CEVA Q2 2023 Earnings Call Transcript

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August 9, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the CEVA Second 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. I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence and Investor and Public Relations.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's Q2 2023 earnings conference call. Joining me today on the call are Amir Panooj, Chief Executive Officer and Yaniv Ar Eli, Chief Financial Officer of CEVA. 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 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 statements regarding market trends and dynamics, Including anticipated recovery in semiconductor startup funding and opportunities for Wi Fi and generative AI, Our market position, strategy and growth drivers, demand for and benefits of our technologies and expectations and financial guidance regarding future performance, including expected recovery in revenues and guidance for the Q3 and full year 2023.

Speaker 1

For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the effect of intense industry competition, the ability of CEVA Technologies and products incorporating CEVA Technologies to achieve market acceptance, CEVA's ability to meet changing needs of end users and evolving market demands, the cyclical nature of and general economic conditions in the semiconductor industry, CEVA's ability to diversify its royalty streams and license revenues, CEVA's ability to continue to generate significant revenues from the handset baseband market and to penetrate new markets Amciva assumes no obligation to update any forward looking statements or information, which speak of their respective dates. In addition, we will 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.

Speaker 1

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. Amir?

Speaker 2

Thank you, Richard. Welcome everyone and thank you for joining us today. Our Q2 results reflect a dynamic environment brought about by challenging macroeconomics conditions that has led to slower than expected recovery in some regions. On the other hand, we also saw resumptions in chip demand following a few quarters of inventory correction. Our licensing business experienced a slowdown in the quarter, which I will explain momentarily.

Speaker 2

On royalties, We saw our royalty revenue recovered to grow 17% sequentially and we anticipate this recovery can continue in the coming quarters. In licensing, our revenue came in below our expectation. The primary reason for this relates to the semiconductor startups, A customer base that is an important contributor to any IP licensing business, semiconductor startups rely on venture capital funding to under Funding for VC for semi start ups slowed down towards the end of 2022 and global VC funding for the first quarter of 2023 fell 50% year over year. Consequentially, some of the deals with startups we anticipate closing in the quarter Did not come through as planned and the resulting shortfall in licensing revenue was unexpected. However, we are already seeing funding of startups in the semiconductor ecosystem picking up again and anticipate licensing to these companies will recover in the coming quarters.

Speaker 2

We also saw mixed results in our design services activities in the quarter Where the overall defense industry is moving slower than expected to conclude new investments and funding there takes more time. As a result, some projects in our sales pipeline are taking longer to get funded. Looking at licensing business concluding in the quarter in more detail, We signed 17 new licensing and NRE agreements with noteworthy interest in our wireless communications offerings, Encompassing 5 gs, cellular IoT, Wi Fi, Bluetooth and UWB. All of these technologies continue to be in demand with deal signs in each of these areas. We signed 3 Wi Fi 6 deals for combo chips, Where we also license our Bluetooth technology.

Speaker 2

1 of these deals was with a strategic customer, a leading supplier of connectivity chips Into IoT devices spanning consumer, industrial and smart home. This latest deal with the customer is a multi use agreement As they look to expand their Wi Fi 6 business on the back of their highly successful Wi Fi 4 business. This latest deals with the customers and where they have shipped more than 300,000,000 CEVA Power WiFi chips to date. As we have discussed previously, the average royalty per unit we get for Wi Fi 6 is higher than previous generation of Wi Fi. Having an established customers and leader in this space migrate to WiFi 6 presents another potentially strong contributor to our Wi Fi royalty stream in the coming years.

Speaker 2

Other deals of note in the quarter include 4 new agreements for automotive, 2 for our UWB technology for digital keys and in cabin grader applications and 2 for our AI compiler technology This creates fully optimized runtime software for our sensible processors and NeoPoM NPUs. Our product offerings are very well aligned with the automotive industry's push towards electrification and even more powerful safety system. We have many touch points already in the car, including our Vision AI Processors for ADAS, Sensor Fusion DSPs for drivetrain and battery management systems and UWB Bluetooth, Wi Fi, 5 gs and V2X for safety, infotainment, Communications and connectivity. Our inherently low power solution are an excellent fit for automotive. And while it can take quite a number of years before our automotive design wins show up in production vehicles, we are very excited about design wins we have secured to date And the potential royalty stream that we can generate from this highly lucrative market.

Speaker 2

Finally, we signed 2 new agreements in cellular IoT space, 1 for our new narrowband IoT technology and another for targeting 5 gs Redcap. Now to royalties. After a weak Q1, we saw a good recovery in the Q2, driven by smartphone Targeting emerging markets and restocking for consumer and industrial IoT products following the inventory correction. Royalties for the quarter reached $9,500,000 up 17% sequentially. We saw CEVA powered chip volumes Increased sequentially across the broad spectrum of markets we address and a notable recovery in smartphones, PCs and 5 gs base stations in particular.

Speaker 2

On the last earning calls, we explained there was a significant inventory correction taking place, Particularly in the smartphone and consumer IoT spaces, where we have meaningful exposure. Following conversation with our customers and other companies in the supply We believe that this inventory has been walked through for the most part and our royalties reflect a resumption in demand to refill the channels. We reiterate our belief that the Q1 was the bottom for our royalty business and we anticipate continued recovery for our loyalty business through the remainder of the year. Now I would like to switch to discuss a new strategic market time expansion opportunity That we are addressing with our products targeting AI from the cloud to the edge. Earlier this week, we announced our latest neural processors targeting Generative AI applications.

Speaker 2

Generative AI is creating a lot of headlines recently, dominating the AI narrative, Thanks to Chet, GPT and other generative pre trained transformers or GPT models. In general, AI is divided into training, including deep learning and machine learning and inference, including computer vision, Copiloting photonics such as fast optical networking and more. CEVA has addressed inference application with our and new product line for a number of years and has been successful in helping our customers deploy AI across multiple end markets And devices including industrial, automotive and consumer. Generative AI takes the AI experience to the next level. Transformer based models have led to significant breakthroughs in several forms of generative AI.

Speaker 2

They are key and both increasingly powerful text to image models such as Dell E or stable diffusion and language and instruction following models such as Jet GPT or Stanford Alpaca. Today, such networks are typically executed On GPU based compute infrastructure in the cloud because of the massive model sizes and high memory and bandwidth requirements. However, as transformers based networks mature and become increasingly popular, there is an opportunity Spanning all the way from the cloud to the edge to increase the performance and efficiency of executing generative AI. For example, There are new generative AI models, which are domain and enterprise specific that use smaller proprietary datasets with fewer parameters And expert systems. These generative AI models don't require GPU based compute to execute.

Speaker 2

And thanks to our extensive experience in developing processors that support AI in low power devices, We have enhanced our NUPLAM NPU family to support this transformer based large language models, LLM, And generative AI models to allow natural language processing and generative capability locally, AKA co piloting With incredible efficiency, this directly improved the latency and overall personal experience of using generative AI, Protect the privacy of the user data, addressing a key concern of cloud based AI today and significantly reduces the cost per query. I believe that our ability to support transformer architecture with exceptionally low power consumption and highly efficient Positioned us very well to exploit this new wave of AI across the full spectrum of end markets from consumer IoT to industrial, Automotive and Networking. Our new Poem is already available for licensing to customers and we are very excited about the Potentially here to grow our AI footprint with this enhanced product family. In summary, despite the revenue shortfall in licensing this quarter, We believe our portfolio of wireless communications and sensing AI technologies is unrivaled and leads the industry in terms of performance, Power efficiency and quality. Our NewPoint family further expands our strength in AI to address the growing Trend of deploying the incredible potential of generative AI to any device and application.

Speaker 2

With our technology leadership position and top tier customer base and desire to grow and expand, we remain very optimistic about the long term trends in our And our ability to drive long term shareholder value. Now I will turn the call over to Yanez for the financials.

Speaker 3

Thank you, Abir, and good day to all. I'll now start by reviewing the results of our operations for the Q2 of 2023. Revenue for the Q2 was $26,200,000 as compared to $33,200,000 for the same quarter last year. The revenue breakdown is as follows. Licensing, NRE and related revenue, reflecting 64% of total revenues, was $16,800,000 as compared to $22,100,000 for the Q2 of 2022.

Speaker 3

The licensing business can be volatile in the IP industry. And in recent periods, it has been influenced both with cyclical Macroeconomic trends as well as short term conditions such as shifts in fundings of start up customers. Royalty revenue reflecting 36 percent of total revenue was $9,400,000 as compared to $11,100,000 for the same quarter last Illustrative of the overall soft demand in our end markets for this time last year. Encouragingly, on a sequential basis, royalty revenue grew 17% and as we expected a significant improvement and experienced significant improvement in the smartphone, 5 gs, base station and PC markets from the 1st quarter level. Quarterly gross margin came in lower on GAAP and non GAAP basis as compared to our guidance due to lower revenue base and higher subcontracting related expenses in our cost of revenues.

Speaker 3

Gross margin was 79% on GAAP basis and 82 Percent on a non GAAP basis compared to an 82% and 85% guidance on GAAP and non GAAP, respectively. Our non GAAP quarterly gross margin excluded approximately $400,000 of equity based compensation expenses and amortization of acquired intangibles of $400,000 Total GAAP operating expenses for the 2nd quarter was lower Then the low end of our guidance at $26,900,000 due to immediate actions taken by management Associated with lower overall employee related benefit accruals as well as better FX environment with a stronger U. S. Dollar compared to other currencies and lower overall marketing related activities. Total GAAP operating expenses for the 2nd Excluding equity based compensation expenses, amortizations of intangibles and holdback expenses were $22,400,000 also below the low end of our guidance due to the same reasons I just explained.

Speaker 3

GAAP operating loss for the Q2 was $6,300,000 up from GAAP operating loss of $300,000 for the same quarter last year. Non GAAP operating loss was $1,000,000 compared To operating income of $4,600,000 for the same quarter a year ago, GAAP and non GAAP tax Expenses of $500,000 was recorded mainly associated with withholding tax deducted by our customers that could not be utilized and were expensed. Our GAAP net loss was $5,800,000 and diluted loss per share was $0.25 for the Q2 of 2023 as compared to a loss of $1,100,000 and diluted loss per share of $0.05 for the Q2 a year ago. With respect to other related data, Shipped units by CEVA's licensees during the Q2 of 2023 were 370,000,000 units, Up 25% sequentially compared to the Q1 of 2023 reported shipments of 297,000,000 units and down from 433,000,000 units a year ago, primarily to the reason Amir discussed earlier. Of the 370,000,000 units reported, 79,000,000 units or 21% were for handset based chips, up from 27,000,000 in the Q1 of the year.

Speaker 3

Our base station and IoT product shipments were 291,000,000, up 8% sequentially from 2 70,000,000 units for the Q1 of 2023 and down 17% year over year from 349,000,000 units. Bluetooth shipments were 210,000,000 for the quarter as compared to 190,000,000 for the Q1 of 2023 as we saw in the beginning of the restocking of following the inventory correction we experienced. WiFi shipments were 29,000,000 units as compared to 21,000,000 units in the Q1 of 2023. Cellular IoT shipments were 21,000,000 units as compared to 29,000,000 units in the Q1. And other shipments under our base station IoT umbrella totaled 31,000,000 units in the quarter.

Speaker 3

This includes our computer vision, AI, audio, sensor fusion, 5 gs RAM and DSPs from non cellular communications. As Amir stated, we saw a significant recovery in handset baseband chips For smartphones in the quarter, driven by channel restocking in emerging market following the inventory correction in the prior quarter. As for the balance sheet items, at the end of the quarter, our cash, cash equivalent balances, marketable Securities and bank deposits were approximately $136,000,000 Our DSOs for the 2nd quarter were 47 days better than the Q1's 55 days. During the Q2, we used $4,800,000 Cash from operating activities, our ongoing depreciation and amortization was $1,400,000 And purchase of fixed assets was $1,100,000

Speaker 4

At the

Speaker 3

end of the second quarter, our headcount was 4.97 people, Of whom 410 were engineers. This is the same count as we had at the end of the Q1. Now turning to our outlook. Our licensing and Arena related revenue business It's fueled by a strong portfolio of wireless connectivity and sensing AI technologies and provides critical building blocks for many in the semiconductor industry. With that said, And with current market condition, we're taking a cautious approach and forecasting lower base revenue level than achieved last year.

Speaker 3

In royalties, the correction and improved environment in handset baseband royalties Can continue into the second half of the year. Our base station IoT customers also look more positively in the upcoming two quarters, So we anticipate sequentially higher royalties for the 3rd and 4th quarters. In parallel, we'll continue to monitor market trends. Earlier in the year, on our Q4 'twenty two Earnings conference call, Amir outlined this scenario and the potential of the licensing business to be impacted by project expense adjustment and realignments within the semiconductor industry. At the time, We also stated that this may further our cost control measures if required.

Speaker 3

In light of the recent financial results, We focus on the products and technology investments and to some extent also tied to the current macroeconomic environment. We have acted and we have taken few immediate measures to reduce overall headcount and expenses and forecast overall lower expenses in both the 3rd and the 4th quarter. We'll continue to monitor our Specifically for the Q3 of 2023, gross margin is expected to be higher than the 2nd quarter, Approximately 82% on GAAP basis and higher sequentially on non GAAP basis at 85%, Excluding aggregate based compensation expenses of $400,000 and amortization of acquired intangibles of $400,000 as well. OpEx for the Q3 is anticipated to be slightly higher compared to the Q2 of $7,700,000 including an anticipated $4,700,000 of equity based compensation, dollars 800,000 for amortization of acquired intangibles. Non GAAP OpEx is also expected to be Slightly higher in the Q2 due to the reasons I just explained and in the range of $22,200,000 to $23,200,000 I want to emphasize that overall expenses for CEVA In the Q3, it's forecasted to be lower than the lower second quarter expense level that we recorded due to the cost measures I just mentioned.

Speaker 3

Net interest income is approximately $1,000,000 Taxes for the 3rd quarter to be signed and reported royalties during the quarter. Share count for the Q3 is expected to be approximately 24 point 7,000,000 shares. Rocco, we could open the Q and A session.

Operator

Thank

Speaker 5

guys. I guess for my first question, Amir, I totally get the changing sort of Landscape right now from a licensing perspective and some of the things that you mentioned about smaller and startup companies and their funding situation to take licenses. So I get that on the headwind side. I guess what I'd like to hear a little bit more about is the licensing trends in China. We've heard From a few folks that, as the HiSilicon Huawei Semiconductor business essentially couldn't manufacture stuff on the leading edge anymore, there's A lot of new companies that have sprung up over there, that from the same engineering base, and have quite a bit of funding behind So I guess, could you talk a little bit about any restrictions you guys might have in terms of Export controls or whatnot and licensing into China, what the licensing trends are there?

Speaker 5

And I guess I'm a little bit surprised that some of those New companies that are popping up over there maybe didn't make up for some of the shortfall that you mentioned in the Western markets. Thanks.

Speaker 2

Yes, very good point. I think, Matt, there's several things here. First, that's definitely a potential as we look forward. Some of those companies that you mentioned, there is a very strong engineering base there that's actually extremely familiar with our technologies. And we see that interest coming later on in the year.

Speaker 2

But those things those changes have happened more recently And that will take some time for basically get established, getting the funding building and then deciding on their technology and product line. So the activity overall is still very strong. It's just that some of those decision taking longer. And so our business China is solid and actually we see a lot of potential as we keep driving towards the next few quarters. But overall, as I mentioned in the And in my prepared remarks is that the overall fund, macroeconomics and with the basic funding and just decision to make To take on new projects and to use their cash, it's just taking longer.

Speaker 2

That's what's really happening in this quarter as we look towards the rest of the year.

Speaker 3

And I'll add, Matt, maybe you asked about expert control. So we obviously comply with control and don't have any special limitations that we are aware of or that has anything has changed Recently, so that's really not the case. But those exact type of companies that you mentioned that Maybe you have started off and there are great potential, but didn't get to the final stage of signing and executing those deals that we were working with.

Speaker 5

Thank you, guys. As my follow-up question, Yaniv, I wanted to focus on the model a little bit. You mentioned in your script and obviously in the results and guidance, the lower licensing revenue. So I'm just trying to get my head around What you guys are trying to message there, I mean, are we for the full year 2023, are we looking at licensing revenue similar to what it was in 2021, so like that $73,000,000 give or take, is that kind of I'm just trying to use that as a benchmark to see if that's in the right Ballpark. And then the second piece is you mentioned lower OpEx for Q3 and then Q4 as well, but maybe you could go through the non GAAP guidance again on OpEx because maybe I misheard, but it looked like it might be actually up a little bit sequentially in September versus June.

Speaker 5

So if you could help on those two items, I'd appreciate it. Thank you.

Speaker 3

Sure. Let's start with the licensing. I think for Q3 and Q4 were keeping the licensing more or less. So obviously, it could be a range, plusminus $1,000,000 $2,000,000 depends how the quarter will look like. But we're looking at about 17 ish Shmuelen, like very similar to what we came out right now for Q3 and Q4, again, pending deals that we could get signed maybe earlier than Planned or larger in size, but that's the model.

Speaker 3

So probably a little bit shy of the 2021, but that's In the ballpark that you asked about, that's on the licensing royalties we mentioned, we start with 8, Got up to 9.4%. We are looking at both Q3 and Q4 sequential growth. We don't know exactly the pace and The magnitude of that, so we are taking it slow, but all the indications from the roll report we received from Q2 Show that there is a significant recovery in handsets, in PCs, in 5 gs run base stations. So all that It's baked in and continuous growth in the next two quarters. Not necessarily 17% sequential growth, but still more limited growth as until we get the actual report and have a better obviously visibility.

Speaker 3

On the expense level, I want to again emphasize the 2 expense lines. There is the custom goods for us And the R and D on the operating expenses and the expense that moves around a bit from quarter to quarter between R and D And cost of goods is the actual service costs and EDA costs that are associated with those services And that we provide, so margin gross margins are slightly higher in the 90%, 85% -ish Both for Q3 and Q4 compared to 82% that we just reported. On the other hand, some of those Higher expense and better margins or lower cost of goods expenses go to back to the R and D line. So You're right that for Q3, it's slightly higher in the operating expenses. We guided $22,200,000 to 23,200,000 So somewhere in the middle is probably where we end up, including those variable expenses that move up and down From R and D to cost of goods, but if you look at the overall expenses with that higher gross margin, you'll see that the overall expenses from Q2 Q3 will go down and that's the plan for Q4 as well.

Speaker 5

Okay. Thank you, Yenny, particularly the last point about the total expenses including COGS. That's Helpful. Really appreciate it. I'll get back in to you guys.

Speaker 5

Thank you.

Speaker 3

Thanks, Matt.

Operator

And our next question today comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Speaker 6

Thanks for taking my question. My question is around the licensing During the quarter, when you're working on these deals, did they get slipped out or were they canceled?

Speaker 2

Yes. Kevin, that's a good question. It's actually to some degree a mix, but to the most part they are getting delayed. So definitely there are companies that takes longer to make those decisions

Speaker 3

or

Speaker 2

it takes longer for them to get the final approval of the funding that they need In order to make the final call and license from Master Technology, that's the majority of the cases. But there are also Some cases where the company decided eventually not to go ahead.

Speaker 3

I'll add one more thing, Kevin, that we also signed 1 or 2 deals that were signed, but because of payment concerns until this funding gets executed, We didn't deliver and didn't recognize. So you'll see it and that's just for this quarter. It happened in the past as well. And if we're not sure about the collectability, we don't deliver and don't recognize any revenue. So they are on both sides Open

Speaker 6

later. Okay, great. Thanks for that clarification. And on your new MTU, that's exciting generative AI. And I'm sure you've been developing this with customers already or potential customers.

Speaker 6

Can you say where their applications are? Is it in the handset? Is PCs or is it a new types of product?

Speaker 2

It's actually Kevin, great question. It's actually across Wide variety of applications. You see that right now so called for edge devices co piloting use cases. So The likes that you mentioned like PC, tablets and handsets devices, that's definitely where you will see those things deployed in the future. In addition, things related in the future for high speed photonics, also in areas of automotive For similar or different type of use cases and really quite wide range of applications In the consumer space and automotive.

Speaker 6

Okay, great. Thank you.

Speaker 3

Thank you.

Operator

Our next question comes from Chris Reimer of Barclays. Please go ahead.

Speaker 4

Yes. Hi. Thanks for taking my questions. I was wondering if you could give any more color. You've has to happen before you break more into that area?

Speaker 2

Yes, we are actually already playing quite a bit in the industrial space for things, everything related to AI application and DSP processing as well as with our leadership in wireless communication. So there is already quite high adoptions with our different type of Wi Fi, Bluetooth, 5 gs technologies And the RedCap that is coming to the industrial space, I don't think there is one thing in particular that we need to do differently, But it's keep driving the innovation with our product line and addressing this market. Overall, like with the other markets, we are Focusing a lot on power efficiencies and high performance and high quality of our products. And this is very, very applicable also for the industrial space.

Speaker 4

Okay. And touching on the efficiency measures, How sustainable are they? And if you could just touch on what exactly you did in order to Reduce expenses.

Speaker 2

Yes. I think the best way to look at it is really starting with the strategic decision first where I want our team to focus in terms of driving the long term growth. So first, we really have a very strong leadership in wireless communication spending all the way from 5 gs To WiFi, Bluetooth, Ultra Wideband and Urban IoT, and definitely that's area of focus that we'll keep and invest and enlarge our capabilities there. And the other focus area is around DSP processing moving into the AI space. And as I mentioned, the new PoM with the additional Very great capabilities to support transformers and Generative Live.

Speaker 2

So those are the focus area that we are heavily investing. With that, I keep basically working with the team where we see other activities that are not necessarily with the focus of the long term strategy of the company And that's what basically we drive more efficiencies and overall cost reduction. And so We have done it through the towards the end of this quarter and as we get into Q3 and Q4, as Yaniv mentioned. And we will continue monitoring basically our Success in the market and the strategic activities we want to drive in order to ensure the focus. Overall, we have very strong focus on our IP portfolio to drive that to the market.

Speaker 4

Got it. Thanks. That's it for me.

Speaker 3

Thank you, Chris.

Operator

Thank you. And our next question comes from Gus Richard with Northland. Please ahead.

Speaker 7

Yes. Thanks for taking the question. I was just wondering if you could give us a little bit of color on the geographic distribution of your licensing business?

Speaker 3

And same as in the past, nothing too dramatic. All of our Service business is in the U. S. Relating to Aerospace and Defense, Strong presence in China, more than half of the business usually comes from there. And as we were asked earlier, also a lot of the new startups are emerging and a lot of investments over on the last decade Has been relevant there.

Speaker 3

We're seeing now more in the Europe and the U. S. Obviously Opening and creating fabs, we saw TSMC announcement yesterday about opening a new fab in Europe with the joint with the Very large semiconductor players, all that fuels both the U. S. And Europe to more In sensitive services, IP, ship design activities in order to be able to fill up those fabs.

Speaker 3

So we're trying to shoot in all the different areas. New markets obviously will also change a bit the mix geographical mix for us. Japan has been strong. This last quarter Taiwan has been strong for us with a very nice deal there. So All over the place, but I would say that we're trying to move and add more offerings and more revenues over time In both Europe and the U.

Speaker 3

S.

Speaker 2

I will add a little bit thanks, Yaniv. I will add a little bit more colors on that. We have talked about 4 deals that we had this quarter in the automotive space. And this With the generative AI and overall focus on high performance NPUs for the AI, those are the type of technology that will help us actually to expand very, very nice In the other regions. And on top of that, in the previous earning calls, I mentioned about so called the tailwind that we expected more to come as we go into 2024 2025, which is the funding, the local funding for local semiconductor industries from the fab to overall development.

Speaker 2

This is definitely something that we see happening in the different regions and that will also propel more opportunities for us. So this will be a combination of focusing on The AI space and the automotive, in addition to our leadership in wireless communication, will drive More adoption of our technology, so called outside FX.

Speaker 7

Got it. Very helpful. And then just And again, back to the licensing business, as you look forward, where do you see your best opportunities for licensing the next couple of years. Is it AI auto or does it remain wireless? Any color in that Aria would be helpful.

Speaker 7

Thank you.

Speaker 2

It's quite similar to what I mentioned previously. There is first, of course, everything related to wireless communication. We are in a really very strong position and We expect that to continue and even to strengthen. So that's definitely will continue to drive significant portion of our licensing and business overall. But also in addition, really the processing the DSP processing and moving into AI, that's so called the new growth area on top of that, it will drive lots of our success.

Speaker 2

And lastly is that in the previous calls I mentioned our software embedded application goes on top of that, That drives much more demands directly with the OEM that will drive also additional growth for us, especially on the royalty side longer term.

Speaker 1

Got it. Perfect. Thank you so much.

Speaker 2

Thank you.

Operator

Thank you. And our next question today is a follow-up from Kevin Cassidy at Rosenblatt Securities. Please go ahead. Okay.

Speaker 6

And just for a little more detail on that with the 4 deals in automotive, Are those traditional semiconductor companies or are they Tier 1s or even dealing with automotive companies that are designing their own

Speaker 2

So in most cases, we are dealing with the Tier 1s or the semiconductor We are dealing with the semiconductor suppliers and in some cases also directly with the Tier 1s. So it depends on the application and how they would like to deploy it In their systems. But it's a combination with majority of the semiconductor companies. Okay.

Speaker 6

Thank you.

Operator

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

Speaker 1

Thank you 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 on our website. With regards to upcoming events, we will be participating in the following conferences: the Oppenheimer 26th Annual Internet Communications and Technology Conference taking place today virtually. Frozen Black's 3rd Annual Technology Summit, The Age of AI, Taking place August 22 to 24 virtually, Jefferies Semiconductor IT Hardware and Communications Technologies Summit, August 29th 30th in Chicago and the Jefferies Israel Tech Trek September 11th to 13th in Israel. Further information on these events and all events we will be participating in can be found on the Investors section of our website.

Speaker 1

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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