So the new strategy really takes aim at this and gives us a lot of power to focus on the real opportunities we have in the marketplace. Coming to an end of this presentation and my description of our strategy and our business operation going forward. Let me summarize where we are today end of February 2024. So in the business area, IT and Industrial, we are still selling and producing TSM products during the first half of the year. And that business is actually progressing well. We are aiming to exceed sales that we managed to accumulate in both 2021 and 2022 during the first half of this year. And currently, we are out selling these products and offering customers to place last-time buy orders. To stock up, if you say, on these products. And that can be customers that are interested in licensing the technology and want to bridge over until they are up and running with their own production.
And it can also be customers that want to simply continue selling their products for an extended time. So this is the idea behind that. And during the second half of the year, we will then close the factory and shut down the operation in our subsidiary, Pronode Technologies AB. That closing is prepared. But right now, they are producing TSMs at full speed and everything is actually going quite well in that production. So it’s fantastic to see. The team is still very committed, and we are running sort of flat out right now on both marketing and sales efforts and producing units to meet the demand that we have. And then ongoing with a handful of larger TSM customers and value-added resellers, distributors, we are negotiating terms and conditions for their licensing of this technology.
So quite busy. And we hope that we will announce further wins there, and we will keep you posted on the progress of that business. In automotive, we obviously execute the breakthrough project that we have for our driver in-cabin monitoring software. And for all of you to explain here, we are a Tier 1 software supplier directly to this OEM. And our software will be used across that OEMs, different brands and models. And it’s also a project that will continue to evolve, and we will have continuous software updates for an extended period of time. We are very busy with that customer now and taking the first steps. We will also accumulate both NRE revenues and some license revenues already this year, and that will continue into next year. SOP will follow, and then we will generate license revenues per vehicle produced.
And the projections are that these production volumes will increase as new brands and new models are added to the program. So that’s very exciting for us, of course. And as I’ve said many times, this has spanned renewed interest from customers that we have been in contact with before and that we have been maintaining contact with over the last years. But of course, this is proof that we have a really good offering. We are capable of functioning as a Tier 1 supplier of this type of software directly to an OEM. So several other commercial vehicle OEMs and also passenger vehicle OEMs are interested in working directly with us now. But also an important channel for us will probably be to work with partners that are themselves suppliers, typically Tier 1 system suppliers offering electronic modules and/or cameras and that we can work with and they integrate our software and offer this to the vehicle manufacturers.
And we continue to market and sell our Head-up Display Obstruction Detection solution. That will be mainly to Head-up Display system suppliers that integrate this solution into their products and sell to different vehicle manufacturers. So there is, in that business, we will have a clear Tier 2 position in the value chain. But that is also classical and how Neonode has been operating for at least 12 years, as I mentioned, as a Tier 2 technology provider into the automotive industry and licensing technology to Tier 1s and OEMs. So very, very busy. We are actually quite happy with the outlook. And as I said in the previous slide, we are entering 2024 with momentum. We had two great shows. If I go back one slide here, we participated with a big team at CES in Las Vegas in January.
Then we moved over to the big retail show NRF in New York a week after. Both events were great. A lot of new contacts and leads were generated. We had both planned visitors and a lot of spontaneous visitors that come and see us. They looked us up after our announcements end of last year. And we are now capitalizing on this by following up directly in different ways with these different customers to grow our business. So we are quite excited about our future potential. And we look forward to the rest of 2024 and the coming years. And that ends our presentation from the company today, and we move on to a short Q&A session here. Jesper?
A – Jesper Von Koch: Perfect. Thank you so much for that presentation. All right. So let’s move in to follow up on the last slide about the automotive progress and so on. You won your first design win as a software Tier 1. So could you just like go into like a bit more detail about the process of the, like from now into the ramp-up stage? And also, if possible, like a quantification like about revenues and on?
Urban Forssell: In all automotive projects like this, we are, first of all, I want to say that in automotive, sales cycles are typically very long. Before we secure this business, we have actually been working with these customers for more than two years. And of course, this is all super confidential while it’s ongoing. And right now, we have a number of similar conversations. So you have to have some patients, you have to have some stamina to hang in there. But here, we managed finally to get the official award, which was end of it was in Q4, that triggers then the start of application development, as I call it, where you integrate and adapt your solutions to the underlying, in this case, platform. And that’s typically a process between 18 and 36 months.
During that development phase, application development phase, you can earn NRE revenues. And indeed, we will earn from this year and also next year, quite substantial NRE revenues in this project. When the first vehicles based on this platform are launched and start to be mass produced, we will get royalties for the production license that they use, typically per vehicle. And of course, we want to have as much NRE revenues per program as possible, but also, we want to keep up the license revenues per vehicle. Sometimes you can manage also to get some kind of down payment. And we, as I mentioned in the slide, we always try to sell also prototypes, demonstrators. We can also sell especially design development tools to certain customers or we can license other type of software like development tools to customers to generate additional revenues both during the development phase and later on for production support.
So being an automotive supplier means that you have to have a quite long time frame for your business. You have to look quite far into the future before you see that you have a breakeven and then start to have a big payoff. And of course, you need to rack up some, several of these to have really a growing and over time, stable business. But during the development phase, NRE revenues and some prototype demonstrator revenues, then during production phase, per unit royalties.
Jesper Von Koch: Great. And I mean, is it possible to, like do you have like a span for your like average selling price? Like as it comes to the royalty per unit that you could communicate?
Urban Forssell: I think everyone that has some insights into automotive and this type of software licensing they can estimate. But it’s a fairly low royalty per vehicle. The point being that in automotive, the typical production volumes are high. So you can talk about a number of dollars per vehicle, but in high volumes that you do sort of the calculations there. We are no different. We are competing with a lot of both Tier 1 suppliers offering DMS systems and also other Tier 2. And we are all facing the same kind of pressure from the vehicle manufacturers to keep the prices low. And in our case, we are quite comfortable, relatively speaking, because we have a very, very flexible software that is easy to adapt to new customers.
And also, we offer them to use our very flexible development tools that simplifies the work for them and for us. So I think our margins still will be very, very good going forward. And we are now working hard to fill up the pipeline of more projects like this.
Jesper Von Koch: And speaking about filling up the pipeline of projects, I mean you do spend quite substantial amounts on marketing, such as CES and so on. Do you feel that the market is producing the results that you wished for?
Urban Forssell: If you look specifically at our digital marketing, definitely yes, but also certain key events. CES was a great success. I’m actually thrilled to see the exposure and the interest we got from a lot of customers and was also an event where we met customers from Asia, from Europe, from North America at one event. So it was really, really good. Looking in our Products business, we admit the sales were weak, and we saw weakening demand during last year, despite investing with our partners in many cases. So we co-exhibited several elevator and kiosk events and other events with partners. So that, of course, reduced our cost, but still we were there, we were present. And you can say there, the results were sort of meager.
That’s part of the decision why we changed the strategy. So everything in our operation will be more simplified. We will focus more on fewer but bigger segments and fewer and bigger customers, meaning that we can also target our marketing spend and effort to fewer targets with better efficiency.
Jesper Von Koch: All right. And then like assuming out, obviously, you’re changing quite a bit of your strategy and also the segments that you’re aiming for. But do you have, and previously, we’ve spoken about when as the products business was still like up and running, we spoke about like tens of millions of dollars in revenues. But like, do you have any targets for revenue growth and also profitability as you move over to the more software-orientated business model?
Urban Forssell: Yes. So we don’t give any guidance on growth or margins. But let me say like this, that we are aiming to double our turnover actually several times around in the coming years. And we also see that it’s reasonable to assume that we will reach in steady state a very, very healthy gross margin being also focusing more and more on software. So we are aiming at very, very high gross margins going forward, and we think that also the growth on the top line will be very interesting. I admit we are at a very low level in 2023. So I personally see this as an inflection point where different things come together at one focus points. We have a breakthrough new design win. And an award for a big program that has a long life span.
That triggered a lot of interest. And at the same time, we are boosting this with our strategy move, to focus 100% on licensing. So I think that will support both the growth ambition and the improvement of the margins by simplifying our internal operations, allowing us to focus more in our marketing, in our sales and in our product development on fewer but bigger opportunities.
Jesper Von Koch: Great. And then we only have time for one last question. But I’d like to ask like how you view your ownership in the company? I mean we haven’t seen any like insider purchases for quite a time. So yes, please elaborate?
Urban Forssell: Yes, we are in our Board and also in our management. We have some significant holdings in Neonode. I think everyone needs to speak for themselves for my personal. I feel that I have a quite big exposure to Neonode, the share. This said, actually, current share price is quite attractive. So let’s see what we do. I’m in an interesting position. We are, of course, working hard to grow this business, with our current market cap, it’s, I think, a good investment and it could easily give a good return if you enter today or if you scale up today. So let’s see. I will not promise anything today, but I agree with you. And I can see where the questions are coming from. And I’m certainly still a strong believer. I believe what we do.
I believe that with our Board, we are having a very professional independent Board of Directors. I work very closely with them in shaping the strategy. And this move that we made is not the last one. we are continuing to refine and massage and looking for the best way to grow our, both top line and the margins. And of course, how to maximize the market cap. As I said, several of us are big shareholders, and we speak both for Neonode, of course, but also for our own interest. So we are very optimistic still about the future of Neonode. So it’s a good investment. You should buy more shares, Jesper.
Jesper Von Koch: Yes. Thanks. And thank you so much for joining me today, both of you, and good luck going forward.
Urban Forssell: Thank you.
