So, in case anyone missed it;
President's Letter
January 12, 2007
Dear Fellow Shareholders,
In mid-December Rim Semi and eSilicon Corporation announced that eSilicon has become a major new partner in the production of the Cupria™ family of transport processors. This partnership is very important to us. Investors who do not live and breathe the chip business, as we do, may not have a good feel for the potential impact of this partnership on our future, so I want to take a few moments of your time to explain it, and to show you why I am excited about it.
First, eSilicon is a very high quality company. Their roots are in the old Bell Labs, which to this day is legendary for its commitment to quality. We expect that we will benefit by having an application–specific standard part (ASSP) that works the first time and does not have to be “re-spun”, as is unfortunately so common in the semiconductor industry. This should speed our time to revenue.
Second, eSilicon was eager to receive shares of our common stock instead of cash. If you are a long-time investor in Rim Semi, you weren’t too surprised to see that we wanted the acceptance of stock to be a key feature of the business arrangement. We have always tried to use stock because it aligns the interest of the business partner to your interests. Examples include HelloSoft, Zaiq Technologies, and several engineering consulting firms. In other words, the good people who work for our partner companies want precisely the same thing that you and I want, which is for the price of their shares of stock to rise.
Third, eSilicon will let us use their design tools, their process engineers, and their operations database. If they didn’t, we would have to go out and get these resources. The cash outlay would be in the three to five million dollar range! This is a tremendous advantage for Rim Semi shareholders because it reduces our expenses dramatically.
Finally, our business relationship with eSilicon extends even one more step deeper. By owning the yield and the work in process, they shoulder all of the risk and growth capital. For example, if for some unforeseen reason fewer chips can be produced per wafer than we project should be produced, the resulting higher costs are borne by eSilicon. As another example, if we receive a purchase order for a million chips, all of the costs for the raw materials and production are borne by them. If they were not bearing these costs, it could costs us several million dollars just to make and ship a one million unit order. Under this partnership, we avoid this huge expense. Although it may be difficult to see how exciting this benefit is now, I am confident that you will see in the future how critical it is, and that the bigger we grow, the greater the benefit to us.
So if this partnership is so good for you, then what does eSilicon get out of it? In a word, volume. When they produce a lot of chips, eSilicon spreads its costs out among tens of millions of units and makes money. Does eSilicon believe that Rim Semi’s volumes will be high? I asked Jack Harding, their chairman and CEO what he sees in the Cupria™ product line. He told me that our “innovative broadband technology, which increases the capacity of existing telephone networks, will provide the telecommunications market with a state-of-the-art solution for high-speed data applications”. Solutions like ours can grow to high volumes very quickly.
So what kind of volumes are we talking about? Potentially, very large volumes. Today the world has 1.3 billion copper loops, and approximately 160 million of them have been fitted with DSL technology. (And even those 160 million lines are incapable of serving a quality TV signal). We believe that over the next few years, the number will double to over 300 million DSL lines around the world and over 100 million lines will require new semiconductor technology, like we and our competitors offer, to enable premium grade service including High Definition IPTV. Each upgrade means $10 to $20 in chip sales, so the equipment makers will order billions of dollars worth of chips to make it happen. Like us, eSilicon believes that Cupria™ will get its share of this emerging multi-billion dollar marketplace.
Opportunities to invest in and to work with new semiconductor companies that can potentially drive these kinds of volumes are rare. Not only was eSilicon eager to join our team, but they also brought TSMC to us. TSMC, the world’s largest independent chip fabricator, seeks to only work with the highest volume parts. They are known to reject customers which they think will only bring small volumes to them. Through eSilicon, they have now become another important piece in our supply chain.
I trust that this letter makes it clear to you that our new partnership with eSilicon, and through them TSMC, is a very positive development for your investment. We hope to reap the benefits of higher quality at a much lower cost. Please join me in welcoming eSilicon to the team.
Sincerely,
Brad Ketch
President and CEO
Rim Semiconductor Company
AI
