Earnings Call: Q2 2018

Aug 7, 2018

Good morning, and welcome to the CEVA Incorporated Second Quarter 2018 Earnings Conference Call. All participants will be followed by Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, VP of Market Intelligence, Investor And Public Relations. Thanks, Brandon. Good morning, everyone, and welcome to CEVA's 2nd quarter 2018 earnings conference call. I'm joined today by Gideon Veritizer, Chief Executive Officer of CEVA and Yaniv Arieli, Chief Financial Officer of CEVA Gideon will cover the business and the highlights from the second quarter and provide general qualitative data. Yaniv will then cover the financial results for the second quarter and will also provide qualitative data for 2018. I will start with the forward looking statements. 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 revised financial guidance for full year 2018 revenues, 3rd quarter and annual royalty revenues optimism about a healthy licensing environment and demand for CEVA's products. Optimism about the distinguishing features of CEVA's AI edge technology, positive forecast from Tractica forecast and Bluetooth SIGTS and optimism about CEVA's technologies being adopted by ZTE at a later time. 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 CEVA's 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 and offset the maturity of the handset market to speed and extent of the expansion of the LTE and 5G networks ai, LTE IoT, and IoT space generally, our ability to execute more broad portfolio license agreements and customers' ramp up schedules and the 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 can also be useful to review results using certain non GAAP financial measures. Investors and potential investors are in encourage 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 ending June 30, 2018, and the related financial tables and management commentary, which were included in our current report on Form 8 K filed today, can also be found on the Investor Relations portion of our website. Before handing the call over to Gideon, I would like to remind you that ObsEva adopted the new revenue accounting standard known as ASC 606 as of January 1, 2018. Under the new standard, our royalty revenue represents what our customers shipped during the second quarter of 2018, or our best estimates for such shipments. The numbers stated on this call for the second quarter are based on ASC 606 unless otherwise stated. However, as our Q2 2018 financial results are not directly comparable to our Q2 20 17 financial results, which were reported under the old revenue accounting standards known as ASC 605. We will also provide you on today's call, our Q2 2018 financial results as reported under ASC 605 to allow for an apples to apples comparison on a year over year basis. We will have this true reporting approach throughout 2018 as required by the Financial Accounting Standards Board. With all of that said, I will now hand the call over to Gideon. Thank you, Richard, and welcome everyone. Our second quarter revenue came in at $17,500,000. Licensing and related revenue was $10,000,000 similar to last year and a quarter ago, reflecting a healthy environment for our AI, computer vision and Bluetooth technologies. Royalty revenue under ASC 606 came in at $7,500,000 similar to last quarter but below our expectation attributable continued unexpected weakness of 1 of our large Chinese handset baseband customer which I will elaborate on later in the call. And consumer products with non handset basement shipment reaching new record level of 88,000,000 units in the quarter. During the second quarter, we concluded 9 deals of which 3 were for our DSP course and platforms one for our new Pro AI platform and 5 for our connectivity IPs. 3 of the agreements were with first time customer and the rest were with existing customer that are expanding their existing businesses or upgrading to a newer product. Customer's target application include advanced camera drones, smart speaker, smartphone, wireless earphones and IoT verticals. We continue to experience 5 of our deals in the second quarter being for those 2 product categories. Let me take the next few minutes to highlight the success solve and in the cost driven Bluetooth market. On AI, while most of the AI application is currently cloud based, there is widespread acknowledgement that AI workload are distinct to move to the devices themselves or what is referred to as the edge. AI at the edge ensures faster response time and greater privacy by keeping the intelligence processing on market research firm tractical forecast that the market for deep learning chipsets will increase from $1,600,000,000 in 20.17 to $66,000,000 by 2025. Edge devices are expected to represent more than 3 quarter of the total market opportunity with the reminder being the cloud. Smartphones, automotive, surveillance camera and robots our prominent edge categories. Apparently, the growth opportunity and the market size the AI space presents attracts companies both from the Semiconductor And the Semiconductor IP Industries to offer variety of AI solution to support the burgeoning need for performance. Against this crowded backdrop, CEVA proposition distinguishes itself in 3 main areas. First is performance. CEVA new pro 4000 processor offer the highest AI operations capacity per crew among all IP and semiconductor vendors in our targeted markets according to a recent study by the Lienley group like hypothesis of EPO. 2nd, Nupro is a unified platform that can combine processing of AI, computer vision and general DSP algorithm. It allows our customer to reuse the same platform for variety of use cases and to complement AI with front end and backend computer vision and image enhancements applications. 3rd and a key success factor is our deep neural network compiler technology known as CDN. CDN is an incredibly complex software technology that automatically optimizes many different types of neural networks to process efficiently in power and size constrained edge devices that are enabled by our new power hardware. An equivalent technology called TensorRT offered by NVIDIA, yet its primary use is in the cloud. Siva is the only company that offers similar features and robustness targeted for edge devices. We have already signed up to up 3 leading customers for NewPro who provide us with value feedback on this unique 3. We are experiencing interest for pipeline from a pipeline of reputable companies which we will further engage in One Bluetooth. According to the recent Bluetooth SIG report, in 2018 nearly 4,000,000,000 devices will ship with Bluetooth technology. It is expected to grow to over 5000000000 units in 2022. The growth will be driven by the latest standard Bluetooth 5 and a recent major addition to the standard Dimesh topology. Siva is the incumbent Bluetooth IP supplier for dozens of customers and clear leader in the Bluetooth dual mode that combine the benefit of Bluetooth low energy with audio capabilities. According to SIG Forecast, 65% of all Bluetooth shipments by 2022 will be dual mode due to the proliferation of smart speaker, Bluetooth audio speaker, earphones hearing aids and voice enabled TV remote control. Our newest voice software technology, ClearVoice, offer value add and higher royalty level opportunity in conjunction of the Bluetooth and DSP calls. We continue to grow our shipments in the Bluetooth space with an all time high 71,000,000 units shipped in the second quarter, up 57% versus Q2 actual shipments last year. Let me now provide you with update on our base station run customers. Nokia continues to grow the footprint of its airscape, baseband and radio technology enabled by CEVA IPs. Last week Nokia announced that it has signed a $3,500,000,000 deal with T Mobile to supply equipment for its 5G network, the world's largest 5G deals announced today. Nokia has also once designed for 5G at Verizon AT And T And NTT dotcom of Japan, and recently signed an important agreement with China Mobile. In its recent earning call, the CEO of Nokia reiterated his confidence for upcoming 5G ramp up in the 3rd quarter with acceleration in the 4th quarter but was also prudent about large scale deployment that is difficult to predict due to the timing we are encouraged and the resumptions of their base tension operation which contributes relative to us. This is a strong contender in the pre-5G and 5G network infrastructure and is determined to assume this position. With that said, we assume it will take a few months for Ziti to rebuild the supply chain and to get back to full productions which were put on hold during the ban will resume shortly, but the timing of licensing closure has been affected by the ban. As for the handset baseband, in the second quarter, we started to see preparation for a sizable ramp up by one of our customers will supply Basement Processor to a premier smartphone OEM for a flagship launch. In this upcoming product cycle, we are set to benefit from higher ASP due to an increased content. On the other hand, the weakness we experienced in the first quarter in the low tier of the smartphone space with large Chinese based customer of our continued unexpectedly into the second quarter. We believe this can be attributed will now be split between another customer of ours and a supplier that does not use our technology. We now expect this weakness expected growth in volume and content associated with the premier smartphone will partially offset the weakness of our Chinese based customer. Yanil will later discuss the financial implication on our 2018 guidance, which reflect both ZTE and the handset development. In summary, We continued to progress with our licensing business, driven by healthy demand for our AI, computer vision and connectivity products. We continue to strengthen our technology base and are confident about our strategy and our ability to add new royalty gross engines, notably in premium smartphone and the continued expansion in non handset segment that will drive substantial sequential royalty revenue growth in the second half of the year and beyond. With that said, let me turn the operations for the second quarter of 2018. Revenue for the second quarter based on C606 was $17,500,000. The revenue breakdown is as follows. Licensing and related revenue was $10,000,000 reflecting 57% of our total revenue, only 3% lower as compared to the second quarter of 2017. Royalty revenue was $7,500,000, reflecting 43% of our total revenue a decrease of 26% year over year basis compared to $10,000,000 for the 2nd quarter actual shipments that were reported in third quarter of 2017 following the new rules under ASC 606. Quarterly gross margin was 89% on U. S. GAAP basis and 91% on non GAAP basis. Non GAAP quarterly gross margin excluded approximately $167,000 for equity based compensation expenses $183,000 or the impact of amortization of the acquired intangible of our investment expenses for the quarter were just below the mid range of our guidance at $18,200,000. OpEx included an aggregated equity based compensation expense of approximately $2,700,000 and $100,000 for the amortization of acquired intangibles of Riviera Labs. Our total operating expenses for the second quarter excluding these two items were $15,400,000, slightly above the mid range of our guidance. U. S. GAAP loss and diluted loss per share were $2,100,000 $0.09, respectively. Our non GAAP Net income and diluted EPS for the second quarter of 2018 were $900,000 $0.04 respectively. These figures exclude equity based compensation expenses in the amount of $2,800,000 and the impact of amortization in the amount $2,300,000. Our second quarter 2018 financial results under the old 605 rules compared to the second quarter of 2017 were as follows. Total revenue was 16,600,000 U. S. GAAP loss $3,000,000 $0.13 loss per share and the non GAAP net income and EPS for the second quarter were $0.00 and dollars respectively. Other related data. Shipped units by CEVA's licensee during the second quarter of 2018 were approximately 222,000,000 shipments reported in the third quarter of 2017. Of the approximately 222,000,000 units shipped 134000000 dollars or 60% were for handset baseband chips, reflecting a 10% sequential increase, and a 29% decline on a year over year basis. In non baseband hands and best wing volume is shipments reached a record high of 88,000,000 units, up 19% sequential and 44% on a year over year basis. Bluetooth shipments continue to be strong. As for our balance sheets, as of June 30, 2018 CEVA's cash, cash equivalents, balances, marketable securities and bank deposits were approximately $173,000,000. During the second quarter, we paid Ash Street 2 more payment milestones of just less than $1,000,000 for the new narrowband IoT technologies as we discussed on our prior earnings call. We continue to be active in our buyback program. Repurchasing approximately 270,000 shares during the second quarter and an average price of $33 per share During the second quarter, our Board of Directors approved the expansion of the existing buyback plan. And at the end of last quarter, we have a total of 700,000 shares available for activities, we repurchased 6,000,000 Last, our adjusted ASC 606 DSOs for the second quarter of this year were 48 days down from the prior cash from operations. Our depreciation was $600,000 and repurchase of fixed assets was $1,800,000 higher than norm due to additional new EDA tools for R&D Design teams. The end of June, our headcount was 325 people, of which 261 are engineers. Now for the guidance 2018 annual royalty guidance to a 10% decrease from the 20six-seventeen level. With that said, we expect a substantial increase with more than 50% sequential increase expected to turn to year over year growth in the second half of twenty eighteen. On licensing and related revenue, We continue to experience healthy demand for our products, but it's slightly reduced our expectations for the year due to the ZTE deal push out which Gideon elaborated on. Our revised revenue for the year is expected to be in the region of $80,000,000, split fairly evenly between licensing and royalties plus or minus few percentage points either way. Specifically for the third quarter of 2018, Gross margin is expected to be approximately 91% on GAAP and 92% on non GAAP basis. Our overall OpEx is expected to be slightly lower than the second half and the second quarter OpEx in the range of $17,500,000 to $18,500,000 of the anticipated overall OpEx for the 3rd quarter two point $4,000,000 is expected to be attributed to equity based compensation expenses and 200,000 for the amortization of acquired intangibles. So our non GAAP OpEx is also expected to be similar to the 2nd quarter level, in the range of expected to be approximately $800,000 tax rate for the third quarter, 17% on GAAP and 11% on non GAAP basis. And last, our share count for the third quarter is expected to be approximately 23 1,000,000 shares. And Brandon, you could now open the floor to the Q And A session, please. We will now begin Our first question comes from Gary Mobley with Benchmark. Please go ahead. Good morning, gentlemen, or good afternoon. I'm not sure what it is for you guys, but with respect to the 5G infrastructure royalty opportunity based on your existing licensees, Nokia and ZTE, can you give us an update as to your expectations once those guys are up at a full run rate and and, as well, you know, what's your outlook, for 2019 may look like whether it be on an absolute basis or on a on a on a delta, compared to 2018. So hi, Gary, it's Gideon. Let me speak in general about it. When it comes to Nokia, we can only call what they are saying. And they are speaking about Q3 and Q4 deployment starting Q3 with larger extent in Q4, I believe it's going to be on the T Mobile network. We'll have to see how this looks like. But from our standpoint, just wait and see. When it comes to ZTI, I elaborated. They are coming out of the ban. I mean, the ban was not just does not cause just shutting down their operation. Basically, the supplier stopped blank chips and in some cases even the people will move to other projects. So this takes time to rebuild. So we are thinking about a Q4 to start seeing a nice recovery. And we baked some amount into the Q4 So we're speaking, waiting. I think when it comes to see a substantial, we need to speak about 2019. When Ziti will be behind it and they will be behind it and Nokia start leveraging on all the wins that they had. Okay. And based on the size of the market and your share, which I believe is 50%. What do you think the full run rate royalty revenue can be? Hi, Gary. I don't think we changed our longer term forecast. I think we still believe that this is a significant royalty opportunity. And based on all the data that you just said, the market size and the number of chips and it's base station, it could be north of $20,000,000. We just want to see those first royalty reports. We did get 1 or 2 from Ziti and then the band kicked in. So we want to see that get back and the opportunity could be way over $20,000,000 if they do it right and both of these customers are in full production in the first quarter of 2019. Okay. As a follow-up question, focusing specifically on the mobile handset baseband processing side. It sounds like, your your royalty rate per unit may increase at the tier 1 smartphone OEM that's based in the US as your shares, as you gain share there, in the next product cycle. But, on, first of all, can you confirm that your 4G royalty rate as a result of that might increase in the second half of the year? And then with respect to overall handset market share, just given the moving pieces, do you think your market share will shrink in 2018 and and based on your share gains at the Tier 1, do you think your share can increase in 2019? Yes, so let's start with the share. The 1st 2 quarters of the year, we were 23% and that reflected 1st very soft Chinese market overall in the first quarter, if you remember, that caught not just us, but the whole semiconductor market by surprise. What was unexpected for us was that one of our key customers in that space continued that weakness into the second quarter and didn't show any seasonal increase like we have seen with other customers in the handset space. So we were stuck in the 2nd quarter with the same 23% market share. The second half of the year is should look different And right now, we have not baked in growth for that Chinese player for the second half or at least not a significant one because we want to see how they deal with the problems and hopefully they could get over them and win some new sockets. With that said, when we take the premium handset that it should be launched in the third quarter, we will see those 2 elements that you mentioned. 1 is the higher ASP for overall the smart phone space for us because of that ramp. And second, an improvement in the overall market share that we'll have it won't go back to 40%, but it should be better than our 23% with higher dollar content. So the way we are seeing the model for the second half of the year that with the softness with the Chinese and the strong volume NSP increase from the other handset baseband player that is ramping up, we will we hit our numbers with only maybe $2,000,000 net. So that's part of the reason for reducing our annual royalties, but the net effect is not as bad and hopefully we could see some better moving pieces for the from our Chinese large customer. Our next question comes from Mike Walkley with Canaccord Genuity. Please go ahead. Great. Thanks. Just building on that questions. Can you maybe just walk us through with your lower royalty guidance for the year? Just how much would that related maybe to ZTE? How much to the weaker smartphone market? And then how much to the Chinese OEM weaker than you expected? Thank you. Sure. Hi, good morning. So let's start and look how we started the year and what we wanted to reach. We were talking about $92,000,000 with licensing revenue flattish at the 43 and about 10% growth in royalties. In the first half, we were down from those expectation just in royalties by about $5,500,000. $1,000,000 was the ZTE ban in Q2, which we shared with you and the rest of the first half, $4,500,000 were equally distributed between a very soft Chinese market overall, not just for our customers, but for everybody, including Qualcomm in China in Q1. And the another half of that 4.5, about 2,000,000 dollars, $2,500,000 was associated with the softness with our specific Chinese vendor in the second quarter. So overall, that's 5.5 that's behind us. This is the first half of the year. And there's not much we could do about it. ZTE, we're happy that the ban has been lifted. It took a while. It took close to 4 months. If it would be quicker a few weeks, we would be they would be back in production much earlier. So when we start Q3, we are taking into account maybe about $1,500,000 associated with that and partially into Q4 as well. And we think that by the end of Q4, maybe the last month of Q4, they'll be back in production and we'll see some royalties coming from Q4. So that by itself, just from the ZTE band in the second half, you're probably looking at $2,000,000. If we're talking about ZTE, Gideon mentioned that they were also evaluating some of our newer technologies for next generation chip design with us. And so we're taking offers about $2,500,000 on the licensing side and trying to build the $40,000,000 $40,000,000 to $41,000,000 type of base. So ZTE overall in the second half of the year, I would say almost half half between royalties and licensing taking overall about $4,500,000. So 5.5% from the first half of the year and 4.5% brings us to 10% the last 2,000,000 is what I just answered earlier that that's the net effect of the weaker Chinese customer versus a very strong off set, but not complete offset of the new smartphone vendor, the premier smartphone vendors that is going to use us with more content and the higher volume this year versus last year. So we've almost been able to offset that handset space, but we're off about $2,000,000 as we see it right now for the in half. There are moving pieces like other non handset baseband growth that we have seen in the first half. Of the year and that should continue in the second half. And in Nokia, of course, as Gideon said, Nokia is still and has been throughout the year. Sort of a moving target for us. We don't know specifically how big that could be in the near term, which is Q3 and Q4. We have baked something in, but far less than what we believe could be the full extent of Nokia ramp ups with all these design wins that they're talking about, entity, DOCOMO, China Mobile, T Mobile, which is just around the quarter. And we just need to follow these guys and see how fast they get can get deployed in what cities. So If you see any deployments around New York City, give us a call and we will monitor the royalty reports for the upcoming quarter. Great. Thanks. And my follow-up question, just on, licensing deals, absent ZTE is everything tracking as progressed? And maybe could you highlight some of the growth opportunities you're seeing in licensing both the rest of this year and into next year? Including any update on automotive opportunities? Thank you. Yes. So hi, it's Gideon. So the 2 high runner product in terms of licensing today as we see it is AI. Keep in mind that when it comes to AI, we are not in full scale in going out to customers until the end of this month. We set a target for the AI to sign up 1 or 2 lead customers that help us to polish the portal before going out to the market. We were lucky to get free. And this is very helpful for us by theendofthemonth we're going to be there with the production where the technology and I believe we see more customers that are more risk averse. So that's a, the other thing is extremely successful is the connectivity in general Bluetooth right now. And we see Wi Fi coming in the same context. Every connected device needs Bluetooth and Wi Fi, Bluetooth, a huge volume. I, I, it's a 4,000,000,000 unit this year. Lower ASP and license Wi Fi. So it's a very big market and here we get higher license fee. It could be two times, two and a half times of Bluetooth and then of course higher royalty. So these are the 2 high runner product for this year. For next year, I the way I see it is that we're going to see more 5G coming both in base station run. Now a few customer that we would like them to join us. We want to be a monopoly there. We want to dominate the space and we are not far apart for that. And there will be 5 we see 5G handset maker. Right now, all the 5G designs are more show kind of a concept level design. It's not mass production. This is not in such case, we don't usually participate, but when people go to mass production and wants to get the power metrics and and the capability that we are offering in terms of software programmability, then they call us. So 5G and both in base station, I think we're going to see more and more in 2019. Great. Thanks for taking my questions and look forward to seeing at our conference this week. Thanks, Mike. One more thing I forgot to mention that when we jumped from this very low or relatively low first half of the year to Q3, I mentioned that we're going to see like 50% growth, sequential growth in royalties. So we're picking up, of course, from a low level that you didn't want to be there, but it seems that we're back on track to almost the same expectations that we had for the second half of the year. And hopefully some of these things that we talked about with base stations and even Hopefully, the Chinese baseband player could do a bit better than we have, are planning for the second half. Great. Thank you. Thanks. Our next question comes from Joseph Wolf with Barclays. Please go ahead. Thank you. I was hoping we could go you could give a little bit more detail on the, on the unit of the non baseband of $88,000,000 in the quarter $160,000,000 or so for the first half. Where does that go in the second half of the year, just in terms of number of units that you guys are in, is there another big pickup 25% in Bluetooth And what's in the other right now in terms of what is exactly, what is shipping that's not Bluetooth that's given that 17,000,000 unit number? So it's a collection of a product. We will not see or we'll see minor contribution for the base station that in unit terms, the contribution is minor, but the dollar terms are high. But when it comes to others that are non Bluetooth, it's a collection of different sheets, different markets, it could be computer vision, could be audio, could be narrowband IoT, could be, industrial application. We just it's just a portfolio of things and many customers, some of them are new. And once we start seeing them coming out, we'll analyze more and project the next level. But for now, we want them to go out of the door, go to production, ship units, and then, help them to get to masses as well. The first success, Joseph, good morning, is really the Bluetooth that started off maybe 4 years ago with us. And if you remember from the 0 royalties when we got into the space, we are in the run rate of $71,000,000 a quarter just Bluetooth devices all over the place from hearing aids to speakers, to wired, to sport the risk bands to camera and functionalities and then lots of other things. I hope that we'll have at least in the planet Gideon said to have others like in vision, like in the audio follow-up with much higher volumes and opportunities there and the design wins are there. For now, the quickest ramp ups after so many designs that we have in the connectivity side We also already see 2 new customers in Bluetooth and Wi Fi for the second half of this year. So the volumes absolutely should continue to go out first from seasonality, pre Christmas point of view and second from the number of customers that are finally getting into production. And we have been waiting for a while and the Bluetooth and Wi Fi working very nice within 3 years maybe after the design starts, sometimes a bit earlier we're seeing them deployed into different end markets. Just one more thing that I want to shed light on Bluetooth. Bluetooth is huge market. I mentioned in my prepared remarks, 4,000,000,000 unit just this year. And I suggest to watch how Nordic and Dialog are doing. I mean, they are all in make their money of Bluetooth and they are speaking about in the cheap side, high tens of percentage of growth in year over year in unit terms and revenue. So it's a very big space. And if you do it, try it, you can flourish them. Okay. That's helpful. And then if I look, there was one handset related license award that you guys did in the quarter. Is that a 5G related license? And is there any reason to believe that the 2019 licensing revenue will see a lot or new kinds of designs for, handsets coming back? Design for handset could come in 2 from two angles. 1 is incumbents and there are people that use us and will continue to use us and there are people that don't use us and we believe we have a proposition for 5G an entry point for them. And I wouldn't exclude any incumbent in the cellular market today in the handset market saying, no, this guy is NIH and he has everything. The other part, and there are newcomers that are into the space, there is one in China I don't want to mention the name because I'm not sure that we already announced it, but is a strong could be a strong contender in this market. And we see few others that are looking into the space, not necessarily because of handsets, because 5G spend is beyond this automotive and IoT in general and that's also a big market. So in terms of licensing in 5G, we are speaking now in a bigger time in terms of available licenses. Okay. And then just finally, With all the buyback, can you just give an update on whether that means that you're seeing fewer M and A opportunities? Are you just there's no appetite or it's you've got a you've got the right strategy and aren't looking around that much right now? So let me respond on the M and A strategy and then Yaniv can refer to the buyback when it comes to M And A, we are prudent. It's not that there are 100 of companies that we can buy. We did 1 very successful acquisition and we want to continue using it. So we don't right now, we don't have something specific that we have in our radar and we are not rushing to do it. We have an organic strategy that has enough engines to flourish. Yes, nothing really to add. The buyback is here to support the stock and our belief in the longer term, which is not long. I mean, it's now the second half of the year, which is much better than the first one and much better than any second half we had so far And it's just for the time being, it's a good use of the cash. An IP model should generate cash overall. So this is just something that we're doing in the meanwhile until we find the right M and A target the right technology that we want to add. So I don't think those 2 contradict. We're not talking about $100,000,000 buyback program, but a smaller one as we go along. Our next question comes from Matt Ramsay with Cowen. I guess my first question is on the base station market. Gideon, you made mention in your comments now that you guys are looking for eventual full coverage of the base station space with your technology. Obviously, you've announced a couple of big OEMs. Maybe you could just give us an update on where you stand with sort of the other big 3. Obviously, Ericsson and Samsung are things that maybe you hinted at before that there's some dialogue, but, the folks at Huawei do their own DSPs, typically. So Maybe you could give us a little bit of update on just generally where discussions are with the rest of the market. And if there were some royalty deals to get signed or some licenses to get fined rather, like how long should we think about the timeline for royalties coming out of the rest of the base station players? Thanks. So out of the three names that you mentioned, one is already working with us. One is in discussion and 1, there is no discussion. So I'm sorry, I cannot elaborate more but we have a big shot there because we are the only guy in town that can provide such complicated technology for 5G. Now beyond that, people are speaking about base station and think about the incumbent there, but there are all those small cells and fixed wireless. And we add into this one all the enterprise out the Wi Fi access point. For us, it's the same technology base. And then you start speaking about different names. You speak about networking guys and here, the opportunity is huge. And we are here doing real steps and progress with few of the large guys there. No. Thanks for that. I appreciate the sensitivity around some of the ongoing discussions. I guess as my follow-up question, I had 2 questions or topics I wanted to sort of ask about in the smartphone space. I guess, on the more challenging side, Obviously, there's some things going on with Spreadtrum here. I guess my question around that is what was new and different for this quarter's update, then maybe you had updated on us on 3 months ago. I think it was fairly well known in the industry that media tech was being pulled into Samsung at the low end, and that was going to be a challenge. So I guess maybe you get in, first of all, like, what's what's new and different that that's happened with that particular customer. And second, on the positive side, I mean Qualcomm's all but admitted that that Intel is going to be a 100% share of the flagship iPhone going forward. Maybe you guys could talk about what your share has been or what you estimated to have been, within the iPhone on the modem side in this last cycle and what kind of an uptake we could look at in particularly, it sounds like you mentioned that that ASPs or royalties per unit could be a bit higher, with that customer go forward. Any commentary on just magnitude of what we should think about from a royalty shift would be really helpful. Thank you. So without going to the specific details that you would like to see. I'll give you just the envelope of of that. So when it comes to the Chinese customers, the first quarter was all around weakness in the market. I mean, there was not any I mean there are different segments, feature phone and 3 g and LTE and All of them were ugly. And it was correlated to what's going on on the market overall. What I refer in that my prepared remark is, specific OEM, large OEMs that Chinese customer had a certain share and a very large share and now it's being split it between another customer of us. So we are not with this specific OEM, we are not completely out. We are, we are left with substantial share, but not the same share that we do. And that's the solve of the revised update in the guidance that we do. With that said, several market is a very dynamic market and this may answer your second question. It worked on a 1 year cadence And if you lose a socket in a big socket or small socket, usually it takes you, I mean, you are out of it for the whole year, but then you have another chance to get the next year. So specific this Chinese customer, we are we see some signs of not regaining share, but gaining share with other OEM on the account of the incumbents there. So it's a big fight And we need to take it year over year. It is what it is, but this company this Chinese company was a competent company and will be a competent company and then lot of support there in China to not to drag into extra projects, you know, to fix the problem. It's not, I wouldn't, you know, you lost a design And then you give another shot and then you do it, but that's it is what it is. That's how this market all works. Got it. Thank you. And any update on sort of the big baseband customer in the U. S. Would be really helpful going into 2019? Thank you. I mean, we are waiting for the same data. I think the public information about the ramp T Mobile is there. We need to either see the signs that it's happening on the streets or get the royalty report and then figure out the volume and magnitude. So this is something that we have been following an update that updating that we don't have any special insights other than the public announcements that these guys are talking and they haven't been talking a lot on the base station side in the U. S. The handset side in the U. S, I think we mentioned higher ASP, higher volume, higher share in that socket from the third quarter, which all are benefiting factors to offsetting almost completely, but other than $2,000,000 for the second half of this year. Thanks guys. Appreciate it. Thank you. Our next question comes from Suji Desilva with Roth Capital. Please go ahead. Hi, Gideon. How you need? For the smartphone baseband, the folks that typically haven't used, Steve, you know, looking ahead to 5 g, what's what's the likelihood that some of those, say, spam vendors would consider using Siva. And if they were to, would it be a mixed, some platforms being Siva, some non Siva? I don't understand the the handicap there. So if you ask us about OEMs, because when it comes to our relationship with the the basement semis, this is our ongoing relationship and our strategy there to on to convince them to upgrade to a newer technology. And we do have a lot to offer them. When it comes to the our customer relationship with OEM. And that's what I tell Matt and the other question. It's really very dynamic. And you have to take it on a yearly basis. So in any one of your largest customer can win a socket like it's happened today, this year with Premier Cycle and you can lose in another large OEMs to do. It's a big market. Today, it's more fragmented. It's not just Apple and Samsung. And then you have Oppo and Vivo and Cayomi and ZTE. And all of them can create tens of 1,000,000 or get even to 100 of 1,000,000 units a year. So if you lose one customer, you can go to you can win another customer And by the way that's what happens to the Chinese customer. We are seeing them winning sockets in other customers. It will come into plan 2019 when this customer will refresh their product. So I don't know if we don't have what to say other than this specific Chinese customer is a viable player and continue to be a viable player and what he loves today will win somewhere else. Okay. And then a question on the wireless infrastructure side. A lot has been asked, but, you know, I mean, in terms of, Nokia ramping up here, as you come closer, you know, to the second half here and seeing some visibility, is the linearity playing out as you expected? Is there any difference from what you expected and how it playing out, you know, are the units for 2nd half 18 coming in as expected above or below what you had forecast? No, below for sure, below because as I mentioned, we still don't have the visibility for those ramp ups at Nokia at a week ago talked about in Q3 and Q4 deployment in T Mobile. So as soon as we have that data, we'll update And we thought it could be a bit earlier. In the beginning of the year, we didn't know anything about the ZTE band. So from both base station customers that's been taking a bit longer, but I think all the obstacles are off and out of the way and Ziti can now go and continue their manufacturing. They already was a royalty contributor. And Nokia is just about to start. So we hope it's a good start for them and we wish them enough luck because that's what they're saying that from Q3, they're starting to deployed in different networks. Okay, great. And then my last question. It sounds like the AI opportunity is starting to come in from the license side at least Can you remind us what the royalty opportunity in AI is when it kicks in what the ranges of potential royalty there is? Yeah. It's be quite significant. It depends really the what type of AI. It's a long discussion. I think our time is now, but AI could go into so many different elements we talked in the past about seeing them with vision, next to audio products, in the automotive, we are talking with few vendors. So it could be anywhere from a vision type of process to anywhere to up to a dollar type of ASR speed depends really on the end market. It's a very lucrative product line for us, both licensing and the royalty potential from it. Okay. Thanks for the answers guys. Thanks. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks. Thanks, Brandon, and thank you everyone for joining us today and your continued interest and support at CEVA. We will be attending the following upcoming events and invite you to meet us there. Tomorrow, we'll be at the Oppenheimer's 21st annual technology in Schmidt and communications conference in on Thursday, we'll be at the Canaccord Genuity 38 annual growth conference in Boston, will be on September 5th at the rough Internet of Things access day in San Francisco. Also on September 5th, we'll be at the Citi 2018 Global Technology Conference in New York and on September 12th, we'll be at the Deutsche Bank Technology Conference in Las Vegas. Please visit the Investors section of our website for further information on these events and other events The conference has now concluded. Thank you for attending today's presentation. You may now