Comments from the CEO

October 30, 2019

Comments from the CEO on
interim Report Q3, 2019

Continued focus on Automotive procurements

In-car AI from Automotive solutions
The third quarter includes the slightly more quiet summer months of July and August, but that did not mean that the ongoing procurement process from the car industry’s giants stopped. Technical issues and other questions continued to arrive in a steady stream, as it will be until a supplier is appointed and a contract is in place. After the nomination of a supplier the work enters into a phase where a project is formed that should deliver software with high precision to the project until the day the car is put into production, one to three years after supplier nomination. During the quarter, the procurement processes continued with full intensity and the decision in many of them is imminent. It’s with the highest confidence we’re looking forward to the awards about to be distributed.

Smart Eye is a respected name in the automotive industry and it’s well known among customers that no other Tier-2 supplier has been nominated for so many car models by so many manufacturers. It’s a stamp of quality and a factor that creates a positive spiral due to the fact that very few car manufacturers will risk developing a costly function which in the end doesn’t deliver the intended performance.

Smart Eye is always considered as a possible alternative in all major ongoing procurements. We prove ourselves over and over again in the highly competitive and quality-conscious automotive industry by delivering to advanced projects where the active safety systems work together. This places high demands on safety classification and Smart Eye manages to deliver software according to the very highest specifications.

In the near future, we expect manufacturers whose share of world production exceeds 20% of all vehicles will be determined. However, the procurements will not include all cars in their model programs, at least not at first. In the long run, with support from safety ranking institutes and new legislation, there are reasons to believe that DMS becomes as common as seat belts and airbags.

We also estimate that those car companies whose procurement processes that are in a somewhat later phase and thus will not be decided in the immediate future, but start next year does constitute an additional at least 20% share of world production. In addition, the two major global manufacturers that Smart Eye was nominated for and reported in Q1 and Q2 together have a share of world production exceeding 15%. It’s in the light of this rapid market development that we are able to proudly communicate eight new design wins from an existing Japanese customer during the quarter, a verification of the fact that our business model is working.

New Business Area AIS
But the company is more than just Automotive Solutions, even though that business area rightly gets most of the limelight right now. On July 1st, a new business area called AIS was formally inaugurated. AIS stands for Applied Artificial Intelligence Systems. The word Systems in the name signals that the new business area will offer not only software, but also hardware, which means that Smart Eye soon can offer a complete system to the automotive industry. This does not mean that Smart Eye abandons its winning concept of selling software through global Tier-1 suppliers who in turn sell complete systems to major car OEM’s. Through this development of our offer as an aftermarket system with a focus on China. We’re going to be able to meet the growing market demand in China where regulatory Smart Eye Interim Report January – September 2019 5 (20) initiatives in the near future are expected to require driver monitoring for certain types of transport of dangerous goods and long-distance buses. By connecting our software to a specific hardware, we’re ensuring that our software is not copied, which is an important factor in protecting our competitiveness and integrity.

AIS will cover the cases where the volumes are not as large as for Automotive Solutions but still much larger than the research customers of Research Instruments. Typical customers are operators of car and truck fleets, bus companies as well as manufacturers of commercial vehicles and special vehicles with small to medium volumes. The product is being developed and tested to the full requirements and standards of the automotive industry, while great effort is put into gaining full functionality including the latest AI technology at a competitive price. In the second half of next year, the product will be launched to a wider audience, but already during the winter, a number of pilot tests with specially selected customers are planned. These tests will provide important information and data for the further development of algorithms and the tuning of customer functions. Part of the capital of 200 million SEK raised before the summer was aimed towards the AIS investment.

Eye tracking system for research purposes
Research Instruments has had a somewhat less intense quarter than the rest of the company, where the trend of delays on large contracts has unfortunately continued. However, we have not lost contracts to competitors or any business opportunities, it’s a shift in purchases beyond the company’s control where sales are expected to be realized in the coming quarters. The company has started to develop the product range with the aim of broadening the offer. We will move our position forward regarding smaller eye tracking systems with lower price tags and higher volumes. In addition to increasing the total sales volume, it can also help to reduce the fluctuations in the business area in the future by not having as much relative impact on a few large orders.

Expectations for Q4
We enter the fourth quarter with the highest possible pace in all parts of the business. We aim to defend our market-leading position by continuing to win design wins with existing and new customers. For this we are perfectly positioned. It is with both pride and pioneering spirit that we as a company develop the market for the interface between humans and AI, for the research and automotive industry, today and in the future.

Written by: Martin Krantz