November 1, 2018 / 7:28 AM / 15 days ago

Dialog sees 2019 growth, stable margins after Apple deal

* Revenues to grow by mid-teens in 2019

* Margin outlook stable

* Chip designer smaller, more diversified after Apple deal

* Focus on new markets, including Internet of Things

* M&A, share buybacks in prospect

By Douglas Busvine

FRANKFURT, Nov 1 (Reuters) - Dialog Semiconductor expects revenues to grow in the mid-teens next year after a $600 million deal with Apple to transfer patents and programmers key to making the iPhone's main power chip.

The landmark deal buys time for the Anglo-German chip designer, which relies on Apple for three-quarters of sales, to reinvent itself as a more diversified firm that will target new markets such as the Internet of Things.

"Our custom, configurable and programmable design expertise, coupled with our ability to quickly and reliably ramp to high-volume production, enables us to serve an increasingly broad customer base," Chief Executive Jalal Bagherli said in a statement.

Dialog's shares jumped by a third on Oct. 11, the day of the Apple deal, and gained another 9 percent on Wednesday after it released forecast-beating results and gave an upbeat outlook for the final quarter of 2018.

Bagherli was due to hold a strategy briefing with analysts in London on Thursday and ahead of the event the company provided its first guidance on its outlook for 2019. The Apple deal will not have any impact on the current year.

The company said overall revenues for 2019 would be roughly in line with this year's forecast of $1.46 billion. On a like-for-like basis, after stripping out the operations that will go to Apple, the top line will grow in the mid-teens.

With the Apple deal proceeds adding to the $617 million already on hand, Dialog said it had the financial flexibility to pursue growth, including through mergers and acquisitions, while continuing its policy of returning capital to shareholders through share buybacks.

Dialog said on Wednesday it would spend up to 150 million euros on buying back nearly a tenth of its shares.

STABLE MARGINS

Dialog's guidance for 2019 telegraphed a message of continuity. The company expects underlying gross margins of between 47 and 48 percent, a fraction below its third-quarter performance of 48.6 percent.

It sees underlying operating margin of between 18 and 23 percent, compared to a third-quarter outturn of 21.8 percent.

Dialog, which has no chip production assets of its own, is more tied to the fortunes of Apple than it is to the broader semiconductor industry cycle, where Korean electronics giant Samsung Electronics has warned that a two-year boom in memory chips could be ending.

It wants to shake off that image by deploying its expertise in so-called mixed-signal integrated circuits - which can handle both analogue and digital signals - to capture new market opportunities.

Dialog claims market leadership in rapid-charging and configurable mixed-signal circuits that are used, for example, to power up smartphones. It is number two in Bluetooth low-energy products that connect wearable devices like fitness trackers.

It said that in future it would focus on the Internet of Things - the online link-up of everyday objects via embedded communications technology - mobile, automotive, and computing and storage markets. (Reporting by Douglas Busvine; Editing by Jan Harvey)

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