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DSP Group Inc (NASDAQ:DSPG)
Q2 2019 Earnings Call
Jul 30, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Q2 2019 DSP Group Inc. Earnings Conference Call. [Operator Instructions]. And I would now like to hand the conference over to your first speaker today, Ms Tali Chen. Please go ahead.

Tali Chen -- Chief Marketing Officer

Thank you. Good morning, ladies and gentlemen. I am Tali Chen, Corporate Vice President and Chief Marketing Officer at DSP Group. Welcome to our second quarter 2019 earnings conference call. On today's call, we also have with us Mr. Ofer Elyakim, Chief Executive Officer; and Mr. Dror Levy, Chief Financial Officer.

Before we begin, I would like to remind you that during this conference call, we will be making forward-looking statements about our financial guidance for the third quarter of 2019; projections for the full year 2019 relating to growth initiatives and our long-term growth cordless business projections, optimism about our engagement pipeline and design wins in growth initiatives and diversity of product offerings within such initiatives, including SmartVoice, Unified Communications and SmartHome; and ramp-up schedules of products incorporating our technologies; and the positive impact on revenue.

We assume no obligation to update these forward-looking statements. For more information about the risks and factors that could affect the forward-looking statements made herein, please refer to the risk factors discussed in our 2018 Form 10-K and other SEC reports we have filed.

Now I would like to turn the call over to Ofer Elyakim, our Chief Executive Officer. Ofer, the floor is yours.

Ofer Elyakim -- Chief Executive Officer and Director

Thank you, Tali. Good morning, everyone, and thank you for joining us. I hope that you have the opportunity to read our press release, which we distributed earlier today. I would like to begin by reviewing our result for the second quarter, commenting on the progression of our business plan and providing context for our outlook. In a short while, Dror will provide you with detailed comments on our financial results and outlook for the third quarter of 2019.

We are pleased with our second quarter results, which were in line with our guidance on the top line and ahead on operating income and earnings per share. We ended the quarter with total revenues of $29 million, representing an increase of 3% on a sequential basis and a decrease of 5% year-over-year. During the quarter, revenues from growth initiatives reached $17.8 million, representing an increase of 12% year-over-year and comprising 61% of total revenue. This accomplishment was propelled by record results in our SmartVoice segment, which offset the expected weakness in the Unified Communications product line and the temporary slowdown in demand for gateways, which are part of our smartphone product line. SmartVoice revenues grew by 142% year-over-year and by 29% sequentially, reaching record revenues of $5.3 million in the second quarter.

This growth demonstrates the strength and diversity of our product offering in addressing a number of new applications, including cameras, tablets and Smart TV. GAAP and non-GAAP gross margins further expanded by 60 basis points versus the second quarter of 2018 to 49.7% and 50.1%, respectively, and were in line with our guidance. Our gross margin expansion was driven by the transition of the revenue mix from legacy to new. We're absolutely thrilled with customer acceptance of our new technologies and products, as evidenced by the strategic wins we secured across all of our growth initiatives.

The first one is the upcoming launch, which we previously announced in the fourth quarter, of a prominent design win in the Unified Communications space of an IP phone series with a Tier 1 OEM customer. We expect initial commercial shipment of this high-volume design win to commence this quarter and to gradually ramp and contribute in a meaningful way to our 2020 revenues. The second is establishing our SmartVoice technology in a leadership position in 3 promising new market verticals, smart TVs, cameras and tablets, which together accounted for nearly 60% of our SmartVoice revenues.

The third being selected by Orange and a leading North American service provider for the respective IoT offering based on our ULE technology. These strategic wins, along with our exceptional pipeline of design engagements, solidify our success in transitioning ourselves into a growing voice and IoT technology company. These developments further increase our confidence that we are well positioned for a return to sustainable revenue growth and that our growth initiatives are on track to account for approximately 2/3 of our total revenues by year-end.

Now I'd like to move on to the business update by segment, starting with SmartVoice. During the quarter, we generated record revenues of $5.3 million from sales of SmartVoice products, representing a year-over-year increase of 142% and a sequential increase of 29%. We continue to enhance our engagement pipeline and secure design wins for hands-free voice activation in a variety of applications with leading OEMs. These design wins are driving our penetration into this burgeoning market and help us to establish our leadership position in 3 market segments, tablets, cameras and Smart TVs.

Moreover, our team's relentless efforts during the quarter resulted in the following noteworthy achievements. The first one, our 5 new tablet product launches by leading Chinese OEMs during the second quarter. This achievement further strengthens our leadership position in the hands-free voice activation -- activated tablet domain. To date, we have shipped our SmartVoice products to more than 8 dozen different models of hands-free, voice-activated Android tablets.

The second, 3 new innovative devices based on our technologies were certified by Amazon Alexa Voice Services, or AVS, bringing the total number of certified products to 16. All are using DSP's technologies and cover a wide variety of applications, including smart assistance, smart speaker, tablets, modules and even and a new cordless phone. This further underscores the high-quality of our SmartVoice technology and the solid and fruitful partnership we built with the AVS team. Third, a leading OEM launched a far-field, voice-activated smart TV using our SmartVoice solution.

This sets a high bar for TV offerings as Energy Star compliance means the TV may consume no more than 0.5 watts for standard TVs and no more than 3 watts for Internet-connected TVs using Wi-Fi or ethernet when in standby mode. This power limit makes it a serious matter for manufacturers to consider any additional circuitry. As a result, we are particularly pleased that our SmartVoice technology meets the requirements and is compliant with the Energy Star power profile while also providing advanced voice-enabled activation and control.

In meeting these customers' needs, we have opened the door to a whole new customer base requiring similar capabilities. While these wins continue to demonstrate strength and diversity of our SmartVoice franchise, they also underscore our global reach, tightly coupled with design partnership capabilities and our ability to drive down power consumption and bring high-quality and high-performance solutions to market. We believe that our SmartVoice business will continue to be an important growth driver this year, powering a broad array of exciting new applications.

Now moving into the Unified Communications segment. In the second quarter, demand for our Unified Communications products was impacted by an expected near-term weakness. Our second quarter revenues of $8.8 million declined by 10% year-over-year and by 7% on a sequential basis. At the same time, we continued to strengthen our leadership position in the unified communication market and expanded our reach into new customers and product categories. A few notable achievements included Grandstream Communications launched a new carrier-grade line of IP phones and a new long-range IP DECT handset based on our DVF99 and DCX81 voice processors. We saw a successful penetration into the Korean market.

We've seen, our ODM partner, designed a new IP phone that meets the stringent requirements of this market, which has recently been launched by a prominent Korean service provider. Gigaset selected our DVF101 for its Maxwell 4, a professional business phone. We are particularly excited about a major design win we secured earlier this year and reported about in the fourth quarter. This design win is a noteworthy achievement that guarantees our long-term growth in the unified communication business.

However, due to the longer-than-expected ramp, we anticipate that revenues from this product will contribute in a meaningful way only in early 2020. Nevertheless, we do expect initial shipments to commence this quarter, but at a much more gradual ramp than previously expected, consequently, slowing the recovery of our Unified Communications revenues. Nevertheless, we view the weakness this year as temporary impacted by the higher levels of inventories early in the calendar year coupled with macro uncertainties related to global trade tensions, leading to lower levels of capex and IT investments by enterprises.

In summary, while we are disappointed by the weaker demand for our unified communication products, we remain confident that despite the weakness, we are on track for modest revenue growth this year and that our promising design pipeline and product road map positions us well for meaningful revenue growth in the years to come. And now for an update on the home segment, which includes SmartHome and cordless. Turning to our SmartHome product line.

During the second quarter, we generated revenues of $3.6 million, representing a year-over-year decrease of 4% and a sequential decrease of 13%. The SmartHome product line comprises of DECT/ULE SoCs that are integrated in gateways and IoT sensors. We are very pleased with the momentum and solid demand for ULE products. However, during the quarter, we did experience some softness in demand for our DECT/ULE products used in home gateways, mainly due to seasonal factors, and we expect a rebound in the fourth quarter.

We are very excited to share with you a milestone event for our SmartHome business. During the second quarter, we secured a strategic design win with a leading North American service provider that selected our ULE technology for its IoT product offering. This is a direct result of our marketing investments in creating and developing market awareness for ULE in the U.S. We believe that such high-profile selection of ULE by a market leader could have meaningful impact in driving additional adoption of the technology by leading service providers and OEMs.

We are pleased to see ULEs and parallel benefits, including superior range, interference-free spectrum and natural and reliable voice and audio support that are translated into a diverse product offering as evidenced by Motorola launched an innovative, Alexa-enabled voice device, actually the world's first DECT phone that is Amazon Alexa certified, underscoring the unique value proposition of voice user interface coupled with the best-in-class wireless voice technology, thereby, reinventing the home phone experience. The device was launched on Father's Day in the U.S. and is getting solid reviews.

The second is a Japanese OEM that selected DECT/ULE for its wireless speaker offering. This product will leverage the low latency offered by DECT/ULE coupled with full band audio with 48 kilohertz support to stream best-in-class, hi-fi audio over DECT/ULE. The third is a U.S.-based industrial IoT company that selected our DECT/ULE technology for a sensor system for diagnosing machinery conditions. We are optimistic about the design momentum and growth potential of this product category in 2019 on the heels of strong traction for ULE in Europe and now also in the U.S. And now to an update on the cordless phone market.

Our second quarter cordless revenues were in line with our expectations. Cordless revenues declined by 24% year-over-year to $11.3 million and accounted for 39% of second quarter revenues. And now to the outlook. Taking into account forecasts received from customers and our own assessment, we expect our third quarter revenues to be in the range of $30 million to $32 million. The midpoint of this guidance range implies a sequential increase and a modest year-over-year decline.

We expect our growth initiatives to account for 59% to 63% of our overall revenues. To summarize, we're excited by the acceptance of our products and technologies and believe they will solidify our future success, driven by a solid pipeline of design wins with the leading OEMs, which are expected to materialize gradually during the remainder of the year and in a more significant way in 2020.

Now I would like to turn the call over to Dror, our Chief Financial Officer. Dror, the floor is yours.

Dror Levy -- Corporate Vice President of Finance and Chief Financial Officer

Thank you, Ofer. I will now review the income statement for the second quarter of 2019 from top to bottom. For each line item, I will provide the U.S. GAAP result as well as the equity-based compensation expenses included in this line item and the expenses related to previous acquisitions. Our revenues for the second quarter of 2019 were $29 million. Gross margin for the quarter was 49.7%. Gross margin for the quarter included equity-based compensation expenses in the amount of $0.1 million. R&D expenses were $8.6 million, including equity-based compensation expenses in the amount of $0.8 million.

Operating expenses for the quarter were $15.7 million, including equity-based compensation expenses in the amount of $1.9 million and amortization of acquired intangible assets in the amount of $0.1 million. Financial income for the quarter was $0.4 million. Financial income for the quarter included $0.2 million of exchange rate differences related to new accounting standards related to long-term leases. These exchange rate differences were excluded from our non-GAAP financials for this quarter.

Income tax benefit for the quarter was $0.4 million and included tax benefit resulting from changes in deferred taxes related to intangible assets and equity-based compensation expenses in the net amount of $0.1 million. Net loss was $0.5 million, including equity-based compensation expenses of $2 million, amortization of intangible assets of $0.1 million, exchange rate differences in the amount of $0.2 million and the tax benefit effect of $0.1 million.

Our non-GAAP net income, excluding these items I've just described, was $1.7 million. GAAP loss per share for the quarter was $0.02. The negative impact of equity-based compensation of EPS was $0.08. The negative impact of the amortization of acquired intangible assets on the EPS was $0.01. The negative impact of the exchange rate differences on the EPS was $0.01, and the positive impact of the deferred taxes was $0.01. Non-GAAP diluted income per share, excluding the items I've just described, was $0.07 for the second quarter. Please see the current report on Form 8-K we filed with the SEC this morning for a full reconciliation of the non-GAAP presentation to the GAAP presentation.

Now turning to the balance sheet. Accounts receivable at the end of the second quarter of 2019 increased to $17.1 million compared to $15.6 million at the end of the first quarter, representing a level of 53 days of sales. Our inventory slightly decreased from $9.3 million at the end of the first quarter to $9.2 million, representing a level of 57 days. Our cash and marketable securities position increased by $1.8 million during the second quarter and were at the level of $121.9 million as of June 30, '19.

Our cash and marketable security position during the quarter was affected by the following: We had $3 million of cash that was provided by operations, $1.9 million of cash was used for purchase of property and equipment, $0.2 million of cash was received from exercise of options by employees and $0.5 million was the increase in market value and amortization of marketable securities. Now I would like to provide you with our projections for the third quarter of 2019. Our third quarter projections, including the impact of equity-based compensation expenses and acquisition-related amortization expenses, are as follows:

Revenues are expected to be in the range of $30 million to $32 million. We expect our gross margin to be in the range of 50% and 51%. R&D expenses are expected to be in the range of $9 million to $10 million, and total operating expenses are expected to be in the range of $15.5 million to $17.5 million. Financial income is expected to be in the range of $0.5 million to $700,000, and we expect the tax benefit of approximately $0.2 million on a non-GAAP basis.

Our shares outstanding are expected to be in the range of 24 million shares to 25 million shares. Our third quarter projections include $0.1 million for amortization of intangible assets. Our third quarter projections also include the following amounts forecasted for equity-based compensation expenses: Cost of goods sold include $0.1 million, R&D expenses include $0.6 million to $0.8 million and operating expenses include $1.7 million to $1.9 million.

Now I would like to open up the line for questions and answers. Operator, please.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Matt Ramsay. Your line is now a little thing.

Josh Buchalter -- Needham & Company -- Analyst

This is Josh Buchalter on behalf of Matt. Congrats on the results in a tough backdrop. So it sounds like there's some solid progress on the ecosystem development in North America with the design win for DECT/ULE. Congratulations because I know it's been a lot of work from the team there. How should we think about sort of the cadence of the revenue opportunity developing, I guess, here and as well at Orange and Deutsche Telekom, given it's been a couple of months since those were announced?

Ofer Elyakim -- Chief Executive Officer and Director

Josh, Thanks for the question. So with respect to SmartHome and DECT/ULE, in particular, with respect to the gateway front, so the SmartHome revenues are basically an aggregate of these 2 items, so ULE that is sold for IoT sensors and the gateway that basically connects that to the network. So as I've said, we've seen some weakness during this quarter. Mainly, I think it's kind of coupled with much better results that we saw in the first quarter. So there's like some seasonal weakness in the second quarter.

As we said, we do expect to see a recovery there in terms of new gateway products that are expected to launch into the fourth quarter of the year. And we believe that we will see more stability starting in the fourth quarter. With respect to DECT/ULE, we basically have now 2 launches. One launch that is now well over kind of 2 years on from the start, this is with Deutsche Telekom, and we actually see that demand has been improving. It's still not at the level that -- where we want it to be, but there are no any issues anymore with overstocking, and all the inventories were depleted.

We're actually seeing more orders. And we're very happy with the pace as of today. In addition, we have Orange that started a soft launch, sometimes in the April, May time frame and is expected to do the kind of the big launch with a lot of kind of media exposure in preparation for the holiday season. So that means really in December time frame. And also, we have very good hopes there. Actually, the application -- the Orange application has been downloaded in tens of thousands and already shipments occurred of a similar amount, only via a soft launch.

What we need to take into account is that these service providers do take a long time until services mature and the subscriber base grows. But once you're in a certain point, I think we see kind of very -- fairly steady demand, and we hope that we're kind of getting there now on DT. With respect to the U.S., so we have been focusing on the U.S. market in marketing and actually trying to leverage all of the success cases that we are bringing from Europe to the U.S. And that has resulted with a very important and significant design win with a leading service provider.

We believe that all of that -- all of these good things will aggregate into our hopes to see a very strong 2020 for SmartHome. We still see a lot of activity also in Europe by additional service providers that are evaluating, trialing, and hopefully, will also launch services using ULE. So in summary, we do believe that we have a very good technology. We do believe that the market is becoming very well aware of it. It started in Europe, it now is happening in the U.S. So we like the momentum.

We definitely want to see revenue growth. We want to see the kind of the sequential increase of that. And I think that we have, today, a much better backlog of projects with fairly significant service providers that all of that should translate into a level shift with respect to kind of the level of the annual revenues next year.

Josh Buchalter -- Needham & Company -- Analyst

I appreciate all the color. And then, I guess, quickly on SmartVoice, it continues to put up very impressive growth numbers and pick up 3 the design wins in diverse sets of applications. And you've given some stats on smartphone versus non-smartphone exposure today. But I guess, I was wondering which bucket do you see is the larger growth driver, I guess, in the medium to long term? And I guess, if there's any impact on seasonality within that business that we should understand? That would be helpful. Congrats on the results.

Ofer Elyakim -- Chief Executive Officer and Director

Josh, so with respect to SmartVoice. And as you can see from the way the business has been gravitating, we have been focused during the last 3 years, actually, on both customer diversification and also application diversification from battery- to non-battery-operated devices from consumer to nonconsumer. And I think that what we are starting to see is that these objectives are actually also being translated to revenue.

So it's not just design wins, it's also an output of orders and the new products that are embracing the voice as a user interface. And it's not just in smartphones, it's not just in smart speakers, but we're actually seeing some additional silos where the technology is important, relevant and, hopefully, is now radio for prime time. And I think that as we -- as the business will progress, I think that we will see a fairly similar type of market share between the different categories, for sure, the place where you have, the big volume is definitely the products of smartphones and the like, but I believe that this will continue to represent no more than where we are today, 40%.

And I think that we will see, actually, the other devices, so from IoT to the TV segment, which we kind of classify as much more entertainment because it's not just TVs, but it is everything around the TV, in addition, tablets, cameras, and I think we'll see many more type of application and market verticals that will embrace voice user interface and will start to become relevant from the point of view of the revenue opportunity that they could present for us. Today, we have a fairly strong portfolio of the SoCs that can cover this market.

So any device that wants to embrace voice as a user interface, whether we're talking about a battery-operated device, a wearable device that wants to capture a voice user interface, we can do that with a very good performance, up to far-field, a very high-performance criteria, and we expect to see some very interesting devices being launched to the market during the holiday season with our solution to show the robustness and the level of performance that we can achieve using our high-end SoCs, but still, at a fairly low power consumption compared to the competitive landscape.

So I think we're very encouraged by the market take of voice user interface and the fact that it is starting to become the prevailing user interface and it must have activation mechanism in many consumer devices.

Josh Buchalter -- Needham & Company -- Analyst

Thank you.

Operator

The next question comes from the line of Suji Desilva. Your line is now open

Sujeeva Desilva -- Roth Capital Partners, LLC, Research Division -- Senior Research Analys

Oh hello, Congratulations on the progress here. For the revenue guidance of the mid-single-digit sequential growth in 3Q, can you go through what the individual segments are expected to do there?

Ofer Elyakim -- Chief Executive Officer and Director

Suji, so what we've done, I think, from early this year, we've not been providing any granularity with respect to each and every segment. As you can understand, we're still kind of in the low over a small number, so fluctuations and the -- and changes will happen during the course of the quarter. We don't really have like a 100% visibility that we can actually break it up. But I think that we've provided all kinds of the bread crumbs with respect to how each and every product segment is doing.

We highlighted the trend in the unified communications space where we see the weakness in this category ongoing. We believe there's some improvement, but still, the category is weak. We see also from GDP numbers to a lot of other indicators that there is a material slowdown in the capex spending by businesses, especially in the IT front on hardware. So that is definitely holding back a lot of the expansion that we were hoping to see during this year.

However, as you could guess from and understand from our prepared remarks, we're very optimistic about the future. We believe we have in our bag very strong and meaningful wins with a lot of volume inside, very good ASPs that should really drive our products and revenues to growth in the next coming years. And we do believe that the environment that we're seeing today is rather temporary, and we do expect to see a recovery at some point.

Again, we believe that we are well positioned to grow. And despite the setbacks and some of the macro weakness, I think, we're still positioned well to see moderate or small growth this year in fiscal year 2019. With respect to the SmartVoice domain, this is a hyper consumer market where there's a lot of volatility, very fast lead times. There's a lot of focus on Mainland China. So this is a fairly volatile domain. As you can understand, again, here, we're very optimistic. We see a very strong momentum.

We expect a lot of very interesting and innovative product launches based on our SoCs. But again, there is volatility embedded in this market segment. And I think on the SmartHome market, we continue to see some weakness with respect to the home gateway front. However, we do see a very good demand and momentum for ULE. So all together, when we sum all of these, we see that these growth initiatives should comprise between 59% to 63% of our Q3 revenue.

Sujeeva Desilva -- Roth Capital Partners, LLC, Research Division -- Senior Research Analys

Okay. And also, really the growth is coming from SmartVoice in 3Q, right? Just to kind of take your comments, just to understand them -- summarize them.

Ofer Elyakim -- Chief Executive Officer and Director

Yes. I think that we are -- we should see year-over-year growth in SmartVoice in the third quarter. Correct.

Sujeeva Desilva -- Roth Capital Partners, LLC, Research Division -- Senior Research Analys

Okay, great. And then my other question is very impressive diversification at SmartVoice outside smartphones. Just want to understand are these direct customer efforts? Are you leveraging partners or distributors? Because you seem to be getting into new categories. I'm wondering how you can continue that. Whether it takes direct efforts to do that?

Ofer Elyakim -- Chief Executive Officer and Director

Sure. So we -- in each of these categories, it's a combination of direct efforts. Whenever we're talking about a large OEM with debt warrants, with a very direct relationship and a direct investment by DSPG. And it's coupled with a lot of smaller vendors that are working through our partners. And working with partners has been one of the most important efforts that we've been pushing so that it's not just going to be all about a direct relationship, but rather we can actually build partnerships, whether it's in the Mainland, in Japan, in other areas in the world where our partners could actually support and ramp, more customers.

And today, we have plenty of partners that are offering strong reference designs or full reference design and modules that basically include beyond just the DSPG element, also other elements and components as well as our software also hosting third-party software. So complete solutions that can cover a wide variety of different applications. So at the end of the day, in our market, it's usually a combination of direct and indirect. For the most part, today, most of our revenues are still coming from direct relationships, but we're seeing more and more also going indirect.

Sujeeva Desilva -- Roth Capital Partners, LLC, Research Division -- Senior Research Analys

Okay. Last quick question on TVs. I know you're in voice remotes, but it sounds like you're in TV OEMs as well. Do you expect inflection in the attach rate of TV voice activation? Or will that be a slow, gradual, '19, '20, '21 phenomenon?

Ofer Elyakim -- Chief Executive Officer and Director

Yes. So voice-activated TVs, I believe, will become -- and we're talking here about hands-free voice because voice-activated TVs already happened, right? So you either get it through the remote control, you can also get it through the set-top boxes and over-the-top set of box, an streamer. And today, you've also learned that this capability is also now being integrated into high-end TVs. So I think that the hands-free use case is going to become a prevailing use case in the future.

And I think the people that are spending thousands of dollars on a new TV or several hundreds of dollars on a TV set and can buy a smart assistant for less than $100 would expect from the new entertainment system to provide them with the same capabilities. And I think that your ability to search, browse and flip channels and choose your -- or select your content via voice will be a prevailing use case. And I think that we will see that gradually happening through all of these devices, right?

So it's TVs, remotes, remotes streamers, set-top boxes, over-the-top ones. And they're all going to play a role. And probably, at a certain moment, one use case will become the kind of the more dominant one. And maybe it's going to be the TV, maybe it's going to be a portable device, like a remote.

Sujeeva Desilva -- Roth Capital Partners, LLC, Research Division -- Senior Research Analys

Thank you

Operator

Your next question comes from the line of Jaeson Schmidt. Your line is open.

Jaeson Schmidt -- Lake Street Capital Markets -- Analyst

Hey guys thanks for taking my questions, just wanted to start on the Unified Communications segment. I know you guys have some nice launches here this current quarter, but still battling from inventory issues. Do you think the inventory issue will be completed in Q3? Or do you see that bleeding into Q4 as well?

Ofer Elyakim -- Chief Executive Officer and Director

So, Jaeson. Thanks for the questions. So with respect to the inventory situation. So I can tell you that in some customers, inventory has already been fully depleted, and perhaps, we're seeing some signs of replenishment. However, we do see a pretty weak environment with respect to business investment, and we're hearing that from many of our customers. And some of our customers are also public companies, you can also get that from their results. So I believe that this phenomenon today is a lot more skewed toward the health of the business today, which I alluded, and I believe it is more of a temporary factor. And I think that kind of the inventory situation is much improved.

So we do expect to see it back to kind of normality in 2020. Again, since we have a backlog of new design wins that are supposed to go into production, and the first and the prominent one is already starting in the third quarter, again, not a very high volume, but a slow start, but still a ramp of that product, I think we are positioned very well for continued healthy growth in the unified communication market. We do have a very good backlog of these design wins with leading OEMs, and these should go from the design stage to the production stage gradually and help us see more contribution in terms of revenues.

So I think that from kind of the market perspective, situation is soft today. The inventory situation seems to be improving. And the main issue is kind of much more kind of the macro side, I believe it is temporary, and DSPG is positioned well for growth in this market in the years to come. So even taking into account all the setbacks and weakness, we do feel that we are positioned well for a moderate or small revenue growth during this year. And I think that we're positioned well for very strong revenue growth in the years to come, so 2020 and beyond.

Jaeson Schmidt -- Lake Street Capital Markets -- Analyst

Okay. That's really helpful. And congrats on the North American service provider win in the SmartHome segment. Can you help us size that potential opportunity? Should we look at some of these North American potential wins as being comparable in size to what you've seen from Deutsche Telekom and Orange?

Ofer Elyakim -- Chief Executive Officer and Director

Indeed, and perhaps even larger than that.

Jaeson Schmidt -- Lake Street Capital Markets -- Analyst

Okay perfect. Thanks guys.

Ofer Elyakim -- Chief Executive Officer and Director

Thank you

Operator

Your next question comes from the line of Charlie Anderson.

Charlie Anderson -- Analyst

Yeah thanks for taking my questions and congrats, on some of the strategic wins. I wanted to maybe tack on the last question on the North American service provider. Ofer, I wonder if you could maybe just help us understand a little bit about why you won that? Were they using a previous technology? If you could talk about that as a different use case than what they were doing before? Any more color on that would be helpful. And then I've got a follow-up.

Ofer Elyakim -- Chief Executive Officer and Director

Yes. Thanks, Charlie. So the question is around the North American service provider that we announced that is -- that has selected our ULE. And yes, this service provider has been using IoT technologies for short-range wireless communications. And I think that one of kind of the key elements that got them persuaded to switch and adopt ULE was voice, and voice is becoming more and more important for any type of IoT systems, both from the point of view of the ability to control and monitor without having to walk around with any screen to control things, but actually use very simple voice commands, whether they're local or whether they're being kind of translated in the cloud or using all kinds of skills, to voice communications, to listen in to understand environment, to analyze sounds and events.

So voice is becoming the -- one of the key sensors and one of the key ways to leverage and utilize IoT indoors. And I think that once that is happening, ULE becomes a very good option or perhaps the best option, with its interference-free spectrum, with its great range and the real natural support for voice and audio streaming. You also heard in our prepared comments that today we can stream best-in-class full-band audio over the same connection. So any device, any sensor can do all of that using just one connectivity, one radio. And I think that this is a very propelling value proposition for these guys.

Charlie Anderson -- Analyst

That's great. And then as it relates to SmartVoice, obviously, really impressive array of new wins there. I think as we look across the vendor community there, many other vendors in this space are also seeing success broadening their customer base. It seems like it's sort of a rising tide right now. I guess, I'm curious if we fast forward 3, 4 years over, do you feel like this is a multi-vendor environment where you have multiple 20% market share-type players? Or is this more of a winner-take-all market from what you can tell right now?

Ofer Elyakim -- Chief Executive Officer and Director

Sure. Thanks, Charlie. So when we look at the market of SmartVoice. If you were to ask me about smartphones, so for sure, it should be or probably will gravitate toward kind of a winner that kind of prevails and grabs a lot of market share. But when we are looking at a much more diversified market where there is a lot of products from consumer electronics from devices that are sold for $100 to devices that are sold for $10, it's very hard to position a winner that kind of takes it all. I think it will be a fairly fragmented industry. And when I say that, I mean all these devices will have a microprocessor, they will have connectivity, they will have sensing elements, in our case, a microphone.

So I think that the market will stay fragmented. And actually, that is a great opportunity for someone like DSP Group, with our DNA, crafting together a full SoC that will combine the micro control of the DSP, the algorithm, the system design, the connectivity and brings that to market. So we do see a very good and promising opportunity in the voice user interface space where we could actually leverage and integrate a lot more components together and provide kind of the next-generation of our product -- of our product road map to these markets, to these very different verticals.

And I believe that the -- we can play there. We can be very successful in monetizing a lot of these opportunities. And I think that we are also kind of unique in our position, both from the point of view of the low power and our understanding of kind of consumer electronics, our DNA, which is well rooted in voice and audio technologies and the ability to process, to plan to do all of that, in low-power consumption. The next frontier, which is kind of edge, AI. So artificial intelligence that is running locally and being processed locally. And I think that all of that kind of signals that there is a market for us to go after and be -- really create a very nice kind of market segment for us that could help us to achieve and realize the sustainable revenue growth that we've been talking about.

So I think kind of the market is coming to us, to our DNA, our capabilities, and we need to really select the battles that we want to go after, the battles where we can actually prevail and win, where we see that and each player that like us can really kind of grab market share and form a partnership with leading OEMs, where our road map and theirs align. And this is kind of the win-win that we're looking for and going after.

Charlie Anderson -- Analyst

Great. And then just a quick housekeeping, could you maybe just remind us how we should think about Q4 seasonality for the business?

Ofer Elyakim -- Chief Executive Officer and Director

So with respect to Q4. So at this very moment, our visibility into Q4 is not that great. So our kind of backlog or kind of order book is about -- is about 7 to 8 weeks ahead. We do believe though that given the momentum that we're seeing both in SmartVoice, our expectations for recovering SmartHome and some optimism about perhaps better environment in the kind of unified communication domain, we do hope to see a stable kind of Q4. When you look at kind of the comps for last year, that was actually a fairly -- a tough and challenging quarter for us. We did about $26 million. We hope that this year Q4 won't suffer from a seasonal perspective. So when we kind of are looking -- we hope that we will see kind of a more stable seasonal factor built into Q4.

Charlie Anderson -- Analyst

Okay. Right.

Ofer Elyakim -- Chief Executive Officer and Director

Thanks so much.

Charlie Anderson -- Analyst

Thank you very much

Operator

[Operator Instructions] No further question at this time. Please, continue.

Tali Chen -- Chief Marketing Officer

Thanks, operator. We would like to use this opportunity and update that during the third quarter, DSP Group will participate in Dougherty Institutional Investor Conference on September 5 in Minneapolis and in the third annual Best Ideas Growth Conference on September 12 in New York. Management will be available for group and one-on-one meetings during these conferences. Thank you for dialing in, and we look forward to report to you in the next quarter.

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Tali Chen -- Chief Marketing Officer

Ofer Elyakim -- Chief Executive Officer and Director

Dror Levy -- Corporate Vice President of Finance and Chief Financial Officer

Josh Buchalter -- Needham & Company -- Analyst

Sujeeva Desilva -- Roth Capital Partners, LLC, Research Division -- Senior Research Analys

Jaeson Schmidt -- Lake Street Capital Markets -- Analyst

Charlie Anderson -- Analyst

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