CEVA, Inc.

Q1 2023 Earnings Conference Call


spk05: I wonder if you might expand on the technologies to people a little bit more and what your plans are for that business.
spk12: On the flip side, I did notice that one of your customers in a particularly interesting area around automotive called Autotox was acquired by Qualcomm, and I believe that is an important licensee for SIVA and But Qualcomm, guys, it's a small deal.
spk05: Thanks, guys. Yeah.
spk04: So first on the Visisonics deal, as I mentioned in the PIRMAR and PIRGIMOX, with the basic three pillars of growth that I've mentioned,
spk05: to fusion, and with partnership with Visasonic, we basically combined it as a very strong emerging technology for the space.
spk04: We recently announced basically the customer's boat as licensing this technology, and now we can offer that as a complete solution. Also, from an integration point of view, this is so-called seamless integration, as both the location and the technology and the roadmap that we have worked together is already in place, and we basically continue that as a one team. And then the last piece on that, I would say it's also going to be a creative as a non-gap within 2023. So all along, we see it as a great deal to keep expanding our software-embedded application technologies and be able to provide more innovation and differentiation to our OEM customers in the ecosystem.
spk10: in terms of the the other deal and yeah please sure so we have a long relationship in history with the auto talks you know this is the the the benefit of being an ip company you could have help the small ones that don't have the capabilities especially around cellular and communication which is quite complex and to come up with an interesting product and later on to be acquired by the giants and the leaders in the space So obviously we know them and help them out from day one as a young startup with the communication skills and technology that we brought. They're already starting to ship products last year and we got the initial royalty reports from them. So in this market, when a bigger company acquires you as a customer, first you start a relationship and it needs to bypass or work with you on the way to integrating the product and getting the rights. So that's an interesting opportunity for us. And we'll see where it takes us to the next step. It would be nice to be in their product line in the future. And if not, this is part of the startup world and part of our... add-ons as an IP company to help the smaller companies. And sometimes we make and build the relationship with the bigger companies and continue with them and show them and give them other products that we can in the future. And sometimes it ends with, at least in the near term, some nicer royalty opportunity for us coming from a bigger company.
spk04: And I would add on that is that um in the past again when people thought about 3g 4g and for a while talks about really how we're going to have the ecosystem and our customer base basically to enable the new use cases that 5g really bring to the table right and this is a great example when we have a
spk05: innovators in the market to come up with the new use cases and technology that 5G and 8G does.
spk04: So, a vehicle to infrastructure vehicle to vehicle, so-called V2X, is a great technology that we believe will expand nicely in the markets in the future years.
spk05: And we believe that all And our next question is from Kevin Cassidy at Rosenblatt Securities.
spk03: Please go ahead.
spk06: Yes, thanks for taking my question. Just to follow up on the 5G modem application, will that include millimeter waves?
spk05: Which day of life do you mean? In general? Yes. I think so. Yeah, whether it's going to be, you know, just the... Okay. The, uh,
spk06: and if the previous generations.
spk10: That's a great question, Kevin. So there are two aspects here, maybe even three. One is the volume. Last year, we managed to power a billion Bluetooth devices, and we only started to ramp up our Wi-Fi. It was just shy of 200 million, I believe. There's no reason that the volumes of Wi-Fi shouldn't reach, over a short period of time, the Bluetooth type of volumes. or even surpass that as they go along because of the use cases, the much wider use cases that Wi-Fi has. That's why. So the volume is a big push for us, and we saw the new customers, three out of 35 customers that have licensed Wi-Fi 6, so the potential with volumes from existing a new customer is the answer of why those volumes should increase. Second, ASP, because of the use cases that the Wi-Fi system is in, are higher end, are industrial, are medical, are lots of other devices that ASP is overall of the chips, and the solution is higher, then we get a larger portion. It could be 2 or 3x of what we're getting from a Bluetooth device, and those are the ratios of the chip prices. and number three a lot of our customers are combo customers that want both wi-fi and bluetooth today or in the future and therefore the the overall added value for us and asp is higher if we could provide two technologies and charge for two instead of one so we have a lot of very good aspects working in our favor and it's a significant very short-term opportunity look at the numbers from q
spk04: four to q1 with all the inventory issues and all the slowdown that we are reading and seeing we have doubled our wi-fi revenue from q4 to q1 this year in dollars i would add to that there is basically as you look at the so-called there is the the so-called call it the simple client wi-fi and there was now we are going through the upgrades from wi-fi 4 to wi-fi 6 then on its own of course in general speaking the same is in the markets the the variety of a Wi-Fi solution is higher than Bluetooth. And then on top of that, what you have is the more complicated, sophisticated, enhanced throughput Wi-Fi 6 client. And then on top of that, you have the Wi-Fi 6 access phone that we are just now basically are going to start ramping more and more.
spk05: And I would say as... from an ASP point of view. Quick question on the acquisition. Yes, it includes a small number of engineers. You know, maybe you can give us more details. A competitive. I can take that. Audio market. It's pretty. Some of the players. The difference between what. earphones, they both have.
spk02: The solution that we're bringing into market for spatial audio with VisiSonics, this is only on one side. So it's only in the headset. You don't need any particular codecs or any particular software on the handset for this to work. And this is a game changer for the, we would say, the low to mid-end of the earbud and headset market where today spatial audio is not really playing. So when we think about the opportunity, there's probably 400 million mid-range TWS headsets a year. You've got the gaming headsets and all these other opportunities there where we feel there's a very good opportunity for us to double down on our strong presence in the headset market that we already have today. We know the customers, we know the industry there, and we can take the spatial audio solution into these markets, the much broader mid-range and lower range of the market, and address it with the spatial audio solution that we have something that today is not really available or there. So that's our focal point and target. It's not so much competing with Dolby and Apple at the higher end of things. It's going for the mass market option here.
spk04: The other thing to enhance on what Richard said is that what's unique also about our technology is really to developed such that it can get into a very small form factor, very optimized in terms of size and power, which really can enable these use cases to penetrate more and more the mid and the low-end markets of the TWS, also where the volume is very, very high.
spk05: Thank you.
spk03: And, ladies and gentlemen, our next question today comes from Suji De Silva at Roth MKM. Please go ahead.
spk08: Hi Amir, hey Niamh. So on Wi-Fi 6, it's good to see that coming out of the gate. What do you expect to be the pace of unit adoption here relative to other Wi-Fi standards in the past and what end markets are initially driving the Wi-Fi 6 units?
spk04: I would say Wi-Fi 6, the replacement from Wi-Fi 4 to Wi-Fi 6 is very, very strong. So we definitely see it first on the client side. And I would say in the consumer, it started first in smartphones and PCs, and now it's propagating so-called to the all IoT consumer clients' devices around us. And then from there, of course, more and more penetrating the access point field as well.
spk10: And the pace, you know, again, I'm not sure if we could continue with doubling like we did from Q4 to Q1, but the pace, no doubt, should be now with more players starting to really ship Wi-Fi 6, even the first ones in... uh that have joined the team and the potential as i said earlier from 35 customers is quite big we think it's going to be one of the faster growth driver for us this year when looking at all the different segments and product lines we have and overall i would say the expectation in terms of the transition if we look at the history of wi-fi right that the fastest and and and the strongest transition was from 11g to 11 and back then in terms of performance and capabilities
spk04: And now it's basically into 11ax and Wi-Fi 6, right? So this is really the biggest one in the last few years in terms of transition of Wi-Fi technology. And we are well, well established right now across the ecosystem with our IP embedded into our customer product line. So I would expect it to really grow very, very nicely through the years and continuing through 2024, 2025. Good. It sounds like you're well positioned there.
spk08: And my second question is on the acquisition. It seems to be a software licensing model. Can you just remind us how many products you guys have now that are software licensing versus, you know, typical license royalty? And what percent of revenue could that be as a mix, part of the mix in one to two years as part of your strategic plan?
spk10: A great question. Thank you, Sujin. This brings us back to what we talked about in the last earnings call, the three pillars of growth for us. One of them was embedded software. We started three years ago, to remind you, with the Hillcrest acquisition, sensor fusion. We got into TVs, laptops, vacuum cleaners, Electronic hands, yes, correct. So this is how it started. We added in the last two or three years two different audio solutions, and now this is probably the fourth. If I'm counting just the standalone pieces of software, embedded software that we're licensing, trying to target sometimes the OEMs, The value there and the proposition is much higher, both for us and as a differentiator for the OEMs, and it's worked extremely well, very high margins of that. We have doubled the revenues of some of those aspects when we three years ago acquired and got into the business. And on top of that, we're also starting to add AI software packages on top of the processor and the solution itself. So I'm not sure if I have a number and the percentage of revenue, but for sure this is one of the strategic avenues for us to go after. I think we know how to run these types of businesses, and this recent acquisition from today enforces that.
spk08: All right. Thanks, guys.
spk10: Thank you.
spk03: And, ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star then 1. Today's next question comes from Chris Reamer of Barclays. Please go ahead.
spk07: Hi. Thanks for taking my questions. Actually, most of the topics have already been addressed. Just one, touching on China, Have you seen any changes in the dynamics there, maybe impacts from the reopening? And when you mentioned that demand has resumed, are you talking about that area or are you talking about in general demand?
spk10: Thanks for that, Chris. It's good to emphasize that a lot of our business and customers in China are well-known chip vendors to top guys or OEMs around the world, all over the world. And they, in most cases, ship mainly outside of mainland China. So they're manufacturing, the design is there, but the products and the end markets are all around the world. That's true for the Bluetooth and Wi-Fi and the sound, and even modem, even the handset modem, most of it goes out to the emerging economies in India and other large countries for the low and mid-range phones. When we talk about demand, it's not necessarily for mainland China, but
spk04: throughout the world and all the different segments i think we we've mentioned and we talked about earlier i would add also that the reduction that we've seen these quarters from the hensets market and our key customers there i would say in terms of we already see indication of restocking that started in in march and we've been continuing through april and and now beyond that so Overall, we are quite confident or very confident that basically we'll see a sequential recovery quarter over quarter. And again, the demand is global demand and specifically also in the different emerging markets where our customers serve quite strongly. We start seeing a strong recovery and restocking of the inventory.
spk10: By the way, I may add one thing that we didn't talk about. If you ask about the licensing and not the royalty or remove to the licensing, we see no slowdown whatsoever in China. There's still good demand for technology development and didn't see any really change in the last two quarters coming from China. from China. One of the interesting changes that we have seen globally is coming from Europe. And this is a lot of new money coming from governments of the EU to develop their semiconductor company and the markets. And this is a brand new opportunity for SIVA as being an IT company. And we talked about Autotox is one of the nice example, but there are many, many others. As soon as money flows in, we've seen the trend in China for the last decade. The U.S. has started with their chip hacks, and we see a lot of potential there for us. And last but not least, maybe two or three weeks ago, was this new stronger trend of investments in Europe, and we are there to try to make the best of it. So from a licensing perspective, the contrary, there's a lot of money that's being put in around the world to do the ownership designs. And the IP model fits exactly that avenue.
spk07: Great, thanks for the call. That's it for me.
spk10: Thank you.
spk03: Thank you. And our next question comes from David O'Connor at XAIN BNP Paribas. Please go ahead.
spk11: Great, thanks for taking my question. Maybe Yaniv, on the topic of licensing, following on from your commentary there, any reason that you can't get back to your growth this year on licensing? And then on royalties, maybe also for you, Yaniv, Any additional colour on how we should think about the year-over-year growth on royalties? That QOVQ recovery you talked about, how strong is that going to be and sustainable through the rest of the year? Thanks.
spk10: Yeah, sure. You won't be mad at me if I restate the first question. I don't see a drop in the licensing. We do see a drop in the royalties, and we explained why. In licensing, as we know this business and have been in this business for a long time, $1 million up or down doesn't change the trends. It doesn't change the outlook or anything around that. So, Yeah, maybe we're a little bit short of the typical 21 to 22-ish, but it's nothing that we are concerned about and nothing that has changed. And we mentioned specifically the quality of the deals in Q1, and this is not – We can't say that every quarter because sometimes we license to startups and we have no idea how successful and when they'll come up with a product and if the product will go into mass market. The design wins that we have licensed, and Amir talked about this earlier, in Q1 could get us to a single double-digit royalty contribution annually from those deals. So from licensing, I don't see a problem. On the royalty front... Q1 was an anomaly. We understand in high signs why the handset market did take a beating, as you said, and the numbers did drop there. We think it's a short term, and we talked about the correction into the second quarter. When you look at the rest of the business and what has been growing at CIVA for the last couple of years dramatically, and this is the base station and IoT royalties, there was only a 4% sequential decrease from Q4 to Q1. And even if I compare it to last year's first quarter, and obviously it's a different environment to many companies, and the demand and inventory levels are different, we were only down 7%, and some of the internal markets there, like Wi-Fi and seller IoT, did extremely well. So we think those trends will continue throughout the year. We believe that the second quarter should be sequentially higher with high magnitude, maybe not to the same norm that we were used to a year ago in handset, but they should start correcting themselves nicely in the second quarter. Could we make up the loss of the handset royalties in the first quarter throughout the year? That's the question that we... It's harder for us to answer. We don't usually give guidance in royalties because we don't have the insight of exactly how much each customer could ship and when, and we have never done that, and I don't think we are changing our methodology because nothing has happened or we don't get the royalty reports ahead of time from the OEMs. But the trends of Wi-Fi 6, higher ASPs, multiple products, more products, embedded software that also possesses higher ASPs. And the ramp up in some of these end markets that we talked about, that's something that we are very positive and do believe that they will continue to have. We've seen that growth also happening in Q1. So try to answer the different sides of your question. Hopefully I didn't miss anything.
spk11: No, that's super helpful. Thank you, Yaniv. And maybe just one follow-on from Vermeer on the strategic agreement with the Chinese OEM and 5G smartphones. So they're coming to market now with their Bluetooth and Wi-Fi chip that they licensed from you guys three years ago. How meaningful is that going to be this year? And is that kind of three-year timeframe about right how we should think about them to come to market with a 5G modem? Thank you.
spk04: Yeah, sure. In regards to the Wi-Fi Bluetooth, again, we expect production to start this year. The exact magnitude, it's hard to know because it depends really on the level of penetration they will use this technology across their product line and how they will propagate it there. So I would say the significant portion of that upside will come over the second half of the year and then next year. In terms of their deployment of the so-called 5G solution, I would say it's, I wouldn't say three years, but probably in the range of 2025 RAM, as we see today. Very helpful. Thanks, guys. You're welcome.
spk09: Thank you.
spk03: Thank you. And our final question today comes from Martin Yang in Oppenheimer. Please go ahead.
spk09: Thanks. I have just one follow-up regarding spatial audio. Is it right to assume that real space technology always integrates with Hillcrest sensor fusion, or does it always have some elements of motion tracking, either from you or from someone else.
spk10: Yeah, Richard.
spk02: Sure. So, yeah, you can do spatial audio with or without head tracking, but it's much more effective with head tracking. So the solution that we offer into the market is Hillcrest SensorFusion integrated with the RealSpace into a single product, which we'll call RealSpace going forward. So that's the technology. It's much more attractive to OEMs that way. It gives a much better spatial audio experience, and that's the avenue we're going down.
spk10: With that said, Martin, with that said, part of the acquisition was also to bring on THX, a well-known audio solution provider. This is a VCSonics customer and now a SIVA customer, and they have used the VCSonics standalone solution in their use cases. As Richard said, it could go both ways, but we also already have customers in production, both in India and in the U.S. with this technology and in these two avenues, one on a standalone basis and the second with the Siva Hillcrest technology.
spk04: Maybe I will add on top of that with just those comments. Generally speaking, again, if there are OEMs that would like to see some portion of our technology and that would make sense, we can definitely support it. But the real value of the technology, and that's why strategically also from a technology point of view, we decided to go ahead, is that We have Besson Cloud sensor fusion technology that is really, I wouldn't say massive, but very, very important components to make 3D special audio a good solution. This is Sonic brings really great algos and capabilities on the audio domain related to that. And as you combine these two together, that brings to bear basically a top-notch 3D special audio solution. And as I mentioned previously, it's also the way that we combine it into embedded core that is small in size and very low power, it's a great, great fit to the TWS market and to help penetrate these features from the top tier all the way to the mid and low tier of that market.
spk06: Thank you, Amir. Yeah, sure.
spk03: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Richard Kingston for closing remarks.
spk02: Thanks, Rocco. Thank you, everyone, for joining us today and for your continued interest in SIVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8K and accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following conferences. The TD Cowen Israel Investor Trip on May 16th in Israel. Oppenheimer's 24th Annual Israeli Conference, May 21st in Israel, and Cannes' 51st Annual TNT Conference, May 31st and June 1st in New York. 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.
spk03: 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.

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.