Audience's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 2.13 | About: Audience, Inc (ADNC)

Audience, Inc. (NASDAQ:ADNC)

Q1 2013 Earnings Call

May, 02, 2013, 04:30 pm ET

Executives

Suzanne Craig - IR, The Blueshirt Group

Peter Santos - President & CEO

Kevin Palatnik - CFO

Analysts

Harlan Sur - JPMorgan

John Pitzer - Credit Suisse

Brian Modoff - Deutsche Bank

Jay Srivatsa - Chardan Capital Markets

Brad Erickson - Pacific Crest Securities

Operator

Good day ladies and gentlemen, and welcome to the Audience, Inc., First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded.

I will now like to introduce your host of today’s conference call, Ms. Suzanne Craig. You may begin, ma’am.

Suzanne Craig

Thank you, operator. Good afternoon everyone, and thank you for joining us on today's conference call to discuss Audience’s first quarter 2013 financial results. The webcast of this call can be accessed through our website at audience.com and will be archived for two weeks. Today's call is been hosted by Peter Santos, President and CEO and Kevin Palatnik, CFO.

During this conference call, we will make forward-looking statements regarding future events or results of the company. Actual events or results could differ materially from those projected in the forward-looking statements. Please refer to our SEC filings including our most recent Form 10-K which contain important factors that could cause actual results to differ materially from the forward-looking statements.

In addition, Audience reports gross margin, net income basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis. Management believes that non-GAAP information is useful because it can enhance the understanding of the company’s ongoing economic performance. Audience uses non-GAAP reporting internally to evaluate and manage the company’s operations.

Audience has chosen to provide this information to investors to enable the comparisons of operating results in a manner that the company analyzes its operating results. A full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and we ask that you review it in conjunction with this call.

And now let me turn the call over to Peter Santos, President and CEO of Audience.

Peter Santos

Thanks Susan and welcome to everyone on the call. 2013 is off to a strong start for Audience. We achieved better than anticipated results during the first quarter of the year as our earSmart solutions continued to gain traction in the devices of leading mobile OEMs. These results were driven by continued strength in our business in the mobile phone market as well as initial penetration into adjacent markets.

First quarter total revenue increased 22% sequentially to a record $47.2 million. Our largest customer in the quarter was Samsung which represented 62% of total sales. Non-GAAP gross margin for the first quarter was 54.2% and proforma earnings per share totaled $0.27 for the quarter.

Today, I would like to focus on some key new mobile devices that launched during the quarter that include our technology, our progress in developing adjacent market opportunities and some important trends we are seeing in our markets. We began the year with the launch of the Ascend D2 and Mate phones from Huawei at the Consumer Electronics Show in January which we discussed in our last earnings call and followed that up with Huawei’s launch of the Ascend P2 in February.

Samsung announced highly anticipated Galaxy S4 in March which began shipment last week. The Galaxy S4 is the first device to feature our third-generation eS325 advanced voice processor which we launched in February at Mobile War Congress. We are very excited about the prospects for this global smartphone platform from Samsung. And O2 also continues to do well in the marketplace as Samsung meets the need for a range of mobile device sciences across the end user base.

Additionally, we are achieving substantially greater penetration in mid-tier smartphone programs at Samsung with the recent announcement of the Mega Smartphone and expected additional launches this year. We also anticipate inclusion of our new eS325 advanced voice processor in both flagship and mainstream smartphones from other leading mobile OEMs based on our design win engagements during the first quarter.

We are seeing particularly strong uptake of our solutions in the China market including Huawei’s national rollout of the Ascend P2 and Chinese launch of the wildly popular UMI 2X smartphone as well as other launches from ZTE and [Opo].

Also important to our mobile market development model is the work that we do establish voice quality requirements with the mobile operators. We are heavily involved with wireless carriers in the US and Europe in the requirements and roadmap for the deployment of HD voice which will for the first time bring wide-band voice quality previously available only on VoIP calls to cellular communications. AT&T has recently reiterated their commitment to launch HD voice over LTE later this year and Verizon plans to launch HD voice by early 2014.

In addition, to their traditional focus on the quality of voice communication, carriers are increasingly demanding noise robustness for voice services. NTT DoCoMo for example has deployed a very successful voice enabled personal assistant service called Shabette Concier; Audience is partnering with DoCoMo speech technology provider (inaudible) to assure that this and other voice services are dependable in the noisy urban environments that predominate in Japan.

Turning to adjacent markets, we are seeing continued traction in new tablet engagements. The Google Nexus 10 which we announced last quarter is proving to be a powerful example of how our triple play of voice communication, robust speech recognition and clean media capture can deliver a great end user experience.

We also see some interesting trends in the tablet market. We view recent reports that Windows tablet captured 8% of the market in the first quarter of ‘13 up from 0% a year ago as further supporting our view that a healthy and diverse tablet market is developing.

Additionally, we are beginning to see adoption of voice services on tablets and phones in innovative mobile marketing programs and applications. Examples include a tablet cooking app that uses voice to enable hands-free recipe reading while cooking and a voice activated expert advice page in Esquire Magazine’s new tablet app. As app developers increasingly exploit the power of voice services in their offerings, end users will become sensitive to their performance and Audience’s ASR assist capability will become more and more highly valued by leading tablet and smartphone OEMs.

Turning to the PC market, we see mounting market interest building upon our first laptop product release the Dell Vostro 5460, announced and launched last quarter with our eS305 processor. Dell just followed on to that with a product in the 15-inch laptop, the Vostro 5560 also featuring our advanced voice processor.

Despite market projections for PC declines, it remains a large market and one that is at the very beginning of what we expect to be broad adoption of advanced voice capability. In particular, inclusion of voice services in Ultrabook PCs as well as connected standby models is driving significant demand for our ASR assist capability which is essential to dependable voice service performance. We are confident this market holds significant revenue opportunity for audience.

In summary, we are excited about the strong start to 2013 and believe we are well-positioned to exceed our plan for this year and beyond. Our unique technology offering and focused efforts are being validated around the world. And our diversification strategy is creating a strong foundation for long-term growth; as it becomes increasingly clear that advance voice represents the next wave of [interphase] across numerous consumer platforms.

With that, I would like now to turn the call over to Kevin for a review of the Q1 financials and forward guidance.

Kevin Palatnik

Thank you Peter and good afternoon everyone. Today, I will first summarize Q1 2013 financial results then move to the outlook for Q2 2013. I’ll discuss primarily non-GAAP results and ask that you refer to today’s press release for detailed reconciliation between GAAP and non-GAAP financial results. The non-GAAP adjustments relate primarily to stock-based compensation expense, voluntary valuation expense and achievement of non-cash rent expense.

Q1 2013 results for the company’s key operating metrics were total revenue of $47.2 million, non-GAAP gross margin of 54.2% and non-GAAP operating margin of 15.4%. In Q1, GAAP net income was $4.6 million; this amounts to $0.27 per diluted share based on weighted average shares outstanding of 23.3 million. That compares with GAAP net income of $4.2 million or $0.16 per diluted share based on weighted average shares outstanding of 3.8 million in the same period in 2012.

On a non-GAAP basis, we recorded net income of $0.27 per diluted share based on weighted average outstanding of $23.3 million that compares to net income of $0.28 per diluted share based on $17.1 million shares for the same period in 2012. Total revenue for the first quarter was $47.2 million. Revenue was above the guided range for Q1, as a result of higher than expected sales for Samsung for the global launch of their flagship Galaxy S4. First quarters revenue of $47.2 million represented increase of approximately 52% over the same period in 2012 and a 22% sequential increase from Q4 2012. While these percentage increases are impressive; our revenue growth from customers other than Apple was even larger, with year-over-year growth of 194% and sequential growth of 35%.

Hardware revenue was $43.7 million and license revenue was $3.5 million, representing approximately 92.5% and 7.5% of Q1, 2013 revenues respectively. We expect both the absolute number and a percentage of royalty the revenue to continue to [decrease] throughout the year. Samsung represented approximately 62% of revenue in Q1, 2013 compared with approximately 54% of revenue in Q4. Apple and its contract manufacturers represented approximately 26% of revenue in Q1, 2013 compared with approximately 33% of revenue in Q4. Revenue from customers other than Samsung and Apple comprised 12% of revenues in Q1, 2013 as compared with 13% of revenues in Q4. Although a decrease in percentage it is an increase in absolute dollars sequentially.

Non-GAAP gross margin for Q1, 2013 was 54.2% and that compares to 54% in Q4, 2012. Total operating expenses on a non-GAAP basis for Q1 2013 were $18.3 million, a smaller than expected increase from Q4 operating expenses of $17.6 million. Non-GAAP operating margin for Q1 2013 was 15.4% compared to 8.4% in Q4 as a result of the compounding benefit of higher than expected revenues with lower than expected operating expense. Q1 2013 ending headcount was 288, an increase of 9 from Q4 2012 ending headcount of 279. With regard to the balance sheet cash and cash equivalents were approximately $106 million at quarter end. In addition, we have approximately $18 million invested in marketable securities. Total DSOs for Q1 2013 were 32 days and that compares to 30 days in Q4. And finally inventory. At the end of Q1 2013 was $15.8 million, a sequential increase of approximately $2.5 million as we built inventory for the ramp up of handsets that were launched in Q1 and expected to launch in Q2 2013.

Now I'll turn to our outlook for Q2 2013. We expect revenue for Q2 to be in the range of $43 million to $46 million. The sequential decrease represented by this range is a result of three factors. The first is higher than expected purchases in Q1 as Samsung ramped Galaxy S4 for global launch. The headwind we expect with Apple continuing to decrease as a percentage of our business, both of which are partially offset by growth in our less than 10% customers as a result of our continued diversification efforts. Q2 2013 non-GAAP gross margin is expected to be in the range of 56.5% to 59.5%, as a result of the ramp in our third generation products specifically ES325 and the ramp down of our second generation products. Q2 non-GAAP operating margin is expected to be in the range of 9% to 11% and this includes approximately $1.7 million for tape out expense related to our next generation products. GAAP EPS for the second quarter is expected to be in the range of $0.09 to $0.13 per diluted shares and non-GAAP EPS is expected to be in the range of $0.15 to $0.19 per diluted shares based on approximately 23.5 million.

In summary we are pleased to report a strong first quarter in which our key operating metrics exceeded expectations and to provide strong guidance for Q2 2013. Operator we will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Harlan Sur with JPMorgan.

Harlan Sur - JPMorgan

In Q1 you had basically 3 million of upside relative to the midpoint of your guidance range, your [adjusted] business was up almost 27% sequentially very, very strong results and obviously much better than your expectations. So you mentioned the ramp of the Samsung Galaxy S4, was some of that just for business pooled from Q2 into Q1 as lets say Samsung anticipated a much earlier ramp or do you just see a bigger book-of-business from your customers in general during the quarter.

Kevin Palatnik

Harlan this is Kevin. Both of those factors do contribute to the overage to the midpoint but I would say the bias is much more for the ramp up for the Galaxy S4. We did see some orders get pulled from Q2 into Q1 and that was more than half of that 3 million to the upside of the mid-point.

Harlan Sur - JPMorgan

And then gross margin guidance, very strong, obviously much better than Q1. I think Kevin, you said that most of it is due to the upgrade cycle right that’s going on as your customers move from your second generation product to your third product. But a couple of royalty play, any role in that. In other words, are you anticipating equivalent or higher rate of royalties from Apple in Q2 or as you mentioned, do you just expect your overall Apple chipset and royalty business to kind of continue to decline for the rest of the year?

Kevin Palatnik

Harlan from a royalty revenue perspective, we do expect declines throughout the rest of the year. Specific to Q2, we do expect and we've seen some evidence to that fact that it will be a tick down. The majority of the growth in gross margin is related to our ES325 as that continues to ramp up with existing OEMs and future products that we expect to launch that will become a much larger ratio of our overall portfolio and that will drive margins up a bit.

Harlan Sur - JPMorgan

While it's good to see the step up in profitability as you move your customers to the next generation products. Maybe a question for Peter; obviously with the launch of the third generation processor, the ES325, and as you mentioned, we've seen on [tier downs] (inaudible) Galaxy S4, both the 3G and the 4G versions, anyway to qualify the design win production for the ES325, lets say (inaudible) your prior generation ES305 products and then I guess the second sub-question for that is, is the 325 expected to be sort of the main product growth driver for 2013.

Kevin Palatnik

Harlan to make sure I understand your first question, you asked about the timeline for 325 base product introductions?

Harlan Sur - JPMorgan

No, I am just saying it clearly seems like, you are already ramping 325 in high volume production and so I am just saying if you look at the design win traction right, the breadth of the customer wins is you are getting with the 325 and compare that to the 305 is there any way to quantify, how much more design win momentum or attraction you have relative to prior generations?

Kevin Palatnik

Sure, if we compare 325, which by the way will be the key revenue driver for us in 2013 to the prior generation, 305, we have pushed it into the market faster. As I mentioned in my prepared comments, the Galaxy S4 was the first platform, but there will be others that are going to follow in quick succession, where we already have completed largely through integration. So the ramp that we will see both in terms of design wins and production for 325 is going to be substantially faster, it's to hard quantify but it's going to be a meaningfully faster than 305 due to both the execution on product and it's readiness as well as the work we have done educating customers about the product.

Harlan Sur - JPMorgan

Great, and then my final question and I will get back into the queue. You had some commentary about your new market opportunities specifically focused around the computing end market. I would think that the Audience team has a visibility now in terms of platforms and OEMs that have designed your product into their Ultrabooks and Hybrids that will be launching in Q3 and Q4. So two questions here is some of this going to become a more larger contributor to your Q2 revenues and anyway to help us to understand the breadth of your design wins and the potential contribution to your second half revenue profile?

Peter Santos

Considering the general trends with design wins and (MPs), we are seeing significant momentum in those metrics for PCs as well as the more qualitative metric of customer interest and engagement with players in ecosystem. We are still early in the cycle for us to try to quantify what that is going to mean for second half or fourth quarter revenues, but it is certainly going in an upward direction on top of the base of business that we have with launch products with them.

Operator

Our next question comes from John Pitzer with Credit Suisse.

John Pitzer - Credit Suisse

Getting back to the Apple question, I think Kevin you gave us some insights into the royalty revenue are expected into the June quarter, I am just kind of curious how do we think about the tail of Apple revenue, especially if they start to introduce new phones at the high end and/or a rumor kind of an low end phone. Conceptually how do we think about kind of their waterfall model or how do you think about that model and how should we think about kind of your revenue over the next three to four quarters from Apple?

Kevin Palatnik

Yeah, okay, John. Let me just go to the Q4 data point and what we are considering for Q4 is Apple becomes less than the 10% customer. So in quarter, they were 26% of revenues, how quickly that ramps down, I assume that as the rumors about their next product become more real or are more close to happening that ramp down would become quicker, would accelerate, but frankly we don't have visibility with Apple into Q3, Q4. We just know that the Apple, iPhone 4S or 4 let me start there is will be three years old in June of this year. The 4S is going on two years old at the end of this year. With the advent of their next generation phone, we expect the older technologies to ramp down.

John Pitzer - Credit Suisse

And guys as you look at your design win funnel outside of Apple, do you think you are going to be able to offset that the Apple declines with other customers or they are just too difficult to tell at this point?

Peter Santos

John, as Kevin highlighted, our ex-Apple revenue is growing at a really appreciable rate and what's driving that growth is based on design win that we have seen historically and that we during this quarter continue to see specifically. We are on target in terms of the number of ex-Apple and ex-Samsung design wins that we are measuring ourselves against to be able to drive that kind of ongoing growth. So the short answer is, yes. There are going to be steep declines in our Apple revenue. We believe there is by historical evidence as well as what we see going forward, the very strong prospect of our growth in the ex-Apple business being as big or bigger.

John Pitzer - Credit Suisse

That's helpful. And then Kevin real quick on the tape-out cost in the June quarter, can you give us any guidance as to how tape-outs kind of ramped throughout the year, do we see a step down in that again in the third quarter or again is it too early to tell?

Kevin Palatnik

No, John, that's correct. Relative to R&D expense in Q3, it will be a tick down and then looking into Q4, I expect it to tick back up again as we continue to invest in R&D headcount and field headcount and the like.

John Pitzer - Credit Suisse

And guys lastly, Peter in your prepared comments, you kind of alluded to the fact that your penetration into the mid-tier of Samsung looks promising, I'm kind of curious what percent of your Samsung revenue today would you kind of classify as mid-tier and if you think that over three or four quarters, what's the opportunity there, either on a dollar basis or by some other metric?

Peter Santos

John, I don't have the number at my fingertips. We have historically had mid-tier revenue with Samsung. We talked about that on the call that we did last quarter. And what we see happening is a substantial increase in that revenue driven by two factors, one is a broadening of carrier requirements that Samsung is seeing even in their mid-tier phones as well as increasing comfort and proliferation with our technology within Samsung.

So historically, the mid-tier revenue while present has been relatively small. I would say below 10%. As we go forward in the time horizon that you mentioned, I believe three to four quarters it will become significantly larger than that, although probably quite a bit less than half. Thinking absolute the mid-tier market broadly and not just Samsung, we believe that in a three-year, two or three year time horizon that there's at least $0.5 billion of servable market for us in the mid-tier market. And of course, there's a substantial amount of that, that's Samsung substantial amount that is elsewhere.

Operator

Our next question comes from Brian Modoff with Deutsche Bank.

Brian Modoff - Deutsche Bank

Most of my questions have been asked. I will focus on kind of where you see the back half, Apple with 16% of revenue ex on the hardware side. How do you see kind of the back half of the year? Who do you see is kind of that replacement vendor? Has Samsung obviously very high concentration of Samsung, but who else do you see given the design activity that you have and the fact we got a number of Hero phones coming into launch in the back half of the year. Could you guys see as kind of that vendor that can substitute for Apple on the hardware side?

Kevin Palatnik

Brian, this is Kevin. So revenues specific vendor, let me just talk about the Chinese opportunity. As you know, there are many (inaudible) no name OEMs that represent a huge volume of activity in the high end smartphone as well as mid-tier smartphone space. So we see the Chinese opportunity as more than replacing the Apple decline overtime.

Peter Santos

Brian, this is Peter. I would there is, as Kevin says, significant elements and contributions coming from China OEMs. There also will be going back to some of the questions earlier about the PC business and mid-tier opportunities for Samsung; I think all of these things with China, adjacent markets and the increasing penetration of mid-tier Samsung that will be part of the mix.

Brian Modoff - Deutsche Bank

Can you guys kind of give us a run down, how you see your mix looking in the back half of the year? Is it going to still be fit your Samsung and then everyone else or can you give any idea of what you see that as being?

Kevin Palatnik

Brian, the further we go out, the more difficult it is, but given Samsung at 62% of revenue in Q1, I fully expect it will be in the plus or minus 50% range by year-end. They are going to be our strongest customer for some time until those adjacent markets in the further, the diversification efforts occur that will dilute that overall percentage, but there will be a strong customer for a while.

Brian Modoff - Deutsche Bank

And can you give -- I guess last question can you -- kind of how do you see in the back half, how do see product mix being roughly, I know it’s further up I guess some idea of 325, 305, what do you see the mix looking like in the back half of the year? Thank you. That’s my last question.

Kevin Palatnik

Yes. Specific to 325, I think by the middle of the year we carry more than 50% of our revenues towards the back half of the year probably get up until 75%, 80% range. That excludes the 515, the Smart Sound processor. That’s still being evaluated by several OEMs. We expected have some design wins there. That will generate some revenue in the latter half of this year, net of that 325 will predominate.

Operator

Our next question comes from Jay Srivatsa with Chardan Capital Markets.

Jay Srivatsa - Chardan Capital Markets

Thanks for taking my question. Congratulations on a good quarter. Peter at a higher level you talked about the opportunity in China, that tends to be -- China tends to be a more cost effective or play sensitive type of market, how do you see the processor in general being adopted across the board, not only in the high-end, mid-end but do you see opportunities possibly in some of the lower end products as well?

Peter Santos

Jay, the way we think about the smartphone market on a global basis and increasingly China has the same complexion in our view is that we have very significant opportunities in the high end and the mid range, and somewhat of an opportunity in low end, and those opportunities in high and mid range are both in excess as I said in 2015 of $0.5 billion. Now talking about China specifically while it has a well earned reputation for cost sensitivity, we are seeing emerging in China a domestic high end market. There are significant iPhones sales there, they are very significant Galaxy flagship sales there, the Galaxy 3 sold very well as soon as it was introduced with the China mobile network and we expect the same from the Galaxy S4, the (inaudible) phone but we have been in the (inaudible) phones in general has been extremely popular and that is probably the fastest growing company in China if not the world in terms of percentage growth.

So to answer your question first of all, we do see there is a significant high end opportunity there. We are seeing interest in opportunity in the mid range. I wouldn’t classify the low end of the China market as a major opportunity for us at this stage. The other thing I want to mention about China is that the market today for Audience is really been driven by OEM requirements for best-in-class voice in the high end and the mid tier. We don't yet see in China although we expect to significant operator influence on OEM first quality decision making. So that represents we believe upside to our business in China in the future.

Jay Srivatsa - Chardan Capital Markets

Let me ask you on Samsung, Kevin you mentioned that in Q1 you saw higher than expected ramp up especially related to S4. I've seen some numbers being thrown out as much as 10 million units per month for Samsung S4 in Q2, would it be fair to expect that your unit volumes in Q2 will be as high if not higher from Q1 relative to Samsung.

Kevin Palatnik

Jay from what we are seeing, I would conclude as high, I probably wouldn’t go higher than but as high in Q1.

Jay Srivatsa - Chardan Capital Markets

Okay. And then in terms of the margins it looks like its being driven heavily by the new product ES325. Given that you are expecting that to continue to ramp up in the second half of this year, would it be fair to expect your margin profile to be in the mid to high 60s for the rest of the year.

Kevin Palatnik

I would say low 50s is a good ballpark. You know when you first introduce a product like the 325 it does carry a premium pricing. Samsung as you know is very aggressive with pricing, so I don't think we’ll maintain the margins that we have or have guided for Q2 throughout the year. Couple that with the Apple royalty continuing to decrease, that will also impact overall gross margins.

Jay Srivatsa - Chardan Capital Markets

Understood. Last question Peter on the audio codec, could you give us some update on where things have been since last quarter in terms of customer testing an adoption and when do you hope to start to see a meaningless ramp up there.

Peter Santos

We are on track with where we expect it to be with the 515. As Kevin mentioned it is in evaluation at several OEMs. There is significant interest in the product, as we've highlighted before the evaluation cycle for audio codecs tends to be longer than for voice processors. There are a series of fairly complicated challenge in the test analogue audio specification. So we are where we are expected to be and that is to start seeing revenue from the 515 at the end of the year.

Operator

(Operator Instructions) our next question comes from Brad Erickson with Pacific Crest Securities.

Brad Erickson - Pacific Crest Securities

Just a few follow-ups; first you mentioned that the upside in the quarter came from largely from Galaxy S4, it sounds like more than half I think you said where kind of the other what the other big contributor of that. Could you just go over that one more time.

Kevin Palatnik

Sure, our guided range at the midpoint was 44.5 you know 2.5 to 2.7 million up from that in terms of actual more than half of that came from I will call pull-aheads related to the Samsung S4, the remainder was other areas meaning ex-Apple, ex-Samsung. So the less than 10% bucket we saw some growth in China as well as other OEMs and that makes up that 2.7 million.

Brad Erickson - Pacific Crest Securities

And then in terms of the mid-tier you've obviously talked quite a bit here about how that's going to obviously ramp going forward in 2013. Can you talk about any pricing impact that may have with your non-Apple customers.

Kevin Palatnik

Yeah, typically Brad our largest customers given the volumes that they forecast, they get generally a little bit better pricing than our less [acknowledged] customers if you will. Overall what we try and do is manage to basically flat ASPs throughout the year through product introductions. Es325, as we mentioned a positive benefit to gross margins, higher ASPs as well, but also mentioned that Samsung is pretty aggressive when it comes to pricing. We're confident that we can maintain ASPs on a portfolio basis throughout the year. In fact, when I look at Q1 portfolio ASPs through Q4, there we did see a slight uptick. We're expecting a similar uptick in Q2, but on an average for the year, we expect to be relatively flat.

Brad Erickson - Pacific Crest Securities

And then finally just on customer retention levels, can you kind of talk about what you have been saying lately versus the quarter ago, particularly outside Samsung, Apple again?

Peter Santos

Yes, Brad, what we look for in how we manage the business is proliferation and we talked about this in some of our prior calls. In our business we have a relatively small number of customers, it's not about just getting business with one of them but proliferating and what we're seeing with our existing customers like Samsung as well as Samsung, Huawei as well newer customers such as [Xiaomi] and Dell that we're in fact proliferating within those accounts. We're seeing not just one or two follow-on opportunities but more than that and that’s exactly the way that we want to see accounts develop. And with respect to retention, we haven't seen pure retention that we have a customer or not. We haven't seen anyone drop out.

Operator

Our next question is a follow-up question from Harlan Sur with JPMorgan.

Harlan Sur - JPMorgan

Hey guys thanks for taking my follow-up question. And Peter, your last answer was a good segue to my question which is as a team continues to diversify outside of Apple and Samsung and I think Xiaomi is a great example of that, fastest growing smartphone guy in China, the MI-2 is doing extremely well and so that's a great example of customer diversification. I believe that there are probably about four, may be a bit more, four different SKUs of the MI-2 and so the question there is, what's your market share on those SKUs, because it be seems it's not just customer diversification but also platform penetration and then what's your confidence on Xiaomi’s roadmaps on a go forward basis that you’ll continue to be one other key partners?

Peter Santos

Sure, Harlan. Our share of the MI-2 platform which includes a number of different SKUs is quite high; it's above 50% but not 100%. So our shares there is high and we believe based upon our engagement with Xiaomi and our discussions with them about future capabilities that we will continue to have a very high share of SKUs.

Operator

I am not showing any further questions at this time. I would like to turn the conference back over to CEO, Peter Santos for closing remarks.

Peter Santos

Thank you everyone for calling in this afternoon. We look forward to speaking with you soon and see you on road.

Operator

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.

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