Axis Market Weakness Continues in Q2 2009

JH
John Honovich
•Published Jul 08, 2009 08:43 AM
PUBLIC - This article does not require an IPVM subscription. Feel free to share.

So much for green shoots - at least for Axis. In their just released Q2 financial report [link no longer available], Axis leads with "No Change in Sales Trend" which is not a good thing considering their abrupt drop from last year's almost 40% growth rate.

This will certainly generate a new round of debate on the future of IP and Axis as the market's leader. While privately lots of industry people talk about how things are improving, this is not a sign in that direction. On the other hand, it's quite likely that the IP market as a whole is doing better than Axis is currently.

The best official resources on Axis recent financial performance are:


Currency Impact -- NOTE

Axis performance is significantly impacted by currency exchanges. Sometimes they cite both local currency and Swedish currency, other times they use one or the other. This is important because the results look much better when using the Swedish Kroner. As an exporter, Axis benefits from changes in Sweden's currency driven in the last few quarters of economic turmoil. However, local currency is the best guide for actual product sales and success in individual regions.

Quantified Financial Results

In local currency terms, video product sales shrank 8% in the first half of 2009 compared to the first half of 2008. 

In 2 of 3 regions, Axis overall revenue (measured in local currency) shrank in the Second Quarter 2009:
  • Americas down 5%
  • Asia up 4%
  • EMEA (Europe, Africa, Middle East) down 24% (not a typo)

At the same time, the Q2 report does claim, "The Video product area reported sales of SEK 531 M (473) for the second quarter. Growth totaled 12 percent in local currency terms." However, this does not seem consistent with the general revenue decreases reported. The print division may be one explantion but it's too small (about SEK 20M Q208 and SEK 10M Q209 or 2% of total revenue) to cause the discrepency.

Their Q2 powerpoint deck shows a few other interesting points:
  • Sales and Marketing expenditures dropped approximately 8-10% quarter over quarter
  • Administration costs rose over 10% quarter over quarter (why?)
  • R&D expenditure was steady to slightly up
  • Currency effects were massive and even more of a help in Q2 than in Q1
  • Gross margins dipped slightly but nothing out of the normal trend for the last few years
  • With Europe sales continuing to shrink, Americas is now over 50% of Axis total revenue

Stock Market Reaction

Axis stock is down about 17.6% in the first day after this announcement.  Not surprisingly, the market was not happy with that announcement. For current stock price, see: Yahoo Finance tracker on Axis.

On the other hand, until the past week, Axis had recovered all of its losses since its surprise announcement last Fall about them not going to make their number (in October 2008 the stock was at about 80, dropped down to 40 at the market's bottom in March and rallied back over 80 on July 1st). Today (July 8th), it's at 64.25.

Axis on the Future

Last year at this time, Axis Q2 financial report reported "Continued Successful Expansion" and claimed, despite the "financial turmoil," that "the network video market is expected to grow in a fast phase. Axis goal and expansion plans remain unchanged."

Now, Axis states, "The network video market continues to be relatively weak with generally lower activity than in 2008 within all customer segments." Axis is also slowing new hiring. This is a reflection of slowing growth as well as a sign that growth may not big pick up immediately.

Axis pointed to increased marketing efforts and product development as key strategic/tactical factors in driving growth. I certainly think they continue to develop a lot of products including many which are clearly innovative. However, the spending of trade shows (they cite attending 20 shows in Q2) is questionable. In a market where end users are cutting back and with such an expensive marketing cost, shows seem to be a waste of money. Indeed, many of the bigger IP video companies I have talked with are cutting back to only a handful of the very biggest "must attend" shows.