Sequans Communications S.A.
Q1 2015 Earnings Call Transcript

Published: 23 Apr 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Sequans First Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. As a reminder, this conference is being recorded. Before I turn the conference over to our host, Mr. Georges Karam, I would like to remind you of the following important information on behalf of Sequans. This call contains projections and other forward-looking statements regarding future events or our future financial performance. All statements other than present and historical facts and conditions discussed in this call, including any statements regarding our future results of operations and financial positions, business strategy and plans, sources of funding, and our objection -- objectives for future operations are forward-looking statements, which is within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. These statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties, and subject to change at any time. We operate in a very competitive and rapidly changing environment. New risks emerge from time-to-time. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Actual events or results may differ materially from those contained in the projections or forward-looking statements. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission. Mr. Karam, please go ahead.

[Georges Karam:]

Thank you, John. Good morning, ladies and gentlemen. This is Georges speaking. I’m here with Deborah Choate, our Chief Financial Officer. And we are pleased to welcome you to our first quarter 2015 results conference call. To start-off, let me say, I am very pleased with the quarter. It was a very good quarter, but more important was several positive developments. Specifically, we had huge positive response to our Calliope CAT1 product, which further validates our leadership in Internet of Things. We have made very good progress on the strategic front, with the number of potential partners, and we concluded partnership with TCL on 5G technology that will enhance our long-term position. We have strengthened our balance sheet with funding from multiple sources, improving our ability to execute on our strategic vision. We have added several new design wins targeting the U.S. market and last but not least, we are looking forward to a significant ramp in revenue beginning in the second quarter. If you commence about Q1 financial results before we get into a more expensive business discussion. Our revenue and our per share loss were in the middle of our guidance and our half of the Q1 revenue was related to the U.S. market. Beginning this quarter, we continue to expect sequential quarterly improvement for the remainder of the year. At the mid-point of the guidance, you saw in the press release, our second revenue will be above 65% higher than Q1. In addition to the organic growth of current business, we expect more new devices for more customers targeting more operators. Specifically, we expect three devices, one M2M and two tablets to launch this quarter in the U.S. followed by more devices launching in the third quarter and beyond. Revenues related to operators in India and China, which are likely to be smaller first will add to the second half and further diversify our revenue base overtime. In addition, we are expecting revenue toward the end of the year from new devices based on our new chips, our Colibri CAT4 and our Cassiopeia CAT6 chips. Meanwhile, our game changing Calliope CAT1 chip is benefiting from a time to market advantage we expected to contribute to revenues at the beginning of 2016 and fuel our growth next year and beyond. We have obtained funding from several sources, including an upfront payment from TCL as part of our strategic partnership and a convertible note that was purposed by one of our largest shareholders, indicating a high degree of confidence in us. Additional debt from the French Development Agency at favorable -- at very favorable terms is expected to be finalized this quarter. Having decision off the tables allows us to better execute on the business front, as well on other strategic opportunities we are still looking at. Before coming back to the current business, I just want to recap our product strategy, because the last few quarters we have been focused on the short-term and we think it’s important to remind you of our longer term vision. The first strategic decision we made regarding LTE was several years ago when we decided to focus on data devices with an LTE-only solution to avoid competing with the larger players and their multi-mode foreign sweet spot. In the U.S. we focused on Verizon, the operator at the forefront of single-mode LTE adoption and we came first to market with our single-mode CAT4 chip. This put us in a strong position as early CAT3 products were replaced with CAT4 solution during the refresh cycle. Other aspect of our vision was to foresee that out of the billion of devices that would eventually be connected to the Internet via LTE, most of them would not need the high throughput of the typical 4G devices and they would have other requirements such as battery life, costs and size, that are very different from current high throughput devices. These would be wearable, M2M and other Internet of Things devices for automotive, industrial, utility and other applications. And lastly, we realized that that curiosity and high cusp of spectrum would cause operators to consider dropping 2G technology used for end-to-end in favor of 4G technology to make more efficient use of existing spectrum. With all this in mind, we began to expand our family of solution in order to be optimized for various form factors and application. We came with a StreamrichLTE for higher performance and features and another family of StreamliteLTE to cost effectively support the Internet of Things requirement. Our Mont Blanc chip is a high-performance platform. This has been available for two years primarily for devices such as home and mobile routers. Heading in the direction of even higher performance, these devices are now beginning to require CAT6 chips with higher throughput plus Carrier Aggregation to use available spectrum more efficiently. In 2014, we were first introduced on LTE-Advanced CAT6 chip called Cassiopeia as part of our Streamrich family and intervening commercial deployment in the second half of this year. Market demand for this product is across multiple carriers from emerging carriers to large established carriers in the U.S. To further differentiate our portfolio toward the high end, we are already working on CAT9, CAT10 products. These will enable the throughput to reach out to 450 megabit per second compared to the maximum 300 megabits per second enabled by CAT6 chip. Turning to our StreamliteLTE product, we came first with Colibri which is a CAT4 solution optimized for end-to-end and Internet of Things devices that require relatively higher throughput but to the smaller form factor, lower power consumption and a solution cost that’s competitive with 3G plus. Colibri has been certified on Verizon and has already gained several design wins among module manufacturers designing for multiple U.S. carrier networks, starting with Verizon and AT&T. We expect Colibri to begin contributing to revenue during the second half of this year. Most recently, we came first to market with a CAT1 solution suitable for devices that require far less throughput. The CAT1 chipset with a maximum throughput of 10 megabit per second can be significantly lower in cost, complexity and power than CAT3 or CAT4 supporting higher throughput. It’s obviously much lower cost than a typical multi-mode chip and it cost even less than 3G only with better performance. Since the announcement of our Calliope CAT1 solution at the beginning of the year, we have secured several design wins and nearly all the tier 1 ODM are designing with us, targeting multiple operators such as Verizon, AT&T and others. Operators and ODM are pushing to get CAT1 devices to market as soon as possible. And Calliope is the only CAT1 solution currently shipping. This is a major time to market advantage because in order to have devices available at the beginning of 2016, you have to have a chip available now. We believe we have an opportunity to capitalize on our time to market advantage to capture a large share of this business over the next two years. Meanwhile, you may have heard about CAT0 as well. The 3GPP’s founder is in the process of defining an expansion for what we call LTE-MTC which expands LTE for machine-type communications to establish all new user equipment category called CAT0. This would define an even simpler chip optimized for IOT application with much lower data read of 1 megabit. The first version of CAT0 specifications would be defined in the release 12th that will be published soon and another more optimized version will be defined in the following release expected to be finalized next year. As many operators prepare to switch off their 2G networks in order to reform the spectrum for LTE, hundreds of millions of legacy M2M devices must be integrated to either 3G or 4G networks. We believe that the addition of CAT1 and CAT0 solutions on top of CAT4 will encourage integration of all types of legacy application to a future-proof 4G network as the best choice. Once CAT0 solutions are available, this means there will be a superior 4G solution available at the same or better price point as any legacy cellular technology including 2G. But also considering the huge potential for new types of devices such as automotive, home automation, eHealth and wearables is headed to see an enormous market developing over the next few years that you can enjoy. Let me stress here the thanks to our leadership in end-to-end and IoT space, we are in discussions with several parties about strategic partnerships and we are confident to conclude something in the future. While we are busy developing all the relevant flavors of single-mode LTE, we have also realized that we have to begin thinking even further ahead about what happens after we reach the limits of 4G technology. Operators, network infrastructure providers and device manufacturer have all began to consider what 5G is likely to become. As you know during Q1, we finalized this strategic partnership with TCL, the brand owner of Alcatel OneTouch and the fourth largest wireless phone company in the world. TCL wants to compliment their product development capabilities with a multi-year partnership for core research on 5G. This alignment will be a major player in the industry is a strong indication of their confidence in our expertise and our vision of the future. These market drivers and our strategy for retaining our single-mode leadership that I’ve been describing serve as the key framework for all the specific developments we will be discussing with you going forward. So in that context, I will conclude by sharing some additional details of where we are with respect to each of our major device segment categories. Starting with home and mobile routers, we continue to expect good growth this year. Emerging markets will continue to provide a significant portion of our router based revenue, even as the revenue from the U.S. begins to overtake other regions. We expect India to begin contributing revenues in the current quarter then growing in the second half from a small initial base. In addition to Reliance, Bharti, Tikona and recently Aircel are moving ahead with deployment plans. In China, opportunities for single-mode devices remain fragmented. We are executing on our plan with well-positioned local partners and we expect to begin seeing revenue from China later this year. We are working with an expanding list of ODMs and OEM, addressing new opportunities for multiple carriers specifically in the U.S. and we expect to keep expanding the business of this segment. As I mentioned, our CAT6 platform will be deployed this year and we see strong traction with many operators around the world. Turning to mobile computing. Last quarter, we announced design wins for two tablet in the U.S. We are on track for the launch planned by the end of this quarter for the two tablets here. Meanwhile, we are very pleased to report additional mobile computing design wins for the U.S. during Q1. Recently, we have seen more and more interest in LTE single-mode tablet and notebook. In our pipeline, we have several mobile computing deals addressing multiple operators. Turning to the public safety business. Here in addition to the major U.S. design win we have, we remain very active in this field and we have several public safety defense opportunities in various regions. Finally, the end-to-end Internet of Thing space is probably the most dynamic. The ramp in this segment begins this quarter with the launch of an end-to-end device in the U.S. We are looking forward to several more in the second half and beyond. We are delighted to say that our initial group of design wins for our Calliope CAT1 solution includes free Tier 1 ODMs as well as one major OEM. They are designing solutions for a variety of devices targeting multiple operators for diverse list of applications. Our pipeline is growing with a wide array of opportunities from industrial to security to consumer electronic devices, accessory and wearable. While it will take sometime for this category to account for a significant proportion of our revenue, it has the potential to be larger than the other categories over time. The diversity represented by our pipeline of opportunities is an indication that our revenue base will become far more diverse and will be less sensitive to a particular customer or operator in the future. As we look ahead, one thing is clear we are just beginning to crash the surface of a huge potential market opportunity. We are well positioned to address the full scope of the single-mode market precisely because we moved early on to create a full range of optimized solutions. Now I will turn the call over to Deborah for the financial discussion.

[Deborah Choate:]

Thank you, Georges. And hello, everyone. I would like to add some details about our Q1 financial results, cover our guidance for Q2, and the financial outlook for this year. Revenues in the first quarter of 2015 were $4.8 million, a 27% sequential decrease and a 7% increase compared to the first quarter of 2014. We shipped nearly 20,000 units in the quarter, a decrease from Q4. However, the proportion of modules in the mix was higher in Q1 compared to Q4. We had two 10% customers in the quarter, a Taiwanese ODM with 27% of the total and an OEM in the EMEA region with 20.5%. We realized an overall IFRS gross margin of 40%, in line with our guidance of over 35%. Operating expenses were $10.1 million in Q1, a slight increase from Q4 as we expected. Our first quarter operating loss, which included stock-based compensation expense, was $8.2 million, compared to an operating loss of $9.2 million in the fourth quarter, which also included an inventory provision, and compared to an operating loss of $8.3 million in the first quarter of 2014. Net loss was $8 million in Q1, compared to net losses of $9 million in Q4 and $8.3 million in the first quarter of 2014. Basic and diluted loss per share was $0.14 in the first quarter of 2015 based on 59.1 million shares outstanding, compared to net losses of $0.15 in the fourth quarter and $0.14 in the first quarter of 2014. To facilitate comparisons we have also reported our results on a non-IFRS basis, which excludes stock-based compensation expense and the Q4 inventory provision from net loss. Non-IFRS net loss was $7.8 million in Q1 2015, compared to net losses of $7 million in Q4 and $7.9 million in Q1 2014. Non-IFRS basic and diluted loss per share was $0.13 in the first quarter, compared to $0.12 in the fourth quarter and $0.13 in the first quarter of 2014. Our cash position on March 31, 2015, was $7.7 million, compared to $12.5 million at the end of Q4. In Q1, cash included an advance payment of approximately $2 million from TCL, which is recorded as a component of other current liabilities on the balance sheet to be reduced by services revenue, which will be recognized over the first year of the contract. In Q2, we are optimistic that we will receive approximately $2 million in debt financing from the French Development Agency on very favorable terms. Combined with the net proceeds of the convertible note we issued last week, this would add about $14 million to our balance sheet this quarter. And please remember that in the second half of 2015, we also expect to collect the $3 million research tax credit that was earned during 2014. Based on the business outlook, we believe spending from these various sources will enable us to reach positive cash flow. Cash used by operations in Q1 was $3.6 million, compared to $5.7 in the fourth quarter of 2014. Accounts receivable at March 31, 2015, were $5.2 million, reflecting a DSO of approximately 92 days, compared to 100 days at the end of Q4, and inventories remain stable at $9.2 million. Looking forward, we expect revenues for the second quarter of 2015 to be in the range of $7 million to $9 million, reflecting volume shipments related to new device launches. In Q2, we expect non-IFRS gross margin to be above 35% and non-IFRS net loss per diluted share to range between $0.10 and $0.12, based on approximately 59.1 million weighted average diluted shares. Our guidance for Q2 non-IFRS net loss per share excludes stock-based compensation expense, which we expect to be around $200,000. As you heard from Georges, not only do we expect a significant boost to revenues in Q2, but sequential revenue growth during the balance of the year. We expect a decrease in operating expense beginning in Q2 and continuing through the balance of the year, with expenses in the fourth quarter being at least 10% lower than in the fourth quarter of 2014. Today for your convenience at the conclusion of this call, we will post a written version of our formal remarks in the Investor Relations section of our website, on the webcast and presentations page, the same location where you will find the audio replay. That page will also contain an updated Investor Presentation supporting some of the topics discussed on this call. And now, I will turn the call back to Georges.

[Georges Karam:]

Thanks, Deborah. So to wrap up our call, the key message here is that first of all, the results that we implemented in the last year that the strategy we implemented in the last year is really working well. And as a result of this strategy, when you look to the three major business segments that we are targeting and we are working on, the three of them are really doing very well. The home and mobile router, which is -- where we have currently the majority of our revenue coming from this segment, this one is really growing and is expending the business there for -- on more regions and more carriers and also new product to come shipping and helping this business. The mobile computing that’s started a little bit with first revenue at the end of the last year, we’re seeing this really -- this business accelerating, as I mentioned design wins to come to market this quarter they will be launched and others that we won and they will be coming in the coming following quarters. And last but not least, we established leadership in the internet of things and M2M segment where we will have first product to market again this quarter, but also other design wins that we have in hand to come very quickly after this in the third and the fourth quarter. And if we add to this the strong positioning we achieved with Calliope CAT1 and the related design win we have, whether OEM or ODMs, let me feel like we are in very, very good position to have this business really counting for a big portion of our revenue in 2016. So all-in-all, my team and I are very happy of this quarter and our execution in the last, I will say, period of time, and we are very confident about our future. So I’ll turn it now to questions. Operator?

[Operator:]

[Operator Instructions] And first from the line of Quinn Bolton with Needham & Company. Please go ahead.

[Quinn Bolton:]

Hi, Georges and Deborah, congratulations on the results and the very nice guidance. I wanted to start Georges with the high end product lines really see if we can get some more detail on the CAT2 Tier wins. I think last quarter you talked about first Tier win potentially ramping in Italy, it sounds like you now see additional opportunities for Cassiopeia to ramp by the end of 2015. Wondering if you could expand on that and then I’ve got a couple of follow-up questions on the IoT business? Thanks.

[Georges Karam:]

Yeah. Hi, Quinn. Indeed you are mentioning to the ramp up that we have the deployment that has been announced in Italy, where by the way this is a customer which is using currently our Mont Blanc chip and they will be moving to Cassiopeia. We’re seeing more demand as well in many other emerging countries. It will be the next step. And in other words, the ODM building this product will be addressing other carriers than this one in Italy. But also interesting, as well as in the U.S. carrier aggregation is a must have almost for AT&T, because they have segmented spectrum and having carrier aggregation is key for them. It’s not really looking necessarily for the throughput of the CAT6, but more to be able to aggregate carriers. And definitely we’re seeing opportunities as all for the U.S. and the [hottest] [ph] of them are for AT&T.

[Quinn Bolton:]

Okay. So as you seen demand more, it sounds like from AT&T, because of the fragmented spectrum, perhaps, even then for Verizon, where you already have the chip win?

[Georges Karam:]

Absolutely. I mean, if you want, in other words, both of them they have carrier aggregation on the smartphone as you can imagine. Verizon, they have less need for this, if you know, because they have bigger chunk of spectrum on one shot, the three-band they have are enough, they can play a lot with CAT4 product, if they’re not looking or pushing the speed, they can be happy with the CAT4 products without carrier aggregation. While AT&T, it will be kind of -- they would have some limitation, if they will accept on the CAT4. So they need -- CAT6 will give them more leverage, if you want, in terms of offering them. And we’re seeing the interesting note behind this that so far as you know Verizon was -- it's clear that they were pushing single-mode LTE. AT&T were contemplating this, talking about it, but nothing -- but in the recent period of time, I’ll say maybe, the last six months, we’re seeing more and more demand then and they are looking really to push some devices single-mode and that’s why it becomes really an interesting factor for us.

[Quinn Bolton:]

Right. Great. And then, I just wanted to and say the next few questions on sort of the IoT market. You talked about some of the initial M2M, I guess, the first M2M win starting to ramp by the end of this quarter with additional wins in the second half? I am wondering if you could share with us just some of the applications that you’re seeing moving forward to ramp in -- second half of ’15 and then sort of the similar question about the design engagements for Calliope where you really get the benefit of lower power, lower data rate, lower cost? Thanks.

[Georges Karam:]

Yeah. The first one and indeed this is really design win that we have last year and they are now finishing the certification and they would be launching the product to customer. So I would like really to keep it little bit not to give more comments on this because just to defend it with the position of the customer. But they are very excited about it. It’s a nice design. Call its typical end-to-end if I ask to give it color I would say. We have as well in terms of design win similar to this but as well expanding for accessory for cars and some even accessory for some consumer application, those are in the pipe. And this is on the first piece and all this will be happening in 2015. On Calliope, indeed, as I said, we nearly won, I mentioned three, but the reality we have a big part there with almost all the major ODM, all the Tier 1 ODM are engaging with us on this Calliope and they moved -- three of them they moved with full project launch and they’re executing on it. And we had as well, I wanted to highlight this without giving the name, the major OEM who adopted Calliope, as well during the quarter as well initial design win. And obviously here the application with Calliope because you can reduce the cost of Calliope to fight with the 3G technology easily, so the target is really the replacement of all existing 2G, but also adding new application instead of going, because they cannot go on 2G, because its not future proof, they cannot go on 3G neither for a same -- for some risk in terms of future proof. So now as CAT1 resolve the pricing problem if you want that’s become very, very attractive for all the carriers starting with Verizon and AT&T and expanding beyond those guys. So we are very, very excited about this and hopefully, we should start seeing some product in the market. In any case, at the end of the year beginning of the next year -- meaningful revenue we are counting on it in 2016.

[Quinn Bolton:]

George, just one last clarification, that major OEM that you were discussing, it sounds like they maybe designing the module that can target several different end-to-end applications or is it sort of a traditional branded OEM targeting the specific consumer application or M2M application? Thanks.

[Georges Karam:]

It’s the first. Just the first.

[Quinn Bolton:]

Okay. Great.

[Operator:]

Our next question is from Jaeson Schmidt with Lake Street Capital. Please go ahead.

[Jaeson Schmidt:]

Hey guys. Thanks for taking my questions. George, looking at exiting this year, what percentage of your design win pipeline do you think is going to be related to the M2M or IoT market?

[Georges Karam:]

It’s good question. Again, when we talk about M2M/IoT, they are global with their accessory. The way you’re looking to this week would have close to four products or five shipping at the end of the year. So it’s really decent. I’m talking about -- again, I’m not counting here all modules, players, and sound that they need as well to launch, I’m talk about real application at the end. In terms of -- so this is more kind of four, five design win that we have in the pipe and I’m 100% sure that they will be practically shipping this year as we are speaking. In terms of percentage, overall the year, not to look on Q4, I can give you for this year, the way I see it. Obviously, home router, portable router will be the major one, with more than 50% of our revenue coming from this. And the remaining 50% will be split, maybe a 30% mobile computing and 20% M2M/IoT but obviously averaging the four quarters, which is -- as you can imagine, the first half is more loaded towards the first segment of the market.

[Jaeson Schmidt:]

Okay. Great. Thanks. And then wondering if you could just comment on what you are seeing in the pricing environment and if you are seeing any difference in the international markets versus the U.S.?

[Georges Karam:]

The main difference -- the people they talked about, I don’t qualify international versus U.S. I can say China versus outside China, if you want. In general, there is really big fight in China but more really around the smartphone game and the fight between the big players. Obviously, it has an impact on us because you are in the same environment and the people they have pricing and so on. Outside China, very honestly it’s controlled. I mean, to some extent, our position in single-mode LTE allow us to have a cost optimize solution and the chip solution by definition protect us a little bit from all the spot. And last but not least, the fact that we are coming with next-generation solution more optimize in cost, obviously for application like IoT but you need to remember that Colibri for example is a CAT4 product, really optimized for IoT and M2M. But if you want to use the CAT4 on mobile computing, you will benefit unused Colibri. You will benefit as well from the pricing point of Colibri as well. So we feel okay. We don’t feel -- obviously the pressure is there but I will say business as usual. I don’t see any big surprise here whether our strategy is wrong on.

[Jaeson Schmidt:]

Okay. Great. Thank you. And last one from me. Deborah, wondering if you can tell me how many of the 200,000 shipments in Q1 were modules?

[Deborah Choate:]

I think it was probably about 15%.

[Jaeson Schmidt:]

Perfect. Thanks a lot guys.

[Operator:]

Our next question is from Tristan Gerra with Baird. Please go ahead.

[Tristan Gerra:]

Hi, guys. How would you gage the competitive landscape currently and even though the new technology that you are ramping, would you say that the competitive landscape has changed versus a year ago? Any type of feedback here would be appreciated?

[Georges Karam:]

Hi, Tristan. I mean, on the competitive line, it depends what segments you are talking about. So obviously from single-mode LTE, we see the same picture. I mean, the big players are still fighting on multi-mode. Some of them, they can switch of the 2G, 3G but they will not be really any strong position on this in terms of pricing advantage. Did any case didn’t make any major challenge versus someone looking for single mode, we remain really in a much better position. And here we are with a similar -- I would say similar size company, the two other guys, we refer to them. What’s interesting here really, the challenge, if I really, I want to look to the delta is all those new -- the new family of CAT1 Calliope which is today, as I said we are unique in it. There is no one product chipping on this. Obviously, you could see one or two guys contemplating or preparing to cover the product like this. But this gives us really great time to market advantage because on top of this is not only the chip working, it’s really softer really. You’ve seen this we announced in Barcelona on the softer or the work with Ericsson and Verizon. So the technology is ready and we are designing customer with this to put them in the market as soon as possible with the big push to have it at the end of the deal.

[Tristan Gerra:]

Great. And then some companies in the semiconductor space have talked about some slowing in wireless infrastructure in China and that was due to some spending adjustments during the different segment obviously but are you seeing any changes in the timing of deployment in China or it’s up to what you were expecting earlier few quarters ago?

[Georges Karam:]

I mean, I heard about this but for us the fact that China, one of the challenge we had in China despite the fact that we were one of the first guy trialing and making initial deployment there that this remains multi-mode. So our focus in China, what we decided since two years already that we’re going really to address only single-mode opportunity where the carriers are enabling devices for single mode. So it was little bit slow last year and then start seeing some interest for single mode with some vertical application or some home router or portable router application. And for those we don’t see any impact today. We’re honestly on this, I would say spending on the network side. So as there is no impact for us and we remain on the China side little bit opportunistic because we are addressing the few opportunity we see there with single-mode LTE that we believe some of them will happen this year and we are projecting this in our second half revenue.

[Tristan Gerra:]

Great. Congratulations and thank you.

[Georges Karam:]

Thanks Tristan.

[Operator:]

And next we’ll go to Anthony Stoss with Craig-Hallum. Please go ahead.

[Anthony Stoss:]

Hi everybody. Couple of things is, George, the new found interest on the M2M side, did you get a sense from the potential customers whether or not that’s mainly for fixed devices or fixed assets or they are getting more comfortable with single-mode LTE for even on the mobile side. And then secondly, the M2M device launch this quarter, I presume that’s just one carrier or is that a multiple carriers? Thanks.

[Georges Karam:]

Hi Tony. Yeah. For the first question regarding fixed mobile, obviously we’re seeing -- it depends what you mean, because mobile you could have from limited mobility, some mobility to full mobility in a car. I tend to say it’s a debate depending on whose the carrier we’re talking with and the confidence level of the industry. But it’s progressing to accept this even in the car as single modality. And obviously, someone like Verizon feels good about the lateral coverage and I tend to say even AT&T is catching up. So even within AT&T which is they have I would say they are better positioned to keep the multi-mode somehow because they have their 3G network and they can have 3G and 4G. They are accepting more and more the notion of single-mode on publicly by the way for M2M. So it’s going in the right direction and it’s going to be improving over time obviously to when you reach the CAT0 because on the CAT0, you need to keep in mind and this is very important element Tony. CAT0 will be better than 2G in coverage. Forget the cost and forget the power consumption equation, just only the coverage itself, CAT0 will be better than 2G. It gives you in the link budget between 7 to 12 dB better link budget than 2G. In another words, it will have no limitation in terms of coverage for mobility or others. And the second question regarding the M2M device we’re launching. Obviously the customer we are working with, the OEM, it will be an O&M product is working on multiple carriers. But the device we will be launching now on one carrier and it will be Verizon.

[Anthony Stoss:]

Okay. Thank you.

[Georges Karam:]

Thanks.

[Operator:]

And next, we go to Tom Sepenzis with Northland Capital Markets. Please go ahead.

[Tom Sepenzis:]

Hi. Good morning and congratulations on the quarter and the guidance. I was just wondering you had a number of announcements during the March quarter in terms of carrier partners in India and Italy. I was wondering how many of those do you expect to be shipping by the end of this year.

[Georges Karam:]

All of them. All of them. I mean, the announcements we did in the quarter, I’m talking about the carrier that really is specific with carriers. Obviously with whom, they have the product, they test it, they try it. In other words, there is some initial order in the pipe to our customers, allowing us to make the press release. And all of them, they will be moving to production at the end of the year.

[Tom Sepenzis:]

End of year. Okay. Thank you. And then the strength in the quarter or the M2M launch this quarter that’s in the U.S.?

[Georges Karam:]

It is in the U.S. and the mobile computing as well in the U.S. I mean, reality outside the U.S. for this quarter, we have some stuff in hand. If you want, I’m not talking about growing business or new orders and sort of. I’m talking about new design wins. Nothing major to mention on the call as we win or changing the picture, but all the wins we get them in Q1. In majority, obviously the first target of the customer is really the U.S. But it’s like multiple carrier in U.S. In other words, not only Verizon but Verizon and AT&T and some of them beyond this.

[Tom Sepenzis:]

Great. And then lastly, Deborah maybe you can answer. What do you need in terms of the revenue run rate to be breakeven?

[Deborah Choate:]

Our expectation with the reduction in OpEx going down by about 10% compared to the fourth quarter. If we were at a -- if we were selling only chips, close to 45% gross margins, we are probably looking at sort of $18 million, 18 around that area in order to be close to breakeven.

[Tom Sepenzis:]

Thanks very much.

[Operator:]

[Operator Instructions] And we will go to Ed Schneider with Quan Management. Please go ahead.

[Ed Schneider:]

Yes. I just have two questions. The first, I just want to verify, George. You said that by Q4 or for the full year 2015, you expect IoT/M2M products to be 20% of 2015 revenues, is that correct?

[Georges Karam:]

Yeah. Again, I gave a rough number. I mean, if you look to 2015 today, I believe home router, portal router will be accounting for 55%, little bit more. The remaining 45%, I believe mobile computing will be more 30% and maybe home router, portal router is below 20%. It will be, maybe around 15%.

[Ed Schneider:]

Okay. 15%. All right. And then the second question is about your announcement this week with Expway, LTE broadcast, can you give a little more color on that and see is this is a big thing or how do you see this playing out?

[Georges Karam:]

I mean, thanks for the question, Ed. Everybody knows that we had the leading position with this feature, eMBMS. It is a lot of activity in the past and so on. And obviously, we are waiting for all the carriers, for the carriers such as Verizon and some to launch the eMBMS services and they are moving ahead of this -- on this and I cannot comment more other than what’s publicly known by those carriers. What we did specifically here with this announcement is that we have another piece of software and technology that we developed that allows you to expand eMBMS to devices that don’t support LTE and also devices that are with Wi-Fi. In other words, let’s take the Jetpack of Verizon. If you have a Jetpack with you on Verizon and we put our [Glow Software] [ph] on it, it’s the same chip. But just when we put that, the right software from Sequans on it, then you could have next to a Jetpack, an iPhone or an iPad or Galaxy tablet with Wi-Fi connection and you can get your eMBMS stream your eMBMS video really on this device, on the end device, thanks to what we are doing on our chip. So it’s a kind of innovation on our side that we did it, complementary to the standard allowing to create application where when you have a service, eMBMS service launched, you will have many devices on the network, they could be only WiFi or devices that they are LTE but they don’t support eMBMS. Then if you are next to another device, who has the right LTE coverage as a consequence, this device will allow you to benefit from this service on all your devices.

[Ed Schneider:]

I am just curious, let me think that -- we think that LTE broadcast technology is going to take off because it’s been hanging around for -- well mobile TV broadcast being hanging around for many years, why do you think now is the time?

[Georges Karam:]

I believe it’s getting hot. I mean, if you listen to what the carrier, they are talking about and so on, if I look to the requirement of the carriers for new devices. So for example if I look to the requirement of the carrier for new devices design win we are going today, some of them if I don’t maybe see all of them, well it makes sense obviously, because if the devices are M2M and there is no video, you don’t care about this. But for all the devices that they look more consumer devices, they impose on them to support eMBMS, that’s what the technology will be doing. So for us this is more than enough by the way, because this means position our technology to be the ranked number 1 with all the required features and be selected against other competitor. Then obviously as a second step when the carrier will launch their stuff, the challenge that they had the carrier is not technology challenges, it was more around the business model and how to control the content and so on. And that’s why it’s taking time, but personally I am optimistic on this, I believe it will happen.

[Ed Schneider:]

Okay. Thanks, Georges.

[Georges Karam:]

Okay. Thank you.

[Operator:]

[Operator Instructions] And we will go to [Aaron Martin] [ph] with AIG Investment Partners. Please go ahead.

[Aaron Martin:]

Hi, It’s [Aaron Martin, AIGH] [ph]. Congratulations on the progress on the design wins. Obviously, the low throughput category, there are one products have lower ASPs, but can you talk about what the differences between those and the high throughput chips?

[Georges Karam:]

Yes. I mean, higher, so the -- let me stay, this is two things. Obviously, 3G just good positioning in the pricing that you’re talking about, you are talking about. If you talk about module, the solution itself, the idea is that today if you look our CAT4 chip Colibri, we came with this and we came for this to a pricing of 3G+, anyone who is doing a 3G+, we can compete with them with the CAT4 LTE only. CAT1 compete with the 3G, simple 3G. This is how we do it. And idea of CAT0 is to compete with 2G if we think only pricing obviously there. And this means you are going in terms of module solution from kind of $20 plus, little bit close $22, $23 down to $15, down to below $10, single digit, and CAT0 that can be even if it pushed further will be even close to $5, $6 in the future. So this is the game.

[Aaron Martin:]

What about on the chip side?

[Georges Karam:]

And from chip point of view, obviously it’s about chip and so on. So you would be talking about chip at the beginning more close to $10, going to chips at more close to $6, going to chips at more close to $3.5 or $4, whatever, I mean something like this.

[Aaron Martin:]

Okay. And on the category 0 side, do you think that initially also it’s going to be mostly modules on CAT1 and 0?

[Georges Karam:]

What do you mean, our business not being modestly module? This is the question.

[Aaron Martin:]

Yes. Module versus chip in this market?

[Georges Karam:]

I believe that the market will go more and more towards module, because the people they need to have fully equipped solution. You need to have easy CAT0, I mean ideally this will start looking like a Bluetooth connection and you simplify all the work to get the carrier grade I will say link. So that’s why module is a must have. Now if it’s us selling the module or us selling the chip, this is really part of our go-to-market strategy and depending on the partnership we are doing. And very like now today we are more and more successful with the partnership, with the OEM module makers and this let me feel like as all what they said in the past that over time our business will become more and more, will go back to the normal business where close to 100% of our business or 90% of our business will be chip and maybe some percentage of our business remaining module just only to cover some of the cases where the only way for us to be in this market and when it is to go with market.

[Aaron Martin:]

Okay. Other question for Deborah, you talked about collecting the roughly $3 million or so tax credits, is that the 2014 credits or that’s a 2015 credit?

[Deborah Choate:]

That’s a 2014 credit.

[Aaron Martin:]

Okay. And any ideas in terms of whether or not there will be an accrual for 2015?

[Deborah Choate:]

Yes. 2015 should be in about the same -- at about the same level and we would collect that in the fourth quarter of 2016.

[Aaron Martin:]

Okay. Great. Thank you very much. Congratulations on the progress.

[Deborah Choate:]

Thank you.

[Georges Karam:]

Thank you.

[Operator:]

And Mr. Karam, no further questions in queue.

[Georges Karam:]

Thank you, John. Thanks very much everybody. I appreciate all your time and looking forward for the next call.

[Operator:]

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.