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spk01: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's second quarter fiscal 2022 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At this time, we will provide instructions for those interested in entering for the Q&A. Before we begin today's call, the company has requested that I read the following Safe Harbor Statement. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, October 28, 2021, at the request of GSI Technology. Hosting the call today is Li-Lin Xu, the company's chairman, president, and chief executive officer. With him are Douglas Shirley, chief financial officer, and Didier Lachere, vice president of sales. I would now like to turn the conference over to Mr. Xu. Please go ahead, sir.
spk04: Good afternoon, and thank you for joining us to review our physical second quarter 2022 financial results. Our revenue increased by 17%, year over year for the second quarter of fiscal 2022 to $7.8 million compared to $6.7 million in the second quarter of fiscal 2021. At the high end of the guidance provided earlier in the second quarter to the first half of fiscal 2022, revenue is up 25% compared to fiscal 2021 and sales to low-key our largest SM customer, have stabilized despite ongoing supply chain challenges that are troubling our industry. We reduced our net loss by 22% year-over-year as a result of higher revenue and gross profit and only a modest increase in operating expenses on a year-to-day basis. At quarter end, we had nearly $51 million in cash, cash equivalents, and shorter investments to support the launch of new products and sales and marketing efforts to build a pipeline of opportunities. Our legacy SOM business is profitable and generates cash flow to support the development and pending launch of our radiation-tolerant devices and the Gemini APU solutions. We continue to advance our key initiatives with ongoing APU and radiation-tolerant opportunities. We are progressing in the current customer engagement for both categories and have added a few new better customer engagements for the APU. We continue to prioritize the allocation of our capital toward the APU. which we believe is central to the long-term value of the company, given the unique opportunity for our novel technology. We are committed to our strategic investment in APU. Through our own detailed analysis of market data, we estimate that the global trend for APU search application is approximately $137 billion, Later in the course, Delia will discuss our assumptions and the market represented to illustrate in more detail our conviction regarding this strategic investment. We were recently selected to be an organizer and judge for the billion-scale approximate nearest labor search challenge, a first of its kind competition in large-scale approximate nearest Labor Search, or ANNS. The event has been hosted by Neuro IPS as part of its annual conference on Neuro Information Processing Systems. GSI is one of the members of a panel led by Microsoft that includes AI thought leaders from industry and academia.
spk00: Participating teams submission
spk04: will be evaluated against challenge datasets containing at least one billion vector records. The winning teams will be announced at the Rural IPS 2021 Conference in December. Recent advance in ANS techniques for search, recommendation, and ranking require supporting a billion, trillion, or large datasets. This composition is to help establish a consensus on which algorithms are effective at this scale. ANS is important to search, retrieval, and recommendation. The challenge for ANS algorithm designers is to create a data structure that enables fast retrieval over the KDS level. Even as the data set, the database size grows. The trade-off between accuracy, measured typically as a recall, and the search latency, measured typically as query throughput, is important in evaluating ANS performance. Several implementations of large-scale ANS are now powering enterprise-grade, mission-critical, and wide-scale search applications. In these scenarios, benchmarks such as cost, Pre-processing time and power consumption become just as important as the recall versus latency trade-off. I have discussed on past calls the APU's advantage in power consumption. From our relationship with our laptop to crypto miners who run their own print hardware, we all know the importance of acquiring power-efficient hardware to lower the power bill. Power is a big problem today, from how much we consume to generating the power for our machines. Here are a couple of eye-opening statistics. Global data centers consumed an estimated 205 terawatt hours in 2018, or 1% of global electricity use. The amount of energy used by data centers doubles approximately every four years. meaning that data centers have the farthest growing carbon footprint of any area within IT sector. This problem will likely increase as workloads become more data-intensive and AI-centric. New hardware and chipsets specifically designed for power efficiency will continue to be a major component of the design of future data centers. Solving this problem is one of the strategic opportunities for our technology. GSI can document in numerous applications that our technology brings enormous power savings because our typical system requires a much smaller footprint. We lowered overall total cost of ownership. Two of the leaderboards in the building scale approximately years their third challenge competition will rank participants relative to power usage and hardware costs. Like the other organizers and panelists, GSL will have a submission to the competition. Of course, we hope to attain a leadership outcome for our submission and gonna increase visibility with other competitors, including Nvidia, Microsoft, Intel, and other leading AI hardware vendors. We mentioned on our last call that we are a partner in OpenSearch 1.0 launched by AWS with our ElastiSearch KNN plugin. We are still in the early stage of developing this opportunity. We have a functioning server in our Silicon Valley data center where we have had an initial customer demo. At this time, the release of the new OpenSearch 2.0 protocol has been delayed, pushing out the timing of our rollout. We expect our next round of demos will happen once the next version of OpenSearch is released. It's our goal to open up our facility to better customers in calendar 2022. This quarter, we successfully raised the profile of GSI in the industry with our participation in the AAMS competitions. We are moving forward with opportunities that have followed our recent success in prior competitions with the APU and the announcement of the Radiation Tolerant NASA Award. The GSI team has been working tirelessly to raise our profile with the goal of leading better customers and building a pipeline of business. I sincerely thank you for your support as a fellow GSI shareholder. Now I will hand the call over to Didier, who will discuss our business performance further. Please go ahead, Didier.
spk06: Thank you, Lilien. As Lilien stated, we have identified the market segments we believe are most relevant to the APU and defined our total available market, or TAM, and also our serviceable available market, or SAM. Starting with the total opportunity for the APU search applications based on the available data, we estimate the global TAM is $137 billion in 2021 and will grow at a CAGR of approximately 20% to $287 billion by 2025. Our SAM is $4.5 billion in 2021, growing to $10 billion by 2025. The multiple search market segments we include in our analysis include computer vision, synthetic aperture radar, drug discovery, cybersecurity, and service markets, such as NoSQL, Elasticsearch, and OpenSearch, which we plan to support with a SaaS solution. These are market segments where we currently have ongoing customer engagements. Computer vision is a broad term that includes image and object recognition, facial and body recognition, warehouse robotics, automatic target recognition, and dense registration, which is aligning a photo image with a previous one, which is beneficial for mapping. These are all markets where our chip is highly relevant. Near term, we are engaged with opportunities in facial recognition, object identification, SAR, and re-identification. Re-identification is the sorting of faces or objects not in the database that allows this unknown object to be recognized and note any patterns related to where and when their image is captured. With regards to the supply chain constraints facing our industry, like many semiconductor companies, we face a one-year lead time on substrates used in our chip assembly, and supply remains tight. There was a fire at one of our substrate suppliers but they are now back up to 70% capacity, which is helping. In Taiwan, we had a subcontractor that shut down in June for four weeks due to a COVID outbreak in their factory. It's now 100% back in place. Regarding the recently announced TSMC wafer price increases, we are looking at 20% increase in wafer costs, with the new prices becoming effective for all new orders. Overall, the impact of increased assembly labor costs rising substrate prices, increased wafer costs, and expedite charges means that we will be increasing our prices to all of our customers. Moving to the sales breakdown for the second quarter of fiscal 2022, sales to Nokia were $1.9 million or 23.8% of net revenues compared to $3.4 million or 51.7% of net revenues in the same period a year ago, and 3.8 million or 42.7% of net revenues in the prior quarter. Military defense sales were 27.4% of second quarter shipments compared to 26.9 of shipments in the comparable period a year ago and 20.0% of shipments in the prior quarter. Sigma quad sales were 52.4% of second quarter shipments compared to 65.4 in the second quarter of fiscal 21. and 63.6% in the prior quarter. And now I'd like to hand the call over to Doug.
spk02: Doug, please go ahead. Thank you, DDA. We reported a net loss of $4.6 million, or 19 cents per diluted share, on net revenues of $7.8 million in the second quarter of fiscal 2022, compared to a net loss of $5.2 million, or 22 cents per diluted share, on net revenues of $6.7 million for the second quarter of fiscal 2021, and the net loss of $4.2 million, or 17 cents per diluted share, on net revenues of $8.8 million for the first quarter of fiscal 22. Gross margin was 53.6% compared to 46.7% in the prior year period and 54.4% in the preceding first quarter. The changes in gross margin were primarily due to changes in product mix sold in the three periods. Total operating expenses in the second quarter of fiscal 2022 were $8.7 million compared to $8.3 million in the second quarter of fiscal 2021 and $9.1 million in the prior quarter. Research and development expenses were $5.9 million compared to $5.7 million in the prior year period and $6.1 million in the prior quarter. Selling general and administrative expenses were $2.8 million in the quarter ended September 30, 2021 compared to $2.6 million in the prior year quarter and $3 million in the previous quarter. Second quarter fiscal 2022 operating loss was $4.5 million compared to $5.2 million in the prior year period and $4.4 million in the prior quarter. Second quarter fiscal 2022 net loss included interest income and other expense net of $8,000 and a tax provision of $42,000 compared to interest income and other expense net of $16,000 and a tax provision of $62,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other expense of $20,000 and a tax benefit of $172,000. Total second quarter pre-tax stock-based compensation expense was $716,000 compared to $653,000 in the comparable period a year ago, and $823,000 in the prior quarter. On September 30th, 2021, the company had $50.7 million in cash, cash equivalents, and short-term investments, and $2.8 million in long-term investments, compared to $54 million in cash, cash equivalents, and short-term investments, and $5.8 million in long-term investments on March 31st, 2021. Working capital was $53.6 million as of September 30th, 2021 versus $56 million in March 31st, 2021 with no debt. Stockholders' equity as of September 30th, 2021 was $69.9 million compared to $75.6 million as of the fiscal year ended March 31st, 2021. We still see the supply chain constraints having a modest impact on our ability to fill all of our orders. While there has been some improvement, the supply chain situation remains fluid, and we do not expect significant relief from these constraints before next year. Given these variables, current expectations for the upcoming third quarter are net revenues in the range of $7.2 million to $8.2 million, with gross margin of approximately 52% to 54%. Operator, at this point, we'll open the call to Q&A.
spk01: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Rajvindra Gill with Needham & Company. You may proceed with your question.
spk03: Good afternoon, everybody. This is actually Dennis asking a few questions for Raji. So I'd like to start off with a question about the price increases. When do you expect that the price increases that you're passing on to your customers will start to show up in the top line?
spk06: So we are changing backlog and all new orders as of December 1st.
spk03: All new orders. Got it. Wonderful. And then the other question that I had was relating to the Gemini 1 APU. I think on a few calls ago, you'd mentioned that the Gemini 1 APU should be seeing some volume production in this current quarter. How is that milestone being met? Are you beginning production or are the supply chain constraints limiting that? Can you give us an update on the Gemini 1 volumes?
spk04: Yeah, from the component level, I think we are in the pre-production mode, which means we are still doing the qualification. But it's ready if we see the demand for it. And I think right now the major challenge is still on the software. We have to make a lot of software API ready for the customer. So the software will be... major barrier for the hardware availability.
spk03: So you're saying that once the software is ready, that will kind of get you one step closer to the actual production of the Gemini 1?
spk04: Yeah. From the hardware point of view, yeah, we are ready. We just need to win the application with software.
spk03: Got it. All right. Well, that's all that I had. Thank you.
spk01: Our next question comes from the line of Jeff Bernstein with Cowen. You may proceed with your question.
spk08: Yeah. Hi, guys. Congratulations on the new patent. You guys were just issued on the SRAM structure optimized for in-memory computing. And from that patent, you can see there's not a large instruction set here, and it's going to be important for you guys to provide a compiler and software libraries that make the chip easier for people to use. Can you just give us some detail on what the deliverables are there and the timing for those?
spk04: I think right now a lot of things we are doing is really for the brain awareness. I think we do demonstrate we have good performance compared to other solutions in the industry. But I think we still made a lot of work to develop the market and to win the confidence of the customers. And so we have described it before, we have a lot of... We are participating in the competition, so we need the award. I mean, all this is for the brain awareness, and hopefully we can demonstrate our capability among our peers and also among the customers. So that's our major focus right now.
spk06: And, Jeff, just to add to that, for the deliverables, obviously the compiler stack is critical to that because, you know, as Leline mentioned, we're writing a lot of the APIs and in the algorithms today, but a lot of folks want to write their own or we can't keep up with all the different applications, so the compiler stack is critical. We're going to have that released to our beta guys. We already have the beta guys identified. We were hoping to do it by the end of the year. It looks like it might be falling into early next year for the beta guys. They'll go through it and they'll play with it and they'll try to break it and everything else. and then we'll release it to the general public sometime in 2022. I'm hoping it'll be sometime, you know, first half of 2022 where it'll be available for everyone.
spk08: Gotcha. And then I'm assuming that for certain vertical kinds of applications that are somewhat generalizable that multiple customers might want, like the synthetic aperture radar analysis or object recognition, et cetera, that you guys are doing libraries to make that even easier for people. Is that correct? And can you just, of those vertical markets you touched on earlier, can you just talk about when each of those is going to be delivered?
spk06: Correct. So you have both libraries and you also have further up the stack, the actual APIs or the algorithms. And so, as you mentioned, that has either been done or is being done for things like the SAR, the Synthetic Aperture Radar. You know that we've written it also for the Biovia pipeline pilot platform. It's already been done. We've done it for facial recognition and object detection. We are in the process of doing it for the dense registration. And we've done some work on re-identification as well. So there has been a lot of work that's been done already.
spk08: So is it fair to say that by the middle of next year, some of these key verticals will basically be covered and very accessible to customers who want to start using them?
spk06: If they want to use our algorithms, correct. Yeah. And like I said, some of the entities we deal with, getting external software is a problem. And so The answer is for folks where it's not a problem, those should be available. For folks that want to write their own, that's where we're relying on the compiler stack being available.
spk08: Yeah, okay. Gotcha, okay. And then just I want to understand a little bit more about the environment that you're facing out there in terms of sales and understand that you guys are in the model execution, not training part of the market. But what we see, you know, in the training market, you know, AWS just did an Elasticsearch instance based on the Intel Habana chips. So they're kind of open to outsiders. They have their own Tranium custom chips. It looks like Microsoft has got GraphCore, Grok, and Nimbix as training chip partners that they're working with. whereas some of the others like Baidu, Alibaba, and Google are only doing their own. Talk about the not invented here or who's open to look at outside chips among those big players out there that could be important partners.
spk06: Sure. So you bring up a good point. Almost all of the large big data guys have internal chip development happening, and they've always had that. But With that said, certainly if you bring a solution that's going to accelerate a search or it's going to lower the power or it's going to do something that's important to them, they're open to it. And we haven't seen anybody that basically said, no, we're designing our own. As you said, a lot of the chips these guys are doing are for very specific functions that are important to them. And a lot of it is centered around the training, as you mentioned. We haven't seen... that level of activity for specific search, which is what we're focused on.
spk08: Gotcha. But your feeling is that delivering these kinds of capabilities to some of these large players, they will be open to looking at these and possibly offering instances on their networks?
spk06: Correct. And we've seen that. already play out with um with the open search um you know again we we've demoed on 1.0 and we're waiting for 2.0 but you know they've already announced us as as a partner on that so they're yes they're open gotcha okay and then um i just wanted to ask on the non-nokia customers uh 48 of revenue that that's the highest since before uh the pandemic
spk08: Any particular customers that are growing, you know, outside of military or, you know, what's sort of the status of non-Nokia customers?
spk06: Yeah, so, you know, we were, as you looked at the numbers, Nokia was down more quarter over quarter than our overall revenue was. So obviously the rest of our revenue grew outside of that. And so we saw strength in Nokia. some areas that, you know, it wasn't one particular area. There was certainly some strength in the military sector. We also had shipped the end of that last order for the rat tolerant that we had mentioned. We shipped half of it in the June quarter and half of it in this past September quarter. And then we also saw a little bit of the rebounding in some of our customers that do automotive equipment, test equipment, things like that. Obviously, the automotive sector had been hit by the availability of chips earlier this year, and so they were a little bit quiet in the first half, and now that seems to loosen up. So some of the equipment guys have come back to us this past quarter as well.
spk08: Gotcha. That's great. And then just a request. Jim Rommel, the largest shareholder, has asked you guys to get an ip uh valuation um which which makes sense to me i think we're now your second uh biggest uh non-index uh holder and um just uh you know a kind of back of the envelope uh it looks like your building that you own uh at elko drive is worth over 10 million dollars potentially and i think it would be worthwhile to have that appraised and and have shareholders understand that that uh There is some additional asset here that's significant beyond the cash that you guys have.
spk02: That's true. We believe that the building is obviously worth a lot more than what's on the books. We've been in it for over 10 years now, of course.
spk08: Great. Well, it would be great to have an appraisal of that.
spk01: Okay, our next question comes from the line of Brett Reese with Janie Montgomery Scott. You may proceed with your question.
spk05: Hi, thanks for the opportunity. Have any crypto miners, in fact, approached you in possibly using the Gemini system?
spk04: We have a look at the crypto mining system. I think right now in the market, they are dedicated chip developer for them. So APU is not designed specific for that. So even though we look at that, we don't believe we are suitable. But from the general purpose, if somebody want a general purpose parallel processor, probably usable, but not in the form of you know, doing the crypto mining as a revenue and all that.
spk05: Right, right. Now, for the ongoing customer engagement to vest into material revenues for the company, is the additional engineering that must be done in the control of our company and Or is it additional engineering that must be done by the potential customers' engineering teams to make the Gemini system a commercially viable product for us?
spk06: So it depends, right? The answer is yes to both, right? I mean, we certainly need to continue to develop more algorithms, more libraries, more APIs. But then we also need to make that compiler stack available so that they can do it themselves. Um, and because again, there, there are way too many potential applications going forward for us to keep up. And there are some people who just don't want to outsource that. So they'll do it themselves and, and supplying them that compiler stack will allow them to not have to basically program at the register level. I mean, there they'll be able to do it a much higher language. And so the answer is, yeah, we will need to do some of it, and that will be done internally, and then we need to enable our customers to do their own as well.
spk05: Great. Thank you for taking my questions.
spk06: Thanks, Brett.
spk01: Our next question comes from the line of George Gasper, a private investor. You may proceed with your question.
spk07: Thank you. Good afternoon. Just ongoing with the last question, Can you give us a very specific example of the testing on a specific entry into the market that you're running against competition? Can you give us something that would identify with your capacity being much superior to the others out there?
spk06: Sure. So I can give you one right off the top of the bat. Sorry, dropped my glasses. So we are engaged with the customer now. We are about ready to do a POC, I'm sorry, a proof of concept, specifically for the SAR, which is the synthetic aperture radar. And how we got to where we are today with them is we did benchmarking for them, and it was a benchmark that was based off of a you know, a five-kilometer by five-kilometer image, and they needed resolution down to half a meter in one second, or one millisecond, sorry. And so we did the benchmarking on CPUs, we did them on GPUs, and we did them on our APU, the Gemini, and we showed them all the test data and the benchmarking, and we ended up you know, being chosen. And so we're going through the process now of, you know, doing the POC definition with them. And so that, you know, that SAR application is a perfect example of, you know, they actually looked at the data from the three possible chip technologies and chose GSI.
spk07: Okay. Oh, interesting. And just ongoing on that, getting back over on the defense, the military side, There seems to be a continuing requirement for space work to identify and interpret faster speeds. Is there any possibility of you expanding your activity on the defense military side because of the capacity that you have relative to others?
spk06: Yeah, absolutely. And several of these applications we've talked about, SAR, object detection, ATR, which is the automatic target recognition, all those are kind of a military application. And there are certainly other ones we've worked on, signal classification, and the such. So there are certainly several sectors and applications we've worked on for that market. And as you know, we partnered with Space Micro and won a NASA SBIR, and that SBIR was around what NASA calls an IPU, which is an inference processing unit. But it's essentially a ruggedized board using our solution. that could be used in space. And so, you know, as we discussed, it was, you know, some time ago, it was almost coming up on two years ago, we did some initial SEL testing on the APU, and it came back very, very good. And we are going to sometime in hopefully the first half of 2022, follow on that testing and do, you know, SEU and SEFI kind of testing to round out everything that's required to be able to put the Gemini into space. So, yeah, we're certainly going to continue to pursue that avenue as well.
spk07: That's very interesting. Thank you for that. I've got one question on the issuance of stock in the last quarter. How many shares have been issued, and was that for issuance to employees, basically? for the increase in shares. Can you elaborate on this aspect?
spk02: I don't have the actual number here in front of me, George, but it's somewhere between 100,000 and 200,000 shares.
spk07: Between 100,000 to 200,000 shares?
spk02: Reckless would be somewhere about 100,000 to 200,000 shares. I see. That includes since the beginning of the year, fiscal year, there are some ESPP purchases and option exercises. In fact, Just this past week or so, we had two directors exercise some options, and I believe there are Form 4s out there for each of those.
spk07: Okay. All right. And at this point, being that the stock has been lower for some time here, has there been any purchasing in the marketplace to recover shares that are outstanding?
spk02: We haven't done any repurchases for over a year now. That's what we're asking.
spk07: Okay. Yes. Right. Okay. All right. Thank you kindly.
spk02: Thanks, George.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our next question comes from the line of John Fitchthorn with Dialectic Capital. You may proceed with your question.
spk09: Yeah, hi, guys. Thanks for taking my question. I guess as a quick follow-up to the last question, I've got to ask, you know, with $50 million in cash and a $10 million building and a bright outlook, maybe why you wouldn't be doing share buybacks right now since it was asked.
spk02: Well, you know, we've had a long history of buying back shares. We went public in March of 2007 and netted – net of $30 million in the offering. And we've already repurchased over $61 million worth of our stock. So we've already taken, in terms of dollars, 2x off the market based on what the IPO was. And we have cash in the bank, but we understand that APU is a very exciting product. There's a very large market that we're addressing with that. But there's still work to do. And we just feel that we want to make sure that we're going to be successful and Yeah, the stock is cheap. We all believe that. But we think that at this point, given we've already done in terms of stock repurchases, it makes sense to keep the cash at this point and make sure that we're successful with our development efforts.
spk09: Well, that makes sense. And it leads to my second question, which is really about your go-to-market. You know, you've talked about a proof of concept. You're going in. You've talked about competitions that you're entering in. You've talked about a number of your potential customers or maybe even acquirers, who knows, that are also in-house competitors. And so I guess I don't fully understand, although it now sounds like it's pushed off until kind of Q1, Q2 of next year, what the go-to-market strategy is at this point. And so, maybe you don't know either, but to the extent that maybe I just missed it, I'd love you to kind of give me as much granularity as you're willing to on that.
spk06: I mean, so certainly, obviously, we have several possible applications. I mean, the overall umbrella is search. I mean, that's just a generic term, right? But, you know, under the search falls all these different applications. And so, obviously... you know, the go-to-market is where can we show benefit in these markets, right? Who sees the most value in our solution? So that's where we've been focusing. And also, where's the TAMs as well? You know, that's why we've gone through this TAM analysis, which we've discussed. We've, you know, broken it up by segments. And so, you know, right now, it's, you know, going through that process of showing the customers in these segments where what our value is. In some cases, it's lower power. In some cases, it's faster, more queries or faster response times, more accurate responses. Sometimes it's lower cost. One of the other benefits that we're able to show customers, and this one is really at the beginning stage, and it's taking some conversations to open up their eyes, but we can also offer, in a lot of cases, a mobility aspect to their solution, where in the past, for them to do a certain function would require cabinets of CPU-based servers or cabinets of GPU, while with our solution, it could be a couple racks, which can now be put in a plane, in a van, in a submarine, or what have you. And so there's That's one of the things is to be able for them to understand that possibility that all of a sudden they can have the solution be mobile as well.
spk09: Maybe I should drill down a little bit, though. I get it. You've got a lot of exciting applications. There's a big TAM. But either when or in what application do you think you're furthest along and might get the first signs of revenue? When should we think there's going to be somebody who signs a piece of paper that says, I want to pay you for this? And in what application do you think that might be in, or what couple of applications? Are you furthest down this chain? And not just in a proof of concept, maybe a proof of concept is the furthest, but where are you the furthest today?
spk06: I would say it's in the government and military sectors. So areas like the SAR application, some of the object detections, that would probably be where we're furthest down the line. I mean, obviously you know that we're going to be working this OpenSearch 2.0, and that's going to kick in sometime in 2022, but it'll be instances. So it'll take a little longer for that revenue. It's a service. It's a SaaS model, so that'll take a little longer to kick in. Some of it will kick in in 2022. The question is how much is not – we don't know yet, obviously.
spk09: But before the OpenSearch 2.0, will you have revenue from one of these defense companies type customers this year, even if it's just NRE?
spk06: Possibly. I mean, timing is hard to predict with the military guys. The answer is we should have gotten a board or two purchased about now, and it may happen by the end of the year and may fall into early next year. The timing is not always easy to predict with these folks, but we're imminent on at least a couple boards now. But, again, let's be clear. We're not talking volume here. This is still under the kind of a POC where they'll buy a board, they'll test it out, prove to themselves that this is really what it is, what they want, and gives them the results that they want and need, and then we'll go from there. So it'll be onesie-twosie kind of things.
spk09: And so in terms of being like production revenue, like, you know, real recurring – either SAS revenue or something else. Is that really 2023?
spk06: Certainly not earlier than second half of next year. I mean, yeah, I don't see any way second half of next year would be the earliest, but yeah, it could fall into 2023. Again, hard to really predict exactly when that's going to happen.
spk09: Totally understand, but you know when the soonest it could be, right, if everything goes well. So fine, second half of of next year. And, and so the, the, the last time I'll just try and once again, specify like, you know, in the D in the defense department business, I get it. Cause you're not competing against guys inside the defense department, making the same product. But in a lot of these other instances in the commercial market, you are. And so just give me a quick, like, is the, Is it just to win competitions and hope people recognize you? Because you're still going to have guys inside of Google and Microsoft and Baidu and everywhere else going, no use ours, you pay us anyway and we've designed it for our own ship. Or is there like you guys have feet on the street knocking on doors? Just help me understand what the commercial go-to-market strategy is specifically.
spk06: No, we're of course talking to these folks. And again, as I mentioned earlier, they're all doing chip designs, like you said. And like, I can't remember if it was Jeff who had mentioned that. But, you know, we haven't seen where it's really specific on the search per se. It's generally some kind of function. But the guys we're talking to, you know, again, you know, the open search is part of AWS. And as you say, AWS is or Amazon's doing their own chips. So why is it they've already chosen us as a partner? Because obviously they're not doing anything internal that matches what we're doing. And so we will always be competing against some internal design, and when I say we, chip manufacturers. But we haven't seen what we're offering, our kind of value. We haven't seen that effort within these companies in the search area.
spk04: The large scale database search is still a very new market. You know, the AWS open search, they just started just a couple of months ago. And we have this competition, bidding scale, AAN search. I mean, that's the first of its kind. The industry never had this kind of competition before. So it's just getting started. And And Gemini APU is, by far, we have seen this as the best hardware that do this kind of job. We hope we can perform well in the competition. So that will demonstrate our valuations in this area.
spk09: I mean, I guess my concern is that your point exactly, that this is very new. Very new, right? You're about to get to 2.0. And we're talking about revenue that might start to ramp in late 23. And so I don't know what's your backup plan if we're sitting here having this call at the end of 23 and you're like, well, it should be in second half 24. It's very new, right? People are still doing evaluations. Or at the end of 24 and it's 25, like at what point Do you have another path, or is there no path? This is the one path, and we're all in.
spk04: No, no, we are more than that. Well, the surgery is the one area we are looking at. The other thing we talk about is the defense and the government project. And, you know, the LASA project, I mean, that is to develop the device which can go into the space. So with this development, you know, the... the prime contractor can pick up this device and then put it into a satellite and it can apply to many, many companies and many, many applications. So it's more than the search. I mean, we talk about we have object recognition, we can do SAR, we can do dense registration, many, many computer vision type of applications. So we are hopeful. One thing is we are not certain when the production revenue will come in, but we hope it will come in soon, and we believe so.
spk09: Great. Thanks a lot, guys.
spk01: At this time, we have reached the end of the question and answer session.
spk04: Thank you for all. Thank you all for joining us. We look forward to speaking with you again when we report our quarter physical 2022 results. Thank you.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you and have a great day.
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