Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Q3 Report twenty eighteen Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Friday, 10/26/2018.
I would now like to hand the conference over to your first speaker today, Stefan Peterson. Thank you, and please go ahead, sir.
Good morning, and welcome to Fingerprint Card's earnings call following the release of our third quarter results this morning. My name is Stefan Pettersson, and I'll be the moderator today. We'll begin today's call with a presentation of the report by our CEO, Kristian Friedrichson and thereafter by our CFO, Pat Sonn Krist. Following this, we'll have a Q and A session. And if you're following the conference call on the web, you can post questions throughout this call.
And for those of you participating on the phone, instructions on how to ask questions will be given by the operator before we get into this session. And with that, then I hand over to our CEO, Christian Trelezon.
Yes. Thank you, and good morning, everyone, and welcome. Now before we get into the call, let me welcome our new CFO, Pat Sundquist, who joined us on October 1. I'll hand over to Pat in a while to give you a more detailed overview of the financials. But let me first go through the main highlights from the quarter and give you a business update as usual.
I am happy to report that the positive sales trend we saw in the second quarter continued into the third one, and we grew our revenue sequentially by 11. Compared to the third quarter year over year, sales were down by 49%, mainly due to declining average selling price, as we have said quite a few times. If we look at the gross margin, which was 27%, the drop versus the same quarter last year from 33% is mainly due to lower volumes and a change in the product mix as well as lower ASP. However, we, of course, grew our gross margin from the second quarter quite substantially. Our cost reduction program is progressing as planned.
We recorded an operating profit of $7,000,000 and operating cash flow amounted to $2.00 $2,000,000 in the quarter. The strong cash flow is due to improved underlying earnings, reduced accounts receivable and lower inventory. Next slide, please. Looking at some market highlights from the quarter. 12 smartphones equipped with our sensors were launched.
Let me also mention that on October 9, Google announced three new devices with fingerprint sensors from us, the Pixel Slate and the smartphones Pixel three and Pixel three XL. We are, of course, proud to be providing world class biometrics for these devices as well. During the quarter, we launched our first capacity fingerprint sensor, which is compliant with the automotive industry's rigorous standards. I believe that this launch is an important step in bringing the benefits of biometric solutions to the automotive industry, as automakers are clearly keen to integrate biometric based driver authentication into vehicles. The first automotive product development project integrating the automotive sensor are expected to begin during 2019.
As you know, we also have an exclusive partnership agreement with Gentex to bring iris scanning technology to the automotive industry. We are seeing the biometric card market firming up. Let me get back to this shortly. But let me mention that we could announce in Q3, we are supporting our partners Wi Fi in launching biometric payment cards with bans and loyalty programs in China. Next slide, please.
We have kept our leadership position in biometrics for the mobile industry. I am very pleased of this. And one of our most important priorities is to continue defending and now leveraging this position of strength as the mobile industry continues to evolve. The value of the capacity fingerprint sensor market for smartphone continues to decline, but our view is that biometric solutions for smartphones will be an attractive growth market in the coming years with new solutions like the in display and touchless sensors more than offsetting the decline in capacitive solutions. First, we will defend our strong position in capacitive sensors for mobile as we have clearly done today by continuing to focus on driving cost efficiency to meet the ASP decline.
I am pleased to report that we recently received the first volume orders for our fourth generation capacitive sensors, which will be a very important part of our capacitive sensor portfolio going forward. The biometric performance of this new sensor is high despite its clearly smaller size, and all the feedback received from our OEM customers have been very positive. I would dare to say that this is clearly the best capacitive sensor ever made by quality, cost efficiency, performance and security. It will be a great product for us. The first commercial in display sensors were introduced this year, although volumes are still modest.
Several OEMs are planning to integrate in display sensors during the next year, and we believe that this technology will have significant inroads in the mobile industry during the next couple of years. We intend to enter this market in 2019 with our optical in display solution, and we are continuing to develop also our ultrasonic in display solution at the same time, although it is more technically complex as it is a full screen. In parallel, we continue to position the company for growth in new areas, not least in biometric smart cards. It seems likely that the major payment card brands will certify contactless cards during the 2019. This is an important prerequisite for card issuers to be able to plan and budget for a broad market introduction.
Biometrics for embedded application is also growing, and we are on track in our plans. But in a very fragmented market, as we have said before. In the near term, the most attractive area for us is in the access systems, for example, door locks. Longer term, we see growth in many other areas, not least in the automotive industry, both for our iris recognition technology and the fingerprint sensors. Next slide, please.
I believe that the segment offering the greatest potential in the coming years is biometric smart cards. The potential market is large with some 4,000,000,000 and above smart cards produced every year. There are a number of key success factors for a biometric payment card. First, it needs to support battery less and contactless applications. This means that the car needs to perform well on very low power.
It also needs to be compliant with existing car production processes. And of course, the consumer expects and demands a great experience, meaning reliability, speed and ease of use. It just has to work every time. Also, craft producers expect the complete biometric solutions spanning from hardware, software, algorithms, packaging tools and support. Our biometric smart card offering meets all these requirements.
We have solid experience in volume production and proven track record for the mobile phone industry, with hundreds of millions of sensors delivered today. Our T shaped product is the most power efficient module on the market, and it is performing very well with contactless payment terminals. In May, we announced the world's first orders for biometric fingerprint sensors for payment cards. Let me repeat, this was the world's first orders from two major card producers. Fingerprint has well established partnerships with several of the major card producers, such as IBMia and Gemalto via Swipe.
We're also partnering with NXP Semiconductor late last year. Next slide, please. And if you look at the market trials to date, I think this confirms our very strong position in this emerging market for biometrics. In fact, Fingerprint is part of all contactless trials announced to date globally. The latest one was announced just last week in France, where Societe Generale is the first bank to market test the biometric card in France.
This particular card is produced by Ademia incorporating our T shaped sensor. I should also point out that our solutions work equally well, of course, in a contact only scenario. But contactless is clearly the most interesting application for biometric into smart cards. It is clearly the thing and the performance that the consumers want and expect. Next slide, please.
As you know, we have talked about this application for many years. The idea of replacing and killing pins with a fingerprint sensor in smart card has been around for a very long time and was actually, of course, the foundation of this company, hence our name. So where are we in the rollout of biometric cards? The last few years, the focus has been on optimizing the sensor system and on integrating and testing the sensing module on the card. And in 2017, we started to see several market tests, initially contact only, but in the last year, we have participated in several dual interface tests all over the world.
I strongly believe that the smart cards will develop into the next mass market for biometric solutions in the coming years. However, before commercial launches can take place, the payment scheme certification processes need to be completed. We have already seen one certification of a contact based biometric smart card, and we believe, and it seems likely, that the major payment card brands will certify contactless cards during the 2019. This will allow the industry to move to the next step, planning and budgeting for broader commercial launch, which we expect to materialize in 2020 and onwards. Next slide, please.
So let me briefly summarize. We saw the positive revenue trend continue with a sequential increase of 11%. We report strong cash flow and are showing a net profit in the quarter. We have had a challenging few quarters, but I am a strong believer that biometrics is a growth industry. We have done well in the battle, and we are the market leader in mobile capacity.
And even if the mobile capacity sensors for smartphones continues to decrease in value, we take a positive view of the opportunities also in mobile. We continue to drive cost efficiency capacity sensors with a world leading product, and we intend now to enter the growing market for in display sensors in 2019 with our optical solution. And finally, we are well positioned to benefit from growth in new segments, not least in biometric smart cards, but also in embedded. With that, I would like to hand over to our CFO, Paschen Gris. Go ahead.
Thank you, Christian, and good morning, everyone. Let me now take you through the financial results for our third quarter. As Christian pointed out, our revenue increased sequentially by 11% to EUR $431,000,000. If you compare that to the same quarter last year, our revenues decreased by 49%, mainly due to the decrease in the average selling price. Compared to the Q3 last year, our gross margin decreased by six percentage points to 27%.
This is mainly because of lower volumes and the decrease in the average selling price. If you compare that to the last quarter, we see an improvement, however. In Q2, we had a significant impact from the write downs that we recorded, but we also saw an improvement in the underlying gross margin. This is partly due to an improved product mix as well as in more favorable customer mix than in Q2. In Q3, we sold significantly more of the FPC1291, our new high end sensor for flagship smartphones, which made a good contribution to gross profit.
We also reported an operating profit of $7,000,000 compared to $52,400,000 in the same period last year. This decrease versus last year is mainly a consequence of the drop in the average selling price and the lower volumes. Next slide, please. We continue to focus on lowering our OpEx, and reduction program is progressing according to plan. If we exclude other operating income and expenses, our operating expenses for the third quarter totaled to €101,500,000 which should be compared to the $176,300,000 we had for the same quarter last year and the $155,100,000 last quarter.
Our development cost is $40,000,000 and were capitalized during the third quarter, which corresponds to 25% of the total development cost versus almost 40 for the same quarter last year. In relation to revenues, our operating expenses represent some 24% compared to 21% for the same quarter last year. We expect this ratio to come down as we continue to execute on our cost savings program, which is in progress according to plan. And during the quarter, we reduced the workforce by an additional 97 positions. Next slide, please.
If you then turn our take a look at the balance sheet, it's positive that our working capital, excluding cash and tax items, continued to decrease and was million at the end of the quarter, which should be compared to almost EUR67 million in the third quarter last year. The decrease in working capital is mainly a result of a write down of the inventory and the reduction in revenue compared to the same period last
year. Next slide, please.
Our cash flow from operating activities was a positive SEK202 million in the third quarter compared to SEK175 million in Q3 last year. This strong cash flow is due to improved earnings, a decrease in receivables and also a decrease in inventory outside the actual write down that was done before. Cash flow from financing activities was a negative SEK 162,000,000, and that consisted entirely of the repayment of the acquisition loan of Delta ID. During the third quarter, our cash and cash equivalents increased by SEK 4,000,000, adding up to a cash balance of almost SEK $742,000,000. The net cash was EUR $596,000,000, which should be compared to EUR $530,000,000 in the same period last year.
Thank you, everyone, and we are now ready to take your questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Thank you, sir. We do have questions coming in. Your first question comes from the line of Francois Bouvines.
Please ask your question.
Hi, thank you very much for this. I have a couple, The if I first one is on your gross margin. So in Q2, you saw a significant improvement, like you said in your remarks. And I was just wondering if you can give a bit more granularity of what is really driving this gross margin. If I understand correctly, it looks like it's a product mix.
So you have a new product with a cost efficient solution. I just wanted to confirm that. And how we should think about this gross margin going forward given the launch of your new product, the fifteen eleven, that is apparently even more cost efficient. So should we expect the gross margin to go above 30% going forward?
Yes. Francois, maybe I'll start here. So I'll be talking to you again. Yes, we have improved. I think it is clearly from the both product mix.
And also, we are we have by the way, we have not yet transferred to a new sensor. We have gotten our new orders, so that is starting as we speak. The volume orders have come in for the new sensor, but the impact will be more in the first quarter or at the end of this quarter, if you so may. And I think that the gross margins are now going in the right direction and more reflective, I believe, where we need to be. And I believe that we, of course, need to be above 30% in our gross margins in the ongoing business.
And that's what we, of course, aim for and where we need to be. I think now they are more reflective of where we are in a position as a company now. It was way too low in the first two quarters now.
But how do you explain such difference versus Q2 if it's the same kind of product?
Well, there has been a shift, of course. We have gotten there has been a shift. I think there is quite a few shifts that has happened, which is driven by the ASP decline as well. So we are we have brought the new product versions in, right? We have a new high end.
We have also another product which came earlier, which we have gone into volume So in a way, the product mix has shifted. So if you if I may that if you had earlier maybe eight or nine different versions, now we are kind of consolidating in the industry from our point of view to maybe three versions. And those are good versions for us. Those are more competitive products. They are the latest versions.
And the third one will be now the fifteen eleven that comes out. So I think that there were many models before and that was scattering the market. So I think in a way, what happens is that we will have much less product in the capacity of only three main ones, actually, I would say, and versus of them. So it is better for us, and it's better for our customers for us to do stronger volumes with a few products. So I think that shift is helping us and making it possible to for us to both drive and be part of the ASP decline and make still very competitive products.
And the 1511, in terms of costs, how lower is it versus your current products in terms of coverage?
We haven't given out that, but it is substantially better, of course. And and but we haven't given out. But obviously, that means in the tens of percentages improvement, right?
Okay. That's clear. The other question I have is on the outlook for Q4. You saw Q3, you see control increase. And I'm well aware that you don't guide for the next quarter, and I'm not going to push on that.
But I just wanted to have your view on the direction of the market in terms of sequential performance in Q4 versus Q3. Should we think Q3 as usually your highest still quarter in terms of the buildup before rent and Q4 a bit lower?
Yes. Thanks, Francois. You're asking without asking, Yes. Well, we don't give projections, at least for
the time
being. So I think in a way, we what we know in the industry has a little bit changed as well because now there are different biometric technologies coming in. There is always a big shift between the OEMs as well as their market shares you have seen, even if it is consolidating to the biggest six players, maybe you could say, that is more and more going towards them when it made on their mobile phones. But I and we know that Q1 is always a low quarter because we are so strong in Asia, and they have the Chinese New Year and everything that happens there. So there's a buildup always in Q3 and Q4 into Q1.
But I wouldn't start to guide. But I think that the clearly, we feel more optimistic about the future now. And we have kind of settled in our market shares, which has not really changed this year anymore. So we've been able to defend that. So I'm I'm more optimistic now about our position clearly, and then we need to go in for the new technologies now.
But I think the you would say the dust has settled a bit when it comes to the capacity of mobile phone market.
Okay. It's a good transition to my next question, actually. I want to talk about the in display sensors because when you say in your release that you intend to capture the position in this market, the in display sensors in 2019. And my question is very simple. How do you want to do that?
Because as far as I'm aware, you don't have any product yet. It's in development yet for the full display, but I didn't see any commercial launch. So I'm quite surprised how you can you capture some position in there?
Well, it's actually there's a few things. Right? So we have worked on on on a number of solutions, but the main main on on one op on optical and then on ultrasonic. The ultrasonic, of course, is is a full screen, which is technically much more complex to do. And and we don't give any timelines on that one.
Right? That's a that's an that's an own project. What we are saying now is that we will go into optical next year in display. And I think that how will we make it there, it's actually quite simple. We have first, we have, of course, we have a we have a clear market access.
Now we have a clear position in the market. We are a volume producer. So there is always at the end of it, it does this this optical market or the in display market, it will be optical and ultrasonic that you will see in the in display market. It's only in the beginning. It is only the beginning.
It is but it is only I I see it only starting next year, really, from from from getting to set certain volumes in it. So I think that there is I have no doubt that we couldn't take our position in there. Of course, we need to have a good product. It is not so that the products yet that have come out have been overly impressive in that area. So clearly, there is a lot of position for a company like us to go in there.
But I'm I'm But
having said that, I realized that we need to prove it at the end of it and get out with products. So Okay.
Yeah. I'm a bit confused because, I mean, I feel like I said, you said that you are developing a new Traston extensor, you know, for the full display. And now you do you have a optical product? You developed it as well, and you
Yes, we have. Actually, the Capital Market on Technology Day, we told that we are working on both optical and ultrasonic.
You emphasized much more the ultrasonic sensor.
Yes, because that is, of course, more disruptive. I think the optical is more from the consumer point of view. Optical is you get the same performance. Actually, today, it's a worse performance than what you get on capacity when it comes to speed and quality and security. But but I think that the clearly, the optical is more of the same, but it is an in display.
So we we worked on that as well. It's not a disruptive technology, but it's a good technology to bring out for the in display solution. Right? And you will see many yeah. So that's that's yeah.
It's technically simpler to do if I look at the innovation with than what an ultrasonic full in display is. I I realize that this can be confusing because there are so many in display solutions actually that will come over the next two years. You will have hot zone, both optical and ultrasonic, which is a one finger close to the in one spot. You will have a large area, optical and probably ultrasonic. Then you will have half screen, and then you will have full screen.
So there is quite a few solutions coming actually into the same display area.
But do when do we should we expect you to have optical sensor to sell? I mean, to have a commercial product on the market?
We are expecting 2019 to come out with actually deliveries in optical.
But to be clear, today, you don't have any product to offer yet?
No, we haven't. That's why we're saying that next year, we will come.
Okay. That's clear. One question on the iris delta ID. Can you update because I don't see anything in the release and I mean, it's been a big acquisition for you. I was just wondering if you could give us an update, what's the plan?
Should we expect something?
Yeah. With three areas where we are going with Iris, one is clearly the mobile area. We have to get the convenience better. I think the face for touches has increased the consumers' expectations on convenience, And that is something that we are working on and will improve. So we will continue working on that, and then we can get actually competitive, more secure with the similar ease of use as a face solution into the market, which will be because the face solutions that Apple is providing is, of course, very expensive of today.
So we can come with the into the mid segment and high from there. That's the logic with Iris in mobile. Then we continue selling in embedded like the we have had quite a few launches now with the different payment terminals in India and continue with that. And of course, the Gentex, which is the car industry, for example, the Gentex deal, which is the exclusivity that we did for ten years, that continues. But we expect only launches in late twenty nineteen from that.
Okay. That's clear. I think that's pretty much it for me. But maybe just on the risk, is there any risk of impairments coming short term? Because, I mean, I guess, the performance is not what you expected.
So is there a possibility or it's not
No. We see good business cases clearly for iris. We are in But you're right. We it's not it hasn't grown as fast as we wanted, clearly, and we need to get the usability better now. That is the moving target.
It is still by far by far the best iris solution in the world. No doubt about that. And we clearly need to get them improved on the ease of use. That's the main effort that we are doing now for the mobile industry.
Okay. And just the last one for me. The cash flow was strong going forward the next couple of quarters. How do we should think about the performance?
Well, the positive cash flow we reported in Q3 is due to improved earnings. We have the decline in accounts receivable or reduced inventory levels. Not giving any guidance for Q4, I would say that we're obviously continuously focusing
on this,
and we are improving our efforts on this area as well as we go along right now, learning from past experiences.
All right. That's clear. Thank you very much, gentlemen.
Yes. Thank you, Francois.
You. And your next question comes from the line of Victor Westman. Please ask your question.
Good morning, Congrats on a very strong set of numbers. Many questions have asked already, but I want to follow-up a little bit on the in display solutions. There, it seems like you're much more optimistic now, but the market volumes, as you mentioned, are small. Can you explain why you feel more about this now? Are you I mean, what's the how's the discussion with customers going?
Or do you is it even so it sounds even like you have customers waiting in line for your product?
Yes. I suppose there is after the I would say first that it's very clear fingerprint sensors in the mobile will continue, right? So I think there there is is clearly a a strong demand for that. And and that we will have the mid and the low end segment, and some parts of the high end segments will be capacity, which is, of course, from performance and cost, clearly in its own class. And at the same time, the kind of fashion trend to go with the new in display sensors, I think that will also pick a good volume next year.
The different the good thing about it in the in display is that the price levels are very much higher in the beginning. Of course, there will be price erosion there. We have learned that from the capacity. I'm sure that will be seen also both in optical and ultrasonic solutions that are coming out. But over the next two years, you will have quite a good revenue from the in display because of the higher price levels.
So I think that's and we think that it's a good position for us to go in there as well. It's very close to our capabilities. And so it's and we have, of course, worked for those both of the technologies for quite a while now. So it's a good time for us to go into that industry and be that a segment, too.
Yes. And a follow-up also on the face recognition versus iris there. We have not seen so much launches yet, I think, either neither Iris or Faze. What's your take on this? Are you surprised of this low interest?
And
yes? Well, I think what has happened in that's a very good question. And I think it shows, of course, that what has happened is, if you look at the phase, is that Apple clearly had a very they have done a lot of investments. It is quite quite a big investment, and it is a very costly solution. It is a very good performance as a solution as well.
And but then there is a very scattered segment after that. There are a number of different solutions from two d to three d, and the level of those are not so good at the moment in the whole market. So basically, it's I mean, because it's so scattered, it's very hard to get that to use in payments. And to just use something for opening up the phone is, of course, not enough to drive because you really need to use it for many other things like real identification with security included. So because that market has scattered, it doesn't maybe taken outside of Apple that much off.
But we believe there will be a big touchless market as well. It's more scattered the whole biometric in the mobile phone industry. So you will see combinations, and you will see other versions of it. And there is a position for Iris with the usability. So we're combining the usability and the security.
Right? So we believe that that's a position where we can we can still play because we will, of course, have then same level of usability with much higher security and and much lower cost with standard cameras. Right? So that's where where we are coming in. But you're right that the touchless solutions, nobody is even close to what Apple has delivered in terms of the capability.
So it's very hard for it to take off at the moment for for the RFA solutions.
Yes. K. That's okay. Great. Thank you very much, guys.
Thank you, Victor.
Thank you. And your final question from the telephone lines comes from the line of Jurgen Wetterberg. Please ask your question.
Christian. Thank you very much for taking my question and congrats to a good quarter. Nice trend of the turnaround here. I have a couple of questions. The first one is really related to your R and D spend, where you're decreasing to €41,400,000 in your R and D expenses and then €14,000,000 capitalized.
How
will you be able
to grow your market share and take position in the segments of in display, smart cards, automotive and other embedded going forward while at the same time reducing your R and D spend? Could you give some flavor on that?
Yes. I suppose there's a few things. Focus, utilize your own R and D for what you are good at and very good partnerships, and maybe finally, also access into China in mobile. So I think that the those are maybe the four reasons, right? So first of all, the mobile capacity, we have, of course, moved a lot of the resources.
You are right, we have cut substantially, and it's been a painful process for us. We have still extremely high skilled capabilities in fingerprint sensing and iris. So what we have done is we have cut a lot on the mobile capacity. We have just gotten out and getting out now a fantastic product. It will be the world leading product in mobile capacity.
That will form a base for us for the development into the smart cards, which is going to be capacitive sensors. And then when it comes to the partners that we can utilize, we are we have we have then moved the resources, of course, into the new in display solutions. We can move them there as well as embedded, which is also capacitive at the moment. So in a way, when you utilize the capabilities you have, you can do those things that we have on the road map now. On top of it in in display, the ecosystem where we are going into is very much in Asia in the mobile.
And that's, of course, where we are already deeply, strongly included in that system. So we have the partners. We have the whole channel is in place for us to build on the capabilities that we are good at and using the partners for the areas where we don't need to develop. So it's hard to focus on what core do we do ourselves, the partners and then, of course, using the new investment into the new areas.
Thank you. And then a question on revenues. You improved 11% sequentially. Could you give some color on what's driving that? I mean, is it better mix from other segments?
You're saying that you're tracking against getting 10% outside of the capacitive? Or is it better share of the addressable market for capacitive? I would appreciate that.
Yes. I think the embedded is has grown pretty much exactly as we planned. We said we'd be around 10% of our revenues this year will be embedded. And we are exactly on we're on track there, and we will make that. And I think that, that will continue to grow for us.
The embedded area is a good growth area for us. It will continue growing next year in the coming years. Biometrics coming clearly into more and more devices, all kind of tokens, payment devices, access. So I think that is a good area to be in, and it's also now starting to show numbers for us. I think also the mobile, we have now kept our market share ever since Q4 last year.
We're kind of running on it. So we have been able to kind of if you say the dust has settled in the battle, and we're the only non Asian there in that business anymore with substantial volumes. And we are the market leader in capacitive mobile. So I think that and then, of course, I suppose one part of it is that the in the mobile segment, the big ones where we are so strongly involved are taking more and more share. It is one of the toughest industries in the world, I think, in in in any industry, but also in high-tech is the mobile industry.
That seems to be consolidating kind of every quarter a little bit more towards the big big six one, six players in the in the world. And that is our seven, eight players, if you may, and that is, of course, also helping us when we are well positioned in that segment. And then finally, the product mix as well,
which
is helping us there. Maybe also yes, that's maybe the main reasons.
Okay. Two more questions, if I may. The next one is relating to the addressable market and the potential of Samsung as a customer. I mean, they've launched their own in display sensors, patent filings and also for in display cameras. Do you still see them as an addressable market for in the play sensors or maybe even like capacitive sensors?
Or is that the work flows?
Well, I think that absolutely, they're addressable market. Obviously, we haven't been able to enter. That's not a secret, I could say, easily right, and we would want to enter. I think it's an addressable market. If we can get in with the best capacitive sensor in the world now or in in the in the new technologies.
But but, of course, it's I mean, it's it's obviously, we haven't gotten in so far. So let's see. But yes, it's an addressable market, and it's up to us to find a way there.
Okay. And last question relating to OpEx. You said you're tracking well on the with program. And previously, you said that you will you're aiming to be below €400,000,000 annually, excluding the effects from R and D capitalization. It seems like you're very well on track.
Could we expect more there? Or is that where you're still targeting?
I could just add to that, that we are on track for that during 2019 and which is according to plan.
I suppose, yes, we won't we have said that we're going to be under 400,000,000 excluding the activations, right, next year. So I don't think we want to add to that one. But yes, we're on track, guess, you said yourself, Jertgen, yes.
Thank you very much.
Thank you.
Thank you. There are no further questions from the telephone lines. Please continue.
Yes. We have maybe a question from the web as well. Could you please give us an update on the patent infringement complaint that you filed? Yes.
Well, as we said earlier, I think this is going to be a long journey. This typically takes time, so we will update. These these cases take time, so we will update. Obviously, we will defend our patents, and and it's it's long cases. So I think there is nothing new to tell from that one.
And we will immediately, of course, come out and tell more when there are anything that we need to tell about it. These are complex cases always. We feel strongly that we need to defend our innovation and patents, and then the question comes, of course, how do we do in Chinese courts here.
And one question on the optical sensor technology. Is there anything that you can say in terms of fingerprint advantages vis a vis competitors?
I think that we will yes. I think that's a very good question. I think that what what we wanna do wherever we go is a few things. We wanna we wanna take a strong position. We wanna be a leader in any market or any product area that we go into.
And I think that with with everything that this company stands for, we wanna bring whatever is out there and has been delivered and will be delivered. We will be and we want to be better on quality. We want to be better in terms of the technical innovation and security as well as performance. So, basically, quality performance security, we wanna bring better than that into the market. And that is the capabilities we have in the fingerprint sensor area.
That's the skills we have in the system development, in the algo and our capability to make the system work better than anybody else. That's what we want to bring to the market. And with that, thank you very much. We are coming to the end. So I would like to thank everybody for joining us this morning.
And I look forward talking again. I will get back to you later in the year regarding the financial calendar for 2019. And with this, you have a nice day, and talk to you later in the next quarter. Take care. Bye now.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may now disconnect.