Peraso Inc (PRSO) 2011 Q4 法說會逐字稿

Good afternoon and welcome to the MoSys fourth quarter and 2011 financial results conference call. At this time all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. (Operator Instructions.) As a reminder, this conference is being recorded today, Tuesday, February 07, 2012.

I would now like to turn the call to Beverly Twing of Shelton Group, the Investor Relations agency for MoSys. Beverly, please go ahead.

Thank you. Joining me on today's call are Len Perham, MoSys' President and Chief Executive Officer, and Jim Sullivan, Chief Financial Officer. The fourth quarter and full-year 2011 financial results press release was distributed earlier today and is available on the MoSys website at www.MoSys.com.

Before we begin today's discussion, I would like to remind everyone that this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, but are not limited to, benefits and performance expected from use of the Company's embedded memory and interface technologies and ICs; expectations concerning the Company's execution and results; expected benefits of the Bandwidth Engine ICs, product development, achievement of design wins, and timing of shipments of Bandwidth Engine ICs; predictions concerning the growth of the Company's business and future markets and business prospects, strategies, objectives, expectations or beliefs.

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 10K 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 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 Len Perham, Chief Executive Officer of MoSys. Go ahead, Len.

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

I'm going to start today's discussion with a few comments on our recent patent sale and a review of progress we've made in the past year on the Bandwidth Engine. Jim will then give us an update on our IP business, discuss our fourth quarter results and the full-year results 2011. After that, we'll open up the call for a few questions and I might have a few closing remarks.

2011 was a good year, marked by exit progress in the development, sampling and finally movement of our Bandwidth Engine IC family into an early production capability. This revolutionary IC family, targeting future generations of advanced networking equipment, has been greeted enthusiastically by the user community. The product is in various stages of adoption across a significant range of potential users and we expect to announce multiple design wins throughout 2012.

We believe we are making good progress in transitioning our company into its new strategic model; that is, an IP-rich fabless semiconductor company supplying state-of-the-art solutions for future generations of networking equipment.

We put out a press release a while back -- Invensas purchases 73 MoSys patents. MoSys has recognized right along that it would be expensive to transition the Company from an IP company to being an IP-rich fabless semiconductor company. And further, we have realized all that funding could not realistically come from equity sales. That would represent an unreasonable amount of equity dilution for our shareholders to absorb.

In the Invensas transaction we raised $35 million free of any equity dilution. And with this cash infusion, upper management can now turn its attention to demand creation, customer and key partner relationships, and to the future product roadmap of the Company.

In this recent IP sale we divested ourselves of 73 memory technology patents for a sum of $35 million. We continue to hold approximately 100 issued patents with approximately 25 more, primarily Bandwidth Engine related, pending issuance. Jim will provide additional detail on the financial and licensing impacts of the transaction later but, for now, let me highlight a few important strategic reasons why this transaction represents an important achievement for MoSys.

First, as mentioned earlier, the patent sale added significant cash to our balance sheet without dilution to our shareholders. This added capital will enable us to further advance the development and sale of our Bandwidth Engine family of ICs, effectively filling the gap between now and when our IC business revenue is forecasted to ramp to a level where it can support our expenses and allow us to become profitable.

Second, under the terms of the patent sale we retained a royalty-free license to cover our Bandwidth Engine IC product line and current and future technology partners. This license and our sizeable remaining patent portfolio ensure we retain access to all of the critical memory building blocks underlying our Bandwidth Engine design and its technology. Since we initiated the development of the Bandwidth Engine in 2009, the majority of our filed patents have been IC related. We sold none of those Bandwidth Engine IC patents in the patent sale transaction.

And third, our existing memory licenses with foundries and other 1T-SRAM customers remain in effect. This enables these licensees to continue to offer 1T-SRAM and further demonstrate the robustness and broad range of applications for this embedded memory technology while we continue to receive future royalty benefits from these existing IP agreements.

This transaction aligned perfectly with our primary objective to become a fabless semiconductor provider of integrated circuits for next generation networking systems. I am confident that we are now better positioned to successfully execute our business and growth strategies and devote our resources to prosecuting our IC business. We will continue to evolve away from the IP business and, in the next few months, we'll realign and reconfigure ourselves organizationally to be more focused on our IC business rather than our IP operations.

While we have no immediate plans to sell more patents, we will remain alert to opportunities that allow us to further monetize our IP assets, obtain maximum value for our shareholders and put us in the best possible financial position to support the accomplishment of our strategic plan.

Having developed a revolutionary product and fortified our financial foundation, our next step is to intensify our efforts to both excite and incite demand for our Bandwidth Engine family of integrated circuits. While Tom Riordan, our Chief Operating Officer, oversees operations, the engineering team and ongoing development activities, I can now turn my attention to accelerating demand creation, establishing strategic customer relationships, establishing key partner relationships, and focusing on our future product roadmap.

A little later this month I'll be heading to Asia for a couple of weeks to meet with our customers, our key partner TSMC, and our India-based design team. In many of these customer locations the sales team believes we're close to securing design wins. More and more potential customers are identifying other areas on the line card where BE, or Bandwidth Engine, can serve a useful purpose.

One of these areas, statistics, is showing great promise and will likely be a focus area for Bandwidth Engine 2 when it is available. It is very gratifying to have customers who are going to use 3, 4, 5 Bandwidth Engines per board, or considering using them, now showing us early draft schematics with 7, 8, 9, 10 and 11 units per board in some cases. This is very gratifying indeed.

I continue to receive many questions about second sources for our Bandwidth Engine devices. Our primary focus in evaluating second-source candidates is identifying the right partner who can expand the sales channel, while providing the high standard of product quality and the intense application support that our customers require. We will continue to evaluate second-source candidates and hopefully should have some news in the next couple of quarters.

A little R&D review. I would be remiss if we didn't take a moment to review the 2011 milestones and accomplishments before turning this call over to Jim for a review of the financials. I'll briefly cover a few topics; design wins, sales channel expansion, interoperability/GigaChip Interface, quality and the product roadmap.

Regards design wins. If you'll recall, we began shipping initial samples of the Bandwidth Engine in December of 2010. We started 2011 with a small number of prospective customers working with our device and this number increased steadily throughout the year. Our design and engineering teams have worked closely with these customers as they evaluated the Bandwidth Engine and began exploring designs using our integrated circuits. By year end, there were more than 10 active projects in the pipeline, which we refer to as design wins in progress.

Additionally, in the third quarter we secured our first design wins with two customers supplying high-performance FPGA-based add-on boards for high-speed packet processing. I have every expectation that we will receive sample production quantity orders in today's quarter. I am increasingly more confident that most, if not all, of the design wins in progress will start moving into the design win column as we progress through 2012.

On the sales channel front we expanded our local presence in both Japan and China. In China we've hired both a China sales director and, as well, have brought on RTI, a local applications engineering-rich stocking rep. These additions should give us a substantially increased presence at the customer's desk in China.

In Japan we have added TecStar, a Macnica company. Again, TecStar is an applications-rich organization with relationships at all of the key potential customers of our Bandwidth Engine family of ICs. Macnica, TecStar's parent, is a very prestigious Pacific Rim distributor with a strong presence, not just in Japan, but throughout Asia. We are honored to have them as our partner.

In addition to these efforts with initial customers, our world-class R&D applications teams have continued to demonstrate our products' capabilities and execute on our extensive product roadmap. A robust product roadmap is a requirement for any and all network oriented customers.

Interoperability; achieved, of course, through the GSI, or the GigaChip Interface. We have demonstrated and announced the interoperability of our Bandwidth Engine with Avago Technologies' world-class SerDes. Avago is a leading provider of ASICs to the networking market and their success with the GigaChip Interface is very gratifying.

We have also demonstrated interoperability via the GigaChip Interface with multiple Altera and Xilinx product families, including at the 28 nanometer node. These advanced FPGAs remain an application sweet spot for the Bandwidth Engine family and our interoperability at these various processing nodes speaks well of the robustness of our GigaChip Interface.

Quality. Any fabless semiconductor company that wants to do business with the networking equipment market must be ISO certified. MoSys achieved an ISO 9001.2008 certification in early January. This certification underscores both our commitment to quality and our commitment to being a supplier of enterprise-quality grade products.

To achieve this certification we had to freeze our backend manufacturing flows, specify and select vendors for all piece/parts, all systems, subsystems and test programs that we would use in manufacturing. That done, we've now moved on and successfully passed all the critical test benchmarks we must pass in order to be a certified enterprise-grade quality supplier.

We have completed this testing on two separate wafer fab runs and the third is in process. This is a stellar accomplishment and I want to congratulate MoSys' product, test and device engineering teams on this great piece of work. We passed this most critical high-temp operating live test, a thousand hours, zero failures, ECC off. Due to the length of the test times, we expect to complete the third lot early second quarter 2012.

I am pleased to say that our Bandwidth Engine backend process flow is now frozen at rev zero and we are now ready to accept volume production orders. And products going out the door would no longer be marked sample. They will be now marked with the part number that they should be designated with. We are now a standard integrated circuit supplier.

A bit about B2, BE2 and beyond, Bandwidth Engine 2. As Bandwidth Engine 1 enters production we are well into the development of our second generation, Bandwidth Engine 2. Based on our unique Bandwidth Engine architecture, Bandwidth Engine 2 is [incompatible] with Bandwidth Engine 1 and can be a direct cost to down replacement for Bandwidth Engine 1.

On the other hand, Bandwidth Engine 2 is both a performance upgraded and significantly feature-enhanced version of Bandwidth Engine 1. These feature enhancements expand the number of applications the Bandwidth Engine products can address, which offer the user an opportunity to further reduce part count, pin count and power dissipated on his future network interface cards.

All this is promised on Bandwidth Engine 2 while, at the same time, allowing us to use it to cost down the Bandwidth Engine 1 sockets. Costing down Bandwidth Engine 1 will allow us to not only improve our margins, but also to pass sensible price reductions on to our customers. Bandwidth Engine 2 will directly benefit from all we have learned creating Bandwidth Engine 1; therefore, time from good silicon to full product qualification should be substantially shortened.

In summary, we've spent the past couple of years defining, developing and improving the Bandwidth Engine technology and building a sales and marketing channel which has produced an initial pipeline of design wins and progress, a couple of which have now converted to full design wins.

And we have strengthened our financial foundation, which allows us to move forward confidently. In the coming quarters our primary focus will be to incite additional demand for, and acceleration adoption of, our Bandwidth Engine ICs to meaningfully impact the revenue ramp that we are forecasting.

During 2012, among our key business objectives will be, one, continuing to superbly execute operationally; two, diligently work to transition every customer contact into a full-up design win; three, accelerate and pull in the design win time so that growth is more accelerated and quarter-to-quarter growth can be a steeper slope when our customer systems go into production in 2013 and '14; four, to tape out Bandwidth Engine 2 on schedule and sample parts in the fourth quarter of this year; and finally, forge and announce strategic partnerships and strategic customer relationships that will accelerate the adoption of the Bandwidth Engine family, while simultaneously expanding its range of applications.

That said, I'm going to pass this call to Jim for a review of our IP activities and fourth quarter and full-year financials. Then, we'll open the call for questions and we may have a few closing remarks. Thank you very, very much for your time. Jim?

Thank you, Len. Good afternoon, everyone.

During the course of my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock-based compensation expense, intangible asset amortization, and acquisition-related charges. Non-GAAP financial measures and the reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8K, which was filed with the Securities and Exchange Commission today and can be found at the Investor Relations section of our website.

As Len stated earlier, and as we have disclosed in recent SEC filings, our primary business objective is to become a fabless semiconductor company. Toward this end, in the second half of 2011 we began to dedicate more of our engineering resources and budget to our integrated circuit efforts. This will continue in 2012 as we place less emphasis on IP licensing and deploy more resources for our IC product development, marketing and sales efforts.

Our December 2011 patent sale was an excellent opportunity to monetize our 1T-SRAM IP and to obtain the additional funding necessary to drive the development of our IC strategy. Under the patent sale agreement we retained our existing license agreements and all future royalty streams, as well as the right to continue to offer our existing licensees their current rights under the purchased patents for the purposes of extensions and renewals. However, the purchase agreement limits our rights to grand licenses under those patents outside the scope of our retained license. As a result of the patent sale transaction, we expect to receive revenue from current customers, but will not be actively seeking new 1T-SRAM licensing customers or projects.

In addition, our change in focus has contributed to a reduction in the competitiveness of, and demand for, our SerDes IP. While we have existing opportunities in the pipeline, going forward we will not actively be seeking new SerDes licensing projects. As a result, we expect to have only limited intellectual property licensing activities and reduced revenues from such activities in the future.

With regard to the results for the fourth quarter of 2011, total revenue was $5.2 million, compared with $2.1 million for the third quarter of 2011 and $4 million for the fourth quarter of 2010. Licensing revenue for the fourth quarter was $2.7 million, compared with $0.8 million in the third quarter of 2011 and $1.4 million for the year-ago quarter.

The sequential increase in licensing revenue was driven primarily by the completion of key milestones and related billings for our ongoing SerDes and 1T-SRAM IP projects. License revenue for the fourth quarter of 2011 included revenue from 14 licensees compared with 11 in the previous quarter.

Royalty revenue for the fourth quarter of 2011 was $2.5 million, compared with $1.4 million for the previous quarter and $2.6 million for the fourth quarter of 2010. As anticipated, royalty revenue increased sequentially, primarily due to an increase in shipments by an IBM licensee whose product is used in a major game console. Fourth quarter 2011 royalty revenue was recognized from 14 licensees compared with 15 licensees in the third quarter of 2011.

GAAP gross margin for the fourth quarter of 2011 was 66%, compared with 83% for the prior quarter and 81% in the year-ago quarter. The sequential decrease in gross margin was due to higher costs associated with the increased licensing revenue, including recognition of $1.2 million of non-cash deferred costs.

In terms of our operating expenses for the fourth quarter, research and development expenses were $6.8 million, compared with $6.6 million in the previous quarter and $6.1 million in the fourth quarter of 2010. R&D expenses in the fourth quarter of 2011 reflect continued development of our Bandwidth Engine integrated circuit family.

Selling, general and administrative expenses were $2.3 million, compared with $2 million in the previous quarter and $2.9 million in the year-ago period. The year-over-year decrease in SG&A expense is primarily attributable to lower headcount, compliance and consulting expenses in the fourth quarter of 2011.

Total GAAP operating expenses for the fourth quarter were a gain of $26.5 million as a result of the one-time net gain of $35.6 million from our recent sale of memory patents. The $35.6 million gain included $35 million in cash proceeds and recognition of a $0.8 million intangible asset for the value of the license we received from the purchaser net of transaction costs.

Total operating expenses in the fourth quarter of 2011 included $0.7 million for amortization and intangible assets and $1 million in stock-based compensation expense. On a non-GAAP basis, total operating expenses for the fourth quarter of 2011, including the one-time gain from the patent sale, were a gain of $28.2 million, compared with $7.1 million in the previous quarter and compared with $7.3 million for the fourth quarter of 2010.

We continue to closely manage our operating costs while maintaining our level of investment for development of our Bandwidth Engine ICs.

On a GAAP basis, net income for the fourth quarter was $29.8 million or $0.75 per diluted share, compared with a net loss of $6.9 million or $0.18 per share in the prior quarter, and a net loss of $5.7 million or $0.17 per share for the fourth quarter of 2010.

On a non-GAAP basis, net income for the fourth quarter of 2011 was $31.7 million or $0.80 per diluted share, excluding intangible asset amortization and stock-based compensation expenses totaling $1.7 million, compared with the non-GAAP net loss of $5.3 million or $0.14 per share in the previous quarter and a loss of $4 million or $0.12 per share in the year ago period.

Net income per share for the fourth quarter of 2011 on a GAAP and non-GAAP basis was computed using approximately $39.8 million weighted, diluted shares.

Looking briefly at our results for the full-year 2011, total revenue for 2011 was $14.1 million, compared with $15.6 million for 2010. License revenue for the year was $6 million, compared with $6.5 million for the previous year.

Total royalty revenue for 2011 was $8.1 million, compared with $9.1 million for 2010. The year-over-year decrease in total revenue was primarily attributable to a decrease in royalties from licensees using our technology and gaming products.

Total GAAP operating expenses for the year were a gain of $0.5 million, including the one-time gain of $35.6 million from our recent patent sale. This compared with $35.9 million in operating expenses for 2010.

On a non-GAAP basis, total operating expenses for the year were a gain of $6.5 million, including the one-time patent sale gain, and compared with $28.9 million for the full-year 2010.

Net income for 2011 was $11.3 million, or $0.28 per diluted share, compared with a net loss of $23.1 million or $0.72 per share in 2010.

The non-GAAP net income for 2011 was $17.6 million, or $0.44 per diluted share, excluding stock-based compensation chargers of $3.8 million and approximately $2.6 million in tangible asset amortization. This compares to a non-GAAP net loss in 2010 of $15.8 million, or $0.49 per share, excluding stock-based compensation, acquisition related and intangible asset amortization charges totally $7.3 million.

Earnings per share for 2011 on a GAAP and non-GAAP basis were computed using approximately 40.4 million weighted diluted shares.

Now, briefly turning to the balance sheet. As of December 31, 2011 our cash and investments balance was $58 million, compared with $26.4 million at September 30, 2011. The sequential increase in cash and investments includes the cash proceeds of $35 million received from the recent sale of our memory patents.

As of December 31st our total headcount was 143 employees, compared with 150 employees as of September 30, 2011, with over 80% of our employees in engineering and research and development activities. Of our total employee count, 43 are located in India.

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?

(Operator Instructions.) Gary Mobley, Benchmark.

Hi, guys.

Hi, Gary.

Congrats on the progress and the decent quarter.

I wanted to start with a question on design wins for Bandwidth Engine. In the press release and in your prepared remarks you talked about design wins. And I'm wondering if you're just referring to the add-on cards that you've previously discussed in prior calls, and as well in press releases, or do we have a tangible line card design win for a router application?

So, we didn't underscore today that in this quarter we had achieved the design win that you're referring to. But, in my remarks somewhere, Gary, I think it is very possible that, if I didn't, I could have said that we're close to receiving some orders now for sample quantities for sample production builds, which was my second thing in the flow after a design win in progress. We said we'd probably see sample production orders. I'm quite confident we're going to see some of those in this quarter. And I mentioned on the call today that my confidence level in some design wins being reported on the next call is very, very high.

I think it's two things. I'm not sure how many customers it would be and maybe I'm not sure how many platforms it would be, meaning some customers are considering using us in more than one performance platform. So, I didn't point that out for today, but I did intend to point out on this call that there's a lot of progress in the right direction now. Things are moving along as we've been saying they might and we're spending more and more time with procurement organizations in parallel with engineering organizations at several of our potential customers' sites or here in our own company as well.

I hope that's a reasonable answer.

It is. And I have a follow-up. What are the chances of a potential router OEM differing their decision to Bandwidth Engine 2 based on the feature enhancements and the beneficial cost?

Actually, because of the very high speed on the IO be -- meaning that Bandwidth Engine 1 is running 16 lanes of 10 gigabits per second, I think the -- even though the customer always would like to cost down and go to a smaller dye where he could get the advantage of a better cost basis, I think that's going to move reasonably slowly in the case of Bandwidth Engine 1, or Bandwidth 2 for that matter.

And as we come more and more into the age of systems on a chip, where there's a lot of analog and a lot of digital intermix on the same piece of silicon, it is -- even though things are pin-to-pin compatible and they fit in the same socket or sit on the same bunch of pins, things are so incredibly sensitive at the speeds they're running now that it -- there's a lot of timing issues or reflection issues or a high level of analog behavior that need to be considered.

So, I don't think we're going to run into a lot of people deciding at the last minute to jump to the other one to get a lower cost basis. We'll -- if you figure that we probably won't complete the quality and reliability benchmark on that until the second quarter of '13, and we would expect to be shipping some reasonable quantities of the units period to period probably in that time as well, or at least have them sitting on our backlog, I don't think we'll run into that for those various reasons, Gary.

Okay. I have a question for Jim then I'll hop back in the queue.

Relating to your -- the potential revenue in 2012 for your IP business, I got the message that you will no longer be licensing SerDes IP. But, based on the investments you've made in 1T-SRAM, is it possible that we can see licensing revenue coming from renewals from existing licensees?

Let me take it in two parts. On the 1T-SRAM, as I stated, we'll get to see the royalties. I think from a renewal perspective, to the extent that a lot of our contracts call for automatic renewal to the extent we might need to revisit terms in a renewal, I would expect it to come more in the form of a change in royalty rate maybe going forward, where we adjust the royalty rate to give that licensee a renewal in some cases. So, I wouldn't count on necessarily licensing revenue. It might be more of an adjustment in royalty. But right now, it's hard for me to foresee much on that front. We are coming out of the year with a backlog of business, which we will still recognize and collect as we move through 2012.

And on the SerDes front we do have a pipeline of deals currently. Obviously, we're focused on deals that would require less customization, less resource utilization. We are also exploring opportunities to do a tech transfer type of deal. And I'll probably use the wrong terminology here, but basically an open code where someone could go in and do the modifications, etc., themselves. I'd almost equate them to the equivalent of last time buys in a product world.

In addition, we're still looking at some opportunities, I think as Len alluded to in his script, to potentially monetize some of these assets, whether it's in the form of a tech transfer, etc. But, there will still be some licensing revenue going forward through '12 with what we're bringing out of the backlog and I think we will have some success with these SerDes deals.

Probably another one of your thoughts here on the royalty, Nintendo did announce, I think it was last week or the week before, that the Wii U would be available in the -- for the holiday season 2012. Right now, we do not expect that we are in that part and will generate any royalty revenue when that new system comes. And obviously, that'll bring down the Wii sales going forward for the legacy product. So, we will be challenged on that front from a royalty perspective moving through 2012.

Okay. Alright. Thanks, guys.

Thank you, Gary.

Suji De Silva, ThinkEquity

Hi, Len. Hi, Jim. How you doing?

Hi, Suji.

In terms of -- I think, Len, you talked in the past about design wins not having been locked down in terms of the design. Is that percent switching over to these being locked in at this point or is that still kind of in process through 2012?

Actually, all those comments I made regarding Gary's question would imply that -- and thinking back to those definitions I used a while back, that we're getting very close to schematics being locked down now.

Okay.

And when sampling and prototype orders come in, I think they'll be used to build subsystems or prototype line cards and -- for characterization and that's sort of the final check. But, we're getting very close to my definition of a design win now, a finalized schematic with you on it in several places and orders starting to being placed.

Alright, that helps, Len. And then, Len, in terms of Bandwidth Engine 2, in terms of the new features -- I understand the cost down has benefits, but in terms of the new features, how much does that expand your addressable market versus Bandwidth Engine 1? Maybe a percent as a way to think about it, or maybe fee -- different applications?

No, actually, I think probably Bandwidth Engine 1 and Bandwidth Engine 2 together -- I think they address somewhere between maybe a $800 million and a $1.1 billion TAM. I think it probably increases the -- Bandwidth Engine 1 is -- I've always said conservatively in meetings that it's maybe a $600 million, $700,000 million TAM. And I think Bandwidth Engine 2 is going to -- it's probably going to be at least 50% of that or maybe even a little bit more, but it's targeting very hard some other areas. And plus, I mentioned that we are very gratified at the success we're seeing in the statistics application. So, there's two products together and it's a very significant TAM for a small company. It's a very big opportunity for us.

Sounds good. And then one last question for Jim, perhaps. At this point, from the acquisitions you've done, are there any earn-outs that may hit your cash going forward remaining from the acquisitions? Thanks.

No, nothing remaining from the acquisitions. During calendar 2011 we paid out the earn-out and then the contingency hold back on MagnaLynx, which was about $1.5 million. But, there are no more acquisition earn-outs or other type items going forward.

Thanks, guys. Good luck with the new product.

Thanks, Suji.

(Operator Instructions.) Krishna Shankar, ROTH Capital.

Yes, congratulations on the patent sales and the strengthening of the balance sheet. The new sort of router design wins that you talked about, can you talk about the nature of those applications? Are they sort of high-end enterprise or sort of carrier class routers? What types of applications are these new sort of router design wins that you're targeting?

I think that -- I always use a term I learned many, many years ago at -- probably at IET, in that I think of performance -- routing and switching performance levels in a term called CAT1, CAT2, CAT3. Catalyst is a code name for a routing family at Cisco that you probably are aware of, right?

Sure.

So, I think that in some of these applications we're looking at CAT2, CAT3, CAT4 platforms being rethought and new systems coming out. And then, in some cases we know that we're in prototype systems that -- where people are trying to do a true full-up 200 gig line card or a 400 gig line card and some of these are now prototypes in concept products coming out. But, because they -- customers didn't have any way to keep the power down or just literally didn't have enough pins, they were very excited about what we offered them.

So, I think the safe thing for me to say is that we're pretty much spread across the range of production applications where new boxes need to come out. And then, we found our way into probably two or three different customers that are interested in very, very high-speed prototype systems of quite futuristic stuff. And I wasn't quoting -- one of those is about to go into production in my earlier statements, but I'm just simply answering your question.

Okay. So, I guess we should expect sort of formal -- just formal design wins to be highlighted in the March quarter and then the beginning of revenue by the end of this year for these design wins. Is that how we should think about it?

I would think that as soon as we have a -- what I consider a full design win, we certainly will talk about it on the call. Whether I have -- and I -- and I'm optimistic I'd get to say something about that in the next quarter.

And a quarter or two ago we identified five things, and I won't remember them right off the top of my head, but we said we would first have design wins in progress; and then companies might buy sample production quantities to do one-off cards for further characterization that would be part of their system; and then there'd be a design win and they'd start releasing orders. I would think that we would be down the road with that kind of -- my item two and item three in the second half of this year, without doubt. That's what the indications I'm getting from a few of the potential customers that we're visiting with on a regular occasion.

Okay. And then, Jim, in terms of the cash, how much cash do you anticipate sort of in terms of the bond rate for the next one or two quarters? I mean, where -- how do you see the cash sort of trending through the rest of this year?

Sure. I mean, recognizing that it's our practice, which will continue in 2012, of not providing forward-looking guidance, but I'll still -- and looking back -- when I look back at 2011, we started the year with about $37.5 million on the balance sheet. We ended the year with about $58 million on the balance sheet. If I take out, obviously, the $35 million of proceeds from the patent sale, we would have finished the year with $23 million in the bank, so would have burned about $14.5 million, which I think is to the question Suji asked earlier, included about $1.5 million of earn-out payments on the MagnaLynx acquisition.

We had told folks when they asked us for a ballpark we'd burn about $12 million to $15 million in '11, so we kind of fell right in there. When I look at '12, we'll obviously be challenged on the top line with the change in focus, change of emphasis and no longer seeking active license deals with heavy customization.

We will, as Len said, be realigning the resources of the Company to further implement our strategic plan. It's premature to -- for me to comment on that at this stage given we're still looking at things. There are possibilities with regard to the IP assets in the works.

But, when I look at -- a longwinded answer -- when I look at '12, I don't see a significant increase in the burn. I think, certainly, any savings from the -- those MagnaLynx earn-out payments, when I look in '12 I will have a tape out for Bandwidth Engine 2, which is -- can run anywhere from the $1 million to $2 million range.

But, I don't see the burn worsening significantly. It will be a challenge to keep it at the level it's at because there's only -- it does take time to implement cost changes, renegotiate CAT contracts, etc., but we're going to be keeping a close eye on that, but we'd like to keep it in the range of 2011.

I apologize for the longwinded answer.

That's very helpful. Thank you and congratulations on the progress and good luck going forward.

Thank you Krishna.

And this concludes the question-and-answer portion for today. I would now like to turn the call back to Len Perham for closing remarks.

So, thank you very, very much, everyone, for tuning in today and finding out how we're doing. We have a fair ways to go yet before we're what I call a sensible company. That's one that generates cash and profit.

However, as we look forward into the year and work on that goal, let me say that there's a few things that we'll be looking at very hard and they're not different -- maybe not different priority, but maybe this is the sequence at which we're looking. One is to realign our organization, to begin to look and act and feel more like a fabless semiconductor company and bring ourselves into compliance with the needs of a fabless semiconductor company.

The second point that we'll be focusing on all the time is continuing to execute as excellently as we did on Bandwidth Engine 1 and as we've done over the past 12 or 18 months here. It's been a very, very good time for us in terms of technical accomplishment.

Three would be a drive, of which I intend to take a very active role, in accelerating the demand creation process and trying to effect an earlier turn on and more design wins that are turning on earlier and, therefore, a steeper growth period to period when we get into our hot spot, which I hope is going to be sometime late '13 or through '14.

The fourth point is that we're going to push our product roadmap very hard. We know that we've come up with a revolutionary solution and it generates a huge amount of enthusiasm and interest. We know that we have both very excellent digital, as well as very, very excellent analog design capability in the Company. We have here under our roof a uniquely excellent design team for the challenges that advance networking equipment face today.

Five is to explore other ways to bring value to the customer. We -- everything we do doesn't have to have a memory sitting in the middle of it. There's a -- as I say, it's our applications guys bringing opportunities, problems on the network interface cards or line cards that our customers are struggling with. Perhaps we can bring value to him in other solutions, and we'll be looking at that because our objective is very simple, it's to become a very important supplier to our customer base.

And finally, and I just touched on it a moment ago when I started, is to keep our costs in check as much as possible while we drive to become a sensible company making money and generating value to our shareholders.

I thank you for tuning in today and we look forward to talking to you again next quarter. Thank you all very, very much. Goodbye now.

Ladies and gentlemen, this concludes today's conference. Thank you once again for participating. You may now disconnect and have a great day.