Sequans Communications SA (SQNS) 2011 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Sequans Fourth Quarter and Full Year 2011 Results Conference Call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question and answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference is being recorded.

Before I turn the conference over to our host, Mr.

Georges Karam, I would like to remind you of the following important information on behalf of Sequans.

This call may contain projections or other forward-looking statements regarding future events or our future financial performance.

All statements other than present and historical facts and conditions discussed in this call, including any statements regarding our future results of operations and financial positions, business strategy, plans, and our objectives for future operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

These statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties and subject to change at any time.

We operate in a very competitive and rapidly changing environment.

New risks emerge from time to time.

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.

Actual events or results may differ materially from those contained in the projections or forward-looking statements.

More information on factors that could affect our business and financial results are included on our public filings made with the Securities and Exchange Commission.

Please go ahead, sir.

Thank you, Craig.

Good morning, ladies and gentlemen.

This is Georges speaking, with Deborah Choate, our CFO, and we are pleased to welcome you to our fourth quarter results conference call.

Our Q4 results, just announced, were slightly better than our revised guidance.

Owing to a very strong first half, 2011 overall was a very good year for us, with revenues up 37% and nearly sevenfold increase in non-IFRS profits.

Our Q4 results and Q1 guidance reflect the fact that our largest customer for WiMAX chips, HTC, is continuing to work off inventory after the shift in strategy by Sprint in the United States.

To be clear, this does not mean that HTC has abandoned the WiMAX market.

We continue to work with them on WiMAX and expect orders to resume.

As you know, our long-term future is based on LTE, and this has been our development focus for some time.

I will get to LTE in a moment, but first, allow me to explain what is happening with WiMAX, which will continue to drive our revenues until our LTE design wins begin to ramp in the second half of the year.

There is still a market for WiMAX solutions.

Clearwire Q4 wholesale subscriber growth indicated meaningful WiMAX volume at Sprint, nearly 1 million units.

This supplied the introduction of the iPhone.

But KDDI in Japan and KT in South Korea continue to launch new WiMAX devices and add new subscribers.

In the emerging markets, many wireless broadband access providers remain very active in WiMAX and do not plan to migrate to LTE before two years.

In addition, operators planning to transition to LTE are likely to be attracted to our dual mode WiMAX-LTE chip.

This solution offers both state of the art functionality and low cost, as well as investment protection by enabling a smooth transition to LTE at the pace that fits the operator.

We are the only source of such a solution, and we are seeing a lot of interest in this product.

As a matter of fact, we have already won business for our dual mode WiMAX-LTE chip.

We have orders in hand and expect to begin shipping later this year.

We expect interest to continue to build up as these dual mode devices appear in the market.

So, although the overall WiMAX market is no longer growing, we are well positioned, thanks to our product offering and the design wins we have, to maintain a measured share of the available market.

Now I want to make three key points about our position in LTE, and then, I will elaborate on each of them.

Point number one.

We are very pleased with our early traction in LTE.

Although our second generation LTE chips have only been sampling for a short period of time, we have already achieved design wins with a total of nine device vendors.

These customers include vendors working closely with operators in the largest LTE markets.

I mean the United States, China, and India, as well as in some smaller markets in Southeast Asia, Japan, the Middle East, Australia, and Brazil.

Point number two.

We have good reasons to be confident in our position in LTE.

Our platforms are clearly -- our platforms have clear price advantage in terms of throughput power consumption and multiband support over what is available in the market today.

We are planning to be among the first to introduce important new advanced features, and we are making good progress toward our long-term strategy of being able to offer integrated multimode solutions.

Point number three.

It's important to remember that the sales cycle is much shorter for data devices than for Smartphone.

As such, our first LTE design wins that will lead to revenues ramping during the second half of the year are for data devices.

However, we are extremely pleased with the level of interest and discussions we have on the Smartphone opportunities in both TDD and [FDD], although the process takes longer, and our plan has always targeted Smartphone revenues in 2013.

As I mentioned a moment ago, we have already achieved design wins for data devices in all the major LTE markets, including in the United States, as well as in several smaller wins.

To remind you, three of them have been announced.

I mean, Gentech for India, Brazil, and other markets, Telenet for India, and NetComm for Australia.

The remaining six design wins have not been announced, and there is not much more I can say, except that these design wins include a variety of data devices, such as (inaudible), USB cards, dongles, and models for imbedded devices in both FDD and TDD flavors of LTE.

We are clearly gaining traction in the most advanced LTE market, which is the United States.

We have a few FDD data device design wins, and we are engaged with the key (inaudible) vendors deploying in the US and testing in [IUT].

We are also in various stages of discussions with the US carriers deploying or planning to deploy LTE, and we are very pleased with the progress we are making in the US market.

Let me give you now few updates on the other large LTE market opportunities.

In China, we are entering the second phase of China Mobile's large scale trials.

Phase two requires a dual mode solution with TD-LTE and TD-SCDMA.

We are participating in this phase of testing via Chinese partner to enable such multimode solution.

In addition, as we have an advantage in being able to accommodate, literally, every frequency band in the world, we are in a good position now that 1.9 gigahertz has been proposed to be used for LTE in China, as well as 2.3 gigahertz and 2.5 gigahertz.

We continue to believe that commercial deployment is likely to happen in 2013, although we acknowledge that the timing is very difficult to predict in China in general.

In India, we continue moving with trials -- trial activities with various operators.

Also, we are working with local OEMs to build the local product construction that will be required.

Reliance appears to be on track with their plan to deploy 2012.

This is also the case for [Ogea], but Bharti is moving slower than originally expected.

In Brazil and Australia, we've made good progress, and we have networks running there, with devices using our LTE chips.

So we see growing an option and plans for LTE, in general, for broadband wireless applications in other parts of South America, Central Europe, the Middle East, and Southeast Asia.

Now a word about the reason for our confidence that we will continue to achieve more design wins.

We are getting excellent feedback from both carriers and (inaudible) vendors on our solution.

Both our new second generation platforms are based on ultra-efficient modem design, enabling up to 2x power advantage, one-third smaller die size, and 50% peak performance advantage over other chips available today.

To be more specific, our chips offer Category 4 performance of up to 150 megabits per second, compared to other chips, which are only Category 3, or, in some cases, Category 2 only.

Through our partner, Fujitsu, we are able to offer all frequency bands, providing maximum flexibility and enabling the industry's most cost effective multiband solution.

This is a key advantage, due to the increasing number of 4G frequency bands required per carrier and on a worldwide basis.

In addition, we are planning to add advanced features much in demand by carriers, such as interference mitigation, which improves performance for the end user [reward] and increases natural capacity, and carrier navigation, which enables the efficient use of secure spectrum assets to deliver higher bandwidth.

These are two examples of many enhancement and advanced feature we plan to be among the first in the industry to make commercially available.

An outstanding user experience is achieved by combining our best of breed 4G platform with the customers' choice of 2G, 3G solution, using our proven [developed] standby architectures for moving between networks.

But in order to maintain a cost effective solution, our long-term strategy continues to be to offer an integrated 2G-3G-4G solution, and we are actively exploring various integration options.

So, to summarize, we are executing on our LTE strategy as planned.

We are on track, and we are pleased with our progress.

Our focus on LTE since 2009 has enabled us to be well positioned with a superior solution and initial design wins in all major LTE markets.

We continue to expect LTE revenue from data devices to begin ramping during the second half of this year.

We are also encouraged by our discussions regarding opportunities where the designing cycle is longer, and we are working toward being able to see handset revenue in 2013.

Let me now turn the mike to Deborah to take you through the financial results.

Thanks, Georges.

Hello, everyone.

I'd like to add some details about our Q4 financial results and the outlook.

Our revenues in the fourth quarter were slightly better than our revised guidance at $11.5 million for the quarter.

However, this was a decrease of 56%, quarter on quarter, and 50% decrease compared to the fourth quarter of 2010.

We shipped just under 1 million units, compared to over 2 million units in Q3.

Our largest customer accounted for 73% of revenues in Q4, the same as in Q3, and our non -- this is HTC -- and our non-HTC revenue, including revenue from emerging markets, would still show a tendency to be lumpy from quarter to quarter.

Product gross margin was 50.4% in the fourth quarter, compared to 53.1% in the third quarter and compared to 49.2% in the fourth quarter of 2010.

The decrease in product gross margin in the quarter reflected an increase in fixed production costs, due to new product introductions, which were absorbed by a lower revenue base.

Operating expenses were $11 million in Q4, compared to $12.2 million in Q3 and compared to $11 million a year ago.

The decrease in Q4 2011, compared to Q3, resulted primarily from an increase in the amount of our research tax credit, which we record as a reduction of R&D expense.

This increase in the research tax credit was due to a -- due to the French tax authorities confirming that we could include certain subsidiary research expenses in our calculations.

Therefore, in the fourth quarter, we recorded adjustments to cover a full year of newly qualifying expenses, leading to a decrease in R&D expense in the quarter of over $1 million.

As we've indicated previously, we intend to maintain our strategic spending on LTE, because we believe we are well positioned as one of the most advanced suppliers of 4G chips and continue to have confidence in our long-term future.

During the next several quarters, we will continue to be disciplined to limit the increase in operating expenses.

However, we are not planning expense reductions in any operating expense category in the short term.

Operating loss in Q4, which includes stock based compensation expense, was $5 million, compared to an operating profit of $1.9 million in the third quarter and operating profit of $600,000 in the fourth quarter of 2010.

To facilitate comparisons, we have also reported our results on a non-IFRS basis, which excludes from net income stock based compensation expense from operating profit or loss and the change in the -- [at least,] in the prior period, the change in the fair value of the option component of the convertible notes.

Non-IFRS operating loss was $3.7 million in the fourth quarter of 2011, compared to operating profit at $3.1 million in Q3.

Non-IFRS operating profit in the fourth quarter of 2010 was $900,000.

Basic and diluted loss per share was $0.16 in the fourth quarter, compared to basic and diluted earnings per share of $0.09 in the third quarter and basic and diluted loss per share of $0.10 in the fourth quarter of 2010.

Non-IFRS diluted loss per share was $0.12 in the fourth quarter, compared to diluted earnings of $0.08 per share in the third quarter and diluted loss per share of $0.01 in the fourth quarter of 2010.

Non-IFRS results exceeded the high end of our guidance in Q4, primarily due to the unusual increase in the research tax credit.

Cash flow from operations in Q4 was $2.8 million.

In October, we reimbursed $3.5 million in convertible debt, which came to term, and our cash position at December 31, 2011, was $57.2 million, compared to $65.5 million at the end of Q3.

Accounts receivable at December 31, 2011, declined to $8.4 million from $10.2 million at the end of September, reflecting DSOs of approximately 67 days, compared to 43 days at the end of Q3.

The increase was due to the timing of shipments in the quarter, with Q4 shipments concentrated in December.

Inventory decreased from -- I'm sorry -- decreased to $11.7 million in Q4 from $13.1 million at the end of Q3.

We expect to continue to have some impact on inventory levels from the lower demand for WiMAX chips in the US, causing turns to be lower.

As we discussed in our preannouncement in December, our largest customer canceled a large portion of the remaining balance on open POs in December, and we do not expect them to take delivery on any product from us in Q1.

Due to this situation, as well as Q1 being a seasonally low quarter, we expect revenues for the first quarter 2012 to be in the range of $4 million to $5 million, with gross margin around 50%.

Based on this revenue range and gross margin, we expect non-IFRS net loss per diluted share to be in a range between $0.27 to $0.29 per share loss for the first quarter of 2012, and this is based on approximately 34.7 million weighted average diluted shares.

Our guidance for non-IFRS net loss per share excludes stock based compensation expense.

As you heard from Georges, we are excited about our initial traction in LTE.

With our new LTE chips sampling, we expect design wins to accelerate and LTE revenue to begin ramping during the second half of 2012.

And now, we'd be happy to take your questions.

Thank you, ladies and gentlemen.

(Operator Instructions).

Our first question today comes from Quinn Bolton with Needham & Company.

Please go ahead.

Hi, Georges.

Hi, Deborah.

Wanted to ask just sort of a big picture question for 2012.

Obviously, we've got sort of choppy conditions in the WiMAX market, especially in the United States.

You guys are expecting a ramp of LTE data devices in the second half.

Can you give us some sense of the size of that expected ramp in LTE?

And then, sort of a related question.

You talked expectations that HTC probably will come back through the year.

Based on what you're seeing today, do you think that recovery is a second quarter event for WiMAX, or is that also second half of the year event?

Thanks.

Well, hi, Quinn.

Two interesting question.

I mean, let me address the first one on the LTE.

I mean, the fact that the LTE is -- that we are -- we have -- things are going well, as we said, in LTE, in terms, really, traction and design wins.

This is what I tried, really, to insist on this call.

On top of this, we have real orders in hand.

Obviously, that ramp up of all this depends a lot on the execution of product -- taking this to market, going through certification, operator, and so on.

That's why it's a little bit -- because at the beginning of the slope of the curve, when you are deploying, you can -- it's easy to miss or get something better than you expect, and that's why it's very, very hard for us today to give a number -- what we have seen.

I believe, hopefully, in the second quarter, I can be more specific about this.

But as I see it today, obviously, I have something in mind, but I prefer not really to give more visibility on this, because it depends a lot on the project certification execution, because you know that you are going to launch at the beginning, given the quantity, you will go, for example, with 50K unit or whatever, and then, this would increase.

And then, on the HTC, I mean, for the time being, we don't have yet enough visibility.

We are seeing, I will say -- obviously, we are observing their inventory situation, and we know this.

I believe we will know more about in -- after Barcelona and so on, because we will have much more coming from the carriers.

But I was, to some extent, pleased with -- when I looked to the Clearwire and the Sprint numbers, seeing that the number continued to be there, even if it's -- iPhone is taking big chunk of it.

And again, it will be somehow -- (inaudible) if it happens in Q2 or Q3, it's hard today to give clear visibility on this.

And hopefully, we'll know more about it, I will say, in the coming month or two.

Great.

And then, just -- you talked about trying to refine your -- well, not to refine, but your long-term strategy of ultimately having a 2G, 3G, 4G integrated solution.

As you start to engage the Smartphone manufacturers with the 3110 or the 5110 solutions, how much pushback are you getting from those Smartphone manufacturers looking for integrated solutions?

Are you seeing sort of a receptivity to the best of breed strategy?

I mean, do you need the integrated solution to really engage those Smartphone customers, I guess, is the basic question?

It's really good question, but the real answer around it -- the defense, which market you are engaging with, but I can give you really simple -- if you look today what is happening in Verizon today, there is no integrated solution on the five phones that you -- the five phones have nonintegrated solution for various reason, but [BLTE] is coming from one place, the 2G, 3G from someplace, and sometimes, even, the application processor from another place.

So, depends -- because the Smartphone will select the application processor, and sometimes they don't have -- they go with a solution where they don't have even any wireless solution, and everything is open.

Sometimes they have only the 2G, 3G, but they don't have the 4G.

So I tend to say the game is very, very easy when you are playing in the city.

I mean, [it's work] when you are playing in China.

It's tougher when you are playing in 3GPP or because the integration of 2G, 3G, 4G is more natural, I'll say.

But, as you know from market development point of view, in the short term, the move is more on the CDMA camp and less on the 3GPP [award], where you have only, essentially, AT&T pushing that and Europe still not active on some.

So, we believe that, for us, in the coming year or two, that's not going to impact us, but obviously, we want to be ready beyond this horizon, and that's why we are preparing our integrated solution as well.

Great.

Thank you.

Your next question comes from the line of Uche Orji from UBS.

Please go ahead.

Hi.

This is Parag for Uche.

Just a few questions here.

First, about your traction in the US with the US [failures].

Just one thing -- if you are getting traction, just with the legacy WiMAX failures, or it includes the larger two US carriers, as well, for LTE?

Hi, Parag.

How are you?

This is very good question.

Allow me not really -- not to comment on this.

But I will say we have really good traction with the guys -- all of them that they are deploying and they are planning to deploy.

I mean, our solution really attract the people -- what we are proposing now.

So things are really positive.

It's early to comment on this, for the time being.

Okay.

Fair enough.

And secondly, just wondering if your expectations regarding the LTE deployment in China and India has changed, because things seem to be going slower than what we initially talked.

So, any color on what you think is going on in these two countries -- why the deployment is getting delayed.

And when do you think it will accelerate?

I believe, on China, as you know, we never planned that China will be a big deployment in 2012.

And if I watch what is happening, this applies to lot of stories and article, left and right, and you can change your mind and so on.

All that we are seeing in China remains positive.

I mean, really positive, and let me feel like things can happen in 2013.

Now, obviously, I don't have the guarantee about it, but the things are there and can come in 2013.

In India, very honestly, there is still big push with Reliance, which is the major one, so Reliance is very active.

Obviously, Reliance originally was thinking that they can be ready, maybe, earlier than mid this year, but if you integrate this and you take it (inaudible) that they have to build all the plan -- all the networks and so on.

So, today, they are on track to be ready in mid 2012.

So we don't see this change.

We don't see a change in Ogea.

The only negative I see, very honestly, which, as I mentioned in my script, is when looked to Bharti, which is -- originally, we were thinking that they would deploy more in November, December late last year or beginning of this year, they did the small move.

They give two circles with a little bit limited deployment or limited trial, but there is still a lot on that scale we expected, or, originally, they were expecting on their side.

But they're still on plan to go in 2012.

So, if you -- in summary, I don't see big change, other than with one carrier in India, where it's a little bit less -- not as fast as I expected, originally, at the beginning of this year.

Okay.

And my last question is about your wins with the OEMs.

Does it include tier one OEMs, or what kind of OEMs are we talking about here?

Oh, well -- I mean, I can't -- I do not know how to qualify tier one, because, typically, when you talk about Smartphone, it's very easy to qualify them all tier one -- the Smartphone.

But when you go on lower level devices, which is data devices, everybody -- it's, very honestly, very hard to qualify what is tier one and tier two, because operators -- I mean, it's essentially about providing good solution at lower [cost and so on].

So, we are playing with OEM tier one.

We have -- design win we have in China, we have in Korea, we have in Taiwan, people addressing the US, and we have a lot of stuff in the pipe as well -- some US OEM directly.

I don't know if I -- it's very hard for me to qualify them one or two.

Okay.

Fair enough.

Thank you very much.

Your next question comes from the line of Lee Simpson from Jefferies.

Please go ahead.

Hi.

Thanks.

Good morning, everyone.

Just -- I mean, I didn't hear all the call, but I presume there that, Deborah, you were talking to new restructuring in the short term.

I just wonder what is the decision making behind this?

I mean, is it a certain level of R&D that you'd like to maintain through fiscal year '12?

Is it a certain project level that needs to good on back -- in the background?

And maybe, related to that, do you have a sort of fundamental cash pile sort of protection, if you like, that you're looking to have as you go into 2013?

Hi, Lee.

The -- in terms of the comments on our operating expenses, we've -- we're continuing to say the same thing we've been saying for a while now, which is, most of our R&D forces are already concentrated on LTE.

This is obviously very strategic for us to continue to develop and have the best products available for LTE.

So there's really -- we really don't see any room for a major change in the -- or major reduction in the R&D team, certainly, not in the short term.

And a great deal of the remaining headcount in the Company, even the people in the -- on the sale side, our technical support, who are helping to do the inoperability testing and preparing for the ramp in the LTE revenues.

So, that's why we've said that, at this point, we think it would be -- it would -- we don't want to endanger any of that LTE ramp, and so, we're not going to -- we're not looking at any particular restructuring, certainly, not in the short term.

That doesn't mean, however, that we aren't going to continue to look at how we can optimize expenses.

And obviously, the -- that -- the -- at what cash level are we comfortable as a sort of a moving target, because if things ramp the way we're expecting, that allows us much more flexibility than if we -- two quarters from now, or so, we're seeing continued delays, that obviously changes how we think about things.

So, it's something that we evaluate, I'd say, on a weekly basis, as we continue to get new inputs into how the business is developing.

Okay.

That's pretty clear.

I mean, if we look at WiMAX going into Korea and Japan, and just, in general, the $4 million to $5 million guidance is understandable, given the US collapse, at this point.

But can you maybe characterize to us what you think the opportunity still is out in the Asian markets for WiMAX, and maybe, in particular, with Japan and Korea?

Well, I mean -- obviously, as you know, we have design wins there.

We announced in the previous quarter two new tablet in Japan, so we continue working on some new designs.

But also, we are very aggressively pursuing, as well, the -- increasing our market share in the emerging market, because we have designed that.

It's not about, really, winning designs.

It's just only about pushing our technology there.

And, as I mentioned, something which we're really well pleased about, and we got more color recently around it -- this dual mode WiMAX-LTE, which is, essentially, giving us the ability as well to increase the pie of our market share, because for all those carriers, they are happy with WiMAX at the end of the day, because it's low cost and so on, and they are nervous about transitioning to LTE in the short term, but they are -- as well, they like to keep this option in their hand, because they know that in two years, three years from now, they need to transition.

So, this WiMAX-LTE dual mode -- we have a design win there, and we have orders for it, and we believe this will be giving us even more room on the WiMAX, if you want -- more positioning.

So, giving a number on this, where we see it, it's again very, very hard, because it's not like the Sprint case, where you see it, in Smartphone -- much more easy to predict.

But it's a level -- it's -- for time being, it's -- I do not -- I can -- if I can say more.

I don't know.

All right.

Thanks so much.

Your next question comes from the line of Tristan Gerra from Robert W.

Baird.

Please go ahead.

Hello.

This is Daniel Marquardt for Tristan Gerra.

Can you hear me?

Yes.

Yes.

Okay.

As far as single mode LTE, what is the market for that in Smartphones, I mean, in 2012 and 2013?

Didn't get the question.

What's the market for what?

Single mode.

Or -- I'm just trying to determine what your market is, in 2012 and 2013, in Smartphones, for the -- for a single mode LTE.

No -- I mean, I don't (inaudible), because you're asking -- in the question, you ask two things.

I mean -- single mode LTE -- when you talk about single mode LTE, it's -- you are talking about the chip, which is single mode.

So, the solution could be multimode and our chip being inside.

So, today, you can have a Smartphone, I mean, and if you look to the Smartphone that Verizon is launching (inaudible), none of them has an integrated LTE 2G, 3G, whatever.

All of them, they have (inaudible) choices of LTE and CDMA [and that sort].

Some are using the CDMA from Qualcomm, some are using CDMA and LTE from Qualcomm, and some are using CDMA from [VIA] and LTE from other supplier.

So -- and obviously, if you go to [two] single mode LTE, saying, okay, I need now to build a phone, which is only LTE, this is -- I don't believe this is 2012 project.

This is -- Verizon is pushing this today seriously to create this single mode LTE, because they are positioning their network to become pure LTE, and they are talking about (inaudible) over LTE in 2013.

So, this will work.

Then, you can see the room for single mode Smartphone LTE, and I see it first happening with Verizon, because they have really special case (inaudible) deployment.

But, outside this, obviously, when we talk about LTE alone, what we are shipping is not only for Smartphone, but all the dongles imbedded devices LTE models that they go in devices, where whether they are single mode, or they have a companion 2G, 3G solution next to it.

Okay.

So, is it safe to assume that for future -- to compete for future design wins, that discreet LTE is competitive?

And if not, what is the timeframe that -- what is the timeframe of the various options that you're looking at for multimode -- or, rather, for integrated multimode ship for you to have that solution?

I mean, if you look to the existing market, the only company that they're able to offer an integrated solution is Qualcomm.

This is the only solution existing in the market.

Outside this, everything is [through] discreet.

So, in other words, if you want to go with NVIDIA processor, if you want to go with TI processor, if you want to go take 2G, 3G from someone else, from ValCom or whatever, the only option you have in a design of a phone today is to have it discreet -- you call it discreet -- it's multichips -- multichip in a device.

So this is what is happening today.

Obviously, what we -- we believe that this will change over time, because over time, you will be able to have integrated solution from various party, because today, even, the other potential competitor -- they don't have yet the LTE solution on the market, and it will not come before -- two of them will not come before 2013.

So we believe that we have [a room] for this game now, that will be 2012, 2013.

After this, you can keep this room for special devices, whether it's single mode LTE or devices where there is no integration happening.

For example, the CDMA -- the only -- if you want to have a CDMA solution phone for Verizon and Sprint, the only CDMA can come from Qualcomm.

So, if you don't -- if you want to have non-Qualcomm solution, definitely, you need to pick a CDMA from Qualcomm or VIA and take the LTE from someone else -- application processor from someone else, because CDMA is only provided by Qualcomm and VIA.

You have two technology in the market.

So, depending on the case -- and, as well, if you go to China, again, the case is completely different, because it's TD-SCDMA only, and you have different challenge there.

So, my remark on this that we need this integrated solution -- essentially, where it's a must have, really, is -- in two years from now, it's more on the WCDMA carrier, where they use the 3GPP somewhere, and then, you can face competition from all the big names, where all of them -- they have 2G, 3G, and they are building 4G.

So they can come, obviously, with an integrated solution, and Sequans could have challenge -- I will say, competing -- some challenges competing with those guys.

Outside this market, it's still up and, I believe, even beyond 2013, and even if we have this, our preparation today -- this is -- I always talk about it is prepare for 2014 as well by enabling this integrated solution, and we have various option that we are looking for.

Thank you.

Your next question comes from the line of Jay Srivatsa from Chardan Capital Markets.

Please go ahead.

Thanks for taking my questions.

Georges, on LTE, the handsets that are currently out there really have a lot of mixed reviews, meaning there's some battery problems, there's some heating.

I mean, what's the issues here?

Are you looking at potentially providing some silicon that could address some of the concerns today that could really make a game changer?

Or, are these -- some of these third generation issues that need to be worked out as we look ahead?

I mean -- Jay, this is absolutely on the point.

I mean, when you look to the existing products -- I mentioned, previously, saying, for example, no LTE solution today in the market from Verizon is able to support Category 4.

When you talk to the carrier about Category 4 and the vendor about Category 4, which is (inaudible), obviously, all of them -- they want to see this happening as soon as possible.

The existing product -- the best product has Category 3, which is 100 megabit, and I discovered as well that some of this cannot go above 50 or 75 megabit, which is Category 2.

So, this is one challenge.

We have challenges, one, in terms of dye size and power consumption.

We have challenges in terms of advanced performance, offering -- because the more the network will be loaded, then you need, for example, a definite cancellation.

You need to be able to offer those kind of stuff and so on.

And this is what Sequans is playing, essentially -- different shift in the technology, because we believe we have, really, very solid platform, with eight years of experience, and we are coming with the product that everybody is dreaming about, and this should give us chances to replace some of those, I would say, device vendor -- some of those chip vendors and few devices in the US as well.

All right.

Given that potential to be something we started to see in second half, what's your near-term expectation, in terms of your largest customer?

Are you sensing that there's some -- there could be some tick up in Q2 here, or is it something that we're willing to look for LTE to ramp up for you?

No.

I mean, obviously, we are LTE positioned.

This is something we are pursuing, and I don't want to comment more on this, whether -- but when I am talking about the largest customer, we are really referring here to the WiMAX, and this is good question.

But I want to insist on this, that HTC didn't give up on WiMAX, and I'll tell you we have engagement.

We have new design, new carrier or, rather, carriers (inaudible) introducing phones.

I don't want to give more colors on this, because this should come from HTC.

But definitely, they are committed to this segment of the market, and they have a great product there that they continue shipping to the US, to Sprint and, as well, to Japan and to Korea, specifically.

And obviously, for us, is a matter that originally they were able to ship much more than what they're able to ship in 2011 versus 2012, because you can say, okay, maybe they lost 50% market share to iPhone.

So this is a matter of fact, and they have some inventory issue created by the fact that they have phones planned in the pipe that have been canceled with the introduction of the iPhone.

And so, they ended with some inventory -- they need to take it off.

And we are watching this closely.

They continue reducing their inventory.

They continue shipping.

We are engaging even with some market for the new platform -- new phones, and we'll see.

It's very hard today to comment when it's going to trigger back, and also, the dependency -- major dependency about the ability of Sprint -- when Sprint will transition to LTE, as well, because they will be launching their network in the summer timeframe, but still, limited size, limited coverage.

The coverage -- at the end of the year, 2012, they should have there, and we'll see -- the big question -- I'm really watching this -- what is going to happen -- how much Sprint can switch quickly from WiMAX to LTE, or they need to maintain it longer.

And you have to keep in mind that they have 10 million subscribers on 4G, and those are the best subscribers that Sprint has.

So -- and you need to transition this properly.

There's -- for whatever reason, we -- this takes longer time, in terms of the deployment.

But whatever -- then HTC can have much more chances of some of this network there -- WiMAX phone, and obviously, we can benefit from this.

So that's why it's very hard -- this all that I can say today.

I'm still watching to see when this -- it will happen.

As I mentioned before, it's very hard to say if it will be Q2 or Q3.

Thanks.

Deborah, what was the cash burn during the quarter?

We went from $65 million at the end of Q3 to $57.2 million at the end of Q4.

We generated cash from operations that we had CapEx, and we paid $3.5 million in debt in the quarter.

And you would expect a similar cash burn during Q1?

Well, I mean, all I can say is we're expecting operating expenses to be around -- at the same kind of run rate.

But one point, Jay -- I mean, we pay attention -- that we paid in Q4 -- what was special that we paid -- this debt, $3.5 million -- all this is one event.

So you need to take this out and factor in that the top line is almost divided by two, so then, this will give you the cash burn on it.

Yes.

All right.

Thank you much.

Good luck.

Your next question comes from the line of Stephane Houri from Natixis.

Please go ahead.

Yes, hello.

Good afternoon.

A few questions on my side, if I may.

Could you help us with the evolutions of the volumes and, especially, also, the prices during the quarter?

Is there something specific to say about the pricing pressure?

The second question is about the breakeven point.

We understand that [deal backs] will probably not change in the coming quarter.

So, the question is more about the revenue ramp up with the order [book] that you have and all the design wins that you have.

Do you intend to go back to the breakeven level sometime in the year, or is it more a 2013 story?

And third question would be about the competitive landscape, because as you explained that you'd need now to have an integrated solution, including 2G, 3G, 4G.

Does it mean that competition is tougher and that you're seeing your competitors having a real advantage of integrating all these technology together?

Thank you.

Well, let me start with the third one, which is more important, I believe it.

I don't want to leave this call with this confusion, because it's not at all what I what I said.

I mean, again, we're not seeing any problem of our existing solution 4G, because we have the best 4G, and no one have any 4G in the market, other than one big name that you know.

All the other guys -- they don't have any 4G.

So they can have 2G, 3G, but they don't have 4G.

So, I don't -- and, on top of this, I said specifically that market, like China, like India, like CDMA carrier (inaudible) on Sprint than other guys.

The game with the integrated solution is not really the problem at all, even in the future, even long down the road.

What I said -- that -- just I want to give color, because in the past, we were -- I had always (inaudible), saying, okay, I will be thinking about the future -- that we made progress on this to add more value for the Company and prepare the Company for 2014 and '15 with integrated solution, and we have some option on the table that we made some progress on this.

So I'm just preparing you that you may hear from it in the future from us that made progress.

But definitely, we're not seeing illustration where we need this to sell today.

I'm not saying this at all.

Okay.

Because we have success, and we are moving with the 4G.

Okay.

Sorry to interpret.

What are the -- can you specify a bit about the option?

I mean, is it the acquisition or a partnership, or is it something like that?

(inaudible) It's very, very sensitive, so allow me not to comment on this.

I mean, you can imagine that all the options are on the table for us.

I mean, just -- I want to give you one -- maybe it's not material.

For the time being, I will say, to make something with it, but we made progress on this -- on those option, and when time will come, we'll tell you all about it, I will say.

Okay.

Good.

In terms of the ASPs and pricing pressure, I mean, what -- at this point, we're on -- we're not really seeing anything that's unexpected, in terms of the ASP evolution.

The changes in gross margin, from one quarter to the next, are tending to do more with product mix than any unexpected pricing pressure.

So, I don't -- I'd say that's not one of our major concerns at this point.

In terms of the breakeven, I mean, it's -- it really depends on top line, as you said.

I mean, we're -- we've talked about an ongoing target of around 50% for gross margin.

That continues to be our target, and at least, in the short-term, we're not expecting to see major changes in the level of operating expenses.

But beyond that, I can't really address breakeven, because that depends on the top line, and we're not able, at this point, to give more specifics on the top line expectations.

Okay.

Okay.

Thank you very much.

Your next question comes from the line of Scott Searle from B.

Riley.

Please go ahead.

Hey, thanks for taking my question.

Hey, first off, Deborah, just a couple of quick clarifications.

I missed the HTC revenue mix in the quarter, and did you give units for the quarter as well?

And in terms of OpEx in the March quarter, given the impact of the R&D tax credit in the December quarter, should we just assume a normalized OpEx of $11 million, going forward, and then, I had a couple of follow-ups.

Okay.

On OpEx, yes, you're right.

We would expect that to -- we're not going to see that R&D one shot repeated.

Obviously, it would be considered in the way we calculate the R&D credit going forward, but we won't have that big bump repeated in Q1, so that needs to be factored out.

HTC was about 74% of our revenues in the quarter, which is, basically, the same level as Q3, and we shipped just under one million units in the quarter.

Okay.

And maybe, just to follow up on the WiMAX front.

In looking at the non-HTC business, Georges, that was weak as well.

Is there something else that's going on there?

Certainly, HTC was certainly impacted by Sprint and some over shipments, but maybe folded into that question, when you look at the WiMAX opportunity, clearly, you're running below in market demand, when you look at Clearwire's numbers for the quarter and Sprint's wholesale numbers, et cetera.

What is a normalized run rate, from a revenue standpoint, that you would expect to get to in the middle of this year for that base WiMAX business?

And then, could you just articulate again the timing of when you would expect to see contribution from a dual mode WiMAX-LTE solution?

Because you certainly appear to have a locked poll position with carriers that are going to go in that direction as, really, the only vendor with a dual mode solution.

Yes.

I mean, Scott, on the timing of the dual mode is really going [in pair of] the development and the design win (inaudible) LTEs stuff, we expect this, really, the second half.

So, hopefully, we'll see this as soon as Q3.

We have design win, and it's moving well, so it's no surprise we should see that.

Georges, just to clarify, that's design win in 3Q or revenue in 3Q?

It's revenue.

Design win -- we have it today.

I have design win today, and I have even order in hand today to ship as soon as the product is ready.

I'm talking about the products of the customer, because they need to finish all this, and I'm expecting the schedule we see today, that the guys should be ready to go in production in Q3.

So we should see revenue -- chip revenue for us in Q3 -- of dual mode.

And from this angle, this would be a good point for us, because we can leverage this, and I see it really scaling for next year.

I'm seeing a lot of interesting demand for this technology, and this is -- in other words, help us.

It's like we are increasing our market share, because -- on the WiMAX -- because what is happening in the WiMAX, that the other guys -- that they have WiMAX.

They don't have WiMAX- LTE, and if the WiMAX carriers start taking those kind of product, then this means they'll give me more market share, more business, because they want to get the dual mode solution.

And on the non-HTC revenue, we have, obviously -- we continue to have Huawei, one of our big customers [at an] emerging country, and we have few others, whether in Korea or in China or Taiwan -- customers.

It's -- the complexity of this is that -- because outside, obviously, HTC is coming -- is giving me Sprint and [Dafone] in Japan and in Korea.

When you go outside HTC, you end with some business in Japan, which is easy to believe, because the outside (inaudible).

But what is really complicated for us is the volatile emerging market, because emerging market, you are talking about 30 active carriers, let's say, and it's very, very hard to see on each carrier, of them -- their plan, how this will change and so on.

But what I can say more -- I mean, we expect to see if -- if there is no decline in this market on those guys, this should be similar to what we have last year, number wise.

So, Georges, just to follow-up on that.

With that in mind, that there's demand in the non Sprint markets, the non Clearwire markets, and Clearwire is going through an inventory correction via HTC, and your share is, in effect, increasing, because players are either exiting the market, or they're going to require dual mode solutions.

By the second half of this year, are you back to doing a million units per quarter, in terms of -- or, a million plus, in terms of WiMAX (inaudible) business before you start layering on LTE?

Or is that just unrealistic?

Well, Scott, I cannot comment really specifically on this, because it's really very specific, and I can't comment.

I mean, I don't have visibility today, really, to give you purely -- that -- this level of indication.

Hopefully, maybe, second -- in the second -- following quarter, we will have better picture on this.

And maybe, lastly, Georges, just in terms of reference design activity that you've got going on -- some at TD-LTE standpoint, what are your thoughts on that front.

And then, I'm not sure if you've talked about the local partners that you're working with on the TD-SCDMA front in China to be able to attack China Mobile.

Thanks.

On the local -- we have a local partner in China, which is, essentially -- we didn't announce that we managed to get together a combined solution, TD-SCDMA and LTE, and we are entering the trial with this kind of solution.

So this is developing.

This is how we're approaching the business in China, where there are more than its only one.

And what was the other question?

(inaudible -- microphone inaccessible)

Yes, about the reference design.

As I mentioned, we announced only three, and six we didn't announce them.

Those six are not only TDD.

I mean, some of them -- they have -- big one of them -- I believe they are doing FDD, because they are targeting US carrier.

And there are some of them doing TDD and FDD combined, but we didn't name them, for the time being.

Thank you.

Your next question comes from the line of Hanna Wakim with UBS.

Please go ahead.

Hi, George.

Quick question, please, just to clarify that nine device wins.

Is it fair to assume that when the US carriers approve those device makers, that you'll be able to ship soon thereafter?

I mean, definitely.

When the guys that win the design, and they (inaudible).

Definitely, yes.

But, just, I want to be -- to avoid confusion.

The nine -- not all of them are addressing the US carrier.

Obviously --

Sure.

Some are addressing the US carrier, some are addressing India, Brazil, Australia, as I mentioned.

Sure, sure.

And one quick follow-up, please.

What is the usual lag time between these equipment makers testing at the carriers -- at major carriers, and then, hearing back that they were approved?

I mean, roughly, from past experience.

The way we do it is that we engage the testing with the carrier independent of the design vendor.

I mean, this is for what we are doing.

We engage testing with Verizon and Sprint and so on, using our reference design, our own chip, our own technology.

We do all the IUT with the big players at Alcatel-Lucent and so on.

I mean, all this we prepared, so when our -- when the design with -- when we move with the design win, it's more about building a specific product using our technology.

Obviously, those guys -- they have to do some testing -- kind of, three months' testing, if it's a data device we are talking about.

If -- from the point where we finish it, they can catch up and get at it there.

And what -- when I'm factoring in, say, that revenue will start ramping up for us in the second half of this year, this is all factored in somehow -- for the first guys, that they already -- in design, they will be ready, and they should be able to ship in Q3.

That will generate revenue for us -- LTE revenue in Q3 and moving forward.

We've got some more in Q4.

Thank you so much, Georges.

Your next question comes from the line of Quinn Bolton from Needham & Company.

Please go ahead.

I just wanted to ask a couple of follow-ups.

On the dual mode device that could start shipping in the third quarter, that, again, that's a data device?

Yes.

It's -- I don't say it's data device.

Quite often, but honestly, for this emerging market, depends where you're going, because this dual mode device, you have variety of application or interest.

You have the emerging market.

What's their interest, as to have a product, which is -- they continue using as WiMAX, but this is future profile LTE.

And they evolve it to LTE the day they have LTE, and if they deploy LTE, they can make smooth transitioning, mixing the network WiMAX and LTE and have the devices working on the two networks.

And in the emerging market, I would say the device for this will be quite often CPEs, because CPEs are expensive, and they don't want to -- dongle can go on -- can replace the dongle, but CPE -- you would like not to replace it.

That's why the interest of this.

Then, when you move more for a carrier dealing with the Clearwire, essentially in the US, because Clearwire, having the WiMAX, and if the guys -- they want to deploy LTE in parallel, and they want to mix LTE and WiMAX, then that configuration there is a little bit more sophisticated, because they need -- can't use the chip in real dual mode, where you may hand over from one to the other.

And in this case, you can see devices that could be much more portable devices, such as portable router or a dongle or even a Smartphone if an operator decided to have a Smartphone with a triple mode, for example, LTE, TDD, FDD, and WiMAX TDD.

Great.

And then, just a gross margin clarification.

Deborah, that gross margin is roughly flat, despite the, roughly, 50% drop in revenue.

I know you've got some fixed operating costs.

Is the margin flat, simply because you mix shift away from your largest customer, and the remaining customers may have different pricing than the largest customer?

Or is there some other dynamic taking place that allows you to keep the gross margin flat?

I'm sorry -- the end.

Georges is talking.

The -- I mean, basically, the impact on gross margin is really the mix of product, and the non-HTC customers with lower volumes obviously don't have the same pricing.

I don't think there's anything particular that was going on in the quarter.

Okay.

And then, just lastly, any update on the 1310 device on the WiMAX side?

I mean, is -- are any of the new WiMAX designs being built around the 1310, and, to the extent they are, can that help offset some of this inventory overhang on the 1210?

Well, I mean, we -- this is -- we had -- essentially, we are talking about the design with HTC that we tried to put this on hold a little bit in order to avoid inventory problem, because you don't want to add up 1310 and 1210 inventory.

So we prefer to have -- let's just say, moving with the inventory instead just only having Sequans' shipping to warehouse, I'll say.

Okay.

Thank you.

And at this time, there are no further questions.

Okay.

Thank you very much, guys.

I appreciate your presence on the call.

Ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.