Good day, welcome to the CEVA Inc. Second Quarter 2016 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 and Investor and Public Relations. Please go ahead.
Thank you, good morning, everyone. Welcome to CEVA's Second Quarter 2016 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 for the quarter and general qualitative data. Yaniv will cover the results for the second quarter and provide guidance for the third quarter of 2016. I will start with the forward-looking statements. Today's conference call 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 guidance for the third quarter of 2016, optimism about the licensing pipeline, the drivers of our business, and our ability to capitalize on emerging market opportunities, including Bluetooth 5, machine vision, and deep learning technologies, wireless connectivity, LTE, and 5G.
The risks, uncertainties, and assumptions include the ability of the CEVA signal processing IPs to continue to be strong growth drivers for us, our success in penetrating new markets, specifically non-baseband markets, and maintaining our position in existing markets, the ability of new products incorporating our technologies to achieve market acceptance, the speed and extent of the expansion of the 3G, LTE, and 5G networks, Bluetooth 5, and the IoT space, the effect of intense industry competition and consolidation, global chip market trends, and general market conditions and other risks relating to our business, including, but not limited to those that are described from time to time in our SEC filings. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that said, I would now like to turn the call over to Gideon.
Thank you, Richard, and welcome everyone. Before going through the highlights from the quarter, I would like to draw your attention to a development that will have a positive impact on our financial guidance for the remainder of 2016. As you have witnessed from the first half of 2016, based on the initial royalty reports we received for the third quarter, we are now experiencing royalty trajectory that exceeds our initial expectation, and as such, are raising our full-year growth range for royalties. Yaniv will elaborate more on this when he reviews the financial result for the quarter later on. Turning back to our second quarter results. We are very pleased to report another robust quarter with all-time record-high revenues derived from strong growth in royalties and solid execution in licensing. Total revenue came at a record high of $17.1 million, up 28% year-over-year.
Royalty revenue came at $9.6 million, up 69% year-over-year, primarily as a result of strong LTE unit shipment, which grew more than 400% year-over-year to reach a record quarterly shipment total of 56 million units. Licensing and related revenue came at $7.5 million on the back of good licensing demand for our Bluetooth IP as customer expedited product design based on the next generation Bluetooth 5 standard. We also ended the quarter with stronger than normal licensing pipeline due to number of comprehensive agreement with key customer that are in process. This agreement involves broad access to our entire technology portfolio and customization of certain technologies for their product line.
We perceive this new engagement as an acknowledgment to our unique technology portfolio in addressing some of the most exciting areas of growth in the semiconductor industry and as an opportunity to solidify long-term collaborative relationship with key industry players. During the second quarter, we concluded 10 new licensing deals, four of which were for CEVA DSP cores and platform, and six for connectivity products. Of the deals signed, three were with first-time customer, and all were for non-handset-based that include a first-time customer intending to use our vision solution for virtual reality product 5G base stations, Bluetooth Low Energy for IoT, including the upcoming Bluetooth 5 standard, voice processors, and storage drives. Geographically, four of the deals signed were in the U.S., four in the APAC region, and two in Europe. The second quarter achievement in licensing emphasizes four key market drivers that we are capitalizing on.
First, the demand for very sophisticated baseband DSPs and platforms, technologies for handset and base station, as the cellular industry is looking for increased data rate and overall capacity as part of LTE-Advanced Pro and 5G standard. Second, the proliferation of connected devices enabled by short-range wireless connectivity, such as Bluetooth and Wi-Fi, along with the emergence of voice as primary user interface within these devices. Third, the growing number of products and applications that are centered around embedded vision and machine learning. Fourth, the expedited and ubiquitous deployment of cellular machine-to-machine on the heels of the 3GPP finalizing the specs for ultra-low power LTE for the Internet of Things. Ericsson predicts in its latest mobility report that IoT will overtake mobile phones as the largest category of cellular connected devices by 2018.
These four big industry drivers are the foundation of our product portfolio strategy and will lead to new royalty streams in the mid and the long term. Our recent achievement in licensing as well as ongoing customer discussion give us high confidence in our ability to capitalize on these opportunities and in our long-term growth prospects. As I mentioned, we are seeing industry-wide demand for connectivity IP and in particular, the new Bluetooth standard, Bluetooth 5, which was formally announced by the SIG in late June. Bluetooth 5 offers substantial features enhancements versus its predecessor, Bluetooth 4.2, including higher data rate of two megabits per second and longer range of up to 300 meters. It expands the Bluetooth market reach from device like smartphone and PC to the Internet of Things, where it will be used for the smart home, connected home, networking, automotive, and more.
We have already signed five customers that are early adopter for the Bluetooth 5 technology. We have never had that many early adopter for technology that is yet to be ratified. In vision, the potential of machine learning and deep neural network were the highlights in all recent events conducted by Google, Amazon, Facebook, Apple, Microsoft, Baidu, and others. Per data provided at the recent Code Conference, half of the internet searches in 2020 will come from image and voice. In conjunction with this, much more intelligence will be required at the edge of the network in devices such as smartphones, surveillance camera, autonomous car, VR and AR devices, robots, and more. This is where we see CEVA benefiting and leveraging its competency in computer vision and machine learning. A few weeks ago, we announced our second-generation software framework for the deep network called CDNN2.
CDNN2 essentially frees up the customer from the burden of embedded software programming on the vision processor. It therefore allows customers, partners, researchers, and even students to innovate deep network-based application in the cloud and seamlessly get the outright use of it on product based on CEVA vision processor. In the second quarter, we signed up first-time customer, a widely known player in the imaging space, that uses our vision DSP and deep learning software for a chip to power virtual reality product. On royalties, we continue to gain share in the LTE space. According to the latest market data from market research firm Strategy Analytics, our market share in LTE is 19% in Q1 2016, compared to just 5% a year earlier. LTE is the primary reason for the huge year-over-year royalty revenue growth of 69%.
Moreover, this momentum more than offset the traditional seasonal weakness we normally experience in Q1 royalties, which are based on the post-holiday season Q1 shipment. For the first time in numbers of year, we recorded a sequential increase in royalties of 23%. Also, in other segments of the cellular space, we continue to maintain high market share. In 2G, we power about two-thirds of the market, and in 3G, our market share has grown to 39% based on Q1 shipments. We aim to continue to capitalize on LTE smartphone shipments, where we are consistently gaining market share and growing unit shipments, and where we benefit from higher [world ASP] than we get from 2G feature phone and 3G smartphone. Looking ahead, as the internet becomes increasingly wireless, we are experiencing greater diversity of product and supplier that take advantage of LTE and 5G to connect to the internet.
These include products like car, wearables, security and surveillance camera, drones, and smart city infrastructure. We'll continue invest in new technologies addressing this space and plan to introduce new products in the coming months that would be specifically designed to cover LTE IoT space. In summary, our good traction in LTE smartphone in 2016 compared to prior years, and our diversified product line targeting intelligent and connected devices, provides us solid foundation for prolonged growth. I'm very pleased by the resilience of our financial model this year, despite the known market challenges and the maturity of the smartphone space. We will continue to innovate and work closely with our customer toward mutual success as the industry expands to new classes of products and services. With that said, let me turn the call over to Yaniv Arieli to discuss our financials and guidance.
Thank you, Gil. I'll start by reviewing the results of operations for the second quarter of 2016. Revenue for the second quarter was $17.1 million, an all-time record high. This was 28% higher on a yearly basis and the second consecutive quarter that we have reached the milestone of all-time record high revenues. The revenue breakdown is as follows: licensing and related revenue was $7.5 million, reflecting 44% of our total revenue, 3% lower as compared to the comparable quarter of 2015. Royalty revenue was $9.6 million, reflecting 56% of our total revenue, an impressive increase of 69% on a year-over-year basis. This would be the sixth successful quarter that we delivered year-over-year royalty growth. Quarterly gross margins were 92% on both US GAAP and non-GAAP basis. The non-GAAP basis exclude approximately $53,000 of equity-based compensation expenses.
Our total OpEx for the quarter were flat as compared to the first quarter at $13.1 million below the mid-range of our guidance. OpEx also include an aggregated equity-based compensation expense of approximately $1.6 million and $0.3 million for the amortization of acquired intangibles of RivieraWaves. Our total OpEx for the second quarter, excluding these two items, were $11.2 million, also below the mid-range of our guidance and slightly lower than the first quarter. US GAAP net income for the quarter increased sixteenfold from $0.2 million to $2.7 million in the second quarters of 2015 and 2016 respectively. Diluted EPS increased thirteenfold from $0.01 to $0.13 for the same period. Non-GAAP net income and diluted EPS for the second quarter of 2016 increased 263% and 250% year-over-year to reach $4.6 million and $0.21 per share respectively.
Non-GAAP net income and diluted EPS for the second quarter of 2015 were $1.3 million and $0.06 respectively. These figures for the second quarters of 2016 and 2015 exclude equity-based compensation expenses of $1.6 and $0.8 million respectively, and the impact of the amortization of acquired intangibles of RivieraWaves of $0.3 million for both years. Other related data. Shipped units by CEVA licensees during the second quarter were 225 million units, down 2% sequentially but up 9% from the second quarter shipments of 2015. Of the 225 million units shipped, 191 million units or 85% of the volume were for baseband chips, reflecting a sequential increase of 4% from 185 million baseband chips last quarter. 14% increase from 167 million baseband shipped a year ago. In non-baseband, volume shipments decreased 26% sequentially and 12% year-over-year.
The decrease can be attributed to an industry-wide decline in business shipments in Q1, which was partly offset by increased in shipments of always-on processors in smartphone and wearables. The quarterly handset baseband royalty ASP continues to increase. It was up 18% sequentially and 53% on a year-over-year basis due to the growing product mix of LTE devices. Our overall corporate blend royalty ASP increased 26% sequentially and 54% on a year-over-year basis. As for the balance sheet items. As of the end of June, our cash equivalents, balances, marketable securities, and bank deposits were approximately $138 million. Our DSOs for the second quarter was 57 days back to normal levels, up from the first quarter of lower than normal levels of 37 days. During the last quarter, we used $1.5 million of net cash in operation.
Depreciation in fixed assets were $0.3 million each, and at the end of June, our head count was 273 people, of which 216 were engineers. Now for the guidance. As Gideon noted earlier, we continue to benefit from good momentum in the smartphone market and expect further expansion as the smartphone space gets ready for the holiday season with ramps of new flagship and SKUs. In non-baseband shipments, we expect a new record high in terms of unit volume for the year. As such, we are raising our full-year guidance from an earlier range of 20%-40% growth in royalties to a higher range of 35%-45% growth in 2016. Our guidance for the third quarter of 2016 is as follows. Revenue for the third quarter is expected to be in the range of $17.2 million-$18.2 million.
This is the highest quarterly revenue guidance in the company's history. Gross margin is expected to be approximately 92% in both GAAP and non-GAAP basis. Overall expenses should be quite similar to the expense levels we recorded in the first two quarters of the year. U.S. GAAP operating expenses are expected to be in the range of $12.5 million-$13.5 million. Of the anticipated total OpEx for the third quarter, $1.6 million is expected to be attributed to equity-based compensation expenses and $0.3 million to the amortization of acquired intangibles. Our non-GAAP OpEx is expected to be in the range of $10.6 million-$11.6 million. Net interest income is expected to be approximately $500,000. Tax rates for the quarter on a non-GAAP basis approximately 13%, and the share count for the third quarter expected to be approximately 22.2 million shares.
U.S. GAAP fully diluted EPS is expected to be in the range of $0.14-$0.16 per share. Our non-GAAP EPS, excluding the aggregate compensation expenses of $1.7 million and $0.3 million for the amortization of expenses, is expected to be in the range of $0.21-$0.23 per share. Andrew, you may now open the floor for Q&A, please.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone 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 comes from Joseph Wolf of Barclays. Please go ahead.
Thank you. I had a couple of questions. On the licensing side, there were no handset deals, but then again, you referenced some large engagements that you're expecting in the second half of the year. Are those for the handset business, or is there a refresh cycle going on in the handset business or is most of the licensing in the second half going to continue to come from the non-handset side of the business?
Hi, Joseph. Thanks for the question because usually we don't refer or elaborate in earnings call about the pipeline.
The reason we mention it is, it's a unique situation that we are. As you know, in the last few years, we've become more and more specialized in our product line, including the handset, which is our bread and butter, but we went vertically to more software and system architecture and modem architecture. Now, same goes to the vision, same goes to the connectivity, which we offer total solutions. It looks like customer acknowledge this specific specialization, and they are coming to us with suggestions to have a more, I would say, exclusive relationship, not in terms of not allowing this product to be licensed to others, but do customizations and in some cases, offering a portfolio arrangement. These are prospective customers, it's in process. One of them, by the way, was closed very late, and I refer to it in my prepared remarks.
It's for 5G base stations. These are in work, and we're going to conclude, and it include also handset baseband type of application because the market is going into now to 5G. Overall, it's a unique situation. It's in process, it's in work, but we are very happy of this kind of suggestion because it solidifies the relationship that we have with customer, and these are all lead customers in the space.
Okay. On the LTE side, which has been strong, I'm assuming you expect that to continue. Could you give us a geographic spread of that business right now, where you see strength and how you see that continuing into the second half based on what you're seeing right now?
Well, in the LTE space in particular, it's known that the active areas are in the low mid-range type of phones, and this is in China, where there is strong drive by operators through subsidies to convert people from 3G to LTE and to go to a more powerful LTE phone. In India, where LTE penetration now is just 1%. These are the areas that we see activities and where we see unit grow. Keep in mind also that CEVA is not just in these spaces. We are expanding also in the flagship models. Our appearance is all around the areas. In the flagship model, it's more like penetration and expanding market share. In the low mid-range, it's just an untapped area, and we see lot of unit growth there.
All right, perfect. I will let other people ask some questions. Thank you.
Thanks, Joseph.
The next question comes from Matt Ramsay of Canaccord Genuity. Please go ahead.
Thank you very much for taking my questions. I have a couple. I guess, Gideon, the guidance for Q3 and obviously raising the full expectation for the year, and there's a lot of moving parts within the LTE market right now. Obviously, this quarter that you're guiding to will be the first quarter that reflects, I guess, the redistribution of share at Samsung with Qualcomm getting back in there, for the S7 and looks like for the Note as well. Given you guys are raising the outlook for the full year, it would suggest to me that there's some strength that you're going to see in LTE numbers outside of Samsung, in particular, for the fourth quarter. Maybe you could talk about some of the ramps there potentially.
I don't know if that's at Xiaomi or at other guys in China that are going to be, and with Spreadtrum ramping as well. It seems like there's an inflection coming in the non-Samsung business in the fourth quarter and going into next year.
Hi, this is Yaniv. I'll try to add on to what Gideon talked about a minute or two ago with the LTE penetration that we're after. If you look back to last year, we powered about 70 million LTE phones at the time, this took us a few years to get there. Of course, we started small with less customers shipping products, and the engine started as we went throughout the year. Started this year, we are seeing more and more players, and not just necessarily Samsung, kick in and start pushing their LTE designs in mass production. One thing that is completely different this year, and this is the guidance of almost three times the volume from last year, is that we have more players. It's not only Samsung, it's coming from Spreadtrum, it's coming from MediaTek, it's coming from Intel.
It's coming from a bunch of our existing customers that had these products for a while but couldn't get into mass production, and today they are much more successful on that. I think that's one strong element to mention. The way we see the LTE today is more of a structural growth going forward, and not necessarily seasonal or not necessarily one quarter
Dispersed from the other. It's a lot about the timing of new SKUs. It's about the timing of product management by different OEM and the chip vendors there. It's a mix, but I think if you put it all together, that gives us the confidence in some new models that will be introduced close to the holiday season. Some will have effect this year, in Q4, for example, some will already have effect in 2017. I think to answer your question, it's the variety of all these factors, not just the market, but also the players that are pushing those LTE sockets into phones that are helping us to increase the guidance and be optimistic about future growth in LTE for us.
Got you. Thank you, Yoni. That's really helpful perspective. I think it's good to see the new growth engine there in the baseband side diversifying. If we flip over to the non-baseband business, I think you talked about, in the prepared remarks, a bit of an inventory correction industry-wide in the Bluetooth space, and still being up for the year in non-baseband units. Maybe you could talk about that dynamic a little bit. Secondly, from some work we've done on the opportunity for base stations, to me, it seems like a pretty large potential for you guys. Maybe not huge in terms of units, but from some work we've done, that could be $5 million-$10 million long term in royalties for the company on an annual basis.
I just wanted to know how that business was progressing and what kind of visibility you see to when that could start to deliver some real royalties to the company in terms of revenue. Thank you.
Yeah. Hi, Matt, it's Gideon. Let me address your two questions one by one. When it comes to non-handset baseband application and status, as you know, this is composed of variety of products and markets, that should be as a result of deals that we signed in the last, I would say, two years. At this stage, I think what we put the focus, and this is the reason that we mentioned units, is to see that we are progressing in terms of units, we are monitoring it by royalty reports, we are monitoring customers' progress specifically. In summary, this progresses according to our expectation. The fact that we're going to have another, or expect to have another record year in units, it's according to our expectation, and that makes us satisfied for the situation. Base station, indeed, as you mentioned, it's a lucrative space.
The timeline is different, we expect noticeable royalties coming today. It could be more toward the end of 2017, early 2018, it's moving. We are working closely with the two key customers that we have there, they are good. One thing that I want to mention, maybe you can take it.
Yeah. One more thing I wanted to add to Gideon's earlier comment is that we expect, I think we mentioned that in the prepared remarks, we expect Q3 to bounce back with the Bluetooth volume especially, all the non-baseband to a new record high. We didn't get all the royalty reports, we're probably looking at about 60 million devices next quarter. That's going to be the highest, and that's yet before the seasonal strong quarter of Q3, which we report in Q4, the pre-holiday type of ramp-up. Thanks.
No, thank you, guys. I think that does it for my questions. I'll get back in the queue. That color was really helpful. Thank you.
The next question comes from Gary Mobley of Benchmark. Please go ahead.
Hi, guys. Let me extend my congratulations on another solid quarter and some good execution over the past couple of years. I want to start with a question.
Great
About your ASP, specifically on 4G LTE royalty units. If my math is correct, it looks like you might have actually had a boost in your average 4G LTE royalty rate. I was wanting to know if I'm correct in that assumption, and if so, was it the diversity of the royalty contributors that drove the increase?
Yeah. I think, morning first, and thanks for the kind words. If you look at the overall ASP of the company, it is very high this last quarter and a great achievement. One is to take into consideration that it does have less non-handset, like Bluetooth, because of the seasonality we just talked about, and much more LTE units. The overall ASP, of course, improves just mathematically. I think we've always said that the ASP is not the target for us, but it's a nice thing to grow if you can. The mix was good this quarter because of much, much higher volume in LTE, which have the higher royalty rates. I think for the first time, the information you got from Richard in the infographics, it shows the first time in our history that smartphone shipments last quarter were higher than feature phones.
A bit, not by far, but I think we're talking about $102 million versus $98 million. The $98 million is still $100 million a quarter, which we are powering feature phones. As soon as these guys, whether some of it or completely all of it, over a year or two timeframe, will move to smartphones, we could either double or maybe even triple that royalty contents to be 100-ish million units a quarter, and that's going to continue to improve the overall ASP. I don't think anything special happened in LTE other than just product mix and what I just explained.
Okay. Extending the question, I guess there's been some speculation that one of your licensees might get some traction with its CEVA-based thin modem in a flagship smartphone. I'm not asking you for confirmation on that front. You probably don't even know if it's true or not. Can you tell me if there's a notable royalty rate per unit difference between a thin modem versus one that's integrated?
I'm not sure if we could go into that much specific details about the specific customer. I think we'll all wait and see how this progresses. We usually try not to guess before one gets into production with a specific SKU or a flagship model. As soon as it happens, we'll have more color and could look at the royalty contribution if that happens and give a little bit more color. It's a bit premature. For now, I think the right way to look at it is just the whole basket of LTE devices versus the 2G devices or Internet of Things device. I think that's easier to model than to comment on at this point in time.
Okay, fair enough. Thanks, Yaniv. I did have one additional follow-up question. In your prepared remarks, you talked about a few comprehensive deals in the pipeline, it sounds a lot like a subscription license agreement in the way perhaps ARM Holdings bundles its intellectual property. Am I thinking about that correctly? Could you be entering an era in which you are readily recognizing license engagements over a prolonged subscription period?
Let me try to help here. First of all, as Gideon said, it's not done yet. It's an idea or it's a deal that is in the works. I don't think from a revenue recognition it's going to be a model of a subscription, but it is going to have the same idea, as Gideon explained, that specific customers, and maybe more in the future, will have a much more flexible capability to choose different technologies for different markets or different product cycles for them, and not come back on each special deal, standalone deal, that will have a variety, a basket of IPs that they could use.
It has some type of that idea behind the subscription with much more flexibility to use our IPs, but we're not going to recognize the revenues based on that, but based on the actual usage of the different technologies that they will take over time.
All right. That's it for me. Thanks, guys.
Thank you.
The next question comes from Matthew Robison of Wunderlich. Please go ahead.
Hi. Thanks for the nice quarter. Gideon, I was hoping you could maybe talk a little bit about vision. I guess there's two areas. I'm curious if you can characterize the licensing you've done and the mix of applications between ADAS, specifically automotive and other types of vision usage. Then, since there's been a bit of controversy on the topic on the automotive side, how you see things unfolding with new entrants, especially on the sensor processor portion of licensees and the timeframe you think you might see some of these guys getting in the market, where they are in terms of whether they're tier 1 or more traditional semiconductor licensees or something else.
Hi, Matt. First of all, when it comes to vision, the way I see it is that the educated market-- Vision, it's a relatively new market or relatively new use case in the industry overall. So far, the most educated market to use vision processor like we offer and the basket of things that we offer there is surveillance. Surveillance is a big market, and it's around the world with security camera, surveillance camera, either at home or enterprises looking to put intelligence into this camera. Coming next is a smartphone. Today, only Qualcomm has a processor that do vision, but others are still using all sorts of other, I would say, bypasses, but they are getting into things. Application like the Google AR, what's the name of the game?
Pokémon Go?
Pokémon Go. These are the things that show how to use vision, how we can take advantage of the camera in the smartphones. We believe the next in line in terms of adopting vision, we already licensed technologies
Are in the smartphone, that's good because you speak here on huge amount of volume and a lucrative space. On top of it, you have markets that are less in sizes, still when you accumulate them, they become sizable virtual realities, action cameras, robots down the line, et cetera. When it comes with ADAS, definitely vision is a part of the ADAS space. Autonomous car will have to have multiple cameras, no doubt about it. They are more advanced in adopting deep network and computer vision in general. With that said, it's a market that has its different timelines. What we are doing in this space is that we have an action plan that we're following, we have tier 1 customers that we are discussing, we have sensor guys that we are evaluating and forming.
We have a few deals that we signed so far, there are a few things that are in the short terms and other. If you summarize the perception that people have about our technology, ADAS, it's the light technology, it's a viable technology. We are basically today the only viable alternative other than Mobileye, which comes with their own chip and software, it's a close. Overall, when it comes to ADAS, we have to adhere to the timeline and the milestone the vehicle ask us, I think we are in the right track, yeah.
Thanks, Gideon.
The next question comes from David O'Connor of Exane. Please go ahead.
Great. Thanks for taking my question, guys. Question from my side. We're hearing some chatter on China telcos that they may begin to push LTE Cat7 maybe in the latter half of this year. Just wondering how well do you see you guys positioned in China, if the market begins to shift from, say, an LTE Cat4 to a Cat7? That's my first question. Second question, again, on the significant licensing opportunity you mentioned, Gideon, in your prepared remarks. What type of applications are we seeing there? That's the second question. The last question is on the, you mentioned 5G license for base station. Is this a new customer and how does it tie in, or is it different to your existing two base station customer? Thanks.
Okay. Let me address one by one. When it comes to Cat7 LT, all our customer offer this one. I don't see any stumbling issue there when it comes to Cat7. That's one thing. The second question, just remind me what was, because the third one was base station. Can you remind me the second question?
Yeah. The second question was the significant licensing opportunity that you mentioned in your prepared remarks.
Yeah.
Just wondering what type of applications are we talking about?
Yeah. Okay. That's across all the product line. It's not a specific product line that we are speaking about. We speak about multiple customer that simultaneously came to us with different strategic suggestion, and it's across all the product line. The third question is the base station. It's the deal that I spoke about the prepared remark. It's with existing base station customer, a key customer. The prior deal was 4G LTE-Advanced. This is this next generation, which eventually will require different DSP, for 5G and it's more like toward the 2020, 2021 timeline.
Okay, great. If I could squeeze in one more, sorry about this, you mentioned there was a question previously on the LTE and the kind of some of the moving parts there, you also spoke about having multiple LTE customers, which you flagged before in the second half here. Will the LTE ASP, is that going to move up or down given the mix when you look at the second half? Thanks.
Hi, David. No, I think we're looking at more or less the same ASPs that we have talked about for this year, anywhere in the neighborhood from $0.08 to $0.09 in the LTE space is a good number to use for different model. We don't see a change. Of course, we would like to see more volume and therefore higher royalty revenue derived from that. I think that's the-
Okay
the LTE.
Okay, great. Thank you.
Sure. Thank you.
The last question today will come from Suji DeS ilva of ROTH Capital. Please go ahead.
Hi, good evening, this is Richard. Congratulations on the stellar results. Good to see the hard work paying off there. On the large customer comprehensive deals, I'm curious, if you could be more specific on the number of opportunities you have there and whether those deals might represent the largest in the company's history, just to understand the magnitude here.
Sure. It is of course a nice deal. The idea is that we're offering the same technologies that we have today, but because they're in nature and [harness], they've been doing that for many years. These are large customers. We're trying to simplify the engagement with these types of players, at least for one we're dealing with actually right now, maybe others will follow. Giving them an access to different technologies, I think Gideon mentioned that it could be connectivity, we're talking about Bluetooth technologies, Wi-Fi, it could be DSPs for audio and vision. It could be different software packages for a complete solution. It could be LTE, it could be Internet of Things in a very small form factor for these devices like we've announced a new product just a few months ago.
The idea is to have a list or have a basket of these IPs with much easier access to large companies to choose. They just need to choose and pick and start a design. Of course, the royalties will be similar to what we have today from any customer, that doesn't change. The licensing engagement with these multiple type of technologies across every market, it just depends what they want to use and what we could convince them to use because it makes sense for them. That will enrich the relationship and hopefully the use of our technology across not just one division or one product line, but potentially many more because of the easier access. I think that's the idea. Dollar-wise, it's not eat as much as you can, but it depends what they want to use.
The more they want to use it, the bigger the deal could be. We have a basic platform for that. Again, I think we'll be more comfortable to talk about it after the deal is actually closed, which is not the case, but the idea that there's some basic usage, and then on top of that, they could add much more as they go along, and then the deal could increase as well in volume.
Good. That's helpful, Guy and Yigal. With the 4G market and upgrade cycle being so strong here and the premium to 3G phones being smaller, is the 3G phone unit market still a growth market? Is that stable or is it starting to decline?
3G?
3G.
The overall, the 3G market is a decline market, but in more modest rate than 2G. Our play there is market share gain. I mean, we have a customer, Spreadtrum, that focus on this market and gaining share. I think last quarter, honestly, if you look on a sequential basis, it was about 5% market share gain, and we expect to get to the level. It's a sizable market, and in places of India and Eastern Europe, there is still 3G network, and we want to benefit out of it.
That's great. One last quick question on the full-year range update, 35%-45%. Is that just the range there, just general market demand? Are there any customer-specific events that might tilt you towards the high end versus the low end? Thanks, guys.
I think it's just acceptance in the market of different phones. If they're suddenly more appealing, and the volume increases because of good marketing positioning or a good phone, or if it's the low cost, it's just a ramp-up. I don't think there's one specific driver for being in the higher end or the lower. It doesn't rely on one tier, one customer, but a whole bunch of different both market and players like we alerted earlier. It's a good question. I don't think it's a one-all type of answer, but a combination.
Thanks, guys. Congrats again.
Thanks, Suji.
This concludes our question and answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks.
Thank you all for joining us today and for your continued interest and support in CEVA. We will be attending the following upcoming conferences and invite you to join us there. The Oppenheimer Annual Technology, Internet and Communications Conference on August ninth in Boston, the Canaccord Genuity Global Growth Conference on August 10th in Boston, the Drexel Hamilton Telecom, Media and Technology Conference on September seventh in New York, Deutsche Bank 2016 Technology Conference on September 14th in Las Vegas, and Dougherty & Company Institutional Investor Conference on September 28th in Minneapolis. For further information on these events, including webcasts and a complete calendar of other conferences we'll be attending, you can visit our website at investors.ceva-dsp.com. Thank you and goodbye.
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