CEVA Inc (CEVA) 2019 Q4 法說會逐字稿

Good day, and welcome to the CEVA Inc. Fourth Quarter and Full Year 2019 Earnings Conference Call. (Operator Instructions). Please note, today's event is being recorded.

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

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's Fourth Quarter and Full Year 2019's Earnings Conference Call. I'm joined today by Gideon Wertheizer, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the fourth quarter and full year 2019 and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter and full year 2019 and also provide qualitative data for the first quarter and full year 2020.

I will start with the forward-looking statements. Please note that today's discussion 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 assessment of the overall licensing market in the first quarter of 2020, our annual 2020 and first quarter 2020 guidance, our anticipated pillars of growth, and optimism about achieving such growth objectives, reaffirmation of our 2022 royalty goals, higher R&D expenses in 2020 and market data by Dell'Oro.

For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the ability of CEVA's IP for smarter connected devices to continue to be strong growth drivers for us; our success in penetrating new 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 5G WiFi contextual awareness and IoT markets; our ability to execute more non-handset baseband license agreements; the effect of trade tariffs and political tensions; the effect of intense industry competition and consolidation; and global chip market trends.

CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that said, I'll now hand the call over to Gideon.

Thank you, Richard. Good morning, everyone, and thank you for joining us today. CEVA delivered an outstanding fourth quarter and overall excellent year with revenues and EPS, both surpassing Street expectations. Moreover, our strong performance, in particular, on the licensing front, set the stage for continued growth in 2020 as will be reflected in the annual guidance that Yaniv will share with you shortly. I will elaborate in my prepared remarks on the growth pillars and the underlying technologies that are driving this performance.

Total revenue for the fourth quarter of 2019 came in at $28.3 million, an all-time record high and significantly ahead of straight expectations. A brisk licensing environment, along with the strategic customer agreements led to $14.8 million in licensing revenue, an all-time record high for quarterly licensing revenue. We signed a record 21 new agreements, of which 15 were for connectivity and 6 were for smart sensing, 10 out of the 21 deals were with first-time customers. Target uses for our technologies, our baseband processing for 5G base stations, smartphone and cellular IoT devices, AI and computer vision for consumer electronics, surveillance and automotive, audio and Bluetooth connectivity for true wireless earbuds, sensor fusion for smart TV control laptops and PC peripherals, and Bluetooth and WiFi connectivity for a wide variety of IoT devices.

Of note, during the quarter, we signed a sizable and strategic agreement with a very large smartphone OEMs, who license our technology for its in-house cellular modem chip development planned to be deployed in its future smartphone. We are extremely excited and committed to this new engagement and looking forward to capitalize on this opportunity for greater market share expansion and royalties for future 5G smartphones.

Royalty revenue for the fourth quarter was $13.5 million, an all-time record high. Seasonal strength and new production led to 360 million CEVA-powered devices shipped in the quarter, also a record high. Royalty revenue from non-handset baseband chips continues to grow contributing a record $4.3 million and a record 164 million units in the quarter.

For the full year of 2019, revenue came in at $87.2 million, up 12% from last year. Licensing and related revenue was a record $47.9 million, up 18% from last year. We continue to strengthen our customer base with the record 52 license agreements signed during the year, of which 23 were with first-time customer. Annual royalty revenue was $39.3 million, up 5% as compared to last year. Shipment of CEVA-based products grew by 12% year-over-year to more than 1 billion units.

Handset baseband shipments were up 3% year-over-year with a strong second half of the year, driven by product launches across all phone peers. Non-handset baseband continues to expand with annual royalty revenue up 49% to $13 million and units up 25% to a total of 469 million units. Looking ahead to fiscal year 2020, we are setting 3 key priorities. Priority one, capitalizing on our recent momentum in licensing to continue to grow our revenue and expand our customer base. Licensing agreement triggered a virtuous circle where new licensees drive royalties, which then free up additional R&D funds for further technology investments, which drive further growth in licensing and royalty momentum.

This is where our strategy to synergistically broaden our product portfolio through organic investments and M&A, played out so well in the last few years. This was culminated in the step-up in licensing revenue and sustainable growth in royalties from non-handset baseband segment that we are experiencing.

To this end, we anticipate 3 growth pillars. The first pillar is 5G. 5G presented greater growth opportunity than we had with 4G LTE. So our CEVA-XC high-performance DSP family, we are set to benefit from the new 5G CapEx investment, which is forecasted to grow by 159% CAGR between 2018 through 2023, according to research published by Dell'Oro.

Another growth opportunity we are addressing with regards to 5G is cellular IoT, which applies to massive connected devices for industrial automation, autonomous transportation, smart cities, medical, AR and VR. According to recent Ericsson Mobility Report, it is expected that there will be 5.4 billion cellular IoT connections by 2025. With our Penta-G and DragonFly modem platform, we are set to sell this demanding requirement in diverse markets.

A third 5G opportunity is handsets. As I mentioned a few minutes ago, we have engaged in the last quarter with a top-tier smartphone vendor/maker and have a few others in our pipeline. This engagement reflects a deconsolidation in the cellular baseband supplier landscape, where the large OEMs are looking to internalize SoC design that incorporates baseband processors to gain cost savings and differentiation. These customers are turning to us to take advantage of our broad portfolio of DSP and platform. The second pillar is Wi-Fi 6. Wi-Fi 6 upgrade cycle represents a substantial opportunity due to the fast proliferation of connected IoT devices for smart home appliances, such as smart TV, smart speaker, connected lightbulbs, thermostat and wearables.

Our RivieraWaves 802.11ax IP is at the forefront of this upgrade cycle and used as the reference vehicle for certification by the Wi-Fi Alliance. With more than half a dozen licensees already designing Wi-Fi 6 products and low power IP available for all different segments in the space, we are well-positioned to capitalize on the upgrade cycle to Wi-Fi 6 to further expand our footprint. The third pillar is contextual awareness. Contextual awareness refers to the ability of IoT device to collect and process data from its surrounding and adapt its operation to the context.

Today, IoT devices incorporate different classes of sensors, such as camera, inertial measurement unit, microphone, time-of-flight sensors and radars. The data captured from sensor can then be fused to extract device contexts, such as activity type, intent, proximity, location and a handful of other experiences. Context-aware features are quickly becoming a key differentiators for OEM and smartphones, PC, wearable, hearable AR and VR headset, robots and other IoT devices.

CEVA is in a unique position to be a one-stop shop for contextual awareness IP as a result of our recent organic R&D investment in voice in DSP technology and the acquisition of RivieraWaves and the Hillcrest Labs business. Priority to royalty growth toward our 2022 goal of doubling our 2018 were delivered. We believe 2019 was a progressive year to our reaching this goal in terms of new customer development and new SKUs that entered to production. While the pushout of production rollout by one of our base station customer and partial switch to a non-CEVA modem supplier by large smartphone OEM impact CEVA in the short term. We believe that by 2022, we will reach the customer scale and the CEVA-powered unit shipments aligned with our royalty target.

The strong licensing performance and the contribution of Hillcrest Labs sensor fusion OEM business further reinforce our belief in reaching the target. We are closely monitoring and working side-by-side to with our customers to deploy our technologies in their SoC or product and take it to production. Priority 3, efficiently utilize R&D expenditure for new technology development and working closely with customers to expedite product development. We are choosing our R&D investment prudently and be agile and responsive to lucrative and strategic opportunities. So this year, due to the step-up in licensing revenue and customer engagement, including engagement with a top-tier handset player, we plan to increase R&D expenditure by approximately $6.7 million non-GAAP versus last year, which will also include a full year of R&D expenditure for our Hillcrest Labs team.

So in summary, I'm very pleased with our achievements in 2019. We were determined and consistent with customer engagement and innovating with our product development, which resulted in an exceptional growth year in our annual licensing revenue ahead of the targets we set at our first Analyst Day in January 2019. We are on a solid path for this momentum to continue into 2020. This strong licensing performance and the strategic engagement we have formed with top-tier companies set the foundation for our royalty growth toward our targets in 2022. We will continue to come up with differentiated solution with an unmatched level of integration like our SenslinQ contextual awareness platform, our CDNN-Invite that expand our footprint in AI.

Finally, I would like to take the opportunity to thank all of our employees for their hard work, innovation and fantastic execution, which has made us a top industry name for connectivity and smart sensing technologies for the IoT industry. I would like also to extend my thanks to our partners, suppliers, and last but not least, our 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 the financials and the guidance.

Thank you, Gideon. I'll start by reviewing the results of our operations for the fourth quarter of 2019. Revenue for the third quarter was $28.3 million, up 32% as compared to $21.4 million for the same quarter of the last year. The revenue breakdown is as follows: licensing and related revenue was approximately $14.8 million, reflecting 52% of our total revenue, 40% higher as compared to the fourth quarter of 2018, and up 31% sequentially; royalty revenue was $13.5 million, reflecting 48% of total revenue, up 24% from $10.9 million for the same quarter last year, and up 11% sequentially; non-handset baseband royalty revenue reached an all-time record high of $4.3 million in the quarter.

Quarterly gross margin was 90% on GAAP basis and 91% on non-GAAP basis. Total operating expenses for the fourth quarter were $22 million, $1 million above the high end of our guidance, mainly due to accrued compensation-related benefits and commission expenses associated with higher 2019 revenues and some provisions for doubtful debt. OpEx also included an aggregate -- equity-based compensation expense of approximately $2.7 million, amortization of the acquired intangibles associated with the acquisition of Hillcrest Lab and Immervision business of $0.7 million.

We concluded during the quarter, the amortization of the acquired intangibles of RivieraWaves, which we invested in 2014. Total operating expenses for the fourth quarter, excluding these items, were $18.6 million, also above the high end of our guidance due to the same reason I just highlighted. U.S. GAAP net income for the quarter was $3.1 million and diluted earnings per share were $0.14 compared to net income of $2.3 million and $0.10 for the fourth quarter of 2018.

Non-GAAP net income and diluted EPS for the fourth quarter came up significantly 29% and 30% to $6.8 million and $0.13, respectively and net income and EPS for the fourth quarter of 2018 of $5.2 million and $0.23, respectively.

Other related data. Shipped units by CEVA licensees during the fourth quarter of 2019 were a record of 360 million units, up 23% sequentially, and up 45% from the fourth quarter of 2018 reported shipments. Of the 360 million units shipped, 196 million to shy of 200 million or 54% were for handset baseband chips, reflecting a sequential increase of 16% from 169 million handset baseband shipped during the third quarter of 2004 -- of '19 and 45% increase from 134 million units shipped a year ago. On a non-handset baseband shipments, reached a new all-time record high of 164 million units, up 33% sequentially and 44% on a year-over-year basis.

As for the year, our total shipment increased 12% year-over-year to over 1 billion units, up 5% from 2018, which is equivalent to approximately 33 CEVA-powered devices sold every second in 2019. Annual shipment of handsets increased by 3% year-over-year due to a strong second half, with unit up 21% year-over-year for that period. Non-handset baseband royalty revenue continued to grow and reached an all-time record of $13 million, up from $8.7 million in 2018 and $8.1 million in 2017. In terms of units, non-handset baseband units -- shipments were up 25% year-over-year to a record 469 million units.

As for the balance sheet items, as of December 31, 2019, CEVA's cash and cash equivalent balances, marketable securities and bank deposits were $150 million. We continued our active buyback plan, repurchasing approximately 161,000 shares during the quarter for approximately $4.3 million.

Overall, in 2019, we repurchased approximately 355,000 shares for about $9.1 million and fully utilized the share authorized by our repurchase plan from May 2018. Earlier this week, our Board of Directors approved a new expansion to the buyback plan by a total of 700,000 shares of common stock available for repurchase.

Last, our adjusted to ASC 606 DSOs for the fourth quarter continues to be low at 36 days. During the fourth quarter, we generated $8.3 million of net cash from operations, depreciation and amortization were $1.8 million and purchase of fixed assets were $0.8 million. At the end of the year, our headcount was 382 people, of which 313 were engineers, up from a total of 341 people at the end of 2018.

Now for the guidance. As Gideon described, our strong and broad IT portfolio highly correlates with the need of the semiconductor companies and OEMs looking to expand into IoT and 5G. In 2019, we set a new record high in licensing of approximately $48 million, 2 years ahead of the target we set our Analyst Day in January a year ago. While licensing revenue tends to be lumpy, we believe this momentum continues into 2020 and we expect another step-up in-licensing revenue in the range of $2 million to $4 million.

In royalties, we are expecting annual royalty growth in the range of 10% to 14%, with approximately $44 million for the full year. Our projections take into consideration a lower share at a flagship smartphone OEM. However, the lower share will be more than sufficiently offset by new production ramps and growing shipments from non-handset baseband products, including our Hillcrest Labs sensor fusion business.

With regards to the recent coronavirus outbreak, we are closely monitoring developments with our royalty customers in China. We may be temporarily affected. Our annual guidance assumes a return to normal business and catching up on the yearly basis of this disruption that may take place in the first quarter.

On licensing, we do not see any issues and are expecting a healthy and solid licensing environment in the first quarter of the year. On cost of goods, we expect higher non-GAAP expenses of approximately $1.4 million, due to a full year of Hillcrest Labs onboard in R&D customization work-related expenses from 2 known projects that will be allocated from R&D to cost of goods.

On OpEx, with our strong licensing execution in 2019 and even stronger expectations for 2020, we will continue to support these new customers and reinforce our leadership with disciplined investments in R&D. Hillcrest Labs will also contribute its share to the 2020 OpEx on a full year basis. Overall, our non-GAAP OpEx increase will be approximately $7.1 million.

Equity-based compensation expenses are forecasted to be about $1 million higher than 2019 and just shy of $12 million. Annual gross margin forecasted to be in the region of 88% to 90%. Interest income is forecasted to be slightly lower in 2019 at $0.75 million per quarter. Taxes are expected to be approximately $1 million on a GAAP basis and 15% of pretax income on non-GAAP basis. And share counts for 2020 is expected to be in the range of 23 million to 23.5 million shares, specifically, for the first quarter of 2020. Gross margin expected to be approximately 88% on a GAAP basis and 89% on a non-GAAP basis, excluding an aggregated $0.2 million of equity-based compensation expenses and $0.1 million of amortization and other assets associated with Immervision investments.

OpEx for the first and second quarter of 2020 should be quite flat and higher than the first, and in the third quarter, due to the timing of R&D grant payments and was expected to be in the range of $21.4 million to $22.4 million. As our anticipated total OpEx for the first quarter, $2.6 million is anticipated to be attributable to equity-based compensation and $0.7 million to the amortization of acquired intangibles. Non-GAAP OpEx is expected to be in the range of 18.1% to 19.1%, also quite similar to the second and fourth quarters of the year.

Net income -- interest income is expected to be approximately $0.75 million for the quarter. Taxes for the first quarter was $0.2 million, both on GAAP and non-GAAP basis, and share count for the first quarter approximately 23 million shares.

Rocco, with that, you could open the Q&A session. Thank you.

(Operator Instructions) And today's first question comes from Mike Walkley of Canaccord Genuity.

This is Anthony on for Mike. Congrats on strong results and the new deal signed. With the 21 new deals, including the large strategic agreement with the handset OEM, any color you can provide on -- specifically on the size of the large licensing agreement? And then any sense for how we should think about the timing of these new deals ramping this year and towards your royalty outlook for 2022?

Sure. So usually, we don't break down the size of the deals. In our business, we have 2 flavors of licensing deals, it could be for single-use, we call it, one user on a chip for a specific product and a specific market. And then multi-use, which covers the same type of technology, but for a wider use. These wider, bigger deals usually are term-based, so it could be 3 or 5 years. And then you have no limitation of the number of views that you are allowed to use our technology. On a single use, the customer comes back every 6 to -- months or 1 year, 1.5 years, and it wants to design its next chip. These deals tend to be smaller in size. And the bigger deals are the time-based which are in the millions of dollars per deal. Usually, we have a combination.

Every year, we have a few of these larger deals or sometimes we have renewals. It could be 1, 2, 3 deals like that in a year. It depends. So sure, we had one larger deal in this quarter. And then many other -- half of the deals are newcomers using CEVA for the first time ever. So I didn't answer your question specifically on that specific customer, of course but overall, we had larger deals and smaller deals in the quarter. On the royalty front, what's interesting is that we've expanded our business model.

If you remember, we talked about Hillcrest Labs and having a different flavor of royalties and deals to CEVA. We signed 3 deals for the first time using our sensor fusion technology. These deals tend to have less or no upfront license fee. But because we're dealing with OEMs and not chip vendors -- they're chips, a deal that we closed in October, is now already in production in the beginning of this year. So within a few months, a half year, we could see revenue coming from ROI in a very, very quick ROI for this type of technology. So that also helps us with our guidance for growth in 2020 royalty basis.

Got it. Great. And then we have with Nokia showing some progress on ReefShark execution and you, I believe, mentioning working closer with them on the development, how has that changed, if anything, your expectations on the clarity of the timing of how they will ramp this year into '21.

So we leave it to them. I mean we are following them as you are probably. And as soon as they have the silicon part of their business set up and in mass production, we should be enjoying that. We have another customer, ZTE that is using us and is in production with 4G ramping up now with 5G solution, and we are waiting for another one to be more, hopefully, more aggressive this year, probably to the -- toward later part as much as we know. But we also get our inputs from publicly from their announcement and follow their development. They have a lot of very interesting design wins, and we are waiting to see the royalty reports come in.

And our next question today comes from Tavy Rosner of Barclays.

This is Peter Zdebski on for Tavy. Congratulations on the quarter. I just wanted to ask about Hillcrest and Immervision, taking those 2 together. Are royalties in the back half of the year still tracking at what you had previously expected? And then has there been any licensing contribution from those 2 businesses? And then also as a follow-up, if you can maybe provide an update on some of the traction you had last quarter in the automotive space.

Yes. Okay. It's Gideon. Let me take, first of all, the sensor fusion, the Hillcrest Labs contribution. You need this answer before -- there is a distinction between the Hillcrest business, which is OEM-centric, meaning addressing to the end customer. And the CEVA other businesses, which is hardware, which goes to semiconductors. So the impact -- usual impact of the sensor fusion business is in the royalty and less from the licensing. So when we said we licensed 3 agreements in the first quarter, that's very good news for the royalties. And in terms of royalties, the sensor fusion business tracking according to our expectation and to some extent, a bit better. This growth of Hillcrest Labs gives us a very good access to companies in the robotic vacuum cleaner, which is a very fast-growing market in [TC,] in DTV, remote and many other segments that we were not exposed with our DSP/other platform connectivity platform. So the integration with our sales force going smoothly and we are happy, very happy.

You mentioned Immervision, Immervision is the investment that we made in a very small company. We are engaging with customers, but these are early days in this front. Now you had another question, which I forgot, if you can remind me.

It was just on the traction that you saw last quarter in the automotive space. If you could give us an update on that industry?

Yes. I'm very happy with our traction in automotive space. And so I admit that it came faster than I anticipated because this is as you know, very high-entry-barrier market, and with a lot of conservatism, but we are engaged with very large OEMs in automotive, they took our AI technology. And last quarter, we talked about one of the largest semiconductor player there. They also adopted our AI technology. Usually, these deals are extremely comprehensive and different clock speed band consumer. I -- if you -- if I try to understand your question, I think that by 2022, 2023, we will have our product in cars.

Our next question comes from Matt Ramsey of Cowens (sic) [Cowen].

I guess a lot of different questions around the guidance. But I think long term, Gideon, I was interested that you called out Wi-Fi 6 as sort of one of the big pillars of longer-term growth for the company. I'm sure you guys saw that recently the guys at Broadcom sort of deemed their smartphone WiFi business as noncore to the company. And it's interesting that, that's a place where it seems like you guys are leaning in. Gideon, maybe you could to step back and talk about your WiFi business and particularly, Wi-Fi 6, the traction of licensing, the breadth of it, who potentially the partners are and give a little bit of update as to how big of a piece of the royalty growth over the next 3 or 4 years, that could potentially be?

Yes. Wi-Fi 6 is now a new cycle on Wi-Fi 5, which was to become 802.11ac. So our focus into Broadcom is not in the smartphone. I think in the smartphone, it's pretty consolidated there. We do have a customer asking us about it, but our players in the IoT. And IoT is a big collection. And I mentioned in my prepared remarks, the smart home. So all those smart speak better, it's more than 100 million units so far and growing fast on smart TV going to adopt the [dates] because there is a clear plan of going over the top. And things that are going into the kitchen, the appliances, we are seeing also people are taking our Wi-Fi 6 and modifying it lower latency once modified for low latency for real.

So we see also the AR engine, which, in my opinion, will be big coming to our licensees. We have now 6 days, the 6 customers that are working in those markets. Our pipeline is full with customers that wants to do it. And we in the Wi-Fi 6 have different product line, and we have for the very low bit rate the low end side of it and up to access point. Well, you start speaking about residential gateway, enterprise gateway, it was 8x8 and stuff like this. So that's a -- it's a billion unit opportunity for us.

Got it. Understood on the IoT focus. As my follow-up, I wanted to ask, I mean, obviously, there's the fluid and unfortunate situation with the coronavirus. Near term, I think, we're all trying to sort of understand the impacts to companies. But I noticed in your fourth quarter results, the non-smartphone business for royalty units was up significantly. I know there's been some fits and starts over the last 2 or 3 years with Spreadtrum and Xiong'an, gaining and losing share and on their road map. If you guys could just give us an update as to the 3G and 4G non-smartphone business in China, royalty opportunity in the near term? And what drove that big upside in the fourth quarter? And is it something that's sustainable? And how should we think about that in the context of the coronavirus situation?

So when it comes to cellular, let's say, end devices, we don't make officially distinction between machine-to-machine, let's call it, and handsets. You mentioned Spreadtrum, [a unit of better play], and we see the progress, and we believe that they will make a progress, continue to make progress. They are sticky customers, but there are many other OEMs in China, targeting India and other areas. And we see the volume up. So it must mean what we expect in this year about in the handset space [of our products] will be substantial. And I would say, growing and it will be for the coming year.

And in 5G, we'll get our shot. The Spreadtrum is advancing in this respect. And we signed a deal now in 5G that will materialize sometime. So we will be in 5G as well. To give you more color in Q4, this will -- maybe pre-virus, this is one of the strongest season of quarters we have, both in handset and in the consumer stuff.

So this is coming from a very strong sensor fusion. This is coming from very strong Vision, Bluetooth, AI royalties. So we're really -- it's a strong quarter for us and all the different markets worked out well for us in Q4. I still don't think that, that piece is associated with the virus. Q1 in many companies, including us, we'll probably see both the typical seasonality of post-Christmas, post-Chinese New Year and with the virus kicking in, but there are people working from home and not in full utilization. That's where you see more. With that said, our licensing, because it's not coming only from China, is still looking very healthy on the worldwide basis.

And our next question today comes from Sujeeva Desilva of Roth Capital.

Congratulations on the strong results here. So -- and the Tier 1 as well. Yes, baseband. In that, along those lines, the smartphones, the remaining Tier 1 OEMS. What's the trend here in terms of their own baseband versus merchant? And when I -- like the one you just won ramps up their own baseband, what kind of in-house versus merchant baseband? Shall we expect half-half? Or is there a different strategy and dynamic play here?

In terms of merchants, vs in-house, it's hard to know, but we speak with companies, the big ones, eventually. And they see what other people are doing and how they benefit from there. And there is the old ones to those. That's fair. It's a complex stuff, and you need to do substantial investment. But it does give you the advantages of controlling, especially when it comes to 5G that you can come out with all sorts of different flavors of it.

Okay. So more control of the pipeline there. Okay. Great. And then for the royalty guidance, more generally in '20, the growth guidance you have, what are the drivers of visibility? Or how much of it is -- how much of the Hillcrest layering on versus other segments? And what kind of mix of baseband, non-baseband, would expect exiting '20, just to understand how the 2 ramp?

Yes. So on the handset side, we have seen over the last couple of years, there are many moving parts, hard to control, sometimes OEM change vendors along the way, sometimes different segments, the high end, low end, is the key driver of the industry. But overall, the replacement cycle is a bit longer, and the market is more mature, enhanced. So we're not with one of the bigger OEMs changing vendors in 5G. We're not accounting for growth in our handset baseband for this year. It may go up a few years from different aspects. But for 2020, that's where we see in the last couple of years is the gradual declines of control of that market.

The positive side, which we have seen over the last couple of years, started off from 2016, I believe, '17, when our first non-handset baseband became more significant. We started at the time with 10%, with $4 million, I recall, and then went to up -- up to $8 million and doubled it in this year, another 50% growth to 13%. I envision us exiting 2020 with north of $20 million coming from non-handset baseband. So this is one of the key drivers we talked about a year ago at our Analyst Day, our -- the way that doubled 2018 royalty level that William mentioned on prepared remarks and it is coming from a lot of these newer markets. Bear in mind, and you were asked about this later, but we still don't have all the customers, not in the base station, reporting plus royalties, not in Bluetooth, 20 deals that we signed just last year, these guys need to get into production.

Hillcrest is, just for the first time, contributing to us towards at least for a full year, not only for 5.5 months. And we're seeing more and more progress and faster than -- Gideon said faster than we anticipated coming from that portion. So all these are the positive aspects of the royalty going at 10% to 14% for this year. There are more drivers to come, but we don't have exactly the timing and the magnitude of all these other deals.

Our next question comes from David O'Connor at Exane BNP Paribas.

Maybe firstly, just one follow-up on the last question. What's the expectation for the kind of the royalty [waiting] H1 versus H2 in 2020? That's my first question and I have a follow-up.

Yes. Good question. Thanks for asking. I don't think we gave too much color about that yet. But if you look at the last 2 years at CEVA, we had a relatively low first half seasonal-wise, both on the handset side, and then the consumer but that's typical, the second half is stronger. This year, for the first time, although we have the coronavirus hitting stronger in Q1, nobody yet knows the effects for the second quarter.

With that said, we believe that we'll have a positive year-over-year comparison on top line in royalties and in licensing, by the way, as well, and bottom line as well. So we are starting the year with a positive momentum with some concerns, macro concerns mainly around the virus. In the second half of the year, we will see what new products like we saw this the second half session in the fourth quarter, what other customers get into production in what magnitude, a little bit more moving pieces. And overall, still both on licensing and royalties for the year.

But maybe let me just add this. Last year we came out with the 5% year-over-year growth in royalties. This year, we forecast 10% to 14% year-over-year goal. So it's more than double than it was last year, and this still results, not all the filling firing like Yaniv mentioned, base stations, 5G base stations and all those deals that we signed last year. And that still need to gradually get into production. So what we like about 2020, our focus is there is this diversification and more resiliency to a specific customer or specific segment.

Great. That's helpful. And then maybe as my follow-up, you mentioned in your release that license are based on processing for 5G base station just wondering, is this one of your existing base station customers renewing their license or are they taking some different IP? So if you give some detail on that, it should be very helpful.

David, say that again. Your quality of voice is not that good.

Licensing a base station. That's the question?

Yes. The question was around that you mentioned in the release, 5G base station, one of the licenses there. Just wondering if that's the existing base station customers renewing maybe their existing licenses? Or just if you can give some color around that?

About the base station customer, you mean?

Yes.

Okay. So we are waiting, I would say, 2 very active customers. One of them is relative production in [NT] and this is a China-based. The other one is from Europe. They are pretty open about those status, and we are following what they are saying. We do have other base stations customers that I would consider them Tier 2 and they are progressing in their market. But the 2 main customers are -- totally can go up to 30% of the market.

Specifically about the deal that you mentioned -- that you are asking about Q4 with a new customer, maybe second-tier is giving sense, but a new customer that has never worked receiving with CEVA or any of its technologies ever.

Our next question comes from Gus Richard in Northland.

Congratulations on the quarter and the outlook. Is there a geographic breakdown to the licensing in the current quarter?

Yes. We usually give it, let me see, first -- so this first, second and -- yes, here, we have 10 deals were in China, 5 in the U.S., very strong quarter for our U.S. team, 2 in Europe, 4 in APAC, including Japan. So pretty nice split all over the world.

Got it. And then in terms of the strategic deal with the large handset OEM, when would you expect that results in royalty? Is that a 2021 or 2022? Do you have any sense as to how long that would take to get into production?

I wish I could buy the crystal ball on this one. We have seen different examples that sometimes things take longer than you anticipate. It's a complex technology, it's a complex market, I would probably say a few years. Hopefully, not 5, but probably 3 years is very reasonable.

If we could do anything backside, this is part of the R&D investment that we are continuing to invest over the years, and we are trying to help our customers do it faster, but it's never -- it's never that simple in some of these -- bit more difficult markets.

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

Thank you, Rocco. And thank you all for joining us today and for your continued interest in and support of CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8-K and accessible through the Investors section of our website. With regards to upcoming events we will be attending, these include the Susquehanna Technology Conference on March 12 in New York. And the Roth Annual Conference, March 15 through 17 in Orange County, California. Please visit the Investors section of our website for further information on these events and other events we will be attending. Thank you, and goodbye.

Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.