Wave Systems Corp. (fka WAVXQ)

[wavxmaster]

From the 4thQ CC: Concerning SEAGATE!!

Thanks Unclevername http://www.unclever.com/wavx/

But let me start by expanding further on what we're doing with Seagate, what the product is, how it works. This is a new product line for us and I've done this on a number of previous calls. I think it's really important to understand the basic fundamentals of how we make our money, and what the product is, and why we think the customer will buy this product.

So, on the first basis, this business model is very similar to our standard OEM business model, in that we have licensing arrangements where we supply a lightweight version of our software, either through Seagate bundled with the drive, or directly to a PC manufacturer. And we actually now have both relationships in place. We certainly would expect to expand on our OEM relationships, as time goes forward. There are many OEMs who are sampling drives today, and we certainly look forward to working with them to supply software.

We generate north of $1 per drive on a royalty basis for the light version of our software but then we provide enterprise tools that are used to manage these drives. And in order to use the enterprise tools, you have to have a fully copy of our EMBASSY Trust Suite client software edition. And so that works out to be between $50-100 upgrade range depending on the feature set that the customer would like. The reason that a customer will buy the server is that it's very important with an encrypting drive to have control and management of the passwords on the drive, so that you can set them and change them, as well as to have an audit trail. We think this is probably one of the most important features, which is, we really can prove that if a laptop was lost, and it had a Seagate drive in the laptop, we can prove that that drive was turned on and the data was protected. At the end of the day, we've looked at many of the state regulations. Obviously these regulations have not been tested in court very broadly yet, or in many cases, if at all. But we think that we really provide a corporation the protection and liability of data loss in that they can prove a laptop had a Seagate drive, that the drive was turned on, and the data is safe,

Let me explain a little bit how a Seagate drive works. What they've done is, they have taken a standard drive and modified the silicon chips that are on the drive that are used as part of the drive interface, so how you get data on and off of the disk drive, and that data is now encrypted every time you write to the drive. So whether you're writing or reading from the drive, the data is encrypted or decrypted, respectively. What happens is that before that little engine will encrypt or decrypt any data, it will ask for access control to the user as to "are you an authorized user to use this drive?" And for today it works with a simple password, where you type that password in before there's any OS presence on your computer, because the drive is locked and your OS is on the drive, and that password is used to permission the drive to release data. Once you supply the password, the drive works absolutely as a normal disk drive and it's completely invisible to any software application on your desktop that the drive is encrypting or decrypting. There's not impact on performance, and it's a very strong level of encryption in the drive.

The other thing I think is very important in the context of a drive like this is that users can do silly things. So, for example, if you're a user and you have the permission to reboot your operating system or reload your operating system, you could make a mess of things like software-full disk encryption because it's part of the operating system installed on your computer. Whereas, with a Seagate drive solution because it's completely independent of the operating system, you could take Windows XP and replace it with Windows Vista, or replace it with Linux, close your computer, turn it back on, and the first question you'll be asked is to provide your drive password. So really, there's nothing that the user can do to compromise the data protection solution in the laptop, unless the administrators, from a central-service perspective, have given the permission.

We think there's a very compelling reason as to why corporations want these drives. They're a very simple solution. They're a very efficient solution in the market. And we would also like to believe that a high percentage of customers will take the Wave administration tools for these drives because it provides the centralized control, as well as the audit capability, which is really the reason why any corporation is spending money today on data protection. It’s not just to protect the data, but it's also to be in compliance with the state laws and regulations that are out there.

So, we don’t have a ton of data on this yet, we’ve been out marketing it for a little while. We’ve seen very positive acceptance from the industry analysts and press. I think certainly we saw some of this coverage during the course of this week and I think it’s been very positive, I think that’s a really good sign. We are actively delivering pilot units today to corporations. We’ve already delivered our first pilot systems, so we expect to get pretty broad feedback pretty quickly.

This is not that new a product for us because basically the same set of tools that we use to manage a Trusted Platform Module is how we manage the drive. We’ve done it in such a way that you don’t have to have your Trusted Platform Module turned on. You can do this as a Trusted Drive with or without a Trusted Platform Module. We’ve done that to enable support to any of the legacy platforms that do not have TPMs, and certainly any of the consumer platforms that do not have TPMs today. But, the technology works very much hand in hand with the Trusted Platform Module as well.

I think over the next period of time as people get more sophisticated in managing the solutions, I think we can show really strong connections between how you leverage the Trusted Platform Module in connection with your Trusted Drive so that you can as a user assert to a server that you have a secure endpoint before the server gives you any sensitive data. And ultimately, I think that’s how most corporations will implement these systems long term.

So we’re very excited about it. We think that there’s tremendous potential in the marketplace for this. I think that 2007 will be a year of drivers coming as options in devices in special orders. If you call your OEM and ask for machines with drives they will let you know and they will supply different platforms with drives. There have been a number of questions as to who’s gonna have what, when, and where. We can’t answer that question. We have to leave that to the specific branded manufacturers, so if you want to know when a specific OEM is going to ship a Seagate drive, call that OEM and ask them when they are going to ship that drive. They really are the only people who can tell you.

We think that it’ll show up as an option device over the course of 2007. But this is clearly a technology that could easily become a standard component in all of next year’s builds. Realistically, it could become a standard component this year, but I think that most devices like this typically go through a cycle of being an option and then being something that is standardized. We’re very excited about that, we think we build the right tools to support it. We think we have the right business model to support it. And this is extremely synergistic with our core Trusted Platform Module business.


So with that, let me talk about the core business. We continue to supply Dell, Gateway, and Intel with software they ship with their packaged PCs. Actually I think we’ll see stronger support from Gateway going forward. They seem to be more broadly deploying the technology. We’re very pleased to see they are getting more educated on the subject and more aggressive with their customers. We’ve had a number of Enterprise customer productions from them, even over the last couple of months. So, we continue to see momentum and progress in the TPM business.

What’s fun about what we’re doing with Seagate is that it’s an opportunity for us to revisit our relationships with all the other OEMs in the market, in that we are supplying a software that an OEM or PC manufacturer could bundle with the Trusted Drive. That’s very synergistic with how you manage the Trusted Platform Module. We’ve integrated the two very tightly. We can supply them independently. They don’t have to take our Trusted Platform Module software. But we think it provides a very cost effective and a very efficient solution if you take both products from Wave.

We are still the only company that's providing a full suite of management tools for the TPM independent of the specific PC you buy. We certainly look to do the same thing in the Trusted Drive space as well. As additional manufacturers produce drives, we will work to make sure our software will support the features that their hardware supports, whatever those features happen to be.

In the course of the last quarter, one of the very important relationships that occurred was we announced that we certified our software on all of the HP platforms. This was an important step for us. This allows us to go to the Enterprise customers and show them that our software’s been tested, the configurations have been tested, so that hopefully there aren’t very many issues when they install a brand new machine, or hopefully no issues at all.


With that in hand, we actually are doing our first customer Enterprise calls with HP’s sales force. We have a couple of those that are going on right now as we speak. So we’re very excited about broadening our relationship with Hewlett Packard and with a number of other OEMs in the marketplace.

Again, we’ve had an opportunity to revisit them with both what we’ve done with Seagate, and we’ve also made a huge investment in building the Vista supported solution for our EMBASSY Trust Suite. This was not a mild undertaking. We announced last week that we had shipped our Vista versions. They are commercially available in the marketplace today. You can take our standard software, it will run on Vista. It is completely featured.





We continue to be excited about the Enterprise. We would like to see it stronger and be faster than it is, but we can only push so hard. This is an area where there's no question the application of hundreds of millions of dollars of marketing would help. I think the hundred of millions of dollars of marketing is pouring in but it's coming from Intel and Microsoft and certainly now Seagate joins that party as well, as somebody who is educating the customer on what hardware Trusted devices are and how to begin to think about them. And that they're part of the Trusted Computing Group and the solutions that are out there.



Having Seagate do a launch of their drive trust technology, I think was pretty broadly seen as very positive. I think the press was very enthusiastic about it, at least from the coverage we've seen so far. Clearly we're only at the first few days and as people go digging through it further I think they'll really see the benefit that this technology brings to market. And we're very pleased that they have chosen our software and to participate in their launches and that they've chosen to really highlight us as part of the solution.



So I think we are very complementary. We bring the management component; they bring the security component; and, together we offer a tremendous solution to the Enterprise. And that's at the end of the day what it's really all about. We've certainly had a number of enterprises who we've been telling about Trusted Drives for a while and they've been waiting to sample the first solutions, so I think that will be helpful as well.



Final point on that is that a customer who buys Trusted Drives really should buy one of our EMBASSY Remote Administration Server products first, because that way their Enterprise is prepared to have the first laptop show up with a Trusted Drive and be managed and be auditable. It really doesn't make sense to have secured drives where you don't have control over the passwords. So hopefully we'll be able to convince the customer that not only should they require machines that have drives but also they should begin the process of purchasing the server products right now. So we'll see how that develops. We've certainly had positive customer feedback, but we have not had a product that we could deliver other than for sample testing and that changed earlier this week. So we're very excited about it and we'll see how it develops.