Good morning, welcome to the CEVA, Inc. First Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note, this event is being recorded. I would now like to turn the conference over to Richard Guasch, Vice President of Market Intelligence and Investor Relations. Please go ahead.
Thank you, good morning, everyone. Welcome to CEVA's First Quarter 2016 Earnings Conference Call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA, and Yaniv Arieli, Chief Financial Officer at CEVA. Gideon will cover the business aspects and the highlights from the quarter and general qualitative data. Yaniv will then cover the financial results for the first quarter and provide guidance for the second 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 second quarter of 2016, optimism in leveraging market opportunities in machine vision and deep learning technologies, wireless connectivity, including Bluetooth Smart, M2M communications, voice processing, as well as 3G and LTE, royalty revenue growth, generation of new revenue streams, increase in units shipped by 2018, high confidence in the licensing business for 2016, royalty revenue guidance for the second quarter of 2016, as well as exploration of strategic investments and continuation of our buyback program.
The risks, uncertainties, and assumptions include the ability of the CEVA signal processing IPs for smart and connected devices to continue to be strong growth drivers for us, our success in penetrating new markets, specifically non-baseband markets, and maintaining our market 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 and LTE networks 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. Our first quarter was well executed, delivering record high quarterly revenue of $16.5 million, up 19% compared to the first quarter of 2015. A good licensing environment underscored by growing success of our vision product, coupled with royalty revenue from continued market share gains in LTE were the key success factors. Licensing and other revenues was approximately $8.6 million, an increase of 10% year-over-year. Licensing included three new customers for our CEVA-XM4 vision DSP, following five CEVA-XM4 deals in the prior quarter. Royalty revenue was approximately $7.9 million, an increase of 31% year-over-year. LTE shipments continued to grow with 35 million shipped units reported in the quarter, which represents substantial progress from last year when we recorded 70 million shipped units for the entire year. During the first quarter, we concluded 11 new licensing deals.
Six of which were for CEVA DSP cores and platform, and five were for connectivity products. Of the deals signed, three were with first-time customers, and 10 were for non-handset baseband applications. Target end product and use cases include vision for smartphone, advanced audio for wireless speakers, low-power Bluetooth connectivity for hearing aid earphones, and variety of IoT devices. Geographically, four of the deals signed were in the U.S., three in Europe, and four in the APAC region. We look ahead, we continue to experience tangible growth trends that we can capitalize on. These include the increasing adoption of machine vision and deep learning technologies in automotive, smartphones, advanced camera, drones, and virtual reality headsets. The proliferation of wireless connectivity, in particular Bluetooth Low Energy, in massive number of devices that are connected as part of the Internet of Things theme.
The expansions of cellular technologies to the adjacent low-power machine-to-machine communication market for home entertainment, home automation, wearable, drones, and smart cities. The use of voice as primary machine interface for smart devices and with the cloud. These are irrefutable opportunities enabling higher addressable content for us, where we can leverage on our unique specialization in signal processing algorithm and processor architecture. By reviewing some of the recent CEVA-powered products that were launched by our customers, it is clear to see how these trends are being realized. Let me highlight a few of our customers' recent products. In vision, LG Electronics is going to use our Vision DSP platform in its future mobile devices. It will enable LG to support the most sophisticated and advanced computation photography and vision use cases such as 360-degree photography, video analytics, virtual reality, augmented reality, and ADAS.
The first CEVA-based mirrorless camera is now in production by a tier 1 branded camera OEM. Our Vision DSP enables substantial improvement in autofocus, noise reduction, low-light performance, and more. In audio, recent teardown reports from Chipworks and iFixit revealed that multiple SKUs of the latest and successful Galaxy S7 and Samsung Galaxy J7 lineups include an always-on voice processor chip from DSP Group enabled by our audio voice DSP. In Bluetooth, Atmel recently launched a complete ultra-low power platform for the IoT and wearable market. This platform features a Bluetooth Low Energy solution enabled by our technology. This solution represents 25% smaller form factor than the closest competing solution. NXP introduced the QN9080 CEVA-enabled Bluetooth Low Energy chip, claiming 40% more energy efficiency versus the closest competitor. NXP has been deploying its chip within wearable device manufacturer, where the dominant sectors are expected to be healthcare, fitness, and wellness.
These production runs as well as more than 50 CEVA-based chips in various design stages will have a growing contribution to our royalty revenue and power our mid-term objective of 700 to 900 million unit chips in 2018. We are constantly adding new technologies and software that increase the value of our product portfolio and will generate new revenue streams for the company in future years. Before handing over the call to Yaniv, let me refer to a few market data points in regard to the cellular market and provide customer updates that reflect our growing strength in this market. The outlook for 3G and 4G shipments continue to be strong. According to GSMA, LTE penetration worldwide is still only at 14%. In emerging markets, 3G and LTE penetration combined is only 40%. Of the 7.3 billion cellular subscribers in the world, 51% still own 2G features.
This low penetration rate of 3G and LTE smartphone presents a sizable opportunity for us for which we can leverage on our diverse product line and experienced customer base. We are set to address all of these opportunities across all different tiers of the market. Let me share with you some of the recent customer announcements in this regard. At Mobile World Congress in February, China Mobile announced its business target to sell 330 million LTE phones in 2016. Together with two of our customers, Spreadtrum and Leadcore, it announced that it will offer LTE advanced smartphone with voice over LTE feature at a price point of $50. Spreadtrum announced that its SC9830i LTE smartphone platform has been adopted by Samsung for the Galaxy J3. This phone carries an attractive value proposition for emerging markets, where Samsung is holding a leading market share of 22%.
Another Spreadtrum LTE SoC, the SC9830, has been adopted for multiple low-cost smartphones for India. This includes Intex Cloud 4G Smart, the Lava A88, Xolo Era 4G, and InFocus Bingo 21. All these handsets sell for less than $80 and include support for VoLTE. Spreadtrum announced that its first LTE chipset targeting medium and premium smartphones, the SC9860, is now in mass production at TSMC 16 nanometer FinFET process. This firmly places Spreadtrum at the advantage over MediaTek at these advanced nodes. Samsung announced that the latest Exynos 8890 manufactured at 14 nanometer FinFET technology power the latest Galaxy S7 and S7 Edge smartphone. The Exynos 8890 integrates the most advanced LTE Cat 20 and 13 modem, offering downlink speed of 600 megabit and uplink speed of 100 megabit per second. Samsung announced the newest member of the CEVA-powered Exynos 7 lineup, the 7870.
This LTE chipset is designed for next-generation mid-range smartphone. Samsung plans to build up its position in the mid-range tier by employing 14 nanometer FinFET process, which has been reserved only for premium segment thus far. Intel announced its latest XMM modem chip, XMM 7480, which can deliver up to 450 megabit per second. This modem platform expected to be in production in the first half of 2017. In conclusion, we are successfully combining strategic focus on our core cellular business together with product diversification into exciting area of vision, voice processing, connectivity, and machine-to-machine. Together with our customer, we can bring value to every market deploying these technologies and across all segments. We will continue to relentlessly pursue every opportunity for growth as we leverage our leading position in signal processing IP for smart and connected devices.
With that said, let me turn the call over to Yaniv to discuss financials and guidance.
Thank you, Gideon. I'll start by reviewing the results of our operations for the first quarter of 2016. Revenue for the first quarter was $16.5 million, an all-time record high, and slightly better than the mid-range of our guidance, primarily due to strong licensing revenue. The revenue breakdown is as follows: licensing and related revenue of $8.6 million, an all-time record high, reflecting 62% of total revenues. This is 10% higher as compared to the comparable quarter of 2016. Royalty revenue was $7.9 million, reflecting 48% of total revenues, an impressive increase of 31% on a year-over-year basis, and the fifth successful quarter that we have delivered year-over-year royalty growth. Quarterly gross margin was 90% on US GAAP basis and 91% on non-GAAP basis. The non-GAAP quarterly gross margin excludes approximately $60,000 of equity-based compensation expenses. Total operating expenses for the quarter were $13.1 million at the mid-range of our guidance.
OpEx also include an aggregated equity-based compensation expense of approximately $1.4 million and $0.3 million for the amortization of acquired intangibles of RivieraWaves. Our total operating expenses for the first quarter, including equity-based compensation and amortization, were $11.3 million, also at the mid-range of our guidance. US GAAP net income for the quarter increased 270% from half a million dollars to $1.8 million in the first quarters of 2015 and 2016, respectively. Diluted net EPS increased 350% from $0.02 to $0.09 for the same periods. Non-GAAP net income and diluted EPS for the first quarter of 2016 more than doubled year-over-year and increased by 115% and 113% to $3.5 million and $0.17, respectively. Our non-GAAP net income and diluted EPS for the first quarter of 2015 were $1.6 million and $0.08, respectively.
These figures for the first quarters of 2016 and 2015 exclude equity-based compensation expenses of $1.5 million and $0.8 million, respectively, and the impact of amortization of acquired intangibles of RivieraWaves net of taxes of $0.2 million and $0.3 million, respectively. Other related data. Shipped units by CEVA licensees during the first quarter of 2016 were 230 million, down 9% sequentially and 1% from the first quarter shipments of 2015. Of the 230 million units shipped, 185 million units or 80% were for baseband chips, reflecting a sequentially decrease of 9% from 202 million units of baseband shipped, and a decrease of 8% from 201 million shipped units a year ago. The non-baseband volume shipment decreased 10% sequentially, but increased 42% on a year-over-year basis. The decrease in the quarter can be attributed to gaming consoles and a decrease in shipments of an older Bluetooth product line.
The quarterly handset baseband royalty ASP was up 11% sequentially, and 47% year-over-year due to a growing product mix of LTE devices. Our overall corporate blended royalty ASP increased 7% sequentially, and 32% year-over-year. As for the balance sheet items, as of March 31st, CEVA's cash equivalent balances, marketable securities, and bank deposits were approximately $137 million. In the first quarter, we paid approximately $1 million as part of the prior contractual commitments in acquiring the VR rights. Our DSOs for the first quarter was 37 days, still below the normal level, but up from the fourth quarter level of 23 days. Regarding our buyback program, we repurchased approximately 180,000 shares during the first quarter, at an average price of $19 per share and for approximately $3.4 million.
We plan to continue our stock buyback in 2016 and look for other strategic investments that can reinforce our market leadership in DSP and connectivity IPs. During the last quarter, we generated $0.2 million of operating cash flow. Our depreciation was $0.3 million and purchase to fixed assets was $0.4 million. At the end of March, our headcount was 263 people, of which 205 are engineers. For the guidance. On licensing, we expect a continued strong environment across the entire range of products we offer. On royalty, as Gideon expanded on earlier, we are experiencing growing momentum in the LTE smartphone market across all price tiers, from low cost through premium models. This strong momentum in LTE will enable us to more than offset the post-holiday season weakness typically experienced across the semiconductor and consumer electronic industry in the first quarter of each year.
As a result, we expect royalty revenue for the second quarter to be substantially higher, approximately 20% increase on a sequential basis and over 60% increase on an annual basis. Our guidance for the second quarter 2016. Revenue for the second quarter is expected to be in the range of $16.5 million-$17.5 million. Gross margin is expected to be approximately 91% on GAAP and 92% on non-GAAP basis, excluding equity-based compensation expenses. Our overall expenses should be quite similar to the expense levels we just reported for the first quarter. U.S. GAAP operating expenses are expected to be in the range of $12.8 million-$13.8 million. Of our anticipated total OpEx for the second quarter, $1.6 million is expected to be attributed to equity-based compensation expenses and $0.3 million to amortization of acquired intangibles.
Our non-GAAP OpEx is expected to be in the range of $10.9 million-$11.9 million. Net interest income is expected to be approximately $350,000 for the quarter. Tax rate for non-GAAP at approximately 14%. Share count for the quarter, approximately 21.7 million shares. That brings us to the EPS. U.S. GAAP fully diluted earnings per share expected to be in the range of $0.09-$0.11. For non-GAAP EPS forecast, excluding aggregate $1.4 million of equity-based compensation expenses net of taxes and amortization expenses of $0.3 million, is expected to be in the range of $0.17-$0.19 per share. Annalise, you can now open the Q&A session, please.
Thank you. 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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. At this time, we'll pause momentarily to assemble our roster. Our first question is from Matt Ramsay of Canaccord Genuity. Please go ahead.
Thank you very much, gentlemen, for taking my question. Good afternoon. I guess a couple from me. I guess, first off, congratulations on the strong traction in LTE broadly. Gideon, I wanted to ask a few things going on in the industry, and maybe you could expand a little bit on the basis of the strength of the sequential guidance in LTE units. Things of particular interest to myself are the expanding use of Samsung's Exynos program through the mid-tier of their portfolio. Also, maybe you could talk to us a little bit. We continue to hear more and more about 6-mode LTE being important in China, not just with Spreadtrum, your primary customer, but also I know you guys have a bit of CDMA business with MediaTek and how much those things are contributing to the guidance strength. Thanks.
Okay. In terms of the mid-range of Samsung, we cannot really elaborate much about it. The only thing that I can say is that we are well positioned there in Samsung across all tiers. We are covered in the high-end, we are in the mid-range, and I would say majority of the low-end side, which is not an in-house modem, but coming from outside the dial also is by us. I mentioned the Galaxy J3, which is a very successful product in the emerging market, from Spreadtrum. That's one thing. The other thing is the 6-mode, right? That's what we are hearing as well. I should say almost all of our customers have this CDMA, which is the 6-mode, that coming from the customer, and it looks like problem solved, I would say.
Got it. A couple other things to dig into, Yaniv, maybe I'll ask you to address this. I mean, you guys had talked about a 20%-40% range in royalty growth for the year. I guess given all the puts and takes of the new data that you see out there, maybe you could talk to us a little bit about where you guys see yourself within that guidance range as you move through the year. Thanks.
Sure. Good morning. It's a little bit early still in the year, just the first quarter is behind us. We did receive the most, not all, but most of the royalty reports. We see this trend that Gideon mentioned earlier of continued ramp up in LTE. The guidance we gave for next quarter of 20% sequential growth and more than 60% year-over-year growth takes into account probably just shy of 50 million LTE units shipped in Q1, which we will report in Q2.
With that early start and a pretty strong start of the year, I would say we're probably more confident or feeling a bit better maybe towards the higher end of the guidance, but we're still within the 20%-40%, but have much more half of the year with royalty reports are behind us. We feel comfortable that even the high end maybe is reachable. That's what we would say today. Let's take another quarter to follow those trends, then we'll have a clearer picture.
Got it. No, that's really helpful. The last question from me, I'll get back in the queue, is a lot of strength in recent quarters and licensing, particularly non-baseband applications, not just Bluetooth, but I think things that would carry a higher royalty per unit longer term, vision processors, et cetera. Maybe you guys could give us a little bit of more color about how you see those things ramping into royalty revenue over the next year or two to get towards the $700 million-$900 million goal by 2018. The shape of that curve would be really helpful because the licensing strength has been apparent. Thanks.
Yeah, thank you. Gideon?
I mentioned in my prepared remarks a few examples that is aligned with the areas that we are focusing. We got the first report for the first vision product, we heard it is going to be a successful camera. We have the Bluetooth, we have the audio that is now in millions of volumes. The exact curves of how this will shape up toward the 2018 $700 million-$900 million, we don't know exactly. We see that we have 50 designs running, that they are close to tape out, or I would say 60% toward the tape-out. It could be a hockey stick, it could be gradual. We'll see. I think toward the beginning of 2017, we're seeing some more sustainability here and predictability.
Well, thank you very much. Congrats again.
Thank you.
Our next question is from Joseph Wolf of Barclays. Please go ahead.
Thank you. I wanted to follow up with the licensing expectations and the momentum. If I look at the guidance, it feels like the midpoint's about $8 million. So just a couple of questions. First of all, how much visibility do you have with the licensing? Does it take you through the year, or is it really ad hoc on a quarterly basis? Then if I look at this quarter, you had three new customers among the 11 design wins. Were all three of those non-handset? Then finally, if you look at the overall licensing and the dominant proportion of that being non-handset, is there a next generation of handset that's going to refresh that and boost the licensing above trend at some point this year or next?
Yeah. Let me try to address, you asked several questions, and Yaniv will jump in with other inputs. First of all, when it comes to cellular, indeed, we had one baseband out of the 11. 10 were non-baseband. Regarding recycle, it can come and will come from three vectors. One is there are newcomers into the handset space, especially in China. The opportunity, the size of the market is enormous, and they are looking to add, and there are companies that feel that they can do an LTE and phones, and we see even some kind of a joint venture or merger between companies. I think last quarter, this quarter, we have a company that it's basically a newcomer into the space. That's one thing. The other area or other vector of growth, this is also I mentioned [audio distortion] , is the machine-to-machine.
If you had the time, if you were in the recent MWC, this was the highlight of the shows. The 3GPP, the standard body for LTE, are getting their act together, and they are going to stand out a low bitrate, machine-to-machine communication. The size of this market is, well, various things, but it's 2020, 2021, you speak about billions of units. The third element, which is more important, is the cycle of 5G. There are a lot of companies, Intel is very verbal about it. They're going into the 5G now, and the challenges are significantly higher. We, in February, announced a DSP for the 5G, and we are starting to work in the companies, by the way, not just in handset, but also in the base station side. These are the cellular opportunities.
Yeah, regards the number, the last couple of quarters were extremely strong. Every once in a while, whether it's Q3 of last year, was a similar figure. This quarter is extremely high, the highest we ever had. I think what we said, maybe a year or two years ago, after acquiring the RivieraWaves and adding other new connectivity IPs, that we are comfortable with in a $7 to $8 type million per quarter, 8.6 or 8 and a half, of course, is much higher than that. Whenever we could achieve that, we're happy to report it. In general, seven to eight is our normal type of comfort zone, as we view, significantly higher than five and a half, or that it was in the past for many years. I think we're comfortable. If we do better, we'll see it in the numbers.
If we're anywhere in that range, we're still comfortable that these new licensing deals would potentially generate more royalties in the future.
Okay. Just a quick one, another question on the non-baseband business. If we look at the total units for 2015, about 120 in the Bluetooth-related and 46 in the other. Are there two different growth rates that you can be comfortable with in those two end markets right now? Is it too early to talk about growth for the year for those two different parts of that business?
I think it's a bit early to put a figure or a model just because it's only starting to ramp up. If you look at the annual basis, you said last year, we were overall up 230% on the entire non-baseband. The run rate excluding the year was towards the 200 million, it was 60 million at the time. If we add some of these newcomers, like we mentioned, the DSPG and the camera that's in the market and shipping already, they're all starting to ramp up. It's still in the millions of units. As soon as those start getting, and many other examples, Wi-Fi's in the tens of millions, then those numbers could start being much more significant on a quarterly basis and reach 100 and more million units a year.
I think putting together, even told earlier, , we need to get and tie in few companies to start this production, we are seeing it already. The more we have, the better visibility we'll have on the numbers. We think that the numbers will pick up significantly in the second half of the year.
Perfect. Thank you.
Sure. Thanks, Joseph.
Our next question is from Gary Mobley of Benchmark. Please go ahead.
Happy Monday, guys. Just a couple of questions on the royalty trends. Could you talk specifically about the trends that you expect to see in non-baseband royalty units in Q2? If I'm not mistaken, the numbers might work out to where you're showing maybe just a slight increase in non-baseband in Q2.
You mean Q2 reporting or Q2 shipment?
What's your licenses shipped in Q1 that will impact your Q2 non-baseband royalty units?
Q1, I would say, was anemic in terms of the seasonality. In terms of the seasonality, we did have companies like DSPG and another company in the camera that started to ship in Q1. That's a new product and tied to introduction of new product. Overall, it's in line with people. Q1 was very weak in the consumer product. Going forward, we don't have any reason to believe that it will not go up again or follow the typical seasonal that we know from last year. The pace will go up because we have new products.
Okay.
Even if you look specifically at the Bluetooth market and the public companies that talked about it in the first quarter, the numbers were down for strange reason, no real reason other than just seasonality, were down quite significantly. This is what we are reporting now in Q2. Hopefully, the Q2 shipments will be up. We will be up in Q3 guidance for non-baseband. I think that's the plan.
Okay. All right. If I'm not mistaken, you're forecasting roughly a 57% sequential increase in LTE units in Q2. Could you talk about the diversity of that growth? In the early days, let's call it 2015, in your LTE unit ramp, I think it was heavily influenced by Samsung. Is that still the case, or are you seeing much more contribution from licensees such as Leadcore and Spreadtrum?
That's the point. We are nicely spread across different customers and different tiers of the companies. We have franchise models, we have premium models, we have mid-range models, we have low-end, and we have very low-end, and this is just when it comes to LTE. We are all over the place because we have different products for all these different tiers.
Okay.
I think it's a combination.
All right. You're guiding OpEx to be roughly flat sequentially, and that takes into consideration that you sort of stepped up your OpEx investment as indicated in your overall 2016 guide that you provided last quarter in OpEx. What's the temptation now that you might be running that behind your royalty growth guide to further increase that OpEx in the second half of the year to take advantage of some potential new market opportunities?
We are making the thorough consideration in terms of increasing OpEx. Our tendency is to do organic investment. Right now, we don't have any plans beyond what we shared already under annual. I think we are well-staffed to meet our plans for the year. We have other thoughts that we'll explore it and gradually invest in those based on the opportunity we see.
Okay.
To add to that, Gary, to add to that right now in the model, in the plan, other than if something new comes along that Gideon explained, we don't see an increase of OpEx from these levels in the second half of the year.
Okay. Congrats on a good start to the year. Thanks, guys.
Thank you.
Our next question is from Matt Robinson of Wunderlich. Please go ahead.
Hey, thanks for taking my question. Congratulations. You probably gave it, so I apologize. Can you give the LTE volume for the quarter, March quarter that you recognized there?
Sure. It was 35 million units sold in Q4, which we reported in Q1.
Okay. Now, you mentioned getting into more mass market, driving this big sequential increase you expect for second quarter. We've talked about China for a long time, but we haven't really seen LTE in China start to be a driver. Is it now a driver? Is this happening now, or are you looking at royalties still from the same kind of customers that have been driving it the last few quarters?
China is one of the drivers. There are two more drivers. I'll get back in a second to why China is a driver. We have two more drivers. One is market share or share gain in the premium side of the phones and the growth of LTE in India because even though the infrastructure in India is not LTE-ready today, all the smartphone ships to India are with LTE hardware. Going back to China, there are some renewed interest in China. It was stagnating, in the last quarter, we see improvement, especially in the mid-high end. Some of it relate to subsidies that the operators are going there, and we are part of this area. Qualcomm spoke about it. MediaTek is speaking about it. China is again a growing market.
Matt, one more thing, if you have missed, for Q1 shipments, which we report in Q2, we talked about just shy of 50 million LTE devices, up from 35, which we just reported.
I wanted to, I guess, put a finer point on it. When you look at that 50 or just shy of 50 million, is this TD-LTE that is really starting to drive it, and the sort of specialized LTE phones for China plus those in India, or is that in the outlook further in the year?
It's not TD-LTE. I would say it's more the 5-mode, it's a very dynamic market. People are now moving fast to 6-mode, these are the phones. The 3-mode, we didn't make a thorough analysis of the report that we got. I suspect that it's not that big.
Where do you think we're going to be when we start thinking about shipments in the second and third quarter? Same kind of drivers? Do you think these are going to go for multiple quarters, or do you see something different happening later in the year?
Yeah. The smartphone market is very dynamic. Things are like to change. Last year, just an example, Xiaomi was number 2 in China. Now, I think they are even at five. I'm not taking, Apple is struggling in China. We don't exactly sure what's going to happen, but I'm looking on the fundamentals. The fundamentals allow us to present all over the place. The fact that India is sustainable, they need smartphone, they need penetration, they need the LTE there. This, I believe, continue. I think when it comes in the high-end, still the consumer has to decide how to accept all those premium phones, but it looks right now in a good shape.
In the mid-range, we see a lot of things coming, and we have all our customer being able to offer it, which was not the case two years ago and was half through last year. Now they are all in the full gear.
Thanks a lot.
Thanks, Matt.
As a reminder, if you'd like to ask a question, please press star and then one. Our next question is from Daniel Amir of Ladenburg. Please go ahead.
Thanks a lot, and congratulations on a good quarter. I guess, where you stand today compared to where you were three months ago and now with this guidance, has anything positively surprised you or negatively surprised you in terms of the various business segments in terms of the growth here?
Yeah, Daniel, I said, beyond the guidance that we are giving, the LTE growth path, pace, it was, I would say, a quarter earlier that we anticipated, but we knew it's going to happen, and we can only be happy and proud.
The way, Daniel, if you look at the last 5 years, Q2 was always down in the last 5 years. This is the first time, after a long time, that we are breaking that, and this is mainly because of this LTE ramp-up. We don't have exactly the crystal ball when it happened and what's Q successful, but it's going to expand. We have the infrastructure, we have the customer base that competes with the Qualcomms in a sense, and the MediaTek's of the world. If they do better these next couple of years and quarters, then that's a big benefit for us.
Okay. In terms of uses of cash, you kind of mentioned, I guess you have the stock buyback and acquisition strategy. Can you just discuss what you're looking a bit in the areas of acquisitions that you need to fill, or the focus is really at the moment in terms of more stock buyback?
It's all of the above. We have a plan, a program for stock buyback, and we'll pursue it. In terms of M&A, we constantly, consistently looking for all sorts of prospects that fits to our strategy. I personally believe, and my tendency is to try to see things organically, to develop things. We are a very good team that can adopt the vision, for example, which is substantial. Technology pace, we have developed it in-house. Our technology base station is something that we develop in-house. We can do a lot of things in-house based on the opportunity we see. All of the above in terms of use of cash.
Okay, great. Thanks a lot.
Thank you.
Our next question is from Lee Meyer of Lord Abbett. Please go ahead.
Hi. Thank you for taking my call, my question, and congratulations on a great quarter. I have two questions. The first one is, there seems to be a trend ongoing in smartphones as cameras move towards dual cameras, which have some new functionality in them, and I've noticed that amongst your competitors, particularly MediaTek, they've been adding new image processors, I guess, DSPs to handle a lot of this enhanced functionality. The move to dual cameras, does this represent an opportunity for CEVA? My limited understanding is that most of that happens in the application processor as opposed to the baseband. Does that represent a challenge for you, for your image processor to cross over into the application processor? Is that an opportunity for you? That's the first question.
Okay, You put it right. The dual sensor is an area where we see smartphone manufacturer are looking to improve the quality of the video and also in the still side of pictures. This is not a baseband or AP play, it's more a dedicated vision processor like we are offering. One of the value-add, and one of the benchmarks that we are showing to customer is how to use our vision processor to support a dual camera. There is significant processing that you need to do in order to support this capability. We have a product line-
Are you doing-
It's a separate product line, not the baseband product line, but we call it the vision product line, by the way, which is very successful. Last quarter, we had two out of the three design wins came from smartphone from the same use case that you are referring.
Last quarter, two of the three vision licenses you signed were for smartphones for this use case.
One of the use case that they will use it. It's not a one of its only platform. You can use it's a processor. You can use it for other features, but one of the use cases will be dual camera. Yes.
Okay. Okay, very good. The other question I have is, in some of the discussions I've had with the company, you've talked about a sort of emerging base station opportunity, which could potentially be quite large for you in the future. Can you give us any update on what you're doing there and why that opportunity is large for you?
Yeah, this is a very lucrative and important piece in our technology. We have dedicated product line. We have two large OEM customers known in the space, that use our technology and deploy it already, and we expect to see royalty coming from this substantial market. They're going to use it for 5G as early as 2018.
Let me add to that, last year, Q4, we had a pretty significant comprehensive deal with one of the two recurring customers that took a next generation of our DSP for its base station. This quarter, they came back for another piece of stack that will fit on top of that. This is one of the Q1 deals. We're seeing constant licensing momentum here, and as Gideon said, we should be seeing a pretty significant ramp-up, whether it's end of 2017 or more of 2018, a pretty significant $ numbers coming out of that market.
Are those numbers included in your baseband or non-baseband units? Are they folded into the LTE portion of that or 3G portion of that, or where are they accounted for?
Good question. When we call baseband, we also add a word handset baseband. All of these numbers that we talked about, now 35 million or 60 million for LTE, these are all modems only for handset baseband. When we move to small cells, the macro cells, like base station or audio devices or vision for cameras that you mentioned, these will all fall in the non-handset baseband devices. If we have something specific out of base stations, I'm sure we'll give it the right color, so you could follow those trends as well.
Okay. Thank you very much.
Thank you.
This concludes our question and answer session. I'd like to turn the conference over to Richard Guasch for any closing remarks.
Thank you again for joining us today and for your continued interest and support in CEVA. We will be attending The Benchmark Company One-on-One Investor Conference in Milwaukee on June 2nd, and we invite you to join us there. For further investor information and a calendar of events that we will be attending, please visit our investor website at http://investors.ceva-dsp.com. Thank you and goodbye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.