Little 2D to 3D conversion kit developer DDD (DDD:AIM) is leaving itself a huge mountain to climb by December after warning that half-year revenues are well down on last year. A drop from $4 million to $2.4 million is some decline, news that has spooked investors and slashed 23% off the shares to 10.38p. That's a 63% fall since mid-February's 28.25p.
Los Angeles-based DDD has planted deep roots in the PC market after years of investment, so a flagging desktop market is a blow. TriDef, its kit that automatically converts photos, PC media files, DVD movies and many interactive PC games to 3D, shipped 2.4 million units to its PC licensees in 2012, 172% more than in 2011. We'll have to wait until next month's interim results to find out how many units shipped in the six months to June, but you should probably brace yourselves that it'll be a lot less than the 1.1 million in the first half of 2012.
But before we get too gloomy, let's put this grim backcloth into context. The PC market stinks and has done all year, with the underwhelming launch of Microsoft's (MSFT:NDQ) Windows 8 doing nothing to slow the switch to mobile devices. According to numbers crunched by market researcher Canalys, desktop and notebook shipments in the six months to June fell 7.4% and 13.9% respectively. In contrast, tablet shipments globally jumped 42.9%.
PC gaming is a brighter light. According to estimates, China alone is home to over 144,000 gaming iCafes where nearly 14 million PCs are used by gamers to play shoot 'em ups (among other things), surf the web and catch a movie. Several of DDD's existing licensees are working towards creating a solution allowing them to sell 3D PC monitors into this market for gaming, and DDD is partnering with Lenovo (0992:HK), China’s largest iCafe software management vendor and an emerging global force in PCs. Lenovo continues to buck the wider weak trend, winning market share in notebooks, desktops and tablet categories, with a 7.3% second quarter 2013 year-on-year increase, says Canalys. The company now has global 12.9% market share, when tablets are included.
New licences have also continued their steady trickle this year for DDD, including its latest unveiled just last week with China's Chongqing JOMVS Photoelectricity Company for its glasses-free 3D PCs. In its favour, DDD is also leveraging its technology into the mobile device space, including with Chinese tablets maker Hampoo, which hopes to launch the world's first 3D glasses-free mass market tablet computer. There have been renewals scored, too. Then there's the TV space, where DDD shipments are up 16% year-on-year, not to forget its own Yabazam! 3D movie streaming service, now downloaded over 450,000 times by users of Samsung (005930:KS) and LG (003550:KS) Smart TVs.
As Shares flagged in an interview with DDD boss Chris Yewdall in May, DDD has plenty of opportunities, but also challenges, not least possible over exposure to a few big customers. But while revenue and profits are somewhat unpredictable, its licensing and royalty model will hopefully lend greater transparency in future. In the meantime, we'll just have to wait for those half-year numbers next month before we can realistically draw any reasonable investment conclusions. That's what new broker Peel Hunt is clearly doing before it initiates coverage on the stock.