QuickLogic (QUIK): 'Swing for the fence'

"My favorite speculative pick for 2008 is QuickLogic (NASDAQ: QUIK)," says Paul McWilliams, editor of Next Inning, a specialized service providing an in-depth focus on select technology stocks.

"This is a swing for the fence idea with a potential upside substantially over 100%.  However, coupled with this potential upside are significant risks that investors should carefully consider." Here is his overview.

"QuickLogic has been a niche player in the programmable logic market for nearly two decades, but due primarily to the fact that its parts could not be erased and reprogrammed, like those offered by Altera and Xilinx, it never developed meaningful traction in broad-based FPGA markets. 

"Sure, QuickLogic enjoyed admirable success in certain medical, military and high reliability applications that embraced the inherent benefits of low power, high speed, instant on and near perfect copy protection its unique programming technology offered.

"However, the broader FPGA markets cared more about reprogrammability and that meant QuickLogic was left on the outside looking in.  However, what worked against QuickLogic in the past is now working in its favor.

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"Manufacturers of battery-powered high-end consumer devices must minimize power consumption, often require instant-on capability and desire strong copy protection, all areas where QuickLogic excels. 

"And, even more important for QuickLogic, these customers not only couldn’t care less if a part can be reprogrammed; they don’t even want to deal with programming it once. 

"In other words, in this rapidly emerging market, QuickLogic’s unique technology is a near perfect fit.  However, to capitalize on this new market, QuickLogic needed to change its business model.

"The focus in the high-end consumer markets today is to design “platforms” from which a dozen or more unique products can be spun.  To optimize the success of this strategy, manufacturers must accomplish three goals. 

"The platform must be able to be developed quickly and economically (quick platform time to market).  The platform must be able to be adapted to various end product needs quickly and economically (quick product time to market).  The platform must be economically adaptable enough to support wide differentiation of end products (long platform time in market).

"To respond to these needs, QuickLogic developed what it terms as a CSSP (Customer Specific Standard Product) strategy.

"A CSSP is a configurable standard product that QuickLogic can customize to the specific needs of its customers in a very short time and deliver fully programmed and tested parts within only a few weeks notice.

"So far we know that QuickLogic has won designs via this strategy with a tier one smart phone customer, in an ultra-mobile PC and in a GPS receiver. 

"Based on what we learned during the Q3 conference call, it looks like QuickLogic 's CSSP strategy is coming together.  New product revenues, which are dominated by CSSP’s, increased sequentially, albeit from a very small base, by 176% and guidance implies we should expect another 115% gain in Q4.

"While I believe QuickLogic was on the right road already, it would be remiss of me not to mention that Andy Pease joined the company a year ago as the VP of worldwide sales and marketing. 

"Prior to joining QuickLogic, Andy held the same title at Broadcom, a Silicon Valley powerhouse with revenues more than two orders of magnitude higher than QuickLogic. 

"It’s been my experience that executives with this sort of background only join tiny companies like QuickLogic when they think the potential for success is substantial."