CEVA Inc (CEVA) 2011 Q3 法說會逐字稿

Good morning, and welcome to the CEVA Inc. third quarter earnings conference call. All participants will be in listen only mode. (Operator instructions)

Please note, this is being recorded. I would now like to turn the conference over to Richard Kingston, Director of Marketing and Investor Relations. Please go ahead.

Thank you very much. Good morning everyone, and welcome to CEVA's third quarter 2011 earnings conference call. I am joined today by Gideon Wertheizer, Chief Executive Officer of CEVA, Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the quarter, followed by Yaniv, who will cover the financial results for the third quarter, and will provide guidance for the fourth quarter and fiscal 2011.

I will begin with the forward looking statements.

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

These forward-looking statements include financial guidance for the fourth quarter and fiscal 2011, the macro environment for the global chip market in 2012, market data from Strategy Analytics, ABI Research, and certain data from our customers incorporated herein, optimism about our customers' product pipelines and market penetration, optimism about the performance our products and competitive advantage, including the CEVA-XC and CEVA-MM3000 product lines, market potential for image signal processing, 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 CEVA, 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, global chip market trends, 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.

CEVA performed very well during the third quarter. We signed a number of important licensing agreements, including a leading licensee for our new CEVA MM3000 video and imaging platform, and a tier 1 handset and tablet OEM for our audio platforms.

On financials, we achieved record highs for gross margins, operating margins, non-GAAP net income, and earnings per share.

Revenue for the third quarter was $14.8 million, which represents 39% increase when compared to the same quarter last year, and was at the high end of our guidance range. Royalty revenue for the third quarter grew 67% year over year to $8.8 million. Earnings per share on a non-GAAP basis were $0.26, an all-time record high, and 86% higher compared to the third quarter of 2010.

Moreover, non-GAAP growth and operating margin were both records, at 95% and 41% respectively.

During the third quarter, we concluded eight license agreements. Six of the agreements were for our DSP cores, platform and software. One was for our SATA product line, and one was for our Bluetooth technology. Geographically, two of the license agreements were in the US, and six were in Asia-Pacific, including Japan.

On the customer products, our 4G baseband processors, video, imaging and audio for smartphone and smart TVs, power line communications, co-connectivity and solid state drives.

We continued to experience strong interest for our technology portfolio, both from existing and new customers. More importantly, this growing demand extends beyond our strong legacy position of cellular baseband products into other large and growing adjacent markets such as application processing for smartphones, smart TVs, and tablet.

With this edge, we achieved an important milestone during the quarter with completion of the first license agreement for the new MM3000 video and imaging platform, and we signed a strategic and important license agreement with a Japanese tier 1 handset and tablet OEM for our audio platform.

In addition, we signed three agreements for our DSP with customers target connectivity and power line communication applications. Our product diversity gives CEVA a significant competitive advantage, allowing us to support the mobile and the digital home markets with a range of (inaudible) high performance, low power architecture and software technologies that otherwise would be very difficult to find in the IP market, and the return of investment would be diminutive if developed in-house.

Let me take a few moments to provide you with additional details on the first licensing agreement for our MM3000 platform.

Our leading customer is a well-known, high volume, China-based chip vendor in the smartphone, tablet and smart TV market, who selected the entry level core for our MM3000 platform, the MM3100, to be used for image signal processing, ISP. Briefly, ISP is composed of relatively large set of computing intensive DSP technologies for producing high quality still pictures and HD video out of a low cost sensor and optical lens that exists in every smartphone, feature phone, tablet, smart TV, and the like.

As we have stated in the past, the MM3000 platform carries a unique value proposition, by effectively consolidating two important multimedia functions, video and imaging, into a single DSP. We believe this processor based architecture can deliver an outright silicon size reduction of between 40% to 50%, in comparison to convention architectures composed of [hard-linked] video and imaging blocks.

Moreover, the software nature of this technology provide the flexibility to reuse the same platform for different applications and markets, thereby bypassing the long and costly process of silicon [wristbands] that would be required in case of hardwire based architecture.

The market potential for ISP processing is enormous. It extends far beyond smartphones. It includes previously untapped markets for CEVA such as printer, security equipment, and automotive, where multiple cameras will be used for various sector (inaudible) measures.

Our strategy for scalable photo-based architecture, both for video and ISP, provide our customer with platforms that can be easily adapted to multiple markets and price points. We are extremely encouraged by the recent positive feedback from and progress of technical validation by potential customers. In power line, we will continue to further and reach our software and ecosystem to encourage more customers to adopt this promising technology.

Let me at this stage share with a few key highlights of our market and customers.

According to a recent Strategy Analytics report, the global cellular baseband processor market showed a healthy 23% year over year [yearly] growth. However, CEVA once again significantly outpaced the market, as our unit growth was an outstanding 113% for the same period.

According to Strategy Analytics, inter-baseband unit shipments showed an impressive 44% year over year growth. Inter-GSM (inaudible) EDGE baseband are now featured in the long awaited Nokia low cost dual SIM products. Dual SIM caused a large subscriber to manage costs and network coverage. Emerging markets constitute two thirds of the global handset market, and it is an important part of Nokia's overall strategy.

Until now, it is now a strong number two to Qualcomm in the 3G market, with 27% volume share in Q2 2011, with an impressive 76% new (inaudible), Intel's 21 megabit per second HSPA class (inaudible) 6260 is featured in Samsung's flagship smartphone, the Galaxy S2. The Galaxy S2 has already surpassed the 10 million units mark in terms of global sales.

Broadcom, showing an impressive 104% unit growth in Q2 2011 compared to the same period a year ago. Most of its growth is derived from 2G baseband. The Strategy Analytics Broadcom penetration in its two primary customers is still low, and has plenty of room to grow. Its management reiterated that Broadcom is on track to be in March production with Nokia in 3G starting 2012.

Also, at Samsung, Broadcom has a number of design wins in new 3G phones going into production, including the Galaxy Y series running Android, and Samsung Wave phones running beta 2.0.

Spreadtrum showed a triple digit year over year growth. In the PDA/CDMA China Mobile 3G standard, Spreadtrum is gaining shareholder (inaudible), and per the company, to hold more than 50% of the shipment volume in the [TD] market. Spreadtrum customers include more than the 30 global domestic T1 manufacturer and design houses, who have introduced more than 72 featurephones and smartphone models in 2011, among which is the Samsung Galaxy S2 and smartphones from (inaudible) and (inaudible).

China Mobile expect to have more than 100 million PDA/CDMA subscribers by the end of the year. Going forward, China Mobile is actively promoting its own healthy version, referred as [TVNT], and is collaborating with global operators such as Clearwire, Vodafone, (inaudible) of India, and (inaudible) of Japan, to speed up deployment.

Other high profile operators such as AT&T and Verizon are adopting a substantially different LTE version, called (inaudible). We believe OEMs and baseband semiconductor companies who are looking for a unified platform to support all these different standards will find our CEVA XC DSP to be the only viable DSP that allows multimode baseband by means of software. We have currently more than ten design wins for our CEVA XC platform.

What ABI Research see a significant chip and component [software] strategy, Samsung has chosen a CEVA power baseband solution from VIA Telecom to supply the CDMA (inaudible) chipset for its new LTE Droid Charge smartphone and Galaxy LTE tablet, targeting the US market via Verizon. This is an important development, as it represents the first time Samsung has selected a vendor other than Qualcomm for Verizon based smartphones. In addition, the LTE baseband chip in the Droid Charge is also enabled by CEVA DSP.

Lenovo ThinkPad x121 and laptop (inaudible) mobile professional in large organizations, comes equipped with integrated Ericsson mobile broadband modem card, supporting HSPA Plus, up to 21 megabits per second. Lenovo also introduced ThinkPad tablet during the quarter, utilizing the same cards for mobile broadband.

The Ericsson card is enabled by our technology. Ericsson is well -- also working with silicon partners such as AMD, Intel, NVIDIA and Texas Instruments to embed its mobile broadband module with their chipset for a large range of products, including notebook, netbooks, and tablets.

The new Motorola ATRIX 2 smartphone introduced last week by AT&T is leveraging SG Ericsson's 21 megabit per second HSPA Plus baseband platform, powered by CEVA DSP. This represents the first time that CEVA DSP has been deployed in a Motorola smartphone. The same (inaudible) phone from SG Ericsson is also being used in the Sharp AQUOS 1 or 2 SH 3D smartphone for the (inaudible) network in Japan.

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

Thank you, Gideon. I'll now review the results from operations for the third quarter of 2011.

Revenue for the third quarter is $14.8 million, at the high end of our guidance, reflecting a significant 39% year over year increase. The revenue breakdown is as follows.

Licensing revenue was $5.2 million, reflecting 35% of total revenue, 17% higher than the third quarter of last year.

Royalty revenue was $8.8 million, reflecting 59% of our total revenue, and 67% higher than the third quarter of 2010.

Service revenue was $0.9 million, reflecting 6% of our total revenue, 12% lower than the third quarter of last year, during which we recorded $1 million.

Our quarterly gross margin was 95%, a record high on both GAAP and non-GAAP basis. This compares to 91% for both -- for the third quarter of last year.

And for the quarterly operating expenses. Research and development expenses were $5.2 million for the quarter, including approximately $510,000 of equity-based compensation expenses. Sales and marketing costs were $2.1 million, including approximately $291,000 of equity-based compensation expense, and our G&A costs were $2.1 million, including approximately $553,000 of equity-based compensation expenses.

Our total operating expenses for the quarter were $9.3 million, which included aggregated equity-based compensation expense of approximately $1.4 million, and are approximately 26% higher than the operating expense levels for the third quarter of 2010.

Our total operating expenses for the third quarter, excluding equity-based compensation expense, were $8 million, reflecting the lower to mid range of our guidance, and approximately 16% higher than the operating expense levels for the third quarter of last year. This was mainly due to higher headcount and to related costs in R&D and sales and marketing, as well as from higher project related expenses for our CEVA XC chip, and our MM3000 offerings.

Our total expenses for the third quarter of this year were 4% to 5% lower than the level that we recorded during the first and second quarter of this year, mainly due to the timing of a few R&D grant payments.

US GAAP operating margins for the third quarter increased 52% to a record 32% of sales, from 21% for the same time last year.

Our non-GAAP operating margins for the third quarter, excluding equity-based compensation expense, increased 58% to a record 41%, in comparison to 26% only for the third quarter a year ago.

US operating income more than doubled in the third quarter of this year, as compared to last year, from $2.3 million, to a record $4.7 million. Our non-GAAP operating income increased 117%, from $2.8 million, to a record $6.1 million for the third quarter of this year.

Interest and other income for the quarter was $784,000, higher than our estimates, due to higher cash balances.

On the tax front, we recorded a quarterly tax expense of $0.6 million on a GAAP basis, and $0.7 million on a non-GAAP basis, on the pretax income. This accounted for 10% of pretax income for both.

Our US GAAP net income for the quarter increased significantly, by 65%, to $4.9 million, and our fully diluted net income per share increased 54% to $0.20. This compares to $3 million and $0.13 respectively for the third quarter of last year.

Non-GAAP net income doubled by 107% to an all-time record high of $6.3 million, as compared to the same period a year ago. Our non-GAAP fully diluted EPS increased 86%, to an all-time record high of 26% per share, compared to the last year. These figures exclude approximately $1.4 million and $0.5 million of equity-based compensation expenses net of taxes for the third quarter of 2011 and 2010 respectively.

Other related data. Shipped units by CEVA licensees during the third quarter of this year were 250 million, up 76% and 1% from the third quarter of last year, and the second quarter of 2011, respectively. This is the 11th sequential quarter, consecutive quarter, that our customers have increased CEVA powered unit shipments.

Of the 250 million units shipped, 226 million units, or approximately 90%, are for baseband chips, and reflect 2% higher volume as compared to the prior quarter, in which 222 million units of baseband were shipped.

As of the end of September, 29 licensees were shipping products incorporating our technologies, the same as in the previous quarter, and we had 38 shipping customers under licensing agreements.

As for the balance sheet items, as of September 30, 2011, CEVA's cash and cash equivalent balance, marketable securities and long-term bank deposits reached a record high of approximately $156 million, compared to $153 million as of the end of June. During the third quarter of this year, we generated positive cash flow of approximately $3 million, and our DSOs for the third quarter were 28 days, compared to 23 days for the second quarter.

Now for the guidance. On the royalty front, as usual, we have not received all the royalty reports for the third quarter shipments to date. But in general, we are encouraged by the positive trend indicated by these reports. As a result, we anticipate a noticeable sequential royalty revenue increase for the fourth quarter.

On the licensing front, from ongoing discussions with prospective and existing customers, we are told that despite general concerns about the macro environment, at this point, operational and development programs are progressing as planned. We will continue to act prudently with regards to our licensing revenue for the fourth quarter.

Given the positive trend on the royalty front, and the consistency on the licensing front, we are, for the third time this year, adjusting upwards our full year guidance, based on actual results for the first three quarters of 2011, and the guidance for the fourth quarter, which I'll elaborate on in a minute.

As for the annual guidance, total 2011 revenues expected to be between $58.5 million to $59.5 million. Gross margin is expected to be approximately 94%. Operating expenses, including 123(R) related, are expected to be in the range of $37.2 million to $38.2 million. Annual equity-based compensation expense is forecasted to be about $4.7 million, of which approximately $0.2 million in cost of goods.

Annual operating expenses, excluding equity-based compensation, are expected to be in the range of $32.5 million to $33.5 million. Interest income, net, is expected to be around $2.7 million, and the tax rate is expected to be about 13% on a GAAP basis, and 11% on a non-GAAP basis.

Share count for the year in the range of 24.2 million to 24.4 million shares. US GAAP EPS is expected to be in the range of $0.71 to $0.75 per share. And our non-GAAP EPS, excluding the aggregated $4.7 million of equity-based compensation expense, is expected to be in a new high range of $0.90 to $0.94 per share.

As to the guidance for the fourth quarter, revenue guidance is expected to be in the range of $14.2 million to $16.2 million. Gross margin is expected to be approximately 94%.

Operating expenses, including equity-based compensation expense for the -- are expected to be slightly higher compared to the third quarter, in the range of $9.2 million to $10.2 million. Of the anticipated total operating expenses for the fourth quarter, $1.3 million are expected to be attributed to equity-based compensation expenses.

So, non-GAAP operating expenses are expected to be higher than the third quarter, but similar to the first and second quarter levels, and in the range of $7.9 million to $8.9 million.

Interest income is expected to be around $650,000. Tax rate, GAAP and non-GAAP basis, of 13%. And our share count for the fourth quarter is anticipated to be in the range of 24.3 million to 24.5 million shares.

US GAAP EPS, expected to be in the range of $0.15 to $0.19 per share, and our non-GAAP EPS, excluding the aggregated $1.3 million of equity-based compensation expense, is expected to be in the range of $0.20 to $0.24 per share.

Operator, we would now like to open the Q&A session.

(Operator instructions) And our first question will come from Anil Doradla of William Blair Company. Please go ahead.

Hey, guys. Congratulations. Another great quarter. A couple of questions. You know, now we're close to the $1.00 to $1.20 range, or pretty much in there, a target that you guys gave out a year or two ago. Is it not time to update this? And I have a couple of follow ups.

Yes, so, thanks, Anil, first. Good morning. You are right that we had a midterm target, I would say, probably two years ago, of $0.80 to $1.00 that we believed and then communicated that that would be achievable within the next three years. I think you realize from the guidance that we gave in 2011, that we have probably done that and reached that a year earlier. So first of all, we are very happy that we were able to achieve what we have promised two years ago, and do it a bit quicker.

We will move and give 2012 guidance, I believe, in our January 2012 conference call, and we'll have a little bit, of course, more insight about next year. And with that said, by then, we'll also consider if we have a new range from the EPS perspective.

What we do have right now is internal plans, and that's on the baseband side, is essentially to triple the 2010 baseband units, again, within two years, more or less. And that will, of course, increase market share. That will help and continue to drive the model going forward.

So, if in 2010, out of about 600 million devices, 450 million were attributed to baseband business, we would like to see that, two years down the road, close to triple.

Awesome. Well, looking forward to that. And also on China, clearly, you are seeing a traction with some of the leading guys there. I mean, there's so many moving parts of the story. How should I be looking at China -- you know, kind of on a 12 to 24 month basis? Is the opportunity from China going to exceed whatever baseband units you do here, and coming back to your [three ex-baseband] guidance, is that China driven? Can you help us frame the China opportunity on a 12 to 24 month basis?

(inaudible), Anil, this is Gideon. Looking in China, it's (inaudible), it's a bit complicated. But in general, you can divide the market there or the OEM part of it, box manufacturer, into two part -- those that manufacture phones for domestic, and then, and those that manufacture outside of China to other emerging territories like India and other.

In terms of the China market, in the terms of the domestic market, you're going to see two major trends. One is the PDA/CDMA. I mentioned in my prepared remarks that Spreadtrum is in an excellent position there, with 60%. Now China Mobile is taking the next step by opening the phone industry there to a retail side, so you're going to see more and more forthcoming from independent OEMs, and that's where Spreadtrum has strength, they are much better positioned than their major competitor and (inaudible).

And then there is the -- there is the wideband CDMA, the 3G, and that territory that, from our standpoint, being approached by Broadcom and SG Ericsson, and Infineon, there is a platform to do it there for them. There is the 2G that is now moving from GSM to EDGE, and if you -- you know, the Nokia, they mention 18 million phones coming, from zero to 18 million in one quarter, dual SIM phone. This the EDGE revolution. Broadcom is very strong (inaudible) in the EDGE, so they're -- and Spreadtrum now is with the 6810 EDGE smartphone. Mediatech is having a smartphone based on our technology.

So on the EDGE, migration from 2G to 3G, that's (inaudible) millions and millions of technology.

So that's with China. I don't know if you referred your questions to the other economists, but in general, that's the economy in China.

Okay. And finally, the cash position is great, what, $150 million plus dollars. One thing that investors constantly ask is the use of cash. Are we going to see some M&A, special dividend stock buyback -- I mean, what are your plans? And thanks a lot for that.

Anil, this is the first time that you joined the game about asking about our cash. (laughter) Let's talk about the market. Forget the cash. (laughter). We will -- that's one bad point for you, though.

Okay. Cash is piling up, and this is a nice problem to have, that we know and talked about. I think that we are looking at the cash a little bit different these days than we have in the past, and the key aspect is that we are finally getting into the application processor. And if this trend will continue, it will have a lot of add-ons, the ecosystem and different ideas and thoughts that we will need to expand into and want to expand into, in order to -- and reach the offering, and to explain and show the customers the benefits.

Gideon talked about 40%, 50% cost savings, and (inaudible), the [geography] savings of different solutions in the ISP space. This could be diversified into audio, video, graphics, many, many more augmented reality, and then many others around these application processors market, and this is where we are now much more focused in trying to use the cash, you know, to leverage these opportunities.

Okay, great. Thanks a lot, guys. Congratulations, and looking forward to 2012.

Thank you, Anil.

Our next question comes from Joseph Wolf of Barclays Capital. Please go ahead.

Thanks. I wanted to see if we could talk about the licensing and the royalties, given the momentum in the business. I know that the longer term model was for a higher -- or, about a two third, one third royalty versus licensing, and that seems to be -- I guess that's for good reasons.

I'm wondering for the -- what kind of near term we could be looking at this $5 million to $5.2 million licensing, as a trend for a new normal compared to the prior guidance. And that would be my first question.

Or, actually, the extension, what kind of timing could we be looking at in terms of some of these licensing (inaudible) in 2011, really contributing on the royalty side in 2012?

Okay, sure. With regards to the licensing, let me give you a brief record as to how we see the licensing going forward. First of all, in terms of prospects, when you -- when I look on the list of companies and the status of the agreements, the pipeline is there, significantly better than or stronger than we had in the past. And there are two type of customers. One is those that are looking for our baseband technology, ISP, and the power line communication of smart grid, and that's US customers coming, they are newcomers, or incumbents that are now upgrading for the next generation or getting to the third (inaudible) mass market.

And then the other parties, the multimedia, and we have two type of product there also, audio and the video and ISP, which I'll elaborate on (inaudible).

Now, so, in general, I would expect that the license revenue will gradually grow throughout 2012 to the new sources of revenue, or the ISP and the baseband from existing customers is (inaudible).

Now, going into Q4, as we stated, we are taking a prudent approach. You know, this is -- I mean, there is this on the concern about the global economy, the quarterly trend is pretty sure because we have the holiday season coming. All these things, it's something that if we were -- if I were -- we were now in Q1, I would be a little more strong, take a more stronger position in licensing. But in general, I am happy with what we've seen in the licensing. (inaudible)?

Yes, (inaudible), we continue to see a good trend there. If you -- as you know, we in Q4 represent our customers' Q3 shipments, and if you look at most of the announcements, the public announcements that were made from some of our customers like the Broadcom and Samsung, and the success of the Galaxy and the US well known (inaudible) that is still using us, (inaudible) part of their products, and the Nokia comeback, as we mentioned earlier, in dual SIM, from 0 to 18 within one quarter -- million units -- this is all happening, and helping us in 2000 -- hey, now, in Q4.

So, we're seeing good -- very good numbers in (inaudible), sequential growth. We're taking a little bit, as Gideon explains it, the slight lower approach than the $5 million, it's just to be on the safe side with this macro environment. I hope that these clouds will drift away. We have not seen any slowdown in development cycles or need for new technologies, but just trying to take it a bit prudent. And overall, we are coming up with better guidance in our internal models and we're (inaudible) for the last couple of quarters, for Q4.

So I hope we managed to answer your first questions.

Okay. Did you give out the whole market number and the market share that you guys think you had in 3Q?

Yes. We had 226 million baseband out of 555 million. That's the Strategy Analytics number for Q3, Q2 shipments. These are all the cellphone and connected devices around baseband. So that comes out to 41%.

Okay, great. And I guess, I know you touched on this, and you mentioned a bunch of customers by name, but is there any visibility into the end user Apple right now, given who you're selling to, and then your strategies, or is that something that's still a work in progress?

You know, I don't know think we or the market know anything newer in the last couple of weeks post the 4S announcement. It's clear that 4S and Qualcomm and they are supplying the baseband. It seems to be clear that Apple chose multisource, like many other big OEMs before them, whether it's with Samsung, or Nokia, or Motorola, or many other players -- all the other players, essentially. And we believe that if Intel does continue to power the 4G, the 4S and the 3GS versions, and Apple is trying to increase their market share in the emerging economy, and this is where the volume is, it's not really just the high end, but it's the emerging -- the midrange in the emerging value market, then we will consider to enjoy royalties from Intel from those two major volume sockets. So this is how we see the opportunity within Apple.

iPhone 5 is up for grabs. I mean, nobody has real insight there, but the iPhone 5, if it includes -- if it will include LTE, or a more advanced solution, I think everybody and all the baseband players today have a decent shot with their technologies, and we could go one by one, but I think we know all the players, the major players there, to see what would fit and what would be the best solution for Apple.

All right, great. Thank you.

Thank you, Joseph.

And our next question comes from Vijay Rakesh of Stern, Agee. Please go ahead.

Hi, guys. Thanks. I was just wondering if you could give some color on the China market, what it was -- what it is for the second half of this year, and how do you see the China market for next year in terms of US share there?

Well, China market, again, it's divided to domestic and export. PDA/CDMA in my opinion will grow fast. I see more and more commitment from China Mobile (inaudible) this standout, so we see more of this, and that's good news for Spreadtrum.

Then comes the EDGE and the 2G. We have built a strong presence (inaudible) and Spreadtrum, and they will -- in my opinion, they will expand their market share. The EDGE takes them to a smartphone market, where the ASP will be higher and in terms of (inaudible) royalty, higher.

And then comes the 3G wideband CDMA, where in terms of its competition, Qualcomm, is strong there, but Broadcom and Intel are catching up very fast. Broadcom is now -- I mean, they made the announcement about (inaudible) design wins (inaudible) design wins, and Lenovo design wins.

So these are things that will develop, and we're going to see development there.

Got it. And with the iPhone 4S, like you mentioned, probably it's some headwinds. Do you -- what are the offsets that you see, even with that gap you see a nice pickup in the next year in terms of units, from your customer (inaudible) in the China handset market, or otherwise can you give some color to that?

Yes, I think again, this market has a lot of moving parts. We mentioned a few in the call, quite a few design wins and products are introduced. The most significant one, and I think everybody had their eye on, was the Nokia dual SIM. You could see the volumes within one quarter jumping 18 million units for the first time. That's CEVA powered. I think Gideon mentioned the new Motorola ATRIX 2 smartphone. This is the first time CEVA is powering a Motorola smartphone. This is not memory in our forte. So this is through the [STE] which got into the very nice platform solution.

We mentioned the Lenova ThinkPad, we're powering in the market today, and a bunch of different other phones that we could see.

So, there's a lot of fragmentation in the market, because one model could be very successful, and two, our customers and our staff, others, we could be, like iPhone, dropped off a bit from -- to high volume, because of your sharing space. But other than the Apple story, which is new, I do not recall us being dropped from any other socket.

So from all these other trends, as long as our customers win market share and the market grows itself, and we maintain our large portion of it, we were able to generate more units, and also, more royalties. I think that's the -- I'm trying to simplify it, because the answer could be very long, but the right way to look at it are the market opportunities.

And again, this is just the baseband unit. We talked in length today about brand new opportunities, and many other markets, including our old design wins in base stations, that we've won in the last 12 to 24 months, and should be kicking in. So I think we have a lot of interesting new things going on from the royalty front. (multiple speakers)

Vijay, just to have -- to what you need to (inaudible), 5% market share on the global basis. If they want to grow, and I think that's what they are saying, they should look into the emerging market, where two thirds of the market worldwide is theirs.

And I think that's the rationale for keeping the iPhone 4, (inaudible) using it, of course, I believe other than the feature set reduction that they did moving from a -- reducing for [16 mg to 8 mg], they did -- they are doing a continuous improvement on the manufacturing, on the chipset, (inaudible -- music playing). Just to reach the midrange market, the 300 plus level of smartphones, and that's the range which we are very strong.

Got it. Okay, thanks for that color. But last question. You have said a single chip in a 3G, 4G, together on a single chip. Gideon, when do you see that coming out, and on board the PDA/CDMA also?

Well, PDA/CDMA, they are all over in the market, whether it's shipping, and the trend looks very nice there. [MTV], we have a few design wins, without going to specific names. They are already field testing. They are in the field testing.

Got it. Okay, great. Thanks, (inaudible).

(multiple speakers), other than Samsung that's already in production with Verizon, we have few customers that are in field testing now.

Okay, great. Thanks.

Thanks, Vijay.

And our next question comes from Daniel Meron of RBC Capital Markets. Please go ahead.

Thank you. Hi, Gideon and Yaniv. Congrats on another set of very solid numbers. Good work. Just a quick question from me. I think you guys mentioned Apple. Can you shed a bit more color on the Nokia phone? I think on the one hand, obviously, (inaudible) are moving to Qualcomm, but it seems like some other designs, midrange designs, are probably -- it looks like they're going to use your solution, so I guess it's the same equation that you applied on the volumes going to emerging markets, etc., going to ascertain your (inaudible) in the long term? Is that the right way to look at it?

Well, Daniel -- it's Gideon. First of all, the new phones that Nokia announced, we are willing to take some time to understand exactly who is there to be sure that the -- who are the suppliers. But let me tell you in general.

When it comes to the smartphone, and this is the Windows based, the (inaudible) based phone, this was not supposed to be a market that we were hitting. This was an LTI market, initially it could be [Simbia], now moved to Windows.

But if I can refer to you to the conference call that Broadcom had two days ago, they feel -- put it very clearly that they are in discussion with Windows, to port their technology into the Broadcom chip, which is very (inaudible) to us, eventually.

Now, so that's (inaudible). But 80% of the volume that Nokia is shipping is not Windows, and that's what we see significant. Out of the 80 -- just to give you an example, out of the 86 non-smartphones for us that Nokia shipped in Q3, just repeating in the new dual SIM phones coming, and all of them very (inaudible). So, obviously, there are more.

But the featurephone and the (inaudible) smartphone part of, whether it's 2G or 3G, this is our ballpark. And going forward in the smartphone, we need to take time that our customer like Broadcom, SG Ericsson, will catch up with the Windows porting, and they will be (inaudible) with it.

Okay, very good. And then, just going back to the market share, I think you guys said 41% from the second quarter shipments. Two questions there. The first one, this has been the number, I think, off the top of my head, for the last two, three quarters. Anything intrude into that, was just a matter of how do you define the market versus how did you define it beforehand? And then, the other part of it is, do you still see a lot of room for the transition within Nokia from TI towards your solutions or OEM? And I say 80% or 90% of the (inaudible) already are there.

Yes, that's a good question, Daniel. First of all, I think you're right that the 41% was in quarter -- the quarter before. I don't know if it's two quarters, because that's why it's not on top of my head. But we are now reporting the Q2 '11. Between Q1 '11 shipment and Q2 '11, the market was flattish, and we maintained the 41%. So in terms of growing, we basically stay with the market.

However, there were two (inaudible) that basically stop our growth (inaudible), keeping -- catching -- penetrating (inaudible) and growing our markets. One is the late arrivement of the dual SIM phones for Nokia, which is now the everything, the Q3 shipment. So there is this (inaudible), of course, the quarter, and to come out to the market the quarter before. I don't know what happened there, but they were late. So that's -- so we missed this (inaudible) and 20 million units that they were supposed to ship.

And the other one is [remote] and kind of a general, is, in order for us to gain more market share, we work -- we need to get more 3G, in particular, in Broadcom and SG Ericsson. Intel is now number two, they have 27%, but Broadcom is -- has very minimal shipment. They are -- they spoke two days ago about their 3G in Samsung, and they spoke about going into Nokia, and this, I believe, is still significant volume in 2012. And that's -- this is the point where you're going to see our market share growing.

And I want to refer to what Yaniv was saying, that the target, the important number for us, the target is to get in two years to -- on top 1.3 billion, 1.4 billion units, versus 400 something that we had back in 2010.

Okay. Very, very well. And then last question, just housekeeping. 10% customers, Yaniv, who were they in the second quarter, or for the year -- I'm sorry, third quarter, or year to date, if you can just give us a sense on the numbers, and if there is any visibility on how we should think about end customers that these numbers are flipped?

I believe we had three 10% customers this last quarter versus two in Q2. And I -- maybe are the two were, maybe out of the three, two are becoming royalty players, and one is a new licensee. That's typical -- I mean, just (inaudible) some (inaudible) historically, in order to reach around 5 million units, we have one or two or three 10% customers, and now, some could include a royalty payer, the significant ones, and some are just coming from deals. So that will be a change from that dynamic. It's still the same story.

Great. Can you name those 10% customers?

No, we do it on a quarterly basis in our 10-Q based on A, B and C, and you're more than welcome to take a look at that from this -- within the 10-Q and 10-K that is out there. But not (multiple speakers).

Very well. Okay, thank you. Good luck.

Okay, thank you, Daniel. Thank you.

Your next question comes from Matt Robison of Wunderlich. Please go ahead.

Hey, thanks for taking my question, and I apologize if some of this has been asked. The call is -- the con call service seemed to drop my line for quite a while there.

Anyway, I'm encouraged by the bounce in royalty ASP, and I wanted to get some flavor for that. Maybe if you could let us know what the mix is like in terms of Teak versus CEVA and CEVA XC, and where do you see it going over the next few quarters? Just obviously, it's -- well, go ahead and start, answer it now, I guess.

Yes, you know, I'm happy that you're delighted. We are delighted from the overall picture, not necessarily from the ASP. You know, it has -- the model is way too complex. It depends on so many different customers and products and technologies that are shipping. So overall, I think that the key here is not the ASP. As I mentioned, and Gideon has mentioned, it's the volume, it's the overall royalty trend.

There is no doubt that in this -- we should highlight again, and make sure this is clear, that this is not on a quarterly basis. Ask, let's check this number a year from now, not from one quarter to the other, because the premium is, in a sense, meaning that with all these different ramp-ups, and then so many different customers with different products and models out there, I would say 4G LTE is a significant jump. That is moving up from the 3 or 4 trend to the 8 or 10 or 12 (inaudible). That's a significant milestone. When we have 4G significant shipments, not just the Samsung devices, let's take another stab at your question.

When you look at the application processor (inaudible), again, if you look at the pricing of the Snapdragon or the NVIDIA devices, or TI's DaVinci, these are $15 to $25 chips. Same goes for us. The multimedia, it's significantly higher. It's [$0.15], and just when this gets into production, and remember, we are just now signing the first MM3000, so it may take some while. That could be a very, very important driver three years from now, to be conservative.

So I think these are the main keys to highlight from the quarter to quarter move, you know, so and so (inaudible) hundreds of (inaudible), I don't see that as a big issue.

Well, Yaniv, it's -- there's a pretty big move from a percentage basis, so the fact that you don't want to talk about it, does that mean you think it's going to go back down this quarter, or just that it's too hard to model?

No, we don't even have all the royalty reports to do even the math yet, so I don't know how to answer the question as of today. We will as soon as we finalize and get the reports. I think that's the --

Okay, so -- but as you move into -- from Teak to CEVA, let alone CEVA X, you're going from 2G to EDGE, into 3G, and you're going to end with situations like the [TDs] business with Spreadtrum. You've moving from Teak to CEVA X, and that is -- is that mix increasing the CEVA X? Did it increase the component of CEVA X in the third quarter, and so you think it's --

Yes. Absolutely, Matt. Sorry, I (inaudible) too clear. Gideon talked about it. Absolutely. Of course, it's increasing, the ASP is higher for that, and that goes without saying, has always been the case in the new technologies.

So you think the trend is there, you just don't want us to focus on that number, because you don't know exactly where it's going to go in the very near term?

Yes. Bear in mind, the mix is the difficult part. That's what I tried to explain. I probably didn't do it well. It's out of 250 million, if you look at the TV space, it's still millions of units. It's not hundreds or tens of millions. And we powered 226 million devices last quarter.

So, when 2G and the 3G doesn't stick up, it's still going to be in the tens of millions, but I'm not sure what effect or how quick that effect could have in the overall scheme of our hundreds of millions that we are powering. I think that's the only -- you know, questions or problems that I don't have the right answer up front. I do have it post [border].

What's your industry view on the transition from ultra low cost 2G phones like we have now, and EDGE phones, to ultra low cost 3G products that we're starting to see with the Nokia Asha series, and which was announced yesterday, and some of the other products that may be on the -- coming to market next year. And you know, how do you see your participation in 3G versus where it's been in 2 and EDGE, and what -- how should we look at the royalty ASP that might be -- that effect on royalty ASP?

Yes, Matt, it's Gideon. First of all, when it comes to the mass market in 3G and the mass market, the transition 3G now in China, that's where you have to come out with a cheaper solution, not just the baseband. The baseband integrated application processor, companies like Broadcom who have connectivity bundled there, they are in a position, and that's what we are seeing. We see Broadcom is going there, we see Intel being -- it's already there, going even to the Chinese OEMs, like the Mediatech and the other.

So that's -- and the 3G, the sales for the 3G, that you mention about Nokia, that's a market that fits us. I don't know specifically if we are there, or we will investigate it, but in general, that's a market -- we should be there.

PDA/CDMA, this would be a very specialized market. We (inaudible) three, four, five -- I don't see Broadcom going there, or SG Ericsson. I heard that Qualcomm is trying to be there, but it's not easy going there. But (inaudible), the (inaudible) could be very high. You're going to see the featurephones and smartphones and smart featurephones also of Chinese invention or variation of phones.

(multiple speakers)

How fast do you think the TV LTE transition is going to happen? Because PCTEL, on their conference call last night, talked about, already seeing demand for TD-LTE tests, at least, visibility for it to develop. So it seems like there is some very ambitious expectations for TD-LTE, is -- what's your sense for the timeframe for chips to become available for that?

As far as I can see, it wouldn't be before 2014.

Wow, that far out. Okay.

(inaudible) (multiple speakers)

Yes, I understand. Yes, okay, thanks a lot.

Thanks, Matt.

This concludes our question and answer session. I would now like to turn the conference back over to Mr. Kingston for any closing remarks.

Thanks very much. Thank you all for joining us again today and your continued interest and support in CEVA. We will be attending the following upcoming conferences and events and invite you to join us there. On November 7th, we'll be at the TechAmerica Classic Financial Conference in San Diego. The 15th of November, the 8th Annual Citi US Small/Midcap Conference in Las Vegas, Nevada. November 29th, we'll be in San Francisco at the Baird Technology Conference, and December 7th and 8th, we'll be at the Barclays Capital Global Technology Conference in San Francisco.

Thank you, and goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.