Earnings Call: Q2 2021

Aug 9, 2021

Good day, and welcome to the CEVA, Inc. 2nd Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I'd now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor and Public Relations. Please go ahead, sir. Thank you, Yaacco, and good morning, everyone. Welcome to CEVA's Q2 2021 earnings conference call. I'm joined today by Gideon Wertheiser, Chief Executive Officer and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the Q2 and provide general qualitative data. Denis will then cover the financial results for the Q2 and also provide qualitative data for the Q3 and full year 2021. I will start with the forward looking statements. Please note that today's discussion contains forward looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward looking statements and assumptions. Forward looking statements include statements regarding demand for and benefits of our technologies and related deal flow, Including increased revenues from our Chinese wireless customer, expectations regarding market dynamics, including growth in the 4 gs and 5 gs handset space and True Wireless Stereo Earbuds base believes regarding benefits and impacts of the Intrinsics acquisition and guidance and qualitative data for the Q3 and full year 2021. For information on the factors that could cause a difference in our results, Please refer to our filings with the Securities and Exchange Commission. These include the scope and the duration of the pandemic, The extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand and the global economy generally The ability of CEVA's IPs for smarter connected devices to be continued 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 The speed and extent of the expansion of the 5 gs and IoT markets, our ability to execute more base station and IoT license agreements, The effect of intense industry competition and consolidation, global chip market trends, including supply chain issues as a result of COVID-nineteen and other factors and our ability to successfully integrate Intrinsics into our business. CEVA assumes no obligation to update any forward looking And with that said, I would like to now hand the call over to Gideon. Thank you, Richard. Our second quarter results were exceptional and demonstrate the momentum in our business. Our customer play high value high value on our product in conjunction with their 5 gs and IoT roadmap, And we are continually experiencing successful rollout of new CEVA and label products. Our revenue and earnings came in significantly ahead of our expectation of the back of solid overall business environment despite industry wide challenges with respect to the semiconductor supply. Revenue in this quarter also incorporated royalty payment owed to us after we constructively resolved a disagreement on royalty rates with the customer on past shipment. Late in the quarter, we concluded the acquisition of Intrinsics, A leading chip design specialist and security IP, which expands our market reach to the large aerospace and defense space and enable us to offer compelling proposition of optimized IP solution to our customers. Total revenue for the Q2 of 2021 was an all time record high, dollars 30,500,000 up 29% year over year. The licensing environment continues to be strong with good diversity of IP adoptions and targeted markets. Licensing revenue came at $15,500,000 up 15% year over year and included for the first time nonrecurring engineering Our AdRe revenue from Intrinsics business after we finalized the acquisition late last quarter. We signed 17 new agreements, of which 6 were with first time customers. Customer target market reflected brisk design activity in the true wireless stereo Or TWS earbuds space. The growing adoption of Wi Fi 6 and 5 gs In telecom, enterprise and industrial market and a range of application for IoT, consumer and medical. In addition, we signed a SensPro 2 computer vision and AI DSP license agreement With a key customer that recently won design with 1 of the largest China based surveillance camera OEM, displacing Huawei HiSilicon with a CEVA based solution. Also, At the beginning of the Q3, we signed a comprehensive and sizable portfolio agreement with a key semiconductor player in the mobile market in China. The agreement extends our footprint and provide us With additive royalty opportunities on LTE and 5 gs handset shipment derived from our connectivity IPs. Based on recent report from SINA Research in China, this customer managed to penetrate to top 5 list of smartphone chipset players in China in May for the first time, as its latest chips are adopted by top tier OEMs such as OnAir and Realme. Royalty revenue came At $14,900,000 in the quarter, up 48% year over year, Royalty unit shipments were $451,000,000 on the back of strong demand for CEVA powered Bluetooth WiFi and cellular IoT devices. Base station 5 gs RAN royalty grew substantially On a quarterly basis, reflecting share gains and the resumptions of capital investment in 5 gs network by Chinese operators. In handset, our Chinese semiconductor customers continues to expand in the 4 gs and 5 gs markets as it successfully penetrates top tier Chinese OEM. This growth was offset by slightly lower than expected shipment by our Tier 1 U. S.-based OEM, which we believe is largely attributed to supply constraints and softness in India due to the pandemic. As noted earlier, the royalty revenue for the Q2 incorporates approximately $3,300,000 due to us following a resolution of this agreement on royalty rates. Let me now provide some details on the market dynamics we are experiencing And services in our main market, namely TWS earbuds. TWS earbuds are expected to be the 2nd largest category After smartphone, in terms of unit volume, its smart adoption has driven down the prices, Making TWS earbuds affordable even in developing countries such as India. The technology is systematically progressing toward becoming an AI based smart voice assistant, Like smart speaker and a health monitoring device to measure things like PPG, ECG, temperature, Glocose level and fitness. The reassert executive order by President Biden to allow Americans to buy hearing aids over the counter, share to diversify and expand the use of TWS into this very large and lucrative space. Our recently announced BlueBot platform is a key enabler for the smartification and diversification of TWS usages. It offers a comprehensive integration of the most prominent common denominators in all TWS earbuds, these being wireless connectivity, Audio and sensor processing. Our Riviera Wave's Bluetooth 5.2 controller and the CEVA BX1 DSP are the 2 widely used and reputable technologies that successfully address the inherent Challenges of low power, audio performance and cost. Furthermore, the Bluebell platform is enriched With a range of key software technologies from CEVA and one which are SenseLink, a software framework for AI based voice assistant capabilities and our motion engine for a range of UI and fitness applications. Bluebud's unique proposition puts CEVA in a position to become the de facto standard in transforming earbuds From an audio only device to a smart wireless device empowering advanced services such as AI based virtual assistant and health related features. On the intrinsic front, the integration is underway and progressing smoothly. We are getting constructive feedback from customer in the defense and Intrinsic chip design and IP capabilities have a pivotal role to play in the expansion of CEVA business From licensing, standardized IP towered the licensing of highly integrated IP based solutions powered by our portfolio of DSP, connectivity, security, RF and mixed signal IP. In capitalizing on intrinsic technologies and expertise, CEVA is in an excellent position to move up in the value chain to address the needs of system and semiconductor companies for an optimized and differentiated chip design that take advantage of CEVA high valued IT. This proposition in turn creates stronger ties with customer and larger revenue opportunities. So in summary, we continue to leverage on our diverse and high value technology portfolio to deepen engagement with customer and to capture the exploding demand for smart and connected devices. We are encouraged by our penetration in the 5 gs handset space, where we can address, in addition to baseband processing, Additional business vectors such as wireless connectivity and audio. The TWS space And its evolution tower smart wearable devices presents a huge market opportunity where we can capitalize on our unique excellence to combine audio and wireless connectivity. Last but not least, with the Intrinsics team on board, we are in early stage of secular growth Trajectory where our enriched proposition provide us with access to new market and lucrative Customers engagement. On the supply storage, we are working hard Shoulder to shoulders with our customer and suppliers to meet the outstanding demand for chips enabled by our IP. We hope supply constraint will not last much longer. With that said, let me hand over the call to Yaniv for the financials. Thank you, Gideon. I'll start by reviewing the results of our operations for the Q2 of 2021. Revenue for the Q2 was up 29% to $30,500,000 A new all time high as compared to $23,600,000 for the same quarter last year. The revenue breakdown is as follows. Licensing and NAREEN related revenue was approximately $15,500,000 reflecting 51% of our total revenues, 15% growth from $13,500,000 for the Q2 of 2020. This is the Q1 we recorded NRE revenues, which resulted from the acquisition of Intrinsics in June. The NRE revenues totaled approximately $1,200,000 for the 2nd quarter. Royalty revenue was up 48% to $14,900,000 reflecting 49% of our total revenues compared to $10,100,000 for the same quarter last year. 2nd quarter 2021 royalties included a royalty payment owed to us of approximately $3,300,000 after we constructively settled a dispute on royalty rates with a customer. Quarterly gross margin was 88% on GAAP basis and 89% on non GAAP basis, both slightly lower than what we projected as we integrated Intrinsics and our e cost into the cost of revenue. Non GAAP quarterly gross margin excluded approximately $100,000 of equity based compensation expenses and $200,000 with the impact of amortization of acquired intangibles. Total GAAP operating expenses for the Q2 was over the high end of our guidance at $25,200,000 Due to the integration of Intrinsic's expenses for the month of June, ahead of our expectation and prior quarter's guidance, as well as $900,000 associated with Intrinsics deal cost. OpEx also included an aggregated equity based compensation expenses of approximately $2,800,000 and $800,000 for the amortization of acquired intangibles including Intrinsics. Our non GAAP operating expenses for the 2nd quarter, excluding equity based compensation Just over the high end of our guidance due to the integration of intrinsic expenses for the month of June ahead of our expectation and prior quarter's guidance. Tax expense for the Q2 came in as expected, still with strong revenue mix and interest Our connectivity product originating in France, which has a higher corporate tax rate of 26.5%. U. S. GAAP net income for the quarter was $300,000 and diluted net income per share was $0.01 for the Q2 of 2021 as compared to a net loss of $1,100,000 and diluted loss per share of $0.05 for the Q2 of 2020. Last non GAAP net income and diluted EPS for the Q2 of 2021 were $5,100,000.22 up 77% and 83% year over year, respectively. Non GAAP net income and diluted EPS for the 2nd quarter Excluded $2,900,000 were $2,900,000 for 20.20 and $0.12 respectively. 2nd quarter 2021 figures exclude equity based compensation expenses, net of tax Of $2,900,000 the impact of amortization acquired intangibles in the amount of $1,000,000 and $900,000 of costs associated with the Intrinsics acquisition. With respect to other related data, shipped units by CEVA licensees during the Q2 of 2021 were 451,000,000 units, up 32% sequentially and up 95% for the Q2 of 2020 reported shipments. The 451,000,000 units shipped, 138,000,000 or 31% were for handset baseband chips, reflecting a sequential increase of 7% from 129,000,000 units of handset baseband shifts, shipped during the Q1 of 2021 and a 39% increase from 99,000,000 units shipped a year ago. Our base station and IoT product shipments were a record 313,000,000 units, up 48% sequentially and 137% year over year. Of note, Bluetooth was a new record high with 189,000,000 units shipped this quarter. WiFi and cellular IoT units also reached record highs. 5 gs RAN base station shipments And revenues were stronger than in the last few quarters due to a customer in China delivering equipment for the continued 5 gs network rollout in China. As for the balance sheet items, As of June 30, 2021, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were $137,000,000 We did not exercise our buyback plan this quarter as we focused on the Intrinsics acquisition and expansion of our business. Our DSOs for the Q2 of 2021 were 31 days lower than the prior quarter and lower than our norm. During the Q2, cash Used in operation activities was $6,800,000 Depreciation and amortizations were $1,600,000 And purchases of fixed assets were $200,000 At the end of the second quarter, our headcount included the Intrinsics team for the very first time and was 468 people, of which 387 were engineers. This is up from a total of 412 people at the end of the first quarter due to adding the Intrinsics employees. Now for the guidance. Given our strong top line performance during the first half of twenty twenty one and the opportunities ahead, We are raising our annual revenue guidance to $119,000,000 to $121,000,000 range, up approximately 20% versus our 2020 revenues. As Gideon alluded to earlier, We are experiencing a healthy licensing environment and the pipeline is solid. We also They're expanding into new markets and can offer enriched value to our customers as a result of the integration with Intrinsics. On royalties, our base station and IoT category continues to And as illustrated by record shipments this quarter and the return to growth for a China 5 gs RAN customer and a new 5 gs ramp customer ramping production. In mobile, Our key Chinese wireless customer is expanding into top tier Chinese OEMs, which will add to the royalty mix. We expect all these growth engines to help offset expected decline of royalties from a U. S.-based OEM that recently moved to Qualcomm based 5 gs modems, specifically for the Q3 of 2021. Gross margin is expected to be approximately 81% on GAAP and 82% on non GAAP basis, Excluding an aggregate of $100,000 of equity based compensation and $200,000 of amortizations of other assets associated with the Immervision investment. Both include a full quarter of intrinsic engineering COGS allocation for NRE projects. OpEx for the Q3 of 2021 should be similar to slightly lower than the 2nd quarter. For the Q3, GAAP OpEx is expected to be in the range of $24,400,000 to $25,400,000 The anticipated total operating expenses for the Q2, dollars 3,100,000 is expected to be attributed to equity based compensation, dollars 900,000 to amortization of acquired intangibles and $300,000 for intrinsic holdback related expenses that will be recorded for the next 2 years on a quarterly basis. Non GAAP OpEx is expected to be in the range of $20,100,000 to $21,100,000 Net interest income is expected to be approximately $0.4 Taxes for the Q3 are expected to be approximately 22% to 24% on non GAAP basis. Nat's share count for the 3rd quarter is expected to be approximately 23,600,000 shares. Rocco, we could now open the Q and A system. Thank you. Thank Today's first question comes from Matt Ramsay of Cowen. Please go ahead. Yes. Thank you very much. Good morning, good afternoon, everybody. I guess my first question, Gideon, it's taken the industry a little bit of time To adjust to the fact that high silicon from Huawei has been unable to make chips at TSM because Some of the political situations and no doubt many of HiSilicon's customers had Built up quite a bit of inventory and we've taken a few quarters to work through that. But my observation from your prepared comments is The new equilibrium with HiSilicon out of the market has provided quite a bit of momentum for your customers, whether that be Spreadtrum, whether that be ZTE in the 5 gs RAN space, and it sounds like there's some new wins that you guys have with some of the camera providers for Enterprise Security in China. So if you could just maybe level set us on the new opportunities that your company might have for royalties In China, that would be really helpful. Thank you. Yes. HiSilicon, which is a semiconductor that is People think that it is linked to Huawei, but they are as a Standalone companies are extremely powerful in different verticals in China and all over the place. And what you say is what we are seeing is that more and more OEMs The 2s HiSilicon in the past understand that they cannot be served to the same extent That they do from supply and also for roadmap and turn to customers. So In specific, what we refer in the prepared remarks is surveillance market. Surveillance market is a huge market. It's about 400,000,000 units a year, Very advanced. And excuse me, and we have in the last few years Got prepared with a few customer of us to approach this market, and we are happy that this quarter it We are getting there. I mean, we are already collecting royalties from Few more days. And this quarter, we signed a more comprehensive and more future licensing agreement That hopefully will take us to a higher presence in this key customer in the space. Got it. Thank you. I guess as a follow-up question real quick in China, We've been watching from afar as I guess the Xingui Unigroup has been A bit teetering towards bankruptcy in China and I know they're the owner of Spreadtrum and of RDA in the wireless space in China. I wonder Gideon, if you're confident that that situation, however, resolves itself is not going to have any impact on your royalty business? Thank you. And I have one follow-up. Yes. So Matt, we did ask the same question, the customer. We don't see any Fingerprints of this Bailout that their owner has, Unisoc is doing very well recently as we Alluded in the call and I read somewhere that they are now becoming the real number 3 after MediaTek and Qualcomm, and that's a new era. I mean, they also take advantage of the That HiSilicon is not pushing anymore. They have 5 gs. They are shipping now 5 gs technologies. So this company is doing well, and at least From what we see from their report and their business. Thank you. I would add one more thing And that even if you look at our DSO for the quarter, which is one of the lowest we ever had and the AR balance, we haven't seen in recent months Any change or negative change in the payment schedules or any liquidity issues that we encountered. So far, it's a very positive sign. Thank you. Just real quick follow-up for you. Could you just go through the gross margin guidance again and if there was any Change because of the Intrinsics acquisition that we should expect on a more sustained basis? Thank you. Sure. So historically, you know, CEVA and the IP licensing and the royalty business, we were around the 90 ish percent gross margin on GAAP for a long time. When you're adding the intrinsic capabilities and design and IP, We're starting off with design services, which their cost is not located in the R and D line, but in cost of goods. So All these costs that they are doing, the design work that they are doing for their customers are allocated to cost of goods, and we talked about being in the 80 ish Percent gross margins for the time being, 81% on GAAP, 82% on non GAAP. As Gideon The business model and the trends within, we are looking to add much more IP offerings. And as soon as that happens and that kicks in, 1st in licensing, later on in royalties potentially, then those margins will probably crawl up to the mid-80s As we add more and every quarter, it may shift a bit anywhere from the low 80s to the mid 80s based on the revenue mix of Services versus IPs that we are able to add to their business and CEVA's overall numbers. Thank you very much guys. Appreciate it. Let me just take from the R and D line and allocate some of these costs to cost of goods. Thank you. And our next question today comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead. Thank you for taking my question and congratulations on the results. Can you say a little more detail on where your first time customers, where are they located geography wise? Where are they located geography wise? Hi, Kevin, it's Gideon. The diversity of the application and the geographies that We are experiencing this very well. But in general, China is It's very strong, in particular in wireless. And this could be we are seeing booming in PWS. We have substantial amount of Agreement in this space that this is not just the TWS, as I referred in the prepared remarks, is not going to be just an audio device. It's going to be an AI device, going to be a medical, it's going to be on hearing aids. And Apple just recently Came out with a software add on to make it, let's call it, Trembley strong all over the place and there are other IoT device in the consumer And things that customers don't want to talk about the application because they have something Unique that they want to surprise everybody. So to answer your question, it's the application Span and the geography is all over the place, specifically to wireless. It's a lot of it relates to China. By the way, the count is 1 in the U. S. And 5 in China from all these different markets that Gideon explained. Okay. Thanks for that. And on the intrinsic, you had given Forecast for the end of the year, has there been any change to that now that you have taken ownership? No, not yet. We the ownership is just very new and just happened A month or so ago, 2. We are still looking at $10,000,000 to $11,000,000 coming from Intrinsics. On top of that, a very strong Q1 enabled us to take first half, not just Q1, but also Q2, Enabled us to take the new guidance to be $119,000,000 to $121,000,000 Okay, great. Thank you. And our next question today comes from Suji Desilva with ROTH Capital. Please go ahead. Hi, Gideon. Hi, Gideon. Congrats on the progress here. Maybe you can talk about the wireless infrastructure market a little bit and obviously the dynamics maybe with CT and Huawei in place. But Just the overall underlying demand, whether that looks like it's sustained recovery in China spending there And the customers you're ramping now, how many customers are you ramping? So we understand the opportunity there. Yes. Suji, thank you for the question. So I'll try to give you a wide perspective So what we saw in the Q2 is a step In the royalty compared to what we saw, what we experienced in Q4 and Q1, And that relates to 2 factors you mentioned, I think, in your question. 1 is market share. Our customer is getting now on all these new contracts where they used to get about 9% to 10% of the overall Tender budget that is assigned for the project now, they are more at the 30 range of 30%. And the second thing is the investment in 5 gs. Now The investment in 5 gs, as we see it, is not just the big macro base station. It's about going into the industrial, what is called private networks, going into small cells for millimeter wave. So it could be all over the place. It's going to be gradual. It's not the demand is there, but it's not like consumer. But there is consistency, market share capture And new use cases. Regarding who is shipping, so we have another customer That ramp up production is very vocal and explain it, and that's started, and we see those The movement's there. And there are a bunch of companies that are doing similar approach like Qualcomm. Some of them are They do standard products for the small cells, for millimeter wave. And Some of them just started, but they're all in, I would say, tall position. They have the silicon, they need to qualify, they need to run the certification. But you're going to see or we are going to see ASSP chips going into the base station run, not to the macro, not to the big base stations, but more into the more compact one. Okay. That's very encouraging, Gideon. Thanks for that color. And then on the TWS market, You said that would be as big as not as big as, but as meaningful as smartphone over time. What's the timeframe for that to be a meaningful set of units? And then how is the non AirPod market developing to your opportunity and the mix of kind of low end versus Edge AI, AWS, those dynamics would be helpful to understand. Yes. First of all, PWS As I said in the prepared remarks, it's going to reshape And become much beyond an audio device. Now you can see from The reduction of market share of AirPod that down the market is growing and the Apple market share is, To some extent, declines is because there are many companies that are getting into the market. These are, I would say, all the smartphone OEM has today, their own brand, TWS, And there are tons of other audio companies and people that are going into White box TWS. Now we are Getting already substantial amount of shipments into TWS. But I think the impact will be Since sometime next year, when all those deals that we are signed, and we just this quarter, we had 8 out of the all agreements that we signed, 17, 8 were year related Technologies, could be hearing aid, it could be TWS, it could be somebody that take it to a medical approach. These are I believe you're going to see these companies Getting to mass market, not just to our Bluetooth, and we have substantial amount of it already, you're going to see next year when all those people get into the markets in the new form factor of TWS. And for us to evaluate higher oil, also it includes the DSP and not just the Bluetooth like we know from the prior model. Understood. That's very helpful and commend all color. Thanks guys. Congrats again. Our next question comes from Martin Yang at Oppenheimer. Please go ahead. Thank you for taking my question. I have a follow-up from previous analyst question. So you give us an ASP implication for the TWS customers when you compare winning just the Bluetooth Versus having additional features such as DSP or any other sensor features? Yes, sure. Partially, our business model mainly is either percentage of a chip price or cents, The $0.06 per share based on volumes, if you come up with not only a Bluetooth chip, but add more functionality to it, our customer is able to charge more for it, Usually improves the margin and then we enjoy that as well. So obviously, it could be a 2x, 3x what our offerings is in just standalone Bluetooth because we're adding more content and more technology. And the chip price At the end of the day, it's also more expensive because it replaces another component on a single chip device, on a system on a chip. So That's part of the big benefits of running an IP company and adding more offerings, and that's what we are going to see also in the ASP, royalty ASP And the deal size as well. When you license, you don't license 1 of the 2 technologies, but you combine them and there is an advantage for us and for the customer. I would say yes, I would just want to say about give some market perspective. We mentioned in the call the blue bud, our technology where We uniquely can do the audio and the connectivity and the sensor. We can combine them both on the hardware side And in the software side. What happened with this platform is, number 1, as Yaniv mentioned, the ASP that we are charging and deserve It's higher than just licensing those components separately like Bluetooth or just ESP. But what it does, it enable many other companies that miss and has their value. Think about medical company that has a technology for your cost measurement. With the BlueBot, this enabled them to go into the market because they can integrate their sensor into this platform and don't really Be bothered of the complexity of the audio and the connectivity. So with this that's our approach. It's not just Going and provide to the same customer higher value product, but to enable many companies into the second wave of CWL is when you have an AI and when you have medical to get into the market. And for those companies, the value that we are adding is substantial. Got it. Thanks for the insight. And on the overall market, I know you don't break out Bluetooth from the others Or TWS from the rest of the products yet, do you plan to do that? And right now, is there any way to provide us with more context How big TWS as a percentage of your total revenues or shipments? Any context will be helpful. Thank you. Yes, I could start. Yes, sure. I could start with Yes. We don't have yet specific breakdown within the base station and The first one that we broke out was Bluetooth, meaningful and we are every quarter supplying the data. 2nd in place, maybe Wi Fi going forward. We had record volumes there. The tens of millions of units For the first time, really significant and record high. So we don't as soon as any of these adjacent markets that Today, part of our base station and IoT will become meaningful. We'll open it up. It's a trend. It's a trend that the adductor cloud is super strong for us In the U. S, there are close to 109,000,000 devices just there. And obviously, the full solution of adding DSPs are have started in the last year or so, the right thing is when we introduce these newer products. So the royalties for them It will be much more meaningful as we go along. I hope this covered a bit your question. Yes, you did. Thank you. Martin, just this is Richard here. I can add one more element here. So not all of our customers break out which Bluetooth chips are shipping for which applications. But we do have customers, for instance, Best Technique in China, who previously we've seen has about 30% of the non Apple earbud market today. So With guys like BEST Technic, Beacon and so on, we have some very strong prominent players in the business. But as I said, in some cases, they're shipping Many different types of chips and different end sockets. They don't actually break out what the end application is in most cases. So guys like BEST Technic is a very good indicator of our Presence in the market, but I don't think it's possible to actually break out the units, just the TWS versus other. Thanks, Richard. And our next question today comes from Tavy Rosner at Barclays. Please go ahead. Hi, good afternoon. Most of my questions have been asked, so maybe just on intrinsic. I got disconnected for a second. So were there any revenue contribution in the Q2? And I guess just looking to remaining of the year, If you can go over the strategy, you mentioned last quarter the cross selling opportunity for the existing customer base and Perhaps bringing some of the interesting technology to your current customers, has the view kind of expanded a little bit since you guys I talked about it last quarter. Yes. Let me Yaniv, let me jump in and explain the overall perspective because that's a good question About intrinsic and then you can refer to the financial. So with intrinsics, We are we get very experienced in how to find design teams. And they have the capabilities of RF, mixed signal, security IP, these are things that our customers Our looking and when we get to talk to them and they say, okay, UIP is one thing, then we have tons of other things to do beyond it. Now with that competencies, we can get from addressing 2 things. Number 1 is exposure To the very lucrative market, which is aerospace and defense. This is market that we were not addressing as a standalone And company and the more we get to know this space and the potential and the fact now that the U. S. Is really Getting direct together in building semiconductor, you see it all over the place. You see it in terms of Envestnet. You see it in terms of new start ups Coming and developing creative things. So the access to the To the U. S. In general and the aerospace and defense market, it's incremental To our business. And the other thing, which we discussed briefly in the call, is what we want to do With the competency that Intrinsic provide us is to go out to customers and offer what we call Integrated IP Solutions. Basically, we tell to the customer, you get the IP, but we can do for you the whole design and create the whole basically SoC for you and optimize it to your needs. This is what we do in fact, is we're going up in the value chain, Not to the level of semiconductor company because we don't want to compete our customer, we don't want to provide chip to do the supply chain, But we're going up in the value chain. When you go up in the value chain, the deal size and the overall return for that investor will be higher to do it. And of course, the relationship with the customer are more sticky, I would say. So that's the approach of Intrinsic. We already reached out customers. I mean, this idea and this approach sounds good to them, I would say. Yaniv, do you want to refer to the financial? Yes, sure. Yes, and just To add the color, we had recorded $1,200,000 This is the first time we Recorded that in the licensing NRE and related revenue line. Obviously, next quarter, it's going to be a full quarter, not just 1 month, it's going to be a bigger number. And that falls, as I said earlier, in the $10,000,000 to $11,000,000 add on that we will We plan to add to 2021 model and revenues based on the intrinsic contributions. Thank you for the color and congrats on the strong results. Thank you, Debbie. And our next question comes from Gus Richard with Northland. Please go ahead. Yes. Thanks for my Taking the question. Just on a follow-up on intrinsic, it sounds like you're going to move into an ASIC business model, but Leave the production of the units to the customer, or is it going to be more of, you're going to take Intrinsic's Capability and create standardized IP, a little bit more color there would be very helpful. Yes, Gus, it's Gideon. Thanks. That's a very good question and you put your finger well the differences. So The idea with the integrated IP solution seem that we are coming to the customer and already, as I said, We are reaching out and talk to them about it is to create an optimized solution about IP. So it's not going to be Standard IP, we're going to take our IP, understand what are the problem the customer face in terms of performance, power And take advantage of what we know in the IP and to build an optimized solution. So as you pointed out, we are not going to manufacture chip, we're not going to the foundry, but we're going to do the whole design steps to create for our customer differentiated solution The design itself. So that's what we want to Do with our customers and you can think about what A and D is doing with their semi custom model. AMD, when they provide the chip, and they do provide ASIC chips, when they go to PlayStation or Xbox, They take advantage of graphics IP and processor IP and create something unique for PlayStation and Something that plays very well for Exbook. So we do the same thing, but on the IP space. So we do all the Perfections of the performance, but don't we don't manufacture chips or do supply chain. Got it. And then you talked about getting the blended gross margin up to mid-80s. Is this part of that or is it mix? Can you just again sort out How much of improvement of Intrinsic's gross margin profile you're going to get out of this new strategy? Yes. This is again an important question because right now, Intrinsics is doing what they do without our IP in the mix, meaning as a standalone company to do. So with the IP solution, what we're going to do is to go to the customer and offer them And our IP and to optimize our IP. So from that point, the amount of optimization, Which is Yes, one more color. This is not for the next quarter or 2. This is we are just Starting to integrate the team and build the roadmap. So the idea here is this is for the next 2 or 3 years. This year for sure with the 80s And that model will evolve as soon as we can. That's the plan. But it's not an overnight next quarter or the quarter after. Got it. Makes complete sense. I get it. Thank you. Thank you, Gus. Our next question today comes from David O'Connor at Exane BNP Paribas. Please go ahead. Great. Thanks for taking my question. Maybe just one or two follow ups to previous questions on my side. Maybe, Yandi, going back to the base station IoT unit shipment, dollars 330,000,000 in the quarter, very strong. You called out Bluetooth as 189. I'm just wondering about incremental $120,000,000 kind of $1,000,000 other in there. It seems like a big jump up, Well, certainly for Maher. So just help us to try and get there. Maybe you could rank, for instance, there were The other shipment in there across WiFi, maybe the wireless earbuds as well to kind of help us model that? That's my first question. Second question is just anything on seasonality on intrinsic that's worth calling out? And third one, just a follow-up on the question previously on the RAN side of things. In the 2021 guide, Does it assume both big brand customers of SABR shipping and volume in the second half? Thank you. Sure. So let's start with the beginning. The volumes that I think I stated this earlier, the biggest volume, number 2, after the Bluetooth The volume is the WiFi. This is new. It hasn't been in these Levels and I would say maybe even half of that delta is the Wi Fi, which is tens of millions of units. The other ones are cellular IoT, which is a nice ramp up, again, record high. This would be the 3rd, And then the others are still smaller. So I think the very interesting ones to highlight this quarter would be the Wi Fi in number 2 And sensor fusion is also a nice number that has been with us for a while now, 2 years And cellular IoT, which is ramping up the fastest after WiFi. So That's from the volume perspective. The second question was, sorry, remind me. Yes. Just on the intrinsic seasonality, anything to call out there for the model? Yes. I would say one In general, for now, these are the chip design services, because a big portion is the aerospace and defense, which is a lucrative New market for CEVA, the cycle is there, the government approval, DARPA, DoD, just the timing of Different projects and different customers to get everything squared away and sign SOWs and new deals and new projects. That's I think the more critical timing aspect that we'll be dealing with. But it's not one project, It's multiple projects running in parallel. So those are the things that probably could take longer or shorter For things to start kicking in and revenues to be recognized, the revenue is pretty simple. It's based on the Time and material and IP blocks that we'll start adding as soon as we can, and that's what we talked about earlier. That's from the seasonality perspective. So less than a typical licensing type of model, which Either a deal gets signed or doesn't get signed and if it does, you need to deliver and recognize it immediately. It's a little bit more Allocated over the different quarters. 3rd, David, sorry about that. Yes, got it. Yes, just last one just on the within the 2021 guide, does it assume both of your big RAN customers Correct. I think we're seeing all the news around us from both customers Doing well. If you follow their public announcement and that is the case. And ladies and gentlemen, this concludes today's question and answer session. Would like to turn the conference back over to the management team for any final remarks. Thank you, Rocco, and thanking All of you for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks from this conference call are filed As an exhibit to the current report on Form 8 ks and accessible through the Investors section of our website. With regards to upcoming events, We will be participating in the following conferences: the Oppenheimer 24th Annual Technology, Internet and Communications Conference, August 11 The Rosenblatt Securities Technology Summit, the Edge of AI from August 24 to August 26 Jefferies 2021 Semiconductor IT Hardware and Communications Conference from August 31 and September 1. And full information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you and goodbye. Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.