Identiv Inc (INVE) 2003 Q4 法說會逐字稿

Good morning. My name is Kimberly and I will be your conference facilitator. At this time, I would like to welcome everyone to the SCM Microsystems' fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). I would now like to turn the conference over to Ms. Darby Dye of Investor Relations. Please go ahead.

早安.我是金伯利，本次會議的主持人。現在，我謹代表SCM Microsystems公司歡迎各位參加第四季財報電話會議。為了避免背景噪音，所有線路均已靜音。發言結束後，將進行問答環節。 （操作說明）現在，我將會議交給投資者關係部的達比·戴女士。請開始吧。

Thank you. Hello everyone and thank you for joining us today as we discuss the results of SCM's fourth quarter and fiscal year 2003. Speaking on today's call are Steve Moore, Chief Financial Officer, who will provide financial analysis of SCM's recent quarter and forward-looking financial guidance, and Robert Schneider, Chief Executive Officer, who will provide an overview of SCM's market environment and business strategy. As we begin today's call, let me remind you that during the course of this conference call management will make certain forward-looking statements regarding future events or the future financial performance of the company.

謝謝。大家好，感謝各位今天參加我們的電話會議，我們將討論SCM公司2003財年第四季及全年業績。今天出席會議的有財務長史蒂夫·摩爾（Steve Moore），他將對SCM公司最近一個季度的財務業績進行分析，並展望未來的財務前景；以及首席執行官羅伯特·施耐德（Robert Schneider），他將概述SCM公司的市場環境和業務戰略。在今天的電話會議開始之前，我想提醒各位，在本次會議中，管理層將就未來事件或公司未來的財務表現做出一些前瞻性陳述。

We caution you that such statements involve risk and uncertainty and that actual events or results may differ materially. We refer you to the company's 10-K filed March 27, 2003, our 10-Q for the quarter ended September 30, 2003, and other recent SEC filings which explain important factors that could cause actual results to differ from those contained in any projections or forward-looking statements. Any forward-looking statement made on this call is based on information that is currently available and which is likely to change over time.

我們提醒您，此類聲明涉及風險和不確定性，實際事件或結果可能與預期有重大差異。請參閱本公司於2003年3月27日提交的10-K表格、截至2003年9月30日的季度10-Q表格以及其他近期提交給美國證券交易委員會（SEC）的文件，這些文件解釋了可能導致實際結果與任何預測或前瞻性聲明中所述結果存在差異的重要因素。本次電話會議中作出的任何前瞻性聲明均基於當前可獲得的信息，而這些信息可能會隨時間而變化。

Although our projections will likely change, we do not plan to update them. SCM will provide our analysts and investors with information and forward-looking guidance in our quarterly financial news releases and conference calls. We will not provide any further guidance during the quarter unless done through a news release, conference call or SEC filing in accordance with regulation fair disclosure. Please also note that on today's call, we will provide you with several financial metrics determined on a non-GAAP or pro forma basis.

儘管我們的預測可能會有所變化，但我們目前不打算更新。 SCM 將在季度財務新聞稿和電話會議中向分析師和投資者提供相關資訊和前瞻性指引。除非透過新聞稿、電話會議或根據公平揭露規定向美國證券交易委員會 (SEC) 提交的文件，否則本季我們將不會提供任何其他指引。另請注意，在今天的電話會議上，我們將提供一些基於非公認會計準則 (非GAAP) 或考試基準計算的財務指標。

These items together with the corresponding GAAP numbers and a reconciliation to GAAP where practicable are contained in today's earnings press release which we have posted on our web site at www.SCMmicro.com, and filed with the SEC on Form 8-K. Now I would like to introduce Steve Moore.

這些項目以及相應的GAAP數據和在可行的情況下與GAAP的調節表均包含在我們今天發布的盈利新聞稿中，該新聞稿已發佈在我們的網站www.SCMmicro.com上，並已以8-K表格的形式提交給美國證券交易委員會（SEC）。現在，我想介紹一下史蒂夫·摩爾。

Hello everyone and again thank you for joining us today. I will start by giving you an overview of our current position vis-à-vis one of our most important undertakings of 2003, which was the sale and disposition of our retail digital media and video business. Then, I will review the numbers for Q4 and the year as a whole and give you some analysis on these results. I will discuss management's expectations for the next quarter, and as a reminder, our financial results in the fourth quarter and going forward include financial performance for the company's continuing security operations only.

大家好，再次感謝各位今天參加我們的會議。首先，我將概述我們目前在2003年最重要的舉措之一——出售和處置零售數位媒體和視訊業務——方面的進展。然後，我將回顧第四季度和全年的財務數據，並對這些結果進行分析。我也會討論管理階層對下一季的預期。需要提醒的是，我們第四季及以後的財務表現僅包含公司持續經營的安防業務的財務表現。

Financial results for the disposed digital media and video business are being treated as discontinued operations. As those of you have been following SCM are aware, the company entered 2003 with the intention of divesting our consumer oriented digital media and video division and refocusing our business around our core competencies in Secure Digital access. In June, we announced the sale of the digital media and video division to two parties, Pinnacle Systems and Zio (ph) Corporation. As of December 31, we have successfully completed the divestiture fully exiting the low margin retail business.

已剝離的數位媒體和視訊業務的財務業績將作為終止經營業務處理。正如各位關注SCM的讀者所知，公司在2003年初就計劃剝離面向消費者的數位媒體和視訊部門，並將業務重心重新聚焦於我們在安全數位存取方面的核心競爭力。 6月份，我們宣布將數位媒體和視訊部門出售給兩家公司：Pinnacle Systems和Zio (ph) Corporation。截至12月31日，我們已成功完成剝離，徹底退出了低利潤率的零售業務。

We have realized approximately $25 million in gross proceeds from the transaction which included proceeds from the sale of Pinnacle stock and cash payments from both Pinnacle and Zio. The figure is substantially above the original base transaction value which was $21.5 million. Finally, we have nearly finished expensing the various charges related to the transaction which included the write-down of assets, fees for professional services and other items. The original estimate we communicated for the total write-down related to the divestiture was a range of $35 million to $45 million.

我們已從該交易中實現約2500萬美元的總收益，其中包括出售Pinnacle股票所得款項以及Pinnacle和Zio支付的現金。該金額遠高於最初2,150萬美元的交易基準價值。此外，我們已基本完成與該交易相關的各項費用支出，包括資產減損、專業服務費及其他項目。我們最初預估的與此資產剝離相關的總減損金額為3,500萬美元至4,500萬美元。

I am pleased to report that with the vast majority of the charges behind us, that our current estimate has turned out to be substantially less coming in under $30 million. Most importantly, this transaction was a critical -- strategic step for SCM and has been successfully implemented from both a financial and operational point of view. Post divestiture, SCM now has a primarily OEM business model which allows us to leverage our strong industry relationships and provide some protection for margins. We are focused on the digital security market where we see significant long-term opportunities in the areas of secure access solutions for digital television and PC network security.

我很高興地報告，隨著絕大部分費用的支付完成，我們目前的預估金額已大幅降低，低於3000萬美元。最重要的是，此交易對SCM而言是一項至關重要的策略舉措，並且從財務和營運角度來看都已成功實施。剝離後，SCM目前主要採用OEM業務模式，這使我們能夠充分利用強大的產業關係，並為利潤率提供一定的保障。我們專注於數位安全市場，並認為在數位電視和PC網路安全的安全存取解決方案領域存在巨大的長期發展機會。

In a few moments, Robert will discuss SCM's strategy related to these opportunities in more detail. Turning now to the numbers. As we announced in a preliminary release on February 3, revenues from continuing operations in our fourth quarter were $12.6 million, below the range of expectations we sat in our Q3 conference call which was $14 million to $17 million. This represents a decrease of 47 percent from revenues of $23.8 million recorded in the fourth quarter of 2002 and a sequential decrease of 21 percent from revenues of $15.9 million in Q3 of 2003. For the year as a whole, revenues were $66.5 million, down 26 percent from revenues of $90.1 million in fiscal 2002. As we have discussed over the last several quarters, weakness in the economy put pressure on our sales during 2003 both in terms of dampening demand for our customers' products and by limiting budgets for digital security programs.

稍後，羅伯特將更詳細地討論SCM針對這些機會的策略。現在我們來看具體數據。正如我們在2月3日發布的初步報告中所述，第四季度持續經營業務的收入為1260萬美元，低於我們在第三季度電話會議上預期的1400萬美元至1700萬美元。這比2002年第四季的2,380萬美元營收下降了47%，比2003年第三季的1,590萬美元營收季減了21%。全年營收為6,650萬美元，比2002財年的9,010萬美元下降了26%。正如我們在過去幾季所討論的，經濟疲軟導致我們2003年的銷售面臨壓力，這體現在兩個方面：一是客戶產品需求下降，二是數位安全專案的預算受到限制。

We have worked to address these challenges by expanding our market opportunities and developing new products for existing markets. These are long-term solutions which we believe will begin to gain traction in mid 2004. Let's now look at revenues by product segment. Sales of digital TV conditional access modules were $5.4 million in Q4, which represented 43 percent of total revenues. These conditional access modules are used in conjunction with open platform set-top boxes to protect digital pay TV broadcast and enable legitimate subscribers to decrypt broadcast content. Sales of our smart card readers and related products used to provide secure access to PCs and computer networks totaled 4.2 million in Q4, which represented 33 percent of revenues, and sales of flash media interface products which are used to transfer digital images in devices such as photo kiosks and printers, were $2.9 million in the quarter or 24 percent of revenues.

我們致力於透過拓展市場機會和為現有市場開發新產品來應對這些挑戰。這些都是長期解決方案，我們相信它們將在2004年中期開始取得成效。現在讓我們按產品類別來看一下收入狀況。第四季數位電視條件接收模組的銷售額為540萬美元，佔總營收的43%。這些條件接收模組與開放平台機上盒配合使用，用於保護數位付費電視廣播，並使合法用戶能夠解密廣播內容。第四季用於為個人電腦和電腦網路提供安全存取的智慧卡讀卡機及相關產品的銷售額為420萬美元，佔總收入的33%；用於在照片亭和印表機等裝置中傳輸數位影像的快閃媒體介面產品的銷售額為290萬美元，佔總收入的24%。

Fourth-quarter sales levels reflect not only economic pressure on our markets but increasing competitive pressure in our Digital TV business as well. Several companies have begun selling conditional access modules with unlicensed security software in the retail market which directly competes with our licensed modules that are distributed through legitimate channels. We have been aggressively addressing this new competition by working with our customers to fast-track development of a new line of products that we believe will be very successful in recapturing market share lost in the last two quarters.

第四季的銷售水準不僅反映了我們市場面臨的經濟壓力，也反映了我們數位電視業務日益激烈的競爭。一些公司已開始在零售市場銷售具有未經授權的安全軟體的條件接收模組，這與我們透過合法管道分銷的授權模組直接競爭。我們一直在積極應對這一新的競爭，與客戶合作，並加快開發一系列新產品，我們相信這些產品將非常成功地奪回過去兩季失去的市場份額。

We shipped the first of these products late in the fourth quarter, but were not able to recognize revenue in the fourth quarter because of the performance issues that we now expect to correct over the next several weeks. Robert will provide more detail behind this in a few moments. The bottom line is that we're addressing the issue of growth in our business both tactically and strategically with both short-term and long-term objectives. With the near-term, we anticipate the market share loss may continue into the first quarter of 2004 but we also expect to recognize revenue from our new Digital TV products and to sell additional units of these products during the quarter.

我們在第四季度末交付了首批產品，但由於性能問題，第四季度未能確認收入。我們預計這些問題將在未來幾週內解決。羅伯特稍後會詳細解釋原因。總而言之，我們正在從戰術和戰略層面著手解決業務成長問題，並制定了短期和長期目標。短期來看，我們預計市場份額的損失可能會持續到2004年第一季度，但我們也預計會從新的數位電視產品中確認收入，並在本季度售出更多此類產品。

While the near-term outlook remains challenging, we remain optimistic about long-term opportunities for growth in the secure access market and about SCM's ability to capitalize on those opportunities to fuel our own revenue and earnings growth. To wrap up the discussion about revenues I will give you the figures for the revenues split by geography. In the fourth quarter, Europe represented 55 percent, the U.S. 19 percent, and Asia-Pacific 26 percent of revenues. For the year as a whole, Europe contributed 58 percent, the U.S. 24 percent, and Asia-Pacific 18 percent of revenues. Gross margins for the continuing security business in Q4 was 42 percent at the high end of our targeted gross margin for the quarter of 39 percent to 42 percent.

儘管短期前景依然充滿挑戰，但我們對安全訪問市場的長期成長機會以及SCM把握這些機會、推動自身營收和獲利成長的能力保持樂觀。最後，我將提供按地域劃分的營收資料。第四季度，歐洲佔總營收的55%，美國佔19%，亞太地區佔26%。全年來看，歐洲佔總營收的58%，美國佔24%，亞太地區佔18%。第四季持續經營安全業務的毛利率為42%，達到我們預期的季度毛利率目標39%至42%的上限。

This resulted primarily from a favorable mix of higher margin products sold in the quarter. By product line, gross margins for our Digital TV products was 37 percent, gross margin for our PC security products was 41 percent, and the gross margin for our flash media interface products was 53 percent in Q4. For the year as a whole, our gross margin was 40 percent, an improvement over gross margins of 37 percent for the previous year. Now, looking at operating expenses, as reported under GAAP, operating expenses in the fourth quarter were 11.3 million which included amortization of intangibles of $300,000 as well as restructuring cost of -- restructuring and onetime charges of $2.9 million.

這主要得益於本季銷售的高利潤率產品組合。依產品線劃分，第四季數位電視產品的毛利率為37%，PC安全產品的毛利率為41%，快閃媒體介面產品的毛利率為53%。全年毛利率為40%，較前一年的37%增加。現在來看營運費用，根據美國通用會計準則（GAAP）報告，第四季度營運費用為1130萬美元，其中包括30萬美元的無形資產攤銷以及290萬美元的重組成本和一次性費用。

Excluding amortization and restructuring costs, underlying operating expenses for the continuing security businesses was $8.1 million, operating loss for the quarter in accordance with GAAP was $6 million. To support ongoing product development and the strategic expansion of our business into additional geographic markets, we will continue to invest in research and development and sales and marketing at current levels. We will continue to control general and administrative costs although in a large part these are determined by our need to maintain a global presence and the cost of operating as a public company.

剔除攤銷及重整成本後，持續經營的安防業務的基本營運費用為810萬美元，以美國通用會計準則（GAAP）計算，本季營運虧損為600萬美元。為支援持續的產品開發以及業務向更多地域市場的策略擴張，我們將繼續維持目前的研發、銷售和行銷投入水準。我們將繼續控制一般及行政費用，儘管這些費用在很大程度上取決於我們維持全球業務佈局的需求以及作為一家上市公司的營運成本。

Continuing down the income statement, Q4 interest and other stood at a gain of $900,000 resulting from interest income and foreign exchange gains offset by other expenses. We also recorded a tax benefit of $200,000 in Q4. Net loss from continuing operations for the fourth quarter as reported in accordance with GAAP was $5 million or 33 cents per share. This compared with a net loss from continuing operations of $15.1 million or 97 cents per share in the fourth quarter of 2002. For the year as a whole, the net loss from continuing operations was $8.8 million, or 57 cents per share, which included amortization of $1.1 million and restructuring and infrequent charges of 4.7 million.

繼續分析損益表，第四季利息及其他收益為90萬美元，主要來自利息收入和外匯收益，但被其他支出所抵銷。此外，第四季我們也確認了20萬美元的稅務優惠。根據美國通用會計準則（GAAP），第四季持續經營業務淨虧損為500萬美元，即每股虧損0.33美元。相較之下，2002年第四季持續經營業務淨虧損為1,510萬美元，即每股虧損0.97美元。全年持續經營業務淨虧損為880萬美元，即每股虧損0.57美元，其中包括110萬美元的攤銷費用及470萬美元的重組及非經常性支出。

This compares with net loss for the previous year of $18.7 million or $1.20 per share. As a reminder net loss for the 2002 fiscal year included $800,000 in amortization of intangible assets and $6.6 million for impairment of goodwill and $8.5 million in restructuring and infrequent charges. Looking now at discontinued operations, with the disposition of the consumer digital media and video business, we have two line items on our income statement related to that disposition. Loss from discontinued operations represents the entire P&L for the digital media and video businesses condensed into one line. For Q4 2003, the result is a loss of $1 million.

相較之下，上年度淨虧損為1,870萬美元，即每股虧損1.20美元。需要提醒的是，2002財年的淨虧損包括80萬美元的無形資產攤銷、660萬美元的商譽減損以及850萬美元的重組和非經常性費用。現在來看已終止經營業務，由於處置了消費者數位媒體和視訊業務，我們在損益表中列出了兩項與該處置相關的項目。已終止經營業務的虧損代表了數位媒體和視訊業務的全部損益，並匯總為一行。 2003年第四季，該項虧損為100萬美元。

Loss on sale of discontinued operations represents costs associated with severance, facility closures, and legal and professional costs associated with the transaction as well as the write-down of the assets of the digital media and video business. That is, the book value of the digital media and video business less the estimated proceeds from the selling of those assets. For Q4, the loss on the sale of discontinued operations was recorded at $3.3 million. For the year as a whole, loss from discontinued operations was $14.3 million and loss on sale of discontinued operations was $15.1 million.

終止經營業務出售損失包括與遣散費、設施關閉、交易相關的法律和專業費用，以及數位媒體和視訊業務資產的減損。具體而言，該損失為數位媒體和視訊業務的帳面價值減去出售這些資產的預期收益。第四季度，終止經營業務出售損失為330萬美元。全年來看，終止經營業務虧損為1,430萬美元，終止經營業務出售損失為1,510萬美元。

I would like to talk about management's outlook for the near-term and provide some specific guidance on what we expect. For the first quarter of 2004, we expect revenues to be in the range of $12 million to $15 million. This reflects competitive pressures on sales of our conditional access modules in Europe -- European market, as well as a lack of visibility on the timing of new projects planned for smart card readers in the U.S. and Europe. We expect gross margins to be in the range of 40 to 42 percent, and within this range of revenue and gross margin performance we expect to record an operating loss from our continuing security operations in the first quarter.

我想談談管理層對近期業績的展望，並就我們的預期提供一些具體指導。我們預計2004年第一季的營收將在1,200萬美元至1,500萬美元之間。這反映了我們在歐洲市場銷售條件存取模組所面臨的競爭壓力，以及我們在美國和歐洲計劃的智慧卡讀卡機新專案的時間安排尚不明朗。我們預計毛利率將在40%至42%之間，並且在這一收入和毛利率預期範圍內，我們預計第一季持續安防業務將出現營運虧損。

To wrap up, I would like to turn to the balance sheet. As I have already mentioned, sales of Pinnacle Systems stock and cash payments from Pinnacle and Zio Corporation drove an increase in our cash and short-term investments in Q4 which ended the quarter at $55 million, a 40 percent increase from cash and short-term investments of $39.4 million at the end of Q3. Net accounts receivables totaled 10.4 million at the end of Q4 compared with 11.3 million at the end of Q3.

最後，我想談談資產負債表。正如我之前提到的，Pinnacle Systems股票的出售以及Pinnacle和Zio Corporation的現金支付推動了我們第四季現金及短期投資的成長，季末現金及短期投資總額達到5,500萬美元，較第三季末的3,940萬美元成長了40%。第四季末淨應收帳款總額為1,040萬美元，而第三季末為1,130萬美元。

Both quarters' numbers include receivables related to the discontinued operations because receivables from the digital media and video business were not sold as part of the divestiture. Digital media and video receivables have been reserved for collectibility and the P&L effect of those reserves have been reflected in the loss from discontinued operations for 2003. Inventory levels were at 9.1 million, up 1.4 million from $7.7 million in Q3, due primarily to the lower than anticipated revenues in Q4. With that, I would like to now turn the call over to Robert.

兩季的資料均包含與已終止經營業務相關的應收帳款，因為數位媒體和視訊業務的應收帳款並未作為剝離資產的一部分出售。數位媒體和視訊業務的應收帳款已提列準備金，這些準備金對損益表的影響已反映在2003年已終止經營業務的虧損中。庫存水準為910萬美元，較第三季的770萬美元增加140萬美元，主要原因是第四季營收低於預期。接下來，我會把電話交給羅伯特。

Thank you, Steve. As you have heard from Steve, the economic and market environment remained very challenging for us in the fourth quarter as it has been through all of 2003. Last quarter, I shared with you the specific strategies and opportunities we are pursuing to transition SCM to a security company and to broaden our customer base. Today I would like to update you on where we are against those strategies and opportunities. Of course, our first significant step was to divest our retail digital media and video business in order to simplify our business model and focus on our core strengths in Secure Digital access.

謝謝史蒂夫。正如史蒂夫所說，第四季的經濟和市場環境依然充滿挑戰，與2003年全年一樣。上個季度，我與大家分享了我們正在採取的具體策略和機遇，旨在將SCM轉型為安全公司，並擴大我們的客戶群。今天，我想向大家報告我們在這些策略和機會上的進展。當然，我們邁出的重要一步是剝離零售數位媒體和視訊業務，以簡化我們的業務模式，專注於我們在安全數位存取方面的核心優勢。

This has been a difficult exercise which has consumed much of management's time over the last several months. It has also been very successful building up our cash position and supporting investments in our business in order to capitalize on our market opportunities. We believe that the opportunities across our markets are more than sufficient to support our growth. The first of our market opportunities is in Digital TV. In this market our current business comes primarily from small pay TV operators in Europe with whom SCM has been working for many years now. As Steve has discussed, this business was impacted by competitive issues in the last two quarters which we were aggressively addressing with new security modules, with at least new modules in the fourth quarter which carried two conditional access security systems and (indiscernible) companies involved.

過去幾個月，這項工作耗費了管理階層大量的時間，可謂艱鉅。同時，我們也成功地增強了現金儲備，並加大了對業務的投資，從而掌握住了市場機會。我們相信，各個市場的機會足以支撐我們的成長。我們首要的市場機會是數位電視。目前，我們在這個市場的業務主要來自歐洲的小型付費電視營運商，SCM 已與他們合作多年。正如史蒂夫所提到的，過去兩個季度，該業務受到競爭的影響，我們積極應對，並推出了新的安全模組。第四季度，我們至少推出了兩個新的模組，其中包含兩套條件接收安全系統，涉及的公司不詳。

We believe that these new products will allow us to regain lost market share. To expand our Digital TV business we are focused on penetrating new markets such as Korea and Germany. As we have discussed on previous calls, the Korean government has required that subscribers use the movable conditional access modules to secure broadcasts as part these country's conversion to digital television technology. As the company with the most experience with these modules in the world, SCM has been closely involved with preparation and testing of the end-user infrastructure for the new digital broadcasting system.

我們相信這些新產品將幫助我們重奪失去的市場份額。為了拓展數位電視業務，我們正致力於開拓韓國和德國等新興市場。正如我們在之前的電話會議中討論過的，韓國政府要求用戶使用可移動條件接收模組來確保收看廣播節目，這是該國向數位電視技術轉型的一部分。作為全球在這些模組方面經驗最豐富的公司，SCM 一直密切參與新數位廣播系統終端用戶基礎設施的準備和測試工作。

We have been working with long-term partners such as NDS, (indiscernible) and this partner such as Samsung. Today, we are in the final stages of contract negotiation with a Korean operator, the first of many whom we are targeting. Signing this operator will be a significant move (indiscernible) for our strategy to expand our business into Korea. The Korean government expects to deploy digital television to between five and eight million Korean households.

我們一直與NDS等長期合作夥伴以及三星等合作夥伴保持合作。今天，我們正與一家韓國業者進行合約談判的最後階段，這是我們眾多目標客戶中的第一家。與這家營運商簽約將是我們拓展韓國業務策略中的重要舉措。韓國政府預計將為500萬至800萬韓國家庭部署數位電視。

If deployment secure (indiscernible) we expect we will begin to see initial volume sales of security modules for Korea beginning in mid 2004 and sustained volumes in 2005. We're also targeting expansion of our Digital TV business with sales of our Digital TV products to the larger operators in Europe. During the third quarter, we announced a significant cooperation with Canal+ (ph) technology, licensed to a media (indiscernible) conditional access system for use with our security modules.

如果部署安全可靠（無法辨識），我們預計從2004年中期開始，韓國市場將出現安全模組的初步批量銷售，並在2005年實現持續銷售。我們也計劃拓展數位電視業務，向歐洲大型業者銷售數位電視產品。第三季度，我們宣布與Canal+（ph）達成一項重要合作，將Canal+的技術授權給一家媒體（無法辨認）條件接收系統，用於我們的安全模組。

The Canal+ technology is the largest pay TV operator in Europe with over 13 million subscribers. During the fourth quarter, we shipped several thousand of modules to the touch operator, Canal Digital (ph) as part of Canal+ organization. The first of many such operators which we are targeting. Again, the opportunity here is significant as Canal+ Corp. (indiscernible) Canal+ has 10 million, more than 10 million analog subscribers that will be transitioning digital services over the next few years.

Canal+是歐洲最大的付費電視營運商，擁有超過1,300萬用戶。第四季度，我們向Canal+旗下的觸控營運商Canal Digital（音譯）交付了數千個模組。這是我們眾多目標運營商中的第一個。 Canal+公司（音譯）擁有超過1000萬類比用戶，他們將在未來幾年內逐步過渡到數位服務，因此此次合作機會非常巨大。

SCM is in the process of forging relationships with numerous operators and (indiscernible) to take advantage of this opportunity. In Germany, SCM has been invited to present our security module technology as the standard for removable decryption for digital cable broadcasts. This is very significant because it is the first time that public, private and pay TV operators have comes together and agreed to make removable security devices available as an option for broadcast decryption as digital cable television is rolled out in Germany over the next couple of years.

SCM正在與眾多業者建立合作關係，並（具體細節不詳）以把握這項機會。在德國，SCM受邀展示其安全模組技術，作為數位有線電視廣播可移動解密的標準。這意義重大，因為這是公共、私營和付費電視業者首次齊聚一堂，並達成共識，在未來幾年德國推廣數位有線電視的過程中，將可移動安全設備作為廣播解密的一種選擇。

There are about 20 million cable television subscribers in Germany. In fact, Germany is one of the largest markets in the world for cable TV. They are still on analog and they will be converting to digital equipment over the next few years. If only a small percentage of these subscribers end up with the conditional access module, SCM could realize significant sales. We expect that there will be an announcement from the German cable television industry over the next few months that will provide status of course on the transition to digital broadcasting.

德國約有2000萬有線電視用戶。事實上，德國是全球最大的有線電視市場之一。他們目前仍使用類比訊號，並將在未來幾年內逐步過渡到數位設備。即使只有一小部分使用者最終使用條件接收模組，SCM也能獲得可觀的銷售量。我們預計，未來幾個月內，德國有線電視產業將發佈公告，公佈向數位廣播過渡的最新進展。

Our second major product segment, PC security, consisting of smart card readers and other solutions used to enable security applications for the government enterprise and financial markets. Growth in our current PC security revenue base will come both from new opportunities and from the ability to respond quickly to shifts in technology requirements in the current market environment. In all cases relationships are key. SCM has strong relationships with all of the prime end sub prime contractors working on smart card projects with the U.S. government.

我們的第二大產品板塊是PC安全，包括智慧卡讀卡機和其他用於為政府機構、企業和金融市場提供安全應用的解決方案。我們目前PC安全業務的營收成長將來自新的機遇，以及快速回應當前市場環境下技術需求變化的能力。在所有情況下，合作關係至關重要。 SCM與所有參與美國政府智慧卡專案的主要承包商和分包商都保持著牢固的合作關係。

We have trusted supply relationships with PC and other hardware manufacturers to leverage corporate security program rollouts and we have long-standing relationships with key European banks which are now striving to utilize smart cards -- smart cards to benefit their customers and enhance their own security programs. Specific opportunities for SCM over the next 12 to 14 months will primarily leverage current customers. First, the U.S. government has announced plans to implement new programs for both military and federal workers to utilize smart cards and smart card readers to identify and authenticate personnel.

我們與個人電腦及其他硬體製造商建立了值得信賴的供應關係，以助力企業安全計劃的推廣；同時，我們也與多家歐洲主要銀行保持著長期合作關係，這些銀行目前正致力於推廣智能卡技術，旨在為客戶帶來便利並提升自身的安全保障。未來12至14個月，供應鏈管理（SCM）的具體機會將主要來自現有客戶。首先，美國政府宣布計劃為軍方和聯邦工作人員實施新的項目，利用智慧卡和智慧卡讀卡機進行人員識別和驗證。

That will continue to be used for logical access that is too log onto a PC or computer network. The U.S. government also announced plans, as already communicated, to implement highly secure access systems for physical entry points both for its transportation workers and for all federal buildings using smart cards. We estimate the market opportunity for physical access to be, over the next three to five years, to be over $40 million. Our strong relationships with government (indiscernible) and contractors give us confidence that we will be able to secure a significant portion of this opportunity after more than one year of product development.

這將繼續用於邏輯訪問，即登入個人電腦或電腦網路。正如先前所宣布的，美國政府也宣布了計劃，將在其交通運輸人員和所有聯邦建築的實體入口處實施高度安全的智慧卡存取系統。我們估計，未來三到五年內，實體訪問的市場機會將超過4000萬美元。我們與政府（具體資訊不詳）和承包商的良好關係使我們有信心，經過一年多的產品開發，我們將能夠把握住這一市場機會的很大一部分。

During the first quarter, SCM shipped our first (indiscernible) readers for physical access and those products have been approved by some government agencies already. With the first pilots planned in the next few weeks it is possible that the U.S. government demand for these products could result in volume shipments as early as the middle of this year. Outside the U.S. government sector, we have made an agreement with a major German telecom operator for an initial order for smart card readers that bring secure public key infrastructure or called PKI capabilities to consumers.

第一季度，SCM交付了首批（外觀無法辨識的）用於門禁系統的讀卡器，這些產品已獲得部分政府機構的批准。首批試點計畫計劃在未來幾週內啟動，美國政府對這些產品的需求預計將在今年年中實現批量出貨。除美國政府部門外，我們已與一家德國大型電信營運商達成協議，為其提供首批智慧卡讀卡器，這些讀卡機可為消費者帶來安全的公鑰基礎設施（PKI）功能。

Our customer will distribute Class II PINpad smart card readers as part of a retail package that will include a smart card and the software and a reader so that the consumers within Germany can secure their electronic transactions with digital signatures and personal authentication. This would allow for highly secure applications such as tax filings, general e-government applications including vehicle registration, and of course, also for any kind of secure contractual binding agreements and all of this from the home PC.

我們的客戶將以零售套裝的形式分銷二級PIN碼智慧卡讀卡器，套裝內包含智慧卡、軟體和讀卡器，以便德國消費者能夠使用數位簽章和個人身分驗證來保護其電子交易安全。這將支援高度安全的應用，例如稅務申報、包括車輛登記在內的通用電子化政府應用，當然也包括任何類型的安全合約協議，所有這些都可以在家用電腦上完成。

In summary, we have identified some opportunities for growth, conversion to Digital TV in Korea and Europe, expanding ourselves to large European digital TV operators providing physical access technology to the U.S. government and of course also in Europe we'll go beyond U.S. governments. Our readership and experience in secure access technology, our strong relationships with key industry partners across our target markets provide the fuel for this growth.

總而言之，我們已發現一些成長機遇，例如在韓國和歐洲推廣數位電視，拓展業務至歐洲大型數位電視營運商，為美國政府提供實體接取技術，當然，在歐洲，我們的目標客戶群也將超越美國政府。我們在安全接取技術領域的讀者群和經驗，以及與目標市場關鍵產業合作夥伴的牢固關係，都為此成長提供了動力。

Given our size and our OEM business model, it is to be expected that we would continue to be exposed to fluctuations in our revenues on a quarterly basis until we can achieve great scale, however, our solid financial condition and our clear strategy to leverage growth opportunities give us the confidence that will be able to continue to operate our business and invest as required to support our long-term goals. I would like to turn the call over to the operator for questions and answers.

鑑於我們的規模和OEM業務模式，在實現規模化之前，我們的季度收入可能會持續波動，這是可以預期的。然而，我們穩健的財務狀況和清晰的成長策略使我們有信心繼續經營業務，並根據需要進行投資，以支持我們的長期目標。現在我將把電話交給接線員，請各位提問。

(OPERATOR INSTRUCTIONS). Adrian Hopkinson with West LB.

（操作說明）。 Adrian Hopkinson，West LB。

Good afternoon or good morning. Could I follow up possibly on the point about the digital media modules, the TV modules, and the unlicensed competition which came into the market? Could you give us a little bit more background about how this came about? Were these in fact black-market products? Were they -- or were they actually products which were legitimate but somehow at different prices to your product?

下午好/早安。關於數位媒體模組、電視模組以及市場上出現的未經授權的競爭產品，我能否再追問一下？能否詳細介紹一下這些產品的出現背景？它們真的是黑市產品嗎？還是說它們是合法產品，只是價格與貴公司的產品不同？

Very good question. In fact, all of those modules have been unlicensed. So, you could even put into the hacker scenario or black-market, as you call it. No official security company in the world has licensed those module manufacturers. So, there has been -- there is actually some undertaking about trying to make this illegal. In fact, we have been starting to fight this and we have started in Germany and in fact we have, during Q3 and Q4, won six court orders from German courts to stop shipments has had some impact, but of course we will have to continue this.

問得好。事實上，所有這些模組都是未經授權的。所以，你甚至可以把它歸類到駭客或黑市交易中，就像你所說的那樣。世界上沒有任何一家官方安全公司向這些模組製造商頒發許可證。因此，實際上已經有人試圖讓這種行為變得非法。事實上，我們已經開始與之鬥爭，並且從德國著手。在第三季度和第四季度，我們已經從德國法院獲得了六項禁令，阻止了這些模組的運輸，這起到了一定的作用，但我們當然會繼續努力。

In other words that is nonlicensed business, but of course whenever there is security there will be hackers and this is a continuous fight but of course it is not the majority of the market. It is always the minority of the overall market scenario, and we have got some support of course from the security companies also to start fighting those illegal, so-called illegal use of those modules?

換句話說，這是未經許可的業務，但當然，只要有安全問題，就會有駭客，這是一​​場持續的鬥爭，但這當然不是市場的主流。它始終是整個市場格局中的少數，而且我們當然也得到了安全公司的支持，開始打擊這些所謂的非法模組使用行為。

Do you have an estimate as to roughly what share of the market they may have achieved in the third and fourth quarters?

您能否估算一下他們在第三季和第四季的市佔率大概是多少？

Since they kind of caught us by surprise, in 2003 I think it was about -- at the end about 30 percent of the total market.

由於他們有點出其不意，我認為在 2003 年結束時，他們佔據了大約 30% 的市場份額。

I think it is certainly surprising that the hackers should have suddenly achieved such a large volume. I mean they have been very active in some geographies for a long time and it seems to me a bit strange that they should have become quite strong in Germany so suddenly.

駭客突然取得如此巨大的攻擊規模，確實令人驚訝。我的意思是，他們在某些地區活躍已久，但他們突然在德國變得如此強大，在我看來有點奇怪。

Yes, and it is not only Germany. It, of course, goes all over Europe but we are only focused in Germany in taking some legal action successfully and we will hold (indiscernible) during the year in other countries in Europe.

是的，而且不只德國。當然，它遍及整個歐洲，但我們目前只專注於在德國採取一些成功的法律行動，今年我們也會在歐洲其他國家舉行（聽不清楚）活動。

So you redesigned some products which --.

所以你們重新設計了一些產品——。

Yes. Our response is basically two-fold. One is of course using whatever legal things we have from laws like (indiscernible) to try to stop those illegal access devices and the other thing is to be more (indiscernible) in terms of products. So as (indiscernible) mentioned before we have got finally agreement from two security companies to combine their security system in one module which gives a greater benefit to the consumer and should be a good defending strategy for our business.

是的。我們的應對措施主要有兩方面。一方面，當然是利用法律賦予我們的一切合法手段，例如（此處內容不詳），來阻止那些非法接入設備；另一方面，則是在產品方面更加（此處內容不詳）。正如（此處內容不詳）先前所提到的，我們最終與兩家安防公司達成協議，將他們的安防系統整合到一個模組中，這將為消費者帶來更大的便利，也應該會成為我們業務的有效防禦策略。

Thank you very much.

非常感謝。

At this time there are no further questions. Are there any closing remarks?

目前沒有其他問題了。還有什麼要補充的嗎？

Yes. In summary we have had great success in focusing our business in other security scenarios. We have, especially with the cash position we were building up again in Q4, we have a very strong financial position which puts us in a unique position to capitalize on the long-term growth opportunities in the markets for Secure Digital access. Thank you for joining us today.

是的。總而言之，我們在將業務重心轉移到其他安全領域方面取得了巨大成功。尤其是在第四季度現金流再次恢復之後，我們擁有非常強勁的財務狀況，這使我們能夠更好地掌握安全數位存取市場的長期成長機會。感謝您今天蒞臨本次會議。

This concludes today's conference. You may now disconnect.

今天的會議到此結束。您可以斷開連線了。