July 30, 2019 / 6:07 AM / 20 days ago

Dialog guidance tops expectations after second-quarter beat confirmed

FRANKFURT (Reuters) - Dialog Semiconductor (DLGS.DE) gave an upbeat forecast for revenues and profit after confirming a second-quarter earnings beat thanks to its deal to transfer people and patents to Apple (AAPL.O).

FILE PHOTO: Dialog semiconductor logo is pictured at a flag in Germering near Munich, Germany August 15, 2016. REUTERS/Michaela Rehle

The Anglo-German chip designer struck a $600 million (494 million pounds) agreement with Apple last year to transfer people and patents involved in the design of the main power-management chips used at the heart of the iPhone.

That deal delivered its first windfall in the April-June quarter, as revenue of $482 million was buoyed by $146 million in one-off licence fees from Apple while underlying gross margins widened to 49.7%.

At the same time, Dialog’s remaining business with Apple - which spans a broader range of products and technology - trebled in size, giving management the confidence to set guidance above market expectations.

“We’re looking forward to an even better third quarter,” CEO Jalal Bagherli told Reuters in an interview, saying design wins from Apple to develop new mixed-signal integrated circuits would generate revenues over the next three years.

Dialog had pre-released its main second quarter figures on July 17. It said it now expected third-quarter revenues of $360-$400 million, ahead of a consensus estimate compiled by the company of $362 million, while its underlying gross margin was expected to be in line with the second quarter.

It narrowed its forecast for the year as a whole, saying revenue would decline by a mid-single-digit percentage as its legacy main power chip business with Apple rolls off, while margins would improve.

Markets have honoured the strategy shift, sending Dialog shares 140% higher since the Apple deal last October. They traded 1% higher at 40.42 euros, leaving some analysts ruing their earlier caution towards the stock.

“There is nothing we see in the results that is not to like,” said analysts at JP Morgan, raising their target price for Dialog to 45 euros from 32 euros.

APPLE FOREVER?

Dialog, which is UK-based but listed in Frankfurt, had relied on Apple for three-quarters of its business - a level viewed by investors as risky because of the U.S. smartphone giant’s history of pulling the plug on overcommitted suppliers.

In its downsized form, Dialog expects by 2022 to rely on Apple for no more than 40% of its revenue, a goal towards which Bagherli said the company was progressing well.

He pushed back against a suggestion that Dialog, in winning new business from Apple in peripheral power management applications, was once again increasing its dependence on its main customer.

The new Apple business spanned a broader range of uses, said Bagherli, including display and the audio signal chain. These were finding use in a wider range of products such as the Apple Watch, Airpods and Mac computer range.

Bagherli also highlighted a 52% sequential gain in Dialog’s fast charger business in the second quarter, as demand in China recovered. He forecast continued growth in the Chinese market over the next six months.

And in the Internet of Things (IoT), Dialog saw 26% annual growth in low-energy Bluetooth products that are designed for use in connected devices with long battery lives.

On the broader outlook for the global smartphone market, Bagherli said it was mature and characterised by lengthening upgrade cycles.

But he saw the advent of 5G-enabled smartphones with broader appeal, and more energy-efficient chipsets than the early models now on the market, as a growth driver going into next year.

“2020 is the year it starts to take off - and 2021 will be really high volume,” said Bagherli.

Reporting by Douglas Busvine; Editing by Michelle Martin and Susan Fenton

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