Peraso Inc (PRSO) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the MoSys Fourth Quarter 2007 Financial Results conference call. (Operator instructions.)

And I will now turn the call over to Beverly Twing of Shelton Group Investor Relations. Please proceed.

Thank you, Michelle. I am joined on today's call by Len Perham, President and Chief Executive Officer; and Jim Sullivan, Chief Financial Officer. 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 today's discussion of the fourth quarter and fiscal year financial 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 markets for the MoSys technology; benefits and performance expected from use of the 1T-SRAM, 1T-FLASH or mixed signal technologies; licensees of 1T-SRAM technologies and their strategy; the development and production of products that use MoSys' license technology; license fees and royalties attributable to 1T-SRAM, 1T-FLASH, and analog mixed signal technologies; and the company's anticipated or perspective 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 reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission, in particular in the section titled "Risk Factors;" 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 will now turn the call over to Len Perham. Please go ahead.

Good afternoon, everyone. This is Len Perham, CEO at MoSys. I want to give you a short talk here, a brief overview of the company, and then turn it over to Jim Sullivan, our CFO, so that Jim can give you some details on the numbers.

First, starting with a few comments about our most recent press release here. The fourth quarter of fiscal '07 the revenue was about $2.9 million and the fiscal year '07 the revenue was approximately $14.3 million. In our fiscal year 2007 royalty revenue was approximately $9.1 million, a 56% increase over fiscal year 2006. License royalty -- license revenue for fiscal year 2007 was $5.3 million, well short of plans and we are expecting to do much better in fiscal year 2008. We ended fiscal year 2007 with a strong cash position, approximately $78.7 million on hand.

As I mentioned, Jim's going to give you more details on these numbers in about 10 or 15 minutes, so let me just go over a few points that I think are worth mentioning regarding the company. I think probably first I'll just talk about what I see as my priorities. I've been here approximately one quarter now; I think I joined the company November 9th.

So first priority is organization -- organizing the company, pulling the team together, and focusing our efforts. We need to bring this company back up to full strength. In the last half of fiscal year 2007 we saw the loss of our CEO, CFO, CTO, COO, and VP of Sales, among others and a company cannot lose that kind of staffing without being hurt. When I got here I think morale was very low and I'm sure productivity was pretty much down on the floor.

Over the next short while we're going to be adding talent in the following areas as quickly as we can find the right people and as quickly as we can integrate them into our team. We need to increase applications in customer support engineering so that we can spend more time with our customers understanding what their future needs are. We need to continue to look at our sales organization. We want to achieve adequate team depth and strength and we want to achieve better coverage and support across the universe occupied by our customers and potential customers. We're going to want to strategically increase the size of our R&D staff so that we can expand product offerings and continue to innovate in our target markets.

Winning at this business, or winning at a high tech business, for sure requires staffing, organizing, and deploying in such a fashion that you can achieve your strategic plan. We have now spent a quarter intensely looking at what our plan ought to be, and especially for 2008. We do have a plan and we're intending to execute on it successfully. So we'll be telling you about how we're doing with getting a team in place and getting the focus right in the quarters ahead, but I look forward to that taking a back seat to other things more important involving customers, products, and technology.

The second priority I see is sales and customers and business relationships. We need a much higher level of communication and interaction with our customers. To that end I would say by the beginning of the third quarter this year my schedule will be such that I'll be out of the company and out of the country at least one-third of each subsequent 12 month period learning what the customer needs, what his product directions are, what his relationship with us is, and what he and I would like it to be. We must know and understand our customers, the product roadmaps, so we can have the right determinate solutions for him today, tomorrow, and into the future. It's going to be our goal in every market that we're in to be a strategic supplier, a supplier of products to determine our customer's end system performance. We want to become very important to him.

We will develop a much higher level of discipline, from the customer's desk all the way through to completion of product development. The company will learn the true meaning of commitment, making them and then making them happen. This has to be one of our highest priorities because we want to build a reputation as the IP company to do business with. We need to provide better coverage, both business and technical, across the entire universe occupied by our customers and other folks that we would like to have as our customers.

We want the foundries to become our partners. We really have the same mission, that is serving the same customer and shrinking the customer's time to market, minimizing his aggravation and getting him the right product at the right time for the right cost. It's natural for us to partner with our foundries and to that end I will be spending a fair bit of time working on that problem and developing those relationships.

The third area of focus is product and technology development. I'm not doing so much there this first quarter I'm with the company and perhaps not too much the second quarter. I expect to make very good progress on those first priorities -- first and second priorities -- and that done will turn increasingly more attention to this item three, products and technology. There's much going on in this area, but for today I'm just letting you know that it is behind number one and two but should get the bulk of my attention starting some time in the third quarter.

So that covered, let me just talk about a couple of highlights. As I mentioned earlier, I joined the company on November 9th; today is approximately one quarter later. Our fiscal year 2008 offering plan was approved last week by our board of directors. It is a substantial step up from fiscal year 2007 results. Our recent acquisition has more than doubled our headcount and we are now immersed in the challenges of integrating the two teams together. We're making good progress and we look to have our teams married together well by the second half of this year.

We are currently tracking close to $10 million of new business and that business is coming toward us from several directions. Great business from our existing customers, and our existing customers use the 1T macros so the point here -- the underlying point is there's lots of legs left in the IP that created the company in the first place. It's a solution whose time is still here; it's got a long life left and we're considered a serious and important player to our customers in this area, 1T-SRAM macros.

Business is coming to us a second direction. It's driven by our new display driver system solution macros, and I'll talk a bit more about that here in another moment or two. And, finally, we have business coming our way as a result of our recent acquisition. There's lots of activity going on in our mixed signal group internally and externally and we expect it to make a significant contribution to our revenue in this fiscal year.

We have now booked several orders for our new display driver system solution macros and are in serious discussion with several other early adopters. It's very gratifying for me to see this early on success. One of these orders is quite a large order and it's opened up a new relationship with us with another significant and important foundry. Several traditional customers are now collaborating with us on 1T-SRAM macros at the 40 and 45 nm nodes. This is another indication of the remaining life and legs in our traditional IP; lots of opportunities for important large macros -- 1T-SRAM macros -- to solve important systems level problems for our customers in the years ahead.

Qualification of our new 1T-FLASH technology continues on track. We have made great progress on qualifying and releasing the technology and we should have a significant amount of live tests completed and the technology well certified by mid May. We're testing and qualifying the technology at 0.13 to 0.25 microns and the work is primarily being done initially at 130 nm, 0.13 microns.

Finally, first silicone on our new integrated front end for the Blue Ray and HD DVD market is out of fab and in packaging. We're on track to have that product well into characterization by the end of the first quarter -- the quarter we're in today -- and we remain very optimistic that this is going to be a really exciting product. This is a home run opportunity for us and we're moving as fast as we can possibly move.

That said I'm going to turn it over to Jim, let him talk to you about the numbers a bit, and then we'll open it to questions and I'll come back and make a few final remarks and we'll hang it up. Jim?

Thank you, Len, and thank you to those attending the call today. During the course of my upcoming comments I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that includes stock-based compensation expense, intangible asset amortization, and other one-time charges as noted. These non-GAAP financial measures and 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 was filed with the Securities and Exchange Commission today and can be found at the Investor Relations section of our website.

With regard to the results for the fourth quarter, total revenue for the fourth quarter of 2007 was $2.9 million. This compares to $4 million for the third quarter and $5 million for the fourth quarter of 2006.

Royalty revenue for the fourth quarter was $2.5 million as we continue to recognize additional revenue associated with the Nintendo Wii game console. This compared with $2.4 million in royalty revenue for the third quarter and $3.2 million for the fourth quarter of 2006. Royalty revenue during Q4 was recognized from 18 different customers.

License revenue for the fourth quarter of 2007 was $388,000, compared to $1.5 million in the previous quarter and $1.8 million in the fourth quarter a year ago.

Under GAAP the gross margin percentage for the fourth quarter was 72%, compared to 83% for the third quarter and 88% for the fourth quarter of 2006. The decline in gross margin for the fourth quarter of 2007 was attributable to a crossover on the non-recurring engineering efforts from one contract for a large customer.

Total operating expenses were $7.7 million for the fourth quarter, compared to $7.3 million for the previous quarter and $4.6 million for the fourth quarter of 2006. Operating expenses included $1 million in stock-based compensation charges and $197,000 in amortization charges related to the third quarter acquisition of the analog and mixed signal design teams from Atmel Corporation.

Selling, general, and administrative expense included approximately $165,000 of separation costs related to our former CEO and CFO, and approximately $195,000 of bad debt expense attributable to one customer.

Research and development's expense included approximately $1.7 million attributable to the analog and mixed signal design teams, which included approximately $500,000 of charges for 13th period bonuses and tape-out charges for our high definition DVD mixed signal front end IP.

On a non-GAAP basis operating expenses for the fourth quarter were $6.5 million, compared to $5.4 million for the previous quarter and $3.9 million for the year ago quarter.

Non-operating income was substantially comprised of interest income and totaled approximately $1 million, compared to $1.2 million for the previous quarter and $865,000 for the fourth quarter of 2006.

On a GAAP basis the net loss for the fourth quarter was $4.6 million, or a loss of $0.14 per share, and included stock-based compensation and amortization charges of $1.4 million. This compares to a net loss of $2.8 million, or $0.09 per share, for the previous quarter; and net income of $567,000, or $0.02 per diluted share in the fourth quarter of 2006. Net loss per share for the quarter on a GAAP basis was computed using 32,117,000 shares.

On a non-GAAP basis the net loss for the fourth quarter was $3.2 million, or $0.10 per share, and excluded stock-based compensation and amortization charges of $1.4 million. Net loss per share on a non-GAAP basis was also computed using 32,117,000 shares with regard to the results for fiscal year 2007.

Total revenue for the year was $14.3 million, compared to $14.9 million for 2006. License revenue for the year was $5.3 million, compared to $9.1 million for the previous year. Total royalty revenue for 2007 increased 56% year over year to $9.1 million, compared to $5.8 million for 2006.

Now turning to the balance sheet. As of December 31, 2007 our cash, cash equivalents, and long and short term investments balance was $78.7 million, compared to $85.6 million as of September 30, 2007 and $84.3 million on December 31, 2006.

Cash expenditures during the fourth quarter of 2007 included approximately $4.4 million for the repurchase of approximately 785,000 shares of our common stock under the company's existing repurchase plan. During 2007 we repurchased a total of approximately 883,000 shares for a total cost of approximately $5.1 million and an average price of $5.69 per share.

Accounts receivable at the end of 2007 totaled $895,000, compared to $829,000 as of September 30. This increase is within the normal range for quarter to quarter fluctuations.

This concludes my prepared remarks. At this time we would like to open the call for a question and answer session. Please clearly state your name and company affiliation prior to asking your question. Operator?

Thank you. (Operator instructions.) Your first question comes from the line of Jamie Zimmerman with Lifespeak Partners. Please proceed.

You said that there was $9.1 million of royalty revenue this year, and that that came from 18 customers; and the overwhelming -- I believe that more than half of it is from Nintendo. Can you tell us who else is paying royalties and what you expect them to be, going forward?

The 18 customers, that was the account total for Q4, which was exactly the same as for Q3. In addition to the Nintendo Wii console, our other royalty customers include TSMC and a number of others. We don't provide specific guidance on a customer basis of royalty looking forward, but obviously it is our expectation, particularly with regard to TSMC and some of the other players in there, that we will see significant increases in 2008.

We were supposed to see significant increases in 2007. So I'm just curious, are those 18 people new, then, to the second half of 2007? Were they here in 2006? And what do you mean by significant?

In 2007, we entered into a general -- I want to call it a general license agreement with TSMC, and TSMC was then in position to configure macros for their customers where they saw fit and where they have the talent to do it themselves, and they do not have to continuously negotiate with us on licenses. The end result of that has been to make TSMC, I think, much more successful and much more aggressive about implementing our technology into the systems solutions that their customers need. And we saw our significant increase in revenue. '07 over '06 with TSMC, I would say something greater than 5x, with the strongest quarter by far being the fourth quarter, and I would expect that we would continue to see TSMC grow through 2008.

And beyond that, we have several other exciting products that are being brought up in other foundries and I would expect that we're going to see other companies moving up, also. It's true that Nintendo's been very important and continues to be very, very important to us, and that for some time, they will be a significant -- probably the largest royalty-bearing customer we deal with, but I think there's other that will start getting much larger.

Can you tell us exactly what TSMC was responsible for in 2007?

TSMC doesn't give us a breakdown of that, and so it would probably be speculation on my part. I probably shouldn't speculate on their customers.

No, no, no. I'm just asking what -- how much of our licensing fees -- how much of our royalty fees came from TSMC? How much of the $9.1 million?

Probably -- I'll have to think about that awhile to share that, but I would say something -- probably -- in the year, it might have been, oh, maybe slightly greater than 10% percent, and in the fourth quarter, I haven't done the calculation but it would probably be much more than that.

But less than $2 million, then?

I don't think I'll bother to answer that.

Well, that's -- I'm just trying to understand where the revenues are coming from.

I think you should expect that the window of opportunity for 1T-SRAM macros is open, as the United States tries to figure out how to adopt IPv6, and as personal computers and telephones and televisions start trying to have a resolution on screen equal to these games, and we're going to see more and more customers finding that the solution to their systems' needs are using our macros, and we should be slightly optimistic that royalties in the company would increase year over year and be strong for the foreseeable future.

And I guess I'd add to that, that's not counting what success we might have with our mixed signal products going forward.

Were there any royalties from SNIC in 2007?

Not yet.

Do you expect them to be a customer in 2008?

That would be speculative.

Your next question comes from the line of Larry Lytton of Second Line Capital Management. Please proceed.

Thanks. Len, your predecessors at times characterized the size of the market, the size of the opportunity for these various technologies. Do you have any sense of that, and would you be willing to share that?

Actually, actually, Larry, I haven't tried to quantify that. I think it's safe to say that there's a considerable opportunity for us. If I think about it in four pieces, maybe I'll try to address it that way. The 1T macro, which was primarily the revenue/royalty/license-bearing product that my predecessor had, is a market that's expanding as people go for higher and higher resolution. And as the Internet tries to handle more and more complexity and graphics and high-speed games, and so on and so forth, and personal images and so on, expect that that business is going to grow substantially, and that our opportunity to grow the company several times the size it is now without having to take an abnormal amount of share there should not be out of the question.

Then if I talk about the first system solution macro, or application-specific macro, which would be our display driver, we booked our first of several significant orders in this quarter. And we're in negotiations and discussions with several other customers at this point, and negotiations and discussions with several foundries that would like to have that capability to offer their customers. And I think we already have other application-specific or system solution macros being discussed at our product planning and technology direction meetings. So I would think that we could see a lot of opportunity there. This is a very embryonic place for us, or area.

The 1T-FLASH is what I'll call a platform technology, like the 1T macro that initially started the company around. The 1T-FLASH is going to be a very strong business. The window of opportunity for flash is open now, and we haven't even gotten around to thinking about application-specific opportunities for uniquely configured blocks of flash; and we've thought about it, but we really haven't put pencil to paper.

Our acquisition brought us both communications and connectivity IP in the form of gigabit buys and serial ATA products, maybe Rev. 1/Rev. 2, not to mention a completed, fully integrated front-end for the Blu-ray and HD DVD business. That's a very huge market, and I see that hopefully generating a fair bit of revenue for us in this calendar year.

So all in all, Larry, I would think that -- I don't have a good answer, but I won't come to this meeting again without one. I'll look into that so I can give you a better answer, but you should be comfortable if you're interested in our company -- and doubtless you are -- that there's opportunity for us to grow a lot in this space and bring a lot of value to our shareholders, and a lot of value to our customers as well.

No, Len, I appreciate that, but you have to understand. I'm very interested in the company, as a lot of people on this call are, but we've become very poor being very interested in this company. So there's some hostility towards you because of a lack of delivery and a certain lack of accountability.

With that in mind, you've signed off on an '08 plan; the board has signed off; you have a certain level of optimism. Can you share anything more specific about revenue goals or cash flow goals for calendar '08?

We had on our previous call that for the time being, we weren't going to give guidance quarter to quarter until I could get a better understanding of why a very bright guy missed it nine times in a row before me. And so we're not going to do that. I can tell you that the plan that we approved is a dramatically step up from last year's results, as I said. And it's probably among the more aggressive plans that this company's ever had before it.

Now granted, we're a much bigger company because our acquisition doubled the size of our workforce; our engineering capability jumped considerably. But nonetheless, we are very optimistic that we should grow substantially this year, and I would -- I was reserving it for my close, but I'll say now, that to make sense, the company has to be profitable and we are not profitable, and I don't like not being profitable. And we are going to position the company in '08 so that '09 is a great year. I won't speculate on when we'll be profitable, but my dream would be that it would happen in this fiscal year, and we certainly have a shot at it.

Forgetting revenue for the moment, I believe the fourth quarter, we're talking about $6.5 million of non-GAAP operating expense. Can one of you share with us what the run rate on non-GAAP operating expense should be on a quarterly basis going forward? And looking at some of the hires you're looking to make, should we be concerned that it's going up, not down?

Actually, I'll answer the first part of that while Jim gets his numbers together.

I commented on the previous call that, basically, I'm an old operations guy and I like to have revenue lead cost, and I was aware when I made my statements today that we look like we're adding a few people. But we're also going to get very results-oriented and very focused on -- going to turn this into a meritocracy, so to speak. And we may add a few people this year, but we probably will go at it by ranking our people one through ten and adding sensibly and carefully with a goal in mind to be moving our company in the direction of operating in the black.

Another good point to bear in mind is we now have an outstanding organization in Romania and an outstanding organization in Shanghai, and as we expand the company, it's unlikely we'd expand much engineering in the United States. So we'll be taking the company internationally in order to be able to develop the capability we need for the lowest possible price, and I don't think we'll lose anything in the way of quality and capability by doing that.

Jim, you want to comment on the numbers' question?

Yeah. Specifically, I did want to just touch on some of the items. As I mentioned during the script, items that we don't obviously expect to see recurring, i.e., in G&A, the bad debt expense we had of $200,000, and then the one-time cost related to the CEO and CFO departures of $165,000. And then in R&D, as we did for the third quarter, we had the full run rate for the Romania and Shanghai operations in there. We did have the 13th period bonus, which had caught us a little off-guard in Q4. In addition, we did have a take-out cost of approximately $350,000 for that front-end DVD IP. And we're working on going forward, trying to eliminate those costs by becoming a preferred provider with TSMC and have savings there.

But I think the run rate, adjusting for those items, will get back down to closer to where it was in Q3, to the extent we can cut out some of these tape-out costs. And then obviously, in the plan, we don't have a significant amount of heads coming on board and are looking, where possible, to expand in lower cost locations.

So what is it -- I don't have the Q3 in front of me. So you're talking about getting back down to $5.5 million non-GAAP or something?

Certainly closer to that number. We will have some increases because, as I said, there will be some additional tape-out cost, and as we get closer to deals on the MSSD analog products, there are additional costs related to that; a little more hardware related. But certainly, getting closer to $5.5 million versus $6.5 million.

Okay, last question and then I'll get back in queue. If -- you accelerated the stock buyback fairly aggressively in the quarter. If I understand correctly, it looks like we bought stock at a price of well over $5 and did so fairly aggressively. The stock's at $3.50; what is the philosophy at this point? Why aren't you buying back -- or why are you -- are or not buying back all the stock you could at this price?

Initially, I have to say we've been in the darkout -- blackout period, and we have been -- all this time, the stock has been down around $4. I think we'd have probably been prohibited from being in the market. And second point would be we're only allowed to buy -- I don't know, 10% or 15% of the total amount trading in the market on a given day. And third, I'm afraid I'm of the opinion that a high tech company is well advised to use this money to develop products and technology as opposed to buying its own equity, but I have to agree with you, that if the price is below $4, this is an incredibly good buy, so we may well go into the market and buy back some shares here in the very near future when the window opens again.

It looks like your largest shareholder, with a 15% to 20% stake, is trying to sell stock; at least as seen by their latest 13-G. Is that correct? And that would seem like a big opportunity to take some stock off the market.

Maybe you could tell me who my largest shareholder is.

I think it's Ingleton-Snyder, right?

I can't speak for Ingleton-Snyder. I don't if they're selling in the market or not.

Well, you've got to look at the SEC documents; I think they just filed the other day.

We'll take a look at that.

Thank you.

Your next question comes from the line of Chris Chaney of Stanford Group. Please proceed.

Thanks for taking my question. I just have a couple here. The Nintendo -- well actually, when I look at the royalties for Q4, that includes royalties from Nintendo generated partially in Q3 or all in Q4? I ask you that because I'm trying to get an idea of the trend that we might see from that customer in Q1, given that we're going to see probably a downtick in unit sales in Q1 seasonally, and whether or not that would impact you in the same way for your Q1 royalties.

It's difficult to say at this point, but we'll see from Nintendo on that. We get the royalty reports -- in the case in Nintendo, on a real-time basis for the quarter, and we won't see that until a couple of days after the end of the quarter. Internally, we don't predict -- we see it staying -- certainly not increasing significantly in the quarter. We just don't have visibility of where it's going to go in Q1.

Got you.

Chris, the question was what quarter did we report royalty from this time, just the fourth quarter.

Fourth quarter only.

Okay.

And I think that my observation would be that at the end of the holiday season and moving into the New Year, there was a huge shortage of Wiis to support the demand, and I can't tell how many that was, but I can tell by looking at what was happening and the way product was moving around and it appeared to me -- it seems to me there was a fairly -- there was a built-up demand. So I don't know how much it'll be down, and I've read that this Wii doesn't just sell seasonally anymore; that it's strong year-round, and I believe the pundits are forecasting this year that sales of that product are going to be up in the order of 25% to 30%.

Okay.

So our royalty rate should stay flat. I don't think it steps down any more. So I would be optimistic that over the course of the year, we would do okay.

Right. Now in the license revenue line of $388,000, how many customers did that include?

14.

14. And are they all -- actually, you said that. That's fine. The mixed signal products, the Blu-ray and HD DVD you talked about; it sounds like a pretty exciting opportunity. It sounds like you guys are very encouraged about it. When -- I see that you just taped out a device, I guess, that's probably going into sampling or some stage like that -- you said packaging right now. When would begin to see the first revenue, you think, from that? Somewhere by mid-year, late this year; any idea of when that might begin to impact revenues?

I think the next key milestone for us is to take a look at these package units, we've developed some reference boards and some prototype boxes that are enable -- that can run them. We have a partner that we're working with that's very knowledgeable about this particular market space, and I've said a couple times now that we would probably have this product reasonably well characterized by the end of this quarter. And it would probably be more appropriate for me to wait until our call in May to give a good answer to that.

Okay.

It wouldn't surprise me if we talked about it doing something materially at the next call. And it's just an unknown. That product was designed before we made the acquisition. The track record of these two teams is extraordinarily good. Everything is looking promising. But it would be a bit presumptuous of me to speculate until I have just a little bit more data.

Now I understand that the license for this kind of product won't be just your average $200,000 to $300,000 license. It could be near $1 million or more. Is that still correct? Is that the impact that we could see for something like this?

I believe there's potential for that to happen, yes.

Okay. On the display driver side, that also sounds very interesting. Could you talk a little bit about the end application that these display drivers are going into? Is it mobile devices? I would assume it is. And is that the 1T-SRAM, or is that 1T-FLASH?

This is actually -- the display drivers are in fact a unique configuration of 1T-SRAMs, and the best place to find them is on anything you carry in your pocket and you flip it open and you see a display. I think I'm just making a wild guess that there's a display driver driving that thing that just lit up on your phone; and any other device that lights up when you call it out. So it's a unique -- it's what I call an application-specific array of a 1T-SRAM block, and in this case, it's a -- it's simplistic compared to IDT, but a simplistic arrangement in a dual-port mode, and it has to operate at higher voltages; 12 volts, 15 volts, or something. So it requires some collaboration with your foundry to have that -- be able to have that high voltage in the process. And it requires some applications knowledge to know how to configure that particular building block. I call it application-specific, but my predecessor call it a systems solution macro and I think that's a good way to describe it as well.

And the opportunity for it seem quite exciting for it right now. As I've mentioned, we've got a few orders already booked; one, quite a large order, and we're in discussions with several other customers. And we're also in discussions with several foundries about bringing up this kind of technology to support that kind of a product.

Do the royalty rates on this kind of device compare favorably to the year over year average, which was I think around 2% to 2.5%? Are they sort of that percentage of ASB?

Probably just as well to say that they're in the same ballpark.

All right. And last question, on the tax rate. Any idea what we should be expecting if, when we're building our models for 2008, what sort of tax rate we should build into that?

I'd need to take a look more closely at that. But certainly we can address that on the next call.

Okay.

(Operator instructions.) And your next question comes from the line of Tony Pachia of Trackseed.

I wonder if I heard you right. You said you're planning on increasing R&D expenditures. And I was just wondering if you could expound maybe on your sort of philosophy. What do you think the proper relationships -- proper levels of R&D are relational to revenue? Because right now, it doesn't work.

Well actually, you know -- I guess I'd back up and I'd say that I think this company was founded by two extraordinarily bright -- very, very bright guys. They both worked for me, so I know them well. One of them was maybe the smartest process architect I've ever met, and certainly anybody that knows him would say the same thing, and the other guy was an extraordinarily -- is an extraordinarily good mixed signal design guy. And those gents have gone off now to do other things with their careers, and if we want to be the world's best in what we do, we need to have that level of talent and capability here. But I just wanted to say, again, that -- I think that we have some room to bring people in and not dramatically move our prices -- I'm sorry, excuse me, not dramatically move our costs.

I'm used to seeing R&D as a percentage of revenue at 25% or so, and I must confess that between royalty and license, I haven't quite figured out in my mind what it should be. But I'll figure that out by studying my competitors and just looking around. I'm not inclined to run companies that don't make money, so I think we can manage that and still get to the place where we make money. So I would like to leave you with the thought that we need to add key people to make this company all that it can be, but we also need to make money, so I won't be taking my eye off either one of those two objectives.

Yeah. That's not real helpful in the short term. How long do you think people should expect that to be a negative relationship?

Well, I said we were optimistic that the company would make sense in the second half of this year, but for sure, we expect that we're going to be operating in the right place in 2009. And we're putting a huge amount of effort into that. We -- this acquisition basically doubled the number of engineers, and we're a small company. So until we digest that and get all those guys working on things that are going to build value and get through the winning design and get through the prototyping stage and get to where the IP starts to generate really meaningful money, we're going to be coddled behind the curve. But our plan is aggressive and I expect that -- I would to think we're going to post some decent numbers this year in terms of growth, and so on and so forth.

So that's all I can tell you. I've only been here a quarter. I appreciate your unhappiness, but I can't fix this in 15 minutes.

No, I know. I think that to the extent that you guys have just approved operating budgets, sharing them with the markets would be a good idea. And I would urge you to do that on the next call.

As soon as I can understand why a guy with an outstanding education missed it nine times in a row. I'm just not good at telling you something that's not going to happen, so right now -- you know, I haven't quite figured out what I want to share in these calls. I have to be honest; I spent a lot of time on this because I'm on a couple of other boards and have had several companies go public, and I just got to figure out how this selling process and selling cycle works, so that when I tell you gentlemen something, you can take it to the bank.

Well, this is your watch. That's water over the dam, as they say. And to the extent that you build budgets and will be expending money on R&D, I think you should be comfortable that it's going to produce the results that you want, and I think you should share it with us what expectation is.

I'll give that some serious thought. I appreciate your advice.

Okay. One more question; can you tell me what's in the long and short term investments?

It's primarily money market funds, auction rate securities, and I think there may be in the long term, some bonds; some very high-class bonds.

Okay. Thank you.

And your next question is a follow-up from the line of Larry Lytton. Please proceed.

Len, a couple quick follow-ups. You mentioned you're on other boards, and I think you're particularly active at NetLogic. I think there's some concern on the part of shareholders that you're spending 85% or 95% of your time here, when we would like you to be spending 120% of your time. I wonder if you could comment on that, in terms of some of your other activities and distractions.

If I could comment on what, Larry?

The fact that you're active on some other boards, and this is a company that requires more than 100%-time CEO.

Well, first of, I'm probably working around 60 or 65 hours a week. I don't think I went home before 7:00 any time last week. And I was at my desk working this morning at 4:15. I'm blessed with not needing very much sleep.

And in regards to NetLogic, before that company did its IPO, when it was a very young company, I was fortunate enough to hire a magnificent CEO in this young man, Ron Jankoff, and he's done a great job running that company for a long time now; so that company takes a very little bit of my time these days.

In terms of my involvement with this venture firm, AsiaTech Management, that is a very, very prestigious outfit, and the lady that started that played a significant role in the entire venture capital industry in Taiwan. And she's able to be an enormous ally to the company in terms of relationships with the foundries and relationships with -- any kind of a business arrangement we would like to do in greater China, you could do no better than have Catherine Jian sitting beside you. So I don't consider that a deterrent or a problem. I consider that an enormous asset.

Okay.

Finally, I just want to go on record and say that I'm going to say conservatively, I'm working 60 to 65 hours a week, and I'm going to leave for greater China on March 2nd and I'm going to stay there for nearly a month. And I'll spend 100% of that time working with our customers and partners in Japan, Taiwan, Shanghai, and Seoul, Korea. And I'll probably say in my closing, I expect to take three of those trips a year and I expect to do that out of the United States 30% of every year. So if you gentlemen who probably in some cases have investors behind you do that level of commitment, then you're measuring up to where I am. But you shouldn't worry about whether I'm committed to this, because I'm not very good at losing and I don't intend to lose here.

Okay. I appreciate that answer, and it's important. Len, I think you're talking about -- you're not forecasting it, but you're hoping that you can make money sometime in the second half of '08, and just very simple math; to do that, you would require a quarter with $8 million of revenue. Not that you're going to commit to that, but if you are to make money, that's what you need, right?

I think probably mathematically, that's right. That's why I didn't sign up for it for sure.

But I guess what I'm asking is you may do that because mixed signal comes in one quarter with a big licensing agreement. So if you're profitable in the second half, I'm asking does that mean you've gotten to a point of sustainability, or you just had the chips fall right in revenues on a spikey business?

When I got here -- I might have touched on it earlier. When I got here, five or six key executives had left in a matter of six weeks. People had basically stopped working. The morale was pretty much on the floor. Productivity was probably lying there right beside it. We didn't do very well in new business last year, so our engineering teams were underutilized. We aren't selling effectively to the entire universe that our customers and our potential customers occupy.

And yet, the intellectual property that drives this company looks very, very valuable to me. The systems solution macros, those display drivers, as well as the flash and as well as the mixed signal stuff all look very exciting to me. So we have a lot of low-hanging fruit we can collect. Now, whether or not when I start collecting that low-hanging fruit, everything comes together and we can -- we can get this thing turned around in the fourth quarter of this year.

I can't tell yet. I can only tell you that from quarter to quarter, I think our story will become more and more interesting to listen to, and that before very long, it'll be worth your while to be part of the MoSys team. So -- I wouldn't tell you I can do it in six months, but we ought to be turning out interesting things by the end of the third quarter this year, that's for sure.

Last question for this quarter. You talk about tracking $10 million of new business. I guess it's mostly once-a-year trends. What does that mean? That's tracking $10 million of new business that's not related to business that's currently being booked; that's business that closes over the next 12 months; that's business that closes over the next quarter; what does tracking $10 million of new business mean?

Well, I gave a lot of -- I told someone here recently on this call that I struggled with what it means, not to provide guidance because -- but I had made the decision that I'm not going to do that for a while. So I wanted to make the point to my shareholders that not only have we booked a couple of exciting orders already this quarter, we're also tracking business across all of our business units. That looks reasonably exciting, and that amounts to an opportunity that could be, if we got all of it, could be in and around $10 million.

Now some of that business is going to drop out and some of it's going to materialize and some of it's going to push out to the third quarter and new deals will come in. But the point I wanted to make is before I got here, as far as I could tell, there was not an intense focus on -- internally, on tracking new customers, taking care of your customer, intensely looking at every single opportunity. And I have -- the inside of the company has already had quite a metamorphosis in operating style. I'm running sales; we get together for four hours every Monday. We get together again at a staff meeting and review it again; get together at the end of the week and review it again, and we're going to start having things happen here that should result in a much better flow of new business in that we saw in 2007.

And so we -- I commented also that I'm not quite sure how I will ultimately provide or what I'll ultimately to my listeners on this analysts' call, if I'm not providing guidance. Today I decided that I would just let you know that we are tracking a lot of business. There are a lot of opportunities before us. Some of them we won't get but some of them we will. And it amounts to quite an exciting number for a company our size. That was my point.

Okay, but I guess what I was confused about is given where you want to go, where we need to go, in a sense I would think we were tracking $40 million or $50 million of business, not $10 million.

I've been here one quarter. Rome wasn't won in a day, and I wouldn't want to tell you something -- I would never in my life tell you that. That's -- we're not there yet.

Okay. Thank you.

And you have a follow-up from the line of Tony Pachia. Please proceed.

Thanks. Just to understand what you were saying, Len. Are you saying that if everything broke right, you could see $10 million of new business in the second quarter?

I would think that would be a reach. I think some of it will push out into the third quarter. I wouldn't want you to take that. I had one point in mind, I guess; I want to be very specific. What I want to tell you is our sales organizations -- I've seen a lot of opportunity. I would go further to say the first time I had the sales meeting, there was almost no activity. We've probably had eight or ten sales meetings now, and now the level of enthusiasm, the level of intensity of the company -- has undergone, in my opinion, a metamorphosis and there's a lot of excitement and enthusiasm, feeling good about ourselves and reaching out and doing more.

So the only point I want to make is I think maybe -- we booked something like $5 million last year, something like that? We're tracking more than that right now.

I guess the question is whether that could mature over a year or over the quarter. If it's the full year, it's going to be hard to get people excited. I mean, if it drops in in a quarter, or the bulk of it drops in in the next quarter, I would agree with you. That's something to be excited with. So it's hard to understand what you're saying.

Well, not if you've run a sales organization. If you've got $10 million of business before you right now --

I have been involved in sales, Len, and to what extent are you guys projecting probable sales, possible sales, cold calls -- what does that $10 million mean? Is that probable sales, possible sales?

We have $10 million -- customers we're in significant discussion with. We have enough customers, or a significant number of customers that we're in discussions that are far enough along for me to believe there's some reasonable chance that we would get that business, and that that business would be worth more than -- equal to or around $10 million. Every week there's new ones; every week, some of them pull in, some of them push out, you know. When I go take this trip, if it's (inaudible) when I used to travel for my other companies, after that trip they'll be more business opportunities coming our way. Sales guys are very good here; they're bringing in new deals every week.

So I would think that we see $10 million of business opportunity, for a company that did $5 million last year, one quarter after I got here, should give somebody some modest pause for optimism. But I could be wrong.

Okay. Like people have said before, we've all been burned, so the proof will either bear out or not.

Understand.

Thank you.

Thank you. Next question?

That does conclude the question and answer session. I'll now turn it to Mr. Perham for closing remarks.

Okay. I just have five quick points and perhaps some of them I've already touched on in the question session.

First off, obviously fiscal year '07 was not a particularly good year for the company. (inaudible) starting in the second quarter things steeply trended down and we didn't get enough new business in here for reasons that I'm never going to understand because I wasn't here.

And there were -- so that would lead to my second point, that the first half of fiscal year '08 is going to be aimed at organizing, focusing, positioning the company so that hopefully the second half and all of '09 sees MoSys returning to higher levels of success and higher levels of valuation and higher levels of respect in our community, and that we are able to absorb our new partners from Shanghai and Romania and start making really significant sense of the business for our shareholders.

Third point would be hopefully by the beginning of the third quarter reorganization and team building will be complete. It's my goal that I would be focused on customers, customer relationships, products, and technology development by the third quarter, areas where I think I can really be a big help. And I'm driving very, very hard and we're talking to quite a number of people that fit into the organization here and there and spent some time with some of the foundries, and on my upcoming trip I'll spend more. But it's my goal that by the third quarter where I'll putting all my effort now, it's tailed off a bit and I'm focused on products, customers, relationships, and maybe new system solutions, new application-specific solutions for our customers.

My last point would be that I continue to be very optimistic for the prospects for the company and I'm looking forward to speaking with you folks again in the subsequent quarters and hopefully we'll develop a better rapport with one another and you folks will develop some appreciation for what I'm doing. And Jim and I and the rest of the team will make you proud to be owners of our stock.

And with that said, I would say thank you very much for coming on the call. I appreciate your interest, even though you're a bit unhappy with us right now, and we look forward to talking to you again soon. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.