Q4 2022 CEVA Inc Earnings Call
Good day and welcome to the CEVA, Inc. Fourth.
Fourth quarter and full year 2022 earnings conference call.
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I would now like to turn the conference over to Richard Kingston, Vice President market Intelligence and Investor Relations. Please go ahead Sir.
Thanks Rocco.
Everyone and welcome to see was fourth quarter and full year 2022 earnings conference call Joy.
Joining me today are Amir <unk>, Chief Executive Officer, and you need very Alley, Chief financial officer of CEVA.
This is <unk> first earnings conference call with Teva and I wish him all the best in his role as CEO .
Before we start I'd like to take it through some forward looking statements and non-GAAP financial measures.
I'd like to remind you 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 market trends and dynamics, including projected declines in the global semiconductor industry in 2023, and the long term demand opportunity for our technology.
Our market position strategy and growth drivers, including with respect to licensing and royalties Wi Fi five G and software.
Demand for benefits all of our technologies.
Expectations and financial guidance regarding future performance, including our belief in the long term royalty growth prospects.
Guidance for 2023 on our plans to host an investor event in the second half of the year.
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, including continued restrictions in China.
The extent and length of the restrictions associated with the pandemic and the impact on customers consumer demand on the global economy generally.
The ability of C was IP for smarter connected devices to continue to be strong growth drivers for us are.
Our success in penetrating new markets and maintaining our market position in existing markets.
The ability of new products, incorporating our technology to achieve market acceptance the speed and extend of the expansion of the five G 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 and our ability to successfully.
Integrate intrinsic to our business.
CEVA assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
In addition, we will be discussing certain non-GAAP financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results are.
A reconciliation of non-GAAP financial measures is included in the earnings release, we issued this morning and in the SEC filing section of our Investor Relations website.
Investors thought CEVA hyphen D S P dot com.
With that said I'd like to turn the call over to Amir who will review our business performance for the quarter and provide some insight into our ongoing business I'm here.
Thank you Richard and welcome everyone and thanks, you for joining us today I want to start this call by sharing how truly excited I am to be part of the fever and to lead this incredibly talented organization through its next stage of growth, although if either only bandwidth of the company for a little over six weeks now I've been.
Jaime impressed with three important factors first the people the teams.
As passionate about their work and the success of the company fostering a great corporate culture of collaboration and dry.
Second word class portfolio of innovative wireless connectivity and smart sensing Ips.
There is no greater indicator of the success of CEVA to date, then to realize its more than 50 CEVA powered devices were sold every second in 2022, and reaching a record $1 7 billion devices over the course of the year.
Third I believe the market opportunity for Cmos technology has never been greater the markets that we serve including wireless Iot five G and H AI or some of the fastest growing in the semiconductor industry. We.
We are conducting a review of each of our product lines to ensure that we are investing our resources in the areas with the highest potential football.
Why don't I have this in place I look forward to sharing the details with you at an investor event, which is planned to take place in the second half of the year.
Turning to our performance for the fourth quarter, we reported another solid quarter. Despite the weak economic backdrop, we've continued strong momentum in our licensing business and these islands in our what we signed 2020 licensing agreements in this quarter with notable.
Trends in five G, where we signed three agreements and Wi Fi six we four agreements.
Also signed a strategic deal for Wow, what would your wife in IP, we are a global leader in automotive semiconductors or their digital cocky initiatives.
Other customers agreements signed in the quarter target a iPhone in memory computing smart audio connectivity for smartphone tw at air airbags.
About sensor fusion self drive for set top box remote animal.
<unk> revenue was down compared to last year, reflecting the broad macro question of weakness and elevated inventory levels.
For the full year, we delivered record total revenue of $134 $6 million, an increase of 10% driven by strong licensing demand throughout the year and of course, our extensive IP portfolio.
Revenue from licensing and Laurie and related or 2020 to reach 18, $9 $3 million, an increase of 23% year over year. The fourth sequential year of cool, we signed 76, new licensing and every agreement up from 73 lots.
Yeah.
Licensing is a precursor for royalty revenue and this record licensing year further reinforces our belief that the royalty revenue opportunity for CEVA continues to expand.
I will elaborate shortly on what they believe the drivers for fevers business will it be in 2023 and their royalty opportunity ahead.
In terms of the full year royalties are aren't even wise do you revenue were down 9% year over year to $45 $4 million with the largest decline was in our handset baseband royalties, which were down 24% year over year primary Mary.
Due to the continued rounded out by a customer of ours, who was replaced by a competitor for <unk> chips at a large U S based handset OEM.
To a lesser extent smartphone says in emerging markets a stronghold for our China based customers were impacted by the global slowdown.
Moving to our base station and Iot category, Despite the weak global consumer demand in the second half of the year, we still manage to achieve record royalty revenue generated by our record the one 4 billion devices.
Bluetooth four ideas grew 11% year over year generated from a record 1 billion units shipments.
Base station ran it royalties also grew up 14% year over year, while lower shipments in royalties from D. C. Robert's vacuum cleaners, Colorado and other consumer related technology affected many of our customers.
Overall I'm encouraged by the strength in the potential of firewall LTE visa and believe that our diversified customer base and end market ensure that CEVA is on a positive trajectory with promising long term royalty growth prospects.
In terms of future growth drivers I would like to highlight three important areas, whereas CEVA has an excellent opportunity in licensing and royalties.
Wi Fi five G and software the first is Wi Fi.
Wi Fi is one of the fastest growing connectivity stein's routes and the most in demand technology for Iot.
Wi Fi six Star Wars architects with low power Iot in mind, enabling even that even battery powered devices to remain walking for up two years at the time.
This coupled with higher throughput at lower power and increase robustness as both unprecedented demand for Wi Fi for many end markets and use cases.
Accordingly, the overall Wi Fi for Iot tab is expected to exceed $4 4 billion units annually by 2020 full according to Abi research and continue to grow at a CAGR of 9% through 2027.
If I use the industry dominant Wi Fi six IP provider with more than 30 licensees to date Wi Fi expertise today is it scarcity, we few companies processed possessing the majority of the Knowhow. We are one of the few with deep expertise and through our licensing model we are successfully.
Knowing the industry.
Yes for companies to develop Wifi six chips.
Moreover, there was the opportunity for Wi Fi six is still ahead of us many of our customers I expect it to come to market in 2023, and 2024, we have a Wi Fi six chipsets and in licensing we have already started to sign up Wi Fi seven lead customers for what we still do.
And neither Wifi upgrade cycle.
The second area is 51 five G hasn't been deployed in developed market in the last few years. The main use case up to now has been in smartphones.
However, the scalable throughput low power and low latency of <unk> means that the technology is applicable in a much broader set of end markets and use cases.
There is lack of expertise et cetera, and it's Eva we have decent house built over decades, we already have license our five G. D S p's and platforms to many companies for five G. Micro base station, all kind of an active antennas fixed wireless access five GB.
To X and five G Red Kap full set of Iot.
The most recent Ericsson mobility report highlights fixed wireless access and so a lot of Iot as the two area with tremendous growth opportunities in the coming years.
In addition, much of the ward five G&A sports coverage is yet to be built out and soon we will see the five year advance rollout beginning in mature <unk> market in the next few years I believe CEVA has the opportunity to license our <unk>, even more broadly being capable of.
I think any company, who wishes to develop their product to capitalize on the market opportunity brought about by <unk>.
Deferred is software.
Over the past number of years, he buys increasingly being investing in the development of software IP in order to move up fibrous chain and to further differentiate our solutions.
Our software portfolio today includes some highly sought after technologies, including special audio AI based environmental noise cancellation voice recognition and I am your base activity detection.
Our strategy is to license the software IP directly to Oems and or the end or their end products rather than to the semiconductor chip makers. They.
This is where we can unlock the true value of the stocks right and generate incremental royalties placebo with higher asps.
We already have strong presence in smart TV D C and involved with vacuum cleaner market with our sensor fusion software and will continue to invest and look for strategic market opportunities to drive strong growth in our software business.
An excellent example of this strategy at work is from CES last month, where a boat India's leading wearables brand ranked number one for Wearables in India and number five for Wearables worldwide.
<unk>, new premium special audio wireless headphones. These.
These hedge funds are powered by our Bluetooth I do absolutely.
Featuring our Bluetooth five.
And I'll argue with DSP.
In addition, we also license our motion engine had tracking software directly to boat, which is used as part of the special audio solution.
We believe that that special argue will become mainstream in the mid high and Gws market segment, which according to the techs northeastern research D. S. R. We surpassed 400 million pairs annually by 2025.
We are currently running evaluation with many hats at the Oems to demonstrate the capabilities of our special ideal and hottest songs related software packages with this market in mind.
Okay.
So in summary, CEVA delivered a good year against a tough macroeconomic backdrop, we reached record revenues driven by strong licensing demand for our product.
We signed a record number of deals in the year and shipped in a record number of devices.
My Thanks to my predecessor.
Predecessor get on and then tires CEVA team worldwide for the great contribution in 2022, I would also like to thank our partners suppliers and to our shareholders for their confidence and support.
As I look ahead into 2023 I see many opportunities ahead for the company I have full confidence in and believe that we have the people the technology and the processes in place to drive fever.
And be even more successful.
Our comprehensive IP portfolio is in high demand and we will continue to develop outstanding products that our customers rely upon us for.
Once myself and the team solidifying define what our future strategy will be I look forward to taking you through this later in the year.
S wire as far our expectation for 2023, according to the semiconductor industry Association the <unk>.
Global semiconductor industry is projected to decline by 4% in 2022.
Also many public semiconductor companies that reported earnings in the last two weeks I've taken a muted view on 2022.
Particularly with regards to the first half of the year.
We also see these trends, but I want to reinforce my belief that gave us long term growth potential remains strong as they continue digitalization of all things electric will continue to drive long term demand for semiconductors.
Finally, I want to sincerely wish you and your families. A successful enjoy from 2023 I look forward to meeting many of you at conferences and non deal roadshows throughout the year.
Now I will turn the call over to Ganesh for the financials.
Thank you Amy.
Come on board, we're glad to have you here and good luck.
I'll start by reviewing the results of the operations for the fourth quarter of 2022.
Revenue for the fourth quarter was slightly down 2% to $33 $4 million.
Compared to $34 1 million for the same quarter last year.
Revenue breakdown is as follows.
<unk> related revenue was 22 and a half million dollars.
Reflecting 67% of our total revenues up 5% from $21 3 million for the fourth quarter of 2021.
Royalty revenue was $10 $9 million, reflecting a third of our total revenues down.
Down 14% from $12 7 million for the same quarter last year.
Quarterly gross margin came in better than expected on GAAP and non-GAAP basis, gross margins were 82% on GAAP basis, and 85%, a non-GAAP basis compared to over 80% and 82% guidance on both of them respectively.
non-GAAP quarterly gross margin excluded approximately.
Equity based compensation expenses of zero point $4 million in amortization of acquired intangible of 0.4 as well.
Our total GAAP operating expenses for the fourth quarter was above the high end of our guidance.
$29 1 million.
Due to $1 $3 million associated with the retirement expenses of executives.
And impairment cost of zero point $3 million associated with closing of an office.
And lower allocation of intrinsic and our REIT costs from R&D into the cost of revenues.
And last as higher compensation related expenses.
Our non-GAAP operating expenses for the fourth quarter excluding these.
And then I also everybody. This is the conference operator, it looks like we've lost for Maxim.
Well I don't Wanna plays music into a call. Please stay on the line once again, we will resume urban currently thank you.
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Once again, ladies and gentlemen, we're reconnecting the speakers line at this time, please standby and we will be resuming the conference shortly thank you.
Yeah.
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Oh pardon me everybody to the conference operator, we've reconnected he leaves line, but you need. Please proceed sir.
Thanks.
Well, we were disconnected sorry, guys.
Anyway, let me, let me pick up here.
On the margins the margins the gap came in at 82% and non-GAAP at 85% compared to 80% and 82% guidance.
Better than expected.
Our total.
non-GAAP operating expenses for the fourth quarter.
Came in higher at $23 million and our GAAP expenses came in at 29.1. This is due to three aspects one is $1 $3 million associated with the retirement expenses of executives and impairment cost of zero point $3 million associated with the closing of an office.
Yes.
And a lower.
The allocation of intrinsic in the REIT costs from R&D into the cost of revenue line as well as higher compensation related expenses.
Our GAAP tax benefit for the quarter came at $1 $7 million, mainly associated with the adjustment of the result of the implementation of the U S tax reform rule 174, and on a non-GAAP tax was $1 $7 million of expense representing 20.
4% of pretax non-GAAP income.
U S. GAAP net income for the quarter was $1 $9 million and diluted EPS was <unk> <unk> for the fourth quarter of 'twenty, two compared to $3 $9 million net income and 17%.
EPS for the fourth quarter of 'twenty one.
With respect to other related data.
Shipped units by CEVA licensees during the fourth quarter were $375 million devices down 10% from the fourth quarter of 2021 reported shipments.
Of the 375 million units reported 67 million or 18% for handset baseband chips are.
Our base station and Iot products shipments were 308 million units up 10% sequentially, but down 8% year over year.
Bluetooth shipments were $220 million for the quarter up 10% sequentially and cellular Iot units were up 75% sequentially to 25 million units why ship Wifi shipments were also up 5% sequentially.
To a total of 37 million units.
As for the year, our total shipments increased 3.5% year over year to $1 7 billion devices and all time record high.
Annual shipments of handsets were down 14% year over year to 328 million devices flying.
Your line is attributed to a socket loss by a customer at a key OEM, who was replaced by Qualcomm for five G modem chipsets and overall weak smartphone demand globally in the second half of the year.
Our base station and Iot product royalty revenue continued to grow.
And reached a new record level of $29 2 million up from $28 6 million in 'twenty, one and $22 million in 2020.
In terms of units base station and Iot products unit shipments were up 8% year over year to almost one 4 billion devices.
Despite the macro events and economic turmoil, our non-GAAP net income from 2022 increased 23% to $18 8 million from $15 3 million reported for 2021.
As for the balance sheet items at the end of the year, our cash cash equivalent balances marketable securities and bank deposits or approximately $148 million in 2022, we repurchased approximately 219000 shares for around $7 million.
We still have around 280000 shares available for repurchase Dsos for the fourth quarter continued to be lower than the norm at 34 days.
And during the fourth quarter, we generated $3 $4 million from cash from operating activities ongoing depreciation and amortization was $1 7 million and purchase of fixed assets was 0.6 million.
The end of the fourth quarter, we have 485 people on board.
<unk> 403 were engineers.
Now turning to our outlook.
As a mirror discussed earlier on the smartphone and consumer electronic markets continue to suffer from soft demand and elevated inventories.
Also the technology sector is undergoing project expense adjustments and realignment.
We expect this softness to continue into the first half of 2023.
And anticipate that both our licensing and royalty revenues will be lower sequentially, while picking up the pace in the second half of the year.
Due to the uncertain economic outlook and reduced visibility across the industry, we will refrain from giving annual guidance for 2023 at this time.
We will revisit this topic and do our best to provide more information when visibility improves.
In general our licensing and related revenue business continues to generate good customer traction across our diversified portfolio.
In royalties, we believe the strength of our base station and Iot customers will see this category continued to grow in 2023, primarily in the back half of the year.
Handset baseband royalties are anticipated to decline further in 2023 offsetting partially the growth in our base station and Iot of oil.
On the expense side.
We implemented cost control measures and.
Make stand those measures as we monitor the Mark. However, we also plan to continue and invest in our growth drivers and will update further on this topic in our upcoming Investor event planned for later this year.
Our overall expected gap.
Cost of good expenses for 2023 increased by half a million to one and a half million dollars.
In our non-GAAP Cogs expenses to increase by two and a half to $3 5 million.
GAAP Opex for 2023 is expected to decrease by $3 million to $4 million and our non-GAAP Opex for 2023 is expected to increase only by $1 million to $2 million.
Our non-GAAP tax rate for 2023 is expected to be just over 30% due to the utilization limitation of withholding taxes in our Israeli subsidiary.
Specifically for the first quarter of 'twenty three.
Based on what we're seeing across the industry. The soft macro consumer weakness is expected to continue in the first half of the year.
And for the first quarter, our expectations are in line with industry trends.
We continue to monitor our licensing pipeline and our royalty business closely so we can respond to the changing market dynamics.
Gross margin is expected to be similar to the fourth quarter of last year.
Similarly, 82% and GAAP basis.
And 85% on non-GAAP basis, excluding an aggregate 0.4 million for equity based compensation expense and 0.4 for amortization of acquired intangibles.
Opex for the first quarter is expected to be lower than the fourth floor of 2022 and in the range of 26, 8% to $27 $8 million.
Included in <unk>.
Expected $3 $6 million of equity based compensation zero point.
<unk> $3 million for the intrinsic holdback related expenses in the same amount for amortization of acquired intangibles.
Our non-GAAP Opex is expected to be just slightly higher than the fourth quarter of last year at a range of $22 seven to $23 7 million.
Net interest income is expected to be approximately 0.7 million taxes for the first quarter, 30% a non-GAAP basis.
Share count for the first quarter 'twenty, four 3 million shares.
Rocco you could now open the Q&A session.
Thank you, Sir if you'd like to ask a question. Please press Star then one on your Touchtone phone.
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To withdraw your question. Please press Star then two.
Today's first question comes from Matt Ryan with.
Colin Please go ahead.
Thank you very much.
Afternoon, and good morning to everybody I'm first of all I'm American congratulations on and welcome I think all of US look forward to working with you going forward I guess the first question I would have is sort of a big picture one for you and you mentioned in your prepared remarks.
You you'd be sort of giving a broader strategic update later in the year, but I wonder if you might share a few thoughts of first impressions as you've sort of taken over as CEO just areas of focus impressions of the traditional license royalty business versus intrinsic send and the strategy there just.
Any big picture thoughts and then I have a follow up on the model. Thanks.
Yeah sure Matt first a very nice talking with you and thanks for the wishes and as for my observation from that since I joined the company for the last six months six weeks within the company I would say generally speaking first.
Yeah, it's really great to see the diversified technology portfolio that we have overall.
I think that our technologies are really addressing the key market trends in semiconductors and more specifically as I mentioned in the remarks is that if you look at Wi Fi. If you look at why <unk>. If you look at our south shore capability to adding on all of those things are really contributing for a very good potential long term in terms of the graph for the company.
And and then we have that of course I'm looking really at how we are investing our air.
Our R&D activities in order to you Randy.
Foster the potential golf longtime.
For the company.
Got it thank you for that.
You guys I wanted to ask a few questions and then on the model and realizing that it's volatile times out there.
What are.
You guys mentioned in the script that you think the first half of the year.
Revenue wise for the company will will follow industry trends and and I think it's maybe worth spending a little bit of time and double clicking on that and just given your view of what industry trends are I mean, we follow the semi market broadly that the industry trends right now in auto and industrial are quite different than any other consumer facing markets.
Hum.
Some certainly some inventory corrections that have happened in in certain places theres the potential for disruption and then reopening in China. So I guess, Dan asked a question bluntly I don't know what that normal trends are right. Now. So if you could kind of give us a little more on on thoughts of how youre thinking about the first half of the year.
That would be really helpful. Thanks, guys.
Oh sure Yeah excellent question and no doubt that you helped me partially addressed that as well, let's start let's back off for Q4. If you look at some of the royalty trends in Q4, we were up sequentially and Bluetooth units were up sequentially and Wi Fi were up sequentially and seller Iot.
We were up.
Most of our.
Our core markets other than the handsets and then five G which is.
Has their own.
Dynamics.
If you look at the markets for the first half of the year and some of the commentary that was addressed in the public.
Public companies in earnings.
And you exclude the industrial and automotive because those are markets that for now at least we don't have any meaningful royalties at all we have nice design wins in automotive, but with no royalties yet at <unk>.
Industrial this is a market that we're working on but again, it's not one of them.
Existing royalty drivers most of our markets are coming from consumer it could be laptops that is down with sensor fusion it could be.
Consumer devices that are now down.
And at the beginning of the year or at least the first part of it of the year it could be vacuum cleaners and the like.
These are the some of them and of course has the handset is something we still have the hand, the headwinds for handset in the market themselves.
Soft across the industry you could hear that from multiple players.
The big ones in the <unk>, but also in the low and mid term.
Play, which we are much more focused on in this in this era, so taking all that into account.
We are probably looking at high.
The high single digits.
The type of.
Yeah.
Yeah.
Sequential lower revenues again from a very high level.
Because there were so many different market segments in consumer we did see.
The softness in Q4, which will probably prolonged into Q1 as well and in cameras and.
And these types of more really more consumer type of device. So.
I think that for now with the inflation concerns with the macro with all the things going on we're taking a more prudent slash industry, but more focused approach on the royalties. The licensing is still robust a lot of interest, but we are seeing downsizing companies down.
Sizing and refocusing the R&D efforts, so that's something that people want to be.
Aware of and cautious if we encountered that in Q1 or in the beginning of the year and as soon as companies, allowing them to get out of that mode.
Being an IP company could also help out come out of the I don't know if we are in a recession or slowdown, but even if you cut R&D groups or teams. There is an option to outsource whether its services from intrinsic or Ips from CEVA or the combination to help ya bootstrap and get the bid.
Go to the market. So these are the trends we want to be a bit more careful like most of the industry in our domain and that's what the guidance is coming from and I think everybody looks at a quite optimistic way in the second half of the year.
No. Thank you lots of color. There you really appreciate it I'm just really last quick one for me and then I'll jump back in the queue visibility on any growth acceleration from the five.
<unk> infrastructure space I know that's been.
It's important to the company and on the come for a while but also one that on a quarterly basis had some volatility to it so those back half of the year comments that you make about a reacceleration I assume that's mostly consumer driven but or the trends in the wireless infrastructure space any different than that thanks, very much guys I appreciate it.
Yeah.
Sure.
The trends are different the trends are defined in the from our experience there is no real seasonality in <unk>.
At least spending the operators and decisions of when to implement new networks. We had a nice year 2022 is one of the highest tiers, we had the higher than 'twenty. One on five G base station and if we look at some of the commentary and the design wins that Nokia is discussing and talking about.
The Indian market opportunity than maybe some other sockets that theyre gaining that share into it could be an exciting year.
Unfortunately, we don't know the timing and when we'll see those royalties exactly kicking in that's so from our experience in the past, but the trends for 2023 should.
Should be positive because of those design wins, yeah, and I would add to what Ernie said I believe our two lead customers and we expect them to gain some market share in this market to do well this year.
But as Andy said on one hand, there's no seasonality there on the other hand, it's hard to predict exactly how they rollout will look like.
Generally speaking when we're looking at that are often.
Optimistically.
Yeah.
Matt.
Thank you and our next question today comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead.
Yes, Thanks for taking my question and welcome him here.
And just follow up on Matt's question just to clarify it.
Was that royalties that you're you're saying would be down high high single.
Digits or does that include licenses.
Licenses and is there a slowdown on licensing also.
We're taking right now everything in that are in that respect.
The royalties due to the consumer slowdown in handset weakness that we're seeing around us and licensing and more from a conservative approach. So the some.
Some of the companies that haven't been laying off or re adjusting their R&D investments, we don't know yet the the outcome. We don't know how quick they will be back in the business of new design starts we haven't seen too. Many examples of that yet we're reading the news of the different layoffs in the <unk>.
The bigger companies in readjustments of projects.
So I think we're right now looking at all of the numbers altogether.
With that single digit.
That's how we are looking at licensing is still strong we started in Q4 that didn't happen yet in Q4, although those trends may have played a little bit they have started already.
Back so we hope we don't bump into them, but that's some of the in the macro that we see around us.
Maybe I'll add a little bit more color is on that I would say that fundamentally the business is as strong as it has been on the licensing so really I don't see and we don't see it basically anything fundamental that did drive a different outcome in terms of our ability to drive licensing in the market. It just that way of the many.
Of all the exchanges and realignments of investments that are just our customers of course, the semiconductors are going through.
There are projects that can change in terms of timing on one hand on the other hand.
There are projects that may potentially could have been done internally and now coming out so called to work with us on those opportunities suggest that there is a mixed bag so called off and things that can move as we go through the quarter and that that's why we're looking at it that way.
Okay. Thanks for that and maybe just what's interesting is the software licenses and it looks like you're you're going into a new customer base are the end products like what what's the go to market strategy, there and how you're hiring a new sales force for that or I guess, just how do you.
Dressler with new customers.
I would say two things first as part of a previous acquisition that we have done and we got there.
And capable people to go and drive this type of so called business models.
But in addition, we're 14, so called more a dedicated team to go and drive those activities as we see it as a meaningful growth opportunity for us again to diversified.
Our product offering and also how we offer those products in the market to drive stronger and longer term type of warranty baseless.
Okay, great. Thank you.
Welcome. Thank you and our next question today comes from Suzie, the silver with Roth Capital. Please go ahead.
Hi, Richard and Amir Best of luck in the new role.
So maybe.
To follow up on on.
And the last question there on licensing and a longer term question, perhaps in the past. If you look back you know aside from that the recent sort of volatility the licensing run rate. If we think about licensing and software kind of growing what kind of would that be a similar revenue run rate or what kind of multiple multiplicative effect with adding software helped your licensing run rate longer.
Sure.
Yes.
It's a great question, obviously and we have demonstrated for many years the licensing business, which is a precursor for royalties and a nice.
Mark that your technology is relevant in the different markets that you play in I don't think that has changed.
Hey give annual guidance this year like we normally do.
At least this at the beginning of the year and we want to look at it as we as we move along but when you look at the consensus that are out there for CEVA, we're not too far off from the from our internal planning that that's one thing that I would say, we don't know the ins and outs of licensing gonna be stronger the royalties when exactly which.
One of them will pick up but from a macro.
Prospective licensing is strong we've seen that throughout 2022, including Q4, now which wasn't for some companies wasn't that easier was a different environment, we're still increasing and investing in the R&D less a bit less this year, maybe refocusing maybe fine tuning I don't remember.
A year that we have only guided.
$1 million to $2 million.
non-GAAP Opex increase and also we are really looking also conservatively simply on the on the expense line, but with that said then all of the different markets and all the different trends that Amir talked about that we said in the prepared remarks are still very very relevant to the different geographies in the different segments in the <unk>.
Licensing space.
Many of you were referring to calendar 'twenty three revenue consensus was that were you referring to.
In your remark.
Yeah, Yeah, yeah overall overall our overall.
Great excellent.
A follow up question is another long term question, if I do the math on your calendar 'twenty, two base station and Iot royalty and units. It sounds it seems about be about two cent asps I know Bluetooth is lower and then theres a higher I'm wondering if longer term if there's opportunity for that ASP.
Uplift or whether Bluetooth and that kind of lower asps would continue to dominate the units and keep that ESP around two <unk>.
So what we try to avoid is the is coming there to come up with a price list on the on earnings calls and I think it's a it's not something that is typical but I would say from the chip price in the industry and the complexity Wi Fi chips are probably two to three X more.
More expensive.
Then the Bluetooth ones and therefore, the ASB for us needs to be and that type of magnitude anywhere between two and maybe sometimes the three depends on the end market. So that's a big potential I think we've talked about reaching 1 billion Bluetooth devices.
Last year, Wifi, hopefully or should get there in a very short period of time, two or three years, we should be at the same run rate with higher asp's. So the opportunity for us in the Iot space and a lot of solutions today are coming out of Commvault solutions, both Bluetooth and Wi Fi so that could be.
As well a very interesting offering.
That's part of the growth in our base station and Iot that has not changed not necessarily with the with <unk>.
To put our sent to it but the magnitude of those numbers are very applicable today as well yeah I will tend to add to that if you really look at so called moving from Bluetooth Wi Fi and then from there to <unk> and then from there to.
Two our AI technologies and.
And more comprehensive than the core DSP on its own and we have additional hardware accelerators and so on and as we move also to software.
Overall, you can see an increase so called ASP per device.
Again in terms of the long term perspective, a firewall debate.
And I'm very very optimistic about how how we see this moving forward as we go through the current figures.
Okay I appreciate it thanks everybody.
Okay.
Thank you. Thank you.
Our next question today comes from Chris Kramer with Barclays. Please go ahead.
Yes.
Hi, Thank you for taking my questions.
You mentioned.
<unk>.
Decline in consumer demand affecting your customary and the fact that you know we're looking at.
Conservatively and takeaway.
The guidance.
But you previously used to cancel.
My question is is there something that makes you think that to the second half of the year will be stronger.
Just from I think you mentioned that.
Currently it's just very weak right now, but potentially the second half will be stronger.
Is there something in customer behavior that you've seen maybe from last quarter to this quarter Thats changed or is it something that your customers are telling you that you will get back to us.
Second half or I'm, just wondering if theres anything concrete to that.
Yeah sure sure they start coming from CEVA, it's really coming from the industry and many many.
<unk> customers. If you look at some of our even Siemens customers that whether its virus logical NXP or on semi or peers like Rambo Silicon Labs' Sky works a lot of players that we have managed to gather a first did not give guidance and I also believe.
The second half with all of them just macro economics not necessarily.
Whether it's inventory build outs, whether it's the consumer softness.
We will clear out that cycle that everybody has been talking about for the last maybe six to nine months.
We'll clear off in the second half of the year and then we're in a good position to gain.
Royalty much higher royalties in the second half than the first half and that's.
That's where we're coming from nothing specific that our customers told us that we realized just now again you saw the numbers or are seeing the numbers for Q4.
We're coming from a strong point, but with that said this is where the.
The trends in the markets are.
Yeah, and I would tell it's like we're looking across the semiconductor industry and in inventory levels in all that we expect those to go down as we move forward.
For the year.
And that will help in terms of volume shipments as well as you know the expectation in China and other regions are so called things will open up and consumer will come out stronger demands after right.
Several quarters that were more challenging.
And Hum.
In terms of that.
Got it and just one more how are you looking at M&A in this environment is that something that's on your radar.
Yeah, so definitely.
I just came on board.
<unk> focus there for me generally speaking to look how we drive our wealth strategy moving forward M&A as an important tool as part of the other thing that I'm looking at.
We are strongly positioned in terms of our cash and our ability to grow and drive strategic activities.
And definitely Thats something that Im looking at is as we drive our strategy for the year.
Great. Okay. Thank you very much.
Thank you Chris Thank you.
And our next question today comes from Martin Young of Oppenheimer. Please go ahead.
Hi, Thank you for taking my question. My first question is on licensing can you maybe comment on whether you see any geographic.
Concentration for our licensing activities.
Last year and is there any.
Tailwind of positive effects from China is reopening.
Into 2003 regarding your licensing activities.
Well good question.
I am not.
Let's look at China overall, both royalties and licensing because I don't recall top of my head the percentage of licensing on a worldwide basis.
Is.
About 50% of our revenues and that means that in order to get royalties and some of the big royalty.
Here's for us whether it's <unk>, whether it's handsets, whether its Bluetooth Wi Fi are coming from China that means that the licensing activity has been robust there for many many years.
Plus minus COVID-19 shutdowns, but even in those.
Months or quarters, we saw that many companies around the world, including China and know how to work from home and that all works out well and we close deals also from remote so that has been the case and I'm not sure anything has changed around that.
We have a new sales team in Europe . So one of the bigger opportunities for us is to focus on the European market and licensing. This is something that we'll probably give more focus this year and the USA. I think also is something that we've been doing for the last three years it started out with Hillcrest and the team.
We acquired and added the centrifuge technology.
Two years ago was.
<unk> added intrinsic so you have about 100 people today, mostly R&D in the U S with new markets and new opportunities and enhanced business smells. So.
I think it has a lot of his plate will try to help them make it but there is no doubt that it's not just China, we don't see any big changes right now, but it's the overall macro environment the layoffs that were happening everywhere.
Companies are just trying to.
Called the next steps and may be make do things a little bit more efficient and that the real concern that we are sharing with you guys nothing.
Specific.
Other than that yes, but I would say overall for licensing again.
Alright, yes.
Our license take I would say again as we look at the first half of the year IC across Europe . The U S.
And some of the Asia Pacific multiple very nice opportunity coming at us.
Typically on the comment on China, I share that belief that as again economy would open up more and more.
Net debt debt investments into this type of technology will will enhance as we go into the second half. So overall again fundamentally we believe that license I think is all in a good place and it's quite diversified across the globe.
Got it I have one more question on licensing when you look at the share.
All the deals you've signed.
Particularly the sheer connectivity Bluetooth Wi Fi and ultra wideband versus vision sound in AI do you.
You expect some of the mixed shifts changing.
Among those larger components within the deals within our licensing agreements.
Next.
Let's say two to three years.
Indeed indeed.
I'll start with the easier one which is the AI AI, we've been talking about.
About for Awhile AI is not just a.
Generic <unk>.
Self contain the processor, but it's really part of all our product lines. These days and you could find it in the <unk> base station or you could find that in a vision camera based device and that's something unique that CEVA could add as the AI on the edge and we have.
Lots of different processors and technologies that we're offering so.
That's one aspect of it the other is the combination when we talk about some of the high end audio solutions that are coming out to the market place. Both has we showed it at CES. It was nice demo there will probably join.
Join us and come to the visitor than mobile World Congress. We will have the same solution you can have the fascia. The spatial audio you can have Bluetooth connectivity you could have.
<unk> had been had the sensors so.
Rig technologies, combining some of them as processor based some of them are software based.
The more we could add the higher asp's, both on the licensing and further down on the royalties.
As part of our trade and if you could add every once in a while and help our customers with services Arena re what we called co creation and Thats part of the <unk> offerings today.
The semiconductor space.
Got it thank you very much.
Thanks, Martin Thank you.
Question comes from David O'connor of BNP Paribas. Please go ahead.
Great.
Thanks for taking my questions and welcome Eric maybe just to start you talked about the portfolio review.
For opening remarks, what's the kind of potential outcome of this portfolio review I mean is there a business you mean.
Noncore previous that's my first question.
Second question is on the uptick in the second half.
Is there any big new designs coming tomorrow with that can help them.
And that uptick in the second half.
Our final question Ultra wide band on the strategic deal can you give us any indication on what geography that was in and what the licensing pipeline for ultra wide band looks like thank you.
Sure.
Yes, so in terms of so called looking at our portfolio of investments and what.
But I would like to make sure that I'm working with your team is basically to make it the most efficient into the growth areas that we see with the most potential areas of the business more potential in the market potential with where we can basically be the most competitive with our technology so that debt.
Find out analysis that I'm doing with the team and and of course with that I would like to make sure that we're putting the investments and again the highest potential Gulf area as far as well as why we can mostly differentiate.
<unk>.
What was UW did.
In terms of the UAW be actually this is a very exciting technology that for many many years haven't been able to really take off now with their penetration into some of the elite smartphone Oems, we see that non propagating into multiple use cases across the whole Iot domain things related to India positioning.
Two security to car keys, and automotive and and also very secured in low power type of connectivity that will complement very nicely also Wifi and Bluetooth so and we have very strong portfolio of IP and technology to enable our partners to go very quickly to market with this type of technology.
<unk> of course, how big that market will be is still to be seen.
But overall, our ICA considering the fundamental values. This technology now that the ecosystem is really supporting to take that all I had.
I'm very bullish on the potential of this technology, but time will tell.
I believe we really have a very strong technology to support our partners as that takes off.
The way this was in APAC.
Region type of deal.
The automotive one of them.
And the question on M&A. The first question what was exactly what does that David.
There was just as hard parts just on the heaps to the second half uptick.
No I understand that the markets may swing back.
Is there any other new design win comment that are ramping.
Any big ones, there that may help them.
Accelerated uptake in the second half thank you.
Yeah, I would say its fuel with potential new customers that have been designing whether it's Wi Fi six.
Design that can go into production, whether it's some of the ramp ups in the five G and design wins that are customers one.
We showed at CES, the dose and the very nice.
Headsets with one of the India's top.
OEM brands and Wearables that could.
Have a nice volume as soon as that picks up so they are obviously quite a few.
North of the 30, Wifi deals and hence for only in production so lots of customers potentially you could get in.
I think we've talked about either this year next year, but those are all mindful.
Yeah, I think what I would summarize the untapped potential that we see strong headquarters are stronger.
Volume coming into the second quarter second half of the year, It's really as you look at the combination of what we talk about the Wi Fi they five G and so call it the non handset demand and base stations as well as the software right all of those things.
Already license to many many customers and we have many more in the pipe and we see that really with a very good strong potential as we go through the second half.
Okay. Thank you and our next question today comes from.
Question comes from Gus Richard with Northland. Please go ahead.
Yeah. Thanks, so much for taking the question mirror welcome aboard all goes well for you.
Just a quick question on licensing and Ari I know you don't split those out but could you give us a sense of the growth trends of those two different business to different segments of that that business is licensing growing a little faster or is that all right.
Yeah, you know I think it.
And it varies on the design wins.
And you can sometimes see it also in the in the gross margins.
Just from a technical point of view Q4 was relatively high margins, we're starting the year as well I would say that probably the later part of the year. There are some very interesting deals that were lining up on the NRG side, So those 85% non-GAAP margins, which probably slip a bit but then that would be the contributor.
Due to the topline service revenues, so we're seeing that as a very nice combination that especially today the opportunity.
For companies that laid off R&D staff, but still want to get into connectivity, but still want to get help to get a product out when the market picks up whether it's six months from now or nine months from now that's the time to invest in instead of internal head count they could do the out use outsourcing. These are the opportunities also in the service business.
This that we're focused on obviously the co creation, which is a combination of the IP and services. So I don't think we're there.
We have a seasonality in this business. It's just based on driven on deals that we sign.
But there is a very good interest across that.
Side of the business as well and we think that that should be picking up.
Anywhere from the second quarter onwards.
Specifically for 2023.
Got it and then on the.
The royalty side.
Arm has been lifting.
Pricing on their latest.
Version of RMR, nine and I'm just.
Curious.
Is there either any pricing pressure or do you have any ability when you signed these contracts.
Modify.
You know your your royalty rates.
Or is it just the royalty rates go up with increasing content.
There are two things that help us.
With royalty rates, either it's what we offer and the combination of more Ips or higher end devices versus lower cost devices or end markets, if you're targeting a bluetooth for more advanced hearing aid device versus a consumer device, which is much more.
High quality those are obviously true for MTV are true for any consumer device that.
The difference in the pricing.
And so I would say end markets number one number two is the offerings softer a processor.
That will also.
Customers you know we are partners of our customers, we want them to succeed because that's the only way we could succeed so.
From time to time, they talk to US we try to offer the newer technologies are different rates royalty rates and enhancement. So that's an ongoing process. The the win win situation is that the customer gets the right technology to be successful unsold products and we move from one product.
Two one.
The product to the other to a newer one and then we're able to also get higher licensing fees.
Get to higher start in royalties. So I think those are the three aspects that really determined.
The asp's for us.
Okay got it.
I'll stop there. Thank you so much.
Thank you. Thank you and ladies and gentlemen. This concludes our question and answer session I would like to turn the conference back over to Richard Kingston for closing remarks.
Great. Thank you all for joining us today and for your continued interest in CEVA as a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on form 8-K unacceptable through the investors section of our website.
Investors CEVA hyphen, DSP dot com, we will be with regards to upcoming events, we will be participating in the following conferences mobile World Congress February 27th to March 2nd in Barcelona, Spain.
30, <unk> annual Roth Conference March 12 to 14 and California.
Further information on these events are not 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. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.