CEVA Inc (CEVA) 2010 Q1 法說會逐字稿

Good morning. My name is Wes, and I will be your conference operator today. At this time I would like to welcome everyone to the CEVA Q1 2010 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).

Thank you. I'll now turn the conference over to Mr. Richard Kingston, Director of Marketing and Investor Relations. Please go ahead sir.

Thank you. Good morning everyone, and welcome to CEVA's first quarter 2010 earnings conference call. This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA, Yaniv Arieli, Chief Financial Officer of CEVA and I, Richard Kingston, Director of Marketing and Investor Relations.

Gideon will cover the business aspects and the highlights on the quarter followed Yaniv who will cover the financial results for the quarter and provide financial guidance for the second quarter and fiscal 2010.

I will start with the forward-looking statements. 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 second quarter and fiscal 2010, general outlook for 2010, optimism about our licensing pipeline, royalty revenue and increased design activities in 2010, optimism about our customers displacing TI and Qualcomm including Infineon and Broadcom, optimism about the market growth in LTE, set-top boxes, digital TVs, HD video, the Chinese TD-SCDMA markets and alternative Wi-Fi connectivity devices, and our position within that, and our customer production schedule and our ability to generate revenues 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 strong growth drivers for us, our success in penetrating new markets and maintaining our market position in existing markets, the effect of the intense industry competition, the possibility that markets for our technologies may 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 technologies, our ability to continue to improve our licensing and royalty revenue in future periods, and general market conditions and other risks relating 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 as of their respective dates.

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

Thank you, Richard. 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 first quarter of 2010.

Our revenue for the first quarter was $10.6 million, a record for CEVA and above the mid-range of our guidance. Total revenues increased by 11% when compared to the first quarter of 2009. Royalty revenue for the first quarter of 2010 was $5 million, also a record and representing a 32% increase over the first quarter of 2009.

During the first quarter, we concluded five new license agreements. Four of the agreements were for our CEVA DSP core platforms and software, and one agreement was for our SATA technology.

Geographically, two of the license agreements were in Europe and three in Asia. Public application for the licenses concluded during the quarter are primarily for 2G, 3G handsets and data cards, set-top boxes, digital TV and SSD price.

Our record revenue and to a larger extent our pipeline buildup during the quarter reflects a growing interest in our diverse product portfolio. These trends conforms to our market expectation following the general business improvement in our primary market, particularly the cellular business market. I will elaborate on this subject later during the call.

Another indicator of increased design activity is the 37% sequential increase in our support revenue due to higher sales of software and hardware design kits needed for design activities.

Higher sequential revenue, royalty revenue, followed the seasonal trend whereby first quarter royalty reflect generally higher fourth quarter shipments. However, the magnitude of the increase was lower than was in typical. This is primarily due to the higher third quarter shipments reflected in our fourth quarter royalty revenue, which was driven by unique recovery quarter with strong demand and inventory replenishment.

A noteworthy positive development associated with our royalty paying customers is the addition of two new customers in the cellular space. Although these royalties will initially be small, they are expecting to impact in the coming quarter.

Going forward, we believe we are on track with our revenue growth plans both in licensing and royalty. There is a noticeable progress on licensing agreement with existing and new customer as well as healthy buildup in the licensing pipeline.

On the royalty front, we believe second quarter revenue reflecting first quarter shipments will generally follow the seasonal trend of flow of shipments during the past Christmas season that could be partially offset by shipments of new model by our cellular baseband customer displacing TI and Qualcomm as well as new royalty paying customers.

With regard to the first quarter licensing agreement, I would like to elaborate on two important examples. The first one was with an existing customer that uses our technology for its baseband processor product line.

This customer entered into a comprehensive multiple license agreement with us for our TeakLite-III to be used in broad range of future baseband processor for 2G and 3G applications.

A recent important development in the baseband market is the strong and well-established evolution within each of the 2G, 3G, and the 4G segments. This evolutionary enhancement provides simple, cost-effective upgrade of the existing network, offering extended performance and user experience.

For example, the 2G or GSM GPRS technology is now migrating to EDGE, and in the future, to evolve EDGE offering a three- to four-fold increase in performance. In 3G, the mainstream HSPA is now migrating to HSPA Plus, and can provide capabilities in proximity to the LTE.

The LTE space has followed along its own roadmap with LTE early deployment anticipated for the second half of 2010, and LTE advanced capable of up to 1 gigabit per second anticipated in two to three years from now.

Within this landscape, CEVA is leveraging its core strength, offering significant value proposition in the form of broad based DSP products, and providing roadmaps that serve different price point performance and power metrics for each of these market segments.

Another important licensing agreement that I would like to highlight was with a new customer, a leader in the home entertainment space, focusing on integrated digital TV and set-top box product line. This customer decided to use our DSP for a demodulator functionality which extracts digital information from the signal coming out of the digital tuner.

A digital demodulator chip has to reside in every set-top box for digital TV due to the migration of TV broadcasting from analog to digital. Our DSP core offer two key benefits for the demodulator space. The first is its capability to integrate the demodulator with audio and video onto a single chip to reduce cost.

The second is the use of software-defined radio technique to support multiple broadcasting standards, such as DVB-T, DVB-T2, ATSC, ISDB-T, and also Wi-Fi. All these different standard can be supported by our programmable DSP core, especially our best of breed, the CEVA-XC.

The demodulator functionality poses a significant DSP core opportunity for CEVA on top of the audio and the video cores, which we are already targeting within our home entertainment product line.

Based on a recent study by Oppenheimer, the set-top box market is expected to experience a 12% CAGR reaching 200 million units in 2013. Based on the same study, the DTV market is expected to experience a 10% CAGR reaching 219 million units in 2013.

In February, we attended the Mobile World Congress, the large mobile exhibition in Barcelona. At the show, we demonstrated our CEVA-XC platform, running LTE specs fully in software. It is a major technology milestone, and as expected, attracted lots of attention from prospective customers, some of whom we are currently in discussion.

Another demo at the conference was for our newly announced video platform, the MM3000, which supports HD video playback and recording in software. The MM3000's software-based architecture is unique in that it allows the support of broad set of video related technology, such as 3D video, image signal processing, and gesture recognition.

These offer our customers substantial cost saving as it combine in one platform the role of multiple hardware blocks needed to support the same feature.

Before turning the call over to Yaniv for financials and guidance, I would like to share with you a few highlights on our primary market, the handsets. At the Barcelona show, we announced two new licenses for our DSP.

Beceem had licensed the CEVA-XC and Sequans had licensed the CEVA-X1641. Beceem and Sequans are two leading WiMAX chipset vendors. We believe that collectively, the two capture approximately 90% of the WiMAX SoC market. Both companies are aiming to use our DSP cores for multi-mode solutions for WiMAX and LTE.

Also at the show, we announced that Samsung has introduced an LTE dongle enabled by our DSP technology. This dongle is now deployed by TeliaSonera. TeliaSonera is Swedish mobile operator that's similar to Verizon and DoCoMo of Japan, our frontrunners in the LTE deployment.

The growing deployment of LTE networks and product was clearly highlighted in the -- in Barcelona. For example, Verizon recently disclosed its plan to bring LTE to 25-30 markets with 100 million potential customers by the end of 2010. AT&T plans to launch LTE trials later in 2010, with initial deployment underway sometimes next year.

Infonetics predict that LTE will be used over the 41% of the wireless devices in the U.S. in 2014. From CEVA's perspective we see growing design activity in which eight designs are already using our DSP. Our pipeline is consistently growing, composing of companies that target LTE space.

As we stated in the past, our CEVA-XC offers software approach that allows our customer to migrate seamlessly from their CDMA, GSM, and WiMAX legacy product to the newest LTE, and later on to LTE advanced products.

With regard to the existing 3G landscape, Tim Luke, a semiconductor analyst at Barclays, Samsung and LG both plan to diversify their supplier base, which could see Infineon winning more business in the mid and low-end 3G phones from both Korean companies, and Broadcom gaming business in Samsung's high-end handsets.

This eventually will make substantial market share, will -- this eventually will take substantial market share from Qualcomm. Based on government recent reports, Samsung and LG are ranked number two and three in handset markets with collectively 30% of the market share. This will present a noteworthy growth potential for CEVA as both are our customers.

Another 3G segment that is becoming significant where CEVA has foothold is the Chinese homemade standard, the TD-SCDMA. According to the latest research from Strategy Analytics, this segment will grow 600% during 2010 as a result of the strong push by the world's larger operator, China Mobile. This will be one of the fast and growing mobile technologies, making China an important 3G market.

In the first quarter, we filed a record 81 million handsets, surpassing the 80 million we shipped in the previous quarter, and the 36 million units shipped in the first quarter of 2009.

Last but not the least, in the largest exhibition for the wireless and consumer products, the CES in Las Vegas and the Mobile World Congress in Barcelona, we witnessed the demonstration of a wide range of products providing for new uses of cellular technology, products such as tablets, netbooks, e-readers, and machine-to-machine devices that are essentially add-on to the traditional wireless markets. (Inaudible) group, this new product will pervade the market to north of 2 billion units in 2014.

Our DSP product and our strong foothold in the 3G and the 4G space put us in a very good position to leverage these opportunities as well.

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

Thank you, Gideon. I will now review the results of our operations for the first quarter of 2010. Revenue for the first quarter was a record $10.6 million, above the midrange of our guidance, and 11% higher than the first quarter of last year.

The revenue breakdown is as follows, licensing revenues were $4.6 million, reflecting 45% of total revenue, 4% higher than the first quarter of '09. Royalty revenue was $5 million, an all-time record high reflecting 47% of our total revenues and 32% higher than the first quarter of 2009.

Service revenue was $0.9 million, which accounted for 8% of our total revenue, down 26% compared to $1.2 million for the first quarter of 2009. Quarterly gross margin was 93% on both US GAAP and non-GAAP basis, which is an all-time record high for CEVA. For the first quarter of '09, gross margin were 87% and 88% on GAAP and non-GAAP basis respectively.

As for the operating quarterly expenses, research and development expenses were $4.6 million for the quarter including approximately $200,000 of equity-based compensation expenses. Sales and marketing costs were $1.8 million including approximately $100,000 of equity-based compensation expenses. And our G&A costs were $1.5 million including approximately $300,000 of equity-based compensation expenses.

Total operating expenses for the quarter were $8 million, which included an aggregated equity-based compensation expense of approximately $600,000, which is approximately 11% higher than the operating levels we had for the first quarter of '09.

Our total operating expenses for the first quarter excluding equity-based compensation expenses were $7.4 million reflecting the mid range of our guidance and approximately 15% higher than the operating level from the prior year.

The expense increase in overall operating expenses is associated partially with a headcount increase in R&D, which should allow us to further leverage opportunities in LTE and HD video. And we have also increased our presence in China and Japan in headcount compared to the first quarter of 2009.

US GAAP operating margins for the first quarter of 2010 were 18% of sales, a 72% increase from 12% for the same quarter in 2009. Our non-GAAP operating margins for the first quarter of '10, excluding equity-based compensation expenses, was 24% compared to 20% for the first quarter last year, a 30% improvement.

Interest and other income for the first quarter was $556,000 and on the tax front, we recorded a tax expense of $422,000 or 14% of pretax income. US GAAP net income for the quarter grew 51% to $2.1 million. And fully diluted net income per share grew 29% to $0.09, compared to $1.4 million and $0.07 respectively for the first quarter of '09.

Non-GAAP net income was a record $2.6 million up 21% compared to the same quarter in the prior year. Fully diluted net income per share was $0.12 per share, an increase of 9% compared to the same quarter last year. Remember, these figures exclude about $600,000 -- at $800,000 of equity-based compensation expenses for the first quarter of 2010 and 2009 respectively.

As for other related data. Shipped units by CEVA licensees during the first quarter of this year were a record 122 million units, up 106% and 1% from the first quarter of '09 and from the fourth quarter of '09 respectively. Of the 122 million units shipped, 81 million or approximately 67% of the units are for handset baseband chips and reflect similar levels as the prior quarter which recorded 80 million units shipped for Q4.

Also of the 122 million units shipped in Q1, 101 million were attributed to licensees currently paying per unit royalties and 21 million units were shipped by licensees who are under a prepaid arrangement. This compares to similar numbers, 121 million units shipped during the fourth quarter of '09 of which 99 million units were attributed to per unit royalty payers and 22 million were attributed to the prepaid arrangements.

As of March 31, 2010, 24 licensees were shipping products incorporating our technologies, one higher than the prior quarter, pursuant to 33 licensing agreements or two higher than the prior quarter. One of the two additionals is a newcomer for CEVA in the multimedia product line and the other is an existing customer, which came out for the first time with a 3G product line. Of the 33 licensing agreements, 29 are under pay per unit royalty arrangement and four are under prepaid arrangements.

As for the balance sheet item, as of December 31 -- sorry as of March 31, 2010, our cash and marketable securities and long-term deposits reached a record high of $106.7 million compared to $100.6 million at yearend.

During the first quarter, we generated positive cash flow of approximately $6.1 million including proceeds of $3.4 million from option exercises. Our DSOs for the first quarter of 2010 slightly increased to 57 days, compared to 54 days for the prior quarter mainly due to backend loaded first quarter.

As for the 2010 annual guidance. After a strong first quarter in which we ended up higher than our mid range guidance we provided earlier in the year, we are comfortable with our annual guidance based on healthy licensing pipeline, prospects for closing deals, and forecasted royalty growth.

As a reminder, we have already targeted 2010 as a growth year in revenue, EPS, profitability and positive business prospects. Our reiterated annual guidance include total 2010 annual revenue is expected to be in the range of $41 million to $44 million. Gross margin is expected to be slightly better than what we have forecasted earlier and will be in the range of 91% to 93%.

Operating expenses including equity-based compensation are expected to be in the range of $30.5 million to $32.5 million. Annual equity-based compensation is forecasted to be approximately $2.4 million. Our annual operating expenses excluding equity-based compensation are expected to be in the range of $28.2 million to $30.2 million.

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

Our guidance for the second quarter of 2010 is as follows. Revenue is expected to be in the range of $9.7 million to $10.7 million. Gross margin is expected to be in the range of 91% to 93%. Operating expenses including equity-based compensation is expected to be slightly lower than the first quarter and in the range of $7.3 million to $8.3 million.

Of our anticipated total operating expenses for the first quarter, $600,000 is expected to be attributed to equity-based compensation expenses. So the non-GAAP operating expenses is forecasted to $6.7 million to $7.7 million. Interest income net is expected to be approximately $450,000. The tax rate for the second quarter approximately 12% to 14% similar to the last few quarters and our share counts for the second quarter is expected to be in the range of 22 million to 22.2 million shares.

That'll bring us to US GAAP EPS expected in the range of $0.06 to $0.08 per share. And non-GAAP EPS excluding the $600,000 of equity-based compensation expenses is forecasted to be in the range of $0.09 to $0.11 per share.

And, operator, we will now open the floor to questions.

And ladies and gentlemen (Operator Instructions).

And your first question comes from Daniel Meron of RBC Capital Markets.

Hi. Thanks guys and congrats on the ongoing execution. Given all your needs, first of all, if you can provide us with info on the market share that you have in the cordless phone markets as of last quarter?

Sure. The worldwide baseband market share went down marginally by 1%. It's now -- it's approximately 26% of the worldwide Q1 shipment. We believe that it relates to one customer in the low-end market which grew significantly last year both in the second and third quarter and dealt with inventory management toward the end of the year.

It's a well-known effect in the market and a known practice to this specific customers, and we're getting only good indications for increased ramp-up in penetration these days to Samsung, LG, Nokia. So overall we are continuing to be positive in the continued market share gains for CEVA over the next couple of quarters.

Okay. And how should we think about the trajectory 2010 unfolds as far as your market share?

We never gave specific numbers on the -- for the next quarter -- for the next couple of quarters. We did give a two- or three-year type of scenario that we believe we could reach at least 40% to 55% market share.

And I think I could refer you to TI's conference call earlier this week. They talked about on the call of having about $420 million of revenues coming from baseband in Q1 2010 for them and in the Q-and-A mentioned that by the end of 2012 that number will be zero.

We believe that the 2G low-end segment will probably be very low by the end of 2010 and their 3G market loss in baseband will start happening in the middle of 2011 and onward.

Okay.

Daniel, it is Gideon. Let me just add a few more data points. First of all, Broadcom, they announced their Q1 results. They were not specific about the baseband market share and ramp-up, but they say that when it comes to Samsung and Nokia, it's growing and start to become significant.

The reason that we are -- we tried to be very specific is the timing of the -- this hockey stick. This is new model, new phone, operators take their time to approve giving customer acceptance. So the timing and the magnitude of the -- of this ramp-up is something that we know is happening but we don't know the exact pattern.

Okay. Fair enough, enough. And as far as your transition to consumer electronics, I think that you guys had few wins in the space. Can you give us a little bit more color on the trajectory that we should expect there?

Is it just a matter of like waiting for two more years or so until you guys gain further traction in this space and then we can talk about meaningful market share in the various segments that you're going after? And are there any specific products that you think are going to be the ones that -- you guys are going to make a mark and just like you did in the handset markets?

Yes. First of all consumer electronics, let me draw your attention what I said about one of the strategic business we'll sign in Q1. This is the consumer electronic business. We -- it's a [key] customer that is new to us that is in the DTV and set-top box space that decided to use our DSP for the -- what we call demodulator.

If you -- I don't know if this is a bit technical, but in general in every set-top box and DTV you have a demodulator function that is inherently a DSP function.

So this customer is going to use us broadly in all his products and we are going to -- we are approaching this market with other customers as well especially with our CEVA-XC. This is the growth engine for us on top of what the multimedia -- the video and the audio activities that we have so far with other customers.

Other than these, we have a few companies that -- in the mobile multimedia space, and I think we spoke one of them is (inaudible). They're a significant product portfolio composed of tablets and they are approaching in the lower-end segment and we have another customer we cannot name in the smartphones space that started to get into the market last quarter it seems.

Okay. Very good. Good luck. Thank you.

Thank you, Daniel.

Your next question comes from Matt Robison of Wunderlich Securities.

Hi, good morning. First, Yaniv, a couple of housekeeping items. You mentioned some headcount. I didn't catch the overall headcount for the quarter.

One hundred and eighty two.

Okay. And your -- do you have a operating cash flow number? I know you mentioned the $6.1 million and the $3.4 million from the options, but a formal operating cash flow number, do you have that handy?

$2.8 million, very similar to the net income. So essentially in this line of business because we don't have the significant CapEx expenditures over longer period of time, the net income and the free cash flows should be quite similar.

Do you happen to have the depreciation CapEx handy? I'll circle back only for that. What -- Gideon, what kind of cores or SoC's licenses were included in the five that you -- I know you mentioned one set of license, but what were the product types for the others?

We had one agreement about the TeakLite-III. This is a company that is already using our technologies and going to expand to the 3G. The 3G becomes now very significant in the space.

This is where the cost [time] becomes a key element. In my prepared remark, I mentioned Tim Luke an analyst saying that Samsung and LG are now getting towards these Infineon and Broadcom specifically. So there is the order TeakLite-III license.

There was another in my opinion TeakLite and (inaudible) CEVA-X or a CEVA-X we did not find in Q1, but we have concluded and we announced the last --

Last week. We'll that's the CEVA-XC.

XC, yes.

Okay. So two CEVA-X and then the CEVA -- and another CEVA-XC so far this quarter?

Yes.

Yes.

Okay. Well, congratulations on that. I think I'm going to have to come back for my other question. That's it from me for now.

Okay. Thank you, Matt. The depreciation was $130,000 for the quarter.

Was CapEx less than that?

It was twice of that, 240 -- 250-ish.

Okay.

Your next question comes from Brian Nugent of William Blair.

Hi. This is Anil Doradla. Hi. A couple of questions. One was if I look at your whole year guidance $0.43 to $0.48 and I'm trying to look at the year-over-year growth, on the high end it would be maybe somewhere around 15%. Now that guidance that you have, can you give us a little bit more color on what you're assuming both on the royalty side and the licensing side? Given the variability in licensing side, is that -- I mean, given that you've got more visibility on the royalty side, is that based on your greater traction on the royalty side while being conservative on the licensing side or can you give any color on that that will be helpful?

Sure. You know us for a long enough time to know that as much as you have tools and understanding of the market, and your customers, and the magnitude of the changes that we have talked about earlier of the market share gains in the royalties and so on and so forth, you don't exactly have those numbers and Gideon explained that -- the hockey stick event, until the quarter -- the next quarter when you see those royalty reports and know which customer did better and what is fixed up and so on and so forth. So we are very optimistic that the lines of the royalties will grow significantly strong in 2010 from 2009. We took some explanations this is how we guided the annual -- our annual guidance.

The majority of the growth comes from royalty as that's an IP model, a working IP model, that's the healthy, profitable role -- revenue stream. And we just don't want to guess before we actually see the numbers. We -- so on a call by call basis we update them based on real -- as much as real factors we could conclude and we hope that at the end of the day we could be better than what we plan conservatively.

On the licensing front, I think it's the same story. In the past -- the last couple of years we've been quite consistent to be somewhere between $4 million to $6 million per quarter in licensing. Gideon mentioned in his earlier remarks that we have a very solid pipeline and a lot of interest -- strong interest in our licensing. So we're very optimistic about this compared to a year ago.

And I'm sure we will revisit our annual guidance in July. So it's just too early to do it at this timeframe, but I hope I could give some new insight as soon we finish another quarter later in this year.

So Yaniv, the guidance for the year, what do you assume for your royalty market share on a worldwide basis, can you give some color on that?

Anil, we were just asked that a question ago -- 10 minutes ago. We don't bring -- for the same exact reason that I just mentioned, we don't bring in or guess, a wild guess of an annual market share. We are at 26% today. I am sure that that number will increase by the end of the year.

But if it's going to be 30% or 35% or 32%, it's just a guess. I don't think you know and I don't think anyone knows, because there are so many moving parts, good moving parts from TI, from Qualcomm, from the different players in the market. We are no magicians. We gather all this information, but we don't have a magic spell to know what exactly are going to be the key models or the successful ones by nine months from now.

Okay. And Yaniv --

So I think you need to take -- go ahead.

Oh, no, no, go ahead, Yaniv. Sorry.

No, I said, Anil, that the best tools we could give you is to look at the market dynamics, to look at our customer base. As Gideon mentioned to look, and I'm sure you have, at the Broadcom, the Infineon, the Spreadtrum, the recent announcement and build your model from there. But if they continue to make and build market share the way they are showing and representing optimism in their business for baseband and wireless, we should enjoy that in the upcoming quarters.

Okay. And finally, Yaniv or Gideon, a big picture question. We've been noticing an accelerated pricing pressures with some of the larger guys especially in the 3G space. From your vantage point of view, what are you seeing, how are the dynamics playing out especially on the pricing environment kind of in the 3G space?

Well, we have, like everybody else, there is a pressure on pricing. From our standpoint, you're -- we are fairly unit driven and we'll see how things are going. Right now, that's what we -- what we see in the pressure seat, but not -- from our standpoint is a fair unit price.

Okay. Thank you very much.

Thank you, Anil.

Your next question comes from Allan Mishan of Brigantine.

Hey guys, I saw the services revenue ticked up nicely in the quarter after a couple of very low numbers. Do you expect this to be the new base level going forward at $900,000 or could it possibly recede again or maybe does it go higher. What are you expecting for that through the year?

I'll -- and -- I believe that the base was like in the last part of 2009, somewhere around $650,000 to $700,000. That would be the base. On top of that, as we mentioned, there were some pretty interesting design activities by our customers meaning they bought more design tools, boards, software that will just accelerate their development cycle.

I believe this is going to be slightly higher than that maybe by $100,000 than the base. I'm not sure if Q1 will repeat itself, yet to be seen how many orders for more development tools will come in. So I don't think it's going to be as low as $600,000 or $650,000 but I would look at somewhere around $750,000 for Q2.

Okay. Thank you very much.

Thank you.

Your next question comes from Matt Robison of Wunderlich Securities.

I asked you before was can you give us a feel for how much of the royalty reports you've seen so far? Is it 80% or 90% or -- I know we have -- we saw good numbers out of Broadcom a couple of nights ago. So is your guidance based on 100% of your royalty reports or are you still waiting for a few of them?

No, we're still waiting. Most of our customers send the report either by the end of this -- the month following the quarter or up to a few days of two weeks after that date. So we don't have -- usually, in our conference call we don't have the full picture, but we have a pretty good understanding of how the next quarter could look like.

I would say from that point of view, you do see some seasonality in Q1. Some numbers you arrived at came in very nice. On the other hand, you could see that LG, for example, came out with 20% lower quantities in Q1 compared to their previous quarter. And I think this is the typical seasonality to some of the OEMs.

We are not going to see that much of a decline. I believe that the overall decline, because of the continued market share and other positive factors for us, is going to be somewhere between 5% to 10% from this existing $5 million level, not worse than that.

Okay, thanks. That's helpful.

Sure, thank you.

Your next question comes from Warren Darilek of Morgan Keegan.

Hello gentlemen, appreciate the call. I had a question in regards to the large cash buildup you all accumulated over the years and in forecast of rising cash flow as well. What are the thoughts by that you're all on and would you all consider a meaningful or measurable dividend in the future? What are your thoughts there?

Let me say this. First of all, our intention and focus is to provide shareholder value and the means that you mentioned like dividends is something that is -- this thing we are considering and discussing continuously. On the other hand, we are looking to grow the business in all sorts of ways.

We have pinpointed several opportunities that are complimentary for our technologies, meaning, we can leverage on what we are doing so far and get more business there. We don't have -- we are not specific here, we don't have specifics, but we have targeted few things and we are looking for how this will help us to grow the business non-organically.

Okay. Thank you.

Sure, thank you.

And at this time, I'm showing no further questions.

Okay. Well, we'll end the call there. Thank you again for joining us today and for your continued interest in CEVA. We will be attending the following events in the coming few months and invite you to join us there.

The 11th Annual Israeli Conference on May the 16th in Tel Aviv. The Stern Agee Annual Semiconductor Conference on June the 3rd in New York. ThinkEquity's 1st Annual Semiconductor Conference also on June 3rd in New York. The RBC Technology Media and Communications Conference on June 9th in New York. And the Piper Jaffray European Conference on June the 22nd in London.

Thank you and goodbye.

And ladies and gentlemen, thank you for participating in today's CEVA Q1 2010 earnings conference call. This call will be available for replay beginning at 11:30 am Eastern Time today through 11:59 pm Eastern Time Thursday May 6, 2010.

The conference ID number for the replay is 67571646. Again, the conference ID number for the replay is 67571646. The number to dial for the replay is 1-800-642-1687, or 1-706-645-9291. We thank you and appreciate your participation.