CEO Call/ 8x8 (EGHT) Chairman and CEO Paul Voois
December 4, 1998
CNBC/Dow Jones Business Video: 8x8 (EGHT) Chairman and CEO Paul Voois says the company is not cash-flow positive - 12/03/98
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CNBC- SQUAWK BOX
8X8 CHAIRMAN AND CEO PAUL VOOIS
DECEMBER 3, 1998
ABSTRACT: Voois announces a new technology that combines telephony and Internet access in the same device. Voois is looking to roll out field trials of the Packet Gateway next year.
Mark: The company makes semiconductors and related software to develop its line of video conferencing systems. Yesterday the company unveiled the first four-way Internet phone adaptor that will allow cable operators to offer local phone service. Also part of its packet
cable network, the company unveiled a processor that can handle up to eight simultaneous IP Internet protocol phone calls on a single circuit. That's not all. 8x8 is also setting up a lab
with 3Com to help speed up production of all these packet cable products. Also getting a piece of the action Motorola and Netspeak have announced compatibility with 8x8's broadband Internet telephony technologies. Shares of 8x8 took off after the news gaining
over 5 points close at 9 and change, the low is 1 3/4. Here to explain about these developments is Paul Voois, chairman and CEO at 8x8. Good morning, sir. Thank you very much for being with us.
Good morning, Mark.
Mark: I've read the press releases and I am just a tad confused here by the technology, so bear with me, if you will. You announced something called the Audacity ITP and also this Packet Gateway. What's the difference between the two of them? Very briefly, what does
each do?
Well, briefly the Audacity Internet Telephony Processor is a chip, as you described, a chip that can handle up to eight simultaneous telephone calls at one time. Now, that is a key component in our Packet Gateway, which is more of a system, a box.
Mark: I see.
Which allows people to make telephone calls using their cable rather than their traditional
copper wire.
Mark: Got you. Now I understand. Now, the 8x8 Packet Gateway to familiarize our viewers with what this does, correct me if I'm wrong, it sounds to me like it's some kind of souped up cable modem that would enable not only Internet access, but telephone calls over the
Internet. I don't mean to denigrate it, but I think from a layman's point of view, is souped up cable modem at least close?
Close. It contains an integrated cable modem. In fact, the Packet Gateway is the first integrated cable modem with the cable telephony features built in. As you said, it allows cable operators to offer local telephone service. In addition, it offers the traditional things we think of with cable modems like high-speed Internet access.
Mark: With this I would not need a cable modem.
That is correct. It combines telephony and Internet access in the same device.
Mark: Would I still need a set-top box for my TV set?
Not necessarily. There's a number of different configurations you can use. You can have the cable modem running a connector to your PC. You can do your browsing on your PC or you could have a set-top on your TV or both. Typically, we envision the Packet Gateway actually
sitting in the house's wiring closet, maybe even on the outside of the house where the cable comes from the street into your house. Then it connects to your internal telephone wiring.
Mark: Okay. Now, in your press release, again about this 8x8 Packet Gateway, it goes on to say prototypes are available immediately for system trials at a cost of $10,000 per unit.
That's right.
Mark: Not exactly a consumer-level price point.
Well, it's not a consumer product at this point. Again, it's prototypes. That's the cost for the first unit. Right now we're just anticipating going into field trials in the very low volumes. Obviously as we ramp up to higher volumes the price will come down significantly and hit consumer price points.
Mark: If you're starting at 10 grand though, sounds like it could take a while.
I don't think so. When we get into volumes in the tens of thousands and those kinds of numbers, it will come down quickly.
Mark: Another thing that puzzles me is if I had a hot product like yours, I would give it to the telcos and cable companies for free to test it so that I could get orders on it, yet you're charging $10,000 a unit. Why?
Because when we're talking about thousands of these units going into field trials, it's actually somewhat expensive to finance free trials. Again, $10,000 is the cost to the cable operator for unit number one. And as we go into volume, the price is going to come down significantly.
And actually cable operators are willing to pay some money to take these things out into the field and see if they can enter into the local long-distance market. For example, AT &T paid $40 billion for TCI to get into the long-distance market. And the local telephone market, I don't think they're going to complain about $10,000.
Mark: Well, I think I'll admit, I'm cheap. How many cable companies have ordered this so far? I realize it's only been out since yesterday at the trade show.
Excuse me? I didn't...
Mark: Have you gotten any orders so far? I realize it was only unveiled at the trade show recently.
We don't have any hard orders. We're talking to all the cable companies are here at the Western Cable Show. We've been working with them actually quite sometime before this and we're looking to roll out field trials next year.
Ron: Paul, it seems I'd like to understand some of the competition you have here. I would guess on the chip idea have Texas Instruments as a competitor. And I would assume, even though Motorola announced compatibility, they're going to be a competitor on the box side. It
sounds like there's some pretty tough competition you're facing here.
Absolutely. This is going to be a big market. And there's obviously going to be fierce competition. Texas Instruments and Motorola have proven DSP technology, but we've jumped out into the lead here with our Packet Gateway. We have the only product that can do the
multiple telephone lines over cable modem. And we intend to keep that lead and move very quickly. And that's how we're going to compete.
Mark: Is this a bet-the-company product? Because your videophone, video conferencing a decent business, but not growing very much.
Well, I would actually argue with that. Our videophone sales are growing at about 40% per quarter.
Mark: Year over year they were up 300,000 on 8 million, right? You went from 8.1 million in product sales to 8.4 million, according to your own filing.
Well, if we split it out into, you know, we have a number of different products. If we split it out into videophone sales only, 8x8 videophone sales, it's been growing at about 30% to 40% per quarter. But getting back to your original question, I don't think were betting the whole company but we're certainly making a big bet and investing a significant amount of money on resources into this market, because we think it's going to be huge.
Mark: Well, one thing you yourself have said in a recent interview was that the growth has been before, as I said before, moderate, not what we're looking for, talking about video conferencing, not what we're looking for in terms of taking our company to the next level. That has been a disappointing area, hasn't it?
I think I've indicated that the classic video conferencing industry has not displayed the growth that people have, you know, expected. However, when we get to our consumer, you
know, one of reasons we've entered into the consumer videophone business is because we see that as a much higher growth area. In that particular segment of the business, we've actually been demonstrating, you know, quite nice growth. You know, the overall video
conferencing industry is a little less. That's why we're expanding our horizons here.
Mark: Are you cash flow positive?
We are not.
Mark: So, are you going to have to float some shares here or some debt in order to keep
going?
Not from the way we see it. We have been investing significant money into developing both technology and markets. Obviously, you know, managing cash flow is a significant part of my job, but we feel like we have the reserves right now to move this business forward.
Mark: And your revenues fell considerably, about 28%, apparently mostly because of a $5.3 million license fee from 3Com that you had at one point and did not repeat. Are you due anymore license money for 3Com or is that over?
We aren't due any. It was a one-time fee where 3Com licensed our technology. Licensing is an ongoing part of our business. However, we are, you know, we're trying to make the business more of an operational business where our revenues are generated by, you know,
sales of product, because one of the problems with one-time licensing is that it is one-time licensing.
Mark: Okay, Mr. Voois, appreciate you enlightening us on what's going on. Paul Voois is chairman and CEO of 8x8.
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