ParkerVision Q4 2005 Earnings Call
March 7, 2006
Paul Henning of Cameron and Associates
Michael Ciarmoli with Boenning & Scattergood
Wilson Jaeggli with Southwell Partners
Scott Robertson of Halpern Capital
Greg Weaver with Current Capital
Daniel Lewis with Gem Partners
Jessica: Good day everyone and welcome to ParkerVision's fourth quarter and year end 2005 earnings conference call. Today's conference is being recorded. At this time, for opening remarks and introductions I would like to turn the call over to Mr. Paul Henning of Cameron and Associates. Please go ahead sir.
Thank you Jessica. Before we get started I want to remind listeners that
this conference call will contain forward looking statements which involve
known and unknown risks and uncertainties about our business, and the economy,
and other factors that may cause actual results to be materially different from
our expected achievements and anticipated results.
Included in these are factors such as the ability to maintain technological advantages in the marketplace, ability to sufficiently increase manufacturing capacity to meet demands, achieving family market introduction and acceptance of products, maintaining our patent protection and the availability of capital, among others.
Given these uncertainties and other factors for our business, listeners are cautioned not to place undue reliance on any forward looking statements contained in this conference call. Additional information concerning these and other risks can be found with our filings with the SEC. On today's call we'll hear first from Cindy Pearlman, Chief Financial Officer of ParkerVision, and then Jeff Parker will discuss the business of the company. Let's turn it first over to Cindy. Cindy?
Cindy Poehlman: Thank you Paul and thank all of you for joining us
this afternoon. I'd like to review just briefly a few financial highlights from
2005 and then I'll turn the call over to Jeff Parker for an update on business
Most notable from a financial standpoint in 2005, were the exit from our retail activities and the strengthening of our cash position through the sale of equity securities. The company raised approximately $20 million in March of 2005 from the sale of common stock. This funding enabled us to focus our development efforts on our D2P Transit Technology which was announced in the first quarter of 2005. In the second quarter last year, management and the board announced our decision to exit our retail business. This decision was predicated by the opportunities for growth in the wireless space with regard to our D2P technology, coupled with the increased product development and marketing expenditures that would be required to expand the retail product business. The decision to exit retail not only sharpened our focus from an operation standpoint, but also had a very positive impact on our cost of operation.
We indicated in previous conference calls that we expected our operating costs to be reduced by about 25% following completion of our retail exit. As you can see from our earnings release this morning our operating expenses for the fourth quarter were down to $3.6 million. Excluding the one time cost related to the retail exit, our first half operating expenses were about $11.7 million. This compares to $7.7 million from the second half of the year, and that reflects a reduction of 34%.
Of the company's $23 million net loss for 2005, approximately $8 million of that or 39 cents per share can be specifically attributed to incremental operating costs related to retail and the one time cost to exit the retail business. Those one time costs which were incurred in the second quarter of 2005 included personnel severance costs and losses for the reduction of retail related assets to their estimated market value; including inventory, manufacturing property and equipment, and certain intangible assets.
It's important to point out that all of our 2005 revenue is attributable to retail product sales. As of the end of last year, we have no remaining deferred revenue on our balance sheet, and our expectations are that there will be no further revenue or returns related to retail products in 2006.
From a cash standpoint, we used approximately $18 million in cash in 2005 for operations, capital expenditures, and intellectual property protection. Our use of cash in the fourth quarter of 2005 was approximately $4 million, which did include about a half a million of prepayments for items related to 2006. We ended the year with a cash balance of approximately $10.5 million, and last month we completed the sale of an additional $2.4 million shares of common stock, netting approximately $16.3 million. With over $25 million in cash on the balance sheet we believe we are well positioned to execute on our business strategy. On that note, I will turn the call over to our CEO Jeff Parker to provide an update on our business activity.
Thank you Cindy and good afternoon everyone and thank you for joining us
on the call today. I want to begin by putting in perspective the
accomplishments and progress we've made both during the past year as well as
into our current quarter. We'll talk about commercializing our RF technology
specifically the D2P technology. And I'm also going to include an update
regarding our continuing discussions with OEMs.
During the first half of 2005, we made two important decisions that helped accelerate our progress. We exited the consumer business and we positioned our D2P technology as a solution for the 3G mobile handset market. Although our retail products were well received, we determined that we needed to apply our resources toward the commercialization of our technology with OEMs in the cellular market place. The consumer business provided both validation and visibility for our core technology and was a necessary step in paving the way toward our current focus.
To that end, in the spring of last year, we began to position our D2P technology as a solution for the coming needs of the mobile handset marketplace, particularly as OEMs seemed to provide more efficient and cost effective 3G mobile handsets. Our website, investor and marketing presentations, and our collateral material were all created and designed to articulate our story and reflect this focus.
At the AeA conference in November, we went a step further. For the first time, we shared with you the results of tests on D2P technology using industry accepted standards and equipment. These tests, I might add, showed extensive improvement over existing technology that inherently limits what OEMs are able to achieve today in improving cost and efficiency.
While all of this was happening we had begun initial and follow up meetings with major OEMs to present the technology and review their needs and plans particularly in relation to the coming 3G cellular market. These meetings with OEMs helped confirm what we already suspected. The OEMs, being influenced by their customers, the wireless network carriers, needed to address battery life, cost, and additional features, among other issues, and we're pushing up against the limitations of existing technology.
At the same time, carriers world‑wide are committed to rolling out 3G full scale, which continues to drive the need of the looming 3G marketplace. As these discussions progressed, we felt the elegant design of D2P presented an attractive and solid solution. As I noted on the last conference call, a number of these OEM meetings had progressed to business discussions and proposals in the latter part of 2005. Other OEMs wanted to stay engaged actively, but also wanted to see if our D2P technology scaled an integrated silicon as we had projected that it would. Some OEMs commented that they viewed the integration steps as an important validation that both ParkerVision and our technology are ready for prime time.
At the very end of last year, we received our first D2P fully integrated chips back from the IBM fab. We had set the expectation for these first ICs conservatively, perhaps realistically, for both the OEMs and ourselves. What I mean by that is that there are many different goals that would be ideal to converge, but are unlikely to do so in our very first fully integrated chip. Efficiency, RF frequency performance, RF wave form quality, and other features create a matrix of specifications which you wouldn't expect to perfectly line up on your first pass of the chip.
Our commitment to the OEMs was that we had hoped to get enough of these specifications on the first chip to provide them a meaningful written report. But we thought it would be subsequent ship spins before we had a chip that would be good enough to bring to their labs. As it turns out, good planning, and excellent skills by our technical team, and a little luck doesn't hurt either, gave us a chip that by the middle of January we determined was something that OEMs should see firsthand. The chip, frankly, exceeded my expectations. This verified our simulations and demonstrates that D2P can be practically integrated into a silicon IC, in this case, a silicon germanium IC. This has been a key milestone as more OEMs can now proceed with more sophisticated testing and due diligence at a faster pace and better understand how the technology fits into their own business needs and plans.
This chip removes a major portion of risk for those that were concerned that we would get hung up at this step of RF integration. Frankly, it has significantly widened our OEM audience for those engaging ParkerVision in business discussions to determine how they can get access to adopt this technology in the products.
We have looked in the past few weeks at the 3GSM congress in
I, like all of you, want our first deal to be finalized as soon as possible. I will plead guilty to setting an aggressive goal for completion of our first OEM deal by the end of last year. One of the benefits of that goal is that it sets a pace and urgency within our own company to move everything necessary for D2P adoption along as fast as possible.
Although I may have been aggressive in my estimate of timing, seeing how far we have come technically and how rapidly our OEM audience is expanding, I may have been conservative in my thinking of the potential and possibilities for our technology.
With all of this great progress, one question that you may have is with regard to the recent strengthening of our balance sheet from a private equity offering completed last month. The question being, "Why now?"
The timing of this funding was important for several reasons. First, from a financial perspective it is important that the company show it has the wherewithal to go all the way without interruption or distraction in the development of our technology to commercial adoption. This provides confidence to our own internal team, our suppliers, and quite frankly, to the public market.
Additionally, we did not want our balance sheet to become a topic of negotiation with OEMs. This funding demonstrates to our potential OEM customers the strength of our technology and the solid regard of our company within the financial community.
In less than one year's time we have exited one business and firmly established ourselves in another that has immediate potential and enormous growth opportunities. We have used industry accepted testing to demonstrate and measure the validity and outstanding performance of D2P. We have strengthened our balance sheet and produced the first fully integrated D2P chip to better demonstrate and further prove our technology.
And most importantly, we have engaged in multiple and
multi‑faceted discussions with mobile handset manufactures who represent
over 65 percent of the total market.
It has indeed been a busy, and I believe, very productive time for ParkerVision.
Let me review a number of market issues that you have heard me mention before, but I think bear repeating.
The current analog RF transmitter technology has reached a point of diminishing returns. Customers are demanding greater functionality, efficiency, and features. The 3G cellular platform has great promise but has practical needs in performance, and cost reduction that D2P helps in a very meaningful way.
Well over one billion, in fact, closer to two billion 3G handsets are expected to be delivered by the end of this decade. The convergence of all these market factors, in my mind, makes our D2P solution an idea whose time has truly come. 3G is the right market application for ParkerVision to emerge as an important wireless industry player.
Our OEM meetings, particularly over the past month, have made me more confident than ever about our direction, the strength of our technology, and how it meets the needs of important potential customers and partners.
For myself and our team, we appreciate your continued support and I would now like to open up this call for your questions.
Thank you sir. To ask a question please press the star key followed by
the digit one on your telephone. Also if you're listening on a speaker phone you
may want to disengage your mute button to allow your signal to reach our
Once again that's star one to ask a question and we'll pause for just a moment to assemble our question roster. [silence] Star one for questions please. [silence] We'll take our first question from Michael Ciarmoli with Boenning & Scattergood. Go ahead please.
Michael Ciarmoli: Hey Jeff, how are you doing?
Jeff Parker: Hi Michael.
Michael Ciarmoli: Just if you could talk a little bit about the negotiations and what the major hang ups or hurdles appear to be and whether or not you're seeing more interest in a licensing model or ship sales model?
OK. Those are good questions.
The discussion about what ParkerVision is willing to do to engage with an OEM to get access to the technology is basically us finding the right balance between what early adopters are asking for, the size of the market they represent, and the terms and conditions that they're requesting.
So you might imagine that especially before we had a
fully integrated chip some of the early adopters who started asking us for
business proposals and who started negotiating on those proposals had their own
ideas on what they thought the value of their adoption before we had the next
step of technology done, was worth.
And in our view it's a process of kind of striking a balance between their view on that and what they can represent in terms of the market opportunity that they can reach out and get and the terms and conditions they're asking for.
We have not had anybody we've started a negotiation with frankly, walk away from the table yet. Everybody is still talking. And the fact that we've now got this chip back and that it works as good as it does, and we've ‑‑ by the way, this is just the first of chips that'll come as a steady stream of chips throughout the whole year on our way to a product that can be fielded in a handset ‑‑ I think strengthens our negotiating position in the sense that it brings additional OEMs who maybe are a little more conservative and wanted to see that step happen, frankly, because they've seen a lot of other RF technology start ups not be able to succeed in this important integration step or take so long to succeed that the technology was just too far out there for them to get serious about it earlier than later.
So that's brought, frankly, quite a few more OEMs into the business discussion dialog and frankly, more proposals have gone out and more dialogs are now going on. But nobody has walked away from the dialog yet and I think that is extremely encouraging.
In terms of what are they looking for, chips or licensing? It is heavily weighted toward licensing. The kind of OEMs we are talking to have sophisticated teams of very talented people. They can help us scale much quicker and they can use the technology in system partitioning ways that frankly bring even more benefits and opportunities than what we showcase when we talk about this as kind of a stand alone adjunct to what they are currently doing.
I think the nice balance that we have struck is how we are bringing this technology to market is, when you look at our presentations, we talk about how everything that is around the D2P can remain intact. We don't change what your base band processor has to do, we don't change what your synthesizer has to do, and we don't change the duplexer that you feed the signal in to. All that can remain intact.
Basically, what you are doing is you are collapsing all of these redundant components and circuits into a much more elegant, much more highly efficient and much less expensive solution. So that's exciting to them and then they can go one step further in the license where they can actually partition this in a way that frankly gives them even more efficiency, less cost, it extends all those benefits even further. So, the licensing model seems to be where most people are focused and where a lot of our proposals frankly are centered around.
Michael Ciarmoli: OK.
Jeff Parker: Thank you for your question.
Michael Ciarmoli: No problem.
Woman 1: Just a reminder to ask a question, please press star one and we'll now go to Scott Robertson of Halpern Capital. Go ahead please.
Jeff Parker: Scott?
Woman 1: Looks like his line just disconnected.
Woman 1: Do we have someone else in the queue? I apologize if I mispronounce Wilson Jaeggli with Southwell Partners. Go ahead.
Wilson Jaeggli: That's close enough.
Jeff Parker: That was pretty good.
Wilson Jaeggli: Yes, that wasn't bad. Wilson Yeagley [sp]. Hi, Jeff. You mentioned a string of chips throughout the year. Can you kind of outline for us when I guess what we will be moving to, d2d, direct to data?
No, basically, this first chip, that's a good question, is really the
core of the technology in that it takes the data and does the conversion to the
RF domain and sends it out to the antenna. There are interface circuits and
there are digital circuits that will get married up to that, much lower risk
but still have to be done.
Where OEMs get most concerned is when they look at where the chip is taking the high powered RF signal and you are moving that around the chip and you are moving from various circuits, that's where most companies on a product like this would tend to get in trouble. So that is what they want to see.
They want to see, can you take your base band data signals and really do this single unified operation that we claim we do and convert it to a RF carrier and maintain waveform performance. You have to meet the standards of the, the requirements of the standards, they are wide band CDMA, GSM, Edge etc. Can you get the efficiency out of it? Does the chip burn up? I mean, there are a lot of interesting things they want to see.
In fact, one of the most exciting aspects of this chip is to show the power that comes out of it and have the OEM touch the chip and frankly it feels like it is room temperature. You don't feel hardly any warmth at all. By the way, for the efficiencies that we are doing, that is what it should feel like. But that's not what you see today on the typical transmit chain where you are finally coming out at high arc power. They tend to get pretty warm.
So those other circuits, the base band circuit, the interface circuits, will get added to those as the year goes on and this first chip was off the most difficult frequencies in the cellular market. It's the higher frequency DCF PCF bands. The 1.7, 1.8, 1.9 GigaHertz. The next chips will add another band to that which is the 800, 900 MegaHertz band. So maybe this is also an opportunity for me to try to paint a visual picture of what are we driving to, let's say by the end of this year.
What we've heard from all of the OEMs we're talking to, I mean, literally without exception is what they are all looking for is how do they make handsets that have all the popular GSM bands, which tend to be two low bands and two high bands. And how do they put Edge and how do they put wide band CDMA, which wideband CDMA they would like to have three bands, how to put that all into one handset without building a brick, and without eating up their battery and without adding cost to their product. So, that's what we're driving for for our first product by the end of the year that they would be able to do start using in handsets.
Wilson Jaeggli: So what...I guess the basic question is: what are...maybe you just outlined it but what do they want to see so that they are finally convinced this all works in their machine?
Jeff Parker: A number of them have seen it and that's why they have asked us for proposals recently. That's why we have been able to expand our OEM business negotiating list.
Wilson Jaeggli: What don't you like about their proposals?
Jeff Parker: Well, they asked us for the proposal. They say, hey, tell us how you guys want to do business. Put something on the table and let's use that as a starting point. Inevitably they start to feed back to us, hey, we like that, we don't like that. Oh, by the way you forgot this. It's usually the oh‑you‑forgot‑this that can become the interesting negotiating point. In last year's first discussions the oh‑you‑forgot‑this point was more centered around how long someone might get the opportunity to keep use of the technology away from their competitors for some, what we thought, unreasonably lengthy period of time.
Wilson Jaeggli: Right.
Jeff Parker: We'll find the right balance. To me, really, in the absence of me having set this very aggressive goal, for let's get this done our first deal by the end of last year. I think if you look at it, and we will look back on this, this probably is very typical negotiating dialogs. You've got people involved here who are trying to get the best deal they can for their firms and we're trying to help to get them to that goal without unnecessarily minimizing how quickly the technology can be adopted into the broadest sense. Their and our goals in that sense are a little bit at odds.
Wilson Jaeggli: You mentioned earlier that you might have been a little too optimistic here in hoping to have something signed by year end. Without holding your feet to the fire, and obviously knowing it's a two‑ or three‑party negotiation here, and who in the world knows when it all comes to fruition, however, with that caveat, where would you think you could see a contract signed this year, in some time frame?
That's a great question. I sat in front of the mirror and repeated the
following answer to make sure I would say this on this call. I'm not going to
walk back into quicksand trap again. I've just finished extracting myself and
as sure as I set another goal date, we'll all be feverishly.... Look, we're all
feverish around here working toward getting something signed that makes sense
for everybody as quickly as we can. I just want...I don't want to put a date
out there because I think it puts an artificial....it puts an artificiality, if
there is such a word, in some dynamics frankly between us and the OEMs that I
really don't want to put out there.
I mean, I think what's encouraging, Wilson, and even better than encouraging, is we've got multiple OEMs now in this negotiating dialog. They know that. The 3GSM Congress, you know, everybody was kind of there in the same location. I had somebody who was there who's not part of that group but who is a supplier to our company tell me last week, "boy, you guys really made an impact. I talked to a lot of companies and people are buzzing around about where you guys are at and what you are bringing to market. I know a lot of companies that are seriously looking at you guys and it's a pretty amazing list."
They know‑‑everybody out there kind of knows everybody else is looking at this. You know we're motivated to get deals signed as quickly as possible. Frankly, we want the OEMs engaged sooner than later so that we can get them to start telling us, "hey, those Bayesian circuits you're adding, we want them to be done in this way so that it attaches to this Bayesian" or "we want to take some of those circuits and stick them in our Bayesian." Or whatever the ultimate goal that they have is, but the sooner the better. My hope is that with the kind of pipeline of activity we are filling up here, we'll have multiple deals unless somebody who has the kind of size and girth can make us an offer that makes sense for us to balance‑like I said earlier, that balance between the market size they represent and the terms and conditions they're asking for. So we'll see. I think these discussions are going to be ever more interesting as the weeks go by here.
Wilson Jaeggli: Well are you talking to the people you want to talk to? In other words, have the big producers, the quality producers, evaluated the product enough to go forward with the contract?
Jeff Parker: We are definitely talking to everybody we want to talk to and what was very pleasing at the 3GSM Congress was that we had set up meetings with very high level decision makers‑because you know everybody was there‑and everybody we wanted to see, and had set a meeting with, made their meeting. I've been to a lot of trade shows and those things are very easy for people to get distracted, get taken off on other tangents, cancel their meetings. Everybody showed up and frankly, we had a number of meetings where we had to push people out of our conference room because the next meeting, the next appointment, was going to be coming in or passing in the hallway, which isn't a bad dynamic, by the way. No, we're talking to the companies we want to be doing business with and we're talking at the level of decision makers.
Wilson Jaeggli: OK. Jeff, keep up the good work and make it happen.
Jeff Parker: We're going to make it happen. Thank you for your support.
Woman 1: Thank you Mr. Jaeggli. We'll go again to Scott Robertson of Halpern Capital. Go ahead please.
Scott Robertson: Hi Jeff. Obviously I don't have a D2P in my cell phone here. I got cut off. I want to talk a little bit or have you talk a little bit about what you're seeing in terms of speed of movement of the Asian front versus the European front versus the American front in terms of the vendors and how that's playing out versus maybe what you expected going in?
Jeff Parker: Well what is happening with the company today is we are now making progress on really all the geographic fronts and I wouldn't want to predict where I think the first deal will come out of. It could literally come out of any of the locations that you would expect the major handset OEMs or their major base band partners are located which takes you pretty much around the world. I mean, Scott, we are hopping. I just looked at my calendar for the next couple months and even just in the next four weeks we are every place all over the place. Some people are coming to visit us in our facilities, which is always a very good sign. Sometimes we're going to their facilities to headquarters where they've got more of their decision makers that can meet simultaneously but it's all over the place. And at this point I would not want to predict where I think it will come out of first and frankly, I wouldn't want to suggest to you one area of the world is moving faster than another because at this point I think they're all kind of moving along at a very good pace and a pace that should get us some deals down here.
Scott Robertson: In terms of who you're talking to, how much do they know about who else you're talking to on their own accord and how much do you alert them to, say, you know I know vendor A is trying to get this deal and maybe they're being tough and you say well we're dealing with vendor B here and they don't have such an issue on this or is this stuff you let them find out on their own?
Well as I said earlier, it's kind of‑‑all these industries no
matter how big the dollars are all kinds of incestuous and I never completely understand
who has what channels to what companies, but it is amazing how they all seem to
know what the other company is up to. I think the 3GSM Congress a couple of
weeks ago was a really good place for people to see that there's a lot of
activity on a broad OEM basis looking at how they're going to use this
technology and as I said, what was encouraging was to have one of our suppliers
report back to us that we were kind of the buzz among quite a few of the major
OEMs and I would imagine, Scott, that the word is kind of spreading around
between them whether it's in dinner conversation, casual meetings at the coffee
bar at the show‑‑I have no idea. I can tell you in terms of whether
we actually say to people "hey, you better get moving because your
competitor's moving faster," you know, we have our own negotiating styles
and we try to keep things‑‑you know, we try to motivate people but
we try to take the high road and I think that sometimes what you say‑‑what
you don't say or how you don't say something is just as important as what you
Look, I believe that people are coming to the conclusion that this is a very important advance in radio technology. Our presentation in
Scott Robertson: Right. OK, excellent. Thank you.
Jeff Parker: Thanks for asking.
Woman 1: We'll take our next question from Greg Weaver with Current Capital. Go ahead please.
Greg Weaver: Hi Jeff. I just have one question in regards to your chip development.
Jeff Parker: Yes.
Greg Weaver: You mentioned that by year end you were hoping to have this kind of all in one chip out. Is that regardless of an OEM deal?
Yes. We've gotten enough feedback from OEMs, Greg, over the last number
of months we've been in discussions to hear everybody tell us what they're
looking for. The problem we've helped them solve is how do you put multiple
bands of wide band CDMA, multiple bands of Edge and multiple bands of GSM‑‑all
those things today, by the way, take separate power amplifiers and multiple
transmit chains, lots of filters. I mean it's quite kludgy and while there is a
road map to take the traditional technology and make it smaller, it's not
nearly to the level that they want to see it integrated, it's not nearly to the
efficiency that they want to see it increased, it's not nearly to the cost that
they want to see it reduced. So we walk in‑‑what you're seeing
today is a very‑‑people are eking the last couple of percent out of
traditional RF solutions and PAs. It's interesting because I get emails all the
time from people, "hey what do you think of this new PA? What do you think
of this new transmitter? What do you think of this new combination thing?"
And our observation is it seems like the traditional companies are crowing ever
louder about ever smaller improvements. They're kind of peaking out at what
they're going to do with this decades old architecture. We start at kind of the
bottom of our curve which is already much higher in performance and size
improvement and cost reduction. We are going to move up that curve of improvement
very rapid over the next one or two years.
The feedback we have gotten from these OEMs is, this is the standards that we want, this is the things that are important to us. They are all saying the same thing. You go into a store to buy a cell phone for a particular carrier, you may see certain number of handset brands on the shelf, but they are basically all covering the same frequency bands, the same standards, etc.
So what OEMs today are driving to is, how do we make wide band CDMA edge and GSM converge and how do we do it in a way that is portable and efficient and so we know exactly what to drive to. We are going to drive to that and that's why these negotiations in my opinion become more and more in our favor as the year goes by because we are getting closer and closer to a production chip that makes it easier for more and more people to adopt and use it.
Greg Weaver: But there's no specific base band requirements for one particular guy or processor he's using...Before you said that you didn't want to get boxed into anything because you didn't know what the guy wanted at the end of the day. You needed to have a very generic kind of temporary solution just to show him.
Yes, but the way you can make this thing sing and dance with most of
what's going to be out there, or with enough of what's going to be out there,
that if you had a bridge between what you didn't finish or what you didn't
create and something slightly different, you can do it in a practical sense.
Many of the base band vendors are going to a standard called DIGRF, which is a
digital RF interface standard so that more people can make base bands and RF
talk together without having to be so closely linked together and that really
works in our advantage.
Now, you can take it to another degree and get more optimization if you know exactly what you are going to integrate together, and you can save some silicon, you can save some more power, you can save some size and there are all sorts of benefits, but right now our plan is to develop our product with the DIGRF interface which we already know quite a few base band companies are putting into their base bands which are wide band CDMA edge and GSM base bands.
So we know what to drive to and unlike our d2d transceiver, as I mentioned earlier, we're not asking people to change anything around our chip. We have learned quite a bit in this industry in the last few years and I think frankly a lot of what we are hearing in feedback from the OEMs is the result of our being in the industry now for a few years because they say to us, gee, you know you guys are right on target. I mean, we never heard of you guys before... Some of the first conversations, how did you guys know to do this, this and this. They understand that the chips they are seeing today and the technology we showed last year, those initiatives were started two years ago, three years ago. We had to project forward where we thought the industry would need help and what we could bring in an architectural advantage to that and I think we are very plugged into the industry at this point and are very much on target for what they are looking for.
Greg Weaver: So these will be production ready chips, not prototypes when they are ready. They could be used in a commercial handset?
Jeff Parker: Yes, but we'll go through the same thing everybody else does. You'll start out with alphas, alpha pre‑production and then first production and so forth and so on, but yes.
Greg: So what's the cycle after you design one of these guys up in terms of having something that he can sell?
Jeff Parker: Well, it depends on the OEM. If an OEM wants a little less level of integration and they want to get out there quickly it is very possible that late this year or early next year they can start to use D2P in their products. If they want a much higher level of integration, or they want their partitioning thing differently, it will take longer. That's another reason, Greg, why I was not real keen on locking ourselves in for a long period of time with a single OEM. I would love to see a number of OEMs worrying about when is D2P is going to show up in their competitor's handsets.
Greg Weaver: Mm‑hmm.
Jeff Parker: We want people to be motivated to use the technology for the right reasons. The right reason is because carriers are demanding better efficiency, longer talk times, and the cost of 3G handsets is too high.
Greg Weaver: OK, Jeff. Good luck.
Jeff Parker: Thank you.
Woman 1: Once again, to ask a question, please press star one and we'll now go to Daniel Lewis with Gem Partners. Go ahead please.
Daniel Lewis: Hi, Jeff. How are you?
Jeff Parker: Hi. Good. Thanks, Dan.
Daniel: I have a couple of questions. One is, are the OEMs you're talking to convinced that the ParkerVision solution is the best one out there and have they indicated as such.
Jeff Parker: What they have indicated to us as though they've never seen anything that has the kind of. [beep] doesn't have the quality of the waveform performance and the efficiency and certainly not the size that we're showing them. Yes, they have in fact said to us that this is quite an advance over anything else that they've seen.
Daniel Lewis: Have they conceded that other technologies that extend the old RF rules are inferior or are they just not admitting for purposes of negotiating?
Jeff Parker: I can tell you that we are pretty specific in showing them what the other traditional base products are capable of doing in terms of efficiency and we showcase ourselves against that and I have yet to find the first OEM tell me that you guys are way off. If we show them that mid power level, 50 milliwatts, 17 DBM power out‑‑which is where a 3G phone spends most of its time‑‑when you add up the power amplifier, including the latest and greatest dual and triple mode power amplifier that people are using as band‑aids, you add it to the transmitter and you add it to some of the filtering that needs to be put through, when it's all done, those things are 6% to 7% efficient. I have yet to have an OEM say that those are 20% to 30% efficient just like you are talking about. We haven't had any of that.
Daniel Lewis: Mm‑hmm.
Jeff Parker: It could be my opinion, if we were way off than an OEM would use that in a negotiation with us and say hey we think the value proposition you're showcasing is a lot smaller than what you think it is and we're going to tell you because that's to our advantage. I haven't heard any of that.
Daniel Lewis: Mm‑hmm. To clarify, earlier you said that right now there are multiple parties that have gone to the negotiating phase and it's not a single OEM at that level and some of them have caught up. Is that fair?
Jeff Parker: That's absolutely fair.
Daniel Lewis: Lastly, traditionally companies with concentrated customer bases tend to lose the ability to maintain their margins over time. Can you review your strategy to be able to not fall into that trap? Clearly, a lot of the OEMs you're dealing with presumably assume that they have a great deal of leverage because of their size. How, over time, would you hope to become that standard that you alluded to earlier?
I think OEMs are starting to see, and as we get deeper into working with
them, actually getting into the workings of the technology. They are going to
see is this technology is an optimal transfer in how to process data to a radio
signal. We have done with our transmitter technology is that we have divorced
the traditional link between linearity and efficiency. If you look at the way
the wireless standards and the wireless world is moving, it's toward "Give
me more linearity so that I can put more users and more data through whatever
spectrum I get to work with."
The more data and more users they want to put through the wireless pipe, the more valuable our technology becomes. If the world goes in the opposite direction, I would tell you there's lots of other ways to do things, and they don't necessarily need ParkerVision.
But the reason 3G is such a great place for us to emerge is, if you look at the traditional architectures, the link between linearity and efficiency is running contrary to the 3G standards. And so, they're kind of hitting the brick wall at this point, and we take that wall down and completely set up a whole new set of expectations.
A lot of the OEMs at the 3G Congress were shown‑‑a lot of them like to look at the efficiency of what's known as the collector on the output of the power amplifier. And they say, "If you'd just show us the efficiency of your output, just that one piece of the puzzle." And we do have the ability to do that. And they would traditionally, Dan, at low power levels expect to see the efficiency on those things down in some single digit or maybe very low double digit‑‑you know, 8, 10, 12% kind of number. We're showing them 50%, 55%‑‑I mean, numbers that are truly off the chart. And we're in the infancy of the technology.
So, that's my long winded way of telling you that 3G isn't the end of the wireless journey. It's just another step. We're already talking to people about 4G, 3.5G. Carriers want to be your one stop shop for networking, and in order for them to do that, they've got to have more bandwidth and more user capacity. I mean, that's the whole purpose for 3G, but that's just a step on the way to 4G.
Daniel Lewis: Is it too early for you to start beginning to speak to the carriers?
No, it's not. We actually have plans this year to start rolling that
campaign out. And I don't want to go into any more detail right now, but I will
tell you there are other benefits this technology brings that are not
particularly OEM‑centric. But we believe carriers will be just as excited
about those benefits, for what we can do for their network, as OEMs are of the
benefits you've heard about from us for the last few months as to what we can
do for their products.
So, that's another way that ParkerVision will keep its value proposition up. We will get our technology‑‑or we'll certainly put a yeoman's effort‑‑toward getting our technology specified by the guys who own the networks, who are the guys who ultimately call the shots.
Daniel Lewis: Now, the business discussions that you had some time ago‑‑you mentioned that the snag that you hit was related to the level of exclusivity that a prospective customer might desire relative to what you are willing to provide.
Jeff Parker: Against the balance of what they might represent in the market.
Daniel Lewis: Against the ‑‑right. So, since that time, you have more OEMs who are, you know‑‑more serious discussions, more business discussions. Is the‑‑
Jeff Parker: And some of the more conservative OEMs are the ones who've started to get actively dialoguing with us about these proposals.
Daniel Lewis: OK, when you say conservative, what do you mean?
Jeff Parker: Well, you might imagine conservative OEMs tend to be the larger OEMs. Right? A guy who has a larger market share tends to be more conservative. But the guys with the smaller market share tend to be a little bit more willing to be a little bit more of a cowboy.
Daniel Lewis: OK, and so conservatives, are they hung up, as well, on the exclusivity term? Is that the major‑‑
Jeff Parker: Proposals have been recently delivered. We'll see. We'll see. Those dialogues are ongoing right now.
Daniel Lewis: OK, very good then.
Jeff Parker: OK, Dan. Thanks.
Daniel Lewis: Thank you.
Woman 1: We'll go again to Wilson Jaeggli. Go ahead, please.
Wilson Jaeggli: Jeff, just in the tone of what you're saying here, a couple of things. Is it fair to say that versus what you thought three or four months ago, and thought you'd have something by year end, now you're discovering in dealing with the OEMs that they want more complete integration than you had originally thought on the chip?
Jeff Parker: No. That I haven't seen at all.
Wilson Jaeggli: That's not the situation?
Jeff Parker: No, not all. I think what has been surprising to some of the larger, more conservative OEMs is the distance toward integration that we were able to get on our first fully integrated chip.
Wilson Jaeggli: OK, so you think they're surprised at how far you are down the road here.
We have an OEM that I've become pretty friendly with some of the very
senior management, who told me that in the earlier part of their career they
were responsible for some mixed‑signal chip development that they thought
they could do in a certain timeframe, and it took them multiples of that time.
That is not an uncommon experience, especially in RF chips.
And we've taken the time‑‑you know, some of our very top people like to have the philosophy, "It's the 90% planning, 10% execution strategy." So, you know, it's painful up front because it takes time and money and effort, but let me tell you, it's going to go a whole lot faster on the back end.
And that's what they're seeing now. They're seeing the value of what we've done by being very careful in re‑architecting this whole architecture, taking a completely new approach and spending enormous amounts of time to understand our simulations. And by gum, the chips come out and do what they're supposed to do. You know, you don't build on‑‑it's kind of the old philosophy of, "We don't have time to do it right the first time, but we'll do it again five more times." So, we don't build around that.
Wilson Jaeggli: Do you think these OEMs have we seen enough data and tested the chip they have in hand enough in here to proceed with a contract with you?
Jeff Parker: Well, I think that's why some have asked for proposals, yeah. They've said, "Hey, we've seen enough. Give us a proposal. How do you guys want to business? We've seen enough to get going on the business proposal."
Wilson Jaeggli: Now, OK, so‑‑
Jeff Parker: And I think they also realize this thing isn't going to sit out there, without customers, forever. We're going to start nailing down customers. And when we start nailing down customers, that starts taking away certain options that some of them might have in their ability to negotiate certain favorable terms for themselves.
Wilson Jaeggli: And then by the same token, it would require further development. And I guess by the time you would see revenue, either on a chip or a royalty basis, would be sometime in '07.
Jeff Parker: I think that's reasonable, yes. I do think that we can see revenue this year from, perhaps, access fees. There are major milestones that they'll see this year that I think customers would be willing to pay us advances on. I do think this year we can generate some revenue, though. At least from the conversations we're having now, I haven't seen that to the contrary.
Wilson Jaeggli: Right, but then royalty or chip‑‑
Jeff Parker: I see the royalty revenue coming next year. I think that's a very realistic expectation.
Wilson Jaeggli: OK. All right. Thank you, much.
Jeff Parker: Thank you.
Woman 1: There appear to be no further questions in the queue, so I'll now turn the call back over to Mr. Parker for any additional or closing remarks.
Well, I don't have anything other than to thank everybody for taking the
time to listen to our report today. I appreciate it. And for our entire team,
we appreciate your continued support of our company.
We are very focused on building shareholder value for all of our supporters and ourselves, and believe that we're all going for the same goal. And we appreciate your patience with us as we go through the next steps of this commercialization journey. We are very‑‑ as I'm sure you heard in today's report‑‑very excited about the expansion of what's going on with our OEM dialogues and hope that it won't be too far down the road that we'll be able to provide you some concrete information about what that all means.
So, have a great week. And thank you again.
Woman 1: Thank you. That concludes today's conference call. We appreciate your participation and you may now disconnect.