quarter 2018. That's -- hence, we are changing the revenue from 16 to 20 to the comparison of 25. If we also look at the overall number for raw materials and other external expenses, they have gone up slightly, all gone down slightly for -- in IFRS. If we look at the full year, which I think is more prudent actually for where the company is right now, as we talked about before, we will change between quarters. But if you look and zoom out a bit on the overall picture, you see that revenues are growing and 35% year-on-year. It's the figures a bit more if you look at what we presented a year ago. Also on the EBITDA, we have a positive change. And operating income, the difference mainly there is based on the write-offs, I would say. And if we look at the overall year, actually, and see what's happened to the 2018 numbers, which has -- the main difference is actually that the comparison number, we have an operating negative income of SEK 102 million last year, and that is now improved by SEK 32 million, and that is basically the write-offs -- write-downs of the purchase of CST Global in 2016, which is now removed, so the result on bottom line have improved by almost SEK 30 million, therefore, the comparison is a bit difficult to understand. Also revenues has increased a bit due to this over the year. Otherwise, it's basically also the other external expenses has gone down a bit as well. So in total, it's SEK 32 million. Also other external expenses is connected to the leasing costs and how it's handled differently in the IFRS. If we look -- as I said, zooming out a bit, we had an increase of SEK 32 million. And we've looked back in 2018, we had a turnover of about SEK 18 million based on the K3 net revenue. So now we're just looking at net revenue. I think it's important to understand that the gross revenue that was reported in K3 is something completely different than the numbers reported in IFRS. So it's not possible to compare what we in Swedish kronas [indiscernible] as a thought because that's very different. So if we look at the 2018 and '19, they are both now comparable in those numbers. And unfortunately, we did not meet the SEK 100 million. I think we would have done that on the K3 maybe, but yes, let's go for that next year. If we look at the segment reporting, January- December 2019, we see that both businesses are growing, healthy growth: 32% in Wireless, 36% in Photonics. Our largest market still is North America, 65%. And a lot of the growth comes from the North American market, the 63% growth, and it's very much connected to the Fortune 100 customer, which I will tell you more about just in a few minutes. Europe is the second-largest market and Asia is the smallest at the current status. So if we look at the significant events for October-December 2019, and I'm going to go into these in detail, but the number one, one is connected to our partner, IDT, we've now been partner for quite some time, and they have released a new modem, which we are out-of-the-box compliant with, which is very good. And it's also connected to the high-volume market on the CPE side, where they have that. We also signed a supply agreement with Blu Wireless, which has been a partner with us for quite some time, but they have also started delivering more system type of things, especially in the track-to-train business. And we have also evolved the partnership into a customer relationship in that end. Another very important statement was that we have signed a collaboration agreement with NXP, and they have a first class 5G-NR modem application that we're working on, and I will tell you more about that just now. So these are very, very important things happened for the Wireless business in Q4. And in Q4, we worked a lot in the Photonics business to deliver on the Fortune 100 customer, and the biggest sort of orders came in Q3 for them right now. If you look at the partnership with NXP, they have a programmable modem called Layerscape, which is a very sort of easy modem to work with. And it's sort of a software-defined modem where the customers can define layers on top of it, which is quite interesting. We are starting integration. They have their hardware ready and coming out from the factory just about now actually. And we will start integration and hopefully have a first module integrated on prototype levels by the first half year here. This is also for the licensed band in the 5G. An unlicensed band will come later, but we're seeing a big push for what's called 5G NR-U, which is the latest spectrum and everything that was decided in the World Spectrum Conference in October last year, which is very positive for us, being one of the few that has commercial radios out there on these frequencies. So you can read a bit about NXP here, and I am -- it's not very well known, in general, I would say, all over the world. But NXP is one of the larger vendors when it comes to semiconductors and a great partner, and we have a great relationship with the team that's sitting in Austin. And our CTO was actually just there this week. So this is progressing well. If we look at IDT, we've been a partner for quite some time now. I think it's over 3 years. We have products out there in the market with them, commercial ones working in London and other places, and that's with their current 6050 dual modem. The 6051 modem, which the press release was about, is the single modem, which is now out and is integrated into the first CPEs. And I think CCS would be the team who has them first, and we'll get out with their second version of the CPE module by early this year. So this is moving in the right direction to have a lower-cost home unit where you can access the fixed wireless access port. IDT, for you who don't know them, it's also a quite large company. They were recently acquired by a Japanese conglomerate called Renesas. It's a long story behind that company, but it's many of the larger semiconductor companies in Japan created Renesas, I don't know, less than 10 years ago, and they now bought IDT for SEK 66 billion last year. IDT is a very well-known supplier in the market. They have been, sort of, for example, chosen at -- as the Best Supplier Award for hardware company category in 2017 to Ericsson, which is quite interesting as well. If we look at Blu Wireless, they have been a partner now for also quite some time. They're sort of the guys behind the technology that IDT is using. So they are a mix of an IP company, selling IP within the baseband parts as both software and hardware, but they are also connected to their own technology, where they're actually building full systems. And I recommend you going out on the Internet and looking at all the different videos they have showing high-speed communication with cars, with trains and so forth, and they've really focused on that over the last couple of years. And they have had a couple of sort of commercial wins, one is with First Rail in the U.K., which is now rolling out technology, and I'm going to talk more about that. And delivery for us now, we're delivering thousands of units for this deployment in Q1 at this point. And it's not just for the track-to-train connectivity, where you get 1 gigabit per second plus into the trains all over the track, but it's also for fixed wireless access in the future, where they're working on a couple of white-label type of boxes for mobile operators to use for fixed wireless access. So here, you can see some picture of their -- what they call their SurfBlu, which is their track-to-train millimeter-wave product. I don't think this part is fully commercialized yet. The ports you can see is on the left-hand side that they are using right now, and they're getting very good traction on this. If you can see around this picture, you can see the first operational deployment that is happening now in Q1 is going to be in -- with South Western Railways. It's a company actually owned by First Rail. And First Rail is the system vendor and the supplier of the technology, and Blu Wireless is their sort of go-to technology provider that supports them with software and hardware, including our hardware. I would say, what's interesting with the track-to-train industry is that it's not so sort of price-sensitive and the margins of selling things in here versus fixed wireless access is quite much better. So what significant events have happened after we closed the Q4? Yes, we have confirmed 4 new design wins in the 60-gigahertz unlicensed spectrum, which is a major step for us, of course. I will talk more about those. And also CST Global has now gone from calling the business unit from Fiber to Photonics. And there's a very good reason for that. We have a lot of traction within new verticals that I'm going to talk more about and what we're doing there. And the happy news that came out yesterday evening is that we now have signed sort of a supply agreement with Cambium Networks, which is a fairly large company in the U.S. that's going to provide 5G-millimeter wave solutions for wireless broadband in the whole world based on this technology. So that is a major step for us, and I'm very happy that they have agreed to sharing the names and everything as well. So if we look first at the 4 new design wins. As we talked about, we are selling evaluation kits, and I've said that something between 20% to 40% of the evaluation kits would convert into design wins, and then the design wins will convert into supply agreements. And those 20% rate is now reached already after 11 months. With this, we have now a total of 16 design wins. And these design wins are in several different areas, and one of them is point-to-point things, more traditional point-to-point; another one is in steerable point-to-point; and also another one is in enterprise business. So you will, over time, see that we are providing our technology into more and more verticals, and over the coming 10 years, the 5G technology will go everywhere where it's needed, so this is just the beginning on how this can be used. So why is it suddenly showing up point-to-point links. So one of the reasons for that, and I've made a study. If you look at this picture, you can see Ericsson, a Microwave Outlook Report, they come out with a report every year, how much sort of wireless backhaul is needed from the base station back to the core network. And if you look at their prediction in 2022 just 3 years ago, they were predicting that sort of 80% or almost 100% of the business in 2020 would need 200 megabits per second from the Edge, as you can call it, when it comes to the base station. If you look at the new report that came out in October 2019, just 3 years later, they are now estimating that something like 80%, if you look at the suburban and urban connectivity for microwave backhaul, will be above 1 gigabit per second. So Ericsson miscalculated this by a factor of 5, something like that. So that is now driving the millimeter-wave business into the point-to-point links. So -- and of course, 5G, if you've seen the first installations with, for example, in South Korea, that are using sub-6 gigahertz 5G, even if we are not in that business, but it actually drives the backhaul business, where the technology is now more interesting. So this is a quite interesting move and sort of a new vertical in a way for that technology that we have developed in 60 gigahertz, specifically. And if we look at the Cambium Networks, that is an extremely important contract for us. It's a very long-term contract. It's not just about this chip. They were actually part of paying and investing in the earlier chip, and they are -- we are now sort of already planning the next-generation chip together with them. So this is not just a single partnership. They are a leading provider in wireless connectivity in all of the world. They have a lot of different technologies. Their total turnover is about 2 billion -- SEK 2.6 billion. And their headquarters is outside of Chicago and they have R&D centers in the U.S., U.K. and India. And they're quite well-known company in the U.S. And I would say, one of the larger Tier 2s, which we're very happy that they have chosen us. The technology they're going to use is our chipset, the TRX BF02, which supports 24 to 29.5 gigahertz, and it's licensed band then and this will land directly possible to use in the U.S. millimeter-wave 5G market when that is now taking off. And the commercial deployments are expected to begin in the second half of 2020, and then we start the growth. I've got some questions around sort of, "Okay, how big is this? What's the sort of order value and so forth?" I mean we're not really allowed to go out with that number, but I've been writing a blog about this earlier, how big a Tier 1, Tier 2, Tier 3 could be. And I would say that if you look at this, both long and short term, so I think that it's a good order value over the 2 to 3 years. And then of course, this could be a much longer partnership. This is a long-term contract. But I mean this is going to be a growing market that's going to grow between 50% to 100% over many years. And their customers -- typical customers have something like 20,000 to 200,000 subscribers when it's a service provider, so then you can try to calculate that from there. But I would definitely say that this is falling within the larger Tier 1 -- Tier 2 companies and will be providing large volumes in the future, and I hope to come back to that in the end as well. So if you look at different design wins then, so we have 16 now. As I said before, it's the European point-to-point link company. It's another one which has a point-to-point links that are with steerable antennas is the new. Then there is a new area that I can't go into, but that's also going to be quite interesting, and it's actually in a new vertical. And then it's also within enterprise, sort of industry sort of stereotype type of vertical is the other U.S. company that has chosen our chipset now with the new ones. And as you can see now, I've changed the name from North American point-to-multi-point company, and it now says Cambium Networks instead. So we're working really hard, and I know many of you are asking for the names of the customers, and we are trying our best to provide them as soon as the customer are comfortable with sharing it. So we keep on building on this list. Our goal is to convert as many as possible here into supply agreements. And as you know now, we have Blu Wireless, and we have Cambium Networks signed. We are working really, really hard on the ones that actually now are quite much further gone, like that CCS and Fujikura. That some of you might have seen Fujikura now also released information about their stuff. So I am quite confident that we will see many of these converting into real business over the year, and I hope to come back to that as soon as possible when that happens. So something about the commercial deployments. One of the commercial deployments is in London around Trafalgar Square in SoHo, and that is -- they are using CCS technology. And it's a company called Ontix, who is a neutral host company. And a neutral host is a company that provides basically a network for other service providers to sell their services on. And the CEO of Ontix, Antony Tomlinson says that, "We need tens of thousands and perhaps hundreds of thousands of new small cells in London alone." That's his sort of statement around this. And currently, there are like thousands yet, but they are working on getting to the next level. So this is a very exciting thing. And if you're around Trafalgar Square, just go down there and look at the boxes. They're quite difficult to spot actually. They're small, but they're up there. So -- and they are now connected to both as backhaul for LTE-base stations, but also has WiFi coverage and fixed wireless access around the SoHo area where you -- they connect some of the media companies with gigabit speeds currently. So if we go in a bit deeper to the Photonics business, I mean that was an acquisition that we have done. We're reshaping the business. We have now a local new MD, Billy, who's running it, and he's a former global foundries guy and has a lot of knowledge in this area. And he is making a big difference now in taking CST to the next level. And one of the parts that we are doing now then is to transform the business from the Fiber into the Photonics and the new area is sensor-sensing parts and the optical wireless communication or the name they call as LiFi, which is light WiFi basically, where you're using light instead of radio waves to WiFi. If we look at what kind of sensors could you be involved in then. So LiDAR is a type of light sensor that is used in assisted driving, driverless cars in the future. And you're using light, and it's a combination of radars, which are used in LiDARs. In every car, it's going to be sort of 5 LiDARs, 25 radar -- 21 radars and cameras to make it the multi-technology secure car that you can drive as a self-driving or driverless cars. So this is a new area where we have a lot of interest from companies that are looking to use this sort of technology that CST can provide. Another area is biometrics and security and sensors where you're using lights to check the eye or the face recognition or gestures or all of that. Or you can also use it for gaming, like virtual reality or augmented reality sensors for that type of thing. And that's for -- a lot is in enterprise and consumer electronics. So here, we're also working on projects right now. Another type of sensor, which is becoming more and more interesting with evolution in the area, SoHo there are -- has certain metrology sensors where you can put them into different consumer electronic devices and you can measure carbon dioxide, nitrogen, oxygen, ozone and so forth. And I'm not surprised in the future, we will all crowdsource this information, and it will be a part of the -- when you're selling your apartment, how good is the air quality where you live? So this is something that's going to happen big in the future. And there, CST also have some very interesting technology. The third part within -- or the second -- or the third leg, if you talk about then, we have the data communication part, we have the sensor part, and we have the LiFi part. This is the sort of more high-end part of the LiFi industry. And there is some LiFi where you use ordinary LED and so forth, but it's also a market where you can do sort of a bit more high-end things with what CST can provide. And we are in discussions with companies here, how we can provide that kind of technologies. And I hope to come back to that during this year, how well that goes or not. So the Fortune 100 are getting a lot of questions on what's happening, and the work is progressing really well. They're very happy with the things we're doing. We're seeing several new R&D projects possibilities with them. We are considered -- we are now an approved vendor, which is one of the sort of difficult things to do with these companies when you get on the inside and then suddenly, other projects within that company can start sort of buying things from you, and that is what we're seeing now. We are being considered for that. As you know, we've got a couple of orders in Q3. We were not able to deliver everything as we had hoped for in Q4 and Q3, so there's about 5 million who was being moved out into Q1, and we're, of course, expecting to get follow-on orders on this. If we look at -- we've never been able to tell you what this is about. They're still very secretive, but we can say like this, this project is within the new verticals. And it is for high-volume consumer electronic products. So that is what we can say right now. We are also hiring staff right now from -- in Glasgow to support the next steps with this customer and working a lot on sort of securing quality on these products, so they can be part of large volume consumer electronic products in the future. Very exciting project. We're very happy to be part of it. And I would be even more happy to give you this name when we can than I was for Cambium, I would say. So we're also progressing on the work on the NASDAQ main list, the move. We are doing detailed work. We have now consultants helping us doing it. The biggest thing we've done, of course, was the IFRS conversion, which is imperative to be able to move over. But we're still focusing on the business. I mean it's quite important to grow, make sure that we're doing the right things. We are taking the time that is needed, therefore, we don't have a date right now when we do -- go and do the move. It's not up to us 100% either, of course. It's up to the NASDAQ auditors to decide. Right now, the work is centered around the code of conduct and the corporate governance of the Swedish regulatory body. And it's a lot of things that's happening. You now need to have certain parts of -- the Board have to have audit committees and all the things. And that is getting in place now, so -- or we have it in place, actually. So it's a lot of work, but it's still quite good as well. It also secures the quality overall of the company. Moving from K3 into IFRS as well has been sort of an improvement, and it also helps to improve the processes within the company as we go ahead. So it's not working in any negative way. It's a positive way that we're doing it, or we need to do it in the right speed. So I assume all of you have a lot of questions about Mobile World Congress. And of course, it's sad that it hasn't happened. I've been there, I think, 20 years in a row and I'm not going and I feel strange. First time I'm home at the Sportlov in Sweden, as we say, for this week. It hasn't happened for a long time. But we have -- we were suspecting this quite early that this would happen, so we have been performing a lot of work from our side with the customers and partners and everything and are doing sort of recordings now of all the demos we were supposed to do. We are doing -- booking the meetings and booking video conferences and so forth. And I think that's -- it's going to be a sort of limited impact in the long run on this. Short term, it might be some impact, but we have quite good relationship with the people we are supposed to meet, and we will meet them anyway, and we will go to them. So when it comes to the different press releases, you can see a teaser on the sort of slide here. And this is something we're really excited about, and I hope that we soon can do a release about this information anyway. We will do a press release on that. And we have another couple of press releases coming out about products as well, centered around what we would have released for Mobile World Congress. So that will go on as planned even if the congress is not happening, and we will book the meetings and present this to all our different customers. You can also see on the left- and the right-hand side here a new sort of way of presenting our old chipsets. This is a bit more modern and a cooler look and feel that we have brought forward also to this -- to the World Mobile Congress. So it's sad that it doesn't happen. We need to stay safe, everyone. I -- we might need to emphasize on that as well. Of course, it's a lot of people that are suffering in China, and we need to make sure that this goes over, and I really hope it will be gone soon so we can start focusing on the business again on these things. And for all people in China and our partners over there that they stay safe. If we look at the last part here, we have a Capital Markets Day in -- on the 18th of March in Stockholm. It's going to be exciting. This is our first Capital Markets Day. I think we have had collected a very nice speaker list with both partners, customers, partner -- customers' customers and technology from all our sites. I think it's -- there was sort of plus-35 people who have signed up so far. If you want to sign up, look at the financial hearings. But it's also going to be live streamed, so if you don't have time to be their live, please use the link, and I will send up more information on this, and you can find information on our website later on as well. Thank you very much. That is.