Investor Presentation

Transcription

1 Investor Presentation May 2013 Copyright DSP Group, All rights reserved.

2 Forward Looking Statements This presentation contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if proven incorrect, could cause DSP Group's results and projections to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact may be deemed forward-looking statements, including statements regarding the continued growth of the traditional cordless telephony market, expanding market for products for new applications, and our ability to capture a higher share of these markets. We do not endorse the financial forecasts of any analysts or comment on them if they differ from our own projections. Nothing in this presentation should be construed as a profit forecast. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding performance. Information, opinions, and estimates contained in this presentation reflect a judgment at its original date of publication by DSP Group and are subject to change without notice. We assume no obligation to update any forward-looking statements or financial guidance. Risks and uncertainties that could cause actual results to differ materially include: the sustainability of the market recovery and recovery of markets for our customers' products; delays in the introduction of new products; slower than expected change in the nature of the residential communications domain; our ability to develop and produce new products at competitive costs and in a timely manner; the possibility that such products may fail to achieve broad market acceptance; and assumptions pertaining to the level of demand for products that incorporate our technologies. For more information regarding the risks and uncertainties that could cause actual results and projections to differ, as well as risks relating to our business in general, see the discussion in the "Risk Factors" section of our Annual Report on Form 10-K for fiscal year 2012 and other reports that DSP Group has filed with the U.S. Securities and Exchange Commission. This investor presentation is dated May 8, Copyright DSP Group, All rights reserved.

3 A Long History of Innovation and Value Creation A leading fabless semiconductor company specializing in voice and communications Publicly traded since 1994 (NASDAQ: DSPG) Pioneer in digital signal processing software and ICs Brought digitalization to answering machines by inventing a telephony answering device (TAD) on a chip Successfully transformed from a small TAD supplier to the market leader in SoC for the communications market DSP Group s core IP has led to the formation of two companies and the spin offs of two others since its inception: AudioCodes (NASDAQ listed) CEVA spin-off (NASDAQ listed) DSP Communications spin-off (acquired for $1.6 Billion) Nogatech JV with SCITEX (acquired for $170 Million) 3 Copyright DSP Group, All rights reserved.

4 DSP Group Today Approximately 400 million homes use DSP Group products today #1 position in cordless telephony with 70% share #3 position in VoIP for Office and Enterprise and rapidly expanding Leading Ultra Low Energy effort in home automation Launched a proprietary HDClear technology targeting mobile market 2012 revenues of $162 million R&D spend as a % of revenues was 24-28% during past 5 years Successfully executing thru an operational turnaround demonstrated operational improvements six consecutive quarters Strong focus on cash flow generation - Generated $10 million from operations in 2012 $87 million returned to shareholders in the last 5 years Cash & marketable securities of $120 million ($5.50/share), no debt Market capitalization of ~$180M 4 Copyright DSP Group, All rights reserved.

5 DSP Group s Solutions Target Three Key Segments Home Enterprise Mobile Cordless Phones Gateways Home Automation & Security Voice Over IP (VoIP) Video and Multimedia Communications HDMobile 100M unit SAM in 14E 122M unit SAM in 14E 54M unit SAM in 14E 50+M unit SAM in 14E 1.1B unit SAM in 14E 5 Copyright DSP Group, All rights reserved.

6 1 - Protecting Our Leadership In The Home Domain More than 70% market share in cordless Versatile portfolio of proven DECT solutions Cordless Superior Range Interference Free Band Supporting two way audio and video Lower system & deployment costs Ultra Low Energy HGW + CAT-iq More Carriers Are Integrating DECT Into HGW For Wireless HD Voice New revenue source with potential to seed DECT-ULE growth. 6 Copyright DSP Group, All rights reserved.

7 2 - Growth Strategy > Market Diversification Leveraging R&D Investments to Drive Growth VoIP FlexiSpeech Automatic Gain Control Voice Equalizer Flexible Listening Enhancement 25Y of Voice Processing Text To Speech FoIP Speech To Text True Speech Noise Cancellation HD Voice Acoustic Echo Cancellation Speech Recognition 7 Copyright DSP Group, All rights reserved.

8 More Carriers Are Integrating DECT Into Home Gateways For Wireless HD Voice Home Gateways w/ VoIP units shipped per year (in millions) DECT Home Gateways units shipped per year (in millions) Mobile Home Enterprise HGW w/ Voice E 2013E 2014E 2015E Source: IMS, February 2012 DECT Home Gateways E 2013E 2014E 2015E #1 position, DSPG chipsets deployed in HGWs of leading WW Enabling High Definition Voice at home and Seeding an infrastructure for ULE 8 Copyright DSP Group, All rights reserved.

9 Connected Home How Big will it Really Get? Mobile Internet of Things forecasted to reach 50 Billion by 2020 (Source: Ericsson White Paper, Feb 11) Connected devices to outnumber humans 6 to 1 by 2020 (Source: CIO, Sep 12) 80% of utility meters in EU will be connected by 2020 (Source: Ericsson White Paper, Feb 11) Technology leaders, Apple, Google and Microsoft already spotted Connected Home as the Next Big Thing (Source : Wall Street Journal & Techcrunch, Dec 12) Leading Operators, Telco s and Services Providers, Comcast, AT&T, ADT already becoming major Connected Home players (Source: multiple sources) Telecom Italia outlined Connected Home where combination of Entertainment, Automation, Security and ehealth services co-exist (Source: ADB Global Taking control of the Connected Home) Home Enterprise 9 Copyright DSP Group, All rights reserved.

10 ULE Is An Emerging Standard For Home Automation Market Mobile Home Enterprise DECT ULE and our newest DHX91 chipset introduced in January 2013 provide major advantages for operators over competing technologies in the Home Automation market including superior range, lower cost, licensed frequency, and increasing share of DECT within home gateways Low Cost of Deployment Data Speed Range & Propagation Power Consumption Video/Audio Enabled DECT ULE ZigBee Z-Wave 10 Copyright DSP Group, All rights reserved.

11 Our Footprint in VoIP Terminals Mobile Home Enterprise 11 Copyright DSP Group, All rights reserved.

12 Quickly Gaining VoIP Share (IP Phones & ATAs) Mobile Home Enterprise TAM estimated at $150-$200 Million and growing at double digit rates DSP Group provides SoC solutions for Enterprise VoIP & Video endpoints Targeting Tier-1 IP-Phone providers with our newest multi-core DVF99 processor introduced in January 2013 DVF99 has best-in-class voice experience, robust security, enhanced graphics and advanced peripherals VoIP Market Size & Growth (IP Phones & ATAs) Units (millions) % 25% 17% 9% 3% 5% E 2013E 2014E 2015E 80% 60% 40% 20% 0% DSP Group Market Share Source: In-Stat, DSP Group 12 Copyright DSP Group, All rights reserved.

13 Voice Processors From Optional to Must-Have Mobile Home Enterprise Smartphone Forecast, WW, Source: Gartner 1600 Mobile Communications Trends 1400 Units (millions) Narrowband Voice Voice call High Definition Voice Voice & Video call 200 MMI = Touch MMI = Voice or Touch Can t hear you when its noisy Anytime, anywhere Volume opportunity: 2.6B units in 2015 Voice & Audio processors Source: IDC Source: IDC % 66% Smart-Phones and Feature-Phones 25% Mobile PC 9% Tablets Units (Billions) Units Penetration of mobile units 1.1B 0.8B 47% 35% 0.5B 23% 0.2B 1.7B 63% 75% 50% 25% Penetration (%) 10% E 2012E 2013E 2014E 2015E 0%

14 An Unparalleled User Experience Mobile Home Enterprise Maximize accuracy rate of Automatic Speech Recognition enabled applications Redefining Use of Speakerphone Mode In Noisy Environments Improve voice call intelligibility everywhere High-performance, lower-power audio DSP platform Small footprint, measuring just 2x2 mm 14 Copyright DSP Group, All rights reserved.

15 Superior Voice Quality Vs. Existing Solutions Mobile Global Mean Opinion Score (G-MOS) measures overall quality including speech and background noise. Score difference of 0.2 is significant. Values between 4.0 to 4.5 show high satisfaction. Values below 3.5 are termed unacceptable by many users. Chart shows analysis of HDClear equipped phone vs. two leading smartphones (iphone 5, Galaxy III) 5 Home Enterprise Global Mean Opinion Score (GMOS) Good Voice Quality Poor Voice Quality 1.5 café car train road Quiet Environment Noisy Environment * Independent 3QUEST tests were performed at HEAD Acoustics Lab in June & Oct Copyright DSP Group, All rights reserved.

16 Delivering Consistent Accuracy Rates for ASR Across Various Noise Environments Mobile Home Enterprise Quiet Environment Noisy Environment Leading Smartphones Leading Smartphones Test: (1) Conducted in DSPG Lab; (2) Vocabulary: Harvard Sentences; (3) Noise Type: Babble (party) noise; (4) Right scale in medium-high ambient noise 16 Copyright DSP Group, All rights reserved.

17 17 Copyright DSP Group, All rights reserved. Financial Highlights

18 Q1/13 Resuming Profitability while Continuing to Invest in Our Future Q1:13 Q1:12 Delta YoY Non-GAAP Non-GAAP Total Revenues $39,650 $43,504 ($3,854) -9% Total Cost of Revenues 23,881 27,416 Gross Profit $15,769 $16,088 ($319) Gross Margin (%) 39.8% 37.0% Operating expenses Research & Development 8,683 11,205 $ (2,522) -23% As % of Revenues 22% 26% Total Operating Expenses 13,844 17,662 $ (3,818) -22% Total Operating Expenses (%) 35% 41% Operating Income $1,925 ($1,574) $3,499 NM Operating Income (%) 5% NM Net Income ($) $2,536 ($1,183) $3,719 NM As % of Revenues 6% NM Earnings per Share $ 0.11 $ (0.05) $ 0.16 NM EBITDA $2,581 ($713) $3,294 NM

19 Resumed US GAAP Operating Profitability in 2013 Q1:13 Q1:12 Delta YoY US GAAP US GAAP Total Revenues $39,650 $43,504 ($3,854) -9% Total Cost of Revenues 23,944 27,526 Gross Profit $15,706 $15,978 ($272) Gross Margin (%) 39.6% 36.7% Operating expenses Research & Development 9,151 11,976 $ (2,825) -24% As % of Revenues 23% 28% Total Operating Expenses 15,242 19,631 $ (4,389) -22% Total Operating Expenses (%) 38% 45% Operating Income $464 ($3,653) $4,117 NM Operating Income (%) 1% NM Net Income ($) $1,172 ($3,262) $4,434 NM As % of Revenues 3% NM Earnings per Share $ 0.05 $ (0.14) $ 0.20 NM

20 Improving Gross Margin Trends Gross Margins by Quarter 41% 40% GAAP Non-GAAP 39.8% 39% 38% 37.6% 38.1% 38.5% 37% 37.0% 36% 35.9% 35% 34% 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 Consistent uptick in gross margins leading to 390 bps overall improvement in past six quarters Key drivers have been cost reduction initiatives, mix of products and tight inventory controls 20 Copyright DSP Group, All rights reserved.

21 Eight Consecutive Quarters Of OpEx Reduction Operating Expenditures by Quarter (USD in Millions) $22 $20 GAAP Non-GAAP $18 $16 $14 $12 $10 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 Reduced GAAP annual OpEx run rate by $36 million in two years and non-gaap by $25 million 21 Copyright DSP Group, All rights reserved.

22 Continues Improvement In Quarterly EBITDA Quarterly EBITDA (USD in millions) $3.0 $2.6 $2.0 $1.5 $1.0 $0.8 $0.3 $0.0 ($1.0) 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 ($0.7) ($2.0) ($3.0) ($4.0) ($3.7) ($5.0) Despite topline weakness in core business, cost reduction measures and GM improvement resulted in sharp increase in quarterly EBITDA 1Q:13 EBITDA was $2.6 million or 7% of revenues 22 Copyright DSP Group, All rights reserved.

23 Back to Operating Profitability Operating income by Quarter (USD in Millions) $3.0 $2.0 $1.0 $0.0 ($1.0) GAAP Non-GAAP 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 ($2.0) ($3.0) ($4.0) ($5.0) ($6.0) ($7.0) ($8.0) Resumed operating profitability both GAAP and Non-GAAP in Q Copyright DSP Group, All rights reserved.

24 Improving EPS $0.15 Quarterly EPS $0.10 GAAP Non-GAAP $0.05 $- 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 $(0.05) $(0.10) $(0.15) $(0.20) $(0.25) Six consecutive quarters of EPS improvements both non-gaap and GAAP 24 Copyright DSP Group, All rights reserved.

25 25 Copyright DSP Group, All rights reserved. Thank You!