Smithtown, N.Y. — Selling its wireless business to UTStarcom last November for over $320 million “was, without question, one of the best moves this company has ever made,” John Shalam, chairman/CEO of Audiovox, told shareholders at the company’s annual meeting here late last week. “Audiovox, today, is in the best financial position in the company’s history.”
Results of the Audiovox shareholder get-together were reported in the company’s 8-K filing with the Securities and Exchange Commission. Comments and forecasts here are derived from the posting.
Driving growth in its last fiscal year was the emergence of Audiovox in the satellite radio category, said Shalam. “We believe this category will play a major role in our growth over the coming years, which was one of the key factors in our recent acquisition of Terk Technologies [last January]. Their technology-driven products, particularly in the XM direct-connect products should ensure that we keep pace with the evolution of the satellite radio market,” he said.
Additionally, said Shalam, the company’s acquired Jensen, Acoustic Research, Advent and Phase Linear brands “have begun to pay dividends,” primarily in the re-emergence of Jensen autosound products.
LCD televisions, multimedia portables and automotive security products also have enjoyed strong sales. This growth was offset by continued weakness in the portable DVD and video-in-a-bag business, which adversely affected overall sales, margins and profitability, continued Shalam.
Looking at fiscal 2005 as a “transition” year, Shalam said Audiovox was in the process of implementing several programs across the board that will lead to “leaner, more focused organization,” which will help restore profitability to historical levels.
The Hauppauge, N.Y.-based company posted 14 percent lower sales in its fiscal first quarter, ended Feb. 28, down to $116 million from a year-ago $135.4 million. Net loss was $1.2 million for the three months, compared with net income of $1.9 million in the same quarter a year earlier, due primarily to decreases in sales and gross margin.
Gross margin in the first quarter was 13.9 percent, down year-on-year from 15.6 percent, while the loss from continuing operations for the period reached $552,000, compared with income of $696,000 in the comparable prior-year period.
An in-depth look at the Audiovox product lineup first points to the mobile video market, which has undergone dramatic changes starting in the second half of 2004, said Pat Lavelle, president/CEO of the Audiovox Electronics business at Audiovox. There has been a significant shift from the aftermarket to OEM car manufacturer installations, and “We have been negatively impacted by fewer opportunities with the aftermarket,” Lavelle said.
Further, a drop in SUV sales, a key segment of the mobile video market, has limited Audiovox sales opportunities as well. Add to this, price erosion generated by deep aftermarket discounting, as a result of a general sales slowdown, and it all results in a negative effect for the company’s mobile video sales and margins — the key driver over the past few years, he noted.
Due to having the largest market share in this category, said Lavelle, “The impact on Audiovox was greatest.” However, he noted there are still good opportunities within mobile video and it will remain a key category without the growth posted over past years.
Severe price erosion also negatively impacted portable DVDs, with a drop in selling prices of 30 percent year-over-year, making it “very difficult to grow sales,” said Lavelle. To counteract these market changes, he said, Audiovox has been very active in new product development designed to give it the opportunity to restore eroded margins and generate new sales.
Looking at specific products, Lavelle said the company has begun shipping its Video Shuttle System and 8.5-inch and 10-inch mobile video overheads. In June, it will begin delivery of 15-inch overheads, with 12-inch types starting in August.
The company also expects fourth-quarter shipments of its Ray Sat satellite antenna, which will bring DirecTV and Dish Network into the vehicle at a retail of $3,000. Lavelle claims Audiovox is the first to offer one unit that can deliver both services.
In car audio, between May and June, the company will deliver all new Jensen amplifiers and speakers to power and independent retailers, and a new line of Phase Linear by Jensen designed for mass merchants.
In May, the consumer group delivered a complete new line of LCD TVs — 17-inch, 20-inch, 23-inch, 27-inch, 32-inch and 37-inch units, with retails ranging from $499 to $2,499.
The company also plans to deliver in-car and portable multimedia GPS navigation systems with real-time traffic. The in-car is available and the portables are scheduled for the fourth quarter.
Lavelle summed up Audiovox’s future with, “Although the first half been difficult, I fully expect the second half to improve as our new products deliver and as our recent overhead reductions take hold.”
