Comments from the CEO

Comments from the CEO

Exciting year underpinned by our leading technology

We have been active in the embedded systems industry for a long time – longer than most in many respects. The industry has historically always been highly conservative, with the same business development patterns, the same relationships taking new forms and fundamentally the same solutions for new products. 2017 was the year in which we developed beyond our traditional sphere.

Using our leading technology and strong organization as a basis, we have shaken up the traditional aspects of the industry and developed in new directions. We were particularly successful in this regard this year, partly due to a newly-established relationship with Express Logic as well as our equity stake in Secure Thingz and a collaboration with Amazon Web Services (AWS), which is a new player for both us and the industry. You can read more about these relationships later in the Annual Report. For now, I would instead like to explain why these relationships are important for us and our future.

Over the past few years, we have spoken a lot about the rapidly increasing complexity in terms of product development among our customers. The pressure is mounting, not only as a result of new functions and requirements for energy efficiency, but also due to a desire to see greater connectivity between developed products and other products, internal networks and the Internet. When we have asked our customers, wireless functions are often highlighted as the most challenging aspect a developer can face. The industry’s solution when it comes to satisfying customers’ growing need for less complexity is to link products and solutions together via a platform for developers. Renesas was the first to do so, but the trend has continued during year and can be seen most clearly among us, the suppliers.

One example is our collaboration with Express Logic regarding our respective offerings. The fact that AWS is making a serious move into the embedded systems industry is perhaps no great surprise given its potential, but it is very exciting. AWS, which is one of the world’s leading companies with major resources, focuses on offering cloud services. This differs considerably from using the processor as a basis, which is otherwise the most common format in our industry. The fact that both AWS and Renesas chose us for our technology, quality and organization naturally feels extremely inspiring and gives us motivation for the future. Connecting a product is not just a matter of advantages and customer benefit. It also results in increased vulnerability and security risks for our customers and our customers’ customers.

The two greatest security risks are perhaps not the ones most often discussed in the media. One such risk is product overproduction, meaning that the number of products produced in the manufacturing process at the factories exceeds the number ordered by our customers. Another is the risk of theft of the developed software in the product itself. It can be easy to steal developed software, since digital information is considerably easier to handle than a physical product. In short, these security risks – which are becoming increasingly common – are the reason we see potential in our investment in Secure Thingz. Through this investment, we can realize a new product that focuses on securing our customers’ development and providing them with a way to create secure products while also eradicating the risk of overproduction. Our technology and product quality were crucial to the exciting developments that took place in 2017.

We also offer a global organization that provides support throughout the entire process. Together, these factors have played a central role in our success over the past few years. Once again this year, the performance of our regions varied, from quarter to quarter and between various countries. This resulted in a highly positive trend in Asia during the year, particularly in Japan. While the Americas and Europe varied widely during the year, overall the regions reported growth – although not as strong as we would have hoped. Naturally, it feels fantastic to have surpassed the magic number of SEK 100m in terms of operating profit, and, given our long-term view, it also feels reassuring that we have seen growth in 38 of the last 44 quarters.

Looking ahead, the focus in 2018 will be on realizing the plans we have drawn up for the year together with our new partners. I am confident the year will be bring more new products as well as closer – rather than more – relationships. We also need to be clearer when describing our strengths, our operating environment and our ambition. Using both familiar and new-found approaches, we will guide our customers, employees, alliances and owners towards new and exciting experiences in 2018.

Stockholm, March 8, 2018

Stefan Skarin,  CEO, IAR Systems Group AB


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