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Executives

Ted Chung – VP, Business Development and Worldwide Sales

Ali Khatibzadeh – President and CEO

Bob Bosi – CFO

Analysts

Quinn Bolton – Needham & Company

Richard Shannon – Craig Hallum

Drew Burke – Game Plan Financial Advisors

Bob Greene – Private Investor

TranSwitch Corporation (TXCC) Q3 2011 Earnings Conference Call November 1, 2011 6:30 PM ET

Operator

Good day, everyone, and welcome to the TranSwitch third quarter 2011 earnings release conference. Today’s call is being recorded.

At this time, for opening remarks and introductions, I will turn the call over to TranSwitch’s Vice President of Business Development and Worldwide Sales, Ted Chung. Please go ahead, sir.

Ted Chung

Great. Thank you. With me today are Dr. Ali Khatibzadeh, our President and CEO; and Mr. Bob Bosi, our CFO.

Before we begin, I want to remind listeners that this call will include forward-looking statements that involve risks and uncertainties that could cause TranSwitch’s results to differ materially from management’s current expectations. Please review the company’s Safe Harbor statement contained in the earnings release published today, as well as TranSwitch’s most recent SEC filings for a complete description of these risks and uncertainties.

I will now give some highlights for the quarter and then hand it over to Ali, so that he can share with you our progress and some of his thoughts. Afterward, Bob will discuss our financial results for Q3 and our thoughts on Q4.

For the third quarter of 2011, net revenues were approximately $6.7 million, which was within the revised guidance that was provided on October 4th. Gross margins were 65% for the quarter, also in line with prior guidance. In the quarter, we completed payment of the final installment of our debt, and the company today is now debt free. On October 4th, we announced a business reorganization and restructuring to ensure that our operations are aligned with our high growth opportunities and also to reduce our operating expenses, which we will detail on this call.

At this time, I will now hand it over to Ali, so that he can share his thoughts on the company and our most recent results.

Ali Khatibzadeh

Thank you, Ted, and good afternoon, ladies and gentlemen. First, I would like to start with an update on some of the ongoing strategic initiatives. Last month, as Ted mentioned, we effectuated a business reorganization and restructuring to better align the company’s resources to its growth opportunities in the high-definition video connectivity and multimedia processing markets.

Throughout the year, we have been realigning our R&D resources to focus on these opportunities and we have recently organized the company along two businesses, high speed video interconnect and telecom. This realignment will reduce our net operating expenses by roughly $3.6 million annually, even as we increase investment in our video products.

Going forward, we see significant investment opportunities in the high-speed video market. These markets are much larger and faster growing and have far better return on investment characteristics than the telecom market today. And one of the goals of the reorganization is to better focus on these opportunities.

Earlier this quarter, we announced that we licensed our HDMI 1.4 technology to Samsung, the number one manufacturer of television sets in the world for use in their 2013 product range. As you know, Samsung has a very high bar in terms of performance and quality and their TVs are well-known for their superior picture quality. I believe that Samsung announcement is very important for what it represents which is a validation of our best-in-class performance.

In order to meaningfully grow the company’s revenue, we have also entered the much larger business of chip sales where we can profit from the size and scale of these markets. Our HDplay products announced earlier this year are based on the same high-speed interface and equalization technologies that we have licensed to Samsung and others.

Our HDplay products continue to be in a sampling and product evaluation stage with customers around the world. We continue to see good reception for the four key differentiators that HDplay offers to our customers. And we expect to be able to announce customers of our products once they reach production stage and with customer approval.

The four key differentiators of HDplay are, one, combined HDMI and DisplayPort. Just as a reminder, HDMI and DisplayPort are two separate technologies for transmitting high-definition video. A company such as Apple uses DisplayPort in their iPads and PCs. Also, all computer monitors going forward will support DisplayPort. Inversely, HDMI interfaces are on almost all television sets, audio/video receivers, gaming consoles and projectors. Now, these two ecosystems will include any need to interoperate seamlessly in the future. And you already start to see some projectors and computer monitors that support both.

Today, our HDplay products are the only products on the market that support both technology seamlessly on a single interface without the need for extensive active cables or dongles.

The second differentiator is the 3-gigabit per second per channel overall link speed, supporting the new generation of 4K2K TVs. These are the latest generation of high resolution TVs beyond 1080p, and full-resolution 3D TVs at 60 hertz. This is a critical requirement for next-generation TVs which our product supports. Third, Ethernet connectivity feature which is required for smart TVs with over-the-top surfaces such as Netflix or Hulu. This feature allows you to connect your TV sets directly to the Internet. In 2011, it’s estimated over 25% of televisions are already Internet enabled, and this percentage is growing. And, four, our patented data cable technology which delivers superior image quality with low cost and long cables.

So we’re currently supporting customers that are evaluating and testing our products. Their target applications for HDplay include televisions, video monitors, projectors, audio visual receivers, digital signage and video switching equipment. In addition to OEMs, we are continuing to work with reference design partners that have strong channels into end customers to accelerate their design win process.

We believe that the earliest adoption of our dual HDMI DisplayPort chips will be from audio visual receivers, HDMI DisplayPort switches and projector markets, which all together represents over $100 million in addressable market for us. Now these maybe smaller markets, but their design cycles are quicker and we’ve already engaged with a number of companies who hope to launch projects in the first half of 2012.

We are also working with television and computer monitor companies today. This is a much larger market with TVs and monitors representing above $300 million in addressable markets for our products. The design and qualification cycle, of course, for these products are longer, and we expect to be targeting the annual design cycles which start early next year.

Additionally, we have a second strategic initiative that we’re particularly excited about. We have a product which is currently in development phase, a low-power transmitter which will be our first video connectivity product for the rapidly growing smartphone and tablet market. The latest generation of smartphones have cameras with 12 megapixels of resolution equal to any professional grade camera and can shoot 1080p video on the go. They are also enabled with 4G LTE modems capable of downloading video content at blazing speeds. So high-speed connectivity is increasingly becoming a requirement that is clear that this trend would only accelerate. According to In-Stat, over 360 million smartphones, tablets and mobile PCs will have HDMI ports by 2014. So we’re very excited about this market and the products that we have in development.

We believe that our solution has certain unique and differentiated features that will make it attractive for a wide range of mobile products and it enables us to participate meaningfully in this growth trend. We are planning to introduce this product next year and we’ll update you on the progress as we move forward.

Third, we have been working on the development of a new video interface technology for use inside the television. And when most people think about video connectivity, they think about the external HDMI cable that connect your set-top box or DVD player to your television set, but the are equally important and increasingly complex video interface needs inside the television. Currently, virtually all televisions used in interface technology called LVDS supports the video signal from their processor to the display panel. This technology dates to mid 1990s and is now reaching the end of its useful life.

As the size and resolution and frame rate of the flat-screen televisions continue to increase, LVDS simply cannot keep up with the version in demand and bandwidth requirements in a cost effective manner. Our technology is capable of transporting over 4 gigabits per second per link. That’s 4 billion bits per second, which is much faster than the LVDS technology which peaks at about 700 million bits per second. So it’s almost six times faster than LVDS technology.

LVDS cables are both faulty and expensive and they’re increasingly bandwidth limited. Our solution will allow television manufacturers to use cheaper, simpler cables and fewer of them. And, as you know, television prices have come under strong pressure recently, and manufacturers are under great pressure to lower their cost. Our objective is to introduce this technology to market in 2012. So you’ll be hearing about this as we go forward.

Finally, we note that there are big changes underway at the HDMI LLC. This is a governing body which controls the HDMI standard. In the past, HDMI standard was effectively controlled by a small group of seven founding members of this organization. Very recently, the organization announced a creation of HDMI forum and essentially an open organization which will now have the responsibility for defining future generations of this standard. Next year, there will be shipments of nearly three quarters of billion devices, that’s 750 million devices that have one or more HDMI ports, and we applaud the decision by the HDMI organization to open the forum to greater participation. We expect this decision will ensure a continuation of strong growth for this important standard.

Now moving to the telecom side, in September, we announced the availability of a new LTE fixed wireless reference design which includes our Atlanta 2000 processor and software in partnership with LTE modem providers for this market. We are in the sampling and product evaluation stage with a number of customers around the world. We see the emerging 4G LTE fixed wireless router or gateway market as a sizeable growth opportunity for our telecom business. Now this is a new market, whereby telecom operators who have 4G LTE licenses plan to offer broadband services to customers, who either don’t have broadband wireline access or those who are using older generation DSL technology. To date, 237 carriers worldwide have committed to LTE deployment and it is clear that this will become a very important standard going forward.

TranSwitch is one of the few vendors on the market to offer a turnkey hardware and software solution with software stacks for IMS, which stands for Infrastructure and Management Services and voice-over-LTE. This is an important differentiator, because this level of software solution is critical to deliver the cycle for broadband services that the carriers are expecting over LTE. In fact, one of the major operators in North America is currently testing our solution in their lab. If our solution becomes certified, which we hope so, TranSwtich could become uniquely position to benefit from this LTE adoption.

Moving to our third quarter business, while we continue to see some indications of stabilization in telecom sector, global economic uncertainty certainly continues to affect the carrier CapEx spending of telecom infrastructure. Our customers in some cases have delayed some of their purchases out in the quarter, but have indicated that inventory levels are extremely low at the carriers and they expect demand to increase in 2012.

I believe that we’ve seen the trough and our business should improve as we move in 2012. But, more importantly, we are on track with our strategic initiatives of creating a new growth engine in video connectivity market. And I continue to be optimistic and confident that our progress will begin to show results in 2012.

Well, at this point, I’d like to hand it over to Bob, to present our third quarter financials and provide guidance for our fourth quarter.

Bob Bosi

Thanks Ali. Good evening to everyone on the call. Our Q3 revenue of $6.7 million were down from Q2 2011 revenue of $7.1 million, but in line with our revised expectations of $6.5 million to $7 million.

Net product revenue for the quarter was approximately $4.9 million compared to product revenue in Q2 of $4 million and $11 million in Q3 of 2010. Net service revenue for the quarter was $1.8 million compared to service revenue in Q2 2011 of $3 million, and $1.8 million in Q3 2010. And our service revenue includes revenue related to intellectual property licensing of our HDMI DisplayPort and HDP technologies and associated royalty revenue, as well as software for telecom customers.

Slicing our revenue by product line, our CPE revenue for the quarter was $2 million compared to CPE revenue in Q2 2011 of $3 million and $5.1 million in Q3 2010. Our infrastructure revenue for the quarter was $4.7 million compared to infrastructure revenue in Q2 2011 of $4.1 million and $7.7 million in Q3 2010.

The geographic breakdown of our third quarter total revenue was as follows: Asia-Pacific 60%; Europe 26%; and the Americas 14%.

In Q3, we had two end customers each represented greater than 10% of our revenues. They are Alcatel-Lucent and Samsung.

On a positive note, gross margins in the third quarter of around 65%, was in line with our expectations and nine points higher than gross margins in 2010 of 56%. This increase is attributable to higher royalty revenues, higher margin infrastructure products, and operating improvements.

On a non-GAAP basis, operating expenses were 7.4%, which was in line with our guidance. Q2 2011 non-GAAP operating expenses was $7.5 million and Q3 2010 non-GAAP operating expenses was $6.6 million. Non-GAAP operating results for Q3 was a loss of $3.1 million compared to our guidance of a loss of $2.8 million.

For Q2 2011, we had non-GAAP operating loss of $2.7 million and we had a non-GAAP operating income of $0.6 million in Q3 of 2010.

Non-GAAP net loss was a loss of $3.3 million or $0.11 per share on a basic and diluted basis as compared to non-GAAP net loss of $2.8 million in Q2 2011 and a $0.8 million non-GAAP net loss in Q3 of 2010. As Ali mentioned, during the quarter, we effectuated a restructuring and incurred a $0.9 million restructuring charge.

Q3 2011 GAAP diluted net loss of $0.16 versus a net loss per share of $0.11 in Q2 2011 and our net loss of $0.08 per share in Q3 of 2010.

The comparable GAAP measures for gross margin, operating expenses, operating income and net income are reconciled to the related non-GAAP amounts in our reconciliation of GAAP and non-GAAP measures included in the press release today.

The reconciling items in Q3 are as follows: expense of a $24 million in the amortization of purchased intangible assets, expense of $0.6 million in stock-based compensation expense, a restructuring charge of $0.9 million, and benefit of $25 million from the reversal of accrued royalties as described in the press release.

Turning to the balance sheet, we ended the quarter with $11.1 million of cash, cash equivalents, restricted cash and short-term investments. Our accounts receivable at the end of the quarter was $6.7 million, our inventory at the end of Q3 was $2.2 million.

During the quarter, we made our scheduled convertible note payments of $1.2 million, and we completed paid these notes off. And as Ted mentioned, we are completely debt free at this time.

I’ll now provide our outlook for Q4. As Ali discussed, we are continuing to see soft demand in our telecom products. In the near term, we see indications of improvement going forward. Considering levels of demand and our expectation of booking rates through the balance of the quarter, we estimate the potential revenue for TranSwitch in Q4 of 2011 to be around $7 million.

We expect with the project product mix that our overall gross margin percentage in Q4 would be about 62%. Non-GAAP operating expenses in Q4 are expected to be around $7.9 million, which includes about $1.2 million at cost for two mass sets tapeouts, which are expenses incurred.

In Q4, we expect our non-GAAP operating loss to be around $3.6 million with about $1.2 million caused by nonrecurring costs. Again, with the restructuring behind us, it is our expectation that the normal non-GAAP OpEx to be about $6.6 million for quarter as we enter 2012.

In summary, while the slowdown in our industry has continued to adversely affect our top line in the short term, we have and we will take steps to better align our spending to our business condition.

In addition as Ali stated, we are continuing to focus our R&D investments on high growth markets. I would like to conclude by saying that management team, our Board of Directors and all of our employees worldwide are focused on achieving our goal of sustain profitable growth. We thank you for your patience and your support. And, with that said, we’ll now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). We’ll take our first question today from Quinn Bolton with Needham & Company.

Quinn Bolton – Needham & Company

Hi guys, a few questions for you. First, you went through a number of the products in development, I was hoping we could start there. This transmitter for internal TV, is that really going to be more of a product opportunity for you, is it licensing, is it a combination of both? And what model year TVs would you think adopt this technology? Could you see it model year ’12 or is it really more of a model year ’13 opportunity?

Ali Khatibzadeh

Good afternoon, Quinn. Certainly, we believe this technology has potential both for licensing and actually product sales. The initial potential revenue will be more on the licensing side certainly. And especially for, I would say in lower-end TVs. This would be more of a licensing model for the higher-end TVs possibly both licensing and IC sales. And we believe that this technology, as I said earlier, we plan to have it production ready in 2012 with a potential revenue in 2013.

Quinn Bolton – Needham & Company

Okay. So that would be – again they’re more probably licensing revenue. It sounds like early – on a yearly basis, the TVs will be more of a licensing rather than actual product.

Ali Khatibzadeh

Yes, that’s correct.

Quinn Bolton – Needham & Company

Okay. And then the transmitter for mobile devices, is that going to be a full-grown mobile HDMI transmitter? Will it support other standards, or –? I know it’s sort of in development and you may not want to provide a lot of detail, but just looking for a little more color there, how you think come to market is going to be sort of factor link speeds, lower power budgets, anything you can share would be helpful.

Ali Khatibzadeh

Well, there is certainly a number of market drivers there that we are trying to capture with this product. As you pointed out, there is a need for faster links and support higher resolution cameras and higher resolution video content than what’s available today with the products you see on the market. But also there are other differentiating features that I cannot comment at this point and we hope we can announce it as we go forward as we provide that product to customers.

Quinn Bolton – Needham & Company

Okay. And then just looking to some of the revenue line items, the third quarter looks like the service revenue came in – I think that includes royalty and licenses and also some of the com infrastructure software revenue. Can you just sort of say whether it was more on the software side, was it licensing? It seems like some royalty opportunities for you maybe sort of on an upswing. So I was just wondering where the quarter on quarter in that service side of the business.

Bob Bosi

It is mostly in the software side of business as opposed to the royalties. Consistent – in fact these royalties went up third quarter.

Quinn Bolton – Needham & Company

Okay. Sorry, royalties were up in the quarter and any –

Bob Bosi

Up with the quarter with respect to our royalty income for the quarter.

Quinn Bolton – Needham & Company

Okay. Any comments on licensing expense, I know that can be lumpy.

Bob Bosi

That obviously went down by a substantial amount from $3 million to $1.8 million, so that was – that’s the answer.

Quinn Bolton – Needham & Company

Okay. And any sort of outlook on that licensing pipeline, is it in this macro environment? Is it sort of tougher to sign new licensing deals, or do you think it was really just sort of a reflection that it’s a lumpy business and not necessarily a reflection any change in the outlook for that pipeline?

Ali Khatibzadeh

Yes, we’re expecting that the licensing revenue will be higher in the Q4 than during the quarter we announced. Again, as you pointed out, this is a lumpy business, and it depends on a sort of when the deliverables are to customers and depending on what the nature of the IP is that we’re licensing, what process technology is offered in. So the timelines for those affect when we can actually deliver the product and actually be able to recognize that revenue.

Quinn Bolton – Needham & Company

Okay. And then just last couple of questions on the infrastructure improvement, is that sort of across the board? Was it concentrated more in – on or voice-over-IP or other areas?

Ali Khatibzadeh

I think it was in both areas. We see improvements potential in 2012 relative to 2011, both on what we call TranSwitch legacy business as well as our voice-over-IP business.

Quinn Bolton – Needham & Company

Okay, great. And then as a last question, just on the OpEx, I think you said probably down to about $6.6 million in the first quarter. Does that $6.6 million excludes sort of significant takeout or is there something in the budget for tapeouts in that $6.6 million?

Ali Khatibzadeh

Includes tapeouts.

Bob Bosi

It includes – it excludes one-time charges such as tapeouts.

Quinn Bolton – Needham & Company

Okay, great. Thank you.

Ali Khatibzadeh

As I addressed in my previous comment, we have a number of new deployments on our voice-over-IP products that we discussed I think last quarter specifically in Japan with NEC for new customers in Japan and in Korea for Korea Telecom. Those deployments have just begun and we expect those will ramp into a meaningful level in 2012.

Operator

(Operator Instructions). We’ll take our next question from Richard Shannon with Craig Hallum.

Richard Shannon – Craig Hallum

Hi guys, how are you?

Ali Khatibzadeh

Good.

Bob Bosi

Very good, Richard. Thank you.

Ali Khatibzadeh

How are you?

Richard Shannon – Craig Hallum

Good. I guess there is a couple of questions from me. I know you’ve kind of given the numbers in terms of OpEx in at least initially in fourth quarter in gross margin, how should we think about longer term on your break-even level in terms of either non-operating income or cash flows or whatever? Obviously you’re looking at – I’m trying to judge how your product mix looks like at that point in time.

Ali Khatibzadeh

Yes, I think what we’ve said is our non-GAAP operating income break-even point is around $10 million of quarter in revenue.

Richard Shannon – Craig Hallum

Okay, great. Second question on your new HDplay products; you mentioned getting products into the design cycle starting for 2012, does that mean you expect revenues sometime during the next year or is it beyond that we should expect the first real volume revenues from that product in TVs specifically?

Ali Khatibzadeh

In TVs specifically, we believe there is opportunities for revenue next year. I think the meaningful revenue for TV as a percentage of our total business in terms of a – our HDP product or HDplay products will be in 2013.

Richard Shannon – Craig Hallum

Okay. And I know you probably don’t want to split down too much, but you can get in the TV design cycles that are at of the first part of 2012 or is that more likely in the second half?

Ali Khatibzadeh

First half.

Richard Shannon – Craig Hallum

First half, okay, great. And then you had mentioned – and again on HDplay products the AVR and projector and multimedia switch opportunities. As you look at the $100 million cam, what kind of initial – any sort of way to think about initial penetration rates in those markets in aggregate or any other way to think about how fast we could see a pickup?

Ali Khatibzadeh

We are very pleased with the reception of our product among those type of customers and we believe we should have a good market traction in 2012. And as I mentioned also we are also working with reference design partners in those areas as well as the other areas to accelerate on design win process. So –

Richard Shannon – Craig Hallum

Hello, can anyone hear me?

Ali Khatibzadeh

Yes, go ahead, Rich. I don’t know if I answered your question. Good traction so far with the customers we’re engaged. And I expect we will be able to get decent market share in those segments that you referred to.

Richard Shannon – Craig Hallum

Okay, great. Sorry, the line went blank there for a few seconds and I was just wondering. I think that’s all my questions for now. Thanks a lot guys.

Ali Khatibzadeh

Thank you, Richard.

Bob Bosi

Thank you.

Operator

Our next question, we will go to Drew Burke with Game Plan Financial Advisors.

Drew Burke – Game Plan Financial Advisors

Yes, hi, good afternoon.

Ali Khatibzadeh

Good afternoon.

Drew Burke – Game Plan Financial Advisors

Could you split out – I mean you talked about the business into distinct divisions, high-speed video and telecom, so as you look at your third quarter $6.6 million revenues what have you or $10 million of revenues, how do you break that out between those two segments?

Bob Bosi

Right now, we split out are segments by – we split out our revenue by two product lines, CPE, which includes all of the licensing sales and also our A2000 product lines, and the rest is – and the second segment is infrastructure. We don’t breakout our products – our product line sales by our business units at this time.

Ali Khatibzadeh

Certainly the reorganization happened this quarter. And in order to keep consistent with our fast disclosures, we are staying with the CPE infrastructure segmentation in our reporting.

Drew Burke – Game Plan Financial Advisors

Could you estimate for me then what – how you would look at them? I’m sure you must have this in – by your radar screen.

Bob Bosi

All of the infrastructure is telecom.

Drew Burke – Game Plan Financial Advisors

Right, right.

Bob Bosi

And a portion of the CPE business is telecom and a portion is HSI.

Drew Burke – Game Plan Financial Advisors

Okay. And so as you talk about this likely being the trough, can I assume that you’re casing that on to your telecom revenues troughing and you see bigger orders as you mentioned that bounce back at telecom and the video business is sort of stable at whatever level, it’s slowly built itself up to at this point, or is the video interconnect business lumpy [inaudible] arena?

Ted Chung

Well, actually, we – this is Ted. We actually see some encouraging signs in both businesses. One of the comments in the prepared remarks was that some of our customers are telling us that an inventory levels are quite low. Those are in telecom customers. And that carriers are basically telling them they’re going to spend more money next year than this year. So that’s certainly – and we are going through our volume purchase arrangement discussions at this time of the year. And the forecasted volumes are frankly encouraging relative to what we saw in 2011 on the telecom side.

On the high-speed interconnect side, we do have a pretty good funnel of licensing opportunities and we’ve not even got started in terms of seeing revenue from HDplay sales. So we’re pretty excited about 2012 and we actually think both sides of the business will contribute more than they did so this year.

Drew Burke – Game Plan Financial Advisors

So you talked about goal of sustainable profitability – growth profitability, same profitable growth. You need $10 million in revenues in a quarter to be profitable – to start to be profitable, right? So would we say that’s two quarters out, four quarters out, or six quarters out?

Ali Khatibzadeh

We don’t give their guidance obviously more than one quarter at a time. But our expectation is as we – with the growth in our high-speed interconnect business that we are anticipating this as we go into 2012. And with some level of normalization in our telecom business, we believe we should be able to achieve that goal sometime in 2012.

Drew Burke – Game Plan Financial Advisors

Okay. So this is my last question, you have the Samsung licensing deal which just was signed. Does that add revenue in Q4 2011, or is it slowly as Samsung rolls things out based on units as we talk revenue for you?

Bob Bosi

We, because of the contract that we signed with that particular customer, we’re not allowed to disclose the manner in which we derive revenue. But we have already received revenue and we will be recognizing more revenues as we go forward I guess is the best way I can answer that question.

Drew Burke – Game Plan Financial Advisors

Okay, thank you.

Bob Bosi

You’re welcome.

Operator

(Operator Instructions). We’ll go next to Bob Greene, Private Investor.

Bob Greene – Private Investor

Hi guys, appreciate your time this evening. Quick question, you – without writing everything down, you – let me delineate quite a few different areas and potential products that are being developed, you’ve identified the markets for those areas which you’re trying to get into. What would you see as the first product really that’s going in – that’s going to really make an impact for this company? Is it the HDMI in 2013? Are we definitely looking for something more tangible share in early part of 2012?

Ali Khatibzadeh

So the first product that we launch to market that we anticipate going into production is HDplay and that product was introduced earlier this year, March – I believe it was March of this year when we launched that product. And we have engaged that with customers and we expect that product go production as we enter 2012. So we expect that product to be the first of the work that I’ve mentioned to generate revenue for the company.

Bob Greene – Private Investor

What do you feel will be the impact of that for the company? You’re giving us pretty much $7 million for the next quarter which is pretty much where we are right now.

Ali Khatibzadeh

Yes, so what we have said, we believe the market that we are entering with our HDplay products is significant in size, several hundred million dollars. Our estimate is about $600 million, $700 million in size addressable market. And our expectation is, as we go forward, we can get a decent share in that market using the differentiators we have. Now how that rolls out, obviously we don’t comment that far out. But we expect as we get into the second half of next year that the revenue contribution from those products will be meaningful for us.

Bob Greene – Private Investor

And same kind of answer, would – could you delineate that or give – clearly state that 2013, the HDMI, the Samsung deal. I know you don’t – since you indicated for the previous caller of contract story, but where do you see revenues really? I mean if we really hit the numbers, where are you looking at?

Ali Khatibzadeh

Obviously, we don’t give in the guidance for 2013, because what we see is 2012 as far as the normalization and potentially some growth in our telecom business. This year has been a very challenging year for us for the telecom business. On top of that we see how the revenue growth opportunity is with our HDplay product especially as we get into the second half 2012.

Now, you can layer on top of that, in 2013, our HD – or I should say our product for the mobile market as well as – and at least the tablet, smartphone market as well as potential revenue for inside TV connectivity. So there are three distinguished separate markets that we are entering with our new products as we go into 2012 and 2013. And the addressable market increases with the each segment of those products. And so we expect to increase the addressable market for the company by over $1.5 billion.

Bob Greene – Private Investor

Refreshing back to that first – the first market in 2012 with the product that’s being launched and being going forward, what significant – what kind of – can you give some kind of percentage of that market do you think is obtainable?

Ali Khatibzadeh

Sure. Obviously, that depends on – we cannot predict on what market share we will have, but we’re engaged with a number of customers and we feel very good about our product differentiators. And when we look at our product against competition side by side, we tend to standout in performance and in a competitive way. So we feel we should have a decent showing in that market. Obviously some of these design cycles for TVs and could take longer and we anticipate those will come in as we get toward the end of 2012 and as we go into 2013. But we expect to see measurable improvements in our financial performance as we go into second half of 2012.

Bob Greene – Private Investor

One last question you’ve already mentioned, I didn’t catch it. What is the cash on hand?

Bob Bosi

$11.1 million.

Bob Greene – Private Investor

$11.1 million?

Bob Bosi

Correct.

Bob Greene – Private Investor

That’s all I had. Thanks guys. Appreciate your time.

Ali Khatibzadeh

Thank you.

Operator

And, at this time, we have no additional questions in our queue. I will turn the conference back to our speakers for any closing remarks you may have.

Ali Khatibzadeh

Thank you. In summary, certainly 2011 has been a challenging year for us and many other companies in the telecom sectors. We’re seeing good indications of stabilization now and potential growth next year for that segment of our business. But more importantly we are making significant progress in developing new products targeted at the fast-growing video connectivity and processing market. We are expanding our customer engagement in some exciting markets and we believe the company will have meaningful growth drivers as we move into 2012.

We will be presenting at the upcoming investor conferences at the TechAmerica AeA Conference in San Diego and at the Midwest IDEAS Conference in Dallas in November 16th. So we look forward to seeing some of you there and I thank you for your participation tonight.

Operator

Again, ladies and gentlemen, this does conclude our conference. We appreciate your participation.

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