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Q3 2012 Earnings Conference Call

November 1, 2012, 08:30 AM ET


Richard Kingston – Director, Marketing and IR

Gideon Wertheizer – Chief Executive Officer

Yaniv Arieli – Chief Financial Officer


Gary Mobley - Benchmark

Anil Doradla - William Blair & Company

Joseph Wolf - Barclays Capital

Matt Robison - Wunderlich Securities

Daniel Meron - RBC Capital Markets

Vijay Rakesh - Sterne Agee



Good morning and welcome to the CEVA Incorporated Third Quarter 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'd now like to turn the conference over to Richard Kingston. Please go ahead, sir.

Richard Kingston

Thank you very much and good morning everyone. Welcome to CEVA's third quarter 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 from the quarter, Yaniv will then cover the financial results for the third quarter of 2012, and provide guidance for the fourth quarter of 2012.

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

Forward-looking statements include financial guidance for the fourth quarter and year of 2012, market data from ABI Research and Strategy Analytics incorporated herein; optimism about our royalty revenue growth and long term growth opportunities generally, growth in the 3G space for emerging markets, particularly in China. Growth in the 2.5G space, the design wins of our customers, market acceptance of smartphones incorporating CEVA technology, the gesture technology markets and our advances in the LTE advanced space.

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'd now like to turn the call over to Gideon.

Gideon Wertheizer

Thank you Richard and welcome everyone. I will start by reviewing the result of the third quarter. The reported third quarter revenue of $12 million. Licensing revenue was $4.2 million, royalty revenue was $7 million and the remainder was derived from support and maintenance revenue.

We executed seven new license agreements in the third quarter. Five agreements were for CEVA DSP cores, platforms, and software. One agreement was for CEVA SATA/SAS product line and one agreement was for CEVA Bluetooth technology.

Target market for customers deployments are 3G and 4G baseband processor, digital cameras, next-generation vision related products, connectivity and SATA interface chips for enterprise applications. Geographically, one of the agreements signed was in Europe and six were in Asia Pacific, including Japan.

Of the licensing agreement executed, three are particularly noteworthy. The first is a new strategic licensing for CEVA-XC4000 based on the DSP targeting next generation LTE-Advanced platforms. The second is a new licensing for CEVA-MM3101 imaging and vision technology targeting gesture recognition and the third is an audio DSP license for a Tier 1 OEM in the DSLR camera space.

In general, third quarter license revenue reflects a level of caution attributable to general macro-economic concern by certain customer prospects. We have either continued to see robust demand for our based on DSP technologies targeting next generation products and in this respect our customer prospect remain solid. We expect these licensing environment to expand into the fourth quarter.

Moving on towards revenue, third quarter royalty revenue which relates to the second quarter shipment came out as anticipated. As we explained in last quarter call, during the first half of 2012 it was widely understood that consumer were withholding purchases of new handsets in anticipation of new more advanced smartphones in developed markets and the availability of local smartphones to replace future phones in emerging markets. Despite these general market weakness, 3G shipment based on CEVA DSP are consistently growing showing 7% growth on a quarter-over-quarter basis and 11% growth on a year-over-year basis.

Further royalty growth is anticipated in the coming quarters as new CEVA based smartphone are rolling out from HTC, Huawei, Lenovo, LG, Samsung, ZTE and others. In particular, to address the transition from 2G feature phone to low cost 3G smartphone in China. Now, let me show with you some key points on our markets and customer traction during the quarter.

One of the key agreements signed during the quarter was for the CEVA-XC4000 DSP targeting LTE-Advanced. LTE-Advanced is the next evolution of LTE technology these are up to ten times higher performance versus the existing LTE technology. Our new licensee is the first time customer of CEVA, but although they have LTE baseband chip available, it elected to switch to CEVA-XC DSP framework due to the increased performance requirements for LTE-Advanced and because of the softer defined architecture of the CEVA-XC which allows it to seamlessly support multiple radios.

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