Peraso Inc (PRSO) 2007 Q2 法說會逐字稿

We are now ready to begin the MoSys Second Quarter 2007 Financial Results Conference Call. I would now like to turn the call over to Beverly Twing of Shelton Group Investor Relations.

By now everyone should have received the Press Release. However, if you haven't it is available on the MoSys website at www.mosys.com. Before we begin the discussion of the second quarter 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, 1T-FLASH or Mixed Signal technologies, licensees of 1T-SRAM technologies and their strategies, the development and production of products that use MoSys' license technology, license fees and royalties attributable to 1T-SRAM, 1T-FLASH and Mixed Signal 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. Additionally, 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 as new information becomes available or other events occur in the future. Thank you for your attention.

I would now like to turn the call over to Chet Silvestri, Chief Executive Officer of MoSys. Chet?

Good afternoon everyone and thank you for joining us today. In my discussion I'll describe our progress in the quarter including both highlights and lowlights and afterward I'll turn the call over to Jim Pekarsky, our CFO, who will provide a more detailed financial update including guidance for the coming quarter and for the year.

To begin we achieved some notable successes in the quarter and we continue to make good progress on all of our sales initiatives although we still have some challenges facing us in the short term. Total revenue for the second quarter was $4.3 million. This includes licensing revenue of $2.1 million and royalty revenue of $2.2 million. Both licensing and royalties are up compared to the year ago quarter and up from the previous quarter as well.

Now before I discuss the progress we've made in our 1T-SRAM business, let me reiterate the basic strategy that we have been pursuing with this technology. Our strategy has two elements. The first is to focus on signing major technology licenses with semiconductor manufacturers, particularly at the advanced process geometries of 65 nanometers and beyond. The second element is to create pre-configured macro designs that are targeted at specific system solutions. In this category our current focus is to design and deliver macros for the display driver chips that are used in cellular handsets.

So with this background we believe that we have made good progress during the second quarter. We signed another major technology license for an advanced process node. This agreement was with NEC for use with their 55 nanometer process and will enable them to target next generation consumer, graphics and networking applications. This agreement is further evidence of the scalability of our technology now reaching the 55 nanometer process node.

Now we had been targeting to close two major technology licenses during the quarter but we were only able to close one. This contributed to a shortfall against our expectations. We see strong demand for our 1T-SRAM technology, partly due to the publicized success that we've had with the Nintendo Wii game console, and we are in late stage discussions with a number of potential technology licensees. However, in order to close these major agreements we are often required to complete several preliminary steps such as feasibility studies or development and characterization of test chips. The time it takes to complete these preliminary steps can be variable and can result in delays in signing the final agreement. We are satisfied with our progress in pursuing these technology licenses but having one slip out of the quarter, as happened in the recent quarter, can have a noticeable impact on our licensing revenue.

Now going forward, in order to achieve better management visibility on these technology license negotiations and to try and shorten the time to close them, we are realigning some of the sales groups within the Company along with some management changes. We believe these changes will help us to increase the focus within each of our major sales territories, Asia, Japan and the U.S., so that we can apply more executive involvement and better coordinate the efforts between sales and engineering to more quickly complete the preliminary steps necessary to close these licenses.

Now moving on to the second important element of our 1T-SRAM strategy is to pre license, pre configured solution macros, in this case macros that are specifically tailored to drive cellular handset displays. These display driver components are a critical element of cellular handsets and the higher resolutions that are required to support future versions of these handset displays give us a compelling advantage with our 1T-SRAM technology. It is an area of strategic focus for MoSys and we're pleased to have signed an additional agreement for this technology in the second quarter.

In terms of our 1T-SRAM royalties, the outlook continues to improve. The royalties that we receive from production of the Nintendo Wii game console continue to grow quarter-over-quarter and contributed to our overall growth in royalties. We expect this growth in royalties to continue for the remainder of the year and into 2008. In addition, we expect to see initial royalties at the end of this year from shipments of another major game console as well as several handset designs that are entering the production phase. These new high volume products entering the production phase will add to the growth in royalties in 2008.

During the second quarter we also made significant progress on our other major technology initiative, the 1T-FLASH technology. We completed the design of our first product macro and taped out the design to the foundry. The tape out of this first macro represents an important milestone in our overall FLASH program because it gives us confidence that we can meet our design milestones and deliver a product that has compelling advantages in the marketplace. We have seen strong demand from customers who are interested to engage with us on additional macro development.

With the completion of this milestone we will now begin aggressive selling of this FLASH technology and expect to close additional licensing agreements in Q3 and Q4. We intend to use the same overall business strategy with FLASH as we are with 1T-SRAM. That is we will focus on signing major technology licenses with semiconductor manufacturers and we will develop and sell pre configured macro designs to support specific system level solutions.

Finally, to complete my review of what was a very busy quarter, we began discussions and completed an agreement to acquire the intellectual property for a number of Mixed Signal chip designs from Atmel Corporation. One of these chip designs is a single chip Analog Front End, or AFE, for High Definition/Blue Ray DVD players. The High Definition/Blue Ray DVD player market is expected to grow from 2.5 million players in 2007 to 55 million players in 2011 according to ABI Research. As you may know, these HD players today are expensive and everyone is looking for ways to cost reduce the parts required to build these players. The Analog Front End is a critical and expensive subsystem of these players and our Atmel acquired solution can dramatically reduce the cost of this subsystem. We expect to see a lot of licensing interest in this technology when we begin to actively engage customers within the next 30 days.

Another of the acquired chip designs is an 8 port gigabit switch, which is targeted at the networking market. We also plan to start engaging with customers on this product during Q3. We expect these acquired products to be accretive to earnings within the first year as we begin actively promoting them to potential customers. This Mixed Signal product acquisition supports our strategy to further penetrate the high volume consumer multimedia and networking markets and complements our 1T-SRAM and 1T-FLASH memory IP offerings. We can now offer our licensees a more complete set of IP to support their system solutions.

Now let me turn over the call to Jim Pekarsky, our CFO, who will continue to elaborate.

During the course of my comments I will make several references to non-GAAP numbers. Unless otherwise indicated each reference excludes stock based compensation charges. These non-GAAP financial measures in a reconciliation are 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 website.

Total net revenue in the second quarter was $4.3 million. This compared to $3.1 million in the first quarter of 2007 and $2.3 million in the year ago quarter. As Chet mentioned, this does represent a sequential increase of total revenue of 38% and year-over-year increase of 85%. Licensing revenue for the second quarter totaled $2.1 million and compares to $1.1 million in the previous quarter and $1.7 million in the second quarter of 2006.

Royalty revenue for the second quarter was $2.2 million. This compares to $2 million in the first quarter of 2007 and $639,000 in the same period a year ago. With regard to royalty revenue, we continue to receive royalties from multiple development projects including the Nintendo Wii game console, which continues to sell at a steady pace in the market. During the quarter royalty revenue was earned from 16 different licensees, which was consistent with the prior quarter.

Under GAAP the gross margin percentage was approximately 84% in the second quarter compared to 82% in the previous quarter. The gross margin percentage on a non-GAAP basis excluding stock based compensation expenses of $122,000 was 87%. GAAP operating expenses were $4.9 million in the second quarter compared to $4.7 million in the previous quarter and consistent with the same period a year ago.

On a non-GAAP basis operating expenses for the second quarter were $4.3 million compared to $3.9 million in the previous quarter and $4.4 million a year ago. Non-GAAP operating expenses excludes stock based compensation charges of $672,000.

Non operating income, including interest income, totaled approximately $1.2 million compared to $1.1 million in the previous quarter. On a GAAP basis the net loss for the quarter was $146,000 or breakeven per share. This compares to a net loss of $969,000 or a loss of $0.03 per share in the previous quarter and a net loss of $2.1 million or $0.07 per share in the second quarter of 2006.

Earnings per share for the quarter on a GAAP basis were computed using 31,945,000 shares. On a non-GAAP basis, which excludes stock based compensation charges of $794,000, net income for the second quarter was $648,000 or $0.02 per fully diluted share. Earnings per share on a non-GAAP basis were computed using [32,882,000] shares.

Now with regard to the balance sheet, as of June 30th, 2007 our cash, cash equivalents and long and short-term investments increased by $1.4 million and totaled approximately $87.6 million. This compared to $86.2 million as of March 31st, 2007 and $84.3 million as of December 31st, 2006. Accounts receivable at the end of the second quarter totaled $356,000 compared to $1.1 million in the previous quarter. Collections of accounts receivable were strong during the second quarter.

Now I will provide the Company's guidance going forward. For the third quarter we expect total revenue to be in a range of approximately $4.5 to $5 million with royalty revenue consistent with Q2 at around $2.2 million. Non-GAAP gross margin is expected to remain the same as Q2 at 87%. Non-GAAP operating expenses will increase from $4.3 million to $5.5 million due to approximately $1.2 million of incremental expense associated with the Mixed Signal product acquisition.

Interest and other income is estimated to be approximately $1.1 million bringing non-GAAP EPS in the range of a loss of $0.02 per share to breakeven per share. As Chet mentioned, we continue to have a strong pipeline of potential technology licensing business although these agreements are taking longer to finalize than originally anticipated. Many new customers require us to complete a series of preliminary milestones leading up to a full technology license. While we are generally able to recognize some revenue as we complete these preliminary milestones, the delay in signing the full technology license is impacting our overall licensing revenue.

In addition, we also expect to experience a similar scenario with our 1T-FLASH technology licensing efforts. As a result, we anticipate total revenue for 2007 to now be in a range between $18 million and $21 million, which represents a year-over-year growth rate of greater than 30%. We continue to expect full-year royalty revenue to be in a range of $8 million to $10 million, which represents a year-over-year growth rate of better than 50%. The incremental operating expenses related to the Mixed Signal product acquisitions will remain constant throughout the end of the year at approximately $1.2 million reflecting the low cost engineering locations in China and Romania. Based on these 2007 revenue projections and the impact of certain expenses associated with our recent IP acquisition, we expect full-year non-GAAP EPS to be approximately $0.05 per diluted share and excluding stock based compensation charges approximately a loss of $0.06 on a GAAP basis.

Now I would like to open the call up for the question and answer session.

(Operator Instructions) Your first question comes from the line of Chris Chaney with the Stanford Financial Group.

A couple of questions here-- first, on Nintendo I know it was probably a substantial part of your royalty revenues. Could you tell me what percentage of royalty revenues it was and from that I guess I can figure out what the total percentage of total revenues.

The percentage of royalty of the $2.2 million that comes from Nintendo?

Yes what percent of that was-- well is-- was all the $2.2 million from Nintendo or was--?

No, no, no. We had, as you could have seen last year when prior to Nintendo beginning shipments we had royalty and you could extrapolate from there. I mean we haven't really had any royalty payers drop off so to speak, right, and other guys are beginning to come into the market place. So we're not-- I mean we don't really, we're not in the habit of breaking out individual customers and if we did that with Nintendo it would let everybody know what volumes are and we're not really in a position to do that either.

Right. I know that in the past-- well, I guess my expectation was that Nintendo would be roughly 30% of total revenues for the year. Is that kind of a fair assessment of that?

Well, given if royalties are roughly 50-- 40% to 50% of revenues for the year, that would be the high side I would say.

Yes and the Nintendo royalties, it has been at a steady pace. It's been consistent. Any upside that we may anticipate will be towards the holiday season this year because we are on a current quarter reporting period with the Nintendo Wii royalties. So we could hope to see some up tick.

In Q4 you might see.

Correct.

Based on their-- they've made some public projection of their, in terms of their demand and their forecasted shipments going up so you could look at that.

Right. The royalties were up about $200,000 quarter-to-quarter Q1 to Q2.

Yes.

Was the majority of that difference in the Nintendo numbers or did that come from other customers?

No it came from other customers. It was not Nintendo. Nintendo has been fairly constant.

And that's expected to be that way throughout the year or--

No that's what we're saying that--

As you go into the new holiday season you could expect to see a buildup.

Correct so we're anticipating perhaps in Q4 is where we could see incremental increase in the Nintendo Wii royalties. Otherwise it's been fairly consistent.

Okay does your new full year guidance on revenues suggest that there will be some revenue associated with the Atmel business acquired or is that expected to be more in 2008?

Yes we expect it to be in 2008 and given that you know we just completed the acquisition, we're going through the planning and the initial selling process now. We have not factored any of that in to this year's results.

I see. When you do sign the first major, the first license deal for that, is it fair to say that the auditing requirements will be that you're only able to recognize a portion of that revenue in the first quarter and then it will be spread throughout a couple of quarters or a few quarters anyway?

That's probably a reasonable conservative expectation given our history with these new technologies into the marketplace.

Okay and when you do sign deals in that space, do you expect it to be roughly like the $1 million or $2 million technology deals for 1T-SRAM or is this something in the order of twice that or what's sort of the-- what shall we expect to see for those kinds of licenses?

We expect those licenses to be higher, primarily because these are full blown system on chip solutions if you will, complete reference designs as opposed to a macro, which is a part of a complete solution with the rest of our technology licensing.

And will the royalties be somewhat similar in percentage wise?

Yes we expect royalties to be the same since they're always geared as a percentage of the selling price of the device.

Okay and then finally the one licensee that slipped out of the quarter and I guess are you close to sign that or finishing that now? Has it been signed or do you expect it to close in the September quarter?

So we haven't signed it. It's not lost. It's you know, and as I think I mentioned, we've got several of these major technology licenses in negotiation right now and how to complete the milestones and get ourselves to a complete signed license agreement we're working through.

Okay is this one a 1T-SRAM deal or a 1T-FLASH?

Yes they're all 1T-SRAM deals that I've been talking about. We haven't started the 1T-FLASH technology licensing. We're just now doing that.

So where we've been able to take some revenue, Chris, is that we've been having to do some feasibility studies and some development of some test chips that on the engineering side and there is some revenue there but the delay in getting the full technology license we're still working on those and that's what's impacting our licensing revenues.

And some of that requires if we're doing a test chip, for example, we need to complete a full shuttle run at the foundry and get the device back, which could take two or three months so that's part of the timing dilemma in pulling anything into a current quarter.

Right. Okay I'll go ahead and let the-- turn the floor over to other questioners. I'll stand by.

(Operator Instructions) [Jamie Zimmerman] with Life Speed Partners

Is there any way that you can give us some granularity on the cell phone penetration, even if it's not until '08 or '09?

Sure, Jamie. It's Chet. So let me elaborate on what I said. We've got several handset designs that are going into production this year. We expect the initial production phase to start this year. Since we recognize royalties at one quarter in arrear, we may see little if any of the royalties this year in Q4 but we expect them to be in volume production throughout 2008 and we've got more than one of those designs ramping into production. Additionally, since we are now fully licensing and getting design wins and licenses signed for our display driver chips, which are all going into cellular handsets, those would stream in as well. The design cycle could take six to nine months, maybe even a year in maximum case so we could see some royalties even from the new designs that we're getting now, even in '08. So there's a steady and what we see as an accelerating buildup in the royalties we'll be recognizing from cellular handsets even as compared to Nintendo Wii and the other game consoles, which we're progressing in. Does that answer the question?

No. Do you have any granularity on numbers?

Well okay so the product that we're licensing into are basically going into the color displays, which are in every handset.

How many handsets are made a year and what penetration do you expect to get?

So of the-- and I don't have the market statistics at the tip of my tongue but of the approximately 1 billion handsets that are shipped every year we have a very compelling advantage in high resolution displays. Things that are starting to ship now, what you'd look at is the Apple iPhone or the so called half VGA or full VGA displays, which are coming out in most of the new and higher end handset. How they phase in, I mean over the next year or two I think the statistics I've seen said there are 20% to 30% of the handsets that will be using these high resolution displays and that's where we're playing.

I'm sorry did you say half?

20% to 30% of the handsets will use these high resolution displays.

Okay so what percentage do you think you're getting? So you think 200 million to 300 million handsets a year.

Are really the target for our technology to be effectively used to power their displays and it's one design win at a time right and so there's a dozen manufacturers that are producing these handsets and we're chasing everyone of them.

Are there twelve that make the 200 to 300?

It's a very concentrated industry so there's only-- there's less than 20 that produce all of these.

So how many make the 200 to 300? Who is doing the-- I mean what is the iPhone using now?

They haven't announced that. It happens to be one of the Japanese manufacturers.

But what are they using to-- I mean are we speaking to them?

Yes.

I mean--

We're speaking to all of them because there's only 20. It's a very concentrated-- that's the other reason we like this particular subsystem in the phone. It's a very concentrated--

Yes but you were talking about the ones that make the 200 million to 300 million of the high resolution.

There's less than 20 companies in the world that do that.

But I mean, for example, if you look at an iPhone, which is pretty-- which is very visually complex I don't know. I mean, I don't own one but I've seen one and I played with it. It looks pretty good. I mean what do they need our chip for?

To basically store all the pixels or all those design elements or all those picture elements in that display.

But whose-- what are they using now?

They can pull it together with a different kind of-- they're using a similar technology-- let me put it to you that way, that won't scale to the next generation.

What would the next generation be because there's every-- I mean it doesn't seem like there's anything that's not in that phone.

Yes and no I mean but it's big and it's somewhat expensive to build so they're going to move to the next generation to cheapen it and to reduce the power. And they're the first ones to come to market with what's called half VGA, which isn't the full VGA that everybody else is doing so VGA refers to the resolution of the display and nobody could go to the VGA resolution today unless they've fixed this memory problem, which is why we focused on it.

(Operator Instructions) [Neil Goldman] with Goldman Capital Management.

To answer that, to go further, when you go to full VGA what are the other alternatives besides your 1T-SRAM?

Yes that's a good question. So the only real alternative when you go to VGA is to take that chip out of the display and stuff it into the main body of the phone and then create some kind of a flexible cabling system to go to the display. It's all very expensive and mechanically not very desirable so nobody wants to do that. One company, and I'm not going to say who it is, has actually done that to create such a solution but they would like to eliminate that if they could and nobody else wants to do that at all because the (inaudible) is too big to fit in that--

So what you're saying is there's no reason for you not to get a significant part of that 20% to 30% of that market over time?

We are optim-- you know we are talking to literally everybody that does this and we haven't heard anybody that doesn't say we've got a better solution and the one they would like to have.

And to answer that woman's question further, what would that mean per phone, I mean in terms of a royalty or you know?

You know, these are-- the chip price themselves I mean you can imagine we'll collect $0.10 to $0.15 per phone for this particular technology.

Okay. Could you define the size of this new technology in terms of the market potential? I mean you talked about the number of DVDs in 2011 but define it as you see it relative to your technology and what it means.

You're talking about now the new Mixed Signal DVD, High Definition DVD?

The Atmel deal right.

Yes, yes okay. So this is an area, this Analog Front End so to speak is today in any of the players if you go to a Best Buy or any of the consumer electronics stores what you're going to buy in those DVD players is a solution based on multiple chips to accomplish it. This is a single chip solution and that-- those multiple chips can cost anywhere from-- the chip set is going to cost anywhere from $60 to $100, hence the cost of these players in the $500 and beyond range. If you get to a single chip solution like we can provide the technology for you can cut that cost to $20 or $30 per chip. Now we'll collect a royalty on that, you know in the same range of royalty we collect for everything else, say nominally 3%. So that's 3% of $30 is $0.90 so between $0.50 and $1 on 50 million units is the opportunity for us in that just a single piece of IP alone.

I mean so it sounds like the opportunity in that, in that one IP and in the phone side assuming it's $0.10 and it's if you 250 million you're dealing with 50 million in potential royalties alone from those two markets.

That's right.

I mean that's the market opportunity fees.

That's right.

And that's essentially 90% margin I assume right?

100%.

Yes okay. And nothing to do with the licensing side of it.

Correct. Licensing would be on top of that as all these guys would pay some up front licensing fee as well.

And then the other technology that you bought with Atmel?

Is a networking switch, a gigabit switch, which everybody is trying to ramp into high volume, low cost now because it's the-- everybody wants to make this pervasive. And so it's in the networking market. The volumes are lower but the ASPs can be higher but this fits along our 1T-SRAM strategy where we're supplying the 1T-SRAM memories already in a number of networking applications and we want to be able to provide more of the system solution there so we can sell it to the same customers and collect incremental license fees and royalties.

And try to define the size of that market at your pricing.

I don't actually have those numbers as readily available because we aren't focusing on that in terms of adding up our potential royalties. I see high volume consumer markets. It's not as big as the high volume consumer markets, maybe half the size.

And if you looked at all the three, the 1T-SRAM and the FLASH and now the Atmel technology, how would you define-- you know, we talked about 25 million just for the DVD potential your royalty share, not even licensing.

Correct.

And incremental from the networking side the phone business alone is potentially 25 million.

That's right.

You know, royalties let alone all the game side and every other consumer product and the FLASH side is along the same lines right?

Yes FLASH, the FLASH opportunities are every bit as large as the 1T-SRAM opportunities and so we generally view these things as being at roughly equivalent in the opportunity they can bring to us although FLASH being several years behind 1T-SRAM in maturity and market deployment.

Have you seen anything at all in the competitive space that gives you pause for concern?

We actually haven't. If you look at the 1T-SRAM it's been around a long time. There are-- people have tried but nobody has been able to create an equivalent solution and this has been over 10 years and it's only now that everybody needs this solution but nobody has been able to create it so we don't see it. In the embedded FLASH we've had enough customer exposure and interaction to know that we have a very compelling solution here, unlike anything anybody else has done. Now we don't know what the future will bring but nobody has anything like this today. And, you know, we've got our usual patent protection, which we have some comfort in. And in the Atmel product this is extremely unique because no IP company can really afford to start from zero to develop all this expensive technology and then get a return on licensing but because we got it as part of an acquisition at relatively low cost, very low cost, we get the benefit of tens of millions of dollars of R&D investment to create these state of the art technologies and now we can license them and collect royalties.

So it's just a matter of getting from here to there over the next three years.

Getting from here to there.

That's correct.

And that's right. You can add the numbers up and they look compelling.

Okay very good, guys. Thank you.

Chris Chaney with the Stanford Group.

Hey guys, I just had a quick question about the share count. I notice that the non-GAAP share count went up about 1 million, almost 1 million shares. I was just wondering what accounted for that major-- for that bump? I was forecasting more like 100,000 or so more than last quarter and it went up quite a bit more so I was trying to figure out what the difference was.

Okay so you showed it going up 1 million?

Yes.

Okay well we did have a focal that we did, a focal adjustment where we gave our-- all of our employees more shares but I don't think it had that big of an impact though I'm not quite sure what the answer is.

That might have been 500,000 shares in total or less.

Yes that's right.

Okay now I'm just-- if I look at last quarter's Press Release the diluted share count used for non-GAAP EPS was 31.689 and for this most recently completed quarter it was 32.882 so--

Actually on a non-GAAP basis that's right 32.882 correct. Okay.

I mean that probably accounted for about $0.01 difference in my EPS but so that's not that big of a deal but I guess I'm just kind of trying to get some confidence that the license-- well, let me put it this way, is the fact that now a lot of your license deals are kind of coming to your though TSMC and not directly to you through your own sales force that is having some impact here on the licensing revenue throughout the rest of this year, correct?

Yes so let me just state that a little different way, Chris. We used to have a big business developing our own generic off the shelf macros we called the classic macro program. With our new foundry agreements and particularly spearheaded by TSMC, they are now doing that instead and we're just collecting royalties so we don't have to do the work either. We just collect the royalties and they do the work. And as part of that change in strategy, we launched forward on our technology licensing strategy where we're trying to effectively sign up lots of companies to be this kind of a so called sales channel. And in this technology licensing strategy where we've had good success and we've been closing these things steadily at approximately one a quarter or more, it was an estimate in our judgment how quickly we could close these things and what all the steps were going to be required to get new licensees on board and that's where we're finding that some of these are taking longer because we have to go through some preliminary steps to show them just what our technology can do for them in their process variation so we have to go through some feasibility study or test chip development and it adds months or even a quarter or more to the closing process. And that's where the strategy, as we've now been almost a year into it, has-- or at least nine months into it-- has come out a little differently than we expected but it's still the right strategy and we're still succeeding at it.

Sure. Can you use some of the-- can some of the Atmel engineering group that was hired be refocused on that effort to help accelerate that effort or are they-- are all 100 or so of them going to be focused on just the DVD front end?

No I mean we have the flexibility and we can potentially redeploy now engineering resources because they have similar skill sets but that's really not the issue. It's because a lot of it revolves around fab turnaround time as I've said. If we have to do a test chip and show the results before they'll sign the full license we can't shorten the throughput time of the fab. That's the problem. It's two to three months no matter what you do.

Well, then speaking of the foundries, what's been the progress on perhaps technology licenses with UMC, Charter, SMIC I guess outside of 1T-FLASH and some of the other foundries? What's your strategy with the others?

Same strategy. We're very optimistic and pleased with the results we're making with all of them and stay tuned.

All right and finally IDM deals such as potentially I would think Samsung would love to use 1T-SRAM in many products. So would Sony as they used to in Sony Ericsson phones and digital cameras and camcorders. What has been some of the progress in some of the big IDM potential customers?

So this in some of my statements I said we have a lot of these negotiations in technology license engagements ongoing right now but we have to go through the steps. I mean to get NEC closed in the second quarter was relatively straightforward because we have proven our technology on their previous geometries. If you go to somebody like a Samsung or what, Toshiba or anybody, we have to go through that step yet because they haven't-- our technology hasn't been initially proven yet to them and they want to see it working first.

When you look at your total revenue base and the kind of the forecast you make for the rest of the year it sounds to me like the royalties are fairly easy to calculate. They are fairly visible but it's the licenses that are just the timing of closing of those and the recognition of revenue associated with them is just what is so difficult to forecast, correct?

That's correct and I think you see evidence of that in our range because we give a fairly broad range on the yearly results because a couple of these technology licenses they're lumpy and they could sway the results considerably.

And they're multi million dollar deals, as you said, so it has a big impact in our revenue level.

So is the new revenue guidance then sort of reflecting perhaps the slippage of maybe two of the bigger deals or is it something different than that?

No that's it, caution and where we'd been expecting to close six or more deals this year, we're expecting maybe a couple of them to slip into next year.

That is all the time that we now have for questions. I would now like to turn the call over to Mr. Silvestri for closing remarks.

Okay thank you all for your participation in our call. Should you have any additional questions, please feel free to contact us directly. Additionally, I encourage you to check our website frequently for updates on our activities and appearances at financial conferences. Thank you again. Operator, you may now disconnect the call.

This concludes the presentation. You may now disconnect and have a great day.