Good day and welcome to the CEVA, Inc. Fourth Quarter and Year-end 2018 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star then 2. 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 CEVA's Fourth Quarter and Full Year 2018 Earnings Conference Call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the fourth quarter and full year 2018 and provide general qualitative data. Yaniv will cover the financial results for the fourth quarter and 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 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 and 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 2019, and positive forecasts from Ericsson Mobility and Yole 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.
These include the ability of the CEVA signal processing IPs for smarter connected devices to 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 market, 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. CEVA 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 present 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 results using certain non-GAAP financial measures. Investors and potential investors are encouraged 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 31st, 2018, and the 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 had an excellent fourth quarter in licensing with a number of important agreements with premier customers. 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 fourth quarter royalty revenue reflects above seasonal weakness in the handset space 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 $21.4 million.
The licensing landscape continues to be healthy. We managed to record $10.5 million of licensing and related revenue and to sign 13 new agreements, of which six were with first-time customers. During the quarter, we signed one of the largest license agreements in the company history with a customer targeting the 5G market. The customer licensed a customized 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 timeframe. 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 two new agreements.
NB-IoT continues to show good dynamics and prospect, as many semiconductor companies with no cellular background turn to us for an IP solution that can reduce the high entry barrier of cellular. The space possesses huge volume opportunity, with the market expected to reach 4.1 billion connection by 2024, according to the recent Ericsson Mobility Report. Target applications 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 $77.9 million, down 11% from last year. Licensing and related revenue was $40.4 million, down 6% from last year. Royalty revenue was $37.4 million, down 16% from last year. We continue to strengthen our customer base with 49 license agreements signed in total, of which 16 were with first-time customers.
A steady growth in licensees in diversified market is the key driver for new royalty streams, in addition to incremental revenues from existing royalty sources. At our Investor and Analyst Day last month, we disclosed that we have 12 royalty-paying customers today, and additionally, 60 customers are actively designing new chips, which we expect to gradually roll out for production over the coming years. 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 growth engine through licensing and 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 LTE-A and 5G mobile broadband.
After 12 consecutive quarters year-over-year revenue decline in base station RAN space, the overall RAN market increased 7% in the third quarter of 2018 versus the comparable quarter in 2017, according to the Dell'Oro Group Report. The main drivers for growth are migration to faster multi-gigabit per second speed offered by the latest advancement in LTE-A and 5G, and new usage models for massive IoT, fixed wireless access, public safety, and enterprise. Our vast experience, along with our strategic relationship with key OEMs such as Nokia and ZTE 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. Second, our strategic decision to go up in the value chain across all our product lines. There are two 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 economics, which in turn 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 WhisPro, a neural network-based voice recognition technology, which we announced together with a new all-purpose DSP architecture, the CEVA-BX, at the recent Consumer Electronics Show in Las Vegas.
By binding these two technology, along with our other noise and echo cancellation technologies, ClearVox. We are paving the way for our customer to use speech as a primary user interface for broad range of markets such as smartphone, smart home, headset and hearables, automotive, and industrial. A recent study by Yole Research forecast that 1.7 billion units of these voice-enabled devices will ship in 2023. Our other vertically integrated platform for AI, computer vision, 5G, Wi-Fi, and Bluetooth provide 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 2018. With that said, share gain at the large U.S.
handset OEM, coupled by higher ASP for LTE shipments, led to a stronger second half and year-over-year growth versus the second half of 2017 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 billion units annually by 2022. As for 2019 royalty, we believe the headwinds in the cellular market and the higher channel inventory will prolong for one or two more quarters into the first half of the year. It's expected to be followed by stronger second half of 2019, both in unit and ASP. In our other non-handset category, we expect steady progress in growing contribution for Wi-Fi and AI in addition to the fast-growing Bluetooth market.
For base station, based on commentaries by our customer and operator, 5G deployment in 2019 will be at a slower pace than originally expected as operator stage their rollout and due to few unresolved interoperability issues with Android. As such, due to the low visibility in 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 emanating from CES, revealed that 5G is coming, and operators see the benefit of driving 5G buildup, particularly in U.S., China, Korea, and Japan. Yaniv will shortly quantify our view on 2019 royalty. In summary, in 2018, we continued to plant the seeds for our growth by capturing a large set of design wins across our targeted segment.
Accumulating those 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 world possessed for us. Finally, I would like to take this opportunity to thank for all our employees for their hard work and strong execution. We made great progress in 2018 and reaffirm our position as the leading and valuable IP supplier for 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 investor for their support. We wish you all happy and prosperous year. With that said, I now turn the call over to Yaniv, who will 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 $21.4 million as compared to $21.6 million for the same quarter last year. The revenue breakdown was as follow: licensing and related revenue was approximately $10.5 million, reflecting 49% of our total revenue, 17% higher as compared to the fourth quarter of 2017. Royalty revenue was $10.9 million, reflecting 51% of our total revenue, down from $12.6 million for the same quarter last year, but also included a $0.9 million 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 fourth quarter was at similar level to the prior quarter and just below the high range of our guidance, at $17.2 million.
OpEx also included an aggregated equity-based compensation expense of $2.2 million and $0.2 million for the amortization of acquired intangibles of RivieraWaves. Our total operating expenses for the fourth quarter, excluding these items, were $14.8 million, also similar to the third quarter level and at the high end of our non-GAAP OpEx guidance. U.S. GAAP net income and diluted EPS for the quarter decreased 27% and 29% respectively to $2.1 million over the fourth quarter of 2017. Our non-GAAP net income and diluted EPS for the fourth quarter decreased 9% and 8% respectively year-over-year to $5.2 million and $0.23 respectively. Other related data. Shipped units by CEVA licensees during the fourth quarter of 2018 were 249 million, down 5% sequentially and down 13% for the fourth quarter of 2017 reported shipments.
Of the 249 million units shipped, 134 million units or 54% were for handset baseband shipped, reflecting a sequential decrease of 19% from 165 million units of handset baseband shipments shipped during the third quarter of 2018, and a 35% decrease from 205 million 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 quarterly Bluetooth and sound shipments from our customers. From a revenue perspective, fourth quarter non-baseband royalty revenue increased 32% sequentially with comparable volume increase. The fourth quarter was the first time we surpassed 100 million non-baseband shifts in a single quarter, actually reaching 140 million units for the quarter. Of these, 91 million 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 million units, which equates to approximately 30 CEVA power devices sold every second in 2018. These unit shipments represented an annual royalty revenue decrease of 16% year-over-year. Annual shipments 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 gained volume at a tier 1 U.S. smartphone OEM. Non-handset baseband royalty revenue continued to grow and reached a record level of just shy of $9 million, up from $8 million in 2017 and up from $4 million in 2016.
In terms of units, our non-handset baseband unit shipments were up 41% year-over-year to a record 374 million units, with Bluetooth contributing a new record of 303 million units for the year. As for our balance sheet items, as of December 31st, 2018, CEVA's cash equivalent balances, marketable securities, and bank deposits were $168 million. We continued our active buyback plan, repurchasing approximately 129,000 shares during the fourth quarter for approximately $3 million. 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 fourth quarter continued to be low at the level of 46 days.
During the fourth quarter, we generated $4.5 million of net cash from operations, depreciation was $1 million, and purchase of fixed assets was approximately $0.4 million. At the end of the year, our headcount was 341 people, of which 278 were engineers. We continued the R&D investment during 2018, opening a new design facility in Bristol, U.K., increasing our R&D headcount by about 11% or shy of 30 engineers. Enabling us to introduce new licensable IP products and expanding our overall TAM to approximately 17 billion units by 2022. These R&D achievements contributed to higher licensing revenue for the last few years. We continue to thrive to reach new financial milestones, revenue growth, new customers and markets, and focus on shareholder value. For our guidance. Last year was another excellent year in licensing revenue with over $40 million.
13% CAGR from 2013, post the implementation of our diversification strategy. 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 than 2018. On royalties, 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. In non-handset baseband royalties are expected to continue and expand with new customer SKUs across all our product lines. We are forecasting some year-over-year contribution from base station royalty in line with commentaries by key players and operators. At this stage, we are expecting annual royalty growth in the region of 4% to approximately $39 million 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. Cost of goods, we expect higher expenses of approximately $1.7 million due to R&D customization related expense that will be allocated from the R&D expense line to the cost of goods on the large 5G deal that Gideon discussed about earlier. 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 tools. OpEx increase will be in the region of $4 million, and all of it contributed to our R&D line. Equity-based compensation is also forecasted to be the similar level of 2018.
Annual gross margins are forecasted to be in the region of 88%-89%. Interest income, slightly higher in 2018 at a level of $0.9 million per quarter. Taxes are expected to be lower on a dollar basis, a higher percentage of pre-tax income, U.S. GAAP tax bill of about half a million dollars for the year, and non-GAAP tax rate of about 14%. Share count for 2019 is expected to be similar to the 2019 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. GAAP and non-GAAP based margins are expected to be a bit lower than the norm due to the cost of goods allocation expenses with that specific customization work that I just mentioned. OpEx is expected to be in the range of $17.4 million-$18.4 million.
Of the anticipated operating expenses for the first quarter, $2.3 million 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&D grants payment, and higher in the following quarters. Overall, our first quarter OpEx range on non-GAAP will be in the range of $15 million-$16 million. Net interest income, $0.9 million. Taxes for the first quarter on GAAP basis, less than $200,000. A non-GAAP and share count similar to the fourth quarter of this year. Carrie, you could now open the Q&A session, please.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will come from Gary Mobley of Benchmark. Please go ahead.
Morning, gentlemen. Want to start asking a question or clarification about your non-baseband royalty revenue in 2019. Did you say that was $9 million, Yaniv?
It's just shy of $9 million. Yes, Gary.
That compares to what in 2017?
About $8 million.
Okay.
Gary, just keep in mind that we had a pause in base station revenue this year as a result of the ban of ZTE.
Okay. You were a little bit hard to hear on your commentary about the 5G licensee. That's for 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, our offering is for both end, both on the handset side and the base station side, and it's applicable to incumbents and new ones.
Okay. 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 offer, and that's what we're going to do in the next few quarters.
Okay. Well, I guess you'll keep us guessing. All right, with respect to Spreadtrum. Obviously, had some market share struggles in 2018. How do you feel about that royalty payer and licensee with some upgraded modem technology, and how that may translate into share preservation or share gains in the calendar year 2019 timeframe?
Spreadtrum had a share gain loss. They lost a key customer, which often in some cases happen in this market because it's extremely competitive, and they had to refocus their strategy. Their play is in the low tier of the LTE baseband, and they have big advantages there in terms of cost. They have a strong relationship with Reliance in India. That will do. In 2017, they have some up in LTE. In 2018, from Reliance, things are a bit, they consume a bit of this one. Going forward, I think they will refocus on this space. Keep in mind, and we said that also in the Analyst Day, the mobile broadband, which is LTE, basically, is still untapped when it comes to emerging markets. What we see at the low end, 2G is going down, 3G is going down.
This will eventually be transformed to a new LTE, because people are not buying 2G phone, are not buying 3G phones, so their next move will be to LTE, like all of us. We were in the same situation two years ago in the Western company. Spreadtrum 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 the base station market, it's interesting to hear some of the commentary it seems that you're hearing from your customer base around base station volumes and deploying those for 5G, then juxtapose that against some of maybe the earlier or stronger commentary out of a company like Xilinx that seems to be using FPGAs for some of those baseband products instead of ASICS. Gideon, maybe you could talk broadly about, is it 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 could distinguish between those two, that would be helpful. Thank you.
I think there are two elements to answer your question. One is the deployment itself. We are coming into the base station with ASICS. FPGA is, for some customers, could be a temporary solution. For other customers, it could be a more permanent solution. When it comes to our customers, from BT, VPN, and Nokia, they are going into the ASICS. The 5G deployment itself is going to be staggered, meaning the expectation was that in 2019, it will be a point of no return, and everybody will deploy. One will be at a smaller pace, one will be at a faster pace, some regions. We are not in this position as we thought in last year. The initial deployment is now. They will not install it everywhere. They install it in certain cities. As I said in the prepared remarks, there are some leftover interoperability issues.
The way our customers are saying, Nokia is pretty open about it. They see second half of the deployment, and RivieraWaves could be there. By the way, the issues that they have, the interoperability issues, is not with the part that we are there. It's more on the upper spectrum. We just need to wait for that to happen. There is enough room for everybody, FPGAs, ASICS, that is the two options.
Matt, to highlight on that, maybe what we have done this year versus 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, want to see more data and maybe the first royalty report before we come out with that. 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. I would imagine Qualcomm will feature in the majority of those, and your customers seem to be coming on the heels maybe more quickly on 5G than they did 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 5G 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 you're going to see in MWC will be all Qualcomm based and as far as I can see, it will be also operator locked. It will be very localized, meaning operator will decide to promote certain phones, and it will be 5G and not necessarily fully interoperable, just to own the game. Our customers are working on 5G, we have several customers. When they come out into the market, could be late 2020, maybe 2021, depending how the market will evolve. That's something that we'll know better when we see the base stations, because they need the base station to install them first. We'll see. The royalty for 5G, and we have many platforms in open, 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 data. Qualcomm went down 20%, we went down 11% in smartphone, 3G, and LTE. In a way, when it comes to the mainstream market, LTE, we are doing better. I think that's the mass market for us to focus in this year and maybe first half of next year.
Thank you very much, Gideon. Good afternoon, guys.
Thank you.
Thanks.
The next question will come from Mike Walkley of Canaccord Genuity. Please go ahead.
Great. Thanks. Just a question on the overall royalty growth of about $2 million you expect for calendar 2019. Can you walk us through some of the puts and takes? You look at Intel maybe gaining better share year-over-year in iPhone, even though volumes are weak. Spreadtrum's obviously going through some issues, but ZTE should be recovering. Nokia should be something versus nothing in the year. Can you 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? 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 missed is the allocation of those throughout the year, and I think we mentioned that earlier. Last year, we saw the first two quarters quite low for different reasons. That will continue into next year, into 2019, we talked about the inventory, we talked about the overall immaturity of the handset space that we've all seen in Q4, and that will probably spill into Q1 or Q2. 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 much stronger in the second half, especially around the September launch, with Spreadtrum gaining more and more sockets.
Over the last two weeks, we have seen maybe five or six different SKUs that were published all over that they want. Now we just need to see the volume and the timing of these new SKUs. A lot of different OEMs. In ZTE, we hope that there will not be any halts, like we mentioned earlier, and you saw last year of a quarter and a half of not reporting and not working. 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 to the full extent that that could happen, and we just want to wait and see. All the other pieces, and we talked about, this is the third year in a row that our non-handset baseband, both units and royalties, are going up year after year. That should continue into 2019 unharmed. Yet, a lot of new markets that we're not in. Automotive is still pending and no volume yet, but we have a couple of design wins. We're talking about sound that is a relatively new opportunity for royalties. We're talking about Narrowband IoT, with a dozen deals in the last two years, but not royalties yet. We just saw probably the first chip out there that could hit the market in early 2019.
A lot of these other parts are all looking good, and we should continue. The biggest dollar contributor, of course, on the non-handset business is coming from base stations, and that, for now, we have taken a pretty prudent approach in growth on a year-over-year basis.
Great. That's helpful. My follow-up question, just on clarification. For research and development, did you say up about $4 million year-over-year? Is that exclusive of the extra cost going through cost of goods sold? You have the extra R&D and cost of goods sold plus another $4 million, or does it include that $1.7 million expected in cost of goods sold?
It's plus. You're right, $4 million on the R&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 four 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 realize that it needs a bit more of a R&D level support, and that's part of the reason for that increase. It's both on the OpEx, that $4 million, 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 two weeks.
Great. Thank you.
The next question will come from Suji DeSilva of Roth Capital. Please go ahead.
Hi, Gideon. Hi, Yaniv. 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 cash? Is that the reason?
Yes, that's correct. It's a pretty big deal, and I think we said probably the biggest deal we've ever signed, and it has technology milestones over five or so or six quarters. We're starting to work on it, and we'll recognize and invoice as we go along.
Okay, that helps. Is that customer a new customer to CEVA or an existing customer?
We cannot give you any clue to this one.
Fair enough.
It's an important customer.
Yeah. Okay. More broadly on wireless infrastructure as you ramp up here, are you guys more levered to macro cell or small cell? I have a perception that you guys might have an even better content opportunity in small cells if those take off in 5G. Is that a misperception? Is it really just, you're in the core macro and you have opportunity in small cell? Which is it, 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. That's the beauty about 5G, because the usage model and where we can be there is much more diverse and big than the LTE. Right now, the deployment that we are is in the LTE macro. When it comes to 5G, we are going to be in all those places, and that's the plans of our customer.
That's very helpful. One last quick question on the non-baseband. You talked about 2019 growth. Can you rank order the sub-segments of non-baseband that would support that growth the best, in your opinion, in 2019?
Dollar-wise, as we mentioned early, base stations is strong and probably the biggest contributor in dollars. After that, we're seeing the vision picking up. By the way, we started, three years ago, with no vision products, and the last three years, year after year, that specific segment of cameras and sport devices like the GoPros and drones of different kinds have been using more and more CEVA devices. Volume-wise and dollar-wise, that has been going up the last three years. Not yet significant amounts, but we are scratching the $1 million from that. Same goes with sound devices. A few million dollars, less than a handful of Bluetooth. We talked about 50% unit growth, from $200- $300 million in just one year.
The opportunity, as we said earlier, are hundreds of millions of units, if not more, for us. 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. We anticipate those volumes to continue to increase. I think we're seeing from every front, a contribution, but the biggest dollar amount is base station, I would say, then after that, the connectivity, vision, and sound.
Right.
Near-term IoT is not there yet. That's a new segment on top of that.
Very helpful, Yaniv. Thank you guys.
Sure. Thank you.
The next question will come from Tavy Rosner of Barclays. Please go ahead.
Thanks for taking my question. When looking at a non-baseband unit, we did see some growth, although the unit didn't grow, I guess, as fast as I would've expected in the emerging opportunities since the license shifts began a few years ago. I guess, in the growth that you guided for royalties in 2019, what kind of growth are you expecting for non-baseband? Are there any areas that could outperform significantly from this guidance?
You want to start it? Of course. We'll start with the second part of the question, and I think we were quite clear on that we did not want to make the same mistake we had last year, which was not in our control. 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. That, for now, most of that is out of the equation. 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 10-20 to go into production in 2019. We don't know exactly to what extent.
That's something that we are still working on, we'll see how that evolves. 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. 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, that will help overall.
Yeah. I will establish two things. First of all, regarding your question of 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 phase they will go in the market. We just took those that we know, and we know how they're going to progress this year. With base station, Yaniv already covers all this 5G. We are taking very prudent bolts from Nokia and ZTE, because ZTE is right now is just LTE. 5G in China will get boost even faster than the U.S., it's a plus. Then comes the baseband. The baseband, our concern is the macro, not the potential for us to expand.
I gave example to one of your questions, what happened? We are doing relatively good if you put aside the macro. If the macro in the trade dispute that implies into the handset market, if the macro improves and you see there are so many 2G, 3G that were not bought this year that eventually will come to LTE. You speak about magnitude of ramps, that could come in a very short period. These are still unknown, and we didn't want to be too 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 2019? How many 5G licensing deals do you expect to close? Maybe going back to the deal you signed in the quarter, what exact aspect of that deal made that the biggest one to date? I have a follow-up. Thanks.
Let me take the second question first because I see that people are curious about this 5G. When a customer signs a big deal and take a so-called risk of waiting for us to finish what the customer wants, it's a serious player, serious customer. That's the only thing that we can say. As soon as we can give more clarity, we will give. That's when it comes to this specific deal. When it comes to the 5G in general, from what I said in the prepared remarks, we expect in 2019 to expand our footprint in 5G, first of all, base station, because we are targeting a few more customers and believe we have a shot there to license our new technologies. The same goes for the handset. The technology that we are offering, we call it PentaG. We announced it last year in MWC.
The thing about this technology is that it is a platform, and you don't necessarily take it or leave it, but if you are an incumbent and you believe there is a portion that you miss in your 5G, you can take just a portion of PentaG. If you are a newcomer, and there are newcomers in the 5G, you can take it all. There is an, I would say, very hectic and dynamic engagement that we have for all 5G customers for handsets and other, let's say, user equipment stuff that we are addressing. I cannot give you any commitment how many of these. I don't know exactly how many signed, but the only thing that I can tell you, it's a very dynamic engagement.
Okay, got it. Thanks for that. Maybe a follow-up for Yaniv. Within the 2019 royalty growth, what's the assumption around handset baseband ASPs across 3G and 4G? Thanks.
In 3G and 2G, we didn't see any change over the last year, just because there are not too many players and competition in that space as much. In 4G, when we added the high-end U.S. OEM, that helped with the overall ASPs, and I think they should continue to stay at the higher elevation. Again, the mix here is important. If we have the Spreadtrum coming in and the low-end LTE, like we discussed earlier, suddenly picks up to a more healthy environment, we will 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 a combination somewhere of the latest ASPs, if we are more or less the same, versus lower ASPs, if the volume will pick up, that's what we see today.
Nothing out of the ordinary as much as we could tell for now.
Okay, got it. Maybe just one final one, the LTE shipments in Q4?
$75 million.
Sorry, what was that?
$75 million in Q4.
Got it. Thanks, guys.
Great. Thank you.
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. 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 8-K and accessible through the investor section of our website at investors.ceva-dsp.com. With regards to upcoming events we will be attending, these include Mobile World Congress from February 25th to the 28th in Barcelona, Spain, the Susquehanna Technology Conference on March 12th in New York, and the 31st Annual Roth Conference March 18 and 19th in Dana Point, California. Please visit the investor 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 line. Have a great day.