Significant Risk Concentrations

6 Months Ended

Jun. 30, 2016

Risks And Uncertainties [Abstract]

Significant Risk Concentrations

9. Significant Risk Concentrations

Significant Customer

One customer, Honeywell International, Inc. and affiliated entities (“Honeywell”), accounted for $3.5 million, or 16%, and $7.7 million, or 16%, of total revenue for the three and six months ended June 30, 2016, respectively. Another customer, Future Electronics, Inc., accounted for $3.9 million, or 13%, and $7.9 million, or 14%, of total revenue for the three and six months ended June 30, 2015, respectively. No other customers accounted for more than 10% of our revenue for any of the periods noted above.

Honeywell had total accounts receivable balances of $7.1 million, or approximately 38% of total accounts receivable, at June 30, 2016 and $6.1 million, or 32% of total accounts receivable, at December 31, 2015. No other customers had accounts receivable balances that were 10% or more of the total accounts receivable at June 30, 2016 or December 31, 2015.

Significant Supplier

We have two ODAs with Microsoft which enable us to sell Microsoft Windows Embedded operating systems to our customers in the United States, Canada, Argentina, Brazil, Chile, Columbia, Mexico, Peru, Puerto Rico, the Caribbean, the European Union, the European Free Trade Association, Turkey and Africa, which expire on June 30, 2017. We also have four ODAs with Microsoft which allow us to sell Microsoft Windows Mobile operating systems in the Americas (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa, which also expire on June 30, 2017.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed bi-annually, annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. Under this rebate program, we recognized $123,000 and $209,000 during the three and six months ended June 30, 2016, respectively, compared to $103,000 and $166,000 during the three and six months ended June 30, 2015, respectively. These rebates were treated as reductions in cost of sales. Additionally, during the three and six months ended June 30, 2016, we qualified for $288,000 and $489,000, respectively, in rebate credits, compared to $240,000 and $387,000 for the three and six months ended June 30, 2015, respectively. These are accounted for as reductions in marketing expense if and when qualified program expenditures are made.

Microsoft has implemented significant pricing changes for its embedded products, including ending its design registration pricing discounts, its OVRP and changing the aggregate volume price structure and product royalties for existing embedded Windows products effective January 1, 2016. In December 2015 we renewed the majority of our Microsoft licensing customer agreements for 2016 retaining 2015 pricing. As a result, the price changes implemented by Microsoft may not have a significant impact until 2017.