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Executives

Theodore Chung - Vice President, Business Development

Santanu Das - President and Chief Executive Officer

Robert A. Bosi - Vice President and Chief Financial Officer

Analysts

Richard Shannon - Northland Securities

Sandy Harrison - Signal Hill Group LLC

TranSwitch Corp. (TXCC) Q1 2009 Earnings Call May 7, 2009 5:30 PM ET

Operator

Good day, ladies and gentlemen and thank you for your patience. We would like to welcome to the TranSwitch First Quarter 2009 Earnings Release Conference Call. Please take note that today's call is being recorded and now at this time for opening remarks and introductions I would like to turn the conference over to Mr. Ted Chung Vice President of Business Development. Please go ahead, sir.

Theodore Chung

Great, thank you. With me today are Dr. Santanu Das, our President and Chief Executive Officer and Mr. Bob Bosi our Chief Financial Officer.

Before I begin I need to remind listeners that forward-looking statements made during this call including statements regarding management's expectations for future financial results in the market trend which is products or made pursuant to the Safe Harbor Provisions in the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that these forward-looking statements regarding TranSwitch's operations, its financial results involve risks and uncertainties, including risks associated with TranSwitch's businesses including without limitation risks associate with downturns in economic conditions generally and in the telecommunications and data communications markets and the semiconductor industry specifically.

Risks in product development and market acceptance of and demand for TranSwitch's products and products developed by TranSwitch's customers; risks related to TranSwitch's indebtedness; risks of failing to attract and retain key managerial and technical personnel; risks associated with foreign sales and high customer concentration; risks associated with competition and competitive pricing pressure; risks associated with investing in new businesses; risks of dependence on third-party VLSI fabrication facilities; risks associated with acquiring new businesses; risks related to intellectual property rights and litigation; risks in technology development and commercialization; and other risks detailed in TranSwitch's filings with the Securities and Exchange Commission.

With that out of the way, I will hand it over to Dr. Das for some initial comments.

Santanu Das

Good afternoon. The highlight of the first quarter are as follows. The net revenues for the quarter were approximately 14.2 million, non-GAAP gross margin was 60%, higher than the gross margin in the fourth quarter of 2008.

Our non-GAAP operating expenses for the quarter were roughly 9.9 million which was impacted by the additional expense of 900,000 as we kept out our Atlanta 2000. We had previously expected this to open in the fourth quarter of 2008. Going forward, we expect non-GAAP operating expenses for the quarter to be around 8.5 million. Bob will provide additional details on the expense guidance later.

Our Atlanta 2000 chip is back from the Feb and we have begun testing the critical quantum of law. So for us things look very good and we expect to be able to sample the chip to customers very shortly. This product based upon our award wining Atlanta family and we have high hopes that the product can be meaningful contributor in terms of revenue in 2010.

This product to get better cost performance than anything on the market and a number of our customers are expected to design in this product deliberately. In March, and so far in Q2, we have seen a healthy increase in booking and as of now we have a solid back log position for Q2. We have also seen customers bringing order in for Q3 and our backlog position for the September quarter is stronger than usual.

We currently anticipate based on our stronger booking a resumption of growth as we move forward. The integration of Centillium is largely behind (ph) the decline and almost of the synergies have been take into account in our combined operations. Having said that we'll continue to look for ways of improving our operational efficiency without compromising our ability to deliver.

TranSwitch now more than ever has the same hand operating efficiency to address the growth opportunities in all markets for the foreseeable future. With expenses contained as revenues grow incremental profits should call to the bottom-line. We did study this. We believe that as we move to 2009 and beyond the new TranSwitch to be a very good platform for further growth both organically and through acquisition.

I'll hand it back to Ted so that he may provide some details for the first quarter.

Theodore Chung

Thank you Santanu. With respect to business trends by geography, our business in Asia was stable as our customers in China, Korea and Japan continued to place orders at rates consistent with the second half of last year, with positive growth with certain customers as we move through the quarter.

Specifically we saw increased activity in China, as demand increased for our traditional carrier products, particularly late in the quarter. The growing demand from our Chinese OEM customers as we moved through the quarter was driven primarily by the carriers three year build up program for 3G Wireless as well demand for metro optical transport equipment that's required to handle the increasing levels of data traffic in that market.

Our Chinese customers are also gaining market share around the world and we're seeing increased benefit of this. Specifically, sales of our eTelemetry (ph) were up almost 20% in the quarter due to these customers.

Earlier this year, the Chinese government awarded 3G Wireless licenses to each of the three domestic carriers. These carriers have been moving quickly to get their new wireless networks established and they are now competing directly against each other for customers.

Recently, Alcatel announced contracts worth $1.7 billion with both China Telecom and China Mobile. And we believe we would be one of the beneficiaries of these contracts.On a combined basis, the three Chinese carriers are planning to deploy more than 200,000 base stations throughout China in 2009. How we see this benefiting TranSwitch is these base stations will drive increasing requirements for backhoe aggregation products that use many of our devices, from our Ethernet product family to our multi-service switches, to our TDM framers and Mappers.

Moving to Japan, our EPON business continued to generate steady revenue. While the overall forecast for 2009 is less than what was deployed in 2008, our largest customers market share of the EPON equipment business has jumped from number three to number two.

We expect to see a steady predictable revenue stream in Japan as we move through the year. We see this business being steady or showing some growth in 2010. The reasons for our optimism extends from the fact that our Mustang 300 product has significantly lower power dissipation in the competition and with the emphasis on Green Telecom in Japan we believe that we are very well positioned.

In March we announced the design in of our Atlanta 80M Communications processor in SK Broadband's Voice-over-IP decked telephones. SK Broadband or formerly Hanaro Telecom is the fastest growing broadband service provider in South Korea serving approximately 4 million broadband subscribers and growing.

Our engineering team working closely with our customer brought this product in market on an accelerated time scale. We generated more than $1.5 million in revenues in the March quarter on the basis of 100,000 unit shipments per month. Our customer has recently indicated to us that they expect significant volume growth over the next year. And we are excited up about this and other similar applications.

Moving to North America our revenue was steady as any weakness in our traditional LAN Infrastructure business, was offset by growth in our Voice-over-IP revenue. Our primary North American customer is Alcatel-Lucent and its 10 customers include AT&T in the United States and a number of customers outside this country. Their platform is based upon our Entropia products and they are seeing increased levels of business driven in part by higher 3G direct traffic due to smart mobile advices such as the Apple iPhone and increased traction in developing countries. We believe also that Acatel-Lucent is also in a stronger position vis-à-vis its traditional Northern American competitor.

In Europe, our sales were down sequentially due to the macroeconomic situation. However, we believe that this business will begin to improve as we move into the second half of the year. We have a number of key design wins in the platforms of Acatel-Lucent, Fujitsu Telecom, KEYMILE, Ericsson and others. We are expecting an increasing level of business from these accounts as the overall European economy begins to recover.

With respect to our ASIC business, while it was down sequentially from the fourth quarter of 2008, we started to see some greater activity as we exited the quarter which we expect will translate into higher revenue as we get into the second half. Lastly, in our display interface business, both HDMI and DisplayPort, there were no new design wins in the first quarter as the economic situation had pushed out many of our customers' projects. That said, our customer engagement activity level began to noticeably increase since February.

We again, have a large number of potential license fees and we expect to close a number of contracts in the coming quarters. As seen in our release on a non-GAAP operating basis, we lost $1.2 million in first quarter, most of this loss was attributable to spending on our display interface products. In the second quarter, we expect to finally show a breakeven results from operations, as profits from our telecommunications activities should offset this on going investment in HDMI and DisplayPort.

All-in-all, we expect our business to improve as we move through the year and we are confident that we will meet our objectives for the year by the time we get to December. TranSwitch's product positioning in our target markets is excellent and our Tier 1 customer relationships are stronger than ever.

Based on our current expectations, TranSwitch should see revenue growth as we move into the second half of 2009. We will maintain our focus on expense discipline, so that our quarterly expenses remain less than $8.5 million per quarter through the remainder of this year. So any additional revenue we generate, should provide additional leverage to the bottom line.

In summary, TranSwitch in the first quarter of 2009 navigated successfully through one of the worst economic conditions that any of us can recall. We are very proud of the fact that even in these worse of times our business has remained essentially steady since the third quarter of 2008, unlike many of our peers in the communication semiconductor industry.

In the third quarter of 2008, our pro forma revenue when combined with Centillium was roughly $14.7 million. We achieved revenue of roughly of $15 million in the fourth quarter of 2008 and roughly $14.2 million in the first quarter of 2009. All the while maintaining or improving our gross margins. To clarify, in one of the worst economic periods ever, our revenue stayed relatively robust from the third quarter of 2008 to the first quarter of 2009. We believe that this was a significant accomplishment particularly when compared against many of our peers, who on average have seen their business decline anywhere from 25% to 50% over the same timeframe.

For example; one of our peers saw their business decline on average 27% per quarter, each of the last two quarters or a total decline of 47% over the same timeframe that I am discussing. This illustrates the devastation brought about by the financial meltdown we've witnessed over the last six months.

Now, I will move onto address our Q2 outlook. Based on our backlog in bookings to date, we currently expect TranSwitch revenues in the second quarter of 2009 to be comparable to what we achieved in the first quarter of 2009. We currently have roughly $10 million in build and backlog for the quarter which is significantly higher than what we had this time last quarter.

In fact, our overall backlog position for our telecommunications business is significantly stronger than at anytime in the past several years. However, our backlog in our lower margin ASIC product line is not comparable on strength, and as a consequence, we're being prudent in our second quarter guidance. I will now hand you over to Bob Bosi for the financial details of the third quarter and he will provide a complete guidance going forward.

Robert A. Bosi

Thank you, Ted. And I'll review the first quarter results and then provide guidance for the second quarter of 2009. The net revenues for the first quarter 2009 were approximately 14.2 million as compared to net revenues of 15.1 -- 15.0 million for the fourth quarter of 2008 and 7.5 million for the first quarter of 2008.

The GAAP net income for the first quarter of 2009 was 4.0 million or $0.03 per diluted and -- per basic and diluted common shares as compared to a net loss of 4.3 million or $0.03 per basic and diluted common shares during the fourth quarter of 2008, and a net loss of 5.5 million or $0.04 per basic and diluted common shares during the first quarter of 2008.

The gap net income for 2009 includes a $6.2 million net reversal under accrued restructuring liability which is due to the confirmation of the agreement entered on March 3 with the Fortune 500 company to sublease approximately 93,000 square feet of excess office space through the year 2014.

Net product revenue for the quarter was approximately 12.8 million. Net service revenue for the quarter was 1.4 million, which includes contract engineering activities with some telecom customers, as well as revenue related to royalties and intellectual property licensing. In the first quarter, our top customers were Alcatel-Lucent, OKI and Limericks (ph)

Our geographic mix of our net revenues for the quarter was approximately 30% domestic and 70% foreign. Gross profit for the quarter was approximately 8.3 million and our gross margin for the quarter was 58%, five points higher than last quarter. Excluding the effect of valuing Centillium's inventory to share market value at the day of acquisition, non-GAAP gross profit for the quarter was 8.5 million and our margin for the quarter was 60%.

Service revenue gross profit was approximately 0.8 million for the quarter with gross profit margin of 58%. Research and development expenses were 5.7 million for the quarter, which included approximately $175,000 related to stock base compensation expense and $100,000 for amortization of purchased intangibles. Again, 5.3 million on a non-GAAP basis.

Sales, general and administrative expenses were roughly $5 million which included a 113,000 of stock based compensation expense and $250,000 of amortization of purchased intangibles. Again, 4.6 million on a non-GAAP basis. Total GAAP operating expenses for the quarter were 4.5 million. This includes net restructuring benefit of 6.2 million, stock based compensation expense of $300,000, and 370,000 for the amortization of purchased intangibles.

Excluding these charges, non-GAAP operating expenses in Q1 2009 were 9.9 million compared to our guidance for the quarter of 9.6 and 12 million in Q4 2008 and 8.8 million in Q1 2008. The GAAP net income of $4 million for the first quarter yielded a basic and diluted income per share of $0.03; excluding these items I mentioned, which are detailed in the last page of our press release, non-GAAP net loss of 1.2 million or $0.01 per share which was in line with our guidance.

There was approximately 159 million basic and average -- basics, average, common shares outstanding in the quarter and 165 million fully diluted average common shares outstanding for the quarter.

Our balance sheet shows a cash and cash equivalent, restrictive cash and short-term investment position of 11.1 million. Our net cash position was one million at March 31, as compared to our net cash position at December 31 of 5.2 million. Our receivables at March 31 were 12.5 million which was down $400,000 from our year end balance. Inventory was approximately $4 million at the end of quarter, down 500,000 from our year end balance.

Now, I'd like to discuss our second quarter of 2009. As we stated last year, along with the completion of the Centillium acquisition, we also implemented a very significant company wide restructuring plan aimed at achieving sustained growing profitability. All of the expense reduction initiatives that we planned were achieved in the fourth quarter. During the fourth quarter, our headcount for the company was reduced by 28%. Our headcount was further was down further in Q1 by 5% as planned.

As stated, we targeted our operating expenses to be $36 million for the year, $9 million per quarter on non-GAAP basis. We anticipate as Ted mentioned, we'll beat that objective for the remainder of the year. For our news release we're guiding the fourth quarter to be comparable with the first quarter of 2009 around 14 million.

As of the end of March, our backlog for Q1 was 4.2 million, while today, our currant build and backlog for the quarter is roughly 10 million. Based on our current revenue outlook and product mix our quarterly (ph) gross margin, guidance is approximately 60%.

Our second quarter guidance is for non-GAAP R&D expenses to be roughly 4.3 million, a 90% reduction from non-GAAP R&D incurred in the first quarter of 2009. Our second quarter guidance is for non-GAAP sales, general and administrative expenses to be roughly 4.1 million, a 5% reduction from expenses incurred in Q1.

We expect our non-GAAP OpEx to trend lower than second half, and as all of our cost reduction steps are fully realized. In the second quarter, we expect our non-GAAP operating income to breakeven and our bottom line non-GAAP loss to be approximately $0.5 million.

In addition, we expect to record an additional restructuring project related to ongoing expense management. We entered Q1 with approximately 11.1 million in cash and marketable securities, and we expect our marketable securities down to be roughly 10 million at the end of Q2, assuming no further note repurchases.

Again, I would like to conclude by saying that we continued to believe the combination of Centillium and TranSwitch will be a transformational, and we are all focused on achieving our goal of profitability and sustain profitable growth thereafter.

We thank you for your support. And we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). From Northland Securities, we have Richard Shannon.

Theodore Chung

Hi, Richard.

Richard Shannon - Northland Securities

Hi everybody, how are you?

Theodore Chung

Good-good. How are you?

Richard Shannon - Northland Securities

Doing just fine. Thank you. Lets see, your first question from me is related to the ASIC Design Center. I was curious whether the products just saw the lower activity in the first quarter, are those the telecom related ones or the other end markets related products.

Theodore Chung

The weakest that we've seen has sort of been across the board. And I would as such there's really no particular industry that appears more attractive than others. I would sort of attribute it in general to ongoing economic weakness around the world. Particularly in Europe, you have to remember that most of our ASIC customers are in the Europe, then in the Middle East.

Richard Shannon - Northland Securities

Okay. And do you expect to the return to bookings -- stronger bookings to the broad base as it well then?

Theodore Chung

We would. As we move into the rest of the year, we would that business to come back.

Richard Shannon - Northland Securities

Okay. Your comments about your second half backlog building. Can you kind of characterize this? What are the sources of it by end market, geographies, is there any particular OEMs that are stronger. And does that include any sort of display related revenues as well?

Theodore Chung

Yeah, I mean, with respect to our second half backlog building, the reason to call that out it is unusual to see so much backlog at this point in time for future quarters. With respect to where we're seeing it, it's really in our traditional telecommunication segments, both the TranSwitch as well as the Centillium business that we acquired in October.

But it's been generally broad based across both of those. In particular, our customers in Asia are definitely -- recently have been in the habit of placing orders far in advance as they have that visibility.

Richard Shannon - Northland Securities

Okay. One question, I don't think I've ever asked them, I'm kind of curious about in terms of your telecom business historically, how much has been in wireless backhaul and related aggregation, and do you expect that to grow as the percentage over, say the next several quarters?

Santanu Das

Hi, this is Santanu. It is very difficult to break it down this way, because if you take our Antopia (ph) product for example on our ET-3 (ph) product they are using both wire line and quality infrastructure, wireless backhaul and wireless Infrastructure. And same customer, the Alcatel-Lucent when it buys ET-3, for a platform, the particular platform to be used in backhaul infrastructure of wireless networks. Or in wire line also, so its very difficult for us to break it down.

Richard Shannon - Northland Securities

All right, okay.

Santanu Das

We have seen that there has been strong growth in Wireless Backhaul area, while our ET-3 and other products, particularly in Asia.

Richard Shannon - Northland Securities

And, maybe few more questions from me, and I will jump in the line. You've talked about for a couple years now at least, opportunities with one of your major OEM partners into the BT 24th century network, and its never really came to fruition thus far. Has your outlook on the overall revenue opportunity changed, and are you seeing any sort of improved activity bookings interest therein coming in the near term?.

Theodore Chung

Well Richard, obviously be the situation with that UK carrier has been frustrating for all of us, certainly for our many stakeholders. Its a bit of open secret if you will, that that UK carrier is significantly running behind their own deployment schedule. That said, we've done some recent checks and they indicate that the broadband rollout is continuing and voice migration will take place in the west wells (ph) region in 2009, followed by a national rollout in 2010, that's been confirmed directly with our customers, very recently.

Richard Shannon - Northland Securities

Okay. Do you have any increased expectation that its actually going to go forward, because that I think some of the things over the past, six or eight quarters and it really just hasn't come to fruition, anything that gives you more confidence in...?

Theodore Chung

In terms of having more confidence, I think the only thing that frankly gives us more confidence is the freshness of this data and the fact that according to our customer this was verified with the carrier. Now, between you and I, that's happened at other points in time, and the project has continued to be delayed. But that said, we are confident that at some point this deployment will happen, while it's been very difficult to pinpoint exactly how that ramp will look.

Santanu Das

The other reason we feel, and positively (ph) recently the British Telecom Minister, made a statement that they would like to see significant broadband penetration to British residences year 2012. British government recognizes that they are falling behind and they are willing to correct it. And we expect that in the next trench of this stimulus package in UK, there will be significant emphasis going to be placed, and making sure that the broadband penetration comes to the level of other advanced countries

Operator

(Operator Instructions). Let's move to Sandy Harrison with Signal Hill.

Sandy Harrison - Signal Hill Group LLC

Yes, good afternoon everyone.

Theodore Chung

Hi, good afternoon Sandy.

Sandy Harrison - Signal Hill Group LLC

Just a couple of things, Santanu, you guys introduced couple of quarters ago, your programmable platform I guess, the first line was targeted at going after some gateway applications, I think specifically some of the Dupont oriented ones here in North America. Could you just spend a couple of minutes kind of updating us on your efforts there. I guess you have a couple of different families that is falling and kind of where they are can you say anything?

Santanu Das

Yeah. The customer levels experience inside the company we use a code name total. That product has done through all the testing but very close to finishing beta testing. And we already have design wins in two Dupont platform.

And if you remember I did point out the product has been designed in such a way that not only it can be used for Dupont application but it can be used for other applications because the product is fully programmable. In that data plain we have our own very high-speed disk and in the control plain we have a licensed resourcer (ph) and both are programmable. And so far we have not found any error in that product.

As you know EPON is yet to take off. If you compare with what is happening in Japan, where may be close to 8 million EPON lines have been installed. In China they started late by the end of this year projection is, it will be like between 6 to 8 million. And EPON is only seeing some traction in the United States in Verizon in AT&T. But it is still around 3 million. And outside the United States EPON is yet to be realized. So it will take some time for these products to really gain traction in terms of remedy. But the product we are very enthusiastic about.

Sandy Harrison - Signal Hill Group LLC

Got you. And then as far as the Mustang, when you compare the remarks you talked about new Mustang 300 and the...

Santanu Das

Mustang 2000.

Sandy Harrison - Signal Hill Group LLC

I'm sorry.

Santanu Das

Sorry it is Atlanta 2000. I made a mistake. Mustang 300 and Atlanta 2000.

Sandy Harrison - Signal Hill Group LLC

Okay.

Santanu Das

I'm my script I was talking about Atlanta 2000.

Sandy Harrison - Signal Hill Group LLC

Okay. So the Atlanta is the one that has the power consumption benefit.

Santanu Das

No that is in ME300 (ph). ME 300 which is part of our Mustang family is for EPON application whereas Atlanta family is mostly for residential gateway, it can be used as a security router, et cetera. Both the products are highly programmable, obviously Atlanta is going is more programmable and its architecture is very similar to our (inaudible) product coincidentally as we know they designed independently.

And both data plain and the console plane are highly programmable in Atlanta. And this product is now going through alpha testing so far we've not find any problem. We believe this product is very cost effective compared to the competition. In ME300 usually we're excited about it is both entity east and west are very quote-unquote green conscious and all product if we look that participation and compared to the competition, it is half of the competitor's qualification (ph). And right now is being evaluated by customers as well as NTT. And if NTT is three years above their green initiatives, we feel our product fit is very, very well positioned.

Sandy Harrison - Signal Hill Group LLC

How is that you guys were able to accomplish the dramatic difference in power consumption?

Santanu Das

Well you know we have take various approaches like if a part of the logic is not being used then we have facility for shutting it down. Secondly we use more aggressive semiconductor technology. So it's not any black magic using very prudent engineering consideration. And I think we were more product conscious compared to our competition. As you know it is very difficult to -- once the product is done to go back and reduce the power. If the -- U.S. designing is drawn up keeping in mind that more and more any products which deals (ph) on a power line basis power is into basic consideration going forward.

Sandy Harrison - Signal Hill Group LLC

Got you. And then roughly I guess somebody asked the question already about PT21-C and what's going on there. Some of the other opportunities I think India and others, BSNL and so forth, any updates on those that could offers as far as the potential impact later this year or next year?

Santanu Das

We're going to talk about BSNL.

Theodore Chung

Yeah. BSNL obviously another program that we have discussed in prior calls. It's frustrating but frankly BSNL is lagging behind some of the other carriers in terms of subscriber growth in India largely due to government interference as you know BSNL was a former government controlled utility and they've been privatized. But they have some constrains that frankly many of their competitors don't have.

If you look at the other carriers in India, they are really growing much more rapidly. Total growth of wireless subscribers in the month of March alone in India was 15.6 million. Because of the BSNL situation our Indian customers specifically those OEM's in India haven't done all that well. However I wouldn't say that our revenue from them has gone down. It's just sort of been steady. I will say that some of the foreign OEM's are doing a lot better companies like CTE, Alcatel, Fibrohome (ph) we believe are taking market share within India.

We have some data that our revenue from Alcatel in the first quarter has been strong, somewhat attributable to the export of these products to India, specifically products containing our Ethernet 3 (ph) product. I mean in general I would say why the BSNL situation is frustrating I would say that our revenue sort of attributable to India has been growing.

Operator

Now our next question comes from Walter Sheckna with Thyme (ph)

Unidentified Analyst

Thank you. First I'd like to thank Ted for coming with another metric which is engagement which is one sector move from design win. Sorry about the dog.

Theodore Chung

Okay.

Unidentified Analyst

Which aren't that great of leading metric anyway. So now we have engagements on step from -- thanks Ted.

Theodore Chung

Sure.

Unidentified Analyst

If we look at again British Telecom and its impact they need which hopefully they finally will the most recent preannouncement, would that mean that just rolling out through part of wells this year would not have that material impact on your business and really this is a 2000, if they meet the target, this is really a 2010 event at this point?

Theodore Chung

I think that's right Walter. I think 2009, we're not expecting significant business due to that deployment. I would sort of characterize it in the single-digit millions. And it's really a 2010 event if in fact that voice migration does occur nationwide as it's supposed to at this point.

Unidentified Analyst

Okay. And just one other question, on R&D expenses you have indicated that they should come down some more, is 15 to $20 million sort of the minimum level we should expect on an annual basis going forward?

Theodore Chung

I think in general, yeah. That's the right range it's a broad range 15 to $20 million but that's right the way to view the appropriate R&D spending for this company.

Unidentified Analyst

Okay. Thanks a lot.

Theodore Chung

Okay. Thank you Walter.

Operator

(Operator Instructions). Our next question from private investor, Tony Bernard (ph).

Unidentified Analyst

Hello guys, how are you?

Theodore Chung

Good, good. How are you Tony?

Unidentified Analyst

Good. Hey, what's the cash and marketable securities at the end of the first quarter?

Robert Bosi

11.1 million

Unidentified Analyst

11.1 million. At the end of the fourth quarter you guys were estimating 14.5?

Theodore Chung

Correct.

Unidentified Analyst

So, can you explain the difference between the 3 million?

Robert Bosi

Well we had an acceleration of some expenses that were accrued for restructuring expenses that we thought were going to be paid in Q2, that'd we paid in Q1.

Unidentified Analyst

Right.

Robert Bosi

We had a shipment pattern in Q1 which is more skewed towards March, again a very good March, as opposed to January and February.

Unidentified Analyst

Right.

Robert Bosi

Which brought our receivables down to approximately $3 million.

Unidentified Analyst

I see.

Robert Bosi

And we had about $500,000 more in inventory than we projected.

Unidentified Analyst

Okay. And can you breakdown possibly the difference between Telecom and HTMI, in terms of losses and gains.

Robert Bosi

We normally do not provide segment information with respect to that. But we -- as we've mentioned, I think Ted mentioned, we are making a significant investment in R&D.

Unidentified Analyst

Right.

Robert Bosi

And our HTMI program.

Unidentified Analyst

Okay. And what kind of results can we expect from HTMI going forward, I mean how big could the market get and what could that do for TranSwitch in the long run?

Theodore Chung

Yes. Well, the market, be the market for our HTMI cords is estimated to be something on the magnitude of 800 million ports by 2012.

Unidentified Analyst

Okay.

Theodore Chung

Current ASPs per port today are in the $3 to $4 range. So it's a multi-billion dollar market. That's not to say that we are addressing the entire market, but any portion of that market would be a meaningfully larger market than, the markets we are addressing today. The reasons we think we'll be successful in that business are, one; we believe we have the best technology in the industry, both with respect to HTMI and DisplayPort. We've already licensed that technology to leading semiconductor companies in the industry.

Unidentified Analyst

Right.

Theodore Chung

Which validates our technological superiority, and we'll be following on with other products that we really have extremely high expectations for.

Unidentified Analyst

Its -- the product, it seems like your products are very-very good. Why won't you try to address the entire market rather than the segment of it.

Theodore Chung

Its...

Unidentified Analyst

Seems like an opportunity is really out there.

Theodore Chung

Yes, its a good question. I mean we've done quite a bit of markets study and due diligence over the last year. The segments of the market that we think we are better addressed or better suited to address will be those markets where we think we can establish a higher gross margin. But I wouldn't be concerned. The markets we're addressing are a very large percentage of that multi-billion dollar opportunity.

Unidentified Analyst

Okay. Thank you for taking my call.

Theodore Chung

You are welcome Tony.

Unidentified Analyst

Okay.

Operator

And we have no further questions in our queue at this time. I would like to turn the call back over to Dr. Das, for additional or closing remarks.

Santanu Das

Thank you all of you. I'll give you a brief summary. In summary, we are very proud of our accomplishment during this time of the economic turmoil. For 2009, we are confident that we will deliver on our operating goals and expect to capitalize on other opportunities as the new TranSwitch emerges as a leader telecommunications in semiconductor industry. Thank you all for joining our call today and we will be with you again in a few months.

Theodore Chung

Thank you.

Robert Bosi

Thank you.

Operator

Okay. And that concludes today's conference call. Thank you for your participation.

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Source: TranSwitch Q1 2009 Earnings Call Transcript
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