Via Telecom and ParkerVision

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Via Telecom is not Via Technology. Via Telecom is a fairly small company based in San Diego, which sell baseband chips for low-cost CMDA handsets. Via Technology is a large Taiwanese-based company which sells PC motherboards and chipsets. Via Technology owns an interest in Via Telecom, but Via Telecom is an independent company, with it own profit and loss, and independent control.


Nearly all (all?) of Via Telecom's sales are CMDA chipsets built under license from Qualcomm. Supposedly Qualcomm licensed Via Telecom to create a second source, and (probably) to avoid certain monopoly/antitrust issues.


By far the bulk of Via Telecom's sales are to ultra-low-cost handsets in Asia (primarily China and India). These handsets typically sell for under $30 or so, and the margins are pretty thin. They are on 3G networks, but by most peoples standards aren't really 3G phones, since they are focused on voice and SMS, not high-speed internet access. They are certainly not "smart phones" or "multimedia phones".


Many of the these phone are designed by the chip vendors, jointly with the ODM's. One of Via Telecoms's major ODM partners is BYD (a large Chinese battery maker). BYD has supplied low-end phones to Nokia and others, as well as "white-label" phone directly branded by the carriers.


The ParkerVision OEM agreement with Via Telecom is pretty one-sided. Via Telecom commits to evaluate the ParkerVision d2p chip (which combines the transmitter and power amp on a single SiGe - not CMOS - chip), if and when ParkerVision supplies one. The evaluation includes building small quantities of test phones (typically under 1000) and conducting an extensive and fairly rigorous test (field and lab) for performance, reliability, etc. Via Telecom has no committment to use the ParkerVision technology even if the phones with ParkerVision supplied chips pass the tests - Via Telecom has the option (but not the obligation) to take ParkerVision's design and have the chips built under Via Telecom's name. The phone targeted by this chips is (as mentioned above) an ultra-low-cost (sub $30) CMDA2000 phone for developing markets. It is a single-band, single-mode phone, and so is completely undemanding for the power amplifier. Currently PAs for these phones sell for under $0.60, and the transmitters chips sells for well under $1.00. Some current and many future baseband chips integrate the transmitter (so effectively the cost is zero). Via Telecom is almost entirely focused on potential cost savings from using the ParkerVision chip, and almost surely will not pay extra for efficiency. *If* Via Telecom decides to use the ParkerVision chip, the royalties are set at well under $0.10 per phone.


There are additional complexities weighing against the adoption by Via Telecom of ParkerVision technology. In most cases, the receiver/transmitter is sold at a discount as a bundle, occasionally even with the power amp as part of the bundle. This makes it difficult to replace just the transmitter since the price of the receiver will increase (no longer part of a bundle). Also the transmitter/reciever interface is often proprietary to the vendor. To replace the transmitter would involve additional time and complexity to make it compatible with the old transmitter interface.


Nokia is a current and a possible future customer of Via Telecom/BYD. Via Telecom is competing with Qualcomm's new ultra-low-cost chipsets for the next generation - until recently Qualcomm did not actively compete in the ultra-low-cost segment, and there is no guarantee that Via Telecom will win this business. There is a fairly long chain between ParkerVision and Nokia - it is very likely that Nokia is, at present, completely unaware that Via Telecom is planning to evaluate ParkerVision. Roughly the chain goes as follows. (1) ParkerVision produces a chip (2) Via builds a reference phone design (as one of many) (3) Via tests the reference designs (4) The ODM (in this case BYD) then picks the reference design or designs it wants to proceed with (5) The OEM (Nokia or others) then would pick the reference design it wants to use. ParkerVision is a very long way from even being visible at Nokia or (probably) even BYD.


We know of another potential future customer of Via Telecom/BYD for a very similar phone. We were told by a senior person at this company that when he heard about the possibility that Via Telecom might use ParkerVision-designed chips, he called Via Telecom and told him that he did not want any ParkerVision technology in his phone - he's had dealings in the past with ParkerVision and wants nothing to do with them, because they never deliver on their promises.


A few observations.


Even if ParkerVision delivers a satisfactory chip and Via decides to use it (extremely unlikely in our view), and assuming that Via does win the next generation of Nokia ultra-low-cost phone, and that Via Telecom expands it's CMDA2000 market share and, finally, that ParkerVision gets all of Via Telecom's business - even in this best case scenario the annual royalties to ParkerVision would be under $1M per year. Since ParkerVision burns $20M per year, they need 20x more Via Telecom's just to break even. Also, we can't understand how Jeff Parker can justify using $0.50 - $1.00 per phone royalty numbers in his per-share profit calculations (which he has done in the last two public conference calls) for ParkerVison, when the agreement is for a royalty substantially under $0.10!?


We know that ParkerVision (as of early Sept.) has - best case - only recently (i.e the last month or so) taped out the d2p chip customized for Via Telecom. An optimistic schedule from Tapeout to shipping phones (given the extensive testing required as well as gearing up testing for a digital/analog chip) would be 9 months. If the chips require any spins or have any other problems, this could easily slip to 12 or more months. (Of course if the chips simply don't work, there's a much bigger problem...) Given all of this, we don't see how, in best possible scenario, ParkerVision would receive *any* revenue (other than possible licensing/prepayments) before June 2009, and even then the revenue would be less than $100K per month.


A final note.


It has been claimed that Nokia "brought" ParkerVision to Via Telecom. We know that this is not true. ParkerVision has hired an ex-Magnolia Broadband person who facilitated the introduction to Via Telecom. Via Telecom and Magnolia Broadband worked together in the past on a dual-antenna technology for handsets, with the active participation of SK Telecom. Although interesting (and real) technology, it apparently has been abandoned. Also, the discussions between Via Telecom and ParkerVision went on for some time, and were only closed when Jeff Parker agreed to take all financial risk in the project and to drastically drop the royalty. This almost surely occured due a combination of investor pressure from the first Barron's article and the fact that Jeff needed to close a deal to raise a new round - which he did a few months after announcing the Via Telecom deal in December 2007.


At the current burn rate, ParkerVision will run out of cash sometime in Q1 2009. There is no realistic possiblity of non-trivial revenues nearterm, so Jeff Parker needs to raise another round before then. Our guess is that we'll soon see an announcement of "working, mass-producible silicon" which "exceeds our and our partners expectations" - but with no mention of mass produced phones. Jeff will try to leverage this (and try to keep the stock price as high as possible) to convince current investors to roll the dice yet again and give him another $20M.