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u-blox sees LTE Cat-M1 and NB-IoT slowdown, stock market quivers

Wireless module supplier u-blox has reported that it expects slower deployments of LTE Cat-M1 and Cat-NB1 in the second half of 2018, and a loss of business from its Chinese customers. This has triggered a sharp fall in its share price, which seems out of step with its financial results and warnings – where net profit stood at 25.1mn CHF, or 12.61%, and up 39.3%.

In the half-year results, it reported revenue growth of just 2.6%, compared to H1 2017, bringing revenue to 199mn CHF. It points to the long lead times for other components that its customers have faced as a source of this slow growth, as well as the shrinking business with large Chinese firms, as the main cause of this.

It says it is adopting a ‘cautious but positive outlook,’ and has revamped its Chinese strategy to refocus on emerging applications. u-blox claims to have responded strategically to these developments, but it’s still posting promising results – and investing in R&D, spending 18.5% of revenue on it.

But the stock market is not showing its appreciation – where apparently any reduction in guidance is enough to cause a sell-off. u-blox’s share price was 189.40 CHF back in May, reaching a peak of 213.60 CHF in June before settling back down to the May level. However, by mid-August it had dropped to 179.50 CHF, before the earnings announcement on August 24th saw it drop sharply to 147.60 CHF, with the shares currently worth 140.30 CHF – just 0.30 CHF off the 52-week low. To date, u-blox is down 22.07% in the Riot 50, and after the earnings announcement, its share price fell 18%.

By comparison, its competitors that are tracked have had a mixed bag. Telit is up 6.89% through the same period, and Sierra Wireless is up 3.29%. Sequans is down 3.49%, Skyworks is down 7.03%, and Sunsea Telecommunications is down 24.6% – the worst performer. When viewed as part of the Semiconductor segment, the Wireless Module sector is on trend – as Semiconductors are down just over 5% as a whole.

But u-blox’s fall is still concerning. This is a small company addressing a market need that will rise in the future, but which the stock market appears to hold a dim view of. Gross profit margin was 47% at 93.6mn CHF, and while operating profit fell 3.5% to 28.5mn CHF compared to H1 2017, the warning about slight guidance reductions was enough to cause that 18% dive.

The reduction in guidance seems quite slight. In its 2017 annual presentation, u-blox charted 2018 revenue targets of between 460mn and 475mn CHF, aiming for an operating profit of between 65mn and 70mn CHF. In this H1 announcement, those have been revised down to 435mn to 445mn CHF, and 60mn to 65mn CHF, respectively – or down 5.75% and 8.33%. As such, it is likely that u-blox will recover in the coming quarter, but this performance highlights the difficulties in being a small publicly listed IoT specialist.

In terms of geographic differences in its business, globally, u-blox said that it saw strong growth in the number of customers, and that the market for car connectivity devices, such as telematics units, grew well. In its Asian dealings, u-blox said it achieved strong progress in wearables, in-car navigation, and aftermarket car electronics, but saw a slowdown in timing and shared devices. It said that the overarching theme of its Asian markets was weaker business, affected by a looming trade war with Trump.

The EMEA region apparently continued to impress with strong growth, driven “by a constant flow of new projects in various markets going into mass production,” with Europe clocking a “notable upturn in demand for connected devices destined for the IoT.”

The Americas, meanwhile, the notable segments were metering, medical devices, wearables, and point-of-sale devices, but u-blox said that fleet management had slowed in H1 due to delays in LTE Cat-M1 and NB-IoT adoption.

As for how the regions represent revenue, APAC was 33.1% in H1 2018, with EMEA on 35.1%, and the Americas at 30.7%. u-blox said EMEA had grown some 35.4%, but this was offset by the decline in APAC.

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