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Q2 2012 Results Earnings Call

July 31, 2012 8:30 AM ET


Richard Kingston – Director, Marketing and IR

Gideon Wertheizer – Chief Executive Officer

Yaniv Arieli – Chief Financial Officer


Suji De Silva – ThinkEquity

Anil Doradla – William Blair

Gary Mobley – Benchmark

Joseph Wolf – Barclays

Vijay Rakesh – Sterne Agee

Jay Srivatsa – Chardan Capital Markets

Blake Harper – Wunderlich

James Faucette – Pacific Crest



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Good morning. And welcome to the CEVA Inc. Second Quarter 2012 Earnings Conference Call. All participants will be in a 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.

Richard Kingston

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

I'll 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 third quarter and full year of 2012, market data from ABI Research, Gartner Research, Strategy Analytics, and Wireless Intelligence incorporated herein; optimism about our royalty revenues generally, growth in the 3G space, particularly with smartphones for emerging markets; and our advances in small cells, LTE advanced and 4G LTE spaces, and our ability to capitalize on these trends.

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 trends; 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’m pleased to be able to share with you the results for another well executed quarter. CEVA total revenue for the second quarter was $13.6 million, slightly higher than the midpoint of our guidance range. License revenue was particularly strong, at $5.4 million, which represents the best quarter to our licensing business in more than three and a half years.

We secured eight license agreements for a range of market applications, including the first lead customer of our in U.S. baseband and communication DSP, the CEVA XC4000. Three of the license agreements were in the U.S. and the rest in Asia-Pacific region.

As anticipated, royalty revenue was $7.6 million. This reflect the handset industry first quarter shipment, which was affected continuously more with seasonality, than as is currently being the case. According to Gartner, this was the first time since 2009, as the handset market experienced a decline on a year-over-year basis.

Our royalty revenue also reflects pricing pressure in the competitive 2G market, and weakness of Nokia mobile phone segment, which we discussed in detail during the first quarter earning call.

Despite the softness in royalties for mobile devices, we were able to offset it by securing licensing agreements with key customers for new design of next generation mobile products.

In addition to contributing to our topline revenue for the quarter, licensing agreements fuel our future royalty strength and open up further opportunities to extend our foothold in our customer new design.

The fundamentals that stimulate growth in the mobile market remains strong, with numerous opportunities to expand and differentiate. As a result, incumbents in new corners must develop and implement initiatives for designing highly integrated chips with the DSP playing a central role in communication and multimedia processing.

Our DSP technology provides the capability to reuse the same chip design for multiple products and multiple generations of products, via software programming. It is an advanced technology that enables a flexible and more affordable R&D expenditure profile, compared to the conventional hardware based design. This is of particular importance, in light of the significant rise in silicon manufacturing costs, and the recent capacity shortage in 28-nanometer.

Now let me make few comments about the key highlights of the quarter and few observations about the mobile market. Growing concentration in smartphone space is apparent.

The move to differentiate can be at the forefront of mobile technology, which has driven big OEMs to vertically integrate and develop their own chips. This is evident in OEMs including Samsung, Apple and Huawei, integrating their own chips into their smartphone designs.

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