Earnings Call: Q1 2018

May 9, 2018

Good day, and welcome to the CEVA Inc. Q1 2018 Earnings Conference Call. All participants will After today's Please note, today's event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence And Investor And Public Relations. Please go ahead, sir. Thank you, Rocco. Good morning, everyone, and welcome to CEVA's first quarter 2018 earnings conference call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA and Yani Varelli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the first quarter and provide general qualitative data. Yaniv will then cover the financial results for the first quarter and 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 differ materially from those expressed or implied by such forward looking statements and assumptions. Forward looking statements include our financial guidance for will return to normal inventory levels during the second quarter and thereafter optimism about our licensing prospects associated with 5G cellular IoT, AI, and Bluetooth products, as well as market acceptance of our Pentigy, Clearvox and NeuPro products, and projected customer ramp up schedules. For information on the factors that could cause a difference in our results, please refer to our filings with the Security And Exchange Commission. These include the ability of the CEVA signal processing IPs for smarter connected devices continue to be strong growth drivers for us. 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 LTE and 5g Networks, AI LTE IoT, and the IoT space generally. Our ability to execute more broad portfolio license agreements and customer 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 dates. In addition to the financial results prepared in accordance with 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 encouraged to review the reconciliation of non GAAP financial measures with their most direct comparable GAAP financial measures, which can be found in the earnings press release issued today. A copy of today's press release for the quarter ended March 31, 2018, and the related financial tables and management commentary which were included in our current report on Form Eight K filed today can also be found on the Investor Relations portion of our website after this call. Before handing the call over to Gideon, I would like to remind you that CEVA adopted the new revenue accounting standards known as ASC 6 6 as of January 1, 2018. Under the new standards, our royalty revenue represents what our customers shipped during the first quarter of 2018 or our best estimates for such shipments. The numbers stated on this call for the first quarter are based on ASC 606 unless otherwise stated. However, as our Q1 2018 financial results are not directly comparable to our Q1 2017 financial results, which were reported under the old revenue accounting standard known as ASC 605 We will also provide you on today's call, our Q1 twenty eighteen financial results as reported under ASC 605 to allow for an apples to apples comparison on a year over year basis. We will have the stew reporting approach throughout 2018 as required by the financial Counting Standards Board. With that said, I will now hand the call over to Gideon. The result of the first quarter of deliveries, continued strength in our licensing business and a stronger than anticipated seasonal decline in royalty revenue, which is attributable to access channel inventory in $6,000,000, a 17% lower on a year over year basis. License revenue came in at $10,100,000 based on 14 agreements signed during the quarter, 8 of which were for DSP and AI product, and 6 for connectivity IPs. 3 of the agreements were with first time customers and the last world with existing customer that are expanding their existing business or upgrading to newer products. In particular, we are proud to reveal that we signed 2 lead customers for a new Cira neutral ALT processor line and 2 customers for our new CEVA clear box noise suppression and beamforming software technologies. Customer's target application include ADAS equipment in two areas: smart camera, and vehicle to vehicle communication, cellular IoT, surveillance camera, voice enabled wireless headset, car infotainment and advanced consumer cameras. Realty revenue under ASC 606 came in at $7,500,000. Yaniv will elaborate on the comparable metrics under ASC 606 and ASC 605 later during the financial section of this call. Basement shipments were below our expectations primarily due to excess channel inventory in the on feature phone in highly populated geographies like India and Africa, which will likely drive return to normal inventory level and gradual shipment increase starting from the second quarter of 2018. Non hand achievements in Q1 continued to expand nicely with approximately 58% unit growth and 39% revenue growth over Q1 2017 actual shipment. Also, during Q1, Nokia, a P1 OEM in base station land market announced its new Leaf Shalk Chipset that incorporates CEVA DSPs. This chipset is plan to go into production in the second half of the year. Let me take the next few minutes to elaborate on the underlying dynamics for 3 of our products for which we see good licensing momentum in the short term and substantial royalty revenue potential as those licenses enter into production. The first of this is voice enabled Bluetooth headphones. Last quarter, we signed 4 agreements with customer targeting this space. Apparently, the success of ethylr Airport has formed has paved the way for broad use of wireless headphones, not just for music streaming or voice call, but also for a seamless communication with voice assistant services such as Alexa and Siri. The Bluetooth headphone space is a new multi 1,000,000,000 unit opportunity for Cyla that we can address with both our reputable Bluetooth technology and with our voice BSP combined with the clear vote knowledge suppression software technology. Siva is one of the very few companies and the only IP company that has expertise and is a one stop shop for low power Bluetooth connectivity and voice harbor and hydrators which apply to multi queues of emerging voice enabled devices such as headphones, headsets, hearing aids, smart speakers and smartphone devices. The second is the growing cellular IoT market where we continue to the recent licensing momentum with 2 new agreements for our vertically integrated CEVA dragonfly and the IoT platform. The deployment of MD IoT failed with us by network operators continues worldwide. Rizon confirmed its plans to build nationwide and the IoT network covering 2,600,000 Square Miles by the end of this year. China Mobile reported at MWC that is has launched and the IoT network in 346 Cities. Cellular IoT is expected to be the world's fastest growing connectivity technology through 2025, supporting 4,000,000,000 devices by the end according to analysis on ADI Research. We already have 8 active customers developing product in this space, 5 of which licensed the Wagonfly platform in the last two quarters. In addition, earlier in the year and well known market leader in the wireless market announced that it is expanding to cellular IoT with a module that is powered by our DSP technology. As a result of these recent success in our market prospects ahead, we stepped up our investment interest rates by acquiring core technologies and licensing the rights from our partner, Astra orphan Call. By owning this technology we can enhance our cellular IoT value proposition for customers looking to expedite their entry into this burgeoning market. The cell product related AI at the edge. For the CF event earlier this year, we unveil our new product line for AI processing GAAP neutral. It is our 1st non DSP product line targeting general AI application in the Edge in devices such as smartphones, surveillance camera, autonomous car, and a variety of other device. Nupro is a highly optimized processor that supports a wide range of neural networks algorithm used for vision, voice assistance and data analytics. The new pro hardware is accompanied by our peer to peer CDNN compiler technology, which optimizes neural network for processing in low power and compact edge devices. I'm extremely pleased and appreciative of our team who managed to commercialize the product and conclude 2 agreement in Q1 2018 with customer targeting surveillance camera and ADAS application. We are in discussion with many other customers on the new product line and are very optimistic about opportunities for this exciting new domain. Before handing the call over to Janine, let me update you on our strategy and achievement in cellular 5G. The 5G usage model extends beyond smartphone and includes fixed wireless as an alternative to solution. This solution is currently being promoted by Verizon. It's also a key enabler for global based manufacturing self driving car and edge computing. The 5G service rollout continues to expand with the announcement of launch plans and commercial offering as early as next year from T Mobile and Sprint who are joining AT and T and Verizon. CCS insight forecast to 2,500,000,000 subscribers by 2024. Against that backdrop, we came out at MWC with new 5G product and to solidify our position and prospects in the 5G UE space. CEVA PEMPAG is a full reference design for 5G modem that capitalizes on our long and in-depth experience in cellular baseband with more than 8 1,000,000,000 CEVA enabled phone shipped to date. It accelerates 5g new radio design by offering a complete hardware and software modem solution, supporting up to 10 gigabit per second download speeds and is softer configurable to the next 5gnr upgrade release 16. One of Pentagie's unique feature is an AI processor that addresses the increase in complexity and variability of the 5G communication channel in a highly efficient manner. The Pentag Architecture is more beloved providing customer with a choice to adopt either the complete hardware and software solution for certain processing engine that it can be integrated with its internal modern design. It will, for example, extend our service to the market to large company that use in house course or other income benefit but still wants to benefit from the advancement that PentaG offers in terms of software defined radio, AI, and more. A second 5G announcement we made at MWC was the deployment of our CEVA Xcedia technologies within Nokia latest based on chipset called Rave Shop. The reef shark business unit is 64% lower power consumption compared to the similar unit used to date in Nokia based patients. Nokia stated that it's actively embedded to reach out within network of 30 operator around the world and expect ramp up fee deployment during the third quarter of this year. This announcement affirms our statement in prior calls for an upcoming production run by a Tier 1 player in the run. Space. To summarize, we continue to experience healthy licensing environment the key ingredient for our future royalty growth, in particular, for our cellular IoT, AI and Bluetooth products. We're happy with the market acceptance of our latest product, Pentag, Clear Works and New York. This product applied to many new industries and extends dramatically our prospects for growth. On royalties, while we remain conservative about the handset space in general, we believe the first quarter softness is primarily an inventory adjustment in preparation for newer models ramp up during the later part of this year. With that said, let me turn the call over to Yandane to discuss our financials and guidance. Thank you, Dylan. Good morning, everyone. I'll start by reviewing the results of our operations for the first quarter of 2018. Revenue for the first quarter based on ASC 606 was $17,600,000. The revenue breakdown in its follows. Licensing and related revenue was $10,100,000, reflecting 57% of our total revenues, 6% higher as compared to the first quarter of 2017. Realty revenue was $7,500,000, reflecting 43% of our total revenue. A decrease of 27% on a year over year basis compared to 10,200,000 for Q1 'seventeen based on actual shipments that were reported in the second quarter of 2017, following the revenue rules under 606. Quarterly gross margin was 89% on GAAP basis and 90% on non GAAP basis. Our non GAAP quarterly gross margin excluded approximately $156,000 of equity based compensation expenses. Total operating expenses for the quarter was just below the OpEx including an aggregated equity based compensation of approximately $2,800,000, and $2,400,000 for the amortization of acquired intangibles of Riviera wave and our investment in the narrowband IoT technology. Our total operating expenses for the first quarter excluding the two items was $15,500,000, also below the high end of our guidance. U. S. GAAP loss and diluted loss per share for the first quarter was $2,200,000 $0.10, respectively. Our non GAAP net income and diluted EPS for the first quarter with $900,000 and $0.04, respectively. Our first quarter 2018 financial results under 605, the old rule for direct comparison to our Q1 2017 financial results were as follows. Total revenue was $19,500,000. U. S. GAAP loss and loss per share was $500,000.02 and our non GAAP, non income and EPS for the first quarter of 2019 under the old 605 reporting standard was $2,500,000 $0.11, respectively. Other related data, shipped units by civil licensees during the first quarter of 2019 were approximately $196,000,000, down 26% sequentially, based on Q4 2017 shipments under 605. And down 27% from Q1 2017 actual shipments reported in the 2nd quarter of 2017. Of the approximately 196,000,000 units shipped, 122,000,000 units or 62% were for handset baseband chips, reflecting a 35% sequential decline and a 45% decline on a year over year basis. Non baseband Volume shipment reached 74,000,000 units, down only 5% sequentially, and up 58% on a year over year basis based on the 605 rules. And the Bluetooth shipment continued to be strong. As of our balance sheet, at the end of March, 2018, our cash, cash equivalent balances, marketable securities and bank deposits were approximately $183,000,000. During the first quarter, we paid Astrid's first payment installment of $900,000 for the new narrowband IoT technologies as Gideon discussed earlier. Also, we started to become active again on our buyback plan We purchased approximately 41,000 shares during the quarter, an average price of $35 per share, for approximately $1,500,000. We currently have 270,000 shares that remain authorized for a purchase under the existing plan. Due to the new rule, AFP 6 6, we also need to record quarterly accrued revenue for the full first quarter royalty reports that were not received or billed during the quarter. And we obviously screwed those from our DSO calculation. Our DSOs for the first quarter were 62 days, down from 70 days from the prior quarter. During the first quarter, we generated $1,800,000 of net cash from operation. Our depreciation was $600,000 and purchase of fixed assets was 0.5. And the end of March, our headcount was 3.19 people, of which 255 our engineers. As for the guidance, on licensing and related revenue, We continue to experience healthy demand across Therefore, we maintain our yearly guidance of approximately $43,000,000 On royalty, as Gideon explained, we believe the fact that we experienced in the first quarter in the low tier smartphones and feature phone segments was related to access channel inventory rather than demand issues. As such, we expect a gradual improvement starting this quarter with stronger impact in the second half of the year. We're also closely monitoring the implication of the U. S. Department of Commerce ban on component sales to VTE. Which incorporates our DSP platforms. At this stage, we lack the visibility into the ongoing discussion between the parties, lower than we have the visibility into VTE's existing inventory levels and production plans for this quarter. Yet for prudency, we have modified our royalty expectation for the second quarter in this regard. We will update investors and upcoming earnings calls for any development on this front or the versions from the annual guidance which we provided earlier in the year. Nevertheless, we currently maintain our annual guidance for royalty and forecast that 60% to 70% of our own annual royalty revenue included in our guidance will be reported in the second half of twenty eighteen. This is based on anticipated base station product schedule, holiday season related shipments, and return to normal inventory levels in the low tier handset segment, coupled with all the risks and the moving parts we discussed today. Specifically for the second quarter of this year, Gross margin is expected to be approximately 91% on both GAAP and non GAAP basis, excluding an aggregated $200,000 of equity based compensation expenses for non GAAP. Overall OpEx is expected to be in the range of $17,900,000 to $18,900,000. Of that GAAP number, $2,900,000 is expected to be attributed to equity based compensation expenses and $4,400,000 attributed to amortization of acquired intangibles. Our non GAAP OpEx is expected to be in the range of $14,700,000 to $15,700,000. Net interest income expected to be about $800,000 tax rate for the 2nd quarter 19% on GAAP, 13% on non GAAP. Last, share count for the 2nd quarter is expected be approximately $23,200,000. So with that said, Roger, you could open the Q and A session, please. Thank you. You. Today's first question comes from Gary Mobley of Benchmark. Please go ahead. Hi guys. Thanks for taking my question. I want to start out with a question about your royalty guide for fiscal year 2018. Just to be clear, you're maintaining the assumption that royalty revenue in total grows 10% this year? Yes, that's correct. Good morning, Joel. And does that just to be clear as well, you're taking ZTE out of your forecast and you still get to 10% growth and that obviously puts a heavy weight on the second half of the year. How much of that strength in the second half of the year do you expect to be fueled by mobile handsets and how much do you expect to be fueled by, base station licensees like Nokia? So one correction is about the ZTE. ZTE was taking the number out only for the second quarter. And as we said, we will monitor the development of the different discussions going on between the US and China and they're all trying to resolve this. So if this continues, we may need to update our annual guidance For now, we're only taking the hits, in the second quarter. Maybe a limited hit, we don't know yet, but, we have taken that out from our applications only for the second quarter. No, I'm sorry. Go ahead, Gideon. So I want to expand on the cellular thing because this is kind of below our expectation. I should say that We thought that at least internally, we came out short between in Q1 and keep in mind that we Q1 is the low season according to the new routes that we recall, we came out with, Camal Chalk about between $1,200,000 to $1,500,000. And this is accretive accretive to the cellular. Mean, all other parts of the business went very well, revenue on a yearly basis and barely a seasonal decline on the non handset side. Now in the non handset side, the historical seasonal decline in this space was between 10% to 15%. We had the event in Q2 2015, it was about 25%. This quarter, the seasonal decline, and it relates to inventory that was built up in the high season. Industry was, while it was 30% seasonal decline. We came out with, in the smartphone space, about 32% and the feature from about 40%. And when you have it, when you are in the low peers side, we have an overshoot, a bit overshoot than the industry in general. But this is, we are hearing different sources that inventory now getting to a normal level and now they are in Q2. It's going to be kind of a setup Corporation for the high season and Q3, Q4 should be relatively good quarters. Okay. Last question I have relates again to ZTE. Can you share with us approximately how much you were hoping to get from ZTE Loyalty Revenue or the base station SOC market in general, if you don't want to be too specific. And your assumption that ZTE may rebound in the second half of the year, is that predicated on the definition of who your licensee is and whether it's U. S. Based or is it predicated on the appeal that ZDE is filed with the U. S. Commerce Department in the political ramifications? Yes, let me start with the later part. Is the band here associated with components made in the U. S, sold to ZTE. So it's not necessarily only our chips, or the chips that are embed our technology, but different components that go into a base station, the BP had many U. S. Vendor, many chip vendors supplied to them. So if they don't have the full amount of shifts. If they cannot build base station, they're not going to ship them, even though maybe they have less of a problem with one ship that is not, US based or or AWS based. So they will halt every shipment of, base station until this gets resolved and they have all the right components to make the design work. So our problem is mainly with other vendors in the space that if you don't have enough components to, to build a car, you cannot, sell a car without the motor or without the the wheels, and, and you're just stuck and you're not gonna get royalties in those, amount of cars that are sold. So that's where we put ourselves some of the chip vendors incorporating our technology into the PR US base And that's the prob direct problem. But the bigger problem is that if they don't have all the ingredients, then they are in the whole position as we said, we don't exactly know the inventory levels that they had going into the second quarter. That's the second part of the question. The first part of the question, as you know, the base station market is a very large royalty contributor to us going forward. And I would say the first part is that we are building, with, with ZP, for example, can be in a handful of 1,000,000 of dollars, for this year. So That's the magnitude more or less maybe $1,000,000 for the second quarter. This is what we are trying to be prudent with and for now, we're taking out of our guidance. And, we haven't taken more of this for the rest of the year with hope that they get resolved over time. Our next question today comes from Mike Walkley of Canaccord. Please go ahead. Great. Thanks. With success in your 5G base station licensing, Do you believe you can add another top 5 OEM that's currently developing an in house? And then also just switching gears to the 5 smartphone baseband licensing opportunity. How should we think about your strategy there with different processor engines? Does this open opportunities to new Siva customers that currently don't use your baseband technology today? Thank you. Yes. I mean, the answer to your question are both, yes, when it comes to base station in 5G, it is because it's a structive technology, and people cannot rely on incumbency there. We have a very big sharp to expand our presence in this market. The companies that didn't produce, you know, merchant chip or developings in house. So we are in active discussion there and progress. Eventually, these are very strategic agreements. And, in, in one side, one side does not fit well. So it takes time, but I'm, opportunistic about the progress in this respect. When it comes to handset and I would say in my prepared remarks, I mentioned other use case like, fixed wireless and autonomous driving, Here, the way we build the PentaG modem technology is that we build it in a modular way that even to people that use DSPs in house or as other incumbency, they can take advantage of correction of this technology. And this technology offers a several new wave and the attractive methodologies to implement. I mentioned AI, Also, we have the software defined label. I think we are the only company in the industry, both in the semi side and the financial IP side that offer, software defined radio platform that are efficient enough that people can take advantage of it. So when it comes to 5G Handset and user equipment, we, we see some hours when people will adopt not the whole platform, but a portion of it, and we are fine with it. Okay, thank you. And just nice to see the reiteration of the 10% year over year royalty revenue. Can you maybe break it down for us a little bit? You seem to be getting success in the non handset market. So do you see non handset market up much more than that in the handset market down year over year? Or can you maybe give us some rough parameters kind of how you see non handset related basebands versus handset related basebands royalty revenue for 2018? Thank you. Sure. Hi, good morning. I think it's a bit early and premature to build a model. Of course, we have our expectations, but there's so many moving parts as we learned, about the ZTE band, which, our estimates just few weeks ago are now maybe different than what it were. And they're still, as Gideon said, they're still waiting, for the first launch of the Nokia reeks sharks chips in the third quarter, and we need to see the magnitude and the and the various design cycles of those are quite optimistic about the efforts with T Mobile and 30 other design wins that they have going on for them around that deployment. So There's so many moving pieces, the inventory issues that many of the semiconductor and component, players in the wireless Hands that talked about, maybe reported in the last couple of weeks in earning season was not something that was, built in the models earlier in the year. So I think we need to take it step by step. If we take the old rules, for example, the old accounting rules and look at our, revenue there at, $10,000,000, which is the Q4 shipment that it compared to last year. We're only down 15% on an apples to apples basis. And from there, that's our starting point, into the year with all these rest of the moving parts. So we're happy to add more color, I believe, as we go along, but there are some very basic data points like the recovery, like the base station, and other non handset products that we want to see ramping up, and then we will share the breakdown and the information around it. Let me just add and maybe please explain why we are not changing our annual guidance at this stage. The reason that we are not changing is because the fundamental or on the underlying assumption that we had at the beginning of the year are, did not change. I'm putting aside the city because if that's continuing this prolonged, we will have to change. But right now, it's 1 quarter. We see all sorts of, we had a lot of progress that was nice appeal and stuff like that. So maybe things will go in the right direction But if you take the non handset space or when you look just the year over year or you look even on the transition for high season, which is the 4th quarter and the first one. And the first quarter is supposed to be the post recruitment season was barely a seasonal decline. And one of the reasons that our use shippers coming into the market starting from this year. When you take the beginning of the day, we didn't speak about Nokia, and now it's public and they, by themselves, including the CEO, is extremely positive about second half of the year. When you see, the mobile We were initially conservative about this space. The inventory is a, it's an issue that usually go back because the demand is there. So when you look on the fundamental versus our underlying assumption, there are no changes. Again, assuming the PT will be resolved. Shortly. Great. Thank you. Last question for me and I'll pass it on is as you look at some of the catalysts for the royalty growth in the second half of the year. What are some of the more important factors? Is it ZTE getting settled? Is it the Nokia timing of their ramp? Is it maybe Intel share gains in new iPhone platforms? Can you maybe just help us think about some of the areas you see as the bigger drivers for second half improvement over first half besides the seasonal aspects? Thank you. Yes. You know, it's all of the above, the base station, it's a clean ingredient and I think it's the first time that we get into production with this customer VP, of course, if it's there, we know more or less what we expect because this customer is shipping already. Smartphones, you more or less mentioned, what are the thing. And there are plenty of non handset baseband products starting from Bluetooth, vision, different market and all of them are showing the progress. I mean, we are monitoring the the customer progress, we are monitoring the pattern of the shipment. And, at this stage, things are in the right direction. And I also refer to the product brochure that Richard distributed earlier today, it has a lot of new products grows in the line that Gideon mentioned, you could see some of these examples that are ramping up because they are in production now early in the year. So If we have them on a full year basis, that's our new contribution to our non baseband royalties. Thank you. Thank you. And our next question today comes from Joseph Wolf of Barclays. Please go ahead. Thank you. I was hoping to get a little bit more color, I guess, on some of the you talked about the seasonality of this of the handset market and kind of expecting that to come back, but the feature phone market fell significantly. Compared to where we thought it was going to fall. And I'm just wondering as you think about the recovery, what kind of mix do you expect in the handset market? Is it transitions in the low cost markets to better handsets? Are we calling them feature phones? Are we calling them smartphones? And what kind of ASPs are we looking for as you think about that second half recovery? Yes. Hi, Joseph. Let's start with the feature point. I mean, feature point, you're all asking ourselves how long could this at, continuing to generate 100 of 1000000 of new phones a year. And the last couple of years, we were surprised how resistant it is and how long it's still around. Maybe this is the first change, because this is a dramatic decrease of Gillian said that sequentially at 40% yet. We have not seen that magnitude before. We are not 100% sure if this is demand issue or more of an inventory issue because of the high end. And maybe you have here a deck of cards that everybody was assuming that Apple will have different results than they actually had. And from there on, the lower smart phones are prudent and there is very low end feature phones also even took more aggressive approach as Vivienne mentioned earlier. And this is how we got to the level. About a year ago, I think we introduced something that we found in the emerging economies that is something called an LTE feature phone. It's still a very simple phone. It's still very inexpensive, but it starts to use the LTE networks And of course, our ASPs are twice, so three times in NLP, device than a feature called device It did pick up for a while. There were some sockets, there were some, some of the carriers, reduced prices or gave different discounts, just for people to use them. But or as a new market evolving from those future folks. The next step up, and looking, this is something that has been saying for a couple of years, if the price is right, if the smartphone, low cost smartphone pricing is right, but I'm not sure what it is. It could be 40, it could be 30, maybe needs to be mid-twenty type of a phone or have significant subsidies from the operators If that could then jump from those feature phones that we lost in Q1 directly into these low cost smartphones. Hard to predict, we are stealing a lot of these models out there today. We have seen them a year or 2 years ago as well, but again, not in the right price point, And we'll look into our monitor and see if that inventory correction finds itself finally from a feature phone to an LTE smartphone because we have in operating in India, for example, sign up just in Q1 more LTE subscribers than they ever had. So fundamentals are still there for the emerging markets. We need to see now that the inventory correction flies and goes into that direction. The high end, I think we mentioned, and, we cannot talk more about this, about different vendors to, to, to other high end devices. And it's a lot of moving parts. I'm not sure if we have the crystal ball for it. The more smartphones with the morality, the better off we are with ASPs. At the end of the day, you haven't seen an ASP rolling in any of the segments, a decent, severe one in the last couple of years. So I think it's a lot of more volume, timing of SKUs or introduction of SKUs, inventory issues that we have now or didn't have with the high end everybody is expecting to have. And a lot of moving pieces, we are just trying to monitor and put it all together. And I think that's what we want to see or things that will happen from starting through the second quarter, but in more, not stronger in the later part of the year in the second half. Okay, that's helpful. If you think about the baseband opportunity specifically the reef shark product and you hope and I know it's too early to tell exactly what's going on, but can you remind us if we are to hear about certain rollouts and certain geographies, how many like how does that flow through? Is it per base station how many DSPs are there? How much what's the ASP content? What can we be thinking about there in terms of that? And then I'm assuming you're going to account for that in non handset revenue? Or how should we be thinking about that? Yes, let me start and Gideon will help you throughout here. Yes, for sure, it's a non handset components in our business. And we wait a while. We break out that we have seen the 10 Qs. We have the vision. We have connectivity. If, as soon as this becomes a big enough contributor for us, you may open it in a different line item. Right now, it's baseband devices. And it's an expensive chip. And you put one of the layers of indicated chips in a base station. This could be a $100 to $150 device. And in general, without being too specific it on one customer or another, if you look at the market size or the number of ships that are deployed in that market, I think are, when they're still public use, there is more than $3,000,000,000 of semiconductor content in the Indian market. If we get our 1% or so, we, we are talking about the pretty significant ASP for a chip for us. And of course, a very sizable opportunity in royalties from the overall market having today maybe 50% market share design wise and as you mentioned and David mentioned earlier, to a different question, maybe you could win more of that market as time goes by. I think these are some of the parameters that I would look at the size and the opportunity. And we mentioned that we have seen royalties from ZTO already and Nokia were just just a run around the quarter and hopefully the second half of this year start soon and mostly where we see the first, royalty reports. Okay. And then just finally one more granular question about the mix. You mentioned the voice enabled Bluetooth as a big up opportunity. I'm just wondering within the units that you opportunity, which I think was $74,000,000. Bluetooth grew in a non seasonal way. Is there any of the new Bluetooth? And I guess by my math, I still assume that the baseband or the handset product is still 65% to 70% of the royalty revenue. Is there going to be a quick if the second half develops the way you think? Is it fair to think about that mix is closer to $60.40 or even $55.45 by the end of the year with some sort of reasonable mix of non handset? Or maybe I'm starting the year wrong? No, you maybe are running a bit fast. If I look back a year or 2 years ago for many years, the non handset was 10%. Last year, for the first time, we went to, from 9%, 10% to 18%, just out of 20%. Eventually, when these things kick in, it should help us get to 40% and 40% 50%. I'm not sure yet to tell you if it's this year or next year when we have, for the full year basis, took or 3 customer shipping, base station. Again, a lot of moving parts, but there is no doubt that we are seeing if you, this has been of Q1 was an abnormal season, a quarter for us because of the seasonality. And we had 62% handsets in volume and the rest went to non handsets. So this is, we are almost there with 40%, but this quarter is not a typical quarter. So I think it will go back anywhere between 20 something percent. And the more non health, the bigger percentage of the contribution that you could get from the new market in Siglands. Bluetooth was up, by the way, in units 61% year over year. So We are seeing more headsets. We are seeing more connected devices. We are seeing more bracelets and weights and, hearing aids and hearing, and, headsets a bunch of different Bluetooth devices. As you remember, it may be lower ASPs, but the volume opportunity is quite big. One last thing, and we could move on just in the last quarter, we signed 4 deals of the Bluetooth audio type of application just in Q1. So it is a very interesting and hot market for us. Perfect. Thank you. And our next question today comes from Suji Desilva of Roth First question on the smartphone markets. Just on the high end, our customers are waiting new models? And do you still break out LTE units or is LTE really kind of the bulk of the units now and not worth breaking out? No, we are happy to break it out. We have 57,000,000 units shipped in Q1 versus 71 a year ago on a year or a real year over year basis. And the high end market are doing VC customers waiting for new models? I know the low end just sounds like inventory correction, but any color there would be helpful. I am smartphone. Not sure, I mean, timing every OEM comes with different timing these days, the known ones in September and early in the year, but, those are the high end. I think the value ones just So every couple of months you could find, and then the question is more, not the timing, but how successful they are. And if we are in or other vendors are in, instead of I think that's the visibility part. Yeah. You know, the way it works in mainstream, but Cupro is basically a kind of a set up quarter. So they build the inventory, build the channel, to do in Q3, Q4 are the ones that you're going to see, high volume. So, as I said, the inventory is, we don't know exactly how how low is the inventory, but we understood that it's a healthy level. And the need to rebuild because the demand there is no change in the demand from, in a structural way. Q4 was a bit slow. High season and they have to go through the adjustment, but, they are starting the year in P and L with new hopes. And the new models and all those things that we hold are still in place. Okay. And then another quick housekeeping question. Did you give the the the Bluetooth unit numbers in the quarter? Bluetooth was 50. Oh, just give me one second. Due to silver 57,000,000 this quarter. 57,000,000. Okay, thanks. What are the royalty rates we should expect for some of the newer products like NBIoT, Clearbox, NewPro Pentiture, you just understand the the magnitude of the ASP there versus the traditional royalty unit? It's interesting to see, but the clear vox, the voltage that we are getting is between 2 to 3 times of the hardware itself. This is the first time at all. It says, yes, linear in many late explaining, this is the first time you're actually giving faster, which is a bit moving higher on the food chain than just the pure IP or the percentage of the chips. So these are add ons that OEMs usually tell you a lot after they have already the chip, you know, to get it to work and have access to that technology, we're trying to bypass that and, and need to provide it for that technology. So again, the lift goes on production. You could give a bit more color and show you those devices, but the ASP of add on is is on top of the DSP cord that's in the chip itself. Okay. And then lastly, can we talk about the imaging products and the voice what kind of year over year we've seen in those non baseband subsegments? Not sure if I have here the breakdown of the different markets But, for sure, we're seeing more, more vision devices than we've seen a year or 9, 2 years ago. If you remember, last year, 2017 on an annual basis, not on a quarterly basis, we powered for the first time from 0 7,000,000 units of vision related products in 2017. Our hopes and goal for this year is is to have a 2 digit number and hopefully few 2 digits of nearly the, of units. We were just starting. So I don't remember what it is in Q1, but, from here, we moved to 7 and plan to take it much further up. Ohio. Okay, great. Thanks guys. Thank you. Today comes from David O'Connor of Exane. Please go ahead. Maybe getting firstly, can you talk about the competitive dynamics around the AI processor IP in smartphones? And I see Huawei and also MediaTicker using a competitor IP for the newer engine. So just wondering how we should think about your ability to capture some of this newer engine market and smartphone. That's my first question. And then a follow-up on the on Nokia. So just to understand it better, how aggressive a ramp up are you assuming for Nokia in the second half with the rollout of reef shark Is that based on Nokia inputs or is it more based on the RAN market forecast? Thanks. Okay. So starting with Bay Area, we have a few competitors. By the way, you mentioned Huawei, a Capricorn is kind of hybrid company. They are a semiconductor company, a lot and IP, UIP company, automatically, they do it. Our advantages, are in 2 respects. 1 is the performance. We show the highest performance and our report from MicroPoster reports that formally stated. And the other advantage that we have is our software. Our software recovery started earlier, our software, what we call SDDNN is the only, and this is important to know the only software that show maturity and features to what Nvidia is showing with their software that is called TensorRT. So these are 2 relatively high entry barriers for people to compete with us in the substrates. When it comes to Nokia, Of course, we cannot discuss our discussion with with Nokia, but, our assumption is, has a combination of parameters, and we like to see because this is something that pace of the ramp up is something that I, I'm not so sure that Nokia knows at this stage. That's helpful. Thanks guys. This concludes our question and answer session. I'd like to turn the conference back over to Richard Kingston for any closing remarks. Thank you everyone for joining us today and for your continued interest and support of CEVA. We will be attending the following upcoming events and invite you to meet us there. The CEVA annual stockholders meeting will be held next week and we encourage all shareholders to participate through casting their proxy votes or attending the event. 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