Welcome to the Rambus First Quarter and FY'19 Earnings Conference Call. At this time all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference call is being recorded.

I'd now like to turn the conference over to Rahul Mathur, Chief Financial Officer. You may begin your conference..

Thank you, Jesse and welcome to the Rambus first quarter 2019 results conference call. I'm Rahul Mathur, CFO and on the call with me today is Luc Seraphin our CEO. The press release for the results that we will be discussing today have been furnished to the SEC on Form 8-K. A replay of this call will be available for the next week at 855-859-2056.

You can hear the replay by dialing the toll-free number and then entering ID number 9084526, when you hear the prompt. In addition, we are simultaneously webcasting this call and along with the audio, we're webcasting slides that we will reference during portions of today's call.

So even if you're joining us via a conference call you may want to access the webcast for the slide presentation. A replay of this call can be accessed on our Web site beginning today at 5 p.m. Pacific Time.

Our discussion today will contain forward-looking statements regarding our financial guidance for future periods including Q2 2019 and beyond prospects, product and investment strategies timing the expected product launches, demand for existing and newly acquired technologies, the growth opportunities of the various markets we serve and the effects of ASC 606 on reported revenue amongst other things.

These statements are subjects to risks and uncertainties that are discussed during this call and may be more fully described in the documents we filed with the SEC including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements may differ materially from our actual results and we're under no obligation to update these statements.

In an effort to provide greater clarity in our financials, we're using both GAAP and nonGAAP financial presentations in both our press release and also on this call. We've posted on our Web site a reconciliation of these non-GAAP financials to the most directly comparable GAAP measures in our press release and our slide presentation.

You can see this on our Web site at rambus.com on the Investor Relations page under financial releases. The order of our call today will be as follows; Luc will start with an overview of the business, I will discuss our financial results including our guidance for future period and then we'll end with Q&A.

I'll now turn the call over to Luc to provide an overview of the quarter.

Luc?.

Thanks, Rahul, and good afternoon everyone. Rambus executed well in the first quarter with solid results in line with expectations. We delivered total revenue of $48.4 million and strengthened our balance sheet generating $28.8 million in cash from operations.

As we outlined on the last call, our top priorities as a company centered around three primary objectives to drive long-term growth and profitability.

First, we have refocused our product portfolio research and patent development on our core strengths in semiconductor delivering high-speed interface and secure silicon IP as well as memory buffer chips, the leading chip and system manufacturers worldwide.

We target performance driven high growth markets including data center, networking artificial intelligence, machine learning, IoT and automotive where demand for data and security are the highest.

The second strategic objective is to optimize the company for operational efficiency and profitability, leveraging the overlap in our ecosystem of customers, partners and influencers across our areas of focus.

And finally, the third objective is to leverage our demonstrated ability to generate cash and reinvest in our sales to both organic and inorganic growth to amplify our market and technology positions. These three strategic priorities set the foundation for the company, fuel growth and strengthen our industry leadership position.

We have made solid progress towards these objectives in the first quarter, augmenting our product offerings, securing new design wins and systematically increasing our market share. Q1 was another positive quarter for our server DIMM chipset business with revenue up nearly 40% from the same period last year.

We continue to increase the number of OEM and data center qualifications making steady gains in our DDR4 buffer chip market share.

We believe our improved market position will outweigh any softness in the memory market due to the near-term inventory corrections and remain confident in a revenue range of $50 million to $70 million for the buffer chip business in 2019.

In addition to the steady growth in DDR4, we maintain our first mover position for next generation DDR5 server DIMM chips, shipping samples at the top end speeds for both the RCD and DB chips.

We are well positioned in the early bring up and validation of DDR5 DIMM and continue to have strong collaboration with the memory vendors as well as the broader ecosystem. Our high-speed IP core business had a tremendous quarter bringing in the record revenue and multiple new SoC design wins for data center, networking and artificial intelligence.

We closed the Tier-1 SoC customer that included several ASIC designs and remain on the trajectory of approximately 50% compounded annual growth rate that has been set over the past few years. I am pleased with the addition of our 32-gig and 112-gig certified to our product portfolio.

These high-performance solutions expand our customer engagement and strengthen our position in the fast growing 5G infrastructure and 400-gig and 800-gig networking markets. Moving over to our cryptographic business, the importance of semiconductor device level security continues to grow in the industry.

We saw increased traction and opportunity for our silicon -- for our secured silicon IP with a new design win at a major OEM and expanded agreements for our provisioning services. We continue to build momentum for our Crypto Manager Root of Trust in our key verticals of artificial intelligence and data centers.

In summary, we executed well in Q1 to deliver a solid quarter. We have renewed our focus on our core areas of expertise with improved operational efficiency and are seeing success in our target markets. I am pleased with our continued growth in product revenue to increase market share despite near-term macroeconomic and industry headwinds.

Our commitment to innovation and advanced product development will propel our industry leadership and fuel ongoing cash generation. With that, I'll turn the call back to Rahul to discuss the quarterly financial results.

Rahul?.

Thanks Luc. I'd like to begin with our financial results for the quarter. Let me start with some highlights on Slide 6. As Luc mentioned, we continue to make progress in our product businesses and delivered solid financial results in line with our revenue and earnings expectations.

As you know, we've chosen to adopt ASC 606 using the modified retrospective method, which does not restate prior periods, but rather runs the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. Our [Technical Difficulty] revenue amounts discussed herein are reflected under ASC 606.

As a result, any comparison between first quarter 2019 was under ASC 606 and prior results under ASC 605 is not the best way to track the company's progress. Now that we are through our transition period, we will no longer be presenting results as if we continue to recognize revenue under the old standard.

However, we will continue to provide additional operational metrics such as licensing billings to give our investors better insight into our operational performance. We delivered revenue of $48.4 million and non-GAAP diluted and net loss per share of $0.08. We also delivered licensing billing of $75.4 million in line with our expectations.

We ended the quarter with cash, cash equivalents and marketable securities of $305.9 million up $28.1 million from the previous quarter due primarily to cash from operations of $28.8 million.

We delivered solid results while continuing to leverage our high margin historic businesses to fuel growth in adjacent areas where we have strong technical and market expertise with a focus on memory and security. Now let me talk you through some revenue details on Slide 7.

Revenue for the first quarter was $48.4 million higher than our expected range of $41 million to $47 million due to the structure of licensing agreements signed in the quarter.

As we've mentioned previously ASC 606 has a material difference in the timing of revenue recognition for our fixed fee ASC 606 has a material difference in the timing of revenue recognition for our fixed fee licensing arrangements. Our licensing business continues to perform well.

It is the foundation of our success and remains core to our initiatives in both our memory and security businesses and will continue to generate cash in years to come. Royalty revenue for the first quarter was $24.8 million, while licensing billings was $75.4 million.

The difference between licensing billings and royalty revenue primarily relates to timing as we don't always recognize revenue the same quarter we bill our customers. Going into additional details, our memory and interface revenue with $34.5 million and our security business revenue was $13.9 million.

As expected revenue for our payments and ticketing business was roughly $7 million for the quarter. We continue to expect that business to grow at $35 million to $40 million in 2019. As we announced last year, we're evaluating strategic options for that business, but is still currently part of our operating results.

We expect this business to be roughly breakeven even in 2019 regardless of which strategic options we choose if any, I don't expect a significant impact to the company's overall profitability in 2019. Let me walk you through our non-GAAP income statement on Slide 8.

Along with our solid revenue performance in Q4, we met our profitability targets on an non-GAAP basis.

Cost of revenue plus operating expenses or what we refer to as total operating expenses for the quarter came in at $67.3 million slightly above our expectations primarily related to increased facilities costs directly offset by a corresponding decrease in interest expense as a result of the adoption of ASC 842.

We ended the quarter with headcount of 785, but roughly flat from 796 in the previous quarter. We recorded $5.7 million of interest income related to the significant financing component from our fixed fee patent and technology licensing arrangements for which we have not yet received payment, but recognized revenue under the new accounting standards.

We incurred $0.6 million of interest expense primarily related to the convertible notes we issued in Q4 2017. This was offset by incremental interest income related to the return on our cash portfolio.

After adjusting for non-cash interest expense on our convertible notes, this resulted in non-GAAP interest and other income for the first quarter of $6.8 million, excluding the interest income related to the significant financing component related to ASC 606, this would have been $1.1 million.

We are using an assumed flat rate of 24% for non-GAAP pre-tax loss, non-GAAP net loss for the quarter was $9.2 million for a diluted net loss of $0.08 a share. Now let me turn to the balance sheet details on Slide 9. We're very pleased with the strength of our balance sheet.

Cash, cash equivalents and marketable securities totaled $305.9 million up $28.1 million from the previous quarter due primarily to cash from operations of $28.8 million. We expect to maintain our ability to generate substantial cash from operations in 2019. This will be an important metric to monitor under ASC 606.

At the end of Q1, we had contract assets worth $629.4 million which reflects the net present value of unbilled AR related to licensing arrangements for which the company has no future performance obligations. I expect this number to continue to trend down as we bill and collect for these contracts.

It's important to note that this metric doesn't represent the entire value of our existing licensing agreements as several customers have royalty-based agreements that allow us to recognize revenue each quarter under ASC 606.

As a reminder, Rambus has invested in technology R&D throughout its history and our patent portfolio is foundational to our industry. As part of our strategic planning cycle, we've renewed our focus and investment on patent generation with an emphasis on key technology challenges facing the industry in the years to come.

Our patents provide a strong platform for our investments in product development and innovation and we believe investing strategically in this area positions us to deliver long-term profitable growth.

As we look ahead to our significant patent renewals in the future, we should note that while our typical licensing agreements last 5 to 10 years, our patents are valid for 20 years. Based on our strong track record, we remain confident in our ability to continue to renew with our partners favorable economic terms to [indiscernible].

First quarter CapEx was $1.9 million and depreciation was $2.8 million. Looking forward I expect roughly $3 million of CapEx for the second quarter and roughly $11 million for thefull year of 2019. I also expect depreciation of roughly $3 million for the second quarter and roughly $12 million for the full year of 2019.

Overall, we have a strong balance sheet with limited debt and expect to continue to generate strong cash from operations in the future. Now let me turn to our guidance for the second quarter on Slide 10.

As a reminder, our forward-looking guidance reflects our current best estimates and our actual results could differ materially from what I'm about to review. Going forward, we'll only provide financial outlook under ASC 606.

Future revenue under ASC 606 will be volatile from financial period to period due to the timing and structure of our licensing arrangements. We will continue to focus on leveraging our vast patent portfolio to maximize the value of our business as well as to provide the best economic structure.

To offer additional transparency, we've also been providing information on licensing billings, which is an operational metric that reflects amounts in both to our licensing customers during the period adjusted for certain differences.

As you see in the supplemental information we provided on Slide 17 of our earnings deck, licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605. We'll continue to provide licensing billing as another operational metric to help our investors understand the underlying performance of our company.

With that said under ASC 606, we expect revenue in the second quarter between $57 million and $63 million. We expect royalty revenue between $25 million and $31 million. We also expect licensing billings between $61 million and $67 million.

We expect Q2 nonGAAP total operating expenses which includes COGS to be between $59 million and $65 million flat to Q1's [indiscernible]. Over the course of 2018, we've kept operating expenses roughly flat as revenue grew providing leverage to our financial model.

I expect total operating expenses which includes COGS related to our buffer chip business to grow through 2019 as we ship more product. We continue to expect that our buffer chip business will grow to $50 million to $70 million in 2019.

However, as we've mentioned in prior earnings calls, we have limited visibility to each macroeconomic issues in between the supply chain and trade concerns with China. These factors could cause softness in buffer chip shipments.

While we cannot control the macroeconomic environment, we remain focused on our execution and are very pleased with our continued market share gain in our buffer chip business. Under ASC 606 non-GAAP operating results for the second quarter is expected to be between a loss of $12 million and $2 million.

The non-GAAP interest in other income and expense which excludes interest income related to ASC 606. We would have expected $0.8 million in income which includes $0.6 million of interest expense related to the notes due in 2023.

Based on the new tax legislation passed at the end of 2017, we expect our pro forma tax rate in 2019 to remain consistent with our 2018 pro forma tax rate of roughly 24%. The 24% is higher than the new statutory rate of 21% primarily due to higher taxes in our foreign jurisdictions.

As a reminder, we pay roughly $20 million of cash taxes each year driven primarily by our licensing agreements with our partners in Korea. We expect nonGAAP taxes to be between a benefit of $3 million and $1 million in Q2. We expect our Q2 share count to be roughly 111 million basic and diluted shares outstanding.

This leads you to between a non-GAAP loss per share of $0.08 and $0.01 for the quarter. While we do not issue annual guidance as we have disclosed previously this year we have structural step downs in several of our long-term licensing agreements that will impact our 2019 revenue.

In balance, we expect the growth we see in our product programs to offset these structural acceptances. Therefore, we remain comfortable with current consensus to analyst expectations on the top and bottom line for each quarter of 2019.

As previously disclosed we are reviewing our strategic options for our payments and ticketing business and may make a financial update in the future depending on the option we choose if any. Through our focus on our core business, we also expect roughly flat cash flow in 2019, while continuing to invest strategically in our growing product programs.

We are proud of the solid performance by our team and the progress we continue to make against our strategic initiatives.

While we understand that ASC 606 added a level of complexity to our financial reporting it's important to reiterate that the underlying financial strength of our business remains strong reflected in our demonstrated ability to generate cash.

In closing, we are refocusing our product portfolio around Rambus' core strengths in the semiconductor industry improving our operational efficiency and profitability, generating solid cash from operations and using our strong balance sheet to support our strategic initiatives.

We continue to focus on our growth drivers and are well positioned for long-term profitable growth. With that, I'll turn the call back to our operator. Operator Jesse to begin Q&A, so we could have our first question..

Thank you, ladies and gentlemen. [Operator Instructions] Your first question comes from Suji Desilva with ROTH Capital. Your line is open..

Hi, Luc. Hi, Rahul. So, I'm trying to figure out how the 1Q number would look if I compare it to the 4Q as if 605 number and I'm getting a revenue for 1Q that's just under $99 million and EPS of $0.22 if I use $1 million of interest income.

I want to understand if that was in the ballpark of where the numbers would have come out?.

If I have it correctly what you're doing is, you're substituting licensing billings for royalty revenue to do that math and running it through the P&L?.

Correct..

Yes. I think if I do that math, I get to the thing $99 million, but I think we would round to $0.23. But of course, those are non-GAAP numbers. We have to use ASC 606..

Understood.

I just to understand if that was in the ballpark, and then, just for the guidance, Rahul, real quick, I get to $96 million and $0.20 which is consistent with what consensus where, just want to make sure that was also in the ballpark as well?.

Yes. Since, if I were to do the math, I'd get the same number..

Okay, great. Appreciate that. And then, as I look at the memory buffer business and you've guided $50 million to $70 million here.

I just want to understand given the headwinds I know the visibility is very difficult, but given the headwinds here versus three months ago, if you were tracking toward the middle of the range before are you tracking more to the low-end now, or if you don't have that level of clarity what are the puts and takes that puts you at the high-end versus the low-end now, is it just macro, was it also some customer up tick, any color there would be helpful..

Hi, Suji. Luc. First of all, we remain confident about the memory market in the long run. We continue to believe that this market is going to continue to grow at 20% rate over the next three years. Now what's happening this year is that we have an inventory correction that is hitting the market.

Our customers' customers over billed last year and now they're leaving off their inventory. So, this being said, we continue to grow as I said earlier, we grew 40%, nearly 40% compared to the same quarter last year.

And that's mainly due to the fact that we've won a lot of designs on the current generation of Intel platform Skylake and we continue to win designs on the next generation platform.

So, despite the headwind in the market, which we think are going to be limited for the first half of this year, we continue to gain share and the impact is somewhat limited to us. So, we maintain our guidance of $50 million to $70 million this year. The second half is going to tell us where we stand in that guidance, things can turn very quickly..

Okay. That's very helpful Luc. And then, lastly, I know you gave some color on the payment and ticketing business in the process. Appreciate all that.

Just to give a sense of what the market appetite is for that asset just to give a sense of how quickly this may or may not get done and obviously the proceeds come in, if you're thinking about inorganic activity more aggressively, if there's a target rich environment out there or any color on those two topics would be helpful as well. Thank you..

Thanks. As we said earlier, we are in process to look for these strategic options for the payment and ticketing group. And that's going well as we said earlier we expect to have more clarity before the end of the quarter. So, things are going according to plan.

Now to your other question about M&A activity this is central to our thinking, we generate a lot of cash as we just said. We generated $28.8 million of cash from operations in the first quarter. So, we're looking at M&A opportunities, but we want to make sure that they fall into our strategic focus as we described it over the last two quarters.

And we want to make sure that they are operationally and financially viable for us. That's a key area of focus for myself and for the management team..

Okay. I will pass along. Thank you, guys..

Thanks, Suji..

Thank you..

Your next question comes from John Pitzer with Credit Suisse. Your line is open..

Hi, guys. This is Ada calling in for John.

Can you maybe talk of -- provide additional color in your licensing billings versus your royalty revenues and what the delta there looks like over time?.

Sure, absolutely. Hi, Ada. This is Rahul. With the earnings presentation that we provided what we actually provided, if you look at Slide 17 of that presentation and what we show is that comparison between revenue and licensing billings.

And what you see for example for fiscal 2018, I think in some of our historical presentations we've shown you the numbers for prior years as well. So, if we just look at fiscal 2018, you see that our total revenue under ASC 606 was $231 million and we reported revenue under ASC 605 for 2018, our revenue would have been $401.1 million, right.

So that's the delta of about $170 million or so. Now, if you look at our royalty revenue under ASC 606 that royalty revenue ASC 606 would have been about $130 million about $138.45 million. If you look at our royalty revenue under ASC 605 that would have been about $303 million. So, substantially higher.

Now, what we show on a reconciliation also is in royalty revenue compared to licensing billings for 2018. So, as I mentioned earlier royalty revenue under 2018 was $135.45 million where the licensing billings for 2018 was $301.2 million.

So, historically our licensing billings has compared very nicely to what we reported as royalty relatively new under ASC 605.

And what I see a lot of our analysts' investors doing is simply using that as a better proxy for our actual cash flow because I think when those folks plug that in the numbers they get in their models in terms of operating results more similarly match what we report for cash flow operations..

Got it. And can you talk about your OpEx trajectory to the remainder of the year. I know you talked about continuing to spend on the product line -- on the product..

Yes. We will continue to make investments in terms of where we will see it from a product perspective. I think what I talked about right now for Q2 was guidance of OpEx which was roughly flat from where we had in Q1.

And what you see there is that as we grow things like buffer chip then what you'll see is our COGS related to buffer chip starts to increase. I think as you look over the course of the year what you'll see is total OpEx, operating expenses be roughly flat or maybe slightly down.

That's what we'll see, you'll see COGS grow from buffer chip as buffer chip grow. But then, you'll see some other costs come out, so namely the Q1 spike that we typically get in terms of [cycle] [ph] and social security and the other items as well.

But what I see from a total operating cost and expense is something roughly flat maybe a little bit down over the course of the year..

Great. Thank you so much..

Most welcome, Ada. Thank you..

Your next question comes from Sidney Ho with Deutsche Bank. Your line is open..

Thanks for taking my question. My first question is on licensing billing guidance declining from $75.4 million to $61 million to $67 million.

Is that all driven by the licensing step down that you talked about or are there other factors that that may impact that number from quarter-to-quarter? And maybe a follow up to that how should we think about the next couple of quarters.

The step downs can be reset in Q3, or is it going to continue in Q3 and Q4?.

Sidney, that's a great question. What I would tell you is that as we've been implementing ASC 606, what we've been doing is for new contracts, we've been structuring them with our partners in a way that allows us to take revenue ratably over the course of the contract.

And so, what you'll see is that as some of these go on then that difference between licensing billings and royalty revenue will change on a quarter-to-quarter basis. As you noted, we do have a step down in multiple contracts over the course of the year. And so, part of that difference is reflected there as well.

But I think the real difference quarter-to-quarter is really more just about the structure of different contracts and how they come up over the course of the year. What we do note and I talked about this previously is that from a seasonality perspective, Q2 is usually the lowest quarter in the year for us.

Just in terms of how we've historically done our licensing and renewals. But, I wouldn't read too much into that change. I think the combination of the licensing billings as well as the other product revenues give you an idea of what's the overall kind of billings of the company..

Okay. That's helpful. Maybe a follow up question is, I think last quarter you talk about the lack of visibility in the near term, I think you kind of reiterated that today, has that improved since the last quarter. Maybe talk about where you see visibility improve and where visibly is still lacking.

And I understand you also have this -- your view on demand in China. I know there's no direct impact, but just want to see if there is an indirect impact on you guys..

Yes. Thanks Sidney. So, as you say we have no direct impact in China, but it has impact on our customers. So, the first thing I would say is that China does not impact our licensing billing forecast. It has a potential indirect impact on our buffer chip business.

What we see is that some of our customers have to move their supply chain away from China that delays the demand from some of those customers.

But this being said, although, we see softness for the first half of the year, we also have better visibility than we had last quarter in the sense that we believe things may pick back up sometimes in Q3, Q4 and that's reflected in our discussions with our customers.

So, still some softness a little better visibility and an expectation that things will come back up in Q3, Q4 this year..

Okay. Wonderful. And maybe one last question for me in terms of a high-speed IP core business; first, can you remind us how big that business is; and second, you talked about taping out 112 Gig SerDes PHY on 7 nanometres. When do you expect that to contribute meaningfully to your revenue.

And can you talk about competition there versus the current generation of the 56G. Thanks..

As Rahul would say our licensing billing is approximately $300 million per year, if we don't count the step downs in that that includes our IP core business. The 12 Gig, what you see in our IP core business is that we have refocused our attention to things that we believe are going to gain traction in the market.

So, the 112 Gig SerDes has been developed with in line of PHY, the deployment of 400 Gig networks that we expect to see starting sometimes in 2021. So, a lot of SoC companies are actually developing today chips that will use these 112 Gig SerDes with these markets.

Similarly, we have developed the 32 Gig SerDes in 7-nanometer, we are developing in 32 Gig SerDes in 7-nanometer to address other markets that we believe are going to gain traction like 5G infrastructure or PCI Gen 5. So, we are focusing our efforts on to those markets because we believe those markets are going to create demand.

The way we play in those markets is, we get the revenue from the SoC vendors, who build the SoCs for when the market are going to start in 2021. So, we see licensing revenues from these SoCs earlier than 2021. That's why we're doing that. The main competitor in that market is Broadcom.

There are a lot of competitors that are trying to get in that market. But what we've seen from customers and from the market today is that we are gaining nice traction with our customers and continue to gain share. I'll repeat that over the last four years, we've grown on an annual compound rate of 50% in the business..

Great. Thank you very much..

Thank you. [Operator Instructions] Your next question comes from Mark Lipacis with Jefferies. Your line is open..

Hi. Thanks for taking my questions. A couple on Crypto, one of the memory buffer business. On the Crypto side, you mentioned that key design win with a new OEM. Could you share with us where you are in that product a project deployment.

And how big that could be ideally and when you talk about building momentum in CryptoManager in the data center could you provide any more color about what's going on there with the application. And then, I have a follow up on the memory buffer. Thank you..

Yes. Thank you, Mark. So, we are currently on a trajectory of about one design win with an OEM every quarter as do we got a design win for one of our IP core in crypto last quarter. And fortunately, we cannot disclose the name, but that's a different OEM than the OEMs we used to have in the past.

But, that's a good sign that this market is picking up for us. The other thing that happened for us last quarter is that we have expanded some of our provisioning agreements with existing customers, which is a sign that the demand for these products is still good.

Now moving forward, what we see is, we see traction with a couple of customers in two main areas. One is in the automotive area and one is the cloud infrastructure area. But, I think it's too early at this point in time to give details about that.

In general, what we see is a regular piece of new design wins and new design opportunities in new segments. And that gives us confidence into our growth in that business. This just gives me an opportunity to say that in 2019 every one of our product initiatives is going to grow over 2018 which is really good for us..

Okay, excellent. Then on the memory buffer business, you mentioned some issues with the supply chain. I just want to make sure I think I understand what this is, does your customers or your customers or customer customers downstream.

Time to take the manufacturing out of China and putting it in non-tariff locations and then setting up that supply chain, and then, and now you're seeing orders.

Is that kind of the idea that maybe some orders pushed out in addition to the inventory issues, there is this supply chain issue that has to do with resetting up manufacturing outside of China? Thank you..

Yes. Correct. We see a combination of challenges that have hit the market recently. One is the inventory situation across the board. As we said earlier we believe that should clear up in Q3 or Q4 this year.

The other thing is that you're absolutely right, some of our customers had to move their manufacturing locations from China to other countries to deal with tariff situation. So, if you combine these two factors that explains the softness that we see in the first half of this year. But as I said earlier, we had a very good trajectory of design wins.

So, we were not immune to that softness, but the impact of that softness on the demand side has been less than expected on our supply..

Okay, great. Thank you very much. That's helpful..

Thank you..

Thanks Mark..

At this time there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to Luc..

Thank you. As you can see, we continue to navigate with confidence demonstrating our technology leadership and ability to execute across the company. Thank you for your continued interest and time and have a good day. Thank you..

Thank you. This now concludes today's conference..