02/09/2018 | Press release | Distributed by Public on 02/09/2018 00:05
Changed market conditions for capacitive fingerprint sensors for smartphones
Action program initiated to improve profitability
R&D resources redirected even more to new, emerging biometric markets
Cash position of SEK 920 M
Operating result for the fourth quarter, excluding non-recurring items, was a loss of SEK 9.9 M
Provisions of SEK 121.9 M to the obsolescence reserve in 2017 had a negative impact of 4 percentage points on the gross margin
Fourth quarter of 2017
Revenues totaled SEK 615.3 M (1,618.7), down 62 percent compared with the fourth quarter of 2016
The gross margin was 21 percent (44)
Operating result of a loss of SEK 40.6 M (profit: 520.0) and an operating margin of minus 7 percent (plus 32)
Earnings per share before dilution was a negative SEK 0.05 (profit: 1.35)
Cash flow from operating activities was a negative SEK 1.7 M (positive: 186.0)
January - December 2017
Revenues totaled SEK 2,966.0 M (6,638.3), down 55 percent compared with 2016
The gross margin was 33 percent (48)
Operating profit was SEK 154.6 M (2,578.5) and the operating margin declined to 5 percent (39)
Earnings per share before dilution amounted to SEK 0.38 (6.40)
Cash flow from operating activities amounted to SEK 376.9 M (1,130.3)
The Board proposes to the Annual General Meeting that no dividend be paid for the 2017 fiscal year
Cost alignment and refocusing
Changed market conditions
2017 was a challenging year of reduced demand and earnings. However, I am satisfied with our equity/assets ratio, which amounted to 66 percent at the end of 2017, and our cash position of SEK 920 M. Our result for the fourth quarter was impacted by an accelerating change in market conditions for capacitive fingerprint sensors for smartphones. We operate in a tough market subject to intense competition, but I am disappointed with the profit trend for the full-year and for the fourth quarter. Although the operating loss of SEK 41 M for the fourth quarter includes non-recurring items, the underlying operating loss of SEK 10 M is absolutely not satisfactory. To achieve a long-term improvement in profitability, we have launched a number of activities that will generate effects early in the second quarter of 2018.
This market for capacitive sensors for smartphones constitutes the core of our business. Approximately 40 percent of the fingerprint sensor-equipped smartphones shipped during 2017, excluding Apple, had a fingerprint sensor from Fingerprints. This market has very quickly developed into a mature mass market with increasing competition and decreasing prices. A tangible shift in our product mix in the second half of the year was also an important contributing factor to the decline in average selling price. Smartphones in the premium segment are now also being equipped increasingly with smaller and cheaper sensors. Overall, the average selling price of our products declined about 30 percent in 2017.
According to a number of independent observers, deliveries of smartphones in the Chinese market decreased somewhat compared with 2016. In our assessment, conditions in the Chinese smartphone market slackened additionally in the fourth quarter and we expect our sales to continue to weaken in the first quarter of 2018. This development has led to an ongoing consolidation process throughout the value chain.
In terms of value, we expect the market for fingerprint sensors for smartphones to decline in 2018. I would like to emphasize that our ambition is to keep a leading position in smartphones, while moving the focal point in our investments towards new emerging biometric markets.
2018 - year of readjustment for Fingerprints
As previously communicated, we initiated a comprehensive action program at the beginning of 2018 to adapt the company's cost base to the prevailing market conditions, with the aim of safeguarding the company's long-term development and success. As a feature of this program, we are downsizing the workforce by approximately 185 positions, while also reducing our external costs. The measures are estimated to result in cost savings of about SEK 360 M in 2018, starting in the second quarter. At the same time, we will be redirecting resources to ensure that we have a sufficient focus on new growth areas and that the organization is adapted for successfully competing in an expanding global biometrics market.
Our business involving capacitive fingerprint sensors for smartphones accounted for about 95 percent of our total sales in 2017. We are continuing to move the focal point of our investments towards new biometric markets, with the aim that new areas will account for about 10 percent of sales during 2018.
At the same time as we see considerable potential for our sensors in new areas of use, which will generate future growth, it will take time for us to achieve significant commercial volumes outside our core business of smartphones.
R&D investments with a focus on new, emerging biometrics markets
About 50 percent of our R&D investments is already connected to initiatives aimed at developing new biometric technologies and expanding in new promising application areas in various industries. Our development initiatives include both new applications for our existing technology and developing solutions based on new biometric modalities. I believe that the area offering the greatest potential in the years immediately ahead is the segment for biometric smart cards. Due to the size of the global market, combined with the benefits of implementing biometric authentication in the payment area, smart cards have all the prerequisites for developing into the next biometric mass market. Fingerprints is well positioned, and we continued during the quarter to establish new partnerships in various parts of the value chain. Fingerprints well-established partnerships with several of the largest card manufacturers, e.g. Idemia and Gemalto (via Zwipe). We also entered into cooperation with NXP Semiconductors during the quarter in connection with the breakthrough for this company's new contactless technology for fingerprints on cards.
Although it will take some time for us to achieve commercial volumes, there are distinct indications that the market for biometric cards is finally starting to gain momentum, such as a number of implemented and planned market tests. In early 2018, for example, we announced a collaboration with Visa in connection with the first market test of contact and contactless biometric charge cards in the US. These tests are a key feature of efforts to evaluate and qualify various systems for the next step in the process, meaning certification of the technical solution by the mega card brands. This will be a very important milestone and could mean that a completely new volume market is created for Fingerprints' biometric solutions.
We also see a tangible increase in interest in biometric solutions in a variety of other areas where secure and user-friendly authentication is important, not least in the automotive industry where biometrics, such as in the form of iris scanning, could contribute to delivering individual-adapted functionality that increases security and comfort. Our recently announced collaboration with Gentex, a leading supplier of equipment to the automotive industry, is based on ActiveIRIS®, our iris recognition technology. This is a concrete example of our strategy to broaden our biometric technology portfolio.
As we now enter 2018, we are downsizing our organization and continuing to realign the business towards new areas. Although I am aware that this will entail difficult changes for many of our co-workers, the adaptation is necessary if we are to defend our competitiveness. I would like to thank all of our employees for your hard work and dedication during a challenging 2017.
Christian Fredrikson, CEO
Today at 09:00 CET Fingerprints' CEO Christian Fredrikson will present the report together with CFO Hassan Tabrizi in a combined webcast and telephone conference. The presentation will be held in English.
The report will be available at https://corporate.fingerprints.com/en/financialinfo/financial-reports/
The webcast and the presentation material can be accessed through https://engage.vevent.com/rt/fingerprints/index.jsp?seid=118
For analysts and media: The telephone conference dial-in is +44 (0) 1452 560304 (international participants) or 08-506 921 86 (Swedish participants). Please state conference ID 7459118.
For information, please contact:
Christian Fredrikson, CEO
Hassan Tabrizi, CFO
This information is information that Fingerprint Cards AB is obliged to make public pursuant to the Securities Markets Act. The information was submitted for publication at 07:00 CET on February 9, 2018.
Fingerprint Cards AB, Fingerprints, with its Swedish roots, is the leading global biometrics company, whose mission is to spearhead the development of biometric interaction that facilitates the convenience and integrity of the individual. Its value is proven daily by users in millions of devices, through billions of touches, who are their own key - quite simply, with a human touch. Fingerprints develops biometric systems comprising sensors, algorithms, software and packaging technologies. The success is based on product development at the cutting edge of technology, which results in world-leading products in terms of security, convenience and performance. The current product range consists largely of fingerprint sensors and customers are primarily manufacturers of smartphones and tablets, where the company is market leading. As the use of biometric solutions increases, Fingerprints is working to broaden its offering by using different biometric techniques, or modalities, and to identify other market segments where the solutions can be used, such as smart cards, PCs, automotive and online devices (IoT). Fingerprints is listed on Nasdaq Stockholm (FING B).