Transcript: CNNfn Interview - December 21, 2000

wave systems ceo, cnnfn

From: Digital Jam (CNNfn)
Date: December 21, 2000
Author: Bruce Francis, Mary Kathleen Flynn

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BRUCE FRANCIS, CNNfn ANCHOR, DIGITAL JAM: Wave Systems [Company: Wave Systems Corp.; Ticker: WAVX; URL: http://www.wavesys.com/] is one of the many companies working to secure the digital future. Its technology allows content providers to securely process customer transactions as well as meter (ph) and user devices like set top boxes and PCs. Here to explain the technology is Steve Sprague. He`s the company`s chief executive. Thanks for being with us.

STEVE SPRAGUE, CEO, WAVE SYSTEMS: Thank you for having me.

FRANCIS: We`ve given a little capsule. Are we on the right track here?

SPRAGUE: Very much so. Wave is trying to solve one of the big problems on the network today which is lots of different types of commerce and transactions, require lots of different types of security. And so what we`ve developed is the first programmable solution that will support all of the different methods of security on one chip by loading little programs that load and unload so that one minute it`s credit card emulation and the next minute it`s your music system.

MARY KATHLEEN FLYNN, CNNfn ANCHOR, DIGITAL JAM: So who are you selling the chip to? And are you selling them yet or are you going to be selling them?

SPRAGUE: We`re just in the process of rolling out our technology and we`re selling the chips to people who make devices. Companies like AMD [Company: Advanced Micro Devices Incorporated; Ticker: AMD ; URL: http://www.amd.com/] are our customers. Companies like the French banking infrastructure is using our devices, an e-commerce terminal in the home. We have relationships with EDS [Company: Electronic Data Systems Corporation; Ticker: EDS; URL: http://www.eds.com/] with one of our partners. So there are a number of large companies that are deploying our technology.

FRANCIS: It`s got to be a tough time to be rolling out a technology that seems quite tied to the PC cycle, with PC sales looking as anemic as they are.

SPRAGUE: Right, but PC sales are still hundreds of millions of units in a few years period of time. So you`re dealing with a very high volume platform. The problem is, they have no ability to maintain a long- term relationship with the customer. So the challenge is how does a PC turn from being a bunch of plastic to being a service delivery device. And this is a key technology, because we can do very simple things like identify that a Compaq [Company: Compaq Computer Corporation; Ticker: CPQ; URL: http://www.compaq.com/] customer is a Compaq customer in a way that the consumer can control that. So if they want to cease being a Compaq customer, they can delete their identity.

But it`s an opportunity to deliver long term services to that platform on an ongoing basis.

FLYNN: Why is this a solution that`s based in hardware instead of in software?

SPRAGUE: Because you have to hide secrets and the problem with hiding secrets is you have to put them someplace safe. So think of it as like a little box inside your computer where you can put your identity. You can put secrets about different relationships that you have on the Internet and you can keep it protected from even viruses that are run on the operating system or people trying to penetrate your computer from the network.

FRANCIS: It`s been a year of wildly gyrating fortunes for a lot of tech companies. Certainly yours included. Let`s take a look at your stock chart. The stock is down about 90 percent from its high where it was in April. Practically speaking, this is not often a level from which a lot of companies recover.

SPRAGUE: But I think a different way to look at it is that we`re a company that`s been public for a while. We entered last year at $11.

Today we`re trading in the $5 range. We were very fortunate to raise a lot of cash in March, while we had a high in the stock. So we have a strong cash position. We`re just launching our technology into the market. It is an absolute key component that every end device on the network needs. So I think actually Wave`s in a very solid position and we`re not a company that`s going out there and tried an economic model and said it hasn`t worked. We`re a company that`s just beginning to deliver our technology to the marketplace.

FLYNN: Let`s talk about some of the specific applications. I know that digital TV is one of them. Walk us through how the technology would work in that framework.

SPRAGUE: So we have a subsidiary company called Wave Express. It`s actually based here in New York, actually just very close to this building.

And they`re delivering the infrastructure so that we can deliver Internet content over the digital broadcast. The challenge is, digital content is now not just movies, but music and software and text and all sorts of different types of transactions. So you need a very flexible customer management system at the desktop or at the set top box that can work its way through all those different types of media, whether it`s an MP3 file or a pay per view movie or selling bullets in the game "Doom." So there are lots of different types of transactions that we as consumers are going to have.

FRANCIS: I`m looking at an analyst report. There`s one analyst that does cover your company. He doesn`t look for you to be profitable any time soon. What`s going to be the track that gets you there?

SPRAGUE: Wave`s an infrastructure company. We`re building a technology that goes in every client device. We don`t sell chips. We make revenue on each of these little applets (ph) that are loaded and unloaded into our chips. And we also get paid for certain services we deliver. So our objective here is to create a very high volume of distribution and our focus is not short term unprofitability, but how do we build a network of customers that`s measured in the tens of millions of customers. It`s much more important for us to gain very broad deployment with companies like AMD putting it on their motherboard than to drive short term revenues.

FRANCIS: Steve, we`re going to have to leave it there. Steve Sprague, thanks for joining us.