Archos Profits Hit By Taxes, Apple Effect
France-based tablet and digital media device manufacturer Archos has posted a dramatic net loss for H112, despite a modest increase in revenues. Besides increased operating costs associated with the launch of new tablets, plus one-off tax charges, the company appears to be suffering from cooling interest for its mid- to low-end products in the US as consumers increasingly expect higher technological specifications, as per those found on the popular Apple iPad. We expect this to continue to be a problem for the company, particularly for its share price, despite the fact that its tablets continue to sell well in Europe.
Revenues grew by 3.5% y-o-y to EUR74.2mn in H112, with Asian sales growing by 6% to 11.8mn and European and non-US markets generating sales of EUR52.6mn (up by 11%). However, US sales were down by 25% y-o-y to EUR9.9mn, partially due to competition from the iPad, a new version of which went on sale in early 2012, but also due to weakening demand for mid-range tablet and consumer electronics devices in general. Consumers are either taking the budget route and buying sub-US$150 devices that can be easily replaced or upgraded or are targeting higher-cost, higher-spec products that should last longer. Mid-range products, on which Archos is focused, have lost their appeal.
Archos' own slowing sales data, combined with financial analysts' growing concerns that the market for consumer electronics devices in general is softening, served to weigh on Archos' valuation on the stock market. The company allocated EUR6mn to deal with devalued stock values in H112 and this caused its gross margins to contract by 71% to EUR4.9mn. A 9% increase in operating costs - partially linked to research and development expenses as well as the marketing of newly launched products - was accompanied by a EUR14.5mn one-off tax charge, resulting in a net loss of EUR21.9mn, versus a profit of EUR1.7mn a year earlier.
|Apple Effect Felt In US, Europe|
|Archos Revenues By Geography, H112|