Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DSP Group Inc (NASDAQ:DSPG)
Q3 2019 Earnings Call
Nov 5, 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 Third Quarter 2019 DSP Group Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions]. I must also advise you meeting is being recorded today, on Tuesday, the 5th of November, 2019.

And I would now like to hand the conference over to your host today, Tali Chen. Please go ahead.

Tali Chen -- Corporate Vice President and Chief Marketing Officer

Thank you. Ella. Good morning, ladies and gentlemen I'm Tali Chen, Corporate Vice President and Chief Marketing Officer at DSP Group. Welcome to our third 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 fourth quarter of 2019, recovery from near term weakness in the Unified Communications product line in 2020, confidence about our sustainable revenue growth, SmartVoice being the revenue driver, optimism about our engagement pipeline and design wins and growth initiatives for the remainder of 2019 and 2020, and ramp up schedules of products incorporating our technologies and the positive impact on revenues.

We assume no obligation to update these forward-looking statements. For more information about the risks and factors that could affect the forward-looking statement 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

Thank you, Tali. Good morning everyone and thank you for joining us today. I hope that you had the opportunity to read our press release, which we distributed earlier this morning. I would like to begin by reviewing our results for the third 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 fourth quarter of 2019.

We are pleased with our third quarter financial results that were ahead of our guidance on most financial metrics. We ended the quarter with total revenues of $31 million, representing an increase of 7% on a sequential basis and a decrease of 5% year-over-year. Revenues from growth initiatives of $18.7 million, which accounted for 60% of total revenues, increased by 5% on a sequential basis, while declined by 1% versus a year ago. Growth initiatives benefited from solid results in our SmartVoice product line and a recovery in our SmartHome product line, which offset most of the expected weakness in our Unified Communications product line. Moreover, this favorable mix of products drove GAAP and non-GAAP gross margins to 50.8% and 51.2% respectively at the high end of guidance.

We're thrilled by the recent round of cutting-edge product introductions, powered by our technologies by Tier 1 customers, including commercial shipment starts of a high volume IP phone design win in the third quarter of 2019, which is expected to contribute in a meaningful way through our 2020 revenues in the Unified Communications product line, as well as other noteworthy product launches by Poly and Yealink.

Number two, record number of innovative product launches by leading Tier 1 brands, including Gopro, Lenovo, TCL and others embracing voice-user interface and AI on the edge driven by our SmartVoice technology, thereby solidifying our leadership position in three promising new market verticals, entertainment, cameras and tablets, which together accounted for over 70% of our SmartVoice revenues.

The adoption of ULE in new products and market verticals, including SmartHome, LAN controllers, home security and industrial IoT. These strategic wins, along with our exceptional pipeline of design engagements, solidify our success in transitioning ourselves into a rising voice and IoT technology company. These developments further increase our confidence that we are on the right track to return to sustainable revenue growth.

Now I'd like to move on to the business update by segment, starting with SmartVoice. During the third quarter, we generated revenues of $5 million from sales of SmartVoice products, representing a year-over-year increase of 64% and a sequential decrease of 7% following a record second quarter. We continue to expand our product reach and establish our leadership in three market segments; entertainment, which includes remote control set top boxes and TVs; tablets and cameras, that in aggregate accounted for over 70% of total SmartVoice segment revenues This achievement is further demonstrated by a record pace of innovative product launches by leading Tier 1 customers.

In the camera market, we saw a record number of new and innovative products that leverage our SmartVoice solution to deliver natural, robust and high quality far field and two way voice capabilities, including GoPro that launched its HERO8 Black, with high fidelity audio using three microphones, and best-in-class wind noise suppression, and its cutting edge camera, the MAX, featuring 360 degrees audio, combining inputs from six microphones, using our low power DSP and our multi-core machine learning SoC. The launch of three new IP camera products by a leading IP camera OEM.

Number 2, we continue to enhance our leadership position in the PC tablet market, and reached a record number of 17 different tablets model by leading consumer brands based on our SmartVoice technology, including Lenovo's launch of its Google Voice Assistant enabled Yoga Smart Tab and it's M8 Smart Tab. TCL's launch of its Alcatel 3T 10, and a leading mobile OEM that launched another new line of tablets, based on our solution.

Number 3, in the entertainment domain; a number of new device launches, including a highly innovative high quality video communication product by a leading North American platform company; and moreover, we formed a partnership with DSP Concepts, a leading provider of audio development tools and IPs to deliver accurate, highly reliable 360 degrees far field voice controls for applications such as TVs, set top boxes, home gateways and soundbars, that often operate in high noise environment.

Lastly, a leading Chinese platform vendor selected our SmartVoice solution for its new hands-free voice-enabled remote control. These wins, combined with recent wins in the smartphone market, including two new models by Oppo, the Reno2 and the Realme X2 continue to demonstrate the depth, strength and diversity of our SmartVoice franchise and our ability to drive down power consumption, while raising the bar on quality and performance for its devices.

A good example of this capability is our newly launched DBMD7 platform, which drive high quality audio and machine learning by leveraging an advanced low-power multi-core architecture. The DBMD7 is an ideal edge AI processor at the time during which more content and data are being generated by EDGE devices, with a myriad of highly integrated sensors. With rapidly increasing complete performance from [Indecipherable], now available in these EDGE devices, many applications and capabilities that once could have relied on a gateway, a remote server, or cloud connection, can now be performed locally. As a result, more complex analysis and AI processing on the EDGE devices are now possible with zero latency, with a much higher degree of security, and with more efficient use of available bandwidth, with advanced processing, migrating from the cloud to the EDGE. Our customers are taking advantage of our solutions' unique combination of high performance and low power consumption, and are using them as platforms upon which to develop advanced, context aware, audio and voice processing applications We believe that our SmartVoice business will continue to be a pivotal growth driver, powering a broad array of exciting new applications.

Moving on to the Unified Communications segment. Third quarter Unified Communications revenues of $10 million increased by 13% on a sequential basis, while declining 18% a year-over-year, impacted by an expected near-term weakness. At the same time, we continue to strengthen our leadership position in the Unified Communications market, and expand our reach into new customers and product categories.

A few notable achievements include, the commercial shipments starts of a high volume design win in the third quarter. This product is expected to contribute in a meaningful way to our 2020 revenues. Poly that launched its VVX D230, a DECT IP Phone, based on our DVF99 SoC. Yealink launched its W80B, an enterprise DECT IP multi-cell system, based on our DCX81 and a major Chinese vendor that launched a line of new IP phones based on our DVF SoC.

The Unified Communications market has been negatively impacted this year by a buildup of higher level of inventories, in preparation of the U.S.-China trade war and further exacerbated by weaker-than-expected demand for end products, as IT spending by businesses softened during the past two quarters. However, based on feedback received from customers, our promising design pipeline and new wins, we remain confident that we are positioned well for outperformance and revenue growth in 2020.

Turning to our SmartHome product line; during the third quarter, we generated SmartHome revenues of $3.8 million, representing a year-over-year increase of 1% and a sequential increase of 4%. The SmartHome product line comprises of DECT ULE SoCs that are integrated into home gateways and IoT sensors. We are very pleased by the improving business trends and solid traction for SmartHome products and expect the positive momentum to pick up in the fourth quarter.

During the quarter, we had the privilege of hosting Orange and Deutsche Telekom in a privately hosted event at the IFA in summer electronics trade show in Berlin, during which both shared their Smart Home journey, and the reasons for selecting ULE as the primary IoT technology. The excitement around ULE was palpable, as its potential was being more widely realized, as IoT connectivity and voice user interface vastly converge. We are pleased to see ULEs increasing adoption and growing ecosystem, as evidenced by the following wins and product launches. A leading home automation company in Europe integrated ULE into it's blinds, motors solution. This is a new product category for ULE, and is a testimony to the momentum around ULE, and the need for more ULE supported products.

A leading European OEM launched a new ULE based light bulb, as part of its successful SmartHome offering in Europe. And an industrial IoT company selected our ULE technology for its cutting edge factory automation solution that was launched during the third quarter. We are optimistic about the design momentum and growth of this product category in 2019 and beyond, on the heels of a strong traction for ULE in both Europe and the U.S.

And now for an update on the cordless phone market; our third quarter cordless phone revenues was in line with our expectations. Cordless revenues declined by 10% year-over-year to $12.3 million and accounted for 40% of total third quarter revenues.

Now for an update on our outlook for the fourth quarter; taking into account forecasts received from our customers and our own assessment; we expect our fourth quarter revenues to be in the range of $28 million to $30 million. The midpoint of this guidance range implies a year-over-year revenue growth of 11%, driven by solid demand for our SmartVoice and SmartHome products and our expectations for year-over-year revenue growth in the Unified Communications product lines, which together, more than offset the expected cordless market decline.

The midpoint of the guidance also implies that growth initiatives should account for 64% to 68% of our fourth quarter revenue. To summarize, we are excited by the market response to our new products and technologies, and believe they will solidify and pave our future success, driven by solid pipeline of design wins with leading OEMs, which are expected to materialize gradually during the remainder of the year and in more significant way in 2020.

Now I would like turn the call over to Dror, our Chief Financial Officer. 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 third quarter of 2019 from top to bottom. For each line item. I will provide the U.S. GAAP results, as well as the equity-based compensation expenses included in that line item, as expenses related to previous acquisitions and the exchange rate differences related to new accounting standards related to long-term leases.

Our revenues for the third quarter of 2019 were $31 million. Gross margin for the quarter was 50.8%. Gross margin for the quarter, included equity-based compensation expenses in the amount of $0.1 million. R&D expenses were $9.2 million, including equity-based compensation expenses in the amount of $0.7 million. Operating expenses for the quarter were $16 million, including equity-based compensation expenses in the amount of $1.8 million, and amortization of acquired intangible assets in the amount of $0.1 million.

Financial income for the quarter was $0.4 million. The financial income for the quarter included $0.2 million of exchange rate differences related to a new accounting standard related to long-term leases. These exchange rate differences were excluded from our GAAP results for the quarter. Income tax benefit for the quarter was $0.3 million and include a tax benefit resulting from changes in deferred taxes related to intangible assets, and equity-based compensation in the amount of $0.1 million.

Our net income was $0.5 million, including equity-based compensation expenses of $1.9 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. Non-GAAP net income excluding these items that I described was $2.5 million for the quarter. GAAP diluted earnings per share for the quarter was $0.02. The negative impact of equity-based compensation expenses on EPS was $0.07. 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 deferred taxes on the EPS was $0.01. Non-GAAP diluted earnings per share, excluding these items that I described was $0.10 for the quarter. Please see the current report on Form 8-K that we filed with the SEC this morning, for a full reconciliation of non-GAAP presentation to the GAAP presentation.

Now turning to the balance sheet. Our accounts receivables at the end of the third quarter of 2019 increased to $21.6 million compared to $17.1 million at the end of the second quarter, representing a level of 63 days of sales. Inventory decreased from $9.2 million at the end of the second quarter to $8.7 million, representing a level of 53 days. Our cash and marketable securities decreased by $1 million during the third quarter, and were at a level of $120.9 million as of September 30, 2019.

Our cash and marketable securities position during the quarter was affected by the following; $0.2 million of cash was provided by operations. $1.4 million of cash was used for purchase of property and equipment. $0.1 million of cash received from exercise of options by employees; and $0.1 million was an increase in market value and amortization of marketable securities.

I'd like to provide you with our projections for the fourth quarter of 2019. Our fourth 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 $28 million to $30 million. We expect our gross margin to be in the range of 49% and 51%. R&D expenses are expected to be in the range of $9 million to $10 million. Operating expenses are expected to be in the range of $15.5 million to $17 million. Financial income is expected to be in the range of $0.5 million to $0.7 million. We expect a tax benefit of approximately $0.2 million on a non-GAAP basis, and our shares outstanding are expected to be in the range of 24 million shares to 25 million shares.

Our fourth quarter projections include; $0.1 million of amortization of intangible assets, and also includes the following amounts forecasted for equity-based compensation expenses; cost of goods sold include $0.1 million. R&D expenses include $0.5 million to $0.7 million; and operating expenses include $1.6 million to $1.8 million.

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

Questions and Answers:

Operator

[Operator Instructions]. And your first request is from the line of Matt Ramsay. Please go ahead.

Matt Ramsay -- Cowen and Company -- Analyst

Thank you very much guys. I guess Ofer, one of the things that I wanted to ask you about is, the voice business obviously had some challenges. In your script, you talked about some of the inventory correction and things that have gone on in the market. Maybe you could give us a little bit more granular insight as to how you're seeing trends in that business from sort of a design win and pipeline point of view of products with the big customers, and what gives the visibility that that market does improve, as we go into next year, given it's a pretty big part of the P&L now? Thank you.

Ofer Elyakim -- Chief Executive Officer

Thank you, Matt. So with respect to the Voice-over-IP and the Unified Communications business line, what we have seen at the beginning of the year was the buildup of of inventories in anticipation of these trade tensions and preparation for the ability to sell products and escaping the potential tariff. And I believe that across the supply chain, inventory was built, in order to support that. And that is just as a one factor, in a way limited or created a limit to the demand.

Number two, the other factor, and I think we've seen it over the last two GDP reports is the slowdown in business investments, and this is kind of very clear, if you look at the Q2 and Q3, U.S. GDP, and I can tell that in Europe, business investment is already negative. So I think that both of these are kind of created like a double crunch and kind of limited the levels of demand -- reduces the levels of the levels of demand.

Now when we look at the fourth quarter; first of all, we do expect to see a return to year-over-year revenue growth. This is point number one. Point number two, is that as we've updated you for the last I think two quarters, we did secure a fairly significant design win, which is both high volume and high value, that it gives us all the confidence we need that despite the market situation and the lackluster demand by businesses, we are well positioned for growth next year. As you know, this is a fairly significant design, probably one of the largest, if not the largest in this industry.

So this is -- so roughly, when you think about us in this market, we are growing by increasing our market share in the Unified Communications business, and in a way we can grow and outperform kind of the market growth or decline.

Matt Ramsay -- Cowen and Company -- Analyst

Got it. That's really helpful color there. And as my follow-up question, I wanted to talk about the smartphone -- the SmartVoice business and good to see that we're making a ton of progress there. I wanted to talk, as you look out, Ofer, over the next -- I don't know 18 to 24 months, you feel like that business growth is going to be driven by sort of smartphone and smarwatch type applications with some of the bigger customers, or is this a business that's going to likely be driven and the growth will be driven by a more diverse set of sort of non-concentrated design wins? Thank you.

Ofer Elyakim -- Chief Executive Officer

Sure. Thanks, Matt. So with respect to our SmartVoice business, what we have been doing over the last couple of years, is trying to build a much more diversified business, whereby we diversify both from the customer standpoint, as well as from the category standpoint. We believe that voice as user interface and the processing of audio and acoustic on the EDGE is not just a matter of the single device category, let it be smart or wearable, it's actually broad based and we see voice as a user interface, and today, a lot of kind of the acoustic classifiers, entering into almost any type of consumer electronic category; from appliances to kind of smart devices, a pretty much broad base. And I think that when we are looking at kind of where we deliver value and the problems that we solve, we would like to see ourselves as a vendor, as a merchant silicon vendor that can address all of these opportunities, and we see a lot of opportunities.

As you can see during this past year, we've built quite a franchise in three major markets. One is the cameras side; another one is in the tablet PC market; and the third is in the entertainment market. These markets were fairly small revenue drivers for us in 2018 and this year, as you can see from the third quarter, it's over 70% of the total revenue and in the second quarter, they comprise around 60%. So I would tend to believe that our growth -- continued growth in this market will come from a diversity of different products, and for sure, yes, smartphone as it runs a lot of volume, will still be an important category as well as wearables, but I believe that we are also going to continue and diversify into many additional product category. For instance, I would say that one of the -- it's very clear, products that are going to become and other vertical is the hearable or the headset market. All the true wireless type of headsets that we're seeing launch in the market. All of these are also going to embrace a lot of voice user interface and acoustic detection and AI on the EDGE, a lot of things that I believe DSP Group could be a leading vendor for and this is another product category that I believe that we will be addressing in the next couple of years by us, with our new product portfolio.

Matt Ramsay -- Cowen and Company -- Analyst

Thank you very much, Ofer. I'll get back in the queue. Appreciate it.

Operator

Thank you. Your next question is from the line of Rajiv Gill. Please go ahead.

Rajvindra Gill -- Needham -- Analyst

Thank you and congrats on the strength and the growth [Speech Overlap]. Question on the gross margin profile of the company going forward. So with the gross margins starting to kind of inflect and moving higher, as the growth drivers represent about 60% of revenue. Are there more kind of drivers to the margins going into 2020? How do we think about gross margins over the next one to two years? Any thoughts on kind of other drivers to margins, now that we have about 60% is growth versus 40% was legacy?

Ofer Elyakim -- Chief Executive Officer

Yes. Thanks Rajiv. Thanks for the question about the gross margin. So as you have seen, there has been a very direct correlation between the percentage of growth initiatives as a percent of our revenues, and the gross margin trend line, and you can see it in our infographics and in our investor presentation, and we've been able to drive gross margins from the mid 30s now to a 50% range. And I think that a lot of it had to do with the fact that we have presented and introduced new valuable technologies to the market, and with those, we were able to drive our gross margins higher. And even today, when we are looking at the mix of the 40% cordless, 60% growth initiatives. Still cordless is running at much lower gross margins compared to our corporate average, and the growth initiatives are running higher. So from that perspective, yes as the trend line continues and as our revenues will be more strongly skewed toward growth initiatives, we believe there is room for gross margin expansion.

Now there are two additional things that you want to bear in mind when you think about gross margins. One is revenue growth. In our cost of goods, not all the costs are completely variable. There are some fixed components. So as revenue growth becomes a driver in our P&L, our gross margins will improve as a result, because the fixed part of the cost of goods are not going to change by that much. And so their factor on the overall cost of goods will be lower, hence, margins are going to move higher. And the third part is, and I think that you are also able to see that in our reports over the past year -- we are gradually moving into a much more kind of higher content, higher value market segment. So in all of the markets that we've entered, we started from the fairly low end a place where you earn the least ASP and it's kind of the most competitive area. And gradually by demonstrating our capabilities, by driving performance and quality, we are gradually moving higher to much higher, more lucrative product segments, where we can earn more for the technology that we bring, and the capabilities, our voice engines, our low power, our AI on the EDGE accelerators. Our noise cancellation, all of the things, and the attributes that DSPG is bringing to the table, are today earning a much higher -- a price in the sockets that we're competing for.

Rajvindra Gill -- Needham -- Analyst

Yeah, that's very helpful. Thank you. And in terms of your competitive positioning in SmartVoice, clearly voice processing, noise cancellation are starting to pick up in these devices. Wanted to get your sense in terms of the competitive dynamics and on the smartphone side, and other opportunities in the wireline and untethered earphone market, where we are seeing a lot of traction with, for instance, the Apple AirPods Pros, for your noise cancellation or any of your voice processing capability in that market, if it were?

Ofer Elyakim -- Chief Executive Officer

Yeah, thanks for that. So with respect to our SmartVoice business. First of all, and I think that you've seen it in our comments during the last three quarters. We see a lot of convergence. So whatever is being done in delivering excellent quality, low power voice user interface with a lot of the excellent far field capabilities, is not only a matter of kind of the consumer product, its basically much more broad base. You find it today in enterprise products, you find it in industrial products, you find it everywhere. And so, our SmartHome franchise is becoming more successful, because voice user interface is in demand, and together with ULE, you get kind of the winning combination. In the Unified Communications market, our SmartVoice product are being introduced and embraced. And as well as in the kind of general kind of consumer product market, as you've seen and heard from our comments earlier. So we believe that we are well positioned in this domain, both from the fact that we have the ability to converge this technology with many other technologies that we have in-house. This is the DNA that we came from and our ability to do that across multi-segment, multi-customer is proven. So when I think about kind of the future and I think about smartphones and I think about the headset market, I see a great opportunity for a company like DSPG to continue and make excellent progress, and deliver a lot of innovation and enable our customers to provide a much better, higher quality product.

Rajvindra Gill -- Needham -- Analyst

Great, thank you very much.

Operator

Thank you. Your next question is from the line of Charlie Anderson. Please go ahead.

Charles Anderson -- Dougherty and Company -- Analyst

Yeah, thanks for taking my questions and congrats on the great results. Ofer, wanted to start on ULE. I wonder if you can maybe just update us on the North American win that you had described maybe a few calls ago, kind of where that stands in terms of ramp? And then just generally the pipeline for ULE opportunities, then I've got a follow-up?

Ofer Elyakim -- Chief Executive Officer

Yeah, absolutely. Thank you, Charlie. So with respect to the U.S. service provider opportunity, what we have updated you in the previous quarter, in second quarter, was that we have a one fairly strategic and we believe that it's a very important win in the U.S., as we started focusing our marketing efforts on the U.S. market. And we believe that this service provider represent for us a very strong in good opportunity to bring the technology and to get it much more widely embraced in the market.

Now is this design and this engagement is ongoing. We believe that it is on track to launch in the first half of 2020, and we have, I think very good expectations from kind of the same. The business momentum that we can generate from that, we feel that the customer feels very highly about the decision to go with ULE, on the expense of some other technologies that were under consideration. We believe the fact that voice user interface and voice communication is becoming a very important part of driving SmartHome and smart security services, ULE definitely have a great room and place to grow and getting embraced by wider array of devices, service providers etcetera, etcetera. So we feel very strongly, we feel we're on track, we are supposed to start seeing the results in the first half.

Charles Anderson -- Dougherty and Company -- Analyst

Great. And then for my follow up, I was kind of curious that use of cash. I don't know if I caught -- if there was any share buybacks in the quarter. But maybe just update us on capital allocation, use of cash, as it relates to buyback versus M&A you may be looking at; any update there would be helpful? Thanks.

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

Yes. So for buybacks we did not do any buybacks during this quarter. Actually, with our -- the latest spend that we initiated was about a year ago, and was initiated when the prices were much lower. So currently, the plan is running way below what -- the threshold is actually well below the current share price. So we are not buying back based on the 10b5 plan that we have. This is situation for that. We did end the quarter, as I said, with a positive cash flow from operations, and we expect that this will continue throughout the year. So overall for Q4, we also expect to earn the related cash flow from operations and to increase the total level of cash and securities of the company.

As for acquisitions, of course, there is nothing that we could update now. But certainly this is something that we are looking into and that we are open now. But as Ofer said the business is more stable. We are now looking into additional ways to grow the business, and this is certainly something that is also on our plate now [Phonetic].

Charles Anderson -- Dougherty and Company -- Analyst

Great, thanks so much.

Operator

Thank you. Your next question is from the line of Suji Desilva. Please go ahead.

Suji Desilva -- ROTH Capital -- Analyst

Hi Ofer, hi Dror. Just a real quick question on the fourth quarter guidance, and the decline sequential. Can you talk about how the four segments progress roughly in that decline?

Ofer Elyakim -- Chief Executive Officer

Yes. Hi Suji. So with respect to our fourth quarter, with regards -- so what we did say is that, kind of we guiding for $28 million to $30 million, which at the midpoint, suggests that an 11% year-over-year growth or $29 million at the midpoint, which is lower than -- sequentially lower than the $31 million for the third quarter. Now when we look at kind of the mix, we are looking at about -- generating about two-thirds of the revenues from the growth initiatives, and we're seeing, I would say, fairly kind of strong momentum, in both the SmartHome and the SmartVoice product line. We are expecting to see a recovery, a year-over-year recovery in the Unified Communications segment, which is I believe a good indication. Even though, when you look at the numbers last year, they kind of -- they did suffer from the buildup of the inventory. But still, you know we're seeing a pickup in Q4 year-over-year.

So in a way all kind of three segments are expected to grow. Some modestly, some more significantly. And cordless is expected to continue and decline in the fourth quarter. And you know, this is kind of the mix and kind of the trend lines.

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

So Suji, just to add on this one. So, if you will take the midpoint of our guidance for the total growth initiatives. so you will see that most or all of the decline between Q3 to Q4 is coming from cordless. So the total new product growth initiatives are actually slightly growing, and cordless is declining between the third and the fourth.

Suji Desilva -- ROTH Capital -- Analyst

Great, that's helpful color for sure. And then the SmartVoice segment, what is the kind of mix of smartphone, non-smartphone you expect longer term, as you seem to diversify it. And do you have the kind of employee and channel infrastructure in place to support the many categories you seem to be going into, versus having kind of done with large smartphone customers in the past?

Ofer Elyakim -- Chief Executive Officer

Yes. Thanks Suji. So with respect to the SmartVoice business, we ended this quarter with a mix of -- about 70% of the revenues came from non-smartphone products, and 30% -- less than 30% came from smartphone products. We believe that this is going to -- 75-25 or this type of three quarter, one quarter skewed toward the non-smartphone, is kind of probably the right way to look at us going forward. Now, you are absolutely right, that when we are looking at such a mix, it does mean that a lot of the products and the designs that we're going to engage with are not going to be as large on a per product basis, as a win -- as a major win in the smartphone market, and this is absolutely true.

However, what we have done with respect to the last couple of years as we prepared ourselves for this diversification and actually drove it; we have built the ability to support a large number of product using very common SDK solutions that we're providing to our customers. We're also supported by a pretty significant ecosystem of partners from design houses, model vendors value added resellers etcetera, that are significantly strengthening and enable us to really leverage the technology that we bring, and deliver over a much broader based customer base. So I believe that we're well equipped to continue and grow the business, despite the fact that you know about three quarters of the business will come from, I would say, a less volatile part of the market, that in a way, can help us you know dissolve a lot of the volatility that is happening in the other fourth -- in the other quarter that is kind of much more volatile, and you know and where you need to be in the context every other quarter to a business that is managed in a more consolidated manner and in a more stable, we hope, trend line.

Suji Desilva -- ROTH Capital -- Analyst

Okay. And then last quick question on SmartVoice, 70% is non-smartphone. Is any one of the three categories, camera, tablet or entertainment dominating that, or is it roughly spread out? And for tablet, is notebook PC an opportunity, because that would be a large unit TAM? Thanks.

Ofer Elyakim -- Chief Executive Officer

Yes, thanks. Suji, so I think that the, none of the categories dominate you know 70%. Over a larger than 70%. So I would say that you can think about it as split equally between these categories, and then you put another -- other category for a smart speakers, and IoT, which probably is about kind of 10% of the over 70%, so you can say about 20% for each of these categories, cameras, entertainment and tablets. Now when we are looking at the tablet PC market, definitely, we believe that there is a very good potential for us to continue and expand in this product category. We believe that far field voice is going to become a mandatory feature from a perspective of voice user interface in this product line. Just when you're thinking about the tablet in the voices or interface category, the notion is that you do not consider that as a personal device, but much more as the center -- as the main controller that is driving Smart Security, a SmartHome you know, all the kind of the audio playback in your home, and this is the place where you're in a way -- on one hand, stating the command, but on the other hand, you know, using the touchscreen to see exactly what is being -- what is going on and in a way kind of having two user interfaces in front of you. And in order to do that, you need the capability to drive it from a kind of much more of a far field rather, than a near field.

So we believe that there will be a fly to kind of much higher quality and demand for more advanced features in this domain, and this will create -- and it's already creating fairly good opportunities for us, to kind of penetrate deeper into the kind of the PC tablet market, or as we define it, kind of the netbook [Indecipherable].

Suji Desilva -- ROTH Capital -- Analyst

Thanks guys.

Operator

[Operator Instructions]. And your next question is from the line of Jaeson Schmidt . Please go ahead. Jaeson, your line is open, please ask your question. The caller has actually disconnected. [Operator Instructions]. And it appears we have no further questions at this time. [Operator Instructions]. There are no further requests at this time, please continue.

Tali Chen -- Corporate Vice President and Chief Marketing Officer

Thanks, operator. During the fourth quarter, DSP Group will participate in ROTH New Industrial and Technology Day on November 13 in New York. At this point, I would like to close the call. Thank you for listening in and for your interest in DSP Group. We look forward to report back to you in 90 days.

Operator

[Operator Closing Remarks].

Duration: 49 minutes

Call participants:

Tali Chen -- Corporate Vice President and Chief Marketing Officer

Ofer Elyakim -- Chief Executive Officer

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

Matt Ramsay -- Cowen and Company -- Analyst

Rajvindra Gill -- Needham -- Analyst

Charles Anderson -- Dougherty and Company -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

More DSPG analysis

All earnings call transcripts

AlphaStreet Logo