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Q2 2009 Earnings Call Transcript

July 29, 2009 8:30 am ET


Gideon Wertheizer – CEO

Yaniv Arieli – CFO


Matt Robison – Wedbush

Anil Doradla – William Blair

Tom Ehrlich – RBC Capital Markets

Robert Morrison [ph]



Good morning. My name is Teresa and I will be your conference operator today. At this time, I would like to welcome everyone to the CEVA second quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn the conference over to Mr. Yaniv Arieli. Please go ahead, sir.

Yaniv Arieli

Thank you. Good morning, everyone, and welcome to CEVA’s second quarter 2009 earnings conference call. 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 statement and assumption.

Forward-looking statements include financial guidance for the third quarter of ‘09, general outlook for the second half of the year, market statistics gathered from analysts, increasing our market share expansion, new product introductions by our customers, their production schedules, and our ability to generate revenue from those new products, as well as our ability to capitalize on the ultra low-cost phone, CDMA, netbook, 4G, LTE and high definition video trends.

The risks, uncertainties and assumptions include the ability of the CEVA DSP cores and other technologies to continue to be a strong growth driver for us; our success in penetrating new markets and maintaining our market position in existing markets; the effect of the intense competition within our industry; the effect of the challenging period of growth experienced by our industry in which we license our technologies too; the possibility that the markets for our technology may not develop as expected or that our products incorporating our technologies do not achieve market acceptance; our ability to timely and successfully develop and introduce new products and technologies; our ability to continue to monitor our royalty revenue in future periods and improve them; and general market conditions and other risks related 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 on their representative dates. This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA, and I, Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights for the recent quarter and I will cover the financial results for the second quarter of 2009 as well as the financial guidance for the third quarter of ‘09.

With that, I would like to turn the call over to Gideon.

Gideon Wertheizer

Good morning to everyone and thank you for joining us today. I hope you had the opportunity to review our press release with the financial results for the second quarter of 2009. During the quarter, we achieved total revenue of $9.1 million compared to $10.1 million recorded for the second quarter of 2008. Royalty revenue for the second quarter of 2009 was $4 million, significantly higher than the $3 million reported for the second quarter of 2008 and 5% higher than the first quarter of 2009.

We should note that the royalty revenue for the second quarter of 2009 includes approximately $0.9 million of catch-up royalties on past shipments resulting from a single customer. Excluding the catch-up royalties, our royalty revenue was $3.1 million. I would like to remind you that our customer reports royalty one quarter in arrears. So the second quarter royalty revenue for CEVA reflects in fact the first quarter 2009 shipments during which time the industry was experiencing substantially lower demand in our primary market, the cellular handset and the consumer electronics.

During the second quarter, we concluded ten new license agreements. Eight of the agreements were for our CEVA DSP cores platforms and software and two agreements were for our SATA and PLL technologies. Geographically, four of the license agreements are in Europe; four in Asia, which include Japan; and two in the US. Target applications for the licenses concluded during the quarter are primarily 4G handsets, HSPA+ femtocells, Passive Optical Networks and Media Phones.

In the second quarter, we continued to experience the impact of the global recession. Depressed R&D budget that was set [ph] at the beginning of the year based on the assumption of prolonged downturn continued to impact new development in IP licensing. Our royalty revenue, excluding the recovery from the unreported royalties, reflects significantly lower shipment of consumer products during the first quarter.

On the other hand, in our main market, the handset space, our market share significantly increased from 12% in the previous quarter to a record high of 18% for this quarter, mainly due to growing shipments in the emerging markets. In a few minutes, I will further elaborate on this trend.

Despite the challenging environment, we were able to generate revenue at the higher range of our guidance and continue to show healthy profitability metrics. For example, non-GAAP operating margin doubled to 16% compared to 8% for the same period in 2008, while non-GAAP EPS increased by 14% to $0.08 per share compared to the same period in 2008.

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