Earnings Call: Q4 2018

Feb 13, 2019

Good day, and welcome to the CEVA, Inc. Fourth Quarter And Year End 2018 Earnings Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor And Public Relations. Please go ahead. Thanks, Carrie. Good morning, everyone, and welcome to Steve's 4th Quarter and Full Year 2018 Earnings Conference Call. I'm joined today by Gideon Wertiser, Chief Executive Officer of CEVA And Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the fourth quarter full year 2018 and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter full year 2018 and also provide qualitative data for the first quarter and full year 2019. I will start with the forward looking statement. Please note that today's discussion 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 differ materially from those expressed or implied by such forward looking statements and assumptions. Forward looking statements include, Our financial qualitative data for the first quarter full year 2019 optimism about CEVA's 60 customers ability to design new chips and such customer base enabling CEVA to double its annual royalty revenue by 2022. Optimism that CEVA can leverage its Bluetooth, NB IoT and voice recognition technologies, as well as capitalize on the 5G upgrade cycle, optimism about sustained growth in non handset baseband product lines and customer production ramp ups? Optimism that the cellular market will recover in the second half of twenty nineteen and positive forecast from Ericsson Mobility And Yolei Research. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities And Exchange Commission. Please include the ability of the CEVA signal processing IPs for smarter connected devices to be continue to be strong growth drivers for us. The traction with edge technology for AI our success in penetrating new markets and maintaining our market position in existing markets, the ability of new products incorporating our technologies to achieve market acceptance and offset the maturity of the handset markets, the speed and extent of the expansion of the 5g network and wireless connectivity, AI, LTE IoT, and the IoT space generally. Our ability to execute more broad portfolio license agreements and customers ramp up schedules and impact on royalty revenues. Siva assumes no obligation to update any forward looking statements or information which speak as of their respective date. In addition to the financial results prepared in accordance with the Generally Accepted Accounting Principles or GAAP, we will also presents certain non GAAP financial measures today. CEVA's management believes that in addition to using GAAP results in evaluating our business, It also can be useful to review the reconciliation of non GAAP financial measures with their most direct comparable GAAP financial results, which can be found in the earnings press release issued today. A copy of today's press release for the quarter and year ended December 31, 2018, and related financial tables and management commentary, which were included in our current report on Form 8 K filed today, also can be found on the Investor Relations portion of our website shortly after this call. With that said, I will now hand over to Gideon. Thank you, Richard. Good morning, everyone, and thank you for joining us today. CEVA is an excellent 4th quarter in licensing with a number of important agreements with Premier customer. The resilience of our licensing business, despite the softening macro environment demonstrates that our comprehensive technology portfolio is valued by a broad base of companies addressing the smart and connected world. Our 4th quarter royalty revenue reflects above seasonal weakness in the handset rates due to higher inventory levels, primarily attributable to China and emerging markets. However, we see continued expansion of our non baseband customers in particular with Bluetooth and the recovery with ZTE base stations business. Total revenue for the fourth quarter of 2018 came in at $21,400,000. The licensing landscape continues to be healthy. And we managed to record $10,500,000 off licensing and related revenue and to sign 13 new agreements, of which 6 were his first time customers. During the quarter, we signed 1 of the largest license agreements in the company history with a customer targeting the 5G market. The customer license a customer is next generation processor for 5G use case, which we will design over the next few quarters and we will recognize part of the revenue associated with this deal during that time frame. We also signed an important agreement with a well known U. S.-based semiconductor company that will strategically capitalize on our Bluetooth audio technology to expand into the fast growing market of smart audio devices. Our narrowband IoT technology also continued to gain traction with 2 new agreements. MD IoT continues to show good dynamics and prospects as many semiconductor companies with no cellular background turned to us for an IP solution that can reduce the high entry barrier of cellular. The space poses huge volume opportunity with the market expected to reach 4,100,000,000 connection by 2024, according to the recent Ericsson Mobility report. Target application for the other agreements signed in the quarter include advanced consumer camera, surveillance cameras, automotive connectivity, smart speaker, Bluetooth earbuds, Wi Fi routers and other IoT devices. For the full year 2018, revenue came in at $7,900,000, down 11% from last year. Licensing and related revenue was $40,400,000, down 6% from last year. Royalty revenue was $37,400,000, down 16% from last year. We continue to strengthen our customer base with 49 license agreements signed in potash, of which 16 World with first time customers. A steady growth in licensees in diversified market is the key driver or new royalty streams in addition to incremental revenues from existing royalty sources. At our Investo and Analyst Day last month, we disclosed that we have 4 royalty paying customers today, and additionally, 60 customers are actively designing new chips which we expect to gradually roll We believe that this customer base will approximately double our annual royalty revenue in 2022. As we move to 2019 and beyond, we remain focused on capitalizing our gross engines through licensing and some supporting our customers' design. The conviction for our sustainable growth potential is based on number of strategic catalysts. The first is the acceleration in demand for base stations and small cell as mobile operators around the globe are accelerating investment on NTA and 5G mobile broadband. After 12 consecutive quarters, year over year revenue decline in base station line space. The overall rent market increased 7% in the third quarter of 2018, versus a comparable quarter in 2017, according to the lower group results. The main drivers for growth are migration to faster multi gigabit per second speed offered by delayed pest advancement in LTE and 5G and new usage models for massive IoT fixed wireless access public safety and enterprise. Our vast experience along with our strategic relationships is C OEMs such as Nokia VTE and their semiconductor partners put us at the forefront of the upcoming upgrade cycle for 5G. We also target to expand our customer base with large incumbents and newcomers in 2019. 2nd, our strategic decision to go up in the value chain across all our product lines. There are 2 main merits for such comprehensive move. The first is by developing both the hardware and software we are able to holistically produce the most cost and power efficient solution for our customers. Secondly, By enriching our offering with state of the art algorithms, software and AI technology, we are streamlining our customer product deployment and economic, which will then will enable us to strengthen our relationship with our customers and to receive higher royalty ASP for our technology. A recent example of our value added strategy is the WISPR, a new one network based voice recognition technology, which we announced together with a new all purpose DSP Architecture, the CEVA DX as a recent consumer electronics show in Las Vegas. By binding these 2 technologies, along with our other nodes and echo cancellation technologies, ClearBot, we are paving the way for our customer to use speech as a primary user interface for broad range of market such as smartphones, smart home, headsets and heaters, automotive and industrial. A recent study by YOL research forecasted 1,700,000,000 units of this voice enabled devices will ship in 2023. Our other vertically integrated platform for AI, computer vision, 5g, WiFi, and Bluetooth provides us with a dramatic increase in customer reach and value as reflected in our recent licensing performance. On royalties, 2018 turned out to be a challenging year for the entire cellular industry, in particular in the first half of twenty eighteen. With that said, share gain at the last year's handsetrated and coupled by higher ASP for LTE shipments led to a stronger second half and year over year growth versus the second half of twenty seventeen in LTE royalty revenue. Our non handset baseband category continues to expand with shipments up 41% year over year as new CEVA based SKUs are being deployed particularly in the fast growing Bluetooth market that is expected to reach 5,000,000,000 units annually by 2022. As for 2019 royalty. We believe the headwinds in the cellular market and the higher channel inventory will prolong for 1 or 2 more quarters into the first half of 1,000,000,000. It's expected to be followed by stronger second half 2019, both in units and ASP. Now our other non handset category, we expect solid progress in growing contribution from Wi Fi and AI in addition to the fast growing Bluetooth market. As for base station, based on commentary by our customer, and operators, 5G deployment in 2019 will be at a slower pace than originally expected as operator page, their rollout and due to few unresolved interoperability issues with them. As such due to the low visibility and the timing and the magnitude of 5G deployment in this year, We are taking a prudent step in regard to growth from base station for this year. With that said, All indications and commentaries, including those amending phone CS revealed that 5G is coming. And operators see the benefit of driving 5G Builder, particularly in U. S, China, Korea and Japan. Let me, which shall be quantifying our view on 2019 warranty. In summary, in 2018, we continued to plan the seeds of our growth by capturing a large set of design wins across our targeted segments. Accumulating both design wins, which is the hardest part of our business, make us stronger and more resilient to local economic factors. We are committed to continue to relentlessly pursue multiple growth opportunities in the smart and connected work process for us. Finally, I would like to take this opportunity to thanks for all our employees for their hard work and strong execution. We made a great progress in 2018 and reaffirm our position as the leading and valuable IT supplier or vertically integrated solution for cellular connectivity vision, speech and AI. I would like also to extend my thanks to our partner supplier and last but not least, our investors for their support. We wish you all happy and prosperous year. With that said, I'll now turn the call over to Yaniv with outline our financials and guidance. Thank you, Gideon. Good morning. I'll start by reviewing the results of our operations for the fourth quarter of 2018. Revenue for the fourth quarter was $21,400,000 as compared to $21,600,000 for the same quarter last year. The revenue breakdown was as follows: Licensing and related revenue was approximately $10,500,000, reflecting 49% of our total revenue 17% higher as compared to the fourth quarter of 2017. Royalty revenue was $10,900,000, reflecting 51 percent of our total revenue, down from $12,600,000 for the same quarter last year. But also included a $900,000 royalty catch up following an audit of the customer. Gross margins were 91% on GAAP basis and 92% on non GAAP basis. Our total operating expense for the 4th quarter was at similar level to the prior quarter and just below the high range of our guidance at $17,200,000. OpEx Also included an aggregate equity based compensation expense of $2,200,000 $200,000 for the amortization of acquired in angibles of Riviera Waste. Our total operating expenses for the fourth quarter, excluding these items, were $14,800,000, also similar to the 3rd quarter level and at the high end of non GAAP OpEx guidance. U. S. GAAP net income and diluted EPS for the quarter decreased 20 7 29% respectively to $2,000,000.10 over the fourth quarter of 2017. Our non GAAP net income and diluted EPS for the 4th quarter decreased 9% 8%, respectively, year over year, to $5,200,000 $0.23 respectively. Other related data. Ship units by CEVA licensees during the fourth quarter of 2018 were 249,000,000 down 5% sequentially and down 13% for the fourth quarter of 2017 reported shipments. Of the 249,000,000 units shipped, 134,000,000 units, or 54% were for handset baseband chips, reflecting a sequential decrease of 19% from 165,000,000 units of handset baseband shipment shipped during the third quarter of 2018, and a 35% decrease from 205,000,000 units shipped year over year. In non handset baseband, volume shipments continued to increase 17% sequentially and 43% on a year over year basis. The increase is primarily due to higher royalty or a higher quarterly Bluetooth and sound shipment from our customers. From a revenue perspective, fourth quarter non baseband royalty revenue increased 32% sequentially with comparable volume increase. The 4th quarter was the first time we surpassed $100,000,000 non baseband shift in a single quarter. Actually reaching 114,000,000 units for the quarter. Of these, 91,000,000 were Bluetooth chips which were up 45% on a year over year basis. As for the year, Our total shipments decreased 20% year over year to 929,000,000 units. Which equates to approximately 30 silver power devices sold every second in 2018. These unit shipments represented an annual royalty revenue decrease of 16% year over year. Annual shipment of smartphones decreased 36% year over year, mainly due to loss of market share by a large Chinese handset customer and general maturity of the market. However, our average royalty per unit in smartphones increased 31% year over year as we gain volume at a Tier 1 U. S. Smartphone OEM. Non handset baseband royalty revenue continued to grow and reached a record level of the shy of $9,000,000, up from $8,000,000 in 2017 and up from $4,000,000 in 20.60. In terms of units, our non handset baseband unit shipments were up 41% year over year to a record 374,000,000 units with Bluetooth contributing a new record of 303,000,000 units for the year. As for our balance sheet items, as of December 31, 2019, CEVA's cash Cash equivalent balances, marketable securities and bank deposits were $168,000,000. We continued our active buyback plan. Repurchasing approximately 129,000 shares during the fourth quarter for approximately $3,000,000. Back in May, 2018, our Board of Directors approved an extension of the existing buyback plan. And as of year end, we have a total of 367 shares available for repurchase. Last, our adjusted ASC 606 DSOs for the 4th quarter continues to be low at the level of 46 days. During the fourth quarter, we generated $4,500,000 of cash, net cash from operations, depreciation was $1,000,000 and purchase of fixed assets was approximately $400,000. At the end of the year, our headcount was 3 41 people of which 278 were engineers. Overall, We continued the R and D investment during 2018, opening a new design facility in Bristol UK, increasing our R and D headcount by about 11% or shy of 30 engineers. Thereby enabling us to introduce new licensable IP products and expanding our overall TAM to approximately 17,000,000,000 units by 2022. These R and D achievements contributed to higher licensing revenue for the last few years. To reach new financial milestone, revenue growth, new customers and market and focus on shareholder value. Now for our guidance. Last year was another excellent year in licensing revenue with over $40,000,000. 13% CAGR from 2013 post implementation of our diversification strategy. While licensing revenue tends to be lumpy, We believe our strong product portfolio leads to a healthy demand environment. We are forecasting licensing revenue to be similar to slightly better As Gideon alluded to earlier and similar to 2018 in baseband, We expect a stronger second half of the year attributable to the release of new smartphones, The non handset baseband royalty are expected to continue and expand with new customer skills across all our product line. We are forecasting some year over year contribution from base station royalty in line with commentaries by key players and operators. All in all, at this stage, we are expecting annual royalty growth in the region of 4% to approximately $39,000,000 for the full year. We will review all this on a quarterly basis as we get more insights from our customers about expected product ramp, particularly with our baseband base station customers. In cost of goods, we expect higher expenses of approximately $1,700,000 due to our MD customization related expense that will be allocated from the R and D expense line to the cost of goods on the large 5G deal that Gideon discussed about earlier. On OpEx, with our new announced product and continued momentum with our existing licensing business, We will continue to innovate and reinforce our leadership, but with disciplined investment in R&D. Our OpEx increase is mainly associated with investments in headcount, employee related costs and EDA tool. Overall OpEx increase will be in the region of $4,000,000. All of it contributed to our R and D line. Equity based compensation is also forecasted to be the similar level of 2018. Annual gross margins are forecast to be in the region of 88% to 89%. Interest income slightly higher in 2018 and a level of $900,000 per quarter. Taxes are expected to be lower on a dollar basis at higher percentage of pretax income U. S. Tax, the U. S. GAAP tax of about $500,000 for the year and non GAAP tax rate of about 14%. Share count for 2019 is expected to be similar to the 2018 level. Specifically for the first quarter of 2019, gross margin is expected to be approximately 85% on GAAP basis and 87% on non GAAP basis. Both GAAP and non GAAP based margins are expected to be a bit lower than the norm due to the cost of good allocation expenses. Would that specific customization work that I just mentioned. Overall, OpEx is expected to be in the range $17,400,000 to $18,400,000. Of the anticipated operating expenses for the first quarter, $2,300,000 is expected to be attributable to equity based compensation expense and 0.2 to other amortization. Our non GAAP OpEx is expected to be similar to the first quarter of 2018 due to the timing of some R and D grants payment. And higher on the following in the following quarters. Overall, our first quarter OpEx range or non GAAP will be in the range of $15,000,000 to $16,000,000. Net interest income, $900,000, taxes for the 1st quarter on GAAP basis less than $200,000 and a non GAAP and non non GAAP. And share counts similar to the fourth quarter of this year. Kari, you could now open the Q and A session, please. We will now begin The first question will come from Gary Mobley of Benchmark. Please go ahead. Good morning gentlemen. I'm going to start asking a question or clarification about your non baseband royalty revenue in 2019. Did you say that was $9,000,000 you need? And that compares to what in 2017? About 8. And with respect, in mind that we had the pause in base station revenue this year as the result of the ban of ZT. Okay. You need, I'm sorry, getting you, you're a little bit hard to here on your commentary about the 5G license that's for a base station SOC, correct? No, we didn't say that. We said about 5G. We cannot further elaborate on what exactly, but as you know, we have our offering is for both end, both on the handset side and and the base station side and it's applicable to incumbents and new ones. Okay. But since there's some customization involved, we have to assume it's on the infrastructure side, right? No, it doesn't necessarily the case. You're right about customization. That's what we say. The new customer decided to take an enhanced version of what we and that's what we're going to do in the next few quarters. Okay. I'll just keep this guessing. All right. With respect to, Spreadtrum, as you had some market share struggles in 2018, how do you feel about that royalty payer and licensee with some upgraded modem technology in how that may translate into share preservation or share gains in the calendar year 2019 timeframe? So, you know, Spectrum had a share gain loss. They lost a key customer, which is often in some cases happen in this market because it's extremely competitive and they have to refocus their strategy. And they'll play within the low tier of the LTE investment and then big advantages there in terms of cost. And there's a strong relationship with Reliance in India, this will do. In 2017, they have some up in LTE. In 2018, reliance things are a bit, they consume a bit of this one. So going forward, I think they will refocus in this space. And keep in mind, and we said that also in the Analyst Day, the mobile drop them which is empty basically is still untapped when it comes to emerging market. And what we see, what we see in the low end, 2 gs going down, 3 gs going down, this will eventually be transformed to a new LP. People are not buying 2G phone or they're buying 3G phones, so their next move will be 13, like all of us, We were in the same situation 2 years ago in the Western company. So Prasone is, in my opinion, in a good shape to expand in this space. Okay. I will stop there and open it up to others. Thanks. Thanks, Gary. The next question will come from Matt Ramsay of Cowen. Please go ahead. Thank you very much. Good morning and good evening. A couple of things, guys, I guess, following on on the base station market, it's interesting to hear some of the commentary and themes that you're hearing from your customer base around base station volumes and deploying those for 5G and then juxtapose that against some of maybe the earlier or stronger commentary out of company like Xilinx that needs to be using FPGAs for some of those baseband products, instead of ASIC. So Gideon, maybe you could talk broadly about is the delays in deployment of modem ASICs that your technology is in within the base stations or do you feel like most of it is just a little bit slower rollout of base stations in total from the vendors in that market. If you get distinguished between those 2, that would be helpful. Thank you. So I think there are 2 elements in, to answer your question, one is the deployment itself. We are coming into the base station with ASICs. FPGA is from customer, for some customer could be a temporary solution. For the customer, it could be a more permanent solution. But when it comes to our customers and this is VPN and Nokia bill, they are going into this. But the 5G deployment itself is going to be stable. Meaning they are not expectation was that in 2019, it will be a point of no return. And everybody will deploy one will be on a smaller pace, one will be on a faster pace, some regions. So We are not in this position as we thought in last year. The initial deployment is now, they will not historic everywhere, the installed in certain cities. There are some, as I said in the prepared remarks, there are some leftover interoperability issues. So the way our customers are saying Nokia is pretty open about it. They fit second half of the deployment and risk shall continue. By the way, the issues that the interoperability issues is not with the the part that we are there, it's more on the upper spectrum. And so, we just need to wait for that to happen. And there is, in our room for everybody, FTGS, ASICs, That's the 2 options. I have to highlight on that maybe what we have done this year as last year that we got this timing wrong is that we did not bake in that growth yet in the second half of the year and then want to see more data and maybe the first royalty reports before we come out with that. So I think that's a bit of the difference this year and then just trying to understand better that market and when that opportunity kicks in. So we don't miss our guidance. Got it. Thank you both for that. As a follow-up question, I guess, going back to the handset market, it seems like we're going to get some announcements from some OEMs potentially of early 5G or I guess 5G handsets in Barcelona here in a month or so. And I would imagine Qualcomm will feature in the majority of those and your customers seem to be coming on the yields maybe more quickly on 5G than they did when when 4G deployed, a number of years ago. I guess maybe you could talk about how you're seeing the path of your customer base on five baseband for handsets? And then secondly, what that might mean for per unit pricing on a relative basis to where you're at right now with the 4G mix? Thank you. When it comes to 5G, I believe the first wave of phones that we're going to see in MWC will be all Qualcomm based and a lot as far as I can see, it would be also operator logs. So it will be very localized. Meaning, operator will decide to promote and funds, and it would be 5G and not necessarily fully interoperable just to own the game. Our customers are working on 5G and we have several customers when they come out into the market, late 2020, maybe 2021, depending on how the market will evolve. And that's something that we will know better when we see the base test. The base station to put them to install them first. So we'll see. The royalty for 5G and we have a new platform as you know, and 5G will be higher than, in LTE. By the way, when it comes to mobile broadband LTE, if you take, for example, Q4 quarter over quarter. So Qualcomm went down in 20%, we went down 11% in smartphone 3G and LTE. So in a way, when it comes to the mainstream market, we are doing better. And I think that's the market for us to focus in this year and maybe first half of next year. Thank you very much, Gideon. Good afternoon, guys. Thanks. The next question will come from Mike Walkley of Canaccord Genuity. Please go ahead. Great, thanks. Just a kind of a question on the overall royalty growth of about $2,000,000 you expect for calendar 2019. Can you walk us through some of the puts and takes? You look at Intel maybe gaining better share you over year on iPhone even though volumes are weak. Spreadtrims obviously going through some issues, but then ZTE should be recovering, Nokia should be something versus nothing in the year. So can you kind of just walk us through your thought process of just slightly up year over year royalties and where maybe we're seeing declines in the business? Because it seems like a lot of your customers should be slightly up year over year. Thank you. Sure. Thanks, Mike. I think you got all the points right. Maybe one thing that you miss is the allocation of those throughout the year. And I think you mentioned that earlier. Last year, we saw the first two the first two quarters quite low for different reasons that will continue into next year in 2019. We talked about the inventory. We talked about the overall and the shortness of the handset space that we've all seen in Q4. And that will probably spill into Q1 or Q2. So we'll have very similar levels to where we were a year ago. And we believe that that will start picking up from the second half for all the right reasons from the apple volume being stronger in the second half, especially around the September launch with a spectrum gaining more and more sockets. And over the last 2 weeks, we have seen maybe 5 or 6 different SKUs that were published all over that they have won. So now we just need to see the volume and the timing of these new SKUs, a lot of different OEMs different OEMs. And ZTE, we hope that there will not be any holes like we mentioned earlier, and you saw last year of the quarter and a half of not reporting and not working. So I think that should be more linear throughout the year. With potential when 5G picks up and that we did not bake in the numbers yet. We will see potentially a much stronger second half compared to this second half with ZTE and Nokia on board. For now, that's not included in our models. We did take some increase for ZTE and hope to see something from Nokia, but not just to the full extent that that could happen. And we just wanted to wait and see. All the other pieces and we talked about this is the 3rd year in a row that are non handset baseband, both units and royalties are going up year after year. That should continue into 2019 on arm. Yet lot of new markets that we're not in. Automotive is still pending in no volume yet, but we have a couple of design wins. We're talking about sound that is relatively new opportunity for royalties. We're talking about narrowband IoT. With a dozen deals in the last 2 years, but not royalties yet. And we just saw probably the first chip out there that could hit the markets in early 2019. So a lot of these other parts are all looking good and we should continue. The biggest dollar contributor, of course, in the non handset business is coming from base station and that for now, we have taken a pretty prudent approach in growth on a year over year basis. Great, that's helpful. And my follow-up question, just just on clarification, for research and development, did you say up about $4,000,000 year over year? Is that exclusive of the extra cost going through cost of goods sold. So you have the extra R and D and cost of goods sold plus another $4,000,000, or is it include that $1,700,000 expected in cost of goods sold? It's plus, you're right. $4,000,000 on the R and D line. That is mainly to assist other than the ongoing project that we talked about and Gideon explained. It's really to support our customers. In the last 4 years, we signed 200 deals and 81 new customers that have never worked with us. That causes much more pressure for us. If we want to make them successful and those customers are a big portion of them to get into production, we realized that it needs a bit more of a R and D level support and that's part of the reason for that increase. So it's both on the OpEx that $4,000,000 and on top of that, you have the allocation of cost of goods for that specific 5G design win. Great. Thank you. I look forward to seeing you at Mobile World Congress in 2 weeks. Great. Thank you. The next question will come from Suji Desilva of ROTH Capital. Please go ahead. Question on the large multi quarter license agreement for the 5G there. Why didn't deferred revenue go up? Is that because there's customization milestones you have to achieve to collect the revenue, the cash, is that, the reason? Yes, that's correct. It's a pretty big deal. I think we said probably the biggest deal we've ever signed and it has the technology milestones over 5 or so or 6 quarters. So, we We are starting to work on it and we'll recognize an invoice as we go along. Okay, that helps. And then Is that a customer a new customer to CEVA or an existing customer? I mean, we cannot speak, give you any clue to this one. Fair enough. Okay. And then more broadly on wireless infrastructure as you ramp up here, are you guys more levered to macro cell or small cell? I mean, I have a perception that you guys might have an even better content upgrades small cells if those take off in 5G. But is that a misperception? Is it really just you're in the core macro and you have opportunities more so, which is a 2, is it really? We are all over the place, our technology is scalable and we address both the macro and the small cell. And the fixed wireless, by the way. And that's the beauty about 5G because the usage model and And where we can be there is much more diverse and big than the LP Right now, the deployment that we are is in the LTE market. But when it comes to 5G, we are going to be in all those spaces. And that's the plans of our customers. Okay, that's very helpful. One last quick question on the non baseband. You talked about 2019 growth. You rank order the subsegments of non baseband that would support that growth the best in your opinion in 2019? So dollar wise, as we mentioned, early base stations is strong. And probably the biggest contributor in dollars. After that, we're seeing a division picking up By the way, we started 3 years ago with no vision products. And the last 3 years, year after year, that specific segment of cameras and the sport devices like the GoPro's and the drones of different kinds have been using more and more CEVA devices. So volume wise and dollar wise, that has been going up. The last 3 years, not yet significant amounts, but we are scratching the $1,000,000 from that. And goes with sound devices, a few $1,000,000 less than an handful of Bluetooth, we talked about 50 percent unit growth from $200,000,000 to $300,000,000 in just 1 year. The opportunity, as we said earlier, are 100 of 1,000,000 it's not more for us. And we don't see that volume decreasing in the near future. We're winning more and more This was the best licensing year for our connectivity, both Wi Fi and Bluetooth that we have ever had so far. And so we anticipate those volumes to continue to increase. So I think we're seeing from every front, a contribution the biggest dollar amount is base station. I would say then after that, the connectivity, vision, and sound. Narrowband IoT is not there yet. And that's a new segment on top of that. Very helpful, Unique. Thank you. Sure. Thank you. The next question will come from Tavy Rosner of Barclays. Please go ahead. Thanks for taking my questions. When looking at a non baseband unit, we did see some growth Although you need to grow, I guess, as fast as I would have expected in the emerging opportunities since the license shift become beginning a few years ago. So I guess in the growth that you guided for royalties in 2019, what kind of growth are you expecting for non basements? And to the same extent, are there any areas that could outperform significantly from this guidance? Of course, we'll start with the delay at the second part of the question, and I think we were quite clear on that that we did not want to make the same mistake we had last year, which was not in our control. So We try to build a prudent, royalty forecast not taking into account the potential ramp up of Nokia or at least very small amounts there because we don't have yet the exact date and quantity to quantify it. So that's for now, most of that is out of the equation. And quite a few new design wins that we talked about 60 companies that we have or customers that we have today in design phase We do expect anywhere between 10 to 20 to go into production in 2019. We don't know to what exactly to what extent. So that's something that we are still working on and we'll see how that evolves. But there is no doubt that overall unit volume growth for 2019 versus where we are today, we're looking at 15, 20% growth in units. So that should be still significant tens of millions of units of new products. Of course, for a dollar perspective, again, we need the baseband devices to be there and that will help overall. I will, I will start with 2 things. First of all, regarding your questions, how things can go better it could go better all over the place. Keep in mind that when it comes to the non handset minus base station, let's call it IoT. We have so many designs in process that, we don't have that exact visibility, when exactly and what pace they will go in the market. So we just took those that we know and we know that they are how they're going to progress this year. The base station DNA already covers all this 5G, we are taking very prudent both for Nokia and VT. OZT is right now an adjusted T. And the 5G China will get boost, even faster than U. S. So then it's a class. And then comes the baseband. The baseband, our concern is the macro not the share, not the potential for us to explain. And I gave example to one of your questions. What happened? I mean, we are doing relatively good if you put aside the macro. So it's an macro in that maybe the trade dispute that implies into the handset market. In the macro improves, And you see, there are so many 2 gs, 3 gs that were not bought this year that eventually we got working. So then you speak about magnitude of rent that could come in a very short period. So these are still unknown and we didn't want to be optimistic about it. But again, the potential is there. Great. Thank you. Sure. Thank you. Our last question today will come from David O'Connor of Exane BNP Paribas. Please go ahead. Great. Thanks for squeezing me in guys. Maybe a question again on the 5G maybe you can give us an idea of where are we in the 5G licensing cycle. What's your expectation in 20 'nineteen, how many 5G license and deals do you expect to close? And then maybe going back to the deal you signed in the quarter, what exact aspect of that do you mean that's the biggest one today? And I have a follow-up. Thanks. So let me take the second question first because I see that people are curious about this 5G. When a customer signed, a big deal and take so called risk of waiting for us to finish what they want, what the customer wants It's a serious player, a serious customer. That's the only thing that we can say as soon as we can give more clarity will be. So that's when it comes to this specific deal. When it comes to the 5G in general, We what I said in the prepared remarks that we expect in 2019 could spend our footprint in 5G, 1st of all, base station. Because we have started we are targeting few more customers and believe we have a shopper to license our new technologies. And same goes for the handset. The technology that we are also, we call it Penta G, we announced it plus tier in NWC. The thing about this technology that it is a platform, and you don't necessarily take take it to leave it, but you can take if you are an incumbent and you believe there is a portion that you miss in your 5G, you can take just portion of PentaG. And if you have any newcomers and there are newcomers in the 5G, you can take it off. So delays in, I would say, very hectic and dynamic engagement that we have for 5G customer for handsets and other acrylic user equipment, stuff that we are addressing. And I cannot give you any commitment how many weeks. I don't know exactly how many signs, but the only thing that I can tell you, it's a very dynamic a very dynamic engagement. Okay, got it. Thanks for that. And then maybe a follow-up for, I mean, within the 2019 royalty growth, what's the assumption around handset baseband ASPs across 3g And 4g? Thanks. In 2G, we didn't see any change over the last year, just because there are not too many players in competition in that space as much. In 4G, when we added the end U. S. OEM that helped with the overall ASPs. And I think they should continue to stay in the higher elevation. Again, the mix here is important. If we have a spectrum coming in, and the low end LTE like we discussed earlier suddenly picks up to a more healthy environment we'll be happy with that. Maybe the ASP will be pushed back a bit, but the dollars and the royalty contribution will be much higher. So I think the combination is somewhere of the flattish ASPs, if we are more or less the same versus lower rates. If the volume will pick up, Not that's what we see here today, but nothing out of the ordinary as much as we could tell for now. Okay, got it. And maybe just one final one. The LT shipments in Q4? 75,000,000. Sorry, what was that? $75,000,000 in Q4. Great. Thank you. And this concludes our question and answer session. I would now like to turn the conference back over to Richard Kingston for any closing remarks. Thank you. And thank you all for joining us today and your continued interest in and support of CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit on current report on Form Eight K and accessible through the Investors section of our website at investors. Xiva.com. With regards to upcoming events we will be attending, These include Mobile World Congress from February 25th to 28th in Barcelona, Spain, the Susquehanna Technology Conference on 12th in New York and the 31st annual Roth Conference March 18 19th in Dana Point, California. Please visit the Investors section of our website for further information on these events and other events we will be attending. Thank you and goodbye. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.