CEVA Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the CEVA, Inc. Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded.

Operator

I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor and Public Relations. Please go ahead.

Speaker 1

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's Q3 2023 earnings conference call. Joining me today on the call are Amir Panooj, CEVA, CEO and Yaniv Arieli, CEVA's CFO. Before handing over to Amir, I would like to remind everyone that today's discussions contain forward looking statements that involve risks and uncertainties as well as assumptions But 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 statements regarding the benefits and future financial impacts of the divestment of the Intrinsics business And related refocusing our core strengths of IP Development and Licensing, market trends and dynamics, Our market position, strategy and growth drivers, including with respect to Wi Fi 7, demand for and benefits of our technologies, Plans with respect to CEVA's share repurchase program and expectations and financial guidance regarding future performance.

Speaker 1

CEVA assumes no obligation to update any forward looking statements or information, which speak as of their respective dates. In addition, following the divestment of Intrinsics business to Cadence, financial results from Intrinsics were transitioned We will also be discussing certain non GAAP financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of Quarterly results. A reconciliation of non GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our Investor Relations website at investors. Cevadsp.com. With that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business.

Speaker 1

Amir?

Speaker 2

Thank you, Richard. Welcome, everyone, and thank you for joining us today. Before I begin, I would like to address the situation in Israel Following the horrifying attacks took place a month ago. This has been an extremely difficult and heartbreaking time for all of us, And I would like to thank the many of you who have reached out to us for your support. Our priority at this time has been for the safety and well-being of our employees And their families and we are doing everything we can do and to ensure we provide them with the support they need.

Speaker 2

In the midst of these adversities, Our operation in Israel remained largely unaffected and we continue to drive our business and support our customers globally. I want to thank our employees in Israel and abroad for all their efforts during this difficult time. Turning our attention to the business. Since being appointed CEO of CEVA at the beginning of the year, I have emphasized our need to focus our efforts on our key IP pillars, Where we have built strong leadership with differentiated offerings and that are best suited to drive scale and synergies Across our technologies globally. In the quarter, we took an important step in this strategy with our decision to strategically exit The U.

Speaker 2

S. Aerospace and Defense Design Services Industry and divest the Intrinsics business. When we acquired the Intrinsics business in 2021, Our thesis was that it would help increase our presence in the U. S. Aerospace and defense industry and expand our offering to co create IP However, what became clear to me after joining Is that the A and D industry doesn't offer product volumes that align with the IP royalty business model.

Speaker 2

And while the Intrinsics team has a legacy in the U. S. Aerospace and defense design service capabilities, these were not applicable to our global customer base. The sale of intrinsic to Cadence closed on October 2. For reference, in the 1st 3 quarters of 2023, Intrinsic contributed just shy of 10% of overall combined revenues, lower than our internal Plans and with lower margins and lack of profitability compared to our core business.

Speaker 2

We expect the divestments of Intrinsics to be accretive for us from day 1 and return us to the 90% gross margins moving forward. Moreover, these divestments will allow us to drive Stronger focus on our key strengths, namely wireless communications, edge AI and sensing software IP. Yaniv will elaborate on the financial impact of the divestments in his section shortly. Deposits from the sales will serve to help us to invest in our We enforce our leadership position as the world's number one supplier of wireless communication IP and pursue the compelling opportunity we see in AJI for our DSP and NPU platforms and sensing software IPs. I want to emphasize also that we will continue to offer system design support to customers globally that wish to customize our IPs for their projects as we still see strong demand for chip design expertise from our OEM customers in particular, but we will not focus on a service only type business model.

Speaker 2

Turning to our earnings, we delivered solid results with recovery in our IP Licensing business and of note, Our deal pipeline is the strongest it has been this year. In royalties, we are encouraged by the 2nd sequential quarter of royalty growth, Shipping in 500,000,000 civil powered devices. This robust level of civil powered shipments is very encouraging. It's an indicator of the strength of our customer base in winning business and taking advantage of the consumer demand recovery during the quarter. Moving on to our licensing and royalty business performance in the quarter.

Speaker 2

We signed 13 new licensing deals in the 3rd quarter With exceptional demand and contribution from our wireless communications IP portfolio, where our leadership position is unrivaled in the industry. Recently, we reached the important milestone of passing $100,000,000 in licensing revenues for our Bluetooth portfolio since it became a mature product. We added another 9 licensing agreements for our Bluetooth IP this quarter alone. 3 of these customers also licensed our Wi Fi IPs To develop wireless combo chips, one of them license our new Wi Fi 7 IP for access points, which carries a substantial ASP up fleet Over the current generation Wi Fi 6 IP, both for licensing and royalty. WiFi 7 possesses a significant opportunity for us.

Speaker 2

We have ABI Research focusing and device shipments of WiFi 7 chipsets To grow at the CAGR of 75% from 2023 to 2028 and to more than 1,500,000,000 units annually. We have close to 40 Wi Fi 6 Licensings to date. We are the de facto IP vendor for Wi Fi in the industry. Each generation of WiFi becomes even more complex for chip designers and our ability to have leading edge WiFi IP available in the same timeframe As the Wi Fi standard is ratified, means that we can enable our customers to get to market rapidly with lower risk and more cost effectively. When you add in the fact that we can also provide the latest generation Bluetooth IP that is required in almost every use case today, Not to mention our UWB and several of our IoT IPs.

Speaker 2

Our value proposition around wireless communication is exceptional. There is only a handful of companies in the world today that have a leading edge wireless portfolio as comprehensive as ours, And we are the only IP company amongst the leaders. We are investing to expand our leadership and ensure our customers always receive the best in class Latest standards IP to integrate connectivity into their chip designs. We expect 2024 Wi Fi licensing to be driven by Wi Fi 7 demand, while Wi Fi 6 royalties will experience meaningful growth in tandem. We will provide more color around our Wi Fi 6 and Wi Fi 7 and opportunities on our upcoming Investor Day scheduled for December 6 in New York City.

Speaker 2

The other 2 Wi Fi combo deals signed in the quarter were for Wi Fi 6 for Smart Edge devices. 1 was with a leading platform OEM In the electronic maker community, whose devices are widely used in education and prototyping, who is expanding its offering by integrating Wi Fi CX and Bluetooth. And the second deal was with a major designer and manufacturer of embedded systems. Other notable deals concluded in the quarter Included new agreements for our leading edge Bluetooth IP with a global OEM leader in hearing care solutions And we have a leading player for hearables and wearables intelligent chips and a deal for our DSP targeting the high growth satellite communications market. Now on the royalties.

Speaker 2

We reported the 2nd highest volume of CEVA powered device shipments for any quarter in the company history, Driven by a recovery in consumer demand. As evident from the strength of our wireless communications licensing business in the past few years, Wireless chips continue to lead the way in terms of device shipments with Bluetooth chips in the quarter surpassing 300,000,000 units and cellular IoT Shipment at an all time high of more than 35,000,000 units. An area of softness in the quarter was wireless infrastructure, Well, our main customers for 5 gs RAN reported weaker than anticipated 5 gs networks builds. For our sensing and AI technologies, Shipments of TVs, PCs and Smart Edge devices grew sequentially, including good traction for our audio technologies. To conclude, our business performed solidly in the Q3, and we are encouraged by the healthy licensing pipeline that we are building for this quarter and beyond.

Speaker 2

In royalties, the 500,000,000 devices shipped in the quarter powered by our IP reflects the ability of our strong customer base to win business and take advantage of the consumer demand recovery. With the sale of intrinsics, we have taken an important step, which will allow us to fully focus on our core strength of IP development and licensing, which is where we see the greatest opportunities for growth and value creation for our investors. In addition, reinforcing shareholder value, the Board of Directors decided to increase our existing 10B-eighteen repurchase program by additional 700,000 shares. Finally, we recently established a corporate strategy function at CEVA And I appointed Ira Tranchevskiy as our Chief Strategy Officer. Ira is a result driven semiconductor and technology executive And his experience and knowledge gained from more than 20 years in the semiconductor industry will be instrumental in defining our future strategy and help drive long term growth.

Speaker 2

I look forward to seeing many of you at our Investor Day in New York on December 6, where we will plan to share our strategy and vision for CEVA and outline the growth drivers and opportunities in the years ahead. Now let me turn over the call to Yaniv, who will review our Q3 financial results and provide Q4 and 2024 guidance.

Speaker 3

Thank you, Amir, and good day to all. Before I start reviewing the results of our operations for the Q3 of 2023, I want to explain that revenues, Cost of goods and operating expenses for the Q3 do not include Intrinsics numbers, reflecting the Intrinsics business as a held for sale discontinued operation unless otherwise noted. Revenue for the Q3 was $24,100,000 As compared to $30,000,000 for the same quarter last year, the revenue breakdown is as follows: Licensing and related revenue, reflecting 58% of total revenues, were $13,900,000 as compared to $18,700,000 for the Q3 of 2022, but up 3% sequentially. Royalty revenue, reflecting 42 percent of total revenues, was at $10,100,000 as compared to $11,400,000 for the same quarter last year. However, this is the 2nd sequential increase For the Q1 and second quarters of 2023.

Speaker 3

This supports the recovery we have seen in handsets and general IoT product demand in the 3rd quarter. Quarterly gross margin On CEVA standalone basis, without the discontinued operation came in at 90% on GAAP and 92% Quarterly gross margin excluded equity based compensation expenses of $200,000 and the amortization of Required intangible of $100,000 Total GAAP operating expenses for the Q3 was 24,400,000 Lower than our guidance because of the exclusion of the Intrinsics business cost, actions taken by management to reduce costs and lower employee related expenses. Our total non GAAP operating expense for the Q3, excluding equity based compensation expenses And amortizations of intangibles were $20,400,000 also below the lower end of our guidance due to the same reasons I just explained. GAAP operating loss for the Q3 was $2,700,000 up from GAAP operating loss of 2 point $4,000,000 in the same quarter a year ago. GAAP quarterly loss included equity based compensation of costs associated with deal costs.

Speaker 3

Non GAAP operating income was $1,600,000 compared to operating income of 7,300,000 the same period a year ago. GAAP and non GAAP tax expenses of $1,100,000 was recorded mainly Associated with the withholding tax deducted by our customers that could not be utilized and were expensed. GAAP non net loss for the continuing operation was $2,700,000 and non GAAP net income was 1.4 GAAP net loss for the discontinued operations of Intrinsics was $2,200,000 and non GAAP net loss of $1,000,000 Overall GAAP loss was $5,000,000 diluted EPS of $0.21 for the Q3 of this year as compared to a net loss of $22,300,000 in diluted loss per share of $0.96 for the Q3 of 2022. And our overall non GAAP net income was $400,000 and diluted earnings per share was $0.02 for the Q3 of 2023 as compared to a net income of $4,700,000 and diluted earnings per share of $0.20 in the Q3 of last year. With respect to other related data, Shipped units by CEVA licensees during the Q3 of 2023 were 500,000,000 units, Our 2nd highest quarter shipments on record, up 35% sequentially compared to the Q2 of 2023, of which we reported 370,000,000 units and up 40% year over year from 357 1,000,000 units.

Speaker 3

Of the 500,000,000 units reported, 79,000,000 units or 16% For handset baseband, similar shipment volume to the Q2. Our base station and IoT product shipments were 421,000,000 units, up 45% sequentially from 291,000,000 for the Q2 of this year and up 51% year over year from 279,000,000 units a year ago. Bluetooth shipments were 313,000,000 units for the quarter as compared to 210,000,000 units for the Q2 of last year, As many of our customers experienced strong sales resulting from consumer demand recovery for devices such as TWS earbuds, smartwatches and across consumer IoT in general. WiFi shipments were 24,000,000 units as compared to 29,000,000 units in the 2nd quarter, and we are encouraged to see The number of Wi Fi 6 customers continue to ramp up their production targeting IoT And Smart Home with the transitional to the Wi Fi 6 standard is imminent. Cellular IoT shipments were a record of 35,000,000 units in the quarter as compared to 21,000,000 units in the 2nd quarter.

Speaker 3

This increase reflects that the market is becoming mature and the technology is making its way to more end products and consumer and industrial use cases. Other shipments Under the base station IoT umbrella totaled 49,000,000 units in the quarter. This includes our sensor fusion, computer vision, AI, Audio 5 gs brand and DSPs for non cellular communication such as V2X or vehicle to anything, Smart meters, satellites and drones. As for the balance sheet items, At the end of the Q3, our cash equivalent balances, marketable securities and cash deposits were approximately $132,000,000 In the Q3, we continued our buyback program by repurchasing approximately 135,000,000 shares for approximately $3,000,000 Yesterday, our Board of Directors authorized A new increase of 700,000 shares to the existing 10b-one hundred and eighteen repurchase program. As of today, Around 844,000 shares are available for repurchase.

Speaker 3

Giving effect This expansion, we believe in our future business prospects and plan to take advantage of the program to increase shareholders' value. Our DSOs for the Q3 were 31 days, below our norm and better than the Q2 47 days. During the Q2, we used the Q3, we used $1,300,000 cash from operating activities. Ongoing depreciation and amortization was $1,100,000 and purchase of fixed assets were $900,000 At the end of the Q3, our headcount was 476 people, including Intrinsic's employees, of whom 391 were engineers compared to 4 97 people at the end of the second quarter. Now turning to our outlook.

Speaker 3

CEVA, post divesting its Intrinsic's A and D Service business will be able to present GAAP and non GAAP accretive financials for 2023 compared to its previous consolidated financials and excluding the ongoing losses from its discontinued operation. Our gross margin will increase and get back to the 90 ish percentage level. Cost revenues and OpEx will also decrease, respectively. Overall, we are actively on measures to reduce overall headcount and expenses and monitor them closely in parallel to investing, enhancing marketing and licensing of our technologies. Our licensing related revenue business has shown Improvement in the Q3, and we see a promising pipeline ahead of us for wireless connectivity and sensing AI technologies.

Speaker 3

In royalties, we anticipate consumer products and low cost smartphone to maintain demand ahead of the upcoming holiday season, and we'll continue to monitor the 5 gs base station RAN market for any improvements. All in all, we expect 4th quarter overall revenue To be in the $23,300,000 to $25,300,000 range. Looking ahead into next year, 2024, and considering the divestment of the intrinsic service business, We would use the basis of the 4th quarter guidance for modeling 2024 with potential revenue growth as the year progresses. Gross margin are forecasted to be the 9 ish percent level In overall non GAAP OpEx and cost of goods together, meaning all annual expense combined, is forecasted at this stage to be flattish with 2023. Combining these, we expect operating leverage to improve over 2023, And we'll provide more detailed guidance for 2024 at our next earnings call.

Speaker 3

Specifically for the Q4, gross margin is expected to be approximately 90% on GAAP basis and 92% on non GAAP basis, Excluding the aggregate of $200,000 of equity based compensation expenses and $100,000 of amortization of acquired intangible, OpEx for the Q4 is expected to be slightly higher compared to the Q3 due to G and A, Professional costs and employee related benefits and in the range of $24,200,000 to $25,200,000 Including an expense expected $4,200,000 of equity based compensation expenses, 0.3 Expected to be slightly higher than the Q3 for the reasons I just explained and in the range of $20,100,000 to $20,100,000 I want to emphasize that overall expenses for CEVA post the divestment of Intrinsics are forecasted to continue and remain It's a lower expense level as we look closely at cost measures. Net income is Expected to be approximately $1,100,000 interest income. Taxes for the 4th quarter is expected to be approximately 1 point $4,000,000 derived mainly with withholding tax of new deals signed and reported royalties for the quarter, And the share count for the Q4 is expected to be at 25,100,000 shares. Rocco, you could now open the Q and A session, please.

Operator

Today's first question comes from Kevin Cassidy at Rosenblatt Securities. Please go ahead.

Speaker 4

Yes. Thanks for taking my question and congratulations on a good quarter in a tough market. And We're hearing through this earnings period is a lot of slowing in demand from the IoT market, but here you are saying you're shipping The 2nd highest units in the company history. Can you explain why you're outperforming these markets?

Speaker 2

Yes, definitely. I would say several things related to that. One is that Overall, we have really progressed well with our basically licensing of our Bluetooth and Wi Fi and the other wireless connectivity technology. So we have larger and larger customer base that are basically keep ramping their volume. So that provide us the tailwind to keep increasing the volume.

Speaker 2

But also we believe that our customer base, generally speaking, on average are doing better than the rest of the market. We've they are positioned more competitively and are able to gain market share. So that's overall for the phenomenon of this quarter, And the restocking that has happened in this quarter as well.

Speaker 4

Okay, great. And maybe as a follow-up, just On your licensing business, can you say how much the U. S. Sanctions could be hurting your licensing deals in China?

Speaker 3

So for now, they have not. They have not for two main reasons. 1 is the end markets. We target the consumer market mainly, automotive, industrial, medical And less of supercomputers, no business with the fab industry and building fabs And no business in supercomputers. So most of the sanctions are targeting those markets.

Speaker 3

If you look at Some of the other players in the EDA and the IP space, they're similar to ours. They're saying more or less the same things at this time. And for the time being, China is still an important market for us. It's a big market for us. And we haven't seen any specific restrictions for the markets and the technology that we play in.

Speaker 2

And to add on that, we have really bid a very good incumbency with our technology and previous licensing. We have a very broad customer base in the consumer markets In China and actually we see those customers coming back after a very good support and very competitive Asking for either an upgrade of this type of technology to the next basically start or the next step in technology Or asking for additional technology that previously we haven't provided them. As I shared previously, like Some of our Bluetooth customers asking for Wi Fi, we see then some of them asking for UWP and then for AI capabilities and other type of technology that we can offer.

Speaker 4

Okay, great. Thank you.

Speaker 3

Thank you, Kevin.

Operator

And our next question today comes from Chris Reimer with Barclays. Please go ahead.

Speaker 5

Hi, thanks for taking my questions. You mentioned the gross margin benefit from the sale of Intrinsics And a bit of reduction in costs relatively speaking. Can you give a little color on what other benefits you might be Seeing in terms of changing the business, in terms of sales and marketing, in terms of headcount, that might Change also because of the discontinued business?

Speaker 3

Yes, of course. I mean, It's a completely different business model with a completely different customer base. Amir talked in the prepared remarks about What drove us to get into that, both the U. S. Market and the size of the customers in that space, But the lead times to close the deal with A and D is a very long process, getting new technologies or a new project Agreed upon and then getting it funded through Washington is a long, long process and it's completely different than the lead time To license the Bluetooth or Wi Fi or a modem for us that we just talked about and mentioned the different markets and different technologies.

Speaker 3

1st, the design cycle is shorter, then the design itself and of course, the end market is High volume compared to the AMD that is a very lucrative and high end market, but the volumes there for royalties as our Business is the core business is an IP Licensing and Royalty business. That is something that we haven't seen and doesn't exist In the service business, so from all the different businesses together with the fact that if You have services, you record those cost of services and the cost of goods and that reduces the margin of an IP business that Is now back to the 90%. That's probably the combination lead time, customer base, the magnitude of royalties That we could generate from these from our existing customers and new ones in our space is few of the benefits that I could highlight. Amir, anything

Speaker 2

I would say overall the IP business model is much more leverageable and with that we can drive also better gross margin. We don't need basically so To have the people charging to cost of goods sold in order to develop the technology, we are more developing, innovating with R and D to build the IP and then we leverage that Large number of customers that can also ship in high volume, which is a better basically for us has been and moving forward even more focused.

Speaker 5

Got it. Thanks. And just in relation to the combo deals that you mentioned earlier, Is this something that you're pitching as something that's already available Either or is it strictly from a customer perspective if they want 2 or 3 things then they'll ask for it. I'm just trying to Gauge the potential in terms of larger sales regarding combo deals, If you can give any color around that and what the potential is there?

Speaker 2

Sure. It's actually both. We have This quarter, 3 deals like that. We see customer demand growing more for different type of combos, specifically more WiFi Bluetooth combo. But also we organically internally basically developing these technologies and offering something available to for people to take advantage We have fast time to market with the different type of combination of our core wireless technologies between Wi Fi, Bluetooth, 15.4, UWB and Urban IoT.

Speaker 3

I would add to that, Chris, that we powered to remind us all, we powered a 1,000,000,000 device Bluetooth last year, it only had about 100,000,000 ish Wi Fi. So one of the potentials in royalties is to catch up Because Wi Fi came later to the consumer market, they were much more focused on residential enterprise. And today, lots of consumer devices, automotive, almost everything around us has also Wi Fi and Bluetooth connectivity. And the volume opportunity for us With combo chips and stand alone Wi Fi is a magnitude larger with higher ASP. So that's one of the Advantages of these combo deals?

Speaker 2

It's definitely helped us with both live setting and wireless moving forward as A Bluetooth customer asking for combos with Wi Fi and vice versa.

Speaker 5

Great. Okay. Thanks. That's it for me.

Speaker 3

Thank you, Chris.

Operator

You're welcome. Today's next question comes from David O'Connor with BNP Paribas. Please go ahead.

Speaker 6

Good morning. Thanks for taking my questions. 1 or 2 on my side. Maybe firstly, Amir, you talked about the revenue growth as the year progresses in 2024. Can you just give us a sense of what those drivers are as specifically from kind of end markets as you look into 2024?

Speaker 6

That's my first question.

Speaker 2

Yes, definitely, David. So first, we really established a very strong leadership in wireless communication overall. As we just discussed on the previous related to the previous question, we see lots of our customer base that have used our Bluetooth technology or Wi Fi All coming and asking for the other technologies. We see potential very good increase in UWP activities as well as some in urban IoT. We also see our 5 gs IoT in terms of the proliferation of 5 gs outside handsets and micro base stations And with significant opportunities happening in 2024.

Speaker 2

And last but not least, we have announced this year Our Neupland product for HAI, this product is basically becoming available in the markets. We're engaging with multiple customers in terms of early qualification, And this is a growth engine for us as we go to next year. Overall, I will provide more details and explanation on all that in the coming Investor Day, and we really like And welcome everyone.

Speaker 6

Thanks for that. And maybe a follow on just on the Wi Fi side of things. Clearly Bluetooth massively successful. Yaniv mentioned 1,000,000,000 Last year. Kind of what stage or what do we need to happen for kind of Wi Fi to reach that hockey stick?

Speaker 6

We're really talking kind of significant upward kind of shipments on the Wi Fi side of things. Is that Revenue growth you talk about next year, or is that kind of further out to kind of hit those shipments?

Speaker 2

Yes. So we started with our Wi Fi meaningful penetration with Wi Fi 4 generation, but that was really the early stage of the penetration. At the much more successful and board based penetration came with the transition to Wi Fi 6 and that's where we really started establishing our De facto leadership as an IP provider, those licensing activities happened Has been in the last 2 years. So we're expecting the royalty growth to really pick up nicely in 2024 and then we've got into 2025 and 2006 even Further, so I don't know exactly when the hockey stick will start, but definitely we'll see a meaningful ramp in 2024 and that will continue into the next 2 years Very, very strongly. The number of licensing that we have right now more than 40 and really across pretty much all the consumer market segments As well as some automotive and other places and considering it's across the different configuration of station and access points We have much higher ASP on average than Bluetooth.

Speaker 2

That will be a very strong royalty growth for us in 2024 and moving forward.

Operator

David, I'm sorry, this is the operator. You're breaking up pretty badly, sir. A little bit better. Yes, sir. Please proceed.

Speaker 6

Just one quick one on the M and A, given the intrinsic divestments, any change really on the strategy on the M and A side of things? Thank

Speaker 2

you. Yes, David. We will discuss it more in the Analyst Day. But generally speaking, I would say is that My focus with the team is really on IP business model and how we are going to leverage that. We have established in the last several years And more recently, a very, very well oiled machines of how to drive good success of licensing and then from their royalty.

Speaker 2

And we strongly believe that there are out there very good assets related to that business model that we can go and create synergy and Long term success for our companies moving forward. So definitely, this is an important priority for me and the team.

Speaker 4

Thank you.

Speaker 2

Thank you.

Operator

Thank you. And our next question today comes from Suji Desilva with ROTH Capital. Please go ahead.

Speaker 7

Hi, Amir, and Eve, I'd echo my thoughts and hoping you and your families are Staying safe. Can you talk about the licensing activity in China, the update there on whether there is a recovery there, pause or whether it's Tracking as it has in the past?

Speaker 2

Yes. I would say that if you compare it to last year or during the hype of the Over the last few months, but I would say right now from our perspective that has stabilized. We see right now the demand stabilizing. As I mentioned, we really have a strong incumbency of customer base and we see a strong Demand from there to basically go to the next generation to add more technologies and investments in China, while it Slow down versus last year. Overall, now it has stabilized and companies are coming back to basically go to the next product that they want to deliver to market And go and ask for the IP that they need.

Speaker 2

We also see in China the demand for not only connectivity, but also for But also for AGI and other technologies that we have. So overall, it has stabilized and we have opportunity to create growth as we go and progress in

Speaker 7

Okay, very helpful. And then, I apologize if you already discussed this sometime late, but the wireless infrastructure opportunity, are there any Tailwind opportunities in the calendar 2024. I know that market is a little bit softer now in demand perspective, but curious if that can Recurring or can I revisit that in the calendar 24 time frame?

Speaker 3

The what market again, Suji?

Speaker 7

Wireless Infrastructure, Sorry.

Speaker 3

Yes. This is a market that we, for years, we have monitored. We have 2 of the biggest players in that industry, And that market is driven by orders and operators demand of Networks in a certain town, city, state, country, it varies. It started off with pretty strong Investments in 5 gs in the last couple of years because of the hype and the demand and the advantages of no latency and much more bandwidth. And recently, they realized that there is no new killer 5 gs application That is needed for 5 gs Networks.

Speaker 3

And we've seen maybe 2 quarters or some Slow down, especially in Q3, and we saw the reports by the different players in the industry that demand has softened with Also different comments that it may be ramping up again to a better extent in Q4. So It was never a seasonal market. It was never a cyclical market. It was based on demand Every time or every year, it could be a different quarter as we had a very strong peak and we talked about the strong deployment of 5 gs base stations. Q3 was muted compared to this year compared to Q3 last year, by the way.

Speaker 3

That was super strong. And it could change the quarter after And because there's still deployment of 5 gs worldwide for different use cases, we're not talking just macro base station, but also Small sales and the market is there, the needs are there, but it varies from quarter to quarter and from operator to operator. And Q3 was very muted, and we hope that Q4 Could be more and stronger. And we have other 5 gs players that not just in the baseband market that Amir also talked about in licensing That could and we'll start contributing royalties going forward.

Speaker 4

Thanks, Dmitry. Would you like

Speaker 2

to add that on a annual basis comparison, definitely, we See a potential for growth in 2024, one that has been very muted this year. 2nd, as Janu mentioned, we see we have more customers That are going to ramp in 2024 outside the macro base station for 5 gs IoT Technologies.

Speaker 7

Okay. Thanks everybody.

Speaker 2

Thank you. Thank you, Suji.

Operator

Thank you. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Richard Kingston for closing remarks.

Speaker 1

Thank you, Rocco, and thank you everyone for joining us today and for your continued interest in CEVA. As a reminder, The prepared remarks for this conference call are filed as an exhibit to the current report on Form 8 ks and accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following conferences: the Wells Fargo 7th Annual TMT Summit Taking place November 29 in Rancho Palo Verdes, California. CEVA is hosting its Investor Day taking place on December 6 And finally, we'll be attending the Oppenheimer 4th Annual 5 gs Summit Thank you, sir. Thank you and goodbye.

Operator

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Key Takeaways

  • CEVA closed the divestment of its Intrinsics services business to Cadence on October 2, exiting the U.S. aerospace & defense segment to refocus on its high-margin IP licensing and royalty model and return to ~90% gross margins.
  • In Q3 CEVA signed 13 new licensing deals, including nine Bluetooth agreements, three Wi-Fi combo chip deals and its first Wi-Fi 7 IP license for access points, pushing Bluetooth cumulative licensing past $100 million.
  • Royalty shipments grew for a second straight quarter to a near-record 500 million devices powered by CEVA IP, with over 300 million Bluetooth chips and a record 35 million cellular IoT units shipped.
  • CEVA’s board increased the share repurchase program by 700,000 shares—leaving ~844,000 shares available—underscoring management’s focus on driving shareholder value.
  • For Q4, CEVA guides revenue of $23.3 million to $25.3 million and expects to maintain ~90% gross margins, while forecasting 2024 growth fueled by Wi-Fi 7 licensing, ramping Wi-Fi 6 royalties and expansion of edge AI and sensing IP.
AI Generated. May Contain Errors.
Earnings Conference Call
CEVA Q3 2023
00:00 / 00:00