QuickLogic Corporation Q4 2009 Earnings Call Transcript

Feb. 9.10 | About: QuickLogic Corporation (QUIK)

QuickLogic Corporation (QUIK)

Q4 2009 Earnings Call Transcript

February 9, 2010 5:30 pm ET

Executives

Tom Hart – Chairman & CEO

Ralph Marimon – VP of Finance & CFO

Analysts

Edwin Mok – Needham & Company

Brian Coleman – Hawk Hill Asset Management

Operator

Good day and welcome to the QuickLogic Corporation Fourth Quarter Earnings Results Conference Call. As a remainder today’s conference is being recorded. At this time I would like to turn the conference over to Tom Hart; please go ahead, sir.

Tom Hart

Yes, good afternoon, ladies and gentlemen, and thank you for joining us today for QuickLogic’s fourth quarter 2009 conference call. Joining me here today is our President, Andy Pease, and our CFO Ralph Marimon.

Ralph will take you through our fourth quarter results and then I’ll share my perspective on our business. And then following this, Ralph will detail our guidance for the first quarter of 2010 and then we’ll take some questions. Ralph?

Ralph Marimon

Thank you, Tom. I’ll take a moment to read a 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 growth from our new products, statements pertaining to our design activity, and our ability to convert new design opportunities into customer activity, market acceptance of our customers’ products, our expected results, and our financial expectations for revenue, gross margin, operating expenses, profitability, and cash.

QuickLogic’s future results could differ materially from the results described in these forward-looking statements. We refer you to the risk factors listed in our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and prior press releases for a description of these and other risk factors.

QuickLogic assumes no obligation to update any such forward-looking statements. For your information, this conference call is open to all and is being webcast live.

For the fourth quarter 2009, total revenue increased by 28% to $4.3 million, which was at the high end of our guidance range of $4 million plus or minus 10%. Our new product revenue totaled $2 million, which represents a 50% increase over the Q3 revenue level and was 48% of total revenue for the quarter. The growth in new product revenue was driven by shipments to our existing datacard customers plus the addition of one new datacard customer and one new strong authentication secure access cared customer. We are now in production with three of the top five datacard suppliers in the world.

Legacy product revenue increased to $2.2 million, which was a 14% increase over the Q3 level. Our non-GAAP gross profit margin for Q4 was 52%, which was above our guidance. The higher gross margin was driven by a higher-than-anticipated mix of legacy products and a sequential decrease in inventory reserves. Non-GAAP operating expenses for Q4 totaled $3.5 million, which was at the low end of our guidance.

R&D expenses totaled $1.2 million. Our SG&A came in at $2.3 million. Expenses continue to be favorably influenced by the variable cost model enacted during 2008 and the cash conversation plans put in place during the second half of 2009. As I outlined during our Q3 call, we continue to complement our internal fixed design resources with external sources that allow us to tap into the best design resources in the world and treat them as variable cost. As evidenced by the number of designs we are flowing into production and our design funnel activity, these resources have allowed us to quickly and efficiently engage a wide variety of opportunities with multiple customers.

Other income was a net expense of $38,000 and consisted primarily of interest charges and unfavorable foreign exchange losses. Our net tax expense was a credit of $59,000, which was due to favorable U.S. R&D tax credit earned during 2009. Our non-GAAP net loss was $1.3 million, or $0.04 per share compared with a net loss of $1.9 million, or $0.06 per share in the third quarter of 2009.

Our ending cash position of $18.2 million reflects an increase of $4.3 million from the Q3 ending balance. This increase is due to the funding we completed in November 2009, which was partially offset by cash usage in the quarter of $1.4 million. Cash usage during the fourth quarter was under our guidance of $1.5 million. One additional liquidity item to note is that our investment in Tower Semiconductor totaled $1.3 million at the end of the fourth quarter and as of February 7th is worth approximately $1.7 million. While we classify a portion of these shares as a long term investment, all of these are available for sale at our discretion.

Our GAAP results include stock-based compensation charges of $575,000 and a restructuring charge of $59,000. Our fourth quarter GAAP net loss was $1.9 million or $0.06 per share. Please see today’s press release for a detailed reconciliation of our GAAP to non-GAAP results as well as for detailed information on full year 2009 results. I will be joining you in a few minutes to discuss our guidance for the first year, but first Tom will update you on the status of our strategic efforts.

Tom Hart

Okay, thank you, Ralph. While 2009 started out as a very challenging year for the semiconductor industry, it ended up being a year of progress and accomplishment for QuickLogic. Some of the progress is easy to see, three consecutive quarters of sequential new product revenue growth being our most tangible accomplishment. As important as this accomplishment is, we believe that the foundation we’ve built will be even more important to our success going forward.

Two and a half years ago, we announced our intent to create a new business model, customer specific standard products, or CSSPs. We learned early in our pursuit of this model that to be successful, we would have to radically change not only our operational structure, but in fact our operating culture. Bottom line, we learnt that our operating model needed to focus as much on process as it did on platforms. While our platforms clearly have desirable features and provide high value solutions for both our customers and partners, the key differentiating ingredients are the process we have developed.

It is the combination of these platforms and processes that is providing us with the leverage to accelerate our strategic design activity on the way to becoming – on the way to expanding revenue. One tangible, and if I can borrow a term from the world economics, leading indicator of this progress is the proliferation of cooperative activities in the form of reference platforms we have established with some of the world’s larges and most respected technology companies. These range in scope from semiconductor industry leaders to relatively new and highly innovative semiconductor companies like Icera.

Collaborating with leading semiconductor companies can provide small companies like QuickLogic with enormous benefits. However, without a very clearly defined and specific strategy, tangible results are often elusive. To provide this clear definition and strategy we either have or in the process of jointly developing a total of 13 unique reference designs with these companies, up from nine at our Q3 conference call. When combined, these cooperative activities and the resulting reference designs provide us with significant advantage in leverage, exposure, and credibility that we believe will continue to fuel design activity and new product revenue growth.

CSSPs can be broadly defined as companion devices where the primary processors used and designs by our targeted customers. As companion devices, the CSSPs extend and/or enhance the capability of the processor, which is a primary selling focus for our partners. This is accomplished via the unique combinations of enhanced connectivity, co-processing, programmable fabric, and proven system blocks that are the essence of CSSP devices. By leveraging the flexibility of CSSPs in their reference designs, processor companies and their customers can accelerate time to market, let them tie in end market and address adjacent markets that have requirements beyond what the processor itself can support.

This describes one aspect of the process required to succeed in the CSSP business. More importantly, a critical element to our business is the system level architectural consulting we provide our customers. Our consulting activity allows for earlier and more intimate customer engagements leading to better solutions and multiple opportunities.

Okay, let’s get now to sharing what this combination of processes and platforms has produced. During Q4, we shipped CSSP production orders supporting four products in our strategic market segments to four unique customers. This is up from two products for two different customers in Q3. We expect production to start on five new products in Q1.

This represents three follow-on products with our existing customers and two new customers that are going into production this quarter. We believe this illustrates the broad desirability of the CSSP business model and even more importantly that customers are seeing ongoing value in utilizing this model.

During our Q3 conference call, we reported working on a total of 25 SSOs in our target markets with 15 unique customers. SSO was short for single sales opportunity and represents a specific design win opportunity in a specific contract product. As of this conference call, we’d expanded the active funne1 to 34 SSOs with a total of 15 unique customers. Our active funnel data does not include engagements that fall outside of our target market segments. Of course those segments are datacards, Smartphones. Smartbooks, Netbooks, Mobile Internet devices, and personal computing devices. We currently have customers in production making handheld printers, handheld POS terminals, PDAs, and gaming devices.

In the wireless datacard market, we shipped to three unique customers during Q4. These customers represent three out of the top five manufacturers in the wireless datacard market. In addition to the three ongoing production designs, we are working on four new designs with four of the top five manufacturers in the wireless datacard market. In total, we have eight unique customer engagements in this market. The say the least, the wireless datacard markets been a very target-rich environment for our CSSP platforms.

Shifting gears here, in virtually every IT survey I have read in the past few months, IT executives worldwide have listed security as a number one spending priority for 2010. We believe this high priority will continue to fuel the already vibrant demand environment we are seeing for strong authentication technology. CSSPs play a critical role in the design of our Tier One customer in this market segment. A strong authentication is a relatively new term that carries with it much more meaning than the words alone might imply. In short, strong authentication implies what is known as multifactor authentication, which is quantum leap from the security provided by simple passwords or single factor encryption.

You might have read during Q4 that memory sticks from three manufacturers that were being sold to secure or encrypted were in fact hacked using relatively simple techniques. These products did not employ strong authentication technology similar to that used by our customer. Our CSSP customer that is targeting markets were security ranks as the highest priority was not among the three companies that fell prey to the hacking. But we are not yet authorized to release the name of this customer. As we forecasted in our Q3 call, we shipped this customer production quantities in Q4 and are currently expecting to ship a second design incorporating two CSSPs to this customer during Q1.

An interesting development with this customer that illustrates how operating process can help keep us on the right side of Moore’s law is the migration path we have jointly developed with the customer. This customer’s current design employs two CSSPs and an ASSP. Together we have defined a new single-chip CSSP that will integrate the functions of the three aforementioned parts as well features that is supported by other peripheral chips and additional new features. This strategy allows our customer to move into adjacent markets and enables QuickLogic to significantly expand its value proposition.

What we have learned is that while there is no way of avoiding the forces defined by Moore’s law, there are ways to craft an operating strategy that optimizes our chances that are working in our favor. We have taken clear and consistent steps to optimize this operating strategy through our CSSP business model. This customer proves how QuickLogic can define and benefit from an integration strategy.

Let me now update on our VEE and DPO progress. While we are not yet reporting production revenue for our Visual Enhancement Engine, VEE, and our Display Power Optimizer, DPO, our design efforts with strategic Tier One customer continue to move forward. We are very pleased with both the customer reception to these technologies and the progress we have made. We are optimistic these efforts will result in high-volume production orders. Currently, we have 14 SSOs with ten unique customers at various stages in the active funnel and 10 reference platforms with six partners.

The Consumer Electronic Show that was held in Las Vegas last month provided us with a great opportunity to meet with key executives from customers in our strategic market segments and gave us visibility into the technologies that they were investing in for the future. In conference presentations held throughout this show, senior executives from some of the largest wireless service providers in the world focused on the new opportunities they want to leverage with MTM, or machine to machine, and the always-on technologies. MTM and always-on are inherently mobile computing and communication technologies and as such fall into our strategic market focus.

There are two aspects of these emerging markets that make them particularly attractive to QuickLogic. First, they both require the wireless connectivity and high-security technologies that we are already successfully addressing with Tier One customers that are likely players in these markets. Second, and possibly even more important is the fact that design flexibility is critically important in emerging markets were manufacturers must maintain actual designs that they can quickly adapt as consumers vote with their wallets for the features and functions they desire.

Flexibility and faster time to market are two of the key benefits customers enjoy when they embrace a CSSP design strategy. Though it’s far too early to forecast how these emerging markets will play out for us, I view them as indications that market trends and the demands those trends will drive are moving in a favorable direction for QuickLogic.

With that, I will turn the call back over to Ralph so he can present our guidance for Q1. Ralph, back to you.

Ralph Marimon

Thanks, Tom. During Q1, we expect to initiate production shipments with two new wireless datacard customers. In addition, we expect to see three new designs go into production with existing customer, one, in the wireless datacard market, and two, in the strong authentication secure access datacard market. While these and our ongoing new product production business should provide us with ample opportunity for growth in Q1, there are a number of variables that limit our customers’ scheduling visibility and as a result ours as well.

Virtually all of our new product business involves recently released or soon-to-be-released customer products. Due to this, there is only minimal run rate history for these customers. And as a result the visibility of end consumer demand is limited. Due to this limited visibility, we are continuing to take what we think is a conservative approach to new product revenue guidance and with that providing a fairly wide range for that guidance.

For the first quarter of 2010, we are estimating that total revenue be approximately $5 million plus or minus 10%. Out of this, we expect that Q1 revenue from new products will be $2.3 million plus or minus 10%. Our actual results can vary significantly due to schedule variations from the customers, which are beyond our control. Schedule changes, particularly those that may impact new product revenue, could push or pull shipments between Q1 and Q1 and change our actual results significantly.

As I mentioned earlier, we have seen an increase in demand for the legacy products. As a result, we expect that Q1 revenue from legacy products will be $2.7 million plus or minus 10%l.

On a non-GAAP basis, we expect gross margin to be approximately 54% plus or minus 300 basis points. This increase in gross margin percentage is driven primarily by the anticipated mix of products shipped during the quarter.

We are currently forecasting operating expenses to increase to approximately $4.2 million plus or minus $300,000. The increase in operating expenses is driven primarily by an increase in variable cost in chip development for our next generation device. Because of this new investment, R&D expenses are forecasted to increase to approximately $1.9 million while SG&A is forecasted to be approximately $2.3 million. Our other income and expenses will be charge up to $60,000 during the first quarter and any tax provision will be negligible.

Our stock-based compensation expense in the first quarter will be approximately $600,000. This is due primarily to the restricted stock program that is offsetting reductions in cash compensation for employees and executives. We are expecting to use approximately $1.5 million in cash during the quarter. The cash usage is driven by investments in R&D, including outside services related to chip development, purchased IP required in our next-generation device, working capitals as our revenue continues to ramp up as well as the forecasted loss during the quarter. Our breakeven point is still estimated to be at a revenue level between $7 million and $8 million depending on the new product development activities taking place at that time.

Now, I would like to turn the call over to Tom for his closing comments.

Tom Hart

I would like to close today by expressing my thanks to the team here at QuickLogic whose efforts are proving the value of the CSSP model and what it brings to our partners, customers, and end users. Our first quarter 2010 conference call is scheduled for May 6th and 2:30 PM Pacific Time.

Kevin [ph], now (inaudible) the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) And we’ll go first to Edwin Mok with Needham & Company.

Edwin Mok – Needham & Company

Hey guys, thanks for taking my question. First question is related to the new product. I think Tom you mentioned that you guys are shipping four products to four customers in the fourth quarter and in the first quarter you’d be shipping to three of the new four. Can I ask what happened to that one customer or did I completely misunderstand that?

Tom Hart

You are breaking up really badly, Edwin. I am sorry I didn’t get the full question. You are asking how many customers total we are going to shipping to in Q1.

Edwin Mok – Needham & Company

Sorry, let me try that again, I apologize for my phone. On the fourth quarter how many customers did you shipped to?

Tom Hart

We shipped four products to four unique customers.

Edwin Mok – Needham & Company

Yes. And in the first quarter you mentioned that you will be shipping to three of the four. I was wondering what happened to the one customer that you got (inaudible).

Tom Hart

No, no, in the first quarter we are going to be shipping to a total of six customers with nine parts in the first quarter.

Edwin Mok – Needham & Company

Okay. But I think on the prepared remarks you mentioned that you would be – well, three of the four customers will be existing, so maybe I misunderstood that completely then.

Tom Hart

I think you did.

Edwin Mok – Needham & Company

Okay, okay, that’s fair. And then on – these customer is primarily still in the datacard market. What about the other markets that you guys talked about. I think you guys have done – made some good progress in some of those markets. Any way you can share with us in terms of progress there especially – I am especially interested in the call it Smartbook or like a (inaudible) that market.

Tom Hart

Okay, well Smartbooks, Smartphones and PCDs and MIDs, we didn’t break out the exact numbers there, but we’ve got a lot of design activity going on with a lot of different customers. I think we did talk about the number of reference platforms in total that we are working we said were – there is 13 reference platforms with eight unique customers or partners at this point and what I can tell you is that 11 of those opportunities are with seven customers are for VEE. Sorry, sorry, VEE is 10 opportunities with six unique customers.

Edwin Mok – Needham & Company

Great. Actually that was – that’s very helpful for us to help quantify that. On the new – do you have the number of (inaudible) in this past quarter. On the new SSO now, are those mostly on the – still on the datacard market or are we talking about mostly MID or the visual based technology.

Tom Hart

Now everything going into production in Q1, we’ve said before and we are – and pretty consistent on this. We didn’t expect any significant revenue in the first half of this year off of Smartphones, Smartbooks, Netbooks, PCDs or MIDs. We said that we expected 2010 to be the bulk of our revenue to come off of broadband datacards and secure access cards. There is some good upside there…

Edwin Mok – Needham & Company

Yes, yes, I am sorry.

Tom Hart

There is some good upside there but we have not – that’s not in our plan and we haven’t talked about it externally either.

Edwin Mok – Needham & Company

Yes, sorry, maybe it’s my phone.

Tom Hart

Alternatively [ph] on the assets sold you mentioned they went from 25 (inaudible) quarter into 34 new ones in the fourth quarter. I was wondering if those are more new designs most of VEE versus maybe more like datacard, which is mainly that’s shipped right now

Tom Hart

Actually VEE was the bulk of the increase. The VEE went – was the – if you looked at it, it went up by nine from 25 to 34. The bulk of that was in fact VEE opportunities.

Ralph Marimon

Let me, let me – help clear something up, because Tom talks about designs interactive sales funnel. He also talked about the increase in our production. So, we’ve gone from four designs or SSOs that are currently in production to nine. So, out of those 25, five of those actually went into production, so we actually netted up a total of nine plus five or 14. Of the 14 that we netted up, half of them were VEE.

Edwin Mok – Needham & Company

Great. But is it fair to say that on the one that you shifting for production is more related datacard, but yet on the design funnel there is more VEE activity down the road, right, where you said of course you can't control the way the customers ramping their shipment, but at least the funnel indicated that’s where the – your business is shifting towards. Is that correct?

Ralph Marimon

Correct.

Edwin Mok – Needham & Company

Great, that’s very helpful. And then just two quick questions on the financials. Gross margin has come in actually quite strong and looks like it’s slightly above your target model. Can I ask if this is just a call it short term impact because of mix or should we expect the target to be close to – 54 guidance you are actually providing (inaudible)?

Ralph Marimon

I think in the short term the margin will be higher than the model because of the impact of legacy being stronger. But as the revenue ramps in the new products longer term then we’ll see a come back down to the model level, which we’ve always modeled at 50%.

Edwin Mok – Needham & Company

Okay, that’s fair. And then on the legacy business, it increased slightly sequentially. How do we probably look at that trending, and based on your guidance increasing more in the first quarter, right? Do you expect that to hit new run rate or do you – is it more just of a near term may be New Year purchase or anything like…?

Tom Hart

You know it’s – we kind of view it as a gift actually, Edwin, because we are betting on new products and that’s what our total focus is with our field and our engineering resources. We are certainly not ignoring the legacy business in terms of your ability to service – meet our customers. But we are not at all progressive – pursuing any new designs in that sector of the business at all. So, the recovery there I think is a function of what’s happened in the marketplace. We’ve modeled the number to be less than what we are talking about in Q1. And while we haven’t shared what that is, we are betting on new products.

Edwin Mok – Needham & Company

Great. And finally just on the operating expenses, $4.2 million mainly that comes from increased R&D, was it – is there any one-time item in there, because I know sometimes you have (inaudible) and you know that there is increase in cost just in one quarter. I am talking about the guidance for the first quarter, I am sorry.

Ralph Marimon

Yes, I understand. It’s not – the QuickLogic cost has not increased, what’s increased is the variable cost, the outside portion. Back in 2008, we did that realignment. And so because we are in the midst of a new chip development, we are incurring more variable cost, the outside services and so that’s what the (inaudible) to go up. If you look at QuickLogic itself our costs are pretty stable.

Edwin Mok – Needham & Company

I see. Any (inaudible) of looking at that progressing throughout the year and do you expect to stay at this level or moderate towards the second half.

Ralph Marimon

Well, we – firstly we don’t give out guidance down the road, but as this chip development progress and then falls off, you’d expect those variable cost to fall off as well. So, it’s just – it will come in wave as we go through the year. So, right now we are again be a little bit higher, and later when we are out of this chip development days it will come back down.

Edwin Mok – Needham & Company

Great. That’s very helpful. Thank you.

Tom Hart

You are welcome.

Operator

(Operator instructions) We’ll go next to Brian Coleman with Hawk Hill Asset Management.

Brian Coleman – Hawk Hill Asset Management

Great, thank you. Hey, Tom, my first question, can you just clarify the five designs you’ve got moving into production and you’ll be shipping against in 1Q, how does that split between the secure modem sticks and the sort of the secure datacard and the modems?

Tom Hart

Okay. Of the – well let me tell you in Q1 we will be shipping to six SSOs in production and five customers in the broadband datacard market. We’ll be shipping three SSOs to one customer in the secure access card. That brings – that will bring the total to nine total SSOs and six customers. Six unique customers.

Brian Coleman – Hawk Hill Asset Management

Yes, got it, okay. And can you reflect from memory in the datacard market, can you – do you have designs with – just the Icera or do you have Qualcomm based designs as well.

Tom Hart

In the datacard market we only have Icera designs.

Brian Coleman – Hawk Hill Asset Management

Okay. And there was pretty big jump in the number of datacard designs between 3Q and 4Q. Was there something – was there a specific catalyst for that, was there a new PSP, or was there something going on in the market that created that large surge in business for you?

Tom Hart

It’s called the CSSP leverage model. It means (inaudible) out of this. I think that anybody that moves and wants to build datacards and we are there with them in every one of them.

Brian Coleman – Hawk Hill Asset Management

So, is that a – is there a – is it sort of – is that kind of one-time in nature or could we expect to see that same kind of – is there the potential to see that same kind of volume of design wins going forward.

Tom Hart

I wouldn’t bet on it every quarter, but there is – we are a long way from being saturated at this point. I don’t know how many people in the world are going to make datacards, to be honest with you, but I think it’s going to be more significant than the six, which is where we are today. I think one of the things that is happening, or we are seeing in Q1 is the turn on of regional guys. Prior, the top five guys were – are international. And we are now beginning to see people turn on that are regional suppliers like to China exclusively into other regions.

Brian Coleman – Hawk Hill Asset Management

Okay. You said now I think at the end of where we are today you’ve got eight unique customers now designing in the datacard market, including four of the top five. Roughly what percent of the end market do they represent?

Tom Hart

The customers represent probably 90, maybe even higher than that, but not all of those – but that isn’t the share that Icera has and we are not in any of the designs that Qualcomm has, so even though the TAM is 90% of the total market, the same for Icera is not that large. And I am not sure what Icera is – well Icera is a private company – so I am not sure what they are telling the world about how many they are going to sell.

Brian Coleman – Hawk Hill Asset Management

Well I think it was a press release out of them only weeks ago that said they’d hope to have 33% of this market by the end of the year. I think that’s the timing.

Tom Hart

I’d love it if they do.

Brian Coleman – Hawk Hill Asset Management

And what percent then of the Icera side of this market would you think your attach rate would be?

Tom Hart

Well, it’s – in the module part of the business, which is a relatively smaller portion of their business, we are not involved in that at all.

Brian Coleman – Hawk Hill Asset Management

Right.

Tom Hart

In the card, the USB card part of the business, which is – my understanding is that’s 70% of their business or higher. We are virtually in all of that at this point on a forward going basis. Anything that has an SD, SDI O slot or SD, MicroSD card, we are involved in that.

Brian Coleman – Hawk Hill Asset Management

And that seems to be kind of the trend in the industry at this point.

Tom Hart

Well, it’s being driven by the operators. They’ve demanded that they don’t want to buy cards anymore from anywhere if it doesn’t have an SD, MicroSD capability. So, yes, the answer is yes.

Brian Coleman – Hawk Hill Asset Management

Yes, okay. And the Qualcomm exercise made up support for the SD reader?

Tom Hart

Yes.

Brian Coleman – Hawk Hill Asset Management

Yes, okay. On VEE–

Tom Hart

Albeit slower than ours, by the way.

Brian Coleman – Hawk Hill Asset Management

Is there – well, is there other opportunities then with SPIDA or any of the other PSPs to kind of penetrate the Qualcomm ecosystem on the datacard.

Tom Hart

Well, I won't say no, but I have to tell you that I think it’s unlikely. We – I mea they’ve been in that business quite a while now they are pretty self-sufficient in that. They are pretty tightly integrated and so I think our involvement with them will be in other spaces besides the datacard market.

Brian Coleman – Hawk Hill Asset Management

Okay. And I don’t know if it was last quarter, or the quarter before that, you talked about some of the – some Tier one communications companies that had kind of missed the USB modem market initially were starting to design and get into it. Can you give us a bit of an upside on where those companies are and where they are in terms of design and bringing their products to market?

Tom Hart

Not really because we are under NDA with those guys, but I can tell you that they are very interested and they see the market this year and now I saw new numbers. We are supposed to be a 90 million unit market this year. That’s obviously attracting a lot more people than it was – when it was on only a 20 million unit market. So I can tell you that they are committed to it and we are working designs with them on it.

Brian Coleman – Hawk Hill Asset Management

Okay. And I mean do you expect revenue from those types of customers and is that a first quarter, second quarter event?

Tom Hart

We expect revenue this year and we won't – at this point we can't discuss which quarter.

Brian Coleman – Hawk Hill Asset Management

Okay.

Tom Hart

But it’s near term

Brian Coleman – Hawk Hill Asset Management

Okay. Question for you on VEE. Is – can that be run from a dongle or does that have to reside on the device?

Tom Hart

It has to reside on the device because it’s got to be in the video path.

Brian Coleman – Hawk Hill Asset Management

Yes, okay, okay. And then last question, your timing for the Smartbook, Netbook, Smartphone has been second half 2010. Is that – are you getting any kind of qualitative sense from your customers there about whether there is some upside to that forecast and any additional urgency in their part to get to market quicker?

Tom Hart

There is urgency and at this point we don’t have anything firm, but I know that they are going for it. Several of them are really going for it. Other people, other players are – well they have taken their time, but there is – we are quite a ways along in several of these designs.

Brian Coleman – Hawk Hill Asset Management

Is it too early for us to be looking out for prototypes at trade shows and these types of things where we might start to see devices with VEE in it, or is that – or is it still too early to expect to see those types of prototype devices?

Tom Hart

Well, you will reference designs here fairly soon. I mean we are – as I said, we are working 10 SSOs with – or 10 reference platforms with six partners using VEE today. So this isn’t one or two guys that are kicking the can, this is – and one or two backroom projects. This is –there is a lot of activity going on there.

Brian Coleman – Hawk Hill Asset Management

Okay. It’s good news. And then I guess my last question. What was the share count at the end of 4Q and if it’s fully diluted with–

Tom Hart

Thirty four nine I think it was, Ralph?

Ralph Marimon

I mean at the end of January it was thirty five because you have to – the total shares on the day it’s probably thirty four and nine, but you are averaging in it. So, for EPS calculation at the end of Q4 it’s 32.5.

Tom Hart

Okay.

Brian Coleman – Hawk Hill Asset Management

But 34.9 is the fully diluted number at the end. And does that include the warrants or is that not included?

Ralph Marimon

No it doesn’t include, does not include the warrants.

Brian Coleman – Hawk Hill Asset Management

Does not? Okay. All right, that’s all I’ve got. Thank you very much.

Tom Hart

Okay, Brian.

Operator

(Operator instructions) And it appears we have no additional questions. I’d now like to turn the call back over to management for any additional of closing remarks.

Tom Hart

Okay, well thank you for your interest in QuickLogic. Think CSSPs and we look forward to seeing you on May 6th at 2:30 for our first quarter call. Thank you. Bye-bye.

Operator

And that does conclude today’s call. We do appreciate everyone’s participation.

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