Pixelworks Inc (PXLW) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Pixelworks, Inc.'s Third Quarter 2017 Earnings Conference Call.

I will be your operator for today's call.

(Operator Instructions) This conference call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Steve Moore.

Good afternoon, and thank you for joining us today.

With me on the call is Todd DeBonis, Pixelworks' President and CEO.

The purpose of today's conference call is to supplement the information provided in our press release issued earlier today announcing the company's financial results for the third quarter of 2017.

Before we begin, I would like to remind you that various remarks we make on this call, including those about our projected future financial results, economic and market trends and our competitive position, constitute forward-looking statements.

These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially.

All forward-looking statements are based on the company's belief as of today, Tuesday, November 7, 2017, and we undertake no obligation to update any such statements to reflect events or circumstances occurring after today.

Please refer to today's press release, our annual report on Form 10-K for the year ended December 31, 2016, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.

Additionally, the company's press release and management's statements during this conference call will include discussion of certain measures and financial information in GAAP and non-GAAP terms, including gross margin, operating expenses, net income loss and net income loss per share.

These non-GAAP measures exclude amortization of deferred revenue fair value adjustment, inventory step-up and backlog amortization, amortization of acquired intangible assets, acquisition-related costs, stock-based compensation expense, restructuring expenses, fair value adjustment on convertible debt conversion option and discount accretion on convertible debt fair value.

With the exception of stock-based compensation, all of these adjusting items are related to the acquisition and integration of ViXS Systems.

We use these non-GAAP measures internally to assess our operating performance.

The company believes these non-GAAP measures provide a meaningful perspective on our core operating results and underlying cash flow dynamics, but we caution investors to consider these measures in addition to, not as a substitute for nor superior to, the company's consolidated financial results as presented in accordance with GAAP.

Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP net income loss and GAAP net income loss to adjusted EBITDA, which provide additional details.

With that said, I will now turn the call over to Todd for his opening remarks.

Thank you, Steve, and good afternoon to everyone on today's call.

As reported in today's press release, third quarter revenue was $18.8 million, at the high end of our $18 million to $19 million guidance range.

This included the expected $2 million contribution from a partial quarter of ViXS.

Going forward, we will refer to the ViXS product lines and solutions as Pixelworks video delivery business.

Excluding the EOL contribution in previous quarters, organic revenue in our core business grew 7% sequentially and was up 38% year-over-year.

Gross margin expanded to 54.9% in the quarter, and we diligently managed operating expenses to a better-than-expected level, resulting in a non-GAAP earnings of $0.03 per share, above the high end of our guidance.

Our results marked the fourth consecutive quarter of profitability on a non-GAAP basis and substantial year-over-year improvement on effectively every financial metric.

As previously announced, during the quarter, we took planned steps to further streamline the entire organization following the acquisition.

These decisive actions included the elimination of multiple redundant and nonstrategic expenses, which enables us to rapidly realize approximately $4 million in annual cost synergies.

Looking at our 3 end markets of projector, mobile and video delivery, we are pleased with where Pixelworks is positioned within each market to capitalize on distinctive opportunities.

In fact, the trends in these markets are accelerating the need of our visual display processing technology and advanced video delivery solutions.

In our projector business, revenue grew 10% sequentially and nearly 40% year-on-year to $16.5 million.

I want to highlight that the third quarter revenue represents a multiyear high in our core projector business after adjusting prior quarters for the contribution from EOL products.

The drivers of this growth continue to be a combination of normalized demand environment and an increased market share at our key customers, which have been consistently outperforming the broader projector market.

In addition to strong year-over-year revenue growth, we also continue to realize improved margins and profitability following the streamlining of our product line last year.

ASPs remain favorable, and we believe that our current material margins are sustainable for the foreseeable future.

Although the growth rates in our projector business will moderate beginning in the fourth quarter due to the higher quarterly comps, our bookings continue to be strong.

Channel inventories are also lean, which we expect to support order demand that's in line with typical seasonality.

In our mobile business, revenue declined sequentially as a result of an anticipated product transition by our lead mobile customer.

However, we expect revenue and shipments to increase during the fourth quarter as ASUS ramps its next generation tablets that incorporate our Iris display processors.

The mobile market continues to move in the direction of Pixelworks' core strengths as leading OEMs are increasingly incorporating advanced display and video processing capabilities such as high dynamic range or HDR, wider color gamut and adaptive displays into their newest generation devices.

While the 2 market leaders are not our primary target due to their more integrated in-house design approach, their adoption of features like True Tone and mobile HDR certification is clearly influential.

Importantly, the technology leaders put increased pressure on nearly all other OEMs and specifically on their flagship models targeting developed markets.

We have recently seen a dramatic shift in interest to incorporate similar features and functionality in their future devices.

Today, few, if any of the fast followers, have the fundamental know-how or internal design capability to implement advanced display processing on their own.

Adding to the increased interest from our targeted OEMs to adopt advanced display capabilities is the increased availability and emphasis being placed on higher-quality content from the disruptive providers of streaming content.

For example, Amazon and Netflix are actively promoting premium content services that require a certified or whitelisted device with a high-performance display and associated display processing pipeline in order to view their premium mobile content.

Subsequent to sampling our fourth generation Iris mobile processor early in the fourth quarter, we verified the new chip and have since been supporting multiple evaluations with targeted OEMs.

As I discussed on last quarter's call, this device was specifically designed to overcome the key hurdles for OEM adoption, including significant improvement in power, size and cost in addition to incorporating new features as compared to our third generation device.

However, I want to emphasize that our fourth generation does not replace the third generation device.

The respective generations have meaningful different feature sets, and we currently have active engagements with prospective customers for both generations.

Given the current design-in activity for both the third and fourth generation of Iris, we expect to ramp into meaningful volume production in mid-2018 in support of multiple new mobile OEM customers.

Turning now to our recently acquired video delivery business.

Revenue was $2 million, which was in line with our expectations for the partial quarter of contribution.

As previously mentioned, we realigned our resources in September to focus on key consumer customers in Japan and our OTA or over-the-air streaming initiatives.

Combined with our crisp integration efforts, which we anticipate completing by year-end, we remain confident in our ability to drive significant revenue and operational synergies.

The current market dynamics of accelerating declines in traditional pay-TV subscribers, rapidly growing retransmission fees and new attractive OTT alternatives are creating a unique opportunity for our OTA streaming solutions.

The OTA ecosystem consists of early adopter customers, software solution providers and cost competitive contract manufacturers.

And Pixelworks OTA solutions are gaining increased attention.

Today, there are several single, dual and quad channel solutions based upon our SoCs that are currently available through leading retailers in advance of the holidays.

To close out my prepared remarks, the opportunity for Pixelworks technology to directly address prevailing market demand for differentiated video processing solutions has never been more tangible.

More importantly, both mobile display processing and OTA streaming represent dynamic growth potential.

And I believe the company is uniquely positioned to aggressively pursue these 2 distinctive and rapidly emerging market trends.

As a result of our recent integration efforts, we are now critically focused on realizing meaningful inflection points in both markets in 2018.

I'll now turn the call over to Steve to review our third quarter financials and guidance for the fourth quarter in more detail.

Steve?

Thank you, Todd.

Revenue for the third quarter of 2017 was $18.8 million.

This is compared to $20.7 million in the second quarter of 2017, which included $5.1 million of EOL revenue and revenue of $13.7 million in the third quarter of 2016.

Revenue in the third quarter of 2017 reflected a 39% year-on-year growth in our digital projection business.

The breakdown of revenue during the third quarter was as follows: revenue from digital projection products was approximately $16.6 million; mobile revenue was approximately $190,000; and revenue from video delivery was $2 million.

Non-GAAP gross profit margin was 54.9% in the third quarter of 2017 compared to 54.4% in the second quarter of 2017 and 48.6% in the third quarter of 2016.

Non-GAAP operating expenses were $8.9 million in the third quarter of 2017 compared to $7.6 million in the previous quarter and $6.8 million in the third quarter of 2016.

Q3 operating expenses included a credit of approximately $1.3 million related to the previously announced co-development project with a large projector customer.

Adjusted EBITDA was $2.3 million for the third quarter of 2017 compared to $4.7 million in the second quarter of 2017 and $670,000 in the year-ago quarter.

Reconciliation of adjusted EBITDA to GAAP net income loss may be found in today's press release.

On a non-GAAP basis, the company reported a net profit of $976,000 or $0.03 per diluted share in the third quarter of 2017 as compared to a net profit of $3.2 million or $0.10 per diluted share in the prior quarter and a non-GAAP net loss of $438,000 or $0.02 loss per share in the third quarter of 2016.

Moving to the balance sheet.

Cash and cash equivalents decreased sequentially by $5.9 million to approximately $26.3 million at the end of the third quarter.

This decrease was primarily due to the payment of approximately $5 million of debt assumed as part of the acquisition of ViXS, which was partially offset by approximately $2 million in cash assumed in the acquisition.

The company also paid approximately $1.5 million in Q3 for the mask set related to fourth generation Iris device.

Other balance sheet metrics include days sales outstanding of 24 days at quarter end compared to 25 days at the end of the second quarter.

On an annualized basis, inventory turns decreased to 12.2x in the third quarter compared to 17.2x in the prior quarter.

Reported inventory as of September 30, 2017, included approximately $1.4 million of purchase accounting step-up, which is expected to largely be amortized over the next 2 quarters.

Turning now to guidance.

For the fourth quarter of 2017, we expect revenue to be in a range of between $17.5 million and $18.5 million.

We expect non-GAAP gross margins of between 55% and 57%.

Operating expenses on a non-GAAP basis are expected to be between $10 million and $11 million.

Unlike the third quarter, no credits related to the projector co-development project are expected to be recorded in Q4 2017.

We expect non-GAAP EPS to be in the range of between loss of $0.05 per basic share and income of $0.01 per diluted share.

With that, we will now open the call for questions.

Operator?

(Operator Instructions) And our first question comes from the line of Charlie Anderson with Dougherty & Company.

Todd, you had some interesting comments on mobile, and you were very specific that you were having good design-in traction for both third and fourth generation Iris, so that was very good to hear.

I wonder if maybe you could just maybe help us quantify what that means, maybe number of customers where you're seeing design-ins, anything in terms of being able to quantify what meaningful means in terms of meaningful production.

And then maybe what's driving some of those design-ins would also be helpful.

And then I've got a follow-up.

Sure, Charlie.

So listen, I don't want to quantify it too much.

I think let me first comment on past numbers that I put out there.

I said that we've targeted probably less than a dozen key OEMs.

I've been pretty clear that the leaders in the industry have a great deal of their own R&D investment in the display processing pipeline.

That would say that the others are the ones we're focused, I've termed them as fast followers, in some cases.

That moniker may not be appropriate for 1 or 2 that we're engaged with, but I would say that we're still in discussions with all the customers I mentioned in the past or the quantity of them.

And I would say we have design-in traction, and that's what I'm referencing in my comments, with half a dozen customers and at least that many programs, some customers more than one program.

I also mentioned that I think there's a lot of -- based on my own comments, I've stated that we needed to reduce the barrier of adoption of our devices.

And how to do that is to make it easier to integrate.

An easier decision, easier design, less power consumption, because they're all extremely focused on overall power budget of their phones and, of course, they're all cost-sensitive.

But with that said, the other -- 2 things, we still have some strong interest in the third generation of Iris.

The feature sets of the 2 devices, now we've come out and said what Iris 3 is, its feature set -- I have not publicly announced the feature set of Iris 4, and I'm not prepared to do it yet.

What we do say is that the feature sets are different.

And what we also said is that fourth generation of Iris is a lower-cost, lower-power budget, it's at 28-nanometer.

And part of the way we see the lower cost is by changing the feature set out.

And it wasn't just eliminating features from Iris 3, there's actually some features in the fourth generation of Iris that are not -- do not exist in the third generation.

So what you see is a few OEMs are targeted and strongly interested in the features of the third generation, and some are very interested in the lower-cost set of features, lower power set of features of the fourth generation.

And so I was a little surprised by that, actually, that we had as much traction in the third generation as we do.

But I'm happy.

So doesn't really quantify it for you.

Maybe as far as quantity of customers, I think it does, but beyond that, it's still a little too far out there for me to give you too much more detail on quantity of the ramp and color on the ramp.

Got it.

But...

Sorry, go head.

Go ahead.

Well, I'm just going to give you one more piece of color, which is the engineering engagement we have from these customers is quite a bit different than what it had been up to this point.

Once the leaders in the industry and the most recent leader coming out with their new phones, the uptick in interest of bezel-less, high-quality displays and supporting HDR video have gone up dramatically, right?

And so we certainly knew we needed a catalyst beyond just our -- having us lower the barriers of entry, but I didn't realize how much it would change the dynamic for us.

So it has dramatically changed the dynamic.

These guys, they're moving as fast as they can.

They -- I think they probably wish they would have started earlier at this point.

Got it, got it.

Okay.

Then -- so for the follow-up, I was wondering about OTA kind of cord cutter chip.

I think you talked about being on some products for the holidays, but then as I think about next year and sort of the pipeline of opportunities there, I wonder if you could give any more color.

You didn't make any comments about design-ins there, like you did for mobile, but maybe just roughly where we stand with that pipeline.

So what is available is, is there's early adopter products from Nuvvyo, I think Hauppauge has come out with a recent product and Antennas Direct has their ClearStream product, those were all active engagements prior to our acquisition that now are out and in the channel, and they're in Best Buy stores, they're in Walmart stores and they are online.

There are other programs that we're designed into that have not been launched yet, and so I'm not going to talk too much about that.

Some of those were in process at the acquisition and we closed recently.

And some have just -- one of the things we did when we brought in is, I think, I went through -- personally through half a dozen visits to a couple of large OEMs, large chipset partner providers that we could be on reference designs with and software ecosystem partners to make sure that everybody understood, either they knew about us already, they knew about the acquisition, and if they didn't know about us, they knew how focused we were in the space and what our road map looked like and what our vision for it was.

And through all those meetings, I have a very excited ecosystem to engage in this space.

That market is turning dramatically, and it really has nothing to do with the technology.

It has to do with the forces going on between what the pay-TV operators currently are seeing in the market, what the new disruptors are doing to the market and the changes going on there, and it creates a really unique opportunity for us over the next 18 to 24 months.

So there are new design wins to be specific.

We'll roll those out.

Listen, I wanted to be a little bullish on this call.

It's been a very patient investment crew, our investors have been long with us, even probably before I got here.

We're starting to turn the corner.

I wanted to make sure that they heard it as soon as I could, given confidently, that we're turning the corner there.

And -- but I still, at the end, want to make sure that everybody knows I'm not going to get too far out in front of our customers, and I'm not going to talk about their launches before they launch, and I'm not going to talk about how they differentiate the product before they launch.

But I wanted to give some color.

And our next question comes from the line of Brian Alger with Roth Capital Partners.

Todd, I'm wondering if you could maybe help us understand -- I mean, obviously, there's a lot of things going on, a lot of stuff that might come in, might not come in between the mobile opportunities with Iris and then, obviously, on the OTA and ViXS side.

As we look out, I mean, obviously, ViXS has a revenue run rate that's a little bit higher right now.

If we're looking at 2018, 2019 and beyond, if you had to guess which one had a bigger opportunity for Pixelworks, how would you have us think about those?

Well, I think today, both of our growth initiatives -- well, I -- this is how -- I'll frame it like this.

We had a dramatic year of year-over-year growth in our core market of projector, right?

I think the first 3 quarters, we grew in the mid-30s.

On a year-over-year comparison in the fourth quarter, it's not going to hit that high.

But when you average out the whole year, it will be in the high 20s, probably, year-over-year growth for projector.

This is in a flat market.

So we were taking market share mostly by the attach rate and the market share we took at our largest customer, but we also took it elsewhere in a few spots.

I expect that we will still grow faster than the flattish market in projector in 2018, but I expect the growth to slow down quite a bit, right?

We've got quite a bit out of it.

We'll get a little bit of growth.

Material margins, et cetera, will be maintained.

It'll be a nice, healthy business.

The other 2 businesses will allow the company to continue to grow at those type of growth rates, okay?

So I expect -- but this is -- when I do the comps, I take out the EOL, okay, all right?

So if I take out the EOL, I still expect in 2018, we'll grow.

With a slowing core projector business, we'll growth in the upper 20s year-over-year.

And then right now, I see the potential for accelerating growth rates in 2019 and 2020.

Accelerating growth rates.

And let me be just clear on that.

Accelerating growth rates, right?

Yes, I understand.

And if either Iris or ViXS is successful in 2018, I think that's a very logical conclusion because you'll be on the design path for some very, very large markets.

At this stage, without getting ahead of your customers, and I don't want you to be put in a tough spot, but I'm just curious, if you had to guess today which opportunity has a higher probability of delivering that growth, is there a way to handicap that at all or are they pretty much equal?

Oh, wow, that's a tough one.

First of all...

Your favorite of your 2 kids.

Isn't it always the youngest of your 2 children that are always the ones that you coddle?

So certainly, the Pixelworks video delivery business is a shiny new penny, and the dynamics there are really interesting.

And because it's with a new set of customers and a new set of issues to overcome, I'm personally spending a lot of time with it, but I do not want to take away from the mobile team.

The mobile team has just -- the core team that we have here working on mobile, there have been naysayers for 3 years, and if you go look at the core support and marketing and sales team that just kept pushing and pushing and pushing, because we were out there all by ourselves for most of this time, to see them have the pull and the potential for the success right now, I'm extremely excited for the Pixelworks team.

So right now, Let me just -- the potential in mobile is big, but it is with a fickled difficult crowd that everybody knows the broad economics of the mobile industry, and beyond the 2 leading suppliers, there is very little profitability within the industry.

You can have an individual, a company that has a good growth year, and I'm sure that they were profitable that year.

I mean, I could look at OPPO and Vivo last year, and I could look at Huawei this year.

But in aggregate, that group that we're targeting, even though there's 1.5 billion units, it is a tough, tough business and it creates a dynamic that can work for you but work against you.

Right now, it's working for us because they all want to catch up, and they see us as a vehicle to catch up.

How we continue to stay the apple of their eye is always a difficult challenge, and it can turn on a heartbeat.

So you have to remember that.

I spent a lot of time in the mobile business over the last 12 years, and it's just -- never get too far out in front of yourself in that space.

Understood.

Well, it looks as though things are shaping up, and obviously, the healthy projector market gives you a great cash-generating business to develop against too.

So keep up the good work.

I appreciate the color.

And our next question comes from the line of Richard Shannon with Craig-Hallum.

I jumped in on the call a little bit late; I've got a bunch of earnings here tonight, so I may have missed some prepared comments.

So bear with me if I'm repeating things here.

But, Todd, I guess, maybe asking on the mobile opportunity and some of your increased enthusiasm for some volume wins next year.

Did I catch your comments or am I characterizing your comments correctly as companies, OEMs have been testing and potentially putting designs together during the course of this year, but once the largest -- or one of the largest guys came out with their phone here recently, it sounded like they kind of pulled the trigger or accelerated designs or -- am I characterizing this right?

And if so, if you can add any more detail to the tenor and the pace of change in those conversations as the phone came to market?

So I think you're characterizing it right.

I mean, what I would suggest is, we had a -- when you're selling a -- it's not like most of these customers we focused on didn't have display processing, but it was effectively given to them by their suppliers.

They didn't really tailor it.

It's what they got out of their AP vendor and what they got out of their display vendor would be the eye.

In some cases, a couple of the larger guys might dictate the display pipeline attributes.

But I wouldn't say they were really focused at differentiating there.

And what you saw was -- you've seen reviews of some of these guys, that they've got panned on the display capabilities.

I mean, I don't want to call these -- my customers out to light, so I'm not going to say anybody by name.

But if you've read any of the recent reviews of some of the flagship phones that have come out the last 6 months that weren't the top 2 that I've called out, they have all been troubled and plagued with color calibration issues, display accuracy issues, the quality of their video display.

Nobody cared before because a couple of things, people weren't pushing content, the users were okay with crappy video content and it scaled back because most of the service providers scale back the throughput.

But now, it's changing from both the providers wanting to provide high-quality content and the leaders in the industry really honing their capabilities in the display processing pipeline in combination with very high-quality screens.

The fast followers woke up.

It's important to them now, right?

And so it's not like we never had any conversation with these guys.

We have been pushing on them, trying to tell these customers the importance of what we do, probably before I got here, in some cases, with these customers, right?

And I've been here almost, I don't know, 18, 20 months.

So -- but now, that push is a combination of pull and push, and it's an -- that's an engagement.

And those engagements, what I'm effectively alluding to on this call with prepared remarks and the press release is those engagements are far enough along that I'm willing to go out and say that they will consummate as design wins, they will be public, and we expect to have meaningful ramp in the second half of the year.

Okay.

That's great detail, Todd.

If I could kind of correlate with the statement here just in the last few seconds versus the response to one of Brian's questions, you characterized some of these customers as fickled, which might suggest kind of varying time frame here, but your just last comment suggested a fair degree of certainty.

And I think you're kind of describing a cohesiveness between an OEM and a potential service provider kind of pairing a phone with a service.

So that seems to suggest an ecosystem that's coalescing and would suggest -- a time frame that may hold here.

So I want to get -- take your temperature on the extent to which you think there's time frame fungibility with that second half ramp versus something later.

Well, no -- so let's be clear on my comment with Brian.

When I said fickled, he -- that conversation was in regards to a longer-term outlook of both the mobile opportunity and the cord cutter and which one did I thought have -- would have the greater impact on the company.

And it's hard to pick.

They both would have great impact.

What I tried to hit -- bring up was the fact that's a long ways out to predict the behavior of the mobile customers who can be fickled, right?

Right now, I said they're working for us because they are rapidly moving towards the need to have this technology in there.

If out in 2019, they've all moved to something else, it could be harder.

Right now, I think this is a multiyear trend, but it's -- I've been in this business too long to say for sure.

Now short term, these customers would like to react as soon as possible.

And in some cases, they're trying to even beat the back half of 2018.

But they're fast followers.

The nature of them is they're reactionary.

They're not out plotting and planning ahead.

And so sometimes, you can only react so fast, and you have to get on that train and when their next phones are available and how soon you can get there.

So their behaviors change quite a bit.

How fast they can react is the question.

I'm feeling pretty comfortable in the second half, that there'll be a meaningful step-up in our volume.

I don't want you guys to get too far ahead of us, right, because many of the guys we're focused on have -- some of them have very high volumes, but the volumes are from phones that are on the low to mid-end.

They all have flagship models, but don't assume just because we get designed into the high end where they need to compete with -- because, remember, even though we've lowered the barriers of entry, the cost of our device, they usually don't put our device in with a crappy screen, okay?

So there's other elements that they have to spend to come out with the features and functionality we push, okay, and we enhance.

Now we do believe we can take a reasonable screen that's lower-cost than some of the higher-tier screens and get a much better performance out of it.

So how far down the -- their product lineup we can hit with our device, I think, still remains to be seen.

These initial programs we're focused on are more flagship-oriented.

Appreciate all that detail, Todd.

Last 2 quick questions from you.

Todd, just want to verify that you said you thought you can see growth, excluding EOLs, kind of growing in the high-20s rate in calendar '18.

Is that -- did I catch that correctly?

That's correct.

Okay.

And my next question is -- the second quick question for me is, especially as we've got a new business with ViXS coming into the fold here, I wanted to see if there's any way you can characterize -- what -- what you would expect normal seasonality would be in that business as we get into the first calendar year?

I would assume it would be down some because there's some holiday purchasing, but I just want to get a sense of what (inaudible).

Well, listen, to be frank, the revenue that we've inherited is so low, it's hard for me to even say that there's seasonality to it.

The revenue is a mix of these early adopter OTA customers.

This large consumer -- I mean, I guess I can call them out, it's Sharp, because they've had a public announcement together, and those guys are just ramping their 4K PVR set-top boxes in Japan, right?

They're just starting to ramp.

So those 2 elements are a small part of it, but it's just starting.

Probably, the main part is just -- this is a company that was around, I want to say, 17 years before we acquired it.

They had tried to do -- went from -- at their highest revenue peak, they were focused on multimedia PCs and doing video decoding and transcoding within the PC environment for Windows Media.

They migrated that to a more professional decoder and service provider of video delivery business, where they're transcoding for the hospitality industry and large service providers, and then migrated towards this more consumer-oriented play at the end.

A great deal of the revenue is based upon all that history of their past markets.

It's low, it's still got some life to it.

We're not going to just pull the legs out from underneath it and end of life of it.

I'm going to support those customers in sort of a legacy mode.

We are totally focused with the remaining resources on OTA and the consumer electronics business in Japan, period.

And so -- and I've told all the customers that are effectively not getting any new development directed towards them, that I'll support their current programs, but we're just not in that business anymore.

And I've talked to multiple CEOs about it and they know where we stand.

So with that said, I'm not sure there's much seasonality in the existing business.

It's too early to talk about that.

We're totally focused on these new businesses.

As they grow, there may be some seasonality in their business, but I'm hoping they're just on a fast growth rate that, usually, when you're on a high growth rate, you don't see much seasonality, you're just growing.

And our next question comes from the line of Jaeson Schmidt with Lake Street Capital Markets.

Most of my questions have been asked already, but just want to look at gross margin.

Obviously, really strong in Q3 and expect it to be strong in Q4.

I know that's mix-driven, but how should we think about the opportunity to expand gross margin further from here?

Well, Q4 does -- we do expect it to be a little above Q3 simply because of the mix that you just mentioned, very favorable mix.

We continue to have gross margin opportunities as we increase the amount of ViXS product in our mix through the year, and some of that will be offset, perhaps most of it being offset by a somewhat lower mobile gross margin.

We do expect gross margins to always be above 50% and more in line with what we've seen in the last couple of quarters.

Always is a long time, Steve.

Maybe for the foreseeable...

Yes, for 2018 is what I was referring, but yes, thank you.

Does that answer your question?

It does.

And I'm showing no further questions at this time.

I would now like to turn the call back to management for any closing remarks.

So once again, never a dull moment at this company.

We are having a lot of fun here.

We've really enjoyed integrating the ViXS team into the company.

They're a group of like-minded people.

And it feels like we've actually been together a lot longer than we have, and we're already pulling in the same direction.

So I'm going to leave it at that.

Thank you very much.

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.