CEVA - Earnings Call - Q4 2017

Transcript

Speaker 0

Good morning, and welcome to the CEVA, Inc. Q4 and Year End twenty seventeen 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, VP of Market Intelligence, Investor and Public Relations.

Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to CEVA's fourth quarter and annual twenty seventeen earnings conference call. Before we begin, I would like to inform you that the prepared remarks for this conference call will be filed as an exhibit to the current report on Form eight ks at the conclusion of the call. I'm joined today by Gideon Wertheiser, Chief Executive Officer of CEVA and Yaniv Ariely, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the fourth quarter and year and provide general qualitative data.

Gideon will then cover the financial results for the fourth quarter and year and also provide guidance and qualitative data for 2018. 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 first quarter and full year 2018 market data from Gartner, ABI Research and GSA optimism about our prospects associated with AI based devices, the smart and connected devices, the RAN sector, LTE penetration and non handset baseband segments the strength of our licensing as a precursor for a lucrative future royalty stream projected customer ramp up schedules and optimism about the success of growth in the non handset space. 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 LTE and five gs networks AI, LTE, IoT and the IoT space generally our ability to execute more broad portfolio license agreements customers' ramp up schedules and the impact 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 2

Good morning, everyone, and thank you for joining us today. CEVA delivered another year of record results with outstanding execution in licensing and solid progress in royalties. We ended 2017 with a stronger than ever foothold in the vibrant, smart and connected universe, which progress I will elaborate shortly. Total revenue for the 2017 came in above the upper range of our guidance at $21,600,000 The licensing environment continues to be healthy with revenue of $9,000,000 and 13 new agreements signed. All of the agreements were for non handset baseband product and five were with first time customers.

Target markets for the new agreements include cellular IoT, which was particularly strong during the quarter with three new agreements: autonomous driving, five gs cellular backhaul, vision for mobile and consumer electronics, smart speakers, voice enabled headsets and variety of Bluetooth connected products. With respect to autonomous driving, I would like to highlight that we concluded a strategic development agreement with a top tier car OEM for next generation AI processor of our new product line. This revolutionary AI technology is targeted for Level four and five autonomous driving systems, the most advanced yet complex AI application in cars and in the embedded world in general. It is our first engagement directly with a car manufacturer, which grant us an intimate access to future AI based application in autonomous cars. The Newport technology, which we unveiled at CES, is a new family of optimized AI processor, enabling processing of varieties of AI application on the device rather than in the cloud.

This approach allows a faster response time and ensures better security and privacy. Neupro is the world leader in performance and software for device based AI application, among which are face recognition, object classification, automatic speech recognition, workflow management, malware detection and sensor fusion. AI is being rapidly adopted across multiple industries due to the substantial benefits it presents. Initial products adopting AI includes surveillance camera, drones, AR and VR headset, ADAS and smartphone. In relation to smartphone, according to Gartner, 80% of all smartphone will incorporate AI processor by 2020.

We are very optimistic about prospect of device based AI going forward and the growth opportunity it possess to CEVA. Royalties for the fourth quarter came in at $12,600,000 up 26% on a sequential basis and down 2% on a year over year basis. It reflects a combination of continued growth of non handset baseband shipments that for the first time exceeded 20% of our total revenue mix and seasonal strength in handset. It also included $900,000 royalty catch up following customer audit. For the full year of 2017, total revenue came in at $87,500,000 a record high, up 20% year over year.

Licensing came in at $42,900,000 up 35% versus 2016 on the back of strong demand throughout the year for our products, in particular vision, deep neural network, five gs base stations, Bluetooth five and cellular IoT. I'm extremely pleased with this achievement in licensing as it is the key metric for the sustainability of an IP company and the precursor for lucrative royalty stream. Four years ago, we embarked on an ambitious diversification strategy, which was aimed to expand our business beyond the handset baseband processing market. Through successive technology investment and innovation, we launched new product line for LTE and five connectivity, voice and our recent AI processor line for edge devices. This strategic move and timely execution have resulted in licensing momentum, which has grown at almost 20% CAGR since 2014.

In the past four years, we added more than sixty first time customers and signed more than 150 deals outside of the handset baseband space. 96% of the deals signed in 2017 were for this new product line, targeting broad markets and applications. Consequently, we are also experiencing substantial uptick in non handset baseband quality revenue, which more than doubled in 2017. Let me take the next few minutes to discuss the key success factor for our licensing achievement in 2017. Five gs base station.

We signed during the year agreement for our latest XC12 DSP platform with three top tier OEMs who are going to base their five gs radio access network all RAN solution on this technology. The RAN sector possess an explosive growth opportunity for CEVA, where we have uniquely taken advantage of our signal processing technologies and competencies to develop long term collaboration and sustainable royalty streams. Our CEVA XC12 DSP platform presents an indisputable performance advantage over incumbent platform. It efficiently supports all the primary five gs defined use cases such as gigabit transmission speed, massive IoT and ultra availability and low latency for mission critical applications. The performance envelope of the XC12 applies to all different RAN architecture of cellular operators, such as heterogeneous macro cell and small cell, cloud run, backhaul, fixed wireless and A2211AX WiFi.

Computer vision and neural network. Throughout the year, we experienced strong interest for our vision and neural net hardware and software solution. We are benefiting from the first mover advantage with mature technology and holistic approach for Neural Networks. Overall, we signed 11 licensing agreements for our Vision portfolio, and the unit shipments are growing to level of millions per quarter versus few tens of thousands last year. The Vision market is highly diversified and sizable.

According to ADA Research, device with onboard vision and neural network processing will reach 4,000,000,000 device by 2022. Network and IoT. The fourth quarter was very successful for our Dragonflight portfolio with three new license agreements. This add to our earlier license agreement with ZTE, who already offered its certified RoHSIMM 7,100 chip within China mobile network. Failure operators are looking for extremely low cost and low power narrowband IoT solution that open up mass market services in verticals such as meter, share bikes, smart home, smart cities and healthcare.

The GSA forecast 3,800,000,000 cellular IoT devices by 2026. Our Drive and Fly platform is self contained hardware and software, narrowband IoT solution that lowers the entry barrier to many companies in the IoT space who look to embed cellular technology in their chips. Bluetooth five dual mode. We continue to expand and strengthen our position in the Bluetooth market, in particular in regard to dual mode standard, which integrate Bluetooth low energy for data and classic Bluetooth for audio. The use of Bluetooth dual mode emerges in many new classes of wireless headset and earbuds, such as Apple AirPods or Google Pixel Buds and hearing aids.

Overall, we signed more than dozen Bluetooth agreement during the year, and our customers shipped more than $200,000,000 royalty billing unit, up 45% from 2016. Moving to royalties. Royalty revenue for the full year was $44,600,000 a record high and a 9% increase over 2016. Overall maturity in the handset market was more than offset by solid unit and royalty revenue growth of non handset baseband shipments. Our non handset baseband royalty revenue accounted for 18% of the total royalty, doubling from 9% in 2016.

As we look into the royalty dynamic for 2018, we generally expect modest growth year where continued expansion in the non handset baseband segment is anticipated to offset the weakness in the handset market. Toward the later part of the year, we expect a large base station customer to enter into production with new LTE and five gs RAN product. At this stage, we elect to be prudent in sizing the ramp up this year due to combination of timing of this initial ramp up and overall RAN market, which is expected to return to growth in 2019 in conjunction with five In handset baseband, according to Strategy Analytics, the smartphone market showed a 9% year over year decline in the fourth quarter, the biggest in the smartphone history. We believe that this decline will extend, in particular, in the 2018 due to demand softness in high and mid range phone and slower than expected adoption of LTE phone in emerging market due to high pricing. In summary, we delivered another great year with record financial and technological achievement.

Through last year and prior year achievement, we have positioned ourselves at the forefront of the smart and connected universe and are benefiting from a larger customer base and growing shipment. We continue to be committed, innovative and fast moving as we pursue multiple growth opportunities that appeal to us, in particular in the aerospace. Finally, I would like to take this opportunity to thank all our employees for their hard and determined work and our suppliers and investors for their support. We wish you all a happy and prosperous year. With that said, I'll now turn the call over to Yaniv, who will outline our financials and guidance.

Thank you, Biren. I'll start by reviewing the results of our operations for the 2017. Revenue for the fourth quarter was $21,600,000 as compared to just over $21,200,000 for the same quarter last year. The revenue breakdown is as follows. Licensing and related revenue was approximately $99,000,000 reflecting 42% of total revenues, 9% higher as compared to the 2016.

Royalty revenue was $12,600,000 reflecting 58% of our total revenue, just below the $12,900,000 for the same quarter last year. Quarterly gross margin was 91% on GAAP basis and 92% on non GAAP basis. The non GAAP quarterly gross margin excluded approximately $100,000 of equity based compensation expense. In general, cost of revenue was higher this quarter than prior quarters of 2017 due to expenses associated with the narrowband IoT product line in the neighborhood of $400,000 Total operating expenses for the fourth quarter was in the high range of our guidance at $16,500,000 OpEx also included an aggregated equity based compensation expense of approximately $2,300,000 and $300,000 for the amortization of acquired intangibles of Riviera Waste. Our total operating expenses for the fourth quarter, excluding equity based compensation and amortization of intangibles were $14,000,000 also at the higher end range of our non GAAP guidance.

U. S. GAAP net income and diluted EPS for the quarter decreased 3942% to $3,200,000 and $0.14 respectively over the fourth quarter of last year. Non GAAP net income and diluted EPS for the fourth quarter decreased 1822% year over year to $5,700,000 and $0.25 respectively. Other related data.

Shipped units by CEVA licensees during the 2017 were $285,000,000 up 14% sequentially and down 17% for the 2016 reported shipments. Of the two eighty five million units shipped, two zero five million units or 72% were for handset baseband chips, reflecting a sequential increase of 8% from 189,000,000 units of handset baseband shipped during the 2017 and a 24% decrease from two seventy one million units shipped year over year. In non handset baseband, volume shipments continued to increase 31% sequentially and 12% on a year over year basis. The increase is due to higher quarterly Bluetooth, vision and base station shipments. From a revenue perspective, fourth quarter non handset baseband royalty revenue continued to increase 37% sequentially with volume increase and on a year over year increased 147%.

As for the year, our total shipments grew 7% year over year to reach shy of 1,200,000,000 units, which equates to approximately 37 CEVA powered devices sold every second in 2017. These unit shipments represented an annual royalty revenue increase of 9% year over year, reaching a new all time high of $44,600,000 Annual shipments of LTE phones increased 38% year over year or just by 85,000,000 to reach three eleven million units. Non handset baseband royalty revenue doubled in 2017 and reached a record level of $8,000,000,000 As for the balance sheet items, as of the December 2017, CEVA's cash, cash equivalent balances, marketable securities and bank deposits grew to $183,000,000 Our DSOs for the fourth quarter were higher than norm at seventy days compared to the prior quarters of forty nine days. But collection was very strong in the first couple of weeks of twenty eighteen. During the fourth quarter, we generated $6,800,000 net from cash from operation, depreciation of $600,000 and purchase of fixed assets were $800,000 At the end of the year, our headcount of three thirteen people, of which two fifty two were engineers.

Overall, we continue to accomplish remarkable financial achievements in 2017, building on our impressive product and market diversification efforts in the last couple of years. We reached new financial milestones leveraging revenue growth, new customers and markets as well as internal R and D investment. In addition to the 20 growth in total revenues, we generated non GAAP operating income increase of 18%, non GAAP EPS increase of 2669% increase in our annual free cash flow from operation reaching $24,500,000 Before moving to guidance, let me explain the implications of the new ASC six zero six accounting rules on our revenue recognition practices. In the 2018, our quarterly royalty revenue will be based on customer royalty reports for shipped units in the reporting quarter rather than the shipped units for the prior quarter. In light of this change and as we do not have access to our customers' quarterly forecast, we will refrain from giving quarterly revenue guidance going forward.

We will, however, provide yearly guidance on revenue with a breakdown of licensing and royalty revenue as well as our view on the revenue trend between the first half and the second half of the year. We will update as appropriate our annual guidance as we progress throughout the year and we'll continue to give detailed OpEx quarterly guidance and certain other key metrics on a quarterly basis. Now for the guidance. Last year was an outstanding year in licensing at $43,000,000 35% year over year growth. While licensing revenue trends to be lumpy, we believe that the healthy demand environment we experienced last year will also continue this year and as such forecast licensing revenue to be at a similar level to last year.

On royalties, we forecast 10% year over year growth. As Gideon explained, we're taking a wait and see approach in regards to the timing and magnitude of the production ramp ups from new non handset baseband customers, in particular, our second base station customer and have the caution stand on the handset market due to the recent market data. We forecast that 60% to 70% of our annual royalty revenue will be that is included in our guidance, will be reported in the second half of the year on back of the base station ramp ups and other new production ramp ups for the holiday season. All in all, we forecast total revenue to be approximately $92,000,000 for the full year. On OpEx, with our newly announced products and continued momentum in our existing licensing business, we will continue to innovate and reinforce our leadership, but with disciplined investments in R and D.

Our OpEx increase is mainly associated with AI investments in headcount, employee related costs and EDA tools. Overall, OpEx increase will be in the region of $5,000,000 It should be noted that approximately $2,000,000 of that is attributed to FX effect as compared to 2017, with the U. S. Dollar continuing to slow weak to show weakness compared to other currencies such as the shekel or the euro. Equity based compensation expense is also forecasted to be higher due to the ongoing employee retention efforts.

Annual gross margin are forecasted to be in the labor of 92%. Interest income is forecasted to be slightly higher in 2017 at $800,000 per quarter. And our tax rate is expected to be quite similar to 2017. After taking into account the new Trump tax related legislation, the tax rate is expected to be approximately 19% on GAAP and 13% on non GAAP basis. Share count for 2018 is expected to be in the range of 23,000,000 to 23,600,000.0 shares.

Specifically for the 2018, gross margin is expected to be approximately 90% on GAAP and non GAAP basis, excluding an aggregate of $200,000 of equity based compensation expenses. Both GAAP and non GAAP gross margin expected to be a bit lower than normal in the first quarter due to COGS related expenses associated with new partnership within narrowband IoT space like we have witnessed in the fourth quarter of last year. Overall OpEx is expected to be in the range of $17,600,000 to $18,600,000 of our anticipated total operating expenses for the first quarter, 2,700,000.0 is attributed to equity based compensation expenses and $200,000 for the amortization of acquired intangibles. Our non GAAP OpEx is expected to be higher than the level of 2017 as we just reported and as I just explained, will be in the range of $14,700,000 income is expected to be approximately $800,000 Tax rate for the first quarter, slightly lower than the fourth quarter actual on GAAP basis 19% and on non GAAP basis 13%. Share count for the 2018 is expected to be approximately 23,000,000 shares.

Glendon, you could now open the Q and A session, please.

Speaker 0

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

Speaker 3

Hi, gentlemen. Congrats on a strong quarter Yaniv, of the am I doing the math right, four gs LTE units in the fourth quarter were $94,000,000 roughly?

Speaker 2

Four gs were $82,000,000

Speaker 3

Apologies.

Speaker 2

So

Speaker 3

much for my math. You said what, $311,000,000 for the full year?

Speaker 2

Yes, but take into account that there is a new segment of feature phone based LTEs. So some of that still fall into the feature phone segment, but overall it's part of our LTE modems.

Speaker 3

Okay. Regarding five gs LTE radio access networks, do you still feel that ZTE will be the primary contributor to royalty revenue in 2018? Can you share with us what the five gs LTE base station related royalty revenue was in the fourth quarter? And can you comment on Nokia's recent launch ReefShark, if that's what you're eyeing as it relates to your second half twenty eighteen or 2019 additional contributor to five gs related royalties?

Speaker 2

Gary, hi, PBR. Let me because we were in the last few years a bit tight lipped in what we are doing or what our customers are doing in the RAN market. RAN market is the umbrella of all the different use cases in the base stations for DSP processing. So, I mean, we are not just doing the we are not in just one place, we are in macro sales, we are in the small sales, we are in the cloud run, we are doing remote radio head. So our DSP is in several places there.

Now, we spoke about the customer that is already in production, not in full scale, the scale is going up this year, I would say even significantly. And there is another customer that is going to get into production and this is on track. I don't see any stumbling issue in terms of not doing it this year. The question is how the magnitude of this initial ramp that for the first time it's hard to see. Now we are our entry point with these two customers that will be in production the second half of this year is what is called LTE Advanced and LTE Pro.

Only one third of the LTE base station today has been upgraded to the faster LTE, which is LTE Advanced or LTE Pro. So our endpoint is with this product line to the LTE Pro. There is a software upgrade, they can do a software upgrade and go to five gs. The five gs which is already certified, not the envelope, the highest five gs, the most advanced five gs, they will need to go the XC12, and this will be Motau 2020. So overall, things are on track.

There is in the last two years lower investment, CapEx investment in this respect. The expectation in 2018 to go to a full scale, so then by 2018 we'll have probably kind of a tailwind. But there will be ramp and even significantly in the second half of the year. And we just we took a prudent approach at this stage just get a better feeling of how things will evolve. But as I said again, there is no any stumbling issue about or technology issue about this ramp, it's all about from guidance standpoint or from forecasting standpoint, the magnitude and the timing.

If they go in Q3, so we have two quarters, if they go in Q4, we have one quarter. This is something that at this point is hard to know.

Speaker 3

Okay. That's very helpful. One

Speaker 2

last part to answer your question. Last year for the first time, we did see royalty revenues from base stations and very few fingers of millions of dollars. So it's still less than one hand, but the opportunity for us, I think we've talked about this in the past over time and again it all depends if it's a full year or one quarter or two quarters within a year, it could be in a few tens of millions of dollars, but one step at a time. We first want to see the others in production.

Speaker 3

Last question for me. Could you speak about the nature of your North American automotive OEM relationship, the phases of this relationship? Is this first phase with New Pro really just kind of a discovery phase and then perhaps at some point during the year, maybe 2018 or 2019, it goes into sort of implementation stage?

Speaker 2

Yes. Obviously, we cannot speak about disengagement and I cannot elaborate on this one. First of all, it's not necessarily a U. S. Base.

We speak about OEM, Tier one OEM company. So it's a car manufacturing company that take a next generation of our new Pro. We announced in CES the new Pro, four different product line, but we speak about the next generation, something that is revolutionary and take us to the fully autonomous car space. It's a journey where we are today, but it's a good engagement. If all things will go in the right direction, we see 2020, 2021 cost.

Speaker 3

Okay. All right. Thank you, guys.

Speaker 2

Sure. Thank you.

Speaker 4

Our next question comes from Suji Desilva with ROTH Capital. Please go ahead. Hi, Gideon. Hi, Yves. Congratulations on a strong 2017 year.

Just a quick housekeeping question for Yves on the accounting change. Yuniv, when you report revenues going forward, will you have all the customer reports to accurately report the royalties or will you be making adjustments you think?

Speaker 2

That's a good question. We'll do our best. Usually, we close the quarter and get the report thirty days after that, taking into account that nine days after those thirty days, we need to report our 10 Qs, it's going to be a challenge and therefore most likely you'll see two things happening. One, we'll try in the future to probably have our earnings call around this time, the six, seven, eight of the following months and not necessarily thirty days or immediately after like we have done in the past, which the royalty reports were just an easier indicator for the guidance in the next quarter. And second, we'll try when we do our earnings also to file our 10 Q together, so there won't be any differences between at least the reporting and the 10 Q.

And by then, if there will be another report that we will receive and we did not know when we closed the books, which is going to be tighter than in the past, then there'll be some adjustment going forward. We'll try our best to get a good idea when we actually report for the real numbers or as much as we can. I'm sure that like we have seen in the past, some reports will be arriving later and then we will have adjustments, hopefully not material ones because of that new system. So I don't think it changes a whole lot other than that this tactics of when you get the reports and when you know the actual numbers and report them, it doesn't really change a whole lot from a business perspective. Just makes our lives a little bit tougher.

Speaker 4

Okay. Appreciate the colors of walking through this. And then on the royalties here, specifically on computer vision and smartphones, where are we in that ramp versus where you expected? And how many customers do you think might be ramping that product in the smartphone area in 2018? What's the magnitude of the opportunity there?

Speaker 2

So there are two things about smartphone. One is the baseband side of it. And in the baseband side of it, as we said, we are taking kind of cautious here because not because we know something, but because we see the market data. I mean, Q4 is usually high season in shipment, and it was down. And there is people speak about dynamics in China, and there is this big customer in The U.

S. That guided down. First quarter first and second quarter, by the way, with these new revenue recognition rules, first and the second quarter are below seasons, as opposed to the part that in the first half of the year, had one quarter which was the high season and another quarter was the low season. So it's more like first half is low season, second half is high season. So in terms of smartphone in general, so I mean, we see some weakness in the beginning of the year.

I think things will be better than the second half. We don't know exactly how it appears, but there are all sorts of things, speculation about share gains and of course there is the emerging markets that if you take place like India, you have LTE penetration of 11% and the power point of present, the base stations cover 90% of the cover. So everything is set for growth in India and it's a matter of maybe pricing. So that's the now in the terms of non handset, I don't recall I mean, I don't have it out of my head how many customers will get into production, there will be a few that goes into production. And in general, this computer visionneural network is a very good business.

Last year, we did 11 deals and I don't see any reason that this will not continue. Okay. Me try to add some color on volumes, but I think you also asked and mentioned, I think last year was a very successful year for us from getting from just the design and the licensing to actual products in the market and we've all shared with you throughout the year, by the way, only mostly in the second half of the year, we've shared with you new cell phones using our vision technology, the DSLR and the mirrorless camera, action camera and just even in the later part of the year, the drone and then new markets. For the first time around Vision, we've reached just about 7,000,000 units for the year from essentially zero the year before and that was a very impressive growth both in royalties in units for us. That number should increase when we have the full year in front of us and not part of the year.

On top of that, Bluetooth, we shared the numbers. We had 45% growth from $139,000,000 to 200,000,000 Bluetooth devices, we don't see any reason for that to stop the volume in Bluetooth and WiFi this year around should start to ramp up. And all the newer things that Gideon mentioned and we talked about earlier, sound and narrowband IoT and our next in line will end of course the base station part. So I think for all the non baseband we've seen for the first time that was 2017 was the breakthrough in the royalty for the non basin for us. From now on, we want to see that ramp up significantly into 2018.

Speaker 4

Okay. And then one last quick question for me. On the licensing side, looking at your pipeline into 2018, which area do you see the most opportunity in amongst the areas you're targeting? Thanks.

Speaker 2

So we have I would say the following. The high runner product, which is Vision and Bluetooth, and I mentioned Bluetooth dual mode, all these earbuds, a lot of companies are looking to develop airport like earbud or headset. Network and IoT started last quarter. I mean, was an amazing quarter in this respect. I think LTE IoT in general will come out.

One thing that I also anticipate is the movement of five gs in the handset space. I see we have two customers already working with us on five and I see a lot of activities that could come out in five gs because it's a new brand change. It's a new ballpark, I would say, in terms of company. You cannot rely on legacy in five gs when you start designing the five gs. So I think we have already and we'll make something in the upcoming MWC, some announcement on this respect, but I'm optimistic about five gs prospects I mean five gs handsets.

Speaker 4

Okay. Thank you, guys.

Speaker 2

Thank you.

Speaker 0

Our next question comes from David O'Connor with Exane. Please go ahead.

Speaker 5

Good morning, gentlemen. Thanks for taking my question. Maybe first one, Viennip, on 2018 guidance. Just to clarify, how many quarters of base station ramp up are you assuming within your revenue guidance from your European OEM? That's my first question.

And then maybe one on the New Pro. So for the automotive licensee for autonomous driving, is that a smartphone type chip? Is that how we should think of it? Or is it more of a base station type chip? And I have a follow-up.

Thanks.

Speaker 2

Let's start with the first question. We're looking either at Q3 or Q4. So we have baked a little in Q3 and then more massive in Q4 for now. That's what we have in line in the guidance, in our forecast. As soon as we get a bit close and we'll get a little bit more color from our customers will know and guide accordingly.

So but anywhere between one to two, I'm not sure full two, but maybe one, one point five ish quarters. On the royalties, on the Lupro, I think it's still in the early parts of it. It's not a chip that costs like a chip in a base station, that's for sure. It may be closer to a vision or anything between a vision to slightly higher than that type of chip. I think that's how would price it or look at it.

It's a new category that's higher than our vision. I wouldn't I don't have I think it's a bit premature to share yet ASPs ASPs around it. We'll do it as we as it matures a little bit more and few deals will be behind us. And let me add a color about the new product, because as Yaniv pointed out, and I think it's important to understand that this is a new incremental product line. Has nothing to do, by the way, we as a company, we're doing so many DSP, the new point is not the DSP.

It's a different process, it's not by the way a CPU, it's a different category, it's an architecture and design that works for AI workload. In our view, in the future, and any configurable device in the world, any configurable semiconductor will have some kind of AI engine insight to do things that you cannot do in typical software. And this is the reason that we are investing and coming out with this product line. So I would say that this year we'll have because when we announced this product, we said that in the second half this product will be for broad licensing. So I believe that in the year we're going to have few license this year we're going to have few license agreements.

As Jani pointed out, it's a separate product line, separate ASP incremental to all other products that we have. We have few licenses this year, significantly more licensing activities next year. And second half of this year, we'll start seeing next year, excuse me, second half of this year, I think we'll start seeing royalties coming from this product.

Speaker 5

Thank you. And maybe just one follow-up on the kind of split first half versus second half for 2018. It appears in your commentary that most of the revenue levers are going to come primarily in the second half of year. What type of revenue levers have you got to pull on in the first half? Thanks.

Speaker 2

Sure. We were our type of reporting Qualcomm as well, all the IP or related IP companies reported one quarter in the rear. So our seasonality was really off a bit from the rest of the semiconductor industry and maybe this is what the SEC had in mind when they changed or came out with this new interesting six zero six rules. So if you take into consideration that in Q1 is the post Christmas and after Christmas decreases in consumer electronics and cell phones. You saw the numbers from the Apple and their related food chain.

Of course, Q1 is down, that's not a surprise to anybody or should not be. And for us, instead of reporting that in Q2 historically, we report that in the same Q1. So this is the reason that if you look at last year, our first half, second half was maybe fifty-fifty because mainly because of the shift in the seasonality that only started for us in second quarter instead of the first. Here we're in line with the whole market dynamics around cell phones, consumer and the like and therefore much slower Q1 builds into the spring and summer sales in Q2 and then the massive ramp up in the semiconductor space and in the handset and of course the base station, which is key to our growth and license revenue we're guiding will happen in the second half of the year. So I think these are the two or three items that have the most influence, the timing of or being aligned with the seasonality this time around from day one from the first quarter on one hand and in the fourth or third quarter, new ramps up around pre Christmas and handsets.

That answer the question?

Speaker 5

Yes, that's very helpful. Thank you.

Speaker 2

Great. Thank you.

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. Thank you all for joining us today and for your continued interest in and support of CEVA. As a reminder, the prepared remarks from this conference call are filed as an exhibit on current report on Form eight ks and accessible through the Investors section of our website at investors.cevadsp.com. With regards to upcoming events we will be attending, these include Mobile World Congress in Barcelona from February 26 to March 1 and the thirtieth Annual ROTH Conference in Dana Point, California, March 12 and March 13. Please visit the Investors section of our website for further information on these events and other events that we will be in attendance at.

Thank you and goodbye.

Speaker 0

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