QuickLogic's (QUIK) Q2 Loss Narrows Y/Y, Q3 Outlook Dismal

QuickLogic Corp. (NASDAQ:QUIK) reported adjusted loss of 5 cents per share in second-quarter 2017, which was in line with the Zacks Consensus Estimate by 3 cents but narrowed on a year-over-year basis.

Revenues of $3 million increased 11.4% from the year-ago quarter and meet the Zacks Consensus Estimate. Segment wise, new products (49.2% of revenues) surged 24.5% year over year to $1.5 million. Mature products (50.8% of revenues) inched up 1.1% to $1.5 million. Samsung (KS:005930) accounted for 21% of total revenue as compared with 22% during the previous quarter.

Management lowered guidance for the third and fourth quarter of 2017, primarily due to delay in certain key design wins. However, the company believes that growth drivers in the wearable, hearable and IoT applications are intact. This will help QuickLogic deliver sustainable new product revenue growth starting fourth-quarter 2017.

QuickLogic has lost 5.8% of its value year to date versus the 24.6% growth of its industry.

Product Details

QuickLogic’s EOS S3 Sensor Processing Platform was selected by Qiwo Smartlink Technology Company and Janyun during the quarter. Management anticipates production shipments to support initial OEM orders that will start in the fourth quarter of 2017. These companies have also stated their intent to use QuickLogic’s EOS S3 in future designs.

Moreover, the company entered into collaboration with AISpeech, a leading enterprise of Artificial Intelligence (AI) speech technology that is focusing on the Chinese market.

QuickLogic released new voice "Barge-in" feature, which uses acoustic echo cancellation (AEC) technology to enable verbal commands even when there is background sound. Moreover, the company launched new sensor fusion software from developer CyweeMotion that supports EOS S3 in smartphones using the Android "Nougat" operating system.

QuickLogic established a support center in Taiwan to accelerate the adoption of the company's eFPGA IP. The center is helping the company in building engagements with prospective customers, which can be eventually turned into design wins.

Strengthening Advisory Board

Moreover, during the quarter, QuickLogic hired Bernie Rosenthal who was a co-founder of Tensilica – acquired by Cadence Design Systems (NASDAQ:CDNS) in 2013. Per management, Bernie Rosenthal who has extensive experience in handling negotiations with top-tier semiconductor companies and OEMs will be instrumental in refining QuickLogic’s IP business model.

Operating Details

Reported gross margin expanded from 28.6% in the year-ago quarter to 45.6% in the reported quarter, primarily due to higher IP license revenue and better product mix.

Reported operating expenses declined from $6.3 million in the year-ago quarter to $4.9 million, primarily due to the cost savings from QuickLogic’s strategic realignment efforts.

Non-GAAP operating loss was $3.2 million narrower than loss of $4.7 million in the year-ago quarter.

Growth Drivers Intact

For third-quarter 2017, management projects revenues of approximately $3 million (+/- 10%). New product revenues are forecasted to be almost $1.7 million, while mature product revenue are projected to be $1.3 million.

Gross margin is anticipated to be approximately 45% (+/- 3%) benefiting from recognized IP license revenue and a favorable mix of customers and products.

Non-GAAP operating expenses are expected at approximately $4.6 million (+/- $300K).

At mid-point of guidance, non-GAAP loss is expected to be approximately $3.2 million or 4 cents per share.

For the third quarter, management expects to use cash between $3.0 million and $3.5 million primarily due to working capital needs and capital expenditure associated with the company’s eFPGA development effort.

QuickLogic believes that solid growth prospects along with improving customer engagement will help it to deliver its target operating model of greater than 50% revenue growth at a non-GAAP gross margin range of 45% to 50% in 2018. Moreover, non-GAAP operating margin will be more than 10% as revenues increase.

Zacks Rank & Key Picks

QuickLogic carries a Zacks Rank #3 (Hold). Applied Optoelectronics (NASDAQ:AAOI) and Infineon (OTC:IFNNY) with a Zacks Rank #1 (Strong Buy) are better-ranked stocks in the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Applied Optoelectronics and Infineon is currently pegged at 18.75% and 14.75%, respectively.

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