QuickLogic Corp. 10-Q Summary: Quarter Ended June 28, 2009
Business Context and Reporting Period
QuickLogic Corporation is a fabless semiconductor company designing low-power programmable solutions, primarily Customer Specific Standard Products (CSSPs) and Field Programmable Gate Arrays (FPGAs) for mobile, consumer, and industrial markets. This report covers the quarterly period ended June 28, 2009, and the six-month period ended on the same date. The company operates in a single industry segment and is currently navigating a global economic downturn affecting the semiconductor industry.
Key Financial Metrics
| Metric (in thousands) | Q2 2009 | Q2 2008 | 6 Months 2009 | 6 Months 2008 |
|---|---|---|---|---|
| Revenue | $2,911 | $8,743 | $7,463 | $19,766 |
| Gross Profit | $1,322 | $3,216 | $4,055 | $8,981 |
| Gross Margin % | 45.4% | 36.8% | 54.3% | 45.5% |
| Net Loss | $(3,227) | $(4,743) | $(4,823) | $(6,120) |
| Loss Per Share (Diluted) | $(0.11) | $(0.16) | $(0.16) | $(0.21) |
| Cash and Equivalents | $16,450 | $19,376 (Dec 2008) | $16,450 | $19,376 (Dec 2008) |
| Operating Cash Flow (6mo) | $(2,553) | $(367) | $(2,553) | $(367) |
| Total Debt & Leases | $3,002 | $2,753 (Dec 2008) | $3,002 | $2,753 (Dec 2008) |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 67% year-over-year in Q2 2009 and 62% for the six-month period. This was driven by declines across all product lines: New products (-68%), Mature products (-59%), and End-of-life products (-86%). Causes include the end-of-life of a major PND product family, delays in new product ramp-ups, and general economic slowdown.
- Improved Margins: Despite revenue drops, gross margin percentage improved to 45.4% in Q2 2009 from 36.8% in Q2 2008. This improvement is attributed to a favorable product mix shift toward mature products, reduced inventory write-downs, and the absence of long-lived asset impairments that impacted the prior year ($1.5M charge in Q2 2008).
- Expense Reduction: Operating expenses decreased significantly due to restructuring efforts initiated in 2008. R&D expenses fell 28% and SG&A expenses fell 32% year-over-year, primarily due to reduced headcount and lower stock-based compensation.
- Investment Write-downs: Unlike Q2 2008, which included a $417,000 write-down of the investment in Tower Semiconductor Ltd., Q2 2009 had no such charges. The investment currently holds an unrealized gain of $255,000.
Guidance, Outlook, and Risks
- Liquidity: Management anticipates existing cash resources ($16.4M cash + $4.0M available credit line) will fund operations for the next twelve months. However, the company notes that future capital requirements depend on revenue levels and market acceptance of new products.
- Cost Cutting Measures: Effective July 2009, the company implemented a salary reduction plan: 10% reduction for most employees and 20% for the CEO, with reductions replaced by Restricted Stock Units (RSUs). Board members also took a 20% cash compensation reduction.
- Outlook: The company expects continued revenue declines from mature and end-of-life products. Future growth depends on converting CSSP design opportunities in the mobile market (smartphones, netbooks) into revenue. Management notes that new mobile products typically have lower gross margins than legacy products.
- Risks: Key risks include the cyclical nature of the semiconductor industry, reliance on a limited number of suppliers (specifically Tower Semiconductor for wafer fabrication), potential delisting from Nasdaq if stock price remains below $1.00, and the uncertainty of realizing deferred tax assets due to accumulated losses.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of the $16.4M cash balance against the $2.6M operating cash outflow in the first half of 2009.
- Revenue Visibility: Assess the pipeline of CSSP design wins and the timeline for revenue recognition, given the delays cited in new product ramp-ups.
- Supplier Concentration: Review the dependency on Tower Semiconductor for wafer fabrication and the status of the $3.5M wafer purchase commitments.
- Stock Price Compliance: Monitor the stock price relative to the $1.00 Nasdaq listing requirement to assess delisting risk.
- Restructuring Completion: Confirm the remaining $48,000 in restructuring liabilities are paid as expected by the end of fiscal 2009.