CEVA Inc (CEVA) 2009 Q4 法說會逐字稿

Good morning, and welcome to the CEVA Quarter Four 2009 Earnings 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 session.

(Operator Instructions)

I would now like to turn the call over to Yaniv Arieli, CFO of CEVA Incorporated. You may begin.

Thank you. Good morning, everyone, and welcome to CEVA's fourth quarter and annual 2009 earnings conference call. This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer in CEVA, and myself, Yaniv Arieli, Chief Financial Officer. Gideon will cover the business aspects and the highlights for the quarter and year, while I will cover the financial results for the fourth quarter and annual 2009, as well as the financial guidance for the first quarter and fiscal 2010.

I will start with the forward-looking statement. Today's conference call contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions.

Forward-looking statements include financial guidance for the first quarter of 2010 and fiscal '10, general outlook for 2010, optimism about our royalty revenue in 2010, optimism about our growth of the cellular and home entertainment markets, in particular the LTE market, and our position within them, our pipeline customer production schedules and our ability to generate revenue from new products and technologies.

The risks, uncertainties, and assumptions include the ability of the CEVA DSP cores and other technologies to continue to be a strong growth driver for us, our success in penetrating new markets and maintaining our market position in existing markets, the effect of the intense competition within our industry, the effects of the challenging period of growth experienced by industries in which we license our technologies in, the possibility that our markets for the new technologies will not develop as expected, or that products incorporating our technologies do not achieve market acceptance.

Our ability to timely and successfully develop and introduce new technology, our ability to continue to improve our royalty revenue in future periods, and general market conditions and other risks related to our business, including but not limited to those that are described from time to time in our SEC filings. CEVA assumes no obligation to update any forward-looking statements or information which speak of their representative dates.

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

Good morning, everyone, and thank you for joining us today. I hope you had the opportunity to review our press release with the financial results for the fourth quarter and annual 2009. During the quarter, we achieved revenue of $10.2 million, a 5% sequential increase over the third quarter of 2009, and 2% increase compared to the fourth quarter of 2008. This revenue figure is above the mid range of our previously stated guidance, and on par with our highest revenue figure in seven years, which was recorded during the third quarter of 2008.

Royalty revenue for the fourth quarter of 2009 was $4.8 million, a new record, representing a 31% sequential increase over the third quarter of 2009, and 13% higher than our previous record high of $4.3 million reported for the fourth quarter of 2008.

During the fourth quarter, we concluded nine new license agreements. Six of the agreements were for our CEVA DSP core platforms and software, two agreements were for our flash technologies, and one agreement for our PLL technology.

Geographically, three of the license agreements were in the West, five in Europe, and one in Asia. Public application for the licenses concluded during the quarter are primarily for LTE and 3G data cards and handsets, wireless machine-to-machine applications, broadband residential gateways, SSD, and SAS based storage equipment.

Our fourth quarter results were strong, and we executed significant strategic (inaudible) during the quarter, which will have positive implication for our future, in particularly our expansion into the LTE market, the next generation wireless technology.

The licensing agreement for the fourth quarter included one key agreement with the first tier handset maker that adopted our calls for the first time, and another with the key semiconductor player in the fourth generation wireless space that selected our best-in-breed DSP speed, the CEVA-XC.

On the royalty front, revenue for the fourth quarter was a new record high, reflecting seasonal growth, continued market expansion in handset shipments, as well as pick-up in consumer products.

We believe that the current economic environment has stabilized, which can lead to incremental improvement in our business in 2010. Our licensing pipeline is solid, and includes opportunities in the cellular and home entertainment markets. Also, our royalty revenue, which consistently grew throughout 2009 despite the global downturn, is anticipated to maintain this positive trend, driven by shipment of first tier OEM in the handset space, and the adoption of our technology in new mobile entertainment devices.

Before summarizing CEVA's 2009 achievements, I would like to elaborate on two important fourth quarter license agreements we've signed during the quarter, and our significant progress on the royalty front.

A key strategic and comprehensive license agreement was concluded with the first tier one handset OEM that selected our DSP core for its next generation LTE product line. The customer, who cannot be disclosed at this stage, is going to broadly use our DSPs for the first time, displacing Qualcomm and Texas Instruments, the incumbent suppliers.

It is interesting to note that for LTE development, the design complexities and the need for comprehensive technology coordination with the operators for both the handset and the networks, requires the OEM to own the chip in the software design, in addition to the handset design.

While the LTE technology requires OEM to take an active role in the chip design, the more mature standard such as HSPA or HSPA plus chip design are handed over to semiconductor companies such as Broadcom, HP Ericsson or Infineon, who have design capabilities and economies of scale to drive high volumes.

This landscape sits very well with CEVA's growth strategy for two reasons. First, our customer base continues to grow, and includes tier one handset OEMs. Second, as the LTE technology matures, we will be well positioned to license our proven information to the (inaudible) vendors.

Another key development that was concluded in the fourth quarter was the adoption of our newest DSP technology, the CEVA-XC, by a leading semiconductor vendor in the fourth generation cellular space. This customer is now shipping fourth generation chips, and selected CEVA-XC for its second generation products that will incorporate LTE within a software defined radio, SDR architecture.

The SDR is becoming a new practice in wireless baseband architecture, and is aimed to support multiplicity of cellular standards such as LTE, HSPA and CDMA to software on a DSP. This legacy support is a must have requirement since the LTE technology will eventually become a global standard across both the GSM and the CDMA network.

The LTE technology dominance, along with the performance in SDR support, the CEVA-XC offers, will allow us to expand our market reach to the untapped CDMA ecosystem, which is currently dominated by Qualcomm.

On the royalty front, as I stated earlier, our royalty revenue of $4.8 million for the fourth quarter reached a record high in CEVA's history. This substantial achievement was above our expectation, and is due to our strong presence in two growing segments of the handset space; the lucrative 3G smartphone and the high volume ultra-low-cost phone.

We anticipate further growth in our royalty revenue in 2010, as tier one customer rollout more and more of new high volume products enabled by our technology. In addition, we are seeing growing contribution from the mobile broadband segment, which is expected to become a more meaningful in volumes with products such as netbook, MID, smartbook, e-readers and data cards.

During the last quarter, we also experienced some recovery in consumer spending, which further contributed to our royalty income.

Now I would like to summarize the main achievements and progress CEVA made in 2009. As we all know, this past year was terrible for virtually all economies and sectors around the world. But while the severe contraction in the first half affected our industry, we started to see stabilization and even (inaudible) of modest recovery late in the second half of the year, mainly in the cellular space.

Despite the changing environment, we continued to execute our long term plan and strengthen our technology based business position and value proposition. On the technology front, we managed to accelerate the development of our leading edge DSP, the CEVA-XC, and for the next generation LP and software defined radio product. We are also accelerating the release schedule of a few other products which will soon be announced.

On the business front, our best-in-breed DSP technology were adopted and being designed into products by customer at the forefront of markets for handsets, data cards, (inaudible), base stations, e-books, and netbooks.

Our worldwide market share in the (inaudible) market virtually doubled to 27% from 14% at the end of 2008, based on worldwide quarterly shipments in the third quarter of 2009 and 2008 respectively. These figures do not represent the full potential of expansion of our technology into products of tier one OEM, some of whom recently started to ship to other based on our technology. We are extremely pleased with the recent adoption of our technology in the mobile broadband space, which is expected to be high volume market.

On the financial front, we achieved profitability milestones, strengthened our balance sheet, and demonstrated superior positive cash flow contributions. Our annual revenue declined by only 5% in a very challenging year. With that said, our non-GAAP operating margins increased significantly by 75% to 21%, and our non-GAAP net income and EPS increased 29% and 31% respectively to $8.7 million and $0.42.

We have generated positive cash flow of $16 million, and concluded 2009 with close to $101 million in cash and marketable securities. See the Form 8-K we filed this morning for a reconciliation of our non-GAAP results to the GAAP results as well as other financial figures.

Last but not least, all these outstanding achievements could not have been achieved without the dedication of our loyal and talented employees worldwide. I would like to take this opportunity to thank our employees and their families for their hard, long workdays, nights, and weekends. I would like to thank also to our customers, partners, and suppliers over the years for their support, business, and appreciation, and wish all a successful 2010.

Before handing over the call to Yaniv for financial guidance, I would like to share with you certain highlights on our markets and opportunities. Worldwide mobile handset shipment in 2009 are forecasted to be nearly flat versus 2008 shipments according to recent Gartner reports. This is an improvement of the earlier projected that sales will decline up to 10% when compared to 2008.

Main contributor to the recovery are the (inaudible) in Western Europe and the acceleration in local phone sold in emerging markets. For 2010, Gartner projects 9% year-over-year unit growth. This data point is in line with Nokia's forecast for 2010 of 10% unit growth.

ABI Research has an interesting observation with regard to the market potential of cellular technology in the next five years. ABI forecasted that shipment of cellular based devices will nearly double in 2014 from 2009 units, to a total of 2.2 billion units. The reason for this substantial growth are new categories of devices, such as cellular data cards, which are expected to grow by 40% annually, and also mobile devices which are expected to grow by 67% annually.

Another category that emerges cellular technology is machine-to-machine, M2M. According to a new research report from Berg Insight, in the next five years, the total number of wireless M2M connection is forecasted to grow at a compound annual growth rate, CAGR, of 26%, to which 187 million connection in 2014.

Longer term, every device that can be connected will be connected to the Internet. Forecast range from tens of billions to 1 trillion connected devices. As we stated in the past, an important growth segment for CEVA in the cellular market is the emerging markets, mainly Asia Pacific, excluding Japan.

Per Topology Research Institute, the cell phone penetration in China is expected to reach 64% in 2010, representing a total of 1.2 billion users. In India, penetration is forecast to reach 65% in 2010 for a total user base of 760 million. These penetration trends are expected to continue to grow in the upcoming years, alongside with the completion of telecom construction projects in second and third tier cities.

This key data point, as I just highlighted, are here to emphasize our potential growth in the cellular market for the short and the long term. Our technology based customer relationships with tier one OEM adoption certainly put us in a very strong position to leverage these opportunities for the benefit of our shareholders for the coming years.

I will now turn the call to Yaniv for the financials and the guidance.

Thank you, Gideon. I'll now review the results of the operations for the fourth quarter of 2009. Revenue for the fourth quarter was $10.2 million, which was above the mid range of our guidance, and similar to our seven year high revenue figure recorded during the third quarter of 2008. Fourth quarter revenue was 2% higher than the same quarter in 2008, and 5% sequentially higher than the third quarter of '09. The revenue breakdown is as follows.

Licensing revenue was $4.7 million, reflecting 46% of total revenue, 2% higher than the fourth quarter of 2008. Royalty revenue was $4.8 million, an all time record high, reflecting 47% of total revenue, and 13% higher than the fourth quarter of 2008. Fourth quarter royalty revenue was 31% sequentially higher than the third quarter of '09.

Service revenue was $0.7 million, which accounted for 6% of total revenue, and down 41% compared to $1.1 million for the fourth quarter of 2008. The decrease was associated with fewer annual service renewal agreements compared to prior years, due to expense reduction taken by a few of our customers.

Quarterly gross margin was 91% in both US GAAP and non-GAAP basis. This represents two consecutive quarters of the same all time record high gross margin. Quarterly gross margin was 89% for the fourth quarter of 2008.

As to the operating quarterly expenses, research and development expenses were $4.4 million for the quarter, including the $0.2 million of equity based compensation expense. Sales and marketing costs were $1.8 million, including $0.1 million of equity based compensation expenses. And our G&A costs were $1.5 million, including $0.4 million of equity based compensation expense.

Total operating expenses for the quarter were $7.8 million, which included an aggregated equity based compensation expense of approximately $0.7 million, which was slightly higher above the mid range guidance, due to higher investment in research and development projects.

Total operating expenses for the fourth quarter, excluding equity based compensation expenses, were $7.1 million, also slightly higher than the mid range of our guidance, and approximately 6% lower than the operating level for the fourth quarter of '08.

US GAAP operating margins for the fourth quarter of '09 was 15% of sales, compared to operating loss of 1% from the same quarter in '08. Non-GAAP operating margins for the fourth quarter of '09, excluding equity based compensation expense, were 22% compared to 13% for the fourth quarter of '08, a 69% improvement.

Interest and other income for the fourth quarter of '09 was $2.4 million, and included approximately $1.8 million of pretax capital gain from our equity divestment of GloNav to NXP Semiconductors. On the tax front, we recorded a quarterly tax expense of $948,000, including $572,000 associated with the capital gain. US GAAP net income for the quarter grew 203% to $2.9 million. And fully diluted net income per share grew 180% to $0.14, compared to $1 million and $0.05 respectively for the fourth quarter of '08.

Non-GAAP net income and fully diluted net income per share was $2.4 million or $0.11 per share, an increase of 53% and 38% respectively, compared to the same period in the last year. Remember, these figures exclude approximately $0.7 million of equity based compensation expenses, and $1.8 million of a pretax capital gain and its related tax is $0.6 million.

On an annual basis, and as Gideon mentioned earlier, despite the economic turmoil in 2009, our financials showed strength versus '08. In comparing 2009 to 2008, our total revenue decreased slightly by 5%. Gross profit margins on a non-GAAP basis continued to improve to 90% from 89% in 2008.

Operating income margin on a non-GAAP basis increased 69% from $4.7 million or 12% of sales, to $7.9 million and 21% of sales. These non-GAAP figures exclude equity based compensation expense for both 2008 and 2009, and expenses associated with our exit of the Dublin long term lease agreement and restructurings expenses both in 2008.

And last, non-GAAP net income and diluted income earnings per share increased by 29% and 31% respectively to $8.7 million and $0.42 per share from $6.7 million and $0.32 per share in 2008.

Other related data. Shipped units by CEVA licensees during the fourth quarter of '09 were a record 121 million units, up 36% and 52% from the third quarter of 2009 and fourth quarter of '08 respectively. Of the 121 million units, 80 million units, or approximately 66% are for handset baseband chips, and reflect a significant increase from 61 million units reported in the prior quarter.

Also of the 121 million units shipped in Q4, 99 million units are attributed to licensees' current paying royalties, and 22 million units are shipped by licensees who are under prepaid arrangements. This compares to 89 million units shipped during the third quarter of '09, of which 75 million were attributed to per unit royalties, and 14 million were attributed to prepaid arrangements.

As of December 31 '09, 23 licensees were shipping products incorporating our technologies, pursuant to 31 licensing agreements, two higher than the prior quarter. The two additions are newcomers for CEVA. One targeting the SSD market, and the other targeting the Voice-over-IP PON market. Both markets are limited quantities for now. Of the 31 licensing agreements, 27 licensees are under per unit royalty arrangements, and four historical agreements are under prepaid arrangements.

As for the balance sheet, as of December 31, CEVA's cash and cash equivalent and balance of marketable securities reached record high of $100.6 million, compared to $91.8 million at September 30, 2009, or compared to $84.6 million at the end of 2008.

During the fourth quarter and annual 2009, we generated positive cash flow of approximately $8.8 million and $16 million respectively. These figures include (inaudible) the $3.6 million and $6.7 million of option exercises for the fourth quarter and annual 2009 respectively.

Our DSOs for the fourth quarter of '09 improved to 54 days, compared to 61 days for the prior quarter. With regards to our share buyback program, 106,000 shares remain available for repurchase, and our headcount for the year is 184 employees.

I would now like to discuss the outlook for 2010. As Gideon discussed earlier, we believe 2010 will be a growth year in terms of revenues, in particular royalties, which should result in a further sequential profitability growth, which has been our practice over the last five years on a non-GAAP basis.

For the full 2010 guidance, our total 2010 annual revenue guidance is expected to be in the range of $41 million to $44 million. Gross margin is expected to be in the range of 90% to 92%. Operating expenses, including equity based compensation expense, are expected to be in the range of $30.3 million to $32.3 million. Annual equity based compensation expenses is forecasted to be approximately $2.4 million.

And the annual operating expenses, excluding the equity based compensation expense, will be in the range of $28 million to $30 million. This level of expenses is approximately $2 million higher compared to our non-GAAP 2009 overall expenses, meaning operating expenses and cost of revenue. The expense increase is particularly associated with headcount increase in R&D, which should allow us to further leverage opportunities in LTE and HD video. We also recently increased our presence in China and Japan.

Last, approximately $1 million out of the $2 million will be associated with currency exchange expenses as the US dollar is currently devaluated against the Israel shekel, the euro, and the British pound, which are the currencies under which we will be paying the expenses such as employee salaries.

Interest income net expected to be around $1.8 million for the year. And our tax rate approximately 13%. Share count in 2010 is expected to be approximately 22.2 million shares. US GAAP EPS is expected to be in the range of $0.33 to $0.39 per share. And non-GAAP EPS, excluding the $2.4 million equity based compensation expense, is forecasted to be in the range of $0.43 to $0.49 per share.

Our guidance for the first quarter of '10 is as follows. Revenue is expected to be in the range of $9.9 million to $10.9 million. Gross margin is expected to be 90% to 92%. Operating expenses, including equity based compensation, is expected to be in the range of $7.4 million to $8.4 million.

Of the anticipated total operating expenses for the first quarter, around $600,000 is attributed to equity based compensation, so the non-GAAP operating quarterly expenses is forecasted to be 6.8 to 7.8 thousand dollars. Our marketing expenses are expected to be slightly higher, due to more marketing activities associated with our new product launches and conference participation in Q1 '10, as well as slightly higher R&D expense levels than 2009, following my earlier comments.

Interest income is expected to be approximately $450,000. Tax rate, 12% to 14%, similar to the last few quarters. The share count for the first quarter in the range of 21.5 million to 21.9 million. And that will bring us to US GAAP EPS of $0.07 to $0.09 per share, and non-GAAP EPS, excluding $600,000 of equity based compensation expenses forecast, to be in the range of $0.10 to $0.12 per share.

I will now open the floor for questions.

(Operator Instructions)

Your first question comes from Anil Doradla with William Blair & Company.

Hi, guys. Congratulations. Just a couple of questions on the new handset vendor that you talked about with LTE. Is that for a baseband, or is that for application [processors]?

Baseband, Anil.

And so in your 2010 guidance, do you include some of that? And can you quantify how much of that will come from this tier one handset vendor?

Anil, this is Yaniv. I know the typical design cycle as we know in baseband is probably around a year to a year and a half. Then the product gets certified by the operator -- the different operators. I would guess this is a 2012 royalty opportunity. And of course, the licensing revenue is something that we have recognized in Q4.

Okay. And if we look at your full year guidance -- a year like 2009, at least on the earnings side, you guys grew north of 25%. Based on your new guidance and the midpoint, how should I be viewing the guidance? Is it just pure conservativeness, or because you don't have lack of visibility on the licensing front? Your guidance implies a growth which is lower than obviously '08 or '09. So, how should we be looking at it?

Yes. I think your second answer to the question is probably more realistic. Let's all remember that we are coming out of a very difficult 2009. I don't think anybody yet has good visibility of the ramp up and how the economy -- how the cell phone market trends will be other than general remarks about the 2010 in general.

And therefore, I think we're taking both approaches. First, there are many, many moving parts in our model, as you know. Lots of customers, lots of design wins, lots of potential wins, and we'll have to evaluate them as we go along and have more data as we go along.

And the fundamentals are there for sure for growth. But the magnitude with quite a few of these different segments in the market, whether it's baseband or consumer, we'll evaluate those on a quarter to quarter basis and update the guidance as we go along.

Great. And coming back to your $0.80 to $1.00 over the next couple of years target in earnings power, given that we're seeing an acceleration in market share on the low end market with the basebands from you guys, can you update us on that $0.80 to $1.00 guidance, and the -- I think it was 35% to 55% of the worldwide market share for baseband. Do you think that's going to move sooner, or you're keeping as it is over the next two years? How should we be looking at that?

Well, let me start. I'm not sure this is a guidance. This is more of a different tool to help yourself and others to evaluate the opportunities for us in these different markets, especially baseband over the next couple of years.

I think that that's still in place. And the prospects that we have in front of us, based on new design wins that we just talked about in length, and the existing design wins, which will continue to ramp up, especially in the low end, as you said, are helping us get comfortable that we are on the right track with our current customers.

Gideon, you want to --?

Yes, Anil, this is Gideon. One thing that I want to add to what Yaniv is saying. The beginning of 2009 we were saying that we are expecting tier one handset makers to get into production, complete their certification, (inaudible) which is the tedious one, and get into the market production.

At the exit of 2009, we made significant progress, meaning all these certifications, I would say at least three -- I would say four out of the five largest ones that we are engaged with the certification is behind us.

And now it's a matter of rolling out mobile -- new mobile that is now between the handset maker and the operators of how these look like, what will be the volume. This has now become automatic also. And that's a big difference from our standpoint. Things will go -- can be faster. But again, it's now demand, supply issues.

Thank you very much, guys, and congratulations on a great quarter.

Thank you, Anil. Thank you.

Your next question comes from Allan Mishan with Brigantine.

Hi, guys. A couple quick ones. First on the guidance for the current quarter, are you expecting royalties to grow in the quarter or will they be down with the consumer seasonality?

We did not receive most of the reports this time around; they're a bit late, so we don't have as full visibility of the quarter. But we do believe that they should grow modestly in Q1 compared to Q4.

I think what we've seen in Q3 shipments is a little bit of a normality with regards to a ramp up from post depression seasonality. And Q3 was very strong. Most of the reports in the handset side that we're seeing so far are talking about a flat to mild or modest growth in Q4.

So I believe our royalties will grow, but slightly. And we don't have the full visibility yet this quarter -- this time around.

Okay. So if they grow slightly, then it looks like the combination of service and licensing is roughly flat this current quarter?

More or less, overall as you know, the visibility in the licensing is limited to the pipeline which we have, which is quite healthy. But until you close the deal, you don't have the full -- you don't have a backlog in this type of business. So, the pipeline's strong. We're seeing a lot of interest from many companies. And the way we are usually budgeting and forecasting the licensing side is more conservative.

Okay. And then if I look at the per unit royalty percentage for CEVA, it was about 84% for the year, and it was in the mid 80s for the whole year. Should we assume that that number goes higher in 2010 because you might have some prepaid agreements that exhaust, or is that something that will happen beyond 2010?

Again, it's based on very specific product lines, very specific customers. I believe, like we have seen in the past, because this list was longer many years -- a few years ago; let's try to target at least one of these players to get out of that list. That would be our goal. But it all depends on the specific quantities or specific product lines.

Okay. So for now, I should assume it's roughly in the same range?

Yes, I would think so.

Okay, great. That's it for me. Thank you.

Thank you.

Your next question comes from Matt Robison with Wedbush Securities.

Hi. On the new tier one licensee, did you mean to say that that is a new licensee and, or a new user of your cores? And should we continue to model rounding up to $0.05 a unit for the unit royalty? And then the last part of the question is the services have been in steady decline all year, and below last year. And it seems -- you mentioned the efforts by your customers to economize. How much more do you expect them to economize? So, that's it for now.

Okay, Matt, it's Gideon. Let me take the first part, and then Yaniv will comment on the ASP. We resulted with -- strategic; this is a new licensee. And I should say a new user of our technology -- still not new. This company will go and do its development -- LTE development. It's going to take them I would say a year, year and a half and then it will go into production.

Okay. So -- and they will organize sublicensing deals for semiconductor supply, or how will that work, do you anticipate?

We -- no. But once they -- I believe once they go into mass production and LTE becomes a mature market, they have their own suppliers, and they will basically follow these suppliers to stick with us.

So you'll get some follow on licensing deals to work with those suppliers a year and a half, two years from now, you expect?

That's the plan, yes.

Yes, okay.

And, Matt, on the ASP, as you know, to make the high and the lower end products, right now we're comfortable with the $0.05. We have agreements and product lines which are significantly higher than $0.05. On the other hand, there are some lower -- in the ultra-low cost markets, and the volumes there are much, much higher.

So I would say that again, to continue to monitor which basket becomes more significant, the consumer or high end versus the higher volume on the low end. So for now, I would say the mix is fine. If it changes one to the other, we'll know that on a quarterly basis and probably try to analyze that trend. So for now, we are comfortable with that on the royalty side.

And on the service side, you're right. This is what we have experienced over the last year. Many companies that have -- license our technologies will have a one or two year mandatory support. Usually that is a reasonable time for them to finish the development of a chip. And in the past, we've seen companies continue to get support in production and utilization of improving yield.

Today, when companies and customers are looking to save money, in many areas they will try to do it internally on their own and to save the support fee that we charge them annually.

So that will probably continue to [erode]. And I would say probably the impact of level of around $600,000, $650,000 a quarter is something that we are for now comfortable that we'll continue to monitor the overall environment and behavior with regards to our support revenue.

Okay. And I should congratulate you on your -- put another $0.22 of cash on your balance sheet. DSO declined to a pretty low level for you guys. Should we -- is it reasonable to read into that you've got the linearity leaves something for you to close licensing wise in the first quarter?

No. Every quarter is a standalone story and a standalone quarter. I think the DSOs are more not just a linearity of them, but also the maturity of the products. And we've seen that a few years ago when the DSOs were higher because the technology was not delivered immediately within the quarter. Some of (inaudible) that are now mature, and we could deliver within the quarter -- the payment terms are much, much longer.

So usually that is the main aspect and element of our DSOs.

Okay, thanks a lot.

Thank you, Matt.

Your next question comes from Daniel Meron with RBC Capital Markets.

Hi, guys. A couple of questions here. First of all, was the OEM relationship that you mentioned on the LTE side, was this something that you guys had directly with OEM, or is it through the chip vendor that this relationship started?

Daniel, it's Gideon. It's directly with the OEM.

Okay. And I'm just curious, did you guys market the solution around -- trying to educate the markets around it?

Yes, we marketed -- let me elaborate here. When it comes to LTE, the complexity and the investment required is in my opinion three or four times higher than 3G. Now the OEM's are now -- and we think these other OEMs as well -- are taking active role in developing the chips themselves, because they need not just to finish the -- to have a chip, but also to qualify because we've go the right to make sure that the network and the handsets are compliant.

This is something that for advanced technology like LTE the semiconductor are not -- do not have the value to do it. They don't have the skills they need. So that's the reason that in this particular example, the handset maker decided to do the development themselves to qualify, get into early production.

And I believe as time goes by, when the [NPE] volume will be above 100 million units a year, all these other semiconductor companies, Broadcom, Infineon and all these guys will step in and take it to the next level.

Is -- can I understand from the complexity involved with the license agreements you charge more for the license agreement itself compared to your other licenses?

That's usually the case with regards to new technologies, yes. New technologies comes out -- is much more advance, powerful. And we are able to have higher ASPs in new technologies compared to older ones.

Okay. And then just moving to the ASPs of -- the royalties that you get. Just trying to figure out if it was flat, slightly better or slightly down right here, for 2009 compared to last year. And how should we think about it going forward?

I didn't -- I don't have it in front of me on an annual basis. I checked in the last two quarters and it's flat -- it's $0.05. You could do the math quite easily. offline -- the numbers are there.

I don't anticipate a big change in ASP compared to 2008. The mix in '08 was probably more toward consumer -- or slightly higher towards consumer. 2009 by far, close to 66% to 68% are handsets. We know and we heard another big player yesterday talking about the emerging market ramp up and the low cost market ramp up -- faster. And that changes a little bit the mix, but bigger volumes, and as we saw, overall, higher royalties for CEVA.

Okay. And how far advanced are you guys with the ramp up going on with Nokia, both in the low end, low priced handsets for emerging markets, and with the higher end solutions as well? And if you can just elaborate with additional places that the ramp up is needed to be fully reflected in your royalty streams.

Yes. Our habit it not to convey specifically about a customer or a product line. I think that the overall trend is the important one. And I'll leave it to you to do some of the homework with the well known design wins and public information that is out there.

For many years, Nokia was TI only. Quite a few different (inaudible) and product introductions happened in 2009, probably the later part with Infineon, Broadcom, [SDE], (inaudible) that announced design wins with Nokia just at the end of November. There were five new models introduced by Infineon.

And we'll have to watch our customers carefully. But the potential there, of course, is huge as Nokia still is number one with shy of 40% worldwide market share. A big, big portion in ultra-low cost market. Some of the comments that they have made in the last month or so are quite robust about the lower end side of their business.

Okay, and then last one from me -- uses of cash -- you've got $100 million. I know that this question comes up. But just curious if there's any update on that. If it's piling up -- it is quite impressive size of cash pile compared to the size of the Company. Any thoughts on that?

I don't think we've changed our thoughts with regards to that. The idea that we have been pushing and struggling over the last couple of years to continue to make and build a profitable company which is sustainable in the longer term; this is what we have done. And of course the positive side of it is that we also generated positive cash flow and a pretty significant amount.

We have the right ingredients for the next couple of years to take this Company higher and to the next notch and step with internal progress. It's not something which we need to buy or look for, M&A opportunity.

But with that said, if you do find something that makes sense, it's synergistic to our customer base or technologies, that would be probably the right use of cash within the licensing business model generating 90% plus gross margin versus the 1% in the bank.

So, I think that's still our goal, to try and see if something like that could be found. I don't think this is something that is going to happen over the next -- on the short term. But if something pops up, we'll look at it and see if it makes sense for us.

Okay, thank you. Congrats on the solid execution, Gideon, and Yaniv. Good luck going forward.

Thank you.

Thank you, Daniel.

Your next question comes from Doug Whitman with Whitman Capital.

Congratulations.

Thank you, Doug. Did we lose Doug?

Doug, you may have muted your line.

Can you hear me?

Yes.

Okay. Congratulations on a strong quarter. And thank you for the strong results, again. You grew $16 million year-over-year in cash. And so with tax rates going up, following up on the last question, has there been a thought much in consideration, and if not, would certainly urge you to think about if not stock buybacks or some dividend for the shareholders, because it looks like dividend rates may be going up next year.

So it certainly would give -- $100 million is an impressive amount of cash where you might pay back some of the shareholders -- long term shareholders with some dividends. So, it's a basic point I just wanted to make.

Thanks, Doug. This is a legitimate possibility of use of cash. And we have discussed it internally already to the board. And I don't know what their overall answer would be, but it's one of the possibilities of the use of cash.

Well, it's pretty impressive you got $5 a share in cash, so congratulations.

Thank you.

Thank you.

At this time there are no questions.

Okay. Thank you for joining us today and for your continued interest in CEVA. We will be attending two events next month. And we invite you to join us there. The first will be the annual largest Mobile World Congress in Barcelona, Spain. That's on the date of February 15 to 18. And following that is the NASDAQ and Oppenheimer Joint 14th Annual Equity Conference in New York on February 23 to 24. Thank you, and goodbye.

Thank you for participating in today's CEVA Incorporated conference call. This call will be available for replay beginning at 11:30 am Eastern Standard Time today, through 11:59 PM Eastern Standard Time on Thursday February 4, 2010.

The conference ID number for the replay is 49615290. Again, the conference ID number for the replay is 49615290. The number to dial for the replay is 1-800-642-1687, or 1-706-645-9291. The international toll free encore number is 08-00-917-2646. Thank you, and you may disconnect your lines.