Shift toward area sensors expands market but postpones several projects to 2014

Fingerprint Cards AB (publ), Corp. 556154-2381, (FPC),

Second quarter, 2013:

• Sales totaled SEK 20.6 M (0.6).
• Gross profit totaled SEK 8.6 M (loss: 3.1).
• The loss after financial items amounted to SEK 4.9 M (loss: 9.8).
• The gross margin was 42% (neg.)
• The loss per share totaled SEK 0.08 (loss: 0.22).
• Cash and cash equivalents at the end of the period amounted to SEK 148.2 M (36.1).
• The order backlog at end of Q2 was SEK 27.9 M (46.3).
• FPC received design wins (DW) for four new mobile phones and a tablet device from an existing, well-known customer in Asia.
• FPC won a smartphone DW from one of China’s three largest manufacturers.
• Fingerprint Cards became a new sponsorship member in the FIDO alliance.
• FPC won a DW for a flagship model from a global top-ten manufacturer.
• FPC opened its Asian regional office in Shanghai and recruited three new employees.
• FPC won a smartphone DW from one of China’s top ten manufacturers.
• FPC joined GlobalPlatform.
• FPC secured an initial order for 100,000 units of swipe silicon technology for the Japanese market.
• FPC opened an office in Lund and appointed a System and Software Development Manager
• FPC secured DW from a Chinese tier-2 smartphone brand.
• FPC appointed the US investment bank, Piper Jaffray, as financial advisor.
• FPC received a follow-up order for 275,000 sensors for the Japanese mobile market.
• FPC received a follow-up order for 455,000 sensors for the Asian mobile market.
• FPC engaged a Customer Support Director in the US.
• FPC affiliated with Mobile Heights, which promotes the mobile ecosystem in Southern Sweden.
• FPC and Microsoft showcased the touch sensor for Windows 8.1 at TechEd 2013.
  
  

Half-year, January – June, 2013:

• Sales totaled SEK 29.7 M (5.8).
• Gross profit totaled SEK 8.7 M (loss: 3.3).
• The loss after financial items amounted to SEK 16.9 M (loss: 18.8).
• The gross margin was 29% (neg.)
• The loss per share totaled SEK 0.33 (loss: 0.43).
• Cash and cash equivalents at the end of Q2 amounted to SEK 148.2 M (36.1).
• The order backlog at end of Q2 was SEK 27.9 M (46.3).

Notable events after the close of the reporting period:

• Updated forecast for 2013: Sales SEK 80 to 110 M and a loss made for the full-year 2013
  
  

*FPC’s definition of a Design Win (DW): The decision by a manufacturer to start developing one or more commercial products that will contain FPC’s technology as an integrated element of the manufacturer’s product(s).

For further information, contact: Johan Carlström, President and CEO, Fingerprint Cards AB (publ), +46 31-60 78 20, investrel@fingerprints.com

Fingerprint Cards AB (publ) discloses this information pursuant to the Swedish Securities Market Act (2007:528) and the Swedish Financial Instruments Trading Act (1991:980). This information was issued for publication on August 8, 2013 at 8:00 a.m.

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CEO’s comments: a robust and distinct trend toward touch sensors!

Microsoft presented Windows 8.1 at TechEd in New Orleans and expressed its strong support for and future focus on capacitive area sensors for log-ins, verification, security, convenience and secure mobile transactions. For all of its demos and presentations at TechEd, Microsoft exclusively used FPC’s prototype of its soon-to-be-released area sensor. At TechEd Europe in Madrid and at Build in San Francisco, an early prototype from a competitor was also presented, but most of the presentations and demos were implemented using FPC’s well-functioning prototype.

Microsoft’s vigorous support for a tiny area sensor and the persistent market rumors alleging that Apple will soon launch the iPhone 5S with a tiny capacitive touch sensor in the home button have led to several tier-1 OEMs reconsidering projects and contemplating a shift from swipe sensors to area sensors.  Naturally, this is tremendously satisfying for FPC, since capacitive touch sensors have constituted our core business and sustained us for the past eight years with a dominant share of the Chinese bank market.  We have interpreted Microsoft’s intentions as an indication that all Windows units are to enable log-ins using a touch sensor, which will also facilitate increased data integrity, security, upgrades and purchases of apps, etc.

We expect this development to pave the way for touch sensors to be integrated in several hundred million units from 2014 onwards and a new addressable market of USD +2 billion to subsequently open up. Our assessment is that capacitive touch sensors will be integrated in laptops, keyboards, pointing devices, tablets, smartphones and gaming consoles such as X-Box, as they become available for the Serial Peripheral Interface during 2014–2016. One negative consequence of the change in demand in this new emerging market is that earnings will be lower for FPC in 2013, since some projects, and thereby revenue, will be postponed until 2014.

In terms of the Android market, Microsoft’s determined stance on touch sensors and the vigorous and persistent rumors of Apple launching the iPhone 5S with a touch sensor in the home button have stirred the pot and certain manufacturers have reconsidered their earlier choices of swipe sensors and biometric track pads (BTPs) in favor of a touch sensor in future models, which is causing the postponement of several secured design wins to 2014. However, this will mean an increase in revenue by a factor of 6–8 for every mobile phone where a BTP is switched in favor of a touch sensor. We expect a handful of tier-1 OEMs to arrive at a decision on their preferred sensor type and supplier in the latter half of the year and to initiate projects that will be launched during 2014. We expect some of them to choose touch sensors for their flagship models and it is FPC’s ambition to be the most attractive technological partner to these tier-1 OEMs.

Based on the strong demand for projects in 2014, the Board of Directors has resolved to accelerate the recruitment of new staff for technological development and support, in Gothenburg and Southern Sweden, and internationally, in locations such as Korea, Taiwan, China and the US.

The second quarter can be summarized as the best in the company’s history, with the highest sales levels to date and the collaboration with Microsoft, which is cause for our highly positive outlook for the next few years.

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