CEVA Inc (CEVA) 2020 Q4 法說會逐字稿

Good day, and welcome to the CEVA, Inc. Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions). Please note that this event is being recorded.

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

Thank you, Cole. Good morning, everyone, and welcome to CEVA's Fourth Quarter and Full Year 2020 Earnings Conference Call. I'm joined today by Gideon Wertheizer, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer. Gideon will cover the business aspects and the highlights from the fourth quarter and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter and also provide qualitative data for the first quarter and the full year 2021.

I'll 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 guidance and qualitative data for the first quarter and full year 2021; optimism about 5G base station RAN deployment in China and relationship with ZTE and the opportunities presented thereby; optimism about the continued momentum in our connectivity, sensing and AI technologies; ramp up from existing Wi-Fi 4 and 5 customers; optimism that our Bluetooth technologies will allow us to penetrate the high-volume smartphone market; our belief for strong licensing revenue in 2021 and potential new licensing engagements; and our belief that our royalty growth drivers will more than offset the decline in royalties from the 5G smartphone supplier switch.

For information on the factors that could cause the difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the scope and duration of the pandemic; the extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand and the global economy generally; the ability of CEVA's IPs 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 and IoT markets; our ability to execute more nonhandset baseband license agreements; 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.

And with that said, I would now like to hand the call over to Gideon.

Thank you, Richard. Good morning, everyone, and thank you for joining us today. 2020 was an extraordinary year with the COVID-19 pandemic accelerating the adoption of new technologies and usage models while presenting uncertainties and enormous operational challenges worldwide. Notwithstanding the circumstances, CEVA had an exceptional year with all-time high revenue in both licensing and royalties and substantial market expansion in the 5G RAN, Wi-Fi 6 and automotive spaces. I will allude to these developments in more detail later in the call.

Fourth quarter was another excellent quarter with revenue and EPS significantly ahead of our expectations. Total revenue for the fourth quarter of 2020 came in at $28.1 million, our second highest revenue -- quarterly revenue on record. The licensing environment continued to be healthy at $12.1 million for the quarter, with a good demand for our Wi-Fi, Bluetooth and audio DSP products. We signed a record-equaling 21 new agreements, of which 16 were for connectivity and 5 were for smart sensing. 7 of those agreements were with first-time customers. Target product for our technology include 5G smartphones, TWS earbuds, cellular IoT for asset tracking and wide variety of other IoT devices.

Late in the quarter, we signed a comprehensive and sizable license agreement for our connectivity portfolio with a key OEM in the mobile space that's internalizing the development of Wi-Fi and Bluetooth technologies and intends to deploy our connectivity portfolio across all of its 5G smartphone, TWS earbuds and other smartphone-related products. This agreement, along with others that we have in our pipeline, reinforces our belief of a stronger and another record year in licensing revenue for 2021.

Royalty revenue came in at all-time record high, $16.1 million, up 19% year-over-year. Seasonal strength across our IoT market and strong shipments of 4G smartphones were the key drivers to this is exciting record. For the second quarter in succession, we reported all-time high royalty revenue from our Bluetooth, Wi-Fi and sensor fusion product lines. For the full year 2020, revenue came in at record setting of $100.3 million, up 15% from 2019. This marks the first time that CIVA has crossed the $100 million annual revenue threshold, 1 year ahead of our expectation.

Licensing and related revenue had a record year with $52.5 million, up 10% from last year. We continue to expand our customer base with a record of 55 license agreements signed, of which 17 were first-time customers. Annual royalty revenue came in an all-time high, $47.8 million, up 22% as compared to 2019. Royalty revenue from our base station and IoT product category grew 72% year-over-year to $22.3 million as the momentum for our large and diverse customer base across multiple end markets continues. Royalty revenue from handset declined slightly year-over-year, down 3%, to $25.5 million. Unit shipment of CEVA-based products grew 27% year-over-year to more than 1.3 billion units, with a record 750 million units from our base station and IoT customers.

In perspective, 2020 was a landmark year for both CEVA and its industry. The global pandemic highlighted the impact connectivity had on our lives and acted as a catalyst for rapid change toward digital transformation. This presents a unique set of opportunity for CEVA's differentiated technologies and operational agility, in particular in 4 key markets: 5G RAN; Wi-Fi, TWS earbuds and automotive. Let me take the next few minutes to elaborate on these growth driver and the anchors CIVA has already in place in these lucrative markets.

5G RAN. 5G offers data rate and ubiquitous connectivity. The fast rollout of 5G networks today is predominantly aimed at smartphone use case. According to Ericsson's most recent Mobility Report, by the end of 2020, over 1 billion, or 15% of the world population, live in 5G coverage area. China, in particular, is very advanced with 70% of the global 5G connections according to GSM Association.

Beyond smartphones, 5G offers new growth opportunities in regards to URLLC and IoT applications. This application will be the center of next-generation technology deployment and industrial robotics, AR and autonomous cars. The digital transformation and the new application 5G enables presents sizable opportunities for CEVA 5G RAN technologies beyond our existing incumbency in baseband. This specifically applies to the growing use of active antenna, a new antenna technology that combines arrays of antennas with DSP to process complex algorithms, such as Massive MIMO and beam forming, for more precise steering of the antenna signals, which gain substantial boost in capacity and energy efficiencies.

The emergence of O-RAN and vRAN, which aims to transform the telecom industry from relying on proprietary platform from limited number of OEMs to disaggregate network with open interfaces and multitude of merchant chips from incumbents and new suppliers. Rethink Research is expecting OpenRAN to account for 58% of the overall RAN CapEx spending by 2026. With our second-to-none competitive edge in DSP processors, we are able to empower our existing and upcoming customers to innovate and quickly expand their market reach to the remote radio units and address new opportunities in the RAN space, like private networks, small cells, Fixed Wireless Access and O-RAN.

We are encouraged by the progress ZTE has made in the 5G RAN space, growing its share in the global RAN market from 8% to 11% on a year-over-year basis according to Dell'Oro, and we expect other customers of ours to go into production in 2021.

Wi-Fi. Wi-Fi is deployed in over 5 billion smartphones and more than 300 hotspots today. Cisco estimates that more than 50% of the global mobile traffic is offloaded to Wi-Fi, and this is set to grow to over 70%. AT&T noted that its network experienced 90% Wi-Fi data growth during the pandemic. The new Wi-Fi standard, Wi-Fi 6 and Wi-Fi 6E, provides substantially higher data rate, up to 9.6 gigabits per second versus 1.3 gigabit per second in prior generation, Wi-Fi 5. Wi-Fi 6 also presents sizable opportunity beyond smartphone and PC through proliferation of connected IoT devices, such as smart home appliances, smart TV, smart speakers, connected cars and wearables.

Our RivieraWaves Wi-Fi 6 IP is at the forefront of the Wi-Fi 6 upgrade cycle and the only IP with successive record of accomplishment. We have signed, to date more than 10 Wi-Fi 6 customers, and our existing Wi-Fi 4 and Wi-Fi 5 customer shipment grew more than sixfolds in 2020, the start of significant expected ramp up. In addition, as I noted earlier, Wi-Fi 6, along with our Bluetooth technologies, bring us the opportunities to penetrate the high-volume market of smartphone as more OEMs are looking to internalize wireless connectivity technologies as well as semis that look to take advantage of our leadership in the Wi-Fi 6 and Bluetooth domain.

TWS earbuds. The TWS earbud market presents a lucrative opportunity for CEVA due to its size and road map. Per IDC, by 2020, the TWS segment reached 234 million sales and projected to reach to 400 million sales by 2024, representing a CAGR of 14%. The pandemic has expedited the proliferation of TWS as more people have to work all of a sudden from home and require high-quality earbuds to ensure good experience. Additionally, large handset OEMs have recently decided to remove complementary earbuds for new phone packages, paving the way for a large merchant market for TWS earbuds. CEVA already has a strong presence in TWS earbuds space with our RivieraWaves Bluetooth IP.

Overall, our Bluetooth technology has been adopted by more than 80 semis and OEMs to date and power more than 520 million devices in 2020, up 44% year-over-year. Furthermore, the future TWS earbud design will progressively seek to add more functionalities while dealing with the challenges of finite space and battery life. Among these both functionalities are noise cancellation for adverse environmental conditions, voice recognition, AI and sensors for activity enhanced tracking, which relates to technologies that CEVA owns. In the coming weeks, we will officially announce the world's first comprehensive and open platform for TWS earbuds and hearables that we will license. We have already started to introduce this high-value differentiated IP to lead customers and expect to conclude the first license agreement shortly.

Automotive. The automotive market represents 9% of the global semiconductor consumption, or $41 billion in sales. Yes, selling into this space requires overcoming large entry barriers, and it commonly takes between 3 to 5 years for semiconductor vendors using new technology to qualify a design at a tier-1 OEM before going into production. With that said, as soon as production starts, the product life cycle in automotive is longer than most other markets, ensuring stable source of revenue and profit and plays well for CEVA R&D investment strategy.

In recent years, the automotive industry has undergone a massive technology transformation driven by adoption of ADAS and electrification. ADAS applications, such as lane departure warning, emergency braking, parking assistance, driving monitoring system, require high-performance DSP to process the sensory data captured by cameras, radars, LiDARs and other sensors surrounding vehicle. Automotive electrification is gaining momentum as a result of increased emphasis of governments to lower CO2 emissions as threats of climate change produce more and harsher storms, wildfires and flooding.

Battery management system plays a key role in electrical powertrain in charge of keeping high efficiency and longer life of the battery sets. Powertrain vendors and OEMs have recently started to use DSPs, along with AI, to boost the performance of the battery systems for longer drive per charge in diverse environmental and use conditions. Leading tier 1s and OEMs are increasingly receptive to new DSP advancements and the collaborative business model that CEVA proposes in the areas of ADAS and powertrain. Our latest SensePro2 DSP architecture, the world's foremost DSP for sensor processing, provides unified architecture for real-time monitoring and AI processing of sensory data extracted from radar, camera, LiDAR, cellular, V2X and variety of environmental sensors. Our CDNN AI toolkit is able to quantize, tune and optimize neural networks and speed up neural network inference processing, a crucial requirement for fast response time of the vehicle.

These core technologies and competency were the drivers for 2 key agreements we signed during 2020 with 2 of the largest automotive semis that plan to use our technology for powertrain and Level 2+ ADAS. We will continue in the coming years to strengthen our relationship with our 2 key customers and seek to engage with other stakeholders, capitalizing on core technologies and our growing reputation in automotive. It's also aligned with CEVA's strong focus and commitment to environment improvement technologies and products.

Before my closing remarks, we would like to express our concern and sympathies for those affected by our global pandemic. The ongoing situation presents us with numerous challenges, and we continue to focus on the safety of our employees, customers and the clients. Our record-setting results for the year demonstrate the breadth of our technology portfolio, its resiliency to global events and primarily our employees' focus and devotion to maintain and even exceed aggressive targets that we set for ourselves.

As we enter 2021 we look to continue to be at the forefront of the digital transformation and capitalize on our core technologies and customer diversity to grow our market share and maximize our return from growing industries, in particular 5G RAN, Wi-Fi, TWS earbuds and automotive, which I discussed earlier. These industries present multiyear growth opportunities for our connectivity, sensing and AI technology, and we are well positioned to take advantage of it.

Finally, I would like to take this opportunity to thank all of our employees for their hard work, innovation and fantastic execution. I would like to extend my thanks to our partners, suppliers and, last but not least, our investors for their confidence and support. We wish you all a healthy, happy and prosperous year, and please stay safe.

With that said, I'll now turn the call over to Yaniv, who will outline our financials and guidance.

Thank you, Gideon. Good morning, everyone. I'll start by reviewing the results of our operations for the fourth quarter of 2020. Revenue for the fourth quarter was $28.1 million, down slightly as compared to $28.3 million in the same quarter last year. The revenue breakdown is as follows: licensing and related revenue was approximately $12.1 million, reflecting 43% of total revenue, 8% lower as compared to the fourth quarter of 2019. Royalty revenue was a record $16.1 million, reflecting 57% of our total revenue, up 19% from $13.5 million for the same quarter last year and up 28% sequentially. Base stations and IoT royalty revenue contributed $6.4 million in the quarter, up 50% year-over-year, with an all-time record royalty contribution from our Bluetooth, Wi-Fi and sensor fusion product lines.

Quarterly gross margin was 91% on GAAP and 92% on non-GAAP basis, both higher than expected. Non-GAAP quarterly gross margin excluded approximately $0.2 million of equity-based compensation expenses and $0.2 million for the amortization of other assets associated with the ImmerVision investment.

Our total OpEx for the fourth quarter was $23.2 million, just over the high end of our guidance, mainly due to accrued compensation-related benefits and commission associated with the higher 2020 revenues. OpEx also included an aggregated equity-based compensation expense of approximately $3.4 million, amortization of acquired intangible assets associated with the acquisition of Hillcrest and ImmerVision of $0.6 million. Our total OpEx for the fourth quarter excluding these items was $19.3 million, about $0.5 million above the high end of our guidance due to the same reason I just highlighted.

U.S. GAAP net income for the quarter was $0.6 million, and diluted earnings per share was $0.03 compared to net income of $3.1 million and $0.14 for the fourth quarter of 2019. Non-GAAP net income and diluted EPS for the fourth quarter were $4.7 million and $0.20, respectively, significantly higher than our internal estimate. Of note, the fourth quarter 2020 financials include a $2 million tax expense due to withholding taxes which cannot be utilized in future years.

Other related data. Shipped units by CEVA's licensees during the fourth quarter of 2020 were a record 484 million units, up 39% sequentially and 35% for the fourth quarter of 2019 reported shipments. Of the 484 million units shipped, 217 million units or 45% were for handset baseband chips, reflecting a sequential increase of 45% from 149 million units of handset baseband ships during the third quarter of last year, an 11% increase from 196 million units shipped a year over -- a year ago.

Our base station and IoT product shipments reached a second sequential all-time record high of 268 million units, up 34% sequentially and up 63% year-over-year. Of the 268 million units, Bluetooth was 187 million units, a new all-time quarterly record high. As for the year, our total shipments increased 27% year-over-year to over 1.3 billion units, an all-time record high which equates to approximately 42 CEVA-powered devices sold every second in 2020. Annual shipments of handsets were flattish year-over-year at around 575 million devices. After a slow start of the year, handset shipments from a large China-based customer grew significantly in the second half of the year.

Base station and IoT product royalty revenue continued to grow and reached a new record high of $22.3 million, up from $13 million in 2019 and $8.9 million in 2018. In terms of units, base station and IoT product shipments were up 60% year-over-year to 750 million devices.

Overall, we surpassed the $100 million total revenue milestone for the very first half. This is a significant accomplishment that was achieved as a result of an all-time high licensing and royalty revenues, and we are proud.

And as for the balance sheet, as of December 31, 2020, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were $160 million. We did not repurchase any shares in Q4 and have approximately 498,000 shares available for repurchase. Our DSOs for the fourth quarter was 48 days. During the fourth quarter, we generated $6.8 million cash from operations. Our depreciation and amortizations were $1.5 million, and purchase of fixed assets were $0.4 million. At the end of the year, our head count was 404 people, of which 335 were engineers, slightly higher than a total of 398 people at the end of September, 22 people higher over 382 people at the end of 2019.

Now for the guidance. We expect 2021 to be another growth year for CEVA as the momentum for our business continues. We are forecasting total revenue to be just over $106 million for 2021 with growth in both royalties and licenses. Specifically in regards to royalty revenue forecast, we are taking a wait-and-see approach as the semiconductor industry has experienced extended lead time from chip owners and lean inventories, which we expect to last through the first half of the year.

Our licensing business continues to be solid with growing opportunities in 5G, Wi-Fi 6, TWS earbuds and automotive, as Gideon elaborated earlier. We're targeting another record year for licensing, which will set the stage for additional new streams of royalties in years to come on the royalty front, we're expecting a decline in royalties from a leading smartphone OEM who has switched to another baseband supplier for its recently launched 5G smartphone lineup. With that said, we do maintain our presence in its 4G smartphones that are still expected to ship in volumes this year. We also see continued progress for our China-based customer who has recently regained good momentum in low-cost.

Smartphones for emerging markets and has also recently launched its first CEVA-powered 5G chip in China.

In our base station and IoT product category, we expect to continue to outgrow the markets we are targeting. Overall, we believe that new royalty growth drivers will more than offset the decline in royalties from the 5G smartphone supplier switch.

On the expense side, we forecast approximately $3 million additional expenses in 2021 versus 2020 that relates to the devaluation of the U.S. dollar compared to other currencies we use, mainly the shekels and the euros. On the cost of goods, we expect higher non-GAAP expenses of approximately $0.5 million due to more sensor fusion chip sales and other project expenses.

In OpEx, with a strong licensing execution in 2020 and even stronger expectations for 2021, we will continue to support these new customers and reinforce our leadership with disciplined investments in R&D. Overall non-GAAP OpEx increase will be approximately $6 million, half of it, $3 million, is attributed to the FX I just stated. Equity-based compensation is forecasted to be approximately the same as 2020, around $13.3 million.

Annual gross margins are forecasted to be similar to 2020, in the region of 89% on a GAAP basis and 91% on non-GAAP basis. Interest income is forecasted to be slightly lower than 2020 due to the lower interest rate environment at around $600,000 per quarter. Tax rate is expected to be higher on an annual basis due to higher taxes in France for our RivieraWaves business of Bluetooth and Wi-Fi. Approximately 22% of pretax income on a non-GAAP basis compared to 2020 levels, excluding $3 million of expenses due to withholding taxes, which will -- could not be utilized in future years. Last, share count for 2021 is expected to be approximately 23.5 million shares.

Specifically for the first quarter of 2021. Gross margin is expected to be approximately 89% in GAAP and 91% on non-GAAP basis. OpEx for the first quarter is expected to be slightly higher than the fourth quarter of 2020. Non-GAAP OpEx is expected to be in the range of $23.2 million to $24.2 million. Of our anticipated total operating expenses for the first quarter, $3.1 million is expected to be attributed to equity-based compensation expenses and $0.6 million to amortization. In fact, our non-GAAP OpEx for the first quarter is forecasted to be in the range of $19.6 million to $20.6 million. Net interest income is expected to be about $600,000. Taxes for the first quarter, a bit higher, as I explained, $0.5 million in both GAAP and non-GAAP basis. And share count for the first quarter expected to be around 23.3 million shares.

Cole, could you now open the Q&A session, please?

(Operator Instructions) And our first question today will come from Matt Ramsay with Cowen.

Congratulations, guys, on a strong year, which was challenging from a number of angles, obviously. Gideon, I wanted to start, over the last few quarters, you've -- and particularly today, you've talked much more about the evolution of Wi-Fi from your business, both on licensing and what it might mean for future royalties. And I was particularly interested in the comments you made about some large vendors going internal more vertically integrated for their connectivity platforms, not just Wi-Fi but other types of connectivity that might bring home accessories, wireless earbuds, et cetera. Maybe you could talk a little bit more about that? How pervasive you're seeing that across OEMS? What the merchant suppliers of some of those chips are doing, which may also be your customers? And just how you're seeing that market evolve? And what kind of royalty contribution are we thinking about for this business in the next 2 or 3 years as it becomes a more -- a material part of your revenue?

I think when it comes to Wi-Fi and Bluetooth and IoT in general, there are 2 aspects with it. One is what we call internally IoT. Basically, we make a distinction, I saw other people did the same distinction, between IoT and non-IOT. Non-IoT is basically the PC, the smartphone and the tablets, and the IoT is all the other devices that I use with smart TV, smart homes, cars, everything that are not these 3 categories.

In 2020, this was the first time that the non -- the IoT exceeded or surpassed the non-IOT, meaning that you have more shipment of devices that are not PC, smartphone and others and tablets. And by 2026, this is going to be 30 billion unit. So that's the landscape. That's the opportunities that we are targeting in the, what we call, the IoT. And for that purpose, we have all the wireless connection, we have 5G, we have Wi-Fi, we have Bluetooth and we have cellular IoT or the narrowband IoT. So we power all these angles. And whoever of this $30 billion try to build a product in effect with us in terms of connectivity.

Now the second aspect is the smartphone. We -- smartphone is a big market, well-defined market, recently become a little bit fragmented in terms of suppliers OEM on building. And what we found out is that they come to us as part of their internalization that we do where they build a model and they also talk to us and model. They come to us and say we need your connectivity technology because we are going to integrate it into our SoC. If we build this SoC, let's integrate those parts and not be dependent on Qualcomm, MediaTek and the other guys that are -- that dominate the merchant chip market.

And interesting enough, we -- it's not the story end. We are talking with semiconductor players that say when it comes to Wi-Fi 6, maybe we'll expedite our journey -- our entrance into this market and we license technology because -- you're right.

So it's another angle, which we, all the time try to be in the mobile space from different angles. We have the 5G, we have the vision, we have sound and we have connectivity. So if we -- anything that relate to mobile is important to us as well.

Much appreciated. I guess, a follow-on question in a different market. You gave a lot of stats, and Yaniv did as well, in the prepared script about the progress in the base station market with ZTE. And maybe you could give us a little bit of an update on the timing of how you're expecting the rollout to take place with Nokia? As we get into 2021, are we on the precipice of that now? And is that baked into some of the royalty comments for calendar 2021? If there's any comments you could give us about how big that base station opportunity is and the royalty expectation for 2021, that would be really helpful.

It's a bit delicate to start speaking about specific customers, no doubt that we have the 2 names that you mentioned. ZTE is shipping. ZTE is strongly positioned in the -- in China and emerging market. And with the momentum, we don't see any reasons it will not continue.

When it comes to the second customer, let's wait. They are public. They speak what they say. And -- but as we said in the prepared remarks, we think we are in the -- they are in prime time now with -- they have the platform to build this momentum there as well.

And I would add, in our forecast for this year, we do take most of our key customers in production. Different timing and different volumes, but we do have that already partially baked in, in our expectations and plans.

Got it. And last one for me. I noticed that the smartphone units for royalties in the fourth quarter were up year-over-year, but the revenue and the revenue per unit was down a bit. I presume that was lower units to Intel and some growth from emerging markets, particularly with Spreadtrum making a bit of a rebound. Is that -- do I have that right? And what are your expectations for your China baseband customer? It sounds like some increased momentum there globally. Is that also baked into your forecast for '21?

Sure. So yes, there's no doubt that the year started slow, especially for China-based customer with COVID and the shutdown, and then some of the Indian market was very slow as they got into the shutdown later in Q2. So it had a big effect on us and on them throughout the year. The second half of the year was strong, both from Intel and from Spreadtrum. Obviously, we did not have the new iPhone 12 in Q4, which we did have 1 year ago. But the rest of the momentum from the other models and the Chinese guys did push up the units. And on an annual basis, although we did not have 100% of the U.S. OEMs, which we did in 2019, we came in flat in overall units and almost in dollars as well. So at least for this -- for last year, we did not feel the hit of this change or change in vendors. And as we said, in 2021, we believe that number will decrease a bit, but overall, we will be able to more than offset it from the base station and IoT type of devices.

And our next question will come from Suji Desilva with ROTH Capital.

Congratulations on the progress here. In the -- maybe, Yaniv, in the licensing area, can you talk about what the new kind of quarterly sustainable range would be, or annual, just to give us a sense of how you think licenses can progress?

Yes. I think we hit a new record, both in dollars and number of deals, 55 deals. This quarter was very strong with the 21 deals. But we don't necessarily recognize all of those deals. Specifically in Q4, we had a handful of customers, new customers for us, some of them start-ups, some of them that were more concerned with an upfront payment before we release the technology, so we did not recognize every one of them. So it's a wrong math to do to take the licensing revenues and divide it by 21. It's a bit of a different number.

And with that said, some of these guys that -- as soon as they pay us, we will deliver and we are able to recognize in -- hopefully, in Q1. Maybe some will take longer, we'll see. But an excellent pipeline to start the year. Licensing for us right now, looking at Q1, is stronger.

So I hope I managed to give you the color, Suji, that you asked about.

Yes. That's very helpful. And perhaps a bigger-picture question on the royalty growth you're having. As we look ahead to calendar '21, what are 2 or the 3 royalty growth areas that you're most excited about year-over-year?

Suji, I think when -- we say the IoT at large, and I said also to Matt -- answer to Matt as well, the category of -- outside of the mobile and PC, whether it's a Wi-Fi, whether it's a Bluetooth, whether it's a cellular IoT, we see a big momentum there. I mean tons of product coming very fast. I mean we -- all sort of product. If you go to Asia, I don't think of any -- I cannot think of any electronic product that doesn't come with connection with the internet. So that's the excitement, and that's what we are going to see a strong impact in the coming year.

The other category, of course, is the 5G base stations. Here, I think in China next year -- this year is going to be strong as last. And the second customer is coming out as well. What's ahead of us, and we don't see it -- or we don't -- we cannot see it now is the new use cases of 5G. In the prepared remarks, I mentioned private networks. You have so many manufacturing factories that are going into a private network where they have their own cellular network secured and reliable and the small cells and Fixed Wireless Access. These are all design that are -- we see the rollout of this one, but when it becomes a really nice market, it could be this year or could be next year.

Okay. And then lastly, on the connectivity -- go ahead, sorry, Gideon.

What I'm saying is when you go to small cell, private Fixed Wireless Access, we speak about volumes, we speak about of the millions of the product.

Okay. Great. And then lastly, on connectivity, Bluetooth very strong, over 500 million units last year. What's the expectation for Wi-Fi units relative to Bluetooth? Is it an order of magnitude lower with a higher ASP? Or can it approach something like a Bluetooth sized unit market? Understanding the Wi-Fi TAM would be helpful.

So Wi-Fi is a growing market for -- both for us and overall the word as well, and much more used and adopted these last couple of years than 4 or 5 years ago. When we bought RivieraWaves back in 2014, nobody was using IP for Wi-Fi. It was just merchant chips at the time. And the whole -- this has completely changed with dozens of deals that we have signed. Sixfold unit growth in 2020. And I would add that to give you a list on your first question, what -- on some of the exciting opportunities, Wi-Fi unit growth in 2021, for sure, needs to climb significantly with many more products that are out there.

And our next question will come from Tavy Rosner with Barclays.

Congratulations on the strong results. I just wanted to get back to the guidance for 2021. Maybe I didn't hear properly, but with regards to the royalty forecast, you mentioned that you guys are taking a wait-and-see approach because of some of the slowdown in the semi industry. I guess, do you have a way to normalize that? Assuming that there is a recovery sooner than expected, how meaningful would it be to your revenue forecast?

Tavy, so let me, one thing, correct you, really important, that there's no slowdown in the semiconductor industry. The problem is the opposite. There is huge demand in the semiconductor industry all over the place, and this is what causes the inventory issues or there are lean inventories and the long lead time. The foundries are fully utilized. It's a great problem to have if you're in the semiconductor space. It's not great to be -- if you're an OEM and you need to get those chips and you need to build those cars and get them out the door. That's where the problem is. So eventually, when they when there will be enough manufacturing capabilities, enough demand -- to fulfill the demand, we should see both our customer ship more for us to recognize more revenue on these royalties. This is what we alluded to. You could see it in many companies in the semi space that reported recently.

We don't know. We're not the manufacturer. We don't have that crystal ball. But we just see what's going on in the industry, and we have patient -- exactly as you said, the wait-and-see approach. Let's see what comes up. But last year's issues with corona and shutdowns and demand, at least how corona -- the COVID-19 started, is completely different than where the market is today and the need for much more base station, which we talked about and we are seeing all over the place with a lot of new devices in full production.

And our next question will come from David O'connor with Exane BNP Paribas.

One or two from my side. Maybe firstly, one for you, Yaniv, on the base station IOT. The -- what's the assumption there for 2021? You did 72% in 2020 and 50% in Q4. Is this plus 50%, is that something you can maintain through 2021? And also, can you speak maybe just on the assumption around the first half royalty growth versus the second? And then I have a follow-up.

Sure. So we are not breaking down the royalties and licensing this year because it's quite difficult to do. And many companies have stopped at all giving guidance or qualitative data. We are trying to help out with the models and to help out with our best understanding of different industries. And we didn't talk about many industries that we play in. So it's really hard to put all that in place. We did take growth -- an overall growth. We do believe that we'll be able to grow each one, or both, of the licensing and the royalty revenue streams for us. We -- it's just too hard for -- at this point of time to want to understand how this will be divided between the 2. I think we just need to take it one quarter at a time and see how things progress.

On the royalties, again, like every -- there's ups and downs. There's a lot of demand right now. I think seasonality in Q1 in the semis is not going to be like prior years. It could be stronger than in the past. On the other hand, we have less new phones that are introduced usually in the first quarter and more towards spring. So we stopped when ASC 606 started and we don't report in the years. But we report where our customers -- we really need to ask all the very long list of customers what they forecast for Q1, and many of them will not share, not with your or with us, unfortunately.

So let's take it step-by-step. What it under our control and we do, though, is the licensing. At least for the first part of the backlog, it's strong.

Okay. Understood. And then maybe a question for Gideon. The strategic agreement with the top-tier smartphone OEM, is this a new customer for CEVA? Or can you give us any more detail as to the geography there? And how long that licensing deal was in the works?

Yes. It's a new customer for CEVA. It's in Asia, one of the big Asian guys. Beyond that, you can do the -- you can connect the dots. But it's a sizable customer, like any branded OEM.

Understood. And one last one, if I could squeeze one in on the open platform you talked about for the TWS earbuds. Can you help us just gauge the level of interest there from customers? And the -- you did talk about one customer, potentially an early adopter there. What is the differentiation of that platform versus either what merchant guys have or what other competitors have?

David, I must apologize. We are going to come out with this product in the coming weeks, so I don't want to take the surprise out of our marketing people. The only thing that we say, the TWS is -- it's a complex technology. you have advanced audio, you have connectivity, you have all sorts of sensors inside. And CEVA is the only company today in the IP space that has all these pieces, and the idea is to put them together in the -- in an IT package. It's a very unique offering in the IP. And we discussed with customers about this product, they all extremely -- were extremely happy about it because the complexity to build a product like the AirPod is enormous. And now the market, because of the fact that people are basically looking for merchants' product, it's a huge volume. And I think people want to grow fast into this market, try to differentiate, and we can give them the baseline that's saving a lot of R&D and risk in a project.

And your next question will come from Martin Yang with Oppenheimer.

Gideon and Yaniv, my first question is on your TWS market, perhaps following up on the previous analyst. How fast do you see more functionalities getting integrated into those headsets? And maybe can you help us conceptualize the new dollar content or additional dollar content you will be able to secure once more functions are integrated?

It's a question that we don't really answer about if you meant the ASP in the chip. But the idea is to take our ASP of Bluetooth, which is roughly $0.01 or even below, and to by far increase it because the complexity or the comprehensiveness of this technology is much more. And that's the strategy in place, meaning take advantage of the fact that we have more than 80 customers doing design in with our connectivity technology. And they combine it with other technology to give them higher value and higher ASP for us.

So a follow up on that. Can you maybe help us to understand how fast do you think the new functionalities will be implemented in TWS? Are you seeing any major customers stop to -- start to integrate more complex functionality in this year's models? Or maybe are they start talking about more features for future product road maps?

Usually, in connectivity, it takes about 1 year design cycle. And depending when we do the license, I believe, so at half year, you'll start seeing, second half of '20 (sic) ['21], toward the next Christmas season, you'll start to see this product in the market.

Got it. My final question is on Wi-Fi 6. Based on your current customer engagement, what are the new functionalities are you seeing in end product that is realized by Wi-Fi 6 which is not available in previous generations' products?

Wi-Fi 6 is a new standard for connectivity. Wi-Fi 6 is even the latest one. And our business model is to enable customers to grow fast in the customer -- in the market. And what we see in terms of customers going into new market is access point, Wi-Fi access point, and all sort of IoT devices, starting from DTV, smart speaker, all sort of preorder devices and even automotives to do the Wi-Fi in the car, in the cabin itself. So those are the customers.

These customers are usually customers that are not familiar with connectivity. And what they need is somebody expert or specialized to provide them this total solution, compliant with the standard interoperable (inaudible) device. That's something that -- CEVA is the only today IP company that -- the only go-to guide today in the IT space if you are looking for IP. You don't have any other one that is credible and as competent as us. That's the reason that we see all this impact.

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

Great. Thank you. Thank you all for joining us today and for your continued interest in 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 conferences and events we will be attending. We have the following virtual conferences upcoming, the Susquehanna tenth Annual Technology conference. March 9 to 11th and the Rough virtual conference from March 15 to 17. Further information on these events and all events that we will anticipate in can be found on the Investors section of our website. Thank you, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.