CEVA Inc (CEVA) 2006 Q3 法說會逐字稿

Good morning. My name is Jessica, and I will be your conference today. At this time, I would like to welcome everyone to the CEVA, Inc. third quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to turn the floor over to your host, Yaniv Arieli, Chief Financial Officer of CEVA. Sir, you may begin your conference.

Thank you. Good morning, everyone, and welcome to CEVA's third quarter 2006 conference call. 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. All statements other than statements of historical facts are statements that could be deemed forward-looking statements, including financial guidance for the fourth quarter and full year of 2006. CEVA's ability to capitalize the various technologies it developed, including DSP cores and platforms for WiMAX and cellular applications, for Mobile-Media2000 technology, the TeakLite-III core, the Voice over IP platform and emerging markets for such technologies and potential key royalty revenues associated with new product launches by CEVA's customers. The risks, uncertainties and assumptions include the ability of our multimedia line to produce and continue to be strong revenue driver for the Company, intense competition within, and challenging period of growth expected by the industry in which the Company operates; the Company relies on revenue derived from a limited number of licensees; the success of the Company's cost measures and other risks related to the Company's business, including those that are described in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2005 and quarterly reports filed thereafter. CEVA assumes no obligation to update any forward-looking statements or information which speak as of their representative dates.

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, while I will cover the financial results for the third quarter of 2006 as well as the financial guidance for the fourth quarter and fiscal 2006.

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

Good morning, everyone, and thanks for joining us today. I hope you took the time to read our press release containing the result of the third quarter of 2006.

Total revenues for the third quarter were $7.9 million, slightly higher than the low end of our guidance. We signed ten new license agreements during the quarter. Seven were for CEVA DSP cores and platforms, two for CEVA SATA technology and one for CEVA Bluetooth technology. Our customer target applications are SmartPhones, mobile WiMAX modems, mobile TV, ultra low cost cellular phones, Voiceover IP for optical network and networking equipment. Geographically, of the ten deals we signed, one license agreement was in the U.S., four in Europe and five in the Asia Pacific region, including Japan.

In the third quarter of 2006, royalty revenue was $1.4 million, slightly down from the $1.5 million for the third quarter of 2005 and flat compared to the second quarter of 2006.

Q3 is traditionally a challenging quarter for CEVA. The business practice in our industry calls for new license agreement to be signed and the revenue derived from such agreements to be recognized within the quarter. This requires intensive dialog with the customers, R&D, marketing, legal and executive management. As the Q3 period is also the summer vacation season, it is sometimes difficult to coordinate with all relevant people and to conclude an agreement before the quarter ends. This challenge was reflected in our Q3 revenues, being slightly above the low end of our guidance. With that said, we can clearly see a substantial increase in terms of activity with customers, as well as interest to evaluate and license our technology compared to the previous quarter. I will further elaborate on this by discussing the key business highlights in Q3.

A major achievement in Q3 was getting two leading customers to adopt our next-generation DSP cores and platform for WiMAX and cellular applications. The CEVA-X1641 is our next-generation DSP core targeted for the growing WiMAX market, also referred to as the 4G wireless standard. Our new customer is [inaudible] cellular market and decided to base its new WiMAX product on our next-generation format DSP for the CEVA-X family. The CEVA-X1641 is still under development, and, as a result, the profits from this license agreement are accounted as backlog.

Another new product is the TeakLite-III next-generation DSP core based on our best of breed and success with TeakLite family. The new TeakLite-III will offer 75% higher performance, allowing our customers to target newest generations of cellular standards while maintaining their substantial legacy investment made in prior years using the TeakLite architecture. Our first leading customer for the TeakLite-III is one of the largest fabless companies in the world who plans to base its new platform on the TeakLite-III. Due to the summer season, we were not able to execute this agreement in the third quarter, but the agreement was executed recently in the fourth quarter.

We are continuing the positive momentum with our multimedia products lines and specifically in the mobile TV segment. During the quarter, we signed one agreement for our Mobile-Media2000 technology with a China-based company that already is shipping [audio] chips in high volume. Our customer plans to expand to the mobile TV segment in China, which is expected to boom toward the 2008 Olympic Games in Beijing. This is our fifth design win in this specific segment.

In addition, during the third quarter, we managed to make substantial progress with our Mobile-Media2000 platform with a few more customers who are now in advanced evaluation or contract negotiation stage.

Another design in the third quarter was a TeakLite-II license agreement with a key customer of ours targeted at the ultra low cost, ULC, cell phone market, a high volume market aimed at China, India and South America. This customer plans to offer a single-chip phone that integrates [baseline] processor and ours into one seamless chip. As a reminder, two other CEVA customers, Silicon Labs and Infinium, have already announced products for the ULC market using our technology. We also extended an Xpert Teak license agreement with one of our existing customers. This customer started recently to ship chips based on our Xpert Teak into the SmartPhone market and has decided to base its next-generation product on our technology as well.

During the quarter, we signed our first license agreement for our Voice over IP platform, the CEVA-VoP, with Kawasaki Micro. K Micro is a leading provider of chips into the Passive Optical Network, PON, market and plans to add Voice over IP capability into its chips.

Other business-related news. We are often asked about the timing and trends in our royalty revenue. In Q3, we encountered two customers ramping up volume production. One of them just exhausted its prepaid amount. The other one went into production in Q1 with a very impressive ramp in its Q2 sales. In separate meeting which we had with two other customers, we were notified that high volume production ramp is on track as early as Q4 2006, with one customer going into the consumer market and, in Q1 2007, with a European-based company targeting the 3G market. These encouraging signs for new royalty customers, along with seasonal improvements with our existing royalty customers, should enable us to reach higher levels of royalty revenue.

CEVA products and technology continue to reach new markets across a range of products and applications. Recently, we have seen a number of notable new products emerging with CEVA DSP technology inside. In September, Panasonic launched a new dual-mode 3G GSM cell phone in Japan under the [inaudible] brand powered by Infinium MPEU platform. There are plans to sell this phone in Europe and the U.S. as demand for 3G services in these markets increase.

Other CEVA-powered new products to the market include Voice over IP application WiFi phone from Taiwan OEM [inaudible] using CEVA DSP [4MAC]. Also 4MAC comes CEVA-powered digital audio broadcasting, or DAB, processor that is integrated into LGLW express laptop for digital multimedia broadcasting. Finally, Sony Ericsson deployed three new phones based on the Philips BNX4008 multimedia processor using CEVA Xpert-Teak DSP. The W950, M600 and P990 are all SmartPhones with high quality audio capability.

Q3 was a good quarter for our SATA technology, where we signed two new deals. Our customer target applications are mainly networking.

I will now turn to Yaniv Arieli to review the third quarter financial and provide future guidance for the first quarter and fiscal year 2006.

I will now review the results of operations for the third quarter of 2006. Revenue for the third quarter was $7.9 million, slightly higher than the low end of our guidance. Revenue breakdown was as follows. Licensing revenue was $5.5 million, reflecting 70% of total revenue. Royalty revenue was $1.4 million, reflecting 18% of total revenue. Service revenue was $1 million, reflecting 12% of total revenue. Gross margins for the quarter were 88%, which were in the higher end of our guidance. Research and development costs were $4.3 million for the quarter. Total operating expenses for the quarter were $7.3 million, which included equity-based compensation expense of $0.5 million. Tax expense was $35,000. Net income for the quarter was $341,000, or $0.02 per share.

Non-GAAP operating results, excluding equity-based compensation expenses, would have been as follows. Research and development costs would have been $4.1 million for the quarter, total operating expenses would have been $6.8 million, and net income for the quarter would have been $852,000, or $0.04 per share, respectively. Refer to the reconciliation of our Company's reported GAAP results for the operations to the above non-GAAP numbers in the non-GAAP statements of operation attached to the Company's earnings release filed on From 8-K with the Securities and Exchange Commission this afternoon-- this morning.

As you could see, although we came in slightly higher than the low end of our guidance associated with the top line, we continue to achieve significant milestones with regards to reaching our profitability goals. The last time CEVA reported non-GAAP positive operating income was six quarters ago, and it was in the first quarter of 2005. We continue to monitor our expense closely and put more emphasis now on top line growth.

Now I will discuss other related data. Shipped units by CEVA licensees in the third quarter of 2006 were $46.5 million, 49% higher than $31.1 million shipped in the third quarter of 2005 and up approximately 1.8 million units from the second quarter of 2006.

Royalty revenues remained at a flat level for the third quarter of 2006 compared to the second quarter, although they increased volume shipments, as we had more shipped units by our prepaid customers that were offset by the ramp up of new products shipped, as discussed by Gideon earlier. Third quarter 2006 royalty revenue was lower than third quarter 2005 due to the phasing out of an older product line in the communication business, as previously discussed in past conference calls. Our third quarter 2006 royalty revenue reflects licensees reporting units shipped from the second quarter of 2006. Of the total 46.5 million units reported, 17.3 million were reported and attributed to the licensees currently paying per-unit royalties, and 29.2 million units were shipped by licensees who are burning through their prepaid license volumes. This compares to 44.7 million units shipped in the second quarter of 2006, of which 20.1 million were attributed to per-unit royalty payers and 24.6 million units were attributed to prepaid licensees. In both the second and third quarters of 2006, we had a total of 24 shipping licensees, and out of the 24, 16 are paying per-unit royalties and 8 are under prepaid arrangements.

Interest and other income for the third quarter was $778,000, higher than our $573,000 reported for the second quarter of 2006, which back then excluded the U.S. GAAP $57,000, a gain from investment. This was mainly attributed to higher yields that we have earned on our investments as well as lower foreign exchange losses.

As for the balance sheet items, as of September 30, 2006, cash and marketable securities were $63.8 million, up around $200,000 from the end of the second quarter, primarily reflecting a strong debit collection in the third quarter, offset by our GPS spinoff deal costs of around $650,000. Our DSOs for the third quarter of 2006 stand at 82 days.

Now I'll move-- and discuss the guidance for the remainder of 2006. I will start with providing the 2006 annual guidance, which will have only minor changes from the guidance given on our previous conference call. Revenue is planned to be in the range of $32 to $33 million. Gross margins unchanged in the range of 87% to 89%. Operating expenses, excluding 123R non-cash stock compensation expense, unchanged in the range of $29 million to $29.6 million. Interest income net is expected to be around $2.5 million. Operating expenses, including equity-based compensation expense, will be in the range of $31 million to $32 million. Tax rate for the year is expected to be lower than 10% for the remainder of the year. Share count for the year is expected to be around 19.5 million shares.

Now for the fourth quarter items. Our Q4'06 revenue guidance will be in the range of $7.7 million to $8.7 million. Gross margin is expected to be similar to the actual third quarter margins in the range of 87% to 89% range. Operating expenses, excluding 123R non-cash stock compensation expenses, is expected to be in the range of $6.7 million to $7.3 million. And operating expenses, including equity costs-- equity-based compensation, will be in the range of $7.2 million to $7.8 million. Interest income net is expected to be approximately $650,000 for the quarter, and the tax rate similar to the annual tax rate, less than 10%. Share count for the fourth quarter of 2006 is expected to be approximately 19.4 million shares.

I would now open the floor for questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from Matt Robison of Ferris, Baker Watts.

First, Yaniv, on the lease pay down you talked about three months ago, did that happen; and how did you account for that? Is that why accrued liabilities went up, perhaps?

Unfortunately, we haven't been able yet to close that deal. It's taking longer than we anticipated. We hope that it should be on the right track, and within the next couple of weeks we'll be able to conclude it. Unfortunately, right now it's less in our hands. From our end, everything is done and completed and agreed upon. I guess some paperwork and lawyers are taking a bit longer than what we anticipated. So, right now we have a full provision in the liabilities for taking a hit of around $3-something million. That will enable us to hopefully get out of this long term lease in Dublin that is not really utilized these days.

Okay. And, on the deal for the 4MAC version-- I didn't catch the part number Gideon specified. It sounds like you didn't recognize revenue for it. Did you get paid for it at all? Is that why deferred revenue went up?

We haven't got paid yet for it. We will get paid. This was closed-- the deal-- towards the end of the quarter. It is sitting in our backlog, and we will recognize it when we actually deliver and conclude this new core.

So, deferred revenue was up slightly. Anything in particular you would attribute that to?

No; nothing special or major there.

By the way, Matt, the product is called CEVA-X1641.

Okay. Thank you. I'm sorry I can't keep your catalog numbers in my head here. The ULC design win, other than Infinium? Who was that, Gideon? I didn't quite catch that.

Infinium and Silicon Labs already have chips.

That's all from me for now.

[OPERATOR INSTRUCTIONS]. Your next question comes from Doug Whitman of Whitman Capital.

I had one question to start with. Typically, the third quarter is back-end loaded, and the fourth quarter a little bit less. The reasonable expectation on your receivable days-- I know you've always tried to keep them down-- a good watch on them-- that the receivable days outstanding will likely decline in the fourth quarter as a number of days versus the third.

We've stated in the past that around the 70ish, more or less, is something that we're comfortable with. A few days more or less-- The lowest we ever had is 66 days. It's something that we feel comfortable. We didn't have in the past, and I hope we will not have, at least we don't plan to have any bad debt or any other related accounts receivable issues. I think [inaudible] mentioned, it's more just timing based on the specific quarter. Hopefully, it should go down, but there is nothing specific that-- Until we close the quarter, we won't exactly know how this falls in place. But, again, in the past, we didn't have any issues there in collection. As you saw, overall, cash flow has been positive this quarter as well. If you exclude the deal cost of the GPS spinoff that we have concluded at the end of the previous quarter, Q2, then we should have had a much stronger positive cash flow, closer to about $800,000 for the quarter versus the $200,000 that we came in with. So, I think overall we feel very comfortable in that.

Can the Company talk a little about--? I realize you're not giving number guidance. Talk a little about optimism or pessimism as you look out to the next year. What are some of the things that are kind of-- as you look out at next year will be important milestones for the Company and where growth or lack of growth may be coming from?

Let me take this question first. First of all, we spoke at length in our session about royalty [revenue]. We are seeing customers of ours getting into production in high volume. In today's conference call, we mentioned four customers that are going to pay us royalties as soon as Q4 this year. This is one thing. The other thing is the new products that we just announced. These are not yet recognized. But the 1641 and the TeakLite-III-- the customers behind that take us to new markets and to new opportunities.

What's a reasonable thing to see from that revenue traction? When will that turn into meaningful revenues for the Company within some range of time?

Essentially, the following quarter. If these guys that Gideon just mentioned start shipping products, whether it's Q4-- some of them already have in Q2. Some will start in Q1 of '07. The following quarter, we should see those ramp ups. If we add all these potential new customers shipping products and royalties and we take into account that one or two additional customers should be out of prepaid mode with a quarter or two, then we are quite optimistic that the royalty revenue should start increasing quite substantially in the next couple of quarters.

Let me add another factor, and this is the Mobile-Media2000. We spoke a few times in the past about the fact that this is a new technology, that the valuation and customer decision process takes right now time because it's a new product in its evolution now. So, in Q3, we have already made a substantial improvement with a few customers. It's not yet signed, but we made substantial progress going even into contract negotiation. These are high value deals.

Okay. And then the last question is-- It seems like there's a lot of optimism as we look forward. You're profitable, and you have an excess amount of cash. What kind of stops the Company from doing a buyback program? It's clearly accretive, and you're not getting recognized in the stock market for what you're doing.

Yes. That's a good question, of course. I would answer it in two phases. One, we have recently concluded a project with a type of Mackenzie company that advised us of how one could grow the company more substantially in the next couple of years looking at market opportunities at different segments of use of our current technology and other future technology that we could develop. Some of the inputs from this project, and this has been taking as long as a couple of-- last month we already started. This is a TeakLite-III, for example, the next generation that they've also talked about it and advised us to go in that route. We already did some pretty significant milestones, including a very large fables semiconductor that licensed that, as Gideon said. So, taking all those inputs, we are looking at alternatives of how to grow the business in the next couple of years. And then the right use for the cash will be maybe towards executing those milestones and those goals.

The other front is more the [IR] front. We have finally achieved our initial goals of becoming a profitable company. I think we're going to put much emphasis these days on IR activity and getting the market to realize that there are potential growth drivers for the Company with its royalties, new license agreements, new product lines, like we've just for the first time had a Voice over IP solution and WiMAX 4G solutions, and use the cash on that front. It could go for buyback. I cannot promise you. But, occasionally, we do look at it. I think it makes more sense today, after building a more healthy model, but it's not something that I could promise you that will start tomorrow. But, these are the two aspects of use of cash that we are going to look into going forward.

How much money [inaudible] on consultants?

Not too much. It was a very efficient, good negotiation. They did a pretty good job for us.

That fell in the third quarter, and they're out of there?

Yes.

So it's not an expense going forward?

No. That was all expensed and paid for, and that's it. Now we have to execute.

Okay. It looks like you are starting to execute. Thank you.

Your next question is a follow up from Matt Robison of Ferris, Baker Watts.

How much royalty are you going to have in the December quarter, do you think?

Hard to say. Just because we do not get periodic forecasts from our customers. We don't really have any specific knowledge of numbers that they're going to ship. What we do know is that usually Q4 and Q1 for us are healthy quarters in revenues for royalty revenue because the Q3 shipments for cellular and for consumer electronics on the chip business is usually the strongest quarter of the year. Q3 and Q4 for them. That means that we get our reports Q4 for us on their Q3 sales and Q1'07 for their Q4'06 sales. Just with that seasonality, without the new products, we are looking higher royalty revenues. But it's a bit difficult to quantify in the others.

I don't know if you had a chance to review TI announcements and Freescale and even ADI's of yesterday. There is some confusion. In one hand, they said that the shipments in the high end from SmartPhones is going down. On the other hand, in the low end market, there is a significant increase. Nokia also commented about it. Now, how this reflects us. We are in the low end market. We mentioned that you would see. So, the question for how our customers did in the last quarter, this is one thing. On the other hand, when it comes to SmartPhones, although API is saying the volume went up, but we have-- As you know, we are with Sony Ericsson, and Sony Ericsson did very well in the last quarter, even ranking now fourth in the vendors in cell phones. So, we need to wait for a while and see how out of this different and hopefully not contradicting trends-- how this reflects us when it comes to the existing royalty payers. On top of it, we have been-- the guys that are now getting into production ramping up. Let's see how they do.

Well, the qualitative side of what you're presenting sounds pretty good. Your top line guidance is about the same as it was three months-- for the quarter you just reported. You're just trying to hedge on being more conservative with this range, not going up a few hundred K? It seems like your pipeline is incrementally-- I mean, you said it was better. You've got more activity, and you've got this stronger seasonal period. What's the backdrop for not moving your guidance up a little bit?

In principle, what you're saying is right. I think we're just trying to be conservative and see how the royalties fit in. One of the more aggressive growth levers for us in 2007, and, here, we could be talking about a few million dollars. If you compare that to $6 or $6.8 million, that range for royalties in the last two years, this should be a very, very significant ramp up, both in dollars and in percentage growth for that product line. We want to see it happen. I think we have all the indications today versus three months ago or six months ago. We knew that around this time frame some things should start kicking in for us, but we didn't have the actual inputs from the customers, which today we have and we discussed in length about it. If you buy a Sony Ericsson T990, a very nice and fancy phone that I am walking with today, that has our technology inside. So, this is a real thing today that we could start collecting and looking at royalties. Hopefully, we could do better. That's always our goal. But I think right now the guidance is quite fair and in the range of what we have been doing. Hopefully, in '07, we should be seeing growth, even in ['04 compared to '03] with our top line.

The infrastructure market-- it's clear all the growth is in 2G this year in developing countries. So, it's not-- the high end stuff is a market share game rather than a market growth game, it seems like at this stage, at least for the near term. I think that's-- From my perspective, that's where a lot of these [inaudible] are coming from. So, if you guys have exposure into these lower end products that sell into places like India-- if you could make a case for that driving your royalty stream, it would seem pretty credible, although I guess there's a lot of market share you could potentially gain as well on the high end. This product-- this sort of end-of-life scenario that's making the royalty comparisons a challenge. Remind us of what that product was about. Was that a part, this legacy thing, or is it subsequent to that?

Let me just touch the point that you mentioned about the royalties. You are right about the 2G. I think Gideon mentioned that we have many design wins in ultra low cost version. This is exactly what you're referring to. This is the Chinese market. By the way, we have a customer for the local Chinese market who has started to ship significant quantities. This is something new. They're under prepaid. As I said, one or two customers should get out of the prepaid within a quarter or two. That's one of the markets that we could see potential growth coming from.

On the 3G, for us it doesn't matter at this point of time if the whole market is growing or not. We have not participated. Our technology has not been participating in 3G until now. Still, this market exists, and for us it's gaining market share from other vendors in this specific market, which is still big enough. So, even if the market doesn't grow, for us, it's a huge growth opportunity. We know that some of our existing companies are talking about tens of millions of units that they are already selling into. And, starting next year, we are going to be in those products. So, that's a huge starting point from where we have been in the past.

With regard to the legacy products, it was a part of hard core DSP, an old technology that was in some gaming machines and products. This product has a new generation these days, and they're not using our technology in the new. This was a hard core DSP, so not programmable, not soft core. Essentially, we had a bit of a different arrangement with these guys, and it didn't-- the royalty that we received did not rely on quantities that they ship but, actually, on a time base. So, they paid us on an annual basis a certain amount of royalties without anything to do with quantity. It could be one unit; it could be 200,000 units per quarter or higher. It didn't change the royalty rate. That's why comparing quantities year over year and then comparing the dollar amounts is, as you said, a bit challenging. But, that's what we don't have this year versus what we did have last year. If you exclude the dollar amount last year and try to compare apples to apples, you will see that the quantities in '06 is higher than '05, and the dollar amounts, because we don't have this fixed lump sum of royalties is also higher than last year.

So, that was the old Xbox thing? I think that was long past.

That's the Xbox thing. Yes.

Okay. Your royalty units that shipped for dollars were down sequentially in the September quarter. Is that the same effect, or is that something different? It seems like it's something different.

No. That's something different. In '06, we didn't have anymore the Xbox royalties. Essentially-- The reason there is that more products were shipped to our prepaid customers. So, unit wise, we have overall more units, but more of them were with customers that were just under prepaid. So, some of these guys are doing very well in some consumer product applications and some cell phone applications versus the paying royalties that did not increase as much. This is a-- that was offset by some of the new ramp up from the products that already started shipping in Q2, and we reported them for Q3. So, on one hand, less quantities for unit payers in Q3, and that was a little bit offset by new payers from new product lines.

Did you have any customers buying down their royalty payment with license?

No. In Q3, we had no such deal.

You had that in the second quarter, though; right?

No. We had it in the third quarter of last year. So, if you compare it year over year, the licensing revenue in '06 is much stronger than the comparable quarter last year.

Okay. Thanks.

Your next question comes from [Stephen Silk of C. Silk & Sons].

I also had questions about your cash position. It seems that the revenue has probably bottomed out, and you're still beginning to generate cash. Could you discuss the limitations of the Israeli law on buybacks? Is it tied into retained earnings, and you can't do anything until you have earnings? How does that work? I've seen similar instances where there seems to be some qualifications of what you can actually buy back.

No. There are no restrictions. We are a U.S. company. R&D is in Israel, and some of the management, of course. But, normal laws apply like any other U.S. company. The restriction-- the quiet period, the volumes that one could buy, whether it's a block trade or not. But, no restrictions whatsoever from other tax or other-- any laws.

Okay. And, it seems as though new products seem to be rolling out. Your R&D is coming down slightly. Can you just talk about R&D as far as what you're looking at? Will it be to go into newer areas as well as expansion on the current product line? Where do you see that expense, staying relatively flat or what?

Let me talk about the expense, and Gideon can talk more about the products and the road map. R&D went down from Q2 quite significantly. This was associated with the fact that at the end of last quarter, June 23, I believe it was, we have spun off the GPS activity in Dublin, Ireland. That took significant cost savings for us going forward. I think the overall total operating expenses should be about the $7 million. R&D of that is probably around $4.5 million, more or less-- $4.4 or $4.5 million. This is something that we feel comfortable going forward. Q3, the overall OpEx was a bit lower, $6.8, just because we have not managed to hire as many employees as we wanted associated with some of the new technologies that Gideon could elaborate.

In terms of the [inaudible] that our R&D has, we distinct between evolutionary and revolutionary goals. When it comes to evolutionary, these are the products that we today announced, the two new DSP cores that we have also committed customers for this one, which is a major achievement because, usually, for these kind of complex [products], our customers are taking a cautious approach and wait for it-- wait for the product to be completed. It's a kind of a chicken and egg. If you don't have a committed customer, you cannot tune the product for the market needs. You lack the market understanding. So, we are developing a new generation of DSP cores, and we have our multimedia product line, which is basically software-based video. There are quite often new standouts coming out and customers coming and requesting software implementation, so we are developing.

In terms of revolutionary, I think Yaniv touched a bit that we contracted a consulting firm, kind of a Mackenzie type, to discuss with us the opportunities-- the known organic type of growth. They made a few, I think, good recommendations. We are now dispatching R&D people now these recommendations.

Very good. Thank you.

Your next question is a follow up from Doug Whitman of Whitman Capital.

I just have one quick question, which was-- going back, you guys, I believe, mentioned you had a cordless phone win. If you could describe whether that is a cordless phone manufacturer or a chip vendor into the cordless phone business.

It's not a cordless phone, if I-- If you will refer to what I discussed about the new products coming out, it's a WiFi phone. It's basically a WiFi-based phone. The voice has gone to Voice over IP.

Okay. And it's a phone that's-- You're a provider to a phone manufacturer and not a chip manufacturer there?

No. No. What we-- We license technology to [inaudible] design a chip and go to Taiwan. That's one thing. And then we mentioned also Panasonic. I think this is maybe the confusing-- Panasonic is not just a cordless phone manufacturer. It's even larger cell phone manufacturer. They are using Infinium chip with our technology for cell phone, 3G and GSM dual-mode phone. But this is a cell phone, not a cordless phone.

Okay. Thank you. Thanks for clearing that up.

[OPERATOR INSTRUCTIONS]. There appear to be no further questions at this time. I will turn the floor over to Yaniv Arieli for closing remarks.

Thank you, again, for joining us today and for your continued interest in CEVA. I wish to invite you to join us at the upcoming AEA classic financial conference held in Monterrey, California on November 7 and 8. We will be presenting CEVA's road map, our multimedia 2000 demo and we'll have a few new phones utilizing our technologies, some of which we have talked about today. Thank you, and good-bye.

Thank you. This concludes today's CEVA, Inc. conference call. You may now disconnect.