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Sequans Communications SA ADR (SQNS) Q3 2020 Earnings Call Transcript

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Sequans Communications SA ADR (NYSE: SQNS)
Q3 2020 Earnings Call
Oct 27, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Sequans Third Quarter 2020 Results Conference Call. [Operator Instructions] Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, the conference is being recorded.

Before I turn the conference over to our host, Mr. Georges Karam, I would like to remind you of the following important information on behalf of Sequans. This call contains projections and other forward-looking statements regarding future events, or our future financial performance and potential financing sources. All statements other than present and historical facts and conditions discussed in this call, including any statements regarding our expected revenue for the fourth quarter of 2020, future results of operations and financial positions, business strategy and plans, expectations for Massive IoT and Broadband Critical IoT sales, the ability to continue to operate remotely as required at high levels of productivity, increasing backlog of orders, the impact of the coronavirus on our manufacturing operations, and on customer demand, and our objectives for future operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

These statements are only predictions and reflect our current beliefs and expectations with respect to future events and are based on assumptions and subject to risk and uncertainties and subject to change at any time. We operate in a very competitive and rapidly changing environment. New risks emerge from time-to-time. Given these risks and uncertainties, you should not rely on or place undue reliance on these forward-looking statements.

Actual events or results may differ materially from those contained in the projections or forward-looking statements. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission.

Thank you. Please, go ahead, sir.

Georges Karam -- President and Chief Executive Officer

Thank you, madam. Good morning, ladies and gentlemen. This is Georges speaking. I am with Deborah Choate, our Chief Financial Officer. Welcome to our third quarter results conference call. We hope everyone is staying safe and remaining healthy as all of us continue to deal with this -- with the pandemic. Our global organization continues to take the necessary steps to ensure the safety of all our people and we have been functioning quite well. I'd like to take this opportunity to acknowledge our entire worldwide team for their determination, their flexibility and for generally living our values during this challenging time.

As you have seen by our press release, we exceeded our target revenue in Q3, and we are expecting another sequential increase in Q4 putting us on track to grow over 60% for the year, compared to our previously announced target of 50% year-over-year growth. At the high level, the positive revenue impact of the coronavirus on our Broadband IoT business is offsetting the shorter drag it's having in other areas. So we are on track to achieve a stretch revenue target, but with a different mix of business than we were expecting as we began the year.

I'm pleased to say we are executing very well and the momentum in all segments of our business is building up. Our key accomplishment fall into three areas, design wins, product development, and go-to-market strategy. I'm proud of what we have achieved already in each of these areas and we expect to accomplish even more before the year is over.

Let me now take you through some of the detail of each of our business segment. And I'll start to the Broadband and Critical IoT. We exceeded our revenue targets for Q3 in our Broadband IoT business because we managed to accommodate more orders for modules powering the JetPack Ellipsis 4G portable router sold by Verizon. On the past two conference calls, we have spoken about the exponential increase in demand that began in the first quarter related to these routers being supplied to schools as part of COVID-related distance learning support. We also have spoken about the challenges we have faced with extended lead times for certain components.

Fortunately, our supply chain issues became more manageable during the third quarter and we were able to ship more than originally expected. On our last conference call, we were assuming orders related to portable routers was settled back toward pre-COVID levels in Q4. But we currently see Q4 module sales in Broadband IoT remaining at a very high level similar to Q3. Looking into next year, we don't have good visibility yet. But our current assumption is that it will not remain in search mode for portable routers in Q1. As a result, we are expecting a shift in business drivers in Broadband IoT next year, and more customers diversity as the new CBRS market begins to ramp and we gain more traction in our emerging markets business.

We are excited about the CBRS business. Design wins we gained so far this year are beginning to move to production, and we will have some modest revenue from this market already in Q4. Recently, the US government completed the auction of licenses for the 3.5 gigahertz band referred to as CBRS. The spectrum will be used by various entities to build their own 4G, 5G private networks, as well as by mobile operator and other service providers to improve networks coverage and capacity.

Last year, we introduced the industry's first CBRS module, designed from the ground up to enable cost effective and easy deployment of Broadband IoT devices on a private CBRS networks. The modules are based on our Cassiopeia LTE technology, which has benefited from a decade of experience in 3.5 gigahertz spectrum deployments in various countries. Since we introduced them last year, these products have been very well received by the market because the platform is mature and the solutions are optimized for this market. Therefore, they are much less costly than our competitor's product.

Having a cost effective solution is extremely important for private CBRS networks, where 4G, 5G is being used as an alternative to WiFi offering guaranteed quality of service by using some unlicensed spectrum. We are working with more than a dozen companies who are using our LTE Cat 4 and Cat 6 CBRS modules. With distance learning likely to remain important, we believe educational institutions will create their own platforms using private LTE networks. There is also significant interest in private networks deployment from other vertical markets such as industrial IoT, health, public safety and utilities. We have numerous additional engagements that have not yet converted to design wins, and we believe we are well positioned to achieve significant market share in this area.

As part of our go-to-market strategy for CBRS, we added a major module partner to help expand our reach in this market. Our partner Telit has launched two CBRS modules based on our platform and last week, we held a very-well attended joint webinar with Telit to discuss the impact of CBRS on various vertical markets. We are off to a good start, and we expect to begin accumulating design wins through them rather quickly. We also expect emerging markets to make a large -- larger contribution to Broadband IoT revenue next year.

The customer we added this year are ramping up and will complement the business we have with long time relationships with customers such as Gentech. They have been winning new products in new regions, such as Southeast Asia and the Middle East. Finally, we are discussing few opportunities about devices based on our Cassiopeia platform with different US carriers and service providers that could generate some potential upside in the second half of next year.

The surge in orders to support remote learnings was helpful fueling the growth of the Broadband IoT business this year. But the exciting long term future of our Broadband and Critical IoT business is going to be driven by gaining a large share of a completely new market like CBRS, where we have a product advantage and a strong go-to-market support, and coming to market at the right time with a cost effective 5G platform that's optimized for non-handset applications, and capitalizing on technology leadership, and several other advantages, such as the support of world class strategic partners, and the market duopoly we can create outside of China.

We are extremely pleased with our progress on 5G technology development. We have continued to reach all important milestones on or ahead of our target dates. Also when thinking about our R&D spending, it's important to note that we are now laser focused on 5G technology. We're excited about the growing interest in our Taurus 5G platform, and the increasing number of engagements with prospective customers and strategic partners.

To update you on the status of the potential strategic partnership for 5G that has been in active negotiation for a while now. We are pleased to say, we're moving ahead on the first phase of initial study this quarter, while our partner is concluding its budget allocation to proceed with the second phase, and full project that will have the same scope and revenue amount we have previously expected.

In addition, we have made progress on the other strategic engagements we have initiated, and we have growing confidence that several of these will come to fruition as well, based on the strong interest in our 5G technology. So we are moving ahead on all fronts in 5G. We continue to feel very confident and excited about our position and our ability to drive growth for more than a decade.

Let's now turn to Massive IoT. We are very confident about our Massive IoT business. And we believe the ramp in Massive IoT will support the high rate of overall growth for the next few years, because we are securing major design wins and the momentum is there. But a certain amount of patience is required to operate successfully in this market. We know many of you are frustrated just as we are with how long it's taking to see the Massive IoT market growth accelerate.

COVID-19 was a headwind in 2020 that was a temporary drag in a few places. But the ramp is happening. We are so far ahead of where we were a year ago. We are winning bigger projects with bigger companies and filing the pipeline with even more exciting opportunities. We have solved the problem of how to address the fragmented market efficiently and we are extending our reach through mutually beneficial partnerships. And we are completing the second generation of our products, which will strengthen our competitive advantages and enable customers to transition seamlessly into a 5G world.

Going into a little more detail, our Massive IoT revenue stream coming from our existing base of Cat 1 and Cat M/NB customers is doing well and growing. The business with Gemalto, our largest module partner is performing well and we have with them a large number of secure design wins in the US and Japan with both Cat 1 and Cat M/NB technologies. As an example, the second phase of a major metering project in Japan, we are addressing with them has been finalized, it will begin next year and last for about 18 months. Also, we are reaching the launch phase of another major design win with them.

On the other side, our module business in the automotive segment, such as tracking and fleet management is coming back after being affected by COVID, and we'll continue to see strong order pattern from our customer who is building infectious disease testing devices. Some of the Cat M projects we have in hand, which were delayed by the pandemic situation are now reaching the launch phase with initial orders received. In Q3, we have secured a new customer designing two health monitoring devices and the pipe of opportunities keeps building with high quality customers.

We are gaining traction in the metering space where our Monarch SiP has some distinct advantages over competing solutions. We mentioned a major metering project using our Monarch platform on our last call, and we can now say this is a deal with Itron and we have finalized the product supply agreement this quarter.

Meanwhile, Monarch 2, the second generation of the Monarch platform has been sampling to a few customers for evaluation and is about to enter carrier certification. The feedback from customers is outstanding and two of them have selected this chip for new projects. We are consistently better than the competition in several respects. We have industry-leading power consumption, which we have further reduced with Monarch 2. The platform also features a highly secured integrated SIM capability and low voltage operation down to 2.2 volts that allows for optimized low-cost battery selection. We expect this new platform to be a strong factor in the growth of our Massive IoT business over the next several years.

We have a lot of interest in our Cat 1 second-generation Calliope platform -- Calliope 2 platform, which will be sampling early next year. We are developing an excellent pipeline of opportunities as the only non-Chinese vendor with a low-power Cat 1 offering coming to market. The Cat 1 speed and voice-support capabilities make such technology ideal for some IoT devices such as security systems and wearable and hearable applications.

One thing that has been reinforced by our experience so far, while the time-to-revenue can be very long for certain applications, the business, once it's been won, is also very sticky. For example, new medical devices must go through a long, comprehensive approval process not directly related to the cellular connectivity. There is also a very long qualification process for smart meters. These approvals and qualifications are in addition to the certification required by carriers before any of these devices can run on their network.

However, on the positive side, customers will not be quick to switch vendors because it will require them to start the process all over again. Once we are deeply involved in a project with a customer, even if it hasn't launched, they are not likely to be swayed by a promise of something just around the corner by a competitor. Furthermore, we have succeeded recently in displacing other vendors in situations where the competitor failed to deliver what they promised.

Another key lesson we have learned as a pioneer in Massive IoT is, when it comes to new designs and applications enabled by new 4G/5G technology, it has to be easy to incorporate into the design of the device. Providing a development kit or a pre-integrated platform reduces complexity and design cost for the customer. This is where we have made great progress during the year.

For example, with Avnet, one of our distribution partners, we recently combined Monarch GO with a widely used and understood development environment called Raspberry Pi HAT. HAT stands for Hardware Attached on Top and enables Monarch GO to be plugged directly onto the Raspberry Pi board, which vastly simplifies the development of many types of IoT applications.

We announced bundling our Monarch platform with microcontrollers from several large top-tier MCU partners such as Microchip, NXP and STMicro and integrating the software as a first step toward offering more integrated solutions with some of them. Just last week, we added a new MCU partner, Renesas, one of the largest microcontroller companies. They will offer a variety of modules based on our Monarch technology creating a complete and unique integrated hardware and software solution that is ready for use. This will save customers both time and money. You will be hearing more about various types of more-integrated solutions over the next several months.

In addition to simplifying the process of adding cellular connectivity to IoT devices, these partnerships greatly enhance our go-to-market strategy and will enable us to penetrate the IoT market faster by extending our reach to all corners of this very fragmented market. So, to summarize, what will make a real difference in the Massive IoT business next year. One, our second generation Cat M/NB product is very successful based on the great feedback we are getting from customers and the first design wins we have secured so far. This new platform should maintain our technology leadership and increase our design win rate. Also, we will have a unique and differentiated position with our next generation Cat 1 product that will help us covering all the spectrum of Massive IoT applications.

Second, we now have several mutually beneficial partnerships with large marquee companies that ship billions of microcontrollers for IoT devices every year, and we are just beginning to scratch the surface of what can be accomplished with them. Last to conclude on vertical markets. Turning to projects for vertical markets, which are mainly services provided to our customers to adapt our software for Avionics, public safety, military and satellite applications. We are very close to finalizing a new satellite project that we have engaged in the third quarter. This project is a new one in addition to the large one we have secured with our customer, but where we are waiting to learn if our customer has been awarded the deal.

Regarding this large project, we are encouraged by the fact that the deal is reaching the final phase of selection. Our customer appears to be confident in their chances of winning because they decided to move ahead with some preliminary work that will enable them to move faster once they get the final word expected sometime during Q4. So we'll have a minor amount of revenue in Q4, but the large deal will likely be finalized next year. Most of the revenue generated by our vertical markets business is from services. And of course, strategic projects revenue is also services plus we expect higher services revenue next year based on their various vertical and strategic projects we've discussed today.

So with this positive report on our business, as we navigate the challenges of operating during the second phase of the global pandemic, I will now turn the call over to Deborah. Deborah?

Deborah Choate -- Chief Financial Officer

Thank you, Georges. Good morning, everyone. I'd like to add some details about our third quarter results and other developments. Our third quarter revenue was $14.1 million, a sequential increase of 15.5% from the second quarter, primarily driven by a 32% increase in product revenue. Revenue in Q3 increased 116.6% compared to the same quarter a year ago. We continue to expect further sequential growth in the fourth quarter, putting us on track for greater than 60% top line growth for 2020.

We again had three greater than 10% customers in the quarter, one is an OEM and two are ODMs. Gross margin in Q3 was 42% compared to 48.3% in the second quarter, and compared to 30.3% in the third quarter of 2019. The Q3 2020 gross margin reflects a much greater proportion of modules in the product mix than in Q2, and a lower proportion of service revenue. We expect a more favorable mix in Q4, which will enable us to improve our gross margin.

Operating expenses were $11.8 million in Q3, up slightly from the $11.5 million in Q2, primarily due to an unfavorable euro dollar exchange rate compared to Q2. Non-IFRS operating expenses were $11.3 million, up from $10.8 million in Q2. Our third quarter operating loss was $5.9 million, compared to an operating loss of $5.6 million in the second quarter, and an operating loss of $8.6 million in the third quarter of 2019. Our net loss in Q3 was $9 million or $0.30 per diluted ADS and included a non-cash gain of $1.5 million from the revaluation of the embedded derivative arising from the March 2020 amendments to the convertible debt agreements.

This compares to a net loss of $19 million or $0.70 per diluted ADS in the second quarter, which included a non-cash loss on the revaluation of the embedded derivatives of $9.1 million. The net loss in the third quarter of last year was $9.8 million, or $0.41 per ADS. Our weighted average number of ADSs in Q3 was $13.3 million, an increase of $3.1 million ADSs reflecting the full impact of the equity offerings in May. On a non-IFRS basis, our net loss for Q3 was $8.4 million, or $0.28 per diluted ADS compared to a non-IFRS net loss of $7.5 million, $0.28 per diluted ADS in the second quarter, and a net loss of $8.6 million or $0.36 per diluted ADS in the third quarter of 2019.

Our non-IFRS net loss excludes the following non-cash items. Stock-based compensation expense, the impact of the fair value and effective interest adjustments related to the convertible debt with embedded derivatives and other financings, the impact of convertible debt amendments, and a deferred tax benefit or expense relating to the foregoing adjustments to convertible debt and other financings.

In analyzing the difference between our actual non-IFRS net loss in Q3 and the various analyst estimates, we noted that where there was a difference related primarily to the assumptions used regarding foreign exchange, gain or loss for the quarter. In Q3, we had a foreign exchange loss of almost $900,000, or $0.03 per ADS, most of which was unrealized and non-cash, and related to the revaluation of euro denominated net liabilities, totaling about 18 million euros on the balance sheet.

Investors should be aware that possible changes in foreign exchange rates related to balance sheet items and the marking to market of the embedded derivative from the convertible debt amendments can cause significant differences in net income or loss from quarter-to-quarter. While the impact of swings in the value of the embedded derivative is excluded from our non-IFRS presentation, foreign exchange gains and losses, whether realized or unrealized are not.

Cash flow used in operations during Q3 was $7.9 million compared to cash flow used in operations of $2.3 million in the second quarter. Our cash and short term deposits at September 30, 2020 totaled $25.3 million, compared to $35.5 million at the end of Q2. We are pleased to report excellent progress toward French government innovation financing as part of the technology consortium of seven partners for 5G. It's in what's called the instruction phase, which is the final phase and we believe proceeds could be more than 5 million euros.

Accounts receivable at September 30, 2020, increased to $14.1 million from $10.7 million at the end of Q2, reflecting the higher product sales in the quarter. DSOs were 91 days compared to 61 days at the end of Q2. However, this was due to a great extent to a large payment due at the end of September that was received in early October. Inventories decreased slightly to $5.8 million, compared to $5.9 million at the end of Q2 despite the ramp in product revenue. Current trade payables remained stable at $17 million. Short term debt from financing receivables increased to $14.4 million from $10.5 million at the end of Q2.

Now turning to the financial outlook, we are targeting 10% sequential revenue growth in Q4, which leads to greater than 60% year-over-year growth for 2020 as a whole. For those of you developing financial models, we assume that non-IFRS gross margin will continue to reflect a high proportion of modules in the mix, similar to Q3 but with a slightly higher level of services. We expect gross margin for the full year to be around 45%. Our non-IFRS operating expenses, they are expected to be a little bit higher in Q4, mainly in R&D, and assuming that the euro/dollar exchange rate remains stable. Part of the reason for the increase is that we expect to capitalize less R&D costs as development of our second generation Cat M and Cat 1 chips is completed and we are not yet capitalizing costs related to the 5G chip development.

We expect non-IFRS financial expenses to be around $2 million in Q4, excluding any foreign exchange gain or loss. To help guide your assumptions about the impact of changes in the euro/dollar exchange rate related to the revaluation of euro-denominated net liabilities on the balance sheet, currently, each $0.01 change in the euro is close to $200,000 of unrealized gain or loss based on the balance sheet position at the end of September.

You should make your own assumptions and we're giving no guidance on foreign exchange rates for the future. For modeling purposes, the exact number of ADSs on September 30, 2020, was 30,312,160. And finally, we wanted to let you know that since our current shelf registration statement expired shortly, we will be filing a new F3 replacing our old one and it will have essentially the same terms.

Before I turn the call back to Georges, I'd like to remind you that at the conclusion of this call, we will post a written version of our formal remarks in the Investor Relations section of our website on the Webcasts and Presentations page, the same location where you will find the audio replay. Also Georges and I will be participating in the Virtual Roth Technology Day on November 12, and we look forward to speaking with you if you plan to participate. And now I'll turn the call back to Georges.

Georges Karam -- President and Chief Executive Officer

Thank you, Deborah. So to conclude, just only a couple of points to wrap it up. We are very happy with the ramp of our revenue obviously this year and with the progress we are doing on all fronts, products, customers, but also strategic partnerships. We have all the foundation to keep growing the three business segments we have, whether on the Broadband IoT business, the Massive IoT business, as well as our Vertical markets business. We are very excited about our partnerships we are doing and we have done with the top tier MCU Park players, and we are looking really to become the provider of the cellular core technology in this space.

Finally, we are very excited and we continue to be excited about our 5G position. This is really attracting a lot of strategic partners to us so far, and I believe we will have more that we will be securing in the near future that will help us finance and complement the investments we are doing in this space.

Thank you very much for listening. And I will turn now the call for questions. Operator?

Questions and Answers:

Operator

Certainly. Thank you, Mr. Karam. [Operator Instructions] And we'll now move to our first question today, which comes from Michael Walkley of Canaccord Genuity.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Congratulations on the revenue momentum and strong results. Question from me is, on CBRS, a lot of commentary on the script on CBRS. Sounds like it's going even better than planned from last talking. Can you maybe help us size the market opportunity in 2021 for your CBRS momentum?

Georges Karam -- President and Chief Executive Officer

Hi, Mark. Mike, sorry, hi. So Mike, I mean, that is the point. You know, that is one of the challenge we have it, if you look to all the study around CBRS, there's really to size its potential, because if you see, it can go to many, many application and when you start dealing with the private networks, and so on, that's a little bit complicated. But when I look to the number of customers, we have, and the interest we are seeing in the pipe, we said in the past that we believe that we'll be doing, maybe next year, as a target for us. Some are like, between $3 million to $5 million next year, this is my target in this segment.

Obviously, we are doing this on the basis like of analysis of bottom up, with the ideas we have in hand and estimating each customer how much you will be doing with us. However, I still believe that the potential can be much more than this. It's just only a question of having enough time to estimate all those projects, how big they can be each one of them.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Thanks. And just a follow up, Broadband strong again with the maybe the CARES Act and the surge in demand, can you just talk about supply demand dynamics into Q4, and how you see the surge continue?

Georges Karam -- President and Chief Executive Officer

The -- in terms of supply chain, in general, all the semi industry these days is under stretch somehow in terms of capacity, including if you go even to TSMC, even our regular products, we're seeing, I'll say longer lead time than usual. But we are managing this. I believe all what I could say the issues we have seen in Q1 and Q2 are behind us in terms of because we get really a lot of problems when this demand happened.

And we were not able almost to serve, 20% of the orders we have received. And now in Q3 we start seeing, we saw that we managed to get this mainly starting in August timeframe. And for Q4, we see -- we don't expect major problem. I mean, we see we see the company capable of serving the order we haven't had.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Thanks. And last question. I'll pass on the line. Deborah, can you help us with 10% customers during the quarter?

Deborah Choate -- Chief Financial Officer

So clearly the demand for JetPack was a big contributor. But we also have our traditional and the IoT space, our Massive IoT space partners that we work with there and one was a -- for service revenues.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. I hope everybody stays well and thanks for taking my questions.

Georges Karam -- President and Chief Executive Officer

Thank you, Mike.

Operator

Thank you. We'll now move to our next question which comes from Scott Searle of ROTH Capital. Please go ahead, sir.

Scott Searle -- ROTH Capital -- Analyst

Hey, good morning, good afternoon. Thanks for taking my questions. Georges, Deborah really nice job in a difficult operating environment. Just to clarify quickly in Broadband in the quarter, there were still some supply constraints. Did you quantify the impact, what you guys could have potentially shipped if you were not constrained? And looking into the fourth quarter, sequential 10% growth, I just want to confirm you're expecting Broadband to grow sequentially and I had a couple of follow ups.

Georges Karam -- President and Chief Executive Officer

Scott, you know in Q3, we start having, we had a problem in July and the last month we recovered a little bit. So I don't know, I mean, I could, I mean, we could do a little bit more obviously, if we didn't have the problem of July in terms of capacity. But I could say maybe in order of magnitude maybe off 10%, that I consider has slipped between Q3 to Q4. I'm talking about the just only the order of JetPack. But this supply constraints by the way, it puts some stress as well on other modules we manufacturer for the Massive IoT, they kept one modules in general. And what was the other question, I missed it.

Scott Searle -- ROTH Capital -- Analyst

It was sequential outlook Georges into fourth quarter for Broadband...

Georges Karam -- President and Chief Executive Officer

The outlook on Broadband, as I said the demand for -- we expect to do almost the same level in Q4 in terms of portable router versus Q3. So we are assuming not too much growth in Broadband, at least, the major driver of the program. We could have a little bit of growth coming from some CBRS order that we are serving, those will have some. And we have a couple of new order from the emerging that they could be as well bringing some growth. But if I look to the JetPack business, I consider it flat between Q3, Q4.

Scott Searle -- ROTH Capital -- Analyst

Great, perfect. And, and moving on to Massive IoT so much going on in that front for you guys with the Renesas relationship just announced. I was wondering if you could provide a little bit of color in terms of how some of the MCU relationships should ramp up as we go into 2021? Also Monarch 2, a key new product it sounds like you're starting to enter carrier certification. Just want to clarify the timeline on that, and Itron as well, it's nice to see you being able to announce that customer, how big can that be, when does that start to ramp up?

Georges Karam -- President and Chief Executive Officer

Starting with the -- obviously with the MCU partnership. Again, if you look to the partners that each one has its own strategy, how to go to market and where to go with us, if you want, the baseline is obviously for which is common for all of them is to integrate the solution and get the software fully integrated and use them as a channel to market so this is you can guess that like this is almost similar. Obviously, when you look as well to the position of NXP versus Renesas versus Microchip, you're talking bit on MCU between 8 bits to 32 bits, various segments each one has some strengths and some of the segments less than others.

And this is really good for us because they complement each other the way we're seeing and it accelerate our go-to-market in general, in other words to bring more design wins. They also can look some kind of, they could be also help us winning big deals, when Sequans is challenged as a small company, because obviously having those big company backing us help us I will say closing the deals and avoid any issue that can be considered like from financial strength, I will say if this is the KPI for the customers.

With Renesas, what I want to say which is a little bit at least at the -- at the time being different from the other guys. The Renesas wanted to move much faster than the go-to-market strategy and offer directly under their brands modules integrating Sequans technology. And the partnership is really starting from this point, not only integrating the software, but they want to integrate the hardware and have their own modules, branded Renesas, where Sequans chip is inside and will be sold to the market.

Obviously, the module will not be only integrating Sequans technology. They will add their own MCU and their own Bluetooth and so on to make a variety of module. And this is in other words, they can look in the future, Renesas can be a customer if you want from this point of view, because they will be buying chips from us and it will be generating direct business versus the other guys it will be indirect because it will be coming from the end customer. And again, very hard to quantify it. For the time being, all what I could say they are going to be, to help us a lot in the growth of Massive IoT because it gives us reach and obviously acceleration of the design win.

On Monarch 2 timeline, the chip is sampling to customer as I said. We are giving this to customer. We're expecting end of this year to go through the certification process, which will be like in Q1 we should be done, but already before reaching the certification, before going with the certification, because we have the certified software and so on. We already sample this to some alpha customers. And already I mentioned two of them selected the product, selected the chip for the future, everybody is giving us extremely good feedback on the power consumption, on the cusp of the solution globally, because the integration we have done. And we have some advanced feature that no one has, like we're engaging with the carriers on this, which is the integrated SIM. So quite happy about this product. And this is, again, will be key driver for next year.

And about Itron, I don't want to comment much about the nature of the project just to keep it confidential for our customer, but nothing to hide there. It will be -- it's metering. But the timeline, for the timeline in terms of revenue, it takes the time to qualify the meter. So for us, we expect this more beginning of 2022 in terms of revenue than next year. But it's a big project, because you could imagine the size of those deals that we can be, what, how much Itron can generate in terms of number of meters, they can do.

Scott Searle -- ROTH Capital -- Analyst

Perfect. And lastly, just on 5G. It sounds like you're on or ahead of schedule, in terms of your product development. Just wanted to confirm that timeline of when you would expect to sample. And I think you said several engagements in terms of customers that you're actively engaged with on the 5G front, just want to confirm that. Thanks so much. Nice job.

Georges Karam -- President and Chief Executive Officer

Thanks, Scott. I mean, obviously our 5G plan we're expecting to start sampling end of next year or beginning of 2022. I mean, we'll be making tape out next year. And depending on the definition of sampling, but we'll have silicon in hand if you want end of the next year. And regarding the interest on the -- the interest is really large. But honestly, it's to all level, from regular customer, what I call them really pushing us to give them this solution because as you can imagine the ecosystem is putting us in a unique position here. And but also the strategic angle where the one we have engaged, we made progress, at least with one of them and we are quite confident that this will conclude. But also we have couple of other engagement moving very, very well. And I consider them very likely to happen, if you want.

Operator

Thank you, sir. We'll now move to our next question, which comes from Craig Ellis of B. Riley Securities. Please go ahead, sir.

Craig Ellis -- B. Riley Securities -- Analyst

Yes, thanks for taking the question. And good morning, good afternoon, everybody. And congrats on the nice results. Georges it was helpful to get the quantification around your view on CBRS potential for next year. I'm wondering if you could do the same thing with what you're seeing with the pipeline in emerging market Broadband. Can you give us a sense for how big that could be in calendar 2021?

Georges Karam -- President and Chief Executive Officer

The pipeline in the American market, my estimation was, that this is -- will go to similar order of magnitude. It's somewhere between $4 million to $5 million, is our target, I will say next year. But honestly there is some dynamic in the emerging market happening with the pressure that Huawei is getting, on getting access to silicon. And as you know, this is a space that Huawei dominate in general. And obviously, there is I'm seeing more and more opening to our existing customer and the new customer we have added in this space, where I see them competing on new deals and being able to win larger chunk of business because of the challenges there.

So we are not maybe hopefully we could have, some nice surprises there, where we can get more Broadband in emerging next year. But our target is really like $4 million or $5 million.

Craig Ellis -- B. Riley Securities -- Analyst

That's helpful. And then the next question really goes to the MCU of partnerships that you've established. So you've got four partners now. I think about 40% of all MCUs get deployed to the industrial end market. So a lot go to auto. There's a significant portion that goes to industrial. I'm wondering if you can give us a sense for what the application exposure might be with some of your MCU partners, where do they expect to deploy the capability that you have with the MCUs that they have been and will be selling?

Georges Karam -- President and Chief Executive Officer

Craig, I mean, in general it's really matching. It's really industrial in general. I know that a big name, the definition of industrial, but also what we're seeing is essentially smart home and smart cities. This is one key application around the security related to home and so on. Obviously all the metering, you can put it under this, this brand as well, like the smart home application. We're seeing a lot of demand as well in the health and wellbeing devices and last but not least is really all the tracking, in general, whether tracking of good of assets, of food, all of this system is really a lot of demand there.

So it's not different from the application we were showing if you want, but obviously going with the MCU partner give us access to the thousands and tens of thousands of customers doing this, because they have that existing channel, their existing distribution network, and their relationship. And the customer is used really to deal with their MCU software environment. So that help us to get access to this totally.

Craig Ellis -- B. Riley Securities -- Analyst

And if we were to look ahead to next year, Georges, would you expect a greater contribution for Massive IoT to come from these new MCU partners or from the distribution partners that you've developed this year, Avnet and Richardson RFPD?

Georges Karam -- President and Chief Executive Officer

Well, I mean it's just complicated because some of them they will deal as well with Avnet and RFPD. So even themselves, they go through distributor. So and as I said, Avnet for example, it's a key distributor for most of all of them. But no, I believe the distributor can bring to us some of the -- they are actually what I will call it, because Avnet for example, you saw that they are coming with some combination of solution. They are trying to make it more than just only an MCU an environment that could be helpful.

RFPD for example, we use them to sell the SiP with the Skyworks. And they have some channel, which I believe that will be a privilege to them, that will be different from the others. But we were hoping that the contribution of the MCU will be bigger in general, if I have to qualify it like this.

Craig Ellis -- B. Riley Securities -- Analyst

Got it. And then lastly, any further color on the strategic partner that you mentioned, potentially getting something signed with moderate revenue this year? And then if we got that done, would you expect the larger revenue contribution to be in the first quarter of next year? Or is there a chance that it would come later than that, say in the second quarter? Thanks team.

Georges Karam -- President and Chief Executive Officer

No, I don't want to give a -- I mean the challenge when I give timing and I know that all the market will be waiting for me to make the press release on time. And if I don't do it, everybody's unhappy, and the stock will go down. So I don't want to jump to this. But very honestly, the short term stuff is happening, so there is no risk on this. And we're expecting really to close those deals. They are very advanced, all what I'm talking about should happen in the first half of the year and not the second half. So they are really, very hot deals. Now, they could happen beginning of Q1, end of Q1 I don't want to go with timing on this. But for me, they are early beginning, early next year.

Craig Ellis -- B. Riley Securities -- Analyst

Got it. Thank you.

Operator

Thank you. We'll now move to my next question from Denis Pyatchanin of Needham & Company. Please go ahead.

Denis Pyatchanin -- Needham & Company -- Analyst

Hi. Thanks for taking my question. So I'm asking this on behalf of Raj Gill. Could you please talk about how we're going to think about how the 5G impact on adoption of Cat M and kind of the Narrowband IoT at the end of 2021, and the next phase of 5G deployment?

Georges Karam -- President and Chief Executive Officer

Hi, Denis. I mean, it's very important to keep in mind because this branding of 5G, it's really brand. Behind it you have releases of 3GPP and so on. And Cat M and NB are part of the 5G. They are not like, OK, this is the old thing, and the 5G is the new thing. The 5G by definition has two umbrella if you want at least not to say three. But to make it simple, it has two umbrella. One really oriented for Massive IoT. And this means Cat M and NB, as we use it today in the 4G, with some software evolution to the future, where your chip needs to be capable of evolving this. And this is what we said because our platform whether Calliope 2 or Monarch 2, they are 5G ready and they are able to continue supporting this.

And you have the other umbrella of 5G, which is really the high speed low latency. This is really about more speed and here we talk about what we call the new radio where you have a new wave form and a new radio to enable those kind of capacities. And this is our tourist platform. But when you look from network point of view what the operator are doing, are really deploying this high end new radio if you want, but in the same time keeping, maintaining the Massive IoT software and evolution that's going to happen. So it's not like, it's not going to be any interruption and it's not going to have a conflict if you want. So between the two.

Denis Pyatchanin -- Needham & Company -- Analyst

Got it. Thank you. And then I had just one follow up question. Could you talk a little bit about the kind of the satellite customer push out that has happened before? Now, if you think that's going to come back in the next few quarters or so, I mean, any kind update on that?

Georges Karam -- President and Chief Executive Officer

Sure. I mean, first of all I mentioned, just to clarify it if the script was not clear. We have a new deal, which is smaller deal than the first one, I mean, smaller, I mean, nice for us. I mean, we like it. And this is a new deal that came to us end of Q2, and we conclude it in, we're concluding this now, it's under signature. So this is one deal move. However, the reference to the satellite project, you're talking, it's really a big satellite project, where I said, this can generate two digit revenue for Sequans.

This is progressing very well, as well, because our customer and what they call in the last negotiation of pricing best, how do you call it, last and final negotiation. And this is happening now. So it's not delaying, it's really as we expected. It gets delayed mid last year a little bit. But now it's still on time to come to conclusion in Q4, where we will get the conclusion if our customer gets selected. And if so, this means we will have the big project awarded to us as well.

But in the meantime as I said, this customer asked us to start the work, announced [indecipherable] this quarter, because he doesn't want to lose the timing. And for this we enter into a small agreement, just to start the work in Q4. And once he got the big grant, he will award to us the big project that we'll sign maybe end of Q4 or beginning of Q1.

Denis Pyatchanin -- Needham & Company -- Analyst

Got it. That was all for me. Thank you.

Georges Karam -- President and Chief Executive Officer

Thanks, Denis.

Operator

Thank you, sir. We'll now move to our next question from Chris [Phonetic] of Ruby [Phonetic] Capital. Please go ahead.

Chris -- Ruby Capital -- Analyst

Hi, thank you for taking the question. You're talking about a lot of -- a lot of exciting applications that are in your pipeline. If you look farther out, say three to five years, could you help sort of rank which ones you think will be the largest? And if there's any applications that you haven't discussed today, that you think will be meaningful in that timeframe that you haven't mentioned so far in this call? Thank you.

Georges Karam -- President and Chief Executive Officer

I mean, it's very, very complicated question, because to compare between them, what I could say some of them are less risky. In other words, when you look to all those application, all of them makes sense. The challenge we have when you look to some new application, where you don't know the adoption is how much is going to be said to be successful, the timing, and so on. But I could say today for sure that the metering will be a big, big segment in this space, because all the metering companies are moving. I'm seeing this everywhere, everywhere, and on a worldwide basis, not only in the US, but also US, Japan, Europe, and we are engaged with all those metering company, and we have already some good business there. And this will continue.

Security system, this will be another big play as well. And the tracking device is still a question mark, in a sense how big it is, everything tend to be -- I mean, I tend to believe this will be maybe the biggest the tracking, if this will happen. This should be the biggest because the number of things that you need to track are we're talking about a hundred of millions of unit for any application. The challenge there is that, this is a new one, are you going to stick a tracker on everything and is it going to happen or not?

We're seeing very good progress there in this space. But this is maybe the one lagging in terms of round in my opinion. So this just to give the three. And obviously, I'm discarding here all consumer application, because obviously going to any of consumer application, this could be big in general, but the sort of application kind of depends on the brand, depends what you will be launching, depending on the technology. But like, on wearable application and so on, but it's a little bit hard to estimate how big it will versus the other.

Chris -- Ruby Capital -- Analyst

Okay, thanks. And maybe one more within the 5G opportunity, could you just characterize what you think your niche or your advantage is in certain applications?

Georges Karam -- President and Chief Executive Officer

Well, our 5G, what's clear is that, what we are doing is that we have a comprehensive solution for non-handset, this is what we are doing. In other words, we're trying to optimize our solution completely for anything outside the phone. When you see today, if you take a an iPhone and you look to the 5G solution inside, how to put the millimeter wave inside and so on, you do it completely different if you are building this for a fixed router or for a portable device or for industrial machine. So all those the difference, the difference if you want from a technology point of view allow us to optimize the solution and make it cheaper to address this. And obviously we should not forget as well that there is this duopoly that we are creating outside of China that you know not too many players are able to offer 5G and have Sequans that creates obviously, we've seen good demand from the market to have Sequans delivering 5G. And this is also give us more chances I would say to win a nice market share.

Chris -- Ruby Capital -- Analyst

Thank you very much.

Georges Karam -- President and Chief Executive Officer

Thanks.

Operator

Thank you. And we'll move to our next question from John Lopez of Faculty [Phonetic] Group. Please go ahead.

John Lopez -- Faculty Group -- Analyst

Hi, thanks very much. I just had a couple of clarifications if I could, and then a question. The first one is, if we look at the calendar Q3 product sales trending, is it fair to think that Broadband outpaced that from a growth perspective?

Deborah Choate -- Chief Financial Officer

Outpaced what?

John Lopez -- Faculty Group -- Analyst

Yes, excuse me from a growth perspective. So if product sales were up 32%, quarter-to-quarter, is it fair to say that Broadband outpaced that 32%?

Georges Karam -- President and Chief Executive Officer

Yes.

Deborah Choate -- Chief Financial Officer

Yes.

John Lopez -- Faculty Group -- Analyst

Okay. Okay. Great. And then secondly, I thought in the beginning, or at least in the prepared remarks, there was some commentary about Broadband for calendar, Q1 of 21. Did I hear that correctly? Is there an expectation of say, some moderation just after the very aggressive couple of months of activity as we look into the early part of next year?

Georges Karam -- President and Chief Executive Officer

Yes. I mean, this is I mean, where honestly, no one knows. So it's not like we have, we're looking into a crystal ball with all what's happening in this pandemic and the demand related to this. But where we're seeing that the source of demand is a little bit at least as we are speaking, we're putting our self in a position that Q1 will go back to normal from this portable routers, obviously we'll have the CBRS, we'll have the emerging. We will have other broadband moving and, they are not related to the pandemic. But we're putting our position -- our projection if you want in a position that we're not relying on the source of demand, we have seen anything to Q3 and Q4, yes.

John Lopez -- Faculty Group -- Analyst

Yes. Got you. Terrific. Sorry, just two more quick ones. The first one, just on CBRS, are you guys participating both on the access point side as well as the client side? Or are you more focused and concentrated at one end of the wire?

Georges Karam -- President and Chief Executive Officer

No, no, we are -- we are on the only on the user side. You know, you could, sometimes you could have an access point where you have a backhaul of wireless then obviously we can play that. But we are not on the access point technology, but always on the user side.

John Lopez -- Faculty Group -- Analyst

Got you. Okay, so cost around the client side, got you. And then my very last question, if we look in recent weeks, you got a competitor in Asia-Pac, that I think historically has not focused on markets like hotspot and CPE, that appears as though they plan to do so with a portion of their 5G portfolio. And so it's my question for you here is, is this something that competitively you think they will address customers that like aren't your focus? Or should we think about this as perhaps opening a competitive vector in places like North America, maybe more core to your business?

Georges Karam -- President and Chief Executive Officer

I don't know if I get your question right. But...

Deborah Choate -- Chief Financial Officer

I didn't. It wasn't clear to me too...

Georges Karam -- President and Chief Executive Officer

Was it clear for you, Deborah?

Deborah Choate -- Chief Financial Officer

No.

Georges Karam -- President and Chief Executive Officer

Do -- are you saying -- can you repeat --

John Lopez -- Faculty Group -- Analyst

I'm sorry? Yes, of course, obviously I didn't mean to be cryptic. But mid effect, I want to say maybe a month ago or so made a pretty pointed announcement of their intention to target things. Yes, yes. With hotspot, CPE, and I guess my question was, are they targeting the same customers in places you don't want to go after? Or is that potentially something that we need to think about in say places like North America, sorry for being cryptic?

Georges Karam -- President and Chief Executive Officer

No, I mean, let's just say it like this. Say like talk about the 5G technology you know in general, to name it outside of China, you have only two, MediaTek and Qualcomm. And obviously their main drivers is really to build the technology for the phones. This is really the major business they are showing and they are optimizing their solution. Obviously when you do this, you are able on the corner to serve other businesses. I'm not saying you know, we always compete with Qualcomm even in emerging markets. So there is nothing that prevent those guys from going to this market, but they don't do it with the right way, with the right focus in general. And this is when Sequans is only focusing on this is able to do more.

Now on MediaTek, obviously that will go, that will come in principle they are Taiwanese and in general, they are able to come and sell in Europe and the US. But their main focus as a market, their major market is China in general. So, I'm not saying we'll not see MediaTek and compete with them. But to some extent, if we compete with the MediaTek and Qualcomm so we'll have two instead of one. We're still with MediaTek, a little bit tuned more toward Asia, than really US and Europe.

John Lopez -- Faculty Group -- Analyst

Got you. Thanks so much for all the help. I really appreciate it.

Georges Karam -- President and Chief Executive Officer

No problem. Welcome.

Operator

Thank you. As there are no further questions, I'd like to turn the call back to the management team for any additional or closing remarks.

Georges Karam -- President and Chief Executive Officer

Thank you very much for your questions and listening all the time you spend on the call. Thank you, operator. We're done.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Georges Karam -- President and Chief Executive Officer

Deborah Choate -- Chief Financial Officer

Michael Walkley -- Canaccord Genuity -- Analyst

Scott Searle -- ROTH Capital -- Analyst

Craig Ellis -- B. Riley Securities -- Analyst

Denis Pyatchanin -- Needham & Company -- Analyst

Chris -- Ruby Capital -- Analyst

John Lopez -- Faculty Group -- Analyst

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