Quicklogic Corp (QUIK) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the QuickLogic Corporation's first quarter 2010 earnings conference call. (Operator instructions) As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Thomas Hart, CEO. Please go ahead, sir.

Yes, good afternoon, ladies and gentlemen, and thank you for joining us today for QuickLogic's first quarter 2010 conference call. Joining me here today is our President, Andy Pease, and our CFO, Rob Marimon. Ralph will take you through our first quarter results, and then I'll share my perspective on our business. Following this, Ralph will detail our guidance for the second quarter of 2010, and then we'll take questions. Ralph?

Thank you, Tom. I'll take a moment to read a Safe Harbor statement. During this call, we will make statements that are forward-looking. These forward-looking statements involve risk and uncertainties, including but not limited to our stated expectations related to revenue growth from our new products; statements pertaining to our design activity and our ability to convert new design opportunities into customer activity; market acceptance of our customers' products; our expected results; and our financial expectations for revenue, gross margin, operating expenses, profitability, and cash. QuickLogic's future results could differ materially from the results described in these forward-looking statements.

We refer you to the risk factors listed in our annual report on Form 10-K, quarterly reports on form 10-Q, and prior press releases for a description of these and other risk factors. 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.

For the first quarter of 2010, total revenue was $5.4 million. This represents a sequential increase of 27% and was at the high-end of our guidance range. New product revenue was $2.1 million. This represents a modest sequential increase and was within our guidance range. Due to the fact our new product revenue is generated by only a few customers during Q1, who are themselves launching new products, scheduling volatility was high and push outs and pull ins were not fully offsetting.

As Tom will cover in a moment, we are forecasting a significant expansion in the number of our customers in production in Q2 and we believe this will improve the predictability of forecasting, as well as the linearity of our anticipated forward growth.

Q1 legacy product revenue was $3.3 million. This represents a sequential increase of 50% and was above the high-end of our guidance. We saw an increase in demand for our legacy products for multiple customers during the quarter.

Our non-GAAP gross profit margin for Q1 as 62%, which was above our guidance. The higher gross margin was driven by the higher than expected revenue in our legacy products, as well as improved operating efficiency due to the higher revenue level.

Non-GAAP operating expenses for Q1 totaled $3.8 million. Expenses continue to be favorably influenced by the variable cost model implemented during 2008 and the cash conservation plans put in place during the second half of 2009 and continued into the first half of 2010. As I stated during our Q4 call, we continue to complement our internal fixed design capability with external resources that allow us to tap into the best design resources in the world and treat them as variable costs.

As evidenced by the number of designs we have flowing into production and our design funnel activity, these resources have allowed us to quickly and efficiently engage a wide variety of opportunities with multiple customers.

On a non-GAAP basis, tax and other expenses totaled $54,000. These consisted primarily of interest charges, foreign exchange losses, and taxes incurred on our foreign operations.

Our non-GAAP net loss was $484,000 or $0.01 per share compared with a net loss of $1.3 million or $0.04 a share in the fourth quarter of 2009. Our ending cash position of $18.3 million reflects an increase of approximately $100,000 from the Q4 ending balance. Our cash usage of $1 million during the quarter was offset by the sale of 700,000 shares of our TowerJazz semiconductor holding, which resulted in proceeds of approximately $1.1 million.

While we are optimistic about what the future will hold for TowerJazz, after carefully evaluating our position and considering the very sharp rise in the price of TowerJazz stock, we decided it would be prudent to reduce our risk exposure by selling roughly half our position. As it stands today, we still hold 644,000 shares of TowerJazz, which at the end of Q1 were valued on our balance sheet as a current asset at $1.1 million.

Our first quarter GAAP net loss was $143,000 or $0.00 per share. Our GAAP results include the gain from the sale of TowerJazz shares of $993,000, which was partially offset stock-based compensation charges of $652,000. Please see today's press release for a detailed reconciliation of our GAAP to non-GAAP results.

I'll rejoin you in a few minutes to discuss our guidance for the second quarter, but first Tom will update you on the status of our strategic efforts.

Thank you, Ralph. As Ralph noted, one of the challenges our customers encounter when launching new products is forecasting demand for a product that has yet to establish a run rate. This makes our forecasting particularly challenging and is the reason we provide a fairly wide range in our guidance.

While we are still far away from where the law of large numbers will help smooth these variances, we have made substantial progress in growing the number of opportunities we have in production. Let's start by analyzing this progress.

Going back to Q3 2009, we shipped two unique CSSP designs to two different customers in the broadband wireless data card market sector. In Q4, we shipped four unique CSSP designs to four different customers in two market sectors, adding the secure access strong authentication market sector.

In Q1, we shipped eight unique CSSP designs to five different customers in two market sectors. Now it's important to note that two existing customers began production shipments on three new CSSP designs in the quarter. So we're not just shipping to new customers, we're expanding our value to existing CSSP customers. This is a strong indication that our customers are embracing the value of CSSPs.

Looking forward in Q2, we're forecasting we'll ship a total of 13 unique CSSP designs to nine different customers, who have end products going into three market sectors. This means that during Q2, we'll initiate production shipments involving as many as five new CSSP designs with up to four new customers. The third market sector is what we call mobile enterprise and includes devices such as handheld point of sale terminals.

Let's take a minute now to analyze some of the factors that are driving our success. An actual case study of our experiences in the wireless data card market illustrates the value of partnering with leading processor suppliers, establishing close relationships with key customers, and the inherent value CSSPs bring to both our partners and mutual end customers.

When Icera designed its revolutionary software-defined 3G data modem, no one thought about having an SDI -- no one thought having an SD port would be desirable. However as Icera later learned, it was not only desirable, but had rapidly become a customer mandate. This meant Icera had to react quickly.

Icera could have gone back to the drawing board and redesigned its chip, but that would have cost millions and taken up to 18 months to complete. While existing ASSP solutions could have provided an SD port, these solutions didn't connect directly to Icera's proprietary and highly confidential memory bus. And therefore performance would significantly suffer.

Since we were already working with Option Wireless, one of Icera's key customers, we moved quickly to consult with Icera and Option. We developed a jointly defined CSSP solution that provided the SD port without compromising cost, performance, power consumption, or time to market. This laid the groundwork for us to partner with Icera to address the needs of additional customers in the wireless data card market.

This first CSSP was implemented in a PolarPro solution platform that included an SD Proven System Block, PSB we call them, a custom designed interface to the Icera memory bus, and a software driver's required for system implementation. This CSSP was completed in three months.

After we completed the initial CSSP solution, we learned through our collaborative efforts with the end customer ways we could provide further integration. Based on this knowledge, we initiated a second CSSP effort, leveraging our ArcticLink solution platform that added a native USB 2.0 high-speed interface and it's associated physical layer to the original CSSP functionality.

By using ArcticLink's native USB 2.0 controller, we were also able to dramatically improve the read/write performance between the host PC and the SD memory card while significantly lowering power consumption. This solution was delivered within five months and led to a design win with a second customer.

During the ArcticLink based CSSP development cycle, we worked closely with Icera to engage with leading and emerging suppliers of wireless data modems. This resulted in design wins with two more customers during the next month and the development of an additional proven system block, a pulse width modulator.

Let's pause here for a minute to recap. It took just three months for us to delivery our first working solution to solve the top line problem of supporting a micro SD memory card for this customer. During the next five months, we moved the design to ArcticLink and added a second customer.

While our engineering team was focused on bringing ArcticLink design to production, our sales and marketing teams worked closely with additional companies in the wireless modem sector. Within a month after the new ArcticLink release, we were designed into two more customers, bringing the total up to four. This also marks the point where we added a new PSB that would drive what the industry calls a breathing LED.

Possibly a more intriguing way for an investor to view this situation is from the marketing perspective. We entered the wireless data card market with a solution that addressed the needs of the higher end of the market. Once we proved our CSSP solutions presented durable value, we leveraged what we learned to help Icera and our joint customers expand the high-end of the market with new features and capabilities. However at that point, we really didn't have an attractive solution for the low-end of the market.

Working with leading and emerging suppliers in the data card market, we've engaged with potential customers where lower cost was a higher priority than features. After evaluating the cost objectives and performance requirements, we developed a cost objectives and performance requirements, we developed a cost optimized solution, implemented in a PolarPro II solution platform. This allowed us to win two new designs in the low-end, high-volume wireless data card market sector.

So in less than one year, we entered the wireless data card sector, developed and introduced four unique CSSP solutions, and won designs with six unique customers. Each of these customers will be in production during Q2.

One of the keys to our success is our Proven System Block strategy. PSBs are fully tested functions that comply with industry standards, such as USB. Our PSBs are optimized for performance and power consumption, and allow our customers to accelerate qualification of their end products.

With the recent addition of a PSB we call Wake-up and Verify, or WAV, we now offer a library of 42 fully tested and verified PSB functions. This is particularly important for PSBs that must comply with rigid standards-based timing requirements and mixed-single PSBs that include analog functions.

WAV is a particularly interesting PSB. WAV was developed in conjunction with a smartphone tier 1 OEM. The premise behind WAV is that a QuickLogic CSSP will monitor and detect certain system events such as a microphone being plugged or unplugged and then wake up the CPU. By having the QuickLogic CSSP monitor these types of events at much lower power than the CPU, the CPU can be kept asleep longer, saving precious battery life. For as all of us that use these devices know, battery life is key.

In addition, we recently announced versions of our visual enhancement engine, VEE and display power optimizer, DPO technologies that are optimized for OLED displays being used today in a number of high-profile smartphones. VEE and DPO can improve the viewing experience and the power consumption for most mobile display technologies, ranging from standard TFT-LCDs to OLEDs, to E Ink based displays.

We initiated our VEE activities by incorporating the technology in the programmable fabric of a PolarPro platform. This gave us the opportunity to quickly demonstrate VEE to the targeted customer base and gain crucial market knowledge about customers' real care-abouts.

Through this process, we also learned how to optimize the cost and the performance of the VEE implementation. We did learn that most customers care more about power savings than an improved viewing experience. Or said another way, they say to us, please keep the viewing experience the same, but reduce the backlight by up to 85%, which of course yields significantly improved battery life.

While the initial PolarPro implementation fully supported VEE, it left no room in the programmable fabric to support additional PSB functionality. Customers want CSSPs that include PSBs from our growing library of functionality.

Based on this knowledge, we took the next step to evolve our current VEE offering. We call it the ArcticLink II VX family. We divided the original VEE functionality into two blocks, VEE and DPO, and implemented them as hard logic in our new ArcticLink II CSSP solution platform. This reduced the silicon area required, improved performance, and lowered power consumption. With these efficiencies, we were able to add the programmable fabric to support additional PSBs our targeted customers require.

With the increased use of touch screen displays and the always-connected use case, viewing in high-ambient light conditions, like direct sunlight, is very important. Ambient light sensors are now being installed in smartphones, which is great news for us. We can tap into the sensor output for no additional cost and implement our DPO functionality for superior viewing in direct sunlight.

Okay, with that I'll turn the call back over to Ralph so he can share our guidance for Q2.

Thanks, Tom. During Q2, we expect to expand new product shipments to include a total of 13 unique designs shipping to nine customers in three different market sectors. Virtually all of our new product business involves recently released or soon to be released customer products. There is minimal run rate history for these customers and the visibility of end consumer demand is limited.

We are continuing to take a conservative approach to new product revenue guidance. For the second quarter of 2010, we estimate total revenue will be $6 million, plus or minus 10%. We expect new product revenue will be $2.5 million, plus or minus 10%. At the midpoint, this represents 21% sequential growth for new product revenue. Our actual results may vary significantly due to schedule variations from our customers, which are beyond our control.

Schedule changes, particularly those that may impact new product revenue, could push or pull shipments between Q2 and Q3 and change our actual results significantly.

As I mentioned earlier, we have seen an increase in demand for the legacy products. As a result, we expect that Q2 revenue from legacy products will grow roughly 4% to $3.5 million, plus or minus 10%.

On a non-GAAP basis, we expect gross margin to be approximately 60%, plus or minus 300 basis points. This gross margin percentage is driven primarily by the anticipated mix of products shipped during the quarter.

We are currently forecasting operating expenses to increase to approximately $4.1 million, plus or minus $300,000. The increase in operating expenses is driven primarily by the continued investments in variable costs for chip development for our next generation platform.

R&D expenses are forecasted to increase to approximately $2 million while SG&A is forecasted to be approximately $2.1 million.

Our other income and expense will be a charge of up to $60,000 during the second quarter. Our stock-based compensation expense in the second quarter will be approximately $650,000.

We are expecting to use approximately $1 million to $1.2 million in cash during the quarter. The cash usage is driven by investments in R&D, including outside services related to chip development, purchase IP required in our next generation platform, working capital requirements as our revenue continues to ramp up, as well as the forecasted loss during the quarter.

Our breakeven point is still estimated to be at a revenue level between $7 million and $8 million, depending on the mix of products shipped and new product development activities taking place at that time.

Thank you, Ralph. In addition to significantly expanding the number of active production designs, and our application breadth to three of our six targeted market sectors, we have substantially improved the efficiency of our operating model. We've become more proficient in identifying and qualifying opportunities, and then we are able to execute with much greater precision. We believe we are well poised to grow our business as we move forward and demonstrate the clear value of customer specific standard products. Thank you.

30 p.m. Pacific daylight time. Now let's open up the call for questions. Jonathan please?

Certainly. (Operator instructions) Our first question comes from Edwin Mok from Needham & Company. Your questions please.

Thanks for taking my question. And congratulations for a good quarter. First question I have is regarding revenue of the new product. Ralph, I think you mentioned several times that timing can be sometimes -- can affect how revenue comes in for a quarter. I was wondering if you guys have any kind of product that you were expecting to revenue this quarter, and didn't happen, and just got delayed to April?

We were expecting one other new customer to emerge in this quarter, Edwin, but they had a delay in their terminal acceptance with the operator. And as a result, it will actually be shipping in early Q2.

I see. So there was some delay to give you more content about the new quarter numbers then, right?

There's actually two other customers that we had been shipping to where their run rates actually decreased in Q1. We're understanding that that's not unusual at all in a consumer based product where they first have a surge of shipments that they initially go to market and then the surge tails off as the inventory levels are high and they're waiting for sell through. So that apparently is something that very regularly happens in the consumer industry. Obviously something that QuickLogic has never dealt with in the past. So that was another factor for Q1.

Great. That was helpful. Now for the two markets that you guys have been selling to for the wireless card as well as the security device, it looks like you guys have at least a few quarters of experience on -- probably get an idea of how the customer works, right? But for this new market that you guys talked about any idea in terms of a volume? Do you expect it to be more substantial versus the other market? Or is it more in line with the other markets? How should we think about that?

I think the demand out of both -- actually the highest demand, unit demand, will probably be in the wireless broadband data card business. Second highest demand will be in secure access strong authentication. And then I think demand can be very, very good in mobile enterprise, especially when you begin to talk about new areas like machine to machine. And if you include that in mobile enterprise, which I don't know if you've been following that or not. We haven't talked about it yet, but we're very interested in it because I think you'll agree that everything virtually will be wirelessly connected on a forward going basis.

So in the short-term over the next several years, data cards biggest volume, secure access second, and third mobile enterprise.

Yes, what about -- I saw you guys have a press release I think a few days ago regarding data display. Can you maybe shed some light on that activity there? How is that progressing? When do you expect to have some design in maybe revenue?

As Tom talked about, we have just now come out with our second ArcticLink family, which is targeted at the visual enhancement or the display end of the marketplace. And the recent press announcement was really addressing the trend that we see on these displays going from LCD displays to OLED displays.

Initially there was some conjecture that maybe VEE, especially with the visual enhancement and the display power optimizer would not have that much of affect. And we found through our own internal studies that that's not the case at all. As a result, we've shipped out some of these displays to a third party to verify our data and we believe that especially with the capacitive touch OLED displays that we think that that will definitely be -- will definitely help in bright sunlight conditions.

The other press announcement that we recently made was with a European distributor that -- well actually it's not a distributor, it's more of a value added reseller that is highly interested in taking this technology into that LCD technology that's used for mobile advertising. And that was a recent press announcement that we just made over the past week. It's called -- Distech is the name of the Company.

Right, I see. Great. That was helpful. Tom, I notice before you used to kind of talk about the number of SSO in your funnel and thanks for sharing the number of customer and design that really started ramping. But it's -- do you have any comment around that?

Yes, my comment is it's become an accounting nightmare. And so while we're still doing it internally, if you remember when we started doing it, it was against the counsel of -- against our legal counsel to put out numbers that were not GAAP numbers. Because anything you quantify with numbers give you grist for the mill later if somebody decides that they want to come after you.

And so the rigor associated with those numbers is obviously not the same rigor that you apply to your financial numbers. So the counsel was don't give people numbers that you don't -- where you don't have the same rigor as your finance numbers. We're obviously not going to build the rigor into those numbers that we have our finances.

So our intent was to show you those numbers and to give you a sense of where we were going until we began to generate revenue. And to have more than two customers or one customer. We now clearly have more than one customer; we clearly have more than one or two CSSPs moving. So we're not going to talk about the total funnel anymore.

Okay, that's fair. But suffice to say it sounds like your funnel is still growing given (inaudible).

It absolutely is. There's no shortage of opportunities, I can tell you that.

Great. One thing I want to touch is in the past you have talked about maybe netbook market and kind of the mobile computing area. Any comment around that market?

Well, it's kind of interesting what's going on there. As you know Apple has changed the game in a way. I think the mid business is probably the nonexistent or will be nonexistent, except perhaps maybe in China in favor of tablets. But we haven't talked about it on the call here.

But we're really restructured our market segment look now to include tablets. And then smart -- really smartbooks, netbooks, and now cloudbooks people are talking about to really capitalize on the whole cloud computing initiatives that are going on. So we still see them as a very vibrant market and we're involved in a lot of projects in all of those sectors at this point. Because we've got a lot of value to add.

Actually if you think about it, Edwin, as the screens get bigger, the power that they take required is more. And therefore our VEE and DPO value proposition gets better as the screen size goes up. So we're very excited about what's going on there.

And just to add onto that that we're not going to tell you that we talked a lot about the two markets that we're in, mostly from a revenue point of view because we think that financial community is most interested in what we're actually doing. In terms of the actual engineering effort and our active funnel, it is pretty dominated by display oriented SSOs, which means VEE and DPO. And so that certainly is a big thrust internally to drive those things so that we can talk about those in future earning calls as sources of revenue.

Great. Okay, that was helpful. I have one more question. On the financial side in the -- I have a question regarding inventory. So on the press released related to this data display parts release, it mentioned on the press release that they're going to start doing some inventories of your product. Is that going to cause you guys to increase your inventory going forward? Or I imagine will are not recognizing revenue in those inventories at this point, right? Is that correct?

Yes, I don't know offhand. I'm not sure the specifics of the inventory issue you're relating to, but we of course would not recognize inventory if we still hold it, if they haven't sold it through. What I will tell you is I think that in almost all the venture cases, now we have all our deals or just straight sell throughs. So we don't have -- when they buy it, it's theirs. And I think that's the case with Distech. I don't think that they have the -- that they have any kind of return rights or anything else. So I don't think that's an inventory issue for us at all.

Absolutely not. Every situation we have through a third-party distributor or bar is a buy/sell agreement and every PO they place to us is with an end customer in mind. Remember that's one of the advantages of having a CSSP in that every time we market CSSP it's with a unique customer ID number that we can track to an end customer.

I see. So that should give you a boost on your -- on top line in the coming quarter. Is that correct or --?

Yes, correct.

Great. That's helpful. Thank you.

I think that -- let me say it to you though. I think if I'm betting, which I am, data displays are not going to -- public advertising in those kind of things are not going to be our -- where the biggest source of our revenue comes from. We've already identified what those are. This is what John Chambers would call an adjacency. We have a capability that enables people outside of our target markets to be able to take good advantage, make good advantage of our products and we're certainly not going to turn that down. But this is in no way, shape, or form a thrust to market.

We're focused on mobile devices and that means battery powered, not things that plug into the wall.

Yes, and I need to add one other thing because you've already heard from us that we have a fairly high touch engagement model. The way we structured this deal with Distech is that it's actually from our point of view during low touch. So it's not necessarily taking advantage of the Proven System Blocks or no Proven System Blocks that are going to go into this. It's taking advantage of the VEE technology. Period, end of story.

So the only customization that will be done will be to calibrate the various displays that they're going to try and enhance or reduce power on. So aside from the training that we are going to do with them next week, as a matter of fact, our engineering effort will be minimal.

Great. Actually I have one more followup if I can. Just on close margin line. It came in stronger than you had guided before and you're guiding to around 60%. Is that just based on mix or high mix of your legacy product, which typically has high margin?

That's the biggest impact. We're also more efficient at a higher revenue level, which drives the margin as well. But the biggest impact is the product mix and having higher legacy revenue than we previously thought.

Great, thanks.

Thank you, Edwin.

Thank you. (Operator instructions) Our next question comes from Bob West from NI Technical Research. Your question please.

Hello, Tom.

Good afternoon, Bob.

My first question is on continuation of -- do you hear me or am I echoing?

No, we're -- you're (technical difficulty). Now you've got a feedback going there.

Okay. I don't know what that was.

Did you get something near your speakerphone possibly?

No, I don't.

We hear you fie now, Bob.

Okay. No problem. Hopefully this will work. I thought you had very good and encouraging results, particularly in your gross profit and your improved lower cash burn. So congratulations on that.

Thank you.

I wanted to ask some questions if I could about your reference designs. You're fairly solid on that as well as your customer engagements. Can you give us some color on your reference designs? I know you had a number of those last quarter, I think, 13 in total with eight customers. 10 of them (inaudible) with six customers. Can you give us some flavor on how those are proceeding through and perhaps if not metrics, some indication of are these nearing completion and ready for your OEM customers to sell these -- to provide these to their sales force for a presentation to their customers?

Well the short answer is yes, they are progressing. And they are getting closer to being able to sell them. I'll let Andy give you a little more color than that.

Yes, Bob. So obviously the Icera ones are totally complete and in the market. And they're actually exceeding our expectation in their ability to generate new customers and more importantly existing customers generating new opportunities for CSSPs. Those are all in the data card market.

In the display market, all those are progressing very nicely and we should see a lot of what we call form factor, reference designs actually hit the market. I would expect by -- during the summer you'll see them start to trickle out in the summer timeframe.

Okay. And does that suggest then that your customer engagements will begin to build in these areas probably in the late summer, early fall?

Well we've said in the past that we expect to see VEE revenue in the second half of the year and we still believe that. You're bringing it in a little closer than what I envisioned quite frankly. I think it'll be closer to the fourth quarter than the third quarter. But we're still expecting to see revenue out of VEE and DPO this year.

Very good. A second question was --

If I could add something. I would not expect revenue from these reference designs to start until 2011, quite frankly. The revenue that Tom is addressing are frankly VEE/DPO designs that we've been working directly with OEMs. So, the funnel activity is very robust, as Tom indicated. We have identified opportunities that we believe will ship by the end of 2011. These reference designs --

2010.

2010, excuse me. These reference designs if you use the Icera reference design -- reference platform is any indicator, tend to take, I don't know, six to nine months anyway to get into production. So there is a lag time.

Very good. Thank you for that. A second question is on one of your four product announcements from -- this occurred over the last 40 days. I'd like to talk a bit about the 60 frame a second proven system block. I guess that's the display controller solution for the MDDI type 2 interface running at 60 frames a second?

That's correct.

Could you give us some color on that?

Well, we think that especially now that Apple -- it was introduced through the iPhone, and the iPad, 60 frames per second, a lot of the other OEMs are trying to catch up. Qualcomm does have, as you know, an MDDI bus, which is a video bus that is capable with their type 2 standard of up to 60 frames per second. And I believe the press release says that QuickLogic is the only external supplier that has actually been able to meet that high throughput of 60 frames per second.

If you go onto our website, I believe that we actually have a PowerPoint, which shows the clear advantages of something that is at a lower frame per second rate versus a higher frame per second rate and how as you get into lower side-by-side comparisons, lower per second rates tend to make the video seem a lot more choppy. And that is in fact on our website for your viewing.

Got it. You know it's interesting that press release had some language and it's suggesting that you had successfully delivered and had verified the solution kind of like customer engagement language. I was wondering do you expect this to lead to reference designs coming forward and will that be something that would add to reference designs you have underway?

Bob, we're very reticent to talk at any -- in any significant depth about Qualcomm.

Oh, okay. Fine.

This supports MDDI, which is Qualcomm's proprietary -- actually it's not even a proprietary bus, but I don't think anybody else embraced it. It's kind of being overcome in the market by MDBI, but it is a bus that they standardized on several years ago. And so we're -- we've put forward very carefully the words in that press release to walk the fine line between annoying a very valuable relationship that we have.

Okay, well, thanks for that and sorry. Second question is on your Wake-up and Verify Proven System Block that was mentioned earlier. Obviously the press release cited suggests much longer battery life. And I think -- is it fair to assume that this is over and above the improvement that VEE and DPO provides already?

Absolutely.

And do you have any metrics that you can share this time on that?

It's really a function of how many sensors. Think of this if you will as -- well, let's back up for a second. Most of these systems have multiple sensors that need to get -- either it's a function of what kind of an interrupt routine they're -- this is probably diving deeper into the technical aspects.

Let's just put it this way. There is a lot of sensors that somebody has to pay attention to. And if you are relying on a CPU to pay attention to all these in a strictly interrupt driven mode, then the CPU has got to stay awake. And you don't need a 32-bit CPU being awake to service a bunch of trivial interrupts.

So, what you can view WAV as in one sense is an interrupt consolidator. In other words, we can service these interrupts at a much lower power level than the CPU and then we wake the CPU up, Instead of it having to stay awake to service all these interrupts. You with me?

I'm with you.

Okay. So, that -- on a very kind of a 50,000-foot overview is what WAV does. There's a lot more to it than that, but it is distinct from and offers advantages above and beyond what you get out of VEE or what you get out of DPO.

And to be very clear about this, Bob, that is in fact a Proven System Block. It would be something that we would architect with the customer and we would actually implement inside our solutions platform and it is totally separate from VEE and DPO.

Okay. Very -- yes, very good. I had understood that earlier, but that's very good to get it to repeat. As I listened to your prepared remarks today and as I've talked to you in times past, it's easy to observe that your products continue to evolve. And also that your recent product highlights in fact reference that as well. Also Ralph has mentioned a next generation silicon is underway. This suggests the concept that's being called constant improvement. I guess other names on it. Is this a process that you're actively using in the Company and if so maybe some color on that would be interesting and helpful

I was just fighting the urge to give you an answer of no, Bob, it's all by accident.

Right, okay.

No, this is very purposeful. I mean it's a leverage in CSSPs. Look at the mileage that we've gotten out of the few platforms, the few pieces of silicon that we have and contrast that against guys who bang out 20 or 30 new pieces of silicon a year, and we're getting designs wins of the same piece of silicon just by using the programmable fabric to implement the differentiating features that customers want.

So no, we believe the CSSPs have got significant legs and this whole concept of having a platform that you then if you will -- I hate to use the analogy because this was used years ago at LSI, but it's almost like Mr. Potato Head, if you remember that game for our kids where you had a potato and you -- if you make these different faces, because you took an ear and you put it on and -- do you remember that for your kids or maybe you didn't do that Bob, I don't know.

Yes, (inaudible).

I remember my girls thought it was just -- it was a real crack-up, Mr. Potato Head. So, that's kind of what we're doing here. We've got a platform that has got some capability already built into it, and then what we can do is we can put PSBs, Proven System Blocks, on to that, map that on to that programmable fabric and accomplish functions because everybody wants something a little different. Nobody ever wants it the same way.

The only reason they use ASSPs is because the -- that's all they had. That's the only option they had. We give them another option, a CSSP. So I think this is a significant new semiconductor approach to systems and we think there's significant legs to this thing.

So your Proven System Blocks make your CSSPs basically soft silicon in a way?

Yes, I guess you can call that. It's not quite the same as software driving a microprocessor because there's all kinds of other physical constraints that you don't have in the software world. But you could view it and I guess you could view it in a way. That's what we call a programmable fabric.

Yes, but one real important thing to understand, Bob, is when we program our fabric, after it's programmed, the resulting silicon actually looks and very much behaves like an ASSP or an ASIC. It is non-volatile, it's instant on, it has extraordinarily low static power and it has very low dynamic power. So it's really the whole thing that makes this a very appealing technology.

Okay. That leads to one last question, I believe, and that is because this is implemented with ViaLink and that's very important to your security people, is it also -- is ViaLink and the security it provides also important to some of the balance of your customers?

That's a very complex question. Many customers -- let's back up for a minute. Many customers don't really care how you implement things. What they really care about is does it do what I want it to do and does it meet the price point?

Now we've always believed that security of design was a really big deal. We've worked that thing. We've been in business 22 years, we've been selling security of these designs for 22 years, and this is worse than selling insurance. Because everybody talks about security but boy they sure don't want to pay -- design security -- but they sure don't want to pay anything for it. I mean witness the Xilinx and Altera, those things are open books for God's sake. Those designs are very easy to knock off and people have used the bejesus out of those for a long time.

So if you say how important is security, to some customers it's absolutely crucial. To the vast majority of customers, I think it's kind of a third or fourth, or fifth, or 25th even on their list of what they care about. Did that answer your question?

Yes it does. Thank you for that, Tom. And thank you for a good quarter and best wishes on the quarter coming up.

Thank you, Bob.

Thank you. There are no further questions in the queue at this time. I'd like to turn the program back to you for any further remarks.

Well, thank you for your interest in QuickLogic and we look forward to a positive quarter and we'll be back in August to share those results with you. Thank you. Take care.

Thank you, ladies and gentlemen for participation in today's conference. This does conclude the program. You may now disconnect. Good day.