Dear ladies and gentlemen, a warm welcome here in Seminarhotel Bocken to the u-blox Analyst Day 2021. You will listen to some interesting presentations today from our CEO, Mr. Thomas Seiler, to our CFO, Mr. Roland Jud, our co-founder and head of product centers, Mr. Andreas Thiel, and last but not least, to our head of sales and marketing, Mr. Markus Schaefer. As you'll see later on the agenda, we'll offer today 3 Q&As, and we'll process the Q&As as follows. The first questions are coming here from the floor. After that, the participants of the online chat will have the option to ask questions. Last but not least, the attendants of the telephone conference call will be able to ask questions. As said, 3x . Agenda comes later. Now, please, Mr. Thomas Seiler.
Good afternoon, ladies and gentlemen. Welcome to our Capital Market Day. Very glad to see you here and, of course, also very glad that you participate online. We make this presentation with the usual disclaimer about certain forward-looking statements, and I like to say what is the schedule right now. We will first look into what we are as a company, and especially also to those that are perhaps new to u-blox. Then, give you an introduction, what we do for our customers, what solutions we provide to the market, and in what markets we are doing, in what form they are developing and growing.
My colleague, Markus Schaefer, will lead you through how we focus on the market, where do we concentrate on, and also how we provide the value proposition to our customers, finally, to convince them for u-blox. After the break, Andy Thiel will talk about what we do in R&D, how we create products, and how we do investments there. Finally, after some few words on ESG matters, I will hand over to Roland Jud, and he will give you also some financial perspectives. We are almost present here as an executive team. Our co-founder, Jean-Pierre Wyss, he's not here. He is looking after making products. We have a huge order book, as you have probably seen, and he does a tremendous job in guiding the production tools, the production partners and the suppliers, and he's achieving every month a good progress.
This time and at this Capital Market Day, we like to cover 8 different subjects. As I already mentioned, we need probably to give a little perspective what we are and where we come from. Then what are we offering? What do we mean by solution, solutions? How do we create this in a market that is growing? What is driving these markets? As how we do focus, the market is too big. We need to select. Insofar we create value for our customers. This is the only reason why we are existing. We give very important value to the hands of our customers, and we need to propel that forward. Our R&D does create such value. We create new product as a component, but especially as a solution, as an assembly of products. Of course, this needs investments.
Of course, by the end of the day, all that should create shareholder value. This is what we then look into at, towards the end of the presentation. Before we start, just the most important question shall be answered. Our guidance remains as announced already in August. We have no reason to change it. We see continued good expansion in the markets. We will talk about that later. We have drive from expansion in our markets, and insofar can support the numbers as already provided. Of course, we have some limiting factors with regard to availability of components. Also here, we give more insight later on. Please note that all these numbers were given at the exchange rates of last year.
Actually, the 12 months total value of the US dollar is unfortunately lower than what it was last year. Now, what are we? Let's start with a perspective. I think you know, we are already quite a number of years on the way. We were founded in 1997 as a spin-off from ETH, and have since then developed our business. We are today more than 1,200 employees in 32 locations around the globe. We are really a truly global company, not only because where we are located, but especially also where is our business in the Americas, EMEA and Asia. That, of course, is also true for how we are connected to the supply of components to where we make products. It is all a global supply basis that we are working from.
Our customers are, of course. When we say we have 10,000 customers, of course, they are in these regions, in the Americas, in EMEA and APAC, and nicely distributed between the 3. That gives us very good diversification in the markets. Of course, we started as a small startup and have developed ourselves over various phases. It was in the beginning that we made what is the positioning technology, the global navigation satellite that we are using to create positioning information. This is a very ubiquitous available signal around the globe, as you all know, and this has laid the foundation of the company. We then later made it to something that was enriched for helping customers to connect the devices that they located and what was called at the time machine-to-machine connectivity.
We moved further on as the cloud became apparent to something that you would call the Internet of Things and, the components to work in this evolving space. Finally, for a few years, and also with more investments and acquisitions we have made, we can truly call us the chip-to-cloud solution provider. We are creating the technology in integrated circuits, and we make sure the information really flows into the cloud very easily for our customers. That was a rewarding journey. As you can see, our growth rate, compound average growth rate was above 12% and stronger than the overall semiconductor market. That was only around 5.5% in this period between 2007 when we became public and now. Of course, it's not a straight line.
We had some headwinds in the more recent years, but I think we are on a good way to maintain this growth rate towards the future. Our guidance indicates even higher growth rate than what was the average over the last 15 years. Going on, we have created a lot of intellectual property. This company has enormous knowledge about how to make technology and especially all about what a wireless signal can deliver. With wireless signals, you can determine your position and you can communicate, you can transport data through the air. This of course went step by step. We created, first of all, the company a long time ago to make physical products, the module to a sub-assembly made of many components. That was the founding idea.
Relatively soon, we went into the domain of making the core technology. This means a radio and signal processing and casted that into integrated circuits more and more. In 2007, we were able to put that all in a single chip, whereas before you had several components to make the solution. That was the time when we went public. That gave us the boost to say, "Now we really have something special." Of course, we developed that more and more. We also added services already a long time ago, not so visible for everybody, but it was part of our thinking, relatively early in the company. Until then, we went into becoming the real provider of solutions, chip to cloud.
Again, it's the combination between that we can create radios that can receive and send signals through the air, that we know how to make very special processes for transferring the signals, and of course, that we make it in a way altogether from the outside for the customer who wants to see data in a cloud solution. This is something that needs several components, mainly software components, to realize such an easy solution. In summary, we have really nicely grown since 1997. We are, of course, proud of that journey that we have made. Today we are very uniquely positioned to provide to the industry the solution. The solution to connect and to help them to make their devices smart.
That is relatively new, that the industry has a strong drive in this direction and, is of course, also a reason why we can continually expand and also visible in the number of customers that are more than 10,000 today. This is what we like to further develop, make it even stronger, expand into all the various dimensions of applications and participate in this very nice evolution. Now, I like to explain what we all mean by being a solution provider. That starts first with, what we do. Finally, we connect devices, as I have mentioned, and it is in many, many different applications.
The market is broad and deep, and we have customers that are specialists for making certain products and certain functionalities that are of course doing a purpose and normally do that for a very long time. The connectivity is a relatively new subject for them. So far, it was a standalone solution, and it has now become the time that these devices are no longer standalone. They are becoming connected and shall make the whole purpose of the product better. Of course, for the maker of the product, it is extension of the business to do service business. Again, to move from probably a one-time revenue scheme to a recurring revenue scheme. All this we do, we help this industry to make this happening, and we do that with a very Swiss way of providing technology.
We are helping customers in a very solid manner, in a well-engineered way of providing these solutions. What does it take that we can say we do solutions and not just products? It takes mainly that we understand applications. What are our customers achieving with their products, and what is the use case that they are working for? We have really to go deep into functionalities. What do the products finally do, and what can we support with regard to making these devices connected? This needs technology. This needs the right approach to make the functionality relevant to the product that it is satisfactory for the customer and its end users. Of course, it must be made for the market for what these final customers really have an environment and a perspective.
It has a lot to do with robustness, and because we are focusing on industrial matters, on things that are making our infrastructure, therefore, robustness is very important for reliability and for aspects of security and of course, longevity to maintain the infrastructure over a very, very long time. I think our company has the deep insight to know these customers, to really understand what are applications we can give the market and especially the R&D teams with our customers, the right solution into their hand. With that insight, we drive our R&D. We do constantly collect and put together all these insights for decisions for what are we investing into the next generation of products.
At the customer, we need to make sure we convince the decision maker, because customers have certain goals, and we have to respond with our solution. Very typically, as I already mentioned, customers want something that works, that is reliable. They want to have it in a way that they can go to a global market. Our customers often have a global footprint as well. They do not just serve a 1 single geography. Of course, it's all about reducing the risk to be fast in the market, to have an effort to make the product in a foreseeable way. Finally, of course, it's a matter of a partnership, that we are a reliable and dependable supplier, and that over a very, very long time. The lifetime of customer products is long.
It's 10 years. It's 20 years. It's in this dimension that we have to think. Insofar, our solution must respond to this, that we have these qualities to respond with products that are really responding respectively, also outstanding, and versatile enough, so it's easy to the customer to make also product variants. The catalog units have all this manifold, and we have to help customers to maintain their catalog. Of course, going global means also effort. We want to make it easy for customers to be accepted in the global market. Of course, as I mentioned, over a long time, with high reliability. In detail, we have quite a number of things to bring together.
I mentioned already that we must understand the problem and have and create by that the solution expertise. This means we need to translate the basic requirements into something tangible and in a proposal that we can give into the hands of customers. Behind must be a deep understanding of the technology of know-how. This is why we have constantly developed our knowledge and have insofar a lot to take it from. It's then the innovation spirit of all our colleagues in the company and the combination of this innovation spirit that creates finally outstanding solutions and new concepts. Insofar, of course, we want to remain in the driver's seat with regard to innovation.
We want always to be a little ahead of anybody else with the next best idea and the next good proposal, how we can help the customer. Customer is the core of where we need finally to prove ourselves, and we do this with a very good attachment to the customer, with knowing them and be very close to them as much as we can. Of course, with so many customers, you cannot be a deep friend with everyone. We of course segment the approach by tiers of size and importance of customers and have various channels to go to the market. All day deliver this relationship and this deep know-how, what does the market.
Last but not least, it is about quality and technology leadership in the sense of that we are doing this not only for the short term but for the long term. We have done many generations of products. Customers know that we have a long history. Of course, they like that we have experience. But also we give them outlook. We give them a roadmap that gives them the ideas what can they expect within 2 to 3 years from our side. This is, of course, what drives us forward, that this combination of a long and solid history together with an outlook into what is coming next. Here as an example is what we then put together as a solution.
A solution that is finally appearing in a product, perhaps in 1 space or in several spaces. Here, this connected bicycle is of course a solution where we help with our technology to know where is the bicycle. This could serve, for example, for theft protection. It is here to connect and transmit data from the bicycle to a cloud solution. This can help to for the energy supply of the bicycle. Of course such vehicles are often a shared device. Also, with a connection to the smartphone, we help to operate finally the business, or it's just for convenience of the private owner. All here comes together a solution package that is made for the case of a bicycle.
This is where, what is an example of how we focus then on the 1 area of application. Now, all sounds good, but we need markets. We need to understand what is achievable here and why are these markets developing and how we can follow here all the opportunities that are created. First of all, I think it is a general mega trend that is making the expansion, the mega trend, that things are of course a lot more smart and deliver a lot more functionality than in the past. The general development here of technology as such has of course driven that at large.
here we see just also reasons that at the macro level, many things are driving more the climate change and the resource scarcity of course creates new demand and need for solutions. We have quite the demographic and social change, for example, that more people are living in towns and of course also the whole change of general income that is developed over a long time. Finally, I mean, everything is digital. See how this has impacted our life already. When we now look at the infrastructure that is of main interest to us, we all can recognize that here are very large numbers around that form the market.
For example, there are more than 1 billion bicycles in the world, or I heard also the number that more than 1 billion streetlights are installed. We could count endlessly. These are all our target markets and applications. This smartness of the world is of course the background of why we see expanding business and why our technology makes a lot here to get these dimensions working. Mobility obviously is a subject of expansion. People have become more and more mobile. During the pandemic, of course, this has taken a change. Perhaps it's not more mobility, but different mobility when we speak of micro-mobility.
We have seen security becoming a lot more a topic and again, for us, a subject to help the customer or we see different forms of energy generation and all the aspects of CO₂ and how to reduce the impact on the environment has of course the result that new solutions are required. We see many new businesses created that are then our potential market. I'm not going to read everything here, but it is enormous, the many factors we have that form expansion for our markets. More in detail, when we look where we are doing our business, we have 60% in the industrial space, and this space is indeed the one with the many, many different applications and the more and more devices that become smart.
Here we see also the biggest growth of customers because many have now realized this is the time to change their products and where we then find them as a new customer. Often it then also develops a new space where we see this as a what we call an application. A typical area of use case and requirements, how the whole solution must be configured. In the automotive space, it's not so much the number of units. It is that fact that these cars also become very smart, it even perhaps to even more extremes than the industrial side, these enormous capabilities that go into a car today. The electric vehicle also is driving this even more. Here it's about selling more value of our technology into the same vehicle.
This is continually expanding, because also here the journey has rather recently started and has not at all reached any of the cars that are produced. In the consumer space, this is for sure a very large market with regard to numbers, but not so much our focus because we focus here more on application with high features or what we call high touch application. Therefore, we see not here the major activity from us. We focus on industrial and automotive. But it's a nice complement and a way to expand. Also recently we have seen, again, with pandemic that this market has evolved quite a lot for us. Most important is to understand that we apply technology in a very well thought manner for these various applications.
We are providing positioning, what you see on the Y-axis, and this positioning technology is segmented into various performance levels. Here, mainly the precision, how neatly you can determine position and on the X-axis, on the horizontal, it is the type of connectivity, what to what extent this connectivity is available in what area or in what distance. This forms finally a space in which we can find all these applications, so numerous as you can see, and all of them need a different combination or at least several different combinations of type of positioning capability and connectivity extent. This is what forms our market and of course, also how we drive markets when we do enhance the technological capabilities.
For example, enhance positioning accuracy or robustness of certain features, that is then also a reply to, what, a certain application requires. We can take the example of drones, that they have a certain requirement for positioning accuracy and availability that is different, for example, than when we want to do a tracking device for a truck. Therefore, by well knowing how these markets perform, what customers really need, and by mapping that to our technology development, we form, of course, also from this side, market and demand. We have seen many applications that became available because we have pushed the technology forward. We are really in midst of all these developments. We are part of driving the business forward and, insofar build of course a leading edge.
Just to illustrate what we can support and what type of customers we have, and this is a huge diversity as you have seen on the previous slide, but of course, I'm not going to show everything. Here, an example, probably you could call it consumer or that is a standalone bicycle computer that profits from very good positioning performance on the one side and very low power consumption. With the battery that you have in this unit, you can operate for a very long time. That is, of course, an essential feature because it's not so fun if you run out of power every few hours. This product can live 72 hours, so very long. This is all generated thanks to constant technology development.
Low power is a constant effort to make the chip inside of this product created and designed in a way that you can achieve very low power consumption. This needs a lot of specific knowledge how to make such a product and still performing very well. The next example is quite different. We do also provide the products to determine time and frequency, and especially a functionality to synchronize the networks, the data networks, either on cable or in the air. Because when you do better synchronize and put things in parallel, how data are transformed and transported, you can achieve higher throughput rates. You achieve higher performance of all the computing devices there are in this world. Of course, there are millions and trillions, I don't know.
This functionality is absolutely essential for the infrastructure, has a high value and needs a lot of dedication to make it performing very reliably and precisely. It delivers, thanks to the continued evolution and use of computer systems, of course, a growing market. Alone, think of all the data centers for crypto mining. All they have enormous amounts of computing power and devices at work, and synchronization helps them to perform well. Finally, again, with technology development, we can help to make applications to perform better. Everybody knows these scooters, the electric micro mobility devices, if you want to call them so. Where because of the strong growth of numbers, of course, that can also create problems. Where do they drive and where is allowed and not allowed?
Towns have more and more, of course, an issue how to regulate this. With technology, we can now help to better guide this, to let these scooters only run where it is foreseen, and especially avoid by that there are accidents or any problems. Again, it evolves a way to create this solution, to make it really in a way that is functional and of course, helps to support such an infrastructure. I think this is a very nice example, and we will explain it a little later also how this market is developing. It has become quite a sizeable market of these many players.
Last but not least, when we talk of markets and expansion forces, interestingly also COVID has accelerated the trend, because the demand has shifted, new requirements have popped up. For example, drone has become a working horse more for delivery, or people have chosen more the bikes and the scooters to be mobile. I mentioned already as another example, the industry has realized it is good to have remote control over the devices instead of having to send people for service. This, of course, has all boosted in the overall demand. What can we expect from growth? These are the next few slides.
We have here some data from analysts that, of course, show that in general, wireless technology is going to grow tremendously, because of all these factors. For us, it's of course interesting to see where do we see especially good growth. Interestingly, it is in the industrial domain and in the auto more than in consumer. The explanation is probably there is more to still capture and expand than in the consumer space, where this was probably earlier already a topic. We are very well positioned to gather the growth momentum here with our products in positioning, cellular and short-range radio products. Of course, all together as our solution for industrial markets and for the auto market. This is what I like to explain a little more in detail.
The industrial sector is expanding because of the many more devices that become here a connected one. The evolution of the wireless capabilities of course helps this industry a lot to make this happening, because the application use cases and the areas and places where such products are used are not always easy to make it really a solid solution. Here with the continued evolution of technology and availability of products, this has helped to make this market to further expand and together with aspects of cybersecurity, where we also put a lot of effort to help customers. This of course also gives a solid foundation that customers, and especially industrial customers, can make devices selected without compromising their business model. In the automotive sector, we have a different picture.
I mentioned already it is about the continued evolution of electronics in the car for making the car more automated, for giving driving assistance, but also of course for more comfort. Here we solve problems with positioning, because when you want to automate, you need a very nice positioning information, but also a reliable one and a secure one. Here we have made special solutions intended to support our customers to make it really happening that can really work functionality for more assistance while driving. You see here that the value per car that we can sell is increased for us. It was perhaps only $4 or $5 10 to 15 years ago. This can grow up in the next future to more than $100.
By various additions that go to the car from a very simple position information that evolved a long time ago for navigation is now a more precise solution because you want to automate the driving. You want to have in-car connectivity, but also car connectivity in the mobile network for cloud connectivity. Of course, the big dream is fully automated driving that then needs a very safe solution, and again, is a different class of a product. Of course, the expansion here is a little muted by the COVID impact, especially in last year, where the factories had a standstill and the expansion of output of the car factories is still limited by the supply crisis. In the long term of course, this market develops enormous momentum.
This is what we want to show on the next slide. What is available here for us in regard to growth contributors. First of all is the rebound in the pure manufacturing volume. This will probably take several years still that the car industry is back to pre-COVID volumes. We have the good contribution from automation, what we then call ADAS, as in the middle. Also the electrification of car helps us to sell more because such cars have in general more functionality than a gasoline car. Finally, just to complete the picture, I mentioned already the consumer side is a high volume market. It is mainly dominated by what is called the short-range radio, the Bluetooth and Wi-Fi connectivity.
It has also a growing segment to positioning information and cellular. We have a number of customers that precisely use this type of connectivity and positioning together to make products, for example, for trackers. Here also we expect acceleration from COVID because of much stronger consumer spending. People cannot buy services, they buy more hardware. This is what is making this market to grow a lot, and is also a reason for supply constraints. This is the part on how we go to market, and now I like to hand over to our head of marketing sales. He tells us how do we really achieve it with our customers.
Thank you, Thomas. Good afternoon. It's a great pleasure talking about our focus markets and also about our value proposition. In other words, why we win as u-blox. A major pillar of our go-to-market strategy is to grow market share in selecting the most promising markets, where wireless communication and location information is being achieved at a premium. It is obviously visible in the application I show here on the slides that there are 2 major things needed. It is wireless communication, and it is location information. Without these 2 core technologies, innovation is not possible. It is not possible at the business model level, and we, as u-blox, are delivering innovation to grow a sustainable business. Now, u-blox makes IoT happen. It is to locate the information and connect securely and reliably.
On this slide, I'm showing a subset of applications compared to the previous one, and there's a reason. It is focus markets for us that allow us to bundle the technologies that we have in our portfolio. It is to utilize positioning, connectivity, and very important, to connect those securely with our service offering to the cloud. By offering a combination of these technologies to a solution in those markets that I'm showing here, markets like manufacturing, connected healthcare, smart transportation, smart home, we are able, with these solutions, to sell a higher content in these target applications. It is a way for us to increase our market share by selling more, by selling a higher bill of material into these segments. Now, how are we doing this? It is with what we call market-shaping customers.
Market-shaping customers are customers that are leading in their application space, that are highly skilled, they have highly skilled people, and they need a differentiation based on our products. u-blox is working with these market-shaping customers to develop innovative solutions that, at the end, we can utilize and scale by providing them what we call the solution-oriented customers. Solution-oriented customers have limited wireless experience. They have, however, a very high expectations for the usability, and they expect from us a differentiation based on the solution that we are offering them. The solution-oriented customer then can take very quickly our offering and adapt to their use case. With this ability, we are able to scale and to achieve higher sales volumes. Now, we have talked about services as part of our offering.
Services is a really strong contributor in our ability here to offer the ideal solution to our customer. The product that we are offering here is called the Thingstream Delivery Platform. It offers a rich value and can achieve a very high customer satisfaction. The value that this service offering is providing is services related to connectivity, to security, to augmentation, to software maintenance. However, this is not all. It enhances, obviously, our total product offering, so services together with hardware. What I'm also showing in this slide is we are able now, with the ability of services, to connect to the full value chain. We are addressing, with services, the whole ecosystem. An ecosystem that at the end also has an impact on the selection criteria of our end customers.
It can be design partners, it can be installers, it can be system integrators. Because the customer that is buying the hardware doesn't necessarily buy the service, but they might contract with another company that is at the end deploying the service for this customer. For us, it allows us the ability to expand our brand and to have an influence at the end on the whole solution with the ability or with the help here of our service offering. Now, this requires, of course, a very global outreach to our customers by being able to scale now to thousands of customers. We need the appropriate support structure, and u-blox is offering that to their customers. We have signed up over the period of the last 2 years, very important global distribution partners.
They allow us to serve customers on a global basis. They allow us to scale to many more customers. We have a lot of very strong loyal partners, local distributors that allow to support here our customer base. We have a lot of locations ourselves, globally to support our customers locally. Now this particular slide shows a couple of customer names, and they stand for those shaper customers we have been able to grow a significant market share. They represent customers that are buying complete solutions from us. They are a few of the many customers we have. In the meantime, we have scaled to over 10,000 customers. Last time we presented it was a few thousand customers less.
This is due to the ability that we can scale now with our global partners and offering here more complete solutions. Now, I have been explaining our market focus and that these markets require wireless communication. They require positioning information. They require the appropriate services. However, these markets that I mentioned, like smart transportation, we keep using the e-bike or the e-scooter as examples. These markets require something more. There is an essential need that these markets have. We as u-blox are one of the few that can offer this to our customers. The need that at the end create an essential value, the need for high precision, for automated operations, facilitating autonomous vehicles, paving the path to smart devices, the need for highly robust connectivity.
Customers we are servicing here require a long support of a long product life cycle and the ability to enable smart devices and a whole infrastructure environment. Another critical value that we are offering and the use cases that we are addressing is super low power. What does it mean? Well, more and more IoT devices are utilizing batteries. Those devices require very long operation time, also with small batteries. The solution we are offering must utilize very low power. We are able to offer this with the core IP that we have and at the end with the solution that we are offering here to the market.
Now that I have talked about what markets we are focusing on, I wanna spend a few minutes also in talking about what is our value proposition and why we are winning in these markets. Talking about our unique selling proposition, a couple of those items have been mentioned before. I want to summarize it here. Positioning is a necessary anchor for determining the source of information. This is very critical to understand the applications we are addressing. The positioning technology is a key technology to deliver value. Then wireless connectivity is an essential functionality for transferring the data to the cloud. But it is the combinations that now form the solution space, and we are offering this with an unmatched functionality.
We have become undisputed leaders in positioning with strong brand recognition in our target markets because we are offering an anchor to, at the end, sell a full bundled solution. We believe there is no other comparable company with our unique strategic lineup. Now, how we do it requires a little bit of more information, and we thought we are showing you how we are working here together with our customer. It is a busy slide here, but basically what it represents is the journey of a customer can be quite complex. The journey of a customer requires the right skills, it requires the right sales team.
We have set up a sales team that can focus on shaper customers, a sales team that can work with partners, and last but not least, a sales team that has a dedicated service sales organization. That is also able here to address the whole ecosystem. By being able now to have a clear focus on our sales goals, and at the end it is to achieve customer satisfaction and to keep the customer, so we have a very, very high retention rate. It is also to approach here the customer with the right interaction and also with the right sales channels and the right sales tools. As you can see, this is quite complex, but it requires the right people, as I said, that are able to apply it.
With the service sales function, for instance, we are able to engage very early in the design process of our customer. We are very early having an impact of the awareness of the customer of our full solution. While the customer decides on a service product, it is in the second step that normally a customer decides also on the hardware. With the ability to work with the customer very early in the design phase, we are able to also very early offer a complete solution. A particular example here is micromobility. We have touched on this use case 2 years ago, and in the meantime, there are hundreds of more customers in this particular space that has evolved this space. We, as u-blox, have been able to offer to this customer base a complete solution.
It's not necessarily the how and the what. It is also why customers choose us. For us, it is important to understand really the true pain points of the customer. Solution means first to understand the problem, and only by understanding the problem, we can tailor the right product offering to our customers. We understand the micromobility space very well. Problem statements like vehicle and user activity tracking are coming up here. Telemetry and vehicle diagnostic. Navigation is obviously part of it. Driver behavior monitoring, safety and crash detection notification, collision avoidance systems, those are critical elements in this particular use case. By understanding really how to solve this, it gives us a way to enter into this space and offer here the complete solution to the customer.
Now, the solution covering of all these use cases, we are able to offer this out of one hand. This ties back to the slide I showed before, how can we scale? There are solution customers out there, solution-focused customers, that require this from a supplier, and we are a supplier that can offer it out of one hand. We can do that with an optimized functionality by having worked with shaper customers before. Bird is 1 example that Thomas Seiler mentioned before. Well, actually even better, it allows the customer faster time to market. It is a much reduced development risk for the customer. Also here it is the ability to efficiently deal with all the use cases by having all these technologies really here out of one hand.
That means really a complete solution from chip to cloud. Now, another picture with a scooter. This is not a customer scooter. This is a scooter that our evaluation team has built. It is an example how we engage here the customer by providing basically a prototype they can work with. You see here GNSS antenna that has been designed. You see high-precision GNSS receiver in an evaluation package. But you see also the scooter that a customer can use and can immediately start applying this as a prototype into the application. The specific adaptation on top of our platforms for solving the application problem is a critical delivery, a deliverable here from u-blox. We are offering here the support tools for the customer evaluation.
At the end, this shows how we are building really here a selling reference and allow here the customer to go to market very quickly. I have talked about how we select our focus markets. I have talked about also our ability to bundle solutions. I have talked about the customer journey, how we work with the customer and design in. There are also other factors why we are very competitive. I wanna mention those factors on this slide. Since the foundation of u-blox as a spin-off from ETH Zurich, we have maintained our innovative spirit. We are innovative, and we are reliable to the core. We have a strong enthusiasm for a purpose. Our product centers, the product creation teams here are our central drivers.
You have seen here we have a very strong focus on selected markets where we can create and extract value, and we are working with our customers with a very high dedication. At the same time, we are lean and agile. We make the products with less resources in short, shorter turnaround times. While our large competitors, because they have to fill their fabs, work with very large customers in the consumer space, we have customers that come to us and ask us to work with them. We have a robust market share in our market sectors that I outlined before, and here we have become the undisputed leader. Again, there is no comparable company with our unique strategic lineup. Now this next slide is a very busy slide. It shows the competitive environment.
The message is here that the combination of our 3 core technologies, so the chips in that case, modules and services, are unique in the market. The competitors in the integrated circuit space on the top line of this slide focus mainly on smartphones. Competitors in the module space have no access to core IP as we do and implement only the reference designs of the chip suppliers. Here is another example here that there's no other company offering the same solution portfolio. Now in summary, our solution approach enhances profitable growth, and I hope I was able to outline this before. We are gaining a higher share in the value chain. We are turning in-depth market and application understanding into salient solutions.
We maximize our customer value by innovative functionality, better cost performance ratio, less implementation risk and very quick time to market.
Thank you, Markus. Now we turn to questions. First here on the floor, please feel free and wait for the microphone, please.
Yes, thanks for taking my question, Andreas Müller with ZKB. You showed a slide with your competition, just the other slide there. In what areas do you see u-blox the most competitive and in what areas do you see competitive pressures increasing?
Yes, that's quite an all-encompassing question about the competitive space. Of course, first of all, these competitors are around us for a long time. The space is not changing so quickly and therefore this list we could have drawn probably also 5 years ago would have been quite similar. That is a first observation. The second is of course that the technology is evolving in general. This means, all over because of microprocessor and microtechnology evolving, we can constantly implement more or the whole industry can implement more and more. We have to be very careful that we are on par and at the same pace as everyone else. Finally it's of course all about where do competitors focus on.
Markus already mentioned chip suppliers mainly to the high volume markets, driven by smartphones and perhaps PCs and so on. Whereas we focus on customers that are more in the industrial and automotive space with smaller volumes, higher requirements, and need more help and dedication from their suppliers. The context of competitiveness or of pressure, as you say, is mainly coming from the underlying evolution of technology. This is what is the force that is a lot more dominant than what is the individual competitor.
The shares in what areas are you dominant and what size of market share are we talking here?
Dominant would probably mean we have more than 90%. This is never the case. I mean this is still, I mean we are in a worldwide market. We have many competitors as you have seen. We believe we have for sure various applications and, when you look at the list, we had of, in the beginning of Markus presentation, there we have probably 10 areas where we can say we have 60% market share. So we are really leaders and dominant. We have also several applications where we have probably only 10%, either because we are not doing the job or perhaps because we are too young in the market and still have to walk up the ladder to make it to more. Yes, Mr. Possa.
Thank you very much. Marc Possa, VVAG. Just going on that question in terms of profitability of those areas, could you describe without citing any percentages, since probably you don't want to do that, the margins that you have in those areas where you command these whatever 60% to 70% market share and how that compares to the ones where the market share is only 10% or less?
Yep.
I have another one.
I have to do some guesswork probably. I mean, the first observation is the differences are not so big between the various applications and markets where we are present. This is quite interesting, probably given by the very large number of customers that averages to several to similar numbers or, that wipes out the differences. The difference between various customers in the same application segment is a lot more bigger. This has to do with volume, with circumstances, geographies, whoever is the competitor, and therefore the spread is much bigger. Insofar, it's of course good news that because we have so many customers, it does diversify this problem. We have quite a good basis for profitability. It's not so dependent on insofar on where we sell toward application.
Probably it is so of course, when you have high market share, you always have a better negotiation power for price than when you have 5 or 10 competitors around you. This is obvious, but the difference is not that strong.
Concerning the 32 locations you have globally, I mean, you alluded on that you have to have them in terms of having customer proximity and the war for talents. What would be an optimized footprint if you were to build a company on the green field? Would it look the same? It wouldn't be the result of several acquisitions.
Yep. Good. Of course we need proximity to customers. I think if I had to build the company again, it would be the very same. We need local footprint. We need, of course, also people capable in talking the local language, especially in Asia and in Europe. This is no question. I mean, this helps a lot. Because we need the deep understanding of customers and having large customers and the leading customers in the application areas, that is only possible with personal relationship, with very deep understanding of what we do and maintaining that over a long time.
On the other side, for getting the talent, I think we of course got many locations by acquisitions, but of course, what we acquired had a reason why they were in a certain location. For example, they were in Cambridge because Cambridge is a location with talent for what we do. Therefore, of course, it comes a little together that these acquisitions came from spaces where we also have probably a good place to find further talent, as we go on. Of course, today, thanks to the many locations, we have not only availability to talent, but also we can optimize cost. Not all locations have the same resource cost. This of course helps also to optimizing our capacity for the dollar we have available. Mr. Rotzer.
Serge Rotzer from Credit Suisse. 2 quick ones. The first one on the short term on the sales recognition. You mentioned that you feel a little bit higher US dollar. Can you remind us when the revenue recognition takes place with u-blox? Is it more up to November or is most part coming now in this month of November, December? It's only a technical question.
Yep. You talk of seasonality probably.
Of course.
We have no seasonality. We have sort of a straight line across the year. Of course, because we are growing, the line is going upwards and the later months have a little more turnover than the early months in the year.
Okay. Got it. Probably some question on slides 27 and the following ones. The third available market there is growing by about 9%, or the CAGR is probably about 9%. Is the opportunity with connected devices in the IoT market. You know, when I make a rough calculation, I get a 9%, 10% CAGR. When I go then on slide 28 where you say industrial sector, 29 automotive sector, and 31, consumer sector, I get growth rate for next year into 2022 of 5% for industrial, automotive 5%, and consumer 9%. Should we take this as an underlying growth for the next year? Or what is wrong in my thoughts?
Yeah, of course. Slide 27 shows that we are nicely positioned to work in spaces that have quite a better growth rate than the consumer space where we are not so present. This is the main message. Of course, it gives you an indication what is the acceleration from the overall market growth perspective.
Basically it's volume shipments now for you.
This is a volume statistic, yep.
Would you have such high pricing power that you can grow, then you can double this growth rate then? Or how should I understand that you can achieve a double-digit growth rate then going forward?
Yeah. It has, of course, this is analyst data.
It's a weird analyst thing, I know, but
It has finally. I mean, when you say pricing power, it has to do with what value can we sell into the hands of customers. This is of course what Markus explained, that we can sell more as a solution more continually. It is a factor that we have a higher ASP if I look over many years what we sell into many of our applications. Not into every one, but into many. This helps of course to propel the growth on top of volume growth.
Okay. I will come back later then with the backlog discussion.
Yep.
Thank you.
Wolf Rendels from Helvea. Can you elaborate a bit on the bottleneck problems for the suppliers and visibility you have for next year, maybe compare it to this year or compare it to what you think is possible from that side?
Yeah. Can I postpone the answer to later because we have a slide telling you the answer?
Okay. Sure.
Yeah.
On the other question is on services. Of course, that's still very modest, but you are growing there. In which region is the speed of growth going? What is the pickup? I think it was 3% or so, but
Do you mean region size-wise?
No, sorry.
Geographically?
I think with Sapcorda, the acquisition, it went a bit up, but then the percentage of sales is still rather limited.
Yeah.
So-
I mean, we are still in the emerging phase. This Thingstream acquisition is only dates from 2020, so it's relatively young. In the meantime, we have tremendously expanded the service offer. Now you must, of course, go through the cycle with our customers that they integrate the service, that they bring their products to market, and finally make that operated by the end customer. This is still the 2 to 3-year journey, then we see really full effect and a sizable income from that side.
Okay. Yes. With sizable, you mean 20% of your total sales, or what?
Not 20%, but growth between 5% to 10% in this timeframe.
Okay. Yeah. Thank you.
You mentioned the possibility of growth rates in the micromobility sector. If you help or collaborate with a customer such as Bird in establishing something like sidewalk detection, to what extent is it allowed to use this knowledge for the other customers of you, but competitors of Bird?
Yeah. That's a valid question. So, what you need to know, we are never making solutions for a customer, so no customized offer from our side. It's all a standardized offer that we have finally created. Fortunately, Bird has given us the case to make this public. But in this space are several hundred players. Either they make the scooters or they make the electronics, or they are the system integrators, and all are potential customers, of course, and we want to get them. The point is also not everyone will be successful in such an emerging market. Finally, probably only a few are surviving, as you have seen that also in other markets.
It's very important that we can attach to all the players and make sure we have finally the most successful companies as our customers.
Maybe 1 more question on the payment terms from suppliers. What has changed there, and how is that impacting the working capital requirements?
Fortunately, very little because we paid suppliers always very well, also in the past. We do so well that we cannot improve anymore. It is sort of without impact on net working capital. Just to expand on the other side, with regard to customers, they pay very well because they want the product.
I would have an understanding question concerning the business model and the risks associated with it. Is it fair to assume that you build modules or chipsets before really having the end customer on board, i.e., the development of a chipset costs easily CHF 30 million-CHF 40 million that you then have to amortize over 3, 4 years. Is that still the case in the majority of the relationships you have?
Of course, we make a product without having a paying customer and without a specification from a customer that is sort of a contract. That is the model indeed. But of course, we do that not somewhere in the free air. But we do it because we have a business, because we have generations of products behind us. And of course, that also Markus explained, we take lead customers into the context of developing a product or what we then later call the shaping customer. They, of course, help us to create the first applications and businesses, and of course, they become visible as what is then hopefully what we call a dominant design.
It moves into the mass market and into the many more customers that are the solution providers.
Is it fair to assume that the risks associated with the development of a chipset are becoming higher due to the increased complexity and?
Yes. With probably 2 angles here. 1 is what you say, more complexity. This means, you need to assemble a lot more knowledge and also have a more complex, project organization. On the other hand, because the markets are growing, because the type of applications are diversifying, you have more chances to sell the product into different hands. Insofar, that then lowers the risk. I think in earlier times, the markets were much more narrow, and you had not so much diversity to finally sell it. We move on to the next group. Tobias?
Yes. I will read the questions from chat. There is David Sachs from Hocky Capital. Can you more specifically discuss your dollar content per auto? Can you discuss design wins that provide u-blox with visibility into future content growth? Can you mention any specific aspects of u-blox and your IP that has enabled you to grow your content per vehicle in future model years?
Great. David, thanks for the many questions. I hope I still recall them, but it is all about how we have more content in the car. I can make an example. I think that's the easiest. In the very first assistant system in the car is the navigation product that you had in the dashboard. The screen where it helped you to navigate. Here we sold a relatively simple product that just told the car that's where you are, and the precision was not so good. It needed other mechanisms, mainly via a map, to be sure what is the position. That, of course, was sufficient for navigation because, I mean, the driver was making the decisions and nothing else.
Now, when you want to make them more automated, when you want to give the driver more assistance, first of all, you need higher precision. This is a different product. This has created several generations of product development to bring it to a level where we are in the area of a few decimeters, so several tens of centemeters. This of course functionally commands a higher price. And also in the car, the topologies have changed. The car systems are a lot more complex. We often are selling 2 receivers in the same car. So they are double the value already just by this fact. Now when we also look more to real automation, where you really have hands off the steering wheel, this is again a different level of system.
We call this functional safety. These are redundant systems that are made in a way that when they fail, there is no damage. Again, of course, this commands higher price and higher value. This is an example how we get more value out of the same car. Of course, we have constantly innovated and invested over many, many years.
Mr. Sauter from Kepler Cheuvreux. You serve a considerable amount of customers and use cases. How do you deal with managing complexity? Should you not rather focus on a handful of blockbuster applications rather than serving a very heterogeneous market?
Yes. That high number of 10,000 customers could of course create this question. First of all, Marcus has shown it, and I have to refer often to you, Marcus, what you have shown. That we have many channels into the market and many tools that customers can get served in an efficient manner. Of course, we have sort of done automation for this. This is 1 aspect. The other is, and this is the example of the micromobility such a space is in the first instance, perhaps 20 potential customers, and now it's several hundreds. You have no other chance to be present in the market than serving these customers and really make sure you touch upon them, and hopefully you have the successful ones, finally your customer.
You never know who are the successful ones in the beginning, and only over time you find it out. Of course, you have to structure your sales channels that our own sales force works more and more, hopefully with the ones, and not hopefully, they must work with the successful ones, the big ones. The smaller ones, they are with our channel partners, mainly the distributors. This is the concept.
Also, Mr. Sauter, how many of your 10,000 customers are ordering complete solutions from u-blox? How many are only sourcing chips, modules or services? How much has the share of cross-selling improved in the recent 5 years?
Yes. We have enormously increased this cross-selling aspect. I mean, because we have developed the product and of course, because we form it to solutions. Perhaps we could say in the extreme, we always sell 2 things together. I mean, a positioning receiver only works with services very well, otherwise it has limited capability. Of course, we can sell it. So it is basically the aim that always we make it a combination alone also. I mean, first of all, to serve well the customer, but also to differentiate against competition. I mean, to give percentages, I do not want. This is too competitive information.
Mr. Daniel Lion from Erste Group in Austria. How you evaluated an expansion towards embedded solutions? Or do you prefer supplying products to IPC embedded solution providers?
I'm not quite sure what means this terminology, but anyhow, I mean, we are selling probably to 2 type of customers. 1 is what you call the OEM, the original equipment manufacturer. They make the product, they bring it to the market, and own it over a long period of time. It is a supplier to this OEM, what we call Tier 1, that have the task to make a sub-assembly or a functional unit that then they hand over to the OEM for further integration into a final product. It's at these 2 levels where we are selling. The task is always the same. We help the customer to build the electronics, and we give them quite a high value content into their product. We are a very important customer in this regard.
Sorry, a very important supplier in this regard.
Laurent Stöckli from Quaero Capital. On slide 47, what's the benefit to have access to core IP?
That's a very basic question. Why do we make IP? This is knowledge. Without such knowledge, we could not create what is finally making the important values. I make an example. Making products that have very low power demand is possible because we designed the whole circuit in a way that you can operate it with a very highly sophisticated way of switching on and off certain domains of this chip. This is the only way how you make it low power. This needs really the total control over the whole functionality, over the whole circuitry that is finally creating the product. Without that capability, we could not be a leader in the low power domain, for example. Similar examples are, of course, when you want to make high precision or when you want to add security.
All these needs the complete control over what is finally making the functionality.
Another question to this slide from Jonathan Art, Ascan Partners. In reference to the competition slide, what cellular chips does Broadcom offer? I'm not aware of any. More importantly, can you comment on how far along your cellular module business is in its transition to LTE, and what percentage of your units are either Cat 1, Cat M and NB-IoT?
Tobias, did he ask what is Qualcomm offering as a chipset?
Broadcom.
Chipset.
Cellular chips, yes.
Yep.
Broadcom.
Broadcom. Okay. Yes, Broadcom is, as far as I know, no longer offering such a chipset. They had such products, but they have sold the business a time ago. They are not insofar in this space, not a competitor. Perhaps there is an error in this table? That's why the question is here. I'm not so sure. Yes, there might be an error. I cannot read. At least they are not-
Okay.
present in our space anymore.
Okay. How long-
The other question was where are we present? We clearly focus on the technology for low data rates. This is what was mentioned, Cat M in the LTE domain. We will focus continually there. This is where our industrial customers have the majority of need. We also offer higher categories based on chipsets that we supply from certain partners.
Mr. Antonio Poveda from Alantra. Versus your peers, do your competitors amortize in the same way as you? How many times do your largest competitors invest versus u-blox? Would you say that you have a better hit ratio versus your competitors?
Yes. These are detailed questions about how we do account for R&D costs. I like to refer also to a later part in our presentation. Some other questions are related to comparison to competitors. Here we have no answer to give.
Good. Last question, Anja Soderstrom from Sidoti. How do you see growth with existing customers versus adding new customers?
Yes. This is of course, again, a matter of how we go to market and how we focus our sales, marketing efforts. I mean, it's common knowledge that expanding with existing customers is a lot more easy than finding new customers. I would say we have quite a good situation that we do expand in both areas. We have still a lot of potential with our existing customers to sell more, either in more projects and more products they make, or by enhancing the functionality and selling higher dollar values, as I have explained in the car example. The other side is we see it in the number of customers. Of course, we have many new customers. We are expanding the reach. This is mainly driven by the fact that the industry sector grows more and more smart.
We have many new names on our customer list that have only started to add wireless connectivity to their product. I can make an example. We have a customer that makes little generators that make out of a gasoline engine and create electricity. These were products that were just somewhere, and now they are connected by either via Wi-Fi or via cellular, because they want to help the final user to better operate the unit.
Thank you.
Thank you. To our audience, on the phone.
Gentlemen, so far there are no questions from the phone.
Thank you. Yeah. Thank you very much for the interesting questions. We are now going into a short break until 4:15 P.M.
Have a coffee, digest all of the questions and the answers you got, and see you in a few minutes. Thank you. Welcome back to the second part of the u-blox Capital Markets Day. We'll continue with an R&D presentation by Andreas Thiel, our Co-Founder and Head of Product Centers, followed by ESG and financial information. After the R&D presentation, we'll once again have a short Q&A with the same kind of procedure. First questions from the audience here, second one from the chat, third one, if there are any, from the conference call. Now, Andreas. Thank you.
Thank you, Sven, and also warm welcome from my side. Now after Markus and Thomas have explained what we bring to the market, it's a little bit more my job to show you a little bit around how we create it. I want to pick up on 1 question that I heard before, "How do we manage all these many customers and these many products?" I think it's important to understand that we see this really as a matrix. We have on the one side, the markets, and on the other side, the technologies. What we try in our R&D organization, and we have in R&D, our product strategy teams to do this job, is really to maximize the markets we can address with the technologies we develop. I can give a very simple example.
If we talk about high precision in GNSS, this is a technology that we can use for the case that was presented, like the sidewalk detection for the micro scooter, but it's a very similar technology to what we need for the precise location of a driving car. We try to develop technology roadmaps internally that feed into these various markets. The art is to find markets that are very attractive to the technologies that we develop, and so to maximize what we can get out of our R&D organization. Just to recap also what we heard before, to not lose track on what u-blox is doing, very simple words, we locate and connect everything, and we do this from chip to cloud.
This is the stuff we develop in my organization, and I show a little bit now how we do that. There was also a question that we had before, "How are we organized and how are we managing these many locations?" Indeed, most of them are going back to acquisitions, and we had just a discussion at the coffee also outside. We even managed during COVID to integrate 2 companies in the last 2 years. The one was just before. I did not manage to meet anyone of those in time because it was really 2 weeks and then the shutdown came. Another one, just, Sapcorda was already mentioned, beginning of this year.
I think quite a challenge for us, but it's a way for us to get talent, good people into the company, increase our competence in areas where we have not been strong before. Both acquisitions, Thingstream, early 2020 and also now in 2021, Sapcorda, we're targeting our build-out in the services domain. This is where we are today, mostly centered around Europe, but also quite a strong presence for software development, mainly in Pakistan, in Lahore. And you see also in the United States, a couple of locations, a very specific technology we developed there, LTE, but also correction services. I come to this later on. This helps us also. I mean, we see now that technology is in high demand. Talents are being searched for. We can offer local presence.
We can hire people where we find them. This is very important for our growth going forward, having this access. Of course, in post-COVID times, we have new ways of working. We are employing this. We get more flexible. We can have more people working from home. We are learning as we go and as we try to get out of this situation, how we can attract and also bind the people to us with very attractive work models.
Now if we look into how we develop and what is our product life cycle a little bit in more detail, and I think also this was already mentioned in the discussion before, many of our product developments take a long time, and it is very important, as I explained before, to get this matrix right and understand what are the technology trends, what can we develop for the longer term future. Here, typically, it's a kind of a 1-year phase where we think about new products and develop the concepts and challenge them and expose them to our shaper customers, as was mentioned by Markus before, really hone the product, the specification, and then we start developing. The core development is typically something that lasts for about 1 year to 3 years.
It can be very fast in the case of a service where we can almost immediately roll out new features. It takes quite a bit longer when we talk about a chipset development, where we have also long production times in there. Typically the harvesting time is something like 9 years. This is what we see on average with our customers in the industrial domain. Automotive is a similar order of magnitude, so is a very long period where we sell the product and bring them to market. I think it's also important to understand if we look at the journey of our company. Now, in the old days, we typically had a hardware product that was finished and then sold for 9 years. What we see now, our products get more software contents.
They get a service component, as Thomas also mentioned. We continue to develop new features also over this 9-year period where the products are in the market. This also reshapes a little bit this investment profile, because when we bring the first product to the market, it's not finished yet. It's the first product version, and we continue to add features. For example, the u-blox 9 platform that is in the market already for many years, still sees new product launches, new developments of software over time. Now coming back to the topic of capitalization, because there was also a question, I think from the web call, we can only talk about u-blox, of course.
We know that different companies have different strategies, also quite a different mentality between U.S. and Europe. There are different accounting standards and so on. What u-blox does is we invest heavily in our IP and in our basically our core know-how, and this is what we show also in our financial numbers as capitalized development costs. In the case of u-blox, you can see in our numbers really how much we invest into core technology. Then the question is, what is the other part of it? That's then really what goes into maintenance, into continuous improvement, also into more administrative work. You see roughly there is this kind of 40% capitalization rate on our R&D costs. We have a very high content of our work goes into really creating new things, new technology, new core know-how.
As a result, of course, u-blox is then leading from a technology side, wherever we sell our products. The whole R&D spending, basically how much money we spend, we of course manage then through our budgeting process, and we make sure that we can really afford what we are doing and shape our activity in a way that we achieve a positive free cash flow in the end. That sets a little bit the framework of what we can really do in R&D. You see here in the graph, the red squares, they basically show a bit how we accumulate over the years since our IPO, 2007. What we invested into R&D, it sums up to almost CHF 1 billion there.
That's a very high number over all the years. We expanded a lot our technology. We started from GNSS. We did go into cellular, into short range, and lately also into services. Wherever we go, we try to master the technology. We try to bring that value to the customer that we are knowledgeable about what's inside our products. Now why are we doing this capitalization thing? Because some other companies may not be doing this. I think it's important to show also to match basically the spending on R&D with the income that we get from the success of the product.
It's easier to understand if we can basically bring these 2 timelines more closely together so that we see really when the harvesting phase starts, we can match this better with the R&D costs that were needed to create this product. This is the kind of picture over time that you can see here. We have basically this first investment of the product, and then we go into the harvesting phase where we over 9 years can get back what we have invested before, and that's a typical profile for our product. This here is the u-blox 8 platform, a platform that is already in the market for quite a while. It was developed over the 3 years, as I mentioned before, as a chipset product, took quite a while.
Market introduction was then in 2014. We expect to still sell this until 2025, so it's still no end of life in sight on this product. We expect that this product will generate a total sales volume over the next 9 years of around CHF 1 billion. That shows, I mean, this was the question also before, why do we invest into our IP? This shows by having this deep investment into our core IP, we can create products that are valuable to our customers for a very long time span, and they don't age so quickly. Again, also because we know the product inside, we can still add features with software, with services much later in the product life cycle, and continue this harvesting period.
To give a little bit of breakdown on where we spend our CapEx, there is 2 pictures here. The first one is really on what is the kind of time horizon where we invest our money. You see roughly 1/3 is spent on more short-term activities. This was also a bit higher in this year specifically because we had to do quite a few product modifications to deal with the challenges of the supply chain, some components available, others not. We had to redesign products to make sure we can supply to our customers. We have the typical new products in the black one.
This is a good half of our activities really goes into products where we have a concrete product idea, a roadmap, a plan to bring to market, and we are executing in a very stringent way on our plan. The gray section a little bit high of 20% is really more the longer term where we have more fundamental research activity, develop fundamentally new core IP that will carry us then forward so that in a few years we can start another product development in this black area to move us forward. On the other hand, we have also here the picture in what shape of product we invest. The interesting one is the red one here. This is our platforms.
This idea we create, we invest a lot of our development in things that have multiple uses, and the platform is the most abstract thing. If you think of a new positioning engine, this is where we put the development for the chipset. This is where we put the development for the new algorithms that really bring the foundation for a new product generation. This is what we call a platform. Later we add, here shown in black, the specific firmware that integrates the features that the product really brings then to the customer. Later, the different shapes of the product that we offer. We have the module designs, and last but not least, we have also a little bit investment into our processes, internal processes, continuous improvement, and so on.
Really important message here, the big portion of what we do goes really into development of our core IP, of our platforms that build the foundation for this long-term success. Another picture, quite interesting, is we had a bit of the discussion here, what is third-party suppliers, what is u-blox IP. If you look on the importance, and I think that also illustrates this point, how important it is to have our own IP. I think there was also a question, what is the margin situation and so on. We see really here the contribution, more than 3-quarters of the contribution that we get comes from products that have our own silicon inside it, are built on our own IP. That shows how important this aspect for us is to own this IP. Nevertheless, the market is broad.
There are always applications that we cannot serve with our silicon, where the market is also too fragmented, we need too many variants, and here we are very happy to work with strong players in the industry. I mentioned already a little bit when we looked at the geographic distribution, our merger and acquisition strategy. It has always been a part of our strategy. We have done 17 acquisitions so far. Most of them have been really with the focus of acquiring technology, of acquiring talent. We always look for targets that complement our product portfolio. I mentioned already the services. We wanted to grow services, so we are looking for companies that could bring this competence into u-blox. We also need to see a really strong industrial logic.
It's not just financial investment, but there has to be a logic that the 2 companies make something bigger together. Then, of course, we are a little bit careful on valuation, so we really make sure that the purchase price is accretive, so it's creating shareholder value. At the moment, it's a little bit difficult. We see a lot of valuations rather on the high side. We are a bit careful here, but, I mean, we try to make it on reasonable grounds. 1 aspect important for me, and I mentioned already, we integrated 2 companies during COVID times. This only works if the cultures match. We were lucky, and of course, it's an important aspect of the selection process that we see a cultural fit between u-blox and the company that we want to acquire or integrate.
I think this is the basis of our success that so far we were always able to identify companies to join u-blox that were really well matching also on the cultural level. We look continuously for this, no forward-looking statements here. It's for us still something that is always an interesting aspect. Maybe because it was relatively recent and since the last Capital Markets Day, a quick comment on what Sapcorda is about. U-blox has been an investor into Sapcorda already since the start. In March 2021, so this year, we decided to acquire the remaining shares of this company to become a full owner, and we integrated Sapcorda fully into u-blox.
What Sapcorda delivers to us is, and I explain this on the next slide, is this, what is so-called, correction service for GNSS. This is an essential function because what was in the past a standalone satellite receiver is becoming a more and more connected device because we need additional information to really ensure the precision of the position, ensure the timeliness of the position, but also ensure the integrity then of this position, because it's, as it was mentioned, it may be used in very critical applications. In this sense, a service component is nowadays coming with the GNSS receiver. It's essential for our core business in the GNSS domain that we have access to such a service and can also offer this to our customers.
I think it's important here also another example how a traditional standalone industry, as Thomas also explained it, there were standalone products out in devices now become connected systems with a lifetime component, with a maintenance component, with a service component in the end. We believe this then also turns our business from a pure hardware sale, which you see here illustrated in this graph in gray. You basically see the peak at the beginning where we sell hardware. This is then an important part, where we sell our modules, our chips, and the service component slowly adds on top. The important thing is the service doesn't go away.
It will stay for the lifetime of the product, and if the product stays 10 years in the field, we will have still 10 years of revenue coming from the sale of this product and the corresponding service. This is really a game changer for our business, and it's very nice to see that this also applies for the positioning business, where we have been in that market for more than 20 years now. Very quickly, technically, on what it is and what it is about. This correction data is all about imperfections of the satellite navigation system, mostly coming from distortion in the atmosphere, in the ionosphere, also some malfunctions of satellites and so on. What you do is you have basically ground stations that observe what is coming from the sky.
They calculate corrections to that and give this information through another communication channel to the GPS receiver, so that the GPS receiver or GNSS receiver is always aware of the status of the system, the precision of the system, and can calculate corrections if needed. This enhances greatly the use of the system. As it was mentioned, we get from meter accuracy to decimeter accuracy, even in some cases even better. As you can imagine, some elements that are important here is a wide coverage that we can cover whole continents, or even the globe. Finishing here with my last slide. Why do we invest in core IP? The theme of my little speech here. We can drive a larger part of the value chain because we can deliver more. We have enhanced functionality.
We have, for us, a lower cost of ownership, and we can add services, and we can continue to innovate. We are independent from third-party chipset roadmaps. We can better fit it to our customers. We can identify the markets where we want to play, and we can tailor our products to these markets. Our customers take a very long-term commitment with us, so it's important that we can fulfill also those promises that they can rely on us for this long term. This is because we control our IP, and the customers can rest assured that whatever happens in the future, we are the ones who know about what's in their device, and we can fix it, and we can improve it over time. This gives us better customer support.
Last but not least, as a consequence of all this, a strong increase of our margins over the lifetime of the product. Again, also including the potential for a service component. That was it from my side. I think I hand over to Thomas.
Yeah, over to you.
To take questions. Sorry. There's a question session.
Please, first hear from the room.
Thank you for that. Maybe on slide 57, I thought that was very interesting to see this graph with. Yeah. Maybe you can help me or us to make this a bit more practical. If one of your products and solution goes into a car-
Yeah.
Who is then paying for these red bars over there? Is that the owner of the car, or is that the car producer, or how? Maybe another example is more practical, I don't know.
Yeah. I think there are. The more complex the value chain gets, the more complex the example. I think the simple example is the scooter. If we go back to this one. If the company Bird wants to have high precision, then the company Bird would also source the service from us.
Because they are the system operator.
They are the system operator. Because they offer their customers also an app, a connection app and so on, there are now different models. For example, if it's a shared scooter or a privately owned scooter, there are then different models. Sometimes it's then the sharing company that wants the service because they want to find their scooters. That's now a little bit thing with the services, that there may be different points in the value chain where they really connect. In some cases, it's the same customer for both the hardware and the service. In some cases, it can be pretty much remote. If you talk about the automotive case, typically the OEM has a service contract because the OEM is distributing the data to his fleet.
There are device suppliers that supply into the car. There's a wider span between the hardware and the service supply. This is indeed the interesting part, that we can offer this from one end and can show what we can do, and this helps us to address both ends.
Yes, Serge Rotzer from Credit Suisse. Only a quick one on for this chart. If you were to plot on a margin curve, how would this margin curve look like? Do you have the best benefit with the hardware sale? Or is it really that service is so accretive, and this allows you better margin at the back end?
Yeah. Clearly the margin profile will increase with service income taking over the lifetime of the product, obviously. I mean, as soon as we are above the tipping point where costs and income equal, then of course we have no extra cost for selling additional service. This makes, of course, the margin profile very interesting.
A future approach could be a kind of a razor blade model then or what? That you would give your chips almost for free and then make the big money only with the service. Is this an opportunity?
We could dream of such idea, but whether this makes sense then in the individual case is a different question.
Does it make sense?
Yeah, I cannot say yes or no because all depends on, again, the value chain. Where can you sell, and who has the overall interest in what you do. At the moment, I think it's rather the exception.
Andreas Müller, ZKB. Again, question here on the services. I mean, how transferable are these services from one platform to the other? Do you need more investments or again, the same investments? Or are these services platform-independent?
They are almost agnostic. Of course we have an evolution over time, so we get a better hardware platform, we get a better service, but we make sure that this is backward compatible. There is no specific need to match the service to a specific hardware product. We manage these platforms in a way that they are compatible to it, yeah.
Okay. The other question would be, you mentioned that you are not in chipsets, for example, for short range, such as Bluetooth, Wi-Fi and so forth. What are the criteria not to go into these fields? You mentioned, you know, that they might be crowded, but, can you outline a bit, you know, for us, specific criteria?
Yeah. I think the answer is relatively simple. We need a return on investment. This is of course what we constantly evaluate, where such profiles are available. It has also to do with differentiation. Can we create a value that sets us apart from competition? That is of course our strategic homework we do and more we cannot say this round.
Okay. Thank you.
Yeah. Mr. Posa.
Just in order to understand the attractiveness of the Sapcorda venture, so to say. Still, it's costly. Now there is little revenues or profitability out of it today. What can you just elaborate on the enterprise value that you paid, or you established for the 57% remaining in comparison to the entry you had a couple of years back? How did the enterprise value of Sapcorda develop?
Yeah. I can only make the remark, no more than that we had a very interesting price to get the rest of the shareholding.
That was due to an option scheme.
To a-
Optionality you had?
Certain arrangements, yes. That made it insofar interesting. Of course we need to run the integration costs, as we say here. It is not yet done that it is breaking.
Okay. Maybe then ask differently, where would the market value be today, and where is the book value?
There are competing companies around. They have a very high valuation. Of course, everything that is service has crazy valuation, so double digit numbers.
It only makes sense with your hardware offering, basically.
Yes and no. Of course, we want to adhere it to our hardware sales, I mean, to make it a differentiating offer. Basically we could sell it also on top of competing hardware products. Mr. Kühne, maybe on this one more. Our theme is better together. When you get both from u-blox, the service and the hardware, it should always give the best customer experience. This does not exclude. I mean, we had just an example of the automotive service situation. Of course, we have to make sure that we also support common standards, that if we offer a service to someone higher in the value chain, he may operate a fleet that also contains competing hardware, unfortunately. Of course, we would like that they have all u-blox, but we have to deal with that.
We always have the situation that we have. Our hardware has to work with another service, or our service will work with another hardware. In essence, what we are focusing on is better together. When everything comes from u-blox, it should deliver the superior experience.
Maybe just 1 question in between Thomas, Karina Elbe. This collaboration with SoftBank, is that a differentiator in this model with PointPerfect? And maybe what is, in general, your differentiation versus Trimble or Hexagon, which offer these services?
Yes. Maybe going a little bit back in history, the 2 companies you mentioned, they, I think the main difference is the business model. I mean, they offered historically their service into very specific high-end markets, and the business model that these companies operate is pretty much coming from this history and this picture. That was also the reason that we originally founded Sapcorda, because we saw if we bring high-precision positioning to different markets with a different value proposition, then we also have to make sure that there's a service available. This is really the difference. In the specific case with SoftBank, the point is really that we can, it's all about regional expansion. Our customers need the global reach. That was, I think, also mentioned in the earlier slides, that many of our customers have a global presence.
For us, it's important that if they select PointPerfect as a service from u-blox, that they can rest assured that it works everywhere in the world. In this sense, it's a give and take with SoftBank. We bring them coverage in areas where they are not present. They bring us coverage in areas where we are not present, so it's a very good situation.
Is there just a partnership with them, or how is it dealt with financially?
It's a partnership.
Okay. Is your service more precise than, say, Trimble or Hexagon? Or is it, as I would assume now, available in more regions, or is it cheaper? Is it less power-consuming, smaller? Just that I understand. Because I think Trimble also offers a correction service, standalone without the hardware, right? For example.
I'm not so sure about that, and I cannot also talk about competition too much here. I think, as I said, we differentiate on a number of points. Technically, probably on the level that we talk right now, there is not a huge difference, but the difference is more in business models, also in availability, coverage, and so on. There are a couple of factors that play together, to make this an attractive offer.
You have the best availability and coverage?
We think so, yes.
Okay. Thank you.
Mr. Possa, you still have a question?
Just to fully understand, in the case of autonomous driving, to make this system redundant, there would anyway 2 systems come into play, no?
Yes. Redundancy means often duplication.
At least.
Yep. Yep.
Okay.
That's correct. Good. I think we turn to the chat. Tobias?
Okay, Mr. Scott Searle from ROTH Capital: What is the strategy for 5G? Will u-blox develop the solution internally or work with third-party merchant silicon vendors? What would be the cost of 5G investment? What would be the expected timeline of bringing a product to market? Will the company remain vertically integrated from silicon to module going forward in cellular?
Yes. We have also an offer of chipset as we have communicated several times. Of course, the question of 5G or whatever the G is is just mentioning that these are standards that this cellular connectivity define. We're of course following these standards and it's evolutionary. This is why it's called long-term evolution. We follow this evolution, and we make decisions for what markets do we develop a solution, where do we invest and where do we not invest. So far we have invested mainly for the industrial space, for applications where data transmission is rather limited and where other features are more important, like cost-effectiveness or low power.
Of course, we follow this space as it evolves and are developing here our competence respectively then product offer on a continued basis. Of course, we cannot say a lot more here. This is what is our secret sauce.
Mr. Searle, at what level of sales does services become profitable?
Here we have not a precise number, but of course we aim, as we said before, in the range of 5% to 10% of our revenues to make it the service income. That of course is an area where we have nice profitability.
Where does eSIM fit into the product portfolio and strategy? Do you expect this to accelerate industry growth?
Yes. To explain to the audience what is eSIM, this means you have no longer the physical SIM card that you plug into your phone as you do it probably personally, but this little circuit that is here for security and does encode the communication is already in the hardware that you buy, and sometimes you get it already this way in certain mobile phones. Of course, especially in the industrial area, you know, this is much helpful because placing SIM cards in the products is cumbersome. Of course, we are following this trend by various activities and are for sure following this possibility that it has also to do with standardization and with the industry definitions, how this is applied.
Mr. David Sachs from Hocky Capital. Can you quantify the redesign costs you expensed in the H1 year results to work around component shortages? Did those continue in the H2 ?
Yes. I mean, we do not give a precise number on these costs, but in the half-year numbers, you will see that our capitalization rate was reduced, and this is an indication of what is proposed effort. Fortunately, this exercise is finished. There are only a limited number of suppliers. We cannot redo this exercise to find more alternative sources. In so far as we also mentioned in the slide deck, this capitalization rate is going to normalize.
Can you discuss the strategic rationale for the Sapcorda purchase and the timing? You indicated a loss of some CHF 7 million for Sapcorda this year. Is this the peak loss year? When do you foresee break even, and what is the longer term potential of your software and service vertical?
Yeah. I think we have spoken a lot about strategic rationale and what we want to achieve via services. I think there is no need to repeat here. We give here the indication that integration cost this year is CHF 7 million.
Mr. Daniel Lion from Erste Group. Would you expect merger acquisitions to accelerate in your space, and would you regard yourself as an acquisition target?
As mentioned in our presentation and before, we see M&A as an important factor for accelerating the company. I think what we are just explaining here has a lot to do with this attitude. We added important capability via acquisitions, mainly the Thingstream acquisition in 2020 and Sapcorda that really helped us to expand into the service domain. I think this is, of course, a very good example how we make good use of this attitude. The other question I have, of course, no answer. This for every member of the audience here.
STMicroelectronics was rumored to be evaluating the acquisition of Nordic Semiconductor, which would have them cover all of the 3 areas. Question 1: Would you see the combination of these players as a threat to your market position, especially given the R&D capacity such a combination could have?
Yes. I mean, I cannot comment on individual transactions and cases. I can say, just such a combination is, of course, not changing the R&D capacity per se. Mainly it is, you can imagine, the teams are put together, and rather the number of people is reduced because you need cost improvements to finally show a credible business case, and in so far, that is rather limiting R&D capacity in such acquisition cases.
Okay. You answered question 2 as well. Torsten Sauter from Kepler Cheuvreux. Many products like cellular or Bluetooth are grounded on well-documented and globally common standards. As a small player with limited resources, where and how can your R&D outperform the IP formation of all the large competitors?
Of course, absolutely so. I mean, there's no wireless communication without global standards, and this is absolutely necessary. Otherwise, you cannot use your products around the globe. That is the basic requirement. This is what is sort of the pillar on what everything stands. The differentiation is not by fulfilling the standard. The value that we create for the customer is by making sure the functionalities that finally the customer wants to reach and the value they want to give into the hands of their customers is supported by what we make a solution for them. Here is, of course, where we are strong in, again, combining several elements of our products to build the solution, and in this combination, add on functionality that otherwise is not available.
Here we are very strong. This is really the differentiating point of u-blox.
Mr. Sauter, u-blox has in recent years enhanced its product portfolio from GNSS technology and positioning to cellular and then short-range connectivity, and most recently to cloud-based services. If this is such a winning strategy, then why has no competitor followed it?
We would have to ask competitors, but we are different. We have taken an avenue of how we develop the company, how we have invested into creating the technology and the products in a different way than probably many of our competitors, and this is the strength that is really what makes us the company u-blox.
2 last questions, 1 for, about Sapcorda. Why have the former Sapcorda joint venture partners sold at such low price right away? The takeoff of this new service, how can u-blox scale up the service without such renowned industry partners?
Yeah. Here we have to go back into the early times when we created the joint venture. This was a time where such a service was not at all available. There was no global network to compute correction data and to supply it to any receiver somewhere on the globe. We thought it would be good to have an industry consortium that is sort of the backing for this idea and creating acceptance across the industry. In the meantime, this has changed. Competitors took also the idea, and we mentioned a few names already, and therefore it is no longer so that this is totally unique. The customer has basically a choice if he wanted.
Insofar also the joint venture partners have lost interest in supporting the idea, and this is why we came to agreement that we take it fully over.
Last question from Fredrik Thorisson from Kvantia. What opportunities do you see in ultra-wideband, as this radio also might complement a wider range of your modules and markets?
Indeed, there are more wireless standards, and ultra-wideband is one of them that might be an addition or a complement to what we do with the standards we already employ. Whether this makes sense is always a question if our customers have good use of it, if the ecosystem is developing, and of course, again, whether the investment case is a creative one, does it make sense to invest into such a platform?
Thank you.
To the phone, please.
Gentlemen, so far there are no questions from the phone.
Very good. Thank you. I continue with the next chapter. Very briefly about ESG, because this is, of course, a topic that is in the broad interest of the investors' domain. We like to say what we are doing. First of all, I think the most important message is we do this for a long time. We are adhering to the United Nations Global Compact for a long time, since 2012, and have followed these principles so over many, many years. This means we are not popping up here something green on what we are. I think we have embedded the thinking of these ideas for a long time.
This has a lot to do with how we make products, how we qualify suppliers, and of course, what sort of material we use in our products. I think this is a long-lasting attitude. Of course, what we do as a product is really also helping to make the world sustainable. With wireless communication, we can help to make many applications that otherwise would not be available. Of course, 1 example is the electric vehicle via Wi-Fi. You connect to the charging station, and you make optimum use of what is the energy supply, the electricity supply in the charging station. We have the advent of the streetlight that is made of LED from the light-emitting diodes.
This has become a fully electronic system to optimize the one side, the provision of light, lighting, and the other side, to heavily reduce the energy consumption. Before it was a dumb product, very good example. It was just a piece of metal and a bulb. Now it's a complex system, and it does really change how this infrastructure is operating, and it has a much smaller footprint than before. Of course, in everything that is infrastructure, communication can help to best manage and control. Insofar, there are numerous examples where we make a very good impact with all what we make as our products.
We do, of course, many other activities to support sustainability in various dimensions for in the society, and have also our employees engaged in doing it in their free time, on their own or with support from the company. I think this is a good attitude that u-blox has and is fully supported by all our colleagues. With this, I hand over to our CFO. Roland, please.
Thank you, Thomas. A very warm welcome also from my side, ladies and gentlemen. I want to give you now in the next few minutes some financial information. Since Q4 2020, we have seen a strong recovery of demand and especially record bookings. We face today an order book which is 9x as high as pre-COVID times. We see strong expansions in all sectors as well as in all the regions, equally enjoy a high order book, and all products are contributing to this very solid order book. The monthly revenues in growth we see already in 2021 supports our guidance and also the order book fully covers the expected 2022 revenues.
Revenue growth as such and the growth rate is depending on the easing of the supply chain and the supply constraints and the. We see at the moment actually in this supply stage continued imbalance between supply and demand in the electronics component market. On the supply side, the reasons for that are on one hand the under-investment by the foundries in the mainstream nodes. COVID-19 interrupted the supply chain in this year, and we had seen severe fab accidents which again reduced the supply chain. Some political issues and the transportation capacity limitations were not really helpful to support supply and to increase the supply capacity. This constrained capacity on the supply side meets on the demand side an increased demand due to the fact that we are working more from home.
We see the increased demand for IoT and for 5G and also structural changes in digitization to increase the demand and with that the imbalance gets even bigger. u-blox as a company tried to mitigate this and have taken measures to do so. Thomas and Andy mentioned it. We adopted and retooled some existing products to with available new componentry so that we can still support the product. This activity was closed in the H1 year, 2021. We had also additional suppliers qualified for the product, so to get a broader bandwidth and. Also we do intense handling with our suppliers and try to exercise our purchasing power via our contract manufacturer. All of that helped, for sure the capacity is still limited and, besides all these measures we suffer under this supply shortage.
Oh, sorry. Although the strong underlying order book gives us a certain visibility to our revenue expansion, which is inside. We are very confident that we are able to reach our guidance we gave in August. The growth drivers for the midterm are indicated in this picture. You see one from the automotive content is part of it, the mega trend of IoT recurring revenues. Then there is also capabilities to price increase, and we will in the midterm also increase the share of the wallet. Our strong product pipeline in the past few years lays now a good foundation, a solid business foundation for future growth. The new chipset create additional customer values, and with that, we are also able to grow in the future. Recurring revenues, as such, are helpful, as shown in Andy's presentation.
You see the longer-term revenue coming not only from the hardware product, but also the services based on these hardware products will increase and make the revenues of u-blox growing. This is already visible in the half-year numbers partially. We reached CHF 193 million revenue. This is an increase of 10.8% compared to the H1 -year, 2020. Although we see some negative impact from the foreign currency in the US dollar. Without these, the growth would even have been 16.5% compared to the H1 -year, 2020. On the gross margin side, we increased the gross margin to 46.7%. This mainly due to the products mix. This means we made a gross profit of nearly CHF 90 million in the H1 -year, 2021.
R&D expense were CHF 52.3 million or 27.1% of revenue. Here you can see in this number also the effects of the changes in the redesigns and the lowered capitalization rate, which has an impact on R&D. Distribution marketing expense were CHF 18.1 million or 9.4% of revenues, with the growth of the gross margin, of course, also higher bonuses are expected to be paid. EBIT was CHF 10.5 million or 5.5% in the H1 year, 2021, compared to the CHF 13.2 million in the H1 year, 2020. Here the impact is, on one hand the higher amortization impact expense. On the other hand, also the impact of the full consolidation of Sapcorda. This joint venture was shown in the past below EBIT.
Now when we fully consolidated, we have it above EBIT and this has a negative impact on the EBIT as such. Although we were capable to turn our free cash flow around, when it was negative in the H1 year 2020, with -CHF 8.4 million, we are now CHF 25.8 million positive free cash flow of 13.4% is, on one hand, the effect of the gross margin increase, but also net working capital helps a little bit. We had this OPEX reduction program we announced in 2020, which provides roughly CHF 15 million for the full year than in 2021. With that, I hand you over back to Thomas for a short roundup.
Thank you. Summary to what we have presented. I think we wanted to show how we are on the way with regard to what makes growing our business. Despite challenges from COVID-19, we enjoy really good expansion by the strong interest to make things connected and in the automotive area because the cars become more intelligent. The automotive side, of course, will probably have some time to fully recover because of overall supply constraint that affects this industry. As a sort of icing on the cake, the consumer space remains nice to have, so to say. We do it in a more opportunistic way, but we have good projects with customers that have very strong growth potential.
I think that has already become visible in the H1 year. Of course, we have to navigate around these headwinds, with all the problems in the supply chain. Unfortunately, it's very hard to predict how this is going to ease, especially also because the virus is not away and is rather, at least in this area, again, increasing. The other hard to tell question is when is demand and supply becoming more balanced? However, we are growing month by month our output. It is possible to make it happening also in these times. Of course, with our very strong order book and with the tremendous good customer loyalty we have, we have a very solid foundation for 2022.
From the more strategic point of view, we are focusing on making this world connected. We are the leader and the specialist for the industrial and automotive applications and want to make sure we are really providing the right solution. We do that out of a rich portfolio of IP and the continued add-on of functionality that matches application areas and of course, also especially demands the new ones, spaces where new ideas are created and suddenly new business opportunities are popping up. This is of course an effort, but also it has results. We do announce continually new products, have also for that, platforms in development and make sure we have a rich pipeline of products also in the future.
This is for sure the biggest driver for going forward, that it's our own effort. I would say that hopefully the market is recovering and easing. That will of course help us in addition to that. I also like to highlight what we hopefully were able to highlight in this meeting compared to last year's. I think our product roadmap really is attractive. We find so many new opportunities to build new business, and we see many ramp-ups with customers and especially also with new customers. I hope we were able to show you that our R&D efficiency is well managed. The final reconciled cost, as we see it in the table, is rather decreasing than increasing. Efficiency gains are here.
That the differentiation has made progress with our solution capability, with really coming close to what customers really need to solve their problems. That said, we have in the solution attitude the service component that is really very good long-term effect on building out the business and, of course, making our customers even longer-term partners than today. From a shareholder perspective, these are our priorities. First of all, organic growth. As before, we are investing in R&D. This is the essence of it. We are looking and making sure we really attach to markets, and we have the capacity to reach these markets because they are expanding. More and more customers become available, so we need the width of the channel to do this. Of course, at the same time that we are the right partner with the solution.
Where we can, second priority, we do acquire capability and exploit such opportunities on a continued basis, but we have criteria. It must be a good strategic fit, a good cultural fit, and of course, it must make sense financially to be attractive in a relatively short period of time. Finally, third priority, we want to make shareholder returns. We had a dividend policy, we interrupted it because of COVID, and the attitude is to resume this fiscal year. This does finish our presentation, and I invite once more for your questions.
Wolf Rendels from Helvea. Maybe combining the sheet 52, where you show the R&D over a long period of time, and the sheet 67, where you basically project growth going forward in top line. Given your strong order book, you have good visibility of growth going forward, is what I take away. In the R&D investment, what you really spent per year, and let's say the last 5, 6 years, that absolute amount grew quite significantly. If now the future develops as you plan with growth in sales, what can we expect then on the absolute amount on R&D expenditures. Really the blocks you have shown as 52.
Yes. I mean, independent of the detailed numbers, when looking forward, let's assume we are on a good growth profile. Of course, we have to make sure we let the R&D expense follow also in the absolute term. We have to remain competitive. Growth means also we are selling probably a more diversified product range, or we have a broader solution capability. This of course needs to be supported also by continual R&D.
The aim is, and of course the management task, is to always decide well on what trajectory we are expanding R&D to keep the competitiveness of our company well supported on the one side, and on the other side, that this remains an attractive operation from the shareholder point of view, meaning we can of course create positive free cash flow. This is the core decision we have to make in our company. Müller.
Andreas Müller, Zürcher Kantonalbank. You mentioned positive free cash flow as a sort of kind of overarching goal. Do you have a specific range in mind relative to revenues, what that should be medium term?
Yeah. We are not providing detailed guidance here, but I think the aspiration, to be, to make it positive is of course the one that should show some numbers that are visible.
The order book in absolute dollar, Swiss franc terms, how much is this 9 x?
Roland mentioned it covers already the expected revenue next year and we aspire for growth. I think this gives you an order of magnitude where this number is.
The order intake, is the book-to-bill ratio still positive at-
Yes, yes.
Right now.
It is strongly positive, yes. Or above 1, that's probably the better expression.
Okay, thank you.
Okay. Serge Rotzer from Credit Suisse. I've tried to figure out how much backlog you had. No question here. You mentioned that the backlog covers sales of next year, but you don't know exactly what happens in the supply chain. However, you're a fabulous company and so you have a base case. Otherwise, you can't say that you know that the backlog covers the sales of next year. What does this tells us? What is the basic assumption that you can say that today?
Yeah. That of course is an exercise we are doing in estimating what could be created as a revenue next year based on information we have with regard to availability of components. This is still something we are working on and elaborating and of course it's an ongoing question we need to answer respectively to have a forecast. You can imagine that what we think is our revenue next year is less than what our customers expects to get. This alone is of course a very sound basis, respectively positive situation that we are really profiting from strong demand.
Well, this year you said that you could grow by 30%. If there were no supply bottlenecks, you will grow up to 20%. The delta is at 10%, is at CHF 33 million, basically. How much of this CHF 33 million is part of the backlog of next year?
I'm not quite sure what you mean by 33.
Well, basically last year we achieved CHF 333 million sales, you know, and you are growing.
Oh.
Up to 20%. You said you could even grow by 30% if there are no.
Oh, okay.
Supply bottlenecks. 10% there is a CHF 33 million.
Yeah.
I'm wondering now how much of this pent-up backlog is part of next year's backlog.
Yeah. Of course, the backlog is the backlog. This is all the future business we can make. We have 2 months left and, of course, we may continue new bookings. So far the order book has only increased over the last few months, and this means what we say now can even be a higher number by the end of the year. We by far have an order book that is more than we can probably ship next year.
Would you say that the backlog of this year you can't deliver, is there higher share of next year, is it, or is it minor share, or is it marginal, or how you would qualify it?
Uh, hmm, what-
What I want to understand is how much is gonna grow next year, you know?
Yeah, look, the growth.
Your legacy from this year.
Yeah. Yeah. Look, the answer is very simple. It's not driven by our order book, it's only driven by the availability of components. This number is lower than what the order book would allow, very simply.
Okay, probably the last one. The current backlog, what is the lead times of this backlog now? Is it 10, 12 month, or is it even longer?
Yeah. The lead time is given by what our component suppliers give us as a lead time, and this is often more than a year. That means we have to tell customers the lead time is such a number. We can only, of course, plan out according to lead times, and any new order must reflect what we indicate to customers.
Okay, still the last one. We had quite some price increases on material prices, probably also your products will increase the prices given the bottlenecks here. Will the quality of the backlog remain what you have in your books or do we see some downfall or drawback on the margin then next year? Because you have locked your backlog, I believe, you know. Then you risk increasing prices to produce your backlog. Is this true or is this totally wrong?
Well, I'm not quite sure what you mean, but I mean, our backlog of course includes price increases as we have exercised them because customers have to reconfirm their orders with the new price.
Okay. Well, I'll ask differently. What you sold is fixed price, I believe.
No.
No.
Can be variable. We tell the customer the price is increasing.
100%?
Almost, yes.
Okay, you're a good company. Thank you so much.
Thank you. Any more questions here? We go to the chat, please. We have Mr. Sauter.
The battery is gone probably.
Hello, hello. Put Mr. Sauter on the order book as well. How big is the order book in millions? The follow-up question, the order book now fully covers the expected 2022 revenue, yet no guidance on revenue was provided. Can you help us quantify, please?
Yes. I think on sizes and magnitudes and so on, I have given several answers already. We will provide the guidance for next year, together with our end results 2021 in March timeframe.
Mr. Sauter, you haven't listed Huawei with its Balong chips as a competitor. How relevant are Chinese competitors in your target markets, considering the volumes that they apparently are able to sell in their huge domestic market? How relevant is u-blox in China?
Yes. Okay. The question is around China. There we need to understand these markets. First of all, they're huge. It's one of the biggest single market, of course. Second, it is important to us. We derive some 25% of revenues from this territory. Third, this market is, has its own segmentation. Certain markets are interesting, other markets are red oceans, not at all interesting. Of course, we focus on the ones where it's interesting to be. What Mr. Sauter mentions as a chipset, this is for a specific standard called NB-IoT that is NB-only applied in China and is not an attractive market for us.
Mr. Jonathan Art, Ascan Partners. Can you detail the product transitions in the cellular business? Example, how much is LTE versus 2G, 3G? How much is based on your own chips versus Qualcomm or someone else baseband? How much is Cat 1 or Cat M NB-IoT? And what is the gross margins and growth rates of the latter 2?
Yes, many questions, and I can give certain answers. First of all, the transition away from the 2G, 3G standards, from the old ones to the new ones, LTE-based, has developed quite a lot, probably to 70% to 80%, when we look at our business. This is a strong transition that has happened. We have in the area of connectivity for the industrial use case a very strong position. We are probably one of the largest suppliers for Cat M modems, modules, and have a combination between modules that we make from Qualcomm chipset and also from our own. Of course, this migration to products that are based on our own technology is progressing. This is a very important move for us, but it's also very attractive for our customers.
Mr. Antonio Poveda from Alantra. Employees, could you provide more detail about how many shares current employees own, excluding non-executive members of the board of directors and the executive committee?
I don't know by heart such a number.
Can you discuss the competitive state of play in cellular modules? For instance, last week, Quectel announced truly monumental growth of almost 80% using just Qualcomm chips. How is that possible? What do you think your non-China market share is compared with Quectel, Telit, Sierra, Gemalto? How do you think you are doing in the new design wins for volume customers as compared with those and the new entrants of Nordic and Sequans?
Okay. Again, many, many questions. Good. The name of Quectel was mentioned. Again, we are not making comments on competitors per se. But again, as I said before, the China market is quite a separate market space and is occupied by Chinese players entirely. For cellular communication, there are no Western suppliers in this market. This is also where these companies take the growth from. Then of the market shares, yes, we can read [Anja's data], and we enjoy here some 10% in the Western world for cellular connectivity. That was the question.
Good. Mr. Sachs from Hocky Capital: Have you seen signs of a bottoming in electronic component availability? Any aspects of the supply chain that have begun to moderate back towards normal?
Yeah. I think we mentioned already such signs are not yet visible. The imbalance of supply and demand is continuing.
Oops. We have covered everything from my side.
Thank you. Let's go to the phone.
There are still no questions, sir.
Very good. I thank you much for your attendance, for all your many questions. Of course, that is a very strong sign of interest. I am very glad we were able again to talk to you. If you like, there is still time for coffee. Otherwise, I'm looking forward to meeting you on another occasion. Thank you very much and goodbye.