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DSP Group (DSPG) Q4 2020 Earnings Call Transcript

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DSPG earnings call for the period ending December 31, 2020.

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DSP Group (DSPG)
Q4 2020 Earnings Call
Feb 04, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and full-year 2020 earnings conference call. [Operator instructions] I must advise you that this conference is being recorded today, Thursday, February 4, 2021. And I would now like to hand the conference over to your first speaker today, Tali Chen, chief business officer. Thank you, and please go ahead.

Tali Chen -- Chief Business Officer

Thank you, operator. Good morning, ladies and gentlemen. I'm Tali Chen, chief business officer at DSP Group. Welcome to our fourth-quarter and full-year 2020 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 2021; revenue growth in 2021; optimism about our engagement pipeline with strategic customers; optimism about DSP Group leveraging trends arising from the pandemic, including accelerated voice-centric product, voice user interfaces, and increased voice communication; recovery of unified communications segment in 2021 to return to solid growth; optimism about ULE technology as a key wireless connectivity solution for the global SmartHome and security industries; and our ability to sustain long-term growth.

We assume no obligation to update these forward-looking statements. For more information about the risks and factors that could affect our forward-looking statements made herein, please refer to the risk factors discussed in our 2019 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, and then to make some comments on the progression of our business plan and finally provide you with a context for our outlook.

In a short while, Dror will provide you with detailed comments on our financial results for the fourth quarter and the full-year 2020, and our outlook for the first quarter of 2021. We're very pleased with our business performance and the momentum that lies ahead. Our fourth-quarter results exceeded our guidance on most financial metrics. Revenues of $31.9 million came well ahead of our guidance range and grew by 9% year over year and by 23% sequentially.

These better-than-expected results are the outcome of improving demand across our diversified product offerings. We're excited about the solid momentum surrounding our business and the pivotal role that our innovative technologies are playing in the newly emerging voice-centric marketplace, highlighted by the following trends. The first is a surge in voice calls. The ongoing social distancing and global lockdown restrictions made voice communications essential and have led to a much-increased usage of phones at home.

Number two, voice user interface or VUI has evolved into a must-have interface. Potential health hazards associated with high-touch services have accelerated the adoption of voice user interface for a broad array of products and use cases. Number three, collaboration and work from home, these two trends have become essential for preserving business continuity and productivity in the now elastic enterprise. And while industrywide supply chain constraints are curbing product deliveries, the above-mentioned voice-centric trends have fueled demand for cordless and smart home products, drove faster than expected recovery of our unified communications segment and solid demand for SmartVoice products following a record quarter.

These achievements further drove record high non-GAAP quarterly gross margins of 51.9%, which benefited from a proportionately lower fixed cost portion, which offset the product mix. From an annual perspective, we ended 2020 with revenues of approximately $114.5 million versus $117.6 million in 2019, representing a 3% decrease, primarily due to weaker and volatile demand for unified communication products as a result of the shift in enterprise IT spending from on-prem to work from home. Nevertheless, DSP Group is a major beneficiary of the wide adoption of voice-centric technologies that thrived during the pandemic. The diversity of our products and technology portfolio proved invaluable this year, as demonstrated by the strong performance of the cordless product line, which greatly offset the weakness in the unified communications segment.

Looking ahead, we are off to a solid start for the year on the heels of a robust design pipeline and a record number of new tier-one customer engagements across our IoAT businesses. We're leveraging our proven leadership position in voice, Edge AI, and IoT, as demonstrated by the following major accomplishments in 2020: the positioning of ULE as a prime connectivity in the home security market, establishing the SmartVoice franchise as the market-leading solution in key consumer categories, proliferation of our voice and video technologies in the evolving collaboration market. These achievements, coupled with the solid momentum, position us well for a successful 2021. Now I'd like to provide you with more color on our performance in each of the product segments.

Starting with SmartVoice. During the fourth quarter, we generated revenues of approximately $5 million from sales of SmartVoice solutions, reflecting a year-over-year growth of 2%, while 30% down on a sequential basis following a record third quarter. We are pleased with the performance of the SmartVoice segment in 2020. And despite the weaker first half mainly impacted by demand shortfalls for certain product application due to shelter-in-place restrictions, demand for voice user interface based products recovered nicely in the second half, ending the year with record revenues of $20.2 million, representing an increase of 4% as compared to 2019.

This growth was driven by strong demand for devices incorporating voice UI, underscoring a shift in consumer preference in favor of voice-based interfaces, a trend that accelerated during the year. During the quarter, we continued to grow and strengthen our SmartVoice franchise by securing new design wins and commenced mass production shipments ahead of new product launches by leading consumer electronic OEMs and established our leadership in key market segments, including hearables, where the work-from-home environment drove increased demand for hearable products such as true wireless stereo and over-the-ear headphone. And during 2020, we entered into this rapidly growing market through the acquisition of SoundChip and complemented our low power DSP offering with best-in-class smart codecs with digital hybrid ANC. During this quarter, TaoTronics launched its TWS headsets, leveraging our solution, including always-on voice and voice AI.

Number two is tablet. 2020 marked a record year for screen-based products driven by work from home and remote learning. DSP Group as the leading vendor of voice-activated screens benefited from this growing demand. There are now more than 30 different voice-activated tablets powered by our SmartVoice technology.

And during the fourth quarter, a major U.S. retailer, Lenovo, and other leading brands launched new tablet models based on our SmartVoice solution to enable VUI and Edge AI use cases. Lastly, a leading platform brand launched a commercial version of its smart wearable product, leveraging our advanced SmartVoice HAI SoC. These customer wins and the record number of new product launches illustrate the depth and diversity of our SmartVoice franchise, as well as the strength of our customer relationships and our ability to continuously introduce new technologies and raise the bar on quality and performance, while simultaneously driving down power consumption.

During the year, we announced the availability of the DBN10 SoC, the newest member of our SmartVoice family. The DBM10 is a low-power Edge AI and machine learning SoC with two processors, a highly efficient and low power DSP, and a dedicated neural network inference processor. The SoC is a scalable solution based on an open platform architecture, with cost and power-optimized design in mind to simplify and shorten time to market of AI and machine learning products for mobile, wearable, hearable and IoT applications. We believe that our SoC expertise and signal processing proficiency, combined with our ongoing technology innovation in the areas of ANC Smart codec and AI for voice devices will ensure that our SmartVoice business will be a pivotal growth driver to our business at the time of rapid change and new product innovation and the introduction of exciting new applications.

Moving on to our unified communications segment, in the fourth quarter, we generated revenues of approximately $8.2 million, representing a year-over-year decrease of 17% and a sequential increase of 218%, demonstrating a faster-than-expected rebound from a stalemate situation in the third quarter. We ended the year with total revenues of $31.2 million, representing a year-over-year decrease of 18%. We're highly disappointed by these results and attribute the broad weakness and revenue decline to the fundamental change in the workplace environment during 2020, enforcing sharp IT budget shifts from on-prem to off-prem. This trend created less demand for traditional unified communication endpoints that typically serve on office desks, in favor of work-from-home devices including soft clients, headsets, loudspeakers, cordless phones, and more.

Nonetheless, we remain highly confident in the continued recovery of this segment, as evidenced by better-than-expected demand in the fourth quarter, driven by a robust recovery and product intake by large enterprises and government institutions for unified communication products. Moreover, businesses around the globe are gradually returning to the office and adopting a hybrid model that supports on-prem and remote work. This trend should stimulate budget shifts toward renewed investment in office remodeling and infrastructure to incorporate more technology and higher performance requirements to meet more elastic end-user expectations. In addition, the pandemic has created new opportunities to support the significant digital transformation this market went through this year.

Newer players, as well as incumbents, are in the process of defining and building new hardware and software designed to fit with the hybrid working models. And our design win and achievements this quarter reflect this trend. A Tier 1 unified communication OEM selected our high-end DVF solution for its next-generation video collaboration system, leveraging our expertise to support high-end voice and high-definition video in a device targeted for the hybrid work environment that enables high-quality communications and collaboration. A leading U.S.

vendor for video collaboration equipment selected our best-in-class voice communication engine for purpose-built hardware to serve the rising need for high-quality collaboration systems. And lastly, Yealink announced its new Microsoft Teams wireless DECT headset based on our technology. The rapid and largely successful shift to remote working in response to the coronavirus slowdown has raised the demand for such product categories, as people look to sustain and improve productivity while enhancing the virtual collaborative experiences. Headsets have become a key tool for those trying to enhance collaboration.

And according to some analysts, demand for such products grew by over 100% in 2020 and made the pandemic. Looking forward, these developments, the improving demand pattern, and our new business wins position us well for solid revenue growth in the unified communications segment this year and beyond. Turning on to the SmartHome product line, during the fourth quarter, we generated revenues of $4.8 million, posting a record quarter with a year-over-year increase of 3% and a 31% sequential increase. Full-year SmartHome revenues were $16.8 million and grew by 3% year over year.

More importantly, 2020 was a breakthrough year for our SmartHome business. We successfully established our ULE technology as a key wireless connectivity solution for the global smart home and security industries. Furthermore, the surge in voice calls made from home drove more adoptions of DECT and ULE in CPEs by leading telecom service providers, creating a much larger DECT/ULE install base. During the quarter, we continued to grow and diversify our SmartHome ecosystem with leading global IoT vendors that recognize ULE's unmatched characteristics for wireless indoor IoT, including superior range, interference-free spectrum, and native support for two-way voice.

These include a leading European service provider that chose our DECT/ULE solution for its next-generation smart security offerings, a U.S. brand selected our DECT/ULE solution for its elderly care system that includes a hub pendent and additional assisted voice-enabled devices and at length chose our DECT/ULE solution for its wireless Hi-Fi audio streaming system. The momentum behind DECT and ULE technology is strong, and we expect our robust engagement pipeline with security and telecom service providers to fuel faster expansion of the DECT/ULE ecosystem with additional products by leading brands. The broad adoption by industry bellwethers will serve as an important pillar of our growth strategy this year and beyond.

And now to an update on the cordless phone market, during the fourth quarter, we experienced stronger-than-expected demand for cordless products. Social distancing, work from home, remote learning, and other outgrowths of the pandemic stimulated a resurgence in voice traffic and propelled demand for cordless products. Such unexpected surge in demand completely depleted retail and channel inventory. This forced vendors to invest heavily in expediting shipments and increasing demand, driving revenues to $13.8 million, up 42% year over year and 10% on a sequential basis.

For the full year, our cordless business generated revenues of $46.3 million, representing an increase of 5% year over year. With the ongoing social distancing restrictions and the future dependency on hybrid forms of living, a greater emphasis is placed on our protective and native environment, our home. And the role of voice as the lowest common denominator for human interaction is irreplaceable. DSP Group, as the undisputed market leader in voice, is benefiting from the increased demand for voice-centric products such as cordless products.

And looking ahead to the first quarter, we expect the strong demand for cordless phones and other voice-centric products to continue as users upgrade and refine their home office environment. And now to an update on our outlook for the first quarter, taking into account the strong business momentum across our different product lines, the lean inventory situation at most of our customers, while taking into consideration the severe supply constraints; we expect our first-quarter revenues to be in the range of $31 million to $33 million. The midpoint of this guidance range implies year-over-year revenue growth of 13%. We expect that our IoAT businesses will account for 60% to 63% of our first-quarter revenues.

To summarize, the shift toward a voice-centric future is driving demand for DSP Group's products and technologies. We're thrilled about our business momentum, and we are confident that our leadership in voice, AI and IoT technologies and solutions will determine our future success, coming on the heels of a strong pipeline of design wins with a record number of new customers that are expected to contribute to a solid performance in revenue growth this year. Now I'd like to turn the call over to Dror, our chief financial officer. Dror, the floor is yours.

Dror Levy -- Chief Financial Officer

Thank you, Ofer. I will now review the income statement for the fourth quarter of 2020 from both 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 and expenses related to previous acquisitions. Our revenues for the fourth quarter of 2020 were $31.9 million.

Gross margin for the quarter was 51.3%. Gross margin for the quarter included equity-based compensation expenses in the amount of $0.1 million and amortization of intangible assets related to SoundChip acquisition in the amount of $0.1 million. R&D expenses were $8.6 million, including equity-based compensation expenses in the amount of $0.9 million. Operating expenses for the quarter were $17.3 million, including equity-based compensation expenses in the amount of $3 million and amortization of intangible assets related to acquisitions in the amount of $0.6 million.

Operating expenses on a non-GAAP basis, excluding the items mentioned, were $13.7 million. Financial expenses for the quarter were $0.3 million. Financial expenses for the quarter included $0.7 million of exchange rate differences related to accounting standards related to long-term leases. These exchange rate differences were excluded from our non-GAAP results for the quarter.

The financial income on a non-GAAP basis was $0.4 million. Tax expenses for the quarter were $0.1 million. Tax expenses for the quarter included benefit from deferred tax changes related to intangible assets and equity-based compensation expenses in the amount of $0.3 million. Net loss was $1.4 million, including equity-based compensation expenses of $3.2 million, amortization expenses related to previous acquisitions of $0.7 million, exchange rate differences in the amount of $0.7 million, and tax benefit related to deferred taxes in the amount of $0.3 million.

Non-GAAP net income, excluding the items I just described, was $2.9 million. GAAP loss per share for the quarter was $0.06. The negative impact of equity-based compensation expenses on the EPS was $0.13. The negative impact of the amortization of acquired intangible assets on the EPS was $0.03.

The negative impact of exchange rate differences on the EPS was $0.03, and the positive impact of the changes in deferred taxes was $0.01. Non-GAAP diluted income per share, excluding these items I just described, was $0.12 for the quarter. Please see the current report on Form 8-K that we filed with the SEC this morning for reconciliation of the non-GAAP presentation to the GAAP presentation. Now turning to the balance sheet, accounts receivable at the end of the fourth quarter of 2020 decreased to $11 million compared to $11.6 million at the end of the third quarter, representing a level of 31 days of sales.

Inventory increased from $8.2 million at the end of the third quarter to $9.1 million, representing a level of 53 days of sales. Our cash and marketable securities increased by $8.4 million during the fourth quarter and were in the level of $128.6 million as of December 31, 2020. Our cash and multiple security positions during the quarter was affected by the following. We generated $8.6 million of cash from operations.

$0.3 million of cash was used for purchase of property and equipment. $0.2 million of cash was provided by exercise of stock options and $0.1 million of cash was the change in the value and amortization of multiple securities. Now I would like to provide you with our full projections for the first quarter of 2021. Our first quarter projections include the impact of equity-based compensation expenses and acquisition-related amortization expenses are as follows.

Revenues are expected to be in the range of $31 million to $33 million. We expect our gross margin to be in the range of 51% and 53%. The R&D expenses are expected to be in the range of $10 million to $11 million. Operating expenses are expected to be in the range of $18 million to $19.5 million.

Financial income is expected to be in the range of $300,000 to $400,000. And taxes on income are expected to be approximately $0.3 million on a non-GAAP basis. Our shares outstanding are expected to be approximately 25.5 million shares. Our first quarter projections include approximately $400,000 of amortization of intangible assets, and our first-quarter projections also include the following amounts that are forecasted for equity-based compensation expenses and intangible assets related to previous acquisitions.

Cost of goods includes approximately $0.2 million. R&D expenses include $1 million to $1.2 million. Sales and marketing include $0.7 million to $0.9 million, and G&A includes $0.6 million to $0.8 million. Now I would like to open up the line for questions and answers.

Operator, please.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from the line of Jaeson Schmidt from Lake Street.

Jaeson Schmidt -- Lake Street Advisors -- Analyst

Hey, guys. Thanks for taking my questions. Ofer, just following up on your comments on seeing continued supply constraints, just curious if you could quantify what sort of revenue impact that had on Q4, and if there is a way to sort of quantify how much you think it will impact the Q1 as well.

Ofer Elyakim -- Chief Executive Officer

So on the supply chain comments, so I think we're in the midst of a fairly significant supply chain constraint where demand outweighs the available supply and there's a lot of capacity restrictions. We are managing through that situation with the support of our supply chain partners. But indeed, there are certainly materials that we cannot fulfill and supply to our customers. With respect of the magnitude of that, I would say that is probably around 20% to 25% of, let's say, the fourth-quarter revenues and I think to a certain extent the same on Q1 revenues.

Jaeson Schmidt -- Lake Street Advisors -- Analyst

OK. That's really helpful. And then you mentioned seeing sort of record design wins within that IoAT. As we look at 2021, could you sort of rank order the three segments on where you're seeing the most design activity?

Ofer Elyakim -- Chief Executive Officer

Sure. I think we do see a great deal of design activity with leading tier-one vendors on SmartHome. I think that we're also very encouraged and have really strong hopes for a very strong translation of the design win activities to revenue growth also on the SmartVoice front, where we do see our products reaching very interesting and in a way leading very interesting categories. So I think that we will also share some excitement there.

And on the unified communications front, we have secured, as I indicated in the prepared comments, both design wins on video and new video endpoints, as well as voice-related work from home, so newly developed type of endpoints to facilitate only collaboration with external hardware accessories. But on the unified communications segment, I think what is most interesting to see is despite a fairly turbulent year, where there were a lot of leaps in terms of usage and adoption of new technologies, all of our customers, the incumbent customers, are investing, and are refreshing and are looking forward to launch new hardware endpoints. And I think that DSPG is going to play a fairly significant role in that, and I believe that this is also very encouraging as we look into the future of that segment and the role that hardware endpoints will continue to play in this kind of more elastic or hybrid model in which we're going to work and where some part of our time will be spent in a home office, another part in the traditional office. So this is also very much exciting and I think that for unified communications we do expect to see a recovery this year, as I've indicated with perhaps a shift in the way enterprises are going to utilize their IT budget this year.

So I hope that covers your question, Jaeson.

Jaeson Schmidt -- Lake Street Advisors -- Analyst

No. That's really helpful. And then just the last one from me and I'll jump back into queue, just following up on those comments on the UC segment. I understand the customers are still investing.

Have you seen timetables, as far as launches go, continue to get pushed out, or are they relatively on track?

Ofer Elyakim -- Chief Executive Officer

So from what we can tell, I think that everyone is pushing forward and trying to expedite the launches. As I think we spoke during last year, a lot of these designs, not by these organizations' wills or plans, but just because of a reflection of reality, it's very hard to design hardware where people are not sitting in the same space. And it's very hard to debug and do these bring-ups when people are sharing a screen. And so the design cycles did take longer.

But from everything we see, we believe most of these programs should be launched on time and hopefully completed beforehand. So we don't see there a change. I think it's just a kind of reflection of reality which we do see delays because of the different way of conducting such designs.

Jaeson Schmidt -- Lake Street Advisors -- Analyst

OK. I appreciate that color. Thanks a lot, guys.

Operator

Your next question comes from the line of Matt Ramsay from Cowen.

Matt Ramsay -- Cowen and Company -- Analyst

Thank you very much. I hope everybody is well. Ofer, there's a lot of companies that are in and around the ecosystem going through this supply chain tightness at the same time sort of a surge of bookings and customers are clamoring for that limited supply. So you talked in your script about a fairly lean channel for most of your customers, particularly in the cordless business.

And at the same time, you guys being limited on supply. So could you maybe help the guidance that you provided for March, is that indicative of how much can ship, and is that greater than or less than what you think sellout is from your customers? I guess said another way, is that revenue level that you're starting to rebuild a little bit of inventory, or are we flat on a channel inventory basis, or are things still depleting? I'm just trying to figure out how we're going to trend through the rest of the year if that makes sense.

Ofer Elyakim -- Chief Executive Officer

Yes. Sure. Sure, Matt. So maybe kind of with a little bit of background, so as you'll recall, and you follow us now for a number of years now and you do know that usually when we look at our backlog and our visibility, it's typically two months or on average eight weeks.

Right now, and I think that it's not a DSPG phenomenon, it's a wider phenomenon that there is no problem with visibility because everyone wants material. Now in order to better understand the needs and the urgency where a product needs to go, we are doing certain channel checks to better understand what is the situation of that inventory. Again, you know our checks are not necessarily covering an industrywide type of a check, but go and measure certain vendors, and query with customers and value-added resources, et cetera. And so from what we can tell, we see that at least in the fourth quarter, cordless products were flown by air, rather than by sea, meaning that the cost of these products went through the roof, because of a fairly expensive transportation cost.

We also see that in some of the unified communications side, where lead times are very long, much longer than the traditional lead times. And so I think that for the most part, we do see when we kind of are looking at the trend line of Q4 and now into Q1, let's say January. So far we believe that inventory levels are lean. Now when I look at the guidance and I try to compare it versus demand, as I said earlier, our ability to supply is basically included in the revenue guidance that we provided.

The needs coming from customers are much, much higher. Now if you ask me around the end of March where would inventories be, this I cannot tell you. But what I can tell is that since we are missing a lot of material and we're not able to fully supply, I would say that the inventory level should stay at the same level or so, and we will continue to do these checks and have a better understanding of where supply is really needed, and try to measure or assess the levels of inventory. But for now, from what we can tell, demand is significantly higher than what we can supply.

And we are trying to do our best to work very closely with our customers as well as with our supply chain partners in order to accommodate to the best we can all the needs, given that very dynamic situation that we're in.

Matt Ramsay -- Cowen and Company -- Analyst

No. I appreciate you quantifying some of those effects. In a transient environment, it's tough, so I appreciate the color. My next question is on the unified communications market.

And I thought it was interesting the comments about how the customer base is investing to take on this sort of hybrid work-from-office work-from-home model that's likely to persist for a number of years. I wonder, Ofer, if you can just offer some comments about unit and ASP margin potential of those new products that you're designing in, in totality versus -- I know some of the recent wins with Cisco and others might have been quite high ASP and margins, but maybe lower unit numbers versus this new paradigm. I'm just trying to understand what the area under the curve might look like relative to if we would have had this conversation nine months ago.

Ofer Elyakim -- Chief Executive Officer

Yes. So I would first of all split my answer into two parts. One is these designs wins that we're winning in the traditional UC endpoint market. And the second part is on, let's say, the newer hybrid type of endpoint that are in a way supposed to reinforce or upgrade the user experience when using a soft client, such as WebEx, Teams, Zoom, etc.

So on the traditional UC market, as we discussed it in the past, for the most part, our content, the content that we ship, the type of performance that we provide is usually going upwards and not downwards. And we are today expanding our market share in that business by penetrating into new OEMs and also strengthening our share of wallet at existing OEMs in the new type of collaboration devices, those that are kind of, in a way, more portable, can be used at home, in the office. There, we also see a rising dollar content. But with respect to the revenues and the unit volumes, et cetera, I would say it's relatively early and only once these products we launch and we'll kind of get some history, we'll understand better, I think we'll be able to comment.

Right now, the expectations are high, but we need to see the proof once these products are going to be launched and adopted, et cetera. But I think the common denominator here is that our content is going up.

Matt Ramsay -- Cowen and Company -- Analyst

Got it. That's helpful. And just last one for me. Dror, any comments on OPEX trends? It sounds like a good bit of churn in the opportunity funnel for you guys, given these trends.

So any thoughts about how to model expenses would be helpful.

Dror Levy -- Chief Financial Officer

Yes. Sure. So overall, when you look at our first-quarter plans, OPEX are running higher, slightly higher than where it was in the fourth quarter of 2020. And we believe that going into 2021 for the full year, we should see OPEX more or less in these levels, I would say, of around $15 million a quarter on a non-GAAP basis.

I think this is $15 million to $15.5 million, which is more or less aligned with where we have expected to be in the first quarter.

Matt Ramsay -- Cowen and Company -- Analyst

Perfect. Thank you very much.

Operator

Your next question comes from the line of Suji Desilva from ROTH Capital. Please ask your question.

Suji Desilva -- ROTH Capital Partners -- Analyst

Can you maybe take the first-quarter guidance and tell us what you expect for each of the segments?

Ofer Elyakim -- Chief Executive Officer

Hi, Suji. So what we did in the guidance, we did break it down between cordless and non-cordless. When you try to kind of peel the total IoAT revenues by the different ingredients, I would still say it's rather early for us to kind of say exactly how, given the very dynamic situation that we're in. But I would say that we do right now expect to see growth in each of those segments, I want to say, both sequentially and year over year.

Suji Desilva -- ROTH Capital Partners -- Analyst

OK. That's helpful. And then maybe just kind of a higher-level question. It seems like there's an interesting trend going on with the devices that we use for work, whether it's in the office or at home.

Is there any logic perhaps to combining the cordless and unified communications segments into one? And just correlated to that, I mean these form factors, you could argue that with Zoom and all that they would be soft clients in a PC or a phone, but you guys are seeing new form factors and devices. I just want to know the customers' sort of thoughts on kind of there being a physical device versus it being kind of a soft function Zoom-ish kind of -- I mean, any thoughts there would be helpful.

Ofer Elyakim -- Chief Executive Officer

Yes. Yes. So absolutely. So the soft clients were widely embraced because of the situation, and a lot of the calls did go into that as a common denominator for having a video-rich media type of a collaboration session.

But we do see this rising need and we see it everywhere, whether it's in PC devices, tablets, and the development of new accessories for significant enhancements, both from the camera side as well as from the audio front. And I do believe that we will see a lot of these accessories that will significantly improve the imaging, the way the camera interacts, the fact that you don't need to sit really in front of the screen in order to be able to come across, both from an audio front as well as from a video perspective. So all of that is going to be enhanced, and I think that most likely it will be enhanced by hardware. It does not mean that this will come at the expense of the soft clients.

But I think that hardware can significantly increase the productivity and also allowing less fatigue from such ongoing type of sessions that one would have during the day, and will enable a lot more comfort and the ability to really work as you would in the office where you don't need to be in front of your PC or tablet. In addition to that, and I think that we see that everywhere, not all of these sessions can actually be done in the right performance. And actually, the common denominator for all of these sessions is the quality of the voice. And once voice is corrupt and once voice is really unclear or choppy, those soft sessions are not really productive.

And hence, the reason you need also to complement that with the ability to actually access those sessions via a regular line by calling from a cellphone from a home phone or a desk phone to the MCU to the cloud and accessing these calls. So I think that what we're seeing is really a myriad type of uses that will include both regular endpoints, as well as PCs, as well as new accessories as well as new collaboration units that will, in a way, enable you to have an additional screen or a much better AI-based camera, a microphone system and a speaker system that will really kind of follow you that the beam will follow your direction and in a way, amplify if you will, to sit afar from the screen or from the camera. So all of these our products and innovations that are being worked on by the vendors, both incumbent as well as newcomers to that space.

Suji Desilva -- ROTH Capital Partners -- Analyst

OK. No. I look forward to those interesting form factors. And then last question on the SmartVoice, the DBM10, which incorporates Edge AI, which of the end market segments are the most eager, the first to adopt this, trying to adopt this design-win wise out of the segments?

Ofer Elyakim -- Chief Executive Officer

Yes. So I think there are a number of them. So the first one is the hearable side. So true wireless and over-the-ear type of headsets that will require more intelligence, the ability to provide much better comprehension, so to enhance the listening experience so that we can actually hear much better voices around us when the headset is in the ear versus when we take it off the ear.

It will be for a lot of algorithms that we run in order to provide you with all the noise cancellation mechanisms and a lot of information around how the headset is placed in the ear, and a lot of compensation type of mechanisms and many such algorithms. Another area where they will be deployed will be in the entertainment front, so more on the TV and entertainment front, where you need more capabilities around a sound analysis around the ultra-low power. And the third would be also in the camera market, which would be kind of the third segment.

Suji Desilva -- ROTH Capital Partners -- Analyst

OK. Thanks.

Operator

Your next question comes from the line of Derek Soderberg from Colliers Securities. Please ask your question.

Derek Soderberg -- Colliers Securities -- Analyst

Thanks for taking my questions. I wanted to start with cordless. So demand appears to be holding up. It's going to be nicely up year over year.

I'm curious as to what your updated view is on the short and medium-term outlook for cordless beyond Q1 and maybe when we should start to see that return to the historical year-over-year declines.

Ofer Elyakim -- Chief Executive Officer

So with respect to the questions around cordless so, a, you're right, we are seeing some fairly different trends, I think this robust year-over-year growth in the fourth quarter. Our outlook also indicates that cordless is supposed to grow nicely year over year. And this is very different from the trends and the assumption that we took about the cellular decline of that category of about 15% to 20% a year. I think that in the short term, today, demand is strong and inventory is lean.

And there is need for products, and there are many customers who are pushing very hard to expedite and get more product and material. With respect to the medium term, I want to say that as long as we are going to be in the situation that we're in now, this kind of more kind of flexible working environment where people can work from home, some from the office; so whenever you need to use the home office more, I think that this category will continue to see an expedited replacement cycle. Such as the one that we see now, perhaps a little bit kind of more muted with respect to the trend line. And I think in the long run, once we do return to a full normality, no social distancing, we are not necessarily -- we don't need to use the phone as much as we do today to, in a way, replace face-to-face interaction; then perhaps cordless may move back to a secular decline, maybe not at the levels of 15% to 20%, probably less than that.

But this is still a prediction. We'll need to see exactly how the environment, the dynamics are going to change, how fast will we kind of resume the older habits. I think that as long as the habits will stay as they are today, there will be an expedited cycle of replacement. I think we see that everywhere from what the service providers are reporting with respect to the voice minutes used, new connections of phones, the landline.

I think today we see a robust adoption of more digital voice into CPEs like we've never seen before. So all of these indications do translate to the fact that this kind of rising tide in more voice calls and more voice communication is also raising the demand for cordless products.

Derek Soderberg -- Colliers Securities -- Analyst

Great. And then on my follow-up question, I'm wondering on DECT/ULE, you're making some progress in Europe and now have another customer in the United States. I'm curious to ask your thoughts on ULE adoption trends in the U.S. broadly, I guess, in the short and medium term.

And then if you could provide any details on the size of the new U.S. deal this quarter, that would be great.

Ofer Elyakim -- Chief Executive Officer

Sure. So with respect to ULE, as I look to the last five years, we did start with a focus on Europe. This is where the technology is a major incumbent technology, where all the standardization bodies are based and are working very closely with a lot of these type of market participants, whether they come from the telecom security or industrial IoT. This was the first market in a way kind of the home base of ULE.

And this is where we started. We were able to persuade two of the largest service providers in the continent, both Deutsche Telekom as well as Orange to adopt this solution. And today, we see a significant wider adoption of the technology in countries like Germany and also in France. We see an expanding ecosystem.

We see many more service providers adopting this connectivity. And I think that we are very optimistic and bullish about the trend line and the trajectory in the European market. Now two and a half years ago, we basically started our foray and started promoting the technology in the U.S. market.

And I think that one of the major conclusions that we go to was that we need to focus on the U.S. security market as one of the driving forces for IoT technologies, and in a way kind of the pioneer in utilizing such technologies and enhancing and enabling a richer ecosystem. We did announce our first step tier one, I would say, a breakthrough design with the Blue by ADT last year. These products are now in the market, were launched late in 2020.

And we believe that with our efforts and with the selection and the vote of confidence that we received from our partners and ADT is that this technology is positioned very, very well to thrive in the U.S. security market and in other IoT markets. And I would say that this is one of the major pillars for our future growth and also R&D investments into the future. So this is definitely a market that we are very, very encouraged with the results, and we really like the momentum and the drivers are really kind of working on all cylinders.

So this is definitely a market to focus on this year and also next year.

Derek Soderberg -- Colliers Securities -- Analyst

Great. Thanks.

Operator

[Operator instructions] Your next question come from the line of Denis Pyatchanin from Needham. Please ask your question.

Denis Pyatchanin -- Needham & Company -- Analyst

I have some questions on behalf of Raji Gill today. So I was wondering if you guys could speak a little bit more about SmartVoice. So what's driving demand here? Is it predominantly COVID? Or are there some maybe other kind of non-COVID related trends that you can highlight? Can you guys provide a little bit more color about that? And then what's kind of driving the revenue? Is it mostly units kind of moving around or is there some big change in kind of unit pricing?

Ofer Elyakim -- Chief Executive Officer

Sure. So on SmartVoice, so I think that the pandemic and the events that we went through in 2020 were definitely a catalyst for a larger and wider adoption of voice user interface. Now if you ask me about the design wins of the pipeline that we have today, whether this is really a result of the pandemic, probably the pandemic definitely stimulated the adoption and the fact that more people became aware of the values and the ease of use and the fact that the technology is really ready for prime time. Now when I look at the designs that we achieved this year that are expected to ramp up into products in mass production during the year, I do notice that many such vendors that are selecting our technology, whether it is for the standard VUI, whether it's to enhance collaboration capabilities and whether it's to run Edge AI algorithms, whether it's for voice human interaction or even just for environmental sensing; are doing so because our products were designed with these capabilities in mind.

We mentioned the new addition to the family that we announced early in the year, the DBM10 L. And these products are really designed with that in mind. So with the best-in-class performance, the maximum flexibility, and very fast time to market, whether you'll be using the DSPG algorithm suite, whether the vendor is bringing their own algorithm and in a way porting it on our DSPG machine learning core. So I think that from a content perspective, we see the content increasing.

We are providing more value, more capabilities. And I think that also from the performance criteria, we're providing more advanced and enhanced capabilities to our customers. So when I look at the market today, I just feel that voice and whether it's voice that is used for commands, whether it's voice that is used for communication or it is audible signals that are used for AI analysis; these are all becoming more essential as I think that the audience and the target market has just expanded by the events of last year like the pandemic that kind of really proliferated the use of smart assistants and others. And I think that for us, it definitely serves as a good catalyst, and we're very happy with the design pipeline that we have, and with the use cases that our customers are using and we do believe that it will be one of the strong vectors for growth for us this year.

Denis Pyatchanin -- Needham & Company -- Analyst

Got it. And then for my follow-up question, I just wanted to ask a little bit about margins. So with the supply chain tightness, do you guys believe that there might be some pressure to basically the record margins you guys were at, looking at 51.9% here? Do you expect a little bit of pressure kind of going into Q1 and Q2?

Ofer Elyakim -- Chief Executive Officer

So with respect to the kind of the gross margin profile, I think that what we've seen during the last, I want to say six or seven years, that our gross margins did improve and expand from the high 30s into now the low 50s. And this was done based on the mix, the more traditional products that were selling at relatively lower in margins versus kind of the corporate average and the new products or the Internet of Audio Things products that were selling better with a better margin profile. I think that we believe that this is still the case. However, you are right that we are in this kind of very dynamic supply chain situation that could impact margins in there.

But I think that what we need to look at is really that trend line where I think, looking forward to seeing the increased mix in terms of the proportion of the IoAT products, we do believe that we should, as a company, and we can, based on the value and the content share that we're seeing, we can expand and enhance the margin profile. And yes, during this interim period where there are some constraints, it could see some pressure. But I think that some of it is already taken into our guidance for the first quarter. And if there will be, of course, any changes that we believe, we'll probably provide it in our next quarterly call and provide an update.

But I don't think that this is something that should be of concern. And I think that you need to look at the trend line that we were able to achieve and also with improved mix, I think this is a trend line that we need to follow.

Operator

There are no further questions. Please continue.

Tali Chen -- Chief Business Officer

Thank you, everyone. Thanks for joining us, and we look forward to reporting to you in the next quarter.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Tali Chen -- Chief Business Officer

Ofer Elyakim -- Chief Executive Officer

Dror Levy -- Chief Financial Officer

Jaeson Schmidt -- Lake Street Advisors -- Analyst

Matt Ramsay -- Cowen and Company -- Analyst

Suji Desilva -- ROTH Capital Partners -- Analyst

Derek Soderberg -- Colliers Securities -- Analyst

Denis Pyatchanin -- Needham & Company -- Analyst

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