Peraso Inc (PRSO) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the MoSys fourth-quarter and fiscal year 2006 financial results conference call. I will now turn the call over to Beverly Twing of Shelton Group Investor Relations.

Thank you, Rob. By now, everyone should have received our press release. However, if you haven't, it is available on the MoSys Web site at www.MoSys.com.

Before we begin the discussion of the fourth-quarter and fiscal year results, I would like to remind you that this conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which include, without limitation, statements about the market for the MoSys technologies, benefits and performance expected from use of the 1T-SRAM technologies and embedded memory designs, licensees of 1T-SRAM technologies and their strategy, the development and production of products that use MoSys' licensed technology, licensees and royalties attributable to 1T-SRAM technologies, and the Company's anticipated or prospective financial performance. Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the Company's most recent annual report on Form 10-K filed with the Securities and Exchange Commission, in particular in the section titled "Risk Factors" in the Form 10-K, and in other reports that the Company files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statement for any reason, except as required by law, even if new information becomes available or other events occur in the future.

Thank you for your attention. I will now turn the call over to Chet Silvestri, Chief Executive Officer of MoSys. Chet, go ahead please.

Thank you, Beverly. Good afternoon, everyone, and welcome to MoSys' fourth-quarter and fiscal year 2006 financial results conference call.

Joining me today is Jim Pekarsky, our Chief Financial Officer.

I will begin today's call with an overview of our recent business highlights, as well as provide updates regarding our products and markets. Following my remarks, Jim will provide a detailed overview of our financial performance, and afterward, we will open the call for a question-and-answer session.

So to begin, total revenue for the fourth quarter increased to $5 million compared to $4 million in the third quarter of 2006 and 2.4 million in the fourth quarter of 2005. As expected, we experienced a significant increase in royalty revenue associated with initial shipments of the Nintendo Wii game console during the quarter. We also achieved solid profitability in the quarter as a result of the increased royalty revenues combined with our reduction in operating expense. Our operating expenses declined through elimination of litigation fees as a result of the UniRAM settlement.

Now to review the quarter's result in the context of our strategic technology initiatives, which are 65-nanometer technology licensee, CLASSIC Macro design wins, and the ones 1T flash program. During the quarter, we signed a major new technology licensing agreement with TSMC. This agreement extends our previous agreement for another five years and in addition adds 65 nanometer and future geometries to the cooperation. One of the highlights of this agreement is that both TSMC and MoSys will separately develop embedded memory macros which incorporate MoSys technology and which target the 65-nanometer process node. In this way, SoC designers will have access to a very broad range of macro solutions for the TSMC 65-nanometer process node.

We also signed four new CLASSIC Macro agreements and two more reuse agreements in the fourth quarter, covering applications such as cellular handsets, portable graphics, imaging and networks. Also during the quarter, we signed a partnership with VeriSilicon Holdings Company, a leading ASIC design house, to integrate 1T-SRAM CLASSIC Macro technology into design for System-on-a-Chip customers across a wide range of foundry options and advanced process geometries.

Going forward, we continue to work with our other pure-play founding partners in order to have our CLASSIC Macros prequalified in the 65-nanometer process node, as well as developing, with them, some specialized solutions for the portable and cellular handset markets.

We also continue to make significant progress with our 1T Flash program. We now have working silicon from multiple foundries and more is on the way. We have already signed two macro licensing agreements and one foundry agreement for the technology. We expect to announce the details of these agreements in the coming weeks. Interest in this product line is strong and we anticipate announcing additional design wins for 1T Flash during the first half of 2007 and expect to generate incremental revenue in the second half of 2007.

So we had a lot of activity, and we believe that we made substantial progress during the fourth quarter toward implementing the strategies and goals that we have identified. Our reorganization of the Company and the diversification of our product offerings through the addition of the CLASSIC Memory Macro program and our 1T Flash program sets us on a path to achieve significant new design wins and royalty growth in the high-volume consumer applications that are our target market. Additionally, our R&D efforts have successfully scaled our 1T-SRAM technology to the most advanced process geometries, which further facilitates penetration into high-volume consumer electronic device markets.

With that said, I'd now like to turn the call over to Jim Pekarsky, who will review our fourth-quarter and fiscal year financial results and provide guidance for the coming quarter and fiscal year 2007, after which we will open the call for questions. Jim?

Thank you, Chet.

I will begin my review of our financial results by starting with our statement of operations. During the course of my comments this afternoon, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference excludes stock-based compensation expense related to FAS 123R. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which can be found at the Investor Relations section of our Web site.

The total net revenue in the fourth quarter was $5 million, compared to $4 million in the third quarter of 2006. The sequential increase in total revenue represents a 24% improvement over the previous quarter and a 109% increase over the fourth quarter a year ago. License revenue was $1.8 million compared to $3.3 million in the previous quarter and $1.3 million a year ago.

During the quarter, we signed a technology license agreement with TSMC with revenue to be recognized over multiple quarters. Licensing revenue was recognized from 12 different chip development projects during the quarter compared to 13 chip development products last quarter.

Royalty revenue in the fourth quarter was $3.2 million compared to $705,000 in the previous quarter and $1.1 million a year ago. During the quarter, we were able to recognize the royalty revenue for a full quarter of shipments for the Nintendo Wii game console. In the fourth quarter of 2006, royalty revenue was earned from 16 different licensees, compared to 15 licensees in the prior quarter.

Under Generally Accepted Accounting Principles, the gross margin percentage was approximately 88% in the fourth quarter compared to 96% in the third quarter of 2006, during which we recognized license revenue from a high-margin contract with Fujitsu. On a non-GAAP basis, the gross margin was approximately 90% in the fourth quarter of 2006 and excluded stock-based compensation charges of $98,000. On a GAAP basis, operating expenses were $4.6 million in the fourth quarter, compared to $7.8 million in the previous quarter. The 40% decrease in operating expenses during the quarter was primarily due to a significant reduction in legal expenses associated with the UniRAM litigation that was recently settled and recorded in the third quarter. Going forward, there will be no additional expenses incurred related to the UniRAM matter. On a non-GAAP basis, operating expenses in the fourth quarter were $3.9 million. This excluded stock-based compensation charges of $718,000.

Nonoperating income, including interest income, totaled approximately $865,000 for the quarter, compared to $1 million in the previous quarter. Fourth-quarter nonoperating income did include a charge of $170,000 related to the reimbursement of Japanese withholding taxes for the 2004 tax year. There will be no future liability of this nature, as the United States now has an agreement in place with Japan that eliminates this obligation. Excluding this charge, however, interest income and other expense totaled approximately $1 million.

On a GAAP basis, we achieved profitability during the fourth quarter with a net income of $567,000 or $0.02 per diluted share, as compared to a net loss of $2.9 million or $0.09 per share in the previous quarter. This compares to a loss of $1.1 million or $0.04 per share in the fourth quarter a year ago. On a non-GAAP basis, which excludes stock-based compensation charges of $816,000, net income for the fourth quarter was $1.4 million or a positive $0.04 per diluted share. Fourth-quarter net income per share on both a GAAP and non-GAAP basis was computed using 32,862,000 shares.

Now, with regard to revenue for fiscal year 2006, total revenue for the year was $15 million, reflecting revenue growth of 21% as compared to full-year 2005 total revenue of $12.3 million. Licensing revenue totaled $9.1 million in 2006 compared to $7.7 million in 2005. Royalty revenue for the year increased 28% to $5.8 million compared to $4.5 million for 2005.

Moving on to our balance sheet, as of December 31, 2006 our cash, cash equivalents in both long and short-term investments totaled approximately $84.3 million compared to $87.1 million as of September 30, 2006, and $86 million as of December 31, 2005. The sequential decrease in the cash balance from the previous quarter was primarily due to the payout of $2.4 million in accordance with the settlement terms of the UniRAM litigation. Excluding the effect of this payment, year-over-year cash, cash equivalents in both long and short-term investments increased approximately $700,000.

Accounts Receivable in the fourth quarter increased to $2.5 million from the prior quarter, of which $1.9 million has been subsequently collected during the first quarter.

With regard to guidance for the first quarter of 2007, MoSys expects total revenue for the first quarter to be in the range of approximately 4 to $5 million. This guidance takes into consideration the expected seasonality in shipments, which will result in reduced royalty payments. As a result, we expect royalty revenue to be approximately $2 million in the first quarter.

With regard to revenue guidance for fiscal 2007, I would first like to emphasize that any guidance provided for the full year is based on current visibility for 1T-SRAM business. We are not including 1T Flash revenues in our guidance at this time. We will provide more visibility on Flash revenue as the year progresses. That being said, we expect full-year 2007 revenue to range between 23 and $27 million, which represents greater than 50% year-over-year projected growth. Of this revenue, we expect royalties to be greater than $10 million as some of our 2005 and 2006 design wins will be entering the production phase, along with the continued shipments of Nintendo Wii. Based on these 2007 revenue projections, we expect non-GAAP EPS to be approximately $0.25 per diluted share, excluding stock-based compensation charges, and approximately $0.16 per diluted share on a GAAP basis.

Now, I would like to turn the call back to Chet for closing remarks.

Thank you, Jim.

In summary, we are pleased with the results of the fourth quarter and believe the strength in our royalty revenue, combined with reduced operating expenses and new production shipments from high-volume consumer products, will lead to solid revenue growth and profitability during 2007. In addition, the high-volume design wins that are currently moving into production should lead to strong royalty growth during 2007 and beyond.

This concludes our prepared remarks. Operator, we will now open the call for the question-and-answer period.

Thank you, sir. (OPERATOR INSTRUCTIONS). Chris Chaney, Stanford Financial Group.

The first question I have here is on the fourth quarter of royalties of 3.2 million. I was wondering. About how much of that would be non-Nintendo revenues at this point?

It's Chet, Chris. So I don't know actually, off the top of my head, and we aren't typically breaking these things out. But you can imagine that if you look at the prior quarter or quarters, the run-rate we were at and then look at the difference and you are going to be reasonably close.

Okay, that's what I thought. On the 1T Flash business then I was wondering. Do you plan on focusing the CLASSIC Macro program on 1T Flash at some point? Are any of the CLASSIC Macro licenses you've already signed in 1T Flash?

No, so the CLASSIC Macro program--that branding refers exclusively to our 1T-SRAM technology. So we don't have anything equivalent so we don't confuse the matter. We are not going to be calling it that when we do have the deployment in macros associated with Flash.

Okay. Now, this is sort of a point of clarification here. You said the you signed four new CLASSIC Macro licenses and then two new reuse agreements. Can you sort of define what the reuse agreement is?

So a reuse agreement is where we have signed, in the past, multi-use agreements or agreements that provide for additional uses and fixed--and payments, license payments prescribed for those additional uses. So what that means is some prior CLASSIC Macro customers have developed products using the first use and were happy enough with the first use that they've now added other designs into the picture and are paying us for multiple uses of that same macro in other chips, basically.

Okay, I see. Now, do you typically change the terms of the agreements in a reuse, such as do they pay different royalty rates or things like that, a different cost structure?

Usually, the royalties in any given agreement are segregated, so if for example if they purchase one, too, three or four uses of the macro and develop one, two, three, or four chips, they could pay us the percentage royalty, the same percentage royalty for all of those chips in an aggregate.

Got you, okay. Now, I'm just turning to Flash just for a moment here. You said you signed two; you have two license agreement signed. This is in addition to the one that was signed last quarter or is this two total now?

Two total.

Okay, and then there's one foundry agreement that was signed in the fourth quarter?

Well, (indiscernible) (technical difficulty) it's signed as of today, so I'm making my comments as of today.

Okay. Is the foundry agreement similar to I guess the 1T-SRAM foundry agreements where they sort of essentially resell the technology or try to proliferate it into their customer base?

Yes, they are pretty similar.

Are these 1T Flash deals at 65 nanometer or 180, or where is the technology node on those?

We actually--if your remember my comments that we have working silicon and more silicon in the pipeline for Flash from multiple foundries, we have this in geometries today from 0.18 all the way down to 65 nanometers.

Okay, great. Well, I have other questions but I will do follow-ups. Thanks.

Nimal Vallipuram, Hapoalim Securities.

Good quarter. I'm trying to understand one thing here. Have you changed, potentially changed your dealing with your customers as to see whether there--what you're getting from the licensing fees with an agreement coming down and that's been paid off on the royalty side? I'm trying to understand why the licensing number came down significantly, at least from my point of view. I could understand the royalty payment going up from 700,000 to 3.2 million, but I'm trying to understand how to model--how do we model the licensing agreement. Have you changed (indiscernible) agreement license fees you get from the customers?

Okay, so we made some indirect reference to what's going on, but let me be more specific. So, we have not changed the pricing and the style of our licensing. But I think, as we've been saying for the last several quarters, the size, the dollars size and scope of the deals we are signing has been increasing dramatically, particularly as you go to 65 nanometer and forward. So there's always this issue of lumpiness, and depending on how the revenue is recognized. So in Q3, we had a particularly large deal which we announced with Fujitsu that closed and was substantially recognized because of the terms of the deal.

In Q4, we've announced we had another large deal close particularly at 65 nanometers with TSMC. But in this deal, the revenue is going to be recorded over multiple quarters. So it just depends on--because as I mentioned in my comments, both TSMC and MoSys are developing macros as well around using MoSys technology for 65 nanometers, so this is stretching the revenue recognition over multiple quarters.

So you don't really--I mean, the size of the license is not disclosed; the terms are not disclosed, but the revenue is being spread out.

So in other words, the ability to forecast from our side on the licensing fees will continue to be somewhat difficult because it would depend on specific licenses and how those terms are (indiscernible) for the licenses as to how the revenues are going to be recognized going forward?

Yes, it's fair to say that the good and the bad--I mean the good news is that the scope of the deals we are signing is increasing dramatically, which is good from a strategic point of view. From a quarter-to-quarter revenue point of view, it cab create more lumpiness in the reported license revenue. We have little flexibility in this based on auditing and accounting guidelines.

I suppose I do understand that. I mean, that is something you have to give up for the sake of having to sign these long-term licenses. I do understand that.

Going back to the royalty payment, you indicated that, given Nintendo is your customer, that a significant part of the increase in sales on the royalty side, at least in my opinion, came from Nintendo. Given the seasonality of their end market, it might go down in the first quarter. I'm not asking you to forecast what the Nintendo shipments are going to be, but can you give us some idea as to how the royalty payment stream is going to develop through 2007? Also, going forward without asking for a guidance, do you see the royalty payments becoming consistently a much bigger part of your total sales?

So, you know, you had a lot of questions. So the seasonality in Q1, Nintendo is a big part of that. Okay? But going forward, Nintendo has, I think, basically announced their shipment forecast or forecast. I've seen anything from 15 to 20 million units for the year or even more. That's something they will forecast, right? We will collect the royalties on those chips when NEC ships them to Nintendo.

Is it expected to be strong this year? I think the Nintendo Wii is still selling very strongly and anticipated to be in high demand throughout the whole year.

So, what else in your questions have I missed?

Yes, the second question is that I'm trying to understand whether--it looks like, after almost 12 to 16 quarters, the first-time royalty payments were a majority of sales.

Yes.

On your total sales--do you expect that to continue and becoming a much larger part of the sales, which I believe is the whole game plan?

Yes, so if you look--at least at this point in the year, the guidance we've given for the year said that revenues are going to be in the range of 23 to 27 million, and royalties are going to be in excess of $10 million. So if you take that 10 million as a percentage of 25 million, let's take the midpoint, that gives you the percentage of royalty or greater if the royalties are greater than 10 million. So we are in the 40% of revenue range now, whereas historically for the Company we have been in the 20% revenue range with our royalties. You see?

Yes. Finally, if that is the case, you expect the gross margin to be close to between 95 and 100% going forward?

Well, it's never--100% is going to be tough because we have other costs. We have (multiple speakers).

I understand. I didn't mean 100%, I said between say 95 and 98 to 99. (multiple speakers)

(multiple speakers) well, the other 60% is coming from licensing revenue, and it's going to be a mix of CLASSIC macros which are higher gross margin, and/or some large technology licensing deals of which some are recognized, the revenue, over a percent-of-completion basis, right? So I think, even with that, even with our royalties--royalty revenue reaching 40% of the total revenue mix, you're still looking at a gross margin that's somewhere in the range of 98 to 95% and could fluctuate from quarter to quarter.

Just a final question, Chet, if you look at the (technical difficulty) if you look at the model here, you did--Jim implied that you'll be able to do $0.25 in EPS before the stock-based compensation for 2007. Is that what Jim said?

That's correct.

Thank you very much, gentlemen.

(OPERATOR INSTRUCTIONS). [Abraham Alasrapu], Thomas Weisel.

Good afternoon, gentlemen. My first question is based on the royalties. If I remember last quarter, you had given guidance for 1 to $2 million for the quarter. However, you reported way above that, so I'm wondering. And I'm presuming most of that is from the Nintendo Wii. So could you give us a sense of how you recognized revenues on this? Because still now I presume it was for the quarter's lag and so we thought that most of that would come in the next quarter.

Yes, that's a good question. So remember, we don't recognize the royalties even a quarter in arrears when Nintendo ships the boxes. We recognize when the chips are shipped to Nintendo, in this case by NEC. Now, it also turns out--we said last quarter that we didn't expect we would get paid for a full quarter of shipments from NEC and their chip deliveries as they stream them through in the fall and even into the fourth quarter. But it turns out, in the fourth quarter, because of some expanded business relationship and strategic things that we're doing beyond Nintendo with NEC, they have agreed to actually purport to us and pay us current in the quarter as opposed to one quarter in arrears. So in particular for Nintendo only, NEC will be paying us quarterly as they ship. So we got paid for the fourth quarter's shipments to Nintendo, as we will get paid in the first quarter for the first-quarter shipments to Nintendo, and on going forward.

Okay, so that brings me to my next question. Your revenue guidance for the quarter was between 5 and 6 million.

Yes.

And you royalty guidance was between 1 and 2 million, and I'm presuming the rest would be 4 million for licensing. But it's coming way below that. It's (indiscernible) 1.8, so have you not recognized a part of TSMC that you thought you would this quarter?

Well, yes, I mean when we look at these agreements and we negotiate them, it's hard to tell at the beginning just what the exact terms are going to be and how much work and over how much time are we going to recognize on a percent-of-completion. So it's hard to estimate that. When we actually signed it and reviewed it, we came up with something that might--that wasn't exactly the way we thought it was but it comes in subsequent quarters.

Okay, which means that any licensing win going forward will be spread across several quarters, am I right? Would we spread across two quarters? three quarters? four quarters? Now should we look at it?

It really depends. For example, with Fujitsu last summer, we actually didn't spread it over any--one to two quarters was all. With TSMC, it might be more than that. It can range anywhere from one to three quarters, on average.

Yes, and it depends upon the structure of the agreement and whether MoSys has any prescribed deliverables as opposed to, in the case of Fujitsu, they took a technology license and they are using their internal team to do the actual work. So in the case of TSMC and some other large tech licensing agreements, with the revenue spread out over multiple quarters, a relative buildup of those would provide us with a backlog that would help us to linearize our revenues better.

That's right, so that's the good thing about it. If we're doing work along with the licensee, which is typical, it helps to build the backlog.

Okay. You spoke of four new macro licenses and two reuse licenses. I'm presuming the reuse of TSMC and Fujitsu. Am I right?

No, they are not and we are not saying who.

Okay, fine.

(multiple speakers) to announce those.

And you have announced the four new macro licensees either?

We have not.

We have not.

Okay. Regarding the 1T Flash you spoke of for two Micro licenses and one foundry agreement, have you announce any of those, the names of those?

We haven't announced any of those yet. But we expect to do so in the near future.

Okay. My final question is based on guidance. Am I right in assuming that the guidance is only for the 1T-SRAM and it does not include anything from the 1T Flash?

That's correct.

The 1T flash will be in the second half event of next year? You see that this guidance could change as and when you see that happening, right?

That's correct. When we get a little more comfortable in terms of the actual shipment date and the revenue-recognition treatment we're going to apply to these licenses that we are signing and continue to sign, we will provide more clarity in the upcoming quarters.

(multiple speakers) yes, thank you. That completes my questions.

Back to Chris Chaney, Stanford Group.

Back to my follow-up questions, really regarding I guess the two largest license deals I see, where you guys this year outside of Nintendo, and those are Fujitsu and TSMC. Fujitsu you signed or you have been working on it for the first half of the year, and finally got paid for it in Q3 I believe, the majority of it anyway. Then in Q4, you were paid for I guess partial payment for the TSMC deal. What I am really wondering is, in 2007, with your own stated forecasts of about $10 million in royalties, I see about 7 million of that probably from Nintendo, so the 3 remaining. How would you characterize the revenue-generation potential in 2007 between the Fujitsu contract and the TSMC contract with regards to the remainder non-Nintendo royalties for '07?

So, certainly with TSMC you know, we can expect some reasonable royalty ramp in 2007. With Fujitsu, because of the kinds of customer engagements they have, we may not see it until late in 2007. So on a full-year basis, TSMC I would expect will be larger than Fujitsu as a royalty there.

Okay. (multiple speakers)

There are other foundry-based designs that we have won with the CLASSIC Macro in 2006 and even in late 2005 right after we launched that program. It should go into volume production even in the first half of 2007, and they will be contributors as well. So they will be new names.

(multiple speakers) CLASSIC Macro program as a whole can generate over $1 million of revenue in the first half of 2007, or is that more of a back half '07 (inaudible)? I'm just trying to get an idea of the traction that it's getting as a percent of the total royalties.

I think it will be more substantial in the second half than in the first half.

Okay. Regarding the CLASSIC Macro license deals signed so far, can you characterize the type of customers that are coming to you and the types of applications they are wanting this technology for and maybe some of the commonalities that you see between them? What is it that is attracting everyone or these customers to the CLASSIC Macros in terms of the configuration of the memory, the power requirements of the macro that you've developed or macros that you've developed? Kind of what is it that you see in common here that is really attracting the customers?

Okay, so I would say the greatest number of--the applications that have, where we've licensed the greatest of macros are, first, cellular handsets, second what I will call portable multimedia, and third storage controllers. I think all of them are driven probably in order by the cost savings of our high-density memories, the power savings, and the performance. All three matter but I think it's in that order.

Okay, and how many--how many of these macros are now proven in silicon, and how many do you expect to build overall?

So, we've typically done and are typically doing two variations in every process node at every foundry, let's put it that way. One optimized for ultralow power and one optimized for high-speed. We make the trade-off. So with typically do one in the a low-power process, one in more of a high-speed process or a G process, if you would call it that way, at each node. So for 65 nanometers for example, we're doing a high-performance and a low-power for TSMC and others.

I see. So you have these, at this point, verified in silicon at TSMC, UMC and Charter? Are those the three main foundries for a total of six Macros or --?

So we've typically focus on the top four foundries, TSMC, UMC, Charter and SMIC. So we don't--we are doing CLASSIC Macros today for anybody but those four. We will do custom macros for another boundary, but we do CLASSIC Macros for those foundries. It's a scattered chart and the marketing people decide what order we do them in, high-speed first, low-power first. Do we do it at 90? Do we do it at 65? Do we do it at 0.13? So we're not doing them all simultaneously.

That tends to be customer-driven, so if a customer comes to us that has a design that they'd won and is at a given foundry, that could help us set precedence on rolling these out.

Got you. Okay. The TSMC contract that you just signed, I'm wondering how leverageable is that kind of contract into a UMC Charter or an SMIC or others? I know they don't have the types of design services that they offer, like TSMC, but is there a compelling reason for you to be making a hard sell into those foundries as well? Have they been receptive at all and kind of what traction do you see regarding those other foundries?

Well, we have continuing dialogue with all of them on what the right business model is, what's the best way to deliver the product to the customers, and it evolves. We are open to all possibilities and I think so are they. It's just a question of what makes the most sense now and for the customers that are showing up on the door steps.

But regardless of the type of relationship that we have with them, we expect to work with all of them at 65-nanometer.

Okay. I just had a last question on the 1T Flash again. I'm just trying to get an idea of the potential that I understand is not assumed in the guidance for 1T Flash in terms of--really I'm looking I guess for the royalty side of this. That is that the customers that you've signed up so far, the two agreements signed and the one foundry agreement with the two licensees, can you characterize the type of customers that you're seeing here? Are these customers that are focused on mobile products? Are they in the order of magnitude of maybe millions of units a year? Sort of what are some of the main characteristics of these kinds of agreements, or at least the applications that they are considering using the technology in?

So yes, they are high-volume suppliers, so that's primarily our interest, as you know. So their product lines ship in the millions of units. The structure of the deals, although there's a licensee and a royalty usually associated, similar to our 1T SRAM, the royalty percentages are about the same. So we don't anticipate charging any different kind of royalties.

The upfront fees and whether they're called classics or preconfigured or custom or technology license, this is all--because we're dealing with a few early adopter customers and one at a time right now, there's no way that we're not--we're not in the standard business model at this point. We're doing what makes sense on a case-by-case basis.

Do you think by perhaps mid-year, you might have a better idea of being able to, on the call, as you give the forecast on a quarterly basis, talking about the potential revenue contribution? Or would this be simply (multiple speakers)--?

(multiple speakers) the application these are going into. We are not doing that today, and hopefully in the coming weeks, we will be able to announce some of these deals, so you'll see the kind of applications that we are targeting or they are targeting. But we don't want to get ahead of that right now.

I see. So you think that sometime in Q1, from what I understand, then you might be able to be naming one of these 1T Flash customers sometime this quarter?

One or more, yes.

One or more, okay. Well, thank you. I appreciate it.

Joel Achramowicz, MED Capital.

Chet, just for comparison of the third quarter, how many macros, new macro deals did you cut in the third quarter?

Off the top of my head, I think it was like four.

About four. Did you have any reuse agreements? Did you (multiple speakers)?

Not that I remember, not that I recall, know.

Okay. Can I ask a question about your sliding scale in terms of royalty calculations on the Nintendo Wii, what they might break out at the low end in terms of on an annual basis what's the lowest per-unit cost base on volume that they would pay on royalties?

Well, we haven't disclosed any of this. We do charge a percent of the ASP of the chip, so if the chip price declines, we're going to collect less, so it's really a function of what the price of the chips are that are being sold to Nintendo. Our royalty rate doesn't change.

There's no floor on that, then, on your agreement, no collar of any kind?

No, I mean if NEC were to sell the chips to Nintendo for $1, I guess we would collect a percentage of $1. They are clearly not going to do that. So the floor is that these guys are not willing to sell for something below cost or they want to make a profit on their chips.

Yes, the percentage is fixed. It's just that it's based on the unit price of the chip and if that price goes down, then our royalty--royalties would go down. But the actual percentage is fixed.

Obviously (indiscernible) on the transfer cost between the two entities?

Correct.

There's an aspect of (indiscernible) that's somewhat (indiscernible) with regard to this relationship, but at the same time, too, can you continue to see perhaps year-over-year Wii revenues or royalties in 2008 over 2007, or do you think that might tail?

It's our expectation that it will continue at a fairly substantial rate for at least two to three years.

Okay. One question I have is, it would seem to me that, from a forecasting perspective, taking into consideration some of the other questions that the guys asked, it would seem disappointing if you didn't strike another one or two 65 nanometer deals with either a foundry or an IDM throughout the rest of the current year. Would you agree with that or--?

Absolutely.

Is it possible that--are you working on other deals? I mean, obviously, you can't tell us with certainty but are you working on other deals that might provide significant royalty, per-unit royalties prior to--that you might strike prior to the current Christmas season at the end of the year?

Yes, so we are working. In fact, our pipeline for big deals has never been greater. As I said earlier, the dollar side and the scope of these technology licensing deals that we are pursuing are getting bigger and bigger.

So I mean it's conceivable that you could exceed your current range estimates if some of these deals did come through?

Yes, but it's also dependent on the revenue recognition treatment, over how many quarters, right, and how early in the year, so you know, we get a lot of them early in the year, then the backlog is going to be there and we're going to recognize most of it in the year, so timing is there, too. But in terms of bookings, let's say, we are seeing a tremendous pipeline. (multiple speakers)

Just one final question, Chet, and then I will hop off. From a competitive perspective, do you still see the company MoSys being in a very strong proprietary position with the 1T architecture?

We do; we do.

Okay, that's all I have. Good luck going forward.

As there are no further questions at this time, I would like to turn it back to you for any closing remarks.

Thank you. So, thank you all for participation in our call. I encourage you to visit our Web site frequently and to stay abreast of activities.

In March, we will be presenting at the Montgomery Technology Conference in Santa Monica, California, and look forward to visiting with any of you at that time. We encourage you to check our Web site for the exact date and time of our presentation at the Montgomery conference.

Should you have any additional immediate questions, please feel free to contact us directly. Thanks again. Operator, you may now disconnect the call.

Thank you, sir. Thank you, again, ladies and gentlemen. This brings your conference call to a close. Please feel free to disconnect your lines now at any time.