FREMONT, Germany, Aug. 5, 2004 (PRIMEZONE) -- SCM Microsystems, Inc. (Nasdaq:SCMM) (Prime Standard: SMY), a leading provider of solutions that open the Digital World, today announced results for its second quarter ended June 30, 2004.
SCM's reported financial performance for the 2004 second quarter reflects continuing operations for the Company's Security business only, as SCM sold its retail Dazzle(TM)-branded digital media and video business in July of 2003. SCM's continuing Security business is focused on enabling secure access to digital content and services through the digital television and PC platforms. Financial results for the retail digital media and video business are being treated as discontinued operations.
Second Quarter Results
Revenues from continuing operations in the second quarter of 2004 were $11.5 million, as communicated by SCM in a preliminary press release on July 9, 2004. This represents a decrease of 40% from revenues of $19.3 million in the second quarter of 2003. By product segment, second quarter 2004 revenues included $4.4 million from sales of digital TV security modules for pay-TV broadcast decryption, $4.3 million from sales of smart card readers and other products for PC and network security, and $2.8 million from sales of OEM digital flash media reader technology.
Sales of digital TV modules to the Company's traditional small-operator customer base declined sharply in the quarter, due to aggressive competition from non-licensed products. In addition, the Company experienced delays in launching and deploying new digital TV products, which had been expected to generate significant revenue in the second quarter. Gross margin from continuing operations in the second quarter of 2004 was 15% and included the writedown of approximately $2.9 million in inventory for the Company's digital TV products. Without the writedown, gross margin for the second quarter would have been 40%, within the range of management guidance of 40% to 42% for the quarter.
Operating expenses for continuing operations in the second quarter of 2004, as reported in accordance with GAAP, were $8.9 million. This figure includes amortization of intangibles of $0.3 million and a credit to restructuring and other charges of $0.1 million, which resulted from tax adjustments to other charges taken in 2003. Operating loss for the quarter was $(7.2) million. This compares with operating loss of $(4.2) million in the year ago quarter, which included amortization of intangibles of $0.3 million and restructuring and other charges of $2.1 million.
Net loss from continuing operations for SCM's Security business for the second quarter of 2004, as reported in accordance with GAAP, was $(6.9) million, or $(0.44) per diluted share, compared with net loss of $(5.0) million, or $(0.33) per diluted share in the second quarter of 2003.
Robert Schneider, chief executive officer of SCM Microsystems commented, "The rapid deterioration of our traditional digital TV business in the second quarter created a significant gap between revenues and expenses. To address this gap and to position the Company for profitability, SCM's management has adopted a strategy to lower expenses by approximately 25% over the next six months. To accomplish this, we intend to reduce headcount-related costs by 20% to 25% and are evaluating additional areas for reduction throughout all functions of the organization."
"After careful consideration, SCM's management has determined that our best strategy for revenue growth is continued investment in new products and technologies to address the evolving needs of our current markets," continued Schneider. "SCM holds a unique position in the Digital TV, PC Security and Flash Media Interface markets. We are a trusted partner to conditional access providers who will implement the next generation of digital television technology. We have strong relationships with government integrators and banking institutions who are at the forefront of digital authentication based on smart cards. We have many years experience in developing, manufacturing and implementing security solutions for our customers around the world. We believe we can leverage our market leading position with next generation secure access products to address new market opportunities and drive revenue growth."
Guidance
For the third quarter of 2004, management estimates that revenues from its Security business will be in the range of $8 million to $12 million, reflecting continued pressure on sales of Digital TV products in Europe and a lack of visibility into the timing of anticipated digital security projects. Gross margin is expected to be between 38% and 41%. Within this range of revenue and gross margin, SCM expects to record an operating loss for its Security business in the third quarter of 2004.
Conference Call
SCM will hold a conference call and webcast on August 5, 2004 at 8:30 AM Eastern Time to discuss the results of its 2004 second quarter. The webcast can be accessed through the Company's investor relations site at www.scmmicro.com/ir_en/index.html.
Results from continuing operations (in US-Dollar)
Q2/2004 Q2/2003 Q1-Q2/2004 Q1-Q2/2003
Revenue/Umsatz $11.511.000 $19.331.000 $24.741.000 $38.053.000
EBIT (7.223.000) (4.182.000) (11.111.000) (4.694.000)
EBT (6.849.000) (4.919.000) (10.338.000) (4.709.000)
Net loss $(6.859.000) $(5.034.000) $(10.464.000) $(4.930.000)