Seeking Alpha

DSP Group, Inc. (DSPG) CEO Ofer Elyakim on Q2 2019 Results - Earnings Call Transcript

About: DSP Group, Inc. (DSPG)
by: SA Transcripts
Subscribers Only
Earning Call Audio

DSP Group, Inc. (NASDAQ:DSPG) Q2 2019 Earnings Conference Call July 30, 2019 8:30 AM ET

Company Participants

Tali Chen - Corporate VP & Chief Marketing Officer

Ofer Elyakim - CEO

Dror Levy - Corporate VP, Finance & CFO

Conference Call Participants

Joshua Buchalter - Cowen Inc.

Suji Desilva - ROTH Capital Partners

Jaeson Schmidt - Lake Street Capital Markets, LLC

Charlie Anderson - Dougherty & Company LLC


Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to today's Q2 2019 DSP Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, just dated 30 of July 2019.

And I would now like to hand the conference over to your first speaker today, Ms. Tali Chen. Please go ahead.

Tali Chen

Thank you. Good morning, ladies and gentlemen. I'm Tali Chen, Corporate Vice President and Chief Marketing Officer at DSP Group. Welcome to our second quarter 2019 earnings conference call. On today's call, we also have with us, Mr. Ofer Elyakim, Chief Executive Officer; and Mr. Dror Levy, Chief Financial Officer.

Before we begin, I would like to remind you that during this conference call, we will be making forward-looking statements about our financial guidance for the third quarter of 2019. Projections for the full year 2019, relating to growth initiatives in our long-term growth, coreless business projections, optimism about our engagement pipeline in design wins in growth initiative and diversity of product offerings within such initiative including SmartVoice, Unified Communications and SmartHomes. And ramp up schedule as well as products and incorporating our technologies and the positive impact on revenue. We assume no obligation to update forward-looking statements. For more information about the risks can factor that could affect the forward-looking statements made herein, please refer to the risk factor discussing our 2018 Form 10-K and other SEC reports we have filed.

Now, I would like to turn the call over to Ofer Elyakim, our Chief Executive Officer. Ofer, the floor is yours.

Ofer Elyakim

Thank you, Tali. Good morning everyone and thank you for joining us. I hope that you have the opportunity to read our press release, which we distributed earlier today. I would like to begin by reviewing our results for the second quarter, commenting on the progression of our business plan and providing context for our outlook. In a short while, Dror will provide you with detailed comments on our financial results and outlook for the third quarter of 2019.

We are pleased with our second quarter results which were in line with our guidance on the top line and ahead on operating income and earnings per share. We ended the quarter with total revenues of $29 million, representing an increase of 3% on a sequential basis and a decrease of 5% year-over-year. During the quarter, revenues from growth initiatives reach $17.8 million, representing an increase of 12% year-over-year and comprising 61% of total revenue. This accomplishment was propelled by record results in our SmartVoice segment, which offered the expected weakness in the Unified Communication for our client and the temporary slowdown in demand for gateways which are fart of our SmartHome product line. SmartVoice revenues grew by 142% year-over-year and by 29% sequentially reaching record revenues of $5.3 million in the second quarter. This growth demonstrates the strength and diversity of our product offering in addressing a number of new applications including cameras, tablets, and smart TVs.

GAAP and non-GAAP gross margins further expanded by 60 basis points versus the second quarter of 2018 to 49.7% and 50.1% respectively, and we're in line with our guidance. Our gross margin expansion was driven by the transition of the revenue mix from legacy to new. We're absolutely thrilled with customer acceptance of our new technologies and products as evidenced by the strategic wins we secured across all of our growth initiatives. The first one is the upcoming launch, which we previously announced in the fourth quarter of a prominent design win in the Unified Communications space of an IP phone series with a Tier 1 OEM customer. We expect initial commercial shipments of this high volume designed win to commence this quarter and to gradually ramp and contribute in a meaningful way to our 2020 revenues.

The second is establishing our SmartVoice technology in a leadership position in three promising new market verticals, Smart TVs, cameras and tablets, which together accounted for nearly 60% of our SmartVoice revenues. The third being selected by Orange and the leading North American service provider for the respective IoT offering based on our ULE technologies. These strategic wins along with our exception of pipeline of design engagements, solidify our success in transitioning ourselves into a growing voice and IoT technology company. These developments further increase our confidence that we are well positioned for return to sustainable revenue growth and that our growth initiatives are on track to account for approximately two-thirds of our total revenues by year end.

Now, I'd like to move on to the business update by segment. Starting with SmartVoice. During the quarter, we generated record revenues of $5.3 million from sales of SmartVoice products representing a year-over-year increase of 142% and a sequential increase of 29%. We continue to enhance our engagement pipeline and secure design wins for hands-free voice activation in a variety of applications with leading OEMs. These design winds are driving our penetration into these burgeoning markets and help us to establish our leadership position in three market segments, tablets, cameras, and Smart TVs. Moreover, our team's relentless effort during the quarter resulted in the following noteworthy achievements. The first one of five new tablet product launches by leading Chinese OEMs during the second quarter.

This achievement further strengthens our leadership position in the hands-free voice activated tablet domain. Today, we have shipped our SmartVoice products to more than a dozen different models of hands-free voice activated android tablets. The second, three new innovative devices based on our technologies with certified by Amazon Alexa Voice Services or AVS, bringing the total number of certified products to 16. All are using these technologies and cover a wide variety of applications including Smart Assistance, Smart Speakers, tablets, modules and even and you call this phone. This further underscores the high quality of our SmartVoice technology and the solid and fruitful partnership we built with the AVS team.

Third, a leading OEM launched the far field voice activated smart TV using our SmartVoice solution. This sets a high bar for TV offerings as energy star compliance means the TV may consume no more than 0.5 watts for standard TVs and no more than three watts for internet connected TVs using Wifi or Ethernet when in standby mode. This power limits makes it a serious matter for manufacturers to consider any additional circuitry. As a result, we are particularly pleased that our SmartVoice technology meets the requirements and is compliant with the energy star power profile while also providing advanced voice-enabled activation and control. In meeting these customers' needs, we have opened the door to a whole new customer base requiring similar capabilities.

While these wins continue to demonstrate strength and diversity of our SmartVoice franchise, they also underscore our global rich tightly coupled with design partnership capabilities and our ability to drive down power consumption and bring high quality and high performance solution to market. We believe that our SmartVoice business will continue to be an important growth driver this year powering a broad array of exciting new applications.

Now moving into the Unified Communications segment, in the second quarter, demand for our Unified Communication products was impacted by an expected near-term weakness. Our second quarter revenues of $8.8 million declined by 10% year-over-year and by 7% on a sequential basis. At the same time, we continue to strengthen our leadership position in the Unified Communication market and expanding our reach into new customers and product categories. A few notable achievements included Grande Stream Communications, launch a new carrier grade line of IP phones and a new long range IP deck handset based on our DCX 99 and DCX 81 voice processors. We saw a successful penetration into the Korean market. We've seen our ODN partner design a new IP phone that meets the stringent requirements of this market, which has recently been launched by a prominent Korean service provider. Gigaset selected our DVF101 for its Maxwell 4, a professional business phone. We're particularly excited about a major design when we secured earlier the suite this year and reported about in the fourth quarter. This design win is a noteworthy achievement that guarantees our long-term growth in the Unified Communication business. However, due to the longer than expected ramp, we anticipate that the revenues from this product will contribute in a meaningful way only in early 2020.

Nevertheless, we do expect initial shipments to commence this quarter, but at the much more gradual ramp than previously expected. Consequently, slowing the recovery of our Unified Communications revenues. Nevertheless, we view the weakness this year as temporary, impacted by the higher levels of inventories early in the calendar year coupled with macro uncertainties related to global trade tensions leading to lower levels of CapEx and IT investments by enterprises. In summary, while we are disappointed by the weaker demand for our Unified Communication products, remain confident that despite the weakness, we are on track for modus revenue growth this year and that our promising design pipeline and product roadmap positions or swell for meaningful revenue growth in the years to come.

And now for an update on the Home segments which include SmartHome and corelets [ph]. Turning to our SmartHome product line. During the second quarter, we generated revenues of $3.6 million representing a year-over-year decrease or 4% and a sequential decrease of 13%. The SmartHome protocol line comprises of deck ULE SoCs that are integrated in gateways and IoT sensors. We're very pleased with the momentum and solid demand for ULE products. However, during the quarter we did experience some softness in demand for deck ULE product used in home gateways, mainly due to seasonal factors. And we expect a rebound in the fourth quarter. We are very excited to share with you a milestone event for SmartHome business. During the second quarter we secured a strategic design win with the leading North American service provider that selected our ULE technology for its IoT product offering. This is a direct result of our marketing investments in creating and developing market awareness for ULE in the U.S.

We believe that such high profile selection of ULE by a market leader could have meaningful impact in driving additional adoption of the technology by leading service providers and OEMs. We are pleased to see ULE's unparalleled benefits including superior range in difference free spectrum and natural and reliable voice and audio support that are translated into a diverse product offering as evidenced by Motorola launch an innovative Alexa-enabled voice device. Actually the world's first deck phone that is Amazon Alexa certified, underscoring the unique value proposition of voice user interface coupled with the best-in-class wireless voice technology, thereby reinventing the home phone experience. The device was launched on Father's Day in the U.S. and is getting solid reviews. The second is a Japanese OEM that selected deck ULE for its wireless speaker offering.

This product, we leverage the low latency offered by deck ULE coupled with food ban audio with 48 kilohertz support to string best-in-class hi-fi audio over deck ULE. The third is U.S. based industrial IoT Company that selected our deck ULE the technology for a sensor system for diagnosing machinery conditions. We're optimistic about the design momentum and growth potential of this product category in 2019 on the heels of strong traction for ULE in Europe and now also in the U.S.

And now to an update on the cornerstone market. Our second quarter revenues were in line with our expectations. Quarter's revenues declined by 24% year-over-year to $11.3 million and accounted for 39% of second quarter revenues. And now to the outlook taking into account forecasts, receipts from customers and our own assessment, we expect our third quarter revenues to be in the range of $30 million to $32 million. The midpoint of these guidance range implies a sequential increase and a modest year-over-year decline. We expect our growth initiatives to account for 59% to 63% of our overall revenues.

To summarize, we're excited by the acceptance of our products and technologies and believe they will solidify our future success during by solid pipeline of design wins with the leading OEMs which are expected to materialize gradually during the remainder of the year and in a more significant way in 2020.

Now I would like to turn the call over to Dror, our Chief Financial Officer. Dror, the floor is yours.

Dror Levy

Thank you, Ofer. I will now review the income statement for the second quarter of 2019 from top to bottom. For each line item I will provide the U.S. GAAP results as well as the equity-based compensation expenses including this line item and the expenses related to previous acquisitions. Our revenues for the second quarter of 2019 were $29 million. Gross margin for the quarter was 49.7%. Gross margin for the quarter included equity-based compensation expenses in the amount of $0.1 million. R&D expenses were $8.6 million including equity-based compensation expenses in the amount of $0.8 million. Operating expenses for the quarter were $15.7 million including equity based compensation expensive in the amount of $1.9 million and the monetization of required tangible assets in the amount of $0.1 million.

Financial income for the quarter was $0.4 million. Financial income for the quarter included $0.2 million of exchange rate differences related to a new accounting standard related to long-term leases. These exchange rates differences were excluded from our non-GAAP financials for this quarter. Income tax benefit for the quarter was $0.4 million and included tax benefits resulting from changes in differed taxes related to intangible assets and equity-based compensation expenses in in the net amount of $0.1 million. Net loss was $0.5 million including equity-based compensation expenses of $2 million, amortization of intangible assets of $0.1 billion, exchange rate differences in the amount of $0.2 million and the tax benefit effect of $0.1 million.

Our non-GAAP net income excluding these items I've just described was $1.7 million. GAAP loss per share was the quarter was $0.02. The negative impact of equity-based compensation of EPS was $0.08. The negative impact of the amortization of equine intangible assets on EPS was $0.01. The negative impact of exchange rate differences on EPS was $0.01 and the positive impact of the different taxes was $0.01. Non-GAAP diluted income per share excluding the items I just described was $0.07 for the second quarter. Please see the current report on Form 8-K we filed with the SEC this morning for a conciliation of the non-GAAP presentation to the GAAP presentation.

Now turning to the balance sheet. Account receivable at the end of the second quarter of 2019 increased to $17.1 million compared to $15.6 million at the end of the first quarter, representing a level of 53 days of sale. Our inventory slightly decreased from $9.3 million at the end of the first quarter to $9.2 million, representing a level of 57 days. Our cash and marketable securities position increased by $1.10 million during the second quarter, and were at the level of $121.9 million as of June 30, 2019. Our cash and marketable securities position during the quarter was affected by the following; we had $3 million of cash that was provided by operations, $1.9 million of cash was used for purchase of property and equipment, $0.2 million of cash was received from exercise of option by employees, and $0.5 million was included in market value and amortization of marketable securities.

Now, I would like to provide you with our projections for the third quarter of 2019. The third quarter projections, including the impact of equity based compensation expenses and acquisition related amortization expenses are as follows. Revenues are expected to be in the range of $30 million to $32 million. We expect our gross margin to be in the range of 50% and 51%. R&D expenses are expected to be in the range of $9 million to $10 million and total operating expenses are expected to be in the range of $15.5 million to $17.5 million. Financial income is expected to be in the range of $0.5 million to $700,000, and we expect the tax benefit of approximately $0.2 million on an ongoing basis. Our shares outstanding are expected to be in the range of 24 million shares to 25 million shares. Our third quarter projections include $0.1 million of amortization of intangible assets.

Our third quarter projections also include the following amounts forecasted for equity based compensation expenses. Cost of goods sold include $0.1 million. Our India expenses include $0.6 million to $0.8 million and operating expenses include $1.7 million to $1.9 million.

Now, I left open on the line for questions and answers. Operator, please.

Question-and-Answer Session


Thank you, ladies and gentlemen. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Matt Ramsay. Your line is now open.

Joshua Buchalter

Hi, this is Josh Buchalter for Matt. Thanks for taking my questions and congrats on the results in a tough backdrop. So it sounds like there's some solid progress in the ecosystem development in North America with the design win for the DECT/ULE. Congratulations. I know it's been a lot of work from the team there. How should we think about sort of the cadence of the revenue opportunity developing. I guess here and as well at Orange and Deutsche Telekom, given it's been a couple months since those were announced. Thank you.

Ofer Elyakim

I'll just say thanks for the question. So with respect to SmartHome and the DECT/ULE in particular. With respect to the Getaway front, so there's -- the smartphone revenues are basically an aggregate of these two items, so ULE that is sold for IoT sensors and the Gateway that basically connects that to the network. So as I said, we've seen them some weakness during this quarter, mainly I think it's kind of coupled with the much better results that we saw in the first quarter. So there's like some seasonal weakness in the second quarter. As we said, we do expect to see a recovery there in terms of new Gateway products that are expected to launch into the fourth quarter of the year. And we believe that we will see most stability starting in the fourth quarter.

With respect to DECT/ULE, we basically have now two launches. One launch that there is now -- it will work on a two years from the start. This is with Deutsche Telekom and we actually see that DECT demand has been improving. It's still not at the levels that -- where we wanted to be but there are no any issues, anymore with over stocking or the inventories were depleted. We're actually seeing more orders and they were very happy with the pace as of today. In addition, we have Orange that started the soft launch, sometimes in the April-May timeframe and is expected to do the kind of the big launch with a lot of kind of media exposure in preparation for the holiday season, so that means early in December timeframe and also we have very good hopes there. Actually the application -- the Orange application has been downloaded in tens of thousands and they already -- shipments occurred or the similar amount only via a soft launch. What we need to take into account is that these service providers do take a long time in the services and mature and the subscriber base grows but once you're in a certain point, I think we see kind of very fairly steady demand and we hope that we're kind of getting there now on DP.

With respect to the U.S. So we have been focusing on the U.S. market in marketing and actually trying to leverage all of the success cases that we're bringing from Europe to the U.S. and that has resulted with a very important and significant design win with the leading service provider. We believe that all of that and all of these good things will aggregate into our hopes to see a very strong 2020 if we're smart for SmartHome. We still see a lot of activity also in Europe by additional service providers that are evaluating, trialing and hopefully we'll also launch their services using ULE. So in summary, we do believe that we have a very good technology. We do believe that the market is becoming very well aware of it. It started in Europe, it now is happening in the U.S. So we like the momentum. We definitely want to see revenue growth, we want to see kind of the sequential increase of that and I think that we have today a much better backlog of projects with fairly significant service providers that all of that should translate into a level shift with respect to kind of the level of the annual revenues next year.

Joshua Buchalter

Thank you, appreciate all the color. And then I guess just quickly on SmartVoice. It continues to put up a very impressive growth numbers and pick up the design wins in diverse sets of applications. And you've given some stats on smartphone versus non-smartphone exposure today but I guess I was learning which bucket do you see as the larger growth driver? I guess in the medium to long-term and I guess if there's any impact on seasonality within that business that we should understand that would be helpful. Congrats on the results. Thanks.

Ofer Elyakim

Thank you. So with respect to SmartVoice and as you can see from the way the business has been gravitating, we have been focused during the last three years actually, on both customer diversification and also application diversification from battery to non-battery operated devices from consumer to non-consumer. And I think that what we are -- what we are starting to see is that these objectives are actually also being translated to revenue, so it's not just design wins, it's also an output of the -- of all the new products that are embracing the voice as the user interface. And it's not just in smartphones, it's not just in small speakers but we're actually seeing some additional silos where the technology is important, relevant, and hopefully is now radio for primetime. And I think that as we -- as the business -- we progress -- I think that we will see a fairly, similar type of market share between the different categories for sure, the place where you have the lot -- that the big volume is definitely the products -- the smartphones and alike but I believe that this will continue to represent no more than where we are today, at 40%. And I think that we will see actually the other devices -- from IoT to the TV segment, which we cannot classify as much more entertainment because it's not just TV but it is everything around the TV.

In addition, tablets, cameras and I think we'll see many more a type of application and marketability because it will embrace voice user interface and will start to become irrelevant from the point of view of the revenue opportunity that they could present for us. Today, we have a fairly strong portfolio of SOCs that can cover this market. So any device that wants to embrace voice user or interface, whether we're talking about a battery operated device, a wearable device, that wants to capture voice user interface, we can do that with a very good performance up to fulfill a very high performance criteria and we expect to see some very interesting devices being launched to the market during the holiday season with all solution and to show their robustness and the level of performance that we can achieve using our higher end associates but still at a fairly lower power consumption compared to the competitive landscape. So I think we're very encouraged by the market take of voice user interface and the fact that it is starting to become the prevailing user interface and a must-have activation mechanism in many consumer devices.

Joshua Buchalter

Thanks, Ofer.


Thank you. Next question comes from the line of Suji Desilva. Your line is now open.

Suji Desilva

Hello, Dror. Congratulations on the progress here. For the revenue guidance of mid-single digit sequential growth particularly. Can you go through what the individual segments are expected to do there?

Ofer Elyakim

Hi Suji, thanks for the question. So what we've done I think from early this year, we've not been providing any granularity with respect to each and every segment. As you can understand, we're still kind of in the low over small number so fluctuations and changes will happen during the course of the quarter. We don't really have like 100% visibility that we can actually break it up. But I think that we've provided all kind of the breadcrumbs with respect to how each and every product segment is doing. We highlighted the trending, the unified communications space where we see and kind of the weakness in this category ongoing. We believe there's some improvement but still the category is weak. We see also from GDP numbers to a lot of other indicators that there is a material slowdown in the capital spending by businesses especially in the I.T. front on hardware. So that is definitely a holding back to a lot of the expansion that we were hoping to see during this year. However, as you could guess from and understand from our prepared remarks, we're very optimistic about the future. We believe we have in our bag very strong and meaningful wins with a lot of volume inside, very good speeds that could really drive our products and revenues to growth in the next coming years and we do believe that the environment that we're seeing today is rather temporary and we do expect to see a recovery. And at some point again, we believe that we are well positioned to grow. And despite these setbacks and some of the macro and weakness, I think we're still positioned well to see a moderate or small growth this year, in fiscal year 2019. With respect to the smarter voice domain, this is a hyper consumer market where there's a lot of volatility, very fast, the lead times, there's a lot of focus on Mainland China. So this is a fairly volatile domain.

As you can understand again here we're very optimistic, we see a very strong momentum, we expect a lot of very interesting and innovative product launches based on our SOCs [ph]. But again, there is volatility embedded in this market segment. And I think on the smartphone market, we continue to see some weakness with respect to the home Gateway front where we do see a very good demand and momentum for ULE. So all together, when we saw all of these, we see that these growth initiatives should comprise between 59% to 63% of our Q3 revenue.

Suji Desilva

Okay. And Ofer, really the growth is coming from SmartVoice in 3Q, right? Just to kind of take your comments just to understand that, summarize them.

Ofer Elyakim

Yes, I think that we are -- we should see a year-over-year growth in SmartVoice in the third quarter, correct.

Suji Desilva

Okay, great. And then my other question is very impressive diversification and SmartVoice outside smartphones. I just want to understand, are these direct customer efforts? Are you leveraging partners or distributors? Because you seem to be getting into new categories and I'm wondering how you can continue that, whether it takes direct efforts to do that.

Ofer Elyakim

Sure. So in each of these categories, it's a combination of direct efforts. Whenever we're talking about a large OEM with [indiscernible] a very direct relationship and a direct investment by DSPG. And it's coupled with a lot of smaller vendors that they are working through our partners. And working with partners has been one of the most important efforts that we've been pushing. So that it's not just going to be all about the direct relationship but rather we can actually build partnerships whether it's in the Mainland, in Japan, in other areas in the world where our partners could actually support and run more customers. And today we have plenty of partners that are offering from reference designs to full reference design and modules that basically include -- beyond just the DSPG element, also other elements and components as well as AR softener [ph] also hosting third-party software; so complete solutions that can cover a wide variety of different applications. So at the end of the day, in our market it's usually a combination of direct and indirect. For the most part today, most of our revenues are still coming from direct relationships but we're seeing more and more also growing indirect.

Suji Desilva

Last quick question on TVs; I know you're in voice remotes but it sounds like you're in TV OEM as well. Do you expect inflection in the attach rate of TV voice activation or that will be a slow gradual 2019, 2020, 2021 phenomenon? Thanks.

Ofer Elyakim

Yes. So voice activated TV's, I believe we become -- and we're talking here about hands-free voice because voice activated TVs already happened, right. So you either get it through the remote control, you can also get it through the settle boxes and over the top settle box, any streamer and today you also learned that this capability is also now being integrated into high-end TV. So I think that the hands-free use case is going to become a prevailing use case in the future. And I think that people that are spending thousands of dollars on a new TV or several hundreds of dollars on a TV set and can buy smart assistant for less than $100 would expect from the new entertainment system to provide them with the same capabilities. And I think that your ability to search, browse and flip channels and then -- and choose your selector of content via voice, will be a prevailing use case and I think that we see that gradually happening through all of these devices, right. So we see these remotes, the streamers and set of boxes over the top ones and they're all going to play a role and probably at the at the filter moment, one use case will become the kind of the more dominant one and maybe it's going to be the TV, maybe it's going to be a portable device like a remote.

Suji Desilva

Okay. Thanks, Ofer.


Thank you. Your next question comes from the line of Jaeson Schmidt. Your line is now open.

Jaeson Schmidt

Thanks for taking my questions. Ofer, I just want to start on the Unified Communications segment. Are you guys having some nice launches here this current quarter but still battling some inventory issues? Do you think the inventory issue will be completed in Q3 or do you see that bleeding into Q4 as well?

Dror Levy

So Jaeson, thanks for the question. So with respect to the inventory situation, I can tell you that in some customers, inventory has already been fully depleted and perhaps say, you know, we're seeing some signs of a replenishment. However, we do see a pretty weak environment with respect to business investment and we're hearing that from many of our customers. And some of our customers, also public companies, you can also get that from their results. So, I believe that this phenomena today is a lot more skewed towards the health of the business today and I believe that it is more of a temporary factor. And I think that kind of the inventory situation is much improved. So, we do expect to see, you know, it back to kind of normality in 2020. Again, since we have a backlog of new design wins that are supposed to go into production and the first and the prominent one is already starting in the third quarter, again, not a very high volume but a slow start but still a ramp of that product. I think we are positioned very well for continued healthy growth in the Unified Communication market. We do have a very good backlog of these design with leading OEMs and these should go from the design stage to the production stage gradually and help us to see more contribution in terms of revenues.

So I think that's from kind of the market perspective situation, it is soft today. The inventory situation seems to be improving. And the main issue is kind of much more kind of the macro side. I believe it is temporary and this stages positioned well for growth in this market in the years to come. So taking into accountable all the set strengths and the weakness, we do feel that we're positioned well for a moderate or small revenue growth during this year. And I think that we're positioned well for very strong revenue growth in the years to come. So 2020 and beyond.

Jaeson Schmidt

Okay, that's really helpful. And congrats on the North American service provider win in the SmartHome segment, can you help us size that potential opportunity? Should we look at some of these North American potential wins as being comparable in size, what you've seen from 32 telecom and Orange?

Dror Levy

Indeed. And perhaps even larger than that.


Thank you. Your next question comes from the line of Charlie Anderson. Your line is now open.

Charlie Anderson

Thanks for digging my questions and congrats on some of the strategic wins. I wanted to maybe tack on the last question on the North American service provider over. I wonder if you maybe just help us understand a little bit about why you won that. Were they using the previous technology? If you could talk about that. You know, is it a different use case than what they were doing before? Any more color on that would be helpful. And then I've got a follow-up.

Dror Levy

So thanks, Charlie. So the question is around the North American service provider that we announced that has selected the ULE. And yes, this service provider has been using IoT technologies for short range of wireless communication. And I think that one of kind of the key elements that got persuaded to switch and adopt ULE was Voice. And Voice is becoming more and more important for any type of IoT system, both from the point of view of the ability to control and monitor without having to walk around with any screen to control things. But actually use very simple voice commands, whether they're local or whether they're being kind of translated in the cloud or using all kinds of skills to voice communications to listen in, to understand environment, to analyze sounds and events.

So voice is becoming one of the key sensors and one of the key ways to leverage and utilize IoT indoors. And I think that once that is happening, ULE becomes a very good option or perhaps the best option with its interference-free spectrum, with its great range and the real natural support for voice and audio streaming. You also heard in our prepared comments that today we can stream best in class if full band or audio over the same connection. So any device, any sensor can do all of that using just one connectivity, one radio. And I think that this is a very propelling value proposition for these guys.

Charlie Anderson

That's great. And then as it relates to SmartVoice, obviously, really impressive array of new wins there. I think as we look across the vendor community there, many other vendors in this space are also seeing success broadening their customer base. It seems like it's sort of a rising tide right now. I guess I'm curious if we fast forward three, four years out or four do you feel like this is a multivendor environment where you have multiple 20% market share type players? Or is this more of a winner take all market from what you can tell right now? Thanks.

Dror Levy

Sure. Thanks, Charlie. When we look at the market of all SmartVoice, if you were to ask me about smartphones, so for sure, it should be or probably will gravitate towards a winner that kind of presales and grabs a lot of market share. But when we're looking at a much more diversified market where there's a lot of products from consumer electronics from devices that are sold for $100 to devices that are sold for 10 bucks, it's very hard to position a winner that kind of takes it all. I think it will be a fairly fragmented industry. And when I say that, I mean all these devices will have a microprocessor, they will have connectivity, they will have sensing elements, in our case, microphone.

So, I think that the market will stay fragmented and actually that is a great opportunity for someone like these group with our DNA of crafting together a full SoC that will combine the microcontroller, the DSP, the algorithm, the system, design, the connectivity and bring that to market. So we do see is very good and promising opportunity in the voices or interfaced space, where we could actually leverage and integrate a lot more components together and provide kind of the next generation of our products of our product roadmap to these markets with these very different in verticals. And I believe that we can play there. We can be very successful in monetizing a lot of these opportunities. And I think that we are also kind of unique in our position, both from the point of view of the low power and our understanding of kind of consumer electronics, our DNA, which is well-rooted in voice and audio technologies and the ability to process, to cleanse, to do all of that in our power consumption.

The next frontier, which is kind of edge AI. So artificial intelligence that is running locally and being processed locally. And I think that all of that kind of signals that there is a market for us to go after and really create a very nice kind of market segment for us that could help us in our -- to achieve and realize the sustainable revenue growth that we've been talking about. So I think another market is coming to us to our DNA, our capabilities and we need to really select the battles that you want to go after the battles where we can actually prevail. And we're in where we see that in each fare that like us can really kind of grab market share and form a partnership with leading OEMs where our road map and theirs align. And this is kind of the win-win that we're looking for and going after.

Charlie Anderson

Great. And then just quick housekeeping, could you maybe just remind us how we should think about Q4 seasonality for the business?

Dror Levy

Thanks, Charlie. So with respect to Q4, at this very moment, our visibility into Q4 is not that great. So our kind of backlog or order book is about seven to eight weeks ahead. And we do believe though that given the momentum that we're seeing both in SmartVoice, our expectations for recovering SmartHome and some optimism about perhaps better environment in the kind of Unified Communication domain, we do hope to see it a stable Q4. When you look at kind of the comp say for last year, last year was actually a fairly tough and challenging quarter for us. We did about the $26 million. We hope that this year Q4 won't suffer from a seasonal perspective. So, when we kind of are looking at it, we hope that we will see a more stable seasonal factor built into Q4.


No further question at this time. Please continue.

Tali Chen

Thanks, operator. And we would like to use this opportunity and update during the third quarter, this big group will participate in Dorky Institutional Investor Conference on September 15 Minneapolis and in the third Anwar Lake Street. The best ideas growth conference on September 12 in New York. Management will be available for group and one-on-one meetings during these conferences.

Thank you for dialing in and we look forward to report to you in the next quarter.


Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect. Speakers, please stand by.