CEVA Inc (CEVA) 2011 Q4 法說會逐字稿

Good morning, and welcome to the CEVA Incorporated fourth quarter earnings and year-end 2011 earnings conference call. All participants will be in listen only mode. (Operator instructions)

Please note, this is being recorded. Now I would like to turn the conference over to Richard Kingston. Please go ahead.

Thank you very much. Thank you, and good morning, everyone. Welcome to CEVA's fourth quarter and year-end 2011 earnings conference call.

I am joined today by Gideon Wertheizer, Chief Executive Officer of CEVA, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights on the quarter, and will also review our progress during 2011. Yaniv will then cover the financial results for the fourth quarter and annual 2011, and will provide guidance for the first quarter and fiscal 2012.

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.

Forward-looking statements include financial guidance for the first quarter and full year of 2012, macro environment for the global chip market in 2012, market data from GSMA, iSuppli, Strategy Analytics, and certain data from our customers incorporated herein, optimism about our customers' product pipelines and market penetration, optimism about the performance of our products and competitive advantage, including CEVA-XC and CEVA-MM3000, market potential for image signal processing, optimism about our ability to penetrate emerging markets and new markets beyond the cellular baseband market, optimism about our ability to leverage trends in connectivity, as well the positive impact on our business of these various factors.

The risks, uncertainties and assumptions include the ability of the 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 our products incorporating our technologies to achieve market acceptance, the effect of intense industry competition and consolidation, and 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 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, and welcome, everyone.

CEVA executed very well in the fourth quarter, with record high revenues and royalties. Revenues for the fourth quarter was $16 million, an all-time high for the Company, and above the high end of our guidance range, which represents a 22% increase compared to the fourth quarter of 2010, and a 7% sequential increase.

Royalty revenues for the fourth quarter of 2011 was $10.2 million, an all time high, which represents 36% increase over the fourth quarter of 2010, and 16% sequential increase.

Other key financial metrics that further demonstrate our sound financial performance for the fourth quarter. Our non-GAAP operating margins, 41% versus 33% for the same quarter of 2010, and our non-GAAP EPS, $0.26, up 37% versus $0.19 for the fourth quarter of 2010. We have also generated approximately $9 million positive cash flow in the fourth quarter. We will elaborate more on the financial results shortly.

During the fourth quarter, we concluded seven new license agreements. Four of the agreements were for our CEVA DSP cores, platforms and software, two for our SATA/SAS technology, and one agreement was for Bluetooth. Geographically, two of the license agreements were in the US, and five were in Asia.

Target applications for the agreements concluded in the quarter are primarily TD-SCDMA baseband processors, smart TV for emerging market connectivity, and smartphone and solid state drives.

At the beginning of 2011, we designed two main strategic goals that we believed would be key to our success in 2011 and beyond. The first is, to drive strong shipment growth of our technologies in the cellular baseband market. The second was to extend our technology leadership in the DSP space.

Clearly, we were able to meet both of these goals. Shipments of CEVA powered baseband (inaudible) has grown 105% year over year, to 927 million units. Our DSP are now deployed in every meaningful segment of the market, starting with the high volume low cost (inaudible) market, going to the 3G advanced smartphone market, including the growing China Mobile TV HDMA market, and up to the cutting edge LTE smartphone market.

And user powered DSPs also expanded in the mobile broadband segment, including 3G and 4G USB dongles, tablets, and in the machine to machine segment, in particular, smart grid, automotive, and (inaudible) applications.

On the technology front, we made tremendous progress during the year to enriching our product portfolio, with the aim to leverage on the growing demand for DSP based technologies with smart devices, and third generation (inaudible).

We introduced a second generation of the CEVA XC DSP. The CEVA XC 323, with a unique capability to support 2G, 3G and 4G baseband processing (inaudible) with the CEVA DSP.

Our CEVA MM3000 architecture addresses the (inaudible) of advancement of media technologies for smartphone and smart TV market, by seamlessly consolidating imaging and vision in a single DSP. Our CEVA TeakLite-III architecture offers the lowest power consumption for the advanced audio and mobile devices.

Although we are at the early stages with these new products, we expect gradual adoptions throughout 2012.

Now, let me take a few moments and provide some perspective on growth opportunities and near term catalysts.

First, our total addressable market. The GSMA recently published a research that shows the total number of connected wireless devices is expected to increase from approximately 9 billion today, to more than 20-so billion in 2020. Just to put this in the CEVA perspective, in 2011, there were more than 927 million CEVA based DSPs shipped. So looking ahead, there is still a huge, untapped market for us to further grow in tune with our baseband technologies and customer base.

Second, we had a few (inaudible) companies and customer success stories. (inaudible) number one handset (inaudible), who is now widely using our DSPs in 2G products, leveraging on its traditional stronghold in innovating local product, but they have managing to effectively grow and gain market share in emerging markets.

And demand and volume predicted in emerging market economies for low cost mobile phone is enormous. Other than China, India and Latin America, that we will discuss again in the past, total GSMA, Africa recently becomes the second largest cellular market globally, with 620 million subscribers. They are building every new (inaudible). GSMA focused (inaudible) Africa over the next four years would be higher than any other region.

Nokia is undergoing a major restructuring of its baseband supply chain, towards high volume 3G products, a key pillar in its Internet for the Next Billion strategy. CEVA is positioned to be a major beneficiary of this strategy, replacing TI as the incumbent supplier.

The recently Strategy Analytics report, currently 92% of Nokia 3G shipments are still with TI, and expected to gradually transition to Broadcom and Intel mobile communications, all CEVA customers, during 2012 and 2013.

Samsung, the world's number two handset maker, target sales of 374 million handsets sold this year, up from 224 million in 2011. Samsung's phone products are widely diverse, with (inaudible) in almost every category, (inaudible) and price point.

CEVA's portfolio (inaudible) Samsung's product strategy. Our DSP has a place in every category of Samsung phone, ranging from (inaudible) 275 (inaudible) featurephone for India and China markets, and up to and including many of the (inaudible) Galaxy brand smartphone. This included recent (inaudible) Samsung Galaxy Nexus, HSPA platform at AT&T, and the LTE version at Verizon, as well as the majority of the Galaxy SII smartphone lines, including the mobility design for China Mobile's unique 3G standard (inaudible) unit.

Market research Strategy Analytics reviewed that smartphone chip (inaudible) and in China, eclipsed the United States for the first time last quarter, making China the largest smartphone market in the world. This finally explains why so many manufacturers are increasingly turning their attention to the Asia/Pacific region.

Apple is now selling a lower cost version of its popular iPhone 4, (inaudible) mobile communications [single point] chip. Broadcom also leverages our DSP technologies in its integrated single chip application plus (inaudible) processor.

Samsung has adopted this platform for its low cost Android powered Samsung Galaxy Wi-Fi series, in addition to its data (inaudible) to end product lines. Also, [MPCN] recently introduced new low cost smartphone based on our customer baseband processor for the local Chilean market.

China Mobile, the largest seller and operator in the world, with more than 650 million subscribers extended its 2.5G network expansion to give precedence to its own new 3G network (inaudible).

Isuppli expect that the (inaudible) CDMA market to grow 75% year over year, due to emergence of infrastructure required for this technology, and the continued decline of chip cost. This trend plays well for (inaudible), a customer of ours, who communicated that it recently exceeded 50% market share with more than 30 customers and 72 handset models.

(inaudible), also a customer of ours, are growing with the high volume 2.5G and 2.75G market, in emerging economic economies such as India, Indonesia and Brazil. Currently, MediaTek is 60% market, Spreadtrum will have 25%, and (inaudible) has 12%.

Spreadtrum came out recently with a new low cost Android-based edge and a Wi-Fi smartphone. This product is attractive, and it offers Android capable experience at the targeted price of $75 to $115, substantially lowering service fees and broadband coverage when the 3G network (inaudible).

(inaudible) focuses on the lower cost regions, (inaudible) regaining popularity, in particular with the incorporation of multimedia features, which recently won a design on the MediaTek at China (inaudible), (inaudible) and (inaudible).

As you can see, CEVA is well positioned to capitalize on emerging trends in the cellular communication space, which is, by product, and the depth and (inaudible) of our diverse customer relationship. We are focused on expanding this relationship where applicable, to expand our market share in the industry that is undergoing significant growth.

Before handing the call over to Yaniv for financial, let me summarize the four key drivers for growth profit. First, (inaudible) of the (inaudible), specifically the growth of 3G networks in emerging countries, and the (inaudible) from 3G to LTE in developed countries. CEVA is positioned to leverage these opportunities with a broad range of technologies and broad customer base.

Second, the emergence of 3G and 4G connectivity in devices beyond handsets, such as tablets, laptops, automotive, and (inaudible) areas. Our range of baseband DSP, our ideas for this comes (inaudible).

So, much adoption, a feature set and rich enhancement of smartphone. We'll also arrange a (inaudible) DSPs and focus technologies to have read the need for advanced imaging in high (inaudible). (inaudible) incremental business to our already strong foothold in baseband

Fourth, the proliferation of smart devices in home, which was clearly evident at the recent (inaudible) show. Although the home entertainment market has recently experienced slow growth, we believe this is about to change with the emergence of smart TV or smart (inaudible), smart grid. We aim to leverage our mobile (inaudible) technology base to expand into these markets.

Finally, I want to take this opportunity to thank our employees and our families for the devotion, innovation and (inaudible) they showed during 2011. On behalf of CEVA team, we all wish you, all our shareholders, customers and suppliers, a successful and prosperous New Year.

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

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

Revenue for the fourth quarter of $16 million, well above the high end of our guidance, reflecting a significant 22% year over year increase. And the revenue breakdown is as follows.

The licensing revenue was $4.7 million, reflecting 30% of total revenue, 2% higher than the fourth quarter of 2010, during which we recorded $4.6 million.

Royalty revenue was $10.2 million, reflecting 64% of total revenue, and 36% higher than the fourth quarter of 2010, during which we recorded $7.5 million.

Service revenue was $1.1 million, reflecting 6% of total revenue, 19% higher than the fourth quarter of 2010, during which we recorded $0.9 million.

Quarterly gross margins was 94% and 95% on a US GAAP and non-GAAP basis respectively, compared to 91% for both in the fourth quarter and last year.

Non-GAAP quarterly gross margin excludes approximately [$70,000] of equity-based compensation expenses.

As for the quarterly operating expenses, R&D were $5.7 million for the quarter, including approximately $562,000 of equity-based compensation expense.

Sales and marketing costs were $2.3 million, including approximately $347,000 of equity-based compensation expenses. And our G&A costs were $2.1 million, including approximately $641,000 of equity-based compensation expenses.

Our total operating expenses for the quarter were $10.1 million, which included an aggregated equity-based compensation expense of approximately $1.6 million.

Total operating expenses for the quarter, excluding (inaudible), were $8.6 million, reflecting the higher end of our guidance, an approximate 12% higher than the operating expense levels for the fourth quarter of 2010, mainly due to higher headcount in R&D and S&M. The divisions, as well as higher [takeout] expenses associated with our CEVA XC chip.

US GAAP operating margins for the fourth quarter of 2011 increased to 41% of sales, from 29% for the same quarter in 2010. Non-GAAP operating margins for the fourth quarter increased 24% to 41%, in comparison to 33% for the fourth quarter of 2010.

US GAAP operating income increased for the fourth quarter of 2011, as compared to 2012, and it was (inaudible) from $3.8 million to a record $4.9 million. The non-GAAP operating income, excluding $1.6 million of equity-based compensation expense, increased 54%, from $4.2 million in the fourth quarter of last year, to a record $6.5 million for the fourth quarter of 2011.

Interest and net income for the fourth quarter were $873,000 higher than our estimate, owing to some positive FX effects and higher cash balances and yields.

On the tax front, we recorded a quarterly tax expense of $0.9 million on a US GAAP basis, and a tax expense of approximately $1 million on a non-GAAP, pretax income basis. This accounts for 16% and 14% of pretax income, respectively.

Non-GAAP pretax income excludes the equity-based compensation expense, as I just previously mentioned.

On US GAAP, net income for the fourth quarter increased by 15%, to $4.9 million, and fully diluted net income per share increased by 11%, to $0.20. This compares to $4.2 million and $0.18 respectively for the fourth quarter of 2010.

Non-GAAP net income increased significantly, by 47%, to an all time record high of $6.4 million, as compared to the same period for the prior year. Non-GAAP fully diluted net income per share increased 37%, to a record high 26% per share as compared to the same quarter in the previous year. These results exclude approximately $1.6 million and $0.5 million of equity-based compensation expenses net of tax rate for the fourth quarter of 2011, and 2010 respectively.

Other related data. Shipped units by CEVA licensees during the fourth quarter of 2011 were 298 million, up 34% and 19% from the fourth quarter of 2010 and the third quarter of 2011 respectively. This is the twelfth consecutive quarter that our customers have increased CEVA powered units shipped.

Of the 296 million units shipped, 266 million units, or approximately 90%, are for baseband chips, and reflect 18% higher volumes as compared to the prior quarter, in which we reported 226 million units of baseband (inaudible) shipped.

As of December 31, 2011, 28 licensees were shipping products incorporating our technologies, one less than the prior quarter, due to M&A consolidation in the space. And, we had 37 shipping customers under licensing agreements, one lower than the prior quarter, due to the same reason.

In 2011, our customers shipped a record 1 billion CEVA powered chipsets, a substantial increase of 68% compared to the 613 million units shipped in 2010. These shipments correlate with the significant increase in our overall annual royalty revenues, which increased 59% from $23 million to $36 million, contributing nice to our improved profitability.

As for some other balance sheet items, as of December 31, 2011, CEVA's cash, cash equivalent balances, marketable securities and long term bank deposits reached a record high of approximately $165 million, compared to $156 million at the end of September.

During the fourth quarter and annual 2011, we generated positive cash flow of approximately $9 million and [$34] million respectively. Our DSOs for the fourth quarter was 31 days, as compared to 28 days for the third quarter.

Now, for the guidance. As Gideon discussed earlier, we see 2012 as an important growth year, driven by a few aspects. One, substantially stronger penetration of Nokia's 3G products as part of its Internet for the Next Billion strategy. Further expansion into Samsung and other major tier one smartphone and featurephone products. Capitalization on the growth of the Chinese 3G to the CDMA markets. And last, high volume shipments of 2.5G and 2.75G products into the emerging markets.

Our business maintained a considerable momentum in 2011. We are taking a cautionary optimistic view for the first half of the year, driven by ongoing uncertainty with the global economy, in particular, China and Europe, inventory collection in the Chinese 2.5G handset channel, and the pace of transition as Nokia and other new 3G products powered by CEVA. Our long-term expectations for top and bottom line expansion remained unchanged.

Our guidance for the full year 2012.

Total 2012 revenue is expected to be between $62 million to $66.5 million. Gross margin is expected to be approximately 94%. Operating expenses, including equity-based compensation expense, are expected to be higher than 2011 levels, due mainly to additional R&D investments in next generation baseband processors for LTE advanced, as well as our new MM3000 HD video and imaging platform.

We forecast non-GAAP SG&A, including equity-based compensation expense, to be at a slightly lower figure than the 2011 number. Our overall US GAAP operating margins are forecasted to be in the range of $39.2 million to $41.2 million.

Annual equity-based compensation is forecasted to be approximately $6.2 million, or $1 million higher than 2011. Of this, approximately $0.3 million will be recognized in the cost of goods, the rest in OpEx.

Annual operating expenses, excluding equity-based compensation expense, are expected to be in the range of $33.3 million to $35.3 million.

Interest income is less, is expected to be around $3.2 million. Our tax rate for the year is expected to be approximately 16% on GAAP basis, and 13% on non-GAAP basis. Non-GAAP tax excludes the tax effect of equity-based compensation expenses. Share count for 2012 is expected to be in the range of 24 million to 24.8 million shares.

US GAAP EPS is expected to be in the range of $0.78 to $0.82 per share, and our non- GAAP EPS, excluding equity-based compensation net of $5.8 million, is expected to be in the range of $1.02 to $1.06 per share.

Now for the guidance for the first quarter of 2012. Revenue is expected to be in the range of $14.2 million to $15.2 million. Gross margin is expected to be approximately 94%. Operating expenses, including equity-based compensation, is expected to be in the range of $9.6 million to $10.6 million. Of anticipated total operating expenses for the first quarter, $1.5 million is expected to attribute to equity-based compensation expenses, and excluding that, non-GAAP OpEx is forecasted to be $8.1 million to $9.1 million.

Interest income is approximately $800,000. Tax rate, similar to the annual tax rate, 16% on a GAAP basis, and about 14% on a non-GAAP basis.

Share count for the first quarter, 24 million to 24.7 million shares. US GAAP EPS is expected to be in the range of $0.14 to $0.16 per share, and non-GAAP EPS, excluding the aggregated $1.4 million of equity-based compensation expense, net of taxes, is expected to be in the range of $0.20 to $0.22 per share.

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

We will now being the Q&A session. (Operator instructions) Our first question comes from Joseph Wolf of Barclays. Please go ahead.

Hi, thank you. A couple of questions. The first, I guess, right to the guidance that was given. Just in terms of the -- I guess, if you could break it down to the licensing and royalty, the licensing trends for 2011 were driven, I think, by some of the direction of the LTE 4G. Can you talk about where you expect 2012 licensing trends to come from, and should we be back in that $4.5 million to $4.7 million, $4.8 million range for the year for that?

And there was mention on the -- I think in Gideon's comments, about when those start to contribute. Can we talk about some of the 2012 licensing contributions, if that's a back end kind of event?

And then just in terms of how you're feeling about the first half, you said, cautiously optimistic. Are there any geographies or customers that you could point to that are showing some signs of slowdown, or is this more kind of an outlook question, where you're concerned about things but haven't actually seen any customer activity to reflect that yet?

Sure, good morning. Let me just start with some of the answers, and then give it to Gideon to continue the overall picture.

The licensing, the guidance, we haven't changed on the technology from prior years and quarters. And you know, the licensing here is always (inaudible) company, the trickier part of the forecast. And therefore, we are quite comfortable, like we have in the past, been in the past, with the $4 million to $5 million range, especially for the first half of the year, because of some of the macro type of uncertainty, that we are all seeing around.

So, we're starting off the year with that, and we do believe that things could pick up in the second half of the year also in the licensing side, both because if somebody new in the market, the next generation of LTE advanced design cycle -- not production yet, but design cycle, may start to kick in. And that, we have a very robust new product line there to offer for that.

And if the macro headwind clears a bit, then we could be in the same (inaudible) level as you mentioned, and as we have presented in the earlier part of 2011.

That's the likely (inaudible). Besides there are no special events, other than just a little bit maybe in shift in mix between the first half and the second half, from a macro type guidance.

The -- on the royalty side (inaudible), (inaudible) to give you a little bit more color, we stated in the prepared remarks, we're seeing two or three issues that are in front of us. The most interesting one is a positive one, and that is the Q4 revenue. It was surprising even for us, the magnitude of growth (inaudible), and the reason was -- a few reasons, but the main reason was really a shift in seasonality in the overall handset market.

If we recall, traditionally, for many years, of Q4 being the strongest, Christmas, wireless, in numbers out there, and we, of course, report our Q1 based on the very strong Q4 numbers, that -- this year, that has changed a bit. So the seasonality has moved around, (inaudible) Q4 based on Q3 shipments. We have an outstanding number to report, outstanding units, record high. And from there on, it's just moving on with the model and where the market evolves.

Gideon, any (inaudible) (multiple speakers)?

Joseph, two things to elaborate (inaudible). First of all, when it comes to licensing. You know, we are -- you know, the reports, $4 million to $5 million, this is our comfort zone. There are two developments that will take us beyond, let's say, if you take the mid range, (inaudible). I believe that this will be more in the second half of the year.

One is design (inaudible) for the next generation (inaudible) LTE advanced. At that point, we believe we are going to see CEVA XC licenses which bear more -- higher license fee, and of course, higher royalties. (inaudible) developing, that development is when it comes to the platform that is called CEVA MM3000, which I spoke briefly on the -- on my prepared remarks. This is (inaudible). We have now lead customers on those.

We gain a lot of confidence that we have the right products in hand, but because we are speaking about a new product line, a feature set that takes it to the next level of smartphone like 10 megapixels camera, and these kind of things. We -- it's a lengthy evaluation process. It's ongoing now, and I believe that we'll see some traction in '12 going -- you know, as the year (inaudible).

Now, that's (inaudible). As Yaniv mentioned, Q4 was an exception. Not outstanding, exceptional, because I was -- you know, honestly speaking, I was anticipating that since in Q3 we had done $8.8 million (inaudible), I was expecting to $9.2 million, $9.3 million this quarter, and in Q1, $9.7 million, $9.8 million, which is very good in light of the fact that, you know, there is a tier one smartphone (inaudible) in the US, with the move to another vendor. And there is also.

By the way, the impact on us in the Q4 is not something which is less than I was anticipating, at least in this quarter.

Now -- so, because Q4 announced exceptional, even in the (inaudible), (inaudible), a few other competitors, there is an inventory buildup. These customers are now trying to burn, and it will take them a quarter, maybe a bit more. But from what we understand from customers, the (inaudible) reduction, let's say, (inaudible). The market will keep its volumes, going forward. We need to clean up the inventory again, going again to the (inaudible). This market is more than 1 billion units. So, (inaudible) we will see this going back.

Okay, great. Thank you. I'll stop there.

(inaudible).

And the next question comes from Anil Doradla of William Blair. Please go ahead.

Yes, thanks a lot, guys. A couple of questions. You know, you're talking about this cautious optimism. Can you talk about trends that lead you to be a little -- you know, cautiously and optimistic? Already we're in -- you know, one month into Q1. What is it you have seen that leads you to be taking this outlook, especially after having such a solid Q4?

And the second thing is, when I step back and look at your ASP trends for this year, if my calculation is correct, I think it's about 18% decline year over year. So, should the ASP trends on your royalty side, should that be more senior than the handset trends, in line, or better? Do you have break points? How should I be looking at that?

And given -- if I look at the dynamics of Nokia, sounds like most of the non 3G transition from TI has taken place. And would it be fair to say that you guys are well positioned on the 3G side at this business, which is moving away from Nokia? Thanks a lot.

Okay, Anil, this is Gideon. Let me take and address all your questions.

First of all, when it comes to, we are now cautiously optimistic, now, one of the things that we are expecting to see, a significant growth, and I think I elaborated that in my prepared remarks, is the two tier one companies today, which is -- this is Nokia and Samsung. And although -- and you know that when it comes to Nokia, 80% of the volume is what is called mobile phones, and 20% is smartphones. The smartphone is what we are addressing the (inaudible) things that they need to (inaudible) for (inaudible).

The mobile Samsung, 90 million, 95 million units per quarter, this is (inaudible) like 2G. It's -- we almost (inaudible) cover what we're supposed to do. In 3G, as I said, 92% is (inaudible). We (inaudible) companies like Broadcom, (inaudible), not the high volume (inaudible). You see that they are saying, and we believe, that this will happen in 2012 late, or the beginning of 2013, they will be out of (inaudible).

And for us, where we are today in the supply chain, it's hard to forecast where exactly, and the (inaudible), what's the focus, what's the magnitude that this focus that will take place.

So, what's the (inaudible), we don't know exactly what's going to happen. What we (inaudible) that we need to see how and when, and what's (inaudible).

I think you asked about licensing? (multiple speakers)?

Well, ASP (inaudible).

Ah, ASP. (inaudible)?

Yes, ASP, Anil, where there is nothing new in the ASP structure, and you know, as many others, they serve as a mix of different product segments, where it's low end, mid range, high end, and then next year the LTE, and (inaudible) has different range for different (inaudible), and same goes for the final chip prices. Baseband chip prices are very strong, mid $2.00 to -- all the way up to $15 or so. And really depends on what segment you are in. And Gideon mentioned now, so that evolves over time, both based on units, volume discounts, and different market segments.

Overall, I don't see (inaudible) for domestic can change in that magnitude of -- throughout the next year, 2012. And what would (inaudible) one change, one (inaudible) another, just a mix of -- on royalties.

I'm not sure if we mentioned that if you look at the Q4 royalty level, the [10.2], every segment of our -- on the products that we power, whether it's 2G edge, 3G or even LTE, all grew. So they are all part of the growth strategy for Q4. We'll need to see the mix, how it evolves throughout the year, in order to better answer how the end of the year can look like from an ASP perspective, but Gideon mentioned, and to simplify maybe, you know, we're seeing (inaudible) similar story that we have seen three or four years ago, with replacement of the 2G, where we deliver somewhere between 60% to 60% worldwide market share today in that segment, so nothing a few years ago.

And next -- the next (inaudible), from our point of view, is the 3G, which is a huge amount of opportunity, doubling in size over the next two years or so, and there, we are the very -- as we mentioned, we have a very complementary technology (inaudible) and customer base, and it's all the question of the timing, (inaudible) when that will take off. As soon as we know, and we have the volumes and the royalty to back it up, I think the visibility will improve, and therefore, the guidance.

Okay, thanks.

Thank you.

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

Hey, good morning, and congrats on the great results for the quarter. Gideon, I wanted to talk a little bit about your system on chip licensing the multimedia 3000, and the work you're doing with eyeSight. And the reason is, it seems like the features that you're bringing between image and gesture recognition processing, it seems like those are a moving target. I'm just wondering how you structure these deals so that you can bring licensing in sooner without the effect of feature creep, and how we should expect the SOC licensing to progress in 2012.

(inaudible). I don't think it's a moving target (inaudible). The drawback -- the agreement that we signed last year, it was (inaudible) customer. The drawback was (inaudible), we were not ready. We had to complete (inaudible) software and to finish up the hardware. We are working on a regional (inaudible) eyeSight (inaudible) the investment that they need to have the software.

Now, two things that is now in our design. So the one is to add more software, because that customer demand software on top of the hardware. The hardware is ready now, but the software, we need to add the software. And the other thing is to convince customers to take this new product to the design cycle. (inaudible) such a product, and we don't have similar products in the market. It's not like -- you know, we don't have the history of competition in the market. We have to convince customers to approach the evaluation process. (inaudible).

Now, I'm not in a -- we don't have a good answer when, exactly, we're trying to do it. But when we start signing one, two deals, (inaudible) achievement for us to (inaudible). So that's the reality, when you have a new product. (inaudible) customer (inaudible).

So the initial license you gained in the third quarter was -- for kind of a subset of a customer that was -- kind of had an early look at this stuff, and wasn't -- didn't need to wait for the further features, and the remaining market, you've got some missionary work to do to really nail down the functions and start closing deals? Is that the right way to look at it?

Yes, the customer that (inaudible) took (inaudible) to develop the software. (inaudible) the software (inaudible). He had a good idea what to do. Otherwise, this customer is taking us (inaudible) quarter.

Oh, wow. Okay. All right, well, I'll take the rest -- I'll take a follow up on this offline, and yield the floor. Thanks.

Thanks, Matt.

Your next question comes from Vijay Rakesh of Stern Agee. Please go ahead.

Yes, hi, guys. I was wondering -- you mentioned that Nokia 3G should start to pick up, should be a (inaudible) for you. When do you see it start picking up? Is it material in the first half, or do you see it become material more in the second half?

That's the $1 million -- I don't know if it's $1 million. That's maybe $1 million question. Even the customers that are the semiconductor customers that are shipping the (inaudible) shipment, Broadcom, they are not mentioning specific (inaudible), other than (inaudible) in 2012.

Okay. And on the China side, I know you mentioned Spreadtrum, all of the guys are getting share, and you're being (inaudible) LTE. But at MediaTek, that's about 65% there. What -- how do you see there -- or do you see opportunities there in the China market in those space?

Well, okay. So there are now two things. First, the following. When it comes to this 3G market, which is continuously (inaudible), China Mobile (inaudible), here I mentioned specifically that I'm basically (inaudible) for the market. And they're expecting significant growth this year, because the market (inaudible).

China Mobile are not investing any more in 2.5G network. 90% of China Mobile subscribers are still 2.5G. So, going forward, it will be (inaudible).

Now, what you mentioned, MediaTek on the 2.5G market. Here, there are two key areas, supply (inaudible). MediaTek (inaudible), and two other, Spreadtrum and (inaudible), that use our technology. We get the (inaudible), so 60% (inaudible) last year, and (inaudible), because the spread on an (inaudible) product, which is superior, but it's a (inaudible) market, (inaudible).

Okay. And then lastly, last question. The Samsung, what are your thoughts there? What do you see there in 2012? You said -- an update, are they still proceeding with chips based on CEVA?

Well, you know, I don't want to be specific about our sales, what we think about our sales and Samsung. You know, Samsung is -- has a strategy to (inaudible) product line. Their product line is (inaudible) separate product lines, so (inaudible) operator in the world. So when they network in the world, (inaudible) new categories, we are all over the place, but not in all places. But all over the place. (inaudible), today (inaudible) this [goal].

Okay, great, thanks a lot.

Thank you.

The next question comes from Gary Mobley of Benchmark. Please go ahead.

Hi, guys.

Hi, Gary.

So seeing some of the results reported by some of your main licensees during the fourth quarter, it's understandable why you're cautious with respect to the first half outlook for your own royalty revenue, but do you in fact have the royalty reports in hand that sort of solidify your Q1 revenue outlook?

Yes, of course. I could always wait, when we comment and guide you, our customers have an obligation to report somewhere between 30 days to some 45 days towards the quarter end. We are at January 31st today, so we're in a pretty good (inaudible) this time around. (inaudible), how the results look like, we received all the (inaudible) done by now. And the answer is yes.

Okay. All right, well, that's clear. All right, and if I'm not mistaken, you had about 42% baseband market share, according to some third party research firms, during the third quarter of this year. Where do you think it was in the fourth quarter?

(inaudible), you know, we haven't done any -- we've seen all the same type of information. You mean, fourth quarter shipments Q1 for us, right?

Well, whatever most recent data you have available.

(multiple speakers).

Yes, you know, it was Q2 shipments which were -- probably in Q3, they were [31%]. Q3 shipments (inaudible) today in Q4, revenues up 42%. (inaudible) is the highest we have in our outlooks. So I don't think that change in -- or, going down anytime soon, I would go to the (inaudible) to 50% over the next two years.

Okay. That was --

Although -- this is Gideon, by the way. This is (inaudible) question, because our market to the (inaudible), the (inaudible), Chinese [one branded], and of course the (inaudible) mobile broadband. So 2011, this is $2.2 billion -- billion units market. So it's [1.5] (inaudible). So we can (inaudible) -- if you look some different analysis, (inaudible) speaking about 1.5, (inaudible) shipment count, (inaudible), we were also thinking about 2.2. But this market in 2011 grew 3%, and the (inaudible) market.

Okay. All right, well, that's it for me. Thanks, guys.

Thank you.

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

Hi, Gideon and Yaniv. Congrats on the very solid fourth quarter. A good work there.

As far as -- you know, if I'm looking past this macro related weakness in the first half, can you talk a little bit more -- and maybe I missed it during the call, on the long-term outlook. How should we be feeling about the grand picture for the Company, maybe on a three year basis, if you can just give us a little bit more perspective on long term. Thank you.

I don't believe we talked about three years, not today, and not in the past, in that much detail. If you look historically, three years ago, maybe you'll get a little bit of insight what we have done so far, and a little bit customer base that we have on hand, and with the markets that Gideon mentioned earlier. They're overall connected to (inaudible), going from 8 billion to 24 billion over the next couple of years. (inaudible) subscribers, it is a huge growth opportunity for us.

If we just focus in 2012 and not that far, because the story didn't really change, or haven't changed anything, the way we are seeing it today versus a quarter ago or a year ago. On the contrary, it has improved. You know, it didn't break out -- nor we, do we ever break out the different line items, but the way we budget and forecast (inaudible) growth, foresee that, is, at least 50% higher than the overall growth for the industry in 2012. So to give you a little bit of insight that we -- even for 2012, and even for the fact that we are cautious, we still believe that we will outperform the growth in our royalties, versus the industry.

Okay, thanks --

Daniel, this is Gideon. I don't want you to chance to recently (inaudible), but (inaudible) I mentioned, a few key growth drivers. One (inaudible) is that, operating the network. In the (inaudible) market, people are moving from 2G to 3G, in developed countries, 3G to LTE, and we are sent together with these trends, in technologies and customers.

The other one, growing with the mobile broadband. You're going to see mobile broadband, of course, in laptop and tablets, but you're going to see it also in (inaudible). So it's now doing (inaudible) and automotive. We should (inaudible) automotive to (inaudible) connectivity.

The third one relates to what's made us (inaudible) industry target, and this is enrichment, multimedia technology in smartphone and smart design phones, so predicted this year, the (inaudible) technologies and the (inaudible) technology.

And the fourth, the home line security (inaudible). It was clearly (inaudible), speak about smart TV, and smart TV, it's not just for connection to the Internet, and technology we have just saw like imaging, and this kind of things, that we basically take (inaudible) mobile (inaudible).

Okay, thanks, Gideon. Maybe if you were able to quantify all these opportunities bundled together, I think this year you exceeded [1 billion]. How should we think about it, maybe on multi-year basis? What's the -- how much of the total addressable market can you actually gain in the next several years?

Well, I'm being a little bit conservative, because we should -- we see (inaudible).

No, I --

Gideon Wertheizer; (multiple speakers) --

That's what you did in 2011, right? But how many more -- what's the opportunity that you can gain in the next several years?

Oh, the opportunity, it's big. It's more than 2 billion units on top of what we have now.

Okay, got you. And maybe I missed it. What's the market share from the handset side that you guys have in the fourth quarter? And how do you see that evolving throughout 2012? And then I've got another follow up question.

We just said that. 32% over the next two years. I mean, (inaudible) 50% (inaudible) 50%. (inaudible). Closer to the 50% (inaudible) two years (inaudible).

Okay. And last question. You guys have a very -- you've done a very formidable job with the cash position and cash generation. You've got $165 million. I was wondering if you guys were going to allocate some of that to buybacks, or any other ways to return some of that cash to shareholders.

Well, the Board is actively reviewing these types of plans, and we don't have any updates today.

Okay, thank you. Good luck.

Thank you.

Our next question comes from Jay Srivatsa of Chardan Capital Markets. Please go ahead.

Yes, thanks for taking my question. Congratulations on a good quarter.

I'm trying to reconcile the comments made by TI versus your own guidance for the first half. It appears that they have guided for almost a $200 million drop in revenues, which, Gideon, based on what you said, it's logical to think that Intel and possibly Broadcom gets a lot of that share. But yet, your guidance doesn't seem to reflect that, at least in the first half. Can you help me understand that a little better?

We had this comment (inaudible), and (inaudible) Broadcom, and (inaudible) to comment. We don't necessarily know -- we (inaudible), know exactly how this will be translated. Q1 generally is a weak quarter, from seasonality standpoint, or (inaudible). So (inaudible) because of seasonality. Others think it may be, you know, (inaudible) starting to (inaudible). I don't know.

We --

All right.

(multiple speakers).

All right. Going back to your comment on Q1, if -- typically, you tend to have a pretty strong Q1 from Q4 licensing and royalties. But given that you've guided for a sequentially down Q1, what is your expectations as you look ahead to Q2? Do you expect seasonal softness to impact that as well?

Yes, we mentioned that. Q1 is different because of the overall change in seasonality this time around. And Q2 represents Q1 shipments, so Q1 shipments, all those semiconductor wireless (inaudible) guided (inaudible), which is very typical and normal. That's why we think our Q2 will be (inaudible).

(inaudible) to what we just discussed, and some other ramp ups from other players, you will see (inaudible) development. And of course, to make sure you're all up to speed.

But, (inaudible) forecast for Q4, what we saw the forecast (inaudible) for Q4, (inaudible) market, the 2.2 that I commented before, 2.2 billion units, which include the channel market, eventually and the smartphone as well. But the market in Q4 shipments overall was down 9%. So if you saw (inaudible) announcements of the many -- a few companies that are in this space.

But this -- Q4 reporting to Q1. We believe that Q1 shipments will be lower, and you have (inaudible) seasonality, and a few others. Q2 is traditionally -- Q1 is traditionally a low season in baseband.

All right. There wasn't much discussion on LTE. Can you talk about when you expect that to really start becoming meaningful for you? Do you expect it to be more in 2013, or are you starting to see some good pickup in the second half of this year?

LTE was good at the beginning, but (inaudible). LTE had the licensing at the beginning of the year. People (inaudible) slowdown (inaudible). You see many companies now are focusing on 3G low cost smartphones, hands down, and 3G smartphones, and (inaudible) until the second half of next year, even -- the second half of this year. People go back to the (inaudible) development. This now (inaudible). And we see more licensing activities in this respect.

Royalties (inaudible) by the way, in (inaudible) 2013, and [mass] production, we do hope our revenue from royalties (inaudible) announced this year, that CEVA is (inaudible).

Thank you very much.

Our next question --

Thank you, (inaudible).

Our next question comes from Daniel Gelbtuch of Cantor. Please go ahead.

Hey, guys.

And this is the last question -- the last question of the day, for the (inaudible). Time has run out. Thank you.

Quickly, just so -- I want to get some update on the microcell, or picocell market, and when do you think that's going to start yielding revenue?

Well, this is a market that we have (inaudible) a few customers doing that. I think that the market is going through the landmarks of how the (inaudible) like what it's going to do, a lot of microcell, (inaudible) microcell, (inaudible) cloud, and now people are thinking about they're trying to sell on the residence where (inaudible).

So obviously, it's still a turbulence that I would comment in terms of how the architecture of the (inaudible) world would look like when it comes to LTE. And when this clear up, we'll start seeing companies getting into this space, because it's a lucrative space.

All right. Thank you.

Thank you.

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, Ellie. Thank you again for joining us 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. The first to be, will be the Deutsche Bank Small and Midcap Conference on February 14 in Miami, Florida. Oppenheimer's 16th Annual Israeli Equities One on One Conference on February 15 in New York, and Mobile World Congress, the world's largest mobile exhibition, from 27the of February through to March 1st, in Barcelona, Spain.

Thank you, and goodbye.

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