Ladies and gentlemen, welcome to the ams Q3 2019 Results Conference Call. I am Sandra, the conference call operator. I would like to remind you that all participants are in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Alexander Everke, CEO, Mr. Michael Wachsler-Markowitsch, CFO, and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead.
Good morning, ladies and gentlemen. This is Moritz Gmeiner. I am very happy to welcome you to this morning's conference call on our third quarter results 2019. As usual, Alex will lead you through our business, while later on, Michael will talk about our financials in more detail. Alex, please.
Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our third quarter 2019 conference call this morning. I will first discuss our business, starting with some key financial figures, and then comment on the announced takeover offer for OSRAM. Following that, Mike will take you through the financials in detail. Our third quarter revenues came in at $645 million, above our guidance range and showing a strong increase of 57% quarter on quarter. Our adjusted EBIT for the third quarter was $178 million or 28% of revenues, which is very well above our expectation and means EBIT more than tripled compared to last year's third quarter. As you can see, our business showed a very strong performance in the third quarter of 2019.
We saw strong demands for our consumer solutions, which allowed us to achieve these positive results in light of a more subdued market situation in our non-consumer end markets. Consequently, our consumer business again provided the largest contribution to our results in the quarter. We are the leading supplier of optical sensing and 3D sensing, where our extensive 3D sensing portfolio and know-how serves all 3D approaches, structured light, time-of-flight, and active stereo vision. Our advanced high-power VCSEL portfolio and our optics capabilities are key factors in our market success in 3D sensing. We cover front-facing and world-facing applications with a main focus on illumination and are able to serve different customer needs across all three technologies. Shipping very substantial 3D sensing volumes to the leading smartphone OEMs globally, we continue to expand our position in the Android market.
This includes strongly increasing volumes for world-facing iToF 3D sensing illumination solutions because the camera enhancement features which these systems support are highly successful in the market. We therefore expect customer adoption of these features to continue to broaden going forward. Our first smartphone implementation of active stereo vision is coming to the market as expected, while our partnership with Qualcomm on ASV is seeing very good progress. We are receiving very positive market feedback for our combined solution and can confirm major OEM interest to introduce active stereo vision in mobile computing. We also see increasing OEM interest to explore ToF technology for 3D sensing applications. We already have active product developments in this promising area, covering the complex technical aspects. Our 3D illumination solution use our broad portfolio of VCSELs, drivers, optics, design, and manufacturing, which allows us to adapt to customers' requirements and application needs.
Based on our extensive capabilities in structured light, iToF, dToF, and active stereo vision, we continue to build our leading position in 3D sensing and illumination. Our long-distance 1D ToF solution for accurate distance capture is getting further positive market feedback, expanding on the first design win for smartphone laser-detect autofocus. The recently announced partnership with image sensor specialist SmartSens for high quantum efficiency near-infrared image sensing has good traction, and we are progressing with our active stereo vision reference design for consumer 3D applications. We also continue our early industrial activities with a global OEM for an active stereo vision application in a household device, while industrial OEM engagement continue to increase. In display management, the market success of our innovative, high-performing behind-OLED proximity and light sensors is rapidly growing.
This unmatched technology allows OEMs to move light and proximity sensing invisibly behind the OLED display as they pursue maximized screen-to-body ratio and bezel-less phone designs. We are supplying an increasing number of high-volume Android smartphones and mobile device platforms, with these products including a good share of recently launched models. Removing bezel-less elements from the front of the device is highly effective and therefore driving continued adoption across the full spectrum of leading Android OEMs. Overall, we shipped significant volume of our broad range of advanced display management solutions in the quarter. This also includes increasing adoption of flicker detection sensors at Android OEMs, which improve picture quality by detecting flicker from artificial light. New optical sensing technologies and applications remain a focus of continued R&D investment. Building on our excellence behind all the capabilities, we have started development activities for 3D sensing behind the display.
As this approach is fully aligned with the market trends to reduce visible components on the front of the device, we expect the technology to create very attractive penetration opportunities in smartphones and mobile devices. While too early to provide a timeline for commercial deployment, we expect to solve the related technical challenges within the next 18 months. OEM engagement of our high-quality measurement solution for blood pressure and additional health parameters are ongoing while we continue to pursue medical-grade certification for blood pressure in the United States. In a different application area, we see potential for lower-resolution spectral sensing used in smartphones and mobile devices, which can enable high-performance functions to enhance photo quality. Our audio sensing business recorded a positive quarter with other consumer products lines shipping in solid volumes.
We are a leader in noise cancellation and consumer OEMs interest in our innovative digital noise cancellation solution for loose-fitting wireless earbuds continues to be strong with separate designs activities underway. Let me now look at the automotive industrial metrics business of our non-consumer business. Our automotive industrial metrics business performed in line with expectation in the third quarter. Our automotive business is experiencing a more subdued market environment as demand trends have turned increasingly muted across world regions. With our focus on safety, driver assistance, autonomous driving, position sensing, and chassis control, we offer a broad spectrum of sensing solutions for a large of Tier 1 suppliers, OEMs, and market segments. We continue strong R&D investment for advanced lidar architectures, where our VCSEL illumination technology is seeing substantial interest from major automotive players.
Besides the large, true solid 3D lidar illumination program for a leading Tier 1 system supplier, ZF, in conjunction with Valeo, we are pursuing active lidar engagements in different geographies. Our capabilities in addressable high-power VCSEL arrays offer significant system-level advantages for multiple scanning architectures and can be leveraged into future applications in different markets. In-cabin monitoring is another emerging optical application in automotive, which offers attractive opportunities in the coming years. We are seeing very good traction in these new markets where Tier 1 and OEM interest continues to increase. Pursuing several development projects, we have recently gained an in-cabin design win for 3D ToF illumination at a global Tier 1 supplier. Positive momentum also continues in the sizable emerging projected lighting market. Based on advanced illumination and projection, this technology enables new comfort and safety features as well as differentiated lighting applications such as light carpets.
Our industrial business showed a more muted performance in the third quarter, reflecting a challenging market and demand situation in industrial markets worldwide. Serving a wide range of high-performance industrial applications, we are able to benefit from a broad portfolio and customer base in the current environment. Industrial imaging, where we are leading high-performance global shutter technologies, developed in line with end market trends while contributing positively to our overall performance. Our medical business performed well in the third quarter, benefiting from its leading market position in medical imaging and CT, digital X-ray, and mammography, as well as miniature camera endoscopy. Our market penetration is strong across geographies, with Asian markets providing ongoing opportunities for expansion. Supporting next-generation medical endoscopy, we supply NanEye micro-camera solution to several customers in volume and note ongoing market traction for new micro-camera applications.
Looking at operations, we are recording very positive effects from the significant cost reduction and yield improvements in our Singapore manufacturing. These ongoing benefits include lower staffing levels and material usage, and I'm happy to see that enable our strong profitability on the basis of robust capacity utilization. For VCSEL-based solutions, our outsourced supply chain fully supports the effective volumes we are recording this year. At the same time, our internal VCSEL line for differentiated designs is ready for the planned front end ramp from around year-end. Combining scalable outsourced and internal VCSEL capacity creates a strong position to support expected future volume needs in this growth area. Let me now comment on the takeover offer for OSRAM, which we announced on Friday.
I will focus on some key topics here, as I trust you have seen Friday's announcement describing the relevant aspects of the offer. We are pleased to be able to announce this new offer to acquire OSRAM, delivering on our stated intention. We are confident that our offer will be successful, as it is very clear in providing a highly attractive, fully valued price for OSRAM shareholders at EUR 41 and a straightforward acceptance threshold. As a pre-eminent OSRAM shareholder at 19.99%, we are also convinced that this offer is the best available option for OSRAM shareholders. Our shareholding has also resulted in another rumored interested party pulling out, which has made the offer situation very clear from our point of view. Subject to BaFin approval, we currently expect the offer period for four weeks to commence by the end of October.
The strategic rationale of creating a global leader in sensor solutions and photonics with strong European roots is unchanged. We clearly believe that this is a compelling opportunity for OSRAM, ams, and our shareholders. In this context, I am glad to confirm that our constructive discussions with OSRAM to update the existing cooperation agreement are ongoing. I feel confident to conclude these discussions successfully as before. They also underpin our commitment to employees and manufacturing locations in Germany. Given these fruitful discussions, I would like to reiterate that we are offering a winning way forward for ams and OSRAM. Combining ams and OSRAM will create an outstanding technology platform and a stronger combined company to benefit all stakeholders. Based on this, we look forward to working with the OSRAM management team to realize our strategic vision. Let me now come to the outlook of our business.
For the fourth quarter 2019, we expect our business to show a strong performance, with large-scale consumer programs continue to provide very attractive contributions based on positive smartphone volumes. In our other end markets, however, business momentum is expected to reflect a more challenging macroeconomic environment with higher levels of cautiousness. On the basis of available information, we expect fourth quarter revenues of $610 million-$650 million, which demonstrates continuing strength of a year-on-year increase of 28% at the midpoint. The adjusted operating margin for the fourth quarter is expected to reach at least the level of the third quarter, which reflects operational performance benefits and sequential strength, while more than doubling year-on-year.
Based on this positive outlook, we expect leverage for ams on a standalone basis and excluding any effect from OSRAM share purchases to decrease significantly to a net debt to EBITDA level of 1.5 or lower at year-end. Let me now hand over to Mike for a detailed look at our financial results and further comments on the offer for OSRAM. Please, Mike.
Thank you, Alex, and good morning, ladies and gentlemen. As usual, it is my pleasure to give you an overview of our IFRS and adjusted numbers for the third quarter 2019. Let me start with our P&L and the top-line development. As Alex already mentioned, our third quarter group revenues were $645 million, a record level, and above the top end of our previous guidance. We are very happy about this strong performance, which was again mainly driven by a very strong consumer business based on several smartphone and consumer programs. We saw significant growth in the third quarter as Q3 revenues increased by 57% sequentially from the second quarter and 41% compared to the third quarter last year. Our adjusted gross margin, excluding acquisition-related and share-based compensation costs, was 44% compared to 33% in Q3 last year, a significant increase of more than 10 percentage points.
Adjusted gross margin also increased by six points quarter-on-quarter. These gross margin developments reflect higher capacity utilization as well as continuing positive effects from significant productivity improvements in our manufacturing processes in Singapore, which result into lower staffing levels and material usage. Our IFRS-reported gross margin was 42% compared to 31% in Q3 last year. Our R&D spending in the quarter was $72.5 million, in line with our plans and increasing from $65.2 million in Q3 last year. In relative terms, we spent 11% of revenues on R&D in the quarter, which is a very attractive level. Our continued strong R&D spending supports a range of platform development and large product opportunities, including automotive lidar for ZF, Ibeo and others, as well as innovation in new optical sensing technologies and applications, such as behind-OLED 3D sensing.
While there are always quarter-to-quarter movements in R&D spending, we expect similar levels of spending relative to revenues in Q4, while longer term, we target a level of 12%-14% of revenues on a full-year basis. Further down our P&L, SG&A costs were $52.7 million, compared to $40.9 million in the third quarter last year. In relative terms, we spent 8% of revenues on SG&A in the quarter, which is a strong achievement. We're happy with this development and will continue to pursue efficient spending as longer term, we target a level of 8%-10% of revenues on a full-year basis. Our other operating income of $2.2 million for the third quarter compared to $2.1 million from Q3 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 positive developments, our adjusted operating result or EBIT, excluding acquisition related and share-based compensation costs for the third quarter also reached a record level of $177.9 million or 28% of revenues, which was well above our previous guidance of higher than 25%. This is a significant increase from $57.6 million or 13% of revenues in Q3 last year. The IFRS reported results from operations or EBIT for the third quarter was $146.5 million or 23% of revenues, strongly up from $35.7 million in the same period, 2018. Our financial result came in positive at $11.8 million compared to $33.2 million in Q3 2018. Last year's financial result was heavily skewed by changes in the valuation of the option element of our US dollar convertible bond, which we recorded as required by IFRS rules.
The financial result for this quarter was positively impacted by FX effects as the largest influencing factor, as well as by effects from the last portion of our convertible bond buyback program, which had mainly happened in Q2. The adjusted net result for the third quarter came in very strong at $168.1 million compared to $17.8 million in the same period 2018. Adjusted basic and diluted earnings per share were CHF 1.92, CHF 1.87 and $1.95, $1.91 for the quarter compared to CHF 0.22 and $0.21 respectively for the third quarter 2018. Our total backlog at the end of September stood at $253 million compared to $301 million at the end of Q2 and $576 million on September 30th last year.
In this context, I would like to mention that interquarter order behavior is playing a meaningful role for our total business and especially on the consumer side. Let me give you some additional figures from the balance sheet and cash flow statement to complete the picture. Our cash and cash equivalents stood at comfortable $890 million at the end of the quarter compared to $476 million at the end of the second quarter. This change mainly results from a very strong free cash flow in the third quarter as well as the utilization of certain financing facilities in conjunction with the OSRAM takeover offer and the purchase of 19.99% of total OSRAM shares. Our trade receivables stood at $280 million, up from $178 million at the end of the second quarter.
Our days sales outstanding ratio was 35 days, down from 41 days in the last quarter and significantly down from 69 days in Q3 last year. This days sales outstanding level is very attractive and well within the target range I'd like to see. Inventories were also lower at $267 million compared to $315 million at the end of the second quarter, reflecting manufacturing efficiencies among other factors, while the finished goods portion of our inventory remained at around 25% of total inventory. On the liability side, we have a current debt position of $287 million at the end of September, while our long-term debt stood at $1,895 million. Our net debt position was $1,116 million at the end of Q3, including our short-term financial investments, which comprise the OSRAM shares we have purchased.
Our long-term debt was generally taken on to bolster liquidity, support the major CapEx cycle in Singapore, which has been completed, and to create flexibility. Our operating cash flow in the third quarter showed a very strong increase to $299 million, which was above expectations and compared to $82.2 million in the same quarter last year. We expect to continue to see strong cash flow generation in Q4 as well, driving a meaningful positive free cash flow for this year, which takes into account the anticipated much lower CapEx spending compared to last year. Based on our positive outlook, we currently target that leverage in terms of net debt EBITDA for ams on a standalone basis and excluding any effects from OSRAM share purchases, will decrease significantly to a level of 1.5 times or lower at year-end 2019.
I'm very happy to see this rapid leveraging of the ams business happening over the course of this year and to an even stronger extent that we had targeted earlier. Our CapEx in the third quarter was $35 million, 66% lower than last year's Q3 spending of $102 million. As mentioned before, we expect full year CapEx for 2019 to be significantly lower than last year, with the dominant share of these expenditures already completed in the first nine months of 2019. With this in mind, I expect CapEx to be around $200 million for 2019.
Now, regarding the takeover offer for OSRAM we announced on Friday, I would like to confirm that we expect the previously mentioned cost and revenue synergies with an expected annual pre-tax run rate of at least EUR 300 million. On the financing side, the offer is based on a fully underwritten bridge facility of EUR 4.4 billion, which will be refinanced through a combination of equity and debt issuance. We intend to raise EUR 1.6 billion of new equity in Swiss francs. This level is unchanged from the one in the expired offer. The equity issuance, which has been fully underwritten by our banks, will be primarily in the form of rights issue and other equity-linked instruments.
We expect that the transaction will result in a pro forma December 2019 leverage of approximately 4.5x net debt to EBITDA, assuming 100% of the OSRAM shares tendered for approximately 3.4x net debt to EBITDA, adjusted for the mentioned run rate cost and revenue synergies. More importantly, at the time of expected closing, we expect pro forma leverage already lower at a level below 4x net debt to EBITDA, excluding any synergies, given strong cash flow generation at ams. We expect to deleverage quickly over the next three years based on the expected strong cash flow profile of the combined group, again along the same path as outlined for the expired offer.
Implementing the envisaged portfolio changes for the combined group would clearly result in a meaningful and fast improvement of the balance sheet ratios, but we would not be able to speculate about the particular scope or expected time frame at this point in time. Important is that we have to put in place a sustainable capital structure supporting this offer exactly like for the expired offer, with clear potential to improve faster as we move along. With that, I would like to thank you for your attention and open the floor for questions.
We will now begin the question and answer session. Anyone who wishes to ask a question, press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands up when asking a question. Anyone who has a question may press star and one at this time. The first question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Please go ahead.
Yeah. Hello, everyone. Thanks for taking my question. First question would be on the Singapore fab. What is the fab loading in Singapore today or at the global level at ams? Do you see any upside to the fab loading going forward, or you are close to the maximum today? Same question on gross margin. Do you see some upside on gross margin beyond the high level you already reached in Q3? Second question is on your behind-OLED display light and proximity sensing business. How many design wins do you have today in hand? Also, on your high ASPs, how does it compare to your traditional, I would say, ASP on a traditional product? Have you seen any change when you are ramping the volumes with the first project right now? Thank you.
Good morning. Hi, this is Michael. I'll take your first question. Absolutely. We saw a significantly higher loading in our Singapore manufacturing than previously, but we're still not full, so some improvements obviously from the capacity side are possible. Also on our operating efficiencies and productivity improvements, we could always be better, and we see upside to gross margins and operating margins, therefore, going forward. That's what we also indicated in our outlook statement for Q4, that we see at least the same or even better profitability in the fourth quarter.
Alex here, your question regarding design wins for behind-OLED ambient light sensing and proximity. We have increasingly a number of design wins, so multiple compared to last quarter for the Android smartphone companies. Important for us is that those products have a much higher content than the product from us they are succeeding them. We see a very strong momentum for additional design wins at a significantly higher content compared to the replaced products.
Thank you.
Next question, please.
The next question comes from Sandeep Deshpande from J.P. Morgan. Please go ahead.
Yeah. Hi. Thanks for letting me on. A couple of questions, if I may. You've seen strong sales in the third quarter guiding also strong sales in the fourth quarter, how should we look at your utilization in your Singapore facility into the second half of this year compared to how you saw it in the second half of last year, and how that loading is making a difference to the gross margin? Secondly, regarding these new 3D sensing products, how do you see their ramp into 2020?
Hi, good morning. It's Michael. I'm happy to take your question. As mentioned before, the utilization significantly improved compared to last year, although there is some space still, which clearly shows our strong margins and our strong result we presented with a not fully utilized manufacturing. As said, we still see some upside potential here. Certainly, I cannot comment on 2020 yet. It's clearly too early.
Sorry, let me ask a question another way. In terms of the second half is always a better half in terms of the utilization. Do you have a countercyclical customer to help your utilization in the first half of next year?
The utilization now is higher than it was previously, and we see still some improvements possible from here, but I cannot comment on next year.
Thank you.
Your question on 3D sensing. Obviously, as I mentioned before, we have a very good traction on design wins for 3D sensing. Without commenting on 2020, it's obviously a very strong market trend and a ramping business for us.
Thank you.
The next question comes from Andrew Gardiner from Barclays. Please go ahead.
Good morning. Thanks for taking the question, guys. First on backlog. Michael, you mentioned in your prepared comments that inter-quarter order behavior was playing a factor here in the movement in backlog. In the numbers, it's dropped to $253 million at the end of third quarter. It's the first time, at least in recent memory, that we've seen a sequential drop in the third quarter. It's also down a lot year-on-year. Can you give us a bit more insight as to what's happening within the orders to drive that decline and whether you have less visibility into fourth quarter and first quarter than you normally would at this time of the year? Thank you.
Yeah. It's like I mentioned, it's simply different order behavior. Customers are ordering more and more short term, especially on the consumer side. As you obviously have seen that the levels are lower at the beginning of the quarter. Still we guided for a stronger business in the fourth quarter. Obviously we could not do that if the orders were not here yet, or we would not have a very strong forecast for this fourth quarter.
As you said, I mean, the revenue guidance for fourth quarter is still strong. In terms of what, I heard a distinction here in terms of what you can see the customers planning for, but in terms of the actual order signing on the dotted line, as it were, that perhaps coming a little bit later or in, yeah, sort of closer to shipment.
Exactly. That's exactly what happened. Orders came later or are coming in later and closer to the need for the customer. It's a general trend we see, especially in the consumer business, but also in all other businesses. It's more short-term ordering behavior.
Okay. If I could ask another one on the OSRAM side. Alex, you mentioned the discussions around the cooperation agreement continuing. OSRAM themselves, about 10 days ago, when they held a conference call, sort of referred to that as well. They, in those statements, suggested that the discussions you were having would lead to lower synergies, particularly because of the points that they had been pushing back on the manufacturing front. Can you shed any light on that today as to sort of how you're finding a middle ground there and when you think we could see finalization of the cooperation agreement? Is that going to be in place before the offer would actually launch to the market? Thank you.
Yeah, thanks for the question. To answer the last part of your question first. Yes, we expect to have an agreement in place before the offer launches. We will communicate the changes the moment we have done them. To be very clear, the financials we have indicated to the capital market and the synergies remain the same. We were looking into details how to accomplish this with the OSRAM management. It's a very constructive discussions, but the financials we have communicated will remain the same.
Okay. Thank you, guys.
Next question comes from David O'Connor from Exane BNP Paribas. Please go ahead.
Great. Thanks for taking my question. A couple from my side. Maybe firstly, Michael, can you give us any detail around the timing of the capital raise? Is that sort of Q4? Has that been pushed out at this point? Second question to Alex. As ams, you've been producing structured light technology in high volume now for 3 generations of smartphone. How does that technology develop over time from here? A third question on the VCSEL, the ramp up in Singapore of the 2,000 wafers per month capacity. Is that more qualification as such, or is there enough capacity there to support a high volume ramp? Thanks, guys.
Hi, good morning. It's Michael. Obviously, we have to wait for the outcome of the offer. At least until the end of the offer period before we can make any comment around the timing of the capital raise. Obviously, as you have seen, we want to do this process as fast as possible to concentrate on our business and the great outlook for it.
Okay. Alex, here, let me take the second part of your question on structured light. I think we are doing very good progress, and obviously the technology is evolving and is
Always upgraded for newer generations based on capabilities we have. Important to know is that structured light is only one of the areas we are addressing. We see the same trend in time-of-flight and active stereo vision. In all of these areas, we are obviously with our innovation, drive performance on the way forward. On top of that, I mentioned this in my speech before, we're working also on very interesting innovation to bring 3D sensing behind the OLED or around the OLED. This is a new way to drive a much nicer display for smartphones or other devices. On the capacity-related question for VCSELs, as we mentioned, we have a hybrid model. We use the internal manufacturing for more differentiated VCSELs and use our foundry partner to drive also volume shipments, what we're doing currently.
In the future, we continue to have a hybrid model, internal manufacturing and external. We feel very confident that both capacities, internal as well as external, will support our growth for the VCSEL business.
Very helpful. Thank you.
The next question comes from David Mulholland from UBS. Please go ahead.
Hi. Sorry. I thought I was muted. Can you hear me now?
Yes, we can.
Just a couple of quick questions from me. Firstly, obviously this year you're seeing quite a big, quite decent ramp in the Android space for some of the behind-OLED business. Can you give us an update on where you expect to be this year in terms of your largest customer exposure? Secondly, just as a follow on, what visibility you have today on how that progresses into next year with that largest customer?
Yeah, David, thanks for the question. As you know, we cannot give detailed numbers, but of course our exposure is large, is a high exposure. Obviously we cannot comment on 2020 yet. We are seeing a very positive trend.
Okay, thanks.
The next question comes from Jürgen [audio distortion] from the [Linksource]. Please go ahead.
Yeah, good morning. Thank you for letting me on. I have a follow-up on the margin in Q4. You have flat sales that indicate a rising margin despite weakness in automotive and industrial, which have been historically the higher margin product for you is. Can we conclude that the consumer is more profitable, or are the efficiency improvements just overall more significant than expected? The second question, you talk a lot now about 3D behind-OLED. How different would be such a module or product behind the display compared to those we use today? How much of that could be, in theory, supplied by ams? Thank you.
Yeah. Good morning, Michael. Happy to take your first question, and Alex will take your second question. As said before, we see very positive developments in our in-house manufacturing operations with increased productivity, higher yields, very positive effects on staffing and on material, and also higher loads. Which obviously is coming from the consumer side, but therefore is driving the overall profitability higher and said there is still room for improvement. Alex?
The second question on behind-OLED for ambient light sensing proximity as well as 3D. Obviously, the good news is it is a very highly complex technology. Just to give you a reference, if you take ambient light sensing behind-OLED, which usually gets when the sensor's off but or visible from the OLED, only 4% of the light goes through the OLED screen. You apparently need a very sensitive light sensor, which is really our sweet spot of technology, and that's why we feel very confident there to create a leading role. Related to 3D, there are multiple ways to address this, but obviously we can't share this right now. It's, again, a very complex technical setup, which again plays to our strengths, and that's why we believe we will be clearly leading in this field as well.
The delta in theory, in terms of potential ASP, would it be similar to a normal behind-OLED ambient light sensor versus the legacy one or?
It's too early to speculate, but you can easily imagine that there is a content increase associated with it.
Okay. Thank you.
The next question comes from Achal Sultania from Credit Suisse. Please go ahead.
Hi. Good morning. Just trying to touch base more on the direct time-of-flight architecture. You talked about active product developments in that space. Can you help us understand a bit more as to what areas in there are you actively working on? Is it VCSEL and VCSEL drivers? Is it a combination of VCSEL and optics? Does it include the time-of-flight sensor as well? Any color around those R&D projects would be helpful.
Yeah, thanks for the question. Well, direct time-of-fl ights, it's certainly the complete illumination with switches, mixer, all the optics, and we are going the way to being able to offer the complete solutions. It's still too early.
Okay. Just to follow up on the optics side, just looking at the numbers, your R&D has been coming down in absolute terms over the last three, four quarters. SG&A has actually been going up. Can you help us understand how should we think about those two items going forward?
Well, I think I mentioned what we expect going forward. Clearly, there is a small effect already from the OSRAM transaction in our SG&A spending in the third quarter. Obviously also the very strong business led to a higher number for commissions, for example, and bonuses. This is also reflected in the number. Overall, we clearly see a very positive trend and expect that both R&D to sales and SG&A to sales as a percentage of sales is coming down.
Okay. Thank you, Michael.
Thank you very much, everybody. With this, we would like to conclude today's question and answer session. We thank you very much for joining us this morning, and we look forward to speaking to you again following our next set of results. Thank you very much and have a good day.
Ladies and gentlemen, the conference is now over. Thank you for attending this call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.