BSQUARE anticipates reporting second quarter results similar to the first quarter, delivering solid results despite the global economic challenges, said Brian V. Turner, President and COO of BSQUARE. We continued to execute our business strategy and to actively pursue new, meaningful design wins. The current environment has forced many of our customers to postpone investments in new projects and reduce expenditures for outsourced services. As such we are striving to position the company to weather the near term slowdown and capitalize on a resurgence in the long term, for which we are well positioned with a cash balance in excess of $70 million and a very strong balance sheet.
Bookings for professional engineering services and shipments of products have been strong during the last few weeks, despite difficult macro-economic conditions domestically and internationally. Recently, however, two significant contracts have been cancelled.
First, a semiconductor manufacturer has notified BSQUARE of its intent to terminate the contract to port Windows CE 3.0 to their processor. BSQUARE had expected to recognize approximately $1.5 million in revenue in each of the third and fourth quarters this year in connection with this contract. BSQUARE believes that the termination of this contract was due to difficult global economic conditions in the semiconductor industry. A substantial portion of this project was complete at June 30, 2001. The customer has requested that BSQUARE maintain the code and development files should the project resume in the future.
Second, a customer terminated a large service contract for the design and development of an advanced broadband wireless PDA. The customer enlisted BSQUARE to create a product compatible with a proprietary wireless broadband service. That service provider filed for Chapter 11 bankruptcy protection in early July. BSQUARE had expected to recognize approximately $1.2 million to $1.4 million in revenue in each of the third and fourth quarters of this year in connection with this contract.
In addition, we are currently negotiating our Master Agreement with Microsoft, which expired on June 30, 2001. We are currently working on finalizing the terms of the new agreement. At this point, although we believe BSQUARE will still play an important role in supporting Microsoft, we anticipate that there will be a material reduction in revenue as a result of these negotiations. We will provide more information on the agreement’s terms when negotiations are completed, added Turner.
The combination of the contract cancellations and the anticipated decline in revenue from Microsoft are setbacks to our near-term business, said William Baxter, Chairman and CEO. Our commitment to provide a comprehensive solution set for all of our customer segments remains strong. We will work to extend the design win momentum we have seen in the past 18 months. We believe we will sign on with new silicon vendors and OEMs and continue to deliver on our current contracts. This strategy should enable BSQUARE to further diversify and increase its revenue base — a healthy trend to further our position in the smart device market.
Based on the near term economic environment, the company continues to aggressively manage its cost structure and remains on track as an industry leader. The company will discuss its ongoing cost-management measures no later than the second quarter conference call following its release of complete second quarter results after the market close on July 26, 2001.
