SCM Microsystems Reports Third Quarter Results

SCMs continuing Security business is focused on enabling secure access to digital content and services through the digital television and PC platforms. Financial results for the digital media and video business are being treated as discontinued operations. Revenues from continuing operations in the third quarter of 2003 were $15.9 million, down 15% compared with revenues of $18.7 million in the third quarter of 2002. By product segment, third quarter 2003 revenues included $8.1 million from sales of Digital TV security modules, $5.1 million from sales of smart card readers and other products for PC and network security, and $2.7 million from sales of flash media reader technology. Please see attached tables for historical and year to date segment revenues. Gross margin from continuing operations in the third quarter of 2003 was 42%. Operating expenses for continuing operations for SCMs Security business in the third quarter of 2003, as reported in accordance with GAAP, were $7.4 million. This figure includes amortization of intangibles of $0.3 million and a $0.6 million credit for restructuring costs related to the Companys continuing Security business. Operating loss for the quarter was $(0.8) million, compared with operating loss of $(1.8) million in the year ago quarter. Net income from continuing operations for SCM?s Security business for the third quarter of 2003, as reported in accordance with GAAP, was $1.1 million, or $0.07 per share, compared with net loss of $(6.3) million, or $(0.40) per share in the third quarter of 2002. The third quarter 2003 figure included a net tax benefit of $1.5 million arising primarily from a tax refund received in the U.S. Loss from discontinued operations for SCMs consumer digital media and video business was $(10.0) million in the third quarter of 2003, and included $(5.9) million of loss on sale of discontinued operations and $(4.1) million of operational loss for the business in the third quarter. Business Highlights Business highlights of the third quarter include: - Strategic agreement with CANAL+ TECHNOLOGIES to sell and license the companys MEDIAGUARD digital TV conditional access software for use with SCM?s security modules; - SCMs selection by CanalDigitaal, a Dutch pay-TV operator, to provide removable security modules based on CANAL+TECHNOLOGIES MEDIAGUARD system; - Demonstration, with Samsung, of the OpenCable DOCSIS Set-Top Gateway, the first consumer system to satisfy two-way communications criteria for the Korean digital cable TV market; and - Qualification of SCMs OpenCable CableCard module using NDS VideoGuard conditional access. Nine-Month Results For the nine months ended September 30, 2003, revenues from continuing operations for the Companys Security business were $53.9 million, down 19% compared with revenues of $66.3 million for the first nine months of 2002. Net loss from continuing operation for the nine-month period, as reported in accordance with GAAP, was $(3.8) million, or $(0.25) per share, compared with net loss of $(3.6) million, or $(0.23) per share for the first nine months of 2002. Guidance For the fourth quarter of 2003, management estimates that revenues from its continuing Security business will be in the range of $14 million to $17 million, reflecting continued economic pressure in Europe and the U.S. and a lack of visibility into the timing of known digital security projects in the U.S. and Europe. Gross margin is expected to be between 39% and 42%. Within this range of revenue and gross margin, SCM expects to record an operating loss for its continuing Security business in the fourth quarter. For fiscal 2004, the Company expects first quarter revenues to increase modestly over fourth quarter 2003 levels, and that further increases will take place in the second quarter of 2004. Bas