Quicklogic Corp (QUIK) 2007 Q1 法說會逐字稿

Welcome to the Quicklogic Corporation first quarter 2007 earning conference call. Today's call is being recorded and will be available for playback beginning at 8:30pm Eastern time. (operator instructions)

At this time, for opening remarks and introductions, I will now turn the call over to Mr. E. Thomas Hart, chairman, president, and CEO for Quicklogic. Sir, please go ahead.

Okay. Thank you, Alan. Good afternoon, ladies and gentlemen. Carl Mills, our CFO, and I are here today, and welcome you all to our fiscal 2007 first quarter earnings conference call. We appreciate you taking the time to join us and hear about Quicklogic's financial results, and our continuing progress in providing the world's lowest-power programmable solutions for high-volume mobile applications.

Carl will take you through our first quarter 2007 financial results, and then I'll share my perspective on our business. Finally, Carl will detail our guidance for the second quarter of 2007, and then we'll open it up for questions. Carl?

Thank you, Tom. Before I get started, I'd like to read a short Safe Harbor statement.

During the call, we will make statements that are forward looking. These forward looking statements involve risks and uncertainties, including but not limited to, stated expectations leading to revenue growth from our new products, statements pertaining to our ability to convert new design opportunities into customer activity, market acceptance of our customers' products, the effects of our customer-specific standard products and our ArcticLink solution platform, and our financial expectations for revenue, gross margin, profitability, and cash.

Quicklogic's future results could differ materially from such forward looking statements. We refer you to the risk factors listed on our annual report on form 10-K, quarterly reports on form 10-Q, and prior press releases for descriptions 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. For your information, this conference call is open to all, and is being webcast live. It can be accessed from the investor relations of the Quicklogic website, located at www.quicklogic.com/investors.

Overall, for the first quarter of 2007, and on a non-GAAP basis, our revenue of $6.2 million was at the midpoint of our guidance for the quarter. Demand for products was in line with our expectations, and our shipments actually supported the high end of our guidance. But products shipped near the end of the quarter did not move through the channel to generate revenue by quarter-end.

Our non-GAAP gross margin of 14.4% was affected by a $2.5 million write-down of excess inventory. Without this write-down, non-GAAP gross margin of 53.8% would have exceeded our guidance of 48% to 53%. We had a sequentially favorable mix of high gross margin product revenue in Q1, and our operations group did a great job of bringing overhead spending in under forecast. The sale of previously reserved inventory benefited our cost of revenue by 1.3% in the first quarter, similar to our Q4 of 2006 results.

Our spending was favorable compared to guidance for the quarter end. Our ending cash position of $21.1 million represented a decline of $3.5 million during the first quarter, compared to our guidance that cash could decline by up to $4 million.

You may have noted that we changed the categories used to report revenue in today's earnings press release. We now report revenue in three categories: new products, which includes Eclipse II, QuickPCI II, QuickMIPS, PolarPro, and will include ArcticLink; end-of-life products, which include pASIC I and pASIC II products, along with V3 products, for which we announced an end-of-life during the first quarter of 2007; finally, mature products, which now includes pASIC III, QuickRAM, QuickPCI, Eclipse, royalty revenue, and other products.

Our revenue declined $3.1 million year over year, primarily driven by a $1.7 million reduction in pASIC I and pASIC II revenue; a $600,000 decline in Option Wireless revenue; and a $500,000 decline in pASIC III revenue. New products contributed nearly $850,000 of revenue in the first quarter, representing 14% of total revenue. These results were within our guidance, that new products would contribute $800,000 to $1.1 million of first quarter revenue. In fact, we received a letter of credit from one customer, too late to ship their order before quarter-end. This shipment would have placed us at the high end of our guidance.

Option Wireless was our largest new part customer during 2006. As we expected, on our last call, Option represented no first quarter revenue, compared to $900,000 of revenue in the fourth quarter of 2006. Excluding Option Wireless revenue in the fourth quarter of last year, new product revenue increased over 59%, sequentially.

As mentioned earlier, we wrote down $2.5 million of inventory during the quarter. Customers are using PolarPro and ArcticLink solutions in new designs, and we are seeing a shift in our revenue forecast from Eclipse II products, toward these products. This shift was the primary reason for our inventory charges during the quarter.

Results of our first quarter 2007 on a non-GAAP basis exclude stock-based compensation of $381,000. Let's go through some of those results.

Non-GAAP operating expense came in better than our first quarter guidance. Research and development expense of $2.2 million increased $100,000 sequentially, compared with our guidance of a $200,000 to $400,000 increase. Pre-production design costs were lower than expected during the quarter. SG&A expense of $4.4 million declined by $300,000 sequentially, compared to our guidance of flat to down $200,000. We continue to carefully manage our expenses while driving the customer design activity needed to increase our new product revenue.

Other income and expense contributed income of $161,000 in the first quarter, primarily due to earnings on our invested funds. Our non-GAAP net loss was $5.5 million or $0.19 per share in the first quarter, and included $2.5 million of charges for the write-down of inventory, which cost us $0.08 per share. Our first quarter of 2007 non-GAAP net loss, compared to the first quarter of 2006, was higher by $4.7 million. This $4.7 million change was caused by a decline in gross profit by $4.7 million, due primarily to lower revenue of $3.1 million and the high inventory write-down in the first quarter of 2007.

Now, let's summarize our GAAP results. Our first quarter GAAP net loss was $5.9 million or $0.20 per share, compared to a net loss of $1.2 million or $0.04 a share in the first quarter of 2006. On a GAAP basis, our first quarter gross margin was 13.5% of revenue; R&D expense was $2.3 million; and SG&A expense was $4.6 million.

Total cash was $21.1 million at the end of the first quarter, a decrease of $3.5 million. Inventory and accounts payable used $2.1 million of cash in the first quarter. Our cash was favorable compared to our guidance, due to better collections, lower capital expenditures, and higher than expected proceeds from the exercise of outstanding stock options.

Our first quarter ending pre-cash debt position was $17.9 million, and our capital expenditures were $340,000 in the first quarter. From the balance sheet perspective, our accounts receivable declined during the quarter, due to lower revenue and strong collections. Our first quarter ending accounts receivable represents 33 days of sales outstanding, and is lower than our targeted DSL of 43 to 46 days. We currently have 110 days of inventory and 5 days of inventory in the distributor channel.

In summary, demand for our solutions met our expectations during the first quarter, and revenue came in at the midpoint of our guidance. Gross profit was affected by a $2.5 million of inventory reserves, and otherwise, would have exceeded our expectations. In addition, operating expenses and our ending cash position were favorable, compared to our guidance. We believe Q1 will be the low point in our revenue this year.

Now I'd like to turn the call over to Tom.

Okay, thank you, Carl. Well, the good news about our first quarter is that it's over, from a revenue perspective, that is. Carl's already shared all the gory details. Needless to say, none of us are pleased with the financial results, in spite of the fact we met our guidance. However, many other aspects of the quarter ranged from positive to truly outstanding. Let's talk about those.

Bookings in the quarter were strong and more than 50% better than the previous quarter, namely, Q4 of 2006. And as you will hear later from Carl, our guidance will reflect this strength.

My opinion is that we have now seen the worst of our transition, and are well on our way to establishing customer-specific standard products -- we call them CSSPs -- as valued solutions in mobile embedded systems, such as smart phones, portable media players, portable navigation devices, and wireless data cards. And in the portable industrial market, we're seeing good design traction in portable data collection, scanners, as well as electronic point of sale devices.

As we've shared in other calls, these are our target markets, and more specifically, we're focusing our sales and marketing efforts on the Tier 1 and Tier 2 players in these markets.

This is the new Quicklogic. We are a truly innovative company, offering complete solutions and world-class support for the challenges our target customers have in creating mobile products. We are no longer an AFPGA house, or a programmable logic supplier. Let me give you a quick example of our capabilities.

One of our target Tier 1 customers explained their critical challenge for a new product to be launched this year. We delivered a working prototype to this customer in five weeks, and as a result, we being designed into several of their new products with significant volume potential. Shipments are expected to begin this year.

In March 2007, we announced our ArcticLink solution platform. As a true testament to our whole team, ArcticLink was perfect right out of the chute; on time, on budget, no mask spins, no tweaks, no dreaded errata sheets, and a great product launch with extensive press coverage. It was an outstanding performance all around. Well done, team.

ArcticLink was designed expressly so that we could deliver CSSPs to enable OEMs and ODMs to get their new products to market quickly; differentiated products in a low-risk, cost-effective manner. We've been discussing ArcticLink under NDA with partners and major customers in our target markets for the last two quarters. The reception of ArcticLink has truly been outstanding, and has clearly surpassed my expectations. Our partners, like Marvell and Analog Devices, as well as customers like Sharp, Motorola, HPQ, HTC, to name just a few, have been genuinely enthusiastic.

Why are these current and expected customers enthusiastic? Well, let's start with the fact that virtually every mobile product these days demands connectivity to other systems. The pipe that's preferred for that connectivity is USB -- the Universal Serial Bus; and the system mobile devices connect to is almost universally a PC. First, USB came along at 1.5 megabits, then full speed at 12 megabits per second, and now with USB 2.0, we have high-speed, or 480 megabits per second. ArcticLink has the most advanced version of USB 2.0, called USB 2.0 OnTheGo, or OTG; which enables the mobile product with ArcticLink in it to be used without a PC; namely, it can be the host.

Okay, so where would you want this kind of capability? Well, how about downloading pictures directly from a camera to a standalone printer? Or moving video to a portable media player from your DVR? No mobile applications processor on the market today has a complete USB 2.0 OnTheGo port, including the FI; and so our ArcticLink solutions are ideal for mobile products requiring that flavor of connectivity and performance.

ArcticLink also includes an SD/SDIO host controller, which provides seamless and efficient connectivity to any 1-bit or 4-bit SD card, including Secure Digital Hi-Capacity, or SDHC, and SDIO peripheral components, at speeds up to the specifications limit of 52 MHz.

Do you know that you can't plug your new 4 GB SDHC card that you got such a bargain on into a conventional SD port? ArcticLink enables our customers to serve the market for both Hi-Capacity SDHC and SDIO. ArcticLink's 8-bit MMC CE-ATA host controller provides productivity and control of any 1-, 4-, or 8-bit MMC or CE-ATA compliant peripheral, like the micro hard disk drives coming onto the market at speeds up to their [spec'd] maximum of 52 MHz. Both controllers are architected to improve the application processor performance and enhance system battery life.

We've begun shipping prototype in quantities of ArcticLink solutions a mere five weeks after formal introduction. The ArcticLink solution platform is replacing up to seven discrete components in customer designs, resulting in a reduction of the semiconductor bill of material, port space, and power dissipation. The USB controller and the SD/SDIO, MMC CE-ATA controllers are only part of the ArcticLink story. The processor interface is programmable so that we can easily configure ArcticLink to efficiently interface to a wide range of popular application processors like those from Marvell, Analog Devices, Renasas, Samsung, Freescale, and TI.

But wait! Is that all ArcticLink can do? No, not so fast, my friend. What if your marketing folks tell you at the last minute you need to supply a Bluetooth 2.0 port? No problem. We can give you the high-speed UART at 3 Mbits per second to handle that. Or what if your VP of Engineering wants to boot the application processor from managed NAN, and therefore, eliminate the NOR device you currently have on board. No problem. ArcticLink CSSPs can do that for you. How about you need another high-speed SDIO port to connect to the current 802.11 A/V/G wi-fi standard, but you want to future-proof your system to be able to handle the higher performance 802.11 N, when it comes along? Again, no problem.

Enough already? Okay, you get the message. The ArcticLink solution platform offers seamless connectivity to a broad range of common storage, network and video peripherals, including some of the oldies, like Compact Flash. It is extremely well-suited to connect mobile products to other systems, and provides the high-speed interfaces required to transmit and view mobile video. We're using ArcticLink to supply CSSPs -- Customer-Specific Standard Products -- enabling complete solutions to focused accounts in our target markets.

During our first quarter, we also taped out our two largest capacity PolarPro devices. These devices will offer both 600,000 and 1,000,000 gigabytes. While these devices are not the largest physical die we've ever made. They are the largest capacity in terms of logic cells, with 7680 cells, and 192,000 bits of dual port SRAM memory.

So why would we do such a large device, you might ask? This die surely won't be cost-effective in handheld battery-powered prosumer products. You're right. These two products are aimed squarely at military applications, where customers value IP security, instant on, very low power, high performance, high reliability, and more gates and bit per package. Plus, our sales into the military market segment accounted for 13% of our total revenue. This is a god business for us, and we don't see it going away. In fact, we think we can grow sales of military solutions in absolute terms, and as a percentage of our total revenue. We developed these products based on the needs of our military customers, and their response to these large gate count devices is very positive.

Well, I hope you can get a sense of the transition that's been going on here at Quicklogic, and that it's been much more than just an end-of-life for some product families, and the introduction of some new ones. Many elements have gone into the making of the new Quicklogic. We clearly have made fundamental changes in our approach to our business, and these changes are resonating well with our focused customers. Our new customer-specific standard product direction, ArcticLink solution platform, sales and marketing talent, and a sales methodology focused on high-volume customers, combined with the lessons learned from 2006, contribute to the making of the new Quicklogic.

Our vision is based on solving our customers' needs. Our unique capabilities allow us to solve mobile market challenges quickly, in a low-risk, low-cost, efficient manner. We fully expect to be able to share the fruit of our design wins with you in the form of increasing revenue this year.

Carl, back to you.

Thank you, Tom. Now let's turn to our non-GAAP guidance for the second quarter, and some comments on our business.

As Tom mentioned, our new customer-specific standard product message is resonating with major customers, and they clearly see our value proposition. We expect our focus on these accounts to result in significant revenue, and we believe we are generating substantial, but early, traction.

The new sales and marketing talent we have attracted to Quicklogic is clearly having a large impact on our business, and we expect the success to enfold in revenue over the next several quarters. Until we see more evidence of the ramp in revenue, we continue to be frugal with our spending.

We expect our new product revenue to be up significantly in the second quarter, and believe we will generate $1.1 to $1.4 million of revenue during the quarter, again, without Option Wireless. Overall, including shipments of end-of-life products during the quarter, we expect total revenue to be $7 to $8 million in the second quarter, representing sequential growth of 12% to 28%.

Based on the mix of products we expect to ship in the second quarter, and expected overhead costs and production variances, we are guiding the gross margin will be between 50% and 57% of revenue. We expect our second quarter Research & Development expenses to increase by $200,000 to $400,000 sequentially, due primarily to higher project expenses. We expect that second quarter Selling, General, and Administrative expenses to be within $150,000 of our first quarter amount.

Interest income, interest expense, and other net -- includes interest income on invested cash, foreign exchange gains and losses, and interest expense on borrowing. Due to expected levels of interest income and due to higher interest expense associated with new debt, we expect these accounts will contribute income of up to $100,000 in the second quarter.

We expect that our tax provision will be an insignificant expense in the second quarter. We may use up to $2.5 million of cash in the second quarter, based on expected increases in accounts receivable and forecasted capital expenditures.

Let me take a moment to address a few other points. Stock-based compensation for FASB 123(R) charges in our second quarter are expected to be about $450,000, and will be included in cost of revenue, research & development, and SG&A expenses. Our manufacturing strategy is to reduce the cost of producing our products, so that we can pursue higher volume sales opportunities.

We achieved target yield for all of the .18-micron products we sell today. We believe our PolarPro architecture will continue to reduce our per unit costs, and that ArcticLink represents significant additional value to our customers. We'll also actively reducing our other cost of sales by price negotiations and by decreasing the time and cost needed to test and program our products.

Our target financial model, based on a goal of $25 million in quarterly revenue, and stated as a percent of revenue, should generate a gross profit of 60% to 62%; to have research & development expenses of 17% to 19%, and have SG&A expenses of 19% to 21%. This would result in income from operations of 20% to 26% of revenue. We believe that lower costs associated with our PolarPro and ArcticLink architectures, and the development of new products will be significant factors in achieving the gross margin objectives in this non-GAAP model.

Now, I'd like to turn the call over to Tom for his closing comments.

Okay, thank you, Carl. Again, this quarter, I would also like to take this opportunity to thank our entire team. The folks here in Sunnyvale, our system engineering team in Toronto, our software design team in Bangalore -- or, I guess it's now called Bengaluru -- and our fine field sales managers and field system architects around the world. I appreciate all your efforts. Thank you.

I also want to take this opportunity to welcome Hide Tangami to our Board of Directors. Hide is the chairman and CEO of the Silicon Valley-based joint venture between Marubun, the largest electronics distributor in Japan, and Arrow Electronics, here in the U.S. Hide brings Quicklogic a wealth of senior-level executive experience and will help guide our efforts in the Japan and Asia-Pac markets. Welcome aboard, Hide. We're glad you're on the team.

Our second quarter earnings conference call is scheduled for Wednesday, July 25th, at 2:30 p.m. Pacific Daylight Time.

Okay, Alan, let's now open up the call for questions.

Thank you. The question and answer session will be conducted electronically. (operator instructions)

We'll take our first question from Edwin Mok from Needham and Company.

Hi, guys. Sorry if you've already mentioned this. I joined a little bit later. But on your press release, your mature product now included V3 products, right? Was that part of the embedded standard product, historically; that's how you guys had reported that?

Well, historically, pASIC III products were reported as part of our mature products, and they're still in mature products. Now V3 were in our ESP products, previously; now they're in the end-of-life products. And the reason that we did that, Edwin, is during the first quarter, we did announce end-of-life for our V3 products, and the reason is that our supplier -- our main supplier -- contacted us and told us that they'd like to wind down supplying product for us. And as a result, we've moved them into the end-of-life category, together with pASIC I and pASIC II.

Okay, that's fair. Just a quick question on your target model. You lay out your target model; should we still look at that model based on approximate $11 million for break-even? That's what you guys mentioned last quarter, right?

That really hasn't changed for us, right.

That's not changed, great. Okay, for next quarter, you guys are guiding for a pretty sizable ramp, right, for next quarter. It is good to see a ramp, right? Question for you on that ramp. Your new product guidance is at $1.1 to $1.4 million, so it sounds like the other part of your business is also ramping, right? Can you give maybe more color as to where the other part is ramping?

Well, we'll see some uptick in, actually, the end-of-life products and in our mature products. In both categories, we expect to be up nicely this quarter. So it's a pretty broad-based increase in our revenue.

Great. Any specific market that is stronger than the other market? You guys mentioned strength in the military market; any specific other markets that you can give color on? That would be great.

I've been focused, really, on the product roll-up. I haven't been focused on the market roll-up as much.

Great. I see. I'll ask you guys one more question, and then I'll go away and let someone else get on to your call. But, in terms of your ArcticLink products, you guys -- Tom went through a lot of detail, which is forever hopeful in his understanding of the product. Any new design that you think might be more meaningful and might see an earlier ramp? Any particular customer that might be mentioned to us, or a particular type of design that you see strong traction that you could see ramp in the very near term?

Well, I can't talk about the customer, because they're very -- until they've announced their products, we can't talk about them. But I can tell you that portable navigation is a pretty exciting space for us. Smart phones are a pretty exciting space for us, as well.

Great. That was helpful. Thanks.

(operator instructions) And we'll go next to Paul McWilliams of Indie Research.

Hi, guys.

Hello, Paul.

Hello, Paul.

Good to see you get the traction here.

Finally.

Yes. A quick housekeeping question. You talked pretty fast when you explained the inventory write-down. Can I get a little bit of color on that, please?

Sure. Well, you may remember that during the second half of last year, we felt we were facing a capacity crunch at our supplier?

Yes.

And we felt we had some really significant opportunities developing for our Eclipse II products, particularly our small and mid-range devices.

And there was also a thing like rockets falling over there, fairly close to our plant.

Yes, I remember that.

Because the worst thing that we could do would be to develop and market and not be able to supply it, we went ahead and bought the inventory. And what we've seen is that the advantages of PolarPro, and now, ArcticLink, are dramatic, compared to the same size devices in Eclipse; and as a result, the design activity really shifted toward PolarPro and ArcticLink, and we've got a shift in our revenue mix toward those devices and away from those smaller Eclipse II devices.

Okay. In future quarters, will you tell us what your sales are of the reserved or written down inventory, so we can kind of track that going in and out?

Absolutely, and for example, the sale of reserved inventory reduced our cost of revenue by 1.3% of sales.

Okay. Wonderful. Now, in your most recent ArcticLink press release, I took it that you're shipping production to a significant customer. Did I take that correctly, or should I go back and read that over a little bit more carefully?

We've shipped prototyping quantities to what we believe will be a significant production customer this year.

Okay. Just prototypes, though.

Prototyping quantities, yes.

Okay.

They're not in volume. That's still good after only a short period of time.

Now, one of the applications that really kind of excited me on this ArcticLink is the fact that you can make a NANflash bootable. Have you seen some real solid interest on that application in the field?

Very solid. In fact, we're doing a conference -- or not a conference -- but a tabletop show with SanDisk and Marvell and Qualcomm on Taiwan on the 9th of May, I think , or May 8th, I guess it is, to highlight exactly that capability.

Excellent. Now, I think I got it from the last question, that you can't talk in any detail. On the designs that you've won, that are either imminently going into production or in some pre-production or something like that, something that you can qualify as a design win, can you give us some product types or applications that you've had wins with?

Yeah, I just commented to Edwin that we're seeing a lot of traction in portable navigation devices, and in smart phones.

Okay. You mentioned previously an ultra-portable, or ultra-mobile computer, you and PC?

Yes.

Is that still an active deal?

Yes it is. The challenge there is, as Samsung has observed with their UMPC, the challenge is the price point, and therefore, the volumes haven't materialized the way that these guys believed that they would. I haven't seen the sell-through on our customer, but I did see the one on Samsung, and they expected to sell 200,000 devices, and they've only sold 100,000 so far, since they introduced their UMPC.

Okay, well, thank you very much. And pass along my thanks to Andy for all his hard work, whatever country he might be in today.

He's actually in San Diego today. Thanks, Paul.

(operator instructions) And we'll take a follow-up from Edwin Mok.

Hey, guys. Just to follow up on Option Wireless. I understand this won't be in your next quarter guidance; are you guys still looking for -- third quarter, for them to start returning ordering parts from you guys?

We think there's a good opportunity there. We think there are several good opportunities there, but we haven't got the commitment on it, yet.

And are you guys working with them on your ArcticLink product?

You bet.

Of course, being a big customer and all of yours; that makes sense.

Yes.

In terms of -- just a quick question on the operating model. It looks like you guys are still guiding for R&D to go up. I understand that because you obviously need to invest for -- to fan our ArcticLink products, right? Any plan of cutting back on your [inaudible] expense maybe down the road, to kind of tighten the belt a little bit so that you can pull back the break-even revenue target?

Well, let me make a couple comments on that. Number one is, in terms of the R&D expenses, our staffing here is very steady. We don't see big changes in our R&D staffing. And so what do see from quarter to quarter is the project-related expenses. We might have pre-production material; we may buy IP to put into products; and those are the things that make our expenses in R&D really jump around. We're not taking our baseline in spending on R&D up.

By the same token, we're really focused on, not from a head count perspective, but from things like legal cost, the cost of 404 compliance, and really working to control our SG&A expenses. So, while we don't have any plans to reduce our staffing in that area, we're very focused on making sure we get a lot of efficiency out of the staff that we have.

Let me just comment on the other thing, Edwin. We're not going to save our way into what we believe is a very significant business, here. And so, to be honest with you, while we pay a lot of attention to cash; in fact, the whole exec staff comp plan - one of the elements is cash - that's not our -- what's not our primary driver at this point is expenses. Our primary driver is getting these products into the market, and winning designs and generating revenue and gross margin dollars. That's what we're focused on.

That's fair. One thing about your target model; your targeting 60% to 62% gross margin, right? But my understanding is somebody in your product's still targeting these -- like what you're saying, the navigational and the smart phone, which is more a consumer-related product. Do you see more moderate pressure on those end customer, compared to like the military, and all those historical customers that you can drive high gross margin? And how do you reconcile the fact that you're going after those markets when at the same time you're guiding for a higher gross margin, for the longer term?

That's a good question; because it looks like you're talking out of both sides of your mouth. The real deal there is that we've always had margin pressure whenever you go to large volume opportunities; so, independent -- by large volume, I mean high dollars or high unit opportunities. Military doesn't typically represent very many high unit opportunities, except if you get into expendable devices, like rockets or bombs or munitions; which -- we've worked on projects like that. There's still opportunity there for us. But any time you get into high volume, and it doesn't matter whether it's consumer or industrial, people are concerned about pennies. It's not nickels or dimes; it's pennies, or even tenths of a cent in some cases. So, yeah, there's always margin pressure in those kinds of opportunities.

Our key here, really, Edwin, is to look at adding value, and one of the things we do with our customers is we look and operate with them on their whole system; not just talk about giving them a part, but operate with them on the system level to look at how we might be able to reduce the cost of the bomb, in general, and therefore, earn more value for our solution. I commented on an example of where we replaced seven parts on a customer's -- prosumer part, actually -- seven parts, and get the price, then, of those seven, because we also saved them on battery and on board size; and, in fact, may even be able to make the board simpler, where they can move from six-layer to four, or from four-layer to two. So, it doesn't follow -- if all you were doing was standard products, and you were chasing volume opportunities, I would absolutely agree with you. You'd never be able to sustain 60 to 62 points of gross margin. But we believe we can do that.

Kind of long-winded answer, but the answer is -- we've done a lot of modeling, a lot of thinking about it, and the answer is we have to add enough value to keep the margins up there.

Great. That was a very good call, actually. Thanks very much.

And we'll take a follow-up from Paul McWilliams.

The one unasked question here, that I guess we should cover, is you've got $11 million break-even, and you've got a $25 million model; how far out before we see the first one of those two, and then how far out for the next?

We typically, Paul, learned our lesson in 2006, and we give guidance one quarter in advance, at this point in our career. So, I'm sorry. We certainly have it modeled internally, but we haven't done it for the external world; quite frankly, because all we do is get beat up if you miss it by a nanosecond or by a tenth or a cent. So, sorry, we're not going to provide that kind of guidance.

Okay. Fair enough. Had to ask the question.

Yep.

It appears we have no further questions at this time. Mr. Hart, I'd like to turn it back to you for any additional or closing remarks.

Okay, well, thank you for listening in. We are the new Quicklogic - Customer-Specific Standard Products are the way of life. Not that there's anything wrong with MPGAs or programmable logic, but using our technology to offer solutions, we think is the way that we will be successful on a forward going basis, and that's where we're headed. Customer-Specific Standard Products.

Thank you, and we'll see you in July.

And ladies and gentlemen, this does conclude today's call. Thank you for you participation. You may now disconnect.