MoSys Management Discusses Q4 2012 Results - Earnings Call Transcript

| About: MoSys, Inc. (MOSY)


Q4 2012 Earnings Call

February 01, 2013 8:30 am ET


Beverly Twing

Leonard Charles Perham - Chief Executive Officer, President and Director

James W. Sullivan - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance


Gary W. Mobley - The Benchmark Company, LLC, Research Division

Krishna Shankar - Roth Capital Partners, LLC, Research Division


Good morning, ladies and gentlemen, and welcome to be the MoSys Fourth Quarter and 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Friday, the 1st of February 2013. I would now like to turn the call over to Beverly Twing of Shelton Group, Investor Relations. Beverly, please go ahead.

Beverly Twing

Thank you, and good morning all, joining me on today's call are Len Perham, MoSys' President and Chief Executive Officer; and Jim Sullivan, Chief Financial Officer.

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 and 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 reports on Form 10-K and Form 10-Q 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 obligations 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. Please go ahead.

Leonard Charles Perham

Thank you, Bev. Welcome, everyone, and thank you for joining us this morning. I'll begin today's call with a review of our major 2012 accomplishments and then discuss our current sales efforts, the ongoing development of our second-generation Bandwidth Engine and as well, the ongoing efforts being put into our future products roadmap. Jim will then review our fourth quarter and full year 2012 financial results prior to opening the call for further questions.

Under the heading of 2012 Major Accomplishments, the fourth quarter of 2012 topped off the year during which we achieved a number of major accomplishments as we transition MoSys to be an IP-rich, fabless semiconductor company. I'd like to spend a few minutes reviewing a few of those accomplishments. First, with respect to our first-generation Bandwidth Engine family of integrated circuits, we met a number of quality and reliability goals. The circuit accomplishments included ISO 9001 certification, freezing and spec’ing out all of our back end test flows, completing our qualification testing and starting our QA&R benchmarking.

Towards that end in May 2012, we successfully completed high-performance operating life, or HTOL as its known, reliability testing for 1000 hours on 3 separate wafer fab runs with no failures. 1000 hours is the required benchmark for carrier-grade certification. And each 1000 hours under these test conditions is roughly equivalent of 10 years of standard operating life. To further demonstrate Bandwidth Engine's reliability, we took a portion of each of the 3 lots, and continued the testing up to 3000 hours. This material completed and passed the 2000-hour milestone in September 2012, no additional failures, no failures actually, there've never been a failure. And then passed the 3000-hour milestone in November 2012, again with no failures.

Successfully passing these benchmarks was a significant achievement, which attest to the quality and reliability of our Bandwidth Engine integrated circuit family. Or said another way, it attests to the very high quality integration of TSMC's excellent process technology and our design, our design criteria. The results of integrating design and process together will give you the very best results product-wise. We vastly exceeded the required statistical quality and reliability benchmarks and successfully achieved carrier-grade certification, allowing us to bring the Bandwidth Engine to market, achieve our first OEM design wins and subsequently release the product into production.

Second, we secured our first Bandwidth Engine OEM design wins with lead networking equipment suppliers from multiple system platforms, which will utilize anywhere from 2 to 11 bandwidth engines per line card. We are very excited to be collaborating closely with our OEM partners as they finalize their system-level specifications and advance toward prototype system builds, which are expected to reach full system qualification and initial production release in the second half of this upcoming year.

Third, we substantially completed the wind down of our IP business in the third quarter of 2012, having met our performance obligations under the final outstanding IP project agreements, including a technology transfer in support of our March 2012 sale of SerDes technology to Synopsys. This has allowed us to continue to redeploy resources in support of our integrated circuit product efforts and will allow us to further reduce operating expenses in 2013.

Fourth, we successfully taped out the second-generation Bandwidth Engine in November 2012. We have already announced the 2 unique products from this family and will soon announce the third, all targeting specific next-generation network equipment, applications and systems design challenges.

My fifth point relates to our SerDes technology. Our second-generation Bandwidth Engine will run at I/O speeds up to 15 gigabits per second, making it the fastest serial memory available on the market. Most recently, at DesignCon this week, we demonstrated our advanced 25 gig SerDes technology operating at 100 gigabits across the backplane using 4 lanes at 25 gigabits per second. We're excited about the availability of this leading-edge SerDes technology to be used in our future generations of bandwidth engines and/or other extremely fast integrated circuit products and uniquely fast system requirements and applications.

Finally, our sales activity has increased dramatically year-over-year and continues to be at that all-time high. We entered 2013 with a funnel of projects and customer prospects more than double the size of where we were beginning calendar year 2012. This increase was driven by a number of factors, including the increasing market demand for systems that can support aggregate bandwidth of 100 gigabytes per second or more, the proven release and production readiness of Bandwidth Engine, hard work and the strong concentrated effort by our sales, marketing and applications teams, our expanded worldwide sales channel as we added distribution and sales representatives to optimize our sales coverage and provide strong local application support.

Since entering 2013, the majority of new sales activity is targeting use of Bandwidth Engine for new systems requiring greater than 200 gigabits per second aggregated bandwidth. We anticipate our sales activity to remain high with our targeted release of Bandwidth Engine 2 for sampling. We already have multiple customers and prospects putting pressure on us for Bandwidth Engine 2 samples. And I am confident we will see a good deal of traction from this new Bandwidth Engine family in the quarters ahead.

It's important to note that substantially all of our design wins to date have been in applications where the FPGA is utilized as the packet processing engine. As we enter 2013, we are now seeing considerable interest in using Bandwidth Engine products and systems built around ASICs, SOCs or NPUs being used as the packet processing engines. These systems, in almost every case, are the highest performing systems in a design queue at our prospective customer shops.

Now a quick comment about our GigaChip Interface. We recently announced that Renesas Electronics, a leading provider of high-performance ASICs, will support our GigaChip Interface in its networking ASIC business in order to gain the benefits of increased reliability, higher performance and improved efficiency that this open-platform interface can bring designs where serial chip-to-chip interconnects are being utilized. Renesas joins other market-leading GCI adopters and supporters such as Altera, Xilinx, Avago, LSI and others. The GigaChip Interface is an integral part of our Bandwidth Engine integrated circuit architecture, and we look forward to supporting Renesas in its use of GCI.

In summary, our sales channel is now well established, and we are satisfied with how it is performing. We have a growing list of prospects in the pipeline and a strong family of opportunities that are moving satisfactory toward a design win status in all of our 3 primary regions, the U.S., China and Japan.

From a sales organization perspective, we recently announced that Dave DeMaria has left MoSys after 4-plus years of service. Initially, Dave joined MoSys to direct out IP business, and as we transition toward being a fabless integrated circuit company, we're moving further and further away from his career path, and for that matter, his comfort zone. Prior to MoSys, Dave had a successful career with multiple EDA companies and was recently offered a solid opportunity with a major EDA company that he believed was more in line with his current career ambitions. We wish Dave well in his new endeavor and thank him for his hard work and contributions to MoSys. John Monson will be assuming the majority of Dave's responsibilities.

Now turning to our second-generation Bandwidth Engine product family, specifically Bandwidth Engine 2. We taped out BE2, Bandwidth Engine 2, on November 23, after satisfactorily completing extensive logic verification and timing closure analysis. We expect to receive package units back for evaluation and characterization testing starting around mid-March 2013. Subject to meeting the BE2 specification, we expect to ship initial samples by mid-year. As we mentioned earlier, there is early demand for BE2 samples, and we are pushing very hard to get the products back, get the characterization done and get these prototype demands satisfied as quickly as possible.

BE2 is a significant evolutionary step beyond BE1 and benefits from several performance enhancements, including access speed that's increasing from 2.75 gig accesses per second, or 1 billion accesses per second, to greater than 4 gig accesses per second. I/O speed is going to be up from 10 gigabits to 15 gigabits per second. And latency, round-trip travel time in and out of our Bandwidth Engine, is going to be reduced from 15 nanoseconds to 12 nanoseconds.

In 2012, we announced the first 2 products based on the BE2 architecture. The first MSR620 is optimized for buffering applications up to 384 gigabits per second, and includes burst write and read, and write and broadcast capability. It also accelerates the large packet sizes up to 576 bytes, and has an unprecedented 80% overall bandwidth efficiency which is beyond the capability of currently available standard memory subsystems and alternative serial interface solutions.

The second, the MSR720 access device, is optimized for high access rate applications and packet header

Processing and is well suited to the requirements of state memory and queuing applications. It also contains memory coherency, which allows back to back read and write to the same memory bank, allowing for higher efficiency through small tables. Additionally, we expect to announce a third BE2-based product shortly. This new member of the family will provide additional computational capabilities to off load repetitive tasks for improved performance and intelligence, and will be targeted for a broad range of look-up statistics and policying applications.

At this point, I'd like to take a moment to thank our engineering operations and applications teams for the excellent work throughout 2012, and the many long nights and weekends they worked to meet their deliverable milestones and schedules. The dedication and diligence enables us to achieve a remarkable amount of progress in a short period of time during the past year and has us well-positioned to convert existing opportunities into full-fledged design wins in 2013.

With that said, let's take a quick look at what's next on our product roadmap. For now, I'm going to refer to this simply as Generation 3. While I won't get into a lot of specifics at this time, we continue to work on defining the feature set and performance levels of our next generation, which I will refer to Gen3 rather than as Bandwidth Engine 3. Gen3 is an early development and leverages our extensive technology base but will be architecturally different from earlier Bandwidth Engines. In other words, it will solve different problems in the system, and would not be referred to as pin-to-pin compatible.

We are collaborating extensively with both customers and partners to complete the definition of Gen3 in the first quarter of this year. We expect this product to be a significant step forward in solving next-generation system-level issues of the highest difficulty level. It will again be both a significant performance upgrade and will include a substantially expanded feature set. At this time, we anticipate first silicon in the first quarter of 2014, and that is a very tight schedule. I look forward to providing more information on Gen3 as our development progresses and as we achieve measurable milestones.

Advancements in the com instruments[ph] to watch for in 2013. In closing, I believe our key 2012 accomplishments, numerous engineering and operational achievement and increased design wins and sales activity has set the stage for 2013 to be a pivotal year for MoSys. This year, we should begin to expand our product footprint, gain momentum toward profitability and, in fact, see relief for the first time in meaningful quantities of sales of our integrated circuits.

We expect to achieve several important milestones and advancements over the course of the year. To mention just a few to watch out for, we expect the course to be shipping initial BE2 samples. We expect to announce multiple new OEM design wins, including multiple platform wins among our Tier 1 OEM targets. We expect to gain support of BE2 from FPGA vendors as we leverage our ecosystem to secure incrementally more design wins. We look forward to securing additional GCI partnerships with NPU, SOC and ASIC vendors as we did with Renesas, which will broaden our prospective customer base and provide new system-level opportunities for us to pursue.

We expect to announce new products such as Bandwidth Engine -- or excuse me, we expect to announce new products such as our Gen3 product that will address additional challenges at the board level of advanced systems and we expect to secure a genuine going forward second source partner. As you can imagine, there are many steps to be taking between now and the achievement of these milestones, but we are pleased with our 2012 successes and confident that 2013 will be no less satisfying and rewarding.

Before I hand this to Jim, I'd like to personally thank our staff for their hard work during 2012, all of our customers using Bandwidth Engine to bring the most advanced revolutionary products to the markets they serve, and to our shareholders whose continuing support of our goals and objectives is truly gratifying.

With that, I'm going to turn the call over to Jim to discuss our fourth quarter and full year financials. We will then open the call for questions. Thank you very much for your time and attention. Jim?

James W. Sullivan

Thank you, Len, and good morning, 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 8-K, 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'd like to first address our IP business. We continue to record licensing and royalty revenue from ongoing SerDes and 1T-SRAM IP projects. However, as reflected in our 2012 financial results, our IP licensing and royalty revenue continues to decline as we have not been actively pursuing additional new licensing agreements since late 2011. As Len mentioned earlier, we have substantially completed our obligations under these existing projects.

In 2012, we sold certain SerDes IP assets to Synopsys for approximately $4 million, and we expect to receive a final $0.6 million payment related to this transaction in the first quarter of 2013. In total, we have raised more than $39 million through the sale of IP assets since December 2011.

With regard to the results of the fourth quarter of 2012, total revenue was $1.6 million, compared with $1.3 million for the third quarter of 2012 and $5.2 million for the fourth quarter of 2011. The year-over-year decrease reflects the achievement of certain milestones on memory licensing agreements in the fourth quarter of 2011, which triggered significant revenue recognition, as well as our shift in resources and focus from IP licensing to IC products in late 2011.

Licensing and other revenue for the fourth quarter of 2012 was $0.2 million, compared with $0.2 million in the third quarter of 2012 and $2.7 million for the year-ago quarter. Licensing revenue in the fourth quarter of 2012 was primarily comprised of continued revenue recognition for the completion of and maintenance and support for our remaining SerDes and 1T-SRAM IP projects. License revenue in the quarter included revenue from 4 licensees compared with 7 in the previous quarter.

Royalty revenue for the fourth quarter of 2012 was $1.4 million, compared with $1.1 million for the previous quarter and $2.5 million for the fourth quarter of 2011. Royalty revenue increased sequentially, primarily due to an increase in shipments by an IDM licensee, this product is used in a major gaming console. Fourth quarter royalty revenue was recognized from 15 licensees compared with 14 licensees in the prior quarter. Gross margin for the fourth quarter of 2011 was 97%, compared with 96% for the prior quarter and 66% in the year-ago quarter. The year-over-year increase in gross margin was due to lower costs associated with the decreased licensing revenue in the fourth quarter of 2012.

In terms of our operating expenses for the fourth quarter, research and development expenses were $7.3 million compared with $7 million in the previous quarter and $6.8 million in the fourth quarter of 2011. R&D expenses in the fourth quarter of 2012 reflected continued development of our Bandwidth Engine IC products, including the costs associated with the tape out of our second generation Bandwidth Engine IC family, the cost of which will be paid in the first quarter of 2013.

Selling, general and administrative expenses were $2.1 million compared with $1.7 million in the previous quarter and $2.3 million in the year-ago period. Total operating expenses on a GAAP basis for the fourth quarter were $9.4 million, which included tape out and increased development costs related to our second generation Bandwidth Engine family, $0.3 million for amortization of intangible assets and $0.8 million in stock-based compensation expense.

Fourth quarter total operating expenses compared with $7.3 million in the third quarter, which included an asset sale gain of $1.4 million as well as amortization of intangible assets and stock-based compensation expense totaling $1.2 million. Total operating expenses in the fourth quarter of 2011 were a net gain of $26.5 million, which included the one-time gain of $35.6 million from our patent sale in December 2011.

On a non-GAAP basis, total operating expenses for the fourth quarter of 2012 were $8.3 million, compared with $6.2 million in the previous quarter, which included an asset sale gain, and a gain of $28.2 million for the fourth quarter of 2011, which included the one-time patent sale gain.

On a GAAP basis, net loss for the fourth quarter were $7.7 million or $0.19 per share compared with a net loss of $6.1 million or $0.15 per share in the prior quarter, and net income of $29.8 million or $0.75 per diluted share for the fourth quarter of 2011. On a non-GAAP basis, the net loss for the fourth quarter of 2012 were $6.7 million or $0.17 per share, which excluded intangible asset amortization and stock-based compensation expenses totaling $1.1 million, compared with a non-GAAP net loss of $4.9 million or $0.12 per share in the previous quarter and net income of $31.7 million or $0.80 per diluted share in the year-ago period. Net income per share for the fourth quarter of 2012 on a GAAP and non-GAAP basis was computed using approximately 40 million shares.

Looking briefly at our results for the full year 2012. Total revenues for 2012 were $6.1 million compared with $14.1 million in 2011. License and other revenue for the year was $1.3 million compared with $6 million for the previous year. Total royalty revenue was $4.7 million compared with $8.1 million for 2011. The year-over-year decrease in license and royalty revenue reflects our shift away from actively seeking new licensing agreements and the wind down of our IP licensing activities.

Total GAAP operating expenses for the year were $33.4 million, which included the $3.3 million net gain from the sales of a portion of our SerDes IP in the first quarter of 2012. This compares with total operating expenses in 2011 of a $0.5 million net gain, which included the one-time gain of $35.6 million from our December 2011 patent sale. On a non-GAAP basis, total operating expenses for the year were $27.9 million compared with a gain of $6.5 million for the full year 2011, including the one-time patent sale gain.

The GAAP net loss for 2012 was $27.6 million, or $0.70 per share compared with net income of $11.3 million or $0.28 per diluted share in 2011. The non-GAAP net loss in 2012 was $22.1 million or $0.56 per share, excluding stock-based compensation charges of $3.8 million, and approximately $1.7 million in intangible asset amortization costs. This compares with non-GAAP net income on 2011 of $17.6 million or $0.44 per diluted share, exuding stock-based compensation, acquisition related and intangible asset amortization charges totaling $6.3 million. Earnings per share for 2012 on a GAAP and non-GAAP basis was computed using approximately 39.2 million shares.

Now turning to the balance sheet, as of December 31, 2012, our cash and investments balance was $40.7 million compared with $45.3 million at September 30, 2012. As of December 31, our total headcount was 95 employees compared with 107 employees as of September 30, 2012, which reflects the 10 positions eliminated in Santa Clara during the fourth quarter of 2012, and the closing of our small office in Taiwan. As of December 31, 2012, over 80% of our employees were in applications, engineering and research and development, with 17 of those employees in India.

This concludes my prepared remarks. At this time, we would like to open the call for the question-and-answer session. [Operator Instructions] Operator?

Question-and-Answer Session


[Operator Instructions] We have our first question from the line of Gary Mobley from Benchmark.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

I was hoping that you could share with us your confidence in revenue ramping for Bandwidth Engine given your customer's production release in the second half of the year, more specifically, when might we see initial quantity shipments of Bandwidth Engine in 2013?

Leonard Charles Perham

So we've been projecting, Gary, that the -- that our lead customers, our design wins from earlier last year, would start releasing the built, prototype system build, in the second half of 2013. We're reasonably close to them as they bring up their systems. They work very carefully with all of their key component suppliers as they try to get their various pieces of their system up and into manufacturing. As you know, we don't have absolutely perfect visibility into that process and we do know that in the case of these customers, they aren't going out to try to find business, they both had won very large contracts from the telecommunications or the data communications companies in the markets they serve, so we know the business is real. We know they're pushing very, very hard. We've been projecting that we would start to see those shipments in the second half of 2013 and we continue to believe that's the case this morning. Our visibility is not flawless, we don't know some of the system-level issues they deal with and regulatory issues they deal with, but we know they're pushing very, very hard. And we know that their commitment to the platform is very high. Not a perfect answer but it's the one we have.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

No, it's fair enough. I've talked with a number of your competitors who may be the second source suppliers for Bandwidth Engine and they've had discussions with you as being a second source partner, but I think the general feedback that I got was the talks broke down for whatever reason, perhaps, MoSys wanted too much out of the relationship, but I'm just wondering if those barriers have eroded and if you're any closer to having a second source relationship formed?

Leonard Charles Perham

Actually I think we're in the -- I personally believe we're in the negotiating details of getting this put together and announced. There are no real serious hurdles, in my opinion. The -- we don't multiplex across a dozen companies to see which one will get to the goal line first. We -- and there's only a few people that we think have the capability to support the product at the customers' desks. So the guy that we've been talking to for the last couple of quarters, I had breakfast with the Chairman of the Board of the company, maybe 1.5 months ago with that, and he and I thought that we're in the just negotiating stages, there's issues that we're going to push back and forth on each other, but I didn't see any stumbling blocks and nor did he. So I think from where I sit, we're moving forward and there is no major hurdle to be overcome, Gary.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Okay. You mentioned that most of your design wins are in systems utilizing an FPGA from Xilinx or Altera to handle the packet processing task. Is that indicative of the fact that many of your design wins might be low-volume SKUs at this point? And might you have to be designed into an ASIC-based solution before you get some high-volume SKU design wins?

Leonard Charles Perham

No, I don't have a reason to think that. I think we're getting the FPGA business first because it's -- the customer uses FPGAs because it shortens its time to market and it cuts his exposure to designing an ASIC chip set that will -- maybe require a spin. I think we're looking at some opportunities that are being breadboarded with FPGAs right now that we haven't called wins, where we believe that the customer will eventually take the FPGA and spin again into -- spin it into an ASIC before he goes to the market to get the cost out and maybe power out of that -- out of his end solution. The -- I think the other reason that we won the early-on designs is you can program any interface you want under the FPGAs, that's why the early adopters of our GCI interface were Xilinx and Altera. It greatly expanded their opportunity to play a role as a packet processing engine so they became big advocates. When we're going to be on an SOC or an NPU, we depend on next generation SOC or NPU because he has to design our interface on to their chip. Now granted it's CEI 11 compliant, and it doesn't require many gates, but it still does require getting designed onto the I/O of the NPU or the SOC. So those are the various things that come into play. I don't know that it has to do with what the volume of the opportunities will be or anything like that.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Okay. The last question is for Jim. Looking into the first quarter, what would you expect in terms of cash burn, and would you expect your royalties to be down significantly on a sequential basis just given the seasonal factors and various other factors?

James W. Sullivan

Certainly, we'll see from our -- well, first off, on the -- to take your royalty question, I expect we'll see a decrease from that one licensee, given we'll be out of the holiday season. Royalties, I think, for the year will be flat to down. We did -- I didn't highlight it in my script, we did have 1 royalty payer -- 2 royalty payers turn on, one through prepaid, but I don't have a lot of visibility as to how to he will ramp or if he will ramp. The other one was someone we had that licensee we chased down for an application in cell phones and got a payment in the fourth quarter in the low-couple of hundred k, but with cell phones it's, who knows, it could be it for the -- given the short cycle of the products. But net-net, I think we will be down. I don't think we will be down too significantly, I've already seen a couple of reports come in. With regard to the burn for the first quarter, certainly, it will be higher, higher than it was in the fourth quarter since we won't have to pay for that -- the tape out of Bandwidth Engine and the initial wafers, which is kind of in the $1.3 million range. But kind of tacking that on the fourth quarter burn, it's probably a reasonable number for you to be thinking.


[Operator Instructions] We have our next question from the line of Krishna Shankar from Roth Capital.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Len, can you give us some sense for this first top tier OEM design win, what is the application for the design wins? Is it in the enterprise data center? Can you give us some sense for the application? And then also the new engagements for Bandwidth Engine 2, what types of end markets are you looking at?

Leonard Charles Perham

So basically, the original design wins, remembering that we're not in the access area as much, we're not in the mobility area as much, we're out with the handheld appliances. We're really in the core or at the edges where aggregation is going on. I think these original designs are core routers and they're reasonably -- they should be reasonably good volume opportunities for us. And we have it from the biggest of the 2 customers that the platform will be expanded across other applications as well. You don't find us in the cloud, you really find us exiting the cloud, coming into the EDGE, where you might be aggregating. And then getting through the core, you'd find us and then again, out in the EDGE. So those are the places where you'd find us, Krishna.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Okay, great. And again, on Bandwidth Engine 2, you expect design wins, can you give us again timelines for [indiscernible] engagement?

Leonard Charles Perham

I missed your question, Krishna. Could you ask again? Krishna, we lost you momentarily. Could you re-ask your question, please?

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Yes, I was just asking, I missed the part where you talked about the schedule for Bandwidth Engine 2 in terms of getting prototypes, getting chips back and then shipping prototypes and the announcement of your customers there?

Leonard Charles Perham

Basically, BE2 is a substantial performance upgrade over BE1 so it's looking at the -- looking down the road to higher end systems. Many of the applications that product is being considered for are where the packet processing engine is going to be either an NPU or an SOC, an in-house designed SOC. And again, I think it's into the higher performing systems that the customer might be bringing to market, if not its highest performance systems. If I understood your question, I would think that we would -- we would like to think that we're going to win and be able to announce design wins in the first half of this year for sure. And that would be my hope. We oftentimes don't meet my criteria, even though work is going on and all is well and we haven't lost it or the customer hasn't decided to do anything yet, anything else, so we're very satisfied with the progress to date. There's a considerable amount of pressure on us to get these first samples out. And it's worth noting that some of these samples, probably half of them will go to companies in the United States as opposed to in Asia, so they're differently going to different places than when our first design wins occurred.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Okay. And you mentioned in the previous question that the GigaChip Interface will actually be on the NPU or multi-core processor, can you talk about any strategic alliances you have with any of the NPU or multi-core companies targeting core routers and other set of high-speed networking equipment, whether it's Broadcom or Freescale or Cavium, what kind of dialogue and strategic partnerships do you have with some of those guys?

Leonard Charles Perham

Well, we aren't in a position to identify any customers, but we've been talking with various of the people that you mentioned for some length of time. And as well, the internal SOC architecture and execution groups inside of the data com, telecom companies themselves, in several cases, we're working directly with the -- with who would be our end customer because he's doing his own SOC. So I would say that we are probably tracking 3, 4 of those guys now, and those conversations have been going on for a -- in excess of a quarter, that's for sure.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Terrific. And Jim, can you talk about the balance sheet going forward in 2013 and the prospects for more IP licenses, royalty or any other sort of infusion into the balance sheet through IP sales?

James W. Sullivan

Sure, we continue to explore opportunities on that front. Obviously, to further monetize our IP portfolio, it's yet to yield any fruit, but we haven't given up yet. And I think another area to highlight, as Len mentioned on the call, we did demonstrate leading edge SerDes technology at the DesignCon conference earlier this week, which we expect to incorporate into future Bandwidth Engine and there's a potential even some technology like that and other technology we're developing for use in future products, we could even license that on some basis. But right now, I don't project a lot of that in my numbers, my estimates, going forward. On the revenue front, we'll see licensing revenues continue to decline. At this point, it's just a matter of recognizing revenue in our backlog as the great deal of which relates to maintenance and support, not all of which is obviously cash generating since we've collected cash from prior periods. As I said, royalties will be flat to down. When I look at the burn in 2012, it was just over $17 million, including the benefit of some asset sales. I think -- although we're not giving guidance, I think in response to a question from you last quarter, I said kind of a burn in the $15 million to $20 million range, and assuming no upsides, et cetera, and obviously, assuming that decline in IP and some ramp in Bandwidth Engine, which you know I really can't comment on as Len indicated earlier, we'll be managing the cash closely and do what we can to minimize that burn.


I would now like to hand the call over to Mr. Perham for any closing remarks.

Leonard Charles Perham

I'd like to thank you for coming online this morning and letting us tell you our story and give you an update on where we are. I have no particular closing remarks other than to say that 2012 was a satisfying year. Until we make money, there's going to be no great years, but nonetheless, I think I feel satisfied with the progress we made. There's lots to be done. The fourth quarter was a good quarter, a reasonable quarter. 2013, as I said, should be a breakout year and we should have measurable revenue of integrated circuit sales in this calendar year. So with that said, I want to thank you again for dialing in this morning and I look forward to seeing all of you in the near future, and thank you very much for your continuing support. Thank you, operator, we'll close now.


You're welcome. Thank you. Thank you, all, for joining, ladies and gentlemen. That concludes your call for today. You may now disconnect. Have a good day.

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