Immersion Corp (IMMR) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Immersion second quarter 2011 earnings conference call. (Operator Instructions). I would now like to turn the conference over to Jennifer Jarman of the Blueshirt Group.

Thank you. Good afternoon, and thank you for joining us today on Immersion's second quarter 2011 conference call. This call is also being broadcast live over the web, and can be accessed from the investor relations section of the Company's website at www.immersion.com. With me on today's call are Vic Viegas, President and CEO, and Shum Mukherjee, CFO.

During this call, we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products, anticipated market demand or opportunities, and other forward-looking topics. These statements are subject to risks, uncertainties, and assumptions.

Accordingly, actual results could differ materially. For a listing of the risks that could cause this, please see our latest Form 10-Q, filed with the SEC, as well as the factors identified in today's press release. Additionally, please note that during this call, we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the difference between the non-GAAP financial measure discussed and the most directly-comparable GAAP financial measure is available in the Company's press release, issued today after market close.

With that said, I will turn the call over to Chief Executive Officer Vic Viega. Vic?

Thanks, Jennifer, and thanks, everyone, for joining us this afternoon. While we expected the second quarter to be seasonally weaker than Q1, our reported revenue of $6.7 million was softer than anticipated. Several of our key verticals were impacted during the period, based on specific customer issues, including a rebalancing of inventory by a key customer in the medical segment.

In addition, we experienced some ripple effects from the disruption in the automotive market as a result of the earthquake in Japan. When combined with our first-quarter financial performance, however, we posted a solid first half of 2011, and are on-track to achieve the goals we laid out at the start of the year.

During the past quarter, we made further progress, with the addition of several new licensees, and the release of an array of new Immersion-enabled products across various markets. We have strengthened our patent portfolio, and are energized by the level of design engagements underway, following the launch of our MOTIV haptic development platform.

We've seen a clear uptick as compared to our design pipeline at this time last year, which we view as a positive leading indicator for our business and the broader adoption of haptics.

In a few minutes, I will discuss recent developments and our view of the evolving market opportunity as we head into the second half of 2011. First, I'll ask Shum to provide a more detailed review of our financial results for the second quarter. Shum?

Thanks, Vic. Revenues in the quarter were $6.7 million, compared to revenues of $8.5 million in the second quarter of 2010. As discussed in prior conference calls, revenues in the second quarter of 2010 included product revenues of $1 million in the medical segment related primarily to product lines that were transferred to our medical licensee, CAE, in early 2010.

Also, Q2 2010 revenues included increased revenues of approximately $1 million, mainly in the gaming segment, primarily related to corrections and true-ups to royalty reports from prior periods.

Excluding these items, normalized revenues in the second quarter of 2010 were $6.5 million, consisting of royalty revenues of $5.3 million, revenues from the sale of products of $0.9 million, and revenue from development contracts at $0.3 million.

Revenues from royalties and licenses from the second quarter of 2011 were $5.9 million, up 11% from normalized royalty revenues of $5.3 million in the second quarter of 2010, primarily reflecting continued demand in the gaming and mobility segment.

Revenues from the sale of products were $546,000 compared to normalized revenues of $860,000 in the second quarter of 2010, and revenues from development contracts were $254,000, compared to $321,000 in the second quarter of 2010.

While revenue mix for the segment is expected to fluctuate on a quarterly basis due to seasonality patterns, in the second quarter of 2011, a breakdown by segment as a percentage of total revenues is as follows.

44% from mobility, 33% from gaming, 13% from medical, 5% from auto, and 5% from chip and other. For the sake of clarification, these percentages are based on total revenues, including revenues from royalty and licensing, product sales, and development contracts.

Gross profit in the second quarter of 2011 was $6.4 million, or 96% of revenues, compared to gross profit of $7.7 million, or 91% of revenues, in the second quarter of 2010. The increase in gross profit margin as a percentage of revenues reflects the shift in business mix to licensing revenues which accounted for 88% of total revenues, compared to 74% of total revenues in the same period last year.

Cost-of-revenue in the second quarter of 2011 was $247,000, compared to $761,000 in the second quarter of 2010. Excluding cost-of-revenue, total operating expenses were $7.5 million, compared to $7.2 million in the second quarter of 2010, primarily reflecting increases in R&D expenses.

The operating expenses of $7.5 million include non-cash charges related to depreciation and amortization of $574,000, and stock-based compensation of $981,000. Excluding these non-cash charges, OpEx was $6 million during the quarter, and is expected to trend in the $6 million to $6.5 million range over the near term.

We have lowered our expenses related to corporate, ad-build, and legal, but plan to continue to invest in sales, marketing, and R&D, to achieve our expected revenue growth.

Net loss in the second quarter of 2011 was $1.3 million, or $0.05 a share, compared to net income of $180,000, or $0.01 a share in the second quarter of 2010.

As you know, in addition to normal GAAP metrics, we use a metric called adjusted EBITDA to track our business. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, less share-based compensation and other non-recurring items, such as internal investigation and restatement costs, restructuring costs and discontinued operations. Adjusted EBITDA in the second quarter was $442,000, compared to adjusted EBITDA of $2 million in the second quarter of 2010.

Revenues for the first half of 2011 were $16.5 million, 10% below reported revenues of $18.2 million, but 18% over normalized revenues of $13.9 million in the first half of 2010, once again reflecting strength of licensing revenues, partially offset by declines in product revenues.

Gross profit for the first half of 2011 was $15.7 million, 96% of revenues, compared to gross profit of $16.1 million, or 88% of revenues in the first half of 2010.

Operating expenses, excluding cost-of-revenue, were $14.9 million in the first half of 2011, $3.1 million lower than operating expenses of $18 million in the same period of last year, primarily reflecting the closure of the medical product business, headcount reductions, and other cost-saving actions.

Interest and other income was $114,000 in the first half of 2011 compared to $142,000 in the first half of 2010. Provision for income taxes was $861,000 in the first half of 2011, compared to $762,000 in the first half of 2010.

Net income in the first half of 2011 was $78,000, or break-even per share, compared to a loss of $2.5 million, or $0.09 per share in the first half of 2010.

Adjusted EBITDA in the first half of 2011 was $3.7 million, 61% higher than adjusted EBITDA of $2.3 million in the first half of 2010. Our cash portfolio, including cash in investments, was $64.9 million as of June 30th, 2011, compared to $61.2 million at the end of 2010.

Cash generated from operations was $3.1 million in the first half of 2011 compared to $150,000 in the first half of 2010.

In terms of guidance for 2011, we continue to expect annual revenues to be in the range of $31 million to $33 million, an increase of 17% to 25% over revenues from ongoing business of $26.4 million in the prior year. We also expect to generate positive net income for the full year.

Lastly, while we have not made any stock repurchases within the last two years, our board of directors has approved a proposal to repurchase some of our shares of common stock under the previously-authorized stock repurchase program, which currently has $31.6 million remaining.

And with that, I will hand it back to Vic. Vic?

Thanks, Shum. Let me start with an overview of some of the progress we saw in our target markets during the quarter. In May, we attended the Display Week Conference hosted by the Society of Information Displays.

This industry event, focused on the display ecosystem, was a great venue to highlight the flexibility of our business model, the potential new customers, as our network of partners and licensees provides manufacturers with multiple options for integrating Immersion haptic technology.

This includes our system integrator partners, who offer complete touchscreen solutions with haptics, as well as our chip partners, who provide manufacturers more flexibility in designing haptics into their solutions.

The response from attendees and potential customers regarding the number of design options for haptics was very encouraging, and validates our approach of expanding access to Immersion haptic technology through different channels.

We also announced a number of new licensees for Immersion's technologies across multiple verticals while at Display Week, including NRC, the National Research Council of Canada, who is looking to incorporate haptics into their neuro-touch virtual reality surgical simulator, [GoodBetterBest], the manufacturer of the award-winning Gioteck gaming peripherals in Europe, and Valeo, one of the premiere automotive system integrators, who will be integrating Immersion's technology into automotive touchscreens and control panels.

Specifically, in the automotive market, we have seen a recent surge of design activity with our automotive partners, and looking at the pipeline of opportunities, we expect to see a number of new and innovative automotive interfaces enter the market next year that take advantage of Immersion haptics.

We also saw a number of new products incorporating Immersion technology enter the commercial market during the quarter. This includes the new IP phone from ShoreTel, the Atmel Capacitive Touch Controller with integrated haptic support for buttons, sliders, and wheels, and the force-feedback monitors from AdvanPOS, which won the Design and Innovation Award at Computex.

Computex provided another opportunity for Immersion to highlight our solutions, primarily in the tablet market, as we met with many OEM and ODM customers throughout the event. A number of prototypes with Immersion technology were demonstrated behind closed doors.

I am pleased to announce that the first of these to market is the Toshiba Thrive tablet, incorporating our TouchSense 3000 solution, which launched worldwide in July. We are excited to have extended our relationship with Toshiba, following our inclusion in the Toshiba Libretto dual touchscreen mini-notebook announced last year.

While much of the activity at Computex is confidential, we can tell you that we have successfully completed test builds using our MOTIV platform with a number of handset and tablet manufacturers. The ease of integration is winning over new customers, and proving the value of our MOTIV platform.

The ability for customers to quickly add haptics to their platforms and demonstrate the value of a MOTIV-powered user interface internally has proven to be a valuable sales in the design-end process. Furthermore, our OEM customers have been able to demonstrate these prototypes to their carrier customers, who have expressed interest in seeing MOTIV available on next-generation mobile devices.

Carriers are key influencers in the decision process for future set specifications, so we're pleased by their response to our technology, and their appreciation of the value proposition haptics offers for consumers. While customer release schedules are always hard to predict, as we progress further into 2011, we have growing confidence that we will be able to update you with the launch of the first MOTIV device in the coming months.

We also continue to advance the ecosystem for high-fidelity haptics by actively working with several piezo vendors to prepare next-generation actuators to power our TouchSense 5000 solution. We are encouraged by the number of vendors engaging with Immersion and interested in bringing these actuators to market, and believe it's another proof-point that the mobile market is looking for higher-fidelity haptic solutions within next-generation devices.

Moving further into the mobile space, during the quarter, a number of new handsets were released with Immersion technology. Some of the most notable models include the LG Optimus 2, Optimus 3D and Optimus Black handsets, Nokia's N-9 MeeGo smartphone with well-integrated haptic effects, and several devices from Samsung, including the Galaxy S II.

The Galaxy S II has the notable honor of being the fastest-selling handset in Samsung history, with its launch resulting in over 3 million devices sold in the first 55 days. In addition, we're also pleased to announce that we expect Fujitsu to bring a new handset to market with Immersion technology this summer.

During Q2, we also ramped up activities with the Android development community. We announced a number of applications that launched on the Android market stemming from our MOTIV SDK. Since that announcement in May, we have participated in a number of developer activities, including several Silicon Valley Android meet-ups, the AppNation conference, as well as the Wireless Industry Partnership's Hack-a-thon, a 36-hour coding event where we saw some great implementations of haptics in mobile applications.

Some of the standouts from the event include a text-messaging app that uses haptics to enable braille messaging for the blind, alerts that provide increasingly urgent notifications to the user when their time is set to expire on a parking meter, a map-based app for city explorers that warns users when they're headed in the direction, and a chess game that incorporates haptics to recreate the sensation of moving a chess piece across a board.

As a result of the increased emphasis on the developer community, we saw downloads of our MOTIV SDK tools double during the quarter. While we're still in the beginnings of our grassroots campaign to win the hearts and minds of developers, the response we've gotten is that the ease of use of the Immersion tools combined with the value-add of haptic effects provides compelling enhancements to the user experience.

Our Haptify subsidiary also continues to win fans with its haptic-enabled apps. At the recent GamesBeat conference in San Francisco, Haptify was honored as a finalist for the best new application for Enzo's Pinball in the "Who's Got Game" competition.

Overall, we remain optimistic regarding the level of design activity across a number of markets, which we believe are leading indicators of our future success. Specifically, we're encouraged by the evolution of haptics in the mobile device market.

Four years ago, when smartphone manufacturers began to embrace touchscreen interfaces, in addition to Immersion solutions, we saw early, home-grown haptic solutions incorporated into phones. These one-off attempts used unproven implementation strategies and poorly-designed haptics that resulted in annoyed users and bad press.

Both the technology and the design of haptics have progressed, and as a result, we have seen a shift in the mindset of handset OEMs. Over the past year, we've seen many manufacturers embrace functionality that we would like to call basic haptics.

We define basic haptics as simple, tactile confirmation with no differentiated effects. For example, you can find some OEMs incorporating basic haptics into their handsets by allowing users to experience touch confirmation for UI elements like dialpads and messaging keys.

The inclusion of basic haptics in handsets is an important step towards user awareness and adoption of haptics. What we discovered is that as OEMs design basic haptics into their handsets, the benefits of Immersion's TouchSense solutions becomes more evident.

As part of our product offerings, Immersion offers manufacturers access to a certified component ecosystem, and critical underlying mechanical and electrical design guidelines, to ensure our customers are optimizing their device designs for haptics.

Additionally, our TouchSense 3000, 4000 and 5000 solutions support an array of underlying technologies and offer precision motor control that enable superior dynamic effects.

And importantly, Immersion tools enable the easy integration of haptics into the user interface and applications. Without tools like Immersion's MOTIV Integrator, theme manager, Reverb, and developer SDK, OEMs are forced to spend significant engineering effort and resources to incorporate haptic effects into mobile device UIs and applications.

As this evolution continues, the interest and demand for Immersion's easy-to-use and higher-fidelity solutions has increased. In illustrating to us that the market has an improved understanding of the compelling value haptics can provide beyond basic haptics.

We continue to evangelize haptics with our OEM customers, and are also encouraged to see activity such as Apple including a haptic alert feature in the beta release of their iOS 5, and Google offering an API for haptics in their Android platforms.

This activity is yet another indication that the value of haptics is resonating more clearly within the mobile ecosystem. As we sit here today at the midpoint of 2011, I can offer perspective on this market evolution and reflect back on where we were at this juncture a year ago.

At that time, we were actively engaged in designs with three of the top-ten handset manufacturers. Today, we are working with six of the top ten. This level of account penetration combined with active design engagements, reflects the movement towards haptics in general, and the value OEMs are finding in Immersion TouchSense solutions.

I am also excited to update you on some recent issuances of patents that continue to broaden and strength our patent portfolio. Although our initial portfolio was focused primarily on haptic gaming and simulation, we have also recognized the importance of haptics to improve the user experience for portable devices. As our innovation efforts yielded new and novel solutions to these challenges, we were able to supplement our original filings to more comprehensively cover haptics on touchscreens.

Over the years, we've extended our portfolio to cover interactions on touchscreens, effects and controllers for haptic effects, software applications for haptically-enabled touchscreens, and implementation across networks, and haptic effects design and authoring tools.

More recently, Immersion has been concentrating specifically on innovations to enhance the user experience with haptics on a touchscreen device. Today's press release illustrates how our efforts are beginning to show results.

As we announced today, we have reached the milestone of over 600 granted patents in our worldwide portfolio of over 1200 granted and pending patents. Notable examples of this progress include the recent grants of US patent numbers 7969288, 7978183, and 7982720. These patents extend our coverage in the area of haptic effects associated with a graphical user interface and haptic effects associated with events in multitasking environments.

These are areas of increasing importance to device manufacturers such as smartphone and tablet OEMs, looking to enhance their user interfaces through haptics. We're proud to be able to provide our customers with access to our powerful patent portfolio, and intend to continue investing in the critical area of UI design and interaction.

I'm pleased to announce that we have received a record number of notices of allowances from the patent trademark office this year, which indicates that our portfolio will continue to strengthen and increase, especially in the area of haptics and touchscreens.

As a final note, I would like to take the opportunity to welcome our two new board members, Carl Schlachte and John Fichthorn. Both Carl and John have spent time developing a deeper understanding of Immersion's technology and business, and are already providing valuable guidance and insight into their first quarter on the job.

We look forward to working with our entire board as we focus on executing over the second half of 2011 and ensuring we are well-positioned to take advantage of the expanding opportunity for haptics as we move forward.

With that said, we will now open up the call to your questions. Operator?

(Operator Instructions). And our first question is from the line of Charlie Anderson with Dougherty and Company. Please go ahead.

Good afternoon. Thanks for taking my questions. I'm sorry, I hopped on a little bit late, did you guys give the mix by end-market on total revenue?

Yes, Charlie, we did. I can repeat that to you if you want. It's 44% from mobility, 33% from gaming, 13% from medical, 5% from auto, and 5% from chip and other.

Great, and then in terms of the medical piece that was impacted, you said it was kind of a specific customer issue, could you maybe elaborate, give some more color there in terms of the sustainability of that?

It's a fairly -- inventory rebalancing with one customer which caused that.

Got it, so you think you'll pop back to kind of where you've been, the levels that you've been in that business?

Yes.

Yes, I would say there will probably be some continued weakness in Q3, but I think we see orders for Q4. One of the things that we've recently done is, we've increased the language capability of the simulator, so it's now able to be offered more broadly around the world, so we have already seen an uptick in Q4 orders, but I think you'll continue to see some softness in Q3.

Got it, and then, Vic, you mentioned working with six of the top ten mobile computing OEMs. Three we know you have under contract. Would the other three just be at sort of various levels of discussion? If you could offer any color there, that would be helpful.

We have others that are licensees, so those agreements have been put in place, but we're not at liberty to discuss those until products launch. A number are in advanced development stages, preproduction efforts with fine-tuning going on with their devices. Others are in the development phase, and then some others are in the early prototype and demo phases.

Okay, so the way you started that off is, they are signed licensees, or they are not completely signed licensees? I just want to make sure I'm crystal clear on that.

We do have additional signed licensees.

Got it. Good. And then you mentioned Apple and Google and some of the endorsements of haptics they have been making. I understand Apple being pretty new. If you could just talk about Google pretty more, since I think they have sort of have been in the (inaudible) APIs. Was there something that changed there? Your view on that would be helpful.

I would say nothing has changed there. They offer a basic capability as part of their API. The OEMs that are able to tap into that API and associate haptic effects with various user interaction, so there's really nothing new. What we're highlighting is the fact that the capability is well-received by consumers, but OEMs are recognizing that that's essentially a basic haptic interaction, and they are looking for more.

They are looking for easier-to-use tools, they are looking for broader capability among the development community, they are looking for easy integration and a broader set of experiences with advanced haptics. So, it's a teaser that is intrigued, but it has accelerated their discussions with Immersion.

Got it. Thanks so much.

Thanks, Charlie.

Thank you. (Operator Instructions). And our next question is from the line of Jeff Schreiner with Capstone Investments. Please go ahead.

Good day, guys. Thanks for taking my questions. You kind of implied in the fiscal year '11 guidance of $31 million to $33 million as maybe a step up in the second half. I think that that's seasonally your stronger part, but what are kind of the key drivers that maybe are driving that projected growth in the second half?

Well, let's see. We look mid-year here, we're at about $16.4 million, and from a quarterly standpoint, Q1 is easily our strongest, Q3, Q4 are typically good quarters that reflect increased sales from our gaming partners as well as our mobile markets, so expected business over the balance of the year gives us confidence in the range, and, again, we're seeing -- more recent gaming reports are starting to show positive upward trends, we're aware of product launches that are scheduled for the latter half of the year, so a combination of existing customers, new customers and new product launches give us the confidence that the back half of the year looks pretty strong.

Okay, and you guys highlighted today some of your IP, some of the patents that have come out recently and focused on that with the press release, and I was wondering, given the -- this is going to kind of maybe be two questions, but given the environment we're seeing with the value that are being now placed on patents with various IP auctions going on, is Immersion looking to sell any portion of its patent portfolio, or looking to explore that option?

Well, I have to say, I'm pretty happy to see that intellectual property and patents in particular are recognized for more of the economic and strategic value that they deserve. Our goal has always been to maximize shareholder value, and to do that, we actively and aggressively work to monetize the patents, so monetization efforts could be using our patents in licensing arrangements, or they may be worth more to a strategic buyer.

I say we're open-minded about how we can maximize the value of this portfolio, so, yeah, we're open-minded.

And just following on that, I mean, given the commentary about patents today, I don't want to say you went to the level of King Kong and beating your chest, so-to-speak, but you certainly are highlighting the IP part of the business, and wondering maybe where are you internally in terms of ready to explore any defensive IP litigation that you feel may be necessary to protect some of the IP your company has, in fact, generated.

Well, very clearly, this is a big event for Immersion. The more recent patent grants have substantially expanded the value of the portfolio. As you know, each patent has numerous claims, each one distinct and unique, but if you look at the three patents that were referenced, for example, the 288 patent, it covers the association of haptic effect in a multi-tasking environment.

So, I can give you an example. If you've got a pre-selected haptic effect for incoming calls, or a text input or dialing, if you're texting your friend and you receive an incoming call that generates a haptic effect, that's covered by that patent. The other two patents are more aligned with associating haptic effects with a graphical user interface or GUI on a touchscreen display.

So, if you're using a soft keyboard, dialing pad, or icon, those are all GUIs, and if you touch a GUI and you receive a pre-selected haptic effect, that's also covered by those patents.

So, I would say that the strength of our portfolio has grown dramatically over the last 90 days, and we continue to monitor the landscape and look at how to best monetize the IP.

Okay, two final questions from me on a competitive landscape. Could you educate us just briefly in the time we have about Tactus Technology? It seems to be an up-and-comer in feedback. Perhaps there's a different implementation of their technology than Immersion, and could you compare that for us?

I think you're referring to Texas Instruments, TI?

No, there's another private company called Tactus?

Oh, Tactus. Yes, Tactus. I think they're promoting -- I believe it's a demo or a concept of using some form of technology to create deformable surfaces. If you look at our patent portfolio, some of our existing solutions -- we're working on deformable surfaces, we have a very strong portfolio on deformable surfaces, but I can tell you that the efforts are not insignificant.

This is going to take time for a screen to transition and morph so that you can feel the ridges of buttons that are virtual. So, it's deformable surfaces, I think it's an interesting demo, I don't know that it's ready for the market any time soon.

If you wanted to talk about Texas Instruments, who has been pretty active, we're -- I think there is sometimes a misunderstanding about our relationship with TI. We believe component vendors like TI and other solution providers are just critical to enabling our ecosystem, and we work closely with them. We don't see them as competition.

Our IP in this area is really strong, and we work with them to bring to the market pieces of our overall haptic solution, so we're really excited by TI's investment in haptics products. We work closely with them in a number of areas, including joint sales calls, demos, reference design activities.

In fact, two weeks ago, you may have seen that TI announced their DRV8662 piezo haptic driver, and it's part of our TouchSense 5000 haptic reference design. It's a key component in the ecosystem of enabling technologies. I'm also happy to report that TI is a new licensee, and we're encouraged by all their activity in the space, and we look forward to letting you know more about what they're working on and what products they plan to launch in the future.

Well, thank you very much. That's a great answer, and gentlemen, thank you for your time.

Great, thanks, Jeff.

(Operator Instructions). One moment please for our next question. Our next question is from the line of Mark McMahon with Raymond James. Please go ahead.

Afternoon, Vic. Quick question on something you mentioned earlier on the call. You had mentioned at the symposium you were in, I guess, back in May, the integrated tablets prototype that you were demonstrating. I was wondering, were they just demonstration tablets that you designed on your own, or with actual OEMs to try to sell through?

I think Toshiba was the first to come out with the product, so this was their product that they demonstrated. We helped work with them, provided them a reference design and the tuning of the product, but they built and demoed that.

I think, in addition, we had three ODMs, pretty substantial companies, that were showing platforms that they plan to promote and are actively engaged with their customers in trying to sell that platform to them for their tablet solutions.

Okay, so it was just Toshiba, that was the only one that's a confirmed licensee that was demonstrating a prototype?

Toshiba -- yes, they are the first in the market. 3 ODMs are working with numerous OEMs to follow them, and when they launch, we'll be able to tell you more about that.

Okay, and on the mobility, when you had mentioned that there were, I guess, three handset manufacturers that are unannounced licensees at this point, but are in various stages of development, one, preproduction, would that be for launch in the fourth quarter of this year?

Well, what I said was, there are currently six of the top ten OEMs that we're engaged with. Of those, we have three announced license agreements, Samsung, LG and Nokia. Of the other three, we have -- some are licensed, and others are not licensed, but we are in various stages of codevelopment, demo, prototype, pre-production kinds of efforts. So, we expect to see, as I think I mentioned, from (inaudible) here soon, the others will really depend on their own launch plans and strategy.

Okay, and I guess, finally, when you were talking about the different new, I guess from your SDK that you put out for the Android marketplace and you mentioned a couple new apps like the braille app, what sort of growth are you experiencing and interest, and you touched on it just for a little bit, but that got the marketplace pretty excited when you first announced Haptify and the SDK ability.

Have you seen exponential growth in terms of inquiries or actual people signing on and downloading your SDK, or how is that progressing? Was it -- got really strong in the beginning and has slowed down because you had announcements, I think, about two months ago -- or maybe a month ago, a month and a half ago, about I guess eight new developers that have integrated your haptics into their programs, into their applications, but haven't heard anything since then.

Sure. Well, I think as we said in the call earlier, it was -- the number of downloads has doubled. The actual number, I just checked earlier this morning, we're up to 1400 downloads. The activity, the interest level is very high. Recently, we put on a training program for the Android developer community here locally, and we opened it up for training where our engineers could actually provide training as well as application support, and we only had room for 150 developers, and we had a waiting list of another 50.

So, in terms of the interest level and the downloads and their activities to develop applications and hopefully to launch these applications, it's very, very busy for us right now.

Okay, and just really, really quickly, I had watched a demo, I guess it was maybe two weeks ago on Texas Instruments demoing their haptic solution. How long ago -- they're a recent licensee, but how long ago, just so I have an idea of the -- how long the channel is between your engagement to them actually coming out with a product? Can you explain a little bit about when you first started talking with TI, and then the development stage, and now they're out there selling products?

Well, there's two different, let's say, relationships. To answer your question more specifically, I think we probably talked to TI for at least one to two years. They were extremely active with Nokia as a component supplier years ago, and so they were intrigued by the request, the demand, the interest level for haptics.

So, one part of the relationship is, they developed this piezo driver, and for a customer to launch a product, you need not only a piezo component, but you need a driver, a bi-directional driver to drive the piezo module, and so one of the pieces of the relationship with TI is that they developed this driver and are marketing it -- selling it and building prototypes, making sales calls, and trying to win that part of the business.

The other part is related to how we work with them, incorporate our technology in their future products, and so this would actually be our software integrated into their chip solutions, and that's something that we will be launching -- we'll be announcing and we'll be communicating more definitively as they roll their products out.

But they are -- for at least the last six to twelve months have been actively using our demos, engaging major OEMs, extremely active in markets like China, and they have been a great partner for us, and they are significantly raising the awareness of not only haptics in general, but Immersion haptics in particular and the benefits of the high fidelity.

Okay, congratulations of the first half.

Thank you, Mark.

Thank you, our next question is from the line of Shawn Boyd with Westcliff Capital Management. Please go ahead.

Just want to follow here with a little bit of more discussion on the trajectory here. In terms of the quarter, the weakness being both in medical and in the auto production shutdowns, due to the supply chain in Japan, is it --

Shawn you're going to have to speak up, I'm having a real hard time hearing you.

Sure. In terms of the weakness in the quarter, you cited two different issues, and it looks like, from the revenue breakdown, we're seeing a little bit more of a drop in the medical side. Is it fair to say that was the bigger issue that brought us in below plan on the June quarter?

Yes, when I look at it, at the forecast, I would say that our revenue was probably down by anywhere from $500,000 to $700,000. The automotive effect was probably closer to $100,000. The medical rebalancing, so this was a single customer, decided to cut back inventories, and that probably affected our orders and sales by about $300,000, $400,000, and then probably a couple of hundred thousand dollar weakness on the mobility side, just based on lack of growth with one or two of our partners.

Got it, and in terms of auto, I don't want to make a big point about this, just because it is very small, but that's an area that we're obviously hoping to grow going forward. With the way the shutdowns have hit, would you expect that to be down again next quarter, or would you expect to see that start to rebound here with the September quarter?

From every indication, we think Q3 should be, again, relatively flat, slightly soft, but we're pretty confident, we've seen some design wins, and we know that production is ramping up for Q4 shipments, so Q3 shipments, which will be Q4 revenues, so I would say Q3 revenue could be a little weak in the automotive space, but we definitely see a rebound in Q4.

Okay, so basically similar to medical?

Yes, absolutely.

I mean, of different magnitude, I imagine, but just in terms of direction.

Yes, we're only talking $100,000, $200,000 at most in terms of revenue that is being impacted, but Q4 should be a much stronger quarter in the automotive space.

Got it, got it. Sorry to see you hit, but good to hear about the additional design wins. Congrats.

Thanks, Shawn.

Thank you. Our last question is a follow-up from the line of Charlie Anderson with Dougherty and Company. Please go ahead.

Actually, my question has been answered. Thanks.

One moment, please. And we do have a question from the line of Robert Katz with SunWest. Please go ahead.

Hi, Vic and Shum. You've kept your year guidance flat, and you had sort of a little miss this quarter, that means that there's upside to incoming business in the second half. Is that more upside on the gaming side or the mobile side of your business?

I would say both. Yes. Early indication, we already have some royalty reports in hand that show gaming is picking up, like we would expect, seasonal benefits, and then again, knowing the trends in the mobile space, commitments to product launches, new customers, new products, we feel pretty strong about the mobile space as well.

And on the mobile space in particular, are your customers shipping any piezo products now? Is the Galaxy IIS a piezo product, or is it still the old older-generation product?

No, it's our TS3000. Currently, there are no TS5000 solutions in the market yet.

And when do you expect the TS5000 shipping (inaudible)?

Well, our hope is to have multiple products in the market this year, and Texas Instruments' driver solution is a big piece of that, so we're happy to see them actively promoting and marketing that. A lot of companies are investing great resources to bring solutions to the market in support of Immersion's TS5000 solution, so it's really going to just be a matter of the timing of our OEMs' launch plans.

Great, and would that impact the royalty per-device typically, versus your TS3000?

Yes, the TS5000 offers us a substantial increase in the ASP, so we're excited not only for the higher revenue potential, it also provides a much higher-fidelity experience for the consumer, and it separates -- creates a bigger gap between products without haptics, and products with our high-definition.

So, we think it's important to succeed here. Lots of interest, lots of design opportunities. It's now just a matter of getting them launched in the market.

And do you anticipate seeing some tablets in the market in the second half of this year, or is that 2012?

No, we'll see tablets and we may see tablets with piezo launch this year.

Great. Thanks, guys, and good job.

Thanks, Robert.

Thank you. At this time, I would like to turn the call back to management for closing remarks.

Well, thank you, everyone, for being on the call today. We look forward to updating you again on our next quarterly call. Good afternoon.

And, ladies and gentlemen, that does conclude our conference of today. Thank you for your participation, you may now disconnect.