Reporting its maiden year-end results after parting company with former parent Avesco Plc, Kings Langley, Hertfordshire-based VideoLogic Group Plc says continued losses have forced it to reduce its research and development programme and restructure its worldwide sales management. Increasing red ink at the video processing boards specialist spelt losses of ú8.7m, up from the ú5.8m it reported last year when still part of Avesco. It said the development phase for its multimedia upgrade boards had taken longer than it had anticipated, but that there was light at the end of the tunnel. To push the company back into the black it would halt its growing research and development expenditure and focus itself on generating sales. Increases this year in its research and development costs to ú3m from ú2.7m, reflected continued work on 64-bit boards, and design and fabrication of application specific chips in the field of three-dimensional games chips for itself, Compaq Computer Corp and NEC Corp.
Third-party funding
But in the autumn, when this round of development is complete, the company would reduce its commitment to board research and seek third-party funding for chip design work. Although it sees itself as an innovative company, VideoLogic doesn’t believe that shifting into lower gear will damage its reputation: it has developed the boards, the tough bit, and now the products it creates will complement its new 64-bit kit, the GrafixStar. This board took longer than planned to bring to market because of the worldwide shortage of capacity at silicon foundries but since its February launch (CI No 2,609) sales have been good although restricted because of component shortages. During the year sales appeared to be buoyant, up 33% to ú12.2m, with the rise due largely to 928Movie, a 32-bit video graphics accelerator, and other multimedia upgrade boards, although sales of its older technology boards fell 22%. But despite appearances, the company was selling the 928Movie at cost for the last three months of the year because the market’s switch to 64-bit from 32-bit technology had come sooner, and happened more rapidly, than had been expected. As a consequence, and in the US especially, manufacturers of 32-bit multimedia kit had just dumped inventory on the market, leading to massive price slashing as everyone attempted to shift stock, and in VideoLogic’s case this translated into lower than expected sales of 928Movie and PCIMovie, an add in graphics board. This resulted in the company having to take a ú2m hit to write down stock of the boards and other kit outdated by the relentless pace of technology. This change in market conditions had been a major factor in the erosion of gross margin to 39% from 47% in 1994. And marketing of 928Movie and the move of the US office to San Bruno, California Valley from Boston, helped boost sales and administration overheads to ú8.7m – the level of losses. The company now plans to restructure sales world wide, although it hasn’t decided how, adopt a more focussed selling apporach, and introduce more efficient procurement and distribution. All of which is calculated to reduce its overhead by nearly half to ú6.5m a year from ú11.5m. However, it ended the year with ú9.6m cash in the bank and no debt, thanks partly to the ú1.6m provided by NEC buying 3.2m shares in the company (CI No 2,630).
