SiRF Technology Holdings, Inc. Q3 2008 Earnings Call Transcript

Oct.30.08 | About: SiRF Technology (SIRF)

SiRF Technology Holdings, Inc. (SIRF) Q3 2008 Earnings Call October 29, 2008 4:30 PM ET

Executives

Dennis Bencala – Chief Financial Officer

Diosdado Banatao – Executive Chairman, Acting President, Chief Executive Officer

Rob Baxter – Senior Vice President, General Manager of the Automobile PND Business Unit

John Quigley – Senior Vice President and General Manager of the Wireless Business Unit

Kanwar Chadha – Co-Founder and Vice President, Marketing

Analysts

Brian Modoff – Deutsche Bank

Adam Benjamin – Jefferies & Company

Sanjay Devgan – Morgan Stanley

Richard Todaro – Kennedy Capital

Eric Ghernati – Banc of America Securities

[Sandiv Chansaka – RBC Capital Markets]

Yair Reiner – Oppenheimer & Company

[Aaron Husak – Lanexa Global]

Charles Anderson – Doughterty & Company

Jeff Rath - Canaccord Adams

Operator

Welcome to the SiRF Technology Holdings, Inc. third quarter 2008 financial results. At this time, I’d like to turn the call over to Mr. Dennis Bencala. Please go ahead, sir.

Dennis Bencala

Good afternoon. This is Dennis Bencala, Chief Financial Officer at SiRF Technology. Welcome to our third quarter 2008 earnings conference call. Please see our Q3 earnings release which was issued earlier this afternoon and is also available on SiRF's Website.

Participating today with me will be Dado Banatao, SiRF’s Executive Chairman and Acting President and Chief Executive Officer; Rob Baxter, Senior Vice President and General Manager of the Automobile PND Business Unit; John Quigley, Senior Vice President and General Manager – Wireless Business Unit and Kanwar Chadha, Co-Founder and VP of Marketing.

First, Dado will provide an overview of the third quarter then I will talk you to numbers and wrap up with guidance for Q4. But before I begin I need to mention this call will contain forward-looking statements, which include among other things financial projections, statements regarding objectives and future plans of management, our strategy, efforts to mitigate litigation impact, future economic and business performance and the assumptions underlying or related to such forward-looking statements.

The forward-looking statements we make on this call including our projections for Q4 2008 are based on our current expectations including changes in our organization and strategic product development and planning and benefits related to these changes. In assessments related to revenue, gross margin, operating expenses, litigation expenses, DSO, 2008 tax rate, earnings per share, our product portfolio and the strength of our company, among others.

These forward-looking statements are subject to a number of risks and uncertainties, including a risk of adverse changes in the global economy; delays in the release of new products; our ability to keep up with technological change; fluctuations in customer demand for SiRF product and/or end-user demands for our customers' products; competition; customer product cancellation issues or delays; our expense levels; the outcome of any litigation including any adverse ruling; manufacturing delays or inefficiencies; shortage of components used in our customers' devices; fluctuating foundry capacity; and intellectual property litigation which is common in our industry.

We ask that you keep these in mind in relying on any such statements of expectations. Information provided here speaks only as of this date and SiRF disclaims any duties to update the information herein. For a more thorough discussion of the risks of which forward-looking statements are subject please refer to our press release from earlier today and our Form 10-Q for the quarter ended June 30, 2008 as filed with the SEC and other filings made with the SEC from time to time.

In addition, on this call and in our press release from earlier today, we discussed our financials on both a GAAP and non-GAAP basis. The non-GAAP financial measures included in our press release today and discussed in this call are included with the intention of providing investors a more complete understanding of our operational results and trends, which should only be used in conjunction with results reported in accordance with GAAP.

The non-GAAP financial measures should enable investors to analyze our base financial and operating performance and to facilitate period-to-period comparisons and analysis of operating trends. Non-GAAP measures presented and discussed today or in our release, presentations and similar documents issued by us exclude such charges as stock compensation, amortization of acquisition-related and tangible assets and certain non-recurring, non cash impairment charges. A detailed reconciliation of the adjustment between results calculating using GAAP and non-GAAP have been included in our press release.

At this time, I’d like to introduce our Executive Chairman, Dado, who will provide an overview of the business for the quarter.

Diosdado Banatao

Thank you all for joining us today as we discuss our Q3 2008 financial results. As we anticipated in our previous conference calls, Q3 has proven to be a challenging quarter for SiRF. Revenues in Q3 continued to be affected by competitive pricing and the general macroeconomic uncertainty that is affecting the economy.

On the cost management front, we have reduced our quarterly operating expense by $4.8 million in Q3 ’08 compared to Q2 of 2008 and we will continue to focus on cost reduction efforts without compromising our strategic road map and customer support activities. Despite the economic uncertainty and recognizing the need to manage our expenses, we have heightened our focus on customer support and allocated the necessary engineering and sales resources required to address our customers’ products launch requirements.

SiRF has been involved with ongoing ITC litigation which could affect the future importation and delivery of certain current SiRF products into the United States. It is important to clarify that five of the six patents at issue in the ITC litigation are software-related and that the one hardware-related patent has been asserted against the i5000 and not our SiRF Star III or SoC products. We are working closely with our customers, particularly with the three named in the ITC case to implement multiple measure designed to enable them to continue to ship products into the US markets.

Since the ITC judges’ initial determination, we have developed and begun to release software solutions that are designed to address the five software-related patents. Additionally, there have been several positive legal developments relating to the patent litigations. First, the ITC has agreed to review the initial determination of the administrative law judges’ recommendation on three of the patents at issue, including the hardware patent asserted against the i5000. The ITC has also extended the expected date of issuing its final determination until early next year.

Secondly, the Circuit Court of Appeals recently ruled that the ITC does not possess the statutory authority to ban products produced by downstream users that are not named in the ITC complaint. Finally, all four patents in the May 2008 District Court litigation brought against us have been accepted for re-examination by the US Patent and Trademark Office due to the substantial new questions of patentability. Also, that case has been scheduled for trial in Q4 of 2010.

During the quarter, we established dedicated cross (ph 0:09:50) functional teams led by Senior Management to keep our customers informed about legal and technical solutions to the ITC issues, as well as share our new product roadmap. We have developed and implemented detailed plans for each of our customers to assure uninterrupted delivery of their product.

SiRF continues to increase its focus on the design and development of new products as evidenced by this quarter’s announcement of the SiRF Link III combination radio integrated circuit. The SiRF Link III single chip solution combines a high performance GPS RF front end and a complete Bluetooth solution optimized for use with the Atlas and Prima multifunction SoC platforms. One of the key innovations in this single die multifunction radio platform is its ability to maintain SiRF high sensitivity GPS performance concurrent with full-powered Bluetooth operation. Our product roadmap continues to generate significant customer traction particularly our Atlas and Prima SoC platforms and the SiRF Star III TW solution.

In summary, SiRF has had a tough quarter but the headwinds have made us stronger. We have taken steps to improve our cost position. Our customer relationships have gotten stronger. We have great new products and have won many new sockets and our future product pipeline is robust. Now, I would like to turn the discussion over to Dennis.

Dennis Bencala

Thank you, Dado. Now, I will go over our Third Quarter financial results. SiRF recorded revenues for the third quarter 2008 of $60.1 million. The third quarter 2008 sales breakdown by-product platform was approximately 60% automotive, between 30% and 35% in wireless and slightly less than 10% in consumer platforms. Q3 was comprised of 57.7 million of product sales and approximately 2.4 million of license and royalty fees.

SiRF GAAP gross profit for the third quarter 2008 is 25.6 million or 42.7% of revenue. Q3 GAAP gross profit includes stock compensation charges of 0.6 million in the amortization of acquisition-related intangible expenses of 2.3 million. SiRF’s non-GAAP gross profit for the third quarter 2008 was 28.5 million or 47.4% of net revenue. Q3 non-GAAP gross profit excludes stock compensation charges of 0.6 million in amortization of acquisition-related intangible expenses of 2.3 million.

SiRF’s GAAP net loss for the third quarter of 2008 was 20.9 million or a loss of $0.34 per diluted share based on 62.3 million diluted weighted average shares outstanding. The third quarter 2008 net loss includes 10.1 million of stock compensation expense, 3.4 million in amortization of the acquisition-related intangibles and 0.6 million of acquisition-related contingent payments and restructuring charges.

We recorded a non-GAAP net loss in the third quarter of fiscal 2008 of 6.6 million or a loss of $0.11 per diluted share. Non-GAAP net loss for the third quarter of fiscal 2008 excludes 10.1 million of stock compensation expense, 3.4 million in amortization of acquisition-related intangible, and $0.6 million of acquisition-related contingent payments and restructuring charges. All were down significantly from Q2 2008. Litigation continued to be a significant expense in Q3 at approximately 3.6 million. These charges were primarily related to our ITC patent litigation.

The combined chip set volume decreased approximately 26% during the third quarter of 2008 as compared to the third quarter of 2007, while ASPs declined approximately 13% over the same period. The combined chip set unit volumes in Q3 2008 increased approximately 1% from Q2 2008 while ASPs declined approximately 7%.

SiRF had two 10% or greater customers, a direct customer in Promate, our Taiwanese distributor, which by several of our PND customers as well as other Taiwanese OEMs. Head count at the end of the third quarter was 653 employees versus 710 at the end of Q2 2008.

The reduction in head count is the result of the previously announced reduction in work force which occurred in Q3 into a lesser extent included some additional employee attrition. Q3 DSO was approximately 55 days compared to 45 days in Q2. The increase in DSO is primarily due to the timing of shipments in the last half of Q3. We expect DSO to improve in Q4. Inventory turns in Q3 were at approximately 6.7, an improvement from 5.2 in Q2, as the company took measures to bring its inventory back within its model.

SiRF had cash, cash equivalents, and short term investments of approximately $100 million as of September 27, 2008 compared to approximately $106 million at June 302008. The geographic revenue for the quarter by region was Asia Pacific at 69%, US and the Americas at 17%, Europe at 10%, and the rest of the world at 4%.

We are forecasting a 2008 pro forma effective tax rate of approximately 11% for the year, and anticipated operating expenses to be relatively flat to slightly down in Q4 compared to Q3 2008.

Now we’ll take a look at our Q4 outlook. Although we have seen increasing traction from our newer products, we would remain cautious in our outlook due to ongoing competitive pressures, the ITC litigation, and the prevailing macroeconomic uncertainties. As a result, we are re-guiding Q4 revenues in the range of 50 million to 55 million in non-GAAP EPS from a loss of $0.16 to a loss of $0.19. This is assuming an 11% pro forma tax rate.

Although we do not provide the specific gross margin guidance, we expect our Q4 non-GAAP gross margins to be flat or slightly lower than our Q3 2008 non-GAAP gross margins.

Before we start the Q&A, I would like to point out that there will be certain issues of confidentiality relating to various customers or partners that we are required to respect and this may limit how completely we are able to answer your questions. At this time, we’ll open it up to questions from callers.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from Brian Modoff with Deutsche Bank. Please go ahead.

Brian Modoff – Deutsche Bank

Hi, guys. First question, on the four patents that have been accepted for reexamination, these are the four patents that Broadcom has filed after their original six patents at a later date that are being rejected and sent back, correct?

Kanwar Chadha

That is correct.

Brian Modoff – Deutsche Bank

And so, when they’re sent back for review, what is you mentioned their reexamining the applicability of these patents or the fact that these are – whether these patentable ideas?

Kanwar Chadha

This is Kanwar. Yes. Typically, that means there are significant questions about the validity of those patents and installed number of patents including prior art (ph 00:19:23).

Brian Modoff – Deutsche Bank

Okay. And the prior art may be – could some of that prior art be possessed by SiRF?

Kanwar Chadha

Clearly that would be one of the factors.

Operator

Our next question comes from Adam Benjamin with Jefferies. Please go ahead.

Adam Benjamin – Jefferies & Company

Thanks. Dado, you’ve come in and kind of stabilize the company here, cut some OpEx. I’m just wondering if you can give us a sense as to where you stand in your process of trying to turn this company around, what inning we are in, and what you see going forward as a major challenges to kind of bringing this company back to growth and profitability?

Diosdado Banatao

Good question. As we mentioned, I think in the previous call, we finished our strategic planning process resulting in a roadmap that we consider have significant leapfrog characteristics to them based on technology analysis and competitive analysis, of course. So, given that, clearly, the initial things that we, myself and the staff here, is to properly align the organization getting all our best people in technology and systems design to make sure that they are focused on those kinds of products.

Now, on the last point you made there about difficulties, well, clearly, we are all familiar with the macroeconomic situation today and I do not think that we are immune to that so, we are obviously keeping in close touch with all our customers and to make sure that, as I said earlier, we are really focusing on not only execution but execution at the customers' side supporting them so that their deliveries are not interrupted.

That is a major focus for us. In fact, in all the areas of the organization that we touched that part of the company will continue to improve in terms of its ability to support our customers.

Adam Benjamin – Jefferies & Company

And just a follow-up on that as it relates to the customers, how do deal with your pending IP issues that are ongoing with Broadcom and addressing that with your customers and what is the overall reaction to that or concern, I guess I would ask?

Diosdado Banatao

Essentially, we have to be very clear with our customers in terms of the implications that affects their business. There is nothing better than being very frank with customers in the first place given all the relationships of the company, SiRF, in this case, built over the years and we value obviously those relationships.

There is nothing better than just being very upfront with them and telling them exactly how we are going to make sure that they continue their product deliveries and they appreciate that to the degree that the initial indications is a good indication of what is coming next. We have succeeded in that effort of making them hope.

Operator

We will take our next question from Sanjay Devgan with Morgan Stanley. Please go ahead.

Sanjay Devgan – Morgan Stanley

Hey guys, thanks so much for taking my question. I just want to follow up with you if I may, given your kind of guided OpEx flat down, does that imply that litigation expenses will likely stay at around $3.6 million range that they were in this quarter?

Dennis Bencala

We have not forecasted litigation specifically but we are expecting litigation to be similar expense in Q4 as in Q3.

Sanjay Devgan – Morgan Stanley

Okay. And then just to follow on, if you look at your business, you had a dramatic change over the past several months given that your head count has come down from slightly north of 700 to around 653 in the current quarter, can you give us a sense of what you estimate your break–even point is now?

Dennis Bencala

Well, two things, one, we are not forecasting or we are not giving guidance for 2009. But at our current expense rate which we still do expect to be able to bring down, our break point would be between $70 million and $75 million of revenue.

Operator

And our next question comes from Richard Todaro with Kennedy Capital.

Richard Todaro – Kennedy Capital

Hi guys. Given the shareholders equity of the company has dropped from $509 million to a $162 million, that is $350 million worth of shareholder value destroyed in a year. That is the total profits the company has ever made plus the profits that shareholders invested with you have been destroyed between acquisitions and this lawsuit, you guys are spending more on legal than the company may make and profits off with the products. Do you not think that you owe the shareholders to say this is the plan, the profitability in the near term and/or we are going to sell the company some way to give a vision on how we are going to get out of this and make some money?

I hear you saying your break even today is $70 million to $75 million, give us a plan that either that is going to be lower or you are going to bring revenues up or some plan in the near term more than just we are going to leap frog our product and/or we are going to sell the company or something? There is too much shareholder value that has been destroyed here to be given these sort of answers.

Kanwar Chadha

This is Kanwar. I think we are taking a number of measures to address the issue you have raised. As Dado indicted, clearly as a company, we have to focus on delivering the right product, working with our customers in addressing their concerns and over a period of time, that is our place into getting more attraction with the customers. However, there are, as all of us know, significant macroeconomic uncertainties and we have taken a number of steps to deal with those issues.

You have seen that we are cutting down our OpEx, operating expense, and as we have indicated, we will continue to manage cost but not compromise the long–term strategic roadmap which our customers are excited about and which we believe will ultimately bring the value which all of us would like to have as shareholders into this company.

We are not going to make short–term compromises for the long-term benefit of the company. As far as your other question is concerned about selling the company and all that, as a management, we have to focus on delivering the value to the company. Other than that, we understand your reasons, we understand your concern, but as is customary, we really cannot comment on these kinds of issues or matters.

Operator

And our next question comes from Eric Ghernati with Banc of America. Please go ahead.

Eric Ghernati – Banc of America Securities

Hi, thanks for taking my question. Can you give us an idea about the cash flow in the third quarter and CapEx and sort of a cash burn that you are running right now?

Dennis Bencala

Hi, yes. This is Dennis. So, in Q3, we used approximately $6 million of cash primarily for operating expenses and although we do not forecast cash flow in the future, it would be reasonable to expect that excluding any extraordinary expense, we would end the year at approximately $90 million in cash.

Eric Ghernati – Banc of America Securities

And with respect to your wireless business, I understand how your auto business is coming under pressure right now, but your wireless business, I mean what is going on there this quarter that it is just essentially flat?

Kanwar Chadha

Okay. This is Kanwar. Wireless business, as you know, has concentration of few key customers and quarter to quarter, the supply team and management of customer based can have impact on our wireless business (inaudible 00:28:59) our quarterly revenue. In terms of long term and annually, we do see wireless business as a growth business this year and based on, if you look at some of the key leaders in the wireless business have indicated like Nokia, the GPS will be increasing the penetration into the wireless handsets over the next few years and what we see in our design and pipeline is a similar trend. However, quarter to quarter, clearly, business can fluctuate.

Operator

Before we take our next question, I would like to remind participants to please limit your question to two. Our next question comes from Mahesh Sanganeria with RBC Capital Markets. Please go ahead.

[Sandiv Chansaka – RBC Capital Markets]

Hi. This is Sandiv Chansaka calling in for Mahesh. My first question was related to litigation and like possibility of a settlement there. You are spending almost like $4 million every quarter, I mean, is there any possibility of a settlement with Broadcom?

Diosdado Banatao

Yes. It is a good question. We understand the question but this is one of those things that we cannot give you any comment on those kinds of matters.

[Sandiv Chansaka – RBC Capital Markets]

Okay. So, one thing I just wanted to see was, I mean, going forward, can you give me some sort of breakdown of what you expect for Q4 and maybe going forward in 2009 for your mobile versus your automotive business?

Dennis Bencala

Well, two things. One, we are not giving guidance, of course, for 2009 and in terms of Q4, again, results for this quarter were approximately 60% in the auto-PND business and slightly less than 30% in the wireless and we would expect something similar to that in Q4.

Operator

And our next question comes from Yair Reiner with Oppenheimer Funds. Please go ahead.

Yair Reiner – Oppenheimer & Company

Yes, thank you for taking my question. At this point, the automotive business is still your biggest source of revenue. That industry has clearly gotten quite consolidated even more so than it was last year and it seems as though your share of the two large players in the space can trend–wise seems to still be dwindling, what is your plan for getting a larger share of these two customers and what do you think that the natural share for you there at TomTom and Garmin should be over the long run?

Diosdado Banatao

Yes, thanks. That is a good question, Yair. I mean clearly our plans in these customers center are around our new products and the leadership products particularly in our SoC portfolio and we have significant attraction with all of the PND manufacturers with those products, our atlas products and our prima products.

It has got to be about adding value and creating products to the differentiators and I think we have an excellent family of products that allows us to go and do that. In terms of what share we expect, I think it is inappropriate for me to say what share we expect TomTom and Garmin and Mitac and the other big plans (ph 00:32:37) to give us. Obviously, we are aiming for a significant share and I think we have a big chance of achieving that with the SoC products that we have.

Yair Reiner – Oppenheimer & Company

Okay, thank you.

Operator

And our next question comes again from Brian Modoff with Deutsche Bank. Go ahead.

Brian Modoff – Deutsche Bank

Yes, hopefully, the operator will not cut me off again. So, on the last question on the four patents, any idea when you might get some type of rolling on those four patents from review standpoint?

Kanwar Chadha

Hi, Brian. This is Kanwar. It is very difficult to project exact timing but typically, these kinds of patents are about 18 months' timeframe. So, we are assuming because there are significant questions about the patentability of these patents that decision should come in that type of timeframe and the trial for those four patterns is set for November 2010. So, our hope is that the results will come before that.

Brian Modoff – Deutsche Bank

Okay, good. Looking at your quarter you just finished and the quarter (inaudible 00:33:51) what percent of your revenue is coming from new products?

Dennis Bencala

Well, it is a little bit difficult to say because of the definition of new products but I would say typically, new products represent between 20% and 30% of our revenue in a quarter.

Brian Modoff – Deutsche Bank

Alright. But if you are looking at that is typical, I am trying to get a measure of where we are in terms of new product launches for the company and in part, what percent of new products in the next quarter assuming this litigation on the first six patents does not go your way, what percent of your products might have non-infringing IT in it.

Kanwar Chadha

That is a very good question. I think if you look at next year, you will see much stronger portfolio of new product contribution to the revenue specifically in SoC space of our prima family and atlas family will make significant contribution. In the wireless base, our first single die host coupled architecture, the SiRF star III TW platform is gaining significant attraction in the marketplace at tier-1 handset Windows.

So, we do see a much stronger pipeline contributing to the revenue growth in 2009 timeframe and keep in mind, as far as the factors are concerned in the ITC case as Dado mentioned, five out of the six patents are software-related patents and we expect that with the new software releases will be coming out, will take care of those.

Operator

Our next question from Aaron Husak Lanexa Global (ph 00:35:42). Please go ahead.

[Aaron Husak – Lanexa Global]

Great. Thanks for taking my question. I want to follow up on an earlier question, it is about your operating expense structure and I was a little surprise to hear you, you said in OpEx, it is going to be your plan to slightly down in Q4 when your break–even point is still $70 million to $75 million in revenue and your guiding per Q4 which is your season strongest quarter to the revenue that is way below those levels then we have had Garmin and TomTom report (inaudible 00:36:17) over the past two days and basically give guidance that assumed the PND market is going no growth in Q4 and it looks like it is probably going to be down in 2009 that is still the majority of your revenue, now, what does it take for you guys to make much more significant cuts to the operating expense structure here?

Dennis Bencala

Hi, Aaron, this is Dennis. Of course, yes, we are looking at ways to reduce our operating expense and at the same time as Dado and Kanwar said, we are also looking at the long range too. So, we are not making immediate touch just for the benefit of short–term reduction of expenses. We are still investing in customers in our sales, FAEs, our engineering effort to get out new products. So, we are certainly aware of the importance of reducing expenses. We are in the process of working on our 2009 operating plan and we are working towards reducing expenses wherever we can in a very cost-efficient manner in a way that we can still meet our customer requirements.

[Aaron Husak – Lanexa Global]

Okay. You were talking about your roadmap and looking to leap frog the competition here, in the wireless space, what is the big issue for you guys that has always been in cost and it has been an issue you I have head you guys had because of all the different tier-1s? When you look at your wireless roadmap for possible launch in 2009, is there anything on there where we are talking about sub-dollar ASP (ph 00:38:09) that has enable you to take significant share in enhance the GPS?

John Quigley

This is John and that is a very good question, a good point. With the introduction the SiRF star III TW product what we are going to the single die architecture in CMOS and the overall cost of that product will drop substantially. It is not just about putting everything into a die. We are also integrating much of what the off chip components would be and giving the overall system cost reduction as well as far as exact ASPs, we are not in liberty to go into that. But that is for this product that is in production now. It has been qualified tier-1s were adopted (ph 00:38:56) and then our follow-on products will continue in a single die architecture with increase levels of integration and overall system cost reductions to where we are very confident we have got the right roadmap to leap frog on cost and other features.

Operator

And as a reminder to all participants, we ask that you limit yourself to two questions. Our next question comes from Charlie Anderson from Dougherty & Associates. Please go ahead.

Charles Anderson – Dougherty & Company

Great. Thanks for taking my question. If you guys could just speak to this federal circuit ruling you have mentioned earlier in your prepared remarks, the deals with ITC's jurisdiction, do you anticipate that some of your customers will test that? Is that going to be the law in terms of the downstream products and whether ITC can impact that? And what do you expect in terms of people's reaction to that position?

Kanwar Chadha

We clearly cannot predict what the decision is going to be, but we do believe that this was a very positive development and our assumption is that the federal court has come out with a clear judgment and we believe that our customers are happier for it.

Charles Anderson – Dougherty & Company

You expect some not to take that risk?

Kanwar Chadha

Well, again, it's difficult for us to comment on what they're going to do or not do, but the customer reaction we have seen so far is clearly very positive and I think our customers will have choice. We still have all the technical work-arounds (ph 00:40:43) we need to have in place to make sure our customers' supply is not interrupted, but clearly this gives them more options and I would say the customer reaction has been very positive.

Charles Anderson – Dougherty & Company

Great. Now my second question relates to the PND market, obviously (inaudible 00:41:03) and TomTom has sort of given some of their commentary in the last couple of days. I wonder how you guys feels about the health of the tier 2 and tier 3 players who gives you a lot of business with right now. Do you expect them to be around next year given what this market's going through right now?

Rob Baxter

Yes, this is Rob. So, yes, good question, Charlie. This market has been consolidating for the last year or so. We've seen a consolidation of the tier 3 and tier 2 guys, so really only the stronger ones we think are going to be significant players over the next 12 to 18 months. There's no doubt TomTom, (inaudible 00:41:41), the two of the strongest followed by Asian suppliers. We're looking up to be supplying to all of these customers so we get at the end of the day as we're successful with our SSE products in particular, we think we'll be successful in supporting the growth of this market which we still think has significant growth to go even though it is I think everyone of the suppliers that you've probably seen in the last couple of days, their visibility in particular Q4 is very poor right now for everybody, so that's something that we're all reacting to and all supporting with flexibility as and when we can. (Inaudible 00:42:24) I think there's no doubt there is consolidation and it is going to consolidate more through the next 12 months.

Charles Anderson – Dougherty & Company

Great. Thanks for taking my questions.

Operator

Our next question comes from Jeff Rath with Canaccord Adams. Go ahead.

Jeff Rath – Canaccord Adams

Thanks, guys. Just a couple of questions, most of my questions have been answered. Can you give me some context as to how the cross licensing agreement with Qualcomm came about and what benefit that might give SiRF? Any color as to who started that process? Why did SiRF enter that agreement now as opposed to a year earlier or any color would be helpful? Thank you.

Kanwar Chadha

This is Kanwar. Clearly we cannot go into the details of it, but I can give you an overall perspective. We believe that SiRF and Qualcomm have some of the strongest ADPF (ph 00:43:26) patent portfolios in this space. As the wireless market starts something (ph 00:43:33) up and usage of ADPF technology becomes more prevalent, both of us felt that clearly it's beneficial for us as the leading technology IPR holder to have peace amongst ourselves and we believe it's a mutually beneficial agreement and in the end, the growth of the market driven by the products and technology and the commercial success is more important for both of us.

Operator

At this time, ladies and gentlemen, we ask that if you previously asked your two questions, please follow up with just one for time constraint reasons. Adam Benjamin from Jefferies, please go ahead.

Adam Benjamin – Jefferies & Company

Thanks. Just a follow-up on the IP, I mean you guys have over 250 plus patents that you've acquired for 10 plus years in the business. I'm just curious, why or how you haven't been able to inflict any pain on anybody else and specifically Broadcom given the fact that they were able to get you on five patents?

Kanwar Chadha

Adam, clearly we are not happy about whatever happened, but as you've seen with our announcement with Qualcomm, we do believe and we hope that you understand that our IPR is quite strong to have released that kind of agreement with a major player. Now what we do with our IPR and how we address some of the issues you have brought up, clearly while it's a very good question, clearly we can't give a response to it. We are keeping all our options open and in the end we believe that our IPR combined with our product road map is the key to us winning in the marketplace and we will do whatever is necessary to get there.

Adam Benjamin – Jefferies & Company

If you believe your patents are that strong, I mean wouldn't it be an easy way to fight right back at Broadcom just to license your technology across the board to all the faced-in (ph 00:46:04) providers as well as the handset OEMs, the large ones at a very significant discount in price and it'll drop the chip pricing down dramatically? Wouldn't that be a strategy at this point?

Diosdado Banatao

Hi. This is Dado. I think we've mentioned in the past and they did also mention that we have been in discussions with them on (inaudible 00:46:21) licensing and we will entertain those things obviously, but again as Kanwar said, we focus more on the commerce (ph 00:46:30) of these things and we can use these things defensively, but it would be really I would say careless on our side if we go out there and begin to assert the power of our IP. I would rather put that money into product development, strengthen the road map and serve our customers, not on legal.

Operator

And our next question will come from of Eric Ghernati with Banc of America.

Eric Ghernati – Banc of America Securities

Asked and answered, thank you.

Operator

And one follow-up from Brian Modoff with Deutsche Bank.

Brian Modoff – Deutsche Bank

Yes, one more question guys. If you look at the wireless side of your business, how many of the top 5 handset vendors are you shipping into and then on top of that, how many of the top 10 are you shipping into?

Kanwar Chadha

Brian, we typically do not comment on the exact numbers, but clearly we are shipping into multiple tier 1 handset vendors and as you may have seen in our press release, we indicated that there were some new launches by our tier 1 handset vendors both in U.S. as well as in other countries worldwide especially in some of the larger markets like China and that's to the extent we can give out that information.

Operator

And our next question will come from Yair Reiner with Oppenheimer (inaudible 00:48:10).

Yair Reiner – Oppenheimer & Company

Yes, just to follow-up again on the IP, apologies for belaboring that point, but in this dispute with Broadcom, but it seems as though the bulk of your competition, at least the new competition over the last year has come from STMicro and from Media-Tech, I mean are there any plans to try to tighten things up there? Is there an opportunity to do that and in some sense it seems like the battle with Broadcom is kind of storming the tea cup and then outside there's kind of a real storm raging?

Kanwar Chadha

We believe that there is competition across all the market segments. It just happens to be different in each market segment specifically on the PND and automotive market segment. We believe our product road map going forward especially the attraction which the Prima and the Atlas family of SLCs (ph 00:49:05) are getting will strengthen our position in that market in '09. In the wireless market, there are different competitors and Broadcom, TI, Qualcomm, we have a number of competitors there and both markets, we are addressing with the product road map which is optimized for that segment including our multi-mode ADPF N2N (ph 00:49:33) platform, the SiRFstar III TW product line which John talked about, a single dye architecture going forward, and on top of that we have our first launch of our multifunction radio platform.

So if you look at the first road map going forward, we have now quite well-established platforms dedicated to each market segment. We have our SoC (ph 00:50:06) multifunction platform focused on the automotive market and we believe that is quite strong going forward. We have our single dye N2N location platform targeted at the wireless market and we have our multifunction radio platform which enables us to bring this capability to both sides of the equation. On top of that we have our N2N location platform which is now deployed in multiple operators and AFCs. So from a location technology standpoint, we do believe we have a much stronger position and you will see the results of that as these new products ramp up in 2009.

Operator

And one follow-up question please from Aaron Husak with Lanexa Global.

[Aaron Husak – Lanexa Global]

Thanks. I just wanted to follow-up on the SiRF star 3tw for the handset market. Can you quantify for us how many handset model wins you have at this point with that product and the timing around when we should see some of those ramp up?

John Quigley

This is John. We have a number of handset wins. I'm not going to go into the exact number and you'll start seeing that tier down (ph 00:51:13) going forward, but we've got the first production shipments going out the door now, the first set of customers and through the end of this year and Q1 of next year, we expect to bifurcate that solution to multiple tier 1 another handset suppliers.

Operator

And our final question comes again from Brian Modoff. Go ahead, sir.

Brian Modoff – Deutsche Bank

Hi, yes, I was not done with my last question. You don’t want to answer the question in terms of how many top tier guys you have maybe this way. Looking at your older platforms like the 5,000, what percent of your volumes shipping in handsets are based on older platforms versus new platforms and what do you think that is in the say the front half of next year? How do you see that shift occurring?

Kanwar Chadha

Well, today almost all our volume is based on the older platforms, typically two product lines, the I5000 and SiRFstar III LT product probably the majority of the volumes. Going forward, next year you will start seeing the impact of the SiRFstar III TW platform which as John indicated is really optimized for the wireless market, single dye solution, very easy to integrate into handsets although it is a host coupled platform. We have multiple design wins at multiple tier 1 handset vendors. So we expect that to drive significant volume growth next year and these are as I indicated, although we won't name them, but these are tier 1 handset vendors and there are multiple of them in top 5.

Brian Modoff – Deutsche Bank

Thank you.

Operator

And I'll now turn the call back over to Dennis Bencala with any closing remarks. Please, go ahead, sir.

Dennis Bencala

Okay. Well, first I'd like to thank you all for participating in today's call and we just look forward to next quarter's conference call. Thank you.

Operator

This concludes today's teleconference. You may now disconnect your lines. Thank you and have a great day.

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