ams OSRAM AG

SIX:AMS

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, good morning. Welcome to the ams Half Year 2018 Results Conference Call. I'm Alice, the Chorus call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. [Foreign Language] At this time, it's my pleasure to hand over to Mr. Alexander Everke, CEO; Mr. Michael Wachsler-Markowitsch, CFO; and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.

[Moritz M. Gmeiner, Senior Director of Investor Relations]

Good morning, ladies and gentlemen. This is Moritz Gmeiner. I'm very happy to welcome you this morning to our second quarter and first half results conference call. As usual, Alex will give you some update on the developments in our business, while Michael will take you through our financials in more detail. Alex?

[Alexander Everke]

Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our second quarter 2018 conference call this morning. Let me first give you some key financial figures, Michael will later take you through the financials in detail. Our second quarter revenues came in at $252.8 million, above the top end of our guidance range and up 18% compared to the second quarter last year. This also means that despite the lower second quarter, our revenues for the first half were 76% higher than last year's first half. Our adjusted gross margin, excluding acquisition-based and share-based compensation cost, was 15% in the second quarter. Our adjusted EBIT, excluding acquisition-based and share-based compensation cost, for the second quarter was minus $48.6 million or minus 19% of revenues, which was better than our previous guidance. Our business showed an overall solid performance in the second quarter, which turned out better than expected. While we recorded the previously anticipated significantly lower customer volumes in our consumer business, the resulting impact on group revenues and profitability remained lower than expected. This allowed us to report second quarter results above previous guidance. These results also underlying the ongoing market success of our diversified and differentiated sensor solutions portfolio in the first half of 2018. Let me look at the developments on the consumer side first. Our Consumer & Communication business was strongly impacted in the second quarter by the above mentioned substantial reduction in customer volumes for certain optical solutions. At the same time, volume shipments of other consumer products continued at attractive levels for a broad range of customers. Leading in optical sensing, we provide a wide array of high-performance solutions for 3D sensing, including VCSEL-based illumination, advanced spectral sensing, TrueColor and color display management, smaller scale advanced proximity sensing and other optical applications. We drive innovation in optical technologies by leveraging a broad and expanded portfolio of hard and software for fast-growing optical applications. In the emerging growth market for 3D sensing, we strengthened our position as a leading provider of consumer 3D sensing technologies in the first half. We have recently announced a further design win in Android 3D sensing at Xiaomi, the fast-growing Chinese smartphone vendor. We power the first face recognition solution android smartphones via an ams VCSEL array for structured light illumination, and the IR flood illuminator model, which includes a further ams VCSEL array and offers advanced eye safety. Our design win underscores the strong competitive advantage of ams VCSEL technology in 3D sensing applications. This success adds to the previously announced large program win for an Asian smartphone OEM, which also includes ams VCSEL technology for illumination. We currently expect that program to start ramping before the end of 2018. The consumer 3D sensing market remains in the formation phase for -- as OEMs, and other participants continue to identify valid technical approaches for different market, application and performance needs. We also note in emerging trends where large Android ecosystem players want to support robust reference designs to enable 3D sensing adoption across applications and market segments. So beside OEMs, we now see major ecosystem players starting to engage with us to define consumer 3D sensing solution in different technologies. Through our industry leading portfolio of 3D technologies, expertise and IP, we are strongly positioned for these efforts, and are able to support relevant systems for all 3D sensing approaches, structured lights, time-of-flight and stereo vision. We see a lot of activity in 3D sensing space despite the different technical and implementation hurdles for these technologies of which we are very keenly aware. Benefiting from experience and focus on 3D sensing, we are taking multiple steps to broaden our expertise and build an even stronger position as a solution architect for different markets and customer needs. Let me run through several developments in this context. To accelerate the time-to-market for structured light solutions that address diverse market requirements, we have started a cooperation with OmniVision Technologies to define and to develop tightly aligned structured light systems, which are based on both partners' technology portfolio. We have also expanded our 3D system design and software capabilities through the acquisition ixellence in the quarter. A German-based expert in custom DOE dot pattern design and 3D system solution architecting. To expand our 3D portfolio further and leverage our existing know-how and IP in the area of stereo vision, we have recently concluded an equity investment into Bellus3D, a U.S.-based 3D software specialist. Bellus3D develops active stereo vision reference solutions for front-facing 3D sensing in smartphones, which will include ams proprietary patent projector. Promoting these reference solutions to Chinese smartphone OEMs through Face++, Bellus3D enables cost-efficient implementations for face authentication and other innovative face-related applications.In the context of our collaboration with Bellus3D, a worldwide leader in semiconductor and software solutions for consumer devices engaging with us to explore new reference solutions for stereo vision systems. These will target cost-efficient 3D sensing for a wider range of consumer devices and smartphones. We are also in discussion with a leading software provider for smartphone platforms to cooperate on new reference solutions that should enable faster time-to-market and easy adoption of stereo vision 3D in Android smartphones. As you can see we are actively driving the evolution of 3D sensing technology, while we, at the same time, focus on market layers and application we feel most appropriate and attractive for ams. We also hear a lot of discussions about advancing fully software-centric solutions for 3D authentication, where we believe the performance, IP infrastructure and cost requirements are not lining up to allow competitive smartphone implementations. This reminds us of previous discussions some years back, about realizing other smartphone applications entirely in software, where the concept sounded very exciting, but the actual processing mix and other needs inside the smartphone turned out to be strongly underestimated. Besides 3D, we also pursue major developments for other optical sensing, spectral sensing and multi-sensor solutions for consumer applications, which include audio. Our audio sensing business continued to expand through the first half of 2018. Here, our developments for audio and pressure-sensing combinations for mobile devices are continuing. In consumer spectral sensing, we are progressing on the first smartphone implementation of a spectral sensing application and expect volume shipments to start within the next 6 months. And finally, our other consumer product lines saw attractive volumes at a wide range of device vendors in the quarter. Let me now switch to other nonconsumer business. Our Industrial, Medical and Automotive business performed well and in line with expectations in the second quarter and first half. We see a continuing positive demand environment in our nonconsumer end markets as we enter the second half of the year. Our industrial business recorded attractive results in the second quarter as automation, HABA, industrial sensing and industrial imaging all contributed to our performance. Showcasing ams leadership in global shutter technology for demanding applications, our latest generation award winning image solution for the industrial market and our volume production in the quarter. A key supplier to industrial OEMs worldwide, we are known to enable new sensing functions for high quality data acquisition in manufacturing, HABA, industrial IoT and other industrial applications. Our Medical business continued to be successful in the second quarter, and first half with good volumes in digital imaging for computed tomography, digital X-ray, mammography and miniature camera applications. Our market position in Asia is extending while we see OEM interest for multiple end markets in the area of biosensing where our unmatched capability include high-quality blood pressure measurement and biodata analysis. Our automotive business recorded another positive quarter as attractive demands for our automotive solutions continues across product lines. We focus on applications in safety, driver assistance, position sensing and chassis control, where market interest remains high on a global basis. Besides the previously reported major program win from VCSEL illumination in a solid-state LIDAR system, we see growing interest in our autonomous driving portfolio as industry leaders recognize our outstanding expertise in laser systems and LIDAR. Here we have a global pioneer in autonomous driving platforms engaging with us to explore innovative technical solutions for solid-state LIDAR, based on our leadership in optical technologies. In addition, OEM interest in other automotive 3D sensing application, such as in-cabin monitoring continues to solidify. We are also engaged in advanced OEM discussions for our very new application of hands on/off detection in the context of autonomous driving, where the car needs to detect whether the driver is actually holding the steering wheel or not. We have created a very attractive solution based on capacitive sensing and see interesting market opportunities for this in-cabin sensing function. Moreso, as we do see potential for this functionality to become mandatory through regulation. Moving to manufacturing operations. We have expanded our Singapore facilities to support capacity requirements for the car production ramps in consumer optical sensing. We also expect further investments into our production infrastructure in the second half of 2018. The investments into our internal VCSEL production line in Singapore continue to plan with volume productions scheduled for next year. In addition, we concluded agreements with Taiwan-based VCSEL vendor HLJ Technology in order to strengthen and expand our external VCSEL supply chain. Supporting this relationship, we also retain a meaningful shareholding in HLJ Technology. On a side note, I would like to add that I'm very happy to continue to drive ams strategy forwards in the coming years, as the Supervisory Board and I recently extended my contract until 2021. Let me now come to the outlook of our business. We see a steep sequential growth in the third quarter of 2018 as we are ramping very high-volume smartphone sensing solutions and our other end markets continue their positive contribution. Based on available information, we expect third quarter revenues to grow strongly to $450 million to $490 million, up 78% to 94% sequentially, and 46% to 59% year-on-year. This expected positive relevance reflects the ramp-up nature of the third quarter as production and shipment volumes in our consumer business continue to expand through the second half of this year. Driven for these large-scale consumer ramps, we currently expect a record level of revenues for the second half of 2018. The adjusted operating margin for the third quarter, excluding acquisition-based and share-based compensation cost, is expected to show a significant sequential increase to a low teens percentage. This development is predominantly driven by the ongoing improvement in capacity utilization. In addition, we have recently initiated a strategic review of specific business areas, taken on an active approach to align our business portfolio for long-term attractive growth, profitability and end market diversification. Simultaneously, we are actively evaluating strategic expansion opportunities in line with our strategy to build the global leader in sensor solutions. A strategy that is based on our focus areas: optical, imaging, environmental and audio sensing. We are focused on enhancing ams long-term positioning and expect to provide an update on both developments in the fourth quarter of this year. While taking into account potential effects from possible future changes to our business portfolio, we endorse our growth target for ams revenues of 60% CAGR for the 2016 to 2019 period. At the same time, we are convinced of the long-term strengths of our business model and committed to driving balanced profitable growth. We therefore, also endorse the target of reaching 30% adjusted EBIT margin for ams in 2020 where we prudently take into consideration potential financial effects that could result from possible future changes to our business portfolio. Let me now hand over to Michael for more details on the financials.

[Michael Wachsler-Markowitsch]

Thank you, Alex, and good morning, ladies and gentlemen. As usual it's my pleasure to give you an overview of our IFRS and adjusted consolidated numbers for the second quarter of 2018. Let me start with our P&L and the topline development. Alex already mentioned that our second quarter group revenues came in at $252.8 million, which was above our previous guidance of $220 million to $250 million. We recorded a healthy 18% year-on-year growth, while we saw the expected sequential decrease compared to the previous quarter. As mentioned by Alex, we expected customer volume effects to play through in our Consumer & Communications business, however, the impact on group revenues and profitability remained lower than expected allowing us to report second quarter results above previous guidance. Our adjusted gross margin excluded acquisition-related and share-based compensation costs, was 15% compared to 41% in Q2 last year. This gross margin development particularly reflects the expected underutilization in our production facilities in Singapore during the quarter due to the mentioned customer volume effects. Our IFRS reported gross margin was 9% compared to 35% in Q2 last year. Our R&D spending was $60 million in the second quarter of 2018, a decrease from $63.2 million in Q2 last year. In relative terms, this means 24% of revenues, which is well below last year's Q2 level of 30% of revenues. While there are almost quarter-to-quarter movements in R&D spending, we expect a similar level of spending for Q3 in absolute terms given our focus on R&D to drive innovation. We expect continued meaningful levels of R&D spending for a range of platform developments and major product opportunities we're working on for the coming years. We also see our long-term target for R&D spending at well below 15% of revenues, helped by business growth we target for the coming years. Further down our P&L, SG&A costs were $41.9 million compared to $40.5 million in the second quarter last year. In relative terms, we spent 17% of revenues on SG&A in the quarter, which is below the level of last year's Q2. Here we also expect a roughly similar level of spending in absolute terms for the third quarter. Looking forward, we have already updated our long-term target for SG&A costs to well below 10% of revenues, and we continue to work towards that. Our other operating income of $2.5 million for the second quarter compared to $5.4 million in Q2 last year resulted for the most part from R&D support grants from Austrian and European R&D programs, which are tied to dedicated R&D spending for these programs. Given these developments, our adjusted operating result or EBIT, excluding acquisition-related and share-based compensation costs for the second quarter, was a loss of $48.6 million or minus 19% of revenues, which was better than our previous guidance. This Q2 result decreased as expected from $1.6 million or 1% of revenues in Q2 last year. The IFRS reported result from operations or EBIT for the second quarter was minus $76.1 million or minus 30% of revenues, down from minus $25.3 million in the same period 2017. Our net financial result was exceptionally positive at plus $43.9 million, showing a very significant influence from changes in the valuation of the option element of our foreign currency convertible bond, which we recorded as required by IFRS rules. This figure compares to $7.3 million in Q2 last year. The financial result also reflects noncash valuation adjustments for foreign currency balance sheet items and interest expenses. Adjusted net results for the second quarter stood at minus $103.5 million compared to minus $20.9 million in the same period last year. This development was driven by the expected underutilization and the mentioned significant change in valuation of the option element of the convertible bond, which is excluded in the adjusted net result. Adjusted basic and diluted earnings per share was minus CHF 1.24 and minus CHF 1.19 compared to minus CHF 0.23 and minus CHF 0.22 in Q2 2017 or minus USD 1.24 and minus USD 1.20 compared to minus USD 0.25 and minus USD 0.25 for second quarter 2017. Our total backlog on June 30, 2018, stood at $549.9 million, significantly up from $330.7 million, we saw at the end of the first quarter of 2018, and also well above the $247.9 million on June 30, 2017. The current backlog is on a similar level than at the end of June. Now let me give you some additional figures from the balance sheet and the cash flow statement to complete the picture. Our cash and cash equivalents stood at $246 million at the end of the quarter, compared to $475 million at the end of the first quarter. This change results from the further expansion of our Singapore manufacturing facilities for 2018 needs as well as dividend payment for 2017. Our net debt position was $1,563 million at the end of Q2, reflecting the convertible bond issues last year and this year, which partly also supported our CapEx investments in 2017 and 2018. Our trade receivables stood at $294 million, down from $302 million at the end of the first quarter. Our DSO ratio was 80 days up from 44 days in Q2 last year. This increase is due to certain individual payment agreements with our largest distribution partners, and we expect this value to decrease substantially in the coming quarters. Inventories were $337 million compared to $287 million at the end of the first quarter. This development mainly resulted from changes in work in progress levels in our manufacturing to prepare for a ramp-up in the second half, while the finished goods portion of our inventory was slightly below 20%. On the liability side, we have a current debt position of $215.3 million, while our long-term debt stood at $1,594 million at the end of June. Our long-term debt was generally taking on to bolster liquidity, support CapEx investments, [ help ] acquisitions and potentially future M&A. Apart from the recently issued convertible bonds, the debt mainly consists of unsecured loans of a long-term nature. Operating cash flow in the second quarter was minus $72.3 million, an increase from minus $38.9 million in the same quarter last year. This development was mainly driven by the expected significant underutilizations of our manufacturing capacity as well as the mentioned change in inventories. Our CapEx in the second quarter was again significant at $163 million and almost unchanged from $162 million in Q2 last year. This comprises further planned investments for identified capacity expansion needs, which include the ongoing product ramps for the second half of 2018 onwards. Looking out to the longer-term, our target CapEx-to-sales ratio is expected to be between 10% and 15% to support the further growth of our business. As mentioned, a dividend of EUR 0.33 per share was resolved at our AGM in early June, and it was paid out shortly thereafter. And with that, I would like to open the floor for questions. Thank you very much for your attention.

[Operator]

[Operator Instructions] The first question comes from Sandeep Deshpande, JPMorgan.

[Sandeep Sudhir Deshpande, Research Analyst]

Maybe you can comment on how you see the trajectory of the ramp of the shipments into the second half of the year. And secondly, with regards to your wins in the Android world, do you see that you are in discussions with multiple parties at this point, and there could be further wins to be announced at some point later this year or into 2019?

[Alexander Everke]

Yes, thank you for the question. As I mentioned, the third quarter, we consider it as a ramp-up quarter. So we have a very positive outlook on the second half of this year. Very, very encouraging. On the discussions with multiple parties, yes, as you can see on the -- we are talking to multiple customers, OEMs, but also with partners, system integrators, software companies, reference design companies, and we are expanding this network extensively over time just to ensure that we define future architectures, enable and support our growth ambitions, and make sure that we drive the ecosystem in the direction we want to have it.And we will announce this in the next quarters and give you more insights as soon as we can talk about it.

[Operator]

The next question comes from Andrew Gardiner from Barclays.

[Andrew Michael Gardiner, Director]

I have just couple of questions in similar areas to Sandeep's. Just in terms of the second half outlook, you guys have changed the language a little bit in terms of how you're talking about it. Earlier in the year, you were saying significant 2H on 1H growth, so it was similar directionally to what we saw in 2017. And at the time you were suggesting high double digits half-on-half or sort of around 80%. Now we've got the 2 quarters' results, we've got the third quarter guidance, and yet, today you're not willing to use that same language around half-on-half growth. I'm just wondering what has changed there in terms of absolute units or pricing that has led you to adjust the way that you're talking about that.

[Alexander Everke]

Yes, so thanks for the question. I think nothing changed there. So we gave a guidance for Q3 today, which is significant sequential growth, and I think even more important significant year-over-year growth. I also indicated that we see a strong growth for the fourth quarter, and the second half will be a record second half for us. So we see it extremely positive.

[Andrew Michael Gardiner, Director]

Okay. I suppose just to follow-up quickly there. You'd also been willing to say that you anticipated with the second generation of optical sensing solution, the pricing would rise, is that still the case?

[Alexander Everke]

We can't give any price indication on specific projects.

[Andrew Michael Gardiner, Director]

Okay. And then, sort of, finally, on the sort of strategic side that you've alluded to. Yes, I suppose it does seem though as the 3D sensing ecosystem is evolving in a slightly different fashion than we may have imagined this time last year. And if I go back to the way you guys talked about it at the Analyst Day in December, there was an idea that the very high end of the market would choose bespoke solutions and most of the rest would opt for a module, we haven't really seen that latter come through. And I know you guys have been working on it, and it was really going to be a 2019 event for you. There has been another competitor in the market who has failed to bring their product to market on time. And the Android solutions we're seeing so far are -- everyone's taking a slightly different approach and you guys are involved, which is great, but it does seems as though the approaches being taken by the OEMs are different than we anticipated. Is that -- is it those developments that are causing you to take this, sort of, strategic action and, sort of, perhaps, adjust the strategy a little bit?

[Alexander Everke]

No, no, this has nothing to do with it. So 3D sensing is totally out of this discussion. And actually, I don't see such a big difference. As you recall, our strategy of August was that we are the lead in 3D sensing, which implies all functionalities, structured light, time-of-flight and stereo vision. We still have the same opinion that structured light is the high-performance solution. We see these trend's ongoing, but we also indicated that a lot of OEMs are still uncertain which area they'll go, based on their own capabilities, cost position, performance requirements and the application they want to address. And therefore, we also indicated that we see the ramp only happening end of '18 and predominantly in 2019. So our anticipation for the market did not change significantly, not at all. And we -- of course, we take -- I think, it's important we take all steps to get the market going. We keep all options open for us because as a leader and you have to play at -- in every single place where you want to -- where you decide to play in, and we keep those options open with our own investments, with partnerships, with relationship with system integrators and so on.

[Operator]

The next question comes from Achal Sultania from Crédit Suisse.

[Achal Sultania, Director]

Two questions from my side. First, so if I look at the margins, the way you're guiding for Q3 EBIT margins and your comments, Michael, on OpEx are roughly flat. Seems here that the gross margins are going to be around 30% give or take in Q3. So I'm just wondering like how should we think about gross margins going forward? Is this the right level of gross margins at -- when volumes have ramped up? Or is there a big underutilization chart -- is still -- that you're seeing in the quarter? Any comments on that would be helpful. And then I have a follow-up on your Auto, Industrial and Medical business. It seems your H1 revenues are actually down year-on-year slightly, we have always thought that this should actually be growing double digits. So can you comment on that. Why your revenues are down in AIM?

[Michael Wachsler-Markowitsch]

Yes, thank you for your questions, Michael, I'm happy to take it. We see -- as Alex pointed out, we see strong ramp in the quarter and this is ongoing. But clearly not be completed this quarter. So these ramps are driving a very strong upswing in EBIT margin, around 30 points in 1 quarter, a magnitude which is fully in line with what we have expected previously. This absolutely and clearly also shows the positive effects of capacity utilization coming back and how quickly this translates into better financials. But still, we're on a ramp-up situation this quarter, it's on a very large scale and across different products but may also see somewhat different ramp-up curves. So volumes, capacity utilization, efficiencies et cetera. And as you know we cannot guide for further quarters in future, but we can only expect a positive -- a further positive development from the expected increases in utilization, clearly.

[Alexander Everke]

And then on the -- on your second question on the Automotive business, where the quarter distribution depends a little bit on individual projects. But I think it is important to understand we have 2 different kind of Automotive business, one is the -- I would call it the more traditional ones, where probably you prefer to the acquisition center. But the really exciting part is the new automotive business which is based on -- partially on optical sensing, whether it's 3D LIDAR, in-cabin 3D sensing, what I'd just mentioned or the steering wheel application with capacity sensors. I think this is a significant growth opportunity for us for the coming years. And this will be just significant. And all the efforts we are putting in place is mainly on the future Automotive business because this industry is changing and we take advantage of it.

[Operator]

Your next question comes from Janardan Menon with Liberum.

[Janardan Nedyam Menon, Technology Analyst]

I just wanted to talk a little bit about your stereo vision efforts that you've talked about in your press release and in your introductory remarks. One change is, when you were talking last year at the Capital Markets Day, et cetera, there was not a lot of talk about stereo vision, but now you seem to be talking quite extensively around that technology. I was just wondering, is it because -- is it been mainly driven because this cost of structured light is too high or is it because the difficulties of implementing structured light is too high? And if you were to take a -- sort of a guess at it, what would be the percentage of stereo vision adoption in the Android market, let's say by 2020 or so? Would that be a meaningful amount given that you're going for the -- you're sort of suggesting it'll be adopted in the value end which could be quite high in terms of volume? And the last question there is also what is your sort of value proposition there? You've said that you will contribute a proprietary patent projector. Is that similar to the value and that you will be contributing say on structured light from a VCSEL plus WLO kind of combination? Or will it be higher or lower than that? And is there a difference between active stereo vision and passive stereo vision and the kind of solutions you're looking at?

[Alexander Everke]

Yes, I think your last statement was the key one. So first of all, we see -- as I mentioned some multiple quarters ago, we see multiple systems developed in the market, structured light, with the strong advantage of very high performance, it's very, very clear. But we see also stereo vision as one of the very best solutions. But the key difference now is the introduction of active stereo vision, where the dot projector is part of it, as you correctly said, which makes it more reliable and a better performance system. The share of those systems in 2020, that's hard to predict, but we are very flexible. We participate whatever customer needs and depending on the application we are supported for all the projects. And at the end of the day, it also depends which application we want to do, and therefore, the performance, and therefore, the differentiation for these projects and this determines the margin and ASP. It's hard to predict, but we will play in all segments, equally.

[Janardan Nedyam Menon, Technology Analyst]

And just as a brief follow-up. Can you also comment on the world facing side? There's been some talk of stereo vision in that side? But your previous comments has been more sort of in the time-of-flight direction. How do you see that playing out over the next couple of years?

[Alexander Everke]

Yes, it's very similar to the front facing. It's -- there are multiple opportunities, multiple technical solutions for that, it depends on the customer and their application -- there are different applications, and what you do with world facing and it depends which main application you choose. You choose the hardware. Again, at this phase also we can participate in all the system solutions possible.

[Operator]

The next question comes from Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

Given the upcoming strategic review, there is a worry in the market that you're kind of doubling down and potentially like overreaching in consumer, and perhaps, pulling back on some profitable businesses that are slower growing in Automotive, Medical and Industrial. So can you please reassure that's not the case. My second question is around the sales target. Can you just reassure us that on an organic basis, assuming you don't do any deals, that number is still 60% CAGR out to 2019? And then a last question will just be on the M&A side. Your debt head room is very, very limited. So would you consider only smaller deals that are funded out of debt and disposals? Or would you consider large deals like I'm talking about above $1 billion?

[Alexander Everke]

Yes, well, thanks for the question. So first of all, a strategic review is certainly to continue to improve the position of ams as a company within our strategic cornerstones of optical imaging, audio and environmental. And certainly, what is important for us is the growth, but also profitability, which should answer part of your question. But also areas like differentiation and diversification. So the cornerstones of our strategy will not change. But of course, that might be potential change in the portfolio, which we will investigate this quarter, plus potential options we see in the market, we may execute. And so the internal strategy will not change so I can confirm this, and we want to have a balanced portfolio of fast growing and mixed growing product portfolios with an acceptable profitability for the company.

[Michael Wachsler-Markowitsch]

And, Robert, to your M&A question and debt question, it's Michael. We clearly see that our net-debt position is high, no doubt about it. But we will carry it as very strong cash in the second half of this year, which, I believe, gives us room to maneuver.

[Robert Duncan Cobban Sanders, Director]

Sure. And just on the 60% compound target. I read your -- the press release rather, it was a bit muddled in how I read it. So maybe you could just clarify. Even if you don't do a deal in the second half, you're still believing in the 60% growth out to 2019?

[Alexander Everke]

We believe in the growth. So as we stated today. And as I mentioned that the structure of the business might change, but we believe in 60% growth, as we said.

[Operator]

The next question comes from Michael Foeth, Bank Vontobel.

[Michael Foeth, Head of Industrials Team]

I had a question also on the guidance longer-term, but -- or on the targets longer-term, but rather the margin target. You say here that you prudently take into consideration the financial effects that could result from portfolio changes. This prudently taking into account, do you mean that you are taking a -- sort of a conservative approach to that 30% margin? Or does it mean that if things change in the portfolio then eventually that margin could be lower?

[Michael Wachsler-Markowitsch]

Yes, Michael, it's Michael. There will be temporarily effects, as we saw it also this quarter, that could be -- or it could be more temporary effects that kind of made this small push out necessary in our intention.

[Michael Foeth, Head of Industrials Team]

Okay, but do you -- you still believe that your...

[Michael Wachsler-Markowitsch]

We still believe clearly.

[Michael Foeth, Head of Industrials Team]

Your underlying margin is...

[Michael Wachsler-Markowitsch]

No doubt about it, which is very strong. But you saw the utilization effects this year and this is just something which we will -- we might see again.

[Michael Foeth, Head of Industrials Team]

Okay, so no structural reason to...

[Michael Wachsler-Markowitsch]

Structural reason, no, absolutely not.

[Operator]

The next question comes from Lee Simpson from Stifel.

[Lee John Simpson, Analyst]

Just 2 or 3 quick ones from me actually. Just trying to get a handle on the timing of the ramp with Android players. And just in particular with that Tier 1 engagement or a major ecosystem player that you mentioned in the prepared text, just if there's any sense of ramp there that would be a fantastic. Secondly, on the spectral sensing ramp for the next 6 months, just wondered if you can maybe just let us know if that's with an existing customer and/or if that is a new customer that you've managed to put that into? And second -- and thirdly rather, you've mentioned quite a lot of partnering in the prepared remarks, and at this stage could we think of such partnering as being a heavily used feature in the 2020 time frame for world facing solutions?

[Alexander Everke]

Thanks for the questions. The ramp as we indicated, we see a ramp for Android in the end of 2018, as indicated, and of course continue strongly in 2019. Spectral sensing, yes, it's an existing customer, and this is related to our strategy to expand also within our existing customer base with a broader portfolio. It's actually very, very exciting. The last question, we don't know, that's hard to predict.

[Lee John Simpson, Analyst]

And just going back to that Android question. The ramp there in 2018, is that with the major ecosystem player or is that more of a '19 event?

[Alexander Everke]

With the major -- it's a system player, this was a different story. That's on top.

[Operator]

The next question comes from David Mulholland from UBS.

[David Terence Mulholland, Director and Equity Research Analyst]

A couple of questions. Firstly, on the spectral sensing design win, can you just help us understand what we should be expecting in terms of ASP for that as it ramps? And also how you feel about the volume ramp, does this become tens of millions of units or more quickly? And then secondly, just coming back on the margin question. As we -- and the kind of shift from '19 to '20, do you still think you can achieve, eventually when things settle down, 30% margins of up $2.7 billion of revenue, which is kind of what you'd implied before? Or does it now take higher revenues? Or just how should we think about the growing-away margins versus revenue going forward?

[Alexander Everke]

Yes, David, on the spectral sensing, it's -- as I mentioned, the ramp will happen end of the year. The volume is in an initial phase lower, but the ASP is very attractive. And as you may know the spectral sensing device is highly higher differentiating. We don't see competitors out there with the performance and the form factor we are able to provide to customers. So it's a very attractive business. And I personally see this as a start of a new trend coming up in the consumer space.

[David Terence Mulholland, Director and Equity Research Analyst]

But is that $2 or $3? Or is that high single digit?

[Alexander Everke]

Multiple dollars. I would say multiple dollars. It's a significant value.

[David Terence Mulholland, Director and Equity Research Analyst]

Okay. And then on the revenue versus one?

[Michael Wachsler-Markowitsch]

With regard to the operating margins, we simply want to be very prudent how this develops. As Alex said, we see potential for changes in our business portfolio and this is driving this.

[David Terence Mulholland, Director and Equity Research Analyst]

But actually just to clarify, do you still think you could do a 30% margin at $2.7 billion? Or is there anything you've changed there because potentially it now takes higher revenue? I understand this thing's changing kind of from a strategic perspective potentially over the next couple of quarters but just in the way that you're thinking about that, is it because you think you might need to be different sized to get there? Or kind of what drove the change?

[Michael Wachsler-Markowitsch]

It will depend on the business mix, very simple.

[Operator]

Your next question comes from David O'Connor, Exane BNP Paribas.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

One or two from my side. Maybe firstly if we look the new Xiaomi solution, where you have the VCSEL win that's the Mi8. Just thinking that the structured light solution doesn't appear to have any wafer-level optics. So just want to get your thought on what this means for the wafer-level optics opportunity for ams in Androids? And what do we have at competing in cheaper solution that can match what they use today? That's my first question and I have a follow-up.

[Alexander Everke]

Yes, so it's difficult to go in detail for specific customer projects. So obviously, I can't comment on this. But again, the answer for us is always the same, whatever the customer needs for the structure, which is -- and the concept which is best for them, we will supply. And it doesn't matter that our wafer-level optics is included in this case or not. We will provide a solution the customer requires. And if they require wafer-level optics, we do, if they don't, we don't. And you will see multiple solutions in the markets, very, very different by customer, and that's the beauty of the market. And we take advantage of it. It's an asset, not a liability.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Okay. And maybe another one. When you look at the acquisitions that you've announced in the Q2 release, a lot of them focus on structured light. At the same time, we see a lot of android OEMs talking about time-of-flight. And I'm just thinking for ams, what does that mean for twin -- for time-of-flight going forward? Is -- does that -- are you already have all the IP for time-of-flight? Do you require to -- as part of, for instance, the strategic review, do you need to free up some equity or some cash so that you can go after and chase those time-of-flight opportunities or IP opportunities as well? Any thoughts around that should be great.

[Alexander Everke]

All right. So to be very, very clear, we are the leader in this field, and we will do everything necessary to expanse and accelerate the position we have today. Structured light you're right, we did acquisition there in the past and potentially in the future. We are active with Bellus3D, which is more related to active stereo vision, and we have our own development in the time-of-flight. So every possible structure possible in the market, we will make sure we'll have the leading portfolio. And just a small -- the matter of time and not if. So we will be executing all the 3 tiers, very clearly. And the key thing is why I believe we are so strongly positioned is that we are the solution architect in the field. We understand the hardware, we understand the software, we understand how the whole system works, and that's why we are in a very strong position to discuss with customer what is the best for their application and for their platform. And that's why we are reaching out in multiple areas within the industry. We don't -- we keep every option open for us.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Okay, that's helpful. Alex, then maybe just last one. As part of the strategic review, how much -- just wondering, how much of the business you consider core today or cornerstone to the business? Just wanted to kind of try and get a sense of how much room for divestments is there?

[Alexander Everke]

We can't comment on that, but as you can imagine, we're executing our strategy indicators on the 4 pillars, and we continuously need to sharpen it to make it more successful in the future, and we balance it. So that's all what we can say about it.

[Moritz M. Gmeiner, Senior Director of Investor Relations]

We'll cover the last question for this morning now.

[Operator]

The last question for today comes from Jürgen Wagner, MainFirst Bank.

[Jürgen Wagner, Director]

You announced in your prepared remarks the cooperation with OmniVision, and what exactly is coming from them for your structured light solution? And how does that impact your cooperation with Sunny Optical and Mantis? And coming back to your strategic review, you already focused quite a lot. So why -- again, why was there a need for a strategic review now?

[Alexander Everke]

On OmniVision, their contribution is the sensor -- image sensor. It has no impact on other cooperations we have done. And as I mentioned before, nothing is exclusive. We will partner with every company where it makes sense for us, and of course, then also for them. We keep all the options open. And we've built up a network which is unseen in the industry, to be frank, to strengthen our -- continue to strengthen our position. What was the second question?

[Jürgen Wagner, Director]

On your -- so timing of your strategic review, why is there a need for this at this stage?

[Alexander Everke]

Well, because we see opportunities which are currently evolving, and we want to take potentially advantage of it. And that's why we're looking -- we may have regular reviews, certainly, but they are not always the same opportunities we are seeing currently, and that's why we are looking in sharpening our portfolio to the next level.

[Jürgen Wagner, Director]

So it's a bit more pronounced than let's say now, than let's say half a year ago, the opportunities you see, right? Is that a...

[Alexander Everke]

Sure. Yes, we are talking about this, and we also of course record market trends and we adjust to it.

[Moritz M. Gmeiner, Senior Director of Investor Relations]

With this, we would like to thank you very much, ladies and gentlemen, for joining us this morning, for this results conference call. And we look forward to speaking to you again, following the results of the third quarter. Thank you very much, and goodbye.