Haere's the conference call from reposter Doug. [PART II]
------and a hat's off to Doug and whomever typed this so
accurately, and from audio--------Lou
********Part II******************
Winterbottom: OK thank you. And then the last would have to deal with financing, both or either on the debt or equity side. I know you're always in contact with the liquidators for Benton and there's been some discussion of possibly having a secondary offering, and you might kick in with that to raise some additional capital. Is that your only option, or would you also consider debt?
Sikes: We consider all kinds. You know certainly that's one of our options, the one that you discussed where we thought do an SPO with the Benton shares, (garbled here), we would be looking at everything from other straight equity offering on our own to some kind of convertible, either debenture of preferred, whatever. We are open to doing what makes sense for the company and what I want to emphasize in answering you question, is as Rich says, we certainly view that we will need additional money, that's good news because we think our businesses are really going to start to take off and grow rapidly in the second half of the year, we need a little bit of a stockpile to work from.
Winterbottom: I understand that and I appreciate it, I just needed a little help with the modeling going out David, and congratulations on the progress you've made so far.
Sikes: Thank you.
Operator: We'll move on now to Mike Gumport with Lehman Brothers.
Gumport: I have a few questions. First, you've begun to sell FRAMS, what's the response been, how would you judge the market at this point? You've taken first wafers from Rohm, and is you're impression the market's enthusiastic, you're able to sell a lot more if only you had more, or is there a lot more missionary work in terms of developing it?
Brown: No, I think that what we're trying to do right now is, if you remember the numbers, we've got a $1.7 million backlog. A significant portion of that is delinquent. So, what we're trying to do right now with product coming out of Rohm, is just catch up our delinquencies.
Gumport: As you deliver, I guess one question that often when you try to deliver, you face cancellations, that you find out the backlog wasn't solid. How's it looking as you go to these customers "you are delinquent".
Brown: It hasn't been a problem Mike, and the reason it hasn't is that most of these customers are guys who designed their systems around the benefits of the FRAM. So, the problem has been just finding every part we can get to them to keep their lines from going down. So, we have not seen any significant cancellations, but I think, you know, we've seen the normal kind of thing that comes and goes where the customers product didn't take off so he cancels orders, but in terms of the steady guys we got, not an issue. And in terms of cultivating new business, the fact that we can now say to customers, hey our product is coming from a true manufacturing line at a well established multibillion dollar company, its opening a lot of doors for us.
Gumport: Now, I've lost track of where E2 (E-squared) sells now, but for 4K, your wafers are 4K and E2,s are what 25 or 30 cents, in that area.
Brown: Yeah, they're sub 40 cents.
Gumport: What are you getting for your 4K's?
Brown: Ah, twice that.
Gumport: OK. I didn't quite hear what you said about the timing of the loan. What's the status there?
Brown: Go ahead Rich.
Mohr: Well... Michael, this is Rich Mohr.. um we've been in constant contact with the National Electrical Benefit Fund on that loan, they certainly haven't committed to us in any way shape or form. The one thing that you do need to keep in mind is that they are fully secured under the debt, so their exposure is minimal. The loan is due on June 30th, and I guess our feeling is that the debt on that will probably be rolled for an extended period of time, but I certainly can't say that's gonna happen for sure.
Gumport: And right now you've drawn $3 million? Whats the current draw on that?
Mohr: The current principal draw on that is $5.5 million.
Gumport: And the interest?
Mohr: The interest is just about close to a million.
Gumport: And the total amount of the line was 9?
Mohr: It was 12.
Gumport: OK. And you think that they will at least roll over the outstanding, just not actually allowing you to draw against the additional amount?
Mohr: That's what we're thinking. Again, their exposure is minimal.
Gumport: Allright. Any thought on the timing of license income, whether its gonna be back-end loaded, front-end loaded in 98?
Brown: Well I guess I would say if you consider 1st qtr. front-end loaded, it will not be front-end loaded. But I think 2nd / 3rd qtr., probably about flat during those. Its just one of those things thats hard to predict. But certainly I think there are several opportunities for things in 2nd qtr., and as hopefully new things happen over the course of the next month or so, I think there will be some significant EDRAM opportunities in the second half of the year.
Gumport: Now, cost of goods and SG&A were pleasant surprises in the 4th qtr., but I fail to understand, why did the R&D move up so sharply, and we're what, back down to 2 and a half and be steady there?
Brown: Well, in 4th qtr. we had some significant IBM expenditures to get the masks rolling and pre-pay the expenses associated with the initial prototypes. We had to do some pre-payment.
Gumport: And as we look out into this year should we drop back down to 2 and a half million, 2.6 and stay there?
Brown: Ah, I think thats reasonable. There may be some blips and troughs along the way, but overall I think thats a reasonable assumption.
Gumport: Now, there's been plenty of noise about Rambus. And I believe there's an Intel developers meeting today, tomorrow, the next day, I guess day one did not bring dramatically positive news for Intel's commitment to Rambus, the stock's down instead of up, but they're expecting it to be very, very upbeat. What's your view as to next years 133 Mhz standard. What are your thoughts for your opportunity versus the Rambus opportunity?
Brown: Yeah, I think a couple things. First of all, if you want to talk about the commodity kind of arena, we still want to avoid that kind of arena because we do not want to get sucked in to the terrible prices associated with standard syncronys DRAM. So we still want to target our market at the very, very high end. As you are probably aware, all DRAM manufacturers right now are having trouble meeting the PC-100 spec. at either 16 Meg or 64 Meg. They're going to have even more trouble meeting the PC-133 spec.
Our slowest part that will come off the IBM line will be PC-100 compatible and our fastest parts we think will be 166Mhz. Our design for a 64 Meg product we believe will be north of 166Mhz, maybe even at 200Mhz capability. We believe we can with that kind of part, even in the computer type application, now I said computer, I didn't say under $1000 PC, but in computer type applications where performance is at a premium, ie: workstations, file servers, the very high end of the business, we can command a very, very significant premium with the product that will operate at 166Mhz. So, we think the marketing opportunities are outstanding. Now, in addition to that, on the other end of the spectrum, is continuing along with what we've done with the 4 Meg, and expanding that now to 16 Meg to replace in switches, routers, hubs etc., in the communications arena, very fast SRAM's. There's nobody out there with a fast 16 Meg SRAM. Guess what, we got a product that looks very much like a very fast 16 Meg SRAM, and costs a hell of a lot less than a fast 4 Meg (..Garbled..) significant market opportunity. Now, on the downside, the downside is that those particular kinds of applications, we do have to go through a design-in process, so that takes a little time. But, we do think that there is great opportunity second half of this year.
We think that the situation with Rambus and Direct Rambus and the delays and problems with people meeting PC-100 spec., is going to provide an opportunity for us, but we are not going to take that opportunity if it means we have to sell at negative margins. So, we're gonna try and find those niches where the customer really leverages that speed, and try and get our price for the product.
Gumport: Well the rumor is that the socket will accommodate both a DDR interface and the Rambus thats built into the controller will be support for each of those products, and the socket will be compatible with each of those, now, you may not meet with that but won't some of your foundry partners?
Brown: Well, we will, our 64 Meg product most likely will be a DDR. Although, what we're thinking about right now at this point in time is actually a product that, with either metal mask or bond pad can be pulled out as a single data rate or a double data rate enhanced synchronous DRAM. So, our 64 Meg product will go after that, and stay tuned over the course of the near term.
Gumport: But would you not aim there, would that be for your foundry partners, or licensees, or something?
Brown: Oh, we would be very willing to aim there as long as we can get a reasonable price from our foundry partners, that we can in turn leverage in the marketplace at positive margins. If the customer says, lets take a specific example, if the customer says hell I'll only pay you X for the product, I can't buy it for X, will I take that customer to our foundry source and say, hey if you'll sell it to him for X and give us a cut of that, will we do that? Hell yes we'll do that!
Gumport: Lastly, whats the status of Cubic? You placed a 1.5 million unit order I believe, for parts to supply them you shipped a few tens of thousands?
Brown: Right. We have at this point in time a, we've shipped 20,000 for their prototypes. Because of fundamentally political issues that occur in the rollout of these Metro kinds of cards, the requirement for their next batch isn't until into 1998 and in fact we're going over to Cubic this week to get the detailed schedule for what we gotta ship this year. But, I don't think we're gonna see any significant volumes on that until probably ah...3rd. qtr.
Gumport: Tell me, if you were to put a target on FRAM revenues this year, what would that be?
Brown: North of what we did last year.
Gumport: OK.
Brown: (laughing)
Gumport: I hope so.
Brown: Ah...I would even say well north of it.
Gumport: OK. Well good. Thanks guys.
Brown: Mike, I do think though, I guess the comment I would make is that will certainly be second half loaded. That is really dependent upon how quickly we bring Rohm up on all four of our serial products. We're only getting the first one now, the 16K, and as we bring them up with all four products, I think second half of the year, we can see some very significant increases in these sales.
Gumport: Oh, I guess I thought you were getting 4K wafers.
Brown: No, we're getting 16K. Thats the first product out of Rohm. And in fact, we see some really encouraging results off of some of these first wafers. The yields that are in the 80-90% kind of range, which is pretty exciting for us.
Gumport: Good. OK, thanks again.
Brown: OK.
Operator: There are no further questions at this time. Mr. Brown, I will turn the conference back over to you. Oh, I'm sorry, we do have one last question from Sandy Harrison with Needham & Co.
Harrison: Thank-you. Could you guys spend a second, I may have missed this and if I did I apologize. Do you all intend to do any, or looking at any advanced packaging on your products, like for Micro(..garbled..) or BGA or something like that in the future, and then a follow-up question.
Brown: OK. The answer to that is yes, and in fact we're having discussions with a little start-up group that has come up with what we think is a pretty neat low power, very very high frequency, Bus interconnect system that currently has gotten some funding from one of the multi-chip module guys. And we think a combination of their technology with the multi-chip module guy, with our memory, have a potential of providing some extraordinarily, this is in EDRAM by the way, extraordinarily significant potential in hand-held, but high capable, palm product type of applications. So, the answer to your question Sandy is yes, that is something that is of interest to us because the fact that our parts are so damn fast, we need to do everything we can from an interconnect standpoint to take advantage of that speed.
Harrison: OK, and one other question. It makes a whole lot of sense, to me at least, for a potential alliance between Rambus and Ramtron based upon the benefits that each offers, and one would offer the other. Have there been any talks on that, or any advances of talks on that, that you all are able to share at this time?
Brown: I think to the extent that your comment is absolutely true, we have had some ah, what I would call surface level discussions with Rambus. I think there is certainly an interest. Quite honestly, my feeling is that Rambus at this point in time is so up to their eyeballs in things that they gotta take care of, to cement and secure their Intel relationship, that they probably just don't have the resources to do too much at this point, and thats OK. I think that if we look down the pipe at the 256 Meg level, ah maybe it begins to make some sense. So, we got a little bit of time, but certainly that's on our list of things to do in '98, is to pursue that (.garbled.).
Harrison: OK, thanks guys.
Brown: OK, while I'm answering EDRAM questions, I might just mention that we are very pleased with whats happening with the continuation of our 4 Meg business. In the first six weeks of this year we have booked an additional $2.1 million in new bookings for the product, and that's at ASP's that are north of $10.00, so even though the DRAM business is really ugly, the applications that we're finding for our product, we think, are going to sustain us for 1998.
Operator: OK Mr. Brown, we do have no further questions at this time, so I'll turn it back to you for any closing comments.
Brown: If there are no further questions, I'd like to thank all of you for participating in our cut-tone conference today. I will be available, as well as Rich and David, for the rest of the day for any follow-up questions you might have. Again, thank you and we look forward to speaking with you when we release 1st qtr. results in April.
Well, there it is folks.
Once again, hats off to Mark.
Doug |
