The Voices of the Internet of Things with Chuck Martin: Ramzi Ammari, Universal Electronics Inc.

Good morning, Chuck.

Sure. Universal Electronics is a NASDAQ-listed tech company that's been in business for over 30 years. Summarizing, Universal Electronics is a leader in universal control and sensing technologies for the smart home. Essentially, that encompasses primarily entertainment control. If you think of remote controls that might be sitting on your coffee table, Universal Electronics technology is in about three out of five of those remote controls, so we have a pretty strong market penetration. Our technology doesn't just sit in remote controls; we also have technologies that reside in smart TVs. Samsung is one of our core accounts, so a lot of the Smart Hub technologies in Samsung televisions utilize Universal Electronics technologies. We recently expanded our portfolio to include smart thermostats as well as sensing and security products for the residential home.

Yes. The best way to describe it is we're a B2B business. Primarily, what you will see is our technology or our products, it could be a finished product, will actually sit bundled as part of an overall solution. In home entertainment, our remotes are not individually sold; they're bundled as part of a system solution. Comcast in their Xfinity X1 platform utilizes the Universal Electronics XR11 voice remote control, which launched a couple of years ago and is having phenomenal success in the market. In the thermostat space, you'll see it under ADT's brand, you may see it under a train next year's brands of products. Again, the finished good will be a Universal Electronics product, but it'll actually be branded under a system solution delivered by a third party.

Absolutely. In entertainment control, we are kind of the worldwide leader. The primary focus of our company is not necessarily delivering every single remote control on the marketplace; we really focus on trying to deliver an innovative, differentiated solution. You'll see our products primarily in the high end of the market, like Samsung and Panasonic in the consumer electronics space, but also in a lot of service provider channels like DirecTV, Dish, and Comcast. Those are the kinds of customers we tend to engage with and collaborate with to come out with differentiated product offerings.

Honestly, about five or six years ago, we were sitting at a strategic planning table and one of the things we were talking about is where we think the industry is going and where UEI needs to be, what technologies do we need to be aware of and dive into. Oftentimes, anytime you see a challenge, there's always an opportunity. For us, it was really looking at what challenges we could face over the next five years and how to turn those into opportunities. One of the areas we talked about was the evolution of RF in the home. I'm primarily focusing on home entertainment, which traditionally has been an infrared-driven protocol. Most devices consumers had in their homes were controlled primarily through infrared. For anyone who doesn't know, that means they had to actually point it at the device. It's really a broadcast; you broadcast a unique signal, the device doesn't acknowledge it received it, the user has to visually acknowledge that the TV turned on. At the time, Universal's history was built on a very robust universal infrared library. The company was founded on the brand called One For All. One For All essentially was the first universal remote control that you could go down to the local drugstore or electronics store and buy to replace or consolidate the four or five remote controls on your coffee table. It was built on having a very robust, reliable, comprehensive database of infrared codes for every single brand and model of TV, DVD player, VCR, set-top box in your living room. Five years ago, we sat there and said, 'Our business is primarily in infrared, but the market is going to evolve into RF.' We made significant investments in building up an RF portfolio, understanding RF, hiring RF engineers. In the first two or three years, RF became very predominant in the home. Today, most of our customers are squarely in the RF space; they still support infrared in their products, but the move to RF is, from our perspective, not complete, but about 80% of our customers are already on RF platforms. For UEI, we became a leader in that RF space, recognizing the shift was happening and being prepared to embrace it and position ourselves to become a leader. Today, we have the lion's share of RF-based entertainment remote control solutions.

Absolutely. The tide and trend in the market, as a company our size, we weren't in a position to change that tide, even though we were the largest provider of infrared solutions. You better ride the waves.

Interestingly enough, the voice one... RF was really the first sign. We had similar strategy sessions, and voice became more and more of a feature that we recognized was going to play an important role in the home. The same way we embraced RF, we are embracing voice. Today, we again have the lion's share of voice-enabled remote controls. We have voice-enabled technologies that we've developed. I don't know if Allen shared this with you, but we actually won an Emmy Award for our contribution to technology in developing voice-enabled entertainment and remote control solutions.

You're absolutely right in terms of timing. I always look at technology anniversaries; for 20 years, I've seen the remote control and control and entertainment technology evolve so much. We partnered with a company many years ago that was looking to do exactly what exists today, and we're talking about 2002, 2003, maybe a little later. That was before the iPhone. This was about trying to create a voice-enabled solution. At the end of the day, voice is a very powerful medium. If you can develop a solution that uses human speech to control and manipulate stuff in your home, it's very powerful. The challenge is it's very difficult to do. Back in 2004 and 2005, there was a company we partnered with, and we believed this could have a very compelling user experience for our customers. The primary reason for getting into it is UEI tries to push the envelope of what is possible and drive innovation within our industry. That's part of the mantra of our CEO: it's all about innovation, create new solutions, drive the industry forward, but always do it in a way that creates something unique and differentiated. When we partnered with this company, the intent was to create the solution we have today. However, at the time, bandwidth was an issue, RF was certainly not a standard within the industry, so trying to do it over an infrared protocol was near impossible. Trying to do it with a level of connectivity in the home was very hard because you need a lot of processing power to do very accurate voice decryption. Today, you have cloud-based services, high bandwidth connectivity, powerful servers and computing solutions that make voice very seamless and easy for the consumer. We recognized voice back then, but the technology wasn't at a point where we could deploy it successfully. Forward to today, the technology is all there, and the last piece of the puzzle is getting that user experience to the point where consumers start embracing it. One of the things we did with Comcast and their solution is really identify what types of things where voice can be a real value add to the user experience. We looked at all the different ways users can interact with systems. One of the biggest value propositions was, if you think back before voice, the way you interacted and found content on your TV was you had to bring up a search feature on the UI, then hunt and peck on a virtual keyboard on the screen to select the words or search term you wanted. That might take 30 seconds to a minute, depending on how adept you are, but it was very frustrating. Consumers didn't use it. With voice, it was a natural way to deliver that search experience in a matter of seconds. That application made perfect sense and opened up a whole host of content that a lot of our service providers wanted to enable. VOD has been around for a long time; cable and satellite companies could deliver video on demand for years, but unlocking that content required going through this laborious virtual keyboard hunt-and-peck content search. All of a sudden with voice, you could do that in seconds. You could do context-aware search, look for a game, an actor, a director, and do multiple searches to zero in on the type of content you want. That really opened up the customers' video libraries and created a user experience that wasn't available anywhere else. That has been a huge success for us.

That's a good challenge. We have a concept that we coined 'Design Ovations.' We've been doing this for about seven years now. We have a design team, our own design specialists within the company, and we also have technologists. One of the unique attributes is that we take the marketing—what are the trends in the home, what technologies are available—and combine that with design and technology. Every year at CES, we actually introduce four or five concepts. The intent of those concepts is that they are forward-looking, not necessarily something we can build today, but things we can enable or create in two or three years' time. The idea for us at CES is to take these Design Ovations concepts and engage in a conversation with our customers about some of these technologies. We look for serious interest from our customers, engagements that suggest synergy where our customers say, 'That is something we've been looking at as well.' We start looking for a groundswell: is there enough interest in what we're developing? Is the technology mature enough that we could leverage it? Does the user experience provide enough value to the consumer that it becomes a no-brainer from a commercial perspective? It's the combination of those three that have to be there for us to dive in and invest more heavily. We trial out a lot of things, and from those trials, we try to zero in on where the intersection of user experience, technology, and commercial trends intersect. That's what propels us to invest heavily in building out a solution that we can then take commercially.

It's an interesting time, and it's challenging. We've been talking about home automation, and now it's called smart home. It has really been around for a long time—the idea of automating lights, thermostats, sensors in the home, and connecting all those things. From my perspective right now, a lot of consumers are looking at point solutions. They're trying to solve a problem in the house. If you have young kids and both parents are working, having a video camera or a smart lock that tells you when the kids got home would be valuable smart home solutions. Consumers see that as a compelling reason to spend a couple hundred dollars to enable that capability. Right now, a lot of households are doing that: finding point solutions that help address specific needs. Over time, the idea of connecting all those devices—so when the door opens, does the air conditioning turn off? When the windows are open, does the air conditioning turn off? When you switch off the alarm system, is the garage door shut? Those kinds of connected solutions are coming, but I'm not quite sure we're there yet. Some of that is going to be a challenge for most consumers because today there are so many different brands and technologies. Being able to bridge all those solutions is going to be a challenge. This is where a professional installer comes in, and the custom installation market has been successful in bridging all these technologies and creating a single solution. The problem is it's been targeted at the high end of the market. Today, the average consumer cannot look at all these technologies and make them all work together. One of the drivers for us as a company is when we start looking at the things we have in our eco-link security business and the sensors and technologies in that product portfolio, and then we look at the things happening in our RCS business and the smart thermostats we're developing there, and the temperature sensors, drape controllers, and light controllers. We look at how we can create a solution that is compatible across all those products. Right now, it's mostly in bridging products. What you're seeing is a lot of bridge solutions designed to help consumers connect different devices from different brands and make them work seamlessly through a single interface.

Yes. In fact, one of the questions I was expecting you to ask is when did UEI get into the IoT space. I was going to tell you that we've already been in IoT, primarily through the entertainment hub. Today, the entertainment hub and the IoT space are almost considered two separate spheres, and I think there's an intersect at some point where those two could merge. We've had lots of conversations internally about whether the TV screen could become the interface to the IoT space. There are really three screens that the consumer has: their smartphone, their PC or laptop, and the television screen they spend a lot of time in front of. We're trying to find if there's an intersect where the TV screen—this could apply to a lot of seniors, actually, because they do spend so much time in front of the television—could that screen become their interface to the IoT space? They could see who's at the front door when the doorbell rings, or arm their home security system from bed through their TV screen. Those types of capabilities are potentially coming. For us, it's trying to identify when does the remote control become that interface where you can really do a lot of things in the home through your TV and remote control. It may apply in certain applications. From our perspective, we don't necessarily say it's one or the other; I think it's a combination of all three. All three will exist. Outside the home, a smartphone is the most powerful tool you have. In the home, a lot of people like myself leave my phone by the front door; I don't really carry it around the house. It's possible that you have other platforms in the home that you will interact with that may be more relevant for doing IoT-related activities than your traditional phone. Bottom line, I think there are a lot of different ways the user is going to want to interact in order to have control over their smart home.

It's funny because one of the things we're going to present at CES is this idea of the consumer interacting with all of these devices. It's really man-machine interaction. Traditionally, it's been a very tactile-based interaction: you go to your front door, you press the light switch, and that activates the lights. Today, a lot of users see these devices in their homes and think, 'Great, I can now control my lights from my phone, turn on the colors, change this and that.' But they're essentially turning on the phone, opening an app, logging in, and then turning the lights on through a smartphone interface, when actually it was a lot easier to just turn the lights on and off through their wall switch. Now with voice and these smart speakers in the home, I think that's a really powerful medium for consumers to do very basic things that they used to rely on using tactile, but using them through voice. There are also instances where the consumer is in bed. My kids come in and say, 'Dad, it's kind of warm in here, can you turn on the AC?' We live in California, so that's a common complaint. The kids want to turn on the AC. Do I want to pull out my phone, find my thermostat control, and turn it on? Or do I want a little device that I can just click up and down that's sitting by my bed that automatically connects to my thermostat and gives me a tactile interface with a smartphone-enabled device? It's almost like we're coming full circle where voice, touch, and visual feedback—whether it's a TV screen talking back to me, a control panel, or my thermostat with a little display—all of those things are going to have to interact seamlessly so the user can get the experience they want without having to give up one or the other. Voice is a very powerful solution, but I think it needs to be used in context with a lot of other different technologies to make it ideal.

Near-term, there are competing technologies. This is nothing new to the consumer electronics industry. If you look at VHS versus Betamax, or the technologies in the home like infrared, there are over 500 different protocols within the infrared world. Even with HDMI and CEC (Consumer Electronics Control), it was an effort by the governing body within HDMI to create a standard for control over an HDMI cable. Unfortunately, every manufacturer leveraged that CEC spec but added their own extensions, to the point where CEC didn't deliver that panacea of controlling devices through the HDMI control line. Today in IoT, we have a similar situation. You've got products that use Z-Wave, ZigBee, LoRa technologies, Thread from Nest. These are all different protocols that try to accomplish the same thing in the home. That chaos is probably going to be maintained. Companies like Google and Apple, through their HomeKit program, are essentially trying to create an environment where all these devices can coexist, but they're doing it through their interface and UI. A lot of companies don't want that, and now you're going to have two competing standards: the Google households and the Apple households, much like you have Apple phones and Google phones. Those are going to be challenges that will divide homes. Certain homes will go down the Apple path, others will go down Google, and you're not going to have consistency across every environment.

What we do... The challenges for UEI: we literally build products that have Z-Wave in them, we have ZigBee products. The service provider channel is primarily focused on ZigBee-based solutions. The residential consumer DIY solutions are primarily based on Z-Wave. One of the solutions we are looking at is bridge products. The way a lot of the bigger companies are solving this is through cloud-based interaction. Every device in the home calls out to the cloud, and the two devices connect to each other through the cloud. It's almost like the standardization layer is through the cloud. These devices will have APIs that allow them to communicate to each other even though they're speaking different protocols, and essentially appear to the user to be compatible and working together. That is all predicated on every household having internet, the internet being on, the router being up and running, and those devices being able to communicate. As soon as that link is broken for any reason, those devices can no longer operate. For us, one of the things we're looking at is whether there are things we can do in the home where we don't rely on cloud-based solutions, where devices can actually talk to each other in the home without having to rely on a cloud connection. There are ways to do that today through bridge solutions that essentially translate different technologies and protocols and allow the devices to seamlessly connect and interact.

That's a good question. We're so mired in trying to solve the day-to-day because we do see it will be a challenge for the foreseeable future. But I look at things like artificial intelligence and augmented reality. I think those are things we're also dabbling in and looking at. The smart home—we have the term 'Creating Smarter Living,' which is the theme we have at CES. It's really about getting... When you say what's the future hold, it's not just about being smart; it's about being smarter and really trying to focus on being context-aware and understanding the environment the user is in. Part of that is understanding what is around them, what devices they have, what they are trying to do, and in what context they are trying to interact with the home. We have a technology called Quick Set. Quick Set is a technology designed to sit on a device in the home. Today, it's on over 450 million devices, including televisions, set-top boxes, smartphones, and game consoles. The idea is that the technology is out there discovering connected devices in the home over a multitude of technologies and protocols—over IP, over the HDMI wire, over RF. By understanding what devices the consumer has and what services they have, we can create a smarter environment. For example, if the user is trying to watch a movie and we know that movie is available on Netflix, we can enable that content to the user because we know they have Netflix and we know where that Netflix app resides—whether on their game console or Smart TV. We can bring that capability to the user through a smart speaker, a television UI, or a remote control button. The idea is really becoming smarter and using artificial intelligence and augmented technologies to learn and understand the user environment to give the consumer a better experience when they interact with it.

Yeah, we're slowly working our way towards it. I think there's a lot of potential. The key is just trying to get to the point where we can be a little bit smarter about what we're doing out there as tech companies, really trying to focus not just about putting technology in consumers' hands, but really giving them something that they can leverage and enjoy.

Thank you.