Question-and-Answer Session
(Operator Instructions)
You have no questions at this time.
I apologize. You do have a question at this time from Vladimir [Guevarra] with Dow Jones.
Vladimir Guevarra - Dow Jones
Hello?
Phil O’Shaughnessy
Hello, Vladimir. Go ahead, please.
Vladimir Guevarra - Dow Jones
Can I just confirm a few figures? One is that you plan to grow gross margins 20% by the end of 2006. Is that right?
Second of all, you talked a bit to lower your operating costs. Can I know by how much please and when?
Next would be, we are hoping to get some updates on the legal battle you have with Apple regarding copyright infringement. I understand in July that you guys were open to a settlement. Can we have an update on that, please?
Last question would be, Microsoft’s Zune product is coming out in the fourth quarter. Are you involved in any way in the production or design of this product? If not, how do you plan to face up to the competition, not just the Zune but also Apple’s iPod products? Thank you.
Craig McHugh
Let me take those questions in order.
On the gross margin, I shared that we are targeting to raise our gross margins to 20% or higher by the end of the calendar year.
Vladimir Guevarra - Dow Jones
That is 2006, right?
Craig McHugh
End of calendar year, 2006. Our gross margins, we are targeting to bring them in line with our revenue and margin expectation, so we should return to profitability by the end of the year, but we are not sharing a specific numeric target, but we are aggressively looking to reduce our expenses, as I discussed today.
With regard to our litigation with Apple, our most recent update was a press release that was issued on June 14th. We announced that the ITC had voted to investigate Apple for infringement of our Zen patent. We have had several discussions with Apple and we continue to be open to reaching an amicable solution.
With regard to reports with regard to Microsoft’s entry into the market with Zune and the Zune player, as of now, we do not know what Microsoft’s plans and strategies are in this highly competitive market, so we cannot comment there because we do not have knowledge of what their plans are in this space.
Vladimir Guevarra - Dow Jones
Can I just make a quick follow-up? What is the current gross margins today?
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