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Amedia Networks, Inc.
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2 CORBETT WAY
EATONTOWN, NEW JERSEY 07724
[AMEDIA NETWORKS, INC. LOGO]
July 24, 2007
Dear Fellow Shareholders,
The purpose of this letter is to provide an update from Amedia Networks
management to shareholders on the status of our business progress over the first
half of 2007.
Overview
This year we reached our third anniversary as a supplier of next
generation home gateways that distribute and manage ultra-broadband voice, video
and data services in the home. Over the last year we have achieved major product
development milestones, recorded our first significant revenue from shipments of
equipment to Motorola for US residential trials of the jointly developed MIPX
home gateway, successfully re-negotiated the Motorola manufacturing agreement
from a capital intensive production commitment to a software licensing
agreement, advanced various customer and partner discussions and launched a new
product development program that promises to bring video content from internet
websites around the world to the TV set. All of this progress positions us to be
a significant player in the home networking/entertainment marketplace. What we
did not expect this year was the slower than expected growth of the
fiber-to-the-home (FTTH) and fiber-to-the-node (FTTN) deployments both in North
America and internationally. The sluggish pace of these deployments has made the
last year very challenging but we are now seeing signs that the situation is
changing. Verizon is accelerating their roll-out of FiOS, AT&T is leading the
way on new copper broadband deployments and second and third tier service
providers are following their lead. As ultra-broadband deployments accelerate we
are well positioned to become a significant player in the home gateway
marketplace. We have a fully developed software stack, leading edge software
applications under development that bring the internet to the TV, a
solid reference base of leading service providers, a software licensing
agreement with Motorola, licensing agreements with other vendors under
discussion, and the opportunity to bring our home networking concepts to the
consumer market.
Let me say a few words about the Motorola relationship. The MIPX
product jointly developed by the two companies is the first in a line of IP home
gateways offering expanded support for data, IPTV, High Definition TV, and
Digital Video Recorders via Motorola's existing Multi-Service Access Platform.
The product line will be exclusively distributed by Motorola under the Motorola
brand. In Q4 2006, Amedia successfully passed the IPTV Gateway System
Verification Testing Acceptance Test - a major engineering milestone in the
Strategic Alliance Agreement between the companies. Amedia and Motorola also
successfully completed an Alpha trial with a mid-tier communications company in
the US Mid-west in February 2007. In Q1 2007, Amedia shipped almost $300,000 of
units to Motorola for use in customer Beta trials. The Beta trial with the same
customer started in late February and has been progressing very smoothly.
The work being done with Motorola demonstrates that our development
team can deliver a high-quality product on time and on budget. As the Beta
testing began, we took the opportunity to open discussions on the transfer of
large scale manufacturing to Motorola. Our decision to do this was based on the
large cash outflows that would be required to carry the MIPX into production. In
exchange for the transfer of manufacturing, Amedia has entered into a licensing
agreement with Motorola where Motorola has committed to pay per-unit royalty
payment for each unit beyond a predefined number. A significant up front advance
on such royalty payment was made in June 2007. This is a win-win for both
companies. Motorola will have total control over the future manufacturing and
support of the product, while Amedia will receive an ongoing profitable revenue
stream for the IP we created in the product.
The licensing agreement with Motorola also removes the exclusivity and
non-compete provisions under the manufacturing agreement. This frees Amedia to
work with
other key strategic players to capitalize on our innovative home networking
platform product ideas.
In addition to the development of the Motorola MIPX product, our team
has successfully completed extensive testing with a number of next generation
access equipment vendors, further validating the quality and innovation of our
products. In addition to our testing with equipment vendors, our solutions have
been evaluated by a large Tier 1 telecom service provider as well. Amedia has
been attaining a reputation as a leading edge technology company with an ability
to successfully demonstrate new software innovations.
As a result of the work with both Motorola and a variety of other
leading service providers, Amedia has developed a comprehensive software stack
that can be implemented through licensing agreements on other vendors' home
gateway hardware platforms. It is our plan to exploit these opportunities by
marketing our software stack to the growing number of companies that are
building unique home gateway hardware platforms and meet the specific needs of
service providers in different regions of the global market. Under these
licensing agreements, Amedia will assist vendors to port our proven home gateway
software to their designs and receive an ongoing royalty from the sale of those
products to service providers around the world. Through this marketing strategy
we avoid the costly investment in commodity hardware designs and utilize the
software platform already developed to minimize our ongoing development expense.
To keep R&D costs down we also plan to continue our practice of using off-shore
software development support wherever it is appropriate.
Another area we are excited about is our development focus on our
Broadband Entertainment Center platform, which was one of the most talked about
new ideas in Q1 2007. First introduced late in 2006 as a replacement to the PC
as the nerve center of the networked home, then showcased at this year's
Consumer Electronics Show in Las Vegas, this product has captured the attention
of the media as it moves the customer demarcation line from outside the house to
inside. Media coverage included Telephony,
CED Weekly, Telecommunications Magazine, TVOver.net, Business Weekly,
TMCNet.com, Telecom Paper, Online Reporter, Broadband Properties, and more. The
core of the Broadband Entertainment Center Platform will be the ability to
browse the internet from the comfort of the family room on the TV, and bring
video content back from websites around the world to the TV without the need of
a traditional computer. This capability will bring entertainment video content
from websites like YouTube and ABC.com to the TV where it can be viewed in a
group setting. The Broadband Entertainment Center will also allow the
distribution of stored movies, photos and music to be routed throughout the home
to video and audio equipment.
We also have announced our plan to begin development this year of the
first GPON (Gigabit Passive Optical Network) gateway, with built-in home
networking capabilities and a personal media library. Designed specifically for
telcos upgrading their networks from BPON to GPON, the HG-G1000 will provide the
combined functionality of an in-home Broadband Home Router (BHR), an outdoor
Optical Network Terminal (ONT), and integrated battery backup.
Telecommunications companies can offer the HG-G1000 as a single, "in-home"
gateway appliance for subscribers - without the need for outdoor-hardened
optical or electrical components. This significantly reduces installation costs,
relative to the multiple equipment unit (ONT plus BHR and battery backup)
solution, by eliminating outdoor installation and wiring required to
interconnect multiple products. At the same time, it provides a means to utilize
the existing home television and telephone wiring within the connected home.
On the strategic alliance front, We have been pursuing strategic
partners to sell to the large service providers in North America, who have
expressed considerable interest in our technology. These conversations have been
productive and are ongoing.
As I mentioned in my opening paragraph, the home gateway market has
been soft but it is now showing signs of growth. Over the last three years we
have made considerable investment in the software and hardware development
including the work completed for Motorola. This investment now provides us great
opportunity to position
Amedia as a leading supplier of Home Gateway products that extend to the
exploding home networking and internet video services market. With a lot of the
work now completed, we had the opportunity to restructure the company and reduce
our operational expenses. This restructuring is now completed and our monthly
expense has been significantly reduced. Through this restructuring we have
retained the team that is necessary to carry out our software licensing/home
networking strategy. I am confident that our change in strategy to capitalize on
our product development achievements over the last three years with a smaller,
more focused team and our growing reputation among industry decision-makers as
an innovative company, offer a very positive outlook for Amedia in the coming
months.
/s/ Frank Galuppo
Frank Galuppo
CEO and President
ABOUT AMEDIA NETWORKS
Amedia Networks, Inc. (OTC BB: AANI) provides next generation
residential media gateways to distribute and manage high-quality voice,
high-definition video, and high-speed data services throughout the networked
home. The Amedia residential gateway offers a single, compact, configurable
device with the collective functionality of a modem, wireless access point,
router, VoIP adapter, and family firewall - all in one. In addition, it features
external media storage and a built-in operating system for carriers to
continuously develop and deliver new, ultra-broadband applications to the home.
The company is led by an executive team with a long and proven history in the
voice, data, and telecom industries, and its core technologies have been
co-developed by Lucent Technologies, Inc.'s renowned Bell Laboratories unit. For
more information, visit www.amedia.com.
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