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On Wednesday, Imagination Technologies Group PLC (LSE:IMG.L) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Geoff Shingles – Chairman: Maybe you want to touch on licensing revenue and I’ll pick up the second one, Richard.
Richard Smith – CFO: Yeah, I think if you look historically at the licensing revenue growth 10% is the number that seems to sort of come up in terms of the annual growth. We’ve had few years where we had 20% and then we’ve had some 0% and back on 20%. So, I think, 0% to 20% is sort of likely range with sort of an average around the 10%. We’ve always said it is a relatively small number of engagements we are talking about – we are not talking about 100 licenses a year or anything like that. So, individual licenses and the timing of those will always make a little bit unpredictable, but we believe that there will be some parts of the market will be bigger opportunities for us but there are other areas which are probably having a tougher time and that’s why we think 10% is probably sensible.
Geoff Shingles – Chairman: I guess (indiscernible) new products and new customers that the average license fees gone down otherwise it would have grown by more.
Hossein Yassaie – CEO: It is because we have a diverse range of products some maybe multi-million dollar licenses, some maybe less and particularly when you deal with smaller companies rather than doing multi-use licenses they do smaller single-use licenses. So, there is nothing and towards in the numbers, it’s just the nature of the customers and diversity. So, it has more customers, the revenue has gone up but it’s not proportional simply because not everyone is a $5 million customer everyday they do single used licenses and more flexibility in terms of IP they pick up. So, your second question – I remember with respect to multi-supplier OEM. To be honest, I cannot talk about sort of mindset and use of the companies and what they want to do, what I would say is that we have strong relationship with many of these companies. In some cases we have an exclusive relationship in the sense they don’t use other parties, in some cases they do, but the point on that slide is even when there is a multi-supplier of major OEM because we have two channels through their semiconductor IP and also through other semiconductor companies that supply to the system integrator or product company we get reasonable market share and that’s really the point of that slide.
Nick James – Numis Securities: Would you agree that it feels that the internal teams becoming more important than the external ones?
Hossein Yassaie – CEO: I wouldn’t say that. I think it depends, but certainly the vast majority of companies I’m used to in the Far East seem to operate on a multi-supplier basis even today. Now ultimately I think there is no question that as a complexity of these things gets more and more, I think the idea that people use multiple technologies and go through all these issues around the software et cetera, it will become a bigger issue and people have to rationalize and make more easier decisions, but I don’t think we are at that today.
David O’Connor – Exane BNP Paribas: David O’Connor, Exane. Firstly just of the 50% plus market share in smartphone. It seems a bit more positive than previously. Is there some markets gains in there? That’s my first question, and then on the second one maybe for Richard on the ASPs you mentioned ASPs probably trending a bit lower in long-term, but for the next year do we expect this smallish of a trending down in ASPS or will they remain kind of in and around the current level?
Hossein Yassaie – CEO: I think I’ll talk about the market share on smartphones. I think like any market going through sort of initial ramp up to maturity in the very early days things could be quite different to the steady state. We certainly believe, and I am sure you heard me say that that we see no reason why we shouldn’t end up with 50% of the smartphone market. I think one reason for us perhaps stating that more clearly, as this market is maturing, it’s become clearer who are the suppliers and where the volume and ramp up will come and therefore we’re gaining confidence that is working for us. I think the other area is there is an element of rationalization going on, it looks like today we have two major operating systems that are successful. Microsoft is coming up with the third and if you look at across those three platforms given the design wins we have and the relationships we have, we feel we have a reasonable position to state 50% of the baseline.
Geoff Shingles – Chairman: I’ll just do the second half of the questions, so on the average royalty right that we’ve achieved. Yes, it’s a very strong during this year for the factors that we mentioned earlier, more of our IP in each chip. A lot of new customers starting to ship for the first time, which is obviously just a little bit top end of the royalty curve. In terms of where we see that going forward, Hossein talked about the fact, we expect to see some erosions, as the volumes increased towards 1 billion units and I think it’s realistic that we will see some of that next year. We will I think continue to see average royalties rising in a number of different sectors, but as the volumes come then there are going to be an increasing proportion of our volume is going to come from, if you like, lower-end exposure.
Simon Schafer – Goldman Sachs: Simon Schafer, Goldman Sachs. Hossein, I wanted to go back to the slide you pulled up about – well, maybe it’s not Samsung, but looked a little bit like it could be Samsung. There seem to be a lot of debate about your market share sustainability of that particular customer. So maybe just go back and remind us as to how you feel your positioning is in Android overall and how you feel that your designs are tracking?
Hossein Yassaie – CEO: I think I am sure if you look at the reports somewhere in the – I can’t remember the exact figure, but something like 14 companies are developing products with our technology for Android. I can’t remember the exact figure, but somewhere around seven or so of those are Tier 1 OEMs. So, I think we feel very comfortable in terms of design wins and exposure to Android market for a variety of reason, not least what I suggested. Even with respect to Samsung, what I can certainly state is, publicly we announced license agreement with them October last year for multiple IP and that’s yet to appear in products and I have no doubt that it will. So, we expect to – the model I put on the screen certainly applies in the sense that we have design wins through the semiconductor division but also designs wins through our partners and increasing number of our partners have chips that they can sell and therefore, they can knock on the door and sell the technology.
Simon Schafer – Goldman Sachs: My second question would be just – sorry, as a follow-up on the licensing debate. Am I right in saying the 10% number that you are throwing out there in terms of growth potential that’s just in line to the average growth that you’ve always stated, so there is nothing in particular that you think is slowing here just to understand?
Richard Smith – CFO: Yeah, I mean, when we come up with that 10%, we’re not really looking at a percentage increase, we’re looking at all of the opportunities we’ve got in our sales pipeline, what are the engagements we’ve got with customers, what are they – what licenses they are just taking from us and that sort of looking at the roadmaps collectively with them. So, when we do that we come up with, okay, what do we think is likely to close and that then, if you like, reverse engineers to come up with a percentage year-on-year increase. So, within that there will always be some customers may be who licensed quite a lot of IP in the previous period and therefore it’s less likely they’ll take a license or there may be some who licensed a lot couple of years ago and those products are now shipping and there are now ready for the next generation. So, it’s a balance across that, but we are seeing – we see a good proportion of the licensing revenue. You’ll have seen from last year, it came from extensions and new agreements with existing customers, but also there was more than a dozen new customers that we added to our list of new engagements and as we look at our sales pipeline, if you like, for the next 12 to 24 months what we see a very balanced mix of that again.
Unidentified Analyst – RBC: (Indiscernible) from RBC. You used the word erosion on the average royalty rate. I wonder what erosion means, north of 5% a year or is that 5% to 10% a year as smartphones – commoditize is the wrong word, but become more prevalent. Clearly, there are some much more cost-effective smartphones out there and as you take your market share remains roughly where it is, there is a sort of volume game going on, on that erosion. Could just give us an idea of what you think that might mean? It was your word.
Hossein Yassaie – CEO: I’ll start and sort of Richard may want to add. I think it’s really a natural thing as you touched on that. If you take the premium device or even mid-range devices, the average royalty will go up; there is no question about it, because the content of IP is going up, there are higher performance solutions, et cetera, that command a premium. So, the only issue is that the diversity across the whole range includes lower-end devices which tend to be older IP or a device IP that has been deployed for the long-term, so the royalty cap has gone down, so it’s that mix that we’re just warning. And I also did say that we’re not talking about a significant reduction, but there will be some reduction. We can’t really go into the details of what that would be, A, we don’t know exactly what it will be. There will be some. Maybe Richard wants to add, but that’s really as far as I can go.
Unidentified Analyst – RBC: I’ve got two quick follow-ups. Just on OpEx, you said, of the kind of roughly GBP 70 million of OpEx you had, that’s now a full year OpEx going forward. What would you expect that to grow out this year?
Richard Smith – CFO: So, we would be expecting – we’re still – with the rate of increase in our customer base and the number of new technologies which you’ve seen we’ve been talking about; we’re still very much in the investment phase in this business. So, I think our guide for OpEx –the full year OpEx growth would be around 20% for next year.
Unidentified Analyst – RBC: Then just lastly, I didn’t follow your toll on the tax. You’re saying you’re not paying tax for the next two years, but you’ve used up all your historic losses. Are you not putting in a percentage tax rate on those numbers…?
Richard Smith – CFO: Yeah, the way the tax works is that when the business have been generating tax losses previously haven’t reflected them all on the balance sheet, and what happened last year was as you reflect them on the balance sheet, then that credit goes through the P&L. So, we now have a deferred tax asset that you’ll be able to see on the balance sheet is about GBP 18 million. Now, as we make profits going forward, what we’ll do is we’ll take a charge to the profit and loss account and we’ll take a charge against that deferred tax asset; but no cash. Roughly speaking, I think if that deferred tax asset is about GBP 18 million, if you took, say, a 24% tax rate then that would give you a figure of say GBP 70 million to GBP 80 million of profits we could make before we end up paying U.K. tax.
Didier Scemama – Bank of America Merrill Lynch: Didier Scemama from Bank of America Merrill Lynch. Hossein, actually I remember exactly a year ago at this forum, you mentioned that – and the theme is the growth of GPU on the SoC on the die size – on the die area. You mentioned and one of your U.S. customer wanted to build an SoC with 80% of the die dedicated to graphics. So, I was just wondering if you could give us just an update on your thoughts of GPU taking sort of real estate away from other bits in the chip. How you see that; how we are today, maybe 30% of the die, how you see that going forward?
Hossein Yassaie – CEO: I think that’s a complex question because it depends which segment of the market you target. So, if you take a low-end one, obviously, everything is compromised and people use older GPU, but if you take the state-of-the-art area, certainly the GPU is an area which is performance is very important, and because these engines are going more and more programmable, and software and tools that are being provided to deploy this. I have no doubt that the GPU functionality will go well beyond graphics. It’s already plenty applications and examples exist of using GPU to work with the camera engine and do some amazing stuff on the camera stuff. Also one of the demos and application we show is we used GPU as a back-end processing which manages the LCD backlight significantly and reduce power. These are two very obvious examples. So, I certainly would expect that as GPUs get bigger, their size and performance is essential for graphics, but they will be justified in SoC because they can do so many other things. I certainly see no reason why you will see SoCs where the GPU could be around 50% or more of their silicon asset of the device. If it is a very important function because of course you’ll need a CPU unit, you’ll need the connectivity capability if you take all of those functions 50%, 60% is not an unreasonable amount of asset for GPU as high-end solution.
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