CEVA - Earnings Call - Q2 2016

Transcript

Speaker 0

Good day, and welcome to the CEVA, Inc. Second Quarter twenty sixteen Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence and Investor and Public Relations.

Please go ahead.

Speaker 1

Thank you, and good morning, everyone. Welcome to CEVA's second quarter twenty sixteen 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 for the quarter and general qualitative data. Yaniv will then cover the results for the second 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 about the licensing pipeline the drivers of our business and our ability to capitalize on emerging market opportunities, including Bluetooth five machine vision and deep learning technologies, wireless connectivity, LTE and five gs. The risks, uncertainties and assumptions include the ability of the CEVA signal processing IPs to continue to be strong growth drivers for us our success in penetrating new markets, specifically non baseband markets and maintaining our 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 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 2

Thank you, Richard, and welcome, everyone. Before going through the highlights from the quarter, I would like to draw your attention to a development that will have a positive impact on our financial guidance for the remainder of 2016. As we have witnessed from the 2016 and based on the initial royalty reports we received for the third quarter, we are now experiencing royalty trajectory that exceeds our initial expectation and as such are raising our full year growth range for royalties. Yaniv will elaborate more on this when he reviews the financial result for the quarter later on. Turning back to our second quarter results.

We are very pleased to report another robust quarter with all time record high revenues derived from strong growth in royalties and solid execution in licensing. Total revenue came at a record high of $17,100,000 up 28% year over year. Royalty revenue came at $9,600,000 up 69% year over year, primarily as a result of strong LTE unit shipment, which grew more than 400% year over year to reach a record quarterly shipment total of 56,000,000 units. Licensing and related revenue came at $7,500,000 on the back of good licensing demand for Bluetooth IP as customer expedited product design based on the next generation Bluetooth five standard. We also ended the quarter with stronger than normal licensing pipeline due to number of comprehensive agreement with key customers that are in process.

This agreement involves broad access to our entire technology portfolio and customization of certain technologies for their product lines. We perceive this new engagement as an acknowledgment to our unique technology portfolio in addressing some of the most exciting areas of growth in the semiconductor industry and as an opportunity to solidify long term collaborative relationship with key industry players. During the second quarter, we concluded 10 new licensing deals, four of which were for CEVA DSP cores and platform and six for connectivity products. Of the deals signed, three were with first time customer and all for non handset baseband include a first time customer intending to use our vision solution for virtual reality product, five gs base stations, Bluetooth low energy for IoT, including the upcoming Bluetooth five standard, voice processors and storage drives. Geographically, four of the deals signed were in The U.

S, four in the APAC region and two in Europe. The second quarter achievement in licensing emphasizes four key market drivers that we are capitalizing on. First, the demand for very sophisticated baseband DSPs and platforms technologies for handset and base station as the cellular industry is looking for increased data rate and overall capacity as part of LTE Advanced Pro and five gs standard. Second, the proliferation of connected devices enabled by short range wireless connectivity such as Bluetooth and WiFi, along with the emergence of voice as the primary user interface within these devices. Third, the growing number of product and application that are centered around embedded vision and machine learning.

Fourth, the expedited and ubiquitous deployment of cellular machine to machine on the heels of the 3GPP finalizing the specs for ultra low power LTE for the Internet of Things. Ericsson predicts in its latest mobility report that IoT will overtake mobile phones as the largest category of cellular connected devices by 2018. These four big industry drivers are the foundation of our product portfolio strategy and will lead to new royalty streams in the mid and the long term. Our recent achievement in licensing as well as ongoing customer discussion give us high confidence in our ability to capitalize on these opportunities and in our long term growth prospects. As I mentioned, we are seeing industry wide demand for connectivity IP and in particular the new Bluetooth standard, Bluetooth five, which was formally announced by the SIG in late June.

Bluetooth five offers substantial features announcements versus its predecessor Bluetooth 4.2, including higher data rates of two megabit per second and longer range of up to 300 meters. It expands the Bluetooth market reach from device like smartphone and PC to the Internet of Things where it will be used for the smart home, connected home, networking, automotive and more. We have already signed five customers that are early adopter for the Bluetooth five technology. We have never had that many early adopter for technology that is yet to be ratified. In vision, the potential of machine learning and deep neural network were the highlights in all recent events conducted by Google, Amazon, Facebook, Apple, Microsoft, Baidu and others.

Per data provided at the RESET Code Conference, half of the Internet searches in 2020 will come from image and voice. In conjunction with this, much more intelligence will be required at the edge of the network in devices such as smartphones, surveillance camera, autonomous car, VR and AR devices, robots and more. This is where we see CEVA benefiting and leveraging its competency in computer vision and machine learning. A few weeks ago, we announced our second generation software framework for the deep network called CDNN two. CDNN two essentially frees up the customer from the burden of embedded software programming on the vision processor.

It therefore allows customers, partners, researchers and even students to innovate deep network based application in the cloud and seamlessly get the outright use of it on product based on CEVA Vision processor. In the second quarter, we signed up first time customer, a widely known player in the imaging space that uses our Vision DSP and deep learning software for a chip to power virtual reality product. On royalties, we continue to gain share in the LTE space. According to the latest market data for market research and strategy analysis, our market share in LTE is 19% in Q1 twenty sixteen compared to just 5% a year earlier. LTE is the primary reason for the huge year over year royalty revenue growth of 69%.

Moreover, this momentum more than offset the traditional seasonal weakness we normally experience in Q1 royalties, which are based on the post holiday season Q1 shipment. For the first time in numbers of year, we recorded a sequential increase in royalties of 23%. Also in other segment of the cellular space, we continue to maintain high market share. In two gs, we power about two thirds of the market, and in three gs, our market share has grown to 39% based on Q1 shipments. We aim to continue to capitalize on LTE smartphone shipments where we are consistently gaining market share and growing unit shipments and where we benefit from higher work ASP than we get from two gs feature phone and three gs smartphones.

Looking ahead, as the Internet becomes increasingly wireless, we are experiencing greater diversity of product and supplier that take advantage of LTE and five gs to connect to the Internet. This includes products like car, wheelbase, security and surveillance camera, drones and smart city infrastructure. We continue to invest in new technologies addressing this space and plan to introduce new products in the coming months that would be specifically designed to cover LTE IoT space. So in summary, our good traction in LTE smartphone in 2016 compared to prior years and our diversified product line targeting intelligent and connected devices provides us solid foundation for prolonged growth. I'm very pleased by the resilience of our financial model this year despite the known market challenges and the maturity of the smartphone space.

We will continue to innovate and work closely with our customers to our mutual success as the industry expands to new classes of products and services. 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 operations for the 2016. Revenue for the second quarter was $17,100,000 an all time record high.

This was 28% higher on a yearly basis and the second consecutive quarter that we have reached the milestone of all time record high revenues. The revenue breakdown is as follows: Licensing and related revenue was $7,500,000 reflecting 44% of our total revenue, 3% lower as compared to the comparable quarter of twenty fifteen. Royalty revenue was $9,600,000 reflecting 56% of our total revenue, an impressive increase of 69% on a year over year basis. And this would be the sixth successful quarter that we delivered year over year royalty growth. Quarterly gross margins were 92% on both U.

S. GAAP and non GAAP basis. The non GAAP basis exclude approximately $53,000 of equity based compensation expenses. Our total operating expenses for the quarter were flat as compared to the first quarter at $13,100,000 below the midrange of our guidance. OpEx also includes an aggregated equity based compensation expense of approximately $1,600,000 and $300,000 for the amortization of acquired intangibles of EV Airways.

Our total OpEx for the second quarter, excluding these two items, were $11,200,000 also below the mid range of our guidance and slightly lower than the first quarter. U. S. GAAP net income for the quarter increased sixteenfold from $200,000 to $2,700,000 in the 2015 and 2016, respectively. Diluted EPS increased thirteenfold from zero one dollars to $0.13 for the same period.

Non GAAP net income and diluted EPS for the 2016 increased 263250% year over year to reach $4,600,000 and $0.21 per share, respectively. Non GAAP net income diluted EPS for the 2015 were $1,300,000 and $0.06 respectively. These figures for the 2016 and 2015 exclude equity based compensation expenses of $1,600,000 and $800,000 respectively, and the impact of the amortization of acquired intangibles of the VOA of $300,000 for both years. Other related data. Shipped units by CEVA licensees during the second quarter were two twenty five million units, down 2% sequentially but up 9% from the second quarter shipments of 2015.

Of the two twenty five million units shipped, 191,000,000 units or 85% of the volume were for baseband ships, reflecting a sequential increase of 4% from 185,000,000 baseband ships last quarter and 14% increase from 167,000,000 baseband shipped a year ago. In non baseband, volume shipments decreased 26% sequentially and 12% year over year. The decrease can be attributed to an industry wide decline in Bluetooth shipments in Q1, which was partly offset by increase in shipments of always on processors in smartphones and wearables. The quarterly handset baseband royalty ASP continues to increase. It was up 18% sequentially and 53% on a year over year basis due to the growing product mix of LTE devices.

Our overall corporate blend royalty ASP increased 26% sequentially and 54% on a year over year basis. As for the balance sheet items. As of the June, our cash, cash equivalents, balances, marketable securities and bank deposits were approximately $138,000,000 Our DSOs for the second quarter was fifty seven days back to normal levels, up from the first quarter of lower than normal levels of thirty seven days. During the last quarter, we used $1,500,000 of net cash in operation. Depreciation and fixed assets were $300,000 each.

And at the June, our headcount was two seventy three people, of which two sixteen were engineers. Now for the guidance. As Gideon noted earlier, we continue to benefit from good momentum in the smartphone market and expect further expansion as the smartphone space gets ready for the holiday season with ramps of new flagships and SKUs. In non baseband shipments, we expect a new record high in terms of unit volume for the year. And as such, we are raising our full year guidance from an earlier range of 20% to 40% growth in royalties to a higher range of 35% to 45% growth in 2016.

Our guidance for the 2016 is as follows: Revenue for the third quarter is expected to be in the range of $17,200,000 to $18,200,000 This is the highest quarterly revenue guidance in the company's history. Gross margin is expected to be approximately 92% in both GAAP and non GAAP basis. Overall expenses should be quite similar to the expense levels we recorded in the first two quarters of the year. U. S.

GAAP operating expenses are expected to be in the range of $12.5 to $13,500,000 Of the anticipated total OpEx for the third quarter, dollars 1,600,000.0 is expected to be attributed to equity based compensation expenses and 300,000.0 to the amortization of acquired intangibles. So our non GAAP OpEx is expected to be in the range of $10,600,000 to $11,600,000 Net interest income is expected to be approximately 500,000 Tax rate for the quarter on a non GAAP basis, approximately 13%. And the share count for the third quarter is expected to be approximately 22,200,000.0 shares. U. S.

GAAP fully diluted EPS is expected to be in the range of $0.14 to $0.16 per share. And our non GAAP EPS, excluding the aggregate compensation expenses of $1,700,000 and $300,000 for the amortization of expenses, is expected to be in the range of $0.21 to $0.23 per share. Andrew, you may now open the floor for Q and A, please.

Speaker 0

We will now begin the question and answer session. The first question comes from Joseph Foe from Barclays. Please go ahead. Thank you. I had a couple of questions.

On the licensing side, there were no handset deals. But then Gideon, referenced some large engagements that you're expecting in the second half of the year. Are those for the handset business? Or is there a refresh cycle going on in the handset business? Or is most of the licensing in the second half going to continue to come from the non handset side of the business?

Speaker 2

Joseph, Thanks for the question because usually, we don't refer or elaborate in earnings call about the pipeline. But the reason we mentioned it is it's a unique situation that we are as you know, in the last few years, we become more and more specialized in our product line, including the handset, which we with our bread and butter, but we went vertically to more software and system architecture and modern architecture. Now same goes to the vision, same goes to the connectivity, which we offer total solutions. And so it looks like customer acknowledge this specific specialization, and they are coming to us with suggestions to have a more, I would say, exclusive relationship, not in terms of not allowing this product to be licensed to others, but do customizations and in some cases, offering a portfolio arrangement. So this kind of these are prospective customers, it's in process.

One of them, by the way, was closed very late, and I referred to it in my prepared remarks, it's for five gs base stations. I mean, these are in work and we're going to conclude and exclude also handset baseband type of application because the market is going into now to five gs. So overall, it's a unique situation. It's in process. It's in work.

But we are very happy of this kind of suggestion because it solidified the relationship that we have with customers, and these are all lead customers in the space.

Speaker 0

Okay. On the LTE side, which has been strong, I'm assuming you expect that to continue. Could you give us a geographic spread of that business right now? Where you see its strength and how you see that continuing into the second half based on what you're seeing right now?

Speaker 2

Well, in the LTE space in particular, it's known that the active areas are in the low mid range type of phones, and this is in China, where there is strong driver operators to subsidies to convert people from three gs to LTE and to go to a more powerful LTE phones. And India, where LTE penetration now is just 1%. So these are the areas that we see activities and where we see unit grow. Keep in mind also that CEVA is not just in these spaces. We are expanding also in the flagship models.

And our appearance is all around the areas. In the flagship model, it's more like penetration and market and expanding market share. In the low midrange, it's just an untapped area, and we see a lot of unit growth there.

Speaker 0

All right, perfect. I will let other people ask some questions. Thank you.

Speaker 2

Thanks, Jason.

Speaker 0

The next question comes from Matt Ramsay of Canaccord Genuity. Please go ahead.

Speaker 3

Thank you very much for taking my questions. I have a couple. I guess, Gideon, the guidance for Q3 and obviously raising the full expectation for the year, there's a lot of moving parts within the LTE market right now. Obviously, this quarter that you're guiding to will be the first quarter that reflects, I guess, the redistribution of share at Samsung with Qualcomm getting back in there for the S7 and it looks like for the Note as well. But given you guys are raising the outlook for the full year, it would suggest to me that there's some strength that you're going to see in LTE numbers outside of Samsung, in particular, for the fourth quarter.

Maybe you could talk about some of the ramps there potentially. I don't know if that's at Xiaomi or at other guys in China that are going to be and with spread term ramping as well. It seems like there's an inflection coming in the non Samsung business in the fourth quarter and going into next year.

Speaker 2

So this is Yaniv. I'll try to add on to what Gideon talked about a minute or two ago with the LTE penetration that we're after. If you look back to last year, we powered about 70,000,000 LTE phones at the time, and this took us a few years to get there. And of course, we started small with less customers shipping products, and the engine started as we went throughout the year and started this year, we are seeing more and more players and not just necessarily Samsung kick in and start pushing their LTE designs in mass production. So one thing that is completely different this year, and this is the guidance of almost 3x the volume from last year, is that we have more players.

It's not only Samsung, it's coming from Spectrum. It's coming from Leadcore. It's coming from Intel. It's coming from a bunch of our existing customers that had these products for a while but couldn't get into mass production. And today, they are much more successful than that.

So I think that's one strong element to mention. I mean, the way we see the LTE today is more of a structural growth going forward and not necessarily seasonal and not necessarily one quarter differs from the other. It's a lot about the timing of new SKUs. It's about the timing of product management by different OEMs and the chip vendors there. So it's a mix.

But I think if you put it all together, that gives us the confidence in some new models that will be introduced close to the holiday season. Some will have effect this year in Q4, for example. Some will already have effect in 2017. But I think to answer your question, it's the variety of all these factors, not just the market, but also the players that are pushing those LTE sockets into phones that are helping us to increase the guidance and be optimistic about future growth in LTE for us.

Speaker 3

Got you. Got you. That's really helpful perspective. I think it's good to see the new growth engine there in the baseband side diversifying. If we flip over to the nonbaseband business, I think you talked about in the prepared remarks a bit of an inventory correction industry wide in the Bluetooth space and still being up for the year in non baseband units.

Maybe you could talk about that dynamic a little bit. And then secondly, from some work we've done on the opportunity for base stations, I mean, to me, it seems like a pretty large potential for you guys, maybe not huge in terms of units, but from some work we've done, mean, could be 5,000,010 million dollars long term in royalties for the company on an annual basis. And I just wanted to know how that business was progressing and what kind of visibility you see to when that could start to deliver some real royalties to the company in terms of revenue. You.

Speaker 2

Hi, Matt. It's Kibian. Let me address your two questions one by one. When it comes to non handset baseband application and status, as you know, this is composed of variety of product and markets that should be as a result of deals that we signed in the last, I would say, two years. So at this stage, I think what we put the focus, and this is the reason that we mentioned units, is to see that we are progressing in terms of units.

We are monitoring it by royalty reports. We are monitoring customers' progress specifically. In summary, this progresses according to our expectation. The fact that we're going to have another or expect to have another record year in units, It's according to our expectation and that makes us satisfied for the situation. Base station, indeed, as you mentioned, it's a lucrative space.

The timeline is different, but we expect noticeable royalties coming today. It could be more towards the 2017, early twenty eighteen, but it's moving. I mean, we are working closely with two key customers that we have there, and they are doing. One thing that I want to mention maybe, Amy, you can take it. Yes.

One more thing I wanted to add to Gideon's earlier comment is that we expect, and I think we mentioned that in the prepared remarks, we expect Q3 to bounce back with the Bluetooth volume, especially, but all the non baseband to a new record high. We're probably we didn't get all the royalty reports, but we're probably looking at about 60,000,000 devices next quarter. So that's going to be the highest, and that's yet before the seasonal strong quarter of Q3, which we report in Q4, the pre holiday type of ramp up. Thanks.

Speaker 3

No, thank you, guys. I think that does it for my questions. I'll get back in the queue. That color was really helpful. Thank you.

Speaker 0

The next question comes from Gary Mobley of Benchmark. Please go ahead.

Speaker 4

Hi, guys. Let me extend my congratulations on another solid quarter and some good execution over the past couple of years. Want to start with a question about your ASP specifically on four gs LTE royalty units. If my math is correct, it looks like you might have actually had a boost in your average four gs LTE royalty rate. And I was wondering if I'm correct in that assumption.

And if so, was it the diversity of the royalty contributors that drove the increase?

Speaker 2

Yes. So I think morning first and thanks kind words. If you look at the overall ASP of the company, it is very high this last quarter and a great achievement. I wanted to take into consideration that it does have less non handset like Bluetooth because of the seasonality we just talked about and much more LTE units. And then the overall ASP, of course, improves just mathematically.

I think we've always said that the ASP is not the target for us, but it's a nice thing to grow if you can. But the mix was due this quarter because of much, much higher volume in LTE, which have the higher royalty rates. And I think for the first time, the information we got from Richard in the infographics, it shows the first time in our history that smartphone shipments last quarter were higher than feature phones. A bit, not by far, but I think we're talking about $102,000,000 versus $98,000,000 The 98,000,000 is still $100,000,000 a quarter, which are we are powering feature phones. As soon as these guys, whether some of it or completely all of it over a year or two time frame, we'll move to smartphones.

We could either double or maybe even triple that royalty contents to be 100 ish million units a quarter, and that's going to continue to improve the overall ASPs. So I don't think that anything special happened in LTE other than just product mix and then what I just explained.

Speaker 4

Okay. Extending the question, I guess there's been some speculation that one of your licensees might get some traction with its CEVA based thin modem and a flagship smartphone. So I'm not asking you for confirmation on that front. You probably don't even know if it's true or not. But can you tell me if there's a notable royalty rate per unit difference between a thin modem versus one that's integrated?

Speaker 2

I'm not sure if you could go into that much specific details about the specific customer. And I think we'll all wait and see and see how this progresses. We usually don't try not to guess before one gets into production with a specific SKU or a flagship model. As soon as it happens, we'll have more color and could look at the royalty contribution if that happens and give a little bit more color. It's a bit premature.

And for now, I think the right way to look at it is just the whole basket of LTE devices versus the two gs devices or Internet of Things device. And I think that's easier to model and to comment on at this point of time.

Speaker 4

Okay. Fair enough. Thanks, Steve. I did have one additional follow-up question. In your prepared remarks, you talked about a few comprehensive deals in the pipeline.

And it sounds a lot like a subscription license agreement in the way perhaps ARM Holdings bundles its intellectual property. Am I thinking about that correctly? And could you be entering an era in which you are ratably recognizing license engagements over a prolonged subscription period?

Speaker 2

Let me try to help here. First of all, as Gideon said, it's not done yet. It's an idea or it's a deal that is in the works. I don't think from a revenue recognition, it's going to be a model of a subscription, but it is going to have the same idea as Gideon explained that, that specific customers and maybe more in the future will have a much more flexible capability to choose different technologies for different markets or different product cycles for them and not come back on each special deal stand alone deal that will have a variety of basket of IPs that they could use. So it has some type of that idea behind the subscription with much more flexibility to use our IPs, but we're not going to recognize the revenue based on that, but based on the actual usage of the different technologies that they will take over time.

Speaker 4

Right. That's it for me. Thanks, The

Speaker 0

next question comes from Matt Robinson of Wunderlich. Please go ahead.

Speaker 5

Hi, thanks. Nice quarter. Gideon, I was hoping you could maybe talk a little bit about Vision. I guess there's two areas. I'm curious if you can kind of characterize the licensing you've done and the mix of applications between ADAS, specifically automotive and other types of vision usage?

And then since there's been a bit of controversy on the topic on the automotive side, how you see things unfolding with new entrants, especially on the sensor processor portion of with licensees and the timeframe you think you might see some of these guys getting in the market? Where they are in terms of whether Tier one or more traditional semiconductor licensees or something else?

Speaker 2

Hi, Amit. First of all, when it comes to Vision, the way I see it is that the educated Vision, it's a relatively new market or new relatively new use case in industry overall. So far, the most educated market to use vision processor like we offer and the basket of things that we offer there is surveillance. Surveillance is a big market and it's around the world where it's security cameras, surveillance camera either at home or enterprises looking to put intelligence into this camera. Coming next is smartphone.

Today, only Qualcomm has a processor that do vision, but others are still using all sorts of other, I would say, bypasses, but they are getting into things. You know, application like the Google AR and the what's the name of the game? Pokemon GO. Pokemon GO. These are the things that show how to use Vision, how we can take advantage of the camera in the smartphones.

We believe the next in line in terms of adopting Vision and the already licensed technologies are in the smartphone. And that's good because you speak here on huge amount of volume and a lucrative space. On top of it, you have markets that are less in sizes, but still when you accumulate them, they become sizable, virtual reality, action cameras, robots down the line and things like this. Now when it comes with ADAS, it's definitely vision is part of the ADAS space. I mean, car will have to have multiple cameras, and no doubt about it.

They are more advanced in adopting deep network and computer vision in general. With that said, it's a market that has its different timelines. And what we are doing in this space is that we have a plan action plan that we're following and we have Tier one customers that we are discussing and we have sensor guys that we are evaluating and forming. And we have a few deals that we signed so far and there are a few things that are in the short term And if you summarize the perception that people have about our technology ADAS, it's the light technology, it's a viable technology. And we are basically today the only viable alternative other than mobile, comes with their own chip and software and it's a close.

So overall, when it comes to ADAS, we have to adhere to the timeline and the milestone that we do to ask us, but we are I think we are in the right track here.

Speaker 5

Thanks, Kenyon.

Speaker 0

The next question comes from David O'Connor of Exxon. Please go ahead.

Speaker 6

Great. Thanks for taking my question guys. A question from my side. We're hearing some chatter on China telcos that they may begin to push LT CATCH7 maybe in the latter half of this year. Just wondering how well do you see you guys positioned in China if the market begins to shift from, say, an LT CATCH4 to kind of a CAT7?

That's my first question. Second question again on the significant licensing opportunity. You mentioned getting in your prepared remarks. What type of applications are we seeing there? That's the second question.

And the last question is on the you mentioned five gs license for base station. Is this a new customer? And how does it tie in or is it different to your existing two kind of base station customer? Thanks.

Speaker 2

Okay. So let me address one, by the way. When it comes to CAD seven LTE, all our customers offer this one. So I don't see any stumbling issue there when it comes to card server. That's one thing.

The second question, just remind me what was because the third one was base station. Can you remind me the second question?

Speaker 6

Yes. The second question was the significant license opportunity that you mentioned in your prepared remarks. I was wondering what type of applications are we talking about?

Speaker 2

Yes. Okay. So that's across all the product lines. I mean, it's not a specific product line that we are speaking about. We speak about multiple customers that simultaneously came to us with different strategic suggestion and it's across all the product lines.

The third question is the base station. It's the deal that we that I spoke about in the prepared remarks. It's with existing base station customer, a key customer. The prior deal was four gs LTE Advanced. And this is this next generation, which eventually will require different DSP for five gs and it's more like toward the 2020, 2021 time line.

Speaker 6

Okay, great. And if I could squeeze in one more, sorry about this, but you mentioned there was a question previously on the LTE and the kind of some of the moving there. And you also spoke about having multiple LTE customers, which you flagged before in the second half of year. Will the LTE ASP, is that going to move up or down given the mix when you look at the second half? Thanks.

Speaker 2

Timmy. No, I think we're looking at more or less the same ASPs that we have talked about for this year, anywhere in the neighborhood from $08 to $09 in the LTE space is a good number to use for a different model. And we don't see a change. Of course, we would like to see more volume and therefore, higher royalty revenues derived from that. I think that's the healthy

Speaker 6

Okay, great. Thank you.

Speaker 7

Sure. Thank you.

Speaker 0

And the last question today will come from Suji Desilva of ROTH Capital. Please go ahead.

Speaker 7

Hi, good evening. This is Richard. Congratulations on the stellar results. Good to see the hard work paying off there. On the large customer comprehensive deals, I'm curious if you could be more specific on the number of opportunities you have there and whether those deals might represent the largest in the company's history, just to understand the magnitude here?

Speaker 2

Sure. No, it is, of course, a nice deal. The idea is that we're offering the same technologies that we have today. But because in nature, and Harm has been doing that for many years, These are large customers. We would we are trying to simplify the engagement with these types of players, at least for one, we're dealing with Axle right now, maybe others will follow.

And giving them an access to different technologies, I think Gideon mentioned that it could be connectivity, we're talking about Bluetooth technologies, WiFi, it could be DSPs for audio and vision. It could be different software packages for a complete solution. It could be LTE. It could be Internet of Things in a very small form factor for these devices like we've announced a new product just a few months ago. So the idea is to have a list or have a basket of these IPs with much easier access to large companies to choose.

They just need to choose and pick and start a design. Of course, the royalties will be similar to what we have today for many customers. That doesn't change. But the licensing engagement with these multiple type of technologies across every market, it just depends what they want to use and what we could convince them to use because it makes sense for them, that will enrich the relationship and hopefully the use of our technology across not just one division or one product line, but potentially many more because of the easier access. I think that's the idea.

Dollar wise, it's not eat as much as you can, but it depends on what they want to use. The more they want to use it, the bigger the deal could be. So we have a basic platform for that. Again, I think we'll be more comfortable to talk about it after the deal is actually closed, which is not the case, but the idea that there's some basic usage. And then on top of that, they could add much more as they go along, and then the deal could increase as well in volume.

Speaker 7

Good. That's helpful color, Neve. And then with the four gs market and upgrade cycle being so strong here and the premium to three gs phones being smaller, is the three gs phone unit market still a growth market? Is that stable? Or is it starting to decline?

Speaker 2

Three gs? Three gs. So the overall, the three gs market is a decline market, but in more modest rate than two Our play there is market share gain. I mean, we customers, Spreadholm, that focus on this market and gaining share. I think last quarter, honestly, if you look on a sequential basis, it was about 5% market share gain.

And we expect to get to the level. So it's a sizable market. And in places of India, Eastern Europe, there is still three gs network, and we want to benefit out of it. That's great. And then

Speaker 7

one last quick question. On the full year range updated 35% to 45%, is that just the range there, just general market demand? Or are there any customer specific events that might tilt you towards the

Speaker 3

high end versus the low end?

Speaker 2

No, I think it's just acceptance in the market of different phones. If there's suddenly more appealing in the volume increases because of a good marketing positioning or a good phone. Or if it's the low cost, it's just a ramp up. I don't think there's one specific driver for being in the higher end or the lower. It's it doesn't rely on one tier, one customer, but a whole bunch of different both markets and players like we alluded earlier.

It's a good question, but I don't think it's a one all type of answer, but a combination.

Speaker 7

Thanks, guys. Congrats again.

Speaker 2

Thanks, Suzy.

Speaker 0

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 all for joining us today and for your continued interest and support in CEVA. We will be attending the following upcoming conferences and invite you to join us there: the Oppenheimer Annual Technology, Internet and Communications Conference on August 9 in Boston the Canaccord Genuity Global Growth Conference on August 10 in Boston the Drexel Hamilton Telecom Media and Technology Conference on September 7 in New York Deutsche Bank twenty sixteen Technology Conference on September 14 in Las Vegas and Dougherty and Company Institutional Investor Conference on September 28 in Minneapolis. For further information on these events, including webcasts and a complete calendar of other conferences we'll be attending, you can visit our website at 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.