Growing units sales, declining ASP
At one end the number of invoiced GPS modules and chipsets grew by approximately 37% during 2008, but at the other end the average selling price fell also sharply (see table below).
By the end of 2008, u-blox 5-based products made up 44% of the total volume and the older generation, ANTARIS 4-based products 53%, the rest coming from sales of accessory products.
In 2008, the company made about 80% of its revenue from sales to 62 customers. u-blox’ biggest customer accounted for less than 6% of the total sales turnover.
Improved margins on new products
In 2008 u-blox improved its gross profit margin from 36.4% to 42.7% on a year on year basis. The profit from operations (EBIT) rose from CHF 5.5 million ($4.8M) to CHF 8.4 million ($7.4M), up 52.3% from previous year. Net profit increased by 60.9% from CHF 5.4 million ($4.7M) to CHF 8.8 million ($7.7M), which represents a 11.8% net profit margin for 2008.
Declining cash flow from operation explained by inventory increase
In 2008, u-blox generated cash from operating activities in the amount of CHF 2.6 million ($2.3M) compared to CHF 16.7 million ($14.6M) in 2007.
“This decrease was mainly due to the strong increase in inventories in the amount of CHF 10.4 million and one-time payments for outlays in the context of the IPO in 2007 and the settlement of the CEVA claim. Due to the new production setup for u-blox 5 with an extended value-creation chain for the benefit of enlarged gross margins, our inventory level increased by work-in-progress material and additional finished products. Due to the slowdown in the market at the end of the fiscal year 2008 and additions to the product portfolio, inventory of finished products grew. u-blox does not expect an obsolete risk as all our products are standard off-the shelf products and continued demand will decrease these inventories”.
“Given the challenging economic environment the short term outlook cannot be foreseen” explained u-blox management in their press release. “However, actual business activities indicate that we will achieve similar business levels as in 2008. We plan to break even at sales of CHF 70 million for the GPS activities and at sales of CHF 6 million for the business of Neonseven” [a recently acquired wireless company]. With the recent addition of the wireless communication products we intend to double our sales and triple our profits by 2011.”
It seems u-blox’s strategy to concentrate on modules and niche markets is paying off; however, these markets are also very competitive as demonstrated by the decline in ASP.