Sequans Communications SA (SQNS) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Sequans Third Quarter 2019 Results Conference Call.

(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 in behalf of Sequans.

This call contains projections and other forward-looking statements regarding future events, our future financial performance and potential financing sources.

All statements other than present and historical facts and conditions discussed in this call, including any statements regarding our future results of operations and financial positions, business strategy and plans, expectations for IoT and broadband sales, the expected value of a recent strategic agreement, the potential for new strategic transactions 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 in our public filings made with the Securities and Exchange Commission.

Mr. Karam, please go ahead.

Thank you.

Good morning, ladies and gentlemen.

This is Georges speaking.

I'm with Deborah Choate, our Chief Financial Officer.

Welcome to our third quarter 2019 results conference call.

We are continuing to gain traction in the IoT business and are seeing more Cat M projects moving to production, although certain projects are moving more slowly than we would like.

As we noted in the press release, Q3 was temporarily affected by a short-term channel inventory issue with one particular Cat 1 customer.

Without this temporary issue, our revenue would have been close to our expectations.

As expected, we are seeing steady improvement in the broadband business, and the vertical category increased from the low level of Q2.

Overall, we expect to grow nicely on a yearly basis in 2020 based on our strong pipeline of opportunities.

The most important recent development was closing a major strategic deal.

In October, we signed a multiyear one exclusive license and services agreement with an estimated value exceeding $35 million over 3-plus years subject to our achieving certain preagreed milestones.

The deal included an upfront payment of $18 million, which we have already received.

But since it was after the close of the quarter, it will be reflected in our year-end balance sheet.

We are extremely pleased with this agreement for many reasons, not the least of which is that it represents further recognition of our leadership and our track record of execution.

We continue to be in active discussions regarding other potential strategic deals, and in some cases, involving similar types of license and services structure.

Further details of the one we just completed are not being shared for competitive reason.

So please don't insist during the Q&A.

As mentioned in the PR, we also closed a second strategic agreement, which we had expected to add to revenue during the third quarter, but it will contribute beginning in Q4.

This one was an NRE arrangement of the type we've done several times in the past with an existing partner.

Its value is several million dollars spread over a couple of years.

Turning to the detailed update on each of our businesses.

We'll begin with IoT.

I've already explained the channel inventory issue with one of our Cat 1 customer that we expect will be resolved during the fourth quarter.

We are seeing good Cat 1 market demand in general with several of our customers shipping in volume in the U.S. and Japan.

We expect this business to grow next year as we will have new customer projects entering production, offsetting some current Cat 1 projects migrating to Cat M.

Also, we hope to start shipping in Europe, thanks to the new design win we mentioned last quarter.

As we noted last quarter, a new low-power variant of our Cat 1 solution continues to garner very strong interest with some important potential customers, where the solution is particularly well suited with their applications.

This could mean an expansion of our Cat 1 addressable market with some large potential opportunity.

There is no doubt that we are continuing to gain traction in LTE-M and NB-IoT but the pace of projects in general, not just ours, is moving more slowly than anyone expected at the beginning of the year.

What we are hearing from industry analysts, other vendors and what we see ourselves is that traditional M2M applications migrating from 2G have accounted for most of the growth in demand so far.

Projects related to new low-power, WAN-enabled applications that are now viable due to the availability of Cat M/NB are certainly growing in number, but the pace at which they are moving forward is slower than expected.

Fortunately, we have a few major deals in this category already moving into production, and they should help accelerate our near-term ramp.

Everything we said on the last call about design wins in United States and Japan, followed by the ramp beginning in Europe, is still valid.

Things are moving in the right direction even if we see slippage in the ramp.

We had 3 new projects reach mass production in the third quarter, bringing our total number of devices launched so far to 20.

Out of a fairly large number scheduled to go into mass production for year-end, a few of them have shifted to Q1.

Meanwhile, we converted several projects to new design wins during the third quarter.

On the last call, we spoke about Cat M/NB design wins, or those close to being secured, which along with those already in mass production, represented close to $300 million of estimated future revenue.

We aren't reporting another big jump because the pace of some projects is slower, which pushed out the revenue ramp.

However, we are encouraged that over 40% of this future revenue is related to projects that are already secured, either as devices already in production or as design wins.

We are also encouraged by the fact that the growing proportion of projects in the design-in phase are follow-on projects from existing customers.

This is an indication that our early success is paying off, and we are retaining these customers for additional projects.

Our pipeline of new opportunities continues to grow, and several new ones represent larger potential volumes than we've seen so far.

This applies to industrial applications such as asset tracking as well as consumer electronic applications.

We are seeing strong interest in our next-generation Monarch solution that brings more than 50% reduction in terms of power consumption, further cost down improvement, an extensive set of new features such as application CPU, integrated SIM and secure element.

Also, there is a special interest in our Monarch N solution, which is an optimized NB-only solution and the recently announced new NB-only module.

We are the only non-Asian vendor to offer such a solution and the only company anywhere in the world to offer a complete range of cellular IoT solutions, including NB-only, dual-mode Cat M/NB and fully optimized Cat 1.

Another initiative is reinforcing our go-to-market strategy by leveraging the relationships and a global reach of our technology partners as well as large established distributors.

We are happy to see an acceleration in the adoption of the Monarch-SiP, which is jointly designed and marketed by us and Skyworks.

We are working very closely with a new -- with a few Tier 1 MCU partners as we believe this will be instrumental in accelerating cellular IoT adoption by the mass market.

Also, we have recently signed a global distribution agreement with Richardson RFPD, an Arrow company, and we are finalizing another Tier 1 distributor relationship.

Obviously, these actions will take some time to show results.

But along with additional strategic partnerships, it's a way for a company our size to magnify its reach and address a very fragmented market in order to capture more of the available demand.

Turning to the broadband business.

We continue to see steady improvement.

We are encouraged by the strong interest in CBRS where a pipeline of new opportunities continues to grow even as we convert some of them to design wins as we did again during the third quarter.

We continue to see more opportunities developing for single-mode Cat 4 and Cat 6 with the new customers, and we added a new design win for Cat 4/Cat 6 during the third quarter.

Currently, all indications are that the broadband business will continue its gradual quarter-to-quarter improvement as some of these new design wins begin to ramp next year with the potential to accelerate in 2022 with the expansion of the 5G networks deployment.

On this front, we are now working on the development of a cost-effective 5G chipset solution delivering enhanced Mobile Broadband and Ultra Reliable Low Latency Communications features to address a wide range of 5G fixed wireless applications.

This will be a major focus on our R&D effort next year.

Turning to the vertical markets.

We have a strong and growing pipeline of business, but closing some of the deals is taking longer than expected and impacting our revenue target.

We are managing to capitalize on our success in this area with some existing projects being expanded in scope.

Meanwhile, the timing of large design wins continue to be challenging since our customers are engaged in sometimes lengthy RFP or bidding processes, and we must wait for confirmation that our partners have won the projects they are targeting with our solution.

We are hopeful that we will have decisions on a few of them by year-end, which will enable us to have better visibility on the contribution of the verticals going forward.

We remain confident in our market position across our served market.

Technology leadership and strong relationships throughout the entire value chain continue to be extremely important.

Whether through more operators around the globe, new technology or distribution partners or new strategic partners, we continue to place a lot of focus on expanding and deepening key relationships.

We are also gratified to see continued willingness on the part of customers and operator to support our product road map through funding, not to mention the list of potential strategic deals that seems to grow each quarter.

All this validates something we have been emphasizing, Sequans' expertise is scarce resource, and we have achieved a clear leadership position that's becoming more difficult to challenge as we continue to expand our strategic and customer relationships.

Now I'll turn the call over to Deborah for some comments on the financials.

Deborah?

Thank you, Georges, and hello, everyone.

I'd like to add some details about our Q3 results.

Our revenue was $7.5 million for the third quarter of 2019, a decrease of 7.8% sequentially from the second quarter of 2019, primarily due to product revenue in Cat 1 IoT due to the short-term channel inventory issue with one customer.

This was somewhat offset by increases in broadband and vertical revenues.

Q3 revenue represented a decrease of 27.4% compared to the same quarter a year ago.

The change versus the third quarter of 2018 reflected primarily a decline in broadband revenue from emerging markets as well as a decline in verticals versus a year ago.

As Georges mentioned, the initial revenue contribution from the second strategic deal, which would have been included in the vertical category will be in Q4 due to the timing of signature -- of receiving the final signature of this agreement.

Therefore, there was no contribution from either strategic agreement to our financials in Q3.

In Q3, we had 3 greater than 10% customers, 2 of which were distributors generally serving a number of OEM and ODM end customers.

Looking through to the end customers served through these distributors, one of them, an OEM, was a 10% customer in Q3.

And the third 10% customer was also an OEM.

Gross margin in Q3 was 38% compared to 40.1% in Q2, primarily due to a higher proportion of modules in the revenue mix, partially offset by an increase in other revenue in Q3.

This gross margin compares to a 35% gross margin in the third quarter of 2018.

Operating expenses were $10.3 million in Q3, up from $9.8 million in Q2 and included an increase in R&D expenses, primarily due to out-of-pocket costs related to new products and onetime G&A expenses totaling $500,000 related to bad debt expense and strategic transaction legal fees.

Non-IFRS operating expenses were $9.9 million in Q3, up from $9.4 million in Q2 due to these onetime G&A expenses, but still down significantly from $11 million in Q3 2018.

Our third quarter operating loss was $7.5 million compared to an operating loss of $6.6 million in the second quarter of 2019 and to a $7.9 million loss in the third quarter of 2018.

Our IFRS interest expense increased to 20 -- $2.3 million in Q3.

On a non-IFRS basis, interest expense was $1.1 million in the quarter.

Our net loss in Q3 was $8.7 million or $0.09 per diluted share/ADS compared to a net loss of $8.9 million, also $0.09 per share in the second quarter.

And the net loss in the third quarter of last year was $8.7 million, again $0.09 per diluted share.

Our weighted average share count was 95.1 million shares in Q3 compared to 95 million shares in Q2 and 94.5 million shares a year ago.

On a non-IFRS basis, our net loss for Q3 was $7.5 million or $0.08 per diluted share/ADS compared to a non-IFRS net loss of $7.6 million, also $0.08 per share in the second quarter and a non-IFRS net loss of $8 million, $0.08 per share in the third quarter of 2018.

Our non-IFRS net loss excludes noncash items related to stock-based compensation expense, the noncash impact of convertible debt amendments and effective interest adjustments related to the convertible debt and other financings and the deferred tax benefit or expense related to the convertible debt and other financings.

Cash used in operations in Q3 was $1 million compared to $5.7 million in the second quarter as we collected $3.9 million in research tax credits and grants in the quarter.

Our cash at September 30, 2019, totaled $6.3 million compared to $5.9 million at the end of Q2, reflecting our cash used in operations and for capital expenditures, which were more than offset by $5 million in new convertible debt.

As noted in the press release, our cash position at the end of Q3 does not reflect an upfront payment of $18 million related to the new strategic agreement signed in October that we announced today.

We received the funds in October, and it will be reflected in our year-end balance sheet.

Accounts receivable at September 30, 2019, were $11.9 million, a slight decrease from $12.5 million at the end of Q2.

And our DSOs improved slightly to 107 days compared to 113 days at the end of Q2.

Inventories increased slightly to $7.4 million from $6.9 million at the end of the prior quarter.

And current trade payables increased to $10.3 million compared to $7.4 million at the end of Q2, in part due to the recognition of $800,000 related to a long-term development tool supply agreement.

Short-term debt from financing receivables increased slightly to $8 million from $7.3 million at the end of Q2.

Looking at the near-term outlook.

We expect revenue to improve sequentially in Q4 even with some residual effect from the Cat 1 channel inventory issue that affected Q3.

We expect further acceleration in 2020 with a return to a normal growth pattern in Cat 1, a continuing ramp of Cat M/NB and gradually improving broadband revenues.

Before I turn the call back to Georges, I'd just like to remind you that at the conclusion of this call, we will post a written version of our formal remarks in the Investor Relations section of our website on the Webcast and Presentations page.

That's the same location where you will find the audio replay.

Also, a reminder that we will be participating in the Roth Capital Technology Conference in New York on November 13, if you're planning on attending.

Now I'll turn the call back to Georges.

Georges?

Thanks, Deborah.

So before turning the call to Q&A, just for me to stress a couple of points.

So obviously, we are very happy with the 2 new strategic deals that we have closed.

If we sum them up, their amount exceed $40 million.

This is really a testimony to our technology leadership and value, and I hope the market will recognize this.

My second point is really regarding the business.

In Q3, without the short-term inventory issue we had on the Cat 1, we could say that the development of the business in the third quarter was almost in line with our expectation.

Last, obviously, the next big step for us is that we are very eager to see the acceleration of the Cat M/NB market.

We don't see here any show stopper, just we need to be patient.

Things in IoT takes longer -- take longer than what anyone is expecting, but we hope to get better visibility on this towards the end of the year with more devices moving to production.

With this, I would like to thank you for listening, and I can turn the call now for Q&A.

Operator?

(Operator Instructions) Our first question is from the line of Raji Gill with Needham & Company.

Congrats on the new strategic agreements.

I was just wondering if you could maybe explain the rationale that a lot of these strategic investors are having in terms of signing these agreements.

It seems that you're accelerating these agreements.

So I just wanted to get a sense from their perspective, how are they looking at the overall market, partnering up with you and investing in you?

And along those same lines, how do we think about the -- when you mentioned the preagreed milestones, how do we think about what are some of the milestones in order to get to the $35 million investment?

Is that on revenue?

Is that -- what are some of the metrics?

Thanks, Raji.

So on the first point, I don't know how much to -- it's always complicated to really highlight all the points, that [other].

But how the partners, they look to this.

But if I'm in their shoes, I mean, it's simple.

We look to a market where all this is based on 4G, 5G, whether you talk about IoT or whether on the massive IoT or the high-end IoT.

So this technology is really very, very important.

Sequans has more than 15 years' experience on this.

It's a team that proved to the world that we are able to deliver in terms of technology and have it there.

And you look to the market consolidation and what's happening around the world, very, very honestly, not too many people that are in the position of Sequans to offer alternatives to what you could see in the market, maybe with a couple of big guys.

I believe this is really what attract -- the first thing as a position.

But obviously then, you go into the detail what we are able to deliver, the solution that we have, how much of it's optimized.

And obviously, the ability of Sequans, I would say, to be -- to adapt to the requirement of customers versus big, big company, they could have their own big road map.

So in summary, I see it like more not too much alternative market is looking for alternatives, and Sequans is valid and strong alternative even if we look small company.

And the small company that we are, it allows us to be quite flexible, and in a sense, to be more -- to address more of the requirements that we could have in terms of demand.

This is really very simply.

And I could put behind it, some of the things that is also pure innovation, not what, I would say, set by the standard.

We have things completely new that we are proposing to our customers that they like it and appreciate it.

And even if we are not developing this yet, we -- for competitive reasons, we would like to see things completely delivered to market before we start talking too much about it.

And in terms of the revenue angle, maybe, Deborah, if you can comment a little bit how.

Yes.

In general, on the services agreement, we have technology milestones in terms of the services that we're providing.

So it's -- this is a -- I'd say, there's nothing different in these agreements compared to the past agreement.

So it's really technology milestones.

And as we meet them, we continue to move on in the contract.

Okay.

Good.

And then in terms of the near term, last quarter, the revenue was impacted based on lower-than-expected broadband and vertical weakness, and then the IoT Cat 1 and Cat M/NB grew.

This quarter, there seems to be a channel inventory correction at the Cat 1 customer that's affecting your IoT revenue.

So I'm wondering how you're kind of managing channel inventory, how much lead times you're getting in order to kind of improve the visibility because the inventory situation seems to be kind of affecting a variety of your products from IoT to broadband and vertical.

I just want to get a sense of how do you think about visibility.

Yes.

I mean, It's indeed -- obviously, the bigger, I would say, the better we will be in terms of shipment and we move to volume, the more we can manage, I would say, a much more strict way of, I would say, the lead time.

But here in this situation, obviously, in general, we -- there is -- we have our regular lead time depending if you have something related to forecast or not.

In this situation, we had real forecast.

It was not like a big surprise.

To some extent, that our customers have their own issue on their side, and then they realize like some projects were supposed to go, new projects were supposed to ship at a given time, they get a little bit delayed, then their original forecast plan to us get a little bit reduced.

And this suddenly impacted the short-term shipment we're thinking we'll be doing.

So in this situation, we have, in general, more -- better visibility, long-term visibility with -- in this situation.

We still have -- when you're talking about Cat 1, it's quite established in terms -- we can predict a little bit much easier, except those kind of situations that we face here.

In the Cat M/NB, we are really at the beginning.

So it's a -- the volume remains small.

So people, they don't respect too much, I would say, the lead time because they know that they can get their volume.

But the more we move to full -- to the ramp, we are going to see much more established, I would say, lead time with customers that can allow us, I would say, to predict much better our quarter.

Yes.

And just following up on the Cat M and the NB-IoT product.

So you're expected that to ramp in the second half.

And last time we spoke, there was strong design win activity in the U.S., Japan.

And you had mentioned, I believe, over 2 dozen devices hitting mass production in the second half for those growth products.

Wondering what the update is in terms of design activity.

Are we still expecting these production things to happen?

Or is it going to be pushed out?

Just any thoughts there as well.

Well, I mean, some of them, they turned to production, as I mentioned in Q3, and we -- if I look to Q3 number, we are a little bit close in line of what we predicted, if you want, in terms on the Cat M. The issue we had on the IoT in Q3 was really the Cat 1 inventory issue, not much on the Cat M. Now we have planned a little bit stronger demand for Q4.

Originally because many -- we assume more products will be moving to full launch.

Some of them are moving well, and we'll see more shipments in Q4 on Cat M, but some of them are a little bit moving towards software CS and so on, so we expect some of them to shift to Q1.

So in general, we don't have major change in the amount of deals we have in hand, it's just the timing to turn to production is slipping a little bit.

Not on all of them, on some of them.

That's how it is.

But as I said, we have a couple of them moving really to big numbers.

They start in Q3.

In Q3, maybe there are still, I'll say, initial shipment.

I don't want to talk about a huge number there, but they are nice number to see.

But the projection in Q4 are nice as well.

So we expect to ship much better in Q4 in Cat M than what we did in the past.

And next, we go to the line of Mike Walkley with Canaccord Genuity.

All right.

With 30% of the 300 -- sorry, I think you said 40% of the $300 million projected revenue is secured with design wins or in production.

Can you give us an idea of kind of the time horizon you see for that ramp coming?

Yes.

I mean, it's really the complex question, Mike.

Very frankly, I mean, all those deals, they are -- they span over 3 years.

So when we are counting, maybe you have a few of them, a couple of them, when there are some metering or something like this, we can count them for 4 years.

But in general, there are -- most of them, we count them around 3 years.

But obviously, all of them are not aligned.

They are not happening in the same time.

So when we -- so if you want to look to the total 300K, assuming, let's say, 40% of them, which is $120 million that we won, they are in hand.

I'd rather spread them over 4 years if I assume that some of them are just design win and the others, they are launching in mass traction.

So in average, I can spread them over 4 years, not in a linear way, obviously, I need to start the floor.

And I will go to a peak in the second year and so on.

Okay.

And congratulations on the $40 million in strategic deals.

Deborah, how should we think about these deals kind of flowing through the income statement and balance sheet over the course of time?

So the -- in terms of revenue recognition, we're still finalizing as we [develop] the contracts that we are expecting to be a combination of -- there's some license fees and some different deliverables that would be based on the points in time and some sort of on the -- over a percentage of completion basis.

So I think it's something where it will take a little bit of time to ramp up.

So it's -- probably for the bigger deal, it will contribute more in 2021 versus 2020.

But -- and starting with the small contributions even in the fourth quarter of this year.

Okay.

Great.

That's helpful.

And just last question for me and I'll pass the line.

How should we just think about gross margin trends going forward?

It sounds like there was a bigger module mix in Q3 that's anticipated to be more modules in the short term before some of these other projects ramp?

Or how should we think about just gross margin into 2020?

Well, I think we remain with the same target to be certainly above 40% and moving more toward -- ideally, look towards 45% in that kind of time range.

The Cat 1 issues we had in the quarter were more on the chip side, which brought up the module proportion of revenue mix in the quarter.

But certainly -- and as we've mentioned before, with the Cat M ramping that's primarily chip revenue, so that should be helping us to increase the gross margin over time.

And next, we go to the line of Scott Searle with Roth Capital.

Georges, congratulations on the strategic.

I think that's a lot larger than anyone was looking for.

Maybe just to quickly follow up on Mike's question, Deborah.

In terms of the initial $18 million upfront fee, I would imagine that gets recognized ratably over the next several quarters.

If you could help us just kind of understand when that starts to flow, and it wasn't clear to me exactly when that starts to hit.

And in terms of some of the other strategics that you're talking about, just generally speaking, are they of similar size and scope to what we're seeing with this initial deal?

And then I have a couple of follow-ups.

So in terms of revenue recognition, yes, it should generally -- I don't think it will be -- it certainly won't be in a linear fashion because it's a -- there are some sort of license deliverables where we have to deliver completed projects, and the rest is sort of ratably over time.

So I think that we'll see it sort of ramping up over the -- starting in Q4, over the course of 2020 and then probably being a similar size in '21 and '22.

And for the...

And this is obviously for the $36 million, you know what we're talking about.

Because the $18 million, just got to be sure, this is really balance sheet.

There is -- I mean, it's just only -- we have an upfront payment that's secured there, which is helping the cash flow, if you want.

But obviously, from revenue recognition is the total amount, which is the $35-plus million we are talking about.

Yes.

And then at a later point in time, when we've recognized all of the $18 million, then there'll be obviously further cash payments farther in the future.

And Georges, in terms of other strategics in the pipeline, the similar size and scope, can you give us some idea of what they look like?

I mean they tend to be strategic deals.

Sometimes they develop over the time and the scope could be, as I mentioned, sometimes could be kind of $5 million, $6 million, $7 million, and then you could have a different scope where you go to 2-digit and above.

So definitely, when we mentioned the other strategic deal, I mean, we have a lot of traction in the company.

I mean they could be developing.

I don't want really to put too much expectation on -- so that the company looks like -- only what we are doing is closing strategic deal.

But definitely, we have -- as you see, even in the quarter, we closed another one, which is also nice.

And we have similar like this.

So I don't know if it will be another one as big as this.

For the time being, I don't predict this, but we have big deals in discussion.

Got you.

And on the Cat 1 front, certainly, we had one blip with the customer this quarter.

How quickly does that come back?

Just want to clarify.

It sounds like it's back certainly by the first quarter.

And then we -- are we into growth mode, though, Georges?

Because it sounds like there's been a resurgence within the industry in terms of Cat 1 requirements, not just around vertical markets, but actually in some of the consumer and wearable space right now where there's a lot of interest and a lot of attraction related to the feature set that Cat 1 can offer.

And also, concurrent with that, we've had Intel being acquired by Apple.

And so what does it do to the competitive landscape?

Are you the only game in town?

How is that kind of shaping up?

Well, I mean, first of all, if we take the Cat 1 today, we are talking about the first piece of the market, which is called M2M market.

The issue of event that we have, we said this will be really -- it's really under control.

I can guarantee, as I see today, that it will go away end of Q4.

I'm not sure how much -- if we are able to ship in Q4 or not, as I'm speaking.

Depending where we are at year-end, typically at year-end, people, they like to have their -- clean out their inventory and so and so.

We could do -- we could have the pressure on this.

But this is coming from the fact, if you want, that they planned something, and they have a couple of projects shifting in time so the ramp didn't happen as they planned.

And because they weren't anymore dumping, they just only ended by getting some inventory that they need to absorb in 4 to 5 months.

That's why we get the impact on our side.

But I'm clear on this, that I don't see an issue for next year.

With the same customer, we have a forecast for next year.

We have established business.

And I know that they are shipping.

It's not like they are not shipping themselves.

They just wanted extra shipment, shipment that happened over, say, 1 year, assuming a certain ramp didn't happen and then they made a correction and this impacted us, directly on us.

Now if you talk about -- and indeed, you were mentioning the Cat 1 beyond the M2M for the consumer market, and this is definitely -- we're seeing this traction, and I explained this in the past that the people only look to the Cat M technology, which is a great technology, as we know for IoT, but has some limitation when you go for application where you need a certain level of speed to guarantee like for streaming music or sometimes even to have quality of calls or -- so you have a lot of wearable or hearable, whatever you call them devices, where the Cat M is not really satisfactory for them, and they would like to go to something else.

And the only something else above Cat M is Cat 1 as is today.

And this is where I mentioned on the call, mentioned last quarter, and we are seriously worked on something there because, obviously, not only to deliver the speed of the Cat 1 but as well deliver the low-power characteristics that you need for those kinds of application.

And all this is moving in the right direction on our side.

It's not going to be short-term revenue because this will take time.

It will not be next year in my opinion of revenue.

But definitely, it's a space for us that we are developing and can give us an expansion of the addressable market with our Cat 1 technology.

And you put this into perspective, what you mentioned on your last point that if you look to the competitive landscape, obviously, no big change there.

Even to the contrary, I mean, we have less competitors, if you assume that Intel focus is not there.

And when you look for people, a company that has all the technology for IoT, they specifically optimize Cat 1 for those applications and others, dual-mode Cat M/NB.

And recently, what we announced with the NB-only solution that we are sampling now.

So all this put us in a position where we have a comprehensive offer for IoT application, customer can come from M2M to consumer and find the right technology with Sequans.

And this is definitely a plus for us because this will give us ability to increase our market share in this market.

Lastly, Georges, just to follow-up on the NB point.

Similarly, right, you're the only silicon game in town that's NB-IoT only.

You've announced the module.

Could you just give us an idea what the design traction looks like?

It sounds like revenue starts to ramp up middle of the second half of next year.

How big will that ramp be, kind of given it's the first silicon that's non-Chinese-based that can hit the price points to service this marketplace?

And also on the 5G FWA front, just kind of wondering when that starts to flow in.

Similarly, high silicon prices today, not serving the market.

Big demand out there, it seems like you're in a pretty good position to capture that.

But that's 2021 and beyond, I would take it?

Yes.

I mean, on the NB, definitely, very frankly, we have today a solid solution, which is Cat M/NB shipping to customers.

So obviously, when you introduce a new next-generation chip, you would like as well to control the timing of the launch to be, I would say, more controlling the timing than being controlled by the market, if you want.

So that's why we are going to come really launching to customers.

We're not jumping on all the deals when they come there.

We put them on the old solution when customers are in a rush.

We want to control the timing of the solution to take it really with the best approach possible to win this business and secure it.

Our solution NB is definitely to address modules in the $5 range with the comprehensive set of features, including SIM, including CPUs.

So it's really quite advanced and very limited bond, very small design.

All this put us in a unique position to offer this to market.

And I really believe in the mass market IoT, NB has a play there because you need to hit the price point where any device could be -- you could add $0.20 of reconnectivity.

And this can address this.

And by the way, this will be going with our go-to-market work.

You saw that we are signing with distributor.

We are working as well with the MCU partner to bundle those offers, I would say, and to access to this fragmented IoT market where you have best market, which is very hard to reach if you go one by one customer.

So all this, it's work in process on our side.

We're quite pleased with the reaction of the customers so far since the announcement to the solution.

But revenue-wise, we're considering this second half of next year.

The mass production, we're putting this to June.

We'll be sampling to customers, end of the year, beginning of the next year.

Getting a couple of design wins kind of alpha customer and then going to GE, beginning of Q2.

That's how we plan it with full mass production middle of the year.

If we go to the 5G, definitely, I don't -- this is a place where Sequans has all the foundation.

We have everything.

We have the Cat 4. We have the Cat 6. We have all the technology to go on the 5G there.

The question mark for us is not really -- we're not divesting the smartphone.

So going on 5G to put a chip in a phone next year, yes, indeed, you need to do it for next year.

But if you are addressing fixed wireless application and industrial high-end IoT application, then you need to wait for the networks to deploy and be good coverage before you start getting real business behind it.

So my estimation on this, I'm a little bit more in line of 2022, if you want to see this happening.

Even if we'll see next year, 2020, some 5G development but will be more oriented to the phone because the phone, if you have one base station giving you 5G, you can connect on this from time to time.

And then the rest of the time, you will go to 4G.

While in the fixed application, if you sell a solution to deliver 1 gigabit per second with low latency and so on, it's going to work all the time.

You cannot say in mobile, it's really fixed.

And that's in line with this expectation.

We have our road map and our chip development going on to deliver something to the market in 2022.

We believe this will be a big upside for the company after the IoT, I would say, the massive IoT that give us a second wave of development.

If you factor this, the high ASP price of the 5G, if you take into account the limited number of competitors there, coming with a solution to market that can give us nice -- we can still protect nice market share for those kind of application and generate nice revenue stream for us.

(Operator Instructions) And we have no further questions.

You may continue.

Okay.

Thank you.

Thank you, everybody.

Well, this concludes our call today.

Looking forward to see you in the future.

Thank you very much.

Thanks.

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

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