Immersion Corp (IMMR) 2004 Q4 法說會逐字稿

Good afternoon, my name is Tamara [ph] and I will be your conference facilitator today. At the time I would like to welcome everyone to the Immersion Corporation’s fourth quarter 2004 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

Thank you, Mr. Viegas you may begin your conference.

Thank you Tamara. Good afternoon ladies and gentlemen. I am pleased to welcome you to this discussion of Immersion’s results for the fourth quarter of 2004. Joining me on today’s call is Immersion’s Vice President and Corporate Controller, Mary Beth Faust who will take you through our financials.

By now you should have seen this quarter's earnings release that was distributed following the close of market today. If you have not, it is available on our website at www.immersion.com. A replay of today's call may be accessed until February 11, 2005, by dialing 800-642-1687, and entering confirmation number 2695967. A replay of this call will also be archived and available on our website for one year.

During the course of our comments today, we will be making forward-looking statements. Our actual results could differ materially from these current expectations. Factors that could cause actual results or developments to differ include risk factors listed in today's news release, in the Company's SEC filings, and in our Annual Report to Shareholders, as well as those factors mentioned during our discussions today.

Before getting into the details of our performance this quarter, I’d like to make a few remarks about the Company and where we are in our mission to become profitable. My main focus is to achieve revenue growth that leads Immersion to an operating profit. This requires a careful balance between 4 areas; the first being the ongoing execution of our sales and marketing plans in our established businesses to increase revenue; the second is selected investment in product and technology development for longer-term new-growth areas; the third, controlled operating expenses; and the fourth item is protection and defense of Immersion’s extensive intellectual property portfolio across all of our businesses.

Regarding the first point of executing sales and marketing plans, over the last year I have retooled the Immersion organization adding significant strength to the sales and marketing functions to more effectively bring our technology and products to market. These organizational changes include adding significantly increased industry experience to the medical, mobility, and 3-D businesses, increased product marketing skills, better worldwide geographical sales coverage, and increased technical support for our sales teams.

In early January, we completed a reduction in force of approximately 10 percent to better align resources to business needs and to reduce costs. A one-time separate restructuring charge of about $180,000 will be applied to first quarter to cover severance costs.

In addition, as we develop operating plans into the future, we are not assuming license revenue from Sony. Our goal is to become a profitable Company regardless of the eventual outcome of the litigation.

On the second point of selected investments, Immersion has many market opportunities but needs to focus on those that have the best near-term potential. We continue to invest in medical and mobility as I will discuss in more detail later because we believe these are our best opportunities to fuel significant growth in the next few years. The financing we closed in the fourth quarter will us to invest in these growth areas while our base businesses increase revenue to help achieve operating profits.

Regarding operating costs, in addition to the savings generated as a result of our reduction in force, we anticipate litigation expenses to be much lower in 2005 than 2004. We have put in place budgets for 2005 that we believe will reduce operating expenses by approximately 30 percent relative to 2004 actual operating expenses.

And lastly, Immersion is built on a strong foundation of innovative technology and intellectual property. We now own more than 270 patents in our worldwide intellectual portfolio with more than 280 patents that are pending. Our technological expertise allows us to design and manufacture high-quality products that have been well received in their markets, shown again this quarter by our medical simulation product sales.

We will continue to be a very strong technical organization, developing technology and product solutions for our customers, while vigorously defending our intellectual property for the benefit of our shareholders.

During today’s call, I will be discussing 5 major highlights of the fourth quarter, and 2004 in total. The first highlight is that overall Immersion revenue grew 18 percent in 2004 over 2003. The second highlight is that our medical product sales grew 40 percent year-over-year. Third, even with market sales of PC on console gaming peripherals substantially down, our gaming revenue increased 69 percent year-over-year. In addition, we expect newly-signed gaming licensees will contribute full-year revenues in 2005. Number 4, a U.S. Court order issued on January 10 required Sony to pay Immersion a compulsory license fee from July 1, 2004 to the date of judgment and awards interest at prime rate to the jury’s damages of $82 million. And number 5, during the fourth quarter additional financing was put in place to fund longer-term growth opportunities and to deal with Sony from a position of financial strength.

Before turning the call over to Mary Beth for a detailed review of our financials, I will discuss high-level financial results and give you an update on our businesses and the status of our litigation with Sony. Beginning with our financial performance, our 2004 fourth quarter revenue of $7.4 million was the second-highest quarterly revenue ever achieved by Immersion. The highest quarterly revenue was $8.3 million in the fourth quarter of 2003. That record sum was partly attributable to $2.9 million in royalty and development contract revenue related to certain Medtronic agreements for which the majority of revenue had been previously deferred.

This year, ongoing business including strong year-over-year growth in medical product sales and gaming licensing revenue, as well as good performance in other parts of our business contributed to our second-highest revenue quarter. A look at our balance sheet shows that we finished the fourth quarter with $25.5 million in cash. Litigation expenses related to the Sony lawsuit were $1.1 million in the fourth quarter, which was down from $3.8 million in the third quarter of 2004, bringing the total cost of the Microsoft and Sony litigation since February 2002 when we filed the lawsuit to approximately $18.7 million.

I’d now like to give you an update on each of our businesses. Overall, revenue for the medical business was $2.9 million in the fourth quarter and $9.9 million for 2004. This quarter, medical product sales increased 42 percent over fourth quarter 2003 and 40 percent year-over-year. As market acceptance of medical simulation has increased, we have transformed our business model for medical into one emphasizing product development and product sales. Immersion Medical traditionally targeted government technology research and corporate development contracts to drive revenue growth and help fund development of new products.

Over time, we build 5 strong product platforms; Endovascular, Endoscopy, Vascular Access, Laparoscopy, and Hysteroscopy. And now we’re turning our focus to selling these products instead of seeking new contract business. We believe product development leading to product sales has a higher profit potential and leverage for business growth than business contracts over the long term. Accordingly, development contract and royalty revenue from contracts such as we have with Medtronic decreased in 2004 relative to 2003. Mary Beth will go over more details of each revenue category later.

Overall this year of transformation resulted in a 4 percent increase in total medical revenue, but a stronger base from which to grow future revenues. We expect demand for our medical products will continue to grow due to several factors, including; 1, increased market awareness and acceptance of medical simulation; 3, the return on investment our simulators generate as documented in a 2004 Frost and Sullivan Study, as well as positive clinical studies published in leading medical journals; and number 3 our continued investment in sales and marketing programs.

Turning now to our gaming business, this quarter revenue was up 83 percent from last year’s fourth quarter revenue. Year-over-year growth in gaming was 69 percent. This growth continues to be driven by an increase in licensing royalties from the sales of both console and PC gaming peripherals by our licensees. In addition, we recently announced new license agreements with Gemini Industries, a division of Philips Electronics and Griffin International Companies with more licensing agreements in the negotiation stage.

In the automotive market, licensing revenue continues to grow increasing 19 percent over fourth quarter last year and 41 percent year-over-year. We are focusing on applications for our Haptic Rotary touch-screen and touch-surfaces technologies and are currently working on existing and new development projects for several automotive OEMs and their suppliers.

In the 3-D digitizing part of our industrial business, we extended our MicroScribe product line to include a higher-accuracy product for new markets and applications, and have expanded our sales force and channel management efforts worldwide.

Turning to the mobility business, we remain very encouraged by the mobility market opportunity and continue to view this area as one of our next growth catalysts for Immersion. Our success in the mobility market depends on establishing multiple ecosystems, which consist of an operator, handset manufacturer, and content developers.

We expected the first handset by Samsung to be released by a major operator before the end of 2004. Samsung made early versions of the phone available to us and to developers in the fall and [indiscernible] phone, model SCH-N330 at their 2004 U.S. showcase event on November 10. The phone was also displayed at the Consumer Electronics Show in early January of this year, and has been mentioned in PC Magazine Wireless Business and Technology, and various online websites. While it is difficult to predict when any one handset will launch, we anxiously await the release of Samsung’s N330 model, as well as additional models that have been in development.

We continue to experience excitement in the mobility industry of VibeTonz technology and its potential to increase revenue for all participants in the ecosystem, financing new and existing content or services and improving the user experience. We are in active discussions and negotiations with handset manufacturers, operators and content developers around the world. During the fourth quarter, we added sales and technical sales support people in the U.S., Europe and Korea to respond to growing interest. Unfortunately, we are not in a position at this point to give additional details on the progress of our interactions with operators or handset manufacturers.

We are participating in the programs of other technology suppliers to the industry, such as QUALCOMM, which helps us feed the full integration of our technology into various mobile phone platforms. In January, we received QUALCOMM’s TRUE BREW certification for our 5-tones BREW extension to the Samsung N330 phone. This extension is used in the BREW system to allow downloadable content to play on VibeTonz-enabled mobile phones and to track developer royalty obligations to Immersion.

In December, we announced the results of a market research study designed to measure consumer response and willingness to purchase mobile phones and downloadable content enhanced by VibeTonz technology. Conducted by Ipsos Insight Corporation, the study included 300 mobile phone users between the ages of 14 and 54 who had decision-making influence on mobile phone purchases. Participants were surveyed in 5 U.S. metropolitan markets, Boston, Chicago, suburban New Jersey, San Francisco, and Seattle. One key study result is that more than 50 percent of the users said they would pay more for their next handset if it had VibeTonz features and would pay a premium for downloadable games and ring tones produced with VibeTonz technology.

In addition, 4 in 10 mobile phone users would consider switching operators and by default handsets to get ring tones with the VibeTonz feature, while 3 in 10 would switch to get VibeTonz-enabled games. Since half of the study participants plan to replace mobile phones within a year, these preferences could have considerable future impact on both operators and handset manufacturers/ More than half of the likely decision makers in the study strongly agree that VibeTonz-enabled ring tones are fun, unique, and useful. Nearly two-thirds said they would purchase a VibeTonz ring tone feature for their mobile phone, and that they would change ring tones more often if their phones had VibeTonz technology.

The study corroborated the growing interest in mobile gaming and indicated that adding VibeTonz effects to games would encourage higher sales and even more play. Forty percent of respondents said they would buy VibeTonz-enhanced games for their phone and would consider VibeTonz effect in games to be an important factor when purchasing their next phone. Almost half said they would play games more often if their phone had games with TouchSensation.

Now let me update you on events relating to the Sony litigation. We announced on September 21 that the jury returned a verdict favorable to Immersion and our patent infringement suit against Sony Computer Entertainment, Inc. and Sony Computer Entertainment of America, Inc., both referred to here as Sony. The jury found that Sony infringed all the asserted claims, 16 in total of U.S. Patent number 6275213 and 6424333, and that those claims were valid. The jury also awarded Immersion damages in the amount of $82 million on sales of infringing consoles, controllers, and games for the period August 2001 through June 30, 2004. As is to be expected following a trial, both Immersion and Sony filed papers with the court after the verdict was announced. These papers related to motions by both Immersion and Sony concerning the jury’s verdict, as well as post-trial relief, such as Immersion’s request for a permanent injunction, pre-judgment interest, and other relief.

Judge Wilkin held a hearing on December 10, 2004 to hear oral arguments from both sides on the post-trial motions. Judge Wilkin issued her ruling on these motions on January 10, 2005. I will now summarize several key rulings. For full details, the court order is a public document available through the U.S. Court System. I will discuss 5 areas of post-trial motion. The first is Immersion filed post-trial motions requesting that the court award supplemental damages for additional infringing sales made after June 30, 2004 through the date of judgment. June 30 was the date through which both parties’ experts calculated damages at trial. Judge Wilkin found that Immersion is entitled to compensation based on Sony sales of infringing systems beginning July 1. In lieu of awarding supplemental damages and in lieu of entering an injunction at the present time, the court ordered Sony to pay Immersion a 1.37 percent compulsory license fee based on sales from July 1, 2004 until judgment is entered.

Judge Wilkin ordered that Sony pay the fees directly to Immersion with no escrow account required as Sony had previously requested. Sony was ordered at the December 10 hearing to provide Immersion with sales data for the quarter ending September 30, 2004 by December 27, and they have subsequently provided the information to us. Sony was ordered to continue to provide Immersion with its quarterly sales data and pay the corresponding license fee 10 days after the close of each quarter for as long as the compulsory license remains in effect.

The 1.37 percent compulsory license rate granted by Judge Wilkin is equivalent to the ratio of the damages awarded by the jury to the sales of infringing consoles, controllers, and games presented at trial.

The second item is Immersion filed post-trial motions requesting that the court enter a judgment on the jury’s verdict and a permanent injunction against further acts of infringement, including the sale of the infringing Sony products in the United States. Because Sony’s allegations of inequitable conduct remain pending, Judge Wilkin’s order stated that the court will not enter judgment until the inequitable conduct issue is resolved. I will discuss more about this issue in a few minutes.

With regard to the injunction, the January 10 court order imposed a compulsory license from July 1, 2004 until judgment is entered in lieu of an injunction at this time. The court’s order did provide that when judgment is entered, the court will enter a permanent injunction, which the court may stay pending appeal, in which case the compulsory license will remain in effect. The court stated that, “Sony will be enjoined from manufacturing, using, selling, and importing the infringing Sony Play Station systems, including Play Station consoles, dual-shot controllers, and the infringing games. This could be accomplished by removing the software library that enables the infringing vibration and disabling the vibration function on the controllers and in the games.”

The third point to highlight, Immersion also files post-trial motions requesting pre-judgment interest on the jury’s damage award. The court ordered that Immersion was entitled to pre-judgment interest on the $82 million in damages awarded by the jury. The court specified the interest calculation method and the use of the prime interest rate. Immersion has subsequently provided the court figures to assist the court in determining the amount of interest.

The fourth item to note here is both parties filed motions requesting reimbursement by the other side for attorneys’ fees. Both parties’ motions were denied.

And the firth item, finally there were a number of motions requesting judgment as a matter of law. Judge Wilkin denied all motions for judgment as a matter of law filed by both parties. The court order indicated that judgment as a matter of law after the verdict may be granted only when the evidence and its inferences construed in the light most favorable to the non-moving party permits only 1 reasonable conclusion as to the verdict. The court wrote that where there is sufficient conflicting evidence, or if reasonable minds could differ over the verdict, judgment as a matter of law after the verdict is improper.

After the January 10 court order, Sony filed motions requesting that the court reconsider 2 aspects of its ruling relating to the ordered compulsory license payment. The court allowed Sony to file motions requesting reconsideration of the terms of the compulsory license with respect to the timing of providing the sales data to Immersion and paying the license fee directly to Immersion. Sony asked the court to amend its order to allow Sony to provide the required sales data and make the payments within 45 days of the close of each quarter, and that Sony pay the compulsory license fees into an escrow account rather than directly to Immersion. Sony’s filing, Immersion’s response, and Sony’s reply were completed by January 28. We expect a court ruling on a timely basis.

Now I will address the Sony remaining defense of alleged inequitable conduct. The court’s March 2, 2004 summary judgment order dismissed most of Sony’s inequitable conduct theories. The only remaining issue was 1 specific situation with regard to the 333 patent, one of the 2 patents in the lawsuit. This issue was not before the jury during the jury trial. Judge Wilkin conducted a bench trial on January 5 and 6, 2005 on this 1 specific issue. After the bench trial, the court did not rule but set a schedule for the parties to submit their closing arguments in the form of written briefs. The process of filing these briefs and related replies is to be completed by today, February 7. We expect a court ruling will be issued in a timely manner, at which point the court may enter the judgment.

While the court has stated at previous hearings that further motions are to address issues not raised previously, it is likely that Sony will file further post-judgment motions, which will need to be resolved by the court before final judgment is entered. Notices of Appeal are due 30 days after final judgment.

I will now provide an update to the last related topic in the Sony litigation, the claims from Internet Services LLC, an Immersion licensee. On October 20, 2004, IS LLC filed a claim against Immersion in the Sony lawsuit alleging that IS LLC is entitled to a portion of the judgment Immersion obtained against Sony. IS LLC also filed a claim against Sony alleging infringement of the 213 and 333 patents with respect to various video games that were among the accused infringing products in the Sony lawsuit.

Immersion’s motion to dismiss these claims was heard at the December 10 hearing. On December 29, 2004 Judge Wilkin issued an order that dismissed IS LLC’s claims against Sony with prejudice. The court also granted our motion to dismiss IS LLC’s claims against Immersion and dismiss the IS LLC claims without prejudice to IS LLC filing a new complaint if they could do so in good faith without contradicting or repeating the claims the court already dismissed.

On January 12, 2005 IS LLC filed amended cross-claims against Immersion. Immersion again has filed a motion seeking the dismissal of those claims on the grounds that the amended claims suffer from the same deficiencies as the earlier claims. Immersion’s motion to dismiss is set for hearing on March 18, 2005. While we expect further motions and rulings in this matter, the court severed the IS LLC claims from the Sony claims so that the issues of IS LLC will not delay the entry of judgment against Sony.

In a related matter, Immersion filed a lawsuit on September 24, 2004 in U.S. District Court for the Northern District of California against ElectroSource LLC, which sells and distributes video game controllers under the Pelican brand. The lawsuit alleges that ElectroSource infringes the same 2 patents held valid in the lawsuit against Sony. On October 14, 2004 ElectroSource filed an answer to the complaint denying the material allegations and asserting against Immersion counter-claims seeking a judicial declaration that the asserted patents are invalid but unenforceable and not infringed.

This lawsuit also is before Judge Wilkin as a related case to the Sony litigation. A case management conference was held January 28, 2005. The court has not yet entered a scheduling order, but noted at the conference that the matter would be set for trial June 5, 2006. The parties are in the process of making initial disclosures pursuant to the court’s local rules. The court also directed the parties to conduct a private mediation in the next 60 days in an effort to explore a settlement.

The last topic is the additional Company financing secured during the fourth quarter. We felt that it was prudent to put financing in place when cash balances were still sufficient to cover short-term needs. We believe the choice of a debt financing package with interest and a conversion option at a market premium price is better for current shareholders than an equity stake at a discount to market. When I met with institutional investors in early December, the demand for the convertible offering was higher than the $20 million we chose to accept. The $20 million is projected to be sufficient to cover cash needs until the Company reaches profitability. While we are still in litigation and in the future may be in a negotiation situation the additional cash allows us to deal with Sony from a position of financial strength.

With that, I’d now like to turn the call over the Mary Beth who will review our financial performance for the quarter and details of the debt financing. Mary Beth.

Thanks Vic. Let me begin by briefly reviewing the revenue results of each of our businesses. Revenue from our medical business in the fourth quarter of 2004 was $2.9 million versus $4.7 million in the comparable quarter in 2003. During the fourth quarter of 2003, we recorded revenue of $2.9 million related to certain licensing and development agreements with Medtronic. This amount represented revenues, the majority of which were previously deferred during 2003. Fourth quarter 2004 year-over-year revenue growth for the medical business, excluding revenue recognized under these agreements during Q4 2003 and Q4 2004 was 17 percent.

Our industrial group includes our automotive business, as well as our 3-D and professional businesses. Revenue from our industrial group decreased 12 percent on a comparable quarter basis but experienced 7 percent growth on a full-year basis.

Revenue from gaming grew 83 percent over the comparable quarter last year, and 69 percent on a full-year basis, driven by increased royalty and licensing revenue from our licensees on both PC and console gaming peripheral products mainly due to increased growth in the game controller market and the addition of new licensees.

Turning now to the income statement as stated in today’s earning release, revenues for the fourth quarter of 2004 were $7.4 million compared to $8.3 million in the fourth quarter of 2003, a 10 percent decrease. Royalties from patent and technology licensing in the fourth quarter of this year represented 47 percent of total revenue, or $3.5 million as compared to 43 percent of total revenue, or $3.5 million for the same quarter last year. In the fourth quarter of 2003, we recorded $1.9 million of royalty and license revenue associated with certain Medtronic licensing and development agreements.

Growth in royalty revenue excluding the Medtronic royalty and licensing revenue related to the aforementioned agreements for the period was 81 percent. This significant royalty and license revenue growth was driven mainly by increased royalties from our gaming business.

Product sales due to the strength in medical accounted for 41 percent of total revenue at $3.1 million as compared to 33 percent of total revenue of $2.8 million in the fourth quarter a year ago.

Development contract revenue for the quarter represented 12 percent of total revenue, or $872,000 compared to 24 percent of total revenue or $2 million in the fourth quarter of 2003. In the fourth quarter of 2003, we recorded $1 million in development contract revenue associated with certain Medtronic licensing and development agreements as compared to $300,000 in the fourth quarter of 2004. On a GAAP basis, net loss was $2.9 million of $0.12 per share compared to a net loss of $3.7 million or $0.18 per share for the fourth quarter of 2003.

Fourth quarter 2004 operating expenses were $8.4 million compared to $8.1 million in the fourth quarter of 2003. Although litigation expenses decreased by $1.2 million from Q4 2003 to Q4 2004, sales and marketing and general and administrative expenses increased during the fourth quarter of fiscal 2004. The higher operating expenses are related to increased investment in sales and marketing, mainly in the medical and mobility markets, and increased public Company expenses, such as compliance with the Sarbanes-Oxley Act of 2002.

Gross margins were 78 percent in the fourth quarter of 2004 compared to 81 percent for the fourth quarter of 2003 due to product sales being a more significant element in the revenue mix than licensing or royalty or development contract revenue.

On our balance sheet of December 31, 2004 we had cash and cash equivalents totaling $25.5 million as compared to $21.7 million as of December 31, 2003. Our cash balance as of December 31 2004 included the competed $20 million private placement of convertible debentures. The debentures are convertible into common stock at a fixed conversion price of $7.265 or a 15 percent premium to the closing price of the Company’s common stock on December 31, 2004. The debentures will have a 5-year term and will accrue interest at a rate of 5 percent per annum. After the first anniversary of issuance, the Company will have the ability to force conversion of the debentures to common stock if the share price exceeds 200 percent of the conversion price for 20 consecutive days.

Investors also received warrants to purchase 426,951 shares of the Company’s common stock at a price of $7.265 per share. The warrants are immediately exercisable and have a term of 5 years. The debentures and warrants have been recorded at their relative fair values on our balance sheet as of December 31, 2004. The debentures will be accreted to 20 million over their 5-year term. Under the terms of the convertible debenture financing, an S-3 Registration Statement was filed with the SEC on January 21, 2005, which will enable potential sales of shares issuable upon conversion of the debt or exercise of the warrant. It is expected that the S-3 will become effective prior to March 31, 2005 and will remain in place until such times as those shares will become freely tradable.

This concludes the review of our financial results. I will now turn the call back over to Vic.

Thanks Mary Beth. Before taking your questions, let me close by reiterating our focus on reaching profitability. Immersion is built on a strong foundation of innovative technology and intellectual property. Adding capital to the Company ensures we can continue our efforts to prevail in the Sony litigation while investing carefully in our most promising growth opportunities. With our retooled organization, we are focused on generating the revenue growth that will lead us to profitability.

Tamara, please open the call for questions.

(OPERATOR INSTRUCTIONS). At this time there are no questions. Are there any closing remarks?

Actually sir, I do apologize. There is a question. Robert Katz [ph], Spinset [ph].

Hi guys, how are you doing? I thought I’d jump in here since no one else had a question. What is going on in the automotive market in terms of adoption? Why was there sort of a slowdown?

I believe we stated that the automotive business grew year-over-year, so we are seeing growth. The growth obviously still continues to be royalties from a continued adoption in more lines of cars, BMW. We are also generating more development funds from other automotive OEMs, development efforts.

Most of the technology development is leaning in the direction of the TouchPanel technology. This is something that can be used in conjunction with the navigation systems that are being implemented in vehicles. So our TouchPanel technology we have a number of development projects underway to put that technology into cars.

Just to give you -- I think when we talked about automotive, we were comparing fourth quarter of ’04 to fourth quarter of ’03. There was a 26 percent growth in revenue. So we did grow.

So it was industrial then, You made a comment about industrial?

Yes, our industrial business was down slightly. Some of the Archaic products were down. Some of the 3-D products were down as we transitioned to our new high-resolution MicroScribe product. We’ve added sales resources and believe that’s just a temporary event. We believe that business will continue to grow with the introduction of this new MX product.

Okay, so the automotive was indeed up? I missed the beginning of the call so I missed that.

Sure.

Okay, and the number of automotive platforms that you’re designed into now, is that still pretty much BMW or are there some new ones?

Well, still BMW and Volkswagen.

I know a few of the Asian companies were looking at your technology. Are they making any headway with that?

Still in development.

Where is break-even now?

Break-even obviously is a function of the revenue mix given the high-margin royalty business, which we had substantial growth this year. The mix of royalties to product sales will influence that, and also the cost of litigation. Our break-even is probably something in the neighborhood of $9 million a quarter.

Do you anticipate that you might reach that in this year?

I am not really in a position to give guidance or forecast. We see growth throughout our entire product line so we’re very excited about the growth potential and we think we’ll have substantial growth in 2005. Whether we’ll reach that point in 2005 is not something I can speculate on just yet.

And on the royalty side, is there a one quarter lag between when you recognize royalties and when your partners ship products with it?

Approximately, most of our royalty reports we receive in the quarter after the quarter that they do ship their products.

So Q1 for royalties is the strongest quarter?

Usually from a seasonality standpoint Q4 is the strongest royalty quarter, especially for gaming products. Q1 is typically a strong quarter as well as we capture the balance of the holiday sales, as well as the after-holiday sales that occur early in the New Year.

And in terms of the Chinese New Year and the Asian market remaining strong into Q1, do you track those types of appliances or is it harder for you to track, gaming into that market?

Well, we’re paid royalties on worldwide sales, so we would be paid on those sales. In terms of tracking the seasonality effects of the Chinese New Year, it does benefit us in Q1 each year.

Great, I’ll take up more questions off-line.

Mark Noss [ph], Private Investor.

Good afternoon everyone. With respect to the compulsory license that was awarded, are you going to book that in Q1 of ’05 when you receive payment? And if not, is that based on legal advice? And if the answer to that is yes, could you share some of that rationale with us?

Sure, the judge has not yet ruled on this issue. She gave Sony a chance to make an argument for her to reconsider, so assuming that she affirms her previous court order and requires them to make a payment directly to Immersion, we have not yet finished our analysis with our auditors, but I believe given he contingent nature of the payment, meaning that I believe that Sony will probably appeal that decision and any decision in the court proceedings. There is always a risk, no matter how small a risk that we may have to give the money back, so as a result I think it would be more conservative to record the cash as cash received, but defer the revenue until such time as those contingencies expire.

Okay, and you may have touched on this earlier in your overall view, that ruling of Judge Wilkin is expected approximately when?

It’s up to her calendar. She is under no obligation or deadline, so I really don’t have a deadline. We know all issues have been addressed so we’re hopeful that she gets to it soon.

Okay, thank you very much.

Christian Widowicz [ph], Motorola.

Yes Vic, I had a question with respect to the Samsung N330 phone. I understand that that’s a CD-based phone?

That’s correct.

I was wondering whether Immersion had any plans on releasing or adopting that type of VibeTonz technology to GMS phones?

Yes absolutely, yes we do.

Okay and do you have any timeframe in terms of when we can expect to see that?

We’re working with a number of OEMs in a number of different models. That is, as you know, a large market opportunity, and so we’re anxious to see those products in the marketplace. I can’t give you any specific timeframe, but it would be high on our product roadmap to have a GSM phone out on the market as soon as possible.

Great, thanks a lot.

Robert Katz, Spinset.

I know Sony is coming out with a new product, the PlayStation Personal. Does that infringe on your products? Is that covered under the current rulings?

I don’t believe anybody at Immersion has done a full analysis of the product. I saw it showcased at CES. I’m not sure that it has Haptic technology as a component, so it would be premature to make any statement. Our litigation is really around the vibration capabilities added to the PlayStation product, so it will depend on what they do with this portable device. But at this time, I really know very little about the product.

Okay.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions. Mr. Viegas, are there any closing remarks?

Sure, thank you very much for your participation on today’s call. We very much appreciate your continued interest in Immersion. Thank you and good afternoon.

This concludes today’s Immersion fourth quarter 2004 conference call. You may now disconnect.