Q3 2023 Earnings Summary
- CEVA is outperforming the IoT market by shipping 500 million units in Q3 2023, the second-highest in company history. This achievement comes despite a general market slowdown, driven by strong progress in licensing Bluetooth and WiFi technologies, an expanding customer base ramping up volumes, and customers who are more competitive and gaining market share.
- Anticipated revenue growth in 2024 is supported by CEVA's established leadership in wireless communication. Customers who have adopted CEVA's Bluetooth and WiFi technologies are now seeking additional solutions like Ultra-Wideband (UWB) and 5G IoT, indicating cross-selling opportunities. Furthermore, the introduction of new AGI products is engaging multiple customers, serving as a growth engine for the next year.
- Stabilization of demand in China provides an opportunity for growth in 2024. Companies are returning to request next-generation IPs, including connectivity and AGI technologies, enabling CEVA to capitalize on the recovering market and expand its footprint in the region.
- CEVA's wireless infrastructure business is experiencing a slowdown due to reduced demand for 5G networks, as there is no new "killer" 5G application needed for 5G networks. This has resulted in muted demand in Q3, and uncertainty about future demand recovery.
- CEVA's licensing activity in China has slowed compared to last year during the COVID-19 hype, which could impact growth in this important market. Although the situation has stabilized, overall demand remains slower than last year.
- CEVA's non-GAAP operating income and net income have significantly decreased compared to the same quarter last year. Non-GAAP operating income decreased from $7.3 million to $1.6 million, and non-GAAP net income decreased from $4.7 million to $0.4 million, indicating potential profitability challenges.
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Impact of U.S. Sanctions on China Licensing
Q: Are U.S. sanctions hurting your China licensing deals?
A: For now, the U.S. sanctions have not hurt our licensing deals in China because we target consumer markets like automotive, industrial, and medical, not supercomputers or fabs, which are the focus of the sanctions. China remains an important market, and we haven't seen specific restrictions affecting us. -
Drivers for 2024 Revenue Growth
Q: What are the drivers for revenue growth in 2024?
A: We have established strong leadership in wireless communication. Our customers using Bluetooth or WiFi are now asking for other technologies like UWB and urban IoT. We see significant opportunities in 5G IoT beyond handsets and micro-base stations. Additionally, our new products for AGI are engaging customers in early qualification and will be a growth engine next year. -
WiFi Revenue Growth Outlook
Q: When will WiFi shipments see significant growth like Bluetooth?
A: We began meaningful WiFi penetration with WiFi 4, but broad-based penetration came with WiFi 6, establishing our leadership as an IP provider. Licensing over the last two years positions us for strong royalty growth starting in 2024, continuing into 2025 and 2026. We have over 40 licenses across consumer and automotive markets, and with higher ASPs than Bluetooth, we expect very strong royalty growth moving forward. -
Wireless Infrastructure Tailwinds in 2024
Q: Are there tailwinds in wireless infrastructure for 2024?
A: The wireless infrastructure market has softened recently due to a lack of new killer 5G applications, leading to a slowdown in demand, especially in Q3. However, 5G deployments continue worldwide, and demand varies by operator and region. We hope for a stronger Q4 and see potential for growth in 2024, with more customers ramping outside macro base stations in 5G IoT technologies. -
Benefits from Sale of Intrinsix
Q: What are the benefits from selling Intrinsix?
A: Selling Intrinsix shifts us back to an IP business model, which is more leverageable and offers better gross margins, now back to 90%. The IP business has shorter design cycles and higher-volume markets compared to the Intrinsix service business, which had longer lead times and lower margins due to service costs. Focusing on IP allows us to leverage R&D across many customers shipping high volumes. -
Outperforming Despite Slowing IoT Demand
Q: Why are you outperforming despite slowing IoT demand?
A: We've progressed well with licensing our Bluetooth, WiFi, and other wireless connectivity technologies, leading to a larger customer base ramping their volumes, providing a tailwind. Additionally, our customers are generally performing better than the market, gaining market share, and there was restocking this quarter. -
Licensing Activity in China
Q: Is licensing activity in China recovering?
A: Compared to last year, activity is definitely slower but has now stabilized. We have a strong incumbency with our customer base, and companies are coming back to develop next-generation products, asking for the IP they need. We see demand for connectivity, AGI, and other technologies, offering growth opportunities into 2024. -
M&A Strategy After Intrinsix Divestment
Q: Any change in M&A strategy after selling Intrinsix?
A: Our focus remains on the IP business model and leveraging it. We've established successful licensing and royalty processes. We believe there are valuable assets aligned with this model that can create synergy and long-term success. M&A is an important priority for us moving forward. -
Potential for Larger Sales with Combo Deals
Q: Are combo deals customer-driven or already available?
A: It's both. This quarter, we had three such deals. Customers are demanding more combos, especially WiFi-Bluetooth combos. We're developing these technologies internally and offering them for fast time to market, combining our core wireless technologies like WiFi, Bluetooth, 15.4, and UWB. This helps both licensing and future growth as Bluetooth customers ask for WiFi and vice versa.