Report By the Board of Directors

Wireless Business Segment

In the Wireless Business Segment EB offers innovative products and solutions based on our own platforms for defense, public safety and other authorities markets, IoT markets (Internet of Things) as well as for industrial use. For the wireless communication markets and other companies who need wireless connectivity to their products, EB offers R&D services based on the latest wireless technologies and applications. EB also offers high quality information security solutions for mobile devices and portable computers.

Wireless Business Segmentīs products are: EB Tough Mobile LTE smartphone for demanding Mobile Security and Public Safety needs, EB Tactical Wireless IP Network, EB Tough VoIP products and EB Tactical LTE Access Point for tactical communications. EBīs product platforms are EB Special Device Platform for Android-based devices and EB IoT Device Platform for development of different kind of products that need wireless connectivity and various sensors. EB SafeMove solutions enable secure, seamless connectivity for mobile workforce.

Development of the Wireless Business Segment in 2014

The Wireless Business Segmentīs net sales in January-December 2014 decreased by 13.4 per cent year-on-year, to EUR 53.0 million (EUR 61.2 million, in 2013). The share of the product-based net sales was EUR 14.1 million (EUR 6.9 million in 2013), which resulted mainly from the product deliveries of the tactical communication system to the Finnish Defence Forces and from the delivery of special terminal products for the authority use to a customer abroad.

The operating profit of the Wireless Business Segment in January-December 2014 was EUR 1.0 million, including EUR 1.1 million non-recurring income resulting from the reorganization cases of TerreStar companies, and non-recurring costs of EUR 0.6 million resulting from Wireless Business Segmentīs personnel layoffs and from the acquisition costs of SafeMove (operating loss of EUR -0.5 million, in 2013, including the non-recurring cost of approximately EUR 0.8 million resulting from the cost saving measures in the Wireless Business Segment). The decrease in the net sales year-on-year and lower than expected operating result were due to the decline in the demand for R&D services for mobile telecommunications network equipment and other markets, the increased product-based net sales did not fully compensate this decline.

EB aimed at bringing its products to the global defense and other authority markets and continued its sales and marketing efforts and R&D investments into these markets in the end of the year. During the first quarter EB delivered a batch of special terminal devices to one customer abroad, and received several small orders from customers in Europe and in the USA, mainly intended for defense forces test and evaluation purposes, for its EB Tough VoIP phone system products developed for defense use. During the second quarter EB continued its sales and marketing efforts and R&D investments into these markets. Customersī purchase decisions proceeded slower than estimated, and therefore the net sales resulting from the international defense and other authority markets remained low.

In the beginning of the year EB broadened its EB Specialized Device Platform (SDP) by introducing an Android-based smart watch technology version. This customizable device platform enables the delivery of complete product solutions to companies aspiring to extend the reach of their brand and product offering to the smart watch market. The platform has been used in the creation of the adidas miCoach SMART RUN premium running smart watch, launched in November 2013.

On April 30, 2014 EB started personnel negotiations to adjust its cost structure for the weakened order book for R&D services in the next few months. The negotiations were concluded on May 15, and the company decided to temporarily lay off at the maximum of 90 persons in the Wireless Business Segment. With these temporary dismissals EB targets cost savings of approximately EUR 0.8 million, which would materialize mainly during the third quarter of the year.

In June EB told that it is developing an EB Tactical LTE Access Point solution (Long Term Evolution, 4G) alongside its tactical communications products and systems to enable the utilization of regular terminals designed for civilian use in military purposes. This solution serves to establish a wireless broadband access point to cover data transfer and a call service within a specific area of the battlefield. EB presented its expanding product portfolio at the Eurosatory 2014 exhibition in Paris.

In July EB received a purchase order from the Finnish Defence Forces for EB Tactical Wireless IP Network (TAC WIN) system products. The Finnish Defence Forces also issued a purchase option for further purchases of the same products. The purchase order and the purchase option are a continuation of the delivery contract signed between EB and the Finnish Defence Forces in September 2011 and related product deliveries that began in December 2012. In accordance with the contract EB is developing the Tactical Wireless IP Network for the Finnish Defence Forces and delivers software defined radios that are the basis for the EB TAC WIN system.

During the third quarter EB started the collaboration with Qualcomm to feature the QualcommŪ Snapdragon™ 801 processor in the new version of its EB Specialized Device Platform (SDP), which will be commercially available later this year. The device platform enables customer-specific tailoring of smartphones, tablets and other products, targeted primarily for professional applications in public safety, mobile satellite services and cyber-security. EB plans to utilize the Snapdragon™ 801 processor in different wireless products that will be customized based on EBīs product platform.

In the beginning of November EB presented the new EB Tough Mobile LTE smartphone, designed and built for demanding Mobile Security and Public Safety markets. The EB Tough Mobile is packed with innovative features tailored for professional users like government agencies, authorities, first responders and other professionals with critical and secure communication needs. In the beginning of November EB announced a versatile and easily customizable EB IoT Device Platform. The platform offers customers a fast way to broaden their product offering into the IoT market with latest technology and optimized cost. This device platform, that supports different operating systems like Android, can be used to develop products with wireless connectivity and various sensors, such as, smart watches, intelligent jewelry, and wellness wristbands. Due to the versatility and performance of the device platform, it also suites for Industrial Internet use, for example to M2M device development.

December 17, 2014 EB concluded the personnel negotiations (started on November 6, 2014) in order to rationalize its operations in Wireless Business Segment in Finland by laying off up to a maximum of 19 employees in its offices in Kajaani and Tampere. As an alternative a few employees were offered new positions in Oulu. This caused non-recurring costs of EUR 0.4 million that weakened the result of the last quarter of 2014. With these actions EB will achieve annual cost savings of approximately EUR 1 million, from the beginning of 2015 onwards.

Wireless Business Segment Market Outlook

In the Wireless Business Segment, EBīs customers operate in various industries, each of them having their own industry specific factors driving the demand. A common factor creating demand among the whole customer base is the growing need for even higher speed and higher quality communications.

The following factors are expected to create demand for EBīs products and services in 2015 and beyond:

  • In the mobile infrastructure equipment market the use of LTE technology is expected to continue strong. This creates the need for services for LTE base station development. There is a wide range of frequencies allocated for LTE globally thus creating the need to develop multiple products to cover the market and creating demand for R&D services for development of product variants.
  • The trend of using new commercial technologies, such as LTE, smart phones and applications, is expected to continue in special verticals such as public safety. The specific LTE frequency band allocations for authorities create demand for customized LTE devices, such as EBīs specialized terminals, tablets and communication modules. EB Tough Mobile LTE smart phone creates the basis for new customer orders in the markets for public authorities and mobile safety phones.
  • Due to the long history in developing smart phones and mobile communication devices, EB is in a good position to offer solutions, where e.g. mastering of multi-radio technologies and end-to-end system architectures covering both terminals and networks is needed.
  • The demand for safety devices is expected to grow in the near future. EB SafeMove product family is expected to increase the performance and suitability in information security markets.
  • IoT (Internet of Things) has become a significant development area in many industries. The need for R&D services for connected devices for business or consumer use, such as various wearable devices and solutions, implementing mobile applications and connected devices both with internet services as well as with other devices.
  • In the tactical defense communication market the need for larger amounts of information data grows, generating demand for broadband networks, such as EBīs IP (Internet Protocol) based tactical communications solutions.

The general cost savings of the mobile telecommunications network equipment companies is reflected as increasing price competition in the R&D services. Despite of that the demand for EBīs R&D services is expected to remain steady during 2015.

EB continues the product development and delivering products and services to Finnish Defence Forces in 2015, and expects to get initial sales from the global defense markets.

The defense, national security and other authority markets are slowly developing markets by their nature. They are characterized by long sales cycles driven by purchasing programs of national governments, and the purchases of the selected products take place over several years.

The 2013 figures presented in comparison in this Report by Board of Directors include the figures of Continuing Operations only.