Peraso Inc (PRSO) 2012 Q1 法說會逐字稿

Good evening and welcome to the MoSys First Quarter 2012 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 call is being recorded, today Wednesday, May 2, 2012. I would now like to turn the call over to Beverly Twing of the Shelton Group, the investor relations agency for MoSys. Beverly, please go ahead.

Thank you, Regina. And thank you everyone for your patience. Joining me on today's call are Len Perham, MoSys' President and Chief Executive Officer, and Jim Sullivan, Chief Financial Officer. The Company's first quarter 2012 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 very much, Bev. Good afternoon everyone. Thank you for joining us.

I will start today's discussion with a few updates on the Bandwidth Engine design win activities and then Jim is going to provide us an update on the IP business, and a little discussion of our first quarter financials. And then perhaps we will have time for a few questions.

At the end of last call, or perhaps talking at one or two investment banking conferences during the quarter, I pointed out here and there that it seems to me that in the Company demand is trailing behind operational execution. And I think I might have mentioned that we intended to spend a lot more time looking on the various continents for how we might incite and excite demand to move more quickly, not that it would impact 2012 and 2013, but it would be the rate of growth in 2014 that we are interested in.

So, I will probably start and finish this call by saying that from my point of view the execution and the operational side of the company is just going along extremely well, and that myself and our new Vice President of Marketing, John Monson, are putting are shoulder to the wheel to drive increasing demand while we think about marketing activities as well.

In the first quarter we were formally notified, or I was formally notified that some of our design wins in progress had actually become design wins now. We are gratified to be able to tell you that more than one company has notified us that they intend to design the Bandwidth Engine into one, or other, or more than one performance platform, and routers or switches that they are bringing to market here in the next six to eight months, or a year.

So, for the first time we would say that we have gotten design wins at multiple companies, and we have got design wins on multiple platforms. We won't try to figure out what the numbers are, but we look forward to telling you more about it as we get more and more information in the quarters ahead here.

Looking at the schematics that come past my desk, I would say we are probably seeing typically 5 to 10 Bandwidth Engines per board. There are some down as low as 2, but not very many, and there seems to be a preponderance at 7 units per board or even more than 10.

We continue to track greater than 10 real projects, i.e. design win opportunities. Some of them are switching into the category of being design wins. But the level of activity we see, and the acceptance of a serial I/O memory and acceptance of what I am going to call today an intelligent memory seems to be gaining traction and becoming more and more important for our future systems.

To underscore what I am saying, this week -- I think tomorrow to be exact -- we should ship our first ever out of the company at more than 100 units against one line item. So, we are starting to see prototype quantities now, what I call prototype system builds that will be spun out to various locations by the end of the (technical difficulty) equipment companies, starts to see his future business.

In Japan we are very gratified at the relationship that we have been able to form with Macnica and TecStar. And you might recall they provide us local distribution, local inventory, local application support. It is working very, very well, and they are going to become an increasingly more important and integral part of our efforts in Japan.

I would also add that in the case of some of our design wins, we have won designs in the country but there is the possibility that some other division of that particular company would be inclined to consider taking the product global. So, we might be able to report to you that the forecast out through 2014 or 2015 on a particular design win might substantially increase in the next one or two quarters looking forward.

Changing just slightly, I mentioned John Monson. John Monson joined us at the end of February as the Vice President of Marketing with the Company. He has been with Mellanox and PMC in the most recent times. He is what I would call a very, very strong technical integrated circuit marketing guy, and understands the strategic marketing needs of a fabless integrated circuit company very, very well.

John, in addition to his marketing activities, is going to be responsible directly to myself for all sales activity in China for the next year, maybe year and a half or even two. John, combined with Herrick Wang, our country manager in China, and our sales rep there, [RTI], will bring quite an increased level of attention to the desks of the big networking companies in China. And John and I look forward to really making something happen there over the next 12 to 18 months. So, having John onboard, looking into the possibility of inciting greater demand quicker in China is going to be very beneficial to the Company.

Changing direction a little bit, awhile back we reported that from a manufacturing discipline point of view we had passed our ISO 9000 qualification. And I think last quarter I reported that we are feeling very, very good about passing the QA and our benchmark to become carrier-grade certified with the Bandwidth Engine 1 family.

And I can report today that that is done. That we have now passed three lots from different data codes in the manufacturing area, in other words, built at different times in TSMC, our foundry. We took a sample size that required that you burn them in for 1,000 hours at high temp operating (inaudible). You accept on 0 and you reject on one failure. In the three lots we had no failures. All of this testing was done per carrier-grade requirement with the chip's error-detection and correction circuitry turned off, so ECC Off is the acronym used.

This is just an absolutely huge accomplishment, and it is a testimony to the incredible effort expended by the product and test engineering guys, and the technology transfer guys, inside of MoSys. It is just a huge accomplishment for us. So, those two, both a quality benchmark and the manufacturing disciple benchmark, are now very satisfactorily achieved.

We continue to look very, very hard for a second source. And we are quite far from a second source that could innovate in a product or a product architecture and definition like Bandwidth Engine. So, to get a full up second source is a still a bit of a reach. However, we have completed negotiations with a company that provides what you call a continuity of supply service. That is a condition whereby if extraordinary circumstances make it impossible for the end customer to buy the products directly from you, he can execute or energize the continuity of supply agreement, start wafers in the foundries using our mass sets, use the approved packages, the approved package assembly techniques, everything that is all ISO approved in our product flow.

And he can create his own product. This is called a continuity of supply agreement. And I think this will satisfy many, but very likely all of our customers over the next year or even two while we work to come up with additionally what I will call a mature second source strategy. So, the continuity of supply has satisfied our near-end customers where we think we have won designs. And we are feeling very, very good about that; that's a real accomplishment as well.

United Business Media, which is a fairly large publication or press organization, each year has a Tech Insights award, and where somebody wins an award for the most innovative, integrated circuit of the year. Bandwidth Engine was selected to be part of that. And we were in the final four with Samsung, Micron, and Intel. And we did not win this year, but we are extremely gratified at how close we got to winning it all. The Bandwidth Engine is certainly very, very innovative. And Bandwidth Engine Generation 2 will be more innovative, and 3 even more beyond that.

But just to be in the Tech Insight award finals was very, very gratifying to the company. If we take a look at our technology roadmap, BE2, and we have had a fair bit of pressure on us from potential customers to add some features here and there, to do something reasonably dramatic to it to allow it to behave more like a code processor perhaps. But Bandwidth Engine 2 still remains on schedule to tape out sometime in the first half of the third quarter, it would be the schedule. We are feeling very good about that.

And Bandwidth Engine 3 is probably 40% of the way through definition now, and lots of talk with the customers and potential customers about the feature set that they would like in that product.

But, that more or less completes what I was going to talk about today. What I would like to just close with, and subject to questions at the end, is that as we had said on the call last time, or at a few of the investment banking meetings I have attended, we are making very, very good time and progress with the Bandwidth Engine operational execution in both Bandwidth Engine 1, 2, and 3. But we need to excite demand. Demand is not meeting my satisfaction and we are going to pay more attention to that. Dave DeMaria is now responsible for both Japan and the United States, and in the short term of a year, year and a half, I have taken responsibility through John to pay attention to China.

I think we are already seeing activity levels in China pick up so we are feeling very gratified about that. And Dave is attacking the two areas I mentioned with a great deal of enthusiasm. So, I expect that with this kind of attention sometime later this year we might be telling our shareholders that demand is moving past operations and swings back and forth like a pendulum. But for today, and for the next call, we will make a point of talking about what we are doing to incite demand and excite [the pouring in] of orders, and deeper growth rate in 2014.

All of that said, I think I am going to turn the call over to Jim, let him talk to us a little bit about the numbers. And then I will come back and answer any questions you have and maybe make a closing remark or two. Jim?

Thank you, Len, and 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 and intangible asset amortization. These 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.

Prior to discussing our financial results, I would like to first address our recent IP asset sale. During the first quarter of 2012 we further monetized our IP portfolio by entering into an asset purchase agreement to sell a portion of our high speed serial interface IP for $4.2 million. Synopsys paid $2.3 million in cash up front, with the balance of $1.9 million due as MoSys provides technology transfer support services, and achieves certain contractually agreed upon development milestones.

As part of the sale we transferred our India IP design team, or approximately 15 employees, to the buyer. We also retained a license to the SerDes Technology to cover our Bandwidth Engine IC products and existing licensees, but have limited our rights to grant new licenses for the related SerDes Technology at performance speeds of between 6.5 and 12.5 gigabits per second.

We are pleased to have further monetized our IP portfolio in support of our strategy to deemphasize the IP business, and continue our transition to a fabless semiconductor company.

Now let's review our first quarter financial results. Total revenue was $1.4 million, compared with $5.2 million for the fourth quarter of 2011, and $3.5 million for the first quarter of 2011.

Licensing and other revenue for the first quarter of 2012 was $0.2 million compared with $2.7 million in the fourth quarter of 2011 and $1.3 million in the first quarter of 2011. The sequential decrease was due to a reduction in activity in ongoing SerDes and [IC] projects, and the lack of new licensing activity in the first quarter of 2012.

License revenue for the first quarter of 2012 included revenue from nine licensees compared with 14 in the fourth quarter of 2011.

Royalty revenue for the first quarter of 2012 was $1.2 million, compared with $2.5 million for the previous quarter, and $2.2 million for the first quarter of 2011. The sequential decrease in first quarter royalty revenue was due primarily to reduced royalties from licensees whose products they used in gaming products.

First quarter 2012 royalty revenue was recognized from 13 licensees, compared with 14 licensees in the fourth quarter of 2011.

GAAP gross margins for the first quarter of 2012 were 96% compared with 66% for the prior quarter, and 81% in the year ago quarter. The sequential increase in gross margin was due to lower costs associated with the decreased license revenue and royalty revenue which has no associated cost, representing a higher percentage of total revenue.

In terms of our operating expenses for the first quarter, research and development expenses were $7.5 million compared with $6.8 million in the previous quarter, and $6.2 million in the first quarter of 2011. R&D expenses in the first quarter of 2012 reflect ongoing investment for development of our Bandwidth Engine integrated circuit product family.

Selling, general, and administrative expenses were $2.9 million, compared with $2.3 million in the previous quarter, and $2.7 million in the year ago period. The sequential increase in SG&A expense was primarily attributable to an increase in legal expenses. In the first quarter of 2012, the Company received an unfavorable arbitration judgment relating to a contract dispute [arising] and the Company's acquisition of Analog/Mixed Signal Technology in 2007.

As a result of the arbitration, in the first quarter of 2012 the company recorded a charge to SG&A expense of $0.6 million and expects to pay approximately $1.4 million in the second quarter of 2012.

Total GAAP operating expenses for the first quarter were $8.6 million and included a net gain of $1.9 million from a recent sale of a portion of our SerDes IP, which was accounted for in the same manner as our patent sale in December 2011.

Total operating expenses in the first quarter of 2012 included $0.7 million for amortization of intangible assets. And $1 million in stock-based compensation expense. First quarter total operating expenses, compared with a gain of $26.5 million in the previous quarter, which included the one-time gain of $35.6 million from our December 2011 sale of memory technology patent.

On a year-over-year basis, total operating expenses of $8.6 million compared with $8.9 million in the first quarter of 2011. On a non-GAAP basis, total operating expenses for the first quarter of 2012 were $6.9 million, which includes the $1.9 million gain for the SerDes IP sale, and compares with a gain of $28.2 million in the previous quarter, and $7.6 million for the first quarter of 2011.

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

On a GAAP basis, net loss for the first quarter was $7.2 million, or $0.19 per share, compared with net income of $29.8 million or $0.75 per diluted share in the prior quarter, and a net loss of $6 million or $0.16 per share for the first quarter of 2011.

On a non-GAAP basis, net loss for the first quarter of 2012 was $5.5 million, or $0.14 per share, which excluded intangible asset amortization and stock-based compensation expenses totaling $1.7 million, compared with the non-GAAP net income of $31.7 million or $0.80 per diluted share in the previous quarter, and a loss of $4.7 million or $0.13 per share in the year ago period.

Net income per share for the first quarter of 2012 on a GAAP and non-GAAP basis was computed using approximately 38.6 million shares.

Now turning to the balance sheet. As of March 31, 2012, our cash and investments balance was $54.7 million, compared with $58 million at December 31, 2011. The sequential decrease in cash and investments included approximately $5.6 million of cash used from operations, partially offset by net cash proceeds of $2.2 million received in the March 2012 sale of a portion of our SerDes IP.

As of March 31, 2012, our total headcount was 118 employees compared with 143 employees as of December 31, 2011, with approximately over 80% of our employees in engineering and research and development.

Of our total employee count, 20 are located in India, compared with 43 in India in the previous quarter. 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 -- The Benchmark Company.

Len, you were breaking up at the beginning of your prepared remarks. And I just wanted to test some of the items you might have been speaking about earlier. Is it your anticipation that you don't, or you won't have Bandwidth Engine revenue with some of these OEM wins you are discussing until the 2014 timeframe?

No, no, not at all. That wasn't what I had meant to say. Basically we still expect that we would see, I'm going to call it prototype build levels where a guy wants to take a number of boxes to the market and start sizing the size of the opportunity for his new networking gear. And so we would see that happening going on through 2012.

In 2013, going say halfway through '13 to halfway through '14 we are probably going to see some kind of an inflection point. And depending on [asset success] and inciting demand, and recognizing the long runway you go down with networking equipment, we really have kind of a two-year runway, right?

If we win a design in June 1 or July 1 of '12, then it probably starts doing something serious July 1 of '14, and it is going through some inflection point. So, basically the only point I was trying to make, if I recall, would have been where my attention is now is the rate of growth we might be able to achieve in 2014.

I think we are going to see pretty much everything we have been suggesting -- prototype quantities, the beginning of turning on in '12, the beginning of turning on '13. So we are going though some serious inflection points as our customer figures out how big a seller a particular box or a particular [line card] is going to be, and that is going to create the rate of growth for us in 2014.

I wasn't changing anything I had said in the past at all, Gary.

And with (technical difficulty) Bandwidth Engine IC per line card, based on your design wins and the potential for prototypes and the average selling price of the Bandwidth Engine, what kind of revenue levels are we talking about just based on these handful of design wins and the prototype support that you may be providing?

Well, in the past we said that we would like to think revenue could be in the $40 million to even $80 million range in 2014. And the plan of record is not up for review or change here today. So, you figure on a rule of thumb that the average selling price I think is going to be between $70 and $90, you can probably figure up some unit volumes and so on.

And as we go out further out into -- I would say that getting out to the end of this year or something we will get better visibility into the ramp, and we could be looking at, hopefully, if it is a short falling revenue it is a very large backlog and an enormous amount of promise. It's a little hard to tell. That is why I talk often these days about the rate of change in 2014.

Understood. And in the intermediate term, let's call it the remaining three quarters of 2012, I'm assuming the licensing revenue is going to be somewhat similar to what you reported for the first quarter. And then royalties will be mostly generated from your relationship with your lead foundry partners. Is that a fair assumption?

Would you ask that question again, Gary? I wasn't sure I caught the last part of it.

Yes. If I am not mistaken you might have a little bit of add-in card revenue associated with Bandwidth Engine during 2012, but the majority of revenue for the balance of the year, would that be primarily generated from just a couple hundred thousand dollars of licensing revenue here and there and then royalties associated with your relationship with TSMC?

Yes. I think on the licensing front, based on the backlog and the visibility we have now, and taking a conservative look as far as maybe just assuming some maintenance renewals that will come in the ordinary course, license revenues could range from $200K up to maybe $600K, $700K, just depending on timing of revenue recognition, etc.

There could be some opportunities I think as I may have mentioned maybe on our last quarter's call to potentially renew some license, bring some blue birds, some upside. But it is hard to have visibility and to project that.

On the royalty front, we usually see some lower royalties in the first quarter with , as I mentioned in my script, with a significant number of gaming, or a couple of gaming applications with some of our customers. The two largest royalty payers are NEC and TSMC. And we expect that to continue for the remainder of '12.

On the NEC front, and the part that goes in the Nintendo Wii, I have lost some visibility. Nintendo reported their fiscal 2012 year-end last week. Going forward they are now lumping in the traditional Wii system along with the new Wii U in their forecast, but I don't have visibility looking out at what those unit projections could look like. But I think there will still be enough Wii units moving as we move through the holiday season as I would expect they would bring down prices, etc, and still move several

Now the operating expenses you recognized during the first quarter, that is probably not a good proxy for the balance of the year considering a lower number of employees and a few extraordinary items. But could you give us a sense of how your quarterly operating expenses might run for the remaining three quarters of the year?

Yes. I think certainly as you point out, we had some hits in the first quarter. I think we will be challenged the next two quarters as we move toward, certainly at least the next two quarters, as we move towards taping out the Bandwidth Engine 2 this summer, which will have a big impact on Q3. And costs will inevitably, as we have seen before, and most companies do, kind of creep up as you move towards closer and closer to meeting your deadline.

And the second quarter as well we will putting resources on completing, hopefully completing or moving towards completion of our technology transfer obligations coming out of our transaction with Synopsys. So, I think that is going to put pressure on the expense line for the next couple of quarters, but I think backing out again the one-time tape out we will have this year for Bandwidth Engine 2 in the summer. You know, I don't think they will rise astronomically, but there could just be some pressure, or it will stay at maybe similar levels.

I think in the fourth quarter we are starting to project some expense reductions. We have got some CAD contracts coming up for renewal. And obviously with our reduced IP activity there will be some savings there. And we are looking at some other fronts.

Okay. So for the next few quarters it sounds as if your cash burn might be roughly $7 million or so?

I think it will be -- we are not giving any specific guidance. It will be better than that, but subject to timing of expenses, etc, and certainly we are going to -- if I take the $3.3 million net burn in the first quarter, add back in the Synopsys cash, it's about $5.5 million. $7 million is probably not unreasonable for Q2 given I am going to have to make this litigation judgment payment in the second quarter. But I think we will see it come down subject to when we pay the tape out for our Bandwidth Engine 2, whether that is in Q3 or Q4.

If it is in Q3, they will probably stay around $7 million because that is a decent hit for that.

Great. Thank you guys.

(Operator Instructions). Chris Sigala -- B. Riley & Co.

My one question here is related to the competitive environment for Bandwidth Engine. Just wondering if you guys can talk a little bit about how you look at the competitive environment and how that product compares with these other products that are out there, most notably the RLDRAM and the LLDRAM solutions from Micron, GSI, ISSI. Thanks.

Sure. I can probably do that. The RLDRAM 2 is probably still the main workhorse or the RLDRAM or the LLDRAM, depending on whether it is NEC Renesas, or Micron. And that is the workhorse I think. And the RLDRAMs at the highest level of performance run at the 576 MHz and they are 576 Megabits in memory capacity.

So, if we have a packet processing engine, and we put four of those on it, four times 500 MHz would give us 2 GHz of memory bandwidth access. And it would take roughly 300 pins of the SOC in order to get 4 RLDRAMs running at 500 MHz around that SOC.

Now, having said that, just stepping aside for a minute, and then we will come back to RLDRAM Gen 3, the new one that is probably sampling out there somewhere now. But Bandwidth Engine 1 is running at 2.75 Giga Accesses. And when you put that on the SOC it is going to take 64 pins. So, if you decide to replace those RLDRAMs that use 300 pins with four Bandwidth Engines that are 256 pins, suddenly that SOC has 8 Giga Accesses per second of memory bandwidth at its disposal. So that is why we say against the RLDRAM with 4 times the performance.

Now RLDRAM Gen 3, which I can't say I have ever heard that anybody has one. I am going to guess it sampled somewhere. It is going to start at a 576 Megabit size and sometime later it will go to a 1 Gigabit capacity, so it will be twice as big as Bandwidth Engine 1.

However, and it also is going to run at up to 1 Gigabit per second. So, now if you have 4 of those at 576, you would have 4 Giga Accesses of access, or memory access around this for the use of 300 pins of the SOC.

Now, at Christmastime we should be sampling a Bandwidth Engine 2. Bandwidth Engine 2 would be 576 Megabits of memory, and it is going to be running somewhere north of 4 Giga Accesses. So, if you were at 4 of those, again, 256 pins around the SOC, you are going to get 16 Giga Accesses.

So, against the RLDRAM, wherever access is important it would seem that the Bandwidth Engine has got a very distinct advantage. If you are involved in an area in the system where you don't need high speed access, but you just need memory capacity, I think memory capacity with a longer latency and less access is the strength of the RLDRAM, the LLDRAM. And I think they will continue to be very strong and maybe dominant in that space. But we have made no bones about it; where we think we are very, very valuable is in very high speed access.

And Bandwidth Engine3 is probably going to run something north of 6 Giga Accesses per second. So, I think probably we will set a new standard for applications where high access is required. I hope that answers your questions.

Yes. That's very helpful. And then just as a follow-up, I don't know if you have thought about in terms of market size, but when you look at maybe the products that require this high access requirements, how would you try to size that market? And how would you size the overall market including RLDRAM and LLDRAM, etc?

I'm going to say that between the two of them, Micron and NEC Renesas, they probably ship maybe 1.5 million units a month. So if we assume that they ship those at $30 or $50, that would be somewhere between $360 million a month or five times 15 or $75 million a month of revenue.

So, if we look out at the end of the year, we are probably talking about a $400 million to a $600 million total available market for that area. Additionally the RLDRAM is also a very good replacement in many, many applications where QDR memory is used. And I think that probably between Samsung and Cypress they were doing close to $400 million, $500 million a year, and owning about 70% of that business between them.

So, I'm going to say there is another, if I am being very conservative, $300 million TAM that we might be able to come up with a much better solution n terms of speed power and I will call it data integrity because of the fairly serious [soft air] rate problem these days with very, very large static memories that are parallel interfaces such as the QDR memory.

I think with the Bandwidth Engine we can be conservative in saying we have a TAM of somewhere between $500 million and $700 million a year, and I think that is relatively conservative. And we know that in some applications there will be [16] onboard, and as I mentioned today, probably the center point of the wins that I mentioned today are probably in the area of 5 to 7 units per board.

And if you take a look at the cost savings and the power savings, there is a very strong argument that we are much cheaper in costs because of the number of Giga Accesses we give you and what we replace on the board for an equivalent amount of performance. And we are dramatically more power, 4 RLDRAM Gen 2s burn 14 watts to get 2 Giga Accesses. And one Bandwidth Engine provides 2 Giga Accesses at 7 watts. So, we are probably a little less than 50% of the power of the other guy.

It seems to me that the TAM and the advantages of using us are pretty strongly in favor of giving us a try, right?

Right. That is very helpful. And I appreciate you guys answering my questions.

Thank you, sir.

Krishna Shankar -- ROTH Capital.

Len, can you tell us a little bit about the nature of these OEM equipment design wins. What types of platforms are these? And would you describe these as sort of leading edge next generation platforms? Just want to get a little granularity in the nature of these design wins that you have.

We would say that all of the design wins -- let me just make sure here. I think all of the design wins we have chatted about in the last several quarters are probably in the top ten players in the network equipment business. So in every case people have a very strong brand recognition and probably do a very strong private label business to some of the big ISPs, and so on and so forth.

And I think that we are going into the next generation routers that are running 100 gig. I think that the big volume jobs are 100 gig systems. Some of the design wins in progress we are looking at are at 200 and even 400, but I believe the ones we are talking about now are primarily using FPGAs for the ASIC as opposed to an SOC. And we have talked here on other quarters about the FPGA being a low-hanging fruit that the guy could get to the market fastest using that as his packet processing engine.

So, I would say these are probably all next generation equipment running some souped-up 40 gig systems, or 100 gig. And for the most part using FPGAs for packet processing.

Okay. And then just following up on the last question, so essentially you think it is sort of $500 million to maybe $1 billon turn in 2014?

Well I have specifically stayed away from that magic word of $1 billion today. But I think if we are looking out to 2015 and thinking out there, we probably are now doing something with Bandwidth Engine 3. And, you know, I mentioned today that between BE 1 and BE2 we provide some pretty serious alternative to RLDRAMs or QDR memories.

As the performance requirements of the internet increase, and we bring out BE 3, we are looking at providing an alternative to some other solutions that have been used on the board that are going to have a rough time keeping up with the performance requirements out there. So, I think I can be confident in saying that we would be talking about something like a $750 million or $1 billion TAM by 2015. I think that is probably not out of line.

Great. Thank you.

Alex Gauna -- JMP Securities.

Len, I was wondering, I know it is difficult because you are still in the sampling and trial phases here, but if you could speak to your perception of the health of your customer base right now. There has been that inventory correction underway for several quarters now for many network and IC players, and I'm wondering about if you have visibility into the longevity of the health of your programs that you are engaged in right now. Thank you.

Well, basically we are a small company in a very monstrous market. So, that market can move quite a bit and not have a particularly negative effect on us. So, I would say in terms of the new network equipment that is trying to find its way into the market to support the ever expanding mobile -- I'm going to call it mobile-based load on the internet -- that our projects seem to be moving forward quite rapidly and we haven't seen anything in the way of a serious slowdown yet.

On the other hand, I pay a little bit of attention to the networking business in general, and I think the networking business in general is a little bit cautious right now. If you looked at it microscopically and if you were serving hundreds and hundreds of millions of dollars of [business], I might be inclined to say it looks like it is not going down right now, I don't think, or getting smaller. We are not going into a downturn.

But, it may be a little flat. Maybe people are working off inventories, or just being cautious. Now having said that, my last point would be that it seems to me that the incredible power of the mobile system is maybe driven by primarily our friend Apple are going to just put a monstrous load on the internet over the next couple of years.

If you look at a few hundred million more users coming in from China and India, and maybe a few from the United States and Europe, there just isn't any way that I think the commercially available Internet with the commercially available equipment today is going to be able to handle this massive load of complex graphics and complex video that is trying to move across the network.

So, we are going to have to see some very, very strong advances in the architecture of the equipment that serves the needs of the network. And anywhere were information has to move real time from the cloud down to the mobile device, and from the mobile device back up, you don't need to move too fast in the cloud, but when you are getting in and out of it you are going to have to go fast. And the Internet is going to have to work real time or half the country will be standing around waiting for their mobile device to get done computing.

So, with the revolutionary change in the load on the network, it is going to require revolutionary thinking in terms of the equipment. So, maybe those three points there would probably sum up my opinions.

That's very helpful. One more if I could and you set it up fine. You are small in the grand scheme of things. I have heard some argue that scale really matters in this industry. Are any of your customers concerned over your financial health right now or your ability to scale with them? Thank you.

Well actually right now we are blessed with a very strong balance sheet and the customers are very simple. They don't pay attention if you have got a very strong balance sheet. But I can tell you that I am concerned about our scale because the scale and making money are two different things.

Scale is a problem for us because we have to be larger than life, and I don't know if I mentioned it on the call today, but some of the wins that we have mentioned today should allow us to improve our brand over time. And as we improve our brand and we improve our credibility, and we get to deserve a try at some other big account. So, brand and scale and being larger than life, and being totally reliable in supplying and meeting your commitments are all very, very important, as well as the balance sheet.

So, scale is important. We have to earn the right to participate. And if you are small, people -- they are a little slow to do that.

All right. Thanks very much.

Ladies and gentlemen, this concludes the question and answer portion of today's event. I'd like to turn the call back over to Mr. Perham for some closing remarks.

Yes. I only have a couple of closing remarks today. First, let me thank everyone for tuning in, and thanks to everyone for asking the questions and having the interest to stick around and hear our answers.

The last time we talked we said that we had five things we were looking at, and those were optimizing and optimizing the realignment of our organization to be a cost-effective fabless (inaudible) company. I didn't mention that today in my script, but the fact of the matter is that is still on our mind.

The operational side of the company is executing very excellently. And I think probably more on my desk than anyone else's, I think we could have moved a little faster to build our friendships and relationships in China. So, with John on board -- and as well in some areas of the United States. So, we will be focusing hard on that.

And for the next few quarters you will hear us talking about hard work to excite and incite a steeper slope in demand which might result in a better situation for us quarter-over-quarter in '14.

We are pushing our product roadmap pretty hard. We would like to think that perhaps Bandwidth Engine 3 would be more of a [co-processor] than a memory. We still have the potential for relationships with other key players where we can arrange the handshake between our parts to mutual advantage and so forth and so on. We are excited about some of those things.

And we mentioned that we are in the business of bringing value to our customers. And we have a very, very powerful analog as well as digital memory team here. And we may overtime introduce something that serves another function on the board, but you can be damn sure if we do it will be bringing a lot of value to our customers as well.

So, those five things we talked about. I guess in closing today, another way to look at it is we are -- some gentleman here mentioned our balance sheet -- we are watching costs. Jim said we are running a little out of line from where we would like to be for the next couple quarters, because we have a few things we have to wind down in terms of our IP. And we need to make some transitions there, so we are watching costs, trying, as I mentioned when I talked about demand.

And we had the good fortune to strike a deal on some of our IP assets with the Synopsys that hopefully will be good for both of us. And who knows? We may come across another deal like that down the road as well.

Thank you very, very much for tuning and listening to us tell our story. We are excited about our progress, and we look forward to talking to you again next quarter. So, thank you very, very much.

Ladies and gentlemen, thank you so much for joining us today. This does conclude our presentation and you may now disconnect. Have a great evening.