Quicklogic Corp (QUIK) 2018 Q3 法說會逐字稿

Hello, and welcome to QuickLogic third quarter 2018 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

And now I'd like to introduce your host for today's call, Moriah Shilton. You may begin.

Thank you, Tawanda. Welcome, everyone, and thank you for joining us today for QuickLogic's third quarter fiscal 2018 results conference call. With us today are Brian Faith, President and Chief Executive Officer; and Dr. Sue Cheung, Chief Financial Officer.

Before we begin, I will read a short safe harbor statement. Some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties, including, but not limited to, stated expectations relating to revenue from new and mature products, statements pertaining to QuickLogic's future stock price and performance, design activity and its ability to convert new; design opportunities into production shipments; timing and market acceptance of its customers' products; schedule changes and projected production start dates that could impact the timing of shipments; the company's future evaluation systems; broadening the company's ecosystem partners; expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash. These statements should be considered in conjunction with the cautionary warnings that appear in QuickLogic's SEC filings. For additional information, please refer to the company's SEC filings posted on its website and the SEC's website.

Investors are cautioned that all forward-looking statements in this call involve risks and uncertainties and that future events may differ materially from the statements made. For more detail on these risks, uncertainties and assumptions, please refer to those discussed under the heading, Risk Factors, in the annual report on Form 10-K for the fiscal year ended December 31, 2017, the company filed with the SEC on March 9, 2018. These forward-looking statements are made as of today, the date of the conference call, and management undertakes no obligation to revise or publicly release any revisions of the forward-looking statements in light of any new information or future events.

Please note, QuickLogic uses its website, the company blog, QuickLogic HotSpot, its corporate Twitter account Facebook page and LinkedIn page as channels of distribution of information about its products, its planned financial and other announcements, its attendance at upcoming investor and industry conferences and other matters. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. This conference call is open to all and is being webcast live.

We will start today's call with the company's strategic update from QuickLogic's CEO, Brian Faith; then CFO, Sue Cheung, will provide financial results and guidance. Brian will deliver some closing remarks and then open the call to questions.

At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian.

Thank you, Moriah, and thank you all for joining our Q3 2018 conference call. I have quite a bit of exciting news to share with you today that bolsters our outlook for 2019 and beyond.

Since our last conference call, we have expanded the scope and value of our MOU with a leading Japanese smartphone company. We have broadened our involvement with the leading consumer electronics company we mentioned on our last conference call that has designed in our EOS S3 in an AC-powered, always-on, always-listening application. We have initiated a new EOS S3 engagement with a leading consumer goods company for a high-volume AC-powered, always-on, always-listening application in yet another new market sector for QuickLogic. And I am very proud to announce we are forecasting material QuickAI revenue for Q4 2018.

An important point for QuickLogic that I want to highlight is the fact we are seeing mounting evidence of a broad industry shift from push-to-talk to always-on, always-listening voice interfaces. Our recent design wins and engagement activities suggest this trend is in the process of extending into a very wide range of end markets, many of which are totally new markets for QuickLogic. This shift to always-on, always-listening is important for QuickLogic because there is a focus on minimizing the power consumption of the interface, and that is where our multicore EOS S3 SoC has a clear competitive advantage.

We are even seeing a focus to minimize power consumption in AC-powered products that are obviously not worried about battery life but need to comply with new energy standards that limit standby or vampire power consumption. This was the driver for the leading consumer electronics company that selected our EOS S3 for new products that will be shown in a couple of months at CES, and it is also the driver for our engagement with the leading consumer goods company.

The shift to always-on, always-listening is also punctuated by the release of Amazon's new Close Talk certification specification for always-listening products. Prior to the release of this specification, all of the Alexa-compliant hearable and wearable devices in the market were push-to-talk. There are a variety of good reasons why Amazon took time and care in drafting its new Close Talk specification, but they can be boiled down to ensuring the quality of the Alexa experience across a vast number of third-party devices that's consistent with the consumer expectations that Amazon has carefully fostered with its smart speakers.

After implementing a software revision to accommodate a new requirement, we tested our EOS S3 against the Close Talk certification test with 1-mic and 2-mic configurations. Both configurations passed the test. With the specification released and the assurance of our internal test results, our hearable customers are implementing our latest software and modifying their designs as necessary to ensure compliance.

One of our larger customers is close to completing that cycle and will submit its hearable device to Amazon this month for certification. Our other customers are in various stages of internal testing and design modification. Based on what we know today, we expect the first of these products to move into production late this quarter and the balance during Q1 2019. While these delays impact our Q4 revenue outlook by more than $0.5 million, we now have a much clearer road map to revenue than we did 3 months ago.

We have made solid progress on all fronts of our ArcticPro embedded FGPA IP initiative. On the foundry side of the equation, we completed our qualification for GLOBALFOUNDRIES' 22-nanometer FD-SOI fabrication process that is marketed as 22FDX. This means we have 3 process nodes qualified at GLOBALFOUNDRIES and that QuickLogic is the only source for embedded FGPA IP that is qualified on a FD-SOI process. This is important because the GLOBALFOUNDRIES' 22FDX process is optimized for low power and low cost and is being targeted by numerous semiconductor and systems companies for new SoC and ASIC designs. These include several of our ongoing ArcticPro eFPGA engagements and the RISC-V Parallel Ultra-Low Power, or PULP IC, from ETH Zurich, which some of our customer engagements intend to use as a platform to evaluate our ArcticPro embedded FGPA IP.

In addition to GLOBALFOUNDRIES, we also have a fabrication process qualified at SMIC and TSMC and have completed the porting to support a second and more advanced fabrication node at TSMC.

On the customer side of the equation, the new go-to-market strategy we introduced earlier this year continues to break the Catch-22 loops that were stalling our engagements. The short story is semiconductor companies wanted to run test chip experiments with our embedded FGPA technology before committing a significant amount of money to acquire an IP license for a new SoC design.

To accommodate this and move the engagements forward, we created a Master Technology License Agreement or MTLA. This solved 2 problems. First, it enabled semiconductor companies and OEMs to build test chips using our ArcticPro embedded FGPA IP for only a modest cash investment. This provides them an opportunity to evaluate and quantify the benefits of our embedded FGPA IP ahead of making a commitment to a new SoC design. Second, the MTLA defines the terms and conditions of follow-on IP licenses. This means the vast majority of the negotiations and legal work is accomplished within the MTLA and the follow-on license agreements for targeted SoCs amount to only a couple pages that can be executed quickly without disrupting design flow. This is often critical since an SoC design group that wants to use the FPGA may otherwise decide it does not have the time to go through tedious corporate-level approvals and license negotiations.

This strategy also enhances our position with large semiconductor companies. With an MTLA in place and test chip in place, SoC design groups throughout large semiconductor companies are exposed to the availability of our solution and can realistically consider it just as they would other IP blocks that are typically included in SoC designs.

We signed our first 2 MTLAs with ETH Zurich and C-SKY, which was subsequently acquired by Alibaba. In line with the outlook we shared last quarter, we are on pace to sign additional MTLAs with semiconductor companies this quarter. C-SKY and the IC R&D team at Alibaba's Discovery, Adventure, Momentum and Outlook Academy, or DAMO, are the cornerstones of Alibaba's new semiconductor initiative called Pingtou Ge Semiconductor. We believe our MTLA with C-SKY will drive multiple SoC licenses beginning in 2019.

ETH Zurich selected our ArcticPro embedded FPGA for use in its RISC-V PULP platform that will be fabricated using GLOBALFOUNDRIES' 22FDX fabrication process. ETH is currently targeting the tape-out for its PULP platform later this quarter and stated it will develop a number of compelling use cases that highlight the benefits of our embedded FPGA IP. The PULP platform will give our potential IP customers the ability to evaluate the power savings and performance improvements that ArcticPro embedded FPGA hardware implementations deliver relative to software solutions running on an integrated RISC-V processor. This is critical for many use cases where designs must maintain the flexibility needed to adapt to new algorithms yet still be optimized for performance in ultra-low power consumption. This is a very common use case for discrete FPGAs today.

As we move now to EOS S3, I am proud to announce we shipped record EOS S3 revenue in Q3 and continued to win some very impressive high-volume designs. However, we also continued to deal with one frustration. There was a shift in priorities at the Tier 1 smartphone customer that we've been working with for quite some time on 3 product designs.

As I reported in our last conference call, our EOS S3 was 1 of 2 competing ICs for the high-volume consumer wearable device the customer was targeting to have production ready by the end of 2018. However, due to a new wearable product that were recently introduced by our customer's competition, the consumer wearable design was pulled back for review, and the customer has dedicated 100% of its resources to reevaluating the design. As it stands today, our EOS S3 remains 1 of 2 solutions in the running for this design. Working in our favor is the fact EOS S3 has lower power consumption, a smaller package size and is lower cost than our competition. While battery life, PCB space and cost are clearly important, the customer is considering adding features that would require it to use the competitive solution that has more on-chip memory. Due to the customer's all-hands-on-deck focus on the consumer wearable, final qualification and testing for our design win in the other wearable device and the EOS S3 evaluation for a new hearable device have not moved forward since our last conference call.

Last May, NAVER LABS released its first consumer product, the AKI smartwatch, which uses our EOS S3 to enable its always-on, always-listening voice interface. NAVER LABS recently received notice from a supplier that a key component used in AKI will be discontinued. As a result, NAVER LABS is faced with the choice of redesigning AKI, making a lifetime buy of the component or a combination of both options. We have not received notification from NAVER LABS yet as to what it will do. Due to this, we are modeling only modest shipments to NAVER this quarter for AKI.

While this is clearly an unexpected setback, we developed a close working relationship with NAVER LABS during the AKI development cycle that extends to its senior executives. Through this and the design experience and IP that NAVER LABS have developed while working on AKI, our EOS S3 SoC has been selected for a new wearable design that is targeted for release in 2019.

EEBBK had a very successful launch of its 2 new educational tablets that use our EOS S3 to enable easy and intuitive voice communications. As is the case for U.S. suppliers, Q3 is a seasonally strong quarter for educational products in China. Due to this, we are anticipating a seasonal decline in Q4 followed by a seasonally stronger demand in Q1. We have an ongoing engagement with EEBBK for a new high-volume product that is scheduled for release in 2019.

Last quarter I announced that we signed an MOU with a large Japanese smartphone company. Since then we have expanded the scope and value of the agreement significantly. With this expansion, the OEM has agreed to standardize on our EOS S3 SoC for all of its MCU applications in smartphones, feature phones and IoT products. The selection of EOS S3 as a standard to be used across a broad scope of products by a major OEM is a big and unprecedented deal for QuickLogic.

Last quarter I mentioned a very significant design win with a leading consumer electronics company. While we continue to operate under a strict NDA with this company, I can provide you additional color I committed to have this quarter. The design is in a new consumer electronics product class for QuickLogic. The core platform -- the core design is a platform that will be used by multiple OEMs. In total, there could be 10 or more models from various OEMs that use this platform design or an integrated version of the platform. The lead OEM is integrating the design into 4 initial models that we believe will be shown at CES. Higher-volume models are expected to have values that range from low to mid 7 figures. We expect to initiate production shipments for the first models introduced at CES in late Q1 2019, with volume ramping in subsequent quarters. And we are in the early stages of a new design opportunity with this OEM that originated from the platform design.

In addition to our recent success in consumer electronics, we are in the early stages of an EOS S3 engagement with a leading consumer goods OEM. This application represents yet another totally new product category for QuickLogic and has low to mid-7-figure annual potential. If we are successful in winning the design, we expect it will move into production during the first half of 2019. We are also working closely with this company as it evaluates EOS S3 for a new platform design that targets a variety of high-volume consumer products, all of which would represent new product categories for QuickLogic.

Before I turn the call over to Sue, I have some very exciting QuickAI news to share. I'm proud to announce that we anticipate reporting material QuickAI revenue in the fourth quarter. In looking towards the future, we believe this first QuickAI design win will drive low 7-figure revenue in 2019. In addition to this, we already have several other QuickAI engagements that have the aggregate potential to drive low to mid-7-figure revenue in 2019 and have product life cycles that extend for years beyond that. We have opened a new engineering office in San Diego to support these engagements and other QuickAI development activities.

I realize that given the very rapid move from introduction to material revenue leaves you with many questions, and I'm as anxious to provide those answers as you are to hear them. However, we are not quite ready to tip our hand to the competition. Our plan is to provide more color about QuickAI later this quarter, and with that, illustrate how our EOS S3 SoC plays a very important role in the high-value integrated solution.

I would now like to turn the call over to Sue for discussion of the financials. Sue?

Thank you, Brian. Good afternoon and thanks to everyone for joining us today. Please note we are reporting our non-GAAP results. You may refer to the press release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR Web page that provides current and historical non-GAAP data.

For the third quarter of 2018, total revenue was $3.5 million and within our guidance range. Our new product revenue was $1.5 million and the mature product revenue was $2 million. New product revenue was below our expectations due to delays associated with the release of the Amazon specification. And mature project revenue was above our expectations due to higher-than-usual seasonal demand due to our continued success in diversifying our customer base. We had 4 customers with greater than 10% of total revenue in the third quarter.

Our Q3 2018 gross margin was 50.5% and within our forecasted range. Operating expenses for Q3 rounded up to $4.5 million and were within our forecasted range. R&D expenses were $2.2 million and SG&A expenses were $2.2 million. R&D expenses were lower than anticipated due to the timing of certain engineering projects.

The net total for other income expense and taxes in Q3 2018 was a $33,000 charge, which was below our forecast due to foreign currency exchange fluctuations. Net loss was $2.7 million or $0.03 per share, which was within our forecasted range.

Net cash usage during the third quarter was $1.6 million, significantly below our expectations. The lower-than-expected cash usage was driven mostly by a large decrease in accounts receivable, which was attributable to the timing of shipments in Q2 and Q3 that more than offset a decline in our accounts payable. Cash usage also benefited from a $120,000 decrease in inventory net of the reserves taken during the quarter.

In September we entered into a new loan agreement with Heritage Bank of Commerce for a $9 million revolving line of credit. This credit facility increased our access to working capital, extends the term for 2 years and replaces the prior $6 million credit facility with Silicon Valley Bank. As we noted on our balance sheet, we have borrowed $9 million from this new facility, which illustrates to our customers that we have the capital in hand to support their orders. We're confident that Heritage Bank is the right partner to support our future working capital needs as our revenue grows.

Turning to the fourth quarter 2018 outlook, our revenue guidance for Q4 is approximately $3.5 million plus or minus 10%. Total revenue is expected to become priced out approximately $2 million of new product revenue and $1.5 million of mature product revenue. The sequential increase in new product revenue is expected to be driven mostly by higher EOS S3 revenue, which includes a material revenue contribution from QuickAI that more than offset the anticipated decrease in Display Bridge revenue.

On a non-GAAP basis, we expect our gross margin to be approximately 58% plus or minus 3%. We're forecasting non-GAAP operating expenses at approximately $4.9 million plus or minus $300,000. We expect our non-GAAP R&D expenses to be approximately $2.6 million and non-GAAP SG&A expenses to be approximately $2.3 million. The sequential increase in R&D expenses is attributable to higher forecasted costs associated with our embedded FPGA and a QuickAI initiative.

We expect our other income expense and taxes will be a charge of approximately $60,000. At the midpoint of our forecast, our non-GAAP loss is expected to be approximately $3 million or $0.03 per share. As was the case in prior quarters, the main difference between our GAAP to non-GAAP results is our stock-based compensation expense, which we expect to be approximately $480,000 for the fourth quarter.

In Q4 we expect to use between $3.5 million and $4 million in cash. The anticipated sequential increase in cash usage is mostly attributable to increased R&D expenses and the timing of working capital requirements.

With that, let me now turn the call back over to Brian for his closing remarks.

Thank you, Sue. Before opening the call for Q&A, I want to take a moment to highlight what I think are some important points for our investors to take away from this conference call. The MTLA strategy that we introduced earlier this year to accelerate the adoption of our ArcticPro embedded FPGA IP is breaking the Catch-22 loops that were stalling our license engagements. We signed 2 MTLAs earlier this year and expect to sign several more this quarter. We believe we will start to see IP license agreements targeting specific SoCs beginning in Q1 2019.

We are seeing mounting evidence that major OEMs are moving away from push-to-talk technology and adopting always-on, always-listening voice interfaces. This trend has led to increased interest in our EOS S3 SoC from OEMs in a wide variety of end markets. Amazon has released its new Close Talk certification for always-on, always-listening products. We have numerous EOS S3 customers that have been waiting for this release and are now adapting to the new requirements that will enable them to brand their products as Alexa-enabled. We expect the first of these products to move into production late this quarter and the balance during Q1 2019.

We have significantly expanded the scope and value of our MOU with a major Japanese smartphone OEM. With this, the OEM has agreed to standardize on our EOS S3 SoC in all of its MCU designs and smartphones, feature phones and IoT products. We expect the first smartphone to be released during the spring of 2019.

Beyond mobile applications where our EOS S3 is often selected to optimize battery life, we are winning designs in AC-powered products that target compliance with new standby power requirements. In these applications, the ultra-low power and the ease of using our EOS S3 are obvious benefits.

More subtle, though, is the multicore architecture that includes embedded FPGA. In these applications, the embedded FPGA provides the flexibility needed for platform designs that must interface with multiple end products and the ability to reduce the chip count of designs by absorbing functions in the eFPGA that would otherwise require external ICs.

We have won a major EOS S3 platform design with a leading consumer electronics company that represents a totally new market category for QuickLogic. We expect the first 4 products using an integrated version of the platform to be shown at CES in January. Following that, we expect multiple OEMs to introduce a total of 10 or more new products using the platform design. The higher-volume products have low to mid-7-figure potential for QuickLogic.

We are engaged with a leading consumer goods company for a high-volume AC-powered design in another new market category for QuickLogic. If we are successful, we expect this design to go into production during the first half of 2019.

To say QuickAI is being well received would be an understatement. We expect to report material QuickAI revenue in Q4, which is several quarters ahead of our original forecast. QuickAI is a high-value integrated solution that brings EOS S3 into a vast number of new markets with product life cycles that typically run for many years. I am looking forward to providing more color about QuickAI later this quarter. And with that, I think you will appreciate its potential to deliver significant revenue in 2019 and beyond.

At the bottom line, we believe our growth strategy for 2019 is sound and bolstered by our recent successes. We also believe we are set to enter next year with far less dependence on single designs, single customers and on products that require third-party qualifications.

Operator, I would now like to turn the call over for questions.

(Operator Instructions) Our first question comes from Gary Mobley with Benchmark.

I want to start out asking about QuickAI. And I know you're not going to share a lot of details with respect to the type of customer or whatever you would give to hint to the customer. But I'm wondering if the revenue that you're generating from this engagement really is just NREs and below 7 digits, millions of dollars in revenue from QuickAI do you expect in 2018? Is that in the bag, so to speak, and related to this early engagement?

So firstly, it is not NRE. It is product revenue. And to your second question, this particular company has a broad set of markets and applications that they're targeting. They've been exploring how they can use AI as a key element of these products for quite some time now, so I think there's a confluence of events for us where we've come with a solution that has value and integration. They've been looking at how they can deploy AI in an easy-to-use way. And they have end demand for their products, so that confluence of events has sort of led to today. And it will be -- for next year it will be diversified across several different products with this company. When you say is it -- I think you said is it in the bag or in hand, it's -- we don't have POs that cover all of next year, but we have a good relationship with this company, and they have traction. And I think that the combination of that gives us the confidence to give that outlook for next year.

Okay. With respect to the R&D effort for this project, why San Diego?

That's a good question. There's a huge software component to our solution now as we've moved into processing not just sensors but microphones, and AI is yet a different level of complexity. And when we looked at where a lot of the innovation is happening in AI in the world today, it's typically a lot of invested money in China and in the U.S. And there's a lot of companies that are developing endpoint AI products in the U.S. And so we wanted for this type of initiative to have an R&D team that was strong in embedded software, strong in AI and very close to a lot of what we believe is going to be not just the R&D teams within QuickLogic that are executing on this, but also our customers.

And so if you look at San Diego, it's an hour flight from the Bay Area. They've got a lot of good software and embedded software engineers down there. And the gentleman that we've hired to lead that office for us actually has a Ph. D. in AI, of all things. So when you look at that combination, it's kind of a no-brainer.

Our next question comes from the line of Sujeeva Desilva with Roth Capital.

So thanks for guiding the fourth quarter, including the cash usage. Do you think that cash usage level will be steady, or will it increase as you have to build inventory for some of the customers you expect to ramp in the 2019 time frame?

Hi, Sujeeva, it's Sue. Yes, you're right. So as we ramp up the inventory, the cash burn will increase. But we can't see that average out, as that amount is $3 million, plus or minus at the current revenue level.

Sujeeva, let me just add on top of that because your question is related to inventory. And I think one of the things that we want to, obviously, manage here is the build of that inventory, where we keep it in terms of WIP versus finished good to make sure that we do not hinder the ramp that we're anticipating with our customers. If you look at the inventory line that we have, a lot of that is actually kept in WIP, which takes care of the long-lead-time items going through foundry. The short lead time for us is a few weeks to go through assembly, and that's where we can pick the package and how it actually goes to market. So in total, right now I think our inventory is well positioned to cover probably the first $10 million worth or so of this revenue, and we're coming in a good position right now for that.

Thanks for that data point. It's helpful. And then also QuickAI -- obviously, a lot of interest here. I'm just curious. I thought this would be a longer-cycle product, given it sounds more complex, yet you seem to be turning it around very quickly. So I'm curious how that is happening with the engagements relative to transitional engagements. And also, is there a geographic customer interest pattern you're finding for QuickAI out of the gate?

Yes. So a few questions there to answer. Firstly, I do think there was a lot of pent-up demand for bringing AI into a collection of customers that maybe don't have so much PCB design expertise, harbor design expertise and embedded software. So the fact that our product that we're bringing to market integrates a lot of that work for the customer makes it very easy for them to use. So the fact that they were already looking for some time on how to bring AI to market makes it a faster cycle for us. I think we'll see other customers that fall into that category as well in the near term. I do think that there's going to be a lot of the classic industrial IoT-type customers that do have longer time to develop, but we're trying to prioritize the ones that are already committed to some form of AI and are just looking for a solution to use. That's how we're prioritizing.

To your question about geographies, we're being very purposeful about how we roll this out in terms of go to market. So we are focusing on areas where there's a lot of sort of industrial IoT products being developed that want to deploy AI. So Europe, North America, Japan and Korea first. After that, we'll start to spend more time rolling that out in geographies beyond what I just said.

And then last question here. The licensing is starting here for the embedded FPGA. What's the flow of additional licensing revenue? How would you characterize sort of the milestones for the MTLA customers and the time frame, just to understand what would the progression be for these guys?

So from an MTLA integration into a test chip and getting test chip back and vetting those use cases is probably on the order of around 6 months because of the cycle times of a test chip. There are cases where I think we're compressing that cycle by doing things at ETH where their test chips can be back in early Q1, and so customers that are using that as an evaluation can use that and make a decision sooner without doing their own test chip.

And then there's other folks that we've been engaged within the funnel for months, and in some cases customers that I think may not necessarily have to go through that whole test chip in order to sign a deal, which is why we're talking about in Q1 a time frame for doing actual licenses for revenue.

(Operator Instructions) Our next question comes from the line of Richard Shannon with Craig-Hallum.

Let me – who shall open the last topic here of MTLAs? I'm going to ask a question before following up on the last statements you just made, Brian. I think you said you expected a number of MTLAs to be signed in the fourth quarter. Did I catch that correctly? And can you give us any more detail on the magnitude of those?

Yes, we do expect to sign several this quarter. In terms of magnitude, you're talking about number or dollars?

Yes, both. Any way you can quantify either would be great.

So I'd say it's somewhere between 1 and 5. I don't know exactly, based on the time frame of decision-making for these companies, but it's in that -- you know, fits on one hand. In terms of dollar value, I'd say dollar values for the MTLAs is not going to be a huge driver. We try to make that a very frictionless process for the company to get hold of the technology and understand its value. In terms of what we think those could translate into in actual real license revenue, that's probably north of $1 million in aggregate just for those handful.

Okay. And did I hear saying correctly, based on the question of the prior caller, that those were -- the full-on license revenues could happen in the first quarter?

Yes. Some of them could.

Okay, perfect. That's very helpful. And sorry for the random sequence of questions here. I've got a question on the fourth quarter guidance here. I think, Sue, you talked about growth in new product sales. Did I hear you correctly that some of this is coming from QuickAI? I wonder if you can characterize how the other, the remainder of growth in the new product category specifically, S3 revenues from any of the Bluetooth customers who are going through Amazon certification?

Okay. So it is mainly driven by EOS S3, so QuickAI is a part of those EOS categories. Some of those -- so that's the majority part of it, QuickAI and EOS S3. And the other part will be driven by Bluetooth, the hearable thing that qualifies for Amazon specs.

Okay, that is helpful. Let's see, a couple more questions. Actually, it was Sue. I'll go to another one for you on the R&D. I think you talked about it being in the level of, I think, $2.6 million pro forma for the fourth quarter. How should we expect that to transition into 2019?

So expect that's -- it's the range, I would say, for R&D is going to stay at about $2.6 million or $2.8 million per quarter on average.

Okay, that's helpful. Brad, maybe a couple of questions for you. I think in your prepared remarks -- hopefully, I caught this correctly, as I think I got on the call a bit late -- but I think you're referring to the Tier 1 smartphone OEM with which you had one wearable design win and were engaged in some others. Is that the OEM that you're talking about that has shifted priorities and you're kind of on hold there? Is that accurate?

Yes, it's that same Japan smartphone OEM, correct.

Okay, so any visibility on when that decision could be made, or do you just kind of consider that on hold for the time being?

I'm hopeful that they'll make that this quarter because I know they had originally targeted to have the first consumer one done by the end of this quarter. I'm not sure what point you came in on the call, but I also talked about the fact that there was another product in the market that sort of caused them to have pause and go back and look at their whole planning process. So I'm hopeful they'll have the decision by the end of this quarter, but I don't know for sure.

Okay, that's fair enough. Let's see here, 1 or 2 last questions. Brian, did I hear you say that you've got a second process at TSMC that you're qualified on? If so, can you characterize it like the node or what applications it might target?

We did finish support for another process node at TSMC, and we'll be coming out with a press release shortly that will give the details about that. So I'd rather not do it on the call today. I will make sure that those details are covered in the PR.

Okay, perfect. We'll look forward to that. My last question before I'd better jump out of line, last quarter you talked about the hope and expectation of 50% sales growth for next year. I didn't hear anything on this call. Is that something you're still supporting, or is it too difficult to support right now from your visibility?

No, I'm absolutely still supporting it. That's why I used the word bolstered in my opening and closing remarks. If you look back at all of the diversification we've had in the sales funnel and the wins, the concrete wins with OEMs that are very large, the expansion of the MOU, all of those -- and then now you layer in this sort of sooner QuickAI revenue than we had originally anticipated -- all of that, I think, just gives us more confidence in that number for next year.

Okay, just want to make sure because it sounds like you've got some great progress, particularly in these platform wins. It sounded like it. I just want to make sure. That's all the questions for me. Thank you.

Our next question comes from the line of Rick Neaton with Rivershore Investments.

Can you provide any more color on the ASPs for QuickAI revenue that you're expecting in the near term?

Yes, I think we'll -- stay tuned for later this quarter when we really start to articulate a lot more detail about this whole thing. I've been trying to hold back a little bit for competitive reasons on this call. But just so that you're all aware, for the QuickAI, the ASP should be in the mid-double-digit range, which is significantly higher than just EOS S3 into a consumer product.

Great, thank you. Last quarter you stated that you had actual license revenue opportunities at ETH Zurich for your work on the PULP platform there at the 22FDX node. Is that still the case today?

It is. And just to clarify, it's not with ETH themselves because they're a research university. But it's from other companies that have or intend to commercialize the developments that ETH does do. And from those, yes, we do anticipate license revenue from those entities that are watching and/or working very closely with ETH Zurich.

Okay. You told the prior analyst that you're still supporting and you still feel confident in greater than 50% revenue growth in 2019 versus this year. Is that being bolstered by the higher ASPs and the higher opportunities in revenue from QuickAI?

QuickAI certainly helps it because of the, I think, the value that we're bringing into ASPs of that solution. That's one. The second is just, again, if you go back and you do a snapshot in time from a year ago to today to talk about wins that we actually have and engagement we have, it's a very different dynamic -- much bigger OEMs in control of their own products with launch plans versus this time last year, where we had a much narrower set of OEMs and more ODMs and IDHs. So you combine all that together -- yes, that's definitely what bolsters our thoughts on that.

By the way, the other thing, too, is just this whole notion that voice is going everywhere from an always-on point of view. If you asked me last year would we be in a consumer white good product, would we be in a consumer electronics product that are line-powered, I'd say no, I don't think so. And yet here we are today. So all of these just add more evidence to me that next year is going to be the breakout year.

Speaking of the consumer electronics product platform, you said that this is a platform that's going to have multiple OEMs involved in the manufacture and sale of this particular product. Did I hear that correct?

I think I did say multiple OEMs, yes.

Okay. And when you talk about 4 products being displayed at CES in January, last quarter you talked about 10 possible products coming out of this design win. Are these 4, 4 of those 10? Do you understand my question?

That's a complicated answer without -- yes, I do understand your question, and it's a complicated answer, given the NDA that we have with this one company. Yes, 4 are of the 10, but if you -- it would be more than 10 individual products if we look at it in the same way. I know it's complicated, but I really can't be more specific without giving out too much at this point. Stay tuned for CES, and I think it will more clear at that point.

Thank you. At this time I'd like to turn the call back over to Brian Faith for closing remarks.

We will be participating at the following investor and industry events this quarter: The Fourth Annual ROTH Technology and Corporate Access Day, being held at the Empire Steak House in New York on November 14; the 19th Annual Craig-Hallum Capital Group Alpha Select Conference being held at the Sheraton New York Time Square Hotel in New York on November 15; the CSIA-ICCAD China 2018 Conference in Zhuhai, China, on November 29 and 30; the Benchmark Company Discovery 101 Conference being held at the Palmer House Hilton in Chicago on November 29; the RISC-V Summit in Santa Clara, California, on December 3 through 6; the LD Micro Micro-Cap Main Event being held at the Luxe Sunset Hotel in Los Angeles on December 4. A wide range of OEM products showcasing various QuickLogic devices will be at our demo suite at CES 2019 in Las Vegas from January 8 to 11. We will also demonstrate the QuickAI module for predictive maintenance and audio applications. We look forward to seeing you at these events.

Our next conference call is scheduled for Wednesday, February 13, at 2:00 p.m. Pacific Time. Thank you for your participation and continued support, and goodbye.

Ladies and gentlemen, thank you for participating in today's conference. That concludes the call. You may now disconnect. Everyone have a wonderful day.