Thank you, Saskia. Hi everyone, welcome to this earnings call for the first quarter 2017. I am Henrik Sjöquist, and with me is also our interim CFO, Tomas Kilstrand. Tomas has been with us for a few weeks now and will serve as interim CFO until Johan Wilsby comes on board as our new permanent CFO in June. With that, let's start the presentation. If we flip to the next slide, we continue to pursue ambitious strategies for all three of our divisions, Tobii Dynavox, Tobii Pro, and Tobii Tech. We have a high pace of investment in product development in all business units and are also gradually expanding each of the sales and marketing organizations. Overall, we have grown the company significantly in the past year and continued to grow also in the first quarter, particularly in Tobii Tech, counting in employees.
Compared to a year ago, we've added nearly 100 new colleagues to our team and are now over 750 employees worldwide. Sales in the first quarter were below expectations in Tobii Dynavox and also a bit slow in Tobii Pro. On the positive side, we had a strong revenue increase in Tobii Tech compared to the first quarter last year. Let's go through the developments in each division in a bit more detail, starting with Tobii Dynavox. The next slide. Tobii Dynavox accounts for roughly 70% of the group sales. This business unit is clearly positioned as the global leader in the field of assistive technology for communication, with a market share close to 50% globally. Moving to the next slide. Over the course of the past two years, we have made significant investments in product development within Tobii Dynavox, and even more so now in the first quarter.
As a result of this, we already introduced several products in the past year, and we plan to introduce a number of important new products during 2017. First out, just a few weeks ago, was the launch of our new speech tablet called Indi and our brand-new communication software, Snap. Both of these are strategically very important products for the business unit. Let's flip to next slide on Indi. Indi is a product that is the first of its kind in the world. We have here designed a tablet device specifically for the purpose of effective speech communication. It's sleek and user-friendly like an iPad, but it comes with very powerful speakers that makes your voice heard in a classroom or in a restaurant.
It is semi-rugged to withstand around-the-clock, everyday usage, and it has exactly the right ergonomics, accessories, and service options to be truly fit for purpose as a communications device. It comes at a very attractive price point, starting at $999 USD, including industry-leading software, ready to go out of the box. Tobii Dynavox has also launched e-commerce sites to make Indi, Snap, and other products available for direct online purchase in select markets, thus not only lowering the cost barrier, but also making it easy to get a hold of these products. We believe that this is a truly disruptive product offering in this market, and our goal is to take significant market share from solutions based on regular consumer tablets that frankly really aren't fully appropriate as communication solutions.
With this, we aim to increase our sales into schools and directly to end users in what we call the private pay segment. We also believe that this type of product long term opens up for new opportunities in many geographical markets where access to reimbursement is still limited or non-existing. Bringing out an offering like this rhymes very well with our mission in Tobii Dynavox to bring the power of a voice to many more people. There are so many individuals with communication impairments who really need this and whose lives we can help to fundamentally improve with this type of device. Worth mentioning is that Indi addresses the touch device sub-segment within Tobii Dynavox. This, in turn, makes up around a quarter of current sales of the business unit. Eye-controlled devices make up the bulk of the other three quarters.
Let's move to the next slide with some more information on the Snap product. Snap is our brand-new software for symbol communication. Snap makes it possible for users who are illiterate to express themselves in very effective ways. Typical user groups for Snap and also Indi are non-verbal autism, cerebral palsy, Down syndrome, just to mention a few. The software, together with the so-called Core First language system that it contains, is based on decades of leading clinical research in language expression and language acquisition. Compared to Tobii Dynavox's previous symbol communication software, this product is much easier to use, much more responsive, and much more capable.
An important new addition also is that the software comes with a companion app called Pathways, which is a very comprehensive instructional and training solution that enable end users, their parents, teachers, therapists to obtain a robust and interactive guidance in how to learn to communicate using this solution. Our intent is to make Snap our flagship software across a broad part of Tobii Dynavox portfolio solutions. It is the default software on the new Indi device, and it's also available on our eye-controlled I-Series communication devices. It will soon be available as a pure iPad app as well. Our long-term goal is to make Snap the gold standard and most widely used symbol communication software in the assistive technology industry, which is a very important strategic position to take and to hold. Let's move to the next slide, and talk a bit about how this all fits together.
These new products, Indi and Snap, they form key pillars in our long-term product strategy for Tobii Dynavox. Again, as I mentioned previously, we have two main sub-segments within the business unit, eye control devices and touch-based devices. In the presentation today, I'm going deeper in describing our strategy specifically for the touch-based devices. Within this sub-segment for touch-based devices, we see 3 price categories. At the top are medical-grade devices that are sold as complete solutions with purpose-built hardware, comprehensive software, extensive services, and warranties, typically sold through medical reimbursement systems. Here, Tobii Dynavox is already established as a market leader. We believe that this market will remain, and we're investing to come out with even better and stronger products to long term grow our market share even further in this area. In the middle, we see consumer-grade solutions.
These are lower-cost options that have until now been built and offered by some of our competitors using off-the-shelf consumer tablets that they wrap in a casing, add some speakers, add software, et cetera, and sell it primarily to schools, and in some regions, also via reimbursement. Here, Tobii Dynavox has not previously had any offering. With Indi and Snap, we are directly targeting this price segment, but with a much more capable product offering. We believe there is significant opportunity here already today, and that this sub-segment also has plenty of opportunity to grow going forward. At the bottom are the lowest cost solution, software sold as pure apps that run on consumer tablets such as iPad, typically bought directly by end users.
These apps are important as an entry-level solution and to spread awareness and acceptance of communication software. It also serves as a base for upselling to solutions that are more fit for purpose. Tobii Dynavox has a legacy leadership position in the medical-grade solutions stemming from the acquisition of DynaVox that we did in 2014. For the past two years, we've executed on a strong, ambitious strategy to become the market leader across all of these 3 price levels. I believe that if successful, this will drive growth long term, both by increasing our overall market share and by increasing the penetration in the market overall, and thus further reinforce a very strong market position for Tobii Dynavox. Let's move to the next slide with financials for the business unit. In the first quarter, revenue decreased by 3% compared to Q1 2016.
Adjusted for currency effects, the decrease was 7%. Adjusted also for a positive one-time effect from Steve Gleason Act that we had in the comparison quarter Q1 2016, the decrease was 5%. Sales in Europe, outside of the U.K., grew at a strong, healthy pace. Sales were lower in the U.S. and in the U.K. Sales were negatively affected by the same main factors as we have described in the previous couple of quarters. One effect was the price reductions that we implemented in April 2016, which has meant that ASPs were lower than in the comparison period. We also continued to see slower sales of our older touch-based products, which largely stemmed from DynaVox prior to the acquisition and that have been in strong need of a refresh.
We saw significantly lower sales in the U.K., driven by the switch to direct sales that we implemented last year. We are, of course, disappointed with the sales in the first quarter in Tobii Dynavox. Our long-term target is to grow top line in this business unit by at least 10% per year. Once Indi and Snap, as well as additional upcoming products, have been firmly established in the market, we believe that these will contribute to driving healthy growth going forward. The lower EBIT margin was a natural consequence of the slightly lower sales in combination with the slightly increased operating expense. With that, let's move on to the Tobii Pro business unit. Tobii Pro makes up about 20% of the group sales. This business unit is the global leader in eye tracking research solutions used for understanding human behavior, with a global market share close to 50%.
Let's turn to the quarter highlights slide for Tobii Pro. In the first quarter, we saw continued strong sales of our flagship product, Glasses 2. Examples of areas where we see increasing interest is in large studies of how people interact with a broad variety of media in their everyday lives, as well as human performance, training, and skill transfer applications in industry, transportation, sports, et cetera. On the right here on the slide is an interesting video snippet showcasing differences between experts and novices playing piano as an interesting example. As you may remember, we launched a new top-of-the-line research eye tracker, the Tobii Pro Spectrum, at the end of last year. We also announced a new research software platform, Tobii Pro Lab.
Both of these products have been received well in the market, the new Spectrum eye tracker will not start shipping to customers until now in the second quarter. This means that we have a fair amount of orders taken in the first quarter that we will not ship an invoice until now in the second quarter. We continue to invest to broaden our product range and offerings also in Tobii Pro, both to address the high-end research segment, as well as targeting customers that need more cost-efficient, high-volume, and scalable solutions. We are also gradually expanding our global sales and marketing organization. Let's move to the financials for Tobii Pro.
When we look at the financial numbers for Tobii Pro, it is important to remember that we have historically always seen a strong seasonal pattern, with a revenue spike specifically in the fourth quarter each year, and comparatively lower sales in the other three quarters of the calendar year. In the first quarter, sales of Tobii Glasses and Tobii Insight grew nicely. Sales of screen-based eye-tracking solutions were slower, in part due to the fact that we took orders but did not ship and invoice the new Tobii Pro Spectrum, but also due to weaker sales of mid-end priced eye-tracking systems. This resulted in a total revenue growth of 3% or a 1% decrease adjusted for currency effect. Adjusted also for order backlog effects, sales grew by around 5% compared to the first quarter in 2016. Gross margin was strong at 75%. Operating profit came in at around zero.
The lower EBIT compared to the first quarter 2016 was mainly explained by the already mentioned order backlog effects, also somewhat from increased spending in sales and marketing. Let's move on to the Tobii Tech business unit. In Tobii Tech, our ambition is to introduce eye tracking in large scale into volume markets such as gaming PCs, mainstream computers, virtual reality, smartphones, and beyond. At the very end of 2016, we closed our financing round, which contributed approximately SEK 450 million to Tobii. This enables us to continue with our ambitious plans to bring eye tracking into the PC gaming market and beyond that, to mainstream computers and tablets. To, in parallel with this, increase our investments in the new verticals, virtual reality and smartphones, which also have large long-term potential. We are breaking new ground here and are introducing new technology, new user experiences.
The opportunity is large, but the work required to succeed is also significant. This will take a lot of resources as well as calendar time to accomplish. Through the share issue, Tobii has a strong financial position, which gives us the muscle and the stamina that we believe will be required to succeed with this. Let's turn to the next slide with quarter highlights for Tobii Tech. We continued to see good traction in the PC gaming segment in the first quarter. A number of new games were released in the past few months that support Tobii eye tracking, including several very large titles such as "Dying Light," "Rise of the Tomb Raider," "Ghost Recon Wildlands," and now in April, also "SOMA" and "Warhammer: Vermintide." All in all, we can now provide additional experiences in some 60 games using eye tracking.
In the quarter, Acer officially announced the V Nitro, which is the first laptop with built-in eye tracking that goes beyond gaming to target users also in mainstream computer usage. We are collecting feedback from our early adopter users on the launched gaming devices. From those users who have actively tried eye tracking, received positive feedback on the user experience, which, of course, is very encouraging. In the first quarter, we also publicly showcased some of the work that we've been doing in virtual reality over the past several quarters. At both the GDC and SVVR conferences, these are two of the leading conferences for developers as well as for the VR community. We showcased a modified HTC VIVE headset with integrated Tobii eye tracking and a number of user experiences in VR games. This is in part a result of an R&D collaboration between Tobii and Valve.
Valve is a major player in the gaming space, who is also behind a lot of the core technology in the HTC VIVE VR headset. These Tobii VR prototypes received a lot of positive interest and have, of course, further increased the interest in Tobii's eye-tracking solutions for VR. We are entertaining multiple dialogues with potential partners and customers with the aim to integrate our eye-tracking technology into several future VR headsets. In the smartphone segment, we have continued to develop our technology and new interaction concepts. These are still early steps on a long-term journey. Let's move to the Q1 financials for Tobii Tech. Revenue increased by 82% year-over-year or 76% adjusted for currency effects. The external sales almost quadrupled, albeit from low levels. Despite this, sales were somewhat lower than in the fourth quarter last year.
As you may recall, we mentioned already in our last earnings call that we had significant one-time effects in Q4 2016 due to customer projects of one-time nature and stock build-up effects with some of our major integration customers. Gross margin in the first quarter was intact at 41%. We have grown the organization significantly in Tobii Tech in the past quarters in order to pursue multiple subsegments in parallel and enable us to work in tight integration projects with multiple parallel customers. The largest growth was in R&D, we've also increased our resources in sales marketing. This, of course, drives increased OpEx, which means increased level of negative EBIT in the business unit. Compared to Q1 2016, the operating loss increased from SEK 49 million to SEK 76 million. With that, I hand over to Tomas.
Thanks, Henrik. Let me lead you through the summary for the group financials. Please turn to next page, Q1 revenue. In the first quarter, revenue increased to SEK 261 million or by 4% compared to the same period last year and was more or less flat adjusted for currency effects. As Henrik mentioned, Tobii Pro was in line with last year, while Tobii Dynavox, in spite of good development in many markets, decreased due to the development in the U.K. and U.S. This was, however, more or less compensated by the strong external revenue growth in Tobii Tech. As you can see, gross margin for the quarter was 71%, or same as the previous quarter, Q4 2016.
Compared to Q1 2016, gross margin was however somewhat lower, and this due to changes in product mix, the price reduction on certain products within Tobii Dynavox during the second quarter of 2016, and the increased sales by Tobii Tech. Let's move on to the Q1 results. Please turn to next page. The group's EBIT for Q1 this year was minus SEK 56 million. EBIT for our two profitable business unit, Tobii Dynavox and Tobii Pro, was lower than last year due to reasons mentioned earlier by Henrik. Regarding Tobii Pro, it's worth remembering that the profitability from quarter to quarter can show quite big variations, mainly due to seasonal variations in sales. Within Tobii Tech, we continue to invest in accordance with our strategy, which is also the main reason for lower EBIT in total for the group when comparing with Q1 2016.
Let's move to the next page on the balance sheet and cash flow. Cash flow of the continuous investments for the group was minus SEK 45 million in Q1 2017. The change versus last year was related to the EBIT development and the increased investments within R&D. As you can see, we continue to have a strong cash position of SEK 730 million at the end of March, as well as a strong balance sheet with an equity ratio of 81%. In other words, well prepared to meet future investments. That concludes my part of the presentation. Back to Henrik.
Thanks, Tomas. In summary, the first quarter was another intense quarter. We continue to grow the organization. Tobii Dynavox worked intensely on important new product launches, and in Tobii Tech, we saw continued momentum in PC gaming and increasing investments and interest in VR. Sales was slow in Tobii Dynavox and somewhat also in Tobii Pro, but a strong increase in Tobii Tech over Q1 last year. With that, we're handing over back to you, Saskia, and to questions from the teleconference.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please press the star or asterisk key, followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question today. We will pause for just a moment to allow everyone to signal. We take our first question today from Mikael Laséen from Carnegie. Please go ahead.
Yes, hello. Thank you. A few questions here. First of all, when it comes to Tobii Dynavox, can you say something about the main reasons for the U.S. sales decline? You talked about the touch side, but if you can comment on the overall market situation and reimbursement that you have right now, would be great.
Hi, Mikael. Yep, happy to do so. The main reason that we saw slow sales in the U.S. is that we generally see slow sales in the touch device subsegment within Tobii Dynavox. Again, products are old. They stem from prior to the acquisition of Dynavox, and they've had, for some time, a clear need of a refresh. The touch device sales have been very much concentrated to the U.S., so we've had very little historical sales of touch devices in Europe, but it's been a reasonably important part of the sales in the U.S. market. When we have a decline in that part of the portfolio, that hits the U.S. side of the business. If we look specifically at the other effects in the U.S., we have not seen any specific changes in the market climate or in reimbursement regulations, et cetera.
There's been no significant changes there. We have had some indications of tougher implementation of certain rules and regulations on case-by-case basis. Whether that is part of a longer-term trend or just a few case-by-case situations is probably too early to tell. I hope that answered the question, Mikael.
Okay. No changes really in the way that prescribers and so on are working at all, or just on a case-by-case basis. That's correct, right?
Yeah, no specific changes in rules relating to reimbursement, but we've seen some cases of tougher application than normal. Of course, this is something where we have a continuous dialogue with different types of funding bodies. It's a bit of a mutual dialogue between us and other leading vendors in the industry and some of these leading funding bodies.
Okay. When it comes to the touch side, do you see that the competitors continue to perform well? This is a specific situation for you, or is it overall in the market, view on touch devices in general?
We do believe that there is a significant opportunity for us to grow market share in the touch side with a revamped and more powerful product portfolio in that segment. It's difficult for us to know the overall market trend necessarily, but we do believe that there is a future opportunity to grow the touch segment overall.
Okay. Do you know roughly the three segments in the touch side, the medical-grade, the new product category that you have launched, the size of them, shortly?
I would say that still today, the medical-grade solutions, if you measure in dollars, is clearly the largest dollar-wise part of the market. If you count the actual number of units and users, then the pure apps and also the middle level are significant in terms of volume. Even though the medical grade is the largest, there is still significant opportunity in the other two price brackets of the market.
Okay. Can you say something about the price that you will have on the Snap software and the separate app? Separately, I mean.
Yep. The Indi device, it starts at a price point of $999, and that includes the Snap software. Selling the Snap software on a standalone basis is slightly north of $100, between $100 and $200.
Okay. Thank you. Let me move on to our next question, which comes from Morten Larsen of ABG. Please go ahead.
Thank you very much. Hey, guys, a couple of question from my side here. First of all, going to Tobii Dynavox and going into Europe, you talk about a strong growth in Europe non-U.K. sales. Now that you say it's a strong growth and specifically highlight it, do you want to maybe talk about the size of this market, and also how you address it? Is it own organization or is it through distributor sales? That's one of them. The second is also coming back to the Snap device, Snap and Indi. I guess looking back into history at the Tobii Dynavox, they have been somewhat troubled in the past with a lack of differentiation between some of the price points you had out there.
Could you talk about, Henrik, how you will create that differentiation between the different price points or different segments of the market so you get sufficient bang for the buck on this one? Third point is on the Tobii Tech and the SEK 18 million in external sales. Could you talk about how happy you are with that number in Q1 versus where you were at the start of the quarter? Whether we should sort of, when we do our modeling, how we should look at this number going forward, is it a step change upwards that we're seeing from here during the remaining quarters of the year? That's my three.
All right. Thanks, Morten. The first question you had was a little bit on the size of the European market versus the U.S. market and a little bit on where we see the sales growth. Is it direct or indirect? Generally, we have within the Tobii Dynavox business unit, roughly 75% of the sales is in the U.S. market, and approximately 25% is outside of the U.S., predominantly Europe. That's the split. It means we do see a good sales growth outside of the U.S., if we also exclude the U.K., but it is in a smaller part of the total sales portfolio. In Europe, we have a mixed model where in some countries we sell direct, and in some countries, we sell through a strong network of resellers.
We do see good sales development in many of our European markets, both in those where we sell direct, as well as in many markets where we sell through resellers as well. Both of those models are working well for us.
Just to check, there have been no changes to European reimbursement systems in any of the major markets in Europe here lately?
No, there has no significant changes in reimbursements. We've had just recently some positive decisions in Canada. There is potential positive dialogues going on in a few other countries as well, but no significant changes specifically now in the first quarter.
How do you handle Canada? Is that out of the U.S. organization, or do you have separate business?
Yes.
Okay.
Yeah. Canada is, I would say, fully integrated into our U.S. sales organization.
Oh.
Your second question was relating to the differentiation across sort of the 3 price brackets, from the medical-grade to the middle level and then the pure apps. I think that this is a very key part of our strategy. This price differentiation is very important, where we genuinely believe in a strategy where we take a leading position across all of the price brackets. Exactly as you point out, the differentiation is of course key here, so that we can offer good value for money on all of the 3 price levels. On the top level for medical-grade devices, that are typically sold through reimbursement, some of the key differentiators are the medical grading in itself, which many reimbursement systems require and demand.
It's also important here to offer hardware and software solutions that are extremely fit for the purpose, that show an extraordinarily high degree of ruggedized design, very good speaker quality, very good ability to deal with actually a very tough usage environment 24/7 by our users. Also to combine this with a fairly comprehensive service offering, where the reimbursement system or the insurance system, it doesn't really only pay for a device, it actually pays us to solve the need of a user for an extended period of time for numerous years, and that we support the user through their entire needs for a number of years. That includes on-site installation and training, it includes multi-year technical support, it includes very specific warranty solutions, et cetera. That in total becomes an attractive solution for insurance entities.
However, when we talk about selling directly to private individuals or selling into schools that have very constrained budgets often, then we scale down on some of these service components, and we offer products that are still with the new Indi and Snap. We can offer products that are still very fit for purpose and considerably more appropriate than a pure consumer tablet, but they're still a lower cost solution also for us to provide to these type of buyers and customers. Of course, we've been working very carefully here on the differentiation, and it also is a reason why we did implement some of the price reductions that we did last year to make sure that the top-line medical-grade products actually sort of rhyme and harmonize well with the lower-priced solutions. That's a couple of comments on that. I hope that helped a little bit more.
It does. Yeah.
I think your last question was on the Tobii Tech sales number.
Yeah.
I would say that the Tobii Tech sales in the first quarter came in well in line with our expectations. We did not have any particular one-time effect in the first quarter sales in Tobii Tech as we did in the fourth quarter. I would say that what we saw in the first quarter was sort of the real actual sales level that we had in the first quarter, mainly together with our integration partners. It is also a good indication of sort of where we stand right now in terms of the sales revenue in this business unit.
Just to follow up on that. Those SEK 18 million external sales, how centered are they around maybe one customer, like Acer, versus or are they widely split over a number of different products? Could we see as maybe the Acer product begins to wind down in a couple of quarters that sales would drop significantly in this? How should we model this going forward between the quarters?
The revenue in the first quarter is a mix from multiple customers. It is Dell, it is Acer, it is a few smaller integration customers, and it is also our own sales of our Tobii Eye Tracker peripheral directly to end consumers. It is a mix. Our ambition is of course to, during 2017, obtain additional designs and gradually increase the sales revenue in Tobii Tech.
Okay. Maybe a final question, if I may, just on design wins. Can you talk about how you gauge the aggressiveness amongst some of your potential clients for signing deals in the near term or perhaps later in 2017?
It is always difficult for us to be very specific commenting on potential future design wins. We do feel that we are taking good steps forward, both I would say in the PC gaming segment, and we also see significant interest in the virtual reality segment. We clearly have the ambition to sign additional design wins during 2017, in these segments.
Okay. Thank you very much.
Thanks, Morten.
Thank you. As a reminder, ladies and gentlemen, that is star one for your questions over the telephone today. We will pause for a brief moment. We now have a follow-up question from Mikael Laséen from Carnegie. Please go ahead.
Thank you. I had a follow-up on the Tobii Tech side, well, it actually is about the VR market opportunity and the technology maturity that you are on right now and what you've done with Valve. What do you need to develop further to have a more mature offering or solution on the market?
I would say that we have taken great strides forward in developing our eye-tracking technology for VR. actually, I would say that we reached an important level now in the first quarter with some of the prototypes that we showcased on some of these trade shows that we mentioned previously, where I would say today we can proudly present an eye-tracking technology for VR that works well, and that is industry leading in terms of performance in the technology. It doesn't mean that we are done yet. We still have optimization and honing and tweaking, and VR is also a little bit particular in the sense that the technology needs to be somewhat adapted to each unique VR headset because the optics and the entire system solution for each headset is slightly different from headset to headset.
I would say that we have now reached a position where the technology makes it possible for us to go into final product development stages with potential partners. There is, however, also a need to develop the full solution around this. It's not just the core eye-tracking technology, but we also need to work together with partners, both our integration customers, but also other partners in the value chain to create the full solution. If you talk about functionality like social interaction with eye-tracking and VR, then it needs to be implemented into games or game engines. If we talk about foveated rendering to improve the graphics performance in a VR headset using eye-tracking, then it needs to be implemented into the graphics rendering engine and/or into particular games and applications.
There's also an intense work ongoing with other partners in the ecosystem, to create that full solution, which is important. On the other hand, this is something that we are well-positioned to do. We have already proven our ability to accomplish a lot of this with the work that we've done in the PC gaming market, and many of the partners are actually the same or very similar.
Okay. Can you discuss the timing of eye-tracking penetration in the VR market, broadly, how you expect this to develop? Can you have products on the market or partners can have products on the market with VR or with eye-tracking integrated already this year? Is that possible?
I think that this year we can definitely offer key partners development kits, that type of solutions. For actual consumer end user product, that could hypothetically be possible towards the very end of the year, but it's more likely that we see VR players coming out with headsets with fully integrated eye-tracking during 2018. If I'd speculate today, that would be my guess.
What is the approximate price difference for you in these areas that you are targeting? PC gaming, high-end notebooks, VR, and so on. Can you help us out there a bit?
I think that if you look at the total system solution cost for a device manufacturer, what it actually costs a gaming notebook manufacturer or a VR headset manufacturer to implement eye tracking, then the cost level is on the same order of magnitude. It's probably somewhat more expensive in a computer integration than it is in a VR integration. It's slightly lower cost, typically, in VR. We believe that what we are doing, at least in initial deals in the PC gaming market, we are providing the entire eye tracking system. All of the hardware components, we even put them together into a complete integration eye tracking component that is easy for a computer manufacturer to integrate as almost a standardized component.
In VR, it's more of a custom implementation of different hardware components, which actually also means that Tobii's business model is more focused, and we provide some core hardware components and licenses to algorithms and the system design, which means that Tobii's part of the total cost for the device manufacturer is lower, but on the other hand, with a higher gross margin. The profitability, the actual gross profit is comparable for Tobii, but lower revenue, but higher margin in VR than in PC. That is at least our expectation.
Great. Thank you. Can you also say something about the development in the market? If you look at, internally, vertically integrated VR players versus buying the best of breed on the market and integrating the technologies from third-party suppliers, where do you think the industry is heading?
On the PC gaming side, Tobii has a very strong competitive position. We are much ahead of competition there. If we look in the VR space, it's a more intense competitive situation. Also because the market for eye-tracking VR hasn't really happened yet. It's impossible to talk about market shares yet. We are competing with a handful of other independent eye-tracking technology companies that are pitching eye-tracking technology to VR headset manufacturers, and I would say that we are definitely one of the leaders in that category. Exactly as you say, there is also initiatives ongoing with some VR headset manufacturers that may or may not end up trying, and may or may not end up eventually developing own eye-tracking technology.
With a few of those players, it may come to a make or buy decision, whereas with most of them, it's probably a discussion of who to choose as an external supplier. I think, frankly, it's too early to tell how that's going to play out. I'm confident that there will be a significant opportunity for independent eye-tracking vendors in the VR space.
Okay. Thank you. Can you just quickly mention the order situation for Tobii Pro?
The actual order intake, which is a fairly raw form of looking at the sales performance, as we mentioned previously, it increased by approximately 5% adjusted for currency in the first quarter of this year compared to last year. In part due to the fact that we're not yet shipping the Spectrum device, it means that some of those orders did not translate into revenue, and that's why we ended up with a revenue that was pretty much flat, currency adjusted for the Pro business unit. It means that we do have some additional order backlog of a few million SEK coming into the second quarter.
Okay, great. Thanks.
Thank you. At this time, we have no further questions in the queue.
We do have some questions from the webcast. The first question is from Bo Engvall, and he is asking, "Will Tobii Tech communicate all coming design wins in the form of press releases as they come?
Hi, Bo. Significant design wins that are important for the business, we will communicate in the form of press releases. The timing for that is not entirely up to us, though, because it depends on considerations with our key partners and customers. Also, sometimes the concept of a design win is not binary. Sometimes it's a gradual process to obtain a design win, which means that a lot of work can already have happened until all the paperwork is actually finally signed, et cetera, and thus something that we can communicate. The timing of communication depends on many factors, but absolutely, if it is important, then eventually we will communicate such design wins.
Bo's second question is, "What is the yield requirement of Tobii Tech, if any, on the very large planned investments during 2017 to 2019?
We do not have a specific expressed return on investment criteria. I assume that's what you're asking, Bo. We don't have a specific minimum ROI percentage as such. Of course, we only do investments if we believe that long-term, these will generate significant value creation and upside for the company and for the shareholders.
The next question comes from Lucas, and he's asking, what is your comment on the falling stock price?
Hi, Lucas. That's one that's difficult for us to comment on. I think as a company, we have an important role to play to present what is going on in the business and try to be transparent with the progress that we have in the different business units, what's going on with products and sales and so forth. It is up to the market to decide what price that means that the market wants to put on the share. I think it would be inappropriate for me as CEO to have specific comments on that.
Okay. Next question is from Andreas Johansson. When will we see eye tracking and VR headsets sold to the market? Similar question as we had before.
Yeah. Hi, Andreas. A little bit to reiterate perhaps, my hypothesis today would be that we will see VR headsets with eye tracking built in sometime during 2018 actually sold to consumers.
Okay. Bo Engvall has one last question: can you say what the software license revenue per unit sold is for the smartphones from the first design win?
The quick answer to that question, Bo, is no, unfortunately, I cannot. I think that our customers would be very unhappy with us if we made that number public.
Okay, there are no more questions from the webcast. Over to you, Sophia. Do we have more questions from the teleconference?
Yes, we've just received a further question from Anders Linton, a private investor. Please go ahead.
Hi, Henrik and Tomas. I would like to have a little bit update regarding the development of the IS5.
Could you repeat that question? We didn't hear that quite.
Oh, I'm sorry. I would like to have an update regarding the development of the IS5 platform.
IS5 platform.
Okay, an update on the development of the IS5. Yeah.
Yeah.
We are working on developing our next generation of our main eye tracking platform for computer integration. The current platform is referred to as IS4. Maybe not with too much imagination, the working name for the new platform is IS5. We'll see if that ends up being a product name or not. That development is progressing well. It's a big project that takes multiple years. I would say that we're still relatively early in the project, we still have a long time ahead of us before that will be available in the market. We could expect the first product with the IS5 actually integrated to be in the market very late 2018. It might even be early 2019, if things go according to plan.
The development shortly is progressing well, and of course, the objective here is to create yet another step forward in terms of eye tracking performance, improving that, but also reducing form factor, power consumption, et cetera, to make it feasible to integrate eye tracking into an even broader range of devices.
Okay. Thanks, Tomas and Henrik. See you at Tobii annual meeting.
Thank you.
Thank you.
We have no further questions at this stage.
Good. With that, I guess we are done for the day. Thank you everyone for attending the call today, and thank you for good questions. We hope to see you all again in our next earnings call. Have a great day, everyone.