CEVA - Earnings Call - Q1 2016

Transcript

Speaker 0

Good morning, and welcome to the CEVA, Inc. First Quarter twenty sixteen Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning, everyone. Welcome to CEVA's first quarter twenty sixteen earnings conference call. I'm joined today by Gideon Wurthuizer, Chief Executive Officer of CEVA and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the quarter and general qualitative data. Yaniv will then cover the financial results for the first quarter and provide guidance for the 2016.

I will start with the forward looking statements. Today's conference call contains forward looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward looking statements and assumptions. Forward looking statements include our financial guidance for the 2016 optimism in leveraging market opportunities in machine vision and deep learning technologies wireless connectivity, including Bluetooth Smart M2M communications, voice processing as well as three gs and LTE royalty revenue growth generation of new revenue streams increase in units shipped by 2018 high confidence in the licensing business for 2016, royalty revenue guidance for the 2016 as well as exploration of strategic investments and continuation of our buyback program. The risks, uncertainties and assumptions include the ability of the CEVA signal processing IPs for smartener connected devices to continue to be strong growth drivers for us our success in penetrating new markets, specifically non baseband markets and maintaining our market position in existing markets the ability of new products incorporating our technology to achieve market acceptance the speed and extent of the expansion of the three gs and LTE networks and the IoT space the effect of intense industry competition and consolidation global chip market trends and general market conditions and other risks relating to our business, including, but not limited to, those that are described from time to time in our SEC filings.

Dealer assumes no obligation to update any forward looking statements or information which speak as of their respective dates. With that said, I would now like to turn the call over to Gideon.

Speaker 2

Thank you, Richard, and welcome, everyone. Our first quarter was well executed, delivering record high quarterly revenue of $16,500,000 up 19% compared to the 2015. A good licensing environment underscored the growing success of our Vision product coupled with royalty revenue from continued market share gains in LTE, were the key success factors. Licensing and other revenues was approximately $8,600,000 an increase of 10% year over year. Licenses included three new customers for our CEVA XM4 Vision DSP following five XM4 days in the prior quarter.

Royalty revenue was approximately $7,900,000 an increase of 31% year over year. LP shipments continued to grow with 35,000,000 shipped units reported in the quarter, which represents substantial progress from last year when we recorded 70,000,000 shipped units for the entire year. During the first quarter, we concluded 11 new licensing deals, six of which were for CEVA DSP cores and platform and five were for connectivity products. Of the deals signed, three were with first time customers and 10 were for non handset baseband applications. Targeted end product and use cases include Vision for smartphone, advanced audio for wireless speakers, low power Bluetooth connectivity for hearing aid earphones and variety of IoT devices.

Geographically, four of the design were in The U. S, three in Europe and four in the APAC region. As we look ahead, we continue to experience tangible growth trends that we can capitalize on. These include the increasing adoption of machine vision and deep learning technologies in automotive, smartphones, advanced camera, drones and virtual reality headset the proliferation of wireless connectivity, in particular, Bluetooth low energy in massive number of devices that are connected as part of the Internet of Things theme the expansions of cellular technologies to the adjacent low power machine to machine communication market for home entertainment, home automation, wearable drones and smart cities and the use of voice as primary machine interface for smart devices and with the cloud. These are irrefutable opportunities, enabling higher addressable content for us where we can leverage on our unique specialization in signal processing algorithm and processor architecture.

By reviewing some of the recent CEVA power products that were launched by our customer, it is clear to see how these trends are being realized. Let me highlight a few of our customer recent products. In Vision, LG Electronics is going to use our Vision DSP platform in its future mobile devices. It will enable LG to support the most sophisticated and advanced computation photography and vision use cases such as three sixty degree photography, video analytics, virtual reality, augmentation reality and ADAS. The third CEVA based mirrorless camera is now in production by a Tier one branded camera OEM.

Our Vision DSP enables substantial improvement in autofocus, noise reduction, low light performance and more. In audio, recent teardown reports from ChipWare and i6iT revealed that multiple SKUs of the latest and successful Galaxy S7 and Gear S2 lineups include an always on voice processor chip from DSP Duke enabled by our audio voice DSP. In Bluetooth, Atmel recently launched a complete ultra low power platform for the IoT and wearable market. This platform features a Bluetooth low energy solution enabled by our technology. This solution represents 25% smaller form factor than the closest competing solution.

NXP introduced the QN9080 SiIva enabled Bluetooth low energy chip, claiming 40% more energy efficiency versus the closest competitor. NXP has been deploying its chip within wearable device manufacturer, where the dominant sectors are expected to be health care, fitness and wellness. This production ramp as well as more than 50 CEVA based chips in various design stages will have a growing contribution to our royalty revenue and power our mid term objective of 700,000,000 to 900,000,000 unit shipped in 2018. We are constantly adding new technologies and software that increase the value of our product portfolio and will generate new revenue streams for the company in future years. Before handing over the call to Yaniv, let me refer to a few market data points in regard to the cellular market and provide customer updates that reflect our growing strength in this market.

The outlook for '3 gs and four gs shipments continued to be strong. According to GSMA, LTE penetration worldwide is still only at 14%. In emerging markets, three gs and LTE penetration combined is only 40%. Of the 7,300,000,000 cellular subscribers in the world, 51% still own two gs feature. This low penetration rate of three gs and LTE smartphones present a sizable opportunity for us for which we can leverage on our diverse product line and experienced customer base.

We are set to address all of these opportunities across all different tiers of the market. Let me share with you some of the recent customer announcement in this regard. At Mobile World Congress in February, China Mobile announced its business target to sell three thirty million LTE phones in 2016. Together with two of our customers, Spreadsheet and Litco, it announced that it will offer LTE Advanced smartphones with Voice over LTE feature at a price point of $50 Spreadwell announced that its SE9830i LTE smartphone platform has been adopted by Samsung for the Galaxy J3. This phone carries an attractive value proposition for emerging markets, where Samsung is holding a leading market share of 22%.

Another spread in LTE SoC, the SC9830, has been adopted for multiple low cost smartphones for India. This includes Intex, Cloud four gs Smart, the Lava A8A, Xolo Era four gs and InFocus Bingo 21. All these handsets sell for less than $80 and include support for dosing. Also, Storgen announced that its first LTE chipset targeting medium and premium smartphones, the SC9860, is now in mass production at TSMC 16 nanometer thin film perfect. This firmly places program at the advantage over MediaTek at these advanced nodes.

Samsung announced that the latest Exynos 8,890 manufactured at 14 nanometer FinFET charging powers the latest Galaxy S7 and S7 Edge smartphones. The Exynos 8,890 integrates the most advanced LTE CAT twelve and thirteen modem, offering downlink speed of 600 megabit and uplink speed of 100 megabit per second. Also, Samsung announced the newest member of the CEVA Power Exynos seven lineup, the 7,870. This LTE chipset is designed for next generation mid range smartphone. Samsung plans to build up its position in the mid range tier by employing 14 nanometer FinFET process, which has been reserved only for premium segment as well.

Intel announced its latest lean modern chip XMM7480, which can deliver up to four fifty megabit per second. This modern platform is expected to be in production in the 2017. In conclusion, we are successfully combining strategic focus on our core cellular business together with product diversification into exciting area of vision, voice processing, connectivity and machine to machine. Together with our customer, we can bring value to every market deploying these technologies and across all segments. We will continue to relentlessly pursue every opportunity for growth as we leverage our leading position in signal processing IP for smart and connected devices.

With that said, let me turn the call over to Yaniv to discuss financials and guidance. Thank you, Guido. I'll start by reviewing the results of our operations for the 2016. Revenue for the first quarter was $16,500,000 an all time record high and slightly better than the mid range of our guidance, primarily due to strong licensing revenue. The revenue breakdown is as follows: Licensing and related revenue was $8,600,000 and all time record high, reflecting 52% of total revenues.

This is 10% higher as compared to the comparable quarter of 2016. Royalty revenue was $7,900,000 reflecting 48% of total revenues, an impressive increase of 31% on a year over year basis and the fifth successful quarter that we have delivered year over year royalty growth. Quarterly gross margin was 90% on U. S. GAAP basis and 91% on a non GAAP basis.

The non GAAP quarterly gross margin excludes approximately $60,000 of equity based compensation expenses. Total operating expenses for the quarter were $13,100,000 at the midrange of our guidance. OpEx also included an aggregated equity based compensation expense of approximately $1,400,000 and 300,000.0 for the amortization of acquired intangibles of Riviera rates. Our total operating expenses for the first quarter, including equity based compensation and amortization, were $11,300,000 also in the midrange of our guidance. U.

S. GAAP net income for the quarter increased 270% from $05,000,000 to $1,800,000 in the 2015 and 2016, respectively. Diluted net EPS increased 350% from $02 to $09 for the same period. Non GAAP net income and diluted EPS for the 2016 more than doubled year over year and increased by 115113% to $3,500,000 and $0.17 respectively. Our non GAAP net income and diluted EPS for the 2015 were $1,600,000 and $0.08 respectively.

These figures for the 2016 and 2015 exclude equity based compensation expenses of $1,500,000 and $800,000 respectively, and the impact of amortization of acquired intangibles of Eurowave net of taxes of 200,000 and $300,000 respectively. Other related data. Shipped units by CEVA licensees during the 2016 were $230,000,000 down 9% sequentially and 1% for the first quarter shipments of $350,000,000 Of the two thirty million unit shipped, 185,000,000 units or 80% were for baseband ships, reflecting a sequential decrease of 9% from two zero two million units of baseband shipped and a decrease of 8% from two zero one million shipped units a year ago. The non baseband volume shipment decreased 10% sequentially, but increased 42% on a year over year basis. The decrease in the quarter can be attributed to gaming consoles and a decrease in shipments of an older Bluetooth product line.

The quarterly handset baseband royalty ASP was up 11 sequentially and 47% year over year due to a growing product mix of LTE devices. Our overall corporate blended royalty ASP increased 7% sequentially and 32% year over year. As for the balance sheet items. As of March 31, Piva's cash, cash equivalent balances, marketable securities and bank deposits were approximately $137,000,000 In the first quarter, we paid approximately $1,000,000 as part of the prior contractual commitments in acquiring new DRW. Our DSOs for the first quarter was thirty seven days, still below the normal level, but up from the fourth quarter level of twenty three days.

Regarding our buyback program, we repurchased approximately 180,000 shares during the first quarter at an average price of $19 per share and for approximately $3,400,000 We plan to continue our stock buyback in 2016 and look for other strategic investments that can reinforce our market leadership in DSP and connectivity IPs. During the last quarter, we generated $200,000 of operating cash flow. Our depreciation was $300,000 and purchased a fixed asset was $400,000 At the March, our headcount was two sixty three people, of which two zero five are engineers. Now for the guidance. On licensing, we expect a continued strong environment across the entire range of products we offer.

On royalty, as Gideon expanded on earlier, we're experiencing growing momentum in the LTE smartphone market across all price tiers from low cost through premium models. This strong momentum in LTE will enable us to more than offset the holiday the post holiday season weakness typically experienced across the semiconductor and consumer electronics industry in the first quarter of each year. As a result, we expect royalty revenue for the second quarter to be substantially higher, approximately 20% increase on a sequential basis and over 60% increase on an annual basis. Our guidance for the 2016. Revenue for the second quarter is expected to be in the range of $16,500,000 to $17,500,000 Gross margin is expected to be approximately 91% on GAAP and 92% on non GAAP basis, excluding equity based compensation expenses.

Our overall expenses should be quite similar to the expense levels we just reported for the first quarter. U. S. GAAP operating expenses are expected to be in the range of $12,800,000 to $13,800,000 Of our anticipated total OpEx for the second quarter, 1,600,000 is expected to be attributed to equity based compensation expenses and $300,000 to amortization of acquired intangibles. So our non GAAP OpEx is expected to be in the range of 10.9 to $11,900,000 Net interest income is expected to be approximately $350,000 for the quarter, tax rate for non GAAP at approximately 14% share count for the quarter, approximately 21,700,000.0 shares.

And that brings us to the EPS. U. S. GAAP fully diluted earnings per share is expected to be in the range of $09 to $0.11 And for non GAAP EPS forecast, excluding aggregate, dollars 1,400,000.0 of equity based compensation expenses net of taxes and amortization expenses of $300,000 is expected to be in the range of $0.17 to $0.19 per share. And Louise, you can now open the Q and A session, please.

Speaker 0

Thank you. We will now begin the question and answer session. Our first question is from Matt Ramsay of Canaccord Genuity.

Speaker 3

I guess a couple from me. I guess, first off, congratulations on the strong traction in LTE broadly. Gideon, I wanted to ask a few things going on in the industry, and maybe you could expand a little bit on the basis of the strength of the sequential guidance in LTE units. Things of particular interest to myself are the expanding use of Samsung's Exynos program through the mid tier of their portfolio? And also, maybe you could talk to us a little bit.

We continue to hear more and more about fixed mode LTE being important in China, not just with Spreadtrum, your primary customer, but also I know you guys have a bit of CDMA business with MediaTek and what how much those things are contributing to the guidance strength? Okay.

Speaker 2

So in terms of the mid range of Samsung, we cannot really elaborate much about it. The only thing that I can say that we are well positioned there in Samsung across all tiers. We are covered in the high end. We are in the mid range. And I would say majority of the low end side, which is more not an in house modem, but coming from outside supply also is by us.

And I mentioned the J3 Galaxy J3, which is a very successful product in the emerging market, which from Sprotum. So that's one thing. The other thing is the six month flight, that's what we are hearing as well. I should say almost all of our customers have the CDMA, which is the six mode that's coming from the customer, and it looks like problem solved, I would say.

Speaker 3

Got it. Got it. A couple of other things to dig into. And Yaniv, maybe I'll ask you to address this. I mean you guys had talked about a 20% to 40% range in royalty growth for the year.

I guess given all the puts and takes of, I guess, the new data that you see out there, maybe you could talk to us a little bit about where you see you guys see yourself within that guidance range as you move through the year. Sure.

Speaker 2

So it's a little bit early still in the year, just the first quarter is behind us. And we did receive most, not all, but most of the royalty reports. And we see this trend that Gideon mentioned earlier of continued ramp up in LTE. The guidance we gave for next quarter of 20% sequential growth and more than 60% year over year growth takes into account probably just shy of 50 five-zero, million LTE units shipped in Q1, which we will report in Q2. So with that early start and pretty strong start of the year, I would say we're probably more confident or feeling a bit better maybe on the towards the higher end of the guidance, but we're still within the 20% to 40%, but have much more half of the year with royalty reports are behind us, and we feel comfortable that, that even the high end maybe is reachable.

That's what we would say today. Let's take another quarter to follow those trends, and then we'll have a clear picture.

Speaker 3

Got it. No, that's really helpful. And then the last, I guess, question from me, and I'll get back in the queue, is a lot of strength in recent quarters in licensing, particularly non baseband applications, not just Bluetooth, but I think things that would carry a higher royalty per unit longer term vision processors, etcetera. Maybe you guys could give us a little bit of more color about how you see those things ramping into royalty revenue over the next year or two to get towards the 700,000,000 to $900,000,000 goal by 2018? The shape of that curve would be really helpful because the licensing strength has been apparent.

Speaker 2

Matt, it's Helium. I mentioned in my prepared remarks a few examples that is aligned with the areas that we are focusing. And got the first report for the first Vision product, and then it's we heard that it's going to be a successful camera. We have the Bluetooth. We have the audio that is now in millions of volumes.

So the exact curves of how this will shape up towards the two eighteen, seven hundred to nine hundred minute, we don't know exactly. We see that we have 50 designs running, that they are close to tape out or, I would say, 60% for the tape out. It could be hockey stick. It could be a gradual. We'll see it I think, the beginning of 02/2007, we're seeing some more sustainability here and predictability.

Speaker 3

Well, thank you very much. Congrats again.

Speaker 2

Thank you. Our

Speaker 0

next question is from Joseph Wolf of Barclays. Please go ahead.

Speaker 4

Thank you. I wanted to follow-up with the licensing expectations and the momentum. If I look at the guidance, it feels like the midpoint is about $8,000,000 And so just a couple of questions. First of all, how much visibility do you have Does it take you through the year or is it really ad hoc on a quarterly basis?

And then if I look at this quarter, you had three new customers among the 11 design wins. Were all three of those non handset? And then finally, overall if you look at licensing and the dominant proportion of that being non handset, is there a handset or is there a next generation of handset that's going to refresh that and boost the licensing above trend at some point this year or next?

Speaker 2

So let me try to address you asked several questions, and Yaniv will jump in with other inputs. First of all, when it comes to cellular, indeed, we had one baseband build out of the '11, 10s were non baseband. Regarding a recycle, it can come and will come from three vectors. One is there are newcomers into the handset space, especially in China. Now the opportunity, the size of the market is enormous, and they are looking to add and there are companies that feel that they can do an LTE and phones and we see them some kind of a joint venture or merger between companies.

So last I mean, I think last quarter this quarter, we have a company that is basically a newcomer into the space. That's one thing. The other area or other vector of growth, and this is also I mentioned that we've covered in our case, the machine to machine. If you had time if you are in the recent MWC, this was the highlight of the shows. The 3GPP, the standard body for LTE, are getting direct together, and they are going to stand out a low bit rate machine to machine communication.

And the size of this market is we have various things, but it's 2020, 2021, we speak about billions of humans. And the third element, which is more important, is the cycle of five gs. There are a lot of companies Intel is very verbal about it. They are going into the five gs now, and the challenges are significantly higher. And we, in February, announced a DSP for the five gs, and we are starting to work in the companies, by the way, not just in handset, but also in the base station side.

So these are the cellular opportunity. Yes. And regarding the number, the last couple of quarters were extremely strong. Every once in a while, whether it's Q3 last year with a similar similar figure. This quarter is extremely high.

It's the highest we ever had. But I think what we said, maybe a year or two years ago, after acquiring with the Airwaves and adding other new connectivity IPs that we are comfortable with in a 7 to 8 type million dollars per quarter, 8,600,000.0 or even half, of course, is much higher than that. And whenever we could achieve that, we're happy to report it. But in general, $7,000,000 is our normal type of comfort zone as we've used, significantly higher than 5.5% or that it was in the past for many years. And I think we're comfortable.

If we do better, we'll see it in the numbers. If we're anywhere in that range, we're still comfortable that these new licensing deals would potentially generate more royalties in the future.

Speaker 4

Okay. And just a quick one on the non another question on the non baseband business. If we look at the total units for 2015, about 120 in the Bluetooth related and 46 in the other, are there two different growth rates that you can be comfortable with in that in those two end markets right now? Or is it too early to talk about growth for the year for those two different parts of that business?

Speaker 2

I think it's a bit earlier to put a figure or model just because it's only starting to ramp up. You look at the annual basis, you said last year, we're also all up two thirty percent on the entire non baseband. And the run rate exiting the year close to $200,000,000 or 50,000,000 in the time. If we add up if we add some of these newcomers, like you mentioned, the XPG and the camera that's in the market and shipping already, they're all starting to ramp up. It's still in the millions of units.

But as soon as those start getting many other examples, this is in the tens of millions, then those numbers could start being much more significant on a quarterly basis and reach 100,000,000 more units a year. I think we need to get, as Dien said earlier, we need to get and tie in few companies to start this production, and we are seeing it already. The more we have, the better visibility we'll have on the numbers. We think that the numbers will pick up significantly in the second half of the

Speaker 5

year. Our

Speaker 0

next question is from Gary Mobley of Benchmark.

Speaker 5

Happy Monday, guys. I had a couple of on the royalty trends. Could you talk specifically about the trends that you expect to see in non baseband royalty units in Q2? If I'm not mistaken, the numbers might work out to where you're showing maybe just a slight increase in nonbaseband in Q2?

Speaker 2

In Q2 reporting or Q2 shipment?

Speaker 5

What's your license lease shipped in Q1 that will impact your Q2 non baseband loyalty units?

Speaker 2

Okay. So Q1, I would say, was dynamic in terms of the seasonality. In terms of the seasonality, we did have companies like DSPG and another company in the camera that started to ship in Q1, but that's a new product and tied to introduction of new product. So overall, it's in line with people. It's Q1 was very weak in the consumer product.

Going forward, we don't have any reason to believe that it will not go up again or follow the typical seasonality that we know from last year, and the pace will go up because we have new trade. Okay. Even if you look specifically at the Bluetooth market and the public companies that talked about it in the first quarter, the numbers were down for strange reason. No real reason other than just seasonality. We're down quite significantly.

This is what we are reporting now in Q2. Hopefully, the Q2 shipments will be up, and then we'll be up in Q3 guidance for non baseband. I think that's the plan.

Speaker 5

Okay. All right. And if I'm not mistaken, you're forecasting roughly a 57% sequential increase in LTE units in Q2. Could you talk about the diversity of that growth in the early days, let's call it 2015, in your LTE unit ramp. I think it was heavily influenced by Samsung.

Is that still the case? Or are you seeing much more contribution from licensees such as Leadcore and Spreadtrum?

Speaker 2

Yes. I mean, that's the point. We are nicely spread across different customers and different tiers of the companies. We have franchise models. We have premium models.

We have mid range models. We have low end and we are very low end, and this is just when it comes to LTE. We are all over the place because we have different products for all these tiers, different tiers. I think it's a combination.

Speaker 5

All right. And you're guiding OpEx to be roughly flat sequentially, and that takes into consideration that you sort of stepped up your OpEx investment as indicated in your overall 2016 guide that you provided last quarter in OpEx. What's the temptation now that you might be running that behind your royalty growth guide to further increase that OpEx in the second half of the year to take advantage of some potential new market opportunities?

Speaker 2

We are consider we are making the thorough configuration in terms of increasing OpEx. Our tendency is to do organic investment. Don't right now, we don't have any plans beyond what we shared already on the annual level. I think we are well staffed to meet our plans for the years. We have other thoughts that we'll explore and gradually invest on those based on the opportunity we see.

But to add to that, Gary, to add to that, right now, in the model with the plan, other than if something new comes along, as Gideon explained, we don't see an increase of OpEx from these levels in the second half of the year.

Speaker 5

Okay. Congrats on a good start to the year. Thanks, guys.

Speaker 2

Thank you.

Speaker 0

Our next question is from Matt Robinson of Wonderlic. Please go ahead.

Speaker 6

Hey, thanks for taking my question and congratulations. So you probably gave it, so I apologize. Can you give the LTE volume for the quarter, March that you recognized? Sure.

Speaker 2

It was 35,000,000 units sold in Q4, which we reported in Q1.

Speaker 6

Okay. Now you mentioned getting into more mass market, driving this big sequential increase you expect for second quarter. Is it and we've talked about China for a long time, but we haven't really seen LTE in China start to be a driver. Is it now a driver? Is this happening now?

Or are you looking at royalties still from the same kind of customers that have been driving it the last few quarters?

Speaker 2

China is one of the drivers. There are two more drivers. I'll get back in a second to why China is the driver. We have two more drivers. One is the market share or share gain in the premium side of the phones and the the growth of LTE in India.

Because even though the the the infrastructure in India is not LTE ready today. All the phones all the smartphone chips to India are with LTE, you know, hardware. That's the thing. Now going back to China, there are some renewed interest in China. It was stagnating, but in the last quarter, we see improvement, especially in the mid high end.

Some of it relate to subsidies. That the operators are going there. And we are part of this area. Qualcomm spoke about it. MediaTek is speaking about it.

So China is, a growing market. And Matt, one more thing if you have missed. For Q1 shipments, which we reported in Q2, we talked about just shy of 50,000,000 LTE devices, up from 35,000,000, which we just reported.

Speaker 6

Yes. Well, I wanted to, I guess, put a finer point on it. When you look at that 50,000,000 or just shy of 50,000,000, is this TD LTE that is really starting to drive it? And the sort of specialized LTE phones for China plus those in India? Or is that in the outlook further in the year?

Speaker 2

No, it's not TD LTE. I would say it's more the five mode, and it's a very dynamic market. People are now moving fast to six mode, and these are the phones. The three mode, we didn't make the full analysis of the report that we got. I suspect that it's not that big.

Speaker 6

So how do you where do you think we're going to be when we start thinking about shipments in the second and third quarter? Same kind of drivers? Do think these are going go for multiple quarters? Or do you see something different happening later in the year?

Speaker 2

Yes. The smartphone market is very dynamic. Things are it could change. Last year, just for example, Xiaomi was number two in China. Now I think there is five.

I'm not talking Apple has struggling in China. We don't exactly sure what's going to happen, but I'm looking on the fundamentals. And the fundamentals allow us to be to present all over the place. The fact that India the India is sustainable, they need smartphones, they need penetration, they need LTE there. So this, I believe, continue.

I think when it comes in the high end, still the consumer has to decide how to accept all those premium funds, but it looks right now in a good shape. And in the mid range, we see a lot of things coming. And we have all those our customers being able to operate, which was not the case two years ago and was half through last year. Now they are all in full gear.

Speaker 1

Thanks a lot. Thanks,

Speaker 0

Our next question is from Daniel Amir of Ladenburg. Please go ahead.

Speaker 6

Thanks a lot and congratulations on a good quarter. I guess where you stand today compared to where you were three months ago and now with this guidance, I mean, has anything positively surprised you or negatively surprised you in terms of the various business segments in terms of the growth here?

Speaker 2

Daniel, I'll give you the guidance that we are giving, the NPE growth part, it was, I would say, a quarter earlier than we anticipated. But we knew it's going to happen, and we can only be happy and proud. In the way, Daniel, if you look at the last five years, Q2 was always down in the last five years. This is the first time after a long time that we are breaking that. And this is because of the mainly because of the this LTE ramp up.

So you don't have exactly the crystal ball when it happened and what's still successful, but it didn't explain. We have the infrastructure. We have the customer base that competes with the Qualtrics, in a sense, in the Mediatek of the world. And if they do better these next couple of years and quarters, then it's a it's a big benefit for us.

Speaker 6

Okay. And then in terms of uses of cash, you kind of mentioned, I guess, you have the stock buyback and acquisition strategy. I mean can you kind of just discuss what you're looking a bit in the areas of acquisitions that you need to fill? Or the focus is really at the moment in terms of more stock buybacks?

Speaker 2

Yes. It's all of the above. I mean, we are we have a plan, a program for stock buyback, and we'll pursue it. In terms of M and A, we're constantly, consistently looking for also the prospects that fits to our strategy. I personally believe and my tendency is to try to see things organically to develop things.

We have a very good team that can adapt the vision, for example, which is substantial. Technology pace, we developed it in house. Our technology base station in base station is something that we develop in house. So we can do a lot of things in house based on the opportunity we see. So all of the above in terms of use of cash.

Speaker 6

Our

Speaker 0

next question is from Lee Meyer of Lord

Speaker 7

Hi, thank you for taking my call, my question and congratulations on a great quarter. I have two questions. The first one is there seems to be a trend ongoing in smartphones as cameras move towards dual cameras, which have some some new functionality in them. And I've noticed that amongst your competitors, particularly MediaTek, they've been adding new sort of image processors, sort of, I guess, DSPs to handle a lot of this enhanced functionality. The move to dual cameras, does this represent an opportunity for CEVA?

My limited understanding is that most of that happens in the application processor as opposed to the baseband. And does that represent a challenge for you for your image processor to cross over into the application processor? Is that an opportunity for you? That's the first question.

Speaker 2

Okay. I'll give you a minute. But again, you put it right. The dual sensor is an area where we see smartphone manufacturers are looking to improve the quality of the video and also in the still side of picture. This is not a baseband or a P play.

It's more a dedicated vision processor like we are offering. And one of the value add and one of the benchmarks that we are showing to customers is how to use our vision processor to do to support a dual camera. There is significant processing that you need to do in order to support this capability. We have a product line, which is not a base it's a separate product line, not the basement product line, but we call it the Vision product line, by the way, which is very successful. Last quarter, we had two out of the three design wins came from smartphones of the same use case that you are referring.

Speaker 7

Okay. So you've so so so last quarter, two of the three Vision licenses you signed were for smartphones for this this use case?

Speaker 2

One of the use cases, they will use it. They will it's not it's not a one or it's only a platform. Can use it as a processor. You can use it for other features. But one of the use cases will be Broadcomer.

Yes.

Speaker 7

Okay. Okay. Very good. The other question I have is in some of the discussions I've had with the company, you've talked about a sort of emerging base station opportunity, which could potentially be quite large for you in the future. Can you give us any update on what you're doing there and why that opportunity is large for you?

Speaker 2

Yes. This is a very lucrative and important piece in our technology. We have dedicated product line. We have two large OEM customers known in the space that use our technology and deploy it already, and we expect to see royalty coming from this substantial market. They don't use it for five gs as early as 2018.

Let me add to that, that last year, Q4, we had a pretty significant comprehensive deal with one of the two recurring customers that took a next generation of our DSP for its base station. And this quarter, they came back for another piece of stock that fit on top of that. So we're seeing constant this is the Q1 one of the Q1 deals. We're seeing constant licensing momentum here. And as Jim said, we should be seeing a pretty significant ramp up, whether it's 2017 or more 2018, a pretty significant numbers and dollars coming out of that market.

Speaker 7

Are those numbers included in your baseband or nonbaseband units? And are they folded into the LTE portion of that or or three g portion of that, or or where are they accounted for?

Speaker 2

Yeah. Good question. So when we called baseband, we also had a word handset baseband. So all of these numbers that we talked about, now $35,000,000 or $50,000,000 for LTE, these are all modems only for handset baseband. When we move to small cells, the macro cells like base stations or audio devices or vision for cameras that you mentioned, these will all fall in the nonbaseband non handset baseband devices.

And if we'll have something specific out of base stations, I'm sure we'll give you the right color so you could follow those trends as well.

Speaker 4

This

Speaker 0

concludes our question and answer session. I'd like to turn the conference over to Richard Kingston for any closing remarks.

Speaker 1

Thank you again for joining us today and for your continued interest and support in CEVA. We will be attending the Benchmark Company one on one Investor Conference in Milwaukee on June 2, and we invite you to join us there. For further investor information and a calendar of events that we will be attending, please visit our investor website at http:investors.cevadsp.com. Thank you, and goodbye.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.