Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Jim Myers – IR, MKR Group

Kevin Mills – President and CEO

Dave Dunlap – CFO and Secretary

Analysts

Brian Swift – Security Research Associates

Bernard Fidel [ph]

Steve Krueger – Foresight Investing

Socket Mobile, Inc. (OTCQB:SCKT) Q3 2009 Earnings Call Transcript October 22, 2009 5:00 PM ET

Operator

Greetings and welcome to the Socket Mobile second [ph] quarter 2009 management conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jim Myers for MKR Group. Thank you. Mr. Myers, you may begin.

Jim Myers

Thank you, Operator. Good afternoon and welcome to Socket's conference call to review financial results for its third quarter ended September 30th, 2009. Online today are Kevin Mills, President and CEO of Socket and Dave Dunlap, CFO of Socket.

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

And before we begin, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, as amended, and Section 21-E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, statements with respect to the distribution, timing and market acceptance of Socket’s products and statements predicting trends, sales, order activity, backlog and market opportunities in the markets in which Socket sells its products.

Such statements involve risks and uncertainties, and actual results could differ materially from the results anticipated in such forward-looking statements as a result of a number of factors including but not limited to the risks that shipments of our products may be delayed or not happened as predicted, if ever, due to technological, market, or financial factors, including the availability of necessary working capital, the risk that the market acceptance and sales opportunities may not happen as anticipated, the risk that the company's integrator program and current distribution channels may not choose to distribute its product or may not be successful in doing so, the risk that acceptance of the company’s products in vertical application markets may not happen as anticipated, and other risks described in Socket’s most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. Socket does not undertake any obligation to update any forward-looking statements.

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

Kevin Mills

Thank you, Jim. First, I would like to thank everyone for joining us today. I will begin by providing an overview of our third quarter results, followed by our current outlook on our markets and business for the rest of the year.

We grew total revenue 10% in the third quarter, representing a return to sequential growth for the first time in 12 months, despite the difficult economy. At the same time, we continued to reduce our expenses and tightly manage our resources to achieve cash neutral results from operations.

The sale of Socket Serial, which was our legacy serial product, has been a strategic objective for many quarters as it brings cash to Socket and enables greater focus towards the success of our handheld and data collection businesses. The sale was a win-win situation as it enabled another company to service Socket’s existing customers and extend the use of the serial technology we developed over many years.

In Q3, we continued to see solid adoption of our SoMo handheld computers and sales in the third quarter remained near record levels. We sold 3,167 units, which is 119 fewer than Q2. However, it’s important to note that in Q2 we delivered over 600 SoMo units to Good Samaritan Hospital that completed our planned deployment of 3,000 units over the past year. Excluding this deployment, SoMo unit sales grew 14% in Q3, which is especially noteworthy since Q3 is historically a weaker quarter for us. SoMo sales continue to make headway in our target markets of health care and hospitality and we also continue to see sales in the education and government sectors.

In health care, we continue to work with medical technology companies like Epocal, who have developed a highly portable bedside blood analyzer, capable of delivering results within 30 seconds with bar code capabilities for tracking more patients and samples. This SoMo-centric solution is gaining traction in the market.

Likewise, Aranz has developed a measurement and assessment technology for advanced wound care, which provides comprehensive imaging, measurement and documentation capabilities that provide significant advantages for patients and health care providers using the SoMo.

In hospitality, the SoMo is building good momentum for use in tableside services with companies like Digital Dining and with Hypothec [ph] who are using the SoMo for audio and video guided tours at historically important sites. In education, we continue to see contribution from our work with Plasco ID and in the library services market, which we put in the government sector, we have envisioned we are offering unique solutions built around SoMo unit.

In general, SoMo sales continued to gain traction in various markets as the entry level mobile computing device for business mobility. Our price and feature set are resonating with both developers and customers and we continue to get high marks from customers on the overall value proposition.

In addition, our expandable modular approach to both bar code scanning and RFID is a competitive advantage with customers who continue to face technology transition such as move from 1D bar code to the more information-rich 2D bar codes that are currently – that is currently taking place in the medical market.

Unlike the package delivery business for companies like FedEx or UPS apply the bar code and subsequently use that bar code to track and trace, many of our customers depend on bar codes applied by the product manufacturer or other third parties. So they have no control over the timing of the labeling transition and therefore need to react to the manufacturer’s change in technology. Socket’s ability to enable upgraded – upgrade to a 2D bar code scanner using the same handheld device is an advantage for our customers.

As we continue to grow the SoMo, we have also been adding additional capabilities and accessories that expand our opportunity. For example, our backpack enables current customers who have applications inside the four walls such as medication dispensing to move those applications outside and service the home health care market with the same application and device.

We’ve also added a number of peripherals such as a new combination cordless payment reader supporting MasterCard PayPass type credit cards plus traditional magnetic-stripe credit cards. This allows the SoMo to be used for both taking orders and payments in the hospitality market, which again is a competitive advantage and compelling ROI for our customers.

We are pleased with the progress we continue to make with the SoMo and we are seeing very good potential for continued growth as an increasing number of applications are becoming available in our targeted market. Even though we are still at foundation level, we are confident we are building a solid and focused business on the SoMo’s strength.

Turning to our data collection related business, we grew this segment 12% sequentially in Q3, reversing the declines we have seen in the past three quarters. While our plug-in data collection product sector has continued to slow as the many host devices we traditionally supported have exited the market, this exit has benefited our SoMo business and today an increasing percentage of our plug-in sales is driven by SoMo sales.

We expect this portion of our data collection business to start to show some growth starting in the first quarter of 2010. Our cordless scanning business increased 53% in the third quarter, continuing the growth trend we saw in Q2, driven by sales of our laser-based cordless scanners.

In Q4, we are reducing the price of our laser-based cordless scanners and are introducing a 2D cordless scanner, which is capable of reading all 1D and 2D bar codes. We believe this combination will both drive our revenue and increase our market. As mentioned earlier, we are seeing a rapid change towards 2D scanning, especially in the health care market where additional information like expiration data and other key information is being included in 2D bar codes. In addition, some countries in Europe are mandating 2D bar codes on certain medications as of 2010.

The rapid change to adopting 2D bar codes positively affects our business opportunities. We believe the rapid requirement for 2D scanning will be even more pronounced in 2010 and Socket’s new 7X is well positioned to take a leadership role in this market as we have the smallest, lightest, and most portable 2D bar code scanner on the market. And even though we’ve reduced our R&D expenses over the last three quarters, we continue to invest in key technologies like wireless LAN and 2D bar code scanning, both of which we view as key to the long-term health of the company.

Our commitment to 2D scanning coupled with a great engineering effort and market focus has enabled us to get the product to market in the smallest form factor possible and still provide the customer with around 1,000 scans over an eight-hour shift. The 7X will be sampled in Q4, which should be a key driver of our scanning business in 2010.

Turning to our OEM business, this unit remains in transition. In Q3, our wireless LAN sales continued to grow, revenue increased by 38% over Q2 and represented 57% of the OEM revenue. Our OEM Bluetooth sales were stronger than normal as we received a boost from some end-of-life orders.

During Q3, we also managed to complete a significant transition in our wireless LAN business, moving to the Atheros 6002 Chipset to better support our customers over time. The transition will impact wireless LAN revenue in Q4 as some re-qualifications are required, but we believe this will position us for solid growth in 2010. We expect the wireless LAN business and the overall OEM business to grow and to be a solid contributor to our revenue in 2010.

Overall, the economic environment remained very difficult. We have never had so many qualified opportunities and a stronger pipeline. Having said this, we remain cautious about the pace of spending and deployment in the current business environment.

Given our current visibility with this difficult economic environment, for the fourth quarter we anticipate moderate growth and we will continue to focus on cash positive results. We expect 2010 to be substantially stronger based on our current pipeline of opportunities and assume – and assuming there is no – there is some limited economic growth.

I would now like to turn the call over to Dave for his comments.

Dave Dunlap

Thank you, Kevin. Financial highlights for Socket’s third quarter include 10% sequential growth in revenue from $4.1 million to $4.6 million, an improvement of nearly 4% in margins from 41.4% to 45.2%, a further reduction in the quarterly operating expenses from $2.6 million to $2.4 million, and a gain of $450,000 from the strategic sales of our serial product line.

As a result, we reported a third quarter profit of $49,000 or $0.01 per share compared to a loss of $945,000 or $0.27 per share in the second quarter of 2009. For comparison purposes, excluding the one-time gain from the sale, third quarter net loss was $401,000 or $0.11 per share, a 58% improvement over the preceding quarter.

Our balance sheet also strengthened as we generated $844,000 in cash, improving our end-of-quarter cash balance to $2.5 million, up from $1.7 million at June 30th, 2009. About half of the cash increase was generated from the gain on the sale of our serial product line and the other half was generated from operations, particularly from the management of our working capital.

In our July conference call, we reported to you increasing pipeline activity and our expectations that revenue growth would return across all of our product lines. Our expectations were met. Our data collection product revenue grew 12% sequentially from $1.3 million to $1.5 million, aided by the addition of ScanSource in North America as the new distributor early in the quarter.

Within our OEM business, our wireless LAN products grew 39% as we continued to roll out our newest 802.11a/b/g modules and cards and our total OEM business increased from $668,000 in the second quarter to $1.1 million in the third.

Our handheld computer product sales were $1.6 million, flat compared to the preceding quarter. But as Kevin noted, we completed during the second quarter a one-year customer deployment to the Good Samaritan Society for their long-term health care facility. Excluding the Good Samaritan deployment, the underlying growth rate of our SoMo sales in the third quarter were 14%.

Our outlook for our fourth quarter revenue is for additional, but moderate growth, benefiting from several factors including expectations that the economy will continue to slowly improve, that our newest products will continue to take hold, that our partners will continue to expand their many productivity enhancing solutions in the vertical markets that we serve, and that awareness of our solutions in the marketplace, particularly in our key vertical markets of health care and hospitality, will continue to increase. These are the trends that drove our revenue growth in the third quarter and we expect these trends to continue.

We continue to operate at substantially reduced expense levels. Our operating expense in the third quarter was $2.4 million, some $200,000 less than the preceding quarter and a 36% reduction or $1.3 million less than operating expense of $3.7 million in the third quarter a year ago.

About $1 million of the reduction from Q3 last year is due to lower compensation expense as we operate today with 20% fewer employees than we had a year ago and all of our employees have taken salary reductions averaging more than 20%. As we continue to grow revenue, our near-term objectives are to restore employee salaries to normal levels, maintain essential programs, and improve the bottom line.

The sale of our serial product line at the end of the quarter was a planned strategic decision to discontinue support for our serial product line and to move these legacy products to Quatech. Our serial products were first introduced in 1993 and the user base continues to decline in favor of newer technologies.

Quatech and Socket have historically been two of the largest suppliers of serial based products and it made economic sense for Quatech to add these products to its product portfolio as they already have the technical knowledge and infrastructure to continue to serve Socket’s serial customers well.

The sale allows Socket to increase its focus on its primary products, particularly its handheld computers and data collection peripherals. Serial revenue in the third quarter was $204,000, less than 5% of Socket’s total revenue. And we expect to make up these revenues by concentrating our resources on our primary product lines.

As we enter the fourth quarter, our sales backlog for orders shippable in the quarter was within its normal range of about $1.19 million [ph], reflecting normal channel stockage orders and continuing orders from OEM customers.

While no one can predict with certainty and the timing of the economic recovery, over the past few quarters we have made significant adjustments in our cost structure to align expenses to the lower sales that resulted from the uncertainties of the worldwide economic slowdown and we continue careful management of our costs and expenses and our working capital.

We have done so with the support of our vendors, our customers, our bank, our partners and our employees and we are very appreciative of their unwavering support. And we particularly wish to thank our stockholders for their continued support. With that support, we have been able to move forward with the essential programs that are establishing the SoMo handheld computer family as a system of choice in key vertical markets, particularly in health care and hospitality.

We are continuing the development of essential programs and product improvements to keep pace with newer technologies and the needs of our customers in the vertical markets that we serve. And we are maintaining Socket’s standards of quality products and responsive customer support.

We remain focused on further building on the growing an active pipeline of customers showing an increasing interest in ordering our products. We are monitoring and supporting our solution partners’ product development activities and their marketing progress and bringing productivity enhancing solutions into the business mobility market. We are also working closely with our newest North American distributors, ScanSource and reaching out with our products and solutions to the many ScanSource customers.

In conclusion, we continue to focus on growing our revenues, while tightly managing our costs and expenses and our cash and working capital balances and on building on the momentum that we experienced in the third quarter.

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

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question is from Brian Swift of Security Research Associates. You may proceed with your question.

Brian Swift – Security Research Associates

Thank you. A couple of questions. One, have you received the cash for the sale of the serial operation in the quarter? If so, how much and I noticed that the current liabilities, accounts payable went up about $0.5 million. So what would that be attributable to?

Dave Dunlap

In terms of the sales of serial business, we – the transaction closed on September 30th and we received the cash on that date. So it is reflected in the cash on the balance sheet at the end of September. I think the increase in payables is more timing. We have been acquiring replacement inventory in anticipation of fourth quarter and the amounts due to the vendors will be due more in October than in September. So it’s a function more of the timing of the amounts that we owe our vendors.

Brian Swift – Security Research Associates

Okay. And can you – can you just – in previous quarters, you have indicated how many SoMo's you’ve shipped and I didn’t – I hear a dollar number, but I didn’t hear the –

Kevin Mills

I indicated it at 3,167, Brian, which is a 119 less than our record of the previous quarter, but in Q2 we had 600 units going to Good Sam and we didn’t replace that all. I mean, we replaced 500 of those with run rates, but we were up 14% excluding Good Sam, but down 119 units to 3,167.

Dave Dunlap

And on an accumulated basis, Brian, through the end of third quarter, our account is 22,212. So we are now moving up – continuing to move up in terms of the total units that are sold and most of the units are in the market today.

Brian Swift – Security Research Associates

Okay. And I know the last time I was down visiting with you, you had some other hospital care type – not hospital, but I mean home retirement or residential or whatever type care people similar to Good Samaritan kind of in your queue. Where is – where are they now? Is that starting to ramp up?

Kevin Mills

We haven't signed the deal. We have a few people who’ve started, but unlike Good Samaritan we don't have a contract we can talk about. We are in discussions with a few larger groups at the moment and we are hoping to get those to conclude, I would say, one or two before the end of the year, but realistically they are 2010 opportunities.

Brian Swift – Security Research Associates

Okay. All right. Can you talk about some of the other programs that are out there in the pipeline that either in health care or other areas that may be you could just develop of from what you had in your opening remarks?

Kevin Mills

Yes, again – I mean, we are dependent on third parties selling solutions. So I did highlight two in the health care, both Epocal – I think Epocal is up to around 700, 800 units from us at this stage and there are a number of hospitals and the hospitals deploy anything from 50 to 150 of their portable blood analyzers. We still have a lot of opportunity in medication dispensing, food and service, tracking drugs, et cetera. The bigger ones like for example, Plasco ID, as they get a school district there are several hundred units that get sold. Likewise, with Envision, as they get a library services contract, we get units that are sold with them.

We have a lot more little ones than we have, I would say, Good Samaritan at this stage. But we have been contacted by a number of organizations, particularly in Europe that have deployment in the 800 to 1,500 units’ length.

Brian Swift – Security Research Associates

And how about the programs you have done with – over the U.K., Dakota IS booked in there? I mean, I think –

Kevin Mills

Yes, again, I don't know if we talked about that, but I went over to see them. They have a number of hospitals in trials. We have won in the Liverpool area that basically we are hoping to see this quarter and they have been in trials for, I would say, at least two months. They have 10 units and the opportunity is 400 units. And again, once they pull the trigger, those units will be ordered, but right now they are still in trials.

And that’s true of a lot. I mean, Europe isn’t terribly robust during the summer. They have a lot of holiday days or vacation days, but overall I think we’ve continued to get units out there for trials. We haven't seen a lot of the money starting to really flow from the various governments, but we are seeing more and more of it coming into the markets and I think for many, that would push them to pull the trigger on these trials they’ve been doing because even though the markets are recovering, I think they still lack what I would describe as a sense of urgency.

I think the full and close you get are who are very close to pulling the trigger whereas often when business is a little bit stronger, there is more of a sense of, “I have to get this done this week, this month.” I don't think we’ve seen the economy get back to that stage just yet.

Brian Swift – Security Research Associates

Now, the hospital application you described with Dakota IS, was that the one where they have the wristbands or the Dakota printer and you do the reader – ?

Kevin Mills

That’s one of them. And actually the one that is currently I would say leading the charge is actually the iBleep solution, which is a doctor paging system, used particularly at nights to page doctors to patients that in the event they need attention. Currently, they use the paging system. They’ve replaced all of that using the SoMo, but in addition, they – the doctor can respond back with – that they are on the way and their ETA as well as they’ve seen the patients’ soft, critical information like blood pressure and other vital statistic type information can be gathered and sent to doctor prior to him leaving for the patient.

This has been adopted at a few hospitals within what’s – the trust. The way the U.K. medical system works is that a trust will basically oversee five or six hospitals and we have seen some traction within the trusts and there is an opportunity to – for us to be, I would say, approved for national deployment and hopefully, we will expect to see that happen next year where this would be a standard thing that is used in hospitals in the U.K. And again, then you get some exciting numbers.

Brian Swift – Security Research Associates

All right. Any movement in the U.S. for a replacement for the old paging system?

Kevin Mills

Again, they don't use it as much. I mean, it’s interesting as we’ve been in health care, practices vary in different countries. I think in the U.S., there are still a lot of small hospitals and they use different systems. But I think certainly within long-term health care we seem to have a lot of opportunities based on the work we’ve done with Good Samaritan. There are a number of similar organizations that have contacted us and that seems to be an area where there is a higher level of automation than in other areas.

But it’s very much application driven and currently – I mean, we are supporting a number of different applications, but there is no standards in the U.S. So the business kind of arrives differently.

Brian Swift – Security Research Associates

Okay. I’ll let somebody ask the questions.

Kevin Mills

Thank you very much, Brian.

Operator

Our next question is from Bernard Fidel [ph], a private investor. Please proceed with your question.

Bernard Fidel

Hello, am I on?

Kevin Mills

You are on, Dr. Fidel.

Bernard Fidel

Okay. I want to let you guys know that you did a pretty good job, particularly during the summer month quarter, which is usually pretty slow. I know particularly in Europe it is since I’m familiar with that. And so – particularly in the SoMo, you grew by 14%. I figured out that if you continue growing by 14%, you are going to double sales in six, seven months. But anyhow, here is a couple of questions I have.

Kevin, you were speaking last time about in Europe there were some large orders pending for Sweden, Germany, and Switzerland, I believe?

Kevin Mills

Yes.

Bernard Fidel

How are those getting along?

Kevin Mills

Well, the one in Sweden has continued to deploy. In fact, there was a – I don't know if it’s on our web page, I think it was on our mobile connection magazine. We included a little video of this application being used in Sweden and it basically is being used by people who have attention deficit disorders just to help them manage their daily activities, as well as other people who have (inaudible). So that’s continuing. I think through their summer they added another 200 or 300 units and we expect that to continue through, I would say, Q4 and into Q1.

In Germany, we have continued to do quite well. Some of the larger hospitals were a bit slow over the summer, but again we are seeing those pick back up. So we are in these hospitals, but I think I should rightly point out, it’s difficult to make traction in the summer because of the long holidays they have in Europe. But all of those deals are still alive and moving forward and we’d anticipate the pace of them will pick up in Q4. We are quite happy not to lose ground in Q3, particularly in Europe.

Bernard Fidel

Right. Okay. Couple of months ago, you mentioned that – I don't know – in your release anyhow, let’s put it that way, about ScanSource. And that’s a $1 billion electronic distributor, I believe. And how are they doing? I mean, are they getting this – ?

Kevin Mills

Well, they are doing quite well. I mean, we started with them in July and again, they have to both get stock, as well as get their sales force trained. And as you know, we only account revenue based on a sales house [ph]. But we did over $150,000 of sales house. So that’s delivering products and then delivering it on to a reseller customer.

So overall, we are quite pleased with that. That was a – I think a very good start and we enjoy, I think, working with ScanSource. They have great contact in the industry and I think long term, they will be a big partner for us in the U.S. They have been our number one distributor in Europe, but we’ve basically, I would say, struggled to get in unlike a (inaudible) who have I think 1,100 or 1,200 suppliers. A company like ScanSource is much more selective and they might only have 100 suppliers.

So I think based on our good work in good work in Europe, we were able to convince them that we were a good source of growth for them in the U.S. So we are delighted with the relationship for starters, but it’s early days.

Bernard Fidel

In other words, for the fourth quarter do you see sales improving from ScanSource – ?

Kevin Mills

Absolutely, absolutely.

Bernard Fidel

Yes. Okay, now you are familiar with the stimulus program of – I find it unbelievable, $20 billion would be for medical technology.

Kevin Mills

Yes.

Bernard Fidel

How would that continue going – it should benefit us, especially the SoMo and also the scanner?

Kevin Mills

Yes. We believe that it will be an enormous benefit. I think the difficulty here is they are having difficulty distributing the money, right? The money hasn’t been flowing as quick as the Obama administration would like. I think they are working on that.

But I think that for many hospitals, they know what to do, but they find it difficult to have the capital to do it and certainly as this money flows into the system, I think it will greatly help people eliminate paper and pen based systems and move to electronic record where there is ample money to do this. But this requires wireless LAN infrastructures, devices like SoMo, as well as software. So I would expect it will continue to grow, but I think we haven't seen the bumps yet that we were expecting as the money really hasn't started to flow yet.

Bernard Fidel

Okay. Where – for the fourth quarter, where do you see the greatest strengths of – would that be the SoMo basically?

Kevin Mills

Yes. Again, we would expect – I mean, we are quite happy now with the progress we’ve made in the scanning side, but I think the greatest strength in Q4 will continue to come from the SoMo with scanning being, I would say, neck and neck. So I would expect our revenues for both scanning and SoMo to be – growth in Q4, but certainly lead by SoMo.

Bernard Fidel

Okay. Just one last statement and then I’ll let somebody else get on. And this is a constructive thing. Socket is an unbelievable great story, okay? It really is. And I think you guys are doing a good job of turning it around and I think the SoMo is going to be a phenomenal thing.

Kevin Mills

Okay.

Bernard Fidel

However, the one thing that is lacking is exposure. The company – a lot of people don't even know the story or ever heard of the company. I believe it – now, eventually they are going to find out because your growth rate is conceivably going to be tremendous. However, can’t we do something about promoting it to institutions and funds and other investors because it seems to me if anybody hears the story, the Socket would double overnight, you know?

Kevin Mills

Yes, certainly. I think we share your optimism for the future. I think part of the difficulty has been as we have reduced expenses to get through, I would say, a difficult year and we haven't allocated a lot of money on promoting Socket as a business. We’ve been really working in the tranches with our developers, as well as our core customers to generate the revenue. But certainly, we’d take it onboard your comments and as, I think, the economy improves and our sales go up, we will certainly allocate money to promote not just Socket’s long-term solution, but the health of our company.

Bernard Fidel

Okay. Final thing is that you guys are doing a real good job. It looks like the company is really on a good growth pattern now, you know? And looking forward to some growth in the fourth quarter and a terrific year 2010. Good luck, fellows.

Kevin Mills

Thanks a lot.

Operator

(Operator instructions) Our next question is from Steve Krueger from Foresight Investing. Please proceed with your question.

Steve Krueger – Foresight Investing

Hi Kevin, how are you?

Kevin Mills

I’m good, Steve, and you?

Steve Krueger – Foresight Investing

Fine, thanks. Kevin, when we first started marketing the SoMo back in 2007, we had a discussion about calibrating the market opportunity and Dell had recently exited the market. They were doing about 200 million a year in their PDA sales and I think you were thinking maybe half of that market would be addressable by the SoMo plus other market share you might be able to pick up. And we were talking about maybe a $200 million a year business, maybe 10,000 to 20,000 units a month as opposed to 20,000 units over two years.

Kevin Mills

Yes.

Steve Krueger – Foresight Investing

So it seems like the trajectory for the growth in the sales of SoMo are, at this point, quite a bit lower than what we were hoping maybe a couple of years ago. I wonder if – and I also note that the focus in discussion of applications now seems to be concentrated in two areas really, health care and hospitality, whereas before I think you were talking about several different areas, ignoring just those two. I’m wondering if you might recalibrate for us what you see as a – realistically, what you see as a size of the market opportunity right now?

Kevin Mills

Okay, I’d be happy to. So – well, I think first if you go back to 2007, we didn’t expect the world to stop through the year when we made those projections. And I think what we’ve seen in the marketplace is that people have continued to use their equipment much longer than was originally anticipated and I think the level of paper and pen based use has remained very high as people have put off improving their systems and moving to an electronic equivalent. So – again, I would just say that as a starting point, certainly it’s a different world.

Going forward, I think we see a lot of opportunity in health care and hospitality. I think we need to focus on certain markets to both establish our name and to have a leadership position in those markets. I don't think that the markets we talked about have gone away. But I think that for Socket, we did the antimicrobial units and we optimized units for the health care market because we think that that will be a leading market.

But just as I pointed out in our discussion, we are seeing opportunities in hospitality, governments, as well as one other one I pointed out, but we are actually seeing opportunities all over the place. So I think opportunity, Steve, still exists. But things have moved much more slowly.

Steve Krueger – Foresight Investing

Kevin, when you say opportunity, are you still thinking in terms of being able to get this to a $200 million a year business?

Kevin Mills

Yes.

Steve Krueger – Foresight Investing

Okay.

Kevin Mills

The short answer is yes. And again, recent reports from BBC suggested that health care PDAs alone would get into the $150 million to $200 million over the next three years. And so the – now, it’s interesting because in health care a lot of different technologies have been tried, whether it’s computer (inaudible), tablet PCs, PDAs, iPhones, et cetera, but there is a sense that the handheld will win out and there are reports now circulating that would suggest that just the health care market alone will be over $100 million by 2012 just for PDAs.

And – so yes, we believe that this market opportunity is still there and conservative estimates have suggested that HP is still doing, I would say, several hundred million dollars of PDAs on an annual basis. And again, I think maybe we overestimated at the beginning how quickly people would transition from Dell to Socket and let’s face on our side, maybe a lot of IT people didn’t feel comfortable that they’d be beginning things in debugging any device we might do. But now that we have 20,000 plus units out there and a solid reputation, we think that we will actually gain more traction.

But I think to answer your question, Steve, yes, we still believe this is a several hundred million dollar market and we can do very well as it recovers. But I think that for our market in particular, the timing of the, I would say, economic slowdown was particularly cruel because a lot of people were in the process of starting to move to an electronic system and weren’t fully committed and therefore could really hold back until things improved and they haven't for 14 months.

Steve Krueger – Foresight Investing

Right. Okay. Thanks, Kevin.

Kevin Mills

My pleasure, Steve.

Operator

There appear to be no further questions at this time. I would like to turn the floor back over to management for closing comments.

Kevin Mills

Thank you very much. We would just like to thank everyone for participating in today’s call and to wish you all a good day. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Socket Mobile, Inc. Q3 2009 Earnings Call Transcript
This Transcript
All Transcripts