CEVA Inc (CEVA) 2010 Q4 法說會逐字稿

Good morning. My name is Jackie, and I will be your conference operator today. At this time I would like to welcome everyone to the CEVA fourth-quarter 2010 earnings conference call. (Operator Instructions).

Thank you. I would now like to turn the conference over to Mr. Richard Kingston, Director of Marketing and Investor Relations. Mr. Kingston, please go ahead.

Thank you and good morning, everyone. Welcome to CEVA's fourth-quarter 2010 earnings conference call. This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA, and 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 for the quarter, followed by Yaniv who will cover the financial results for the fourth quarter and annual 2010. Yaniv further will provide financial guidance for the first quarter of fiscal 2011.

I will start with 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 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 and fiscal 2011; market data from ABI Research, iSuppli, [Shenzhen] Semiconductor Industry, and Strategy Analytics, Inc. herein; optimism about our customers' product pipelines and market penetration; and such impact on our future revenues, including our customers in the Chinese [notebook] OEM and mobile broadband device markets; optimism about the continued growth in the handset market, including LTE, 2G and 4G spaces; opportunities in the wireless infrastructure; HD audio and video; networking and machine to machine products; and our ability to generate revenues from these 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 ability of products incorporating our technologies to achieve market acceptance; the effect of intense industry competition and consolidation; 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 institute new technologies; 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 the respected dates.

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

Thanks, Richard. Good morning, everyone, and thank you for joining us today. I hope you have had the opportunity to go through our press release with the financial results for the fourth quarter and fiscal 2010.

Our revenue for the fourth quarter was $13 million, which was at the high end of our guidance range, despite an upward revision of our prior guidance during the third quarter earnings call. This should represent a record high and a 28% increase compared to the fourth quarter of 2009 and a 22% sequential increase. Warranty revenue for the fourth quarter of 2010 was also an all-time high of $7.5 million, representing a 55% increase over the fourth quarter of the year before and a 43% sequential increase.

Operating margin reached 33% on an non-GAAP basis compared to 22% last year, which also represents a record high. Fourth-quarter non-GAAP take EPS increased 73%, which was a substantial increase when compared to the same period in 2009 and reached a record high of $0.19.

During the fourth quarter, we completed five new license agreements. Four of the agreements were for our CEVA DSP core platforms and software, and one agreement was for our Bluetooth application. Geographically three of the license agreements were in the US and two were in Asia. [Private] applications for the license that concluded during the quarter are primarily 3G and 4G based on [process sales] for handsets 10% and low-power medical devices.

The fourth quarter was by far the strongest quarter CEVA ever recorded in its eight-year history. It is primarily results from the strong momentum in the shipments of cellular (inaudible) processors enabled by our DSP that are now widely deployed across all market segments from [ultra-local phones] and feature phones targeted at developing economies to high-end smartphones and new emerging devices such as tablets, data dongles and machine to machine equipment.

On the licensing front, we continue to increase our strategic customer base, which plans to use our advanced DSPs for March employment of 4G handsets, data cards, tablets and for new categories of smaller size micro cells and to increase mobile broadband capacity and improve [indoor] voice quality. These strategic engagements will fuel our future royalty stream.

Now let me take a moment and provide a view key highlights regarding 2010 accomplishments.

2010 was an outstanding year for CEVA. Our royalty revenue grew substantially to a record of nearly $23 million, a 41% increase over 2009. We achieved new records in earnings and positive cash flow generation as well. Our non-GAAP EPS and net income grew 33% and 46% respectively, and our non-GAAP operating income grew 52%. We generated $30 million of free cash flow and bought back approximately 140,000 shares of our common stock for a contribution of approximately $1.6 million.

Also, during 2010 we announced a new share buyback program of up to 2 million shares.

Our CEVA-XC DSP architecture set a competitive benchmark for 4G baseband processing. We have already signed 11 4G-related licensees and now reach our [intent] and two Tier 1 handset makers. Our latest DSP call, the CEVA-XC323, will enable us to leverage opportunities in the large and lucrative wireless infrastructure market, including femtocells, picocells and microcells. To provide some context of the potential market opportunity, per ABI Research more than 4 billion people will have access to 4G technologies in 2015, which should double the amount of people that are connected today to 3G.

Our initiatives to expand our presence in new and under-penetrated markets are beginning to bear fruit as we recently extended our market reach to include two additional and sizable segments. The first is mobile broadband with products such as tablets, e-books and USB data cards.

Strategy Analytics believes that more than 4.3 billion non-handset cellular connections will be in place in 2020. The second segment is Chinese OEMs who specialize in local [response] for emerging markets. It is a loud strategic untapped market for us that until recently was dominated by MediaTek. Per Strategy Analytics, MediaTek shipped nearly 200 million units in the first half of 2010. However, Strategy, (inaudible), SPL and some others are now becoming notable players, which directly benefits CEVA, and they are all customers of us.

All-in-all, with the addition of the above market segment to our traditional handset markets, our addressable market becomes significantly larger. Per Strategy Analytics, in the first three quarters of 2010, they were 1.4 billion units shipped in this space.

Looking beyond cellular, we also have also made significant progress with our home entertainment product line, particularly high definition audio. Earlier in January we announced a new DSP, the TeakLite-III 3211. This product targeted to formers amended by HD audio used in digital TV, Blu-Ray DVD, set-top boxes and the like. I supply (inaudible) more than 178 million LCD TVs will fall in 2010 and 40% increased versus 2009, while 16 million Blu-Ray players will ship in 2010, an 82% jump versus 2009.

Let me now go through relevant market data and customer licenses. According to Strategy Analytics, approximately 498 million baseband chips will ship in the third quarter of 2010. This figure includes both handsets and non-handset products such as tablets, e-books, data dongles and the like. CEVA's customer base shipped 178 million units during the third quarter of 2010, reflecting a 36% market share.

Please note that we report our royalty revenue one quarter in arrears. So our royalty revenue we report on this call actually relates to the third quarter of 2010 shipments. Strategy Analytics' market data also include shipments by Chinese OEMs who specialize in manufacturing local feature phones for the sizable market in emerging economies.

As I mentioned, we are experiencing a substantial growth in this space with the recent design wins by our customers who are taking market share from MediaTek, the dominant player who until recently maintained between 85% to 90% share of this market.

We also announced this morning a very significant milestone for CEVA that reflects the strong momentum behind the growth of our DSP core in the wireless industry. Shipments of baseband chips powered by our DSP has helped us with traditional leaders QUALCOMM, MediaTek and Texas Instruments to make CEVA the world's number one DSP architecture deployed in baseband chips. This has been the goal of ours for many years. We are very pleased to have achieved it and strive to build on this leadership.

Broadcom in its recent analyst data disclosed that it is ramping up production of EDGE platforms at Nokia and Samsung and 3G handsets at Samsung. These products are all based on CEVA technology. Broadcom also strengthened its 4G technology base by acquiring Beceem, which used our CEVA-XC engine for its multimode 4G baseband processor.

In the femtocell space, Broadcom acquired Percello, which also bases its products on our DSP.

ST-Ericsson announced that Samsung has chosen its platform to underpin Samsung's built-in engine. All experiences from 2G EDGE platforms are based on CEVA technology. Strategy Analytics focused its 206 million dual-SIM handset will be sold in 2014 versus only 41 million sold last year.

Spreadtrum Partners had very strong financial results and provided positive forecasts in light of its growing penetration in the Chinese OEM market. Spreadtrum was able to push the envelope on providing feature-rich handsets at aggressive price points.

Based on analysis of Shenzhen Semiconductor Industry's, Spreadtrum marketshare in the Chinese 2G business, the total was 22% in 2010 for almost none in the third quarter of 2009.

Also, during the fourth quarter, we announced that Intel licensed our CEVA-XC for a range of 4G products. This agreement is independent of Intel's pending acquisition of the Infineon Wireless business.

The head of Samsung's Mobile business division recently commented that he intends to ship around 60 million units of its high profile Galaxy S smartphone compared to the 10 million shipped last year. Samsung's popular HSPA-based smartphone and tablets using Galaxy brand are based on our DSP as are the new LG smartphones, tablets and notebooks that the Company announced just a few weeks ago at the CES show.

Looking forward to 2011, we believe it will be a strong year for CEVA, resulting in overall revenue and profitability for us. Our recent discussion with key customers provides us with the confidence of our continued royalty growth in 2011. Our enhanced product portfolio allows us to expand to the wireless infrastructure and HD audio, further driving our value proposition. Starting in the second half of 2011, our HD platform, the MM3000, will provide us with additional licensing opportunity for 3-D HD video for smartphone, tablet, digital TV, and many other mobile and home products.

Finally, before I turn the call over to Yaniv, I would like to take this opportunity to thank all our employees and their families for their hard work and long days, nights and weekends. None of these outstanding achievements could have been reached without the dedication of our loyal, talented employees and managers worldwide. I would like also to thank our customers, partners and suppliers for their support, loyalty and business and wish you all successful 2011.

With that said, I now turn the call to Yaniv for financials and guidance.

Thank you, Gideon. I will now review the results for our operations for the fourth quarter of 2010.

Revenue for the fourth quarter was $13 million, at the high end of our guidance range and 28% higher than the fourth quarter of 2009. The revenue breakdown is as follows. Licensing revenue was $4.6 million, reflecting 35% of our total revenues, 2% lower than the fourth quarter of 2009 in which we recorded $4.7 million. The royalty revenue was $7.5 million, a fifth sequential record high, reflecting 58% of total revenue and 55% higher than the fourth quarter of 2009. Service revenue was $0.9 million, which accounted for 7% of our total revenue, up 38% when compared to the fourth quarter of last year.

Quarterly gross margin was 91% on a US GAAP basis and 92% on a non-GAAP basis compared to 91% for both -- for the fourth quarter of last year.

As for the quarterly operating expenses, research and development expense was $4.7 million for the quarter, including approximately $160,000 of equity-based compensation expenses. Sales and marketing costs were $2.1 million, including approximately $80,000 of equity-based compensation expense.

Our G&A costs were were $1.4 million, including approximately $207,000 of equity-based compensation expense. Our total operating expense for the quarter were $8.1 million, which included aggregated equity-based compensation expense of approximately [$450,000], approximately 4% higher than the operating expense levels for the fourth quarter of 2009.

Our total operating expenses for the fourth quarter, excluding equity-based compensation expense, were $7.7 million, which reflected the mid to upper range of our guidance and approximately 8% higher than the operating expense levels for the fourth quarter of 2009. The higher OpEx is primarily associated with higher sales commission expense due to higher fourth-quarter revenues and higher research and development expenses in 2010.

Our US GAAP operating margins for the fourth quarter of 2010 almost doubled to a record high of 29% of sales from only 15% for the same quarter in 2009. Our non-GAAP operating margins for the fourth quarter, excluding equity-based compensation expenses, increased 50% to a record 33% from 22% of sales for the fourth quarter of 2010 and 2009 respectively.

Interest and other income for the fourth quarter was about $504,000, in line with the prior quarter. On the tax front, we recorded a quarterly tax expense of $64,000 on a US GAAP basis and a tax expense of $406,000 on a non-GAAP pretax income basis. Tax loss carrybacks, which allowed us to reduce taxes already paid in previous years, as well as tax plan strategies to better utilize certain deferred tax assets, enabled us to reduce our tax charges for this quarter.

US GAAP net income for the quarter increased 45% to $4.2 million, and fully diluted net income per share increased 29% to $0.18. This compares to $2.9 million and $0.14 respectively for the fourth quarter of 2009. Our non-GAAP net income increased by 82% to $4.3 million compared to the same period of the prior year, an overall record high.

Non-GAAP fully diluted net income per share increased 73%, an all-time record high of $0.19 per share, compared to the same quarter or the same period in the prior year. These figures include approximately $0.5 million and $700,000 of equity-based compensation expenses for the fourth quarters of 2010 and 2009 respectively.

On an annual basis, our total annual revenue increased 17% with the royalty revenue being the driving force behind the increase and representing an annual 41% growth on a year-over-year basis. CEVA's non-GAAP earning metrics recorded best ever figures of 27% operating income, a 52% increase on a year-over-year basis. Record net income of $12.7 million, a 46% increase on a year-over-year basis, and fully diluted EPS of $0.56, a 33% growth on a year-over-year basis.

As for other related data, shipped units by CEVA's licensees during the third quarter of 2010 were a record 222 million units, up 73% and 57% from the fourth quarter of 2009 and the third quarter of 2010 respectively.

Of the 222 million units shipped, 178 million units, or are approximately 80%, were for baseband chips and reflect significantly higher volume as compared to the prior quarter, in which 106 million units of handsets and non-handset baseband were shipped. This ramp-up was driven by the shipment of large volume of feature phones, especially targeting the emerging economies, as well as the shipment of mobile broadband devices.

Also, of the 222 million units shipped in the third quarter, 199 million units were attributed to license fees currently paid per unit royalties, and 23 million units were shipped by licensees who were under pre-paid arrangements. This compares to 141 million units shipped during the third quarter of 2010, of which 123 million units were attributed to per unit royalties and 18 million units were attributed to the prepaid arrangement.

If you recall, we stated in the prior earnings call that this would be the last quarter in which we would provide prepaid data, and all but one customer exhausted their prepaid status and will start to pay royalties on a quarterly basis starting with the first quarter of 2011.

As of December 31, 2010, 29 licenses were shipping products incorporating our technologies, two higher compared to the previous quarter. This increase is attributable to two new customers that started to ship products for multimedia applications, application processors and baseband-related customers. Also, three customers concluded their prepaid status. As of the end of last year, we had 38 customers under licensing agreements shipping products.

In 2010, our customers shipped a record of 613 million units, a substantial increase of 83% compared to 334 million units shipped in 2009. These shipments correlate with a significant increase in our overall royalty and royalty revenue, which increased 41% from 16 million to 23 million units and contributed nicely to our improved profitability.

And for the balance sheet, as of December 31 of last year CEVA's cash, cash equivalents, balances, marketable securities and long-term bank deposits reached a record high of approximately $131 million compared to $117 million as of September 30 and $101 million as of the end of 2009.

During the fourth quarter of last year, we generated positive cash flow of approximately $14 million and $30 million on an annual basis. This figure for annual 2010 cash flows are obviously taking into account some buyback activity of approximately $1.6 million, which represented approximately 140,000 shares of our common stock. Our DSOs for the fourth quarter of 2010 continued to slightly improve to 42 days compared to 43 days for the prior quarter.

Now for the guidance. As Gideon discussed earlier, we believe 2011 will be a growth year in terms of revenues and particular royalties, which will result in further sequential profitability growth, which has been our practice for the last six years, especially on a non-GAAP basis alongside the continued investment in new research and development programs for future technologies.

Our guidance for the full year of 2011 -- total 2011 revenue is expected to be between $53.1 million to $55.1 million. Gross margin is expected to be in the range of 92% to 94%. Operating expenses, including equity-based compensation expense, are expected to be higher than 2010 levels due to few items. The most significant items will be an increase of 123R equity-based compensation expenses due to new option grants to employees and management. Additional R&D investments in next-generation baseband processors for LTE, as well as for our new MM3000 HD video platform, and higher sales and marketing expenses associated with higher commission-related expenses due to anticipated increase in our 2011 revenues, as well as higher marketing and branding expenses.

Our overall operating expenses are forecasted to be in the range of $36 million to $38 million. Annual equity-based compensation expense is forecasted to be approximately $4.8 million. As I mentioned, significantly higher than the prior years due to the anticipated increase in option grants in light of the minimum grants in 2010 and increased stock price of our common stock, which reflects the fair market value of stock options under 123R calculations. Of this, approximately $300,000 on an annual basis would be in cost of goods.

Annual operating expenses, excluding equity-based compensation expenses, are expected to be higher in the range of $31.5 million to $33.5 million. Interest income is expected to be around $2 million. Our tax rate for the year is expected to be approximately 14% on a GAAP basis and 12% on a non-GAAP basis. Share count for 2011 is expected to be in the range of 23.7 million to 24.1 million shares. Our US GAAP EPS is expected to be in the range of $0.53 to $0.57 per share. And non-GAAP EPS, excluding aggregated $4.8 million of equity-based compensation expense, is forecasted to be in the range of $0.72 to $0.76 per share.

As for the guidance for the first quarter of 2011, revenue is expected to be in the range of [$13.3] million to $14.3 million. Gross margin is expected to be in the range of 93% to 94%. Operating expenses, including equity-based compensation expense, is -- sorry, is expected to be higher than the fourth quarter of 2010 at the range of $8.8 million to $9.8 million. And of our anticipated total operating expenses for the first quarter, $1.2 million is expected to be attributed to equity-based compensation expense. Our non-GAAP operating expenses is anticipated to be $7.6 million to $8.6 million. Interest income is expected to be approximately $0.5 million, tax rate the same as the annual figures 14% for GAAP, 12% for non-GAAP basis. Our share count for the first quarter will be in the range of 23.6 million to 24 million shares, and that all brings us to a US GAAP EPS expectation in the range of $0.13 to $0.17 per share, and non-GAAP EPS, excluding the aggregated $1.2 million of equity-based compensation expenses, is forecasted to be in the range of $0.18 to $0.22 per share.

Operator, we can now open the floor for questions

(Operator Instructions). Gary Mobley, Benchmark.

Congratulations on another good quarter. I had a couple of questions, if I can just lay them out all at once. I was hoping you could share with us what you think your 4G marketshare is in cellular baseband, and as well, could you talk about the licensing pipeline?

And then more specifically in the licensing pipeline, do you see any sort of benefit from a more fragmented baseband market given the evolution of 4G and various other factors as well?

First of all, when it comes to baseband market share in 4G, I think it is premature. Because the way I see it is marketshare is where you have shipments. As far as I know, the shipments and there is a case known one customer that ships products in 4G -- this is Samsung -- the variances are minor basically.

So I would not think about marketshare at this point, but we have a very, let's say, active design activity. I mentioned I think in my prepared remarks 11 LTE design wins per annum. Out of this 11, we have at least two -- just the back of my mind at least four Tier 1 customers. So that is when it comes to the baseband.

Now when it comes to licensing pipeline, I think it has -- I don't -- you know, it is composed mainly on LTE activities both what we call user equipment. User equipment is a collection of handsets and data cards and the infrastructure, femtocell. We see a lot of interest in femtocell using things like CEVA femtocells and the higher integrated part of it, which is microcell and picocell. That is it when it comes to the licensing pipeline.

Okay. One last question for Yaniv. I know you guys have probably put the brakes a bit on the share repurchase program with cash rising as quickly as it is. Any more consideration of perhaps a dividend?

Not at this stage yet. That is something that we may consider in the future. I think this is the first quarter that we have made such a significant roadmap with our royalties. We forecast this continued ramp-up throughout 2011, and I think that will be the right time to revisit this idea of another unit of cash relegated to that market.

I think we will just make our first milestone a NAFTA royalty, revenues and growth opportunities, and we took the first step with the buyback initiative, bid some in the past. You will allow it a bit halted recently, but I guess we could revisit it, and we will revisit it as we go along. Nothing for this conference call yet.

Matt Robison, Wunderlich Securities.

Congratulations on another good performance. First of all, a little housekeeping. What is the headcount, and where do you expect it to go over the next year?

Right now we are 181, and I believe that we will see it no more than 190 or so by the end of the year.

In terms of those five licenses or rather the four that were DSP, how many of them were CEVA-XC, and maybe if you could update us on when the multimedia 3000 will be available for licensing? And you mentioned there was an increment to R&D we should associate with that. Maybe give us a flavor of when that will be and if it will continue beyond when that product will be available for licensing?

And also Gideon, if you could give us a little bit of a sense on what proportion of that remarkable unit growth you saw, the sequential unit percentage, what proportion -- whether that came from indigenous brands or demand from indigenous brands?

Okay. Let's take one step at a time because you will have to repeat the third question. Now when it comes to licenses, you mentioned CEVA-XC. I think you meant CEVA-XC, the new generation DSP, right?

Yes, well beyond the ones that are named after plant life. You know, CEVA-XC surely, but I'm really looking for what is departure that the licensees are a departure from the older legacy architectures. But go ahead --

Out of the five, one is CEVA-XC. The departure -- and if you're asking that is kind of something that I cannot do that size, but we see a lot of interesting moves -- by the way, there are 30 licensees for CEVA and CEVA-XC to date. We see a lot of interest to move to the CEVA-XC, first of all, with new customers. Now companies that in the past did not do baseband and now want to do DSP, I mentioned OEMs that are doing it. When it comes to existing customers to switch, we have, I would say, one out of the three. I mean I am speaking with the key customers, one is already switched, and I think in the coming year we see at least two more from the existing large customers that we have that will switch to CEVA-XC.

Now the second question was about MM3000. This is, indeed, a new growth engine. It enriches the licensing base. I mean it is not baseband product. It is a video, pure video product with the most advanced features like 3-D video. By the way, I'm going to show a prototype of it in the coming MWC show. I believe that we will open in for licensing in the second half of the year. I'm not so sure that we will have significant licensing deals on this product during this year, but definitely we are expecting to have as it more matures early next year.

Now the third question is something that I would like you to repeat.

Yes, I kind of garbled it. I was hoping -- but you had some remarkable unit volume growth, especially on basebands and to $178 million. I was wondering if you could give us a flavor as to what portion of that growth came from I guess you would call them indigenous brands, brands, in-market brands that are different than what have been driving your business in the past?

Okay. I need to elaborate here because I think this is an important question.

First of all, in my prepared remarks, I tried to be very clear that we are speaking now of an expanded addressable market. Our traditional market was basically composed of the branded OEM companies like Nokia, Samsung, LG. Basically six out of the eight largest branded OEMs are using our technology today.

Now (inaudible) segment in the market is from CEVA's standpoint are untapped. We felt more than broadband. We see that we see design activities reaching into the millions of (inaudible). I don't speak too much about it. It is more of a kind of a growth engine. And the second market -- and it is (inaudible) last quarter, the industry and the OEMs in China. These are nonbranded OEMs. In fact, they are feature phones and phones how even sell some smartphones both into the emerging economies like China, like India, Brazil. A significant market that from my standpoint was untapped because MediaTek dominated 90% of the market, and I just gave you that we told you now that only in the first six months of 2010, only MediaTek should (inaudible).

Although we see many companies going into this space like Infineon, QUALCOMM going there, ST-Ericsson. All of these companies are going into this market on top of (inaudible). Now we see that part of this quarter -- basically Q3 2010 shipments have been sent to India.

Here is the thing. If you expect to company with Nokia and Samsung, they speak about 400 million units per quarter roughly like they said for the Q4 shipments.

Strategy Analytics speaks about 498 million. So there is something between 100 million units per quarter, which is between the nonbranded OEMs and the data cards or the mobile broadband side. The growth that we are seeing now I don't -- it is hard for us now to really break down which one belongs to the (inaudible). Overall we are speaking about a significantly larger market, and we are coming towards up to 2 billion units versus 1.3 billion, 1.4 billion that we spoke off in the past, and that is an addressable market offer.

So would it be fair to look at that sequential growth and attribute more than half of it to the penetration of this nonbranded OEMs and mobile broadband?

Yes, I believe so. I mean, again, we monitor early on on a quarterly basis, but half is a good number.

Anil Doradla, William Blair.

Congratulations. Clearly you are in the sweet spot in inflection point. But coming back to the previous question and building upon that, the trend going forward that we saw with the jump up in these unbranded products in emerging countries, is that a trend that will sustain itself in 2011, or how does it break down between the branded and the unbranded over the next 12 to 24 months?

I mean I would not break it down because there are suppliers that are -- some people would consider them as unbranded. Let's take ZTE for example. They are the fourth largest supplier, but most of their shipment is going to the China -- it is basically nonbranded OEMs.

So I would not break it down between all these categories and try to see whether it is segment is going. I am looking to this as one chance. If you ask us how it is going to be in 2011, it will grow. I think the guidance that we gave already reflects some of it. And at the beginning of the year, there are things to have a look. It is a new trend. It is significant. It is a fast growing space, but all of the old guidance reflects it.

And here let me add that some of even the known players in the industry, not just the unknown brand, have paid, for example, Nokia. What they said on their earnings call last week, they announced a 24% increase to 22 million units a quarter in the greater China markets. It is not just the nonbranded. It is even the Tier 1 players that are gaining more access to the Chinese market. It is 24% growth on a quarter by quarter basis is a very, very fast growth in these economies. So I think overall, as Gideon said, we have guided higher revenues. The biggest portion of it is across the royalties. We believe that next quarter we could see a sequential increase in royalties due to these same factors that we just mentioned on at least 12%. So I think that also helps to answer your question.

Great. And a couple of follow-ups. Now if I look at the opportunities, the big item opportunities, clearly we have seen the handset, and that is playing out. We are seeing some of the emerging markets in the handset arena.

But beyond that, you talk about femtocells, picocells and microcells. Clearly that market -- I don't know -- I suspect that it's more close to the handset. But can you tell us, share with us over the next, say, couple of years what are the big market opportunities that you would see some ramp similar to the levels we have seen in the handsets?

So other than the segment that you mentioned, there is the 4G momentum going there both handsets and all the elements.

Now CEVA beyond the cellular has I would say two more business lines. One is call Mobile Multimedia. This is a collection starting from the (inaudible) part, and with those, we have now 41 companies that are in production going both in the consumer side game consoles, all application processors. So that is the mobile.

The MM3000, which will come the second half of the year, will take us to the next step in terms of video features.

Now the other segment is the home entertainment. We are already licensing, and we just announced a new DSP for this market, the TL3211 basically, and that will take us through this whole new HD, the audio, the DTV, Blu-ray DVD, set-top boxes, and the like. The MM3000, by the way, one of the derivatives of the MM3000 is a platform. One of the derivatives will cover all sorts of video. So this will eventually become starting from next year a licensing opportunity for us, and something around 2014 or start of 2015, we will start shipments coming from this fresh new revenue source.

Great. Thanks a lot, guys, and congratulations.

Jay Srivatsa, Chardan Capital Markets.

A couple of follow-ups on the comments on Nokia. Clearly they seem to be ramping up pretty aggressively. What is your sense in terms of transition from TI to Ultimate Solutions as Nokia looks ahead to this year?

Would you repeat the question? I did not --

The ramp-up to Nokia from TI.

Well, that is something that you should ask them. But look, TI has today, as of the end of Q3 2010, already 20% of the baseband market overall, and all these are 3G Nokia. And this should someday grow to customers like Broadcom (inaudible).

I think in their last conference call they mentioned this year there will be a new supplier supplying the Nokia with 3G. I would guess it is somebody using ours, and probably from the second half of this year, we will see an erosion of revenues from 3G from TI moving to royalties for CEVA and taking it into 2012 as well.

Switching to your comments in terms of MediaTek in China, it appears this year at least 2010 MediaTek lost a lot of market share, which allowed several other competitors to jump in and get some of the market share in China. What is your expectation for 2011 in terms of effectiveness of other competitors to continue to pursue that market and which obviously favors you?

Yes, I think I mentioned it in the -- in my prepared remarks. We have a market data trend that 22% of the share in the space that MediaTek used to dominate went over to companies like Spreadtrum. I see them also losing to Infineon and ST-Ericsson anyway.

Now let me tell you this one. It is for us we are winning also to MediaTek because one of the things that MediaTek is doing is coming with the smartphone, on the smartphone for this specific market, and this is married to our technology.

So we hope to see and try to hold the rope and mix two sides. That is what Gideon is referring to, whether it is MediaTek losing market in baseband to some of our customers, which will gain us more business. On the other hand, MediaTek could get back into the space with their higher consolidated, higher end combo of application processor, and baseband, which will bring more new business to CEVA in the application processor front. So hopefully we could enjoy both fronts, and all this is happening and will continue to happen in 2011 and onwards.

The last question on the competitive space in your market itself in terms of DSP IP licensing, have the dynamics changed between yourself and your competitors, or are you seeing more price pressure? Could you give us an update on where things are?

No, I don't think so. I think the failure to market the [balance sheet] that was given, I don't know who -- maybe retail -- who did the DSP landscape market analysis?

Anyway we have there 80% marketshare in the DSP IP space. Our challenge is to convince companies that are not leaving the DSP IP to companies like QUALCOMM to move to our camp and not to use these competitors.

Okay. Maybe one follow-up on the last question. In the past you have talked about how you expect your non-GAAP EPS over the next few years to be somewhere in the range of $0.80 to $1.00. Given that you have guided very strongly for 2011, is there any change to that number? Are you expecting it to be sooner, later? Can you give us an update there?

Yes, sure. You know, we build that midterm model we called it back in 2008. If you recall that was the first time when the shifts in the wireless industry started happening. TI decided to bail out of this industry, and you saw a huge consolidation in the space. And we reckon that three years down the road, we would be the leading provider of DSP technologies. I think, though, year after year post-2008, we are achieving those milestones. And, as you mentioned, that $0.80 to $1.00 is probably really sent around the corner.

We would somewhere down the line build a new model and a new longer-term strategy for the Company, but I think that is an older model, and that is achievable. I would not say when because the 2008 type of model, there is no doubt that based on this new data that we supplied today and the market dynamics that we are all monitoring, including yourselves, this will be, as you mentioned, achievable, and of course, we will have higher expectations as we go along.

Thank you. Good quarter.

Doug Rosenberg, RBC.

A lot of my questions were answered. Just one quick housekeeping. I'm trying to better understand the license trend going forward. I know you guys -- I mean you guys guided for a mid-point of about 20% in revenue growth. I was wondering -- and I understand the majority of that will be royalties. I want to understand in FY11 what you guys expect a little bit for licenses?

I think we mentioned in the past that we are comfortable with these types of levels somewhere between the $4 million to $5 million we have been executing in that range quarter after quarter, and we do not expect any large or big surprise around that.

So this is our comfort level. This $18 million-ish to $19 million of annual licensing if we make and close the right deals with the right customers. And I think over the last couple of years, we have been doing so successfully. That by itself will generate. The royalties will generate growth, will generate profitability, and that is the current strategy and plan for 2011.

With that said, of course, we have other engines that Gideon talked about and other interesting licensing opportunities. But from a model perspective, you want to just say that is the model, and that's our plans for this year.

Okay. And just if I can go back to China for one second. If I follow and sort of see, you are saying the fact that MediaTek is losing its market share and baseband, you think that you expect to be able to compensate in other places also within the emerging markets?

Yes, that is only one aspect of it. The broader aspect of it is what we have talked and Gideon mentioned earlier is the total available market for CEVA. Even if you look at our presentation, the investor presentations over the last couple of years, we have worked with the Gartner's and iSuppli's and believe that the addressable market for CEVA is somewhere around 1.3 million to 1.4 million phones.

Over the last 12 months, that market has expanded significantly, and today we are looking at an existing market of somewhere slightly higher than 2 billion units. This includes the Chinese market from different angles. We have talked about baseband. We have talked about application processors. We have talked about new customers shipping products. They also include the broadband machine to machine connected devices, infrastructure, a bunch of other devices that are all around the modem, DSP types of functionality, which is our bread and butter, and this is what we know and what we do best.

So from all of these factors and an significantly increase addressable market, we are quite comfortable with giving this optimistic guidance for 2011 and hopefully onwards.

Mark McKechnie, Gleacher & Co.

Congrats on the big royalty numbers. I had a couple of questions. How much of your 2011 guidance is royalty versus license, or are you actually going to break that out? And then I have a follow-up.

Usually we don't break that out, but based on the last question that I was asked and then answered, was the licensing front, I guess you could figure out the royalty opportunities. But when we guide, we guide enough for overall royalty, overall revenues and not necessarily break it down to the different sectors.

Gotcha. I mean should we just plan for royalties to be flat -- I'm sorry, the license side to be flat to down the way it was this year, or could you see growth in that spot?

No, flat to up slightly (multiple speakers) yes. Now down I think we have good technology, and we are looking forward to increasing our licensing revenues. And the rest, the bulk will be, of course, coming from the royalty growth.

Got you. And then just to follow up, just a quick math on the ASP trends. Did I hear right, the units that you shipped in Q3 were 222 million, so that would correspond to the royalties that you recognized in Q4? Is that right?

Almost. You are a bit of a newcomer to the story. Unfortunately we had in the past some old history that we've pulled in, which is called pre-paid royalties. So out of the 222 million, 23 million were units that were earlier paid for, and the real paying royalty count is around 199 million.

So next quarter on, it's going to be relatively simple math, overall units and overall royalties, and one could figure out the royalty rate for the whole combination of the Company. It has been $0.04 for the last couple of quarters, and we are comfortable with that level for Q1.

Around $0.04? I guess what I was trying to get at was the uptick or potential uptick in ASPs as you move to newer products. You're still seeing -- the newer products would be obviously higher than that $0.04 average, yes?

That is absolutely right. That is an excellent question. That is true for application processors. That is very, very true for 4G, more than double, and that is true for the infrastructure side. Right now a lot of volume is coming from the emerging economies. But, as soon as we get into some of the higher end or new products, as you call them, that will contribute to the mix.

Doug Whitman, Whitman Capital.

Congratulations on the great quarter, guys. I have a question on the overall year guidance. A year ago you guided relatively flat off the first quarter for the year, and obviously you exceeded the number, and you were feeling fairly conservative about the economy. And so we are looking at the same sort of pattern in your guidance this year, and I know you are a very conservative guider. But could you tell us a little bit is some of that conservatism related to worldwide economic concerns, and what drives it, or is it not knowing what the outlook is six months down the road?

So you are asking me why were -- I'm not sure -- (multiple speakers)

I know you have taken the guidance up. But if you take the first quarter and you times it by 4, you basically end up with the year number, which was the same thing as last year. And so I'm trying to get -- obviously you are on a growth trajectory. I know the royalties will be down in the second quarter sequentially, but could you talk a little bit about some of the conservatism overall for the year?

Sure. I think --

Based on the first-quarter guide?

Yes, the first quarter I think is a very solid good guidance. Based on the guidance, it should be probably the best non-GAAP quarter we ever had if all works well.

The second quarter, you mentioned correctly. There was always the royalty reduction. This is the post-Christmas season. We don't know the magnitude because if we have 36% of the worldwide modem baseband functionality today where we are starting to become a big player, we have yet to be seen how Q1 will look like, and this typical seasonal effect -- usually it is around 20% -- let's see how it plays out this year. And taking that into account and then continuing to grow from Q3 throughout Q4, we came out with this guidance.

I think you know most of our customers, at least the big ones, all public companies. As they guide, as they share that business is booming around the wireless industry, then that should be reflected a quarter after in our numbers. It is pretty simple from that point of view. Of course, you don't have the full picture, lots of moving parts. But if you take it step by step to what we do, if things are better, we will, of course, be happy to announce that things have been up as we plan. We also share with you the way we have. But I think the guidance is based on bottom-line analysis of the market, the landscape, our customer base, and the growth that we could anticipate until 2011 as a base case.

By the way, Doug, I believe you know how to extract the royalty out of the guidance that you gave. The market, the baseband market, is going to grow very strong, and other companies focus about 8%. Our royalty guidance is significantly higher than 8%. So we are growing well above the market.

Okay. Well, thank you for the great results and outlook as well.

That was our final question. I will now turn the floor back over to management for any closing remarks.

Richard? We may have lost Richard, so, again, thank you for joining us today and your continued interest in supporting CEVA. We will be attending the following upcoming conferences and events and invite you to join us there. The first one will be the Oppenheimer 16th Annual Equity One-on-One Conference on February 9 in New York. We then will be attending the Mobile World Congress, the world's largest mobile exhibition. That is February 14 through 18 in Barcelona, Spain. Gideon mentioned lots of interesting demos and new technologies that we will be demoing there. It is worthwhile traveling to Barcelona. And then the Lazard Capital Markets Technology Media Conference on March 14 in Boston.

Thank you, again, and goodbye.

This concludes today's conference call. You may now disconnect.