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DSP Group Inc (NASDAQ:DSPG)
Q4 2019 Earnings Call
Feb 3, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for holding, and welcome to the Q4 and Full Year 2019 DSP Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I must advice you that this conference is being recorded today.

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

Tali Chen -- Corporate Vice President and 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 fourth quarter and full year 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 first quarter of 2020, revenue growth in 2020, growth initiatives being on an upward trajectory and being primary revenue drivers, optimism about our engagement pipeline with strategic customers, recovery of Unified Communications segment in 2020, and momentum and growth of ULE in Europe and the US. 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 factor 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 thanks 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 fourth quarter and the full year, then commenting on the progression of our business plan, and finally, providing context for our outlook. In a short while, Dror will provide you with detailed comments about our financial results for the fourth quarter and the full year, and our outlook for the first quarter of 2020.

Our fourth quarter results were ahead of guidance on most financial metrics. Revenues of $29.3 million grew by 12% year-over-year, while declined by 6% on a sequential basis. We ended the quarter with record high revenues from growth initiatives, reaching $19.6 million and accounting for two-thirds of our revenues. This accomplishment drove quarterly GAAP and non-GAAP gross margin expansion to 50.9% and 51.2% respectively. Growth initiatives benefited from solid momentum across all product segments. SmartVoice, SmartHome and Unified Communications each grew by 21%, 63% and 17% year-over-year, respectively.

With annual revenues of $73.8 million from growth initiatives, representing 63% of total revenues and driving gross margins to a sustainable level of 50% plus throughout the quarters, 2019 marks the year in which DSP Group succeeded in positioning itself as a leading voice AI and IoT technology company while maintaining solid engineering and financial discipline.

We ended the year with revenues of $117.6 million flat on a year-over-year basis and despite the demand shortfall in the Unified Communication segment that we experienced in 2019, growth initiative revenues still increased by 15% year-over-year, surpassing the revenue growth level in 2018 of 12% and driving annual GAAP and non-GAAP gross margins to a record high of 50.6% and 51% respectively.

Lastly, during the year, we generated $10.5 million of cash flows from operations and ended the year with a cash balance of $131 million. We are thrilled by the momentum and acceptance of our new products and technologies and excited about the number of new engagements we have secured with strategic customers.

At CES 2020 in January, the voice user interface and AI took center stage and our solutions were are an integral part of that. During the show, we successfully demonstrated our leadership and best-in-class technologies for voice AI and IoT. Moreover, we presented a record number of newly launched products by leading consumer brands, Tier 1 service providers and leading OEMs integrating our SmartVoice, SmartHome, and Unified Communications products across IoT, mobile computing, enterprise, and hearables applications and here are a few examples. Today, our

Operator

Our SmartVoice solutions are driving voice UI and AI in a broad array of applications, with over 80 products by 40 plus vendors, including Tier 1 brands such as Arlo, Facebook, GoPro, Logitech, Lenovo, Samsung and TCL that leverage our voice and AI solutions to design and bring to market highly differentiated and innovative products.

In our SmartHome segment, three leading Tier 1 service providers selected our ULE product as their primary wireless IoT technology, including Orange in France and ADT in the US and driving more OEMs and ODMs to take an active role in the growing ULE ecosystem.

In the Unified Communications, we established our leadership position by securing engagements with all of the Top 7 leading enterprise OEMs, including Cisco, Avaya, Poly, Yealink, Mitel, ALE and NEC. These strategic achievements, along with our exceptional pipeline of design engagements, solidify our success and validate that our growth initiatives will continue their upward trajectory and become the primary driver of our business going forward.

Now, I'd like to move on to the business update by segment, starting with SmartVoice. During the quarter, we generated revenues of approximately $4.9 million from sales of SmartVoice products, representing a year-over-year growth of 21% versus the fourth quarter of 2018, while representing a decline of 1% on a sequential basis. We are delighted with the performance of the SmartVoice segment in 2019 reaching record revenues of $19.3 million and growing by 78% versus 2018.

During the quarter, we continued to expand our product reach and engagements with leading consumer electronic brands as demonstrated by the following new product launches. Facebook launched a highly innovative video conferencing system, its Portal TV, integrating our high-performance advance audio and machine learning SoC. Leviton launched its Decora Dimmer with Alexa Voice Services support, leveraging our audio voice SoC coupled with our voice processing algorithms, featuring noise reduction, beamforming and echo cancellation. The hardware and the algorithms are optimized for small footprint far field performance and low cost. Nortek selected our SmartVoice products for its Numera Libris Personal Emergency Response System, supporting long battery life while adding always listening features. These achievements, coupled with the recent wins in the smartphone market, including the newly launched Oppo K2 smartphone, 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 edge devices.

At CES, we demonstrated how we are leveraging our voice expertise to create innovative AI solutions as the next frontier in machine learning is now applied to voice. As more AI processing gets performed at the edge to address privacy concerns, reduce latency and to make better use of available bandwidth, more efficient hardware and associated algorithms must be tightly coupled and optimized to meet consumers' requirements. We will continue to enrich our product portfolio with the suite of algorithms and hardware that address the rising need to create increasingly accurate AI solutions for edge devices, for applications such as sound detection, proximity, acoustic beaconing and more, all while maintaining the lowest power consumption. 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. In the fourth quarter, we achieved revenues of $10 million, representing a year-over-year increase of 17% while flat on a sequential basis. We ended the year with revenues of $38.1 million, representing a year-over-year decrease of 2% and while we are disappointed by this result and attribute the revenue shortfall mainly to a delay in timing of orders originating from uncertainties related to trade war concerns as well as weakness in enterprise IT spending, we remain highly confident in the recovery of this segment this year, propelled by the high volume design we secured into 2019 that already commenced mass shipment and is expected to contribute in a meaningful way to our 2020 revenues as well as additional designs we secured including Tier 1 OEM and two other ODMs that launched new lines of IP phones with dual color displays, Tier 1 OEM that launched a new series of IP phones for the UCaaS market to complement its own premise portfolio.

Based on our engagement pipeline, we are confident that we are positioned well for outperformance and revenue growth in the Unified Communications segments this year.

Turning to our SmartHome product line. During the fourth quarter, we generated $4.7 million in revenues, representing a year-over-year increase of 63% and an increase of 23% on a sequential basis. Full year Smart Home revenues of $16.3 million grew by 12% year-over-year. During the quarter, we accomplished a milestone event for DSP Group and secured our first significant win in the US which should pave the path for ULE's broad market adoption in the Americas. ADT, a leading US security service provider announced that it has selected our ULE technology as its primary connectivity for its new wireless security offering. The system, which was demonstrated at CES, includes a line-up of IoT sensors, as well as a hub and camera. And moreover, some of these devices will also incorporate our SmartVoice technology. We are excited by the momentum of the ULE technology and expect this achievement to propel faster expansion of the ULE ecosystem with additional products and brands as well as adoption by additional leading service provider. This momentum is also evidenced by the following wins and new product launches.

Golden Mark selected our ULE technology, for its new line of wireless smart home devices, including an in-wall dimmer, in-wall switch, plug-in dimmer, plug-in switch and water leak detector. Ooma launched a Smart Security Keypad based on our ULE technology. The keypad allows control of Ooma's Smart Security system that already includes a siren as well as a motion sensor, door/window sensor, a water sensor to detect leaks and a garage door sensor, all of which run our ULE technology. We're optimistic about the design momentum and growth of this product category in 2020 and beyond on the heels of a strong traction for ULE, both in Europe and the US.

And now, to an update on the cordless phone market. Our fourth quarter cordless phone revenue was in line with our expectations. Cordless revenues declined by 8% year-over-year to $9.7 million and accounted for only 33% of total fourth quarter revenues. For the full year 2019, our cordless business generated revenues of $43.9 million, representing a decline of 18% year-over-year, which is in line with the secular decline pattern of 15% to 20%. We continue to prudently manage this cash leverage business and reinvest its profit to fuel future growth in our well-performing growth initiatives.

Now, for an update on our outlook for the first quarter. Taking into account the focus we receive from customers and our own assessment, we expect our first 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 3%. The midpoint of the guidance also implies that growth initiatives should account for 60% to 64% of our first quarter revenues.

To summarize, we are excited by the market response to our products and technologies Products and technologies, as well as the growing number of Tier 1 engagements. We believe that these accomplishments will solidify our future success on the heels of a strong pipeline of design wins, which are expected to contribute to solid performance and revenue growth this year. 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 fourth quarter of 2019 on top to bottom. For each line item, I will provide the US GAAP results, as well as equity-based compensation expenses included in that line item, the expenses related to previous acquisition, and the exchange rate differences related to a new accounting standard related to long-term leases.

Our revenues for the fourth quarter of 2019 were $29.3 million. Gross margin for the quarter was 50.9%. Gross margin for the quarter included an equity-based compensation expenses in the amount of $0.1 million. R&D expenses were $8.8 million, including equity-based compensation expenses in the amount of $0.6 million. Operating expenses for the quarter were $16.1 million, including equity-based compensation expenses in the amount of $1.7 million [Phonetic], and the amortization of acquired intangible assets in the amount of $0.1 million.

Financial income for the quarter was $0.5 million. Financial income for the quarter included $0.1 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 $0.6 million and included tax benefit resulted from changes in deferred taxes, related to intangible assets and equity-based compensation expenses in the net amount of $0.3 million. Net loss was $0.1 million, including equity-based compensation expenses of $1.8 million, amortization of intangible assets of $0.1 million, exchange rate differences in the amount of $0.1 million, and the tax benefit effect of $0.3 million. Non-GAAP net income excluding these items that just described, was $1.6 million for the quarter. With no GAAP earnings per share for the quarter, the negative impact of equity-based compensation expenses on the EPS was $0.07. The positive income of the deferred taxes on the EPS was $0.01 and the non-GAAP diluted earnings per share excluding these items that just described, was $0.06 per share.

Please see the current report on Form 8-K that we filed with SEC this morning for a full reconciliation [Phonetic] of the non-GAAP presentation to the GAAP presentation.

Now, turning to the balance sheet. Our accounts receivable in the end of the fourth quarter of 2019 decreased to $15.4 million compared to $21.6 million at the end of the third quarter, representing a level of 47 days of sales. Our inventory decreased from $8.7 million at the end of the third quarter to $7.5 million, representing a level of 47 days. Our cash and marketable securities increased by $10.4 million during the fourth quarter and were at the level of $131.3 million as of December 31. Our cash and marketable securities position during the quarter was affected by the following: $10.8 million of cash was provided by operations; $0.3 million of cash was used for purchase of property and equipment; $0.1 million of cash received from exercises of options by employees; $0.2 million was the change in the market value and amortization of multiple securities.

Now, I would like to provide you with our projections for the first quarter of 2020. Our first quarter projections, including the impact of equity-based compensation expenses and acquisition-related 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 50% and 52%. R&D expected -- are expected to be higher than our run rate in the range of $10 million to $11 million. For the remainder of the year, R&D expenses are expected to be back to the level of $8 million to $10 million per quarter. Operating expenses are expected to be in the range of $17 million to $19 million. Financial income is expected to be in the range of $500,000 to $700,000 [Phonetic]. We do not expect to have any taxes on income or tax benefit for the quarter on a non-GAAP basis. And our share outstanding expected to be in the range of 24 million shares to 25 million shares.

Our first quarter projections include $0.1 million of amortization of intangible assets. Our first 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 $0.7 million to $0.9 million; and total operating expenses include $1.9 million to $2.1 million.

And now, I would like to open up the line for question and answers. Operator, please.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] And your first question comes from the line of Matt Ramsay from Cowen. Please go ahead, your line is open.

Matt Ramsay -- Cowen -- Analyst

Thank you very much. Ofer, it was -- obviously, at CES as well, great to hear about the ADT design win and it seems like ULE is starting to get a little bit of a foothold. Maybe you could talk a bit about your expectations for the size of that design win as it rolls out?

And then secondly, if I'm not mistaken, I think it's on there -- DIY platform and maybe you could talk, if there's opportunities on, sort of, the mainstream platform at ADT and as well and what the differences might be in between our mainstream platform and the DIY one? Thank you.

Ofer Elyakim -- Chief Executive Officer

Hi, Matt, and thanks for your question. So, relating to the ULE momentum, indeed we are excited. For the last couple of years, the ULE was a phenomena that was mainly a European one where we were mainly addressing and designing the technology with leading both security and telecom, so its providers and today have both Verisure which is part of securitized direct and the entire SmartHome -- Magenta SmartHome of Deutsche Telekom and also Maison Connect and Maison Protegee which are the smart home and secured home of Orange that are all based on the ULE technology. And actually during 2019, we've made significant efforts to market and promote the technology in the US and we believe that the technology's unique characteristics in the form of its natural support for voice and voice is a key requirement for the security service providers. It is today a very important use case that will be deployed and used by all major security service providers.

And when we look at this domain, we do see in a way two different markets that are today addressed by many different security vendors, both coming from the do-it-yourself and this is the ability to purchase a security system -- basically a complete security system in retail, install it, subscribe to a certain level of service with that brand and get a certain level of capabilities with respect to home monitoring and the ability to have access to all kinds of additional services versus the traditional professional security market and -- when we look at a market like the US with about 120 million households, we see a great opportunity in security for ULE for our products and technologies, including SmartVoice and we believe that there will be a continued growth in this market by the adoption In this market by the adoption of more DIY as well as the existing professional security. We definitely see today that the DIY security market is burgeoning and we see a lot of the activity and a lot of new brands that are addressing this market initiative and there is also, of course, the professional side which is handled by a fairly stable and significant service provider such as ADT. From the expectations point of view, I would say that it is still too early to say what the impact would be, but we definitely have expectations to see that being a driver in our SmartHome revenues this year. As you could understand both from CES as well as from the prepared comments that, each system is shipping with numerous ULE chipsets that are basically existing in almost every sensor, as well as in many of the sensors at SmartVoice capabilities. So, the dollar content here is fairly rich and we do expect also to see the volumes. This product is now hitting retail and we will, of course, monitor it very closely and then try to provide you with as much information as we can, but in addition, we are also hopeful that we will see following the bellwether type of service provider that has chosen this solution for the DIY, that there will be also further opportunities to penetrate also the professional side as well as the ability to engage and leverage what we have done so far and what we can provide this market with this natural support for two-way voice, voice activation, a lot of AI capabilities on the edge, we believe that this will be very highly applicable to many other participants in this market and this is definitely part of our operating plan for the next two years. So, we are very excited about the momentum and I think that you've seen a lot of that at CES.

Matt Ramsay -- Cowen -- Analyst

Thanks, Ofer, for all the detail there. As my follow up, Dror, I wanted to ask about gross margin, obviously, mix helps, but I remember when we were having the conversation of how to get the Company out of the low-40s and now you're in the low-50s. So, well done on that front. I wonder if you could give us some commentary going forward how you think margins might trend and maybe remind us of the collection of your growth businesses, how far above the DECT business are those, just a separation of gross margin there on mix would be helpful. Thank you.

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

Yeah, sure. Thanks for the question, Matt. So, first of all as you saw also, when you look into the first quarter of 2020, we already see the midpoint is at 51%, that is better than we were in average in '19. So, we are already looking to improve margin and we believe that when we look throughout the year, we can even improve this number to maybe something which is like closer to 51%, 52%. Overall as you rightly indicated, the two factors. The first, this is like the mix of the products were revenues and I would say, like, Unified Communications, SmartVoice and also SmartHome tend to have better gross margin. In the cordless as we see that from year to year and this is also something that is demonstrated in our presentation. One, we see that the proportion of these growth initiatives increase, we also -- the margins went up into, say, from 40% something to about 50%. This is one thing.

The other thing that we expect to see in 2020 is growth revenue. So, a portion of our gross margin, all of the cost of goods is also fixed and once revenue grow, this proportion of the fixed expenses decreases. So, we also expect this to have some impact on improvement on gross margins in the first quarter and also throughout the year. These are I would say the two main factors, the mix and the level of revenues.

Matt Ramsay -- Cowen -- Analyst

Thanks again, guys. Appreciate it.

Operator

Thank you. And your next question comes from the line of Jaeson Schmidt of Lake Street. Please go ahead, your line is open.

Jaeson Schmidt -- Lake Street -- Analyst

Hey guys, thanks for taking my questions. Just want to start on the Unified Communications segment. I know excess inventory in the channel really impacted 2019. Do you think that inventory is now cleared out though?

Ofer Elyakim -- Chief Executive Officer

Hi, Jaeson. So, if I understood correctly, your question was on the excess inventory that we saw early last year or even fourth quarter of 2018, whether this has cleared or not. So, based on our understanding about the market dynamics, 2019 as a calendar year was quite challenging for this category as you accurately mentioned, we started the year with this pile of inventory that originated from the trade war concerns and the need to perhaps get goods outside of China and have them offshore so that they won't be subject to any future tariffs. And then, during the year these concerns continued and actually in October, the tariffs were supposed to hit this category. And at the end of the day, there was a deal that was signed, so in a way these never tariffs never really took place, but we also saw during 2019, a much slower IT spending that also hit this category and in a way slowed down the depletion of that inventory.

From where we are today, and again, it's not that we have very clear visibility into the channel inventory because this market has multiple layers till you actually reach the end customer unlike retail. We are of the belief and based on our check that the levels of inventories are much, much lower than where they were when we started last year, meaning inventories are much, much closer to normal levels. And so right now, we don't see inventories or excess inventories as an issue for the execution during this year and we believe that with the good pipeline of new products that are now in mass production, we are well positioned for revenue growth this year and that new design win that was prolonged into very late last year is now fully ramped up and in mass production, and that basically builds a lot of confidence in our ability to actually mitigate if there will be any weakness with growth in this category throughout 2020.

And I think that during this year, we are very hopeful that we'll be able to secure even more lucrative sockets that will, in a way, fuel up our expectations and our ability to outperform mostly in the next couple of years.

Jaeson Schmidt -- Lake Street -- Analyst

Okay, that's very helpful. And then, just as a follow-up, I think last quarter, non-smartphone applications within SmartVoice was over 70%, curious what it was in Q4 and if you expect that composition to remain relatively stable in 2020?

Ofer Elyakim -- Chief Executive Officer

Yes. So, with respect to the SmartVoice product composition, smartphone versus the non-smartphone categories, I believe that for the year, for 2019, it was roughly a 25% smartphone and 75% non-smartphone, and actually, the 75% was quite evenly allocated toward tablets, cameras and entertainment vis-a-via the TVs, remote controls, and the over-the-top products.

And if I look at Q4, I would tend to assume that it was shy of 20% to smartphones and about 80% for non-smartphones. And smartphones will fluctuate depending on their launch date and usually the life cycle is fairly short per model. So, I think there will be -- there will continue to be fluctuations also this year, but I would assume that it will be about a 20-80 split in favor of the non-smartphone side. There, we believe that we are actually building a lot of franchise businesses. As you saw for instance in the entertainment side, as well as on the camera front, and the tablet side, we believe there is a lot of value and a lot of ability to grow and to see many more products incorporating these capabilities. And I think that the next pillar of this growth over the next three years, a lot of which will be around the AI, so audio analytics or audio AI on the edge, and I think there will be a lot more value that will be driven there. And on the smartphone front, I believe that you know audio analytics and the capability to replace a lot of sensing elements inside the phone with the acoustics, this will be a major value proposition that will be well beyond whatever you can do with Wake on Voice and always listening element, the ability to do that at ultra low power, the ability to create a lot more value while supporting all of the new requirements for smartphones of -- and edgeless screen and the lack of ability to install any hardware on the front of the device itself. So with that, we believe that our SmartVoice franchise will continue to play a key role in our growth going forward.

Jaeson Schmidt -- Lake Street -- Analyst

Okay, thanks a lot.

Operator

Thank you. And your next question comes from the line of Charlie Anderson of Dougherty & Company. Please go ahead.

Charlie Anderson -- Dougherty & Company -- Analyst

Yeah, thanks for taking my questions. A couple of ones on the guidance real quick. It looks like based on how much growth initiatives will be as a percent of revenue that cordless will actually be up both sequentially and year-over-year. So, I wonder if you could maybe touch on what's going on there and maybe how that impacts the rest of the year if that's up?

And then, secondarily on the R&D, thank you for the commentary that it will go back to more normal levels rest of year, but just kind of curious what was the boost that created the larger level in Q1. Thanks.

Ofer Elyakim -- Chief Executive Officer

Thank you, Charlie. So, maybe we'll start with the latter part of your question first. So, with respect to R&D and OpEx as Dror commented, we believe that Q1 will be temporarily high, mainly because of certain tape-out expenditures that we have and we are basically doing a tape-out during this quarter and this will basically take the Q1 R&D expenses to be higher than average, and they are expected to go back to normal. So, these are more on the NRE fronts, the non-recurring type of expenses. So, this basically takes care of the OpEx and R&D expenditures in Q1.

And your other question had to do with the guidance for Q1 and where cordless is. So, cordless will fluctuate and again there is very little control that we have vis-a-vis the kind of the trend line there. I believe that we are modeling, and I think you guys should also model this decline in the 15% to 20%. So, right now, we do not see a change in the level of declines. And yes, there will be fluctuations. As you can appreciate, last Q4 was artificially low in a way the recovery was slow, maybe, that's kind of the mismatch with respect to the year-over-year comps.

So, it's just like an easy comp in Q4 and also Q1, but I don't see a change in the trend. I think that we are going to see this year. It's further increase in the proportion between the growth initiatives that should trend into 70-30 type of a mix or maybe more than that. I think these are the trends that we are expected to see this year and there would be these kind of quarterly fluctuations that are very hard to, kind of, understand why in Q1 we actually see good momentum in cordless and good backlog, but I have no way -- real explanations for that. I can only allude that what we believe is the 15% to 20% decline is the right way to model this going forward and growth across our growth initiatives for the year, and this is kind of how we see gross margin expansion, and we believe that the healthy trends should also continue in 2020.

Charlie Anderson -- Dougherty & Company -- Analyst

Great, thank you so much for that color. And then, for my follow-up on Unified Communications, I know you have the large win for this year, but it also sounded like you're optimistic of potentially a few others as well. I wonder if something has changed in the pattern in terms of replacement cycle there, in terms of you guys replacing incumbents, or is it just so happened that things are sort of lined up well in the past 12 months? Just any commentary on sort of the trajectory of that business over time. Thanks.

Ofer Elyakim -- Chief Executive Officer

Sure. So, on the UC front, I do believe that we have seen a lot of changes in the market. First of all, we've seen the UCaaS or the -- the SIP trunking or the Unified Communication as a Service becoming a major part of the market and we see a lot of disruption there with new service providers both for rich media and collaboration solution as well as endpoints, a lot of new endpoints elements from headsets and two other conferencing solutions for personal desktop, in-home conferencing etc.

So there is, I think, a lot of investment and change that is driving the market and perhaps also creating some opportunities for companies like us that have been investing in this market and today have the most comprehensive product portfolio and technologies that, in a way, meet all of those requirements and I think that we are really today, the one-stop shop for this market, for any vendor that is looking for a high-quality, high-performing solution. So, what we are doing is in way a making sure that we're supporting our partners, our customers in this domain and enabling them to upgrade and build new capabilities, better voice quality, better video quality across the solutions. And as we've seen, this has been a long type -- a long tail type of a market where design and refreshes tend to happen once every couple of years and we've waited patiently and hopefully a lot of that will pay off for us in the near future. So we're, I would say, very optimistic and we believe that we have all the right capabilities and merits to win the sockets that will be available for refresh.

Charlie Anderson -- Dougherty & Company -- Analyst

Great, thank you so much.

Operator

Thank you. [Operator Instructions] Your next question comes from the line of Raji Gill of Needham & Company. Please go ahead. Raji, your line is open. Please can you check you're not on mute? Okay. Moving on to your next question from the line of Suji Desilva of Roth Capital. Please go ahead.

Suji Desilva -- ROTH Capital -- Analyst

Hi, Ofer. Hi, Dror. Hopefully you can hear me. The non-smartphone SmartVoice, can you rank order the Top 2 or Top 3 revenue contributors you expect in that segment in 2020 and which ones are going to be growing the fastest [Indecipherable].

Ofer Elyakim -- Chief Executive Officer

Hi, Suji. I think the question was around the main contributors in the SmartVoice segment, right.

Suji Desilva -- ROTH Capital -- Analyst

Right, outside smartphones, yeah.

Ofer Elyakim -- Chief Executive Officer

SmartVoice outside smartphones. Yes, if you take the $19.3 million that we generated in 2019, about 25% of that was smartphones. So, 75% was non-smartphone. And in these sockets, in a way, we have three key franchises. One is the entertainment side which includes TVs, remote controls. This is close to 25%, a little bit shy of 25% of revenues. Tablets are around 20% of those $19.3 million, maybe,

Operator

A little bit ahead of that. Cameras are about 25% and then we have other IoT, the other IoT category that will include smart speakers and the hearables, etc. I think that when we look at 2020, we do expect hearables and wearables to become more -- a meaningful part of that business and to start generating revenues there as well and that we hope to make it one of the, kind of, the key five categories, including smartphones, entertainment, tablets and cameras. So, I would say these are kind of the five categories today we're focusing on. Our roadmap is targeted to solve a lot of future issues and provide a lot of capabilities and value-added solutions as we discussed in terms of AI on the edge, the ability to really drop the power consumption considerably while elevating the performance, the ability to conduct far field in very high quality using battery-powered device, the ability to run a lot of machine learning classifier in the same time, on-chip, on a battery-operated device. So all of that, I think, should bode very well for each of these five key categories that we're focusing on today. So, I hope I answered your questions, Suji.

Suji Desilva -- ROTH Capital -- Analyst

You did, Ofer. Thank you. And then, the inclusion of AI as a feature there and AI on the edge, that kind of upgrade if you would, is that an incremental revenue or ASP opportunity? Is that just the kind of feature upgrade that keeps you in these platforms and when does that layer in or is that really already being used by the customers?

Ofer Elyakim -- Chief Executive Officer

Yes. So first of all, it does basically increase the content. So, it does raise the ASP for the devices that we we're in. I think that also whenever there is a dilemma between we're just running software versus running it on a dedicated ultra-low-power machine learning type of a chip, then the more capabilities such chip can provide, the higher the likelihood of the selection of a dedicated processor just for that versus running software on the AP. And today, we do have, and we are running these AI on the edge capabilities, the ability to do a sound event detection and audio analytics are running today in production on our chipset.

Suji Desilva -- ROTH Capital -- Analyst

Okay, great. All right, thanks guys.

Operator

Thank you. [Operator Instructions] And your next question comes from the line of Ari Shusterman of Needham. Please go ahead.

Ari Shusterman -- Needham -- Analyst

Hey, guys. Good job on the quarter. So this is Ari taking the question for Raji Gill. And my first question is about your Unified Communications business. Can you talk about where you're seeing the business go this year and a bit about on design win pipeline in this business? Thank you.

Ofer Elyakim -- Chief Executive Officer

Hi, Ari, and then thanks for the question. So, in the Unified Communication business for this year, I believe that we are optimistic that we are going to outperform this year. I think, we did see the shortfall that we experienced in 2019 due to the trade war as well as the lower demand, mainly related to business IT spending. We believe that today with the additional wins, with the additional products that we're shipping, we are well positioned to be able to generate a nice revenue growth from the UC product segment. I think that when addressing some of the comments that were made earlier, we believe that the inventory levels today are at closer to normal levels versus the significant or excess inventories that we saw just the year ago.

So, by looking at all the fronts, we do hope and believe that we are positioned well for outperformance and revenue growth in this business, mainly coming from our ability to shift and win a lot of new products that are shipping this year that were not in last year. So, just these are creating the revenue growth for us and I believe that they will be able to absorb even if there will be certain hiccups, which right now we don't anticipate, but we believe that the traction and our ability to generate revenue growth in UC this year, the chances are very, very good. We're very optimistic.

Ari Shusterman -- Needham -- Analyst

Yeah. And I had a follow-up I wanted to ask if there are any new markets or verticals that you plan to target in the future that you believe will be beneficial to further growth and margin expansion whether that's through M&A or through organic means targeting new verticals...

Ofer Elyakim -- Chief Executive Officer

Ari, I'm sorry, but we could not -- we have some problems hearing you well. So, can you repeat the question please.

Ari Shusterman -- Needham -- Analyst

Okay. Yeah. So, I was just asking if there are any new markets or verticals that you plan to target in the future that would be beneficial to growth and margins?

Ofer Elyakim -- Chief Executive Officer

I think that -- from new markets -- new market penetration, I believe that today, we are focusing on the three segments of SmartHome with everything that comes behind -- under this umbrella, IoT, consumer, service provider, professional, as well as industrial, Unified Communication which is the professional business market, SmartVoice, which also includes a broad array of many different consumer electronic products. We mentioned, I think, and also demonstrated a lot of capabilities around hearables at CES, which you saw from glasses to headsets, and I believe that this will be, as a product category, I think this product category will hold a lot of potential growth and the need to incorporate a lot more technology in order to create more differentiation in the market and I believe that DSP Group is well equipped with very relevant technology to meet the market requirements. We are serving for many years the markets of low power, voice, the ability to do low-power processing of value-added, to do sensing capabilities. So, if you're asking about a new product category, yes, that's definitely hearables does look as a promising new product category for us and we believe that we will be able to serve it with the several of the new products that we have launched that you've seen at CES.

Operator

Thank you. There are no further question at this time. I would now like to hand the call back over to Tali Chen.

Tali Chen -- Corporate Vice President and Chief Marketing Officer

Thank you. During the first quarter, DSP Group will participate in the 32nd Annual ROTH Conference on March 15 to March 17 in Orange County. Thank you for listening in and for your interest in DSP Group, and we look forward to report back to you in 90 days.

Operator

[Operator Instructions]

Duration: 55 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 -- Analyst

Jaeson Schmidt -- Lake Street -- Analyst

Charlie Anderson -- Dougherty & Company -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

Ari Shusterman -- Needham -- Analyst

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