Craig McHugh Quotations

We believe we can get closer to break-even in the current quarter and that we can return to profitability by the end of this calendar year.

We're second to them in market size, but now I think it is clear that our user interface has the largest market share in the world.

One of the key challenges we face in our MP3 business is an industry-wide shortage of 1GB flash memory. Industry demand for high-capacity flash memory currently outstrips supply and this will impact availability of our 1G-byte flash MP3 players for the holiday quarter. The shortage of flash memory, according to industry analyst speculation, is primarily a result of a special deal that Apple has secured from a key supplier for the holiday season.

We're pleased about the patent and the protection it provides us. We're evaluating all the alternatives.

Our revenue in the quarter was the highest for any quarter in the past five years, with increased year-over-year sales in each of our key product categories.

We had under invested in the marketing efforts of X-Fi as we focused on becoming No. 2 in the MP3 segment.

The patent application was to protect our invention. As you can see . . . the invention is significant.

We plan to be very vigorous in the defense of our intellectual property.

We are looking at all our alternatives right now. We have always been very vigorous in our defense of our patent portfolio.

We will continue to try drive down inventory level so that we are able to be nimble on pricing.

This will make us a leaner, more agile operation.

To be able to achieve that, we need to have margins at or above 20 percent.

We are examining each of our product categories to determine how we can improve revenues, return gross margins to 20% percent or higher, and reduce operating expenses as we target a return to profitability in the second half of the calendar year.

We're very open to talking to all the companies interested in using our interface. We're going to be very vigorous in bringing our technology to market, and very vigilant in protecting our patent rights.

We had set our targets higher for unit volume and average selling prices for our MP3 players than we achieved in the period.

Even though we increased overall revenues 50 percent year-over-year, the lower-than-expected selling prices for MP3 players and the inventory write-down negatively impacted gross margins.

There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter. This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period.

Of primary importance, we achieved our goal of returning to profitability.

Apple tried to claim invention, but this patent dispels that. We are going to look at all the alternatives that the patent provides. We can look at legal remedies.

In the next few quarters, we plan to further lower our inventory, reduce our overall level of operating expenses and we will increase our focus on our higher-margin businesses.