Mike Smargiassi – IR, Brainerd Communicators Chuck Hong – Chairman and CEO Gail Sasaki – CFO Chris Lopes – VP, Sales

Rich Kugele – Needham & Co. Mark Kelleher – Dougherty & Co. Richard Shannon – Craig-Hallum Capital

Good day and welcome to the Netlist first quarter 2012 earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Mr. Mike Smargiassi. Mr. Smargiassi, the floor is yours, sir.

Thank you, Mike, and good afternoon, ladies and gentlemen. Welcome to Netlist’s first quarter 2012 conference call. I'm here today with Chuck Hong, Chief Executive Officer of Netlist; and Gail Sasaki, Chief Financial Officer; and Chris Lopes, Vice President, Sales. As a reminder, our earnings release and a replay of today’s call can be accessed on the Investors section of the Netlist website at www.netlist.com. Before we start the call, I would note that today’s presentation of Netlist results and the answers to questions may include forward-looking statements which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties that are expressed in the call, annual and current SEC filings, and the cautionary statements contained in the press release today. We assume no obligation to update forward-looking statements. During this call, non-GAAP financial measures will be discussed. Reconciliations for those directly comparable GAAP financial measures are included in the press release which was filed on Form 8-K. I would now like to turn the call over to Chuck.

Thanks, Mike. Thank you all for joining us today. During the first quarter we continued to execute our plan to advance our position in the high-performance computer market. Today we jointly announced with HP the availability of HyperCloud for sale with HP’s Romley-based servers. With this announcement, HyperCloud is now available to ship with the world’s top three highest volume servers. HyperCloud, or in industry’s nomenclature, HCDIMM, are the only 16-gigabyte memory solution available on the market that runs 3 DIMMs per channel, 1333 mega-transfers per second. This advantage translates to a 25% performance benefit compared to industry standard memory offering which runs at 3 DIMMs per channel and [66]. We’re now working closely with our OEM partners to broadly introduce HCDIMMs to various verticals while many of these end-users on their own have begun to test HyperCloud in their [end-applications] such as virtualization, analytics and CAD simulations. We remain confident that HyperCloud can beat any competing server memory product’s performance by a wide margin. Therefore, over time we expect HyperCloud to be adopted by the market as the de facto high-performance solution, enabling the industry to finally break through the historical bottleneck that has existed in servers between the CPU and memory. With the momentum generated by adoption of HyperCloud by IBM and HP, there’s been a flurry of interest expressed by other server and storage OEMs and cloud operators alike. Many are now seeking to qualify HyperCloud, following in the footsteps of the world’s two largest manufacturers. Regarding our financial performance, Gail will provide a detailed overview of our results in a moment, but I would like to highlight some key points about our first quarter numbers. Our revenues came in above the prior year’s first quarter but were down sequentially from Q4 2011. However, we were able to maintain strict cost controls even as we strategically invested in our technology, marketing and sales resources. As a result, we achieved positive adjusted EBITDA. As we noted on our last call, we have entered a transition phase in our business marked by a reduction in shipment of our products associated with previous server generations, namely PERC and NV2, and a ramp-up in our new product lines HyperCloud, VLP and NV3. We remain very confident in the market potential of these new products as well as our overall growth potential. We believe we are in a strong position to capitalize on our proprietary technologies and key alliances in the high-performance computing and storage sectors. We’ve maintained a disciplined approach to spending with the goal of positioning our business for sustainable profitability as our revenues begin to expand in the latter part of the year. Before I provide additional updates on our progress, I would like to now turn the call over to Gail for the financial review.

Thanks, Chuck. As Chuck mentioned, our first quarter results largely reflect a transitional period for our operation as we move forward in launching our new products, while the contribution from our more mature products attached to prior-generation servers was decreasing. Our revenue for the first quarter ended March 31, 2012 were $14 million, up 16% when compared to $12 million for the first quarter of 2011 and down 15% sequentially due to the product line transition just mentioned. Gross profit for the first quarter ended March 31, 2012 was $5.4 million or 39% of revenues, compared to a gross profit of $3.8 million or 32% of revenues for the first quarter of 2011, an increase in gross profit dollars of 43% due to a more optimal product mix and a sequential decrease between quarters of 9% due to lower revenues. We expect our gross profit to range from 28% to 32% during the second quarter, which will be dependent on the quarter’s product mix, production volumes, DRAM costs and incremental investments in the factory as we continue to prepare for the second half ramp of HyperCloud and our growing portfolio of other new high-density products. Adjusted EBITDA income, after adding back net interest expense, income taxes, depreciation, stock-based compensation and net non-operating expense, was approximately $43,000 for the first quarter of 2012, compared to an adjusted EBITDA loss of $1.9 million for the prior-year period. Net loss in the first quarter was $1.1 million or $0.04 loss per share compared to a net loss in the prior-year period of $2.8 million or an $0.11 loss per share. These results include stock-based compensation in the first quarter of $523,000 compared with $353,000 in the prior-year period and depreciation and amortization expense of $535,000 in the most recent quarter compared with $581,000 in the year-earlier period. Total operating expenses were $6.5 million in the first quarter of 2012 compared to $6.6 million in the previous year, but up by 4% sequentially from $6.2 million. Overall we continue our efforts to reduce SG&A spending while we prioritize spending on R&D. As we accelerate our product rollout and continue to execute on our product roadmap, we do expect to see a small incremental increase in sales and marketing and research and development in 2012. We believe these are important investments in our business that will strengthen our growth profile over the short and long term. We ended the first quarter with cash, cash equivalents and investments in marketable securities totaling $14.3 million compared to $11 million as of December 31, 2011. At the end of the quarter we had unutilized availability of $7.2 million on our credit line, which is close to double that of the last quarter, due to working in partnership with our bank to ensure ample excess availability to support second half growth. During the first quarter, capital expenditures total $317,000 compared to $110,000 in the previous year’s first quarter. We anticipate investment in equipment to support increased capacity and large-scale production volume of HyperCloud and VLP during the rest of the year of approximately $1 million, which will be funded by a new term loan from our bank. During the quarter, overall cash from operations was positive and we’re also able to attain an adjusted EBITDA breakeven for the third quarter in a row. We recently refinanced our current debt to provide us additional flexibility as we execute on our business plan. Over the next two quarters, we will pay interest only on our term loan, plus we have extended the term which will decrease our quarterly debt service payments by 40% going forward. Nevertheless, we believe we may continue to be a net user of cash for the next couple of quarters, which is heavily dependent on our cash cycle as we adjust to slightly longer collection in inventory days as we ramp the OEM supply chain for both HP and IBM. As you know from past calls, we believe we have sufficient capacity on our currently untapped $15 million line of credit for working capital needs to supplement our current cash balance. However, we are clearly at an inflection point in our business and we’ll continue to evaluate all sources of capital available to us as we look to support next-generation R&D as well as to acceleration the commercialization of HyperCloud, NV3 and VLP products. This includes the ATM or at-the-market program we haven’t placed, which currently has $4.4 million of unused availability. On the IP front, we continue to actively defend our patents in the USPTO. During the first quarter, the USPTO issued two favorable office actions in the re-examinations of our 537 and 274 patents. In the re-examination of both patents, the USPTO allowed 100% of the claims. We believe the USPTO’s current allowance of these seminal claims helps to solidify our leadership position in high-performance logic-based memory solutions now and in the future. By allowing these claims over the cited art, the USPTO rejected each and every prior art challenge raised by Inphi Corporation in its initial examination request filed in June 2010, and subsequently during the re-examination proceedings of the 537 patent and the 274 patent. Going forward, we remain comfortable in our position and confident in the validity and enforceability of our patents. We continue to anticipate top-line growth during the year and to cross over into sustainable profitability once our new product categories begin to ramp. As noted in previous calls, the majority of this growth will take place in the latter part of the year. As an update to that, we believe that the adoption process for HyperCloud has been somewhat delayed by at least one quarter due to the initial lack of availability of Romley-based servers for any interest to test and purchase. We take note that the introduction of the Romley platform is a major undertaking for the industry, and although it has taken longer than anticipated, it is nevertheless an exciting time for our company as we move ahead in introducing our products and demonstrating the proven benefit it will drive for end-market users. I will now turn it over to Chuck for a more detailed overview of our current business and go-forward strategy.

Okay. Thanks, Gail. With today’s joint announcement with HP, HyperCloud is now available for sale on HP’s top-selling newly-released Gen8 servers. HyperCloud has also been designated as an HP Smart memory. This coupled with availability on IBM System x servers makes HyperCloud the first ever proprietary memory technology to be widely adopted by the mainstream server market. HP and IBM account for a majority share of the server market and they combine for even a larger share of the world’s high-density server memory consumption. Again, HCDIMMs are the only 16-gigabyte 3 DPC 1333 capable memory solution available in the market, and multiple independent benchmark tests confirm that HyperCloud will operate up to 25% faster than industry standard solutions. This performance improvement in memory is significant if you consider that collectively the industry spends billions of dollars each year to increase the server speed by just one incremental speed rate. Since our last call, we’ve been working directly with the OEMs to introduce our products to end-market users who will then run the product in their particular applications. It’s early in the introduction process, but HyperCloud is currently being tested by potential end-users and customers, including a major stock exchange and several large financial institutions on Wall Street. We also just completed the first phase of testing with one of the US automakers where they saw up to a 30% in job time for crash simulations when they used HyperCloud. We’re also in similar testing with a number of major firms in oil and gas and semiconductor industries. Once adopted by these kinds of end-market users and ultimately deployed in a variety of memory-hungry applications, we believe that fully populated servers with HCDIMMs will become the standard high-end memory configuration for the industry and become replicated in data centers around the world. We’re working to expand our qualification footprint at both IBM and HP as we increase the number of server platforms available to ship with 16-gigabyte HCDIMMs. We’re also working together with our OEM partners to qualify the next level of density 32-gigabyte HCDIMMs in Romley-based servers. We expect this testing to be completed over the next few months. Beyond HyperCloud, we’re also moving forward with the introduction of other new products, product lines that offer enormous growth potential. These include our next generation of vault products, NV3 and EV2, and our line of specialty memory subsystems including VLP RDIMMs and Planar-X RDIMMs. 16-gigabyte registered DIMMs which leverage our Planar-X technology are now available to ship with IBM’s top-selling server blades. During the last few weeks, we’ve been working closely with IBM to fill the supply pipeline and train the IBM sales force on the cost benefit of our product. We will follow this up with qualification of our high-performance 32-gigabyte VLP which we anticipate will begin testing during the second quarter. DDR3 VLP and NV3 along with HyperCloud represent an integral part of our new product lineup for the years ahead, and we continue to expect these new products to begin making significant contributions to our results in the second half of the year. As we’ve indicated in prior calls, 2012 is a transitional year for Netlist as we begin ramp-down of products tied to prior generation of servers and ramp-up of new products tied to the next generation of servers. Starting in late Q1, we began to see a drop-off in the Dell PERC product line which has accounted for a significant portion of our business over the past two years. This plan ramp-down is tied to the natural server product cycle and will continue through the rest of the year as sales of existing servers tied to the PERC increasingly become supplanted by the introduction of new Romley-based systems. In its place we will be ramping up a multitude of brand-new products starting this quarter that will serve as the foundation of the company’s top-line and bottom-line growth over the next several years. As you know, HyperCloud, VLP, Planar-X RDIMMs and NV3 are all fruits of the company’s long-term vision and investment of tens of millions of dollars over the past several years. Much like the PERC business, these will become high-volume products, but unlike the PERC, the average selling price and gross margin dollars will be an order of magnitude higher because these new memory products are high-density and high-performance. As such, we expect the business scale quite rapidly once these products gain traction in the marketplace. Also, importantly, unlike the PERC which was a single product -- single customer product limited to Dell servers, all of the new products are targeted at the entire server and storage space. Therefore, we expect to see the benefit of supplying numerous major customers in terms of our revenue profile and customer diversification. Finally, while the PERC went up and down with the traditional two to three-year server cycle, HCDIMM, NV3 and Planar-X are multigenerational products based on fundamental groundbreaking IP. They will retain their competitive edge through DDR4 all the way to the end of the decade. We’re clearly at an inflection point in our business as we bring multiple new IP-based products to the market and broaden our customer base. We’re committed to taking full advantage of our emerging leadership position while laying out the groundwork to generate returns from our investments to the benefit of our shareholders. And thank you all very much for listening today, and we’re now ready for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Rich Kugele of Needham & Co. Please go ahead. Rich Kugele – Needham & Co.: Thank you. Good afternoon. A couple of questions. First, when it comes to customers of such scale like HP and IBM, obviously since they’ve signed contracts with you, they’re comfortable with your ability to supply. But have they asked for anyone else to be a second source in any way for these HyperCloud modules? Have they asked you to license it out in any way?

Rich, we’ve had some of those discussions in the past and I think as we see traction and volumes increase over time, we’ll get into more serious discussions about a potential second source. For now, I think they’re comfortable with us supporting product. We’ve got products that have already been shipped into the hubs worldwide for both HP and IBM, and we’ve started to fill the pipeline. So I think we’ll discuss second sourcing as the volumes increase. Rich Kugele – Needham & Co.: Okay. And then when you do fill pipelines or hubs in some way, do you recognize that revenue as it’s going to the hub or when it’s pulled, or how is revenue recognized?

Hi, Rich. Rich Kugele – Needham & Co.: Hi.

Yes, the -- for one of the customers, items are pulled from the hub, we will recognize revenue then. And arrangements for another customer is we’ll be shipping and recognizing revenue immediately. So it’ll vary.

Yeah, it’ll be a combination. We’ve done this type of business in the past with IBM and HP, going back many years, as we were the original supplier of VLP, for example, to IBM with DDR1. And there’ll be a combination of purchase order, hard orders that come in where we invoice as we ship the product. And then there will be other orders where we are asked to fill up hub first and then they pull it and integrate in their integration centers around the world. Rich Kugele – Needham & Co.: Okay. And then just a couple more for me. In terms of the March quarter, was there material HyperCloud revenue then that you can break out? Was that a contributing factor to the 39% gross margin, or was it DRAM, lower pricing, mix? If you could just dive a little bit deeper into both how much HyperCloud was and the composition of the margins.

Rich, the actual allocation was similar to the prior quarter. The majority was still our vault product line. And we did have HyperCloud sales -- Rich Kugele – Needham & Co.: I don’t think anybody was really expecting any HyperCloud yet, I'm just wondering if that was a contributing factor to the margins.

No, it was mainly the mix and some lower DRAM costs. Rich Kugele – Needham & Co.: Okay. And then you did comment that you were going to need to make some expenditures, is that $1 million for the rest of the year in CapEx or is that just Q2?

That’s for Q2 and Q3. Rich Kugele – Needham & Co.: In total, okay.

In total. Rich Kugele – Needham & Co.: And that’s enough to basically give you some material ramp in HyperCloud and the new products for the year?

Yes. Rich Kugele – Needham & Co.: Okay. Okay, I’ll go back in the queue. Thank you.

Okay, thanks.

The next question we have comes from Mark Kelleher of Dougherty & Co. Please go ahead. Mark Kelleher – Dougherty & Co.: Good afternoon. Thanks for taking the question.

Hi, Mark. Mark Kelleher – Dougherty & Co.: Last quarter you talked about an expectation, maybe 50% to 100% revenue growth this year. Is that still on the table or does the push-out on the Romley supply issue make that less likely?

Obviously we’re still hopeful for that to happen, but the push-out, as we’ve indicated, will defer that most likely. Mark Kelleher – Dougherty & Co.: Okay. And in terms of Dell and the vault ramping down, does that pick up momentum, does that -- should we expect a similar decline in the next quarter? Is the June quarter the nadir, was the March quarter the nadir of revenue? Where does that -- what’s the ramp of Dell going down look like?

It is going to be sequentially down, but our plan is for other -- for the other lines to ramp up. So, as we discussed, this is a transitional period and we’ll see both fluctuating as planned. Mark Kelleher – Dougherty & Co.: Okay. So, March should be the nadir, the low point of revenue?

We believe it’ll probably come in about flat for Q2, so, yes, the answer would be hopefully Q1 is the low point. Mark Kelleher – Dougherty & Co.: Okay, great. Thanks.

Thank you.

The next question we have comes from Richard Shannon of Craig-Hallum. Richard Shannon – Craig-Hallum Capital: Hi, everybody. I just have a quick question, I guess, first of all, I want to say congratulations on the HP announcement you put out today. Curious, since last quarter you’ve announced both IBM and HP -- publicly announced usage of HyperCloud, but it’s been at the 16-gig capacity and the 1.5 vault level. Curious about the progress towards getting 32 gigs and 1.35 vaults out there, what kind of timing you expect on that? And how important you see those products relative to the ones you’ve already qualified with those two key vendors?

Sure. Hi, Richard, this is Chris Lopes. Well, both those customers that you mentioned have seen samples of 32-gig, are very excited about it, they’re in the process of getting their plans together for qualification. So we’ve had very positive early test results, and we think that will complete this coming quarter. Richard Shannon – Craig-Hallum Capital: Okay. And then maybe just a quick last question for me. You’ve talked about HP and IBM as important tier 1 OEMs. Curious what’s your view of the Open Compute Project from Facebook as a channel for you? Is that something that’s a viable means especially since it looks like they’re targeting the financial services sector as well? Any thoughts on that please?

Well, the Open Compute, as I understand, is a little smaller in its memory footprint and maybe not targeted so much to the analytical high-density requirements that our HyperCloud product is targeted. But we are in discussions with customers that are using that kind of a platform to see if there are alternatives. We have several other products that we’re working on as well that may be a good fit for that. Richard Shannon – Craig-Hallum Capital: Okay. Great. That’s all for me. Thanks a lot, guys.

Thanks, Richard.

That will conclude our question-and-answer session for today. I would now like to turn the conference back over to Chuck Hong and management for any closing remarks.

Once again, thank you all for listening in today, and we appreciate your support and attention to our business. And we look forward to reporting back on our progress in the next quarter. Thank you.

And we thank you sir and to the rest of the management team for your time. The conference is now concluded. We thank you all for attending today’s presentation. At this time you may disconnect your lines. Thank you and take care.