Technology Stocks : KVH Industries, Inc.
KVHI 11.85-0.8%4:50 PM EDTNews

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To: Sector Investor who wrote (735)3/7/2001 10:11:27 AM
From: Sector Investor  Read Replies (1) of 7024
Upticked from Yahoo! has again transcribed part of the Q4 Conference Call. This is important, as at the moment, KVH has removed previous conference call audios from their website, so we can anticipate that at some point this one will disappear too. I took the liberty of emphasizing some of the important parts.

Thanks Upticked!

This is the CC transcript of Section 3 where Martin talks about the two new initiatives. Upticked


Martin: Thanks again, Dick. Now that our core businesses are profitable and growing rapidly, we are embarking on a new journey as we pursue two major opportunities, as Dick mentioned, the photonic fiber and mobile broadband initiatives.

Now, those of you who have listened to our 3rd quarter conference call, may remember that we discussed them at that time. And since then, we've taken a number of significant steps forward both with regard to the development of the projects and how the company will be pursuing these opportunities. As you may know, our fiber optic gyros and current sensors are based on an all-fiber technology that does not require the use of electro-optic chips. We're now working to offer the same all-fiber technology to the high-speed optical networking industry by combining our proprietary D-fiber with new electro-optic polymers to create what we've named photonic fiber. The photonic fiber will allow us to build optical networking components directly into the fiber itself rather than using external planer optical chips.

Not only is this potentially a significant new product, but we see this potentially a new technology platform for the development of a variety of components for the optical networking industry. Photonic fiber components such as high-speed optical modulators will provide a significant improvement in speed, cost, and insertion loss over conventional technology. Other components could include tunable Bragg gratings for optical add/drop multiplexors, low-cost optical switches, and even inline fiber amplifiers. If successful, these new products will allow us to enter the market for optical components which was an 8.1billion dollar industry last year.

To assist us in this endeavor, we're working very closely with several academic institutions that are conducting research on these electro-optic polymers. We were also very pleased to announce at the start of the fourth quarter that the pioneer in this field, Dr. Larry Dalton, has agreed to join our Advisory Board--is now working closely with our research teams.

Our first optical component will be a high-speed external modulator, which will encode data onto the light passing through the fiber by turning the light on and off to correspond with the 1s and 0s of the digital data that's to be transmitted. Now the faster you can modulate the light, the higher the data capacity you can transmit over the same beam. Today's modulators top out at about 10 gigabits per second. We anticipate that our initial modulator will have a speed of at least 40 gigabits per second, while future KVH photonic fiber modulators will be able to modulate at speeds in excess of 100 gigahertz.

Now, by working directly with the fiber and eliminating the need for planer optical chips, we expect that we'll have significant advantages over conventional systems that still rely on gluing chips to fiber strains. Such systems require the light to be transferred from the fiber to the chip where it's modulated and then back to the fiber.

We believe that we're the first to be working on an in-fiber component approach that filed several additional patent applications. Now, we already hold about 70 patents -- 14 of which are directly relevant to this project, and we also have about 25 related patents that are pending. We expect our first formal technology announcement to be made at the upcoming Optical Fiber Communications Conference being held in Anaheim in March of 2001.

In addition to optical components, our photonic fiber technology will also be valuable as a phase shifter for steer able phase array antennas -- we hope to develop for our mobile broadband project which is the second major opportunity that we're pursuing. The mobile broadband is our name for the initiative that combines our expertise in satellite television reception and our satellite transmission capability to create a new product that can receive digital-quality television signals and broadband high-speed Internet aboard moving automobiles.

While existing KVH antennas can already offer much of this functionality, we recognize the need to develop antennas that are suitable for use on board vehicles smaller than RVs and motor coaches that currently use our products. To that end, we're pursuing a two-stage development process. The first step is the creation of an antenna with the approximate height of 2 to 3 inches. Our market research indicates that an antenna of this size would be acceptable for use aboard minivans and sport utility vehicles. We're already moving forward with this development effort and expect to begin testing a prototype of this antenna in the second half of this year.

The next generation antenna would employ our photonic fiber technology to create an ultra low-profile phased array antenna that might be only a few millimeters thick. This antenna could be built directly into the roof of an automobile and would have considerable cost advantages and be suitable for the high-end consumer electronics market. At present, there are about 200 million cars on the road in the United States. Backseat Video, using VCRs and DVD players is a large and growing market especially for minivans and SUVs.

In fact, all major vehicle manufacturers are now offering video screens on their 2001 model minivans. We believe that there'll be significant demand for broadcast television to watch on those screens as well as a demand for high-speed two-way Internet access. Satellites are an attractive solution, but up until now, they've not been used due to the prohibitive size and cost of tracking antennas. We anticipate that our new ultra low-profile antennas will be ideal for the majority of vehicles on the road and could become a standard system aboard vehicles in much the same way other consumer electronics such as CD players and telematic systems are now being installed. By providing access to 500 channels of digital-quality television and high-speed Internet while on the move, we expect to significantly expand the demand for our mobile satellite products.

I believe that these two initiatives are the major avenues for KVH's future success and growth and to make them a reality we must commit to fund the research and development necessary to successfully develop these systems and bring viable products to market fast and first. This has necessitated an increase in our R&D funding for the coming year. Some of this additional R&D funding is being derived from our core business's return to profitability and our anticipated growth in 2001.

We've also sought other funding opportunities, as Dick mentioned, including the recently completed 5 million dollar private equity placement. Now time to market is critical with both these initiatives, which is why we're investing additional R&D; however, the pace of the investment in the coming year will determine the company's overall profitability. We feel this investment is necessary and appropriate given our anticipation of the substantial revenue increases that these initiatives may offer in the future. These are billion dollar markets that we are going to address. But I want to stress that while we are pursuing these opportunities aggressively, I am committed to maintaining the growth and health of KVH's core business. Our expansion into these new markets will not come at the expense of distracting the company from the products and customers and markets that made KVH a success.

At this time I would like to open the call to questions.
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