January 31, 2005
-- TTP Communications plc (LSE: TTC) today announces a trading update for the six months to 31March 2005 relating to its subsidiaries TTP Com Limited (‘TTPCom’) and ip.access Limited (‘ip.access’).
In announcing our interim results on 26 October 2004, we indicated that in the second half of the year we anticipated sales in TTPCom Limited – our IP licensing business- would continue to grow, but at a slower rate. This reflected our expectation that the strong rate of new business wins in the first half would slow due to the lumpy nature of our business and the fact that we had started to see signs of a tightening market place in China.
Conditions in the Chinese market continue to be tough as the actions taken by the government in China dampen demand and as Western OEMs recover market share that had been eroded over the previous two years by the indigenous handset manufacturers. These factors have resulted in pricing pressures, particularly at the lower end of the market, a low level of new licensing activity in 2G and pressure on royalty rates. Unit shipments from some of our Chinese licensees have been lower than expected as market shares taken up by the domestic manufacturers have continued to reduce and certain of our newer licensees have delayed the launch of products.
Having now completed Q3 and with a better view of the level of business that we expect to achieve during Q4, it is now clear that these trends have had a greater impact in the 2H than was envisaged when we announced our interim results. The net impact of these factors will mean that we expect sales revenues for the year ended 31March 2005 at TTPCom to be around £58m and operating profits to be between £4.4m and £5.4m. Compared with last year, we expect sales revenues to be approximately 23% higher.
Taking a medium term view, however, the outlook for TTPCom continues to be very positive:
It is clear that as a result of the progress made during the latter part of the year by our larger licensees, and by LG in particular, we now expect that the total number of handsets sold in 2004, powered by our technology, will be 40m+, up from the 20m+ last year and the 30m+ that we expected at the start of the year;
The announcement today of a strategic alliance with ARM to design and build the next generation of 3G silicon platforms incorporating ARM processor and TTPCom cellular baseband technology will considerably improve the prospects for our 3G Macro and will enable us to offer it across ARM’s large base of licensees;
It is clear from our discussions in recent months with tier 1 handset manufacturers and leading silicon vendors, that there is considerable interest in our applications platform –AJAR, and that it meets a real need. We expect to convert that interest into contracts with at least one major player in the next six months.
At ip.access, although shipments to T-Mobile Inc will recommence as planned during Q4, it is clear that sales revenues for the year are now likely to be between £3.0m and £4.0m as the delays in moving from successful trial through contract completion to volume roll out continue to have an adverse impact on short term revenue growth. This will result in an operating loss for the year at ip.access of between £4.5m and £5.2m.
The company is experiencing real interest in new 3G and low cost basestations, for which it needs to increase R&D expenditure to more rapidly achieve success with future products. The board has therefore reviewed the situation at ip.access and has concluded that it is in the best long term interests of the company, and TTP Communications’ shareholders to seek a strategic or private equity investor. Strata Technology Partners, a specialist in technology investments, has been engaged to progress discussions with prospective partners.
While we are disappointed that a combination of near-term factors will have a greater than originally anticipated impact on 2H performance, we remain confident in the longer-term outlook for the underlying business. The presence of our technology in a growing proportion of global handsets and the traction we are seeing with our newly developed technology give us confidence in the strength of our business model.
We look forward to providing more information on developments when we announce full year results in May this year