SCM Microsystems Reports Third Quarter Results

SCM Microsystems, Inc. (Nasdaq: SCMM, Prime Standard: SMY), a leading provider of solutions that open the Digital World, today announced results for its third quarter ended September 30, 2004.

Revenues from continuing operations in the third quarter of 2004 were $11.0 million, within previously communicated guidance of $8 million to $12 million and representing a decrease of 31% from revenues of $15.9 million in the third quarter of 2003. By product segment, third quarter 2004 revenues included $4.0 million from sales of digital TV security modules for pay-TV broadcast decryption, $4.6 million from sales of smart card readers and other products for PC and network security, and $2.4 million from sales of OEM digital flash media reader technology.

Gross margin from continuing operations in the third quarter of 2004 was 29% and included the write-down of approximately $1.1 million in inventory for the Company’s flash media reader and digital TV products.

Operating expenses for continuing operations in the third quarter of 2004, as reported in accordance with GAAP, were $7.7 million, down 14% sequentially from second quarter 2004 operating expenses of $8.9 million. The third quarter figure includes amortization of intangibles of $0.3 million and a net credit to restructuring and other charges of $0.1 million. Operating loss for the third quarter was $(4.6) million. This compares with operating loss of $(0.8) million in the year ago quarter, which included amortization of intangibles of $0.3 million and a net credit to restructuring and other charges of $0.6 million. Net loss from continuing operations for the third quarter of 2004, as reported in accordance with GAAP, was $(4.2) million, or $(0.27) per share, compared with net income of $1.1 million, or $0.07 per share in the third quarter of 2003.

Robert Schneider, chief executive officer of SCM Microsystems commented, “We made good progress in the third quarter against our goal of reducing operating expenses by 25% by early next year. Overall sales levels were at the high end of our expectations, and underlying gross margin remained stable. We will continue to focus on improving our operational and revenue performance in what remains a difficult market scenario.”

Guidance
For the fourth quarter of 2004, management estimates that revenues will be in the range of $8 million to $11 million, reflecting continued pressure on sales of Digital TV products in Europe and a lack of visibility into the timing of anticipated digital security projects. Gross margin is expected to be between 38% and 41%. Within this range of revenue and gross margin, SCM expects to record an operating loss in the fourth quarter of 2004.

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