Proving the Business Case for the Internet of Things

U-Blox sees Cat-M1 and NB-IoT slowdown

Steve Rogerson
August 29, 2018
 
U-Blox expects the remaining months of 2018 to see slower deployment of Cat-M1 and NB-IoT networks and shrinking business with key Chinese customers, announced the Swiss module company as it published its half-year results.
 
In the first half of 2018, it saw a strong growth in customer numbers and in the market for car connectivity devices such as telematics control units. At the same time, shrinking business with key Chinese customers as well as the delaying effect on its customers of their long lead times for receiving other components resulted in overall slow revenue growth of 2.6% compared with the same period in 2017, with consolidated revenues standing at CHF199m during the first half of 2018.
 
In Asia, there has been strong progress in wearables, in-car navigation, and aftermarket car electronics, and a slowdown in timing and shared devices. However, the overarching theme in the Asian markets was set by generally weaker business of many of its customers in China, also affected by trade war implications, which led to lower revenues than anticipated.
 
In the Americas, business activities in metering, medical devices, wearables and point-of-sale equipment were particularly strong, while fleet management showed a slowdown in the first half of 2018 due to delays in the adoption of the new Cat-M1 and NB-IoT networks.
 
“Our business in the EMEA region continues to impress with strong growth, driven by a constant flow of new projects in various markets going into mass production as well as strong progress in solar energy, telematics control units, automation, fleet management and road pricing,” said a company statement. “Europe in particular benefited from a notable upturn in demand for connected devices destined for the IoT, as well as good demand from the automotive sector, stimulated by the need for in-vehicle connectivity.”
 
The company said it had taken the necessary actions to respond strategically to the current environment. Above all, it changed the management structure in China and re-focused the sales team to cope with emerging application sectors. In all regions, it pursued a record number of new business opportunities, driven by general interest in the IoT.
 
In the first half of 2018, R&D expenses stood at CHF36.7m, or 18.5% of revenue. These figures compare with CHF32.0m and 16.5%, respectively, during the same period in 2017.
 
Designed to deliver sustainable, profitable growth across market cycles, the company’s strategy is founded on four discrete pillars: strengthening its market position; continuing technological development and innovation; operational performance; and strategic partnerships. Despite a challenging environment in some of its core markets during the first half of 2018, U-Blox said it made advances in all three of its key strategic areas.
 
For instance, strengthening its market and technology position, it partnered with digital security firm Kudelski Group to bring premium security to IoT devices. As the IoT takes hold across U-Blox’s key markets, the importance of dependable connectivity and location awareness is at an all-time high. The collaboration with Kudelski is taking advantage of this opportunity and should result in products and services that meet current and future needs.
 
The company’s strategy remains to provide a coherent range of products and services that are secure, easy to use and of high quality. It is also an on-going aim to increase the number of products that are built on its own silicon.
 
“In our portfolio, we saw good growth in the area of cellular and short-range products,” said the statement. “LTE modules performed very strongly across the first six months of 2018, and we have seen continued growth in sales for wifi modules. By contrast, sales of positioning chipsets have slowed.”
 
The company has launched various products so far this year. Highlights include the F9 technology platform, which delivers high precision positioning for mass market industrial and automotive applications; the UBX-P3 chip for vehicle to everything (V2X) wireless communications; and LTE Cat M1, designed for the needs of applications targeting IoT or M2M communications.
 
Due to his age, Fritz Fahrni, chairman of the board, chose not to stand for re-election as a board member at the AGM in April. In his stead, André Müller, member of the audit committee, was elected as new chairman. At the same meeting, Ulrich Looser was elected as non-executive director to join the board.
 
U-Blox expects the remaining months of 2018 to remain challenging due to the slower deployment of Cat-M1 and NB-IoT networks and the situation on the Chinese market. It is adopting a cautious but positive outlook for this period and remains confident that the fundamentals are in place for healthy future growth and bottom line results, and that it will meet the new guidance.
 
The company registered another increase in gross profit from CHF87.4m to CHF93.6m, with gross profit margin remaining at 47.0%. Operating profit (EBIT) was down from CHF29.5m to CHF28.5m as the company continued to expand its R&D capacity, representing an EBIT margin of 14.3% as guided, while the EBITDA margin stood at 20.1%.
 
There was a 39.3% increase in net profit, which increased from CHF18.0m in 2017 to CHF25.1m mainly due to foreign exchange impacts. Net cash flow from operations was CHF13.7m, which represented 6.9% of revenue. The balance sheet remained solid, with a healthy equity ratio of 62.0%.
 
“The company has focused relentlessly on increasing its continued growth potential with the announcement of two new core product platforms and several new modules,” said the statement. “Executing its time-tested strategy, U-Blox is in a strong position to benefit from continually growing markets, and a full pipeline of new product developments remains a firm indication of potential future growth.”
 
The first half of 2018 showed continued growth in U-Blox’s positioning and wireless products segment.
 
Consolidated revenues from chips and modules for positioning and wireless connectivity rose 2.6% from CHF193.8m in the first half of 2017 to CHF198.9m during the first half of 2018. Revenue growth was slightly negatively impacted by -0.5% foreign exchange decay. Wireless services including intra-group sales generated CHF16.1m in revenues compared with CHF12.3m for the same period last year.
 
During the first half of 2018, U-Blox reported an overall increase of revenues of 2.6%, with Asia-Pacific accounting for 33.1%, EMEA for 35.1% and the Americas for 30.7%. EMEA grew rapidly by 35.4% to CHF69.8m, revenues in Americas were stable with CHF61.1m and Asia-Pacific reported a 19.2% decline over first half year 2017 to CHF 65.9m. When compared with the second half of 2017, the growth rates amounted to 31.3% for EMEA, -17.6% for Americas and -16.2% for Asia-Pacific.
 
For 2018, U-Blox anticipates updated EBITDA of between CHF90m and CHF100m and EBIT of between CHF60m and CHF65m, based on revenue predictions of between CHF435m and CHF445m, with unchanged assumptions for foreign exchange rates. In the medium to long term, it expects continued growth.
 
US Cellular has certified U-Blox’s LTE Cat-M1 Sara-R410M module. The compact module offers developers of IoT devices and M2M communication systems a simple way to implement a low-power air interface.
 

 
Certification on US Cellular’s LTE Cat-M1 network should ease the process of enabling wide-area wireless connectivity.