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Shareholder letter

Dear Shareholders,

Leadership requires vision, the ability to plan for the long‑term and to successfully navigate operations during challenging conditions.

Despite the industry and macro‑economic forces that created headwinds in our business this year, we maintained steady operations, generating CHF 385.1 million in revenue and improved gross profit margin from 2018.

We remained focused on the driving force of our business – a world and a future that will undoubtedly be one defined by connectivity, location, and communication.

In 2019, we continued to bring to market leading products in positioning and wireless communication, such as the SARA‑R5 cellular LTE chipset and module series, a high performing dead‑reckoning module that caters to the automotive market’s need for high‑precision positioning, and our new next generation M9 positioning chipset and modules catering to the demanding automotive and high‑end telematics applications.  We grew our wireless services business which will be a source of recurring revenue and further diversify our revenue stream.  We acquired the Bluetooth business of Rigado, expanding our customer base, distribution relationships and our team of engineers.

In short, we remained resolute on taking the steps that will continue to position u‑blox as a leader in our industry and in our vision of the future. 

In 2019, we experienced adverse market conditions particularly in EMEA and the Americas which impacted our business in those regions.  Ongoing global trade tensions and geopolitical uncertainty created an overall negative sentiment across the EMEA region.  Bright spots in EMEA were noticeable growth in new niche markets such as micro‑mobility and sustainability applications, which include solar converters and electric charging vehicles.  In the Americas, with the delayed readiness of the LTE Cat M network, adoption occurred at a slower than anticipated pace, although we saw acceleration of LTE sales in the second half of 2019.  Offsetting sluggish activity in these two regions, our business in Asia rebounded, with strong performance in China driven by growth in technology for infrastructure, industrial IoT and automotive end markets.  These long‑term secular trends are very positive for u‑blox and its long‑term prospects for the region.


Four pillars of our strategy


The four pillars of our strategy keep us focused as we position the company for the long‑term.  The four pillars are:

  1. further develop leadership in our markets,
  2. strengthen our product portfolio to meet current and forecast trends,
  3. achieve operational excellence, thereby driving efficiencies for customers, and
  4. pursue external opportunities that augment our own capabilities and intellectual property.  

Below is the progress we have made in achieving these initiatives in 2019.

Market position: further develop market leadership by expanding sales channels, building distinct capabilities and complementing products with value‑added services.

We continue to focus our attention on building a portfolio of products and data services that makes us a valuable – or even indispensable – partner for customers in the automotive, industrial and consumer markets. We are expanding sales channels to reach an even broader range of customers in all our territories.

All our market sectors require connectivity, location‑awareness, and in some cases, timing. But the specific demands in each space are very different, and our strength lies in having a portfolio of products that covers the needs of all three.

Plus, by complementing these products with value‑added data services, we move ourselves up the value chain, further strengthening our position in each market.

Technology and innovation: It remains our goal to strategically strengthen our product portfolio to meet current and forecast trends.

To do this, we spend large amounts on targeted research and development every year. Focus areas include building more products on our own silicon, developing additional combination modules that blend u‑blox technologies, and miniaturization. All of this work is done with the aim of delivering a unique and truly compelling product offering to our markets.

Complementing this, we have our growing data services portfolio, which augments our products in ways that solve real‑world customer challenges. Crucially for u‑blox, the combination of products and services ensures we are more than a commodity component supplier. Instead, we become the highly valued – or even indispensable – partner we want to be for our customers.

Operational excellence: the efficiencies that we continue to strive for improve our customers’ experiences.

We work in fast‑moving markets in a sustainability‑conscious world. That means we must fine‑tune every process in our business, while ensuring we are operating in an ethical and environmentally responsible way.

This covers everything from product and service design to manufacturing, customer delivery and through‑life support. Operational optimization remains a key focus for us, because it makes such a difference to our clients.

Firstly, it means we are able to deliver our products with extremely short lead times. And secondly, it enables us to achieve exceptional levels of delivery reliability: in 2019, 99% of orders arrived with customers on the confirmed delivery date as in the years before.

As a result, our focus on operational optimization directly supports our customers’ needs to get products to market as quickly as possible.

Rigorous quality assurance is a critical part of our drive for operational excellence. Our own processes are periodically audited by customers, and we regularly review our partners and suppliers, to ensure every area of our operations is as robust, efficient and sustainable as possible.

Strategic partnerships and acquisitions:
We create value by augmenting our own capabilities and intellectual property by investing in partnerships and acquisitions.

Supplementing our own expertise with that of others has helped us grow the company to the point we are today. We will continue to partner with complementary businesses and research institutions, and to acquire companies and intellectual property, where this helps further our strategic goals. We have continued to extend our partnerships with Kudelski and Sapcorda, and with the acquisition of the Rigado business strengthened our market footprint. Such strategic action drives u‑blox’s long‑term growth and ensures future organic growth.
 

2019 financial highlights

Revenues of CHF 385.1 million were in line with the latest guidance, with EBIT (adjusted) of CHF 43.1 million and EBITDA (adjusted) of CHF 71.7 million. We saw a resurgence in the Asia Pacific (APAC) region, including a strong rebound in China, which is offset by declines in our Europe, Middle East and Africa (EMEA) and Americas regions due to broader industry and macro‑economic forces.

In APAC, revenues grew by 5% to CHF 145.6 million in 2019 from CHF 139.3 million in 2018, driven by solid demand in the industrial and automotive end markets. China rebounded with a 16.0% increase in revenues from 2018, driven by increased domestic investment in technology for infrastructure and growth in industrial IoT. We also experienced good growth in Japan. APAC growth was partially offset by the elimination of a large customer in Taiwan who failed to meet our standards of compliance with terms and conditions.

Revenues in EMEA decreased to CHF 119.3 million in 2019 from CHF 126.4 million in 2018 (-6%), the latter of which included non‑recurring individual projects. EMEA experienced growth in new markets, including micro‑mobility and sustainability applications such as solar converters and electric vehicle charging. EMEA also observed an uptick in the auto sector in the second half of 2019 compared to the prior year period driven by increased content in vehicles. Overall the region continues to be constrained by the negative sentiment caused by the ongoing global trade wars, which have induced our customers in this region to slow their rate of investment and dampened the level of cross border business activity.

In the Americas, revenues decreased by CHF 7.2 million, or -6% year over year to CHF 119.2 million, as there were lingering delays associated with the migration to LTE based connectivity. However, we experienced accelerated LTE‑sales in the second half of 2019, and we are optimistic about the increased pace of adoption in 2020.


Future outlook

The Internet of Things continue to accelerate and expand across the world, impacting the global economy as it transforms and shapes the way we live our everyday lives.  It is estimated that there are currently 14.2 billion things in use, with the forecast for 25 billion things in use by 2021.1  In the automotive market, where change and adoption are occurring rapidly, it is estimated that 71.6 million connected cars will be sold globally in 2023, up from 19 million connected cars sold in 2015.2  As devices become increasingly connected, security will become increasingly important, with $3.1 billion USD market value of the worldwide IoT security sector in 2021 more than doubling from $1.9 billion in 2019.3  Overall, it is estimated that $14.2 trillion USD will be added to the global economy by 2030 driven by the industrial IoT alone.4

These secular trends are the core, long‑term drivers to our business of developing reliable, innovative and secure positioning and wireless communication solutions that connect vehicles, industries, things, and millions of people around the world.

To do so, we continue to invest in innovation in our products and in our business. In 2019 we invested over CHF 78.9 million (adjusted) in R&D, and employed 835 engineers in 16 research and development centers globally.  We currently have 6 new chip platforms in our development pipeline that will be tomorrow’s drivers of growth.  We also continue to invest in our operations.  We recently revised our sales structure in the Americas to become more efficient and effective and hired Markus Schaefer, an experienced industry veteran, to lead the charge in our consolidated marketing and sales efforts.  We completed an acquisition that broadened our product portfolio, added valuable customers and distribution relationships, and a team of talented engineers.  
We are confident in our approach.  We believe it ensures that we will be able to deliver value to our customers today and into the future.

1,3, 4) Gartner, 2018
2) IHS Market, 2018

Board and management

As was previously announced, u‑blox appointed Markus Schaefer as the new Executive Director for Global Marketing and Sales effective September 1, 2019. Markus Schaefer, a veteran of the semiconductor industry with a solid track record in growing market share in his previous positions, joined and has now completed u‑blox's executive leadership team.  In his new role, Markus Schaefer will define and implement the company’s sales and marketing strategy in the Americas, EMEA, and APAC sales regions.  In addition to managing the company’s business expansion, he will be responsible for growing the sales channels, as well as for defining u‑blox’s product marketing communication strategy.

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 continue to make great strides in 2020.

 

Thomas Seiler Roland Jud Andre Müller
CEO CFO Chairman