Quicklogic Corp (QUIK) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the QuickLogic Corporation third quarter 2011 earnings call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Andy Pease, President and CEO, and Mr. Ralph Marimon, CFO. You may begin.

Thank you and good afternoon. Before we get started, 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 risks and uncertainties including, but not limited to, stated expectations relating to revenue from our new and mature 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. This conference call is open to all and is being webcast live.

For the third quarter of 2011, total revenue was $5.3 million, which was just below the midpoint of our guidance of $5.4 million. New product revenue totaled $1.2 million, which was up 3% from the Q2 level and aligned with the midpoint of our guidance. Mature product revenue in the quarter totaled $4.1 million, which represents a 9% sequential decrease over Q2. While new product revenue is driven by new design activity, mature product revenue is subject more to the declines in broad economic activity we've seen during the second half of the year.

Our non-GAAP gross profit margin for Q3 was 58%, and was below the low end of our guidance due to additional inventory reserves taken during the quarter from an older Polar Pro product as well as additional reserves on our Polar Pro 2 product. Excluding these reserves, our gross profit margin for Q3 was 64%.

Non-GAAP operating expenses for Q3 totaled $4.1 million. This was below our guidance and driven by the timing of variable R&D expenses associated with the new CSSP platforms we plan to launch during the first half of 2012. We anticipate our Q4 variable R&D expenses will be significantly higher as we near the completion of our new CSSP platforms.

Our other expense in the third quarter totaled $64,000. Our total non-GAAP loss for the quarter was $1 million, or $0.03 per share.

Cash increased during the quarter by $132,000. This increase was primarily due to an improvement in our shipment linearity which helped drive DSOs down to 34 days, as compared to 50 days in the second quarter.

Our Q3 GAAP net loss was $1.5 million, or $0.04 per share. Our GAAP results include stock-based compensation charges of $412,000 and fixed asset write-offs of $102,000. Please see today's press release for a detailed reconciliation of our GAAP to non-GAAP results.

Now I'll turn it over to Andy, who will update you on the status of our strategic efforts. Following this, I'll rejoin the call to present our Q4 guidance.

Thank you for joining us this afternoon. Last Thursday we announced the Kyocera is using our ArcticLink II VX4 CSSP in their innovative DIGNO smart phone. Shortly after our announcement was released, we learned that during their final software regression testing an issue arose with the unique use case that involved our visual enhancement engine and how it interacts with their AMOLED display. This issue is something we have not seen on any other display to date, including other AMOLED displays.

Kyocera will continue to ship their smart phone with our ArcticLink II VX4 CSSP, however, the VEE DPO functionality will not be enabled for the initial release. This decision does not impact QuickLogic revenue since the CSSP also includes the 60 frames per second MDDI to RGB bridge functionality required by Kyocera. Our revenue projections for Q4 and beyond are not affected by this interim decision to not enable VEE DPO. Kyocera does have strong interest in enabling our VEE DPO technology and we are fully committed to working with Kyocera to help them bring innovative and differentiated products to market. This situation has no impact on any of our other VEE DPO engagements.

In addition to this initial Kyocera smart phone design, we are engaged with several other smart phone designs, one of which we anticipate going to production in the first half of 2012. Like Kyocera's DIGNO smart phone, one of these designs is a direct result of the Qualcomm reference design that we discussed during previous conference calls.

In addition to the smart phone designs we've been working, we anticipate there will be two Pico projectors going into production during the first half of 2012, that incorporate our VEE DPO technology. It is interesting to note that these Pico projector designs incorporate two radically different display technologies, further demonstrating the wide applicability of our VEE DPO technology. At least one of these will be on display at the January 2012 Consumer Electronics show in Las Vegas.

Pico projection technology is not new, but for a variety of reasons it has not yet developed a very large market. The three primary reasons for this are high prices, low brightness and short battery life. During the last couple of years, Pico projector manufacturers have done a good job at driving prices down. We believe our VEE DPO technologies will help resolve the brightness and battery life issues. According to global industry analysts, the Pico projection market will grow substantially over the coming years.

Due to NDA agreements with our customers, I cannot share much detail regarding our VEE DPO tablet modification initiative at this juncture, but I can provide a brief update. As we have previously discussed, our partner, Apical Limited, developed a way to tap directly into the video path of an Apple iPad to incorporate VEE DPO. We are continuing to use this VEE DPO enabled iPad to demonstrate how these technologies can substantially improve the viewing experience.

Companies we are engaged with who are attempting to challenge Apple's dominance in the tablet market, were so impressed by the demonstration that they provided us with samples of their own tablets and complete instructions on how to tap directly into the video path. This enables them to see the benefits of our VEE DPO technologies on their own products. We have delivered the modified tablets and are working with these customers as they evaluate and fine-tune VEE DPO technologies for their displays.

Later this quarter, we will reveal our display and visual enhancement roadmap that we developed under NDA with our silicon partners and several key smart phone and tablet customers that have expressed a desire to use our VEE DPO technologies. This new roadmap includes our upcoming ArcticLink VX silicon platforms and application solution reference designs that address the changes in the mobile market display standards. This roadmap introduces new features, capability and performance enhancements and will address the lower price points necessary to win high volume designs.

Let's move to the wireless broadband data card market. Currently, we compete in the 14.4 megabit per second segment of the data card market. In this segment, the inventory bubble we experienced during most of 2011 has been cleared. However, the forecasted demand remains relatively modest, even from the two largest players in the market. As we see it today, demand for 14.4 megabit per second data cards will extend into 2012, but taper off as 4G becomes more widely deployed.

In the 4G data market, we have established a partnership with a new fabless base band manufacturer. We are not currently ready to release the name of this new partner but I can tell you that we are jointly developing three reference designs using QuickLogic CSSP solutions that should be completed this quarter. We are optimistic these reference designs will help us drive revenue growth for the 4G data market in 2012 and beyond.

During the last quarter, we continued to make progress towards the production release of our ArcticLink II CX platform. The small die size of the CX makes it well suited to economically address its targeted markets. These markets include secure and non-secure mobile enterprise products, data centric wireless devices, tablets and tablet accessories. However, with its processor based mixed signal system on a chip architecture, 41 unique IP blocks and hundreds of unique use cases, it is a highly complex design. We are now anticipating the production release will be Q2 of 2012.

Our lead CX customer is utilizing our recently released Jupiter reference platform and we are optimistic they will begin ramping to production in the second half of 2012. In addition to supporting our lead customer, we have used the Jupiter reference platform to introduce CX to a major semiconductor company that is focusing on the emerging mobile enterprise market. Mobile enterprise is a very broad and highly fragmented market that includes machine to machine or end to end market.

It is the breadth and fragmentation of this market that makes it very attractive for this prospective silicon partner to develop reference designs that include the flexibility and embedded security that is inherent to our CX platform.

Over the next few months we are planning several announcements around our smart connectivity roadmap. Similar to our display and visual enhancement roadmap, this announcement will include a detailed roadmap of our silicon platforms and our application solution reference designs that address a wide set of potential security and connectivity applications.

Quarterly conference calls tend to focus on near-term performance and initiatives. While these are clearly important, I think it is also important for investors to understand our focus towards developing a scalable growth strategy. I've been involved in the sales and marketing in the semiconductor industry for a long time and I know it is vitally important to have a clear product and reference design roadmap when you're selling to tier one customers and working with tier one silicon partners. As I noted earlier, we will formally announce our display and visual enhancement roadmap this quarter and are working on the rollout of the smart connectivity roadmap for Q1 2012. When coupled with the operational refinements we have implemented in strategic marketing and engineering support, I believe we have positioned QuickLogic for long-term growth.

I will now turn you back over to Ralph and look forward to your questions following Q4 guidance. Thank you.

Thanks Andy. For the fourth quarter of 2011 we are forecasting that new product revenue will increase by 23% to approximately $1.5 million. This increase is primarily due to our success in new smart phone designs at Pantech and Kyocera. Due to the low booking rate in the mature product segment, we are estimating that our mature product revenue will be approximately $3.5 million. We believe the low booking rate is largely attributable to slowing macroeconomic activity. Total revenue is forecasted to be approximately $5 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 Q4 and Q1 and impact our actual results significantly.

On a non-GAAP basis, we expect gross margin to be approximately 55% plus or minus 3%. The decline in the gross margin is due to the lower revenue level, which affects our manufacturing efficiency and a larger percentage of our total revenue being driven by new versus mature products. We are currently forecasting non-GAAP operating expenses to be $5.4 million plus or minus $300,000. Non-GAAP R&D expenses are forecasted to be approximately $3.2 million.

As I mentioned earlier, we are incurring higher variable expenses this quarter as we complete the final phase of the third party development efforts on two new platform families. We expect these expenses to drop significantly as we move into the first quarter of 2012.

Non-GAAP SG&A expenses are forecasted to be approximately $2.2 million during the fourth quarter. Our other income and expense will be a charge up to $60,000. Our stock-based compensation expense during the fourth quarter is expected to be approximately $550,000. At the midpoint of our guidance, our non-GAAP loss is expected to be approximately $0.07 per share.

Excluding the impact of additional warrant and stock option exercises, we expect to use approximately $1.8 million in cash, primarily due to lower revenue levels and higher engineering expenses.

Before we open the call for questions, I would like investors to note that I was informed prior to this call that our Needham analyst would not be on the call today for personal reasons, however, they told me that they do expect to publish their investment report next week.

This concludes our prepared remarks and we'd now like to open the call for questions.

(Operator Instructions) Hamed Khorsand, BWS Financial.

Just want to touch on this Kyocera issue; assuming that there's some fix that's resolved, can those units that have been shipped unabled be wirelessly updated with some sort of firmware?

There could be a software upgrade and that could be downloaded to phones as they are already in the market. I don't want to make any promises, especially given the recent course of events, but yes, that is possible.

What's the impact you think you could face as far as new customers signing up? What have you seen with the other customers in testing?

Absolutely zero. Because first of all, VX when we implement VEE DPO we have to calibrate it for every display and every customer knows that, so as I said this in the prepared remarks, this has had zero impact on our ability to penetrate new customers.

Okay. Last thing I wanted to touch on as far as your Q4 guidance goes on new products, the incremental revenue that you're seeing from Q3 or Q4, how much of that is Kyocera? Because Pantech was supposed to start shipping in Q3, right, so we should have already been seeing Pantech at the numbers.

We don't break out the numbers that way, but the incremental increase is driven by the strength of both Pantech and Kyocera.

Just to build on that, you haven't made any comments on the call here, any more smart phone designs to expect in the coming quarter?

In the coming quarter, we did address smart phone designs going into 2012.

How about in this current quarter, do you expect an announcement at all from another customer?

No, we do not.

(Operator Instructions) Brian Coleman, Hawk Hill Asset Management.

Andy, I don't want to belabor a point that's a nonissue, but can you give a little bit more color on what the issue was with the view with the Kyocera display?

Brian, I can't get into the technical detail, as you might expect. What I will say is we didn't find out about this until Thursday morning, after the press release went out. And secondly, I can tell you that since we found out, the Kyocera and QuickLogic engineers worked nonstop to try and get a fix in place prior to when they had a hard stop. And the Kyocera people and QuickLogic, we just basically ran out of time.

The source of the problem has been diagnosed?

We actually have a handle on what the source of the problem is and what we can do to fix it, yes.

And that's what gives you the confidence to say this doesn't affect any other design; you can assume it's isolated specifically to the dynamics of the Kyocera design?

Absolutely. Absolutely.

Okay, perfect. My next question then is the Pantech phone has been in the market for a few months now. Do you have any insight into kind of the rollout plans for that phone and what other markets we might expect to see that phone in?

Brian, we see it in the store shelves in Korea, but they have not shared what the rollout plan is with us. They have said that it's going well, is what they've said. I can tell you that after this earnings call, I'm going out on a Asia trip and I will be visiting them personally.

What about Kyocera; is there anything you can share with us on what they've talked about in terms of their plans for that phone? I just can't see how these guys develop phones and put all the time, effort and money into it to have them limited to small geographies. Just want to see if that's consistent with what they might be sharing with you?

Actually, it has already been publicly announced with KDDI and it will be launched in December in the Japan market, with this phone along with the other line up that KDDI routinely and regularly launches in the December timeframe.

Okay, but beyond that, you don't have any insights yet?

No, we don't.

Okay. On the next generation of the ArcticLink VX platform, I guess if we look at the current generation the uptake of V has been a bit slower than I think everybody's kind of anticipated, if we looked at our expectations going back 18 months or so. When you look at the next generation of VX, do you think that you've successfully answered all of the OEMs' issues with respect to the reason that it hasn't been more quickly adopted yet and is it a features thing, is it a price thing; what is the big barrier that you think you might be overcoming with this next VX platform?

My opinion Brian is, the biggest obstacle is, and I think I've talked to you about this, is the display interfaces. The VX 4 is an MDDI to RGB bridge and all of the markets that we're going after, smart phones and tablets, tend to be either MIPPI coming out from the processor with the display being either a MIPPI or LVDS processor. Our roadmap absolutely addresses all of the various video bus standard combinations that we need to address going in the future. That is by far the biggest obstacle we have.

Another question for you. In I guess the last couple of quarters you've announced new platforms and products essentially across all your end markets, whether it's V in display, CX modems, etc. Do you internally have the resources? You've kind of announced here the CX is going to be bumped back by a few months. Internally do you have the resources to hit all of the milestones and deliverables that you guys have set for customers?

Yes, we do Brian, and as you know, we have kind of a variable engineering model, so all of the resources that we tap into are not necessarily QuickLogic employees. So one of the things we have absolutely done is actually looked at all of the tasks we have at hand and not only the resources but the skills we have internally to address it and we feel very comfortable, especially when you see the roadmaps that we announced, both on the visual side as well as the smart connectivity side, to address everything that we have on those roadmaps.

And then on the two Pico projectors, are those standalone projectors or are they embedded, Pico projectors embedded into phones?

Well, not embedded in the phone; they are standalone.

Okay and those are first half 2012?

That's correct.

Robert West, NI Technical Research.

I'd like to start Andy, with a little discussion of the data card market if we could. I think one is on the current products in the marketplace you have a couple of 3G and I guess two speeds; sub 0.2 and 14.4. In the lower stage area which is primarily in the emerging world, you did not comment on your volume out there and could you give us some color on how that market's developing for you and how you see it going forward?

Sure Bob. I think we addressed this in the last conference call. Going into this year we saw that the 7.2 megabit per second market could be a real good volume market for us and as you already mentioned, this 7.2 market actually is geared for emerging third world countries.

And what we found was this got to be an enormous bidding war by the two major guys and the price points got down to so low a point that they decided to exclude the feature of having an external SDIO memory card plug into these memory data sticks. With the exclusion of the micro SD memory card into the data stick, that obviously alleviated the need to have a QuickLogic part to tap into that. So, going forward we have really seen no volume in that market nor do we expect to. That's why when I talked about the data card market in this call, I was really centering it on the 14.4 which we are still engaged with.

That's helpful to understand. You announced a new probably OEM relationship with a new base band OEM and that they're developing three references. Would this be for your CX chipset when it comes out in June-July time period?

No. I can tell you they are interested in CX going forward, but the three reference designs I'm referring to are actually existing product that we have and they all are going into the 4G data market and keep in mind, I didn't just say data cards. Because there are other reference designs that actually go beyond USB 4G data cards.

Very good. So assuming that those reference designs get completed in Q1, probably toward the year-end is when you might see volume from those references on?

I'm leery to say when we'll see volume, but I can tell you that the reference designs will be completed this quarter, not Q1 and I can also tell you that we have already identified OEMs with those reference designs. And as soon as we feel like we can give you more information, then we will.

Excellent. I wanted to come back to V 3.0 if I could, follow-up with another question there. Clearly price has been a sticking issue in some cases, even though I'm sure that the enterprises has been more of one, as you've said. But to what extent do you believe, after you've gone through this process of vetting your new platforms with perspective customers, to what extent do you think you'll understand feature sets and price points with these perspective customers on V 3.0 going forward?

As I said in my remarks, the answer - was it Brian's comment? I was really trying to prioritize the deal, but we absolutely addressed not only the connectivity end of this from all aspects, but we also addressed price points and we feel like the roadmap product absolutely addresses all of the needs, including not only connectivity on the display side and price points, but also other features. So we are very excited to actually share that roadmap with the world and that will be done in a formal event in Q4.

Okay. Final question is on your strong security area. In the last conference call I believe you indicated that in your banking customer would possibly begin slow ramping of shipments after their pause and can you give us a little color on that if you would please?

Our view now on that banking customer, who is also one of our partners, is that they are going to use the CX to intercept their banking solution and as I mentioned, they are now using the conversion for their old solution with the new CX that can be done, by the way, with the Jupiter reference platform and we don't expect to see revenue out of that till the second half of 2012.

Okay, I didn't understand that. And final question I think is on your mobile enterprise. Last quarter I think you mentioned that you had an OEM customer that was launching five unique products and would be working off inventory in Q3 and perhaps begin to take new product in Q4 and I just wondered how that has progressed this last quarter?

Just to clarify, this is an enterprise customer that we've had for probably the last three or four years, so over those three or four years, our product has migrated into five, so I don't want the other listeners to think that all the sudden they popped up with five. And yes, it is true that in 2011, actually towards the end of 2010, they actually did get ahead of themselves and we also see, like with the data card, that inventory situation is now cleared up and they are taking product. And that started in Q4.

Thank you Andy and good call and good clarity.

This ends our Q&A session. I'll turn it back over to management for closing remarks.

Well thank you for joining us on this call and we look forward to talking to you next February when we'll give you our Q4 announcement. Thanks for listening.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.