Business News
SCM Microsystems Reports Second Quarter 2008 Results
Tuesday 12. August 2008 - SCM Microsystems, Inc. (NASDAQ:SCMM)(NASDAQ:Prime)(NASDAQ:Standard:)(NASDAQ:SMY), a leading provider of solutions that open the Digital World, today announced results for the second quarter ended June 30, 2008.
Revenues from continuing operations in the second quarter of 2008 were $6.5 million, up 40% from revenues of $4.6 million in the second quarter of 2007. Revenues for the first six months of 2008 were $13.0 million, down slightly from revenues of $13.1 million for the first six months of 2007. By product segment, second quarter 2008 revenues included $4.9 million from sales of smart card readers and other products for secure network and physical access, compared with sales of $3.9 million in the second quarter of 2007; and $1.6 million from sales of original equipment manufacturer (OEM) digital media reader technology, compared with sales of $0.8 million in the second quarter of 2007.
In the second quarter of 2008, sales of the Company’s smart card reader products continued to be impacted by weak demand from U.S. government-based smart card authentication programs. Additionally, demand continued to shift away from external reader devices towards readers embedded within laptops and keyboards. Lower U.S. sales of SCM’s smart card readers were offset by higher sales in Asia of interface chips for embedded readers, as well as strong sales in Europe of smart card readers, which were balanced across the enterprise, government and small business markets and distributed among several countries. Sales of CHIPDRIVE(R) business productivity solutions were once again strong in the quarter, and SCM’s new contactless readers comprised a significant proportion of smart card reader sales.
“There were many signs in the second quarter that our strategy to diversify and expand our customer base is beginning to yield good results,” said Felix Marx, chief executive officer of SCM Microsystems. “Increases in both sales levels and the number of customers in Europe indicate the success of our efforts to expand sales of our CHIPDRIVE productivity solutions into new geographic markets, and the effectiveness of market development activities in the enterprise and e-government sectors.”
Gross margin in the second quarter of 2008 was 43%, compared with gross margin of 29% in the second quarter of 2007. The increase in gross margin compared with the prior year primarily reflects higher revenue levels in the 2008 period, a more favorable mix of higher margin products, including CHIPDRIVE solutions, and product cost reductions.
Operating expenses in the second quarter of 2008, as reported in accordance with GAAP, were $5.1 million, including $0.2 million in severance costs, compared with $5.4 million in the second quarter of 2007, which included amortization of intangibles of $0.1 million and severance and other costs of $1.4 million related to the resignation of the Company’s former CEO in June 2007. Higher base operating expenses in the second quarter of 2008 primarily reflect the recent investment in new sales resources in Latin America, Asia, Europe and the U.S. to support the Company’s strategy to diversify and expand its sales base, as well as increased spending on new product development.
Operating loss for the second quarter of 2008, as reported in accordance with GAAP, was $(2.3) million, compared with operating loss of $(4.1) million in the year ago quarter.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter of 2008 was $(2.1) million, compared with EBITDA of $(3.9) million in the second quarter of 2007. (See reconciliation of EBITDA to GAAP accounting contained within this press release.)
As reported in accordance with GAAP, loss from continuing operations in the second quarter of 2008 was $(2.0) million, or $(0.13) per share, compared with loss from continuing operations of $(3.7) million, or $(0.23) per share, in the second quarter of 2007.
Cash, cash equivalents and short-term investments at June 30, 2008 were $28.0 million, compared with $28.7 million at March 31, 2008.
Strategic Update
“In May, we announced our strategy to target the worldwide financial services and enterprise markets with new contactless reader products,” said Marx. “Contactless technology is changing the way people travel, work, and perform everyday transactions such as purchasing goods and services. SCM has a unique opportunity to establish itself as a significant provider of contactless devices for emerging applications, with our strong background in security, a talented and experienced team and an innovative vision. We have already delivered our first contactless reader, which in only one quarter has begun to generate significant sales. We are encouraged by our progress and remain focused on developing additional contactless solutions and building the sales and marketing capabilities to generate high margin, sustainable growth.”
Guidance for 2008
For the second half of 2008, the Company expects to achieve revenue growth between 10% and 27% compared to the second half of 2007. Taken together with sales for the first half of 2008, the Company therefore expects to achieve revenue growth of 5% to 15% for the year as a whole, which would result in total revenues of $32 million to $35 million for the full year. In May 2008, the Company previously announced expected revenue growth of 25-35% and revenue of $38 million to $40 million for the year as a whole. The decrease in expected revenue compared with the guidance given in May is primarily due to weaker demand and the faster than expected shift to embedded smart card readers in the U.S. government market. The Company’s projections of revenue growth are based on the release of new products currently being prepared for release, under development or recently released, which are forecast to begin generating increased sales in the second half of 2008. The Company further expects base operating expenses of approximately $20 million to $21 million in 2008, including anticipated further investments in sales and marketing resources and in new product development to address growth initiatives. Within these ranges, the Company currently expects to record operating and net loss from continuing operations for the full year, rather than the announced expectation in May 2008 to record operating and net profit for the full year.