CEVA Inc (CEVA) 2011 Q1 法說會逐字稿

Good morning. My name is Wess and I will be your conference operator today. At this time I would like to welcome everyone to CEVA's first quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

(Operator Instructions) Thank you. I'll now turn your 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 2011 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 for the quarter, followed by Yaniv who will cover the financial results for the first quarter and will provide guidance for the second quarter and fiscal 2011.

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 would 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 of fiscal 2011, market data from Strategy Analytics incorporated herein, optimism about our customers' product pipelines and market penetration, optimism about our products including CEVA-XC and MM3000, projections relating to smartphone expansion and trends relating to Internet-enabled HDTV and 3-D TV, optimism about our ability to penetrate new markets beyond the cellular baseband market, as well as the positive impact on our business of these various factors.

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 our products incorporating our technology 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 introduce 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 their respective dates.

With that said, I would now like to 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 2011.

Our revenue for the first quarter was $15.1 million, a new record. This result was 42% higher than the first quarter of 2010 and 16% sequential increase. Whereas the revenue for the first quarter of 2011 was an all-time high of $9.2 million, representing an 85% increase over the first quarter of last year, and 23% sequential increase.

Earnings per share on a non-GAAP basis were $0.23, 92% higher compared to last year and 21% higher sequentially. During the first quarter we concluded seven license agreements. Four of the agreements were for our DSP cores, platforms and software, and three agreements were for our SATA/SAS product lines. Geographically, three of the license agreements were in the US, three were in Asia, and one was in Europe.

Target applications for the licenses completed during the quarter are primarily 3G and 4G baseband processors for handsets and infrastructure, smart grid, and SSD drives. During the first quarter we surpassed our financial target driven by market share expansion in the mainstream 2G and 3G segments in new strategic licensing agreement.

Shipments during the quarter represented an all-time record high for the Company as customers shipped in excess of 234 million units of which 213 million were based on processor across all cellular segments including low-cost feature phones, advanced smartphones and tablets from branded tier 1 OEMs.

On the licensing front, we signed three new CEVA-XC agreements during the quarter. Two of the agreements relate to two untapped market for us, base stations and SmartView. Our new base station customer is a tier 1 OEM in Asia, a well-known leader in multimode LTE base station currently using only merchant chips from TI and others in its products.

The customer aims to transfer its design to be based on our CEVA-XC. We believe this comprehensive agreement has the potential to replace the incumbent DSP in the customer other high-volume products including smartphone networking and wire communications devices.

Moreover, we believe this customer endorsement encourages chip companies aiming to do business with this OEM to adopt our CEVA-XC DSP. The other agreement that we concluded during the quarter was with the key player in the fast-growing SmartView market. Our new customer is a pioneer in this space and already has contracts in place to supply solutions to large utility companies among which are Pacific Gas and Electric Company, Pepco Holdings, and American Electric Power.

The customer plans to use our CEVA-XC for real-time wireless transmission of customer an explicit utilization to the utility backhaul. Now let me take few moments and go to some highlights about our market design wins and customer structure.

According to the latest results from Strategy Analytics, the number of baseband chips shipped in the fourth quarter of 2010 was 526 million units. As stated earlier, our customers shipped approximately 213 million basebands during the same time frame representing a 41% market share for CEVA.

It reflects a continued expansion of our DSP across both handset and non-handset cellular enabled products those of which Strategy Analytics account for in their numbers. Please note that we report our royalty revenue one quarter in a row. So the royalty revenue and shipment volume we report on this call actually relates to the first quarter of 2010 shipment.

Our customers continued to gain traction in the cellular space. The following of few data form from the recent Strategy Analytics report. Broadcom baseband shipment doubled in 2010 compared to 2009 and continued to gain new design wins with Nokia and Samsung. Spreadtrum shipped approximately 114 million baseband units showing triple-digit growth in 2010 compared to 2009.

Infineon, now out of Intel, showed almost 80% year-over-year shipment growth in 2010 benefiting from multiple high volume Q1 handset OEM customers such as Apple, LG, Nokia, and Samsung. ST-Ericsson continued its recovery during the second half of 2010, key contributor being GSM/GPRS/EDGE single-chip solution enabled by our DSP being widely used at Samsung and Sony Ericsson and their new 4 HSPA plus model being deployed in Samsung and LG 4G smartphone.

The Mobile World Congress that took place this October in Barcelona and the International CTIA that took place in March in Orlando, Florida were a big focus on new product introduction by our customers. I would like to mention few of these best of breed products.

Broadcom announced its new BCM2157 HSPA and BCM21654 HSPA baseband processor with advanced features including Android for mass-market smartphones. Both processor also support dual-SIM which is a growing requirement in emerging markets that allow migration among carrier for low rates.

Broadcom also announced its next-generation Persona ICE application processor family that would be powering new high-performance multimedia tablets from Compal Electronics, a leading ODM. The Persona ICE also integrate our DSP enabling Broadcom to support large suite of audio enhancement solutions for voice, audio, and IP communication solutions among which is Skype.

[Straddle] and TSMC and [Anwil] dual achievement on the first commercialized 40 nanometer PBS CDMA baseband processor. The processor with a multi-mode supporting PBS CDMA as well as other cellular specifications including HSPA, EDGE, GPRS and GSM, all supporting using software on our DSP.

T-Mobile launched the Samsung Galaxy S 4G using ST-Ericsson M5720 model which is enabled by our DSP. The M5720 is the first model in the industry allowing 21 megabits per second smartphone without compromising size and power consumption. T-Mobile and ST-Ericsson are working together to bring even higher data rate to the market including 42 and 84 megabits per second for future devices.

Intel announced that its XMM 6260 HSPA class chipset which is enabled by our DSP-enabled LG Thrill 4G 3-D, the first mobile phone with 3-D display. Intel chipset is also used in the new Samsung Galaxy S2 smartphone and the Galaxy Tab tablet.

Mindspeed demonstrated the next generation LTE base station products using its Transcede SoC solution. It is the first fully integrated commercially available single-SoC base station solution offering LTE and include 10 of our DSPs.

The recent Mobile World Congress show was a great success for us. In recognition of our advantages and leadership in ELT and video technologies, we had 70 customer meetings in just three days. Together with our partner mimoOn we demonstrate CEVA-XC LTE software capable of transferring two HD video streams simultaneously.

Also we demonstrated a full 3-D video demo running on our newest video platform, the MM3000. Our MM3000 is the world's first platform that supports three distinct multimedia features, 3-D video, HD video conferencing, and vision. This product will be available for licensing later this year.

Before handing the call over to Yaniv, I'd like to highlight few strategic trends that we believe have the ability to announce our long-term growth progress. Though penetration of LTE handset baseband chip was less than 1% in 2010, there is no doubt that in the coming years, LTE will become the main stake broadband world of success.

Moreover, the next generation LTE advances now with formal standard which requires eight times more performance than the current LTE. In addition to LTE, all handset and base stations will have to support the legacy generation like 2G, 3G and its derivative. Our [CYC] technology stands to benefit from these market dynamics. Our software based approach and scalable performance provide all customers with the flexibility, broadness and seamless cross-migration to support next generation cellular products.

In the handset space, it is apparent that the smartphone expansion is accelerating. According to ABA Research, 302 million smartphones was shipped in 2010, a 71% growth over 2009 shipment volumes. Within the smartphone chipset, our DSP are already widely deployed for 3G and 4G model instruction by leading smartphone vendors.

In addition, the increased use of multimedia content, video conferencing, and enhanced voice communications drives the need for DSP as an integral part in the application processing. I mentioned that our DSP is already used in Broadcom Persona ICE in new application processing.

Our new MM3000 video and imaging platform will further expand -- extend our presence within the application processor to support video and vision capabilities to be used as a foundation for many exciting applications. In the home market, the recent -- see as highlighted -- two new significant trends; Internet-enabled HDTV and 3-D TV.

A recent report from GigaMedia projects that 6 out of 10 TVs shipped worldwide in 2015 will have network connection. The 3-D TV is still in its infancy. However, Samsung Electronics expect to market, the market which will grow six-fold to 6 million units this year. We believe the scalability and the software approach of our MM3000 video and imaging platform enabled us to leverage these two untapped but growing markets.

So to summarize, our DSP IP portfolio is due (inaudible) visions and trends in the high-volume markets which continue to drive new strategic licensing agreements for us.

Higher performance, wirelessly connected designs and multimedia-driven products require more powerful programmable DSP to meet the performance and the power consumption expectation of next generation design. Our fundamental technical advantage in this architecture, clear roadmap and rich ecosystem enable the migration to our technology. These cost strengths along with strategic relationship with tier 1 customers provide us with the opportunity to expand beyond our current primary and lucrative markets. The baseband processors for handsets, smartphones, tablets, home entertainment HD equipment and wireless infrastructure are complimentary markets that we are penetrating to provide incremental licensing and royalty revenue for our business.

We are making the necessary R&D investments to develop competitive solutions for the benefit of our customers. We are exciting about these rough engines and are committed to becoming a key player as we already are in the baseband section. With that said, I will now turn to Yaniv for financials and guidance.

Thank you, Gideon. I will now review the results of our operations for the first quarter of 2011.

Revenue for the first quarter was $15.1 million, an all-time record high and above the high end street guidance. This reflects 16% sequential increase and 42% year-over-year increase. The revenue breakdown is as follows.

Licensing revenue was $5.1 million, reflecting 34% of total revenue, 8% higher than the first quarter of 2010 during which we recorded $4.7 million. Royalty revenue was $9.2 million, the sixth sequential record high, reflecting 61% of our total revenues, and 85% higher than the first quarter of 2010 during which we recorded $5 million.

Service revenues were $0.7 million, which accounted for 5% of total revenue, 18% lower when compared to the first quarter of 2010 during which we recorded $0.9 million of revenues. Our quarterly gross margin was 94%, an all-time record high on both GAAP and non-GAAP basis, compared to 93% for both the first quarter of last year.

As for the quarterly operating expenses, research and development expenses were $5.3 million for the quarter, including approximately $380,000 of equity-based compensation expenses. Our sales and marketing were $2.2 million, including approximately $200,000 of equity-based compensation expense. Our G&A costs were $1.8 million, including approximately $320,000 of equity-based compensation expenses.

Total operating expenses for the quarter were $9.2 million, which included an aggregate equity-based compensation expense of approximately $905,000, approximately 16% higher than the operating expense levels for the first quarter of last year.

Total operating expenses for the first quarter, excluding equity-based compensation expenses were $8.3 million, reflecting the mid to upper range of our guidance, and approximately 13% higher than the operating expense level for the first quarter of last year.

The higher OpEx is primarily associated with higher sales and commission expenses due to higher first-quarter revenue, higher research and development expenses in 2011 and to some extent higher compensation and professional expenses in the G&A costs.

US GAAP operating margins for the first quarter of 2011 increased 78% to a record 32% of sale from only 18% for the same quarter in 2010. Non-GAAP operating margins for the first quarter of 2011, excluding equity-based compensation expenses increased 64% to a record 39% from 24% for the first quarter in 2010.

Non-GAAP operating income more than doubled in the first quarter of this year compared to last year from $1.9 million to $4.9 million. And our non-GAAP operating income increased 132% from $2.5 million to $5.8 million.

Interest and other income for the first quarter was $545,000, in line with our estimates. On the tax front, we recorded a quarterly tax expense of $0.8 million on US GAAP basis, and a tax expense of $0.9 million on non-GAAP pre-tax income basis. This accounts for 14% and 13% of pre-tax income respectively.

Our US GAAP net income for the quarter increased significantly by 126% to $4.7 million and fully diluted net income per share increased by 111% to $0.19. This compares to $2.1 million and $0.09 respectively for the first quarter of 2010.

Our non-GAAP net income increased 109% to $5.5 million, compared to the same period in the prior year, an all-time record high. Non-GAAP fully diluted net income per share increased 92%, also to an all-time record high of $0.23 per share compared to the same period last year. These figures exclude approximately $0.9 million and $0.6 million of equity-based compensation expenses, net of taxes for the first quarter of 2011 and '10 respectively.

As for other related data, shipped units by CEVA licensees during the first quarter of 2011 were a record 234 million units, up 92% and 8% from the first quarter of last year and the fourth quarter of last year respectively.

Of the 234 million units shipped, 213 million units, or approximately 91%, are for baseband chips and reflect 20% higher volume as compared to the prior quarter, in which 178 million units of baseband chips were shipped. As of March 31 of 2011, 38 licensees were shipping products incorporating our technologies, the same as the previous quarter, which represent 29 shipping customers.

Some balance sheet highlights; as of March 31, CEVA's cash and cash equivalent balance, marketable securities and long-term bank deposits reached a record high of approximately $143 million compared to $131 million as of December 31, 2010.

During the first quarter, we generated positive cash flow of approximately $12 million and our DSOs for the first quarter hit a record low of 7 days compared to 42 days for the prior quarter.

As for the guidance, as Gideon discussed earlier, we see healthy and active licensing environments for DSP technologies in our traditional baseband markets as well as new markets and applications. As expected, our second quarter royalty revenue will be seasonally lower than the figures we just reported and they represent the post-Christmas to first quarter shipments.

With regards to the full-year guidance, we are adjusting it upwards based on actual first quarter results and our guidance for the second quarter which I will elaborate on in a minute.

Our guidance for the full year; revenue is expected to be between $55.6 million to $57.6 million. Gross margin is expected to be in the range of 92% to 94%. Operating expenses, including equity-based compensation expenses are expected to be higher than the 2010 level and we explained on the prior call.

Our overall operating expenses are forecasted to be in the range of $36.6 million to $37.6 million -- sorry, to $38.6 million. Annual equity-based compensation expense is forecasted to be approximately $4.6 million. Annual operating expenses including the equity-based compensation are expected to be a bit higher and in the range of $32.3 million to $34.3 million.

Interest income net is expected to be around $2 million; tax rate, as I mentioned earlier, 14% on GAAP basis and 13% on non-GAAP basis. Our share count for this year is expected to be in the range of 24 million to 24.4 million shares, and our U.S. GAAP EPS is expected to be in the range of $0.59 to $0.65.

Non GAAP EPS excluding the aggregate $4.6 million of equity based compensation expenses is forecasted to be higher and in the range of $0.76 to $0.82 per share.

As for the guidance for the first quarter -- second quarter of 2011, revenue is expected to be in the range of $12.4 million to $14.4 million. Gross margin is expected to be in the range of 92% to 94%. Operating expenses including equity based compensation expenses are expected to be slightly higher than the first quarter, on a GAAP basis and in the range of $8.8 million to $9.8 million.

Of the anticipated total operating expenses for the second quarter, $1.1 million are expected to be attributed to equity based compensation expenses. So non-GAAP operating expenses are expected to be slightly lower than the first quarter and in the range of $7.7 million to $8.7 million. Interest income net approximately $500,000 for the quarter, tax rate the same rate as I just mentioned on an annual base; share count for the second quarter 24 million to 24.2 million shares.

And our U.S. GAAP EPS is expected to be in the range of $0.11 to $0.15 per share and in a non-GAAP basis excluding an aggregate $1.1 million of equity based compensation expenses is forecasted to be in the range of $0.15 to $0.19 per share.

Operator, you could now open the floor for Q-and-A please.

(Operator Instructions) Suji DeSilva, ThinkEquity.

Hi, guys, nice job on the quarter. The mix of handset in the units has gone up significantly. When do you expect diversification to bring the non-handset part back into the mix more aggressively?

Well, the mix is changing because we are kind of in a hockey stick when it comes to the baseband. The baseband is growing much faster. We do have designs and even some of them are very encouraging. We have a game console -- the new game console that just came out to the market and doing very well. We have application processor -- I mentioned the Broadcom application processor. This is evolving, and expect it to catch up. But the baseband is by far growing faster and that's encouraging for us.

And then on the license pipeline is that -- does that continue to grow here and have you seen any impact on closure rates from Japan or impact in the handset unit market? Thanks.

I'll take that. Overall, as mentioned in -- on the call we see a very healthy pipeline of design win activity from not just a traditional baseband, but rather from new market segments as well. And this last quarter we signed two brand new markets -- DSPs to brand new markets for us.

So I think that we're looking at a healthy pipeline, a healthy backlog of deals. I don't think we're going to change at this point of time our licensing guidance that we have said in the past and we are comfortable with somewhere between the $4 million to $5 million, but I think the environment that you're in towards the higher end and healthier environment than they've been in the past. So I think this is some flavor that we could add on the licensing environment.

And any impact from Japan in these? Thanks.

No, not as much as we know for now. We had discussions with our key customers. They all claim that the production is progressing as planned today and they were not able to identify any specific issues or concern. It's an overall macro concern but for now we haven't seen any direct impact, not in the licensing of business opportunities, nor from the royalty.

Thanks. Nice job on the quarter again.

Thank you.

Joseph Wolf of Barclays Capital.

Thanks. Just wanted to ask two quick questions. One is a -- maybe a redo of the first question which is if you look at the royalty revenues as a percentage of sales, does your guidance keep that kind of steady at this all-time high rate of about 61% or do we expect a little bit of movement or which way do we expect that movement to be in the annual guidance?

And then just -- and if you could give us a comment on the receivables trends that dropped significantly? Looks like there were very good collections. Are we at a new level of normal or should -- how should we look at receivables for the rest of the year?

Let's start with the second. No, I think it was a little bit of abnormal. I think we'll get back to the 40 dayish. At least these are the financial target and seem to be more reasonable.

This course specifically on the first quarter was not fully backend loaded like the IT business usually is, and therefore some of the deals that we did manage to close in the beginning of the year, a big portion of them also we were able to collect the money within the same quarter. So it was a very nice achievement I believe but it's not something that we will see going there forward.

With regard to your other question, I think we have addressed this some time in the past. When we look at the more mature IT companies that are out there which have been much longer than CEVA has, which -- a bit younger in age I think that somewhere between a third to two-thirds, meaning certain new licensing deals which contribute to about two-thirds of the overall revenue coming from royalties, and that's all we see when the more mature companies are out there.

We've been significant achievement over to re Wrote last three or four years going up from less than 20% to 51%. And I think we should be above the 50% going forward and that's where we'll end up with. But on an annual basis I think we're looking at a very, very strong year in royalties. Overall business trend, I would say that probably close to 50% growth on an annual basis from last year.

That's something that I would probably look at as one of our goals for 2011.

Yes, it's Gideon. Let me shed more light here or elaborate. We are in the baseband space or we are -- sweet spot is in the handset space. This market is being -- was recently consolidated.

If you take ST-Ericsson, it's now a combination of phone companies. Broadcom acquired a company just recently. So the marketing is consolidated and as a result you are getting -- in one hand you're getting chunks of big names that have the lion's share of the market and as a result you have less of licensing opportunity.

On the other hand, and that's encourage us at most is the fact that we are taking technology like the CEVA-XC and being able to expand beyond the handset baseband space. And just -- I mentioned in my prepared remarks two agreements -- two CEVA-XC agreements of market are untapped for. That's the infrastructure and in this case the base station and base station is not just the big ones, we have (inaudible) and the smart reaches a big chunk.

We are also getting all sorts of collecting idea of where to take the CEVA-XC even further to other applications. We are studying the implication now.

The good thing about the CEVA-XC and the way the MM3000, it's like house, it's a platform. We build it. We -- and with minor changes in the architecture, minor tuning, you can go to a market that are complimentary or distinct to where we're in the handsets.

Just I guess as a quick add-on to that answer, given the strong cash flow generation and using opportunities to turn this into a broader platform, are there specific areas of spending an exact dollar amounts that have been targeted or maybe what's the right cash flow balance for CEVA right now?

What -- we are investing it and exploring all normal (inaudible) means to enrich what we're doing this year guide intensively. I cannot be specific at this stage.

The other things that we discussed in terms of using the cash, we're discussing all the other financial means to build the cash. We're both meeting and regularly and we have now -- we have buyback in place.

Right.

Let me add to that; essentially the free cash flow should be very similar in an ongoing model basis to the net income because the CapEx is relatively small in this type of IT business model.

And with regards to many of the roadmaps that we discussed in the new market, this is essentially financed by the internal R&D team. So other than the non-organic which is always an option and a valid one as Gideon mentioned, the rest is really done from the internal R&D efforts without any need for additional cash.

Thank you.

Sure, thank you.

Doug Whitman of Whitman Capital.

Thank you and congratulations on the great quarter. I had a question on -- Yaniv, when you took over the Company you had over 100 days accounts receivables and you talked about how with -- as licensing grew receivable days would come down. And obviously -- but you -- and you grew the licensing basically close to 100% year-over-year, but you also grew as well on the other side of the business which is normally typically fairly end of the quarter.

Could you touch a little bit on how the receivable days are so low and what we should expect for the next quarter?

Sure, yes, we just talked about that. I think the seven days is out of the ordinary, I would say. In this specific quarter, some of the deals, those are significant deals, were signed in the earlier stage of the quarter and this is why we were able to collect the money.

I would [resume] to look at the last couple of quarters. This was around the 40 days, probably the 40 to 46, 47 days. I think this is something that we should expect going forward.

I would be happy to show into a more seven-day type of quarters, but I don't think it's that realistic. It would be nice not to have backend-loaded quarters, but more front-end loaded. But this is little bit of the merits of the cash flow and the cash receivable. And to that add the fact that the more low-key, the easier collection it is, because this is an automatic, somewhere between next 30 to next 45 days.

Payments are in, then the bigger the royalty piece is the better payments we have. And as you could see, we have no issues with any of our customers on non-payment basis.

Okay, we'll hold you to the new standard.

No, no. (Laughter) I won't take the challenge. We're not yet at least -- (multiple speakers).

Thank you. You've done a great job on financial control.

Thanks, Doug.

Matt Robison, Wunderlich Securities.

Good morning, and my congratulations to the phenomenal results. Gideon, can we get a feel from you as far -- how do you gauge your penetration into the traditional industry leaders in the mobile device business? And then talk a little bit about how the non-mobile business, at least from a royalty perspective, was this year versus the last couple of years?

Okay, so let me start with mobile. The recent evolvement and the progressing standards makes the DSP processor much more complex than in the past. When it comes to 2G, there were plenty of ways to do it. There were a lot of different DSP.

When you jump and you come to the LTE, and you start dealing -- as I mentioned in the prepared remarks, you need to deal with basically multi-standard. You have to support all the LTE and all the legacy and going forward, the LTE advanced, you need to have a different architecture.

And that's something that we figured out three years ago and now we come to the customer both in the infrastructure side and in the handset side and showing them that they can use this technology and basically do with one platform things that otherwise they would like to do it with two or three different hardware blocks or even chips in the system. So I hope this answer your question about the penetration.

Actually it doesn't answer it at all. What I'm wondering if you can talk about what percentage of the phones that are shipped by these traditional very large suppliers of phones such as Nokia or Samsung, you think you're in at this point?

I mean, you can give me a qualitative -- I realize that your data may not be very precise, but as you go into -- where do you think you are in terms of the ultimate penetration of that business? Are you half the way, a quarter the way, two-thirds of the way, what would be your gauge?

And Matt, we never broke it down. So I'm not sure if we have enough data in front of us. This is not something that we have broken down in the past based on OEM. We do have more data on standard like 2G versus 3G or 4G. It's a bit easier for us but not the end models.

If you look at some of the higher volume opportunities like Nokia and that's the big story that has been around from 2008, we know that the first shipment sent to Nokia replacing TI happened in the last quarter of '09, probably somewhere between 10 to 15 million units.

Throughout 2010, I believe, not more than 100 million units were replaced. And the rest of how Nokia sales, about 100 million a quarter more or less in the next 2 years, 18 months would be a big -- the rest of the portion, the untaxed portion from TI mainly will move to the CEVA customers. And we know it's the Broadcom, it's the Ericsson, Intels of the world and maybe others in the future.

So I think this is the way we quantify it other than going by [skew by skew] and also checking how many Galaxy phones were sold or how many iPhones were sold.

Thanks, Yaniv, that was very helpful. Just before 2009 you guys would have a pretty substantial bump in your royalty units and also royalty ASP during the March quarter to reflect the December quarter shipments.

And of course in the recession years, you didn't see -- we didn't see much of that. And you also had a -- I believe back in the 2008 time frame, you also had a pretty sizable component from -- related to Nintendo.

But at any rate, can you give us a flavor as to how that behaved? Was it the same for the March quarter as it was in the prior two March quarters or did you see more activity from more of a traditional kind of consumer space?

I think it's a lot often with us to do with just the seasonality, with specific product line. Gideon mentioned the (inaudible) the Nintendo, the new game console that we launched a month ago. Close to 4 million units was sold in a single month. Doing very well, my kids are playing with it all the time.

It really depends on high volume or high-end products or low-end products that either the operator, sponsor are just very successful and get traction. So the overall hockey stick, we see the market share taking place over the last couple of quarters.

From an ASP perspective, I think we mentioned that in the last couple of quarters. That's not the main theme that we are targeting just because there are so many different vectors from low-end and high-end products and 4G with Galaxy and so many different products that are out there -- at least for now, with this trend of gaining and continuing to gain market share is very difficult to follow.

I could just say in the highlight that the ASP was slightly up from Q4 of last year to Q1 of this year, but that slowly flavor that you could maybe look at the rest is every phone has a different story whether it's coming from China or consumer or other type of markets

Yes, it looks like it went up about a tenth of penny. It's -- if I wrote your numbers down right, you went from $0.038 a unit to $0.039, is that right?

Of course, to that. Yes, we tend to not talk -- again on that -- and not to do that specific about the fees and season what markets and what segments they're coming from.

Can you give us -- for keeping track just break-down your cash flow between operating options exercise and then give us CapEx depreciation and headcount?

So out of $12 million, $10 million are from operating activities back from the cash flow. Headcount is 188 people at the end of March and third one --

Depreciation.

CapEx and depreciation about -- just north of $100,000 each.

Yes. And are you planning -- what kind of headcount increases do you expect this year?

For now at least we have somewhere around five, six people we're still open positions for R&D.

Okay. I'll let somebody else ask their questions. Thanks again.

Thank you, Matt.

Gary Mobley of Benchmark.

Hi guys. Hope all's well. I just wanted to touch on some of the prepaid dynamics. Are there any residual prepaid brought-up units in the quarter? And then as well do you still have roughly one prepaid agreement still in place?

Yes, you answered your two questions right. Prepaid is not an issue anymore, so we don't have any prepaid agreements this quarter. And as we mentioned last quarter we still have one under prepaid, very old deal, insignificant which we are not breaking out as we saw anymore, because this is no deal, no issue anymore.

Okay. Of the seven license deals signed in the quarter were any of those with licensees CEVA has never dealt with in the past?

Yes, of course. We have -- one second, four, fivish.

Okay. And last question from me, have you seen any change in the competitive dynamic among various third party DSP intellectual property licensures? And I guess I want to -- really what I'm specifically pointing to is the deal MediaTek signed with Coresonic. Does that deal in particular preclude CEVA from getting in there and that as well might you see future competition from third party IP vendors like Coresonic?

There is a competition -- I would say mild competition in the case. You mentioned Coresonic. Coresonic is a startup company with unproven technology. From time to time companies like MediaTek which has a strong NIH inside wants to take the risk and take technology and try to do something for themselves. Probably they are getting all benefit for this.

We are speaking with MediaTek in different respects and I'm not too much concerned about specific cases where companies take small company for unproven technologies and technologies and try to use it. Could be.

All right, great. Thanks.

Thanks Gary.

Anil Doradla, William Blair.

Hi, it's [Brian Eugene], in for Anil. Just wondered if you can comment on the overall MM3000 design traction, when we might expect some licensees there. And then I guess is there any way to compare the level of interest that you're seeing in the MM3000 of the XC ramp that you -- it's now two years later after XC you're starting to see some real volumes there in terms of the designs. Is that the kind of timing we should expect for the MM3000?

Yes, because we expect to get similar traction for MM3000 as with XC and the early indication that we are getting both from customer and looking on the competitive landscape, these technologies like the CEVA-XC has the technology advantage. The fact that we are combining 3-D video, HD video conferencing and vision, or what is called imaging or processing in one platform is appealing and are -- supplement it with software to make it attractive to customers.

Technology is still in late stage in development. I mentioned at the second half of this year we may -- to -- at least to the market we'll make it available. We are already doing road shows with customers. We showed -- in the Mobile World Conference, we've shown a demo there.

By the end of the year it would be available for life, although not -- I wouldn't say by the end of the year, but the second half of this year, it would be available for licensing and we have to see licensing coming.

Okay. And then on the -- both the XC and the MM3000, can we expect once we start seeing volumes there a higher royalty rate? And is there any way to quantify maybe the magnitude of what kind of royalty rate increase we could see from those two platforms?

Yes, sure. From the financial point of view it's very similar to any other new product that comes out, exit is the same). It's the same. A new core versus an older core will always have a higher licensing price because we invested lots of good dollars there and want to get some return. And as well the ASP, the ASP is higher because it's -- those new cores will be able to handle more to save a lot of silicon for our customer or even multiple chips if they could integrate like the MM3000 and multiple disciplinary. On a single core we save them a lot of money on the chip size, battery life, and this is why we are able to charge slightly higher royalties on newer cores compared to old cores.

And as you know, when the volume starts based on different step function or a percentage of ASP, then that goes down over time for the next two or three or four years of shipment. So no difference in change other than new markets, brand new technologies from our end, brand new customers as we exchange this core more than half of the customer of the licensing deals are with new customers and I think the traction is pretty healthy.

All right. Thanks a lot guys.

Thanks a lot. Take care.

Daniel Meron of RBC.

Thank you. Hi, Yaniv and Gideon. Congrats on the very good performance of you guys in last -- in this quarter and last of all years. The first question, I missed earlier the market share that you mentioned that you have right now. Can you just repeat that?

41%.

Forty-one -- four-one?

Four-one, four-one, yes.

Okay.

We moved to -- to the forties now.

All right, that's great. And then can you break it down for us between the Chinese market versus your share of the overall handset market versus, say, Chinese market to segment that?

No, we don't do it. We never broke it down. I'll tell you Daniel, it's a bit misconception about the Chinese market. When we say Chinese market we don't mean that phones that is being done for China. We've been there -- in China, the phones of ODMs some of them are pretty large, some of them even branded like ZTE and [Elowwe]. Basically manufacturer like Nokia manufacturer they don't have their brand. Some of them are phones that are sold in China. Some of them are even coming to the US. So I don't --

Okay.

-- we don't break-down, because it's (inaudible) different. We see the whole mobile market goes for handset and mobile broadband and that's it.

Okay, that's enough. And then maybe just taking a step back and looking at the overall opportunity -- again I'm sorry if I missed that earlier in the call. But how do you look at the total opportunity on long term basis?

Can you quantify, is there a target number that you guys are aiming for in the various end markets that you're going after? What could be feasible and when you say that you think that you guys will have a better position in the LTE market, can you provide some quantification to that or at least provide us with a little clearer view of who else could be playing in that space against you?

Well, if you ask specifically about LTE, currently we have 14 new designs that -- running on LTE. The LTE landscape and the fact that you have new form factor that LTE could be integrated in -- I'm not saying even public but consumer devices, there could be tons of new players that will use LTE as a feature meaning integrating their chips.

So we don't -- it's hard for us at this stage to come and say this is our target. There could be a situation that the market will [regain health]. There won't be one Nokia that has now 30%, but in the past it was 50%. The landscape will not necessarily be the same. So that we are now focusing on getting design wins. In LTE, we are (inaudible) and we are getting.

Some of them are known to us, customers that are using us already for 2G and 3G. Some of them are relatively new customers, some of them even in other markets, smart grid infrastructure. These are also LTE, but the application is different.

Okay, fair enough. And then if you can just relate to the potential or total adjustable market that you guys have in there as market, if you can quantify for us, and how far along that path you are? Are we basically looking for more of those licenses that you've gained to get there, or it's just a matter of those devices getting more traction over the bulk?

It's both. It's getting traction, and I mentioned, take Broadcom for example, they are expanding. They -- last year they basically doubled their volume versus 2009. Spreadtrum tripled the volume. Infineon/Intel now, they people -- also they're expanding and they see only really QUALCOMM that -- give them a fight or in front of them to expand.

And that's traction in the existing market and it will continue. In the licensing that's a new cycle. Now we are getting into the LTE, now we're getting to the infrastructure. This is a brand new customer base that we're now getting wins.

I think, Daniel, to summarize this and we have it in our IR presentation slide, the addressable market in 2015 are north of 4.5 billion units plus. And this is up from 2 million -- 2 billion, and you look to a year or two ago, at just the potential cellular base only. So these are the markets that we're looking into. The more we get into new markets, the larger the [pam] from unit perspective is going to be. That does not take into account machine to machine and the smart green network which could be in the hundreds of millions if not more.

Okay. And this transforms for me. Can you provide us with a little bit more color on -- I think it's been quite a few months, almost six months since Intel acquired Infineon's communication division. Have you seen any changes in the dynamics?

Are you seeing yourselves as part -- as Intel intensifies it position in this space, are you able to leverage that opportunity into additional markets beyond baseband and I think you've related to that in one way or the other during this call and previous call as well.

Yes, of course, we're not been to spokesman. So in this question you need to ask again, and we'll know what technology they're using for their baseband because that's easy. But all in all the opportunity for us there as we mentioned is to add to tablets and laptops and desktops in the future instead of having a 3G or in the future maybe 4G dongles, you'll be able to integrate like Wi-Fi, like Bluetooth on to the same Intel devices or next to the same Intel devices. That is our take on it. And that opens up a new market for us other than just traditional cell phones that Infineon was actee in.

So that's true for Samsung Galaxy, that's true for the iPads and many, many other devices, and of course Intel based processors that will be sold to different applications. When and how this is more for Intel to quantify.

Very good. Thank you and wish you good luck.

Thank you.

And our final question comes from Daniela Ventrone of Matrix.

Hi, guys, congratulations for the good set of results. Couple of questions from me. The first one is on ASP trends in royalty shipments. I remember you talking about ASP going down this year next so I was wondering if you could give some clarity. And the second one is the number of CEVA core handset shipments in the quarter. Thanks.

The second one is the number of core shipments -- chipset --

Handset -- yes, your handset shipments.

Okay, out of the 234 million, 213 million were for baseband.

Okay, but that includes --

Sorry?

Sorry, that includes -- is it just handsets?

Oh, I see what you mean. Out of the 213 million net handset and connective devices. The fact that a quarter ago we started to add that together is just because from a technical reason that when a chip is sold to a specific phone you don't know if it's going to end in a tablet version or in the phone version or what have you. So because there are not -- no specific break-downs of the end-product now everything that is baseband related, whatever market it could go into, it could be machine to machine in the future as well, we'll account that under one basket of connective devices.

Okay.

So we just don't have any way to break it down anymore because the tablets and the smartphone market are just tied and are essentially the same. That's from that technical version.

On the ASP what exactly you -- (inaudible) in the past we said that there'll be some shift to lower ASP because of the market dynamic and the new markets which happened in the last two quarters was, which is the local Chinese market specifically, but with that said we also have new customers, customers that came out from prepaid customers that are slowly ramping up a different consumer or application device, or application processors that have higher ASP. So it's a blend and a mix of answers, but the bottom-line is that we kept it pretty much as in the prior quarters, even slightly better but I'm not sure if this is yet any challenge for the future. We'll have to just monitor it because there are so many moving parts in the royalty careers.

Just one last question if possible. Can you give us the number of licensing agreements at the end of the period and licenses -- shipping license products? Thanks.

Sure. We have 29 different customers which are shipping a product. This correlates to 38 different licensing agreements. And some of our licensing -- some of our customers did license for example (inaudible) and then few years later, a CEVA-XC, and both of these are in production and selling to different markets for different segments. So 38 licensing agreements represented by 29 actual shippers.

Okay, thanks a lot.

Sure. Thank you.

Okay, I think that's about it then for today. Thank you again for joining us and your continued interest and support in CEVA. We will be attending the following upcoming conferences and events and invite us to join you (sic) there.

The Benchmark Company Investor Conference on May the 12th in Milwaukee, Wisconsin, Oppenheimer's 12th Annual Israeli Conference on May 15th in Tel Aviv, Israel, the Barclays Capital 2011 Global Communications Media and Technology Conference on May 24th in New York, the Sterne Agee Tech conference on May the 26th in New York, and the Cowen and Company 39th Annual Technology and Media and Telecom Conference on June 1st and 2nd in New York. Thank you and goodbye.

And ladies and gentlemen that concludes the CEVA first quarter 2011 earnings conference call. We appreciate your time. You may now disconnect.