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Executives

Jennifer Jarman – Investor Relations, The Blueshirt Group

Victor Viegas – President and Chief Executive Officer

Sumanta Mukherjee – Chief Financial Officer

Analysts

Charlie Anderson – Dougherty & Co. LLC

Jeff Schreiner – Capstone Investments

Mark McMahon – Raymond James & Associates

Shawn Boyd – Westcliff Capital Management LLC

Charlie Anderson – Dougherty & Co. LLC

Robert Katz – Senvest International LLC

Immersion Corporation (IMMR) Q2 2011 Earnings Call August 4, 2011 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Immersion Second Quarter 2011 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, August 4, 2011.

I would now like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead.

Jennifer Jarman

Thank you. Good afternoon and thank you for joining us today on Immersion’s second quarter 2011 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations’ section of the company’s website at www.immersion.com. With me on today’s call are Vic Viegas, President and CEO; and Shum Mukherjee, CFO.

During this call, we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products, anticipated market demand or opportunities and other forward-looking topics.

These statements are subject to risks, uncertainties and assumptions. Accordingly, actual results could differ materially. For a listing of the risks that could cause this, please see our latest Form 10-K filed with the SEC, as well as the factors identified in today’s press release.

Additionally, please note that during this call, we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the difference between the non-GAAP financial measure discussed, and the most directly comparable GAAP financial measure is available in the company’s press release issued today after market close.

With that said, I’ll turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Victor Viegas

Thanks, Jennifer, and thanks everyone for joining us this afternoon. Well, we expected the second to be seasonally weaker than Q1; our reported revenue of $6.7 million was softer than anticipated. Several of our key verticals were impacted during the period based on specific customer issues, including a rebalancing of inventory by a key customer in the medical segment.

In addition, we experienced some ripple effects from the disruption in the automotive market as a result of the earthquake in Japan. When combined with our first quarter financial performance, however, we posted solid first half of 2011 and are on track to achieve the goals we laid out at the start of the year.

During the past quarter, we made further progress with the addition of several new licensees and release of an array of new Immersion enabled products across various markets. We strengthened our patent portfolio and are energized by the level of design engagements underway following the launch of our MOTIV haptic development platform.

We’ve seen a clear uptick as compared to our design pipeline at this time last year, which we view is a positive leading indicator for our business and the broader adoption of haptic. In a few minutes, I will discuss recent developments and our view of the evolving market opportunity as we head into the second half of 2011.

First, I’ll ask Shum to provide a more detailed review of our financial results for the second quarter. Shum?

Sumanta Mukherjee

Thanks, Vic. Revenues in the quarter were $6.7 million, compared to revenues of $8.5 million in the second quarter of 2010. As discussed in prior conference calls, revenues in the second quarter of 2010 included product revenues of $1 million in the medical segment related primarily to product lines that were transferred to our medical licensee CAE in early 2010. Also Q2, 2010 revenues included increased revenues of approximately $1 million, mainly in the gaming segment, primarily related to corrections and true ups to royalty reports from prior periods.

Excluding these items, normalized revenues in the second quarter of 2010 were $6.5 million, consisting of royalty revenues of $5.3 million, revenues from the sale of products of $0.9 million, and revenue from development contracts of $0.3 million.

Revenues from royalties and licenses for the second quarter of 2011 were $5.9 million, up 11% from normalized royalty revenues of $5.3 million in the second quarter of 2010, primarily reflecting continued demand in the gaming and mobility segments.

Revenues from the sale of products were $546,000 compared to normalized revenues of $860,000 in the second quarter of 2010 and revenues from development contracts were $254,000, compared to $321,000 in the second quarter of 2010.

While revenue mix per segment is expected to fluctuate on a quarterly basis due to seasonality patterns, in the second quarter of 2011, a break-down by segment as a percentage of total revenues is as follows; 44% from mobility, 33% from gaming, 13% from medical, 5% from auto, and 5% from chip and other. For the sake of clarification these percentages are based on total revenues, including revenues from royalty and licensing, product sales and development contracts.

Gross profit in the second quarter of 2011 was $6.4 million or 96% of revenues, compared to gross profit of 7.7 million or 91% of revenues in the second quarter of 2010. The increase in gross profit margin as a percentage of revenues reflects the shift in business mix to licensing revenues, which accounted for 88% of total revenues compared to 74% of total revenues in the same period last year.

Cost of revenue in the second quarter of 2011 was $247,000, compared to $761,000 in the second quarter of 2010. Excluding cost of revenue, total operating expenses were $7.5 million, compared to $7.2 million in the second quarter of 2010, primarily reflecting increases in R&D expenses.

The operating expenses of $7.5 million include non-cash charges related to depreciation and amortization of $574,000 and stock-based compensation of $981,000. Excluding these non-cash charges, OpEx was $6 million during the quarter and is expected to trend in the $6 million to $6.5 million range over the near-term. We have lowered our expenses related to corporate admin and legal, but plan to continue to invest in sales, marketing and R&D to achieve or expected revenue growth.

Net loss in the second quarter of 2011 was $1.3 million or $0.05 a share compared to net income of $180,000 or $0.01 a share in the second quarter of 2010.

As you know, in addition to normal GAAP metric, we use a metric called adjusted EBITDA to track our business. We define adjusted EBITDA as earnings before interests, taxes, depreciation and amortization, less share-based compensation and other non-recurring items such as internal investigation and restatement costs, restructuring costs and discontinued operations.

Adjusted EBITDA in the second quarter was $442,000 compared to adjusted EBITDA of $2 million in the second quarter of 2010. Revenues for the first half 2011 were $16.5 million, 10% below reported revenues of $18.2 million. But 18% over normalized revenues of $13.9 million in the first half of 2010, once again reflecting strength in licensing revenues partially offset by declines in product revenues.

Gross profit for the first half of 2011 was $15.7 million, 96% of revenues compared to gross profit of $16.1 million or 88% of revenues in the first half of 2010. Operating expenses excluding cost of revenue were $14.9 million in the first half of 2011, $3.1 million lower than operating expenses of $18 million in the same period last year, primarily reflecting the closure of the medical product business, head count reduction and other cost saving actions.

Interest and other income was $114,000 in the first half of 2011 compared to $142,000 in the first half of 2010. Provision for income taxes was $861,000 in the first half of 2011 compared to $762,000 in the first half of 2010. Net income in the first half of 2011 was $78,000 or break-even per share compared to a loss of $2.5 million or $0.09 per share in the first half of 2010.

Adjusted EBITDA in the first half of 2011 was $3.7 million, 61% higher than adjusted EBITDA of $2.3 million in the first half of 2010. Our cash portfolio including cash and investments was $64.9 million as of June 30, 2011 compared to $61.2 million at the end of 2010. Cash generated from operations was $3.1 million in the first half of 2011 compared to $150,000 in the first half of 2010.

In terms of guidance for 2011, we continue to expect annual revenues to be in the range of $31 million to $33 million, an increase of 17% to 25% over revenues from ongoing business of $26.4 million in the prior year. We also expect to generate positive net income for the full-year.

Lastly, while we have not made any stock repurchases within the last two years, our board of directors has approved a proposal to repurchase some of our shares of common stock under the previously authorized stock repurchase program which currently has $31.6 million remaining.

And with that, I’ll hand it back to Vic. Vic?

Victor Viegas

Thanks, Shum. Let me start with an overview of some of the progress we saw on our target markets during the quarter. In May, we attended the Display Week Conference hosted by The Society of Information Display. This industry event focused on the display ecosystem, was a great venue to highlight the flexibility of our business model to potential new customers as our network of partners and licensees provides manufacturers with multiple options for integrating Immersion haptic technology.

This includes our System Integrator partners, who offer complete touchscreen solutions with haptic as well as our chip partners who provide manufacturers more flexibility and designing haptics into their solution. The response from attendees and potential customers regarding the number of design options for haptics was very encouraging and validates our approach of expanding access to Immersion haptic technology through different channels.

We also announced a number of new licensees from Immersion’s technology across multiple verticals while at Display Week including, NRC, the National Research Council of Canada was looking on corporate haptics into their NeuroTouch virtual reality surgical simulator. Good, better, best, the manufacturer of the award winning geotech gaming peripherals in Europe and Valeo of the premier automotive system integrators who will be integrating Immersion’s technology into automotive touchscreens and control panel.

Specifically in the automotive market we have seen a recent surge of design activity with automotive partners and looking at the pipeline of opportunities, we expect to see a number of new and innovative automotive interfaces enter the market next year that take advantage of Immersion haptics. We also saw a number of new products incorporating Immersion technology enter the commercial market during the quarter.

This includes the new IP formed from ShoreTel, the Atmel capacitive touch controllers with integrated haptic support for button, sliders and wheels and the Force Feedback Monitor from AdvanPOS which won that Design and Innovation award at Computex. Computex provided another opportunity for Immersion to highlight our solutions primarily on the tablet markets as we met with many OEM and ODM customers throughout the event.

A number of prototypes with Immersion technology were demonstrated behind closed doors. I’m pleased to announce that the first of these to market is the Toshiba Thrive tablet incorporating our TouchSense 3000 Solutions, which launched worldwide in July. We’re excited to have extended our relationship with Toshiba following our inclusion with Toshiba Libretto dual touchscreen mini notebook announced last year.

While much of the activity of Computex is confidential, we can tell you that we’ve successfully completed test builds using our MOTIV platform with the number of handset and tablet manufacturers. The ease of integration is winning over new customers and improving the value of our MOTIV platform. The ability for customers to quickly add haptics to their platforms and demonstrate the value of a MOTIV powered user interface internally is proving to be a valuable sales tool and a designing process.

Furthermore, our OEM customers have been able to demonstrate these prototypes to their carrier customers, who have expressed interest in seeing MOTIV available our next-generation mobile devices.

Carriers are key influencers in the decision process for feature set specifications. So we’re pleased by the response to our technology and their appreciation of a value proposition haptics offers for consumers. While customer release schedules are always hard to predict, as we progress further in 2011, we’ve growing confidence that we will be able to update you with the launch of the first MOTIV device in the coming months.

We also continue to advance the ecosystem for high-fidelity haptics by actively working with several PAs or vendors to prepare next-generation actuators to power our TouchSense 5000 Solution. We’re encouraged by the number of vendors engaging with Immersion and interested in bringing these actuators to market and believe it’s another proof point that the mobile market is looking for higher fidelity haptic solution with the next-generation devices.

Moving further into the mobile space, during the quarter a number of new handsets were released with Immersion technology. Some of them most notable models include the LG Optimus 2, Optimus 3D and Optimus Black handsets, Nokia’s N9 MeeGo smartphone with well integrated haptic effects and several devices from Samsung including the Galaxy S2.

The Galaxy S2 has a notable honor of being the fastest selling handset in Samsung history, with this launch resulting in over 3 million devices sold in the first 55 days. In addition, we’re also pleased to announce that we expect Fujitsu to bring a new handset to market with Immersion technology this summer.

During Q2, we also ramped up activities with the Android Development Community. We announced a number of applications that launched on the android market stemming from MOTIV SDK. Since that announcement in May, we have participated in a number of developer activities including several Silicon Valley Android Meetups, the APPNATION Conference as well as the Wireless Industry Partnerships Hackathons, a 36 hour coding event where we saw some great implementations of haptics in mobile applications.

Some of the standouts from the event include a text messaging app that uses haptics to enable braille messaging for the blind. Alerts that provide increasingly urgent notifications to the user when their time is set to expire on a parking meter, a map based app for city explorers that warns users when they are headed in a wrong direction and it just games that incorporate haptics to recreate the sensation of moving a chest piece across board.

As a result of the increased emphasis on the development community, we saw downloads of our MOTIV SDK tools doubled during the quarter. While we’re still in the beginnings of our grassroots campaign to win the hearts and mines of developers, the response we’ve gotten is that the ease-of-use of Immersion tools combined with a value-add of haptic effects provides compelling enhancements to the user experience. Our Haptify subsidiary also continues to win fans for its haptic enabled apps. At the recent GamesBeat conference in San Francisco, Haptify was honored as a finalist for the best new applications for Enzo’s Pinball in the Who’s Got Game competition.

Overall, we remain optimistic regarding the level of design activity across the number of markets, which we believe are leading indicators of our future success. Specifically, we’re encouraged by the evolution of haptics in the mobile device market. Four years ago when smartphone manufacturers began to embraced touchscreen interfaces, in addition to Immersion solutions we saw early home grown haptic solutions incorporated into phones.

This one-off attempts used unproven implementation strategy and poorly designed haptics that resulted in an annoyed users and bad press. Both the technology and the design of haptics have progressed and as a result, we’ve seen a shift in the mindset of handset OEMs.

Over the past year, we’ve seen many, many factories embraced functionality that we like to call basic haptics. We define basic haptic as simple type of confirmation with no differentiated effect. For example, you can find some OEMs incorporating basic haptics into their handsets by allowing users to experienced touch conformation for UI elements by dial pads and messaging keys.

The inclusion of basic haptics in handsets is an important step toward user awareness and adoption of haptics. What we discovered is that as OEMs design basic haptics into their handsets, the benefit of Immersion TouchSense solutions becomes more evident.

As part of our product offerings Immersion offers manufacturers access to a certified component ecosystem and critical underline mechanical and electrical design guideline, to ensure our customers are optimizing their device designs for haptics. Additionally, our TouchSense 3000, 4000, and 5000 Solution support an array of underlying technologies and offer precision motor control that enable superior dynamic effects.

And importantly, Immersion tools enable the easy integration of haptics into the user interface and applications. Without the tools like Immersion’s MOTIV Integrator, Team Manager, Reverb and Developer SDK, OEMs are forced to spend significant engineering effort and resources to incorporate haptic effects into mobile device UIs and application.

As this evolution continues, the interest in demand for Immersion’s easy-to-use and higher fidelity solutions has increased. And illustrating to us that the market has an improved understanding of the compelling value haptics can provide beyond basic haptics.

We continue to evangelize haptics with our OEM customers and are also encouraged to see activity such as Apple, including a haptic alert feature and a beta release of their iOS 5 and Google offering an API for haptics in their android platforms. This activity is yet another indication of the value of haptics is resonating more clearly within the mobile ecosystem.

As we sit here today at the midpoint of 2011, I can offer perspective on this market evolution and reflect back on where we were at this juncture a year ago. At that time, we are actively engaged in designs with three of the top ten handset manufacturers. Today we are working with six of the top ten. This level of account penetration combined with active design engagements reflects the movement towards haptics in general and the value OEMs are finding in Immersion TouchSense Solution.

I’m also excited to update you on some recent issuances or patents that continue to broaden and strengthen our patent portfolio. Although our initial portfolio was focused primarily on haptic gaming and simulation, we have always recognized the importance of haptics to improve the user experience for portable devices. As our innovation yields, efforts yields, new and novel solutions these challenges, we were able to supplement our original filings to more comprehensively cover haptics on Touch Screens.

Over the years, we’ve extended our portfolio to cover interactions on Touch Screen effects and controller for haptic effects, software applications for haptically enabled Touch Screens and implementation across networks and haptic effect design and authoring tools. More recently, Immersion has been concentrating specifically on innovations to enhance the user experience with haptics on a Touch Screen device. Today’s press release illustrates how our efforts are beginning to show results.

As we announced today, we’ve reached the milestone of over 600 granted patents in a worldwide portfolio of over 1200 granted and pending patents. Notable examples of this progress include the recent grants of U.S. patent numbers, 7969288, 7978183 and 7982720. These patents extend our coverage in the area of haptic effect associated with the graphical user interface and haptic effects associated with events in multi-tasking environments.

These are areas of increasing importance to device manufacturer such as smartphone and tablet OEM looking to enhance their user interfaces to haptics. We’re proud to be able to provide our customers with access to our powerful patent portfolio and intend to continue investing in the critical area of UI design and interaction. I’m pleased to announce that we have received a the record number of notices of allowances from the Patent and Trademark office this year, which indicates that our portfolio will continue to strengthen an increase especially in the area of haptics and touch screens.

As a final note, I’d like to take opportunity to welcome our two new board members Carl Schlachte and John Fichthorn. Both Carl and John have spend time developing a deeper understanding of Immersion’s technology and business and are already providing valuable guidance and insight into their first quarter on the job.

We look forward to working with our entire board as we focus on executing over the second half of 2011 and ensuring we are well-positioned to take advantage of the expanding opportunity for haptics as we move forward.

With that said, we’ll now open up the call to your question. Operator?

Question-and-Answer Session

Operator

Thank you. We will not begin the question-and-answer session. (Operator Instructions) And our first question is from the line of Charlie Anderson with Dougherty & Company. Please go ahead.

Charlie Anderson – Dougherty & Co. LLC

Good afternoon. Thanks for taking my questions. I’m sorry, I hopped in a little bit late, did you guys give the mix by end market on total revenue?

Sumanta Mukherjee – Chief Financial Officer

Yes, Charlie, we did. I can repeat that you if you want. It’s 44% from mobility, 33% from gaming, 13 from medical, 5% from auto and 5% from chip and other?

Charlie Anderson – Dougherty & Co. LLC

Great. And then in terms of the medical piece that was impacted, you said it was kind of a specific customer issue, you could – you maybe elaborate, give more color there in terms of the sustainability of that?

Sumanta Mukherjee – Chief Financial Officer

It’s purely a inventory rebalancing with one customer, which caused that.

Charlie Anderson – Dougherty & Co. LLC

Got it. So you think you’ll pump back to kind of where you’ve been, the level that you’ve been in that business?

Sumanta Mukherjee – Chief Financial Officer

Yeah.

Victor Viegas

Yeah, I’d say there’ll probably be some continued weakness in Q3. But I think we see orders for Q4. One other things that we’ve recently done is we increased the language capability of the simulator, so it’s now able to be offer more broadly around the world. So we’ve already seen an uptick in Q4 orders. But I think you’ll continue to see some softness in Q3.

Charlie Anderson – Dougherty & Co. LLC

Got it. And then, Vic, you mentioned working with six of the top ten mobile computing OEMs, three we know you have under contract, would the other three just be at sort of various levels of discussion and if you could offer any color there that would be helpful?

Victor Viegas

We have others that are our licensees, so they – those agreements have been put in place. But we’re not at liberty to discuss those until products launch. A number are in advanced development stages, pre-production efforts with fine tuning going on with their devices others are in the development phase and then some others are in the early prototype and demo phases.

Charlie Anderson – Dougherty & Co. LLC

Okay. So the way you started that off is, they’re signed licenses or they’re not completely signed license, I just want to make sure, I’m crystal clear on it?

Victor Viegas

Yeah, we do have additional signed licensees.

Charlie Anderson – Dougherty & Co. LLC

Got it, got it. Good. And then you mentioned Apple and Google and some of the endorsements of haptics they have been making. I understand Apple being pretty new, if you could just talk about Google a little bit more, because I think they sort of have them in the Andriod, API, was there something that changed there and kind of your view on that would be helpful?

Victor Viegas

Yeah, I would say nothing has changed there. They offer a basic capability as part of their API. The OEMs then are able to tap into that API and associate haptic effects with various user interaction. So there is really nothing new. What we’re highlighting is the fact that the capability is well received by consumers, but OEMs are recognizing that that’s essentially a basic haptic interaction and they are looking for more. They are looking for easier to use tools. They are looking for broader capability among the development community. They are looking for easy integration and a broader set of experiences within haptics. So it’s a teaser that is intrigued, but it has accelerated their discussions with Immersion.

Charlie Anderson – Dougherty & Co. LLC

Got it. Thanks so much.

Victor Viegas

Thanks, Charlie.

Operator

Thank you. (Operator Instructions) And our next question is from the line of Jeff Schreiner with Capstone Investments. Please go ahead.

Jeff Schreiner – Capstone Investments

Hey, good day, guys. Thanks for taking my questions. You kind of implied this for your ‘11 guidance of 31 to 33, is maybe a step up in the second half, I think that that’s seasonally your stronger part, but what are kind of the key drivers that maybe are driving that projected growth in the second half?

Victor Viegas

Well, let’s see – we look at mid year, here we’re about $16.4 million, so – and from a quarterly standpoint Q1 is seasonally our strongest, Q3, Q4 are typically good quarters that reflect increased sales from our gaming partners as well as our mobile market.

So, expected business over the balance of the year gives us confidence in the range, and again, we’re seeing more recent gaming reports are starting to show positive upward trend. We’re aware of product launches that are scheduled for the latter half of the year. So combination of existing customers, new customers, and new product launches give us the confidence that back half of the year looks pretty strong.

Jeff Schreiner – Capstone Investments

Okay. And, can you guys highlight today some of your IP, some of the patents that have come out recently and focused on that with the press release. And I was wondering that – given the -- this is going to become kind of maybe two questions, but given environment, we’re seeing with the value that are being now placed on patents with various IP options going on, is Immersion willing sell any portion of its patent portfolio or looking to explore that option?

Victor Viegas

Well, I would say, I’m pretty to see the intellectual property and patents in particular recognized more of the economic and strategy value that they deserve. Our goal has always been to maximize shareholder value and to do that; we actively and aggressively work to monetize the patents. So monetization efforts could be using our patents and licensing arrangements or they maybe worth more to our strategic buyer. I’d say we’re open-minded about how we can maximize the value of this portfolio. So yeah, we’re open-minded.

Jeff Schreiner – Capstone Investments

And just following on that I mean, given the commentary about patents today, I don’t want to say you went up level of King Kong and beating your chest so to speak, but you certainly are highlighting IP part of the business. And I’m wondering, when are you internally in terms of ready to explore any defensive IP litigation that you feel may be necessary to protect some of the IP your company has in fact generated?

Victor Viegas

Well, very clearly this is a big event for Immersion that’s more recent patent grants have substantially expanded the value of the portfolio. And as you know each patent has numerous claims, each one distinct and unique. But if you look at the three patents that we referenced, for example, the 288 patents, it covers the association of a haptic effect in a multi-testing environment. So, I can give you an example, if you’ve got a pre-selected haptic affect for incoming calls or text input or dialing. If you’re testing your friend and you receive an incoming call that generates haptic affects, that’s covered by that patent.

The other two patents are more aligned with associating haptic effects with a graphical user interface or GUI on a touchscreen display. So, if you are using a soft keyboard dialing pad or an icon those are all GUIs. And if you touch that GUI, and you receive a pre-selected haptic affect that’s also covered by those pattern. So, I’d say that strength of our portfolio has grown dramatically over the last 90 days. And when we continue to monitor the landscape and look at how to best monetize the IP.

Jeff Schreiner – Capstone Investments

Okay. Two final questions from me on the competitive landscape, because you educated just briefly in the time we have about Tactus Technology, it’s seems to be an up end cover and feedback perhaps there is a different implementation of their technology in Immersion and could you compare that for us?

Victor Viegas

I think you’re referring Texas Instruments, TI?

Jeff Schreiner – Capstone Investments

There is another private company called Tactus.

Victor Viegas

Oh Tactus? Oh Yes, Tactus.

Jeff Schreiner – Capstone Investments

Yes.

Victor Viegas

I think they are promoting is – I believe it’s a demo or it’s a concept of using some form of technology to create the deformable surfaces. If you look at our, patent portfolio, some of our existing solutions we’re working on deformable surfaces. We have a very strong portfolio in deformable surfaces, but I can tell you that the efforts are not insignificant.

This is going to take time for a screen to transition and more, so that you can feel the ridges of buttons that are virtual. So deformable surfaces I think it’s an interesting demo. I don’t know that it’s ready for the market anytime soon. If you want to talk about Tactus Instruments who has been pretty active.

Jeff Schreiner – Capstone Investments

Yes.

Victor Viegas

I think sometimes a misunderstanding about our relationship with TI. We believe that component vendors like TI and other solution providers are just critical to enabling our ecosystem and we work closely with them. We don’t see them as competition. Our IP in this area is really strong and we work with them to bring to the market pieces of our overall haptic solution. So, we’re really excited by TI’s investment in haptics products.

We work closely with them in a number of areas including joint sales, calls, demos, reference design’s activities. In fact, two weeks ago, you may have seen that TI announced their DRV8662 Piezo Haptic Driver, and it’s part of our TouchSense 5000 high definition haptics reference design.

It’s a key component in the ecosystem of enabling technologies. I am also happy to report TI as a new licensee and we’re encouraged by all their activity in space and we look forward to letting you know more about what they are working on and what products they have planned to launch in the future.

Jeff Schreiner – Capstone Investments

Well, thank you very much. That was a great answer and gentlemen, thank you for your time.

Victor Viegas

Great. Thanks, Jeff.

Operator

(Operator Instructions) Our next question is from the line of Mark McMahon with Raymond James. Please go ahead.

Mark McMahon – Raymond James & Associates

Afternoon, Vic. Quick question on something you mentioned earlier in the call, you had mentioned at the symposium you were in, I guess back in May, the integrated tablets prototypes that you were demonstrating, I was wondering if – will they just demonstration tablets that you guys designed on your own or with actual OEMs to try to sellthrough?

Victor Viegas

So I think Toshiba was the first to come out with the product. So this was their product and that they demonstrated. We have worked with them provided them a reference design, help and the tuning of the products that whether you build that and demo that. I think in addition we have three ODMs, pretty substantial companies that were showing platforms that they have planned to promote and are actively engaged with their customers and trying to sell that platform to them for their tablet solutions.

Mark McMahon – Raymond James & Associates

Okay. So, its just Toshiba, that was the only one that’s a confirmed licensee that was demonstrating in prototype?

Victor Viegas

Toshiba is the only, yeah, they are the first on the market. Three ODMs are working with numerous OEMs would be following them, and when they launch, we’ll be able to tell you more about that.

Mark McMahon – Raymond James & Associates

Okay. And on the mobility, when you had mentioned that there were I guess three handset manufacturers that are unannounced licensees at this point, but are in various stages of development. One, pre-production, would that be for launch in the fourth quarter of this year?

Victor Viegas

So, what I said was, there are currently six of the top 10 OEMs that we’re engaged with and of those we have three announced license agreements, Samsung, LG and Nokia. Of the other three, we have – some are licensed and others are not licensed, but we are in various stages of co-development, demo, prototype, pre-production kinds of efforts. So we expect to see as we – I think I’ve mentioned apart from Fujitsu here, soon the others will really depend on their own launch plans and strategy.

Mark McMahon – Raymond James & Associates

Okay. And I guess finally, when you were talking about different new, I guess from your SDK that you put out for the Android marketplace and you mentioned a couple new apps like the Braille app, what sort of growth are you experiencing and interested in. You touched on it just for a little bit, but that got the marketplace pretty excited when you first announced Haptify and the SDK ability, have you seen exponential growth in terms of inquiries or actually people signing on and downloading your SDK or how is that progressing or was that – it got really strong in the beginning and has slowed down because you had announcements, I think about two months ago about or maybe a month ago, month and a half ago about I guess, eight new developers that have integrated your haptics into their programs, into their applications, but haven’t heard anything since then?

Victor Viegas

Sure. I think we said in the call earlier was, the number of downloads has doubled. The actually number I just check earlier this morning, we’re up to 1400 downloads. The activity, the interest level is very high. Recently, we put on a training program for the Android developer community here locally. And we opened it up for training where our engineers could actually provide training, as well as application support and we only had room for 150 developers and we had a waiting list of another 50. So in terms of the interest level and their downloads and their activities to develop applications and hopefully launch these applications is very, very busy for us right now.

Mark McMahon – Raymond James & Associates

Okay. And just real quickly, I had watched a demo, I guess it was maybe two weeks ago on Tactus Instruments demoing their haptic solution. How long ago – they are a recent licensee, but how long go – just to have an idea – how long the channel is between your engagement to then actually coming out with the product, can you explain a little bit about when you first started talking with TI and then the development stage and then now, they are out there selling products?

Victor Viegas

Well, there’s a couple – there’s two different, let’s say, relationships. And answer your question more specifically; I think we’ve probably talk to TI for at least one to two years. They were extremely active with Nokia as a component supplier years ago, and so they were intrigued by the request, the demand, the interest level for haptic. So one part of the relationship is they develop this piezo driver. And for a customer to launch a product, you need not only a piezo component, but you need a driver, a bidirectional driver to drive the piezo module. And so one of the pieces of the relationship with TI is that they developed this driver and are marketing it – selling it and building billing prototypes, making sales calls and trying to win that part of the business.

The other part is related to how we work with them to incorporate our technology in their future products. And so this would actually be our software integrated into their chip solutions. And that’s something that we will be launching, we’ve announcing and we’ll be communicating more definitively as they roll their products out. But they are for – I’d say, at least the last six to 12 months, have been actively using our demos, engaging major OEMs, extremely active in markets like China, and they have been a great partner for us. And they are significantly raising the awareness of not only haptics in general, but Immersion haptics in particular and the benefits for the high fidelity.

Mark McMahon – Raymond James & Associates

Okay. Congratulations on the first half.

Victor Viegas

Thank you, Mark.

Operator

Thank you. Our next question is from the line of Shawn Boyd with Westcliff Capital Management. Please go ahead.

Shawn Boyd – Westcliff Capital Management LLC

Hi, gentlemen. Thanks for taking the question. I just want to follow here with a little bit of more discussion on the trajectory here. In terms of the quarter, the weakness being both the medical and in the auto production shutdowns due to the supply chain in Japan, is it--?

Victor Viegas

Shawn, you are going to have to speak up. I am having a real hard time hearing you.

Shawn Boyd – Westcliff Capital Management LLC

Sure. In terms of the weakness in the quarter, you said, there are two different issues. And it looks like from the revenue breakdown, we’re seeing a little bit more of a drop on the medical side, is it fair to say that was the bigger issue that brought us in below plan in the June quarter?

Victor Viegas

Yeah, when I look at that -- at the forecast, I’d say that our revenue was probably down by anywhere from $500,000 to $700,000. The automotive affect was probably closer to $100,000 medical rebalancing, so this was a single customer decided to cut back inventories and that probably affected our order and sales by about $300,000, 400,000. And then probably couple $100,000 weakness on the mobility side just based on lack of growth with one or two of our partners.

Shawn Boyd – Westcliff Capital Management LLC

Got it. Okay. And in terms of auto, I don’t want to make a big point about this because it is fairly small. But that’s an area that we’re obviously hoping to grow going forward. With the way the shutdowns have hit, would you expect that to be down again next quarter? Or would you expect to see that start to rebound here with the September quarter?

Victor Viegas

From every indication, we think Q3 should be again relatively flat slightly soft, but we’re pretty confident we’re seen design wins and we know that production is ramping up for Q4 shipments, so – Q3 shipments which will be Q4 revenues. So, I would say Q3 revenue could be a little weak in the automotive space, but we definitely see a rebound in Q4.

Shawn Boyd – Westcliff Capital Management LLC

Okay. So basically similar to medical?

Victor Viegas

Yeah, absolutely, yeah.

Shawn Boyd – Westcliff Capital Management LLC

I mean, a different magnitude I imagine, but just in terms of direction?

Victor Viegas

Yeah, we’re only talking $100,000 and $200,000 utmost in terms of revenue that is being impacted, but Q4 should be a much stronger quarter in the automotive space.

Shawn Boyd – Westcliff Capital Management LLC

Got, got it. Sorry to see it hit, but good to hear about additional design wins that we’re looking at this point. Congrats.

Victor Viegas

Thanks, John.

Operator

Thank you. Our last question is a follow-up from the line of Charlie Anderson with Dougherty & Company. Please go ahead.

Charlie Anderson – Dougherty & Co. LLC

Actually my questions has been answered. Thanks.

Operator

And we do have a question from the line Robert Katz with Senvest. Please go ahead.

Robert Katz – Senvest International LLC

Hi Vic, and Shum. If I can – you’ve kept your year guidance flat and you’ve had sort of a little message quarter, that means there is upside coming from your business in the second half, is that more upside on the gaming side or the mobile side of your business?

Victor Viegas

I would say both.

Robert Katz – Senvest International LLC

On both?

Victor Viegas

Yeah, early indication where you have some royalty reports in hand that show gaming is picking up like we would expect seasonal benefits and then again knowing the trends in the mobile space, commitments to product launches, new customers new products, we feel pretty strong about the mobile space as well.

Robert Katz – Senvest International LLC

And on the mobile space in particular are you customers shifting to any piezo product set, is the Galaxy 2 a piezo product or is it still old generation product?

Victor Viegas

No, it’s our TS3000; currently there are no TS5000 solutions in the market yet.

Robert Katz – Senvest International LLC

And when do you anticipate the TS5000 shipping in market?

Victor Viegas

Well, our hope is to have multiple products in the markets this year. And Tactus Instruments driver solution is a being piece of that. So, we’re happy to see them actively promoting and marketing that. Lot of companies are investing great resources to bring solutions for the market with support of Immersion TS5000 solution, so it’s really going to just be a matter of the timing of our OEMs launch plans.

Robert Katz – Senvest International LLC

Great. And would that impact the royalty per device typically versus your TS3000?

Victor Viegas

Yeah the TS5000 offers us a substantial increase in the ASPs. So, we’re excited not only with higher revenue potential; it also provides a much higher fidelity experience for the consumer and it separates, creates a bigger gap between products without haptics, and products with our high definition. So we think that it’s important to succeed here. Lots of interest, lots of design opportunities, it’s not just a matter of getting them launched in the market.

Robert Katz – Senvest International LLC

And do you anticipate seeing some tablets in the market in the second half of this year? Or is that 2012?

Victor Viegas

No, we’ll see tablets and we may see tablets with piezo launched this year.

Robert Katz – Senvest International LLC

Okay, great. Thanks guys and good job.

Victor Viegas

Thanks, Robert.

Operator

Thank you. At this time, I’d like to turn the call back to management for closing remarks.

Victor Viegas

Well, thank you everyone for being on the call today. We look forward to update you again on our next quarterly call. Good afternoon.

Operator

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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