Quicklogic Corp (QUIK) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the QuickLogic Corporation Fourth Quarter and Fiscal Year 2010 Earnings Conference Call. (Operator Instructions.) I would now like to introduce your host for today's conference, Mr. Andy Pease, President and CEO. Mr. Pease, you may begin.

Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us today for QuickLogic's Fourth Quarter 2010 Earnings Conference Call. Joining me here today is our Executive Chairman, Tom Hart, and our CFO, Ralph Marimon. Ralph will take you through our fourth quarter results, then I will share my perceptive on our business. Following this, Ralph will detail our guidance for the first quarter of 2011, and then we'll take questions.

Ralph?

Thank you, Andy. First, let me take a moment to read our 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 stated expectations relating to revenue growth from our new products, the impact of inventory rebalancing in the channel, 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 fourth quarter of 2010, total revenue was 7 million. Although total revenue was within our guidance range, this does represent a sequential decline of approximately 5%. New product revenue totaled 2.3 million, which represented a 19% sequential decrease. New product revenue was impacted by much lower bookings than we anticipated due to the inventory rebalancing in the wireless broadband data card channel. Mature product revenue in the quarter totaled 4.7 million, which was a 3% sequential increase.

Our non-GAAP gross profit margin for Q4 was 68% and was above our guidance due to the mix of product shift. Non-GAAP operating expenses for Q4 totaled 4.2 million, which was within our guidance. As forecasted, non-GAAP operating expenses increased compared to Q3, primarily due to an increase in expenses for new platform development.

On a non-GAAP basis, other income and expenses and taxes for Q4 were net positive, totaling approximately 10,000, primarily due to income tax benefits related to our overseas operations. This resulted in a non-GAAP net income of 496,000, or $0.01 per diluted share. Our net ending cash position of 22 million reflects an increase of approximately 4.8 million from the Q3 net ending cash balance. This increase was driven primarily by the exercise of warrants, the exercise of employee stock options, and cash generated by operations.

Our Q4 GAAP net loss was 69,000, or $0.00 per diluted share. Our GAAP results include stock based compensation charges of 565,000. Please see today's press release for a detailed reconciliation of our GAAP to non-GAAP results, as well as for detailed information on full year 2010 results. I'll rejoin you in a few minutes to discuss our guidance for the first quarter, but first, Andy will update you on the status of our strategic efforts.

Thank you, Ralph. We are very pleased with the solid tangible progress we posted for 2010. Our total revenue increased 74% and our new product revenue increased 93% over 2009. As a result of this growth and the success of our improved operating model, we reported a non-GAAP profit for each of the last three quarters, as well as for the full year of 2010. This, along with the exercise of warrants and options, helped boost our balance sheet net cash from 16 million at the close of 2009 to 22 million at the close of 2010.

While revenue describes the depth of our business, our balance sheet, the strength of our foundation, we believe it is also important to track and measure the breadth of our business, which includes the number of active designs, customers, and market segments. During 2010, we shipped active--19 active production designs, more than three times the six active designs we had at the close of 2009. We also doubled our active customer base from six to 12. An important implication is we have increased the average number of designs per customer from one at the close of 2009 to 1.5 at the close of 2010. This indicates once a customer uses a CSSP in one design, there is a tendency to use our CSSP solutions in future designs.

A major accomplishment is the fact that we initiated production shipments into the tablet segment into the fourth quarter of 2010. As a result, we exited the year shipping to four out of our five target market segments. During 2011, we expect to ship CSSP based on our visual enhancement engine, or VEE, and display power optimizer, or DPO, to our fifth market segment, smart phones.

On balance, 2010 was a successful year. While the numbers were still small, we clearly outgrew the semiconductor market as a whole. We strengthened our balance sheet and we expanded the breadth of our business. We believe new design wins scheduled to enter production this year will position us well to continue both the depth and breadth of our business in 2011.

Let's evaluate what drove our success in 2010 and what prevented us from accomplishing more. The wireless data card market was the foundation of our new product business in 2010. Even though we made tremendous progress by working closely with our ecosystem partner, Icera, we also dealt with a number of challenges. At the close of 2009, we supported three wireless data card designs with a total of three customers. We exited 2010 with nine designs with six customers. This and the fact our wireless data card revenue grew 120% year-over-year, tells us we grew both the depth and breadth of our business in this segment. Even though we expect shipments to six customers in 2011, several did not accept production volume during the fourth quarter. We experienced the expected inventory rebalancing mentioned in last quarter's earnings call.

This rebalancing was driven by two factors. First, once customers ship a new product it is normal to build a safety stock of finished goods above their best guess forecast. This often leads to a temporary lull in shipments during the quarter following the initial production run. With several new designs going into production in Q3, this normally lumpy start-up schedule was aggravated by the fact we were forced to extend lead times in mid-2010.

The second issue, due to a capacity shortage at our package assembly and test subcontractor, lead times for all of our CSSPs servicing the data card market were extended. In response, customers and the supply chain partners boosted CSSP orders above anticipated consumption levels to ensure they could support their advanced production forecasts and build a safety stock of CSSP inventory. This was in addition to the safety stock of finished goods that is common for a new product launch. As our subcontractor brought on new capacity and our lead times shortened in early Q4, the forward supply channel began reducing its inventory.

Although we started Q1 with a low backlog and booking rate, we are beginning to see an increase in demand for wireless data cards using our CSSPs. We believe this increased demand will clear the entire excess inventory in the channel during Q1.

In the security segment, we supported one design at one customer in 2009. We exited 2010 with four active designs at two customers. This and the fact that our revenue from security applications grew 130% year-over-year tells us we grew both the depth and breadth of our business in this segment.

The focus of our security customers is banking and business-to-business communications, where rock solid security is imperative. The overarching strategy here is to provide the very high level of security these applications require at an attractive cost. Providing this level of security involves very complex systems that include both server and mobile client product development.

In addition to these technical challenges, our customers must gain several regulatory and industry compliant approvals. While the technical challenges have been resolved, our customers are still navigating the maze of the various approval processes. This has slowed the ramp of our business application solutions and limited volume for the banking application solutions. However, it appears the log jam is loosening and I believe we'll see significant revenue growth in the security market segment during 2011.

Our newest platform, Arctic Link II CX is a direct result of the collaborative efforts with our lead security customer. CX adds another dimension to the flexibility of CSSPs that we believe will provide high differentiating value to our customers. By adding an embedded 32-bit risk processor to the architecture, we can now create highly optimized customer specific processor based subsystems. These subsystems can be used to add new features to our customers and products, manage customer specific intellectual property embedded inside the CSSPs, and off flow processing tasks from the primary system processor.

CSSPs, based on the CX platform, give system designers the ability to off load processor intensive tasks in ways that maximize functionality and minimize system level power consumption. The CX platform delivers higher design flexibility, broadens the range of applications we can address, and strengthens our value proposition. We believe the CX platform is ideally suited for a wide variety of applications spanning all of our existing target marketed segments, including the emerging machine-to-machine or M-to-M market.

In mobile enterprise segment, we supported two designs with two customers in 2009. We exited 2010 with four active designs at two customers. This and the fact that revenue from mobile enterprise applications grew 42% year-over-year tells us we grew both the depth and the breadth of our business in this segment. In the mobile enterprise segment, long design cycles tend to prove us--provide us with a relatively stable design base and a generally more predictable demand. While the volumes tend to be lower than other segments, the average selling price is higher and the product lifetime is longer. We believe there is good, long term revenue potential for CSSPs in this segment.

Our fourth active market segment for 2010 was tablets. We shipped our first production revenue of our highly differentiated VEE and DPO technologies during Q4 to BenQ for their R100 tablet. We are extremely pleased with this accomplishment and with the implementation by BenQ. BenQ is a large Taiwanese-based consumer electronics manufacturer that addresses primarily the Asian and Japan markets, and is a highly respected brand in its targeted geographic markets. While the R100 is BenQ's first entry into the tablet market, it is actually an extension of their successful e-reader product line they introduced in late 2009.

BenQ has partnered with several content companies and developed a simple one-touch download model available in a variety of languages. For their e-readers offering, BenQ used the common black and white e-ink technology, the same technology used by Amazon in their popular Kindle. While e-ink provides the advantages of direct sunlight disability and very low power consumption, BenQ needed to move to an LCD display to compete in this new high growth tablet market. After a long and very careful evaluation process, BenQ determined that our VEE and DPO technologies would allow them to deliver the best of both words. Up to 12 hours of battery life viewing multimedia content, great sunlight visibility, and vibrant colors consumers expect from tablet computers.

To illustrate the power of what BenQ calls image enhancement, users of the R100 are given the ability to turn VEE and DPO on or off. We believe this will heighten consumer awareness that image enhancement technologies are available for LCD displays and will accelerate the demand for VEE and DPO technologies.

Let's cover why customers are more excited today than ever before about the power saving and improved viewing experience VEE and DPO can deliver. The three trends driving the adoption of VEE and DPO technology are, first, video drives VEE and DPO. As recently as 12 months ago, the use case that designers were addressing assumed roughly 10% video content. Today, video is by far the fastest growing use case comprising more than half of all of the data traffic consumed by mobile devices. While VEE and DPO deliver benefits for still content, those benefits are magnified exponentially when used for video.

The second trend - size matters. The larger the display, the greater the benefit from VEE and DPO. All mobile device manufacturers tell us anything above 10% power savings is considered significant. In the BenQ R100, our customers claim VEE and DPO saved 20%. We have another customer in preproduction on a 10-inch table who measured one full watt of overall system power savings using DPO, for a total system power savings of 36%.

The final trend is the Apple factor. While no one wanted to get in front of Apple's introduction of its first iPad, everyone is eager to differentiate from what they think the iPad 2 will bring. VEE and DPO provide a more natural multimedia experience and dramatic improvement in bright sunlight viewing while significantly extending battery life.

When we look back at the products everyone thought would open new markets but failed, smart books will likely rank high on the list. A smart book was originally an ARM-based processor net book that integrated wireless, always on, internet connectivity, and used Google's Chrome operating system. As recently as a year ago, manufacturers were still forecasting 2010 introductions and several had committed to use VEE and DPO. However, as it had done twice before with its iPad and iPhone, Apple changed the course of the market and in this case, the smart book world, with the iPad. Within weeks of the iPad introduction, virtually every smart book program that we were engaged with was cancelled or put on hold.

OEMs and ODMs refocused their resources to design a competitive alternative to the iPad. All of these devices incorporated the ARM CPUs previously designed into smart books. Many of these OEMs adopted a more multimedia friendly operating system, Google's Android. The limitation with this approach was the current version of Android was not optimized for tablets.

Google's release of the new Android 3.0 operating system called Honeycomb, resolved these issues. OEMs and ODMs are now positioned to complete their product roadmaps and compete with the iPad in the tablet segment. This is a crucial element in the acceleration of the adoption of VEE and DPO in the tablet segment.

The iPad taught OEMs and ODMs around the world a lesson - you'd better learn to innovate quickly. As a result, companies are shortening product development cycles and looking for design strategies to enable them to rapidly develop differentiated products. This is the CSSP value proposition. A tier one mobile device manufacturer we've been engaged with exemplified this by stating, and I quote, "Our design cycles have shrunk from one year to six months. We focus on differentiation and want to avoid using off the shelf products because that means we cannot differentiate. QuickLogic's hardware flexibility seems aligned to that."

In many ways our CSSP strategy was ahead of the demand curve. The recent need to shorten design cycles and to respond to rapidly changing customer demand has brought the benefits of customer specific standard products to the forefront. We believe CSSPs will increasingly be viewed as the design solution of choice in our targeted market segments.

Ralph will now give our Q1 2011 guidance.

Thanks, Andy. We now anticipate the impact of the inventory rebalancing for our broadband wireless data card business will continue through the first quarter of 2011. Due to this inventory rebalancing, our backlog at the beginning of the quarter, and the current level of bookings we have from our broadband data card customers, we are forecasting that new product revenue will be down slightly to 2.2 million, plus or minus 10% in Q1. Based on our bookings and backlog, we are also estimating that our mature product revenue will decline by approximately 100,000 to 4.6 million. Total revenue is forecasted to be approximately 6.8 million, plus or minus 10%. As in prior quarters, 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 Q1 and Q2 and impact our actual results significantly.

On a non-GAAP basis, we expect gross margin to be approximately 64%, plus or minus 3%. The gross margin percentage is driven by the forecasted production rate and the anticipated mix of products shipped during the quarter. We are currently forecasting non-GAAP operating expenses to be flat with the fourth quarter of 2010 at approximately 4.2 million, plus or minus 300,000. R&D expenses will continue to be driven by development work on two new CSSP platform families and new hires that are forecast for our R&D department. Non-GAAP R&D expenses are forecast to be approximately 2 million, while non-GAAP SG&A expenses are forecasted to be approximately 2.2 million during the first quarter. Our other income and expense will be a charge up to 60,000 during the first quarter.

Our stock-based compensation expense during the first quarter is expected to be approximately 525,000. At the midpoint of our guidance, non-GAAP net income is expected to be approximately 100,000. Excluding the impact of additional warrants and stock option exercises, we expect the quarter to be cash neutral.

Now, I'd like to turn the call back to Andy for his closing comments.

Thank you, Ralph. We faced a number of challenges late last year that limited our revenue growth in Q4. This led to an expected slower start in 2011 than we would have otherwise desired. However, 2010 was a very successful year by all measures. During the year, we nearly doubled new product revenue, more than tripled our active design base, and doubled our customer base. In addition to those accomplishments, we penetrated our fourth strategic market segment by initiating production shipments into our first VEE/DPO tablet design. We expect to open our fifth strategic market segment in mid-2011 when we begin shipping VEE/DPO technology to our first smart phone customer.

We have begun 2011 with a significantly stronger solutions, customer base, and design funnels. OEMs in our target market segments have concluded they need to radically shorten their design cycles and develop differentiated products. Like the tier one smart phone manufacturer I quoted earlier, numerous customers are telling us our CSSP platforms and the unique QuickLogic customer engagement model address these challenges. I believe the combination of these factors sets the stage for QuickLogic to deliver strong growth and innovation.

Next week, we'll be at Mobile World Congress in Barcelona. In mid-March, we will be presenting at Roth Capital's 23rd Annual Orange County Growth Conference in Laguna Niguel, California. Our Annual General Meeting is scheduled for Thursday, April 28, at QuickLogic headquarters in Sunnyvale, California. Our first 2011 Earnings Conference Call is scheduled Tuesday, May 3, 2011.

Now, let's open up the call for questions. Operator, please?

Thank you. (Operator Instructions.) Our first question comes from Harsh Kumar from Morgan Keegan. Your line is open.

Hey, guys. Good afternoon. A question for Andy. Andy, you talked about your first smart phone win shipping fairly soon. Wondering if you can provide us with some--any color that you feel comfortable providing in terms of the significance of the platform. Is this a--i.e, is this a one-off win in a single form within a platform, is this a win across the platform? Any color would be helpful.

Actually, Harsh, I wish I could, but unfortunately we are under very tight NDAs with all our customers and we absolutely cannot talk about the types of designs that we're in.

Okay. That's pretty fair. And data card inventory, I think you mentioned it will probably affect you guys through this current quarter. Do you feel that you are getting to the end of that issue, or your customers specifically are getting closer to the end of that issue and this should be the last quarter? Any color would be helpful there as well.

Yes. Right now, Harsh, we actually go through a very detailed regiment and we have tangible evidence that the run rate is increasing. So we feel comfortable by making that statement.

Thank you. Our next question comes from Edwin Mok, and your line is open.

Hi, guys. This is [Conor Irvine] calling in for Edwin. How are you?

Hi, Conor.

Hi, Conor.

Hey, can you guys talk a little bit more on the impact legacy sales have on your Q1 guidance? And it looks like legacy sales totaled approximately 17 million in 2010. Should we expect a similar level through 2011 and even with little or no investment in this area?

Well, we don't give guidance on that further than a quarter. I mean, we've seen a pretty steady rate out of the legacy product over the last few quarters. That's what we're anticipating in the first quarter. And beyond that, we don't see it dropping off significantly, but we lack visibility also into that space.

Okay. Fair enough. And regarding the inventory rebalancing that took place in Q4, should we go back--after we're through Q1, do you think we should go back to using sort of a 2Q, 3Q as the revenue baseline? And on top of that, do you think there's any risk that these customers are sort of changing their design requirements or maybe designing out of the QuickLogic part?

As I think I mentioned in the call, we do not see that we are designed out or that shipments are falling off. We do see that in--that they are now starting to take a product through the channel and we expect that to continue.

Okay. Great. And Andy, it looks--looking into 2011, do you view the end market and product mix for new product sales--or I should say how do you view the market for those two? And the majority of new product sales have been selling into the data card market, but can you give some more color on which end market will account for the majority of product revenue--or new product revenue in 2011? And which of these--.

--Well--.

--You'll start to see the most growth first.

Well, again, we're not giving guidance beyond Q1. But for the first part of the year, data cards will continue to be the mainstay as the security applications increase and VEE and DPO sales increase.

Okay. And lastly, any changes to your target gross margin or OpEx levels going forward?

No. We're not--I mean, what we forecast is based on the product mix for gross margins. So we've always maintained as new products command a majority or grow to a majority of the product mix, then that gross margin will come down. But we still maintain that we'll be above 50 points of margin even when new products dominate the revenue stream.

Okay, great. Thanks so much.

Thank you.

Thank you.

Thank you. Our next question comes from Brian Coleman, and your line is now open.

All right. Thank you. My first question is on the data card business. Can you give us some update on your relationship with Icera going forward and past this--the first generation of Icera products that you're in? Do you have--as they come out with new processors, do you maintain a role in those designs or has Icera kind of incorporated some of your features now into their chip?

Well, first, Brian, we are in our second generation of Icera products. The next generation that comes out they are incorporating the single functionality that we have in the product that we are currently in production with now that would be just a connection to their flash memory. We are in discussion with them on the CX product, however. And so, we view that the CX will be a product that will ship into the data card market, as I implied before.

Oh. Okay, terrific. A question for you on the reference design that you've talked about in the past that had the 4,000-unit order. When you kind of first announced that, I asked conceptually if you assumed that there would be a high CSSP attach rate in designs that were ultimately based on that reference design, meaning would an OEM or an ODM opt not to use the CSSP, if they were using the processor in that reference design. And I think Tom indicated that conceptually it would be possible for somebody to decide not to use a CSSP, but it wouldn't make much sense from a business case standpoint. Now I'm wondering now that we're--you're a couple quarters in and you--I'm wondering if you've got any experience that might back up the view on what the CSSP attach rate might be in these reference designs.

Brian, I think it's still early to talk about attach rates. The--we talked about two reference designs in the last earnings call, if you recall. The first one was going to application developers, but the latter one, which by far is the more interesting one to us, is going to OEMs. And that did ship in Q4. I can say that we've already been contacting customers that have that reference design and time will tell what the attach rate will be. And I think Tom's comments from last year still stand.

All right.

It seems to me, Brian, it doesn't make good business sense.

Okay. Can you provide us with any kind of updates on the other reference designs that you've mentioned in the past? There were a handful of other ones we've kind of gotten from updates on this first one with the 4,000--the two 4,000-unit orders. Can you give us some updates on where we are with the other reference designs?

Well, the ones that we talked a lot about in the last couple quarters were the two that you just mentioned. We did mention reference designs earlier in the year, but actually those were smart book reference designs. And they ran the same fate of the smart book industry in general. We still are working on other reference designs, but nothing that we can report concretely right now.

Okay. And then, a question on--at the--I think at the Qualcomm Uplinq Conference you announced an RGB split PSD and indicated that there was a specific project that had come up from one of your customers that had required that. And I'm just curious, is there--is that project--is there any update on that project that you can provide for us?

I can't provide any updates on that specific project, but there is interest in our customers in this RGB split, yes.

Okay. All right. On the BenQ tablet, I assume your fourth quarter had some preproduction--I mean, I don't believe that tablet has actually been released by BenQ yet for production. So it would sound like your revenues there are supporting their preproduction. And I'm wondering if you're seeing any orders yet from them for their official launch, or is it the kind of thing that we now have to wait for some end market sales of that tablet before we get the pull through for orders for you guys.

Well, when they placed the order--the initial order for us in December, they said this is the unit that they're going to production with. And they are taking it to operators right now and we should have more word on that as we move forward.

So does your guidance then for 1Q, does that include anything additional for BenQ?

Yes, we do have in our guidance some BenQ product.

Okay.

That is a production level.

Okay. And then, my last question. You put out a press release, I think it was today, on the Mobile World conference in--the conference in Barcelona, that you'd be showcasing tablets, plural, with VEE/DPO in it. Are you going to be having a public booth at that conference, or is this the--are you doing a private--the thing--what you did at CES, a private booth?

The Mobile World Congress we actually have a public booth that anybody can walk up to. This is not in the private meeting room.

So will you be in a position then to announce who these tablets are at some point in the next week or two--week or so?

Well, we'll obviously be showing any tablets. We'll be talking about--any tablets we show will be public information. By the way, we are in--where's that--Stand 2.1 in EZ-11 in the Enterprise Zone, Hall 2.1, Lower Level.

Okay. So you said that whatever you are showing will be public information?

Absolutely.

And so, you'll have tablets there with OEM/ODM brands on them?

We will have similar tablets that we showed at CES.

Okay.

And I think you were in CES--in our suite at CES, right?

Yes. Exactly, yes. Okay, that's all I've got. Thanks, Andy.

Thank you, Brian.

Thank you. Our next question comes from [Hamid Korson] from [DWS Financial]. Your line is open.

Hi, guys. Just a couple of questions. One is, what kind of activity are you seeing from your tier one customers as far as the reference designs go?

Well, so maybe we have a definition of term issue. When we talk about reference designs, reference designs are things that we do with other semiconductor companies, principally processor companies. So we are engaged with tier one customers and it's basically engaged with their engineering and architecture groups.

Okay. And do you have any kind of sense of a timeframe as to getting decisions on design wins?

I wish I could tell you. Unfortunately, I can't talk about any of our engagements with our tier ones. Our NDAs are very tight with them.

Okay. And then, what kind of revenue increase could you see before you run into another packaging capacity issue?

Well, in terms of the packaging capacity, we don't see anymore issues. They actually increased their capacity by almost 4x. In addition, they're opening up another facility in the center of China, so we don't anticipate anymore issues with this.

Okay. And then, just lastly, on the smart phone comment you made. Are you just expecting one production shipment this year from the smart phone side?

We're prepared to commit to one in mid-year. Yes.

All right. That's all my questions.

There are certainly more in the pipeline, but I'm not prepared to commit them to 2011 revenue, principally because we just don't know how long the operators take to qualify these things once they're designed in.

Understood. Thank you.

You're welcome. By the way, I'd like to add something on the terms of our packaging. We actually took steps and we have an alternate source also that's doing the same process that was causing capacity issues. So we are dead certain that that won't plague us in the future.

Thank you. (Operator Instructions.) And our next question comes from Bob West from NI Technical Research. Your line is open.

Hi, Andy, Tom, Ralph.

Hi, Bob. Good to hear from you.

I wanted to start with a question maybe for Ralph on your inventory. I noticed that it's up about 700,000 at the end of Q4, compared to Q3. Is this in anticipation of future volume going forward or just any color you can give on that would be appreciated.

Yes, it's both. But it's primarily Polar Pro II inventory related to the data card business. So the revenue drop-off was a little bit more significant than we thought. And so, we already had inventory in the supply chain coming in. So we're not worried about our use of that inventory. We'll be able to use it, so that's not an issue. It's just higher than we wanted at the end of the year.

Okay. I understand. Those things happen. The second question is on, Tom, during your prepared remarks, if I recall, you made reference to a second 10-inch tablet customer in preproduction--.

--Yes--.

--If I caught that correctly. A question on that. Can you give us some color on that? Preproduction suggests that it's getting pretty close to being ready to launch. Is there more than one tablet of--that could go in production in Q1, or is this Q2, or whatever color you can on it?

This is beyond Q1 and we are certainly working on more than one tablet. I can assure you that, Bob. But the reason I pointed out this particular tablet--and I'm actually happy you asked that question--is this particular tablet actually uses an iPad like display that has much better viewing angles than the BenQ R100.

Oh.

What comes with that, by the way, is a much higher power consumption. So it turns out when there is higher power consumption, the value of our DPO technology goes up and that's why the power savings these guys are seeing is almost double what BenQ is seeing at 36%.

Very nice. So this is a--well, should be a really nice screen you're telling me?

Yes. They call it--there's a word for it and I'll--it's called an IPS display, which has very wide viewing angles. But in order to accomplish that, it obviously takes more power consumption.

Okay. Well, very good. I wanted to ask a question on another subject. In I think late January, QuickLogic announced the availability of the new software mobile display optimizer MDDO software for use on CSSP's enabled devices running on the Android operating system.

Right.

Can you give us some color on customer reception to that product?

The customer reception is very good because this actually plays well into our unique engagement process where we provide the customer with much more than just silicon. So now, we're offering customers a kernel that they have to provide anyway, if they're going to adapt this technology in their mobile device. A real side benefit of this technology, frankly, however, is it enables us to on any tablet or anything that's running Android, is to actually demonstrate the--what VEE and DPO will actually do for their system in a simulated way. And that has been extremely effective for us. Because one of the things that all these customers want to see is they want to see, well, how does VEE actually look on the display I'm using? Because I'm sure as everyone here know, every display is somewhat different. And they want to see how it looks on your own display. And this new Android app gives us the opportunity to do that very simply. As a matter of fact, we've even had customers download this off the web and look at it themselves.

Okay. Continuing kind of in this area, the press release suggested that the software could be implemented as a replacement for the standard Android auto brightness menu software on Android.

That's correct.

Can you give us a little more color on that? Is this software intended as a revenue producer or is it strictly to accelerate customer development?

It's strictly to, first, be a great demonstration vehicle, and secondly, to accelerate customer development. And it is included in what we normally charge for our CSSPs. This is not a--.

--Okay--.

--(Inaudible) for us.

Okay, very good. Next question I had was on your CX platform. Specifically, on the--on smart phones and tablets, you've got several use cases in--on your website for those two market areas. Can you give us some color on maybe the reception from your customers in the tablet and smart phone market to this offload engine?

Actually, we've had very good reception considering that we have not put out samples in the marketplace yet. But there are many customers that really like the idea of offload engines and certainly if they are (inaudible) the security market, this plays right into the CX offering. But keep in mind, CX does not have to have security attached to it, so it does play into the more general smart book or tablet or smart phone market.

Okay. Now, looking ahead to 2012, can you envision a time that you might have multiple offload engines or co-processors on an individual tablet, maybe one CX and one VX?

Actually, we have had customers in the same design expressing interest in both devices.

Okay.

So that's more than a wish.

Okay, well, great. Well, thank you for the clarity and best wishes on the quarter.

Thank you.

Thank you. And I'm showing no additional questions in queue. I would like to return the program to our presenters for any concluding remarks.

Okay. Well, thank you very much for joining us for this conference call and we'll look forward to seeing you either at Barcelona, Laguna Niguel, or at our Annual Meeting in Sunnyvale. Thank you very much.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may now disconnect.