Atheros Communications Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon and thank you for standing by. All participants will be able to listen only until the question-and-answer session of today's conference call. Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

Welcome to the Atheros Communications conference call. I will now turn the call over to Ms. Deborah Stapleton who will introduce today's speakers.

DEBORAH STAPLETON, IR, ATHEROS COMMUNICATIONS INC: Thank you all for joining us today. On the call will be Dr. Craig Barratt, President and CEO of Atheros, and Jack Lazar, Atheros' CFO.

Before we begin, I'd like to remind you various remarks we may make, including those about the features, performance and benefits of the Atheros AR1900 chip, the market opportunities for PHS, and the ability of the pricing of the AR1900 chip to increase the size of the cellular market, the anticipated growth of the PHS market in China and elsewhere, the anticipated timing of volume shipments of the AR1900 chip and revenues from the AR1900, the ability of Atheros to successfully apply its expertise and competencies to markets outside of wireless LAN, and to develop other new solutions later this year, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including but not limited to the impact of competitive products and technological advances, unforeseen defects in the AR1900 chip that may be discovered upon volume production and broad deployment, manufacturing difficulties, difficulties in development of enhanced and new products, Atheros' ability to market its products and ship in volume, Atheros' lack of experience in markets other than wireless LAN, general economic conditions, particularly in China, whether PHS continues to grow as a cellular technology in China and elsewhere, and the effects of regulation of the cellular market in China.

We refer to you our annual report on Form 10-K for the year ended December 31st, 2004, previously filed with the SEC, in particular to the section entitled factors that may affect our results, and to the reports we file from time to time with the SEC. For additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date hereof, and we disclaim any obligation to update these forward-looking statements.

Now, having said that I'd like to turn the call over to Dr. Craig Barratt. Craig.

CRAIG BARRATT, PRESIDENT, CEO, ATHEROS COMMUNICATIONS INC: Thanks, Deb, and thank you for joining us.

This morning we announced Atheros' first step toward diversification outside of the wireless LAN market, the AR1900, which is the world's first single chip solution for the high volume PHS cellular market. All of us at Atheros are very proud of the many technical accomplishments as part of this product development, and our ability to bring such a complex and groundbreaking product to market within just one year. We believe it represents the first of many opportunities for Atheros to address additional new high-growth areas of wireless communications.

As many of you know, PHS, or Personal Handyphone System, is an advanced digital TDMA-TDD cellular technology operating at 1.9 gigahertz, which provides high quality voice, advanced data services, and extremely long battery life. Most PHS phones have standby times of 500 or more hours, meaning you can leave your phone on for three weeks 24 hours a day on a single charge. PHS encodes voice at 32 kilobits per second in contrast to most cellular technologies which compress the voice to 8 or 13 kilobits per second. This means PHS can deliver voice quality much closer to wireline.

PHS technology was first deployed in Japan by 3 carriers including KDDI and NTT DoCoMo. Currently there are around 5 million subscribers in Japan and KDDI is the dominant carrier. The PHS network in Japan has been popular among younger people. In fact, the busy hour has been typically late at night.

PHS in Japan also serves as a data network for business users providing, 64 and 128 kilobit per second wide-area data service at low cost. In fact, I use this network when I travel to Japan, allowing me access to the Internet and our corporate network anywhere I travel, including on the Shinkansen or bullet train.

The greatest growth in PHS has been in China, where the technology is called PAS, or PAS, which stands for Personal Access System. In China it has been deployed by wireline carriers to provide a low-cost alternative to the cellular carriers. Initially PAS was only deployed in smaller cities, but recent deployments have started in major cities such as Beijing and Shanghai.

In China, PAS is not positioned to directly compete with the major cellular services. Rather, it is targeted at the billion Chinese citizens who do not currently use or cannot afford GSM or CDMA. Calling rates are roughly 4 times lower than GSM, and monthly service charges and unsubsidized phone prices are approximately half of GSM. Clearly this is a very cost-effective solution for the masses.

Recently China's Ministry of Information Industry, or MII, has authorized SMS gateways between PAS and GSM, …