u-blox Holding AG (UBXN.SW) Earnings Call Transcript & Summary

So good morning, ladies and gentlemen. Welcome to our presentation about the half year results of u-blox. We hold this presentation here physically in this room but also we have participants online. So of course, this means everything is recorded. Later when we have questions, we can answer them here in the room, by phone or audio connection to the online audience, but also we will have input from chat. So I'm also here together with my colleague, Roland Jud, our CFO. Present are also more colleagues, especially our Chairman, André Müller. So I will start our presentation with the usual disclaimer about anything we talk here and looking forward, this is the usual provision, as you know. And we will first start with a quick overview then go into the details of our financial results, talk more than the business and, of course, also some outlook. So we all know we are in difficult times. Of course, we have been affected by the crisis that was created by the outbreak of the coronavirus. And our revenue has declined by roughly 9% but also was affected by worse exchange rates, the Swiss franc against the dollar. Without such an effect, the decline was 5.5%. However, we had a stable gross margin. It even improved slightly, thanks to a very solid product mix. That, of course, was very helpful. However, the profit, the adjusted operating profit was lower than in the previous year. Of course, our -- the downturn of business was much quicker than we were able to reduce our cost. And therefore, we have here a deterioration. Also because of the situation, we have taken an impairment, but we will explain that later. This explains then also why the net profit is negative. On the cash flow side, we are negative. At the free cash flow level from operating activities, we see also that this has declined. Of course, the costs were too high compared to what delivered the top line. However, despite the crisis, we were very active strategically. And at the business side, we were able to close an acquisition that is quite pivotal to our company. We acquired Thingstream, a provider of connectivity. And this add-on, we are able to propose to our customers a true silicon-to-cloud proposal and a huge differentiation against any competition. We have all the knowledge and all the capability to bring sensor data into the cloud at a very, very efficient and easy way. So this is through expansion of our offer, and I will explain that a little more in detail later. We also launched, again, new products across all our offer, mainly our cellular chipsets. The R5 was certified by AT&T. That's a major landmark, and this product is in the hands of customers, and we are ramping up here. A very good addition is also that we have mesh technology implemented in our Bluetooth modules. This is a new possibility to network and connect devices over this standard. Then VERA-P3 is our solution for V2X for making everything that is moving more safe because you exchange data about what is the intent of the vehicle, and this helps to reduce accidents and any other problems in traffic solutions. And finally, we also have more modules again in cellular that implement security and positioning features. So here you see the combination, the solutions that we bring together because we have all these technologies at hand. This is very important for our customers because they need such a solution package. So we continue to invest into R&D. We have not halted anything here. We have fully maintained our capacity. We worked from home, but we have framed the company to do that successfully. And now we have to take action with regard to where we go. We will implement cost savings in the amount of CHF 15 million. We must adjust to what is the top line delivering and insofar bring us back to a better profitability, respectively, free cash flow. Now I hand over to Roland Jud to talk the financials.

Thank you, Thomas. A warm welcome also from my side. First of all, I give you a short overview over the financial highlights. I will come in detail to the different topics during the presentation. As Thomas said, we had reached CHF 174 million revenues in the first half year 2020, 8.7% below the comparable period in 2019. The exchange rate impact here is 3.1%. And so at constant rate -- constant exchange rate, the decline would only have been 5.6%. All regions are negative, but at all same affected by COVID-19 and the impact on the revenue, I come to that later. Then the EBITDA adjusted was CHF 24.1 million compared to the CHF 32.7 million last year. And Thomas mentioned it, the operating cash flow of CHF 13.9 million in the first half year 2020 compared to the CHF 33.1 million last year. So as I said on this slide, you see the revenue downturn last year 2019. In the first half year, we have CHF 190.6 million revenue. Now we are at CHF 174 million. EBITDA was CHF 32.7 million in first half year 2019, CHF 24.1 million now. Now the adjusted EBITDA margin is 13.9%. If we look at the regions, the distribution among the regions has not changed dramatically, but you see the revenue decline is only slight in APAC with 2%. There, we had a strong continued business in China and Korea. But also here, you see a negative impact of the crisis on automotive and telematics application. Much more decline in EMEA with 16%. They are much more affected by the decline in the automotive industry. But also here, we see positive signs and increased demand for smart cities, for driver systems and point of sales application. And also due to the -- although that -- we have a decrease in the Americas of 14%, we saw also here some positive signs with the growth in industrial automation and fitness. With that, we have a split of revenues, 40% for APAC, 32% came out of Europe and 28% of our revenues we made in the Americas. If you look onto the market in absolute terms, the industrial market was quite stable. Here, infrastructure and automation is what was stable and therefore, not really a reduction. But automotive market declined. In car navigation, in car connectivity, went down and also the consumer market went down. Most applications are -- have a negative trend, except the fitness application. With that, the market split moved towards industrial. 63.4% of our revenues are made in the industrial market, [ 23.9 -- 23.28% ] in the automotive and 7.3% in consumer market. Now if we look at the volume, the module volume slightly increased with 1.9%. But we had here a sharp decline on the average sales price. Also the average sales price in the chipset market went down, but also here -- but here, you have a decline of 16.4% on chipset. This is due to that consumer and automotive markets went down, where more chipsets are sold than modules, and therefore, you have a decline on this. Also here, you see an average sales price which is lower in the first half year 2020 than in the first half year 2019. So therefore, the revenue split has also moved towards module. 79% of our revenues are made with modules and only 20% are made with chipset. In the past, it was 25% roughly to 75% modules and 25% chipsets. Gross margin adjusted was CHF 79.4 million in the first half year compared to CHF 86.1 million in the first half year 2019. The gross profit margin adjusted slightly increased compared to 2019 first half year to 45.6%, in the prior period was 45.2%. This is just due to the product mix which was shifted towards more margin or higher-margin products. On the cost side, we see distribution and marketing expenses went down from CHF 17.8 million to CHF 15.8 million and were 9.1% of our revenues we spent for sales and distribution and marketing. The R&D expenses adjusted remained stable, CHF 39.8 million in 2019, CHF 39.5 million in the first half year 2020. This represents 22.7% of our revenues. We kept our R&D pipeline. It was fully maintained also through the first half year 2020. But what we also see is a reduced cash out for R&D compared to the first half year 2019, roughly 15% less. The effect is because of capitalization and amortization, which is different in the first half year. And therefore, the expenses remain stable and the cash out for [ R&D ] also was reduced. So overall, the overall income statement on the first column, you see the IFRS figures with a negative EBIT of CHF 65.8 million and a negative net profit of CHF 60 million before minorities, and we did, as usual, some adjustments, CHF 79 million this year, CHF 3.3 million belongs to the share-based payment, CHF 1 million belongs to IAS 19 and CHF 600,000 to amortization of intangible assets acquired. The biggest portion here is the impairment. Thomas mentioned it, CHF 74.1 million. This is due to the current market conditions, mainly in automotive, changes in business plans and expectations. And of this business plan, what they will bring out, and at the end, the refocus of thing of various programs, which leads to some programs to get impaired. And they are, so to say, somewhat impaired or written off now in the first half year. The financial costs consist primarily of foreign exchange losses, roughly CHF 2 million and the interest of the 2 bonds. The other CHF 1 million there, with that, you get -- come to the CHF 3.5 million finance cost. Also in the finance cost contains the share of the loss of the equity accounted investee, Sapcorda, our joint venture, with CHF 1.9 million. For the tax rate -- for the adjusted tax rate, you have to keep in mind, all group adjustments are made at the corporate tax rate with 18.1%. With that, you get then to adjusted net profit of CHF 4.7 million. u-blox still has a strong liquidity position with -- including marketable securities is CHF 100.6 million. The inventory affected by the sudden low demand due to the COVID-19 situation went up to CHF 60.5 million. In December '19, we have CHF 51.6 million on inventories. Trade receivables were CHF 39.1 million. And the capitalized R&D now came down from roughly CHF 200 million end of 2019 to CHF 140.2 million end of June this year. The amortization and including impairment on capitalized R&D was in the first half year, CHF 78.4 million. You can also see that there is a shift between noncurrent and current liabilities. This is due to the bond, which -- or one of the bonds, who is repayable in April 2021. So CHF 59.9 million is now shown on the current liabilities in the comparable period. In the comparable year 2019, it was on the long-term noncurrent. And there is now only the CHF 60.7 million of the bond in the noncurrent. Also the noncurrent liabilities contained tax liabilities of CHF 9 million employee benefits under IAS 19 of CHF 25.1 million and provisions of roughly CHF 11 million. All our businesses' sales breadth, on a wide customer base, we spread over the regions over the applications. We were capable to include our -- increase our customer base. We are serving 7,600 customers worldwide in 2020. In 2019, this figure was 7,200, and we are still not dependent on some 1 or 2 customers. 80% of our revenues we made with 97 customers. The largest customer still accounts for less than 10%, 8.7% in the first half year 2020. And also, the biggest -- 10 biggest customers account for only 27.8%. On the employee side, the end of June, u-blox has 1,080 FTEs in all his companies engaged. The split over the functions is unchanged: 68% is in research and development; 16% belongs to the logistics and administrative functions; and sales and marketing is as well 16% or 174 FTEs working there. The average FTE rate is 1,077. The average increase also due to Tashang which is on the average now in -- and it was before not calculated in. 75% of the employees are based outside Switzerland in 18 countries. Although we had this impairment, we were able to keep our strong equity base. u-blox Group has an equity of CHF 289 million. This is 55.2% (sic) [ 54.2% ] of total assets. So the equity ratio, still high. There in the equity are still the treasury shares for the option for program, CHF 32 million accounted in. If we take out these treasury shares, then the equity ratio is even higher, 56.8 million (sic) [ 56.8% ] compared to 62.1 million (sic) [ 62.1% ] in 2019. And for reference, I also calculated the equity ratio without the IFRS 16 is a change in accounting rules in 2019. Firstly, for the first time, adapted. But without this, you have 56.4% equity ratio. Minority interests are very slow, CHF 200,000 end of the first half year 2020. Although we made the acquisition of Thingstream, which is an acquisition which will belong to the wireless service segment, but as it only is part of u-blox since 1st of April, the impact on the segment information is not material. So still, the wireless positioning and wireless product segment is CHF 173.8 million. The big segment and the intergroup revenues on the wireless services segment is the big revenue in the other segment. This will move over the period of time towards increase to third party revenues with the -- with increase of our service offer. So now last but not least, the cash flow statement. u-blox made a net cash generated from operating activities of CHF 13.9 million. This is negatively impact by net working capital, mainly the increase in the inventory of CHF 5.8 million. For comparison reason, we had a positive impact in the half year -- first half year 2019 of CHF 8 million, where the net -- or cash generated from operating activities of CHF 33.1 million. I mentioned it, we maintained other investment activities. So here, you see our investments in future products and programs. Net investments into intangible is roughly CHF 20 million, CHF 19.9 million and, free cash flow, in fact, is CHF 21.9 million negative. But we have to keep in mind that there is also acquisition cash outflow of CHF 13.5 million calculated in. So before acquisitions and participation in capital increases, we had a negative cash flow of CHF 8.4 million in the first half year compared to CHF 3.9 million in the year-end of June 2019. The cash outflow of -- for acquisitions and capital participation increases splitted as follows: you have CHF 9.3 million net cash outflow for the investment into Thingstream and the joint venture Sapcorda. And Tashang made the other CHF 4.2 million, CHF 3.4 million. Would be above this figure in 2019. So overall, we had a decrease in the cash position of CHF 25.6 million, which leads from the CHF 127 million to the CHF 100.1 million cash end of the period, so end of June 2020. And with that, I finish my overview over the financials, and I hand back to Thomas for -- to give you a business update.

Thank you, Roland. So we were -- kept our activities high, as already said, and especially launched new products that expand our offer that bring more capabilities into the hands of our customers. I mentioned our chipset, the R5 that is made for cellular connectivity in the network with the standard that is called category M and category ND. This is the major standard for industrial applications. It delivers a good bandwidth to cope with the typical applications, for example, fleet management, or a meter, or a point-of-sale equipment, even, and is cost-effective. We have a very strong position in this market with this category. First, we built with modules that we made from third-party chipset and now we are converting and migrating customers to the products with our own chipset that delivers a lot better functionality that helps us to give even more capability and value into the hands of our customers and combines also with our other parts of the offer, the other wireless capabilities and especially with the services. So we are on a good track here. This is a really great achievement, and we will foresee first good turnover this year. In the short-range radio area, we have one event with the VERA-P3. This is our solution for this vehicle to everything connectivity that enables safety applications for vehicles on the road, but it's not only the typical car case. We -- it's also for trucks and between trucks and it's also for heavy equipment, even agriculture. So it's an excellent standard. It is very capable, very high bandwidth but also very secure. And this is a strong position we take here in an emerging field that we want to build-out. And it's not only the mobile part, it's also the infrastructure part that is of interest. Then the other product is called JODY-W3. This is made for, again, improving wireless connectivity in the car, Wi-Fi mainly, also Bluetooth. It has several flavors to cope with different requirements, in long-channel, with dual-channel, with whatever. There should be integrated. It's connectivity in the car, but it's also connectivity outside the car. And this is -- has become sort of a standard in a higher-end type of car, also driven by the electric car where you want to connect to the charging station. Then in positioning, here, of course, we are continually expanding our platform. We go from generation to generation. M9 was announced a time ago, but it is not yet a finished development. We have added more models and more solution to our customers. It is a very advanced solution that delivers more stability, higher performance, sense of -- be better available, be more accurate, be better protected against disturbances and is well serving automotive and telematic applications. Right here, we set the new standard in the industry. And finally with services, the major event post the acquisition of Thingstream that really gives us the connectivity towards the customer makes connection very simple, I talk about a little later. The 2 examples here of customer relationships and solutions. Here is a temperature sensor to help the pandemic. It's simply measuring your body temperature and makes an alarm. Of course, the thing, that needs connectivity. Here it's Bluetooth, low energy. Low energy so the battery life is long. And here we have, of course, many such new ideas how to help the consumer with this situation and, of course, to better track any outbreak. So we see, of course, on that side also a positive effect of the climate. The next example is a water meter, where, of course, we have many water meters deployed in the field and in houses and somewhere, and you want to measure and record how much water is consumed. Most water meter make them wirelessly linked. And here is an example how you can do it again with our products. On the one side, it's Bluetooth and mesh. Mesh means you can connect from one Bluetooth to the next, and they handle the data through this Bluetooth network that is established in [ WaterLink ] , so very automatically. But also you need a low-range connectivity, which is here realized with the category M modem -- module from our side. So it's the combination of [ scalable IoT mesh ] here, the complete solution for this customer. And we help the customer to bring wireless technology quickly into such a product. And you can imagine, while a water meter is basically both a mechanical product in the part, and now such companies suddenly need to add on wireless connectivity, and they are, of course, the ideal customer because we can partner with them to help them quickly to bring the wireless link into their product. So what is happening on the strategic side? We are continually finding our way to do automotive market and can sell more value into the same car. And indeed, we mentioned already, despite the downturn in automotive, we also saw ramp-ups and expansion because we offer more to same car. And here is a nice picture. Suddenly there are 2 antennas on the car, not only one. And why? Because there's more functionality made possible, mainly for driver systems and for automation for hands-off in lane driving and for giving assistance to the driver about pulsing line diversions and exiting on multilane highway. So we sell more by the numbers but also by content. And this is, of course, our strategy, how we can give more solution capabilities to our customers. Then with our acquisition of Thingstream. We are resolving here -- we solve the problem that when you have a standard, when you have a device, how you bring the data quickly and easily into the enterprise cloud. And Thingstream is a full suite of making this possible. The customer has almost nothing to do with everything that is in the network. The only thing is to put a little software piece into the device and to define where is the cloud solution. And between the 2, Thingstream resolved it all. It's delivers also full security. And for the customer, it is very clear cost point of how much this is costing per each transfer on the world the same price. So it helps here to really make the industry connected and especially for those customers that have not yet the knowledge and the possibility to build such a complex thing by themselves. So strategically, we have added our -- to our services leg to complement our hardware offer with security, with connectivity and with location, all as a service, and is essential for giving our customers more capability, a better handle on their product, especially on the lifetime. And of course, for us, it means also recurring revenue that we are building, thanks to this capability and thanks to the fact it is very well integrated and adjusted towards. The hardware piece that, of course, is always necessary, we need a wireless connectivity that is physical. And with this, we believe we have done a really strong step and, of course, are also making sure we do comply with both the ecosystem requiring and the GSMA entity that is sort of the representative of all the wireless activities in the sale of our network, has a security initiative to make sure that devices that are connected to a network are secure and have all the capabilities to protect the interest of our customers and, of course, the end customers that control all the data is always secured. We are joining this initiative and have, of course, products that are bottom-up in the hardware with the root of trust capability to make secure connectivity. Now I come to the outlook. It is difficult to give an outlook with vast uncertainties in the market, as you can imagine. You will know that by your own observations. So we are retracting our guidance for 2020 and also for the midterm, because it is very difficult to make a prediction and especially on how and when and to what extent economies will recover. Our customers are unable to give us any insight at the moment. But the good thing is, and this we see from our sales activity, the underlying growth drivers, they are completely intact. We see its expansion of putting more value into the cars and into any vehicle for more functionality. And the other is in the investment field that the infrastructure is becoming more intelligent and smart and, therefore, connectivity and cloud data handling is a must for all of our customers more and more. And therefore, they required us to sign to teach them as solution package. And therefore, we are building many, many new opportunities. We have more contacts with customers than ever before, despite the crisis, despite the fact we are not traveling. But we can maintain good relationships and successful dealings with our customers and therefore, see good ramp-ups with our new products but of course also for the existing products. So insofar, we remain very optimistic, but the fact is macroeconomics are in recession, and we have to walk through here but make sure we have maintained a very solid position in the market. So this completes our presentation. I'd just like to highlight that we will run an Analyst Day on November 25 and then our full year results are available in March, respectively. Our general meeting is in April next year. And with that, I finish my presentation and invite you for any questions. First, in this room, please use the microphone.

[ Christian Monnet ], Crédit Suisse. Could you just elaborate on this impairment charge for the year? Is it really driven by some sort of structural change? Or is it more of a u-blox-specific issue?

It's probably a combination of both. Of course, it's our programs that we have -- and built and the ideas we had in mind. But of course, it's driven by the circumstances that all the businesses on a much lower level, much lower path. And therefore, business plans are affected and, of course, drive an impairment. Mr. Müller?

Andreas Müller, ZKB. Again, on the same question, I mean, of course, automotive markets are down and then these impairment tests require some sort of outlook. But are there some programs also scrapped completely? And what kind of products are there? And then, can you also give kind of an indication? I mean, is it one large or many small ones you impair here? Just to give more color on that. And if it's really basically automotive or other stuff, too.

Yes. Several questions interlinked here. But perhaps starting from the back, I mean, it's more than one program, but this is clearly because -- you can imagine the evaluation was that the automotive market has its heavy downturn, and all the predictions are that this takes 2 or 3 years to return to previous levels. So we had to revise all our expectations here. And therefore, this has resulted in this impairment. But I cannot make more a statement about what type of projects that has involved. That is confidential because these are products that are not visible. This is not -- have been against our competitive interest. However, what is also important is it's a purely accounting measure. All the knowledge, all the products, all whatever we have developed is, of course, still in our hands. Nothing is scrapped. So insofar, this the wrong terminology. There's no scrap. And of course, we make continued use of whatever we have invested into, knowledge, respectively, products.

And second question on the cost-saving program. You seem to introduce is that this CHF 50 million, is that cash costs you take out? Or is that...

Yes, it means cash. Yes.

Yes, this is [ Roger ], Crédit Suisse. I have a general question about the outlook. I can understand if you don't want to give us more and more color on that. But still, we are end of August. Probably you can give us an update how -- a trading update of June, July. And probably you should have a certain visibility in September. This is question one. Question 2. With that, we have learned that there were supply bottlenecks, shortages in the first half, and you are also a supplier of small products. So I'm wondering whether there's some pent-up demand. And why customers are not building up some inventory to have your products in the inventory?

Yes, that's an interesting question. So again, perhaps the second question first. Our customers know we are an extremely reliable partner, and therefore, they count on us and also order quite short term. So we are the inventory for them and not they have an inventory. But that has, of course, the other side to the Middle East, we have a relatively very short visibility, and this has not improved in the country. Customers have become very cautious about making any commitments to the future. They just buy what they need today and nothing more. We have tried to put -- give us more visibility. We have adjusted certain lead times with customers to have a better idea what is the future, but we cannot change the problem that all these customers have. They have no clue about what is the next business. They live from hand to mouth. So insofar, I'm also not able to give you a better guidance. I would love to do that, but the circumstances are so that everybody is blind.

But the current development is stable? Or it's the same decline like we have seen in first 6 months?

You mean the business development?

Yes.

Yes. I mean we have to recognize, and I think that's general to the industry, the first quarter was probably, for most of our customers and also competitors still the normal quarter, quite good. And the whole crisis started in the second quarter. So insofar, I mean we have a lower level now, and this is continuing into the third and fourth quarter. The question is really what is the possibility that there's an upturn still this year. And this will, of course, be decisive to what is the second half year with regard -- when we compare it for the first half year.

Okay. And probably -- and next one to the impairment, I apologize for that, but impairment, was it product-related or customer-related? And the maturity of these intangibles, were there relative young intangibles or aged intangibles?

So this is -- these intangibles are all development projects. So new products we make and that we prepare to bring to market. And insofar, we have taken impairments because the return of future cash flow is delayed by the fact that all the markets are much lower than what we expected. Mr. Renders?

Rolf Renders from Helvea. Maybe on the opportunity in services. Still relatively small, but now with your acquisition, what for possibilities do you see there? And what are the hurdles to increase that quickly?

Yes, the services we have started end of last year only, so it's relatively young in our company. Of course, we do service these in the technical sense for probably more than a decade. But in the commercial sense, we only have started to build that out end of last year. And with the acquisition of Thingstream, we have accelerated dramatically. And of course, we have built a platform that customers can be served, that they can order a service, that they can add it on to the product. And we had -- we have also structured it to what I said. These are the 3 things: it's connectivity-as-a-service, it is security-as-a-service and positioning-as-a-service. And positioning-as-a-service, we do that for the [ decade ], I said. I mean we deliver billions of data packages every month to the customers that these products work much better. Only we failed in the past to make it recurring revenue, because it was technically not feasible and also economically not feasible. Now with the cloud, of course, the whole world has changed. Everybody has services. Everybody has a recurring revenue model, and this is now where we jump on the back end also. The security is about delivering keys to their products. And to make products safe, you must change these keys from time to time. If you have the same key all the time if once the key is broken, then nothing is secured anymore. So the best countermeasure is you replace the key as frequently as necessary. For example, once a month, or every day, or every transaction, that's the best. So we can help customers here to keep control and have the security guarantee over the lifetime of the product. And connectivity is simply customers have it very simple to bring the data into the cloud. They do not have to deal with anything that is network, that is transporting das through whatever incidents. And therefore, we give them a very quick solution capability, basically, can put it into the product and it works.

Maybe other question on what do you see on the competitive landscape. Our company's getting weaker or stronger in your perception?

That's probably a good question to ask a little later when the crisis is over. So actually, of course, all the competitors are affected by the crisis even more than we, so far as we can read numbers. And therefore, we, I think, are glad that we had a relatively small downturn only in the first half year. But this landscape, per se, is not -- has not changed by -- in the sense of the structure.

Well, just to add on to the competitive landscape, what are you guys doing that your competitors aren't doing yet?

Yes, that's a good question. I think we do several things already for years that others do not. And what we especially do, and we can go back here in the slide that we have this combination between the wireless technologies, the cellular, the short-end radio and positioning and that we make it as an integrated circuit and as a module. This is unique in the market. There's no other such company having such a field of capability and finally an offer to the market. And also that we combine it with services that we have, these enhancing services added to our products. Of course, this is a package of a solution that customers can apply, and they have only one supplier guaranteeing that this is working. And when you look to the examples I have made, for example, this water meter. I mean this customer is very well served precisely with such a package. They precisely need a partner that is able to deliver and guarantee them that they have a successful product in the market. So we take out a lot of risk for the customer that he has a connected device and the data is in the cloud. More questions here?

Related to these services, could you give us perhaps an idea where in terms of revenue share of our revenues you want to go there in the future? I mean it's perhaps a bit early. And also how is it priced towards the customers. And then as another question, I understand that given the circumstances, you cannot give a medium-term outlook now. But I mean as a company, it's probably -- it's a good thing to have sort of a visions where to go. And can we expect that to -- at the Analyst Day, at the end of the year, that you have a -- that you update that again a bit? Yes.

Okay. The last question is a hope that I have also, that I can give you a new outlook, and we have a better understanding what is the economic environment allowing and how the world is moving. I hope so. More, I cannot say. You asked about services. What we want to achieve revenue-wise. Of course, we do not make it to keep -- to let that stay small, but I think there's a potential to do five -- I mean double-digit numbers of share of revenue here. But of course, we are in a very early phase. The -- I mean the observation is what we offer here as an addition to our product is very essential to our customers. They basically need it otherwise, they cannot really say they have a product that is surviving for the next 10 years. And of course, pricing is precisely what is this value. What is the value that you have control over your product, over the lifetime of the product. I mean is this cost of ownership that is finally sort of the input to the pricing. And we try, of course, to put this pricing right. On one hand, that we get the business; on the other hand, that we have maximum return, and this is what is marketing. Mr. Sauter?

Yes, one more question -- or 2 more questions, actually, if I may. First, could you maybe give us a feel for the amount of amortized R&D in the second half of the year and going into next year? Because it's -- I was surprised it's actually lower year-over-year in the first half. And then secondly, if I may, could you maybe help us quantifying the cost headwind in absolute terms from the U.S. dollar-Swiss ForEx rate because I sense it could be relatively close to the planned cost savings in terms of extent.

Yes, I think amortization and this exchange rate impact, Roland is the right person to answer.

Yes. Though amortization, we have written off CHF 70 million divided by 7 is CHF 10 million per year. What the amortization -- less amortization than before in the past. So not everything is on the second half. The expectation is they're not CHF 3.5 million because it means that all the programs with -- or projects which are now shelved or impaired are starting amortization at the beginning of June. This is not the case. So there are some -- there is a certain impact compared to previous time, but let's say, the amortization, the easiest way is to calculate the amortization by -- divided by 7 and then, say, CHF 10 million per year in '20 -- let's say, in 2021, not yet. But for sure in 2022, all these programs are planned to be in amortization. And the foreign currency effect, as I said, we had an average dollar in last year or in the first half year 2019 of CHF 1, now it's CHF 96. And of course, this has an impact on top line of 3.1%. So to make any predictions what the dollar -- the average dollar will be now for the full year, maybe you are the better than I am to do that or the banks are better than and I am to predict any further foreign currency impact. But of course, because it's the average rate, it can be assumed that it will also have an impact on the second half. And we have in the former guidance, the -- also given some impact on EBIT, what the 10 percentage changes. So the ratios did not change dramatically now than before, so the ratios remain.

Sorry, if I may, but like the sensitivity of earnings was provided on a relative basis. So you gave percentage ranges of sensitivities towards ForEx moves. And the low end of the EBIT corridor, if I remember correctly, was 0. So I mean if we just take the midpoint of certain corridors or certain absolute numbers, can you -- if you just assume that current ForEx rates are the ForEx rates for the remainder of the year, can you give us a hint for the ForEx headwind on the cost base, please?

The cost base, of course, we have quite a portion of costs in foreign currency. And of course, that makes it lighter. The question is, again, first of all, mix; and second, of course, also cross rates. So it becomes difficult to discuss such impacts, I must say. Yes.

It's also difficult to calculate that. So as Thomas said, the ratio gives you an intention in which direction it could go.

Then I would ask online participants for their questions if there are any.

Yes. We have 2 questions. First one is from [ Mr. Sen ] from Julius Baer. He's asking, how are you going to compete with high production competitors such as Qualcomm in GPS systems? What is your advantage, lacking scale?

Yes. That's a question we hear often. Of course, Qualcomm is a large competitor, but you should not forget they are active mainly in the field of mobile phones. There is a market of 1.5 billion. We are not in this market. We have medium -- mainly medium-sized customers. They are asking for 10,000 or perhaps 100,000 units. So this is precisely where we focus on and where we have our strengths. However, I mean on the chip side, we have decent production volumes. We have very good costing on that side. We are very -- feel very competitive, therefore, also make a strong margin. And of course, we focus on a subject, on positioning and other wireless activities in the long- and short-hand radio. There we have excellent capabilities, we feel technology-wise, absolutely leading in the market.

Second question from Mr. Schulz from JMS Invest. After the large impairment, have you changed your policy for capitalization of R&D costs? Can you give a rough split on what percentage of R&D costs will go through the P&L? And what's on the balance sheet in the future?

Yes. Roland, I think that's a question for you.

So there is no change in capitalization rules as -- because of the impairment, so that remains similar as it is, because it's a rule -- it's an accounting rule under IFRS and not an accounting rule we set ourselves. So we are not, in some way, not allowed to not capitalize if this is the question behind. And the ratio of capitalization and expenses in R&D, it's moving in the period, but it's around between 45% and 55% of total, let's say, cash-out R&D costs. And this also will remain because it represents what -- and which project our R&D people work. The expense part is for projects who are already in amortization phase and the -- or maintenance phase and the development part who is capitalized is the investments into the new bonds as soon as they get gate 2. So as soon as they reach the point where you know what you really want to do it, you know that the project is feasible. You have a certain estimate in costs, and you also have, on the other hand, a certain estimate on the revenues, future revenues and future income so that you can make a business plan out of that and this business plan is positive.

We got just another question, third one from Mr. Huber, Research Partners. Growth from acquisitions. Thingstream contribution was not material. What about Rigado and Tashang? Can you indicate how acquisitions have affected the revenue growth rate in basis points? Cost savings program. When will we see the full impact of the CHF 50 million cost reduction? And are these directly linked to large nonrevenue-generating program that was discontinued? Is it fair to assume that it is going to be the R&D expenses that will be reduced by CHF 50 million?

Okay. So 2 questions about acquisitions. Of course, we make acquisitions to accelerate. So Rigado was mentioned. That was a really good addition, as we have mentioned before. It was a small, powerful team and an interesting product range. It has really expanded our position in the market and is a growth driver today. We have -- we see very good progress thanks to this acquisition. Now the part -- the question was about cost savings and whether it has an impact on the offer. So first of all, we are not changing anything in our product offer. This is unaffected from any -- from these cost savings. We are the same company. And again, our IP is not affected by such a move. However, of course, we need to bring down the cash outflow because there's less coming in. And it is basically, as we have cost distributed across the functions of the company that we make also reductions. So it affects all our functions. And of course, majority of people in R&D, that means also the majority of cost savings comes from R&D. Good. Any more questions? Here is one in the room. Mr. Renders?

What would you love to see change in the end markets to have the situation back where you can publish sales growth again?

And you mean the guidance?

No, no, no. Growth. So just business-wise. What...

Yes. Business-wise? Yes. I think it's all a matter of how confident are customers about their future and that they see a new trajectory of how their business is developing, and this is the problem today. Nobody has a clue what is tomorrow. And therefore, it is so difficult to -- even if you have so many customers, the input is so sluggish that you cannot make a picture out of it. So we need a different, as I said, belief to the future and some confidence that things are turning around. Mr. Sauter, another question?

Yes. If I may, you are working with a lot of ventures in your client list, and you are highlighting that you have a very diverse book of clients. But many of these seem to be also ventures. So do you have a feel about the financial solidity of these? And do you see a risk of bad debt?

Yes. I mean these ventures are, of course, the essence for the future. Clearly, I mean these are ventures in small businesses. I mean they're not so decisive for the numbers we are making. The large customers, they are decisive. So of course, we invest marketing and sales time into new ventures, but not everything. I mean even without crisis, you cannot -- you have to be careful where you spend your time for developing your business. The other question was about bad debt. We have no problem, and we will also not have a problem, because all our accounts receivables are insured. And we give all customers a credit line that has insurance. Good. With that, we are at the end. Thank you very much for attendance, either here or online, and we are still here for more talks. So thank you very much, and goodbye for those online.

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