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CEVA Inc. Reports Operating Results (10-Q)

November 08, 2010 | About:
10qk

10qk

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CEVA Inc. (CEVA) filed Quarterly Report for the period ended 2010-09-30.

Ceva Inc. has a market cap of $420.4 million; its shares were traded at around $19.79 with a P/E ratio of 49.48 and P/S ratio of 10.93. CEVA is in the portfolios of John Buckingham of Al Frank Asset Management, Inc., Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

During the past four years, our business has shown profitability growth and market share expansion as a result of the widespread deployment of our DSP cores with all major handset OEMs LG Electronics, Motorola, Nokia, Samsung, and Sony Ericsson and many others, including a major U.S.-based smartphone manufacturer. This positive trend is evident from our royalty revenues which increased by 13% in 2009 from 2008 and increased by 78% when comparing 2009 to 2007. Based on internal data and iSuppli worldwide shipment data, CEVAs worldwide market share of baseband chips for handsets that incorporate our technologies reached approximately 33% of the worldwide handsets volume based on second quarter 2010 worldwide shipments. Revenues derived from the handsets market accounted for approximately 58% and 68% of our total annual royalty revenues and total annual revenues, respectively, for 2009. We believe the full scale migration to our DSP cores and technologies in the handsets market has not been fully realized and continues to progress. Also, we are optimistic about adoption of our technologies for new categories of products, such as data cards, USB dongles, smart metering, tablets, netbooks, and eReaders. The announcements by Texas Instruments and Freescale of their intent to exit the baseband market, after historically having been large players in this market, is a strong positive driver for our future market share expansion.

Total revenues were $10.7 and $31.9 million for the third quarter and first nine months of 2010, respectively, representing an increase of 11% and 13%, respectively, as compared to the corresponding periods in 2009. The increase in total revenues reflected primarily significantly higher royalty revenues, offset by lower licensing revenues from our different product lines. Five largest customers accounted for 63% and 57% of total revenues for the third quarter and first nine months of 2010, respectively, as compared to 83% and 55% for the comparable periods in 2009. Four customers accounted for 16%, 14%, 15% and 10% of our total revenues for the third quarter of 2010, as compared to two different customers that accounted for 23% and 44% of our total revenues for the third quarter of 2009. Two customers accounted for 17% and 21% of our total revenues for the first nine months of 2010, as compared to two different customers that accounted for 19% and 16% of our total revenues for the first nine months of 2009. Because of the nature of our license agreements and the associated large initial payments due, the identity of major customers generally varies from quarter to quarter and we do not believe that we are materially dependent on any one specific customer or any specific small number of licensees. Our total revenues derived from the handsets market represented 66% and 69% of our total revenues for the third quarter and first nine months of 2010, respectively, as compared to 81% and 62% for the comparable periods of 2009.

Royalty revenues were $5.2 and $15.4 million for the third quarter and first nine months of 2010, respectively, an increase of 42% and 35% from the third quarter and first nine months of 2009, respectively. Royalty revenues accounted for 49% and 48% of our total revenues for the third quarter and first nine months of 2010, respectively, compared to 38% and 40% for the comparable periods of 2009. Royalty revenues for the first nine months of 2010 included $0.4 million of catch-up royalties on past shipments resulting from two existing customers in the consumer space. Royalty revenues for the first nine months of 2009 included $0.9 million of royalties resulting from catch up royalties on past shipments from another existing customer. Excluding the catch up royalties, the increase in royalty revenues for the third quarter and first nine months of 2010 reflected our market share expansion in the handsets market, which was driven by large volume GSM/2G phones, especially targeted at the emerging markets, which also bears lower average royalty rate per unit. Our per unit and prepaid royalty customers reported sales of 141 and 391 million chipsets incorporating our technologies for the third quarter and first nine months of 2010, respectively, compared to 89 and 213 million for the comparable periods of 2009. The five largest customers paying per unit royalty accounted for 80% and 79% of our total royalty revenues for the third quarter and first nine months of 2010, respectively, compared to 85% and 71% for the comparable periods of 2009.

Other revenues were $1.0 and $2.7 million for the third quarter and first nine months of 2010, respectively, an increase of 35% and a decrease of 3% from the third quarter and first nine months of 2009, respectively. The increase in other revenues for the third quarter of 2010 as compared to the corresponding period of 2009 reflected principally higher support-related revenues and higher sales of development systems. The slight decrease in other revenues for the first nine months of 2010, as compared to the corresponding period of 2009, reflected principally lower support-related revenues offset by higher sales of development systems. Other revenues accounted for 9% of our total revenues for both the third quarter and first nine months of 2010, compared to 7% and 10% for the comparable periods of 2009. Other revenues include support and training for licensees and sale of development systems.

Cost of revenues were $1.0 and $2.6 million for the third quarter and first nine months of 2010, respectively, compared to $0.8 and $3.2 million for the comparable periods of 2009. Cost of revenues accounted for 9% and 8% of our total revenues for the third quarter and first nine months of 2010, respectively, compared to 9% and 11% for the comparable periods of 2009. The increase for the third quarter of 2010 principally reflected higher customization work for our licensees. The decrease for the first nine months of 2010 principally reflected lower customization work for our licensees, lower salary and related costs and lower royalty payback expenses paid to the Office of Chief Scientist of Israel. Royalty payback expenses amounted to 3%-3.5% of the actual sales of certain of our products, the development of which previously received grants from the Office of Chief Scientist of Israel. Included in cost of revenues for the third quarter and first nine months of 2010 was a non-cash equity-based compensation expense of $23,000 and $56,000, respectively, compared to $21,000 and $90,000 for the comparable periods of 2009.

Gross margin for the third quarter and first nine months of 2010 were 91% and 92%, respectively, compared to 91% and 89% for the comparable periods of 2009. The increase in gross margin for the third quarter and first nine months of 2010 principally reflected higher royalty revenues which have higher gross margins.

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