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

Ladies and gentlemen, welcome to the u-blox Capital Market Day Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to [indiscernible]. You will now be joined into the conference room.

Dear, ladies and gentlemen, a warm welcome here in seminar which is welcome to the u-blox Analyst Day 2021. You will listen to some interesting presentations today from our CEO, Mr. Thomas Seiler; to our CFO, Mr. Roland Jud; our Co-Founder and Head of Product Centers, Mr. Andreas Thiel; and last but not least, to our Head of Sales and Marketing, Mr. Markus Schafer. As you'll see later on the agenda, we'll offer today 3 Q&As, and we'll process the Q&As as follows. The first questions are coming here from the floor. After that, the participants of the online chat will have the option to ask questions. And last but not least, the attendance of the online conference -- sorry, the telephone conference call will be able to ask questions. As I said, 3x, agenda comes later. And now please, Mr. Thomas Seiler.

Good afternoon, ladies and gentlemen. Welcome to our Capital Market Day. Very glad to see you here. And of course, also very glad that you participate online. We make this presentation with the usual disclaimer about certain forward-looking statements. And I like to say what is the schedule right now. So we will first look into what we are as a company and especially also those that are perhaps new to u-blox. Then give you an introduction, what we do for our customers, what solutions we provide to the market and in what markets we are doing and in what form they are developing and growing. Then my colleague, Markus Schafer, will lead you through how we focus on the market, where do we concentrate on and also how we provide the value proposition to our customers finally to [indiscernible] and for u-blox. Then after the break on detail, we'll talk about what we do in R&D, how we create products and how we do investments there. And finally, after some few words on ESG matters, I will hand over to Roland Jud, and he will give you also some financial perspectives. So we are almost present here as an executive team, our co-founder, Jean-Pierre. He is not here. He is looking after making products. We have a huge order book, as you have probably seen and he does a tremendous job in guiding the production tools, the production partners and the suppliers and is achieving every month a good progress. So this time, this Capital Market Day, we like to cover 8 different subjects. As I already mentioned, we need probably to give a little perspective what we are and where we come from then what are we offering? What do we mean by solutions? How do we create this in a market that is growing? And what is driving these markets? And as how we do focus, the market is too big. We need to select. And in far, we create value for our customers. This is the only reason why we are existing. We give a very important value to the hands of our customers, and we need to propel that forward. Our R&D does create such value, and we create new product as a component, but especially as a solution, as an assembly of products. And of course, these needs investments. And of course, by the end of the day, all that should create shareholder value. This is what we then looking to at towards the end of the presentation. So before we start, just the most important question shall be answered, our guidance remains as announced already in August. We have no reason to change it. We see continued good expansion in the markets. We will talk about that later. We have drive from expansion in our markets. And in so far, can support the numbers as already provided. Of course, we have some limiting factors with regard to availability of components. Also here, we gave more insight later on. And please note that all these numbers were given at the exchange rates of last year. And actually, the 12 months total value of the U.S. dollar is unfortunately lower than what it was last year. But now what are we, let's start with the perspective. I think you know we are already quite a number of years on the way. We were founded in 1997 as a spin-off from ETH and have since then developed our business. We are today more than 1,200 employees in 32 locations around the globe. And we are really a truly global company, not only because where we are located, but especially also where is our business in the Americas, EMEA and Asia. And that, of course, is also true for how we are connected to the supply of components to where we make products. It is all a global supply basis that we are working from. And so our customers, of course, when we say we have 10,000 customers, of course, they are in these regions in the Americas, in EMEA and APAC and nicely distributed between the 3, that gives us very good diversification in the markets. So of course, we started as a small startup and have developed ourselves over various phases. It was in the beginning that we made is the positioning technology, the global navigation satellite that we are using to create position information. This is a very ubiquous available signal around the globe, as you all know, and this has laid the foundation of the company. We then later made it to something that was enriched for helping customers to connect the devices that they located and what was called at the time, machine-to-machine connectivity. We moved further on as the cloud became apparent to something that you would call the Internet of Things and the components to work in this evolving space. And finally, for a few years and also with more investments and acquisitions we have made, we can truly call us the chip-to-cloud solution provider. We are creating the technology in integrated circuits, and we make sure the information really flows into the cloud very easily for our customers. And that was a rewarding journey. As you can see, our growth rate, compound average growth rate was above 12% and stronger than the overall semiconductor market that was only around 5.5% in this period between 2007 when we became public and now. Of course, it's not a straight line. We had some headwinds in the more recent years, but I think we are in a good way to maintain this growth rate towards the future. Our guidance indicates even a higher growth rate than what was the average over the last 15 years. And going on, so we have added a lot of intellectual property. This company has enormous knowledge about how to make technology and especially all about what a wireless signal can deliver. With wireless signals, you can determine your position and you can communicate, you can transport data through here. And this, of course, then step by step, we created, first of all, the company, a long time ago, to basically make physical products, their module to a sub assembly made of many components. That was the founding idea. But relatively soon, we went in the domain of making the core technology. This means a radio and single processing and casted that into integrated circuits more and more. In 2007, we were able to put that all in a single chip, whereas before, you have several components to make the solution. And that was the time when we went public. That gave us the boost to say, now, we really have something special. And of course, we developed that more and more. We also added services already a long time ago, not so visible for everybody, but it was part of our thinking relatively early in the company until then we went into becoming the real provider of solutions chip to cloud. And again, it's the combination between that we can create radios that can receive and send signals through the air that we know how to make very special processes for transferring the signals. And of course, that we make it in a way altogether from the outside for the customer, who wants to see data in a cloud solution, and this is something that needs several software components to realize such an easy solution. So in summary, we have really nicely grown since 1997. We are, of course, proud of that journey that we have made. And today, we are very uniquely positioned to provide to the industry to solution -- the solution to connect to help them to make the devices smart, that is relatively new that the industry has a strong drive in this direction and is, of course, also a reason why we can continue to expand and also visible in the number of customers that are more than 10,000 today. And this is what we like to further develop, make it even stronger, expand into all the various dimensions of applications and participate in this very nice evolution. Now I'd like to explain what we all mean by being a solution provider, and that starts first with what we do finally. We connect devices, as I have mentioned, and it is in many, many different applications. The market is broad and deep. And we have customers that are specialists for making certain products and certain functionalities that are, of course, doing a purpose and normally do that for a very long time, but the connectivity is a relatively new subject for them. So far, it was a standalone solution, and it has now become the time that these devices are no longer standalone. They are becoming connected and shall make the whole purpose of the products better. And of course, for the maker of the product, it is extension of the business to do service business, okay, to move from probably a onetime revenue scheme to a recurring revenue scheme. All this we do. We help this industry to make this happening, and we do that with a very Swiss way of providing technology. We are helping customers in a very solid manner, in a well-engineered way of providing these solutions. So what does it take that we, I can say, we do solutions and not just products. It takes mainly that we understand applications, what are our customers achieving with their products and what is the use case that they are working for. We have really to go deep into functionalities, what do the products finally do and what can we support with regard to making these devices connected. This needs technology. This needs the right approach to make the functionality reading to the product that it is satisfactory for the customer and its end users. And of course, it must be made for the market for both these final customers really have an environment and the perspective. And it has a lot to do with the robustness because we are focusing on industrial matters, on things that are making our infrastructure and therefore, robustness is very important for reliability and for aspects of security and of course, longevity to maintain the infrastructure over a very, very long time. And I think our company has a deep insight to know these customers, to really understand what our applications we can give the market and especially the R&D teams with our customers, the right solution into their hand. And with that insight, we drive our R&D. We do constantly correct and put together all these insights for decisions, for what are we investing into the next generation of products. At the customer, we need to make sure we convince the decision maker because customers have certain goals, and we have to respond with our solution. And very typically, as I already mentioned, customers want something that works, that is reliable. They want to have it in a way that they can go to a global market. Our customers often have a global footprint as well. They do not just serve a one single geography. And of course, it's all about reducing the risk to be fast in the market, to have an effort to make the product in a foreseeable way. And finally, of course, it's a matter of a partnership that we are, a reliable and dependable supplier and that over a very, very long time. Customer lifetime -- the lifetime of customer product is long. It's 10 years. It's 20 years. So it's in this dimension that we have to think. And in so far, our solution must respond to this that we have these qualities to respond with products that are really responding, this has to be also outstanding and versatile enough. So it's easy to the customer to make also product variance. And the catalog units have always manyfold, and we have to help customers to maintain their catalog. And of course, going global means also effort. We want to make it easy for customers to be accepted in the global market. And of course, as I mentioned, over a long time, this high reliability. So in detail, we have quite a number of things to bring together. I mentioned already that we must understand the problem and have encouraged by that. The solution expertise, this means we need to translate the basic requirements into something tangible and in a proposal that we can give into the hands of customers. And behind there must be a deep understanding of the technology, of know-how, and this is why we have constantly developed our knowledge and have in so far a lot to take it from. And it's then the innovation spirit of all our colleagues in the company and the combination of this innovation spirit, that creates finally outstanding solutions and new concepts. And in so far, of course, we won't remain in the driver seat with regard to innovation. We want always to be a little ahead of anybody else with the next best idea and the next good proposal, how we can help the customer. So customer is the core of where we need finally to prove ourselves, and we do this with a very good attachments to the customer is knowing them and be very close to them as much as we can. Of course, with so many customers, you cannot be friend with everyone. But we, of course, segments the approach by tiers of size and importance of customers and have various channels to go to the market. And all they deliver this relationship and this deep know-how what does the market. And last but not least, it is about quality and technology leadership in the sense of that we are doing this not only for the short term, but for the long term. We do have done many generations of products, customers know that, that we have a long history. And of course, they like that we have experience, but also, we give them outlook. We give them a road map that gives them the ideas what can they expect within 2 to 3 years from our side. And this is, of course, what drives us forward that this combination of a long and solid history together with an outlook into what is coming next. And here, as an example, is what we then put together as a solution. A solution that is finally appearing in a product, perhaps in one space or in several spaces. But here, this connected bicycle is, of course, a solution where we help with our technology to know where is the bicycle. This could serve, for example, for theft protection. It is here to connect and transmit data from the bicycle to a cloud solution. This can help to -- for the energy supply of the bicycle. And of course, such vehicles are often a shared device. So also with a connection to the smartphone, we help to operate finally the business or it's just for convenience of the private owner. So all here comes together a solution package that is made for the case of a bicycle. This is where -- what is an example of how we focus them on a one area of application. Now all that's good, but we need markets. We need to understand what is achievable here, and why are these markets developing and how we can follow here all the opportunities that are created. And first of all, I think it is a general megatrend that is making the expansion, the megatrend that things are, of course, a lot more smart and deliver a lot more functionality than in the past, the general development here of technology as such has, of course, driven that at large. And here, we see just also reasons that at the macro level, many things are driving more, the climatic change and the resource scarcity, of course, creates new demand and need for solutions. Then we have quite a demographic and social change, for example, that more people are living in towns and of course, also the whole change of general income that is developed over a long time. And finally, I mean, everything is digital, see how this has impacted our life already. And when we look at the infrastructure that is of main interest us, we all can recognize that here are very large numbers around that for the market. For example, there are more than 1 billion bicycles on the world or I heard also the number that more than 1 billion street lights are installed, and we could count endlessly. These are all our target markets and applications. And this smartness of the world is, of course, the background of why we see expanding business and why our technology makes a lot here to get this dimensions working. Mobility obviously is a subject of expansion. People have become more and more mobile. And during pandemic, of course, it has taken a change. Perhaps it's more mobility, but different mobility. When we speak of micro mobility, we have seen security becoming a lot more a topic and the gain for us is subject to help the customer or we see different forms of energy generation and all the aspects of CO2 and how to reduce the impact on the environment has, of course, the result that new solutions are required. And we see many new businesses created that are then our potential market. And I'm not going to read everything here, but it is enormous that many factors we have that form expansion for our markets. So more in detail. When we look where we are doing our business, we have 60% in the industrial space. And this space is indeed the one with the many, many different applications. And the more and more devices that becomes smart, here we see also the biggest growth of customers because many have now realized this is the time to change their products and where we then find them as a new customer. And often it then also developed a new space where we see this as what we call an application. So a typical area of use case and requirements how the whole solution must be configured. In the automotive space, it's not so much the number of units. It is that fact that these cars also become very smart, even perhaps to even more extreme than the industrial side with enormous capabilities that go into a car today and the electrical vehicle also is driving this even more. So here, it's about selling more value of our technology into the same vehicle. And this is continually expanding because also here, the journey has more rather recently started and has not at all reached any of the cars that are produced. And in the consumer space, this is for sure a very large market with regard to numbers, but not so much our focus because we focus here more on an application with high features or what we call high touch application. And therefore, we see not here the major activity from us. We focus on industrial and automotive, but it's a nice complement and a way to expand. And also recently, we have seen again this pandemic that this market has evolved quite a lot for us. Most important is to understand that we apply technology in a very well sold manner for these various applications. We are providing positioning, what you see on the y-axis, and this positioning technology is segmented into various performance levels here, mainly the precision, how neatly you can determine position. And on the x-axis, on the horizontal, it is the type of connectivity what -- to what extent this connectivity is available in what area or in what distance. And this forms finally space in which we can find all these applications. So numerous, as you can see, and all of them need a different combination or at least several different combinations of type of positioning, capability and connectivity extent. So this is what forms our market and of course, also how we drive markets when we do enhance the technological capabilities, for example, enhanced positioning accuracy or robustness of certain features. That is then also a reply to vote a certain application requires. So we can take the example of drones that they have a certain requirement for positioning accuracy and availability that is different, for example, than when we want to tracking device for a truck. And therefore, by well knowing how these markets perform, what customers really need and by mapping that to our technology development, we form, of course, also from this side, market and demand. And we have seen many applications that became available because we have pushed the technology forward. So we are really in the midst of all these developments. We are part of driving the business forward and in the far build, of course, a leading edge. And just to illustrate what we can support and what type of customers we have, and this is a huge diversity, as you have seen on the previous slide, but of course, I'm not going to show everything. Here an example for where you could call it consumer or that is a standalone bicycle computer, that profits from very good positioning performance on the one side and very low power consumption. So with the battery that you have in this unit, you can operate for a very long time. That is, of course, an essential feature because it's not so fun if you run out of power every few hours. These products can leave 72 hours. So very long. And this is all generated, thanks to constant technology development. Low power is a constant effort to make the chip inside of this product created and designed in a way that you can achieve very low power consumption. This needs a lot of specific knowledge how to make such a product then still performing very well. The next example is quite different. We do also provide the products to determine time and frequency, especially functionality to synchronize the networks, the data networks, either on cable or in the air because when you do better synchronize and put things in parallel, how data are transformed and transported you can achieve higher throughput rates, you achieve higher performance of all the computing devices there in this world. And of course, there are millions and trillions, I don't know. So this functionality is absolute essential for the infrastructure, has a high value and needs a lot of dedication to make it performing very reliably and precisely delivers, thanks to the continued evolution and use of computer systems, of course, a growing market along think of all the data centers to -- for crypto mining. All they have enormous amounts of computing power and devices at work, and synchronization helps them to perform well. And finally, again, this technology development, we can help to make applications to perform better. Everybody knows these scooters, the electric micro mobility devices, if you want to call them. So where because of the strong growth of numbers, of course, that can also create problems where do they drive and where it's allowed and not allowed and towns have more and more, of course, an issue how to regulate this. But with technology, we can now help to better guide this to let these scooters only run where it is foreseen and especially avoid by that, that are accidents or any problems. Again, it evolves a way to create this solution to make it really in a way that is functional and, of course, helps to support such an infrastructure. I think this is a very nice example, and we will explain that a little later also how this market is developing. It has become quite a sizable market with many, many players. And last but not least, let me talk of markets and expansion for us. Interestingly also COVID has accelerated the trend because the demand has shifted. New requirements have popped up. For example, drone has become a working horse more for delivery or people have chosen more of the bikes and the scooters to be mobile. And I mentioned already, as another example, the industry has realized it is good to have remote control over the devices instead of having to send people for service. And this, of course, has all boosted in the overall demand. So what can we expect from growth? And these are the next few slides. We have here some data from analysts that, of course, show that, in general, wireless technology is going to grow tremendously because of all these factors. And for us, it's, of course, interesting to see where do we see especially good growth. Interestingly, it is in the industrial domain and in the auto more than in consumer. The explanation is probably there is more to still capture and expand than in the consumer space where this was probably earlier already the topic. So we are very well positioned to gather the growth momentum here with our products in positioning cellular and short-range radio products, of course, altogether as our solution for industrial markets and for the auto market. And this is what I'd like to explain in a little more detail. So the industrial sector is expanding because of the many more devices that become here a connected one. The evolution of the wireless capabilities, of course, helps this industry a lot to make this happening because the application, use cases and the areas and places where such products are used are not always easy to make it really a solid solution. So here, with the continued evolution of technology and availability of products, this has helped to make this market to further expand and together with aspects of cybersecurity where we also put a lot of effort to help customers, this, of course, also gives a solid foundation that customers and especially industrial customers can make devices selective without compromising their business model. In the automotive sector, we have a different picture. I mentioned already, it is about the continued evolution of electronics in the car for making the car more automated, for giving driving assistance, but also, of course, for more comfort. And here, we solved almost with positioning because when you want to automate positioning in that also a reliable one. And here, we have made special solution target to support, for customers to make it really happen that can really work and functionality for more assisting driving. And you see here that the value per car that we can sell is in [Audio Gap] perhaps only years ago, and this can grow up in the next future to more than [indiscernible] by various additions that go to the car from very simple position information that evolves long time ago for is a precise solution because you want to automate the driving. You want to have in-car connectivity, but also car connectivity in the mobile network for cloud connectivity. And of course, the big dream is fully automated driving that needs a very safe solution and, again, is a different class of a product. Of course, the expansion here is a little muted by the COVID impact, especially in last year where the factories had to standstill and the expansion of sales is -- of output of the car factories is still limited by the supply crisis. But in the long term, of course, this market develops enormous momentum. And this is what we want to show on the next slide, what is available here for us in regard to growth contributors. First of all, it's a rebound in the pure manufacturing volume. This will probably take several years still that the car industry is back to pre-COVID volumes. We have a good contribution from automation, what they call ADAS as in the middle. And also the electrification of car helps us to sell more because such cars have, in general, more functionality than gasoline car. And finally, just to complete the picture, I mentioned already, the consumer side is a high-volume market. It is mainly by -- dominated by what is called the short-end radio, the Bluetooth and Wi-Fi connectivity. But it has also a growing segment to position information and similar. We have a number of customers that precisely use this type of connectivity and positioning together to make products, for example, for trackers. So here also, we expect acceleration from COVID because of much stronger consumer spending. People cannot buy services. They buy more hardware. And this is what is making this market to grow a lot and there's also a reason for supply constraints. So this is the part on how we go to market. And now I'd like to hand over to our Head of Marketing sales. He tells us how do we really achieve it with our customers.

Thank you, Thomas. Good afternoon. It's a great pleasure talking about our focus markets and also about our value proposition, in other words, why we win as u-blox. A major pillar of our go-to-market strategy is to grow market share in selecting the most promising markets where wireless communication and location information is being achieved at a premium. It is obviously visible in the applications I show here on the slides that there are 2 major things needed. It is wireless communication, and it is location information. Without these 2 core technologies, innovation is not possible. It is not possible at the business model level and we, as u-blox, are delivering innovation to grow a sustainable business. Now u-blox makes IoT happen. It is to locate the information and connect securely and reliably. On this slide, I'm showing a subset of application compared to the previous one, and there is a reason. It is focused markets for us that allow us to bundle the technologies that we have in our portfolio. It is to utilize positioning, connectivity and very important, to connect those securely with our service offering to the cloud. By offering a combination of these technologies to a solution in those markets that I'm showing here, markets like manufacturing, connected healthcare, smart transportation, smart home, we are able with these solutions to sell a higher content in these target applications, and it is a way for us to increase our market share by selling more, by selling a higher bill of material into these segments. Now how are we doing this? It is with what we call market-shaping customers. Market-shaping customers are customers that are leading in the application space that are highly skilled. They have highly skilled people, and they need a differentiation based on our products. So u-blox is working with these market-shaping customers to develop innovative solutions that, at the end, we can utilize and scale by providing them what we call to the solution-oriented customers. So solution-oriented customers have limited wireless experience. They have, however, a very high expectations for the usability and they expect from us a differentiation based on the solution that we are offering them. So the solution-oriented customer then can take very quickly our offering and adapt to their use case. So with this ability, we are able to scale and to achieve higher sales volumes. Now we have talked about services as part of our offering and services is a really strong contributor in our ability here to offer the ideal solution to our customer. The product that we are offering here is called the Thingstream delivery platform. It offers a rich value and can achieve a very high customer satisfaction, the value that this service offering is providing is services related to connectivity, to security, to augmentation, to software maintenance. However, this is not all. It enhances, obviously, our total product offering, so services together with hardware. And what I'm also showing in this slide is we are able now, with the ability of services to connect to the full value chain. So we are addressing with services the whole ecosystem, an ecosystem that at the end also has an impact on the selection criteria of our end customers. It can be design partners. It can be installers. It can be system integrators because the customer that is buying the hardware doesn't necessarily buy the service, but they might contract with another company that is, at the end, deploying the service for this customer. And for us, it allows us the ability to expand our brand and have an influence at the end on the whole solution with the ability or with the help here of our service offering. Now this requires, of course, a very global outreach to our customers by being able to scale now to thousands of customers, we need the appropriate support structure and u-blox is offering that to their customers. We have signed up over the period of the last 2 years, very important global distribution partners. So they allow us to serve customers on a global basis. They allow us to scale to many more customers. We have a lot of very strong loyal partners, local distributors that allow to support our customer base, but also we have a lot of locations ourselves globally to support our customers locally. Now this particular slide shows a couple of customer names, and they stand for those shape of customers, we have been able to grow a significant market share. They represent customers that are buying complete solutions from us. But they are a few of the many customers we have. In the meantime, we have scale to over 10,000 customers. Last time we presented, it was a few thousand customers less. And this is due to the ability that we can scale now with our global partners and offering here more complete solutions. Now I have been explaining our market focus and that these markets require wireless communication, they require positioning information. They require the appropriate services. However, these markets that I mentioned, like smart transportation, and we keep using the e-bike or the e-scooter as examples. These markets require something more. There is an essential need that these markets have. And we, as u-blox, are one of the few that can offer this to our customers. The need that, at the end, create an essential value. The need for high precision for automated operations, facilitating autonomous vehicles, paving the path to smart devices, the need for highly robust connectivity. Customers we are servicing here require a long -- support of a long product life cycle, also the ability to enable smart devices and a whole infrastructure environment. Another critical value that we are offering and the use cases that we are addressing is super low power. What does it mean? Well, more and more IoT devices are utilizing batteries. So those devices require very long operation time, also with small batteries. And so the solution we are offering must be a very low power -- must utilize very low power. We are able to offer this with the core IP that we have and at the end with the solution that we are offering here to the market. Now that I have talked about what markets we are focusing on, I want to spend a few minutes also in talking about what is our value proposition and why we are winning in these markets. So talking about our unique selling proposition, a couple of those items have been mentioned before, I want to summarize it here. Positioning is a necessary anchor for determining the source of information. This is very critical to understand the applications we are addressing. The positioning technology is a key technology to deliver value. Then wireless connectivity is an essential functionality for transferring the data to the cloud. But it is the combinations that now form the solution space, and we are offering this with an unmatched functionality. So we have become undisputed leaders in positioning with strong brand recognition in our target markets because we are offering an anchor to at the end sell a full bundled solution. And we believe there is no other comparable company with our unique strategic lineup. Now how we do it requires a little bit of more information, and we thought we are showing you how we are walking here together with our customer. It is a busy slide here. But basically, what it represents is the journey of a customer can be quite complex. And the journey of a customer requires the right skills. It requires the right sales team, and we have set up a sales team that can focus on shape of customers, the sales team that can work with partners. And last but not least, a sales team that has a dedicated service sales organization that is also able here to address the whole ecosystem. By being able now to have a clear focus on our sales goals and at the end, it is to achieve customer satisfaction and to keep the customer. So a very high -- we have a very, very high retention rate. It is also to approach here with the customer with the right interaction and also with the right sales channels and the right sales tools. And as you can see, this is quite complex, but it requires the right people, as I said, that are able to apply it. And with the service sales function, for instance, we are able to engage very early in the design process of our customer. We are very early having an impact of the awareness of the customer for our full solution. And while the customer decides on a service product, it is in the second step that normally a customer decides also on the hardware. And so with the ability to work with the customer very early in the design phase, we are able to also very early offer a complete solution. A particular example here is micromobility. We have touched on this use case 2 years ago. And in the meantime, there are hundreds of more customers in this particular space that has evolved this space. And we, as the u-blox, have been able to offer to this customer base a complete solution. But it's not necessarily the how and the what. It is also why customers choose us. And for us, it is important to understand really the true pain points of the customer. Solution means first to understand the problem and only by understanding the problem we can tailor the right product offering to our customers. So we understand the micromobility space very well. So problem statements like vehicle and user activity tracking are coming up here, telemetry and vehicle diagnostic, navigation is obviously part of it. But the driver behavior monitoring, safety and crash detection notification, collision avoidance systems, those are critical elements in this particular use case. And by understanding really how to solve this, it gives us a way to enter into this space and offer here the complete solution to the customer. Now the solution covering of all these use cases, we are able to offer this out of one hand. And this ties back to the slide I showed before, how can we scale. There are solution customers out there, solution-focused customers that required us from a supplier. And we are a supplier that can offer it out of one hand. We can do that with an optimized functionality by having worked with taper customers before, Bird is one example that Thomas Seiler mentioned before. It allows us -- well actually, even better, it allows the customer a faster time to market. It is a much reduced development risk for the customer. And also here, it is the ability to efficiently deal with all the use cases by having all these technologies really here out of one hand. So that means really a complete solution from chip to cloud. Now another picture with the scooter. This is not a customer scooter. This is a scooter that our evaluation team has built. And it is an example how we engage here the customer by providing basically a prototype they can work with. You see here GNSS antenna that has been designed. You see high-precision GNSS receiver in an evaluation package, but you see also the scooter that a customer can use and can immediately start applying this as a prototype into the application. So the specific adaptation on top of our platforms for solving the application problem is a critical delivery -- deliverable here from u-blox. We are offering here the support tools for the customer evaluation. And at the end, this shows how we are building really here a selling reference and allow here the customer to go to market very quickly. So I have talked about how we select our focus markets. I have talked about also our ability to bundle solutions. I have talked about the customer journey, how we work with the customer and design in, but there are also other factors why we are very competitive. And I want to mention those factors on this slide. So since the foundation of -- as a spin-off from the ETH Zurich, we have maintained our innovative spirit. We are innovative. And we are reliable to the core. We have a strong enthusiasm for a purpose and the -- our product centers, product creation teams here are our central drivers. You have seen here, we have a very strong focus on selected markets where we can create and extract value, and we are working with our customers with a very high dedication. At the same time, we are lean and agile. We make the products with less resources and shorter turnaround times. While our large competitors, because they have to fill their fabs, work with very large customers in the consumer space. We have customers that come to us and ask us to work with them. We have a robust market share in our market sectors that I outlined before. And here, we have become the undisputed leader. So again, there is no comparable company with our unique strategic lineup. Now this next slide is a very busy slide. It shows the competitive environment, but the message is here that the combination of our 3 core technologies, so the chips in that case, modules and services are unique in the market. The competitors in the integrated circuit space on the top line of this slide, focused mainly on smart phones, competitors in the module space have no access to core IP as we do and implement only the reference designs of the chip suppliers. So here is another example here that there is no other company offering the same solution portfolio. Now in summary, our solution approach enhances profitable growth. And I hope I was able to outline this before. We are gaining a higher share in the value chain. We are turning in-depth -- we're turning in-depth market and application understanding into salient solutions. We maximize our customer value by innovative functionality, better cost performance ratio, less implementation risk, and very quick time to market.

Thank you, Markus. Now we turn to questions. And first, here on the floor, please feel free and wait for the microphone, please.

Andreas Müller. You showed the slide with your competition, just the other slide there the areas do you see u-blox the most competitive and in what areas do we see competitive pressures increasing?

Yes, that's encompassing question about the competitive space. Of course, first of all, these competitors are around us for a long time. So the space is not changing so quickly. And therefore, this list we could have drawn probably also 5 years ago, would have been quite similar, that is a first observation. The second is, of course, that the technology is evolving in general. This means all over because of microprocessor and microtechnology evolving, we can constantly implement more or the whole industry can implement more and more. So we have to be very careful that we are on par and at the same pace as everyone else. And finally, it's, of course, all about where do competitors focus on. Markus already mentioned, chip supply is mainly to the high volume markets, driven by smart phones and perhaps PCs and so on, whereas we focus on customers that are more in the industrial and automotive space with smaller volumes, higher requirements and need more help and dedication from their suppliers. So the context of competitiveness or pressure, as you say, is mainly coming from the underlying evolution of technology. This is what is -- the force that is a lot more dominant than what is the individual competitor.

In what areas are you dominant and what size of market share are we talking here?

Your dominant will probably mean we have more than 90%. This is never the case. I mean, this is still -- I mean, you're in a worldwide market, we have many competitors, as you have seen. But we believe we have, for sure, various applications and when you look at the list we had in the beginning of Markus' presentation, there, we have probably 10 areas where we can say we have 60% market share. So we are really leaders and dominant. But we also several applications where we have probably only 10% either because we are not doing the job or perhaps because we are too young in the market and still have to walk up the ladder to make it tomorrow.

Marc, VAG. Just going on, on that question in terms of profitability of those areas. Could you describe without citing any percentages since probably you don't want to do that, the margins that you have in those areas where you command these, whatever, 60%, 70% market share and how that compares to the ones where the market share is only 10% or less percent?

Yes. I have to do some guesswork probably. But I mean the first observation is the differences are not so big between the various applications and markets where we are present. This is quite interesting, probably given by the very large number of customers that averages to similar numbers or wipes out the differences. The difference between various customers in the same application segment is a lot more bigger. And this has to do with volume, with circumstances, geographies, whoever is the competitor, and therefore, the spread is much, much bigger. So in the far it's, of course, a good news that because we have so many customers, it does diversify this problem, and we have quite a good basis for profitability, not so dependent on -- in far on -- where we sell to what application. And probably, it is so, of course, when you have high market share, you always have a better negotiation power for price, then when you have 5 to 10 competitors around you, this is obvious. But the difference is not that strong, fine.

And concerning the 32 locations you have globally, I mean you alluded on that, you have to have them in terms of having customer proximity and there was of talents, what will be an optimized footprint if you were to build a company on the greenfield? Would it look the same, it wouldn't be the result of several acquisitions?

Yes, Good. So of course, we need proximity customers. I think if I had to build the company again a good with the very same, we need local footprint. We need, of course, also people capable in taking the local language, especially in Asia and Europe. So this is -- this is no question. I mean this helps a lot, because we need the deep understanding of customers and having large customers and the leading customers in the application areas. That is only possible with personal relationship with very deep understanding of what we do and maintaining that over a long time. On the other side, for getting the talent, I think we -- of course, we got many locations by acquisitions, but of course, what we acquired had the reason why there were in a certain location. For example, they were in Cambridge because Cambridge is a location with talent for what we do. And therefore, of course, it comes a little together that these acquisitions came from spaces where we also have probably a good place to find further talent as we go on. Of course, today, thanks to the many locations we have not only availability took talent, but also we can optimize cost. Not all locations have the same resource cost. And this, of course, helps also to optimizing so far capacity for the dollars we have available. Mr. Rotzer.

Serge Rotzer from Credit Suisse. Two quick ones. The first one on the short term on the sales recognition. You mentioned that you feel a little bit higher U.S. dollar. Can you remind us when the revenue recognition takes place with u-blox? Is it more up to November? Or is most par coming now in this month of November-December? Only a technical question.

Yes. So you talk of seasonality probably, we have no seasonality. We have sort of a straight line across the year and -- of course, because we are growing, the line is going upwards. I mean, the later months have more -- a little more turnover than the early months in the year.

Okay. Got it. And probably some questions on Slides 27 and the following ones. The market there is growing by about 9% of their CAGR is probably about 9% since the opportunity with connected devices in the IoT market. When I make a rough calculation, I get a 9%, 10% CAGR. When I go then on Slide 28, where you say industrial sector, 29 automotive sector and 31 consumer sector, I get growth rate for next year into '22 of 5% for industrial, automotive 5% and consumer 9%. Should we take this as an underlying growth for the next year? Or what is wrong in my thoughts?

Yes. Of course, Slide 27 show they peaked that we are nicely positioned to work in spaces that have quite a better growth rate than the consumer space where we are not so present. This is the main message. And of course, it gives you an indication what is the acceleration from the overall market growth perspective.

But basically, volume shipments now for you?

This is a volume statistic. Yes.

So would you have such high pricing power that you can grow -- then you can double this growth rate then? Or how should I understand that you can achieve a double-digit growth rate then going forward?

Yes. It has -- of course, this is -- I know you stayed up -- I mean when you say pricing power, it has to do with what value can we sell into the hands of customers. And this is, of course, what Markus explained that we can sell more as a solution continually, and it is a factor that we have higher ASP, if I look over many years, what we sell into many of our applications, not to everyone, but in too many. And this helps, of course, to propel the growth on top of volume growth.

Okay, I will come back later, then with the backlog discussion.

Rolf Renders from Helvea. Can you elaborate a bit on the bottleneck problems for the suppliers? And what visibility you have on next year, maybe compare it to this year or compared to what you think is possible from that side?

Yes. Can I postpone the answer to later because we have a slide telling you the answer?

Sure. Then on the other question is on services. Of course, that's still very modest, but you are growing there. In which region is the speed of growth going? What is the pickup? I think it was 3% or so. But...

You mean reach and size-wise?

Sorry. I think with Sapcorda, the acquisition, it went a bit up, but the percentage of sales is still rather limited.

Yes. So I mean, we are still in the emerging phase. This Thingstream acquisition is only from the date from 2020. So it's relatively young. But in the meantime, we have tremendously expanded the service offer. And now you must, of course, go through the cycle with our customers that they integrate the service, that they bring their products to market and finally make that operated by the end customer. So this is still the 2- to 3-year journey that we see really full effect and sizable income from that side.

Okay. Yes. And with sizable, you mean 20% of your total sales?

Not 20%, but -- so the growth between 5% and 10% in this time frame.

You mentioned the possibility of growth rates in the micromobility sector. But if you help or collaborate with the customers such as Bert in establishing something like sidewalk protection. To what extent is it allowed to use this knowledge for the -- for the other customers of you, but competitors of?

That's a valid question. So what you need to know, we are never making solutions for customers or no customized offer from our side. It's all a standardized offer that we have finally created and unfortunately, has given us the case to make this public. But in this space are several hundred players either they make the scooters or they make the electronics or they are the system integrators and all our potential customers, of course, and we want to get them. And the point is also not everyone will be successful in such an emerging market. Finally, probably only a few are surviving as we have seen that also in other markets. So it's very important that we can attach to all the players and make sure we have finally the most successful companies as our customers.

Maybe one more question on the payment terms from suppliers. What has changed there? And how is that impacting the working capital requirements?

Fortunately, very little because the paid suppliers always very well also in the past. And we do so well that we cannot improve anymore. So it is sort of without impact on networking capital. And just to expand on the other side with regard to customers, they pay very well because they want the product.

I would have an understanding question concerning the business model and the risks associated with it. Is it fair to assume that you build modules of chipsets before really having the end customer on board, i.e., the development of chipset costs easily CHF 30 million, CHF 40 million that you then have to amortize over 3, 4 years? Is that still the case in the majority of the relationships you have?

Of course, we make a product without having a paying customer and without a specification from a customer that is sort of a contract, that is the model indeed. But of course, we do that somewhere in the 3 years. So -- but we do it because we have a business because we have generations of products behind us. And of course, that also that Markus explained, we take lead customers into the context of developing a product or what we then lately call the shaping customer, they, of course, help us to create the first applications and businesses. And of course, they become visible as what is in hopefully what we call dominant design and then it moves into the mass market and into the many more customers that are the solution providers.

Is it fair to assume that the risks associated with the development of a chipset are becoming higher due to the increased complexity?

Yes, we probably 2 angles here. One is what do you say, more complexity. This means you need to assemble a lot more knowledge and also have a more complex project organization. On the other hand, because the markets are growing, because the type of applications are diversifying, we have more chances to sell the product into more -- into different hands and in so far that then lowers the risk. I think in earlier times, the markets are much more narrow and you have not so much diversity to finally sell it. Then we move on to the next group.?

Yes. I will read the questions from chat. There is David Sachs from Hocky Capital. Can you more specifically discuss your dollar content per auto? Can you discuss design wins that provide u-blox with visibility into future content growth? Can you mention any specific aspects of u-blox and your IP that has enabled you to grow your content per vehicle in future model years?

Okay. David, thanks for the many questions. I hope I still recall them, but it is all about how we have more content in the car. So the -- I can make an example. I think that's the easiest in the very first assistance system in the car is the navigation product that you had in the dashboard. The screen where it helped you to navigate. And here, we sold a relatively simple product that just told the car, that's where you are and the precision was not so good. It needed other mechanisms, mainly via a map to be sure what is the position. That, of course, was sufficient for navigation because I mean the driver was making the decisions and nothing else. Now when you want to make them more automated, when you want to give the driver more assistance, first of all, you need higher precision. This is a different product. This has created several generations of product development to bring it to a level where we are in the area of a few decimeters, so several 10 centimeters. So this, of course, commands -- this functionally commands a higher price. And also in the car, the topologies have changed, the systems are lot more complex. We often are selling 2 receivers in the same car. So we have doubled already the value just by this fact. And now when we also look now more to real automation where you really have hands off the steering wheel, this is again a different level of system, we call this functional phase. These are redundancy system that are made in a way that when they fail, there is no damage. And again, of course, this commands higher price and higher value. So this is an example how we get more value out of the same car. And of course, we have constantly innovated and invested over many, many years.

Then Mr. Sauter from Kepler Chevron. You serve a considerable amount of customers and use cases. How do you deal with managing complexity? Should you not rather focus on a handful of blockbuster applications rather than serving a very grown market?

Yes, that a high number of 10,000 customers could, of course, create discretion. First of all, and Markus has shown it, I have to refer often to you, Markus, what you have shown that we have many channels into the market and many tools that customers can get served in an efficient manner. Of course, we have sort of done automation for this. This is one aspect. The other is -- and this is the example of the micromobility such a space is in the first instance, perhaps 20 potential customers, and now it's several hundreds. You have no other chance to be present in the market and serving these customers and really make sure you touch upon them. And hopefully, you have the successful ones finally your customer. You never know who are the successful ones in the beginning. And only over time, you find it out. And of course, you have to structure your sales channels that our own sales force works more and more, hopefully, with the ones and hopefully, they must work with the successful ones, the big ones and the smaller ones, they are with our channel partners and the distributors. And this is the concept.

And also, Mr. Sauter, how many of your 10,000 customers are ordering complete solutions from u-blox and how many are only sourcing chips, modules or services? How much has the share of cross-selling improved in the recent 5 years?

Yes. We have enormously increased this cross-selling aspect. I mean, because we have developed a product and, of course, because we form it to solutions. Perhaps we could say in the extreme, we always sell 2 things together. I mean, positioning receiver only works with services very well. Otherwise, it has limited capability. Of course, we can sell it. So it is basically the aim that always we make it a combination also. I mean, first of all, to serve well the customer but also to differentiate against competition. And I mean, to give percentages, I do not want, this is too competitive information.

Then Mr. Daniel Lion from Erste Group in Austria. How you evaluated an expansion towards embedded solution? Or do you prefer supplying products to IPC embedded solution providers?

I'm not quite sure what means this terminology. But anyhow, I mean, we are selling probably to 2 type of customers. One is what you call the OEM, the original equipment manufacturer. They make the product, they bring it to the market and own it over a long period of time. Or it is a supplier to this OEM, what we call Tier 1 that have the task to make a subassembly or a functional unit that then they hand over to the OEM for further integration into a final product. So which are these 2 levels where we are selling. But the task is always the same. We help the customer to build the electronics, and we give them quite a high value content into their product. We are a very important customer in this regard -- that's a very important supplier in this regard.

Then Laurent Stockley from Capital. On Slide 47, what's the benefit to have access to core IP?

That's a very basic question. Why do we make IP? This is knowledge. Without such knowledge, we could not create what is finally making the important value. So again, I make an example, making products that have very low power demand is possible because we designed the whole circuit in a way that you can operate it with a very highly sophisticated way of switching on and off certain domains of this chip. And this is the only way how you make it low power. And this needs really the total control over the whole functionality over the whole secretary that is finally creating the product. Without that capability, we could not be the leader in the low-power domain, for example. And similar examples are, of course, when you want to make high precision or when you want to add security, all these needs the complete control over what is finally making a functionality.

Then another question to this slide from Jonathan Art, Partners. In reference to the competition slide, what seller chips does Broadcom offer and not aware of any? More importantly, can you comment on how far your seller module business is in its transition to LTE? And what percentage of your units are either CAT1, Cat M and IoT.

Earlier asked what is qualcom offering as a Broadcom chipset?

Cellular chipsets.

Yes.

Broadcom.

Broadcom. Okay. Yes, Broadcom is, as far as I know, no longer offering such a chipset they have such products that they have sold to business a time ago. So they are not in the far in this space, not a competitor. But perhaps is there an error in this table. That's why the question is here. I'm not so sure. Yes, there might be an error -- so at least the -- they are not present in our space anymore. And where are we present, so we clearly focus on the technology for low data rates. This is what was mentioned category in the LTE domain. And we will focus continually there. This is where our industrial customers have the majority of need, but you also offer higher categories based on chipset that we supply from certain partners.

Then Mr. Antonio Maeda from Alantra. Versus your peers, do you -- your competitors amortize in the same way as you? How many times invest your largest competitors versus u-blox? Would you say that you have a better hit ratio versus your competitors?

Yes, these are detailed questions about how we do account for R&D costs. I'd like to refer also to a later part in our presentation. The -- some other questions are related to comparison to competitors here. We have no answer to give.

Good. Then last question on Soderstrom from Sidoti. How do you see growth with existing customers versus adding new customers?

Yes. The is, of course, again, a matter of how we go-to-market and how we focus our sales marketing efforts. I mean, it's a common knowledge that expanding with existing customers is a lot more easy than finding new customers. I would say we have quite a good situation that we do expand in both areas. We have still a lot of potential with our existing customers to sell more either in more projects and more products they make or by enhancing the functionality and selling higher dollar values, as I have explained in the car example. And the other side is we see it in the number of customers. Of course, we've been a lot of many new customers, we are expanding the reach. This is mainly driven by the fact that the industry sector grows more and more smart. They have all -- we have many, many new names on our customer list that have only started to add wireless connectivity to their product. So I can make an example. We have a customer that makes little generators that make out of a gasoline engine and create electricity. These were products that were just somewhere, and now they are connected either via WiFi or via cellular because they want to help to find a user to better operate the unit.

Thank you.

Thank you. Then to our audience on the phone.

[Operator Instructions] Gentlemen, so far there are no questions from the phone.

Thank you.

Yes. Thank you very much for the interesting questions. We are now going into a short break until 4:15, have a coffee, digest all of the questions and the answers you got and see you in a few minutes. Thank you. [ Break ]

Okay. Welcome back to the second part of the u-blox Capital Markets Day. We'll continue with an R&D presentation by Andreas Thiel, our Co-Founder and Head of Product Centers, followed by ESG and financial information. After the R&D presentation, we'll once again have a short Q&A with the same kind of procedure. First question from the audience here. Second one from the chat. Third one, if there are any, from the conference call. Now Andreas? Thank you.

Thank you. And also a warm welcome from my side. Now after Markus and Thomas have explained what we bring to the market, it's a little bit more my job to show you a little bit around how we create it. And I want to pick up on one question that I heard before, how do we manage all these many customers and these many products? And I think it's important to understand that we see this really as a matrix. We have, on the one side, the markets and on the other side, the technologies. And what we try in our R&D organization, and we have in R&D or product strategy teams to do this job is really to maximize the markets we can address with the technologies we develop. So I can give you a very simple example. If we talk about high precision in GNSS, this is a technology that we can use for the case that was presented like the boardwalk detection for the micro scooter, but it's a very similar technology to what we need for the precise location of a driving car. And so we try to develop technology roadmaps internally that feed into these various markets. And the art is to find markets that are very attractive to the technologies that we develop. And so to maximize what we can get out of our R&D organization. So just to recap also what we heard before to not lose track on what u-blox is doing. Very simple words. We locate and connect everything, and we do this from chip to cloud. So this is the stuff we develop in my organization, and I show a little bit now how we do that. So there was also a question that we had before, how are we organized and how are we managing these many locations? And indeed, most of them are going back to acquisitions, and we had just a discussion at the coffee also outside. We even managed during COVID to integrate 2 companies in the last 2 years. So the one was just before, I did not manage to meet anyone of those in time because it was really 2 weeks and then the shutdown came. And another one just was already mentioned beginning of this year. So I think quite a challenge for us, but it's a way for us to get talent, good people into the company, increase our competence in areas where we have not been strong before. So both acquisitions, Thingstream, early 2020 and also now in 2021 Sapcorda, we're targeting our build-out in the services domain. So this is where we are today, mostly centered around Europe, but also quite a strong presence for software development, mainly in Pakistan, in Lahore. And you see also in the United States a couple of locations, a very specific technology we developed there, LTE, but also correction services. I come to this later on. This helps us also -- I mean we see now that technology is in high demand. Talents are being searched for, we can offer local presence. We can hire people where we find them. This is very important for our growth going forward, having this access. And of course, in post-COVID times, we have new ways of working. We are employing this. We get more flexible. We can have more people working from home, and we are learning as we grow and as we try to get out of this situation, how we can attract and also bind the people to us with very attractive work models. Now if we look into how we develop and what is our product life cycle, a little bit in more detail. And I think also this was already mentioned in the discussion before. Many of our product developments take a long time, and it's very important, as I explained before, to get this matrix right and understand what are the technology trends, what can we develop for the longer-term future. And here, typically, it's a kind of a 1-year phase where we think about new products and develop the concepts and challenge them and expose them to our shape or customers, as was mentioned by Markus before, really hone the product, the specification. And then we start developing. And the core development is typically something that lasts for about 1 year to 3 years. It can be very fast in the case of a service where we can almost immediately roll out new features. It takes quite a bit longer when we talk about the chipset development, where we have also long production times in there. And then typically, the harvesting time is something like 9 years. This is what we see on average with our customers in the industrial domain. Automotive is a similar order of magnitude. So it's a very long period where we sell the product and bring them to market. And I think it's also important to understand if we look at the journey of our company, now in old days, we typically had a hardware product that was finished and then sold for 9 years. What we see now our products get more software contents. They get a service component, as Thomas also mentioned. And so we continue to develop new features also over this 9-year period where the products are in the market. This also reshapes a little bit this investment profile. Because when we bring the first product to the market, it's not finished yet. So it's the first product version, and we continue to add features. So for example, the u-blox 9 platform that is in the market already for many years, still sees new product launches, new developments of software over time. But now coming back to the topic of capitalization. And I think we can only -- because there was also a question, I think, from the web call, we can only talk about u-blox, of course. We know that different companies have different strategies. Also quite a different mentality between U.S. and Europe there, different accounting standards and so on. What u-blox does is we invest heavily in our IP and in our -- basically our core know-how and this is what we show also in our financial numbers as capitalized development costs. So in the case of u-blox, you can see in our numbers really how much we invest into core technology. And then the question is what is the other part of it. And that's -- then really what goes into maintenance, into continuous improvement, also into more administrative work, but you see roughly there is this kind of 40% capitalization rate on our R&D cost. So we have a very high content of our work goes into real creating new things, new technology, new core know-how. And as a result, of course, u-blox is then leading from a technology side wherever we sell our products. The whole R&D spending, basically how much money we spend. We, of course, manage them through our budgeting process, and we make sure that we can really afford what we are doing and shape our activity in a way that we achieve a positive free cash flow in the end. So that sets a little bit the framework of what we can really do in R&D. And you see here in the graph, the red squares, they basically -- they show a bit how we accumulate over the years since our IPO 2007. What we invested into R&D, it sums up to almost CHF 1 billion there. So that's a very high number over all the years. And we expanded a lot our technology. We started from GNSS. We did go into cellular into short range and lately also into services. And wherever we go, we try to master the technology. We try to bring that value to the customer that we are knowledgeable about what's inside our products. Now why are we doing this capitalization thing because some other companies may not be doing this? I think it's important to show also to match basically the spending on R&D with the income that we get from the success of the product. So it's easier to understand if we can basically bring these 2 timelines more closely together so that we see really when the harvesting phase starts, we can match this better with the R&D costs that were needed to create this product. So this is the kind of picture over time that you can see here. We have basically this first investment of the product, and then we go into the harvesting phase where we, over 9 years, can get back what we have invested before, and that's a typical profile for our product. So this year is the u-blox 8 platform, a platform that is already in the market for quite a while. It was developed over the 3 years, as I mentioned before, is a chipset product took quite a while. Market introduction was then in 2014. We expect to still sell this until 2025. So it's no end-of-life insight on this product, and we expect that this product will generate a total sales volume over these many 9 years of around CHF 1 billion. So that shows -- I mean, with -- this was the question also before, why do we invest into our shows by having this deep investment into our core IP, we can create products that are valuable to our customers for a very long time span and they don't age so quickly. Again, also because we know the product inside, we can still add features with software with services much later in the product life cycle and to continue this harvesting period. To give a little bit of breakdown on where we spend our CapEx, there is 2 pictures here. The first one is really on what is the kind of time horizon where we invest our money. You see roughly 1/3 is spent on more short-term activities. This was also a bit higher in this year, specifically because we had to do quite a few product modifications to deal with the challenges of the supply chain, some components available others not. So we had to redesign products to make sure we can supply to our customers. Then we have the typical new products in the black one. This is a good half of our activities really goes into products where we have a concrete product idea, a road map, a plan to bring to market, and we are executing very stringent way on our plan. And then the gray section a little bit try of 20% is really more the longer term where we have more fundamental research activity, develop fundamentally new core IP that will carry us and forward so that in a few years, we can start another product development in this black area to move us forward. On the other hand, we have also here the picture in what shape of products we invest. And the interesting one is the red one here. This is our platforms. So again, this idea we create -- we invest a lot of our development in things that have multiple users and the platform is the most abstracting. So if we think of a new positioning engine, this is where we put the development for the chipset. This is where we put the development for the new algorithms that really bring the foundation for new product generation. This is what we call a platform. And then later, we had here shown in black, the specific firmware that integrates the features that the product really brings them to the customer. And later than the different shapes of the product that we offer. So we have the module designs. And last but not least, we have also a little bit investment into our processes -- internal processes, continuous improvement and so on. But really important message here, the big portion of what we do goes really into development of our core IP of our platforms that build the foundation for this long-term success. Another picture quite interesting is we had a bit the discussion here, what is third-party suppliers? What is u-blox IP? If you look on the importance, and I think that also illustrates at this point, how important it is to have our own IP. And I think there was also a question, what is the margin situation and so on. We see really here the contribution, more than 3/4 of the contribution that we get comes from products that have our own silicon inside built on our own IP. And that shows how important this aspect for us is to own this IP. Nevertheless, the market is broad. There are always applications that we cannot serve with our silicon where the market is also too fragmented. We need too many variants. And here, we are very happy to work with strong players in the industry. I mentioned already a little bit when we looked at the geographic distribution, our merger and acquisition strategy. It has always been a part of our strategy. We have done 17 acquisitions so far. Most of them have been really with the focus of acquiring technology of acquiring talent. And so we always look for targets that complement our product portfolio. I mentioned already the services. We wanted to grow services. So we are looking for companies that could bring this competence into u-blox. And also, we need to see a really strong industrial logic. So it's not just financial investment, but there has to be a logic that the 2 companies make something bigger together. Then, of course, we are a little bit careful on valuation. So we really make sure that the purchase price is accretive, so it's creating shareholder value. At the moment, a little bit difficult. We see a lot of valuations rather on the high side. So we are a bit careful here. But I mean, we try to make it on reasonable grounds. One aspect important for me, and I mentioned already, we integrated 2 companies during COVID times. This only works if the cultures match. And we were lucky. And of course, it's an important aspect of the selection process that we see a cultural fit between u-blox and the company that we want to acquire or integrate. And so I think this is the basis of our success that so far, we were always able to identify companies to join u-blox that were really well matching also on the cultural level. So we look continuously for this. And no future-looking statements here. So it's for us still something that is always an interesting aspect. And maybe because it was relatively recent and since the last Capital Day, a quick comment on what Sapcorda is about. u-blox has been an investor into u-blox already since the start. And so -- in March 2021. So this year, we decided to acquire the remaining shares of this company to become a full owner, and we integrated Sapcorda fully into u-blox. And what Sapcorda deliveries to us is, and I explained this on the next slide, is what is so-called correction service for GNSS. This is an essential function because what was in the past, the stand-alone satellite receiver is becoming a more and more connected device because we need additional information to really ensure the precision of the position, ensure the timeliness of the position, but also ensure the integrity then of this position because it's -- as it was mentioned, it may be used in very critical application. So in this sense, a service component is nowadays coming with the GNSS receivers. So it's essential for our core business in the GNSS domain that we have access to such a service and can also offer this to our customers. I think it's important here also another example of a traditional stand-alone industry, as Thomas also explained it, there were a stand-alone products out in devices now become connected systems with a lifetime component, with a maintenance component, with a service component in the end. And we believe this then also turns our business from a pure hardware sale, which you see here illustrated in this graph in gray, you basically see the peak at the beginning where we sell hardware. So this is then an important part where we sell our modules, our chips. And the service component slowly adds on top. But the important thing is the service doesn't go away. It will stay for the lifetime of the product. And if the product stays 10 years in the field, we will have still 10 years of revenue coming from the sale of this product and the corresponding service. So this is really a game changer for our business. And it's very nice to see that this also applies for the positioning business where we have been in that market for more than 20 years now. Very quickly, technically on what it is and what it is about. So this correction data is all about imperfections of the satellite navigation system, mostly coming from distortion in the atmosphere, in the unisphere, also some malfunctions of satellites and so on. And what you do if you have basically ground stations that observe what is coming from the sky. They calculate corrections to that and give this information through another communication channel to the GPS receiver, so that the GPS receiver or GNSS receiver is always aware of the status of the system, the precision of the system and can calculate corrections if needed. And this enhances greatly the use of the system, as it was mentioned, we get from meter accuracy to decimeter accuracy even in some cases, even better. And as you can imagine, some elements that are important here is a wide coverage that we can cover whole continent or even the globe. So finishing here with my last slide, why do we invest in core IP? The theme of my little speech here. We can drive a larger part of the value chain because we can deliver more. We have enhanced functionality. We have, for us, a lower cost of ownership, and we can add services. And we can continue to innovate. And we are independent from third-party chipset road maps. We can better feed it to our customers, we can identify the markets where we want to play, and we can tailor our products to these markets. Our customers take a very long-term commitment with us. So it's important that we can fulfill also those promises that they can rely on us for this long term. And this is because we control our IP. And the customers can rest assured that whatever happens in the future, we are the ones who know about what's in the device, and we can fix it and we can improve it over time. So this gives us the better customer support. And last but not least, as a consequence of all this, a strong increase of our margins over the lifetime of the product, again, also including the potential for a service component. That was it from my side. I think I hand over to Thomas to take questions. Sorry, there's a question session.

Please first here from the room.

Thank you for that. Maybe on Slide 57, I thought that was very interesting to see this graph with, yes -- maybe you can help me or us to make this a bit more practical if one of your products and solution goes into a car, who is then paying for these red bar over there? Is that the owner of the car? Or is that the car producer? Or how -- or maybe another example is more practical..

Yes. I think there are -- the more complex the value chain gets, the more complex example. I think the simple example is the scooter. If we go back to this one, if the company board wants to have high precision, then the company board would also source the service from us.

Because they are the system operator.

They are the system operator. So because they offer their customers also an app, a connection app and so on, there are now different models. For example, if it's a shared scooter or a private-owned scooter, they are in different models. Sometimes, it's then their share company that wants to service because they want to find their scooters. So that's now a little bit a thing with the services. That there may be different points in the value chain where they really connect. In some cases, it's the same customer for both the hardware and the service. In some cases, it can be pretty much remote. If you talk the automotive case, typically, the OEM has a service contract because the OEM is distributing the data to his fleet. And then there are device suppliers that supply into the car. So there is a little -- there is a wider spend between the hardware and the service supply, but this is indeed the interesting part that we can offer this from one end and can show what we can do, and this helps us to address both ends.

Serge Rotzer from Credit Suisse. Only a quick one for this chart, if you would print on the margin curve, how would this margin curve look like? Do you have the best benefit with the order sale? Or is it really that service is so accretive and this is -- allows you better margin at the back end?

Yes. Clearly, the margin profile will increase with service income taking over the lifetime of the product, obviously. I mean the -- as soon as we are above the tipping point where cost and income equal, then, of course, we have no extra cost for selling additional service, and this makes, of course, the margin profile very interesting.

So a future approach could be a kind of a shaver blade model than a reward that you would give your chips almost for free and then make the big money on listed services, is this an opportunity?

We've got such idea, but whether this makes sense in individual case is a different question.

But does it make sense?

Yes, I cannot say yes or no because it all depends on, again, the value chain where can you sell and who has the overall interest in what you do. At the moment, I think it's rather the exception.

Andreas Müller, ZKB. Again, a question here on the services. I mean how transferable are these services from one platform to the other? Do you need more investments or again the same investments? Or are these services platform independent?

They're almost agnostic. So of course, we have an evolution over time. So we get a better hardware platform. We get a better service, but we make sure that this is backward-compatible. So there is no specific need to match the service to a specific hardware product. So we manage these platforms in a way that they are compatible to each one.

Okay. And then the other question would be, you mentioned that you are not in chipsets, for example, for short range such as Bluetooth, Wi-Fi and so forth. What are the criterias not to go into these fields? You mentioned that there might be crowded, but can you outline a bit for us specific criterias?

I think the answer is relatively simple. We need a return on investment. And this is, of course, what we constantly evaluate where such profiles are available and it has also to do with differentiation. Can we create a value that sets us apart from competition. But that is, of course, our strategic homework we do and more we cannot say. It is around.

Just in order to understand the attractiveness of the Sapcorda venture, so to say, still -- it's still costly. Now there is a little revenues or profitability out of it today. What -- can you just elaborate on the enterprise value that you paid or you established for the 57 remaining percent in comparison to the entry you had a couple of years back? How did the enterprise value Sapcorda develop?

Yes, I can only make the remark, not more than that, that we have a very interesting price to get the rest of the shareholding.

That was due to an option scheme or optionality you have?

There are certain arrangements, yes. That's really depend. Interesting. But of course, we need to run the integration costs, as we say here. It is not yet done that. It is breakeven.

Okay. And maybe then ask differently, where would the market value be today? And where is the book value?

There are competing companies around. They have a very high valuation. Of course, everything that this service has crazy valuation, so double-digit numbers.

But it only makes sense with your hardware offering basically.

Yes and no. Of course, we want to adhere to our hardware sales, I mean, to make it a differentiating offer. But basically, we could it also on the top of competing hardware products. Mr. Thiel.

Maybe on this one, one more. Our theme is better together. So when you get both from u-blox, the service and the hardware, it should always give the best customer experience. But this does not exclude -- I mean, we had just an example of the automotive service situation. Of course, we have to make sure that we also support common standards that if we offer a service to someone higher in the value chain, he may operate a fleet that also contains competing hardware. Unfortunately, of course, we would like that they have all u-blox, but we have to deal with that. So we always have the situation that we have our hardware has to work with another service or a service will work with another hardware. But in essence, what we are focusing on is better together, when everything comes from u-blox, it should deliver the superior experience.

Maybe just one question, in between, Thomas Kuhn, LLB. This collaboration with Softbank, is that a differentiator in this model with PointPerfect? And maybe what is in general, your differentiation versus Trimble or Hexagon, which offer these services?

Yes. Maybe going a little bit back in history, the 2 companies you mentioned, they -- I think the main difference is the business model. I mean they offered historically their service into very specific high-end markets and the business model that these companies operate is pretty much coming from this history and this picture. And so that was also the reason that we originally founded Sapcorda because we saw if we bring high-precision positioning to different markets with a different value proposition, then we also have to make sure that there's a service available. So this is really the difference. And in the specific case with Softbank, the point is really that we can -- it's all about regional expansion. Our customers need a global reach that was, I think, also mentioned in the earlier slides that all -- many of our customers have a global presence. So for us, it's important that if they select PointPerfect as a service from u-blox, that they can rest assured that it works everywhere in the world. So in this sense, it's a give and take with Softbank. We bring them coverage in areas where they are not present. They bring us coverage in areas where we are not present. So it's a very good situation.

But is there just a partnership with them? Or how is it dealt with financially?

It's a partnership.

Okay. And is your service more precise than, say, Trimble or Hexagon? Or is it -- as I would assume now, is it available in more regions? Or is it cheaper? Is it less power consuming, smaller? Just that I understand because I think Trimble also offers a correction service stand-alone we found their hardware, right, for example?

I'm not so sure about it, and I cannot also talk about competition too much here. I think, as I said, we differentiated in a number of points. Technically probably on the level that we talk right now, there is not a huge difference, but the difference is more in business models, also in availability, coverage and so on. So there are a couple of factors that play together to make this an attractive offering.

And you have the best availability in coverage.

We think so, yes.

Mr. [indiscernible], you still have a question?

Just to fully understand in the case of autonomous driving to make this system redundant, there would anyway, 2 systems come into play, no?

Yes. We don't often duplicate...

At least?

Yes. Okay. That's correct. Good. Then I think we turn to [indiscernible].

Okay. Mr. Scott Searle from ROTH Capital. What is the strategy for 5G? Will u-blox develop the solution internally or work with third-party merchant silicon vendors? What would be the cost of 5G investment? What would be the expected time line of bringing a product to market? Will the company remain vertically integrated from silicon to module going forward in cellular?

Yes. So we have also an offer of chipset as we have communicated several times. And of course, the question of 5G or whatever the Gs is just mentioning that these are standards that this cellular connectivity define. And the -- we, of course, following these standards. And it's evolutionary. This is why it's called long-term evolution. So we follow this evolution, and we make decisions for what markets do we develop a solution, where do we invest and where do we not invest. And so far, we have invested mainly for the industrial space for applications where data transmission is rather limited and where all the features are more important like cost effectiveness or low power. And of course, we follow this space as it evolves and are developing here our competence, respectively, then product offer on a continued basis. But of course, we cannot say a lot more here. This is what is our secret sauce.

Also, Mr. Seiler, at what level of sales does services become profitable?

Yes. Also here, we have not a precise number. But of course, we aim, as we said before, in the range of 5% to 10% of our revenues to make it the service income. And that, of course, is area where we have nice profitability.

Where does eSIM fit into the product portfolio and strategy? Do you expect this to accelerate industry growth?

Yes. To explain to the audience what is eSIM, this means you have no longer the physical SIM card that you plug into your phone as you do it probably personally, but the -- these little circuits that is here for security and has anchored the communication is already in the hardware that you buy and sometimes you get it already this way in certain mobile phones. And of course, especially in industrial area, this is much helpful because placing SIM cards in the products is cumbersome. So of course, we are following this trend by various activities and are, for sure, following this possibility that it has also to do with standardization and with the industry definitions how this is applied.

Then Mr. David Sachs from Hocky Capital. Can you quantify the redesign costs you expensed in the first half year results to work around component shortages? Did those continue in the second half?

Yes. I mean, we do not give a precise number on these calls. But in the half year numbers, you will see that our capitalization rate was reduced, and this is an indication of what was the effort. Fortunately, these exercises finished. There are only a limited number of suppliers. We cannot redo this exercise to find more alternative sources. And in so far, as we also mentioned in the slide deck, this capitalization rate is going to normalize.

Can you discuss the strategic rationale for the Sapcorda purchase and timing? You indicated a loss of some CHF 7 million for Sapcorda this year. Is this the peak last year? When do you foresee breakeven? And what is the longer-term potential of your software and service vertical?

I think we have spoken a lot about strategic rationale and what we want to achieve via services in case no need to repeat here. And we give here an indication that integration cost this year is CHF 7 million.

Mr. Daniel Lion from Erste Group. What you expect merger and acquisitions to accelerate in your space? And would you regard yourself as an acquisition target?

As mentioned in our presentation and before, we see merchant acquisition is an important factor for accelerating the company. And I think what we are just explaining here has a lot to do with this attitude. We added important capability via acquisitions, mainly the Thingstream acquisition in 2020 and Sapcorda, that really helped us to expand into the service domain. And I think this is, of course, a very good example how we make good use of this attitude. The other question I have, of course, no answer at least for every member of the audience here.

STM was a reward to be evaluating the acquisition of Nordic semiconductors, which would have then cover all of the 3 areas. Question one, would you see the combination of these players as a threat to your market position, especially given the R&D capacity such as combination could have?

Yes. I mean I cannot comment on individual [ retentions ] and cases. I can say just such a combination is, of course, not changing the R&D capacity per se. Maybe this -- you can imagine the teams are put together. And rather, the number of people is reduced because you need cost improvements to finally show accretive business case. And in the far that is about limiting R&D capacity in such acquisition cases.

Okay. You answered question two as well. Then Torsten Sauter from Kepler Cheuvreux. Many products like cellular or Bluetooth ground on well documented and global common standards. As a small player with limited resources, where and how can your R&D outperform the IP formation of all the large competitors?

This is, of course, absolutely. So I mean there's no wireless communication without global standards. And this is absolutely necessary. Otherwise, you cannot use your products around the globe, but that is the basic requirement. This is what is sort of the pillar on what everything stands. The differentiation is not by fulfilling the standard. The value that we create for the customer is by making sure the functionalities that finally, the customer wants to reach and the value they want to give into the hands of their customers is supported by what we make a solution for them. And here is, of course, where we are strong in, again, combining several elements of our products to build the solution and in this combination, add-on functionality that otherwise is not available. And here, we are very strong. This is really the differentiating point of u-blox.

Mr. Sauter. U-blox has, in recent years, enhanced its product portfolio from GNSS technology and positioning to seller then short-range connectivity and most recently to cloud-based services. If this is such a winning strategy, then why has no competitor followed it?

We would have to ask competitors. But we are -- this is because we are different. We have taken an avenue of how we develop the company, how we have invested into creating the technology and the product in a different way than probably many of our competitors. And this is the strength that is really what makes us the company u-blox.

Two last questions. One for -- about Sapcorda. Why have the former Sapcorda joint venture partners sold at such low price right ahead? And the takeoff of this new service, how can u-blox scale up the service without such renowned industry partners?

Here, we have to go back into the early times when we created the joint venture. This was a time where such a service was not at all available. There was no global network to compute correction data and to supply it to any receiver somewhere in the globe. And we thought it would be good to have an industry consortium that is sort of the backing for this idea and creating acceptance across the industry. Now in the meantime, this has changed. Competitors took also the idea, and we mentioned a few names already. And therefore, it is no longer so that this is totally unique. The customer has basically a choice if he wanted. And in so far, also the joint venture partners have lost interest in supporting the idea, and this is why we came to agreement that we take it fully over.

Last question from [ Frederic Torrison from Quantia ]. What opportunities do you see in ultra-wideband? Has this radio also might complement a wider range of your modules and markets?

Indeed, there are more wireless standards and ultra-wideband is one of them that might be an addition or a complement to what we do with the standards we already employed. Whether this makes sense is always a question if our customers have good use of it, if the ecosystem is developing, and of course, again, whether the investment case is an accretive one, does it make sense to invest into such a platform.

Thank you.

Then to the phone, please.

Gentlemen, so far there are no questions from the phone.

Very good. Thank you. Then I continue with the next chapter, very briefly about ESG because this is, of course, topic that is in broad interest of the investors domain. So we like to say what we are doing. First of all, I think the most important message is we do this for a long time. We are adhering to the United Nation Global Compact for a long time since 2012 and have followed these principles over many, many years. This means we are not popping up here something green on what we have -- what we are, but I think we have embedded the thinking of these ideas for a long time. This has a lot to do with how we make products, how we qualify suppliers, and of course, what sort of material use in our products. I think this is a long-lasting attitude. And of course, what we do as a product is really also helping to make the world sustainable with wireless communication, we can help to make many, many applications that otherwise would not be available. Of course, one example is the electric vehicle via Wi-Fi. You connect to the charging station and you make optimum use of what is the energy supply, the electricity supply in the charging station or we have the advent of the street light that is made of LED from the light-emitting diodes. And this has become a fully electronic system to optimize the -- on one side, the provision of lighting and the other side to heavily reduce the energy consumption. Before, it was a dumb product, a very good example. It was just a piece of metal and bulb. Now it's a complex system, and it does really change how this infrastructure is operating, and it has a much smaller footprint than before. And of course, in everything that is infrastructure, communication can help to best manage and control. And in so far, there are numerous examples where we make a very good impact with all what we make as our products. And also, we do, of course, many other activities to support sustainability in various dimensions for -- in the society and have also our employees engaged in doing it in their free time on their own or we support from the company. And I think this is, I think, a good attitude that u-blox has and is fully supported by all our colleagues. With this, I hand over to our CFO, Roland, please.

Thank you, Thomas. So a very warm welcome also from my side, ladies and gentlemen. I want to give you now in the next few minutes some financial information. Since Q4 2020, we have seen a strong recovery of demand and especially record bookings. We face today an order book, which is 9x as high as pre-COVID times. We see strong expansions in all sectors as well as in all regions equally enjoy a high order book and all products are contributing to this very solid order book. The monthly revenues in growth, we see already in 2021, supports our guidance and also the order book fully covers the expected 2022 revenues. But revenue growth as such and the growth rate is depending on the easing of the [ supply rating and the supply constraints ] and [indiscernible] the supply shortage continued in [indiscernible] between supply and demand in the electronics component market. On the supply side, the reasons for that are, on one hand, the underinvestment by the foundries in the mainstream nodes, but also COVID-19 interrupted the supply chain in this year, and we had seen severe fab accidents, which again reduced the supply chain. And also some political issues and the transportation capacity limitations were not really helpful to support supply and to increase the supply capacity. And this constrained capacity on the supply side, on the demand side and increased demand on the fact that we are more working from home, we see the increased demand for IoT and for 5G and also structural changes in digitization increased [indiscernible] even bigger. U-blox, as a company, tried to mitigate these and has taken measures to do so. So Thomas and Andre mentioned it, we adopted and retooled some existing products to -- with available new componentry so that we can still support the product. This activity was closed in the first half year 2021. We had also additional suppliers qualified for the product so to get a broader bandwidth. And -- but also we do intense hand holding with our suppliers and try to exercise our purchasing power via our contract manufactures. All of that helped for sure. The capacity is still limited. And despite of all these measures, we suffer under this supply shortage. Sorry -- although the strong underlying order book gives us a certain visibility through our revenue expansion, which is in sight, we are very confident that we are able to reach our guidance we gave in August. The growth drivers for the midterm are indicated in this picture. You see that one from the automotive content is part of it, the mega trend of IoT, recurring revenues, then there is also those capabilities to price increase, and we will, in the midterm, also increase the share of the wallet. Our strong product pipeline in the past few years lays now good foundation and solid business foundation for future growth and new chipset create additional customer values. And with that, we are also able to grow in the future. Recurring revenues as such are helpful as we show -- as has shown in Andreas' presentation, you see the longer-term revenue coming, not only on the hardware product, but also the services based on these hardware products will increase and make the revenues of u-blox growing. This is already visible in the half year numbers partially. We reached CHF 193 million revenue. This is an increase of 10.8% compared to the first half year 2020, although we see some negative impact from the foreign currency in the U.S. dollar. Without these, the growth would even have been 16.5% compared to the first half year 2020. On the gross margin side, we increased the gross margin to 46.7%. This is mainly due to the product mix. This means we made a gross profit of nearly CHF 90 million in the first half year 2021. R&D expense were CHF 52.3 million or 27.1% of revenue. Here, you can see in this number also the effect of the changes in the redesigns and lower capitalization rate, which has an impact on R&D. Distribution marketing expense were CHF 18.1 million or 9.4% of revenues, with the growth of the gross margin, of course, also higher bonuses are expected to be paid. EBIT was CHF 10.5 million or 5.5% in the first half year 2021 compared to the CHF 13.2 million in the first half year 2020. Here, the impact is, on one hand, the higher amortization expense; on the other hand, also the impact of the full consolidation of Sapcorda. This joint venture was shown in the past below EBIT. Now with -- when we fully consolidated, we have it above EBIT, and this has a negative impact on the EBIT as such. But although we were capable to turn our free cash flow around, when it was negative in the first half year 2020 of CHF 8.4 million negative, we are now CHF 25.8 million positive free cash flow or 13.4% is -- on one hand, is the effect of the gross margin increase, but also net working capital helps a little bit. And we had this OpEx reduction program we announced in 2020, which provides roughly CHF 15 million for the full year than in 2021. And with that, I hand it over back to Thomas for a short round up.

Thank you. So summary to what we have presented. I think we wanted to show how we are on the way with regard to what makes growing our business. And despite challenges from COVID-19, we enjoy really good expansion by the strong interest to make things connected. And in the automotive area because the cars become more intelligent, the automotive side, of course, will probably have some time to fully recover because of overall supply constraint that affects this industry. And as a sort of an icing on the cake, the consumer space remains nice to have, so to say. We do it in a more opportunistic way, but we have good projects with customers that have very strong growth potential. And I think that has already been become visible in the first half year. Of course, we have to navigate around these headwinds with all the problems on the supply chain -- in the supply chain. And unfortunately, it's very hard to predict how this is going to ease, especially also because the virus is not away and is rather at least in this area, again increasing, and the other hard to tell. The question is when is demand and supply becoming more balanced. However, we are growing. We are growing month by month in our output. It is possible to make it happening also in these times. And of course, with our very strong order book and with the tremendous good customer loyalty we have, we have a very solid foundation for 2022. So from the more strategic point of view, we are focusing on making this world connected. We are the leader and the specialists for the industrial and automotive applications and want to make sure we are really providing the right solution. We do that out of a rich portfolio of IP and the continued add-on of functionality that matches application areas, and of course, also, especially the ones, the new ones, spaces where new ideas are created and suddenly new business opportunities are popping up. And this is, of course, an effort, but also it has a result. We do announce continuing new products. I have also for that platforms in development and make sure we have a rich pipeline of products also in the future. So this is, for sure, the biggest driver for -- going forward that it's our own effort. But I would say that the -- hopefully, the market is recovering and easening that will, of course, help us in addition to that. So when we are -- I also like to highlight what we hopefully were able to highlight in this meeting compared to last year's, I think the -- our product road map really is attractive. We find so many new opportunities to build new business, and we see many ramp-ups with customers and especially also with new customers. I hope we were able to show you that our R&D efficiency is well managed. The final -- the reconciled cost, as we see it in the table, is rather decreasing than increasing. So efficiency gains are here. And that the differentiation has made progress with our solution capability. This really coming close to what customers really need to solve their problems. That said, we have in this solution attitude the service component that is really very good long-term effects on building out the business and, of course, making our customers even longer-term partners than today. So from a shareholder perspective, these are our priorities. First of all, organic growth. As before, we are investing in R&D. This is the essence of it. We are looking and making sure we really attached to markets, and we have the capacity to reach these markets because they are expanding more and more customers become available. So we need the wits of the channel to do this. And of course, at the same that we are the right partner with the solution. Where we can? Second priority. We do acquire capability and exploit such opportunities on a continued basis, but we have criteria. It must be a good strategic fit, a good cultural fit. And of course, it must make sense financially to be attractive in a relatively short period of time. And finally, third priority, we want to make shareholder returns. We had quite -- we had a dividend policy. We interrupted it because of COVID. And the attitude is to resume this fiscal year. So this does finish our presentation and I invite once more for your questions.

Rolf Renders from Helvea. Maybe combining the Sheet 52, where you showed R&D over a long period of time and the Sheet 67, where you basically project growth going forward in top line. So given your strong order book, you have good visibility of growth going forward is what I take away. And in the R&D investments, so what you really spend per year, let's say, in the last 5, 6 years, that absolute demand grew quite significantly. So if now the future develops as you plan with growth in sales, what can we expect then on the absolute amount on R&D expenditures? So really, the blocks you've shown as 52.

Yes. I mean, the independent of the detailed numbers, but when looking forward, and let's assume we are on a good growth profile, of course, we have to make sure we do let follow the R&D expense also in the absolute term, we have to remain competitive. Growth means also we are selling probably a more diversified product range or we have a broader solution capability. This, of course, needs to be supported also by continual R&D. But the aim is and, of course, the management task is to always decide well on what trajectory we are expanding R&D to keep the competitive of our company well supported on the one side. And on the other side that this remains, from the shareholder point of view, an accretive operation, meaning we can, of course, trade positive free cash flow. And this is the core decision we have to make in our company. Müller?

Andreas Müller, ZKB. You mentioned positive free cash flow as a sort of kind of overarching goal. Do you have a specific range in mind relative to revenues, what that should be medium term?

Yes, we are not providing detailed guidance here. But I think the aspiration to be -- to make it positive is, of course, the one that should show some numbers that are visible.

Okay. And the order book in absolute dollar-Swiss terms, how much is this 9x?

Roland mentioned it covers already the expected revenue next year, and we aspire for growth. So I think this gives you an order of magnitude where this number is.

And the order intake is the book-to-bill ratio still positive at...

Yes. Yes. This is strongly positive. Yes, above 1. That's probably a better expression.

Okay. Serge Rotzer, Credit Suisse. Then I try to figure out how much backlog you have, no question here. You mentioned that the backlog covers sales of next year, but you don't know exactly what happened in the supply chain. However, you are a fabless company, and so you have a base case, otherwise, you can't say that you know that the backlog covers the sales of next year. So what does this tell us? What is the basic assumption that you can say that today?

Yes. That, of course, is an exercise we are doing in estimating what could be created as a revenue next year based on information we have with regard to availability of components. And this is still something we are working on and elaborating. And of course, it's an ongoing question we need to answer respectively to have a forecast. But you can imagine that what we think is our revenue next year is less than what our customers expect to get. And this alone is, of course, very sound basis actively positive situation that we are really profiting strong demand.

Well, this year, you said that you could grow by 30%, if there were no supply bottlenecks, you will grow up to 20%. So the delta is at 10% is a CHF 33 million basically. How much of this CHF 33 million is part of the backlog of next year?

Not sure actually what do you mean by CHF 33 million...

Well, basically, last year, we achieved CHF 333 million sales. And you are growing up to 20%, you said you could even grow by 30% if there are no supply bottlenecks. So 10%, that's CHF 33 million. And I'm wondering now how much of this pent-up backlog is part of next year's backlog?

Yes. Of course, the backlog is the backlog. This is all the future business we can make. We have 2 months left and of course, make continued new bookings. So far, the order book has only increased over the last few months. And this means what we say now can even be a higher number by the end of the year. So we are, by far, have an order book that is more than we can probably ship next year.

Would you say that the backlog of this year, you can't deliver is the higher share of next year? Or is it minor share? Or is it marginal? Or how you would qualify it? What I want to understand is how much is the growth next year? How much is really your legacy from this year?

Look, the answer is very simple. It's not driven by our order book. It's only driven by the availability of components. And this is -- this number is lower than what the order book would allow very simply.

Okay. Then probably last one. The current backlog, what's the lead time of this backlog now? So is it within 12 months or is it even longer?

Yes. The lead time is given by both our component suppliers give us as a lead time, and this is often more than a year. So that means we have to tell customers the lead time is such a number. And we can only, of course, plan out according to lead times and any new order must reflect what we indicate to customers.

Okay. Still a last one. We had quite some price increases on material prices, probably also your producer will increase the prices given the bottlenecks here. Will the quality of the backlog remains what you have in your books? Or do we see some downfall or draw back on the margin then next year? Because you have locked your backlog, I believe, and then your risk increasing prices to produce your backlog. Is this true? Or is it totally wrong?

I'm not quite sure what you mean. But I mean, our backlog, of course, includes price increases as we have exercised them because customers have to reconfirm their orders with the new price.

Okay. I will ask differently. What you sold is fixed price, I believe.

No.

No.

It can be variable. We tell the customer the price is increasing.

100%.

Almost, yes.

Okay. Then you're a good company.

Thank you. Any more questions here? Can we go to the chat, please.

Mr. Sauter, on the order book as well. How big is the order book in millions? And a follow-up question, the order book now fully covers the expected 2022 revenue, yet no guidance on revenue was provided. Can you help us quantify, please?

Yes, I think on sizes and magnitudes and so on, I have given several answers already, and we will provide the guidance for next year together with our annual results 2021 in March time frame.

Then Mr. Sauter. You haven't listed Huawei with its [indiscernible] chips as a competitor. How relevant are Chinese competitors in your target markets considering the volumes that they apparently are able to sell in their huge domestic market? How relevant is u-blox in China?

Yes. Okay. The question is around China. There, we need to understand these markets, first of all, very huge. It's one of the biggest single market, of course. Second, it is important to us. We derive some 25% of revenues from this territory. And third, this market is -- has its own segmentation. Certain markets are interesting. Other markets are oceans, not at all interesting. And of course, we focus on the ones where it's interesting to be. What Mr. Sauter mentioned as a chipset, this is for a specific standard called NB-IoT that is only applied in China and is not an attractive market for us.

Then Mr. Jonathan Art, [indiscernible] Partners. Can you detail the product transitions in the cellular business? Example, how much is LTE versus 2G, 3G? How much is based on your own chips versus Qualcomm or someone else baseband? How much is CAT-1 or CAT M and NB-IoT? And what is the gross margins and growth rates of the latter two?

Yes, many questions, and I can give certain answers. First of all, the transition away from the 2G, 3G standards from the old ones to the new ones, LTE-based has developed quite a lot probably to 70%, 80%. When we look at our business, so this is a strong transition that has happened. We have in the area of connectivity for the industrial use case, a very strong position. We are probably one of the largest suppliers for category and modules and have a combination between modules that we make from Qualcomm chipset and also from our own. And of course, this migration to products that are based on our own technology is progressing. This is a very important move for us, but it's also very attractive for our customers.

Mr. Antonio Poveda from Alantra Employees. Could you provide more detail about how many shares current employees own, excluding nonexecutive members of the Board of Directors and the Executive Committee?

I don't know by heart such a number.

Then Mr. Art. Can you discuss the competitive state of play in cellular modules? For instance, last week, Quectel announced truly monumental growth of almost 80% using just Qualcomm chips. How is that possible? What do you think your non-China market share is compared with Quectel, Telit, Sierra, Gemalto? How do you think you are doing in the new design wins for volume customers as compared with those and the new entrants of Nordic and sequence?

Okay. Again, many, many questions. Good. So the name of Quectel was mentioned. Again, we are not making comments on competitors per se. But again, as I said before, the China market is quite a separate market space and is occupied by Chinese players entirely. There is for cellular communication, there are no Western suppliers in this market. This is also where these companies take the growth from. Then the market shares, yes, we can read analysts data and we enjoy here some 10% in the western world for cellular connectivity. That was the question.

Then Mr. Sachs from Hocky Capital. Have you seen signs of a bottoming in electronic component availability? Any aspects of the supply chain that have begun to moderate back towards normal?

Yes. I think we mentioned already, such signs are not yet visible. The imbalance of supply and demand is continuing.

Good, then we have covered everything from my side.

Thank you. Then let's go to the phone.

There are still no questions, sir.

Very good. Then I thank you very much for your attendance, for all your many, many, many questions. And of course, that is a very strong sign of interest. And so I am very glad we were able again to talk to you. And if you like, there is still time for coffee. And otherwise, I'm looking forward to meeting you on another occasion. Thank you very much, and goodbye.

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