CEVA - Earnings Call - Q1 2017

Transcript

Speaker 0

Good morning and welcome to the CEVA Q1 twenty seventeen 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, Investor and Public Relations.

Please go ahead, sir.

Speaker 1

Thank you, Denise. Good morning, everyone, and welcome to CEVA's first quarter twenty seventeen earnings conference call. I'm joined today by Gideon Wertheiser, 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 provide general qualitative data. Yaniv will then cover the financial results for the first quarter and provide guidance for the 2017.

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 2017, including the degree of confidence in the guidance general market outlook and revenue drivers for 2017 optimism about the licensing pipeline and the trends leading to the expectation of a favorable licensing environment market opportunities and ability to leverage market trends for vision and imaging, LTE, IoT, NB IoT, Bluetooth, five gs, automotive, smart home and smart voice devices projected customer ramp up schedules and results in royalty revenues and timetable for CEVA XC12 reference silicon. The risks, uncertainties and assumptions include the ability of the CEVA signal processing IPs for smarter 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 technologies to achieve market acceptance the speed and extent of the expansion of the three gs LTE and five gs networks, Bluetooth five and the IoT space customers' ramp up schedules and the impacts on royalty revenues 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.

CEVA 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 0

Pardon me. This is the conference operator. It appears we are having some technical difficulty. I would ask you to continue to hold the line for one moment, please. Pardon me.

This is the conference operator. I appreciate you holding. I'd like to go ahead and connect Yoni into the call at this moment. Please go ahead, sir. Pardon me, Yali?

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This is the conference operator of connected Yaviya's line. Please go ahead, sir.

Speaker 2

Hi. This is the receiver guys. Are we connected now to the call?

Speaker 0

Yes, sir. You are connected. Thank you so much.

Speaker 2

Okay. So sorry about that. So let me start from the beginning with my prepared remarks. So our team delivered exceptional results for the first quarter. We achieved an all time high quarterly revenue, including our strongest licensing quarter ever and marquee customer wins.

We also took advantage of the world's largest consumer and wireless event, CES and Mobile World Congress, to announce our next generation platform for a range of application and number of strategic agreements with customers. I will summarize this achievement in the next few months. Let me begin with the financial highlights. Revenue for the first quarter came in at new record high of $21,300,000 up 29% year over year. Licensing and related revenue was also a record high, approximately $9,500,000 up 10% year over year on the back of 11 deals that were concluded.

Of those 11 deals, eight were for DSP and platform and three were for our connectivity IPs. All of the 11 deals were for non handset baseband application, four of which were with first time customers. Customers target application include five gs base station, automotive ADAS, surveillance camera, smartphones, smart home appliances and variety of IoT devices enabled by our connectivity portfolio. The outstanding licensing performance during the quarter not only delivered record revenue, but also enabled us to grow our backlog because of a number of comprehensive agreements for our most advanced technologies executed during the quarter. It therefore provide us with higher visibility and confidence in meeting the growth in annual licensing that we guided at the beginning of the year.

On royalties, revenues came in slightly better than the guidance at $11,800,000 up 50% year over year, primarily driven by empty shipments during the holiday season and record shipments by our Bluetooth customer. Let me, at this stage, elaborate on four different aspects of our licensing and shipments. The first relates to a comprehensive agreement with Tier one base station OEM that adopted two of our most advanced DSP platforms, the XC12 and X2 for five gs base stations. It is the second lead customer that selected our technology for five gs base station and a big endorsement for our unique portfolio and specialization in the emerging five gs wireless market. Deployment of five gs base station continued to progress in advance of the fully rectified 3GPP five gs new radio standard, which is expected in 2019.

This allows cellular operator to engage in earlier testing of variety of new use case that encompass the five gs standard, including multi gigabit per second mobile broadband mission critical services in IoT. Our XC12 and X2 platform are key building blocks in the five gs new architecture, allowing successive software upgrades and harmonization of the worth as the market approaches commercial deployment. The second aspect relates to two agreements signed in the automotive space. One agreement is for ADAS application and the other agreement is our first agreement targeting autonomous driving, also referred as AD. The ADAS customer is a well known Tier one OEM and an existing customer that selected our latest XM6 platform and CNN software for a range of camera related products in cars.

The XM6 based project will offer roughly three times the performance compared to the prior ADAS project that centered on the XM4 and is planned for commercial deployment early next year. In the autonomous driving space, we signed an agreement with one of the largest car OEMs. The agreement relate to a deep neural network software for performance assessment in different AI scenario applicable to Level three to Level five autonomous driving. While it is not a full fledged license agreement for committed IT projects, it is the first time that a leading OEM allocated funds and resources to get access to our deep network software and hardware technologies for autonomous driving. Another noteworthy agreement is with top tier high volume China based semiconductor company who has expanded its existing license agreement for Vision platform to become a multiuse one.

In less than a year of the original license, these customers succeeded in leveraging our Vision platform to develop a compact image enhancement chip for smartphone that enhances the image quality via computer vision software. The ASUS ZenFone three Zoom smartphone with its super pixel camera sold in Asia and soon in The US already makes use of the customer's CEVA based platform. The ZenFone three Zoom can capture 2.5 times more light in a given circumstances versus premium phones like iPhone seven Plus, LG G6 and others, leading to substantially sharper still picture, particularly in low light conditions. There are already few other smartphone OEMs that design in this platform in their product with production anticipated for the second half of the year. In addition, the same customer design wins with many other different products such as three sixty degrees camera, security camera, drones and more, all based on our Vision platform.

The last agreement I would like to highlight is the second license agreement for our latest CEVA X2 platform targeting voice controlled smart home devices. This design win is for high profile device for one of the largest cloud based service companies. The perception of using voice as an alternative to touch or mouse as a way to interact with the cloud for services changed dramatically after the launch of Amazon Alexa Voice Assistant and its Echo devices back in 2014. It drove other cloud vendors to come out with their own smart voice assistant devices as well as to enable their OEM partners to come up with innovative use cases and devices integrating their voice assistant interface. Voice assistant devices have to ensure that they pick up good quality voice from any point in the room.

It requires processing of complex DSP algorithms and workloads such as beamforming, echo cancellation, noise cancellation and others. It is therefore a perfect match for what CEVA offers in terms of its CEVA X2 DSP software and algorithms. For the recent Mobile World Congress, we launched our latest DSP platform. The CEVA XC12 set a new bar in DSP performance aiming at multi gigabit per second bitrate models for five gs, LTE Pro and AT2.11ax. It offers eight times higher performance at half the power versus its predecessor, the CEVA XC4500.

At MWC, we also announced the Dragonfly MD1, our full solution for LTE IoT in collaboration with Astri of Hong Kong. The DragonFly MD1 platform addresses the stringent requirements for extremely low power and low cost for outdoor connected devices, such as smart meter, wireless connected sensors in cities and industrial environment. It is a full solution composed of our low cost SiVA X1 DSP, RF transceiver and software, all packed in one chip. Reference silicon will be available for customer in the second half of the year. Turning now to royalties and the related market dynamics.

On smartphones, the market backdrop looks positive with sizable untapped market for LTE. So far, only 25 of the world's handsets are LTE based and much less for LTE Advanced and gigabit LTE. India, in particular, is experiencing a brisk environment for smartphone, which demand grew 18% last year. The features from space in media also grew 4% last year in light of attractive SKUs that are LTE enabled. CEVA enabled phone shipments last quarter outperformed the market on a year over year basis, up 49% year over year with smartphone unit up 108% year over year.

Next, I want to touch on a few important launches of new silver based product, O chip, that soon will be seen in the market. Xiaomi announced during a packed event the launch of its latest smartphone, Xiaomi Mi 5C, that is enabled by new chip from its subsidiary, Pincon, that incorporates a silver SDR DSP. Tear down analysis of DJI's latest SANTON Avoid drones, the Mavic Pro and the SANTON four Pro, reveal a SIVA enabled SDR DSP that is used for wireless communication between the drone and the controller. Intel unveiled the specification of its latest XMM7560. 100

Speaker 0

Intel seven thousand five and sixty feature LTE category 16, which supports gigabit per second speed. The 7,060

Speaker 2

is also a SiX mode and includes for the first time on chip CDMA modem. On the non handset front, shipment units continued to grow towards 7% for the quarter and up 68% year over year, driven by Bluetooth shipment. During the quarter, ON Semi announced its first CEVA powered Bluetooth five chip.

Speaker 3

The

Speaker 2

RLS-ten is a highly flexible Ultra Miniature SoC targeted for IoT and connected health. Dialog announced its first Bluetooth five gs, Dialog VA-fourteen 586, a low power device for consumer products such as wireless speaker watches and the like. Both chips are expected to be in mass production during this year. We also see the initial production ramp of smartphone enabled by our vision processor like the ZenFone three from ASUS that I discussed a few minutes ago. Wrapping things up, I'm very pleased with our performance in the first quarter.

It is an exciting time for us as we continue to take advantage of our strengths and specialization to expand into growing number of new market opportunity and to take our technologies into major franchises in those new areas. As we continue to progress and leverage on the dynamics in our primary market, the baseband processing for smartphone, our expansion into base stations, automotive, drones, smartphone and IoT is fully underway. We are enthusiastic and determined to take advantage of those transformative trends to provide compelling value for to our shareholders. With that said, let me turn the call over to Yaniv to discuss our financials and guidance. Thank you, Gideon.

I'll start by reviewing the results of our operations for the 2017. Revenue for the first quarter was $21,300,000 This would also be our sixth consecutive quarterly all time high record achievement, up 29% on a year over year basis. The revenue breakdown is as follows: licensing and related revenue was $9,500,000 reflecting 45% of our total revenue, 10% higher as composed to the 2016 and a new record high. Royalty revenue was EUR 11,800,000.0, reflecting 55% of our total revenues, an impressive increase of 50% on a year over year basis, and this would be the ninth successive quarter that we delivered year over year royalty growth. Quarterly gross margin was 92% in both U.

S. GAAP and non GAAP basis. The non GAAP basis included approximately $91,000 of equity based compensation expense. Our total operating for the first quarter was just above the mid range of our guidance at $15,200,000 OpEx also included an aggregated equity based compensation expense of approximately $1,900,000 and $300,000 for the amortization of the acquired intangibles of these new Airways. Total operating expenses for the first quarter, excluding equity based compensation expenses and the amortization of intangibles were 13.1%, just over the mid range of our guidance.

U. S. GAAP net income and diluted EPS for the first quarter was up significantly by 128111% to $4,100,000 and $0.19 respectively over the 2016. Non GAAP net income and diluted EPS for the first quarter increased 7765% year over year to $6,300,000 and $0.28 respectively. Both figures, full equity based compensation expenses net of taxes of $1,800,000 and the impact of the amortization of acquired intangibles of the ZRW of 300,000.0 Other related data.

Shipped units by CEVA licensee during the 2017 were an all time high. We reached three fifty two million units, up 3% sequentially and 53% from the first quarter shipments of 2016. Of the three fifty two million units shipped, two seventy six million units or 78% were for handset baseband chips, reflecting a slight sequential increase from two seventy one million units of handset baseband shipped during the 2016 and a 49% increase from 185,000,000 units shipped a year ago. In non baseband, volume shipments continued to increase, 7% sequentially and 68% year over year. The increase is due to record high quarterly Bluetooth shipments in Q4 and continued initial ramp up of Vision products powered by our DSPs, offset by some other seasonality decreases.

As for the balance sheet items. As of March 3137, CEVA's cash, cash equivalent balances, marketable securities and bank deposits grew to approximately $164,000,000 Our DSOs for the first quarter were fifty eight days, down from the prior quarter of sixty five days. During the quarter, we generated 6,300,000 of net cash from operation. Depreciation was $400,000 and purchase of fixed assets was relatively large for our first quarter at the level of $1,400,000 which represented the purchase of new EDA tools, IT room expansion and some other R and D related software additions. At the March 2017, our headcount was two ninety two employees, of which two thirty three were engineers.

Now for the guidance. On licensing, as Videon described, we continue to experience healthy demand across the entire range of products we offer. Therefore, we anticipate flattish licensing revenue for the second quarter as compared to the first quarter's all time record high achievement. On royalties, we expect a seasonal sequential decline of 10% to 15%, resulting from inventory adjustment in the smartphone space as vendors are setting up production ramp for new SKUs during the second half of the year and post the Christmas season in the consumer part of our business. We still maintain our yearly annual guidance of 10% to 20% growth in revenue growth compared to 2015.

Our guidance for the 2017 is as follows: Revenue for the second quarter is expected to be in the range of $19,100,000 to $20,100,000 Gross margin is expected to be approximately 92% on both GAAP and non GAAP basis, excluding an aggregate of $100,000 of equity based compensation expense. Our overall OpEx should be flattish with the first quarter. Q2 OpEx is expected to be in the range of $14,800,000 to $15,800,000 Of our anticipated total OpEx for the second quarter, dollars 2,000,000 is expected to be attributed to equity based compensation expenses and $300,000 to the amortization of acquired intangible. Our non GAAP OpEx expense is expected to be in the range of $12,500,000 to $13,500,000 Net interest income is expected to be approximately $500,000 Tax rate for the second quarter on GAAP basis, 16% and on non GAAP basis, 13%. In addition, we have just concluded a tax audit and the results will be recording an additional onetime tax benefit of approximately $1,300,000 in the 2017 on both GAAP and non GAAP basis.

Therefore, our overall taxes for the second quarter will be significantly lower than the norm. Share count for the second quarter is expected to be approximately 22,800,000 shares, and that will bring us to U. S. GAAP fully diluted EPS in the range of $0.16 to $0.18 per share and non GAAP fully diluted EPS, excluding $1,900,000 of equity based compensation expenses and $300,000 to amortized expenses associated with the zero waste to a range of $0.26 to $0.28 per share. Denise, you could now open the Q and A session, please.

Speaker 0

We will now begin the question and answer session. Our first question comes from Gary Mobley from Benchmark. Please go ahead.

Speaker 4

Hi, guys. Congrats on a solid quarter. I wanted to start out with where you finished, Yaniv. EPS, non GAAP EPS guidance of $0.26 to $0.28 that includes the $1,300,000 tax benefit. Is that right?

Speaker 2

Yes. Correct. Yes.

Speaker 4

Okay. All right. And you mentioned a five gs license agreement with a base station equipment OEM. I'm curious to know, is this an existing licensee? Or did you expand your footprint in the base station market?

Speaker 2

Hi, Gary. Good morning. We said that this is the second base station licensee that we have with this advanced platform, the X12. And, yes, it is an existing licensee, meaning that this licensee took our prior generations of DSPs.

Speaker 4

Okay. All right. And you're indicating another robust licensing quarter. You mentioned backlog increased, I guess, I think, the adjective you used in your press release. But yet your deferred revenue is flat sequentially.

I know deferred revenue is only one component of backlog, but could you help us get a sense of the firmness of the backlog and where the source comes from?

Speaker 2

Sure. Yes. The deferred revenue increases when we get paid, not all the deals that happened in advance. We did sign few deals, one of them specifically in that same five gs arena that you asked about. That design win, we could have to do additional work for that specific customer.

We haven't recognized it yet in Q1 of where it was signed, and we will probably recognize it over the next couple of quarters. That's one of the big elements of backlog. And with that said, we also concluded few other deals that we will deliver the technology and finalize the work around it during the second quarter, and that will be part of the revenue in Q2. So yes, we did increase our backlog from year end to Q1. Some of it falls into Q2, and this is why we were confident to give such high guidance on licensing.

Some of it will move even to the third quarter of the year.

Speaker 4

Okay. What were the LTE units in the quarter?

Speaker 2

We were just over 80,000,000 units, I believe.

Speaker 4

Okay. Looking at the non mobile handset baseband royalty units, they continue to grow, that's been mostly a function of Bluetooth royalty unit growth. And not necessarily a problem. Just sort of dissecting in nonmobile handset basebands, subtracting Bluetooth royalty units, it seems to be somewhat stagnant for the last few quarters, maybe three or four quarters actually, at a sub-twenty million unit per quarter level. So I'm just wondering if we're going to see an uptick in that which I guess is necessary to get us to that 700,000,000 to $900,000,000 non mobile handset baseband royalty unit number for 2018?

Speaker 2

Gary, Bluetooth five, it's a volume play and it's growing. What we do see is Vision catch getting into mass production. So in terms of units, I mean, it's not comparable because Bluetooth is much more commoditized product. But in terms of contribution and ASP, it's significantly higher. So if you ask about things that will flourish in the non baseband section or part of our business, vision is the next thing to come, the next in line.

Speaker 4

Okay. They're up in the queue. I appreciate it. Thanks, guys.

Speaker 2

Thanks, Greg.

Speaker 0

Our next question is from Matt Ramoset from Canaccord Genuity.

Speaker 3

Gideon, I wanted to talk a little bit about the royalty performance in the upcoming year. There's always a good bit of moving parts. But given the fact that you're going to be having much higher volume shipments of LTE chips from Intel, one of your big partners, And the outlook seems to have cleaned up a little bit at Samsung after the launch of the Galaxy S8. So I'm just wondering what the sort of moving parts are to potentially be above your the midpoint of your guidance for the year? And any headwinds that you could call out that might be pressuring the results a little bit because it's as always, there's moving parts, but it seems to me that the outlook would have cleared itself up a little bit from when we talked last quarter.

Speaker 2

When it comes to the mobile side of the business, it's all the second half play because almost everybody is launching the new SKUs, and there is also the landscape is could change, moving things from the guys that used to dominate into Chinese one, like Vivo and Oppo and all these guys. So for now, we want to we keep our guidance for the year. We have to see because it's all about new phones that's coming and then it's a matter of consumer adoption. It's very difficult to be precise on the mobile side of the business. That's only on the handset side, we see, as I answered to Gary, there are few smartphones coming into the market based on our vision technology.

It's the same mindset. It's a matter of consumer adoption, but these are new products and add on to our traditional business of the modern side of the business. And we have to see how things will evolve before we become more persistent and knowledgeable of the clients.

Speaker 3

Got it. Got it. That makes sense. I wanted to follow-up a little bit on the licensing. I know Gary had asked some questions about the second quarter and into the third quarter.

But Yaniv, do you feel like this is a range that you guys are now comfortable operating in on a quarterly basis given the strength of the pipeline? I know there had been a sort of 7,000,000 to $8,000,000 range for licensing in the past, and then you guys had bumped it up a bit in recent quarters. So I just for a long term modeling, given the visibility that you mentioned in the call, how should we think about the rate on a quarterly basis going forward?

Speaker 2

Yes, sure. You're absolutely right. At the end of last year, we took up the annual guidance and licensing, something that we have not done before, at least not from an organic point of view. It was done after the acquisition of the VIAways and adding the connectivity side of Bluetooth and WiFi. And this is the first time we're doing it on our own, so to speak.

And back then, we talked about the 10% increase anywhere between $34,000,000 to $36,000,000 There's no doubt that the first part of the year is starting strong in licensing. With that said and true for every IT company, this also the tricky part in the business because you don't have that booked in ahead for Q3 and Q4, and you have to bring those deals and you have to get to these levels. So I think for now, we will continue with what we have done in the past to try to achieve our goal and to come up and license these new technologies and that's a key factor to it. And if Q3 or Q4 will stay at these levels or go down a little bit in order to make that 34,000,000 to $36,000,000 we'll see. But at least the market that we talked about earlier and the interest for all the different types of technologies is quite strong.

So I'm happier to be in this side of table and this side of the answer versus being on the other side. So we'll see how things evolve.

Speaker 3

Got it. That makes a lot of sense. And just a last question for me. OpEx has been ramping up, and I actually applaud the spending against some of these exciting new opportunities. But how should we think about OpEx growth, particularly R and D growth for the rest of the year?

Just the growth profile you guys want to have us think about longer term for the spending side of the business? Thank you.

Speaker 2

Sure. I think this falls in very good with the prior question and the increase in licensing, and we talked about that in the last earnings call, is also a lot of investment in new R and D. And this is a unique year that we did guide higher R and D of about 5,000,000 is not our was not our common practice in the past. Some, if you recall, was a little bit due to lower grant payments on different R and D projects, but the majority is related to more engineers and more ADA and related expenses. I think we're okay there.

At least the next quarter or two, I see that the 13,000,000 non GAAP number is being something that a target for us to keep and not go and grow behind be above it. And if we manage that, then we are okay with our annual models and the like. So for now, all this new investment is going into these renewed work and customization and new technologies and customers that we are bringing in, and this is where we're spending the dollars and coming up every once in a while with new products around it. So I think we're good with Q1 and Q2 similar type of expense levels.

Speaker 3

Thank you.

Speaker 2

Sure. Thank you.

Speaker 0

Our next question is from Matt Robison from Wunderlich. Please go ahead.

Speaker 5

Hey, thanks. And first, can you provide a little bit of perspective on the cadence for new applications and royalties this year, when you expect to see that start to ramp and some color on India and China, you're seeing from your licensee that is particularly well positioned in those markets? And then I didn't catch it if you said it, but are you expecting to see anything from the Chief Scientist in the back half that will be offsetting the expenses?

Speaker 2

So I'll start with the business and let Yaniv respond on the Chief Scientist. So in terms of India, China, India is where most of the people in the low end those that specialize in the low end market are going there. LTE is becoming almost a mandatory requirement by operator, even though they don't have the network, it's a mandatory requirement. And I I mentioned in my prepared remarks the the LTE feature phone. I see also also Qualcomm coming with LTE feature phone.

So there is a potential for LTE feature phone in this respect. So and and that's when it comes to the Beijing side. When it comes to other products that's coming to the market, so we have our first smartphone coming with our vision technology. We believe that vision in smartphone is going to be a mainstream because that's the way to get differentiation on the camera. And across the street, there is the VR, the AR augmentation reality and this kind of use case and applications that the demand for vision processing will increase.

So we see Chinese companies coming and doing it, we see Western company also adding processors in this respect. So we're going to see what is coming from Vision this year in the smartphone space, and this become bigger and bigger as we go to 2019 and onward. On the grant payments, around the May, June time frame, there are all the different annual committees that evaluate the different funding projects that were submitted. So I think next quarter, we should have more color on what was approved, what was that, and we will know a little bit better. For now, Q1 is always the slowest quarter every year in the grants, and this was the case this year as well.

Speaker 5

Thank you. Thank you.

Speaker 2

Thank you, Nick.

Speaker 0

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

Speaker 6

Hi, it's Erica for Joseph. Just a couple of quick questions. First, guess regarding your involvement in automotive space with ADAS. How many do you have other I know you mentioned the agreement that you had announced in the comments, but do you have other partners on that initiative at all? And I guess what types of partners or integrators, I guess, are you working with?

And you mentioned commercial deployment on that agreement within the next year. Does that translate to revenue recognition within that timeframe? Or when does that opportunity sort of begin to generate revenue for you? And then I have one follow-up.

Speaker 2

So okay, when it comes to automotive, we do have a few key partners we announced at the beginning of the year about on semi that adopted our technology for automotive space. In the prepared remarks, we mentioned towards the 2020 with existing customer that has a product in advanced design stage. And here, we expect royalties coming from this specific customer in early twenty eighteen, meaning commercial deployment in cars that will be sold. And there is a new project coming. And by the way, this is becoming a routine.

You get into the automotive space and you get the credibility there, it's much easier to win new projects and to have a prolonged business in the automotive space. There was another question? The revenue part is the royalty. The licensing fees have already been recognized and now when we sign these deals, the royalty is something that should start to kick in, as Gideon said in 2018 from that specific customer. And there will be a few others that hopefully will follow a bit later on.

Speaker 6

Okay. So early twenty eighteen is what we're looking for. Okay. And then just a follow-up on Matt's question from earlier in terms of seasonality on the royalty side of the business more broadly. And I guess thinking about that relative to the timing of some of the higher profile smartphone wins that you've had.

I mean does that again sort of tend to mirror the announcement or the rollouts of those new sort of high profile smartphones so that you'd be seeing that start at the same time?

Speaker 2

So remember that we report our royalties one quarter in the rear end. So whatever happens now in Q2 and Q1, whatever happens in Q1 and we saw some of the numbers out there and some of the big semiconductor companies in the industry died down for report down for first quarter, that's what we report in Q2. So on the baseband side, we always had that for many years, that's a seasonal effect that's common in the industry. It's even stronger in non baseband. If you look at all the Bluetooth public companies that reported so far, all the numbers for QDown are post Christmas, no new releases usually to in the wintertime and volumes are lower.

So that's exactly what will be transparent to us in Q2 relative. Hopefully, a quarter after, we'll see the uptick in that positive seasonality in Q3. We'll have to wait and see all the royalty reports because as you mentioned, there are lot of moving parts and timing and inventory and build up and ramp ups of SKUs. That's what exception last year was an exception in Q2 on the royalty side. All the prior years, if I look back many, many years, this was pretty common practice.

Speaker 6

Thank you.

Speaker 2

Sure. Thank you.

Speaker 0

Our next question is from Suji Desilva from ROTH Capital. Please go ahead.

Speaker 7

Hi, Gideon. Hi, Yuniv. Nice job on the quarter here. The share has popped up in baseband to 42% here from 36%. I'm wondering if more share gain is implied in the 10% to 20% growth this year that you target or what the other swing factors might be in the high end there versus the low end?

Speaker 2

Well, it's almost a $1,000,000 question. The engines are ready to you know, the engines are ready. It's very difficult in the smartphone market to predict how it is. So it's a market that is extremely competitive, and we have to take it one step at a time and see whether these are sustainable, and we'll have to see. But as I mentioned in our prepared remarks, the LTE market is almost untapped, 25%.

So this is where people are going to. This is where we have the technology technologies, and but it's very competitive. And there are few players, they don't use our technologies and they can get their own share as well. So we'll have to see.

Speaker 7

Okay. Fair enough. And then can you update us on the progress of the wireless infrastructure wins you have and whether they're ramping to your tracking toward your expectations for ramp in the second half? Any update there would be helpful.

Speaker 2

Well, fact, we already got first royalty report for a customer in the base team space. It was earlier that we anticipated. And this looks promising. And we believe next year, it will be even more noticeable.

Speaker 7

Good to hear. And then lastly, auto in the automotive market, talked about ADAS and you talked about autonomous driving, I guess. Can you talk about the content difference per car for you when you go from ADAS up to fully autonomous driving, what the delta might be there? Thanks.

Speaker 2

Yes. I mean, the context is higher. The AD or autonomous driving architecture, when it comes to our context, it's a multi core play. You know, you cannot do all this work like in one processor. You need multi core, which means higher content and with all the implications.

But it's the AV space is still early days there. This is our next objective. Right now, we are in the ADAS space, which is could be a front facing camera, it could be a real camera, all those things that you have a one processor. The royalties there is also higher than we know from other industries. And this is where we plan and anticipate to have first royalties from automotive space early next year.

Speaker 7

Great. Thanks, guys.

Speaker 2

Thank you.

Speaker 0

And our final question for today is from David O'Connor from Exane BNP Paribas. Please go ahead.

Speaker 8

Yes, good morning gentlemen. Thanks for taking my question. I've got a question on the low end in China and the weakness that we're hearing about in that part of the smartphone market. Can you maybe talk a bit about your positioning there? And if that at all is factored into your royalty guidance for the full year of that 10% to 20%?

That's my first question. And then follow-up. Thanks.

Speaker 2

So I believe you asked about the low end space in China on Okay. So we don't see, you know, honestly, remember, we don't see any weakness in the low end space. On the contrary, this is a it's a growing space. When you say China, you have to speak about the domestic market versus the export market because a lot of Chinese OEMs are exporting to India other areas emerging market there.

And this is definitely going straight and expected to grow. Yes, it's a competitive market. We have few customers and also there will be newcomers using our technology as well. So if you ask me whether this is we are expecting to grow, the answer is yes.

Speaker 8

Okay, great. And maybe a follow-up on the neural network processing. This week with the Embedded Vision Summit that's happening, we've seen some announcements from peers, Cadence and others optimizing processors from your networks. Can you talk us a bit about your competitive positioning there? And I'm not sure if you've done any benchmark work versus peers that you could share with us or just the maybe an overall comment on the competitive environment

Thanks.

Speaker 2

Yeah. We also saw this announcement of a competitor. Cadence is a competitor of us in the vision space. Their approach is, I would call it for Neonetwenty is a software based. Our approach is more hardware software based.

The hardware software based approach is how to do, And and this is our advantage advantage because this hardware software approach solve or address the the two main, issues when it comes to a workload that we call in serial in neural net, meaning that you have to, in real time, faster as possible to detect object, whether it's an autonomous car or whether it's a drone. We don't want the drone to crash. So with the hardware based hardware based approach, you get, first of all, faster respond time and you get lower power, which are very significant, especially when it comes to heat in cars and drones that it's not just a matter of battery, it's also a matter of heat. So this is the way to deal with it. This is our advantage.

This is our high entry level that we manage by doing this kind of thing. Our competitors are going in in a in a in a software based approach, which is much easier to do for us. It's even easier. But this is not the right thing to do in our opinion.

Speaker 8

Very helpful. Thank you.

Speaker 2

Thank you.

Speaker 0

And this concludes our question and answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks.

Speaker 1

Thank you, Denise. Thank you everybody for joining us today and for your continued interest and support of CEVA. We will be attending the following upcoming events and invite you to meet us there: Jefferies Technology Group Investor Conference on May 10 in Miami Oppenheimer's Eighteenth Annual Israeli Conference in Tel Aviv on May 17, the Benchmark Company one on one Conference on June 1 in Chicago and the Jefferies Israel Tech Trek, June '7 in Tel Aviv and Jerusalem. Please visit the Investors section of our website for further information on these events and other events that we will be attending. Thank you and goodbye.

Speaker 0

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