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DIALOG SEMICONDUCTOR REPORTS RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED 31 DECEMBER 2016. Dialog reports fourth quarter revenue up 5% on Q3 2016 and strong cash flow generation.

DGAP-News: Dialog Semiconductor Plc. / Key word(s): Preliminary Results DIALOG SEMICONDUCTOR REPORTS RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED 31 DECEMBER 2016. Dialog reports fourth quarter revenue up 5% on Q3 2016 and strong cash flow generation. 23.02.2017 / 07:30 The issuer is solely responsible for the content of this announcement. London, UK, February 23, 2017 - Dialog Semiconductor plc (XETRA: DLG), a provider of highly integrated power management, AC/DC, solid state lighting and Bluetooth(R) low energy wireless technology, today reports results for the fourth quarter ended 31 December 2016. Q4 and full year 2016 financial highlights

- Q4 revenue of US$365 million slightly above the mid-point of November guidance. Full year revenue of US$1,198 million.

- Q4 gross margin at 45.6% and underlying1 gross margin at 46.1%. Full year gross margin at 45.7% and underlying gross margin at 46.3%, in line with the November guidance.

- Q4 operating profit of US$74.2 million and underlying1 operating profit of US$84.5 million. Full year operating profit of US$309.8 million and underlying operating profit of US$221.0 million.

- All operational business segments profitable on an underlying1 basis for Q4 2016 and the full year.

- Q4 diluted EPS of US$0.66 and underlying1 diluted EPS of US$0.78. Full year diluted EPS of US$3.25 and underlying diluted EPS of US$2.09 .

- Q4 cash flow from operating activities of US$88.9 million (Q4 2015: US$109.7 million). US$59.8 million of free cash flow1 generated in Q4 2016, down 6% over Q4 2015. US$697 million of cash and cash equivalents, US$130 million above 31 December 2015.

Subsequent to year end the second tranche of the share buyback programme concluded on the 17 February 2017. During the second tranche the Company purchased 1,451,048 ordinary shares at an average price of EUR38.7651.

Q4 and full year 2016 operational highlights

- Design win momentum for custom Power Management ICs (PMICs) at leading smartphone OEM.

- Expanded our portfolio of Application Specific Standard Products (ASSP) with next generation Chargers and PMICs.

- On target with the development of an integrated PMIC targeting new LTE platform for future Asia smartphone business expansion.

- Rapid Charge(TM) success for Asia smartphone power adapters, supporting a record year revenue for the Power Conversion business.

- Gallium Nitride (GaN) product development on track, demonstrating leading power density and efficiency.

- Built a solid presence in the Bluetooth(R) low energy market, delivering over 70% year-on-year revenue growth, with our SmartBond(TM) SoCs.

- Entered the wireless charging market, with a strategic partnership and US$10 million investment in Energous, a NASDAQ-listed wireless charging technology company.

1) Underlying measures and free cash flow quoted in this Press Release are non-IFRS measures (see page 5).

Commenting on the results, Dialog Chief Executive, Dr Jalal Bagherli, said:

"We closed out the year with another quarter of strong financial performance and cash flow. Our Mobile Systems business completed the important fourth quarter in line with our expectations and our Bluetooth(R) Low Energy and Power Conversion businesses delivered strong performances.

Although the full year results reflect a transition year where we faced lower year on year smartphone units I am very proud of the many achievements and excited about the opportunities ahead. We maintained strong financial performance, solid gross margin and returned cash to our shareholders: the very first time we have done so. At the same time, we have remained focused on new areas for growth, making significant strides forward in the development and commercialisation of our newest products. All of this underpins my confidence in our prospects in 2017."

Outlook

Based on our current visibility and typical seasonal trends, we anticipate revenue for Q1 2017 to be in the range of US$255-US$285 million.

Good business momentum and a pipeline of key product launches, gives us confidence in expecting 2017 to be a year of good revenue growth. As in previous years, revenue performance will be strongly weighted towards the second half of the year.

In line with the revenue performance, we expect gross margin percentage for Q1 2017 and the full year 2017 to be broadly in line with Q4 2016.

Financial overview

IFRS	Fourth Quarter			Full Year
US$ million	2016	2015	Change	2016	2015	Change
Revenue	364.7	397.2	-8%	1,197.6	1,355.3	-12%
Gross Margin	45.6%	45.6%	-	45.7%	46.1%	-40bps
R&D %2	16.3%	13.6%	+270bps	20.2%	16.5%	+370bps
SG&A %2	8.9%	11.6%	-270bps	11.1%	10.6%	+50bps
Other operating income %2	-	-	-	11.5%	-	nm
Operating profit	74.2	81.3	-9%	309.8	259.7	+19%
Operating margin	20.4%	20.5%	-10bps	25.9%	19.2%	+670bps
Net income	52.1	52.6	-1%	258.1	177.3	+46%
Basic EPS US$	0.69	0.70	-1%	3.43	2.42	+42%
Diluted EPS US$	0.66	0.67	-1%	3.25	2.29	+42%
Cash flow from operating activities	88.9	109.7	-19%	248.8	317.7	-22%
Underlying1	FourthQuarter			Full Year
US$ million	2016	2015	Change	2016	2015	Change
Revenue	364.7	397.2	-8%	1,197.6	1,355.3	-12%
Gross margin	46.1%	45.9%	+20bps	46.3%	46.7%	-40bps
R&D %2	15.3%	12.7%	+260bps	19.0%	15.6%	+340bps
SG&A %2	7.6%	6.8%	+80bps	8.9%	7.7%	+120bps
EBITDA	97.8	116.2	-16%	269.7	357.8	-25%
EBITDA %	26.8%	29.2%	-240bps	22.5%	26.4%	-390bps
Operating profit	84.5	105.1	-20%	221.0	317.7	-30%
Operating margin	23.2%	26.5%	-330bps	18.5%	23.4%	-490bps
Net income	61.6	77.6	-21%	165.4	238.4	-31%
Basic EPS US$	0.82	1.03	-20%	2.20	3.25	-32%
Diluted EPS US$	0.78	0.98	-20%	2.09	3.02	-31%

 

2) R&D, SG&A and other operating income as a percentage of revenue.

Revenue in Q4 2016 was down 8% year on year to US$365 million. Mobile Systems was down 14% year on year and up 7% sequentially. The year-on-year revenue decline was due to lower sales volumes, reflecting soft market conditions in the high-end segment of the smartphone market during 2016. Power Conversion delivered the fifth consecutive quarter of strong double digit year-on-year growth (+25%) but was down 6% sequentially in line with seasonal patterns. Connectivity was up 20% year-on-year and 7% sequentially on the solid performance of Bluetooth(R) low energy products. Automotive & Industrial was up 22% year-on-year and 6% sequentially.

Q4 2016 gross margin was 45.6%, in line with Q4 2015. Q4 2016 underlying1 gross margin was 46.1%, 20bps above Q4 2015. The resilience of gross margin in Q4 2016 and for the full year 2016 is the result of the flexibility of our fabless business model combined with rigorous management of costs and the lower value of inventory write-offs.

OPEX, comprising SG&A and R&D expenses, in Q4 2016 was US$92.2 million, or 25.2% of revenue. Underlying1 OPEX, comprising underlying SG&A and R&D expenses, in Q4 2016 was US$83.5 million, or 22.9% of revenue.

R&D expense in Q4 2016 was up 11% from Q4 2015. As a percentage of revenue, R&D in Q4 2016 was up 270bps year-on-year to 16.3%. On an underlying1 basis, R&D expense was up 11% from Q4 2015. As a percentage of revenue, underlying1 R&D in Q4 2016 was up 260bps year-on-year to 15.3%. This increase was predominantly the result of the on-going investment in large application-specific customer opportunities as well as in programmes supporting new growth areas and the diversification of the business.

SG&A expense in Q4 2016 was down 30% from Q4 2015. This decrease was predominantly the result of the US$14.7 million of Atmel related costs accounted for in Q4 2015. As a percentage of revenue, SG&A in Q4 2016 was 270bps below Q4 2015. Underlying1 SG&A in Q4 2016 was up 2% over Q4 2015. As a percentage of revenue, underlying SG&A was 80bps above Q4 2015 to 7.6%. This increase was the result of the slightly higher SG&A costs and the lower revenue.

Operating profit in Q4 2016 was US$74.2 million, down 9% year-on-year as a result of the lower revenue and higher operating expenses. Operating profit improved 21% sequentially, mainly as a result of the higher revenue and lower R&D costs in Q4 2016. Operating profit margin in the quarter was 20.4%, broadly in line with Q4 2015. Underlying1 operating profit was US$84.5 million, down 20% year-on-year, also as a result of the lower revenue and higher operating expenses. Underlying1 operating profit increased 15% sequentially, for the same reasons as operating profit. Underlying1 operating margin in the quarter was 23.2%, 330bps below Q4 2015, mostly due to the year-on-year increase in OPEX.

The effective tax rate in 2016 was 15.4% (2015: 30.4%). The low effective tax rate for 2016 reflects the tax treatment of the Atmel termination fee of US$137.3 million.The underlying1 effective tax rate in 2016 was 24.0%, in line with Q3 YTD 2016 (24.0%) and down 100bps year-on-year (2015: 25.0%).

In Q4 2016, net income was down 1% year-on-year but up 13% over the previous quarter (Q3 2016: US$46.3 million). Underlying1 net income was down 21% year-on-year but up 12% over the previous quarter (Q3 2016: US$55.5 million). The year-on-year Q4 net income decline was the result of the lower operating profit partially offset by a net gain of US$1.9 million resulting from the fair valuation of the Energous warrants.The Q4 year-on-year decrease in underlying1 net income was driven by the movement in underlying1 operating profit. Underlying1 diluted EPS in Q4 2016 was down 20% year-on-year and up 10% over the previous quarter (Q3 2016: 71 cents).

At the end of Q4 2016, our total inventory level was US$105 million, 27% below the previous quarter (or ~48 days), representing a 21-day decrease in our days of inventory from the previous quarter. During Q1 2017, we expect inventory value to remain at a similar level to Q4 2016 and days of inventory to increase from Q4 2016.

On 30 December 2016, the first interim settlement of the second tranche of the buyback programme took place. The Company purchased 473,592 ordinary shares at an average price of EUR36.8557. Subsequent to year end, on 17 February 2017, the final settlement of the second tranche of the buyback programme took place. During the second tranche, the Company purchased 1,451,048 ordinary shares at an average price of EUR38.7651. The total number of shares purchased by the Company under the buy back programme until the 17 February 2017 was 2,783,206 at an average price of EUR33.6842 and at an aggregate total cost of EUR93,750,060, corresponding to 3.6% of the Company's ordinary share capital.

At the end of Q4 2016, we had a cash and cash equivalents balance of US$697 million. Cash flow from operating activities in Q4 2016 was US$88.9 million, 19% below Q4 2015 (Q4 2015: US$109.7 million) as a result of the US$27.2 million income tax paid during the quarter (Q4 2015: US$8.9 million).

 

Operational overview


Our commitment of targeted investment into innovative R&D and IP development remains at the core of our strategy. This is allowing rapid new product introduction and IP re-use demonstrating leading performance over incumbent suppliers. In 2016 we hired over 100 new employees, 82% of whom were engineers, taking the global employee base to approximately 1,7703 in 15 countries. During 2016, we continued to expand our design centres in North America, Europe and Asia, to take advantage of the opportunities we see for our technology.

Combining technical excellence with short design cycles, we continue to deliver value to our customers with highly integrated and differentiated products. This value underpins the potential for content increase in 2017 and over the medium term. In 2016, the Average Selling Price (ASP) of our main products remained broadly in line with 2015 at US$3.15 (2015:US$3.13). In Q4 2016, we also added new custom PMIC design wins for next generation models at our largest customer.

In line with our strategic goals, during 2016 the Mobile Systems Business Group made good progress in expanding its product portfolio of Application Specific Standard Products (ASSP) with next generation Chargers ICs and PMICs, targeting smartphones and computing platforms. We expect this to allow us to increase our content share in smartphones and tablets for products entering production in 2017. Additionally, Dialog brought its power management expertise into adjacent markets such as DSLR cameras, auto-infotainment, TVs, set-top boxes, and WiFi routers.

The Power Conversion Business Group delivered a record 38% year-on-year revenue performance in 2016. RapidCharge(TM) solutions for power adapters continued to be adopted as a differentiated technology by OEMs in Asia. Through a combination of technology, speed of execution and wide support of rapid charge protocols, Dialog has successfully built approximately 70% market share of the rapid charge adapter market for smartphones and tablets.

Through a focused R&D approach, the company continued to innovate in charging technologies. In 2016 Dialog entered the Gallium Nitride (GaN) market with the launch of its first GaN monolithic integrated device, enabling our customers to market more efficient and smaller travel adapters. This was the result of a close cooperation with our foundry partner Taiwan Semiconductor Manufacturing Corporation (TSMC). GaN offers the potential to replace incumbent MOSFET technology in many applications with a new power technology, and offers significant TAM expansion for Dialog.

During 2016, our Connectivity Business Group shipped over 50 million Bluetooth(R) low energy SoC units into the Internet of Things (IoT) market. This is a strong indication of the value we bring to customers and the continuing adoption of the technology across a wide range of applications. Our strategy remains focused on targeted verticals, namely wearables, proximity tags, advanced remote controls, gaming accessories, and augmented reality and virtual reality accessories. In support of this:

- We expanded the SmartBond(TM) product portfolio with the extended launch of the DA14681 offering high integration and flexibility that provides connectivity for re-chargeable devices, including wearables, smart home and other emerging IoT devices. The DA14681 shipped in high volume for fitness tracker wearable products, such as Xiaomi's Mi Band 2.

- Additionally, in 2016 Dialog launched an OpenThread Sandbox development platform and a second Apple HomeKit development kit, targeting an increasing customer base developing innovative applications for the future smarthome.

In Q4 2016, the Company made a US$10 million investment in Energous Corporation, a Nasdaq-listed wireless charging technology company. As part of the agreement, Dialog became the exclusive component supplier of the WattUp ICs while Energous is able to leverage Dialog's distribution channels and customer relations to accelerate market adoption.

3) Excluding Dyna-Image employees

 

Non-IFRS measures

Underlying measures of profitability and free cash flow quoted in this Press Release are non-IFRS measures. Our use of underlying measures and reconciliations of the underlying measures to the nearest equivalent IFRS measures for Q4 2016 and FY 2016 are presented in Section 4 of the FY 2016 Results Announcement. For ease of reference, we present below reconciliations for the non-IFRS measures quoted in this Press Release:

Income statement items

FY 2016 US$'000	IFRS basis	Share-based compensation and related payroll taxes	Amortisation of acquired intangible assets	Aborted merger with Atmel	Effective interest	Strategic derivative investments	Underlying basis
Revenue	1,197,611	-	-	-	-	-	1,197,611
Gross profit	546,715	1,120	7,029	-	-	-	554,864
SG&A expenses	(133,271)	15,826	7,473	3,485	-	-	(106,487)
R&D expenses	(241,345)	13,570	-	-	-	-	(227,775)
Other operating income	137,708	-	-	(137,300)	-	-	408
Operating profit	309,807	30,516	14,502	(133,815)	-	-	221,010
Net finance income/(expense)	(4,601)	-	-	1,913	526	(1,199)	(3,361)
Profit before income taxes	305,206	30,516	14,502	(131,902)	526	(1,199)	217,649
Income tax expense	(47,090)	(4,686)	(351)	(383)	(105)	386	(52,229)
Net income	258,116	25,830	14,151	(132,285)	421	(813)	165,420

 

Q4 2016 US$'000	IFRS basis	Share-based compensation and related payroll taxes	Amortisation of acquired intangible assets	Aborted merger with Atmel	Effective interest	Strategic derivative investments	Underlying basis
Revenue	364,705	-	-	-	-	-	364,705
Gross profit	166,404	(198)	1,761	-	-	-	167,967
SG&A expenses	(32,587)	3,073	1,824	95	-	-	(27,595)
R&D expenses	(59,598)	3,646	-	-	-	-	(55,952)
Other operating income	30	-	-	-	-	-	30
Operating profit	74,249	6,521	3,585	95	-	-	84,450
Net finance income/(expense) expense	(2,332)	-	-	-	110	(1,199)	(3,421)
Profit before income taxes	71,917	6,521	3,585	95	110	(1,199)	81,029
Income tax expense	(19,774)	(307)	298	-	(22)	386	(19,419)
Net income	52,143	6,214	3,883	95	88	(813)	61,610

 

EBITDA

US$'000						Q4 2016	FY2016
Underlying measures
Net income					61,610		165,420
Net finance expense					3,421		3,361
Income tax expense					19,419		52,229
Depreciation expense					7,284		27,219
Amortisation expense					6,112		21,452
EBITDA					97,846		269,681

 

Free Cash Flow is defined as net income of US$52.1 million (Q4 2015: US$52.6 million), before depreciation of US$7.3 million (Q4 2015: US$6.6 million), amortisation of US$9.7 million (Q4 2015: US$8.5 million), minus income from the fair value adjustment of warrants to purchase Energous shares of U$ (1.9) million (Q4 2015: nil) , and net interest (income) expense of US$(0.7) million (Q4 2015: US$1.3 million), plus (minus) the net decrease (increase) in working capital of US$20.0 million (Q4 2015: US$15.7 million) and minus capital expenditure of US$26.7 million (Q4 2015: US$21.4 million).

*****

Dialog Semiconductor invites you today at 09.30 am (London) / 10.30 am (Frankfurt) to take part in a live conference call and to listen to management's discussion of the Company's Q4 and full year 2016 performance, as well as guidance for Q1 2017. Participants will need to register using the link below labelled 'Online Registration'. A full list of dial in numbers will also be available. To register for the webcast and receive dial in numbers, the conference PIN and a unique User ID please click on the link below:

http://members.meetingzone.com/selfregistration/registration.aspx?book ...

In parallel to the call, the analyst presentation will be available at:

http://webcast.openbriefing.com/semiconductor_q4_results_230217/


A replay will be posted on the Dialog website four hours after the conclusion of the presentation and will be available at http://www.dialog-semiconductor.com/investor-relations

Full release including the Company's condensed consolidated income statement, consolidated balance sheet, consolidated statements of cash flows and selected notes for the year ended 31 December 2016 is available under the investor relations section of the Company's website at:
http://www.dialog-semiconductor.com/investor-relations

Dialog, the Dialog logo, SmartBond(TM), Rapid Charge(TM), are registered trademarks of Dialog Semiconductor Plc or its subsidiaries. All other product or service names are the property of their respective owners. (c) Copyright 2017 Dialog Semiconductor. All rights reserved.

For further information please contact:

Dialog Semiconductor
Jose Cano

Head of Investor Relations

T: [phone]
[e-mail]

FTI Consulting London

Matt Dixon

T: [phone]
[e-mail]

FTI Consulting Frankfurt

Anja Meusel

T: [phone]
[e-mail]

Note to editors

Dialog Semiconductor provides highly integrated standard (ASSP) and custom (ASIC) mixed-signal integrated circuits (ICs), optimised for smartphone, tablet, IoT, LED Solid State Lighting (SSL), and Smart Home applications. Dialog brings decades of experience to the rapid development of ICs while providing flexible and dynamic support, world-class innovation and the assurance of dealing with an established business partner. With world-class manufacturing partners, Dialog operates a fabless business model and is a socially responsible employer pursuing many programs to benefit the employees, community, other stakeholders and the environment we operate in.

Dialog's power saving technologies including DC-DC configurable system power management deliver high efficiency and enhance the consumer's user experience by extending battery lifetime and enabling faster charging of their portable devices. Its technology portfolio also includes audio, Bluetooth(R) Low Energy, Rapid Charge(TM) AC/DC power conversion and multi-touch.

Dialog Semiconductor plc is headquartered in London with a global sales, R&D and marketing organisation. In 2016, it had US$1.2 billion in revenue and approximately 1,770 employees worldwide. The company is listed on the Frankfurt (FWB: DLG) stock exchange (Regulated Market, Prime Standard, ISIN GB0059822006) and is a member of the German TecDax index.

Forward Looking Statements

This press release contains "forward-looking statements" that reflect management's current views with respect to future events. The words "anticipate," "believe," "estimate", "expect," "intend," "may," "plan," "project" and "should" and similar expressions identify forward-looking statements. Such statements are subject to risks and uncertainties, including, but not limited to: an economic downturn in the semiconductor and telecommunications markets; changes in currency exchange rates and interest rates, the timing of customer orders and manufacturing lead times, insufficient, excess or obsolete inventory, the impact of competing products and their pricing, political risks in the countries in which we operate or sale and supply constraints. If any of these or other risks and uncertainties occur (some of which are described under the heading "Managing risk and uncertainty" in Dialog Semiconductor's most recent Annual Report) or if the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. We do not intend or assume any obligation to update any forward-looking statement which speaks only as of the date on which it is made, however, any subsequent statement will supersede any previous statement.

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Language:	English
Company:	Dialog Semiconductor Plc.
	Tower Bridge House, St. Katharine's Way
	E1W 1AA London
	United Kingdom
Phone:	[phone]
Fax:	[phone]
E-mail:	[e-mail]
Internet:	www.dialog-semiconductor.com
ISIN:	GB0059822006
WKN:	927200
Indices:	TecDAX
Listed:	Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Hanover, Munich, Stuttgart, Tradegate Exchange

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546911  23.02.2017