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Silicon Image, Inc. (NASDAQ:SIMG)

Q4 2013 Earnings Conference Call

January 30, 2014 05:00 AM ET

Executives

Alex Cherve - Senior Director of Investor Relations

Camillo Martino - CEO

Noland Granberry - CFO

Analysts

Charlie Anderson - Dougherty and Company

Jack O'Brien - CJS Securities

Rajvindra Gill - Needham & Company

Richard Shannon - Craig-Hallum

Christopher Longiaru - Sidoti & Company

Tom Sepenzis - Northland Securities

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Silicon Image Fourth Quarter 2013 and Year End Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday, January 30, 2014.

At this time, I would like to turn the conference over to Alex Cherve, Senior Director of Investor Relations. Please go ahead, sir.

Alex Cherve

Thank you. Good afternoon, everyone, and welcome to Silicon Image's fourth quarter 2013 financial results conference call. I'm Alex Cherve, Senior Director of Investor Relations at Silicon Image. Joining me today from our headquarters in Sunnyvale, California is Camillo Martino, the Company's Chief Executive Officer; and Noland Granberry, the Company’s Chief Financial Officer.

The agenda for today's call includes a discussion of the financial results and product and market updates from Camillo. Noland will then provide a more in-depth discussion of the financial results and provide a financial performance estimate for the first quarter of 2014. After a summary from Camillo, we will open the call for Q&A.

Silicon Image reports product revenue in three categories; Consumer Electronics or CE; Mobile; and PC. CE revenue consists of DTV, a portion of 60 Giga-Hertz Wireless and home theater products. The Mobile category includes mobile HDMI and MHL-enabled products as well as some 60 Giga-Hertz Wireless. The PC category includes PC and storage products. IP revenue continues to be reported separately.

Before I turn the call over to Camillo, let me remind listeners that during the call, we will make forward-looking statements based on our current expectations regarding many aspects of our business and the markets in which we operate, including, but not limited to, forward-looking statements about our financial results and performance, our current and future products and technologies, the timing of new product introductions, average selling prices, design wins, market demand for our products, operating expenses and standards activities. The actual results may differ materially from our forward-looking statements, and we disclaim any obligation to update any of our forward-looking statements.

In addition, our forward-looking statements and the Company's future results are subject to risks and uncertainties, which we described in today's press release and in the most periodic reports on Form 10-K and 10-Q filed with the SEC. These documents contain certain relevant Risk Factors that could affect our future results.

We've also provided a financial metrics table and a reconciliation of non-GAAP financial information to GAAP information in our fourth quarter 2013 financial results press release, which is available on the Investor Relations section of our website at siliconimage.com.

Camillo Martino

Thank you, Alex. Good afternoon everyone, and thank you for joining our fourth quarter 2013 earnings call. On today's call, I will give you a brief overview of the Company's performance in the fourth quarter and full year and a quick business update. Noland will then go through the numbers in more detail and provide our financial outlook for Q1.

2013 was a year of growth for Silicon Image and also of new milestones for the industry leading ACMI and MHL standards, both of which were introduced new specifications with expanded capabilities. We shipped a record 250 million parts in 2013 representing an increase of approximately 27% over 2012, and demonstrating that we are at scale and operate as a world class semiconductor company.

Full year revenue for 2013 came in at $276.4 million versus $252.4 million in 2012, representing 9.5% year-on-year growth, and our fourth successive year of revenue increase. Non-GAAP earnings per share increased by over 30% to $0.29 per share in 2013 versus $0.22 per share for 2012. Revenue split between product and licensing was $227.3 million and $49.1 million or 92% and 18% respectively.

Looking just at Q4, revenues came in at $61.4 million, in line with our guidance or $60 million to $62 million. Product margins were strong at 50.9% compared to 49.8% for Q4 of 2012. Overall gross margin for the quarter was up 3% to 62% due to a higher mix of licensing revenue and overall product mix.

There were many exciting product developments in 2013, and I would like to highlight a few items that we believe are significant, looking specifically at our Mobile business. We shipped over 190 million MHL transmitters into the smartphone market in 2013. This represents approximately 22% of all smartphones. On a cumulative basis, this brings a total number of MHL phones to over 360 million units. We believe that due to the existing install base and the growing ecosystem of devices MHL remains the best choice for transmitting video from mobile device and we see continued growth in the year ahead. Speaking to the growing MHL ecosystem to which our products connect approximately 28% of TV sold in 2013 shipped with MHL compared to approximately 6% of TVs in 2012.

Additional MHL penetration is expected to grow to more than 40% of televisions worldwide in 2014. We are proud of breadth of MHL products which include not only phones and TVs but also AV receivers, projects, PC monitors, automotive input systems, productivity accessories designed to provide functionality similar to laptop, computer MHL enabled video streaming state, such as the [indiscernible] streaming state, gaming accessories and a whole host of cradles, adapters and cables.

Adding these devices to the 360 million Smartphones mentioned above brings the total number of MHL enabled devices to over 450 million units. In 2013, the MHL consortium developed and released the MHL 3.0 specification. This new specification include several key advancements for 4K ultra HD support and touch support for automotive entertainment and PC style application. On the customer side in addition to continued relationships with tier 1 phone providers such as Samsung, Sony, ZTE, Fujitsu, HTC and Huawei we remained engaged with MediaTek and Qualcomm on multiple reference designs targeted at high end as well as mid range phones for emerging markets and expect continued growth for MHL in 2014. We continue to benefit from mobile device productivity and we expect mobile revenue to grow to more than 10% in 2014 despite imitations that the previous Smartphone market maybe suffering (Ph).

Turning now to CE business. We continue to supply the high end of the TV market with our thought processes and have a significant footprint in mid and high end areas with our instant preview enabled port processors. In 2013, we stabilized our CE business and delivered CE revenues of $65 million or 28.6% of total product revenue.

By the end of 2013, over 1400 companies had become HDMI adaptors and over 3.6 billion HDMI devices had been shipped into the marketplace. Well, this is a runaway success by any measure; HDMI continues to revolve to meet the needs of a changing consumer electronics market. In September of last year the HDMI 4 released version 2.0 of the HDMI specification which doubled the bandwidth to enable 4K ultra HD devices.

In addition to higher resolutions and frame rates required for 4K ultra HD, content owners have driven an update to the link protection standard called HDCP 2.2 to securely deliver premium content to the consumer. We are the first company to ship HDMI 2.0 and MHL 3.0 port processes that a complaint list this HDCP 2.2 standard and expect meaningful revenue from these parts in 2014.

Those of you, who attended CES (Ph) few weeks ago, were likely surprised not by the fact that there were lot of 4K ultra HD TVs but rather by the lack of 180 PTVs. Clearly the industry is now fully engaged in 4K and is strongly driving this new standard. We expect our CE business to grow approximately 15% in 2014 due to increased MHL market share with anticipated with penetration in TVs exceeding 40% and continued progress from the 60 gigahertz wireless product revenue.

Now I would like to give you an update on how we are progressing with our wireless 60 gigahertz technology that we account for in our CE and mobile segments. One of the significant advantages for 60 gigahertz technology is that it utilizes a whole new unused portion of spectrum upon which to transmit and receive data. Separate from the spectrum that Wi-Fi uses.

This makes 60 gigahertz a perfect choice for transmitting video wirelessly as we’ve done with that products based on the wireless HD standard. That also leads to interesting new products based on the WiGig standard than our designed to coexist with Wi-Fi solutions. As 2.4 gigahertz and 5 gigahertz spectrum become over crowded we believe that 60 gigahertz technology is ideally suited to offer additional bandwidth for video or data and we believe that we are very well positioned to benefit from this.

Last quarter we announced that Sony chose a 60 gigahertz wireless HD technology for their head mount display. We believe it is significant that Sony a thought leader in the CE space chose a wireless HD solution above all other choices for this emerging wearable category, and we expect that this design could lead to additional design wins during 2014. At CES we announced the availability of our Trinity reference design, a ready to manufacture mobile accessory solution that adds 60 gigahertz wireless HD connectivity to MHL compatible mobile devices. Trinity integrates an UltraGig 6400 low power mobile 60 gigahertz wireless HD transmitter to provide a cable like wireless connection between MHL mobile devices and HD displays and is optimized for displaying interactive HD video applications such as gaming. At CES, we also demonstrated the world’s first 60 gigahertz wireless HD solution for 4K Ultra HD and separately we partnered with Kia Motors who showcased future car trends using a wireless HD connection between a mobile phone and the in vehicle infotainment poster. While the market for 60 gigahertz technology is still in its infancy we continue to believe that there is a significant market opportunity for 60 gigahertz wireless solutions for both video and data applications and we are well positioned to commercialize those opportunities.

Turning now to our licensing and standards portion of our business, the HDMI forum and the MHL consortium both introduced new versions of their respective standards in 2013, generally speaking Silicon Image benefits from changes or addition to a standard because change historically has driven new Silicon revenue. As standards progress it also creates opportunity to license IP cores to SOC semi conductor manufacturers. Our licensing revenue for Q4 2013 was $14.4 million or 23.5% of the total revenue, versus $13.0 million or 16.4% of the total revenue for Q3 of 2013. For the year, our licensing revenue totaled $49.1 million or 17.8% of total revenues versus 48.9 million or 19.4% for 2012. Our licensing business continues to perform in line with expectations.

As we have noted historically, Q4 is generally a strong quarter as a percentage of the total revenue for our licensing business and this Q4 was no exception. On a year-over-year basis our licensing revenues contributed as expected within our 15-20% range. Our licensing business is a strong contributor to the company gross margins but equally important is that by licensing IP cores for the standards we champion, we help the standard to achieve higher penetration in the marketplace.

Specifically, standards creation, sale of products and the IP licensing a tightly interwoven components, that together create an environment where the technology standards can thrive and grow. Without all these three components we believe will be challenging to drive the level of success we gave seen in HDMI and MHL. During the quarter we also announced our participation in the AllSeen Alliance. Because of our core belief that open interruptible standards drive market success we became a founding member of the AllSeen Alliance in December of 2013. The AllSeen alliance is a nonprofit consortium dedicated to driving the widespread adoption of products, systems and services that support the Internet of Everything with an open universal development framework. As MHL and HDMI devices participates within these broader networks, we recognize that an open interoperable framework for discovery and bridging two existing services offered by MHL and HDMI devices will become an important part of the future ecosystem.

To summary, we are confident that we have laid the foundation for continued growth; looking forward toward 2014 we see product growth opportunities for both the top line and the bottom line. With this growth and careful expense management we fully anticipate continuing to improve our year on year financial results while also investing for the future, to this end we have set ourselves four important goals for 2014. One, the first goal is to drive revenue in line with our 2013 performance, secondly, we plan to grow EPS at a faster rate than the top line, thirdly we expect to continue expanding the MHL ecosystem and finally to continue to execute and drive the success of a 60-gigahertz wireless business. We believe that these goals will continue to create shareholder value which is a key focus for us as a management team.

I would now like to turn the call over to Noland.

Noland Granberry

Thanks, Camillo. Good afternoon. Before I begin, I would like to remind you that unless otherwise indicated gross margin, expenses, and earnings related items are reported on a non-GAAP basis which are reconciled to the corresponding GAAP number in the table accompanying our press release. In addition, we have posted our financial metrics space to provide you with our quarterly comparative results.

Revenue for Q4 was 61.4 million compared to 79.3 million for Q3 2013, and 59.6 million for Q4 2012. Revenue for the full year 2013 totaled $276.4 million versus $252.4 million for 2012. Product revenue totaled $47 million for Q4 2013 versus $66.3 million for Q3 2013 and $46.8 million for Q4 2012. For 2013, product revenue increased 11.7% to $227.3 million versus $203 million for 2012. For the fourth quarter, our CE product revenue totaled $16.9 million as compared to $18.5 million for Q3 2013 and $12.9 million in Q4 2012.

Our CE product revenue grew 30% year-on-year indicating that our CE business is stabilized. This growth was primarily driven by our success in shipping dual mode MHL HDMI port processors in mid and low end DTVs. For fiscal 2013, CE product revenues increased with revenues total $65.1 million slightly higher than the $64.6 million recognized in fiscal year 2012.

Our mobile product revenue in the fourth quarter totaled $27 million. We saw some softening of demand in the high-end smartphone segment as well as increased inventory management by our key customers. As a result, our mobile product revenue decreased approximately 10% year-on-year from approximately $30.1 million in the fourth quarter of 2012, but still represents our large product revenue contribution of $57.5 million. For the full year, MHL revenue increased by 23.3% to $149.1 million.

Our legacy PC presence contributed 3 million for the fourth quarter. This compares with $3.9 million for Q3 2013 and $3.8 million for Q4 2012. For fiscal year 2013, our PC revenue totaled $13.1 million versus $18 million for fiscal 2012. As we’ve previously stated, we’re not currently investing in this legacy business. Our blended average selling price for our products was $0.90 per unit for Q4 2013, $0.86 for Q3 2013, and $0.92 for Q4 2012. Product mix is a major factor in the changes in our blended average selling price.

For the year our blended ASP declined approximately 11% which is slightly higher than anticipated as resulted product mixture we experienced in back half of the year. Licensing revenue for Q4 2013 was $14.4 million versus $13 million for Q3 2013 and $12.8 million for Q4 2012. For the year, I would like to see revenue totaled $49.1 million or 17.8% of total revenue versus $48.9 million or 19.4% for 2012.

Our licensing business continues to contribute favorably to our gross margin while performing in line with expectations and our long-term business model of 15% to 20% of total revenue. Now overall gross margin was 62% for Q4 2013 as compared to 57.2% for Q3 2013, and 16.2% for Q4 2012. The higher gross margin is the result of higher IP contribution as a percentage of our total revenue as well as continued strength in that product gross margin.

Our gross margin for full year 2013 was 58.8% versus 59.1% for 2012. Our gross margin remains strong on the strength of our product margins and mix of licensing revenue. Product gross margin was 50.9% for Q4 2013 and 50.3% for the year. This compares the 49.8% and 49.6% for Q4 2012 and full year 2012 respectively. Our product margins continued to be strong as a result of improved deals and other manufacturing efficiencies as well as ability to continue leverage our existing overhead.

Operating expenses for Q4 2013 were $32.3 million compared to $32.3 million in Q3 2013 and $27.5 million in Q4 2012. Operating expenses for fiscal 2013 and 2012 were $130.8 million and $122.9 million respectively. Our OpEx in 2012 chipped into account by reversal of incentive pay accruals equivalent to approximately $5.4 million. Excluding the reversal of full-year 2013 OpEx would have increased by only 2% year-on-year. We’ve been very focused on ensuring that we are managing our expenses in line with the size of our business and are continuing to look for ways to improve our operational efficiency. We have continued to drive operational initiatives to ensure we remain competitive and to improve cost structures for our future growth.

Stock based compensation totaled $2.7 million for Q4 2013, compared to $2.5 million in Q3 2013, and $2.2 million in Q4 2012. For the full-year 2013 our stock based compensation totaled $10.5 million versus $9.2 million for 2012. For Q4 2013 our GAAP net loss totaled $1 million or $0.01 per share. Our GAAP results included restructuring cost, $1.6 million or $0.02 per share associated with certain actions we took in the quarter to improve operational efficiency and $1million of earn-out related to a prior acquisition.

For Q3 2013 our GAAP net income was $9 million or $0.11 per diluted share. For Q4 2012 our GAAP net loss totaled $0.3 million or $0.0 per share. For full-year 2013 we hand GAAP net income of $11.5 million or $0.15 per diluted share as compared to GAAP net loss of $11.2 million or $0.14 per share fiscal year 2012. For Q4 2013 our non-GAAP net income totaled $ 4.1 million or $0.05 per diluted share versus non-GAAP net income for Q3 2013 of $9.2 million or $0.12 per diluted share. For Q4 2012 or non-GAAP net income was $6.2 million or $0.08 per diluted share and included approximately $0.05 of earnings from an incentive pay accrue reversal.

Our non-GAAP net income for 2013 totaled $22.9 million or $0.29 per diluted share. This compared for 2012 non-GAAP net income of $18.5 million or $0.22 per diluted share. Diluted weighted average shares outstanding for Q4 2013 was $79 million versus $78.9 million for Q3 2013. Diluted weighted average shares outstanding for Q4 2012 was 80.4 million shares. Our Q4 2013 shares account reflects share repurchase activity during which we acquired approximately 380,000 shares at an average price of $5.27.

Moving to the balance sheet. We generated approximately $ 6 million of free cash in the fourth quarter of 2013, and for the year we generated free cash above $33 million. We entered the year with $138.2 million in cash and investments or $1.75 per share. For the fourth quarter, our cash receivable totaled $34.7 million or 51 days sales outstanding versus 57 days for Q4 2012. Our target DSO range is approximately 50 to 55 days.

Net inventory as of December 31, 2013 was $11.7 million, which represents approximately 8 turns on an annualized basis versus $11.3 million or 8.4 turns at December 31, 2012. Capital expenditures for Q4 2013 were $1.7 million, compared to $1.6 million for Q3 2013 and $2.3 million for Q4 2012.

For fiscal year 2013 capital expenditures totaled $5.8 million versus $8.9 million for 2012. The decreasing capital spending year-over-year is associated with the addition of R&D equipments and IT related equipments, primarily related to the expansion of our facility in China and India during 2012.

This completes my summary of our financial results. Next I would like to discuss our financial outlook.

Our fourth quarter revenue while aligned with our guidance reflects the challenges we highlighted last quarter including a seemingly lower CE business, soft consumer demand for high-end smartphones and significant inventory management by our customers as they prepare for a new product launch four new product transitions. As we look to Q1 we anticipate some additional inventory management to the launch of the next high-end models and some softness of high-end smartphone demand. Just along with normal Q1 seasonality for or CE business results and our guidance reflecting a relatively flat outlook for the first quarter of 2014. The following represents the financial outlook for the first quarter of 2014.

Revenue $58 million to $62 million, gross margin 59% to 60%, GAAP operating expenses approximately $34.5 million, non-GAAP operating expenses of approximately $31 million, non-GAAP tax rate approximately 28%, Q1 diluted shares outstanding approximately $79 million.

While our Q1 outlook reflects typical seasonality we remain confident that we are well-positioned to grow our top line in 2014. This growth is expected to come from the launch of new high-end smartphones that incorporates the latest 4K capabilities using our MHL 3.0 solutions. Increased penetration of MHL in the mid-range based on our MediaTek relationship an increased contribution from our 60 gigahertz wireless business. We also believe that there may be additional opportunities for growth in our business due to 4K Ultra HD getting more traction and higher penetration of MHL in mid range to low end CE devices. In addition to our revenue growth our focus on continuously improving our operational efficiency should result in earnings per share growth outpacing the growth of our revenue. These expectations are embodied in the goals outlined by Camillo and our achievement of these goals will allow 2014 to be another year of growth both from a top line and bottom line perspective.

This concludes my remarks. Operator we will now take question.

Question-and-Answer Session

Operator

Ladies and gentlemen we will now begin the question and answer session. (Operator Instructions) Our first question comes from the line of Charlie Anderson with Dougherty and Company. Please go ahead.

Charlie Anderson - Dougherty and Company

Good afternoon. Thanks for taking my questions. I guess first I noticed 30% growth sounds like more than stabilizing in CE, I wanted to start there. So, you are guiding to 15% growth in that category and I think that works out to maybe $10 million up in absolute dollars, how much of that is 60 gig versus some of the growth you are seeing from MHL attached rates and 4K and some other growth drivers there?

Camillo Martino

Look I think for Q4 specifically there is a number of factors that contribute to the growth and I am sure maybe some of it was wireless that’s true but I think the biggest growth for Q4 was all of the new products that we launched earlier in 2013 and kicked in throughout the year. So, the new products, the new thought processes that we introduced as a refresh of that is internal product names like [indiscernible] we launched that, that was the primary driver. The second primary driver was MHL onto a television. There were a lot of new products which included the MHL refresh as well.

So, I think the majority, the vast majority of the growth demonstrated in Q4 was specifically CE specific products for television, AVR, Blu-ray players and what have you. So, your original question about 60 gigahertz, we would see that having more of an impact during 2014, but Q4 2013 it’s primarily all TV products.

Charlie Anderson - Dougherty and Company

So, for ’14 I think I guess that you are guiding to 15% annual growth there that’s I think $10 million of absolute dollars. How much of that 10 million up is going to be 60 gig versus some of these other things that sound like they are starting to layer in?

Camillo Martino

I don’t think we probably want to go into the exact number. I think we have already given you an indication of what we expect to do in wireless for this year, the double-digit million revenue. So, consistent with that, obviously a good portion, clearly a good, to achieve that $10 million number, the double-digit number, clearly a good portion of that is built-in within the 15% guidance.

Charlie Anderson - Dougherty and Company

Perfect. And then you obviously mentioned you have couple of new standards that have refreshed and that should help the core licensing. And I wonder how I should think about the licensing portion of your business growing on a year-over-year basis relative to the total growth of the company in 2014?

Noland Granberry

Hey Charlie, this is Noland. Yeah, I think from the licensing perspective I think we will see or we have already begun to see some more opportunities relative to the new standards, sort of tough to build, determine the total impact we do expect to see some growth on the licensing side of things. But if I was looking at where I think it will land, probably it would be somewhere in the single-digit level of growth, closer, single-digit growth getting close to double-digit. So, somewhere between 5% to 10%.

Charlie Anderson - Dougherty and Company

Got it, perfect. And then housekeeping, your largest customer what percent of revenue in the quarter?

Noland Granberry

This quarter it was actually down in the 30% range, so but actually the big decrease for the quarter. For the year I think it landed around 40% if you look at it over the course of the year but a lot of that is due to the things we have already highlighted with the inventory in the product mix. And so we are right on the 30%, little bit over 30%.

Charlie Anderson - Dougherty and Company

Perfect. And then just dialing into mobile down 10% year-over-year did MediaTek that some of those relationships turned in Q4 or it was that just, that’s more of a 2014 thing?

Camillo Martino

I would argue, the more of a 2014 thing but we did have some design wins for ’13 but phenomenally when we look at the penetration we have talked about trying to get there is more of a ‘14 story.

Noland Granberry

Remember year-on-year there was a significant increase in total mobile both in units and dollars. And so your comment specifically for Q4.

Charlie Anderson - Dougherty and Company

So, to achieve the 10% growth that you guys are talking about for mobile, just kind of walk me through the puts and takes there, I mean you definitely have an ASP headwind like you have every year. Is most of the growth going to come down through the MediaTek or are there other areas where you see you growing -- broadening up the customer base from the attach rates at MHL?

Camillo Martino

I think consistent with what we have shared with everybody in the past, we believe that the growth for us is in the mid-range and that’s specifically is China and India story primarily and South America et cetera. So we believe -- we expect a good chunk of the growth coming from there and as a result of that partnerships with companies like MediaTek are more important clearly. Hopefully that helps clarify that.

Operator

Thank you. Our next question comes from the line of John Tanwanteng with CJS Securities. Please go ahead.

Jack O'Brien - CJS Securities

This is actually Jack O'Brien filling in for John. I was just wondering how you guys feel about the demand for the 60 gigahertz products. And if potential customers are shying away from the high cost or if they are more willing to embrace the new tech in order to achieve differentiation?

Camillo Martino

I think whenever a new technology is introduced, clearly price is always is a consideration. But we have a lot of interest as we comminuted in our products. If you were to go back over the last 10 years and look at other products that were introduced at the very beginning, things like Wi-Fi, Bluetooth, GPS all of those radios were introduced at $10 to $15 each frankly on the first day. It’s new technology and at the very beginning there was a lot of interest until a used case for the user was established, so we don’t see this is any different. We’re in the process of establishing the use case and with this adoption of this use case it’s going to drive volume long term and ultimately the price is going to come down. So it’s no different to the introduction of any other wireless technology in the last 10 to 15 years frankly.

Jack O'Brien - CJS Securities

And then I know you addressed this a little bit earlier in your prepared remarks, but 4K seems to be the biggest buzz word at CES. I am just wondering if this trend is going to have a measurable impact on you this year. And whether you are less or more excited about where displays and smart devices are going versus three months ago or before CES?

Camillo Martino

The short answer is yes. We definitely think 4K is a catalyst, so within the guidance that we have given for 2014 specifically for CE, I think we talked about an approximately 15% number year-on-year. Within that is build a 4K -- excuse me catalyst. And what we saw at CES certainly validated frankly what we expected going into CES.

Operator

Thank you. Our next question comes from the line of Rajvindra Gill with Needham & Company. Please go ahead.

Rajvindra Gill - Needham & Company

Just to follow up on the question, with respect to the annual guidance, you are basically saying you are going to grow at least what you grew in 2013 you have driven 9.5%. So that does imply a little bit of a slowdown in the MHL business, I think you said just remind me mobiles will grow at least 10% year-over-year, for 2013….

Camillo Martino

Yes, that’s right.

Rajvindra Gill - Needham & Company

For 2013 mobile grew 42%?

Camillo Martino

23%.

Rajvindra Gill - Needham & Company

So there is a growth rate of decelerating just in MHL, is that mainly because as you say the ASPs are coming -- is going to be a little bit lower because of the mix shift?

Camillo Martino

That’s a factor. Clearly the other thing that no one talked about was the trend out there in the premium or high end smartphones some softness that we see, no different to any other reports you are reading as well. And so what we’re saying the growth, our expectation is the growth is going to come from the mid-range and geographically that would imply the opportunity that we have always talked about like China or India very specifically.

Rajvindra Gill - Needham & Company

And the -- are you seeing any other with respect to MHL any other alternative technologies that are out there that are perhaps either taking some share from MHL?

Camillo Martino

No, nothing of any material consequence. Just look at the numbers we talked, 360 million smartphone were already shipped with MHL, 450 million cumulative. This is an ecosystem that’s building phenomenally and don’t forget Rajiv I know you have right reports on this very specific point. Televisions today, all new televisions in 2013, 20% of those have MHL and we expect that number to exceed over 40%. So in order to be truly successful standard -- I know you are thinking of something there, you need to be strong both on the phone as well as the televisions; it’s not just a mobile play.

So that what we’re focused on, we’re really focused on building the ecosystem, it’s not just a display as we mentioned and the mobile phone but automotive PC monitors, we talked about the PC monitor was a very huge growth in the last 12 months penetration with MHL. So this is about an eco-system play, this is not about putting out a press release or some fancy buzz words.

Rajvindra Gill - Needham & Company

Right. And just last question from me, the CE business growing 15% year-over-year and you said a big part of that, good portion of that will be because of the 60gigahertz. So I assume that even 60 gigahertz even chipsets that are being built as accessories and that along with TVs or the consoles or could you maybe describe a little bit, could you elaborate on that?

Camillo Martino

You’ve seen some examples of products that are already we’ll not show some of those you may have seen at CES events. So, for example, Dell laptop has such a product, the Sony head mount display, Epson projector and some other, there are some other end-to-end adapters, wireless adaptors. So, there is a whole host of these categories and other categories that we have not yet discussed. But this is what we expect to drive the growth in CE.

And by the way, the CE growth, overall, I did say wireless is a very big component of that for this year. We do see, as we mentioned 4K as being a catalyst within the CE growth, within the traditional TV and AVI chips that we’ve been selling, that we’re selling. So it’s not just wireless so there is a -- there are other contributors to the 15% growth expectation for this year.

Operator

Thank you. Our next question is from the line of Richard Shannon with Craig-Hallum. Please go ahead.

Richard Shannon - Craig-Hallum

Hey guys. How are you doing? Just here a couple of few questions from me, first of all, you talked about MHL increased penetration into the mid-range. The assumption is there that a lot of that will be from discrete chips. So when do you see the risk from integration with media tech and we can see others integrating in that in the chipset and taking over from discrete solutions in that range, is that a sort of 2015 or what’s your best guess on that?

Camillo Martino

Well, we don’t really see that as a risk because we’ve tried to share on every, I think, pretty consistently, on every conference call in order to expand any of about standards then it’s true for HDMI and it’s becoming true for MHL in order to truly achieve a global standard. You need to have the chipset vendors integrating this feature for the low-end, in particular. Otherwise, it’s not really a standard, right it really just becomes a high end feature. And so, we are actually actively encouraging that. We’re on the road. We’re encouraging these companies to integrate this thing at the low end, this standard, and at the higher end, we have a newer version of the standard.

So this is the fundamental core of the strategy. You have a new version of a standard that’s launched at the high end and at the lower end of course it’s integrated. And so that’s how, over time, systematically, we expect to achieve a very-very high penetration rate across all products. And so HDMI follow that model and we saw the success there. We’ve got 3.5 million units total with HDMI. And so, we would expect MHL to follow a similar part if that make sense.

Richard Shannon - Craig-Hallum

Okay, fair enough. You mentioned the expectation of seeing some of that benefit from MHL in the mid-range coming from China and India. Do you see that happening more with kind of your top five to eight leading global smartphone OEM brands or from more local brands in those countries?

Camillo Martino

No, we would expect it for both categories. In some cases, our traditional customer base, our existing customer base, I would say, assuming that market and clearly we’re seeing local opportunities, both within China as well as India as well.

Richard Shannon - Craig-Hallum

Okay, fair enough. One last question from me, your product gross margins have done quite well in 2013 when I think you started the year thinking there a little bit more cautiously, and obviously you guys have performed and executed well there. As you look into 2014, what’s the path of that and how does the mix of both, better growth in CE as well as potential increased contribution from 60 Gigahertz, impact that?

Noland Granberry

So, Richard, this is Noland. I think what we will see some downward pressure on the margin just from a standpoint of fee pressures. And we did drive a lot of cost in our processes out this year. But at the end of the day we still believe that we can achieve our target range of that 45 plus amount. But one thing true note though that the more mix of our products that are based on the new standards, that’s a good positive because those are higher ASP and higher margin, higher margin parts. But overall I think you’ll see some dollar pressure of course to the year.

Operator

Thank you. And your next question comes from the line of Christopher Longiaru with Sidoti & Company. Please go ahead.

Christopher Longiaru - Sidoti & Company

So my question has to do with kind of how the 40 I mean 60 gigahertz progression and MHL progression plays out. It seems like lot of the end markets for that are pretty much the same or similar. Do you expect basically that that 10% growth number that you put on MHL, it’s basically MHL level out at 60 gigahertz kind of takes over. Could you give us a relative expectation for how that progression looks in 2014?

Camillo Martino

I think in 2014, we don’t expect any impact to the MHL from wireless but these things are going to coexist for many years to come, one is a rather low price solution, one is more expensive solution, one droves power, one generate powers so it really needs differences. So, all the time and defined over time is not the finest 2014 but longer. You may see some impact in the future but we’ll now see that short term.

By the way, just to give you another data point the ultra-gig 6,400 product that we announced which is the mobile version of this 60 gigahertz solution that actually integrates MHL as well. We will actually put both functions on the solution because there is need for. So such as one or the other, we actually provide both.

Christopher Longiaru - Sidoti & Company

And just in terms of CE, large part of that is penetration with Samsung and you already have relationship with Samsung. What’s the timing between design announcements and design win announcements and revenue? Can you just give us refresher on how the timing works?

Camillo Martino

Well, regularly should be zero, meaning we can’t announce a design win until we start shipping and until they start shipping. So, in a perfect world there is no time difference at all. So, I’m not sure if that’s obviously good.

Christopher Longiaru - Sidoti & Company

And just in terms of just your visibility at this point in to the quarter. What’s the turn’s number that hit your guys for the quarter?

Camillo Martino

I think if you’re looking at our comment historically about 50% annual whatever, I think when we’re little bit above that. So, we do have a decent window (Ph) to where we should check out.

Operator

Thank you. Our next question is from the line of Tom Sepenzis with Northland Securities. Please go ahead.

Tom Sepenzis - Northland Securities

First question is TVs are close to 30% penetrated at the end of 2013 I’m just wondering where you think you can get by the end of 2014.

Camillo Martino

What we think at end of 2014, where we see it publically is over 40%. That’s kind of number we’re seeing of new shipments during the year and its approximately 28% we believe for 2013 and there was a big jump from roughly 6% in 2012.

Tom Sepenzis - Northland Securities

And where do you think it gets by the end of this year.

Camillo Martino

We think that number is over 40%.

Tom Sepenzis - Northland Securities

Okay. And I wanted to ask -- you said that earning is going to be expanding a little bit faster than the top line in 2014 and I’m just wondering is that, what’s the major drive there, is it gross margins or operating expenses coming down or credit licensing revenue, how do you feel for now.

Camillo Martino

There is couple of things, one is that we continue to look at our spend and looking to improve as I highlighted on the call. When I call our operational efficiency managing our spend. In addition to that is that we always talk about leveraging that spend and from wireless perspective the improvement in any wireless revenue over and above we’ve done that there will be an improvement to the margins. And as you look back over the last three years, you could see that we’ve generally have grown operating margins year-to-year consistently. So we expect to do the same in 2014.

Tom Sepenzis - Northland Securities

And the blended ASP you gave of $0.92 is that for all products or just -- that wasn’t…

Camillo Martino

Yes, for everything.

Tom Sepenzis - Northland Securities

Okay. And I apologize just [indiscernible] PC was 3 million; licensing is 14.4 can you give the inputs for mobile and CE.

Noland Granberry

Mobile was 27 million and CE was 16.9.

Operator

Thank you. Our next question is from the line of [indiscernible]. Please go ahead.

Unidentified Analyst

Okay, thanks. You have some mind boggling numbers with MHL you said you with the install base over 450 million. Sort of two questions here, I mean how much of that you exposure to between licensing and shipment and my question really is all of your growth going to be from incremental market penetration or is there potentially some market share to begin or you pretty much have all that wrapped up.

Camillo Martino

I’m sorry I missed the first part of it, could you repeat it, I’m sorry.

Unidentified Analyst

Accumulated shipments on MHL like 450 million units; I mean is there any market share to be gained or is it pretty much of penetration story.

Camillo Martino

Well, there is opportunity to begin, I think what I mentioned in my remarks is a number in the low 20% range penetration of MHL in all Smartphone so clearly its opportunity for growth there. So that’s one area. If you look at in other segments, you know, television’s over 40%, clearly there’s an opportunity there, there’s docking stations there’s monitors, there’s a whole host of other type of products where we believe MHL has an opportunity to grow and so from that standpoint we expect market share to grow. Now IP, you know the IP opportunities are there as well, they’re there now, and they will continue to appear as you would expect whenever you introduce a new version of the standard, I would say probably six months later or so you’ll probably start to see these opportunities and so, the opportunities we’re seeing now and we hope to realize some of these IP opportunities throughout the year and it’s no different from the launch of any other new standard.

Unidentified analyst

Okay, but I guess you pretty much have that four hundred fifty million units, that’s pretty much all yours right? I mean is there is anybody else that you’re sharing with that at all or no.

Noland Granberry

Today I think the vast majority is pretty much also a [indiscernible] on mobile side, so on a mobile side is also [indiscernible] today, on the CE side in order to get the penetration rate that we mentioned, obviously our portion of that at the high end is very high with a discreet solution, but there’s another portion which is the mid range and the low end televisions and that’s being served predominantly by an integrated solution in the associates, so this is exactly the strategy that we’ve been driving and it’s playing out exactly right now.

Operator

Thank you, the next question’s a follow up from Richard Shannon of Craig Hallum, please go ahead.

Richard Shannon - Craig Hallum

Hey guys, just one quick follow up from me, your new standards introduced last year MHL version 3 and HDMI 2.0, what kind of percentage of those businesses do you expect to be from a leading edge version this year.

Camillo Martino

I think that’s probably not a number that we’re prepared to guide at this point, clearly, just look at a typical cycle right, you introduce a new standard, samples of that standard best case may appear say three-four-five months later and so then a cycle begins. So it’s going to take a little bit of time, but we do expect within this year, clearly this year we do expect revenue from product with both HDMI 2.0 as well as MHL 3.0 but it’ll grow over time and clearly in 2015 will be the vast majority, if that helps.

Operator

Thank you and I’m showing no additional questions at this time, I’d like the turn the conference back to Camillo Martino for closing remarks.

Camillo Martino

All right, thank you, so thank you everyone for joining the call, Silicon Image continues to perform well with increasing revenue and earnings and we look forward, looking forward we’re increasingly optimistic of our ability to continue the growth trend, we believe the standards and product activity in 2013 laid the foundation for a successful 2014, I would like to thank you for your continued support of Silicon Image and we look forward to reporting on our progress next quarter, we’ll be at the Northland and Wealth conferences in the first quarter and we look forward to speaking with many of you in the coming months, thank you again.

Operator

Thank you, sir, ladies and gentlemen if you’d like to listen to a replay of today’s conference please dial 1-800-406-7325 or 303-590-3030 using the access code of 466-2072 followed by the pound key. This does conclude the Silicon Image Fourth Quarter 2013 and year end conference call, thank you very much for your participation, you may now disconnect.

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