Data I/O Corp (DAIO) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Data I/O second quarter financial results conference.

(Operator Instructions) And as a reminder, this conference is being recorded.

I'd now like to turn the conference over to Jordan Darrow.

Please, go ahead.

Thank you, and welcome to the Data I/O Corporation Second Quarter 2018 Financial Results Conference Call.

With me today are Anthony Ambrose, President and CEO of Data I/O Corporation; and Joel Hatlen, Chief Financial and Operating Officer of Data I/O.

Before we begin, I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, estimated impact of tax reform, product releases, new industry partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements.

These factors include uncertainties as to level of orders, ability to record revenues based upon the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, pricing and other activities by competitors and other risks including those described from time to time in the company's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases and other communications.

The accuracy and completeness of forward-looking statements should not be unduly relied upon.

Data I/O is under no duty to update any of these forward-looking statements.

I would now like to turn the call over to Anthony Ambrose, President and CEO of Data I/O.

Well, thanks very much, Jordan, and welcome, everyone.

I'd like to comment on 2018 second quarter results and our outlook on the overall market.

Then I'll turn it over to Joel Hatlen for some more detail on our specific numbers.

We continue to produce solid financial and operational performance in fiscal 2018 following an unprecedented 2017.

Very happy to report that we delivered our 200th PSV systems in the second quarter of 2018.

This is very exciting achievement, and we believe this far exceeds the programming system sales of anyone else in the industry during the past 4 years.

These PSV systems have been sold on 5 continents, in 27 countries and to over 70 customers.

The PSV family has become the industry standard system for device programming in the past 4 years.

Among these 200 systems sold were multiple wins at a top global automotive electronics company versus competition in the second quarter.

One of the locations have been served previously only by a competing system.

This customer selected Data I/O over the most recent model of a competing system after a multi-quarter evaluation.

The customer likes our superior product capabilities, Data I/O global support, ISO 9001 process control, UFS product support as well as the financial stability and transparency of Data I/O Corporation versus competition.

Looking at some of our markets, we've discussed our thesis about automotive growth on many of these calls.

Industry forecast from leading automotive OEMs show about a 10% to 15% CAGR for semiconductor content in cars and a larger increase of 30% to 40% compounded annual growth rate in the total market for Flash Memory in cars.

Growing to between 1 and 2 terabytes per car in the next 7 years.

Today, the dominant memory architecture for automotive systems is what's called eMMC, which is a managed NAND-based device.

We're seeing early adopters of technology and infotainment systems begin to move towards UFS, which is the next generation of managed NAND technology.

They're making this move primarily for performance, and we're seeing new suppliers come in to the market with UFS automotive-grade products this year.

Automotive grade are different than consumer grades, because they typically have a higher quality specification and extended temperature capability.

These new entrants and the new parts are signaling to the market that UFS is becoming more available and that cost will tend to lead this into the mainstream over time in automotive infotainment.

With this, our automotive electronics customers are planning many years in advance on their purchases.

And they know now that UFS is coming and they know that this move towards 1 to 2 terabytes of flash memory is also coming.

To help them through this transition and change and significant increase in capacity, they require a trusted strategic partner to help them in their factories.

Specifically, they don't want to be caught buying capital today that doesn't meet their immediate and long-term future needs.

Today, Data I/O has the leading performance and the leading total cost of ownership, and we're the only automotive-focused programming supplier that offers UFS support today as well as the performance road map that keeps our customers competitive, as their usage grows towards 1 terabyte and beyond.

Our PSV systems with LumenX Programmers provide faster downloads, faster programming, better large file management than competing systems.

And all of these results in a lower total cost of programming.

While we're continuing to advance our automotive offer, at the same time we're making good progress in our SentriX Security Provisioning Platform for the Internet of Things market.

We're very pleased with the announcements from Arrow and Microchip in the second quarter, following the big momentum from the first quarter.

In June, Arrow Electronics announced the security provisioning service, which uses our SentriX equipment at its foundation that will enable the rapid deployment of IoT edge nodes and gateways, featuring the NXP A71CH secure element.

The ability to authenticate IoT devices and quickly establish trusted connections to the cloud is becoming increasingly important.

Particularly with the General Data Protection Regulation legislation in the U -- in the EU, excuse me, and the responsibility of places on organizations to protect data and security.

With security and IoT, we're talking here about very strong early-mover advantages for Data I/O, where we're teamed up with the leaders in our industry.

And our goal here is to make hardware-based security easy to deploy for customers of all sizes.

We're excited about this IoT opportunity because it has an addressable market growing to nearly 4 billion units in the next 5 years according to ABI Research.

And we believe that our SentriX platform will provide another avenue of long-term profitable growth, much the same way that our multiyear investments and programming technology for the automotive electronic supply chain led us to the position we're in today.

Before turning it over to Joel, I find it necessary to mention just a few words about our geopolitical situation.

There's a lot of talk about trade wars, tariffs and the like, and I get questions about the potential impact to Data I/O.

Let's start with the fact that our business is global.

About 90% of our business is outside the United States.

It's been that way for years, and we're very comfortable with this.

We have about a 100 employees overall and about half are located outside the United States where they're close to customers and close to supply chains.

This unique situation in our industry benefits customers as we're close to them, speak their language, or in their time zone, we can more easily consult on presales and post-sales technical opportunities.

We also manufacture in both the United States and China and take full advantage of the benefits of each location.

It's in our best interest and our customers' best interest to have free flow of goods and services.

However, should barriers go up, we have the ability to move some sourcing and manufacturing between China and United States, if it becomes necessary.

We'll be watching political events closely and refining our plans as needed.

With that, I'd like to turn the call over to Joel Hatlen, our CFO, for more detailed review of the numbers.

Thank you, Anthony, and good day to everyone.

Revenues for the second quarter of 2018 were $7.2 million compared to $9.1 million in the second quarter of last year and $7.6 million in the first quarter of this year.

Year-over-year results reflect a very strong 2017 with the majority of our demand continuing to be generated from automotive electronics OEMs.

These customers have been placing orders in large part for our PSV family of automated systems, as Anthony discussed in his remarks.

As previously disclosed, our programming center business continued to be down as compared to the prior year, but improving compared to the first quarter.

Revenues from adapters increase to approximately $1.7 million, up $59,000 or 3.5% from the prior year period.

Total revenue for the second quarter of 2018 was comprised of capital equipment, 65%; adapters, 24%; and software and contracts, 11%.

On a geographic basis, international revenue represented approximately 86.5% of total revenue for the second quarter of 2018 as compared with 95% in the first quarter of 2018 and 90.2% in the second quarter of 2017.

Sales in the second quarter as compared to the first quarter of 2018 benefited from favorable foreign currency exchange fluctuations.

By region, second quarter revenues declined in Asia, 14%; the Americas, 24%; and Europe, 24% as compared to the prior years' strong results.

Order bookings were $7.2 million in the second quarter of 2018, down from the prior year period of $10.1 million, but remaining in a high range than that of a few years ago, due to our presence in the automotive sector.

As compared to the first quarter of 2018, when we had $6.2 million in bookings, second quarter bookings increased by 15% or $944,000.

The variation in revenue percentages versus order percentages relates to changes in backlog, deferred revenues and currency translation.

I'll speak more about currencies in just a moment.

Data I/O had $2.4 million in deferred revenue at the end of the second quarter of 2018 compared with $1.7 million at the end of the first quarter and $1.8 million at the end of the fourth quarter of 2017.

This quarter included one system shipped during the second quarter of 2018, but was not yet installed and accepted.

So it remained in inventory.

Backlog at the end of the second quarter of 2018 was $1.9 million compared with $2.7 million at the end of the first quarter and $4 million at the end of the fourth quarter of 2017.

For the second quarter of 2018, gross margin as a percentage of sales, was 59% compared with 57.9% in the first quarter of 2018 and 56.9% in the second quarter of 2017.

This margin profile remains within our target range of mid to upper 50s.

The increase in gross margin, as a percentage of revenues when compared to both periods was primarily due to favorable product mix during the quarter as well as factory variances and cost-reduction initiatives.

Foreign currency exchange fluctuations had a negative impact on the first quarter of 2018 gross margin and a positive impact on the second quarter as compared to the respective preceding quarter on a sequential basis.

The favorable items impacting gross margin as a percentage of sales in the second quarter added approximately 2 points.

Gross margin was $4.2 million for the second quarter compared to $5.2 million in the previous year period and a $4.4 million in the first quarter of 2018.

Operating expenses were $4 million in the second quarter of 2018, down from $4.1 million in the first quarter of 2018 and up from $3.9 million in the second quarter of 2017.

Operating expenses, as a percentage of sales, were 55.6% in the second quarter of 2018 as compared with 53.4% in the first quarter and 43.1% in the second quarter of 2017.

The level of operating expenses in dollars in 2018 is consistent with our planned continued investments in automotive electronics and our next-generation SentriX Security Provisioning Platform.

We will remain vigilant in managing our expenses and reducing cost where feasible, especially at these higher levels of spending as compared to last year.

The operating expense increase in the second quarter of 2018 over '17 was attributable to additional engineering and R&D spending of approximately $250,000 associated primarily with our new security provisioning or SentriX platform and other automotive-related technology innovations and about 90,000 increased business development and marketing cost in support of our SentriX platform with both net increases offset in part by lower incentive compensation.

Selling, general and administration SG&A expenses of $2.2 million in the second quarter of 2018 was flat as compared to the first quarter of this year and the second quarter of 2007 (sic) [2017].

SG&A expense was impacted by the marketing cost, I just discussed above and stock compensation increases, which together were offset by a lower variable sales channel commission and incentive compensation, reflecting the channel mix and the level of sales.

In accordance with generally accepted accounting principles, or GAAP, net income in the second quarter of 2018 was $486,000 or $0.06 per diluted share as compared to a net income of $1.2 million or $0.14 per diluted share in the second quarter of 2017 and a $130,000 or $0.02 per share in the first quarter of 2018.

Included in nonoperating income is a currency gain of $269,000 for the second quarter of 2018 and currency losses of $61,000 for the second quarter of 2017 and a $176,000 for the first quarter of 2018.

The impact of changes in the U.S. dollar against foreign currencies during the first quarter was primarily related to the strength of the China R&D and while the stronger U.S. dollar compared to the RMB and euro favorably impacted our results in the second quarter of 2018.

EBITDA or earnings before interest, taxes, depreciation and amortization, a non-GAAP measure, was $796,000 in the second quarter of 2018 compared to $1.5 million in the prior year period and $397,000 in the first quarter of 2018.

Equity compensation expense, a noncash item, during the second quarter of 2018, was $473,000 and $270,000 in the second -- first quarter -- I'm sorry, in the second quarter of 2017, and was a $177,000 in the first quarter of 2018.

Our equity compensation expense has increased as compared to the prior years' period as a result of our higher share price pushing the total higher -- the total dollar value of shares and the expense calculation as well as a forfeiture rate true up for the year.

Going forward, we are modeling 280,000 per quarter.

Adjusted EBITDA, excluding equity compensation, was $1.3 million in the second quarter of 2018 compared to $1.7 million in the prior year period and $574,000 in the first quarter of 2018.

Please see our press release or SEC filings for a discussion and reconciliation of these non-GAAP financial measures.

Moving on to the balance sheet.

Receivables of $5.4 million at the end of the second quarter were up from $4.4 million at the end of the first quarter and $3.8 million at the beginning of the year.

The larger receivable billed was primarily due to later-in-the-quarter shipments.

DSO, or day sales outstanding, a measure of collections, was at normal level of 60 days, although this is slightly higher than we've had in the recent past.

The company's cash position at June 30, 2018, was $16.6 million, down slightly from $16.8 million in -- at the end of the first quarter and $18.5 million at December 31.

From the end of the fourth quarter, cash was used to pay a large portion of our accrued annual incentive compensation and 401(k) matching provisions, which were larger than prior years, reflecting the strong 2017 financial performance.

With these actual annual payments having been made, we expect to grow our cash balance.

Our net working capital at the end of the second quarter was $20.2 million, up $300,000 as compared to the end of the first quarter and up from $19.5 million at the end of 2017.

$10.2 million of our cash was in the United States and the balance in the foreign subsidiaries.

The company remains debt-free and had 8,427,884 shares outstanding at June 30, 2018.

That concludes my remarks.

I'll pass the call back to Anthony.

Thanks very much, Joel.

At this point, I'd like to open up the call to questions.

Operator?

(Operator Instructions) This question will come from James Anderson.

Congrats on reaching the 200th PSV model milestone.

I just had a quick question about the UFS capacity on the programming side.

How much of the existing flash programming capacity out there in the OEM side is flash -- UFS capable?

And how much of that you think will need to be upgraded over the coming years as UFS becomes more standard in automobiles?

All right.

James, thanks for the kind words on the 200 PSVs.

But you've already answered your question because every PSV out there is ultimately capable of programming UFS memory.

That's the beauty of our architecture in the way we've engineered it, so that any customer, even if they purchase the PSV 4 years ago, before we did UFS, can purchase an upgrade that will allow them to do UFS programming on a PSV system.

So in effect, they're all upgradable.

What we see with automotive, typically, is the early adopters are moving to UFS now.

They do the designs that takes about a year to go from design to production in the auto space, and we expect to see more of that pick up on the second half of the year.

But again, if you're looking at an auto company going out towards 2025, whether they're going to have more than 1 terabyte or even 2 terabytes of flash.

We think, by then, certainly, the vast majority will be UFS or even a subsequent standard.

Quarter-to-quarter visibility area for you guys, but I'm just wondering what your outlook is for the SentriX development and deployment.

Now that you have sort of beefed up the sales team, and there's been a lot of buzz, I know.

Google was talking a lot about IoT.

It seems like there is an increase in interest generally.

I'm wondering if you guys are seeing that on your side.

James, we remain very, very excited about SentriX.

And as you know and we've talked about on the calls, the SentriX gestation period, if you will, is pretty long time.

We've got to work with the semiconductor supplier, develop the support for them.

They've got to go out and get some designs for their typically new products, and then those customers have to ramp.

So we've been pretty consistent and that takes a period of time, and it's -- 2018 is still a market development year.

We'll begin to see growth next year.

But with SentriX, it's definitely something where we see security as the way things are going to be done and our goal is to get the pole position with the market leaders.

And I think, from our announcements, you can see that we're working with pretty much all the people, the market leaders except one in the authentication IC space.

And we're working with many of the market leaders in secure microcontrollers and stay tuned for additional announcements in both areas.

But our goal is to work with the market leaders, get designed in, in their provisioning process, and then let the natural design in, design win cycle from their semiconductors take its course.

That's a very good strategy for us.

It's just takes some time.

(Operator Instructions) Our next question will come from David Kanen.

Okay.

First question is for Joel.

On the backlog, I know it was $1.9 million at the end of the quarter.

What was it a year ago at the same time?

You provided March and December, just curious June a year ago, what it was?

I actually don't have that here at my fingertips.

I believe it was in about the $4 million to $5 million range.

Okay.

Okay.

So how should we look at Q3?

I know, traditionally, Q3 is seasonally your strongest quarter, but with backlog, where it is?

Is there something going on right now in the marketplace in terms of maybe capacity -- excess capacity digestion or that would point towards a weaker Q3, which seasonally we don't have that, but I'm just wondering, if that's the indication or implication?

Dave, I think you kind of look at the things on backlog and also look at deferred revenue when you kind of add up the backlog in deferred in terms of what kind of tailwind we'll get from previously-booked orders that will be turned into revenue in Q3.

I think, in general, the market is significantly less frothy than last year.

I think you hit the nail on the head.

And we've talked about it before that some customers got ahead of themselves on capacity buys, and they have been digesting that capacity.

I think, overall, we would normally expect Q3 to be the seasonally strongest.

I think that seasonality is probably a bit weaker this year than it was on previous years.

We'll just have to see.

Next we will go to [James Rush].

I just have one question about the SentriX system.

I know on previous calls you've mentioned that you're looking into doing some type of pay-per-use system with the semiconductor manufacturers.

Is there any development on that?

Or do you think that that's the way that you go forward is the SentriX system?

That's the way we planned to go forward with the SentriX system that would have a significantly more recurring revenue component to the revenue.

And we think that's the right thing to do long term from the business.

Short term, it might be nice to have a couple of more systems of capital equipment, but we think, overall, it's best for our customers in the market to introduce it and keep it as a pay-per-use model.

What this does is it smooths out the risk for some of our partners from acquiring a system early on, because they're able to essentially pay us as they go.

It also makes it easy to understand how to charge the end customer for the service which would be comparable for other ways of perhaps getting keys from a wafer-level provisioning.

And for us, long term, we hope to increase the level of recurring revenue that we have, which, as Joel mentioned today, is about 35%.

The other thing is we know a number of customers, given where the market is now, a lot of our customers may have 1 or 2 customers that would be very interested in starting with security.

And a number of these companies, some of the smaller ones may not have the balance sheet to go ahead and buy a full system that may not be fully utilized for some period of time.

So we think the pay-per-use model also helps us, if you'll get SentriX into more places sooner.

Okay.

So that would be the semiconductor manufacturing paying for the use, not the end customer?

No, it would be, for example, the end customer or may be a programming center, we've announced our relationships with the 2 biggest franchise distributors that have in-house programming centers.

But there are others that are out there that are -- that have customers that would be good SentriX customers.

And our next question will come from Robert Anderson.

Just wondering, what is going on with the programming centers?

You haven't said too much about them in this call.

I know in previous calls, you said that they were fully uptake capacity and really didn't need any additional equipment, but may be you could give us an update on that.

And then, Joel, maybe you could say something about foreign currency going forward?

Thanks, Bob.

Good to hear from you.

On programming centers, we talked in the past, Q1 was really slow for programming centers.

Q2 was stronger, Bob.

Not as good as last year, in the first half overall, but we actually had good business at some programming centers that we had not sold to in a while.

We do think there's still some excess capacity out there.

It's starting to get consumed.

I'm more optimistic now than I was, let's say, 6 months ago.

But the -- that has to get absorbed and the programming centers are kind of the first indicator, down or up, about capacity (inaudible) because they really only buy when they need capacity.

We're talking to all of our programming center customers.

But overall, it's definitely a down year versus '17 for programming centers.

But it's definitely -- it doesn't feel as bad as it did 6 months ago.

And Joe, you had a question on currency.

Yes.

So when we're looking at currency we kind of tend to project that things are going to stay mostly the way they are.

But if you look right now, just this week, China's been allowing their currency to devalue a little bit.

That has some favorable benefits to us in the sales that we have to take place in China translate into higher U.S. dollar sales for our balance sheet.

It does mean that our customers tend to have to pay more.

So that's also a risk.

Our U.S. dollar-based accounts in China resulting currency gains when this happens and the other cost on the balance sheet tend to get translated and go to equity.

So it's a mixed bag, it can affect you one way or the other depending on how you're postured with regards to sales, cost and where your currencies are located.

But when we saw the dollar being -- this last quarter, it affects, basically, gives us a very favorable currency effects compared to the first quarter, where we had mostly negative currency effects.

So Joel, would it be fair to say that quarter-to-quarter it's really hard for us to predict?

Absolutely.

And it can move one way or the other, and that's just the way it's going to be.

But over a long term, it tends to sort of balance out.

It does.

And a big reason is we have inventory that's moving back and forth.

And as it moves some sales through it, it balances out.

You have some things that go through the balance sheet and some things that go through the P&L and those are from a CFO standpoint kind of the hardest to...

But from our standpoint in terms of giving sort of any guidance to investors, it's just really hard on a quarterly basis to nail that.

We do our best to naturally hedge and eliminate gyrations causing from currency fluctuations.

Next, we will go to Avi Fisher.

I have 2 quick questions.

First, how many SentriX units have been deployed and installed already?

We have 3 SentriX units out in the programming centers right now, Avi.

And how many were installed in the last year?

I mean, sorry, last quarter?

The net additions, probably the last 90 days would be 1 unit.

One unit, okay.

And do you have a target on how many you expect to have by the end of the year?

We have some goals, but the key thing for us is we want to balance the placements with real demand.

We're in a position where the strength of the balance sheet that we can put a SentriX unit where it needs to go.

But we want to kind of follow the early demand to the partners that are working with us closely right now.

And as additional customers and partners come in, certain companies may have an affinity with a certain programming centers or certain factory.

We want to be able to support them as well.

So it's a balancing act.

We're not capital limited.

We just want to make sure that we can officially support the units that are out there and sort of naturally grow to fulfill a demand.

All right.

I have -- just one other quick question.

On backlog and someone has touched on it before, I'm confused by -- you had a jump in bookings and a decline in backlog?

And you said, we have to add deferred revenue in there.

But has there been -- can you just talk through this?

Any mix shift that might show up in there?

Different products you're selling that may contribute to this unusual variance where the bookings grew but the backlog shrunk?

So probably the biggest single item was the growth in our deferreds where $0.5 million roughly worth of system revenue while it came out of backlog, it went into deferred revenue because the customer hasn't accepted it yet.

So there's $0.5 million of it.

A piece of that was related to the currency impacts that happened between bookings and backlog, and it finally turning into revenue.

So I guess, those are probably the 2 biggest factors there.

And next, we will go to Art Winston.

What was your -- what is the approximate dollar invested revenue of these -- the one of the SentriX systems that's been installed?

Art, we don't disclose that for competitive reasons.

You should, in your mind, think of it as a premium product in our product line.

And if we were to sell it, it would be perhaps even beyond the high end of what we typically listed as our prices for automated systems.

Why is it so expensive?

It's the amount of software and -- It's not -- you're asking the wrong question.

The question should be what's the value that the SentriX provides and how do we capture that in our pricing.

Okay.

That's the question.

The answer is the pay-per-use model.

And the answer is pay-per-use model.

Okay.

I understand.

Other than the SentriX and excluding stock buybacks, does the company have any other use for its cash?

We like to always have enough cash to whether -- the 3 things, I have enough working capital that really helped us quite well in the last, I guess, 6 to 8 quarters when the business really ramped up.

Being able to go out and turn the cash into receivables and then ultimately back into cash again.

Being -- having a rainy day fund.

And we've always said that if the right opportunity comes up by M&A, we want to have an ability to investigate that.

Those are all the theoretical uses.

That's what I've said for years, but that's why -- that's how we would view potential uses of cash.

And we have a follow-up question from David Kanen.

Okay.

Guys, on SentriX, my question is you have 3 units out in the field right now and you're engaging on a pay-per-use model.

So how should we look at amortization of COGS, is that like over 5 years, 3 years in terms of the -- do you understand what I'm saying is?

What is the deduction from cost of goods sold for the amortization?

And then, if you could help me out, what is the maximum throughput?

If this machine is running 24/7, 365, how much can a SentriX -- how many parts could it touch in a year?

And then, if you could just give us an idea of what's reasonable?

Half of that, fourth of that, et cetera?

Yes.

So Dave, I think the maximum throughput, again, I'll be a little bit vague here for competitive reasons.

But the beauty of SentriX is its raw performance, the way it's architected.

So that throughput is in the millions of units per year and the actual use case at the customer will depend on a number of factors.

Primarily, do they have a lot of big jobs or a few big jobs or a lot of little jobs.

The programming centers like to have -- to run the systems as much as they can.

But we anticipate a mix of everything from prototypes all the way to significant volumes being run on those machines.

So it will vary quite a bit from customer to customer.

And next, we will go to George Melas.

I have a quick follow-up on SentriX.

The core business is strong, especially in auto and you guys have been investing in SentriX.

What I'm trying to understand is I look at the average OpEx in 2006, it was roughly 2.9 per quarter.

In '17, it was 3.75.

That was edging up a little bit.

What is the investment in SentriX?

I'm trying to understand sort of the profitability of the business ex SentriX and trying to look at SentriX as an investment into the future.

So how much of the OpEx would be related to SentriX?

I think, George, the -- most of the increase and we've talked about this in previous calls, most of the increase that you've described is in the R&D side, at least, is related to SentriX.

And then things we do on the machine that benefit both SentriX and our core business.

One of the things that we have is there's some unique investments in SentriX.

Like, for example, when we do supports for a particular product and then there is some other investments we make in the core technology around the platform that benefit our core business as well as SentriX.

And those would be more general performance enhancements in the programming technology, our system software, the handler technology and systems integration capabilities.

But I think it's fair to say most of the increase from the engineering side has gone into SentriX.

And we have a follow-up question from [James Rush].

Quick follow-up.

I know you mentioned the growth rates for the semiconductors in the automotive and the eMMCs.

Just wondering, if you think you'd be able to capture more of a market share from that?

Or you could just piggyback just kind of, of those general growth rates for the [piggyback season of] semiconductors?

That's a good question, James.

I think, in general, we look at it -- we should be able to grow -- our share -- first of all, we believe our share in automotive is substantially higher than our share overall in the market, especially on the flash side.

We think as the customers use cases grow, that we should be able to hold our share or even grow it a little bit.

We think that the best way to gain share, and this is not just experience from Data I/O but 35 years in technology, is when you have a much better answer for a problem that happens during a major technology transition.

And that's why we've been so focused in talking about automotive in the secure Internet of Things.

We think both of those markets are undergoing major technology transitions now and what that means is customers are actively looking around for potentially new solutions to new problems, and they tend to do that much more often when there's a new problem in front of them that they haven't faced before.

And so our ability to be there when people maybe for the first time even are looking for a solution to secure provisioning or very high-performance flash programming in automotive.

We think if they look at Data I/O, they will -- they'll be favorably disposed.

The automotive is not just the technology transition but also a very, very large increase in things that go into infotainment systems and auto -- self-driving cars, things like that.

And so they're going to need new programming solutions from what they've been doing traditionally.

So that's the way we look at the market.

You want to sort of grow with the market in the traditional areas, may be gain a little share.

And then as new problems, as new technologies come in, you need to be there early, you need to be there with the best solution, and then turn that into something where you become the incumbent over time.

And we'll go again to David Kanen.

Okay.

Sort of a follow-up on George Melas' question.

So about -- since 2 years ago, OpEx is up approximately $5 million to $5.5 million a year from about a $11 million to $16 million or so.

So Mike and most of that is -- or a good portion of that is related to SentriX Managed and Secure Programming.

So my question is, how many SentriX units approximately based on average usage anticipated do we need to get in the field before we can start to recoup our investment?

So Dave, the number of SentriX units that we want to put in the field is, obviously, more than 3. And that will go up over time as we get more and more units designed in.

The exact number depends on what we talked about earlier in terms of capacity, pricing, things like that.

But obviously, we think it's a very good opportunity because we think the market, and we're not alone, people like ABI Research published this.

We think the total available markets in the 4 billion unit range in about 5 years.

Now not all that is going to be available to us, but we think enough of it will be available to us, and we'll win enough where that's going to be good business for us.

And there are no further questions.

Okay.

Well, if there are no further questions, operator, I'd like to thank everyone for a great call, and we can go ahead and close the call.

Before we do, I just want to remind everyone that we will be at the ROTH Capital Internet of Things Corporate Access Day in San Francisco on September 5 and the Dougherty & Company Annual Investor Conference in Minneapolis on September 6. And we hope to see you there.

Thanks very much.

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