Nov 18, 2008
Executives
Alex Wellins – IR, The Blueshirt Group Clent Richardson – President and CEO Stephen Ambler – CFO and VP, Finance
Analysts
Mark Argento – Craig-Hallum Capital Jeff Schreiner – Capstone Investments Michael Kim – Imperial Capital Mark Avast [ph] – Equity Groups [ph] Glenn Mattson – GTK Capital
Operator
Ladies and gentlemen thank you for standing by for the Immersion Corporation third quarter 2008 results. (Operator instructions) This conference is being recorded today Thursday, October 30, 2008.
I would now like to turn the conference over Alex Wellins of The Blueshirt Group. Please go ahead.
Alex Wellins
Thank you for joining us on today’s call. During the course of our comments today, we will be making forward-looking statements.
These forward-looking statements include management's current analysis of certain aspects of Immersion's future business. Forward-looking statements are based on current information that is by its nature dynamic, and subject to rapid and even abrupt changes.
Our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in our statements. Factors that could actual results or developments to differ include the risk factors mentioned in today's new release in Immersion’s SEC filings and in our annual report to shareholders as well as any factors mentioned during our discussions today.
With that said I will turn the call over to Clent Richardson. Clent.
Clent Richardson
Thanks Alex. And I like to thank everyone for joining us on today’s call.
Immersion posted record revenue of $10.1 million in the third quarter of 2008. This is not only the highest revenue total in our company’s history but also the first time that Immersion’s quarterly revenue has exceeded the $10 million mark.
Today’s call marks six months or two full quarters as Immersion’s CEO. While I believe that our third quarter results demonstrate solid execution by our team and reasonably good performance, they’re taking place amidst a broader landscape of financial turmoil that is dramatically impacting the public markets.
During today’s call we will discuss recent progress and detail steps we’re taking to accelerate the growth rate and predictability of our business. I want to be both detailed and clear with our investors that we’re making important transitions.
Transitions that will have an impact, meaningful impact, on Immersion’s business both short and long term. Immersion is the world leader in haptics technology.
Haptics is the word that many people are not familiar with but one that is very easy to understand. Haptics technology improves the user experience by applying force or vibration.
Haptics technology can be applied to almost any application from cell phones to ATM machines and gaming devices to medical simulators. I was attracted to Immersion for one simple and powerful reason that Immersion’s technology is the future of user experience in digital devices.
The implications of that statement that Immersion’s technology is the future of user experience in digital devices are in indeed profound and manyfold. It currently states that our potential market is both enormous and global.
To capture that opportunity we must operate in an increased level of activity and with a higher greater sense of urgency. We must simplify our business.
We must be customer focused and partner friendly. And as we have we, we will aggressively leverage the world’s most comprehensive portfolio of patented haptics technology to capitalize on unmistakable market trends towards touch interfaces.
Put quite simply our technology is applicable everywhere. Everywhere there is a touch user interface.
The user experience in products that don’t use Immersion’s technology fall far short of what it could be and ought to be. During Q3 we executed against these objectives while posting record revenue.
We concluded two important legal disputes that cleared the decks and freed up management’s time and energy to focus on execution. We are now able to move beyond these matters enabling us to return our focus on ramping the business.
We made meaningful progress in building the executive team and adding key hires who share my passion and vision to implement Immersion’s technology globally and pervasively. We signed new licensees of our technology and won a number of important new designs, new design wins in exciting growth areas.
We fully understand that the recent market fluctuations have caused investors to be uneasy. Valuations of public companies have been considerably impacted across the board and we are no exception.
That said I would note that Immersion is well bell fortified to withstand that turbulence of today’s economy. Our balance sheet is an area of strength for our company.
It is both clean and debt free. In fact as of October 1, Immersion had more than $98 million in cash and short term investments, which equates to approximately $3.41 per share.
We have a diversified business that spans multiple verticals and geographies and is therefore better insulated then many against economic instability. Our record revenue in Q3 results demonstrates that as a whole our business is stable and growing.
That being said I’m not at all satisfied with our current growth rate or bottom line results. We have received good news regarding new licensees and other positive developments in our business that we have not been able to announce due to confidentiality agreements.
We understand that we have been quiet and that has not helped the perceptions or our progress of our company. That is all changing.
In 2009 planning includes investing in our businesses for additional growth with a clear path to predictable, achievable, and sustainable profitability. We will have a strategic and tactical plan in place designed to cross the threshold into profitability, then deliver profits and long-lasting shareholder value.
I will now ask our CFO, Stephen Ambler, to review our Q3 financials. After that I will provide you with details on our progress during the quarter and some thoughts on our business outlook before taking your questions.
With that Stephen.
Stephen Ambler
Thanks Clent. As Clent mentioned in his opening remarks Immersion’s revenues of $10.1 million for the third quarter of 2008 were a new quarterly record.
And revenues exceeded $10 million for the first time in our history. Total revenues increased approximately 3% over the comparable period last year.
We are very pleased to have settled two pieces of litigation during the quarter, Microsoft and ISLLC. I will discuss our results with and without the impacts of these settlements as the impact our financials.
Looking at the breakdown of revenues across our various business lines; revenues from medical of $3.2 million represented 32% of total revenues and was down 29% relative to the same quarter last year. As Clent will discuss in a few minutes this decline was as a result of a shortfall in U.S.
sales while international sales, global opportunity grew sharply during the quarter. We see very strong opportunities for our medical solutions globally.
Revenues from touch interface products accounted for 10% of total revenues and were roughly flat with the year ago period, at approximately $1 million. Non-automotive revenue from our touch interface products business grew 12% compared to last year.
Mobility revenues of $1.6 million represented 16% of total revenues and grew sharply during Q3, around 70% over the year ago period. Revenues from our console and PC gaming business which comprised 31% of total company revenues were $3.1 million, an increase of over 90% year-over-year.
Revenues from gaming included one-time previously deferred revenues from ISLLC totaling $1.1 million. Revenues from 3D products accounted for 12% of our total revenues and were up 16% from the same period last year, up $1.2 million.
In analyzing our third quarter revenues by category, total product sales revenues decreased 12% compared to the third quarter of 2007 on the back of lower medical revenues and represented 47% of revenue. 67% of product sale revenues came from our medical business, 25% came from our 3D business, and 8% from our touch interface products business.
Patent, technology licensing, and royalty revenues showed robust growth, up 64% over the comparable period in 2007, and represented 47% of total revenue. All 3 lines of business under the touch umbrella of our company meaning gaming, mobility, and touch interface products saw growth in licensing revenues compared to year ago.
65% of licensing and royalty revenues came from our gaming business, 25% came from our mobility business, and 10% came from our touch interface products business. Development, contract and other revenues fell 62% compared to the same period a year ago reflecting our continued efforts to move away from development work and concentrate our focus on product sales and licensing.
Development work comprised 6% of total revenue; mobility comprised 71% of this revenue, while the majority of the remainder came from our touch interfaces products business. We continued to make good progress in expanding our international revenues.
For the quarter, international revenues grew 112% year-over-year to $5.6 million and represented 56% of total revenues. We have seen significant opportunities for Immersion’s products on a global basis and you’ll see a continued focus on international activity as we seek to capture additional revenue.
Gross margins for the third quarter were 71% compared to 74% in the third quarter of 2007. Gross margins were down because of lower than anticipated revenues from our medical business due to economic conditions.
And that resulted in poor economics of scale. Total operating expenses were $33.2 million in the third quarter of 2008 and included the impact of a one-time $20.75 million payment related to our settlement with Microsoft as well as non-cash stock charges of $1 million.
Excluding the litigation items, total operating expenses were $12.4 million. This compares with operating expenses of $8.3 million in the year ago quarter, which included non-cash stock charges of $699,000.
This increase in operating expenses was due to investments in staffing primarily within our sales and marketing teams, increase product development and increased legal and other outside professional service costs. Litigation cost totaled $1.2 million compared to $300,000 in the year ago period.
Total headcount at the end of September was 176 compared to 169 in the preceding quarter and 150 in the third quarter of last year. Interest and other income totaled $988,000 for the quarter compared to $1.6 million in the year ago period.
Interest income has dropped significantly in line with interest rate declines over the last year. I will note that Immersion has an extremely stable no risk investment policy, which we believe is appropriately prudent especially given current market conditions.
The Microsoft settlement has resulted in a significant increase in our tax loss for the year. Some of this loss can be offset against taxes paid in prior periods but the majority cannot as we have now maxed out our utilization.
We assess our ability to utilize these deferred tax assets in the immediate and foreseeable counting periods and concluded that such utilization was uncertain. Accordingly, we have provided a valuation allowance against these balances as required by GAAP resulting in an income tax expense of $7.3 million for the quarter.
After accounting for this income tax effect and the one-time Microsoft settlement of $20.75 million our net loss for the quarter was $32.3 million or $1.10 loss per share. Excluding the one-time expense and related tax matters net loss would have been $4.3 million or $0.15 per share.
This compares to net income of $490,000 or $0.02 per diluted share in the third quarter of 2007. Immersion’s balance sheet is a real strength to the company.
During the quarter, we used $7.2 million to buy back 1.1 million shares under our authorized stock repurchase program. For the nine months period year-to-date we have used $14.3 million to buy back just over 1.8 million shares.
This September 30th, we have bought back a further 840,000 shares at a cost of $4.5 million. Given the macroeconomic environment we plan to curtail stock buybacks for the foreseeable future and we will be especially discriminating with regard to cash expenditures.
As a result of the buyback and near term investments we have made to accelerate growth our cash, cash equivalents and short term investment balances decreased to $119.1 million at the end of the September quarter. Given that our Microsoft payment was made on October 3rd our current cash position was reduced to $98.4 million on that date equivalent into $3.41 per share.
We do not hold any auction rated or mortgage backed securities. Receivables at the end of September were $5.3 million, the same as the end of June.
DSOs at the end of the quarter were 48 days. At the end of September, we had 28.8 million shares of common stock outstanding.
In light of the large impact of our financials from the Microsoft settlement I would like to step back for a moment and capsulate these results to give you a better sense of our ongoing cash flows. As I mentioned earlier, our Q3 operating loss excluding the Microsoft settlement was $5.3 million.
This included $1 million of non-cash stock charges, we also earned just under a million dollars in interest income. The net of these sums showed a cash outflow of just $3.3 million related to our current cash statement.
In Q4 we anticipate we will incur lower litigation costs. You can therefore see that our cash usage within the business will be minimal if not close to breakeven in the fourth quarter.
When you compare this cash flow with our cash balance, we believe we have an extremely strong position for our company -- we are in an extremely strong position with our company especially given the current economic climate. I will turn the call back to Clent.
Clent.
Clent Richardson
Thank you, Stephen. Let us dive right into an operational review of Q3 results and the drivers behind our record revenue starting with our medical line of business.
Immersion medical implements our patented haptics technology within a complete hardware and software solution that provides truly differentiated medical simulation solutions. Our tools enable physicians, students, and other healthcare professionals to practice and learn skills in a risk free immersive environment.
The instruments used are exactly like the ones you would find in a hospital or clinic. You can actually see, feel, and even hear how a patient’s body reacts to your actions and our patented Force Feedback technology produces resistance against the instruments as they interact with tissue.
I encourage our investors to get the demo to experience this breathtaking technology for themselves. Immersion medical simulators are differentiated by our superior intellectual property.
And we are vigorously defending our IP against infringement. To that end we’re pleased that the U.S.
District Court for the eastern district of Texas has set a scheduling conference for December 2, 2008, regarding our patent infringement lawsuit against Mentice and Simbionix. We anticipate that the court will set a trial date during the conference and we’re eager to press forward with the defense of our IP.
As Stephen mentioned, medical represented 32% of our revenue in Q3 down from the prior quarter and year. This performance is both disappointing and unsatisfactory.
Revenue from medical would have been higher if not for a shortfall in US revenue from this line of business. The shortfall is specifically attributed to customer delays on plan development contracts combined with expected government orders that did not materialize coinciding with the end of the fiscal year on September 30.
We believe the recent economic downturn may have impacted our sales this quarter given widespread delays in capital equipment spending, which is how our education and training simulators are categorized. In contrast, as disappointing as our US sales were, our international results were predictably and equally promising.
Overseas revenue for medical grew more than three times over the third quarter of last year. As I stated in our last quarterly call we’re committed and heavily focused on the global market for our medical solutions.
As our research shows the international market is in excess of two times that of the US market. Medical solutions are and will be an important growth driver for our business.
This quarter’s results are only the latest sign that we must rebuild this business for predictability and scale. We recently announced the addition of Sarah Adkins as VP of Marketing.
Sarah is an industry veteran with a strong track record of achieving results and expanding relationships in the medical sector. In addition to Sarah, we’re in the process of making other key hires to drive growth.
During the quarter we expanded our market opportunity by signing agreements with several key partners that would develop and bring international channels to market focusing on Asia Pacific and Europe. Last week we announced the distribution agreement with Tellyes Scientific, a leading supplier of advanced medical education products in China.
Products and solutions like Immersion Medical’s are now in high demand in China as their healthcare system undergoes significant reform. As we’re doing across our business we are accelerating the rate of change in culture of this global team.
While we’re both very pleased with the international growth of this line of business and see vast potential for these products globally, we’re not at all satisfied with our current results domestically. We expect better results in Q4 from medical and we’re moving aggressively to drive this business lines’ contribution for the future.
Our mobility line of business which encompasses mobile handsets and content revenue was a strong performer in Q3 posting an impressive 70% year-over-year revenue increase. While we can talk about haptics enabled phones you really must go out and experience a phone with haptics to fully understand this exciting part of our business.
Pick up the LG Dare, which features Immersion’s patented VibeTonz technology. Test how much more intuitive it is to navigate through menus and find content.
See how much more fun it is to use a device when you get feedback from a touch. It is beyond cool.
We believe this experience is a must have once you have tried it. There is no question that global leaders in this market are implementing haptics technology.
Samsung has added our technology across many of their most popular high volume phones. The lineup includes the Instinct, Soul, Omnia, (inaudible), and others.
LG has added our haptics technology to Voyager, Viewty, Dare, and other models as well. Nokia recently launched its first phone under our partnership agreement.
In all that this is a proof positive that the largest handset manufacturers in the world recognize that haptics is a necessity to compete differentiate and capture customers in the global market. From an overall market perspective let us step back and remember that back in Q1 there were 3 million phones shipped with our technology.
That number grew to 7 million in Q2 and is now 10 million in Q3 and today on a cumulative basis more than 35 million handsets have been sold worldwide featuring Immersion’s haptic technology, 25 million of which were sold this year alone. While 35 million is a good number it is only a fraction of the phones sold globally.
Immersion will remain at the forefront of innovation and we’re well positioned to capitalize on upcoming market trends. For example, the second generation of Samsung’s widely popular haptics phone sold in Korea features the first implementation of our technology allowing users to design their own haptics effects.
Like the first haptics phone the haptics 2 launch was supported by a massive print, TV, and online marketing campaign driving sales in excess of 75,000 units in just the first three weeks. On the content front, Immersion is viewed as the key enabler to the trend of handset OEMs taking a broader role in the industry to differentiate their products and drive content.
We have programs under way in this area specifically with Samsung Mobile Innovator program and with Forum Nokia, Nokia’s developer group. Two last comments before wrapping up our discussion on mobility.
First, from a business model perspective it is clear that Immersion’s primary near-term opportunity given current market trends is tactile feedback in handsets. Rather than revenue streams based on content, messaging, or download which is some market that is in fact still emerging.
Second, the recently announced hire of Craig Vachon as Vice President and General Manager of mobility group represents an important and positive shift in our strategy. Immersion now has a proven leader from the mobile sector in this role.
Craig’s mobile experience includes gaining design wins with top tier handset manufacturers, executing license agreements with large mobile operators, and building a strong mobile network within the broader mobile ecosystem. In short Q3 was a great quarter for our mobility line of business.
Revenue for our touch interface products line of business, which includes a touch screen feedback and automotive products, was up modestly over Q3 of 2007. We’re deeply engaged in accelerating the rate of growth for this business and have secured recent design wins that will help achieve this goal moving forward.
These include design wins at Topcon for our machine control applications and an expansion of our license agreement with Samsung for digital audio players. Our great partnership with SMK is also delivering design wins.
One is state-of-the-art touch panel with tactile feedback for factory automation controls manufactured by (inaudible) Limited in Japan. The second is a touch feedback display in the navigation system for a major US car rental company.
In this instance, thousands of these displays have been recently shipped representing the first installment in a planned multiyear replacement project. SMK’s efforts have and will continue to generate revenue in these quarters and years to come.
In short we’re starting to deliver on design wins rather than talking about the promises of the future. In fact very often we cannot provide you with details and specifics due to confidentiality agreements, however, these just mentioned are a few of the tangible victories that will result in revenues for future periods.
Regarding other automotive solutions we will see the start of production of a new vehicle enabled with Immersion’s rotary-based technology this calendar quarter. I’m not at liberty to reveal the details of this maker model yet.
But I will say that this is a high profile vehicle from another premier carmaker and that we expect the new model to debut at the L.A. Auto Show in November.
Additionally, our tier one automotive system integrators have secured several new design wins with start of production dates for the first two vehicle beginning mid-2009. We anticipate the other design wins will ship in vehicles for model years 2010 to 2012.
In addition to the wins already mentioned we’re in close collaboration with a number of market leaders across various sectors targeting the consumer electronics, office automation, and the machine control market. At this time we have a number of customers at the prototype stage with new products designed around Immersion’s TouchSense technology.
While it is premature to discuss specifics, think about haptics implementation for applications ranging from multifunction printers, navigation devices, high-end remote controls, industrial mission controls and desktop IP telephones. Interest in our solutions is high and we’re pushing change through the organization to capture the myriad of opportunities before us.
Let’s now turn our attention to our gaming business before providing a quick wrap up and moving on to questions. Immersion’s haptics technology dramatically revs the gaming experience whether played on a console, PC, or mobile device.
This line of business showed 27% year-over-year growth in Q3, excluding the settlement of a legal dispute with ISLLC. Our progress during Q3 included adding new licensee, dreamGEAR, a successful and a popular seller of gaming products.
We are also seeing good market uptake of various steering wheel models that Logitech introduced for the PS3. We expect this momentum to continue when Logitech starts to ship steering wheels (inaudible) later this calendar quarter.
To be clear, gaming represents a vital opportunity within the touch segment of Immersion’s business and we have reignited our innovation in the PC gaming and console market. We are working very closely with our licensees on exciting new product ideas while continuing to explore new opportunities for growth within other entertainment platforms all designed to create revenue opportunities for future harvest.
While the gaming industry changes rapidly based on shifting consumer preference one thing is a constant. The addition of haptics and Force Feedback technology dramatically improves the immersive user experience in game play.
And Immersion’s technology can and should lead this market. That completes my review of our Q3 progress across our lines of business.
Stepping back for a moment I want to quickly reiterate a few elements of our go forward strategy and note some of the milestones you should look for as we close out 2008 and head into 2009. First, I want to explain how we’re now looking at our business.
Essentially, we have two lines of business medical and touch; touch which includes mobility, user interfaces, and gaming. We believe that this view simplifies our business and this is how we intend to discuss it moving forward.
Second, we intend to increase our market opportunity by signing new licensees entering new markets with the touch and medical fields introducing new products and expanding our geographic reach. We’re building our executive team and putting in place highly motivated leaders with winning track records of driving growth and closing deals that will deliver revenue.
And third, we will continue to leverage the world’s best IP portfolio of haptics technology across multiple horizontal, vertical, and geographic markets. In closing, the third quarter was highly productive for Immersion.
We exceeded $10 million in revenue for the first time and we demonstrated growth amidst a turbulent market. We cleared the decks of some significant legal distractions.
The pace of positive change is accelerating throughout our organization and that will result in stronger growth and greater predictability as we move forward. We’re making a transition to what I referred to as a customer-focused, forward-leaning organization.
That’ll be reflected in the way we do business, portray ourselves, and how we communicate with our customers, partners, and investors. Then rate of news releases coming from Immersion has increased and we intend to build on this momentum.
We are working to improve the transparency and granularity of our business. We understand that some analysts and investors have expressed difficulty in modeling our business based on the lack of forward-looking comments.
Our goal is to provide you with more visibility and during our prepared remarks comments today we have shared aspects of that outlook with you. Specifically and to reiterate, for the fourth quarter we expect that the number of handsets sold worldwide featuring our technology will continue to increase, that revenues from our medical line of business will increase, and that legal expenses will decline.
As predictability in our business -- as the predictability in our business and therefore our visibility improves overall, we will share that with you. We’re not there yet but we understand that this is an important issue for our stakeholders.
We’re committed to building a business for sizable growth and long-term profitability. Immersion has the world’s best haptics patent portfolio at a time when consumers and OEMs are truly recognizing the power of touch in the user experience.
We understand that a strong balance sheet is a requirement for success in today’s environment. And we indeed are well fortified to make the targeted investments necessary to drive strong growth.
We look forward to sharing our progress with you as we execute on our initiatives to drive the pace of growth across all lines of business. Thank you for your attention today.
I will note that at last quarter’s call we experienced a technical difficulty at the Q&A session. We have made the appropriate changes to correct these issues.
So, operator let us move right on to our first question.
Operator
Thank you. (Operator instructions) Our first quarter comes from the line of Mark Argento with Craig-Hallum Capital.
Please go ahead.
Mark Argento - Craig-Hallum Capital
Hi, good afternoon guys.
Clent Richardson
Hi.
Mark Argento - Craig-Hallum Capital
When you are speaking -- when you are speaking about your business you’re not providing specific financial guidance. But is it your expectation that the business will return to profitability sometime in 2009?
Clent Richardson
Mark thanks a million for the question. At this point we would hope that by the time we crossed into the 2010 calendar year that he would have crossed the threshold.
I think it is a bit premature at this point based on our ‘09 planning to forecast at this point but that is definitely a plan as you know well, I came to a company to run a business that is profitable and we’re making the right investments today I believe to cross that threshold. But I believe it’ll be probably towards the end of the year.
Stephen.
Mark Argento - Craig-Hallum Capital
Could you, switching gears in terms of some of the things you guys have had in the pipeline for a while, such as the 3M relationship there, could you give us an update is 3M shipping any equipment on the touch screen for the casino market. I know, the casino market is of course very difficult now but is that relationship -- should that relationship bear fruit hopefully in ’09?
Stephen Ambler
Mark this is Stephen. Yes it will.
There is really no change from what we said last quarter. They’re going to be showing their touch screens at the G2E Show at November and they should be in a situation whereby they are taking orders from us by the end of the second quarter next year.
It is taking longer than we want and thought it would take and it’s a bit frustrating but I think we’re getting to that final leg of the journey with them.
Mark Argento - Craig-Hallum Capital
And could you talk a little bit about the international. I think you are making a lot of progress internationally, is it -- are these existing relationships that are -- you had before that are finally coming to fruition or is it literally putting new people on the ground and these guys getting to work pretty quickly.
Give us little color of the dynamic of what is going on internationally?
Clent Richardson
You bet. As you would recall recently in the last two months we announced the addition of David Barkay as our Vice President and General Manager, International, for medical.
This individual is leading in building a team that is delivering exemplary results as you can see. He’s both operationalizing and improving the relationships of some of the existing distribution channels we have had.
He’s rebuilding the infrastructure for some direct relationships that we’re creating internationally to sell direct to customers and he’s also bringing on new licensees like Tellyes Scientific. And I would offer Mark, I am on my way to Asia next week to personally assisted David and his sales team both in Japan as well as in China, and we’re confident that we will continue to grow and scale the business in that region.
Mark Argento - Craig-Hallum Capital
In terms of -- it looks like the increased spending in the quarter; some of it was in building up the sales infrastructure. It looks like R&D was up a little bit.
Where are you spending now incremental R&D dollars right now?
Clent Richardson
We’re going through a process of developing additional medical products and also on our touch interface side. We’re working on increasing the number of product offerings we have and improving the products we currently got.
Mark Argento - Craig-Hallum Capital
Okay.
Stephen Ambler
Mark, if I could just add quickly to that in the prepared comment I mentioned the fact that I view and we as a team view gaming as a frontier and part of where we are investing our resources now is also in reigniting the innovation engine in the gaming space. As you know, our patents in the gaming space are paid handsomely and we will continue to innovate in that space and we think that is a wise place to make some investments.
Mark Argento - Craig-Hallum Capital
Okay, and then could you touch again, I know you have mentioned about the automotive opportunities, did you say it was one or two OEMs that you have reached agreements with and could you just review that again. I didn’t catch, quite catch all that.
Clent Richardson
You bet. The first one and the nearest one is from a new premier high profile car that we’re expecting to be debuted at the LA Auto Show next month.
And so stay tuned for that one and then we have two other car manufacturers that have new products coming in the mid part of 2009. And then we have subsequent ones that are coming online 2010 to 2012.
Mark Argento - Craig-Hallum Capital
Could you -- is it in screen interface or what kind of applications should we be thinking about in terms of in the car and they are buttons or the knobs and the BMW i-drive, but is it expanding beyond that?
Clent Richardson
The initial ones that we’re seeing will be largely rotary based and we’re pushing forward on the touch side but that is an area that is highly, highly competitive in the automobile manufacturing right now. And so I think we need to keep our counter drive.
This is their products and their technology they want to announce. But rest assured we feel is a solution that will go across virtually every electronic and motorized device and we plan to play in that.
Mark Argento - Craig-Hallum Capital
Great. Thanks guys.
Clent Richardson
Thank you very much Mark. Next question please.
Operator
Thank you. Our next question comes from the line of Jeff Schreiner with Capstone Investments.
Please go ahead.
Jeff Schreiner -Capstone Investments
Good afternoon gentlemen. Thank you for taking my call.
I was wondering if you could talk a little bit more Clent about the opportunity in consumer products and also maybe if you could set aside somehow for it, maybe the potential with Samsung that you guys recently announced you know, last week or so?
Clent Richardson
I apologize. You just cut out.
Could you say the first part of your question again please Jeff?
Jeff Schreiner -Capstone Investments
Yes, the question we had was to try and discuss the opportunity for us, try to give us a size of the opportunity in the consumer products market that it seems that you’re having the opportunity to enter. And then you know, try to help us also decide potentially maybe how impactful this Samsung announcement could be that you had on consumer products about a week or so ago?
Clent Richardson
You bet. So consumer products as you could well appreciate like many of our customer design wins, they are product specific.
They are design wins the talk about technology that is going into future products and designs. So the way that we characterize this is in Samsung’s case they are going to be embedding this in their MP3 players and it is not specific yet but I would view this as a narrow end of the wedge for other consumer electronic devices that they are considering in the future and in the instance of other consumer devices.
You know, this is -- the applications range from washing machines, dryers, microwave ovens, sort of on that where everything is going to touch interface, all the way across to multifunction printers, as we have discussed in the past windows seven is going to be touched enabled. We think that there is an interesting opportunity for us as well.
So that is -- it is a broad kind of non specific answer but it’s a broad, broad market and the way we’re attacking the market is both with the people that help design the user experience for these people as well as the market leaders in each of their categories.
Jeff Schreiner -Capstone Investments
Okay, also I would just like to cut into also into the new user controlled VibeTonz and kind of size that and will that be something that with the added functionality at the same price if you have already customers like Samsung or is that something that could get incremental value to Immersion?
Clent Richardson
So guess I would answer it in two ways. The first one is this is the first implementation of it and we are through.
It is, I am sorry to use the word cool, but it is pretty damn cool. Users can actually create their own haptics effects.
We think that this is the beginning of a trend and it is our hope and desire that this is the beginning of a trend that will spread like wildfire across the other announced handset manufacturers that we have and I think another way to characterize this is providing it does catch on like we’re expecting, we believe this does create the potential for additional monetization for us.
Jeff Schreiner -Capstone Investments
Okay, fair enough. Just one last question, I appreciate your time.
You mentioned Nokia’s new design that incorporated Immersion technology. Did the company see any revenues from Nokia in the September quarter?
Clent Richardson
Well, as we have said in the past we are not able to really talk a lot about our Nokia relationship. Generally, on our mobility side we receive revenues for a combination of license fees and run-time royalties.
So we really can’t disclose the specifics on the Nokia deal. But that is definitely incentivized to implement a large number of phones.
And as we have said the number of phones are increasing and we expect growth and our revenues on mobility as we move forward next year.
Jeff Schreiner -Capstone Investments
Thank you gentlemen.
Clent Richardson
Thank you Jeffrey. Next question please.
Operator
Thank you. Our next question comes from the line of Michael Kim with Imperial Capital.
Please go ahead.
Michael Kim - Imperial Capital
Hi, Clent. Hi Stephen.
Clent Richardson
Hello Michael. Thanks for joining us.
Michael Kim - Imperial Capital
Terrific. Just touching on the mobile handset side as a follow on to your comment Stephen, I know it is hard to look down the pipeline at this point but in ‘09 would you expect comparable handset volume growth in ‘09 that we have seen with ‘08 considering that we can assume Nokia would start to ramp their shipments.
Stephen Ambler
I would actually expect to see softer growth in ‘09 primarily because Nokia provides a platform solution and as we get included on that platform and the platform we’re going to be included on is the series 60 platform. That is -- a recently large part of that business and growing part of the business.
I believe at the moment it is around 20% to 25% of the phones that the ship and that is 400 million odd phones a year in total. So 20% to 25% of that is 80 million and 100 million phones.
So by the end of the year I would expect us to be put on approximately 10 million phones a month.
Clent Richardson
And Michael we’re just talking about touch screens here because that is generally the series 60, but we have a solution in TouchSense mobile and in VibeTonz where you don’t have to have touch screen to be able to utilize our technology. So actually think the market is much larger than we’re sort of talking about in the traditional investor space.
And it is up to us to figure out how to monetize and exploit that and explain that but rest assured we think is a lot more than just touch screen. That is the obvious but we provide haptics feedback to a number of phones that don’t have touch screens today.
Michael Kim - Imperial Capital
Okay, great. And just also as a follow on to the mobile side can you talk a little about pricing if there has been any significant shifts with pricing.
I know it is difficult to talk about Nokia but overall are you seeing any changes in the marketplace?
Clent Richardson
We haven’t seen -- there were no changes that took place in the last quarter. We’re looking to increase our revenues on our mobility side as we move forward.
We probably won’t be able to make a lot of progress in that until the middle of the second half of next year.
Michael Kim - Imperial Capital
Okay, great. And can you talk at least in broad terms what the progress or how far along you are in conversations with another handset OEM to follow on with Nokia.
I think you signed them about a year ago, a little over a year ago just curious what kind of progress you have seen in your conversations with other major OEMs.
Clent Richardson
And Michael that is a $64,000 question. Thank you very much for asking.
This is going to be an unsatisfactory answer in your mind but it is the truth. We’re not able to talk about ongoing discussions and contract negotiations until they’re actually announced by our partners and customers.
So, while it is frustrating to hear that answer that is the truth.
Michael Kim - Imperial Capital
It is maybe another way of thinking about it is obviously Nokia, Samsung, LG have adopted the technologies. Is there any particular reason why other OEMs are not adopting this technology?
Clent Richardson
I would answer the question like this. I think some handset manufacturers are more sophisticated than others in terms of product design, the speed to market, and how nimble they are in changing technologies midstream and their product planning.
Others are better at it. Those that have announced solutions, I would say are probably the best at it.
You know, you might argue that there is a small handset manufacturer in California somewhere that you might argue is better at it but they’re not a high volume provider. So we’re focused largely on the high volume space and those that have announced licensees of us are probably the best at it today.
But that doesn’t mean that there isn’t a lot of stuff that is on the stores, we are just not able to talk about it at this point.
Michael Kim - Imperial Capital
Okay enough, fair enough. And then switching gears to the automotive side with this high profile car that will be announced and unveiled at the L.A.
Auto Show and these two OEMs that you talked about for mid ‘09, are these models that would range at the higher end of the volume, call it 100,000 units a year or more and as a follow on to that, what is kind of the revenue opportunity, is it a per unit royalty or is it more -- more like what we are seeing with the BMW i-drive.
Clent Richardson
Sure. I’m going to let Stephen talk about the revenue component.
The way I would -- you might quickly be able to identify what manufacturer and where it is, and so I’m going to be a little bit vague on the volume. It is a model of car the one that will be announced in November we expect that is in a growing category.
I guess that is the way I would characterize it. And it is probably in the range of the number that you talked about but I think that is about as comfortable and as much information as I can share at this point.
Stephen do you want to characterize kind of what we consider that revenue opportunity to be?
Stephen Ambler
Yes Michael. The revenue opportunities on auto, it is licensing model and we do earn per unit or per vehicles royalties, depending on how many applications are included within a car, but if one application is included in a car we are running up to $5.00 per car.
Michael Kim - Imperial Capital
Okay, great. Fair enough.
And then lastly just on the cash position you know it was about $100 million. I know it is a difficult environment out there.
You but do you have any thoughts about utilizing that cash either strategically or even opportunistically on the buyback side.
Clent Richardson
Well I will answer the buyback side. As we have just said we have been buying back shares.
We bought quite as sum back so far approximately 2.8 million shares. Cash in the last three months has changed its profile, you know, with companies.
I mean it is -- the thing to have now is liquidity. So we are as I mentioned earlier on with slowing down, curtailing our buyback for the foreseeable future.
As for the strategic side, if the right opportunity comes along, yes, we will look at that.
Michael Kim - Imperial Capital
Okay, great. Thank you very much.
Clent Richardson
Michael, thank you very much.
Operator
Thank you. Our next question comes from the line of Mark Avast [ph] with Equity Groups [ph].
Please go ahead.
Mark Avast - Equity Groups
Hi guys. Congratulations on the revenue threshold of $10 million.
A question regarding the mobility side of things, with VibeTonz getting into more and more handsets, have we being seeing any increase in what type of percentage increase on the game side of things?
Clent Richardson
I assume you are talking about mobility games?
Mark Avast - Equity Groups
That is correct, in the handsets, the phones.
Clent Richardson
Right. So, we’re definitely seeing up tick there.
As I mentioned in the prepared comments the games we consider kind of the content side of the mobility business, and we are working furiously to try to unlock and crack the code of what that real business model is. However, that is not stopping us.
We have several things that are in the oven [ph] right now that we expect to roll out in the next probably 4 to 6 months that would be focused in the gaming space. I also talked about some of our innovation on our traditional gaming line of business and I think that there is also a natural convergence between these two business lines that we could exploit and you could well bet that we’re looking at that very, very hard.
Mark Avast - Equity Groups
In the mobility side of things, the handset, the phones. Is it a revenue model that has to be deployed only within the Qualcomm model or can it be outside of that environment?
Clent Richardson
No we’re fortunate. I guess the best way to describe it is (inaudible).
If it is a mobile handset and it has an motor or an actuator that is the only discrimination we need.
Mark Avast - Equity Groups
Okay, and as I understand now the pricing of those games on those handsets roughly range between $3 and $9 or we would look for a percentage of that per download, is that correct?
Clent Richardson
Well, I think that is one way to look at it. As you would also expect there is also a number of handset manufacturers, which embed games actually on the handset as well and that is another potential that we are exploring.
I don’t know if what the elasticity of $3 to $9 over time is going to be particularly in this macroeconomic environment but I could well expect that there is a percentage that we want might want to explore. But I think until we actually have the business model fully understood.
I think I would rather hold and save that for an official announcement on how we improve -- how we intend to move that forward.
Mark Avast - Equity Groups
And the timing on your intent on that model materializing roughly?
Clent Richardson
Well I would hope that we would have progress that we could share with you in the next 4 to 6 months.
Mark Avast - Equity Groups
Outstanding. Shifting over to the medical side of things.
In the past we have seen a -- applications being developed for the existing hardware at a rate of roughly one new application a quarter. Is that something that we can still anticipate and are there going to be more hardware platforms approaching different types of medical surgeries?
Clent Richardson
So mark, the way we’re looking at it right now, we have looked at it predominantly as a hardware platform with individual models and procedures within each hardware platform depending upon like in the vascular, endoscopy, laparoscopy, you take, whatever it might be. What I have done since I’ve been here and working with the team is zooming out and saying it might make more sense to have one unified hardware platform that we can specify by procedure that we can make more software based rather than hardware based.
I think software is the future. They need to be connected so that we don’t have to visit sites to upgrade them.
And so I guess that’s about all I’m going to tell you on our product planning but it is a broader view rather than just sort of simply adding another hardware platform to get into a new procedure. I think the model we would like to go to is more unified hardware where we have software solutions and procedures that would serve multiple procedures.
Mark Avast - Equity Groups
Understood. And by the way to the audience, Clent is absolutely right until you have actually tried these machines you just can’t believe the effectiveness of it.
I took the time and I was wowed by the process and technology. Shifting once again this time over to the automobile side, right now you have only mentioned the touch screen hard to crack market you mentioned the rotary knobs, is there any inroads being made and can we anticipate anything materializing from the slide-by-wire type of methodology and need of haptics with clutch and brake and accelerator.
Clent Richardson
Right. We know that well.
That market we know the technology well. We have experts in it.
I think it is fair to say we’re not prepared to talk about that publicly today.
Mark Avast - Equity Groups
Understood. Thanks for the time guys.
Keep up the great work. Looking forward to the next call?
Clent Richardson
Thanks Mark.
Operator
Thank you. We have time for one more question.
Our final question comes from the line of Glenn Mattson with GTK Capital. Please go ahead.
Glenn Mattson – GTK Capital
Hi, guys. A couple of quick comments and a quick question.
I want to congratulate you on a good quarter and design wins. Keep them up.
And secondly, I agree that the cash is a vital aspect to a small unprofitable company. There’s plenty of opportunity in front of you I am not sure you need to spend any of that cash, you know, for other things out there that provides a lot of protection in this world.
But lastly, I’m just curious is your goal eventually to move the pricing scale up in the mobility side or is it just strictly a volume game?
Clent Richardson
We think there is two dynamics here, the first one you get more players, the waterline rises. And the more players you get the broader distribution you have.
Glenn Mattson – GTK Capital
What do you mean by that the waterline rises?
Clent Richardson
Well, so the first people in generally get the best deal.
Glenn Mattson – GTK Capital
Yes, sorry, excuse me. I’m working from home today and have my dog in the house.
Clent Richardson
No problem as long as he doesn’t bite.
Glenn Mattson – GTK Capital
Yes.
Clent Richardson
So -- generally, the first ones in get the better price and the latter ones in understand that they didn’t first mover advantage and price would generally go up. And I think that is sort of the traditional market pricing unless it is an extremely commodity based one, which ours isn’t.
Ours is value added. And we also believe that the more distribution there is creates the need for others that don’t have it to have to have it.
Glenn Mattson – GTK Capital
Right. So in deals that you’re negotiating now, you are looking for better pricing than in prior deals?
Clent Richardson
We’re always looking for better pricing. It is we don’t disclose that -- those details, but you could well appreciate that value goes up over time?
Glenn Mattson – GTK Capital
Okay, well, great. Keep up the good work guys.
Clent Richardson
Thanks very much, Mattson.
Operator
Thank you. And at this time I like to turn the call back over to management for any closing remarks.
Clent Richardson
Thank you very much. We appreciate your questions.
We appreciate your attendance today and we appreciate your support. We look forward to seeing you in one of our investor conferences of which we will be at two over the next three weeks.
We will be presenting at or you can check in our website to see those conferences or we will catch up with you in our next quarterly call. We appreciate your support again and have a great day.
Operator
Ladies and gentlemen this concludes the Immersion Corporation third quarter conference call. You may now disconnect.