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Executives

Mike Bishop - IR, The Blueshirt Group

Mike Mulica – CEO

Anne Brennan - CFO

Analysts

Scott Sutherland – Wedbush Securities

Matthew Hoffman – Cowen Group

Scott Zeller – Needham and Company

Chris Cohen – Stifel Nicolaus

Paul Treiber – RBC Capital Markets

Charlie Anderson - Dougherty and Company

Eric Strumingher – Diamondback Advisors

Openwave Systems, Inc. (OPWV) F1Q 2012 Earnings Call November 3, 2011 ET

Mike Bishop

Thank you for joining us today to discuss the results of Openwave Systems first quarter of fiscal year 2012. Joining me today from Redwood City are Mike Mulica, Chief Executive Officer and Anne Brennan, Chief Financial Officer.

Before we discuss the results for the quarter, I want to remind everybody that we are operating under the rules of Regulation FD. The first quarter financial results press release was distributed at the close of market today, which includes a non-GAAP to GAAP reconciliation. And if you’ve not yet seen a copy, you can find one at our website at openwave.com. For your convenience, this call is being recorded and will be available for playback from our website for three months.

Before we begin, I would like to remind you that any remarks that may be made in this call or in our earnings press release about future expectations, plans or prospects for the company may constitute forward-looking statements for the purpose of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The actual results may differ materially from those indicated by the forward-looking statements as a result of various important factors. These factors include the specific risk factors discussed in the company’s press release that was distributed today, and in the company’s filings with the SEC, including, but not limited to, the fiscal 2011 year-end results on Form 10-K, and any other reports subsequently filed with the SEC.

We intend to make forward-looking statements based on management’s outlook as of today. We do not intend to update these statements until the release of Openwave’s next quarterly report and disclaim any obligation to do so prior to that time. We reserve the right, however, to update the outlook for any reason during the quarter.

I would like to note that during the discussion of the financial results, unless otherwise indicated, gross margin expense and earnings-related items are recorded on a non-GAAP basis, which excludes stock-based compensation, certain realized losses and impairments on investment, amortization of intangibles, restructuring expense, discontinued operations and amounts related to unusual events.

Please access our financial metrics summary, which is available on the Investors Relation section of openwave.com to review Openwave’s historical financial performance and reconciliation of the non-GAAP measures we report to the corresponding GAAP measures.

And with that, I’d like to turn the call to Mike.

Mike Mulica

Thanks Mike, good afternoon, every. Before we dive in, I want to take a minute to thank Ken Denman, on behalf of the board and management team, for his many contributions to Openwave over the past three years.

I’m excited to be back to Openwave. As many of you, I was an early employee of Phone.com, which became Openwave after it acquired Software.com. Since then, I’ve served as an executive at several companies in the mobile industry, including CEO of FusionOne, a leader in mobile content portability which was acquired by Synchronoss.

I was interested in returning to Openwave because I see many valuable assets across the business. I believe we have significant opportunities to drive shareholder value, but urgency is required as the current status quo is not sustainable.

Although I’ve been back at Openwave only a few weeks, I’ve spent significant time familiarizing myself with the company in an effort to quickly create a go forward plan. I believe the company’s recent under performance has been driven by a lack of focus and a lack of proper execution.

The first change I intend to implement is a streamlined and unencumbered operating model, with the primary focus on controlling cost and preserving cash. We also intend to implement a rigorous review of the messaging, mediation, and IP portfolio businesses, each of which are very different. So we will be looking to group them into asset classes in an effort to narrow our focus and drive increase cost efficiencies.

I believe Openwave has high value assets that we can monetize to build a very valuable company. Now, the most significant asset is our intellectual property, as evidenced by our agreement we announced today with Microsoft. Let me spend a few minutes covering our patent, and discussing why we think they’re valuable.

As you know, Phone.com and later Openwave, invented the mobile Internet. Since then, the company has built a patent portfolio with many inventions covering Smart devices and Cloud technologies amongst others. We currently have approximately 200 patents, many of which we believe are foundational, to the ability to get Internet protocol signals on to and off of mobile devices. Our intellectual property is essential to the mobile Internet as we know it today.

There are several options we are pursuing in terms of our patent moderation. We’re pursuing a multi-prong patent moderation strategy, which ranges from direct licensing of our patent, litigation, and partnering with an intellectual property specialist.

In our announcement today, Microsoft licensed our entire patent portfolio, which was because they recognized it’s value. We believe this type of deal is one that we will replicate with many other companies we believe are also using our technology.

The revenue and bookings from our patent licensing agreement are significant and impact the income statement quickly. We would also like to note that these deals are lumpy, and may not happen in every quarter. To that end, we do not expect to see an IP licensing deal in this quarter.

On the litigation front, on August 31, the company took an important step and filed complaints with the International Trade Commission, requesting that the ITC bar Apple and Research In Motion, from importing their Smartphones and table computers to the United States. Openwave also simultaneously filed a similar complaint in Federal District Court in Delaware.

We believe that these large companies should pay Openwave to use the technologies that we invented and are foundational to the mobile Internet, particularly, in light of the substantial revenues these companies have earned from devices that we believe used Openwave’s patented technology.

The company is focused first on the ITC process, in part because in typical cases the ITC reaches judgement in 15 to 18 months. The company believes that it’s legal position is very strong, and our prospect of prevailing are very good. In addition to Apple and RIM, we believe there are a large number of companies in the wireless communications industry that are currently infringing on our IP and we are prudently and actively pursuing licensing arrangements with each.

Potential licenses range from mobile device manufactures to operating system companies, and clearly our competitors. If you will recall approximately a year ago, Openwave licensed several of our networking and communications patents to Mobixell/724.

Moving on to the product business, this quarter’s results demonstrate that we must make substantial improvements quickly. When you back out the intellectual property licensing revenue, the company only booked $8.7 million. Frankly, the bookings number is unacceptable and it’s clear we need fast change.

Bookings were weak in the quarter due to a number of reasons, including distractions from business restructuring and management changes. It’s also evident that sales execution is an issue we need more focus on.

In addition, on last quarter’s call, we announced that we moving from 18 products to just three core areas. This understandably made some customers uneasy, and perhaps impacted some purchases.

As I look at the business, although our overall deal size has been shrinking for some time, in most prior quarters, we had significant deals that bolstered the bookings number. That was not the case this quarter.

That said, I believe our OEM strategy puts Openwave on a great path, and the opportunities for our joint solutions with Juniper is strong. I’m pleased to announce that in August we successfully delivered the first version of our integrated Juniper Mobile Video Optimization Solution, we’re on schedule in installing our first live production trial of that combined solution, with a large North American carrier.

We continue to work with Juniper to expand our collaborations. In many respects the emergence of 4G networks is a redefining moment for Openwave’s mediation business, and represents an opportunity for us as we reposition our wall at the service orchestration layer in an operators IP network architecture.

Using the Juniper relationship model, we have been actively working to secure additional strategic partnerships with large network equipment manufacturers, to jointly develop and market global solutions. We will look forward to providing regular updates on additional milestones achieved with Juniper and other partners, as our integrated solutions begin to obtain market traction.

We know that the migration to 4G represents an opportunity for us to serve in a strategic role to advice customers on the best way to create value from the network investment. I believe that our service enablers present that opportunity both from a cost of ownership standpoint as well as from a revenue generation perspective.

There are some customers with whom we have been very successful in building this type of relationship, but there are many more opportunities.

As I’m sure you understand, we have lots of challenges that we will need to address quickly and decisively, but I believe the opportunity is here, and we as a management team are driving fast to organize and execute comprehensively.

I will now turn the call over to Anne, to discuss the detail financial results.

Anne Brenna

Thanks, Mike, and good afternoon, everyone. I will now provide a detailed summary of the financials for the first fiscal quarter.

Overall for the quarter ended September 30, 2011, Openwave posted a GAAP income of $0.03 per share and a non-GAAP net income of $0.11 per share. Reconciliation from GAAP to non-GAAP profit or loss can be found in our press release and on our website. Revenue for the quarter was $52.4 million, an increase of $17.2 million or 48.8% quarter-over-quarter.

Licensed revenue was $9.9 million, a decrease of $0.4 million or 3.5% sequentially and comprised 19% of total revenue. The quarter-over-quarter decrease was primarily due to a lower level of license bookings in Q1 as well as over the last six months

Maintenance and support revenue was $10.7 million, which was consistent with prior quarter’s revenue. Maintenance and support revenue comprised 20% of total revenue

Services revenue comprised $16.8 million, an increase of $2.5 million or 17.8% sequentially. This increase was primarily due to fulfilling a third-party hardware order from a major North American carrier for approximately $4.7 million, partially offset by declines in revenue from projects earnings higher revenue in the fourth fiscal quarter. Services revenue comprised 29% of total revenue.

Patent revenue was $15 million in fiscal quarter one, and comprised 29% of total revenue. The regional breakdown of revenue in the September quarter shows at 69% of our revenue originated from customers based in the Americas, 10% from EMEA, and 21% from Asia, as compared to 48%, 21%, and 31% respectively in fiscal quarter four.

In the September quarter, $18.6 million of revenue related to service mediation products compared to $16.7 million in the prior quarter. The increase relates to a large hardware fulfillment order in the first quarter, partially offset by reductions in revenues from other projects.

$11.8 million of revenue related to messaging products in the first quarter compared to $11.2 million in the prior quarter. $15 million related to patents in the first quarter, which reflects the patent license agreements signed in the first quarter, $7.2 million related to other revenues compared to $7.3 million in the prior quarter.

For the first fiscal quarter of 2012, Sprint represented 23% of revenue and Microsoft represented 29%. New other customer represented greater than 10% of our revenues for the quarter.

Bookings in the first fiscal quarter, which includes a $15 million patent license booking, decrease 16.7% over the fourth quarter of 2011. Other bookings in the quarter were $8.7 million, substantially lower than anticipated, due to the number of transitions in the company, including the restructuring activity, the reduction in number of products, and management changes.

Turning now to our gross margins, we achieved 65.8% blended gross margin for the quarter, an increase of 12 points from 53.8% in the fourth fiscal quarter of 2011. The gross margin increase was primarily attributable to the patent revenue recognized in the first fiscal quarter, which has a 100% gross margin. Excluding patent revenue, the gross margin would have been 52.1%.

Gross margin on license of 95.1% decreased by 0.8 points from 95.9% in the prior quarter, as a result of higher third-party royalties in fiscal quarter one due to the mix of licenses recognized.

A maintenance and support gross margin of 65.5% increased by 2.3 points from 63.2% last quarter, primarily due to increased headcount in this department.

Services margin of 18.1% increase 1.6 points from 16.5% last quarter. The sequential increase was primarily due to a loss accrual for a customer recorded in fiscal quarter four to reflect revised project terms.

As for operating expenses in fiscal quarter one, research and development expenses of $9.3 million were $0.5 million more, or 5.1% as compared to the prior quarter, primarily due to lower spending on contingent work expense on the products.

Fiscal quarter one sales and marketing expenses of $8.6 million were $2.8 million lower or 24.3% as compared to the prior quarter, primarily due to lower commission’s expense, in line with the decline in bookings as well as the reduction in labor cost and travel. Commission expense related to the patent during fiscal quarter one with $0.4 million with no patent-related commission expense in fiscal quarter four.

General and administrative expenses of $6.8 million increased $0.9 million or 16.8% from $5.9 million in the prior quarter. This increase was primarily due to $0.9 million spent on patent-related items, including the ITC case filed in August.

Our head count decreased by 77 from the prior quarter to 459, as we enacted the restructuring plan announced in August. There will be further reductions related to our August announcement, for those notified employees to exit the business in fiscal quarter two. Please see our metric sheet posted on the website for a breakdown of headcount by function.

As a reminder, the gross margin, cost of revenues, and operating expenses I just discussed were all on a non-GAAP basis.

On a GAAP basis, in the September quarter, interest and other expense was $61,000, which increased $0.5 million as compared to the prior quarter, primarily due to $0.5 million of unrealized loss in the fourth quarter, related to an option rate security.

Now turning to the balance sheet. Accounts receivable increased to $36.6 million at the end of September from $22.3 million at the end of June, which reflects the 15 million receivable for the patent bill. This amount was received in early October. Our DSO increased to 63 days for fiscal quarter one, up from 57 days in the prior quarter.

Deferred revenue decreased to $33.8 million as of September 30, 2011 as compared to $38.5 million at the end of June. The quarter-over-quarter decrease was primarily attributable to the lower bookings in the first quarter.

We ended the quarter with $66.6 million in cash and investments, which represent a decline of $30.2 million or 31.2% from $96.8 million at the end of the previous quarter. This is includes the 12 million [inaudible] to special patent dispute as announced in August, and $17.5 million used in operations, which includes $6.2 million in the restructuring payments made.

As mentioned above, we received $15 million related to the patent deals early in fiscal quarter two.

During fiscal quarter one, as mentioned a moment ago, we announced a restructuring plan. The full impact of this plan will be felt in the third fiscal quarter as international employees continue to exit the business in this coming quarter.

We’re targeting non-GAAP operating expenses in the low $20 million range for the quarter. We acknowledge cash [inaudible] in Q1, however, as the management team, we’re focused on cash conservation as a critical priority.

Operator, we’d now like to open up the call for questions.

Question-and-Answer Session

Operator

(Operator instructions). And our first question comes from the line of Scott Sutherland with Wedbush Securities. Please go ahead.

Scott Sutherland – Wedbush Securities

Great. Thank you, and good afternoon.

Anne Brennan

Hi, Scott.

Mike Mulica

Hi, Scott.

Scott Sutherland – Wedbush Securities

I want to first of all talk about, on this patent revenue, what kind of term is there any kind of referring steam? There’s a one-time impact – I guess you collected all the cash here in October for the 15 million?

Anne Brennan

Yes, Scott. We took the – of course, at the end of the quarter, that we took in in Q1, and we saw the cash arrive very early in the second quarter.

With regards to the parents of the deal, we think that it’s in our best interest that we don’t share the details of the specifics of the deal.

Scott Sutherland – Wedbush Securities

Okay. On this restructuring that I think you mentioned is going to get you down to an OpEx of the low 20 million range, I know you guys did a filing when you finished announcing the restructuring. It seems like maybe you’re trying to get OpEx a little bit lower than 20 million. Is there a longer-term goal to get below 20 million, or do you think 20 million is the right goal to think about getting the business kind of to an operational breakeven outside of patent revenue?

Anne Brennan

So the last time we spoke on the details of the 8-K where – to reduce the OpEx to $20 million from about 26, that was excluding any cost associated with patents. So we believe that we’re on track for it to be the original number, the 20 million when patients pick up slightly over the 20 million. We saw effectively one month of patent expense when we filed the ITC case at the end of August, so we saw one month at 800K. So if you’ll quarter that, it would obviously be in the low millions.

Mike Mulica

Yes, and I’ll just add to that, Scott. You know, from a go-forward planning perspective, as I arrived, both Anne and I sort of challenged ourselves with having a sense of urgency at looking at all the data that we coming up in Q1, and came to the quick conclusion that we needed to streamline and really simplify the business and look at the different asset groups that exist across the functional organization and put them into sort of a grouping so that we could see what each one of those asset classes looked like and remove some of the complexity. So we’re in the process of doing that.

From a planning standpoint, I think that our goal is to position the company going forward for success and as we go through the process of sort of understanding the underlying data, you know, we’re moving in that, you know, in that direction.

Scott Sutherland – Wedbush Securities

Okay. Back to the operational side on the bookings front, you know, obviously with the manager’s transition at the end of the quarter ambushed the bookings, you know, to be understood to be weak. Can you talk about the pipeline side? Has that been shrinking or staying the same, or is there still kind of a lot of opportunities there that were just, you know, getting pent up because there’s a management change and delayed some prophecies or decision making?

Mike Mulica

So first of all, we don’t guide on bookings. You know, as you know, I have a pretty deep sales background in other places and in Openwave, so one of the first things I did was look pretty closely at the pipeline and tried to understand what the drivers were. We’re still doing that.

I had a chance to meet with some of the significant customers and partners during the last month to determine what the correlation was between our products that we’re coming to market with and their desire to deploy technology. And I would say that there’s a very high correlation that exists there. So I find that to be very encouraging.

I would add that there are significant execution issues that need to be resolved and we’re in the process of doing that.

Scott Sutherland – Wedbush Securities

Okay. That will be good for now. I’ll come back with any additional questions. Thanks.

Anne Brennan

Thank you.

Operator

Thank you. And our next question comes from the line of Matthew Hoffman from Cowen Group. Please go ahead.

Matthew Hoffman – Cowen Group

All right, Mike, the big question here is, you signed with Microsoft first and not one of the parties where you’ve got a suit ongoing like RIM or Apple. Can you first outline the reasons why you thought Microsoft came to the table first? And then also, outline why maybe – or what the total number of other companies out there are that you view as in infringing possible. Thanks.

Mike Mulica

Sure. So from a Microsoft standpoint, you know, I would step back and say first of all, in the last month, it’s become clear to me, probably clear to all of you that IP is a very valuable strategic asset that Openwave has. I think I said it in my prepared remarks that Openwave invented the mobile Internet. That hasn’t been said around here often enough, and it’s something that’s very true.

So you know, what we’re pursuing right now is a multi-prong strategy as I think we’ve talked about before. And as we engage counterparties, different opportunities begin to present themselves. We viewed Microsoft as a company that wanted to take a first move or advantage in the marketplace and didn’t want to wait for the lawsuit to be resolved. And so we moved forward with them to close the deal.

And so in terms of the population of potential opportunities that exist, there are many potential license fees of the portfolio and you know, we’re excited about that as a going-forward opportunity to monetize our assets.

Matthew Hoffman – Cowen Group

So QualComm and some other heavy IP companies out there in the space historically offered excellent terms or better terms to the first companies that settled. Was there an element of that in this agreement and that Openwave offered Microsoft attractive terms to get an agreement on the table? And then I’ll have question for Anne. Thanks.

Mike Mulica

Yeah, so that was definitely part of the thesis, that Microsoft was getting a first-mover advantage from a deals term perspective. As Anne mentioned, we received a significant cash payment just after the end of the quarter, and that’s not the end of the story. There’s a, you know, another series of economics that are part of the deal.

Anne Brennan

And requires future performance.

Matthew Hoffman – Cowen Group

Anne, a couple questions for you. So you sound like you want to talk about the performance. Is that Openwave-related performance or Microsoft-related performance?

Anne Brennan

It’s on the part of both.

Matthew Hoffman – Cowen Group

Okay. And any color around what that –what those performance terms might be?

Anne Brennan

No. What we can share is that the value association with that is pretty close to the first trend in terms of dollars.

Matthew Hoffman – Cowen Group

Okay. All right, so let’s run through the cash in light of the bookings, which would certainly be the focus normally, but take a back figure to a licensing agreement. So if I followed your math, cash goes down by – I’m just going to round the numbers, about 30 million. And 17 million sounded like it was more the number you were focused in on with six of the one timer, which leave me with about 11 million in what I would call the true negative COF in the quarter. Is that – with these bookings numbers, is that kind of how we should build our cash flow model net of the future patent payments?

Anne Brennan

Absolutely. So the cash investments reduce what you see about $15 million, there’s $12 million that went out for the [inaudible] case and restructuring from the last call impacted this quarter. So with regards to the new restructuring, it was about $15 million. As you know, we that this ongoing and recurring [inaudible] from previous restructuring so it gives you a net 11 of burn from what you might term regular operations.

Matthew Hoffman – Cowen Group

And without guiding, is that 11 million – will, that would not have been impacted by the cash because you didn’t get that until October, but is that with the – is that the shape of the burn net of patents? In other words, could you get close to breakeven with the patent – with the patient cash in the upcoming quarter or the quarter running right now?

Anne Brennan

Yes. I think you hit the nail of the head. The IP cash, it’s margins rates that it creates are very lumpy. Bookings are obviously a key driver for the cash balance. We’ve seen those over the last couple of quarters, so you know, this might join – 30 days ago we were in the [inaudible] viewing the shape of the business, you know, where we are, how it works, the action that we’re going to take. It’s obvious that we’ve got work to do to get the business back to the cash neutral. So that’s what we’re focused on right now, you know, based on what we’ve seen in terms of the last couple quarters of bookings.

Matthew Hoffman – Cowen Group

Okay, thanks. I’ll hand it off to the next person.

Anne Brennan

Thank you.

Operator

Thank you. And our next question comes from the line of Scott Zeller with Needham and Company. Please go ahead.

Scott Zeller – Needham and Company

Thank you. I apologize for the voice. Did I hear correctly that the revenue from the [inaudible] is 18.7 million?

Anne Brennan

Yes. So yes. It sounds like you have a really bad throat there, Scott. I think what I heard was that the revenue from the medication business is close to 18.7. We saw a slight uptick of that. We had installation of some hardware in one of our major carriers here in North America and that was really the main reason for that increasing from the prior quarter.

Scott Zeller – Needham and Company

Okay. And then [inaudible] a review of the product and is there any additional color you can tell us about investment into the platform and mediation going forward?

Mike Mulica

Yeah, so again, I feel bad for your voice. It sounds terrible.

Scott Zeller – Needham and Company

Thanks.

Mike Mulica

So feel better. So you know, so I’ve been here a month, you know, one of the things that you look at and was asked before was what does the pipeline of this business look like and, you know, how are you mapping your investment strategy going forward to where you think the potential is for high-value growth. And so we’re going through that process right now. And as I said, we’re streamlining things to understand the data in a more simplified form.

So that process is underway right now. I would say that, you know, and I’ll reiterate something I said to Scott, I had a chance to meet with our significant customers and partners in the last week or so and the investments that we’ve made from an optimization and next-generation mediation standpoint definitely are about to meet a market and we’re excited about that and plan on continuing that.

Scott Zeller – Needham and Company

Thank you.

Operator

Thank you. (Operator Instructions). And our next question comes from the line of Tom Roderick with Stifel Nicolaus. Please go ahead.

Chris Cohen – Stifel Nicolaus

Hey, guys. This is Chris Cohen in for Tom today.

Anne Brennan

Hi, Chris.

Chris Cohen – Stifel Nicolaus

So Anne, I just wanted to clarify, so you had mentioned, you know, last time we’d spoken that the OpEx run rate that you were trying to get to was 20 million. And so – and from what you guys said about the legal costs associated with the patent suits, you said that’s 800,000 a month?

Anne Brennan

Yes.

Chris Cohen – Stifel Nicolaus

Okay, so in terms of kind of when you guys get all done with this in say, the third quarter I guess, maybe the full impact might be in the fourth quarter, but is it safe to say then you’re kind of implying you’re going to a 23 million run rate on the OpEx or something like that?

Anne Brennen

Slightly lower. So yeah, just about 20, but not quite – it doesn’t quite get as high as 23. So in that 20, $22 million band.

Chris Cohen – Stifel Nicolaus

Okay, 20 to 22 you said?

Anne Brennan

Yes.

Chris Cohen – Stifel Nicolaus

Okay, great. And then just in terms of timing, if we could maybe better understand this, like the stream of patent, I understand this can be unpredictable, but I think you mentioned that Microsoft, there’s more slugs coming. Is this – could this be like annual recurring or is this just maybe one time again in the future? And then when you kind of look at this 15 to 18 month timeframe on this lawsuit against Google and RIM, do you think it’s reasonable to expect a big slug of patent license to come in around that time? I mean, how are you guys preparing for the outcomes there?

Anne Brennan

Okay, so there is one – let me answer with an order. Microsoft has one future component. It’s going to be a discreet value. And so that will happen at some point in the future. With regards to the broader question around the lawsuit, the ITC, 15 to 18 months in terms of general timeline to resolution. It often results before that time, but that’s what we’re working to right now. It’s fairly formulated.

We are, obviously, working on that diligently right now. We expect in that timeframe given the fact that the patents that we have in that case is strong and the targets that we have in the case, there would be a significant income at that point in time. What that might, I think it’s very premature for us to assess what that might be as we sit here today.

Chris Cohen – Stifel Nicolaus

Okay, but your comment about specifically these things are resolves, you know, people just don’t want to go to trial so they’ll talk to you before that?

Anne Brennan

Yes.

Chris Cohen – Stifel Nicolaus

So it could happen any time between now and when it was scheduled to come to trial?

Anne Brennan

Yes.

Chris Cohen – Stifel Nicolaus

Okay.

Anne Brennan

That’s a possible outcome that we’re not planning for right now.

Chris Cohen – Stifel Nicolaus

Oh, you’re not planning for it. Okay. Thank you for clarifying that. So then if you look at kind of maybe more on the fundamental side, so historically our backlog kind of filtered through in five quarters roughly, is that still the characteristic of the existing mix within the backlog, or has that changed at all?

Anne Brennan

No, I think it’s – or general guidance on that part is between 4 and 6 quarters. No significant changes [inaudible] reduction in this quarter from 175 to the just over 140. So it represents between 4 and 5 quarters of backlog if we use the revenue of Q1 as a metric. So where we see it drop, it dropped in line with the product business revenue.

Chris Cohen – Stifel Nicolaus

Okay. Thank you very much, guys.

Anne Brennan

Thank you.

Operator

Thank you. And our next question comes from the line of Paul Treiber from RBC Capital Markets. Please go ahead.

Paul Treiber – RBC Capital Markets

Thanks for taking my question. Mike, as a first set of eyes in the company, what extent do you believe that the headwinds the company’s been facing are execution related and self-inflicted as opposed to being more weighted to the microenvironment an competitor actions? And what do you think – what sort of strategy can you implement that’s different versus what Openwave’s tried in the past?

Mike Mulica

Thanks for the question. So it is helpful coming into a situation and having a fresh set of eyes and looking at things from a new perspective. I do think that the circumstances around the business right now are definitely complex and definitely a result of having, you know, maybe complexity in the overall operating model itself. And so one of the things that I’ve tried to do in the, you know, in the last month with Anne is see if we can sort of break down the underlying comments of the business that understand what the drivers are.

And so I do think that part of the challenge is to come from execution as a result of too much complexity that may or may not have been required over time. So we’re going to be looking for a much simpler business model going forward that reduces complexity and lowers the threshold for that execution risk.

From a market standpoint, it’s sort of a good news/bad news story. I think that the good news is that – and I’ve heard this from customers in the last 24 hours, the good news is that the R&D investments that the company’s made in mediation and service layer orchestration in particular are investments that are really producing technologies that the market has big demand for in conjunction with LTE network deployment.

The bad news is that there’s been a – over a year and a half of R&D investments getting to this point. And so I think you’re going to start to see, you know, some wind at the back of those problems as LTE networks get deployed. And so I’m encouraged by that. And that combined with really looking at this with a new perspective and trying to simplify things should put us in a good position to improve the way we execute going forward.

Paul Treiber – RBC Capital Markets

Okay, and regarding the patent strategy, what’s your thinking behind the licensing and litigation model as opposed to – or versus being an operating company and the fact that litigation against some of your customer’s suppliers may impact their relationships that you may have with your customers? And then also, in light of that, have you considered an outright sale of the patents in light of the current marketing conditions around patents health?

Mike Mulica

That’s a good question. So I’d say that since I got here a month ago, there’s a lot of enthusiasm for the IP portfolio from across the company and at the board level. And so there has been a great deal of work that’s gone into developing a point of view on the best course of action to monetize the patents and it doesn involve a combination of actions that, you know, are positive on their own rights, but play into a strategy in the marketplace. And so as you see us, you know, looking to do various things, it’s part of an underlying strategy that has been built and is evolving here to try to maximize the value of that asset set.

In terms of does this compromise our product business, you know, my point of view is that technology companies are expected to protect their assets and I think companies recognize that it’s our obligation to protect our inventions. You know, the company has invested literally billions of dollars in inventing the mobile Internet and we need to make sure that our shareholders are protected and get value for that investment.

And so I don’t it as in any way compromised in our business.

Paul Treiber – RBC Capital Markets

This might be getting into too much detail, but like I mean, from a high level, could you look at it as your customers, like [inaudible] and Next-Gen Medication, they would – their suppliers would be indemnified against possible litigation?

Mike Mulica

So all of those opportunities are possible in the what that you can figure your – the way you would structure deals. And so that gets into, you know, what makes sense in the structure of individual transactions and that’s certainly something that could occur.

Paul Treiber – RBC Capital Markets

Okay, thanks for taking my questions.

Mike Mulica

Thank you.

Anne Brennan

Thank you.

Operator

Thank you. And our next question comes from the line of Charlie Anderson with Dougherty and Company. Please go ahead.

Charlie Anderson – Dougherty and Company

Good afternoon. Thanks for taking my questions, and welcome, Mike. I wanted to start with sort of the bookings on sort of the core business asset of patents here. You guys closed this a month ago, I wonder, in the last month, I know you’ve kind of given a lot of anecdotal detail about what customers are saying, but do you feel like you’re still going to be facing a lot of sort of uncertain type conversations and we’re going to kind of continue to see sort of a depressed level of bookings for the next couple of quarters at least while you guys kind of get the strategy sorted out? I'm kind of curious how that’s impacting customer’s decisions.

Mike Mulica

Okay. So you know, not to say the same thing over and over, but the company has not guided for bookings in the past, and we don’t plan on starting that. I have, you know, as I said, a lot of background in analysing pipelines and analysing markets. And Anne and I have spent a great deal of time on the pipeline and where we think momentum is going to come from in the future. And that’s going into the planning process that we’re – we have underway in terms of netting the asset groups that we have and understanding the end-to-end business for those product lines.

And you know, I would say that I do see, as I said, a high correlation between what we’ve built and what customers are going to want. I see the emergence of the, you know, the mediation business happening in conjunction with the LTE network deployment that we’re going to see next year. So that’s the good news. But don’t get me wrong, I definitely haven’t mastered all of the data at this point and these past execution issue are going to be something that takes some of my time to work itself through the system.

So you know, I’ll leave it at that and just assure you that we’re working here with a dramatic sense of urgency across the management team to get clarity and develop an action plan to make sure that we address the baseline of the business.

Charlie Anderson – Dougherty and Company

Got it. Thanks so much for all that color. And then just moving onto the patents, I wondered if you could give us maybe a little sense of the target market, you know, as we kind of think of the addressable market for all these deals. Should we think of the entire tablet market, the entire Smartphone market and some sort of a royalty right to be kind of – help us continue thinking as you approach that? That would be helpful.

Mike Mulica

Sure. So I think the categories that I mentioned in my prepared remarks were device manufacturers, operating system vendors and our competitors. But the way that you would do this if you were mapping out the potential for any intellectual property, you’d see what products either reference your intellectual property as a basis for their IP, underlying basis for their IP, or we’re utilizing those techniques that are referenced in your intellectual property.

So the company has invested a lot of time, energy and money to determining where those overlaps and encroachments exist. And there are – it’s a very fundamental position that this IP portfolio holds in this industry and it touches on many companies across those categories.

Charlie Anderson – Dougherty and Company

Great. Thanks so much.

Operator

Thank you. And our next question comes from the line of Scott Sutherland from Wedbush Securities. Please go ahead.

Scott Sutherland – Wedbush Securities

Hey Mike and Anne, I just want to follow up with a couple questions here. You know, you look at Apple and Noika and obviously, you know, that can go through, I mean, Apple and RIM, and go through this 15 to 18-month process, but A, where do you think others in the pipeline are? Are these friendly negotiations or steaming across the board, and how do you think this Microsoft supply has looked at your portfolio pretty hard, is going to affect your decision making during this process?

Anne Brennan

I think we’ve indicated that there’s an incredible amount availability for the business. It’s difficult for us to model when we think these license deals will fall in terms of our fiscal quarters and our fiscal year. So what we will share is, you know, we’re [inaudible] on this fairly aggressively. You saw the dent of that one deal, the benefit to cash. So hopefully there’s a significant focus in the business right now around IP. And you know, as we get more clarity, then we’ll provide updates.

Scott Sutherland – Wedbush Securities

I guess maybe I’m trying to get more at, you know, some of these various places you mentioned you’re talking to, some of them on a more friendly basis in regards to just looking what you haven’t seen, what needs to be licensed and you know, give that Microsoft did their due diligence, that can help them move forward or most of the discussion might be a different more difficult process?

Anne Brennan

Yeah, there are some that are much further along than others. You know, we’re in discussions with some, we’re developing positions with others and they will, you know, they will fall in several quarters in the future too. That’s how we view it, and that’s how we’re managing it right now.

Mike Mulica

And to your other point, Scott, I will say that Microsoft is definitely a, you know, a validation of the strategy.

Scott Sutherland – Wedbush Securities

Okay, great. You’ve talked a lot about the service mediation product. Can you talk a little bit about the messaging side? I mean, first of all, you do have some pretty interesting patents in the messaging side that a lot of people have already talked about since you’ve filed some of these patent infringement cases. So is there a lot on the messaging side?

And secondly, what’s your focus on the next new product?

Mike Mulica

Yeah, so again, going through the process of really looking at this from an underlying data standpoint rather than top down, so we do have some terrific messaging products and a great customer base. And I’ve spent some time with customers that are looking at deploying some of the things that we’re doing from an evolutionary standpoint in messaging. So you know, as I sit here today, Anne and I are going through the motions of understanding where we can create the most value within each one of these product lines and amongst the product lines. And that’s, you know, work is underway right now.

Scott Sutherland – Wedbush Securities

Okay, thank you.

Operator

Thank you. And our next question comes from the line of Eric Strumingher from Diamondback. Please go ahead.

Eric Strumingher – Diamondback Advisors

Yeah. Hi. Thanks very much. I want to make sure I understood the presentation with regards to the cash flows from the Microsoft licensing. So you are recognizing 15 million in revenue in the quarter just reported. And you also took in another roughly $15 million into your bookings? Is that correct?

Anne Brennan

We took bookings – let me, I’ll explain all the components of the deal to you for clarity.

So we took a booking of $15 million in Q1, the quarter just closed. That was also reflected in revenue and obviously flowed through the P&L through the EPS. So that’s reflected in the Q1 numbers. What didn’t reflect of that component of the transaction was the cash. The cash was received early in October, so the cash will be a Q2 transaction. Now, what you’ve heard us speak about is the second part to that deal, which is close in value to the first part, and requires performance on our part at some point in the future. When that will happen, we are unclear right now because of a number of things have to fall into place. So there will be a second piece to that in some future quarter.

Eric Strumingher – Diamondback Advisors

Okay, and understanding that you’ve, you know, probably don’t want to and can’t get into the specifics here, would you feel comfortable framing this in a manner that suggests that the payment – the future payments that you may receive are going to be a function of who you license the portfolio to and how much the pay?

Anne Brennan

As I said at the top of the call, I think Scott asked the question, it’s in our interest not to get into the details of any specific transaction right now.

Eric Strumingher – Diamondback Advisors

Okay. The more generally, when do you think you’ll be ready to give a presentation to the investment community on the broader licensing strategy?

Anne Brennan

In terms of planned events, I don’t think we have anything planned for Q2. And we generally do a couple of events in the third fiscal quarter so the February/March timeframe would probably be the earliest that we would go out on the road and explain where we were.

Eric Strumingher – Diamondback Advisors

Okay. It looks like it’s going to become a much more significant part of the overall financials of the company and certainly wouldn’t be great to get from you an in-depth presentation if possible on what you’re planning to do here.

Anne Brennan

Sure. We’ll bear that in mind when we speak with the investors.

Eric Strumingher – Diamondback Advisors

Okay. Thanks very much.

Anne Brennan

Thank you.

Operator

Thank you. And at this time, I’m showing no further question in my queue. I’d like to turn it the conference back over to management for closing comments.

Mike Mulica

Thanks. So thank you, everyone, for your questions. I’d like to thank you for joining the call. I believe we have significant assets that we can capitalize on including our intellectual properties and strong products. As I mentioned, we have a strong sense of urgency behind our actions so that we can return the company to growth. Thanks again and I look forward to updating you on our progress.

Operator

Thank you. Ladies and gentlemen, this does conclude Openwave’s earnings first quarter 2011 conference call. If you’d like to listen to our replay of today’s conference, you may do so by dialing 303-590-3060 or 1-800-406-7325 and entering the access code of 4481226#. We think you for your participation and you may now disconnect.

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