CEVA's CEO Hosts JPMorgan TMT Conference (Transcript)


JPMorgan TMT Conference Call

May 15, 2012 14:50 ET


Gideon Wertheizer – Chief Executive Officer


John Ahn – JPMorgan


John Ahn – JPMorgan

Okay. So, welcome everyone to the CEVA Meeting. My name is John Ahn and I am a semiconductor analyst here at JPMorgan. See CEVA is the leading licensor of DSP cores and platforms with a market cap about $385 million. Company develops and licenses its DSP technology for using, I think, mostly 2G, 3G, and 4G handsets at this point, but definitely diversifying into some other non-handset markets as well.

So, it is my pleasure to have the CEO of CEVA, Gideon Wertheizer here with us today. And I'd say we typically don't have the pleasure of hosting a non-US company much less somewhere all the way from Israel here. And I think maybe many of you are not very familiar with the CEVA story. So, I am going to let Gideon really devote a little bit more time than usual to introduce himself his company, his business, and then we'll just launch into Q&A today. Gideon?

Gideon Wertheizer – Chief Executive Officer

Yeah, good afternoon. For those of you that are not familiar with the CEVA story, we are what we call the IP company. If you look – think about other companies, very similar business model than our, more imagination, many could develop a piece of technology that is called DSP, digital signal processor and we license it to companies. When we license a technology, we charge or get the license fee, few hundred thousand to few million dollars depending on the business model. And they take this piece of technology integrated into their chip and when they sell their chip to their OEMs meaning handset is the place where we are, this is our space. They license. We are collecting royalty per chip few cents per each product.

Now, our main market is the baseband – the handset market, the stuff that you are familiar whether it's a smartphone, feature phone, and going forward, machine to machine. Our technology is basically generic in a way that you can find it in every phone that you know whether it's 2G phones that are going to into the emerging market and you have – they are in billions of units a year going to the 3G smartphone LTE. The DSP technology is something that you need in each of these products.

We have last year, they were more than 1.1 billion products that were sold or with our DSPs, we have 46% market share in handset meaning almost every two handset that is being sold today in the market has the CEVA DSP inside. This is a critical technology. With the DSP, you cannot do the – you need it for the communication purposes. Without the DSP, the handset cannot communicate, you cannot do a voice call, you cannot do a data call, you cannot do internet surfing, you need the DSP for this purpose. So, this is in a nutshell the space that we are.

John Ahn – JPMorgan

Okay, great. Thank you, Gideon. Thanks for that overview. Let's see – so, let's just start off with just I guess trying to get some market color for you. I mean, obviously with your revenue streams, I think you do see some very good visibility out there, just because you sign your license agreement. And I believe you recognize your revenues one quarter in your rears. So, like I said, I mean, you probably have some pretty good visibility into some of your end customers as well as their end customers. So, can you kind of give us a general idea of what you are seeing out there, especially in the – I think everybody is curious about what's going on in smartphones, handsets, overall communications?

Gideon Wertheizer – Chief Executive Officer

Yeah. First of all, in terms of what you mentioned visibility, our revenue mix is composed of three components. First one is what is called the licensor. This is our deals that we sign every quarter for new licenses or existing licenses that take our technology and build our chip. Usually, whenever customers sign the license agreement, it gets to a design cycle which can take between 18 to 24 months before we are collecting royalties. So, that's one element.

The license fee as I mentioned few hundred thousand to few million dollars depending on the business model to have the specific customers. Then we have the royalty component. And that's the visibility that I think you mentioned we are collecting royalties per chip and that's – and because we work with many customers this give us the visibility because we are not tied to specific customer, that if something happened to this specific customer things will collapse. So, that's the other component. The third component relates to the technology itself customer that take the IP needs to have a maintenance agreement in order to guarantee supply. They are supporting them throughout the design cycle.

Now, in terms of the market and what's going to happen as I said we are – because of our DSP, we are in 46% of the phones or basically in every phone, you have a baseband technology. The market, in general, is segmented to three categories, the 2G or the second generation cellular, these are voice phones that are capable to do texting and voice and also all sort of browsing like Facebook or Twitter and things like this. So, this is mainly in the emerging economy, China, India, Latin America, Eastern Europe, billions of unit, the size of this market on an annual basis, it's about 1.3 billion units a year. The overall market by the way is 2.2. So, still the lion's share of the market is 2G.

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