1Q Report January 1-March 31, 2007 for SwitchCore AB (publ) Corporate
Identity Number 56541-8869
Summary
* The Group's sales for 1Q totaled SEK 8.1 million (17.2), as
budgeted. Sales calculated in USD amounted to 1.2 million (2.2).
* Orders received between January and March 2007 exceeded billing
and amounted to SEK 8.4 million (27,6).
* The Group's operating loss for the period totaled SEK -8,8
million (-12.9). Loss after taxes amounted to SEK -8,8 million
(-12.8). The loss per share totaled SEK -0,01 (-0.02).
* Cash at hand stands at SEK 57,2 million (193.9).
* Development of SwitchCore's third product generation, Xpeedium3
is progressing according to plan which means that the two main
products will be developed by the end of the year.
* R&D activities for Xpeedium 3 reached its peak during the first
quarter 2007. Consequently, the number of consultants working in
the R&D department will drop gradually starting the second
quarter which will lower the company's costs going forward.
* SwitchCore's sales dropped considerably in 2006 due to the
phase-out of older products and pending income from Xpeedium 3.
As previously announced, the company believes that lower income
levels will persist throughout 2007.
* SwitchCore has been in continous discussions with financial and
industrial entities exploring possible partnership to strengthens
the company capacity to to develop products and to broadening
SwitchCore's range of products. As recently announced, these
discussions have entered a more intensive phase and the company
has engaged external advisors for the process. The outcome of
these discussions will have a decisive impact in the expected
success of Xpeedium 3 and the company as a whole.
General information about the business:
SwitchCore AB develops, markets and sells integrated network devices
for data, voice and video communication based on the Ethernet
standard. The core of SwitchCore's expertise is in its CXE
technology, which allows for significantly higher network product
capacity. Using SwitchCore's components, customers can develop
network products that cost-efficiently manage and prioritize data,
video and voice traffic for many demanding applications. Customers
and partners are network equipment manufacturers and suppliers,
including Intel, Allied Telesyn, Huawei/3Com, Alloptic, Corecess,
Dasan, Radisys and World Wide Packets. The Group presently has about
66 employees and some 40 consultants involved in the company's
Xpeedium3 development activities up until the end of April 2007. All
development activities will be conducted in house starting May 2007.
SwitchCore's headquarters is in Lund, Sweden. The Company also has
offices in San Jose, USA, as well as Singapore and Shanghai in Asia
and Rotterdam in Europe. The Company is listed on OMX Nordic Exchange
in Stockholm under Smaller Companies under the SCOR ticker. For more
information visit http://www.switchcore.com/
Footnote: The figures in parenthesis (xx) correspond to the figures
for the same period last year.
Comments by the CEO"The lower sales figures reported for the first quarter 2007 are
fully in line with our budget. Many of our customers have reached the
end of their product lifecycle using the first generation of
SwitchCore's products and the second generation has not reached the
level we originally predicted. Orders booked between January and
March 2007 exceeded the quarter's billing and totaled SEK 8.4
million."Our operating loss of SEK 8,8 million is also on par with budget
with unchanged high gross margin. Starting the second quarter, we
will reduce the number of consultants as the products within the
Xpeedium3 family are being completed. This will lower costs going
forward . High R&D costs and lower sales figures have had a negative
impact on the first quarter's cash flow."Very intensive R&D activities related to Xpeedium3 characterized the
first quarter. This work is progressing according to plan and we
expect that the first products in the Xpeedium3 family will be
completed by the end of 2007".
Sales and results for the period
* The Group's net sales for the period amounted to SEK 8,1 million
(17.2). Billing in USD reached 1,2 million (2.2). OEM sales to
Intel made up 7 percent (27) of the total sales. SwitchCore
complies with IAS1 as of January 1, 2005. This means the Group
will separately account for capitalized development costs among
the Group's earnings, in total SEK 27,6 million (14.8). The sum
is not included in the above net sales.
* The gross profit margin for the period was 53 percent (53).
* The Group's operating loss was SEK -8,8 million (-12.9). A total
of SEK 0 million (5.9) for R&D costs brought forward were
depreciated in 1Q.
* Since all billing is in USD, and since much of the Group's
operating expenses are in USD, net exposure in net operating
income is marginal.
* The loss after tax was SEK -8,8 million (-12.8).
* Loss per share totaled SEK -0,01 (-0.02).
Financing and liquidity
Stockholders' equity stood at SEK 181,6 million (256.6) on March 31,
2007 and equity per share was SEK 0,29 (0.41).
Cash flow for current operations during the first quarter was SEK
-39,2 million.
Liquid funds at the end of the period totaled SEK 57,2 million
(193.9). The company has a utilized credit facility of USD 0,8
million (0.8). Liquidity has been negatively affected by the decline
in 1Q sales and heavy investments in Xpeedium3.
Capital stock amounts to SEK 123 880 039 with the number of stock
totaling 619 400 196.
Parent company
* The parent company's sales during the first quarter amounted to
SEK 8,1 million (17.2).
* The parent company's loss after net income/expense was SEK -8,8
million (0.4).
The market
SwitchCore's products address applications based on the Gigabit
Ethernet standard, a communication technology that is ten times
faster than its predecessor, Fast Ethernet. Underlying growth
potential for the Gigabit Ethernet market is large but falling prices
prevent the market from increasing in value. The next connection rate
is 10 Gigabit Ethernet, which is expected to gain momentum in
2008/2009. This leads SwitchCore to predict sound growth for the next
generation products.
SwitchCore has joined Metro Ethernet Forum, a consortium of system
and component vendors and industry experts whose mission is to
accelerate Worldwide Adoption of Carrier class Ethernet Networks and
Services. SwitchCore will play a key role in the advancement of Metro
Ethernet standards with its expertise in developing Ethernet Switch
technology for enterprise, metro and access networks. SwitchCore will
partner with other Forum members to demonstrate advanced applications
for Metro Ethernet Networks.
Sales
SwitchCore's customer segments consist of companies that develop
advanced network equipment (network switches) for enterprise and
access networks based on the Ethernet standard. Products developed by
SwitchCore's customers cost-effectively manage and prioritize data,
video and voice traffic for many different applications. The company
estimates that there are about 500 potential customers for its
products, concentrated to North America and Asia (mainly China, Korea
and Japan). The European market is expected to evolve at the same
rate as the demand for access networks grows.
SwitchCore has about 115 design wins and some 65 customers by the end
of 1Q. A design win is when a customer decides to develop a switch or
router based on SwitchCore's CXE products.
SwitchCore is looking for partners to promote the sales of both
present-day and next generation products. The company has excellent
experience of this type of partnership through is longstanding,
successful relationship with Intel. The task of finding a partner to
promote sales of the Xpeedium2 family, as well as the pending
Xpeedium3 product generation is in progress. Our partnership with
Fujitsu Microelectronic Europe is a result of these efforts. The
reference design was completed and launched at the German Nürnberg
Trade show in mid-February 2007, according to plan.
North America
Original Equipment Manufacturing (OEM) sales to Intel answered for
about 7% of SwitchCore's total sales. Based on Intel's forecasts, the
company finds that Intel's demands for SwitchCore's devices will
continue also in 2007, albeit at lower volumes. Other major North
American customers include Alloptic, Allied Telesyn, Calix, and
Radisys.
North America is an important market for SwitchCore and represented
about 60 % of total sales during the first quarter.
Asia
The Chinese company Huawei and customers on the Korean market are
presently at the end of the Xpeedium product lifecycle which means
that sales are declining. During the first quarter the Asian market
represented about 30 % of total sales.
Europe and Africa
The market in Europe and Africa is important to SwitchCores Xpeedium
2 and Xpeedium2pro and this product family represents most of the
design wins in Europe. During the first quarter these markets
represented about 7 % of total sales.
Products
Xpeedium is the common name for SwitchCore's products and the first
generation of products answers for most of our sales today. The OEM
contract with Intel includes the Xpeedium products. The company
expects there will be a market for this product family up until 2010.
Xpeedium2 and Xpeedium2Pro are the second generation product family
from SwitchCore in full production. This product family has not
advanced as the company expected, SwitchCore has some 15 design wins
with this product family, which is unchanged compared to previous
quarter. Our partnership with Fujitsu Microelectronic Europe
comprises this product and is progressing according to plan, the
reference design that resulted from thos cooperation was launched at
the Nürnberg Trade Show mid-February 2007.
SwitchCore is now developing its third-generation product family,
Xpeedium3. Xpeedium3 consists of a number of Systems on Silicon for
advanced next-generation enterprise and access network systems. The
new architecture solution allows faster data transfer and integrates
many functions. SwitchCore's technology enables customers to
cost-efficiently develop a complete product range from a basic
platform. SwitchCore completed the first stage of the process - the
design of a Network Search Engine (NSE) - at the start of 2007. The
product will be marketed to several selected customers.
Xpeedium3 is designed to attract more market segments than
SwitchCore's products do today, making it easier to grow on the total
switching device market. Xpeedium3 follows the original time
schedule.
Organization and employees
The SwitchCore organization consists of a parent company, SwitchCore
AB, first-tier subsidiaries SwitchCore Options AB, SwitchCore
Singapore Private Limited, SwitchCore Intellectual Property AB, Eroc
Technology AB, SwitchCore Taiwan AB (dormant) and SwitchCore in
Stockholm AB (dormant), and the second-tier subsidiary SwitchCore
Corporation (a wholly-owned subsidiary of SwitchCore Options AB).
At the close of the period, the distribution of the Group's employees
was as follows:
The Group had 66 (51) employees of whom 59 (45) in Sweden and the
rest in Europe, 5 (4) in the US and 2 (2) in Asia. Of the employees,
18 (20) percent are female and 82 (80) percent are male. The average
age is 40 (38) years.
Anders Widesjö has been engaged by SwitchCore as CFO and will be a
member of the company's management group. He previously worked for
several large and small Swedish companies..
Investments
The Group's investments in tangible fixed assets totaled SEK 0
million (0,5), of which SEK 0 million (0.5) was in the parent
company. In addition, investments have been reported in capitalized
development costs for a total of SEK 27,6 million (14.8) of which
about 26% consists of personnel and the remaining portion is external
costs such as consultancy, tools and licenses. Previously capitalized
expenses were depreciated by SEK 0 million (5.9). In total, the
change in capitalized development costs is SEK 27,6 million (8.9).
These investments all relate to Xpeedium3.
Patents
SwitchCore's patent strategy is built on creating a patent portfolio
where the most important parts of the CXE technology are protected.
The functions of future products are earmarked at an early stage for
possible patenting. In total SwitchCore owns 14 patented inventions
spread over 31 registrations; 7 in Sweden, 11 in the US, 2 in Taiwan,
2 in China and 9 in other countries. At present, 1 patent
application has been submitted for review, 1 in the USA.
Outlook
SwitchCore's sales dropped considerably in 2006 and the company
believes that the weak demand will continue in 2007. The company is
actively working to develop partnerships with industrial and
financial partners to accelerate growth.
SwitchCore's stock
The company's stocks are quoted on OMX Nordic Exchange in Stockholm.
The average daily turnover of stocks for the January 1-March 31, 2007
period was SEK 1 889 268. During the same period, the average number
of traded stocks was 5 639 569 per day. The total number of stocks in
the company at the end of the period was 619 400 196.
Annual General Meeting
As previously announced, the Board found it prudent to postpone the
2007 Annual General Meeting in light of ongoing discussions with
potential industrial partners. The Annual General Meeting, originally
scheduled for May 2, will instead be held on Thursday, June 14. The
invitation to attend the Annual General Meeting will be distributed
to the company's stockholders around May 15, 2007.
Reports 2007
2Q Report January 1-June 30, 2007
July 19, 2007
3Q Report January 1-September 30, 2007 October
18, 2007
Financial statement January 1-December 31, 2007 January
24, 2008
Annual General Meeting June 14,
2007
Accounting principles
This interim report was prepared according to the IFRS and is the
seventh financial report that SwitchCore presents in line with the
IFRS, meaning that the report complies with IAS 34. The conversion to
IFRS had no effect on SwitchCore. However, there are some areas where
IFRS will have an influence on the Group's income statement and
balance sheet as of January 1, 2005:
Reporting and evaluation of Financial Instruments (IAS 32 and IAS
39):
In accordance with IAS 39, all derivative instruments such as futures
are to be reported in the balance sheet and evaluated at actual
value. Since SwitchCore did not have any futures or other financial
instruments on January 1, 2005 the impact of the opening balances was
zero according to IAS 39. IAS 39 did not have any impact on the
closing balance.
Translation of foreign companies accounts (IAS 21):
All businesses abroad are classified as integrated, i.e. they have
the same functional currency as the parent company. They have
therefore been translated using the monetary method. Translation
differences are reported in the consolidated statements.
Stock Option Plan (IFRS 2):
The parent company has issued stock options. The programs were issued
before November 7, 2002 and are therefore not affected by IFRS 2.
The Annual General Meeting held on May 4, 2006 resolved to introduce
a stock option plan valid from 2006-2010. The plan has had a marginal
effect on SwitchCore's earnings and position presented in this
report.
The same accounting principles and calculation methods used in the
most recent Annual Report have been used in this report.
Lund, Sweden April 19, 2007
Erwin Leichtle, Chief Executive Officer and President, SwitchCore AB
(publ)
The report has not been subject to review by the company's auditors.
The entire report, including tables, can be downloaded at:
http://reports.huginonline.com/xxxx
For more information:
SwitchCore will hold a phone conference for media and financial
analysts today, April 19, 2007 at 10 a.m. A presentation is available
at www.switchcore.com
Phone: + 46 8 672 81 50
Register code SwitchCore
Or contact:
Erwin Leichtle, CEO SwitchCore
Email: erwin.leichtle@switchcore.com
Mobile: +46 703 389300
Anders Widesjö, CFO
Email: anders.widesjo@switchcore.com
Mobile: +46 702 68 7000
SwitchCore AB (publ): Investment rate in Xpeedium 3 stays high 1Q sales on par with budget
| Source: SwitchCore AB
Attachments
