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Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Universal Electronics Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone keypad. As a reminder, this conference call is being recorded. If you require any further assistance, please press star then 0. At this time, I would like to turn the conference over to Ms. Kirsten Chapman, LHA Investor Relations. Ma'am, please begin.
Kirsten Chapman
Thank you, Howard, and thank you all for joining us for the Universal Electronics Fourth Quarter and Year-End 2021 Financial Results Conference Call. By now, you should have received a copy of the press release. If you have not, please contact LHA at 415-433-3777 or visit the Investor Relations section of the website. This call is being broadcast live over the Internet. A webcast replay will be available for one year at www.uei.com. Any additional updated material, nonpublic information that might be discussed during this call will be provided on the company's website, where it will be retained for at least one year. You may also access that information by listening to the webcast replay. During this call, management may make forward-looking statements regarding future events and the future financial performance of the company and cautions you that these statements are just projections and actual results or events may differ materially from those projections. These statements include the company's ability to timely develop and deliver new technologies and technology updates and related products introduced this year, including our expanded software capabilities around our world-leading QuickSet platform. comprehensive suite of thermostats, and our groundbreaking line of ultra-low power and energy harvesting remotes designed for sustainability that will be accepted by our existing customers and attract new customers. Our ability to manage the global supply chain issues and material shortages that our industries have been dealing with, which continue to have both a direct and indirect impact on our volumes. The continued successful collaboration with existing and new customers in developing and introducing next-generation products, operating systems, and technologies, which result in increased sales opportunities for the company. The continued trend of the industry toward providing consumers with more advanced technologies by offering hybrid platforms, expanded smart home offerings, and interactive services. Management's ability to continue to manage its business to achieve its net sales, margins, earnings, and the intrinsic value of all our stock is guided. the impact of the company's financial results that it may experience stemming from issues surrounding its Chinese workforce and inflationary pressures we are experiencing due to the worldwide supply chain shortages and the weakening of the U.S. dollar against the Chinese yuan, and the continued effects that natural disaster and public health crises, including COVID-19 pandemic, have on our business and our management's ability to anticipate and mitigate those effects. including the duration, severity, and scope of the COVID-19 pandemic and the actions and restrictions that may be imposed on the company and its operations by federal, state, local, and international public health and governmental authorities. The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today's date and refers you to the press release mentioned at the onset of this call and the documents the company files to the SEC, including its annual report on Form 10-K. In management's financial remarks, adjusted non-GAAP metrics will be referenced. Management provides adjusted non-GAAP metrics because it uses them for budget planning purposes and for making operational and financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures helps investors evaluate UEI's core operating and financial performance and business trends consistent with how management evaluates such performance and trends. In addition, management believes these measures facilitate comparisons with the core operating financial results and business trends of competitors and other companies. A full description and reconciliation of these adjusted non-GAAP measures versus GAAP is included in the company's press release issued today. On the call today are Chairman and Chief Executive Officer Paul Arling, who will deliver an overview, and Chief Financial Officer Brian Hackworth, who will summarize the financials. Paul will then return to provide closing remarks. is now my pleasure to introduce CEO Paul Arling. Please go ahead, Paul.
Howard
Good afternoon, and thanks for joining us. At UEI, our vision is to connect the home by blending entertainment with smart home control. We started 2022 by unveiling many of our latest products and technologies at the International Consumer Electronics Show, or CES, in Las Vegas. This included a comprehensive suite of smart thermostats, a groundbreaking line of ultra-low power and energy-harvesting remote controls designed for sustainability, and expanded software capabilities around our world-leading QuickSet platform. Customer reaction to our new suite of products, as well as our established, award-winning advanced technologies, has been and continues to be very positive, which bodes well for our long-term growth. However, as anticipated for the near term, Our financial results continue to be impacted by the global supply chain issues and materials shortages, which continue to have both a direct and indirect impact on our volumes. Our results in the fourth quarter were within the guidance range we provided on our last earnings call, and for the full year 2021, revenue was $601 million, gross margin was 30.2%, and net income was $49.4 million, or $3.59 per share. We continue to execute on our channel strategy by partnering with customers who are leaders in their respective industries. As an example, in consumer electronics, we have long established relationships with Samsung, Sony, and LG, who collectively represent about 40% of the world's televisions. Similarly, our footprint in video entertainment includes relationships with Comcast, Liberty Global, and Vodafone, who rank among the largest video service providers in their respective markets. Another long-term customer is Daikin, the market share leader in the global HVAC industry. We have worked alongside Daikin for more than 10 years, and they have consistently been at the forefront in delivering innovative connected thermostats and control solutions to their residential and commercial customers. In addition, we have recently expanded distribution of our wireless connectivity and control solutions by partnering with leading brands such as Vivint, Somfy, and Hunter Douglas that are channel leaders for their respective connected home categories. These channels represent strong long-term growth potential, and as their products and services gain market momentum, our position as a technology and manufacturing partner will serve us well. As I said earlier, we are excited about the new product solutions we introduced at CES. We showcased our new and enhanced offerings as well as our leadership in supporting and integrating device discovery, control, and interoperability across major ecosystems while improving user experiences across entertainment and smart home devices. I'll review a few of the key advantages we demonstrated and the products that exemplify them. One benefit is that our enhanced control capabilities extend our reach with whole home coverage across ecosystems and protocols. For example, Kwikset 5.0 enhancements already deliver a smart home dashboard in homes across the world and will now include the industry's latest smart home connectivity standard, Matter. Our technology seamlessly blends all communication protocols, legacy, existing, and future, into a unified experience. Another advantage is that our innovative solutions simplify user experiences. Nevo Butler, the versatile and award-winning multi-assistant-enabled entertainment and smart home hub built around our QuickSet platform, is the first digital assistant optimized for home control applications. Just last month, Vodafone Portugal announced it is launching the Nevo Butler entertainment and smart home hub to its residential TV and broadband customers. We also have other customers adopting the same platform for non-entertainment use cases as a versatile smart home hub. We expect to have more to announce on that later. In HVAC, we recently announced the expansion of our innovative an exciting line of smart and connected thermostats and accessories. This modular solution is designed to bring wireless control and sensing interfaces, which are traditionally mounted on a wall, to any room in the home, placing the user interface where the user is and sensing where it really matters. This platform also allows intuitive integration of thermostats and other devices and services in the home. The UEI comfort line, is a white label smart thermostat platform designed for HVAC OEMs as well as hospitality branded applications. In addition to our comfort line of connected thermostats, we also launched an expanded set of sensors and wireless adapters that extend the reach of this platform at a recent air conditioning heating and refrigeration expo trade show. Our cloud connected wireless connectivity technologies are also helping us grow in new such as smart home appliances with new customers. Those products will be introduced by our customers in late 2022 and begin shipping in quantities in 2023. As I noted earlier, we are excited to announce our latest control platform, Eterna, and related technologies that address the growing demand for sustainable products that reduce energy use and eliminate waste. These environmental concerns are quickly becoming corporate and government mandates that will impact our customers' product requirements. We are confident that these product introductions are well-timed to usher in another evolutionary wave in the life of the remote control. UEI has partnered with technology leaders and invested in bringing ultra-low power connectivity SOCs with built-in energy harvesting and photovoltaic cells to the market. This user-centered design creates a best-of-breed solution that delivers value to users and businesses and outperforms any competitor in the field. They integrate energy harvesting circuitry that recovers energy already present in consumer homes, such as natural and artificial lights and even radio frequencies from wireless devices. The chips deliver up to two and a half times more computing power, allowing for more more power-hungry features without compromising battery life. They consume up to 80% less battery power compared to traditional Bluetooth smart SOCs, enabling up to 10 times longer battery life. And they reduce battery waste as the ultra-efficient power management unit enables true self-powering to create a battery-for-life controller system. Innovations in ambient power devices in the home are the foundation of a sustainable and vibrant smart home that benefits users and businesses alike. No one wants to change batteries in 20 or 30 devices in their home, and we're starting to change that paradigm. Before I turn the call over to Brian, I'd like to review our recent legal win. In November 2021, the U.S. International Trade Commission found Roku in violation of one of our QuickSet patents. resulting in the issuance of a limited exclusion order, meaning they could no longer import product with our technology, and a cease and desist order, meaning they could no longer sell their streaming products with our technology embedded. As a result, Roku has decided to modify the universal control functionality on their streaming products, creating a less user-friendly setup experience and degrading the control functionality of their platform. Consequently, Roku has created widespread frustration amongst users who are struggling to control their connected devices, including televisions. With the ITC matter successfully behind us, we can now turn our attention to the two related district court cases we have against Roku that have been stayed pending the conclusion of our ITC action. I'll now turn the call over to our CFO, Brian Hackworth, for a review of the financials. Please go ahead, Brian. Thank you, Paul.
Liberty Global
First, I'll review the results for the fourth quarter of 2021 compared to the fourth quarter of 2020. Net sales were 143.9 million compared to 156.4 million for the fourth quarter of 2020. As expected, sales were down versus the prior year due in part to global supply and logistics issues that affect us directly and indirectly as customers have truncated orders because of their inability to procure all necessary parts for companion products. Our gross profit was $40.9 million or 28.4% of sales compared to $52.6 million or 33.6% in the fourth quarter of 2020. As we mentioned on our last call, we expected inflationary pressures to adversely impact our gross margin rate as component and logistics costs have increased significantly over the past year. In addition, the U.S. dollar was weaker versus the Chinese yuan in the fourth quarter of 21 compared to the prior year quarter. In order to mitigate the effects inflation has had on our gross margin rate, beginning in the first quarter, we are phasing in price increases, which will have a partial impact in the first and second quarter, with a full quarter's impact during the back half of the year. Operating expenses were $30.2 million compared to $33.5 million in the fourth quarter of 2020. SG&A expenses decreased to $22.6 million from $25.3 million in the prior year quarter due primarily to lower incentive compensation in the current year. R&D expenses were $7.6 million compared to $8.2 million in the prior year quarter. Operating income was $10.7 million or 7.5% of sales compared to $19.1 million or 12.2% of sales in the fourth quarter of 2020. Our effective tax rate was 16.1% compared to 15.5% in the prior year quarter. For the fourth quarter of 2021, net income was $9 million or $0.68 per diluted share compared to $16 million or $1.14 per diluted share in the fourth quarter of 2020. For the full year 2021, net sales were $600.9 million compared to $615.4 million for 2020. Our gross margin was 30.2% of sales. compared to 30.8% for 2020. And net income was $49.4 million, or $3.59 per diluted share, compared to $53.3 million, or $3.76 per diluted share in 2020. Next I'll review our cash flow and balance sheet. We ended the year with cash and cash equivalents of $60.8 million, compared to $57.2 million at December 31, 2020. Cash flow from operations yielded $17.4 million, for the current quarter, enabling us to fund the purchase of 385,000 shares for $15.4 million. For the full year, cash flow from operations exceeded $40 million, and we repurchased over 1.2 million shares for a total cost approximating $60 million. We continue to believe that the current market price of our stock is significantly below UEI's intrinsic value. Given this and the fact we expect continued strength in free cash flow on February 10, our Board of Directors approved a plan to repurchase an additional 300,000 shares, contingent on price over the next few months. Now, turning to our guidance. The current macroeconomic pressures, specifically relating to the shortage of ships and transportation issues throughout the supply chain, continue to persist. Certain vendors have mentioned that we should start to see some relief in the back half of the year, at a time when several of our customer and product wins in the AV and home automation space are scheduled to ship. These products include our traditional two-way IP-connected voice remotes in the subscription broadcast channel, sensors in home security, and products that control devices ranging from HVAC to lighting and blinds. In the short run, however, we do expect current headwinds to continue to put pressure on sales. For the first quarter of 2022, we expect sales to range from 135 to 145 million, compared to 150.7 million in the first quarter of 2021. We expect EPS to range from $0.46 to $0.56, compared to $0.89 in the first quarter of 2021. We continue to believe in our long-term growth targets of sales between 5% and 10% and EPS between 10% and 20%.
Howard
I would now like to turn the call back to Paul. Thank you, Brian. As I have said before, it is difficult in this environment for any company that relies on semiconductor supply or movement of goods across the world to meet their growth objectives. Although we foresee a challenging start to 2022, we remain optimistic regarding our growth prospects for the full year and particularly our long-term performance. We have significant customer and project wins that will begin to ship in the back half of the year and into 2023. Further, our product team continues to succeed in its mission to build innovative next generation products and technologies. With more than three decades of experience, we have managed through challenging cycles previously. While each period is unique, one factor has always been true. UEI has emerged from difficult periods stronger and better positioned than before. Today, we remain focused on innovation that creates an intuitive, self-configuring, and seamless control experience within your home. We remain focused on bringing these groundbreaking technologies to a growing list of the leading companies in the world. We are quite confident that as these macro pressures subside, our commitment to innovation and customer service will deliver long-term growth. As always, stay tuned. Operator, we can now open up the call for questions.
Operator
Ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press star then 1 on your telephone keypad. Our first question or comment comes from the line of Greg Burns from Citadel. Your line is open.
Greg Burns
Good afternoon. When you look at the supply chain constraints, how much does that impact revenue this quarter versus your guidance? And then when we look at your guidance for the first quarter, How much revenue is being impacted by those factors?
Liberty Global
Yeah, I think the effect that it's had on our sales, Greg, it's been pretty consistent the last few quarters. So if you're comparing to the Q4 guidance, we came within the range. It was the lower end. But I think we took into consideration the impact. So I think we were able to fall within the range. Now, it did come at the lower end, but I can't. I can't really point to that as to why we came in at the lower end versus, say, the middle. I mean, it doesn't take a whole lot. There wasn't one customer that stood out versus our guidance. There's just a little bit here, a little bit there. So we wound up in the lower end. But as I've always mentioned, when we provide the range, I'm providing that range because I think it could come anywhere within that range in this time we came in towards the lower end. As far as Q1 is concerned, we're still impacted by the logistics issues. Even though it's a rolling issue, I think what is affecting us, and you'll see with other companies, is you get companion products, and if they're not able to get the parts for these companion products, then they're truncating orders to us. And we've had several customers tell us that they're ordering less for that reason. So it is still affecting us, and it probably will be for, you know, hopefully it will start to clear up towards the back half of the year. Okay.
Greg Burns
Okay. Um, and then in terms of the, um, the Roku litigation, um, so I guess they were in violation of one patent. Was there, how many patents were you're, you're claiming they were violating and are there any others that, that may be now that, uh, I guess the first step that you claimed or, uh, in violation, uh, and the others that you might go back to the ITC with. And then when we look at the district court cases, What is the potential outcome of that? Is that strictly a monetary case, or can there be any other implications on the ability for Roku to produce devices?
Howard
Yeah, Greg, this is Paul. The Roku case, the district court cases, I believe, and don't quote me directly on this, there are two separate cases. I believe there are 14 patents. in the two, across the two cases. And in district court, those cases are stayed. They were partially pending ITC. There are also IPRs that are being processed through PTAB. When that's complete, presumably the judge will reinstate the case. Don't know the exact timeframe on that, but it'll take a little bit more time. And then those cases can move forward. Obviously in district court, the remedy would be with a win is damages phase to the case, which means monetary. ITC is a separate venue where they would, our win meant an exclusion order and a cease and desist order. So it means the other party who lost in this case can no longer produce products for the life of the product, I'm sorry, for the life of the patent that violate that IP. So that's what was issued. They've modified the software and we've seen a lot of reviews of the product stating that people are not able to operate their television set, can't control the volume, can't turn it on anymore, etc. And some users are complaining that they need to use their TV remote again. So they have to go to a two remote solution where they turn the TV on and then operate the other device with the other remote, which is not a good user experience in today's world.
Greg Burns
Okay. And then lastly, just the 10% customers in the quarter?
Liberty Global
We had two customers, Comcast at 16.5% and Daikin at 11.2%. Okay.
Greg Burns
Thank you.
Operator
Thank you. Our next question or comment comes from the line of Brian Rutenberg from Imperial Capital. Your line is open.
Brian Rutenberg
Yes, thank you very much. So question on guidance. You're talking about, you know, first half being weak. In your press release, you said your long-term guidance is revenue of 5% to 10% growth and EPS of 10% to 20%. I assume that is long-term, not including 2022. Is that correct?
Liberty Global
Well, when we say long term, we're talking about over the next several years. That's the way we calculate it. So I think sometimes people conflate that with, say, just the current year, and I don't want people to think that. We're saying we can grow over the long term at a rate of 5% to 10% and 10% to 20%, which we've done historically, and I don't see any reason why that can't continue.
Brian Rutenberg
Okay. Is there 2022 – I know you didn't give specific guidance other than the first quarter – and that's going to be down likely year over year. Do you anticipate your 2022 being at 2021 levels, or maybe you can give me a better or worse, higher or lower number?
Liberty Global
Yeah, we don't provide guidance beyond a quarter, but I will say this. We do expect to grow in 2022. So as Paul mentioned, we've got a number of wins ahead, number of product wins and number of customer wins that are scheduled to ship in the back half of the year. I'm hoping that the supply issue starts to lighten up. We've been told this by a few vendors that they expect it to. I don't know if it'll be completely resolved, but hopefully it'll at least start to lighten up, which will enable us to ship more products. We expect to grow this year. I don't expect it to be the same level as 2021.
Brian Rutenberg
Okay, and then asking something from a macro standpoint, I'm hearing residential may be slowing the demand on that for the consumer electronics. Are you seeing any of the demand side on the residential side of the business slowing consumer residential?
Howard
You mean the subscription broadcasting or –
Brian Rutenberg
Just generally in your products, which is where a lot of your stuff is going, is the consumer. Is there any demand slowing?
Howard
Again, I wouldn't say it's an overall slowing. There are certain customers who have demanded more product, some of whom have told us they would be buying more right now, but they have semiconductor shortages of their own. And therefore... It may not be us who have the shortage that is the critical path. It's that they can't get enough parts for the companion product, as Brian alluded to earlier. Therefore, when we ask them about their forecast, they say, we would have ordered more, but we can't build enough of the product to demand. In those cases, the demand is good. In other cases, you know, it varies by customer, of course. Great. Thank you very much. If they were buying more and would be buying even more than that, were they able to get semiconductors for their own product? But they can't at this point.
Brian Rutenberg
Okay. Thank you very much.
Operator
Thank you. Our next question or comment comes from the line of Stephen Frankel from Colliers. Your line is open.
Stephen Frankel
Good afternoon, Paul. I'm hoping we could parse this supply chain issue a little bit and maybe give us some feel for how much of the headwind is direct products that you can't get versus the indirect issue of there aren't enough set-top boxes, for example, being produced, and therefore your customers are cutting back orders of remotes.
Howard
Right. Yeah, Steve, I'd like to be able to quantify that precisely, but it's not really possible. The one we could is we, of course, receive a forecast from customers, and then we go through our system to figure out what we can build. We've estimated that to be it's double-digit millions that were unable, probably about 10% of sales. that we can't get enough parts ourselves. Now, the part we can't readily quantify, we do talk to customers about their forecasts and their businesses. In some cases, they share more than others, of course. And, you know, some are telling us that, you know, we're ordering 10 or we're ordering 5 or whatever the number is. We would like to order 7 or 12, but we are having our own shortages. of other products, typically semiconductors, that they cannot get and therefore they would not order those extra units because the companion product that we're building for them is not required because they can't get enough semis to build their own product. We are hearing those stories from the field from our customers. That one Brian can't really quantify because they don't really give us a precise number. It's not really relevant anyway, as far as our business with them, because they said, well, we would have ordered more, but we were not. So we'll order it later. Right. They don't really tell us exactly how many units they would have otherwise ordered. So there's a flow through effect on this. Now, again, as Brian said, we do have vendors that this problem won't disappear in three months. It's going to take time, but it's also going to happen with time. We have vendors right now who are working with us to bring up parts in the back half of this year. So the supply of specific vendors should begin to increase this year. Now, will all vendors be back to pre-2020 or back to 2019 levels? Probably not. They probably won't be in a situation where they have more supply than demand. But there is supply that will come online this year that will begin to ease the problem. And as Brian, I think, alluded to earlier in the call, it's probably well-timed because we have a lot of customers who have some of these designs that we're talking about that I spoke about in the prepared remarks where they want them. And, you know, the timing of bringing on the capacity to build the chips for it is probably well-timed because it'll be about the time that designs will be ready and the chips will be more available. So we'll start to see this solve, this problem correct itself. As I said in the last conference call, I think I used the number 100 billion. The number's now well over 200 billion in commitments of semiconductor suppliers to build capacity. Now some of that capacity will take years, but some of it is coming on starting this year. So you'll see an increase in supply starting this year, moving through 23 into 24, and likely the industry will go back to a situation where there will then be greater supply than demand. That seems like a long way off right now, but that day is coming. in the not-too-distant future, not next quarter, but that day is coming, and it will come on a little bit at a time, and it will start this mid-year, we're hearing from vendors, we'll start to see a little bit of supply increase.
Stephen Frankel
Okay, and is there anything going on below the surface that would prevent gross margins increasing? from going back to where they were in early 21, once the supply chain issues are behind you?
Howard
Don't see any reason why it can. The only caveat I'll give to that is obviously we're in probably a higher inflationary time than we've seen in most of our careers. I've been doing this for quite a long time. I think the last inflationary, the severe inflationary time, I was in high school, so I wasn't in the workplace yet. We haven't seen this sort of environment. We are absorbing that. We are talking to customers. There are obviously situations where there are price increase to offset it. There's been a pretty good acceptance of that. I think people generally understand what's going on in the world today. that commodity prices, semiconductor prices, et cetera, are moving upwards. That hasn't been typical in the consumer electronics area over the last number of decades, but that is the reality today. And so you might see some movement in it a little bit down, but there's no reason, there's no strategic reason longer term. I mean, the solutions we provide in many cases are licensed. They're best in the world, best in class. And, you know, we charge a fair price for them. So there's no reason why we couldn't have that long-term, you know, goal of margin to be 30%.
Stephen Frankel
And, you know, one of the themes coming out of CES last year was higher software content in TVs, like this smart home control panel that you mentioned in the prepared remarks. Did you get any material expansion of that kind of software capability this year at CES for the TVs that ship in the back half?
Howard
We did, but right now the 2022 models are done. At CES, we'd be working on 23 and 24 in televisions. Because the 22 TVs were basically finalized in the summer of 21. And then sometime mid this year, the 23 models will be completed from a design perspective. So we're working right now on 23 and 24. But yes, there's a lot of interest in the many things that I spoke about in the prepared remarks and others, because I wanted to keep the comments to, you know, a limited amount of time. we're working on a lot of things here that are pretty innovative in all of these markets, security, HVAC, and, of course, the core business of AV that are quite different. I mean, including the Eterna and the low-power, ultra-low-power SOC, which we think is also garnering a lot of interest with customers.
Stephen Frankel
Okay, and then one last question for Brian. What kind of OpEx growth is embedded in your forecast for Q1?
Liberty Global
There's a little bit of growth. In Q1, we were at CES. That's a rather expensive trade show, and then you get a little bit on fringe benefits reset, so that will cause a little bit of an increase. So, I expect it to be sequentially higher, but not anything I would describe as significant.
Stephen Frankel
But below where the 31.7 it was last year?
Liberty Global
It would be close.
Stephen Frankel
Okay. Thanks.
Operator
Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. Our next question is on conference – our next – Comment comes from the line of Jeff Van Sinderen from B. Riley. Your line is open.
Jeff
Hi, everyone. I'm just wondering, given that you are increasing prices, any more color you can give us on the outlook for gross margins in terms of what we should expect this year? Maybe touch on the quarterly progression, if you could. I guess how they might evolve. And then for the full year, do you think gross margin is down or could it be flattish? I guess I'm just trying to get a sense, is it, you know, should we be modeling gross margin down in first half and then up in second half and get to flattish? Or how are you thinking about gross margin?
Liberty Global
Yeah, there are a lot of variables, as you know, Jeff, that go into the gross margin rate and As Paul has mentioned on a previous question, the price increases we're taking through Q1 and Q2 will take full effect in the back half of the year. Now, I think that pretty much mitigates or offsets the cost price increase for the most part, but it's difficult to tell what's going to happen with inflation. Are raw material and component prices going to continue to rise? That's difficult to predict. The other component that's always difficult is the FX rate. So right now, when I look at Q4 versus Q4, the dollar was a little weaker versus the Chinese yuan, so that hurts us. So that's always difficult to predict. So I don't think it's going to be dramatically different, but I think if you're looking at Q1 versus the rest of the year, I expect the rate to improve because the price increases significantly. that we're enacting are going to take full effect in the back half of the year. You'll get a full quarters effect versus a partial effect in Q1 and Q2. Now, that's assuming that we don't have additional high inflation rates on components, and that's the part that's right now the variable that's difficult to predict. So hard to say, but I don't expect it to be significantly different, but I do. If everything else stays constant, I think because of the price increases that we're enacting, our rate should improve in the back half of the year versus the front half.
Jeff
Okay, that's helpful. And then I guess just another question around the business returning to growth, let's call it year-over-year growth in the second half. You have orders for new products. Some of those are going to start to ship in second half. So I guess my question is this, because obviously there are a lot of variables around supply chain. Does being able to get those new products out the door in sufficient volume depend on supply chain improving from here, or is that sort of what you said your vendors are telling you, that it's going to get a little better in second half? Is that baked into year-over-year second-half inflection in revenues, or is there risk to that?
Howard
That would partially be, yeah, that would. Now, again, it's a lot more complex than that because we do have parts that are in tighter supply than others, right? So certain semiconductors we could actually get more of if we were to need them for some growth. I wouldn't say it's an unlimited supply, but we could get more. There are other parts that are more in short supply. So if the product design included those parts, you could be limited. Again, we are hearing from vendors and we are getting updated regularly on this. The capacity that they're adding are conversions where they've taken fabs and they are converting them. So that's a higher likelihood event. It's not a building that has to be built. The building is already there. So they're converting capacity to our architectures. So we're confident that, and again, the updates we're getting from them have shown that, we're confident that we'll begin to see some supply increase from certain of our vendors. So that would be baked into any growth that we have because at this point, as you probably well know from many companies that you cover and everybody else covers, semiconductors are a shortage, almost all of them. So at this point, if you wished to grow at a double-digit rate, it would be difficult to do because the parts that you would need to do it might not be readily available. But again, we are tracking our vendors, talking to them regularly about this problem, fighting for obviously every unit we can get. But importantly, the problem really begins to solve when capacity is added. Because we can scramble for the parts that are out there, but when they add capacity, what typically happens is the supply goes up, and often the supply goes up greater than the demand. and then you're back to a more normalized situation. Will we see that this year from all vendors? The answer is no. Will we see it from some, though? The answer to that, we're confident, is yes. So the problem will begin to ease as this year progresses, and then it will ease further next year. Because, look, their industry relies upon it, too. They're not making these chips just for the betterment of us or humankind. Their growth long-term relies on it. After the point at which they've taken price on these items, the demand would start to wane in order for them to grow in the ways that their investors or public investors or private expect them to would be to increase supply. And clearly, in the world today, the supply... is less than the demand. The demand can be satisfied, right, to create additional sales. So that's why there's more than $200 billion going into capacity expansion. And in many parts of the world, by the way, it's government aided. The U.S. has done this. It's been done in Europe, Japan. There's a lot of, and I think it's for also national security issues, but there's a lot of investment that governments are making to help companies build this new capacity. So it is, I think, as certain as anything can be, it is certain that the capacity in this industry is going to expand. Anyone who thinks that this limited supply situation is going to last long term isn't seeing the reality. When there's $200 billion going after partially government-funded capacity expansion, that will happen. And again, we'll start to see some of that this year. It will not be back to normal this year, but we will see that this year.
Jeff
Okay. And then speaking about demand, fortunately, you do have some new business wins. Any more color you can give us? I know some of this is a little tricky, but any more color you can give us on which of those, call it new product or new business wins, you expect to contribute most to the second half of this year?
Howard
Yeah, always hard to know that, Jeff, because they're all great products, and the customers always have a good idea. They, of course, give us a forecast of what they want to buy, but they hope that they sell out all of the inventory they've ordered from us and then quickly order more if their product is a success. So I wouldn't want to predict which one will be most successful, but the good news is it's multiple names and leading names. You heard a few of them in our prepared remarks. I didn't make comments on the products because I can't. But we did mention names, and these are some of the leading names in the world. Somfy, if you haven't heard of them, they're Hunter Douglas, Vivint. We mentioned Vodafone on the Butler. We have some more names there that I can't mention. So we've got a lot of projects that are moving forward. We have more in HVAC, too, that I can't mention the names yet, but, you know, names you would recognize. There's a lot of, again, the team here, the product team, sales team, engineering team, advanced development team have done a lot of work over the last year to create some pretty interesting new products with new features and, you know, those products are coming. So we expect to launch some of them late this year. The good and bad of those markets are typically they're long-lead projects, meaning they can sometimes take a year to build, but the life of the product can often be eight to ten years. So after you design it and build it and go through that process of a year or a year and a half in some cases, the product typically lives for eight to ten years. We start to see that later this year.
Jeff
And it seems like you continue to partner with and provide product for some of the best and most innovative companies out there.
Howard
That's right.
Jeff
Okay.
Howard
That's our goal. We're recognized as that. We have both the capability technically and the ability to supply because we're the largest producer also, not just the leading producer, but the largest producer of these control products. chips and products and technologies in the world.
Jeff
Right. And if you are a consumer with the Roku product that does not have your embedded software in there, you're probably not a very happy camper right now.
Howard
Yeah. I guess maybe you'll have to use one of our other remotes to operate your television. Right.
Jeff
Right. Not optimal. All right. Well, I appreciate the... Appreciate you taking the questions, and best of luck.
Howard
Sure, thank you.
Operator
Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Arling for any closing comments.
Howard
All right, thank you for joining us today, and obviously for your continued support of Universal Electronics. I do want to announce we plan to present at Sedoti's Small Cap Virtual Investor Conference in March, and we hope to see you there or hear from you there, depending on the forum. Have a great day.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.
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