CEVA Inc (CEVA) 2015 Q1 法說會逐字稿

Good morning and welcome to the CEVA, Inc. first-quarter 2015 earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor, and Public Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to CEVA's first-quarter 2015 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, the highlights from the quarter, and general qualitative data. Yaniv will then cover the financial results for the first quarter and provide guidance for the second quarter of 2015. 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 second quarter of 2015, optimism about our licensing pipeline and royalty revenue growth, including optimism about LTE ramp-up. Increase in the blended ASP on a year-over-year basis, projected return to normal DSOs, and exploration of strategic investments and continuation of our buyback program.

The risks, uncertainties, and assumptions include the ability of the CEVA DSP cores to continue to be strong growth drivers for us, the recovery of the baseband market, our success in penetrating new markets, specifically not baseband markets, 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 IoT space; 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 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. We are off to a great start for 2015 with first-quarter revenue exceeding the high end of our guidance range. Our top-line growth was primarily driven by strong licensing demand for our products. We also continued to show progress on our royalty front, both in revenues and new product launches from our customers.

Total revenue for the first quarter was $13.8 million, slightly higher compared to the first quarter of 2014. Licensing dynamics and deal closure continued to be robust. Licensing revenue came in at the high $7.8 million, above our guidance. We signed 12 agreements in total during the first quarter, a record high in terms of number of deals signed in a single quarter.

Of the 12 agreements signed during the quarter, seven were for DSP platforms and software and five of the agreements were for connectivity portfolios. 10 of the non-baseband applications -- 10 are non-baseband applications; eight are first-time customers for CEVA. Our customer target applications include smartphone, LTE routers, advanced driver assistance systems, surveillance cameras, wearables, and storage systems.

Geographically, five of the deals signed were in the US, one in Europe, and six in Asia. At this stage let me elaborate on four of the agreements signed in the quarter, as those are indicative of the attractiveness of our offerings and the broad market opportunities we are exposed to.

The first of these agreements is a lead customer for our newest best-in-breed CEVA-XM4 intelligent vision processor that we announced at the Mobile World Congress earlier this year. Our customer is a well-known vertically integrated camera model supplier who designed its own chips for intelligence camera systems targeting ADAS applications for the Tier 1 automotive OEM supply chain. This marks the first time that our vision technology is targeted to be deployed by automotive OEM systems, a market known for its very high barrier to entry.

The second deal is with a major player in the sizable MEMS market who plans to incorporate our DSP within an upcoming product. The combination of DSP and MEMS offer a very attractive value proposition, both in terms of power and costs for smartphones, connected car, wearables, and many other smart devices that as of today require separate discrete chips for those uses.

The third deal is with high-volume analog semiconductor company that signed up as the lead customer for a pre-certified next-generation Bluetooth 5.0 IP. Our new customer plans to integrate our Bluetooth IP and be ahead in the market for next generation wearables, wireless audio, and smart home products. The Bluetooth 5.0 standard is intended to offer substantial improvement in range, bit rate, and audio capabilities versus the existing Bluetooth 4.0 standard.

And the fourth deal of note is with a major Asian semiconductor company that adopted our CEVA-XC DSP for the LTE router market. An LTE router is a small form factor Wi-Fi hotspot that connects multiple devices to the LTE network simultaneously. There are multiple use cases for LTE routers, such as the rise of MIFI, or mobile Internet, in public transportations and taxis.

When taking a broader perspective on the drivers for our licensing activities, we can pinpoint two industry-related trends that we are capitalizing on. The first is the proliferation of wireless connectivity in the form of LTE, Wi-Fi, and Bluetooth, which appear in many different devices including smartphones, tablets, connected card, smart home, wearables, surveillance, and other variants of the IoT segment. Along with this, our customers are experiencing a dramatic increase in the complexities derived from new applications, centered on video, images, speech, and audio.

These trends play well to our core strength in product innovation in the following ways. Our vision product line, and in particular our newest CEVA-XM4 intelligent vision processor set the stage for a new era of devices with the ability to learn using advanced algorithms based on neural network. New product categories such as autonomous car intelligence, intelligence surveillance system, and drones, as well as the next-generation smartphone, that target perceptual computing will all demand the performance and power metrics that the CEVA-XM4 is able to provide.

Our widely-deployed and highly-successful CEVA TeakLite DSP architecture cultivates new uses for speech and audio such as always-on, contextual awareness, speech and audio recognition, natural device interaction, audio immersion, and the like. And our full hardware and software solutions for Bluetooth and Wi-Fi connectivity streamlines and shorten design cycles for those customers looking to innovate in the highly fragmented IoT space.

As a result of both the level of interest in our products and the caliber of companies that we have engaged with, we are optimistic of our licensing prospects for the remainder of 2015. Our unique technology and value proposition is broadly recognized, allowing us to move fast and extend our customer base and future royalty revenue foundation.

Turning to our royalty revenue segment, we recorded a 4% year-over-year quarterly increase in royalties, the first time after more than three years of year-over-year decline. The smartphone continued to transition and shift away from feature phones toward low-cost smartphones. Per Credit Suisse research, overall smartphone market penetration is expected to rise toward 90% over coming years versus 50% currently, with total addressable population in excess of 5 billion by 2017.

In addition, the machine-to-machine segment is evolving quickly. Per new analysis from GSMA Intelligence, this segment is focused to reach 1 billion connections by 2020 with verticals such as utilities, smart cities, and agriculture. In the last few weeks, the baseband landscape has become even more favorable for CEVA as new flagship smartphones OEM release new LTE product enabled by CEVA DSP. In particular, I'd like to highlight the following key development which I am sure managed to catch your attention as well.

Xiaomi, the largest smartphone vendor in China, announced a further diversion of its popular Redmi brand, the Redmi 2A, which is available through China Mobile at a retail price starting at $80. At the heart of the Redmi 2A is a (inaudible) software-defined LTE model SOC enabled by CEVA-XC DSP providing cost efficiency and multimode support.

Samsung in-house model design is capturing substantial share in the new Galaxy S6 and S6 Edge. Recent [peer down] analysis by Chipworks and iFixit show the Samsung channel [333] LTE advanced free model enabled by CEVA DSP in Galaxy S6 and S6 Edge models, shipping with many operators around the world and for the first time with AT&T and T-Mobile in the US.

Intel introduced the Atom x3 processor product family, formerly code named Sophia, its first integrated SOC that combines inter-Atom application processor and 3G and LTE modems enabled by CEVA DSP. This integration level allows device manufacturers to deliver full-featured 64-bit smartphone tablet and the like at affordable prices ranging from $75 for entry-level devices up to $200.

Intel recently commented that over 45 tablet and smartphone designs are in development using the Atom x3 Processor.

Intel also revealed its third-generation LTE modem, XMM 7360, supporting advanced LTE features such as three component carriers to achieve download speed of 450 megabits per second. This chip is targeted for flagship smartphone models.

(inaudible) continued to gain traction in smartphone across multiple tiers and recently introduced two new chips that are already in mass production. The SC 93 -- 9838 is a five-mode LTE SOC which will allow the price of LTE smartphones to come down as low as $60. Already the SOC has been certified with multiple operators in China, India, and around the world including China Mobile, China Unicom, Orange, and Vodafone.

The SC7731G is 3G wideband CDMA SOC. It is widely deployed at major brand OEMs in products such as Samsung's first CMOS-based phone, the Z1; HTC new Desire 326G dual sim smartphone; and Huawei new Honor pad 3G tablet. In addition to outselling our [basic] achievements, we are experiencing good momentum with the new chips enabled by our Bluetooth technologies. Dialog Semiconductor announced new addition to its SmartBond family of BLE chips targeting a range of products such as sport band, wireless charging, wireless remote control, and the like.

Xiaomi announced a $16 smart weighting scale that tracks your weight and body mass index and shares the data via Bluetooth to any smartphone. Actions Semi and Beacon are deploying our Bluetooth for wireless speaker applications. Overall our Bluetooth shipments are sizable with more than 20 million Bluetooth chips now shipping each quarter by our customers. We expect this growth to continue.

With that said, let me turn the call over to Yaniv to discuss our financials and guidance.

Thank you, Gideon. I will start by reviewing the results of our operations for the first quarter of 2015.

Revenue for the first quarter was $13.8 million, excluding our guidance of $12.7 million to $13.7 million, primarily due to strong licensing revenue. The revenue breakdown is as follows. Licensing and related revenue was $7.8 million, reflecting 57% of our total revenue, 1% lower as compared to the comparable quarter of 2014. Royalty revenue was $6 million, reflecting 43% of total revenue, up 4% on a year-over-year basis, and as Gideon stated, the first positive year-over-year comparison in more than three years.

Quarterly gross margins were 91% on a GAAP basis and 92% on non-GAAP basis. Non-GAAP quarterly gross margin excludes approximately $35,000 of equity-based compensation expenses.

Our total OpEx for the first quarter was $12.1 million, in the midrange of our guidance. Total OpEx for the first quarter includes an aggregate equity-based compensation expense of approximately $0.8 million and $0.3 million for the amortization of acquired intangibles and other costs associated with the acquisition of RivieraWaves.

Our total operating expenses for the first quarter, excluding these items that I stated, were $10.9 million, in the midrange of our guidance and similar to the prior quarter. Minimal other income was recorded in the quarter, mainly due to the continued devaluation of our euro cash and certain current asset balances at RivieraWaves as the US dollar strengthened compared to the euro and resulted in FX losses.

Our US GAAP net income per share -- sorry, our net income was about $0.5 million and net income per share was $0.02. Non-GAAP net income and diluted earnings per share for the first quarter was $1.6 million and $0.08, respectively. Our non-GAAP net income in diluted earnings per share for the first quarter excluded equity-based compensation expenses of $0.8 million, the impact of amortization of acquired intangibles and other costs, net of tax, of $0.3 million associated with acquisition of RivieraWaves.

Other related data, shipped units by CEVA's licensees in the fourth quarter of 2014 were $233 million, down 9% sequentially and up 10% from the fourth-quarter shipments of 2013. Of the 233 million units shipped, 201 million units, or approximately 86%, were for baseband chips, reflecting a typical sequential decrease of 10% from 223 million units of baseband shipped in the prior quarter and an increase of 5% from 191 million units shipped a year ago.

In non-baseband, volume shipments were flat sequentially, but up 55% year-over-year due to the ramp-up of Bluetooth shipments from a number of customers. As of March 31, 2015, 28 licensees were shipping products incorporating our technologies, one less than the prior quarter.

As for the balance sheet items, as of the end of March, CEVA's cash, cash equivalent balances, marketable securities, and bank deposits were approximately $128 million. In the first quarter we paid approximately $3 million as part of the prior commitment in connection with the acquisition of RivieraWaves. In addition, we have future pending payments of approximately $4 million in this connection.

Our DSOs for the first quarter was higher than normal at 74 days, but I believe this was just circumstantial and we have already collected more than $7 million out of that outstanding balance.

Regarding our share buyback program, we purchased approximately 94,000 shares during the first quarter at an average price of $20 per share from approximately $1.9 million. We plan to continue our stock buyback in 2015 and look for other strategic investments that can reinforce our market leadership in DSP and connectivity IP.

CapEx for the quarter was $0.4 million and depreciation was $0.3 million with overall 261 employees at quarter end.

As Gideon discussed earlier, we continued to experience healthy demand from customers looking to license our products and the solid pipeline for the second quarter. On the royalty front, we expect approximately 5% sequential seasonal decline. On an annual basis, second-quarter royalties will be up approximately 15% on a year-over-year basis, driven by strong progress in LTE shipments and resulting in an overall increase of up to 25% in the blended baseband ASPs on a year-over-year basis.

Note that the impact of new flagship smartphones and chips that Gideon talked about was relatively small in the first quarter and those devices went on sale only in April, meaning production ramp ups started late in the first quarter. We expect these volumes to accelerate significantly in the upcoming quarter and, as such, maintain our annual royalty revenue growth guidance of 10% to 30%.

Our guidance for the second quarter of 2015, revenue for the second quarter is expected to be in the range of $12.5 million to $13.5 million. Gross margin is expected to be approximately 90% on GAAP and non-GAAP basis, excluding equity-based compensation expense.

Our US operating expenses are expected to be in the range of $11.8 million to $12.8 million. Of the anticipated total operating expenses for the second quarter, $1 million is expected to be attributed to equity-based compensation expense and $0.3 million to amortization of acquired intangibles. Non-GAAP OpEx is expected to be in the range of $10.4 million to $11.4 million, similar to the prior two quarters.

Net interest income is expected to remain low at approximately $200,000. Tax rate for the second quarter is expected to be approximately 10%, share count approximately 21.25 million shares, and US GAAP diluted loss per share is expected to be approximately $0.02 to breakeven. On non-GAAP EPS basis, excluding the $1 million for equity-based compensation expenses and $0.3 million for amortization expenses, we are forecasting EPS to be $0.04 to $0.06 per share.

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

(Operator Instructions) Gary Mobley, Benchmark.

Congratulations to a strong start to the year. I had a question, Yaniv, about your guide. You mentioned you expect a sequential dip in royalties for the second quarter, specifically a decrease of 5% quarter over quarter. Were you referring to units or are you referring to total royalty revenue?

Royalty revenue, which by the way also is reflected mainly in units. This is the major reason; because of the seasonality, the typical seasonality both in handsets and in the non-baseband segment. And in handsets we see 2G or feature phones specifically being lower than the average and I think overall the market, based on strategy analytics, is also looking at about 5% decrease in overall units shipped.

On one hand we are seeing strong royalty in smartphones offset by both the overall seasonality and lower 2G.

Given what seemingly is some pretty good dynamics for your royalty outlook for 2015, given success of the Samsung Galaxy phones and as well your representation in the various geographies in those phones, are you confident that maybe you can be at the high end of your fiscal year 2015 royalty growth outlook of 10% to 30%?

It's Gideon. It's too early to say. We are -- what we know is that we are in front of an upswing in LTE and also 3G smartphone. In LTE, it's new mobile, new customers. In 3G wideband CDMA it's more market share.

We are taking share from [Media Tech]. We are taking share from, of course, QUALCOMM because the pricing is prohibitive. It looks like prohibitive from their standpoint, so that looks very good.

In Q1 there was kind of let's call it undershooting the 3G feature phone because of backlog and mainly backlog in China is not something that we think is something dramatic. One thing that I think it's important to look overall is to take like a broader perspective. If you compare Q1 to let's say Q4 shipment or Q1 reporting on royalty versus in year before, we showed up, 4% up on a yearly basis. First time after three years. You compare Q2 to Q2 you speak about 15% year-over-year growth.

So there is momentum going on there when it comes to a product, also the ASP. We are guided now 25% ASP increase, that is increase in baseband only. So overall there are good things coming in. We'll see how the pace in the next quarter and maybe the quarters after.

Okay. Just had a follow-up question relating to some of your licensing metrics. Your deferred revenue is up again about 24% sequentially. Granted, it's not a real large percentage of your quarterly licensing revenue, but is that increase in deferred revenue indicative of maybe you trending at the upper end of your quarterly guidance -- license guidance range of $6 million to $7.5 million a quarter? And maybe hitting that high end of that range for the balance of the year.

And then for you two baseband license deals in the quarter, were any of those for first-time licensees specific to that use case?

So with the deferred revenue, I think the key growth there is not -- there's nothing changing in the business, but rather just more deals, the number of deals. So each deal that we sign, especially if it's a newcomer, they always take and license also support fees as part of the -- usually these deals for a whole year in advance and recognize it over four quarters. From the last two quarters we managed to close a high number of deals, 11, 12 deals and we get these upfront payments over time it will be linear and I think it's --. This is the main reason.

There's no other specific deal our business that moves it up, other than just more support fees that we get paid in advance. And the baseband customers are our existing customers taking another use or another piece of technology or software for their use. Nothing new, but of course they are using our technology to deploy new chips and new products out there and that is a positive sign.

All right. Thanks, guys.

Matt Ramsay, Canaccord Genuity.

Gideon, maybe you could talk a little bit about the trajectory of the year as you see it in the royalty business and then maybe into next year a little bit as well with the ramp at Samsung, but also the trajectory in China. You mentioned some positive data points if Xiaomi wins and also the ramp of TD LTE chips from your partner Spreadtrum there to get to maybe the midpoint or above of the guidance range for royalties. Just maybe a little bit of color on what you expect the trajectory of the year to look like, thank you.

I would say that in terms of royalty overall you have two vectors. One is the handset and the other one is what we call non-handset. When it comes to handset, definitely LTE is the next course driver for us and for the industry, and we are reaping well the opportunity [set] which is China and other developing countries.

You have a lot of people who want to go to smartphones. I mentioned statistic about moving from 50% deployment to 90% deployment in 2015. So you have the range of population that is about 5 billion that sooner or later will adopt mainly for LTE, but in other regions 3G wideband CDMA or 3G smartphones.

This is another area that we have -- the opportunity there is different, because today in the 3G wideband CDMA or 3G smartphone you have two competent players that will compete there (inaudible), which is our customers and [Media Tech] that is use us only in certain models that they have, not exclusively. So this is a big market and we expect this to grow.

Now the other vector is non-baseband. We discussed about it a lot in terms of in the licensing part. It's a collection of many use cases [vision] (inaudible), connectivity, Bluetooth, Wi-Fi, etc. Our objective here is to get to 700 million to 900 million units in 2018 and the fact that we are getting that many licensing deals -- last quarter it was 10 deals on the non-baseband side.

So an accumulation -- it's very good and we are pretty confident that we can hit this number. Bear in mind that now only in Bluetooth, which is one part, we are at the range of 20 million units a quarter, just one product line today. So I hope I addressed in a broader perspective your question.

Very much so, thank you for your perspective. On the non-baseband part of the business, I guess two questions. One, how long is the typical design cycle from licensing deal into when you might collect royalty? I know it probably varies a bit across that business, but just some perspective on the licensing strength that you have.

And then second, obviously you guys did the acquisition of RivieraWaves and it looks like some of the RivieraWaves larger licensees were recently acquired by large semiconductor companies that could give those deals even potentially more breadth. Any color you could give on the non-baseband trajectory in royalties, maybe over the nearer term, would be really helpful. Thank you.

So thanks for the question. I think they are -- these are important questions.

First of all, in terms of cycle time from design to royalty payout. It depends on the product line that we are offering. When it comes to Wi-Fi and Bluetooth, because we are offering a package with hardware and software -- it's basically a black box that people can put there -- the cycle time can be relatively short. It could be between -- at about a year.

If you compare it to the baseband, baseband is usually two years so it's almost half of it. We have vision it can be between 12 to 18 months and --.

Base station.

And base station is even longer. But I think when it comes to non-baseband, you're going to see Bluetooth and Wi-Fi licensing getting into the market first and then vision and the rest of the stuff.

Just remind me what was the second question?

Just the potential breadth of the market for some of the RivieraWaves licensees. I think a couple of them were recently acquired by some pretty large scale semiconductor vendors.

The idea for the rationale of acquiring RivieraWaves was to find a company that has a strong technology focusing now and has big market potential, basically agnostic to all the -- to different SOCs. And we are with the connectivity -- Bluetooth, Wi-Fi -- and we are hitting their 20 billion, 30 billion total addressable market. We have modest expectations for now and we see things beyond it, much beyond it.

But we are very extremely happy with this acquisition because it's not just a matter of the business that we are making. The team is extremely competent and we are working fantastic with them.

I will just sneak one more in for Yaniv. How do you see OpEx trending, not just in the guided quarter but obviously for the rest of the year, as you integrate the acquisition? That would be really helpful. Any color there would be really helpful, thank you.

Sure, Matt. I think we have managed to demonstrate pretty nice control over the expenses, even post the acquisition. If you look at the last three quarters in a row, the non-GAAP OpEx were about $10.9 million. I don't anticipate that to change or to go up.

It could go maybe for one of the next two -- third quarter or fourth quarter slightly down because of some timing of R&D grant payments. But other than that we are for now, for this year confident with these types of levels. And I think we have taken all the measures already and do not anticipate any surprises from that point of view.

Thank you very much, gentlemen.

Joseph Wolf, Barclays.

Thank you and thanks for providing more detail on the non-handset business, which is what I wanted to ask about. If I look at that mix of the 60 smartphone, 140 feature phone, 32 non-handset and think about your royalty guidance for the year, could you just help us triangulate or square the 25% ASP blend with that 10% to 30% royalty? If we assume the higher end, do we get higher than the 25% blended mix?

Or maybe in a different way, if I think about a little bit of growth, what would you expect next year's mix of smartphone, feature phone, and non-handset to be for 1Q 2016?

Okay. You need to be almost a magician in order to guess all these factors and there are quite a few of them, both from the industry perspective, market share perspective of our customers, and the pace of adoption.

I think we could go and try to tackle this a little bit slower and maybe focus more on the second quarter. We will give you some data around that and then see how you could extrapolate that on an annual basis even for next year, because I think that is a bit too much to answer. Not to ask, but to answer.

For Q2 we are getting some interesting data. We're talking about -- we are breaking down the baseband and the non-baseband. Why? Because the non-baseband, especially Bluetooth, are becoming significant volumes. I think Gideon mentioned earlier, last quarter it was about 20 million Bluetooth devices. Next quarter we're looking for somewhere between 25 million to 30 million, so the pace of growth is pretty significant. The ASPs, of course, is much lower.

On the base -- and this is why we are separating it. On the baseband stand-alone feature phone, smart phones, new LTE design wins that we have talked about, Q2 this year versus Q2 last year there will be a 25% growth in ASP just for baseband.

Why? Because the mix is more favorable with higher ASPs into the smartphones, and as you so correctly distilled, the majority of the volume -- for example, this quarter 140 million out of 200 million -- were feature phones. So the more we moved to smartphones, including the LTE, that number should increase over time. It does increase and it is increasing in the last two quarters quite significantly. Q1 8%, Q2 we're talking about 25%.

If I look at the total blended ASP of the Company and now adding the low-cost, but high-volume Bluetooth and the like devices, Q2 year-over-year we are looking at about 10% or slightly above 10% improvement in the overall ASP of the Company. To try to guess how this is going to look like by the end of the year it's very difficult, because again there are too many factors here. We need to break each one down.

I think we try to each part of that and the most interesting in the near term has caused the ramp-up in the LTE models and the 3G, the broadband CDMA. I would say let's be smarter, a little bit smarter next quarter and we could probably give more guidance and more insight for the upcoming quarter. Maybe when we get closer to the year and have a little bit more feeling of the year.

I don't feel comfortable guessing, but giving you factual numbers for this next quarter based on the royalty reports that we have received so far. Not all of them, but a big portion of them.

That was very helpful. I guess, just as I think about seasonality, it feels like if we go through the model it's hard to actually say what the royalty seasonality looks like anymore as the Bluetooth gets bigger.

And so how should we be thinking about seasonality? Should we be thinking about splitting those two numbers using traditional handset seasonality for the first half and then growth in the non-handset, just because of where we are in the cycle, or is there some seasonality in both businesses?

This is Gideon. I wouldn't, at least for the coming year, go to a non-baseband and baseband seasonality. By the way, non-baseband it could be pretty straightforward, at least for the coming years. [Christmas, post-Christmas].

In handsets you have basically two low seasons, Q1 meaning Q4 -- and this is mainly because this is the time when Samsung do deals with their inventory. They are, by the way, different than others. And Q1, which is the real post-Christmas low season.

Now it has become a bit complicated with CEVA because we are in LTE and 3G outpacing the number, outperforming. So that's what happens in the coming -- this is our guidance. In LTE and 3G we are outpacing; we are doing more than the market is doing. And it happened to be that in 2G it was we did -- it was an undershoot because of inventory in China, which could be in a post-Christmas area.

But in general, it's framework. In terms of reporting on royalty, Q1 and Q2 are seasonally weak. Q3 is the maximum. Q4 is a bit lower than Q3.

Thank you.

Matt Robison, Wunderlich.

Thanks for taking my question. How complete is your data at this point? Have you had all your major licensees report royalties or are you having to go off of just more indications from a couple of them?

We have pretty good understanding. We don't have all of them, but we have, I think, a pretty good picture on the numbers.

What's happened to --? Maybe you've already answered this, but it seems like there were some complicated answers to some of the other questions. What has happened to ASPs for non-baseband versus ISPs for baseband?

For going forward --?

On a year-over-year basis.

You mean, the guidance? The guidance or the Q1?

Q1.

Q1 overall ASP, on a year-on-year basis, went up just about 10% I believe.

I get that from the numbers, but what --

Just, sorry, 8%.

What happened for non-baseband versus baseband? I'm trying to get a sense for the influence on ASPs for non-basebands from Riviera, among other things.

It went down. It went down, because last year in Q1 we had $3 million Bluetooth devices and this year we have 20 million Bluetooth devices. So that mix changes completely.

If you recall, last year we had 20 million, 21 million non-baseband. This year we're looking at 32 million non-baseband; 3 million a year ago Bluetooth, 20 million this year Bluetooth. So that takes down ASP for non-baseband quite significantly, but as we talked in the past, it opens up the markets for billions of units in Bluetooth devices. For us, for now hundreds of millions over the next couple of years.

Do you think that non-Bluetooth that looks like it has declined a little bit, you think that it's -- how long you think it's going to be before you can get that part of the non-baseband to start growing again?

I think we need some of the new market. The old markets, like that you remember from years ago like DVDs or hard disk drives, that's pretty much dead.

The new markets of non-baseband, other than the ones that Gideon mentioned around connectivity are of course the imaging, the division, the surveillance cameras. These have much, much higher ASPs than Bluetooth or even the average of the Company for baseband today. 2x that amount, more or less. And that should kick in as late as this second half of the year and then mainly into 2016, the bigger numbers.

Are you including audio in that category?

Yes, we include audio. The audio non-baseband will be Bluetooth. It is the design cycle is very short and Wi-Fi, audio, vision, and last is base station. The longer lifecycle; design cycle and lifecycle, by the way.

What was the influence of consolidation on licensing this year versus last year? And when I say consolidation, I mean the effect of when your licensees are acquired and the acquiring company having to relicense.

Not sure I follow the question.

You mean 2014 or 2015?

You had record licensing in the first quarter of 2014, which was a few weeks after Intel bought Mindspeed. And then was there some component that made that a tough comparison related to consolidation and was there a similar activity?

That's a good question, because Q1 last year was a spike because of consolidations of companies. There was two of these last quarter.

So if you compare license revenue Q1 this year and last year, you will see it was just like 1%, but it's not a good reflection of the situation last year. It was a spike quarter. Usually we are at the $5 million to $6 million. Now we are speaking about $7.8 million licensing and many more deals. So that's a good point.

Did you have any M&A business in this quarter, the first quarter?

No, no, no. I don't recall that we have a consolidation.

We have one small one.

Small one?

Yes, one of the Bluetooth players.

Yes, I thought probably that was the case. So on the DSO stretch, I have seen some instances where you've got more -- maybe it's currency related, but more severe windowdressing for the March -- your companies in this earnings season. Did you --? Was it slow payments of that kind of effect or was it backloaded timing of deals that caused it to stretch so much?

No, I think it was windowshopping. Usually these companies pay us on time. We didn't have these types of DSOs, as you recall for many, many quarters and this time we got it two weeks after the quarter end. So I would think it's something more windowdressing on their end, but we already got out of that $11 million. $7 million has been paid in the first three weeks, so that would be my guess.

Thanks a lot.

Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my question. Gideon, in terms of the licensing revenues, looks like it's clearly tracking better-than-expected or better than you'd projected before. As you look at the rest of the year, where do you expect the majority of the licensing revenues to come from? Specifically which segments are you expecting them to -- revenue to realize?

That's a good question. Surprisingly, we are expecting licensing revenue coming from all over the product line. Also in baseband, because last quarter we signed a company in Asia elaborated in the prepared remark, (inaudible) which is like the Verizon [locally].

I think China newcomers from SOC, people that want to go to tablet and understand that it should be LTE connected and they are doing -- looking to integrate LTE. I've seen many companies in China also looking to machine to machine, what is called (inaudible) and they need LTE. So I see LTE also as baseband activity is coming.

Of course, even in the non-baseband tier Bluetooth and Wi-Fi it's hollow. It's all over the place. We are -- we were saying in the prepared remark about Bluetooth 5.0. This standard is coming and people want to go into this one because it has a substantial feature set.

So I cannot pinpoint one area; it is all over the place. That is the reason that we are optimistic.

All right. In terms of China, lately it seems to be some concerns over the telcos actually cutting back on their CapEx related to 4G base stations. Does that concern you that that could slow down the expansion of the 4G handset business, or do you feel that it's more of a temporary pause of some form?

I think it's a temporary pause. I don't see any other way for companies, for China not to go to LTE big time. I see Qualcomm and others pushing strong, even carrier obligations for next generation. What we see in the design wins and expectation for customers is LTE is big time this year in China.

Last question for me. Strategically, as you look over the next couple of years, what are some of the areas that you want to invest in and build a non-handset side beyond what you have already done? What are the specific core competencies you believe you need to acquire to expand your business from the current levels?

When it comes to what we are seeing in vision is we see the automotive market is a big potential. It's not just the size of the market and the complexity there, but also we believe that what is going in [this area] will dictate next-generation feature phones -- excuse me, smartphone and other areas. So we're investing in automotive grade type of LTE (inaudible) or vision DSP. We are investing in machine to machine, which is part of IoT. We believe [cut zero] will be big time.

We think that (inaudible) of LTE advanced for handsets is a potential. We think that our software-defined radio approach is something that will appeal, even to incumbents that don't use our DSP today. So these are, more or less, the areas that we are looking. There are a few things that we are looking from the M&A side, a contextual awareness and stuff like this, but we can elaborate these later.

Thank you very much.

Anil Doradla, William Blair.

Thanks for squeezing me in. Yaniv and Gideon, what we are picking up is with the introduction of 4G handset devices, there's a big reset on 3G ASP handsets and chips. We're seeing that as much as 30% to 40%.

First of all, are you seeing that? Now I know there's a good mix going forward in 4G and that will help you, but I just wanted to understand the dynamics between 3G and 4G handset pricing.

In 3G handsets, I think the pricing that people are speaking about, $30 to $40; it's pretty much the pricing that we are going to see in this here. Bear in mind one thing: there is no difference between 3G and LTE in terms of the application, of the user experience.

LTE is lower end and 3G the low end, so there shouldn't be -- the screen is pretty much the same. The AP is the same. You had Wi-Fi and stuff like this, so there shouldn't be that big difference between 3G and LTE. With this pricing it's elastic, meaning volume should go up.

By the way, I mean just to remind you and everyone that 3G, in a sense, we sort of missed. When Intel went out of this and when Broadcom decided to bail out of that market, the market in China sort of skipped the TD-SCDMA, the local 3G, and they are all jumping almost from feature phones to LTE and higher-end smartphones. That is the demand there.

So it's not that we had a big portion of that market and this is a headwind for us, all that I think a lot of it is behind us and now what we are gaining share is the market share from Qualcomm that cannot compete at these prices, as you alluded to. On the 3G part and the 4G, it's all new design wins that we have talked about in the last hour. So I'm not sure we're that much affected from the 3G market.

Very good, very good. And as a follow-up on the ADAS market, you have got some design wins there. Can you walk us through how big this could be? Could this be a big enough needle mover for CEVA?

And who do you compete with on these design wins? Is it mostly merchant players or is it in-house players? That would be helpful.

In terms of potential, it has been eventually higher there. And as I said in the prepared remarks, our expectation is go with this vision technology. ADAS is basically object detection, and to expand this or take advantage of it because here is where the activity right now is coming, to expand it to smartphones and tablets and [medical] and robotics and drones and stuff like this. So that's one thing.

With whom we are competing, the incumbent there is a company out of Israel, Mobileye. They use their own DSP. We are partnering with many companies and there are many companies coming from different angles, from the Samsung side, from SOC side and they need a vision DSP. By the way, they use us not just because of the DSP, because CEVA has -- and I elaborated in my prepared remarks -- we are also providing algorithms for providers there.

Very good. Thanks, guys, and good results.

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, everybody, for joining us today and your continued interest and support of CEVA. We will be attending the following upcoming conferences and invite you to join us there. On May 10 we will be at the Oppenheimer Israeli Conference in Tel Aviv and on May 28 we will be at The Benchmark Company One-on-One Investor Conference in Milwaukee.

Thank you and goodbye.

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