Good day ladies and gentlemen, and welcome to the Tobii AB Q2 Interim Report 2018 conference call. Today's conference is being recorded. After the presentation, there will be an opportunity to ask questions, and instructions will be given at that time. I would now like to turn the conference over to Mr. Henrik Eskilsson, CEO of Tobii AB. Please go ahead, sir.
Thank you, Clodagh. Hi everyone, and welcome to Tobii's Q2 report. Today it's me, Henrik Eskilsson, and our CFO, Johan Wilsby, who will present Tobii's performance in the quarter and also answer any questions you may have at the end of the call. Let's get started. All of Tobii's three business units made good progress in the second quarter. In Tobii Dynavox, I'm happy to report a strong sales trend with increasing growth rate driven by strong market adoption of the new touch devices and software that we launched last year. Tobii Pro delivered yet another quarter with exceptionally strong sales, and Tobii Tech continued to have great momentum in the VR segment, but also had highlights in the PC gaming segment. Let's go through each business unit, and we'll start with Tobii Dynavox. Next slide, please. Tobii Dynavox is the global leader in assistive technology for communication.
Our mission in Tobii Dynavox is to be a companion on the journey for our users, no matter the starting point. By providing world-class software and devices, we help young children discover the power of communication. We help those who lose their ability to speak later in life to keep on communicating for as long as possible. We empower those in between to realize their full potential. Each quarter, we help several thousands of new users, but there's still a huge unmet need for assistive technology for communication. Next slide, please. Tobii Dynavox is in a positive sales trend, which is great to see. In the first quarter, net sales grew year-over-year by 4% adjusted for currency effect, and now in the second quarter, the growth rate increased to 8%.
We continue to see very positive market response to the new touch devices and software that we launched in the past year. In the second quarter, we sold more than twice as many devices and apps as in the corresponding period in 2017. This is a great confirmation that we're now getting leverage on our product strategy to keep our leading position in the reimbursed part of the business, while we in parallel expand into the private pay and school segments where there's no access to reimbursement. One important part of this strategy is to deliver state-of-the-art touch devices, such as the speech tablets Indi and I-110 that were launched last year. In the second quarter, Tobii Dynavox introduced the Speech Case, developed specifically for the iPad. This product is an all-in-one solution, which is highly competitive and sets a new standard for speech-generating solutions on the Apple iOS platform.
iOS is a particularly important platform, specifically for many schools. We also launched Indi 7, a new version of the Indi speech tablet for users needing a smaller and more lightweight device. Localization of our software Snap is a key driver to grow sales in local markets and to gain full leverage on the newly launched devices. Each new language is a significant effort since we need to localize the entire vocabulary and language engines. In Q2, we added Swedish and Dutch, and more languages are to come. We plan to roll out some 15 different languages by the end of the year. We continue to invest in our leading product portfolio across both touch and eye tracking devices, communication software, and special education software. You can expect us to continue to deliver a good pace of product launches and improvements going forward. Let's move to the next slide.
Inclusion is a strong fundamental trend in today's society as workplaces, schools, governments, and even mainstream consumer and enterprise companies are increasingly putting accessibility as a fundamental perspective in product design and market communications. All of this contributes to driving awareness and large-scale inclusion. For Tobii Dynavox, increasing the awareness about how our solutions empower the users to realize their full potential is a key strategy for growth, in particular, as we add products that are priced for consumers and schools. One highlight in the second quarter was Microsoft's Ability Week, a large-scale campaign focusing on increasing the awareness of accessibility and how Microsoft solutions can help with this. Tobii Dynavox employees and user ambassadors joined forces with Microsoft staff to demo Tobii products in Microsoft stores all across the U.S.
This was a great opportunity for us to raise awareness about our solutions among the general public and to put some of our power users and ambassadors in the spotlight. We were also invited to the Ability Week Summit, where Microsoft CEO Satya Nadella spoke several times regarding the positive impact eye tracking by Tobii Dynavox has brought to those with disabilities. Collaborating with giants such as Microsoft in these type of campaigns is of course important as we get a greater reach than if we only go through our own channels. Johan, with that, let's go over to you and the financials for Tobii Dynavox.
Thanks, Henrik, and hi, everyone on the call. Following the turnaround in Q4 of 2017 and some growth in Q1 earlier this year, Tobii Dynavox is now back in real growth mode when the new products and localization efforts are starting to impact the wider market. Adjusted for currency effect, revenue in the second quarter grew by 8% compared to last year, and this includes a negative backlog effect as well. Gross margin was down one point year-over-year, primarily driven by product mix and effect from different revenue recognition under the new IFRS 15. Our operating expenses were up, mostly driven by increased R&D efforts, some growth in headcount, as well as increasing sales commissions. Growth in expenses adjusted for FX was 10%, and the EBIT margin for Q2 was up both year-on-year as well as sequentially.
In the first six months, the business unit delivered FX-adjusted revenue growth of 5% and an EBIT margin of 10%. Back to you, Henrik.
Thanks, Johan. Let's move on to Tobii Pro. Tobii Pro provides comprehensive eye-tracking solutions and services that enable thousands of companies and academic research institutions to gain deep insights into human behavior, consumer experiences, and professional performance. Tobii Pro is the undisputed market leader in this space, with a global market share over 60%. Next slide. Tobii Pro continued the very strong and rapid growth trend that we've seen in the past quarters. Underlying this is a very strong portfolio of high-quality products, which are appreciated for their reliability and high data quality. The wearable eye tracker Glasses 2 continues to be highly demanded and is also an enabler of new ways of using eye tracker and new customer categories, especially in the enterprise field, where we see that more and more customers use the glasses in process and performance tests, which they roll out to multiple sites and facilities.
This also opens up for more volume deals than what we've seen historically. For instance, in this quarter, we landed a large volume order from a leading car manufacturer who intends to use the glasses in testing and optimizing the driver environment and controls. Our new high-end eye tracker, the Tobii Pro Spectrum, showed stellar results in performance tests published in the quarter, and this product is gaining increasing traction in the academic research market. In the second quarter, we launched the Tobii Pro VR Analytics software, which is a concrete deliverable from the acquisition of Acuity that we did earlier this year. I will get back to eye tracking analytics and VR in just a minute. Lastly, on this slide, Tobii Pro has gained significant market share in the past year, not the least because of the departure from the market of our former competitor, SMI.
This gave us an additional boost also in this quarter, as we have been successful in capturing a large portion of SMI's former business. We estimate that the effect from this on the year-on-year growth will decrease moving forward, as it has now been a year since they left the market. Next slide, please. In the field of human behavior testing, there is a growing interest in conducting eye-tracking studies, specifically in virtual reality environments. In addition to our desktop solutions for screen-based studies and our eye-tracking glasses for real-world tests, Tobii Pro has now also launched a solution for eye-tracking studies in simulated 3D VR environments. Eye-tracking studies in VR can help uncover the factors that drive human behavior across a very broad range of situations and applications.
For instance, it can help brands, retailers, and designers analyze the key drivers of behavior and decision-making throughout the consumer or shopper journey. It can open up for more efficient, more engaging, and safer training of individuals, particularly in complex and high-risk occupations such as industrial, medical, and emergency response. It is still early days for us in this segment, but long term, we believe that VR solutions could grow into a significant part also of Tobii Pro's business. Johan, over to you on financials.
Tobii Pro continued its strong growth trajectory with another really good quarter, with revenues increasing year-over-year by 37%, adjusted for FX. Our acquisition of Acuity in Q1 contributed partly, but overall, the foundation is our strong product portfolio with good growth in wearables and advanced hardware solutions. We continue to experience good growth in all our segments and geographies, although it is worth noting that Q2 is typically the weakest quarter during a calendar year from a seasonality perspective. Gross margin came in at 73%, flat year-over-year, but down one point sequentially. Operating expenses grew materially due to continued investments both in sales coverage and product development. The acquisitions of Acuity earlier this year, as well as Sticky last year, contributed to discrete increases in operating expenses. The key driver behind the operating expense growth is to capture long-term growth opportunities for the business unit.
EBIT margin compared to last year was up five points. However, we see a strong seasonal pattern, and typically earnings are much lower in the second quarter compared to the yearly average. In the first six months of 2018, Tobii Pro has delivered FX-adjusted revenue growth of 50% and an EBIT margin of 9%. Back to you, Henrik.
Moving to Tobii Tech. Tobii Tech is the world's leading supplier of core eye-tracking technology. Tobii Tech sells and licenses eye-tracking technology in the form of system designs, algorithms, platforms, ASIC chip centers, and cameras, application software, as well as IP. Tobii Tech addresses several very large opportunities. Core focus in the near to medium term is to build up a solid business in supplying eye-tracking technology to consumer PC gaming, virtual reality, and range of niche customers. In the longer term, we are convinced that eye tracking will be a major technology across a large portion of all VR and AR devices, PCs, tablets, and smartphones. Next slide. We continued to advance in the VR segment during the quarter. Ongoing projects with several large customers and partners progressed well. We've also entered into early-stage engagements and projects with additional potential customers.
Our relationship with Dell resulted in both a continued design win in the updated version of the gaming notebook, Alienware 17, and in the announcement of Alienware Academy, an upcoming training solution for esports, which includes Tobii eye tracking. A truly major milestone for eye tracking was passed in Q2 as a USB standard for eye tracking was approved by USB-IF. Microsoft also launched an eye tracking API for software developers as part of the latest release of Windows 10. Over the past year, we have invested in developing our next platform for eye tracking for computers, the Tobii IS5. We have now started the first designing projects for products that integrate the IS5, both with Tobii Group's own products as well as with external customers.
We also announced a collaboration with a display technology company called Lumus to integrate eye tracking into one of their developer kits for augmented reality. The value of eye tracking is just as strong in AR as it is in VR, consequently, we see a strong interest and are now engaging in several dialogues with major players in this space. However, since AR in itself is still at an early pre-market stage, we expect the time to high volumes in this segment to be somewhat longer. Next slide, please. Let's take a closer look at the VR segment for Tobii Tech. VR overall is a market that is expected to grow rapidly, sold by 2022.
Eye tracking provides very strong benefits, both VR and AR, we expect to see rapid adoption of eye tracking technology to the point that we believe that a majority of new such devices will have eye tracking built in already within the coming three to five years. Tobii is today clearly positioned as the leading supplier of eye tracking technology for integration in VR headsets. This is the result of significant investments and a lot of hard work over the past one and a half years. We are now working in more than five large integration projects with major customers and partners. These engagements have continued to progress well during the quarter, both technically and commercially. Tobii expects to see the first VR products with Tobii eye tracking integrated to be available in the market possibly late 2018 or during 2019.
Most of the projects we're engaged in today target products in market during 2019, some in 2020. As mentioned already, we have, in addition to these customer projects, also entered into early-stage engagements with additional potential customers during the quarter. Next slide, please. In the past quarters, the interest in using eye tracking in streaming and esports has grown significantly, we continue to work in close collaboration with our lead customers in PC gaming around this. Dell announced Alienware Academy, which is an online training platform in which Tobii eye tracking will be used for performance feedback for players to take their game to the next level. Dell also launched the updated version of their Alienware 17 top-of-the-line gaming laptop with built-in Tobii eye tracking. This is something we mentioned briefly already in the Q1 report.
In streaming and esports, eye tracking is not per se about gaining advantages in the gameplay through better or faster interaction. Instead, it is primarily about two other benefits. One, to provide an additional dimension to the entertainment for those who follow live or broadcasted games by being able to see what the game player is actually looking at. Second, providing enthusiasts and pro gamers with insights that help them improve as gamers. In the past quarters, Tobii eye tracking has been used in broadcasting of ELEAGUE esports tournaments. It's also gained significantly increased traction among streamers who stream their gameplay on platforms such as Twitch, YouTube, and other online channels, including several absolute top streamers. During the quarter, we launched new software that improves the streaming experience further. What is the value to Tobii Tech of this?
As we increase the end-user benefit of eye tracking, which includes both more and more games with immersive eye-tracking experiences, but also great eye tracking streaming capabilities and new esports analytics, this helps drive sales of both our own Tobii gaming peripheral, as well as sales of our customers' devices with built-in eye tracking, such as the Alienware laptops. Next slide, please. Standardization of eye tracking technology is an essential part in reaching high adoption in mainstream products. This is something that Tobii has been focusing on for a long time. In the second quarter, we passed two major milestones in this area. Firstly, a new USB Human Interface Device standard was approved for eye trackers as a result of work done by Tobii in collaboration with Microsoft, Intel, and EyeTech DS.
This is great news for many reasons, not just for Tobii, but for the entire eye tracking industry, for users and for developers. Essentially, this is a key condition for making eye tracking a standard sensor technology for consumer electronics, enabling more robust and widespread adoption of eye tracking across a wide range of devices and applications. Having an industry standard for eye tracking gives consumers better predictability if a device is compatible with an operating system, game, or application. Developers get better leverage on their investments in adding eye tracking functionality into their software across a variety of different devices. For device manufacturers, this enables a much richer user benefit with many applications and use cases, as well as a deeper and better device and operating system integration.
With this step, eye tracking technology is joining the family of devices, including mice, keyboards, game controllers, digitizers, and touchpads that are standardized by usb.org. Big milestone for eye tracking. Secondly, Microsoft launched a Windows eye tracking API for developers that will make it easier and quicker than ever before to integrate eye tracking features into Windows 10 applications. The intent is to improve eye tracking experiences for end users and enable developers to easily incorporate eye tracking into all kinds of software applications, from apps that make Windows 10 more accessible to immersive gaming experiences. Johan, back to you.
Thanks, Henrik. The revenues for Tobii Tech in the quarter were up 8% year-over-year or, adjusted for FX, 5%. This quarter was the PC gaming segment which contributed strongest to the growth. The NRE from VR customers are somewhat cyclical in terms of when they come in, and they were lower this quarter than Q1. The gross margin was up 7 points to 50%, primarily due to product mix driving a lower cost of goods sold than last year. As in the last quarter, we saw a modest operating expense growth in the Q2, mostly due to some material non-recurring expenses in the comparison quarter. We have grown the organization in Tobii Tech significantly in the past few quarters in order to pursue multiple sub-segments, but going forward, we anticipate this growth to slow down.
In the first two quarters of 2018, Tobii Tech has delivered an FX-adjusted revenue growth of 20% and an EBIT of negative SEK 149 million, which is a 9% improvement compared to 2017. Next slide, please. Moving over to the group. The group revenue showed a material growth in the second quarter, an increase by 17%, adjusted for currency effect, and all three business units contributed to this growth. Gross margin for the quarter was 70%, down 1 point compared to the year before, but in line with Q1 of 2018. Tobii's EBIT for Q2 was a negative SEK 59 million, which was better than last year despite the ramp-up in resources. The FX development in the quarter resulted in a positive effect from revaluation of trade working capital of SEK 7 million.
In the first half of 2018, the group delivered FX-adjusted revenue growth of 17% and a 26% improvement in EBIT compared to H1 of 2017. Next slide, please. Let's round up with a look at our cash flow, which was a negative SEK 62 million in Q2. The change versus last year was driven by the improvement in EBIT and a decrease in net working capital. We continue to have a strong cash position of more than SEK 400 million at the end of the quarter. That concludes the financial section. Back to you, Henrik.
Thanks, Johan. Quick summary of the second quarter. In Tobii Dynavox, we saw a strong sales trend with increasing growth driven by great customer response to the new products launched last year. Tobii Pro delivered yet another quarter with very strong sales, and Tobii Tech continued to have good momentum, in particular in the VR segment. With that, we are done with the presentation, and we're handing back over to you, Clodagh, and any questions from the teleconference.
Thank you very much, sir. Ladies and gentlemen, if you wish to ask a question via the telephone, please signal by pressing *1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signals to reach our equipment. Once again, it's *1 if you wish to ask a question over the audio. We will now take our first question from Mikael Laséen from Carnegie. Please go ahead.
Yes. Hello. Thank you. Yeah, I have a few questions. First one is a quick one regarding Tobii Pro's operating costs. SG&A, more specifically, what happened there? It increased quite a lot sequentially and, of course, year-on-year as well. Can you say something what you have done there and how we should maybe model that ahead if this is the level that you are expecting to have also going forward?
Yes, Mikael, I can take that question.
Of course, we're increasing sales coverage and investing in that. Some part of that should be long-term, in your model. We have some non-recurring items in the quarter, but also in relation to earlier quarters and specifically year-on-year, you both have the two latest acquisitions, which is adding those headcount expenses, basically. That's probably around something like 30% of the growth is coming from previous M&A activities.
Okay, great. I have a few questions regarding Tobii Tech. First of all, if you can say something about the development in the VR area and maybe elaborate on eye tracking in general from a technology perspective in VR, where you are in terms of hardware and software integration. That was my first tech question.
I can take that one, Mikael. Henrik here. In general, we see these integration projects with customers progressing well. The technology integration overall is going very much according to plan. The focus very much for the Tobii Tech organization is to put a lot of hard work on a lot of small pieces to bring these projects all the way to finished products together with these customers and partners. Overall development is going really well, but it's a comprehensive effort in pushing everything across the finish line, everything from hardware to algorithms. In particular, at this stage, it's also around the user experience and the software applications and working with the ecosystem to make sure that there is applications and user benefits available for consumers when these products hit the market, primarily next year.
It's a very intense phase in finalizing product development for several of these projects.
Okay. Is it more challenging with the software side, or are you finalized or finished with the hardware side that you feel that part of the integrations are mature?
Generally, we don't see any major risks in that sense. The technology is generally working well, and we're confident that the eye tracking signal will perform well. There's no significant risks as such, I would say. It's more just a matter of a lot of work that has to be done to finalize things. We know from experience that putting the entire user experience together, so that this becomes a seamless and attractive, compelling experience for consumers that is fully integrated into their virtual reality experience, that takes quite a bit of effort and heavy lifting from us, our customers, but also other partners in the ecosystem.
Okay, got it. The outlook for Tobii Tech, can you say something about how we should think about the revenues for Tech in the second half 2018, regarding the VR side, the products that you have and PC gaming and other projects and into 2019 would be helpful? Thanks.
Specifically during 2018 for the VR segment, we expect to continue to have some so-called NRE revenues, which are essentially revenues from customers during the development phase of the product. They tend to be relatively modest revenues. The bulk of our revenues in our business model is Tobii making money when our customers are shipping products with per unit fees. We expect that to start scaling in 2019, and then, of course, even more so in 2020. For the remainder of 2018, we should expect quite modest revenues from the VR segment. For PC, we expect to see fairly stable sales until we announce additional and broader design wins and go into more PC models.
Okay. In the VR side here, is there any significant launches already in 2018, or is it maybe late 2018? Could there be something that could improve revenues from this level significantly?
We do not expect any large launches that would drive significant revenue during 2018. This is always subject to our customers' planning. It's not under our control necessarily, but it's up to our customers, of course, when they choose to launch their products. We don't expect to see any significant revenues from actual shipping units for VR during 2018, but rather starting in 2019.
All right. Okay. Another question on IS5, if I may. Can you talk about how that platform differs from IS4 and what you can do with that you couldn't do with the old one?
Some of the key improvements in IS5, one of them is that in previous eye-tracking systems from Tobii, the illumination that is used as a basis of the technology is actually slightly visible, which some users actually perceive as somewhat annoying and something that we believe hampers adoption and growth of eye-tracking. The IS5 is Tobii's first eye-tracking system, where the illumination can be made completely invisible to the user, which we think is a great benefit for device manufacturers when they choose to integrate the technology. This is also combined with the fact that IS5 is significantly smaller in size and more power efficient than any of our previous eye-tracking generations, which makes it, also for that reason, much easier to integrate the eye-tracking platform, in particular into small form factor laptop devices and tablet devices and so forth.
Both of these factors contribute to making the technology much easier to integrate, which, of course, can help drive adoption. Also, the performance is increased even further to improve on the reliability and the plug-and-play characteristic of the technology, so that it works on virtually everyone under virtually all circumstances. Those are some of the key differences.
Okay. Sounds great. What type of form factor can you integrate this into? What's more efficient, if you know which?
Yeah. IS5 is specifically designed for integration into laptops, into desktop monitors, into peripheral devices. It could also, with some additional development, be incorporated into, for instance, tablet devices. It's not a platform that specifically has been designed, for instance, for smartphone use. For smartphone, we are looking at different technology approaches or different technology platforms than the IS5.
Okay, great. Thank you. I get back in line.
Once again, ladies and gentlemen, please signal by pressing star one to ask your question over the audio. We will now take our next question from Morten Larsen from ABG. Please go ahead.
Yes. Thank you guys for taking my questions. A couple of questions starting out with Johan on the Tobii Dynavox gross margin. You argue that it's IFRS and mix that drives a bit of weakness here. It's even a bit more weak than I had expected. Can you talk a little bit about whether you've seen any gross margin erosion within touch, for example, or within the eye-tracking segment, specifically, on this during the quarter? Second question is on Tobii Pro. Could you talk a little about what kind of volumes we may expect when you say that a car manufacturer has had, I think you use, that there are significant volumes to come from that order. Thirdly, Henrik, gaming in relation to Mikael's question.
Fourthly, there's been some discussions around the HTC and this come up that had some financial issues. Have you heard or seen any changes to their appetite around VR and eye-tracking for this, in relation to those questions on the HTC financial troubles? Thank you.
All right. I guess I'll start, Morten. Thanks for those questions. You asked about Tobii Dynavox gross margin. No, we haven't seen any erosion in any of our different product families. It's always like that. You have a mix in each quarter, which can drive somewhat of a difference, but that's not actually the key difference here. I think, as I said, when we are deferring revenues in a different fashion now under IFRS 15, it might mean that we defer the same kind of revenue on a lower ASP, which means higher in relative terms. Those mathematical effects will lead to a slight gross margin change. Also, we have invested somewhat in terms of tech support, which is sort of semi-fixed resources sitting in cost of goods sold, and to drive even greater customer satisfaction. That's a small item as well.
Maybe just to-
Henrik?
On that. Yes. Yeah, no.
Go ahead.
Continue.
Do you want to follow up on the gross margin, or do you want Henrik to continue?
Yeah, just a little bit on that, because you also mentioned that you have double-digit volume growth in Dynavox. Can we interpret this to mean that it's double-digit in touch segment? Can you touch upon what kind of volume development you have had in the eye-tracking segment?
Yeah. Yes, it is doubling the volumes in touch, and eye-tracking has been fairly flat, when it comes to growth.
That's eye-tracking volumes that are flat, right? That's what we're talking about.
Correct.
Has there been an acceleration in the touch volumes since, or the last couple of quarters? We have been indicating of very strong volume growth in this segment, I think it's the first time I've heard you guys saying double digits or to double, i.e., more than 100%. Have you seen some kind of acceleration here very recently in this?
Yeah. This is slightly higher than in what we have talked about in Q4 and Q1.
What made that-
Henrik, do you want to-
For me.
Henrik, do you want to elaborate more on that, the trend?
Yes. I think we have, generally in both the first and the second quarter of this year, we've seen compared to last year, and also in the fall of last year, we've seen a significantly higher volume of sales in the touch segment, as we get real adoption in the market. We know from experience that it takes time for the market to adopt in this market when we launch new products. This is the technology market, it's not that fast-moving. Several of these products were launched middle of 2017, so that we start seeing real adoption now in the market in the first half of 2018 makes perfect sense.
Going forward, I know you don't want to guide for the future, there will be 2 effects happening in the second half of 2018. There will be annualization of volumes from the new products, you'll have a continued higher adoption trend. Which of those 2 trends do you think will be more prevalent or bigger in the second half of 2018?
You're right, we don't guide specifically on specific forward periods, we do feel that we are in a good sales trend. We saw a solid and strengthened growth in the second quarter. I am positive for the outlook for Tobii Dynavox going forward. As you know, we have our long-term financial target to grow Tobii Dynavox by 10% per year. On average, over a longer period of time, that's definitely an appropriate target for Tobii Dynavox.
Okay. A question on the car volumes, the gaming, and HTC, perhaps.
Sure. I can take those, perhaps. The specific order from a car manufacturer within Tobii Pro is interesting. It's an example of where we start seeing volume orders of Tobii Pro products. That's something we haven't really seen in the past. We see that now with different types of enterprise customers in particular. This car manufacturer is one example of that. When we say volume orders in Tobii Pro, we're not talking thousands of units. We're talking several dozen of eye-tracking glasses, for instance. That can still make up for a single order, several million SEK for Tobii Pro.
It's interesting to see that, in this case, it's a car manufacturer that is not just buying one piece of equipment to do very specific research, but they're actually buying several dozen of units to deploy a methodology for doing quality assurance and user testing on a much larger scale. Hopefully, this is something that can, in the future, lead to additional orders also with this car manufacturer. Of course, there's many car manufacturers out there, that hopefully will need the same type of equipment and solutions. Your second question, Morten, or your third question rather, was on-
Gaming and-
The gaming orders and the outlook there. We generally see increasing interest and demand for eye tracking in gaming. We see, in particular actually, quite a bit of excitement around streaming and e-sports analytics and using eye tracking for that. We're working hard to build up solutions and offerings around that together with partners like Dell. It's still a little bit too early to tell what that is going to translate into effects on actual design wins and sales volumes. I think we're going to have to allow ourselves a little bit of time before we see the final outcome of that. We definitely continue to have a very strong partnership and a good relationship, for instance, with Dell around topics like this.
You also had one question on HTC and financial issues and whether we have seen any impact on sort of HTC's appetite for VR in general. I guess it's an interesting question sort of for the VR segment overall. It's important to emphasize, I think, at least my perception, and I don't claim to be an expert on the topic, but my perception is that HTC's challenges are predominantly on the smartphone side. They have been very successful in the VR segment, even though it's an area that likely requires significant investment still from their side. HTC is definitely one of the stronger brands and products in the VR market, having been a strong pioneer in that field. As far as we have seen, we haven't seen any indications that HTC would lose sort of appetite or focus on the VR segment.
That's brilliant. Thanks, guys.
There are currently no further questions in the telephone queue for now. I would now like to turn the call to Sarah for any questions on the web.
Thank you. We have a couple of questions from Tom to start with. His question is, "Can you elaborate on the impact you think that the new version of the eye tracking chip releasing this fall will have for Tobii?" It's regarding the IS5.
Apologies, Sarah, could you just repeat? I didn't hear some of the words in there.
What impact do you think that the new IS5 platform will have for Tobii?
I think that the IS5 platform will enable a new series of design wins. We can incorporate IS5 into Tobii's own products and make them even better, even more competitive to grow our sales of eye-tracking, Tobii-branded eye-tracking products. I also believe that we can, together with integration customers, realize even better eye-tracking integrations and products for them. Over time, I expect IS5 to help drive adoption and higher volumes of eye trackers across PC, including gaming and other applications. It's likely that we can see concrete sales results from that during 2019, starting in 2019 and taking full effect in 2020 and onwards.
Okay. Tom's second question is, "Are you still convinced that a majority of the VR collaborations will materialize in design wins?
Short answer, yes.
Okay. We also have a question from Bo Engvall. He says, "Hi, Henrik. What kind of eye-tracking platform will be required for future integrations in smartphones? Has Tobii started to develop such a platform, or when will you do that?
Hi, Bo. Thanks for that question. Yes, we are looking and doing research and development on possible future eye-tracking platforms also for smartphones. It's a little bit too early to comment specifically on what that may look like and timelines. Obviously, we see long-term that there could be very interesting potential and opportunity for eye tracking also in the smartphone market.
Okay. There are no more questions from the web call. Do we have any more questions from the teleconference?
Yes. We have one further question on the telephone line. That question comes from Joachim Hedlund. Please go ahead, sir.
Yes. Thank you. I was very curious about If it's possible, because it's hard to understand your communication regarding how many eye tracking units you sell, if it's possible to make a model where you present how many eye tracking devices you sell month by month.
Hi, Jacob. Thanks for that question. We have so far chosen to not specifically disclose quantities. One of the key reasons for this is that this could constitute extremely sensitive data for several of our customers, integration customers in particular. I think that they would be very unhappy if we provided that type of information that could allow their competitors, in turn, to gain that type of insight. I think that's one of the reasons why we so far have chosen not to disclose quantity information.
Yes. That's very interesting because Smart Eye, they made an order and their CEO could communicate it was an order worth SEK 100 million, even very optimistic about repeat orders is worth SEK 500 million. Are you able in the future to communicate this way or the investors have to guess?
It probably will depend from situation to situation. We definitely aim and try to be as transparent as we possibly can, and provide as concrete as possible on the information. I think that for some of our major integration deals, we will definitely be able to communicate in that way. In other cases, it might be more difficult.
Yes. For Tobii Tech, if you compare them with your competitor, Smart Eye, who's focusing on the car market, do you expect much larger orders or in the same numbers?
Could you rephrase the question? I don't really understand the specific question. Can you rephrase it?
Yes. Smart Eye, your competitor in eye tracking for cars. As you know, they focus in cars and their order size, do you expect much larger orders or in the same ballpark?
It's very difficult for us to communicate and speculate on order size before we actually are communicating the orders. I think that we will have to wait with that communication until we're actually disclosing specific orders and that time.
Yes. You cannot guide the market if you're going to make orders for Tobii Tech for SEK 100 million or SEK 500 million or nothing.
What we are providing as one form of guidance is long-term financial goals and our outlook on the market and the opportunity for Tobii Tech. One thing that we are stating is that we believe that Tobii Tech as a business has the opportunity, and we clearly have the ambition to build a business with a revenue of several billion SEK per year, with very good and healthy profit margins. That is still several years out before Tobii Tech reaches that point.
Yeah. Okay. Thank you for that clarification. That would be very nice to communicate with maybe month by month if this market is coming, because not many people seems to believe this. The stock price is going down 4% today and Dynavox and the other area works good, Tobii Tech, nobody seems to believe it's going to happen. If we had to communicate something month by month, if it's something coming up, something is happening.
We are communicating that we are making significant progress in the VR segment and that we expect to start shipping products maybe at the end of 2018 and definitely during 2019 and 2020, and that's when we will see revenue start driving within Tobii Tech from the VR segment. I think that's strong guidance in that regard.
Okay. Thank you very much. I also wonder if you are going to make any road trips for more investment communities, because I think today you had Carnegie and one more. Do you make road trips for larger companies like Swedbank or Nordea or Merrill Lynch or?
Yes, we do. We regularly participate in various investor communication events, both in terms of road shows and larger presentations, both in Sweden and internationally.
Yeah. Okay. We hope that more and more will write about Tobii, and I wish you good luck.
Thank you, Jacob.
Bye.
As there are no further questions at this time, I would now like to turn the call back to our speakers for any additional remarks.
I think that we are done with today's call. Thanks everyone for attending the call today, and thanks for good questions. Have a great day, everyone, and I hope to see you again on our next earnings call. Thanks everyone. Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation today. You may now disconnect.