CEVA Inc (CEVA) 2015 Q3 法說會逐字稿

Hello and welcome to the CEVA Inc. third-quarter 2015 earnings conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Richard Kingston. Mr. Kingston, please go ahead.

Good morning, everyone, and welcome to CEVA's third-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 from the quarter and general qualitative data. Yaniv will then cover the financial results for the third quarter and provide guidance for the fourth quarter and full year 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 fourth quarter and full year of 2015; optimism about our ability to capitalize on trends relating to the continued adoption of LTE and the internalization of smartphone SSE designs; our ability to become a diversified company, leveraging our relationships with anchor customers and leading customers in the cellular space; expanding our IoT market share through excellence in our non-baseband technologies; exploration of strategic investments and continuations of our buyback program.

The risks, uncertainties, and assumptions include the ability of CEVA DSP cores to continue to be strong growth drivers for us; the speed and extent of the expansion of the LTE network and the IoT space; 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 technologies to achieve market acceptance; 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 good morning, everyone. I am pleased to report an all-time record quarter with revenue of $16.2 million, up 15% on a year-over-year basis and 22% sequentially. This milestone is the result of robust licensing environments coupled with acceleration and shipments of LTE smartphones enabled by our DSP, both of which are strategic objectives that we said and successfully executed during the quarter.

Licensing and other revenue was approximately $8.6 million, a decrease of 1% year over year and an increase of 12% sequentially. Royalty revenue was approximately $7.6 million, a 42% increase on a year-over-year basis and 34% sequential increase.

During the third quarter we concluded eight new licensing deals, three of the deals were for CEVA DSP cores and platform and five for connectivity products. Of the deals signed, one was with a first-time customer and six were for non-handset baseband applications. Target and product included smartphones, tablets, small-cell base stations, and a variety of connected devices. Geographically, three of the deals signed were in the US, one in Europe, and four in APAC.

During the quarter we strengthened our long-term relationship with an anchor customer by executing a comprehensive agreement for using several of our latest and more advanced DSP cores in a range of their mix, small phone, public, and IoT chip designs. These types of symbiotic relationships are the cornerstone for the market success of our customers and, consequently, will contribute to new loyalty revenue streams for CEVA.

Now I would like to provide you with an update on the dynamics in the end-markets that we serve and the progress that we've made in those markets, which has resulted in a 42% year-over-year royalty revenue growth and strong licensing performance.

In the cellular baseband space, the growth of LTE shipments powered by our DSP has accelerated noticeably. Our customers reported a record 27 million CEVA-powered LTE processor for smartphone for the quarter, up from 11 million devices in the previous quarter and up 11-fold on a year-over-year basis.

CEVA is the prime beneficiary from two significant trends in the space. The first is the growth of LTE in China driven by the emergence of smartphone delivering quality performance and features at a price point that allow for market adoption. According to the China Academy of Telecommunications Research, 89% of the August smartphone shipments in China were LTE-enabled and on a year-to-date basis, LTE shipments have grown 307%.

The second trend relates to the internalization of the smartphone SoC design at major OEMs to gain pricing and supply chain control. Samsung and Xiaomi are allowed to be using our DSPs in their wireless baseband and SoC. Samsung in particular has more than 10 different LTE models shipping today, enabled by CEVA DSP among which are the premium models Galaxy S6, S6 Edge, and Note 5 as well mid and low-cost smartphones such as Galaxy S5 Neo, Galaxy J2, (inaudible).

Samsung also recently went into production with its (inaudible) SoC, which integrates the Exynos application processor and CEVA-based LTE modem in one ship. This SoC simplified the smartphone (inaudible) design and reduces the total size by 19%, allowing cheaper and thinner smartphone design.

Overall, the LTE smartphone market is far from mature. Out of the 7 billion mobile subscribers worldwide, only about 10% are using LTE to date. Emerging markets like China and India are expected to lead the growth in LTE in the coming years. Due to CEVA's technology excellence, it's partners are poised to capitalize on these trends which will in turn benefit CEVA.

Moving to our non-cellular baseband business. We continue to experience licensing momentum for our [full] core technology mainly vision, Bluetooth, Wi-Fi, and audio with 16-year agreement signed here today. This agreement, along with those signed in prior years, are the precursors of future royalty revenue and position us at the forefront of the IoT revolution.

We're already benefiting from new royalty stream in our Bluetooth technologies via key customers such as Dialogue, [MXP], and [Beacon] of China. Their chips are being deployed in a diverse range of end products such as the latest Nest thermostat, the (inaudible) fitness tracking wristband, and the Toshiba latest biometric (inaudible). Our Bluetooth unit growth for the quarter was up 186% versus the same quarter last year, accounting for about 31 million units.

To summarize, our business model allows us to capitalize on mainstream use of smart and connected devices and the infrastructure that supports our (inaudible). Our established baseband portfolio and customer relationship expose us to the main growth vector of the cellular band. Our vision, audio, Bluetooth, and Wi-Fi products have a central role in enabling connectivity as well as camera and audio intelligence in IoT devices. This result -- the result is best-in-class diversified company with strong growth prospects.

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

Thank you, Gideon. I will start by reviewing the results for our operations for the third quarter of 2015. Revenue for the third quarter was $16.2 million, an all-time record high, and as we announced earlier in the beginning of October, above the high end of our guidance range, primarily due to strong licensing revenue and growing LTE shipments.

The revenue breakdown is as follows. Licensing-related revenue was $8.6 million, reflecting 53% of total revenues, 1% lower as compared to the third quarter of 2014 but 12% sequentially higher. Royalty revenue was $7.6 million, reflecting 47% of total revenues, up 42% on a year-over-year basis and 34% higher on a sequential basis.

Quarterly gross margins were 92% on both US GAAP and non-GAAP basis. Non-GAAP quarterly gross margin excludes approximately $34,000 of activity-based compensation expenses.

Our total operating expenses for the quarter were $11.5 million, $0.4 million below the low range of our guidance. Total OpEx for the third quarter including an aggregate equity-based compensation expense of approximately $1.2 million and $0.3 million for the amortization of acquired intangibles and costs associated with the acquisition of RivieraWaves.

Total non-GAAP operating expenses for the third quarter, excluding equity-based compensation expenses and amortization, were $10.1 million, also below the low end of our guidance range due to the timing of receipts of normal R&D grant payments. Both GAAP and non-GAAP net income and EPS for the third quarter were the highest the Company has posted in over three years. US GAAP net income for the quarter was $3.3 million and diluted EPS was $0.16 per share. Non-GAAP net income and diluted earnings per share for the third quarter were $4.7 million and $0.22, respectively.

Other related data. Shipped units by CEVA licensees during the second quarter of 2015 were $225 million, up 9% sequentially and up 4% from the second-quarter shipments of 2014. Of the 225 million units shipped, 179 million units, or approximately 80%, were for handset baseband chips, reflecting a 7% sequential increase and an 8% decrease from 195 million shipped a year ago. The decrease is associated with lower 2G and EDGE-related shipments that are gradually being displaced by LTE and 3G smartphones.

In non-baseband volume, shipments continued to increase both sequentially and year over year at 19% and 119%, respectively, and reaching about 46 million units for this quarter, mainly due to the ramp-up of Bluetooth shipments from a number of customers. The quarterly handset baseband royalty ASP was up 23% sequentially and 54% year over year due to favorable mix of LTE products.

As for our balance sheet, as of the end of September CEVA's cash, cash equivalent balances, marketable securities, and bank deposits were approximately $129 million. Our DSOs for the third quarter was 52 days, down from 54 in the previous quarter.

Regarding our share buyback program, we purchased approximately 159,000 shares during the third quarter at an average price of $17.70 per share for approximately $2.8 million. We plan to continue our stock buyback program and look for other strategic investments that can reinforce our market leadership in both DSP and connected IP.

During the last quarter, we generated $5.5 million from operating cash flow, depreciation was $0.3 million, and purchase of fixed assets was $0.4 million. At the end of September our headcount was 253 people, of which 200 are engineers.

Now for the guidance. On the licensing front, the environment continues to be favorable across our entire product portfolio.

On the royalty front, from royalty reports we received thus far, we expect an increase of up to 25% in royalty revenue on a year-over-year basis, mainly due to growing unit shipments of LTE and connected products. This leads to an annual royalty revenue growth rate of approximately 22%, substantially above the overall cellular and semiconductor industries' growth rates. This also marks CEVA's return to annual royalty growth after three successive years of royalty declines.

Finally, on an annual earnings power and growth basis, results are anticipated to be significant with an annual non-GAAP EPS growth of close to 50% over 2014 results, due to the trends that we have just discussed.

Our guidance for the fourth quarter of 2015. Revenue for the fourth quarter is expected to be in the range of $15 million to $16 million. Gross margin is expected to be similar to Q3 at approximately 92%. US GAAP operating expenses are expected to be in the range of $11.5 million to $12.5 million and of the anticipated total OpEx for the fourth quarter, $1.2 million is expected to be attributed to equity-based compensation expense and $0.3 million to amortization of acquired intangibles and related expenses. Our non-GAAP OpEx is expected to be in the range of $10 million to $11 million.

Net interest income is expected to be approximately $300,000. Non-GAAP tax rate for the fourth quarter is expected to be approximately 12%. Share count for the fourth quarter around 21.5 million shares, which will bring us to US GAAP diluted net EPS of approximately $0.10 to $0.12 per share, and on a non-GAAP basis, excluding the aggregated $1.2 million of equity-based compensation expenses and amortization expenses of $0.3 million, our non-GAAP EPS is expected to be in the range of $0.16 to $0.18 per share.

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

(Operator Instructions) Matt Ramsay, Canaccord.

Thank you very much. Good afternoon, guys, and good morning, everyone. Congratulations on the strong results.

I wanted to ask a couple questions, Gideon, on the royalty side. Obviously growth has been quite robust with the emergence of LTE into your revenue mix. Maybe on a go-forward basis you could talk about the puts and takes of growth for next year on the royalty side, particularly in LTE.

I guess on the positive side, folks like Spectrum doing well, some maybe emergence from Intel, etc. And maybe you could let us know how you are thinking about the mix at Samsung for I guess Samsung internal modem versus lots of speculation out there about QUALCOMM potentially gaining some share back at Samsung. Thanks.

Good morning, Matt, and thank you for -- let me say the following. Let me start from our guidance (inaudible). We are focusing 25% on a year-over-year basis where the market is about 10%. So this reflects the presence that we have in a way that we are not just growing with the market, we are actually a share gainer in the different growth vectors in the market.

Specifically through LTE (inaudible) what we see, the dynamics in the market is as follows. At the low-end side of the market the exit of Marvell for the market in a way play well for our customers and they are going to benefit from share gain at the low end. The sweet spot in the market right now is in the mid-range and we see it in a different way. The low-end guys, companies like [spread room] are basically rolling out 64-bit APs and in this way they are approaching the mid-range market.

The other direction is the high-end guys like Samsung, for example, that came out with a product like the (inaudible), which is a single chip. They are benefiting from the high end going down to the mid-range. So overall, from discussions that we have with customers, we are expecting something from the next quarter to see acceleration on the LTE side.

I think you can also add that in the past we did discuss the first year on real LTE ramp-up, which is 2015; we're talking about around 70 million units of LTE, up from 11 million a year ago. Next year we are probably looking at somewhere between 100 million to 200 million in general, and of course, we will give a little bit more color when we get to next quarter's earnings call.

Great, that's really helpful. One more on the modem side.

I guess when we had met in the past and had recent discussions that seemed to be quite a bit of movement. Obviously, the market is a bit slower now than it has been in the past. But LTE connectivity into tablets, particularly in China; do you have any commentary about that and what part of the driver of your growth in LTE has been the tablet market? Thanks.

We see -- other than in smartphones, we see definitely in the tablet side the LTE going there. The tablet in general is a decline in the market. We see on the low-end side people are trying to recover this market with LTE. But we do progress and expect this to be accelerated is at this core MPC on machine-to-machine. Here we see a lot of dynamics products are coming and our customers will soon be there with our products that are targeted specific to this market.

One more, if I could. Yaniv, on the OpEx it looks like, absent this R&D credit in this quarter, the OpEx run rates are essentially unchanged. But could you talk a little bit about the dynamics of those R&D credits, how often and/or predictable they are? And just any dynamics about how we should think about those going forward; if they recur or not. Thanks.

Sure. The way this works is that once a year in the beginning of the year you apply for a specific R&D program. It needs to be new technology, innovative technology. It needs to pass a few parameters in order to be qualified to get these grants.

A few months later, probably somewhere in the May/June timeframe, you get the results of -- if you have been -- what you have submitted was approved or not. And then payment starts usually later. In most years we see those R&D grants either in Q3 or Q4. You have a little bit less control when each program gets paid, but what you do see -- usually in the first two quarters of the year you don't see that and then the later part of the year. And it varies from year to year whether it's Q3 or Q4.

We tried our best when we built the budget to get that. Sometimes we miss by a few hundred thousand. There's no risk on an annual basis, but there could be some shift between Q3 and Q4, and usually those numbers will be slightly lower R&D-wise by a few hundred thousand dollars in the first two quarters of the year.

And if you look at the non-GAAP number Q1 and Q2 are more on an average of $6.8 million per quarter. The second half of the year, this Q3, came at $6.1 million. Q4 it's slightly higher than that, but still lower than the beginning of the year. So this is how it works.

Got it. Thank you and congrats again on the solid results.

Gary Mobley, Benchmark.

Congrats on a strong third quarter and, in general, strong fiscal year 2015 so far. I had a question about your licensing revenue.

It was implied in the fourth quarter guidance you are looking for that to trend just below $7.5 million and that's $500,000 or $600,000 below what you've been averaging for the past six quarters. Is that indicative of a weakening licensing pipeline or is that just you trying to be a little bit more conservative?

Then as a follow-up to that, I noticed your deferred revenue declined a fair amount on a sequential basis. I'm just curious whether or not that had to do with a specific core that a customer had licensed and you finally delivered in the quarter or --. Any color there would be helpful.

Okay, Gary. It's Gideon. In general, we said that we, for 2015, are confident on our licensing guidance should be, post the RivieraWaves acquisition, about 25% higher than our traditional way, which was 5 to 6 and we talk about 6 to 7.5.

In the last you say six, maybe you're right, we're doing very well. In general, the pipeline is very good and we don't see -- for now we don't see any weakening in this respect. On the contrary, we see customers are now starting 5G designs. We see a lot of vision. We signed already in this quarter two vision deals in automotive space and surveillance space; connectivity side, so all good.

But as you know, licensing is a lumpy business, and if you do the math, we are about $7.5 million already in our guidance, which is the top end. It could be higher, like in other quarters. At this stage we don't know. It all depends on the deals that we sign during the year -- during the quarter.

The second part -- first of all, one more comment to what Gideon explained. If you look at it annual and move the midrange of the number that just came, that you just mentioned, we're looking at about $31.5 million. If we compare that to the historical level just before we acquired RivieraWaves, for many years, as you recall, we were about $22.5 million. Last year we did better, about 25% higher than that traditional zone, and this year, if all works well, we're talking about 40% higher licensing revenues than $22.5 million traditional amount.

So on an annual basis, and not looking at one specific quarter, that number for us is quite robust.

On the deferred revenue, if you look at Q2 you will see our cost of goods is higher than normal at about $1.5 million non-GAAP. That means that is because we have one or two agreements that we are doing some customization work and then -- this is why we got paid ahead of time, but haven't recognized the full licensing agreement and we're doing it over a few quarters.

This is why it's eating up the deferred revenue until we finish the project and we will recognize the full amount. And for those amounts we already got paid. So nothing to be alarmed now, just two specific deals that we do more work than off-the-shelf type of a deal.

Thank you for that color. It looks like your non-baseband royalty units are going to perhaps even more than double in 2015 versus 2014. Any color as to how your non-baseband royalties will trend in 2016 would be helpful. Whether or not we will continue to see 100% like growth or maybe even some acceleration on top of that and will there be additional layers on top of the Bluetooth, strong Bluetooth trends that you've seen so far in 2015 and what sort of incremental driver on the non-baseband side would be helpful.

So for 2016 we didn't do the broken up analyses, but what we see today definitely Bluetooth will continue to grow. There are a lot of products that this Bluetooth fits in and it's not market specific.

Other things that we expect to see: audio is a market that we're going to see contribution from customers; vision in front of the market segment and Wi-Fi. So we'll have to see how long they're here -- throughout the years how things shape up, but in general I expect further contribution not just from Bluetooth next year.

Of course there if you look at the $46 million this quarter and annualize it, those numbers of non-baseband are really ramping up to a much more significant number, even for next year.

Okay, all right. Thank you, guys. That's it for me.

Joseph Wolf, Barclays.

Thanks. You mentioned of the design wins there was one new customer, if I heard that properly. And I'm wondering as we go through these licensing deals if you could talk about the opportunity; how many repeat customers are you having and how are you structuring these deals?

In the past with the handset side of the business there was the single use and the multiuse. Are your vendors on the non-handset side coming back? And how are you structuring those deals across what seems to be a broader portfolio of potential products?

Joseph, let me start with the technicalities and Gideon could mention about the licensing pipeline environment.

Demand hasn't changed. We still have a single use and a multi-use. You're right that for new users and new first-half customers we would see probably more single-use type of deals. They want to check out the technology; they want to come up with a chip.

If that chip and roadmap is successful, whether it's some of these deals that Gideon mentioned, even that we find now in Q4, a vision-based technology for the ADAS market or surveiling, and if that chip is successful of course those customers will come back for the next-generation chip or even for [few chips]. The after one or two additional use we see a trend that if this technology is successful within that semiconductor payroll, again they may choose to move their multi-use agreements. And then every few years they could come and renew either that agreement or come and license the new next-generation type of core.

So that hasn't changed. Because the companies are much more diversified, new players, smaller players than the traditional vendors that they were in the baseband business, we see the strength and this is why the deal count has also increased over the last 18 months or so because we're tackling many more -- some small, some even big, but many more designs and many more SKUs.

One thing that I would add; I think Yaniv covered most of the things that you are asking, but since the Company has a broader portfolio we are leveraging on the fact that we have already customer relationships to license other products. So a customer, a DSP customer knows us; we have credibility there and we will license Bluetooth or Wi-Fi. This usually goes together.

Okay, thank you. You mentioned that you haven't yet looked at 2016 on a bottom's up basis, but I'm assuming with all these design wins -- I think over 30 already, well over 30 -- on the non-handset side, how are you putting some --? When you give the guidance next year I assume the fourth quarter doesn't assume anything beyond Bluetooth.

How are you --? Are you doing a probability weighting of all these multiple products seeing success in the field? Are you waiting to see specific product start to take off? It feels like you've got a good feeling about a couple of vision product, but I am wondering how you are going to monitor that and help us see how the business expands into this broad, new end-market.

This is the difficult part. We may call you to help us out in those analyses because that's the tougher part of the business.

The way we do it: of course, you have the different regions, each region is focusing and has more capabilities and expertise in different areas. You see some markets that are much more focused on vision versus Bluetooth or Wi-Fi connectivity.

We will do what Gideon explained: bottom's up. We look around for the markets, the customers; we align them. We talk with the local salespeople, get their input on what could be closed earlier or later, or what product lines are more mature, customers are more or less mature, and we come up with a number.

If you look historically, you'll see that our licenses on a many-year type basis has been pretty flattish before we went to RivieraWaves and before we went into this non-baseband. And from there on we came up with a much higher level of -- whether it's $28 million or $30-million-ish this year, million dollars per year -- and of course this is where we want to continue going forward, which will be also basis of potentially much higher royalties.

So I don't think we're going to change the model. It's probably going to be every year a different number in licensing, but we will do our best efforts to keep that licensing number on the very healthy side, like we have seen in the last year and we want to see this year.

All right, thanks. Just one last question quickly. With the stock price where it is and the average of where you guys bought back stock last quarter, how are you feeling about the share buyback, aggressively or not right now?

I don't think we're going to change the strategy specifically because of the stock price right now. There are two factors, but we look whether it's accretive for us of course and where we think the Company could grow EPS-wise and earnings-wise over the next couple of years. And coming out of the recent numbers and guidance for the rest of the year, we feel comfortable that we are on the right track here.

Now there is dilution and want to try to keep shareholders undiluted from option exercises and the like. And I think we will take those two into consideration whatever price, stock price we have.

Taking again a little bit of a historic look. If you look at the last couple of years, what we have started to do five years or so, we've bought back more than $80 million worth of shares. I think it's about $5 million overall.

So we have been active in the past and I believe we will continue to be. One quarter could be stronger than the other, but we still think that there is a lot of accretiveness even in today's prices.

Thank you, guys.

Suji Desilva, Topeka.

Congratulations on the record quarter here. The growth of smartphones overall, 10% year over year, you guys are outgrowing gaining share. How sustainable is that trend and what can you do to drive continued share gains here as the smartphone market seems to be moderating overall growth?

The share gains that we are expecting is due to the fact that the growth in China and now moving to India. We spoke about it for a while; here we have key advantages due to our technology (inaudible) and the customers that are targeting into this space.

If you see -- our customers you will see that this is their main focus, low- and mid-range smartphones. By the way, just if look at the numbers and there are quite a few market datas out there, I think the smartphone is anticipated to grow for somewhere in the neighborhood of just over $1 billion-and-something last year to over $2 billion in 2020, for example. So you do see an increase in -- specifically in the smartphone space over the next couple of years and that's where we of course take a significant play these days.

Okay. Then somewhat of a follow-up there, you have benefited from a trend of people bringing the baseband in-house, Samsung, perhaps Xiaomi, Leadcore. Are there any -- are you seeing that trend accelerating and are you seeing these companies staying committed to doing their own versus merchant solutions? What are you seeing on that front and then what is CEVA's advantage in that marketplace? Because you seem to do pretty well there.

You know, you have to have a certain size to take this kind of decision to internalize the modem. We see by the way other companies smaller in the size that are internalizing vision and audio and application processors. And we have a few companies in the pipeline and already in designs, OEMs that use our vision technology.

Again, when it comes to (inaudible) and we know Samsung is now doing it and Huawei is doing it and of Xiaomi. So we'll have to see along the way how we do. By the way, when it comes to China, because we have a strong relationship with Leadcore, they are -- they are today the only viable solution provider for LTE modem.

Okay, great. Thanks, guys.

Anil Doradla, William Blair.

Thanks a lot and congrats on the great quarter. Gideon, a couple questions. You guys are very strong in spread term and a trend that we are seeing with spread term is that they are integrating their baseband with that processor, also transceivers, (inaudible), and they are offering these very integrated solutions. So the question is basically: do you see opportunities beyond the baseband and at processor, at some of the customers like Spectrum?

Today SoC for smartphones and you know that spread term is growing great also in tablet, a natural evolution will be IOP. So it's not just the modem itself, it's a full system.

We have an audio iLink. We have the vision iLink. Of course, you have the connectivity and the Bluetooth. All these things are applicable to spread term and many others today in the market.

In the past, even today Mediatech is using us for CDMA type of things. So all the portfolio that we are offering today are a candidate for any customers SoC.

So the other point that you mentioned was India was very strong and that's clearly an indication. Now India tends to be sub-$30, sub-$20 markets, which will be very strong and dominated by some of your licensees.

So I think the question I have: if I were to just look at 4G and apples to apples, what is the pricing dynamic there? No doubt there's going to be a very strong volume growth, but if I look at the 4G pricing today and, call it, six months from now or three months from now, how is the pricing environment looking on that front?

You put it right and I think I [felt] to it in I think the first question. What you see today is you have the low segment and this is usually -- when it comes to LTE this is India. The mid-range segment is a replacement cycle that you go in China.

And there are differences between the chips that goes to the low end or the middle end. The differences are not necessarily on the LTE side, but more in the AP, application processor, side. So for us, we are kind of agnostic between the two markets. Of course, the neighboring side will grow faster towards the advanced like the high-end stuff.

So the pricing difference between the low and mid-range relates to the fact that they use ARM Version 7; we run Version 8, which is smaller in die size, but not necessarily for us.

Okay, great. Finally, Yaniv, if I don't mind squeezing one in, as we get into 2016 obviously the business fundamentals are improving. Is there any possibility that CEVA will reinstate some kind of yearly guidance?

The reason we stopped is not because the business environment was worse for us or royalty decline. The reason we stopped is that our customers and even OEM customers do not give. If you ask Intel, at the time Broadcom was of course [spread through] or Leadcore or any of these customers, public or private, for their guidance on the handset space, you won't get any answers.

So for us go and to leapfrog and to guess where the industry is going to be at, I think we have our own internal costs and we do all that homework and we have a pretty good understanding of it, handset market and the different players. But to put that in front of numbers that Intel talks about or does not talk about would be a little bit strange from our point of view. And I think this is the only reason we stopped giving annual guidance.

We did give this year qualitative data on an annual basis, just to remind you both on licensing and of course in the beginning of the year when we had no LTE ramp-up, nothing. We just knew that where our customers are; we knew that for the last three years they were not able to gain any significant market share.

We came up and said 10% to 30% growth in royalties and this is Q1 with only 4 million LTE devices. Q2 is up to 11 million. And only now, really the end of this year, with 27 million and a very strong Q4 we are looking at finally just the second half of this year of this real LTE ramp-up that we've been talking about for the last couple of years.

So we will see what we will do at the end of January at the next call. We don't have an idea yet, but I think we did try to share as much, as we can, a pretty wide range. Maybe we will try to do the same for next year, but give us a few more months to see how this evolves and we will come back to you with an answer.

Great, guys, and good job.

Daniel Amir, Ladenburg Thalmann.

Thanks a lot. Thanks for taking my call. So the call was fairly detailed, but there's a question around Wi-Fi. I was interested in kind of getting an idea from how you project a bit the Wi-Fi opportunity here. Given the success that you had in Bluetooth, what needs to happen here in order to get -- see the Wi-Fi opportunity as big [as] Bluetooth here in the next number of quarters. Thanks.

The Wi-Fi market size, by the way, is very big and from the serviceable addressable market, from our standpoint, it is as big as the Bluetooth. Now the reason that we don't see Wi-Fi progressing as fast as Bluetooth because the Wi-Fi system is much more complicated. It takes more time to customers to get there, but we do have a design win and we do have coverage.

I don't recall now substantial royalties coming from this, but as I said in an answer to the prior question, we expect to see it in 2016.

One customer that we did announce in the past -- and again it takes time to get to production -- is [Veritas]. For example, they've given our Wi-Fi to a smart metering systems so it's all pretty new and the Wi-Fi shipments this year ago was essentially zero. This year we will be seeing a smaller number, maybe a few hundred thousand, but still very small compared to Bluetooth, which you were already in a run rate of -- an annual run rate of somewhere between $100 million and $200 million just on the Bluetooth side.

Okay, great. Just one follow-up. On the non-baseband business, do you expect any changes in the royalty rates in the next couple years, I guess in the vision or Bluetooth or Wi-Fi or audio? Or do you expect it kind to be continuing in the ranges that you provided before?

There's nothing that came to our attention that anything changed. We're just in the infancy stage of ramping these products out. A year ago Bluetooth was a few handful of million, now we are up to 30 million a quarter. We're just starting.

When we do get to those, or close to those 700 million to 900 million units, non-baseband units a year, I think that question may be relevant then. It's completely immature for now, just because the volumes are so small and we're just making our first steps.

Okay, great. Thanks.

Matt Robison, Wunderlich.

Thanks and congrats. Gideon, when you look at the sequential LTE growth you are expecting from your latest reports, should we look at that as largely driven by expansion into models like J2 at Samsung? Or are you starting to see the China business becoming significant?

It's all of the above. In China, we feel acceleration moving -- the reason it's just moving our customers are moving from the low end, which goes now to India, to the mid-range, which is the market in China. They are rolling out with new products, 64 bits, ARM -- that is by the way, ARM has been (inaudible) already -- they see this trend.

And then we see at Samsung, Samsung is -- they are shipping about 86 million to 90 million units a quarter or points a quarter and they are by themselves now putting more attention on the mid-range segment. And this, the forms that you mentioned, there and the fact that they have now this single chip help them to address the markets there.

Another commentary was related to fourth quarter; was giving up some share to Apple in their commentary. But obviously the mid-range and the low end is where they are really moving it. And as you mentioned, I guess you don't care too much where it comes from, but have you started to see the mod apps type products shipping already?

I don't recall. We didn't review the report. They just came last night, a few of them, so we didn't have a chance to thoroughly review the report. But definitely the chip is available and they should -- if they didn't ship already, they should do it next quarter.

I think they are mass production, but we don't know the numbers either.

A quick follow-up to Daniel's question on the non-baseband products, when do we start to see the high ASP products, like vision and infrastructure products, start to impact the royalty stream? Is that still multiple quarters away or can we think in terms of mid-2016 for that helping you?

We have one design already started to ramp up production. I don't think it's a matter of timing; for now, it's a matter of volumes production. So the good thing is that we have now chips available in the market that are in hands of customers. We have customers in drones and we have customers in surveillance and we have customers -- one customer in the smartphone side.

And whether it's -- these are long cycles, these are next-generation products. And the question when are we going to see a size of it? You're going to see them next year in the market. How big is the market? This is something that we will have to see.

How about your big infrastructure, sort of strategic license from three years ago?

They are in the -- they have the silicon now, which they are testing, and they -- when they would be in production I think this is more 2017.

2017?

Yes.

Thank you.

That, by the way, we did cover some new press releases in the last two weeks companies like SocialNext and NovaTech. These are some of the examples that companies that have designed us in already and these are the examples that Gideon referred to also as soon as they get into production.

And hopefully we could see some chips in 2016, specifically the ones that are more mature. These will be the first (inaudible) contributor with these higher royalty levels and new markets. It's not just Bluetooth, but the new interesting markets in non-baseband.

Thank you. Thanks, Yaniv.

Thank you, this concludes the question-and-answer session. I would like to turn the call back over Richard Kingston for any closing remarks.

Thank you very much, operator. Thank you, everyone, for joining us today and for your continued interest and support of CEVA.

We will be attending the following upcoming conferences: the ROTH Technology Corporate Access Day on Wednesday, November 18, in New York; the Raymond James 2015 Technology Investors Conference on Monday, December 7, in New York; and the Barclays Global Technology, Media, and Communications Conference December 9 in San Francisco. Some of these presentations will be webcast, so please visit the investor relations section of our website for additional information on this. Thank you and goodbye.

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