CEVA Inc (CEVA) 2015 Q2 法說會逐字稿

Good morning and welcome to the CEVA, Inc. second-quarter 2015 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 Kingston, Vice President, Investor Relations. Please go ahead.

Thank you and good morning everyone. Welcome to CEVA's second-quarter 2015 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 on the quarter and general qualitative data. Yaniv will then cover the financial results for the second quarter and provide guidance for the third 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. These forward-looking statements include our financial guidance for the third quarter of 2015, optimism about our licensing pipeline and royalty revenue growth including optimism about LTE ramp-up and the M2M markets, increase in the blended baseband ASPs on a year-over-year basis, expansion of smartphones in emerging markets, exploration of strategic investments and continuation of our buyback program in 2015.

The risks, uncertainties, and assumptions include the ability of the CEVA DSP cores to continue to be strong growth drivers for us, recovery of the baseband markets, our success in penetrating new markets specifically non-baseband markets and maintaining our market position in existing markets, the ability of new products incorporating our technology 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 delivered solid financials results for the second quarter primarily due to continued strength in licensing and progress in LTE shipments by our customers. Our business is now performing in high gear.

This is being driven by strong customer buy-in of high value IP portfolio along with favorable industry dynamics that is expanding our market share in the smartphone space across all its peers. Our guidance for the upcoming quarter will reflect this momentum.

Total revenue for the third quarter was $13.4 million, up 45% on a year-over-year basis. Licensing and other revenue was approximately $7.7 million, up 76% year over year. Royalty revenue was approximately $5.7 million in line with our estimation and up 17% on a year-over-year basis.

This is the second consecutive quarter of a year-over-year royalty growth. During the second quarter we closed 14 new licensing deals, a new record high. Eight of the deals were for CEVA DSP cores and platforms, and six were for our connectivity products. Out of the 14 deals signed, six of them were with first time customers and 13 overall were for non-handset baseband applications.

Target end products include smartphones, tablets, machine to machine equipment, DSLR cameras and various IoT devices and wearables. Geographically, one of the deals signed was in the US, three in Europe, and 10 in APAC including Japan.

Let me take the next few minutes to elaborate on this quarter highlight and the underlying data that fuel these trends. In licensing, the second quarter licensing activities trended extremely well in particular in regards to our LTE-centric DSPs where we signed four agreements across different end products. One of the agreement was with a customer targeting the mid and low tier of LTE advanced smartphone.

The second agreement was for LTE connected tablets which we are -- which are gaining popularity in emerging market. White box manufacturers in China are actively expanding their market share at the expense of Apple and Samsung and use 3G and LTE connectivity as a cost differentiator.

The third deal we signed is for small cell LTE device which is the smaller phone factor of the conventional macro base stations. Small cell complement the existing macro base station networks in density populated areas providing improved service, yet are cheaper to install and maintain and consume less power.

The fourth agreement was with a leading players in the connectivity semiconductor industry who is strategically expanding into the LTE-based machine to machine space. We are currently experiencing a growing interest in the end to end space on the back of LTE-M, a provision of LTE advanced which specifically addresses machine type communication used in product such as connected car, vending machine, point of sale systems, smart meter and maybe other industrial products. According to GSMA, the M2M market is expected to continue its rapid growth in the coming years. There were 243 million cellular M2M connection as of 2014 and it is expected to grow at CAGR of 26% between 2014 and 2020.

Another noteworthy agreement executed during the quarter is associated with a Tier-I DSLR OEM who will build its next generation advanced camera on our vision and audio DSPs. It is an important achievement for CEVA as DSLR camera are at the forefront of photography technology and as such set the direction for next generation smartphone and other camera-related [smartphone].

On the royalty front, our progress in LTE is continuing to pick up pace. LTE shipments in the quarter went up 52% on a sequential basis. In fact, our Q1 shipment surpassed 11 million unit which is more LTE chipset than our customers shipped in all of 2014. We also received royalty reports for initial ramp-up shipments of Samsung Galaxy S6, S6 Edge and Xiaomi Redmi 2A. Shipment of 3G smartphone went up 6% sequentially as adoption of low-cost smartphone by first time user in emerging market continue to progress.

From CEVA perspective, the smartphone market opportunity is under-exploited. IDC estimates that over 8.5 billion smartphone will be sold from 2015 through 2019. According to GSMA intelligence, 2G technology still accounts for 58% of the world's 7 billion mobile connections. This large installed base is a prime candidate for upgrade to 3G and LTE smartphone.

So in summary, our licensing business continued to perform extremely well as we advance our expansion beyond handset baseband space to additional market and new customers.

On royalties, we believe that the main growth trajectories that our business follows which are first-time smartphone users, an LTE expansion into new markets and usage model will accelerate and continue to support our business model.

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 2015. Revenue for the second quarter was $13.4 million, closer to the higher range of our guidance primarily due to strong licensing revenue and growing LTE shipment.

The revenue breakdown is as follows; licensing and related revenue was $7.7 million, reflecting 57% of our total revenue, 76% higher as compared to the second quarter of 2014. Royalty revenue was $5.7 million, reflecting 43% of total revenues, up 17% on a year-over-year basis, the second consecutive quarter of year-over-year growth.

Quarterly gross margin was 88% on US GAAP basis and 89% on non-GAAP basis. The non-GAAP quarterly gross margin excludes approximately $42,000 of equity-based compensation expense.

Total operating expenses for the quarter were $11.8 million, at the lower range of our guidance. Total OpEx for the second quarter included aggregate equity-based compensation expense of approximately $0.8 million and $0.3 million for the amortization of acquired intangibles and costs associated with the acquisition of RivieraWaves.

Our total operating expenses for the second quarter excluding equity-based compensation expenses were $10.7 million, at the low to mid-range of our guidance due to allocation of some R&D expenses to cost of goods for special designed service licensing deal. Our overall combined non-GAAP cost of good and OpEx expenses were similar to the two prior cores.

Non-GAAP net income for the quarter of $0.2 million and diluted net income per share was $0.01. Non-GAAP net income and diluted EPS for the second quarter of 2015 was $1.3 million and $0.06 respectively.

Non-GAAP net income and diluted earnings per share for the second quarter excluding equity-based compensation expenses of $0.8 million and the impact of amortization of acquired intangibles and costs net of taxes of $0.3 million associated with the acquisition of RivieraWaves.

Other related data; shipped units by CEVA licensees in the first quarter of 2015 were 206 million, down 12% sequentially, but up 4% from the first quarter shipments of 2014. Of the 206 million units reported, 167 million units or approximately 81% were for handset baseband chips, reflecting higher than normal seasonal decrease of 17% from 201 million units of baseband chips reported and shipped in the first -- in the prior quarter and a decrease of 10% from the 186 million units shipped a year ago. The significant decrease was associated with lower 2G-related shipments.

In the non-handset baseband, volume shipments continued to increase both sequentially and year over year at 20% and 227% respectively, mainly due to the ramp-up of Bluetooth shipments by a number of customers. Our quarterly handset baseband royalty ASP was up 15% sequentially and 25% year over year, due to favorable mix of LTE products.

As of the end of June, 28 licensees were shipping products incorporating our technologies, same as the prior quarter. This reflects one new handset baseband customer which has started to ship, offset by an older customer that discontinued an old product line post an M&A transaction.

As for the balance sheet items, as of the end of June cash, cash equivalent balances, marketable securities and bank deposits were $126 million.

In the second quarter, we paid approximately $1 million as part of the prior commitments in connection with the acquisition of RivieraWaves. In addition, we have future pending payments of approximately $3 million in connection with the acquisition. Our DSOs for the second quarter were 64 days, better than the previous quarter, but still slightly higher than the 50 days to 60 days of historical values.

Regarding our share buyback program, we purchased approximately 176,000 shares during the second quarter at an average price of $19.5 per share for approximately $3.4 million. We plan to continue our stock buyback program in 2015 and look for other strategic investments that we could reinforce our market leadership in DSP and connectivity IP.

In the last quarter, we generated about $3 million from operating cash flow. Our depreciation was $0.3 million and fixed asset expense of $0.4 million. At the end of June, our headcount was 254 people of which 200 are engineers.

Now for the guidance. As Gideon stated, we experienced strong demand for licensing across our products portfolio. Our pipeline for the third quarter is robust and as such we expect to continue the momentum as demonstrated in the last six quarters. On the royalty front, initial review of the royalty reports we received thus far affirms our annual growth trajectory. For the third quarter, we expect an increase of 40% in royalty revenue on a year-over-year basis.

Our guidance to the third quarter. Revenue for the third quarter is expected to be in the range of $15 million to $16 million. Gross margin is expected to be approximately 91% on GAAP and 92% on non-GAAP basis, excluding equity-based compensation expense. US operating expenses are expected to be in the range of $11.9 million to $12.9 million.

Of our anticipated OpEx for the third quarter, $1.3 million is expected to be attributed to equity-based compensation expenses and $0.3 million to amortization of acquired intangible and related expenses.

Our non-GAAP OpEx is expected to be in the range of $10.3 million to $11.3 million. Net interest income is expected to be approximately $200,000, non-GAAP tax rate for the third quarter approximately 12% and share count for the third quarter on non-GAAP basis approximately 21.2 million shares.

Our US GAAP diluted net income per share is expected to be approximately $0.07 to $0.09, and our non-GAAP EPS forecasted, excluding aggregated $1.3 million for equity-based compensation and $0.3 million for amortization and related cost, is expected to be in the range of $0.14 to $0.16 per share.

Emily, you could now open the Q&A session.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Joseph Wolf, Barclays.

Thank you. A question about the move towards the mix within the handset market. The decline in feature phones is pretty steep, but obviously the transition to better ASP units is progressing. I'm wondering if 70 million units in the LTE market is too low or too high for us to be thinking about for the year given that you've done about 18 million year to date.

We are expecting to more than double our LTE shipments for the next quarter. From 11 million, we are probably going to somehow exceed the 25 million units. So we are only left with Q4. Hard to guess, but we believe for sure will above 60 million LTE phones for this year.

Needless to remind ourselves that this is significantly higher than the 11 million we encountered for the entire 2014.

Okay, great. And can you just -- how many customers are you shipping to in the LTE handset market right now?

Four. Four that are shipping in volume today, yes.

Four shipping in volume. Perfect, thank you. And then I guess just on the gross margin, obviously we're seeing some leverage in your guidance towards the -- back towards over the 91% mark. How should we be thinking about that with the mix of licensing and royalties as we look forward into the second half?

I think we're -- in the first couple of quarters we were in the 40%-ish to royalties and 60%-ish licensing. I think because the royalties are kicking in in higher gear this -- in the second half, we are probably going to see it closer to half-half and we'll take it one step at a time to see how that progresses into 2016.

Of course the more royalty revenue, the higher the mix in gross margins, but anyway around the 91%, 92%. I think this is a very nice number that we are very comfortable with.

Okay, thank you. I'll pass it around.

Thanks.

Matt Ramsay, Canaccord Genuity.

Great. Thank you very much gentlemen and congratulations on the guidance. I guess a couple of questions from me. Obviously the Samsung Galaxy data coming into the model with their change in baseband for their high-end phones is going to be affecting the model for the back half in a big positive way. Maybe, Gideon, you could talk about the trajectory of that business given the relatively disappointing guidance that Samsung gave last night versus how it's affecting your business in a very positive way.

And then second, I think from my perspective, so the work at Spreadtrum and the work at Samsung are very obvious and public that maybe you could speak a little bit to some of the momentum that you guys are seeing from Leadcore and other customers in the LTE market. Thank you.

So since you ask about specifically LTE, we are basically all of -- all the tiers, so you mentioned Samsung which is a premier model, we are at the mid low end, that's a very active and dynamic area as we see today, growing very fast mainly in China where people are replacing the 3G on the high-ends is almost done, but in the low mid-tier there is -- it's an untapped area and that's one area, this one elements of it.

We are seeing tablets with LTE connection coming in. We see also by the way 3G there, but we see tablets as well. So basically we are in presence in all the different LTE tiers today.

And on top of that I would add that Samsung is planning on introducing few different other models later this year, this year starting from next month more or less and that could be the Note 5, that could be some other model that will be also designed in.

So we're not counting only in one socket as Richard -- as Gideon just explained, but multiple sockets both within Samsung and within Xiaomi tablets and many others. And it's a market share story for us. And I think we're not building our business model and growth in LTE on a specific socket or in specific success of one design or the other, but more the trend across the industry.

Great, guys, that's helpful. And just a follow-up on the baseband side; obviously the 2G units are down which I view as actually a positive trend moving the business into higher ASP royalty units. If you could talk a little bit about the dynamics in the 3G business in particular with one of your large customers launching a WCDMA solution for the first time for the global market.

In 2G, right, the market is declining and that's a positive move from our standpoint. Bear in mind that there are still significant amount of holders of 2G feature phone. I think in my prepared remarks, I put about 58%. Still out of the 7 billion connection are still holding 2G and this is the potential for us to grow when those people are moving to smartphones.

Now when it comes to 3G what we see today, good dynamics in India. The 3G phones going there are relatively pretty much advanced in terms of the processing power that they offer. Spreadtrum has a quadcore offering there. That's where we see good demand and growth.

Another area for 3G which I mentioned in my previous -- in my answer to the previous question is tablet. Rockchip and Intel are progressing very nicely on the 3G tablets and we have other customers getting there from the smartphone going to the tablet.

By the way, in emerging markets today or tablets for emerging market, most of them are cellular connected and this is how the landscape is changing, well, Chinese companies like Rockchip or Spreadtrum or MediaTek are getting share there.

And just one last one to sneak in for Yaniv, maybe you could talk a little bit about OpEx trajectory going forward given the integration now of RivieraWaves and how you see that trending into next year?

Sure. So I think we've been able to demonstrate over the last three years -- or three quarters or so that we are somewhere around $10.9 million non-GAAP OpEx per quarter. At least for Q3, I guided about $100,000 lower than that, the mid-range, and I think somewhere around that neighborhood is something that we are very comfortable with and at least for this year see it as very reasonable and we'll aim to maintain these types of level.

Next year I leave it a quarter or two from now to look into next year and see what other ideas and investments we want to invest in and what are the opportunities for us, but I think we're very comfortable and have been for a while in this type of expense level.

Okay, thank you very much.

Thank you.

Gary Mobley, Benchmark.

Congratulations on the solid result and solid execution. So nice to see that you guys seemingly are taking back some market share or at least your licensees are.

Focusing specifically on the licensing revenue, obviously you're implying that Q3 license revenue will be around $8 million and that if I'm not mistaken is at the upper end of your long-term quarterly license guidance range. And my question really relates to sustainability of that momentum; would you expect it to maintain at that level in Q4 and sort of what is your new benchmark for quarterly license revenue?

So here in licensing, we -- it's a good environment. You're right that in the last four or five quarters we are exceeding high end of our guidance model which is at the high end, $7.5 million per quarter. Whether it's sustainable as you know licensing is a lumpy business, it could go up and down in a specific quarter, but in general the licensing environment is very strong. You can see it from the numbers, you can see for the numbers of this that we are able to conclude every quarter.

By the way, the way we built it is that we used this average in the mid-range of the guidance that you refer to as the base and whenever things pop-up or we see different opportunities flowing in, in specific quarter, of course we guide either higher or lower and have been higher recently like the guidance now for Q3.

But I would keep Q4 in the normal range that we are comfortable with and if things evolve it will give more color that we could either be higher like we're referring to specifically about Q3 or take it one step at a time and see what deals could go through and hopefully be on the better side of the guidance.

Okay, all right. I guess for the sake of formality, your prior royalty revenue growth guidance range for all of 2015 was previously 10% to 30%. Should we now think about that range tightened up to 20% to 30% growth and as it relates to non-baseband royalty contribution, how should we think about that growth trajectory as we transition to the second half of the year?

See Q4, which is Q3 shipment, is our strongest growth quarter from seasonal standpoint. It's post -- pre-Christmas is really Q3 is our -- Q4 royalty is the highest from our standpoint, and we believe that this year it will be same. I mean the pace of it is yet of no doubt good sign.

If you think as people mentioned Samsung Galaxy S6 and they post the results yesterday and they say that one of the reason that they want to fix now is putting mobile [phone] and on S6 Edge which is they see high demand for this one and they were unable to supply what people wanted.

They are going to come out even earlier with Note 5, S6 Mini. That's one thing we believe in China the momentum will continue, there is a demand. So overall we believe Q4 -- our Q4 royalty will be sequentially higher, how much is it, we'll have to see.

Okay. How would you -- well, can you share with us how RivieraWaves is performing relative to your expectations when you consummated that transaction?

They exceed our expectations. There is -- people are speaking about IoT. It's not just talking. There is a demand, lot of companies coming, trying to build IoT devices, whether it's a Wi-Fi, whether it's Bluetooth, low energy stuff. And RivieraWaves is the incumbent. I mean they are the leader in this space.

I mean people are not questioning the technology competency. So there is a demand for Riviera in licensing. We stopped seeing shipments coming in, royalties coming from [older bills] of Riviera. So things look very promising.

Okay. That's it from me. Congratulations again.

Thanks Gary.

Matt Robison, Wunderlich.

Thanks. Congrats. And I was wondering if you could give us a bit of a feeling for what you think the mix of TD LTE would be in your LTE shipments this year and maybe focus on the back half of the year, it would be better, but a little bit of flavor on that would be of interest. And also what's happening on the non-baseband volume aside from Bluetooth and you need just to confirm the sequential decline in gross margin, is that a function of licensing mix?

Let's start with the last. No, the last quarter Q2 that we just reported, we had a bit more design activity and therefore moved some R&D expenses somewhere between close of $200,000 from R&D to cost of goods, and that's the reason for the slightly lower OpEx. It's just the presentation, but the overall expenses are at same level as before.

So that's the reason for -- it should continue also into next quarter or two because these agreements and these design cycles usually take two to three quarters and then get back to normal, but again it's a small amount, but it does effect by 1% or 2%.

So -- but your guidance for the current quarter is a bit higher. Is that because the mix offsets it a bit with such a strong royalty expectation?

No, just because of the simple revenues that are significantly higher than the prior quarter. The $15 million to $16 million will get you to pretty nice -- the 92% more or less margin with those same expenses that I just referred to [inside] already included.

Regarding the questions about TD LTE, I would say the following. First of all, all our key customers, Richard mentioned four currently shipping, all of them are shipping what is called five-mode, I mean have solution that is five-mode available for mass production.

Whether -- today I think three-mode TD LTE is China Mobile. We don't know the extent to get to that granularity how many of the customers that ship China Mobile are disabling the other two modes and stay with the three-mode. But in general the shipments, the desire for the chips in production are all five-mode.

And the non-baseband aside from Bluetooth?

Thirty million were Bluetooth devices, so quite robust compared to previous quarters in prior years. Those legacy is something we have talked about a year ago and that's declining from one quarter to the other, eventually disappear. And then the idea is that over the next -- whether it's couple of quarters or whether it's a couple of years depends on what products and what design wins that we have signed over the last couple of years, two years or so in the non-handset base will kick in.

So I don't think we'll see a big change this year, maybe in Q4 something, but maybe beginning of next year, but we for sure if our target is to reach 700 million to 900 million including Bluetooth, but it's not going to be only Bluetooth, that will kick in as we go.

Are you getting paid on those Bluetooth shipments yet?

Of course, every single one. It's hard to say in LTE right --

Okay. There is no (inaudible) Riviera customers that are prepaid royalties?

No, what we report in the 30 million devices that we get paid on and improved device, whether it's a fixed cent or a percentage more or less around the cent or so and lower than LTE rates of course, but still huge market opportunities in the tens of billions over time.

Great. Thanks a lot.

Thanks.

Suji Desilva, Topeka.

Congratulations on the results and the guidance here. In terms of the China LTE market, can you talk about the pace of the mid-range upgrades there and any insight you have on the cause of near-term China Android smartphone weakness?

Well, we don't have statistics about it. The only thing that I can say is that there is a strong growth there, strong demand of -- at the mid and low tier and I'm saying this between $100 down to $48 now and these are -- don't misunderstand it, these are very advanced phone. I mean LTE, it's got four processor, right now it's still [815] (inaudible) and they will go to 64 bits very soon. So this is good phones.

Okay, great. And then in terms of the Bluetooth IP you have, can you differentiate how that's positioned in the marketplace versus things like ARM and Cordio to understand if Riviera were more comprehensive in its offering for IoT and other areas?

Yes, it's -- there is a big difference between the Cordio, ARM Cordio offering and the offering that Riviera has. Cordio is one-size-fits-all. It's a solution based on our -- all TSMC 55 nanometer and that's it. If you want to go another foundry or another process, it doesn't fit. If you want to get an upgrade to 5.0, it's not.

The RivieraWaves is RF agnostic. We work with many other partners or customers so far are doing their own RF and their own process whether they integrate it on a big SOC on like application processor or they do a single chip IoT device. I mean we're agnostic in this respect. That's one thing.

The other thing is we are more advanced in terms of looking into the next generation, Bluetooth 5.0. We have customers for this already. And the second and the third one which is more important is that we are offering what is called dual mode or people are using the smart ready.

70% of today Bluetooth market is dual mode where you have both data and voice or audio supported. So all the headsets and all the smartphones, it's all fall into the dual mode thing. ARM does not offer this one. This is much more complicated technology to deal with.

Great. Thanks for the call again.

Thank you.

Jay Srivatsa, Chardan Capital.

Yes, thanks for taking my question. Yaniv, on the guidance, would you give us some sense on how do you see the breakout between baseband and non-baseband especially with the royalties?

On the guidance for Q3?

Yes.

Sure. I think that we are comfortable, the $30-ish million non-baseband type of numbers. They will probably continue to increase next quarter, but the bulk of the royalties and the dollar figures for sure is coming from the LTE, this mix that we have been talking about of more than doubling sequentially the amount of LTE chips, the gaining market share from existed incumbent players in the industry which are hurting and suffering because of their offering and pricing in the market.

And our customers that are gaining the market share because as Gideon said, they already have the working solution, something that we have been waiting for, for the last two years for them to catch up. So for us the main theme, short theme in royalty growth is all about the handset. We're back to handset business.

And on top of that, but I would say in the second gear -- this is first gear -- the second gear of growth will come from non-baseband with much, much higher type of numbers a year or a year-and-half from now. But right now, we could focus and put the magnifying glass on the handset. And with that said, let's take the $30 million and annual -- $40 million and annualize that and you are already to shy a run-rate of $200 million non-baseband. The majority for now is Bluetooth.

Fair enough. Gideon, given what's happening in China to sense some slowdown there and also part of the choppiness in the market, there's some concern that the disposable income of the individuals likely be crimped and as such could affect some -- as such could affect the sales of higher-end products. Are you concerned that LTE sales, given that they are higher ASP, will likely be soft as you look at the second half?

It's too early to say at this stage how we see it. From what we -- the trend that we see today, it looks like that in the pricing point today in LTE and the need from the consumer to have a better Internet experience, the challenge that they face there, whether it's in the stock market or in general, does not really imply at this stage. The value proposition that companies are coming now in China is very substantial and there is strong interest in China.

Okay. And then about India, majority is still 3G I presume. So what's your read on when the transition to 4G happens over there?

We -- for now, we don't see too much of LTE going there. 3G is coming in a very fast pace. Today the only two companies that really competent to supply -- it's a very price-demanding market. The only two companies that are paying in this field are Spreadtrum and MediaTek.

Thank you very much.

Thanks Jay.

Anil Doradla, William Blair.

Hey guys, Yaniv and Gideon, congrats. The results look very much similar to what we saw with the whole TI and Nokia transition, so congrats on that.

Thank you.

Long-term question, clearly as, Yaniv, you highlighted, the near term is handsets and a year or two is non-handsets. So if I take out Bluetooth for a second and we extrapolate whatever is going on with this strong licensing pipeline that you guys have been showing, what would you consider the top two, three applications would be probably two years from now?

Hi Anil, it's Gideon. Let me take this question. First of all, since you ask a long-term question and long term for us is between now and 2018, Bluetooth is not just one of them, Bluetooth is evolving now. But what we see is vision. We have several, I think 15 licenses which are -- 15 licenses that are designing us in vision.

This is a very lucrative space and we are expecting to see growing contribution from vision. All sort of -- just the last quarter, an example of DSLR cameras, smartphones, automotive (inaudible), these are areas that our vision gets into.

We have Wi-Fi, lot of activities, and now they're very lucrative space. Small sales activities, audio activities, audio mails, also audio and all sort of sensors, and of course the Bluetooth area. So CEVA today is not as we use to be back in 2011 that you mentioned, kind of a one-trick pony, one company that rely on the baseband market in the handset market.

Well, we have much broader portfolio and we have much broader customer-base in the quarter. The second quarter results is a good example where you have 14 days of which 13 of them are not handset market. So going to summarize your question, we are expecting OLT revenues in the next few years coming from different vectors, not just Bluetooth or cellular.

Great. And given that you talk about vision in all these different end-markets, when you look at those markets in general, the competitive dynamics, who would you in all likelihood bump across the most? Would you consider ARM as the biggest competitor in terms of those or would it typically be internal captive solutions at the customers?

I don't think -- CEVA offering is completely different than what ARM is offering. I mean they can -- we meet them in few occasion, but we are among cooperating with them than competed. Our offering is more vertically integrated. We are offering platform, we are offering hardware and software. ARM is offering a CPU and ecosystem. And number one, with CPU you cannot do things in vision or Wi-Fi that you do with CPU. Number two, people want one-stop solution and not start paying twice for ARM and for another third-party that provide the software.

So in terms of competitive landscape because CEVA is so diversified in every segment, we have different competitors. We compete with Imagination in Bluetooth and connectivity. We compete with Cadence in audio and vision. All of the -- we compete with other companies in Bluetooth. It's -- in every market we have the different, but you know as when we do something we always want to be number one, the clear leader. And we're offering one high-quality and full solution. So just a --

Very good. And --?

Yes, go ahead.

No, very good. Now if you don't mind me squeezing in one final, you talked about the Chinese ecosystem, you talked about Spreadtrum, MediaTek and some of the stuff on Rockchip, but beyond internal Samsung solutions, can you share a little bit what's going on with Infineon? Clearly Infineon -- I mean Intel, sorry, clearly they seem to be making some inroads in China. You seem to be present there. Can you talk a little bit about how you look at that growth vector in China?

In China, it's very interesting market in these days. Number one, there is the incumbents that you mentioned, Spreadtrum and also Intel is active there and of course MediaTek. But there are newcomers getting into this market because they see not just the handset market, but other segment of the market machine to machine, tablet. Rockchip is there which is a newcomer. Even this quarter, we licensed to a company that is associated with eventually a newcomer to this phase. They are small mid-range companies that are looking.

So I think in general when you look on the cellular market, it's not just handset. There are usage models, machine-to-machine and tablets that are evolving. And Chinese market find room to get into this one. And in the handset space, also one example is Leadcore. It's a company that can take also significant share in this market by specializing in one of the segments there.

Very good and congrats once again guys.

Thank you.

Thanks.

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

Thank you Emily and thank you everyone for joining us today and for your continued interest in CEVA and in support of the Company. We will be attending the following upcoming conferences in August, the Oppenheimer 18th Annual Internet & Communications Conference on August the 11th in Boston and Canaccord Genuity's 35th Annual Growth Conference on August 12th also in Boston.

Please visit the Investor Relations section of our website for more information and additional conferences and events that we will be attending. Thank you and goodbye.

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