Financials

 

ParkerVision Conference Call, August 9, 2004

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ParkerVision Conference Call, August 9, 2004

 

ParkerVision’s History of Misrepresenting Performance
ParkerVision has a history of overstating and misrepresenting their products and their ability to sell them. A recent example of this is Jeff Parker’s announcement of the introduction of their SignalMax product line during the Q2 2004 earnings release on August 9, 2004. Excerpts from the Q2 2004 conference call are included below along with our commentary.

 

Jeff Parker
"Parkervision and the SignalMax family of products will not be "me too" products and that these products will be affordable to a very large target audience. Our laptop and desktop cards will sell in the $89 to $99 range. This compares to competing products that provide significantly less distance, coverage and reliability, and commonly sell for only $10, $20 or sometimes $30 less.

 

I believe that as we achieve broader distribution that the word from our users will rapidly spread because it had already started. That the additional $10 or $20 bill is well worth the ability to use the wireless network where and when you want."

 

Commentary
Currently, SignalMax wireless PC LAN card prices range from $67.00 (DataVision) to $79.99 (CompUSA), with most prices in around $70 ($69.62 at eCOST, $69.99 at Amazon.com -, $73.95 at Digitally Unique -, and $76.99 at Chumbo.com). It appears that the SignalMax family of LAN cards are, in fact "me too" products, because despite their broader distribution (there was at least half a dozen press releases to that effect) the $10 to $20 higher price could not be justified. The price of SignalMax products is continually eroding, and today, the LAN cards "commonly sell for only $10, $20 or sometimes $30 less" than the originally predicted price. Users have neither "spread the word" nor do they see value in the extended range.

 

Jeff Parker
"Our wireless 4-port router will retail in the $200 to $250 range."

 

Commentary
Prices for ParkerVision’s wireless 4-port router range from $83.00 (CompUPlus Direct) to $99.99 (CompUSA), with most prices averaging about $90 (DataVision - $84.00, Amazon.com - $86.99, F&R Music - $89.98, Academic Superstore - $89.95, Digitally Unique - $91.95, Lycos.com - $92.00, Provantage - $99.53). These prices are 2.2 to 2.8 times lower than cited by Jeff Parker eight months ago, and imply that the SignalMax router has no fundamental performance advantage over competing products, or that users are unwilling to pay higher prices for D2D technology. Given that the cards achieve their range by means other than D2D technology, this inability to sustain a higher price for the SignalMax product is therefore not a surprise. Furthermore, the difference in expected and achieved pricing implies that ParkerVision will continue to suffer from greatly reduced gross margins, and it is possible that as prices further erode, sales will become financially detrimental to ParkerVision and contribute to accelerated and higher losses.

 

Jeff Parker
"One of the major retailers we are in dialog with recently told me that they are now selling a large volume of add on antennae, add on boosters, add on repeaters, thousands a week, all intended to achieve only one goal. And that is to increase the wireless networking coverage the people are experiencing in their homes and small offices.

 

They also told me that the hassle of setting up these add ons, combined with the fact that they largely do not provide and noticeable improvement is causing a lot of customer service and support issues for both the retailer and the manufacturers of these products. This retailers observation is that the retail price of our product, when viewed from the perspective of the coverage we actually achieve, provides the least expensive solution on the market for a very large number of this retailer's customers who are now adopting or trying to fix wireless networking."

 

Commentary
Most users care about bandwidth, not range, and to date, the ParkerVision campaign to change those attitudes has failed to sway this wireless industry trend. As competing products evolve, their range will improve (e.g., Belkin is introducing a new Pre-N product with wider and longer coverage) and eventually surpass that of the SignalMax but at much higher bandwidths. The new cards use new protocols (802.11g instead of 802.11b) that are becoming rapidly and widely adopted. Although the SignalMax products claim to be "g compatible," ParkerVision has yet to release its promised "g" card. Unless ParkerVision can respond and release "g" products quickly, its SignalMax product family will become obsolete less than a year after its release. Also, if ParkerVision’s strategy is to extract a premium for its products by branding them as uniquely enabling, then why does ParkerVision use sales channels such as Nebraska Furniture Mart, who describe themselves as selling "more than 160,000 different products at legendary low prices"?

 

Jeff Parker
"The no boosters, no repeaters, no add on antennae theme, combined with our coverage guarantee will be the foundation of our roll out campaign. I'm sure that you're anxious to know so, when will stores be carrying Parkervision SignalMax. Where and when? Well, I'm not at liberty to share those names with you and believe me, I wish I could, however, I am very comfortable telling you this.

 

We are in very active dialog with retailers that collectively account for about 500 store fronts in North America. These are a combination of national as well as regional and local retailers. Since I am personally an intimately involved in these discussions right now, I will also share with you that many of these companies have moved beyond the phase of testing our products and we're into the details of contracts and initial stocking orders and marketing programs."

 

Commentary
To date, we count a total of 324 store-fronts, which is somewhat shy of the "about 500" quoted eight months ago. More specifically, the store-fronts we counted were:

 

CompUSA has about 229 retail stores nationwide in the US. 

 

ABC Warehouse, a privately held company headquartered in Pontiac, MI, currently operates 41 appliance/electronics retail stores throughout Michigan with locations in Ohio and Indiana.

 

Office Depot Canada has 33 store front locations. 

 

Micro Center, a retailer focused on computer and computer- related products, operates 20 stores in major markets nationwide. 

 

Nebraska Furniture Mart is located next to the Kansas Speedway at the intersection of I-70 and I-435 in the western section of the Kansas City metropolitan area. (This is one store)

 

RCS Experience's retail showroom located on the corner of Madison Ave at 56th Street offers state-of-the-art technology settings for the most comprehensive, exciting, and up-to-date collection of computers and electronics in New York City. (This is one store)

 

Amazon.com, Target.com, Academic Distributing, chumbo.com, and Lycos.com are all web-based e-tailers.

 

Jeff Parker
"It's my belief that these will result in a steady stream of signing up and stocking retail accounts for Parkervision the balance of this year and even beyond those storefronts, we will continue to expand next year. We are also in dialog with several different distribution companies who provide delivery and logistics services to retailers and others and I believe we will easily have two, possibly even three or four of these relationships signed up and actively promoting our products the balance of this year."

 

Commentary
ParkerVision did in fact issue multiple press releases announcing each new retailer for the SignalMax products. Although reported 2004 commercial (non licensing) revenues were only $190,811 (which correspond to about 1,900 cards/routers at an average price of $100), the real story of ParkerVision’s success or failure will only emerge in 2005. The Q1 2005 financial results, due in another month, will set expectations for the rest of the year and for the overall viability of the company, which purports to run out of money in early 2006. 

 

A more disturbing observation about the ParkerVision product rollout, however, is the attitude of the sales people towards the ParkerVision products. When we visited several Office Depot stores in Canada (near Toronto), the sales people were not even aware of a company called ParkerVision and immediately told us that "most customers buy Belkin anyway." At CompUSA stores in California, Washington, and Michigan, we found only 2 boxes of SignalMax routers and 4 boxes of SignalMax LAN cards on the shelves. ParkerVision products had about 4 to 6 feet of shelf space, compared to 50 feet for Belkin and 70 feet for Linksys. When querying the sales people at CompUSA about the product, we were told to buy Linksys or Belkin, because "every Parker card we’ve sold has been returned." Thus, despite the wide retailer deployments, it appears that SignalMax cards are not flying off the shelves yet. This is consistent with the 2004 revenue results and does not bode well for 2005 revenues.

 

Jeff Parker
"In corporate and strategic planning, as well as business development, finance and accounting and in engineering management and product development. Speaking of product development, Parkervision will continue to extend our product portfolio significantly as well as the technology that we offer. As you probably read recently, we completed the acquisition of the cordless phone assets of a privately held company, consumer ware."

 

Commentary
From what we have been able to learn by talking to potential OEMs in the cordless phone industry, ParkerVision has been unable to get an OEM relationship to date. Similar to their D2D technology five years ago, ParkerVision will adopt the strategy of developing the product themselves and deploying it to the retail market, in an attempt to obtain OEM interest. 

 

Jeff Parker
"This gives Parkervision a very nice jumpstart on bringing to market what will be the world's best performance consumer cordless phone. For every person I meet who confirms that they are unhappy with the distance and quality limitations of their wi-fi network, I must meet 10 people who are even more unhappy with their cordless phone.

 

We recognized this opportunity earlier this year and hence our announcement of our cordless phone. Typical cordless phones have mediocre voice quality, generally only achieve 500, sometimes up to 900 feet in open field testing, and this generally translates into lots of static, poor voice quality and dead zones within your home and we believe into tens of millions of unhappy cordless phone users.

 

Our cordless phone will achieve two miles in open field performance. It will have excellent security so that your calls will be private.

 

Voice quality will sound more like a wired phone and we will eliminate those dead zones in your home. Initial production or Parkervision's cordless phone products will occur in the fourth quarter. And these quantities will likely be absorbed quickly for field trials and samples to retail and potential OEM accounts."

 

Commentary
Similar to their D2D technology, we expect the product will be late (between six months to a year from the Q1 2005 volume production statement in this press release), will offer no substantial performance improvement over current products, will initially be over-priced, and will be retired about a year after the price erodes and significant sales fail to materialize. There is also the possibility that as ParkerVision re-brands itself as a power amplifier OEM company in 2005, it will bypass the cordless phone product line entirely.

 

Jeff Parker
"We haven't fixed a retail price on the cordless phone yet, however we expect to have models that are in the $150 to $200 range of retail and other models that will go up over the $200 range. Our goal is to begin the process of taking orders for this phone from distribution in the fourth quarter and for volume production to ramp in the first quarter of next year."

 

Commentary
So far, no announcements of a cordless phone product have been made. In fact, during the conference call in mid-March 2005, Jeff Parker announced that the sampling of the products was still 4 to 6 weeks away. In other words, the product is already six months late. Such product development schedule slips are consistent with ParkerVision’s past execution history on the wireless product family. Based on previous predictions, we believe that if ParkerVision ever sells a cordless phone, it will see the same price reduction as the SignalMax product family. That is, the phone will likely end up selling in the $50 to $80 range, and will be yet another unprofitable ParkerVision product.

 

Jeff Parker
"We also have cordless speaker technology in products that we'll sample in the first half of next year. What will distinguish Parkervision with this product is the fidelity of the audio that we will deliver to any existing speaker. The wireless link that we have developed and tested for this product is a five mile link that only uses small, embedded antennae, i.e., we're not using some crazy big parabolic dishes or something. This is a consumer form factor.

 

We are now working to marry that link to the interface between any traditional stereo or PC and then you will attach the other end of the link, small box, to any standard speaker. The reason we've gone to such great lengths on the quality of this link is to ensure the fidelity of the audio delivered, sound of different speakers or wires and to ensure that you will be able to locate your speakers wherever you want to in your home without having intermittent operation.

 

We're also making excellent progress on our own application specific high band width based on 8 or 10, 11 (ph) G and we will have initial samples of that product in the field testing this year. I believe we will achieve the absolutely longest distance, greatest coverage and the best data bandwidth over that distance over in the industry for that G product, period."

 

Commentary
The industry is rapidly moving to 802.11 "g" and is launching "a,b,g" tri-mode, dual band wireless products as well. Apparently, the ParkerVision "g" card is also late.

 

Jeff Parker
"All these products of course are based on our proprietary D2D RF technology which is we have always said greatly improves the distance, reliability, power consumption and interference rejection as Champion Racing concerns of any wireless application. A brief comment about our market potential.

 

As you can see, we are rapidly building quite the portfolio of synergistic products. In other words, it is our goal that the Parkervision brand will be used by common consumers day in and day out in many of their normal daily activities and that the distribution channels that we are setting up now will be leveraged as we add these products.

 

From a share volume of unit potential perspective, let's just take a quick look at these product categories. Wi-fi for laptops, desktops and the infrastructure products that connect those in North America last year was approximately $25 million units consumed and has been projected to grow into the 50 to 100% unit volume growth year over year for this year. This market has now evolved into a $1 to $2 billion equipment in North America and growing."

 

Commentary
In other words, if ParkerVision sold 2,000 cards in a total market potential of 25 million units, their market share is an insignificant 0.008%. More interestingly, this means that ParkerVision’s market cap should scale as a function of its market share relative to others. The WiFi market is divided roughly as (http://news.com.com/Microsofts+Wi-Fi+ups+and+downs/2100-1039_3-994518.ht... ): 51% Linksys (a division of Cisco), 13.5% MicroSoft, 12.5% Netgear, 12.5% D-Link, 4.5% Belkin, and 6% others. Netgear (NTGR) had 2004 revenues of $383M and a market cap of $482M. Netgear is profitable. Therefore, an appropriate market cap for ParkerVision should be 0.008/12.5*$482M = $308K. This would correspond to a more rational price-to-sales ratio of $0.3M/$0.19M = 1.6 which would still be better than Netgear’s, where the resulting share price for ParkerVision would only be 1.4 cents.

 

Jeff Parker
"Cordless phones, there were approximately 50 million cordless phones sold last year and according to the best sources that we've sourced approximately 30 million of those were sold in North America."

 

Commentary
This means that if ParkerVision has the same level of success as it has had with D2D for wireless to date, at 0.008% market share, it will sell 2,400 cordless phones in the first six months after product launch. If the price is at the higher predicted end of $80 per phone, ParkerVision will generate another $190,000 of revenue, which is hardly enough to justify the $20M or higher operating costs.

 

Jeff Parker
"I don't have the statistics for you on the speaker market other than I'll comment because our products will add to anyone's existing or new speakers, we believe the potential of this market will add nicely to Parkervision's market opportunities, could equal or exceed frankly one of the previous two I just mentioned.

 

My last comments will be on our cash position. Discussions with traditional lenders we have had recently indicate that we will be able to finance a portion of our inventory and receivable billed and that in combination with our current cash position which was enhanced by the sale of our video business provides us with sufficient cash to support the product launch that I just relayed to you.

 

So I think you've heard enough of me for now in terms of kind of an overview of where we're at as a company."

 

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