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Jon Jayal G3 Pulse Podcast#3: Continuing supply chain challenges, ICE and 2022 innovation

Jon Jayal, CEO of Quixant speaks to Lewis Pek of G3 about supply shortages, Quixant product roadmap, ICE and the landscape of innovation for 2022 and beyond.

After yet another difficult year, what positives have you taken from the events Quixant exhibited at in 2021?

Quixant exhibited at the G2E show in October last year thanks to the enormous efforts of our US team. And while I think it was a different show for everyone, what was desperately needed was the opportunity for face-time with customers after such a long break. Quixant’s Chief Technology Officer, Abhinay Bhagavatula, and our US-based team were able to meet customers, demonstrate Quixant’s latest products and reconnect with customers – thanking them for their business during the pandemic and discussing what lies ahead in 2022.

What have you made of the decision to postpone ICE – what’s been the impact on Quixant – both upon your announcements and plans for 2022?

On the products side, Quixant hasn’t changed any of its planned announcements and roll-outs in 2022. We are continuing full-steam ahead, despite the news that ICE is not now taking place in February. Of course, it is disappointing that we are not able to participate in ICE in February as planned. We had all hoped that we’d be able to draw a line under COVID-19 this year, but unfortunately that’s not possible right now.

Quixant has supported ICE for many years and know that a well-attended ICE is great for our industry. We will continue to support the industry and the show, if that’s what the industry desires, but there’s lots of uncertainty around the new dates, and low attendance will be detrimental to the industry and impact the enthusiasm for future Clarion events. G2E was a different show from previous events; far less stand space was occupied, and attendance was significantly down. With ICE, we need to ensure that it is a positive event for everyone in the industry, and that our investment is met with healthy visitor attendance, and thus ample opportunities to meet with many of our customers and prospects. Whilst the only options for this year, the new dates are difficult as they clash with Easter, Spring Break and travel around the NIGA show.

Our product roadmap continues on the same track, and will be delivered as planned, whether or not it’s at ICE. Our stand at ICE London will offer the latest and greatest Quixant products at the level of functionality and performance that our customers are accustomed to with Quixant products. The only reason we won’t be at ICE is if the show is cancelled or there is a significant decline in the attendance of our customers.

One of the many things that Covid has changed, and significantly, is the traditional roll-out window for new products and the long-tail of those products in the market. Does this hold true for Quixant and what can you tell us now about your line-up in 2022?

We have several new launches this year, including a bespoke range of cabinets that bring the best of breed of Quixant’s computer and display technology together in a turn-key cabinet solution that allows customers to focus on game content creation, rather than hardware. We also have several new Gaming Hardware Platforms ready for release this year, which were delayed six to 12 months as we focused engineering efforts on securing supply of existing products to customers already in mass production. This has enabled us to launch our new products with the benefit of a pause in which we integrated the latest technology into the new range, so that it’s even more compelling and able to drive the very latest generation of games. We have a couple of new products that fit this bill that we are excited to shout about in Q2.

Your point about the long-tail of products is especially important as it’s been a major challenge for us over the past year. Quixant are committed to supporting customers’ legacy products on an ongoing basis. During a period when components are in such short supply and are incredibly difficult to source, in Gaming we don’t have the same flexibility as other markets to substitute parts, so we need to maintain a consistent supply of materials, even when many of these components are several years old.

Hardware is not the easiest place to be for any technology business right now, but we have committed financial resources to buying stock so we can mitigate supply challenges into 2022 and we will continue to adopt this policy. I am proud of the way we have supported customers by keeping their manufacturing lines active and not causing production stops. We regularly engage with customers about their forecasts so that we keep the right level of stock and can also predict the demand in the future.

Quixant is an exclusively Gaming focused business with relatively few product lines, making it easier for us to manage our supply chain, ensuring customers are supported on those products. When we paused product development for six to 12 months, we decided that deploying all of our product resources to ensure product modifications were conducted early was the right action to take, which enabled us to continue to supply existing customers.

Our exclusive focus on the gaming sector means that we understand the unique challenges facing the industry, in a heavily regulated environment in which customers only make money when they place new games on gaming floors. At Quixant, we know we cannot become the barrier to supply and it has been a truly cross-disciplined, international effort required to avoid this. I am also grateful for our great partnerships with customers, where support has been reciprocal both ways. We have engaged in a lot of healthy dialogue over the last two years. When everyone was wondering about the future in 2020 and then in 2021, asking about supply, both years have presented a great deal of risk, but I feel proud of how Quixant’s customer relationships evolved over this period and into 2022.

If 2020 was the year of Survival-mode for customers – and 2021 saw a resumption of the buying cycle but supply disruption – what is going to be the theme of 2022?

I feel optimistic about strong demand continuing. I think players want to get back to venues; the casino offering remains compelling and one of the wonderful things about this industry is that it’s rebounded and continues to innovate across the board. I believe demand will drive through 2022, but supply will continue to be difficult. Speaking directly to the semi-conductor manufacturers, they confirm that we will maintain this current climate until at least the second half of this year.

We are going to experience some turbulent waters over the next six months at least on the supply side. However, just as we’ve grown accustomed to living with COIVD-19, we have also grown acclimatised to the shortages. Whereas this time last year we were rushing to warehouse our stock, this year it’s a well-oiled process in which we can methodically approach the problems as we see them.

Looking back at the last 12 months – a year in review if you like – what did 2021 throw at you? What were the big challenges and achievements?

Firstly, we never want to be the company that stops the production line, as that’s such a disruptive proposition for any customer. When we’ve unfortunately had to delay orders, I think we’ve done a good job of pre-warning customers of any shortages. That said, we have been able to deliver all orders within the revised dates and dialogue with customers has ensured that there weren’t any surprises around deliveries, or the lack thereof.

My second point is that the boldness with which Quixant invested early in the pandemic has paid back in dividends for our customers. Some of the price rises we’ve seen on components has been extraordinary, but the fact that we bought early and committed to stock, without any guarantee that we’d be able to sell to customers, has meant that we protected our clients from the bulk of that inflation. We have tried to protect customers from some of the worst inflation levels, which on certain components is 10-15 times the pre-pandemic levels, and so I’m really pleased that we were so bold in order to mitigate the impact on sale prices.

How has the gaming sector learned to not only survive, but thrive during the pandemic? Do you think we’ve established a long-term rhythm, despite the erratic nature of short-term disruption?

What we’ve seen is a much greater degree of forward-ordering, better visibility, and commitment from our customers in terms of their needs over the coming months. This has helped improve our visibility of what we need to buy. Initially in 2021 there was a lot of guesswork in regards to customers’ demand, which was skewed against previous years due to the pandemic. Thankfully, customers have adopted a more confident view in terms of their future needs based on a resumption of more normal trading. And we’re also now in the swing of regular updates on deliveries and notice periods from our suppliers. We have entered a more normalised period, despite the fact that technology supplies are anything but normal.

A running theme in our Quixant podcasts is the topic of “supply-chain issues.” Much like COVID, it feels like a headache that won’t go away, did we see much relief in the latter stages of 2021? And is 2022 shaping up to better or more of the same?

I’m an optimist, so I do believe that there will be a reversion to normality and that the shortages we are seeing now will abate. We’ve seen similar shortages in the semiconductor market in the past, albeit in much more isolated pockets. For example, flash memory, DRAM and hard drives have all previously undergone shortages. Specific key factors were responsible for those issues, whether that’s been a factory fire or facility upgrades creating shortages.

What’s unusual this time is that it’s everything, not just one component – but all of them.  And they’re in short supply and costing more too. There are a myriad of reasons for this. Taking a macro-economic view, people haven’t been travelling or going about their normal business – they have been buying items for their homes. People have bought more equipment, TVs, laptops and white goods, which has created a demand issue as these products all require chips. Some have been buying smart devices that use more electronics – and then there have been supply issues caused by the factory closures in 2020.

Production stopped for long periods of time which created the triple whammy of demand from consumers, less chips in the market and more products requiring chips than ever before. The combination has led to extra shortages in the semiconductor market.

Stock shortages are affecting all industry sectors – is gaming getting its fair share of the tech supply and how is Quixant working to ensure its at the front of the queue?

Right now, I’d say that gaming isn’t getting its fair share. Consumer companies that buy chips by the million are far more attractive propositions for the semiconductors businesses as opposed to supplying thousands to the industrial markets. I believe the embedded marketplace is only getting a limited supply of components, and Gaming is even more challenging, due to its regulated environment in which you can’t substitute parts.

How are we making sure that we are doing the best we can in terms of the macro-themes we’ve discussed? One of the answers is bravery. We buy what we can – when we can, with price a secondary consideration because supply is more important. We announced in our trading update mid-January that we had taken a hit on margin during 2021, since we were buying at inflated levels during that period. You must be prepared for less favourable terms because that’s the only way to ensure allocation.

Cars are shipping without features – like inductive charging, electronic boot releases etc. with the manufacturers promising to retro-fit once the chips become available – I also tried to buy my daughter a new mobile phone and found we could only buy mid-range iPhone with a massive terabyte memory – what’s happening to the purchasing decisions/choices of OEMs during this period of supply chain disruption?

Machines must be fully featured when they’re placed onto the floor. You can’t sell a gaming machine without sound, but with the promise to add that functionality later. I think it is fair to say that we have seen some product migration, with customers moving to a newer product sooner than anticipated as older components are some of the hardest to come by right now.

When a part is unavailable due to end of life or extended lead times, which in some cases is 50+ weeks, we have also re-spun products with as few changes as possible. We supply what is essentially a very similar product so that the customer can assess the changes and make regulatory submissions to ensure they’re fully compliant. Several customers have also said that while they were planning to upgrade next year, they’ll bring the upgrade process forward as a result of the older stock shortages. I’d say it has accelerated the upgrade cycle slightly, but not significantly.

And as supply contracts and demand increases – what’s happening to price?

It has become something of a bidding war within the supply chain whereby you have to buy what you can, when you can. If you delay, wait 24 hours for example, the price could double. There are a lot of penalties for not taking decisive action. Price is a difficult topic right now. We have taken a hit and our customers have seen rises in price as we’ve had to share the pain of some of these increases. Equally, when we come out of this situation, we will share the gain too.

Price is a challenge that’s facing all technology markets right now. If you buy anything on Amazon you’ll have seen the inflation in price across a wide spectrum of goods. It’s part of the rise of inflation we are seeing not only within the components sector, but also the broader economy.

Do the supply chain restrictions also affect Quixant’s ability to offer long-term resilience in the supply chain in relation to the obsolescence of products?

Any new product we create involves the ‘designing out’ of obsolete components, because we can’t afford to use up our existing supply. Wherever we see supply limits of a particular component, we design out that element from the new product to ensure we don’t add pressure upon legacy products.

Are we also seeing the introduction of new technology slowing – I’m thinking of Intel’s Alder Lake announced in October last year – is roll-out to the gaming sector being delayed – pushed back?

Alder Lake will be out this year as part of our latest QMAX Gaming Hardware Platform. It is in development and I think it will be a great fit for the gaming industry with strong graphics, a powerful Intel CPU and an innovative architecture. We’re excited about launch this year and, as usual with our products, it will be developed in such a way that it is easy to incorporate into a slot cabinet.

We’ve talked about disruption of the supply chain, but has there been a disruption of the OEM base? Has working from home and further COVID restrictions dampened the innovation we expect to see from gaming equipment developers – or is technology still driving this sector to excite and challenge players?

I firmly believe that developers will continue to push the envelope to meet the expectations of players, which are forever increasing and evolving.  In broadcast and streaming media. we’re consuming more 4K and HDR content than ever before, which is driving a desire for ever higher resolution graphics in the casino environment. If you offer a pixelated game with blocky frame-rates – no one wants to play it. Just as terrestrial TV in standard definition looks terrible, with technology there’s no going back. If designers are not using 4K technology, their games could look sub-standard against what the player is used to from other sources. Even if you’re not benchmarking against other machines, slot developers are now competing against the latest laptops, phones and televisions.

We’ve conducted a series of interviews with European casino operators in the last couple of months, in which operators talk about stability and building back the customer base. They are cautious and careful right now. How does that translate into optimism and opportunity for growth?

I do see growth and opportunity as players continue to want the ‘casino experience.’ Having spent so much time at home looking at screens, the experience of a well-organised, innovative and high-quality venue, is always a compelling proposition. I think COVID has made us realise how important the out-of-home experience is for everyone. I think this is a renaissance of ‘going-out.’ Landlords in the UK pub market have been investing in their real-estate, for example, upgrading their F&B offering, adding new machines, pool tables and dartboards. While you might have expected covid to induce cost-saving measures, we’ve seen the opposite with investment refreshing the offer to ensure the best possible experience for returning customers.

You mentioned in September that this period has been ‘uncomfortable for all of us in the industry’ – do you think this disruption can be positive too?

Yes – I fully agree with that. I think this has been an incredibly uncomfortable experience for businesses. Everyone involved in the Gaming market has stared into the abyss over the last 24 months, but what this does is sharpen you up. I believe it’s energised developers to innovate even more and focused the minds of operators to prioritise investment, which ultimately delivers a better player experience. In summary, I do think that disruption is a long-term positive for the health of the industry, despite the short-term discomfort.

Contact us to explore how Quixant can support you throughout these challenging times.

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2022-07-07T06:32:48+00:00
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