Quicklogic Corp (QUIK) 2003 Q1 法說會逐字稿

Good day, everyone, and welcome to the QuickLogic First Quarter 2003 Earnings Conference Call. Today's call is being recorded. And at this time, for opening remarks and introductions, I would like to turn the call over to Mr. Thomas Hart, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good afternoon, and welcome to our first quarter 2003 earnings conference call. Thanks for taking the time to hear about QuickLogic and our leadership of the embedded standard product marketplace. Carl Mills, our CFO, will take you through the financials, and then I'll share my perspective on our business. Finally, Carl will share our guidance for Q2, and then we'll take questions. Carl?

Before I get started, I'd like to read a short Safe Harbor Statement:

"During this call, we will make statements that are forward-looking. These include statements concerning future results, financial metrics, visibility, the competitive environment, acceptance of our products going forward, economic conditions, expected actions by QuickLogic, the expected timing of our return to profitability, and market opportunities generally. These forward-looking statements involve risks and uncertainties, and QuickLogic's future results could differ materially from such forward-looking statements. We refer you to the risk factors listed in our Annual Report on form 10K, quarterly reports on form 10Q, and prior press releases for a description of these and other risks that could cause actual results to differ materially from our forward-looking statements. QuickLogic assumes no obligation to update any such forward-looking statements."

We had a very strong quarter, growing our revenues, increasing our margins, and generating a positive cash flow from operations. Our results were the strongest that we have had in two years, improving in such areas as customer demand, [inaudible] backlog, gross margins, and cash flow from operations.

Our revenue increased 12% sequentially, and 26% compared to the first quarter of 2002. Our sequential revenue growth was driven by increases in pASIC2 and pASIC3 product revenues, with good volumes spread across several customers. Most of our pASIC business is a refreshing change in demand for our products. It indicates a demand for our more mature products will be stronger in 2003 than we had planned at the beginning of the year.

You may recall that, during the December quarter, we had a significant increase in ESP revenues. Our ESP business remained strong in the first quarter, remaining at the levels we experienced in Q4, and accounting for 42% of Q1 revenue. One customer purchasing our ESP products accounted for 13% of our first quarter revenue. We increased our revenue from this customer by approximately $100,000 during Q1. The same customer accounted for 12% of our fourth quarter revenue.

Our gross margin improved to 52% of revenue in the first quarter. Our cost of sales increased by only $200,000 compared to Q4, while our revenues increased by $1 million. Our standard product cost, as a percent of revenue, were lower in Q1 compared to Q4. This improvement generated $200,000 of additional margin. Sale of previously reserved inventory was higher than we had planned on during the quarter, contributing 3.5% more gross margin.

Our research and development expenses declined by $150,000 sequentially, due primarily to a workforce reduction that we undertook early in Q4. We had expected R&D expenses to increase in Q1. Expenses that we had planned in the first quarter will occur in the second quarter instead. How do we explain this one-quarter shift? Quite simply. Our engineering team examined early output from our fab partner, Tower Semiconductor. They identified how to increase the performance and yield of these devices, and made changes to the product design. As a result, we moved the majority of pre-production expenses associated with these devices into Q2.

Our SG&A expenses were $300,000 higher sequentially resulting from, among other things, an increase in our bad debt reserve, expenses related to our worldwide sales meeting, costs associated with our annual report, and seasonally higher benefit costs, like vacation accruals and employer taxes.

To recap our sequential P&L improvement at this point, our revenue increased by $1 million, our gross profit improved by $820,000, and our combined expenses for R&D and SG&A increased by only $160,000. These combined factors reduced our operating loss by approximately $700,000 compared to Q4. We reported a net loss of $1.6 million in Q1, a significant improvement over our $18.4 million loss in the fourth quarter. A sequential improvement of 15.8 million is a result of the $700,000 just discussed, as well as fourth quarter charges that we did not have again in the first quarter. These charges include a goodwill impairment of $11.4 million, a $3.8 million write-down of our Tower equity investment, and restructuring costs of $800,000 associated with our Q4 reduction in force.

Our net loss of $1.6 million in the first quarter compares to a loss of $3.7 million in the first quarter of 2002. Several factors contributed to this $2.1 million improvement. One, higher revenues of $1.9 million; two, gross margin of 51.7% compared to 41.6% one year ago; and three, Q1 expenses that were $400,000 lower than one year ago. R&D expenses were lowered significantly to 29% compared to one year ago.

Some of the news I'm happiest to share with you is that our cash flow from operations was positive, providing us with $1.4 million of cash in Q1. This is our first positive cash flow from operations in more than two years, and is a great accomplishment considering that we had $3 million of cash flow operations in Q4, and $3.6 million in the first quarter of 2002. Cash flow for the first quarter was also positive. Our positive cash flow can be attributed to a few factors. Our net loss of $1.6 million, adjusted to remove the effect of non-cash charges, such as depreciation, was $300,000 in Q1.

Our operations group continues to excel in the effective management of our inventory. Inventory reductions contributed $700,000 of cash this quarter. Our prepaid expenses contributed $300,000 of cash. In addition, higher accounts payable provided $500,000 of cash in Q1. Other balance sheet items contributed $200,000 to operating cash flow.

Our cash flow, net of the effect of our debt with Silicon Valley Bank, was a positive $800,000 in the first quarter. $1.4 million was provided by operations. During the quarter, we used $350,000 for capital expenditures and $250,000 for financing activities. We completed the quarter with a total cash position of $22.6 million, including $8.8 million of restricted cash. Owing to an amended agreement with Silicon Valley Bank currently in process, we expect to report our entire cash balance as cash and equivalents with no restrictions at the end of the second quarter.

The first quarter cash result was better than our forecast because of our reduced net loss, reduced levels of inventory, increased accounts payable, and lower capital expenditures. We had 160 employees at the end of the first quarter, compared with 157 employees at the end of 2002.

Let me now turn the call over to Tom.

Okay. Thank you, Carl. As Carl's already shared with you, Q1 was yet another quarter offering us a real breath of fresh air from a bookings perspective, which led to a 26% increase in revenue from Q1 of 2002, and a 12% growth in sequential revenue. Bookings in Q1 started out strong in January, and continued to grow on a run rate basis throughout the quarter. A recent record booking quarter for QuickLogic. An overall excellent way to kick off the New Year, I would say.

Now, as I mentioned, from a revenue perspective, we grew sequentially 12% Q1 over Q4. Very nice growth. And in comparison to our competition, we've outgrown the market, which grew 6% sequentially, and 11% from Q1 last year. For the record, we've grown faster sequentially for eight out of the last nine quarters than the total of our competition. This is another way of saying that we've been gaining market share on a sustained basis.

Now, we spend a lot of time on these calls talking about new products for a good reason. They're our future. But, our old products still deserve and command some respect, for they did account for 36% of total revenue in Q1. Another significant plus for this quarter was the fact that mature product revenue grew 24% sequentially, and 9% year-over-year. This growth was distributed over a wide range of designs, customers and geographies. These are products that started shipping in 1991, and still offer good value to customers. In fact, we are still winning new designs with these "old products".

A major reason for the continued popularity is that they're five-volt products, and many customers, especially in the industrial segment, still demand five-volt operating voltage. The focus by the analysts and technical press communities on which technology node our products are built on is really overblown, in my humble opinion. pASIC1 and pASIC2 are made for us by Cypress [sp] Semiconductor and their Texas staff, using their .65-micron two-layer and three-layer metal process. Now, there are annuities in the semiconductor business, but these two product families are as close as we get.

Having said that, this is a new product business, and new product revenue growth of 37% and ESP revenue growth of 50% year-over-year continues to be most encouraging. ESPs accounted for 42% of our total revenue in Q1, while total new products now account for 64% of Q1 revenue. In the last two quarters, just over half our new orders have been for ESP products. This is great news from our perspective. And when you couple this data with the growth, it further validates our progress in the embedded standard product marketplace.

We've talked in these earning calls before about the nature of our business being very turns-oriented. In fact, turns in Q1 were only 61% of total shipments. Strong December bookings gave us higher than normal backlog going into Q1. It was nice to have the backlog going into this first quarter. I say this even though you've heard me disparage the myth of semiconductor backlog in previous earnings calls. The difference here is that most of our customers purchase products from us programmed with their unique code; a standard part customized to their exact needs. In fact, 80% of the parts we shipped in Q1 were programmed by us. Customers orders for programmed product are accepted by us and our distributors on a non-cancelable, non-returnable basis. This means they are real orders for real customer demand.

Our business model here is very different from commodity standard products purchased through distribution, where double-ordering and/or channel conflicts can occur that may lead to unreal or inflated backlog, an industry phenomenon we're very familiar with and have all observed in the past.

At this point, not even a whole month into Q2, we're pleased with the new order-booking rate. Clearly, this doesn't make the quarter, given our normally high turns requirement and with nine-plus weeks remaining in this quarter. Carl will give you the specific details of our guidance for Q2 later in the call.

As we look at the mix of new orders, we continue to be encouraged for all three product categories: mature, new, and ESP product families. New orders for mature products increased 31% sequentially, while orders for both new and ESP products grew very nicely. In fact, new product orders grew 26% sequentially. ESP new orders in the quarter grew 11%.

From a geographic perspective, on a sequential comparison basis, Asia-Pacific orders were up 50%, and accounted for 48% of our total orders. North America was up 25%, with Europe being down at 26%.

Okay, here you can insert my typical disparaging remarks about sequential comparisons and the value, or lack thereof, of those. My God, sometimes I feel like I'm Dennis Miller on one of his rants, except that I doubt if he ever took off on sequential comparisons. Please forgive me. I just can't help myself on this. Revenue on a sequential basis shows North America up 20%, Asia-Pacific up 11%, with Europe down 9%.

In news on the QuickMIPS front, in February we announced that Ian Ferguson joined us as Vice-President and General Manager of our QuickMIPS business. Ian joined us from IDT, where he directed the strategic marketing efforts of their microprocessor business unit. Ian has a solid background in embedded processors with Motorola in Europe, as well. We welcome Ian and his expertise in this most important sector of our business. Stay tuned for our new QuickMIPS product announcement, which we will make in mid-May.

Embedded standard products, a term we coined to represent this new category of semiconductor products that we've pioneered, are really about simple economics; simple economics for our customer during development, in production and in responding to change. Quick ESPs really are the answer when the customer requires a system-on-a-chip that is field programmable, truly the programmable system-on-a-chip solution.

Customers that require system-on-a-chip care about three major areas: performance, cost, and time to revenue. Performance is a given. If the device won't run fast enough, they don't care about the cost because they can't get the system performance they need to satisfy their customers. The unique device architecture enabled by our patented, proprietary V-link, on chip, field programmable interconnect technology, offers higher performance at lower clock speeds and, therefore, lower power dissipation. By offloading compute-intensive tasks from the microprocessor and implementing them in the programmable fabric, our customers can see an order of magnitude decrease in power requirements and increases in system performance, certainly an important criteria for battery-powered mobile applications, but also crucial in high-density, space-constrained environments like central offices.

We've talked before about the challenges of ASICS, from both a cost risk and time to market perspective. All the trends in the semiconductor industry were against ASICS, except when the customer requires very high volume of exactly the same device. The clear majority of customers don't need vast quantities of exactly the same part. They use ASICS for performance and cost. ESPs now answers both those requirements.

This leads to the major reason for customers using Embedded Standard Products. Our customers buy a standard product that they can customize. ESPs give our customers the ability to bring their differentiated products to their market without huge fixed costs, no minimum volume requirements, and no delays waiting for custom semiconductor manufacturing, all of which serve to reduce their costs and risks, and get them to revenue in less time.

In February, based on the very low power characteristics of V-link-based programmable logic, we introduced the industry's lowest power, highest performance line of FPGAs. The product family is called Eclipse II, and includes five basic devices offered in four different packages, including the small fourth factor, chip-scale package. Our FPGAs, unlike S-RAM-based products, do not require an external memory to reprogram them each time power is applied. Eclipse II devices retain their configuration, thereby saving cost, board space and power consumption, firm requirements for miniaturized, portable products.

How can this be, you might ask? Well, the answer comes from the customer benefits enabled by V-link, namely our FPGAs operate at much lower power and end at higher speeds than S-RAM-based FPGAs. It is also important to note that V-link-based devices also offer unprecedented levels of design security, an essential characteristic not available from S-RAM-based devices. The whole issue of design security is not just a red herring, by the way. Ask Cisco about having your advanced products knocked off by the competition. It is virtually impossible to reverse-engineer a V-link-based device. In fact, they're more secure than ASICS. The United States National Security Agency used our V-link technology in encryption devices for exactly these reasons.

Well, we're off to a very good start on this new year, two quarters in a row of very strong bookings and, therefore, increasing revenues. You know, who knows? This could be the upturn we've all been hoping to see. We're going for it.

Okay. Well, thank you, and now Carl will give you more specific Q2 guidance. Carl?

Thank you, Tom. As you know, we typically have low visibility in the current quarter revenue and depend on 75% to 80% turns business to make the current quarter. However, our beginning backlog is higher than normal this quarter due to the strong first quarter bookings associated with our Asia-Pacific ESP and Eclipse business. With this higher visibility, we are providing guidance for sequential revenue growth of 7% to 10% in the second quarter. Gross margin, which was higher than planned in Q1, is planned to be between 46% and 51% in Q2.

I mentioned the worldwide sales meeting that we held in the first quarter. Our sales team is enthusiastic about the products that we have in development. We expect to incur higher research and development expenses in Q2, principally due to the purchase of pre-production material and outside processing for some of these products. We expect that research and development expenses could increase $300,000 to $500,000 sequentially. We expect these new products to deliver significant revenue in 2004.

We plan for Selling, General and Administrative expenses to be within $100,000, the first quarter levels. Interest income and other net includes interest borrowed on invested cash, foreign exchange gains and losses, and interest expense on borrowings. During the first quarter, the net expenses were $35,000. We expect that interest income and other net will be within $100,000 of current levels in the second quarter.

We plan to use approximately $2 million of cash during the second quarter. We may use up to $1 million of cash for operations. We plan to tape out two new products this quarter, QuickMIPS and Eclipse II. The capital spending associated with these efforts will be significant. Inventory levels may decline by only $200,000 to $400,000 during the quarter, and we do not expect a significant benefit from accounts payable, prepaid expenses, or other balance sheet items in the second quarter.

Tower Semiconductor has certain production milestones to achieve before our final investment in Tower becomes due. Tower recently announced that they would not meet their milestones by July 2003, the date set under our agreement. However, Tower remains an important source of advanced manufacturing technology to us, and is viewed as a long-term, valuable partner to our company. We are running our engineering lots at Tower today, and plan to provide our customers with sample product in the middle of 2003.

We have a strategic investment in Tower, and we are currently renegotiating the final $3.7 million payment, consistent with our goal of reducing our cash outlays in 2003. As a result of these negotiations, however, we may make an investment in Tower in Q2. This would increase our planned use of funds in the quarter.

Please remember that we have made forward-looking statements in our presentation, and we will likely make others in the question and answer period following our prepared remarks. Our actual results could differ materially. Please review our SEC filings for specific information on the risks and uncertainties that we face.

Let me turn the call back over to Tom.

Okay. Thanks, Carl. Carl and I will be presenting at the AEA Financial Conference in Monterey, California on Wednesday, May 14th. We hope to see you there. And for your scheduling purposes, our Q2 2003 Earnings Conference Call is scheduled for Wednesday, July 23rd this year at 2:30 p.m. Pacific Daylight Time.

Okay, can we open up this call now for questions and answers please, operator?

Thank you. The question and answer session will be conducted electronically today. If you would like to ask a question, please do so by pressing the star key, followed by the digit "one" on your touch-tone telephone. Once again, that is star, one to ask a question. If you are using a speakerphone today, please make sure that your mute function is turned off to allow your signal to reach our equipment, and we will pause for just a moment to assemble our roster.

And once again, that is star, one, to ask a question today.

And our first question comes from John Lau.

Yes. Hi, Tom. I was wondering if you could--you had a lot of strength in the quarter. I was wondering if you could give us a little bit more color on that, specifically on the applications. I see, in terms of the percentage by end customer and breakdown, a lot of it grew in the instrumentation. And I was wondering if you could go into a little more detail on that. Thank you.

Okay. Well, yeah. Instrumentation and test, as you see, grew quarter-over-quarter. It grew 23%. Of course, the challenge here is always sequential comparisons. But, instrumentation and test for us has always been a very strong segment. And actually, our major customers there include people like [Teradyne], LTX, [Yokogawa] in Japan, National Instruments, and these folks--businesses are doing very well. And so, that's why we're seeing a good uplift there in terms of business. And their input to us is that it's continuing, and will continue, through the year. So, we're pretty optimistic about instrumentation and test on a forward-going basis.

Computing, for us is primarily things like raid systems, which are doing well, Storage Area Networks, as well as network attached storage, is also doing well, notwithstanding some of the major guys are having problems. But, people are trying to figure out how to do it much more at cost points.

Also, that includes, in computing, it includes a very large customer, our largest customer in Asia-Pacific, and that application is primarily a PCI application, actually. So, those--you know, I guess commenting on telecom/datacom, slight growth sequentially, but no real significant improvement there at this point from our perspective. Graphics and imaging being down for the quarter is really just a blip. That'll continue to be a strong business for us on a forward-going basis. And military and aerospace systems, we expect to see good growth, actually not just in North America, but in Europe as well.

That give you what you need, John?

Yes, it sure does, but I wanted to follow up with another question on the QuickMIPS design activity. Could you tell us, in terms of what you see on the design front, what type of applications they're going into? Is it a specific sector, or anything that sticks out? Thank you.

Okay. Well, QuickMIPS activity continues to be very strong, and we're very pleased with the nature of the customer that we're seeing be interested in the product. We're not ready to announce any specific customers yet or designs, but I can tell you that we're seeing a significant interest from tier one customers, which has always been very hard for us to get into, quite frankly because, as just an FPGA supplier, [Azalex] and [Alterra] had that waterfront pretty well covered. We're seeing very good interest from major tier one customers actually on a worldwide basis.

In terms of applications, it really is across the waterfront. If you remember, John, we designed this part originally with the intent that it would be used in Voice over IP and VPN kinds of applications, and we're seeing it being used there, actually. But, we've been really surprised at how horizontal a product this has been. And actually, if you think about it, if you look at the part, you'll see that the ASST side of the QuickMIPS device is actually a microprocessor that will boot up on its own and run LINUX or run DXWorks. As a matter of fact, we've got one customer who's using it as a Web server. So, you wind up with a MIPS high quality 32-bit microprocessor that, in fact, has got two Ethernet ports and can--and operate as a Web server. And then, oh, by the way, you can put algorithms that you want to accelerate into the fabric. So, it's a much more horizontal product than we had originally envisioned, which is really very good news.

Okay, I'm gonna pin you down a little bit. There are a couple of competitors that have an embedded microprocessor with a PLD. Can you give us, in terms of the scale and the order of magnitude of the cost differential that you see in that marketplace, and the advantages that you provide, just in terms of rough magnitude?

Well, yes, I can. We're talking about significantly less than $40 parts, and they're talking about parts that are $500 and above. Really no comparison at all. And so the applications that we look at are very different than the applications that they'll see. We're looking at applications where people are talking to us about 100,000 parts, and I'll bet you'll find very few to no applications that can afford a $500 part. You'll find lots of applications that can afford a $40 or $30 part. Big difference. No comparison.

Great. Thank you.

Okay. Thank you, John.

And our next question does come from [Anad Nadcarne].

Tom, Carl, congratulations. Very good quarter.

Thank you.

Thank you.

You guys are growing faster than any other PLD company there.

You got it.

Let's talk about the ESPs. Can you give us more color on sales and bookings for Quick PCI and Quick RAM?

Well, we've not broken out in the past, I don't think, specific sales by those categories. We've lumped them together with ESPs. But, I can tell you that, today, they make up like 95% of our ESP revenues come out of Quick PCI and the Quick RAM families, and that's where our growth that we reported this quarter come from. You know, we reported a growth in new order activity. I don't have it off the top of my head here, but I think it was--we said that new orders--that ESP new orders made up 47% of the new orders that came in, and grew sequentially--only grew 11% for ESPs. And that's, quite frankly, because it was already at a really high sustained rate from the quarter before. So, ESPs for us are growing very nicely, and you can see that as a percentage of our total sales.

And just qualitatively, you are seeing this trend across different segments. You talked about the implementation segment for the ESPs. You are seeing these are being used in various different applications?

Well, PCI--let's just take the example of PCI. PCI is used everywhere, you know. This is--you know, it started out as the bus in personal computers, but it is now used across a broad range of applications in virtually all market segments. Military uses it, datacom/telecom use it now. You know, you see it virtually everywhere, because it's been well-supported and well-accepted and well-understood, and it's very useful. And you can implement it at relatively low cost. So, it's received very broad usage across all market segments. And by the way, it is viewed as doing that on a forward-going basis, notwithstanding this potpourri of other high-speed serial interfaces that you see, including PCI Express, including [Infiniband], Rapid I/O, all of those--you know, they're gonna have places, but it's gonna take a while for those to roll out. PCI is here today, and is being consumed and used in new designs across all those market segments.

Our PCI revenues were up 21% sequentially and 55% compared to a year ago.

Very good. Can you tell us, either qualitatively or quantitatively, what your roadmap to profitability is? Will it be mainly driven by revenue growth, or should we see further improvement in margins and further cost improvements?

All of the above.

I think our primary driver is revenue growth. We are pleased with our margins. I'm sure we expect them to increase over time. We're pleased with the size of the company. We've got a great team in place. We think this is a team that can fuel us with new products and with increasing demand. So, we don't expect to cut our expenses in the short-term.

Okay. And speaking about growth margins, should we expect the growth margins to stay above 50% if your sales are at current level or better?

I would think a guidance of, you know, was 46 to 51. I'd suspect it's going to be just under 50%.

Okay. A question about the geographic distribution. While you are doing very well in North America and Asia, you are not as strong in Europe. Is that a fair assessment?

We had very good order activity in the recent quarter from some of our large North American customers, and that, you know--among our pASIC2 and pASIC3 products. That helped us quite a bit. But really, we're getting a tremendous growth activity in terms of bookings from Asia. So we expect to see continued acceleration in our Asian revenues.

Okay. And regarding QuickMIPS revenue, when do you expect QuickMIPS to start contributing sizably to the top line?

Q4.

Q4. Okay. Well again, congratulations on a very good quarter.

Thanks very much.

And our next question comes from Peter Conrad.

Hi, guys. Congrats on the quarter.

Thanks, Peter.

Thanks, Peter.

I guess most of my questions have been answered but, just a couple on-you had a little bit of an assist from some previously reserved inventory. Do you anticipate much more of that on a go forward basis, or have we pretty much worked through that?

No, we're still about that. I think our inventory will continue to benefit certainly in Q2, and probably in Q3 as well. I don't think the benefit will be quite as big as we saw this quarter because we've eaten through some of our reserves for our pASIC2 product.

Okay. Great. And with the kind of mix you're seeing now and the cost cuts that you've put in place, where do you see your break-even at present?

Cash flow about $12 million and D&O about 14.

Okay. And I won't ask you exactly when you anticipate hitting that.

As quickly as possible.

Great. Thanks, guys.

Sure.

And our next question comes from [Robert Katts].

Hi, guys. Great quarter. Nice to see that you're making some progress.

Thank you.

Feels good.

It certainly feels good for us, too, to see that. Can you give a little more color on design activity, especially in the Quick PCI product line? And also, it sounds like the PCI market would be--that it's more of a high volume market, and how does that sort of play into your marketing this type of product as sort of an ASSP or an ASP product into somehow it would be a higher volume end market in the PCI domain?

We're supplying product today, as an example, into a very high volume PCI applications. You know, we're talking millions of parts. So that myth of having to have ASSPs to satisfy those kind of [inaudible] needs is pure nonsense. That's an old wives tale that was appropriate maybe for five years ago, but it's no longer appropriate. We're competitive with the ASSPs. Because, if you look at the ASSPs used for PCIs, virtually-well, I can't give you an exact percentage number, but a large percentage of the applications, you'll find somebody's FPGA or CPLD sitting next to one of those PCI ASSPs. And we've got both of those together in one part. So, you know, we're taking what is a three-chip solution, namely an ASSP PCI controller, plus an FPGA to adapt that controller to their specific application, plus, if they used an S-RAM-based FPGA, they've got to have an e-prompt for that FPGA. So, we're taking a three-part solution to one part and we're doing it cost competitively to that three-chip solution. So, we're-I was going to say we're kicking ass in the marketplace.

That sounds great. Can you sort of give an example about what the dollar amount you're replacing on the PCI solution would be?

Well, for target devices, as an example, we'll sell product today and make good margins all the way down to $6.

[Inaudible] like mid-40s to 50% margin on that product?

Clearly.

Okay. That's great. Great quarter.

Thank you.

And once again, that is star, one to ask a question today. And we will take our next question from [Eric Slade].

Great quarter.

Thank you, Eric.

Actually, most of the questions were answered, but one thing on the restricted cash. That comes off, what, you say next quarter?

It will come off in Q2. What happened is that our loan agreement with Silicon Valley Bank included a minimum cash requirement. And some recent negotiations with the SEC by other companies have caused those companies to classify that as restricted cash. And our auditors informed us of that. We'd didn't know it as we were getting ready to put our 10K to press. And so, since that time, Silicon Valley Bank has agreed with us on new terms that would remove the restricted cash requirement. It's just going to take us another week or two to finish those documents.

So that would give you $22 million in cash. Is that correct?

That's correct.

And finally, the last part of Tower, you guys would owe 3.7 at the most?

That's right. That's the outside range.

Okay, but you're renegotiating, right?

Yes.

I'm sure you're renegotiating that down.

We ain't renegotiating it up, I guarantee you that.

All right. Okay. One question. You know, you guys have mentioned it all, and I hear this from-actually, I just heard it from Novellus, which is an equipment supplier. Are you seeing anything-I know you have China business-any hesitation because of this new SARS virus? Is that anything to think about?

Not that we've seen at this point. I'm sure it'll be used as an excuse by people who need excuses.

Yeah, I didn't think Novellus would need an excuse, but they had one there. The other question is, your taxes are so strong, you wouldn't I guess-it's safe to assume that you wouldn't be looking at doing any financing for the foreseeable future, not at these prices, right?

We have no plans to do any financing at these prices.

Super. That should do it for me. And congratulations again.

Thanks, Eric.

And as one final reminder, if you would like to ask a question today, please press star, one. And Mr. Hart, there appears to be no further questions at this time. I will turn the conference back over to you for any additional or closing remarks.

Okay, well thank you very kindly for your interest in QuickLogic. We're very excited, as you can tell, by what's going on here. We believe that Quick ESPs, our embedded standard products, are really beginning to gain traction, and we look forward to more calls like this one.

Thank you and we'll hopefully see you in May at AEA, or see you on the next call in July. Take care.