Ladies and gentlemen, thank you for standing. Good afternoon. And welcome to the Knowles Corporation Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this program is being recorded. With that said, here with opening remarks is Knowles Vice President of Investor Relations, Michael Knapp. Please go ahead.

Thanks, Jonathan. And welcome to our second quarter 2014 earnings calls. I am Michael Knapp, Knowles Vice President of Investor Relations and presenting with me on the call today are Jeff Niew, our President and Chief Executive Officer; and John Anderson, our Senior Vice President and Chief Financial Officer. Our call today will include remarks about future expectations, plans and prospects for Knowles, which constitute forward-looking statements for purposes of the Safe Harbor provisions under applicable federal securities laws. Forward-looking statements in this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits, and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties in the company's SEC filings, included but not limited to the annual report on Form 10-K for the fiscal year ended December 31, 2013, and periodic reports filed from time to time with the SEC All forward-looking statements are made as of the date of this call and Knowles disclaims any duty to update such statements, except as required by law. In addition, pursuant to Regulation G any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at knowles.com, including a reconciliation to the most directly comparable GAAP measures. All financial references on this call will be non-GAAP unless otherwise indicated. Also we’ve made selected financial information available on webcast slide, which can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeff, who will provide some second quarter highlights. Jeff?

Thanks, Mike. Thanks to all of you for joining us today. I am happy to report we delivered revenue of $281 million above the high-end of our prior projections, driven by better than expected sales in both of our segments. In addition, operating margins of 7.7% were at the high-end of the range we projected on our April earnings call. Now, I will provide an overview of the trends we saw in our segments and end markets to discuss some of the design activity with our new products that we expect will fuel future growth. After that, John will provide financial highlights for Q2 and our guidance for Q3. In our Mobile Consumer Electronics segment, Q2 revenue decreased by 12% from year ago at the upper end of our prior projection. The year-over-year decline was due to weaker demand and an inventory correction at Samsung, as well as BlackBerry and Nokia’s market share loss. This was partially offset by stronger sale to North American and Chinese OEMs. In fact, sales to our Chinese OEMs more than doubled from a year ago period. Revenue from the Mobile Consumer Electronics group comprised 59% of total sales in Q2. Based on our current expectations cost for product launches and projected builds in the second half of the year, we continue to anticipate that 2014 will be a year of modest growth. In addition, there are several trends we see today in the Mobile Consumer space that we believe will drive accelerated growth in the next several years. One of the important trends we are seeing is the rise of Chinese OEMs and their focus on high-quality devices was greatly improve acoustic performance. Many of these smartphones are selling well in China and other region. Chowmi said earlier this month, it holds more than…

Thanks, Jeff. As Jeff mentioned earlier, we reported second quarter revenue of $281 million, above the high-end of guidance provided on our April earnings call. Mobile Consumer Electronics or MCE revenues of $166.7 million with the high-end of our prior projection, strong demand from a North American OEM and significant growth across multiple Chinese OEMs was driven by an increase in shipments of both components and integrated audio solution. This strength was more than offset by lower demand at Samsung and lower year-over-year shipments in Nokia and BlackBerry in connection with their lower share in the handset market. We were pleased with specialty component revenues of $114.3 million, above the high end of our prior projections. The increase was driven by stronger demand for precision devices in 4G/LTE communication infrastructure, particularly in China. Second quarter gross margin of 29.2% was within our projected range and down from the prior year quarter, driven by lower volume, reduced fixed cost leverage within Mobile Consumer, primarily at our Vienna facility and higher ramp cost associated with new products. We expect significant improvement in gross margins as we move through the second half of 2014. Operating expense in the second quarter was $60.8 million or 21.6% of sales, which was above prior year levels, driven by higher R&D and legal expense, partially offset by savings from prior restructuring activities. R&D spending during the second quarter was $21.5 million, higher than year ago levels to support increased new product development activities, including integrated and intelligent audio solution. EBIT margin on an adjusted basis was 7.7% in the quarter versus 17.1% in the year ago period, with the second quarter of 2014 impacted by lower gross margin and higher operating expenses. Non-GAAP diluted EPS was $0.26 during the quarter and includes the $0.05 discrete tax benefit…

Thanks John. In summary, I expect new product launches to enable significant sequential revenue growth and operating margin expansion. In addition, I expect benefits from the restructuring initiatives will lead to year-over-year operating margin expansion in Q4. As we look forward, our new product pipeline is full and I’m excited about the opportunities to increase content and drive growth for Knowles in 2015 and beyond. Operator, we can now open up for questions.

(Operator Instructions) Our first question comes from the line of Harsh Kumar from Stephens. Your question please.

This is Richard in for Harsh. I wanted to congratulate you on the quarter and the guide. Wanted to follow-up on China, could you please talk about what you're seeing in this market in general. We’ve heard of a transition from 2G to 3G and 4G and also how your content increases as we go from 2G phones up to 3G and 4G smartphone?

Yeah, just to answer your question. First, I’d say I’m real pleased with our results in China. We’ve done a really positive, positive job and because we made an investment in China a number of years ago seeing as a potential. And as we talked about Investor Day and as we talk, we go around but clearly people whether you’re in China or you’re in India or the U.S., you want better acoustics and we’re starting to see this start to spell through especially with two things, the acceleration of multi-mic adoption. We’re actually seeing more multi-mic adoption with the Chinese OEMs than we’ve seen in previous years, improve performance. And we’ve invested in this integrated audio solution over the last year and a half. And now we’re seeing starting to see the dividend start to payback in terms of sales. So as I said in my opening remarks, our sales are going to double from 2013 and 2014 with Chinese OEMs. And we’re expecting significant growth in 2015 again. And as I said, I’m very pleased with the results and we see this trend continuing.

Great. And then following up to that, I was wondering if there were any changes in the competitive landscape and as you get more revenue from China, is there any other competitive dynamics going on?

Yeah, actually I would say is the competitive dynamics haven’t changed dramatically from what we’ve talked about in the past, which is we see people coming in, trying to be second source of the major OEMs. I actually see the Chinese OEMs being a little bit more challenging for the competitors. It’s not one platform or two or three different part numbers but we see with the Chinese OEMs is there's many customers and many projects and with our broad product portfolio, it really serves us well because we come into these guys and say if you wanted analog mic or you want a digital mic or you want a multi-mode mic, top port, bottom port, it really serves us well. So in some way, the Chinese OEMs, being that there are not one real large opportunity, we even see a little bit less competition from the second sourcing that we do at the major OEMs.

Okay. And then if I can sneak one more in, wanted to talk about past the September quarter, you guided for modest growth through 2014. Is there anything in particular that gives you that confidence and then also looking at gross margins, you still expect in the December quarter for those to increase year-over-year?

Let me answer the first question first. First, I will turn it over to John to talk a little bit more about the gross margin. We do expect modest growth this year, again driven by the product launches within the year that -- back half of the year from our customers specifically in China and North America. Though I would just say as people may say something that we kind of have a little bit wider guide on revenue in the third quarter. It’s really hard for us to tell exactly when certain platforms are going to launch and what volume will they be getting supply chain constraints from some other supplier. So assuming the build project as we’re being told coupled with the introduction happening as they do, we see -- we have a level of confidence. We should be able to achieve this modest growth for 2014. On the gross margin, let me turn it over to John to talk a little bit about whether improvement in gross margin comes from and how we get there.

Yeah. Richard, as I mentioned, we had gross margins in Q2 of 29.2%. We’re projecting 400 basis point improvement in Q3 gross margin. That’s really driven by a couple of things, the stronger volume coming in Q3 and it’s also we're starting to realize the benefits of our Vienna restructuring. We’ll get the full benefit in Q4. So for your question, yes we expect significant sequential improvement in Q3. We also expect improvement in margins in Q4 and as we stated in our last call, we are expecting an increase in year-over-year operating margins in Q4.

Okay, guys. Thank you and good luck.

Hey, thanks.

Thank you. Our next question comes from the line of Bob Labick from CJS Securities. Your question please.

Good afternoon.

Good afternoon.

Hi Bob.

Hi. Just want to start, you’ve obviously touched on a little bit here but key to the investment thesis in your growth is the increase content per phone on mic. You’d mentioned a stat earlier. I was wondering if you could clarify on 10% growth in Chinese, is that mics per phone or could you just expand on that please?

Yeah, we’ll expand a little more. You know how we kind of measure this is a number of mics per phone on the overall market. Then we can kind of narrow it down by -- either by customer or specific end application whether it be smartphones or tablets. But within the Chinese OEMs, what we’re seeing is a 10% increase in the number of mics per phone. So that’s what we’re seeing. So the actually number of mics per phone is going up on average per phone. And that’s again to improve the performance, enable new applications. It’s not all because of the difference that we’ve seen in the rest of the market where once you start up with this, people start with one mic and they realize they can get great performance and they might add a second mic. And they want to do a voice recognition or they want to do high-quality video recording and they get a third mic. And so what you see is proliferation of the number of mics. No matter where you are, you are starting from one, you can’t get to zero obviously. You have to have a mic but lot of people are moving towards two and then even some are moving towards three depending on the platform.

Okay. So where would you say overall that market is in general? Is that a couple of more years of this kind of growth or is this a multi-year trend or towards the beginning, the end?

I would say we’re right in the middle. I’d say the high-end phone that are in the marketplace primarily have three microphones already today. So I think we’re right in the middle and probably a five-year cycle. So -- and we probably see another 2.5 years of growth. And again, I think what -- as we’ll talk more about this as we move forward in future calls and future Investor Day. But there is still the possibility of you moving towards four mic in the future. And that’s one side of content increase because the other side of content increase still goes to our integrated audio where the customers are asking us to design entire acoustic module which also raises acoustic content.

Okay. Great and then just kind of touching on that, integrated audio obviously came in with your R&D process and everything. Just taking a step back, could you talk a little bit about the R&D process and how the ideas you have are generated, how decisions are made to fund certain projects and scrap other project?

I mean, obviously we have -- I always tell people we have a full group of ideas, more ideas than we probably have people to fund and we’ve always got to make sure that we’re following the right path. But I mean, it starts with -- we got our guys in the backroom who are working on some really new and interesting technology and we’re very lucky with our position in the market place that we have almost quarterly meetings with everyone of the major OEMs, discussing things that we’re working on, stuff that they are interested in and that’s really drives our product, our road map. We don’t tend to do this in a vacuum. We’re developing stuff introduced at the market. Usually when we introduce new product, we have a launch customer but day we introduce the product, taking it in very high volume. So I think we talked about our multi-mode digital microphone in the first quarter, which we shipped $30 million, the quarter we actually introduced it. So it’s a fair amount of going back and forth with the customers, with what we have to offer and coming up with the solutions. What’s interesting from my perspective is, you don’t see necessarily every customer want the exact same thing. They put different priorities on different things and that’s kind of how we fund thing is we look at either the market or the individual customers are large enough in order to drive our R&D spend.

I think one thing to add to is we do have a very rigorous gating process. Once the project is initially improved, it still grows through a review process several times a year to determine if funding is still warranted going forward.

Okay, great. That’s certainly helpful answer. Thank you very much.

Thank you. Our next question comes from the line of Alex Gauna from JMP Securities. Your question please.

Hey, good afternoon, guys. Thanks for taking the question and nice quarter. I was wondering, Jeff you talked about this little bit already. But in terms of going forward here and you are much better than seasonal guide and mobility at least relative to most normal expectations in the market. Can you maybe breakdown the drivers between either shares gains or TAM expansion and the Internet of Things opportunities? And maybe what’s going on maybe some of your higher ASP products with your multi-mode mics or your integrated modules? Thanks.

Let me try to take that in a couple different pieces to answer this first. We take Internet of Things first. I think what we are seeing is, there is definitive demand for acoustic content, specifically in the wearables market. We spoke -- are tending to be cautious on forecasting large volumes from that market, as we’ve yet to sit there and say that there is a killer apps that people sit there and they say they have to have. I just continue to believe that we have the right product and we will be positioned very well if one of those things are successful. But today we’ve seen limited high volume success. And I always draw, Alex, the thought process is if I make this, if there were 50 million smart watches sold in one year, that still pales in comparison to the phone market, which is roughly 2 billion with multi-mic adoption. But just repeat the first part of the question I guess so I have it correct?

You started answering it then, but also tied into that can you talk about it some of the modules and integrated solution, some of your higher performing products, how much of that contributing your optimism in the outlook?

I would say that is a significant contributor, especially at the back half. And as we look into next year, we’ve seen a fair amount of adoption. We talked about Chowmi, which was a customer that two years ago didn’t really exist, now the top 10 customer for us. So what we see is that you’ve taken this integrated audio to many customers, specifically the Chinese OEM, and we’re rarely getting anybody who says I am not interested. And the reason is it goes back to this driver right. They really want better acoustics, but they are not in the same position with some of the larger OEMs where they introduced one phone and that drives all their growth. So what we tend to do is we’re taking a lot design efforts that they would have to take our speakers, our microphones, integrate them in the plastic with an antenna. We are taking a lot of that off of their hands, doing it for them faster, at better performance. And although it’s more content for us, our belief is that the overall system cost because we are managing a lot for them goes down.

That’s helpful. Thanks, Jeff. And can you tell me…

Alex one other point to add to this, the Q3, as we stated at the outset, we had a fairly significant headwind with Nokia and BlackBerry. That headwind was roughly $20 million a quarter in Q1 and Q2. That headwind is coming down as Q3 of last year sales kind of, we took Nokia and BlackBerry lesson that delta year-over-year is coming down. I think the delta in Q3 is going to be closer to 10 million versus the 20 million in Q1 and Q2.

Now that’s great. You started answering up before I asked it, the question which is, can you tell me how big Nokia and BlackBerry are combined at this juncture? And then also I am wondering if there have been any changes in your greater than 10% range with two greater than 10% customers or is it down to 1%? And then also you mentioned Chowmi a number of time, is that getting close to being a 10% customer or are there any others? Thanks.

No, there is no real big change in our 10% customers at this point. Kind of as I said, these are Chinese OEMs. There really isn’t one guy who is individually big enough to be that far right. It’s the combination of all of them together. That becomes a big nice opportunity for us, especially that we’ve got this really nice infrastructure in Asia in order to support all these OEMs and their projects. As far as BlackBerry, I mean, I can tell you they are pretty much zero. I mean, there is a little bit, but in comparison to what they were a year ago, they are pretty close to zero. In terms of Nokia, we just sit there, I would just say it’s not anywhere near 10% customer anymore. But what we have seen is there is stabilization in their business in comparison to what we’ve been telling, talking about 2013 to 2014. It has stabilized. Obviously, there is still a lot of question marks around the Nokia acquisition by Microsoft, but again it has stabilized at albeit a lower level. It is nowhere near 10% customer any more.

Okay. One more if I could. I am wondering on the gross margin front, I know you are going to be getting a big benefit from your manufacturing consolidation. But I am wondering with the new product, the modules are higher in microphone. Are those creating a little bit of a headwind as those ramp in the second half of the year because they are lower yields and probably get up in the full volume or because they come in at a higher price, are those actually being proving a tailwind to your gross margins right now? Thank you.

Well, we talked about it. John talked about it. He could expand on this when I am done. But we do have these periods of time at the front end where we got to ramp and this is one of our advantages ramping significant volumes in very short periods of time. And there is always challenges and we do expect yields will be lower at the front end of these ramps. That’s just a fact of life offset partially of course by the higher ASPs that we get for doing that. So I guess the way I frame it, Alex, is this is no different than any other ramp than we’ve had in previous years. We just got to make sure we got all the products on time and deliver all the products, which I think we will. I am saying that I am overly worried about it, but it’s just the business that we live in and we got to make sure we get that out and that will drive the gross margin up as we start to improve those yields in Q3 and Q4.

Yes, Alex just to add to that, I mean you did see our gross margin came in at 29.2, slightly below the midpoint. The biggest driver of that was RAM cost in the quarter not necessarily related to IAS but product launches scheduled for the second half of this year.

Okay. Thanks so much again.

Thank you. Our next question comes from the line of Jaeson Schmidt from Lake Street Capital. Your question please.

Congrats on the good quarter and guide. John, just wanted to get back to that China question, as far as how much is China as a whole for your revenue these days?

Let me look at the numbers here. I would say all combined, it’s over a 10% of our revenue for 2014. So it’s a first time, it’s been over 10% of our revenue. That’s why I kind of said, there is no one guy in there that dominates and says that’s driving all of our revenue, but it’s over 10% of our sales.

Of total company, not just for down consumer, 10% of total company.

Total company for 2014.

Okay. And then are you guys at all concerned about a potential inventory glut in china or how confident are you that you are going to see continued strong traction in that market going forward?

I think we are going to see continued strong traction in the OEMs in terms of design activity. There has been some talk about inventory glut in falls, but we are not yet seeing anything like that in our projections at this point. We always -- I guess the way I would think of the business is that there is always some risk after the holiday season in the United States and Europe and some risk after Chinese New Year because everybody build more than they need right. The question is how large that is? So far what we see is stuff that people are building are being bought. I think the market is going to continue to develop and obviously we will watch this as we go. And I think the real positive thing for me from the Chinese OEM is this, there is somewhat obviously lesser customer concentration. We got a lot of customers that makeup that 10%, 11%. And from that standpoint, I would say you’re looking for more pockets of one guy doing worse than the other as opposed to overall inventory glut.

Okay. And then finally I know a large North American platform is going to help drive your Q3, but wondering if could provide your current backlog coverage to your guide?

I am not sure we provide that, but I don’t even have that right in front of me at this moment. I don’t have that. And just so you realize most of our customers don’t work on a order of backlog basis. Most of our customers are on a hub poll system, so it’s a combination of forecast and filling the hub. So we don’t get when you look at those formal orders. That’s why we tend not to talk too much about book to bill because it’s really hard to measure that when we are getting -- all we are getting is the forecast and we got to fill the hub with inventory.

Okay. Thanks, guys.

Thank you. Our next question comes from the line of Robert Sassoon from R.F. Lafferty. Your question please.

Thank you for taking my questions. There is really one question really related to your mix and growth target. Were you thinking the growth from the Chinese OEMs is actually going to be better than you had initially anticipated? And on the other side of the equation, you mentioned that restructuring has really resulted in cost savings at the high end of the range that you had previously given. And earlier whether as a percentage of actually upgrading those savings as you go into 2016 and whether your overall -- whether your midterm target have the potential for actually some upside?

I mean, I will let, John, expand about this, but we are sticking with our midterm target that we’ve given for sales growth as well as margins. John, if you want to make comments.

Yes, with respect to the cost saving initiatives in our restructuring, if I go back to Investor Day, we kicked off, we talked about -- we kicked off our global footprint consolidation initiative in 2013 and we identified an opportunity to reduce our annualized cost by $40 million to $50 million. And I guess I am pleased to report that by the end of Q3, we will have taken actions resulting in annualized savings of $35 million to $40 million, which will be reflected in our operating margins in Q4. We further -- we have identified actions related to our specialty components business that are expected to result in annualized savings of $10 million to $50 million beginning in the second half of ’15. That gets us to the high end that $50 million in savings. Obviously our plate is full today executing this. When we get to the second half of ’15, we will continually explore opportunities to further increase margins, but we aren’t changing the midterm outlook that we gave in February.

Right. And, I mean, just going back to the Chinese OEMs that you’ll increase penetration in that segment in terms of market, is that better than you expect at this stage or on track with what you were budgeting for?

I mean, I think it’s better than we would've expected the penetration and the uptake in terms of premium audio. But on the reverse side, that’s not -- there is just winners and losers in this market. And I guess the thing that we positively talked about, we were overweight Nokia and BlackBerry and you’re going to kind of see that come to an end as we get into the back half of this year. But what we see is that the Chinese OEMs are obviously taking share from other businesses and we’re well-positioned there. So we still look at the overall market growth rate coupled then with our acoustic content growth rate and what we really like to see is positive is the acoustic content growth story playing out in Chinese OEMs. It’s not just as to the big guys that we normally talk about.

Are you guys suggesting that maybe the better than expected growth that you’re seeing in the Chinese OEMs is (indiscernible) slower than the expected growth that you probably initially anticipated from another Asian -- big Asian clients in the career?

Yeah. I think that’s the way we’re saying it right which is -- again, we’re well positioned, it doesn’t matter. We want to get to a point in ideal world where it doesn’t matter who wins. It is that the market grows at x percent rate and our acoustic content grows and we’re seeing the acoustic content growing in the Chinese OEMs and we’re seeing that we’re not overweight too much into any one business compared to what the markets dynamics would dictate.

Okay. And well just one final question. The hearing aid market, I mean, how is that panning turning out? Is that in line with your expectations? Or is it the -- I mean, the (Indiscernible) penetration in that market, is that going fast or in line?

I would say it’s going faster, I would say it’s accelerating. We’ve kind of expected that for a while. And as we’ve kind of portrayed this business, this is the GDP growth business in the short-term to mid-term. In the mid-term and beyond, we do see there's opportunity that this business could faster than GDP. Again, based on aging population, emerging markets and some of the new products that you’ve seen introduced LINX product that we’ve talked about on last quarter, as they become more acceptable in the market. But the short-term, the market dynamics in the hearing market don’t change dramatically from quarter to quarter. It’s really a thought process of when do the baby boomers start hitting the age when hearing aids are typically bought, and we’re still ways off of that. So we’re not seeing anything special here. We’re still a leader in this market. We feel good about where we are, but it’s a stable GDP growth type business right now.

Okay. Thanks very much. I’m done. Thanks very much.

Thank you. Our next question comes from the line of Tristan Gerra from Baird. Your question please.

Good afternoon. Could you talk about to the integrated audio solution gross margin? What is your corporate average? And what is the percent adoption rate today? And what’s the potential outlook for as part of the mix a few years out?

The second part of the question is the gross margin, but what was the second part again?

And then any -- how should we look at the potential for the mix of that product to increase? What is it today as a percent of mix and where could it goes few years from now?

I’ll answer the first part -- the second question first. It’s not a significant driver of total revenue, but it’s a big part of the growth dynamics, the integrated audio because what we’re seeing is again in the Chinese OEM is they are uptaking this business, this business -- this product at a very, very rapid rate in order to catch-up on acoustics compared to where they’ve done in the past. And as far as the gross margins, our expectation is this will be very similar to where we are on the corporate level. Clearly, we’re still a bit in the ramp phase, at the low end and we don’t have all the benefits of scale, but our expectation is that this will be very similar in terms of gross margin and everything else that we saw.

Okay. And then as a follow-up question that took place, maybe little earlier in the Q&A. What percentage of your revenue is coming from hubs -- hub arrangements with some of your large customers and also if you could remind us the percentage of revenue coming from distribution?

The percentage that coming from distribution is relatively small. We don’t have a lot going into distribution. We have some in our precision devices and we have a little bit from catalog houses, so it’s very, very small distribution. Another question was about the hub…

Yeah…

… I don’t know the exact number, Tristan, but I would just say is, it’s, I would say, there is almost no major OEM that’s not in a hub agreement. I mean, there are almost all in hub agreements now. That transition took place over the last four to five years where we get forecast, fill a hub and then they pull from the hub. So I would say a relative on the MCE, a relatively large percentage on our hearing, our acoustic business, our Hearing Health. It’s also relatively of large amount, big thing in our precision devices in the oscillator, in capacitor where we have a much broader group of customers. It’s more ordering -- standard ordering.

Okay. And then last question, are there any specific flows, let’s say that, above a certain number of days, the customer needs to take the product from the hub whether or not there is a need for it. Is there any limit in terms of how many days of inventories can be at the hub?

I mean, I’m sure there are those things in our agreement. I don’t know -- I haven’t read them recently. I’m sure there are. But I would just say is, we work very close with every one of these customers and as we know that they move towards end of life on a product or they’re ramping a new product. We talk about with them on a regular basis because we’re very lucky, we have -- in this case a number of larger customers that we spend a lot of time, we have teams that might call them on a daily basis. We’re always adjusting the build plan in order to make sure that we don't end up with any excess and obsolete. I think if you look at -- we don’t look at it excess and obsolete has been -- real big issue for us but because we monitor on a daily basis.

Great. Thanks a lot.

Thank you. (Operator Instructions) Our next question comes from the line of Zach Amsel from Evercore. Your question please.

Hi, guys. Good afternoon. I was wondering if you could elaborate on the competitive environment you're seeing when you're bidding for slot?

Yeah. I don’t think it’s all together that different than we’ve seen in the past. We are typically the primary supplier on microphone, the secondary supplier on speakers and receivers. And there is various different second sources, depending on the application, depending on the type of product people are looking for and depending on the customer. I can't alluded to it. My opening, one of the first questions, which that, it’s a little bit more challenging for our competitors to service the Chinese market because there is a lot more customers and there is a lot more project with not having the broad portfolio that we have, especially on mic, it’s a little bit more challenging. So I wouldn’t say the competitive dynamics have changed dramatically. I think it’s more of a discussion of account by account. We see different second sources depending on which project we’re on like, for instance, if you look at some of the major OEMs, they use one second source on one project, they use another one on another. It depends on who brings the product to them that can be the second source.

Okay. That’s very helpful. Thanks guys. That’s it.

Thank you. Our next question is a follow-up question from the line of Alex Gauna from JMP Securities.

Hey, thanks so much. Was wondering if you could follow-up on your commentary earlier on the strength in wireless infrastructure out of China and how you’re feeling about that participation going forward into the second half of the year. It’s been something of a mixed bag in terms of other component supplier seeing ongoing strength and others seeing a pause?

Yeah. I mean, what I would say Alex is this is in a -- I’d say in a sequential basis. We have seen a little softening in the 4G LTE business but that’s reflected in our guidance already as we look towards Q3. When we say -- We had this 4G LTE build out but we still framed the overall story of the precision devices as a GDP type business. We don’t expect that we’re going to see 7% year-over-year growth on a continued basis.

Okay. And then I’m wondering also though there has been some framing and this sounds like what you’re seeing is the pause some of the others are but Chinese Unicom and Telecom I think have their life now. I know you’re not forecasting on an ongoing basis strength but you have enough facility to think you’re going to get some of that Chinese Unicom and Telecom strength later in the year?

Yeah. I think -- I believe is we’re well positioned with the number of OEMs. We think we will get our share of what we expect. But again, we have seen a little bit of softening. I wouldn’t say it’s dramatic but I would just say it’s been some or has been some softening. And again, we embedded that into the guidance that we’ve given.

And you’ve made a number of comments throughout the call on the success you’re enjoying with the Chinese OEM and integrated component. And I’m wondering at this juncture based on its outlook, do you think that you’re going to be gaining share through the marginal approach in speakers as we exit the year and its fair to say that you’re share gain in speakers would be larger than anything you might be in terms of share losses in mics if there are any at all?

Alex, I would just say, it’s the same thing I would say about mic and the same thing I would say about speakers or receivers which is we’re not expecting major share shifts into one of these. It’s a little early days to predict that but what you’re going to see is just like we talked about last year, we might see a slight rise in share of one year, a slight fall in that. So at this point, we’re not predicting major share changes. That may change as we get into the next year, but right now what we see is the share remaining relatively stable of microphones and speakers and receivers. Obviously, we are happy about the decline or I would say the exposure in China of multiple OEMs. I continued to stress out the team is it’s a little bit different than some of obviously our other customers we have, I would say eight to ten customers in China that no one guide as dominant and we really like that in that business because we’re not reliant on one specific customer.

All right. That’s all I got. Thank you.

Okay.

Thank you. Our next question is a follow-up question from the line of Harsh Kumar from Stephens. Your question please.

Real quickly, I just wanted to jump in and see where we stand in terms of you legal expense and how we should think about that going forward?

Harsh, I’d just say is as we are committed to vigorously defending our IP. Clearly, as John said in his comments, you see a slowdown of legal spending in Q3, but we wouldn't put that as a permanent slowdown. So I mean, I can't give you much more detail than that. We have obviously ongoing litigation, I think everyone’s aware of. We’re not going to comment specifically on that. But I would not count on that legal spending staying at that level that it’s at in Q3.

Fair enough. Thanks guys.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Michael Knapp for any closing comments.

Great. Well, thanks everybody for joining us today. As always we appreciate your interest in Knowles and look forward to speaking with you on our next earnings call. Thanks and good bye.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.