QuickLogic Corporation (QUIK) CEO Brian Faith on Q3 2018 Results - Earnings Call Transcript

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About: QuickLogic Corporation (QUIK)
by: SA Transcripts

QuickLogic Corporation (NASDAQ:QUIK) Q3 2018 Results Earnings Conference Call November 7, 2018 5:30 PM ET

Executives

Moriah Shilton - Investor Relations

Brian Faith - President and CEO

Dr. Sue Cheung - Chief Financial Officer

Analysts

Gary Mobley - Benchmark

Suji Desilva - Roth Capital

Richard Shannon - Craig-Hallum

Rick Neaton - Rivershore Investment

Operator

Hello and welcome to the QuickLogic Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded.

I would now like to introductions your host for today’s call, Moriah Shilton. You may begin.

Moriah Shilton

Thank you, Towanda. Welcome, everyone, and thank you for joining us today for QuickLogic's Third Quarter Fiscal 2018 Results Conference Call. With us today are Brian Faith, President and Chief Executive Officer, and Dr. Sue Cheung, Chief Financial Officer.

Before we begin, I will read a short safe harbor statement. Some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties, including but not limited to stated expectations relating to revenue from new and mature products, statements pertaining to QuickLogic's future stock price and performance, design activity and its ability to convert new design opportunities into production shipments; timing and market acceptance of its customers' products; schedule changes and projected production start date that could impact the timing of shipments; the company’s future evaluation systems; broadening the company’s ecosystem partners, expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash.

These statements should be considered in conjunction with the cautionary warnings that appear in QuickLogic's SEC filings. For additional information, please refer to the Company's SEC filings posted on its website and the SEC’s website. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainties and that future events may differ materially from the statements made. For more details of the risks, uncertainties and assumption, please refer to those discussed under the heading Risk Factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, the Company filed with the SEC on March 9, 2018.

These forward-looking statements are made as of today, the day of the conference call, and management undertakes no obligation to revise or publicly release any revisions of forward-looking statements in light of any new information or future events.

Please note, QuickLogic uses its website, the Company’s blog QuickLogic HotSpot, the corporate Twitter account, it’s Facebook page and LinkedIn page as channels of distribution of information about its products, its planned financial and other announcements, its attendance at upcoming investor and industry conferences, and other matters. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD.

The conference call is open to all and is being webcast live. We will start today's call with the Company's strategic update from QuickLogic CEO, Brian Faith. And then CFO, Sue Cheung will provide financial results and guidance. Brian will deliver closing remarks and open the call for questions.

At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian.

Brian Faith

Thank you, Moriah, and thank you all for joining our Q3 2018 conference call. I have quite a bit of exciting news to share with you today that bolsters our outlook for 2019 and beyond. Since our last conference call, we have expanded the scope and value of our MOU with a leading Japanese smartphone company. We’ve broadened our involvement with the leading consumer electronics company we mentioned on our last conference call that is designed in our EOS S3 and AC powered always on, always listing application.

We have initiated a new EOS S3 engagement with the leading consumer goods company for a high-volume AC powered always on, always listening application in yet another new market sector for QuickLogic. And I’m very proud to announce we are forecasting material QuickAI revenue for Q4 2018. An important point for QuickLogic that I want to highlight is the fact we are seeing mounting evidence of a broad industry shift from push to talk to always on, always listening voice interfaces. Our recent design wins and engagement activity suggest this trend is in the process of expanding into a very wide range of end markets many of which are totally new markets for QuickLogic. This just to always on, always listening is important for QuickLogic because there is a focus on minimizing the power consumption of the interface and that is where our multicore EOS S3 has a clear competitive advantage.

We are even seeing a focus to minimize power consumption in AC powered products that are obviously not worried about battery life that need to comply with new energy standards that limit standby or vampire power consumption. This was the driver for the leading consumer electronics company that selected our EOS S3 for new products that will be shown in a couple months at CES and it is also the driver for our engagement with the leading consumer goods company.

The shift to always on, always listening is also punctuated by the release of Amazon's new close talk certification specification for always listening products. Prior to the release of the specification all the Alexa compliant hearable and wearable devices in the market were push to talk. There are a variety of good reasons why Amazon took time and care and drafting its new close talk certification, that they can be boiled down to ensuring the quality of the Alexa experience across a vast number of third-party devices is consistent with the consumer expectations that Amazon has carefully fostered with its smart speakers. After implementing a software revision to accommodate a new requirement we tested our EOS S3 against the close talk certification test with one mic and two mic configurations. Both configurations pass the test.

With the specification released and the assurance of our internal test results our hearable customers are implementing our latest software, and modifying their designs as necessary to ensure compliance. One of our larger customers is close to completing the cycle and will submit its hearable device Amazon this month for certification. Our other customers are in various stages of internal testing and design modification, based on what we know today we expect the first of these products to move into production late this quarter and the balance during Q1 2019. While these delays impact our Q4 revenue outlook by more than $0.5 million. We now have a much clearer roadmap to revenues then we did three months ago.

We have made solid progress on all fronts of our ArcticPro embedded FPGA IP initiative on the salary side of the equation, we completed our qualification for global founders 22 nanometer FDSOI fabrication process that is marketed as 22 FDX. This means we have three process and qualify the global founders and that QuickLogic is the only source for embedded FPGA IP that is qualified on an FDSOI process. This is important because the goal of foundry's 22 FDX process is optimized for lower power and low cost and is been targeted by numerous semiconductor and systems companies for new SOC and ASIC designs. These include several of our ongoing ArcticPro eFPGA engagements and the risk parallel ultralow power or PULP IC from ETH Zürich, which some of our customer engagement intend to use as a platform to evaluate our ArcticPro embedded FPGA IP. In addition to global foundry, we also have a fabrication process qualified at SMIC and PSNC and have completed according to support a second, and more advanced fabrication node at TSMC.

On the customer side of the equation the new go to market strategy we introduced earlier this year continues to break the Catch-22 loops that were stalling our engagements. The short story is semiconductor companies wanted to run test chip experiments with our embedded FPGA technology before committing a significant amount of money to acquire an IP license for new SOC design. To accommodate this and move the engagements forward, we created a master technology license agreement or MTLA. This solved two problems. First, it enables semiconductor companies and OEMs to build test chips using our ArcticPro embedded FPGA IP for only a modest cash investment. This provides them an opportunity to evaluate and quantify the benefits of our embedded FPGA IP ahead of making a commitment to new SOC design. Second, the MTLA defines the terms and conditions of follow-on IP licenses.

This means the vast majority of negotiations and legal work is accomplished within the MTLA and the follow-on license agreements for targeted SOCs amount to only a couple pages that can be executed quickly without disrupting the design flow. This is often critical since an SOC design group that wants to use eFPGA otherwise decide it does not have the time to go through tedious corporate level approvals and license negotiations. The strategy also enhances our position with large semiconductor companies with an MTLA in place and test chip in place, SOC design groups throughout large semiconductor companies are exposed to the availability of our solution and can realistically consider it just as they would other IP blocks that are typically included in SOC designs.

We signed our find our first two MTLA with ETH Zürich and C-Sky, which was subsequently acquired by Alibaba. In line with the outlook we shared last quarter, we are on pace to sign additional MTLA with semiconductor companies this quarter. C-Sky and the IT R&D team and Alibaba's Discovery, Adventure, Momentum, and Outlook economy or DEMO are the corner stone of Alibaba's new semiconductor initiative called Pingtouge Semiconductor.

We believe our MTLA with C-Sky will drive multiple SOC licenses beginning in 2019. ETH Zürich selected our ArcticPro embedded FPGA for use in its risk five pulp platform that will be fabricated using global foundry's 22 FDX fabrication process. ETH is currently targeting the tape out for its pulp platform later this quarter and stated it will develop a number of compelling use cases that highlight the benefits of our embedded FPGA IP. The pulp platform will give our potential IP customers the ability to evaluate the power savings and performance improvements that ArcticPro embedded FPGA hardware implementations deliver relative to software solutions running on an integrated risk five processor.

This is critical for many use cases where designs must maintain the flexibility needed to adapt to new algorithms yet still be optimized for performance and ultralow power consumption. This is a very common use case for discrete FPGAs today. As we moved out of ESO S3. I'm proud to announce we shipped record ESO S3 revenue in Q3 and continue to win some very impressive high line designs. However, we also continue to deal with one frustration. There was a shift in priorities that the tier 1 smartphone customer that we've been working with for quite some time on three product designs. As I reported in our last conference call our EOS S3 was one of two competing ICs for the high-volume consumer wearable device that customer is targeting to have production ready by the end of 2018. However, due to a new wearable product that was recently introduced by our customers competition the consumer wearable design was pulled back for review and the customer is dedicated 100% of its resources to reevaluating the design. As it stands today our EOS S3 remains one of two solutions in the running for this design.

Working in our favor is the fact EOS S3 has lower power consumption, a smaller package size and lower costs than our competition, while battery life PCBs facing costs are clearly important the customer is considering adding features that would require to use the competitive solution that has more on-chip memory. Due to customers all hands on deck focus on the consumer wearable final qualification and testing for our design win in the other wearable device and EOS S3 evaluation for hearable device have not moved forward since our last conference call. Last May, Naver Labs released its first consumer product, the Aki smartwatch which uses our EOS S3 to enable its always on, always listening voice interface. Naver Labs recently received notice from a supplier that a key component used in Aki will be discontinued.

As a result Naver Labs is faced with the choice of redesigning Aki, making a lifetime by the component or combination of both options. We have not received notification from the Naver Labs yet as to what it will do. Due to this we are modeling only modest shipments to Naver this quarter for Aki. While this is clearly an unexpected setback we developed a close working relationship with Naver Labs during the Aki development cycle that extends to its senior executives. Through this and the design experience and IP that Naver Labs have developed while working on Aki our EOS S3 has been selected for a new wearable design that is targeted for release in 2019.

EEBDK had a very successful launch of its two new educational tablets that use our EOS S3 to enable easy and intuitive voice communications. As is the case for US suppliers Q3 is seasonally strong quarter for educational products in China due to this, we are anticipating a seasonal decline in Q4 followed by a seasonally stronger demand in Q1. We have ongoing engagements with the EEBDK for a new high-volume product that is scheduled for release in 2019.

Last quarter I announced that we signed an MOU with a large Japanese smartphone company. Since then we've expanded the scope and value of the agreement significantly. With this expansion, the OEM has agreed to standardize on our EOS S3 for all of the MCU applications in smartphones, future phones and IOT products. The selection of EOS S3 as the standard to be used across a broad scope of products by a major OEM is a big and unprecedented deal for QuickLogic.

Last quarter I mentioned a very significant design win with a leading consumer electronics company. While we continue to operate and restrict under a NDA with this company I can provide the additional color I committed to have this quarter. The design is in a new consumer electronics product class for QuickLogic. The core platform, the core design is a platform that will be used by multiple OEMs. In total there could be 10 or more models from various OEMs that use this platform design for an integrated version of the platform. The lead OEM is integrating the design into four initial models that we believe will be shown at CES. Higher volume models are expected to have values that range from low to mid seven figures. We expect to initiate production shipments with the first models introduced at CES in late Q1 2019 with volume ramping in subsequent quarters. And we are in the early stages of the new design opportunity with this OEM that originated from the platform design.

In addition to our recent success in consumer electronics we are in the early stages of an EOS S3 engagement with a leading consumer goods OEM. This application represents yet another totally new product category for QuickLogic and has low to mid seven figure annual potential. If we are successful in winning the design, we expect it will move into production during the first half of 2019. We are also working closely with this company as it evaluates EOS S3 for a new platform design that targets the variety of high volume consumer products all of which would represent new product categories for QuickLogic.

Before I turn the call over to Sue, I have some very exciting QuickAI news to share. I'm proud to announce that we anticipate reporting material QuickAI revenue in the fourth quarter. And looking towards the future we believe this first QuickAI design win will drive low seven figure revenue in 2019. In addition to this we already have several other QuickAI engagements that have the aggregate potential to drive low to mid seven figure revenue in 2019 and have product life cycles that extend for years beyond that. We have opened a new engineering office in San Diego to support these engagements and other QuickAI development activities. I realize that given their very rapid move from introduction to material revenue leaves you with many questions and I'm as anxious to provide those answers as you are to hear them. However we are not quite ready to tip our hand to the competition, our plan is to provide more color about QuickAI later this quarter and with that illustrate how our EOS S3 SoC played a very important role in the high value integrated solution.

I would now like to turn the call over to Sue for discussion of the financials. Sue?

Dr. Sue Cheung

Thank you, Brian. Good Afternoon and thanks to everyone for joining us today. Please note we are reporting our non-GAAP results. You may refer to the press release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR web page that provides current and historical non-GAAP data.

For the third quarter of 2018, total revenue was $3.5 million and within our guidance range. Our new product revenue was $1.5 million and mature product revenue was $2 million. New product revenue was below our expectations due to delays associated with deliveries of Amazon certification. And mature product revenue was above our expectation due to higher than usual seasonal demand.

Due to our continued success in diversifying our customer base, we had four customers with greater than 10% of total revenue in the third quarter, our Q3 2018 gross margin was 50.5% and within our forecasted range.

Operating expenses for Q3 rounded up to $4.5 million and were within our forecast mid range. R&D expenses were $2.2 million and SG&A expenses were $2.2 million. R&D expenses were lower than anticipated due to the timing of certain engineering projects. The net total for other income expense and taxes in Q3 2018 was $33,000 charge which was below our forecast due to foreign currency exchange and fluctuation. Net loss was $2.7 million or $0.03 per share which was within our forecasted range.

Net cash usage during the third quarter was $1.6 million, significantly below our expectation, the lower than expected cash usage was driven mostly by a large increase in accounts receivable which was attributable to the timing of the shipments in Q2 and Q3 that more than offset a decline in our accounts payable. Cash usage also benefited from $120,000 decrease in net of the reserve taken during the quarter.

In September we entered into a new loan agreement with Heritage Bank of Commerce for $9 million revolving line of credit. This credit facility increased our access to working capital expense the term for two years and it replaces in the prior $6 million of credit facility with Silicon Valley bank.

As we noted on our balance sheet we have a borrowed of $9 million from this new facility which illustrates to our customers that we have the capital intent to support their orders. We’re confident that Heritage Bank is the right partner to support our future working capital needs as our revenue grows.

Turning to the fourth quarter 2018 outlook. Our revenue guidance for Q4 is approximately $3.5 million plus or minus 10%. Total revenue is expected to be comprised of approximately $2 million of new product revenue and $1.5 million of matured product revenue. The sequential increase in new product revenue is expected to be driven mostly by higher yield S3 revenue which includes a material revenue contribution from QuickAI that more than offsets the anticipated decrease in display bridge revenue. On a non GAAP basis we expect our gross margin to be approximately 50% plus or minus 3%. We're forecasting non GAAP operating expenses had a approximately $4.9 million plus or minus $300,000. We expect our non GAAP R&D expenses to be approximately $2.6 million and non GAAP SG&A expenses to be approximately $2.3 million. The sequential increase in R&D expenses is attributable to higher forecast cost associated with our embedded FPGA and a QuickAI initiative. We expect our other income, expense and taxes will be a charge of approximately $60,000. At the midpoint of our forecast, our non-GAAP loss is expected to be approximately $3 million, or $0.03 per share.

As was the case in prior quarters, the main difference between our GAAP to non-GAAP results is our stock-based compensation expense, which we expected to be approximately $480,000 for the fourth quarter.

In Q4, we expect to use between $3.5 and $4 million in cash. The anticipated sequential increase in cash usage is mostly attributable to increase the R&D expenses and the timing of working capital requirements.

With that, let me now turn the call back over to Brian for his closing remarks.

Brian Faith

Thank you, Sue. Before opening the call for Q&A, I want to take a moment to highlight what I think are some important points for our investors to take away from this conference call.

The MTLA strategy that we introduced earlier this year to accelerate the adoption of our ArcticPro embedded FPGA IP is breaking the catch 22 loops that were stalling our license engagements. We signed two MTLAs this year and expect to sign several more this quarter. We believe we will start to see IP license agreements targeting specific SoCs beginning in Q1 2019. We are seeing mounting evidence that major OEMs are moving away from push to talk technology and adopting always on, always listening voice interfaces. This trend is likely to increase interest in our EOS S3 SoC from OEMs in a wide variety of end markets.

Amazon has released its new close talk certification for always on always listening products. We have numerous EOS S3 customers that have been waiting for this release and are now adapting to the new requirements that will enable them to brand their products as Alexa enabled. We expect the first of these products to move into production late this quarter and the balance during Q1 2019. We have significantly expanded the scope and value of our MOU, with the major Japanese smartphone OEM. With this the OEM has agreed to standardize on our EOS S3 SoC in all of its MCU designs and smartphones, feature problems and IoT products. We accept the first smartphone to be released during the spring of 2019.

Beyond mobile applications where EOS S3 SoC is often selected to optimize battery life we are winning designs in AC power products that target compliance with new standby power requirements. In these applications the ultra low power and the ease of using our EOS S3 or obvious benefits more subtle though is the multi core architecture that includes embedded FPGA. In these applications the embedded FPGA provides the flexibility needed for platform designs that most interface with multiple end products and the ability to reduce the chip counter designs by absorbing functions in the EFPGA that would otherwise require external ICs. We have won a major EOS S3 platform design with the leading consumer electronics company that represents a totally new market category for QuickLogic. We expect the first four products using an integrated version of the platform to be shown at CES in January.

Following that, we expect multiple OEMs to introduce a total of 10 or more new products using the platform design. The higher volume products have low to mid seven-figure potential for QuickLogic.

We are engaged with a leading consumer goods company for a high-volume AC powered design in another new market category for QuickLogic. If we are successful, we expect this design to go into production during the first half of 2019.

To say QuickAI is being well received would be an understatement. We expect to report material QuickAI revenue in Q4, which is several quarters ahead of our original forecast. QuickAI is a high-value integrated solution that brings EOS S3 into a vast number of new markets with product lifecycles that typically run for many years.

I am looking forward to providing more color about QuickAI later this quarter. And with that, I think you will appreciate its potential to deliver significant revenue in 2019 and beyond.

At the bottom-line, we believe our growth strategy for 2019 is sound and bolstered by our recent successes. We also believe we are set to enter next year with far less dependence on single designs, single customers and on products that require third-party qualifications.

Operator, I would now like to turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gary Mobley with Benchmark. Your line is now open.

Gary Mobley

I wanted ask you about QuickAI, I know you’re not going to share a lot of detail with respect to the type of customer, whatever you would get into the customer. But I’m wondering if the revenue that you’re generating from this engagement really is just NREs and the low double-digit million dollars in revenue from QuickAI you expect in 2019, is that in the bags so to speak and related to this early engagement?

Brian Faith

So firstly, it is not NRE, it is product revenue. And to your second question, this particular company has a broad set of markets and applications that they are targeting. They have been exploring how they can use AI as the key element of these products for quite some time now. So I think those are confluence of events for us where we’ve come with a solution that has value and integration. They've been looking at how they can deploy AI in an easy-to-use way and they have end demand for their product. So that confluence of events has sort led to today and it will be -- for next year it will be diversified across several different products with this company. When you say is it -- I think you said it within the bag or in hand, it’s -- we don’t have peers to cover all of next year, but we have a good relationship with this company and they have traction and I think that the combination of that gives us the confidence to give that outlook for next year.

Gary Mobley

With respect to the R&D effort for this project, why San Diego?

Brian Faith

That’s a good question. There is a huge software component to our solution now as we moved into processing, not just sensors but microphones, and AI is the other different level of complexity. And when we look at where a lot of the innovation is happening in AI in the world today, it’s just typically a lot of investment money in China and in the US and there is a lot of companies that are developing endpoint AI products in the US. And so we wanted for this type of initiative to have an R&D team that was strong in embedded software, strong in AI and very close to a lot of what we believe is going to be not just the R&D teams within QuickLogic that are executing on this but also our customers. And so if you look at San Diego it's an hour flight from the Bay area, they’ve got a lot of good software and embedded software engineers down there and the gentlemen that we've hired to lead that office for us actually has a PhD in AI of all kind. So when you look at that combination, it's kind of an over here.

Operator

Our next question comes from the line of Suji Desilva with Roth Capital. Your line is open.

Suji Desilva

So thanks for guiding the fourth quarter including the cash usage. Do you think that cash usage at this level will be steady or will it increase as you have to build inventory for some of the customers you expect to ramp in the 2019 timeframe?

Dr. Sue Cheung

Yes, so you are right. So as we ramp-up inventory, the cash burn will increase. But we can't see that average out, that’s about 3 million plus or minus at the current run rate level.

Brian Faith

And Suji let me just add on part of that because your question is really you to inventory, and I think one of the things that we want to obviously manage here is the build up of that inventory where we keep it in terms of where our processed finished goods to make sure that we do not hinder the ramp that went to similar customers. If you look at the inventory line that we have, a lot of that is actually kept in whip which takes the long lead time out going to foundry, the short lead time for us is a few weeks to go through assembly and now so we can take the package and how it actually goes to market. So in total right now I think our inventory is well positioned to cover probably the first $10 million worth or so above the EOS revenue and we’re coming in a good position right now for that.

Suji Desilva

And then also QuickAI obviously lot of interest here. I'm just curious I thought this would be a longer cycle product given it sounds more complex, yes, this should be turning pretty quickly. So I'm curious how that is happening with the engagements relative to traditional engagements and also is there a geographic customer interest, I don’t know, if you’re finding for QuickAI out of the gate?

Brian Faith

So a few questions there to answer. Firstly I do think there’s are lot of pent-up demand for bringing AI into a collection of customers that maybe don’t have so much PCB design expertise, hardware design expertise and embedded software. So the fact that our products that we are bringing to market integrates a lot of that work for the customers and makes it very easy for them to use. So the fact that we are already looking for sometime on how to bring AI to market it makes it a faster cycle for us.

I think we will see other customers have found that category as well in the near term. I do think that there is going to be a lot of the classic industrial IoT type customers that do have longer time to develop but we’re trying to prioritize the ones that are already committed to some form of AI and are just looking for a solution to use. That's how we are prioritizing.

To your question about geographies, we're being very purposeful about how we roll this out in terms of go-to-market, so we are focusing on areas where there is a lot of sort of industrial IoT products being developed that wanted to play AI, so Europe, North America, Japan and Korea first, after that we will start to spend more time rolling that out in geographies beyond what I just said.

Suji Desilva

And then last question here. The licensing starting here for the embedded FPGA, what's the flow of additional licensing revenue, how would you characterize sort of the milestones for the MTLA customers and the timeframe starts then, what would the progression briefly is going to be?

Brian Faith

So from an MTLA integration into a test chip and getting a test chip back and getting those use cases is probably on the order of around six months because of the cycle times of test chip. There are cases where I think we're compressing that cycle by doing things at ETH where their test chips are going to be back in early Q1. And so customers that are using that as an evaluation can use that to make a decision sooner, without doing their own test chip. And then there other folks that we’ve been engaged within the funnel for months in some cases quarters that I think may not necessarily have to go to that whole test chip in order to sign a deal which is why we’re talking about Q1 timeframe for doing actual licenses for revenue.

Operator

[Operator Instructions] Our next question comes from the line of Richard Shannon with Craig-Hallum. Your line is now open.

Richard Shannon

Let me follow-up on the last topic here with MTLAs. I’m going to ask a question before following up on the last statement you just made Brian. I think you said you expected a number of MTLAs to be signed in the fourth quarter there, is that correctly and can you give us any more detail on the magnitude of those?

Brian Faith

Yes. We did expect to sign several this quarter in terms of magnitude, are you talking about number or dollars?

Richard Shannon

Both of, anyway, if you can quantify either would be great.

Brian Faith

So I would say somewhere between one and five. I don't know exactly based on the timeframe of decision making for these companies, so it's not in someone’s hands. In terms of dollar value, I’d say dollar value for the MTLAs is not going to be a huge driver. We’ll try to make a very frictionless process for the company to get a hold of the technology and understand the value in terms of what we think those could translate into in actual real license revenue, that's probably north of $1 million in aggregate just for example.

Richard Shannon

And did I understand correctly based on the question of the prior caller is that, those were -- the foreign license revenues could happen in the first quarter?

Brian Faith

Yes.

Richard Shannon

Perfect, that's very helpful. And sorry for the random sequence of the questions here, and I got a question on the fourth quarter guidance here. I think Sue you talked about our growth into new product sales. Did I hear it correctly that that some of this is coming from QuickAI, wondering if you can characterize how the other remainder of growth in the new product category specifically S3 revenues from any of the Bluetooth customers are going through Amazon certification?

Dr. Sue Cheung

So it is mainly driven by EOS S3. So QuickAI is part of EOS category. Some of those -- so that’s the majority of products at QuickAI in EOS S3 and the other part will be driven by Bluetooth hearable thing that’s qualified for Amazon stack.

Richard Shannon

That is helpful. Just here a couple more questions, actually Sue a few on the R&D, I think you talked about being in the level of I think 2.6 million pro forma for the fourth quarter. How should we expect that to transition into 2019?

Dr. Sue Cheung

So expect that the range I’d say for R&D is going to stay at about 2.6 million or 2.8 million per quarter on average.

Richard Shannon

Brian may be a couple questions for you. I think in your prepared remarks I hope I got this correctly, because I think I got on the call a little bit late but I think you were referring to the Q1 smartphone OEM with what you have one -- you had one variable design win and were engaged in some others. Is that the OEM that you are talking about that it's shifted its priorities and you are kind of on hold there, is that accurate?

Brian Faith

Yes, that same Q1 smartphone OEM, correct.

Richard Shannon

Okay. So any visibility on when that could -- when that decision could be made and/or do you just kind of consider that on hold for the time being?

Brian Faith

I'm hopeful that they will made that this quarter because I know they originally targeted to have the first consumer went down by the end of this quarter. I'm not sure at what point in the call but I also talked about the fact that there is another product in the market that sort of caused them to have pause and go back and look at their whole planning process. So I'm hopeful to have this decision by the end of this quarter but I don’t know for sure.

Richard Shannon

Actually one or two last questions. Brian, did I hear you say that you've got a second process at TSMC that you are qualified on, so can you characterize it like the node or what applications you might target?

Brian Faith

We did kind of support another process maybe at TSMC and we will be coming out with a press release shortly that will give the details about that. So not going to do on the call today and we will make sure that those details are covered in the PR.

Richard Shannon

My last question for you before I jump online. Last quarter you talked about the wholesome expectation of 50% sales growth for next year, I didn’t hear anything on this call. Is that something you are still supporting or is it too difficult to support right now from your visibility?

Brian Faith

That's really full supporting, that's why I used the word bolstered in my opening and closing remarks. If you look at back at all of the diversification we've had in the sales funnel and the wins, the concrete wins with OEMs that are very large, the expansion of the MOU, all of those and then evaluate this sort of sooner QuickAI revenue than what we had originally anticipated, all that I think just gives us more confidence in our number for next year.

Richard Shannon

Just wanted to make sure because it sounded you’ve got some great progress and in particular in these platform wins, it sounded like I just wanted to make sure.

Brian Faith

Absolutely.

Operator

Our next question comes from the line of Rick Neaton with Rivershore Investment. Your line is open.

Rick Neaton

Can you provide anymore color on the ASPs for QuickAI revenue that you are expecting in the near term?

Brian Faith

Yes. I think well, stay tuned for really this quarter where you’ll really start to takeaway a lot more detail about the software, I’ve been trying to hold back a little bit for competitive reasons on this call. But just so that you all are aware for the QuickAI the ASPs should be in the mid double-digit range which is significantly higher than just EOS S3 and too the consumer product.

Rick Neaton

Last quarter you stated that you had actual license revenue opportunities at ETH Zurich for your work on me PULP Platform there in the eFPGA 22FDX node, is that still the case today?

Brian Faith

It is and just to clarify it's not with ETH themselves because they are a research university but it's from other companies that have or intend to commercialize the developments that ETH does do. And from those, yes, we do anticipate license revenue from those entities that are watching and/or working very closely with ETH Zurich.

Rick Neaton

You told the prior analysts that you're still supporting and you still feel confident in greater than 50% revenue growth in 2019 versus this year. Is that being bolstered by the higher ASPs and the higher opportunities in revenue from QuickAI?

Brian Faith

QuickAI certainly helps it because I think the value that we’re bringing and the ASPs of that solution, that’s one. The second is, just, again if you go back and you do a snapshot in time from a year ago till today, we talked about wins that we actually have and engagements we have, it’s a very different dynamic. Much bigger OEMs and control their own products with launch plans versus this time last year where we had a much narrower set of OEMs and more OEMs and ODM interest. So if you combine all that together, yes, that’s definitely what bolsters our thoughts on that. By the way the other thing too is just this whole notion and voices going everywhere from an Amazon point of you. If you asked me last year would be a consumer white goods product, would we be in a consumer electronics product that are wind powered? I would say, no. I don't think so. Man, here we are today. So all of these just add more evidence to me that next year is going to be the breakout year.

Rick Neaton

Speaking of the consumer electronics product platform, you said that this is a platform that's going to have multiple OEMs involved in the manufacture and sale of this particular product. Did I hear that correct?

Brian Faith

I think that is for OEMs, yes.

Rick Neaton

Okay. And when you talk about four products being displayed at CES in January, on last quarter you talked about 10 possible products coming out of this design win. Are these four of those 10?

Brian Faith

It’s a complicated ….

Rick Neaton

Did you understand my question?

Brian Faith

Yes I do understand your question. And it’s a complicated answer given by [NDA] that we have with this one company. Just four are of the 10 but if you -- it would be more than 10 individual products if we look at it in the same way. It’s a kind of complicated, I don’t want to go into specific without giving out too much at this point. Stay tuned for CES and I think we will be more clear at that point.

Operator

At this I would like to turn the call back over to Brian Faith for closing remarks.

Brian Faith

We will be participating at the following investor and industry events this quarter. The 4th Annual ROTH Technology Corporate Access Day being held at the Empire Steak House in New York on November 14th. The 9th Annual Craig-Hallum Capital Group Alpha Select Conference being held at the Sheraton New York Times Square Hotel in New York on November 15th. The ICCAD China 2018 Conference in Zhuhai, China on November 29th and 30th. The Benchmark Company Discovery One-on-One Conference being held at the Palmer House Hilton in Chicago on November 29th. The RISC-V Summit in Santa Clara, CA on December 3rd to 6th. The LD Micro Micro-Cap Main Event being held at the Luxe Sunset Hotel in Los Angeles on December 4th. A wide range of OEM products showcasing various QuickLogic devices will be at our demo suite at CES 2019 in Las Vegas from January 8th to 11th. We will also demonstrate the QuickAI Module for predictive maintenance and audio applications. We look forward to you seeing at these events. Our next conference call is scheduled for Wednesday February 13th at 2:30 PM Pacific Time.

Thank you for your participation and continued support. And good bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. That concludes the call. You may now disconnect. Everyone, have a wonderful day.