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ARC International plc Announces Unaudited Preliminary Results For the Six Months Ended 30 June 2006ARC Gaining Market Share Over Competition Driven By Increases in Revenue, Royalties, Bookings, and License Agreements ELSTREE, England, 2 August 2006 – ARC International (LSE: ARK), the world leader in configurable multimedia subsystems and CPU/DSP processor cores, today announced its unaudited financial results for the six months ended 30 June 2006. Highlights from the First Half of 2006 (Compared to 1H 2005):
Commenting on the company’s performance, Carl Schlachte, president and chief executive officer, said, “During the first half of 2006, the company delivered a good financial performance by closing the highest number of contracts in the company’s recent history and aggressively selling our newest configurable subsystems and processors. ARC has a strong foundation that will support the company’s continued growth into the future. For the second half of 2006, ARC will focus on winning more tier 1 licensees while making strategic investments to boost our ongoing sales and marketing efforts in key regions. We are optimistic about the prospects for the company and confident about trading in the second half of this year.” Commenting on the financial results, Victor Young, chief financial officer, said, “We are seeing increased opportunities and new business fuelled by our multimedia subsystems, as evidenced by the increase in backlog and sales pipeline. Costs were slightly ahead of plan, due to higher sales commissions related to the increase in revenues in Asia, increase in professional fees, and other investments made in growing ARC’s subsystem offerings. Bookings in Asia increased by approximately four times compared to the same period a year ago. We look for continued revenue growth in the second half of 2006.” Statement from the President and Chief Executive Officer Overview During the first half of 2006 ARC delivered a good financial performance and strengthened its position as the leader in configurable processor technology. The results were driven by twenty new processor license agreements for ARC’s patented subsystems and cores that will be designed into a range of high-growth applications. ARC’s licensee base now stands at 127 OEM and semiconductor companies – many industry leaders. Our newest products continue to sell well and command higher per-agreement prices. Today the ARC™ 600 and 700 core families and ARC Media Subsystems contributed approximately 95 percent of total processor licence revenue, which completes the shift in revenue away from lower value legacy products that the management team set out to achieve starting in 2004. In 2006 the configurable ARC Video and ARC Sound Advanced Subsystems were introduced and licensed by companies for chips going into next-generation consumer devices. ARC launched ConfigCon™, a worldwide developers conference series designed to educate the semiconductor industry on configurable processor technology and increase the adoption of our configurable solutions. The first event in Taiwan surpassed expectations, with almost 400 attendees and close to 20 companies participating in the event. Licensee Adoption of Configurability ARC’s patented configurable subsystems and processors help companies developing semiconductor chips to gain a competitive advantage by enabling the creation of highly differentiated, lower cost products. These are reasons why industry analysts forecast that chips based upon configurable solutions will grow more than five times faster than chips using “fixed architecture” alternatives. ARC is leading this trend and helping accelerate the adoption of configurability globally. During the first six months of 2006, companies that announced they took licenses for an ARC configurable subsystem or core included:
ARC’s Configurable Multimedia Subsystems ARC is the only company to provide configurable subsystems specifically designed to meet the requirements of multimedia applications. The ARC Media Subsystem family offers a range of audio, video, and imaging solutions as a single integrated, configurable platform. Each ARC Media Subsystem includes the necessary hardware, software, and development tools needed to complete an ARC-Based design and get to market quickly.
Expansion in Asia Asia represents one of the fastest growing markets for ARC’s patented configurable subsystems and processors. Throughout 2006, ARC strengthened its position in this region through strategic sales and marketing investments, and design wins with industry leaders and high-growth start-up companies. As a result, revenue from companies in Asia represented close to 30 percent of revenue for the first half, a record high and up from less than five percent in the same period of 2005. Companies in Asia that announced they have taken licenses for ARC’s solutions during the first six months of 2006 included:
Investing for ARC’s Future To help drive future growth in ARC’s licensing business, the company is making strategic investments that will foster continued expansion of our licensee base and provide new, high value configurable solutions that complement our existing patented subsystems and processors.
Outlook for the Second Half of 2006 The management team is pleased with ARC’s results for the first half of 2006. The company delivered a good financial performance, increased its licensee base, and continued to experience rapid adoption of our patented configurable subsystems and processors. ARC has a strong financial foundation that will support the company’s continued growth into the future. For the second half of 2006, ARC will focus on winning more tier 1 licensees while making strategic investments to boost our ongoing sales and marketing efforts in key regions. We are optimistic about the prospects for the company and confident about trading in the second half of this year. CHIEF FINANCIAL OFFICER’S REVIEWSix months ended 30 June 2006 Revenue Total revenue in 1H 2006 was £6.0 million, up 10% over the same period last year (1H 2005: £5.4 million). Prior to currency translation, with virtually all sales in US dollars, revenue was up 6%. License and engineering income was up 2% at £3.5 million (1H 2005: £3.4 million). Maintenance and service income was up 15% at £1.0 million (1H 2005: £0.8 million). Royalty income increased 32% to £1.5 million (1H 2005: £1.2 million). Royalty income in 1H 2005 includes an advance non-refundable payment which represented 46% of the total royalties for the period. Sales in Europe were 18% of total sales, North America 55% and Asia 27%. From a product line perspective, 80% of revenue was from the SoC products with the remaining 20% delivered by the embedded software products. Costs Cost of sales of £0.9 million increased 26% year over year (1H 2005: £0.7 million). Gross margin decreased slightly to 85% (1H 2005: 87%). Net operating expenses including cost of sales increased by 5% to £9.1 million (1H 2005: £8.7 million). The company had 123 employees at 30 June 2006 compared with 129 at 30 June 2005. Research and development costs were flat year-over-year at £3.2 million (1H 2005: £3.2 million). Sales and marketing costs increased 30% to £2.7 million (1H 2005: £2.1 million). General and administration costs were flat year-over-year at £1.6 million (1H 2005: £1.6 million). Interest Interest income was down 8% year over year at £0.7 million (1H 2005: £0.8 million) due to a lower cash balance, and a decrease in the average interest rate on investments. Net loss Net loss was £1.7 million (1H 2005: £1.4 million). Loss per share increased to 1.17p (1H 2005: 0.97p). Cash flow and balance sheet The net cash outflow from operations was £1.0 million (1H 2005: £2.6 million). Capital expenditure was £0.4 million (1H 2005: £0.4 million). The movement in cash and short-term investments during the six months was an inflow of £0.2 million (1H 2005: outflow of £0.5 million). Total assets at 30 June 2006 were £36.3 million (1H 2005: £39.2 million), including cash and short-term investments of £32.2 million (1H 2005: £33.0 million). Dividend No interim dividend payment will be made for the six months ended 30 June 2006 (1H 2005: £Nil). FINANCIAL TABLES Click here to read financial tables
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