Kopin Corp (KOPN) 2003 Q1 法說會逐字稿

Good day and welcome everyone to the Kopin Corporation first quarter 2003 Financial Results Conference Call.

Today's call is being recorded.

Please let me remind everyone that a replay of this conference call upon will be available from 8 p.m. eastern time through April 29th by dialing 719-457-0820 and entering the confirmation code 672494.

You may also access an archived version on Kopin's web site at www.kopin.com.

With us from the company is the president and Chief Executive Officer, Dr. John C.C.

Fan, and the Chief Financial Officer, Mr. Richard A. Schnider.

At this time, I would like it turn the call over to Mr. Schnider.

Please go ahead, sir.

Good afternoon everyone and thank you for joining us Kopin's Q1 2003 conference call.

I will begin reviewing our financial results for the first quarter of 2003, and sharing our outlook for Q2.

John will update you on the recent operational achievement and discuss the strategy in even of our product platforms, then we will take your questions.

Before I begin, I want to remind everyone that during today's call taking place on Wednesday April 23rd, 2003, we will make forward looking statements as defined in the private of securities litigation reform act of 1995.

These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties.

Potential risks include, but not limited to, demands for our cyber display and 3-5 products, market conditions, the company's ability to ramp up production and manufacturing facilities, and other factors discussed in company's 10K for the year end December 31st, 2002, and other documents on file for the Securities and Exchange Commission.

The company does not undertake any duty to update any statements made during today's call.

If you have not received a copy of today's release, it is available on the website www.kopin.com or you can contact Sharon Merrill associates at 617-542-5300, and a copy will be sent to you.

Okay, turning to our financial results.

First quarter revenue 18 million up 9% sequentially and slightly higher than the 17.6 million of the comparable period in 2002.

Our first quarter revenue exceeded the guidance we provided during our fourth quarter news release and conference call on February 13th.

Three-five revenue in the first quarter of 2003 were 9.5 million.

That is up 68. 5% sequentially and 23.2% from the first quarter of 2002.

The increase in revenue is due primarily to a weak comparable fourth quarter of 2002 stronger anticipated orders from a wireless LAN customer and the initial cyber light revenue of 1.3 million, representing the initial volumes of shipments to a tier one packaging customer in Asia.

Cyber display revenue for the first quarter was 8.6 million down 21.2% sequentially and 13.4% below the pace of Q1 in 2002. is the sequential decline reflects traditional seasonality in the consumer electronic industry, and no research and development contract revenue.

For competitive reasons, we only update the list of 10% customers at year-end, however, Skyworks Solutions and Samsung Electronics remained the largest customers and were consistent with the numbers posted for 2002.

Net loss under accepted accounting principals was 2.2 million or three cents per share.

This compares with a GAAP net loss of 15.1 million or 22 cents per share in sequential fourth quarter and a GAAP net loss of 3.2 million or five cents per share in 2002.

Cost of goods sold in the first quarter of 2003 represented 83.4% of product revenue versus 84.4% one year ago and 75.2% in Q4.

The increase related to cost associated with the ramp of Cyberlight and lower Cyber display sales as a percentage of total revenue.

Research and development expenses were 16% of revenue in the first quarter due to ramp of Cyberlight, [inaudible] and production, and accelerated product development initiatives with each of our product platforms.

We expect R&D expense to continue in this range in the second quarter.

And then gradually decline as Cyberlight volumes increase and we gain traction with new cyber display products.

Selling, general, and administrative expenses were $2.6m, or 14.5% of revenues in the first quarter and were in line with our guidance of 12-17%.

We would expect SG&A to be in the range of 2.3 to 2.5 million in the upcoming quarter.

As of March 31st, 2003, we had cash and equivalents of 115 million compared with 118 million as of December 31st, 2002.

Cash flow used in operating activities in the first quarter was 650,000.

DSOs are running approximately 50 days.

Account receivables increased because of the overall increase in sales and initial receivables for Cyberlight.

Accounts payable also increased as we managed cash flow.

Company wide fab utilization excluding Cyberlight is currently 70%.

Capex for the quarter was more than 1 million, although we committed to significantly larger amount.

Our cap expectations for 2003 remain seven to 10 million.

Depreciation and amortization was approximately 2.4 million for the quarter.

Looking at our guidance for the second quarter of 2003 based on current order patterns in our 3-5 and cyber display products, we anticipate total revenue growth of approximately 10% sequentially in the second quarter including Cyberlight revenue in excess of $2 million.

I will turn the call over to John.

Thank you, Rich.

Let me begin by saying we are pleased with Kopin's performance in the first quarter.

As Rich told you, our first quarter results exceeded the guidance we gave in our telephone call for February despite the difficult economic environment and reflect the diversity of our products.

More importantly, the first three months of 2003 represent a historic quarter for Kopin.

We begin the shipment of Cyberlight the third product platform based on our proprietary wafer engineering technology and the world's first LED to feature the technology.

These shipments to a tier 1 packaging customer based in Asia also represent the third time Kopin has developed a new [disruptive] technology and achieved volume production.

We accomplished this first with HPT in 1996.

There was cyber display in 1999.

Now in 2003, we have accomplished this with Cyberlight.

In shipping the Cyberlight, Kopin has become one of the first technology company in the world to begin delivery of nanostructure products in volume production to customers.

For the first quarter, Cyberlight revenue was 1.3 million.

In line with our expectations at least 1 million dollars.

Anyone can imagine we are excited about a prospect of a Cyberlight business.

We truly see solid state lighting as the next revolution in lighting.

And the analysts have stated, that the market can grow at around 30% compounded rate for the next five years.

The end markets are large and diverse.

There are many new opportunities developing every day.

To achieve penetration and gain market share we have a very focused strategy for Cyberlight.

Our primary objective is continue the volume production currently, increasing the volume and improving our production processes.

Second we will continue working on additional qualification with other perspective customers.

As a reminder, our Cyberlight has industry leading low [inaudible] voltage and thus better power efficiency, and high electrostatic discharge protection, which is very useful for industrial applications such as the automobile.

Third, we intend to introduce derivative LED products such as green LEDs to take advantage of additional market opportunities.

We are pleased with our progress in all these areas and see our LED platform as an exciting opportunity for Kopin to leverage it's semi conductor materials expertise in 2003 and beyond.

Let me go to HBT.

In last quarter, our HBT revenue rebounded from quarter four last year as Skyworks returned to more historic order levels.

We are pleased with the performance of our HBT products.

Although traditionally linked to wireless handset market, we believe our HBTs has opportunities in several other areas as well.

The most interesting one being is wireless local area network.

In fact, all this for wireless LAN applications were a growth driver for our business during quarter 1.

As we have [inaudible] wireless hand set circuit partners, we work closely with customers to designing our transistors both HBTs and Lan hand sets as well as the wireless local area network applications.

And we are pleased with our progress so far.

Also, Q1 is also the first quarter that in guest HBT revenue exceeds our out guest HBT revenue.

Also, our new gain HBT technology has been very well received so far.

We are on pace to secure the design win for this transistor hopefully in the year 2003.

As a reminder, our gain HBT should offer substantial performance advantages especially in power, efficiency, and speed, over the current HBT structure.

Now let's turn to Cyberdisplay business.

As Rich indicated, our tier 1 Cyberdisplay revenue reflect typical seasonality in the consumer electronic business.

Seasonality aside, our Cyberdisplay business performs very well.

In Q1, we continue to maintain our strong position in camcorders and this drives toward securing design wins in non camcorder applications such as digital still cameras and portable entertainment devices.

We should be ready to design win on this front in the coming month.

We also have made considerable progress with product development initiative and we are expecting to introduce several new displays in the second quarter, ranging from ultra small displays for any expensive customer products to high resolution color displays for high end consumer and defense related products.

Interestingly, military displays continue to grow rapidly.

Our recent focus to [greatly] brought up product portfolio given the opportunity to pursued additional markets and application in the second half of this year and in the year 2004.

As we have stated in the Q4 call, our Cyberdisplay strategy in 2003 is to increase the amount of revenue derived on color display sales and diversify our customer base.

Our progress the first quarter is well on our way to achieve this goal.

As a matter of fact, yesterday we announce a Kopin supply of Cyberdisplay to [inaudible] Technologies, a subsidiary of Raytheon for using spectral infrared rifle scope which is designed for homeland security, police and general security application.

We're proud to have been selected to participate in the home security initiatives.

This announcement is a prime example of a customer diversification effort.

And demonstrating the utility of Kopin Cyberdisplay virtually in any microdisplay suitable portable device device.

Which brings me to another important point.

Keep in mind also that Kopin Cyberdisplays is not only a disruptive technology.

Challenges to current technology as in the case of CRT in camcorders.

It is an [inaudible] technology as well.

In many cases, the application currently we're working on with customers, as well as those we have announced last year, including the L-cam rifle scope, does not exist prior to Cyberdisplay gaining some of the market.

This give us a distinct advantage as a manufacturer because potential customers will ask Kopin to design the custom display for the application.

We've seen this trend accelerate in the last few months, it is better to continue throughout the year.

As our Cyberdisplay product development group is now capable of such fast turns.

With the initial Cyberlight shipments, we now have a revenue contribution for all three distinct product platforms based on our proprietary wafer engineering technology.

This move continues to diversify customers and product mix and it is a big part of Kopin's overall strategy of having a broader market focus which driven by increasing demand for mobility.

Consumers industrial and military demand is growing for mobile applications that request smaller, lighter, operate higher speed yet consume less power and more features that offer less expensive.

In developing each of our product platforms, we identify the end user market offering, the most promising opportunity for growth and develop a solution to address this growing market.

Our initial targets were wireless hand sets and camcorders, but as technology and production evolve, our products now become well suited for a large number of new applications for wireless, LAN, digital still cameras, the new generation of portable entertainment, and gaming devices, as well as military industrial equipment.

Our new Cyberlight LEDs go a step further as a ideal component for virtually all lit portable devices, as well as in automobile and other industrial applications.

Another benefit to having products that address a diverse set of markets is the buffer it provides.

As we continue to gain traction in new applications and end markets, our dependency on certain market will lessen.

Enabling to better withstand demand shifts caused by cyclical trends.

The HBT product platform keeping track of the wirless LAN will also accept Kopin's requests -- dependence on wireless hand set demand.

In Cyberdisplay, penetrating the digital still camera market and capture a share, the additional industrial military applications would balance growth rate in the camcorders.

The addition of Cyberlight is a key as it enables Kopin to enter a space in which demands growing in almost all application.

So to recap briefly before we turn the call over to your questions, we are ramping Cyberlight production and we are pleased with our progress.

We're working to add additional production customers and deduce the route LED products based on [inaudible] process.

In our Cyberdisplay business, we are close to obtaining a design win for our 180k color displayand it will be introducing additional displays in second quarter that were brought up market opportunities further.

In our HBT business we're working to secure the design win for our gain HBTs and we're seeing wireless LAN as a significant new opportunity for Kopin in the coming quarters.

We are excited by the opportunities available to Kopin and it continues to believe 2003 will be a record year for us.

I want to remind everybody that Kopin's 2002 annual meeting for shareholders will take place tomorrow April 24th at 10:00 a.m. at the office of Bingham, McCutcheon in Boston.

We would like now to open the call to your questions.

Thank you.

The question and answer session will be conducted electronically.

If you would like to ask a question, please do see so by press the star key followed by digit one on your touch tone telephone.

If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

We'll proceed in the order that you signal us and we'll take as many questions as time permits.

Once again, please press star 1 on your telephone.

We will pause for one moment to give everyone an opportunity to signal.

We'll go ahead and take the first question from Kalpesh Capodia from CE Unterberg.

Please go ahead.

Good afternoon John and Rich.

Can you hear me?

Yes.

Gross margins I didn't hear, Rich, you give any guidance for Q2 in gross margins.

We would expect as a percent it's probably going to stay relatively flat.

With all of the activities going on along side on Cyberlight.

Where do you expect them to be once you have Cyberlight kind of to volume?

On the 35 products, we would expect growth to be in the mid-30s and on the display business, mid to high 20s.

For overall, you would probably be in the low quarter basis.

In HBT, your business was upbeat to 8.2 million in roughly 50%.

If you exclude the LED part.

The others suggest you didn't lose market shares.

So is it that it was driven by some other customer in Wireless Lan

We don't believe we have lost any market share at all, as we'll will hit it a company times, I think the upside was we had some very strong wireless demand we went to see in Q4 actions opposed to Q1.

We have in the last quarter comments we say that we have not reached agreement with sky ward and we are pleased with the agreement.

And the wireless land customer same as one of our HBT for hand set customer or is it a different customer.

Different customer.

Different one.

Is it closer to 10%?

No.

No.

Can it be your next ten customer?

It depends.

We'll see how it goes on full basis.

Is it on G or A side?

We don't have that information.

Lastly, RND was 5 million in Q4 and dropped to 2.9 million and you got lower going forward.

Who is driving that?

As we said for the last of our conference calls, a lot of the RND was Cyberlight.

A lot of that migrated to cost of sails and that's what happened.

So people who charge RND to the extent we have projects going to the qualify the specific customer that ends up in cost of sales.

We have a lot of cost of activities so it is in cost of sales.

If you look at the overall RND and combined cost of sales numbers, they are relatively flat over the last couple of quarters so we are leveraging as we thought we would.

The last question, John, you said 180 display is the ASP going to be significantly better than the money on chrome or how do we look at it?

It is a non-application.

Thank you very much and good luck.

Thank you.

Thank you.

We'll take next question from Blane Carol.

Nice quarter, guys.

First of all, on the cyber display business, John, you said that you would have ace couple of announcements during the second quarter, but you have already shipped to those customers and we recognize good revenue from them during the quarter?

Cyber display has been active the last three months.

What we have talked about is two levels.

There will be design options with for our color displays the 180 and it should believe announced in a few months.

More importantly, we will be announcing a bunch of new products at the beginning that are available to customers.

Some of them are being sampled now and I think it will take three to six months, but more importantly, very, very small display for consumer applications to very much higher level display or high resolution displays for high end products.

Most of them are color.

Okay.

Okay.

We can put a display out customer or is a my customer to their rapid rate.

This is like a circus now.

Okay.

Secondly on the HBC business, the tone in the industry from the chip manufacturers has been that revenue will be slacked down 5%.

Is that sort of what you're seeing on 8.2 million?

You mean the next quarter?

Next quarter I think our guidance will be that we will see HP revenue come down.

It is balanced by Cyberlight display that is coming in.

Our guidance use 10% both in the next quarter.

But that would that be down more than 10%?

I think more in line.

It depends.

I think it will be down.

We seem to beat sky wards to death on the conference call.

What are you hearing from your other HBT customers?

What is in demand with them?

I think on the wireless hand sets, the I think the guidance between them are in line.

We're seeing activities on wireless land and we also see you customers.

So I do not know where this other customers are getting market shares.

No.

Okay.

Then on the Cyberlight, you talked about the utilization the other two businesses and you probably don't want to give utilization and Cyberlight.

You can give us a type of capacity you have in place right now as far as machines and working mothers so you grow with the demand of this business?

That's a very good question.

As you all know, we're ramping out right now.

It is hard to top out.

Everything is going at such a rapid rate.

Our focus on the production is we're actually installing very new machines and new prophecies.

We believe this is very important to give the high performance that -- I was enjoying the market as well as cost competitive.

These things are going to go through and I think it would take a few more months to restabilize everything.

We're doing very rapidly.

I believe we're very competitive both in pur suing cost but also the way they are leading.

Remember our LEDs is based on nanno's pockets.

The nanno's technology.

Assuming we have a very interesting profit and produce that.

Two questions for Rich.

First of all on the -- you said the low 30% margins.

What type of revenue is made for that?

There's a los of different factors that go into that, but clearly in the neighborhood 30 million a quarter.

Okay.

Lastly, what was your time in the marathon? (laughter)

A little over four hours.

Congratulations.

All right.

Nice quarter, guys.

Thank you.

We'll go ahead and move to Earl Lum with CIBC World Market Corp.

Go ahead.

Hi, guys.

Congratulations on the quarter there.

A quick question, John.

On the 180K color filtered product, are we expecting to see revenues in Q2 on when you make your announcement is that more of a second half story?

Second half.

It is soon.

So we should be seeing.

It will be for this Christmas.

You said that was going to be a non-camcorder application?

That's right.

If you look at this on the infra red part, you can give us a service on how your positioned there on infra red relative to where the market is going?

Yeah.

I think in the military aspect of the infrared, we're the display of choice there.

Is no other display has ever been chosen.

We are qualified to almost all the weapons systems now.

It is not justice a display but into a whole site.

It is electronics in there.

Now, people are used to it so they are now designing to the home security applications.

The military one as you well know, it is home security one we did yesterday.

I think -- these things will grow.

Absolutely for this type application, it is ruggidized and we're the only one that's qualified.

We can provide very large temperature range. 3,000G.

It is like a bullet hitting it.

We're the only one that's already qualified.

Is that a very small percentage right now in terms of revenue from cyber display, and how do we expect that to grow as we move forward into the rest of this year?

That's a good question.

It is quite small right now.

I think you will see a lot more hopefully a lot more new ones will come up.

I think you will continue growing.

I see some numbers which is like two years away.

It is a very substantial numbers because a lot of them are going to infra red gun sites for night vision.

If we go to Cybelite.

At this point, you guys had a great quarter out of the box.

Is the second quarter guidance based upon continued delivery to the one customer you had in the first quarter or does that exclude any new customers that may come on line in Q2?

You exclude any new customers.

I believe with the automotive qualifications, we are probably looking at the end of this year before we get that qualification finished so you can talk a little bit about where what the customer sample demand is looking like from other customers for your Cyberlight?

As you well know, our on strategy of getting our product into production the last two examples, in the case of HBT, our first emphasis is to work with the one customer which is rockwell.

The cyber display our first approach with the Q1 customer was JVC.

The first one is K1 customer to take sures we can ship quality and performance they require.

Then we broaden on the.

In the case of Cyberlight, we have broaden out within six month and it is same thing with HBT.

We are working with other tier 1 customers now because we are getting more confident there with quality and performance.

I think any one of those customers are big enough that they are the consumptions for the year.

Thank you very much, John.

You're welcome.

We'll move with Brian Alger of Pacific Growth Equities.

Looking at HPT revenues, you can mention we had an uptake in the wireless plan.

You can break it down of how on much of the 8.2 went to wireless plan?

We're not going to that level of granular detail.

It was up at a percent ever the HBT of the last quarter?

Yes.

This is a little bit hard.

They're a new customers, but I think some customers also go to wireless lands.

Is that something we expect to continue as a trend to go forward of the business becoming more balance between hand sets and wireless 1?

Good question.

Our calculation for wireless land is about the market as a quarter of a third of the wireless hand sits.

The way I have it, the numbers -- wireless land is most equal to laptops and other things which is HE with 150 units.

Wireless hand sets are on 400 something units.

It is like a one third.

We should see.

It is a new opportunity come up from nothing which obviously is good for us.

So, be it is a good application a new application here now.

Fair enough.

Kind of look at hand set market, I am trying to ascertain what is going on.

We have been in a bit of a doldrum with 8 laywer revenue level.

Can we get an update on rough wafer pricing and the number of PAs per waiver as the rough back of the map it.

It indicates that perhaps you may have lost some share.

I don't know how you get your numbers, but we don't believe so.

We know rough lie who is taking from us and we calculate our stuff from their shipments.

We think our shares are equal or assuming comparable to more than half.

But it is true that ASP has declined in the rates of 15% in a year and people are in such shrinking [inaudible].

The dies shrink as much as the number of dies per wafer increase almost effective 30 to 50%.

Maybe sometimes it is higher than that.

So are we getting over 3,000 in the wafer now?

Yes.

Some people are getting 5,000.

Okay.

That's the discrepancy you have.

It is because they can get 5,000 sometimes.

They should.

Great.

And in terms of the gross margin guidance, it is tied to utilization.

In the current quarter.

As I understood it, the Cyberlight was expected to use a lot of the same capacity as the 35 HBT capacity.

Are we see anything efficiencies or is it just too early in terms of progress?

It is a little early, but as I said earlier, if you take R&D and get the sales and add them together, they're about flat.

The revenues have gone up so you are see leverage there.

One more point in HBT.

This quarter, this past quarter is very interesting.

We do cross the line and in HBT is now the majority revenue from them.

I think we always talk about the obvious.

I think now inGap is normal.

Great.

Thanks, guys.

Thank you.

And just as a reminder, it is star 1 to ask a question today.

We will go ahead and move on to Christopher Versace with FDR Investors.

Good afternoon, gentlemen.

A lot of your comments were tied towards other applications so I am wondering if we have maxed out in the camcorder arena for you guys?

You mean cyber display?

Yes.

You know we have gotten to go 37 percentage and we probably could get more but we thinking that is probably not.

We will make new product and establish now customer base.

I think that has been our strategy and I think it is working right now.

Yeah.

What is the type table for code to be introduced and do you expect that to be -- what time do you expect that to hit the camcorder market?

Camcorder?

I think it is assuming a lot of it will come out the next year model, but more importantly, we're getting our display, especially our colored displays, be to get the commercial or consumer environments.

We're seeing a lost activities right now.

We also see our customer coming in and more asking for more set my custom display built to the applications.

To be very frank about it, we encourage it because they're told to come out of the display.

Okay.

Then one of the other two questions can give us a sense of how linear it was in the quarter in terms of revenues?

Each month was greater than the previous.

Okay.

And then the last one would be if we look at overall margins you did, without giving us specific numbers, can you give us how the different businesses kind of stack up.

Vis-a-vis the corporate average.

Cyberlight cyber display are both in the -- HBT and cyber display are both in the mid-20s.

So it is a rough -- and then it is a matter of once they pats break even point and it is a matter of fixed cost absorption.

Cyberlight -- excuse me.

HBT was up this quarter so fix cost for it goes down and so-and-so forth.

So it is comes down.

It has always been part the strategy why we end up with a mix and why Cyberlight is important.

Are saying the HBT and Cyberlight were important in the third quarter?

That's where they are.

So it sounds like to hit the new target margin in the low 30s the LED margins have to be phenomenal?

They are coming out quickly and we believe gained HBT will win a catch 5.

Great.

Thanks, guys.

We'll go ahead and move to J.D.

Boucher from Pacific Edge Investments.

Please go ahead.

Thank you for taking my call.

Going over the gross margins.

You can't give too much but I am trying to get a handle of revenue and wrestling with much more.

We dropped off the effective contract revenues would have had on gross margins and where the break even point are roughly on display and waifers.

I want to understand when we start to see leverage to the models.

Obviously contract revenue to the extent that their help the gross margins because the gross products the U.S. government pays pretty good pricing.

So those are obviously a very helpful to the yor all gross margin.

Again, I get back to -- if you look at our cost, we have focused on operating margins and if you get back to RND plus cost of sales, they've been pretty flat and the revenues have been going on so we are seeing leverage now.

It is a much lower percentage and historical run we were at last year?

As we said, the last few conference calls, a lot of our RND was Cyberlight and that would migrate into cost of sales and they started producing for customers and that's what happened.

It continues to drop off from Q4.

So, I mean, historically if you go back, RND ran 15% of sales 15 to 17% of sales and we're close to that at a historical rate this quarter.

Do you see that going down in revenues this year?

As a percent, possibly.

Eventually, you hit an absolute dollar amount.

You don't keep throwing money at it to keep a percentage there are a lot of things to go with Cyberlight and cyber display.

There is a significant hard activities going on.

Earlier in the call you said about 30 million of the quarter or so in revenue.

We dig into the 30s of the split market or 30 percent?

Low 30s.

Thanks, guys.

Sure.

We'll take a follow-up question from Blaine Carroll.

Very quickly.

John, on the Cyberlight business, what type pricing are you seeing there and if there are assumptions of ASP is somewhere around 10 cents.

That would lead us to believe you shipped 13 million units down the quarter.

Does that tie out?

Pricing is sensitive, but there are two pier pricing going on.

That's on the blue.

There's Pier 1 pricing which is enjoyed by guys like Decree and now us and then there are tear 2 pricing which comes from the Asian countries.

But the quality of product is obviously different, but T1 pricing you probably know more than I do that it is also ten cents a share.

Does it reach 15?

In some case it could.

Depending on whoo pricing people are looking for.

The LED blue is a wavering there.

There is a voltage there.

There is an ESD for sooner application and there are requirements of quality that I think a lot of people do not understand.

I think upon there is a lot of noise in the market saying oh, yeah.

Some Asian countries react.

I mean, it is not that simple otherwise, no scientists or geniuses are required in the world.

Thank you.

We'll take a follow-up from Kalpiesh with CEO Introvert.

A follow-up question on LEDs.

I had read reports about 100 million unit capacity you had and for 2003.

Is that an accurate number or ballpark or is it lower or higher than that?

That was a quote I wish I had.

At the time, I was trying to play golf so I put 100 meeting chip in the golf ball and of course, people use ten cents and that is a million for this year.

The capacity.

They have 100 chip capacity is a very good goal for us this year.

Is it possible have capacity if the demand progresses nicely?

It is possible.

Can we do it?

I think we are putting our systems up right now and I think it will take a few more months to have a scalable system and from there on, we can scale very rapidly.

I think a lot of -- I think I want to make a comment here.

I mean it is true.

We definitely scale HBT.

It is known in the commercial market virtual market.

It is all about 80 something percent or 90% of the market right now.

Cyber displace scaled to 3 or 400 display per month which is shocking to a lot of people.

Especially you know how we do our display.

It is innovative use on display.

I think our Cyberlight based.

We believe it is scalable.

It is scalable on the production system especially where shipping to tear 1 cut mer.

We think we are almost there and we will rapid lie scale from there.

You said you are operating margins more than in gross margins.

When I look at 30 million in gross margins and I look at the operating expenses in five, five and a half million range.

Where would you see the 30 million refer new range?

As we have indicated, the goal somewhere around 15% for RND.

The beauty of our business lots has always been that we leverage very well on the SGNA line.

We end up in each product category selling to the leading customers and we usually have four or five major customers.

I am sure we have licensed of small guys that have one or two things but we end up at four or five.

We don't have worldwide sales and such.

Our SGNA line for the last year we used two to three million in a quarter.

So we would not anticipate anything different.

I think going back to revenue, I thinking it is very clear that the cyber display of Cyberlight.

One of the things really catch fire, you can go to a allergy revenue because the application and total [inaudible] is very large.

You can verify on EPS what revenue?

There is similar 18 to 20 million range or has it changed?

Right now it is the same number because we don't have a steady state yield for Cyberlight.

Any calculation I would give you or the number to have a large decree of potential error to it.

For now, we will say it is the same number.

Thank you.

We'll take a follow-up question from Earl Lum.

When you said India crossed over and it is the majority, are we at 70% of the mix now or can you give us ideas where we stand there?

Very close.

Is the new wireless land product is that also based on ingap?

Yes all ingap.

Are you expecting to be from the more traditional wireless guys or from the wireless plan area?

That's a good question.

I can't answer that.

I don't know.

People are moving very quickly on it and some of them are in cycle three times and others are cycle one time mime people are moving very quickly.

The victims are there.

You require somebody ready to jump.

I hope you go of the faster than ingap.

They took quite a few years to convert.

On Cyberlight, I am getting this feeling that there seems to be a distancing between the tear 1 suppliers who have a certain specific quality that they can deliver to their customers versus some of the other players who have been marginal on the business.

You can talk a little bit about how that will shapeout over the next several quarters?

I think that will remain.

I think that the loy end stuff the quality and everything, especially shipped to tear 1 customer like hand set guys, I just -- it is difficult for me to understand or even comprehend those hand sets [inaudible] that would take anything other than a good quality product.

They don't want their name to be ruined.

The total amount of LEDs per hand set is not that big.

Why do you want to take any risk?

Okay.

Thank you very much.

We'll take our last question from Brian Elzer.

Go ahead please.

You mentioned about the opportunities being quite large and having a goal of maybe getting up to pretty good unit run rates.

Do you think you can achieve this year or is it something we should be using as a target for full year revenues?

That's definitely how it is asked if we ship a golf ball.

It depends on several things.

On demands and how fast can you run back.

Just sitting here, it is still a very good goal and we are pleased with our partners.

Great.

Thanks.

That concludes today's question and answer for today.

I will turn it back to you for comments.

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That's it for today's conference call.

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