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SQNS conference call update


First, we participated in an important testing evaluation programs in several countries including the United States, Japan, South Korea, India and China, and our second-generation platform received certification by carriers in these countries.



We’re also pleased to report success with design wins in the U.S. In the fourth quarter, we have added an additional router design win. Also we are seeing an expanded interest in our certified Verizon models from potential machine to machine and consumer electronic customers. Specifically we are in the process of closing two specific design wins in the entrant space.




We expect our momentum in the U.S. to continue and accelerate. We are in numerous advance discussions, covering all data devices category, which we expect to convert to additional design wins in the near future.





And our machine-to-machine module design win in South Korea has recertified by the operator and we’ve begun initial shipments to the corresponding customer in the fourth quarter as expected.




Back to Japan, we see an interesting future opportunity on the horizon as the Ministry of Communications is considering allocating the 3.5 gigahertz spectrum to the operator’s band. Globally this frequency has been allocated in the past for WiMAX networks. But recently, it has been added to the LTE 3GPP installer.

As you know, we are one of the only chip vendors to offer chips that support the 3.5 gigahertz band and in addition do add more to WiMAX LTE chips. And those chips are currently shipping to emerging operators. Leveraging this advantage, we are currently in trial for a 3.5 gigahertz solution in Japan and we are well positioned to benefit from the opportunity when this spectrum will be allocated.





In China, the new development there is coming from China Telecom. It was moving aggressively with LTE deployment. Specifically in the last quarter, China Telecom has issued a bit for data devices that includes a portion of this bit requiring LTE-only or LTE single-mode devices.

In response to this bit, we have ordered local OEM, ODMs and which by the way, include new customer that we added to participate in this bit. We should get the results of the bit hopefully this quarter and we believe we are well positioned to get the share in this bit mainly on the single-mode portion.




On the emerging Greenfield operator front, we continue to ship the two big customers serving emerging operators. The business there is growing well and we expect to see growth continuing in 2014. Single-mode LTE devices using our chips have been deployed in Brazil, Europe, Australia and the Middle East and we are making progress on new opportunities with operators and other regions as well.




AT&T recently announced that it has considerably narrowed the gap in the LTE coverage, reaching 280 million POPs, 20 million behind Verizon with the plans to complete coverage by summer. Since last of AT&T’s new subscriber additions are coming from tablets and other connected devices, it’s no surprise that we are beginning to see some interest in single-mode devices to run on AT&T networks.




In Europe, single-mode interest is starting to develop as well. And we are involved in initial discussions with operators in the U.K., France, and Germany. The exciting thing to note is that we are developing a diverse set of device opportunities to serve an equally diverse set of carriers globally.




The last segment is machine-to-machine and consumer electronic. As we mentioned, our initial machine-to-machine design wins is in the U.S. and this design win has found interest from a dozen or so potential customers. And we are in the process of closing two of them, when our machine-to-machine win in Korea is already shipping.



Inventory decreased in the quarter to $6.6 million at the end of December from $7.4 million at the end of September, reflecting primarily reduction in WiMAX inventories as we continue to shift for the KDDI router project.



Q and A


Quinn Bolton - Needham
Okay, great. And just a couple of technical question, you have mentioned Category 6 40 megahertz, modems and some trial activity going on. Can you give us a sense of where you are in those trials and when you think you might see that ship for production revenue?

Georges Karam - Chairman and CEO
Yeah. I mean, we are having event. As you know, we are unique by offering 20 megahertz in all which is -- by the way we got this last year, I would say mid last year and since then we were developing the software and on top of this engaging with the carriers to show this category, it’s capability and so on.

So this is going fine. I mean we have two engagements. I don’t have to mention the carrier with whom we are doing it to the world but you can guess, I mean all the carriers that they have larger than 10 megahertz band is, they have an interest in those kind of application.

And currently this product will be moving to something for design and something to engage this year. And we should -- we're not planning but honestly in our plan, big revenue on 2014 coming from this product. I mean because with design win with customer, we believe this will be revenue in 2015 but design win definitely yes, this year.





Quinn Bolton - Needham
Great. And just my last question, I think you mentioned, you’re still the only certified model at Verizon that supports band for in ‘13. If I heard you correctly, what do you expect competition, I mean, I know Verizon is in the process of rolling out band 4. It sounds like band 4 might be important to their LTE multi-cap service as they roll that out later this year. So its sounds like that which you are in a pretty good position as I would imagine as modules have to be qualified rolling advance of the rollout of that service?

Georges Karam - Chairman and CEO
I mean, I don’t talk. I mean, obviously this is an important advantage for Sequans because its time to market when you have a design win decision. Someone who wants a module as they want to have something support the two band because this is about the future and so on. But honestly if they are in a hurry and they want to move now with their projects, they don’t have too many options.

I’m not saying this is how we win the customer, I mean, we will provide all advanced other cost and performance which they have as well. But this is time to market advantage obviously overtime I tend to say, I mean, maybe during the first half of this year, when we see other guys qualifying the second band. I don't believe the -- it's not the kind of technology barrier, in itself versus the other competitor they have frequency band, it's more time to market advantage by getting the modules designed to support the two band from scratch and ready to go, certified and so on.
Quinn Bolton - Needham
Okay, thank you.




Alex Gauna - JMP Securities
Yeah, thanks very much for taking my question. Your guidance seems a little bit better for the March quarter than typical seasonality. I wonder if there are some specific programs you can give color to that are offsetting this and/or, if there are some programs that are experiencing some seasonality that’s baked into this current guidance. Thank you.

Georges Karam - Chairman and CEO
Yes, Alex, you are right. I mean, Q1 typically, there is seasonality and there is the Chinese New Year. So there is a kind of one, two weeks where nothing happened in general. So this has factor then and obviously in our guidance, we are taking into account this.

Obviously, it impacts all the existing business going there. So we are factoring this in and I could say maybe, nothing more to say, it’s factored in. But obviously looking to the level of -- because those are new design, all of them, they are starting since six months if you will. So maybe you could expect to see more impact, but the reality, it’s less than, if we could have maybe 10 program going on.



Hanna Wakim - UBS Investment Bank
Good morning, Georges. Hi, Deborah. Any feedback you can share with us, please on the Super Bowl Verizon event?
Georges Karam - Chairman and CEO
Hi, Hanna.
Hanna Wakim - UBS Investment Bank
Hi.
Georges Karam - Chairman and CEO
So obviously with Verizon, I can -- now it’s behind us, so I can talk about it a little bit more openly because for Verizon, it was really an important event to show to the people all this. So you have seen the Sequans, we manage to come really with the full tablet with partners by the way and get 7-inch tablet while the other tablet next to it was 5-inch and running all eMBMS end to end with all the technology controlled by Sequans, with software and everything there.

So, I want to be sure that people understand that this is really -- you need to see its demonstration and so it was not a design win, otherwise we announced a design win. Definitely, we have few hundred tablets going to the show and all powered by Sequans and you can imagine that all this work can be leveraged for other design win in the future to get there.

The leverage on this in terms of design win need to come, first of all, from the Verizon making the decision on the launch, when they will enable eMBMS and obviously not only Verizon by the way AT&T, they have the plan and definitely will take benefit from any launch coming there, because we will be the first to have this other than the other company that showed us at Super Bowl. And also the type of device that we will enable on this, so don’t forget this. When you see the announcement, you need to understand two things from Verizon. First of all, the launch date and second, what kind of devices because they may decide to have this only on the phone, not on the tablet at the beginning so.

And obviously as you know, we are not playing in the phone, so we cannot take benefit of it. Sequans can start taking benefit of this, is obviously and hopefully, if they will enable tablets supporting eMBMS, giving us advantage in terms of design win process against the competition. Is this okay, Hanna?