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'Fluid' Situation

Universal Electronics Projects $5M Q2 Shortfall From Chips Shortages

Universal Electronics, Inc. readjusted Q2 guidance to reflect a $5 million impact on sales due to chip supply shortages, said Chief Financial Officer Bryan Hackworth on the company’s Q1 earnings call Thursday. “Our products are usually companion products in a total solution,” said Hackworth. Customers alerted the company that supply constraints involving other vendors "affected their ability to implement their total solution,” hampering their ability to ship orders to UEI. He was unable to quantify the impact.

In Q1, COVID-19 continued to affect UEI sales as pay-TV and security customers, particularly those without self-installation capabilities, ordered less product than pre-pandemic, said Hackworth. Revenue fell $1.2 million to $150.5 million for the quarter ended March 31. Shares closed 13.6% lower Friday 13.6% at $50.58.

Q2 guidance is $153 million-$163 million, said the company. Sales were $153.3 million in Q2 2020. Hackworth said UEI’s operations team did a good job working with vendors in Q1 to procure components amid shortages and worked with customers to qualify product changes, resulting in a minimal sales impact in the quarter, but it won’t likely meet demand in Q2.

Hackworth called the component supply situation “fluid …changing sometimes week to week.” UEI’s operations team is working with suppliers to mitigate the issue, qualifying more suppliers, spot buying and working with customers to qualify substitute parts. The company doesn’t believe the effect on second half ’21 will be much different from what it expects for Q2.

The lockdown “still has effects,” despite broader openings, said Hackworth. In North America, operators on legacy systems are ordering less, making it difficult to predict “exactly when things will accelerate.” The company launched new platforms in Europe and business with TV OEMs in Asia-Pacific is going "extremely well," but he was unable to say when business in North America will normalize.

CEO Paul Arling said shortages are in integrated circuit components and ancillary products such as boosters and accelerometers. UEI went through something similar a few years ago with worldwide capacitor shortages, he said: “We had to bid for products.” Eventually supply will catch up with demand, he said: “We'll get through this.”

Shortages haven’t affected launch dates or projects to date, he said, though COVID-19 affected project timing in the hospitality space, which is “slowly emerging.” Arling cited traction with design wins for touchless and smart control in the lodging industry that won’t affect 2021 revenue. The lodging industry “will transform over the course of the next years to give you a smarter experience,” and UEI will have a lot of products in the category, he said.

An ongoing project with Apple will come out this year, Arling said, alluding to a product that “bridges the gap between linear TV, live TV,” subscription- and advertising-based VOD, and an easy-to-use interface. UEI is working with MVPDs globally to implement the system and is already shipping units to MVPD customers that will “lead the way on that.”

UEI’s voice-enabled Nevo Butler smart home and entertainment is on track to roll out this year from a major telecom provider, said Arling. It’s in development but “getting closer” to the launch date.

Going forward, fewer platforms will be affected by things like COVID-19 because consumers will be able to self-install advanced cable systems, said Arling. About 1% of consumers attempt to self-install, “and they’ve struggled.” As MVPDs move to advanced platforms, “these products can essentially be put on your front doorstep, and you could take them in the house, plug them into the wall, plug the devices into each other and software takes over,” he said, referencing UEI’s QuickSet and QuickSet Cloud technology. For now, many consumers are still reluctant to let technicians in their home, said Arling, saying the company isn’t back to a 2019 environment yet. “Do we think we'll get there? Well, of course,” he said: “I don't think this lasts forever." It will take time, he said, but "we're going to design programs where it won't matter."