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QuickLogic Corporation (NASDAQ:QUIK)

Q1 2013 Earnings Call

May 1, 2013 05:30 PM ET

Executives

Ralph Marimon - VP, Finance and CFO

Andy Pease - President and CEO

Brian Faith - VP, Sales and Marketing

Analysts

Krishna Shankar - Roth Capital Partners

Brian Coleman - Hawk Hill Asset Management

Bob West - NI Technical Research

Operator

Good day, ladies and gentlemen, and thank you for your patience. You have joined the QuickLogic Corporation First Quarter 2013 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 be given at that time. (Operator Instructions). As a reminder this conference may be recorded.

I would now like to turn the call over to your host CFO, Ralph Marimon. Sir, 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 shipments, market acceptance of our customers' products, our expected results, and our financial expectations for revenue, gross margin, operating expenses, profitability and cash.

QuickLogic’s future results could differ materially from the results described in these forward-looking statements. We refer you to the risk factors listed in our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and prior press releases for a description of these and other risk factors. QuickLogic assumes no obligation to update any such forward-looking statements. This conference call is open to all and is being webcast live.

For the first quarter of 2013, total revenue was $3 million, which was at the low end of our guidance range. New product revenue totaled $941,000. This lower than expected revenue level for new products was due to a large order from a tier 1 customer being pushed out into Q2. We are now receiving orders from this customer and began shipping during April. Due to this and other new design wins, we expect our Q2 new product revenue will be approximately $2.3 million.

Mature product revenue in the first quarter totaled $2.1 million, which was essentially flat with the Q4 level. Our GAAP gross profit margin for Q1 was 34% and includes charges for inventory reserves and stock based compensation. To calculate non-GAAP gross profit, our policy is to not adjust for inventory reserve charges.

Therefore, due to charges in the quarter for inventory reserves, our non-GAAP gross profit margin was only slightly higher than the GAAP margin at 35%. Excluding these inventory reserves, our non-GAAP gross margin would have been 45% which was the midpoint of our guidance. Non-GAAP operating expenses for Q1 totaled 4.1 million which was just below the midpoint of our guidance.

On a non-GAAP basis, the total for other income, expense and taxes was a charge of $70,000. This resulted in a non-GAAP loss of $3.1 million or $0.07 per share. We ended the quarter with approximately $19.7 million in cash.

During the quarter we used approximately $2.9 million in cash, which was consistent with our guidance. Our Q1 GAAP net loss was $3.6 million or $0.08 per share. Our GAAP results include stock-based compensation charges of $452,000.

Now I'll turn it over to Andy who'll update you on the status of our strategic efforts. Following this, I'll rejoin the call to present our Q2 guidance.

Andy Pease

Thank you for joining us this afternoon. We fell short of our expectations for new product sales in Q1 due to the timing of an order of redesign. As Ralph noted our guidance in Q2 [increases] [ph] as we shift products for this delayed order along with orders for other new designs.

The delayed order which we are now supporting with the initial production shipments is from a tier 1 customer and is designed our ArcticLink III VX into a new tablet platform. We are very excited about this opportunity which validates the value of our ArcticLink III VX platform family brings to the tablet market.

In Q1, we completed the implementation of our customer engineering engagement model for our ArcticLink III BX and VX CSSP platforms. This process span two quarters during which we validated our MIPI interface with nine unique application processors that are being offered today from seven different semiconductor companies. We are now able to react very quickly to new design opportunities using these processors.

We expect to initiate production shipments to support several of these new designs this quarter. During our last conference call, I mentioned that we gained qualified vendor list or QVL status with a large application processor company. As a result we won several new designs in the China market.

We believe we will make initial production shipments on two of these designs during Q2. We are now working with this supplier to obtain QVL status for our ArticLink III platform to support MIPI to LBDS bridging on its new Quad-Core processor.

Earlier I discussed an emerging trend among smartphone and tablet manufacturers to support a dual display output that facilitates a direct connection to TVs via a HDMI or MHL display interface. We are now in the process of addressing this trend with a new reference design that uses a dual display path version for our ArticLink III platform.

As mentioned during our last conference call, there is a design trend in digital still camera or DSCs market that has opened new opportunities for our ArticLink III CSSP platform. Historically DSCs have used RGB displays however DSC manufacturers want to take advantage of the lower prices and higher resolution offered by MIPI displays.

This has created a new opportunity for an ArticLink III bridge design and a new chance for us to show off the significant improvement offered by our VEE technology. This design opportunity is in implementation stage with a Tier 1 consumer electronics company. When adopting a MIPI display in addition to the bridging requirement many DSC designs need to perform the rotation of the display content from landscape to portrait format. This is commonly referred to as XY swap we are exploring design options with customers for use cases.

While we were encouraged by the feedback from numerous ongoing engagements we have with OEMs and Pico Projector engine companies the end-market has been slow to develop. We continue to work on several opportunities with a variety of companies that we will update you on as we move forward. In addition to the momentum we have built for our CSSP display solutions we continue to win new CSSP smart connectivity designs. During prior conference calls I announced design wins in the Kyocera HoneyBee 5 and Stola PHS handsets; these handsets are now shipping in production volume.

PHS is a cost effective communication standard used in Japan where Kyocera dominates the market with about an 80% share. While the annual volume for PHS handset is lower than a typical Smartphone the production life-cycles tend to be longer.

At our last conference call, I noticed that we want two new handsets smart connectivity designs, one during Q4 and the other during the first month of Q1. We are scheduled to initiate production shipments on the first to these two designs later this quarter. The second design uses two CSSPs and has currently scheduled to move into production during Q3. Since our last earnings call, we have won a third handset smart connectivity design that also uses two CSSPs.

We expect to begin production shipment for this design during Q3. Two weeks ago, I presented our catalogue CSSPs strategy at the annual global press, electronic summit. The strategy was very well received by the International Technical Press.

So far, 11 of the riders who have attended have written about our expanded strategy. Our catalogue CSSPs strategy provides us with an opportunity to serve the highly fragmented embedded mobile market.

To address this market, we are partnering with embedded processor companies to use our existing and road map CSSPs platforms. The results and design generally have significantly longer product life cycles and higher margins than products we've shift to the mobile consumer market.

We are particularly pleased with the progress we have made with our lead eco-system partners Texas Instruments; where we have established strong relationships with senior managers and their embedded groups as well as their office of the Chief Technical Officer.

We anticipate winning many designs for each catalogues CSSPs. These designs will be characterized by relatively modest revenue, higher gross margin and longer production life cycles. I am pleased to announce we initiated production shipments earlier this quarter of our first catalogues CSSP design that was developed in connection with our TI CertiVox reference design.

During our last conference call, I stated that our effort with CertiVox had transition from high level definition to our customer’s specific design based on ArticLink II CX platform. This customer design now requires a high level security clearance that has resulted in CertiVox taking down our ship of all architectural and engineering development. As a result QuickLogic’s involvement has been minimized and we are likely to focus our resources on other more near term opportunities.

With our redirected effort we are near completion of new catalog CSSP reference design that uses our ArticLink II CX platform. Let me now turn the call over to Ralph for our Q2 guidance and I will rejoin for my concluding remarks.

Ralph Marimon

For the second quarter 2013, we are forecasting total revenue of approximately $4.3 million plus or minus 10%. The $4.3 million in total revenue is expected to be comprised of approximately $2.3 million or new product revenue and $2 million of mature product revenue. The increase in new product revenue is due to increase shipments and display segments. Our new product revenue for the first half of the years is tracking to our expectations.

Modest booking in the aerospace test and instrumentation sector are keeping mature product revenue flat sequentially. As in prior quarters, our actual results may vary significantly due to schedule variations from our customers which are beyond our control. Schedule changes for existing opportunities and projected productions started for new opportunities could push the pole shipments between Q2 and Q3 and impact our actual results significantly.

On a non-GAAP basis, we expect gross margin to be approximately 43%, plus or minus 3%. The gross margin reflects the mix of product shift in our continued and efficiency absorption of manufacturing overhead due to the lower revenue level.

We are currently forecasting non-GAAP operating expenses to be 4.5 million plus or minus 300,000. Non-GAAP R&D expense are forecasted to be approximately 2 million, our non-GAAP SG&A expenses are forecasted to be approximately $2.5 million. R&D and SG&A expenses are expected to increase primarily due to new high.

Our other income expense and taxes will be at charge of up to 60,000. Our stock based compensation expense during the second quarter is expected to be approximately $450,000. At the midpoint of our guidance our non-GAAP loss is expected to be approximately $0.06 per share. We expect to use approximately $2.5 million in cash. Before we move to the Question and Answer section of today's call, let me turn the call back over to Andy for his closing remarks.

Andy Pease

Thank Ralph. Let me stress that I continue to believe that we will achieve significant new product revenue growth this year. For longer term we are making significant progress in our roadmap for future CSSP platforms. While it will be a few quarters before I can reveal details, I am very excited about the opportunities and growth potential we believe these platforms will deliver.

In summary I believe the key takeaways from today are, first we are extremely pleased that our Arctic Link 3 VX production win had a tier one company in the consumer space. This is a continuing validation of our CSSPs strategy.

Second our display product design activity continues to accelerate. We have the demonstrated ability to scale the number of Concorde designs we can bring to production as evidenced by several design wins last quarter and several more in the current quarter.

Third our smart connectivity design activity is accelerating in our mobile consumer and mobile embedded markets. Our catalogued CSSP strategy has resulted in a strong relationship with our ecosystem partner TI. We anticipate developing similar relationships with other embedded processor companies.

This concludes our prepared remarks. We would now like to open it up for questions.

Question-and-Answer Session

Operator

Thank you sir, (Operator Instructions). Our first question comes from Krishna Shankar of Roth Capital, your line is open.

Krishna Shankar - Roth Capital Partners

Andy and Ralph, congratulations on the design win momentum and customer engagements. For the second quarter, can you provide a little more, you mentioned this large consumer electronics customer to whom you're starting to ship production volumes? Is this in the mobile space or what kind of end-market is this particular application?

Andy Pease

This is definitely a consumer mobile space and as we said this is actually a tablet platform.

Krishna Shankar - Roth Capital Partners

And then during Q2 you will also ship to Kyocera the design wins for the smart connectivity in volume?

Andy Pease

That’s correct.

Krishna Shankar - Roth Capital Partners

Okay. And you also mentioned, was it two smartphone designs that you mentioned, what’s kind of the shipment plans for the new smartphone customers?

Andy Pease

Yes, I think what we said Krishna is that we expect to see a couple of designs we got in the quarter to ship this quarter and others will ship in Q3 but this is really as a result of the design momentum we’ve got from our engineering scalability. This is also separate from the Tier 1 that we mentioned.

Krishna Shankar - Roth Capital Partners

Okay. And is this based on one of the application processor platforms that you’re qualified on, that’s what you said?

Andy Pease

The design activity is actually based on several application processors but certainly the QVL has been a contributor to that but it is not all of it.

Krishna Shankar - Roth Capital Partners

Okay. And then turning to the embedded side, will that be a meaningful contributor to revenues in Q2 and then in the second half since you said you’re starting ship in production your first design win in the embedded space with the TI partnership?

Andy Pease

Yes, frankly speaking our first design win is not particularly meaningful but what we see is more of these type of designs that build up and the fact is it takes very little sales and marketing effort for us to capture these designs. So they will add up over time and I would expect as we go into 2014, they become more meaningful.

Krishna Shankar - Roth Capital Partners

Okay, and what kind of resources are you applying to the kind of the mass market android smartphone market which is growing quite nicely in China and Asia and how does your product line align with that particular market trend?

Andy Pease

Yes, I would say if you look at all of our activity it is almost but not all dedicated to Android market. So we’ve been pretty open about the fact that we’re not going after the iOS market. There certainly are Windows 8 opportunities but by and large the vast majority of our opportunities are all Android based, whether it be tablets mostly or Smartphones.

Krishna Shankar - Roth Capital Partners

And you are working with applications processor platform companies, both here in the U.S. and in Asia. For example, companies like MediaTek or Spreadtrum?

Andy Pease

Well without naming companies, yes, we are working with a variety of them and as I mentioned we have actually had engagements with customers that involve seven different semiconductor companies and nine different processors where we have actually proven out the connectivity of our ArticLink III platforms.

Krishna Shankar - Roth Capital Partners

And then for the second half are there any unusual expenses in terms of significant new tip outs or anything which could make expenses go up?

Ralph Marimon

I don’t think we are looking at any unusual expenses. We have - are always seeing platform development but I don’t think you'll see anything unusual that will make it go up significantly during the year.

Operator

(Operator Instructions). Our next question comes from Brian Coleman of Hawk Hill Asset Management. Your line is open.

Brian Coleman - Hawk Hill Asset Management

Andy, my first question, if I remember your guidance for the quarter, I guess it look like $700,000 of new product revenue got shifted from first quarter to second quarter, is that right?

Andy Pease

No, I don’t think so Brian. Our guidance for Q1 was $1.3 million and we did $940,000. So yes, there was a shift in that into the Q2, yes.

Brian Coleman - Hawk Hill Asset Management

I was thinking $1.6 million but it was $1.3 million with guidance.

Andy Pease

Yes, our guidance is $1.3 million.

Brian Coleman - Hawk Hill Asset Management

Okay. Can you give us a little bit of an update on how the BX, the VX, sales strategy is going and was this ArcticLink III VX tablet originally a BX design win?

Andy Pease

I think I will let stellar VP of Sales answer that question.

Brian Faith

It's Brian. Yes, so the strategy is going well. It is definitely lowered any hurdles that people had to evaluating the technology by us bringing the bridge to market and having that be an option. We are seeing some of our customers now that have brought the bridge to a working state, start to evaluate VEE. I don’t think that the BX strategy was required for the win of the VX that Andy was talking about before. They were really grasping onto the power savings that we talked about with the VX to begin with, but certainly it helped that it had the bridge capability as well.

Brian Coleman - Hawk Hill Asset Management

So have you seen any conversions yet? Some people that have adopted the bridge, so the upsell to the VX, have you had those conversions happen yet?

Brian Faith

Not for production shipments that Andy has talked about but we have started to see some serious evaluation based on systems that already have the bridge and BX working. So we do expect some of those to happen later in the year but not for the guidance that we have given today.

Brian Coleman - Hawk Hill Asset Management

And how long before an OEM is going to go market with the device, do they need to make that decision to go full V as opposed to just the bridge. How much additional engineering time do they need before it's blocked and it goes to production?

Brian Faith

The amount of engineering efforts is actually not that significant. The more significant effort come from the marketing departments that these customers really evaluating what kind of extra value they can get as the product launches to consumer. So you see more of the time has been consumed and that the business side of our customers rather than the technical side.

Andy Pease

Remember Brian that the VX has the same footprint as the BX. So once the customer has a BX on the board, there is no engineering effort in terms of board layout or anything like that. The only thing that we have to do is to calibrate the V technology for the display that they are using.

Brian Coleman - Hawk Hill Asset Management

Okay but if I was in OEM and I had a design that was slated to go to market on July 1st, at what point did I have to notify you that I want to swap out the bridge for the VX? Is it two months before July 3rd, or is it two months before the ship dates, what kind of lead time?

Brian Faith

So all quoted lead times for these markets is eight weeks. So we would definitely need some out before that time window they would want the VX instead of the BX.

Andy Pease

And that’s really more of a manufacturing issue than anything else, right?

Brian Faith

Yes.

Brian Coleman - Hawk Hill Asset Management

Okay. On the camera initiative, when you say it’s an implementation phase, does that means that designs? What exactly is the implementation phase?

Andy Pease

That means with one to one consumer customer that they are actually in verification of a design using the bridge solution for a camera.

Brian Coleman - Hawk Hill Asset Management

And I don’t know the camera market that well but do each of the camera companies have their own are they proprietary DSPs and do they have essentially one chip that would run across all the different camera lines?

Brian Faith

It depends on how large the camera manufacturer is. Sometimes if they are driving a lot of volumes, they will actually have multiple DSPs that are accustomed to that one for a high end SKU and one for a lower end SKU. More often than not so it is their own costume basic or DSP. Sometimes they'll use merchant market DSPs but that tends to be more of the ODM model rather than the OEM model.

Brian Coleman - Hawk Hill Asset Management

Okay so a camera design win just looking at the sheer number, 100 and something million cameras sold, digital cameras sold every year, you divide that up into the handful of large camera companies, a design win with a Tier 1 camera company should have some pretty substantial then with it, shouldn’t it?

Brian Faith

I think it really depends on the SKU that you get into. The higher functionality the lower the volume typically and you can imagine that guys that are wanting to adopt more Smartphone like displays that we have been talking about tend to be at the higher end of the spectrum.

Brian Coleman - Hawk Hill Asset Management

Yes true. Okay, the MHL feature that you have talked about, that you are starting to see is that primarily going to be prevalent in Asian markets or do you see that or is the demand for the feature in other markets as well?

Andy Pease

Well I think to be in demand with any mobile device that wants to try and drive a TV through a wire line through a mobile device, be it a tablet or a smartphone. So essentially a lot of people don’t realize that if you have got a Samsung handset right now you probably already have MHL, because MHL shares the same socket as a micro USB socket. So that micro USB socket at the base of your smartphone also actually can accommodate an MHL to HDMI cable. So MHL would plug into the micro USB slot and obviously HDMI would plug into your TV.

Brian Coleman - Hawk Hill Asset Management

Okay and then you have talked recently about initiatives with sensors. Can you just kind of give us a timeline on how that market is going to develop for you and when there could be commercial opportunities?

Andy Pease

Actually I do not recall mentioning censors publically yet.

Brian Coleman - Hawk Hill Asset Management

I thought there was a comment.

Andy Pease

No I am pretty sure that we didn't say anything about sensors.

Operator

Our next question comes from Bob West of Technical Research.

Bob West – NI Technical Research

I wanted to begin by asking you a question or two on the Tier 1 customer you have announced. I can affirm this is probably a sensitive subject but it would be helpful if we could get some color on the delay. Was this a customer that's booked back in the December time period, was it one of the three? And what else could you tell us about the delay?

Andy Pease

Firstly, we were certainly on this guy on Q4 but I wouldn’t say that there was one of the two that we have mentioned, we booked Q4, no. But the delay was actually two things. One is the customer had a delay of their own, not due to; it was a technical delay that had nothing to do with QuickLogic and the second contributing factor is the customer decided that from an order fulfillment point of view, they wanted us to be a direct supplier, as opposed to supply them through a channel a partner. So, those two really contributed in the delay.

Bob West – NI Technical Research

What are the longer term implications of being a direct supplier? Are there any?

Andy Pease

Well certainly, being a direct supplier is a good thing for any Tier 1 customer and I think it does open up other opportunities but beyond that I think time will tell. I think it certainly is a good sign and we view it that way. Is also has contributed to the delay because there is a lot of steps you have to go through to become a direct supplier.

Bob West – NI Technical Research

So, going back, in the last conference call; you indicated that you had taken three orders in late in Q4, as it fair that none of those shipped in Q4 but it sounds like maybe this might have been one of those three and two of them may have shipped in Q1. Is that a way to look at that?

Brian Faith

This Brian. The customer that we are referring to now, the Tier 1, we did not have an order in Q4 for that customer.

Bob West – NI Technical Research

So, you did have three orders though in Q4 and two of them were MIPI interface and one of them was LVDS?

Brian Faith

Two of them had MIPI to LVDS and one of them was RGB to LVDS.

Bob West – NI Technical Research

Okay. And what is the status of those orders? Did they ship in Q1?

Brian Faith

One of them shipped in Q4. The other two shipped in the beginning of Q1. Those customers are going through their pilot process and so we expect to be able to ship more to those customers in the future. But they are still wrapping up their pilot in their go-to-market.

Bob West – NI Technical Research

Okay. And then can you help me understand the pilot concept here, Brian?

Andy Pease

I think I'll take that. Bob, these customers are really what’s called IDHs in China and IDH stands for Independent Design Houses. There are several of them in China and what they do is when they go production, then they actually go to various operators and OEMs around world to sell their design. So, that’s why from a pilot design to a production design takes little longer than a typical OEM directly.

Bob West – NI Technical Research

That probably also explains why maybe your revenue is a little bit short in Q1. Would that be the case or not?

Andy Pease

I think the bigger issue was that we were counting on this tier I to ship towards to end of the quarter and the delays were really as a customer delay and again the idea that they wanted us to ship them directly instead of through a distributor.

Bob West – NI Technical Research

Okay. Then one other question, if I understood Brian correctly in response to your question of Brian Coleman, your current orders in Q4, which were BX orders, while the customers were interested in the VX, they have not yet converted to VX.is that correct?

Andy Pease

Correct, that’s right.

Bob West – NI Technical Research

Okay. Could I ask you a question about your currents business in Q2, did you indicate how many orders that you received in Q1 that were new VX or BX orders? Did you indicate that or could you give us that number, how many new orders you took in Q1?

Andy Pease

Actually we've never Bob, talked about our booking rate with new products before, we never talked about that.

Bob West – NI Technical Research

But you did indicate that you had taken some orders in Q1.

Andy Pease

Yes, that's true, we said that we took orders actually at the end of Q4 and that we were only able to ship one of those in Q4 and the others went into Q1. But I think one of the things you need to think about is the lead time typically for these products is about eight weeks or less and as you get into the tier ones it's probably less, rather than eight weeks.

Bob West – NI Technical Research

And in terms of Q2, your guidance for Q2 of $2.3 million, does that include any returns business VX, BX returns business assumption?

Andy Pease

Since we didn't really say what our going into Q2 backlog was, we really can't say one way or the other. I really would like to avoid what was returned and what was booked in the quarter but we feel very comfortable with the $2.3 million guidance. So going from $940,000 to $2.3 million, the three of us feel very comfortable with that number.

Bob West – NI Technical Research

I want to turn to little higher level questions if I can. On hand held phones, to my knowledge you have never discussed the use cases for they Kyocera handheld phones wins that you've received and you mentioned again last quarter and this quarter both they stole DHS handset uses two QuickLogic devices. Can you describe those use cases for us a little bit and are they Polar Pro 2 devices.

Brian Faith

I can give you some color Bob, but not probably to the detail that you're asking. We really reclassify these as smart connectivity because they provide solutions that are either in the memory, the wireless or the I/O subsystem, if you remember our black diagram that we used to talk about our solutions.

So they're in those, and in some cases they're combining functionality from multiple subsystems. I don't think that we said that we have two CSSPs in both of those phones. We certainly do have a Stola phone. So in the Stola we do have two CSSPs, correct. And you can just imagine if there's some logical partitioning for for best power consumption and performance that we do with the architects of the customer to make for those tradeoffs. So that’s how we came to the conclusion of two CSSPs for Stola.

Andy Pease

I think the bottom line here Bob if you think about the Kyocera as a customer of ours they are totally buying into our value proposition that we can provide them with hardware differentiated products which help them in their time to market and as Brian said all of the solutions that we’re working with today with Kyocera are in the smart connectivity area.

Bob West – NI Technical Research

I wanted to ask a question on Pico projectors. Last quarter you mentioned that DigiLife of being able Pico projector camcorder was shown at the CES Show in January in Las Vegas. Has that product gone into production as yet?

Brian Faith

There is another ODM Bob and so they’re taking that product that they showed at CES and they’re showing it to end customers. We’re still engaged with them but they’ve not gone to production yet as in production shipments to an actual OEM or labeled guy.

Bob West – NI Technical Research

Okay. Next question on Pico that I had is I know that this is probably a low profile market for you, at least in the current time because the demand is not there but do you expect additional V based Pico projector wins this year?

Andy Pease

Well, we’re working with Tier 1 on a Pico projector reference design and we are fairly bullish about. That is slated for the second half of the year and we’re also in the reference design with the light engine company and we hope that that will actually generate some designs towards the second half of the year, but you’re right the market really has not materialized like we hoped. Maybe it will maybe it won’t. We’re not putting a lot of sales and marketing effort into it because we’ve already got pretty much a completed solution with our VX2.

Bob West – NI Technical Research

Okay. Next question is on CertiVox. Could you amplify a little bit on the situation there? It sounds like CertiVox is handling this secure initiative on their own because the of the security requirements of it. Will they still use QuickLogic’s CX or other smart connectivity product as a hardware for that or do you know?

Andy Pease

Well, the key point here in CertiVox is the engagement with the customer that we mentioned a quarter ago and we highlighted in his call is actually a very confidential high security engagement. So beyond that I can't really talk to you much about that. Frankly, they can't even involve us in the design. So they are right now developing a proof of concept solution for this customer and should they be successful, they may come back to us with the CX implementation or they may not. It’s hard to say. They have got to be very hush-hush about this and frankly my efforts to find out more have been somewhat unsuccessful other than, I’ll have to kill if I told you.

Bob West – NI Technical Research

I think I will pass all that. Okay, the next area was at the Roth Conference, I want to ask a product development question. At the Roth Conference you presented updated connectivity and visual enhancement product roadmaps, and in that you noted that the Polar Pro 3 was planned to sample this year and I wanted to ask you some questions about that. One was what is the motivation for moving that ahead of the next generation CX and VX and what can you tell us about that product now?

Andy Pease

Well we want to say is little as possible because suffice it to say, if we are moving production ahead of it, we think that we have got good opportunity, and that’s really all I feel comfortable in talking about.

Bob West – NI Technical Research

And earlier Ralph mentioned that there would be no particular unusual development revenue this year for outside contract revenue, for things like a new product. How does that fit with the sampling fee for Polar Pro 3 this year and the CX in the first quarter of next year?

Andy Pease

The (inaudible) Bob were all consistent. If you go back, I think what Krishna was asking about is if you go back in the last year in 2011 we had two devices that were in development at the same time. So our operating expenses got very high because of that. Now we’re doing the Polar Pro 3 primarily. So we don’t see expenses jumping up like they did in 2011 and 2012. We see it at a much more natural rate, if you will. So that what I was trying to explain when Krishna asked the question. So it’s not in consistent with the sampling or getting the Polar Pro 3 out near the end of the year.

Bob West – NI Technical Research

Oaky that’s helpful. I appreciate that. I was kind of confused about how that would work. Now you are also planning to sample the next generation CX in the first quarter of ’14 as I recall from the chart. So that would still be consistent with that as well?

Andy Pease

Yes, we said 2014, we didn’t say what quarter but the next generation CX version, you are right it’s in 2014. I would like to say just a little bit to amplify this. So to add to what Ralph said, keep in mind that we did very little R&D effort from 2007 to about 2010 and as we have said in these calls I think we had the catch up with a roadmap and that’s why we had to do this unusually large spending. We believe that we're now caught up in more on a regular cadence.

So just because Ralph said there is no unusual spending doesn’t mean that we're not continuing to execute road map because what as I said in the call, roadmap execution is critical for QuickLogic to be successful. It’s not a once every four years evolution.

Bob West – NI Technical Research

Yes, I understand that full well and I understand the need and urgency of that and I have never objected to seeing development the popup plans it’s going outside for contract work on a new product. So it’s good thing.

One final question, at the recent Linley conference, Tim Sacks QuickLogic's CTO had made a very cogent case of the use of hardware I/O devices like the Polar Pro 2s, maybe the 3s sitting in between the app processor and input devices like accelerometers, magnetometer and gyros and those kind of things. Can you give us some color on this opportunity? Do you have any engagement underway? Is it some market opportunity that could also play into the Polar Pro 3 case. I remember earlier you said you didn’t want to get into that, so you don’t have to but just trying to get a flavor this opportunity.

Andy Pease

Yes so unfortunately the answer that I’ve got to give you is the same answer that I gave Brian Coleman when he was asking about sensors. It's an area that we're looking at. We'd got to just keep it at that. Tim has certainly spent a quite bit of time. The Linley conference, he presented a technical presentation on the value and so I think we will talk more about that when we can. Believe me.

Bob West – NI Technical Research

Well listen thank you and best wishes for the quarter ahead and congratulations on shipping to your first Tier 1 customer that I'm aware of at least.

Operator

At this time I would like to turn the call over to Andy Pease, President and CEO of QuickLogic for any closing remarks.

Andy Pease

Yes I just want to thank everybody for your support. Our Q2 2013 earnings conference call is scheduled for Wednesday, July 31, 2013. We will talk to you all then. Good bye.

Operator

Thank you sir and thank you ladies and gentlemen for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.

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