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

Good afternoon, ladies and gentlemen. Welcome to our Capital Markets Day. I'm very glad to welcoming you here in Horgen, but also online with quite a number of participants on this channel as well. Very glad to give you an update, what is u-blox and how we go forward. We are making this presentation with the usual disclaimer about forward-looking statements and are, of course, showing the full text here. Now the agenda is quite rich. We will have more than 3 hours of being together here with presentations, but also 2 times the occasion that you can ask your questions. And I'd like to introduce now who is talking to you. Unfortunately, first colleague I cannot welcome. He is ill, has got a cold and cannot present, Andreas Thiel, our Founder, will unfortunately not be here. Here at the table are Roland Jud, our CFO; Markus Schafer, our Head of Marketing and Sales; and Stephan Zizala, our incoming CEO and successor for me, from January 1. Also, we have guest speakers. We have 3 customers presenting today. They present what they realize is our products. One company called Nofence from Norway, represented by Knut Bentzen and Oscar Hovde. They will talk online. The second customer is Tractive represented by Michael Hurnaus, also online. And here in the room, we have Hermann Reiter from Digi-Key, one of our distributors. So first of all, I hand over to Stephan Zizala. He is giving you a first introduction about himself. Stephan, please.

Thanks a lot, Thomas, for the nice introduction, and good afternoon, everybody. I'm very happy to be here today and to introduce myself. As you heard from Thomas, I have the privilege to take over the u-blox CEO role from January 2023 onwards. Before joining u-blox in October, I was for a long time with Infineon Technologies, working in a various set of different functions, mainly in their microcontroller and power business. In the last 8.5 years, I led a newly founded business line focusing on the electrification of cars. And probably, you can guess that this was a great growth story, both business-wise and organizationally. And I would say growth is the keyword, which connects extremely well with u-blox. And within my first weeks during the handover phase from Thomas, I already had the possibility to talk to hundreds of colleagues, customers and partners. So I think I have a very good insight where we stand. And I must say I'm really impressed. We are perceived technologically very strong. So that's maybe the least surprise. But our culture at u-blox, the innovation culture, the positioning of our customers, this was really very impressive for me. And taking this, I am also in a position to say what I will initially focus on once I take over in January 1. So implementing the strategy we have set and advancing it to the next step will be a key focus. And for sure, also in nowadays, uncertain times, making the company as resilient as possible to all those changes, which could happen will be another focus. And with this growth, I will also spend quite some effort on developing the organization to prepare it for its future growth, which is right around the corner. And I'm really looking forward to work with the team to make this happen. And of course, I will also take over the capital market communication activities from Thomas. And this is particularly important for me because it complements my picture. Your outside-in you will be very helpful to make u-blox even more successful than it is right now. So I'm also really looking forward to discussing with you over time in a regular manner. Handing back to Thomas again.

Thank you, Stephan. Now let me talk a little as an introduction, where we come from and how -- what is our journey here. So you know, of course, we are 25 years old. We are a spinoff of ETH, the Swiss Technology Institute. And we have made it to quite a company in this market. I would say we can be very proud as a u-blox. There are a few technology companies of this sort in the Swiss market, I can even say in the European market. I think it is a really great achievement. And okay, I'm leaving the company. I must say a few words. I'm proud that we have made to the size we are and the importance we have in the market. And I think this is also what we like to show you today, that what we do with -- in the Americas, in Europe and in APAC with customers, in all the markets we are mainly automotive and industrial, and that we have a very, very large customer base 15,000 customers worldwide. So we do it with 1,300 colleagues. These are 70% R&D colleagues that are really brilliant talents that create solutions to make the world better, to help to communicate and to automate many of the functionalities we use every day. We are present also with this activity around the globe, mainly in Europe, with these few locations that have quite a size of more than 100 employees. And of course, we are present in front of our customers with local salespeople, with dedicated and highly trained people to help our customers to bring the solution into real life. So we started very slow as a small -- not slow, small. And from the early days of creating first GPS receiver module, we made it to a company that helps the industry to connect wirelessly and to bring information into the cloud. And of course, we went through several phases. And of course, the technology has developed -- the technology ecosystem has developed over these many years. And when it was in the early times, mainly to take the lead position, and it was a great achievement that this was possible with the satellite signals that were [ bigously ] available around the globe, it became then a solution how to bring information into a system, respectively, later into the cloud. And all this has helped to provide a growth track that was strong, and it is almost 70% compounded average growth rate that we achieved, much higher than what was the semiconductor market in general. So I think we have really made here a strong progress, have expanded into a position that is unique in the market. We are driven by some important trends. Of course, these trends are all around us that, for example, we talk about climate change, that we are still growing population on this earth, that urbanization is ongoing. And of course, everybody has some digital things in their hands and is using it every day. And these are hundreds and millions of users that are digitalized. And all this makes it that we have enormous growth tractions in the market and mainly we have 2 that drive our business. It is on the one side that these many devices, these many instances and elements that make our infrastructure, are becoming more and more and more and more automated and connected to the cloud, are no longer stand-alone. And the other is that mobility drives us. It's the mobility, mainly from the car side that shall become more economic, ecologic and also more automated. So these 2 trends are forming markets that are expanding and in which we are actually even are making solutions that fit the needs of our customers. And for this, we have -- we are core to these customers that make these devices. We need to be competent and of course, leading. So the demand for wireless is here, is expanding. It's the most efficient way to connect to transport information. The wires have almost gone, we could say. Of course, this is a technology that is not standing still. We have still enormous possibility to expand, to make it better, to use more principles that can fit this functionality a broader range of application and a deeper value. Finally, it is, of course, not easy to do. That is why we are important player in the market. We are a specialist to help our customers and help customers to keep the risk low when they implement such connectivity solutions. So we are here to deliver. We are here to be the partner of our customers. And this gives us the good value that we can propose and of course, the preference to be the partner with our customer. And we did it over many steps. It was a constant innovation to better solutions to more capabilities, and I think we have really made important steps from the early days to what we are today. The early day was more or less a mechanical innovation and module that later then transformed into innovation in the area of radios and of single processing because we found out that the technology at the time was not that great. We were then on a -- on a step to go into integrated circuits, to put all the functionality into something that is very small. And advanced here our overall knowledge to make it smaller and smaller, but also to make it more capable and not only making a receiver, but a transceiver, meaning we can also send the signal. And finally, latest that the whole connectivity is organized for our customers. And as you see from last year, we are also in the domain of safe solutions. This means this is an important step forward towards automation, especially for vehicles. So our vision for the future is that we are continuing innovation. This is really the heart blood (sic) [heartbeat] of Europe. This is where we put all our efforts to make sure we have great ideas implemented, and there are many more possibilities that we can implement into solutions for our customers. And of course, it is always a question of what is the best, where does it make sense to spend the money. And we have hard decisions to make what are we not creating. So this selection is very important for the path forward and finally for the financial success also, because we want to make it so that the investment, of course, has a very good return. We need to make selections also at the technology level. We have many possibilities to create our products, but we only can take the most promising one. And insofar also, we are not serving all the markets. We have a selection and a focus with regard to where we want to play and where we want to win. So this is a constant effort, of course, and a constant decision-making for building our future. And I think we are well partnering with our customers. We really help them to bring their products to a higher level, to give them more content and make them more successful. The examples we are showing today, I think, give you a good insight what this all means. So insofar, we are also positive with regard to what is our future, we see continued solid demand in our markets in automotive and in industrial. Perhaps you hear sometimes noise about consumer products market, but this is not our jam and have a different reason also why you hear such noise. Also, fortunately, we can stand outside of some of the trade war tensions and also the latest U.S. sanctions. We are not in the most critical area in this regard. And also with regard to the overall more macroeconomic or political situation on this globe, I think our customers are very aware of with whom they are working with, who is the partner, and they think a lot long term to make sure that also their business is warranted over the time. Of course, we have also inflation to deal with. But so far, I think the markets are adapting to a situation that one must deal with inflation and increasing prices. And thanks to our very good standing and acceptance, we have also here a good standing with regard to setting the price. So we have made it to a chip to cloud solution provider, as we call us. And I think that's a very good summary in a few words what we are. We provide connectivity and we have the core knowledge of how we do it. I think this is the most attractive element for our customers. They know the supplier has the knowledge. They talk, they know what they talk and they bring solutions that can really make them helpful. And insofar, we are for the long term, we drive it with our customers for the long term. We have a very long-term view in all we do and also in what we have to decide. And how we are realizing this in the markets and how these solutions play, Markus Schafer will tell you more.

Thank you, Thomas. Hello, everyone. So I'm leading you through the next session. Unfortunately, Andreas Thiel is not here, he would otherwise would have given you the insights here. So I'm taking over for him. And this section is about our innovative solutions and services. I'm sharing this section also with our customer, Nofence, who will come on -- who will join online after my brief introduction here. Now we as u-blox, when we talk about solutions, we actually start with the problem. So we try to understand our customers' problem to then, based on that understanding, offering a solution to this problem. We believe that the solution needs to be very easy to implement. On a very high level, when we look into our applications into the market space, we always identify 4 pain points. So talking now about these pain points, we as u-blox have a good understanding of those pain points and have decided to offer best-in-class solutions here to solve this problem. First, positioning. A lot of our applications, their positioning needs to be precise and accurate. We are working on our 11th generation of GNSS technology but have complemented that also with positioning services, and that allows us to have a very high, precise and accurate positioning signal. Beyond GNSS, we are also working on Bluetooth and Wi-Fi positioning solutions for indoor. So the positioning signal, the positioning information is very important here and always is a pain point around customer applications. The second pain point is to connect the devices solidly and robust to the cloud. Now you have a lot of solutions out there to connect signals to the cloud. But very important here is to understand to do this very robust and solid. So we have IP developed. We have technology developed. We have our own cellular implementation, for instance, that we can offer into applications that make it super robust. And besides that, also not just the connectivity here is robust, but also the supply chain that we are putting in place and the safety of supply for our customers. The third point is that at the edge where we have our devices, you always need kind of an effortless approach to utilize those signals coming from the sensors. And the computing needs to be, as I mentioned, very effortless. And we have also implementations in place to make it very easy for customers. Last but not least, the simple and efficient transport and transfer of information. Now you hear also a lot about services today, especially the service capabilities that we have developed are allowing to have a very simple and efficient transfer of information there to the cloud. Efficiency, there means also that you are using, for instance, very small payload. And this is important when you have devices that need to utilize very low power, so efficiency is here critical. And so we, as u-blox are making devices connected from the chip to cloud. Now we have strong growth drivers in the markets that we play. So in the industrial market here has about 61% here of our revenue; the automotive market, 28%; and the consumer market, here 10%. There are certain criteria that we see in those markets. So the scope of application is increasing very rapidly in industrial applications. We see more and more demand for connectivity in those applications. Automotive, electronic content is expanding. Especially in the new vehicles that are coming out into the markets, EV vehicles have a lot of rich content. Autonomous driving, you hear today about, is a key market driver in this particular market. And now consumer applications become more feature-rich. Now there's a huge choice of applications to play in, and we are selling roughly into 20 different market segments and many more use cases in the industrial, in the automotive and in the consumer space. So for us, it's very important to identify really the markets where we can create value, strong growing markets, markets where our technology can be an important differentiation, and you will hear some of those markets being mentioned today. And this is one interesting market that shows significant growth. It's the EV charging market. And I want to show you how we are addressing here really the market needs and what problems we are solving in this market. Now in the EV charging applications, there are different wireless technologies that can be applied that we are offering in our portfolio. It is important for these stations -- or that the users know where these stations are. So locate -- the location of this charging station is important. Then the charging station status needs to be delivered to the cloud. So monitor availability and status of the charging station needs to be available. Remote monitoring and predictive maintenance of EV charging station is a key element. Peak load reduction, dynamic load management, bidirectional charging, connecting the vehicle to the grid. So all these are important elements, features, problems that our customers have in this particular application. Last but not least, the car needs to be connected to the station and the user. So the control of the charging is a key element, but also the optimization of charging time, energy consumption and cost. Now we have here, and this is what you see on this slide, multiple products that we are selling into this, Bluetooth implementation Wi-Fi products, cellular products, but not to forget here the Thingstream platform, which is a delivery platform, offering also services that allow us very easy connection here to the cloud. This market is taking off significantly and therefore, has become one of our focus markets. It is a strong growing market where 136 million EVs are expected to be on the street in 2030. We are seeing a 36% growth rate for EV battery charges in the period of '21 to 2030. And 58% of these charging stations are expecting to be installed in 2024. So there's a lot of demand out in the market for our devices here, where these charging stations, as I mentioned before, expect to be connected with cellular or Wi-Fi. And that concludes my first part here. And I'm handing now over to our customer, Nofence, who shows you another interesting solution realized with our technology.

Wonderful. So if you move to next, please. So my name is Knut Bentzen. I am the CEO of Nofence and so fortunate to join this team in scaling up a virtual sensing solution globally. And next to me, I got the Founder and CTO.

Hello I'm Oscar Hovde, founder of this company. And I've been together with u-blox actually from the very beginning. Next please. We have developed a virtual fencing solution. It is not only tracking. It's actually removing the hassle for farmers of doing fencing. And the reason for that is that we believe that grazing animals, they should be on pasture rather than being fed in a barn or in a feedlot or whatever. So yes, you could go to next and we will show how it works.

Some, this is working almost like a parking sensor on a car for the animal, actually. They are extremely good at learning this, and we have 250 million hours of data that actually shows that this is something all the animals learn.

Yes. So our success is, as Knut says, the animals react to the system very calmly and avoids the electric posts that they will feel if they don't turn back into the posture. So we have built this solution based upon GNSS and cellular connectivity using u-blox modules. And that is what we see is very scalable for us. We could ship 1 collar to the customer and the customer could just download an app, install it on the smartphone and then just start to draw pastures, like you see on the slide. Next, please. So it's valuable for us to have a strong partner in these 2 very important parts of the product. So we enjoy very much of being the customer of u-blox that is so strong in innovation. And especially in the connectivity part, it is -- for farmers, it is necessary to have cell coverage to use the product, that will, at some point, kind of make our scalability decrease over time. But so far, it has been the perfect choice for us, and we are very looking into how u-blox will kind of be a player in the future of -- especially for connectivity. And I would also mention that the GNSS modules from u-blox is chosen because of the well -- the power saving features as well as the features for accuracy because the product needs to be very accurate when the animals is close to the boundary and the system starts to kick in, so to say.

Yes, next yes. And the power consumption is also important, because farmers don't want to change battery on their animals all the time. So that's for us to have something that works through the season with the solar panel, of course, is extremely important, yes. So on the problems we solve, and you can move to the next one. There actually hasn't been any innovation in fencing for 90 years. So since 1936, that's when the electrical sensor was invented. And before that, it was the barbwire in 1874. And very little has happened since then. So if you move on to the next one, you can see that we thought, when we set out on this journey, that we would go out and saw the problem faster with physical sensors for farmers and enable them to have animals on pastures, also on pastures that weren't fenced today, and you see this in many parts of the world, that there's a lot of pastures that's growing over because the demographics aren't like they used to be. And the work of keeping fences is simply not paying off, so people stopped making fences, which means they can't have animals there. So that's really what we set out to solve, this hassle to the farmer. So the farmer is really the hero in our story, and we want to give them a tool that they can use to make life better for themselves and for their animals. Now during this journey, we actually realized that the farming practices globally are starting to rely so heavily on mono cropping, which means basically growing the same type of crops, time and time and time at each other using fertilizer and pesticides to be able to do this. And also moving animals into more centralized type of units and even totally off pasture. So in many parts of the world, you will see large amounts of animals actually being fed human food, which is corn, grain, soy and so forth in order for them to grow faster and produce more and, of course, then more profit for the farmer. The problem is that this kills the soil. So over time, you will see top soil really deplete and organic matter will really, really reduce. So if you move to the next one, you can see this is a picture of 2 soil samples from the U.S., where both these fields that are right next to each other have been driven intensively over several decades. These practices started really in the '50s and '60s to really ramped up. And in the one to the left, there's only 0.5% organic matter. And you can see it's almost like desert sand. What's been done between that one and the one to the right is basically a practice called cover crop grazing. So it means that you let animals graze on the residuals after harvest, and then they go out and they fertilize the soil naturally. Now with all the bacteria and all the living organisms that is in the [ summer crop remnants ]. And then you plant a cover crop and you let that grow and then you bring the animals back again and let them graze on the cover crop. So this practice in 2 years has quadrupled organic matter. And the soil to the right, when you get a heavy rainfall or wind and erosion and so forth during winter, you won't lose any soil and you will swallow up all the waters is also keeping the hydrological balance in the soil to a much higher level. So this is -- these are practices that we can enable because in a lot of these areas, there aren't any fences left. They're removed for large machinery to be able to play as they should. So we can sort of help farmers combine these 2 techniques and regenerate soil. Next, please. So on crop market fit, we will move on. Next. This is actually a live picture I screenshotted yesterday and sent over. And it's showing herds -- and you can see we have a sort of cough in the hallway with Nofence. We're actually not able to supply the demand in Norway at the moment. So we were sold out in February this year for the entire year's production. That's not a good situation to be in, so we've ordered a lot more components this year, and it's looking good. So we will -- we're looking into quadrupling the amount of collars that we are manufacturing this year. We're doing 2 things. We're bringing them into the Norwegian market and to the international market, namely U.K., Spain and the U.S., and that's where we are now focusing the initial international growth, right. Next. I mentioned the 250 million hours of data and operation. And this proves to us a lot of things, how the animals react and how the solution is working, but it's also providing a wealth of insight in terms of animal health, animal movements and so forth. So this is a huge opportunity for us to develop services, both ourselves and also with third-party players in this field. Next, -- and then 2 seconds about the growth plan. So just move on to the next one. And in this market. I was interested to see the u-blox a little bit further on. I mentioned just, look, 1 billion, 1 billion, 1 billion. That was sort of a common factor in some of these markets that you're looking at. It's the same thing within the agritech sector that we are playing in. There's about 1.4 billion cattle in the world. That's 1 billion goats, there's 1 billion sheep roughly. So in the European U.S. markets, that's about 180 million cattle. We are addressing these in #1 areas, of course, with cellphone coverage and also grazing animals. We really have an ambition, though to help change ag into making it profitable, easy and sustainable to raise animals and produce healthy meat on pasture, like nature intended and not in these huge factories that we tend to see a lot of. But for that to happen, it needs to be economically viable for the farmer, and we're helping that part. So 20,000 units sold this year, reaches up about 50,000 units in total. And like I said, the demand is just fantastic. So there's already more than 100,000 collars in our pipe for the coming year. So if we move on to the next. You can see, like I just mentioned. So half and half is the sort of export rate roughly that we're looking at for 2023. And then from 2024 on, we're going to double again and then really the export markets are going to be more important to us. And we will look into expanding also into other regions, firstly pilots and then with commercial launches as we move on. Next, Yes. I guess it's a bit of a bragging slide and a bit of fact-based slide. So this is what we've done so far. So -- and then that's the plan that we are setting out to do. And if you move on to the next, we have actually been able to do a Series A, and I do believe in this forum, you can all acknowledge it's not the easiest of markets. And we were extremely both humbled, but also super happy that we've been able to gather really good investors in this round that now will help us over the next 2 years plan for expansion of the Nofence solution. So that was pretty much what we were planning on saying, Oscar, more happy animals on pasture and more happy farmers. That's our goal.

That's our goal absolutely. We are able to achieve this goal with a slogan that we call [ sure good ] customer experience. I'm sure Knut is under reaching kind of a special word for very good. So the customer experience is the most important thing for us: a reliable product that enables farmers to take down the fencing and increase flexibility on their farm and their land. Also increases yield actually quite heavily with our products.

Yes, we can talk on for hours. But let me give you a fun fact. If you put animals inside a normal fence and you are not able to move, it's like the normal behavior of grazing animals would be, which would be to go from pasture to pasture, and if you just keep them fenced in, in the same place, they will overgraze, and they will get more sick because they walk in the same area that their dumpings go. So folks being able to move them in terms of animal health, but also in terms of yield, we have projects that shows that you can double the growth in a pasture if you move it properly instead of overgrazing. So this is -- the nature actually had this figured out before we started destroying it with so-called better solutions. So this is helping nature do what it is actually intended to do.

Great. Thank you, Knut and Oscar for giving us insight into your application into your use case, what problems you're trying to solve here and how we can be part of the solution. Now in summary, looking at this particular application and specifically the value proposition that we have with our products, the virtual fence is based on a very accurate and reliable GNSS positioning signal. And also you need a low-power solution to last the season. And this is what we can offer here with our products. The solution is reliable, it's robust, has a low power consumption, it's future proof due to seamless upgrade possibilities also to the next generation. So if you know our products, they are kind of footprint comfortable. So the modules have these interesting names, and you can replace the technology very easily. And then last but not least, integrating technical requirements in the next-generation products, it's also a key differentiator that we are bringing here to Nofence. And this in summary here, shows that our solution attitude here enhances really our profitable growth. So the solution attitude means engaging very, very closely with our customers, and I'm sharing more insight here on our go-to-market strategy as a company. So building this relationship, understanding really the problem, and then turning the in-depth market and application understanding into salient solutions so we can maximize our customer value through innovative functionality, better cost performance ratio, less implementation risk and very important quick time to market. So our customer focus and differentiation is enhancing here really the value creation for all stakeholders, enabling a profitable growth for u-blox. And with this, I'm handing over again to Thomas.

Thank you, Markus, and thank you also to our guests. I think that was insightful and this is why I like now to talk about why are customers are choosing us because this is, of course, a hurdle we have to take first. They will have to make a selection. So a customer has normally a goal that they can describe to make a good product, of course, that is successful that he can bring to a market that very often is global. We have to see what Nofence is doing very quickly. They go to different markets. And of course, they have a customer normally in many problems to solve, have to develop something that works for the eye of this customer, and is very happy he gets support at least the technology insight is finally something that has low risk, and that he can count on the supplier. This is, of course, what is driving the decision and where we have to make sure we can propose this to the customer in a way he can count on us and he can make a decision these -- that are sound. And insofar, we give, of course, products that have excellent features that explained by themselves that they can deliver the solution. Also, often customers have not one product. They have different variants, what is called the stock keeping unit, the SKU is multiple. And this also needs to support from a concept of -- from our side that can help to make these variations very simply and this little extra effort. And we mentioned already the whole product must know we work on the global scale in a variety of jurisdictions, for example, and local habits that the customers we must reply to. So reliability, resilience, robustness, security, all these values is what u-blox is reporting to the customer is what we have as a DNA in our company and of course, what we have to live for daily. Now how can we bring it to a good understanding with the customer? I think when you go through around this circle here, first of all, understanding the problem, understanding what is the customer looking after -- this is very important. And of course, we also like to understand it, not only of basis we do for several years, we need to especially know it for new endeavors and new ideas that customers have and created. The Nofence is a very nice example. This is something new. There was no innovation for fencing. Certainly here is a team that has a better idea. And this is what we need to take into account also in both we are finding, when we are looking forward. So of course, we are experts and must remain experts with regard to wireless technology. We want and can deeply understand the technology. We have the mastering, we have built it over 2 decades and more and have expanded it away from just the radio to something that has a system approach that can fulfill more requirements around the basic connectivity because we integrate into systems. So we need to drive this forward. We need to drive this forward also. Because our customers want to go forward and insofar, keep them next possibility for -- the possibility for a next generation of their products. This is all we do with good relationships with close talking to customers and, of course, exchanging information, helping them give you then the answers to questions they have. All this is making us the partner. And again, we can build leadership. Now we talked a lot about value. This is easily said and perhaps need some more explanation. What is it really the value we give to customers. It's not only that he has a product, of course, that alone is a big step. But finally, there are always many opportunities to create the products, and there's always the next best alternative. But what really makes the difference is when we help the customer to reduce the economic cost and then it's really the economic value we are talking. A customer has, of course, forced an effort to make the product. He has -- he has engineering efforts he has to do. He has also engineering that is unplanned because something doesn't work. And of course, he has to create the product. He has procurement, logistics, manufacturing and so on. These are all the costs to create the product. And this all, of course, with a bill of material that is finally giving the physical capability of the product. Now with what we do, we always try to make it better, to make it less, we can reduce engineering efforts by -- per se because a lot is already pre-integrated and already created. We have scale effects that help us to do this and make it more efficient. We can especially reduce the risk so that the unplanned efforts are becoming much smaller or even disappearing. And of course, it's also easier to buy a module than many components. It reduces the procurement and logistics efforts. And of course, the whole manufacturing is a lot more easy when using our modules. And last but not least, also the build material is lower. Normally, we can deliver our module at a conceived solution, at a lower overall cost than if the customer has to buy all the individual components and put it together to the same format. So this means we have here the way how we create additional value to the customer by quite a few angles, because we can really be of help and be the partner that has an economic effect. Our value, of course, that we get out of this is we deliver a product. We also help the customer to be quicker in the market. That is an additional value that we can carve out. And that is, of course, our interest for the partnership. So I'd like to hand over to our customer, Tractive, to Michael Hurnaus, who will explain what they do and hopefully also why they choose u-blox. Hello, Michael?

Hello. Thank you very much for the warm introduction. Hello, everyone. My name is Michael Hurnaus, I'm the CEO and Co-Founder of Tractive, a company that we founded just over 10 years ago based out of Linz, Austria, so not too far from Switzerland. What we do and what we are focused on over the years is the GPS tracking and lately also health and wellness monitoring for cats and dogs. And I will talk in the next 2 slides a little bit about what solutions that we have built over the years, several generations of devices and also what some of the challenges are that we face as a pet variable, how we call the category. Next slide, please. As I said initially, we started out about 10 years ago, when I was looking for a dog of a friend who got lost back in San Francisco or in the Bay Area where I lived. And we found it all eventually about 1.5 hours later, but we were all surprised that there's not a solution in the market today that really does this. And coming from a tech background, I immediately said we have to build something like this. And it actually happened roughly like this, and I quit my job the next day at Amazon and moved back to Austria to build this product in what I believe, a huge category with a ton of tailwinds and very much recession-proof category, as you will hear and probably know. Next slide, please. What you see here on this slide is a few pictures of the devices that we create. We have a cat product as well as various dog products. This is, again, generation #6. So we have, over the years, built a lot of traditional or improved product, almost each and every one with u-blox components. And so at the end of the day, what does it do? You see on your smartphone where your dog is at any point in time, or you get an alarm if the dog actually runs away or comes back into a certain area. We do this for cats and dogs, and we set out from the beginning saying, we want to create a solution that's the best solution for one vertical rather than an average GPS tracking device for various solutions. And that, I think, has helped us get the clear #1 in the world of pets for tracking. Next slide, please. This slide, very high level shows on where we use u-blox components and how our devices are connected. On one side, they use a simple GNSS, so GPS chip on the device. So the device itself knows where it is. And we use cellular components from u-blox as well to connect to our servers where it actually transmits all the information, like GPS positions, activity data, sleep data that we also track. And we sent this back to our service and the later generations with CAT-M1 LTE technology in the earlier generations with 2G or 3G, respectively. So really all the device is communicated with one server through a roaming on various cellular networks and get the GPS positions from the satellites, as you would expect. There are some other connectivity ways that we have with our app but they are more on the further update side of things and less related to the day-to-day operations. Next slide, please. The way we have built the devices was from the beginning. We didn't want the customer that actually has to enter a SIM card or to be very complicated. It was always the idea that anyone who has a dog can do it regardless how technical they are. So we have a fully integrated product with an embedded SIM chip, and we develop all the hardware in-house. So everything we do hardware and firmware-wise, we developed in-house, and then we do contract manufacturing in China, but we are building up additional manufacturing plants outside of China as well right now. We roam on multiple networks that differentiates us from many of our competitors in the field, meaning that we really have one cellular -- not just one cellular partner in a given country, but multiple partners. And this is important because our animals obviously roam around. And as they run around, they might be in areas where there's lower coverage than the areas that you typically cover as a human or where cars are present or in the cities. Device is super lightweight, the latest generation is actually below 30 grams already, 100% waterproof. And as I mentioned over the 6 generations now, we have always used u-blox for both connectivity as well as GPS and have been very impressed by what they have done and how easy they've made it for us to actually develop our devices. The big challenge for us, and I'll talk about this later, really is always the form factor and size and battery life, which at the end of the day, go hand in hand. Next slide, please. The business model that this allows us to work with is actually a subscription or SaaS-like business model. We are selling the hardware at roughly EUR 49, GBP 49, USD 49, all the same these days anyway or almost. And then require subscription for customers to use the device. This covers all the networking fees, the roaming fees, the SMS fees from us as a company to the provider, and it's a flat rate for the consumer of around EUR 5 per month depending on what plan they choose. What helps us here really is that most customers decided to pay us 1 or 2 years ahead of time, which means that from a cash profile and from a business model profile, very thankful because if they pay us ahead of time, we can actually reinvest the revenue early on already in financing inventory and our own growth. Next slide. As I said initially, we started with GPS tracking. So basically, where is my dog, where does my dog run around. And we have now transitioned over a lot towers, what we call health and wellness monitoring. What we do is we capture activity data similar to what you might be familiar with from a Fitbit or other variable device in the human field, capture activity, we capture sleep. And behind the scenes, we have a team of 20 data scientists that do nothing else than dissect this data, run machine learning algorithms on this data and really try to identify early signs of certain illnesses or health patterns for a particular dog or cat. And that's something that we are doubling down on right now because we believe there is not really any product out there in the market today that does this well, and we have so much insights based on being on so many cats and dogs in the field. Next slide. One of the big things, and I'll share some more numbers later. We have around 700,000 active subscribers or active customers that use our product every day. What we offer to them is what we call peer group benchmarking. This is a feature where we can actually show a customer not just how active their dog is, but we can actually put this into a perspective. We can tell them this is how active a normal 3-year-old beagle is, or this is the benchmark of other 2-year-old rottweilers. So this helps you as the pet owner understand whether you're overexercising your dog or whether your dog is more on the lazy side and what you can do about it. It also gives some information to the vet if you bring your dog to the vet to see how treatments work or how the performance is actually improving of your dog, if you intend to have a healthier relationship or a healthier dog in your pet-parent relationship. Next slide. The biggest challenges that we face as a company or in our pet variable world, is size and weight. We have to make the devices as small as possible to capture the full market or a larger market. The smaller the device, obviously, goes hand-in-hand with smaller battery, shorter battery life, so we always have to be creative on identifying ways where we can save battery, but while still staying connected to customers who can actually do live tracking at any point in time. The antennas are always particularly challenging in the small form factor as well as it gets exponentially harder with every millimeter the device actually gets smaller. Another situation that we are facing in the cellular world, that's hopefully gone for a while after now most everyone shifting towards NB-IoT and Cat-M1 is the 2G and 3G deprecation, which is something, especially in the sector of consumer devices, that's very challenging as we have to exchange the modules. What's extremely helpful here, it's really that u-blox provides for us modules that actually backwards compatibility, so we can actually use them on the old networks as well as on the newest ones, and that allows for us for a smoother transition out in the field and has been very, very helpful over the years. We also want to ideally create one solution that works globally. We attracted focus on the North American markets plus Europe, but we still want to make sure that it works in most any country in the world. And that's also something that really helps us be using and leveraging the features that u-blox has built. A big additional challenge for us. It's a little bit outside of this scope is really roaming agreements and national roaming, whether it's dependencies on our cellular area that we work with or the cellular partners that we work with. And some national restrictions on national roaming such as in Brazil or Turkey or China, where devices are only allowed to roam on one particular network or don't -- are not allowed to roam permanently in this country. So you have to have a local SIM after a certain period of time. And last but not least, supply chain is obviously or within an issue and the challenge in times like this. So at least from our perspective, we -- it seems like it's getting in a better direction across the board with all kinds of components that our devices use. Next slide, please. A few more numbers before we come to an end to give you a little bit of a better perspective also on the size of our business. We have around 200 employees headquartered in Austria, 190 people work here on our brand-new campus near Linz. We have about 10 people in the U.S. in Seattle in our external office. And as I said, we founded the company about 10 years ago. We're just shy of 700,000 active subscribing customers. We still continue to grow over 50% year-over-year certainly want to fly through the 1 million subscriber mark, the 1 million connected pets mark, and we're very proud of comparatively high NPS scores from a consumer product, especially for a connected consumer product. And also our churn rates, if you are familiar with the subscription world or SaaS businesses, a churn rate below 2% is roughly in the territory of the Netflix or other consumer subscriptions that really are very well known as they are. And this makes us proud. This really means our customers use our devices and use our products quite a bit. Next slide. This is just to show you a little bit the growth on a quarterly basis. As you can see, particularly this year, Q2 and Q3 have been strongly accelerating. This is coming A, from tailwinds from the pet market as well as from our launch in the U.S., where we launched about 2 years ago. And now it seems to be really taking off in the U.S. market, but also other European markets. One of the top challenges for us is -- as a product or as a category, is category awareness. So people don't know that this product category even exists. So this is something that we now push more with TV advertising in U.K., France, Germany as well as in the U.S., and that really helps us to accelerate our growth. And hopefully, especially as a consumer brand, we are proud that we achieved that in the last 2 quarters. We're looking forward to a strong Q4 as we've [ regulate ] here. And excited to continue to go the way with u-blox. And that was it from my side.

Okay. Very, very well. So let me just thank our colleagues from Austria for this nice example of how our products are used. It's always exciting for us to see how the end product looks like, the chips and systems, if you look on them, you can get very enthusiastic as an engineer, but you can get even more enthusiastic once you see it in real life. And exactly these example combines many of our technologies from positioning, but also in terms of connectivity. So very nice example. With this, I can hand over to Roland -- sorry, there was one more slide, which I wasn't aware. I think it was mentioned before that one key thing to make it happen at those customers is being very close to the customer, working with them in a very early stage, also making sure that we meet their requirements. You heard they will -- they need it small, they need it with low power. And this is exactly something where u-blox is very strong in. So it's a very nice fit in terms of technical fit. And the other thing is, you saw the growth rates. So obviously, we could cause major damage to such a growth story if our supply chains are not robust. And this is also an area where u-blox has proven to be a reliable partner for our customers. Now next, please. [Presentation]

Why are we competitive? And you heard it several times now. Innovation is a key thing. And we were founded from ETH, and we are very proud that the founders -- 2 of the founders are still with the company. And it's really, for me, coming from the outside, it's a very special thing to have those on board which originated the company and drove this innovation overall, all those years. And the enthusiasm is more or less given by nature, if you have such a spirit and culture. Now when an organization grows and u-blox grew heavily, as you could see in the numbers, it's very important and very crucial to keep up this flow of innovation. And therefore, we focus a lot on agile development methodologies, which keeps us close to the customer and close to the market. And well, with this main ingredient, we were able to stay innovative, capture our market share and even expand. And if you go one slide ahead, of course, there's competition out there. And I could say now to everybody something or how we are differentiating from them. But the combination of having core IP in a chip, having the modules plus adding the services is unique in our market. And we think we are just at the start with this value proposition. It will expand even further and become more important in the future. So we have a very strong positioning in our key markets, and we are having everything in place; the team, the culture, the processes to grow this even more. And so there's no wonder that we have a lot of enthusiastic customers. So we have over 14,000 customers which use our products. And they are -- not all of them are served directly by us. Some of them are also -- or many of them, not some of them, many of them are served by our distribution partners. And larger ones are served by us directly. And for us, as you could now sense also during the presentation, it's a 2-way cooperation. We provide the product, we jointly solve problems and we get inspiration for our new product road maps. So we have many ideas out there to fill our innovation pipeline. So for us, the focus is more focusing on the right topics than searching for innovation fields. So there's a lot for us to innovate. Next one. And with this, finally, we get some more hard facts on the financial numbers by Roland. So thanks a lot.

Thank you, Stephan.

Which by being a bit too early.

Right, right. Thanks a lot. So thank you, Stephan. Good afternoon, ladies and gentlemen. Also, a warm welcome from my side. U-blox experienced a very good first half year in 2022 with a strong growth of revenues of 52.7%. We reached a new record level of revenues in the first half year with EUR 300 million in revenues we have made until end of June 2022. This is based on a strong rebound of orders, which has started already in 2020, but is ongoing, but also the accelerated trend for connected devices and the expansion of our production output helped to reach such a high level. Also, the U.S. dollar developed positively in the first half year. But even if we have had versus dollar rate the same as in 2021. The growth rate is still nearly 50%. The growth also continued. You have for sure seen our announcement to the Q3 revenue figures. In Q3, we reached revenues of CHF 475 million. But not only revenues develop positively, also on the profitability side. EBITDA adjusted margin increased strongly to 26% from 19% in the comparable year 2021. And this represents CHF 76.6 million for the first half year 2022. Gross profit margins also went up in the first half year. The trend, beginning in 2021, continued. And so we reached in the first half year, a level of 48.9% or CHF 143.8 million gross profit. This is an increase of over 60% over the first half year 2021. The increase is driven on one hand by a favorable product mix. And on the other hand, by sales price increases, with which we are able to compensate some price increases of our suppliers. Innovation, we mentioned, it is key to our generation of such gross margins. Our chipsets are the basis of our core IP. And together with our modules, we make it available to a large customer base, as Stephan already mentioned. But thanks to this investment into core IP, we generate gross margins. And in absolute terms, 3/4 of the total gross margin is based on products with our own chipset. But also, the third-party chipset are necessary to have a complete offer for our customer and to offer to them full solution. On the cost side, R&D expenses ratio was reduced significantly in the first half year to 17.9%, all is mainly due to the increased top line because we have not reduced our efforts and investments into new products and into establishing our servicing offer, the level of R&D expense as such it remains the same as in the first half year 2021. Now as you all know, accounting rules for IFRS oblige us to capitalize our R&D efforts to match on one, the R&D efforts with revenue recognition. I'd like to make an example here with the u-blox 8 platform. u-blox 8 was developed between 2012 and 2014. Market introduction was in 2014. That's so- called on this picture here. You see this is the R&D phase. And this is the phase where we capitalize the efforts which go into this platform. End of life is expected then in 2025. So 11 years where we harvest in total from the investments we made in the R&D phase. And with market introduction amortization starts, we have a contributive approach from a financial point of view so that we amortize not over this useful life of 9 years and CHF 1 billion expected sales, we amortized the cost or the capitalized costs already over 7 years. But in this way of capitalizing and amortizing costs makes it more comparable revenues with cost creation. On distribution and marketing expense, we -- secondly, we reduced the distribution and marketing effort -- expenses. They increased slightly in absolute terms to CHF 21.6 million in the first half year 2022 but the percentage-wise of revenue, it was reduced significantly to 7.3%. So of course, the strong growth has an impact on cash flows. Net working capital -- sorry, net working capital was impacted by the very low level we had in 2021. So in 2022, we were then able to bring them back to a more normal level. But together with the strong top line growth, net working capital increased in the first half year 2022. So -- and this has a negative impact on cash flow of CHF 51 million Therefore, operating cash flow was lower in the first half year. It was CHF 30.4 million. And also, free cash flow was lower, but we still were in the first half year, capable to create a positive free cash flow of CHF 6.6 million. For the second half year, it's, of course, not expected. A similar increase of net working capital, so that we can also expect to have higher operating cash flows and also higher free cash flows. u-blox as a company has and has had a strong balance sheet with a cash position end of June of CHF 89 million. And this cash position is expected also to further increase due to good cash flows in the second half year. In the balance sheet, we have around CHF 46 million inventory level, but only 20% of this inventory is really finished goods. The major part is raw material components. We need to serve and produce our modules and products. And about 24% is work in progress, so products which are on production. The increase in short term, you might -- that you might see is only due to the fact that our outstanding bond, which is repayable mid of April next year has now switched from long-term debt to short-term debt and. Therefore, short-term debt increases. On the other hand, long-term went down. For this bond, in mid of April, we have several options from repayment through our high cash position to -- also to renewal. We are looking and analyzing this now in the next months until mid of April and find out which will be the best and most profitable solution to do this repayment. And with that, I'm through to the financial numbers. We come now to first Q&A session. I think we do first the ones here in the room, and afterwards, then others, right?

Exactly.

Emrah Basic from Baader-Helvea. I have a couple of questions. I'm just going to start with the -- going back to the presentations you have of the startups. So out of your 14,000 clients, how many of them are approximately representing start-ups that are kind of like early stage?

So it is difficult to say what's the percentage of those start-ups. But you will see in later slides that I will present that especially through distribution, we are able to reach more and more customers. We have doubled our customer base over the last 3 years with the help of distribution. Now high-service distributors like Digi-Key is providing samples, low-volume samples for engineers to quickly start developing. And under these small customers are certainly the innovators and makers of tomorrow. And those are certainly start-ups, but I can't give you a percentage.

I don't know, could you give an indication of how many of those customers who were with you approximately 5 years ago are still with you today?

We have a very high retention rate of customers, and this is also really our unique value of our go-to-market approach. The value is that we focus on customers, and we stick to customers and customers stick to us. So we don't lose many customers. And maybe you have also heard in the example before that Nofence started actually with u-blox and stayed with u-blox along the way. And this is what you can see with many of our customers.

Okay. And the last one, regarding this topic. Could you give us an indication of like the cluster in terms of the end markets? How many of them are in industrial, consumer and automotive segment?

So the majority of the markets are in the industrial markets. The main markets on the automotive side, certainly infotainment and navigation, telematics, autonomous driving, then you have 2, 3 more like car monitoring, EV charging. But on the automotive side, that I would say about 10. We are selling into 15 more easily, right, which are on the industrial side, and they are more and more new applications coming up, especially on the industrial side. Today, we say roughly 20 markets are important to us, while I would say, there is probably half of them which are nicely high-growth markets where we have a special focus on.

You're referring to the start-ups now?

No, to your question, what markets we serve on the industrial and automotive side. In terms of start-ups, as I said, I can't give you an exact number of customers in this particular field.

Okay it's Harald from ZKB. I have 3 questions, please. First one, I understand you maintained your guidance, but at the same time, you were like, if I got a right referring that growth momentum in Q4 is continuing like upbeat Q3, right? So how does this basically reconcile? Second question would be, I think you mentioned a favorable macro view for 2023, if I got it right. I mean everybody else is, I would say, guiding probably more to the downside. Probably if you have some more color here. And three, I would say, long-term question. So what kind of free cash flow conversion could we see in terms of EBITDA as a percentage point? And also regarding your end market setup, what would you be your desired end market portfolio, given industrial, automotive and consumer? Is it going to be more industrial geared, or is it probably more shifting to the consumer?

Okay. So last question on -- last question, one of us can take. So our major focus markets are clearly in industrial and automotive. So this is where we have most of our efforts and our highest focus. On the elective consumer applications, we go after, but the majority is industrial and automotive. So in this sense, our revenue share distribution will not deviate so much from what we have right now. Maybe on the financial questions?

On the long-term outlook, free cash flow and free -- EBITDA conversion, as you know, we do not make any guidance and also no long term, I cannot -- also not make any long-term guidance in this regard. There are too many components influencing that, which we just don't know in digital speculation, especially network, for example, networking capital development. So -- and the first question was about the Q4 and Q3. Yes, it is right that Q3 was tremendously good. So we do not expect such good Q3 as we did in Q4, the same, but the statement is more about the overall growth, if you take the guidance and we stick to this guidance, then you calculate out at 50%. And I would say, yes, this is really outstanding. It is not expected that we do now every year in the next 4 years, 50% top line growth with the corresponding profitability growth. This is not possible.

And if we have to, we will give you then in our March presentation, as soon as we have the year-end results.

I was simply a bit puzzled as you mentioned, the favorable macro perspective, I think, on one of the first slides, basically.

The perspective, you mean the one with the aims we have, yes. This is the -- as it said, it's a goal. It's the goal we have to reach and where we plan to be or to get or to keep in the future. This is just an indication where our goals are. This is not the guidance. It is not a prediction. We do it and this year or in 2 years or in 5 years. It's just our goal, and that's what we are working on to.

Okay. So one last one. Then I promise I'm all finished. Basically, your impression of the inventory levels of your clients, where would you see them? I mean, broad-based in the economy, you could also have to see that inventory levels could be probably a bit elevated for the time being.

Yes. Certainly, inventory levels are going up, but they are going up in certain areas. I mean it started with the consumer side, right, with the slowdown in APAC, especially in China and inventory levels of products that are being used in the consumer area are certainly going up. We see that as well. Part of that inventory is becoming available also in the industrial and automotive side. So when you go into industrial and automotive, it really depends what kind of technologies you are utilizing. There are technologies that are not so easily available, right? When the crisis there started, we had a lot of wafer fabs that were booked 3, 4 times. The situation has eased there, right? As overall, the market, I mean, we read it everywhere, is kind of slowing down. However, there are nodes, there are technologies that are not so easily available. And those remain really as part of the supply crisis. So we still have customers that we can't deliver to, 100%. But the situation is becoming better as we're also showing there into the slides. Now there are market areas that continuously have a high-growth; health care, keeps growing, also is pretty much not so sensitive to the recession. And as we are focusing on selected markets, we are a part of those markets that are growing stronger and continue to just grow stronger next year. But then there are also markets that are slowing down. And of course, overall, we have still a very high order book as you are going to see. And customers, yes, some customers are pushing out, some customers are canceling, but some customers keep escalating because they urgently need the products.

It's Michael from Stifel. I have a question on the Slide 66, on a competitive environment. First of all, thank you for that. It's very interesting. I was just wondering maybe you can give us a bit of an insight, what has actually changed here in, let's say, the last 2, 3 years? Because I'm not sure if I remember correctly, a couple of new names that have popped up here. And so I was wondering, how is it really evolving, the competitive environment? And maybe the second question, how do you see the latest M&A developments in the industry? We have seen Semtech buying Sierra Wireless, for example, a part of Thales is merging with Telit. So how do you see those involvements and maybe overall, what's the critical size of a company like u-blox? I mean you spend a lot of R&D to actually, let's say, grow. Let's say, a normal environment, you grow, thanks also to the R&D. But when can you actually reduce the absolute or the percentage amount of R&D to grow? I mean what's the critical size of a company like u-blox, so you don't have to spend such amounts of money to exist basically, to be proactive? I know but...

Yes, I understand the question. So let me first start with your first part of the question. Yes, there are acquisitions ongoing in the market, especially on the module side as we could see there. You saw it from our history, u-blox acquires company if we can complement our offering. So just acquiring for size and economy of scale, it's history. I was not there, but for me, it was very logical, was never a focus of the company. That might be different if you have a lot of own production. Then you have different effects. But u-blox didn't see this. And therefore, we never did such an acquisition. We acquired something if we could complement something. If you want to go into services, we took a head-start by acquiring a company who has experience in services, and this proved to be a very successful approach, and which makes a lot of sense from years. There's consolidation ongoing. But it's not our strategy just to buy for size. The other point you mentioned is R&D spending. Of course, every Swiss franc we save goes into profit, that's easy math. But we are doing -- we are developing high-tech products. We are by good reasons, investing in our chip technology to have our core IP realized in the best possible way and also enjoy certain benefits out of this. And if you do something like this, 20% R&D spending is not outrageous. So of course, we can debate if it should be a few points lower or if it can be, even for special reasons, a few points higher. But the order of magnitude is where we see the company and this is why you also saw it in the ambition that yes, we want to bring it down. But if you could bring it down to 5%, there are companies out there who survive very well with 5%, we would kill our business model. It would not be an innovation business model again.

As you said, it's right. You all see what u-blox is. What is the core of u-blox? It's not -- sorry, Markus, it's not sales. It's not logistics, it's not production. It's development of new products. So the major part, 70% of our employees are R&D employees. What we must make sure is that they develop something which has value at the end. And if we do that, then as -- I'd like to spend some more money into this R&D because I get later on, new products, also bigger volume and that could support the growth in the future. So for this, as I've shown in one slide of my slides, it's 3/4 of our products contain our own chips at our core IP. And with this, we are also capable to keep on the top of the gross margin level. There was a trend in the past, at least gross margins have only one trend downwards, the last 20 years. And this would go on if you just try and innovate and be not innovative, invest into new products, maybe also to the setup of a chip set. How much components you need, how big the silicon base is or the die size is? This is all costs, which helps you to keep also the gross margin out. So it's also profitable, although you have invested something into R&D for this.

Maybe let me add to this because you mentioned our strong R&D history and footprint. Already today in this presentation, you can sense or observe a difference. So of course, it's a huge opportunity for a company like u-blox, coming out of R&D, developing the organization that we work with partners, with distributors, strengthen our sales and marketing approach, being appreciated by our customers, by our robust supply chain. So that's a huge opportunity for us to complement our R&D strength. And the company started to do so, and we will continue on this way.

And to add on that, we have especially seen in the last 2 years that our business approach, our business model here, offering chips modules, combining it with services is super robustly, why? Especially in a time where customers did not get supply, they reached out to us and reach out to many companies and ask, "Okay, can you give me an alternative here?" Right? And we could. So we provided second sourcing, not just against our competitors, but also on technologies that we were not able to get like on the GNSS side. So we had a dual sourcing strategy as u-blox. So we came up with modules, which were footprint, which we were feature-competitive and could offer these to the customers. We did that on the GNSS on the cellular, but also on the short-range side. And we have gained through that. So we got additional business through that. We didn't lose business. And we are proud that we have not been one of those companies that stop production lines. And why? Yes, it has cost us something. We had to invest there. But now we have a broader portfolio and a more competitive portfolio. And this has been really because of this chart. Because we have the intellectual property, we have the competence internally to turn this around very quickly. And this is also part of the growth that you are seeing. And we gained market share because of that.

[ Thomas Fronk ] from [ GAN ]. I have actually 2 questions. I just ask them 1 by one. The first one is a bit on the big picture. At the very start of the presentation, we saw the long-term sales development of u-blox. And it was quite obvious that from 2017 onwards, the company stagnated a bit on the top line. And now this year, it seems to be becoming a huge acceleration into sales. Maybe the first part of the question would be, why this stagnation phase? And the second one would be the acceleration this year?

The colleagues can help me if I lack on history, but the huge acceleration had, of course, several reasons. One was, many of the R&D projects we started years ago, and which were also capitalized in a financial kind of way came to production in the last years. That's one area. The second one is, we focused on the right growth areas to be in. So we saw volume growth. It's not just a price growth, what you saw in the last year. So we -- Markus mentioned, we even gained market share in the supply crisis because of our flexibility. So in this sense, it's the right focus topics with the right R&D investments. And yes, the market picked up, and we were able to deliver. This, I would say, are the main reasons for this growth. And if you go one step back, you will hear later on, on what market segments we focus, both in an industrial side and in the automotive side. So it's all -- everything which makes the car more intelligent and everything, which makes the Internet of Things connected and precisely to be located. And both of those topics are just at the start of their growth. But we will cover this in the next session a bit more in detail. Now to the dip in the previous years, maybe one the colleagues can say a few words better than I.

Maybe in the previous years, so we worked in, '17, '18, '19, especially 2020, in a stagnated phase, you're right. But there, we're facing also some, let's say, more macroeconomic topics like the China-U.S. trade war, which hit us at the same time. We saw, for example, in the U.S., a delay on network operating, deciding on which technology they will put there the following of the 2G. Is it now CAT1 or is it CAT-M? And this, let's say, so to say, delays, our customers to go into -- to do the next step, to do the new devices to grow themselves. And therefore, also, we -- lack of growth in these years. Now it's at least part of them the Chinese-U.S. trade war is still alive, but not that heavy as it was for example, in 2018-'19. The operation topic in the U.S., so to say, solved, the decisions are taken. And we see now, of course, also the customers now releasing and replacing, for example, their 2G devices with 4G, CAT-M devices or seeing this market growth also coming back. And as, for market growth, and what the growth effects are, Markus, you may be the better one than I am.

Yes. Now I joined 3 years ago, it would be easy to say, I was part of the growth story. But I have been the sales head since 3 years, and I can certainly tell you what we have done to making sure we are winning market share. I mean, when you look at 2019, 2020, right? I mean the corona crisis started in 2020. I mean, of course, the market went down, right? The market went down because there were lockdowns nobody ordered. And then suddenly, end of 2020, right, the markets came on and everybody started to order. I mean we see that in the industry. And just to say, okay, this growth is purely a story of growth of u-blox, I mean, then everybody would have the same story. But what I can say is, we have gained, as we explained before, market share, why? Because we started to focus on areas of growth, on markets that are growing faster than others. Of course, we have a competitive environment. We all know, we are not let's say, a market leader in cellular modems, right? You have Chinese competitors coming in and undercutting the price. And we have stopped competing in those markets because of price. You see that our margins are growing there, right? We are not going after business, which is suicide business. But where we are going after are the markets where we can really extract value due to what I explained before, the robustness of the solutions that we have, the competitive advantages of positioning, combining them with cellular in short range in the application. And a very important element is also the service element that we're putting into it. So we are super sticky into certain applications. We -- there is a very high barrier of entry for our competitors in those customers where we decided to choose to play. And I will elaborate it on the go-to-market strategy later why that is the case. And so yes, through the supply crisis, we were able to win because we could either deliver or we would have the right products that others couldn't. But then also in the last 3 years, we doubled our customer base. Right? We literally went from 7,000 to 14,500 customers. You will hear about it later as well. So increasing the customer base gives us access to new applications, gives us access also to start-ups, as per the question asked before. But all those customers are start ordering. They are starting ordering, I mean, twice as the amount of customers basically allow us really to grow share. So there is a growth story that you see in the numbers. Do we have more questions in the room, 2 more?

If I may before probably you want to go to break. Serge Rotzer from Crédit Suisse. I was a bit puzzled as you, Mr. Zizala, said that you don't go for scale, that you go for technology. And if I remember correctly, a year ago, you made a bid for Telit. I don't see you had an incremental technologies coming from Telit you don't cover. For me, this would have been a pure scale takeover, if you would like. So secondly, also, I think you are the best proof of pudding that scale is giving much higher margin. Three times you increased the top line guidance and 3 you materially increase so the EBITDA margin. So you want to tell us that you want to go for lower growth in the future with much lower margin? Is this the near-term target?

No. As you could hear in my opening words, we are clearly set up for growth, for sure. But we do not just acquire companies for the sake of having additional similar business. The rest, you're right, a lot of the rest, besides all the strategic topics obviously also depends on the price. If there are opportunities out there to become more profitable, growing, then we will look at this and do this. But in general, if you look on the history, the company complemented its business, and this led to a very impressive growth so far.

But again, what would have been the logic to take over from Telit?

Well, I apologize, I cannot comment on this one because I was not part of the process, yes? And I'm not even sure if we should...

Maybe without commenting to -- exactly to Telit, of course, it's not an aim to just to buy revenues for whatever the price tag of these revenues. Of course, if I get the revenue in addition at a price tag where I can say, "Okay, with this I really get some economies of scale." Then it makes sense. But as many of these attempts and not only Telit, also others. We have looked into other. Other companies shows that the price tag is at the level where we have to say, "Okay, and what do we get?" And this is, at the end, the way. That's why also focusing more on technology additions. There, the price tag is also high. But there, you get maybe more economy scale or more profitability back -- even back -- even if you pay a certain price tag. But also there, it's clear, it must also not only add a technology, it must also add a way forward in profitability. Otherwise, it's then too expensive.

Okay. Got the message. Probably, last one. Mr. Zizala, you have been working with Infineon for a long time, a great experience. What do you believe? Where can u-blox benefit the most from the experience you bring with from Infineon? Is it on sale, is it procurement, is it through use process, processes to improve R&D? But happy to get 3 bullets from you in that respect.

I would like just to repeat and maybe better explain the topics I mentioned at the beginning. So I have been part of an incredible growth story as Infineon. And in a certain way, I have seen quite a lot -- quite a number of businesses in Infineon in the context of a larger cooperation. So for sure, I want to work with the team to develop the organization to cope the larger scale of business, to prepare for the next wave of growth, to improve in certain areas, operational efficiency. There, I think we can bring together as a value. I do not have a blueprint that I come over and copy an Infineon approach to u-blox. This would be absolutely non-appropriate. But my key target is to bring in this experience and work with the team to find out and define the u-blox way. The overall strategy is very well set up. And therefore, I said as a first topic where I want to focus on, is making sure what we have as target. What we defined as a strategy, we implement it in a way which gives us then enough headroom to think of the next big strategic movements in this course. And just out of experience, having seen many different businesses at Infineon, at least I have done it before in similar situations. So I think I can contribute and then try it as a team to make it happen. And maybe the third thing is, yes, we saw it now very nicely as a growth story. And that's maybe a difference between a start-up company and a company which is much smaller sure. I've seen some crisis in my previous life in -- where business was unexpected or we had to have a big business there, and we were -- maybe we found out that there is a trouble here or a technology change there. And this is what I meant with making u-blox resilient for whatever comes. So you can guess that I challenge the team currently quite a lot, "Have you thought about this? What do we do if happens that?" And this is something I want to contribute and then define with the team, the right way forward. There was one more? No, 2 more.

Maybe I'll try. Torsten Sauter from Kepler Cheuvreux. I have 2 quick questions. Firstly, I think you showed this nice table with the product offering and the peers. Should we expect u-blox to develop a short-range chip, so a WiFi chip, a Bluetooth chip or something like that? And then secondly, quickly, should we expect u-blox to provide on a recurring basis, quarterly information basically?

So first question. Our strategy for chipsets is, we invest in our chipsets if we have core IP to protect or if we can create a solution which is very optimized to the market. And if you look on positioning, obviously, we have core IP, and we can differentiate there. Therefore, we do a lot of chipsets since here. On the wireless part, on the cellular part, we optimize the chipset exactly for the target applications. So it's a low-power wide, area network. It's not just any cellular standard. So we optimize for Internet of Things, usage, low power and also cost, exactly for those applications. Now -- and we do this only if there's no suitable offering out there in the market because otherwise, why should we spend so much R&D money? To the time being, we didn't see this in short range. So there was not the need to do it and just to be a me-too with another Bluetooth chipset. At least it was explained to me and it makes perfect sense to me, did not make a lot of sense for u-blox in this strategy. And on the quarterly numbers, I would ask Roland to answer.

So you should not expect to have quarterly numbers now from us, down to profitability side, no.

The quarterly statement with revenues, for example, is something we would envisaged.

That we look into, if we do it further but it's not yet decided to do it every quarter. It's also because, why did we do that in Q3? We do Q3 because of its -- let's say, an extremely good year. It gives an intention also to show why we are so convinced that we can make our guidance and are -- I can say, "Okay, we do our guidance, look." And we can all say, "Yes, we do the guidance." And say, "Okay, look, Q3 really shows that we are on the way to reach the guidance numbers."

It's Guenther Hollfelder from Polar Capital. It looks like as if the process nodes you're using for your positioning trips are still pretty tight. So at the same time, you were mentioning some relief. But so I mean, right now, like in the fourth quarter, is sales still constrained by the supply you get from your foundry? And what's the outlook here for the coming months?

So in Q4, we have areas where we are still supply constrained. So as Markus mentioned before, there are areas where we have supply constraints, and we also expect areas next year where we will face supply constraints. However, if you -- if we compare it to the situation a year ago, it's getting relief. There are less such areas, and the gap becomes smaller in this area. And this is -- the reason for this is in the trailing nodes, as you probably have heard from several foundries, there's not so much capacity investment coming on top. And therefore, this segment remains narrow.

Maybe to add here, when we said it's supply constrained, indeed on certain nodes. But what we also did is that we came up with new nodes that are less supply constrained with alternatives. And on the GNSS, we have ramped the 10th generation in a record time that we have never done before in such a growth. right? So we were, especially in the industrial and also in the consumer space, able to introduce the M10 chip this year, while then we would have more parts available for other applications like automotive where you can't make that change so quickly. So again, this is another proof that through the resilience of our supply chain, we are able basically to offer here the right parts into the market.

The 8 you were referring to?

Yes.

But we have still a couple of questions from the chat. We can take them? Good. Then we start with the first one from Reto Huber, Research Partners. Is there still no temporary peak inside at u-blox? After broad-based growth in the first 9 months, with which applications in end markets saw strongest growth in October '22?

The answer is simple. We do not provide such information anyway. So we cannot say which growth market now is -- now in October still growing the most and that's it.

Then I continue. [ Thomas Keiser ] from [ Familiar Office ]. To what revenue share do you plan to increase your recurring revenues above the next year or so?

Also, this figure is a figure which we do not disclose as such, what revenue is recurring, and which one is really new business, it's also rather difficult to say what is a recurring revenue. If this question is relating to services revenue, services revenue today is very, very small. First half year was $500,000 roughly. So even if we take their 500% growth, it will be also for the next year, not really a lot. And not the major part of the growth story of u-blox in 2023.

Then Lukas Spang from Tigris Capital. Your margin increased strongly in the last 2 years. Do you see this margin level as sustainable level? What is your expected CapEx number for the coming years?

This is all a question about guidance. And as I said, we gave some guidance then with our full year numbers in March, but not now.

Then we have questions about customers from [ Markus Anderson ]. It is said that your biggest 70 customers make 80% of your revenue, and they get highest level of attention. My question is, are Nofence and Tractive, one of your top 70 customers?

We would not give information what customers are part of the 70 customers. But wait for my next presentation, I will show you also that we are treating the long-tail customers very, very well and are as important as a large customers.

[ Alexander Harward ] from Alphastar Capital. Maybe I missed the answer, but could you please elaborate why you have inventory at all even though you don't produce yourself?

Just because inventory is not only finished goods. As I elaborated in my presentation, roughly 20% at the moment is really finished goods. The rest is components, which are our -- which we buy and then are produced with our contract -- or by our contract manufacturer and use in this production. So this is inventory of raw material and part of it as production in the last 3 months of the product you will have work so-called work in process. And this is then also inventory. And secondly, some finished goods inventory exists because of course, we can gain some economies of scale in our contract manufacturing, ordering not only 10,000 pieces, but maybe 500,000 pieces which we know we will sell them in the future to certain -- to the customers to the market. And with that, we have also a certain inventory level. This is also assurance to keep our own lead time lower or to keep the lead time lower to our customers in this case.

[ Thomas Kaiser ] asks, do you see increasing customer interest to be more independent from China suppliers?

Of course, that's a very good question, and you can be sure we ask them every customer we visit to find out if this is a short-term reaction or if it's a long-term concern. So in what I could judge within those few weeks and probably double-digit customer meetings, I would say it's in majority, a real concern to -- for various reasons to become less dependent from Chinese suppliers in one way or the other. And with our offering, with our strong focus of our own development in many areas in Europe we are a very well selected partner in such topics. So yes, we expect benefits out of this.

Then [ Jonathan Arr ] from [ Ascom Partners ]. Can you expand on your comment about walking away from suicidal pricing in cellular? What does that mean for you cellular module business? Can you share growth in margin in this segment? And how bad is the Chinese pricing?

Let me just add first. So again, as Roland said, we don't provide details of our businesses, and this is also true in this case. And the comment about suicidal business, this only means we will not do business which comes at so low margin that we do not expect to bring it on our target levels even over a certain period of time. And those businesses, why should we do this? We are growing very nicely, especially also in cellular, and we are not doing business which do not create value for the company and by its shareholder.

Good. Thank you. Those were the major questions. A lot of questions were answered during the Q&A.

Thanks a lot. And I think now we have a break?

Yes, very short. Many thanks to the great presentations, especially to those ones that have been held remotely. We have now 15 minutes break until 4:20, we are meeting here again for the second half of the presentations, where you will get some kind of interesting insights to our go-to-market and also to one of our distribution partners. So see you in 15 minutes. Thank you. [Break]

So, okay, let's restart after the break. And maybe just one comment. So Thomas is doing better. So as it looks right now, it just was cold. And he is on his way home and probably will see a doctor there. So but no life-threatening emergency fortunately. And with this, I would hand over to Markus.

Thank you, Stephan, and this was the best introduction I guess, for my part. Yes. So now we are going to talk about our go-to-market strategy. So there were a lot of interesting questions in the Q&A, and hopefully, I can elaborate a bit more and give you a better understanding as to why we are growing, and it has to do also a lot with our go-to-market strategy. Because of that market strategy, we have become an undisputed foundation in the value chain of our industry. And in a nutshell, this is because how we partner with customers. And we wanted to give you already that the impression by having customers to talk to you, and I'm sharing this session also with our distribution partner and Hermann Reiter will explain how we work together here to service our customers. Now our position builds up from core and cannot easily be attacked. That's easier said than done. I guess everybody can say that. But what are we doing here is to focus. So we choose the market segments that are, A, high growth segments, where we can gain value out of those market segments. And those market segments have a need for the technology that we have in our portfolio. And there, I have shown you earlier, these applications, the different use cases. And many of them, we can design in one part but there are also many where we can design in many of our parts, combination of parts we can bundle. And the key differentiation even though recurring revenues we heard are still relatively slow. The benefit of services is that it makes it really unique and so an important element is the focus on the right segments. The second element is to win. So what does that mean? Well, it means first winning the heart and the minds of our customers. And while we do this, we do this actually to win market share at the end, not only market share in the markets we choose to play, but with the selected customers to increase our share of wallet in those customers. Second, we deliver complex technology to our OEM customers that otherwise is very difficult for them to get. And the key word here is solution. You heard a lot about the terminology solution. And we have this discussion also quite a bit within our company, what is actually a solution. And we see it from a problem statement. We see it from a customer point of view. You can try to sell whatever you want to a customer. But if it doesn't solve a problem, you don't really get the value back, right? So the solution from us is actually a deep understanding of the customer problem first, to then offer a tailored solution, which can be one product can be even better a combination of product and can be also the hardware together with services or services only. It really depends on what does the customer want. So focus to win with solutions and we offer high-touch customer experience with service capabilities and competencies that are unique in the industry, and I'm writing here leading. So what we do is actually having a leading portfolio, we call it best-in-class in the eye of the customer to achieve this high touch with the customer. And I emphasize here again, services, again, even though the recurring service revenue is still small, the service element, the product that we deliver with the hardware has an important element to make the whole offering much better. So a GNSS receiver with an assist now service allows a very fast time to first fix for instance. I mentioned before also saving power through an MQTT protocol on cellular because it allows to communicate with a very small payload, right? At the end, the customer data plan that they are buying is cost-effective for them. And so the whole implementation becomes really a leading differentiator for us. And what does that do? It actually allows us to -- because we are in the mind and the hearts of the customers, as I mentioned before, we measure the -- we have a good sense about our customer satisfaction. And we are very much focused to have a very high customer satisfaction. The question was before, if we lose customers, how long we keep our customers. We keep them very long because they are very satisfied with us. Now we expand our reach in the value chain with services. Key point here is selection, selecting the right partners also for services. Why is that? I'm showing you in a second here. But before I do, I want to mention one more point as we are going into solution selling. And obviously, we heard our customers here offer a solution to their customers, we are not competing with our customers. We are enabling our customers with a faster time to market. We make it easy for them, and we have here a leading portfolio. Now why is the selection of partners also for service is so important? This is the value chain, a very simplified picture. We create intellectual property that we are using in integrated circuits. We built the modules that we are selling to the OEM, the end customer and that end customer can buy the service. But we have also in the whole ecosystem, the situation where that particular customer might be a design house who might only buy hardware who will sell the hardware to somebody else, but somebody else is buying the service. So to sell the service, we are having now a larger ecosystem that we are working with. This is more effort, yes, but it's a much higher reward because now we are establishing a very strong brand in the whole ecosystem of the market by working with these partners. These partners then sell the service to service providers. So here, we are expanding also the ecosystem in the markets that we choose to play. Now a key element of our success, a key factor for our success is the structure of the sales organization that we have built over the last 3 years actually. And it is a structure to support our customer base, also a very large customer base. We keep saying we have doubled our customer base from 7,000 to 14,000 in 3 years, and you might think, okay, how can you manage? Yes, we can manage that very well. And this is because we have the right structure in place with very well thought-through concept based on direct sales. So our direct sales organization consists of key account managers but getting in the hearts and minds of our direct customers. So they spend time. So building credibility, intimacy with those customers, making sure those customers are satisfied. We have also the salespeople that work in the target segments that we are focusing on, and we have channel partners. We have channel managers that are working very closely with our distribution channels. So we have about 70 customers that make 80% of our revenues, and they get highest level of attention. But that doesn't mean that other customers do not get any attention. On the contrary, we have to be very selective with the resources that we have, and we have put a lot of resources into making sure the rest of the customer base, the 14,500 customers are very satisfied with us. How are we doing this? Well, first of all, the selection of the right distribution partners. Then we have the right tools, forums, portal, documentation that allows also the customer that cannot be supported directly to get all the answers they need. And I will elaborate on that a bit later. So we have deep engagement with customers to our technical and also sales resources and channel partners which allows us to build a very long-term partnership and closely aligned with our customers' product lifetimes. Now I mentioned the sales channels. This is a key element of the success that we have built a structure here that allows us to manage this large customer base and actually, I think we are just at the beginning. We have doubled the customers over the last 3 years, and I don't think that we will stop here. We will expand that customer base through 3 global distribution partners, Digi-Key one of them, we were able to reach many more customers that we had before. We have about 60 local distributors, we are working worldwide with, and we have 3 global distribution partners. So we have quite an extensive portfolio of channel partners that put hundreds and hundreds of people on the ground to sell our products, and that makes a huge difference. Last but not least, the high service distribution partners like Digi-Key and Hermann Reiter will explain it later, play a very important part to reach out to the innovators of tomorrow. Now we take our customers on the hand on a very rewarding journey. That journey typically starts with the awareness. So we have PR activities. You might have seen the green board outside about health care. So we have campaigns that lead customers to our website. If you have been recently to the u-blox website, you will be able to find many more customer success stories why they choose u-blox. You will find a lot of information about applications and what offering we make into those applications. In the next step, we obviously want to influence the decision-making of our customers, and we do that through [ review noise], through meetings, but very important here is the support portals that we have that our customers can tap into and get the information they need. Now a very important aspect of winning the business is the design-in phase. And that is at the end where the customer decides for u-blox. And here, we have an extensive part, an important part in the sales organization, our technical support. So we are really hands-on with those customers. And I will show you later also a demonstration tool that allows us to actually win the whole content that we can in that particular application because we make it so easy for customers. Finally, the production ramp-up and lifetime management is critical for our customers. They know they can rely on us. We support them in the certification and qualification process, for instance. We support them with logistic programs, EDI, for consignment, for instance. And that finally leads really to a very high level of customer satisfaction that we are able to achieve. And those customers give us also input into our road maps. They drive our road maps so that we are coming out with something really unique. And if you followed u-blox over the years, we were always eager to be one of the first introducing something new. We are always a bit ahead of our competition when you are looking at the positioning, high-precision accuracy. We are the leading vendor in this market that actually allows us to play an important role. You see that later in autonomous driving, for instance. And then finally, cross-selling. So there is always a leading horse that gets you basically into a socket. And if you do everything right with the customer, you can sell a lot along with us. And this is also what our distribution partners have helped us to realize because they are the experts in doing this. And therefore, our distribution partners are important for us actually to sell more. Now good questions deserve good answers. Now why can we support a customer base of 14,000 customers or even more? I want to get to easily 30,000 customers doubling it again. And we will be able to manage this very well. Why? Because we have invested in the right tools. We make it easy for every customer. They all get answers, how? Well, the customer typically is an engineer who has a problem with a particular product. And if it's a large customer, small customer, they all come with similar questions and we make sure that they get the answer to these questions. So we have 160,000 page views in average per month. from engineers. We allow them to get to a support community. We have 3,000 new members each month in the support community. There are 1,900 question asked, but also 1,900 answers given. Answers to give them the best solution recommendations for the problems they face in their design. So there are developer forum discussions, direct access to documentation and that really makes a difference. We have over 4,000 acting contributors over 1 year in these forums. Now I give you an example of a robotic lawn mower and cross-selling and making it easy for the customer actually is nicely shown in this example. If you have a robotic lawn mower at home, you know that if you put wires around, this is actually quite a hassle. So there is a tendency in this market and robotic lawn mowers is one of our growth markets because they require high precision and accurate signals. This high-precision signal can be offered here through our ZED-F9 module high-precision module, but the high precision is enabled through the positioning service. So it's a combination with the service, you get centimeter-level accuracy. And this is a trend in the market. You have robot-like applications where high precision is really needed. Now in this particular case, you want to program, the robot or you want to get information of the robot through connecting with Bluetooth and WiFi right? To kind of program the robot. And this is also enabled here through a Bluetooth WiFi chip. You don't find a microcontroller in here because it's also integrated in our Bluetooth WiFi module here. And this robotic lawn mower is connected to the cloud, providing sensor information, providing positioning information to the cloud. Now this is enabled through our communication service. So you have precision, you have a location service, you have communication service also enabled here. So you see hardware for different modules that we have in this particular application, you don't see the service working. However, we provide monitoring tools here and that is shown also in the picture that makes it easy for the customer to basically really use this implementation, and we're providing also the demonstration and the whole design to the customer. It's a super-fast time to market with an implementation that is second to none. And this is why we are able to compete in applications like this. Now this is the last slide before I hand over to Hermann Reiter here. And this is to elaborate why we work with high-service distribution and how high service distribution has been part of our growth story. They service the innovators and makers that are becoming our shape of customers of the future. Why? Because there is a fast sampling turnaround time with high-service distribution. So customers that want to have certain product they start looking around. And if they can't get it quickly, they go somewhere else, right? And clear, right? So however, we have the right partners that allow them to get the products within hours, 24 hours or something like that, right, that they order, they get the part and so we are nurturing a lot of the design community out there, start-ups, the question came before that we support very easily with this concept. Also, the partners are attaching to a broad innovation customer base. They have deep access into large accounts, important source of feedback vivid contributors to our forum. And a very important part, and this is part of the solution selling, yes, we have a portfolio that we design in into an application, but our partners have also adjacent relevant products that actually make the solution complete. And if we can work with the customer and with a partner, giving our customers the complete solution, even with products outside of u-blox, it makes a real difference. And last but not least, they provide strong commercial and also logistical services and such, we were able to expand our customer base and double it in the last 3 years. And with this, to give you more insight. I'm handing over to Hermann Reiter from Digi-Key.

Thank you very much, Markus. Yes. Thank you very much for having us today on the Capital Market Day and to present our partnership with u-blox. It's a great time together. We started officially in 2016 and obviously, way before we had connections to u-blox and tried to build that relationship. Digi-Key, we are a digital innovator of high service distribution for electronic components and automation products, and we service worldwide. Before I go into the details, maybe we can have a first slide.

Okay. Sorry, I should do it myself, I guess.

Okay. So before I go into details, I want to explain how distribution started for me like 30 years ago. I was a salesman out there like a [Foreign Language] however you want to call it. My territory was Baden-Württemberg scratching very close to the [ lake constant ]. And my car was always full with books driving around the customers and at this one-to-one relationship. Was trying to buy a one-to-one relationship to sell and explain the company I was working there before. And these were the good old days, I would say, where you were able to meet purchasing managers, application engineers, and they were willing to talk to you. Obviously, what matters today, another example. Think that's an example to give you how do we live and breathe today. And by the way, there is no different Internet at home than it is at work. So I'm just trying to allude to that example because that's kind of the thrill we see as a digital company being fully digital without any sales force. Who we are. When Digi-Key started first, our owner, Dr. Ronald Stordahl was trying to sell a so-called DigiCare. He was a HAM radio guy. And he thought maybe there's other engineers and partners out there who want the same high level of services. They want more qualities and better customer service. The idea of that model still exists today. So nothing has changed. Digi-Key is a service customer -- services customers regardless of how big or how small are there needs and anywhere in the world. Digi-Key provides everything needed to make innovation easier for our customers. Digi-Key is a privately owned company, and we -- in the high service distribution industry, as I mentioned, for electronic components and automation products. We are -- we're born in '72 and ever since, we service our customers no matter but only in a digital model. We have no outside salespeople. We work purely on our 54 websites out there in our languages we provide to our customers there. We have about -- we sell in 180 countries. We -- last year, we serviced 857,000 customers, and we believe this year we're going to sell to 900,000 customers. This is not just looking at the web page, it is selling keys, getting money and shipping the products. And last but not least, we are -- this year, we're going to be performing around $5 point-plus billion revenue with about 2,300 manufacturers worldwide, one of them being u-blox, our preferred partner, of course. Distribution is out there for a long time and redefining high service, I think, is a big word. But there is a new generation and the e-commerce needs a change in a redefinition of distribution and high service. Why? There's a study out there from AspenCore. And the question is to the engineers, what are the modes used to learn about product and technologies and if you can see these rankings here, they represent 2020 and 2018 or by 2020 is the red and the bottom is 2018. And it shows you the change. And if you look at the first of the six answers which were highly rated from the engineers, what they use to learn about new technologies, they're all digital. There's no face-to-face. That all happens in the back scenery sometimes maybe 2:00 in the morning. Even so, others like social media and online forums equally perform in the same way. That's why earlier, Ronald said there is no different Internet at home than it is in business. I think that's pretty straightforward. Looking at the life cycle of the overall product. And I think the concept of long tail, I think we want to keep the design engineer in the front, and you can see the design engineer the speak to market. In the middle, you see the purchasing professionals. And on the end, you see the maintenance of the engineers. And I think Digi-Key tries to play in all that areas. And I think we try to provide a service in all the areas and to position products like u-blox in an earlier stage possible with a design engineer. When we talk about concept, proto as you're serious or ramping, we believe that 60% to 70% of the decision is made when the customer goes and buys a product at the website. And hopefully, then they'll buy a u-blox product, obviously. So we are enabling the world of ideas from concept to end of life. You can also see in the back end of the chart, you see the cost of downtime when you talk about MRO, which is maintenance, repair operation or end-of-life service a long tail, our business is based on inventory. We support that processes well from supplier and product content to application. We do -- we provide them with learning and seminars. We are supporting universities, we are supporting webinars, of chat blogs, whatever is needed to basically reach the customer at any time of the day, 24/7, 365 in all languages around the globe. And I think alongside furthermore, to support the customers with so-called EDH tool, these are development tools in order to talk to them when they then start the design and make sure that we are able to help them when they build their prototypes and the PCBs. The idea is to have all the data on the fingertip at 2 a.m. in the morning without asking -- without talking to anybody. As I mentioned, we do not have our sales force in the field. We purely digital operator of our websites. Talking about distribution, maybe giving you a little bit of a sense how we see distribution overall or how distribution plays. Distribution must balance their financial ROI, the working capital investment and the service levels and support customer needs. I think that's something you know best, particularly at the financial side. And such as stock availability based on our partnership with u-blox, that's an important piece to our overall system. I'll show you the ecosystem of distribution today, and there is 2 areas. One is the volume distribution and one is the breadth of customers and the smaller range and obviously, the ecosystem today, there is a typical customer distribution from left to right. We have a small -- a big customer on the left side and the smaller customers on the right side. And there are obviously companies who service the bigger customers themselves in a direct sales channel, then you have volume distribution, who basically goes directly for these big customers. And then you have specialists obviously in that area. And then you have the online channel who goes from who sells to everybody. So for us, it's not important what the customer does. For us, it's more important to assure that the customer has a good user experience and the customer is able to buy the product whenever he wants in a seamless way. We support the long tail of the customer overall. And then there's other players coming to play like marketplaces and Digi-Key plays in both areas, to support adjacent markets alongside our products, what we have in electronic and automation products. But there is more to it because they are more machine-to-machine connectivity needed via APIs, EDI or other mechanisms that our software partners needed these days to basically talk to the ERP systems of the OEM customers. So how do we talk to them? We need these partners to basically support the overall ramp-up and the communication phases. We believe there must be also a strong balance about price availability and the user experience. This leads obviously to the decision-making on the end. And this is for our customers and for our partners on both sides, suppliers and customers as they select the product. Here, I try to illustrate the prototype to production journey from left to right and what a typical customers go through over time. So reads an article, watches webinars, looking for parts, solution collaboration, request for quote, complete an order, sets up EDI, and that's the journey of a typical customer. And that is, by the way, happening 24/7, 365 in addition in all regions in the worldwide countries, obviously. And there is a study from Roland Berger about the competencies of digital distribution. I think that goes without saying that the important piece here is the content never out of stock. Things like sell across the channels, omnichannel availability and making sure that you have the right customer relationship. And last but not least, the data is a key to these customers. So you need to have the data, but you also need to know what you do with the data on the end of the day to support the journey of the customer. So our model is data-driven to make sure that we offer the right compelling products to the customers, and Markus alluded earlier on, it's a system selling, cross-selling to make sure what do they need when they build their products, what do they need when they build their mowers and so on. How does the future looks like overall? We believe there is a -- we did some innovations overall for Digi-Key, where we're excited to share that we have built a massive warehouse out in Thief River Falls where the company was founded, which is in the North of Minnesota, just South of the Canadian border. We build a 2.2 million square feet warehouse, 240,000 square meter warehouse to have inventory, and this is second to none best-in-class automation where we have a product to picker system. We built with an Austrian company, by the way, trying to be a step ahead of our -- of the journey to assure that we have many more suppliers coming to us and bringing and supporting the volume which u-blox is going to bring along over the course of the next decade. So very interesting for us. And as I said, for us, inventory is key and is the bread and butter for our business. So the capacity will help us to drive to the next level and hopefully to help us to be sustainable moving forward. A little look ahead on where this market is headed. It's not only the component but the overall solution as we heard earlier on, there is the data plans. There is a huge activity from our side in the automation and control market. We strongly believe the component market and the automation and control market and the IT market will move together since they all want to go to the cloud. I think that's all their aim on the end. So we believe there is a strong market where we can expand to, and we want to support the full bill of material. We are not positive. We don't want to define who is the next mower or the next cow -- non-fenced cow, on fence, Nofence cow, that's not our question. We got to make sure everybody gets treated the same great user experience. They buy the u-blox products plus maybe a couple of a bit more in the back. And then over that, we're trying to be available for a one-stop shop. And I think that's our engineer one-stop shop with a trusted experience. One-stop shop, I think that's a key driver for us because in Digi-Key, inventory drives sales and not sales drives inventory, and that's a very different model to -- so obviously, to the investor community, which we -- is probably where we are still privately owned, I guess. Thank you for overall. So yes, we'll collaborate and partner for mutual success together with u-blox. And I think we have a bright future together. As I mentioned, we are now a $5.2 billion company this year. We grew 80% over 2 years we're going to be hopefully reaching next year, 1 million customer which you will sell to. And I think, yes, -- what else can we do together? We were always thrilled to be together with u-blox. They are definitely our partner of choice. And yes, thank you, Stephan.

That was a very nice closing, I might add. Thank you, everybody. And thanks for mentioning that you are privately owned. So no distraction from this Capital Market Day. Thank you. So I know we are a bit out of time. We try to manage without any huge delays, so we compress a bit. So Markus and I step in for Andreas Thiel now, who was supposed to explain you a bit how we develop and what comes out of it. Now let's start a bit with the how. So in general, you can see this going on a bit as a surprise because talking -- you are dealing with a high-tech company, so you expect very rapid cycles but our product life cycle is rather 15 years than what you might expect in months or something like this. And the reason for this is due to the complexity of technology, it takes roughly 2 years, 1 to 2 years to come up with really new concepts, then up to 3 years to develop new products. And then the products are in the field around 9 years. And this makes up a rather long product life cycle. We do this with roughly 850 engineers skillfully in 18 development centers, and we spent roughly CHF 100 million and the obvious question is, why do you have so many development sites for those engineers? And the answer is twofold. First of all, we mentioned we acquired quite some companies. And with the companies we acquired them because of their knowledge and it's in the people and you do not transfer knowledge easily. And the second thing is we -- we can hear its talents are very tight. And for this, we see there's a big advantage that we learned how to operate in such a de-central organization and it works very well. I'm very impressed by this so I see it as a clear advantage. We can hire talents where the talents are. They don't need to necessarily move to Thalwil in any case. Now if you sum this up, what we invested in R&D, it's quite a lot. So the number what we invested in R&D over the last years or last decade and a bit more is roughly CHF 1 billion. And the reason why we do this continuously is, obviously, we want to be on the market first with leading products. And yes, I know CHF 100 million above is quite a lot of money every year. And we also said a 20% R&D spending. This is where we think we are. But of course, we work very hard to bring this down, work with distribution partners to get more business for the same products and in this sense, improve also our ratios especially in terms of R&D. And you see in the last years, we made quite good progress on this topic. With this, I would like to give you another view of how we spend R&D. There are 3 horizons where we could look at a little bit in a different way. One horizon is maintaining products which we sell currently. Now you might ask, why do you spend R&D on products which are already developed. Two main reasons. First of all, we work on cost downs continuously and this is possible very well, for example, reducing testing times of those products, it saves money. And the other thing is, Markus mentioned this several times, we exchange chips, which are not available with other ones and provide the same module with the same functionality for our customers so that's a very big value. The second big one is this the black part of the circle of the left-hand side is really new product development. This is what you expect where we should spend the money. Maybe also interesting on the right-hand side, majority goes into platforms. Those are the big topics which are used over many applications. And then, of course, software to make those systems work and also adapted to certain customer needs. And with this, I would hand over to Markus on the second part of the...

And you have seen this slide before. I added in my first part, but now it's equipment parts with products. So this shows the u-blox solution here where we deliver a chip to cloud implementation. On the positioning side, precise and accurate, the M10. I mentioned it before, we had a record ramp this year because customers needed parts. They are in the market, we have a very solid and robust implementation of SARA-R5, our own cellular module, Cat-M1. As mentioned before, we have been always trying to be the first in the market. Yes, we don't have a huge market share for cellular overall markets for all products, but we have a significant market share with Cat-M1 because we have been the first one, plus we are able to really differentiate in this R5, which is on the very right side, we make it simple and efficient with security as a service because the R5 cellular modem has security built in. And last but not least, it's effortless computing at the edge with the u-connect express. So we have a full end-to-end implementation here that actually makes it easy for the customer to use high-precision connectivity, a high-precision connectivity implementation, which is also secure. Now an important area of growth is the assisted and autonomous driving. This is an ideal place for us because there's a lot of innovation happening. And we are in every second -- we are out of 2 vehicles has u-blox GNSS solution already today. So customers know us. We know customers very well. And also, we have the positioning IP developed in-house. So therefore, it's not a surprise that our solutions are already in the market with major Tier 1s for first ADAS Level 3 vehicles. Now a complete portfolio of chipsets and modules that are spanning from standard precision to high precision and now integrity also together with a correction and the system service. This is a unique offering and there are not many actually, there's no one else who can offer this today in such a form. It's high-quality, reliable. We are following automotive ISO qualification with a structured product life cycle, high accurate, secure and trustable, a really true differentiated offering in autonomous driving. You heard Thingstream before, and this is a platform. Thingstream has been a company we acquired and we acquired them because they have developed a service delivery platform a platform that allows us to delivering today all the services that we offer to the customer. And so it's a one-stop shop solution. Again, making it easy for customers to adapt to our offering. So it's offering the IoT communications, security, location service, all through 1 delivery platform. Can connect everything, easily connect, manage IoT devices, including the online services. At the same time, we offer a flexible plan -- flexible data plan, simple pay-as-you-go pricing, tailored to suit the customer needs with a data flow manager, making the programming interface very easy, simple enterprise integration, and enterprise grade. So auto scaling technology proven to support billions of messages, a really true differentiated service delivery platform. Now there was a question of recurring revenue, and this is an exciting chart that I show. Even though on a very small scale, we have seen actually this revenue growing over the last 2 years? And why is it building up? It's building up because it's recurring revenue, but it's also cumulative over lifetime. And so while on the great part, you have the hardware revenue, once the service is enabled, right, it adds on and on, and that's actually cumulative on the underlying hardware. So we offer here the communication as a service, location as a Service and security as a service. Now recurring project revenue can achieve, obviously, a very high part, can maybe subsidize hardware, but we are not yet there. It's not to the level but we have customers who choose us also because of the service products and are eager also to buy the hardware alone. And with this, I'm handing back over to Stephan.

So thanks a lot, Markus. And I would like to share some insights about long-term trends and our strong market momentum for the key markets we are in. In Industrial, we know that the market is extremely fragmented. But nevertheless, there are a few overarching themes, and I would like to highlight those. So one of them is our customers their products, but increasingly, they also sell services to their products. Quite often, over the year, they offer updates, so the product gets better over time. With our Thingstream platform, which was just mentioned before, we support this with communication as a service, positioning as a service and security as a service. So we benefit from this trend of our customers to add services to their portfolio. Second, remote monitoring and increasingly also autonomous operations or at least remote operations become more widespread, both in classical industrial applications, but also in health care applications. This becomes affordable, it becomes reliable. It is safe. With our positioning solutions, our safe positioning solutions, with our connectivity, we also contribute to this and therefore, will also benefit from this. And third, I mentioned now several times already, connectivity. It's an even more overarching trend in that the addition I need to make is a scalable connectivity meaning you need at certain points a low-power devices, connectivity devices in the next moment, you need a bit more data bank with scalable connectivity is also a key trend we participate with our connectivity solutions, short-range cellular in our services. Now talking about this, it also answers one of the questions, how do we develop products for a fragmented market. We look for those themes which are common and then optimize our platform development in this area so more than one application can benefit from this. Now talking about connectivity, obviously, there's a question of 5G. So 5G and more advanced WiFi standards is 6 and 7, the very good adoption, especially in high data rate applications. For Internet of Things applications, the data rates are lower and the power requirements are more stringent and with the current low-power wide area networks solutions, which are there, it's currently a better fit and 5G adaptation in industrial or IoT applications will come a bit later than in the cellular phones on the high data rate applications. Nevertheless, u-blox benefits from the introduction of 5G because our highly accurate timing chips, which are market-leading and appreciated highly better network vendors, are used in the base stations as a timing reference. And therefore, already right now in this area, in the network infrastructure, we take part of the 5G introduction, and we benefit from it. Now we talked now a lot about smaller customers in the start-ups, and I would like to add another example of a startup, a small German company called Thingfox. And we do this because it uses all the competence what we have in their idea. What they do is they provide tracking devices, which are robust and come in an attractive package. They use our connectivity solution. So our cellular connectivity solution. They use our Bluetooth to update them over their equipment, and they use our GNSS modules. On top of this, they use our services, and this made it easy for -- or easy and doable for Thingfox to develop a product which, on the one hand, they can rely on, that it works, so it takes out development risk. On the other hand, especially talking about communication services, they can rely on u-blox to make sure that this service is available for a long time. And therefore, it's no wonder that especially in positioning, we see a huge growth in volumes in the industrial space, 40% is predicted as a volume growth until 2026, which is an incredible number in one of the core markets of u-blox. Now turning to automotive. The car of the future will be self-driving and electric. It will also be software defined and it will be upgradable over the year. Also passengers will connect to the car and personalize it to their experience and with our highly reliable positioning and connectivity solutions, we clearly benefit from this trend in automotive. Now talking about autonomous driving. It gets interesting once you can take off your hands from the steering deal, meaning at least for a short time. This is level autonomous driving level 2+ and above and as you can see from the chart, there's a huge growth coming within this decade in exactly this area. Now in autonomous driving, you need to know where you are in absolute terms. And GNSS is a very safe and reliable solution to determine the absolute position in a car of a car within centimeter accuracy. U-blox is in this area since 25 years. We are a trusted partner of automotive Tier 1s and OEMs and we have a very well set up and already first customer accesses who support autonomous driving. We drive this 1 step further. We last -- we just announced a partnership with GMV. GMV is a Spanish company, a Spanish system and software company, which has a lot of experience in safe positioning solutions. We jointly target to reduce our customers' development effort and risk by a joint solution for the automotive safe positioning. Now we talked about partners before. We talked about distribution partner. There's another aspect of this. Serving so many customers it's helpful to work with partners, which complement you. And here's one example where NVIDIA integrated one of our positioning modules in their autonomous vehicle development platform. This helps our customers to evaluate quicker -- if this is a good technical solutions for their purpose, it reduces their development time. And for us, the benefit is we get a very good access to an even broader customer base. Now Markus already mentioned, we are on the street in many cars. And I just want to underline this once more. Our solutions, especially ours in automotive are on the street. We are an appreciated partner of traditional auto players but also newcomers and start-ups in this area. Here is one example of Li Auto, which integrates one of our modules for their ADAS solution. So summing this up, we have some very exciting trends in our market space. And with our competence, with our technological strength, with our culture for innovation and with our reliability, we will benefit from those in future. Now this goes hand-in-hand with another topic, the way what we do in our business and how we do our business, must sustainable -- must be sustainable. And I want to give you an idea -- a short idea how we approach this. Basically, it was -- again, it falls in 2 categories. With Internet of Things as a very important application, our products help to improve the sustainability. And there are many applications like health care or fleet management, which can show this. On the other hand, also the way we do business must be sustainable and we are absolutely convinced of this. And therefore, we also signed respective UN Nations agreement. Now to make it manageable for us, we have 5 activities within our customers. We focus on business ethics, employees, environmental responsibility, supply chain responsibility, as main themes. And what I would like to highlight are just a few examples. Of course, there are many, many more what we do so that you get an idea that we take this serious. Now if you look on our components, the components which we develop are considered by our customers as very reliable and they do not plan very quick exchanges. And this is an advantage. There's even 1 more aspect by our focus on upgradability over the year with services, we prolong the useful lifetime of those products. And of course, even during development, we already consider how the products are going to be produced and will be used. And to give you an example, fleet management, which always needs a positioning, the chip for positioning -- production of a chip for positioning takes 50 grams. You can say 50 tons. And of course, there is more needed to do this. This is absolutely clear to me. But this gives you the perspective about the lever you have with semiconductor products and our modules in the market. And then there's another one, which is very important for us as a company. And we do not say this because it's currently a bit the trend of the time due to this traumatic war in Ukraine. Already in 2002, u-blox had a very clear policy that our products should not be in any weapons, and we do a lot to prevent this. And of course, we reinforce this now through the -- due to the recent events, but it's in the DNA of the company. We do not want that our products are used in weapon, and we do a lot to prevent this. And with this, I would hand over to Roland to take over in this case, Thomas' part about our guidance.

Thank you, Stephan. A few words about full year 2022 guidance and our long-term ambitions. I mentioned it already in the first part. We stick to our guidance we gave in August -- on 19th of August. The plan is to have revenue growth between 46 and 54 percentage with an EBITDA margin between 22% and 25% and an EBIT margin between 16% and 19%. This is how we can stick to that, of course, because the content extension in the automotive, there is more and more content going into the automotive-s. We have an expansion on the industrial IoT product, also has the ramp-up with new products, looks very good. And with that, we can make this prediction and stay with the prediction we made already in August. This is also supported the supply constraints for electronics components are gradually to ease. And this said, it's not only -- it said, it's not finished. The component supply still remains constraint for certain components because the fabs are still overloaded for critical components. For example, our chips are mixed signals, so analog have an analog and a digital part, which is combined and such chips are manufactured with trailing edge technologies, that means above 28 nanometers. We, as u-blox use only one chip platform, which uses 28 nanometers. But with that said, this technology is still short, so the fabs are full. So the supply is not as much as the demand is in the market also for the long-term future. And what are our key strategic initiatives? The strategy we have defined is on track. So we are, on one hand, broadening our sales channel, tapping more market potential, increase our share of wallet. Then another initiative is expanding our product offer. So with new products, more solution granularity, enhance our focus on more promising applications and becoming in these markets, also the market leader. And another initiative is all with autonomous driving, the safe positioning engine, correction data, [ all the passwords ] here in this strategic initiative. So on the longer term, continued revenue expansion is on site. What you see here, starting from the full year 2020, we have 24% growth to -- in 2021. And now the growth for 46% to 54%. But this growth will continue also in the next years on -- as we have a continued expansion on -- of the digitization in the car as we have low-power solutions allow us to expand into variables. We have an ongoing trend for smart industrial devices and also our solution capabilities, which Markus explained before, will give us an option to grow. The key investments for the future to become market leader in industrial IT with the strong revenue growth. Our financial model is proven with long term resilient model, high innovation. We are fabless. So with that, we are independent from high investments into production itself. And u-blox has had and will have also in the future a reliable dividend policy with a robust free cash flow also for the future. So with that said, what are our ambitions, not our guidance? It's our ambition is to get -- keep the gross margin levels at around 50%. This is doable through product mix and price increases. We have seen in the past, and we will also see in the future. Our OpEx R&D keep them as an agile organization below 20% and on sales and marketing below 9%. And with that, we are through all presentations, and I open the forum again for some other questions to the second part.

So any questions?

Two questions. I think recently, Infineon shared a view on the market outlook for next year for the Connected Secure Systems segment and the industrial IoT end market to be rather challenging next year given the macro environment. Is it something that is -- like well that can be shared with you as well? Or is it a view that you can share as well for your industrial IoT end market?

Yes. The problem with industrial IoT is, it's hundreds of different applications. So I do not want to comment on Infineon's statement even if I were there for a long time. The situation for us is -- might be different because, of course, we are in the same macroeconomics. But it's always the positioning that's a megatrend, and there are more applications upcoming. You see those startups what we presented today. They all start very small, but the numbers all of a sudden can go up very, very increasingly. And so we have the 2 effects in classical applications in which we have there. So industrial automation, health care, the share of content is growing. And then on top, we have newer applications in addition. Those 3 start-ups we mentioned today are good examples for this. And then looking at our books, I cannot give you an outlook to our revenue, but the market dynamics over a larger time frame might be different due to the fact that we look on slightly different segments than other companies.

Okay. And the last slide, your ambitions, the numbers that you presented, does it mean -- implied mean that you have an ambition to have an EBIT margin of around 16% to 17%?

You can do now a calculation, gross margin 50 minus 20, R&D minus 9. The Sales and marketing is 29. So we are at 21. Then you have to add something for G&A, assuming G&A is somewhere between for 3% and 6%, then you end up with the EBIT margin. That's in the calculation, yes. But this is just a number. It's -- and it doesn't help to have an EBIT target because we -- the target -- that's why the ambition is said on R&D and on sales and marketing and not the other side because especially the G&A part is influenced by many things which you have no influence to. So therefore, it's better to have these 3 targets than only one EBIT target.

Sorry, maybe just again on your guidance for the second half indicating quite a sequential decline in the fourth quarter compared to the third quarter. I mean, we don't have any historical information regarding the quarterly trends. But is there a certain seasonality? So is it normal that Q4 is weaker than Q3? I'm not sure whether you know the numbers or can comment on it. And this decline, is it -- I mean you have a very high level of industrial and automotive sales, but you are still seeing this decline. Is this the pushouts and cancellations that you were also mentioning? And is this more in consumer in some parts of the industrial areas?

First of all, no, we -- it's not the seasonality. So we have not -- so a seasonal way of what, quarter-to-quarter. But it's just by occasion, next year or this fourth quarter is 5 days, working days, less working days than the third one. This third quarter was very good. So this leads to the fact that in all, let's say, negative, so to say, comes into the fourth quarter. But it's not a seasonality that you could say, okay, every fourth quarter is now -- is below the third one. That's not the case, at least not in the past.

So the pushouts and cancellations are not that significant.

No, it's not push out or cancellations now in the fourth quarter. For sure, the -- there might be some cancellations there, which could have happened in the third one, but now happens in the fourth, but have nothing to do with that.

Just asking, I've been following u-blox for many years already, and I cannot recall that before the last 2 years, you've used the order book as a criteria to tell investor community that your business is doing very well. So maybe you can just give us an explanation of how should we really look at your order book? I mean I would understand that now you have long lead times, but I would understand, usually, this is rather short in a perfect environment. So what should we read from an order book that is 8x higher than pre-COVID? What does it really mean for us? I don't fully understand that because in the past, has never been a number that we paid attention to.

Maybe Roland or...

Yes, I can comment on that. Well, there hasn't been a situation like the last 2 years, right, in the past. So I think we are looking here at a very special situation. Now it's always good to have a good order book if customers -- or a high order book if customers actually want the parts. And we are very confident about that order book customers want the parts. And we are seeing that we are getting more supply that lead times are going down so that we can actually fulfill a big part of that order book. And what we don't deliver this year, we will deliver next year. So also we have been able to find agreement with customers who are still very concerned about the long-term supply, like noncancelable orders in return for agreements of supply, right? And that allows us also to give stability, right? I think the message we want to give is we have a stable order book here that gives us some positive indication.

And maybe just the second question, is just 1 to that as well. I think the second message behind this order book is also that now are with up going up lead times not only on our supplier side, but also on our side, we have still customers who have now ordering earlier, this gives us more visibility also into the future to tell, okay, we are -- we know not 6 weeks ahead what really happens, we might know it 3 months ahead or even 6 months ahead.

So you want to say what you want to say some of our customers learned their lesson. And yes -- I mean, we cannot generalize this. But for sure, there are strategic thinking customers out there who they -- we buy -- we built very big and expensive machines in the -- that we cannot build the machines because there's a comparable cheap part missing. And I don't want to generalize, but for sure, there are such effects in the order books, which should remain even if situation on supply side eases.

And maybe just 1 last one from my side. Is there any kind of a cluster risk in your revenues because we used to see, for example, the shared bicycle topic in China when the business suddenly break away and you saw that on your revenues. Is there anything in your business that you would say could be -- as an overarching theme could be at risk, if anything changes? The example is really shared bicycles. Maybe there's something similar that you could say, okay, this breaks away, 10% of our revenues is gone, for example.

I would not see anything which is such a huge cluster. Of course, you can always draw scenarios where all your businesses is scanned. But if we look on what Markus presented, the number of customers, 14,500 customers, you -- there is no big cluster risk visible or 70 customers for 80% of the revenue. Usually, distributions are very different there. So I would rather say from this perspective, it should be rather resilient. Of course, there are other effects, which we watch carefully and especially on the supply chain side to make sure we remain as resilient as we used to be in the last years. But from the business, I don't see a huge single cluster risk.

I maybe have another question. And this would be about your connectivity and data safety business. What I really cannot understand what differentiates you in this part of your business. And maybe you can explain it with how you made it into the base station for charging because it does not seem an obvious business for you to be in. How could you win the business and what brought you into charging stations?

So in these charging stations, I mentioned WiFi, and I also mentioned cellular. And also with the different cellular frequencies, you need to make sure that the WiFi Bluetooth is actually working together with cellular in such an implementation. So there are certain requirements that requires us to adjust the product to make it work in a charging station. So it is, again, as I mentioned, the understanding really of how such an implementation works to actually have adjustment in the product and making it work for the end customer, right? So they can come to us. They can buy the cellular. They can buy the WiFi, and they can make sure that both working in the same station works. It's the same also now adding the service capability on top. And I showed you the lawnmower application. It also has a WiFi. It has a cellular implementation. And what I haven't shown you is also that we build a glue, which is what we call the UBX lift drivers to make it really easy for the customers to actually adopt here to all part. So it is an adjustment of the road map towards that particular application and make it easy for the customers to work with us. Does that answer the question?

Serge Rotzer, Crédit Suisse. I only have a few questions to understand that I understood it basically. You mentioned a record high backlog. So the current backlog today is higher than in August, we increased the guidance because you got fab capacity. This is correct. So even if you have been working down your old backlog when you increased guidance in August, today, it's higher. It's a record high backlog.

It's a record high backlog. The question is what do you compare relatively. I don't really know what to say, if you look at the backlog we went into 2020, 2021, 2022 and now 2023, it's a record backlog.

So you compare this with November 2021.

I don't know what relates to -- I don't know but I'm saying it's a record backlog going into next year. But it's...

But it's probably lower than you had in summer this year.

I don't remember the number that we have in summer compared to now. Also in summer, we had a record backlog. Already beginning of the year, we had a record backlog. But I mean, you can compare it to a certain reference, but I can tell you that when we went in 2022, right, the order book we have was smaller than the order book now going into 2023. That, for instance, I can compare and I can say it's high, it's a record in a way. We never have...

You've got capacity in summer. This is why you have increased the guidance and then you were able to work down or off the backlog.

We increased the guidance because we saw -- we decreased the guidance for 2022. We do not increase the guidance for 2023. We have not made that. We increased the guidance for 2022 because we see that we are making more revenue in 2022 than expected before. Part of it of this revenue is coming from backlog in January, right? Part of it is coming maybe new into backlog already in June. Maybe also part of it might come into backlog in July or August. And -- but is faster delivered for whatever reason. Maybe it's a very good business. We get all the components and so on. So the guidance updates have not -- are not directly linked to the backlog. The backlog just tells you, okay, there is business out in the future, and this is our orders we have now in our hands and we know to deliver at a certain point in time. What the guidance tells is the guidance has -- we have orders in our hand, which we are also able to deliver. And delivery does not only depends on the order, it depends also on the supply situation that we really get it. So if a wafer fab, for example, tells us, hey, you've got another 100 wafers, okay, I'm able to deliver order. The backlog does not change, but the guidance might change because I was in an assumption that I don't get this and therefore, they'll make this order now. So the guidance change is not directly linked to the order backlog.

Yes, but over time, when you get capacity we will double the backlog. So sequentially, this is what I assume the backlog is lower than in some...

That's right.

Okay. So at the end of the day, you mentioned by yourself, so fab capacity is still a constraint. So basically, you don't get more capacity today. So even if the backlog would be really record, then you can look -- sorry, I don't want to overlook -- But then you can't -- you could not grow more than this is the capacity you get. So this will be the run rate what we have seen now over the last 2 quarters or so. Or let's say, the Q3 is a good run rate proxy because you got the capacity, the most capacity of the year.

I like your questions. You try to get a guidance. No, no, no. I understand. So I think you cannot tell what is a good proxy. I think what you just summarized that if you look on 2023, then we have what Markus has mentioned a record backlog for the next year at this point in time. We don't know on the top of my head -- at least I don't know on the top of my head how the backlog for 2023 was in August. I just don't know.

Let me ask you then, did you get more capacity today from your manufacturer -- chip manufacture or not? Could we see more capacity you receive going into next year?

The indication is positive, yes. We assume that we get more and more capacity. Completely unconstrained? No. But we get more, yes.

Maybe just on the automotive design wins. You showed that you were part of the reference design of NVIDIA, but then it also translated in a design win then at this Li Auto 9. So is -- could you remind us what's your dollar content for -- with a chip -- a high precision chip in such a car? And maybe also how -- whether the -- it's the same Tier 1, I think expand you also or shaping also got the design win? Is it the Tier 1? Or is it the car OEM? Or has one -- Tier 1 chosen you that you end up in all of those NVIDIA-based platforms?

So first of all, I must avoid a misunderstanding. I did not say the NVIDIA platform went into the...

I checked it. It uses the NVIDIA platform, it's the drive haul that's used in this L9 that you showed with your chip, I think.

This still might be the case, but I was talking about a specific NVIDIA development platform and I do not know if exactly this one was used to this, I just cannot say. But the concept is still very valid, and it would be nice if it would be exactly like this. The second thing we need to say is, in this area, carmakers take much more responsibility than in the past. So they take really on critical systems and autonomous driving is clearly a critical system for them, they decide over the value chain or at least they heavily influence over the value chain. Now if you look on products in this area positioning, so far, autonomous driving positioning is absolutely a core topic. Then very high safety regulations. We are doing here a lot and we have a track record even in the safety applications. And therefore, car makers directly influence. Sometimes they take a direct decision, sometimes not, but sometimes they leave it to the Tier 1. In the example, what you mentioned XPENG, I do not know this specific case, but they spend a lot of effort themselves on those topics, and I do not -- cannot exactly say -- tell you what part of the decision was taken by the Tier 1 and which by the OEMs. But in general, this is correct. On the dollar content, I think we rather would take this question with us and think a bit how -- what is the best way to communicate such topics. I understand your question, but I think we cannot answer right now.

We have still a couple of questions from the chat. Harry Blaiklock, from UBS is asking, can you give any color around pricing in 2022? And what trends you see around that going into 2023?

Well, I think we cannot comment in public about our pricing policies.

Then also Harry Blaiklock. Apologies if I missed, but please, could you provide a bit more color around the supply resilience on your part? And what exactly it was that enabled you to take share while competitors were able to deliver products.

I think -- so the -- indeed, right? So if you cannot deliver, right, customers are desperate to look for alternatives, right? So in our case, we have a certain market share, customers came to us and said, can you offer something else. So we were able basically to secure our business in that case. Now there were other cases where we were able actually to deliver an alternative by product development. We spend a lot of money on developing new variants in -- on the GNSS side, for instance. And also, we have competitors that have cloned us in the past and couldn't deliver. So the footprint was the same. So customers came back. And we won the design, for instance, right, because our competitors couldn't deliver. So on the GNSS side, we have really a very fast footprint. And the modules that we are offering have almost a standard achieved in the market where others have adjusted here to our footprint. So that allowed us basically to gain in that particular case, also, again, more share.

And also from UBS, Francois Bouvignies, R&D OpEx has been stable in the last few years. How should we think about it going forward in the light of inflation?

On the long run, R&D OpEx, we try to keep the level. But on the long run, we should expect that a very slight decrease on R&D OpEx is occurring. And due to war complex, future products will also create more effort, but we try to keep our level and our -- we have at the moment. So if we say we are in R&D OpEx and ambition to be below 20%, this is the level we are today already. That means with increasing revenues, also number-wise, increasing R&D OpEx.

Then Stephane Fraenkel from Groupama Asset Management asks a follow-up of the question regarding connectivity and data security business and the example of the charging station. Is it fair to say that these areas, your technology is less differentiated than positioning GNSS?

How shall we best answer this? Obviously, we are talking about communication standards. And one must fulfill the standard, that's the whole idea often standard. When it comes to products, then customers quite often have specific requirements in GNSS, for example, super accurate positioning and low-power consumption. And there, we -- this is how we started the company, and there we have a lot of IP, and we are very differentiated here. In standard connectivity applications, this potential is a bit lower. But nevertheless, it's there because as Markus mentioned before, sometimes you need a specific combination as products in a module. Sometimes you need the customer appreciate if there is a service already combined with it, sometimes the customer needs the option to upgrade positioning accuracy later in the field when their customers buy this. As -- nobody can offer such a complete solution as u-blox can. Also in those area, I would say we are still differentiated in this area. And we see this by many customer examples, which -- where the customers appreciate exactly this.

Then David Sachs from Hocky Capital. Question to Stephan, what aspects or aspect of u-blox business most attracted you to joining the company?

That's a nice question. So what attracted me? u-blox has an incredible strong technical base. And I'm an engineer myself, I come from a very technological-driven company, and this was a very good aspect that the company is so technologically strong. And in my opinion, second point, addressing the right megatrends in the market. So that's a great combination. I would say what really might made the last piece of the decision are the people. I mean it was a great pleasure already during the interviews to talk to the people. And after a few weeks, I only can confirm this. This is a company culture where innovation will prosper. And with innovation prospers, our joint business should prosper.

Thank you. Then [ Jeffrey Meyers ]. Do you feel your use of multiple fabs helped you gain share where competitors could not supply?

Yes, this was one effect, but the major effect was, as Markus mentioned, we were flexible on a module level and agile when customer needed a new solution. So it was 1 effect, but not the main effect.

Thank you. And those are the major questions. The rest has been answered during Q&A.

Yes. Before we close, then, I mean it's really a pity that Thomas could not give this presentation. He spent so much effort to prepare it because basically, this was, I would say, his story. And I would -- yes, Andre is coming and wants to say something. But before he does, I would like to underline that I highly appreciate the enthusiasm how Thomas prepared this Capital Market Day, and phased me in as incoming CEO and thanks to the colleagues who saved me today because I could not cover every part of the presentation.

That brings me as the Chairman to the end of this presentation here and how proud, obviously, can you be as a Chairman of a company to see when the CEO drops out and the crew takes over, and that in an environment where we have a succession planning, where we have the new guys coming in. And for a moment, when we accompanied Thomas home, [ Torres ] and I expected him to have orchestrated that on purpose, which obviously was not the case, but it was very well done. You see how we do successions at u-blox as with 40 years plus experience in high-tech industries. I know that as a high-tech industry, you have to be very agile in development, in bringing new products, but you have to be very stable and slow and with some inertia when you give authorities and competencies to the management and that is what we tried to demonstrate here. Thank you very much for coming, and Sven...

This is not really the end. I would like to thank all of our great presenters. So Stephan, Roland and Markus as well as Thomas now in absence. And special thanks to Hermann Reiter really great that you've shown us how high touch distribution is working. We would like to invite you to stay with us for another 20 minutes, half an hour. There will be an upper road directly out here. And with this, I saw already some of you morning. Have a nice day. Thanks for joining. Thanks for all the participation and see you next time. Thank you.