Ladies and gentlemen, good morning. Welcome to the ams half year 2018 results conference call. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. 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.
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?
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 us 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 -$48.6 million or -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 underline 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 and 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-performing solutions for 3D sensing, including VCSEL-based illumination, advanced spectral sensing, true color and color display management, smaller scale advanced proximity sensing, and other optical applications. We drive innovation in optical technologies while 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 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 module, 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 OEMs, other participants continue to identify valid technical approaches for different market application and performance needs. We also note an emerging trend where large Android ecosystem players want to support robust reference designs to enable 3D sensing adoption across applications and market segments. 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 light, 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 market 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 markets 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 of ixellence GmbH 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 knowhow and IP in the area of stereo vision, we 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 pattern projector. Promoting these reference solutions to China's 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, AP 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 MIPS 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 six months. 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 non-consumer 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 non-consumer 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 entered 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 expanding while we see OEM interest for multiple end markets in the area of biosensing, where our unmatched capability includes high-quality blood pressure measurement and bio-data 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 for VCSEL 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 a 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. More so, 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 production 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 steep sequential growth in the third quarter 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-$490 million, up 78%-94% sequentially and 46%-59% year-on-year. This expected positive result 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 are 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 costs, 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, taking an active approach to line 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 2016-2019 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.
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 2018. Let me start with our P&L and the top line 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-$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, the expected customer volume effects played through in our consumer and 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 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 always 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 are 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 -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 -$76.1 million or -30% of revenues, down from -$25.3 million in the same period in 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 non-cash valuation adjustments for foreign currency balance sheet items and interest expenses. Adjusted net result for the second quarter stood at -$103.5 million compared to -$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 were Swiss francs -1.24 and -1.19, compared to Swiss francs -0.23 and -0.22 in Q2 2017, or US dollar -1.24 and -1.20 compared to US dollar -0.25 and -0.25 for the second quarter 2017. Our total backlog on June 30th, 2018, stood at $549.9 million, significantly up from $330.7 million we saw at the end of the first quarter 2018 and also well above the $247.9 million on June 30th, 2017. The current backlog is on a similar level than at the end of June. 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 the 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 EUR 215.3 million, while our long-term debt stood at EUR 1,594 million at the end of June. Our long-term debt was generally taken on to bolster liquidity, support CapEx investments, past acquisitions, and potential 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 EUR -72.3 million, a decrease from EUR -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 for the second quarter was again significant at EUR 163 million and almost unchanged from EUR 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 was paid out shortly thereafter.
With that, I would like to open the floor for questions. Thank you very much for your attention.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only one handset while asking a question. Anyone who has a question may press star and one at this time. First question comes from Sandeep Deshpande, J.P. Morgan. Please go ahead.
Thank you for letting me on. Maybe you can comment on how you see the trajectory of the ramp of the shipments into the second half of the year. 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? Thank you.
Yeah. Thank you for the question. As I mentioned, the third quarter, we consider as a ramp-up quarter. We have a very positive outlook on the second half of this year. Very encouraging. On the discussion with multiple parties, yeah, as you can see, we are talking to multiple customers, OEMs, but also with partners, system integrators, software companies, reference design companies. 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.
Thank you.
Certainly, we will announce this in the next quarters and give you more insights as soon as we can talk about it.
Thank you.
The next question comes from Andrew Gardiner from Barclays. Please go ahead.
Thanks very much. I have sort of a 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, sort of similar directionally to what we saw in 2017. At the time, you were suggesting high double digits, half-on-half or sort of around 80%. Now we've got the two quarters of results, we've got the third quarter guidance. 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 sort of units or pricing that has led you to adjust the way that you're talking about that.
Yeah. Thank you for the question. I think nothing changed there. We gave a guidance for Q3 today, which is a significant sequential growth. I think even more important, significant year-on-year growth. I also indicated that we see a strong growth for the fourth quarter. The second half will be a record second half for us. We see it extremely positive.
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, that pricing would rise. Is that still the case?
We can't give any price indication on specific projects.
Then sort of finally, on the sort of strategic side that you've alluded to. 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. 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. You guys are involved, which is great, but it does seem as though the approaches being taken by the OEMs are different than we anticipated. 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?
3D sensing is totally out of this discussion. Actually, I don't see such a big difference. At the core, our strategy always was that we are the lead on 3D sensing, which implies all functionality, 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 trends ongoing. We also indicated that a lot of OEMs are still uncertain which area they go based on their own capabilities, cost position, performance requirements, and the application they want to address. Therefore, we also indicated that we see the ramp only happening end of 2018 and predominantly in 2019. Our anticipation for the market did not change significantly, not at all.
Okay. Thanks, Alex.
Of course, 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, you have to play in every single place where you decide to play in. We keep those options open with our own investments, with partnerships, with relationship with system integrators, and so on.
Thank you, Alex.
The next question comes from Achal Sultania from Credit Suisse. Please go ahead.
Hi, good morning. Two questions from my side. First, if I look at the margins, the way you're guiding for Q3 EBIT margins and your comments, Michael, on OpEx are roughly flat, it seems the gross margins are going to be around 30%, give or take, in Q3. I'm just wondering, how should we think about gross margins going forward? Is this the right level of gross margins when volumes have ramped up, or is there a big underutilization chart still that you're seeing in the quarter? Any comments on that would be helpful. Thanks. 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. Can you comment on that, why your revenues are down in AIM? Thank you.
Yeah, thank you for the questions, Michael. I'm happy to take it. As Alex pointed out, we see strong ramp in the quarter, and this is ongoing, but clearly not be completed this quarter. These ramps are driving a very strong upswing in EBIT margin, around 30 points in one quarter, a magnitude which is fully in line with what we had expected previously. This upswing clearly also shows the positive effects of capacity utilization coming back and how quickly this translate into better financials. Still, we're in a ramp-up situation this quarter. It's on a very large scale and across different products that may also see somewhat different ramp-up curves. Volumes, capacity utilization, efficiencies, et cetera. As you know, we cannot guide for further quarters in the future, but we generally expect a further positive development from the expected increases in utilization, clearly.
Thank you.
On your second question on the automotive business, well, the quarter distribution depends a little bit on individual projects. I think it's important to understand we have two different kind of automotive business. One is the, I would call it the more traditional ones, where probably you refer to the position sensors. The really exciting part is the new automotive business, which is based partially on optical sensing, whether 3D LiDAR, the in-cabin 3D sensing, what I just mentioned, or the steering wheel application with capacitive sensors. I think this is a significant growth opportunity for us for the coming years, and this will be just significant. 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.
Okay. Thank you, Michael, Alex. Thanks.
The next question comes from Janardan Menon from Liberum. Please go ahead.
Hi. Good morning. Thanks for taking my question. I just want 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 being mainly driven because the cost of structured light is too high, or is it because the difficulties of implementing structured light is too high? 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 sort of suggesting it'll be adopted in the value end, which could be quite high in terms of volume? The last question there is also, what is your sort of value proposition there? You've said that you will contribute a proprietary pattern projector. Is that similar to the value 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? Is there a difference between active stereo vision and passive stereo vision and the kind of solutions you're looking at?
I think your last statement was the key one. First of all, as I mentioned multiple quarters ago, we see multiple systems valid in the market. Structured light with the strong advantage of very high performance. It's very, very clear. We see also stereo vision as one of the valuable solutions. 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. We are very flexible. We participate whatever customer needs, and depending on the application, we are supportive for all the projects.
At the end of the day, it also depends which application you want to do and therefore the performance and therefore the differentiation for these projects, and this determine the margin and ASP. It's hard to predict, we will play in all the segments equally.
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. 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?
Yes, it's very similar to the front-facing. There are multiple opportunities and multiple technical solutions for that. It depends on the customer and their application. There are different application, what you do with world-facing, and depends which main application you choose, you choose the hardware. Again, in this place also, we can participate in all the system solutions possible.
Okay. Thank you very much.
The next question comes from Robert Sanders from Deutsche Bank. Please go ahead.
Yeah. Hi. Given the upcoming strategic review, there is a worry in the market that you're kind of doubling down and potentially overreaching in consumer and perhaps pulling back on some profitable businesses that are slower growing in automotive, medical, industrial. 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? Last question would just be on the M&A side. Your debt headroom is very limited, so would you consider only smaller deals that are funded out of debt and disposals, or would you consider larger deals like I'm talking about above EUR 1 billion? Thanks.
Yeah. Rob, thanks for the question. First of all, strategic review is certainly to continue to improve the positioning of ams as a company within our strategic cornerstones of optical imaging, audio, and environmental. Certainly what is important for us is the growth, but also profitability, which should answer partially your question, but also areas like differentiation and diversification. The cornerstones of our strategy will not change. Of course, there might be potential change in portfolio, which we will investigate this quarter, plus potential options we see in the market we may execute. The general strategy will not change, so I can confirm this. We want to have a balanced portfolio of fast-growing, and mixed growing product portfolios with an acceptable profitability for the company.
Robert, to your M&A question and debt question, this is Michael. We clearly see that our net debt position is high, no doubt about it. We will generate a very strong cash in the second half this year, which I believe gives us room to maneuver.
Sure. 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? Thanks.
We believe in the growth. As we stated today, and as I mentioned that the structure of the business might change, but we believe in a 60% growth, as we said.
Okay. Thank you.
The next question comes from Michael Firth, Bank of America. Please go ahead.
Hi, gentlemen. I had a question also on the guidance longer term, or on the target 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're 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?
Hi, Michael. It's Michael. There will be temporary effects, as we saw it also this quarter, or it could be more temporary effects that kind of made this small push-out necessary in our intention.
Okay, you still believe that?
We still believe clearly.
Your underlying margin?
No doubt about it.
Yeah. Okay.
Which is very strong, but you saw the utilization effects this year, and this is something which we might see again.
Okay. No structural reason to-
Structural reason. No, absolutely not.
Okay, good. Thank you.
The next question comes from Lee Simpson from Stifel. Please go ahead.
Great. Thanks for letting me on. Just two or three quick ones from me, actually. Just trying to get a handle on the timing of the ramp with Android players, just in particular with that Tier 1 engagement or major ecosystem player that you mentioned in the prepared text, just if there's any sense of ramp there, that would be fantastic. Secondly, on the spectral sensing ramp for the next six months, just wondered if you could 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. Thirdly, 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 timeframe for world-facing solutions? Thanks.
Thanks for the question. The ramp, as we indicated, we see a ramp for Android in the end of 2018, as indicated, and of course continues strongly in 2019. Spectral sensing, yeah, it's an existing customer. 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 questions, we don't know. That's hard to predict.
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 2019 event? Thanks.
With the major ecosystem player, this is a different story. That's on top.
Thanks so much. Okay. Thank you.
The next question comes from David Mulholland from UBS. Please go ahead.
Hi, thanks very much. 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? Also how you feel about the volume ramp. Does this become tens of millions of units or more, quickly? Secondly, just coming back on the margin question, and the kind of shift from 2019 to 2020, do you still think you can achieve eventually, when things settle down, 30% margins at EUR 2.7 billion of revenue, which is kind of what you'd implied before, or does it now take higher revenues? Just how should we think about squaring away margins versus revenue, going forward?
Yeah. David, on the spectral sensing, it's as I mentioned, the ramp will happen end of the year. The volume is in the initial phase lower, the ASP is very attractive. As you may know, the spectral sensing device is highly differentiating. We don't see competitors out there with the performance and the form factor we are able to provide to customers. It's a very attractive business. I personally see this as a start of a new trend coming up in the consumer space.
Is that EUR 2 or EUR 3, or is that a high single digit?
Multiple EUR. I would say multiple EUR. It's a significant value.
Okay. Thank you. Then on the revenue versus margin.
With regard to the operating margin, 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.
Sorry, just to clarify, do you still think you could do a 30% margin at EUR 2.7 billion, or is the reason you've changed it 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 size to get there, or kind of what drove the change?
It will depend on the business mix. Very simple.
Okay. Thanks very much.
The next question comes from Jérôme Bodin, Exane BNP Paribas. Please go ahead.
Good morning, gentlemen. Thanks for taking my questions. One or two from my side. Maybe firstly, if we look at the new Xiaomi solution where you have the VCSEL win, that's the Mi 8. Just looking at that structured light solution doesn't appear to have any wafer level optics. Just want to get your thought on what this means for the wafer level optics opportunity for ams in Android. What do you have a competing and cheaper solution that can match what they use today? That's my first question, and follow-up. Thanks.
It's difficult to go in detail for specific customer projects. Honestly, I can't comment on this. Again, the answer for us is always the same. Whatever the customer needs for the structure, and the concept which is best for them, we will supply. It doesn't matter whether the wafer level optics is included in this case or not. We will provide the solution the customer requires. If they requires wafer level optics, we do. If they don't, we don't.
Okay.
multiple solutions in the market, very, very different by customer, and that's the beauty of the market. We take advantage of it. It's an asset, not a liability.
Okay. Thanks for that. 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, you see a lot of Android OEMs talking about time-of-flight. I'm just thinking for ams, what does that mean for time-of-flight going forward? You already have all the IP for time-of-flight. Do you require to, as part of, for instance, 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?
Yeah.
Any thoughts around that would be great. Thanks.
All right. To be very clear, we are the leader in this field, and we will do everything necessary to expand 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. We have our own development in time-of-flight. Every possible structure possible in the market, we will make sure we will have the leading portfolio. Yeah. This is more the matter of time and not if. We will be active in all the three fields, very clearly. 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. That's why we're reaching out in multiple areas within the industry. We keep every option open for us.
Okay. That's helpful. Thank you, Alex. Maybe one just last one. As part of the strategic review, just wondering how much of the business do you consider core today or cornerstone to the business? Just want to kind of try and get a sense of how much room for divestments is there. Thanks.
We can't comment on that, but as you can imagine, we executing our strategy indicators on the four pillars, and we continuously to sharpen it to make it more successful in the future. We balance it. That's all what we can say about it.
Very helpful. Thank you.
Okay.
We'll cover the last question for this morning now.
The last question for today comes from Jürgen Wagner, MainFirst Bank. Please go ahead, sir.
Good morning. Thank you for taking my question. 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 Vision? Coming back to your strategic review, you already focused quite a lot. Again, why was there a need for a strategic review now? Thank you.
On OmniVision, their contribution is the sensors, image sensor. It has no impact on other collaborations we have done. 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 build up a network which is unseen in the industry, to be frank, to continue to strengthen our position. What was the second question?
On your timing of your strategic review, why is there a need for this at this phase?
Okay. Well, because we see opportunities, which are currently evolving, and we want to take potentially advantage of it. That's why we 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.
It's a bit more pronounced than, let's say, now, than, let's say, half a year ago, the opportunities you see, right?
Sure.
Is that?
Yeah. That's why.
That's why. Okay.
Yes, we are talking about this, and we also, of course, record market trends and we adjust to it.
Okay. Thank you.
Yeah.
With this, we would like to thank you very much, ladies and gentlemen, for joining us this morning for this results conference call. We look forward to speaking to you again following the results of the third quarter. Thank you very much. Goodbye.
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