[edit] Financial Summary

[edit] Recent Updates

[edit] Summary

The company released Q1 FY03/11 results on August 6, 2010.

The company released FY03/10 results on May 7, 2010.

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[edit] Trends & Outlook

Quarterly Trends

Seasonality

The company’s main customer is Nintendo (68.6% of FY03/10 sales; Ubiquitous TCP/IP is used in the Nintendo DS handheld video game console), which introduces a degree of seasonality in Q4. Sales related to Commissioned Development tend to follow budgeting cycles of customers, which tend to concentrate in Q2 and Q4, according to the company.

Q1 FY03/11 Results

The company released Q1 FY03/11 results on August 6, 2010. Please refer to the table above for quarterly milestone progress.

Q1 sales were 198 million yen (-0.3% YoY). The company indicated that progress to the plan was as planned.Growth in operating profit margin was low vs. sales due to higher fixed costs in SG&A (hiring more engineers).

The company’s core client is Nintendo (68.6% of FY03/10 sales), so until other revenue streams are developed results will closely reflect performance of Wi-Fi game sales. There were several major DS game titles released in FY03/10, including “Dragon Quest IX” and three Pokemon games. As of Q1, two Pokemon titles were announced by Nintendo for FY03/11 and it would be too early to speculate about the total number of games sold in FY03/11.

Progress in R&D and business development during the quarter included:

• The company announced that QuickBoot will be included on the Armadillo platform (produced by Atmark Techno, Inc.). The announcement added that the two companies will cooperate further to promote the use of QuickBoot in medium to small sized embedded systems.
• The company released the latest version of DeviceSQL, version 4.3, with sales starting in May 2010.

In SR Inc.’s opinion, the Q1 QuickBoot announcement (see News and Topics) marks a definite step forward for Ubiquitous. The company added that it has received numerous enquiries about QuickBoot from foreign and domestic manufacturers, which makes it hopeful for business development through FY03/12. Establishing revenues from QuickBoot would reduce the company’s dependence on Nintendo royalties and generate cash for investments in further growth.

FY03/10 Results

The company released FY03/10 results on May 7, 2010.

Sales for the year were 1.2 billion yen (+22.6% YoY), 18.3% over initial estimates.

Operating profit was 463 million yen (+23.9% YoY), 78.2% over initial estimates.

Recurring profit was 471 million yen (+57.7% YoY), 74.4% over initial estimates.

Net income was 184 million yen (+74.3% YoY), 31.1% over initial estimates.

FY03/10 Results Report Card (vs. January 26, 2010 revised forecast)

Strong performance – sales, operating and recurring profits exceeded previous medium term forecast targets for FY03/11.

Revenues

Target: 1,080 million yen (+14.2% YoY)

Result: 1,159 million yen (+22.6% YoY)

Operating Profit

Target: 400 million yen (+7.0% YoY; 37.0% OPM)

Result: 463 million yen (+23.9% YoY; 39.9 % OPM)

Recurring Profit

Target: 408 million yen (+36.6% YoY; 37.8% RPM)

Result: 470 million yen (+57.7% YoY; 40.6% RPM)

Net Income

Target: 150 (+42.4% YoY; 13.9% NPM)

Result: 183 million yen (+74.3% YoY; 15.8% NPM)

FY03/10 results were satisfactory according to the company, exceeding forecasts by a significant margin, with total sales topping 1.0 billion yen for the first time, a symbolically important achievement. The financial results remained dependant on Nintendo (although sales to Nintendo declined as a percentage of total sales to 68.6% in FY03/10 vs. 75.1% in FY03/09). However, sales in all other categories also grew strongly, increasing relative contribution: Networking software increased 48.8% YoY (18.8% of total sales), DeviceSQL database product sales rose 64.8% YoY (12.6% of total sales). The company was very pleased with DeviceSQL performance but it also noted that some of its manufacturer clients were slow to commit amid still weak economy. That caused a slight miss (by about 5 million yen) relative to an upwardly revised (in January 2010) 150 million yen budget for DeviceSQL sales.

The gross profit margin declined YoY, which can be partially explained by the increase of sales in Commissioned Development (+56.8% YoY) which is lower margin than other Ubiquitous’ businesses due to an associated labor expense.

Operating profit margin was flat YoY. The company increased headcount during the year, and commented that hiring full-time employees would continue into FY03/11. R&D spending was unchanged YoY (approximately 100 million yen).

Extraordinary losses were 155 million yen (of which 127 million yen a valuation charge for investment securities).

QuickBoot

Overall, the company was very happy with the progress of QuickBoot business in FY03/10. The plan for FY03/11 was to continue developing the technology and look for partnerships that would bring the commercialization closer. In May 2010 Ubiquitous announced QuickBoot support for Freescale Semiconductor’s i.MX application platform (i.MX processors are widely used in various devices like smartbooks and tablet PCs), saying that it would be a primary platform for QuickBoot technology. The company also demonstrated a new QuickBoot demo version. While the first demo used the Armadillo system (an embedded hardware platform that provides support for a large number of different interfaces and is used by developers), the new one was made on a commercially available Sharp NetWalker device, a resource and development environment constrained ‘real thing’. The boot time in the Sharp NetWalker demonstration was approximately 3-4 seconds, impressive as according to the company time constraints meant that the demo version was done with hardly any customization.

Full year (FY03/11) Outlook

The segment estimates for FY03/11 are 740 million yen for games, 200 million yen for networking software, 220 million yen for database software, and 50 million yen for QuickBoot. On a general note, the company forecast does not assume a proverbial “double dip” in the economy affecting any of its businesses.

The company is assuming revenues from Nintendo to be down approximately 10% YoY (mentioning that Nintendo itself had even lower official estimates). In general, this figure is hard to predict reliably and should probably be seen as a statement “we think it is going to be OK but we don’t know for sure and therefore assumed slightly lower sales”. SR Inc. notes that depending on the number of the famous 1st party WiFi enabled games, the sales could easily exceed or be lower than these estimates.

Two incrementally important themes in FY03/11 are improvements in sales of DeviceSQL and developments in finding licensee partners for QuickBoot.

The company indicated that it was keen to demonstrate QuickBoot capabilities in various devices and operating system environments, suggesting that further product announcements could be made as soon as 1H of FY03/11. The revenues from QuickBoot will remain marginal until the technology starts appearing in commercial devices.

The OPM is expected to decline approximately 7% YoY. Advertising and promotional expenses are expected to almost double YoY and the headcount will continue to increase (for instance adding 3 engineers and a quality assurance specialist to the QuickBoot team). The company may also start opening overseas offices as soon as Q1-Q2 of FY03/11 as part of its global push.

Longer Term Outlook

Company financial forecasts for the mid-term are presented in the table above. Prospects will likely reflect the transition from one main product (TCP/IP) to a widened product portfolio. The company suggested that sales of other products (such as QuickBoot and DeviceSQL) could offset any potential declines or slower growth in Games royalties.

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[edit] Business

[edit] Business Description

Broadly speaking, the company makes software components for embedded computers.

Ubiquitous develops software components for embedded computers, focusing on resource-constrained platforms (small processors, low memory). Embedded computers refer to specialized computer systems that are developed for a specific function (as opposed to a general purpose computer that can be used for multiple tasks). An example of an embedded computer is a handheld game console – design is optimized for the core function, playing video games. An obvious example of a general purpose computer is a PC (personal computer). Company products have traditionally focused on networking; however its product portfolio has been growing to include packages that can be used in both network-enabled and stand-alone platforms.

The company reports sales across three product divisions: Software Licenses, Support, and Commissioned Development, however the majority of the company’s sales have historically been from Software Licenses (81.4% of FY03/10 sales). The historic breakdown of sales is shown below:

Product Description

The company’s products can be classified into two categories: network products (the company’s core competence and historic focus) and other middleware. The company sells its Software Development Kits (SDK) as either stand-alone products, or as part of a “platform” offering (a turn-key solution which includes an operating system, network support, and other basic software). Historically, the most important product has been the Ubiquitous TCP/IP SDK (selected by Nintendo for DS game consoles).

Networking Software. Core product.

The key product has historically been Ubiquitous TCP/IP, a software package which allows device manufacturers to add networking capability to their products (accounted for 68.6% of FY03/10 total sales). Nintendo selected Ubiquitous TCP/IP package (along with SSL; a web content encryption protocol) for use on its DS video game console in 2005; Ubiquitous is the sole supplier of the solution. SR Inc. understands that the technical specifications of the Nintendo DS made internal implementation of a networking package by Nintendo difficult. Ubiquitous was able to solve Nintendo’s need by offering the small and efficient TCP/IP solution. Ubiquitous is paid a royalty for each network-enabled game cartridge that is sold. The company estimates that approximately 30% of Nintendo DS games have Wi-Fi capability.

Network protocols are the means by which network devices communicate and exchange data. TCP/IP is actually a combination of two network protocols, TCP and IP, the latter specifies an addressing structure. TCP establishes a method for data exchange between two or more network entities. TCP is a computationally intensive protocol for transmitting data due to several factors: ordered transfers ("receivers" rearrange data in the correct order), retransmission of lost data (receivers must determine that some data is missing, then ask for a retransmission), and error-checking and flow control (each data packet is checked to verify it’s complete, and receivers can ask senders to slow down). The challenge arises from the features that make up the TCP protocol (data retransmission, error checking, etc.), all which require CPU time. Minor increases in processing time can mean much higher lag between points as throughput increases, and overall system slowness for small processors that don’t have enough power to operate the device and handle complex calculations for TCP.

The company indicated that although the TCP/IP product has been instrumental in the company’s early successes, other technologies have evolved and the product is becoming less and less unique than when it was originally introduced.

Ubiquitous TCP/IP is also sold to Renesas (a leading microprocessor manufacturer), who resells the SDK with its products.

Platform Products

Ubiquitous Network Framework – a Software Development Kit (SDK) which effectively bundles several networking technologies together in one package. The SDK includes all of the major software components that a device manufacturer would need to add network functionality to a product:

• An operating system (the Ubiquitous Kernel, a non-preemptive operating system which was created to provide :the ‘bare minimum’ for TCP/IP to function)
• Common device drivers and basic applications (file system, calendar and timer)
• Common networking protocol support (TCP/IP, SSL) as well as network programs such as a web server, email, etc.
• Higher level protocol support (such as DLNA modules which provide support for interacting with other consumer electronics)

Network Offload Engine (NOE) – a combined hardware and software solution that allows for offloading processing of network protocols to a dedicated processor.

Ubiquitous micro Network Framework – a stripped down version of the Network Framework, designed to bring the most essential networking components to devices with limited processing capabilities.

USB Host – a SDK which includes the minimum amount of software required to equip a device with USB support. The SDK includes the Ubiquitous kernel, drivers to support common hardware, and the necessary software to enable USB support.

Middleware. Growth driven by embedded database solutions.

The company’s middleware products are designed to work with the company’s operating system (the Ubiquitous kernel) or with those provided by other companies. The company offers multiple different products; DeviceSQL (a database) and QuickBoot (software that accelerates booting for devices) are the most relevant (see By The Way for the full list).

DeviceSQL

DeviceSQL is a database engine SDK (technically speaking, a ‘database’ consists of two components: the raw data, and the engine, code that controls access and modification of the data) that the company acquired in 2008 from Encirq Corporation. Embedded software developers typically strive for as many features as possible while minimizing the total program size (size matters; if programs are too large, devices will need more memory and larger processors, increasing costs). The company claims that DeviceSQL is the world’s smallest database engine (24 Kb!), and boasts an impressive list of features:

• Abstraction from database commands (programmers can perform complex database operations without expert-knowledge of the database commands that run behind the scenes)
• Support for ACID transactions (atomicity – all or nothing processing, consistency – the database remains stable, isolation – data isn’t accessible until an operation is completed, durability – completed operations survive system failure)
• Stable response time (adding more data does not slow the database down)
• Multi-threading and multi-processor support

The technology has been used in several devices: Olympus Imaging Corp.’s “µTouch-3000” camera to enable smarter image searches (announced in February 2010); Alpine Electronics’ Rear Vision Navi car navigation system (announced in October 2009); Pioneer Corp.’s CDJ-200 and CDJ-900 music systems (announced in October 2009); Panasonic’s Lumix DMC-TZ10 (announced in March 2010). The company can only disclose which manufacturers use its products when it is allowed to. It points out however that the list of its customers reads like a Who is Who of the Japanese consumer electronics industry and device industry.

The pricing of DeviceSQL varies, mostly depending on the number of expected number of units a manufacturer hopes to sell; the company suggests that prices range from as few tens of yen up to several hundred yen and multiple royalty value can be applied in a single project depending on the number of units shipped and other factors.

QuickBoot. Revolutionary product and main driver of future growth.

QuickBoot is a novel software solution that allows embedded devices to start faster. The technological challenge that it appears to dramatically solve is two-fold: allowing devices to reach a "useable" state faster than conventional methods, and providing substantial power savings compared to 'suspend and resume' methods used by many manufacturers to solve the boot speed problem. The word "dramatically" is used here to highlight the fact that QuickBoot prototype on Android, released by the company in November 2009, made the user interface ready to use in less 1 second, compared to 10 or more seconds for the fastest available alternatives.

Technology detail

As more consumer products are built on embedded technologies, the devices have evolved from single-function machines to include more robust networking, graphics, and other functions that make the devices into desirable products. Additional features typically means more resources (processor, memory, etc.) are required, which means greater power consumption and complexity being packed into shrinking packages. The trade-off for more gadgetry packed into newer embedded devices has meant greater power demands (to run the many components) and longer load times (programs need to be loaded, initialized, etc. before users can use them).

The industry’s answer to user demands for "instant-on" functionality was twofold: suspend and resume (certain components are turned off, but some continue to draw power) and hibernation mode. Unfortunately, suspend and resume implementations sacrifice power consumption to provide full operation at the touch of a button. Hibernation modes write all of the system data to permanent storage, but require all of the data to be reloaded into memory once the user activates the device. Suspend and resume provides speed at the cost of power, hibernation provides improved power consumption at the cost of boot speed.

Ubiquitous’ QuickBoot seems to address both of these major constraints on system designers (load time vs. power consumption). QuickBoot is a superior alternative to suspend and resume, and can improve hibernation performance. The proprietary technology determines which pieces of code are the most important, and loads these first. This results in two remarkable advantages over conventional options: when the device is off, it consumes no power (vs. suspend and resume, which continues to draw power), and when a user starts the device, it loads certain programs first and reaches a useable state very fast.

The company hopes that the technology can stay highly competitive for at least 3 years in its initial form; target devices include smartphones, electronic books, digital home appliances, and medical equipment. SR Inc. understands that the technology’s limiting factor is mostly memory size (how much information needs to be available at the point of power-on), which could be mitigated by advances in flash memory technology.

Ubiquitous announced the release of QuickBoot SDK 1.0 on March 23, 2010. The company suggests that the price per SDK could be in the area of tens of millions of yen (additional fees for support or customization), with 150,000 to 200,000 yen per year of maintenance. The biggest source of the future revenues however will be the royalties from the devices incorporating the technology.

SR Inc. understands that QuickBoot technology is supported on the following microprocessor and operating systems:

Note: Ubiquitous doesn’t officially support Android in QuickBoot SDK, but it can be adopted because Andriod is based on the Linux operating system.

Professional Services

The company also provides consulting and other customized development for clients; however this is a small part of the overall business.

Business Model

The company’s sales are an upfront payment for an SDK (which can include initial support or customization), and running royalties based on the number of devices that a manufacturer sells. SR Inc. understands that the royalty payment stream is typically the greater portion of overall revenue, so sales (and profitability) are driven by the number of licenses that are shipped.

Per unit prices can vary by customer type. For customers that are creating the final product (such as Nintendo) there is more room to negotiate up-front vs. royalty income; resellers (such as microprocessor companies) tend to have less bargaining power with their consumers, which can impact prices paid for SDKs.

Costs are largely incurred up-front (when the company invests in R&D to develop new products). Marketing expenses could increase as the company tries to broaden its customer base. The company suggested that it will continue to invest in R&D (by increasing headcount in engineering and general staff), but substantial cost increases could be made following an increase in overall profits.

Cost Structure

The main components of the company’s costs are labor and Research & Development expenses (combined averaging over 60% of SG&A from FY03/06 through FY03/10). Labor costs are basically fixed; the company produces software packages to be used in other devices, so per-unit expense after development is negligible. R&D expenses are to an extent variable, but some level of R&D could be considered mandatory (developing innovative technologically advanced products is the name of the game in embedded computing).

Profitability Snapshot, Financial Ratios

Ratio analysis is typically performed between similar companies to examine execution of business in a relative sense. Ubiquitous’ business has been built on one product (TCP/IP) and one main customer (Nintendo); and is therefore relatively unique when compared to other embedded software companies.

SWOT Analysis

Strengths

• The management team. The company founders and its current leadership honed their skills at some of the most recognized companies in the IT world, such as Microsoft and Accenture. That means the young (majority of the directors in their 40s) team has something that very few Japanese venture companies have – international level management and financial skills in addition to advanced technical skills.
• Technological edge. In SR Inc.’s view, the QuickBoot technology might represent a “killer app” with remarkable potential. The innovative attitude and technical aptitude to create such technology are relative strengths that organizations either have or don’t; tinkering engineer’s spirit can’t be duplicated and Ubiquitous seems to have that spirit.
• Profitability. The company has been and is profitable (a difficult proposition for start-ups, especially technology companies trying to create a niche), and has seen relatively healthy profit margins (see Profitability Snapshot). This provides the company with cash that it can reinvest to develop and improve its product offering. In SR Inc.’s view this also substantially improves the company’s ability to finance its growth – the Japanese stock market historically tended to reward cash generative growth businesses while casting a doubtful eye on ventures with a promising technology but producing no profits.
• Size. Although the company’s small size could be considered a limitation in some respects, the small lightweight structure that defines a small company is an edge that large bureaucratic companies seldom possess. Major changes in the technology industry are typically revolutionary, started by hobbyists who want to change the world. A smaller company provides the necessary individual autonomy and creative freedom.

Weaknesses

• Lack of revenue diversification. The company’s success thus far has been the result of one product (TCP/IP) and one customer (Nintendo). To grow further, the company needs to establish itself as a critical supplier of embedded technologies, as opposed to a single product. The company appears to be addressing this weakness (the Platform offering was announced in 2009), the results of which have yet to develop.
• Limited marketing capability outside of Japan. The company has been successful in cultivating relationships with domestic device manufacturers and microprocessor companies (Olympus and Renesas being examples), but as yet lacks overseas marketing and sales capabilities.
• Unproven new major product. QuickBoot appears to be a very promising technology. If successful it has the potential to become the core product and drive Ubiquitous’ growth for several years. However, it could take some time before it becomes a major contributor to the bottom line. (Having said that, the Release 1.0 of QuickBoot SDK was already made available on March 23, 2010; initially supporting ARM processors and the Linux (including Linux-based Android) operating systems.)

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[edit] Market & Value Chain

Market Overview

Estimating the market size for embedded systems is difficult due to the wide range of systems that could be included. Ubiquitous’ products could be included in many types of devices: from handheld game consoles to small outdoor weather monitoring sensors to mobile telephones. An important market for the company is consumer electronics, although the company’s technology could be used in a wider range of applications (embedded systems are found in practically every industry). The Japanese consumer electronic industry is an estimated 10 trillion yen (2008; Ministry of Internal Affairs and Communications) and the number of devices sold is in hundreds of millions. Growing sophistication, miniaturization, and connectivity of these devices provide a fertile ground for growth for purveyors of embedded software.

SR Inc. also speculates that the overseas market may become increasingly important for the company. Software like QuickBoot in particular is promising in this regard. The reasons are twofold. First, while the Japanese electronics manufacturers have historically tended to do everything in house, the overseas firms seem to be more focused on their core strengths and happy to outsource or buy off-the-shelf solutions that would enhance their products but are not their core competence. In a way, the Japanese companies often buy from the outside when they have no choice. The overseas companies, particularly those in emerging Asia, would only develop themselves in non-core areas when they have no choice. Second, a consensus based Japanese managerial culture often means that decisions take time to be made. By contrast, more top driven Asian and American competitors tend to make decisions more quickly. In SR Inc.’s view there is no right answer in this respect, and highly successful Japanese firms have been proving it over and over. However, form a perspective of an up-and-coming software vendor, a quick decision to employ its technology with less modification is much more beneficial than a prolonged consideration and extensive customization demands. In other words, Ubiquitous can be successful both in Japan and elsewhere in the world but it can be successful faster overseas.

Customers

Switching costs for customers are relatively high. Typically, once an SDK is selected for a product, the device manufacturer will continue to use the component until the device is discontinued. SR Inc. understands that the reason for this is due costs associated with re-engineering, testing, and support which can escalate if a manufacturer creates multiple versions of the same product.

Suppliers

Excluding employees, the company does not have suppliers that have a substantial impact on the company’s business.

Barriers to Entry

The barriers to entry for embedded software development are mostly technical.

Competition

There are numerous companies that develop embedded software; the company’s relatively small size (30 employees as of FY03/09) and limited product portfolio (TCP/IP was approximately 68.6% of FY03/10 sales) mean that there are few competitors for direct comparison.

Substitutes

There are limited substitutes to the company’s products (embedded software). Theoretically, hardware solutions could replace many functions performed by embedded software, but not without tradeoffs between system complexity, power usage constraints, per unit cost, and device maintenance (software is easily upgraded).

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[edit] Strategy

Ubiquitous was created to create unique technologies that are otherwise unavailable for customers. This niche strategy fits with the company’s key strength: engineering expertise. Product examples of this strategy include the Ubiquitous TCP/IP stack (providing fully-compliant network connectivity to resource-constrained systems), the Network Offload Engine (NOE; extremely resource-constrained systems offload network processing to other devices), and QuickBoot (dramatically reduces the time necessary for a device to be “ready” for use).

The company’s execution has been largely focused on the domestic market. This was due mostly to convenience, i.e. a “first things first” factor. The management team recognized the need to expand into a worldwide supplier. However the company is small and working with the Japanese companies kept the team sufficiently busy. The Japanese clients of Ubiquitous are global in their scope however, and that means that the company will not be starting from scratch when presenting itself to the overseas customers. Nintendo DS is known worldwide.

The strategy going forward seems to be to continue to develop and reinforce existing domestic client relationships while aggressively investing in overseas growth. This may mean temporarily higher costs as the management and sales teams are beefed up for the new challenge. However, it would appear that such spending is necessary and should bear rich fruit if done intelligently and strategically. The management team credentials seem to suggest that this should be the case.

The recent management change is symbolic and important in that respect. See discussion in Management section.

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[edit] Historical Financial Statements

Growing sales

Strong balance sheet

Earnings Results Discussion for the Year Preceding Current Fiscal Year (For Reference Purposes)

Q3 Results

Ubiquitous released Q3 results on February 5, 2010. See table above for cumulative progress to the company plan.

Q3 sales were 289 million yen (-1.0% YoY). The company indicated that progress to the plan was faster than expected, and that strong results were expected in the fourth quarter (partially due to the seasonal nature of game sales).

Progress in R&D and business development during the quarter included:

• Announcement and demonstration of QuickBoot technology (a mechanism to dramatically decrease the time required to start a device).

Update on Full Year Prospects

Ubiquitous made an upward revision of full year estimates on January 26, 2010 (shown in the table above). The company seems optimistic regarding full-year results, mentioning that additional orders were expected for DeviceSQL.

Q2 (1H) Results

Ubiquitous announced Q2 (1H) results on November 6, 2009. See table above for cumulative progress to the company plan.

Q2 (1H) sales were 336 million yen (+41.3% YoY). The increase in sales was mainly due to the launch of several popular game titles during the quarter. Growth in operating profit was in part due to delaying relocation of company headquarters.

Progress in R&D and business development during the quarter included:

• Installed sensors using the Ubiquitous AIR NOE (see Product description) as part of project for the Ministry of Agriculture, Forestry and Fisheries.
• Obtained a new software licensing contract for DeviceSQL.

Q1 Results

Ubiquitous released Q1 results on July 31, 2009. See table above for cumulative progress to the company plan.

Q1 sales were 199 million yen (+50.2% YoY). Progress in R&D and business development during the quarter included:

• Made and delivered a prototype for a higher speed TCP/IP for mobile terminals from a large domestic manufacturer.
• Ported middleware compatible with DTCP-IP to a mobile terminal platform and exhibited it at ESEC 2009.

[edit] Income Statement

The company’s sales have historically been from license revenues from Nintendo (accounting for the majority of total sales from FY03/06 through FY03/10).

Gross margins for the company have historically been high, roughly in 85%-95% range; per-unit costs of software packages Ubiquitous sells are minimal. As the business grows, total gross profit will be a function of the product mix: Support and Commissioned Development have higher costs (labor) while the device royalties carry the gross profit margin of 100%.

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[edit] Balance Sheet

Assets

The company’s asset structure is dominated by current assets, mostly cash and some receivables. The fixed assets are mostly long-term deposits and SR Inc. would call those semi-current assets in a practical sense. The company’s business is producing software, which is more a function of costs (software developers) than an asset base.

Liabilities

Liabilities are negligible. The company had no debt as of FY03/10 and held a net cash position each year under review (FY03/06 through FY03/10).

Shareholders’ Equity

The increase in shareholders’ equity in FY03/08 was the result of the IPO. Other changes have been mostly the result of net income and dividend payments.

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[edit] Cash Flow Statement

Operating Cash Flow

The company’s operating cash flow has largely reflected net income. FY03/10 operating cash flow was the result of higher net income YoY (+74.3%) and adding back non-cash charges (investment valuation losses of 127 million yen).

Investment Cash Flow

The major outflow in FY03/08 was related to investments (566 million yen) and deposits (600 million yen).Investment cash flows in FY03/10 were mostly due to making long term loans (300 million yen).

Financial Cash Flow

The company had no financial cash flows in FY03/06 and FY03/07. The inflow in FY03/08 was from listing on the JASDAQ; the outflow in FY03/09 reflected a dividend payment.

Simple Free Cash Flow

The company’s simple free cash flow was negative in FY03/09 due to capital expenditures: 33 million yen for tangible and 143 million yen for intangible assets. (The company purchased DeviceSQL in September 2008) Simple free cash flow improved YoY in FY03/10 due to higher net income and reduced capex.

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[edit] Other Information

[edit] History

Ubiquitous Corporation was founded in May 2001 to develop network software to realize the vision of the "ubiquitous network" – adding intelligence to everyday devices to provide maximum benefits for people using them.

The company’s first product, Ubiquitous TCP/IP, was developed and released in November 2001. The proof of concept environment was sparse: an 8-bit microprocessor running at 10 MHz with only 16Kb of memory (for perspective: the original Pac-man arcade game released in 1980 used the same processor, running at 3 MHz; and an empty Microsoft Word file is approximately 9Kb). The product effectively demonstrated the company’s ability to squeeze a large protocol (TCP/IP) into a tight space (a feat even more impressive considering that the software included a web server!).

The company’s first major success was in 2003, when Toshiba (TSE 6502) selected Ubiquitous TCP/IP to add web connectivity to Toshiba’s security cameras. Total licensing revenues were approximately 100 million yen, which helped improve the company’s financial situation.

The next major development for the business was a licensing agreement with Renesas technologies (unlisted; currently one of the world’s largest manufacturers of microprocessors) announced in 2004. The agreement included Ubiquitous TCP/IP, Ubiquitous Media Connect, and Ubiquitous Rendezvous (all networking products). The agreement was a boost to the company’s prospects – securing the agreement provided the confirmation that venture capital investors were looking for, who invested 450 million yen in December 2004.

2005 was the year of Nintendo. Ubiquitous TCP/IP and SSL packages were selected by Nintendo for inclusion in the Nintendo DS handheld video game console.

2007 was a year of firsts for the company. The company became the first listed company on the new JASDAQ Neo market (listed on November 13, 2007). In June, Ubiquitous announced that its Audio-Video product (Ubiquitous AV) was part of the first component to achieve Digital Living Network Alliance (DLNA) certification.

The company expanded its product offering in 2008, purchasing the rights for DeviceSQL from Encirq Corporation.

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[edit] News & Topics

Company News & Topics

On May 10, 2010 the company announced that its QuickBoot software would be bundled with Atmark Techno’s Armadillo development hardware platform. Device manufacturers basing products on Armadillo will be able to include the fast booting time and energy efficient benefits of QuickBoot technology “out of the box” without incurring additional project time and cost.

The company indicated that including QuickBoot as a default component in Armadillo could make penetrating the device market less difficult for Ubiquitous which could increase the probability of future royalty revenues.

On March 23, 2010, Ubiquitous announced the release of QuickBoot 1.0 SDK, with ARM being the primary platform supported (ARM9, ARM11, and Cortex A-series processors). The SDK includes “QuickBoot snapshot script” and “QuickBoot snapshot driver” (used to store snapshots of RAM to nonvolatile memory), as well as “QuickBoot BIOS” and “QuickBoot IRA (Intelligent Resource Allocator)” which enable systems to boot up instantly by selecting necessary blocks of the stored memory image.

In the release the company indicated that QuickBoot would be demonstrated at the ARM private meeting rooms at CCBN in Beijing, March 22-25, 2010 and at ARM Connected Community booth at ESC Silicon Valley, April 26-29, 2010.

Industry News & Topics

In a ComputerWorld article published March 10, 2010, ARM worldwide mobile computing manager Roy Chen said in an interview that the launch of Apple’s iPad will trigger a rush of rival products this year, suggesting that over 50 tablet PC devices could hit the market in 2010.

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[edit] Top Management

Tomoyuki Ietaka became President of the company (April 1, 2010). He replaced Masahiko “Matt” Kawauchi.

Chairman Kawauchi’s technical background includes Alps Electric (1980-2000; 8 years as a device development engineer in Japan and 11 years in a marketing role in the US) and Microsoft (2000-2005; business development manager for Asia). He joined Ubiquitous in 2005, was appointed as the director and head of marketing in the same year, and became President of the company in 2007. Kawauchi’s marketing experience and regional contacts could be instrumental in the company’s push for more overseas clients.

President Ietaka’s background is predominantly IT and management consulting: he has held positions with Anderson Consulting (now Accenture; 1991-1995), PricewaterhouseCoopers (now IBM Business Consulting Services; 1995-1997), and Boston Consulting Group (2000-2002). Other experience includes Microsoft (WebTV division, from 1997 – 2000), NTT Data Management Research Institute (2002-2004), and Vodafone (now SOFTBANK MOBILE; 2004-2006). He met Yoshihisa Nakayama (one of the founders of Ubiquitous) while working at Microsoft’s WebTV unit (1997-2000), and joined the company as an auditor in 2006, became the CFO in 2008, and the President in 2010.

Hitoshi “Jey” Suzuki is the CTO and a founder of the company, and is responsible for leading “what’s next” for the company’s technology development. Suzuki’s experience covers the majority of the modern information age. He was with ASCII (the Japanese agent for Microsoft) from 1987 until 2000, where he collaborated with Bill Gates on one of the first ever notebook computers (TRS-80 model 100). He was with Microsoft from 2000 until 2001, working in the WebTV division, after which he founded the company. Suzuki’s technical expertise is far-reaching. His specialties include operating system development, complier development (the programs that translate text programming code into machine-readable code), and maximizing capabilities of hardware through efficient software design.

Kanji Mihara is the Head of Sales and Business Development. Mihara joined Ubiquitous in 2007, bringing both digital media development and sales capabilities to the company. He was with Sony from 1987 to 2004 where he was a development engineer in digital media. After Sony, Mihara was with Microsoft Japan as a Business Development Director of the Digital Media Division.

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[edit] Employees

The company’s employee data (as of FY03/09):

• Number of Employees: 30
• Average age: 39.2
• Years with the company: 2.2
• Average salary: 7.8 million yen.

The company indicated (November 2009) a target of 20 permanent engineering staff members (no deadline was given) and noted that part time and temporary workers are used from time to time.

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[edit] Major Shareholders

Please see the table at top of the report for shareholder information.

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[edit] Dividends and Shareholder Benefits

The company has paid dividends in the past: 1,554 yen per share in FY03/08 (48.1% of earnings) and 630 yen per share in FY03/09 (50.0% of earnings). The company indicated that it had no fixed plans to a pay a dividend in the future, preferring to keep the cash on hand in light of challenging economic conditions.

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[edit] Investor Relations

The company maintains an investor website (in English and Japanese). As the company is listed at JASDAQ NEO, apart from usual quarterly results, it also releases quarterly milestone progress reports.

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[edit] By the Way

List of Products

Platform Products:

- Ubiquitous Network Framework

- Ubiquitous micro Network Framework

- Ubiquitous USB Host

Middleware Products:

- Ubiquitous Device SQL

- Ubiquitous DTCP-IP

- Ubiquitous WPA/WPS

- Ubiquitous QuickBoot

Professional Service

On the TRS-80 Model 100 computer (released in 1983; one of the first ever notebook computers) there are two invisible files commemorating the designers, Junji Hayashi and Hitoshi “Jey” Suzuki.

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[edit] Latest Q&A

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