Product category:
Embedded Software and Operating Systems
News Release from: Esmertec
Edited by the Electronicstalk Editorial
Team on 31 August 2006
Turnaround progresses according to plan
Esmertec has announced its financial results for the six months ended 30th June 2006.
Esmertec has announced its financial results for the six months ended 30th June 2006 Furthermore, the company has also revealed that Ruedi Noser, Chairman of the Noser Group, has accepted to stand as candidate for Chairman of Esmertec's Board of Directors
This article was originally published on Electronicstalk on 21 Aug 2002 at 8.00am (UK)
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Noser cofounded and built the Noser Group, of which Nexus Telecom is an integral part, and has over 20 years of experience in the telecommunications industry.
"In the past three months, we have accomplished our objective of securing nearly US $10 million in revenue and improved our operations to focus on our core market segments".
"We are seeing positive results from these measures and are confident that the turnaround will progress according to plan", commented Jean-Claude Martinez, Chief Executive Officer.
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"We also are pleased that Ruedi has agreed to be our Chairman candidate, and his election will take place at an Extraordinary Shareholders' Meeting planned for 23rd November 2006".
Esmertec's historical activity has been based primarily on the sale of the Jbed Java Virtual Machine and related products and services.
This is reflected in the Mobile and Multimedia Devices Segment and is comparable in scope to the historical results for the first half of 2005.
The Mobile Operator Segment reflects principally the results of Cellicium since its acquisition by Esmertec in February 2006.
H1 2006 revenues for the group totalled US $9.6 million, a decrease of 52% compared with H1 2005.
First half-year revenues of the Mobile and Multimedia Devices segment, which is comparable to Esmertec Group's revenues in 2005, totalled US $6.3 million, a 69% decrease from Esmertec Group revenues in H1 2005.
This decrease in the Mobile and Multimedia Devices segment reflects: a combination of market and customer-specific factors in H1 2006 which led to delays or reductions in committed volume contracts, deferral of revenue recognition on contracts with smaller customers, and that several large contracts included in H1 2005 revenues are not expected to be renewed before H2 2006 or 2007.
H1 2006 revenues for the newly formed Mobile Operator segment reflect Cellicium's sales since the acquisition in February 2006.
Gross margin for the consolidated business was 22.1% of revenues in H1 2006 compared with 68.8% in H1 2005.
Gross margin for the Mobile and Multimedia Device segment was slightly above break-even in H1 2006 due to a US $2.3 million loss on services, offsetting a US $2.3 million (89.2%) gross profit on licences.
The services loss was due primarily to cost overruns in executing customer projects in Japan and a number of evaluation services performed as part of pre-sales efforts.
Gross margin in the Mobile Operator Segment was 63.6%.
Total operating expenses in H1 2006 were US $36.3 million compared with US $15.2 million in H1 2005, reflecting the acquisition of Cellicium in February 2006, the full impact of the ramp-up of operations in China which were only partially felt in H1 2005, and the effects of bad debt expense, restructuring costs and noncash impairment losses on intangible assets.
Bad debt expense of US $0.9 million in H1 2006 (H1 2005: US $1.9 million) reflects a newly identified customer risk in the Americas as well as additional general provision for risk in Asia.
Issues related to certain Chinese customer transferred from CoreTek led Esmertec to negotiate a reduction of the final payment due to CoreTek during H1 2006.
The US $0.5 million payment reduction was recorded against goodwill on the balance sheet and had no impact on the statement of operations.
As a result of the significant decrease in H1 2006 revenues, Esmertec implemented a number of measures to adjust the company cost structure to reflect revised expectations.
The OSVM research centre in Denmark was closed, the Japanese sales and support operations were substantially reduced and a number of middle management positions were eliminated.
The cost of these measures was US $1.7 million.
Beginning in the fourth quarter of 2006, the full impact of savings of approximately US $2 million per quarter will be felt, a portion of which will be reflected as a reduction in cost of services.
The changes in expectations for revenues from existing products in the Mobile and Multimedia Devices segment, and the changes in group structure, also led to a reassessment of the continuing value of intangible assets.
Consequently, impairment losses have been recorded in H1 2006 related to OSVM (US $3.2 million) and Japan (US $9.3 million), as well as acquired and internally developed technology costs (US $3.1 million).
Net loss attributable to the equity holders of Esmertec of US $34.2 million (US $2.10 per share) for H1 2006 includes US $2.5 million of net financial expenses and a net tax benefit of US $1.4 million reflecting the effect of reversals of net deferred tax liabilities related to the impairment losses.
Net loss attributable to the equity holders of Esmertec in H1 2005 was US $1.9 million (US $0.18 per share).
Esmertec's cash and short-term investments position was US $25.3 million on 30th June 2006, decreasing from US $55 million on 31st December 2005.
This reduction reflects the US $11.8 million net cash outflow related to the acquisition of Cellicium, the final US $2.5 million payment for the acquisition of Coretek (China), US $1 million in investments in and loans to Javaground and ESLabs, and cash used in operations.
Cash collections from customers in H1 2006 totalled US $13.4 million, in excess of revenues due to collections on contracts executed and recognised in prior periods.
Intangibles assets increased from US $31.3 million on 31th December 2005 to US $40.0 million on 30th June 2006, reflecting intangible assets arising primarily from the acquisition of Cellicium (US $24.1 million) and ESLabs (US $0.3 million), offset by the US $15.6 million impairment.
Esmertec expects total revenue in the second half of 2006 to be significantly higher than in the first half of 2006.
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