Kopin Corp (KOPN) 2004 Q4 法說會逐字稿

Good day and welcome, everyone, to the Kopin Corporation third quarter 2004 financial results conference call.

Today's call is being recorded.

Please let me remind everyone that a replay of this conference call will be available from 8:00 p.m.

Eastern time through Wednesday, March 2, by dialing either 888-203-1112 or 719-457-0820 and entering confirmation code 3974505.

You may also access an archived version of the call on Kopin’s website, at www.kopin.com.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. Sneider.

At this time I would like to turn the call over to Mr. Sneider.

Please go ahead, sir.

Thank you, Operator.

Good afternoon, everyone, and thank you for joining us.

I will begin by reviewing our financial results for the fourth quarter and full year.

John will then update you on our recent operational achievements and share our outlook for 2005.

Then we'll take your questions.

Before we begin, I want to remind everyone that during today's call taking place on Thursday, February 24, 2005, we will make forward-looking statements as defined in the Private 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 are not limited to demand of our CyberDisplay and III-V products, market conditions, the company's ability to ramp up production in its manufacturing facilities, and other factors discussed in the company's Form 10-K for the year ended December 31, 2003, Form 10-Q for the period ended September 25, 2004, and other documents on file with 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 news release, it is available on our website, www.kopin.com or you can contact Sharon Merrill Associates at 617-542-5300, and a copy will be sent to you.

Turning to our financial results -- total revenue for the fourth quarter of 2004 was $18.5 million, which is in line with the expectations we set in our third quarter conference call.

CyberDisplay revenue of $9.9 million was down approximately 25% compared with the third quarter of 2004 and down roughly 20% year over year from the fourth quarter of 2003.

The sequential decline in CyberDisplay revenue in the fourth quarter is related to normal seasonality and a temporary disruption in military display shipments due to a supply line issue with a non-display related component.

For the full year, CyberDisplay revenues increased 13% reflecting sales of our VGA display to Konica Minolta and the initial shipments of our military displays.

III-V revenue in the fourth quarter of 2004 was $8.6 million, flat with Q4 of last year and down approximately 10% from the third quarter of 2004.

Cost of goods sold in the fourth quarter of 2004 represented 89.1% of product revenue versus 77.8% in Q3 and 75.9% one year ago.

Our cost of goods sold continues to be affected by the negative gross margins we are experiencing with our CyberLite product group.

Gross margin was also negatively affected by lower military sales in Q4 versus Q3.

Research and development expenses were $3.3 million, or 17.9% of revenue in the fourth quarter compared with $3.5 million, or 15% of revenue in Q3 of 2004 and $4.4 million, or 21% of revenue in Q4 of 2003.

For the first quarter of 2005, we expect R&D to be in the range of 18$ to 20% of revenue.

Selling, general, and administrative expenses in Q4 2004 were $2 million, or 11% of revenue.

SG&A expenses were $2.9 million or 13% of revenues in Q2 of this year and $2.3 million or 11% of revenues in the year-earlier period.

SG&A in the fourth quarter was lower than normal because of a favorable adjustment of about $900,000 for the allowance of doubtful accounts.

We expect SG&A expenses to be in the range of 12% to 16% of revenues in the first quarter of 2005.

Kopin’s net loss in the fourth quarter of 2004 was $7 million, or 10 cents per share.

This compares with a net loss of $1.1 million, or 2 cents per share in the sequential third quarter and a net loss of $614,000, or 1 cent per share in the fourth quarter of 2003.

The net loss for the fourth quarter reflects a non-cash impairment charge of $5.3 million for the write down of assets resulting from the transfer of our LED operations to newly formed joint venture based in Asia.

The bottom line was favorable impacted by $1.6 million related to the reduction in allowance for bad debts previously mentioned, lower depreciation expense, and reduction of the tax reserve.

Net loss for Q4 2004 was calculated based on approximately 70 million shares outstanding, while the per-share figure for Q4 2003 was calculated based on approximately 69.8 million shares outstanding.

For the full year December 31, 2004, revenue grew 14% to $87.4 million from $76.6 million for the same period in 2003.

Revenues from III-V products was $38.3 million, compared with $32.9 million in 2003.

The increase in III-V revenues reflect the fact that our full force HBT supply agreement was in effect for all of 2004 versus only a portion of 2003.

Revenue from CyberDisplay products was $49.1 million in 2004 compared with $43.6 million in 2003.

The year over year increase in CyberDisplay revenue is related to the initial ramp of military shipments in the second and third quarters of this year as well as continued shift from monochrome to color displays.

Our 10% customers for 2004 were Samsung at 28% and SkyWorks Solutions at 31%.

Kopin’s net loss for the 2004 was $13.8 million or 20 cents per share based on 70 million shares outstanding.

The net loss for 2003 was $6.9 million, or 10 cents per share, based on 69.5 million shares outstanding.

Again, the net loss for 2004 includes the aforementioned $5.3 million non-cash impairment charge and the $1.6 million of favorable adjustments.

You will also note that we have a tax provision of approximately $100,000.

This relates to income from foreign operations.

We would expect on a go-forward basis that taxes will be roughly $75,000 per quarter.

Our financial position remains very strong.

As of December 31, Kopin had cash and marketable securities of $111.9 million compared with $120.3 million as of December 31, 2003 and we have no long term debt.

In addition, Kopin owns approximately 400,000 shares of Micrel Semiconductor which, at December 31, 2004, was worth approximately $4.3 million.

Inventory at December 31, 2004, was $7.9 million versus $5.9 million at the end of 2003.

The increase reflects an increase in certain display raw materials.

You will note the increase in prepaids and other current assets.

Included in this amount is approximately $6 million of equipment that will be transferred to the joint venture.

We are representing it as a current because the transfer will occur this year.

There is a school of thought that says it is equipment and should remain long term so the classifications may change when the Form 10K is filed.

Cash flow used in operating activities in 2004 was approximately $6.2 million.

DSOs were running about 47 days for the quarter compared to 41 days in Q3.

Depreciation and amortization was $9.5 million in 2003 compared with $9.7 million in 2003.

Cap ex for 2004 was $1.3 million.

This was much lower than our initial 2004 estimate because we decided against further investment in the CyberLite LED product line.

In addition, under our stock buyback program for the year ended December 31, we purchased 182,000 shared of our common stock for approximately $700,000.

Turning to our guidance for Q1, we expect to experience customary post-holiday seasonality in the wireless handset and consumer electronics markets, which will be partially offset by the resumption of shipments of our display modules for thermal weapon site programs.

As a result, we expect first quarter revenues to be in the range of $18 million to $20 million.

We expect to realize significant savings from our LED transfer to the joint venture beginning the third quarter of 2005.

However, because the facilities of the joint venture will not be ready until the second quarter, we are continuing R&D activities while the equipment remains at Kopin.

In addition, we will make severance and termination payouts during the first 6 months in the range of $300,000 to $400,000.

Also in addition, we will account for our investment in the joint venture using the equity method of accounting and are currently anticipating incurring $300,000 to $400,000 in the first quarter of 2005 as our pro rata share of its start up costs.

To aid your understanding of the impact of our CyberLite operations on our financial results, the revenue for CyberLite LEDs in 2004 was $2.3 million.

For the year, we spent approximately $6 million on CyberLite R&D, of which $1.4 million was incurred in the fourth quarter.

Keep in mind that some of the R&D is allocated overhead, so it won’t completely go away.

The impact on SG&A is de minimis.

Also keep in mind that 2005 will be a 53 week fiscal year for Kopin.

And with that I will turn the call over to John..

Thank you, Rich.

Good morning, everybody.

I’m actually calling you from Hong Kong which is about 6:00 in the morning.

I also want to apologize my voice.

I am recovering from a cold/cough here.

The major theme for our third quarter call was planting the seeds, when we discussed the actions we are taking to better our position for long term growth in our targeted markets.

Today I would like to update you on our progress with those initiatives and give you some further insights into the market trends which we believe will support our continued success and growth.

Let me start with III-V.

As most of you probably know, a couple of weeks ago, we completed a joint venture with [inaudible] financial investors to establish an LED operation, KO-BRITE, in Asia.

In fact some of the reasons, is one of the reasons I’m in Asia this week, is to visit our joint venture partners as well with some of the customers.

As we discussed on that call, Kopin will transfer the CyberLite LED [inaudible] and provide [inaudible].

For our contribution, we will receive approximately 20% ownership of KO-BRITE which will allow us significant upside.

We will also receive additionally $7.5 million from the joint venture upon the completion of the equipment transfer on the entering services.

We believe KO-BRITE will have some of the lowest cost manufacturing structure in the industry which will position the company to capture significant market share with T01 customers in Japan and Europe as well as fast growing markets in China and Taiwan.

The joint venture will provide Kopin with many benefits, most of which I discussed in the call two weeks ago, including enhancing our networking and relationship building in China.

However, perhaps one of the most important benefits is that in transferring our CyberLite operations to KO-BRITE, it will enable Kopin to focus on its core expertise in CyberDisplay product lines.

We think our III-V product line will continue to see strong growth for our top customers.

Excluding our CyberLite product revenue, III-V product revenue increased 33% in 2004 from 2003.

The significant increase was in part due to having a full year in the supply agreement which we entered into last year.

Now while this handsome market is growing steadily due to advanced features in new phone offerings, we are also receiving a number of inquiries and [inaudible] HBT for wireless land, WiFi and WiMax applications.

[Inaudible] expect the wireless [inaudible] to reach anywhere from [inaudible] by 2008.

Wireless, WiFi and wired [inaudible] WiMax or [inaudible] is beginning to be gaining traction.

In my current Asian trip, I’m further encouraged by my customer visits that the camera for the HBT will be the backbone for PAs in both Wife and WiMax.

The [inaudible] market is expected to be comparable to overall cell phone handset market.

So we see a large number of opportunity for growth for HBT product in coming years.

This brings us to the CyberDisplay product line.

We’ll also see a great revenue growth with our CyberDisplay product line over the next few years.

We are stepping up our marketing and sales efforts to better position ourselves in those markets.

CyberDisplay opportunity can be broken down into two sections, the military and consumer.

Let me address the military first.

We have demonstrated our leadership position in thermal imaging through the selection of CyberDisplays as the imaging device for thermal weapon sights being deployed with our soldiers in the field.

Last week we announced professional contracts that will provide display hardware for U.S.

Army thermal weapon sights and programs.

As part of our contract, Kopin will provide microdisplay systems to BAE Systems of Lexington, Massachusetts and DRS Optronics of Palm Bay, Florida for light weapon, medium weapon and heavy weapon in thermal weapon sites.

This is a 5 year professional contract and builds on our relationship with U.S. military for thermal weapon sites first gotten through our partnership with Raytheon.

As previously discussed in quarter 3 of 2004, Raytheon experienced a manufacturing issue with a component used in the display module.

Because of our commercial and technical expertise, Raytheon asked Kopin to help to resolve the issue.

We did and the module now is once again ramping.

We expect the initial ramp of [inaudible] to be completed by the end of March.

It is important to note that Kopin CyberDisplay is now the feature microdisplay in thermal weapon sites manufactured by all three approved suppliers of these critical components for U.S. military.

Our thermal weapon sight programs keep our [inaudible] for Kopin on the military front.

In the first quarter of 2004, we were selected by the U.S.

Army to develop HDTV quality tele-micro display for the future force warrior program.

In addition, Kopin recognized the CyberDisplay’s 640M display modules with [inaudible] flair systems AB for night vision goggles for the Swedish and Norwegian armies.

In the military the market training is for soldiers.

Soldiers and soldiers.

And we are very well positioned.

We see military displays and significant revenue growth for Kopin, particularly for thermal weapon sites programs as they’re deployed in late 2005 and starting in 2006. [Inaudible] further offer additional revenue or growth in the military sessions in the future as well.

We expect the military [inaudible] to provide considerable CyberDisplay revenue growth.

We also expect now that CyberDisplay growth will also come from the commercial side.

Let me talk about that.

As you well know, our display can revolutionize the way people get video still and video imaging in the consumer market.

I just want to remind people, our displays have highest resolutions, smallest size, lowest power consumption display in the world.

With the advancement successful over the years in the camcorder market, advancing almost at 40% penetration rate.

In our solely secure placement in 10 new digital camcorders models, we do believe the camcorder market is near the end of its product cycle.

As a result, we are now concentrating our attention toward newer, high-growth market potentials.

The first is a digital still camera. [inaudible] secure 3 digital still camera design wins in 2004, with Germany’s SpyCam, [inaudible] manufactured in [inaudible] and [inaudible] OEM Konica Minolta.

These three provide Kopin with some initial attractions, and we are confident we can leverage that into new and better design wins in 2005 with additional OEMS.

The number of DSCs featuring electronic view finders is expected to grow from about 6% currently to about 20% in 2007 and 2008.

We expect Kopin’s CyberDisplay product to play a major role in that transition.

There are many reasons why electronic viewfinders are needed for digital still camera, but suffice it to note that as digital cameras gets smaller and higher zoom, people want electronic viewfinders.

That’s exactly the trend.

The number of digital cameras last year was about 16 million sold.

That’s not including the camera phone.

And this will grow to about 70 million this year and it has the potential to be up to 100 million in 2007/2008.

Therefore, digital still camera present a large growing market for Kopin and we’re focusing on that category.

As a side note, the camcorder number each year is only about 40 million units a year so therefore the market is much smaller than digital still camera.

The next big market we’ll see is for CyberDisplay’s video eyewear which is gaining strength at the mobile video or video on the go in Europe.

You may recall that Verizon Wireless recently introduced V-cast, enabling more than 70 million users in 30 markets to stream video clips up to 5 minutes long covering entertainment, sports highlights, news, breaking weather to Verizon phone users.

It’s the first commercial implication of mobile video in the United States.

Several companies in Europe and Asia already introduced the service to users so far with very favorable response. [inaudible] mobile video is where there are now people interested in watching the video clips on a small screen of a mobile phone.

We believe the consumer would rather use special eyewear to enhance their viewing pleasure as long as those eyewear are very light weight, low cost, and easy to use.

And that’s where Kopin comes in.

For years, it seems like the ability of ultra small display outer space exceeded both the available video content and delivery systems for which to view it.

During my visit to Asia, on my current trip, I‘ve been extremely encouraged by [inaudible] and by discussions with current and prospective customers.

In China for instance, consumers in several cities already have seen and been tested mobile video, and mobile wireless HDTV broadcast.

Actually I was in a mobile car demonstrations a few days ago in China.

The car was moving very fast and yet I could watch the HDTV in the car.

And that’s very amazing because there’s not a satellite, it’s actually by mobile stations broadcasting station to station.

It’s exactly like the early version I saw about 15 or 20 years ago in cell phone systems where people can move around and audio signals can pass around.

This is the beginning of a new age, the age of mobile video is coming and I think we have the right product for them.

So I also see - - well in Korea a few days ago, we also talked about the mobile HDTV broadcast, in Korea.

And Japan’s starting it, but they’re not HDTV broadcast.

So the installation is coming across this country in the next few years.

So high resolution in mobile context is quickly becoming a reality and devices such as [] Apple iPod, provides storage capacity also as well as 3G phones.

The current question is the delivery system, how do you display the mobile pictures?

We strongly believe the answer can be found in light, ergonomically designed eyewear out of similar systems using our ultra high resolution displays.

In August, the McCoullough consulting group, estimates the video part of the market will grow to about 1 billion by 2008.

Kopin is the company with a company product to take advantage of this trend and we intend to be one of the leading companies developing product for this market.

Kopin is already gaining a strong foothold with several design wins and we saw numerous inquiries for Upstart, and major customer companies alike, asking us to work with them to develop prototype delivery systems for those eyewear products.

In January we announced the new design wins with Icuiti and Oriscape to provide view engines for the eyewear.

The Icuiti V920 will feature Kopin’s CyberDisplay 922k, our high VGA quality display and you’ll be able to use it to watch TV and movies and read e-mails and play video games.

And connect into any practically any portable device that outputs standard video and audio.

So for Icuiti is reported V920 and received this year’s special award.

In addition to Icuiti, we’ve secured design wins with Oriscape provided the display’s engine for the high end CyberMan portable Internet system.

You might remember several years ago, Kopin provided microdisplay systems for Oriscape first generation CyberMan product.

CyberMan is similar to Icuiti product.

Oriscape plans to focus most of their marketing on net box and video game centers which are very popular in Asia and especially in China.

We’re also working with a number of companies on specialty products related to mobile video, and 3D stereo gaming which is also a good way to gain further attraction for OEM.

So I think you can see we have full plate with our CyberDisplay products.

Our focus now is to convert this opportunity in this design wins for professional orders.

Any one of these opportunities may turn now into a major hit.

So to summarize, we’re very excited about our future.

We believe the KO-BRITE joint venture has a great opportunity to become a market share leader in this primary space to TO1 customers.

The joint venture will allow us to focus our attention on HBT and display.

For HBT products, we’re the market leader by providing HBT wireless handsets and we’re positioned very well to capitalize on the growth created by [inaudible] WiFi as well as the WiMax products.

In CyberDisplay product lines, we continue to be very successful with our products in [inaudible].

The strength of our HBT products, the refreshment of our R&D investment and the transfer of our satellite operations, high resolution, high [inaudible] displays which [inaudible] today, we believe will be necessary for the eyewear and we believe it will be necessary for the eyewear capacity tomorrow.

[inaudible] long term revenue growth possibility.

As you can see, the seeds we planted over the past several quarter are stating to take root.

Before we take your questions, I want to remind you and let you know that in this coming April, Kopin will celebrate its 20 year anniversary.

Both my myself and several of my colleagues [inaudible] 20 years ago and we secured the funding for our joint venture groups.

We have come a long way.

Sure, we’ve faced a lot of challenges, but we emerged as a technology and market leader in two distinct markets and we believe those are very high growth markets.

On April 26, 2005, we will be hosting our annual meeting in our CyberDisplay facility in Westborough, Massachusetts.

Our shareholders will have an opportunity not only to see many of our exciting new displays, but also will see a lot of [inaudible] customers using our displays.

It also will allow them to get a glimpse what the future of mobile media is coming.

With that, operator, I would like to open for questions.

Thank you, Dr. [OPERATOR INSTRUCTIONS].

We’ll take our first question from Kalpesh Kapadio with Unterberg.

Good afternoon, and good morning, John.

Question for Rich.

What is going to be the breakeven level with the divestiture of CyberLite and what kind of gross margins and operating expenses should we expect for the breakeven number?

Right now it would appear that somewhere in the neighborhood of $19 to $0 million would be breakeven and a critical factor in breakeven profitability, as John indicated, is the high resolution displays, particularly the military and some of the eyewear.

Ultimately the eyewear products farther out into the future.

Right now, the HBT is still running in that 22 to 25% gross margin range and that should hold through this year.

And in the display, a lot is going to depend on the sales mix, but if we can get the military where we’d like it to be, we should be in the mid 30s type of range.

Well, if you [inaudible] $19 to $20 million, is it operating cash flow breakeven or operating income breakeven or net income breakeven?

In other words D&A is still going to be 2.2, 2.3 million a quarter or - -

G&A will stay the same.

Where you’re going to see a lot of significant decline is in the R&D line.

I meant D&A, not GA.

Oh, I’m sorry.

D&A this year was about $9.5 million and it will probably be about half of that next year.

So about $4.5, $5 million?

Yes.

And what would be the operating expense level?

For the quarter or the year?

I’m not sure I understand your question.

For the quarter.

We still should be running in the neighborhood -- R&D should be somewhere around the 1.5, 1.75 type of range and SG&A will still stay in the 2.5 on an average over the course of the year.

Okay.

Thank you very much.

We’ll go next to Jed Dorsheimer with Adams Harkness.

Hi, guys.

I apologize, I’ve got a cold, too.

I guess just to follow up on the last question, Rich, maybe you mentioned this, but for the gross margin, I think that would assume about a 29 to 30% gross margin.

Is that the correct way to look at that?

Overall?

Yes.

Yes.

And did I hear you correctly that R&D would actually be coming down to $1.7 million per quarter?

Right.

We run somewhere in the neighborhood of 3.5, and so for instance this year, internal R&D was somewhere in the neighborhood of $12 million, and as I indicated on the call, about half of that was CyberLite LED.

So it should - - 3.5 per quarter and we’ll run roughly half that.

Great.

Then looking at the first quarter specifically, when you mentioned typical seasonality, should we be assuming 5 to 10% or is it - - just a little bit further color on what you’re expecting to see?

I’m not sure what you’re referring to.

Are you talking about revenues or - -

Sorry, the revenues in HBT business.

I think you said it was going to be down.

Well, we only give overall revenue guidance.

We don’t break out revenue guidance by product line.

Gotcha.

And then looking at the CyberDisplay business, as you shift from - - I guess this would be in the camcorder / digital still camera, but as you shift from a monochrome to a color display, do you benefit from a die shrink there?

Yes.

We’ve continually been working on shrinking the die.

A lot of our new products are - - for instance, we’ve gone from the 320 display monochrome, now we’re down to - - well we have 113k display, about half the size in color.

And then, I guess if that’s running on - - is that running on 6 inch silicon insulator?

Yes it is.

What would be the increase, the number of units from that die shrink?

About double.

About double?

Great.

And what is the typical pricing pressure in that business?

For the basic display, the pricing is pretty normal at this point and they’re talking 10 to 15% down, which is what we’ve been experiencing in the last couple of years.

Most of those discussion s will get wrapped up later in the first quarter so I’ll have a better idea at that point.

Thanks, and then lastly, looking at the military business in particular, could you give us any additional color or maybe bracket the type of units some of the multi-year contracts that we’re seeing you win you win?

What could those materialize into?

How many units could potentially be?

Yes.

Well, there’s an interesting question that I’m always asking the military guys.

At the end of the day I’m told there’s somewhere around 140,000 troops in Iraq.

They’d ultimately like to get this to all the troops, and so, and they’d like to do in a relatively short order, over a 3 to 4 year period.

My understanding is that the gating factor is the sensor that’s used in these thermal weapon sites, very advanced and by definition has a lower yield.

So that’s what they’re trying to work through to bring up the capacity in some of those providers.

Great.

Thanks again and congratulations.

We’ll go next to Pierre Maccagno with Needham & Company.

Hi, John and Rich.

In terms of the CyberLite, how much of that, in terms of costs of goods sold, how much was directly contributed to cost of goods sold in ‘04?

Well the guidance, the number we talked about so far is we did $2.3 million in revenue and it ran at negative gross margin.

All right?

Okay, so you cannot give further detail?

No, that’s the detail we’re going to give you.

Okay, in terms of the thermal weapons business, what is - - do you have an approximate ASP per display?

The catalog price on our website for the basic display is $325.00 and then if you want the module and such, you’re in the $600 to $700 range.

Okay, and I don’t know if I understood well, but the military is intent on supplying all the 140,000 troops with this?

They would like to roll it out, but there are gating factors.

And the gating factor again is the - - what is it you said it was?

The sensor used in the thermal weapon sites.

Okay.

It’s very advanced and I understand the yield isn’t so great.

And regarding the CyberDisplay and digital still cameras, who are your major competitors?

Are they going to be the same ones as for camcorders, like Sanyo?

This is John Fan speaking.

Our competitors for display on the lower resolutions particularly used for camcorders and digital cameras are Sanyo and Sony.

But once we go to VGA and up, we have clearly no competitors with [inaudible] displays.

Okay.

And what about the ASPs there?

As long as there is no competitor, our ASPs are good.

Okay, thank you very much.

we’ll go next to Jason Tsai with ThinkEquity.

Hi guys.

Just a couple of quick questions here.

Can you just give us a sense as to what you’re expected mix of military versus consumer CyberDisplay products are looking at for 2005?

Rich, you want to comment on that?

If all went well, we’d hope that a third of our sales would be military.

Okay, gotcha.

And then just to clarify on a question earlier.

That obviously is dollars, not units, right?

Right .

And limited to display only.

Right.

And then just to clarify on an earlier question, you said that gross margins excluding CyberLite would be in the 20 to 24% range.

Is that correct?

That’s correct.

Okay.

All right, thanks a lot guys.

Congratulations.

Once again, ladies and gentlemen, that’s star one if you would like to ask a question, star one.

And we’ll go next to Brian Alger with Pacific Growth Equities.

Hi guys, Good evening and good morning.

A number of bookkeeping questions.

Rich, did I hear you correctly in stating that you had about $2.3 million in CyberLite revenues on the full year?

That’s correct.

Can you reconcile that with your 10Q from Q3, that’s $3.4 million for the 9 months ended September 25th?

We do have other products, other LED related products.

Can you - - I wasn’t familiar with - -can you explain to me the difference between what you’re talking about in terms of 2.3 and the 3.4?

Yes.

I mean - - we have a subsidiary, Kowan, that does back end packaging of our displays and they have some di minimis LED revenues.

Okay, so the previous Qs that we’re reading through included the revenues generated by Kowan?

That’s correct, that’s why we’ve been very specific in saying CyberLite LEDs.

Got it.

Great.

And then kind of moving forward, you talked over several quarters about a potential for maybe increasing your capital expenditures in 2005 versus the relatively low level of ‘04.

What would be prompting you to make that increased expenditure?

Right now we’re in discussions with the military.

They’d like us to do some advanced displays and we’re looking at the commercial viability of them.

Right now we like who we are as far as being in the 6 inch line.

There’s good capacity.

We believe the cost is good.

And so if the military can demonstrate that there’ll be sufficient demand to pay of an investment in say going to an 8 inch line, that’s something that we might entertain.

Okay, so this would be presumably then for larger, higher resolution displays?

Yes.

HD quality displays is [ ] the lines much cleaner.

Okay, and in that scenario, would you guys be getting some NRAs up front to Help you fund that?

Yes we do.

Okay, great.

And then in terms of the equipment and property plant and equipment that you had, you’ve talked about that with regards to kind of the CyberDisplay business being somewhere in the neighborhood of $15 million.

How much of that is going with the sale over to the KO-BRITE joint venture?

And what is kind of the mechanisms in terms of what we should think of in terms of balance sheet depreciation, etc.?

I will make a comment and then Rich can comment.

I think almost all the equipment are moving to Taiwan or China.

On the depreciation part, Rich can talk about that.

Yeah, as I previously indicated, depreciation is about $9.5 million this year, it’s probably about hale of that next year.

As I mentioned, in the current assets, in other current assets, there’s about $6 million.

You can see a big spike in other current assets, to that’s the net book value of the equipment that’s being transferred to the joint venture.

And then there’s obviously an impairment charge of $5.3 million, so I think, Brian, you mentioned the $13 million.

That’s kind of how you get there.

Okay, great.

Thanks for clarifying that.

And then in terms of just one last question - - the go forward in terms of the growth of the company, it sounds as though the III-V is pretty much tied to whatever happens in handsets.

The growth that we should be focusing in on then in the display markets?

In some cases it’s true, but as I say, in Europe and Asia, I find out that people are very happy on the WiFi and WiMax.

And many of the customers or potential customers told us that the weakness is getting off HBT and the [inaudible] is Kopin.

So it just depends actually on the size of the cell phone.

So it can be pretty high tech increase.

So that’s the thing.

So on the case with display obviously is not quantifiable how big it can be.

The mobile video is just like mobile audio, the cell phone system 20 years ago.

And we’re seeing it right now and I think we’re the display for it.

Well, great.

Thanks guys, good luck

And we have no further questions at this time, so Dr. Fan, I’ll turn it back to you for any closing remarks.

Yeah.

Thank you for your attention and I hope to see you and talk to you next time.

Bye-bye.

This does conclude today’s conference.

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