Good day, ladies and gentlemen, welcome to the QuickLogic Corporation second quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session and instructions will be given at that time. If anyone should require assistance during the conference, you may press star then zero on your touch-tone telephone. As a reminder, this call may be recorded. It is now my pleasure to introduce Ms. Moriah Shilton with QuickLogic's investor relation firm, LHA. Please go ahead.
Thank you, Andrew. Welcome everyone, thank you for joining us today for QuickLogic's second 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 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 dates 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 margins, 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, that future events may differ materially from those statements made. For more details on the risks, uncertainties, and assumptions, please refer to those discussed under the heading Risk Factors in the annual report on Form 10-K for the fiscal year ended December 31st, 2017, the company filed with the SEC on March 9th, 2018. These forward-looking statements are made as of today, the day of the conference call, management undertakes no obligation to revise or publicly release any revisions of the forward-looking statements in light of any new information or future events.
Please note, QuickLogic uses its website, the company blog, QuickLogic Blog, its corporate Twitter account, 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, QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. This 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. Then CFO Sue Cheung will provide financial results and guidance. Brian will deliver closing remarks and open the call to questions. At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian.
Thank you, Moriah, and thank you all for joining our Q2 2018 conference call. We have made tremendous progress since our last conference call. Most notably, we won two significant EOS S3 designs with large OEMs that forecast 2019 production in low to mid-7 figures and executed our first embedded FPGA master technology licensing agreement with a semiconductor company. We believe these and other high-profile designs will enable us to grow 2019 total revenue significantly more than our 50% goal and deliver a break-even quarter by the end of next year. While production commitments from major OEMs give us confidence that we are developing the momentum and critical mass to deliver our long-term growth and profitability objectives, there are 4 factors limiting our growth in 2018.
The delay of the Amazon Alexa Voice Service or AVS specification for hearable, wearable, and other battery-powered devices, delays in finalizing embedded FPGA IP license agreements, the push of our first smartphone design win from a fall 2018 release to a spring 2019 release, and the continued delay in the release of the wearable design win we have with a Tier 1 smartphone company. The good news is that all of these factors are rapidly moving in the right direction, and with this, we are gaining visibility into production schedules that we anticipate ramping during the coming quarters. While we are forecasting our growth will start in Q3 and continue for many quarters going forward, second half 2018 revenue will not be significant enough to deliver the 50% growth we have been modeling for this year.
Based on reports from customers, we expect a total of 8 to 10 AVS-compliant products using our EOS S3 SoC will move into production during the coming months, with the first scheduled for late Q3. However, we don't have enough information from the other customers yet to forecast the total impact of their designs on second half 2018 revenue. While a number of potential IP customers have shown serious interest in our ArcticPro embedded FPGA, our engagements were stalled in a catch 22. To address this, we modified our go-to-market strategy last quarter, and we are already seeing positive results.
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 a new SoC design. To accommodate this and move the engagements forward, we created a master technology license agreement, or MTLA, that carries only a modest support and maintenance charge. This solves 2 problems. First, it enables semiconductor companies and OEMs to build test chips using our embedded FPGA IP for only a modest cash investment. This provides them an opportunity to evaluate and quantify the benefits of eFPGA ahead of making a commitment to a new SoC design. This also provides us with exposure to other SoC design groups within the company, which expands our opportunities for new engagements. Second, the MTLA defines the terms and conditions of follow-on IP licenses.
This means the vast majority of the negotiations and legal work is accomplished within the MTLA, and the follow-on license agreements for targeted SoCs amount to only a couple of pages. This is critical in some cases, since an SoC design group that wants to use eFPGA may otherwise decide it does not have the time to go through the tedious corporate-level approvals and license negotiations. In short, with a test chip in place, design groups can define the ROI and move quickly without disrupting the design flow for a given SoC. In June, we announced the signing of our first MTLA with C-SKY Microsystems. C-SKY, which is in the process of being acquired by Alibaba, is the only high-volume embedded CPU provider in China with its own ISA and reports over 700 million embedded CPUs shipped.
The company's ultra-low-cost CK800 series of embedded CPUs addresses a wide range of cost-sensitive applications where discrete FPGAs have historic use cases, such as AI, IoT, digital audio-video, networking and wireless communications, security, industrial control, and automotive. C-SKY plans to incorporate our ArcticPro embedded FPGA in a new, highly flexible, ultra-low-power common CPU platform that will be fabricated using the SMIC 40 nanometer LL process. The platform is expected to be available in mid-2019. This morning, we announced that ETH Zurich has selected our ArcticPro embedded FPGA for use in its parallel ultra-low-power PULP platform that targets GlobalFoundries' 22FDX fabrication process. ETH is a renowned technical university located in Zurich, Switzerland, and a founding member of the RISC-V Foundation. ETH chose QuickLogic's technology for its ultra-low-power operation and its ability to create new options for extremely power-efficient hardware-software implementations.
We are collaborating with ETH to integrate our embedded FPGA in its PULP RISC-V SoC that will enable users to offload certain functions from the processors to the eFPGA fabric. This will give OEMs the capability to evaluate the power savings and performance improvements that embedded FPGA hardware solutions deliver relative to software solutions running on processors. 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 ultra-low-power consumption. We already have revenue-generating IP license opportunities tied to the PULP 22FDX test chip. We received the 22FDX test devices from GlobalFoundries last quarter and continue to expect the qualification process will be completed by the end of this summer. We have ongoing 22FDX engagements that are moving forward ahead of this qualification that are independent of the opportunities tied to the ETH PULP program.
Our initiative to port to a more advanced process node at TSMC is moving forward and is driven in part by a specific customer engagement targeting this process. At the bottom line, we have made distinct progress in our embedded FPGA IP initiatives since our May conference call. Our new go-to-market strategy has already resulted in an MTLA agreement with C-SKY and is being evaluated by other potential customers that we feel are very good prospects for IP license agreements in 2019. We believe C-SKY, the engagements associated with our ETH initiative, and other ongoing engagements will lead to multiple IP license agreements. However, since the timing of finalizing these anticipated agreements is unclear, and in some cases may involve the interim step of an MTLA, we are not currently forecasting material IP license revenue for second half 2018. Now on to EOS S3.
Last quarter, I mentioned that we were in the final stages of negotiating an MOU with a significant Japanese smartphone OEM. The MOU is now signed and covers multiple smartphone models extending to 2020. We were originally forecasting the first smartphone would be released this year. However, the customer's lead carrier has asked them to hold always-on, always-listening voice capability for the model it targets for release spring 2019. We are hopeful this release schedule will result in a prominent display at Mobile World Congress 2019. As I outlined in our last conference call, we have three active opportunities with a tier 1 smartphone OEM. The hardware and firmware designs for the first wearable product were locked in Q2 and list our EOS S3 as the device of record. The audit of our package and test subcontractor is ongoing, as are software regression testing and quality and reliability testing.
The customer's efforts with third-party companies that are developing apps will likely continue even after the product is released for production. While we do not have a production schedule for this design win yet, we are currently anticipating it will start during the first half of 2019. We believe this design has low seven-figure potential in 2019. While the design cycle for this first product has been unusually long, the customer's understanding of the industry-leading power consumption delivered by our EOS S3 SoC led to the second engagement for a high-volume consumer wearable. We expected to know by now if the customer selected EOS S3 for the second wearable design, but that decision is still pending. Beyond that, all I can share is we are working closely with the customer's design team and that the EOS S3 design approach consumes less power than the alternative design approach.
We believe the customer will make a final decision on this design before the end of this quarter. The customer is targeting the new wearable to be production-ready by end of 2018. That volume will ramp beginning in Q1 2019. If we are successful in winning this design, I believe that it has low to mid seven-figure value in 2019. The third opportunity with this customer for a hearable design remains in evaluation, as the customer has prioritized other programs that have not completed testing the new beamforming and advanced noise reduction technology available with our EOS S3 SoC. NAVER LABS released its first consumer product, the AKI smartwatch, last May. AKI is a highly sophisticated smartwatch that leverages our EOS S3 to optimize low power consumption while enabling always-on, always-listening voice capabilities.
AKI is being primarily marketed and sold through Korea Telecom, or KT, which is South Korea's largest wireless telecom company. We expect AKI will contribute to our second half growth. A new hearable engagement with NAVER LABS has the potential to build on this success in 2019. In past calls, I've discussed a wearable design win with a European health company targeting the B2B market. Since our last call, the founder and CEO of the company was replaced. The new CEO has reset the company's near-term priorities. With that, placed the B2B wearable on hold. As a result, we no longer anticipate the wearable going into production this year. With our limited visibility, we are not currently forecasting revenue in our 2019 model. Last quarter, I mentioned that we added a second engagement with a European fitness company that we have discussed on previous calls.
The good news is the new design fully leverages the resources of our EOS S3 SoC, including its embedded FPGA. However, with this design and development, the customer decided to drop its original design that used minimal EOS S3 resources. As a result, we are no longer anticipate production revenue from this customer in 2018. Given the traditional upgrade schedules this customer follows, we expect the new product using our EOS S3 to be released in early 2020. Our success in markets beyond smartphones, wearable, and hearable devices continue to build and will be a primary driver for second half growth. Since our last conference call, BBK Educational Electronics has introduced two new tablets that use our EOS S3 SoC to enable always-on, always-listening, and trigger word recognition.
With 40,000 terminal sales outlets in 600 Chinese cities and 50 flagship stores, EEBBK is a very well-recognized brand and a leading supplier of interactive educational products in China. Its new S3 Pro flagship and H20 entry-level tablets use our EOS S3 to deliver the benefits of always-on, always-listening, and enable children in China to begin learning as soon as they can talk. We are engaged with EEBBK on a new potentially high-volume design that is scheduled for release in 2019. We have recently won a very significant design with a major consumer electronics company that is scheduled to move into initial production in very early 2019. The first of up to 10 products using our EOS S3 SoC is scheduled for what I anticipate will be a high-profile launch at CES in January 2019.
Due to our NDA with the company, I can only share a few bullets. The design uses our always-on, always-listening voice technology and our embedded FPGA. The OEM has high brand name recognition. The end product is a new high-volume consumer category for QuickLogic, and we anticipate 2019 revenue in the low to mid seven-figure range. In addition to the momentum we have established with major OEM customers that are scheduled to ramp new EOS S3 designs in the coming quarters, we continue to benefit from working closely with our strategic ecosystem partners. Last quarter, we announced that Murata selected our EOS S3 for its new voice-enabled Wi-Fi solution that it introduced at the IoT/M2M show in Japan last May. Given the fact Murata is the worldwide leader in the Wi-Fi module market, this was a nice win for QuickLogic.
Murata has since stated that OEMs in Japan have shown interest and that it is expanding its marketing efforts for the new module outside Japan. While I believe this effort will lead to OEM design wins, it is too early to make any revenue projections. Qualcomm has officially included our EOS S3 in its extension program. The extension program provides support for designers wanting to extend the capabilities of Qualcomm's CSR8670 and CSR8675 Bluetooth audio solutions. Our inclusion in the extension program makes it easy and cost-efficient for designers to use EOS S3 to add ultra-low power always on, always listening, and voice recognition features. Before I turn the call over to Sue for her financial presentation, let's take a moment for a brief update on QuickAI.
If you are new to QuickLogic, I encourage you to review our May 9th conference call webcast and the special webcast presentation for QuickAI that we provided in conjunction with our partners a week earlier. These webcasts can be found under the Events tab on our investor relations webpage. Our QuickAI initiative is moving forward in line with our expectations. We demonstrated some early proof of concepts with our partner, SensiML, at the Design Automation Conference and Sensors Expo in June. We have also initiated a very intriguing customer engagement where QuickAI has the potential to significantly improve ROI by lowering operating costs and increasing yield. We continue to target our first production revenue for QuickAI during the second half of 2019. I would now like to turn the call over to Sue for a discussion of the financials. Sue?
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 webpage that provides the current and historical non-GAAP data. For the second quarter of 2018, total revenue was $3.1 million and within our guidance range. Our new product revenue was $1.6 million, and the mature product revenue was $1.5 million. Due to our continued success in diversifying our customer base, we had four customers with greater than 10% of total revenue in the second quarter, while Samsung represented less than 10% in the quarter. Our Q2 2018 gross margin was 50.1% and within our forecasted range.
Operating expenses for Q2 were $4.5 million and were within our guidance range. R&D expenses were $2.2 million, and SG&A expenses were $2.3 million. R&D expenses were lower than anticipated due to the timing of certain expenses associated with porting our eFPGA IP to a more advanced node at TSMC. The net total for other income expense and taxes in Q2 2018 was a $38,000 charge, which was below our forecast due to foreign currency exchange fluctuations. This resulted in a net loss of $3 million, or $0.04 per share, which was within our forecasted range. In May, we raised net proceeds of $13.9 million from our public offering, which enabled us to end the quarter with $22.8 million in cash. Net cash usage during the second quarter was $3.9 million.
This was above the forecasted range due to a significant increase in working capital and the non-recurring costs associated with the launch of QuickAI and other long-term strategic initiatives. Turning to the third quarter 2018 outlook. Our revenue guidance for Q3 is approximately $3.5 million, ±10%. Total revenue is expected to be comprised of approximately $1.8 million of new product revenue and $1.7 million of mature product revenue. The increasing new product revenue is expected to be driven mostly by the growth in sensor processing. On a non-GAAP basis, we expect our gross margin to be approximately 50%, ±3%. We're currently forecasting non-GAAP operating expenses at approximately $4.7 million, ±$300,000. We expect our non-GAAP R&D expenses to be approximately $2.4 million and non-GAAP SG&A expenses to be approximately $2.3 million.
We expect our other income expense and taxes will be a charge of approximately $60,000. At this point 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 $500,000 for the quarter. In Q3, we expected to use between $2.5 million-$3 million in cash. The anticipated sequential decrease in cash usage is mostly attributable to a large decrease in accounts receivable that will be partly offset by an increase in inventory. With that, let me now turn the call back over to Brian for his closing remarks.
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. First, let me start by saying I appreciate your patience. It's been a longer road than I envisioned, but I believe we are very close to a positive tipping point. While the growth we are forecasting for Q3 is modest, it breaks a pattern of essentially flat revenue for the 10 preceding quarters and is being driven by the ramp of our first significant OEM designs for EOS S3. In looking beyond Q3, I believe the major OEM designs that we have already won will drive meaningful sequential growth for many quarters to come, and that engagements with other large OEMs and embedded FPGA license revenue will layer on top of that.
In eFPGA, we adapted our go-to-market model to break out of an endless loop that was stalling our many engagements. We believe our MTLA strategy, which has already resulted in an agreement with what will be Alibaba's first venture into the semiconductor market, will lead us to land multiple IP license agreements in 2019. With our EOS S3 SoC, we have successfully transitioned from winning designs with small companies and ODMs to winning designs with major OEMs that have brand name recognition, the scope to use our solutions in multiple designs, and the scale to drive volume. Last quarter, we announced OEM product launches with NAVER LABS and EEBBK. While these are not well-recognized names in the U.S., they are significant OEMs in their home countries. We expect these designs will contribute to our revenue growth in the second half of 2018 and beyond.
During the last quarter, we signed an MOU with a major Japanese smartphone company for multiple models extending to 2020. We also won a very significant design that leverages our core eFPGA differentiation with a new OEM that I think will be one of the prominent products displayed at the upcoming CES in January 2019. We are also getting more clarity from the Tier 1 smartphone company about the release of its new wearable design, and we are hopeful we will win a second design with the OEM this quarter. At the bottom line, large OEMs are scheduled to move new products using our EOS S3 into production starting in early 2019. These designs have low to mid seven-figure potential with defined production schedules and mark just a few of the high-volume designs that I believe will enable us to grow 2019 total revenue significantly more than our 50% goal.
Operator, I would now like to turn the call over for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question, that's star then one. Our first question comes from the line of Richard Shannon with Craig-Hallum. Your line is now open.
Brian and Sue, thank you for taking my questions. Good to see the sequential guide here in the third quarter. Brian, you gave us a lot of detail to go into. I'm going to try to hit a few of the key ones here. In your prepared remarks, the most interesting comment for me that I saw was the major design you won with a major C company, the first product of which to be announced at CES, said the first of up to 10 products. I guess first question on that is, can you characterize this opportunity or something that's already been settled as kind of a platform win with you across a range of products or even company-wide? Can you maybe characterize the relationship and the extent of it there?
Yeah, I'd be happy to, Richard, to the extent that I can with our NDA in place. I would definitely categorize it as a platform-type win. We anticipate the same design being used across these up to 10 products. It's definitely a new category for QuickLogic, I think it'll have a very prominent display at CES. What we're doing here is we're doing voice recognition, there's certain things that we're doing in the FPGA that'll be clear once we can actually talk about this design publicly, where it clearly shows there's value to both of these technologies being in the same chip, that's really how we won this design against other ways that you could do this architecture with competitive devices. Yeah, it's actually a really exciting win for us, it's a new thing that we haven't even talked about on previous calls.
This moved really fast.
Okay. Fascinating. Well, we'll look forward to hearing more about that one. Maybe a question on embedded FPGA. You talked a little bit about your new go-to-market strategy with C-SKY being an example of that approach here. Any other initial signs of success about moving engagements along faster? I know it sounds like you're kind of in process, so maybe not complete signs, but any way you can help us understand how engagements have changed? While I know you've mentioned not expecting much to happen in the second half of the year, how fast could those things come, and how broad is the pipeline looking for these new type of license agreements?
It's a good question. The funnel that we were talking or referring to in Q2 is largely the same funnel in terms of direct semiconductor opportunities today. I can say that, C-SKY jumped all over this change and go-to-market strategy very quickly. There's a few other ones that are already in the funnel, that have been in the funnel that could actually sign this year for an MTLA type agreement to move into that test ship phase, resulting in more material revenue in 2019 once they actually do a test ship. It's definitely loosened up some of the friction that we had been seeing with some of these customers to commit that six-figure value to us just to do a test ship.
I think if you step back for a second, if you're a company that's not familiar with programmable logic, it's a really cool concept that you can program something to something in the future. A lot of people have difficulty wrapping their heads around that. It seems ambiguous. Lowering this financial bar to try out the technology, I think is good because they can start to see some of the use cases in real life and then go forward with that financial commitment. The other thing I'll mention with respect to the funnel is we're always looking for leverage points. I see that C-SKY and ETH, the announcement we did today, fall into that category for me of leverage points. They'll do test ships, and other people will take those test ships as starting points for what could be their own SoC.
It's a way for us to fan out support of one or two or three companies into multiple companies that use them as starting points. I think you see probably ETH does a lot of these types of SoCs where they clearly see that eFPGA could be used as a hardware accelerator and not just as a scratch pad of logic. That's where we see our value coming from. We're really excited to see both of those companies actually have test ships that come out that we can then fan out into multiple end customers. By the way, just to be clear, when that happens on that fan-out effect and people do move forward with a production license, in those cases, that does generate license revenue for us.
Okay. All right. Excellent. I look forward to hearing more about that. Maybe two questions from me. I'll jump on the line. Brian, I think this came early in your prepared remarks. You talked about the kind of delayed impact to delays of some of your initial Bluetooth and hearable designs because of the Amazon AVS certification. Can you help us understand whether those bottlenecks have been relieved yet at Amazon, are they still left to go? How much of a delay do you think this is relative to your expectations you communicated on last quarter's call?
Yeah. Here's where I have to be careful with what I say because we have NDAs with Amazon. I don't know that anything has been publicly put out as far as spec goes, but I can say that what we're hearing from customers that we're working with directly that have our solution already embedded into their hardware, that they're looking to start qualifications of their product between now and the end of the year, which is why we came up with our revenue timeframe for this being the earliest starting at the end of this third quarter, initially with people that already are further down the pipe all the way to subsequent months going into Q4 from a revenue timeframe.
If we go back to the last call where we talked about this, we thought that a spec actually would be already out by now and people would basically be done with certification by now, that's not the case. The fact that I'm giving these timelines now, this is coming from customers that are working with them. I think there's a little bit more certainty around that now. That's everything I can say just because of the NDA with Amazon that we have.
Sure. No, it's understandable. Last quick question. You talked about confidence in reaching that breakeven level on a quarterly basis sometime next year. If you can just remind us what that breakeven level is and whether it's changed at all.
Hi, Richard, this is Sue. We have not changed our breakeven level. Still going to be $8 million-$10 million of revenue per quarter with 50% or higher gross margin in that quarter to get us to breakeven point.
Perfect. That's all the questions for me. Thanks for taking those, guys.
Thanks, Richard.
Thank you.
Thank you. Our next question comes from the line of Suji Desilva with Roth Capital. Your line is now open.
Hi, Brian. Hi, Sue. Just a question on next quarter's guidance, the $1.8 million. What's driving the increase in new revenue specifically amongst your wins and product opportunities?
Suji, this is mostly driven by the growth in the sensor business.
Any more specifics, Su, you can give there in terms of which wins are driving it near term?
Well, from the prepared remarks, we talked about NAVER and EEBBK contributing to that.
Got it.
Those would be the largest contributors by name, followed by when these hearables actually start coming out, the first of which would be in Q3.
Okay.
In Q3.
Great. Good. I appreciate the color. Then the Japan smartphone opportunity that was put off maybe. Do you give any color on why the carrier asked the smartphone vendor to hold off on the always-on voice feature near term? Was there any specific driver network bandwidth concerns or things like that? Just be curious to know the technical issues there, if any.
No, I'm not in those meetings with them, but what I've heard is that they basically want to have the spring model be sort of the springboard for the new features that they would carry through the next year, and the fall would kind of follow as an evolution to the spring feature. Meaning that the new big features come out in the spring model, that's why this is a significantly different feature for them, and they wanted to uncork that in spring. There's no technical issue or network bandwidth issue that's driving that.
Okay, good to hear that. Understood. Then lastly, the licensing side of the business, the test chip phenomena here. What's the length of time it takes for a test chip to be spun up? What's the cycle time on that, just to understand when these customers do go that route, how long that takes?
A test chip from a manufacturing point of view, from the moment you tape it out and get into the shuttle till you get silicon back, is generally about a quarter. It could be a little bit longer depending on queue time with the sub cons. Then it's a matter of how much time does it take you to verify the test chip, which could be a couple of months. Like in the case of our test chip, we've done it in about three months. The last part of that equation is how long does it take you to do the actual design? This is actually a key. I'm glad you brought this up.
This is a key reason why I think it's good that we're getting into these test chips, because what these companies can do is basically start from an SoC that they've already done and have available and bolt on the eFPGA chip. It actually compresses the amount of time to get from that to tape out of the test chip. They don't have to really do this whole 12 to 16-month SoC design process that you would normally associate with an actual production SoC. It's actually a sort of a side benefit of doing this test chip approach. In total, you can see that's why we're saying that in, like, the first quarter of 2019 is where we can start to see other customers that are the fan-out effect from C-SKY and from ETH directly.
I just want to add a little bit, Suji. From what I see from the contract agreement that we signed with those customers, the terms range from six months to 18 months. That's why we use to amortize those as support and maintenance fee as well, from deferred revenue to revenue. Minimum, so you won't see our balance sheet, but that's what it is.
Okay, those revenues won't be recognized up front. They'll be recognized ratably over the service period. Is that right?
Yeah.
Okay, great. All right. I appreciate the color. Thanks, guys.
Thanks, Suji.
Thank you.
Thank you. Our next question comes from the line of Gary Mobley with Benchmark. Your line is now open.
Hi, Brian. Hi, Sue.
Hey, Gary.
Hi, Gary.
A couple follow-up questions relating to the FPGA line of questions that Suji had. Just to be clear, there have been, what, two master technology license agreements signed, both of which have been announced, C-SKY and ETH there, correct?
Correct.
Correct.
Okay. The non-recurring engineering fees that you'll eventually be able to recognize, which are on the balance sheet now as deferred revenue, the milestone will be the test chip coming back and meeting pre-specified working requirements, right?
Correct.
Okay. The dollar amount of these NREs is roughly how much per customer engagement? You said $1 million plus?
They're going to range from several hundred thousand dollars to $1 million, depending on how they're intending to use it and depending on the process node. I just want to make sure we're clear on this. C-SKY and ETH, for the test chips, they're not going to have a full license fee. That's what this whole MTLA strategy is about, is lowering that friction level to get into the test chip so they can recognize the return that they can get from this. Once they do a production tape-out, that will trigger that several hundred thousand to $1 million license fee that you're referring to, Gary, for C-SKY or their end customers that want to embed their IP. On the ETH side, they're a university, so they're not going to do a license fee to QuickLogic for a production chip.
We're doing this test chip with them collaboratively. The people that use their test chip as the starting point from that PULP platform, and there could be numerous, each of those companies that uses that as a starting point to use our eFPGA will have to pay us a full license fee, again, on the order of several hundred thousand dollars to $1 million, and that's the license fee. Once those companies ship production units, they'll carry that royalty.
Got you.
The stuff that you're talking about, we see right now on the deferred line is the support and maintenance contract.
Correct.
Which is a very low percentage of the total license that we're talking about.
Okay.
Yeah.
Helpful. How many MTLAs, how would you characterize or quantify the number of opportunities in your MTLA pipeline, looking out even just as near term as the balance of the year?
I'd say I'm tracking double digits on a weekly basis with our sales team. As far as how many we could execute before the end of the year, I would say it's probably five or less that we could execute before the end of the year, just based on where they are with their resource planning and where we are with our process node availability. It's in that ballpark.
Got you. Okay. That's helpful. I appreciate the commentary. Thanks, everyone.
Thanks, Gary.
Thank you.
Thank you. Our next question comes from the line of Rick Neaton with Rivershore Investment Research. Your line is now open.
Thank you. Hello, Brian and Sue. I'd like to take a look at some items on your balance sheet first. I'm looking at a $700,000 increase in inventory and a forecast in the third quarter for another inventory increase. Is that related to your early 2019 opportunities that include the tier 1 and the other unnamed OEM?
Rick, you're correct. That's the inventory build up for Q1 2019 shipments.
Okay. Did you put a number on your inventory increase forecast for third quarter yet? I didn't hear one. Did you give a number?
No. Usually, we do not provide a specific working capital, including inventory item on the guidance.
Okay. I also noticed a $2 million increase in accounts receivable since the end of the year. Did you get the QFP packaging revenue in the second quarter, or are you projecting that to be in the third quarter as well?
That devices was shipped in Q2, which is earlier than we forecasted. That's why you see Q2 new product revenue increased.
Okay.
I mean, higher than what we guided. Yeah.
Your big increase in working capital, you're putting into building inventory for your first quarter 2019 shipment opportunities.
Correct.
If I hear you correctly. Okay. Thank you. Brian, looking at some of the quantifications of low to mid seven-figure revenue opportunities you put on some of these design wins in 2019. If I go back to the end of 2017, I look at your original CAGR target, your growth target of greater than 50% over the first two years, I just do some basic cocktail napkin math here. Am I out of line thinking that you could have 2019 revenue in the $27 million area, plus or minus $2 million, which would basically be hitting your original CAGR target? Is that really out of line?
Well, let's see. If we look at this year, firstly, as a starting point for that, if I were to model the rest of this year, of course, Sue gave the guidance of $3.5 million for this quarter, we talked about sequential growth, Q4 is implied up there. For the year of this year, in fact, as a starting point, it's not a guidance number, but if you went around 10% growth for the whole year as opposed to the 50% that we're talking about, now you're talking about end of next year being $27 million, that would imply pretty good clip of growth between this year and next year.
I mean, it's not out of the question, because if you look at these OEMs that we're talking about with this million to low multimillion-dollar value per design, you add that on to our base business, that math would say that it should definitely be going over 50%. Over 50% to that $27 million, yeah, it's probably possible. I'm not going to go out and say that's guidance, but I think the difference if you go below the surface here is we do have large OEMs that we've closed designs with now, especially this new one that we just talked about on the call for the first time, this consumer electronics category that's new for us. That has fairly significant potential for us compared to the past. Yeah, I guess your cocktail napkin is not out of the question.
When you said low to mid seven figures of revenue for the new OEM consumer wearable, you were talking about the one platform that was going to be introduced at CES. Is that right?
Yes.
You said there are nine other opportunities within this platform that OEM intends to use, the EOS S3 plus FPGA in?
Yes, that's correct.
Okay. Are any of those other nine targeted for 2019?
Absolutely. I don't know the exact number, but absolutely they are.
Each of these opportunities could be low to mid seven figures. Is that what you're telling us?
I don't know how many of those 10 would be that level. I think by the next call, I'll probably have a little bit more clarity on that part that I can communicate to everybody. I'm sure that some of those 10 do have that same value potential.
The one being introduced in January at CES does have low to mid seven-
Correct.
figure revenue
Yes.
opportunity. Okay.
They absolutely do, the follow-on of those other 10, I'm sure some of them do. How many of them do, I don't know yet. I'll commit that by the next call, we'll have more clarity on that.
Okay. Thank you, Brian.
If you add all that up and these other OEMs we talked about, hopefully, you can see why we're feeling really good about next year exceeding that 50% growth.
Well, Brian, if I took your $12 million from 2017 and increased it by 50.1% each year, that would get you to $27 million about in 2019.
Yeah.
I'm just trying to ascertain if that was my model to begin with on a conservative basis, if that's still within reason to be reached in 2019, given all these new opportunities that you're disclosing now. That's all I wanted.
Yeah.
Okay.
Definitely no problem.
Okay. Thanks, Brian.
You're welcome, Rick.
Thank you.
Thank you. Thank you. That concludes our question and answer portion for today. With that, I'd like to turn the call back over to CEO, Mr. Brian Faith, for closing remarks.
Thank you, operator. We will be participating at the following investor and industry events: Jefferies' Annual Semiconductor Hardware Summit in Chicago on August 28th, Roth's Internet of Things Corporate Access Day in San Francisco on September 5th, the SMIC Technology Symposium in Shanghai on September 12th. I will be presenting a keynote at Silicon Summit East in Saratoga Springs, New York on October 9th, Arm TechCon in Santa Clara on October 16th through 18th, and multiple GlobalFoundries technology conferences in multiple locations worldwide in the third quarter. Our next conference call is scheduled for Wednesday, November 7th at 2:30 P.M. Pacific Time. Thank you for your continued support, and goodbye.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.