CEVA

CEVA, Inc. (CEVA)

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CEVA Inc. (CEVA)

Q4 2012 Results Earnings Call

January 30, 2013 8:30 AM ET

Executives

Richard Kingston - Director, Marketing and IR

Gideon Wertheizer - Chief Executive Officer

Yaniv Arieli - Chief Financial Officer

Analysts

Joseph Wolf - Barclays

Gary Mobley - Benchmark

Daniel Meron - RBC Capital Markets

Brian Nugent - William Blair

Vijay Rakesh - Sterne Agee

Matt Robison - Wunderlich

Jay Srivatsa - Chardan Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen. And welcome to the CEVA, Inc. Fourth Quarter and Year End 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions)

After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Mr. Richard Kingston, Director of Marketing and IR. Please go ahead, sir.

Richard Kingston

Thank you, and good morning, everyone. Welcome to CEVA’s fourth quarter and year end 2012 earnings conference call. I’m joined today by Gideon Wertheizer, Chief Executive Officer of CEVA; and Yaniv Arieli, Chief Financial Officer of CEVA.

Gideon will cover the business aspects and the highlights on the quarter, and also review our progress during 2012. Yaniv will then cover the financial results for the fourth quarter and full year 2012, and will provide guidance for the first quarter and fiscal 2013.

I will start with the forward-looking statements. Today’s conference call contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions.

Forward-looking statements include financial guidance for the first quarter 2013, market data from ABI Research, Infonetics Research and Strategy Analytics incorporated herein, optimism about our business outlook and growth opportunities generally, including trends in the 3G, LTE, smartphone and base station markets, as well as market penetration, product releases and design wins by our customers that incorporate CEVA technology.

The risks, uncertainties and assumptions include the ability of the CEVA DSP cores and other technologies 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 products incorporating our technologies to achieve market acceptance, the effect of intense industry competition and consolidation, global chip market trend, the possibility that markets for our technologies may not develop as expected or that products incorporating our technologies do not achieve market acceptance, our ability to timely and successfully develop and introduce new technologies, 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.

Gideon Wertheizer

Thank you, Richard, and welcome, everyone. As I’m in the process of getting over the call, Richard will lead and present the business prepared remark, and I will join in the Q&A session. Richard?

Richard Kingston

Okay. Thanks, Gideon. I’m pleased to report a solid finish to the fiscal year 2012 with revenue at the mid range of our guidance and 16% sequential royalty revenue growth. As you know, 2012 was much more difficult than initially anticipated due to the challenging microeconomic environment and product transitioning in the handset space.

As a point of reference, the semiconductor industry was projected to have contracted by almost 5% in 2012 as compared to 2011 according to ABI Research. According to data from IHS, the handset market was projected to have grown only by 1% in 2012 as compared to 2011, which was significantly below what was expected at the beginning of the year. In fact, 2012 had the lowest annual growth rates in the handset market for the last three years.

Looking at our fourth quarter results, total revenue was $13 million at the mid range of our guidance. Royalty revenue was $8.2 million, a 16% sequential increase and down by 19% on a yearly basis. Our fourth quarter royalty revenues saw sequential growth driven by unit growth in all three segments, 2G, 3G and 4G.

In this respect, customer unit shipped reached an all time high record for CEVA surpassing 300 million units. This impressive shipments milestone more than offset moderate price reduction in 2G feature phones, the ramp down of old iPhones and the ramp down of 2G phones at Nokia by one of our customers.

In the fourth quarter, our licensing revenue was $3.6 million. We signed eight new license agreements. Five of the agreements were for our CEVA DSP cores and software, including two new CEVA-XC customers.

Geographically, two of the license agreements were in the U.S., one in Europe and five in Asia, including Japan. Target applications for the agreements closed during the quarter are primarily baseband processors, G.Fast modems that enable operators to offer Fiber-To-The-Home like speeds of up to 1 gigabytes per second, mobile audio and Solid State Drives.

Other revenues were $1.2 million, higher than what we projected and relates to licensing of development tools in conjunction with the fourth quarter licensing deal with a large customer.

In previous reporting periods, we broke down revenue from license agreements into two components, licensing revenue and other revenue. Other revenue includes primarily sales of development tools, tools licenses for our cores and a fee for technical support.

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