台灣國際航電 (GRMN) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Garmin Fourth Quarter 2017 Earnings Call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Teri Seck.

You may begin.

Good morning.

We would like to welcome you to Garmin Ltd.

Fourth Quarter 2017 Earnings Call.

Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/stock.

An archive of the webcast and related transcript will also be available on our website.

This earnings call includes projections and other forward-looking statements regarding Garmin Ltd.

and its business.

Any statements regarding our future financial position, revenues, earnings, gross and operating margins and future dividends, market shares, product introductions, future demand for our products and plans and objectives are forward-looking statements.

The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of the risk factors affecting Garmin.

Information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission.

Presenting on behalf of Garmin Ltd.

this morning are Cliff Pemble, President and Chief Executive Officer; and Doug Boessen, Chief Financial Officer and Treasurer.

At this time, I would like to turn the call over to Cliff Pemble.

Thanks, Teri, and good morning, everyone.

As we announced earlier today, we delivered another quarter of revenue and profit growth.

Revenue grew 3% on a consolidated basis.

Combined revenue from outdoor, aviation, marine and fitness increased 9% and represented 78% of our revenue in the holiday quarter.

Gross margin improved year-over-year to 56% due to favorable shifts in both segment and product mix.

Operating margin improved to 20%, resulting in operating income growth of 12%.

These strong results generated a GAAP EPS of $0.73 and pro forma EPS of $0.79 in the quarter.

Looking briefly at our full year performance.

2017 was our second consecutive year of revenue and operating income growth.

I believe this is a remarkable achievement considering the challenges that we faced.

The PND market continued its decline as it has done for nearly a decade.

In addition, the basic activity tracker market rapidly matured and left additional gaps to fill.

We filled these gaps and more because of the strength and diversity of our business.

Revenue increased 2% over 2016 to nearly $3.1 billion.

Combined revenue from outdoor, aviation, marine and fitness increased 9% and generated 90% of our operating income.

Gross and operating margins improved to 58% and 22%, respectively, while operating income grew 7%.

This resulted in GAAP EPS of $3.68 and pro forma EPS of $2.94.

Pro forma EPS grew 4% over the prior year.

Doug will discuss our financial results in greater detail in a few minutes, but first, I want to highlight that Garmin was recently included in the Forbes Global 2000 World's Best Employers list, placing 430th out of more than 300,000 companies that were surveyed.

We also were ranked 41st in the Forbes Just 100: America's Best Corporate Citizens list.

This ranking considered companies focused on 7 metrics, including producing quality goods, treating customers well, minimizing environmental impact, supporting the communities we operate in, commitment to ethical and diverse leadership and treating our workers well.

We are honored by this recognition, and I want to thank all of our employees for your strong commitment to our mission and values, which made this recognition possible.

Next, I'll highlight 2017 performance and 2018 outlook for each of our 5 segments.

Starting with outdoor.

Revenue increased 28% on strong demand for outdoor wearables and growth in inReach subscription services.

The segment posted gross and operating margins of 64% and 36%, respectively, resulting in operating income growth of 36% over the prior year.

Looking back on 2017, our fenix line of adventure watches continued to show strong momentum, driven by the new fenix 5 series.

There are many positive things that we can say about this product line, but one I'd like to highlight is that the variety of sizes and styles offered in the fenix 5 family has successfully broadened our customer base.

In particular, the majority of customers registering fenix 5S devices are women, which was a previously underrepresented demographic in our fenix customer base.

As we have mentioned in the past, our Connect IQ application platform has become an important differentiator for our smart wearables.

Connect IQ now offers more than 3,500 apps, widgets and watch faces and has generated over 45 million downloads since inception, approximately half of which occurred in the past year.

To further promote the power and utility of Connect IQ, we will host our second annual Developers Conference in mid-April, offering workshops and tools that our developers can use to leverage the Garmin wearable ecosystem.

Looking ahead, we anticipate revenue in the outdoor segment will increase approximately 13% in 2018.

We anticipate that growth will be driven primarily by the fenix series and supported by growth in other product categories within the segment.

Turning next to aviation.

We reported solid revenue growth of 14%, with revenues exceeding $500 million for the first time in our history.

Growth was broad-based in both aftermarket and OEM product categories.

Gross and operating margins were strong at 74% and 31%, respectively, resulting in operating income growth of 23% for the year.

In recent developments, Textron Aviation announced that the new Cessna Sky Courier aircraft will be equipped with the Garmin G1000 NXi system.

We are excited to expand our partnership with Textron Aviation and look forward to supporting the certification and delivery of this new aircraft.

Last week, we announced that our D2 Charlie aviation watch was selected by the United States Air Force for use by pilots of the Lockheed U-2 aircraft.

The D2 Charlie will provide unique benefits such as pressure alerts and glance-able navigation information on the wrist.

Our aviation team has a strong commitment to delivering quality and service to our customers.

As evidence of that commitment, we received 2 Supplier of the Year Awards for technical support to operators and for electric and electronic systems at the recent 2017 Embraer Suppliers Conference.

This is a significant accomplishment considering the scope and complexity of Embraer's operation and the high expectations that their suppliers must meet.

Also, for the 14th consecutive year, Garmin was ranked #1 in avionic support by Professional Pilot Magazine and by Aviation International News.

I congratulate our team on earning these awards, which is a testament to the quality of Garmin equipment and the amazing way our associates care for our customers.

Looking ahead, we anticipate revenue in the aviation segment will increase approximately 13% in 2018.

We anticipate broad-based growth across both OEM and aftermarket product categories due to improving market conditions, contributions from new products and platforms and opportunities related to the ADS-B mandate.

Looking next at the marine segment.

Revenue grew 13%, driven by growth in chartplotters, fishfinders and contributions from our recent Navionics acquisition.

Gross margin improved to 57%, while operating margin declined to 13% due to litigation-related costs.

At the Miami Boat Show, we announced that Sea Hunt Boat Company, one of the top-selling saltwater boat brands in the United States, is now offering Garmin electronics in their line of watercraft.

We are excited by the opportunity to serve Sea Hunt and their customers.

We are entering 2018 with a broad portfolio of strong products and technologies.

We anticipate revenue in the marine segment will increase approximately 18%, consisting of both organic growth as well as growth from our recent Navionics acquisition.

Turning next to fitness.

Revenue declined 7%, driven by the rapidly maturing market for basic activity trackers, partially offset by growth in advanced wearables and our children's line of activity trackers.

Gross and operating margins were 55% and 19%, respectively.

Gross margin improved due to product mix, while operating margin declined from the prior year.

In 2018, we are targeting revenue to be flat in the fitness segment as growth in advanced wearables, cycling and children's trackers is offset by further declines in basic activity trackers.

Looking finally at the auto segment.

Revenues were down 15% for the full year, as expected, due to the ongoing decline of the PND market.

However, our global market share remains very strong.

Gross and operating margins were 44% and 9%, respectively.

While the downward trend of the consumer PND market is well understood, we see incremental growth opportunities in certain product categories, including trucking, RV and cameras.

We are focused on maximizing profits in this segment while leveraging these opportunities.

Looking at 2018, we expect revenue to decline approximately 17%, driven by the ongoing decline of the PND market.

We remain focused on disciplined execution to bring pragmatic innovation to the market and to maximize profitability in this segment.

In summary, we are entering 2018 with a strong product lineup, and we see many opportunities ahead.

With this in mind, we are projecting revenue of approximately $3.2 billion, up 3% year-over-year, as growth in outdoor, aviation and marine is partially offset by ongoing declines in the auto segment.

We are projecting improved gross margin of approximately 58.5%, operating margin of approximately 21% and a full year pro forma effective tax rate of approximately 19%, resulting in pro forma earnings per share of approximately $3.05.

That concludes my remarks.

Next, Doug will walk you through additional details on our financial results.

Doug?

Thanks, Cliff.

Good morning, everyone.

I'll begin by reviewing our fourth quarter and full year financial results and move to comments on the balance sheet, cash flow statement, taxes, impact of new revenue recognition standard.

We posted revenue of $888 million for the fourth quarter, representing 3% increase year-over-year.

Gross margin was 56.2%, 150 basis point increase from the prior year, driven by segment and product mix.

Operating expense as a percentage of sales was 36%, consistent with the prior year.

Operating income was $179 million, a 12% increase over the prior year.

Operating margin was 20.2%, a 160 basis point increase from the prior year.

Our GAAP EPS was $0.73.

Our pro forma EPS was $0.79.

Looking at full year results.

We posted revenue of about $3.1 billion for the year, representing a 2% increase year-over-year.

Gross margin was 57.8%, a 220 basis point increase from the prior year.

Operating expense as a percentage of sales was 36.1%, a 110 basis point increase over the prior year.

Operating income was $669 million, a 7% increase over the prior year.

Operating margin was 21.7%, an increase of 100 basis points from the prior year, driven by the increase in gross margin.

Our GAAP EPS was $3.68.

Pro forma EPS was $2.94.

Next, we'll look at fourth quarter and full year revenue by segment.

During the fourth quarter, we achieved double-digit growth in 3 of our 5 segments, led by marine segment with 24%.

Fitness returned to growth in the fourth quarter.

For the full year 2017, we achieved 2% consolidated growth, led by robust growth in our outdoor segment and solid double-digit growth in our aviation and marine segments.

Looking next at fourth quarter revenue and operating income.

Collectively, the outdoor, aviation, marine and fitness segments contributed 78% of total revenue in fourth quarter 2017 compared to 74% in prior year quarter.

Outdoor grew from 20% to 23%.

You can see from the charts illustrating our profit mix by segment, the outdoor, aviation, marine and fitness segments collectively delivered 90% of operating income in fourth quarter 2017 compared to 88% in fourth quarter of 2016.

Outdoor operating income as a percentage of total operating income increased from 36% to 41%.

Looking next to the full year charts.

For the full year, the outdoor, aviation, marine and fitness segments made up 76% of total revenue compared to 71% in 2016.

A similar shift occurred in operating income, with 90% of our 2017 operating income collectively coming from the outdoor, aviation, marine and fitness segments compared to 84% in 2016.

Looking next at operating expenses.

Fourth quarter operating expenses increased by $9 million or basically flat as a percent of sales.

Research and development increased $4 million year-over-year due to investments in engineering resources and the Navionics acquisition, partially offset by the additional week of expense in 2016.

Our advertising expense decreased $9 million from the prior year quarter, represented 6.6% of sales, a [130] basis point decrease.

The decrease was due primarily to lower media spend in the fitness segment.

SG&A was up $15 million compared to the prior year quarter, an increase of 120 basis points as a percent of sales to 14.5%.

This increase was primarily due to litigation-related costs and Navionics acquisition.

A few highlights on the balance sheet and cash flow statement.

We ended the quarter with cash and marketable securities of approximately $2.3 billion.

Accounts receivable increased sequentially to $591 million due to holiday quarter, an increase year-over-year due to stronger sales and timing of cash receipts.

Inventory balance decreased sequentially to $518 million as we exited the seasonally strong fourth quarter but increased year-over-year primarily due to raw material requirements.

During the fourth quarter 2017, we generated free cash flow of $144 million.

Also during the quarter, we paid dividends of approximately $96 million.

We announced that we plan to seek shareholder approval for an increased dividend beginning the June 2018 payment.

The proposal is a cash dividend of $2.12 per share, $0.53 per share per quarter, 4% increase from our current quarterly dividend of $0.51 per share.

For full year 2017, we reported an income tax benefit of $13 million, which includes $157 million of pro forma net discrete items relating to a $180 million tax benefit related to the change in tax balance sheet accounts as a result of the Switzerland corporate tax election, partially offset by $23 million of tax expense resulting from a new accounting standard related to the expiration of share-based awards.

Excluding these pro forma discrete tax items, the full year 2017 pro forma effective tax rate is 21.2% compared to 18.9% in the prior year.

The increase in the pro forma effective tax rate is primarily due to the company's election to align certain Switzerland tax positions with evolving international tax initiatives.

We expect our full year pro forma effective tax rate in 2018 to be approximately 19%.

The decrease is primarily due to the U.S. tax reform.

Finally, I'd like to walk you through the impact of the new revenue recognition standard.

We adopted the new standard in the first quarter 2018 and restate the prior year financials.

The auto segment is the only segment impacted by the new revenue recognition standard.

Impact to our 2017 financial statements was an increase in revenue of $35 million, which means we would have deferred less revenue under the new revenue standard.

All 2018 guidance is calculated off the restated 2017 amounts, which are available in the appendix to our earnings release.

This concludes our formal remarks.

Michelle, could you please open the line for Q&A?

(Operator Instructions) Our first question comes from Charlie Anderson of Dougherty Markets.

Congrats on a strong year.

So I want to start with aviation, kind of a 2-part question.

Cliff, you mentioned the environment getting a little bit better.

I think some of your peers have expressed a similar sentiment, so I just wonder what you're seeing.

Does it feel sustainable in terms of the outlook for that market?

And then as it relates to ADS-B upgrades, I wonder if you view 2018 or 2019 as the peak year for you guys in terms of the contribution from those upgrades?

Then I've got a follow-up on marine.

Yes.

In terms of the aviation environment, I think we're all seeing that it's incrementally better.

Of course, we're coming off a very low bottom, and the numbers are somewhat small in terms of the overall growth.

But I think most in the industry are very encouraged by that.

In terms of its sustainability, I think things look good for the foreseeable future.

Somebody recently commented to me, though, that some of these markets, like aviation and marine, are one economic bump away from downturn, so we have to recognize that they are somewhat fragile due to their nature.

But in general, we feel good about that.

In terms of ADS-B and which year would be the peak year, we would certainly see acceleration in unit deliveries going forward.

I think I would anticipate that 2019 would probably be even bigger than 2018 as people get serious about retrofitting their aircraft.

But it's still somewhat early days, and the number of aircraft that have been equipped so far is still on the low side, less than half, so we're waiting to see more people step forward.

Great.

And then as it relates to marine, I wonder how much benefit you guys got from acquisition in Q4 and then how much of the 18% growth anticipates the inorganic portion.

Yes.

So Charlie, related to the 2018 guidance we gave, we are basically expecting about half of that to come from Navionics.

Our next question comes from Doug Clark of Goldman Sachs.

First one on the auto segment.

The 2018 guide implies kind of an acceleration in decline, so I'm wondering if you can talk about what's driving that acceleration after a few years of what seemed like moderation.

Yes.

So in terms of our overall outlook in the auto segment, I think PND is pretty much on the same trajectory that we've been on before.

We did see some improvement in 2017 due to mandate categories such as ELD, which drove some of our fleet products as well as new ELD categories.

In 2018, the OEM part of our business is not expected to grow as fast as what it has been because we're seeing year-over-year comps in some of our major customers that have come onboard like Honda.

Okay, got it.

That's helpful.

And then my other 2 questions, first, on OpEx.

So using your guidance, it looks like kind of implied OpEx is expected to be about $1.2 billion or up 8% year-on-year.

So can you talk about the acceleration in OpEx spend?

And then kind of a financial question.

Curious what the FX impact to fourth quarter '17 revenues was and what the expectation for FX benefit in 2018 is.

Yes.

As it relates to OpEx for 2018, we're expecting about a 8% type of increase.

About 1/3 of that really is relating to Navionics so we have that acquisition that will be hitting in 2018.

Also, looking at some of the different OpEx lines, for '18, as it relates to advertising as a percent of sales, we would expect to keep that relatively flat.

Then in R&D, obviously, we're adding some additional headcount there, investments in our business, and then also have some additional costs relating to the new aviation manufacturing and consumer distribution facility, some additional costs relating to that.

And then as it relates to FX, the FX impact on revenue for Q4 was about a tailwind of $28 million.

And for the full year, it's about $25 million of tailwind, primarily driven by the strength of the euro.

And are you assuming any, within your guidance for 2018, any FX impact?

Sure.

There's impact of that in the guidance because, for the average, for the year, I think the euro was probably about $1.13.

It's quite a bit higher than that now.

There's probably about $75 million of FX tailwind that's in the guidance, assuming the current type of euro rate.

Our next question comes from Joe Wittine of Longbow Research.

Nice quarter.

I guess I'll ask on wearables here.

So first off, in the wearables portion of outdoor, do you expect you can maintain your average selling prices in 2018 based on your product road map?

Yes, so we believe so.

That's in our plan.

We believe that the fenix line is generally very strong.

And we have product road maps that allow us to be able to bring in our newer products such as the fenix 5 and to be able to offer some discounting on the older products, which helps to promote them and sell more volume.

So in general, we feel like the ASP situation is fairly stable.

And then I wanted to ask on availability for 2 new products.

Forerunner 645 still isn't available, and then vívomove HR seems to be pretty limited.

So just wondering if there's anything to note on production just given the fact that both have -- are somewhat new to Garmin technology and when we can expect those to be in consumers' hands.

So the 645 is imminent.

We're making our final adjustments on some features and performance, so that should be coming very soon.

The vívomove HR, we took a very conservative view of that as we launched the product based on our experience from the original vívomove, which was more of a niche product.

But we've been pleasantly surprised by the reception to the vívomove HR, so we've been chasing supply chain and trying to increase our volumes on that product as well.

So we feel pretty good about that as a contributor, but we've not been able to supply all the demand.

Okay, great.

And then finally, just on the same topic here.

You've got a very active 6 months of new product introductions in fitness, especially when you also include cycling on top of wearables.

But looking forward on wearables, I know you won't tip individual products, but is it reasonable to expect, perhaps, a lighter number of new announcements ahead in the spring given that momentum of announcements exiting 2017?

Yes.

I can't really comment on the timing of introductions, but we do have a very active road map of new wearables that are coming in 2018 and beyond.

So we're still very much developing the product line and introducing new products and features.

Our next question comes from Yuuji Anderson of Morgan Stanley.

If we could unpack the outdoor outlook there, how much of that -- can you give us a better sense of how much of that will be attributable to products that have yet to be launched versus products that, obviously, you already have?

Well, I think we said in our comments that the primary driver of the growth is certainly fenix as it's grown in the overall contribution to the segment.

It's the single largest product category within the segment.

But in terms of details around new product contributions and such, we won't comment on that.

Okay, got it.

And then on fitness, with the flat revenue guidance and just with the recent product launches, is it assumed that fitness would decline towards the end of the year just given the timing of the product launches there?

Or is it going to be more even keel throughout the year?

Well, certainly, we will be comping against tougher numbers in the fourth quarter of 2018 as we anniversary the launch of quite a few new products in the advanced wearable wellness category as well as vívomove HR and others.

But in general, we anticipate that the advanced wearables will do well throughout the year, and then our big headwind will be the basic trackers.

Our next question comes from Rob Spingarn of Crédit Suisse.

So Cliff, when we look at outdoor from a high level, is there any risk that fenix or the other components within outdoor start to hit that maturation level that we saw in fitness?

Or is it just a different type of market with less competition?

Well, I think there's always risk in any of these consumer markets, so for sure, that's something that we're aware of.

We believe the market, though, is still doing well, and we believe there's opportunity for additional innovation and new products that can come to the market.

Okay.

Just -- because when I think about the change in the growth rates as we go forward, I'm just wondering if this is a similar dynamic just lagging by a couple of years.

Well, I think we're lapping against a very strong launch of the fenix 5, which drove significant growth during 2017.

So we're looking at 2018 and trying to be realistic about the overall growth prospects there and trying to make sure that we can deliver on what we say.

Okay.

And then just on the margin guidance, maybe this is for Doug.

The gross margin ticks up a little bit.

Is that simply just because of the smaller contribution from automotive?

Or is there -- and I think Cliff said a little bit earlier that ASPs are holding steady, but is that true from segment to segment?

How do we think about that 58.5%?

Yes.

The [58.5%] is primarily segment mix, as you mentioned, just because we're having a situation where our growth is coming in from some of the higher-margin areas and then some of our declines from our lower-margin areas such as the activity trackers and PNDs.

But there may be some puts and takes by each of the segments, but they'll be relatively comparable to what we anticipate for the full year.

But the big driver of that is the segment mix.

Okay.

And then just -- you spoke to the higher operating expenses a little while ago.

You did mention a facility.

I was going to ask you if CapEx has been a little elevated and if that continues.

Yes.

So CapEx will go up a little bit.

We anticipate 2018 probably to about $145 million compared to the $140 million that we had in '17.

Our next question comes from Ben Bollin of Cleveland Research.

I wanted to start -- when you look at the fitness business and the guidance there, do you have any incremental share gain assumption built into your guidance following TomTom's exit of the category?

And then I have a follow-up.

I think TomTom's contribution was fairly low on an overall market basis, and the primarily -- primary impact of that would be Europe.

So I think, certainly, that's in our overall view of the market, but it's not necessarily moving the needle in terms of the overall guide.

Okay.

And then a couple other items.

How has tax reform in the U.S. influenced any thoughts you have on the domicile and the potential to adjust that?

And working capital levels, a little elevated relative to the last couple of years.

How do you think about where working capital should be or could be over the course of the next 12 months?

Yes.

Regarding U.S. tax reform, yes, there's about -- as we talked about, the big driver that we have in the tax rate year-over-year is the U.S. tax reform.

And as it relates to where we're domiciled, currently, in Switzerland.

If you compare Switzerland to U.S., even after the current changes in those corporate rates, Switzerland still is at a lower statutory and effective rates from that standpoint.

And then the follow-up question, Ben, was regarding...

Working capital, a little elevated relative to the last year, just where that goes from here.

Yes, yes, working capital.

So full year working capital in 2017, primarily looking at inventory and receivables, for '18, we would expect to see probably inventory and receivables, end of year, similar to what our growth in sales is.

If you looked at 2017, receivables did increase a little more than that primarily due to some receipts there.

So looked at January receipts came back in line with some of our DSO comparisons that we have.

But we would expect -- kind of looking at our free cash flow for 2018, we probably would expect somewhere to be around $560 million of free cash flow.

A piece of that would be some favorability due to less cash taxes due to tax reform we've talked about.

Also, we should see some favorability relating to working capital that you mentioned there.

We shouldn't expect to see the type of increases in AR that we saw in '17 continue into '18, more in line probably with our revenue increases.

Our next question comes from Brad Erickson of KeyBanc Capital.

Just 2 quick housekeeping questions to start for Doug.

One, just what was the litigation expense exactly from -- in marine in Q4?

And then you mentioned the revenue impacts from FX.

Just curious if you can give the EBIT tailwinds to Q4 and the 2018 guide from FX.

Yes.

So as it relates to the litigation, we have settlement agreement there that -- we will not be able to disclose that number as it relates to that settlement agreement.

Then as it relates to the EBIT impact, what you have in the situation there is, in Q4, you have some things going against you with the strengthening of the Taiwan dollar, that's partially to offset that and then for the full year, in that period also.

Got it.

On that marine litigation expense question, maybe another way to ask it, would the margins have been sort of historically normal for marine had the expense been removed?

Yes.

If you put it in there, I think we would have comparable type of margins, yes.

Got it.

Helpful.

And then just a higher-level question on the auto OEM business.

I guess for years, you've had a pretty solid portfolio for that infotainment opportunity, obviously, with the shifts that are occurring in automotive toward ADAS and autonomy, et cetera.

How should we think about kind of the investments you're thinking about or making in your auto OEM portfolio as you look to get centered or over the target of, I guess, what we'd call OEMs' highest priority content objectives in the coming years?

Yes, certainly, the content view is changing in terms of what goes into the automobile.

We're still seeing lots of interest, though, in infotainment systems.

People still put those kinds of systems in the car.

And we've seen a higher mix of software-related business with what we talked about with Honda and Daimler as well.

But looking forward, we've announced and talked about our relationship with BMW, where we'll be supplying more of what's called the silver box, which is a generic computing platform in the vehicle, which can run all kinds of software stacks associated with infotainment and clusters and other things in the vehicle.

So there is some evolution like that, but there's still opportunity for computing in the vehicle and software.

Our next question comes from Will Power of Baird.

Actually, just a couple of quick follow-ups.

So I know you talked about higher gross margins and some higher OpEx.

Are there particular segments where you're seeing the higher OpEx and, perhaps, lower operating margins?

I guess that's question #1.

And then I guess #2, within the fitness category, we've got this ongoing basic activity tracker weakness.

Is that just continuation of kind of the market trends?

Is there any change in share there?

And I guess I'd just be curious within the advanced section of that, what the Forerunner outlook looks like, if you continue to see growth there.

Yes.

Maybe I'll talk about the gross margins, first of all.

As I mentioned, the gross margin consolidate is really from a segment mix standpoint, so we're anticipating relatively comparable, maybe a few puts and takes for each one of the segments that are out there.

As it relates to OpEx, what we'll see there is absolutely investment in where we have our advanced wearables, primarily in the outdoor area.

Also, at the aviation, we'll make R&D investments in there, too.

So given the decline that we're seeing in the auto areas, hopefully, we're looking at tightening up those expenses in those areas.

And then as it relates to advertising, as we looked at 2017, we actually cut back on our advertising in the fitness area related to activity trackers, so we'll continue to look at that, where we really have some of the more advanced wearable products like the fenix.

Okay.

And then any color on the kind of basic activity tracker market, how much of that is just ongoing market trends versus any share loss?

And any color on Forerunner sales?

Our view is that most of that is really associated with the market trends that customers are moving towards more advanced wearables.

And so consequently, the basic market has matured and is declining rapidly.

So our share assumptions are pretty equal to what they've been in the past.

In the basic side, we've typically said that on a global basis, roughly 10% market share as we look across the universe of what's going on around the world.

In terms of impact on Forerunner, that falls into our advanced category, so that's the area where we still see opportunity.

And we still see people moving towards the more advanced products.

In the case of Forerunner, it's more technical runners, but in the case of our vívoactive line, which is GPS-enabled smart watches, those are the folks that are coming off the basic trackers into a more advanced product.

Our next question comes from Ivan Feinseth of Tigress Financial.

Congratulations on another great quarter and a great year.

My question is on the new scalable infotainment platform, what kind of feedback are you getting from automakers?

And can we expect any kind of partnership announcement soon?

Well, we're getting good feedback.

And much of the work of selling into these automakers is to demonstrate capability.

And so I think the news that you've been seeing from us is surrounding more of that prototyping and predevelopment work.

We're getting good feedback from them, but in terms of specific announcements, we can't comment on that right now.

Okay.

But you seem to be getting some good feedback and interest in it?

Yes.

(Operator Instructions) Our next question comes from Ronald Epstein of Bank of America Merrill Lynch.

It's Kristine Liwag calling in for Ron.

There's discussion that Boeing may launch a new clean-sheet middle-of-the-market aircraft this year or next.

And considering your avionics are certified now for Part 25 aircraft, does Boeing's shifting strategy in managing its avionics supply chain provide an opportunity for you to provide content on the new middle-of-the-market aircraft?

And if so, what would you need to do and how much would you need to spend in R&D in order to be competitive?

Well, certainly, I think any opportunity around Boeing would certainly be hypothetical.

I would say that our G5000 system is, as you have said, Part 25 certified, and we feel like it's the major building block that we need in order to be able to serve more advanced applications such as regional and commercial aviation.

But in terms of investing in a specific opportunity like that, it would require a significant investment in order to be able to build up the other infrastructure we would need in the company to be able to serve a player like that.

We're certainly prepared and have been taking steps to do that, but again, it would be driven by specific opportunities.

And a follow-up to that.

I mean, it seems like also Boeing and Embraer are considering a partnership, and since you have a -- and should they consider that partnership to create a new middle-of-the-market aircraft, you've got content in a number of aircraft already today.

So does that mean that if their partnership goes ahead, does that give you a higher likelihood of gaining content on that plane?

And then another follow-up would be, how much would that investment be?

Could you quantify the timing and possibly the size if you pursue that opportunity?

Yes.

So in terms of any hypothetical partnerships between Embraer and Boeing, I would say, certainly, we feel like we're well positioned because of our experience with Embraer.

And as I mentioned, we've been winning consistently supplier awards with Embraer, so they seem to be happy with what we're doing.

But again, it's all hypothetical because I think any particular partnership on their part would consider all the factors they have in hand at that time.

In terms of timing and size of investment, I'm really not prepared to be able to comment on that.

But as I said, I think there would be work to do, and we're certainly able to and willing to make those investments.

There are no further questions.

I'd like to turn the call back over to Teri Seck for any closing remarks.

Thanks, everyone.

Doug and I are available for callbacks today.

Have a great day.

Bye.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone, have a great day.