France-based chip supplier Inside Secure today reported a sharp decline in its revenue in the first quarter from its NFC chips, blaming the situation on excess inventories of NFC chips on hand by its main customer BlackBerry.
Revenue in Inside’s Mobile NFC segment was only $4.5 million during the quarter, down by more than 60% from both the fourth quarter of 2012 and the same period last year. The chip supplier added that the situation is improving for the present quarter.
“BlackBerry and its subcontractors, the (Inside) group’s main customers for this business segment, largely drew on their existing component inventories in the period, rather than making new purchases from Inside Secure,” the chip supplier said in its quarterly sales report today. “The backlog for the second quarter of 2013, however, is showing growth.”
Inside said it also had some NFC revenue from other customers, such as from its contracts with Intel, which include a licensing deal. And Inside said it also supplied the first volumes of NFC microcontrollers to Intel for Ultrabooks laptops, but “revenue from new customers was not sufficient to make up” for the falling revenue from BlackBerry in the first quarter.
Inside is providing the NFC technology to BlackBerry for the device maker’s first BlackBerry 10 devices, the Z10 and Q10. BlackBerry introduced the new platform in January, following delays.
Both of the new BlackBerry 10 devices use an Inside SecuRead NFC chip, which comes stacked with an embedded secure element provided by Infineon Technologies. Inside’s own embedded secure element, the Vault SEcure IC, won’t be available for production until around the end of the year.
Inside has revised its strategy for NFC, which will move it away from emphasis on supply of its NFC modem chip. The strategy includes further developing and marketing its embedded secure element, pushing its NFC “booster” technology to give SIM cards a contactless interface and stepping up its licensing program for its NFC and related patents.
Inside still has not cracked the market for market-leading NFC-enabled Android devices, which NXP Semiconductors and U.S.-based Broadcom have been supplying to date.
Inside to Cut More Than 80 Jobs
Inside said last month, in announcing year-end 2012 results, that it would cut up to 20% of its workforce to stem losses, which topped $30 million for the year. All of that loss came in its NFC unit, which showed an operating decline of $30.5 million in 2012, up from a loss of $17.5 million the year before.
Inside had reported that sales in its mobile NFC segment fell by 10% for all of 2012 to $43.3 million, which the company blamed on a “strong decline” in mobile handset sales by Blackberry and postponement until (early) 2013 of the launch of devices running the BlackBerry 10 operating system. But mobile NFC revenue climbed during the fourth quarter from the third quarter.
Today, Inside provided a more precise figure on the number of job cuts of 85, including about 60 employees outside of France and the rest inside France. That would work out to 18.3% of the workforce for Inside, which last month had 465 employees globally, including 200 in France and 80 in the UK. French labor law makes carrying out layoffs more difficult than probably most of the other places in which Inside employs staff.
Payment Unit Shows Increase
Inside had better news in its other divisions, especially Secure Payment, in which sales had been dropping during at least the past two years. The unit mainly supplies chips for banking cards.
In the first quarter of 2013, Inside reported revenue of $10.7 million in the unit, which the vendor noted was the highest quarterly sales figure for the division in over two years. Sales in the unit were up by 37% from the same period a year ago.
Inside attributed the gains both to shipments of contact chips for the EMV market in Europe and contactless chip sales for the U.S. market.
Contactless chip shipments had been falling to card vendors serving U.S. banks, which are preparing for a move to more secure EMV cards. For 2012, Inside reported sales in the unit fell by 26% to $31.8 million.
The company said it hopes to use its historically strong position in the contactless chip market in the U.S. to win business for EMV cards for the migration by U.S. banks. That move could begin in late 2013, and could include demand for dual-interface EMV chips for banking cards, which support both contact and contactless transactions.
In its other divisions, Inside said sales in its Digital Security unit increased by 3% to $12.3 million from last year, driven by a national health card project in Italy.
Purchase Price for ESS Unit Tops $46 million
And Inside’s new Embedded Security Solutions unit, which it acquired from U.S.-based AuthenTec in December, brought in $7.5 million, which includes some revenue from Inside’s previous activities in the market segment.
The unit designs software and hardware products used for digital rights management, virtual private networks and other network security. Revenue in the unit increased by 6% from the first quarter of 2012, on a normalized basis–that is, including the revenue AuthenTec brought in with the unit last year. The revenue in the unit for the first quarter was up by 15% from the fourth quarter of 2012, Inside said.
Inside said it signed “several” new contracts for the unit during the first quarter, especially for digital rights management products. Inside earns licensing fees and royalties on these products.
And Inside has said in the past it could also add an NFC element to the unit's business, putting credentials on a secure element for use for enterprise security in NFC devices.
The company also released the final purchase price it paid AuthenTec for the Embedded Security Solutions unit: $46.3 million in cash. That’s above the preliminary price of $41.6 million. Inside had agreed to pay up to $5.2 million more for the business based on transactions completed by the end of March.