Tom Hart – Chairman & CEO Ralph Marimon – VP of Finance & CFO

Edwin Mok – Needham & Company Brian Coleman – Hawk Hill Asset Management

Good day and welcome to the QuickLogic Corporation Fourth Quarter Earnings Results Conference Call. As a remainder today’s conference is being recorded. At this time I would like to turn the conference over to Tom Hart; please go ahead, sir.

Yes, good afternoon, ladies and gentlemen, and thank you for joining us today for QuickLogic’s fourth quarter 2009 conference call. Joining me here today is our President, Andy Pease, and our CFO Ralph Marimon. Ralph will take you through our fourth quarter results and then I’ll share my perspective on our business. And then following this, Ralph will detail our guidance for the first quarter of 2010 and then we’ll take some questions. Ralph?

Thank you, Tom. I’ll take a moment to read a 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 growth from our new products, statements pertaining to our design activity, and our ability to convert new design opportunities into customer activity, 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-K, quarterly reports on Form 10-Q, and prior press releases for a description of these and other risk factors. QuickLogic assumes no obligation to update any such forward-looking statements. For your information, this conference call is open to all and is being webcast live. For the fourth quarter 2009, total revenue increased by 28% to $4.3 million, which was at the high end of our guidance range of $4 million plus or minus 10%. Our new product revenue totaled $2 million, which represents a 50% increase over the Q3 revenue level and was 48% of total revenue for the quarter. The growth in new product revenue was driven by shipments to our existing datacard customers plus the addition of one new datacard customer and one new strong authentication secure access cared customer. We are now in production with three of the top five datacard suppliers in the world. Legacy product revenue increased to $2.2 million, which was a 14% increase over the Q3 level. Our non-GAAP gross profit margin for Q4 was 52%, which was above our guidance. The higher gross margin was driven by a higher-than-anticipated mix…

Okay, thank you, Ralph. While 2009 started out as a very challenging year for the semiconductor industry, it ended up being a year of progress and accomplishment for QuickLogic. Some of the progress is easy to see, three consecutive quarters of sequential new product revenue growth being our most tangible accomplishment. As important as this accomplishment is, we believe that the foundation we’ve built will be even more important to our success going forward. Two and a half years ago, we announced our intent to create a new business model, customer specific standard products, or CSSPs. We learned early in our pursuit of this model that to be successful, we would have to radically change not only our operational structure, but in fact our operating culture. Bottom line, we learnt that our operating model needed to focus as much on process as it did on platforms. While our platforms clearly have desirable features and provide high value solutions for both our customers and partners, the key differentiating ingredients are the process we have developed. It is the combination of these platforms and processes that is providing us with the leverage to accelerate our strategic design activity on the way to becoming – on the way to expanding revenue. One tangible, and if I can borrow a term from the world economics, leading indicator of this progress is the proliferation of cooperative activities in the form of reference platforms we have established with some of the world’s larges and most respected technology companies. These range in scope from semiconductor industry leaders to relatively new and highly innovative semiconductor companies like Icera. Collaborating with leading semiconductor companies can provide small companies like QuickLogic with enormous benefits. However, without a very clearly defined and specific strategy, tangible results are often elusive. To provide…

Thanks, Tom. During Q1, we expect to initiate production shipments with two new wireless datacard customers. In addition, we expect to see three new designs go into production with existing customer, one, in the wireless datacard market, and two, in the strong authentication secure access datacard market. While these and our ongoing new product production business should provide us with ample opportunity for growth in Q1, there are a number of variables that limit our customers’ scheduling visibility and as a result ours as well. Virtually all of our new product business involves recently released or soon-to-be-released customer products. Due to this, there is only minimal run rate history for these customers. And as a result the visibility of end consumer demand is limited. Due to this limited visibility, we are continuing to take what we think is a conservative approach to new product revenue guidance and with that providing a fairly wide range for that guidance. For the first quarter of 2010, we are estimating that total revenue be approximately $5 million plus or minus 10%. Out of this, we expect that Q1 revenue from new products will be $2.3 million plus or minus 10%. Our actual results can vary significantly due to schedule variations from the customers, which are beyond our control. Schedule changes, particularly those that may impact new product revenue, could push or pull shipments between Q1 and Q1 and change our actual results significantly. As I mentioned earlier, we have seen an increase in demand for the legacy products. As a result, we expect that Q1 revenue from legacy products will be $2.7 million plus or minus 10%l. On a non-GAAP basis, we expect gross margin to be approximately 54% plus or minus 300 basis points. This increase in gross margin percentage is driven primarily…

I would like to close today by expressing my thanks to the team here at QuickLogic whose efforts are proving the value of the CSSP model and what it brings to our partners, customers, and end users. Our first quarter 2010 conference call is scheduled for May 6th and 2:30 PM Pacific Time. Kevin [ph], now (inaudible) the call for questions.

(Operator instructions) And we’ll go first to Edwin Mok with Needham & Company. Edwin Mok – Needham & Company: Hey guys, thanks for taking my question. First question is related to the new product. I think Tom you mentioned that you guys are shipping four products to four customers in the fourth quarter and in the first quarter you’d be shipping to three of the new four. Can I ask what happened to that one customer or did I completely misunderstand that?

You are breaking up really badly, Edwin. I am sorry I didn’t get the full question. You are asking how many customers total we are going to shipping to in Q1. Edwin Mok – Needham & Company: Sorry, let me try that again, I apologize for my phone. On the fourth quarter how many customers did you shipped to?

We shipped four products to four unique customers. Edwin Mok – Needham & Company: Yes. And in the first quarter you mentioned that you will be shipping to three of the four. I was wondering what happened to the one customer that you got (inaudible).

No, no, in the first quarter we are going to be shipping to a total of six customers with nine parts in the first quarter. Edwin Mok – Needham & Company: Okay. But I think on the prepared remarks you mentioned that you would be – well, three of the four customers will be existing, so maybe I misunderstood that completely then.

I think you did. Edwin Mok – Needham & Company: Okay, okay, that’s fair. And then on – these customer is primarily still in the datacard market. What about the other markets that you guys talked about. I think you guys have done – made some good progress in some of those markets. Any way you can share with us in terms of progress there especially – I am especially interested in the call it Smartbook or like a (inaudible) that market.

Okay, well Smartbooks, Smartphones and PCDs and MIDs, we didn’t break out the exact numbers there, but we’ve got a lot of design activity going on with a lot of different customers. I think we did talk about the number of reference platforms in total that we are working we said were – there is 13 reference platforms with eight unique customers or partners at this point and what I can tell you is that 11 of those opportunities are with seven customers are for VEE. Sorry, sorry, VEE is 10 opportunities with six unique customers. Edwin Mok – Needham & Company: Great. Actually that was – that’s very helpful for us to help quantify that. On the new – do you have the number of (inaudible) in this past quarter. On the new SSO now, are those mostly on the – still on the datacard market or are we talking about mostly MID or the visual based technology.

Now everything going into production in Q1, we’ve said before and we are – and pretty consistent on this. We didn’t expect any significant revenue in the first half of this year off of Smartphones, Smartbooks, Netbooks, PCDs or MIDs. We said that we expected 2010 to be the bulk of our revenue to come off of broadband datacards and secure access cards. There is some good upside there… Edwin Mok – Needham & Company: Yes, yes, I am sorry.

There is some good upside there but we have not – that’s not in our plan and we haven’t talked about it externally either. Edwin Mok – Needham & Company: Yes, sorry, maybe it’s my phone.

Alternatively [ph] on the assets sold you mentioned they went from 25 (inaudible) quarter into 34 new ones in the fourth quarter. I was wondering if those are more new designs most of VEE versus maybe more like datacard, which is mainly that’s shipped right now

Actually VEE was the bulk of the increase. The VEE went – was the – if you looked at it, it went up by nine from 25 to 34. The bulk of that was in fact VEE opportunities.

Let me, let me – help clear something up, because Tom talks about designs interactive sales funnel. He also talked about the increase in our production. So, we’ve gone from four designs or SSOs that are currently in production to nine. So, out of those 25, five of those actually went into production, so we actually netted up a total of nine plus five or 14. Of the 14 that we netted up, half of them were VEE. Edwin Mok – Needham & Company: Great. But is it fair to say that on the one that you shifting for production is more related datacard, but yet on the design funnel there is more VEE activity down the road, right, where you said of course you can't control the way the customers ramping their shipment, but at least the funnel indicated that’s where the – your business is shifting towards. Is that correct?

Correct. Edwin Mok – Needham & Company: Great, that’s very helpful. And then just two quick questions on the financials. Gross margin has come in actually quite strong and looks like it’s slightly above your target model. Can I ask if this is just a call it short term impact because of mix or should we expect the target to be close to – 54 guidance you are actually providing (inaudible)?

I think in the short term the margin will be higher than the model because of the impact of legacy being stronger. But as the revenue ramps in the new products longer term then we’ll see a come back down to the model level, which we’ve always modeled at 50%. Edwin Mok – Needham & Company: Okay, that’s fair. And then on the legacy business, it increased slightly sequentially. How do we probably look at that trending, and based on your guidance increasing more in the first quarter, right? Do you expect that to hit new run rate or do you – is it more just of a near term may be New Year purchase or anything like…?

You know it’s – we kind of view it as a gift actually, Edwin, because we are betting on new products and that’s what our total focus is with our field and our engineering resources. We are certainly not ignoring the legacy business in terms of your ability to service – meet our customers. But we are not at all progressive – pursuing any new designs in that sector of the business at all. So, the recovery there I think is a function of what’s happened in the marketplace. We’ve modeled the number to be less than what we are talking about in Q1. And while we haven’t shared what that is, we are betting on new products. Edwin Mok – Needham & Company: Great. And finally just on the operating expenses, $4.2 million mainly that comes from increased R&D, was it – is there any one-time item in there, because I know sometimes you have (inaudible) and you know that there is increase in cost just in one quarter. I am talking about the guidance for the first quarter, I am sorry.

Yes, I understand. It’s not – the QuickLogic cost has not increased, what’s increased is the variable cost, the outside portion. Back in 2008, we did that realignment. And so because we are in the midst of a new chip development, we are incurring more variable cost, the outside services and so that’s what the (inaudible) to go up. If you look at QuickLogic itself our costs are pretty stable. Edwin Mok – Needham & Company: I see. Any (inaudible) of looking at that progressing throughout the year and do you expect to stay at this level or moderate towards the second half.

Well, we – firstly we don’t give out guidance down the road, but as this chip development progress and then falls off, you’d expect those variable cost to fall off as well. So, it’s just – it will come in wave as we go through the year. So, right now we are again be a little bit higher, and later when we are out of this chip development days it will come back down. Edwin Mok – Needham & Company: Great. That’s very helpful. Thank you.

You are welcome.

(Operator instructions) We’ll go next to Brian Coleman with Hawk Hill Asset Management. Brian Coleman – Hawk Hill Asset Management: Great, thank you. Hey, Tom, my first question, can you just clarify the five designs you’ve got moving into production and you’ll be shipping against in 1Q, how does that split between the secure modem sticks and the sort of the secure datacard and the modems?

Okay. Of the – well let me tell you in Q1 we will be shipping to six SSOs in production and five customers in the broadband datacard market. We’ll be shipping three SSOs to one customer in the secure access card. That brings – that will bring the total to nine total SSOs and six customers. Six unique customers. Brian Coleman – Hawk Hill Asset Management: Yes, got it, okay. And can you reflect from memory in the datacard market, can you – do you have designs with – just the Icera or do you have Qualcomm based designs as well.

In the datacard market we only have Icera designs. Brian Coleman – Hawk Hill Asset Management: Okay. And there was pretty big jump in the number of datacard designs between 3Q and 4Q. Was there something – was there a specific catalyst for that, was there a new PSP, or was there something going on in the market that created that large surge in business for you?

It’s called the CSSP leverage model. It means (inaudible) out of this. I think that anybody that moves and wants to build datacards and we are there with them in every one of them. Brian Coleman – Hawk Hill Asset Management: So, is that a – is there a – is it sort of – is that kind of one-time in nature or could we expect to see that same kind of – is there the potential to see that same kind of volume of design wins going forward.

I wouldn’t bet on it every quarter, but there is – we are a long way from being saturated at this point. I don’t know how many people in the world are going to make datacards, to be honest with you, but I think it’s going to be more significant than the six, which is where we are today. I think one of the things that is happening, or we are seeing in Q1 is the turn on of regional guys. Prior, the top five guys were – are international. And we are now beginning to see people turn on that are regional suppliers like to China exclusively into other regions. Brian Coleman – Hawk Hill Asset Management: Okay. You said now I think at the end of where we are today you’ve got eight unique customers now designing in the datacard market, including four of the top five. Roughly what percent of the end market do they represent?

The customers represent probably 90, maybe even higher than that, but not all of those – but that isn’t the share that Icera has and we are not in any of the designs that Qualcomm has, so even though the TAM is 90% of the total market, the same for Icera is not that large. And I am not sure what Icera is – well Icera is a private company – so I am not sure what they are telling the world about how many they are going to sell. Brian Coleman – Hawk Hill Asset Management: Well I think it was a press release out of them only weeks ago that said they’d hope to have 33% of this market by the end of the year. I think that’s the timing.

I’d love it if they do. Brian Coleman – Hawk Hill Asset Management: And what percent then of the Icera side of this market would you think your attach rate would be?

Well, it’s – in the module part of the business, which is a relatively smaller portion of their business, we are not involved in that at all. Brian Coleman – Hawk Hill Asset Management: Right.

In the card, the USB card part of the business, which is – my understanding is that’s 70% of their business or higher. We are virtually in all of that at this point on a forward going basis. Anything that has an SD, SDI O slot or SD, MicroSD card, we are involved in that. Brian Coleman – Hawk Hill Asset Management: And that seems to be kind of the trend in the industry at this point.

Well, it’s being driven by the operators. They’ve demanded that they don’t want to buy cards anymore from anywhere if it doesn’t have an SD, MicroSD capability. So, yes, the answer is yes. Brian Coleman – Hawk Hill Asset Management: Yes, okay. And the Qualcomm exercise made up support for the SD reader?

Yes. Brian Coleman – Hawk Hill Asset Management: Yes, okay. On VEE–

Albeit slower than ours, by the way. Brian Coleman – Hawk Hill Asset Management: Is there – well, is there other opportunities then with SPIDA or any of the other PSPs to kind of penetrate the Qualcomm ecosystem on the datacard.

Well, I won't say no, but I have to tell you that I think it’s unlikely. We – I mea they’ve been in that business quite a while now they are pretty self-sufficient in that. They are pretty tightly integrated and so I think our involvement with them will be in other spaces besides the datacard market. Brian Coleman – Hawk Hill Asset Management: Okay. And I don’t know if it was last quarter, or the quarter before that, you talked about some of the – some Tier one communications companies that had kind of missed the USB modem market initially were starting to design and get into it. Can you give us a bit of an upside on where those companies are and where they are in terms of design and bringing their products to market?

Not really because we are under NDA with those guys, but I can tell you that they are very interested and they see the market this year and now I saw new numbers. We are supposed to be a 90 million unit market this year. That’s obviously attracting a lot more people than it was – when it was on only a 20 million unit market. So I can tell you that they are committed to it and we are working designs with them on it. Brian Coleman – Hawk Hill Asset Management: Okay. And I mean do you expect revenue from those types of customers and is that a first quarter, second quarter event?

We expect revenue this year and we won't – at this point we can't discuss which quarter. Brian Coleman – Hawk Hill Asset Management: Okay.

But it’s near term Brian Coleman – Hawk Hill Asset Management: Okay. Question for you on VEE. Is – can that be run from a dongle or does that have to reside on the device?

It has to reside on the device because it’s got to be in the video path. Brian Coleman – Hawk Hill Asset Management: Yes, okay, okay. And then last question, your timing for the Smartbook, Netbook, Smartphone has been second half 2010. Is that – are you getting any kind of qualitative sense from your customers there about whether there is some upside to that forecast and any additional urgency in their part to get to market quicker?

There is urgency and at this point we don’t have anything firm, but I know that they are going for it. Several of them are really going for it. Other people, other players are – well they have taken their time, but there is – we are quite a ways along in several of these designs. Brian Coleman – Hawk Hill Asset Management: Is it too early for us to be looking out for prototypes at trade shows and these types of things where we might start to see devices with VEE in it, or is that – or is it still too early to expect to see those types of prototype devices?

Well, you will reference designs here fairly soon. I mean we are – as I said, we are working 10 SSOs with – or 10 reference platforms with six partners using VEE today. So this isn’t one or two guys that are kicking the can, this is – and one or two backroom projects. This is –there is a lot of activity going on there. Brian Coleman – Hawk Hill Asset Management: Okay. It’s good news. And then I guess my last question. What was the share count at the end of 4Q and if it’s fully diluted with–

Thirty four nine I think it was, Ralph?

I mean at the end of January it was thirty five because you have to – the total shares on the day it’s probably thirty four and nine, but you are averaging in it. So, for EPS calculation at the end of Q4 it’s 32.5.

Okay. Brian Coleman – Hawk Hill Asset Management: But 34.9 is the fully diluted number at the end. And does that include the warrants or is that not included?

No it doesn’t include, does not include the warrants. Brian Coleman – Hawk Hill Asset Management: Does not? Okay. All right, that’s all I’ve got. Thank you very much.

Okay, Brian.

(Operator instructions) And it appears we have no additional questions. I’d now like to turn the call back over to management for any additional of closing remarks.

Okay, well thank you for your interest in QuickLogic. Think CSSPs and we look forward to seeing you on May 6th at 2:30 for our first quarter call. Thank you. Bye-bye.

And that does conclude today’s call. We do appreciate everyone’s participation.