Notes to the financial statements - Plasmon

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12" Technology The 12" business continues to be a major part of Plasmon’s total revenue mix but overall sales declined some 17% to £19.6m. The majority of the reduction was in sales of new drives that declined 58% to £1.4m as 12" solutions become prohibitively expensive and customers wait for UDO technology. Sales of 12" media and service declined a more modest 12% in total to £7.5m and £10.1m, respectively. The change in our 12" business was in line with our expectations and the rate of decline should slow as new drive sales cease and the business becomes a media and service annuity. The 12" customer base is firmly wedded to write-once optical storage solutions and is showing strong interest in the significant cost advantages of UDO technology. We are now working on upgrade and conversion programmes to migrate these customers to UDO but still expect to enjoy significant revenues from 12" media and service for several more years. CD/DVD In response to demand from our major medical imaging customers such as Siemens Medical and GE Medical, we introduced the Enterprise D-Series library last year with a capacity of up to 2,175 discs. The library is derived from our G- Series 5.25" platform and its development was completed ahead of schedule in late 2002 by the outgoing Minneapolis engineering team. Plasmon Plc Annual Report 2003 The response to the Enterprise D has been excellent and helped CD/DVD sales grow 139% to £6.5m last year. In mid-year we secured Siemens Medical as a major new customer for this product and the medical imaging market in general is adopting DVD technology because of its low cost. The low performance of DVD solutions also matches the infrequent access requirements of the medical imaging market, but the reduced reliability and ease of use of DVD remains a major concern. However, we expect UDO to regain market share in this area as it offers higher performance and reliability at the same price point as DVD based solutions. Consultancy Our optical media consultancy business had another excellent year in 2002/3 with revenue growth of 9% to £3.9m compared to £3.6m the previous year. During the year we signed significant new agreements with Intel Research to develop highdensity phase change storage technology and with Unaxis AG, to develop 0.1mm cover layer technology for volume Blu-ray disc production. Our CD-R and DVD-R consultancy business with Ciba Specialty Chemicals also performed well in 2002/3 and we estimate the Plasmon-Ciba Ultragreen CD- R dye has a 65% share of the world-wide market for CD-R dyes. After a considerable delay due to technical issues, Ciba will finally launch a new DVD-R dye in mid 2003 and we expect this to drive significant future royalty growth as recording video to DVD’s becomes a mainstream application. LTO Tape Our LTO tape library business was a major disappointment in 2002/3 with revenues flat at £1.4m. Although we successfully completed our product range with the Exabyte autoloader acquisition and secured the necessary software support, the market has since commodotised with the entry of major PC brands such as Dell with very aggressive pricing. In light of these changes, we are reviewing our overall tape strategy to position our products as part of higher value added solutions and consequently expect to achieve only modest growth for this part of our business. Chief Executive’s Review 12 Software and Connectivity Sales of our connectivity solutions, which are included in the relevant major product category, returned to growth last year with revenues increasing 60% to £0.8m. During the year we secured Siemens Medical as a major new customer for our integrated NAS connectivity solution to integrate with the Enterprise DVD libraries they also purchase from Plasmon. We expect this trend for major customers to purchase integrated connectivity and library solutions from one vendor to increase in the future and are already discussing another major opportunity in the medical imaging market. We believe the move to networked storage solutions will continue to be a major trend within the storage market. Late in 2002 we commenced development of a new range of NAS-RAID products that will integrate internally in our new G-Series libraries and will provide industry standard connectivity and performance to optical archive solutions. The new solutions will be based on Serial-ATA RAID and Linux software and will significantly reduce the cost and complexity of deploying UDO technology. Other The majority of this business sector relates to our optical mastering business in Caen which had an excellent year in 2002/3 and grew revenues by 31% to £2.9m. The majority of production is now CD-R and DVD video masters which we supply to most of the major disc manufacturers in the Far East. We are now entering volume production of DVD- R masters and expect this to drive further growth in the coming year. Longer term we plan to manufacture masters for Blu-ray video discs and during the past year we commenced development of these products. Our experience with UDO is proving highly beneficial in this area and should enable Plasmon to become a leading supplier of masters and stampers for consumer disc formats based on blue laser technology.
Outlook 2002/3 has been a year of consolidation for Plasmon in which we maintained stable revenues and significantly reduced our cost base at a time of industry and economic downturn. We also made excellent progress with our UDO development programme and we are confident of delivering a world-class product and securing major OEM support for our technology in the coming year. Due to the high profile corporate fraud cases of the past few years, the market for secure archival storage products that provide unalterable records of business transactions and agreements is very strong. We are therefore launching UDO at an ideal time and we believe the inherent cost and performance features of UDO will ensure it is highly competitive in the archival storage market. On this basis we look forward to the future with confidence and expect UDO technology to deliver long-term growth in revenues and profitability for the Plasmon Group. Plasmon Plc Annual Report 2003 Chief Executive’s Review 13 Sales of integrated storage solutions comprising libraries, servers and Plasmon storage management software are expected to increase in the future
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Notes to the financial statements - Plasmon

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