QuickLogic Corporation (QUIK)
Q3 2012 Earnings Call
October 30, 2012 5:30 pm ET
Executives
Andy Pease – Chief Executive Officer
Ralph Marimon – Chief Financial Officer
Brian Faith – Vice President, Worldwide Sales and Marketing
Analysts
Quinn Bolton – Needham & Company
Krishna Shankar – Roth Capital
Robert West – NI Technical Research
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the QuickLogic Corporation Third Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this call maybe recorded.
I would now like to introduce your host for today’s conference Mr. Ralph Marimon, CFO; Andy Pease, CEO; Brian Faith, VP of Worldwide Sales and Marketing.
Mr. Ralph Marimon, you may begin.
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 production shipment, market acceptance of our customer’s products, our expected results, and our financial expectations for revenue, gross margin, operating expenses, profitability and cash.
QuickLogic’s future results could differ materially from the results described in these forward-looking statements. We refer you to the risk factors listed in our Annual Report on Form 10-K, quarterly reports on Form 10-Q and prior press releases for a description of these and other risk factors. QuickLogic assumes no obligation to update any such forward-looking statements. This conference call is open to all and is being webcast live.
For the third quarter of 2012, total revenue was $3.7 million, which was at the low end of our guidance range. New product revenues totaled $1.6 million, which was down 9% from the Q2 level and was just below the midpoint of our guidance. While we anticipated a decline in broadband data-card shipment, a transition in the pico projector market that we didn’t expect was responsible for the shortfall to the midpoint of our guidance. Andy will address this transition in his presentation.
Mature product revenue in the quarter totaled $2.1 million, which represents a 11 sequential decrease from Q2 level. The lower revenue is a result of lower bookings during the quarter, based on our backlog and bookings to date in Q4, we expect mature product revenue to e flat in Q4.
Our non-GAAP gross profit margin for Q3 was 50% and was above the midpoint of our guidance. The higher than forecasted margin is primarily due to the mix of product shift.
Non-GAAP operating expenses for Q3 totaled $4 million, which was below the midpoint of our guidance. The decline in expenses is primarily due to declining third party expenses related to new chip development and engineering.
On a non-GAAP basis, the total for other income and expenses and taxes was a charge of $16,000. This resulted in a non-GAAP loss of $2.2 million or $0.05 per share. We ended the quarter with approximately $24.9 million in cash. During the quarter, we used approximately $1.9 million in cash which was slightly favorable to our guidance.
Our Q3 GAAP net loss was $2.8 million or $0.06 per share. Our GAAP results include stock-based compensation charges of $601,000 and equipment write-off of $25,000. Please see today’s press release for a detailed reconciliation of our GAAP to non-GAAP results.
Now, I’ll turn it over to Andy who will update you on the status of our strategic efforts. Following this, I’ll rejoin the call to present our Q4 guidance.
Andy Pease
Thank you for joining us this afternoon. In our Q3 guidance, we anticipated that increased shipments into the secured data-card, smartphone and pico projector markets would be offset by a decrease in shipments into the broadband data-card market, resulting in essentially flat quarter-to-quarter revenue.
However, Micron, the manufacturer of the PoP Video pico projector sold display bridge division mid-quarter to Citizen (inaudible), a major Japanese manufacturer of micro-displays. During this transition, production in the Pop Video pico projector was halted, resulting in slightly lower than expected Q3 revenue.
General Imaging a, sales and marketing company and the exclusive worldwide licensee for GE digital cameras has acquired the right to the Pop Video design and has recently launched its ipico projector using a second generation wide engine that is roughly three times brighter. The ipico projector correlates QuickLogic’s V-technology which doubles the apparent brightness of the projected image. General Imaging is selling its ipico projector through multiple channels, including Amazon.com among others.
General Imaging is using the same supply channel partners for its ipico projector that Micron established. This has allowed General Imaging to utilize the inventory of ArcticLink II VX CSSPs, we shipped to support the Pop Video production schedule. We expect the balance of this inventory to be used during Q4 and then we will resume shipments to support ongoing ipico projector production in Q1.
When Micron sold its display division to Citizen, the key Micron executives and software engineers, who created Pop Video formed their own company called Platform Development or PDI. PDI is executing an ODM and OEM business model for the pico projector market. PDI plans to introduce two new pico projector designs in Q4, similar to the ipico, these projectors are designed to work with Apple’s iPhone 4S and earlier models as well as all iPod products. They will use the same bright light engine and ArticLink II VX CSSP used by General Imaging.
PDI hopes to have this Android pico projector ready for shipment ahead of the Chinese New Year. This design will also incorporate our ArticLink II VX CSSP for brightness enhancement.
In addition to these FL cost based pico projector designs we are working on a variety of pico projector designs that corporate MIPI based light engines. We believe at least one of these designs will be displayed at the January 2013 CES in Las Vegas.
The Kyocera URBANO PROGRESSO smartphone, has been well received by KDDI customers in Japan and will continue in production in Q4. This is the second smartphone to incorporate our VEE and DPO technologies and the third to use our ArticLink II VX CSSP. We have ongoing engagements with Kyocera for new designs that we look forward to discussing in more detail in the future.
During our May 1, conference call, I stated that we sampled our new ArticLink III VX family during Q1 of 2012, and initiated final testing, verification and characterization of the silicon.
Last quarter I said we would have all 30 variants of the platform fully qualified for production shipments by the end of Q3. We have met all of these milestones. I’m excited by the customer reception for this new CSSP platform family that includes VEE and DPO as well as our internally developed technologies called Intelligent Brightness Control or IBC and Background Color Compensator or BCC. These technologies further enhance display quality and lower power consumption in smartphone, tablet and embedded pico projector applications.
During our July 31, conference call, I stated that we had initiated ArticLink III VX evaluation and design activity with a number of Tier 1 and Tier 2 smartphone and tablet companies and that we believed several of these engagements would lead to initial production shipments in Q4. At this time, we believe we will accomplish this goal. However, we underestimated the level and complexity of each unique customer interaction required to support the implementation of RGB to MIPI bridging.
For this reason we are not forecasting the upside, I had envisioned delivery in Q4. These lost opportunities and delays are frustrating but I have made the necessary structural and process changes that will enable us to execute more efficiently with our ongoing RGB to MIPI engagements.
During our last conference call, we touched on the subject of expanding our ArticLink III strategy to include bridge only applications. We tested this strategy and during Q4 we will formally launch the ArticLink III VX platform family.
In a large number of designs, smartphones and tablets required the use of a device to bridge a mis-match between the output of an application processor and the input of a display panel. Our ArticLink III VX and VX platform families support most of these bridge requirements and consume less power than competitive solutions.
The customer decision to use a bridge display is made very early into design cycle, whereas the decision to adopt new technologies such as VEE and DPO occurs later in the design cycle and involves different functions within our customer’s organizations.
By selecting the VX, the customer gets the unique value proposition of solving their must have requirement of the bridge, while also getting the additional time to evaluate the benefits of VEE and DPO with no upfront risk. Our top priority is to convert every VX opportunity into a VX architectural win.
The expansion of our ArticLink III strategy to include bridge-only applications has enabled us to initiate reference design or qualify vendor list engagements with multiple new application processor companies. We will update you as these engagements progress.
Last quarter, I stated we would initiate production shipments on a new handset Smart Card activity design towards the end of Q3. And these shipments have begun. I also expected another design win to enter initial production in early Q1 of 2013 and this remains on track. During Q3, we won two additional architectural designs for Smart Card activity. One of these is in the handset that is scheduled to move into production in Q2 of 2013. The second is in a cellular conference phone that will undergo market validation to support the customer mix, a production commitment.
Moving to our Smart Card activity focus, during our May 1 conference call, I stated that we initiated sampling of ArticLink II CX CSSP family in February. During the July 30 conference call I stated we were on schedule to receive our first production devices during Q3. These key milestones have been met.
Our lead customer for the CX platform is CertiVox. CertiVox has successfully completed initial testing of their encryption engine and key exchange algorithm on the CX. This allows CertiVox to move to the next phase of design optimization by taking advantage of the programmable fabric in CX resulting in improved performance and lower power consumption. This project continues to stay on schedule.
During our May 1 conference call, I also described our new Orion Reference platform for Cortex’s instruments Sitara processor. As a follow on to Orion, we later announced our CSSP reference platform called the BeagleBone Camera Cape for one variant of the Sitara processor family. This marked our entry into the catalog CSSP market.
TI is focused on rolling out its catalog strategy for the embedded market. This large and rapidly growing market is highly fragmented with many customers and countless design variations. TI is using a two-prong strategy to capture this market. First, using their BeagleBone reference design, TI presents customers with a general embedded processor solution that spans multiple applications by supporting function specific ad-on-boards called Capes.
During Q3, a TI partner introduced a Camera Cape that includes a QuickLogic camera interface CSSP. Customers could now order this CSSP with a pre-assigned catalog part number. We have several architecture design wins for our camera interface catalog CSSP that are currently scheduled to move into production during the first half of 2013. We are working with TI on a second cape opportunity for the BeagleBone reference design.
The second prong of the TI strategy, addresses larger vertical opportunities that are within the embedded markets. We are working with TI on an early stage vertical opportunity and we will give you updates as we progress.
Let’s take a moment to recap what I view as the important takeaways from this conference call. In the pico projector market the transition from Micron’s Pop Video to General Imaging ipico projector caused an interruption in what I view as an otherwise very positive trend.
Beyond General Imaging we have also won several new designs with PDI and have solid interest from other major players. All 13 provisions of ArticLink III VX have been fully qualified and are available for production shipment. Based on our customer engagement experiences in Q3, we have made the necessary structural and process changes which are enabling us to execute more efficiently.
We have defined our ArticLink III VX strategy and more formally roll that out during Q4. Early results and customer feedback suggest this will be a very successful strategy for faster customer adoption of our VEE and DPO technologies.
We have successfully passed a critical milestone with our ArticLink II CX partner CertiVox and remain optimistic in the long-term potential for this highly differentiated program.
As evidenced by our first catalog CSSP launch with TI, our Smart Card activity strategy of working with application processor partners to better leverage our R&D across multiple opportunities is showing merit.
Let me
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