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CSR Plc (NYSE:CSR)

Q4 2011 Earnings Call

February 20, 2012 4:00 AM ET

Executives

Joep van Beurden – CEO

William Gardiner – CFO

Analysts

Nick James – Numis

Sunil George – Morgan Stanley

Stephen Mulholland – UBS

Simon Schafer – Goldman Sachs

Nick Hyslop – RBC

Andrew Gardiner – Barclays Capital

Johannes Schaller – Deutsche Bank

Eoin Lambe – Liberum

Lee Simpson – Jefferies

Joep van Beurden

Good morning, and welcome to CSR’s Q4 2011 and full year results presentation. My name is Joep van Beurden, CEO. With me here are Will Gardiner, our CFO; and Jeffrey Torrance, IR Director. Will and I will be making forward-looking statements. And before we start, I’d like to draw your careful attention to our cautionary statement. During today’s presentation, we will reference estimates, plans and expectations that are forward-looking statements.

The actual outcome could differ materially due to factors we know it from the slide and in our regulatory filings. Please take a moment to carefully read of the cautionary statement and refer to the disclosure in today’s earning release as well as the filings with the U.S. Securities and Exchange Commission on forms 20-F, 6-K for more details.

Today’s agenda, first, I will give you the overview of our Q4 and 2011 performance then Will will review the numbers. I’ll discuss outlook and go to Q&A.

First the key messages. In 2011, we make progress in our transition to being a provider of higher margin platforms to multiple end markets. That being said, we have a lot of work to do to complete that transition, further improving margins, reducing cost, allocating our capital to areas where we can grow, improving our profitability.

For Q4 2011, our revenues came in at $244 million towards the top end of our guidance. We saw year-over-year revenue growth in automotive of 15% and in home of 32% but declines in personal navigation devices, or PNDs, of 56% and in handsets of 11%.

In the fourth quarter, our underlying gross margins continue to improve to 51% up from 48.7% in Q4 2010 as we get an increase proportion of our revenue from higher margin platforms. We have confidence in our future prospects and as a reflection of that confidence, the Board is recommending a final dividend of $0.071 resulting in an annual dividend for 2011 of $0.103 per share with an increase of 5% on 2010. In addition, we are announcing up to a $50 million share buyback. As you know, we have platforms in Voice & Music, Automotive Infotainment, Digital Still Cameras and Imaging. And we’re pleased with the momentum we have in those markets.

Now, before I talk about the performance of our business groups, let me update you on the Zoran integration and our cost reduction program. We have largely completed the integration with Zoran and we have made good progress delivering towards the $130 million in cost savings as a result of both integration and organization to no longer invest in the development of DTV SOCs, set-top box SOCs and digital tuners.

Our head count which stood at 3,185 at the end of Q3 was down to 2,783 by December 31. We expect to be around 2,400 by the end of Q2 2011. If you look at our underlying Q4 OpEx run rate, we are well on our way delivering the $130 million in cost reduction by the end of Q2 2012. And as we implement our cost reduction plan, we will continue to look for opportunities to increase our efficiency and thereby accelerate our progress towards delivering our targeted levels of R&D and SG&A expense as a percentage of revenue.

Next, I will review the performance of our four business groups starting with Auto. The Auto group consists of two main parts; Automotive Infotainment and PNDs. The group’s $45.4 million revenue includes $2.3 million from Zoran.

In Q4 strong growth in Automotive Infotainment of 15% was more than offset by a decline in PNDs of 56% as navigation and location capabilities are moving towards index navigation and smartphones. We also faced increasing competition in the PND segment. For the year, this has resulted in an 8% revenue decline for Auto from $233.1 million in 2010 to $205 million in 2011.

Looking ahead, we do expect continued growth in the Automotive Infotainment market, and ongoing decline to PND market. And we are managing our investments accordingly. We do see good design win traction in Automotive Infotainment both in SOCs and in connectivity.

Moving on to the Home business group. The Home business group consists of voice and music, consumer electronics, and imaging. DTVs, set-top box and digital tuners are reported separately under their legacy products group. The group’s at $72.9 million Q4 revenue includes $15.1 million from Zoran. Excluding Zoran, Home grew with 5% from Q4 2010. Growth came from voice and music and gaming where we added a major customer. For the year, our revenues in Home of $269 million are 14% higher than in 2010, driven by $20 million in additional revenue from Zoran, the growth in stereo, audio and the gaming win.

On the platform side, we launched our Bluetooth Smart platform with the micro energy development kit. Our design wins were strong with the number of stereo Bluetooth SIG qualifications with CSR voice & usic silicon inside at 310 up from 134 in 2010. This represents a market share of more than 90% for both years.

We show design wins for computer mice and keyboards for our Bluetooth Smart product. Timex selected SiRFstarIV for the GPS-enabled sports watch and aptX was chosen by a whole range of audio companies such as Cambridge Audio, Gear4 and NAD, which leads me to mobile.

The mobile business group consists of handsets and cameras. Q4 revenues of $92.3 million includes 26.1 million from Zoran. Handset revenue was $65.1 million, which is 11% lower than Q4 2010. Camera revenue came in at $27.2 million.

For the year, mobile revenues were $323 million that is a reduction of 5% compared to 2010. This reduction is driven by Bluetooth being replaced by Bluetooth Wi-Fi products in smartphones, and intense competition in China, somewhat offset by good traction and design wins with the SiRFstarIVt. Going forward, we expect continued pressure on our handset Bluetooth business, which we expect where we addressed via CSR in 9800 Bluetooth Wi-Fi chip, the development of which is on track.

On the location platform side, we’ve launched SiRFstarV. At a CES in Las Vegas, we have demonstrated a highly differentiated indoors location technology, which has attracted significant interest from a number of leading companies. We have also seen at the Google Nexus adopted our SiRFstarIV location platform and that aptX was chosen by Sharp and Samsung.

Finally, our legacy product group. In the legacy product group, we are managing the product if you decided not to invest in any longer. DTV SoCs, set-top box SoCs, digital tuners and DVD products. We’ve created a dedicated team ensuring full support for our current customers finalizing design in projects that are underway and making sure that product returns and RMAs are dealt with swiftly and professionally. Directly upon the public announcement on December the 12, we have met with all legacy product customers to ensure them of our continued support and to address concerns. We’ve kept in very close contact with our customers, what I would call understanding of the decision, but clearly this is an area where you expect the revenue to decline over the next two years.

For Q4 2011, the revenue of the legacy products was $33.4 million slightly lower than the comparable Q4 2010 number of $34.2 million.

A few words on CSR’s platform strategy. CSR has a clear strategy. And as we discussed before, absolutely key is our ability to provide so called platforms. A platform defines the product it is part of and our customers increasingly demand integrated platforms to power their products. Platforms also drive margins. We have such platforms in voice and music, automotive infotainment, cameras and document imaging.

Over the past two years, we have seen that our focus on platforms has driven up underlying gross margins from mid 40s to 51% in the fourth quarter. But we’ve also seen that our operating cost have increased especially after the Zoran transaction. It has put up profitability under pressure and I’m not happy with that. And that’s why we’ve announced to reduce our costs with $130 million by the end of Q2 2012. As you can see from the Q4 underlying cost base and from our head count, we have made good progress towards delivering that, but there’s more to do and we’re very focused on that.

I also want to reiterate our discipline in capital allocation. We will be allocating our capital investment to the areas where we see most growth and margin potential to drive returns. And before I hand over to Will, let me walk you through the areas where we see opportunity to drive CSR’s high-margin growth and where we are investing to make that happen.

We believe there are five areas where we could experience strong growth in the medium to longer term. One Bluetooth SMART, formerly known as Bluetooth Low Energy, which creates personal area networks around devices such as a smartphone, a tablet, a car, or a TV. Bluetooth SMART connects these devices with products like keyboards and mice, remote controls, hardware monitors, sports watches, toys, et cetera, et cetera.

Two, Voice & Music, where sound on mobile devices and thinner TVs is sent wirelessly to loudspeakers, sound bars, or speaker box.

Three, Automotive, where legislation and increasing users location, connectivity and video are accelerating the use of infotainment in low and mid-end cars.

Four, the indoors location, where increased tracking of persons and assets and potential additional legislation such as E911 in the United States will place greater requirements on location technology.

And five, next-generation image sensors for use in areas like security and automotive. We believe in all of these areas, there is the potential for compelling growth in excess of current third-party expectations. We also believe that we have an advantage in these areas, based on our proprietary algorithms, in-depth understanding of the technology and strong market position.

And with that, I’d like to hand over to Will.

William Gardiner

Thank you very much, Joep, and good morning.

During the fourth quarter, we made progress against the financial targets that we have set ourselves. Our revenue for the quarter was 244 million, at the top end of the guidance range we have provided at our third-quarter results, 230 million to 250 million. Just as a reminder, our fourth quarter included a full three months contribution from Zoran, for the full year revenue of 845.2 million. Underlying gross margins for the fourth quarter were strong, at 51%, towards the high end of our target range of 48% to 52%, and up from 48.7% in the fourth quarter of 2010.

For the full-year, underlying gross margins were just shy of 50% at 49.8%, again, a significant increase over 2010 when they were 47.7%. We recorded an underlying loss per share in the fourth quarter of $0.02, worse than our $0.07 profit in the prior year and for the full year, our underlying EPS was $0.20, again lower than the $0.43 over the prior year.

And back to Joep’s comments, we recognize that we need to increase our profitability and our cost reduction plans are designed to achieve that. Our cash position at the end of the quarter were strong at $277.8 million. This is a reduction from the $440 million we had at the end of 2010, largely as a result of the Zoran acquisition and last year’s share buyback.

Turning to a more detailed comparison of the fourth quarter, revenue from the fourth quarter was – of 2011 was $244 million, a 32% increase from the fourth quarter of 2010. Zoran contributed revenue of $76.9 million. Excluding Zoran, the Legacy TSR business decreased by 10% in the fourth quarter.

Underlying operating expense for the quarter was $123.9 million, implying an annual run rate of $469 million, a good start towards our target run rate of $420 million to $430 million by halfway through the year. We delivered an underlying operating profit of $0.6 million for the quarter, ahead of market expectations but again, not as good as it needs to be. And finally, underlying EPS for the quarter as I mentioned was a $0.02 loss.

As you know, we report both underlying and IFRS numbers in our earnings release. We tend to focus on the underlying numbers as those are the ones that we use to manage the business. However, given the number of non-underlying items in 2011, I wanted to provide you some context for those items.

First, we recorded amortization of intangibles of $19 million for the year, and for those of you looking at the chart, I’m adding the numbers. There’s three different entries for amortization of intangibles on that chart. So we have $19 million for the year compared with $14 million in 2010 and the increase is due to the amortization of additional intangibles that were recorded in the Zoran deal. And for 2012, we would expect that number to be roughly $20 million for the year.

We recorded share option charges of $14 million in 2011 which were then compared to $10 million to 2010 and this is due to the increase of our employee base following the acquisition of Zoran. For 2012, we would expect that number again to be roughly around $20 million.

Turning to the more unusual items, we recorded a $28 million charge in 2011 due to making a fair value adjustment to the inventory acquired with Zoran. This is a standard requirement of acquisition accounting. We recorded acquisition fees of $13 million and integration and restructuring charges of $34 million.

The final part I would mention is that we have some significant numbers around patent and litigation settlements. As you all know, in 2010, we had the Broadcom settlement which is reflected in the $60 million charge. And in 2011, there was a mix of settlement matters and legal recoveries with a net result of a $9 million credit for CSR.

As a result of the acquisitions we have made, as well as the organic development of the business, the breakdown of our business has changed significantly.

From a formal perspective, we will be reporting four segments going forward, the Mobile Group, the Automotive Business Group, the Home Business Group, and the Legacy Products Group, and the Legacy Products Group, as we’ve mentioned, includes the digital television SOCs, the set-top box products, DVD products, and the tuner products. We will also provide you with a breakdown of the Mobile Business Group, with the handsets and cameras, and of the Automotive Group, between the automotive in-dash piece and TNDs.

Let me provide you a little bit of color on our segments and how we would probably expect them to perform going forward. The Automotive business, which is 14% of revenue in 2011 is doing well with good growth in 2011, and good growth expected going forward. This is driven by a combination of our strong Bluetooth and GPS products, as well as growing SOC business with products like Prima-II. This is, as we have described before, has a higher than average corporate gross margin. Our P&D distance, which is 5% of revenue, has been under pressure given secular trends moving navigation both in-dash and the smartphones, as well as increasing competition and we would expect that to continue.

Our Handset business which is 27% of the overall revenue has been under pressure and we would again, expect that to continue in 2012 as discrete Bluetooth continues to be replaced by Bluetooth/WiFi combos in smartphones. However, starting in 2013, we do expect that to stabilize as we deliver our CSR9800 Bluetooth/WiFi combo chip, and our location business continues to strengthen. And again, as a reminder, this segment tends to have lower than average corporate gross margins.

Camera business is 11%, has stabilized after our difficult first half of 2011 given the tsunami in Japan and the loss of the Cisco Flip business and we will expect that business to do well in 2012. I would say gross margin wise, this tends to have margins that are roughly on average or a little bit – maybe a little bit below corporate average.

The Home business is 30% of the overall mix so a good growth in 2011 which we expect to continue in 2012. Further success expected in Voice & Music while the Consumer segment is expected to be somewhat weaker as an overall through the market trend in spite of our market share gains. Again, this segment does tend to have higher than corporate average gross margins.

And finally, the Legacy Products Group at 13% should start with the client somewhat towards the end of the year before declining more rapidly next year and into 2014. And margins here tend to be lower than corporate average.

One of the key objectives of our platform strategy is to deliver higher gross margins which we believe are a strong indicator of the differentiation and sustainability of our business. During the fourth quarter, gross margins were particularly strong as a result of including a full quarter of Zoran business as well as the ongoing shift to higher margin platform business.

We continue to expect our gross margins to be between 48% and 52% and probably near the middle of that range during 2012.

Again, to reiterate what Joep said, we are very focused on delivering returns for our shareholders and that starts with increasing our underlying profitability. And I would like to remind people of where we started last year and the commitments that we’ve made.

So during the first half of 2011 before any cost reduction actions were undertaken by either a Zoran or CSR, the combined company cost base was approximately $570 million, which is the combination of those first two bars on the left-hand side of that chart. I’ll remind you that Zoran had already committed to saving $30 million, savings that have already been achieved. As a result of the various actions that we’ve committed to in 2011, we expect to reduce our operating cost base by $115 million and our cost of goods sold by a further $15 million. And we are well on track to delivering both commitments.

Our run rate cost base in the fourth quarter was $496 million which is a good start to achieving our target. To reiterate our position for 2012, we continue to expect full year underlying operating expenses of $430 million to $440 million with a run rate of $420 million to $430 million achieved by the end of the first half. That would imply the first and the second quarter underlying operating costs in the range of $110 million to $120 million.

Finally, I would say that as we go through the program, we will continue to look for additional opportunities to reduce our cost base and thereby, accelerate our progress towards delivering our targeted levels of SG&A and R&D to revenue.

As expected, our underlying tax rate for the year was about 25%, towards the higher end of the low 20s guidance that we have been giving. We would expect a similar low 20% underlying tax rate going forward. You will also have seen that we recognized the significant deferred tax assets approximately $90 million during the fourth quarter as we have completed more of our tax planning and are becoming increasingly confident that we will be able to utilize many of the tax losses that we have around the world.

On a cash basis, we paid a small amount of tax in the fourth quarter, $1.4 million and we will continue – we continue to expect that we will not pay significant amounts of tax for several years until 2015 at least.

Our inventory days increased significantly during the quarter as we are holding higher levels of inventory than usual related to our PND business which saw a drop-off over the second half of the year. We expect to be able to realize that inventory and bring inventory days down to more normal levels over the course of the next several quarters. Otherwise, our inventory is in good shape. Our debtor days remain well under control at 40 days.

Our free cash flow during the pre was a negative $10 million. As our high levels of inventory reduced, our normally high levels of working capital inflow during the period. But nevertheless, we continue to have a very strong cash position at 277.8 million.

And finally, let me give you an update on litigation. We continue to face litigation across our business. As we have said before, we expect that to continue. That being said, we had several positive outcomes during the quarter.

First, we concluded all of our merger-related class action lawsuits with all the costs being covered by Zoran’s insurance.

Secondly, the claims from investors of NorNav for their $17.5 million earnout payment was determined in arbitration in our favor and we also won our claim for our legal fees to be paid by NorNav’s investors. Other cases, as detailed both on the slide and in our regulatory filings continue.

Thank you for your attention and with that, I’ll turn it back over to you.

Joep van Beurden

Thank you, Will. Before we go to Q&A, let me summarize. I believe Q4 shows progress in a number of areas. Cost control, we’re well on our way to take out $130 million of cost by the end of the second quarter 2012. Margin progression, as the share of platform revenue is growing, our gross margins benefit.

The revenue traction, although there are certain parts of our business, but we continue to expect pressure on the top line and sets PNDs, our legacy products, we are growing in the areas where we believe we have a platform presence and strong position such as automotive, infotainment, location, voice and music, and Bluetooth Smart. We do realize that we have work to do to improve our profitability and we’re very focused on that. For Q1, we expect our revenues to be between $205 million and $225 million.

And with that, let’s go to Q&A. Nick?

Question-and-Answer Session

Joep van Beurden

Nick?

Nick James – Numis

Good morning. It’s Nick James from Numis. Just a couple of questions. First was on the SiRFstarIV, you’ve announced some more wins in this press release today. Could you just help us with how much market share you believe you’ll gain with SiRFstarIV for this year? And then just following on from that, when will we expect the ramp of SiRFstarV to begin with the indoors location?

Joep van Beurden

Yeah. So indeed on the IV, we saw a good traction. If you know last year, we won the Galaxy S II. As an example, we’ve had subsequent wins as well in China with a number of customers, now, the Google Nexus. I continue to believe that location, that presence there is very strong. We don’t really report on market share of individual components, but I think the overall position is good.

If you look what we have in the pipe, the SiRFstarV but also the variant of the SiRFstarV xp as we call it deep into our location, we think that there’s a very good opportunity for us to continue, to have a strong presence in smartphones but also in other devices.

Nick James – Numis

And is that something that which is going to happen within the next 12 months, or is it more of a 2013 story?

Joep van Beurden

No, that is that we expect that to happen like in IV is still doing very well because it’s a relatively new product. We have announced the V and we expect that to happen in the course of 2012.

Nick James – Numis

Great. Thank you.

Sunil George – Morgan Stanley

Hi. Sunil George, Morgan Stanley. Quick question on the combo chip, you said in the comments there it was on track. What can we expect in terms of milestones and what are the next steps in terms of getting this to the market?

Joep van Beurden

Yeah. We said this is a development of the CSR 9800 is on track. So that’s good on the commercial side. We are continuing this discussion with our customers who there continues to be a good commercial interest for that. So as we bring chip up, we expect that to continue over the next couple of quarters. We’ve also said and where we get to reiterate that revenues are expected in 2013.

Stephen Mulholland – UBS

Hi. It’s Stephen Mulholland from UBS. I just wondered if you could talk about, you mentioned in the Autos business, you were seeing some increased competition there. Could you possibly just talk a bit more about what you’re seeing and possibly in the Autos business what opportunity you have between autos and camera solutions?

And then secondly, just in some of the other areas how the competition is going out? You’ve got very strong market shares but are you seeing any of the Asian competitors starting to come in there?

Joep van Beurden

Yes, in automotive competition, specifically, I think a little bit of an uptick in the PND space as we talk about, I think, generally in the in-dash, the competition picture is unchanged, slightly different from what we see in other areas but I think it is as competitive as it has always been. The cycles, as you know, design cycles are a bit longer there. And if you look at our pipeline, we think we have reasonably good visibility in what’s going to happen there over the next couple of years.

Other markets, I mean, they are as competitive as they always are. For instance, in voice and music, we are facing intense competition there, we have done for a long time, I think the platform presents that we have and our ability to differentiate the end-users product has helped us there, and we usually look very hard to make sure we continue there.

Stephen Mulholland – UBS

A quick follow up. Just on the aptX solution as well, can you possibly talk about, obviously, quite a few design wins, I’m hoping the opportunity is – in just revenue terms or is there something that helps you tie in other solutions?

Joep van Beurden

Well, it’s a great example of how we can use the platform that we have increase and improve the quality of our end-users products, so aptX Lossless Codec, is a great example of how you can actually improve the end product’s quality. And there is not a few of our customers are designing in our voice and music silicon with the aptX codec, and they actually indicate with a small LED on the device, as soon as the aptX codec is kicking in because people can now see us from the outside that the quality is improved. So that is the heart of the platform strategy, bringing different shapes to the market as well as ours to protect margins and market share.

Stephen Mulholland – UBS

Okay.

Operator

(Operator Instructions)

Unidentified Analyst

... on when you started last year, you talked about that you will not see growth in the mobile market but you will – you will make – push in the other end market. So how do you see 2012 starting today? Do you see that – well Mobile is not a big driver this year given that it’s going to be probably 2013, but can you talk about the other products?

And then secondly, I have a question. The gross margin – your mix was very strong in fourth quarter. How should we be looking at the mix through this year and how we should be modeling gross margin for the year?

Joep van Beurden

Okay, let me talk a bit about mobile and then I know Will you can talk about the margins a bit. So on Mobile as we said, we do expect in 2012 to be the Bluetooth part of that under continued pressure because as we know, as we all know, that is going – is being replaced by Bluetooth Wi-Fi combination silicon. We think that will continue. It is going to be offset slightly somewhat by a strength in location. If you look at the way we view the Mobile, our platforms, we think we have a good opportunity in connectivity, but in close conjunction to our baseband partners. We also believe we have a good opportunity in location because there, there is still a lot of opportunity to increase the performance of the silicon and as we’ve seen with the SiRFstarIV but now also with the V and the deep indoors location technology we have in development, we think that will help us to going forward, strengthen our position I that part of our markets.

William Gardiner

So I guess, what I would just reiterate maybe something what I said about on the margins before. I would see that the obviously, the main driver of margin changes has been the shift in the mix. I would see during the course of this year, the sort of the changes in the mix that we’ve seen will generally continue, sort of a growing mix towards home, towards automotive, relatively less, legacy products handsets. That being said, obviously within a segment, depending on which product might be shipping, with customer tends to be bigger, you’ll have shifts within segments as well. So I think the best and my best view at the moment would be to expect something towards the middle of that range in terms of the 48, 52 probably the best grade I think about the year.

Joep van Beurden

Simon?

Simon Schafer – Goldman Sachs

Thanks, Simon Schafer, Goldman Sachs. I want to ask a question on what would you classify as legacy product, and specifically within handsets, presumably some of the standard Bluetooth parts are also perhaps legacy product if anything do with Symbian in essence? So how big should we quantify that number, I guess to Sandeep’s point, how – is that a declining number this year, is the mobile number that big of in terms of legacy parts that can’t grow, I guess I’m just trying to get an understanding as to how quickly that legacy products group goes to a much lower number I think you referred to 2013. But then also specifically, with the mobile, there is a large numbers I suspect, which is a discrete Bluetooth, so how quickly is it going away?

Joep van Beurden

Yeah, maybe, first a clarification. So what we call the legacy products group as I mentioned in my prepared remarks and I think Will talk about it too. Those are the products that we’ve decided to no longer invest in such as the DTV SOC, set-top box SOCs, digital tuners, and DVD. So the legacy product group is confined to those sets of products. What we said about that is that, it will reduce over the coming two years probably towards the end of 2012 you will see that and then a bit of a sharper drop off in 2013 as our customers will move to a newer generation.

And on the mobile side, and just to reiterate what I just said earlier, we do expect on the Bluetooth side of the mobile business in pressure, we also believe that the CSR9800 will help us there and then the other part of the mobile position is all around location, the SiRFstarIVt the Vt and the XP.

Nick Hyslop – RBC

Nick Hyslop from RBC. Just coming back to the combo chip, if we look at 2013, it’s quite along our way, so could you describe for us your level of confidence that the money you’ve invested in this product would come to a fruitful conclusion in terms of a product that will sell effectively? And then I have a follow-up.

Joep van Beurden

Yeah. So on the commercial side, I think my statement is there is good commercial interest for that part. We’ve talked about our lead customer a couple of quarters ago. There’s various other companies that are interested in that. The other thing to note is we’ve chosen that particular combination of Bluetooth and Wi-Fi because it’s also applicable to the automotive market. Right now, the mode of infotainment as you know, we have a strong connectivity presence as well. So it is clearly led by handsets but on the back of that, there’s automotive opportunity as well. So from that perspective, I think there is strong commercial interest and that’s looking good.

Nick Hyslop – RBC

So how would you describe your confidence? Your confidence is higher than it was, I say an example, I mean...

Joep van Beurden

So, well – so if you look at just to add a bit more color maybe on the development. So I talked before I think you have two main parts. First issue, you design the chip then you take it out and you bring it up. We are now bringing it up. We’ve made progress and I’m pleased with that progress over the past three months. There is still a lot of work ahead.

Nick Hyslop – RBC

And then the second part is as you look at some of the other product areas where combo chips are going to start to make more headway in your more established business outside of handsets, where do you see the most likely areas for the combo to start to emerge as also a credible platform in those areas?

Joep van Beurden

Yeah. So automotive is the first one that I – that was mentioned there.

Nick Hyslop – RBC

Timescale would be helpful.

Joep van Beurden

Pardon? Well, the timescale that is automotive by its nature is always a bit behind the consumer electronics devices because of the nature of the design cycles so at least the year behind maybe is a little bit more but at the same time, discussions, commercial discussions are ongoing.

Nick Hyslop – RBC

Any other areas?

Joep van Beurden

That is probably the two main ones, so handsets and automotives that I would mention.

Nick Hyslop – RBC

Thanks.

Nick Hyslop – RBC

Thank you. Andrew Gardiner from Barclays Capital. Just another one around of course margin and in particular what you’ve said about the percentage of your mix now coming from the platforms or newer platforms. Can we expect that to continue to increase in 2012 as well?

Joep van Beurden

Will?

William Gardiner

Yes.

Andrew Gardiner – Barclays Capital

Yeah. And so I mean presumably those are higher...

William Gardiner

I would say yes but not in the same probably not with the same speed but it has increased over the last year. So if we went out, remember the number is 36, 56 obviously the Zoran transaction has a big impact on that. So it won’t increase with that speed but marginally uptick over the year, I would say.

Andrew Gardiner – Barclays Capital

Okay. And then perhaps just a follow up relating to that you said, clearly there’s mix shift within the different product categories that we should be aware of as well. What is the variability between some of your products in terms of gross margin, I mean are we talking around that 50% midpoint, is it 10 points on either side or...

William Gardiner

Yeah. Sure, if I were to look at segments, so the Home segment generally if you think of it at maybe well at 50% and well above. Whereas the Mobile segment came to be around, for the segment, you can have 10 to 15 percentage points of difference. Now within a segment you might have similar ranges around specific product. So you might have products – so the range could be as big within a segment. What tends to happen within a segment though is that they tend to balance out. So there’s such a segment by segment margins don’t vary that much over time.

Andrew Gardiner – Barclays Capital

Thank you.

Johannes Schaller – Deutsche Bank

Johannes Schaller from Deutsche Bank, a question on your PND business, you mean, given the comments you made in the market situation and competitive dynamics, what kind of the longer-term outlook there, do you think at one point, you will get a sustainable revenue run rate and then maybe return to some growth as the PND business, maybe the business that you’re considering giving up in the longer-term? And I have a quick follow-up as well.

Joep van Beurden

Sorry, on the PND business, we said before, I think, that business is declining, as we see the PND functionality being taken over by smartphones, but also because it’s going in-dash, that trend has started a while ago in the U.S. and in Europe, it’s now also firmly established itself in Asia, so we expect that to continue. There is clearly still an opportunity for us there, but we are managing the investment in products that cater to PND specifically, accordingly, so I think, yes, the pressure on that PND segment will continue to exist as it does in Europe and the U.S.

Johannes Schaller – Deutsche Bank

At what point to the survey news will likely go away, and then be replaced by some automotive revenues?

Joep van Beurden

Well, as you see, it would probably be a while before it has entirely gone away, but I do believe that you will see the pressure there continue, and indeed, partly taken up by in-dash silicon, absolutely.

Johannes Schaller – Deutsche Bank

I understand. And my follow-up is really on the share buyback. Could you give us a bit more color on how you think about that in terms of timing, just for our modeling, maybe a bit more color on how we should think about the buybacks over the course of the year?

Joep van Beurden

Yes, so when we – I mean, the buybacks are driven by balance sheet considerations, so we look at that regularly, at the company, and look at the cash we have on hand, we look at things like where do we think the risk in the market is, what is the cash we need to run our business for inventory and working capital, what do we see in terms of investment opportunities, and our production, and our confidence in our own ability to generate cash, we weigh that and then we do have the flexibility to return some cash to the shareholders, we are very focused on those returns. Then we take action and that’s what we’ve announced this morning. That process is not going to change. So going forward, we will continue to do that on an ongoing basis.

Johannes Schaller – Deutsche Bank

Understood, thanks.

Unidentified Analyst

Good morning. (Inaudible), just so, it sounds ambiguous to me, but the rest of the combo roadmap, has that been sort dropped or what’s the situation there or you’re waiting to see what happens within the...

Joep van Beurden

Well, we haven’t announced our own entire or disclosed our entire roadmap, not just for combination semi converter in general. I want to emphasize for instance in 2011, we launched 22 new products in the market. So we have a whole range of products in development, combo being one of them. And for each and every one of them, we do have a roadmap that we typically don’t disclose for competitive reasons.

Unidentified Analyst

Okay. But I remember just about a year ago, we had quick turn in all those sort of pieces on the roadmap which has not been repeated this quarter.

Joep van Beurden

Pardon?

Unidentified Analyst

We had a quick turn in a few other pieces on the roadmap about 12 months ago so – which I haven’t seen subsequently.

Joep van Beurden

No. So what we said there are certainly other products there but we haven’t communicated about them. Nick?

Nick James – Numis

Thanks. This is Nick James again. Just on digital cameras which it seems the revenue is quite weak last year, I know you had some disruption and the Cisco thing. But if you can just articulate why you think that’s going to be a better year last – this year, I know there’s been a trend of at the low-end digital cameras getting cannibalized by smartphones. Is that a trend which is going to accelerate?

Joep van Beurden

Yeah. So a couple of things on cameras, so first indeed, the first half of 2011, Will already mentioned that, there were very specific events like Cisco discontinuing the flip, the situation with the floods, et cetera.

If you look at it now, it has definitely stabilized a bit more. Now there is a couple of things happening, first on the low end indeed, there is competition, increasing competition from phones, from smartphones. On the flip side, on the high end, we do see is there are – that some of the captive manufacturers are now starting to think about maybe using merchant silicon which of course means that the overall markets that’s available to us could increase if that indeed happens. The other opportunity we see is that there is a lot of interest in GPS technology for geotagging of pictures. And the results are a lot of interest in Wi-Fi to be able to upload pictures to your tablet or to the cloud or to your PC or what have you. So that is a couple of competitive trends that – just to believe that we do see good opportunity in the camera and imaging market.

The other thing to note is that the imaging know-how, IP, algorithms and a lot of the stuff that comes with it, having such a strong position in all these platforms, will also help us in other segments such as again, automotive where we are engaged both on a camera. Therefore, would also just imaging, quality and imaging algorithms.

Nick James – Numis

So have you got design wins for some of these areas which you’re excited about like winning people who are captive currently, winning GPS, winning Wi-Fi where we are seeing...

Joep van Beurden

We do see – we are not able to announce exactly what is it but we do see some strong interest and we are fully engaged with some of these captive life. So that gives us hope for the future there.

Nick James – Numis

But is that kind of like a one-year-to-wait type of hope or is it...

Joep van Beurden

Yes typically. I would say you know that it would certainly be. If that happens, then we are in discussions that will typically be. We now – all the spring models in cameras are launching now as we speak. So typically, that would be for the next cycle which is the spring of 2013. But if you step back from the camera opportunity, you say what are the large trends up and down, I will definitely mention that has one that’s potentially helpful.

Nick James – Numis

Thank you.

Unidentified Analyst

Just on the share buybacks, because obviously, you finished the quarter above $250 million and you’ve now announced buybacks, should we think of – and $250 million is being the level of the cash you would keep and beyond that, you would to return? And secondly, just on the cash position as well, is there any further opportunities you see right there for M&A or things you’re still looking out today?

Joep van Beurden

I’ll talk about the cash.

William Gardiner

The buyback, because there’s no sort of absolute level that we can point to. And as I guess you’ve mentioned as we’ve said before, it’s that – and we review our level of cash on the balance sheet really every quarter at the Board to make a very active decision around what we think and we need and is appropriate to keeping the business, the function of the risk in the environment, the function of M&A opportunities and obviously, the function of what we believe is appropriate to return to our shareholders. So that obviously, that decision at this time has come out to – we felt like $50 million was the appropriate level to return. And we’ll always – we’ll continue to do that every quarter going forward, right.

I would say in terms of M&A, I mean, this year we’re very focused on delivering returns, very focused on reducing costs and very focused on managing business. So I’d say that that’s what we’re going to be doing. Yeah.

Unidentified Analyst

(Inaudible) the pile-in situation et cetera, so will we be seeing a big snap back in the camera market? And secondly, I mean the big – I mean, Canon for instance is talking about big growth this year in the mirrorless cameras, as well as in the SLR, so I mean, will the – be getting traction there to help the growth in that segment?

And then secondly, with regards to the GPS market, the SiRFprimaII, and platform-based products in the automotive market, do you see that gaining substantial traction this year, such that, because to some extent, you’re going to see weakness associated with PND, but then prima will certainly have more new products ramping up, so that would help your penetration in auto?

Joep van Beurden

Yeah, so firstly on the camera side, I’d say a snapback would be a bit too strong, I would say that we have seen already some recovery relative to the levels that we saw in the first half of 2011, when it was still with Zoran, but it is, it is in a more stable environment now, which I think is what we see in the numbers as well, but what you’re indicating, the whole notion of growth and opportunity in the high-end, mirrorless SLRs, is clearly something that we see and trying to make use of cultural team is absolutely a product for that market, and we’re seeing very good traction with that, so that’s a good opportunity.

On the GPS side, so primaII, we have a lot of traction, we talked about it before, over 20 design wins that we mentioned, they are going to ramp in the course of next year. Now, this is automotive, so some of that is not going to be as fast as in some of the other consumer electronics products, although in many cases, it is also an aftermarket product where we see good design activity right now, so I do expect these 20, over the course, will start in 2012, but it will continue to go on in 2013, and will drive some growth in the automotive market.

Eoin Lambe – Liberum

Hi, Eoin, from Liberum. A quick question on your handset business. Would we able to give us a feel for how much is Bluetooth revenue, legacy Bluetooth revenue and how much is GPS revenue at the moment and how you expect that to go forward? Just around...

Joep van Beurden

We know, we don’t break that out in that level of detail.

Eoin Lambe – Liberum

And overall as you get...

William Gardiner

Anyway, what we’re saying, Eoin, is that obviously it is – the key thing for us obviously is 2013 is delivering the 9800 because that as our Bluetooth revenue comes down having the Bluetooth Wi-Fi to replace. So that’s where we’re very focused on.

Eoin Lambe – Liberum

And then just a second one on your DTV and Tuner business. Is there any chance you could sell those outlets or monetize those assets, sell the IP or going forward?

Joep van Beurden

There is some opportunity there. We are clearly taking a very active interest in that, and that is one of the things we are driving towards, yes.

Eoin Lambe – Liberum

Thank you.

Joep van Beurden

On the phone?

Operator

Thank you. We have a question from the audio, from Lee Simpson at Jefferies. Please go ahead. Your line is now open.

Lee Simpson – Jefferies

Hi. Thank you very much. Good morning guys. I miss the slightly call but just wanted a quick question on OpEx if I could. How should we think of R&D this coming year? I mean, it looks like SG&A in particular is coming down quite fast but we found a new hard base for R&D and really with that in mind, what’s the major product – projects, rather beyond the tape out of new combo chip samples later this year that we should be thinking about when trying to model R&D.

Joep van Beurden

You want to take it?

William Gardiner

I guess a couple of things I would say, Lee, I mean, I think that the mix we’ve tended to have sort of two thirds, one third R&D versus SG&A, I would expect to be relatively consistent going forward. So there’s clearly, we are taking our cost across the business and I would expect that to sort of continue over the first half of this year. In terms – I think the best way to think about what we’re doing going forward in terms of new products, I would – maybe start first because what you prescribe is we delivered 22 new products last year. And we continued to have a rich roadmap across all the various segments, new products in areas where we think there’s good opportunity to deliver a return.

And I guess the other thing I would probably say is that as we go through the year, we did talk about continuing to look for ways to generate more efficiencies and we’ll do that. And then – and one of the key areas for doing that we’ll be looking at our portfolio and make sure that we’re allocating investment to the highest return and if things don’t meet their hurdles then we will clearly take action.

Lee Simpson – Jefferies

Great. With an idea to new products in mind, a lot of your competitors are making quite sizeable maneuvers now in NFC, they even got kind of combo designs being announced by a large rival. Can you just remind us what is your strategy here in NFC and in particular for the secured element, is this something you look to design organically or would you look to acquire or even partner in this space?

Joep van Beurden

Yes. Let me talk to that. So we do have our NFC IP in-house of 14 nanometers. Now you rightfully indicated there has been quite of few announcements around combo chips over the past period in one of our large competitors that introduced no less than 15 different variants. So it’s an indicator I think of the huge variety when you start combining different technologies, there’s a huge amount of permutations that you can take. Now our root is that we make decisions on what to combine with what in close connection with our base 10 partners.

We have all the relevant IP in-house whether its location or NFC, FM radio, Bluetooth and Wi-Fi and but the exact choice, I know we haven’t really announced what it is we are combining of how we do that is going to be made in conjunction with our base 10 partners that do not have that varies or some of all this connectivity IP in-house.

Lee Simpson – Jefferies

Without extent the IP that you have in-house does that extend to the development of a secured chip or the secured element?

Joep van Beurden

It does not.

Lee Simpson – Jefferies

It does not.

Joep van Beurden

It is the NFC radio.

Lee Simpson – Jefferies

Great, thanks.

Joep van Beurden

Anymore questions here? If not, thanks very much for your time.

William Gardiner

Thank you very much.

Joep van Beurden

Thank you.

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