Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to the QuickLogic Corporation's Fiscal twenty sixteen First Quarter Earnings Results Conference Call. During the presentation, all participants will be in a listen only mode. A question and answer session will follow the company's formal remarks. I will repeat these instructions after management completes their prepared remarks.
Today's conference is being recorded. With us today from the company are Andy Pease, the President and Chief Executive Officer Sue Chung, Principal Accounting Officer Brian Faith, Vice President of Worldwide Marketing and Bob Schoenfeld, Vice President of Worldwide Sales. At this time, I would like to turn the call over to Su Cheung, Principal Accounting Officer. Please go ahead, madam.
Thank you, operator. Good afternoon and thanks to all of you for joining us today. Before we begin with our prepared remarks, I'll take a moment to read our Safe Harbor statement. During this call, we will make statements that are forward looking. These forward looking statements involve risks and uncertainties, including but not limited to stated expectations relating to revenue from our new and mature products, statements pertaining to our design activity and our ability to convert new design opportunities into production shipments market acceptance of our customers' products our expected results and our financial expectations for revenue, gross margin, operating expenses, profitability and cash.
QuickLogic's future results could differ materially from the results described in these forward looking statements. We refer you to the risk factors listed in our annual report on Form 10 ks, quarterly reports on Form 10 Q, and the prior press releases for a description of these and other risk factors. QuickLogic assumes no obligation to update any such forward looking statements. This conference call is open to all and is being webcast live. For the 2016, total revenue was $3,000,000 which was at the low end of our revised guidance range.
Our new product revenue was approximately $1,500,000 reflecting the expected delay of shipments to support two mobile sensor processing solution customers and the expected decline in display bridge solutions. Our mature product revenue was approximately $1,500,000 Samsung accounted for 35% of the total revenue during the first quarter compared to 36% during the previous quarter. Our non GAAP gross margin for Q1 was 41%, which was within the guidance range. Non GAAP operating expenses for Q1 totaled $5,600,000 which was favorable to our guidance. The lower non GAAP operating expense was primarily due to the timing of engineering related expenses.
On a non GAAP basis, the total for other income expense and taxes was a charge of $109,000 This resulted in a non GAAP loss of approximately $4,500,000 or $08 per share, which was slightly better than our guidance. We ended the quarter with approximately 23,300,000 in cash. During the quarter, we raised $10,000,000 in our equity offering less $1,200,000 in commissions and other financing expenses. This resulted in $8,800,000 net cash proceeds. We also borrowed an additional $1,000,000 from our Silicon Valley Bank line of credit, resulting in a net cash usage for the quarter of approximately $5,000,000 This was at a favorable end of our guidance range.
Cash usage during the quarter reflects the operating loss and the capital expenditure payment associated with yields as three production offset by the aforementioned borrowing from our line of credit. Our Q1 GAAP net loss was $5,100,000 or $09 per share, which was in line with the midpoint of our guidance. Our GAAP results include the stock based compensation charges of 562,000 Please see today's press release for a detailed reconciliation of our GAAP to non GAAP results and other financial statements. In addition, you will find a financial table published on our IR webpage that provides current and historical non GAAP data. With that, I'll turn the call over to Andy, who will update you on the progress of our strategic efforts.
Thank you, Sue. While Q1 revenue came in at the low end of our adjusted guidance range, our progress towards realizing our strategic goals accelerated during the quarter. We believe this will drive our market penetration and revenue growth in the 2016 and beyond. Last quarter, I mentioned that we won the Neos S3 sensor processing platform design with a Tier one smartphone company for a wearable device and that we had additional smart connectivity and sensor processing engagements with the same customer. Since the last conference call, our engagement activity with this Tier one customer has expanded substantially.
We are intensively engaged with this customer to optimize these opportunities, and we are dedicating resources to ensure a successful launch of their first S3 based design. We are scheduled to ship preproduction volumes of our S3 platform at the end of Q2 to support this product launch. We look forward to sharing details about our design win activity with this customer later this year. In addition to these successes, we have continued to expand our engagement activity with other leading smartphone and wearable device manufacturers. During the last quarter, the net number of significant OEM customer engagements increased by approximately 20%.
This increase was driven by three new smartphone engagements. Two of these engagements are with top 10 worldwide smartphone OEMs, and the third is with a rapidly growing top 10 smartphone OEM in China. As a result, the potential value of our engagements increased substantially more than 20%. In total, we now have engagements with four of the top 10 smartphone companies in the world. In addition to these, we are also closely engaged with several of the largest and most widely recognized wearable device manufacturers in the world.
We view this as further evidence that our sensor processing solution strategy is resonating with market leaders. Given our growing optimism regarding the outcome of these potentially high volume engagements, we have further prioritized our resources towards our strategic engagements with top tier OEMs and ODMs. The potential benefits of this strategy are obvious, but the trade off is that we have shifted our attention away from some of the quicker turn design opportunities with second and third tier players. With that said, we are forecasting that increased revenue from Sensor Processing Solutions will fully offset anticipated declines in smart connectivity, display bridge and mature product revenues in Q2. We have made substantial progress in strategic Asian markets this year, and we are now engaged with most of the top tier smartphone OEMs in China.
Most of these top tier OEMs in China who want to adopt our silicon solutions are either using internally developed algorithms or other third party algorithms. This aligns well with our core algorithm agnostic strategy, and we have taken steps to leverage that strength. To help the customers who are using third party algorithms adopt our silicon platforms more quickly, we have established agreements with their incumbent algorithm providers. With these agreements, we can more efficiently port their algorithms to our silicon and give the customer the added assurance of a proven solution. We believe this approach will accelerate our design win penetration with these targeted customers.
In addition to accelerating the design win process, we believe these agreements will deliver broad strategic and tactical benefits. These benefits include bundling widely accepted third party algorithms with our silicon solutions, extending our customers' reach and providing leverage to our operating model. As you may have gathered from our April press release covering the in focus W201 smartwatch, we have continued to expand our relationship and design base with Foxconn. We view Foxconn as a strategic customer and continue to work closely with its management and design engineers as we move forward with ongoing mobile engagements. Due to NDA constraints we have with our S3 Alpha smartphone OEMs, there are no material updates I can provide today beyond assuring you that both engagements are active and progressing well.
I'm in a similar position with regards to our engagement with a large semiconductor company for our smartphone companion device that we mentioned during last quarter's call. We consider this a design win that has very high volume potential. This companion device is scheduled to move into production late this year. We shipped samples of the production version of our S3 silicon platform in early March. Full production qualification testing for the S3 is moving forward on schedule, and data from our testing and customer feedback are encouraging.
We continue to target production availability this quarter and anticipate shipping a modest quantity of S3 solutions to support preproduction requirements for our wearable design with the Tier one smartphone company late this quarter. We will provide you with more color on the S3 platform following its release to production. To accelerate the adoption of our new S3 sensor processing solution, we introduced the S3 Reference Design Platform last March. While it has been in the market less than two months, it is already being used in many of our smartphone and wearable engagements. It is also being used in third party product development efforts to accelerate their time to market.
This comprehensive design tool includes an S3 silicon platform, a variety of sensors and microphones, and support for sensory voice triggering and voice recognition technology. It is also compatible with the Android Lollipop and Marshmallow operating systems and provides a direct connection to a Google Nexus five smartphone for easy evaluation and design development. With these capabilities, customers can evaluate our S3 silicon platform, software and Sensi algorithms in an efficient and intuitive environment that clearly illustrates the substantial advantages of our S3 sensor processing solution. When a customer moves forward with a project, the engineers can leverage the experience gained during the evaluation process and use the reference design for product development. We are rapidly building traction with some of the largest companies in our targeted markets.
These companies are embracing the most significant competitive advantages of our sensor processing solutions. First, mobile device manufacturers are increasingly focusing on power consumption, and our S3 platform is the lowest system power sensor processing solution in the market today. Second, voice trigger and speech recognition is rapidly becoming a requirement in most smartphone designs. Our S3 platform is first to market with a hardware optimized version of Sensory's low power sound detection feature. With this hardware implementation, we enable longer battery life with products that incorporate Sensory's market leading voice trigger and speech recognition technology.
Third, customers want to maintain as much design flexibility as possible. We are committed to being sensor and algorithm agnostic. With this strategy, our customers are not captive to integrated sensors and can use any combination of proprietary, third party or SenseMe algorithms. And finally, many mobile customers are embracing programmable logic as a means to optimize system architecture and accelerate the introduction of differentiating features. All of our sensor processing platforms include ultra low power in system reprogrammable logic.
And the majority of our design wins and engagements are using or target the use of this unique architecture. Since none of the competitors in the sensor processor market today have programmable logic technology, we continue to see this as a very significant and durable competitive advantage. With that, I'll turn the call back over to Sue so she can provide our Q2 guidance. I'll return after that with my closing comments. And following that, we'll open up the call for your questions.
Thank you, Andy. As Andy noted, we are expecting that increased revenue from sensor processing solutions will offset anticipated revenue increases in smart connectivity, display bridge solution and the mature products during Q2. As a result, our forecast is that total Q2 revenue will be approximately flat at $3,000,000 plus or minus 10%. The $3,000,000 in total revenue is expected to be comprised of approximately $1,600,000 of new product revenue and $1,400,000 of mature product revenue. As in prior quarters, our actual results may vary significantly due to schedule variations from our customers, which are beyond our control, schedule changes and projected production start date can push or pull shipments between Q2 and Q3 twenty sixteen and impact our actual results significantly.
On a non GAAP basis, we expect that gross margin to be approximately 40% plus or minus 3%. Gross margin is driven primarily by the mix of customers and the products shifted during the quarter and the continued unfavorable absorption of operational overhead. We are currently forecasting non GAAP operating expenses at $6,000,000 plus or minus $300,000 The expected increase in OpEx is primarily driven by engineering expenses associated with the release of an ongoing support for S3 based sensor processing solution. Non GAAP R and D expenses are forecasted to be approximately $3,600,000 and our non GAAP SG and A expenses are forecasted to be approximately $2,400,000 Our other income expense and the taxes will be a charge of up to $60,000 At the midpoint of our guidance, our non GAAP loss is expected to be approximately $4,900,000 or $08 per share. Our stock based compensation expense for the second quarter is expected to be approximately $500,000 As was the case last quarter, our non GAAP results will not reflect this charge, including the favorable impact of an additional $1,000,000 borrowing from our bank line of credit.
We expect the net cash usage to be approximately $4,800,000 to $5,300,000 The forecasted cash usage in Q2 is primarily due to our working capital needs and the payments associated with our new product development costs. With that, let me now turn the call back over to Andy for his closing remarks.
Last month, we announced Bob Schoenfield joined us as our Vice President of Worldwide Sales. Bob has spent most of his career in the wireless and mobile markets. He is a highly experienced and accomplished executive who has very strong relationships with many of the executives at our targeted customers. We are already enjoying the early benefits of these relationships. We believe the depth of our engagements with some of the largest smartphone and wearable device manufacturers in the world validates the value and potential of our sensor processing solution strategy.
While we don't have enough data to predict the timing or shape of the revenue ramp that we think these engagements will deliver, we continue to believe they will lead to a very significant increase in the second half of this year and accelerating growth into 2017. With that, operator, we'd like to turn the call over to Q and A.
Thank you. Our first question comes from Krishna Shankar of ROTH Capital. Your line is open.
Yes. Andy, congratulations to you and the team on the design win momentum. I was wondering, you mentioned you have a top tier OEM who is starting to move to preproduction for a wearable device. Can you give us some sense for the unit volumes associated with this opportunity? And is the same customer also looking at using the EOS three in other variables and potentially smartphone devices later this year?
Yes. So first, I'll answer the second question first. And clearly, the goal is that we will be able to get into not only other wearables, but we will be able to get into various handsets with this customer. In terms of volume, we have reached some initial volumes, but frankly, we're still not sure what the volumes will be as their marketing teams are deciding how they want to do a launch of this product. So I think we will know a lot more as we get closer to the mid part of the summer.
And they aligned this product with other products in their belt, and that will make it a lot more clear as to what the volume will be. I can say that they are clearly targeting the high volume wearable market. So that is their goal.
Okay. And then you mentioned that you have other design engagements with top tier smartphone and wearable customers. Are these principally in China? And will they also ramp significantly in the second half of this year in terms of revenues?
Yes. So when you look at the smartphone market, I would say that we believe when we talk about strategic Asian markets, our belief is that there's really two geographic strategic markets in Asia, and that would be Korea and China. So definitely, what we've made significant progress with, and this is where Bob has been instrumental in that as if you read his bio, he was actually based in Shanghai, that penetrating the top tier smartphone people in China is an absolute must for us. And we're making great progress on that vein. As far as the timing goes, you know, there's really only a couple of smartphone people that have very regular product introduction, and that's the top guys.
And you could argue that the A company, really, they release their new iPhone when they're ready. But clearly, the other top tier guy has some very regular design cycles. That's not true of the other top tier guys in that they seem to want to release things based on other market variance and what kind of features they're ready to introduce. Know, I may want Bob to chime in here because Bob has been living this for many years and maybe you want to add something to this, Bob?
Yeah, thanks Andy. Just following on Andy's comments, it's interesting with the OEMs, the top tier OEMs in China, where they're gaining share not only domestically, but we're starting to see it with their export initiatives. And it's really based on their ability to get the right balance of features and price points. It fits very well in our product strategy in terms of our capability, allowing them to build applications on our always on capability. And as it relates to their their cadence, their development cadence, Andy was spot on.
They are much more responsive and reactive to market conditions, both from a competitive standpoint, but also market conditions from a mobile operator and consumer standpoint. And what we see them is moving and reacting much quicker. And for us, we we see that as a good thing in in terms of being able to intercept certain programs and get our solution in their devices.
Okay. And my final question, Andy, you have a little bit of a decline here in the Display Bridge connectivity and mature product business. Do you expect those revenues to pick up in the second half of this year? Or would they continue to decline?
Well, as you know, most of our Display Bridge revenue comes from Samsung. And we do expect a decline from Samsung, and that has been anticipated. The wildcard is some of these new opportunities that we have seen. We have actually won two accessory design wins with a smartphone guy. These would be smartphone accessories.
But frankly, we're not sure how big that volume will be. If you recall the old Pico projector market, this is kind of reminiscent of that, where people give you volumes and who knows if it will come to bear or not. The other thing is what will happen with the people that have been using the Toshiba Bridge as Toshiba exits the market. We have had a lot of inquiries from that, but I can't tell you for certain that that will result in concrete designs or not. Obviously, those OEMs are left with two distinct possibilities.
One is to redesign the system so it doesn't require a bridge chip or second, to try and find another source. And so I think those customers are going through that decision making process right now.
Okay. Thank you.
Thank you. We have a question from Gary Mobley of Benchmark. Your line is open.
Hi guys.
Hi Sue. Hi Gary. With
respect to the Polar three, I think you last on last call you talked about a couple of Japanese OEMs transitioning to Polarcove three and obviously you're guiding for that connectivity business to be down in Q2. I just wonder where we stand with respect to that transition.
Okay. This is Brian. I'll take that question. We do see continued opportunities for Pollo four three. Some of these are actually engagements with OEMs that may have a need for discrete programmable logic in addition to a sensor hub and we're going through those discussions with the customers now to see if it makes sense to continue with a two chip architecture or if we should actually migrate that into a single chip opportunity leveraging the programmable logic we have in the s three architecture.
So we still have engagements but it's not going to materially impact the Smart Connectivity revenue this year we think.
Okay. Last quarter Andy you talked about seven to eight design wins each with having the potential for $1,000,000 or more in annual revenue contribution. Could you give us an update on where those stand today? And presumably, of those you were referencing, if I'm not mistaken, were Article Link three S2 related. And you've obviously seen a slow uptake on some of those design wins here in the first half of the year.
I'm just wondering what those delays might relate to, whether it be poor customer uptake for the products your products are designed into or whether it's a design loss?
Yes. I think that the overall size and by the way, I want to emphasize that the numbers that we've been giving out, I know you guys like doing the math on this. So last quarter, I think it was 16 total and then we broke out a number of sub line items including how large each one of them were. And so that would be about eight that were $1,000,000 or more. But when we talked about that subgroup of 16 that increased by 20%, so we're talking 19% now.
These are customers this is not our total funnel size, by the way. These are guys that we are actively engaged with that we think could result in some significant volume. So this is not our total funnel and I just want to be very clear on that. I think those people that have listened to me over the years know that I don't like really talking about the design win funnel, but I like talking about things that are much closer to production. Ideally, once our ramp is there, I just want to talk about things that we're shipping and let the numbers speak for themselves.
Having said that, I think all of the and I'll have Brian and Bob correct me if I'm wrong, but I think all of those ones that we thought were $1,000,000 or more for the most part are still intact. There may have been one or two that dropped off, but they were replaced by those three that I did mention. So the overall number, I think, actually went up maybe one or two in terms of size. Am I right?
Yes.
Yeah. And the other thing, as I said, is we've got to be very judicious about how we use our resources to make sure that we can do a good job with all of these customers. So frankly, even with us 19, we tend to focus in on the top five where their requirements are similar to the other guys' requirements because it's really important that we do a good job, especially with that top tier one guy and make sure that we do a great job in getting that product to production.
Okay. Thanks guys. That's it for
me. Okay. Thank
you. Thank you. Our next question comes from Rick Neaton of Rivershore Investments. Your line is open.
Good afternoon guys. I wanted to follow-up on some of the disclosures in your prepared remarks. Since we're getting near the second half and we would like to begin modeling some things with a little bit more specificity. So in looking at the balance sheet, should we be modeling increases in inventory and receivables in the second half over what your historic rate has been?
Hi, Rick. This is Sue. Yes, definitely. We should start modeling the inventory build up starting towards the probably end of q two just to prepare for the revenue ramp in Q3 and the second half of the year. So in terms of accounts receivable that is already dependent on the revenue level.
So the Q3 accounts receivable depends on revenue from Q2 and so on. So that is how we model our receivable.
Okay, thanks Sue. Andy, are you comfortable with your capability to meet the demand for shipment of 5,000,000 or more S S3s in a quarter in the second half of this year?
Remember Rick, we are a fabless semiconductor company and we have one of the largest foundries behind us and we already have talked to them and they are absolutely ready, willing and able to meet our ramp. And I guess I'd remind you that the $5,000,000 that you're looking at right now is less than what the ramp was when we engaged first with Samsung on the tablet market. That ramp was closer to $8,000,000 over the first two quarters. So I feel very comfortable that we can ramp that and then some.
Is that a scenario that we should be modeling at some point beginning in the second half?
One's that? Than
5,000,000 units?
I think that that would be very, very optimistic. So I personally would not model something that high. It's possible, but I'm, you know, I don't think I'd count on that.
So more like 5,000,000?
You know, now you're asking me to give you guidance about beyond the quarter and we'd rather not do that in this call.
Okay. Then I'll just I'm just trying to get some guidance on where I should spend my time in a spreadsheet. In prior conference calls you stated that your breakeven target was in a quarter for non GAAP was 12,000,000 to $13,000,000 of revenue at about a 50% non GAAP gross margin. Is that still the case?
Yes. Yes, that's still the case. We are trying to very tightly manage our operating expenses. And as you saw Sue say that last quarter, our OpEx was 5.6. This quarter, it's gone up slightly to six point zero.
I think that's really a timing issue. We would like to keep our OpEx below six. So if we keep our OpEx below six and we hit our gross margin of 50 points, then we should be able to breakeven at a number a little less than $12,000,000 which is what we would like to do. And we see that as very, very doable.
This year?
The sun, the moon and the stars need to align perfectly. I think what is really a more realistic thing given the customer base that we're calling on now and the uncertainty of their introduction date, I'd say that we're really looking at the 2017 realistically. And I know that we've been saying in past conference calls Q4, but now we've always said that we needed to get more visibility and we're starting to see that we'll have even more visibility by the next call for sure.
Appreciate that. A couple more questions. For the last three years, you've had a pretty, you've had your customer concentration with one particular top tier OEM, should, given the depth of your engagement funnel with potential high volume customers, should we expect to see any significant changes in your customer concentration later this year or early next?
Yeah, we believe that next year, as some of these other things come to fruition, you should not see as high a concentration with that top customer. But having said that, we still expect them to be a significant share of our business. What we do expect, though, is that other customers will be part of our revenue income, if you will, and we'll have a much better balanced revenue portfolio, which really will help us weather the ups and downs that all companies go through that will help us get on a more consistent revenue growth track next year and beyond.
Okay. Thanks Andy. I appreciate your color here.
Thank you. Our
next question comes from Robert West of Oak Grove Association. Your line is open.
Hello Andy. Thank you for taking the call.
You're welcome, Bob. Good to hear from you.
I'd like to begin with a question on smartphone engagements. Just to get myself squared with what you updated us today on, Last quarter, you had 16 important engagements of which a third of those were OEM or or OEM engagements for smartphones or about five, you know, smartphone engagements. And you've added three more to that. So would that be eight engagements currently falling into that category for smartphones?
Yeah Bob, this is Brian. I'll take that question. So as Andy was saying, the net increase in these significant OEM engagements has increased to 19. From a funnel point of view, some came on in smartphones and one came off. So it's not eight, seven that we have in the smartphone funnel right now.
Okay. I think the next question would be have some of those engagements turned into design wins?
Beyond what Andy's already disclosed, no, this is still somewhat early in the engagement process with some of these smartphone OEMs. That being said, as Bob was alluding to, folks in Asia moved very fast. So we are pretty confident by the next call we'll have a lot more color on exactly how many can be translated into revenue this year.
Okay. Yeah, I think Bob, let me add just one thing here. One way to think about this is that the design win process cannot really occur or get completed until the customer has your physical silicon and has actually had time to do an eval on it. And typically those evals take a couple of months easily. And knowing that our first samples went out to the top tier guys and we did more of a general sampling, We're starting to do general sampling, frankly, right about now.
And when I say general sampling, it would be to most of the people you hear on this list. So these guys are just getting or just have gotten our silicon with the reference design so that it enables them to really do a hard evaluation and say, you know what? This device, this physical item that QuickLogic gave me does what they said it would do. And that's when the design win will occur. So that process is happening as we speak.
The good news is that we've got a great reference design and our silicon is behaving as we predicted it would. And we're getting really some good feedback.
That's that's that's helpful, very helpful color and timing also. So, basically, then this is the May 1. So by July, you should start being able to to have have better metrics on on the second half. Is it would that be right?
I'll let Bob answer that.
I think in general, yes. So not only with our current engagements, but with the engagements with others in the top 10, top 15 worldwide smartphone OEMs, we'll be extending our engagements with them. And I think not only will we have better visibility, but it'll come straight out of the evaluations that Andy spoke of. And our push is to translate those into additional active program developments that our customers will be taking to market. Some in the later second half of 'sixteen but most of them flowing into 2017.
Let me just give the audience here a little color on how we picked these people that we're engaged with. Obviously, if they're tier one, then they are people that we have to be engaged with or top tier. But the other thing we've done, and actually Brian, Bob and I have been out to the field exhaustively in the last three months, finding out what the requirements are. And what we're doing is we're picking the requirements to engage now, people that have the potential, revenue within the 2017. Ideally, if we can find people that are in 2016, that's even better.
But they have a list of requirements that we can scale with other customers. So we're actually picking our customers because frankly, we have more at our doorstep than we can physically handle if we did all of the one offs. So we're trying to exclude the one offs and concentrate on delivering a full product that's scalable to other customers in our target market.
Okay. Well, let me come then kind of to the bottom line on smartphones if I can. Is it reasonable to expect at least one or two smartphones going into production in the second half of this year?
Is it reasonable?
Yeah, Bob. This is Brian. It is reasonable based on the funnel that we have and the engagements with these customers. In fact, we have folks out in Asia right now working through some of the details with some of them. So I do think that that's in the realm of possibility.
Yeah. Let add one more bit of color. And this was definitely in the prepared remarks, but just so that you understand what we're talking about. As we went into China, what we found was that while people thought it was interesting that we had our own algorithms, many of these Chinese, especially the top tier guys, either had their own set of algorithms or they were using a third party. So when we talk about a third party, there's actually one company that seems to dominate the China landscape, and that is the guy that we approached and we are partnering with right now.
So what was happening right now is he this person, this is the incumbent algorithm person that I mentioned in the script, is physically porting their algorithms to our s three platform so that we have a complete solution that the Chinese OEMs, the top tier guys can readily go to market with. And that's a very important part of our strategy in accelerating our revenue.
Okay. I think I understand that. And that's good news, really. Let me turn to another subject, which is the EOS S3 Sentry product offering. Do some of these smartphone designs include this Century offering as a requirement?
And again, should we expect any second half Century product revenue?
Yes. In fact, I would say the majority of the smartphone engagements we have now are wanting this this integration of voice and motion that we can do and that we can do very effectively with low power in EOS s three. And the ones that I was speaking about earlier that would be in the realm of possibility for production this year would also include that capability.
Okay, well thank you Brian. Kind of a third follow-up on that one. Are there wearable applications for the EOS s three century feature? In other words, are some are some top tier customers that are building wearable or accessories interested in voice and those accessories?
Yeah. So if we look generically at the wearable space, there's products that are more band, fitness band like, and then there's smartwatches that are running high level operating system like iOS or Android Wear. There's smartwatches in the market today with Android Wear that have sensory capability built in already. So it's a natural extension that we could go after that space with the EOS S3 and be a nice companion to the application processor and do voice at much lower power. There's a general trend in the industry that people are wanting to get away from mechanical buttons and to have voice and speech recognition drive the UI or the user experience as opposed to those mechanical buttons.
So we see opportunity there. But I'll go back to what Andy was saying earlier where we're being very careful about the markets and the customers that we're picking right now so that we can engage and scale from there. And so the largest market in wearables we feel right now is more the band type and I don't think voice is gonna be a major driver in there simply because the battery life expectations exceed what you can practically do with an always on microphone. Those mics do consume a lot of power. We do see it as a secondary space to go after the smartwatch category leveraging what we're doing now in the Android smartphones because it's a natural architectural extension to those watches.
And those watches don't have the battery life requirements of bands anyway. So it's a more natural fit for the always on voice. But we are keeping a close eye on that because we do think it's a good home for EOS S3 with sensory.
But I think you guys would all agree it's most important that we advance smartphones first because that's where the volume is, that's what will drive our revenue and get us the gross margin dollars that we need to expand our business.
Okay. That's really why the priority of the questions was in that area. And I appreciate you commenting on that. There are some wearables that are now featuring GPS. Does the EOS s three read and process GPS data?
We do not have a GPS processor in there.
But you could you could connect the GPS module to the EOS s three. I'm wearing a watch right now in fact that it's not using QuickLogic but it has a microcontroller and it has a GPS chip. So it is definitely possible that you could do that with EOS S3.
Okay, okay. One other question. You last quarter, you talked about a a MIPI to RGB display bridge design and a top five smartphone accessory. That was Right. You were expecting to go into production this summer.
Yeah.
This is a kind of maybe too far out question, but does v have a role to play in accessories and wearables using RGB displays or is it even feasible?
It depends on the use case. In this one, as Andy was mentioning, this is more of a pico projector use case. It's not really an LCD. So we have seen and we have actually demonstrated that he has value with the pico projectors. But I think in this case, the customer just needed the bridge and not deploying the visual enhancement technology.
Okay. Well thank you very much Andy and Brian and Bob. Appreciate the and helpful insights into where you are. It sounds like that it's going be a very important quarter coming up right now as you really get your arms around the opportunities you have and get them prioritized and hopefully, get pretty close to breakeven by Q4. That'd be a good way to summarize it?
We are clearly at a tipping point now. I'll leave it at that.
Okay. Thank you very much, Andy, for taking the call.
You're welcome. Thanks, Bob.
Thank you. I'm showing no further questions at this time. I would now like to turn the conference over back to Andy Pease for any closing remarks.
First I'd like to tell you what we're doing over the next quarter. We will be exhibiting at the Sensor Expo and Conference at San Jose Convention Center on June 21 to June 23. Sue, Brian and I will be at the Benchmark Company one on one conference in Milwaukee on June 2. Details will be included in our upcoming media alerts. And one other note that Bob will be at Mobile World Congress Shanghai from July 29 excuse me, June 29 to July 1.
I want to thank you for your continuing support and I look forward to reporting our strategic progress at our next earnings call, which is scheduled for Wednesday, 08/03/2016. Thank you.
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.