CEVA Inc (CEVA) 2017 Q4 法說會逐字稿

Good morning and welcome to the CEVA, Inc. Q4 and Year-end 2017 Earnings Conference Call. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, VP of Market Intelligence, Investor and Public Relations. Please go ahead.

Thank you. Good morning everyone and welcome to CEVA's Fourth Quarter and Annual 2017 Earnings Conference Call. Before we begin, I would like to inform you that the prepared remarks for this conference call will be filed as an exhibit to the current report on Form 8-K at the conclusion of the 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 highlights from the fourth quarter and year and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter and year and also provide guidance and qualitative data for 2018.

I will start with the forward-looking statement. 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 first quarter and full year 2018; market data from Gartner, ABI Research and GSA; optimism about our prospects associated with AI based devices; the smart and connected devices; the RAM sector; LTE penetration and non-handset baseband segments; the strength of our licensing as a precursor for a lucrative future royalty stream; projected customer ramp-up schedules; and optimism about the success of growth in the non-handset space.

The risks, uncertainties and assumptions include the ability of the CEVA signal processing IPs for smarter connected devices to continue to be strong growth drivers for us; 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 speed and extent of the expansion of the LTE and 5G networks; AI, LTE-IoT and the IoT space generally; our ability to execute more broad portfolio license agreements; customers' ramp-up schedules and the impact on royalty revenues; 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.

Good morning, everyone, and thank you for joining us today. CEVA delivered another year of record results with outstanding execution in licensing and solid progress in royalties. We ended 2017 with a stronger-than-ever foothold in the vibrant smart and connected universe, which progress I will elaborate shortly.

Total revenue for the fourth quarter of 2017 came in above the upper range of our guidance at $21.6 million. The licensing environment continues to be healthy, with revenue of $9 million and 13 new agreements signed. All of the agreements were for non-handset baseband products, and 5 were with first time customers. Target markets for the new agreements include cellular IoT, which was particularly strong during the quarter with 3 new agreements; autonomous driving; 5G cellular backhaul; vision for mobile and consumer electronics; smart speakers; voice enabled headsets; and a variety of Bluetooth connected products.

With respect to autonomous driving, I would like to highlight that we concluded a strategic development agreement with a top tier car OEM for a next generation AI processor of our NeuPro product line. This revolutionary AI technology is targeted for level 4 and 5 autonomous driving systems, the most advanced yet complex AI application in cars and in the embedded world in general. It is our first engagement directly with a car manufacturer, which grants us an intimate access to future AI-based applications in autonomous cars.

The NeuPro technology, which we unveiled at CES, is a new family of optimized AI processors, enabling processing of varieties of AI applications on the device rather than in the cloud. This approach allows for a faster response time and ensures better security and privacy. NeuPro is the world leader in performance and software for device-based AI applications among which are face recognition, object classification, automatic speech recognition, workflow management, malware detection and sensor fusion. AI is being rapidly adopted across multiple industries due to the substantial benefits it presents. Initial products adopting AI include surveillance cameras, drones, AR and VR headsets, ADAS and smartphones. In relation to smartphones, according to Gartner, 80% of all smartphones will incorporate AI processors by 2020. We are very optimistic about the prospects of device-based AI going forward and the growth opportunity it presents to CEVA.

Royalties for the fourth quarter came in at $12.6 million, up 26% on a sequential basis and down 2% on a year over year basis. It reflects a combination of continued growth of non-handset baseband shipments that for the first time exceeded 20% of our total revenue mix and seasonal strength in handsets. It also included $0.9 million royalty catch up following customer audit.

For the full year of 2017, total revenue came in at $87.5 million, a record high, up 20% year-over-year. Licensing came in at $42.9 million, up 35% versus 2016 on the back of strong demand throughout the year for our products, in particular vision, deep neural networks, 5G base stations, Bluetooth 5 and cellular IoT. I am extremely pleased with this achievement in licensing, as it is the key metric for the sustainability of an IP company and the precursor for a lucrative royalty stream.

4 years ago, we embarked on an ambitious diversification strategy which was aimed to expand our business beyond the handset baseband processing market. Through successive technology investment and innovations, we launched new product lines for LTE and 5G cellular base stations, cellular IoT, computer vision, connectivity, voice and our recent AI processor line for edge devices. This strategic move and timely execution have resulted in licensing momentum which has grown at almost 20% CAGR since 2014. In the past 4 years, we added more than 60 first-time customers and signed more than 150 deals outside of the handset baseband space. 96% of the deals signed in 2017 were for these new product lines, targeting broad markets and applications. Consequently, we are also experiencing substantial uptick in non-handset baseband royalty revenue, which more than doubled in 2017.

Let me take the next few minutes to discuss the key success factors for our licensing achievements in 2017. 5G base station. We signed during the year agreements for our latest XC12 DSP platform with 3 top tier OEMs who are going to base their 5G radio access network, or RAN solutions, on this technology. The RAN sector poses an explosive growth opportunity for CEVA, where we have uniquely taken advantage of our signal processing technologies and competencies to develop long-term collaborations and sustainable royalty streams. Our CEVA XC12 DSP platform presents an indisputable performance advantage over incumbent platforms. It efficiently supports all the primary 5G defined use cases such as gigabit transmission speed, massive IoT and ultra-reliability and low latencies for mission critical applications. The performance envelope of the XC12 applies to all different RAN architectures of cellular operators such as heterogeneous macro cells and small cells, cloud RAN, backhaul, fixed wireless and 802.11AX Wi-Fi.

Computer vision and neural networks. Throughout the year, we experienced strong interest for our vision and neural net hardware and software solutions. We are benefiting from the first mover advantage, with mature technology and a holistic approach for neural networks. Overall, we signed 11 licensing agreements for our vision portfolio and the unit shipments are growing to a level of millions per quarter versus a few tens of thousands last year. The vision market is highly diversified and sizable. According to ABI Research, devices with on-board vision and neural network processing will reach 4 billion devices by 2022.

Narrowband IoT. The fourth quarter was very successful for our Dragonfly portfolio, with 3 new license agreements. This adds to our earlier license agreement with ZTE who already offers its certified RoseFinch 7100 chip within the China Mobile network. Cellular operators are looking for extremely low cost and low power narrowband IoT solutions that open up mass markets services in verticals such as meters, share bikes, smart homes, smart cities and healthcare. The GSA forecasts 3.8 billion cellular IoT devices by 2026. Our DragonFly platform is a self-contained hardware and software narrowband IoT solution that lowers the entry barrier to many companies in the IoT space who look to embed cellular technology in their chips.

Bluetooth 5 dual mode. We continued to expand and strengthen our position in the Bluetooth market, in particular in regards to dual mode standard, which integrates Bluetooth Low Energy for data and classic Bluetooth for audio. The use of Bluetooth dual mode emerges in many new classes of wireless headsets and earbuds such as Apple AirPod or Google Pixel buds and hearing aids. Overall, we signed more than a dozen Bluetooth agreements during the year, and our customers shipped more than 200 million royalty-bearing units, up 45% from 2016.

Moving to royalties. Royalty revenue for the full year was $44.6 million, a record high, and a 9% increase over 2016. Overall maturity in the handset market was more than offset by solid unit and royalty revenue growth of non-handset baseband shipments. Our non-handset baseband royalty revenue accounted for 18% of the total royalty, doubling from 9% in 2016.

As we look into the royalty dynamics for 2018, we generally expect modest growth year where continued expansion in the non-handset baseband segment is anticipated to offset the weakness in the handset market. Towards the later part of the year, we expect a large base station customer to enter into production with new LTE and 5G RAN products. At this stage, we elect to be prudent in sizing the ramp up this year due to a combination of timing of this initial ramp up and overall RAN market, which is expected to return to growth in 2019 in conjunction with 5G.

In handset baseband, according to Strategy Analytics, the smartphone market showed a 9% year-over-year decline in the fourth quarter, the biggest in the smartphone history. We believe that this decline will extend in particular in the first half of 2018 due to demand softness in high and mid-range phones and slower-than-expected adoption of LTE phones in emerging markets due to high pricing.

In summary, we delivered another great year with record financial and technological achievements. Through last year and prior year achievements, we have positioned ourselves at the forefront of the smart and connected universe and are benefitting from a larger customer base and growing shipments. We continue to be committed, innovative and fast moving as we pursue multiple growth opportunities that appeal to us, in particular in the AI space.

Finally, I would like to take this opportunity to thank all our employees for their hard and determined work and our suppliers and investors for their support. We wish you all a happy and prosperous year. With that said, I'll now turn the call over to Yaniv, who will outline our financials and guidance.

Thank you, Gideon. I'll start by reviewing the results of our operations for the fourth quarter of 2017. Revenue for the fourth quarter was $21.6 million, as compared to just over $21.2 million for same quarter last year. The revenue breakdown is as follows. Licensing and related revenue was approximately $9 million, reflecting 42% of total revenues, 9% higher as compared to the fourth quarter of 2016. Royalty revenue was $12.6 million, reflecting 58% of our total revenues, just below the $12.9 million for the same quarter last year.

Quarterly gross margin was 91% on a GAAP basis and 92% on a non-GAAP basis. The non-GAAP quarterly gross margin excluded approximately $0.1 million of equity-based compensation expenses. In general, cost of revenue was higher this quarter than prior quarters of 2017 due to expenses associated with the narrowband IoT product line in the neighborhood of $400,000.

Total operating expenses for the fourth quarter was at the high range of our guidance at $16.5 million. OpEx also included an aggregated equity-based compensation expense of approximately $2.3 million, and $0.3 million for the amortization of acquired intangibles of RivieraWaves. Our total operating expenses for the fourth quarter, excluding equity-based compensation and amortization of intangibles, were $14 million, also at the higher range of our non-GAAP guidance.

U.S. GAAP net income and diluted EPS for the quarter decreased 39% and 42% to $3.2 million and $0.14, respectively, over the fourth quarter of last year. Non-GAAP net income and diluted EPS for the fourth quarter decreased 18% and 22% year-over-year to $5.7 million and $0.25, respectively.

Other related data. Shipped units by CEVA licensees during the fourth quarter of 2017 were 285 million, up 14% sequentially and down 17% for the fourth quarter of 2016 reported shipments. Of the 285 million units shipped, 205 million units, or 72%, were for handset baseband chips, reflecting a sequential increase of 8% from 189 million units of handset baseband shipped during the third quarter of 2017 and a 24% decrease from 271 million units shipped year-over-year.

In the non-handset baseband, volume shipments continued to increase 31% sequentially, and 12% on a year-over-year basis. The increase is due to higher quarterly Bluetooth, vision and base station shipments. From a revenue perspective, fourth quarter non-handset baseband royalty revenue continued to increase 37% sequentially, with volume increase, and on a year-over-year increased 147%.

As for the year. Our total shipments grew 7% year-over-year to reach shy of 1.2 billion units, which equates to approximately 37 CEVA-powered devices sold every second in 2017. These unit shipments represented an annual royalty revenue increase of 9% year-over-year, reaching a new all-time high of $44.6 million. Annual shipments of LTE phones increased 38% year-over-year or just by 85 million to reach 311 million. Non-handset baseband royalty revenue doubled in 2017 and reached a record level of $8 million.

As for the balance sheet items. As of the end of December 2017, CEVA's cash, cash equivalent balances, marketable securities and bank deposits grew to $183 million. Our DSOs for the fourth quarter were higher than norm at 70 days, compared to the prior quarter's of 49 days, but collection was very strong in the first couple of weeks of 2018.

During the fourth quarter, we generated $6.8 million from net from cash from operations; depreciation was $0.6 million and purchase of fixed assets was $0.8 million. At the end of the year, our headcount was 313 people, of which 252 were engineers.

Overall, we continued to accomplish remarkable financial achievements in 2017, building on our impressive product and market diversification efforts in the last couple of years. We reached new financial milestones, leveraging revenue growth, new customers and markets, as well as in internal R&D investments. In addition to the 20% growth in total revenues, we generated non-GAAP operating income increase of 18%, non-GAAP EPS increase of 26% and 69% increase in our annual free cash flow from operations were reaching $24.5 million.

Before moving to guidance, let me explain the implications of the new ASC606 accounting rules on our revenue recognition practices. From the first quarter of 2018, our quarterly royalty revenue will be based on customer royalty reports for shipped units in the reporting quarter rather than shipped units for the prior quarter. In light of this change and as we do not have access to our customers' quarterly forecasts, we will refrain from giving quarterly revenue guidance going forward. We will, however, provide yearly guidance on revenue with a breakdown of licensing and royalty revenue, as well as our views on the revenue trends between the first half and the second half of the year. We will update, as appropriate, our annual guidance as we progress throughout the year, and will continue to give detailed OpEx quarterly guidance and certain other key metrics on a quarterly basis.

Now for the guidance. Last year was an outstanding year in licensing at $43 million, 35% year-over-year growth. While licensing revenue tends to be lumpy, we believe that the healthy demand environment we experienced last year will also continue this year and, as such, forecast licensing revenue to be at a similar level to last year.

On royalties, we forecast 10% year-over-year growth. As Gideon explained, we are taking a wait-and-see approach in regards to the timing and magnitude of the production ramp-ups from new non-handset baseband customers, in particular our second base station customer, and have a cautious stance on the handset market due to the recent market data.

We forecast that 60% to 70% of our annual royalty revenue will be -- that is included in our guidance will be reported in the second half of the year on back of the base station ramp-ups and other new production ramp-ups for the holiday season. All in all, we forecast total revenue to be approximately $92 million for the full year.

On OpEx, with our newly announced products and continued momentum in our existing licensing business, we will continue to innovate and reinforce our leadership, but with disciplined investments in R&D. Our OpEx increase is mainly associated with AI investment in headcount, employee-related costs and EDA tools. Overall OpEx increase will be in the region of $5 million. It should be noted that approximately $2 million of that is attributed to FX effects, as compared to 2017, with the U.S. dollar continuing to slow weak -- to show weakness compared to other currencies such as the shekel or the euro. Equity-based compensation expense is also forecasted to be higher due to the ongoing employee retention efforts.

Annual gross margins are forecasted to be in the neighborhood of 92%. Interest income is forecasted to be slightly higher than 2017, at $0.8 million per quarter. And our tax rate is expected to be quite similar to 2017. After taking into account the new Trump tax related legislation, the tax rate is expected to be approximately 19% on GAAP and 13% on non-GAAP basis. Share count for 2018 is expected to be in the range of 23 million to 23.6 million shares.

Specifically for the first quarter of 2018. Gross margin is expected to be approximately 90% on GAAP and non-GAAP basis, excluding an aggregate of $0.2 million of equity-based compensation expenses. Both GAAP and non-GAAP gross margins are expected to be a bit lower than normal in the first quarter due to COGS-related expenses associated with new partnership within narrowband IoT space like we have witnessed in the fourth quarter of last year.

Overall OpEx is expected to be in the range of $17.6 million to $18.6 million. Of our anticipated total operating expenses for the first quarter, $2.7 million is attributed to equity-based compensation expenses and $0.2 million for the amortization of acquired intangibles. Our non-GAAP OpEx is expected to be higher than the level of 2017 as we just reported and as I just explained, will be in the range of $14.7 million to $15.7 million. Net interest income is expected to be approximately $0.8 million. Tax rate for the first quarter, slightly lower than the fourth quarter actual, on GAAP basis 19% and on non-GAAP basis, 13%. Share count for the first quarter of '18 is expected to be approximately 23 million shares.

[Glandon], you could now open the Q&A session, please.

(Operator Instructions) Our first question comes from Gary Mobley with Benchmark.

Congrats on a strong finish to the year. Yaniv, am I doing the math right, 4G LTE units in the fourth quarter were 94 million roughly?

4G were 82 million units.

Apologies. So much for my math. You said, what, 311 million for the full year?

Yes, but taking into account that there is a new segment of feature phone based LTEs. So some of that still fall into the feature phone of the phone segment, but overall it's part of our LTE modems.

Okay. Regarding 5G LTE radio access networks, do you still feel that ZTE will be the primary contributor to royalty revenue in 2018? Can you share with us what the 5G LTE base station related royalty revenue was in the fourth quarter? And can you comment on Nokia's recent launch, ReefShark, if that's what you're eyeing as it relates to your second half 2018 or 2019 additional contributor to 5G related royalties?

Gary, it's Gideon. Let me -- because we were in the last few years a bit tightlipped in what we are doing or what our customers are doing in the RAN market. RAN market is an umbrella of all the different use cases in the base stations for DSP processing. So, I mean we are not just doing the -- we are not in just one place. We are in macro cell, we are in the small cells, we are in the cloud RAN, we are doing remote radio head. So our DSP is in several places there. Now, we spoke about the customer which is already in production, not in full scale. The scale is going up this year, I would say, even significantly. And there is another customer that is going to get into production and this is on track. I don't see any stumbling issue in terms of not doing it this year.

The question is how -- the magnitude of this initial ramp that for the first time, it's hard to see. Now we are -- our entry point with these 2 customers that will be in production the second half of this year is what is called LTE-Advanced and LTE-Pro. Only 1/3 of the LTE base station today have been upgraded to the faster LTE, which is LTE-Advanced and LTE-Pro. So our entry point is with this product line to the LTE-Pro. There is a software upgrade, they can do a software upgrade and go to 5G, the 5G which is already certified, not the envelope. The highest 5G, the most advanced 5G that we made to go the XC12 and this will be more toward 2020. So overall it's -- things are on track. There is in the last 2 years, lower investment, CapEx investment in this respect. The expectation in 2018 to grow to a full scale, so then by [2010] we will have probably kind of a tailwind. But there will ramps and even significantly in the second half of the year. And we just -- we took a prudent approach at this stage just to get -- to get a better feeling of how things will evolve.

But as I said, again, there is not any stumbling issue about or technology issue about this ramp. It's all about from guidance standpoint or from forecasting standpoint the magnitude and the timing. If they go in Q3, so we have 2 quarters. If they go in Q4, we have 1 quarter. This is something that at this point is hard to know. One last part of the answer to your question, last year for the first time we did see royalty revenues from the base stations in the very few fingers of millions of dollars. So it's still less than 1 hand. But the opportunity for us, I think we've talked about this in the past, over time and again it all depends if it's a full year or 1 quarter or 2 quarters within a year, it could be in the few tens of millions of dollars, but one step at a time. We first want to see the others in production.

Okay. Last question for me. Could you just speak about the nature of your North American automotive OEM relationship, the phases of this relationship? Is this the first phase with NeuPro, really just kind of a discovery phase and then perhaps at some point during the year, maybe 2018 or 2019, it goes into sort of implementation stage?

Yes. Obviously I cannot speak about this engagement and cannot elaborate on this one. First of all, it's not necessarily a U.S. base. We speak about OEM -- tier 1 OEM companies. So it's a car manufacturing company. They take the next generation of our NeuPro. We announced in CES the NeuPro fourth different product line, but we speak about the next generation, something that is revolutionary and take us to the fully autonomous car space. It's a journey where we are today. But it's a good engagement. If all things will go in the right direction, this is a 2020, 2021 [car].

(Operator Instructions) Our next question comes from Suji Desilva with Roth Capital.

Congratulations on a strong '17 here. Just a quick housekeeping question, Yaniv, on the accounting change. Yaniv, when you report revenues going forward, will you have all the customer reports to accurately report the royalties or will you be making adjustments, you think?

That's a good question. We will do our best. Usually we close the quarter and get the reports 30 days after that. Taking into account that 9 days after those 30 days, we need to report our 10-Q, it's going to be a challenge. And therefore most likely you'll see 2 things happening. One, we will try in the future to probably have our earnings call around this time, the 6th, 7th, 8th of the following month and not necessarily 30 days or immediately after like we have done in the past, which the royalty reports would just be an easier indicator for the guidance in the next quarter.

And second, we'll try -- when we do our earnings also to file our 10-Q together so there won't be any differences between at least the reporting and the 10-Q. And by then if there will be another report that we will receive and we did not know when we closed the books, which is going to be tighter than in the past, then there will be some adjustment going forward. We'll try our best to get a good idea when we actually report for the real numbers as much as we can. I am sure that like we have seen in the past some reports will be arriving later. And then we will have adjustments, hopefully not material ones, because of that new system. So I don't think it changes a whole lot other than that this tactics of when you get the report and when we know the actual numbers and report them, it doesn't really change a whole lot from a business perspective. Just makes our lives a little bit tougher.

Okay. Appreciate the colors or walking-throughs, yes. And then on the royalties here, specifically on computer vision and smartphones, where are we in that ramp versus where you expected? And how many customers do you think might be ramping that product in the smartphone area in '18? What's the magnitude of the opportunity there?

So, there are 2 things about smartphone. One is the baseband side of it. And in the baseband side of it, as we said, we are taking kind of a cautious view, because -- not because we know something, but because we see the market data. I mean, Q4 is usually high season in shipments and it was down. And there is -- people speak about the dynamics in China and there is this big customer in the U.S. that guided down. So first quarter -- first and second quarter -- by the way, these new revenue recognition rules, first and the second quarter are the lowest seasons. As opposed to the past that in the first half of the year you had one quarter which was the high season and another quarter was the low season. So it's more like the first half is low season, second half is the high season.

So in terms of base -- smartphone in general -- so I mean we see some weakness in the beginning of the year. I think things will be better in the second half. We don't know exactly how it feels but there are all sorts of things, speculation about our share gains and of course there is the emerging market. But if you take a place like India, you have LTE penetration of 11%. And the top point at present, the base stations cover 90% of the coverage. So everything is set for growth in India and it's a matter of maybe pricing. So that's the -- now in the terms of non-handset, I don't really recall -- I don't have it out of my head how many customers will get into production. There will be a few that goes into production. And in general this computer vision/neural network it's a very good business. Last year we did 11 deals. And I don't see any reason that this will not continue.

Okay. And then --

(multiple speakers) volumes that I think you also have to mention -- I think last year was a very successful year for us from getting -- from just the design and the licensing to actual products in the market. And we've all shared with you throughout the year -- by the way, only mostly in the second half of the year we've shared with you new cell phones using our vision technology, DSLR and the mirrorless cameras, action cameras. And just even in the later part of the year has grown in new markets. So for the first time around vision, we have reached just about 7 million units for the year from essentially 0 the year before and that was a very impressive growth both in royalties and in units for us. That number should increase when we have the full year in front of us and not part of the year.

On top of that base, Bluetooth we've shared the numbers. We had 45% growth from 139 million to 200 million Bluetooth devices. We don't see any reason for that to stop. The volume in Bluetooth and Wi-Fi this year around should start to ramp up. And on the newer things that Gideon mentioned and we talked about earlier, sound and narrowband IoT and our next in line and of course there the base station part. So I think on the non-baseband we have seen for the first time that 2007 was the -- '17 was the breakthrough in the royalty for the non-baseband for us. From now on we want to see that ramp up significantly into 2018.

Okay. And then one last quick question from me. On the licensing side looking at your pipeline into '18, which area do you see the most opportunity in amongst the areas you're targeting?

So I would say the following. Now the [higher bandwidth] product, which is vision and Bluetooth and I mentioned Bluetooth dual mode on these earbuds, a lot of companies are looking to develop AirPod like earbuds or headsets. And narrowband IoT started last quarter, I think it was an amazing quarter in this respect. I think LTE IoT in general will come out. One thing that I also anticipate is the movement to 5G in the handset space. I say we have 2 customers already working with us in 5G and I see a lot of activities that could come out in 5G because it's a new game change. It's a new ballpark, I would say, in terms of company. You don't -- you cannot rely on legacy in 5G when you start the development of 5G. So I think as we have already and we will make something in the upcoming MWC some announcement in this respect but I'm optimistic about the 5G prospects -- I mean 5G handsets.

(Operator Instructions) Our next question comes from David O'Connor with Exane.

Maybe first one, Yaniv, on 2018 guidance. Just to clarify, how many quarters of base station ramp up are you assuming within your revenue guidance from your European OEM? That's my first question. And then maybe one on the NeuPro. So for the automotive licensee for autonomous driving, is that a smartphone type chip? Is that how we should think of it? Or is it more of a base station type chip? And I have a follow up.

Let's start with the first question. We're looking either at Q3 or Q4. So we [will wait in those] in Q3 and then more massive in Q4 for now. That's what we have in line -- in the guidance, in our forecast. And as soon as we get a bit closer and get a little bit more color from our customers, we will know and guide accordingly. But anywhere between 1 to 2, I'm not sure full 2, but maybe 1, 1.5-ish quarters. On the royalties on the NeuPro, I think it's still in the early parts of it. It's not a chip that costs like a chip in a base station, that's for sure. It may be closer to a vision -- or anything between a vision to a slightly higher than that type of a chip. I think that's how I would price it or look at it. So it's a new category that's higher than our vision. I wouldn't -- I don't have -- I think it's a bit premature to share yet ASPs around it. We will do it as we -- as it matures a little bit more and a few deals will be behind us.

Let me add a color about the NeuPro because as Yaniv pointed out, and I think it's important to understand that this is a new incremental product line. It has nothing to do, by the way, we as a company, we are doing so many DSP. The NeuPro is not a DSP. It's a different process. It's not, by the way, a CPU. It's a different category. It's an architecture or a design that works for AI workloads. In our view in the future and any configurable device in the world, any configurable semiconductor will have some kind of AI engine inside to do things that you cannot do in typical structure. And this is the reason that we are investing and coming out with this product line. So I would say that this year will have -- because when we announced this product we said that in the second half this product will be for broad licensing. So I believe that in the year we're going to have a few license -- this year we're going to have a few license agreements. As Yaniv pointed out, it's a separate product line, separate ASP, incremental to all other products that we have. So we have a few licenses this year, significantly more licensing activities next year. And second half of this year we will start seeing -- next year, excuse me, second half of this year, I think we will start seeing royalties coming from this product.

And maybe just one follow-up on the kind of split first half versus second half for 2018. It appears from your commentary that most of the revenue levers are going to come primarily in the second half of the year. What type of revenue levers have you got to pull on in the first half?

Sure. Our type of reporting, Qualcomm as well, all the IP or related IP companies reported 1 quarter in arrears. So our seasonality was really off a bit from the rest of the semiconductor industry. And maybe this is what the SEC had in mind when they changed or came up with this new interesting 606 rule. So if you take into consideration that in Q1 is the post-Christmas and after Christmas, the decreases in consumer electronics and cellphones. You saw the numbers from the Apple and their related food chain, of course Q1 is down. That's not a surprise to anybody or should not be. And for us, instead of reporting that in Q2 historically, we report that in the same Q1. So this is the reason that, if you look at last year, our first half, second half was maybe 50-50 because -- mainly because of the shift in the seasonality that only started for us in second quarter instead of the first. Here we're in line with the whole market. They now mix around cellphones, consumer and the like, and therefore much slower Q1, builds into the spring and summer sale in Q2 and then the massive ramp up in the semiconductor space and in the handset and of course the base station, which is key to our growth. And license -- on revenue guidance, it will happen in the second half of the year. So I think these are the 2 or 3 items that have the most influence. The timing of -- or being in line with the seasonality this time around from day 1, from the first quarter on one hand, and in the fourth or third quarter new ramps up around pre-Christmas and handsets. Does that answer the question?

Yes, that's very helpful.

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. Thank you all for joining us today, and for your continued interest in and support of CEVA. As a reminder, the prepared remarks from this conference call are filed as an exhibit on current reports on Form 8-K and accessible through the Investors section of our website at investors.ceva-dsp.com. With regard to upcoming events that we will be attending, these include Mobile World Congress in Barcelona from February 26 to March 1 and the 30th Annual ROTH Conference in Dana Point, California, March 12 and March 13. Please visit the Investors section of our website for further information on these events and other events that we will be in attendance at. Thank you and goodbye.

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