QuickLogic Corporation (QUIK) Q4 2022 Earnings Call

QuickLogic Corporation (NASDAQ:QUIK) Q4 2022 Earnings Conference Call February 27, 2023 5:30 PM ET

Company Participants

Alison Ziegler – Managing Director-Darrow Associates

Brian Faith – President and Chief Executive Officer

Elias Nader – Senior Vice President and Chief Financial Officer

Conference Call Participants

Suji Desilva – ROTH MKM

Martin Yang – Oppenheimer

Richard Shannon – Craig-Hallum

Rick Neaton – Rivershore Investment Research

Operator

Ladies and gentlemen, good afternoon. At this time, I’d like to welcome everyone to QuickLogic Corporation’s Fourth Quarter and Fiscal Year 2022 Earnings Results Conference Call. As a reminder, today’s call is being recorded for replay purposes through March 6, 2023.

I would now like to turn the call over to Ms. Alison Ziegler of Darrow Associates. Ms. Ziegler, please go ahead.

Alison Ziegler

Thank you, operator, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer, and Elias Nader, Senior Vice President, and Chief Financial Officer. As a reminder, some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties, including but not limited 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 production start dates that could impact the timing of shipments; the company’s future evaluation systems; broadening the number of our ecosystem partners; and expected results and financial expectations for revenue, gross margin, operating expenses, profitability, and cash.

Actual results or trends may differ materially from those discussed today. For more detailed discussions of the risks, uncertainties, and assumptions that could result in those differences, please refer to the risk factors discussed in QuickLogic’s most recently filed periodic reports with the SEC. QuickLogic assumes no obligation to update any forward-looking statements or information, which speak as of the respective dates of any new information or future events.

In today’s call, we will be reporting non-GAAP financial measures. You may refer to the earnings release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR web page that provides current and historical non-GAAP data.

Please note, QuickLogic uses its website, the company blog, corporate Twitter account, Facebook page, and LinkedIn page as channels of distribution of information about its business. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. A copy of the prepared remarks made on today’s call will be posted on QuickLogic’s IR web page shortly after the conclusion of today’s earnings call.

I would now like to turn the call over to Brian.

Brian Faith

Thank you, Alison. Good afternoon, everyone, and thank you all for joining our fourth quarter and fiscal 2022 financial results conference call. Q4 was the culmination of a pivotal year for QuickLogic. Revenue of $4.1 million was in line with the expectations provided during our third quarter call. On an annual basis, we increased our total revenue by approximately 28%.

More importantly, we grew our New Product Revenue by 50%, and we delivered our best non-GAAP operating performance in the last 10 years. These results are primarily driven by new wins on our eFPGA IP-based products, continued shipments of smart connectivity and display products, and licensing of our SensiML AI Software Platform.

I would like to thank the QuickLogic and SensiML teams for their incredible drive and determination. Together, we had many significant accomplishments for the company in 2022. Looking at some of the year’s highlights, SensiML recently signed a significant deal with a top-tier semiconductor company to integrate a SensiML-powered solution to address its own customers’ demand for AI at the IoT edge across its broad microcontroller line of products. This private labeling of the SensiML toolkit further validates our technology and provides significant revenue potential as a result of their large installed customer base and sales force. And since this win is not exclusive, there could be additional similar opportunities as well.

Also in 2022, we signed our largest eFPGA contract ever, and, for the first time, became a prime performer for the U.S. Government to develop new Strategic Radiation Hardened FPGA Technology. The program is expected to continue to be the largest contributor to revenue in 2023 with the anticipated notification of our next milestone in the summer upon successful performance of the Base Contract and at the discretion of the U.S. Government.

As a reminder, the Contract allows for Options totaling approximately $72 million over the span of four years. On the strength of our numerous eFPGA IP-based opportunities, our sales funnel now is over $118 million. Included in this number are deals for both eFPGA IP as well as bespoke, or semi-custom device development that incorporates our eFPGA IP. These deals span numerous foundries, process technologies and end markets. While a funnel of $118 million is the largest in QuickLogic’s history, I want to emphasize that this does not include the entirety of the strategic radiation hardened FPGA Technology U.S. government program, nor does it include any of the possible device sales to the Defense Industrial Base customers. We believe this market to be several hundred million dollars in size and are intent on capturing our share of it in the coming years.

The increased diversity of our funnel and the magnitude of the deals makes us confident of exceeding our organic sales growth target of 30% in 2023. One of our unique strengths that is starting to pay dividends is our ability to offer a full spectrum of solutions ranging from eFPGA IP all the way to full chip designs which incorporate that IP. A question I’m often asked by investors is, “what is driving your sales funnel growth, especially during these uncertain economic times?” To answer that question, I’m going to share something a Fortune 500 CEO recently shared.

They are investing in OpEx to save OpEx. Both our SensiML and eFPGA-based products enable this. SensiML automates the process of developing AI for Edge IoT, saving companies from the high fixed cost of employing large teams of data scientists. Our eFPGA IP enables our customers to bypass the need for a very costly redesign of their SoC or ASIC to address new design requirements. Furthermore, because our new Australis IP generator is highly automated, we can design and deliver eFPGA IP faster and more cost-effectively to our customers. Again, investing in OpEx to save OpEx.

I will also expand on the eFPGA IP-based business model a bit further, as recently outlined in our latest investor presentation. We have multiple revenue sources within this product category, the primary ones being design services, IP license, royalty, and finally, storefront for device sales. Design services is how we monetize the R&D resources to develop our IP or bespoke devices for a customer, typically recognized as we do the engineering work. IP licenses are typically one-time events, recognized with the delivery of our IP to a customer. Royalties are typically a small percentage of the final device ASP, recognized as our customers ship devices that include our IP. And finally, storefront simply means that our customer is buying a finished device from us. This could be because they lack the expertise in developing eFPGA-enabled products, or it could be that they don’t have the supply chain in place to produce and test the devices for volume production.

We’ve had this supply chain and expertise in place for decades and can monetize this value with our customers. I am convinced this is one of the many reasons why we are winning opportunities to be more than just an IP provider.

We began to see a confluence of events in 2022. Increased market appetite for programmable logic, our focus on non-consumer markets such as aerospace, defense, industrial and IoT, and the tremendous operating leverage we have from our investments in automation. The significant improvement in top-line and bottom-line results in 2022 are just the tip of the iceberg, and I believe we will continue to grow faster than the market, achieving positive quarterly non-GAAP operating income by midyear, as well as annual profitability for fiscal 2023.

Now, let’s review several specific initiatives we have discussed on prior calls. In November, I shared that we had taped out a new device for a customer that incorporates our eFPGA IP. While we had initially planned to ship prototype units for this device at the end of Q4, the outsourced wafer fabrication cycle took much longer than planned, and we just recently took receipt of the packaged test chips. Our engineering team is in the process of validating the devices now. Due to where we are in the quarter, we are assuming revenue from these test chips will move from Q1 2023 to Q2 2023. Due to the confidentiality requirements, I am not allowed to share any further details on this specific design win other than I believe it represents tens of millions of dollars in potential device revenue starting in a couple of years.

One of a number of contributors to our pipeline growth is a new government-focused eFPGA IP-based contract targeting a 12 nanometer process node. This is our first contract for the 12 nanometer process node, we believe there will be several more during this fiscal year. We expect to recognize revenue from this contract across 2023, beginning this quarter. The use case for the eFPGA IP is very similar to the use cases we jointly developed and co-published with ETH Zurich, namely as a co-processor to a RISC-V core, code-named Arnold, using the GlobalFoundries 22 nanometer FD-SOI process.

Earlier this month we released a new version of our Aurora eFPGA development tool suite with expanded language support. The Aurora 2.1 Development Tool Suite is based on our fully open-source implementation for scalability, longevity, and full code transparency. SoC developers can combine the advantages of open-source tools with the dramatic flexibility benefits of embedding FPGA technology into their devices to improve device lifecycles and enhance profitability. To accelerate top-of-funnel growth, we are expanding our sales channel and announced eFPGA IP sales partnerships with Andes Technology Corporation and Yu-Hsin Layout Technology.

Moving to chiplets. There has been an increasing amount of attention in the market for chiplets, and we continue to engage with customers interested in this approach to counter the incredibly high cost of custom silicon development. There are chiplet opportunities in our sales funnel, and we do expect to generate some revenue this fiscal year from either design services and/or IP licensing that would fall into the chiplet category.

While we have reduced our focus on the mobile phone business, we continue to believe we are being designed into new models of phones that will ship well into 2024. That being said, our primary smartphone customer is still digesting their inventory position as they continue to see market weakness. We expect this inventory digestion to continue through at least Q2 of this year.

Finally, both our Display Bridge and Mature Product segments are being impacted by well-publicized macro-economic factors, which we believe will reduce the current quarter demand by as much as $500,000 from the prior quarter. Mature products will continue to be an integral part of our revenue profile and contribute to gross margin uplift, even though our path to profitability will primarily come from eFPGA IP-related design wins.

Before turning the call to Elias, I want to provide our revenue outlook for Q1 and offer a peek into the remainder of 2023. As discussed earlier in my prepared remarks, we have made significant progress in building our software and IP-related business over the past two years. This groundwork has led to a diverse and growing pipeline, which supports our current expectation for revenue in Q1 to be approximately $4.3 million, plus or minus 10%. This incorporates our forecast for an aggregate sequential decline in our smartphone business and mature product segment of around $500,000.

Our current forecast has Q1 as the only quarter below $5 million in revenue, putting us on pace to increase fiscal 2023 revenue by more than 30% over fiscal 2022. And assuming current gross margin and operating expense levels, I believe we have a good chance of seeing positive non-GAAP operating income starting in Q2 of 2023, as well as on an annual basis.

Let me now turn the call over to Elias for a review of the financial results. Elias, please

go ahead.

Elias Nader

Thank you, Brian, and good afternoon, everyone. Our performance in Q4 was in line with our expectations with revenues of $4.1 million, reflecting a full quarter of our large $6.9 million contract for Strategic Radiation Hardened FPGA Technology. We reported a non-GAAP net loss of $0.5 million. With a full quarter of contribution from this contract and future additions to this contract, plus growth in other commercial areas, we continue to believe we will get to profitability on a non-GAAP basis in 2023.

Let me now turn to the review of the results for the fourth quarter. As I said, revenue in Q4 was $4.1 million. This is an increase of 18% from $3.5 million last quarter and a 10% increase from $3.7 million in the fourth quarter of 2021. The increase is mainly due to an increased eFPGA professional services revenue partially offset by a decrease in new hardware product revenue and SensiML AI Software Platform revenue.

Within our Q4 revenue, sales of new products were approximately $2.8 million. This compares with $2.3 million last quarter, up 26%, and $2.7 million in the fourth quarter a year ago, up 7%. Mature product revenue was approximately $1.2 million in Q4 and Q3 and $1 million in Q4 last year.

Non-GAAP gross margin in Q4 was 53.2%, compared with 49.8% in the prior quarter and 60.1% in the same quarter of 2021. The improvement in gross margins from the third quarter benefitted from a change in the mix of deliverables within professional services and is also reflective of the completion of a tape out in Q3 2022, which led to higher expenses for eFPGA IP professional services last quarter compared to Q4 2022.

Non-GAAP operating expenses in Q4 2022 was approximately $2.4 million. The OpEx for Q4 was lower than our forecast due to reclassifications related to certain R&D expenses to eFPGA IP in support of eFPGA IP professional services. This compares to operating expenses of $2.5 million last quarter and $2.7 million in the fourth quarter a year ago.

Non-GAAP net loss was $0.5 million, or a loss of $0.04 per share, based on 13.2 million shares. This compares with a net loss of $0.9 million or $0.07 per share last quarter, and a net loss of $0.5 million or $0.04 per share in the fourth quarter of fiscal 2021.

Total cash at the end of Q4 was $19.2 million, compared with $20 million in the prior quarter. The continued investment to support the new design wins we have discussed was offset by the approximately $3.2 million raised in September at near-market rates from existing shareholders. Additionally, timing considerations related to cash receipts from customers contributed to a net higher utilization of cash from operations.

Now turning to the full-year fiscal 2022 results. Total revenue was $16.2 million, up 28% from $12.7 million in fiscal 2021. New product revenue was $11.7 million compared to $7.8 million in the prior year. This reflects higher eFPGA IP professional services revenue, continued shipments of Smart Connectivity and Display products, and SensiML AI Software Platform revenue, partially offset by reductions in other connectivity product family revenue and sensor processing product revenue. These results are mainly driven by new wins on our eFPGA IP-based products, continued shipments of smart connectivity and display products, and SensiML AI Software Platform revenue. Mature product was $4.5 million compared to $4.9 million in fiscal 2021. In 2022, we had three customers that each accounted for 10% or more of our revenue.

Non-GAAP gross margin for 2022 was 56.1% compared to 60.7% in 2021. The year-over-year decline was partially due to increased expenses in eFPGA IP professional services inclusive of certain non-recurring costs of specialized tooling. And while revenue was up 20% from the prior year, non-GAAP operating expenses declined to $10.8 million from $12.7 million in 2021, mainly due to R&D labor costs allocated to cost of revenue in support of eFPGA IP professional services revenue and a continued focus on cost controls to reduce operating expenses.

The combination of strong revenue growth and non-GAAP lower operating expenses translated into our non-GAAP net loss declining to $2.2 million or $0.17 per share, a significant improvement from our non-GAAP net loss of $4.1 million or $0.35 per share in 2021.

Now moving to our guidance for the first quarter of fiscal 2023, which will end on April 1, 2023. As Brian discussed, revenue guidance for Q1 is approximately $4.3 million, plus or minus 10% due to the reasons we outlined. Revenue is expected to be comprised of approximately $3.7 million of new products and $0.8 million of mature products. Based on this revenue mix, non-GAAP gross margin for the quarter will be approximately 52%, plus or minus 5 percentage points. We will continue to see margin variances each quarter due to product mix and volatility and cost of goods sold.

Our non-GAAP operating expenses will be approximately $2.8 million, plus or minus 10%. On a quarterly basis, during 2023, we believe OpEx will remain below the $3 million range with occasional increases to support new programs.

After interest expense, other income and taxes, we currently forecast that our non-GAAP net loss would be approximately $0.5 million to $0.8 million or a net loss of $0.04 to $0.08 per share based on roughly 13.2 million shares outstanding. The difference between our GAAP and non-GAAP results is related to noncash stock-based compensation expenses. In Q1, we expect this composition will be approximately $0.7 million. As a reminder, there will be movements in our stock-based compensation during the year, and it may vary each quarter based on the timing of grants to employees.

Moving to the balance sheet. Even with continued investment to support the new design wins that we have discussed, at the midpoint, we expect cash usage to be slightly below $1 million. As we stated earlier, with the new large design wins and overall momentum in our business and a lean operating structure, we’re driving the company to profitability.

Thank you very much. With that, let me now turn the call back over to Brian for his closing remarks.

Brian Faith

Thank you, Elias. We are proud to be the industry leader in supporting open source development and user tools for FPGA products. This is making our silicon more accessible to a broader base of customers and enabling lower R&D costs as more entities share the development expenses of the open source tooling. This strategy continues to gain traction as evidenced by our growing pipeline and revenue acceleration.

Entering 2023, our conviction in open source is stronger than ever as the tools continue to grow in capability and QuickLogic silicon is steadily extending its reach to new customers, markets and applications, placing us on the cusp of sustainable profitability. I would like to again thank all our key stakeholders, including investors, customers, suppliers and most of all the QuickLogic and SensiML teams for their continued support.

That completes our prepared remarks. Operator, I would now like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Suji Desilva with ROTH MKM. Please proceed with your question.

Suji Desilva

Hi, Brian. Hi, Elias. Congrats on the progress. Just a couple of questions on the numbers. Yes. So the $118 million funnel, can you just talk about the number of years that might be over and perhaps the linearity there? And does that include the $72 million of options, Brian, from the large contract?

Brian Faith

No, it’s about half the options on that contract firstly, Suji. Most of that funnel is geared towards the next two years. Some of that funnel is across the full four years of the performance period for the strategic radiation hardened program. A very large chunk of that is in the next two years.

Suji Desilva

Okay. Good. That’s great. And then if I look at the – you talked about the FPGA and it going from engineering and licensing chips. What is the earliest time frame we could think about royalty contribution from the FPGA customers? How far out might that be? Or what’s an estimate there?

Brian Faith

Well, I think some of the earlier licenses from last year, we could start to see royalties towards the end of this year. In fact, one of the customers that we talked about licensing to last year’s already received their test chips back and are successfully working. So I think that if you follow through on their development plan, it’s probably towards the end of the year that we would start to see royalties on that.

And just to be clear, there’s no royalty assumption at all in our funnel numbers that I talk about. The funnel numbers are only comprised of services, license and device revenue. There’s no royalty assumptions baked into that. So that’s all upside to that number.

Suji Desilva

That’s what I was assuming. I’m glad to clarify that. And then maybe last question, I’ll move – pass it along. SensiML, the win you talked about, maybe you could give us a sense of sizing that. And just can you give us some context of market trends like ChatGPT and what those may or may not mean to your SensiML business? Thanks.

Brian Faith

Sure. So the – firstly, the first deal that we talked about, that’s in 2022, a couple of $100,000 range for the work involved in enabling SensiML to be supported in a private branded use, but there’s much more to it than that from a business model point of view. Any time we let somebody private label SensiML integrated within their toolkit, the plan is there’s going to be forward revenue opportunities as they sell more of SensiML to their customer base, both in terms of the SaaS component and the royalties. So we are modeling that there will be additional revenue this year as that particular company fully integrates and launches their version of it to their customer base, of which is very large and they start bringing in those opportunities to revenue.

The exact dollar amount for this year beyond what we’ve already talked about is probably six digits or less just because it takes some time for them to take the integration and launch and then start talking to customers. But there definitely is a noticeable amount of revenue if you look at in terms of percentage of total SensiML business.

Your other question is, I think, related to sort of trends and competition at the same time. Certainly AI continues to get a lot of press. I don’t really think that ChatGPT is a competitor to SensiML. A lot of the stuff that you see in the press about AI is around image processing or image recognition and then natural language modeling. SensiML is not really about that because those are requiring a lot of heavy-duty sort of compute in the cloud to run. But it’s at least bringing, I think, more awareness to AI and the capabilities that it can bring to offload a lot of the manual labor involved in creating AI models.

SensiML operates at the other end of the spectrum, which is at the edge. I will say from a competitive point of view, probably some interesting things are the M&A that’s going on in that market in the last few years. I mean if you look back, I think, two years, three of SensiML’s competitors have been acquired now by large companies that are looking to integrate AI to edge specifically, not ChatGPT type stuff, but AI at the edge, AutoML capability and looking to bundle that with like microcontrollers and other semiconductor technology.

So I think that, more than anything, really underscores that there’s a lot of strategic interest in the technology and using that to get either gross margin uplift or capture more ASP from the customers, more share of the bomb, if you will, for AI-enabled products, especially again when you look at AI at the Edge specifically.

Suji Desilva

Thanks Brian. Thanks Elias.

Brian Faith

Yes.

Operator

Thank you. Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.

Martin Yang

Good afternoon. Thank you for taking the question. Brian, can you maybe address some of the outlook between the guided mix of new and mature products versus the 4Q results? What was the big change that happened since original guidance?

Brian Faith

You talking about Q4 of 2022 or Q1 of 2023, Martin?

Martin Yang

Q4 2022.

Brian Faith

Okay. So I think the delta to the midpoint was a couple of hundred thousand dollars. And as I was saying in the prepared remarks, there’s really a schedule shift from some of the test chip revenue associated with that customer tape-out that we had originally planned as part of the Q4 revenue number that moved out. And in fact, it’s moved out essentially 1.5 quarters now because we’re talking about it being in Q2 versus Q1 of this year. And the overriding reason for that is just the amount of time it took to get through wafer fab was much longer than what we had forecasted. And singularly, that’s the difference between midpoint of guidance for Q4 and the number that we came in with, which is 4.1.

Martin Yang

And also, it seems that the mature revenue performed slightly better than expected. Is there anything worth pointing out?

Brian Faith

No, I don’t think so. Nothing, I think, really sticks out other than there is just slightly more demand than what we expected in Q4. Now I think like a lot of companies, in Q1, we are expecting – and we said this on the call in the prepared remarks that our Q1 mature product revenue will be down from Q4, like many companies in this space right now.

Martin Yang

Got it. Thank you. And last question for me. Can you talk about the pace of your sales funnel expansion? Do you feel you will be expanding that funnel at a more predictable pace or that’s more of a – you got to do a case-by-case study on how you win HDL?

Brian Faith

Well, I’d say, in general, with the expansion of our sales force, we are expecting the growth rate to accelerate from what it has been in the last couple of quarters. But I would say that when we get these larger government contracts, that obviously skews that growth number, right? Because if we close one of those, even if we’re not assuming the entirety of the number in the funnel, I mean we’re talking about increasing by tens of millions of dollars in one pop.

So to some extent, that skews the growth number. But I do think that, on average, we’re going to have higher growth per quarter this year in the funnel than we did last year. And I think that’s for two reasons. One, we are focusing on much larger opportunities, and our – the number of customers coming to us now across market segments is expanding. I think I may have mentioned before that we have customers now in high performance computing and automotive also coming to us with interest in eFPGA.

The other part of it is that we are expanding our sales – external sales force and we’re doing it in a way that’s very mindful to operating expenses by using external distributors or sales reps that are largely paid on commission. So that keeps our fixed costs low while we’re generating these opportunities to closure.

And so just as an example, that new 12-nanometer opportunity I just talked about that we won that we start to recognize revenue this quarter and probably throughout the entirety of this year, that actually came from a new sales rep in a different geography. So we are starting to see the – I think, the fruits of the labor on the growth of the funnel side. And the good news, again, is that because our development process is so highly optimized and now automated, we can handle it pretty large increase in the funnel without dramatically needing to increase the R&D spending, which is one thing that Elias is alluding to on OpEx.

Martin Yang

Got it. Thank you so much, Brian.

Operator

Thank you. Our next question is from Richard Shannon with Craig-Hallum. Please proceed with your question.

Richard Shannon

Well, hey Brian, Elias, thanks for taking my questions as well. I think I’ll follow-up on this 12 nanometer government contract. I think kind of two pieces to this. I think from what you just said like a minute ago, this sounds like it’s from a government outside of the United States. Did I – am I concluding this accurately?

Brian Faith

I don’t know if I said that, but sure.

Richard Shannon

I think you said the sales rep was from another geography, I think that’s what you said so.

Brian Faith

I maybe.

Richard Shannon

Okay. Following-up, I think you said that you had mentioned this in the last quarter, and I was just trying to quickly review those comments from last quarter’s call. And I guess, I didn’t pick up exactly what you’re referring to. Is this the large tape out that you did – that you announced last quarter, or was this related to something else?

Brian Faith

You’re talking about the delta in Q4 revenue?

Richard Shannon

No, just the – I mean, when you mentioned your prelude to talking about this government contract and 12 nanometer process, and you said it was following-up an issue just from the last call. And so I just want to make sure I’m referring to the right one here. So is that the one that you’re referring to or not?

Brian Faith

Well, the 12 nanometer one is entirely new. We didn’t mention that previously, I don’t believe.

Richard Shannon

Okay. Okay. All right. I caught the – then I misunderstood that. Okay, that’s helpful. I’ll probably follow-up on that one later. Brian, maybe a top down question as we look at your calendar year sales growth of 30%, obviously pretty clear that the rad-hard is contributing a good deal at the dollar growth here. I would assume that your expectations are for some other embedded-FPGA programs to build in here as well. Maybe help us fill this kind of gap between 2022 and 2023 and other dynamics here. How much will – any way help us think about SensiML, I think you mentioned royalties and chiplets are probably a small contributor, but if I caught that incorrectly, please correct me. And then how do we think about the mature products and display and the phone stuff? I think I got a sense, but just like to hear it from in your words as well.

Brian Faith

Yes, so let me sort of build up from the oldest to the newest. On the mature side, we’re modeling mature to be lower this than the 2022, just simply because of the macroeconomic trends in those types of markets. What I’ll call is new products that are not really a focus for us, meaning the connectivity, the display, we’re modeling those as I would say modestly down this year from last year. SensiML, we’re modeling probably double of last year. Sensor processing, we’re modeling down because our largest customer being a smartphone guy, we’re just not sure about when their digestion’s going to take place. So we’re taking a rather conservative view of that recovery. Leaving us with eFPGA, which our model is probably 70% of our revenue this year and probably doubling. Again, what we did last year, and not all of that is government contracts. A healthy portion of it is, but there are a lot of other things in the funnel that we’re talking about in that funnel that we do think we’re going to win and generate revenue from this year.

And actually, when we’re going through this modeling internally, people go, wow, that’s doubling revenue one year to the next on eFPGA. But then if you look back actually from the end of 2022 to – sorry, 2020 to 2022, so that two year period, I think total revenues up almost 90%, new product revenue is up like 4x in that time period. 75% reduction in operating loss or thereabouts and that’s really with OpEx largely where it was or a little bit less than what it was, and not just in terms of how we account for it between cost of goods or OpEx, but like total spending, right?

And so I think that just speaks to the tremendous leverage we now have in automation with SensiML and with our eFPGA products and how we develop it. So that as we close more of these eFPGA wins that are going to be, hopefully, even more than 2x last year, we’re going to be able to handle it with largely the same team. We’ll have little adds here or there for certain key hires, but for the most part, OpEx is going to be right in the range that Elias is talking about, and that’s real operating leverage.

Richard Shannon

Okay. Excellent. That sounds great here. Maybe kind of going down the income statement here quickly to gross margins. Obviously, it was coming down throughout last year, but I think we have a decent understanding of the reasons why. It was some professional services and other cost of tooling, et cetera. How do we think about it this year if it plays out as you expect? Is this something you expect in kind of this lower 50s range? Or to what degree can we see it ramp up towards your longer-term goal? I think you see it in the 60s or even 70%.

Elias Nader

Yes. I think for – hi Richard, it’s Elias. I think for 2023, I would say it’s going to range between that 50%, 55% range or so average wise, right, probably to 60%. I don’t think we’ll go above 60% until 2024. That’s my guess. From really what I see, even with a 30% growth and the way that we’re kind of reclassifying items, between COGS and OpEx, the likelihood is it’s going to average between 55% to 60%, Richard.

Richard Shannon

Okay. Perfect. That’s helpful. Thanks a lot for that Elias. Maybe one or two last questions. I will jump out of line here. Let’s see. Jumping over to chiplets very quickly. I know Suji asked a quick question on that, Brian. And maybe just kind of thinking bigger picture longer term here. How do we think about the initiatives that you’re taking here relative to kind of the new industry standard, UCIE, how you’re fitting into that complementary versus kind of set apart? And how do we think about this beyond this year? How big of a business can this be relative to other things you have going on like rad-hard as an example?

Brian Faith

I think, firstly, the magnitude of this could be just like the rad-hard programs where we’re talking about potentially tens of millions of dollars upfront for design services if you will and then the back end being probably in the hundreds of millions in terms of device sales potential just because the markets that the chiplets are trying to target. Our approach is that we’re not going to do everything ourselves. So, we know what we’re good at. We’re going to stay in our swim lane of FPGA technology and the user tools associated with that and pulling other IP around that. That’s why you’ve seen that we’ve announced ecosystem relationships with like eTopus. We are getting contacts by other companies now to do something similar.

And it’s interesting because the whole notion of a chiplet is that you can reuse on mask set or one type of chip across many final products, right? It’s the integration play versus the monolithic silicon. And so eFPGA has a pretty good value proposition that’s resonating with those folks because it means that you can change the personality of FPGA in the future as they’re stacking these chips with other chips, and you never know exactly what the use case is going to be. So, I’m pretty excited about the – what we can do with chiplets, both in terms of licensing our IP to people doing a chiplet or doing a FPGA-based chiplet ourself with partners. But like I’ve said many times over the last couple of years, we are done with doing free engineering. We are doing it with customers and with customer funding. And so we have customers in our funnel at the point at which they’re putting funds up to do the development.

We’re going to be happy to do that either as an IP or a device with them. And then I think there’s going to be, a few years after that, a pretty big revenue opportunity. Similar to that of the defense contracts, although I’d say in the near term, the next couple of years, it’s definitely a clear line of sight to the defense revenue than chiplets just because we have signed contracts on the defense

side.

Richard Shannon

Great. Yes, understood. I think that will do it for me for now. I will jump in the line. Thank you very much guys.

Brian Faith

Thanks, Richard.

Operator

[Operator Instructions] Our next question is from Rick Neaton with Rivershore Investment Research. Please proceed with your question.

Rick Neaton

Hi thank you. Hello, Brian and Elias.

Brian Faith

Hi, Rick.

Rick Neaton

When you – just a couple of questions since most of them have already been asked and you’ve answered them. When you spoke about the schedule shift into Q2 out of the fab for this one customer, were these specific fab-related issues? Or are we talking about or a particular unexpected issue that developed in Q4 and into Q1?

Brian Faith

I’ll answer it this way, Rick. I don’t want to get into the sausage making of how chips are manufactured and brought back. But this problem was unrelated to QuickLogic. Let me state it that way.

Rick Neaton

Okay. Now that answers the question. And then one last question I guess the new word of the conference call is bespoke. And I assume you are using that in the generic sense because Samsung has an entire appliance line named Bespoke. So can you give an example or some examples of what these bespoke applications would be that you would be targeting with eFPGA and your IP?

Brian Faith

Sure. Firstly, just for clarity, the reason why we use the word bespoke has nothing to do with Samsung’s product line. I wasn’t even aware that they had a product line that was named Bespoke. We chose that word because a lot of times if you want a custom made suit, you go to a bespoke tailor and you get a custom made suit. And we’ve heard other folks use the word bespoke just to mean that you’re taking something that’s capability you have and you’re customizing it for unique customers.

So with that the – for example, the tape out that we talked about, I’m not allowed to say the implementation details of the markets of that device. But that device has a high degree of programmable logic in it. And so it makes sense to have a company that really understands the nuances of developing and bringing to market an FPGA based device to do the full device development. And that’s what we were asked to do for this customer.

The – again, I can’t say end market use. But it’s very optimized for the customer’s use case. Let me just put it that way. And because this customer in particular does not have the expertise in really understanding how you support and integrate an FPGA core into a device that just made sense to work with somebody like us. We do have other opportunities on our funnel, like I’ve talked before about high performance computing, where they’re looking for us to potentially do the entire chiplet actually for them this would be a chiplet opportunity that’s also bespoke in the sense that it’s for this specific customer.

Again, the reason why it’s just not their swim lane to do this type of device development, especially when so much of the functionality of the chip is FPGA based. It just makes sense to work with an FPGA company. But if no standard product exists in the world today, many cases these customers are willing to invest in something that makes it more unique for their use case.

We do have other ones in the areas of defense and I can’t go into details on those obviously. We also have a few in the industrial area. And industrial is kind of interesting because a lot of people think industrial is kind of a long tail market. The volume is not that high on any particular design, but a lot of these industrial customers that have been around for a while are heavy users of FPGA technology. And because they’re not super high volume in the context of the FPGA market, they’re probably going to get lower priority when it comes to allocations, when people are looking to buy products in the supply constraint environment.

So I think the fact that the last two years that some of these companies have been below the cut line on allocation. Now they’re starting to explore. Can I take control of my own destiny? Can I do an FPGA based device that I can buy and know that I can get allocation of? And so that’s sort of putting this on the top of the list for them to go off and find somebody that can do that for them. And these industrial companies are definitely not semiconductor companies in the traditional sense. And so they’ll want to work with somebody that knows how to design from soup to nuts, the FPGA device and then be able to supply that to them. And so some industrial customers have come to us for that very reason.

Rick Neaton

Okay. That explains it.

Brian Faith

Yes. Great.

Rick Neaton

Thanks, Brian. Thanks, Elias, I appreciate it.

Elias Nader

You’re welcome.

Brian Faith

All right. Well, thank you everybody for your participation today. We will be at the Embedded World in Germany, the tinyML Summit in Burlingame, California and GOMAC 2023 in San Diego. Please stop by our booth if you are attending these events. Again, thank you for participating in the call today and for your continued support. We look forward to speaking with you when we report our first quarter fiscal year 2023 results in May. Have a great day. Thanks.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.