Product category: Embedded Software and Operating Systems
News Release from: Esmertec
Edited by the Electronicstalk Editorial Team on 22 February 2007

Challenging year with
two different faces

Esmertec has published its results for the financial year ended 31st December 2006

The company's results are the outcome of two entirely different half years. After a sharp decrease in revenues in the first six months to US $9.3 million, business returned back on track in the second half of the year: revenues reached US $15.5 million resulting in total revenues of US $24.8 million for 2006, compared with US $39.2 million in 2005, in line with management's guidance.

Esmertec expects total revenues to be over US $34 million for the full year 2007.

During 2006, Esmertec's operational performance developed robustly with growth of customers' device shipments with Esmertec software to over 59 million in the year and the creation of a new mobile operator segment with the acquisition of Cellicium in February 2006.

Thanks to new contracts and follow-on orders from existing customers, the cumulated mobile subscriber base with access to Cellicium's USSD browsing continued to grow over 70 million from 34 million at the beginning of the year.

'2006 was a challenging year with two totally different faces'.

'While our financial performance mainly in the first half year was disappointing, we have delivered sustainable improvements in our operations', comments Jean-Claude Martinez, CEO of Esmertec.

'We have increased our efficiency by making Esmertec a more market driven organisation and by adjusting costs to better reflect our current market expectations'.

'Device shipments with Esmertec software consistently grew throughout the year'.

'Our new Mobile Operator segment developed favourably'.

'I am confident that measures initiated in 2006 with the market acceptance of our products and services will have strong impact on financial results going forward'.

For the reporting period ended 31st December 2006, total revenues decreased by 36.8% compared with the previous year to US $24.8 million.

With total revenues of US $15.5 million in the second half of 2006 performance was significantly better than in the first half with total revenues of US $9.3 million.

The sharp decline in revenues in the first half year of 2006 compared with 2005 resulted from a combination of market and customer-specific factors in the mobile and multimedia device segment, which led to delays or reductions in committed volume contracts.

In addition, the company was more cautious in its credit evaluations and decided to defer revenues from customers not able to demonstrate strong financial viability.

Gross margin for the year 2006 was 40.6% of revenues (H1: 18.9%; H2 53.5%) compared with 61.9% in the previous year.

Shortfalls in high-margin license revenues as well as first-half losses on services in the mobile and multimedia device segment affected the gross margin negatively.

In the service business, the gross margin in both segments was positive in the second half of the year, with a consolidated gross profit of US $2.3 million compared with a loss of US $2.0 million in the first half.

Operating expenses, excluding restructuring, amortisation and impairment expense, stayed relatively stable at US $31.0 million in 2006 compared with US $30.2 million in 2005.

If the effects of bad debt expense are excluded, operating expenses increased 14.8% to US $25.8 million mainly reflecting the acquisition of Cellicium in February 2006 and the full impact of the ramp-up of the Chinese operations in the second half of 2005.

In the course of the year, Esmertec introduced several cost and efficiency improvement measures, resulting in restructuring charges of US $2.7 million.

These measures took effect beginning in the third quarter of 2006.

As a result, operating expenses (excluding bad debt, amortisation and impairment expense) were US $3.0 million lower in the second half of 2006 compared with the first half of 2006.

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