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Identive Reports Growing NFC Business; Blames Flat Sales, Losses, on U.S. Budget Cuts

U.S.-based Identive Group reported growing NFC and smart card reader business, but fell back into the red during for the first quarter, a loss it largely blamed on U.S. federal government budget cuts.

Identive, which released its first quarter 2013 financial results Thursday, reported revenue of $21.1 million, flat from the same period a year ago, and a net loss of $4.8 million. The company in early March had projected sales of $22 million to $24 million for the first quarter. 

CEO Ayman Ashour noted that the net loss was an improvement from a year ago, in which the company lost $6.2 million. The first quarter is generally the weakest for the company, the vendor added.

Thursday’s earnings report followed Identive’s first quarterly profit since at least 2008, with the vendor reporting a small gain of $177,000 for the fourth quarter of 2012. But that had included a $1.4 million income tax benefit for impairment charges earlier in the year.

Restructuring and cost-cutting measures initiated in June 2012 continued to help the company reduce operating expenses, said Ashour during a conference call with financial analysts. “We are turning the corner in our business,” he said, despite first quarter losses.

Identive’s shares traded down by just over 3% to $.95 per share on the Nasdaq stock exchange Thursday, following release of the results.

NFC Orders
Identive entered the second quarter of 2013 with an order backlog totaling $22 million, of which $19 million is scheduled for billing within the coming twelve months, said the company. “This is the highest order book we've ever had as Identive, and it comes from a far wider base of growth markets,” said Ashour. Of that backlog, he identified $5 million to $8 million as related to NFC.

Late last month, Identive announced that it had received orders for 4 million NFC tags. Three million NFC Forum Type 2 tags would go for use for a mobile-retail application in France, about which Identive declined to release details. Identive also said 800,000 of those tags would ship later in the second quarter. One million of Identive’s “Tag-on-Metal” stickers would go to the payment and banking rollout in Africa; all of these tags are scheduled to ship during the second quarter, said the company.

In remarks accompanying the release, Ashour said that the company’s “NFC business continues a strong growth trend.” Overall transponder sales, including but not limited to NFC, were up 17% year over year.

He cited machine-to-machine applications, especially electronic gaming, as a driver of that growth. Video games, such as Activision’s popular Skylanders series and its newer competitors Disney Infinity and Pokémon Rumble U, use NFC to incorporate real-world toys into the game. When players place the toys on an NFC reader build into a platform or portal, game software reads the chip and brings a digital version of the figure onto the video screen.

So far, Identive has declined to comment on whether it is supplying tags for any of these three titles.

A spokeswoman told NFC Times, “the use of NFC in electronic-game pieces is allowing far more people to actually have an experience using NFC. Although it is in more phones, there still aren't a lot of applications that the average consumer knows about or has a chance to use.”

Ashour also mentioned the company’s Tag-On-Metal stickers and other payment applications for NFC, as well as transit-ticketing and retail display applications, as important drivers of Identive’s business.

Rollouts on NFC Marketing Platform
The company announced that its tag campaign management platform, Tagtrail, saw its first commercial rollouts during the first quarter of 2013, but declined to release the names of the customers.

“We are not at liberty when it comes to naming customers, but you may have already tapped your phone into March Madness posters in American stores or various loyalty programs and posters in German movie theaters,” Ashour said during the conference call, referring on the first project to the annual college basketball tournament in the U.S.

An Identive spokeswoman later told NFC Times that their customer in the U.S. “ran a big campaign in March and currently has promo cards in their stores for a different campaign.”

“Our European MNO (mobile network operator) customer has put up NFC posters in German movie theaters as an extension to a popular free movie ticket loyalty program that they already were running–Tagtrail allows them make it mobile. The MNO is also mailing NFC cards to select customers to introduce them to a new e-wallet program the MNO is launching,” she told NFC Times. The unnamed mobile network operator reports that about 85% of customers who received the cards have tapped to download marketing information about the wallet.

Impact of Sequestration
During Thursday’s conference call, Ashour noted a 24% decline in the company’s access-control business, mostly due to project delays, which he blamed on sequestration or budget cuts by the U.S. government. Access control is one of the higher margin areas of Identive’s business.

“It was evidently not good to have our access control, being the most profitable area, down, but it was good to see that the impact was limited by improvements elsewhere,” Ashour said.

Ashour, however, described the sequestration’s impact as significant, since “broad budget cuts disrupted virtually all project activity,” and he said that the access-control portion of the company’s business continues to face uncertainty. “We don't see any project cancellations or contract losses; what we only see is disruptions and delays.”

Total business from the U.S. government, which is Identive’s largest customer, was $3.8 million during the first quarter of 2013. Ashour described this figure as “well below” the previous quarter and the preceding year.

Year Ahead
Identive is currently operating at close to 100% production capacity and “will continue to do so for the foreseeable future,” according to the company, and is seeking to increase capacity, Ashour said.

Identive expects revenue of $22 million to $26 million for the second quarter of 2013 and $105 million to $110 million for the full year. Identive had sales of $94.6 million in 2012.

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