Ladies and gentlemen, good morning. At this time, I would like to welcome everyone to QuickLogic Corporation Second Quarter Fiscal Year 2019 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through August 14, 2019. I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates.
Mr. Fanucchi, please go ahead, sir.
Thank you, operator, and thanks to all of you for joining us, calling in from Boston this morning in advance of their appearance at today's Oppenheimer Conference. Are Brian Faith, President and Chief Executive Officer and Doctor. Sue Chang, Chief Financial Officer. As a reminder, Some of the comments QuickLogic makes today are forward looking statements that involve risks and uncertainties, including, but not limited as stated expectations relating to revenue from new and mature products. Statements pertaining to QuickLogic's future stock performance, design activity and its ability to convert new design opportunities into production shipments.
Timing and market acceptance of the customer's products, schedule changes in production projected production start dates that could impact the timing of shipments The company's future evaluation systems broadening our 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 SE 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 assumptions, please refer to those discussed under the heading Risk Factors in the most recent annual report on Form 10 K.
Most recent quarterly report on Form Ten Q, recent forms 8 K and other documents we periodically file with the SEC. These forward looking statements are made as of today, the day of this conference call and management undertakes no obligation to revise or publicly release any revisions of the forward looking statement in light of any new information or future centered as a substitute for or superior to financials prepared in accordance with GAAP. You may refer to the earnings 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 webpage that provides current and historical non GAAP data. Please note, QuickLogic uses its website, the company blog, corporate Twitter account Facebook page and LinkedIn page as channels of distribution of information about its products, its planned financial and other announcements.
It's 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. A copy of the prepared remarks on today's call will be posted on QuickLogic's IR webpage shortly after the conclusion call. And with that, I would now like to turn the call over to Brian.
Thank you, Jim. Good morning from Boston, everyone, and thank you all for joining our Q2 twenty nineteen financial results conference call. A lot has happened since the close of Q2. Due mostly due to recent schedule changes that are outside our control, our full year 2019 revenue is now expected to lag significantly behind the outlook we shared last May and reiterated in June. Our revised 2019 outlook is for total revenue of $13,000,000 to $13,500,000 and non GAAP gross profit margin in the low 60% range.
At the dollars compared to 2018. After carefully evaluating our new design wins and the revised production schedules we have received from our customers during the the last several weeks, I believe we remain on track to achieve our goal of non GAAP and cash flow breakeven in Q1 2020 and profitability for full year 2020. With the cash we raised in June, we have strengthened our balance sheet to support these goals and I do not expect the need to raise further cash via an offering going forward. Just ahead of our June offering, We became aware that our military quickly and that production schedules would be accelerated resulting in full year shipments being in line with our previous outlook. Our sales channel has since confirmed directly with a U S Navy Admiral that production will be extended rather than accelerated.
This extension reduces our outlook for Q3 full year 2019 mature product revenue by approximately $2,000,000. The ongoing trade war with China has caused several of our customers to delay new product introductions. The threat of tariffs on certain Chinese consumer electronics products has disrupted the introduction schedule for 1 of our largest 2019 design wins. Our lead customer for this current models to take them through the holiday shopping season. As a result, the new models incorporating our EOS S3 for always on voice control that it had planned to begin shipping in Q3 2019 have been pushed out to Q1 2020.
We have discussed the situation with the consumer company that we worked with to develop the always on EOS S3 voice control reference design that was the basis for the lead OEM design. Through this, we've been advised they will wait for the lead OEM to bring their product to market which has been given several months of exclusivity. Following the release by the lead We remain confident that reference design will be used by multiple OEMs across numerous product models during calendar year 2020. While this will clearly benefit approximately $1,300,000. In the hearable market, we continue to support production for JD dot com SF Express in a variety of smaller EOS S3 design wins.
While we have encountered some new product introduction delays that are attributable to the trade war with China, We finally have a clear path forward With that and the revised schedules we have received from our customers, I believe revenue generated from hearable designs will ramp significantly beginning in Q4 2019. Amazon has created 2 levels of compliance for a terrible specification known as ADS closed talk. ABS closed talk certification is the specification for finished devices. Passing certification testing enables a finished device to be branded as ABS close top compliance. We believe the first finished device using EOS S3, which was submitted to Amazon last Friday, will pass the certification test later this month and be displayed by Amazon at the September IFA conference in Berlin.
To the best of our knowledge, this will be the 1st in ear hearable device that is certified by Amazon to be branded as ABS close top compliant. A level up from certification and with much more stringent criteria is ABS close top qualification This is a standard that reference designs must meet in order to be included on the Amazon ABS development kit webpage. The reason this test is more stringent is Amazon wants to ensure that a qualified reference design has enough guard band to enable new product designs to easily pass ABS close talk certification testing. Several months ago, We partnered with retuned DSP, which is the only voice processing software that has been awarded ABS close talk qualification. We have since that it meets ABS close top qualification requirements with only one microphone.
As a result, our customers that have one mic design should be able to move forward with certification testing once they port the retune software to their designs. We have been working closely with 1 of the world's largest hearable manufacturers to develop a complete and turnkey reference design using EOS S3 running retuned DSP software. We anticipate that design will be completed and delivered to Amazon for ABS close top qualification testing by the end of Q3. If successful, this reference design will be included on the Amazon ABS development kit webpage. In addition to retuned DSP, we have also formalized the partnership with Nuance Communications and ported its widely used wake word and voice command technology to EOS S3.
Nuance has been involved in voice processing software for over 2 decades and has a wide user base with particularly good penetration into China. While the delays we have encountered in the hearable market reduced our 2019 outlook by approximately $1,200,000 We believe we finally have a clear path for our customers that are targeting ABS certification for their products. With this, we believe hearable revenue will accelerate beginning in we continue to support the clear voice enabled Bluetooth speaker. As clear continues its expansion into European markets, we are optimistic that we'll see higher volume requirements for it in the second half of twenty nineteen. In We announced a new integrated alarm system or IAS reference design from Infineon that targets home, commercial and industrial IoT applications.
The Infineon IAS addresses the growing problem of false alarms by processing inputs from sound and pressure sensors. With this, the system can differentiate between noises from TVs or maybe a pet as opposed to a real event like an intruder breaking a window or opening a door. IAS can be implemented as a standalone product or integrated into a variety of multifunction IoT devices. A number of well known consumer product companies are currently evaluating the IAS reference design for integration into their products. Similar to the strategy used for Wi Fi and camera modules, a large module manufacturer has already designed a new low cost module based on the Fineon IAS that OEMs can easily integrate into finished IoT designs.
This module is scheduled for introduction before the end of 2019. We recently established a partnership new ultra low power Bluetooth low energy or BLE solution. Leveraging this and our new partnership with retuned DSP We have already won a new design with a large consumer electronics OEM for a voice enabled TV remote control. This design is scheduled for release in December 2019 and is forecasted to ship several 100,000 units in 2020. We are engaged with this customer on a I'm very pleased to confirm the Japanese smartphone OEM that we signed a broad MOU with in 2018 as designed our EOS S3 into 4 smartphones and one feature phone so far.
We shipped a modest quantity of EOS S3 to this customer during the first half to support preproduction builds of the first smartphone which is scheduled for release by a Japanese carrier later this month. Following that release, we expect production will ramp during the last 4 months of 2019. The release scheduled for the next three smartphones has been extended to late Q4 2019. The feature phone, which we expect will have 2 to 4x times the average annual volume of the smartphones, is currently scheduled for release dollars. In EFPGA, we finalized a license agreement with a prime military contractor in Q2 but has been commissioned by the DoD to evaluate and recommend embedded FPGA solutions and suppliers.
Military contractors already represent a large market for discrete FPGAs and the DOD is taking steps now that will make it easier for its contractors to incorporate embedded FPGA in ASIC designs. We are optimistic the evaluation of our solution will be favorable, And with that, help us close one of our ongoing engagements with a DoD contractor and lead to new opportunities for our embedded FPGA IP with other contractors. We had expected to finalize testing of the ETH parallelultralowpower IC that includes our EFPGA IP last quarter, However, given the travel and vacation schedules of key people from ETH, the qualification is ongoing. We expect the qualification to be completed during Q3 3. We are very close to signing a new MTLA with a semiconductor company and believe we are on track to finalizing a license agreement with another company during Q4.
As we've discussed in
the past, the Mcla generates only modest revenue but enables us and the customer to fast track SoC license agreements that generate considerably more revenue. In the broader picture, We have engaged with quite a few OEMs and semiconductor companies that would like to license our EFPGIP, but want us to modify it to suit their application and use case. The challenge here is the requested changes require what is often a significant R and D investment from QuickLogic that is unlikely to be leveraged to other opportunities. While some of these opportunities could work out well if the company develops an SoC or ASIC that moves into high volume production, We have determined the We are in the process of building out a more scalable go to market strategy that leverages the relationship and technology of some of our key partners. We look forward to providing details on this and full year 2019 outlook for EFPGA by about $600,000, but positions us for what we believe will be a very significant up for EFPGA IP revenue beginning in early 2020.
Let's shift now to wrap up with QuickAI and SensiML. Late in 2018, we launched a quick AI multi chip module or MCM initiative to accelerate our penetration into certain AI vision market. We have since decided that it will not provide us with the ROI or leverage of our key resources that we originally envisioned. There are several reasons behind this decision. 1st, the SensiML Toolkit provides us with unique competitive advantages in the time series AI market.
And with the rapid advancements made by SensiML, a significantly larger share of the time series AI market that we thought could be addressed with Standard Microcontroller architectures. 2nd, the emerging markets that can benefit from leveraging time series data to implement AI are much larger than we originally imagined, And with the enabling power of the SensiML Toolkit, many customers within these markets are ready to initiate development efforts now. 3rd, the initial gross profit margin for MCMs appeared to meet our model in the mid-sixty percent range, However, as we got deeper into the development and market research, we determined the required ongoing R and D investment to customize modules for various AI vision use cases, and the fact we didn't own all the silicon in the module would likely drag the margin significantly below our target model over time. Due to these considerations, we have decided to shelve the QuickAI MCM initiative. While it may have generated as much as $2,000,000 in revenue this year, determined the potential upside does not properly offset the high capital investment, high risk of declining margins, and the fact it was outside the time series we are seeing success with SensiML today.
SensiML continues to gain momentum. SensiML closed Q2 with a total of 12 staff customers, 4 of which are Global Fortune 500 Companies. This is up from only 3 fast customers at the end of Q1. We believe SensiML will close Q3 with 25 to 35 SaaS customers. And with that, increase its penetration into the Global Fortune 500.
While I recognize it is a very broad range, we believe SensiML will close 2019 with a total of 50 to 100 SaaS customers and realize its objective of cash flow and non GAAP profitability. We are particularly excited about a new Global Fortune 500 SaaS customer that is committed to developing a proof of concept design to implement time series ai at the edge of factory automation. In this case, the three floors. While we are not able to provide you with additional color at this time, SensiML has also taken some major steps that are designed to establish its toolkit as the defacto development tool for Endpoint Time Series AI. Before I turn the call over to Sue, I would like to take a moment to acknowledge Don Alexander, our new VP of Sales.
Don has broad based FTGA experience, a history of closing major deals and excellent relationships throughout the channel that are key to our long term strategy. We are very proud that he has decided to join the QuickLogic team. I would now like to turn the call over to Sue for a discussion of our recent financial performance in Q3 outlook.
Sue.
Thank you, Brian. Good morning, and thanks to everyone for joining us. For the second quarter of fiscal 2019, total revenue was $2,100,000, which was within the revised guidance range of $2,000,000 to $2,400,000 that were included in our Form 8 K filing on June 18. This compares with revenue of $3,100,000 in the second quarter last year. Of the $2,100,000 in Q2 revenue, sales of the new products were $700,000 as compared with $1,600,000 in the second quarter last year.
This decline was primarily due to a significant decrease in low margin connectivity and display bridge sales. That were not fully offset by increase the revenue from strategic new product sales. Our mature product revenue was $1,400,000, a slight decrease when compared with $1,500,000 in Q2 last year. In the second quarter, we had 2 customers each accounting for 10% or greater of sales. Gross margin in Q2 was 49.8% compared with 50.1% in the same quarter last year.
The gross margin was impacted by unabsorbed manufacturer overhead from low revenue. Operating expenses for Q2 twenty nineteen were approximately $4,800,000 compared with $4,500,000 in Q2 2018. Within our Q2 2019 OpEx, R and D expenses were $2,700,000 and SG and A expenses were $2,100,000. As compares with $2,200,000 $2,400,000, respectively, in Q2 2018. The increase in R&D expenses was mostly due to additional engineers acquired from the SensiML earlier this year.
The net total for other income expense and taxes in Q2 was the $101,000 expense compared with a $233,000 benefit in the second quarter last year. Net loss in Q2 was $3,800,000 or $0.04 per share. This compares with a net loss of $3,000,000 or $0.04 per share in the second quarter last year. Now turning to the balance sheet for Q2. The total cash at the end of Q2 was $28,200,000, The main changes in cash were the net proceeds of $8,300,000 from the public offering less than approximately $3,500,000 cash usage in the quarter.
Our cash balance at the end of the 2nd quarter also include the $15,000,000 draw from the bank revolving line of credit. Moving to our forecast for the third quarter of fiscal 2019, which will end on September 30. Our revenue guidance for the third quarter of 2019 at $2,100,000,000, plus or minus 10%. We believe total revenue will be comprised of approximately $1,000,000 of new product revenue and a $1,100,000 of mature product revenue. With our guidance for sequentially flat revenue, we currently believe or non GAAP gross margin will be approximately 51%, plus or -3 percent.
As well as the case for Q2, our gross margin will be impacted by unabsorbed and manufacturing overhead due to low revenue. We're forecasting non GAAP operating expenses of approximately $5,200,000, plus or -300,000. Within OpEx, we expect our non GAAP R and D to be approximately $3,100,000 and SG and A to be approximately $2,100,000. The $400,000 increase in total operating expenses from Q2 is due primarily to the timing of engineering consulting expenses and a one time cost associated with the reason the move of our headquarters to San Jose. We believe total OpEx will decline to the high $4,000,000 range starting in Q4 as these one time expenses roll off and we begin to benefit from the lower cost of our new facility.
After interest expense other income and taxes, we currently forecast our non GAAP net loss will be approximately $4,200,000 or $0.04 per share based on approximately 116,000,000 shares. The primarily The primary difference due to our GAAP and non GAAP results is our stock based compensation expense. Which we expect to be approximately $750,000. We expect our stock based comp expense or remain in this range of $700,000 for the mid $700,000 range for the foreseeable future. Finally, in Q3, we expect to use between $3,800,000 $4,200,000 in cash or expected cash usage will be impacted by low revenue and anticipated increase in working capital.
As a reminder to what I said in our last call, the move to San Jose is expected to be up net neutral to cash in 2019 and lead to an annual savings of approximately $500,000 starting 2020. We currently expect our Q4 cash usage will decline by more than 50% from Q3. Before handing the call back to Brian, I do want to mention that NASDAQ has granted us a 180 day expansion through January 13, 2020 to regain compliance with its minimum bid price requirement. This news was included in the SEC form 8 K was filed on July 18. With that, let me now turn the call back over to Brian for his closing remarks.
Thank you, Sue. As we entered July, we faced a rapid succession of scheduled adjustments from customers that we expected would deliver our revenue growth in 2019. Following this, we met with these customers to ensure the programs remain solid and reaffirm the new schedules we were provided. With the information we received from our customers, we are significantly more confident in our belief that we will report breakeven operations on both a cash and non GAAP basis for Q1 and achieve non GAAP profitability for full year 2020. We have carefully modeled our cash usage and root to these goals.
And hold the firm opinion that we will not While the tally of the delays and impact of our decision to move away from QuickAI MCMs totals approximately $8,000,000, Some of that was a guard band above our previous outlook for 2019, and we expect some of it will be offset by new design wins that were not included in that outlook. As a result, and after a careful evaluation of to be between $1313,500,000. We believe mature product revenue will be relatively flat with last year, and that new product revenue from connectivity and display bridge designs will be about $200,000 lower than the outlook we shared in May. We believe other new product revenue will offset that decline and provide us with modest full year revenue growth. With this mix, we are currently modeling our full year 2019 non GAAP gross profit margin in the low 60 quarter for 2018.
Let me take a moment to share what gives us confidence in our ability to rebound from our midyear low and achieve the goals I have outlined. We believe production demand from our military contractors will rebound in Q4 and hold By the end of Q4, we believe we will have 4 smartphones running in production. We believe volume will ramp for these 4 smartphones beginning in Q1 2020, and that the feature phone, which is forecasted to have 2 to 4 times the average volume of the smartphones will enter production in Q2 2020. The schedule we have from our large consumer electronics customer indicates that we'll ramp production of its first models in Q1 2020 And as additional OEMs introduce voice control, we believe aggregate volume will increase throughout 2020. With the anticipated completion top qualified reference design being listed on the Amazon development kit webpage later this year, we believe hearable demand will increase significantly in Q4 and accelerate moving forward.
We believe the first of what to be several voice enabled TV remote controls incorporating EOS S3 will enter production late in Q4 and we expect production will begin ramping late in Q4. However, since we don't have any detail beyond that, revenue from this design win would be an upside to our near term outlook. We are in the process of enhancing technology of deals in 2019, we think they will lead to a sharp ramp of EFPJ IP revenue in 2020, possibly beginning as early as Q1. We also believe close of Q1 to 12 at the close of Q2 and with solid penetration into Global Fortune 500 Companies, SensiML is clearly building impressive momentum. We believe this trend will accelerate in the second half of twenty nineteen and continue for years beyond that.
I'll readily admit that SensiML's goal of becoming the de facto software toolkit for endpoint AI may seem ambitious at this stage. However, we think it is a very realistic and achievable target. We look forward to releasing more information about our progress towards this goal during the coming months. While we are not ready to share a full year 2020 outlook, the mix of business we see today gives us confidence that we will not only significantly increase revenue, but again, deliver a solid increase in our non GAAP gross profit margin for the 4th straight year and with that, report non GAAP profitability for full year 2020. That completes our prepared remarks.
You. We'll now take our first question from Suji Desilva from Roth Capital. Please go ahead. Your line is open.
So, can you talk so with SensiML with the adjustments around the module and Chip, can you talk about what the new revenue run rate limits are for that segment and what the size of these SensiML engagements that are building the 12 customers, what the size of each of those engagements are?
Sure. So the general model for SensiML is that it's $10,000 to $25,000 per quarter for the SaaS license. Some of those 12 are not at that level yet because we were bundling those with the QuickAI HDK as a starter kit for some of the initiatives that we were running with our channel partners. So some of those are lower revenues than what I just said. A handful of them are at that revenue level on the per quarter basis.
We expect that that pricing is going to maintain in that range of that to 25,000 depending on the level of data science expertise the customer needs, ramping through the year. As I said, ending the year, somewhere between 50100 subscribers to the SaaS. Some of that will be based on QuickAI hardware development kits that we've put out into the channel. And sold through to end customers. And some of that will be the Sensible Toolkit running on 3rd party MCUs that we have not announced yet.
Okay. So by end of 'nineteen, fifty plus subscribers, is
that right? Correct, exactly right.
Right, third quarter.
Okay. And then, the Japan OEM, smartphone OEM, can you talk about the reasons the some of the phones were delayed in the marketplace? And then what, and then look at the new product revenue you're guiding for the second half of twenty nineteen, is that smartphone ramp the primary driver of the sequential increases there? Yes.
So the primary reason for the second tranche of phones that number 2, number 3, number 4. Those are just the schedules that they're negotiating with their carrier. They were different from what they originally shared with us. But I've seen product rollout information now that's been agreed to by the carrier specifically, and I'm confident in the launch that they've they've told us now and what I've communicated on this call. As far as the magnitude of the revenue in Q4, this customer is one of the top revenue drivers Outside of that, it would be the hearables and then also the large IP deal that I mentioned, during the EFPJ part of the prepared remarks.
Okay.
And then my last question is around the, ABS, this concept of close talk. I'm just curious what percent of the addressable market is close talk versus, I guess, the contrast would be just the traditional ABS, I guess, if you could kind of clarify that landscape and what the relative size of the opportunities are. Just to understand how important close to that could be. Thanks.
Yes. So in general, I'd say if you look at the market today, none of it is close to talk because there aren't really any products out in the market yet, I think, except for a couple of over the ear, over the head headsets from a couple of the OEMs. I think that in general, if you look at Bluetooth headsets, the big growth driver in the market right now is the TWS style, which look like the Apple AirPods And so that's the double digit percentage of the hearables market in general. And now that Amazon is going to be having these close talks certified and qualified ones, We expect that will actually be a growth driver, moving forward. And, with our finally getting qualified here and certified Now we can see that opening up for us to be shipping into these products.
In the future, I think most people assume that the growth for the Bluetooth hearable space is going to be the TWS form factor size like the AirPods, driven by the sort of Fashion East does that are liking to follow the Apple AirPods form factor. Thanks, Udi.
We'll now take our next question from Rick Nathan from River Shore Investment Research. Please go ahead. Your line is open.
Thank you. Hi, Brian. Hi, Sue. Good morning. The first thing I'm trying to the first thing I'm trying to do is square your, reported Q2 new product revenue with your June reg FD disclosure, it looks like you're about 50% short of what you thought you were going to And can you provide some color on what caused that new product revenue to fall short of your implied forecast forward?
Yes. So you're referring to the original guidance we provided for Q2. Correct?
Yes, your original guidance was $3,800,000 at the midpoint and, $2,500,000 of mature product, 1 $300,000 of new product. Then when you revised your guidance, you said that mature product was the sole cause of the new lower revenue range. And that, you could the sole cause, meaning you were your range was down $1,400,000 to 1 $800,000. Your mature product revenue actually fell only one point 2,000,000 short and not 1.4to1.8. And your new product revenue was $700,000 instead of $1,300,000.
So what caused that $600,000 miss on the forecast?
The new product miss there, the $600,000 that was primarily the hearables, related to these ABS push outs for qualification and certification. The other aspect of that was the consumer electronics OEM, the big design win We did think that we would start to ship into them in the Q2 timeframe because if they wanted to be in the shelves for the holiday season, they'd have to start building product and to make sure it got on the boat in time to come over to the U. S. Those are the primary differences. There was also some, I think, connectivity revenue difference for the new product.
And I also believe the display bridge was down a little bit. If my memory serves correctly, But the primary parts of that were the hearables and the consumer electronics.
Okay. You mentioned how the new tariff situation between the U. S. And China are affecting your customers. And I know part of one of your contract manufacturers for your own packaging Amcore is, has most of it, if not all of its facilities in China.
Is that affecting you at all?
So we do have a new package, for EOS S3 that we had started developing earlier this year. That's actually the only package that we have at this point. It's being done in China and that we'll have a tariff applied to it. We can apply for credits back if that's shipped out of the country, to a non NAFTA country. We get the majority of that tariff effect.
If it stays within a NAFTA country, then the tariff still stays and that what that means is we're going to be raising the price on that dilution, to the customers. So we're not absorbing that. That's the only, issue that we have directly on incoming goods from the tariff situation. All of the other tariffs situations that we have are tariff related are really with our end customer.
Okay. And the consumer electronics and customer, that moved its production schedule due to the tariff situation, how certain are you that their new schedule is any more definite their old one?
I'm very certain because I know that the large retailer that was supposed to have these products on the shelf for holiday still wants them. And they're just not willing to take the risk for this year, for the holiday season. But in the next year, they absolutely want to have these in the early part of the year on their shelf. And there's a couple other online retailers that want to carry the same product as well. So I've double and triple check that now with the OEM and with the partner that we developed this with and everybody saying the same thing.
So I'm very confident in that revised schedule.
Is that customer going to still manufacture those products in China or are they going to move their production? Do you know? Outside of China?
Actually, this particular customer and a few of our other customers have already started building at manufacturing facilities in Vietnam. And I believe this product will eventually be manufactured in Vietnam so that it will not be subject to the same tariffs. Okay.
Thank you. So that's a factor that makes you more certain about 2020.
Is that right? Correct. Yes, we're seeing a lot of Scott like I said, including hearables that are moving manufacturing to Vietnam. And so provided the situation with Vietnam doesn't change. That gives us a lot of confidence so they are going to be able to ship these into the U.
S. Without being subject to tariffs anymore.
One last thing. I just wanted to clarify your revenue forecast for 2019. You're saying about $7,000,000 of mature product and about $6,000,000 of new product revenue. Is that correct?
That's correct.
Okay. And there could be a $500,000 bump in 1 or both of those segments. So that means you're expecting about $4,600,000 of new product revenue in the second half of this year. How much of that $4,600,000 do you estimate will come from what you call strategic new products?
Oh, the majority of it would be strategic new products. I think by the end of this year, we're, for the most part, going to be out of the Samsung display bridge. So we sell to the tablets to have the ongoing connectivity, but the vast majority of that 4.6 you talked about will be strategic new products.
So basically, if I modeled Q4 revenue at about 5,900,000 plus or minus, based on your $13,000,000 to $13,500,000 forecast, that would be a proper way to model Q4?
Yes, that would be a proper way to model it.
Okay. Thanks so much, Brian. Yes. It could be above 6. It could be 5.5 to 6.5.
Basically. Yes.
And what I was also saying is gross margins in the mid to high 60s in that quarter. Right. Okay.
Thanks so much, Brian. Appreciate it.
We'll now take our next question from Richard Shannon from Craig Hallum. Please go ahead. Your line is open.
Doing well. How are you, Richard?
Fine. Thanks. Let's see here. Maybe a kind
of a summary of a couple of things I've heard between your prepared remarks and the Q and A here.
Brian, just want to make sure
I caught all of the kind of offsets from your original guidance for the year in terms of revenues. I think I heard kind of the embedded FPGA Navy contract about $2,000,000, the consumer electronics OEM about one 0.3. And then I think I missed a couple of the other buckets there. Can you detail those for me again, please?
Yes. So starting with the mature the mature revenue was $2,000,000 with the push out of the military for the mature product revenue. The CEO was 0.3 the multi chip module for QuickAI was 2. And then the, the design is 1.3, I believe I said Okay. All
right. Perfect. And then, I think
you made some comments regarding the mature the Navy contract of having some confidence that's going to kick in, I think, in a little bit in the fourth quarter and have confidence of remaining throughout 2020 Historically, how good are those forecasted then? And it gives you the confidence to stretch through the tire next year.
Well, it's 2 aspects of that. So one is, are we in the program period? And then the second one how many units of that program is the government going to authorize to be built. So from being in the program, that's 100% because we've been in these programs for some time and when the government's not going to change out, FPGAs out of military via aircraft that's just going to stay there. As far as the unit volume goes, that's really what's changed in the timing in this year.
But like I said, this time, we've actually gotten word directly from the U. S. Navy Admiral that controls the purse strings of this and he's outlined the exact quantity of the aircraft that he wants to build and how that flows through to us. So, I have a much I think more confident view now of the volume for this year. And it kind of makes sense because I think the government spending cycles tend to start in October 1st.
And so that's sort of aligned with having more shipments in Q4 from the new funding that will come into them. And then as far as how it goes into next year, like I said, the government's not going to change out an FPGA from a military aircraft or vehicle. Those are just going to stay in because the qual costs are changing out. Far outweigh the cost of the component. And so I'm sure that's going to be continuing into next year.
From them, it's going to go for 3 years for these different programs, but obviously we're not going to be giving any outlook for 3 years from now, right now.
Okay. That's fair enough.
Brad, maybe my last question here is on the Bed FPGA. I think you were referring to, and I'll probably get a butcher the language you use but talking about changing the scalability of it. So you don't have to do these customizations all the time. Is this going to help you get into kind of new markets or new classes of customers? Or maybe you can help us understand how this is going to help you from more of a revenue and customer generating point of view?
Yes. So if you look at where we are today with the FPGA, we target customers that are largely focusing on low power endpoint markets because that's what our FPGA has been tailored to do for our own use. We're getting a lot of inbound requests for higher density, higher performance FPGAs. And what that really involves is porting it to a different process node or different foundry from what we have today. And those ports can be, I'm consuming and capital intensive.
So in order to make this a more scalable business, we're looking at ways. And again, I can't be specific because I don't want to articulate the strategy before we're ready to come out there with us. But it's going to be in a way that we can target some of these new process nodes or foundries as well as go to market a little bit differently to get into these customers that are pulling us in that direction, but doing it in a more scalable way. So it's not like a one port for one customer each and every time, because that's just don't want to be in the services business. We want to do IP ports that have several customers behind that port.
And I think this new way that we're going to go to market will address some of that.
Okay. Fair enough. We look forward to hear more detail about that. Maybe one last question, Brian, I'll jump out of line here. Since the mold, it sounds like you're getting a lot lot of customer attraction there.
What's kind of your pain point for pushing pushing the growth even faster? Is this your headcount or channel partners? Or maybe you can help us understand, how you can extend and even improve the, the traction you've had today?
Yes. So for me, it boils down to 2 things. So one of the big initiatives that we've had in the last quarter is to host a lot of these web seminars and then, face to face seminars put on by our distributors in Europe, primarily. And that's generated something like 700 qualified leads of people, some of which have already bought the HDK, Sensible Bundle and some of which have not. So converting those qualified leads into people placing purchase orders, what we're trying to do there is ease that friction by moving to a web based store on the SensiML website so they can do that by themselves.
And we just launched a new website, I think, last week for SensiML that enables people to start doing that. So trying to make that conversion lower resource intensive on us and easier on the customer. That's one big initiative. The second is, the fact that we are and even from day 1, we were very clear that SensiML will be able to run on other people's processor, not just our own. And we're starting to see the fruit of that labor.
And we'll be more public about who those new microcontrollers are. But that's going to open up a sales channel that we don't have as the company, our scale, where these bigger companies are pushing the same the same solution with SensiML. So once that really gets going, I think we're going to see a big uptick in closing of these deals because we'll have another sales force effectively behind it. So those are the 2 primary things. It's really a third one I'll just throw in there.
AI is still very new for people. A lot of people want to use it. They don't know how. And so we've done some marketing campaigns now where we have these online tutorials with videos that people can do offline they're not dragging our data scientists off on a support issue. And that should make it a more scalable business as well.
So they can sort of do self help on how they can apply the power of the SensiML toolkit but in their own office. Okay. Thanks Richard.
Turn the conference back to you Brian for any additional or closing remarks.
And industry events this quarter. A few of the highlights include the Oppenheimer Annual Technology, Internet communications conference in Boston today. The Jefferies Summit Connector Hardware And Communications Infrastructure Summit in Chicago on August 28, the Gateway Conference in San Francisco on September 4th, GlobalFoundries Technology Conferences in Santa Clara on September 24th, Munich on October 11, Shanghai on October 24th, and Shinsu Taiwan on November 5th. All the events we plan to attend will be available participation in today's call and continued support. We look forward to speaking with you again when we report our fiscal third quarter results later this year.
Goodbye.
This concludes today's call. Thank you for your participation. You may now disconnect.