Ladies and gentlemen, thank you for standing by, and welcome to the Fingerprints Q2 Report for 2018. At this time, all participants are in a listen only mode.
Only
I must advise you all that today's conference is being recorded on Thursday, 07/19/2018. And I shall now hand over to your host for today, Christian Fredriksen. Please go ahead, sir.
Yes. Good morning, and welcome
to Fingerprint Card's earnings call following the release of the second quarter results this morning. My name is Stephan Patron, and I'll be the moderator. We'll begin the call with presentation of the report by our CEO, Christian Fredrickson, and thereafter by our acting CFO, Hildan Lomien. And following this, we'll have a Q and A session. If you're following the conference call on the web, questions can be posted throughout the call.
And for those of you participating on the phone, conference instructions on how to ask questions will be given by the operator before we get into the session. And with that, I now hand over to our CEO, Kristian Fredriksson.
Yes. Thank you, Stefan. Good morning, everyone, and welcome to the call. Let me first, as usual, go through the main highlights from the quarter and then give you a short business update before I hand over to Ulva to go through the financials with some more detail. If we start by looking at the sales development, we saw an improvement versus first quarter.
This was as expected and previously communicated. Compared to last quarter, sales were up 35% as the market situation stabilized somewhat for us as well. Still, we are facing a challenging market, as I suppose the mobile market always will be. Versus Q2 last year, our sales are down by 53%, as you can see on this slide, primarily because of the declining average selling price. So let me come back to the trends we see in the market on the next slide and also what we're doing to address these dynamics.
Our gross and operating margins this quarter were impacted by nonrecurring items as we disclosed on June 4. Gross profit was impacted by a SEK $3.00 5,000,000 noncash inventory write down. Excluding this write down, our gross margin was 15%. In addition to the inventory write down, our operating profit was also impacted by $146,600,000 noncash write down of capitalized R and D expenses and also by a EUR 43,200,000.0 in restructuring costs related to our cost reduction program that we also announced on June 4. The implementation of the program is running as planned and communicated.
Excluding nonrecurring items, our operating margin was negative minus 21%. As I already mentioned, our cost reduction program is proceeding as planned, and we are targeting an OpEx level below SEK 400,000,000 on an annual basis and before capitalization of R and D expenses. So this means that our target is to enter 2019 with an OpEx level that is around twothree lower compared to 2017. Next slide, please. As always, and as we have said so many times, we are in an intensely competitive market.
And although we see some signs of stabilization, the Chinese smartphone market has declined compared to last year. This has, of course, some impact on us as well. While fingerprints and we clearly are and we continue to be the leader in the market when it comes to fingerprint sensors for smartphones, we have experienced a strong shift in the product mix during the last year, which continued also in this year, first and second quarter. Today, around 80% of our sensors we deliver are now low cost sensors, which is quite a change from last year when the market accommodated a variety of different sensors in different price ranges. The fact is that the market for capacitive sensors have in mobile industry has become more one size fits all market, and the trend is towards smaller and cheaper sensors, more efficient ones.
And this also, in a way, helps increasing the fingerprint sensor attach rate for cheaper phones. But it, of course, is something that we do need to look at when we do the product development, which I'm coming back to soon. But it gives us and makes us and makes it necessary for us to keep lowering the production cost. That's an important task for us. As you know, the capacitive fingerprint sensor has been the standard biometric technology used in smartphones for a long quite a while now.
This is now changing. And going forward, we will see many different biometric solutions used. Biometric technology will continue to evolve rapidly, and I think it's clear that the product life cycles are getting shorter also for biometric solutions for smartphones. Commercial in display solutions have been introduced this year, and there will be much more coming also during the coming quarters. I believe that the capacitive sensor will continue to dominate outside of the premium segment.
But in high end phones, then we will see many different solutions being adopted and tested in the coming years. We will most likely see in display fingerprint sensor growing in popularity, but also touchless solutions, obviously, as well as both variations of these and combinations of these in the phones, so many different projects. The cost pressures we're facing in our core capacitive sensor business in smartphones along with the technology shifts mean that we need to carefully control our costs while also diversifying into new application areas and technologies. This is, of course, nothing new if you are in high-tech, especially in mobile. As I mentioned before, we're making significant reductions to our cost base in order to reduce OpEx to below $400,000,000 on an annual basis.
It's also critical that we lower production cost in order to mitigate the effect of the continued ASP decline. Consequently, we recently launched a fourth generation sensor, the FPC1511, which is currently our most cost optimized solution for smartphone manufacturers. At the same time, this sensor performs on par with or even better than bigger sensors, and it has a very high security level, which we are proud of. Our team has done a great job with this product, which will be an important and valuable part of our capacity portfolio going forward. I expect the shift to be quite fast into this new product.
It has undergone extensive testing and new verification, and we are now going into collaboration with the leading mobile phone manufacturers. Full qualification of this new product is scheduled for 2018, and the first commercial smartphones integrating new sensors will be launched late twenty eighteen and early twenty nineteen. Taken together with these actions, I'm quite confident that these activities will bring fingerprints back to profitability, which obviously is a must and important for us. But in order to generate future growth, we also need to diversify our business. When it comes to our biometric technology portfolio, we are currently focusing in the mobile on in display and touchless solutions.
We continue our efforts to commercialize our ultrasonic in display technology, and we are also working on an optical solution in parallel. As I said, the life cycles of these solutions are clearly much shorter than ever before. As you know, we have a target for 2018 that are outside of the battery sensors for mobile phones account for at least 10% of sales. We're also making progress both in smart cards and in embedded solutions. I'll get back to those in the next couple of slides.
Next slide, please. During the quarter, we received initial orders, which were actually the first ones in the world for a t shaped module to be used in contact and contactless payment cards for two major global card manufacturers. We are still talking about minor volumes, but it's clearly but this clearly is an important milestone for us. And I believe it shows that we're on the right track towards commercializing our smart card offer. I'm pleased that the smart card ecosystem is today working together in a common effort to introduce biometric smart cards at scale.
I can tell you that the feedback from our several ongoing market trials is positive. It is very good both from banks as well as consumers when it comes to using payment with biometric cards. Next slide, please. Looking at some other market highlights from the quarter, 16 smartphones equipped with our sensors were launched, a number which is comparable to last quarter's. I'm pleased that we saw the first two smartphones launched with our FPC1291 sensor, which is a single chip, single die solution removing the need for companionship, two in one, if you may.
FPC twelve ninety one is now already in volume production. A few weeks ago, we announced that GTID has launched its first Irish enabled point of sales terminal, ApnaPay, in India. This is the first Irish point of sales terminal from Fingerprint that enables multiple use cases, including real time ad hoc authentication and ad hoc enabled payments. So consumers in India can actually pay just by looking into the terminal, which will authenticate the individual and accept payment through the ad hoc database. The terminal can handle also other means of payment, including including card.
In the embedded area, we're continuing our expansion as several products were launched. Some examples includes even a smart suitcase from Xiaomi, USB security keys from Insurity and Fateon, and a biometric cryptocurrency card from Miria biometrics and UniKeys. Also, our sales of sensors for DoLog continues to develop nicely as well. This happens especially in China. I have already talked about our fourth generation sensor and the T shape orders, so let's go forward to next slide, please.
So summing up, our revenues stabilized in Q2 with a sequential 35% improvement. The shift to our smaller and cheaper sensors affected our results this quarter also. Around 80% of the sensor we sell are now low cost sensors or more efficient sensors. They are still the best in the world with high security. As the average selling price for our product continues to decrease, we are and need to focus hard on driving cost efficiency in order to return to profitability, both by lowering our cost base and by developing these new, more cost effective sensors that I talked about.
As I explained, we launched the fourth generation of sensors during the quarter. And at the June, we announced the cost reduction program with a target of bringing down our OpEx level to below SEK 400,000,000 with Skruna on an annual basis, which with full effect as we enter into 2019. Our cash flow improved compared to Q1 and was positive due to a tax refund and improved underlying operating results compared to last quarter, although the operating results was still negative, which we obviously cannot be pleased with and will not be pleased with. Let me close by highlighting that we are continuing our efforts to diversify our business into new areas. Our technology and capacity fingerprint sensors is tried and tested, and we are and continue being the market leader.
And that is proven by hundreds of millions of smartphone users who appreciate the products worldwide. The fundamental technology can be adapted and applied in new segments. We are, as I said, looking at new technologies with both ultrasonic and optical in mobile phones and, as you know very well, biometric smart cards, which is an area that we will believe will be evolved in the coming years into the next mass market for biometric solutions. And once again, the first purchase orders in the world, which we received during the quarter from two major car producers, shows that we are on the right track and are well positioned for that when it happens. With that, thank you very much, and I'll hand over to our acting CFO, Irma Lebergen with this.
Overhead, Irma.
Thank you, Christian, and good morning, everyone. My name is Irma Vermeer, and I will take you through the financial results for the second quarter. Next slide, yes. Revenue our revenue for the second quarter increased sequentially by 35% to NOK $390,000,000. Year on year revenue declined 53%, mainly due to decline in Everest selling price, ASP.
The shift in our product mix towards small and cheaper sales had a significant impact on revenue for the quarter. Gross profit. Our gross profit was negative by SEK $246,000,000 in the quarter compared to SEK $253,000,000 for the same quarter last year and was negatively impacted by a noncash inventory write down of SEK305 million. Gross margin was 63% compared to a quarter to 36% in the same quarter last year. Gross margin, excluding inventory write down, was positive 15.
The weaker gross margin year on year was due to lower ASP as a result of a premium constraint in the product mix having some competitive pressure in the industry. Operating results. We reported a loss of EUR $578,000,000 for the quarter, which comprised a profit of EUR 72,000,000 for the same quarter last year. The result was largely impacted by the decline in revenue and a decrease in U. S.
Profit. The operating results were also negatively affected by the restructuring cost of EUR 43,000,000 and a write down of inventory of EUR $3.00 5,000,000. Noncash write offs capitalized R and D for shares amounted to EUR 147,000,000 of our operating costs. Excluding restructuring costs, write off capitalized R and D projects and write down of inventory, the operating loss was 83,000,000. Next slide.
Operating expenses. Excluding other operating income and expenses, our operating expenses for the second quarter totaled million compared to RUB194 the same quarter last year. The operating expenses includes restructuring costs of SEK 43,000,000 related to the second cost reduction program communicated in June. Excluding restructuring costs, operating expenses declined 21% year on year to SEK 154,000,000. Development cost of 21,000,000 were capitalized during the second quarter.
This corresponds to 22% of total development cost. This is to be compared with 38% to the total development cost to the same quarter last year. In relation to revenues, our second quarter operating expenses, excluding the cost reduction restructuring costs represented some 40% compared to 24% in the same quarter last year. We expect the rate ratio to come down as we execute a saving program. During the quarter, the total reduction in workforce was 151%.
This includes 54 employees and 97 consultants compared to the same quarter last year. Next slide, please. Moving to the balance sheet. Our working capital, excluding cash and tax items, decreased and was 182,000,000 at the end of the quarter compared to SEK $766,000,000 in the second for the last year. The decrease in working capital is mainly a result of the write down of inventory and a decrease in revenue compared to the same period last year.
Slide please. Cash flow. Our cash flow from operating activities was positive $3.00 2,000,000 for the second quarter. Decline in working capital and tax return were the main drivers of improvement improved cash flow compared to last quarter. During reporting, 90,000,000 were related to the acquisition of Gelsprid.
Cash flow from financing activities was negative by SEK 70,000,000 and consistent with repayment of acquisition loan of Telstra Aitin. During the quarter, our cash and cash equivalents increased by SEK 191,000,000, adding up to a cash balance of SEK $738,000,000. Net cash was EUR $440,000,000 compared to EUR $430,000,000 the same period last year. Thank you, everyone. We are now ready to take some questions.
We have our first question through from the phone from Francois Boujonies. Please go ahead.
Hi, everyone. Thank you for taking my questions. I have a couple, if I may. The first one is on your Q2. If you look at your sequential growth, how should we think going forward?
Is it a one off? Do you think like an increase of inventories from your customers? Or is it something we should expect to continue this improved environment into Q3, maybe Q4? If I remember in Q1, said in your release, you talked about the seasonal variation of your business. And you said that Q3 usually the highest or the better the best quarter in terms of volume for you guys and Q4 for mobile phones.
So I just wanted to have an update first on that, if that's possible.
Yes. Hi, Francois. Thank you. And yes, you're right. We had somewhat of a stabilization of the business after clearly a very tough Q1, and that's when it's 35% increase sequentially, even if it is, of course, far below year on year.
We don't give a forecast or prognosis, as you know, but I see that in a way the market, which deteriorated quite a lot in China during Q1. So we see at least that it's not getting worse. So there's stabilization days. We have also been very stable on our market shares, our own market shares for this during this year. So I think in a way that gives you that there is a stabilization at least for for ourselves.
And about the seasonality that Q3 is your best quarter usually, is it still the case
this year? Seasonally, it's been so that Q3 has been the best quarter of the year, yes. It's, of course, a bit different now when the whole we are getting into some we are getting to other businesses like in the embedded. And also, there is difference because in the mobile phone industry, the biometric solutions are expanding into different areas. So there is it's not anymore either you do fingerprint sensitive capacity or you don't do biometric.
Now you will see many different solutions. Right? So I suppose the seasonality in itself will not be so relevant going forward, I would say, for for the biometric business. Depends a lot on which part of the biometric you're gonna be serving.
Okay. Okay. The other one I had is on your gross margin. So if you look at it, you have a 15% adjusted gross margin. And you said that you intend to improve the cost, of course, and you have launched recently a new product to cost efficient.
You said like 80% of your shipments are low cost products. So how should we think about the gross margin, I mean, in terms of improvement from here? This cost management that you're trying to do, is it going to come like this year or next year? How should we think about that, especially because you have the headwind of the ASPs, right?
Yes. I suppose the ASP, I can say that even the last year, if I give you the on the on the g and before I give the g and the ASP, we said last year, there was about 30% decline, in 02/2017, on the ASP. And and I can say that for 02/2018, it will be at least the same as last year and in this industry. And I suppose that's the way this industry goes in all the different segments as well. Of course, then comes the point when there is no more innovation being done in the capacity.
So obviously, it will not continue this same decline in ASP, I'm sure, of in capacity going into next year. But for sure, this year is at least the same as last year. Now on the gross margin, you're right, we're at 15% now and also into Q1, which is obviously not enough and not good enough. Typically, if you look at the mobile industry, you can see that in this supply chain, the market leaders are between 3040% gross margins. And we don't give any forecast on where we want to go.
But obviously, we will and we want to get back and we must get back to profitability, to positive numbers in profitability. And our internal target, I would dare to say, is to get gross margin over time back over 30%.
And but all the work you are doing on the cost side at the moment and the launch of new products, because they are efficient, Do you think it's going to impact this year? Or it's going to be more like next year's story?
Yes. I think that the cost reduction programs are and everything that we do there, which has also to do with the supply chain, will, of course, help us this year also. And of course, the reduction programs are all done by the end of the year. And some of it are coming, obviously, a lot of it in Q3 and Q4. So the impact will be seen and must be seen also already this year.
And then the low cost product, we're only getting them in end of the year and going into next year, right? So the new low cost products, more efficient ones, The new great things that we have developed will come only at the end of the year. So it's a mixed bag with kind of improving on the way.
Okay. And the cost saving program, is it going to impact your gross margin as well or just your OpEx?
It's the OpEx of the cost reduction programs. But we have, of course, many other programs going on also when it comes to the cost of goods sold and so forth that are not only to do with the new product launch.
Okay. That's clear. One more for me on the cash. So you saw, I mean, a relatively better cash performance this quarter as well, mainly due to the tax refund. How should we think?
Because if we think about your cost saving program that will really kick in Q3 and full benefit in Q4, how we I assume we should expect a better cash, even better situation of your cash position going forward. Is that right to assume?
Yes. I think that I think the assumption, I don't want to give a schedule. Of course, we will see an impact in Q3. You're right. We had a better cash now, obviously, than the very bad Q1.
And even with without the tax, we were positive, right, when it comes to the operative. But and we have to improve on our cash. I think that's what we have stated that we will be running this business on our own cash. So it will be improving. And that's, of course, what we what the actions are.
I don't want to give a schedule except that I said that all these cost reduction programs that impact the cash are done by the end of this year.
Okay. And really the last one for me. Sorry about that. Sure. No worries.
On the non smartphone, I mean, non mobile revenues, that's your target, like, at least 10% of your revenues. I mean, we are in Q2 and we didn't see that yet. So it means that it will probably going to come in Q3, Q4. Can you elaborate a bit more like do you have visibility really on this happening? Or is it like a whole period of orders?
And what is it exactly that will be the main driver?
Yes. I think that we are tracking actually very well on have done that in q one and q two, and I'm sure we will do at least the we said that we will be percent, around 10% of our revenues will will be from non mobile. So we are tracking actually well on that. So it's it's I'm sure it will happen this year, and it has happened in q one and q two as well. And it is now mainly from embedded solutions and also a little bit of which is both fingerprint sensors and iris that are going into the new segments.
I was saying a few of them. It is a mix of many things. It's door locks. It is this cryptocurrency smart cards, some access cards. It is USB It's many things that is going on there.
And then there is after this year, we are in a lot with Iris in automotive. We are in a lot of other discussions with embedded expanding the fingerprint sensors there. And, of course, then when you get into next year and and and going forward, you will see the smart card business as well, which still, of course, is is very, very small at the moment. Hope that answered you, Francois.
Yeah. Thank you very much.
Yes. Thanks, Francois.
And our next question today is from Victor Westman. Please go ahead.
Good morning, gentlemen. Thank you for taking my question. You I did follow-up on the gross margin question actually. You mentioned decreasing COGS is important. But can you describe a bit more how you will go on about doing this, especially considering you will have one third of the employees left?
Yes. I think that this has to do a lot with, of course, our procurement. We are the leader in the industry. So obviously, we do many actions. One is that we take two thirds out of the cost base of our own when it comes to the OpEx.
That impacts OpEx as we just mentioned. Now the other one is launching new products, both in terms of cost efficiency with substantial improvements for us, which is coming end of the year. We are now already in the big verifications of this one. And going at end of the year, starting next year, I'm sure it will be a pretty fast shift into that new product. And within the new innovation is, of course, launching new products also when you go into next year, both in mobile as well as outside.
And in the third cost of goods sold are in the procurement. There is a lot that we need to do. And some of it has to do with just renegotiations of the purchasing prices, which we need to do as well with the ASP decline that is going on in the industry. And others are that when you do new low cost products, you actually design them also so that they will not only bring benefits to us, but they will bring benefits to the value chain in itself. So it drives more cost down not only for us, but also for the others.
So I think that those are a few maybe actions on to give you a picture of what we are doing across the line here.
Thank you. That's very helpful. And one follow-up also, if I may. And regarding the write downs that you did, can you describe in what areas these are? And and can you also say these write downs and the savings are in the same area?
Wait a minute. Can you say the second question again that the what area? Say tell the second question again. Sorry. The the
the OpEx savings that that you're gonna do now and and the write downs that you did, are those related to the same area?
In a way, yes. I think OpEx is all across, but it has been, of course, driven by also by portfolio decisions. So we have had to, obviously, you cannot continue with the same exact portfolio and the new projects that you have going on. So some of the write downs are just all clear inventory write downs, where over time, our inventory has become a different price level what we purchase the stuff when what we sell with. So there's a difference there, and we needed to do that write down.
We have done a couple of times a year before. And then when it comes to the what we took from the R and D, what we took on write downs, that was actually related to exactly some projects that we have stopped. So when we do those and we stop, it impacts OpEx it impacts our OpEx, and then it also impacts some of the projects that were ongoing. So yes, it's relative to each other. The short answer is yes, it relates to each other.
Understand. But and can you also mention what were the biggest parts of the R and D write downs, for example?
We haven't said that. But basically, we haven't gone out in what areas it was, but we had some new areas adjacent businesses that we had where we were planning to go in. And one of it was a long development project that has been going on for actually quite a while. And the other one was a little bit shorter that has been going on of the new expansion. And we just realized that we do not have the same financial capacity to do those at this stage of time.
They're good places, but they're not possible for us to go into right now.
Okay. I understand. Thank you very much, Christian.
Yes. Thank you.
Our next question today is from Jurgen Wetterberg. Please go ahead.
Hi, Jurgen.
Hi, good morning. I was wondering with regards to the in screen fingerprint solution. What's the feeling you get from customers there? Do you get the feedback that that customers will be able to capture market share, you know, versus more limited in screen solution provided by your competitors? And and and what's your view on the market window for in screen fingerprint solutions?
Is it just beginning and you will have enough time with your launch late this year or early next year? It would be great to get some flavor on that. Thank you.
Yes. I suppose there is as I said, there is a big variation now, which is the difference from earlier where in Biometry, had basically capacity fingerprint sensor, which was, you could say,
a hot zone as well.
You touch one finger on it. And now you will see many different trials, right? So you will see touchless, obviously, a bigger apple with face, and, we have also had iris in some cases. But then you will see many different solutions coming. So the lifetime of this is shorter, clearly.
And there's going to be any trials. When it comes to performance and cost, none of the launches in ultrasonic or optical, there has been a few in optical and just a couple earlier on in ultrasonic for hot zone. It's still hot zone solutions, I would say, for in screen, right, or in display. So none of them are even close to the quality and the performance of the capacity or even the cost at all. But of course, new things, this is a fashion industry as well in mobile phone industry, so new things take on.
I see that the high end will certainly have in display coming from end of this year. It's been very small so far. The volumes have been very small in this industry and will be quite small this year still. I think that from Q4 and onwards, you will start to see in the high end, for sure, you will see in display. And I'm sure that it starts more from the optical, you will see some ultrasonic as well and still hot zone, which is one finger kind of touching.
So from a consumer point of view, it's not a new experience for you. You still touch your finger on one place. But I'm sure next year, you will start to see then other versions, both on optical and ultrasonic, where you might get a bigger area. So it's a little bit bigger area. It's not only one finger, one spot, but maybe there is a bigger spot to put your finger on.
And then going on into next year, you will see maybe onethree of a screen and so forth. And then you will start seeing, which we are working on. As I said, we're working both on optical solution, which more of a small area, a hot zone as well, that kind of solutions. And then the ultrasonic that we are working on is very more disruptive because that's a full screen where you can touch any finger on anywhere on the screen. But that's, of course, technically much more demanding, much more difficult to redo in mass production.
And we haven't given any dates on where we are with that one. That's maybe giving you a bigger picture. So in the high end, you will see many of these solutions from Q4 into next year. And fairly short life cycle for them because you will see then different variations coming from different players.
Thank you. Very good. Can I ask a follow-up question on the smart card market? What do you I mean, you have some interesting trials, obviously, out there with some of the major partners. What do you see needs to happen to unlock that market?
And when can we expect to see volumes for you in that market? Can you give some flavor on that?
Yes. I think that it is very clear that that industry, first of all, which is a learning for us also here, is that that industry is is slower, clearly slower in the mobile phone industry. And a big reason is that there is hundreds of billions of dollars that go and even more that, of course, go through the whole 4,000,000,000 new credit cards produced, smart payment cards produced every year. There's 12,000,000,000 cards out there. So it's an industry that doesn't want to make any mistakes so that you can consumer experience isn't very fluent and very good as well as that it cannot be hacked.
It must be tested from the whole chain that when you come in with something new that it just works and then the certification works. So I think that testing and verification of the systems all across all the different players in the industry, all across the world and those different pilots that need to happen. That is taking time. We are volume production ready with the fingerprint sensor. But to do that in mass production and to test it in all kind of different variations to get the consumer experience.
And finally, I think just to get the how do you get the consumer to register their fingerprint sensor. So that kind of logical starting the new card when they get it, all those processes need to be fine tuned. So I think that is the reason why it takes time. And that's a big effort in the industry. And we have seen that from the chip and whatever has been brought into the card industry that it quite a time.
The Is it a
2019 story? Or is it a 2020 Yes.
Story? It's I from the volumes, we expect to see first volumes in the millions next year, 2019. It will be very small this year still, but 2019 and then it is it moves slowly, but it moves steadily when it goes, right? That's the great thing about that business that once it gets going, it gets going.
And we believe very strong. And if I then look at the trials, if I when you ask me that what's the feeling, I think, clearly, the whole ecosystem wants to do this from from the from the card schemers, from the production partners, the whole chain to the banks. And also, which is very important from all the pilots that we are doing, we're getting very good strong feedback on that this is very wanted both from the consumer as well as from the banks. So the whole industry is very positive and gearing very hard towards it. And I think that's the good sign of it.
It's not us only pushing it, but it's actually a lot of things happening in the whole chain, and these pilots are very important for us.
Great. So one last follow-up question, both regarding to the in screen fingerprint solution or touchless and the smart cards. If you can comment on the ASP levels in those segments versus the more traditional capacitive fingerprint sensors? And if you see the same kind of price pressure there? Or should we think differently about that?
Thank you.
Yes. On the prices and the ASP, so I think that in mobile industry, when you look at touchless, when you look at first capacity fingerprint sensor, then you look at touchless, then you look at in display solutions, whether it's optical or ultrasonic, I think that the prices are very low now in capacitive sensors. So with this ASP decline, which is at least the same as last year when we said that it was 30%, That tells you that the price levels are very low for capacitive fingerprint sensors. They are much higher in optical and ultrasonic, but they will follow the same curve. I'm absolutely certain of it.
It will be the same huge price erosion ASP decline that will hit that business as well. I think that is very clear that in mobile phone industry, there will be nothing else but the same strong price erosion very fast, actually. And it looks like it when I look at the touchless solutions also including face and what's going on, it seems to be so that the ASP declines are just only faster in any of these new things that come. Then if you look at the embedded, it is not at all the same. It is smaller volumes, but the price levels are very are different, far higher than with a few multiples when it comes to because it's a different solution and you have a different testing and systems and modules in that.
So it's by far, clearly higher price levels and less ASP decline in the whole embedded area. And then when it comes to smart cards, you could say that it will start I think we don't know, of course, what the ASP decline is. But obviously, we expect that there will be a good ASP decline to go from small volumes to tens and hundreds and then even billions of cards produced per year with biometric in it. So it will start high, and then it will start to go down from there. So you're probably talking some the card will be much
The card in the beginning, if it costs $1 for a card, it will be anything between $5 and $10 when you start because of adding the biometric into it. But it will, of course, see a rapid decline a fairly rapid decline as well when you get to volumes. That's, of course, the plan also because otherwise, you won't get to volumes. And maybe gives you a picture of where they are.
Very good. And then my last question. With regards to receivables, you are at a fairly low level both for trade receivables and other receivables. Could you comment how we should think about the positive effects that you've had on changing receivables during the last two quarters going forward?
Yes. I think that we want to keep that the whole receivables low. That's the plan, and that's what we have focused on as well. Obviously, in terms of both getting inventory out, getting better on that one, we will have to continue doing that. Now we did the write downs even.
So we will keep a lower inventory level. We have to sell out faster. And then we will work on the receivables so that we can keep this much better level where we are now. I think it's important for us to be on that level and continue on that level. That improvement has was a must for us and it must continue.
Thank you, Christian.
Currently, are no further questions from the phone lines, sir.
Yes. Let's take a question from
the web then on there's one on optical sensors. You've talked about optical sensor development. Is this an in display solution? And what are
the advantages of this technology? Yes. I think well, I talked about that. We have said already earlier that we're working both on ultrasonic and optical. We
want to do a
good consumer experience. Whatever has been in the market is not even close to the capacitive experience right now. But as I said, this is a fashion industry and we want to do something new, and we're getting these big new screens. So obviously, the trend on the high end will be to do that, and we need to follow we need to be a part of that follow-up and be part of that business as well. So at the moment, the opticals are much more expensive and they are not as good performing.
But of course, the technology roads are improving. So we'll see more optical, I'm sure, from Q4 going forward in the industry, we will see that. And we're working on a small area ourselves as well when it comes to optical. So there's a difference in terms of that it's optical is small area or a little bit bigger area. And ultrasonic for us is the full screen, so you can touch anywhere, which is technically much more advanced.
If you look at the consumer then, what is the difference for the consumer? If it's technically now, it's not as good performance on capacitive and much more expensive. But typically, those tend to change fast in an industry that's developing and innovating and driving down cost as improving performance, right? It's very hard to beat the capacity, cost and performance that is there and securing that way, right? Now optical, every part of the different technologies have their pluses and minuses.
So if I look at a consumer, what is the impact to a consumer? Very shortly, If you take a capacitive sensor today, it is very fast, it is very secure, it works almost basically all the time, and it actually is also extremely low cost with the volume production that is there. But with the capacity, you have wet fingers, then you have a little bit of challenges with capacity technology. We have gone far in improving it, but still if you would have very wet fingers, you will see that because it's electricity that we're dealing with in capacitive technology. If you take the optical, with optical, you use light.
And at the moment, it's not it's much more expensive, as I said. But if I look at the consumer, it's not working as well in light. When you're in light conditions, it doesn't work as well. Or when you have dry fingers, it doesn't work as well. You have to push harder and try to get again.
That's the challenges with optical. Of course, everything improves all the time. That's what the technology does. So you work on it to improve. So finally, if you look at the consumer, then what's the difference in experience, of course, they would be on the same level of optical capacity, it wouldn't be any difference in experience actually, right?
You still put your fingers on one place or now you put it on the screen or you put it behind, but you still put your finger on it. When you get bigger areas, which will start coming next year also, I'm sure you will see optical solutions with bigger area than just one finger spot. You might have a few centimeters, square centimeters area. Then you can put your fingers a bit around that spot, right? So from a consumer point of view, it's a bit it's around that spot that you can put it.
And then finally, you later on maybe get into half screen, full screen, then of course you can put the finger anywhere on the screen. So there may be is a difference from a consumer experience, right? So at the moment, it's not a real difference in experience. You're in front of the screen or back of the screen, but you still put your finger there. I hope I clarified that a bit though, how that works.
We have time for one last question from the web then. Why will your new low cost sensors be in customer products only at the 2018 or 2019?
Yes. Well, that's simple. So that when we have the product and it goes out it goes into testing and into production for the coming mobile phone models that the OEMs are going to launch. And if you go in now into a model, it comes out at the end of the year, right? So they the whole mobile phone industry, that specific customer will be testing that product, developing it's, of course, not only our product that is tested in that chain, but it's everything from cameras, from screens, the whole thing is being tested from all variations of it.
Every component, every part of it is being tested in long, massive tests so that it can take the tear on wear and usability that comes from a phone. And then those phones are being launched at the end of the year depending on the schedule of the OEM. And that's why when we launched the product, when it's actually going to OEM or the mobile phone manufacturer and when it finally comes out, there is a lag there. That's the simple answer to it. All right.
And thank you very much. And thank you for your questions, and thanks for listening. And this is then the end of it, we for this session, we will have the Q3 results will be released on October 26. So with this, a similar format will be back then. Thank you very much for joining, and we look forward to talking to you soon again.
Have a very good day. Bye now, everybody.