T42 IoT Tracking Systems (LON: TRAC) shares are down 16%. TRAC shares are down because the American distributor has managed to sell nothing. Now, obviously, there are at least two potential answers here. One is that the products terrible - which would be a serious downer on our valuations of the company. The other is that the distributor is terrible. There’s even a third, which is along the lines of our own thinking. This third explanation doesn’t rule out of the other two just extends the runway we’ll have to provide before we really find out.
The announcement: “Further to the business update on 16 February 2023, in which the Company noted that the 5-year distribution and sales contract with OpenBox Ventures Inc ("OpenBox") in the USA was underperforming, the Company notes that the contract has, to date, not produced orders and thus failed to perform according to the distributor's estimates, with their estimated US$1.9m minimum order level for 2022 not being achieved and thus exclusivity conditions have not been met to date. Accordingly, the Company has been able to pursue other opportunities in the USA, leading to successful orders as announced in January and March this year, with further orders anticipated.”
It would be reasonable - but not certain - to conclude that the problem is with OpenBox.
T42 IoT Tracking solutions share price from Google Finance
That third option we’ve noted before about T42 IoT: “However, note what the agreement actually says - and what this implies. It doesn't say that T42 will now be used to track all shipments through Ashdod. Not at all. What it says is that T42 will wire up Ashdod (the readers for the tags) so that it can be used. The port will run a trial and also the port will recommend to shippers that they tag their shipments so as to be able to use the new system.
So this is far more a trial than anything else. On the other hand this also comes with a great deal of leverage. Any shipper using Ashdod will now become familiar with the T42 solution. That then means that there's - well, assuming it all works - a constituency to add the same readers, the same capabilities, to other ports.“
Note the way the technology works. It isn’t that you sell some trackers to a shipper then go on and find another customer. You’ve got to convince the port (or distribution centre etc) to wire up the whole place before the tracking system is of any use. That is, this is a system sale. You’re selling the whole system at once, there are no marginal sales. We’d suggest this will lead to a long sales cycle. Which might in fact be what the problem is here.
