Universal Electronics Turning to Hybrid Remotes to Boost Margins

Universal Electronics Inc. is having strong uptake of TV remote controls that combine linear TV and streaming channels, said CEO Paul Arling on Thursday's Q4 earnings call. Late last year, the company launched a streaming service controller for Apple TV 4K, geared to MVPDs, that support Apple’s original functionality, including Siri voice control. The remote adds capability that simplifies viewing live content on Apple TV with keys for channel surfing and an electronic program guide, Arling said.

UEI plans to roll out the Apple TV remote over 2021 with current and new customers who have shown “a high degree of enthusiasm” for the product. It’s the only MFi-certified remote control, other than Apple's own Siri remote, Arling said. The company sees a large addressable market of customers for the remote as consumers continue to adopt a hybrid approach to TV viewing, combining linear viewing and various forms of VOD. Though some MVPDs are building their own platforms with voice engines, a “vast array” of companies with subscriber bases of a “few hundred million subscribers” will choose a platform like Apple TV that brings different entertainment options together, he said.

UEI believes the market for such platforms -- based on either Google or Apple technology -- has “a real good runway over the course of the next few years” with smaller operators, as well as larger ones that haven’t successfully built their own hybrid platforms, said Arling. Hybrid systems are the “platforms of the future, because that’s what people want to watch."

Advanced remote controls are half or more of UEI's business; 22%-25% of sales are “non-AV,” said Arling. When service providers transition to advanced platforms, average selling price goes up, he said. “The older product that was a simple [infrared] controller is not as sophisticated or as expensive as a two-way Bluetooth Low Energy or RF or CE device that has a voice capability built in,” he said. The transition to more advanced platforms means growth for UEI.

Commenting on the Comfort connected thermostats that UEI announced this month (see 2102120042), Arling said the company expects them to be installed commercially or sold as part of an HVAC unit vs. being sold at retail. Thermostats sold into the hospitality channel will have sensors that can modify temperatures in the room according to guest preference, he said. When guests aren't in the room, the thermostats can adjust to an energy-saving temperature and then revert to the customers' preference when they return.

Lower year-on-year sales at Universal Electronics in Q4 reflected COVID-19’s impact on the company’s subscription broadcast and security customers without self-install capabilities, said Chief Financial Officer Bryan Hackworth. Sales were $156.3 million in the quarter ended Dec. 31 vs. $174.7 million in the year-ago quarter, said the company.

Lower revenue was offset by growth in high-margin chip sales and royalties. The company’s QuickSet technology was adopted by the top three global TV OEMs, which are expanding the number of products using the technology, said Arling. The company is strengthening the line's features, including Virtual Agent and QuickSet Widget, he said.

Q4 results reflected continued revenue headwinds and gross margin improvements from the shift toward software, Colliers analyst Steven Frankel wrote investors Friday. TV OEMs are purchasing more software and chips, helping to drive up gross margins, he said. Frankel cited growing momentum around MVPDs deploying Apple TV 4K or Android-based set-top boxes in lieu of custom-designed ones. Colliers believes the shift to standard platforms “should get some legacy customers to finally move away from their old STBs” and onto UEI’s advanced solutions.