CEVA Inc (CEVA) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen. My name is Carli, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the CEVA Incorporated third quarter 2005 earnings conference call. [OPERATOR INSTRUCTIONS] It is now pleasure to turn the floor over to your host, Mr. Yaniv Arieli, CFO. Sir, the floor is yours.

Thank you. Good morning, everyone, and welcome to CEVA 2005 third quarter conference call.

This conference call contains forward-looking statements that involve risks and uncertainties as well as assumptions that if materialize and prove incorrect could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The risks, uncertainties and assumptions include the ability of the CEVA-X line of products to continue to be a strong growth driver for the Company, intense competition within our industry, the industry [unintelligible] our technology has experienced challenging periods of growth in the market for our technology may not develop as expected, especially in the case of newly introduced or planned to be introduced technology, our ability to timely and successfully develop and introduce new technology, our reliance on revenue drivers for the limited number of licensees and other risks related to our business include but not limited to those that are described from time to time in the Company’s Securities and Exchange Commission filings, including but not limited to annual report on Form 10K for the fiscal year ended December 31, 2004 and its quarterly reports filed after the form 10K. CEVA assumes no obligation to update any forward-looking statement or information which [inaudible].

This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA, and myself, Yaniv Arieli, Chief Financial Officer. Gideon will cover the business aspects, and I’ll cover the financial results for the third quarter and the guidance going forward to the fourth quarter and for the full year of 2005.

With that, I would like to turn the call to Gideon.

Good morning, everyone, and thanks for joining us today. I hope you had a chance to read our press release containing the results of the third quarter 2005. On the last quarter conference call, we have circulated in detail CEVA product line and our strategic Cores. We also discussed the growth drivers in seven markets that we targeted and explained the short-term and long-term implications to CEVA. Our third quarter revenue and booking results are consistent with our strategy and assumptions. Our revenue for the third quarter was $8.4 million, which is about the mid point of our guidance.

In the third quarter, we signed five new license agreements. Two were from our CEVA-X DSP Core. One was for our Bluetooth platform. One was for PLL technology, and one was a pretty big royalty for Teak DSP Core. Licensee target application are mainly three to four, with advanced multimedia features. We have two new significant CEVA-X licensing agreements signed with leading companies in the Asia Pacific region. The first license agreement is with a leading semiconductor company whose business is in the cell phone market. The company intends to use our CEVA-X DSP Cores along with our video and audio technologies for a broad range of new products from advanced-feature cell phones, which include features such as video recording, streaming video, mobile TV, digital camera and MP3 recording and playback. The second license agreement is with a leading [basement] processor company that’s already shipped chips based on our Teak and TeakLite DSP Cores for the GSN and GPS ready market. The company made the decision to adopt our CEVA-X DSP Cores for its next-generation products in 3G CDMA and PDS CDMA, which is a Chinese region standout. Going forward this company plans to extend the use of CEVA-X to hand them video and audio features in addition to the basement function. In this respect, our multimedia 2000 solution can be added by means of faster download without any change to chip design or the system architecture.

This new license agreement engulfs two major CEVA value propositions. The first value proposition is the usage of software rather than hardware for video. We call your attention to Texas Instruments’ recent announcement of the DaVinci platforms that emphasizes the value of software for video as opposed to hard-wired implementation. The second value proposition is that our CEVA-X with its strong cost value can carry most basement processing and multimedia without having to split functions between different process sourcing centers.

We call your attention to the recent concentrations of design wins in the Asia Pacific region. The largest core base of ODM and OEM vendors encourage a very fast development of local fabless semiconductors companies specializing in the designing and production of advanced DSP-based chips for cell phone and computer products. We believe the market in the Asia Pacific and Japan has a strategic fit for us, and we are taking important measures to increase our business presence in these markets. Such measures include the recent addition of direct and field support [unintelligible].

We have won three big royalty agreements with an existing licensee who is about to start shipping product using our Teak DSP Core. As we stated last quarter, we are very selective and careful with these kinds of arrangements, and we only enter into such an agreement if we are convinced that our licensee contractual obligation to pay royalties to us impacts its competitive position. In the third quarter, a number of licensees have finalized products containing TYP. As recently as last week, we announced that National Semiconductors has developed its latest generation [elematics] chip using our Teak DSP Core to hand them audio modem and speech recognition functions in the chip. National already has several customers lining up for these chips, which can lead to additional royalty revenue in the near future for CEVA. In addition, with we received samples entry level handset from two of our licensees in the Asia Pacific region. These handsets are targeting the fast growing Chinese handset market, where we already have a significant presence through our licensees, one of which is [unintelligible], a company recently named a red herring top 100 company.

As for our other product line, GPS, we did not enter into any new licensing agreements for GPS in the third quarter. Semiconductor companies are staying cautious about licensing GPS technology. We maintain our view that the GPS market is generally growing with extended use in automotive handheld time tracking and security in addition to [unintelligible]. However, currently we see no substantial [unintelligible] to GPS integration or to chip sets that drive IP licensing.

Storage. After several unsuccessful quarters of licensing SATA technologies to major licensees in the storage and consumer electronic area, we did not enter into any license agreements for the SATA technology in the third quarter. The SATA market is generally standardized with few vendors offering similar products. CEVA is focusing on those designs that require more customized solutions. In this instance, CEVA can leverage its IP portfolio and mixed signal design capabilities to create value for its licensees. In the third quarter, we introduced our CEVA storage portfolio with the addition of CEVA [unintelligible], SAS, solution. The industry first opened [unintelligible]. The technology is evolving and becoming the storage info space of choice for emerging enterprise applications. The compatibility of this technology with CEVA ATA provides licensees with the ability to develop enterprise storage systems to meet high performance and low cost specifications.

I will now turn to Yaniv Arieli to review the third quarter financials and provide future guidance for the fourth quarter and for the year 2005.

Thank you, Gideon. I will now read you the results of operations for the third quarter of 2005.

Revenue for the third quarter was $8.4 million. The revenue breakdown was as follows. Licensing revenues were $5.7 million, reflecting 68% of total revenue. Royalty revenue was $1.5 million, reflecting 18% of total revenue. And, service revenue was $1.2 million, reflecting 14% of total revenue. Our gross margins for the quarter were 88%. Research and development costs were $5 million for the quarter. Total operating expenses for the quarter were $9.9 million or $8.2 million after excluding a reorganization charge associated with leased facility requirements. Interest and other income net for the quarter was $470,000. In the third quarter of 2005, we also recorded a gain of $1.5 million from the disposal of a minority interest in a private company. Net loss for the quarter was $530,000 or $387,000 excluding the reorganization charge and gain on investment.

As for other related data, shipped units by CEVA licensees were approximately 27 million units for the second and the third quarters of this year. Our third quarter 2005 royalty revenue reflects licensed use-- [40] units shipped from the second quarter of 2005. Of the 27.1 million units shipped, 12.7 million were attributed to licensees currently paying per-unit royalties, and 14.4 million units shipped by licensees who are paying through the prepaid license volume. This compares to 27 million units shipped in the second quarter 2005, of which 12.4 million were attributed to per-unit royalty, and 14.6 were attributed to prepaid licensees.

Looking at our revenue model, including per-unit royalties and per-unit royalty deals and prepaid royalty deals, we recognized on a per-unit basis and not as a one-time event, we find CEVA in the range of around $0.09 to $0.10 per unit times a total number of units sold in the third quarter, which is, as I mentioned before, $27.1 million. In the third quarter of 2005, we had a total of 23 shipping licensees, which was one higher than the number we had in the previous quarter. The new one is shipping GPS products. Of the 23, 16 are paying per-unit royalties, and 7 are prepaid plan. In the second quarter 2005, we had 22 shipping licensees, of which 15 were paying per-unit royalties, and 7 were on a prepaid plan. Interest and other income, excluding the gain from disposal of this investment increased to a level of $470,000, reflecting mainly higher yields achieved by our cash balances compared to the second quarter 2005.

And, for the balance sheet items. End of September 30, 2005 cash and marketable securities were $60.4 million, up $700,000 from the prior quarter. This was mainly the proceeds from the disposal of our investment. The other principal drivers in the movement of our cash balances was $300,000 cash generated from operations, excluding restructuring payment of $1.3 million and $600,000 from the sale of shares issued under ESDP plan. We continue to monitor and improve our DSOs, showing a decrease from 89 days in the previous quarter to 80 days for Q3.

Now, to the guidance going forward. As Gideon stated earlier, our visibility for new GPS business is currently low, and our storage market is highly competitive, which leads to smaller deal sizes. On the other hand, we are encouraged by the pipeline for CEVA-X and for our multimedia 2000 platform. Hopefully, our Q4 revenue guidance will be similar to the third quarter range of $8 to $9 million. Gross margins are expected to stay in the 87% to 89% range with operating expenses expected to be in the range of $7.8 to $8.5 million, slightly lower than Q2. Interest income is higher in Q3. Interest income net is planned to be approximately $400,000.

For the full year of 2005, revenue guidance will be in the range of $35.8 million to $37.2 million. Gross margins similar to Q4 at 87% to 89%. Operating expenses in the range of $33.2 million to $34 million. Interest income net is planned to be around $1.6 million. The ending share count for ’05 is expected to be around 20 million shares.

Now, I’ll be happy to open the floor for questions.

Thank you. [OPERATOR INSTRUCTIONS] Your first question is coming from Matt Robinson from Ferris, Baker, Watts.

Hey, guys. It looks like pretty good progress on the balance sheet, except maybe for deferred revenue. Can you talk about why that went down? I know it only went down to more historical levels from a high level in the second quarter, but give us some color on that.

Nothing material that we could pinpoint. Mainly, this was attributed to technical support and future, ongoing type of work. We had some extra work revenues that were recognized in this quarter, but nothing major that we could--

So, this is like maintenance agreements. You had some-- I think part of the reason you had some from before was related to a license deal you did last year where you traded some software or something like that with your customer. You had to recognize some of that revenue over time.

Yes. This is what I mentioned - the extra work deal. Yes. This is exactly the revenue that was not recognized in Q4 and is recognized upon completion throughout 2005. That is part of the reason for that being released from the deferred revenue line. This will continue a little bit to go on until the year ends.

And, the royalties declined because of royalty unit price decline? It looks like you didn’t lose any customers.

No; we have a new customer that just started shipping GPS-related technologies in chips. Overall, it’s about eleven hundred thousand dollars [ph] lower than last quarter, mainly a shift among the different payors. Some were the higher payors and had some large numbers this quarter versus some larger numbers coming from different players this quarter around. We didn’t jump or go down in any step function of any of the licenses.

So, it’s just mix that resulted in a lower overall royalty price.

Yes. Correct.

Okay. And, the two CEVA licenses, were they both in the Asia Pacific region?

Right. Right.

The one that upgraded from Teak to CEVA-X - how long had they been shipping the Teak-based products?

It’s about, I think, six to nine months. Actually, they start shipping not long time ago.

Okay. Let’s see. On the restructuring, what was it that you--? What is it that you’ve done in that restructuring in the last quarter?

Yes.

This is mainly associated with a leased facility in Dublin. This is a big building that we have a fourth floor that is not utilized anymore. It was many years-- a few years ago. Just because three out of the four floors are not utilized there, we’re amending, essentially, our costs going forward to reflect just the use of that facility.

Well, now-- Okay. You’re going to take the cost out of the income statement, but are you going to take the cash flow costs out as well?

We are trying to do our best efforts. This has been a long-term lease, back in ’96, I believe, for 25 years. We’re looking way different ways also to try to reduce our negative cash result coming from this deal.

Does this lease have something to do with the prior Parthus ownership?

Yes. Yes. Correct. This is something that we--

So, it’s a legacy-related party transaction situation that you’re trying to get out from under.

Yes.

Okay. I wish you luck in that. Going forward, then, your earnings are likely to overstate cash flow slightly because you’re still going to be paying rent on this building you’re not using.

That has been the case for the last couple of years. We’re trying to look for ways--

Well, it would be more the case going forward, since you wrote it down but you’re still paying for it. Right?

Yes. Correct. But, bear in mind that back in 2003, this was also one of the restructuring back then - similar circumstances of not utilizing the whole facility.

Okay. Let’s go back to the operations. Your guidance actually sounds pretty good for the current quarter, given the disruption with moving the headquarters. My understanding is you actually had some turnover in sales and marketing. Can you comment on what you’re doing to get back hitting on all eight cylinders from a sales and marketing standpoint and what you think is going to--? In the absence of 2006 guidance, how should we be calibrated in terms of how you’re likely to win and what the risks are as we look out into 2006?

We didn’t have any turmoil or turnover in sales and marketing functions. The sales are all over the place.

I thought you had somebody that was in the San Jose office that didn’t want to move back to Israel. Did you get that problem fixed?

I don’t recall of having a problem of moving someone to Israel. We had-- Let me answer from maybe this way to clear it up. We did have a corporate marketing [unintelligible] executives in the U.S. These functions were moved to Israel. Keep in mind one thing; because the company has a business unit, the product marketing-- the marketing work is done within the deal. This was all the detail. We had in the past [unintelligible] activities, and this [inaudible].

Back to the expense, again, I don’t think we have any significant change. We didn’t really expect the growth would have any significant change in expenses, especially not in the sales and marketing line. Overall, we’re trying to show here a trend from the second quarter of $8.9 million [unintelligible] $8.2, which we just came out, and probably a little bit of a slighter, if you take the mid range-- That is probably just slightly lower going into this last quarter of this year. We have managed to take down expenses versus the previous guidance of about $35 or $36 million in the beginning of the year to levels of, as we stated, $33 to $34 million.

All right. You should be congratulated. The more important question, I think, is ’06. Just discuss the ways you have to win there and what we should view as the parts of the business that are at risk.

Well, in 2006, we have this multimedia product line that during-- As I mentioned, in one of the deals that we signed-- one of the significant deals-- we’re going to CEVA-X there, but we see the customer picking up the multimedia portfolio going forward, I would say, in the near future. This would be, I would say, the key revenue contributor in 2006. We believe we have a breadth of portfolios software for video, which is something that if you take the DaVinci - the TI DaVinci announcement - this is more or less in line of what many companies and customers believe the next generation products should be software based and not hardware based as is commonly used. But, I believe in 2006, we’ll see more and more of video, and also adoption of CEVA-X for 3G. We have customers already. One of them will ship by the end of the next year in volume CEVA-X based video products. We see more and more customers migrating now to 3G with the CEVA-X this fall than we saw in the last quarter.

Isn’t there supposed to be a test chip or something of that nature to demonstrate your video capability coming out?

That’s supposed to be-- We have the CEVA-X chip available today.

That’s been there for quite a while.

Right. With this chip, we’re demonstrating our video. More than this, this quarter we’re going to have a test chip with our-- a new test chip with our video-- that was designed for video technology. This will be available this quarter. We already [unintelligible] in Q3, and now we are waiting for the samples.

Okay. Thank you.

Thank you. Your next question is coming from Steven [Silk] from [Sees, Silk & Sons].

Good morning. I was wondering; on the customers that are prepaid - the seven customers - how do they stand as far as working down the prepaid amount? Are they getting close to being finished? How does that work going forward? Is it renegotiated and prepaid to a new amount? Are they trying to move into a per-unit shipment? Have there been any new prepaid customers?

Yes. What we’ve addressed earlier and tried to explain from the prepaid mechanism is that this is a relatively small group of customers. We need to be very sure that they are shipping mass products based on their customers and the marketing information that we have and that the gross margins for them is in a situation where they have to get our help in order for them to help us and continue to use our products going forward. As we saw this quarter, companies do come back to us and license the next generation of Cores every once in a while. So, in order to accommodate them, we-- This really depends on the company size. This also depends on their availability and history of shipping products. Some have-- It’s not a set amount. Some have higher amounts that they pay up front; some have lower amounts. It really is negotiated on a very specific case-by-case basis. I think in principle, the prepaid deal covers between a year to year and a quarter or two quarters ahead. The come back to us and talk again, or just continue to pay the existing per-unit royalty. It depends on their vision and their market strategy.

On the National Semi that you announced last week, when would you expect to start seeing revenue from that particular product?

It’s hard to say at this point. The customer is saying it’s going to be in the near future. We don’t want to be specific here because this specific customer will provide us good visibility.

Historically, does it ramp up like a hockey stick, where it starts at a very high level and winds its way down to a more normalized level, or do you see it slowly ramp up and then continue to grow?

Well, usually, it’s a ramp up; I would say continuous. It’s not-- It’s a slow ramp up because that’s the way chips are going. Then, it begins-- It depends on the customer. It depends on the market position of the customer. If the customer is having a very good product, it’s going to be a hockey stick. From our standpoint, just keep in mind one thing; [unintelligible]. To a certain extent, we’re going here for more leverage, meaning that the step function of the amount that was paying for the product is lower. Then, it stabilizes to a certain extent.

And, with your cash staying pretty much where it was or, actually, growing up a little bit this quarter, I guess I’ll ask the prerequisite question that everybody wants to know. Any interest in buying your shares back at these levels prior to a jump in revenue and, hopefully, a jump in the price of your stock?

Excuse me. Could you ask that again?

Yes. Do you plan on buying any of your stock back at these levels?

Oh, I see. We’re not-- We talked about this in the previous conference call. We don’t have any immediate action plan to execute that right now.

All right. Thank you very much.

Thank you.

Thank you. Your next question is coming from Robert Morrison, a private investor.

You mentioned that your year-end share count is going to be about 20 million. That’s quite a jump from the end of the third quarter. Can you say anything about why that’s to be the case?

I just rounded it up a bit. It probably could be lower than that.

Okay.

It depends on the stock price and the overall discount. We believe a pretty solid quarter for us, and looking around at the industry in the IP sector, it wasn’t an easy quarter for companies out there. We have set a pretty, I think, tell-tale roadmap, both for our products and for our numbers. We were able to achieve them, and hopefully if we continue, we could get some recognition there. If the stock price appreciates that, we could see some more options then. But, probably 20 million at the high range.

With the lower revenue that’s still five new licensing deals, that would seem to imply that perhaps on the CEVA-X or somewhere else, you’ve lowered the price of a new license. I’m particularly interested in that with the CEVA-X. Has that been the case?

On the contrary. Gideon mentioned that and talked about this. The nice part about the CEVA-X-- First of all, it’s the most expensive, largely because it’s the newest of them all of the different Cores that we have out there, and it serves the newest type of applications, mainly in the 3G area. To that, you need to add something they really did not have in the past, which is the software that sits on top of the CEVA-X. We hope to see and start seeing the deals. We believe this is the case. Companies that will license the CEVA-X as an engine will come back to us to license the software pack. This is the new type of technology that we have been talking about around the multimedia applications. Overall, the CEVA-X and the multimedia deals should have higher pricing than the processor generation.

No. No. I’m not questioning the value of the CEVA-X. From all I understand, it’s a great product. I guess-- Chet Sylvester used to talk about how they would hold the line. They were holding the line on the CEVA-X in pricing and not discounting it any, even as it became an older product. This always seemed a little strange to me, given that once you’ve got someone signed up for the CEVA-X, then in all likelihood, they’re going to go for the next generation of that product down the road and then the next generation after that. So, there was actually an argument to be made for giving new licensees a bit of a deal in order to get more on board. I guess I was really just wondering if you had done anything like that.

I don’t think so. I’m not aware of any specific price pressures. We have licensed 10 CEVA-X deals at the end of Q3. These are still pretty good price.

Okay. Do you have a target date for the release of the next generation CEVA-X?

CEVA-X is basically a framework, where we define a set of rules which we call the framework. Out of this, we create from time to time a new Core which people can refer as the new generation Core. We have the first one - CEVA-X1620. We are discussing now with key customers about the next product. And, they’ll decide the right feature set and the time frame for this. We are working on something, but at this point, we still are looking for better fitters for customers.

Okay. I have one last question. This is a very general question. If you have really nothing in response that you can say, I quite understand. But, particularly with Texas Instruments coming out and announcing this new DaVinci chip, there’s so much that’s integrated on this and you’re seeing more and more. You talk about yourselves; you’re seeing more and more functionality integrated on a single chip. That process has been going for a long time. That was part of the rationale for the merger of the CEVA division, DSP Group, and Parthus Technologies. So, I suspect you probably agree that where it made sense for Parthus to be an independent company in 1999, it didn’t make as much sense in, say, 2002. Using that same logic, one would have to wonder if where today or a year ago it made sense for CEVA as it’s currently constituted to be an independent company, it won’t make as much sense five years from now. I tend to think of CEVA as a company that won’t be a single company but will be a part of a bigger company three or four years from now. Is that reasonable thinking, just in terms of sort of general understanding-- a strategic understanding of where the industry is going down the road? I’m not trying to pin you down on whether your company is going to be bought out in the next six months or anything like that, but more in terms of how the industry is apt to unfold.

Let me answer. I think there are two questions. First of all, regarding the new TI platform. The TI platform in terms of features is the same strategic growing than our Mobile-Media 2000 platform. Of course, if you are a semiconductor company, when you sell chips, you are integrating other functions, like our Core, for example, which is-- This is not our intention. We are-- As an IP company, we would like to provide solutions to specific needs. The need that we defined was in video. Just to draw your attention the difference between the TI DaVinci products and our products, TI is using [unintelligible] machine. DSP is [unintelligible] who are using dual [inaudible], which means our solution is lower in cost and significantly lower in power. The reason we are doing this is because we are specializing in the algorithm for the video as opposed to TI, that specializes in the hardware mainly. As a result, can show stronger hardware, but they are not strong as us in [inaudible]. This is regard just a-- I think a key point regarding the difference between us and TI when it comes the context of [unintelligible]. Now, in the context of consolidation, which I-- The way I interpret your question is it’s regarding consolidation in the IP segment. This could be always. By the way, the Russian and the Belgian responses is to create a supermarket of IP. In a way, this is what we offer. We are offering GPS. We are offering a storage platform. We are offering DSP. We’re offering multimedia. In many cases, there is a convergence. GPS is considered one of the largest potentials to sell in our market. We are offering multimedia at the forefront of our market. We are offering DSP [unintelligible] our market. So, we go to the same customer with a similar offering and even integrating it under one DSP.

When it comes to consolidation in the industry, anything can happen five years from now. But, we have our own vision, and it grows fast with our technology. DSP for 3G multimedia for 3G and going forward for the home entertainment market. GPS will result, hopefully, in the future when it will be higher adoption of GPS technology. Storage is a business that gives you what it gives. [Unintelligible] and focusing on these challenges.

Okay. Fair enough. I guess my concern ultimately will be whether or not it’s a big enough supermarket. But, that’s maybe a question for down the road. Okay. Thanks very much.

Thank you. [OPERATOR INSTRUCTIONS] Your next question is coming from Matt Robinson from Ferris, Baker, Watts.

I want to take another shot at the second half of my question as it relates to how the business is going to develop in the next few quarters. You were pretty clear about CEVA-X and the multimedia capabilities being the primary drivers. In the September quarter, it looked like that was the case, and then you had a Teak prepaid come up, you had the Bluetooth, which we haven’t seen for a while in a phase lock loop license. Should we assume that we’re going to continue to see a couple of CEVA Cores and then maybe some of these smaller application licenses, and that’s basically the nature of your business? Or, is there a likelihood that you may not have any of these other types of things that are less connected to 3G trends and multimedia trends? I guess the other question I have is just to repeat what you said about when the first volume shipments of units with CEVA-X are going to start.

Let me start from the second question. We believe that now seven customers are in advanced stage of designing CEVA-X based products. I think the first customer that will ship products will be in the first quarter-- fourth quarter of ’06, next year.

’06?

’06. Right.

The first customer to ship will be fourth quarter of ’06.

Yes. This is the way we see it now.

For 3G.

That’s going to be in 3G form. Right.

That’s also saying the first CEVA-X.

It’s going to be CEVA-X.

Yes. Okay.

Regarding revenue contribution, the difference between ’05 and ’06, first of all, is the fact that in ’05, we were developing our multimedia product. By the end of the year, we will have a sellable product. Right now, we demonstrated the deals that we are signing with early adopters, but we cannot go broadly to the market because each customer needs its own support or handholding until the product will be considered off the shelf. For 2006, we will have the multimedia product line on the shelf, and we can go broadly. We are now discussing with significant customers that are basically waiting for us to show them and then, hopefully, I think we’ll be nice and clear in terms of license. Regarding the other product, the GPS is a technology that-- People are saying that GPS will be going into the [unintelligible] on a broad basis, and there are projections even speaking about 50% in 2009. We will see [inaudible]. We see the market there are many companies playing there. They will eventually come to us because we are the only pure-play IP company offering GPS. CEVA is for 3G, so we’re seeing more and more coming. Then comes the storage platform. This is a market that’s [unintelligible]. I think with the storage platform, there is price erosion. Every time-- there is not low erosion, but there is [unintelligible]. But, it’s not a major contributor.

Do you see this--? I guess that phase lock loop fits into that context?

Can you repeat, Matt?

Well, you had a PLL.

PLL. These are commodity IP that we are licensing to the [unintelligible]. For us, it’s basically by product of what we are doing in the storage. In every storage, you need a PLL. We license PLL also.

The Bluetooth was kind of a surprise. Is that just a one-off?

Yes. Yes. You’re right. We had the product on the shelf. By the way, it turned out that in fact the Bluetooth 1.2, we are the only supplier that has an IP on the shelf. We are not developing the product further. But, if customers come to us and say, “Give me what you have on the shelf,” we are fine.

Was that your [Eupenetics] position that you sold that gave you the one-time gain?

Yes. Yes. That was the 3% that we held in Eupenetics. They were dissolved. They liquidated the company and sold their assets. We got $1.5 million from that deal.

Okay. Thank you.

Thank you. Your next question is coming from Simon Wong from Pantheon Capital.

Hi, Gideon. I wanted to ask you if you can give us some color on 2006 in terms of--? Is there any kind of a target growth rate for the Company or minimum growth rate that you would expect the Company to achieve?

I don’t want to be specific at this point. We need to [unintelligible] to our analysis. But, as I mentioned in general, CEVA-X-- We see more and more customers going to 3G. We see multimedia products. The products will be available. It will be a much easier sell for us. [Unintelligible] the one announcement that we made, there are other significant products going into the market today. All of them are royalty building. Give us time to come back with the model for 2006.

Okay. But do you expect royalty, or do you expect license to be the bigger driver for growth in 2006?

Usually, I believe, that it was both license and royalty. Just relying on royalty, I think is not a good point.

Okay. Is it going to be a broad base? Is it going to be driven by a large number of customers? Do you expect a smaller set of customers? For example, the two new CEVA-X licenses that you just sold this quarter to be a significant driver for 2006 revenue?

If I understood, your question is what do we expect few strategic deals [unintelligible].

You mentioned that the multimedia product and CEVA-X are the big drivers for the company in 2006. I was just trying to determine if you think that a few large deals would be big drivers for 2006, or do you think a large number of customers would contribute to growth?

First of all, the two deals that we signed - I don’t know how big those contributions will be in terms of royalties next year. They’re just licenses. They need to develop and integrate and come out to the market. When it comes to multimedia, we have a list of customers lining up that believe that we have a very competitive product but they want to see evidence, which we are now working very hard to be able to demonstrate in a real demo.

Okay. Did you also mention that there will be a next generation of CEVA-X, and when is that coming out? Or, I missed that?

What I said is we are cooking the next generation products, and we are consulting with strategic customers.

Okay. But, there’s no time table as to when that might come out?

Not yet.

I see. What new features might that new product have?

Well, this is something that I don’t want to be at this point-- I don’t want to be specific at this point.

Okay. No problem. The last question is the two Asia Pacific customers that you sold to this past quarter - are they phone companies themselves, or are they semiconductor companies that produce [inaudible]?

They’re semiconductor companies. Both of them are pure-play semiconductor companies.

I see. Okay. Very good. Thank you.

Thank you. There are no other questions at this time.

Thank you for joining us today and your continued interest in CEVA. Both of us look forward to meeting you at the upcoming [AJ] Financial conference in San Diego scheduled in the second week of November or on any other occasion. Thank you, and good bye.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Have a wonderful day.