Smart card and digital-access provider SCM Microsystems Inc is to axe 25% of its workforce over the next six months after confirming a 40% drop in sales during the second quarter.
For the quarter ending June 30, the company posted a net loss of $6.9m, down from a net loss of $16.2m in the second quarter of 2003. Sales however plummeted 40% to $11.5m, down from $19.3m in the year-ago quarter. This sales decline was mainly due to the sale of SCM’s Dazzle branded digital media and video business, which was sold to Pinnacle Systems Inc for $21.5m in July 2003.
Last month, the Fremont, California-based company had warned the market that its second-quarter revenue would fall to $11.5m, below the previously issued guidance of $13m to $15m. It blamed the shortfall primarily on lower-than-expected sales of its digital TV products, which are used to provide secure access to digital broadcast content.
It also blamed continued market competition from non-licensed products for a quicker decline in European customer demand for the company’s traditional digital TV security modules.
In addition, SCM said it experienced delays in launching and deploying new digital TV security products, which had been expected to generate significant revenue in the second quarter.
The rapid deterioration of our traditional digital TV business in the second quarter created a significant gap between revenues and expenses. To address this gap and to position the company for profitability, SCM’s management has adopted a strategy to lower expenses by approximately 25% over the next six months, commented CEO Robert Schneider.
To accomplish this, we intend to reduce headcount-related costs by 20% to 25% and are evaluating additional areas for reduction throughout all functions of the organization.
The cost cutting move could see the sacking of as many as 90 people, out of its 350 strong workforce.
Looking forward to the third quarter, SCM estimated that revenues from its two security lines of business to be between $8m and $12m, reflecting continued weak sales of digital TV products in Europe. It also expects an operating loss for its security business and gross margin will be between 38% and 41%.