TranSwitch Corporation (

TXCC

)

Q1 2011 Earnings Call

May 4, 2011 5:30 pm ET

Executives

Ted Chung - VP, Business Development

Ali Khatibzadeh - President and CEO

Bob Bosi - CFO

Analysts

Kevin Cassidy - Stifel Nicolaus

Richard Shannon - Northland Capital Markets

Quinn Bolton - Needham & Company

Blake Harper - Signal Hill

Walter Schenker - MAZ Partners

Michael Caravaglio - Joseph Gunnar

Presentation

Operator

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» TranSwitch Corp. Q1 2010 Earnings Call Transcript

Good day, everyone, and welcome to the TranSwitch first quarter 2010 earnings release call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Ted Chung, Vice President of Business Development.

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Ted Chung

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

Before we begin, I want to remind listeners that forward-looking statements made during this call, including statements regarding management's expectations for future financial results and the markets for TranSwitch's products are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

These risks are detailed in the company's filings with the Securities and Exchange Commission and I encourage all listeners to look to that at that their convenience. With that out of the way, I will give some highlights for the quarter and hand it over to Ali for some further details.

For the fiscal first quarter of 2011, net revenues for the quarter were approximately $8.2 million within the guidance range provided on our last earnings call in February. Gross margins remained strong at 64% in the quarter, unchanged from the December quarter.

Our non-GAAP operating loss for the quarter was roughly $2.1 million. Bob will provide some more details in his segment a little later on. I will now hand it over to Ali, so that he can share with you our progress during the quarter and some of his thoughts.

Ali Khatibzadeh

Thank you, Ted, and good afternoon ladies and gentlemen. As we projected in our last earnings call, we saw a continued softness in demand for our current telecom product, due to inventory correction at our key customers. We also experienced some loss to current business in Japan due to the tragic events there.

Setting aside the current business, from the perspective of our strategic efforts to create new growth drivers for the company, we are making great progress and are very pleased to report our progress there.

As you all know, we introduced our first-generation HDplay products in March. The target markets for these products include televisions, video monitors, projectors, audio/visual equipment, digital signage and video switching equipment. The addressable market for these applications is roughly $600 million in 2014.

Our HDplay products, which are based on our patented HDP technology, are truly leadership products in terms of performance and feature set. First of all, they are world's first video interconnect receivers to operate those with HDMI and DisplayPort signals.

This is becoming very important as DisplayPort adoption is rapidly increasing, driven by industry leaders such as Apple, Intel, Hewlett-Packard, Dell, Cannon and many others who are incorporating DisplayPort products across their product lines.

We expect HDMI to remain the dominant video interface for the consumer electronics market, and DisplayPort will rapidly become the dominant standard for the PC market. With the increasing proliferation of mobile devices such as tablets and smart internet-connected TVs, it is clear that the world of consumer electronics and personal computing are rapidly converging. And we feel we're very uniquely positioned with our HDplay products to gain share as both the consumer electronics and PC company.

Second, we are the only company offering a solution that drives over a 3-gigabit-per-second link. That's 3 billion bits-per-second link, which is a full rate of the HDMI 1.4a standard. None of our competitors today has yet introduced such a product.

And if you talk to key OEMs in the television industry, they will tell you that this level of speed is a critical requirement for new high-resolution TVs as well as a Blu-ray 3D TVs. So we feel very good that we have the first product meeting the full speed requirement of next-generation TVs.

Third, the HDplay products incorporate Ethernet connectivity function, which is necessary for TVs to connect to the internet, and this is a key selling feature for TVs to connect to the internet. And there is a fast growing segment of the TV market also referred to as Smart TVs, which offer content from service providers such as Netflix, Google TV, Amazon, Hoover, YouTube and the like.

According to iSuppli, a market research firm, one in four TVs sold by 2014 will be internet-connected. Our competitors' products today require a separate IC, a separate chip to perform this function. And we have it integrated into our product.

Lastly, our AnyCable technology allows full high-definition quality video to be delivered over low-cost HDMI cables, which is very important to customers. One of the major headaches that television manufacturers have is that their customers use their TVs with low-cost HDMI cables and cannot get a good quality picture.

Well, this usually results in unnecessary product returns and added service cost for them. So having a very robust HDMI receiver is extremely important to them. And our solution is by far the most robust receiver in the industry.

So now, there is demonstrating and sampling of HDplay products to our potential customers as well as reference design partners. All of the key differentiators that I talked about are resonating well with customers that we're engaged with, and we expect to see a significant progress as we move through the balance of this year.

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