Socket Mobile Inc (SCKT) 2007 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Socket Communications, Inc. doing business as Socket Mobile, Inc., first quarter management conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jim Byers with MKR Group. Thank you, Mr. Byers, you may begin.

Thank you, operator. Good afternoon and welcome to Socket's conference call to review its financial results for the 2007 first quarter. Online today are Kevin Mills, President and Chief Executive Officer of Socket, and Dave Dunlap, Chief Financial Officer.

Earlier today, Socket distributed its earnings release over the wire service and has also posted the release on their website at www.socketmobile.com. In addition, a replay of today's call will be available at vcall.com shortly after the completion of this call and a transcript of this call will be posted on Socket's website, typically by this Friday. We have also posted replay numbers in our press release for those wishing to replay this call by phone. The phone replays will be available for one week.

Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements include, but are not limited to, statements with respect to the introduction, volume shipments, distribution, timing and market acceptance of our new handheld mobile computer products and statements predicting trends, sales and market opportunities in the markets in which we sell our products.

Such statements involve risks and uncertainties and actual results could differ materially from the results anticipated in such forward-looking statements as a result of a number of factors, including, but not limited to, the risk that the introduction or volume shipment of our new product may be delayed or not happen as predicted, if ever, due to technological, market or financial factors, including the availability of necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated once the product has been introduced into the market, the risk that our integrator program and current distribution channels may not choose to distribute the new product or may not be successful in doing so, the risk that acceptance of our new product in vertical application markets may not happen as anticipated and the risk that evidence of strength in the mobile computing market may not be indicative of a trend and other risks described in our most recent Form 10-K and 10-Q reports filed with the Securities and Exchange Commission.

With that said, I'll now turn the call over to Socket's CEO, Kevin Mills.

Thanks, Jim. During the first quarter, we began the process of transitioning the company from a vertical supplier to a systems and platform provider. We've made great progress and we continue making headway throughout this current quarter.

I'll go into more detail in a moment, but first I would like to summarize the highlights for last quarter. We remain on schedule with our planned development and launch of the SoMo 650 mobile handheld device. We're progressing nicely and early indications of interest are encouraging.

We're making great strides in strengthening our sales team and successfully realigning certain operations to better position Socket for long-term success as a systems company.

We believe we have begun to turn this around from a sales perspective, generating a slight improvement in Q1 revenue over the preceding quarter. This includes solid growth in our data collection sales. Collectively, our data collection products were at record levels.

Lastly, we see significant opportunities ahead, improving our optimism about the second half of the year as a systems-centric company.

During the first quarter, we officially unveiled our new handheld computer, the SoMo 650, which is specifically designed for the business mobility market. To update you on our progress, we are tracking to launch at the end of May.

We have begun taking orders for the SoMo 650 and currently have a few hundred units on order and expect to ship these in late May. Starting in April we began to deploy early units to key partners and qualified end users to acquaint them with the device and enable limited evaluations. Initial feedback has been positive, but it's too early to draw any conclusions.

The SoMo 650 is not a consumer-type mobile device. Therefore, there is no fanfare-type launch, but more a gradual launch. During the second quarter we expect our primary focus to be on moving shipments into our sales distribution channels, both in the U.S. and the U.K.

Our many VARs, integrator partners and larger end-user customers will get the early samples and evaluation units from our well-established distributors. Receiving these units and getting them into the hands of field and corporate testers, we'll begin the process of qualification that most customers go through prior to deploying units. We expect to see some revenue in Q2 from the numerous evaluations.

Obviously, Dell's recent decision to exit the PDA market has put pressure on business customers who standardized on the Dell Axim and this vacuum in the market will be helpful to us as we launch the SoMo 650.

A major effort and critical part of our transition from a peripherals company to a systems company is our sales force. Realignment of our sales force has been a key focus and objective. Earlier this month we announced the hiring of Bob Zink as Senior Vice President of Worldwide Sales and Marketing. With Bob's arrival, we now have the leadership in place to reorganize and rebuild our sales and marketing team for the significant opportunities ahead of us.

Bob brings extensive mobile computing system expertise with more than 28 years as a solution sales and marketing veteran, primarily at Intermec. Bob's proven marketing and sales execution skills will benefit us enormously with the pending SoMo 650 launch. His arrival is a key milestone which will help Socket in its transition to a systems company.

Bob has already made an impact by helping us start the process of regionalizing our U.S. sales force and strengthening our technical capabilities within the sales organization. We are beginning the process by strengthening our East Coast presence with the hiring in early May of an East Coast Director of Sales based in the New Jersey area.

This person has already been identified, has accepted the position and will be on board next month. We believe Socket will benefit greatly from an East Coast field sales organization to service the many opportunities we have on the East Coast.

Having our own field sales organization was not practical under our previous strategy as a peripherals provider since our strategy was based around alignment with key partners like Dell and H-P. However, with our own device, our going-forward focus will be on key customers and satisfying their requirements. Therefore, we are adjusting our resources accordingly.

Over time, Bob will direct further expansion of our sales team to expand and maximize our sales capabilities and their effectiveness as we grow our revenue.

As we have noted before, Socket's SoMo 650 is built to address the significant market that exists between consumer-oriented PDAs and more heavy-duty industrial devices. The combination of our SoMo 650 and our extensive line of mobile data collection and networking connectivity peripherals makes Socket a one-stop supplier for mobile computing hardware systems.

We are both excited and optimistic about the market opportunity for our handheld device, based on the initial feedback from potential customers, plus we believe the timing of the launch of the SoMo 650 could benefit from the market vacuum created by the formal announcement by Dell to exit from the PDA market with their Axim product. Dell's departure will provide some additional launch momentum for the SoMo 650 as Dell customers look for an alternative.

According to Gartner, the total market for non-cellular PDA devices is estimated to be around 6 million units in 2007, with an estimated 50% of these being used in the business environment, giving the Socket SoMo a total available market of around 3 million units. Even though 3 million might not be a huge number by some standards, we believe it is a sizable market for us and, at over $1 billion in revenue, should give us plenty of room to grow. We believe Socket Mobile is very well positioned to capture a meaningful share of this market over time.

Now I'll turn my attention to our current business. We are very encouraged about the growing sales and progress of our data collection business. This segment continues to be our dominant product family, generating record sales in the first quarter that represented 58% of total Q1 revenue.

During the quarter, we continued to see strength in both the plug-in and cordless categories, the plug-in business being particularly strong as we saw benefits from the many tablet PCs that are entering the market. This is a positive surprise which more than offset the weakness we expected and experienced in the PDA market with Dell's departure.

We also benefited from the design improvements we incorporated into the cordless ring scanner in Q4. Early customer feedback and product enhancements are now fully integrated into the design and we've received very positive customer feedback on the design upgrades we've incorporated.

Sales of our cordless ring scanner are increasing in momentum. For the first quarter, our cordless ring scanner business generated over $300,000. This is a nearly fourfold increase over revenue in the fourth quarter and is close to the total revenue for the cordless ring scanner in 2006.

We received the first large order for what we believe to be a much bigger opportunity with a foreign government postal service. These initial units will be deployed over the next quarter and we look forward to reporting on the progress. We referred to this deal on a previous conference call.

I think the story here is a simple one. The requirements of companies that benefit from a product like a cordless ring scanner are very high and the volume of business that we can get once we meet those requirements is also very high. It took us longer than we expected to achieve their very high standards, but now we feel we have reached that standard and are beginning to see some deals which enable us to grow this segment of our business.

We believe we now have the cordless ring scanner recipe for these high-demand environments and we see similar deals in front of us and anticipate increasing levels of sales activity for the cordless ring scanner this year.

In addition, we announced last December completion of a new supply agreement with Psion Teklogix under which they will bundle our cordless ring scanner with their industrial handheld computers to provide hands-free barcode scanning solutions for Psion customers. They have received initial units and we'll be working closely with them to ensure success for both parties.

We continue to make significant progress with our product development efforts in data collection. Last week we announced an expansion of our scanning product offering to enable customers to read 2D barcodes, completing the matrix of our product line from basic scanning capabilities to 2D and RFID. We expect the 5X, our 2D compact flash plug-in barcode scanner to ship in Q2, but we do not expect any substantial revenue for a few quarters as applications need to be written to take advantage of the 2D scanning capability.

Now let's discuss our OEM business. In Q1, as we anticipated, we saw reasonable recovery in the OEM business. In addition, we booked approximately $4 million of new orders for our KwikBlue Bluetooth module based on the CSR BC02 chipset, which we end-of-lifed in Q1. These new orders are spread out over 5 quarters and will ensure a stable base of OEM business during 2007 and on which we expect to grow the overall level of business, going forward.

Our OEM group is actively seeking design wins for our KwikBlue Bluetooth modules based on the CSR BC04 chipset and for wireless LAN modules using 802.11g technology.

As noted on our last call, since our own handheld computer, the SoMo 650, will have both Bluetooth and wireless LAN built in, we are moving responsibility for all wireless LAN and Bluetooth plug-in cards to our OEM group. This change will initially increase our OEM numbers, but will better describe the OEM business going forward.

Our Q1 results of over $1.1 million for the OEM business is again approaching the levels we saw in the first 3 quarters of last year. This number includes some compact flash and SP cards so it offset some weakness in our traditional OEM business, but the trends are positive and we-- and are suggesting we can expect to strengthen going forward.

Overall, we believe the OEM business will continue to be driven by our many customers in the mobility market needing Bluetooth and wireless LAN solutions.

To conclude, general market conditions during the first quarter were similar to the last 2 quarters, reflecting the impact of Dell's exiting the market with their Axim. We believe Dell ran out of product in mid-March, which was a short-term negative for us and our customers. However, as I mentioned before, with the pending launch of our SoMo 650 device, we believe this also represents additional opportunity for us in the marketplace.

In addition, we believe the stability and commitment that our SoMo 650 handheld computer brings to the market, coupled with our peripherals, will help counter the slowdown we've experienced as customers will be able to roll out their solutions with Socket as a systems supplier who is committed and focused on their business mobility needs.

We remain very excited about the opportunity in front of us. As we continue our transition, we believe we are putting the right pieces in place to achieve sustainable growth, including continued revenue growth and a return to profitability this year.

And now let's turn the call over to Dave Dunlap, Socket's Chief Financial Officer, for his comments. Dave?

Thank you, Kevin. Socket's revenue for the first quarter of 2007 was $5.5 million compared to revenue of $5.4 million in the immediately preceding quarter and $6.8 million for the same quarter a year ago.

The first quarter has been an excellent transition quarter for the company. As Kevin has reported, we substantially completed the development of Socket's SoMo 650 handheld computer and have commenced shipping evaluation units to potential customers.

The handheld mobile computer is designed specifically to support mobile business applications and addresses the uncertainties created for businesses in the standard handheld computer market caused by Dell's decision to discontinue the Axim and H-P's focus on consumer units with integrated phones.

The SoMo 650 will add a new revenue stream for Socket, commencing in the second quarter, and will provide our business customers with a one-stop shopping alternative to purchase their handheld computer and data collection peripherals from the same company.

Despite uncertainties in the handheld computer market in the first quarter, our data collection product revenue reached a new all-time record high of $3.2 million or 58% of total revenue for the quarter. Our data collection revenue grew 17% over fourth quarter revenue of $2.8 million and grew 28% over the first quarter total of $2.5 million a year ago.

The growth was across all components in this product category, including barcode-- our plug-in barcode scanners, cordless hand scanners and our newest ring scanner, which contributed over $300,000 in revenue. The growth confirms our expectations that customers would continue to deploy productivity-enhancing solutions, despite the disruptive effects of changes in the handheld computer market and we expect that growth to continue.

OEM product revenue in the first quarter also improved over the fourth quarter, increasing to $1.1 million or 20% of our first quarter revenue. This total compares to revenue of $0.7 million in the fourth quarter and $1.5 million in the first quarter a year ago.

As we reported last quarter, sales of Bluetooth modules to OEM customers were impacted in the fourth quarter as our customers, including Intermec and Hand Held Products, experienced severe price competition from Symbol, which was in the process of being acquired by Motorola. That competition eased after the Symbol acquisition by Motorola was completed.

Our OEM business has also been in a period of transition. We introduced our second generation Bluetooth module several quarters ago and, as Kevin mentioned, we provided an end-of-life notice to our customers for the first generation module. As a result of that end-of-life notice for the first generation module, we've received more than $4 million in Bluetooth module orders to be shipped over the phase-out period of the next 5 quarters.

Our OEM products team is actively seeking design wins for both our second generation Bluetooth module and our newest embedded product, the WiLAN module, which offers state-of-the-art 802.11g WiFi-embedded technology. The team also sells our plug-in Bluetooth and wireless LAN cards as a design alternative to embedded modules.

Although design win competition from module manufacturers for both Bluetooth and WiLAN modules is intense, the quality of Socket's Bluetooth and wireless LAN software, the feature flexibility to our customers who purchase modules and software from one supplier, and Socket's history of long-term responsive service allows us to compete effectively in this market and we expect our OEM business to continue to grow.

Our connectivity and serial businesses, together, provided revenue of $1.2 million or 21% of our revenue. These products are important for enabling certain categories of mobile connectivity and include modems, Ethernet and serial. This category of products fluctuates from quarter to quarter with individual customer requirements.

The second quarter is where we expect to record the first revenue from sale of our SoMo 650 handheld computer, although our focus in the second quarter is primarily to fill our distribution channels and to enable their selling. Because we defer revenue recognition until products are sold out of distribution, we expect revenue from sales of our handheld computer sales to more significantly benefit the second half of this year as computer sales ramp up.

Our gross margins on sales returned to their historical levels of 50%, up from 48% in the fourth quarter, resulting from the growth of our data collection business and product cost reductions, which is an ongoing program at Socket.

The first quarter is our most expensive quarter, because the costs of our annual audit fall primarily into the first quarter and these costs are reflected in our general and administrative expense. In addition, the balance of development costs for the SoMo 650 handheld computer were included in engineering expense during the quarter. Expenses also included the costs of our move into new, expanded facilities, so between those items, there is more than $500,000 in period expense that will not recur in the second quarter.

Some of these savings are being reinvested in personnel as we expand our sales team to support anticipated higher sales levels, but expense levels in the second quarter compared to the first quarter are expected to improve our bottom line by $0.01 a share with further bottom line improvements coming from anticipated revenue growth.

Our balance sheet at the end of March remained strong and we believe we have the cash and working capital to launch and support our handheld computer and to expand our sales. We have agreed with our bank on an extension of our bank line to April 2009. In addition, they will also provide us a term loan facility of $500,000 to assist us with the financing of inventories and receivables as we ramp up sales of our handheld computer.

Let me mention two additional items in investor interest. First, our annual shareholder meeting was held on April 18th at our new facility in Newark, California. All directors were reelected and the reappointment of Moss Adams as our independent auditors for 2007 was ratified. The voting results are posted on our website.

Second, Kevin Mills and I will be presenting at the American Electronics Association Micro Cap Conference in Monterrey, California, on Monday, May 7th, and one of our afternoon sessions will be webcasted. We encourage you to continue to follow the Socket transition story as it unfolds by listening to this webcast, either live or as a replay. You may access the webcast through our website.

Now let me turn the call back to the operator for your questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Brian Swift with Security Research Associates. Please proceed with your question.

Yes. Kevin, I-- I wonder if you could give us a little color on what is happening with Dell and their exit in terms of while they were no longer carrying your product you still had quite a few customers that had your product plugged into Dell's Axim? And in terms of referrals or just what can you tell us about how-- how that is going and what you expect in the future in terms of what-- what, if any, support you would get from Dell?

Okay. Well, I think there's a few elements to the question, so let me answer it in the following way.

So I think that Dell as a reseller performs two functions for Socket. One is that they sold somewhat as a system integrator in conjunction with the Dell Axim and our products and they also provided an online mechanism for people to buy our products.

So in terms of the online mechanism, I think Dell is one of many and the products are freely available from other online resellers such as CDW or Mobile Planet, et cetera. So I think that that part of the business remains secure.

In terms of Dell as a integrator partner, we are seeing a lot of interest from Dell customers who are looking for an alternative. I think that Dell has been a great partner to work with and we've seen a number of those leads passed to us and currently of the units we have out for evaluation, a number of them have been delivered, if you will, via this Dell distribution channel.

So we expect that Dell's customers will qualify the SoMo 650 in conjunction with the peripherals and, hopefully, transition their business from the Dell Axim over to the Socket SoMo 650.

Obviously, people will have choices in the market. Some may go to H-P, but we feel our long-standing relationship with Dell, plus, I think Dell is asking customers to look seriously at our device, which is all we can expect at this stage of the game. So we're very happy with our Dell relationship and we expect that it will grow over time.

And, Brian, we noted that the other day, like a couple days ago, the SoMo 650 image showed up on the Dell Store website. So that's a good sign, although it's still early. It's clearly not available on a production basis yet.

Okay, thanks.

Our next question comes from the line of Kevin Dede with MCF Corporation. Please proceed with your question.

Hi. Good afternoon, gentlemen, Thanks for all the detail in the call. Yes, Kevin, I was wondering if you wouldn't mind going into a little more depth about the applications that you're developing?

Well, sure, it would be our pleasure. First of all, we're developing no applications. The target, really, is to sell to VARs and integrators who have industry-specific knowledge. And we have highlighted five or six categories, including healthcare, retail merchandising, automotive among another few.

I mean, in the healthcare area, as an example, we have people who have completed applications for things like the dispensing of medication and they are then using that application, coupled with our device and scanning peripherals as a method of deploying that.

It's not our intention to get into the applications areas themselves, but to enable people who have, I think, in-depth both industry knowledge as well as system knowledge to enable them to make these solutions more mobile. This is what we've done in conjunction with Dell and H-P and this is what we intend to do with our own device.

So in that respect, it's very much a partnership between us and our vertical integration partners.

We've also, Kevin, been promoting our vertical integration partners program. We used to refer to it as strategic vertical integrators, but the VIP program has substantially more than 100 third-party software application providers that, again, focus on the applications that will be used by primarily small and medium businesses in these various vertical market areas.

As Kevin mentioned, healthcare, hospitality, retail, automotive and field service are all areas where we've seen a lot of success and we expect to see those areas continue to grow.

So these apps-- these apps run on pocket PCs?

They run on Windows Mobile 5.

Or Windows Mobile, yes.

And, again, there's usually a connection between the mobile element and the back-end infrastructure. So if I take examples like dispensing of medication, they're scanning the patients. They're scanning the medication. The system is verifying it's the right patient and the right medicine, providing some input to the nurse. She can then update the record on the screen in front of her, but, ultimately, most of the information is stored on the server.

And for systems like this to work, there has to be integration with the pharmacy, with the prescription system and actually with the billing system, et cetera. So the applications become quite complicated and it's not our intent in any way to get into this as an application provider but to provide a dependable, reliable system for the mobile piece of the overall solution.

Do you-- do you, Kevin, have a sort of road map on-- on wirelessly enabling the handheld and future iterations of technology? Could you give us sort of where you expect to go--

Yes.

--in terms of local networks and wide area networks?

Yes, our primary focus today is on what we call local networks. We feel that the market for people who do not need a cellular connection is seriously underserved. I think that if you are going to buy a device for the outdoors, there's many devices now coming on the market where you have a cell phone-type connection, but if you look at, say, restaurants or hospitals where they already have a wireless LAN infrastructure, they don't need-- in fact, they don't want to have a cellular connection, because they don't want the monthly bill and they don't have the penetration in building to rely on the network.

So our primary focus is on people who do not want a cellular connection at this stage. We believe that market still represents around 3 million units in the business mobility market, based on not requiring a cellular connection.

I think as we will move forward, we're-- we're happy to have variations around the product. One of the things that substantially changes once you add a wide area radio is your business model, both from a selling and deployment point of view in that people are used to carriers subsidizing devices and, therefore, devices end up being sold through carriers with subsidies, which confuses the business model.

So I think that what you can count on us is that we're going to focus on the areas that we feel are underserved that basically have state-of-the-art WiFi and Bluetooth requirements but we're not going to do a wide area-- an integrated wide area radio in the short term. And for customers who do need wide area communications, there will be options like a Bluetooth modem as wide area where they use their mobile phone or another device as a way of communicating when they're outside.

Ah, very good. Okay, that clears up that issue. Do you have any sort of security hurdles that you'll have to navigate through in order to have your device work on current-- current local area networks?

Yes. Well, actually, that's an area where we feel we already have a lot of expertise. So we will be providing the unit with a fast roaming client. It's our intention to support encryption, both PSK, WP, WEP, CSK, plus we will, over time, add things like certification, we believe, to networks like Cisco networks for CCX, et cetera.

We're doing this in our OEM business for customers already, so we would expect the WiFi that's in our SoMo device to be the best available WiFi in the market for mobile devices, bar none, as we roll this out.

Likewise, on the Bluetooth, we have grown a pretty nice business providing Bluetooth to handheld manufacturers, whether it be Hand Held Products or Intermec. So the level of our Bluetooth is actually already quite high by the industry and the standards-- I mean, by the standard in the industry and, therefore, we expect the Bluetooth to be very strong, as well, in our device.

Now given you've made the official announcement, when will you actually physically start taking orders or have you, so far?

We have taken orders. The products are-- I mean, the sequence of events is that they're made available in distribution first. The distributors order them and then that pulls into the reseller channels, et cetera.

We have started receiving orders at the moment and I mentioned we have several hundred units on order. We expect to ship at the end of May and the primary objective of Q2 will be to fill the distribution channel. I think, as Dave mentioned, we only count revenue based on a sales out measurement, so I think we would expect to fill the channel in late May, June, and we would expect some sales out in Q2, but we would expect really to see solid sales in Q3 and Q4.

So based on the couple hundred thousand order rate that you've seen and the communications that you've had with your potential customers, how would you gauge the overall reception?

I think extremely positive would be our gauge. But it's early days. I mean, I think that people are very happy that there's a committed supplier to this segment of the market and we have somewhere in the region of 25 units in various hands out there going through initial tests. The initial feedback has been positive, but I don't think anyone has tested it sufficiently-- robust-- I mean, sufficiently deep enough to basically place an order yet.

But we would expect that people will take a month, six weeks, to really go through an in-depth qualification prior to committing to the unit and we're just starting that process right now.

One of the things of real interest to the customers are some of the differentiating features in the SoMo 650 over a pure consumer-based unit. Kevin, I don't know if you want to mention a few things like wireless LAN roaming--

Yes, I mean, one of the things that you talked about, Kevin, is the wireless LAN roaming. We have a fast roaming client in our device and certainly in the hospital environment, this has been a source of considerable, I would say, distress to people rolling out applications, because the device falls off the network as they move from access point A to access point B. And that's because it was designed as a consumer-grade device and the assumption was you only had one access point, which is a good assumption in the consumer market.

We can roam between access points in 200 milliseconds. So for the customers who have received these units in those type of environments, they have been extremely happy.

Likewise different security levels -- we're able to support and work on Cisco networks, so that is very helpful for people.

Also, the ruggedness of the device -- we wouldn't describe it as rugged, but it's more durable than a consumer-grade device and we have buttons with higher ratings for activation. We put inside buttons that can be used for toggling between applications. It can be used for scanning. It can be used for RFID reading. We have provided covers, separate charging mechanisms.

So again, we've really optimized this device for the business-type application. In the charging cradle, we're providing space for an extra battery. We're providing USB ports so that you can add a keyboard and mouse. When you cradle the device, now you have a keyboard and mouse that's active.

And, again, we've got very good feedback from customers because occasionally they need to write extensive notes and by cradling the device now they have their regular keyboard. They can write their notes, pick up the device and move on.

So, again, we've tried to incorporate the feedback we've gotten over the last four years from, I would say, customers, many of whom were happy but some who are frustrated, to make sure that our device is going to meet their needs.

Last question for me is one sort of on brand recognition. Now granted you gentlemen have been in the market for a long time with various different products, are you finding that there's a recognition of your brand and that they're correlating your past product successes with this introduction?

Yes, I think that there is quite a reasonable recognition of our brand. We've put-- keeping things in perspective, we shipped, let's say, 160,000 peripherals into the handheld space, primarily that landed in conjunction with Dell and H-P over the last year and we've shipped about 400,000-plus over the last 3 years.

We're going after the same VARs and integrators. We're going after the same applications and we're going after them with a little more of the hardware elements under our control.

In general, I think that we have a very solid reputation for building dependable, reliable products. I would always have-- people have described our stuff as being at the higher end of the market. So I think that people are giving us the benefit of the doubt as we start into the PDA space and I think our history in the peripherals is adding a lot right now.

But ultimately, regardless of what we've done in the peripheral space, the reputation we will have in a year's time will be-- will depend on how well the market accepts the SoMo.

But the point that Kevin's made, that we're not changing our customer base, that we're working with the VARs and integrators that we've worked with for many, many years, corporations will pick their VAR and integrator and rely on their judgments and all of these VARs and integrators have a long history of working with Socket and appreciate the quality of the products and responsive service that we bring. So the first step for us has been to, then, qualify this new product so they'll be familiar with it and we expect the reputation and the branding that we have to date will be a real plus.

And we're also not changing the end users' direction, which is important because these applications consist of three things, typically, a handheld computer, barcode scanning peripherals or RFID peripherals and a vertical application. And what we're doing is we're simply, in addition to providing the peripherals, now providing the handheld computer and that's an option that people can take or not take because we also will continue to serve the third-party handheld computers that we've traditionally served.

So these become additive, but it's very compelling for a VAR to be able to work with a single supplier for both peripherals and handheld computers and make it a one-stop shopping experience.

And I could just add one more thing, Kevin, before we kind of wrap up this lengthy answer. One of the frustrations that has been in the market, particularly for the VARs and integrators, has been the rate of change has been very much out of synch with the business deployment requirements.

We've seen a number of situations over the last 2 years where it has taken a company 12 to 18 months to prototype, do a field deployment, get budget and approval for a mobile deployment, only to go back to find out that the device that they have qualified has been either discontinued, superseded or the operating system has changed.

One of the things that we're promising the VAR and integrator community is that our device will be in the market for 3 to 5 years and that the rate of change will be dependent on their needs as opposed to the consumer needs. And what that means is that it will take a year to get a device qualified in a particular application, but then there'll be 2 or 3 years where you can get a reasonable ROI without having to rewrite your software.

And I think that that, alone, has really been very well received by the VAR community because they really don't make any progress just rewriting and changing from Windows Mobile 4.2 to Windows Mobile 5.

Our next question comes from the line of [Dick Siracusa] with Merrill Lynch. Please proceed with your question.

Kevin and Dave, a couple of questions here. One is a minor point, but you keep talking about you'll be ready to ship at the end of May and you're in sort of an evaluation stage right now, but when I look at Dell's website and it's for sale and it says usually ships 1 to 2 weeks.

That's just because so much of this is automated that once it appears in distribution, they don't have any stock, they make that assumption and there's no real person involved. Believe me, if you order it, it won't ship in 1 to 2 weeks.

That's what I thought. Okay.

But we've made-- Dell knows our schedule and we've pointed out that to them, but I think their desire is to begin the process of making people aware that it's becoming available and to start to take orders. We have pointed out to them the fact that timeframe is not our timeframe.

Right. Well, it looks good seeing it there. Now with Psion Teklogix, the arrangement, how-- they-- what is the size of their sales force? What percentage of that sales force will be presenting your product? And at what stage? Are they ready to go?

They're ready to go. So let me give you a few pieces of information.

Psion Teklogix is a public company out of the U.K. I believe in terms of revenue they're probably in the $600 million range. Most of their business is sold direct. They sell-- I think, somewhere in the region of 60% of their customers buy direct from them and maybe even higher.

We initially were approached by one of their groups, I think the group in Canada, because they have a number of customers who like a wearable solution and who already have invested in the Psion technology. They make handheld computers, ruggedized, et cetera.

When we presented to them, their worldwide sales organization decided they should sell it across their entire range, across their entire worldwide sales organization. We went through a lengthy process. We signed the deal last December and we've started to provide samples to their sales organization.

Now their entire sales organization worldwide, which probably is a total of, I would say, 300 people, will be demonstrating the ring scanner to various customers who have standardized on Psion-type devices and need a wearable solution, a wearable scanning solution.

Generally speaking, these deals take time, but I think the process has started and we would expect to see some deals this year as a result of their sales activity.

Okay. And last question is on your sales reorganization. How do you see-- where do you see your sales force a year from now as far as headcount and regional offices? Give us a-- give me a little clarity on that.

Okay, so we intend to continue to deliver all products through the distribution channels. So we currently have, I think, about 3 people focused on the distribution channel and we'll probably move that up in North America to, let's say, 4 or 5.

Then we would expect to have regional sales directors both for the East and West Coast, plus some sales engineers in each category. Initially we're going to start with 2 sales regions and then as the business grows we would end up, probably, in the U.S. over time -- but it would probably take more than a year -- with 4 regions.

We will expect to have sales engineering, as well as sales management in each category. And then I think we will start to have some industry experts, whether it be in healthcare, hospitality, retail merchandising.

Internationally, we will go with a similar-type model, but instead of it being East and West Coast, it'll be divided into smaller regions where we have both sales engineering and sales management, with the expectation that everything will continue to be delivered through the two-tier distribution channel.

Okay, thank you.

Thank you, Dick.

(OPERATOR INSTRUCTIONS) Gentlemen, there are no further questions in the queue at this time. Do you have any closing comments?

Yes, okay. In closing, I would just like to thank everyone for participating in today's call and remind you that we'll be presenting at the AEA conference in Monterrey on May 7th and that our presentation will be webcast.

We look forward to reporting our progress in the launch of the SoMo device at our next call in July and with that, I'd like to close the call and thank you again and wish you all a good afternoon.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.