Thin Film Electronics
Edison | May 21, 2015 06:34AM ET
Substantial orders now the key catalyst
Thin Film's (OSLO:THIN) launch of its OpenSense platform has been the key event of the quarter and the company is now firmly focused on sales of its three key product lines EAS, OpenSense and Smart Labels. Revenue is still predominantly driven by technology access and development fees and we therefore view the commercial milestones – such as the licensing agreement with Xerox (NYSE:XRX), launch of OpenSense, and demonstration of a 'smart bottle' in partnership with Diageo (LONDON:DGE) – as the key measures of progress. Announcements of substantial new product orders are now the key catalysts for growth.
Q115 financial results: Broadly in line
Sales revenue for the quarter was down 28% y-o-y, but we do not view this as a significant concern as it still comprises predominantly product development and technology access fees, which by their nature can be quite volatile. The 13m unit EAS order was received in Q4 was not ramped up until the end of Q1 and therefore did not contribute materially to the quarter. The net change in grants and other income explains the remainder of the $0.5m drop in revenue. Normalised operating costs were in line with forecasts at $7.1m, up 6% y-o-y as a result of an increased headcount to 94 and a higher level of production resulting in higher material costs.
Substantial interest reported in OpenSense
Since the launch of OpenSense at Mobile World Congress, management has reported significant customer interest in the product and has stated that its projected demand could exceed capacity soon after shipments start in Q3. It is therefore preparing to increase capacity through process improvements, which should enable production of up to one billion units per year. This is very encouraging, although announcements of substantial orders will be key to this opportunity being reflected in the share price.
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