Archos 2010 annual results Press Conference 18th March 2011

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Archos annual results and 2011 strategy presented at Press conference March 18th 2011
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2010 Annual Results

18 March 2011

This presentation and information included herein constitute a communication of a promotional nature and not a prospectus in the sense of the Directive 2003/71/CE of the European Parliament and Council dated 4 Nov 2003. This document cannot be considered as a public offering for subscription or an invitation to purchase the company’s shares. For further and more detailed financial information, please refer to the

company’s official press releases and documentation registered and approved by the French stock market authorities “Autorité des Marchés Financiers”.

1.2010 Results

P&L

Balance Sheet

Analysis

2011

2.Why ARCHOS will succeed in 2011?

3.ARCHOS, changing dimension

Winning turnaround

4 quarters in a row with double digit growth

2009: 1st year of Turnaround, ARCHOS back into MP3

2010: 2nd year of Turnaround, ARCHOS leader in Android tablets

Profit & Loss

2010 vs 2009

Consolidated Profit & Loss (in M€) 2010 2009 Var M€ Var %  
Revenue 83,3 57,9 25,4 44%  
Gross Margin 19,4 7,8 11,6 148%  
Gross Margin rate % 23,3% 13,5%      
           
Operating Expenses 19,2 18,7 0,5 2%  
Current Operating Income 0,2 -10,9 11,1    
           
Revenue: +44 % Fixed expenses are flat
Gross Margin: +10 points +11.1 M€ Current Operating Income
 

Profit & Loss by semester

2010 vs 2009

Consolidated Profit & Loss (in M€) S1 S1 Var   S2 S2 Var  
2010 2009 M€ 2010 2009 M€  
Revenue 30,5 27,7 2,8 52,8 30,2 22,6 + 75 %
Gross Margin 7,0 4,7 2,3 12,4 3,1 9,3  
Gross Margin rate % 23,0% 17,0%   23,5% 10,4%   + 12 pts
                 
Operating Expenses 8,8 9,1 -0,3 10,4 9,6 0,8  
Current Operating Income -1,8 -4,5 2,7 2,0 -6,5 8,5  

Strong improvement in S2 10 vs S2 09

+ 75% Revenue

+ 12 points Gross Margin

+ 8,5 M€ Current Operating Income

Net Result 2010

In M€ 2010  
Current Operating Income 0,2  
     
Non recurring expenses -0,4  
Echostar Loan Interests -1,0  
   
Other financial net expenses -0,9  
Taxes -0,2  
Net Consolidated Income -2,3  
  Other points of interest

Echostar loan: 5 M€ costs 1 M€/year interests

Deferred tax assets: 29 M€

Cumulated deferred taxes on Archos SA: 29 M€

Only 15 M€ activated to date

Cash variance

Net Cash Variance (M€) S2 2010 S1 2010
Net Cash initial 10,6 15,7
R&D Investment -1,0 -1,9
Working Capital Requirement -1,9 -6,8
Others1 -0,1 3,6
Cash end of period 7,5 10,6
Total Cash Variance -3,0 -5,1
1 Including capital increase of 6 M€ in S1 2010    

S2 2010: +75 % growth in revenue BUT only 2 M€ used in Working Capital Requirement

Outcome of turnaround strategy

Product portfolio well balanced across price points

In-house <100€ 100€ - 200€ 200€ - 300€ >300€
Partnership
       
         
Vision        
MP3 Players        
         
Android WiFi        
Players        
         
Android Home        
Tablets        
         
Android        
Internet        
Tablets        
         
Windows        
Tablets        
         
S2 2010 25% 30% 30% 15%
Turnover (%)
       
         

Why has P&L improved?

Sales

1st to address the market of Windows Tablets

– Sep 09: Archos 9 PC Tablet

1st to address the market of Android Tablets

– Sep 09: Archos 5 Internet Tablet

Diversified in three market segments

– 50 references: Android tablets, MP3 players, WiFi players

Well-balanced product portfolio

– 25% < 100€, 100€ < 30% < 200€, 200€ < 30% < 300€, 15% > 300€

New distribution channels opened with entry-level tablets

– Auchan, Carrefour, Sears, Kmart, Tesco, Asda…

Why has P&L improved ?

Gross Margin

Full-turnkey business model with manufacturing partners

ARCHOS no longer purchases any components

Optimized supply chain, reduced working capital

Just-in-time delivery, fast stock rotation

Reduced risk of inventory obsolescence

7 manufacturing partners yielding flexibility & diversity

– Flexibility in production capacity

7 manufacturing partners yielding cost optimization

ARCHOS monitors and controls every detail of partners’ BOM* cost

Comparing BOM* costs amongst partners yields cost reduction

*BOM: Bill of Material (FR: nomenclature des composants)

Tablets: the fastest ramping mobile device

ARCHOS & ARNOVA market positioning

    2011 Tentative Tablet Market Profile (M units)
               
30              
18 M units in 2010          
           
25 50 M units in 2011*   25(50%)      
         
             
20              
  3 B€          
15            
             
             
10              
8 (15%)   8 (15%)        
           
    5 (10%)     5 (10%)    
5            
             
0 < 200€ 200€-300€ 300€-400€ 400€-600€ > 600€ Retail Price  
   
               

ARNOVA tablets in the 100€-200€ retail price range

ARCHOS tablets in the 200€-400€ retail price range

* IBC: 44M, Gartner: 55M, Morgan Stanley: 55M

2011 Current business trend

Turnover Q1 2011 higher than Q4 2010

Turnover Q4 2010: 36 M€

– traditionally Q4 is by far the highest quarter in the year

Turnover Q1 2011 should be higher than Q4 2010

No signs of slowdown in Q2 2011

Tentative Business Model

What if ARCHOS had 5% market share of tablets under 400€

2011       Gross Margin   OPEX         EBIT
Net Sales       37 M€       25 M€         12 M€
                     
                     
160 M€       23%         17%         7.5%
                             
2012       Gross Margin   OPEX         EBIT
Net Sales       60 M€       35 M€         25 M€
                     
                     
260 M€   23%         15%         9.5%
                             

Worldwide tablet market: 2010: 18 M, 2011: 50 M, 2012: 80 M* Estimated value of market for tablets < 400€ retail price: 3 B€

Note: the above does not constitute a forecast but merely an evaluation of business model based on ARCHOS taking a 5% market share in the market of tablets below 400€ retail price including VAT

*2011 forecast by: IDC:44M, Gartner:55M, Morgan Stanley: 55M and 83M in 2012

1.2010 Results

2.Why ARCHOS will succeed in 2011?

1.First mover advantage

2.Innovation

3.Key technology differentiators

4.Unique Franco-Chinese engineering model

3.ARCHOS, changing dimension

1- First mover advantage

ARCHOS in 2010, 3rd generation of tablets

2008 2009 2010
5” & 7” Archos’ OS 5” Android & 9” Windows 7” & 10” Android

Still few contenders in tablet market one year after 1st iPad

Apple iPad, Motorola Xoom, ARCHOS Internet Tablet, Samsung Galaxy Tab

Hundreds of other tablets have been released but none has managed yet to make a dent in this new market: Dell,Toshiba, Huawei, LG, HP…

In MP3 market, only first movers have succeeded

Apple, Creative, ARCHOS, iRiver, Samsung, Philips were present at start 10 years ago

Many others have failed afterwards: Thomson, Sandisk, Dell, Microsoft…

Microsoft has spent $B’s in 4 generations of Zune, just thrown in the sponge

In GPS market, only first movers have succeeded

– TomTom & Garmin were there at the beginning

In Smartphone market, only first movers have succeeded

Apple, HTC, Samsung, LG, RIM were there at the beginning

Nokia, Sony now striving hard

All others, gone with the wind…

2- Innovation

4 disruptive technologies in 10 years

2000 2003 2005 2009
1st HD-based MP3 player 1st Video Player 1st WiFi MID 1st Android Tablet

ARCHOS has constantly renewed itself through innovation

Reputable long-standing R&D team based in France, Germany and China

R&D team recognized by technology leaders: TI, Google, Qualcomm…

ARCHOS continues to innovate

In tablets: Generation 9 released in June 2011

In consumer electronics: more gadgets to come in 2011

Unlike PC’s, tablet technology is by no means stabilized

Innovation capability will remain key to success in years to come

PC manufacturers may not be the best players at this game

3- Key technology differentiators

4 key differentiators in Gen 9 tablets to be released in June 2011

Plastic-overmolded stainless steel structure

Thinner, lighter and stronger tablet enclosure

Better cost-effectiveness than competing solutions

Patented techno used since Gen 7 in 2009

ARCHOS alone to use Hard Disks in tablets

Deep redesign of Android low-level software layers to support HD’s

ARCHOS has a long experience in using HD’s for mobile devices

Price: 250 GB HD = 32 GB Flash Memory

ARCHOS 1st to use ARM Dual Core A9 @ 1.6 GHz

Forefront competition limited to ARM Dual Core A9 @ 1GHz (iPad 2, Xoom…)

All Gen 9 tablets targeted at 1.6 GHz

New disruptive 3G modem solution for tablets

Will allow ARCHOS to make headway into telcos

Implemented in all Gen 9 tablets

Patent pending

4- Unique Franco-Chinese engineering model

ARCHOS leverages its R&D to make a diversity of entry-level tablets

Most innovative developments: IN-HOUSE ARCHOS Tablets  
INDUSTRIAL ARCHITECTURE HARDWARE SOFTWARE MANUFACTURING QUALITY CONTROL
  DESIGN DEVELOPMENT DEVELOPMENT
   
       
Other developments: PARTNERSHIP ARNOVA Tablets    
INDUSTRIAL ARCHITECTURE HARDWARE SOFTWARE MANUFACTURING QUALITY CONTROL
  DESIGN DEVELOPMENT DEVELOPMENT
       

Entry-level ARNOVA tablets

ARCHOS’ R&D leverages what it does best:

Industrial design, product architecture, user interface and applications

Chinese Industrial Partner concentrates on what it does best:

Product development, cost-effective procurement and manufacturing

With 4 manufacturing partners for tablets, ARCHOS can:

Make a diversity of tablets to address all segments of entry-level market:

3 ARNOVA tablets today 6 more to come in the Summer

ARNOVA tablets or White-Label tablets for OEM market:

Emerging markets, Retailers’ brands, Vertical professional niches

4- Unique Franco-Chinese engineering model

ARCHOS has the best economical equation to make tablets

Most innovative developments: IN-HOUSE ARCHOS Tablets  
INDUSTRIAL ARCHITECTURE HARDWARE SOFTWARE MANUFACTURING QUALITY CONTROL
  DESIGN DEVELOPMENT DEVELOPMENT
   
       
Other developments: PARTNERSHIP ARNOVA Tablets    
INDUSTRIAL ARCHITECTURE HARDWARE SOFTWARE MANUFACTURING QUALITY CONTROL
  DESIGN DEVELOPMENT DEVELOPMENT
       

4 manufacturing partners for tablets yield cost optimization:

ARCHOS controls every detail of partners’ tablet BOM cost

Comparing BOM costs amongst partners yields cost effectiveness

Cost reductions learned from partners are used in ARCHOS’ products

ARCHOS optimizes BOM costs across partners

ARCHOS can offer the best value for money because:

ARNOVA & White-Label entry-level tablets have the best economical equation

ARCHOS branded tablets inherit the lessons learned from partners

1.2010 Results

2.Why ARCHOS will succeed in 2011?

3.ARCHOS, changing dimension

ARCHOS, changing dimension

ARCHOS, en route to reach critical size of 200 M€ turnover

      - High-end tablets
        $200€ to $400€
      - MP3 & WiFi players
     
                 
              White-label
               
                Retailer’s brand
- Entry-level tablets         - Entry-level tablets
             
  $99€ to $199€           $99€ to $199€
               
        Innovation
           
           
        Brand
        Cost-effectiveness
                 
                BtoB  
                 
  TELCOS              
        - Education
           
- ARCHOS tablets       - Health
- Disruptive 3G modem solution       - Security
            - Industry
         
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