TranSwitch Corporation (

TXCC

)

Q3 2011 Earnings Conference Call

November 1, 2011 5:30 PM EST

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

Presentation

Operator

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

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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 4

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. 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 4

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, 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.

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