TranSwitch Corporation, (

TXCC

)

Q4 2010 Earnings Call

February 8, 2011 5:30 p.m. ET

Executives

Ted Chung - Vice President of Business Development

Ali Khatibzadeh - President and CEO

Bob Bosi - CFO

Analysts

Richard Shannon - Northland Capital

Lilly Wu – TGRA Capital

Presentation

Operator

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Thanks so much for holding, everyone. Welcome to today's TranSwitch fourth quarter 2010 earnings release conference call. Just a quick reminder, today's call is being recorded. And now for opening remarks and introductions, I would like to turn things over to Mr. Ted Chung, Vice President of Business Development. Mr. 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 I 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 TranSwitch’s filings with the Securities and Exchange Commission. With that out of the way, I will give some highlights for the quarter and then hand it over to Ali for more details.

For the fiscal fourth quarter of 2010, net revenues for the quarter were approximately $10.1 million within the guidance range provided on our last earnings call in October. Gross margins improved to 64% in the quarter, up from 56% in the September quarter due to operational improvements and a change from legacy products to newer products.

Our non-GAAP operating expenses for the quarter were 7.3 million, and we announced a restructuring today to further streamline the company toward our strategic focus. Bob will provide additional details later. Our non-GAAP operating loss for the quarter was $900,000, which was in the range of our previous guidance. I will now at this time hand it over to Ali, so that he can share with you our progress on strategic realignment as well as his thoughts on the fourth quarter.

Ali Khatibzadeh

Thank you Ted and good afternoon ladies and gentlemen I'd like to start by giving you an update on where are relative to our strategic repositioning of the company, which is consuming a lot of energy internally and may not be as visible to those outside the company. I will then discuss the fourth quarter and the status of our current business.

In 2010 soon after I joined the company, we completed the strategic to evaluate both the company's core competencies as well as our target markets. Our research concluded that TranSwitch has leading-edge technologies in high-speed video, high-definition video interconnect, as well as voice-over IP. Since last year, we've speared our internal R&D development focus to the high-growth markets of high-definition video and voice, driven in large by mobile multimedia. We all recognize the major trends in the industry that our fundamentally changing the nature of our business, and which we've fully captured in our business strategy.

First, the advent of 3G and 4G mobile technologies combined with the proliferation of smart phones and tablets are driving the explosion of multimedia streaming. This in turn is driving increasing capacity requirements for networks that can seamlessly handle voice and video over IP. Second, increasing demand for high-definition video content, including 3D video among many categories of consumer products and applications. In 2010, it is estimated that about 500 million ports of HDMI were shipped in products such as digital TVs, monitors, and other audiovisual equipment. And that is practically before HDMI showed up in smart phones.

Now with the application of high-definition video on smart phones and tablets, it is estimated that the growth of these devices with HD interconnect will accelerate, and by 2014, it is estimated that over 1 billion devices will have high-speed, high-definition video capabilities. TranSwitch has key core technologies and differentiators to participate in gain share from these growth drivers starting in 2011. In terms of our technology differentiation, our high-definition video interconnect technology is second to none. Our HDP technology, which is our patented technology, enables seamless integration of 3D-capable HDMI and display and DisplayPort interconnect. While 3D is one of the key drivers for this industry, other trends include demand for larger screen sizes, more color resolution and faster refresh rates. All of these necessitate faster interconnect speeds, meaning more 10 gigabyte per second over copper, and today we offer an unparalleled technology in terms of not only meeting the market needs of today's products, but also driving the requirements of tomorrow's.

Similarly on the voice-over IP side, the performance edge we have in DSP technology enables our customers to efficiently process large volumes of video and voice packets per second, which is critical for network capacity expansion to meet mobile multimedia explosion. In fact, Cisco Systems reported on February 1 that mobile date traffic will increase 26-fold over the next five years, driven by smart phones and tablets. This requires commiserate expansion of network bandwidth, and our Entropia family of processors are designed to meet this challenge.

So last year we kicked off new product development efforts as part of this new strategic focus to take advantage of our key differentiators and we are now on track to introduce the first generation of HD video IP products in the second quarter of 2011. These products will feature our patented HDP technology, which means 3D HDTV requirements at full-refresh rate and compatible with low-cost HDMI cables. We anticipate revenue contribution from these products starting in fourth quarter of 2011. There are other products in development that we will introduce as we move into the second half of 2011 and beyond, again, targeting the fast-growth segments of high-definition video and voice markets.

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