ParkerVision 20th Annual Roth OC Growth Stock Conference
February 19, 2008
go ahead and get started.
Next up, we're going to switch gears a little bit here to wireless technology. As mobility is becoming a bigger and bigger part of all our communications, more opportunities exist for enhancing the way we put signals up into the air. ParkerVision owns IP that simplifies the conversion of base band signals into RF. And here to tell us more about it is CEO Jeff Parker.
Jeff Parker: So,
good morning. I'm Jeff Parker, the CEO and Chairman of ParkerVision. And thanks
for taking time to attend our particular presentation today.
So, ParkerVision ‑‑ a little background on who we are. Our focus is on the development and the design and licensing of advanced radio frequency technologies that provide real beneficial improves to what we call the RF transport section. In our particular case, we're focused on the mobile handset space itself. Although our technology has broad appeal across a lot of different applications, we're very focused on the cell phone handset.
We're going to walk through today on this presentation with a little bit about where our technology fits into handsets and the specific needs that we address. We're going to talk a little bit about what the incumbents are doing today in this space, and little bit about who they are. We're going to review the challenges in addressing the required improvements that people are trying to solve for in the handset space and the RF transport section. And then we'll focus a little bit on what's the size of this market, what can this market mean to ParkerVision in terms of earnings, and little bit about our current customers.
So just a quick overview. We're out of north
Little bit about our financials down there. We are an early revenue company. We just started getting our first revenue on this wireless technology from Design Services last year. We have about 25 million shares outstanding, and not quite seven million outstanding warrants and options that have an average price of around $23. So for the first nine months of last year, we had a $.55 a share loss.
So let's talk a little bit about when we say we're involved in redefining or bringing advancements to the RF transport section of cell phone handsets. What's that mean? There are two aspects of that. There's the transport part that's the transmission of RF waveforms. It is how do I get a signal from my handset to a base station? And today typically that's done through radio frequency transmitters and power amplifiers that take signals from base stand processors and put them on the airwaves.
And the other flipside of the RF transport is the receiving side. How do I take a signal that's been sent from a base station and get it into my phone through the antennae and then decode it, demodulate it so that it can be turned into voice, data, or whatever you're going to do with it? So that's how we define RF transport.
As I mentioned earlier, our focus is on the mobile handset portion of the marketplace ‑‑ as you can see, a very rapid growing area. Back in 2006, it just topped the one billion handset shipments per year region. And this year, it's being forecast to be about 1.2 billion ‑‑ a little bit more than that. And by 2010, 2011 about 1.5 billion. So certainly the largest single consumer product that's ever been fielded are cell phone handsets.
So let's talk a little bit about what are the challenges that this particular product application is having today. Certainly, cell phones started out as pretty simple devices, just to move voice around. And the first handsets were just single mode handsets using typically GSM type signals for the 2G handsets. And they've evolved over the years as the carriers have advanced their networks to offer you not only voice services, but data services, video services, other kinds of services that are coming.
And so you see the 2G has moved to 2.5G, 3G, wideband CDMA, and CDMA 2000. And there's even now 3.5G, which is an extension of the 3G networks for broadband data rates. And they're even now starting to look at deploying 4G in the next couple years. They even have greater high speed bandwidth for all kinds of interesting consumer applications.
The challenge with that is that as these handsets have incorporated more complex modes of operation, the waveform that you transmit and receive has also itself become more complex. That's how we get more data through the ether. And unfortunately the power consumption of those circuits, due to more complex waveforms, has gone up, and they've gone up dramatically.
And if you look at a 2G handset for GSM, it's pretty common to find a four to six hour talk time on that handset using a pretty traditional 900 milli‑amp or so battery. But if you look at the same handset working on a wideband CDMA network for 3G, it's very common to hear from the carriers who own those networks that their customers are only getting between one and at the most two hours of talk time. So dramatically reduced talk times because of the increased complexity of the 3G waveforms.
The other challenge in this space is that when you try to put these multiple types of communications standards in one handset, they don't conveniently work through the same circuits. So often find redundant circuits of transmitters and power amplifiers and receivers that are doing different circuits for different standards. And so this has continued to make the whole RF transport section of the phone more complicated, more costly, and larger.
So the real challenge of this facing the RF designer today, is how I get my power consumption down so I can increase my talk time on battery life. How do I reduce the size of the RF footprint, because they are trying to put more and more features into these handsets? And how do I get the BOM (the build of material) costs down because the carriers are constantly, constantly pushing on the handset OEMs to bring the price of those handsets down because they subsidize those handsets?
Our solution for RF transport comes in two elements. Our transmit portion we call D2P, which stands for Direct To Power. It is the acronym for we are taking base band signals that come out the digital processors of the cell phones, and instead of doing the multiple steps of processing that they do today to get to a radio signal that goes out of your antennae, we do it in a single function ‑‑ a single step.
It's unified. One circuit, instead of multiple circuits, can do every single standard ‑‑ CSM, wideband CDMA, Edge, HSUPA. We also do not require the use of any gallium arsenide for our circuits. If you look at a handset today, the power amplifiers are typically built out of gallium arsenide. They're not built out of the CMOS semiconductor, which is a more common, broadly produced semiconductor. Our implementation does not require the use of GaAs, CMOS, or silicon germanium transistors.
And because we can reduce all these circuits down to single circuits, we have much smaller form factors. It's much more highly integrated.
So that's the transmit side. On the receiving side, we call our technology D2D, meaning we're going directly from the radio signal that's received from the antennae right to the signal of the base band data signal, which then can be processed by the digital processor for your voice, video, data, or what have you.
One of the benefits of our technology there is that it has better sensitivity, meaning you can work in more difficult to receive places. Again it's very small form factor, because a single circuit will process all the different standards, instead of having to have redundant circuits. And it works for virtually all the cell phones standards that are available today, and even the 4G standards that are coming tomorrow.
So when an OEM is looking at our technology, and they are studying why they should make a change from the traditional legacy architecture they've been using on the transmit side, kind of the three high level benefits that they grab on to are... The high efficiency that we provide ‑‑ and just to give you a sense of that, in a wideband CDMA handset we will take a one to two hour talk time and bring that up to more in the three to four hour range. The universal waveform support, meaning we can process all these different standards through a single circuit. And then the fact that we bring down the size and we bring down the cost. And we'll talk a little bit more about that in just a couple of minutes.
And on the receiver side, what the OEMs look at is the improved signal reception, again the ability to free up space in their phone for other features, and of course everybody's incessantly trying to bring the cost lower and lower and lower in these handsets.
So lots of people have been working on advancing the RF transport section. Certainly ParkerVision's not the first company to come along and think about that. But if you look around, if you go to the industry conferences ‑‑ there was one actually in San Francisco just a week or two ago, one of the largest ones that happens. You go to these conferences and you look at ‑‑ what are people doing? What are the ideas they've been offering up to try to advance the architectures for better efficiency, more universal operations, and smaller form factors?
You tend to find two camps of thoughts out there. And while today my job isn't to make you guys RF designers, I think this will at least help you to get a grasp of what the benefits of our technology in terms of ‑‑ what did we do that's so novel and different?
One camp you find out there likes to process radio signals using linear electronic techniques. And the reason why they like linear techniques, linear architectures is that just as the word linear says it produces a very high fidelity waveform on the transmission side. Or on the receiving side, it keeps the integrity of the received signal pure. The problem is to get that linearity; you give up a lot of efficiency. So that's the extent of the linear. And that's what people have been doing for decades and decades. There are lots of linear circuits.
Then there's the nonlinear camp. And the nonlinear camp says, "If I can process a signal using nonlinear techniques, I can really increase the efficiency dramatically." The problem is nonlinear techniques create unwanted frequencies and spectrums and other things that do not produce the fidelity of the waveform. And so by the time you look at how you fix the impurities of nonlinear techniques, you add so much additional circuitry to fix the basic function that you take away all the gains and then some that you might have achieved.
And those are the two camps. So what's ParkerVision done?
ParkerVision's very unique in our approach. We're the first company that we're aware of ‑‑ and if you start to follow us and you study our intellectual property, because we've had our first two patents on our transmitter issue in the last six to eight months. And there will be more issued in this year, and we've had quite a few on the receiver issue. If you look at our IP, you'll see that we're the first company that's really blended the two architectures together. We don't feel like we have to be purists.
And by blending both linear and nonlinear techniques into a single architecture, you now have the best of two worlds. You have the ability to dramatically increase the efficiency of what you are processing, but you don't compromise the waveform fidelity.
And in fact I would say to you that if look at our ‑‑ we'll be putting out more reports this year on our efficiency and other attributes of our technology. You'll see that we've really changed the relationship of what this industry thinks is how much power needs to be consumed against what kind of linear, high fidelity waveforms can be generated. Certainly, there's still a relationship, but we've greatly relaxed that.
And so we can get much higher efficiency and yet not compromise the waveforms that carriers, the regulation standards, and the standards bodies themselves require for you to use these kinds of standards on the airwaves.
So what we end up with is exceptional power efficiency, very good waveform fidelity, universal waveform support from a single circuit, much smaller bill of material costs and size, and we don't require the kind of correction circuitry that people have always tried to attached to these types of advanced architectures. There are no high power digital signal processors required. There are no real time feedback loops which tend to eat up all the efficiency gains that you can get from nonlinear architectures. And we certainly don't have what's called RF power combiners, which are commonly found in some of these advanced architectures. So this is the benefit of our blended architectural solution.
So who is our target customers? Well, there are several different areas of target customers for the company. Of course, the mobile handset OEMs themselves, who have in‑house chip development. That is becoming less and less prevalent today. Use to be that handset OEMs had a lot of in‑house chip designers and developed their own in‑house ICs. Today you see much of that being pushed out to vendors who sell them chipsets.
Baseband chip vendors are a target customer for the company, especially those who are interested in providing complete solutions from the baseband all the way to the antennae. Of course, RF transceiver vendors, RF power amplifier vendors, and then there are some other specialty niche markets around the cell phone standard space of people who are developing products that use the wide area cell phone networks for other things. They can also benefit greatly from our technology ‑‑ like people who are using it in laptops and other kinds of applications like that.
The company has its first two customers for our technology. Although I spent my whole presentation talking about the handset space, our first customer actually isn't a handset customer. It was kind of an opportunistic situation. Middle of last year, we announcing a relationship with ITT, who is one of the larger military and government suppliers of radios. You know, battle field radios and vehicular radios, things like that.
They learned about our technology from some other people in the industry. They were looking to advance their products with all the feature benefits that I just described to you, and approached us. They licensed the transport of the transmission part of our technology, the D2P part of the technology, seeking to get better battery life in their products, smaller form factors, and also take some cost out.
That relationship started middle of last year. We said then and still feel today that you'll see the first ITT products with our technology in them about 18 to 24 months from the time that relationship was announced.
On the second customer, it's a commercial handset chipset vendor. We're precluded by contract with them from telling you their name for strategic reasons. But we announced that customer at the very end of last year, late December. They have licensed our technology for both the transmit and the receive portions.
To give you a little bit of what I can tell you about them, they are a high volume worldwide supplier of chipsets to the handset industry. The initial applications that they are using out technology for are in the more entry level 3G handset space, and with the plan that as time goes by to expand into other product lines that they have, that'll take this into the more complex handsets as well.
So what's kind of interesting, if you look at these two customers, they kind of hit both ends of a pretty broad spectrum. You got ITT on the one hand, that's very high‑end, difficult, challenging specifications in the military and government space. And then you got this handset chipset OEM on the other end, that's very concerned about bill of material costs ‑‑ yes, would like to increase the talk times in the handset, but have to be really small and really volume production orientated.
And what this technology and its architecture shows is that it's really a wonderful platform technology, in that it can be pushed and pulled through that whole range of needs that those two different applications showcase.
We don't at this time ‑‑ and I've asked this question ‑‑ do you have plans to take on other kind of off the handset space market course, do you plan on taking on additional customers in that area? And right now, that's not our focus, nor is it our purposeful sales focus. But, just like ITT, we'll look at those kinds of applications opportunistically. And if they don't take us off the course of what we need to be doing to satisfy our commercial space, then we may look at those.
So, the size of the opportunity for our company's focus today is really measured by the four and 3G handset space, which is a subset of that earlier slide that I showed you of the total handsets. If we focus in on the year 2010, which is looming closer here every week, it is a space that there will be a little over 600 million handsets that will be shipped. So 3G is definitely taking off; it is growing very rapidly and it is growing all over the world.
Of course, what 3G and 4G handsets are really looking for, that we can help them with dramatically, is longer talk times through better efficiency and more streamlined solutions, the ability to do these multiple different standards, what we call multiple modes, through a single circuit, instead of having to have redundant circuits.
If you look at what that space represents, in terms of chipset revenue potential, and we sourced a couple of different research organizations and tried to blend the information, to try to get a sanity check for more than one organization, it looks like the transmit, receive, and power amplifier portion, the RF transport portion in other words, of that 3/4G handset space in 2010, will be about a $3.5 billion space.
So how does that translate to a company like ParkerVision, whose business model is licensing the technology, not making chips and selling them the vendors or the producers of handsets? So let's talk a little bit, see if we can give you at least enough guidance so that you can get a sense of what the opportunity for the company can look like.
First of all, our royalty is ultimately really based, as the royalty of any technology is, on what's the value proposition that you bring to the customer.
If you look at the higher end of the market, like the WEDGE market, which incorporates all the different standards ‑ wide band CDMA, GSM, and EDGE; those transport sections today are about $8.00‑9.00, and with our technology, we can easily drive that down to less than 5.00.
On the single, more entry level 3G type handset, those transport sections today are about $3.50‑4.00, and our technology can drive that down, easily again, to less than $2.50.
What that talks to is, if you just look at the bill of materials savings, you don't even include the cost or the value of the extra talk time or the smaller form factors ‑‑ just the raw dollars and cents, we can call that a value proposition that ranges, if everything we sold was on the low end, that would about a $600 million value proposition to the OEMs in 2010, using those volumes.
And if everything we sold was on the high end, the WEDGE market, which is becoming a bigger and bigger part of the market, that will be 2.4 billion.
So what we did is we said, if we just blended those together evenly weighted, and if our royalty was based on... We would like to get 50% obviously, of the value proposition savings; the OEMs would like to give us maybe 10%, and somewhere between that range of better than 10%, less than 50%, is where we believe our royalty will reside. By the way, that's pretty much ‑‑ I feel comfortable with that kind of guidance given our first two customers as well.
If you look at that as kind of a mid‑point between what we would like and what they would hope that we would take, you would see that the value proposition translates to a total available market, in terms of licensing revenue for the company in 2010 for 3‑ and 4G handsets, of between about a 150 million on the low end and about 600 million on the high end.
So, if you drop that one more level down to what can that mean in terms of earnings per share for ParkerVision, what it tells you is that if you had a kind of a mid‑point in that range, between the 150 and the 600 ‑‑ that we have a blend of sales between the high end and the entry levels, which is definitely what we are going to have ‑‑ it looks like about 5% of the market brings ParkerVision to a break‑even point; which we think is very encouraging. Because we think it will be much, much better than that, even in the not too distant future.
And if you look at each additional, about 4% of the market, that adds about a 50c pre‑tax earnings to the company. So, obviously if you had 9% of the market, you would have a 50c pre‑tax for the company. Now there are some assumptions in terms of, we are keeping our operating expenses under control and other things. But we think that is a pretty reasonable guidance to take away and look at, based on what can this company return in terms of earnings per share.
We are running out of time, so let me kind of summarize. Basically, we are a company built on a foundation of a patented technology, replaces the legacy radio‑frequency transport circuit, the old analog stuff that frankly has been around for a long, long time. And we really help facilitate a much better solutions for the mobile handset space ‑ a very growing and vibrant market place.
We have our first two customers; currently integrating our technology into products that we believe will start shipments as early as the fourth quarter of this year. And we certainly expect additional design wins with this kind of momentum, this year hopefully, and we believe sooner than later. So we hope you will keep your eyes on us, that we are sure will be a very exciting year for ParkerVision in 2008.
Can we take some questions now?
Man 1: For
questions, raise your hand, and make sure you get the microphone around to you.
Man 1: I guess, I will start off with one. You talked about not using any gallium‑arsenide anymore, in the power amplifier. So you are developing a device that replaces the power amp, and the stages before that.
Jeff Parker: Yes, in
essence, what we do is, we replace everything that would come after the
baseband processor, which is normally going to a transmitter, all the way to
the filter just before the antenna, which in 3G will be a duplexer. So
everything between the duplexer on the RF side, all the way down to the
It is unified into a single circuit with our technology.
Man 1: What you are delivering is the files to be...
Jeff Parker: That's a
great question. We actually deliver GDS2 files, verified silicon. In our first
customer's case, we actually have working silicon dies that are actually very
small for a multi‑mode application. The RF portion of our system is only
3x2 mm. That's built in a IBM silicon‑germanium process today.
Man 1: Can you talk about the assumptions in your market share build up or opportunity build up? It seems that all the incumbents talk about pricing in a range of, call it $1.00 to $3.00. And here you are talking, I think, anywhere from 2.50 to 9.00.
Jeff Parker: Well,
what you are comparing is the difference between a system and components. As an
example, if you were to look at the power amplifiers today, for wide band CDMA,
those tend to run in the 60‑80c range, depending upon what they were built
out of, what they do.
If you are going to do low bands and high bands, you would have a $1.50 to $2.00, just with the wide band CDMA power amplifiers. Then you would have the same kind of thing again for the GSM and EDGE power amplifiers. Then you would have the transmitters to support them, and then you would have the receivers. So you have to add all that together to represent the RF transport. You can't just look at the single component.
Man 1: In general, they all talk about annual pricing declines; did you factor that into what you project out the pricing to be in 2010?
Jeff Parker: I am sorry?
Man 1: In general, they all talk about annualized pricing declines, what is built into your assumptions for that?
Jeff Parker: If you
look at, let's take the WEDGE marketplace. The WEDGE marketplace few years ago,
when we started talking about this market space, was in that $10‑12 range
for the pull up transceiver and supporting power amplifiers for all the
It was forecast, by the way, that would be down to the $8‑9 range, and by God, that's exactly where is that right now. What people have been saying is that the space is trying to find its way down to $5 for that entire RF front end for that WEDGE market space.
And I think, by the way, that we are a good example of a company that will help people get there very quickly. Yet while doing so, they will also get a lot of other benefits than just trying to drive the margins out of their existing analog solutions.
Man 2: I
probably have to stop there. We can deal with any questions down in the Break‑out
Session No. 2, Pavilion 3, down the hall. Thank you.