I wrote two articles on the QuickLogic (NASDAQ:QUIK) story and its potential going into 2014-2015. The last earnings call was very good in my opinion. The company's management affirmed that they are undergoing certain design activities in respect to the ArcticLink 3 S1 (S1), and they expect revenues from the S1 in the second half of 2014. I'll sum up the key points from the call.
Display Bridge Business Is Looking Great
The display bridge business looks great into the first half of 2014. The company thinks that the Samsung Tab 3 7.0-inch tablet ramp will continue to be a major revenue driver in the first half of the year.
"The Samsung GALAXY Tab 3 7.0 was the major driver for our Q4 revenue, and we expect it will continue to be a driver as we move through the first half of 2014."
Source: Q4-2013 call
More than that, on January 16th, Samsung announced the Samsung GALAXY Tab 3 Lite. This is a version of the Tab 3 meant for the mid/low-end market. I believe this is a great sign, signaling that QuickLogic display bridges are needed in more than just high-end products. On top of that, this deal solidifies the QuickLogic-Samsung relationship, which I believe supports the thesis that QuickLogic will win a sensor hub slot in future Samsung GALAXY smartphone models.
"I am very pleased to announce that we want to follow on the ArcticLink III VX design in Samsung's new GALAXY Tab 3 7.0 Lite, a cost-optimized version of the original Tab 3 7.0."
Moving forward, company President and CEO, Andy Pease, went on to announce two other display bridge design wins. These two design wins are in tablets manufactured by a tier 1 PC manufacturer. The cherry on top of this announcement was the confirmation of several other design wins with various Chinese tablet independent design houses.
"During Q4, we initiated shipments of our ArcticLink III BX platform to a tier 1 PC manufacturer to support production for two new tablets, and we continue to support multiple tablet designs with various Chinese independent design house customers."
All of the above makes me believe that the QuickLogic display bridge business is set for healthy growth going into 2014.
Smart Connectivity Business
The smart connectivity business continues to support a couple of handsets from Kyocera and PHS. The company commenced shipments of two other handset design wins, one to Kyocera and the other to PHS. Each phone contains two QuickLogic connectivity chips. There is another design win in a second PHS handset that will start shipping in mid-2014.
This should further support the first half of the year's expected growth.
Sensor Hubs Business
Andy Pease was rather mysterious regarding the identity of the current customers evaluating the sensor hub, but he was clear when he stated this:
"We have a number of active design engagements with leading mobile device manufacturers for ArcticLink 3 S1 and Polar Pro 3 that I continue to believe will lead to production revenue during the second half of 2014."
Now, we have a time frame. QuickLogic expects to start shipping sensor hubs in the second half of 2014. The company made it clear that its current focus is on Android devices, and that the first platform is architected with that thought. The first designs are expected to be catalogue sensor hubs, meaning that whoever the customer is, he is evaluating the chip with QuickLogic's own configuration and algorithms. As I described in my other article, QuickLogic is also offering customers the ability to fully customize their sensor hub to run their own algorithms and IP.
What "leading mobile device manufacturers" plan on launching new designs in 2014? Let's take a look:
S5, Note Neo
G2 Pro, G2 Mini
I expect that most of the above models will be launched at MWC 2014 in Barcelona later this month (February 29th). Lenovo has already launched four smartphone models ahead of the conference, so I suspect they are out of the range for now. Huawei launched a phablet in CES 2014, and their plans are being kept quiet for now, so that option definitely stays on the table. In my opinion, Samsung remains the top opportunity for the sensor hub, and winning a design with a Samsung smartphone could explode QuickLogic's revenues.
An analyst from Benchmark, Gary Mobley, asked Andy Pease about some bugs he encountered when he was in the QuickLogic booth in CES 2014. For some, Andy's answers didn't suffice as he said:
"Yes, Gary, it was nice seeing you as well and thanks for the congratulatory remarks. Yes, the issues that were present there, we have our arms around them and we are on class with our schedule, which was to introduce just the customers in the first half of this year and we do believe it will be Q1. So we are tracking very well to do that now. Needless to say, that's the highest priority at QuickLogic. "
This appeared as an evasive answer for some investors. But a couple of hours later, Andy stated in a blog post on the QuickLogic website that this was a non-issue and all of the problems were solved. If you want to read Andy's response, click here.
In conclusion, the tone of this earnings call was great. The company has a display bridge revenue engine that is set to full work through mid-2014. I believe wins/revenues from display bridges will continue to support future growth even after that point. In the middle of 2014, we should expect some sensor hub revenues to kick in. Depending on which model/maker the company is currently engaging, there is potential for QuickLogic's revenues to explode in magnitude. The key word here is execution. The company's management has been very successful until now (with ramping the display bridge business); however, we need to see impeccable execution on the display bridge business on one hand, and winning and ramping the sensor hub business on the other. I will continue to monitor this story and keep you posted as it unfolds.