CEVA Inc (CEVA) 2014 Q2 法說會逐字稿

Good morning and welcome to the CEVA second-quarter 2014 earnings conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Richard Kinston. Please go ahead, sir.

Thank you. Good morning, everyone and welcome to CEVA's second-quarter 2014 earnings conference call. I'm 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 from the quarter. Yaniv will then cover the financial results for the second quarter of 2014 and provide guidance for the third quarter.

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

These forward-looking statements include our financial guidance for the third quarter of 2014, confidence in our licensing pipeline including the combined DSP cores and the RivieraWaves Wi-Fi IP, our ability to expand beyond the cellular baseband market, market exits, anticipated design wins, market penetration and mass production timetables by CEVA's customers and their impact on our revenues, and anticipated costs and benefits associated with the RivieraWaves' acquisition.

The risks, uncertainties, and assumptions include the ability of the CEVA DSP cores to continue to be strong growth drivers for us, our success in penetrating new markets including connectivity and maintaining our market position in existing markets, our ability to successfully integrate the RivieraWaves business and retain its former employees, the ability of the DSP products incorporating RivieraWaves' Wi-Fi and Bluetooth technologies as well other new products incorporating our technologies to achieve market acceptance, the speed and extent of the expansion of the 3G and LTE networks, the effect of intense industry competition and consolidation, global chip market trends, and general market conditions and other risks relating to our business including but not those 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 now turn the call over to Gideon.

Thank you, Richard and welcome everyone. Revenue for the second quarter were lower than originally projected, primarily due to a longer than anticipated signature process to conclude an approximately $1 million licensing agreement. Our guidance and projection assumed this deal would close by the end of the quarter but the agreement was executed a few days after quarter end and will be recorded in our third quarter revenue.

Overall, we have seen good licensing pipeline and improved visibility for the upcoming quarter. Our confidence in the pipeline is reflected in our third quarter guidance which forecast an all-time record high for licensing revenue. Yaniv will elaborate on this shortly.

Total revenue for the third quarter was $9.2 million. Licensing and other revenues was approximately $4.4 million, and royalty revenue was approximately $4.9 million. During the second quarter we signed 11 new licensing agreements. Six of the agreements were for CEVA DSP cores and platforms and five for connectivity products. Target application include LTE-Advanced, baseband, audio, Bluetooth and SSD drives.

Geographically, nine of the agreements signed were in the APAC, including Japan, and two were in the US.

In the second quarter, we continued to execute our expansion strategy beyond cellular baseband space with 10 out of the 11 agreements executed during the quarter targeting non-baseband applications. Of particular note, five such agreements target audio applications, this customer would deploy our audio DSP into range of end market including smartphones, automotive infotainment, tablet, [earband] and game console.

In the baseband space, we secured new design wins with a key customer who plan to use our DSP for next-generation LTE-advanced technology. Also we made substantial progress with a number of key prospects across all our product lines including RivieraWaves connectivity IP and plan to conclude number of these agreements in the third quarter.

We remain confident in our strategy to expand beyond cellular baseband and with opportunities of licensing [ROP] to broad markets of communication, vision, audio and connectivity. Not only are these licensing deals (inaudible) for future royalty wars, we anticipate our expansion strategy will result in a much more diversified royalty base.

Coming to royalties, royalty revenue for the second quarter, which relates to the first quarter shipment came out as we anticipated and commented in our previous earning calls, while the first quarter is generally weak as a result of seasonality, we experienced a bad seasonal weakness due to Intel's strategic decision to focus its resources on LTE and de-emphasize 2G and 3G chips.

Following Intel's recent earning call, it is expected that their LTE volume ramp-up will now begin towards the end of the year or into early 2015, due to longer than anticipated time required for network certification for its XMM 7260 LTE-Advanced platform.

Spreadtrum is taking advantage of the de-emphasis by Intel as the Ericsson, RDA and others to increase its shipments of feature phones. This market is sizable, in particular in places like Africa, Latin America, with unique need for local smartphone transition, which Spreadtrum is well positioned to support.

Spreadtrum also continues to successfully scale its 3G wideband CDMA business, which is experiencing rapid growth with first time smartphone user in developed regions. It's latest quad-core SC7735S solution with integrated connectivity is gaining traction with major OEMs including Samsung, HTC as well as [white box] player. Spreadtrum also began sampling its five-mode LTE chipset during the quarter representing another milestone for the Company in the fast-growing and competitive LTE market in China.

Broadcom announced last week that it is planning to shut down its baseband business line by the end of the year. Broadcom has a range of 3G feature phone and smartphone that is based on CEVA DSP with majority of those shipped to Samsung. We believe that Spreadtrum with its low-cost wideband CDMA platform is the immediate beneficiary of Broadcom decision to exit the market.

This is apart from Samsung's latest low-cost wide-band CDMA smartphone that are based on Spreadtrum chips including Galaxy Pocket 2, Galaxy Core 2, and Galaxy Young 2.

Samsung recently announced the Exynos LTE ModAp, its first in-house integrated application processor and LTE-advanced modem, which is enabled by our DSP. It is a straight Samsung technology capability to be become a legitimate supplier for the high-volume, mid- and low-end LTE smartphone and tablets, which are currently all based on Qualcomm chipset.

Last before handing over the call to Yaniv, I want to recap on the strategic acquisition of RivieraWaves we announced earlier this month. The rationale for acquiring RivieraWaves is to enable us to grow our royalty base on top of what we are generating from our DSP business today in the mobile and consumer market. The RivieraWaves connectivity technologies, substantially expands our overall addressable market to cover all categories of connected devices.

Collectively, our addressable market size is expected to be 35 billion devices in 2020 per recent data from ABI Research in addition, to the 7 billion devices that we are addressing with our DSP products. Resulting from these acquisition, we have set an initial goal to reach shipment of 400 million units of royalty billing connected devices by 2018 and a 25% increase for annual licensing revenue in 2015, compared to our historical figures.

With that said, let me hand over the call to Yaniv for financials and guidance.

Thank you, Gideon. I'll start by reviewing the results of our operations for the second quarter of 2014. Revenue for the second quarter was $9.2 million, lower than originally forecasted primarily due to a longer than anticipated signature process to conclude an approximate $1 million deal that was executed few days after quarter end.

The revenue breakdown is as follows. Licensing and related revenue was $4.4 million representing 47% of our total revenue, 29% lower as compared to the comparable quarter in 2013. Our royalty revenue was $4.9 million, reflecting 53% of our total revenue and down 27% from the prior year. Quarterly gross margin was 85% on US GAAP basis and 86% on non-GAAP basis. Our non-GAAP phone quarter gross margin excludes approximately $56,000 of equity-based compensation expenses.

Our total operating expenses for the quarter were $10.1 million, at the low end of our guidance. Our OpEx include an aggregated equity-based compensation expense of approximately $1.3 million and $0.3 million related to legal and tax costs associated with the RivieraWaves transaction.

Our total operating expenses for the second quarter, excluding equity-based compensation and deal expenses were $8.6 million at the low end of our guidance. US GAAP loss for the quarter was $1.5 million and fully diluted loss per share was $0.07. This compares to $2.2 million of net income and $0.10 per share for the second quarter of 2013.

Our non-GAAP loss was $71,000 and fully diluted loss per share was zero, as compared to the same quarter, which recorded $3.4 million of net income and $0.15 fully diluted net income per share. This figure exclude approximately $1.3 million and $1.2 million of equity-based compensation expenses net of taxes for the second quarters of 2014 and 2013 respectively.

Other related data, shipped units by CEVA licensees during the first quarter of 2014 were 198 million, down 6% sequentially and down 29% from the first quarter shipments of 2013. Of the 198 million units shipped, 186 million units or approximately 94%, were for baseband chips, reflecting a sequential decrease of 2% from 191 million units of baseband chip products and down 28% from 259 million shipped products from last year.

At the end of June, we had 26 licensees which were shipping products incorporating our technologies. This figure is too lower than the prior quarter due to consolidation in the industry.

As for the balance sheet, as of the end of June, CEVA's cash, cash equivalent balance, marketable securities and bank deposits were approximately $139 million. In the first week of July, we paid approximately $12 million to acquire RivieraWaves. In addition, we have future pending payments of approximately $7 million in connection with the acquisition upon achievement of certain milestones.

Our DSO for the second quarter was 50 days as most of the deals were backend loaded. This compares to 20 days in the prior quarter.

With regards to our share repurchase program, during the second quarter, we continued to actively purchase our common stock totaling approximately 694,000 shares at an average price of $14.6 per share and a total consideration of approximately $10.1 million. At the end of the second quarter, we had additional 300,000 shares available to repurchase under the existing 10b-18 plan.

Now for the guidance. Our guidance for the third quarter forecasted record high licensing revenue. As Gideon just mentioned a few minutes ago, we are seeing good licensing pipeline and improved visibility for this quarter. On royalties, after a few quarters of royalty revenue declines, we expect to reverse this trend and deliver sequential quarter-over-quarter royalty growth. While we are still facing headwinds from the continued upheaval in the handset market, in particular the Intel and Broadcom ramp downs of their legacy products, it will more than offset by stronger performance of 3G smartphone, feature phone and non-baseband products.

We are also experiencing consistent progress in LTE rollouts, although its impact on the revenue is still minimal in overall context. On the expenses side, we have added RivieraWaves' costs and its related employee retention scheme cost to our financial model. The ongoing RivieraWaves quarterly expenses are expected to be approximately $1.2 million, net of [French] R&D credit.

The employee retention scheme will be in the range of $0.7 million to $0.8 million per quarter for the first two quarters and $0.4 million to $0.5 million for the next four quarters and even throughout 2015. In addition, we are still in the process of building our connectivity roadmap, resource allocation and future investments and therefore our expenses may increase further due to that.

Our guidance for the third quarter. Revenue for the third quarter is expected to be in the range of $13.3 million to $14.3 million, largely as a result of significant licensing increase as explained before.

Gross margin is expected to be approximately 91% on both GAAP and non-GAAP basis, excluding equity-based compensation expenses. Our operating expenses, including equity-based compensation expenses are expected to be in the range of $11.3 million to $12.3 million. And of the anticipated total operating expenses for the third quarter, $1.2 million is expected to be attributed to 123(R) related expenses.

So our non-GAAP OpEx is expected to be in the range of $10.1 million to $11.1 million. Net interest income is expected to remain low and is anticipated to be approximately $380,000 due to lower cash balances and yields. Our tax rate is approximately 17% for GAAP and non-GAAP basis.

Share count for the third quarter is expected to be in the range of 20.6 million to 21 million shares. US GAAP fully diluted earnings per share in the range of $0.03 to $0.05 and non-GAAP EPS, excluding an aggregate of $1.1 million of equity-based compensation expenses net of taxes is expected to be in the range of $0.08 to $0.12 per share.

Operator, you can now open the floor for the Q&A session.

(Operator Instructions) Gary Mobley, Benchmark.

In your prepared remarks, you commented a little bit about what's expected to drive the sequential revenue growth and royalties in 3Q. I was hoping to delve a little bit deeper into that because if you look at two of your top three royalty contributors, Intel and Broadcom, shipments in the June quarter were not all that good. I mean as you probably heard on Broadcom's conference call, they're expected rather sharp sequential decreases in their base spend revenue. So I am just hoping to get a better understanding of what's driving the royalty revenue growth in 3Q and perhaps trying to gauge the prospects for it continuing to grow afterwards.

For a while we are speaking about the fundamentals in the market because overall as you know there is a -- the handset market is in turbulence. There is the Intel issue, there is the Broadcom issue, Qualcomm is facing the issue in the -- there is a -- in cases demand.

The fundamental as follows; one is, the market is going into a low cost phones, whether it's 3G, whether it's LTE. This plays with us. We are not seeing here LTE, we are seeing a ramp in the 3G for the first time users in whatever, China and other places and that's a positive contribution.

The other thing is what we mentioned Broadcom and Intel, what they are losing is basically picked up by another customer of ours and in the future phone space and this customer is also enjoying for other leftover, people that left the market, RDA and (inaudible) Ericsson. And what is happening is that the phones that is discretionary shipping is not the low end feature phone, it's kind of EDGE phones, call it smart feature phone and higher ASP.

So overall it's more than offset the trend that we are seeing. With regard to the sustainability of these trends, as we pointed out in the prepared remark, still there are ups and downs, remember you know how deep, how low can Intel can go with this, they are already there. But LTE is where we're going, we are expecting to see a major contribution not just from the known customers but there are others that are doing progress and they should build the market between now and 2015.

Okay.

And just maybe, Gary, add to that that overall we see enough relative reports to make sure that our guidance sticks and we should not miss that based on the reports or estimates that we have already issued. So we are quite firm with this uptake for next quarter.

Okay. Looking at your non-baseband royalty revenue or specifically the units, you posted a nice year-over-year increase in Q1, a very sharp year-over-year decrease in the just reported June quarter. When might we see a return to year-over-year growth in non-baseband related revenue? And then perhaps any further growth in non-baseband excluding gaming devices.

At least for now the non-baseband trends will be seasonal. So, Q1 eventually was seasonally weak, Q2, the non-baseband guided consumer electronic, "waking up" to tell the Christmas, or we expect to tell the Christmas, this will grow. Now we have signed up a lot of non-baseband, not necessarily consumer but non-baseband handset customers in the last few years.

Based on what we are tracking today, at least (inaudible) of them will get into production some time in the second half of 2015 and this will be a fresh royalty stream coming from these customers.

Last question I have relates to your licensing revenue guide. I appreciate the fact that licensing revenue is guided to be at a record level but I am trying to get a sense of the organic growth there. What is expected to -- what is CEVA's existing business, the DSP and what was there on the connectivity side, what is that expected to contribute to Q3 license revenue guidance. And then as well, looking at the metrics on Q2 licensing revenue you struck 11 license deals, that's I think about 4 or 5 above the norm thus indicating your average deal size is pretty small, was that a function of 5 to 6 DSP deals, the [antique light] for audio applications? That's it for me. Thanks.

So let's take it one at a time. When it comes to the licensing focus that we are focusing, I would say that and it relates to what we said in the past, we are having much broader product line and as a result we are addressing a large customer base. Now the license focus for this quarter is mainly on the DSP side because of the global product line you mentioned Audio Vision Communication and kind of a concentration of deals that we were dealing the second quarter as I mentioned in my prepared -- we made the significant progress in this respect.

So we do expect a contribution from the connectivity side, from RivieraWaves. We are still learning, setting up the organization so we are not in a position to provide more color about how much we're going to make, we have to go through some kind of learning curve. Next year it will more, as we mentioned, 25%. So for the third quarter it's mainly DSP up tick. Good environment there, I would say.

You had another question, which I forgot, Gary.

Yes, the number of deals and the size of the (inaudible).

Right, one of the characteristics, I should say, of the deals that we are doing, outside of the baseband, are single use deals, whatever, few hundred thousand dollars per deal and that's been -- you have to accumulate. So on one hand we have larger customer to address, on the other hand their preference is to go to a single use and that's the reason that we get this lower average I would say license figure base. But it's because it's both single use but from a royalty standpoint keep in mind that whatever it's a multiuse, a single use, we are here to sign deals and those guys should -- the single use guys should generate royalties as well.

All right, thanks for taking my questions guys.

Thanks Gary.

Matthew S. Robison, Wunderlich Securities

I'll continue on Gary's thread there, the -- how should -- it looks like the royalty ASP may have gone down in the quarter, still working through some of the numbers, but maybe give us a little background for that and then the single use ASP that's pretty clear. I think at one time at least we thought that the royalty value for some of these non-baseband applications might be -- might carry a little bit more ASP than corporate average. Should we still be thinking about that along those lines and then I've got a couple of follow-ups.

If I compare the sequential decrease in the ASP from the first quarter to the second, it really all is around mix of products which are non-baseband and you said correctly, there are higher ASPs. If I look at just mobile side of the business from Q1 to Q2, it hasn't changed, no pricing other than -- nothing whatsoever. Even if I compare the second quarter to the second quarter of last year, we see a slight increase, just a few percent of a slight increase on the handset ASP. So we're not really experiencing any ASP issues currently in the baseband business, it's only because of the mix on much smaller post-Christmas normal seasonality from the non-baseband side.

Going forward, you're right, this hasn't changed. And when you look at some of the non-baseband applications, whether it's the infrastructure or whether it's the imaging, whether it's the Wi-Fi and the new connectivity. And we know royalty should bear higher ASPs than we have today. These are different markets, different sizes, different applications, and much less crowded to some extent than what we have been seeing over the last two years in baseband market.

So we are looking forward to that. With the continuing mix in baseband, and when we talked about LTE, and the LTE deployment on low-cost LTE, these are significantly still higher ASPs for us than the traditional feature phones and even smartphones.

Gideon, you talked a little bit about Intel, and apparently not really expecting the ramp on some of that LTE stuff until next year. I guess it would be maybe your second and third quarter royalties next year when you start to see that. Correct me if I'm wrong on that and then maybe give us a little bit of your early view about the seasonality -- seasonal effects might be in the fourth quarter. Is there -- sometimes we've had situations where there's product transition that have offset some of the normal holidays to consumer spending. Do you envision that kind of a scenario at this point?

Well, when it comes to Intel, it's -- for me where we are -- from where we are, it's hard to know when they will finish this certification for the LTE Advance. They'll play with the (inaudible) more like in the flagship models that came out the high-end, they have a bunch of customers. They already announced Samsung, Lenovo, all those PC guys, Asus, they have a good play in the tablet as well. So -- but they need to finish up. I'm not too sure about second -- I mean if it goes until late in 2015. They are saying about the current Q4 and Q1 next year. And you know the implication from our side.

I'm also -- I didn't mention it in our prepared remarks, but people probably heard about the activity in Rockchip. Today, in China most of the tablets are now cellular connected. This is a huge add-on to the modem business. Overall, I saw a report from Ericsson speaking about 900 million units of tablet connected device in 2019. And that's where Intel is focusing with Rockchip and their SoFIA platform, which is the integrated x86, and then the modem.

Going again to Q4, it's hard to say where are we going to be. There are still these headwinds. I'm not so sure. I feel that this is something that is not -- will not be as strong as it used to be. I think that most of it is behind us. The contribution of Broadcom baseband to our cellular is not that big. It's something that soon will not be even noticeable. And as I said, (inaudible) is taking this product anyway, and that becomes non-significant.

Consider a product, as I said, to Gary until second-half of 2015 to remove in a seasonal form factor.

So now you're -- you've got quite a bit of royalty concentration now it seems with a privately held company. What's happened with that reporting of the information flow there, that is how has that affected your visibility?

Well, not at all. We continue, we -- the licensing unit hasn't changed. Once a quarter we get the report, very detailed, where we know exactly what's going on. Like with any other customer that's common practice for us in the industry, and we haven't seen any changes around that.

And when is the chief scientist grant coming this year?

It varies, there are different payments. There is an upfront payment that usually we do in the second or third quarter. We got some in Q2, and we should be getting some in Q3. And then we get on a quarterly basis then based on the achievement, and the percentage of the completion of the different tasks. So it's usually around Q2-Q3. And this year, I would say it's probably equally shared.

One thing that I want to go back to your comment about concentration, here's the thing. When it comes to the feature phone, and the transition to the feature phone, there are two guys playing there neck-to-neck, MediaTek and Spreadtrum. In the 3G wideband CDMA I think these two guys will dominate the space. And when it comes to LTE, and now that China is going there it's not going to be, at least for now, it's not going to be concentrated. We know Samsung, we know Spreadtrum, we know [Litco] and there are a bunch of guys that will get there either though the tablet space, or through the handset space. So it's going to be, at least for the next two years, a very -- there will be plenty of suppliers for [handsets].

That's interesting. Gideon when you get a sec, give me the operating cash for depreciation and CapEx, please? And that's it for me for now.

Sure. CapEx was about $200,000, depreciation about $300,000, and cash from operating was negative this time around, about $3.6 million.

$3.6 million?

Yes.

And you expect to have as much CapEx associated with RivieraWaves?

No, I think it's a very similar business model. Maybe some upfront IT-related to get them up and working around our systems. And quick equivalent setups in the security mechanisms, but other than that they are using the same [DA], they are using a similar type of tools and I don't see us needing to spend too much around that part of the business.

How much of your apparently $8 million plus in licensing in the third quarter do you think will come from Riviera?

I think we didn't touch that figure. We're still looking into it. We are still working the revenue distribution, some of the past deals that still have future milestones, and some future work around them that we need to figure out how and when we could recognize them. Some of them have acceptance criteria that will take a bit longer to recognize, only when we actually reach those milestones. So without the initial royalties, the bulk of the growth in licensing, other than the $1 million that's left, and that's part of the guidance, it's mainly around the DSPs. So that we know, and we have pretty good control over it.

Joseph Wolf, Barclays.

I just want to make sure I understood first something that Gideon said during the call. There was a number about 400 million units, and then a 25% number. And I want to make sure I understood what those two were referring to exactly.

Well, we said today objective that we are setting to the connectivity activity that we have, which is based on the RivieraWaves. We expect or we are setting an objective to ship 400 million royalty billing connectivity devices on top of our baseband, on top of our vision, on top of our DSP product by 2018. So in order to achieve these deals we have to sign up licensing agreements, let's say, in the next two, 2 1/2 years to let them bring this volume. And for this reason we set an objective to have a 25% increase in our historical licensing revenue starting from 2015. Our historical licensing revenue was between $5 million to $6 million per quarter.

Perfect. Thank you. When you look out there, I guess, you'd also mentioned having about 12 products that you think are going to be hitting by the second half of 2015. Is that what you said?

Yes. That's what Gideon said, yes. Those are fresh.

Those are fresh products and they are all non-baseband. How do you think about given the size of those licensing deals, how do we think about the yield in terms of how many units and ASPs compared to the traditional baseband business? If we think about 2015 half of that getting some ramp in a few of those products. What kind of yield in terms of units and price can we think about?

Well, I should say the following. It's certainly not at the level of the baseband, per customer I mean. Baseband is the largest market on Earth and we are speaking a large set of customers, different applications, satellite communication or deals and stuff like this. So we are not in a position because these are new customers. We do not have familiarity with them on how they succeed in the market. So, one thing if we don't think about per customer baseband volume which is could be 100 of million of units a year. We are not speaking about this size. We have to wait for those customers to get into production and then start to be more specific.

I mean could all these together be an increment? You talked about 25% growth over historical. By the end of 2015, are we at a 10% growth over some sort of core baseband business if we sit properly?

It's hard to forecast from today. I think the 25% is on licensing. On the baseband side we -- on the royalty side, we ship -- our customers ship probably around 900 million. If you revert to 9 million in six months, it could be yes, it could maybe, it could be, we hope so. But I think we are a little bit further out from actually knowing how much each of these 12 semiconductor companies, OEMs, it's going to be an combination actually make it and how successful they are. I think this will give you a sense. So the potential is there. There is no doubt that if we look ahead a few years, we do want to reach a few hundreds of millions of non-baseband products a year, and if you look at the last couple of years, we have been at run rate of 100 million going down in the last year or two. We want to be back at north of 100 or 200 to 300 over the next couple of years.

I think that's the initial goal. On top of the 400 million that Gideon mentioned in the connectivity space. So if you have the 400 here and another 300 there and baseband, we could be a much higher 2 billion and above if we look at 2018. I think we are a little bit running ahead of ourselves but just to understand the potential, if all this works out over the next couple of years, and we have north of 40 deals now around non-baseband just in the last two years. If we went around -- a count of 40 deals, the last quarter we could add another 10, this last quarter and we're north of -- customers using, companies using our different technology which eventually should get into, or a portion of them should get into production.

And just one last question. There has been some shifting in seasonality on the royalty side of the business over the last couple of years based I guess on your customer's exposure. Do you think that repeats itself this year, meaning third quarter -- real third quarter so your fourth quarter is stronger than your first quarter? How does that play out in terms of royalties?

Unfortunately, there is no such word of seasonality almost in the wireless market these days, not because of the pre-Christmas, that's still a very strong driver. But really from the players in the industry, whether it is the OEM, but for sure we know all about the semiconductor guys. This is Intel, this is Broadcom and whenever they change their patterns, the market is not seasonal anymore with regards to CEVA. Both of them decided to quit the market three years ago to Sony Ericsson. Now it's RDA, some are positive for us, some are a little -- are causing headwinds until the market stabilizes and others companies gain their share, then we are seeing that as we speak for the next quarter although the numbers from Intel and Broadcom were pretty horrible.

In baseband, in last two quarter, we are able to show growth in Q3, which are based on actually these terrible numbers in Q2. So unfortunately, until these all clears out and that may take another few quarters and then as Gideon explained we know who are the major vendors of feature phone chips, smartphones and an LTE phone which today is 98% Qualcomm. As soon as that changes, then you could go back to the normal seasonality. That's on baseband.

And on the non-baseband, it's still very similar to prior years. Usually second quarter, like we have experienced now, is the slowest because this is the post Christmas, affected Q1. On top of that, we are in the transition of gaining new non-baseband players, which will change also the seasonality for us two or three years down the road. For now, it's all about gaining these new sockets that is all new to us.

All right. Great. Thanks.

Thank you. Joseph.

Suji De Silva, Topeka Capital Markets.

Nice job on the license guidance here. I am not sure if I missed it or not, but did you talk about the range of licensing you're expecting in the third quarter versus royalties? How much have you've got that?

Yes. We are looking at somewhere between $8 million to $9 million of licensing and about 10% sequential growth in royalties.

So $8 million to $9 million of licensing, you said?

Yes.

Okay, great. And then in terms of the feature phone versus smartphone mix, where is that at this point in time on units or revenue basis?

Good question. We are talking about 66% feature phones last quarter versus 34%. The feature phones have increased again although the tremor we are seeing in the industry with the 2G and 3G and Intel, Broadcom story 66% of the phones were feature phones.

Okay. And can you help us to understand where perhaps the Intel feature phones unit run rate is now and your qualitative thoughts on the pace of that fall off from this point forward?

The Intel feature phone was mainly shipped to Samsung and Nokia. So, Nokia as you know is not anymore a player in this space. They are a whole lot of Chinese companies that picked up. In case of Samsung, they are moving to smartphone. So, as I said, this is -- the feature phone is still a very sizable market and healthy on dynamics. Dynamics is going to a EDGE phone to all those 25 build out phones with operating systems. So, there is a sizable market and it's less competitive now. So, the survival of mainly Spreadtrum and MediaTek are benefiting from this.

I think that, the feature phones are going to be less branded not having the Nokia and Samsung such significant presence there but a lot of non-brand or less known brands especially in the emerging economy.

I guess specifically my question was in the royalty run rate is there remaining Intel exposure or is it de minimis at this point?

This could still continue for a quarter or two but I don't think that's significant or it's hard to breakdown exactly today but I think in two quarters it will be completely out both Intel and Broadcom. In the next two quarters, you would have to monitor the different trends -- could we expect what and at what pace.

Understood. And the last question, I think Gideon I heard you saying in the call something about a new baseband licensee. I was just curious who -- if you did say that, who would be coming into the market at this point? Is it OEMs or newer China guys or did you not say that?

No. I said new agreement with licensee.

On existing customers then, right and new agreements?

Right. Right.

Okay.

Royalty advance on any generation.

Understood. Great, thanks guys.

Okay, thank you.

Jay Srivatsa, Chardan Capital Markets

Yes, thanks for taking my question. Gideon, despite some of the delays at Intel over LTE, it appears China Mobile has shifted a lot of the subsidies from 3G to LTE. Who do you think is going to be a big beneficiary there of the LTE ramp-up in China, Spreadtrum, or is it Qualcomm, or anybody else do you think would be best position there?

I think it will be a reflection of what was happening in the 3G and 2G, start with Spreadtrum will be focusing on the low appeal LTE phones, Qualcomm will be more on the high appeal. So there will be some symbiotic relationship in the coming years. And then when the prices will go down, if we're going to see -- I think we'll see the same thing that happened in 2G and 3G. At the end of the day this market, the China market and the emerging market its not a market for western companies. They will go to probably 5G or whatever.

Spreadtrum right now is not in the market in volume. We mentioned in the prepared remark they are now just sampling their [five-model day] which is as you know a prior requisite for China Mobile.

Okay. You've mentioned this a couple of times suggesting that Spreadtrum would be the biggest beneficiary of the Broadcom business. What gives you the confidence that Spreadtrum will get the major chunk of it, and not MediaTek or any of the other providers there?

Well, Broadcom business is Samsung, the main customer. I would say almost the only customer Broadcom has is Samsung. And Spreadtrum has a very good relationship with Samsung. And I mentioned in my prepared remark, we see already that are wideband CDMA phones coming with Spreadtrum chipset. Those Galaxy Pocket 2, all those Galaxy branded phones are coming now with Spreadtrum.

Okay. In terms of the licenses on the non-baseband side, it appears that it seems to be picking up pretty nicely. When do you think you'll get to a point in your revenue mix starting to be comparable between baseband and non-baseband? Is it 2015, 2016, what's your outlook for the non-baseband business?

You mean on the royalties? Well, licensing today, they are -- it's changing. Licenses is a lumpy business, but there are many quarters that we have no non-baseband business, or more baseband licensing agreements, revenue than in baseband. Because, yes, baseband is a consolidated market, and there are not that many -- any opportunities there.

When it comes to royalties, royalties it's a way to go. We need to act because the business is so big, and we have that big customers in volume we have to accumulate many, or relatively many non-baseband customers that are all based on fragmented marketing in order to get to this volume. But let's see them getting first into production, and then start thinking how they expand. And don't kill our traction in baseband, we are very strong. I mentioned that we are going to into tablets now with Rockchip, and also with Intel's SoFIA. And it's a very dynamic market and we have a lot of opportunity because the market is going to low -- mid, low end. And this is our value proposition. Our strength is in the lower-end, and the mid range mass market.

Thank you, good luck.

Thank you.

And this concludes our question-and-answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks.

Thank you, and thank you all for joining us today, and for your continued interest in support of CEVA. Please visit the Investor Relations section of our website at www.ceva-dsp.com for upcoming conferences and events that we will be attending. Thank you and good bye.

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