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Operator
Good day and welcome to the SEVA Inc. second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Richard Kingston. Please go ahead.
Richard Kingston
Thank you, Rocco. Good morning, everyone, and welcome to SEVA's second quarter 2022 earnings conference call. I'm joined today by Gideon Wertheiser, Chief Executive Officer, and Yaniv Ariely, Chief Financial Officer of SEVA. Gideon will cover the business aspects and highlights from the second quarter and provide general qualitative data Yaniv will then cover financial results for the second quarter and also provide guidance for the third quarter and full year 2022. I'll start with the forward-looking statements. Please note that today's discussions contain forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of SEVA 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 anticipated growth in the wireless component of the global semiconductor market, our and our customers' gains in market share and the future of 5G and Wi-Fi, our market position and strategy, including the strength of our technology offerings and efforts with respect to our co-creation business proposition, impacts of global economic uncertainty and COVID on our business, including royalties, demand for and benefits of our technologies, and expectations and financial guidance regarding future performance, including for the full year and third quarter of 2022. 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 the length of the restrictions associated with the pandemic and the impact on customers, consumer demand, and the global economy generally, the ability of SIVA's IPs for smarter connected devices to continue to be strong growth drivers for us, our success in penetrating new markets and maintaining our market position in existing markets, the ability of new products incorporating our technologies to achieve market acceptance, the speed and extent of the expansion of the 5G 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-19 and other factors, and our ability to successfully integrate intrinsics into our business. VIVA assumes no obligation to update any forward-looking statements or information which speak as of their respective dates.
Rocco
With that said, I'll now hand the call over to Gideon. Thank you, Richard. Good morning, everyone, and thank you for joining us today.
Richard
EVA produced solid second quarter financial results despite the challenging macroeconomic backdrop and disruption in production schedule because of the lockdown in major cities in China. Our strength in wireless, a space that according to a recent study for McKinsey, will be responsible for 25% of the growth in the global semiconductor market over the next five years, continues to drive our business and enable us to expand our footprint in the growing market of 5G, wearables, hearables, automotive, aerospace and defense and more. Revenue for the second quarter came at $33.2 million, up 9% on a year-over-year basis. The licensing environment continues to be strong, delivering $22.1 million in quarterly revenue at the back of 22 licensing agreements with customers targeting a multitude of wirelessly connected devices, AI-driven sensors, satellite communication, and more. We also signed a strategic agreement for blue-bud wireless audio technologies in the real-world space which I will touch on later. Asia continues to be a major driver for our business, but our activities and scope of engagement with US-based customers is picking up. Royalty revenue came in $11.1 million, down 26% on a year-over-year basis. Second quarter 2021 royalty revenue included revenue of approximately $3.3 million following a resolution of disagreements on royalty rate with the customer. Calving out the $3.3 million amount, royalty revenue for the second quarter of 2022 was down only 4% versus the second quarter of 2021. In hindsight, global economic uncertainty and the impact of COVID measures in China are causing consumers to adopt cautiously approach with their disposable income, which adversely impact hence achievement, particularly in the low and the mid tiers. Our base station and IoT royalty category showed resilience, as 5G1 rollout continues in China and into countries with low 5G penetration rate today. Our cellular IoT and Bluetooth customers continue to gain market share, with both categories delivering year-over-year unit growth. Let me spend the next few minutes to highlight reset dynamics in the wireless space and how we are addressing them. Unarguably, wireless continues to be a cornerstone in the proliferation of intelligent IoT products that bring together wireless connectivity, sensor, and AR into highly efficient SoC. At the back of this trend, FIBA has become the wireless anchor to more than 300 semiconductor companies as they shape the intelligent IoT ecosystem. By being at the forefront of wireless standards and offering it under IP business model, SIVA lowers the entry barrier for embedding wireless connectivity in SoC and enabling many semis to come out with more cost-effective and power-efficient chips than the repurposed smartphone connectivity chips that Qualcomm, Broadcom, and MediaTek are selling into these markets. In that sense, our leading wireless IP, along with the critical role wireless technology plays in IoT SOC, opens up opportunities for us to elevate our business engagement from a delivery of just the IP core to our position where we co-create with the customer its own wireless system. We are already experiencing very good interest with this business proposition and see this as a vehicle to grow our revenues. In the quarter, we concluded a comprehensive agreement along the co-creation business model with a U.S.-based customer. This agreement was driven by Top T OEM, who will deploy our BlueBot integrated wireless and audio IP platform across multiple SKUs for smartwatches, hearing aids, and other wearable devices. The real-world market is the second-largest market after mobiles in terms of volume, and recent devices offer high-quality 3D audio, AI-based noise cancellation, voice recognition, and IMU-based contextual awareness. These are technologies that SIVA offers to customers in addition to our processors and hardware IP technologies. Another discussion that we are having with wireless customers these days is about the coexistence of 5G and Wi-Fi and whether one will eclipse the other. Our view is that they will continue to coexist and in many use cases they are in fact complementary to each other. 5G offers robustness in the form of security and low latency with its ultra-reliable low latency, URMC standard. Deploying Wi-Fi networks on the other hand is simpler, as the IT departments are more familiar with it than with 5G. At the Mobile World Congress MWC event earlier this year, an event that historically dedicated to cellular, there were numbers of major Wi-Fi 7 announcements indicating that the cellular industry understands that 5G and Wi-Fi coexistence will continue to play an important role. Cisco, a long-term and dominant Wi-Fi player, commented at NWC that 5G and Wi-Fi must coexist in private networks. This market dynamics and our strengths both in 5G and Wi-Fi AP provide us with significant potential to expand our relationship with new customers by offering them a one-stop shop for both technologies.
Rocco
In summary, we are satisfied with our financial performance in the second quarter at the back
Richard
of a challenging and uncertain macro environment. Our IP portfolio is trying to address the most exciting and crucial technology trend. Our ability to step up and partner with customers for their wirelessly connected SOC design to our co-creation business model is compelling. We will continue to focus on driving our strategic vision of enabling senders to make their products smart and wirelessly connected. With that said, let me hand over the call to Yaniv for the financials. Thank you, Dido. I'll start by further reviewing the results of our operations for the second quarter of 2022. Revenue for the second quarter was $33.2 million, up 9% compared to $30.5 million for the same quarter last year. The revenue breakdown is as follows. Licensing NRE-related revenue was $22.1 million, reflecting 67% of our total revenue, up 42% as compared to $15.5 million in the second quarter of 2021.
Rocco
Royalty revenue was 11.1 million reflecting 33% of our total revenues.
Richard
Down 26% from 14.9 million in the second quarter of 2021. Second quarter 2021 royalties included revenue of approximately $3.3 million following a resolution of a disagreement on royalty rates with a customer. After carving out the $3.3 million, royalty revenue for the second quarter of 2022 was down only 4% versus the second quarter of 2021. BaseStation and IoT royalty revenue contributed $7 million in the quarter. from the first quarter and up 6% year over year despite the impact of the lockdown in major cities in China on some of our Chinese customers and the overall challenging macroeconomic embark. Gross margin was 79% on GAAP basis and 82% on non-GAAP basis. Slightly better on GAAP and in line with our non-GAAP expectations. Non-GAAP quarterly gross margin excluded approximately $0.3 million of equity-based compensation expenses and half a million dollars of amortizations of assets associated with intrinsics acquisition and innovation investment. Our total operating expenses for the second quarter were $26.6 million, below the low end of our guidance of $27.1 million, and the first quarter expenses of $27.5 million, mainly due to improved FX environment and the timing of the Israeli Innovation Authority grants received in the second quarter. OPICS also included an aggregated equity-based compensation expenses of approximately $3 million, amortizations of acquired intangibles of 0.8 and $0.3 million associated with the cost of the intrinsic acquisition. Our total operating expenses for the second quarter excluding equity-based compensation amortizations of intangibles were 22.6 million, also below the low end of our guidance of 23 million, and the first quarter expenses of 23.4 million due to the same reason I just stated. On the tax front, we continue to implement the tax regulations in France. named the IP Box Tax Regime, enabling our corporate tax rate to be lower than the factor of 25% on specific types of revenue. We also recorded a benefit related to a true-up of the French 2021 tax return, which was partially offset by higher withholding tax expenses associated with future utilization in our Israeli subsidiary. GAAP's other income included half a million dollars net loss from the re-measurement of a marketable security associated with CPIAP, formerly iSight Technologies, a leading provider of in-cabin sensing solutions in the automotive industry that went public on the Tel Aviv Stock Exchange in the fourth quarter of 2021. As we extend in the past, we continue to adjust our investment quarterly, up or down, based on the market valuation of those shares. Yet-not-loss for the quarter was $1.1 million, and the alluded loss per share was $0.05 compared to an income of $0.03 million and $0.01 for the second quarter of 2021. Our non-GAAP operating income was $4.6 million, down from $6.3 million for the second quarter of 2021. And our non-GAAP net income in the EPS for the second quarter of 2022 was $4.3 million and 18 cents, respectively. Other related data. Shipped units by civil licensees during the second quarter of 2022 were 433 million units, down 18% sequentially and down 4% for the second quarter of 2021 reported shipments. Of the 433 million units shipped, 83 million units, or 19%, were for handset baseband ships, reflecting a sequential decrease of 17% from 100 million units of handset baseband ships shipped during the first quarter of 2022, and a 40% decrease from 138 million units shipped year over year. Our base station and IoT product shipments were 349 million in the quarter, down 19% sequentially, and up 11% year-over-year. Of note, Bluetooth shipments were up 35% year-over-year to 255 million units, and cellular IoT shipments were up 12% year-over-year to 20 million units.
Rocco
As for the balance sheets, at the end of June 2022,
Richard
short-term and long-term cash and market and securities balances were approximately $146 million. With last quarter's share price level, we activated our buyback program and we purchased approximately 136,000 shares during the quarter for approximately $4.5 million. As of today, 362,000 shares are available for repurchase. Our VSO for the second quarter was slightly higher than the last two quarters due to the lockdown in China that caused slower collections and came in at 42 days for the quarter compared to 32 days in the prior one. During the second quarter, we used $8.1 million of cash from operations depreciation and amortizations were $2 million, and the purchase of fixed assets were $1.2 million. At the end of the second quarter, our headcount was 492 employees, of which 411 are engineers, slightly higher than the total of 487 employees at the end of March. As for the guidance, As evidence for the first half of the year, our licensing, NRE, and related revenues were strong. Also, as Gideon explained, our technology offering and co-creation business proposition resonate well with our customers and present new opportunities to grow our revenues. Despite the challenges in the macro environment, we continue to expand in the base station and IoT segment through the gradual rollout of 5G base stations enabled by our technology and see continued share gain in wearable, hearable, and IoT products at large. With that said, we are monitoring the implications of the economic uncertainty that we experienced in the second quarter associated with the handset royalties As we get closer to the holiday season and as the COVID restrictions in China are being lifted. Specifically for the third quarter, gross margin is expected to be slightly better than the second quarter. Approximately 81% on gap basis and 83 to 84% on non-gap basis. Excluding and aggregated $0.3 million of equity-based compensation expenses and $0.5 million of amortization of other assets associated with intrinsic acquisition, narrowband IoT, and innovation business and assets. OPEX for the third quarter of 2022 is forecasted to be slightly higher than the first quarter of this year, GATT-based OPEX is expected to be in the range of $27.6 to $28.6 million. Of the anticipated OPEX for the third quarter, $3.4 million is expected to be attributed to equity-based compensation expenses, $0.8 million to the amortizations of acquired intangible assets, and $0.3 million associated with intrinsic sequestration. Our non-GAAP OPEX is expected to be in the range of $23.1 to $24.1 million. Main interest income is expected to be approximately $0.4 million. And the taxes for the third quarter are expected to be similar to the first quarter, approximately 25% to 27% of non-GAAP tax rate, or about $1.7 million. Taxes generated for the new 10% lower tax rate on specific revenues from our French activities would be offset by tax expenses associated with withholding and the future utilization of our Israeli subsidiary. Share count for the third quarter is expected to be approximately 24.2 million shares for non-GAAP EPS calculation. Rocco, you could open the Q&A session. Thank you.
Operator
Thank you. We'll now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Today's first question comes from Matt Ramsey at Cowan. Please go ahead.
Matt Ramsey
Good morning, good afternoon, everybody. Thanks very much. Genevieve, I couldn't help but notice there in your guidance commentary for the third quarter and the back half of the year that you guys didn't really talk about revenue. So I'd be remiss if I didn't ask the question. So if you could give us a little bit of help there on just the trends you're seeing in the different end markets and how you guys think about revenue trending. Obviously, there's caveats around the macro, but... I think that's going to be the question that most folks want to ask here. So let's just see what we have to say on revenue. Thank you.
Richard
Sure. Good morning. I'll start and Gideon will jump in as well. So we are not giving guidance on a quarterly basis to the fact for many years now that our customers under 606 revenue recognition rules, we report what our customers report in the same quarter itself. We don't really get, and you guys also don't get visibility from the cell phone manufacturers and the OEMs and the Bluetooth-enabled devices and a lot of other OEMs, how much they actually plan to sell. And therefore, giving guidance on a big portion of our revenues, which are the royalties, under 606 has been very difficult, and we have stopped doing that because the data does not exist. And with that said, there are some very positive trends in our royalty business, and that's around the base station AOT. We managed, with all the uncertainty that you asked and mentioned, to grow that portion of the business 6% with the lockdowns and the rest of the macro concern. A lot of it, this time around, every quarter it comes from a different market. A different market that's stronger than others. This time around, we saw growth in very strong growth compared to Q1, for example, in the 5G base station ramps. We saw continued growth in Bluetooth devices on a year-over-year basis and cellular IoT devices on a year-over-year basis. So that trend continues. I think it should be there for a long period of time. Every quarter, a different market, a different segment could pull in or be the driver for those royalties. And I think because we are powered in so many devices, 1.6 billion last year, and the numbers are looking quite solid for this year as well, the weakest link in the other category of royalties is not coming from Base Station and IoT, but from the handset side. In handsets, there are many, many companies that came out and explained the industry. We saw weakness in China and China-related countries, the low-end mid-tier type of phones, smartphones. This is where the uncertainty relies. It could move in different directions, partially because of the lockdown, partially because of concerns, but eventually there are needs for those low-end phones. We saw more resilience in the high end, Apple and Samsung's results, and we saw, at least in the second quarter, less in the low end, which could fix itself in the later part of the year. So those are the two moving pieces in the role piece, and Gideon, happy for you to come up in a minute as well. And that's more of the uncertainty that we are seeing around us, and we have experienced this second quarter in specifically enhancements. When you look at the licensing environment, it's still robust. We came out with a strong second half last year with $21, $21.5 million. This year, for the first quarter of the year, for the first time ever, two quarters in a row were about $22 million. The shutdown... in China, if they did affect consumer demand, as we said, it did not affect technology companies to continue to do design wins. You know, after two and a half years of COVID, companies know how to run their R&D sites offline and from work, from home, and we have continued to see very strong demand in licensing, and we don't see that, at least in the near future, in the upcoming quarter, slowing down, more offerings, and I think that's the commentary we made. We haven't changed the annual guidance. We don't know exactly where we'll find ourselves with that, But on the other hand, you saw the numbers for this quarter as well. The expenses are slightly better. FX environment is helping us, and that could offset some of the risk to the bottom line. Sorry for the long answer, but I tried to cover all the basics. Yeah, Matt, let me just highlight two things regarding the royalties. Obviously, Q2 was a tailwind or headwind, I would say, on onset revenue, onset royalties at the low, I would say, low end. concentrated on the lower end, a bit in the mid. The way we see it is OEMs are a bit prudent in piling up the inventory, so prefer to clean up inventory in preparation. We are getting to the second half of the year, and we see more prudency there at the OEM level. When it comes to the law and the market, we were in this position several times when there is some kind of a macro events that affect the economy. The law and the handset is the first thing that impacted, but it's the first thing to recover and it could be a fast swing when this uncertainty goes. So that's where we see it now. We have the product. 5G is where the opportunity is enhanced. 5G mid, low end is where our customers are focusing and they have the product in place. We're discussing product because design ways with IONO and OPPO and of course there is the India side of things. So As soon as this cloud of uncertainty will somehow clear up, we're going to see this coming back strong. When it comes to the base potentiality, I think Yaniv covered it properly. We talked about the diverse product and the diverse market, and I would say we see this here goes all over the place because We are coming, our customers are coming every quarter with new products. It's sharing, it's growing. It's not just growing with the market, but above the market because there are new products coming from our customers. So the handset is something that impacted us, but the rest is great.
Matt Ramsey
Great. Thank you both, guys. I really appreciate all the commentary there, and we certainly do appreciate the uncertainties that are out there. Just as my follow-up question, I'll keep it quick, and I'll get back into you. Yeniv, I think you guys gave some commentary in the script about the amount of smartphone units that were in your royalties. Could you also sort of quantify how much of the royalty revenue in the second quarter was in the handset market just so we can calibrate risks there. Thank you very much.
Richard
Yeah, sure. We continue to give these numbers quarter after quarter. Out of the $11.1 million, $7 million were base station IoT and the $4.1 million were handset related.
Matt Ramsey
Thanks, guys. Appreciate it.
Rocco
Sure. Thank you.
Operator
And our next question today comes from Kevin Cassidy with Rosenblatt Securities. Please go ahead.
Kevin Cassidy
Yes, thanks for taking my question. And congratulations on this tough market, having good numbers. But you showed 22 new IP deals, and you're very impressive with that. And last quarter, it was only 14 new deals. But the revenue is about the same. Can you say, is there a trend there for... smaller deals or maybe just give us a feel for what happened in that mix.
Richard
Yeah, good morning. And we answer that from time to time. I don't think that taking the revenue and divided by the number of deals is It gets you anywhere. Some deals that were signed are not delivered because if we don't know the customer and we don't know its financial background, we don't recognize and don't deliver the technology before we actually get paid. So there is a little bit more complexity around the number of deals They get signed versus the average amount. I would say that in every given quarter, we have one or two bigger deals for millions of dollars, and we could have smaller deals for a single user for some software elements or work in the hundreds of thousands of dollars, and we could have deals and usually do have deals in the $2 or $3 million type range. And I wouldn't take one... You can't ask for those numbers that we get to one answer or the other. It's a combination of large deals, small deals, recurring customers, five new customers that we've never had any business with, some we deliver immediately and recognize, some we don't deliver because we don't know the customer's financial background yet. We only wait for the payment. And some work that we do, whether it's MRE or some special customizations, and that gets recognized in a few quarters without counting that as a new deal every quarter, obviously. So it's a combination of all these three or four elements.
Kevin Cassidy
Okay, I understand. Just make sure it's not a trend. And the... Intrinsic, you didn't say much about some of the pipeline that you're working on there. Can you give us some feel for the intrinsic opportunities?
Richard
Yeah, so Intrinsics has a strength in the defense market. The defense market has its own dynamics and usually it's a large project. What we are adding now under the umbrella is our new customer base. We already signed a few designs in respect to SIVA customer base that come to us and after understanding what Intrinsic can contribute asking for such designs. And what we discuss in the call about the co-creation business where we come to the customer and take the lead on the wireless system, Intrinsic has a significant role because those guys are the integrator for IPs. Okay, thank you.
Rocco
Thank you.
Operator
And our next question today comes from Suzy DeSilva at Roth Capital. Please go ahead.
Suzy DeSilva
Hi, Gideon. Hi, Yeniv. Gideon, you talked in the prepared remarks about having cellular and Wi-Fi and the coexistence. Can you talk about the advantages of SIVA of being in both markets along with just having strong opportunity in each one, maybe the synergy between them?
Rocco
Sure. Well, the
Richard
There's a lot of technology synergy between Wi-Fi and 5G. They use the same, especially Wi-Fi 7 and 5G. They use the same modulation mechanisms. With that said, the way we deal with customers is that we see the Wi-Fi as the local area network and 5G is the one, the broad network. So when we go to customer proposition, we basically, it's a two technologies that we put together as two components of our offering. And we deal all the integration between the two. But customer, we see more and more customer asking for both technologies, either in order to address larger markets or go to what is called access point or fixed wireless access where in one hand the internet is coming into the home through 5G and spread over the home through Wi-Fi.
Suzy DeSilva
Okay. That's helpful, Gideon. Thanks. And then on the 5G infrastructure base station side, can you talk about how many customers you're ramping today maybe versus 12 months ago and Is there any inflection in the upcoming quarters, or maybe the macro would impact that? Any thoughts there on how 5G is going to ramp up from here?
Richard
First of all, in terms of customer, we have two big customers that take us to the macro base station, the largest base station. We have several other customers that expose us to different other markets, like small sales and other. 5G, and that's what we like and believe in 5G. is extremely ubiquitous in one hand, and also comes with new form factor of 5G. So we have things like private networks. We have a MIMO antenna. So only the strong, we have ORAN, open RAN. So these are all vectors that extend the total available market of the 5G. We are partial of all of them. I think I heard Nokia saying that outside of China, 5G network is only in 15% of the available market, 1.5%. Think about the opportunity ahead of us in terms of geographies, in terms of India. It's a big market. And another thing, it's a high entry barrier because if you have the relationship experience, it's very difficult to create an alternative.
Suzy DeSilva
That's helpful, Gideon. Thanks. Thanks, everybody.
Rocco
Thank you, Yves.
Operator
And our next question today comes from Chris Romer with Barclays. Please go ahead.
Chris Romer
Oh, hi. Thank you for taking my question. I wanted to ask about operating margin. You mentioned in your comments that you might be seeing some benefit or de-risking. I was just wondering if you could give a little color around what's going on there and what the moving parts are.
Richard
Yeah, sure, great question. But when we added intrinsics and added both NRE services and the co-creation of licensing both and offering both IPs and services and designs of chips or blocks, it obviously took our margins down from the 90s that we were for many years. to the low 80s, anywhere between 80 to 84-ish, 85%. That's where we sort of are in the sweet spot in our understanding of the existing market until new royalty payers will come in from that new business model. With that said, the simple combination of the same level of licensing of 22 plus and higher royalties than where we are now with $11 million for Q2, gets you to slightly better margins. It's just technicalities here. Nothing has changed in the business. It's just a mix of licensing versus royalties, and the higher the royalties, obviously, in the future as well, the higher the margins will be, but we don't see it going anywhere higher than that. until the new work is from this business kick in as well. So that's what the merit and understanding for the guidance for Q3.
Chris Romer
Got it. And just touching on M&A, are you seeing any changes perhaps or any thoughts on pipeline now that we've seen some evaluations come down recently?
Richard
Seriously, you know, our barrier of not doing M&As too frequent is not necessarily only from valuation or valuation at all, but it's more of what's the right next step for us. What is the new technology, the new market, the new add-on that we could grow the business quicker and faster and add more offerings to the semiconductor industry, whether it's in hardware or software or IT? That's really where the merit is. There's no doubt that it's a little bit of an easier environment to look for ideas and better pricing, but our dilemma of what is the next step for CIVA to continue its growth and expedite it really comes from what is right and not how much it will cost. It's a factor, but let's find the right technology. We have multiple ideas, by the way. We have multiple different projects that we're looking into, different collaborations and different ideas that we want to target, and we're actively looking. Nothing right now on the agenda, but that's something that we continuously want to add on to our offerings.
Chris Romer
Great. Thanks for the color. That's it for me.
Operator
Thank you. And our next question today comes from David O'Connor with XA and BNP Paribas. Please go ahead.
David O'Connor
Great. Good morning. Thanks for letting me ask a question. Gideon, maybe going back to the strategic agreement of co-creation with the customer, Can you just talk around the catalyst that drove that decision? Why now? And also maybe any related to that. Can you talk around the impact on the model from the kind of co-creation relationship and the follow-up?
Richard
So let me explain the rationale from customer standpoint to go to this proposition, and maybe Anif can add implication on the model, but the rationale from the customer is If you want as a company to get into the wireless space and you are not Mediatek, Broadcom, and Qualcomm to some extent, it's a huge entry barrier because you need to deal with things that are not just complicated in terms of technologies and integration with RF, It's also a skill that is skills. Now, we figure out the fact that we have all these technologies and abilities to do, and we bring in our other competencies, whether it's intrinsics in design or whether it's software, and we come to the customer and say, we can create for you, that's the co-create. We can create for you your own wireless system. And the result of this one is it's a larger deal, larger amount of royalties. And in terms of the business model, it does not disrupt the business model because It's still IP. What we deliver is IP. We don't deliver chips or semiconductors to them. It's just the IP. But from the customer standpoint, this block has a huge value. I'll add one more thing to it. classical IP model, you license your IP and you wait until the customer finishes its design. It could take one or two years, qualify the chip, test it, and then that goes to the OEM into the final product. Here, when we do a block or a whole chip from an IP and service, so that sort of moves a bit of the responsibility for the success of that block or chip to us. So we have more visibility into that. And Gideon mentioned the key critical change in the business model is that as soon as that chip goes to production, hopefully or maybe could be a little bit shorter than two years in this type of consumer-based solution, we'll get royalties. and on a typical old-school NRE service base, there's no royalties. It's a one-time deal, maybe recurring engineering efforts, but you don't get the royalty component. Here, as soon as that ship is ready, out the door, in production, that's the way to add on to the volume and to the royalties from our perspective. So it's a win-win, both from a little bit more involvement in R&D of our customers and the roadmap to come after that ship into production, and on the other hand, is the royalties.
David O'Connor
That's quite helpful, thanks. And maybe going back to your prepared remarks, you talked about engagements with U.S. companies picking up, I think. Which technologies are these engagements picking up? And what are you doing a bit differently maybe to capture some of these U.S.-based opportunities? Thanks.
Richard
You mean technology in terms of nodes?
David O'Connor
Well, just is it hearables, wearables? Is that on handsets? Which kind of areas are these engagements picking up the U.S.-based opportunities?
Richard
Yeah, and the specific engagement that we talked about in the prepared remarks, it's wireless audio, meaning Bluetooth and audio. This combination also possess complexities, and the target market is wearables and wearables and watches, smartwatch.
David O'Connor
So thank you. And if we could just squeeze one last one in. Just on the handset baseband royalties, How would you split that out, low-end kind of mid-range versus high-end in your royalties?
Rocco
Thank you.
Richard
Most of our business is in the mid-range these days, our customers' business today. Unistock is the biggest customer of ours. They are... strong presence worldwide, India, China, Latin America, in mid-range phones. You know, the low-end phones are almost disappearing. The 2G and 3G don't really exist that much anymore, so it's mainly the 4G bringing the volume, and 5G, they have a good offering with some design means, so that's the potential over the next couple of years.
Rocco
Thanks so much.
Operator
And our next question today comes from Martin Yang at Oppenheimer. Please go ahead.
Martin Yang
Hi. Thank you for taking my question. I have a question regarding your Bluetooth and Wi-Fi portfolio. How much do you estimate that you have the exposure to consumer end markets through your direct customers, and do you foresee any upcoming weakness into the second half for Bluetooth and Wi-Fi measurements?
Richard
When it comes to Bluetooth and Wi-Fi, I cannot pinpoint exposure to consumer markets It's all over the place. We have people that use our technology for automotive. We have people that use our technology in industrial recently. We see people are using it in XR headset, audio. So there is not any concentration on specific market. And that's the reason that it's resilient because, you know, Every quarter, somebody else flourishes and could be another company that faces difficulties. We saw it clearly in the reports that we got in the quarter.
Rocco
Got it. Thank you.
Martin Yang
I have no more questions.
Richard
Thank you. Remember, I think that... Royalties for Bluetooth were up year over year with all these market uncertainties. So this is part of the answer that we have seen in the second quarter as well.
Operator
Thank you, sir. Ladies and gentlemen, no, no problem at all. This concludes our question and answer session.
Rocco
I'd like to turn it back to Richard Kingston for closing remarks.
Richard Kingston
Thank you all for joining us today and for your continued interest in SEVA. As a reminder, the prepared remarks from the conference call today are filed as an exhibit to the current report on Form 8K and accessible through the investor section of our website. With regards to upcoming events, we will be participating in the following conferences. The Oppenheimer 25th Annual Technology Internet and Communications Conference being held virtually tomorrow, August 10th. We'll participate at the Rosenblatt Securities Technology Summit, Age of AI Conference, August 23rd and 24th. We'll be in attendance at the Jefferies 2022 Semiconductor IT Hardware and Communications Infrastructure Summit, August 30th and 31st in Chicago, and the Jefferies Israel Tech Trek, which will take place September 21st and 22nd in Tel Aviv. Further 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.
Operator
Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines and have a wonderful day.
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