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Shareholder letter

Dear Shareholders,

We are a company built on innovation.

Innovation has driven our growth in the 21 years since we founded the business.  Innovation has made us a leading technology company in satellite-based positioning receivers and wireless communication.

Innovation – which distinguishes leaders from followers – is a long-term business, and the adoption of new technology seldom happens in the blink of an eye. For example, our wireless chips and modules in the industrial and automotive markets have a 5-10 year product life-cycle.  At u‑blox, we invest in innovation for the long term, as we did in 2018 with over CHF 100 million. 

This longer-term view of our business and target markets gives us the confidence that we will see a return to growth in all regions in 2019 and, in the longer term, substantial returns on our investment in research and development.

Market conditions were not favorable for our business in 2018 and this certainly impacted our business.  In the Americas, revenues declined slightly due to initial slow migration to LTE.  However, we are already now seeing this trend reverse.  In the Asian markets we were negatively impacted by the US-China trade tensions and some application sectors shrinking. Nevertheless, we grew our business in the infrastructure, in‑car navigation, and after‑market car electronics sectors. On the positive side, EMEA has grown an impressive 21% in 2018 and we expect that strong trend to continue.

Customers continued to endorse our long term, innovation-oriented vision in 2018.  Some prominent examples include: Leica Geosystems chose our products to provide reliable cable-free instrumentation for its geodetic devices used in construction environments; Xirgo Technologies, a leading provider of tracking solutions, is embedding global 3G module and GNSS chips from u‑blox in its products; HMS chose u‑blox to enable industrial machines and device communication;  and Bosch announced it would use our technology at the core of its new vehicle motion and positioning sensor (VMPS) – one of the first GNSS inertial positioning systems for highly automated driving.

Four pillars of our strategy

To always better serve our customers the four pillars of our strategy are: 1) focus on the key markets essential for growth, 2) create market‑leading technology and innovation to lead in those markets, 3) achieve operational excellence, and 4) create partnerships and pursue acquisitions. We are pleased to say we have achieved substantial progress in all four areas in 2018.

Market position: focusing on the markets with the greatest long-term growth potential.

Autonomous driving, mobility, and unmanned vehicles need robust, reliable, and safe connectivity and positioning technologies.  We have developed a comprehensive offering to service the enormous growth potential of autonomous vehicles, and entered into several partnership with leading players in this industry. New product launches this year have strengthened our position in this space. Both the UBX-P3 V2X communication and the F9 high-precision positioning chips and modules were very well received by customers. The F9 platform is compatible with correctional data services, such as the service we are bringing to market with Bosch, Geo++, and Mitsubishi Electric through the Sapcorda joint venture. All of this combines to give customers a one-stop shop for their accurate and robust location-awareness and connectivity solutions, which are critical to semi- and fully autonomous vehicles.

In parallel with this push for greater vehicle autonomy, government clean-air initiatives are accelerating the development of electric vehicles (EVs). This specific market sector includes many new automakers who are looking to innovate fast and insource key elements of the design process, including on-board electronics.

u‑blox is perfectly positioned to partner with these EV manufacturers, providing the products, services, and engineering support to help them execute their rapid design cycles. We have already achieved significant traction in this highly attractive market.

Industrial markets are also a key focus, where the need for communication and positioning technologies continues to grow. The high-precision localization offered by the F9 modules is as important in this market as it is in automotive. On the communications side, our newly launched SARA-R412, the smallest multi-mode LTE-M and NB-IoT device on the market, enables robust and low-power long-range links between the growing number of remote, mobile assets world-wide.

Technology and innovation: expanding our products and services portfolio while taking greater control.

Our strategy to increase the number of products using our own silicon continues to bear fruit. The UBX-P3 is the industry’s smallest and most versatile V2X communication chip for active safety and autonomous driving technologies and is the latest addition to this growing family of chipsets, which now covers our three main product areas of positioning, cellular, and short-range communication.

The strategic drive to use our own silicon means we have greater control over our supply chain and enables the offering of targeted value-added features, notably security.

We also continue to invest in combination products that help our customers get their own solutions to market more quickly. Evaluation kits bring together short-range and high-precision positioning capabilities, enabling faster, integrated, and more straightforward prototyping.

Strong investments were also made for expanding production technology with extended test capabilities and facilities, and lots of efforts went into miniaturization of our products.

Operational excellence: We continue to drive efficiencies in everything we do.

We are close to the100-million-units-shipped-per-year mark, therefore maintaining high levels of efficiency and resilience across our business is a key strategic focus. This means increasing our supply chain robustness to reduce risk and costs, and ensuring that we maintain and improve our logistical performance. This work is paying dividends. In 2017, an impressive 98% of orders reached our customers on the confirmed delivery date. In 2018, we achieved 99%, further reinforcing our reputation as a truly dependable partner for our clients.

Strategic partnerships and acquisitions: We accelerate our growth through acquisitions and alliances.

We continue to scan the market for the right opportunities to acquire other businesses or partner with specialists who add real value to u‑blox. In 2018 we further invested in the Sapcorda joint venture with Bosch, Geo++ and Mitsubishi Electric, to prepare our commercial correction data service for market. In addition, our newly announced alliance with Kudelski Group to provide premium-grade security for the IoT is another example of a strategic partnership that adds real value for our customers.

2018 financial highlights

In 2018 our revenues were broadly in line with our latest guidance at CHF 393.3 million, with EBIT of CHF 48.3 million, and EBITDA of CHF 71.6 million.  We saw growth in all countries we operate in throughout Europe, the Middle East and Africa (EMEA), and throughout the Asia Pacific region, except China.

In EMEA business was very strong in 2018, with 21% revenue growth.  This was driven by the need for connected devices destined for the Internet of Things (IoT) in infrastructure and telematics, as well as an increasing demand from the automotive sector, stimulated by the need for in‑vehicle connectivity. 

Revenues in the Americas declined slightly by 6% as some customers were delaying the migration to LTE based connectivity due to changing specifications and due to carriers not equipping their infrastructure in a timely manner. However, in the last quarter we saw a good increase of sales in LTE‑M and NB‑IoT modems and we expect this trend to continue. Although tracking applications declined, other industrial markets continue to grow strongly and the automotive sector maintains attractive growth, thus giving us confidence for overall revenue growth in 2019.  

We saw a short‑term decline in revenue in APAC (13%), largely due to market regulation influencing some consumer applications in China and the impact of the China‑US trade tensions. While these factors impacted the first half of the year sales, business rebounded in the second half with growth in the infrastructure, in‑car navigation, and after‑market car electronics sectors.  Looking into 2019, we see several indications of renewed growth in the APAC region, namely: 1) strong technology momentum in China, boosted by increased investment in technology, 2) increased demand for consumer applications, and 3) growth in industrial IoT, with China accounting for about one quarter of the IoT market globally, and Japan, Korea, and Taiwan already showing increasing demand for industrial IoT and automotive solutions.

Future outlook

We are convinced that the Internet of Things will change every aspect of our societies, our businesses, and our everyday lives. A quarter of a billion connected cars will be delivered between 2019 – 2023. Industry 4.0 is happening and it is expected that there will be more than 2 billion connected devices in 20231).  Infrastructure is becoming smarter.  There will be approximately 1 billion smart meters installed between 2019 – 20232).  Over half a billion sports and wellness trackers will be sold in the next 5 years (2019 –2023)3).

These strong market growth drivers substantiate our strategy to develop reliable and innovative positioning and wireless communication solutions that securely connect vehicles, industries, things, and millions of people around the world.

To do so, we continue to invest in innovation. In 2018 we invested over CHF 100 million in R&D, with 703 engineers in 14 research and development centers globally.  Currently 6 new chip platforms are in the development pipeline to drive profitable business growth.

More technological capabilities open new application possibilities and innovation at our IP core will assure continued margin expansion. Our targeted investments in future technologies ensure growth and certainty.

New standards will expand application possibilities.  For example, 5G defines higher performance requirements.  Bluetooth and Wi‑Fi standards expansion will allow the capillary Industry Internet of Things, bridging the cellular and short range radio worlds. New GNSS satellite signals will offer higher availability and precision.

Our product initiatives are at the forefront of these important industrial megatrends.  We continue to convince leading customers with our technology and innovation leadership, and our technology platform provides the basis to deliver resilient value‑added services.  Further, our product diversification by applications and geography assure stability in growth. We are confident our innovation will deliver results. Revenue target for 2019 is CHF 460 to 490 million, with an EBITDA of CHF 70 to 90 million and EBIT of CHF 30 to 45 million.

1) BI Intelligence 2018
2) ABI research 2018
3) TSR 2018

Board of Directors

2019 will see some changes in the Board of Directors. Prof. Dr. Gerhard Tröster and Dr. Paul Van Iseghem will retire and therefore not stand for re‑election at the upcoming Annual General Assembly on April 25, 2019. Both have been instrumental over many years in the development of the company: Prof. Dr. Gerhard Tröster as founding professor since u‑blox was spun off from the ETH, and Dr. Paul van Iseghem as Vice‑Chairman since 2011.

The board will propose the election of the following candidates as non‑executive director on the Board of Directors of u‑blox Holding AG: Dr. Annette Rinck and Markus Borchert. As previously announced, Daniel Ammann, member of the Executive Committee and responsible for the Positioning and Short‑Range Radio product centers, will leave u‑blox at the end of March 2019 and the Executive Committee was reorganized to combine all product centers in one group, which will be headed by Andreas Thiel. Mr. Thiel is member of the Executive Committee, as well as being a co‑founder of u‑blox, and is currently responsible for the Cellular product center and the center for integrated circuits.

Finally, a word of thanks

On behalf of the Board of Directors and Executive Committee, we would like to take this opportunity to thank all our employees. Your talent and commitment are what make u‑blox the successful company we are today. We would also like to extend our thanks to you, our shareholders, for your continuing trust and confidence in u‑blox.

Lastly, we would like to thank all our customers, suppliers and manufacturing partners.

Together, we will make 2019 a new year of growth and innovation!

Yours faithfully,

Thomas Seiler Roland Jud Andre Müller
CEO CFO Chairman