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

Wave Systems Corp. (NASDAQ:WAVX)

Q4 2006 Earnings Call

March 14, 2007 4:30 pm ET

Executives:

Steven K. Sprague - President and CEO

Gerard T. Feeney - Chief Financial Officer

Analysts:

Timothy Collins – Security Research Associates

Rob Goldman – Dutton Associates

Barry Clairmonte – Private Investor

Paul Nellis – DP Tech

Jeff Kitchen – Oppenheimer & Co.

Brian Swift – Security Research Associates

Robert Eiser – Private Investor

Walt Palsen - Private Investor

Presentation:

Operator

Welcome to the conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the number 1, followed by the number 4, on your telephone. If at any time during the conference you need to reach an operator, please press the * followed by 0.

As a reminder, this conference is being recorded Wednesday, March 14, 2007. And now I'd like to turn the conference over to Gerard T. Feeney, Chief Financial Officer. Please go ahead, sir.

TRANSCRIPT SPONSOR

Dutton Associates is one of the largest issuer-paid equity research firms in the United States, and our investment performance is ranked comparable to that of the top Wall Street firms. Our analysts, primarily CFAs with over 20 years of experience at the major securities firms, are among the most experienced on Wall Street. We offer high-quality, independent, fundamental research on small-cap public companies in a year-long program consisting of an initial report, three quarterly update reports, research notes between the quarters, and institutional conferences and roadshow opportunities.

To sponsor a Seeking Alpha transcript click here.

Gerard T. Feeney

Thank you. Good afternoon, everyone. During the course of this conference call we will make forward-looking statements future events and the future financial performance of the company. We caution you that these statements are only predictions, and that actual events or results may differ materially. Additionally, we would refer you to the documents the company files from time to time with the Securities and Exchange Commission. These documents identify and describe important factors that can cause after-results from those indicated in any forward-looking statements that we have made.

Earlier this afternoon we released our financial results for the fourth quarter which can be found at our website at Wavesys.com. Please refer to the company's press release for more details related to the financial results.

For the quarter ending December 31, 2006, Wave's revenue rose to $866,000 compared to the fourth quarter 2005 net revenues of $348,000. Gross margin rose to $656,000 or 76% of net revenue for the current quarter. We saw gross profit of $452,000, or 44% of net revenues in the fourth quarter of 2005. The increase in gross profit is a function of the increase in higher margin licensing revenues.

The net loss of the quarter was $4.8 million, or $0.12 per share, which includes the new reporting requirement that started in 2006 for non-cash and share-based compensation expense, which was $414,000 for the fourth quarter, or $0.01 per share. In fact, last quarter's net loss of $4.5 million, or $0.15, did not include this non-cash expense.

The weighted-average number of basic shares outstanding in the fourth quarters of 2006 and 2005, was 41,055,000 shares and 29,711,000 shares respectively. All the shares outstanding in last year's share figures have been adjusted to the company's (inaudible) stocks that went into effect on July 26, 2006.

For the full year of 2006, Wave's net revenue rose by 206% to $3.1 million, compared to net revenue of $1 million in the prior year.

For 2006, Wave reported a net loss of $18.8 million, or $0.51 per share, including the non-cash share-based compensation expense of $1,556,000 or $0.04 per share. Whereas net loss of $17.6 million, or $0.63 per share in 2005, did not include any share-based compensation expense.

The stock split weighted average number of basic shares outstanding in 2006 and 2005 were 36,735,000 shares, and 27,726,000 shares respectively. As of December 31, 2006, Wave had total assets of $8.8 million and no long-term debt.

And now, Steven K. Sprague will highlight some of the key developments for the period.

Steven K. Sprague

Thank you, Gerard, and thank you, everybody, for joining our call today.

Let me start by saying that I think we've made tremendous progress over the course of the last quarter since our last call. We're very pleased to announce our relationship with Seagate as part of our quarterly announcement of references. We have signed a licensing agreement with Seagate. You noticed the products that were announced and shipped by Seagate earlier this week. And I'll talk about the Seagate relationship in a little bit more depth later on.

I will say that we still wrestle with the challenge of the Enterprise business and the development of our Enterprise business. I think we're making tremendous progress on that front. It's hard to see it through the specifics of the numbers, although we continue to move our large count forward, we continue to add accounts, and we have relationships with companies that cross a very broad area of industries, from travel, to beverages, to health care, to pharmaceuticals, etc. Most of these are some of the largest brands in the market.

The challenge continues to be that we're educating them on how to use the TPM, how to leverage it. Many of them are conducting pilot trials as we speak. But we have not converted those customers as quickly as we would like, and certainly it has resulted in weaker revenue than we've been expecting.

So, we continue to make very strong progress on it. And I'll talk some more about the Enterprise business side, and where the progress is coming from, and where we think we'll also see broader development on it.

But let me start by expanding further on what we're doing with Seagate, what the product is, how it works. This is a new product line for us and I've done this on a number of previous calls. I think it's really important to understand the basic fundamentals of how we make our money, and what the product is, and why we think the customer will buy this product.

So, on the first basis, this business model is very similar to our standard OEM business model, in that we have licensing arrangements where we supply a lightweight version of our software, either through Seagate bundled with the drive, or directly to a PC manufacture. And we actually now have both relationships in place. We certainly would expect to expand on our OEM relationships. As time goes forward, there are many OEMs who are sampling drives today, and we certainly look forward to working with them to supply software.

We generate north of $1 per drive on a royalty basis for the light version of our software but then we provide enterprise tools that are used to manage these drives. And in order to use the enterprise tools, you have to have a fully copy of our Embassy Trust Suite client software edition. And so that works out to be between $50-100 upgrade range depending on the feature set that the customer would like.

The reason that a customer will buy a server is that it's very important with an encrypting drive to have control and management of the passwords on the drive, so that you can set them and change them, as well as to have an audit trail. We think this is probably one of the most important features, which is, we really can prove that if a laptop was lost, and it had a Seagate drive in the laptop, we can prove that that drive was turned on and that the data was protected.

At the end of the day, we've looked at many of the state regulations. Obviously these regulations have not been tested in court very widely yet, or in many cases, if at all. But we think that we really provide a corporation the protection and liability of data loss. And if they can prove a laptop had a Seagate drive, that the drive was turned on, and the data was safe,

Let me explain a little bit how a Seagate drive works. What they've done is, they have taken a standard drive and modified the silicon chips that are on the drive that are used as part of the drive interface, so how you get data on and off of the disk drive, and that data is now encrypted every time you write to the drive. So whether you're writing or reading from the drive, the data is encrypted or decrypted, respectively.

What happens is that before that little engine will encrypt or decrypt any data, it will ask for access control to the user: Are you an authorized user to use this drive? And for today it works with a simple password, where you type the password in. But before there's any OS presence on your computer, because the drive is locked your OS is on the drive and that password is used to permission the drive to release data.

Once you supply the password, the drive works absolutely as a normal disk drive and it's completely invisible to any software application on your desktop that the drive is encrypting or decrypting. There's not impact on performance, and it's a very strong level of encryption on the drive.

The other that I think is very important in the context of a drive like this is that... users can do silly things. So, for example, if you're a user and you have the permission to reboot your operating system or reload your operating system, you could make a mess of things like software-full disk encryption because it's part of the operating system installed on your computer.

Whereas, with a Seagate drive solution because it's completely independent of the operating system, you could take Windows XP and replace it with Windows Vista, or replace it with Linux, close your computer, turn it back on, and the first question you'll be asked is, to provide your drive password. So really, there's nothing that the user can do to compromise the data protection solution in the laptop, unless the administrators, from a central-service perspective, have given the permission.

We think there's a very compelling reason as to why corporations want these drives. They're a very simple solution. They're a very efficient solution in the market, and we would also like to believe that a high percentage of customers will take the Wave administration tools for these drives because it provides the centralized control, as well as the capability, which is really the reason why any corporation is spending money today on data protection. It’s not just to protect the data, but also to be in compliance with the state laws and regulations that are out there.

So, we don’t have a ton of data on this yet, we’ve been out marketing it for a little while, we’ve I think seen very positive acceptance from the industry analysts and press. I think certainly we’ve saw some of this coverage during the course of this week and I think it’s been very positive, I think that’s a really good time.

We are actively delivering pilot units today to corporations. We’ve already delivered our first pilot systems, so we expect to get pretty broad feedback pretty quickly.

This is not that new a product for us because basically the same set of tools that we use to manage a trusted platform module is how we manage the drive. We’ve done it in such a way that you don’t have to have your trusted platform module turned on. You can do this as a trusted drive with or without a trusted platform module. We’ve done that to enable support to any of the legacy platforms that do not have TPM, and certainly any of the consumer platforms that do not have TPMs today. But, the technology works very much hand in hand with the trusted platform module as well, and I think over the next period of time as people get more sophisticated in managing the solutions I think we can show really strong connections between how you leverage the trusted platform module in connection with your trusted drive so that you can as a user assert to a server that you have a secure endpoint before the server gives you any sensitive data. And ultimately, I think that’s how most corporations will implement these systems long term.

So we’re very excited about it, we think that there’s tremendous potential in the marketplace for this. I think that 2007 will be a year of size coming as options in devices in special orders. If you call your OEM and ask for machines with drives they will let you know and they will supply different platforms with drives. There have been a number of questions as to who’s gonna have what, when, and where. We can’t answer that question. We have to leave that to the specific branded manufacturers, so if you want to know when a specific OEM is going to ship a drive, call that OEM and ask them when they are going to ship that drive. They really are the only people who can tell you.

But we think that it’ll show up as an option device over the course of 2007, but this is clearly a technology that could easily become a standard component in all of next year’s builds. Realistically, it could become a standard component this year, but think that most devices like this typically go through a cycle of being an option and then being something that is standardized. We’re very excited about that, we think we build the right tools to support it, we think we have the right business model to support it. And this is extremely synergistic with our core trusted platform module business.

So with that, let me talk about the core business. We continue to supply Dell, Gateway, and Intel with software they ship with their packaged PCs. Actually I think we’ll see stronger support from Gateway going forward. They seem to be more broadly employing the technology, so we’re very please to see they are getting more educated on the subject and more aggressive with their customers. We’ve had a number of enterprise customer productions from them, even over the last couple of months. So, we continue to see momentum in progress in the PTM business.

What’s fun about what we’re doing with Seagate is that it’s an opportunity for us to revisit our relationships with all the other OEMs in the market in that we are supplying a software that an OEM or PC manufacturer could bundle with the trusted drive. That’s very synergistic with how you manage the trusted platform module we’ve integrated it to very tightly. We can supply them independently, they don’t have to take our trusted platform module software, but we think it provides a very cost effective and a very efficient solution if you take both products.

We are still the only company providing a full fleet of management tools for the TPM independent of the specific PC you buy. We certainly look to do the same thing in the trusted drive phase as well. Addition manufacturer improves drives, we will work to make sure our software will support the features that their hardware supports, whatever those features happen to be.

In the course of the last quarter, one of the very important relationships that occurred was we announced that we certified our software in all of the HP platforms. This was an important step for us, this allows us to go to the enterprise customers and show them that our software’s been tested, the configurations have been tested so that hopefully there aren’t very many issues when they install a brand new machine, or hopefully no issues at all.

With that in hand, we are actually doing our first customer enterprise calls with HP’s sale’s force. We have a couple of those that are going on right now as we speak. So we’re very excited about broadening our relationship with Hewlett Packard and with a number of other OEMs in the marketplace.

Again, we’ve had an opportunity to revisit them with both what we’ve done with Seagate, and we’ve also made a huge investment with building the Vista supported solution for our Embassy Trust suite. This was not a mild undertaking. We announced last week that we had shipped our Vista versions. They are commercially available in the marketplace today. You can take our standard software…it will run on Vista, it is completely featured.

One of our prime (inaudible) in the marketplace, actually in order to achieve their Vista deployment, significantly de-featured their product and I think that’s gonna be a real advantage for us going forward that we’ve maintained the full feature set across our XP, Windows 2000 and Windows Vista editions. Vista will support all known implementations of TPMs in the marketplace today to maintain our interoperability.

This has not been an easy exercise, being one of the early Vista launch partners, as the underpinning target became a very fluid movement. The good news however is that Microsoft, in marketing their Bitlocker solution, which is how they do full disc encryption in software in the operating system, is supporting the trusted module as part of the solution. They are certainly out there educating the end enterprise on what a trusted platform module is and how to use it as part of Vista. That has been tremendously helpful to us. We’ve certainly seen a significant upsurge in the level of interest of the enterprise over the course of the last three or four months as Vista has come into the marketplace. I think we will continue to see that accelerate. This is starting to be a much easier conversation with the enterprise. They know what a TPM is and they have some idea as to how they want to use it.

I will say that the biggest challenge in the enterprise is the following. Almost all the customers we are talking to today are trying to buy TPMs as part of a point solution for a single security problem. An example, I have an authentication problem, how can I apply the TPM. Or, I have a data protection problem, how can I apply the TPM? And they are not yet fully appreciating that the TPM is a platform for the enterprise to standardize their security across. And, that will just take time.

We are competing on the point solution, but in many cases some of the point solutions have much greater feature depth than we have providing the software that we use to leverage the trusted platform module. I think a good example for where this will be very different is that with Seagate, we are selling a point solution. It is a full disk encryption solution. And we’re providing the software support, a full disc encryption solution that is also interoperable with the trusted platform module. And as a point solution, it is highly competitive in the marketplace of the software full disk encryption solution. I think that in time this is a feature in function that will be standard. It’s where it belongs and it’s way more efficient from a proxy use prospective and a performance perspective, as well as a security perspective.

So, I think that the type of adoption we will see where customers with trusted platform modules are ones who got the trusted platform modules may or may not have realized they bought one to the Seagate customer where certainly the first drives are an optional basis where you go out and buy a specific machine or model because it comes with a trusted drive. Most likely you are going to turn it on if you spent the extra money to buy the trusted drive.

So, we believe, we certainly don’t know, it’s only been out on the market for a few days, but we believe that it will be a much quicker adoption cycle with the Seagate solution, and that will actually tell us that the key application in the marketplace to drive broader understanding adoption of trusted competing across the marketplace.

So, like I said, we are making tremendous progress in the market. I think you see over the course of the last few days, that we have chosen to invest not only all of our energy in one area, that the fact that we spent the last two years working with Seagate on full disk encryption solution, it finally comes to market, it becomes a very synergistic component of our market strategy, and it helps differentiate us against all of our competition. Our leading competition builds software for TPMs, our competition builds software for full disk encrypting, but he does both up to platform modules and trusted drives and I think in time actually there's a third leg on the stool which you've seen parts from Wave around the network access control and network support area.

I think that will be ultimately the third leg that supports this whole area which is strong authentication, strong machine identity, strong data protection, both data at rest by hard-disk and data in motion. Things like file and folder encryption as well as network access control would provide the help metrics and assurance that the machine is connecting to the network machinery.

So it really provides a tremendous platform for security with building the right pieces that are slowly rolling into the market place and the enterprise business is selling OK. In the conversations that I've had with my sales guys directly in the field, this is not a time to change our tactic or change direction.

We are making solid progress with a lot of accounts. We need to keep pushing and maintain our enthusiasm with those customers. They are not telling us to go away. In many cases they are taking longer to compile up the technology that we've got.

There are some cases where their budget cycles have moved. There are some cases where the customer, you know, internal person who is your champion on the project left and somebody else is now in charge, and there are cases where they bought the product. So it is a broad range of accounts.

We continue to add new accounts every week of people who have expressed interest. I would say most importantly, our customers are becoming more sophisticated in their concept of how they want to use a trusted platform module. It’s not all the time but certainly a much higher percentage of the time, we walk into a customer who knows what a TPM is and had a reasonably good idea of how they would like to apply it in their network. They'd like to use it for strong authentication or they'd like to use it for file and folder encryption.

You know, we ran into a customer the other day who has been an IBM ThinkPad customer for years and has recently switched to being a Dell customer who would like to have trusted platform modules turned on for authentication across solving units. They have 17,000 seats. It's a great opportunity for us providing a cross platform solution for the market place.

So we continue to be excited about the Enterprise. We would like to see it stronger and be faster than it is but we can only push so hard. This is a scenario where there's no question the application of hundreds of millions of dollars of marketing would help. I think the hundred of millions of dollars of marketing is pouring in but it's coming from Intel and Microsoft and certainly now I can see Seagate as somebody joining that party as well as somebody who is educating the customer on what hardware trusted devices are and how to begin to think about them and that they're part of the trusted computing group and the solutions that are out there.

So having Seagate do a launch of their drive trust technology that I think was pretty broadly seen as very positive. I think the press was very enthusiastic about it at least from the coverage we've seen so far. Clearly we're only at the first few days and as people go digging through it further I think they'll really see the benefit that this technology brings to market and we're very pleased that they have chosen our software and that they participate in our launches and they've chosen to really highlight us as part of the solution.

So I think that we are very complementary in bringing the management component and they bring the security component and together we offer tremendous solutions to the enterprise. And that's at the end of the day what it's really all about. We've certainly had a number of enterprises who we've been telling about trusted drives for a while and they've been waiting to sample the first solution so I think that will be helpful as well.

Final point on that is that a customer who buys trusted drives really should buy one of our Embassy remote administration server products first. Because that way their enterprise is prepared to have the first laptop trusted drive be managed and be audible. It really doesn't make sense to have secured drives where you don't have control over the password. So hopefully we'll be able to convince the customer that not only should they require machines that have drives but also they should begin the process of purchasing the server products right now. So we'll see how that develops.

We've certainly had positive customer feedback but we have not had a product that we could deliver other than for sample testing and that changed earlier this week so we're very excited about it and we'll see how it develops.

Final point I'll just talk about, we had also I think a very interesting development with Wave Express in the January timeframe. We were selected to be part of the Vista Windows Media Center online spotlight. We were Windows XP Media Center Online spotlight’s partner. We're very pleased that Microsoft continues to ship our brand in every single consumer copy of Vista that includes Media Center. The result is that we're seeing a much higher saturate in subscribers, we've done the work so that the media services that are delivered by Wave Express work not only the PC but also extend and reach to the XBox and that actually works very elegantly.

So we continue to make very strong progress on the consumer side of the business. Clearly the long term plan of how do we connect the subscriber management ultimately to the trusted platform module is underway.

The goal here is about how we eliminate user id and password. We make it easy every day so the user logs in to their PC and the PC logs in to all the different servers that you belong to. So maintaining a very simple model for securing the relationship both in strong authentication and access and control of your data whether it's inside your PC or external to your PC and then ultimately helping the network assure that the platforms that are connecting to our network are the platforms that are expected.

So with that I think I'll stop there. I'm actually on my way so I'm talking to you from the Boston airport so I'll try and keep the question and answers relatively quick so I can make my airplane and I will stop here and open it up to questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentleman if you would like to register a question please press the one followed by the four on your telephone. You'll hear a three tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration please press the one followed by the three. And if you're using a speakerphone please lift your headsets before entering your request.

Our first question comes from the line of Timothy Collins with Security Research Associates. Please proceed with your question, sir.

Timothy Collins – Security Research Associates

Hello. So you've had a tremendous accomplishment from March of '06 to March of '07 and I guess in particular that you have Seagate just came out of a tunnel like a big headlight and I've heard you say how you think that Seagate will help drive the whole customer competing platform so I guess looking at the next 12 months, what do you look for as major accomplishment? I mean I think that if anything, probably the purchase of the Embassy upgrade has been the most difficult and long sell cycle so where do you think you will end up in computer security trusted platforms in a year from now?

Steven K. Sprague

So our major goals over the course of next year are really, there are a couple of them. One is to continue to increase our market share within the PC OEMs. We are engaged with a number of the manufacturers.

I think we will demonstrate significant progress over the course of the next couple quarters with additional OEMs who have selected our software and are broadening its distribution in the market place. We continue to believe that that's very important to put our brand out there and to be the starting point for people who look at trusted computing and say I need to call Wave.

The second is to continue to have Wave's presence at the major areas of functionality in the trusted competing space so what we've done so far with TPMs what you're seeing to day is the beginnings of Seagate and as I mentioned in my statements around networking I think is really one of the next areas to…you know we've already made some progress there but I would say that that whole area of trusted computing is still very, very early on if the customer wanted to buy into significant depths of it.

And the third area is Enterprise traction I mean the challenge here is how do you go move a few hundred thousand feet so that you can have a cash flow break even every year. There are a lot of ways to do that. You know, we have over 400,000 seats in our pipeline today that we are actively pursuing. We are making tremendous progress in the government sector. You know we saw in December, the office of the Secretary of Defense draft a memorandum to require TPMs across the entire defense department.

You know, we see the beginnings of the network architecture for adoption of TPM as part of the standard security platform in government. I think I didn't talk enough about that in my prepared statements but we've talked pretty significantly about that before.

So we continue to make progress in the government space on that but, you know, you look at Seagate today as another good example. You know, they could shift millions of drives. We only need, I don't know, 3-400 000 would generate for you $20 million a year.

So, that seems very achievable however time will tell. We'll see as people buy drives, how they view their use and how they view the importance of having the ability to say "the drive's turned on". We believe it's a very important feature.

It would seem that compliance with the law is the reason why most people are buying drives. Certainly all of the market research we've done has worn that out so far but at the end of the day the proof will be in the numbers that say did people buy the product demonstrate that their drives were turned on?

It's too early to know that. I mean the first pilots we've had people like the technology. It's simple, it's easy to deploy, it’s very invisible. It's really delightfully invisible. If you use your computer every day like on a normal computer, you don't see any of this stuff at all. It has no performance impact. It really has no time impact on you in adding additional process steps.

So it's pretty elegant. But we'll see how openly people deploy. It's driving the revenue side that ultimately will I think let the world understand that trust computing is really going to have a major effect.

Timothy Collins – Security Research Associates

Alright thank you. So I guess you're still expecting the 100 million computers this year to incorporate the trusted computing chip?

Steven K. Sprague

Absolutely. There's been no…I mean the momentum of this is growing. There is no shrinking from it at all. You know I was in Asia last week. I think there's very broad awareness of trusted platform modules and how they're thinking about using it. We met with one of the Asian governments about their deployment of it. We really conceived the momentum of this but it is, you know, you're still pulling hard on the rope. You haven't tipped it over, topped at center yet. So it's falling freely and you're just running along.

Timothy Collins – Security Research Associates

Congratulations again on what you've accomplished the past 12 months, Steven.

Steven K. Sprague

Thank you.

Operator

Our next question comes from the line of Rob Goldman with Dutton Associates.

Rob Goldman – Dutton Associates

Hi Steven. How are you?

Steven K. Sprague

I'm just fine. How are you?

Rob Goldman – Dutton Associates

Great. There seems to be in a catalyst roll if you will, perhaps with the deployment implementations that will be taking place. I was just wondering if there is a way for the company to co-market in a sense through the Seagate channel or if there are alternative ways to market the use of drives to address what you mentioned earlier which is that an enterprise certainly should have the server in use for the auditing function. I was just wondering how best that could be accomplished.

Steven K. Sprague

So I think some of the channel partners are more appropriate than others. There certainly are many partners for Seagate to sell components, and in essence are component distributors. So they sell drives and power cords and serial data cables and things like that. So they're not necessarily great solutions providers for enterprise software.

There are other distribution channels that are evaluated retailers who are adding software and other services in networking to drive, to build complete solutions in a myriad of industries. And I think they're a much better target. Certainly we see reaching through the Seagate channels and helping to educate the channel. Anytime we can help Seagate sell another drive, this is a wonderfully high margin product for them and I think our interests are highly aligned along those fronts.

Having said that, I think that, for example, the channels that we already have with partners like Intel or white box manufacturers are excellent pathways for this as well. You know there are companies who not only do they sell you white box computers but they're also known for selling you a complete cad system for compute rated design and they sell you the boxes and the machines and the software and the networking and the big monitors and the special tablets and all those parts integrated together as a solution.

And so putting trusted drives and management of those trusted drives in as part of that solution is not a huge stretch for any of those organizations. The beginning of an education project, I think that if there's anything we learned over the course of the last year from Dell, educating a few thousand sales guys on a global basis is not a trivial task, and requires very consorted effort.

You have to control your own destiny and do as much as you can and assume the partner will help you some but don't assume they're going to do your job for you. And I think that's the right way to approach it. So we will certainly work with them and work independently of them to educate some of the same folks.

Rob Goldman – Dutton Associates

OK and you mentioned that Gateway is growing, poor use of speech, within the OEM channel and also now for the enterprises. How would you characterize them if you had to scale or list who was the more important PC OEM providers for Wave in 2007. Obviously Dell is probably number one.

Steven K. Sprague

Yeah, so Dell clearly is still our largest customer and I would expect will be for quite some time. Gateway hasn't had a huge enterprise business over the years. They've been more of a consumer brand. I think we're seeing good strength on their enterprise and educational side and we're very pleased with them for particularly educating their customers on trusted platform modules and I would say also that they're seeing more interest from their customers in the technology.

So they've articulated they've had it. They've offered it primarily as an option and I think that they're seeing enough traction on the option side that it is something that they would like more standardized across the platform especially with our software.

So our software is in an option on the Gateway platform. You have to select it in order to get it. And I think they're seeing that it would be a better solution if it was just in every box. So we're excited to see that and I think that that's just a really good indicator of the strength across the whole market that people are getting more interested in it.

We saw significant strengthening from what Intel was shipping with TPMs a quarter ago. So it's just continued growth in the market is the best way to characterize it. I don't think there's any earth shattering one way or the other from it.

Rob Goldman – Dutton Associates

Great. Very good. Thank you.

Operator

Ladies and gentleman, as a reminder, to register for a question please press the one followed by the four on your telephone. If you're using a speakerphone, please lift your headset before entering a request.

Our next question comes from the line of Barry Clairmonte, private investor.

Barry Clairmonte – Private Investor

Hi Steven. I know you are trying to catch your plane, so i'll be direct and to the point.

Steven K. Sprague

I have plenty of time. It's OK.

Barry Clairmonte

Oh OK. You said that things are going OK in the field and the way you said that it kind of led me to believe that things aren't going as well as you had hoped. Can you expand on that a little bit?

Steven K. Sprague

Yeah they should have sold another $0.5 million worth of stuff in the last quarter. I can't get any blunter than that. You'd be just as blunt with me. The reality is that that you have the customers that could accomplish that but the business isn't flowing as fast as we certainly expected it would.

Now I don't know what that expectation was built against other than, you know, past experience from my sales course and just looking at the market. This is a brand new thing. It is taking its own time. I don't know that we can drive it much harder than we already are, given the resources that we have, and I'm not going to abandon the development of the rest of my market to take 100% of my resources and pile it into having a dozen additional sales guy.

So I think we have the resource balance correct. I think we have some great customers sitting in front of us and that we've driven stronger band awareness for TPMs in the market, for analysts, and for others. It continues to amaze me that the fundamental platform for how we get rid of user id and password is shipping on everybody's machine and there are an incredible number of people who are clueless that it's already on their box.

And so that requires perseverance and we certainly are applying that. It requires a few good branded design wins to show that people are doing cool and useful things with this technology and I think that we certainly have the beginnings of it. We just don't have enough there yet. And there's no doubt in my mind that it will happen. I think this is not a risk issue. It's just a timing issue.

This is looking at USB ports nearly day-to-day and saying “Well gee, but I can still buy printers with parallel ports and USB, so are they committed to USB?” And the reality is these things take time and transition, and eventually you can't buy a laptop with a parallel port anymore and you can only use USB.

I have no fear that trust to platform modules will not be the primary way you and I log on to our home banking account, and will not have to deal with 27 silly little pictures and diagrams and funny looking characters you can't read, and you have to go get your glasses to log on to your stupid network account. It's insane. And even when you've done all that you still aren't very well protected. So that's what platform modules will really give us the tools to accomplish that.

And so I do ask the question a little bit: where are our banks? Where are our trading firms? Where are some of the online services? Is 50 million installed users not yet big enough in number to get their interest? So what is the number - 75 million, 100 million? My belief is that it will happen in '07, that I think the tipping point is very imminent as to... what you need is one big brand, and then everybody falls over. And we certainly see, now we have conversations that would indicate to us that we're at the early stages of that, but yeah that's surprising to me that this is as hard as it is to solve what is a very fundamental problem we all wrestle with.

Barry Clairmonte – Private Investor

You know, I think that is one of Wave's challenges, to get people to realize that the TPMs are there, and not have five of them in my office and no one except for me knows that they're actually on the machine.

But beside that, the thing that worries me at this point is two quarters ago you said that you expected to break even in second quarter of '07 with business that you had in hand. Then last quarter you backpedaled a little and said you still thought you'd break even the second quarter of '07 with a few upgrades coming in. Are you still projecting break even in second quarter?

Steven K. Sprague

It's hard to answer the question. I have close to 100,000 seats forecast.

Barry Clairmonte – Private Investor

Are those Seagate seats or are those...

Steven K. Sprague

No, completely assume Seagate zero. So we haven't built Seagate into any of our numbers yet because until they actually commercially ship, we're not counting on them commercially shipping, so now we're here and we can begin to think about what those look like. What's Seagate's volume next quarter - who knows? I think everybody has guesses as to what it is. I'm not going to project a guess.

Let's go see what it is and then we'll look at that and say, “Is it going to grow next quarter?” They're a big, big, big company and they have the capacity to ship millions and millions of drives. Let's see what the customers want.

It is the same fundamental challenge. We have customers and we have a 20 000 seat opportunity that we've been pursuing and we have three or four of them right now. That looks like it could be very close. But when does it close and then the other side of that, when do I get the revenue and when do I book the revenue?

I'm mostly focused. Let's forget booking the revenue for a second. Mostly focused on when's the check arrive in the door? I think for all of us, that's what we're primarily focused on. How the accountants scale that out over some period of time because of deliveries, etc. will become more important in time. Right now let's go close the customer commitment.

I think we see really strong progress on it, but it's a challenging bet. I don't think there's any risk to it, the customers aren't telling us that they're going away. But we're having a hard time gauging the timing of when they actually close. And they give us information and then they back off from the information. That everybody does. But we don't have the revenue spread across a wide enough panacea of players yet, so that if one guy changes it doesn't materially affect me one way or another. And so that's been the challenge.

Barry Clairmonte – Private Investor

OK. One final question. I know that you have around $7 million in cash at the end of the year. You're now two and a half months into the year. Assuming things have been going like they've been going, you're probably down to somewhere in the $3 million range, and if they continue on at this pace it looks like you're going to need a financing, maybe sometime in May. Is that a fair estimate?

Steven K. Sprague

I think it's a fair estimate. We don't have any specific financing plans, as we said today. So I'm not going to project a specific day or a specific mechanism. I think we kept the company very clean, we've maintained our access to capital. When we feel it's right, if we feel it's right, we will go back to market and raise the necessary capital to maintain operations. I think we're making solid progress and I think that the investors who are invested in Wave understand that progress and are helping to support it.

We continue to lead in this space, we continue to, I think, accelerate the gap between us and our primary competition. I think there will be more competition that shows up as this market gets more significant. And I'm for collecting the vast majority of the dollars that fall out the bottom of the funnel. So on a market share basis we're doing wonderfully. Just the overall market's not buying very much computing yet. It will happen.

Barry Clairmonte – Private Investor

OK. I appreciate your time.

Steven K. Sprague

This always happens with all the industry standards. Anyway, thank you for your question.

Barry Clairmonte – Private Investor

Alright, thanks.

Operator

And our next question comes from the line of Paul Nellis with DP Tech.

Paul Nellis – DP Tech

Hi Steven, good afternoon. I was wondering if you could elaborate a little bit on the corporate buy cycles from Dell that you had elaborated on before, on whether or not the 20-series Latitude models, etc. are now being the models shipped as part of the monthly corporate buy programs through Dell?

Steven K. Sprague

So we've definitely seen really good strength this quarter in our Dell numbers. I think we were expecting a little bit stronger number at the end of 2006. I think we've seen that strength in the beginning of 2007 from Dell. So we're seeing the X.20 Latitude platforms and the same with the OptiPlex platforms are becoming their mainstream platforms and we'll certainly see that reflected in the volume.

So we're getting fairly complete with the '06 product cycle so that we're now on pretty much 100% of the Dell machines that ship with the Enterprise. It's not quite that, but it's (inaudible) all the new brands but there still are some legacy units that are shipping to market.

Paul Nellis – DP Tech

OK, thank you. And can you also elaborate a little bit on the status of NTT Data or Ingram Micro? I know those two re-sellerships were...

Steven K. Sprague

Sure. I was out in Japan at and visited a trade show where NTT Data was showing TPM solutions in their trade show booth. We had some very nice chats with them on round trust platform modules, etc. and how things are going. They have yet to sign a significant customer dollar win in the market. They have all the solutions available in Japanese today. They're demonstrating solutions to their customers, so I think they're doing the right things. But I have yet to see a significant customer close from them.

Ingram is a little bit different. Ingram is really a distribution channel. They're how we sell through to the enterprise in Europe. We have sold products through Ingram already, we have a couple of customers who've taken delivery of product and have it operational in Europe today.

Paul Nellis – DP Tech

OK. And regarding the Japanese language, has the localization of the products for like the ERAS or the Trusted Drive Managers, is that all ready to go for NTT Data as well?

Steven K. Sprague

That's correct. We actually have delivered Trusted Drive Manager integrated into our Amnesty Trust Suite, both for Windows XP and for Vista. It is localized in 14 different languages. I'll tell you a funny little anecdotal story: we got the Russian translations back and they translated the concept of a “trusted drive” into a “trusted avenue.” It was quite humorous.

Paul Nellis – DP Tech

That's good. The other question that I have is about the government. I'm sorry, I had actually gotten into the call a little bit late. I'm not sure if you covered anything regarding the government, but have you seen any traction? I know that everybody's waiting on funds to free up but I'm assuming that the Seagate product is also going to put you guys in the center of the mix. Is there anything that you could maybe talk about regarding the government areas that you're talking about?

Steven K. Sprague

We've put hard work into the government sector and gotten onto a number of contract vehicles. Actually, we have a couple of systems integrators with projects that they're bidding our stuff in on right now which means that they actually have the contract vehicle already won, they're going back and forth with the actual customer on how they want to use trusted platform modules in their network and they're pricing our software into the offering, etc.

So, we ultimately take that we haven't closed one of those of any significance yet. We have a few seats that have been deployed but we have one that we're working on. We're actually working out this afternoon, that's multiple thousands of seats into one of the agencies. So I think we're enthusiastic about that. We'd like to see one of those closed.

Having said that, it's quite clear that the broader opportunity in the government, especially in the DOD, is for TPMs to become a platform for security that they can use for lots of different things. To that end, what we've convinced them of is that they need to get their TPMs under management and control.

And so I think we're making very solid progress on helping the government to architect into their network the tools necessary to manage TPMs across a few hundred thousand endpoints. Once they get the network architecture done, then they'll figure out how they'll buy the software. I would say that process could start as early as the April-May time frame. But it's not yet underway. The design-development stuff is underway, but the “How do I actually buy” is not there yet.

We have, however, pretty much met up and down the entire channel with how the Army Gold Master gets put together, which the primary vehicle of how they would buy our client's software. And that's that they image it on every machine. We know all those players, they know who we are, and they're waiting for network architecture. I would like to see this be a soft-of early summer decision process, and maybe take another quarter after that to actually get funding and purchasing done. But I think it's very possible.

The primary application that's starting all this is, they have a data rep tiger team that is underway, which is going to select a bunch vendors to reduce the number of players who are offering them full-disk encryption solutions. We certainly are actively in that process, both as file-and-folder encryption, which is purely a Wave product, and as the Seagate full-disk encryption drive.

They have required, if you read the data-at-risk (inaudible) tiger team's requirement, they actually mention Trusted Platform Modules as what they would like to have at the center of key management. So I think you'll see more and more of the software full-disk encryption solutions. They announced that their key management was leveraging the Trusted Platform Module because the Army has created that requirement. Now you really need Trusted Platform Module management.

So there's a ton of stuff that's going on within the government's base. I think we have very good presence and a very high level of awareness. Government is the classic. It takes a long time to develop the relationship. So we've been at it for 2.5 years now. We've done a nice, good-sized consulting contract with one of the agencies. We actually continue to work with them, and are making progress on that front. So hopefully we'll get some consulting dollars out of the government. But the real big win is, get them to put Trusted Platform Modules to work.

They took the right first step, to require them on every machine. The second step is, turn them all on.

Paul Nellis – DP Tech

You did mention earlier that the software solutions would start leveraging the TPMs. And I noticed that you also said that the Seagate drive can work in a TPM environment, or without the TPM. So it's interesting to see that Wave has a solution now that doesn't need the TPM in the PC...

Steven K. Sprague

Correct.

Paul Nellis – DP Tech

But am I assuming correctly, then that all FDE Seagate drives will be shipping with the basic Wave solution, or will there be any version of the FDE that does not ship with the Wave basic solution?

Steven K. Sprague

You can use a Seagate drive without our software. But all you get is the ATA command.

Paul Nellis – DP Tech

Right.

Steven K. Sprague

They're not very secure. So if you want to manage a drive, if you want to be able to recover a password, then you really want Seagate's DriveTrust Technology in combination with the Wave software. Because that provides you with a manageable solution. I mean, if you just want to pick something out of the wind and tape it into the ATA drive command, it will work. If you forget that password, you're done. There is no recovery.

And if there is recovery, it's because your OEM has a back door supporting drive password recovery, which I think every OEM has today. You turn on drive-locking in the BIOS. There's a master key that unlocks it. If you call Customer Service and pray a lot, you can actually get the master unlock key out of everyone. That doesn't really offer you a great solution.

So that's the ultimate protection for them, is having to require our software there on every drive. And they're open API. So, theoretically, others can do the same thing we've done.

I think it's very powerful being first to market, and I think it's very powerful being partnered with the customer that's launching the drives. So I think it's a fairly good probability, at least in the short to medium-range term that a very high percentage of the drives will come with the client software.

And the thing we don't know, I think it's an interesting question is to put a mark on the board and say, Is it 10%, 20% , or 50% of the drives that ship need the back-office software, right?

Paul Nellis – DP Tech

Right.

Steven K. Sprague

How many people are going to deploy drives that are locally managed only, and have no ability to audit the fact that the drive is on? I'd like to believe that it's 80% of the drives. But let's be conservative and say, OK, Seagate ships a couple of million drives. If we get a third of them, that would be an OK year, at $50 apiece.

Paul Nellis – DP Tech

Okay, well thank you, Steven. I appreciate your time today.

Steven K. Sprague

Thank you.

Operator

And our next question comes from the line of Jeff Kitchen with Oppenheimer.

Jeff Kitchen – Oppenheimer & Co.

Thanks, Steven. I just had a couple of questions. Some of it's already been answered, but you mentioned a little bit ago about Dell. You expected more at year-end, and it started to pick up now and I was curious if you could elaborate any or give any color as to what might or might not have caused the delay. And is it product-related in terms of ramp of one line versus another? Or was it just push-outs, or...?

Steven K. Sprague

I think it's no more complicated than their end-of-year is January 31. And so our end-of-year being December 31, it's very easy for stuff to trip from Christmas into the first week of January.

Jeff Kitchen – Oppenheimer & Co.

OK.

Steven K. Sprague

It's probably nothing more than, our business is almost entirely enterprise. And I've got to believe that the weakest month of the year is December, with the Christmas holidays and the actual delivery of units. Normally that's counter-balanced by the fact that it's a corporation's end-of-year.

The fact that Dell's end-of-year is the end of January, there's no real pressure internally on the sales-force guys to make their numbers in December that make their numbers in January. So I think for us, we just saw a transposition. It's our first volume year with Dell, so I would probably not be surprised if it completely duplicates next year.

Jeff Kitchen – Oppenheimer & Co.

On the pricing front, are we looking at the same type of levels with the new line-up of Dell PCs, and along with the new Intel motherboards. Does that remain constant, or are we seeing pressure as volumes have grown?

Steven K. Sprague

So our pricing is very consistent right now. We certainly saw pressure as we went into the first sort-of volume production, which was last year. But the pricing is very consistent right now.

Jeff Kitchen – Oppenheimer & Co.

And on the Seagate, I seem to remember that you were talking in the $5-10 range per drive. And then earlier you said $1 +, so I'm just curious if there's been a change, or if it was just the working.

Steven K. Sprague

So it depends on the different distribution channels. If we supply an OEM with software, they bundle with a drive that's in a standard machine, then it's an OEM prepped model, a dollar a drive is not a bad number to surface around. Through retail distribution channels it will be different, because in essence you'll most likely sell the enterprise version of Wave bundled with the package. And then you'll see it as a much higher number.

Jeff Kitchen – Oppenheimer & Co.

And you said something earlier also about enterprise sales being more like in the $50-100 range. Previous to that I thought it was more in the $30-50 range. So where does the differential come in?

Steven K. Sprague

You have to do the client enterprise upgrade, which is in the $30-50 range, and then the server management tool. And so it depends on volume. But if you're in high-volume, that's in the $50 for the combination of the two, and it goes up to over $100 if you're in small volumes.

Jeff Kitchen – Oppenheimer & Co.

And so how much of that is annual-type business and how much of it is one time?

Steven K. Sprague

The service components of our software carry a maintenance charge to them, which is typically around 18%. So you can assume about half of it has a service component to it and then on the new customer front, can you talk a little bit about the prospect of landing new PC OEM’s over the next quarter or two? And then also on the chip side, I know Renaissance has a product that’s coming but if you could just comment generically there?

Steven K. Sprague

So we know the Renaissance guys well, we’ve certainly done all the necessary work to make sure our software works on Renaissance TPM’s. We’ve done some joint customer calls with them. We have a couple of OEM”s that have given us a strong indication that they’re moving in our direction and when I actually sign a contract with them and they start to ship product, we’ll announce it. I think we’re very bullish on it. I think the ability to revisit accounts with the Seagate drives and software is tremendous. I think it’s going to be really interesting to see over the next couple of months. I think the launch has had some really good strong positive communications around it and it’ll be interesting to see how that helps us with some of those accounts too.

Jeff Kitchen – Oppenheimer & Co.

So would those be new TPM customers or windbacks from Infinion?

Steven K. Sprague

It’s a combination of both.

Jeff Kitchen – Oppenheimer & Co.

And I noticed the ASI PC that came out has an Infinion TPM in it. Is that chip just with your drive trust technology with it or does it have the whole embassy security centre. Have you guys replaced them on the software side there?

Steven K. Sprague

We’ve shipped the embassy security software there, so we provide the tools necessary to take full management of the TPM. Especially when you’re running the back office you really want to use our client tools so you can administer it. The nature of the TPM is sufficiently standardized. You could run on one or the other, so the customer ultimately will determine that.

Jeff Kitchen – Oppenheimer & Co.

Thank you much.

Steven K. Sprague

Thank you.

Operator

Next question comes from Brian Swift with Security Research Associates.

Brian Swift – Security Research Associates

Hi Steven. On the last quarter conference call you were talking about the pipeline of Enterprise software business would kind of make you feel deployments would be in thousands of seats and next quarter that we’re in now would be more like tens of thousands of seats. With what you ended up doing last quarter are you still feeling that way, as I wasn’t quite sure what the mix of OEM versus Enterprise was going to be?

Steven K. Sprague

I think I’m trying to be pretty clear on this front. We’d like to see the Enterprise business stronger than it is. It is not as strong as we felt it was going to be at this time. We are working hard to make it that strong. We are not losing customers, it’s just our customers are taking way longer to close than we anticipated. As I’ve said in the past, I think we’re just getting enough understanding of how the customer buys this kind of product in the market and what makes them feel comfortable. I think the technology we’re providing is solid. I don’t think there’s a technology risk. I don’t think it’s a sales force problem, I think we’ve got the right guys out there making the right calls. I think it’s just taken longer than we expected and it’s just been amazing how the education of the market has been as slow as it is.

Unfortunately, we just don’t have an extra $100 million lying around to buy advertising to tell the world why TPM is really cool. I think we do a tremendous amount of stuff on a grassroots basis and I think we influence a lot of the others in how they articulate solutions. I ran into a customer the other day who said to me “Oh, don’t I need Vista in order to use a TPM?”. I mean you’d think that would be a relatively well understood concept by now but it’s still early on in the process. We have very positive feedback from a number of large customers. We’re hoping to close those large customers in the not too distant future. And that’s kind of where I am, if I rattled off the name of customers you’d go that’s a great group of customers to be selling to. The fact that we’re distributed across…a large cosmetics company, cable companies, telecommunications companies, and hotel chains. It’s everybody and they represent thousands of seats. It’s just been a longer process than we expect.

I don’t know, I’m a little hesitant on the side of things to know how exactly it’s going to be, because we don’t. What I’m trying to articulate is that I think we’ve got a pretty good scale sitting in front of us and I know we can make progress on it. I don’t think it’s time to change the direction, I think we’re executing on it OK. I’m not entirely sure what we could do differently to execute more quickly and I do think that we’re demonstrating that we’ve spread our bets across a couple of different things so that we have invested substantially and are doing things like building the support necessary to get Seagate to where we are today. There are a couple of other projects that are like Seagate that we’re doing internally that I think has that kind of scale. We’re very enthusiastic about these things.

There is no question that as people read more and more about what Seagate’s doing and that Seagate’s a trusted computing group and that all of this is part of the bigger plan, this is a hugely important component that bigger plan.

Brian Swift – Security Research Associates

Do you think any of these Enterprise companies that you’re close to would be referenceable, in other words are you allowed to disclose the (inaudible) and then that certainly would make your job easier. It’s always hard to get the first big one, but after that they tend to follow.

Steven K. Sprague

I believe a number of them would be happily referenceable. I think they’ve been referenced for other technologies in the past. It’s one of those things we look at, is this a company that has allowed themselves in the past to be referenced.

I’m pretty confident on that. Certainly not all of them fall into that category but many of them do. I think they would help. Papa Gino’s is a fantastic reference for us. They’re doing a fantastic job in using the technology but they’re not viewed as a technology leader in the marketplace.

Brian Swift – Security Research Associates

OK, well it certainly was good to see Seagate using your name in the press release. That’s worth a lot. You’re talking about the extra $100 million on advertising so that kind of advertising can be kind of helpful.

Steven K. Sprague

OK, thank you.

Operator

And we have a question from the line of Robert Eiser, private investor.

Robert Eiser – Private Investor

Hi Steven, during the last conference call you said that you were looking for around a million units shipped for 2007. Are you still looking at that level?

Steven K. Sprague

I think all of this is going to depend on how fast the product starts to move through the channel and how many people ask for it. Seagate certainly has the capacity to move a tremendous volume on units. Nobody doubts that. I think it would be very surprising if they shipped 100 000 units and that was the only number. A next order magnitude of up to 10 million units would probably be a very high end number. That’s my seat of the pants guess.

The reality is, if tomorrow this is something that everybody says “Wow, that’s a really good idea. It’s cheaper, faster, better, stronger, hmmm, maybe I should buy that instead of some software solution that looks like a virus deployed on my machine. It’s making my machine slower. It’s at risk being uninstalled by any user who has admin privileges. It’s not as compliant with the law, etc. I don’t think Seagate’s limited in their capacity to build these things, so we’ll see. I think it’s a great question to ask, I’m trying to give you some sense of magnitude that we think is a fair number. Now, the more interesting question becomes, if they were to ship a million units, what percentage of them would update to an Embassy remote administration server. Because if you get 300 000 seats to upgrade to a server, your cash flow breaks even for this yea, and that’s not an unachievable number.

But, let’s get a little bit of data under our belts…I think it’s a great question to ask the next time we talk in May. Then we can see how it’s gone and have more indication on how the progress is. The first guy who gets it will tell us the 27 things that are wrong with it.

Robert Eiser – Private Investor

Because it’s probably more knowledgeable base that would be getting Seagate, what would you say, and again it may be too early for this, what would be the upgrade sell cycle for this, obviously it has to be less challenging than the one you’re on now.

Steven K. Sprague

Well, I think the number one reason why you buy the waveback officer, is so that you can survive audit compliance. At the end of the day, if you’re a CTO, the reason you’re paying $1 more for a machine that comes with full disk encryption, why are you buying this stuff at all? It’s not primarily to protect the data. It’s so that when the lawyers come up and say “Hey, Fred lost his laptop”, he needs to send an email to everybody whose name was on that laptop, whose name could have possibly been on that laptop, and you have 2 million names in the database…that’s a disaster. And so, it’s disaster avoidance, which is why everybody’s buying this technology.

In my opinion, disaster avoidance means that when you call the IT department and say “Fred lost his laptop”, you want to ask the next question, “was the data encrypted?”. You can’t call up Fred, because you can’t trust Fred. Some system somewhere needs to say “yep, that machine had a Seagate drive in it which was turned on”. The beauty of our solution with our Embassy Remote Administration Server, is if you take administrative control of the drive with the server, it is impossible for the client-user to turn it off. Only the administrator can turn it off and when the administrator turns it off it generates a log-file. I can tell you it was turned on at March 17th at 3:05 in the afternoon and turned on at April 16th at 4:04. After it turned back on, your data’s safe. This is all assuming you didn’t write your password on the outside of your computer on a sticky note.

Robert Eiser – Private Investor

Thank you.

Operator

We have a question on the line from Walt Palsen, private investor.

Steven K. Sprague

And I think after this we’ll stop so that I can go make my plane because we have a number of interesting things happening and I wouldn’t want to miss it.

Walt Palsen – Private Investor

Steven, it’s good to hear that Seagate’s getting on this full-boat and I can certainly see the tremendous potential for enterprises to want the hard drive. What kind of interest are you getting from other hard drive makers?

Steven K. Sprague

We’ve talked very broadly to not only the hard drive manufacturers but also the storage guys who build USB tokens. There’s really nothing that we’re doing that couldn’t also be done with a USB drive, and there’s some really cool things that you could do with a USB drive like make a USB drive that would only work inside your corporate machines. Only Wave machines could use this USB drive.

But, Hitachi’s the only one that’s out there that’s announced a product that is going to be available. I certainly expect this is going to come from all the drive manufacturers. We would happily provide solutions to Hitachi, we’ve talked to them extensively. I think we see exciting opportunities there but we don’t have any contracts or specific relationships to announce at this time.

Walt Palsen – Private Investor

OK, and then secondly, do you have to customize things for each manufacturer or is your product that you use for Seagate…can that work for each manufacturer?

Steven K. Sprague

No, we would have to customize it for each manufacturer. The specification and concepts and the standards are pretty well understood but their methodologies aren’t exactly described. Our hope would be that you as a user wouldn’t know that it’s being done differently, so the same capabilities and features would be there with most products but it’s our job to make sure its there with software.

In a somewhat similar role to what we do with the TPMs. One software provider, we don’t really care who the hardware manufacturer is underneath. We’ll expose the future sets of the hardware that’s available.

Walt Palsen – Private Investor

OK.

Steven K. Sprague

So with that I think we’ll stop on questions. I’m sure there are other questions, if anybody would like to send me an email, please feel free to do that and I’ll do my best to answer them.

I’m really excited about the progress we’ve made. I think the team’s done a fantastic job. We know we still have a lot of work to be done. This is early on in the development of trusted computing. I know we’ve been saying that for a long time but this is an amazing space that’s developing and I think we continue to have and enjoy first mover advantage in this space and hopefully we can deliver the fact that Wave could really attach to a very large number of users with the software necessary to make our lives as users better in improving our security and data protection making our computing live simpler and easier on a daily basis which is what we’d all like.

With that, thank you very much, thanks for your time today, thank you for your support and I look forward to talking to you again in the future.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

TRANSCRIPT SPONSOR

Dutton Associates is one of the largest issuer-paid equity research firms in the United States, and our investment performance is ranked comparable to that of the top Wall Street firms. Our analysts, primarily CFAs with over 20 years of experience at the major securities firms, are among the most experienced on Wall Street. We offer high-quality, independent, fundamental research on small-cap public companies in a year-long program consisting of an initial report, three quarterly update reports, research notes between the quarters, and institutional conferences and roadshow opportunities.

To sponsor a Seeking Alpha transcript click here.

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: Wave Systems Q4 2006 Earnings Call Transcript
This Transcript
All Transcripts