Q1 2024 Earnings Summary
- The company is investing in two strategic new product families with significant revenue potential, one developed with four committed customers and a major chipset vendor, and another adding critical features to Edge products, potentially leading to future growth opportunities.
- The shift to focus on small to medium design wins is already showing initial momentum with recent wins starting, which typically have shorter sales cycles, potentially leading to quicker revenue growth and greater diversification of revenues.
- Previously achieved large design wins, though currently delayed due to customer over-inventory and macroeconomic factors, are expected to ramp up in about one year, potentially providing significant revenue growth starting from 2025 when customers resume purchases.
- The company expects to be unprofitable in 2024, projecting a net loss for the year, which raises concerns about its profitability outlook.
- Delays in the ramp-up of existing large design wins due to over-inventories at customers and slowdown in IT infrastructure investments may significantly impact revenue growth, with uncertainty about when customers will resume ordering.
- High inventory levels may pose a risk if customer orders do not pick up as expected, potentially leading to inventory obsolescence and impacting the company's financial position.
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Status of Large Deals
Q: Are large deals still active or have any gone away?
A: Management believes none of the large deals have gone away. They are facing delays due to customers' over-optimism leading to over-inventory and a slowdown in IT infrastructure spending. The company expects these big customers to return and generate revenue within about one year. -
Company Inventory Levels
Q: How is the company managing its high inventory levels?
A: The company considers its inventory to be of high quality and has decreased it by $7 million this quarter. Management expects inventory to continue decreasing and does not see significant risk of obsolescence. -
Gross Margin Expectations
Q: Will gross margins remain at the lower end of the expected band?
A: Yes, management expects gross margins to be in the midpoint to lower half of the 27% to 32% band, even as they exit the year. -
Cost-Cutting Measures
Q: Are cost-cutting measures complete and fully reflected?
A: The company has completed the intended cuts during Q4, with the full impact realized in Q1. No significant additional cuts are planned at the moment. -
Customer Inventory Levels
Q: What's the outlook on customer inventory normalization?
A: It's customer-specific; some are almost back to normal, while others may take until the second half of 2024 or longer. Overall, there is a decrease, but no specific percentage can be provided. -
New Product Families
Q: Can you provide details on new product opportunities?
A: The company is developing two new product families. One is being developed with four committed customers and a major chipset vendor. The second adds critical features to existing Edge products, enabling deployment in new environments. These could become significant revenue projects in the future. -
AI Partnerships
Q: Are AI partnerships leading to new opportunities?
A: The company is in the POC stage with several AI vendors, including Hailo. While there are no design wins yet, they are hopeful these will materialize into products and generate new deals. -
Tax Expense Expectations
Q: What is the expected tax expense given low profitability?
A: Assuming 2024 will not be profitable, they expect an annual income tax of approximately $0.5 million for the full year. -
Small Deal Momentum
Q: How long will it take for small deals to build momentum?
A: Small to medium design wins have a shorter cycle, sometimes only several months, and some successes are already being seen. These deals can eventually become big over time.