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

Ladies and gentlemen, welcome to the Half Year Results 2022 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that 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 Thomas Seiler, CEO. Please go ahead, sir.

Good afternoon, and good morning, ladies and gentlemen. I'm very glad to welcome you to this presentation of our first half year results. We are making this presentation with the usual disclaimer about forward-looking statements. And today, an agenda that we go quickly through a summary, then have the details of our numbers and also give an outlook to how we will go on. So the overview of numbers is in this table. You have probably seen our release this morning. So we can report a very strong growth in the first half year for revenue of more than 50%. And even more, the profitability has increased for gross profit for EBITDA and operating profit here to a very large extent, as you can see, and mainly our earnings per share have reached almost 10x the levels we had in the first half year 2021. So an excellent result. And of course, we give you here more details and insight to why this has so much evolved. So these results have been a result of -- based on the steady expansion of our production capacity, mainly by receiving higher quantities of components. Our production capacity per say was always adjusted to what we expected to make. And therefore, most important was that our suppliers for the various components have constantly increased their output and delivery into our hands. At the same time, bookings have continued to be very strong, and the current order book is double the amount we had at the end of '21. That's, of course, an amazing increase. It is, of course, also giving us the foundation for providing outlook for this year and even into 2023. We have continued to develop new products. We have launched major new products. Our R&D pipeline is well filled for more new products that we will launch this year. And in so far, we have not just made individual components, we have also worked for delivering solutions. Our customers want to have a full solution, something that is out of one basket and works and solves this problem. And this is what we have also enhanced and will continue to expand. And of course, most importantly, we won many new customers. The customer base has once more enlarged, but not only that we have more customers, we also have seen growing customers. Customers are successful with our product, and they are the main reason why we see such improved numbers. And with that, I hand over to my colleague, Roland Jud, the CFO, who provides details about this first half year's numbers. Please take control.

Thank you, Thomas. Good morning, good afternoon, ladies and gentlemen. Also a warm welcome from my side. I'm very pleased to give you an overview of the financials in the first half year 2022. As a highlight, total revenue was CHF 294.4 million in the first half of the year, an increase of 52.7%. Thomas mentioned as well, profitability went up, the gross margin went -- increased to 48.9% from 46.7% in the first half year 2021. EBITDA adjusted was in the first half of the year, CHF 76.6 million compared to the CHF 28.7 million in the corresponding period in previous year and also adjusted net profit, we reached CHF 48.7 million in this first half year 2022. Cash flow from operating activities was CHF 30.4 million and free cash flow in this first half year, CHF 6.6 million. We have an equity ratio at the moment of 63.1% of the assets. Going a little bit deeper into the details, the strong growth. I mentioned it, 52.7% over the first half year 2021. A strong rebound of orders since August 2022 helped to this good result. We have also the accelerated trend for connected devices and the expansion of the production output, which led us reach such a good result. The U.S. dollar's rate impacted revenue this year positively with the growth at the rate of 2021 would have been 49.9%, so nearly 50% growth also if we take the lower U.S. dollar rate into account. EBITDA adjusted margin was 26.7%, which is at the end, CHF 76.6 million. This compares to the 19% in the first half year 2021 where the EBITDA was CHF 28.7 million. We see this year strong growth in every region, the higher demand in industrial automation and health care applications and also the strong expansion in the automotive application helped the -- in the Americas to grow the revenue by 60.8% in this first half year compared to the previous year period. The growth of revenues of 41.8% in EMEA was on one hand driven by an increased demand in Industrial Automation Solutions. And on the other hand, by the buoyant demand in the automotive applications. And also APAC, I mentioned it, so very strong growth with 54.9%. This growth comes from health care, from the automotive and also network applications helped to this good result. But due to the supply constraints and the COVID impacts in China, the business in China remain rather flat. Otherwise, the growth in APAC would have even been bigger. If you look at the market, also here, all 3 markets where u-blox is in -- are growing. Industrial and automotive markets grew by 62% each. And in consumer market, we have a growth of 18%. The split between the markets remain, therefore, nearly similar to the prior -- first half year 2021, 61% we made with industrial, 28% of our revenues result from automotive and 10% is then from the consumer applications area. If we have a look into the volumes in the first half year 2022, the module business has had a strong growth. The volume grew by 34.3% over the first half year 2021 and 50% over the second half year 2021 to a total of nearly 27 million units, which we sold. Also, the ASP has an increasing trend in the last 3 semesters. This is due to changes in the product mix where we can sell more products with higher prices and also the price increase has a certain impact on this increasing average sales price, which is in the first half year 2022, CHF 9.18 for modules. On the chipset side, we sold roughly 22 million chips in the first half year 2022. And chip volume showed a strong growth over the second half year of 2021, nearly 40% increase. This growth is mainly driven by u-blox 8 chipsets and the u-blox 8 series. Also on the chipset side, the average sales price increased due to the product mix and due to some sales price increases, which we were able to realize. Average sales price on chip side is CHF 2.10. That said the trend in sales, we already saw last year is continuing. Sales are moving from chipsets to modules also in the second -- in the first half year 2022, now u-blox makes 83% of its revenue with modules and 16% with chipsets in the first half year 2022. I mentioned it already. Gross profit increased -- gross profit grew by nearly 60% over the first half year 2021 to a level of CHF 143.8 million. Gross profit margin now is 48.9% compared to the 46.8% we had in last year. The foreign currency impact on gross profit is -- has nothing to -- contributed to the growth here because we are -- still naturally have a natural hedging in gross margin. On the cost side, development -- distribution and marketing expense were only a slight increase compared to the second half year 2022, where it was CHF 21.6 million in the first half year 2022. In percentage of revenue, the distribution marketing expenses reduced from 9.4% to 7.3%. This, of course, is because of the increased top line. On R&D expenses in percentage of revenue are significantly reduced as well to 17.9% from 27.1% in the first half year 2021 with this increased top line. We expensed roughly CHF 52.6 million in the first half year for R&D, which is now roughly at the same level as in the first half year 2022, where -- 2021, sorry, where we expensed CHF 52.3 million. In the first half year, we invested more into new products, into establishing our service offering but R&D expenses profited also from a positive impact of the Euro, which gets weaker. And with that, we have this -- where we're able to keep the level at the level in the second -- in the first half year 2021. If we now have a look on the complete income statement, you see again the 22 -- CHF 294.4 million revenue, which ended up in a net profit adjusted of CHF 48.7 million, the adjustments we made here are the usual one, the adjustments for the share-based payment of CHF 1.4 million, then the impacts from the valuation of pensions according to IAS-19. This impact in the first half year was CHF 800,000, and we also deducted the amortization of intangible assets acquired of CHF 1.4 million. With that, we have an EBIT impact of CHF 3.6 million, so that from the IFRS EBIT of CHF 53.9 million, we ended up an adjusted EBIT of CHF 57.4 million. In the financial result, this has turned -- so the financial income mainly consists of foreign exchange gains now. And on the other hand, we have the financial costs, which are significantly reduced on one hand because in the first half year 2021, we have here foreign exchange losses to take, but on the other hand, as well, because one of the bonds we repaid in 2021. And therefore, there is only the interest from the remaining bond, which has a due date now on the 23rd of April 2023. Also a change you, for sure, have seen share of profit of equity accounted [ investees ] reduced. This is because we have now taken over the full ownership of Sapcorda GmbH. And with that, the costs for this activity went up in the income statement up to the cost side, but the share of loss here is reduced. So that remaining share of loss in equity accounting [ investees ] is roughly 100,000. For all these calculations, we take -- and adjustments, we take corporate tax rate of 18.1% which was applied. Now let's have a look on to the balance sheet. We have still a solid financial position. We have liquidity at end of June of CHF 89.3 million compared to CHF 83.7 million at end of 2021. Inventory, which consists mainly of raw material and working progress is CHF 46.5 million and trade receivables, CHF 76.6 million. On the asset side, we have the capitalized R&D, which is now CHF 183.3 million compared to CHF 175.5 million at end of 2021. In the liabilities on the balance sheet, you have quite a change. On the one hand, in the current liabilities with trade payables of CHF 40.3 million, we have also now the repayable bond in April 2022 of CHF 59.9 million. This was end of the year still in the noncurrent liabilities. So that's why the noncurrent liabilities are reduced and the current liabilities increased due to this change in disclosure in the balance sheet. In the noncurrent liabilities, this contained deferred tax liabilities of CHF 5 million, the employee benefits according to IAS-19 of CHF 11 million and provisions of CHF 8.5 million. So with that, we come to the cash flow statement. The higher revenue growth, especially very good June with around CHF 70 million, revenue has now unfortunately a negative impact on cash flow from operating activities as net working capital increased significantly by roughly CHF 51 million. With that, on the other hand, in the first half year 2021, we had a cash inflow and other -- in the other directions of CHF 9 million. So with that, we ended with operating cash flow of CHF 30.4 million in the first half year 2022. As we've invested another CHF 5 million more into the development of future products and our service offering in the -- than in the first half year 2021, we ended with a free cash flow for this period of CHF 6.6 million. Net cash in total increased by that, including the FX effects by roughly CHF 6 million. This leads then to the cash balance of CHF 89.3 million by end of June. I mentioned the equity base was further improved. We have now an equity of CHF 357.2 million, which represent 63.1% of the assets. This compares to the equity ratio in 2021 of 59.9%. In the equity also, deducted is the treasury shares for the option program. End of 2021, there was roughly CHF 32 million now. Treasury shares are reduced, and we have still CHF 28 million in equity deduction. Without these treasury shares, our equity ratio would even have been higher with 64.9%. This compares to the 62.3% at end of 2021. All this is based on a widespread customer base across different applications and geographical regions. So we have a very little cluster risk in this regard, but also from the customer side, we are very well diversified and have nearly no cluster risk. Our largest customer accounted in the first half year for 4% of our total revenues and our top 10 largest customers accounted for 29.5% of total revenue in the first half year. 65 customers accounting for 80% of our revenues. This number decreased especially because of the strong growth of some top league customers. On employee side, we continued the expansion of our workforce. End of June, u-blox has 1,281 FTEs engaged, and thereof, 76% of the employees are based outside Switzerland and spread across 18 countries. The major part is, as always, in R&D, 66% of our employees work in the R&D department, sales and marketing and logistics and administration both or have 17% of our workforce. So -- and with that, the last information about segments. The segments are still the same positioning and wireless products with a total revenue of CHF 293.9 million and an operating profit of CHF 53.6 million. The wireless services segment has improved revenue from third parties. Here, you see the effect of the first services sold from CHF 50,000 to CHF 500,000 in the first half year 2022. But also still here the major income comes from intergroup revenue. So the total revenue of this segment is CHF 21.5 million and the operating profit CHF 274,000. And with that, I hand it back to Thomas for the business review and strategy.

Thank you, Roland. So we are continuing here to look a little more into our business, what happened in the first half year. We have seen continued acceleration in the market across all regions. We have seen the numbers and also by the application sectors, we have seen strong expansion. Of course, I need to repeat what we see here as numbers, what we see as revenues is mostly driven by the availability of components, whatever we were able to get, we put into final products and ship them out and we're invoicing. But as you have heard also, we have continued to increase our order book. We have seen very strong bookings. And this is in so far, in line. So we have seen continued strong intake of orders across all the applications and across all the regions. So we are in a very good situation. We have very good visibility of our business. We have lead times for new orders that are in 2023. For this year, we cannot accept new orders, not at all. And even for 2023, it's far out in the year already. So we have, of course, into further comfort to have a strong order book, we can look ahead, we can plan, but we still depend on the supply chain, but we are really receiving from our component makers and in so far we will then say what we have as a number for the second half of the year, but we have given a guidance, I come to that. We are optimistic that this is continually improving. And of course, we have made a lot to decouple us from any shortages and bottlenecks. We have changed certain products. We have remodeled and redesigned them. We have enlarged our supplier base. And of course, we are in constant dealings with the suppliers to make sure they increase deliveries into our hands. So now let's look a little more into the markets. The upswing was good, both in Industrial and Automotive, both made 62% growth. And in so far, the share between the sectors have only slightly changed. The consumer part went a little down. The industrial then went up as we will see. So of course, automotive is still behind to old levels of production. There is continued strong demand and recovery ongoing. And of course, also, we see the launch of many new models. The electrification of the car is making that more new cars are launched, more platforms are going into production. And of course, mostly these cars are rather higher and have better electronic systems on board than perhaps their predecessors. The only limitation came from the shutdown in China in spring time, then some car production was stopped and in so far this miss of volume was not able to be recovered. On the Industrial side, as I said, same growth rate and expansion in share against the Consumer. So this, again, was possible because in all major application areas, we see continued good growth and sometimes even very strong growth. As you can see from the small table, infrastructure, automation, health care and network infrastructure was in very strong expansion. And we see here no interruption into the future. This is ongoing because the industry wants to make devices connected, and everybody is on this trend. Also a reason why we are expanding our number of customers, a lot this comes mainly from the industrial space. And the growth, of course, needs the large accounts. This is what happened and helped us a lot to make a stronger top line number. It also decreased the number of customers that we need to make for the 80%, as you have seen, because at the top, many have expanded and sort of displaced the smaller ones. But at the same time, the long tail has increased as well. This is important for our future. This is telling us our topic. Connectivity is a very important industry. And of course, it tells us customers like us. They choose u-blox. So finally, consumer, more moderate close, still 80% is, of course, a nice number. And here, we continue to see good demand from high - what we call high touch devices that need to have a certain good level of functionality and endearment. And low power is often a requirement. And here, we have the right solutions for our customers. Now the R&D pipeline was, of course, fully active. We have launched several important products to the market, and I like to make the comment these products are important for our future. They are not delivering revenue right now. They are going into the hands of our customers. They design the next-generation product. And somewhere in 1 or 2 years, they start up production, and this is the basis then for continued expansion in the market for finding new applications that, of course, this is the real source for growth and expanding the size of the company. So in cellular, we have launched 2 products that are quite essential. The LARA-R6 is a category 1, connect TVT device for medium-range volumes of data whereas the LENA-R8 is a one for a little more for category 4 or quite relatively high data rates already. This gives the flexibility to our customers to have such connectivity available at 2 levels. The 2 modules are interchangeable and therefore, customers can make on the same board two variants and, of course, can make variants for the various regions where they are selling their product. So this is what is our strengths to help customers to be globally active and, of course, fits the needs of their customers. In short range radio, WiFi and Bluetooth, we are continually expanding the capabilities here. The first one is for using these radios for positioning, so you can determine position and also the orientation of your movements with such a board. This is a board with 9 and 10 [indiscernible] that helps to find out from where those signals come and what direction you are moving. So this is the essential to make such signals that are available in a room, for example, also useful for determining position, for example, in a warehouse to find out where are the talents. And with the MIA product, we have brought WiFi 6 to play. WiFi 6 is a gold standard in the WiFi domain. This is a relatively simple product for industrial use and mass-market applications. There are other variants where you can enlarge the capability even more. For that, we have different products. So also here a variety of solution capability. And with such expansion, of course, we can, again, accelerate the possibilities to create new solutions and especially also in new areas of application. Then in positioning, we launched a new module. It's called MIA. It's very, very tiny, as small as a rice corn. It incorporates a complete system for positioning determination based on satellite signals. It's our latest technology. And of course, this is a great product for making very compact products and is also very low power and has in the far, of course, the capability to go into mass products also in the consumer area. And finally, in our services area, we have implemented a certificate manager. Certificates means you do change the credentials in your device to make sure only the allowed person or user has access. And you also can exchange these credentials to make them even more secure to avoid hacking and fraud. And this is very important to our customers to secure their IoT devices in the network. And here are a few examples of implementations in real products and applications, here is a Chinese customer called Xiaoan, making -- sharing e-bikes, where our M10 product is implemented for positioning determination. This is very important, first not to lose the asset, but also that the governments are happy where these devices are used and parked. And in so far the solution must be precise enough to support the application, and we were selected because we have the right features to fulfill these requirements. And of course, such markets are interesting. They deliver quite some nice volumes, especially applications in such large countries. The next example is sports application to analyze the behavior of sports teams and measure performance of the individual players. Here, we have a customer in Korea that makes such devices, and we have been selected because, again, we deliver the right feature set with regard to sensitivity, with regard to also the use case, sometimes it's not so trivial with how the people, of course, move around. And also, it's, again, the low power that is needed for a long product use time. And this is not the product. This is more a system part of what we do. We need systems in the background to deliver certain data streams to our products. Again, in the area of our services from somewhere, we need correction data to help receivers better determine position. And here, we work together with certain partners that can deliver data input, they collect satellite data information, and we can bring it into our Thingstream platform and distribute this to our customers and to their products, respectively, to our GNSS receivers that they use. And search expansion is important because it allows to deliver worldwide coverage, something that is not so easy to achieve. And fortunately, with this partnership, we have done an important step mainly towards Asia. A few words about our strategy. We set priorities for creating shareholder value. We have done a huge step with regard to organic growth because we have invested continuously over the last several years into R&D. With long-term perspective, I think we see what that can lever these has, what results we can achieve and we were always consistent not to give up also in times where perhaps it was not a buoyant macroeconomic environment where there were headwinds for all sorts. This is finally -- this contingency is finally making us performing in all angles. And of course, have been able to convince customers that we are the right partner to solve their problems, to help them to make better and new products and of course, the connected products that work through the cloud. We are continually looking to M&A. We have not done anything so far in this first half year, but since you cannot plan, we have, of course, continued to look into opportunities and, of course, we remain with our strategy here that such acquisitions shall be bolt-on that are quickly to be integrated that delivered a strategic fit and the cultural circumstances, of course, must be financially accretive. And we will, of course, continue here to use this for value expansion. Finally, we maintain a consistent dividend policy as we have done since our IPO. For acquisitions, one more slide. It's not new, but we just like to repeat that we have many ideas always in the pipeline that need screening evaluation. And that finally, it's a long way to have the right targets that can be finally acquired and deal closed. We are, as I said, continually doing this job and have dedicated to working on this. Now I come to our outlook and guidance. We have continued strong demand. And I mentioned already, we have a very strong order book. We have seen good ramp-up in new products. The customers were waiting to production, quite in a steep rate. And therefore, we can, of course, ship as much as we can manufacture. As already mentioned, all this is driven at the moment by supply, and we have seen a gradual decrease of problems and better promises from our suppliers to expand their deliveries. Fortunately, we have no direct disturbance from any crisis that we have seen on the globe, and hopefully, this will remain so. So thanks to our very high order book. We are able to expand our guidance to growth of revenue to become a number between 46% and 54%. And also EBITDA and EBIT margin are guided at a higher level between 22% and 25% for EBITDA and 16% to 19% for EBIT. And these numbers are all given at exchange rates as it was the average in 2021. One more guidance hint with regard to net working capital, you have seen a larger part of net working capital increase is due to accounts receivables. This is the consequence of strong increase of monthly billings, but of course, we have done quite a steep increase in the last few months. This is not going to make another such step. It's physically not possible, so to say. Therefore, we do not expect that accounts receivables are taking another sharp increase that inventory is probably still slightly increasing because we buy all components we can find, we cannot interrupt the purchases. Otherwise, we will lose the stream of delivery and this, of course, would completely stop the output. This is not possible. So this will be taken into account for any financial model. So we come to your questions, and I ask to make them available.

[Operator Instructions] The first question comes from Emrah Basic from Baader-Helvea.

Can you hear me?

Yes.

I have just a few. I'll start with the first one. There has been some mixed news flow regarding general -- or chip demand in IoT and automotive. I think if I'm not mistaken some negative news flow by Micron, but positive and positive by companies such as Qualcomm and AIMET. Clearly, your numbers and guidance update show optimism, but what's your general views going forward? I mean you stated it before, but in terms of demand for IoT and automotive, do you actually believe that if there's some pessimism it's just supply chain related?

Yes. I like to explain that you must reach the market correctly. When you hear certain news that demand is lower, then you must always look what is really the demand behind such news. There is a clear difference whether you are data-centric or whether it's more the wireless and connectivity and automation type of applications. In so far, we do not see any such change in demand because we are not touching this market where we have these news from.

All right. Perfect. In terms of revenue, how much of your revenue growth was driven by price increases in the first half of the year?

As you can see, the majority of our revenue increase is volume. And of course, it is also driven by the positive product mix. We have sold more expensive products than in the period before. This was also proactively done because they gave preference to such products because they deliver more margin, of course, evidently. So finally, the minor part comes from price increase, so at a number below 5%.

Okay. Perfect. And the last one would be, generally, like what have been the discussions internally in terms of the China, Taiwan situation?

I cannot say much. I mean, hopefully, this crisis is over. It has also no direct impact on business. Also, we are not highly dependent on Taiwan per se, either for our revenues or for our direct component supply.

The next question comes from Harald Eggeling from Zürcher.

Yes. Congratulations to the numbers as well please and some questions. I think I got it right. In this June you quoted was CHF 70 million revenue, is that right?

We have not given such numbers. I was just saying that we had strong increase month by month, yes.

Okay. So regarding your guidance for the full year, when I now take the midpoint, this might suggest that sales are sequentially likely to improve in H2 while adjusted EBIT in the midpoint is guided more downward. Could you please elaborate on this, please?

Yes. Look, we are giving ranges of numbers here. Of course, you can make now all sorts of combinations that, of course, you can then say something goes up or down, but I think that's not really what we want to say. I think important is the message that all number sets are once more guided at higher end. And of course, means also we expect a stronger second half year than the first half year.

Okay. So this EBIT margin guidance, then I should probably read more like also probably EBITDA rather growing than declining?

That should be the message, yes.

Okay. And regarding the end market momentum for H2, where would you basically see most momentum stemming from? I mean consumer segment likely should be the weakest in terms of sequential growth. Is that right?

Yes. You have seen both automotive and industrial have the same growth rate. And of course, this is where we focus on. Consumer is for us an opportunistic business and also the one where we give less support to any customer than the other 2. And in so far, this is also driven by component availability, where do we give priority and where do we perhaps make a compromise.

Okay. And then 2 last questions. Regarding the ASPs, we have seen a steep year-over-year improvement for the modules. Where would your basic gut feeling be when we now are seeing somewhat, I would say, general economic growth is slowing down. Have average selling prices peaked probably?

I cannot make such a statement. We, of course, continue for taking more value from our customers. This means we are selling more, we're selling at higher prices, and there is no such notion over peak here, but over continued expansion.

Okay. And then last question. I mean, you elaborated a bit on your inventories and receivables and so on and so forth. But nevertheless, the free cash flow generation is only 9% of EBITDA. So the basic expectation would be that we see a very strong uptick in H2 regarding free cash flow, right?

Yes, as I said, we had a strong increase of output, but this is not going to make another such steep change again and therefore, we need less capital that is going into accounts receivables or inventory.

Okay. And really last question now. Is there any indication you have on potentially preordering ahead of further price increases? How stable would you view your order book?

The order book is very stable. We see almost no cancellations for several half years. And the mechanism is our customer is that we agree on the way forward at what prices they buy the next leap, so to say, of products and in so far also fixed prices, at least the initial prices for these deliveries. And as I said, the lead times are going into 2023 already.

Okay. So if there should be a slowdown, we would not see it probably in H1, but then probably rather in H2 '23.

What do you mean by see?

If a slowdown should come, then you would have enough order book to basically cope with sufficient revenues in H1 2023?

Yes, of course, we are covered far out with our order book.

The next question comes from Michael Inauen from Stifel.

I have 4 questions and maybe 1 or 2 follow-ups. We'll see. But then maybe on the cost structure, obviously, you have now -- I mean, the profitability is very attractive because, of course, you have high revenues, which actually shows operating leverage. But my question would be how sustainable is this cost level? I mean R&D is lower because of the euro, but I -- let's assume these revenues would be sustainable. How would the cost structure actually change? Do you have to hire more people or -- can you elaborate a little bit on cost structure if revenues would really say above CHF 600 million, CHF 700 million?

Yes, you can -- I mean, you can work from the absolute numbers here. Of course, we had some positive impact from exchange rate. But as the company expands, of course, we have also to expand our OpEx, especially in R&D just to follow the trend and to follow the generic market demand to have the right solutions and more solutions. We need more solutions to expand, of course, the top line. But what the event is the operating leverage, of course, has happened. We are on the lower path with regard to their relative cost. And this is, of course, what we are going to maintain.

Okay. That's clear. And so the supply chain -- there are still some supply chain issues as I understand and we can see that everyone in the industry is reporting strong growth numbers, not as strong yours, but also strong growth. So my question would be how much revenues could you actually generate in a perfect world? What's -- basically, what's the top end that you can actually make with your supply chain that you have now?

Yes. I mean, we give a guidance, and this is, of course, our estimate and our best plan that we can provide. The theoretical number is relatively difficult to describe because it depends on the time horizon. Within 3 or 4 months, of course, we can expand the capacity a lot in our production and could move up to even double levels that we have today. But again, this is very hypothetical. We want just to say thanks to our strong production partners. We have a lot of flexibility to respond to increased demand.

Okay. Perfect. And second last question. You won a lot of clients. I mean, more than you've been on average per year. Can you elaborate a little bit for us how many you won because they were not served by somebody else? And how many you potentially won because your products are superior? Just to understand how sticky these clients potentially are for the future?

Yes. The first part of your probably -- possibility, I cannot say this is hard to find out. But I think the major -- the main reason why customers use our product is because we solve the problem, because they like us as a supplier. And as soon as customers start to work with a solution, they normally become sticky and start to invest and therefore have not much interest to walk away. So it's very important that right from the beginning, we have the right solution in the hands of our customers and that they receive what they need also with regard to support. And therefore, the number -- that the number of customers is expanding needs also all these customers are really using our product.

Okay. Yes. That's clear. And one last question, if I may. We have seen a couple of M&A deals just recently with Semtech and Sierra Wireless. Telit is buying the cellular portfolio [indiscernible]. So I was just wondering what is your -- I mean, do you have an opinion on that? And what do we have to read into that? I mean, is it a consolidation going on? Or is it more specific fees that, let's say, weaker players are trying to buy quantity? Or how do you see that? And do you see this more as an opportunity or as a risk for you that there are larger players now emerging?

Yes, indeed, I mean, the interpretation, of course, there is consolidation ongoing -- these 2 announced deals. However, we do not see much change in the competitive landscape in the country when you have less competitors than normally. It's easier because the customer has less choice and you have less different competitive situations. Also, of course, what is here created as combined companies is still not what we are. So we are -- there's not an entity created that has more capabilities or capabilities closer to u-blox. These combinations are normally out of 2 companies that have this very same capability, and therefore, there's not an expansion in solution capability.

The next question comes from Serge Rotzer from Credit Suisse.

Also congrats from me but not for the result of today, but that you have achieved your long-term outlook in 2022, which you have canceled a few months or years ago, probably you can remember. So therefore, I'm really cool that you target an EBITDA margin of 22% to 25%, as you initiated at the time. And at that time, you mentioned that you would achieve CHF 700 million to CHF 800 million. So this basically will be possible, isn't it, with the existing backlog? So basically, you would have achieved the old long-term outlook, is this correct to ready that way?

Thank you. That's an interesting observation. In fact, today, we can be happy to have achieved it. When you make such a prediction far out, of course, you cannot be so sure.

Okay. But just now the nasty one. At that time, you said you want to achieve EBIT margin of 12% to 15%, then now you guided for 16% to 19%. So I'm a little bit wondering where this better EBIT performance is coming from, and I would assume that this is due to the impairment you made 2 years ago of the CHF 74 million, is this correct?

Yes. Perhaps it has helped a little because we have less to amortize. But I think what has really helped is that we have done improvements of efficiency. You remember, we had a cost improvement program about 2 years ago. And we have, of course, driven our OpEx very carefully to make sure we gain also from that angle operating leverage and all that together helps us here to come to such, much improved numbers. Of course, the top line is strongly growing as, of course, the longest lever. That's obvious.

Okay, fair point. And when I order today something with you, how long is the lead time?

As mentioned, the lead time goes far into 2023. So customers must really make up their minds today to be -- to have the products in the next year.

I want to ask differently. What is the lead time of the backlog? And what is the lead time when I order something? What's the difference in month -- can you express this month because I understood that the backlog has now lead times going into 2023, but when I order today, something that probably I can get this quicker or faster?

You would be lucky to get it faster. I mean, first come first serve. The order book is covering our capacities, as I said, far into 2023.

Okay. And in the existing backlog, can you tell us where is the growth coming from? Or what is the mix of the backlog? Or is it more automotive related? Or is there any changes to what we see today?

You can assume the share between the applications remains quite constant.

Okay. Probably next one. What would be a good proxy for the automotive sales? Is it what kind of number of cars we should look at?

I mean for the general trend, you can take the worldwide output of cars. This is the best proxy you can take and for ensuring, the regions or so is not so helpful because the market is so global.

All right. Okay. And then probably last one when I made on Slide #14, you have -- we see the volumes of GNS chips. And yes, sequentially, they are up 40%, but year-over-year, it looks stable. And in H1 2021, we had quite a high level. So I'm wondering what is now a sustainable level? Is this level you achieved now sustainable? Or what happened? Can you remind me back in H1, H2 with the GNSS chips that we had this change due to capacity?

You have to see this number as sort of the resulting number because we give preference to modules. So we use our chip that we get from the foundries first to make modules and what remains we sell to chip customers. It's very simply with modules, we make much better absolute gross margin and also the relative gross margin is very interesting. So this makes a lot of sense because we have tight supply to build products with such preferences. And in so far, the chip number is not really reflected the market demand.

Gentlemen, so far, there are no more questions from the phone. Then we continue with the chat questions. We have total 16 questions at the moment and the first [indiscernible] Mr. Sauter from Kepler Cheuvreux. Can you provide an indicative revenue split between positioning seller and short-range products? It's fair to say that positioning still contributes 80% of EBIT?

Can you repeat the last part, what was that?

Is it fair to say that positioning still contributes 80% of group EBIT?

Good. Yes, we receive these questions all the time. We give only very rough indications about how products are shared with regard to revenue. I'd like to remind again, this is not how we are structured. We have not business by technology. We have a business by solutions. Solutions are designed for various applications. And in so far such solutions always comprise several of our products, including also the service part. So -- but as a rough indication, and this is also, of course, impacted by prices we get. Our products have a very broad range of price tax between a few dollars and a few $10. And we make about half of our revenue with positioning products, about 30% with cellular and 20% with short range. We are for the -- also for this reason because we are selling solutions because we are selling into the hands of one customer, we have no information about profitability, as the question asked.

Then what happened to the short-range chip? Will u-blox make another attempt to develop an in-house short-range chip? And if so, when is it supposed to launch?

Any question on future products, we have no answer. We will announce as such products become available.

How big is the order book and how much of next year's revenues are already covered?

No, I think we have heard this question already. As I said, the order book is lasting far into 2023.

What's the percentage of your cellular modules with u-blox chip? And how does this compare to last year? Is the target 100%?

First of all, the -- our cellular business is highly tuned towards industrial applications, and we have practically all the business today in LTE, so all the legacy standards are no longer used by our customers. And we are very well positioned with our own chipset. We have a very strong growth and migration from third-party chipset to our own. Very glad about that. Also, we can build out the solution space, thanks to our own chipset. However, I cannot give details on what is the precise share, yes.

Then, [ Mr. Deaton ] from [indiscernible]. Several automotive semiconductor suppliers are starting to record weakening order trends and high inventories, potentially resulting in inventory adjustments in late 2022. U-blox does not seem to be experiencing this at all in the automotive segment. Do you have an explanation why u-blox is not affected?

Yes. As I said, we are, first of all, broadly placed in the market globally with all OEMs and of course, [indiscernible] and second, what we make is electronics is in high demand because this is the future. These are the new models. And here is still a high demand for this migration. Therefore, at the moment, the -- I cannot support this statement.

Then 2 questions from [ Mr. Ground ] from AWP. How did you overcome your supply chain challenges? Can you give us some examples?

Yes, in my presentation, I told you that we have done a lot to diversify the supplier base. We have redesigned products. We have chosen more suppliers. And of course, most important is relationship with suppliers that you have long-lasting connections to the suppliers that we know the people. And of course, we spend a lot of time to negotiate and plan and improve the delivery.

And how strong is your pricing power? How did your customers react to price increases?

Yes, I believe we have a good standing. First of all, customers want products. They are desperately asking for delivery. And of course, the -- in so far, we can maintain our prices. This is less a little topic at this time.

Then [ Mr. Jonathan Arch ] from [ Eskom Partners ]. The automotive segment grew far in advance of the end market as measured in SAAR, seasonally adjusted annual rate. Can you explain the reason for this? Have you gained market share or selling additional units into each automobile? Or is there some other explanation?

Yes. The progress comes from selling more value to the market. And therefore, of course, we believe we are winning market share, but more details, I'm unable to provide.

[ Mr. Hollfelder ] from [ Polar Capital ]. What are the main reasons for the sequential EBITDA and EBIT margin decline in second half of 2020? Higher foundry costs, product or end market mix?

Do you say second half 2020?

Yes.

I'm not able to give numbers on this time frame, I apologize.

Okay. Mr. Schulz, JMS Invest. How sustainable is the increase in ASP in your opinion? Will the ASP decline again as soon as the general component shortage situation improves? Could you give a guidance regarding future ASP development in modules?

Yes, here -- again, we have to distinguish what are pure numerical price increases. And what are the visible increases of ASPs? Of course, the majority, as I said, of increased ASP comes from improved product mix because we are selling products with higher price tag. We are selling more values into the hands of our customers. We have optimized also what we were manufacturing, what we are selling, and therefore, the pure numerical price increase is rather minor. We are continuing to make products that create value that help to be in so far more out of the market. And that we had the chance here with the high demand to stabilize whole price discussions, of course, was very helpful.

Then [ Mr. Arch ] from [ Eskom Partners ]. Can you discuss the requirements that L2/L3 autonomous driving places on internal navigation and GNSS positioning requirements? To what extent does that create an additional socket for you to sell into each automobile? And does it then change your customer from the enough or infotainment system supplier like HARMAN into an IMU supplier?

Yes, this question talks about what is happening with regard to making cars more automated and autonomous. Of course, the system requirements are changing and they are coming up higher requirements for more precision, but also for reliability in the position determination. The term is our integrity. So can you rely on such a position information and to what extent, and this is quite an expanded system. This is also where we have invested quite for several years. You have seen an announcement that we have done such a solution for Bosch and implemented in the first cars with certifications since last Christmas. And of course, this is the trend we see more and more car makers go into this direction. They want to add on here functionality. And we see here this as a trend that is going to help us improve our position in the automotive market.

[indiscernible]. Congratulations on the excellent results. What are your expectations with regards to growth in revenues in 2023 and beyond? Do you expect growth in 2023 still be influenced by supply constraints?

Yes, the answer is similar to what I gave. Of course, we have a very large order book that, of course, gives us visibility into 2023. What we expect with regard to numbers is then a matter of a new guidance when we provide the full year results of 2022. I assume with regard to the question of supply that such constraints are not going away overnight. The explanation is that technology that we are using, technology that our suppliers are using are not expanding and have not seen much investment because investment went into other domains mainly for the high-end computing for very small notes of the integrated circuits. So 20 nanometers and below. And therefore, we will still see that not every capacity is here for the demand.

What are your plans with regards to bond maturity in April 2023, repayment financed by cash or refinancing?

This we will decide in due time.

Then [indiscernible] Research. As you are strengthening your seller product portfolio, launching modules with 4G CAT1 technology, eSIM supported modules. So do you have any plans to enter in 5G or 5G RedCap technology?

Yes. The question is for development of the standards in the domain of cellular technology. And of course, 5G is a label, 5G means a lot, basically LTE means long-term evolution of the standard, and this goes into something that people call 5G. We are observing these standards. There are many fault possibilities to apply then. The first question is, are such expanded standards applied to the network? Are the operators really investing into the new capabilities? The second question is, is this then a dominant design that the industry likes to apply? And only when we have certain good visibility on such events, then we can start to make decisions? What are we precisely implementing in our product? So this is a long-term perspective, for sure, not directly influencing our business in the next 2 years.

And [ Mr. Arch ] from [ Eskom Partners ]. Can you size your seller business? What percent of your seller business is now based on your own chips as opposed to Qualcomm?

Yes. I have given the answer already. We have here a very good continued migration to our own chipset. This is a very good achievement that we have here.

[ Mr. Holfelder ], could you comment on the gross margin outlook for second half 2022?

We are not providing guidance at the level of gross margin.

[indiscernible]. In the half year report, you mentioned a change in operating model from an inventory-based system to an availability-driven system. Could you please elaborate on the difference and explain the changes you have implemented?

Yes, it's not so difficult. In the old times, we were maintaining inventory for our major products, and we were then driving the production to maintain these inventory levels. But as the supply components is completely tight and we cannot move around our supplies, we have to accept what we get. We have turned around and we work now from the available components make the maximum out of it. And of course, thanks to a large order book. We then shipped to those orders where we have the match with the product.

Ms. Bouvignies from UBS. How do you expect lead times in second half '22 and much supply and volume term, do you expect in second half '22 versus first half?

I think with all I said, we do not expect that lead times are much changing. They are still very, very long, meaning almost a year and more. So this will remain with us for a while.

Then sir, last question, Mr. Schulz from JMS Invest. Why are capitalized development costs increasing again, while R&D expenses are not increasing? Should there be not more amortization through the profit and loss given that the business grew so fast and sales of new products have increased?

Yes, this question has several answers. I mean the first is the capitalized amount is always a question of what do we have in the pipeline and in what states are these projects. The second part is R&D costs have been influenced by favorable foreign exchange that must be taken into account. And of course, can make several percentage point difference here. And finally, also, I think Roland mentioned that the amount of capitalization and amortization are now quite close together still a little more capitalized and amortized, but this is, of course, to be expected because we're still a growing company.

Then [indiscernible], how fast are your current products outdated and need to be substituted by new products?

Of course, we are constantly maintaining a product road map with our customers. We give them outlook to what are we intending to create in the future such products by road maps, either the indication to new capabilities to expanded product catalog. But of course, a part of them is also for migrating from an older generation to a newer generation. The case is that any existing products normally is brought to end of life by us ourselves and we have to force customers to walk away from the product and migrate to a new generation. So this is a situation because our customers expect very low availability of the same product probably over 10 years.

And last question from [ Mr. Kunal ], LLB Asset Management. How is the UAV business doing? Is there a trend towards higher entrance for B2B applications that with high-end module strips? How large is the UAV segment roughly within industrial?

Yes, last question first. Any application segment we have is not dominating our business. So you can always expect this is something in the area of 5%. The UAV segment is, of course, remaining interesting market as still technological development is also using more and more higher-end products for better functionality. And this is where we are, of course, very strongly positioned with the major makers of UAVs.

That's it from the chat. Thanks a lot.

Thank you, everyone, for these questions. And we are at the end of our presentation. Thank you for all your interest. Should you wish to have further talks, please let us know. And with that, I say goodbye.

Ladies and gentlemen, the conference is now over. Thank you for closing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.