ParkerVision 3G OEM Conference Call

July 21, 2010

Ron Stabiner

Jeff Parker

Wilson Jaeggli with Southwest Partners

Phillip Anderson, with Pinnacle Fund

Bob (Robert) Cohen with Western International

George Schiele with 4003 Corporation

Steve Emerson, with Emerson Investment Group

Daniel Lewis, with GEM Partners

 

Trisha:  Good morning everyone, and welcome the ParkerVision conference call. Today's conference is being recorded, and all listeners are listen‑only mode. Following the presentation, we will open up the conference for question and answers. The company has requested that the question answer session be limited to one question and one follow-up per caller. As it is now time for opening remarks and introductions, I would like to turn the conference over to Rod Stabiner with The Wall Street Group. Please go ahead, sir.

Rod Stabiner:  Thank you Trisha. Good morning and thank you for joining us. Before we get started, I would like to remind listeners that this conference call will contain forward looking statements which involved known and unknown risks and uncertainties about our business and the economy, and other factors that may cause actual results to differ materially from our expected achievements and anticipated results. Included in these factors is the ability to maintain technological advantages in the marketplace, the ability to increase manufacturing capacity to meet demands, achieving timely market introduction and acceptance of the product, 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 statement contained within this conference call. Additional materials concerning these and other risks can be found in our filings with the Securities and Exchange Commission.

On this morning's call we will hear from Jeff Parker, Chief Executive Officer of ParkerVision, who will discuss yesterday's announcement of a 3G mobile handset design win. And with that, I will now turn the call over to Jeff. Please go ahead Jeff.

[1:40]

Jeff Parker:  OK Ron. Thank you. And good morning everyone. In our last update to you of 10 weeks ago, I said it was very likely that we will soon be bringing you news about a major milestone for ParkerVision - a design win with an OEM handset partner. Our goal was to be able to deliver this news to you before our next regularly scheduled conference call, and I am very pleased to be able to bring you that announcement.

In these last few weeks, we have secured a handset OEM launch partner who has, in turn, selected a currently shipping 3G handset model of theirs in which to incorporate our D2P-based RF chipset. This OEM is one of the best customers of our baseband partners, and they plan to launch a D2P enabled 3G handset in one of the fastest growing markets in Asia.

The design-in process is well underway. And our team has been working closely with the OEM to prepare their phone design for launch. Our team has been providing guidance on the design-in criteria for our RF chipset. And the OEM's team is completing the engineering work for the phone design and the layout, and they are sponsoring the cost of building the first phones that will used for their handset's pre‑production testing.

I think it is important to note that the functionality of our technology has already been verified through our sample handset program. This remaining testing is part of the standard component design‑in process where any customer will want to confirm the performance of all components in situ – in use - and that means in their production handsets.

The handset OEM has indicated that once the RF functionality within the handset has been confirmed as expected, they will basically be ready to move directly to a production ramp. Our companies have targeted first shipments by the end of the year. As always, my ultimate goal is to maximize shareholder value. And to do that, the real emphasis should be placed on a successful launch.

Getting largely discretionary launch dates is important, but it's secondary. A successful launch, whether it occurs in November or January – is the metric by which I think we should be measured, because that's a factor that will broadly impact our market uptake.

While a key benefit of our product is reducing power consumption and extending the battery life during both the 3G voice and data connectivity, there are also a lot of other benefits that I think are notable that we've been discussing with our handset OEM's.

We've received from them very favorable feedback during this design-in process on these additional benefits, such as reduction of heat from our improved power efficiencies ‑‑ a benefit that brings great value. Simplifying the handset RF section through significant component count reduction, and a simplified baseband processor interface is another benefit that they comment on. And the benefits of higher yield and reduced testing calibration during phone manufacturing are benefits that our handset launch partners are really looking forward to experiencing once this volume production commences.

All of these benefits in the aggregate are bringing significant cost and product advantages. Over these past several weeks, we've also worked closely with our baseband partner. They not only have continued to provide product and technical support, but they have been very active in supporting us in streamlining the steps to product launch.

Ultimately, the goal at ParkerVision is to become a direct supplier of RF chipsets to the handset OEMs. This setup process to become part of the procurement chain to a large handset OEM can be lengthy, and we would not want to delay the product launch due to process logistics. Our baseband partner realized that it was in the best interest to all parties involved if they entered into an agreement with ParkerVision now to supply the first one million D2P RF chipsets along with their baseband processors directly to the OEM.

So essentially they are acting as a conduit for ParkerVision chipsets to the handset OEMs, with whom they have already established supplier relationships. It is very important to note that the terms and conditions of the purchase of our RF chipsets have already been negotiated and established. This will enable the production ramp to begin without delay, and will prove to be the fastest way to market for all the parties involved.

Our baseband partner has also been very helpful in our effort to set up the best possible manufacturing partners for the products. And to this end, we have been able to secure relationship with a top manufacturing firm, whose assembly and test facilities and packaging and manufacturing technologies, are a really great fit with our RF solutions.

They enable us to achieve small package form factors at competitive costs. They are willing to provide various inventory and logistics coordination with our customers as part of the manufacturing process, and they have a widespread network of manufacturing sites, many of which are located in close proximity to our initial handset OEM, as well as to other handset OEMs that we believe will become future customers of the company.

They provide a compelling combination of the best costs, logistics and volume ramp capabilities. And lastly, they are a well known, very reliable firm that is acceptable to our first customer, and we believe will be acceptable to all of our future customers as well.

So now to a topic I know is on some of your minds: When will we get to hear who is the baseband partner? Who is the handset OEM? Who is the manufacturing partner? My response to these questions is: please stop. This is an extremely difficult market for new entrance. It's made all the more difficult by detractors who would stand to benefit from our failure.

Confidentiality is a much needed competitive advantage. It allows us to maintain a level of quiet around the details of our launch that really helps protect us from those chipset incumbents and self‑serving, short‑sight investors who may desire to derail our efforts. Our customers and partners intend to launch products without broadcasting their intent to their competitors and giving them time to react to the type of advancements that we will be bringing to the market.

I don't think this is a decision to deride, it is a sound strategy to applaud.

I think it's important to note that we have provided certain parties confidential access to all our customers and partners in the past, and we will again the future on a valid need to know basis. These have included manufacturing partners and financial advisors among others. We're very proud of the relationships that we've built, and our partners have expressed their excitement for the business opportunities ahead of all of us.

As our product launches into the market shortly, you will be able to see firsthand the network of relationships that we're building, but it will happen in a way that allows our partners to maximize the success of this launch. So, hopefully, what will be at the forefront of your minds then is that ParkerVision has done something that very few new RF entrants to this mobile handset industry have accomplished.

We've developed a novel, compelling technology; overcome a multitude of technical, commercial and manufacturing hurtles that represent very steep barriers to entry for the world's largest consumer device market; located a high‑volume opportunity with an excellent customer willing to work with a new vendor; and negotiated the terms of our first order ‑‑ an order that we believe is going to lead to the start of a very nice revenue ramp for this company.

Once the phone is launched, we believe we will have resolved once and for all this chicken‑and‑egg scenario of no one wants to go into high‑volume production with a company who's never produced in high‑volumes this product before. I hope that the investment community can appreciate and support what this means for our ability to now proliferate our solution. It is truly a game‑changing event for ParkerVision.

Another question I know is on many of your minds is, "What does this announcement mean to the company financially?" And while I don't think it's appropriate for us right now to disclose negotiated chip pricing, what I can say is that the pricing is competitive with industry pricing for complete transceiver plus power amplifier components for single‑band 3G handsets.

And certainly, there's industry reports that you can find that can provide guidance as to what transceivers and power amplifiers for these types of handsets are selling for, and you would find that our pricing would be right in the range of what you find out there. So our baseband provider has indicated its commitment to provide the first million chipsets to the handset OEM, based on the OEM's projections for this handset design. And we believe this one customer can represent several million chipsets annually.

Equally important, we believe that as these first handsets prepare to launch, we will have many additional opportunities with other customers of our baseband provider for the same product offering and its successors. Increased volume will not only translate into revenue growth, but it also will translate into volume cost savings, which will increase our margin opportunities as well.

From the margin standpoint, our planned projections indicate that once we get through the manufacturing setup costs, and we optimize the chipset production, we expect that we'll enjoy margins that are right in line with semiconductor providers in this industry. As I believe we previously indicated, we anticipate that the margin dollars generated from this chip sale arrangement will ultimately exceed the margins expected from our royalty‑base model, which we originally anticipated with our baseband partner.

We expect that our first launch will allow us to begin a revenue stream that will provide market validation, open the door for additional sales opportunities, and continue to fuel a revenue ramp. We anticipate that over the course of a few quarters of volume production, our streamlining of production and device costs will move our margins to the point of self‑sustainability and ultimately, profitability.

It's too early to provide guidance on exactly when, but it's a common path of progression followed by nearly every semiconductor firm who's ever made the transition from research incubation, which is where we've been, to high‑volume production, which is where we're now headed. And one last topic I'd like to touch on before I open this call for your questions is that of capital.

Securing our first design win and beginning the orders placed for our product, I believe, is going to open up financing opportunities that this company has heretofore not been in a position to explore. I'm eager, as I know you are, for reduction and elimination of equity funding for ParkerVision, particularly give the current state of the market.

I'm not prepared to discuss financing opportunities in detail on this call, however, I want to convey that we are exploring alternatives that have been previously unavailable to us, as we move towards funding working capital for revenue growth as opposed to funding research and development.

So in conclusion, really, ParkerVision and our base‑band partner have secured a 3G handset design win with one of their top customers, a leading high volume, brand-named handset OEM, who shares the vision of using advanced RF technology to create better phones for their customers.

We're working closely with them to prepare their phones with D2P technology, and once the functionality is verified to the specs we've provided, they indicate that they are ready to move onto a production ramp as quickly as possible ‑‑ this first phone design being just one of a number of opportunities we see with this customer. So, look, I look forward to continued progress as we mark off the next milestones from this design win, and bringing more updates to you. And so now, I'd like to open this call to questions that you may have.

Trisha:  Thank you. Today's question and answer session will be conducted electronically. If you'd like to ask a question, you may do so by pressing the star key followed by the digit one on your touch‑tone telephone. Please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, we ask that you limit yourself to one question and one follow‑up question per caller. We'll pause for just a moment to assemble our queue. Again, that's star one, if you'd like to ask a question on today's call. We'll go first to Wilson Jaeggli with Southwest Partners.

[14:45]

Wilson:  Good morning, Jeffrey.

Jeff:  Good morning, Wilson Jaeggli.

Wilson:  And a wholeheartedly congratulations here on this order with the baseband partner.

Jeff:  Well, thank you.

Wilson:  It's been a long trip. Is it true that you have a second family in China?

Jeff:  That is not true, but I'll tell you I've been on airplanes most of the year. I've certainly accumulated my share of frequent flyer miles, and I will continue to do so the rest of the year. But I guess I'll say this, I'm very hopeful that this handset OEM that we're building a really strong relationship with is becoming part of our family, so maybe I can look at it that way. How about that?

Wilson:  That's going to be great. Help us here with a little bit of availability of your chipset, your modules in here from that manufacturer, in the timing that that would be available.

Jeff:  Well, we're setting up with the manufacturing partner the production ramp now. I mean, we don't see any reason why these phones won't verify as we told the handset OEM that they'll perform as we've expressed. Recognize the sample phones that we did last year really verified the technology, so it's not really a technology verification phase - it's really a component verification, which is typical of any design with a new component. And so we're setting up for production now, and our goal is to get this verification done in the timeframe that will allow us to start the production ramp with the handset company before the end of this year. And so obviously, between now and the end of the year, we've got to be able to deliver those chipsets, and that's what the production ramp is being set up to accomplish.

Wilson:  And that manufacturer, I mean, that would have experience to do that? That's not a...

Jeff:  Oh, yes, oh, yes. I mean, this is their business. They're one of the largest and best in the business, and what we're asking them to help us with is not unique. It's really in the sweet spot of what they do.

Wilson:  And then you've touched on here a little bit about, not so much the timeline, but the sequence of events here to get it approved at the OEM manufacturer. Could you talk about that in a little more detail, or I know you're probably hesitant about giving any projection on timing in here, because you never can control that, but...

Jeff:  Right. Yeah. All I'd really want to say right now is that the progress is moving right along on it. And I'm getting the phone designs finished. As soon as they're finished and we get the first components to them, they'll be quickly jumping on the testing process, which we'll be involved with them as well. I don't think the testing process will be lengthy. I think it will be appropriate. Again we're testing a component, not a technology. That's already been done. And as I say, if everything that we see allows us to start that initial ramp, before the year's over.

Wilson:  OK. Two financial questions. One of them, working capital. And one, I know you've mentioned this product is priced competitively with alternative designs. I don't know what alternative designs might cost. Can you help us with what... at least alternative designs?

Jeff:  Well again, I could probably give you some guidance to some reports out there that will give you a range of what transceivers and power amplifiers, kind of the aggregate of those components, sell for in various types of handsets. If you look at the cost of a transceiver and a power amplifier, and some of the supporting parts, which we absorb into our product... Functionally absorb, not literally. You would see that our pricing to our customer's right in the area of what those components today are being purchased for. I don't want to give my chipset pricing out right now. But as I say, I'd be happy to give you guidance to reports that you can see.

Let me also say this to you, which maybe might help you a little bit. We've had in previous conversations and conference calls, a little dialogue about the royalty based model with this baseband company.

Wilson:  Right.

Jeff:  One of the things we took a look at is, if we just got a 10% margin, which our goal is significantly beyond that. But if we just got a 10% margin on this particular chip price, Wilson...

Wilson:  Right.

Jeff:  We would exceed, handily exceed, the royalty we would have gotten.

Wilson:  Oh, OK.

Jeff:  So we're seeing an opportunity for multiples of the royalty, with what we've agreed to sell the chip for.

Wilson:  OK. OK. Then on the last question here, working capital needs in here. With this order and this relationship with this OEM, I'd assume that we do not have working capital needs. Is that correct?

Jeff:  We'll have some start‑up costs. But we've budgeted for that. And we don't see ourselves building up a big inventory. This is a build to order business, things like that. But I can't tell you that we won't have some capital needs as the production ramp takes off and we take on more customers. And they take on... even the customer uses more handsets. I think you'll see a pretty typical capital cash flow kind of scenario. And that's why I said in my comments earlier, that we're already out looking at different alternative ways to finance the company that are more appropriate to companies that are looking to finance revenue growth.

I, personally, have never thought it's a good idea to take on debt financing to support R&D, because R&D is just a very unpredictable timeframe. But once you get to supporting capital needs for production ramps, and customer revenue growth, then I think more traditional lines of credit are certainly appropriate, and we will be pursuing those.

Wilson:  OK. Good. We thank you much. And again, congratulations.

Jeff:  Thanks Wilson. Appreciate your support.

Trisha:  And we'll take our next question from Phillip Anderson, with Pinnacle Fund.

[21:42]

Phillip Anderson:  Good morning Jeff, and congratulations.

Jeff:  Thanks Phil. Our team is quite energized. It's really great to be working with these companies.

Phillip:  It must be nice to feel energized, instead of exhausted and haggard over the course of months...

Jeff:  Well I didn't say I wasn't exhausted and haggard. But still good to be energized...

Phillip:  What can you tell us about the cellular OEM? Do they sell only in Asia? Do they sell in North America? Europe? Can you give us a bit of understanding of where they sell, and their scale?

Jeff:  Well they sell all around the world. They sell tens and tens of millions of units. They have a brand name. They're have a good name. They're growing. I'd say they're growing faster than the market's growing. And I think when it comes out more about who they are, and what they represent, and who's behind it, and all that they've been able to accomplish, I think it's going to be very impressive. I'm looking forward to you guys hearing who it is. But I also completely respect...

It's a little bit, I'm the pickle in the middle. On one hand, I'd love to be able to tell you guys who it is. But you know what? They're the customer, and they're the ones that are writing the checks, and the purchase orders, and the design‑wins. And I've got to respect...

They win in this tussle. Right? Because they're the ones that are going to fuel our revenue growth. So I respect that, and believe me, our willingness and ability to keep that confidence will be highly valued by them as well. And certainly will continue to build a good relationship with them.

But, I'll be very, very happy for you guys to find out down the road who it is. And I think you'll be very pleased and excited for our future opportunity with this company.

Phillip:  So this would be a company that we've all heard of before?

Jeff:  Yes. Let’s just… I think you guys will like this company.

Phillip:  Let me ask you one more question on the same topic. If I was to go to a Best Buy or a Wal‑Mart or Verizon or an AT&T store, or something of that ilk, would I be likely to unknowingly see a phone that had been made by this cellular OEM already?

Jeff:  Phil, let's not... Look, I don't want to start narrowing down by these kinds of descriptors, who they are and who they're not. Because that's just another way of disclosing who they are without using their name. Let's just leave it as, they're high‑volume, high‑growth, well run, well capitalized, quality products, good brand name. As I say, when you guys learn more about them, I think you'll be very, very excited.

Phillip:  Great. So switching gears, our baseband partner, do they... The other cellular OEM's with whom they do business, do you believe that their other cellular OEM customers are aware of our technology, and will be watching the success of this phone, and it's performance?

Jeff:  The baseband partner has been great. They're just great. They've been extremely supportive, and very easy to work with. They've told me multiple times recently that one of the most sought after benefits that their customers keep telling them they're looking for, is reducing the power consumption for 3G handsets. They have said to me, "Jeff, you guys are in the right place at the right time with the right product. We are so excited for your company, and for our association." Look, the baseband company is helping us, because it's also in their best interests. Right?

They want a differentiated product advantage as well. Who wouldn't? And they're a big believer because the sample phones proved what our technology's capable of. So they're willing to get out there and help us, because they know we have a real product, and a real technology. And it really solves a need that they care about from all of their customers, they tell me.

So their strategy for us was, "Look, let's get us paired up with one of their best customers, someone who we can work with closely. Let's focus on getting this customer launched. And that launch will lead to a lot of other opportunities for the same products, with other customers. "

And so they believe that that is a good strategy. I concur with that. And I'm following their advice. And I don't know for a fact which of their customers, outside of this one, they haven't happened to have conversations with about our technology, but I do believe they have had it with several and I think that those customers are anxiously waiting for the product to be brought back that we are launching by the baseband company along with us.

What I like about our relationship with the baseband company is they don't keep us distanced from their customers, they take us right in with them, which I think is just fantastic.

Phillip:  So you have done it in association with the baseband company?

Jeff:  Yes, we have done it as a team.

Phillip:  Right. And would ‑‑ let's say a cellular OEM, ABC, which is one of the other customers of the baseband partner, would they evaluate the success of the phone based upon its performance, would they weigh that more than they would commercial sales, for example people may not like the way the phone looks but that may not matter to the next customer. The next customer, in my mind, would be focused on the performance of the phone, trying to get that their own performance to cost savings in their own phones, would you agree that's how it's...?

Jeff:  Well, I would agree, but I will say to you that, I'm afraid you have answered my questions, but I will say to you this... The phone that this is going to launch in is a great phone and I think anybody who looks at this phone will go, "Wow, that's a really nice phone." And that's one of the reasons that this company has growing revenue and continues to build great reputation. So I think when you look at this phone, people are going to say, this is a great looking phone, this is a great phone with great features. But that said, yes, it will certainly prove that in volume production, our technologies have been translated to a viable product. And you know, it's exciting for all of us here at the company and my colleagues have been working long, long hours. I mean I just give them so much credit for not letting any obstacle deter us to get this done.

What will be exciting is that this exact product can be used by so many other companies of our baseband customer. And once you become known as a credible supplier, I think that this uptake of product and the design win blow is going to move pretty fast.

Philip:  Well that's awesome. Thanks for allowing me to ask more than my requested one or two questions.

Jeff:  Thanks for your questions.

Trisha:  We'll go next to Bob Cowan with Western.

[28:38]

Bob:  Hi, Jeff. My question is you kind of during your call here, you made a comment about some of the naysayers, can you explain a little bit what you meant by that? Are you saying that some of these naysayers have actually told people that they think you are doing business with and trying to sabotage your deals? Can you elaborate on that just a little bit?

Jeff:  Well, look I don't want to go into great detail, but I will say that, yes we have had people who don't wish us success and don't wish us well for whatever reasons, try to prevent companies from wanting to move forward with us, by trying to convince them that we are not credible or I am not credible or the team isn't credible or the technology doesn't work. I mean any of a host of things. And you know, luckily for us the technology speaks for itself and, you know, my dad always used to say to me, "Luck is where preparation meets opportunity." So we have been very lucky that we have prepared the technology and it has been able to convince people like our baseband partner, like this handset OEM, like manufacturing people we are working with, that this technology has the merits for a big influence in the next generation phones and they are willing to work with us.

But yes, absolutely, our customers want to just go about the business of doing their business, they don't look at distractions and unfortunately some people don't want to play by the rules and that's just the way it goes sometimes. So anyway, I don't want to elaborate, but I think you guys know what I am talking about.

Bob:  Right. Would you also ‑‑ Jeff, would you consider this in your view at this stage a commercial launch? Would you say that you are at a point where you will get a commercial launch?

Jeff:  Absolutely, Bob. This design win is absolutely leading us to the commercial launch. It is the commercial launch. The fact that the handset company wants to verify the preproduction phones is what they do with any new components that they adopt and this is just part of the process. But they have been very clear with us and the baseband partner which is why the baseband partner has been so enthusiastic to help us move forward quickly that as soon as those phones have been verified, they want to move this into production as quickly as possible and they see all kinds of adoption within their product line for this technology.

Bob:  In this company, in the Asian market, how would you rate them in size to other... I mean in the market that they are in, is it one of the largest markets in the world in your view?

Jeff:  It is the largest market; from the recent reports, it is the fastest growing market, but they do ship around the world and they are growing rapidly and they have got great leadership and great vision and they have a very quick decision making process and they are quite refreshing. And when I come back from some of these trips and my kids want to know a little bit more about what's going on in the company, I tell them when I was their age, we used to see television sets with all kinds of brand names that no longer exists, and those have been replaced with brand names kind of rose from no place and I said I’m seeing this happening in the handset space.

And it is exciting to me aligned with some of these companies and to be invited to do business with them and it is just really refreshing time for the company. And my colleagues and I are just very appreciative that we have been given this opportunity and that these guys believe in our product to help them build significantly better phones than they are building today.

Bob:  Sure. Just one last question, I know you are not an expert by any means on the market, but do you think the stock is reflective of where you are today in your business? I mean you obviously know where the stock has been and how it has gotten destroyed for no apparent reason, but can you comment on that, what your thought is?

Jeff:  Absolutely, Bob. I don't think our stock is fairly valued, I think we are undervalued for... Look we have a technology now that's being turned into a product that's going to be used in the fastest growing largest consumer device market in the world. And it has great intellectual property protection around it. My colleagues have done a fabulous job of engineering it into a compelling product. It is going to have the opportunity to be engineered into other products, but even just its first product, as I said earlier in my presentation, can be used with lots of different customers and lots of different phones with our baseband partners, baseband and I think when you just look at the potential of that alone, we are undervalued.

And so hopefully, as we continue to make progress, we'll have the investment community and the capital markets look at us more closely and reward us accordingly.

Bob:  All right, thanks Jeff. Appreciate it.

Jeff:  Thank you, Bob.

Trisha:  We'll take our next question from George Schiele with 4003 Corporation.

[34:48]

George Schiele:  Good morning, Jeff. Congratulations.

Jeff:  Hi, George, good morning.

George:  Great relief … progress. My initial question has already been asked and answered by other people, but if you could just give me a little clarification on the issue of: We started out as a chipset provider hopefully, then we went to a revenue model that was based just on royalties and now we're back to being a chipset provider. But obviously we’re not going to build a chip foundry somewhere. Exactly how's that working ‑‑the partners providing the chips to Parker and reselling them? Is that...?

Jeff:  No. So let me...I'll try to keep this as succinct as I can. So our relationship with the baseband company started under a licensing model. It started out with them saying, "Hey, let's work together and prove that your technology can be used within our applications. If you can get it up to that point, then we will look at adopting this into our product line." When they went out with sample phones last year and they started soliciting interest from customers, those customers gave them feedback that indicated... Look, they're a fast‑growing company. Our baseband partner's fast‑growing. They've expanded their product line; they've expanded their customer base; they have a number of the world's largest handset OEMs for customers, and I'm very excited for them. They're doing great.

And what they concluded was, based on customer feedback and their own situation, that if you want to get a new technology like this and make a successful launch, it was much easy, much smarter to weight this for success by having the innovators of the technology ‑‑ our company ‑‑ focus, focus, focus, focus on launching product with them. Not have us distracted with three or four things that we're doing. We're a small group, and it gives us the opportunity to make enough margin dollars that we could do that.

And I'll tell you, having now worked through the process as a first design win, I give them a lot of credit. That was extremely smart. We were right in there with them; we were working directly with the handset firm. We were able to make decisions based on deep knowledge of the technology. They get more comfortable when they see that we're focused 100 percent on making this successful. And every customer of theirs that adopts our chipset, they have a competitive differentiated advantage with.

So this is a very smart move to say: "Look. Let's position the innovators with the technology to do what they do best. Our product line in the baseband area is just growing like crazy. Let's make sure we don't take our eye off of the opportunities we have in front of us." George, this is a classic one plus one equals three.

Now, I had the good fortune in my earlier career to have a partnership with Carrier Corporation. We made a lot of electronic controls for them. They're a big company, they could've afforded to make their own controls. Why did they partner up with our company? Plenty of reasons: One plus one equals three. We focused on something that we did better, they focused on something they did better, we worked cooperatively and it was phenomenal business that we all created out of that. Same situation here.

So logistically, we're a fabless semi company. We use semiconductors fabs. IBM and TMSC to make our semiconductors for us. We have a manufacturing partner now who does the assembly, the tests, the packaging, and in addition to that, has agreed to do the logistics and inventory for us. And this is "the world is flat" era, where we're able to leverage a lot of other people's expertise and investments to deliver great product to our customers.

George:  And I assume that even though the focus in recent years has been on the D2P, that somewhere in the schedule of things to be done is D2D technology as well.

Jeff:  Yeah. Yeah. I look at our receiver technology, even though we finished it several years ago, and I see that it still has wonderful competitive advantages. However, I believe what will happen is that once we become a credible supplier in the eyes of the broader audience ‑‑ which I believe will happen with this design win moving through the production launch ‑‑ that we're going to be given the opportunity to take D2P into a lot of other places. And so we'll have the decision‑making process that any growth company has, which is: "Where do you pool your resources? How much do you grow and when?" But D2P really is, George, in the right place at the right time. 3G phones are just growing, growing, growing. 4G is right around the corner.

All of the standards that deploy three and 4G, we help the power savings dramatically. So this is a great opportunity for us. We're lucky. We're really where the preparation and the opportunity are meeting. Will we have the resources to also include the D2D receivers? Will we work with other companies to source their receivers? Stay tuned ‑‑ I can't honestly say we haven't made those decisions yet.

George:  Thank you.

Jeff:  Thank you.

Trisha:  Our next question comes from Steve Emerson, with Emerson Investment Group.

[40:25]

Steve Emerson:  Well, first of all, congratulations. I know how arduous this has been on your whole company and you personally. Would we be able to get a industry‑normal announcement once a final purchase order is signed? Final acceptance of your product?

Jeff:  I would imagine, Steve, once we get that to occur that there will be some material events around that. I'll need to talk with our CFO a little bit more about that. Good question. I'm not sure I have an answer off the top of my head, but will there be more material events that'll occur this year around this design win? I think so. That's why I said in my comments I look forward to bringing you guys more news, but I'm not sure exactly which ones will be material and which ones won't.

Steve:  Let me clarify a little bit. I think what would go miles to increasing the credibility of this great announcement is when we can see the names of people involved. And if I recall correctly, once you have purchase orders – design-in purchase orders ‑‑ then the names of those parties should be announcable and they should be beyond the damage that naysayers could pose.

Jeff:  Well, exactly which event is going to create the visibility into Parker ‑‑ sorry, I don't want to comment on that because I'm not exactly sure. I do believe that somewhere in the launch, that will expose who the parties are. But I hope that you guys will realize that it's not unusual in our industry, that when you get a design win for a component, that the name of the customer is not included in the announcement. This is quite common. One of the things that I did is I just spent a little time on the Internet and asked some of my colleagues to do the same this week, just to say: "When you look at these design wins, they all come out with the name of the handset OEM? Are we being asked to do something that's unusual that they don't make other vendors do?" The answer is absolutely not. I'm not saying that none of the announcements does include names, because some of them do. But an awful lot of them do not.

And a lot of it depends on the nature of the OEM. Do they think that the component has a competitive advantage that they want to enjoy before they go out and allow their supplier to talk more freely about it? It just depends on the circumstances. But, Steve, it's really not unusual at all.

I just looked at an announcement that was recently done by a power‑amplifier company, and the announcement was, "We just got a design win from a major smartphone vendor." That was it.

So, look, as I said to you earlier, I am very excited for you guys to find out who it is, because I think you're going to love it. But, right now they want to have a competitive advantage, and they're the ones who are willing to take the step with us and to get the baseband company, to give them the guidance that, "Yeah, you should move forward with ParkerVision." I've got to respect it.

As I said, on the one hand, I'd love to give you the name. And I understand all the reasons why you'd want it, and if I were in your shoes, I'd want the name also. And on the other hand, I understand and have to respect the handset guys' request, and they're the ones cutting the purchase order. I do believe the names will come out, though, soon, as we launch. I don't know exactly the event, but I believe during the launch it will come out, at some point.

Steve:  OK. Thanks for the clarification. Also, in terms of possible chipset price, can we look at your conference presentations that we all saw and just say, "OK, that chipset value or market price reasonable," and just take 10 percent off that for normal circuit‑price reductions, or what kind of English can we provide to that?

Jeff:  Yeah. And I think if you look at some previous presentations I've given, we've given things like, "Hey, here's the total available market for transceivers and power amplifiers. Here's kind of the total number of units that they go into." And as I mentioned earlier, there are reports which I think I could suggest you guys might look at that kind of describe the costs of transceivers and power amplifiers and some of their supporting parts in these types of phones. And if you look at any of those, you're going to see kind of a range of price. We're going to be right in that range, Steve.

Steve:  OK. But since, let's say, the ROTH conference presentation, how much has industry pricing come off?

Jeff:  I believe the kind of pricing we've talked about recently, recently being the last three to six months, has been fairly stable, maybe slightly declining. But I'd have to look at it. I mean, I can't honestly say that I've been tracking it month to month. We have our own internal views on kind of the price declines of certain components over time. They don't decline forever; eventually, they do kind of bottom out in certain places. But as we've been saying, we have good sources for information on what transceivers and PAs sell for.

Steve:  Of course.

Jeff:  And I'm telling you, we're right in that area. And I'd be happy, as I said, to suggest some reports to you guys that do keep these things updated. And yeah, you'd see that those reports and what I described in the ROTH presentation are very much aligned. That's where I got the information from, by the way.

Steve:  Of course. And the chipset functionalities, the complete functionalities and part count is pretty consistent with those previous reports, I would guess?

Jeff:  Yes. Again, I have to go back and take a look at it, but when I think about our product and I think about reporting parts, one of the things that's really exciting and fun to work with is when we work with this handset OEM and their design team and we show them the schematic for our component, and we say, "Here's the chip, and here's the supporting part." They look at it and they kind of go, "Well, where's the rest of it?" And we go, "What do you mean?" And they go, "There's only a few parts. Where's the rest of them?" And the answer is "That's one of the benefits of the technology. There is no rest of it. That's the whole thing." And they get really excited about that because that obviously makes the designing process easier and quicker and more predictable.

So, I don't remember exactly what you're referring to, but if it's things I've shown you guys in the past, here's what our chip's going to look like. It's only going to have a few supporting parts. It's going to eliminate dozens and dozens of parts that currently are required by other, traditional offerings. That's all correct.

Steve:  OK. Thank you again. Congratulations.

Jeff:  Thank you, Steve. Appreciate your support.

Trisha:  We'll take our next question from Daniel Lewis, with GEM Partners.

[48:33]

Daniel Lewis:  Congratulations, Jeff. It's been a long time.

Jeff:  Dan, yes it has. Thank you.

Daniel:  [laughs] Been waiting for this for a long time. A few questions, or I'll call it one question, anyway. What level of engagement with other customers is likely between now and before you launch with this current undisclosed customer, in light of the fact that... Are other customers waiting to see product in the market, or is what you just announced sufficient for them to feel the need to engage with you? Has there been engagement already? Can you just give us a sense of how it's likely to unfold over these next six months?

Jeff:  Sure. So, I'm really, and we are really, taking the lead from our baseband partner. They're the ones who are really guiding us through this. And I appreciate them doing this because they know the customer base in this industry far better than I currently do, although we're learning as quickly as we can. And the guidance they've given us is: let's stay heads down to make sure that this launch customer is just wildly successful and very happy with this product, because that's going to make the next two, three, four customers go much quicker. I believe, from what they've told me, that they've shared with some of their other customers results from the sample handsets and they've shared what we're doing on getting this product launched with them. And they are saying to their customers, "Look, let's let ParkerVision launch, make sure everything is done without fail and that it's successful. And as soon as it's appropriate, we'll do the same thing: bring them in to you, and if you guys have an interest, then we would love to see if we can get you guys working with them as well."

And Dan, I can't honestly tell you if that'll happen, before our product launches, during the product launch, or after the product launches. I really think that's going to be determined by the baseband customer and their own wisdom and how they see things going and how much bandwidth they think that we've got. They don't want to see us die from indigestion. They want to see that we don't take on more than we can take on.

But they have said to me that several of their customers ‑‑ very big, very important customers ‑‑ have said, "3G battery life is not acceptable. We need to lengthen it. We're dying for products that help us reduce the power consumption." And they've said to me, "Jeff, you're in the right place at the right time. Your colleagues and you should be so excited." And we are.

And so, Dan, honestly, I'm going to let the baseband management lead us through that process. I can't tell you if it'll happen before or after. I think it's just going to depend on their own opinion of how much we can take on against what it's going to take to get these first phones shipping. And that's why this production launch is so important. If it goes the way I know it can go, if we stay focused and we have the attention to detail that I know we have, it's going to make the next sales go much quicker.

And recognize this one product, this first product can be used with every one of our baseband partners customers. And don't forget, three of the top five handset OEMs in the world are their customers. So, may be this is 90 percent planning, 10 percent execution strategy in their mind. I don't disagree with that. I think that's served us well.

Dan:  Have you already met with all of your baseband customer's customers?

Jeff:  I met with several of them. I met with several of them, but once we saw that this particular handset OEM wanted to be the launch partner and told us so... This handset OEM ‑‑ when they saw the performance from the sample phones, said look, "3G battery life is one of our biggest challenges. We want to lengthen it. We want to build better phones. We understand ParkerVision has not been a supplier yet in high volume of this product, we are willing to work with you. Your vision, the baseband company's vision and our vision are all the same vision." And once I heard those words, I said, "This is fabulous, we found the right company." And the baseband company said, "This is going to be the right company. They are absolutely right." They know the different requirements of their customers and some people will move quicker and some people will move slower and some people have more aversion to risk and other people are willing to stomach more risk.

And so, I think the baseband partner has done for us exactly what they said they would do in helping us get this product launched. I'm just so appreciative; they are great.

Dan:  So, over the last six months or whatever point when you initiated engagement with the handset OEM, can you just give us a description of how the time was spent and how the time is going to be spent between now and launch in terms of engineering? What was done in the time to secure a design win, what engineering work had to happen? What were the other things that took so long? And then what has to happen between now and launch?

Jeff:  Sure. So what has to happen is they first of all have to have to find resources within their organization that they can commit to working with us and don't lose sight of the fact that those resources aren't just available without any other task that they are involved in, so they have to wait for resources to open up based on other programs that are being completed, but we have to do that. Then we have to sit down and look at, in great detail, the exact phone design that they are going to put this in. Handset OEMs are all buying chipsets from the same vendors, so where they get their competitive advantage is by clever things in how they apply those chips, how they construct those phones, software applications.

I mean, they are built off the same basic chipset platforms. So their own production designs are their intellectual property, and those are very important to them and they do not share those with vendors casually. So we had to enter into an agreement that we wouldn't disclose any of their intellectual property, and they take that very seriously and so do we. And then we have to sit down and go through with them; once we get through that, the exact phone design, and to show them how we would fit our product into their phone.

And that's not a trivial task. I mean that's weeks and weeks and weeks worth of work because you are not talking about building a phone, you are talking about going to build hundreds of thousands and millions of products, millions of units. And recognize that they're halfway around the world away from us, so it is not like just you get in your car and drive down the street. I wish we could.

And then you start to think about once they see that this is viable, this is real, then they start to think about procurement. All these big handset companies have very specific processes that they go through setting up vendors. They don't shortcut that process. I mean, they can't. They have risk that they got... They have a recipe that they have created that has led them to great success. And they are not going to unwind that recipe nor will we ask them to.

Which is where the baseband company came in and they said, "Look, we worked with ParkerVision. Everything we have asked ParkerVision to do, they have done. Everything ParkerVision said could be achieved, has been achieved. And we want to help them get this to the market quickly, not just to help ParkerVision but to help ourselves," the baseband company, because it will help them with their own opportunities, and to help you, our handset OEM, who is one of their best customers.

So they stepped in and said, "Look, we are comfortable giving ParkerVision an order. Let us set them up and then you guys will work on the normal process. We are not going to ask you to go outside your normal process. And when you get through that process, you can buy directly from ParkerVision." And so all of that Dan, I mean that was not a normal thing that the baseband company does ‑‑ that took time to think through all that.

So, I described to you guys just 10 weeks ago that I thought we found our launch partner and that I'd hope we could tell you before the next conference call we'd have a design win and a lot has happened in 10 weeks. I mean a lot has happened. And so what's going to happen going forward now is we are going to finish. We are finishing up the design with them, circuit boards have to be built, components populated, then they’ve got a test plan that they got to go through.

And if we did our work properly, these should go through the test pretty rapidly. And my belief based on their commentary to us is, once they see us get through even just a certain amount of the testing, they are going to go, "Yep, this looks really good. Let's get going here." And that's when the baseband company will get purchase order from them for basebands and RF chipsets and we will get it on a blanket purchase order from the baseband company and we are off to the races.

Dan:  When do you expect that you will get a purchase order from the baseband company?

Jeff:  I don't want to predict. I'd say the only thing I want to tell you guys is we are targeting that their initial launch will start before the end of the year. Obviously we'll have to get an order between now and then. I just don't want to set that line in the sand because I know if I do, what's going to happen. So let's just say we are targeting end of the year or later ‑‑ before the end of the year launch the product and so obviously between now and then we'll need to get the order. And you asked when... Sorry, go ahead.

Dan:  When you say launch the product, you mean phones selling in the marketplace or do you mean some other kind of launch?

Jeff:  I mean phones are rolling down their production line, which then get put in a box and you have it shipped.

Dan:  OK. All right, well congratulations and good luck.

Jeff:  Thank you Dan. I appreciate your call.

Dan:  OK.

Trisha:  Thank you. That will conclude today's question and answer session. I'd like to turn the conference back over to Mr. Parker for any closing remarks.

Jeff:  Well folks, look, I know many of you have been investors in ParkerVision for a long time. It has taken us a long time, much longer than I thought, to get to this point, but I am very heartened to be able this morning to tell you that we finally have a design win. We got great partners. As I said earlier, I'm really excited for you to learn who all these people are because you are going to be even more excited. But right now, let's get the next part of mission complete, which is we'll get the preproduction phones approved and we'll start ramping in production and that's the donut that we are focused on. So we hope you will continue to support the company, we appreciate your enthusiasm and I hope that we will be able ‑‑ in fact I know we'll be able to bring you more exciting news as the year goes on. Have a good day. Thanks a lot. Bye‑bye.

Trisha:  Thank you. That does conclude today's conference. If you wish to access the archived audio‑cast replay of this call, you may do so by visiting the company's website at www.parkervision.com.

 

Transcription by CastingWords