CEVA Inc (CEVA) 2014 Q3 法說會逐字稿

Good morning and welcome to CEVA Incorporated Q3 2014 earnings conference call. (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.

Thank you. Good morning and welcome to CEVA's third-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 third quarter and provide guidance for the fourth quarter of 2014.

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.

Forward-looking statements include our financial guidance for the fourth quarter of 2014, confidence in our licensing pipeline, optimism about our ability to leverage opportunities in the IoT space, optimism about market dynamics favoring the need for more advanced DSPs and connectivity IP, expectations regarding royalty revenues from non-handset baseband applications and continued optimism about royalty revenues from handset baseband applications.

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, the ability of new products incorporating our technologies to achieve market acceptance, the speed and extent of the expansion of the 3G and LTE networks and the ILT space, the effect of the intense industry competition and consolidation, global chip market trends 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 now like to now turn the call over to Gideon.

Thank you Richard and welcome everyone. Our third quarter licensing performance was an outstanding all time record high in revenue. We signed 10 new licensing agreements spread across all our product lines. Four of the agreements were for CEVA DSP cores and platforms and six were for connectivity products. Target application included LTE-Advanced handsets, mobile infrastructure, vision for surveillance equipment and digital cameras, access point and wearables. Geographically, six of the agreements signed were in the APAC, including Japan, three were in the US and one in Europe.

Total revenue was at the high end of our guidance range at $14.1 million, up 53% sequentially and 41% higher on a year-over-year basis. Licensing and other revenue was $8.7 million, up 100% sequentially and up 121% on a year-over-year basis. Royalty revenue came at $5.4 million, up 10% sequentially and down 11% on a year-over-year basis.

During the third quarter, we continued to experience a healthy demand for our technologies. It underscore our strategy to diversify our customer base and expand beyond the handset baseband market into other markets such as wireless infrastructure, vision, audio and more recently Wi-Fi and Bluetooth connectivity. This diversification is then practically reflected by the fact that nine of the 10 agreements signed during the third quarter were for non-baseband application and several of these deals were with first-time customers of CEVA. To date in 2014, we have signed 25 license agreements, 22 of which are for non-baseband applications and 11 of these are with first-time CEVA customers.

Overall, as we look at our customer target end product for licensing agreement signed over the last 18 months, there is a clear trend [powered] connected devices, both mobile and stationary, which can be broadly classified as the Internet of Things or IoT in short.

Let me take the next few minutes to outline our perspective for the IoT space. Put simply, IoT is an umbrella for all type and form factors of connected devices including smartphones, tablet, smart home appliances, wearables, surveillance, connected car, industrial, medical and more. IBC forecasted the number of connected devices excluding PC, smartphone and tablet will reach over 28 billion units in 2020, up from 9 billion in 2014.

There are three main components in most of the IoT devices, the processor responsible for the human interface, the sensor that is responsible for collecting and processing data, and the communication engine that is responsible for transferring the processed data to the cloud.

CEVA product line address two of these three main components, mainly the sensing and the communication. For sensing, our DSP platform are used to add intelligence to the data collected by the sensor. At this end, our audio and vision platform enable many of the emerging use cases such as face detection and recognition, image enhancement, video analytics, depth sensing and more. For communication, we are taking advantage of our comprehensive offering for Wi-Fi, Bluetooth connectivity and LTE to address wide range of IoT devices located both indoors and outdoors. Moreover, our advanced communications DSP allow us to address opportunities in the infrastructure related to IoT devices such as Wi-Fi access point, home gateways, small cells and macro base stations.

We are very well positioned in the IoT space and our technology and strength are widely recognized among semiconductor companies and OEMs. We are highly optimistic in our prospect based on the licenses we have signed to date, our current licensing pipeline and the market dynamics that are favoring the need for more advanced DSPs and connectivity LTE to better share the requirement for this market. Therefore we are expecting significant growth in our unit shipment for non-handset baseband application over the next few years, up from approximately 100 million royalty billing units annually in 2013 to between 700 million to 900 million units annually by 2018. This would mean addition to our existing handset baseband business which we believe will continue to be a strong growth driver for us.

While for the next three years a majority of our royalties will continue to come from shipments of 3G and LTE low-cost smartphone, we are expecting new non-baseband royalties starting as early as next year and growing at a steady pace in 2018. (Inaudible) for the third quarter shipment already included an initial contribution associated with IoT.

Q2 2014 shipments which are reflected in our royalty revenue for the third quarter show growing LTE shipments and low-cost smartphone, high value and feature phone and some seasonal recovery in our legacy consumer electronics. These good fundamentals are on the back of an ongoing shutdown of Broadcom and Intel 3G and 2G products.

Going forward, we are encouraged by the recent announcement and activities of our key customers. Let me highlight a few of those. Following Intel's $1.5 billion investment in Tsinghua Unigroup, [Spreadtrum] and Intel will jointly developed a family of Intel Architecture SoC for the mobile market that will be available starting for the second half of next year. This strategic collaboration is aimed to increase the market share of both Spreadtrum and Intel in China and other emerging economies. CEVA is positioned to benefit from this collaboration as both companies use CEVA DSPs exclusively.

China Mobile has certified Intel XMM 7262 LTE-Advanced modem, a cost effective platform separating category six speed of up to 300 megabit per second. Intel other LTE advance chip XMM 7260 is now shipping in Samsung Galaxy Alpha smartphones for Europe and other regions.

Spreadtrum announced its next generation multimode LTE modem, SC9620, supporting LTE platform at up to 150 megabit per second. This platform has already been adopted by leading handset brands like Lenovo and Coolpad.

The [Recone] technology is now sending its first five mode premium chip LC 1816 for testing. Various smartphone OEMs have based their product on this chip and this product will be in the market soon.

Samsung Exynos model 300 supporting multi-bed, multimode, cut fix LTE advanced started for the first time to replace Qualcomm in the flagship mobiles of Galaxy Alpha and Note 4 in Korea and planned expansion into Europe.

Beyond LTE which focus to expand quickly mainly in China, 3G deployment are also growing both in regard to low-cost handset for first time smartphone users in developing regions and IoT. In the IoT context, Intel announced a 3G cellular modem at size of $0.01 coin enabled by the XMM 6255 CEVA based chip (inaudible) this module for our broad range of emerging usages such as industrial equipment, home appliances, security, safety and healthcare monitors.

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

Thank you, Gideon. I will start by reviewing the result of our operations for the third quarter of 2014. Revenue for the third quarter was $14.1 million at the higher end of our guidance, primarily due to all-time high licensing revenue. The revenue breakdown is as follows. Licensing and related revenue was $8.7 million reflecting 62% of our total revenue, doubling sequentially and 121% higher as compared to the comparable quarter of 2013.

Royalty revenue was $5.4 million, reflecting 38% of our total revenues, up 10% sequentially after few down quarters but still down 11% on a year-over-year basis. Our quarterly gross margin was 91% on both GAAP and non-GAAP basis. Non-GAAP basis include -- exclude equity-based compensation expenses.

Our total operating expenses for the quarter were $11.6 million, just shy of the mid range of our guidance. Our total OpEx for the third quarter included for the first time the RivieraWaves expansion which will offset by the receipt of on higher than normal R&D grant payments. OpEx also included an aggregate based compensation expense in approximately $1.1 million, RivieraWaves-related (inaudible) expenses of $0.7 million, $0.1 million of transaction expenses and $0.3 million of amortization of acquired intangibles, all associated to the RivieraWaves acquisition. Our total OpEx for the third quarter excluding these items were $10.2 million, reflecting the lower end of our guidance.

Other income included a one-time capital loss of approximately $0.4 million due to the sale of a minority equity investment in Antcor, the Greek Wi-Fi company. It also included a solid devaluation of our euro cash balance from RivieraWaves as the US dollars strengthened as compared to the euro in the third quarter.

US GAAP net income for the quarter was $0.7 million and fully diluted net income per share was $0.03. This compares to a net loss of $0.3 million and a diluted loss per share of $0.01 in the third quarter of 2013.

Non-GAAP net income was $2.4 million and fully diluted net income per share was $0.12, as compared to the prior year in which we recovered $1.3 million of net income and $0.06 on a fully diluted basis. These figures exclude approximately $1 million and $1.6 million of equity based compensation expenses, net of tax for the third quarters of 2014 and 2013 respectively. The non-GAAP results for the third quarter also exclude the impact of amortization expenses, the loss of the equity investment in Antcor, transaction cost and related taxes associated with the Riviera acquisition.

Financial income for the quarter was low due to the negative FX effect on the euro cash balance sales announced from RivieraWaves.

Other related data, shipped units by CEVA's licensees during the second quarter of 2014 were 216 million, up 9% and 7% sequentially and on year-over-year basis. Of the 216 million units shipped, 195 million units or approximately 90% were for baseband chips, reflecting a sequential increase of 4% from 186 million units of baseband chips and 12% higher from 174 million chip units a year ago. This would be the first positive growth in baseband units on year-over-year basis that we recorded in over a year.

As of September 30, 29 licensees were shipping products incorporating our technologies, three higher than the prior quarter, two in connectivity and one in DSP for the automotive industry.

Let's see the balance sheet items. As of the end of September, CEVA's cash balances, cash equivalent, marketable securities and bank deposits were approximately $128 million. In the third quarter, we paid approximately $12 million net of cash received to acquire RivieraWaves. In addition, we have further pending payments of approximately $7 million in connection with the acquisition. Our DSOs for the third quarter were 54 days compared to 50 days in the prior quarter.

With regards to our share repurchase program, during the third quarter we purchased approximately 300,000 shares at an average price of $14.7 per share and a total consideration of approximately $4.4 million. Since the inception of our July 2013 repurchase plan, we successfully purchased 2 million shares of our common stock and aggregate consideration of approximately $31 million. Our Board of Directors approved a new repurchase plan of an additional 1 million shares.

Now for the guidance. As Gideon elaborated, there are indicators of a strong licensing environment and good demand for our IPs. Moreover our entire product line is well positioned to leverage opportunities in the IoT space.

I would like to reiterate that this licensing demand has resulted in raising our traditional licensing revenue guidance from a $5 million to $6 million range to a $6 million to $7.5 million range per quarter.

As for Q4, investments from deals already signed earlier in the quarter and our visibility of the current pipeline we expect top line to -- expect to top the mid-point our new licensing revenue range.

On royalties, we see a general uptrend, a combination of seasonal and market expansion factors. We are, therefore, forecasting up to 15% sequential increase in royalty revenue. This will be the second quarter in a row of sequential increases in royalty revenue. This further affirmed our earlier commentary that we expect the gradual recovery of handset shipments of our customer in the second half of this year due to favorable fundamental of LTE and low-cost smartphones. This positive development is particularly noteworthy as this counter balance the strong unexpected headwind from Broadcom's decision to exit the space and from Intel to exit the high-volume low-cost feature phone space.

All in all we forecast 2014 to be a growth year for CEVA. Overall revenue due to outstanding licensing execution which will more than offset the royalty revenue weakness mainly in the first half of the year.

As for the expenses associated with the RivieraWaves' acquisition was expected to be approximately $1.2 million net of (inaudible) credit for the fourth quarter. In addition we shall record expenses from RivieraWaves employee retention scheme of approximately $0.7 million. In 2015, that number will decrease to approximately $0.5 million and later to $0.4 million per quarter. These expenses are in line with what we had stated in the past.

Our guidance for the fourth quarter. Revenue for the fourth quarter is expected to be in the range of $12.8 million to $13.8 million. Gross margin is expected to be approximately 90% on GAAP basis and 91% on non-GAAP basis, excluding equity-based compensation expense. GAAP operating expenses are expected to be in the range of $11.6 million to $12.6 million. Of our anticipated total OpEx for the fourth quarter, $1.1 million is attributed to equity-based compensation expenses and $0.3 million to amortization of acquired intangibles. Our non-GAAP OpEx is expected to be in the range of $10.2 million to $11.2 million. Net interest income is expected to remain lower and anticipated to be approximately $350,000 due to lower cash balances and yields. Tax rate is expected to be approximately 17% for GAAP and non-GAAP basis.

Share count for the fourth quarter is expected to be in the range of 20.5 million to 20.7 million shares. US GAAP fully diluted earnings per share is expected to be in the range of $0 to $0.02 per share and non-GAAP EPS forecasted excluding aggregate-based compensation expenses and amortization expenses is expected to be in the range of $0.06 to $0.08 per share.

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

(Operator Instructions) Joseph Wolf, Barclays Capital.

So I guess if you look at the -- at the royalty business versus the licensing business, how well do you think this maintains? Meaning you talked about a pretty long lifecycle until the licensing starts to convert into revenue. But you're starting to see it now. Do you have approximate pull-through rates and when can we see that being like 15% of revenue? Could that be as early as 2015?

And then I guess related to that, when at the peak of the 2G cycle the royalty was about 60% and the licensing was about 40%, is that still the model as you kind of get into this or is it a -- is IoT in the next phase of growth big enough but that's not the expectation in terms of mix?

So, Joseph, let me start. First of all, as I said in the prepared remark, for the I would say next two, three years we are going to rely on mainly on royalties from LTE and 3G low cost. And we can elaborate later on if you want why, how we see and the guidance that we said already show that these fundamentals are intact.

Now with regard to the non-baseband, and I -- and we were very specifically saying that we expect about 700 million to 900 million units in 2018 coming from the new product. Let me explain why -- how this royalty trend is going to shape up. Basically there are three main differences between the non-baseband market or the IoT segment that we are relying and what we are used to in the smartphones.

First of all, it's a very segmented market, meaning that you have, I would say many, close to -- more than 100, at the range of hundreds of companies that are able to ship our product, between 10 million to 30 million units a year. So we are going to collect them. Some of them we already collected. At least we believe that what we have today is the designing that we did in the last 18 months, between 35% to 40% of this 600 million to 800 million or 700 million to 800 million, 900 billion units will come from the existing, the one that we already signed in. Now -- so that's one thing. It's segmented market you have to accumulate these things.

The other element is with regard to connectivity. Connectivity is another domain that we have added just recently. And we started to collect just last month those licenses, it's going well. And the third element relates to the vision, mainly to the vision or the -- and the infrastructure here because of certification, automotive market, it takes a longer cycle to build.

So on the whole we are going to see a contribution from the project that going to be released along the way but if you ask us we expect in 2018 all these guys will be in full steam ahead and will get to this level.

(Inaudible) referring to more of a gradual step function. New customers will be two years -- new customers from now will take two years and then we'll see the full benefit in the 2018. Existing customers, we are starting now. And on top of all that you have the recovery in the baseband cycle that is already showing its positive inputs both in Q3 and Q4.

So I would say that's one stop shop all in 2018 with the gradual increase from different aspects, some absolute, some already happening and some will happen and we'll sign them up when they come up with a check.

All right, that's helpful. On the cash balance and your share buybacks right now, this cash balance is still relatively high but it's lower than it's been. What absolute level of cash are you guys comfortable with? And right now as you look at the new buyback what -- are you looking at your cash balance or the price of the shares as you decide to repurchase stock?

Yes, right now we're about 128, we still have some pending payments so I would say that after those are concluded, and that's not immediate, (inaudible) 120-ish. Still a bit high for this -- for the size of company as we are today (inaudible) 2018 maybe. But with that said, we are still looking for other opportunities like we have done very successfully I would say with RivieraWaves. It will open up a new market, new -- relatively small pieces of cash which could take that 120 below 100-ish. So possibly by luck if you find another idea or solution which could add external growth which like RivieraWaves is adding from day one, the six deals signed just in the last six -- in the last quarter coming from that product line, that -- and buying back will take us well below a 100 which I think we will be very comfortable with.

Perfect. And just last housekeeping, shekel-dollar, are you guys -- are you doing any hedging, is that help -- starting to help you?

That will start to help us next year, yes. Indeed that's helpful and we are starting to hedge now 2015 with a very positive effect and on the local expenses.

Perfect, thanks guys.

Thank you.

Gary Mobley, Benchmark.

Your royalty revenue, it's nice to see is finally picking up for couple of consecutive quarters, but seemingly there is not a whole lot of positive data points as it relates to your licensees as you mentioned, as we all know Broadcom is giving out the baseband business, Intel has made decision to get out of 2G basebands. And could you give us a sense of what's really driving the royalty revenue right now, is it all Spreadtrum, is it Samsung 4G, is it Intel 4G?

Yes, first of all you mentioned Broadcom and Intel, this market is zero sum gains meaning that Broadcom exiting the market, somebody else will pick it. In specifically Broadcom there are in the 3G (inaudible) CDMA, Spreadtrum and Intel can, will pick it and they are picking it up, and same goes with the feature phone, we'll still see a sizable (inaudible) feature phone basically what is Intel (inaudible) Nokia is leaving, somebody else picking it up. So this -- the net gain (inaudible). Now the market from us has different vectors of growth. The first one is LTE. We are consistently growing LTE both in Q2, now Q3 which we are guiding, there is a growth in LTE.

The other area that we are growing and the market is not mature, actually the market is growing, the 3G wideband CDMA, this is the first time users, we are seeing significant volumes coming out of this angle. The other potential basically a guidance on ongoing inertia, once is the seasonal trend in our legacy consumer. There is (inaudible) value and all going up and it will behave like seasonal. That other thing is the feature phone that has volume and, Gary, there is 5 billion feature phones, installed base of feature phone today, and install base of smartphone is about 1.8 billion.

This 5 billion units whether is going to be translated to smartphone in two years, three years, we don't know, but it eventually will be translated when maybe the prices will go down. Even then obviously and I think also probably (inaudible).

Okay. I think Yaniv mentioned that RivieraWaves concluded about six license deals in a quarter, I am assuming that translate into somewhere between $2 million and $3 million, maybe closer to $2 million in license revenue from the acquisition which may be at the higher end of the Company's historical quarterly range, and I am just wondering how much of that particular sales funnel was enhanced by broader CEVA sales force? I think there were only two sales people, RivieraWaves if I'm not mistaken, and how much longer can that sort of sales synergy [honeymoon] effect continue?

Gary let me -- indeed there were fixed deals. First of all in the DSP side there were two multi-use agreements, and the majority of the contribution and there was also another surveillance -- vision type of, the majority of the contribution came from DSP in terms of revenues, licenses revenues.

Now, the connectivity, this is a bit different. I mean in the big picture that we've done DSP deals, it tend to be single yields, it's -- in some cases there are also some customization that have to be made, but it's basically a single yield with a lower [ASP] than a DSP, nowhere license revenue again in the DSP.

Okay.

Gary, hi, I could add one more color to you, I'm not sure they were the right number, I would think it's smaller. Again (inaudible) at the end of the day, but if you look at deferred revenues in the balance sheet you will see pretty significant increase to north of $2 million from traditionally $300,000, $600,000, $700,000. That is attributable to RivieraWaves. But not all the deal that was signed we will recognize, and we will recognize it over time based on US GAAP rules, so that's something that's a -- is a bigger background maybe than we usually enter a quarter into but you could see them deferred, not necessarily in the top line yet.

Okay, it's helpful. All right you mentioned that I think you had seven first time licensees and you also mentioned that you had one baseband licensee. Was that baseband licensee a first time licensee?

No, it's a different one.

Okay. All right. That's it from me. Thanks, guys.

Thank you.

Matt Robison, Wunderlich Securities.

So I guess just a follow-on from Gary's question, so should we -- and we don't -- we've seen some pretty dramatic increase in China mobile LTE subscribers reported, are you starting to see that or is that kind of what we're looking for as Spreadtrum and Leadcore start to shipping that market, the benefit from that momentum. And I guess help me, help us understand a little bit, like little bit more detail on this 15% royalty increase. You mentioned Samsung LTE, you mentioned some contribution from Intel, but it feels like it's still mostly Spreadtrum, its really driving the growth there, is that the way to look at it? And I have a couple other questions.

So I wouldn't go to millions of customer, because if -- there are few, but I just to reiterate what we've -- what Yaniv said in guidance remark. It's basically combination of seasonal and market expansion. In terms of seasonal, Q3 in general is high season when it comes to, even to smartphone and consumer product. Nowadays in pricing points -- and it starts like this -- if you break it down to the segment in your market you are seeing (inaudible) not in China, not China Mobile yet. From our perspective which is the low end of the LTE market there is still [TD] inventory that is trying to clean up -- they are trying to clean up before they into the LTE low tier 1, and I'm referring to China Mobile.

The other is we are seeing growth in the LTE develop countries and I think already mentioned Galaxy Alpha, Galaxy Note all those flagship models are coming, both with chips of Intel and chips of Samsung for example.

The other growth engine which I believe will take us, it will contribute to us a lot is 3G wideband CDMA going to emerging market, these are all those feature phone that I also mentioned to Gary, this huge amount of installed base of feature phone that's growing into, sooner or later is going to smartphone, this will be wideband CDMA 3G smartphones, and we have a bunch of customers in this product, (inaudible) stuff like this (inaudible) will address this space. The Intel fresh partnership between Spreadtrum (inaudible) this will address this space.

And then the last one is the feature phone with Nokia, basically the exit of Nokia we gradually see this is being picked by Chinese OEMs. And we are seeing volume up there but it's not like due to market share or market regain then going in the market, and the growth will be 3G. So these are the combination, seasonal and market expansion.

Other than that, I want to add to what Gideon just explained and to give you a little bit color with regards to earlier (inaudible) it's not necessarily one customer because if you look at the piece of the market share in the feature phone, the 2G EDGE type of, before the big changes in the, the big changes in the market of Broadcom, 6066, even up to 70, that number continues to increase maybe up to a quarter or two of the hickup because of the industry have to digest these changes, we are today at 75% worldwide market share in that segment. So adding that, to what Gideon explained, it doesn't necessarily mean that change what customers drive that but the volume of that is all going to be -- 75% of it is still seasonal based and that's the core volume that could have a replacement cycle with better ASPs for us.

So it sounds like on the China Mobile front you've actually maybe got a little bit of stocking delay TD-SCDMA getting replaced at the low-end by TD-LTE, that's not -- that might help you in the future but it's not helping you too much now. So it's more outside of China that you are seeing for the sequential growth in royalties.

Exactly. Right now in the LTE segment it's outside of China.

So I want to ask Yaniv, did the chief scientist grant come in the third quarter or is it fourth quarter?

Third, third quarter, I think we said that ahead of time as well that we anticipate the OpEx to be a bit lower because of that, and we hit low end of our guidance on a non-GAAP basis.

Yes. That's right. Just confirming that. And it sort of explains the OpEx guidance for the fourth quarter I believe. And can you -- little housekeeping for usual, operating cash flow and CapEx depreciation? And then what was the (inaudible) for the write down on Antcor?

So let's start with the simple one, the depreciation is about $200,000, CapEx was about $600,000, bear in mind that right now in the GAAP basis you also have the amortization expenses of about $300,000 from the RivieraWaves. Antcor the private Greek company in the Wi-Fi space, they were acquired last qaurter by a Swiss public company called u-blox (inaudible) minority stake, we got our part there. Essentially (inaudible) for next five years you may see some windfall from that, but due the accounting rule we took $400,000 loss today and rolled off completely that investment. Maybe we could get something over the next couple of years but that is the onetime event that gets us out or could decrease to zero our holding in that, in that startup.

And the operating cash flow?

Operating cash flow was about $4.8 million.

Excellent.

Sure.

Suji De Silva, Topeka Capital Markets.

First question in terms of the royalties for 3Q and the guidance for 4Q, is there any remaining Intel Nokia headwind and did you get any benefit from Broadcom's last time buy with Samsung?

Is there any headwinds in the Intel side, fine, probably have a little bit. What about the Broadcom, I didn't get your question.

I think Broadcom with the closing their business had some last-time sales into Samsung, I'm wondering if you got a unit benefit from that in third or fourth quarter?

They got, yes. There is relatively decent quarter in licensing but it's not a game-changer, and they are relative low cost by now. They are and we mentioned, exiting the market, so that's not a big -- should not be a big factor going forward.

Okay, great. And then the work you are doing with Intel and Spreadtrum, in terms of those guys trying to compete with Qualcomm and MediaTek, maybe you can talk about the dynamic there and maybe how there are targeting and competing to take share? And can you update us on your relationship with MediaTek at this point?

Yes, so first of all the investment that Intel made at Tsinghua Unigroup which is the owner of Spreadtrum, this is not investment of a company. In a company it's something line of the China government ambitious to significantly strengthen the semiconductor industry. You know that they are important semiconductor more at the higher dollar terms than they (inaudible) and that's make them in a way a bit crazy about it. So that's a big investment and big ambitious goal.

It's not clear to us how this shape up, but it looks like it will strengthen Spreadtrum with supply, maybe foundry technology. And the idea is still, and that's the ambition of the China government is to deal around Spreadtrum and NPT that would be -- will compete MediaTek and Qualcomm. This is their ambition. That's what they want to achieve. And I think Intel understand it, that if they (inaudible) it will be for the benefit of that. For us, we are -- we are exclusively in both companies so we should take benefit of it.

Okay. My last question is on Samsung in the LTE right now. I think it's shipping in Korea, is that's something that they can expand to other geographies or what are the hurdles doing that?

They are expanding to Europe, that's what they said. They are going to focus with their technologies on the mid-low end which for us is good news because of the volume play and the (inaudible). There is a progress already.

Great. Thanks guys.

Thank you.

Anil Doradla, William Blair & Company.

This is John on for Anil. Thanks for taking my questions. First one I had was if you guys could provide your market share, the baseband market this quarter?

Yes, it's 35% on a worldwide basis.

35%.

Back to the normal, yes, normal level that we were -- we had a while back.

Okay. And then my other question was on the royalty side, obviously expecting another strong quarter in Q4. As you look out to 2015, should we kind of expect this traction to continue and may be any additional color on the expectation for non-baseband contribution?

Sure, we will probably give much more detailed guidance or at least more color and visibility next quarter when you talk about 2015 a little bit. It is premature but basically the input that we are seeing, the information we are receiving from our customers, especially in Q3 and Q4 via-a-vis the 2015 should be a growth year, not to the same extent of, as we talked about, 2018 which -- we feel could either more than double (inaudible) just from the add on of the new market, and Gideon explained the volume opportunity in the new segment not the baseband, but putting that aside to a much lower content for 2015 it should be a growth year. To what extend, we will try to give you more color as we go along and not today.

Second part of your question was?

Just maybe any color on the expectation for non-baseband contribution.

So first time the non-baseband we are seeing now in this core as we mentioned first inputs from first chips in the market with Internet of Things, so that's very encouraging. Remember also that we mentioned as part of the prepared remarks that we have three new customers, one DSP one in the automotive industry shipping products, so that's brand new, starting now in Q3. Again that's (inaudible) not on a standalone basis the game changer but we have enough of these (inaudible) new customers each contributing again piece to this puzzle, that of course (inaudible) should be much more positive and greater in 2015 compared to this year which are (inaudible) million unit count on an annual basis probably.

Great. Thanks guys. Congrats on the results.

Thank you.

Jay Srivatsa, Chardan Capital Markets.

Gideon back to the Tsinghua Group comment. There is some speculation that Intel investment in Tsinghua Group would have maybe potentially some foundry agreements and maybe down the road try to get Spreadtrum to go with an Intel architecture versus the ARM architecture that they currently have. Are you concerned that any design changes could potentially compromise your position at these companies, or do you believe that is not something that would be considered?

The fact that the x86 Spreadtrum made the chips public. They say that they are going to have it the second half of next year. From our standpoint we are agnostic, I mean it's our modem, it's blocked, (inaudible) CPU architecture, other CPU architecture. I mean for us we very different, so I mean the most imported one is they become successful and stronger. The ambitions as I said I think Matt asked me or somebody else, the ambition is that the China government behind that is to make an entity that is can compete with Qualcomm and MediaTek. And this is -- and they are getting there because there is problem ahead, strong competency, and as the market goes to the low end and become commoditized, there is appraisal.

All right. And then in terms of your prepared comments about IoT devices getting to a pretty high number by 2018. In order to get there do you believe you have all the components and IP in-house already or do you believe you would have to acquire some of that IP through potentially some acquisitions down the road?

Well, that's a good question. First of all we have the IP based on what we -- I outlined, the three components that you have in IoT mainly the process which is the ARM and Intel play, the sensors which we are dealing with the intelligent part of the sensor and the connectivity, we have the components, we have the technology, and I think the important one we have the recognition in the market.

We are leader in the Wi-Fi, we are leader in the Bluetooth, we are the leader in vision and we are the leader in all the -- I mean in all those four categories that I mentioned. We have a clear leadership. And if you ask me the -- and also for the type of the volumes, the 700 million to 900 million between 35% to 40%, although we are expecting, this volume will come from customer that we already signed. So we need to help them to get to the market and be successful. The rest is we need to get all those small medium-size, I wouldn't say small but medium-size company between 10 million to 30 million units a year plus few big names that we have at least put in our target from the mobile. There is also shortage for connectivity and vision part of technology in the smartphones space and (inaudible). So there will be a combination of big names and middle names and it looks good now.

Okay. Thank you.

Thank you, Jay.

Gary Mobley, Benchmark.

My follow-up question has to do with trends in OpEx as we look into 2015, the midpoint of your fourth quarter non-GAAP OpEx is $10.7 million considering the retention compensation for RivieraWaves, the RD grants and everything else. How would you expect the Q1 and even Q2 OpEx to trend off of that $10.7 million non-GAAP OpEx number?

So again we will do that type of analysis by next quarter when we have to internally do our planning and forecasting and then budgeting for next year that has not been done and completed yet. But the guidance for Q4 is pretty much in line with Q1 and Q2. If you take the average of $9 million and $8.6 million pre Riviera and add the $1.2 million which is ongoing expenses and retention scheme of $700,000, this is exactly how we get to $10.7 million, no surprise there. So overall that's a good base to start off with, that shows that throughout the year other than having that component is not much different. As I mentioned the next year the retention will go down a bit and $700,000 to $0.5 million, but that's relatively small right now to talk about to budget that in. So as I see it right now we are pretty much in this quarter's run rate and that's in line with what we performed in the past and things (inaudible) for now.

Okay. All right. Thanks guys.

Sure. Thank you.

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 all for joining us today and your continued interest and support of CEVA. We will be attending the following conferences during the fourth quarter and I invite you to join us there on December 9th in San Francisco we will attend the Barclays Global Technology Conference and on December 11th in Chicago, The Benchmark Micro Cap Discovery Conference. Thank you and goodbye.

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