Quicklogic Corp (QUIK) 2022 Q1 法說會逐字稿

Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporation's First Quarter Fiscal Year 2022 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through May 24, 2022.

I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi, Please go ahead.

Thank you, operator, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer; and joining remotely is Elias Nader, Senior Vice President and Chief Financial Officer.

As a reminder, 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 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 production start dates that could impact the timing of shipments, the company's future evaluation systems, broadening the number of our ecosystem partners and expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash.

Actual results or trends may differ materially from those discussed today. For more detailed discussions of the risks, uncertainties and assumptions that could result in those differences, please refer to the risk factors discussed in QuickLogic's most recently filed periodic reports with the SEC. QuickLogic assumes no obligation to update any forward-looking statements or information, which speak as of the respective dates of any new information or future events.

In today's call, we will be reporting non-GAAP financial measures. You may refer to the earnings 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. Please note QuickLogic uses its website, the company blog, corporate Twitter account, Facebook page and LinkedIn page as channels of distribution of information about its business. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligation under Regulation FD. A copy of the prepared remarks made on today's call will be posted at QuickLogic's IR web page shortly after the conclusion of today's earnings call.

I would now like to turn the call over to Brian.

Thank you, Jim. Good afternoon, everyone, and thank you all for joining our first quarter fiscal 2022 financial results conference call. We are off to a great start this year. As you can see from the press release issued after market close today, our Q1 revenue was slightly above the midpoint of the guidance we gave in February. Our revenue mix continues to trend toward higher growth segments, and we are seeing an even higher number of IP and open-source related opportunities. All of these items helped produce a significant improvement over the results we reported in the first quarter a year ago.

As the first programmable logic company to actively contribute to a fully open-source suite of development tools, we are gaining more traction in this market as potential customers are looking for differentiated and open source software solutions for their hardware. I remain confident our growth trajectory will continue. Based on our current outlook, which we will provide later, we believe we will reach our profitability objective in the middle of this fiscal year.

Leading our revenue efforts will be Owen Bateman, our newly appointed Vice President of Sales. Owen has been on the QuickLogic team for many years running our U.S. and European sales. In fact, much of our recent new product revenue is the results of Owen's sales leadership. Owen's breadth of experience spans more than 30 years across many semiconductor sales positions, including strategic accounts, direct sales, international and channel sales. He also has deep experience in the programmable logic industry. I am pleased he accepted this critical role, and we plan to work collaboratively to ensure the company's growth continues.

Now turning to the business review. We have been very active since our last earnings call with several important events that are important to our growth. Leading off: we announced 2 separate eFPGA contracts worth approximately $2.5 million. These contracts build on top of the contracts worth about $3 million that we announced in our last call. In addition, recently, one of our existing eFPGA contracts has been increased in value by at least 50%, which we expect to start recognizing in Q3.

Our Australis tool that was introduced last year enabled the upsizing of this particular eFPGA contract through its inherent flexibility and automation. Current and potential customers are recognizing that Australis allows us to compress the time it takes to go from early engagement with the customer to IP delivery and then revenue. Moreover, Australis allows us to be foundry and process node agnostic, expanding our served available market significantly.

We have several bids in process, most of which are 7 digits in magnitude. I can say that more often than not, we get into the final rounds and our odds of winning continue to improve. As I noted in prior calls and investor events, these wins bring the added bonus of no annual risk of losing the design to a competitor, no inventory investment or risk and, of course, no COGS on royalties. For most wins, we generally start receiving an annuity royalty stream after 12 to 15 months. This means for the wins in 2021, we should start to receive royalty revenue early next year.

During the quarter, we announced new eFPGA IP support for 2 of the world's leading semiconductor foundries, TSMC and GlobalFoundries. With TSMC, we made available the first customer-defined eFPGA block targeting TSMC's 22-nanometer process node. The IP was developed using the Australis IP generator tool, enabling rapid eFPGA IP generation while shrinking the time to development for nearly any foundry and process node combination from a few months to a few weeks.

As of now, we have active customer engagements for our eFPGA in 4 of the world's top 5 semiconductor foundries, TSMC, GlobalFoundries, Samsung and UMC. Additionally, with our recent announcement with SkyWater Technologies, we also now have our eFPGA IP available in an onshore foundry focused on the radiation hardened aerospace and defense markets.

Just to expand for a moment on our relationship with SkyWater, in March, we announced QuickLogic is collaborating with SkyWater for rad-hard eFPGAs, further expanding their design ecosystem for advanced extreme environment solutions. Products are expected to come to market in the early 2024 time frames. This technology can be embedded as an IP core in ASIC and SoC devices or implemented as a custom stand-alone rad-hard FPGA for mission critical and/or ruggedized applications. These are used by space agencies, private space flight companies, the defense community and research scientists to ensure consistently reliable performance and longer service life. Once you are designed into an application with one of the large companies that serve these markets, the tail will last for several years, if not decades.

Based on recent commentary, additional open-sourced enabled designs will be important in the evolution and implementation of rad-hard solutions. For example, high-end applications in commercial markets are developing, specifically those requiring radiation tolerant capabilities. While the technology specifications may not be as stringent as government-sponsored programs, the technology itself will be vitally important across a growing number of industries.

Currently, our IP is available on certain nodes in these foundries. However, since we are now in the door, we have a better opportunity to more easily expand our offerings. Also, the fact that we have IP relationships established with the 4 of the top 5 semiconductor foundries in the world is a testament to the value of our technology offering. Just establishing the business and legal relationships with these foundries took a significant amount of time and resources, all driven from customer demand.

You will hear me continue to say this. Australis is quickly changing the game in terms of generating and delivering eFPGA IP for the foundry and process combination our customers need. These partnerships with the major semiconductor foundries are just the beginning.

Our SensiML business had its best quarter of business development since our acquisition in 2019. In April, we announced SensiML is partnering with Silicon Labs, one of the leaders in the fast-growing IoT connected world. SensiML is using the machine learning accelerator built into its latest Silicon Labs wireless SOCs to enable new edge AI/ML applications for their customers. Together, SensiML and Silicon Labs are developing a proof-of-concept demonstration showing door locks, which use machine learning with audio sensors to detect and distinguish relatively subtle acoustic events to strengthen home security. This is a significant win for us and represents an expansion of SensiML's partnership with Silicon Labs.

Beyond this announcement with Silicon Labs, SensiML recently won its largest contract to date worth 6 digits with a large customer in the IoT space. We believe this agreement will lead to additional SaaS revenue and royalties early next year. We also announced SensiML now supports AI/ML development for boards that feature Bosch Sensortec sensors. This integration allows developers to use the SensiML analytics toolkit to add local intelligence quickly and easily to IoT endpoint applications using any number of Bosch sensors for a variety of applications, including smart home and building, consumer and athletic wearables, and industrial automation.

In our February call, I mentioned a new collaboration with eTopus Technology. The target of the collaboration is an eFPGA-based chiplet that combines the best of both worlds with a variety of standard I/Os and the flexibility of FPGA programmability. Semiconductor design is getting more expensive with some costs getting into the tens of millions of dollars for a chip design. Chiplets allow integration of existing devices at a significantly reduced cost. The demand is high, especially in the data center, high-speed computing and military markets. Some industry research firms have forecasted that the chiplet market could be in the tens of billions of dollars in the next several years.

Our starting point has been the GlobalFoundries 22FDX process, which is a node we have supported for some time now. We are under evaluation with lead customers to see how we might architect a chiplet that can be reused across multiple customers. This would spread out customer-funded NRE across multiple implementations.

Shifting now to some of the other components of our business. Sales of our display bridge product remains strong as global supply chains remain challenged. These supply issues, while a negative for the industry, have been a positive for us, as the constraints have created a worldwide shortage of certain display bridge semiconductor solutions. We have won multiple large designs for these products in the past quarter that we believe will contribute meaningful revenue later this year. Ahead of this demand, we have proactively implemented enhancements in our supply chain that will result in gross margin improvements for our display bridge products moving forward.

One area where supply chain issues are slowing development and production is with our primary mobile phone customer. While we continue to have new designs ready for market, the supply disruptions are making it more difficult for our customer to build their product. This was reflected by lower shipments in the first quarter that we believe will persist in the second quarter. At this time, we see no change in the outlook for the second half of the year for this customer. And on the same topic of the global supply chain, I want to reiterate that we don't experience the same level of constraints that are impacting the broader IC-related industry. Our sticking point is in the assembly and test part of the supply chain. Capacity is staying tight, and in order to get the access required, we continue to increase our committed inventory for finished goods to help ease supply concerns.

Finally in our mature product segment, we are starting to see some stabilization in bookings for this quarter and the balance of this year. Without good clarity on the macro economy, we currently believe mature revenue will be slightly down from 2021. It has been a productive period for QuickLogic, and I am as confident as ever that our positive trajectory is sustainable.

Let me now turn the call over to Elias for a review of the financial results. Elias, Please go ahead.

Thank you, Brian, and good afternoon, everyone. We delivered another quarter of financial improvement driven by the strong performance of our new products and further control of our operating expenses. I also want to echo Brian's earlier comments that we remain on track to achieve profitability in the middle of this year.

Let me now turn to the review of the results for the first quarter of fiscal 2022. Revenue in Q1 was $4.1 million. This compares with $3.7 million last quarter and $2.2 million in the first quarter of 2021. On a percentage basis, our Q1 revenue represented an increase of 11% compared with last quarter and up 83% when compared to the first quarter of 2021. Within our Q1 revenue, sales of new products increased approximately $3.5 million, the highest since the third quarter of 2015. This compares with $2.7 million last quarter and $1.1 million in the first quarter a year ago.

Mature product revenue was approximately $0.7 million compared with $1 million last quarter and $1.2 million in Q1 last year. Mature product sales continue to be limited by the lingering COVID-related issues faced in these served markets. In Q1, we had 3 customers that each accounted for 10% or more of our revenue. This compares with 4 in the prior quarter. Non-GAAP gross margin in Q1 was 61.5%, up from 60.1% in the prior quarter and 52.7% in the same quarter of 2021. The continued increase in new product revenue, primarily IP-related sales and slightly lower mature revenue, which carries a higher gross margin influenced gross margin for the quarter.

Non-GAAP operating expenses in Q1 were approximately $3.1 million. The OpEx for Q1 was lower than our forecast due to the allocation of certain R&D expenses into cost of goods sold. Q1 OpEx compares with operating expenses of $2.7 million last quarter and $3.5 million in the first quarter a year ago. Non-GAAP net loss was $0.8 million or a loss of $0.06 per share based on 12.1 million shares. This compares with a net loss of $0.5 million or $0.04 per share last quarter, and a net loss of $1.3 million or $0.12 per share in the first quarter of fiscal 2021.

Total cash at the end of Q1 was $20.1 million, up from $19.6 million in the prior quarter. The cash position includes gross proceeds of approximately $1.5 million from investors that we announced in February, which was partially offset by cash outflows related to nominal expenditures during the first quarter.

Now moving to our guidance for the second quarter of fiscal 2022, which will end on July 3, 2022. The revenue guidance for Q2 is $4.5 million, plus or minus 10%. This would represent another quarter of strong growth. Revenue is expected to be compromised of approximately $3.6 million of new products and $0.9 million of mature products. Based on this revenue mix, non-GAAP gross margins for the quarter would be approximately 67%, plus or minus 5 percentage points. Our non-GAAP operating expenses will be approximately $3.2 million to $3.5 million.

Longer term, we believe OpEx will remain in the low $3 million range with occasional increases to support new programs. After interest expense, other income and taxes, we currently forecast our non-GAAP net loss will be approximately $0.3 million to $0.5 million or a net loss of $0.02 to $0.04 per share based on roughly 12.3 million shares outstanding. Most of the difference between our GAAP and non-GAAP results is our stock-based compensation expense. In Q2, we expect this compensation will be approximately $0.5 million. As a reminder, there will be movement in our stock-based compensation over the course of the year, and it may vary each quarter based on the timing of grants and estimates related to performance related awards.

For the balance sheet, with continued investment to support the new design wins we have discussed, in Q2, we expect total cash balances to decrease between $1.2 million and $1.6 million.

With that, let me now turn the call over to Brian for his closing remarks. Thank you very much.

Thank you, Elias. QuickLogic is powering through the current macroeconomic headwinds. We are expanding our footprint with leading semiconductor manufacturers, building a growing pipeline of IP and software sales that will deliver both immediate and long-term revenue, while at the same time building a broader distribution ecosystem that gets our solutions in front of an ever-expanding set of potential customers. With the continued issues like the sudden COVID shutdowns in China and the war in Ukraine, it is difficult to offer certainty during these uncertain times. However, based on the items I discussed in our outlook for the next quarter and beyond, I feel we are at the trajectory point in our business where we will deliver sustained revenue growth.

As I mentioned in our last call, we tend to only guide 1 quarter at a time. Last quarter, I offered some additional thoughts on the year ahead, and now I feel it is important to offer a broader outlook in this call. Based on the many items I covered today, I am more confident in our ability to get to our revenue goal of $20 million. The revenue cadence will still be weighted more to the second half of 2022. At this time, I believe that the pathway for profitability this year is clear, barring any severe changes in the macroeconomic or geopolitical environment. As good as the improvement has been over the last year, I believe the next 12 months will be even better. I would like to again thank our key stakeholders, including investors, customers, suppliers and most of all, the QuickLogic and SensiML teams for their continued support.

That completes our prepared remarks. Operator, I would now like to open the call for questions.

(Operator Instructions) Our first question comes from the line of Suji Desilva with ROTH Capital.

Brian, Elias, congratulations for the [broad width] here. Brian, I want to pick up where you left off right at the end there in terms of talking about calendar '22 and the $20 million-ish revenue mark. I'm just -- without obviously guiding, I'd imagine mature has a hard time kind of getting back to more historical levels. So that might apply -- you're approaching something of a $5 million a quarter run rate -- quarterly rate at the end of the year. Is that kind of the ballpark of where the revenue is heading?

Yes. I think in the prepared, we actually mentioned mature is probably not going to get back to the level from last year. The growth is clearly going to come from the new products. We've got a lot of wins that we've talked about already that we're executing on, and we've got a lot of irons in the fire on new designs that we're hoping to close very soon here. And that would put us north of $5 million if we're getting to that $20 million mark by the end of the year on a quarterly basis.

That's the color I was looking for, Brian. And then all this is with the smartphone market still being challenging, so that's really good for the FPGA. On the customer you talked about specifically or a contract, you talked about increased 50% from the existing level. Can you talk about the driver for that kind of increase for your customer and the mechanism? Is it more nodes? Or just what's the dynamic there?

Yes, that's a great question. It actually does come down to looking at a different process technology node that they'd like the IP on from the original contract scope. And again, thankfully, we have Australis, we can pivot just as fast as the customer wants to. And so we're able to do that and charge accordingly for it. So yes, it's the bottom line is it's adding a different technology node to the mix for that customer and executing on that and then capturing the value with the increased contract size.

Does that feel like Brian, a land and expand type of initial success is breeding more success? Is that what that one feels like?

Absolutely. And we've had multiple examples of that now. So I think once people really get their hands around eFPGA and IP and they start driving value from it, then naturally, I think they're going to come back to us because I think we're a great supplier, not just in terms of technology and support, but the fact that we can move as fast as they need to move because of Australis. So yes, it's definitely a land and expand on this customer. We've had it with a couple now, and I do foresee that to be happening in the future. And the big reason why, by the way, is if you go back to FPGAs in general, it's not just the IP creation and delivery.

It's also the FPGA user tools that have to go along with us, so the user can actually program their own IP into the design. And so once people start getting accustomed to a specific software suite, they don't want to change that. So the land and expand is initially comes from the fact that we can be IP provider for the node that customer wants, then it becomes the fact that they learn and like our software tools. And then after that, it's natural that we can expand with them because Australis is automated, and it gives us that capability.

Okay. That's helpful insight there, Brian. Just a couple of more for me and I'll pass it along. You talked about royalties kicking in 15 to 20 months after presumably early '23. How do we think about a royalty rate on the unit run rate here? Just what's the framework for how the royalties kind of layer on?

Generally speaking, you could think of it as a very low single-digit percentage of the ASP of the price or the ASP of the product. So if it's a -- let's say, it's a microcontroller that sells for $1, you're probably going to get a $0.05 or less than royalty per unit. If you're selling a device that's going to be $1,000 because it's in a radiation hardened environment or $10,000, then obviously, that royalty is going to be substantially higher in dollar terms.

Okay. And then my last question, you talked about chiplets. Yes. I wasn't quite clear on where you are in that effort to create chiplet. I guess a customer might want it, but you want to product size it, make the architecture extensible across various foundries. So what's the strategy there? Because that could really kind of amp up your progress here where the chipwood could be integrated into packages. But just let me know kind of how that's going to start and play out.

Yes. The way I would describe that, Suji, is that we've announced collaborations with eTopus. They're a high-speed serial IP company, semiconductor IP company. And there's a lot of value that end customers are seeing with FPGA and high-speed serial IOs on the same device in a chiplet that could be attached to other devices that they've already either built or intending to build. For reference, companies like Intel, the programmable solutions group within Intel and then Xilinx not part of AMD, a lot of their larger FPGAs that are going into the high-speed computing data center infrastructure type applications are actually a variety of chiplets within that package.

And I think with the supply chain constraints and the movement for higher speeds through 5G and what people are trying to do in the data center now, there is a move afoot for companies to start building their own chiplets, but still be interacting with other chiplets that are already in the market. And so we're in the process now of discussing detailed architectures with a handful of customers to see if we can line up a common architecture that would make sense to produce and then be able to sell to multiples of these companies as sort of the storefront. So you're right, once that happens, and we are the storefront for the chiplet, that's going to be, I think, some pretty big revenue upside for us because that's a device revenue, not just an IP license.

But as companies are going through this architecture phase, people are still trying to grasp how would they architect a chiplet into their system, what are the I/Os, what are the requirements. Fortunately, again, we have Australis so we can sort of move along with the architecture discussion at the pace of the customer ultimately landing on an architecture that we would like to productize and be the storefront for.

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

On your smartphone customer, Brian, do you anticipate that customer being able to recover its initial shipment forecast that it had for the first half of this year? Or are you seeing more of a permanent loss of opportunity at their end for this round of smartphones?

Yes. I think we're in such a high attach rate of their phones that I know they're trying their best to navigate the supply chain issues to the extent that they're even swapping out different sensors that are in there and putting new sensors in that they can actually get a hold of, so that they can continue to ship the phones that they'd like to ship for their carrier customers and their end users. So I'm hopeful that they'll see some recovery in the second half, but I think that just remains to be seen if they can actually get the allocations that they need on the sensor side.

The nice thing about our device, as you're probably aware, is that it's sensor-agnostic. So EOS can be programmed to communicate with any of the sensors. We're working with them on that on the software side to ensure that as they find sensor products, we can easily support those and they can move on with shipping more product, which is beneficial to both of us.

Also, the supply chain issues that have created new opportunities for you in display bridge, are they also creating other smart connectivity opportunities for you for some of your new products that have been around for several years?

Well, yes, we're definitely seeing not at the same customers, but we are seeing some uptick in other customers looking at our smart connectivity or FPGA products. There are certain ones where you have inventory that similar competitive devices in the market are short on, and so we are capturing some of that opportunity. And you see that reflected already in our financials. The other interesting thing as far as the upselling or land and expand strategy is that in some of these wins that we have with the display bridge, we're actually seeing some opportunities open up for eFPGA or even SensiML. So it is nice to be going in there with a full quiver of different arrows and we can land a customer.

On your chiplet development through eTopus, are you seeing, therefore, a logical progression since this is with SerDes down to leading-edge nodes and QuickLogic playing a role, some of the leading-edge nodes as opposed to being at 16, 22, 28 nanometer?

Yes, absolutely. And in fact, for everybody listening, for their benefit, we have a video presentation that I participated in a few weeks ago with the Open Compute Project, where we specifically talked a little bit about our chiplet status with eTopus and what we're looking at. In one of my slides, I specifically said that we are looking at sub-10-nanometer nodes for eFPGA development as it relates to the chiplet strategy. So the short answer is yes, definitely. We are not stopping at 22 or 16 or the nodes above 10.

With the likelihood that mature product revenue will be down a little bit this year versus last year, is that impacting your outlook towards your full year gross -- non-GAAP gross margin that you may have been optimistic earlier this year? Or is the growth of your IP revenue offsetting that loss of high gross margins in your mature product?

I think I'll let Elias take that, and then I can add color after that.

Yes. I don't think that we are pretty sure that mature products will sustain its strength, but it's probably not going to get back to the levels that we probably had in the past, if you know what I mean. So that's why we broke it down like this and said, we're very confident that the new products that we have, the new product offering is where the growth is coming from. But (technical difficulty) let's put it that way.

Yes. I think to add on that for gross margin purposes, to give a little color on that, the new products for us, especially the software and the IP licensing carries very high gross margins. So we're actually fine with that being a bigger percentage of revenue and continuing to sort of drive us into that vision we have for future gross margins that we have talked about.

So you see your Q2 guidance on gross margin, should that be the baseline in the second half that we should model?

I think if I were to model, I would say the midrange of 65 to 68 around there is the number I would model. I think we're not going to go -- I think we're going to go try to shoot for higher for sure. My goal is to get gross margin more than 70% as said by Brian. But right now, I would say modeling makes sense at this level 67, 68.

(Operator Instructions) Our next question comes from the line of Martin Yang with Oppenheimer.

First question is on your new VP of Worldwide Sales. Can you maybe talk about how you see doing things differently that got the very positive traction? And what his priorities will be in this year or medium term?

Yes. So firstly, as I said earlier, Owen has been with the company for some time. So he is from a product knowledge point of view and how we go to market the right way. I think he has been a key part of sort of how we've formed the business model and the go-to-market strategy. So he's very in tune with that. As far as how is he doing things differently, I'd say that he's really taking the approach that's been successful for him in Europe and U.S. and sort of broaden that level of discipline and method to the other regions now that they report directly to him.

And what about his priorities?

Priority is a very clear. Revenue [and so] we have today with obviously a focus on -- especially if you think about the supply chain constraints, taking advantage of the inventory that we have today or things in WIP, so we're not having to get purchase orders with 52 week lead times like some of our competitors are. You can sell what we have today and what we can ship. And then on the IP side, definitely focusing on process nodes that we have today as an example versus what we could have in the future.

Obviously, we'll add to that if he lands customers that want different process nodes because this trial supports that, but really a clear focus on selling what's available today and pipeline expansion. We want to get to $20 million in revenue this year, and I want to grow 50% next year. So that means you need a strong pipeline in place this year, and he has a lot of metrics and goals for himself and his team to go off and do that.

Got it. And on SensiML's business development update, is there any way you could give us a sense of scale of how big SensiMLs can be in the next 12, 24 months?

That's a good question. I'm going to look to Elias to give you some thoughts on that. And then again, I can add color later.

Yes. I would say the SensiML, Martin, the SensiML numbers really right now are not as high as anybody would like them to be, okay. But let's put it this way. As Brian said in his remarks, SensiML has a lot of iron in the fire. And we are very, very close to a inflection point, I would call it, where we will start seeing some benefits reaped from this subsidiary we have. So it's hard to model it, I know. But for now, I wouldn't model anything where it's significantly higher than what we have said in the past, which is usually probably under -- it could be anywhere between 0.5 million maybe at best for now, but it has a lot of potential to fly.

Yes, especially with the fact that we just talked about that 6-digit deal closed right now for this year and the expansion opportunities there. But I think I know, in fact, there are a lot of other customers that are like the 6-digit customer we closed. And I know that SensiML's focus, getting back to your priorities topic is about expanding into very similar types of customers with the same strategy there. So I'm probably a little bit more bullish that we get more than the several hundred thousand that Elias was just mentioning, maybe somewhere between 3 and 5x the sales from last year. But let's see how fast we can expand beyond this 6-digit win that we just talked about.

That's good to know. Appreciate the insight. And last question for me is on display bridge attraction, is it large enough to offset weakness of smartphone customers? Or is it maybe a little bit bigger?

It's bigger than the offset of the smartphone customer weakness for sure.

And our next question comes from the line of Richard Shannon with Craig-Hallum.

First one for me is on the breakeven commentary. I think you said profitability around the middle of the year since your guidance for this quarter, it doesn't include that anywhere. I'm assuming that's an assumption or a strong belief for the third quarter. Or are you suggesting that with potential upside here, you could even see it in the second?

If I were to guess, I would say there's a potential we could see it at breakeven in Q2. There is a potential, not guaranteed, but there's a high potential. We're profitable in Q3, yes. But there could be upsides that we are not aware of, Richard, that -- or we are aware of, and we just don't want to talk about it right now, but we are pretty sure that we are going to get to profitability.

Okay. Fair enough. Maybe stepping back to the SensiML topic here, just brought up here, specifically around this deal, it was a 6-figure deal. Maybe, Brian, if you can talk about the environment under which that happened. How long this deal was in place? How much bigger than other deals have you had thus far? And how do you extrapolate the win like either targeting customer types or whatever that helps you maybe get more of those in the near term?

Yes. I think this deal started in serious discussion form at the very end of last year. And we pushed it forward from there. Obviously, there's lots of back and forth and legal discussions to get things over the goal line, but it happened. And like I said earlier, there's several other customers that are very similar to this customer in terms of end product and how they go to market. So we're pretty bullish that we'll get to rinse and repeat this process now that we've gone through it one time and capture some of these other customers for this year.

As far as more details beyond that, I'm going to just mention that we have an NDA with this customer. We're not supposed to talk about a lot of details given the nature of it, but more will come out publicly over time. I think the bottom line, though, that I want to emphasize is that it's a substantial increase in the revenue -- immediate revenue and potential revenue than any other customer that SensiML has brought to this stage within QuickLogic. And the second is this is not a one-off type customer with a very unique use case. This is something, as I said, I think, is rinse and repeatable with other customers.

The last thing I'll say is that some of the -- AI is new for a lot of people. And a lot of times, they get -- they want to use AI software, but they also need data science help. And of course, we charge for any of that help. But I think this customer -- the one thing I really like about it is I think it's going to give us scale to so many follow-on deals within this 1 customer, both SaaS and royalty. And I don't think we're going to have to be doing a lot of data science help as part of that, which is great because that means that we can scale this as a platform faster. So there's a lot of things I like about this first win that we can go and repeat.

Okay. Perfect. Let's see here. Maybe a question following up on the topic of chiplets here, actually, probably a few questions within this topic. My first one is, if you think about chiplets as the driving force here versus other opportunities with embedded FPGA, how big do you see the chiplet opportunity being? And then also kind of tangentially here, most of the nodes you talked about before today have been largely at 22-nanometer above, and you just mentioned potentially seeing stuff below 10 nanometers. I guess I'd love to understand the competitive dynamics here as I think there's some other companies that focus more on leading edge and how you're competing relative to those guys in this space.

Yes, there's probably 3 questions in that one question. So if I don't answer one, just remind me.

Sorry, Brian.

Well, that's all right. So firstly, on the market side, I think -- and I think I've been clear about this with investors as well as internally. But our goal is obviously near-term revenue growth, and that comes from things that we have today, which are process nodes that we have available today with IP, all the 22, 20x nodes and the ones that are a little bit larger than that. So the focus is on that for sure for the near-term revenue. The point at which we would do at chiplet. Obviously, a chiplet is a part of a bigger system, but you still have to design a chiplet. And chiplets are going to take a year to get to the point at which you're sampling it with the supply chain constraints. Obviously, cycle times are out there longer now. So that's like a year plus to get to the revenue point.

So I like chiplets from a revenue growth driver in the -- maybe like the 2-year horizon, but not as a near-term growth driver. The near-term growth driver is very much focused on IP that we can get front-end licenses for, back end royalties after. And then, yes, we're working with customers to get a customer-driven chiplets done, so we can be the storefront for that, getting revenues from the actual chiplet at some point in the future. To be clear also, the point at which we would actually trigger the large investment for the chiplet, it would be the point where we have customer funding for that. We're not going out on our own to do this with their own dime. This is going to be driven from collaboration with customers where they're fronting the money and investment to go off and do that.

Now getting to the competitive landscape, that's a very interesting question because you can say, well, you have the eFPGA IP competitors. You have discrete FPGA competitors. You have chiplet competitors. And all of that is true. So how are we different from all of those? Firstly, I think there's only one company actually that has chiplets, FPGAs and IP under the same umbrella. And that company is Achronix, we can be public about that, right? I think the unique thing that I like about how we're positioned versus somebody like an Achronix is that they -- from what I can see, they do IP for -- knows that they're going to do chips on and chiplets on, and that's it.

They don't have like a real -- what I would call an IP strategy, which is to really have the ability to go off and license for any process node and foundry. And you see that we actually do have that strategy with what Australis has done. And all of these recent IP licenses we've talked about in contracts are, in fact, for process nodes that we do not have chips that we run on today. So it's a very purposeful IP strategy. Now we're going to layer on to that the fact that we can do chiplets and be the storefront for that, which, again, that being able to be a storefront for a chip sale is actually different than some of the pure-play eFPGA competitors that you've undoubtedly seen at some of the trade shows out here that don't have a actual chip strategy. It's really just IP.

So again, I come back to FPGA user tools. When customers and partners get trained up and familiar with user tools, they like to stick with that. It's like us on this call. Nobody wants to switch from MacOS to Windows if you've been doing that the last 20 years. So that software becomes sticky. And as you get sticky, then whether or not you need a chiplet or an IP for an ASIC or a discrete FPGA, undoubtedly, your engineering team will prefer to use the same vendor's tools, which by default would drive different revenue opportunities for us. So I like where we're doing things differently. I like the fact that it's driven from open source. We have all the automation and scalability with Australis, and it is unique against any of the competitors that I just mentioned. Did I cover all your questions? Or did I forget one?

I think you got hold of them all and then some front. I appreciate all that detail. That's great stuff. I think I've asked you this in more than one of the past earnings calls, but given the excitements here that you have in embedded FPGA, I'm wondering if you can just kind of profile or characterize the pipeline overall for embedded FPGA compared to past dynamics. Any way that you can characterize the size and the potential growth rate here, I guess, both in terms of licenses and then eventually royalties as they layer in.

Well, I've already talked about, I think, tens of millions of dollars. And so the next level up would be 100s and I'm not ready to go that far yet. Still tens of millions. What I do like about it is that we're really -- what I'm actually surprised about is that we've built this strategy, the development strategy such that we could license something for a couple of hundred k and make money. But what we're seeing is we're seeing a lot of value more than what we anticipated reaching into the 7 digits in a lot of cases. And so the diversity of the funnel is high. A lot of it is on higher-value IP. People driving us to nodes we haven't announced before, which are more aggressive in nature and carry a higher value. And so we're able to address those.

And I love where we are with the funnel. And again, I think the fact with Owen being the sales leader now, he can drive a lot of this with his experience in the programmable logic industry in general, more broadly outside of the U.S. and Europe and capture a lot of that opportunity. So I really like where we are with the funnel. And it is larger than it was the last time we talked. Again, I haven't given the exact number, but it's still in the tens of millions and growing.

At this time, we have reached the end of the question-and-answer session. And I will now turn the call back over to Brian for any closing remarks.

I wanted to thank everybody for participating in today's call and continued support. We look forward to speaking with many of you again when we participate in upcoming investor events and when we report our second quarter fiscal year 2022 results in August. Have a good day. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.