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Barclays Capital Global Technology, Media and Telecommunications Conference

May 22, 2012 11:45 am ET


Joseph Wolf - Barclays Capital


Yaniv Arieli - Chief Financial Officer


Joseph Wolf - Barclays Capital

Good morning. I'm Joseph Wolf from Barclays, and it's my pleasure to introduce Yaniv Arieli from CEVA, the CFO.

Yaniv Arieli

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Thanks, Joseph. Good morning, everyone and welcome to the CEVA presentation. Over the next 25 minutes or so, we will try to give you little bit of more flavor, start with the forward-looking statements, then talk about who we are, what is the technology base, and from there we will move and talk about the markets and the growth drivers for us in the segments and then we will wrap up with some of the financial highlights which have a pretty nice correlation to the growth and the ramp up that we have had over the years and we will wrap up with some investment opportunity and the summary.

So, CEVA is the world's leader licensor of DSP cores and platforms. Essentially, we are an IP, intellectual property company and the biggest in the world in architectures for DSPs for basebands and handsets.

To make it a little bit simpler, in non-technical words, in every cell phone that is sold today in the world, you have three main engines. One is the CPU, which is an ARM or maybe an Intel in the future. One is the GPU, which is a graphics and post-processing which dominant like Imagination’s of the world and the third is the DSP which CEVA has the dominant play in, and DSP essentially helps to use and translate analog signals to digital and vice versa. Anytime we speak or hear or see these analog signals need to be transforming to a digital and vice versa.

All these three components are a must-have in every smartphone that is out there. One cannot do the other functionality but we have to have a dedicated engine and we have earned our space in the DSP world with being the biggest player in that segment.

We are expanding into high volume DSP markets and I elaborate not only baseband. Baseband chip is the communication chip in the cell phone. We are moving now into a imaging, vision, audio and voice type of functionality. So these are non-baseband related, non-wireless related, I will give you little bit flavor about that and the model is very simple.

We don't manufacture phones. We don't manufacture boxes. We license. It's a licensing and royalty type of business like the ARM, Imaginations, MIPS of the world. You have to have some core technology and I'll explain how that generates revenues as years go by.

Few highlights, for the first timers, that do not know CEVA well. We will give you little bit of perspective as to what's our starting point and where we are today in the beginning mid-2012. We're the number one DSP licensor worldwide today with 90% market share and this is based on Lilly report that came out about two weeks ago, $163 million in cash, no debt as of end of March. We have powered north of 3 billion phones over the years. Meaning this is a mature, well known and technology not something new or that we have been a player for many, many years.

Last year, 2011 number one baseband DSP provider in the world today, our customer shipped about 900 million devices in the baseband known and these are all CEVA-powered, of course. Our role to represent one core and the actual sales by our OEMs, by the phone manufacturers and the chip guys, so for Q1 royalties, Q1 2012, which represented actually Q4 '11 shipments, we had 46% worldwide in market share, so close to half of the phones that are being sold out there. If you open up the phone, you open up the baseband chips, you'll see CEVA inside and we get royalties for these nice sockets. Overall, north of 200 licensees, north of 300 licensing agreements and this is the history and this is where we are today.

A bit about this business model and as I mentioned is pretty simple one overall. We design these DSP engines very similar to Pentium I, II, III. If you are looking at Intel or if you look at an ARM processor and ARM 9, 11, 15, every year to year-and-a-half or so, we come up with the new processor for different segment of the market or with some more features and capabilities. We get an upfront license fee. This is the first part of the royalty of the revenue scheme.

It bears for few hundred thousand to few million dollars per deal, and essentially this is the first part where you see the Aero CEVA enabling these semiconductor companies to start a design, the chip design with a black box. The black box is the DSP processor. It's standard. We don't customize any DSPs.

So very similar to the other players, we're the big players in the world today into IP space, whatever Broadcom license could be also used by a Spreadtrum or STM or SG Ericsson and Intel, and that's the advantage these guys have when they start selling chips into the OEMs.

Historically, we have been somewhere in the range of $4 million to $5 million of new deals per quarter, and one needs to bear in mind that this is the actual revenue stream that generates royalties two to three years down the road. So it's a very critical and important element, because it generates the future growth and profitability.

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