Quicklogic Corp (QUIK) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the QuickLogic Corporation Second Quarter 2012 Earnings Conference Call. (Operator Instructions). As a reminder, this conference is being recorded.

Your hosts for today's conference will be Andy Pease, CEO; Ralph Marimon, CFO; and Brian Faith, VP of Worldwide Sales and Marketing.

I would now like to hand the call over to Ralph Marimon.

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 second quarter of 2012, total revenue was $4.1 million, which was just above the midpoint of our guidance of $4 million. New product revenue totaled $1.7 million, which was up 5% from the Q1 level. Mature product revenue in the quarter totaled $2.4 million, which represents a 6% sequential decrease from Q1 but was slightly above the midpoint of our guidance.

Our non-GAAP gross profit margin for Q2 was 51% and was above the midpoint of our guidance. The higher-than-forecasted margin is due to lower inventory reserves and a benefit from selling previously reserved inventory.

Non-GAAP operating expenses for Q2 totaled $4.8 million, which was just below the midpoint of our guidance. As we've previously discussed, the decline in spending is primarily due to lower engineering expenses for two new platform developments, as these platforms are now being introduced to the market.

On a non-GAAP basis, the total for other income and expenses and taxes was $82,000. This resulted in a non-GAAP loss of $2.8 million, or $0.07 per share.

We ended the quarter with approximately $26.9 million in cash. During the quarter, we raised approximately $11.9 million in an equity offering, which was partially offset by cash usage of $2.3 million. This usage was consistent with our guidance.

Our Q2 GAAP net loss was $3.2 million, or $0.08 per share. Our GAAP results include stock-based compensation charges of $434,000.

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 Q3 guidance.

Thank you for joining us this afternoon.

As Ralph mentioned, our new product revenue was aligned with our expectations. As forecasted, we saw an increase in the broadband data card demand, the ramp of the Kyocera Urbano Progresso smartphone, and shipments to support Micron's PoP Video pico projector during the second quarter. These proved to be effective offsets to the production shipments of the Pantech Vega S5 and Kyocera DIGNO smartphones that were completed in Q1.

The Urbano Progresso uses our ArcticLink II VX CSSP, the same silicon platform that Kyocera is using in its DIGNO smartphone. In addition to using the same display bridge as the DIGNO, the Urbano Progresso utilizes our visual enhancement engine, or VEE, and display power optimizer, or DPO, technologies, making it the first smartphone available in the Japanese market to incorporate VEE and DPO.

During the second quarter, we shipped our ArcticLink II VX CSSP to Micron to support their PoP Video pico projector. We continue to forecast shipments for this project during the third quarter.

In addition, we have secured an architectural design win in a second OEM pico projector. Based on forecasts, we believe we will initiate production shipments for this OEM architectural design win in Q4.

On top of that, a pico projector light engine company is including one of our VX-based CSSPs in their new reference design. They expect to begin customer demonstrations during the third quarter.

In our last conference call, I stated that we initiated sampling of ArcticLink III VX during Q1 and expected to have all 13 variants of this new CSSP platform qualified and available to ship in production volume during Q3. I am very pleased to report that we received our first production live on July 23. To date, the silicon has passed all functional verification and necessary qualification tests, keeping us on our previously communicated schedule.

With 13 different versions of ArcticLink III VX, we are able to support all of the display interface standards that are common in the smartphone and tablet markets we are addressing. Included is a dual-display path VX VI version that simultaneously supports the native display and embedded pico projector light engine.

With our ArcticLink III VX engineering samples, we have initiated evaluation and design activity with a number of tier-one and tier-two smartphone and tablet companies around the world. We believe several of these engagements will lead to initial production shipments in Q4 of 2012.

With the enhanced functionality of our ArcticLink III VX platform family, we have been able to open discussions with potential, new silicon partners that we hope will result in new reference designs and OEM opportunities.

During our last conference call, I stated that we secured a new handset design using a smart connectivity CSSP that would move into production during the second half of 2012. We have received the initial production order for this design and should begin shipping towards the end of Q3. We hope to provide more details on this design when the customer introduces this new handset to the market early in Q4.

During the second quarter, we secured another new smart connectivity handset design. We expect to initiate production shipments to support this design in early Q1 of 2013.

Last quarter, I described our new Orion reference platform for Texas Instruments' Sitara on processor. This platform allows Sitara customers to design systems with secure and non-secure peripherals beyond what can be natively supported by the processor. End product examples include barcode scanners, GPS-enabled products, and thermal-imaging printers.

As a follow-on to Orion, we announced a new CSSP and reference platform called the BeagleBone Camera Cape for TI's Sitara AM 335x ARM cortex processor. This CSSP allows OEMs to integrate a non-USB image sensor, which saves the Sitara's processor's precious USB resources and lowers system power consumption by up to 150 milliwatts. You can read more about this platform in the press releases we issued last week.

Beyond the benefits that come with being a member of TI's ecosystem, the new camera cape reference platform allows us to expand our CSSPs into the realm of catalog solutions, addressing markets where product lifecycles are usually much longer than the high-volume, vertical markets, like smartphones and tablets. Our strategy for highly fragmented markets has been to cooperate with leading application supplier -- processor suppliers to develop reference platforms that include pre-programmed CSSPs. This allows the end customer to view our CSSP as a standard part and order it as a cataloged item.

With this catalog strategy, we can make an initial investment in the reference platform and avoid the operating expenses that are normally associated with each unique CSSP design win. Better leverage. Better profit margin.

Going forward, we are working on additional Sitara processor-based reference designs that we will talk about in future conference calls.

In our prior conference call, I confirmed we began sampling ArcticLink II CX in February. We are on schedule to receive our first CX production devices later this quarter.

The CX is the basis for our security initiative with Certivox. Certivox has an impressive, established customer base and is currently winning new customers with its frictionless software solutions, which should result in a significant increase in security for the internet.

The success in their software-based solutions is helping create interest with customers that require a level of security assurance that can only be obtained with a dedicated hardware solution; namely, commercial banking and certain applications that require citizens to connect with government resources. These markets are driving our joint project with Certivox. Together, we are refining our understanding of the leading customers' needs in these market segments.

This process will continue with more customer engagements throughout the next several quarters and will determine our schedule for prototyping, deployment, and production. We see this as a significant potential market and anticipate first production revenue at the end of 2013.

Let me take a moment to recap what I view as the important takeaways from this conference call.

With our two ArcticLink VX solution platform families, we can address the majority of mobile display and pico projection interface requirements. Based on customer forecasts, we believe we'll initiate production shipment on our second pico projector design win and several ArcticLink III VX design wins in Q4 of 2012.

We have secured two new smart connectivity design wins in the handset market. We expect to initiate production shipments on the first win late this quarter and the second in Q1 of 2013.

We have launched our catalog CSSP strategy as a member of the TI Sitar ecosystem with our camera cape reference platform. We have ongoing projects to develop new reference platforms and expand this strategy.

With the release of our ArcticLink II CX solution platform, we have substantially enhanced our capabilities in smart connectivity and security. We are excited about our close association with Certivox and look forward to providing you with some specifics about our activities there in future conference calls.

I will now turn it back over to Ralph and look forward to your questions following our Q3 guidance.

For the third quarter of 2012, we're forecasting new product revenue will be approximately $1.7 million, plus or minus 10%.

We anticipate increases in smartphone secure data cards, pico projector, and shipments to our mobile enterprise customers will be offset by a decline in broadband data card shipments. We are anticipating modest bookings for the aerospace test and instrumentation sectors and are estimating our mature product revenue will be approximately $2.3 million.

With this, we are forecasting total revenue will be approximately $4 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 Q3 and Q4 and impact our actual results significantly.

On a non-GAAP basis, we expect gross margin to be approximately 45%, plus or minus 3%. The gross margin reflects lower production levels, 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 $4.3 million, plus or minus $300,000.

Non-GAAP R&D expenses are forecasted to be approximately $1.9 million. The decline in engineering expenses is primarily due to a decline in third-party engineering expenses associated with new platform development costs.

Our Q3 non-GAAP SG&A expenses are forecasted to be approximately $2.4 million.

Other income and expense will be a charge of up to $60,000.

Our stock-based compensation expense during the third quarter is expected to increase to approximately $800,000. This increase is due to the timing of our annual employee stock option refresh grants and the fact that we are moving to a stock-based compensation program that uses a combination of options and RSUs.

At the midpoint of our guidance, our non-GAAP loss is expected to be approximately $0.06 per share.

We expect to use approximately $2 million in cash.

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

(Operator Instructions). Krishna Shankar, Roth Capital.

(technical difficulties) completing the design of the VX III and having all those 13 variations. Can you talk about the design win momentum now that you have all the variations out there and also how the new Kyocera phone is doing in the marketplace in terms of production, ramp, and interest?

Yes. Like I said in the prepared remarks, we have a lot of activity with tier-one and tier-two customers throughout the world, and we fully expect that several of these will go into production. We don't have enough definition that we can share publicly yet for a lot of reasons, but we are confident that we will move in that direction.

Regarding Kyocera, the phone has been out now for seven weeks, and it's doing quite well in the Japan market. Looking at like-period data, it's doing a little bit better than the DIGNO was, and they consider that to be a very successful launch.

And, given the design win and engagements at several customers, and I guess you mentioned there would be a smart connectivity customer ramp-up late in Q3 and in Q4, could new product revenues increase -- have a meaningful increase going into Q4? Can you talk about sort of what the outlook would be for Q4, even though I realize it's early?

Yes. We think that -- we expect that we should see an increase in new product revenue. We're not prepared to say how much yet. But this is what we have, frankly, been pointing to all year long with the introduction of VX. We're very encouraged by the reception we're seeing in the market. It will probably take a little bit of this quarter to get a definition of what that actually looks like, but we're confident that this will get us off the somewhat flat new product revenue that we've had all year long.

And, then, can you elaborate a little more on the two smart connectivity design wins you have? What exactly is the application and the nature of those two phone designs?

Krishna, I would love to, but, unfortunately, I can't elaborate more because it would get me in trouble with the customer. As soon as the customer does announce, we have been told we will be able to do a joint press announcement but not until they release their product.

Okay. Great. Thank you, and all the best.

Quinn Bolton, Needham & Company.

I just wanted to follow up on Krishna's question about the traction you're getting on the ArcticLink III VX. It sounds like you've got a number of engagements that are in place, with initial ramp scheduled for the fourth quarter. I would think, at this point, in sort of late July or early August, that most of those phones going into volume production in the fourth quarter have probably commenced engineering validation tests, if not device validation tests. So I would think that the hardware is locked down. Can you confirm whether you have solid design wins? And, obviously, I understand that you can't give a lot more color. But do you have those design wins in hand, or is this still really at the engagement level and you're still sort of doing design work?

Quinn, our methodology is, when we say a design win, that's when we have a firm production schedule in mind and a forecast. And I would term some of these as architectural wins. But I wouldn't call them design wins. We try and be cautious about what's a design win because, in this mobile market, things just change too fast.

I guess, from sort of -- it sounds like, then, that they're sort of architectural wins but not necessarily hard design -- I guess what I'm trying to get a sense of is -- to the extent if it's an architectural win, does it typically take longer than, say, three months to kind of go from that architectural win to volume production? That seems like a pretty short production cycle from design to volume ramp.

Well, first, some of the market segments that we're working in the design cycle is shorter than you may think. The ones that are longer than you may think -- these are in the evaluation mode.

I don't know, Brian. Do you want to expand on that a little bit?

I think the way to look at this is that, from the availability of our ArcticLink III VX, there's a timing that has to go on with that customer having a slot available in their engineering to actually look at the devices from both a bridge point of view and from the visual point of view. And, right now, we're at that stage where several of these customers now have silicon in hand. And it varies. If there's a bridge involved, then you could say that there's a good chance it's an architectural design win. If there's no bridge involved and it's just a visual sale, then we're going through the motions of the VEE calibration and working with their product management teams to see how much value that has for them. So it varies on what the need of the customer is. But I think, rest assured, there are several guys that have it in system on a board right now, and we're working through that process during this quarter. As Andy said, by the next call, I'm sure we're going to have a lot better picture of what Q4 is going to shake out with.

Okay. So it sounds like they're doing their evaluation work. And, especially in the case of a bridge functionality, they've sort of specified they need, say, and RGB, LVDS, or whatever the bridge functionality might be. So they've got that spec'd into the design, and then they're going through their evaluation on what specific bridge to use at this point.

The bridge definition is very clear cut from the beginning of the architecture. It's the impact that VEE and DPO have that take, frankly, quite a bit longer to process because we have to go through a calibration with them and then some integration into their software build. So, from the bridge point of view, it's pretty clear. From the VEE standpoint, that's the one that takes a little bit longer to work out with these guys.

Okay. Given that coming, is it fair to assume that perhaps some of the initial VX III designs that roll out are going to be more bridge functions with the full, say, bridge-plus visuals rolling out perhaps either later in the fourth quarter or more kind of into the first half of 2013?

Actually, it's a mix. We've been selling VEE an DPO for a couple years now. So some customers -- they know if they really like VEE, and they've been waiting for this new family. So I think we could see some production with those guys before we actually see the bridge because they've been looking at the technology for long enough. For guys that have been waiting for a bridge -- as you know, we've had to wait for this new family to come out to start addressing some of these new bridge requirements related to MIPI. So those guys have just now got silicon and are going through that process. You may see a VEE-only type solution to production before you actually see a bridge from us.

Okay.

Needless to say we have variants of all those out in customer hands right now.

Great. Thanks, Brian. A second question, Andy, just on a-- sort of a similar to Krishna's question on the new Urbano Progresso phone. Can you talk about sort of how you're seeing the demand for the PoP video? That certainly seemed to be a pico projector design win you were pretty excited about last quarter. You talked about demand continuing into the third quarter. I know these may be fairly short-lived-life products. So I'm kind of wondering -- how long do you see the demand for this pico projector lasting? And can you talk, potentially, if there might be sort of a second-generation version behind it to the extent that demand is pretty strong?

I would love to give you more color on Micron, but, right now, they have asked me to be pretty tight-lipped about it. So, they certainly have gone out with a viral approach, and we know that they have also done substantial improvements on their first-out software. There were some little problems that they had with the market that they have just recently solved with a recent software build. And they really would prefer that I don't talk much more than that about it.

Understood. The question quickly for Ralph -- you had mentioned that part of the gross margin improvement was the sale of previously written-down inventory. Is that a figure you can quantify for us? It looks like that probably goes away within the third quarter guide, just given the step down in the gross margin?

Yes. I won't quantify it for you, but you can assume it's more of a one-time because of the size. In the second quarter, it's more of a one-time event. We do sell inventory that we've had reserved previously but not at that level.

Okay. And does the third quarter -- you guys have sort of seen somewhere between $100,000 to $300,000 of inventory reserves over the past few quarters. I think June was towards the lower end of that range. Does the third quarter, September guidance, include perhaps a bit of a step up in those inventory reserves, or do you think it's roughly flattish at June quarter levels?

We've never broken it out. But our inventory reserves -- we're never planning for, obviously, big inventory reserves. The goal is to, obviously, use all the inventory we have. We've never broken it out, but usually, in any given quarter, there's a small amount that goes through. So you can make the assumption that we have a more normal amount going through in the third quarter.

Great. Okay. Thank you.

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

My first question -- I wanted to just quickly follow up on Brian's comments with respect to the timing of these AL III designs. And, if I understand correctly, you could see some of the display bridge designs before VEE. I'm just curious if you've got people designing a display bridge without VEE and curious if that understanding is correct.

Yes. There are some people that want to first get it on the board because it turns out our display interface function is a lower power than existing display functions. So we have that going on for us, and that is a very quick design-in.

One thing I might add is there are a lot of different bridging requirements, even in smartphones. For instance, there is a real need for a MIPI 2 to a MIPI 4 bridge, something that really was not obvious to us as little as a year ago. So there's certainly a lot of opportunity for bridge that enables us to sell up with a VEE and DPO.

Okay. And then, of the 13 flavors of the AL III VX that you've currently got in the market, are you seeing design activity or however you want to qualify it -- interest -- across the entire platform, or is there a certain use case that's getting more interest than others?

I would say that, certainly, in tablet market, we're seeing, obviously, high interest with the LVDS out. With the smartphone market, we see a very high interest with not only MIPI pass-through but this MIPI bridge I just explained in MIPI 2 to MIPI 4. But we do see interest across the board. Yes.

Okay. And the MIPI -- the pass-through configuration, that -- it would seem to me that market acceptance and market traction there would kind of be -- show critical mass and the idea that VEE was going to become a check-box item for manufacturers. Is that a good way of looking at that? And are you seeing traction in that kind of design configuration that gives you some encouragement along that line?

I think what I feel comfortable saying is that to echo what Brian said, and that is that we've had a lot of customers that have been waiting for this particular chip so that they can integrate VEE and DPO into their systems. So the people that were -- showed interest with us about a year and a half ago are still -- we're still very active with, and we now offer them silicon they can integrate into their system. I think that's the fairest thing to say.

The second OEM pico projector that you expect to ship in Q4 -- is that an AL III or AL II chip?

That is definitely an AL II. All of the standalone pico projector opportunities that we have seen today have -- actually, the processor is outputting RGB, and of course the light engine requires RGB. So that would be ArticLink II because we don't have that flavor for ArticLink III.

Okay. And are you seeing -- my first question was about the 13 flavors of AL III and the design interest. Based on your answer, should we then expect to see some AL III embedded pico projector phones, perhaps in 2013?

I would say that I would not expect to see that in -- oh, in 2013? Sure. I think that's very, very possible. Right now, our immediate opportunities are probably all the flavors, other than VX VI, although we do have VX VI opportunities. Most of our pico projection engagement currently is more of the standalone flavor, as, obviously, people are looking at -- is putting it into a smartphone a viable option or a cost-effective option.

Okay. During -- I think it was in the last couple weeks Qualcomm seemed to more or less withdraw its support for its own mirasol technology. Dose that have any impact one way or the other on your view of the market?

Not really. No. Not really.

Okay. Also during the quarter, you guys --

Brian, the reason I say that is mirasol was so far out that it certainly didn't impact anything that we are currently working on. So I don't see any impact at all.

And it does seem to consolidate the market on LCD and OLED, which you clearly do support.

Yes.

Okay. And, then, can you provide a little bit of color around the secondary offering you did during the quarter? If I backed out the $11.9 million that you raised on that offering, you would have ended the quarter with about $15 million of cash, just as the burn rate is starting to go down. So, can you just give a little bit of color on your logic for raising some new money during the quarter?

Well, I think our logic was really simple. You know, the concern that we have as a public company is making sure that we're never -- we never look risky to suppliers, customers, competitors, whoever is out there. So we've always said we'd be very opportunistic about raising money when we felt we needed it. We were in a similar situation like we were in 2009, where the mature business had come down. As you know, that supplies a good chunk of our cash flow. So mature has come down and leveled off. The timing just seemed right. We didn't raise a lot. There wasn't huge dilution out there. But we got the balance sheet insurance we needed, and it also gave us some more flexibility, because one of the big things we're always looking for is the partnerships and potential to (technical difficulties) out there. We wanted to make sure we had that flexibility on our balance sheet to be able to go out and pursue those opportunities.

Okay. I think that -- that's about all I have right now. Thanks very much.

Bob West, NI Technical Research.

Thanks, Andy, for taking the call, and congratulations on a very encouraging review of your new product initiatives.

I had a follow-up question on the pico projectors. I want to begin with there. And that is, in the future, looking to the future, do you see a roadmap for an RGB to RGB in the AL III version so that the higher resolution is a requirement for either standalone or for embedded pico projectors going forward?

Yes, Bob. So, doing RGB and RGB in ArticLink III, we did not architect the chip to do that, because of the huge number of pins that would be required to do that on both ends. We really see the more likely scenario, and what we're being told that video output from processors -- we'll see more of a MIPI to RGB, which ArticLink III already does. So, while the light engine may stay at an RGB input, the outputs for some of the new processors that will go into future, even standalone, pico projectors will probably veer away from RGB. And that will enable us to intercept the right resolution.

With existing --

Right.

-- AL III VX. Good. Okay.

That's right. That would actually be just VX 5 of the ArticLink III family. Right.

Okay. Thank you for that insight and clarification.

Recently you put out a press release on DragonBoard references on for Qualcomm Snapdragon-based tablets and were at their recent Uplinq conference. What can you tell us about that conference and the response there from the prospective customers?

I'll take that question. I was at the Uplinq conference, and Qualcomm was demonstrating that [daughter] card that we developed for DragonBoard in their Snapdragon experience zone. When I was there, obviously, it got good reviews for the visual enhancement side. We were also demonstrating the bridge capability.

I think one thing to note is that the push on the DragonBoard is really to go after adjacent mobile enterprise type markets for Qualcomm; it's not really their push into smartphones and consumer-like tablets. So, we're actually pretty excited about that push for them, because I think it aligns well with the type of thing that we're doing with TI, doing these reference designs to go after that level of enterprise market. So, that's our hope in that. There seemed to be quite a bit of interest, and we're going to continue to work with Qualcomm in that area.

Thank you for that insight. Kind of a similar tablet question. Last quarter, I asked about the Notion Ink, the Indian company and their very innovative Adam II tablet. And the response was that -- I believe that it was that you were aware of that and working with them, but they were waiting on the AL III VX. Can you give us an update on this project?

Yeah, I think the update is that is now a confirmed architectural win. I didn't include this in the prepared comments because it's not part of our forecast. It's not -- we don't have a production schedule for them, but this is laid out on their board. They continue to be very excited about it, as you have read already from their CEO, who publicly stated that.

The dual-SIM inter-processor communication PSV that you recently put out a press release on -- I was going to ask -- in the PCB form, and the -- excuse me -- the proven system block form, does that work on all your connectivity platforms -- you know, your ArticLink, your PolarPro, PolarPro II, and CX?

The inter-processor communication -- I think a solution brief that we put out was basically a high-level description of different ways that we can connect (inaudible) processors that don't communicate with each other on these smartphones. And I think you're probably starting to see more press about this, particularly in China, where they have this dual-SIM, dual-modem approach. So, there's a different variants of solutions that we can develop for that, from very low-end bit rate, low bit-rate, to higher-end, high bit-rate applications. The platforms that we would use for those are ones that support the connectivity from us today that are non VX-based, so previously families, like Eclipse II and PolarPro, PolarPro II can all play into that. In fact, ArticLink I could, in some use cases.

Okay. So that answers the question, I guess. It doesn't work with -- in conjunction with the VX family, but it's with the connectivity family. It will work across those platforms?

Yes, that's correct, it will work across all those connectivity platforms. Basically, any platform of ours that is non-VEE related and has fabric is a candidate for this type of architecture.

How would you characterize your competitive advantage in the dual-SIM offering area? Does this look like you might have a pretty attractive, from a competitive standpoint, offering there?

I think this is something that we're just getting into right now, Bob, so it's hard to quantify that you for. I'd say that there are a lot of different architectures that these phone guys are deploying with this dual-SIMM approach. It's definitely not mainstream, so there aren't a lot of ASSPs that actually do this type of functionality. So I think just the fact that we have the flexibility with our fabric and can customize these pretty quick to market gives us an advantage. But it's hard to quantify that at this point, because we're just in the beginning phases of this.

Thank you for that. I know that you can see more and more press releases dealing with this -- with these dual-connectivity handsets. And that made me wonder if this could be a robust market for QuickLogic.

You know, what we are trying to do is to do more of the smart connectivity type solutions and marketing out there. And I'm sure that you can appreciate that some of the marketing that we do do for these doesn't necessarily have immediate revenue impact that you know they're going to ask us about on the call. A lot of these are to get these ideas out to customers so that we can start having these architecture conversations. So we are thinking that there's something there with this inter-processor communication, and I think in future calls we can advise on progress in that area.

Turning to the same subject area generally but to the CX platform, are you seeing and are actively working in potential CX reference designs for the smartphone marketplace? Obviously, completely different than the Certivox.

Right. The CX is -- as we've described in previous conference calls, it's a pretty complex chip, and it's probably a little too complex to go in as a companion device in the smartphone. So we don't necessarily see that, although there are some things that we're exploring that we're not prepared to talk about yet. But the main thrust of CX now really in security, since there is dedicated security blocks in it. And, like I said in previous calls, it's a perfect silicon platform to implement a hardware version of the Certivox software.

So that leads me to Sitara ecosystem and your catalog strategy. Will there be a role for the CX and some future requirements in the potential opportunities in the Sitara ecosystem?

Bob, that's something we're looking at right now and talking with TI about, trying to find the right use case and application for that. Hopefully there is, but there's nothing concrete we can say at this time.

Okay. Well, I guess what I've been indirectly trying to explore is -- setting Certivox aside, when might we expect to see some CX product revenue? And could it be sooner than the end of CY '13?

I don't think I'm prepared to talk about CX revenue just yet. Like I said, the production samples or production units are just coming out of fab towards the end of this quarter, so I would -- we'll report on that as it comes along.

Okay. Well, listen, I think I'll close out with that. But thanks very much, and congratulations on getting the VX out and CX production ready product out very much on your schedule. So congratulations on that, and best wishes.

Quinn Bolton from Needham & Company.

Ralph, just wanted to ask you a quick follow-up modeling question. With the offering in the second quarter, my guess is you only have a partial effect of the share count. Can you give us a sense where you see the share count settling out for the third quarter?

It's probably in the range, on a basic level, assuming, as our forecast, we have a loss, it's in the range of 44.5 million shares. Fully diluted, it's probably not higher than 47 million. But I think, for your model, it's probably about 44.5 million.

Perfect. Thank you.

I show no further questions. I would now like to turn the call back over to Andy Pease for any closing remarks.

Well, I want to thank everybody that attended the call and thank you for your continued interest and support.

Our Q3 2012 earnings conference call is scheduled for October 30, 2012, and we'll look forward to talking to you then. Bye.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.