Silicon Image's (SIMG) CEO Camillo Martino on Q2 2014 Results - Earnings Call Transcript

Jul.30.14 | About: Silicon Image, (SIMG)

Silicon Image, Inc. (NASDAQ:SIMG)

Q2 2014 Earnings Conference Call

July 30, 2014 5:00 PM ET

Executives

Alex Chervet – Senior Director-Investor Relations

Camillo Martino – Chief Executive Officer

Raymond Cook – Senior Vice President and Chief Financial Officer

Steven Robertson – Vice President-Finance

Analysts

Jonathan Tanwanteng – CJS Securities

Charlie Anderson – Dougherty & Company LLC

Christopher Longiaru – Sidoti & Company, LLC

Richard Shannon – Craig-Hallum

Dan Scovel – Edison Investment Research

Josh Buchalter – Needham & Company

Tom Sepenzis – Northland Capital Markets

Operator

Good day, and welcome to the Silicon Image Second Quarter Fiscal Year 2014 Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Mr. Alex Chervet, Senior Director of Investor Relations. Please go ahead.

Alex Chervet

Thank you. Good afternoon, everyone, and welcome to Silicon Image’s second quarter 2014 financial results conference call. I am Alex Chervet, Senior Director of Investor Relations at Silicon Image.

Joining me today from our headquarters in Sunnyvale, California are Camillo Martino, the Company’s Chief Executive Officer; and Steve Robertson, our VP of Finance. I’m also happy to introduce Raymond Cook, our newly appointed Chief Financial Officer, who is also sitting in on today’s call.

On today’s call Camillo will provide an overview of the business, including a short update on products and markets. Steve will then provide detail on our financial results and provide a financial performance estimate for the third quarter of 2014 and the year.

Before I turn the call over to Camillo, let me remind listeners that during the call, we will be making forward-looking statements based on our current expectations regarding many aspects of our business and 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.

Our 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 describe in today’s press release and in the most recent 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.

With that, I’d like to turn the call over to Camillo.

Camillo Martino

Thank you, Alex. Good afternoon, everyone, and thank you for joining our second quarter 2014 earnings call. Before we get started, I wanted to welcome Raymond Cook, our newly appointed CFO. Raymond is a seasoned high technology executive with experience in semiconductors, storage, wireless and wire line technology. I am very pleased to have Raymond join our team, and know that has experience and depth of knowledge will be of great value to Silicon Image. So welcome Raymond.

Raymond Cook

Thank you, Camillo, and good afternoon, everyone. It’s my pleasure to be a part of the Silicon Image team and I look forward to the opportunity of working with such a talented group of individuals and to getting onto the road and meeting many of you individually over the next few quarters.

Camillo Martino

Okay. Moving onto to the quarter, this has been a challenging quarter for the high-end smartphone market. However, the overall mobile market is expected to continue to grow, and based on the traction we see in the MHL ecosystem, which is now 0.5 billion units strong, we expect that our business will grow along with that market.

Operationally, we continue to execute on the three key initiatives that we discussed on the last call, which are: one, to drive MHL into the mid-range phones by expanding our presence into China, India and emerging markets; two, to capitalize on our emerging and significant 6-gigahertz business opportunity; and three, to maintain our focus on operating expenses as we continue to drive our existing businesses. We believe that these initiatives are fundamental to growing revenue, diversifying our customer base, and ultimately driving long-term shareholder value.

Before I discuss each of our business segments, I would like to highlight two important items. Firstly, in the quarter, we completed the strategic acquisition of Update Logic, which we believe will provide a meaningful addition to our longer term licensing revenue stream. Update Logic’s provisioning, software distribution, and remote-access products target the same customer base and are a natural complement to the products we currently sell.

Secondly, we continue to see significant activity in the 60-gigahertz wireless space. We believe that this is an indication of the significant opportunity in the 60-gigahertz wireless market and that our investment, expertise, and industry-leading technology represent a significant asset for the Company. Looking at our individual business segments now, starting with the mobile segment. Mobile product revenue for Q2 was driven primarily by continued demand for MHL 2.0 products and the wrap of MHL 3.0 products.

However, as we mentioned previously, we are seeing greater emphasis towards mid-range phones and we continue to believe that the primary growth in the smartphone market will be concentrated in the mid-range. As such, we continue to focus our resources in that area, particularly in China and India regions.

During Q2, we continue to see new MHL enabled smartphones based on the MediaTek reference design with our MHL transmittor as it released to the market such as the new OB smartphone recently released in India.

We saw continued MHL 3 momentum, with the release of ZTE’s Nubia Z7, which was just announced. The ZTE smartphone is the second 4K Ultra HD smartphone based on MHL 3 and was recently introduced as ZTE’s premier launch event attended by over 500 media, press, industry experts, and analysts. And also, we engage with Toyota Electronics, which is a major distributor based in Japan, specializing in the automotive market, to accelerate our efforts to provide MHL solutions for manufacturers in Japan.

Moving on to our CE business, we are very pleased with the momentum in our CE business, which has shown a 38% increase when comparing the first half of 2014 to the same period in 2013. The continued adoption of 4K Ultra HD in the marketplace with Tier 1 brands offering 55-inch 4K Ultra HD televisions at retail for less than $2,000 was a strong contributor our CE growth. We feel confident that this strength will continue throughout the year and anticipate 55-inch 4K Ultra HD TVs selling for sub-$1,000 by end of this year. We also note that many 4K Ultra HD televisions support MHL 3.0 with models from both Sony and Samsung already available at retail.

Looking at 60-gigahertz wireless now. The industry has seen increased activity around the 60-gigahertz wireless technology with two notable acquisitions during the quarter. Firstly, Qualcomm completed their acquisition of Wilocity, a private WiGig company. And secondly, Google acquired a company called ElpinTell, which is the developer of the 60-gigahertz wireless backhaul equipment that partnered with us in our booth at the Mobile World Congress in Barcelona earlier this year.

These events have fueled excitement in the 60-gigahertz market and we share that excitement. In the same way that multiple companies provide Wi-Fi solutions for the market today, we expect that there will be multiple companies that provide 60-gigahertz solutions and we continue to believe that we are well-positioned to be a major player in this market.

We believe that Qualcomm’s strategy acquiring Wilocity is to accelerate the adoption of 60-gigahertz WiGig in the mobile market segment. In addition to the wireless HD solutions that we have developed and shipped to market, we also have a WiGig solution planned and we are now in the advanced development stages of this product. Our WiGig solution should be well-aligned with the market ramp of the WiGig standard expected to be in the second half of 2015.

Turning now to our licensing business. Our licensing business performed in line with our expectations when you include HDMI royalty payments we discussed a few weeks back. Our IP continues to be a strong contributor to the company gross margins, but equally important is that by licensing our IP cores for the standards we champion, we help those standards achieve higher penetration in the marketplace, which is critical in creating a true, ubiquitous global standard.

Our fundamental IP core licensing strategy is to license to previous iteration of a standard while selling discrete ICs that implement the most recent version of that standard. Generally speaking, it takes approximately 18 to 24 months to integrate a technology into a system. So, by the time it reaches that market it appeals to mid- and entry-level devices while our discrete ICs appeal to the high-end. In this way, the overall standard grows through the proliferation of integrated parts and our business grows as the high end of our larger available market continues to adopt their IC’s with the most recent functions and features.

So, in summary we continue to execute on our three key initiatives and we are confident in our longer terms strategy. Our full year outlook is heavily depended on the performance of our largest customer. However, we have worked closely with the customer, and with their other logic and CE and believe we have reasonable visibility into the full year 2014 revenues. It is not our practice to provide guidance beyond the next quarter.

However, due to the unexpected top line result in Q2, we felt that in this special circumstance it would be appropriate to share our view for the balance of the year.

I would now like to turn the call over to Steve for detail on the Q2 numbers and guidance for Q3 and the year. Steve?

Steven Robertson

Thank you, Camillo, and good afternoon. Please note 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 page to provide you with our quarterly comparative results. Revenue for Q2 2014 was $59.5 million, compared to $61.6 million for Q1 2014 and $73.7 million for Q2 2013. Product revenue totaled $50.9 million for Q2 2014 versus $46.8 million for Q1 2014 and $63.7 million for Q2 2013. Our Q2 product revenue was adversely impacted by softness in the mobile market experienced by one of our largest customers.

Our CE product revenue continue to strengthen during the quarter, totaling $22.6 million as compared to $18.3 million for Q1 2014 and $16 million for Q2 2013. This represents a 38% first half over first half increase for our CE business and was driven primarily by continued success of parts designed to support 4K Ultra HD as well as continued strength in our Dual-Mode HDMI MHL port processors.

Our mobile product revenue totaled $24.8 million versus $25.3 million for Q1 2014 and $44.6 million in Q2 2013. As Camillo mentioned we are focusing our efforts to position ourselves to expand our market share in the mid range market segment with particular focus in growth areas such as China and India.

Our legacy PC business totaled $3.5 million for the second quarter. This compares with $3.2 million for Q1 2014 and $3.1 million for Q2 2013. As previously stated, we continue to see a revenue tail in our legacy business but anticipate its eventual decline. For Q2 2014, the blended average selling price for our products was $0.97 per unit as compared to $0.91 per unit for Q1 2014 and $0.92 per unit in Q2 2013. Driven primarily by a shift in product mix and higher ASP’s derived from the continued ramp of HDMI 2.0 and MHO 3.0 products.

Licensing revenue for Q2 2014 was $8.6 million versus $14.8 million for Q1 2014 and $10 million for Q2 2013. Royalties from our standard activities core licensing deals as well as our patent moisturization actions were key contributors to our licensing revenue during the quarter. Including the HDMI royalties, which have been deferred pending completion of an amendment to the founder’s agreement, our licensing revenues would be line with our overall expectations.

Our gross margins for Q2 2014 was 58.9% versus 60.3% for Q1 2014 and 58.2% for Q2 2013. Our overall gross margins continue to exceed our long-term model of 55% due primarily to the mix of licensing revenue which generally has margins exceeding 98% versus our product margins which range between 25% and 50% depending on product mix.

Our product margin for the second quarter 2014 was 52% compared to 47.8% for Q1 2014 and 51.9% in Q2 2013. While in line with our expectations our increase in product margin for the quarter was due to changes in product mix and a higher contribution from our CE business which is benefiting from the ramp in HDMI 2.0 and MHL 3.0 products.

Operating expenses for Q2, 2014 were $30.3 million, compared to $31 million in Q1, 2014 and $34.1 million in Q2, 2013. Our spending for the quarter was in line with our guidance and we remain focused on managing our expenses while perusing specific growth initiatives.

Stock-based compensation, totaled $2.3 million for Q2, 2014, compared to $3.1 million in Q1, 2014 and $2.4 million in Q2, 2013. GAAP net income for Q2, 2014 was $1.1 million, or $0.01 per diluted share, for Q1 2014 our GAAP net loss was roughly $100,000. For

For Q2 2013, our GAAP net income total $4.2 million or $0.05 per diluted share. For Q2 2014, our non-GAAP net income totaled $3.4 million or $0.04 per diluted share versus Q1 2014 $4.3 million or $0.05 per diluted share and $6.5 million or $0.08 per diluted share for Q2 2013.

Diluted weighted average shares outstanding for Q2 2014 was $80 million versus $80.1 million for Q1 2014. Diluted weighted average shares outstanding for Q2 2013 was $78.7 million shares.

Moving to the balance sheet, we exited the quarter with $140.7 million in cash and investment or $1.76 per share. For the second quarter 2014, our accounts receivable totaled $26 million or 39 days sales outstanding, and it is below our target DSO range of approximately 50 to 55 days.

Net inventories as of June 30, 2014 was $23.7 million, which represents approximately 4.1 turns on an annualized basis. The sequential increase in inventory represents a significant adjustment to the anticipated level of shipments to our largest customers during the quarter. We anticipate our inventory level to decline during Q3.

Capital expenditures for Q2 2014 were $1.5 million, compared to $1.3 million for Q1, 2014 and $1.6 million for Q2 2013. This completes my summary of our Q2, 2014 financial results. The following represents our financial outlook for the third quarter of 2014, excluding HDMI royalties for the three quarters ended September 30, 2014.

Revenue $70 million to $75 million, gross margins approximately 58%, GAAP operating expenses approximately $38 million, non-GAAP operating expenses approximately $34 million, non-GAAP tax rate of approximately 30%, Q3 diluted shares outstanding approximately $80.9 million.

Looking at the outlook for the remainder of the year, which anticipates the inclusion of HDMI royalties. We now expect the following 2014 full-year outlook. Revenue down 4% to 8% as compared to 2013, gross margin approximately 60%, non-GAAP operating expenses $127 million to $130 million, non-GAAP tax rate of approximately 30%.

This outlook continues to be upon certain key customers maintain in their forecast and shipping balance. This concludes my remarks. Operator we will now take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll take our first question from Jon Tanwanteng with CJS Securities.

Jonathan Tanwanteng – CJS Securities

Hi guys, thanks for taking my questions.

Camillo Martino

Hi Jon.

Jonathan Tanwanteng – CJS Securities

Just small three parts here; on the WiGig product that mentioned. First of all, the margins for that business be similar to your existing product margins. Second is that a standalone WiGig chip, does it include wireless HD as well; and third, is there a timing window when that might actually hit the market?

Camillo Martino

We haven’t fully announced all of our product lines to WiGig and so I think today what we announced is the fact that we are in the advanced development stages of the product, stay tuned, we do have big plans for that product. But in terms of product margin specifically, we expect it to be in line with the rest of our products, which is typically in the 45% to 50% range. This particular quarter was higher than that range. But typically we got into 45% to 50% range.

Jonathan Tanwanteng – CJS Securities

Okay, great, and then in terms of the guidance, I’m just wondering what occurred in the two weeks since you pre-announced, you kind of saw flat to down revenue so you then now you down to 48%, was there a change in your outlook or some other dynamic involving a large customer there.

Camillo Martino

We said flat to down it was very – let’s say it was early in the process three weeks, and the last three weeks we spend a lot of time with our customer base to get a better understanding. There is lot of moving parts out there, and you read the press like everything the coverage right now, the market is changing, there is lot of things happening in China right now, big growth in the mid-range and that’s the reason why we took the approach in order to – we took a slightly conservative approach in guiding 4% to 8% down.

Jonathan Tanwanteng – CJS Securities

Okay, thanks. And then finally just on the Nubia win, is that a MediaTek reference design or are they a direct customer of yours and do you see other kind of Chinese vendor following suit with the MHL 3.0?

Camillo Martino

Yes, this is a direct customer of using our parts.

Jonathan Tanwanteng – CJS Securities

And then on the other vendors like the Lenovo’s, the Huawei’s, the Xiaomi’s.

Camillo Martino

We continue to work with all of these customers and we think that over the next year we expect more announcements to be made for these companies using our material product. But at this point it was just – that particular, the reason why we mentioned is ETU on because that was quite a major launch – big industry event that put out by (inaudible) which participated in, but you know we are working with MediaTek as you know, we have got a number – we put a reference that with that we have press release put out with them and so we do have expectation at next year. We expect to see some good contribution on the mid-range segment.

Jonathan Tanwanteng – CJS Securities

Okay. Thank you very much.

Camillo Martino

All right. Thank you, john

Operator

Our next question comes from Charlie Anderson with Dougherty & Company.

Charlie Anderson – Dougherty & Company LLC

Yes, thanks for taking my question. I just want to make sure, I am getting this right that you are including the deferral of HDMI [royalties] (ph) in Q4, not in Q4, correct?

Camillo Martino

Yes. Again, we took a slightly conservative approach we want it to be included in the full year guidance we believe will close, but end of year we are still shooting and hoping that will happen in Q3, but we took a conservative approach and decided to exclude it from Q3 guidance

Charlie Anderson – Dougherty & Company LLC

And could you talk about sort of where you are in that process in terms of the number that you could include in your guidance, is that a pretty solid number you are been concerned with about that as well.

Camillo Martino

You know, where we are in the process is typically this is a not typically, but it is a confidential process. We are not in a position to disclose the discussions that are going on behind closed doors with the other six founders, but as we said on the last call we had few weeks back the economic terms have been agreed, so by and large, so we are confident about that, so we are discussing some others terms which are not financially related so hence the guidance we gave.

Charlie Anderson – Dougherty & Company LLC

I noticed you had a day service line on licensing revenue I wonder what that was this quarter.

Camillo Martino

The services line is related to activities associated with the acquisitions that we did over the – during the quarter.

Charlie Anderson – Dougherty & Company LLC

Got you. Okay. Thank you so much.

Operator

From Sidoti & Company we’ll now move to Christopher Longiaru.

Christopher Longiaru – Sidoti & Company, LLC

Hi guys, thanks for taking my question. First, just in terms of the licensing revenue, there has been back licensing revenue that was out years, so does that all kind of filter into the December quarter here or is that you were assuming there is a pad of that beyond December.

Camillo Martino

It’s cumulative, if you look at the Q, you might be either in third, there is a deferred revenue there, so what we’ll expect that the entire cumulative amount for 2014 HDMI royalties will occur the revenue recognition will occur by the end of the year. So, literally, essentially what we’re saying is it’s going to happen in Q4.

Now, there is a chance that it may happen in Q3 and we’ll update accordingly, so we’ve guided with the specific point of HDMI royalties are not included in Q3 but there is a chance that it may happen in Q3. If not, he will differ and roll over to Q4 and you will have the whole year HDMI royalties all occurring at the end of the year.

Christopher Longiaru – Sidoti & Company, LLC

Okay, and that’s why the imputation of the higher gross margin for the year, is that just really showing up in Q4.

Camillo Martino

That’s right, HDMI royalties coming throughout the year, it’s all being backed up in Q4 and hence the higher gross margin outlook to approximately 60% I think is the guidance we gave today.

Christopher Longiaru – Sidoti & Company, LLC

Yes. And then, just on 4K TVs, can you talk about your penetration there and how you expect that ramp to continue?

Camillo Martino

Well 4K TVs, we are working with all rounds to customers in Japan and Korea and China and U.S. We actually working with, in fact even some European brands as well. So I think consistent with what will stand past, so like moving in the past was nine of the top 10, TV manufacturing’s that continues to the case at this point in time and we expect the CE to be a pretty solid contribution for the remainder of this year.

Now, I did call out in my prepared remarks that the first half of this year was 38%, the CE contribution 38% higher than the first half of last year. That’s not necessarily a trend that we are going to see for rest of the year. But overall, we do see CE to be a meaningful contribution for the whole year, so we are pretty happy with that result.

Christopher Longiaru – Sidoti & Company, LLC

All right, great, I’ll jump guys. Thank you. I have one more actually, can you just comment on the jump in the GAAP operating expenses quarter-to-quarter, are those tapeout costs.

Camillo Martino

Yes, generally the bump up is just the timing of takeout cost. So, that is what’s being reflected in these numbers.

Christopher Longiaru – Sidoti & Company, LLC

Okay. And so I am guessing it’s around $4 million?

Camillo Martino

It’s in that range, yes.

Christopher Longiaru – Sidoti & Company, LLC

Okay, great, thanks guys, I’ll jump.

Camillo Martino

Thanks Chris.

Operator

We’ll take our next question from Richard Shannon with Craig-Hallum.

Richard Shannon – Craig-Hallum

Good afternoon everybody. First of all welcome Raymond Cook let to work we see you again. Look forward toward, it couple from questions from me, I guess you’ve talked about some strong engagements with 60-gigahertz kind of a two part question for you.

Can you slice up the end market engagements where you are seeing that mobile versus base station versus other. And then also can you tell us a little bit about our strategy with your forthcoming WiGig product, are you intending to be more of a mainstream supplier, you’ve got some special hooks or whatever that you are going to be come up with the unique approach here.

Camillo Martino

Yes, look it is probably a little bit too early to tell exactly what the strategy is, for our WiGig product. We do have a planned launch for that at a little bit later stage and so all the details will come out at that time, we thought it was appropriate to mention something today, that we are deep in the development all of our product in the advanced stages of the development.

We always generally speaking will like to have a standard plus approach even within in WiGig today, people talking WiGig, but frankly they are things in the WiGig specification that are still being worked on. And that specifically is the video side, I think the market is looking for a clear direction on the video side of WiGig. And so there is an opportunity for us to professionally participate.

But as we’ve talked about in the last couple of calls the 60-gigahertz is really quite a big opportunity for many companies. And so yes it’s true that we are shipping today products with wireless HD, we do anticipate to ship 60-gigahertz products with the WiGig standard as well, potentially between PC applications, potentially also mobile applications, mobile backhaul. There’s all of the applications that we mentioned. And potentially there maybe some ship 60-gigahertz products that we’ll be shipping in the future that have neither of those two standards. So 60-gigahertz represents a much bigger umbrella of portfolio of opportunities as opposed to just WiGig only.

Richard Shannon – Craig-Hallum

Okay. Fair enough. I appreciate those thoughts, Camillo. Next question for me, any way that you can characterize the engagements with MediaTek on the reference design? What we might look for them over the next couple – two, three, four – quarters? Could this be a material part of your mobile business, as we look a year from now, as an example?

Camillo Martino

Well, I can tell you that the relationship is quite solid we have a lot technical and sales channel related meetings with MediaTek on an ongoing basis we do expect that in the coming year that we start to see material, you know more, more meanings for revenue than what we’re seeing today. And we those efforts focus specifically today in the China and India regions. And we expect to expand that relationship beyond China and India, and potentially moving to other geographies like South America and others as well.

One thing we’re seeing during the discussions, one thing we’re seeing during the discussions is that MHL is really appropriate for consumers that don’t have multiple different products. You know there are many people potentially here in the United States and other parts world, that have a laptop. They have a smartphone; they have a PC; they have an iPad or the like; they have lots of different products. But in some parts of the world the smartphone is the only product you have. That, all, that’s only have to do everything, not just for phone calls, but it is your PC application as well.

So in that case when it’s your productivity tool, as well as your entertainment tool, typically was found that MHL was a great way to really, to make the smartphone work with a larger display, whether it be a PC monitor, or a television and as so now have productive real PC productivity applications running on your smartphone and TV’s as opposed to, just using as a phone. So, we’ve seen at a lot of interest specifically in countries where the smartphone is pretty much the only product you have.

Richard Shannon – Craig-Hallum

Okay. I appreciate those thoughts as well, Camillo. Maybe last question from me, probably for Steven. I was just trying to set the model together here and the gross margins here, and wondering what you’re expecting for gross margins in the third quarter? And maybe what implied might be happening in fourth quarter, as well?

Camillo Martino

Well, as I mentioned in my comments earlier, we are expecting our gross margins to be in the 58% level and then. Of course for the full year, you are having our total your margins to be approximately 60% which were obviously take into account the inclusion of the HDMI royalty revenue.

Richard Shannon – Craig-Hallum

Okay. Anything you can talk us about the product gross margins Steven?

Camillo Martino

Well, the product gross margins – we expect our product gross margins to stay within our normal range of 45% to 50%. So we’re little bit higher in the past quarter, we announced more than 50%, but it’s possible get back in to the 45% to 50% in the high 40s potentially in the back half.

Richard Shannon – Craig-Hallum

Okay, fair enough. Then I’ll jump out of the line guys thank you very much

Camillo Martino

Thank you.

Operator

With Edison Investment Research we’ll take Dan Scovel.

Dan Scovel – Edison Investment Research

Thank you for the question. Can you remind us on your update Logic acquisition, again, what that was and when it was and how much it cost?

Camillo Martino

Sure. Alex, why don’t you take a shot at that?

Alex Chervet

Dan just to give an idea Update Logic is a software company primarily and what they’re focused on is connectivity of devices of televisions, of Blu-ray players, and so forth over the Internet. So if you think of connectivity, I mean, it used to be kind of a flatly coming from your antenna then became HDMI. At this point a lot of television is delivered simply over the Internet. And what Update Logic does is the authenticate and provision devices, to let me, for example, stream Netflix to your TV, or your BluRay player. They also supply secure update of firmware, which is another component that you need in there. And that’s essentially what they do.

Camillo Martino

So this is the strategic acquisition for us, it’s very synergistic in the sense the customer base, we found to be similar to the customer base we have today and as very connectivity related to us. We think it’s right on the sweet spot for a future revenue.

Dan Scovel – Edison Investment Research

Well, when would we expect to see some revenue, I assume license revenue line item, be generating there?

Raymond Cook

Well, there’s a little bit revenue this year. Where it’s part of the licensing number. We haven’t broken it out, it’s relatively small. We’re in the investment mode, we have a number of engineers based in out there in Minneapolis today and we expect a ramp that team considerably more next year. We have two teams actually. Engineering team there and engineering team is part of that team in India, as well as we grow the team.

So I think, you are going to start to see revenue grow more next year and in a much more mini format in 2016. So which it is very much of our long term growth of being able to offer, not only Silicon as we did today, not only IP licensing as we do today, but also very high margins software service recurring revenue, service revenue, as well.

Dan Scovel – Edison Investment Research

Okay. Thank you. Also, can you comment on a percentage of over 10% of your major customer, this last quarter?

Raymond Cook

I think, Samsung is still a 10% customer they have been in the past, but – so I don’t know the exact amount, but they are more than 10%, I believe.

Dan Scovel – Edison Investment Research

Okay, okay thank you.

Operator

(Operator Instruction) We’ll move now to Rajvindra Gill with Needham & Company.

Josh Buchalter – Needham & Company

Hey guys this is Josh Buchalter, in for Raji Gill. Thanks for taking my question. I wanted to ask a question on 60-gigahertz. You had mentioned with the Wilocity acquisition semi conductor companies had to have discussions with a new partner. Could you maybe speak to that dynamic a little bit and give some color on what you’re seeing with 60-gigahertz? Thanks.

Camillo Martino

Sure look, I think, there lot of companies out there that were originally planning to work with Wilocity. I think that’s a comment we made in the past and as a result, Wilocity is now been taken off the table. And so some companies will be developing their own solution, but other companies be looking to partner with someone. And so overall we think this is a good opportunity for Silicon Image as the industry matures. Remember 60-gigahertz market is still at a very early, early stage. We’ve been told about 60-gigahertz for long time, but frankly, it’s in the infancy of growth. But as this takes off, it is going to be a very, very big opportunity.

And so if you’re out there selling Wi-Fi or you know the advanced Wi-Fi like Wi-Fi HD, we believe that 60-gigahertz is going to be necessary in the road map as well. Now, not everything is going to be integrated, I think, there was some expectations by some of the analyst that everything is going to be integrated in one chip, he thinks. We really don’t believe it is, in piece of silicon.

It will be multiple pieces of silicon in the beginning stage and as the industry matures and starts to get volume that’s quite meaningful, then you’re going to start to see some level of integration. Now, there might be some partnerships where you have more than one silicon dye, you might have multiple dyes together in one package, but I think the ultimate integration of everything on one SOC with 60-gigahertz is quite far away at this point, probably a couple of years away at least.

Josh Buchalter – Needham & Company

Great. Thank you. That’s really helpful. And furthermore, on 60-gigahertz, could you maybe talk about where you think WirelessHD is in relation to WiGig? Yes. Thanks. That’s it from me.

Camillo Martino

Sure. I think that really depends on the application as we have been saying for quite some time. WirelessHD was more about replacement for a video cable, right. It’s more of a video focused application first and for most. That’s the way it started and that’s the way it’s still is today.

WiGig, on the other hand, WiGig is more of a data focused centric application and that’s how that’s evolving and over time you are going to start to see WiGig try and add a very robust video performance inside in its standard as well. So, the two, I would say at this point are complementary and will continue to evolve. The market will ultimately decide as it always does and we are well-positioned. We are well-positioned to take advantage of the final outcome. And remember, as I mentioned in my prepared remarks, it’s not only you WirelessHD and WiGig.

60-gigahertz is a big portfolio of products. The opportunity is significant and we anticipate that there is a chance that we’re going to be selling products 60-gigahertz products that will be compatible to neither of those standard, but it will be customer-specific requirement. That’s what we’re going to do. So we don’t see this as a one-size-fits-all, I guess to answer your question.

Josh Buchalter – Needham & Company

Okay. Yes, that helps a lot. Again thanks, guys.

Alex Chervet

Thank you

Operator

We’ll now move to Tom Sepenzis with Northland Capital Markets.

Tom Sepenzis – Northland Capital Markets

Hey, guys. Thanks for thanks for taking my question. I was just wondering in terms of the different product segments, specifically with consumer electronics, you said that you don’t expect it to grow perhaps as strong as the first half of the year. But do you expect continued growth for the remainder of the year?

Camillo Martino

Yes, we do see growth for the remainder of the year, Tom. I think the only comment I was trying say is that I wouldn’t necessarily interpret if a 38% growth in the first half this year over the first half last year is an indicator of what we are doing in the second half. I mean, we do expect it to grow, but we’re not guiding, specifically we’re not guiding on a segment basis further up, but we’re in a strong position with 4K, the 4K Ultra HD televisions and we definitely expect to see category to grow through the remainder of the year.

Tom Sepenzis – Northland Capital Markets

And then, just in terms of like linearity of the year, with the licensing revenue falling in December, is it possible that December sees an increase in revenue over September this year? I mean, seasonally, normally December quarter is lower on a top line basis.

Camillo Martino

Yes, and Q4, if we look at last year’s indication, Q4 decline over Q3 is pretty significant, very, very significant, if you look at last year as an indicator. So perhaps in total revenue, even though Q4 is going to be unusually higher. I don’t think it’s going to be sufficient to offset the seasonal decline. However, if you look at the bottom line, just a pure EPS point of view, there’s going to be a very significant contribution, no question.

Tom Sepenzis – Northland Capital Markets

Okay. And then, last question, just in terms of the guidance for September, which is in the $70 million to $75 million range, I mean that would – that presupposes I would think some kind of rebound here with your mobile business and potentially your largest customer there?

Camillo Martino

So we do expect Q3 to be seasonally higher, potentially about as high as maybe what we’ve seen traditionally in the past, but we do expect Q3 to be a seasonally higher.

Tom Sepenzis – Northland Capital Markets

Thank you.

Camillo Martino

Thanks, Tom.

Operator

And it appears we have no further questions at this time. So I would like to turn the call back to Mr. Chervet for any additional or closing remarks.

Alex Chervet

Thank you. Thanks for joining us today on the call and please refer to the Investor Relations section of our web site at ir.siliconimage.com for some supplemental financial metrics on the quarter. We look forward to speaking with you again next quarter.

Operator

Once again that does conclude today’s conference. Thank you for your participation.

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