PRKR Roth Breakout 2008.02.19
Man 1: Can you talk a little bit about the ITT deal? I think I read somewhere that you were, or someone was, projecting up to 25 million in revenue at some point from that.
Jeff Parker: Basically, we announced at a conference, we said that we see that relationship generating up to about $25 million in revenue.
Man 1: Over what period of time?
Jeff: Well, we didn't say. But it's about an 18‑ to 24‑month design-in period. And I can't give you the exact, yearly specifics on that but it's a number of years, not decades.
Man 1: And ITT should have a product that's out by when? Another 18 months?
Jeff: I would say about 18 months would be the earliest, from the time we announced it last year; so maybe the end of this year we'd like to hope to see the first ITT products using our technology. It may take a little longer than that. It just depends on how long it takes them to get that ready . There are actually several different applications that they'll be using the technology for. The military application is not a high‑volume application: it's more of a high‑dollar type.
Man 1: And so what is your royalty on this?
Jeff: Well, we don't give that out, because, obviously, screws up our negotiations with other licensee targets. But the guidance that I tried to give in the presentation a few minutes ago was that it's based on a value proposition: so, if you look at the bil-of‑material savings alone and the commercial‑handsets phase of our technology, on the high‑end handsets ... and I don't mean "high‑end" like smartphones; I mean handsets that incorporate wideband CDMA/GSM/WEDGE‑type applications. Those transport sections today, which is power amplifiers, receivers, and transmitters, are an $8 to $9 range. We bring that down to less than $5. So we help them save about $3 to $4, right now. We try to give value to the fact that we also improve talk time, and we also have smaller form factors. How much of that value we actually get to capture, and how much it maybe just pushes a little bit more of the value proposition higher than that line, is hard to say. But I can tell you our first commercial customer, that was a big consideration, the additional cost savings.
So would I like to split that bill-of‑material savings with them in that application and say "Gosh, I'm going to get a royalty of $1.50 to $2? I'd love to; but we're not going to see that. You're not going to split up an [Inaudible 3:38] unless you keep that money.
Would they like to push you down to 10 percent of that, more of a 25, 30, 40 cents? They would. But do I think that we'll do better than that? We will. And I think you'll see that between those bookends: it'll be better than 10 percent, in my opinion, and it won't be 50 percent. So that's the guidance I gave, kind of a blend halfway between those two.
And different customers will be different, and the earlier customers will get better licensing arrangements than the later customers.
Man 1: Well, I'm curious, though, on ITT. It's a different market, not a high‑volume ...
Jeff: ... ITT is also a value proposition. Their royalty is measured [Inaudible 4:11] this is the most they're ever charging me. While the other customers are measured in quarters, fifty‑cent pieces, and dollars, ITT is measured in tens of dollars. Similar value proposition, but on radios that are $100, $200, $300, not radios that are $8 to $9.
Man 3: For a while [Inaudible 4:37] missionary [Ö] you were a small company, you were going to these engineers whoíd never looked this particular way before.You'd have to rip out what they were doing with the other suppliers. [Inaudible 4:50] and one in the handsets‑space, has it changed the way people perceive you in your negotiations? And, within the industry, do people know who your first deal is with?
Jeff: Everybody in the industry has an opinion. And that has definitely helped stimulate other companies we've been talking to, to start moving faster and looking at taking a look at ParkerVision and starting to design in the technology. The trend in the industry today is toward a more unified solution. If you look at what's out there today, you've got the baseband processor and then you've got transmitters and then you've got power amplifiers, and the RF designers are responsible to figure out how all these things fit together and how they make sure that they'll still work properly over manufacturing tolerances, which are different for each component, over temperature, which is different for each component, etc.
So the industry at large has been trying to figure out how to have a more unified, cohesive solution anyway. And yet the challenge has been that, if you look at the techniques that people have tried, and they're primarily nonlinear techniques, they come with a lot more baggage than the problems that they solve.
If you had gone to the San Francisco chip conference a few weeks ago, you would have seen presentation after presentation after presentation ‑ there were dozens of them, from all material? companies explaining "Here's our latest idea for advancing RF transport, more unified, more single‑circuit," all the kinds of things we talked about today. But then they also said "But, unfortunately, I also need a high-power DSP processor to correct all the nonlinearities. [Ö] So there's not an unhealthy amount of skepticism in the industry, from years and years of trying to solve the problem, that it can be solved.
And of course Parker is not a household name in this industry, although our last deal has definitely helped to make us a more credible vendor. Opportunities [background noise 6:56] companies. And the other thing that this last deal has really helped us a lot is, I think, the last piece of the puzzle the industry saw was "Oh! You can bring your systems in. You can demonstrate them on our bench. You can leave them; we can do this; you can do that. Can you make them by the million and [Noise 7:14] . Will they really have the yield? Will they really have the cost basis? So it's a very competitive market.
So, if someone does sign on for a value proposition, in fact royalty, and they don't get the yield and don't get the size, they're really in trouble. Look at a company that just misses one cycle. Motorola is a good example. The Razr is out. It really put them in a rollover. So a very fast‑moving market. So that's really the big concern that people have been down to on our technlogy.
What this last deal did is, because this particular company we'd also been working with through the second half of the year to address how to this is going to go into volume production, what are the test programs, what tests are we going to test on, exactly how big is the silicon. Who's silicon are we going to use? All the details are done. Those are answers that you just can't fake. You have to [Inaudible 8:05] . People who are talking to see we've got the answers, and that's really helped us stimulate some of these activities.
Man 3: [Inaudible 8:13] a manufacturing partner at some point?
Jeff: I can tell you that the first implementation will be shipping later this year . We'll come up with the IBM Fab. That's the only thing we can do to get it out quick enough.
Man 3: You're using the one in New York?
Jeff: I think they have several SiGe fabs. That would be the RF portion. The digital portion is being done actually by a company we licensed to, and I'm not going to say where it is, but it's a high‑volume, small‑geometry CMOS manufacturing facility. There are only a few around the world as you can imagine . That's really not really where the risk in the program is anyway in the RF.
Man 3: Jeff, given that you had to impart confidence in your first cellular OEM customer, who manufacures millions per month, that the yields would be there as you have modeled, but yet you've run some numbers. How do you [Inaudible 9:08] ?
Man 1: [Inaudible 9:19] per month, the yield would be there as you have modeled, but yet [muffled, noise] When the backmap behind the technology is improving [noise]. We can take the technology and run it up to 85 degree C Ė the top end of the commercial range Ė thereís nothing on the semiconductor that's even close to what the semiconductor provider says is the breakdown. We can run it down to minus 40 or 35 or something like that, and the waveforms are still extremely well‑behaved. People don't have too much concern that won't work in the low temperatures, will you still have a clean profit.
We show that, although they have voltages between the batteries that provide powers from 4.2 to 3.2 volts, you can turn the voltages down to like a volt and a half and they'll still run fine. So they have so much dynamic range beyond what they need that they convince themselves: You know what? This is the right road.
You guys have all asked me with all our company, "Why does it take so long?" This is why it takes so long. We have to go through all... [noise]
Man: [noise 10:29] basically what IBM told us, that they just...produce fills millions ...
Jeff: What IBM does, is they [Inaudible 10:35] design that, they say, "Here is what we will warrant, what our semiconductors will do." And they deal with things like breakdown voltages, and the speed of the transistor, what kind of isolation [Inaudible 10:48]...and what you have to show is, without violating those guarantees of IBM's operational performance so your technology fits inside those parameters. And our technology does, and that's by the way not another trivial thing that we had to show, because people don't really think today about silicon sets, silicon transistors and high‑voltage RF signals without them breaking down.
Now, there are other people who've started to do some clever things with CMOS, the power amplifier. A very nice presentation a couple of weeks ago on a company that CMOS GSM power amplifier probably can't do for larger reasons things like with wideband CDMA, which is a very clever design, but it's huge. The design is very large. They use interesting transformers that they build on the die all over the place, it would take normally a one‑millimeter square piece of CMOS and makes it eight‑millimeters square.
But they are companies that have been trying to do it, but nobody's really figured out how to do it, to keep the form factor small and not violate operating parameters.
Man: Jeff, [noise] Does that include expectations of a product they'd shipped in the fourth quarter? And is that the final revenue model for that particular phone? [noise] What's the revenue model.
Jeff: That single customer in my opinion could get ParkerVision over a period of two or three years into the high single‑digit to maybe low double‑digit market share.
Man: Market share.
Jeff: Yes. Based on that customer's own business, their performance, how they do...
Man: With that one phone, or...
Jeff: No, across product lines ...with that particular number we gave guidance on, which is a $5 to $10 million initial year shipment said the following. We know we're not going to go from over 100 miles an hour in a month. We know it's going to be a ramp‑up. They're also going to have to ramp down other inventories that they've got. We know that the initial shipments of our technology will only start with the D2P, the transmitter side, because our focus has really been on getting people to adopt the transmitter side.
And the company took us a little bit by surprise when during due diligence they said, "You know, let's look at your receiver technology, and if we're going to make the leap, let's do the whole thing, " so we haven't got the staff frankly that's been ready to go and do the receivers for them, but that company's helping us.
That receiver, though, won't come online for probably about six months after we start the initial shipment, so that's delayed. And that's where you get the $5 to $10 million dollar range. It's how quickly we get the receiver online, what kind of bumps in the road do you have on the way to the ramp‑up. Anybody who thinks you're going to go to millions per month which is the opportunity with the customer... from their single existing product just where the design is, not including additional products that they've got.
Anybody that thinks we're going from that to that is just not realistic. So that [Inaudible 13:45] into account. I think once you get into the first year of ramp‑up, I think you can easily double or triple our revenue opportunity. So, itís a very good customer.
Man: You talked about this one particular customer gets you single digit market share. What does that imply for your market share [Inaudible 14;14] ?
Jeff: Their intent, if they look forward to what they said they'll do, they will convert all their product lines to this technology. Now, there may be other things that they won't use our technology for. I'll give you an example. Do I think they would use us for 2G and 2.5G, like GSM and EDGE? I don't think so. GSM and EDGE Systems don't need our technology. You're getting plenty of talk time... Maybe they would, maybe they wouldn't, but I assume they would not, in my estimation. It really assumes 3 and 4G with that customer.
Man: And when you talked about the RF portion...I was under the impression...
Jeff: No, we have two things that our technology does. It takes the data‑‑and this is getting a little technicaI, I didn't know how far the community wanted me to go in this kind of a conference‑but we take the baseband data that comes out of the baseband processor, and we convert that to baseband signals that then get piped into a little processor, then piped into this RF chip. And that's the RF chip that takes the signal up to the RF domain at power, has all the power control to three and 4G standards [noise 15:40] ...
2 and 2.5G, so they'd have [noise 15:44] ...and that particular... [noise 15:46]
Or in my opinion, longer‑term, that's just going to be absorbed into the baseband processor Ė itís going to disappear.
Man: So the solution coming out of the gate with this customer, you're going to handle the RF portion with IBM of that preconvertor chip...
Jeff: The little CMOS chip that translates the baseband data with the kind of processing signals that we use to send it to the RF...
Man: Then your customers are going to do the in‑between processor ...
Jeff: Yes. And what that chip does, to get a little bit more temperature on that, we have a blended solution that does both linear and non‑linear in the same architecture. That's what that chip is doing, moving signals from linear to non‑linear domains to keep the waveform fidelity pure and to keep the efficiency up.
Man: I'd be interested in the math that you said makes some sense, that this vendor, your second customer, could get you at volume to be high single, low double‑digit market share in total, and yet this would only be on their 3 and 4G platforms, excluding their two and 2.5. So therefore...
Jeff: No. I didn't say that it would be shipped 3G only. They have platforms that are 3G that also incorporate 2.5 or 2G.
Man: And you would only be on the 3 and 4 only programs.
Jeff: Three, which would include 2.5 and 2, and 4, which would include 3, 2.5 and 2. But I'm saying...
Man: But you wouldn't be on the 2.5 only and below, and the two only and below.
Jeff: I believe, that's my opinion. I could be wrong.
Man: By that math, there aren't too many vendors out there, and I'm narrowing the choice in customers, and as someone whose volume's so large that their three and four is in double‑digit percentage of the total. This is a big vendor.
Jeff: Let me put it to you this way. If you look at the 3G market in the year 2010, and say there's 600 million handset space, and if someone had 10 percent of the market‑‑let's use that as a round number‑that's 60 million chipsets. That'd be a lot of customers.
Man: You think they have that much share today, in 3G?
Jeff: They have a good share. But everybody's growing today in 3G today, and everybody's trying to take the bigger handset customers for themselves, etc. The other thing...
Man 1: I see a real potential in one bright investment for you. It's got...I guess named [Inaudible 18:28] . Millions in revenue this year. And tens of millions in 2009.
Jeff: Sorry. Say that again?
Man 1: Can you comment on the revenue estimates that are out there. I think they're in the tens of millions in 2009. What would have to happen for those to be achieved?
Jeff: Well, as a CEO, let me tell you what my goals are. I am not going to comment on other people's reports. But I'll comment on what our company's goals are. The first goal in our company that is pre-revenue in my opinion needs to be get to break-even. Get there as fast as you an. Because then you have all kinds of additional options in front of you where you stop using cash. Or at least you certainly slow that way down. [Indistinct 19:11] And then the next step in my opinion...by the way, this a kind of a promise I made with my board, get to breakeven as fast as possible and then we start growing at a rate that is faster than our peer competitors. And so to me, for the first stop, we are looking to get to break-even as quickly as we can. And then how do we get to $.50 a share? How do we get to a $1.00 a share? How do we get to $2.00 a share?
If you looked at the guidelines I gave today, what you'll see is that, you look at the value proposition, and you buy in to the fact that where you can get kind of the mid‑ range, between the low end and the high end, just blended together. The total available market for us will be about 375 million or so feasibility. So for ParkerVision, that will translate to maybe 10‑12 dollars a share earnings potential for the whole market.
So you've got to ask yourself, what do you'll think we'll get? Will we get 10 percent of the market? 20 percent of the market? Personally, in two or three years from now, in a conference like this, if we werenít at, I hope somewhere in the double digits. Certainly on a run rate of that, I'd be very disappointed.
I think the technology has got the legs. And I think we've got the customers coming on board now to do that, who will do that....
[Inaudible 20:35] workflow that is out there. And I can't Ö the gross margin assumptions are...and also it's not just licensing. The thing about [Inaudible 20:37] were the combination of chips and licensing that are definitely known. At least at this moment in time I don't have any chips sales on the ground.
Man: So you don't intend on selling chips?
Jeff: Not right now.
Man: But I guess this was the second question. [Ö] There is really not a very good track record for chips companies who make intellectual property in any market especially the handset market. So this is tenuous. How do you propose to maintain it? Seemingly everybody and their brother [Ö] you out. The minute you come out with them.
Jeff: Yeah. I definitely have gone and visited several IP licensing companies who I think have done a pretty good job at building IP licensing businesses. You are not wrong. There aren't a gazillion of them out there. You have to have in my opinion, a really, really, unique IP. Something that is really beneficial and you protect it. And you have to have a really good IP portfolio. One of the things that I think people are confused about with our company is how tight lipped we have been about what technology is. But that's why. If you don't protect the IP, you are not going to have your company longer term. So now that the IP started to issue and get published, we start to talk more freely about it. I will give you an example.
Take a look at a company like Tessera that does patents. Does everybody who they license to play straight with them? No. Will ParkerVision be in a position when someone we've been talking to, borrows our technology? Probably. I don't have any knowledge of that right now. But if you just look at the history, the Machiavellian history of the world, it's probably going to happen.
That is why you make sure the IP is very well protected. And why one of our board members is one of the lead IP attorneys in the country. I think even Tessera said that they had 100 percent of all of their royalties come from everybody who is using it, that they would probably double or triple their revenue. But itís part of the business, Itís a great leverage point for a company, I guess.
Man 3: How do royalty contracts change over time? Second year in, third year in, fourth year in?
Jeff: I can tell you that the big arm wrestle especially with commercial customers of course, is they want to cap it, they want to you to break it down to some minimal of nothing. We donít have any of that in the contract. By the way that is another feature that the small customer negotiates. Because people view the big guy with all the benefits and they are giving you the opportunity to walk into the big market space, so they would like to cap the royalties after x amount of time or x amount of units. Or they would like to bring it down to pennies per copy. There is no features in those royalty agreements that have had those features in them, period.
Man 3: And do you also control any changes that they make?
Jeff: All improvements to the technology are granted back to ParkerVision into a pool, an IP pool. And that pool is available for all licensees. They can keep improvements secret. They can keep it to themselves, but they can't patent them. If they patent, they have to assign the patents to us. Another not subject to negotiation thing. But look, all good licensing has [Inaudible 23:56] . If we don't do that, they'll amend around you, and you won't have a company after three, five, seven years.
Man 4: So I am not an engineer, so a lot of this technology goes over my head, but one of the things that is pretty noticeable is that there is a very loud group of non-believers in your technology recently. Some folks that do seem to know what they are talking about without mentioning any names. Can you address why there is this very continuous group of people who want to make a noise?
Jeff: Honestly, I can't. I have actually gotten up some mornings and said I am going to go visit them and find out what bug up their rear do that have for our company. I really don't understand it. I can tell you that they've never called the company and said can we make the visit, can we see the technology, can we spend a day with you in the labs? I will tell you that one of our, two of our staff at a recent chip conference, not the one two weeks ago, but an earlier one not too long before that, ran into the RF engineer, Mr. Cripss, Dr. Cripss, to write a paper, and he said to our team, he said, "Listen, I am surprised you guys haven't sent a posse out after me." And one of my guys said, "No, Mr. Parker is not upset with you. He would like to believe that you have been fooled and mislead by a couple of short sellers who didn't say what the whole picture was."
And he said, Well, I was. And he said I will tell you my report that I gave these guys has been redacted in the sense that it doesn't have any of the good stuff in there, it only has what they want to publish."
So, I don't know what makes these people do that kind of stuff.
I want to go get customers and I also want to go build earnings per share. Because ultimately that's how you guys are going to make our company. What's the EPS at the end of the day. What kind of multiple can it be based on? What kind of growth we can have? And how can we expand it now that we've got it?
Man 4: But you have to hold a conference call after that, or call Barron's. That takes away from your ability to be doing things.
Jeff: Absolutely. And that's why I try not to respond to it if possible. Yeah. No. It's a pain in the butt.
Man 5: Jeff, you told us about what the point [Inaudible 26:04] in terms of your revenue model. Can you do the same in terms of potential customers here on the ground.
Jeff: When we started we had no customers. Then we had two customers. I will be very disappointed this year if we don't see the customer base grow bigger this year it did last year. Now that may not necessarily be by numbers. Could it be three or four customers more? It could. It maybe two customers who represent huge volume potential, that's all we can handle. One thing the company couldn't do is take on more customers than it can serve. That way we earn a bad reputation for the wrong reasons and you canít service the customers. But to the accepted customers looking for the same applications, and so far, they are, and they want implementations that are generally the same, which so far, they do. We should be able to take on a very large percentage of the market representation in terms of customers. And I would expect this year at least doubling and maybe triple or quadruple the number of customers. Thank you for [Inaudible 27:08] .
[end of meeting]
[Inaudible background chatter]
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