CEVA Inc (CEVA) 2007 Q4 法說會逐字稿

Good morning, my name is Elsa, and I will be your conference operator today. At this time, I would like to welcome everyone to the CEVA, Inc. Fourth Quarter 2007 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) It is now my pleasure to turn the floor over to Yaniv Arieli, CFO. Please begin your conference.

Thank you. Good morning, everyone, and welcome to CEVA's Fourth Quarter and Annual 2007 Conference Call. Today's conference call contains forward looking statements that involve risks and uncertainties as well as assumptions that, if 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 financial guidance for the first quarter of 2008 and fiscal '08, optimism about our top-line growth, increased royalty revenue, increased profitability and pipeline buildup, our customers adopting our new technologies, achieving major design wins with OEMs, and commence with production of products incorporating our technologies, and growing adoption of DSP-centric strategy in the handset market and CEVA's powered products in the consumer market and our potential to increase market share on those markets.

The risks, uncertainties, and assumptions include the ability of the CEVA DSP cores and other technologies to continue to be growth drivers for the company, the possibility that markets for our technologies may not develop as expected, the possibility of our customers licensing in products incorporating our technologies do not succeed as expected, our ability on a timely and successfully develop and introduce new technologies, our reliance on revenue derived from limited number of licensees, and our ability to improve our royalty revenue in future periods.

For more information, please refer to the risk factors in our 2006 Form 10-K and other periodic SEC filings. CEVA assumes no obligation to update any forward-looking statements or information, which speak of their behalf representative dates.

This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA and myself, Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will start and cover the business aspects, while I will later on cover the financial results for the fourth quarter 2007 as well as give financial guidance for the first quarter and fiscal '08. With that said, I would like to turn the call to Gideon. Gideon, please.

Thanks, Yaniv. Good morning, everyone, and thanks for joining us today. I hope you took the time to read our press release containing the results of the fourth quarter of 2007 and the full year.

Total revenue for the fourth quarter was $8.2 million. In the fourth quarter of 2007 royalty revenue increased substantially to a record high level of just over $3 million, a 40% sequential increase as compared to the sales quarter of 2007 and 84% higher than the fourth quarter of 2006.

The record high royalty revenue reflect increased shipments of handset and consumer electronic products incorporating our technologies. License revenue for the fourth quarter of 2007 was $4 million. We concluded nine new license agreements during the quarter, seven were for CEVA DSP cores and platforms and two for CEVA SATA technology.

As noted in our press release, in the quarter we signed a strategic $2.5 million agreement with a tier 1 semiconductor company, the revenue of which will be recognized in future periods.

Geographically, three of the nine license agreements were in the U.S., two in Europe, and four in the Asia Pacific region including Japan. Target applications for the licenses concluded during the fourth quarter are SmartPhone, Portable Multimedia Players, Personal Navigation systems, network infrastructure equipment, and solid-state drive, SSD.

In a few minutes, we will elaborate on the record-high achievement in various financial metrics for the quarter including increased cash flow and record low DSOs.

On the business front, the fourth quarter showed strength in all key aspects of our business; namely, licensing agreements with strategic customers, substantial royalty growth and pipeline buildup. These achievements affirmed the success of our DSP-centric strategy in the handset market and the growing adoption in the consumer market.

I would like now to elaborate on the business aspect of the fourth quarter success. In the quarter, our royalty revenue exceeded for the first time in CEVA's history the $3 million mark. It is 40% sequential growth from the third quarter of 2007 when the royalty revenue broke then-record high of $2.2 million.

On an annual basis, 2007 royalty revenue was $9.1 million, a 44% increase from the $6.3 million in 2006. This significant royalty increase for the first quarter in CEVA's history is largely the high from the deployment of our DSP handsets for major OEMs such as Samsung, Sony Ericsson, LG, Sharp, Panasonic and ZTE.

We also see increased shipment of product targeted at the consumer market, specifically in the gaming console, digital TV, and set-top box (inaudible).

Additional positive developments, which will further strengthen our position in the handset market is the recent public announcement by our customer, Via Telecom, that specializes in the CDMA market, a market that is dominated by Qualcomm. Via Telecom announced that it received a final certification from Nokia for its Teaklite-based, CDMA-2000-based solution, which we [own] go into production.

Via also will introduce a new local CDMA handset solution for the Chinese market in cooperation with China-based telecom service provider that for [Widel China Telecom]. In these design-win Via chips which are enabled by our DSP technology, we'll replace Qualcomm chips solution.

As noted earlier, we deferred approximately $2.5 million of licensing revenue related to a particular license agreement with two tier 1 customers. Notwithstanding this, we had a strong fourth quarter on licensing funds, a number of strategic days that will fine-tune the quarter including two comprehensive agreements with customers in Europe and in the U.S.

The Teaklite III was selected by an existing customer who is currently using our CEVA-X in the 3G space. Teaklite III is the plan to coexist with the CEVA-X and will power all the other processing features.

This design win is also important from a competitive standpoint as our customer decided to switch from our base solution to our Teaklite III-based solution due to its significant advantages in power consumption, performance, and cost.

The other major license agreements signed during the quarter was for our high-end DSP, the CEVA-X1641, which was selected by a U.S.-based semiconductor company, one of the largest players in the wired and wireless network infrastructure market segment. Our new customer plans to base all of its future products on CEVA technology including video, audio, and voice software technologies.

The fourth quarter also demonstrated strength in our multimedia product line where we concluded two license agreements for our video technologies with two customers in Asia Pacific region including Japan. Those customers are leaders in high-volume segment of this consumer and electronics market and plan to broaden the use of our multimedia technology in their new product.

For clarity, we would like to highlight that within our multimedia product line, we are also licensing video and audio software in addition to our well-known DSP cores. These software components are highly valued by our customers due to their complexity and increase our licensing revenue by a few hundred thousands dollars per each component.

On the SATA product line, we signed two new licensing agreements with two existing customers, both targeting the solid state drive, SSD, market. As we pointed out at our last conference call, we believe that the SSD market with devices such as UMPC, OMPC, and MIT are lucrative business opportunities for CEVA and allow us to leverage the strong synergy our other products such as multimedia and Bluetooth platforms.

Also during the quarter, we announced that we would divest our ownership stake in GloNav, a U.S.-based GPS fabless company following GloNav acquisitions by NSB for initial payment of $85 million plus up to additional $25 million in cash contingent upon GloNav reaching sales and revenue and product development milestones over the next two years. The transaction closed last week. CEVA capital gain is the result of this transaction to be recorded in the first quarter of 2008. It is approximately $10 million before taxes, or equity value of approximately $17 million, which represents four times the record value of approximately $4 million for the GloNav investment in CEVA's financial statement as of year-end. We anticipated receiving cash flow of approximately $12 million net of taxes during the first quarter of 2008.

Now before turning over to Yaniv, I would like also to briefly summarize the key ingredients of 2007 achievements and successes.

One, adoption of CEVA-based technologies by 1st tier handset vendors -- during this, our customer world major design wins that would soon position CEVA DSP into mainstream phones in four out of five leading handset vendors; namely, Nokia, Samsung, Sony Ericsson and LG. We are successfully gaining market share from TI and recently had opportunity to gain market share from Qualcomm in the CDMA space.

Two -- we are expanding our market switch into consumer electronics segment with key agreement relating to next-generation DVDs, digital TV, and portable game consoles. This is on top of our existing presence in game console, DVD, and set-top boxes.

Three -- our technologies were selected for the first time in new applications such as network infrastructure equipment, surveillance camera, and SSD.

Four -- the divestment of our GPS business line in mid-2006 allow us to focus on our core strength in the DSP space and also gain substantial financial benefit from our past GPS technology.

In addition, this GPS technology, which is powered by our Teaklite DSP core will now be used by NXP in its high-volume product in addition to its handset chip that also uses our technology.

With that said, I will now turn to Yaniv to review the first quarter, the whole year financial and provide future guidance.

Thank you, Gideon. I would like to deliver results of operations for the fourth quarter of 2007 and annual '07.

Revenue for the fourth quarter was $8.2 million, 2% higher than $8.1 million for the fourth quarter of 2006. The revenue breakdown was as follows -- licensing revenues were $4 million, reflecting 49% of total revenues. Royalty revenue was $3 million reflecting 37% of total revenues, an all-time record high.

Service revenue was $1.2 million reflecting 14% of total revenues. Gross margins for the quarter were 89%. Research and development costs were $5.1 million for the quarter including $0.3 million associated with equity-based compensation expenses. Sales and marketing costs were $1.6 million including $0.1 million of equity-based compensation expenses and G&A costs accounted for $1.6 million and included in it were $1.2 million of equity-based compensation expense.

The total operating expenses for the quarter were $8.3 million, which included an aggregated equity-based compensation of $0.6 million.

Tax expenses were $0.2 million for the quarter and non-GAAP expenses, excluding taxes associated with the capital gains resulting from the divestment of an investment earlier in 2007, was approximately $100,000.

Net loss for the quarter was $0.3 million on a fully diluted basis, net loss per share of $0.01.

Non-GAAP net income per share for 2007, excluding equity-based compensation expenses of $2.1 million, equity gain from the disposal of an investment of $0.4 million reported an interest and other income in the third quarter and the related tax expenses of $0.1 million was $3.1 million and $0.15, respectively.

Non-GAAP net income and diluted net income per share for 2006, excluding equity-based compensations expense of $2.2 million, equity gain from the investment of $100,000 reported in other income was $2 million and $0.11, respectively.

Please see the current report on Form 8-K that we filed with the SEC this morning for a reconciliation of the non-GAAP presentation to the U.S. GAAP presentation.

We were able to successfully divest our equity investment in GloNav for material return of $10 million in capital gains, approximately one and a half years after divesting our GPS business line to GloNav.

We were also successfully to surrender and terminate the Haps (sp) lease in 2007, and the Harcourt property lease recently in the first quarter of 2008. We anticipate a significant reduction in our future lease obligations and improvement in cash flow. In connection with the termination of the lease, we made a payment of approximately $5.7 million, which will be recorded as cash outflow in the first quarter of 2008 and anticipate recording an additional reorganization expense of approximately $3.5 million in the first quarter of 2008. I'll add some more data about the quarter.

Shipped units by CEVA licensees in the fourth quarter were a record high of 86 million units, 58% higher than 54 million units shipped in the third quarter of '07 and 72% higher than 50 million units shipped in the fourth quarter of '06. Of the total 86 million units shipped, 52 million units were attributed to licensees currently paying per-unit royalties and $34 million were shipped by licensees who are under prepaid arrangement.

This compares to 54 million units shipped during the third quarter of '07, of which 32 million were attributed to per-unit royalties, and 22 million were attributed to prepayment arrangements.

This represents a sequential growth of 60% in customers paying per-unit royalties and 172% on a year-over-year analysis.

As of the end of the year, the total number of shipping licensees were 27. Of them, 20 are paying royalties on a per-unit quarterly basis, and seven are under older prepaid arrangements.

Interest and other income for the fourth quarter of '07 was $1 million and on an annual basis, $3.6 million. This annual amount includes a $0.4 million gain associated with the disposal of an investment in the third quarter of '07.

Interest and other income for the third quarter of '07 excluding such gain was $0.7 million and increased from previous quarter was mainly due to positive foreign currency income.

As for the balance sheet items -- during the quarter we generated positive cash all-time record high of $10.4 million and on an annual basis, we generated $12.1 million of cash. As of year-end, CEVA's cash balances and marketable securities were $76.4 million compared to $66 million at the end of the third quarter of 2007.

Our DSOs for the fourth quarter of '07 were the record low of 28 days, down from 116 days in the prior quarter.

Now I'll move and give guidance for the full year of '08 and the first quarter of 2008. On the top-line prospects, we continue to be optimistic about the trend and challenges in the wireless market and changes -- sorry -- in the wireless market and new market segment, which Gideon discussed earlier. We anticipate that we will contribute positively to our overall revenue growth particularly road to revenue growth.

On the expense side, we plan to keep similar corporate headcount in 2008 and increase slightly outside contractors and tape out expenses associated with our new Teaklite III core and SATA solutions.

The most significant expense item that will increase in 2008 compared to 2007 will be expenses associated with the U.S. dollar loss of value compared to the Israeli shekel, the euro, and the British pound, an overall annual effect of at least $1.6 million.

Now for the full guidance of '08 -- our total 2008 annual revenue guidance is expected to be in the range of $39 million to $41 million. Gross margin is expected to be in the range of 89% to 91%. Operating expenses including equity-based compensation expenses, are expected to be in the range of 34 to 34.8, and interest income is expected to be around $3 million.

Annual equity-based compensation expense is forecasted to be about the same as this year's $2.2 million. Annual operating expenses, excluding these expenses are expected to be in the range of $31.9 million to $32.7 million. Annual tax rate will be 10%.

Share counts for 2008 is expected to be approximately 21.3 million shares.

As stated earlier, we expect to report a capital gain from divestment of the GloNav investment of approximately $10 million and record a charge of $3.5 million associated with the surrender and termination of the Harcourt long lease arrangement.

Now for the first quarter guidance. Revenues anticipated to be in the range of $9.3 million to $10.3 million. Gross margin is expected to be in the range of 89% to 91%. Operating expenses including equity-based compensation is expected to be in the range of $8.4 million to $9 million. Of that -- of the anticipated total operating expenses for the first quarter, we believe $0.5 million will be attributed to equity-based compensation expense.

Interest income net is approximately $750,000. Tax rate for the first quarter is expected to be 10%, and the share count for the first quarter is expected to be 21 million to 21.1 million shares.

GloNav GPS divestment and Harcourt lease effects to be recorded in the first quarter, as I have just mentioned based on the annual guidance.

We will now open the floor for questions.

Thank you, the floor is now open for questions. (Operator Instructions) Matt Robison, Ferris Baker Watts.

Congratulations on the cash flow and the royalties. First, I've got questions on that, and I also have questions on the apparent licensing slippage and the backdrop for your guidance and -- but, first, give us a little color on why cash flow was so high in the quarter?

Mainly due to quick collection of some of the current deals within the quarter that were paid within the Q4 of '07. And, on top of that, if you recall when our DSOs started getting higher in the beginning of the year, we explained that was due to the fact that the Teaklite III was not a mature product at the time, and that the payment terms were some of the initial licensees of the Teaklite III were longer than our normal payment terms.

I said back then, as we had the last report, that we anticipate that to catch up towards the end of the year and, indeed, that happened, and some of the payments were received in Q4 were associated to older deals that had a little bit more favorable payment terms than we usually have in our typical licensing agreements.

Yeah, there was no -- this deal that slipped, there was no revenue associated with that, it's just basically just collecting on your receivables. Actually, where they went down over $8 million here.

Repeat what the operating cash flow was in the quarter?

Ten million dollars.

And did you have any CapEx?

Very, very small, and I believe less than $200,000.

This $2.5 million deal, that sounds like it slipped. When did you realize you wouldn't be able to recognize revenue from that?

Okay, so, usually when an IP company says the deal has slipped, the terminology means that the deal was not signed, was not executed, something went wrong in the last minute, and it just moved to the next quarter, and that opportunity still exists to conclude such a deal.

This case is different. This case -- this is a solid, signed, executed deal that we have delivered all the technology and invoiced the customer and everything was a very normal type of deal like any other that CEVA has been doing for the last couple of years.

The only difference that we encountered with this deal that happened in the last, I would say, 24 hours or so, is that apparently the support term for that deal is longer than usual. Most semiconductor companies, when they license our IP or any other IP, in that sense, it usually takes them about two years to develop a chip and in many cases after that, they don't need that much of a support in order to come up and continue to develop their chip because it's already mature and in production.

In this case, the customer was interested in a longer period of support for different reasons, and that caused some accounting issues of not being able to recognize the deal like we usually do upon the memory of the technology, and we need to -- we are still working out how to recognize that over the term of the license or within the next couple of quarters.

So this is something that we are still working on, and not anticipated it, and this is what happened just now, but this deal is signed, executed, in a very strategic tier 1 semiconductor company that has licensed our technology in this respect.

So this is like an SOP-97 kind of a solution?

That's correct -- 97-2 and, yeah, there are some very strange restrictions on the time of the support and if it's in the same term as the licensing term then you are not able to recognize the revenue up front, but you need to record it over the term of the agreement. This is something that we are working still on, and we're working throughout Q1 and see how this could be finalized on the regular recognition front.

Now, when do you expect to start being paid for this deal?

Like any other, it's very normal payments like any other deals.

So we could expect to have some deferred revenue resulting from this?

That's correct. If we need to, at the end of the day, recognize that upon the term of the deal, we will have deferred revenues.

So you look at your range of your guidance, are you -- your range is, in part, because you don't know exactly how much of this deal you'll be able to recognize in the first quarter?

Correct.

What do you -- I realize that you probably don't have your reports in from the fourth quarter shipments by your licensees yet, but what's your sense on the royalties in the first quarter? Usually, you get a decent royalty number in the first quarter because of the heavy shipments in the fourth quarter for the kind of products your technology is used in.

Yes, correct. To explain to the other listeners, CEVA always recognizes its royalties one quarter in the rear, meaning that Q4 of revenue and shipment by our customers, and that's both in the cellular market and the consumer, are recorded in Q1 and usually, historically, that has been the strongest quarter of royalties. We do not see any reason why that should not continue in 2008.

So we would expect a bit of a bump in sequential royalty performance here? A sequential bump, okay.

All right, what's the -- so this -- how much of this $2.5 million deal did you -- before you ran into this after I came in. I evidently -- it sounds like it just (technical difficulty) in your release. How much of it did you anticipate you'd be able to see in this quarter before that change?

About $2 million.

Okay, it sounds like if you exited the year thinking that you were going to be well above your guidance then?

Yes, correct.

Daniel Meron, RBC Capital Markets.

This is Tom Ehrlich, I'm taking the call for Daniel. I'd like to ask -- hi, Yaniv, by the way -- I'd like to ask again about that license that slipped out to the next quarter. I'd like to ask how we see they're going to do contracts in the next few -- I don't know -- years or quarters that will be of similar scale. Would it be able to cope with similar problems, or what is the probability that you see for getting similar [sort] contracts in the future?

Yes, you know, Gideon and myself, and we have been involved in CEVA, running the company, managing it for the last two and a half years but involved in earlier -- prior to spinoff days, and such an event has not happened to us yet. So this is a new experience.

With that said, this license agreement is a very typical license agreement like we have very similar to many, many others, and this is our common business of licensing DSP cores and the platform solutions.

To be more specific, in every quarter you will see, if you look historically and if you look at the 10-Qs, you will see one or two mega-sized deals usually with tier 1 customers, big semiconductor players in the market, and this is one of the advantages that CEVA has and had for a very long time. We don't see that changing at all. On the contrary, we, as Gideon mentioned, see a very robust pipeline and business side of us and very nice opportunities, and we will continue to close the mega-sized million-dollar deals and deal with them like we have in the past. I don't think this is an issue that is not manageable or should be different than any others that we have done in the past.

Allan Mishan, Oppenheimer.

First, a couple of housekeeping questions. On GloNav, you said the $10 million capital gain. How much is the actual payment you are receiving?

We are receiving the first -- it's in chunks. The first chunk out of the $85 million, which is payable in the next -- should be the next couple of weeks or days, is $14 million. And of that we have usually about a 20% tax gain of that $10 million. So we are still working on the taxes, but it's about $12 million net of taxes that we should be able to produce in Q1 from this deal.

Okay, and then how does the rest of the 85 [slot] in?

Out of 85, 10% is held under escrow for 15 months while we wait for '09 to receive that part -- 20% of that 10%. And then there is another $25 million of success-based fee over the next two years, and there are different time milestones. One is the middle of this year and a couple towards the middle and beginning of 2009. Within the next two years, if GloNav is successful to reach those technology and revenue milestones, we will get -- we have the potential of getting another $20 million out of 25 million -- sorry -- 20% of $25 million.

Okay, so the total price was $85 million of which yours is 20%?

Yes, correct, that's the first batch. And the second batch is another $25 million, which we also have 20%.

I see, and then what can you potentially get in '09 in escrow?

If GloNav is successful, then we have about $5 million from that $25 million from the escrow, about $2 million more -- so probably about $7 million or $8 million throughout 2009.

Okay, great, that's very helpful. And then in terms of the closing of that lease, I just wanted to get my numbers straight. So you paid $5.7 million in terms of a cash payment, and the charge you're taking is $3.5 million, is that correct?

That's correct, because we have a restructuring charge on the books, and the liability of long-term liabilities that we are offsetting against the $5.7 million, so $5.7 million minus the $2.2 million that is on the books as of year-end gets you to the $3.5 million charge, which gets us out of the building. We had 14 more years average payment, not including taxes and other costs, are about $1.3 million. So this is about $18.5 million of future liability that we are taking off the books.

Okay, great, and then what are your expectations for license revenue in Q1? Should they go back to, say, the Q3 level or should they be closer to what we saw in Q4?

No, I hope that they should go back to the Q3 level. An average over the last two or three years, we were able to generate somewhere between $5 million to $6 million of licensing revenues.

I think we have stated before that we believe and want to keep that dollar amount running as a base for 2008 and on. Of course, we will try to increase it but as a model, because that essentially is the fuel of these new deals, licensing deals -- is the fuel for the new royalties two years down the road. So this is something that, on a dollar basis, we would like to keep healthy, as we go along, at the Q3 level.

Okay, great, and then of the 86 million units that you collected royalties on, how many of those were handset units?

That's a good one -- we need to double check. My guess is around 50%, maybe slightly shy of that.

Okay, great, and then last one for me is, of your full-year guidance, 39 to 41, should we just assume that service and license are relatively flattish quarterly and then all the upside is royalty?

Yes, I think that's probably healthy, with all the design wins that we have in place with the Nokia opportunity, through Infineon through Broadcom through Via now, both the Nokia and from Qualcomm chips, that is the main driver and a very profitable driver because it bears 100% gross margin in the next couple of years.

[Toby Graham, STG] Capital.

I was wondering if you could just clarify how much of this $2.5 million is included in your 2008 guidance? Have you withheld it from your Q1 and 2008 guidance, can you just give some more clarity on how you can recognize that?

We tried to be a bit conservative there because we don't know what the final outcome of how this could be recognizable. As I mentioned, two options-- one is up front, like we usually do; the other option that we encountered this time around, the life of the -- the term of the license agreement -- we're not 100% sure which way it's going to fall, so we took a conservative approach. We always hope to be able to be on the upside and then surprise, but we want to be cautious with this point of time just because we don't have the final information.

And, again, that relates to both Q1 and to the 2008 guidance, not just the Q1 guidance?

Yes, that's correct.

Okay, and can you just walk through how you expect the year to play out in terms of even -- you started shipping in the past few quarters your license fee -- started shipping so you've been recognizing royalties from this tier 1 handset OEM or platform that's been shipping. When do you expect some of your new platforms to start shipping, like the one you just referenced that you are hoping provide upside this year?

What we see is in the second half of next year, there will be a bunch of companies that know we are go into production, and we feel (inaudible). There are existing licensees that are growing, I would say, evolutionary, and then from, let's say, second half of next year, you will see newcomers, new shippers, that will kind of create the step function, I would say.

So, Gideon, if Toby will let me add some more data. If you look at the growth throughout 2007, we started off Q1 with 41 million, went up to 46 million, 54 million and now 86 million. So there is [a deal now] that some of those new design wins that we talked already are kicking in -- a major European OEMs and major well-known new touchscreen phones in the U.S., and some of these other applications like LG, [the product], and then Sony PlayStation 3 gaming devices, so these are already in production, and, as Gideon said, we anticipate a few more new customers and design wins to kick in throughout 2008.

[Steven Self, C. Self] & Sons.

You had discussed the impact of the weakness of the U.S. dollar. That wouldn't be on your revenue, but it would be on expenses that you incur for R&D within Israel and then having to convert what's paid in shekels to U.S. dollars?

Yes, correct. But you know we have about 130 employees worldwide, and a big portion of them are in Israel, two more R&D facilities in Ireland and in Belfast, and all the different currencies that we mention here, whether it's the shekels, whether it's the pound, or whether it's the euro, unfortunately, for us, the dollar is getting hammered these days, and that's just a little bit more expensive to -- mainly on the headcount, because I would say 70% of our expenses in the IP space are associated with people and very smart and talented engineers rather than machines, and those are the expenses in local currency that we need to pay them.

Do you quantify what that added expense would have been in the fourth quarter and what you anticipate it would be through 2008?

Well, fourth quarter, it was still quite low, and through 2007, if you look at the financials, you'll see that did not have any financial impact from these currencies because we had a pretty successful hedging program for salaries and local expenses.

Unfortunately, the dollar took such a quick plunge over the last couple of months, that we did not yet have the same mechanism for 2008 and, as we look today, it's about $1.6 million associated with just the fluctuation of the dollar versus the other currencies.

If that will change over 2008 on the positive side, which I would not answer, of course, and then that expense could decrease, and the overall expenses decrease, accordingly. But that's not something that we could forecast.

Within your guidance, you are planning for that additional $1.6 million expense?

Yes.

Okay. Can you talk about the cost savings per quarter of the two plant closings?

The cost savings -- sorry?

Well, you had the buyouts of -- the buyouts in Ireland, correct? The acceleration of the leases?

Yes, yes, okay. So that building was recognized back in 2003, there was a big restructuring hit of a few million dollars back then, and that hit was offsetting the actual expenses over the last couple of years and utilized the floors of the building. So on the P&L side, you would not see a cost saving right now because, as I said, we do have still a $2.2 million provision on the books. That would have been good for another two years, but every couple of years we did have in the past a restructuring charge for that unused amount.

But the more future significant costs on the P&L but not in the next two years, but on the cash flow, we did pay about $1.3 million a year, and that's something that we will be planning on, going forward.

Excellent. So, between the cash that you're going to be getting from the close save, the payout for the acceleration of the lease, you should be netting out positively and the cash position of the company is growing nicely, what is your thoughts about use of cash -- vis-à-vis, growing very, very nicely.

Okay, this is a very good question, and in the IP business, what we have been very successful in doing thus far, is the building a business that generates close to 90% gross margin. This is the guidance for this year.

I would think that this is probably the best use of cash that we could find -- something that utilize whether it's M&A or any other ideas of increasing the business not organically but through M&A activity to get more of these 90% gross margin businesses. That is far better than 3% in the bank these days, and that would be the right thing to do as step 1.

There are other financial options, which we occasionally discuss and looked upon, whether it's buybacks or dividends, but I'm not sure at this point of time this would be the right thing for CEVA, but we are looking at those options every once in a while.

Robert Morrison, Coretec.

I'm just wondering, like, a $4.2 million investment that's in current assets, what is that?

That is the GloNav investment. That's the spinoff that we just sold. Yes, if we're going to get $14 million minus those $4 million that are written off from the books, that's the $10 million capital gain for Q1.

And also, given the fluctuations in currencies, that makes it rather important what currencies your cash balances are held in. Can you give a sense of the proportions?

Yes, of course. We do not take any financial risks or hedging against currencies. So because we are a U.S.-based company and because all our revenues are U.S. dollar-based, it's just the matter of converting the monthly amounts of money that we need on each currency, whether it's Israel, Ireland, Japan, and the rest of the entities that -- countries that we are in. So essentially the balance sheet holds the same amount of cash per site and its liabilities in the same currency. This is how we offset the balance sheet fluctuation. And then on a monthly basis, we exchange dollars for those local currencies based on the exact amount of expenses we actually need to pay.

Oh, so it's really all just held in U.S. dollars?

Yes, we are not taking a bet on saying 30%, let's invest in euros and see that currency is better than U.S. For now, we are very conservative, reporting in U.S. dollars and holding the majority, 90%-plus of the cash in U.S. dollars.

On the competitive technology front, I'm not sure to what degree this competes directly with CEVA, but there's been a lot of talk in the media about the high-definition -- sorry -- really, media, offerings coming from Intel, particularly on the 4.5 nm front. Is that something you're moving towards being competitive with? And is it that important that you move to that level of density?

Our technology is, I can say, process agnostic, meaning it's called the "soft core." We can pull our technology, whether it's a DSP or a multimedia, to any geometry. It could be 65 nm, 45 nm. Our leading customers are now at the 65 nm, and at least one of them, if I recall, is talking about going to the 45 nm shortly.

Okay, and just one other question on that front -- there was an article from DSP DesignLine in mid-January about this new core that's come out from VeriSilicon, the ZSP800, and I don't want to get all picky about individual cores, but it just stood out, because they did offer a comparison with the Teaklite III, which they represented as your competitive offering, and they had a particular focus on the application of high-end DVD players.

They basically said that Teaklite III isn't really competitive in terms of performance, and so it raises a question of whether or not you've got something new coming.

We don't buy what they said in the thing. There are a lot of inaccuracies there. Teaklite III, (inaudible) for Teaklite III is a processor that goes, first of all, first priority, to the mobile side. So if you have the cell phone, and these cell phones are coming now with onslaught of audio, and if you take the iPhone, for example, so you need the low power processor and Teaklite is, to start with, a low power processor, and this is what the DSP wants.

When it comes to the home entertainment, let's say, DVD, DTV, we have our own advantages, and we also have our CEVA-X PSP, which is targeted for the high end power that they are referring.

So basically we have a broader product line, and when it comes to the mobile side, where you need low power, we have -- this is our advantage then.

[William Furic, Grant Norwood] Capital.

Yes, a quick question on the real estate realignment. Have you already paid the money?

Yes, we have -- two weeks ago.

So it's -- but it was after this period?

Yes, correct, that's in Q1 in January -- Q1 of '08.

Okay, so I should decrease the cash balance by how much again?

If we are at 76 today, and we paid 6, we are 70, but then add another 12, and we should be around 82 as of Q1 without the regular business.

So net-net, you're up 6 from the statement?

We are up significantly because of the -- yeah, the loan app deal.

(Operator Instructions) Doug Whitman, Whitman Capital.

Thank you, and I look forward to the buyback that you just announced. Could you go over a little bit more the earlier question about -- so that we don't -- so we understand kind of that this is not going to be a regular occurrence, and what would cause it to be a regular occurrence. If not, this has not been the history of the unexpected surprises throughout the company so that we can have some understanding if this isn't going to be a recurring event, as we go forward. Are there steps that you can take, to put in the contract, that would avoid having the deferral of the revenues?

Yes, absolutely. Your conclusion, though ours as well. This is a very unique item that we have not encountered in the past. It was never an issue, and at least this one will not become an issue, going forward -- that I could promise you.

Could you give us a little idea when you might expect to receive some payment on this deal? Is it in the next 90 days that you'll start to get some cash payment?

Yes, yes, absolutely. Normal payment terms are within the two quarters or so, and that should be a typical payment cycle for this account as well. Just understand, on the business front, this deal is one of the better deals that we have due to a very nice, long support term that we could help our customer and, of course, get paid for it. This is not the common practice of somebody needing support for such a long time. It's very good business for CEVA.

The accounting rules apparently see it a little bit different, then this is something that we are working on, but on the business front, this is a good deal.

And so some idea of assuming that this was ratably recognized over the time of the license, what is the -- are we talking a multi-year license, some rough idea of what the timing is on the license?

We are talking about a multi-year license because, as you know, our technology, it takes about two years to develop a chip, but because we do not disclose specific data about specific deals, and here we are talking about a very specific deal, I will not answer that question in full, but it is a couple of years with normal and typical term type of license.

Well, congratulations, and the outlook sounds very exciting.

Thank you, Doug.

Daniel Meron, RBC.

A quick question for you -- how would you characterize demand or the outlook in case of some slowdown here. How would that shift the license fees that you'll be collecting, going forward? And if this question was already asked before, I just joined the call.

Daniel, you know that our technology is pretty matched, diversity side. So there I would say few bright spots from our business and this is the growth of 3G we see demand for 3G phones besides slowdown. In the low-cost activities that we have in China and India we don't see any abnormal, I would say, behavior there. And when it comes to consumer electronics, there are things that are going -- game console, for example, PMPs with (inaudible). So when you take these feedbacks that we are getting from the field, so there is no really abnormal. I mean, at least, to the extend it with.

But we have to be realistic, and people are speaking about global economy. We see companies coming with indicators, so we put it everything -- we put everything -- combine everything, and that's brought us to the 14% of the guidance that we gave.

Let me add another thing, Daniel. What you also need to take into account that our technology is quite a basic legal block before the final product. So even if there is a downturn like we all read and hear about and see, there were, in 2008, a product, an R&D cycle, takes about two years. For a company that wants to prepare to be in the market two years from now, whether it's a cell phone or a DVD or surveillance camera or a flat screen TV design, need to start to develop it much, much earlier than the actual market acceptance of their final product. This is where we fit in, and companies are not yet, at least closing their R&D sites and saying we are not interested in future products -- so I think we may be -- this is another criteria to look into when you analyze the overall consumer demand versus introduction of new products and development of new products to be in the market two or three years down the road, which is not in the 2008 slowdown.

Okay, and then, again, if this question was already answered, then forgive me, but can you give us a sense on the size or volume that we should be looking for as 2008 progresses? I mean, what is the expected volume that you'll be shipping in the first half of 2008 versus second half 2008. Can you give us some color there as to how you got comfortable with your numbers in the projections you provided here?

We don't know to guess those volumes that well. I think a lot of times you will have better estimated than we do just because the right way to look at it is only to look at our major customers' announcements.

If you look at what Broadcom is saying by the end of 2009, they want to be on the run rate of 10% of the worldwide cell phone market -- that may be about 140 million devices -- much higher than where they are today.

If you look at Infineon's design wins, if you look at LG, if you look at (inaudible) they have about 11% or 12% of the Chinese cell phone market. These are the players that we need to monitor over the next couple of quarters in order to have a better estimate of the actual numbers. We anticipate those numbers to increase dramatically, and you can look at the jump in Q4 now -- 85 million units, 36 versus 50-ish last quarter. So we think that these are not [sure] the same rate, but the trend of increasing quantities and royalties should continue as we go along.

And then the last one is on the cash side, you've got to think after the Ireland building settlement and then the GloNav acquisition, you've got $76 million in net cash. How are you going to (inaudible) over the next -- are you looking at the M&As right now? How should we think about this [next cost of this] right now?

We are looking all the time for non-organic growth extending our business. We are monitoring companies, we are investigating the strategic fit, and this is ongoing all the time. That's when it comes for M&A.

We are not pushy on this. If we want to build a combination, we want it to be profitable, we want it to be strategic, accretive and we have the experience and the -- I don't want to say we are going to make it, but we definitely looking for this.

There appears to be no further questions at this time. I'll turn the floor back over to you for any further closing remarks.

Thank you, again, for joining us today and for the continued interest in CEVA. We will be presenting in the upcoming 3GSM Conference in Barcelona on February 11th to 14th, which is the biggest wireless show in the world and invite you to join us there. We have a nice booth and lots of demos associated with our different technologies, and later on in the month we will be attending [RPRNI] Annual Semiconductor Summit on February 21 and 22 and welcome your attendance there as well. Thank you and goodbye.