Richard Kingston - VP of IR and Corporate Communications Gideon Wertheizer - CEO Yaniv Arieli - CFO.

Joseph Wolf - Barclays Capital Gary Mobley - Benchmark Matt Robison - Wunderlich Securities.

Good morning and welcome to the CEVA Incorporated Q3 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Richard Kingston. Please go ahead..

Thank you. Good morning and welcome to CEVA's third quarter 2014 earnings conference call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA; and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the quarter.

Yaniv will then cover the financial results for the third quarter and provide guidance for the fourth quarter of 2014. I will start with the forward-looking statements.

Today's conference call 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, our financial guidance for the fourth quarter of 2014, confidence in our licensing pipeline, optimism about our ability to leverage opportunities in the IOTP space, optimism about market dynamics favoring the need for more advanced DSPs and connectivity IP, expectations regarding royalty revenues from non-handset based applications and continued optimism about royalty revenues from handset baseband applications.

The risks, uncertainties and assumptions include the ability of the CEVA DSP cores to continue to be strong growth drivers for us. Our success in penetrating new markets including connectivity and maintaining our market position in existing markets, our ability to successfully integrate the RivieraWaves business.

The ability of new products incorporating our technologies to achieve market acceptance, the speed and extend of the expansion of the 3G and LTE networks and the IOT space, the effect of the intense industry competition and consolidation, global chip market trends, and general market conditions and other risks relating to our business, including but not limited to those that are described from time to time in our SEC filings.

CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that said, I'd now like to turn the call over to Gideon..

Thank you, Richard and welcome everyone. Our third quarter licensing performance was an outstanding, all-time record high in revenue. We signed 10 new licensing agreements, spread across all our product lines. Four of the agreements were for CEVA DSP cores and platforms and six were for connectivity products.

[Cellular] (ph) application include LTE advanced handsets, mobile infrastructure, vision for surveillance equipment and digital commerce, access point and [units] (ph). Geographically, six of the agreements signed were in the APAC including Japan, three were in the U.S. and one in Europe.

Total revenue was at the high end of our guidance range at $14.1 million, up 53% sequentially and 41% higher on a year-over-year basis. Licensing and other revenue was $8.7 million, up 100% sequentially and up 121% on a year-over-year basis. Royalty revenue came at $5.4 million, up 10% sequentially and down 11% on a year-over-year basis.

During the third quarter, we continued to experience a healthy demand for our technologies. It underscores our strategy to diversify our customer base and expand beyond the handset baseband market into other markets, such as wireless infrastructure region audio and more recently WiFi and Bluetooth connectivity.

This diversification is emphatically reflected by the fact that nine of the 10 agreements signed during the third quarter were from non-baseband applications and seven of these deals were with first time customers of CEVA.

To date in 2014 we have signed 25 license agreements, 22 of which are for non-baseband applications and 11 of these are with first time CEVA customers.

Overall, as we look at our customer target end product for licensing agreements signed over the last 18 months, there is a clear trend about connected devices, both mobile and stationary, which can be broadly classified as the internet hosting or IOT in short. Let me take the next few minutes to outline our prospective proprietary space.

IOT is an umbrella for all type and form factors of connected devices including smartphones, tablets, smart home appliances, video surveillance, connected car, industrial, medical and more. IOT focus is the number of connected devices excluding PC smartphone and tablet will reach over 28 billion units in 2020, up for $9 billion in 2014.

Now three main components in most of the IOT devices. The processor responsible for the [input] (ph) the sensor that is responsible for collecting and processing data and the communication engine that is responsible for transferring the processed data to the cloud.

CEVA product line address two of these three main components namely the sensing and the communication. For sensing our DSP platform are used to add intelligence to the data collected by the sensor.

At this end our audio and vision platform enable remaining of the emerging used cases such as fiction and reorganization, image enhancement, video analytics, [web] (ph) sensing and more.

For communication we are taking advantage of our comprehensive offering for Wi-Fi Bluetooth connectivity and LTE to address wide range of I0P devices located both indoors and outdoors.

Moreover, our advanced communication should allow us to address opportunities in the infrastructure related to IOP devices such as Wi-Fi access, home gateways, small cells and macro base stations. We are very well positioned in the IOT space and our technology and strength are widely recognized in nine semiconductor companies and OEMs.

We are highly optimistic in our prospect based on the licenses we have signed today. Our current licensing pipeline and the market dynamics that are favoring the need for more advanced DSPs and connectivity IP to better fill the requirement for this market.

Therefore we are expecting significant growth in our unit shipment for non-handset basement application over the next few years up from approximately 100 million royalty billing unit annually in 2014 to between 700 million to 900 million units annually by 2018.

This would be in addition to our existing handset basement business, which we believe will continue to be a strong growth driver for us.

While for the next three years a majority of our royalties will continue to come from shipment of 3G and LTE local smartphone, we are expecting the non-basement royalties scouting as early as next year and growing at a steady pace in 2018.

Royalties that we received for the third quarter shipment only be included in the initial contribution associated with IOP. Q2 2014 shipment which are reflected in our royalty revenue for the third quarter for growing LTE shipment and local smartphone highly voted feature phone and some seasonal recovery in our legacy consumer electronics.

These good fundamentals are on the back of an ongoing trend down of Broadcom and Intel, 3G and 2G products. Going forward, we're encouraged by the recent announcement in activities of our key customers. Let me highlight a few of those.

Total $1.5 billion investment in CEVA Group Spreadtrum and Intel will jointly develop a family of inter architecture SoC for the modern market that will be available stocking for the second half of next year. This strategic collaboration aim to increase the market share of both Spreadtrum and Intel in China and other emerging economies.

CEVA is positioned to benefit from this collaboration as both companies use CEVA DSPs exclusively. China mobile has certified Intel XMN 7262 LT advanced modem a cost effective platform supporting category six speed up to 300 mb/second. Other LTE advanced chip XMN 7262 is now shipping in Samsung Galaxy Alpha smartphones for Europe and other regions.

Spreadtrum announced its next generation multimode LTE modem SC9620 supporting LTE platform is up to 150 mb/second. This platform has already been adopted by leading handset brands like Lenovo and Coolpic. Need for technology is now sending its first five-mode single chip LC 1816 for testing.

Running a smartphone OEMs has workload back on this chip and this product will be on the market soon. Samsung Exynos modem 300 supporting multimode cut 6 LTE advanced started for the first time to replace Qualcomm in the flagship models of Galaxy Alpha and Note 4 in Korea and planned expansion into Europe.

Beyond LTE which we focus to extend quickly mainly in China, 3G repayment are also growing both in regard to local Samsung for first time Smartphone user in developing region and IOP. In IOP context Intel announced of 3G cellular modem and to size a U.S.

$0.01 coin enabled by XMM 6255 CEVA based chip and mobile from a broad range of emerging usages such as industrial equipment, home appliances, security safety, and healthcare monitors. With that said, let me hand over the call to Yaniv for financials and guidance..

Thank you, Gideon. I will start by reviewing the results of our operations for the third quarter of 2014. Revenue for the third quarter was $14.1 million at the higher end of our guidance mainly due to all time high licensing revenue. The revenue breakdown is as follows.

Licensing related revenue was $8.7 million reflecting 62% of our total revenue, doubling sequentially and 121% higher as compared to the comparable quarter of 2013. Royalty revenue was $5.4 million reflecting 38% of our total revenues, up 10% sequentially after few down quarters, but still down 11% on a year-over-year basis.

Our quarterly gross margin was 91% on both U.S. GAAP and non-GAAP basis. Non-GAAP basis exclude equity based compensation expenses. Our total operating expenses for the quarter were $11.6 million just shy of the mid range of our guidance.

Our Total OpEx for the fourth quarter included for the first time the RiveraWaves expansion, which were offset by the receipt on higher than normal R&D grant payment.

OpEx also included an aggregate based compensation expense of approximately $1.1 million, the RiveraWaves related retention expenses of $0.7 million, $0.1 million of transaction expenses and $0.3 million of amortization of acquired intangible all associated with RiveraWaves acquisition.

Our total OpEx for the third quarter excluding these items were $10.2 million reflecting the lower end of our guidance. Other income included a onetime capital loss of approximately $0.4 million due to the sale of our minority equity investment in Encore the Greek Wi-Fi company.

It also included some evaluation of our euro cash balances from the RiveraWaves as the U.S. dollar strengthened as compared to the Euro in the third quarter. U.S. graph net income for the quarter was $0.7 million and fully diluted net income per share was $0.3.

This compares to a net loss of $0.3 million and a diluted loss per share of $0.01 in the third quarter of 2013. Non-GAAP net income was $2.4 million and fully diluted net income per share was $0.12 as compared to the prior year in which we recorded $1.3 million of net income and $0.06 on a fully diluted basis.

These figures exclude approximately $1 million and $1.6 million of equity based compensation expenses, net of tax for the third quarter of 2014 and 2013 respectively.

The non-GAAP results for the third quarter also exclude the impact of amortization expenses, the loss of the equity investment in Encore, transaction cost and related taxes associated with RiveraWaves acquisition. Financial income for the quarter was low due to the negative effect on the Euro cash balance amount from RiveraWaves. Other related data.

Shipped units by CEVA licensees during the second quarter of 2014 were $216 million up 9% and 7% sequentially and on year-over-year basis.

Of the 260 million units shipped 195 million units or approximately 90% were for baseband ships, reflecting a sequential increase of 4% from 186 million units of baseband shipped and 12% higher from 174 million shipped units a year ago.

This would be the first positive growth in baseband units on a year-over-year basis that we recorded in over a year. As of September 30, 29 licensees were shipping products incorporating our technology, three higher than the prior quarter, two in connectivity and one in DSP for the automotive industry.

And for the balance sheet items, as of end of September CEVA's cash balances, cash equivalent, marketable securities and bank deposits were approximately $128 million. In the third quarter we paid approximately $12 million net of cash received to acquire RiveraWaves.

In addition, we have further pending payments of approximately $7 million in connection with the acquisition. Our DSOs for the third quarter were 54 days compared to 50 days in the prior quarter.

With regards for our share repurchase program, during the third quarter we purchased approximately 300,000 shares at an average price of $14.7 per share and a total configuration of approximately $4.4 million.

First inspection of our July 2014 purchase plan, we successfully purchased two million shares of our common stock at an aggregate consideration of approximately $31 million. Our Board of Directors approved a new repurchase plan of an addition one million shares. Now for the guidance.

As Gideon elaborated there are indicators of a strong licensing environment and good demand for our IOPs. Moreover, our entire product line is well positioned to leverage opportunities in the IOP space.

I would like to reiterate that this licensing demand has resulted in raising our traditional licensing revenue guidance from a $5 million to $6 million range to a $6 million to $7.5 million range per quarter.

As for Q4, resulting from deal already signed earlier in the quarter and our visibility of the current pipeline we expect the top of the midpoint of our new licensing revenue range. On royalties we see a general uptrend a combination of seasonal and market expansion factors.

We are therefore forecasting up to 15% sequential increase in royalty revenue. This will be the second quarter in a row of sequential increases in royalty revenue.

This further affirmed our all year commentary that we expect a gradual recovery of handset shipments of our customers in the second half of this year due to favorable fundamental of FE and low cost smartphones.

This progressive development is particularly noteworthy and it counter balances the strong unexpected headwind from Broadcom's decision to exit the space and from Intel to exit the high volume low cost feature phone space. All in all, we forecast 2014 to be a growth year for CEVA.

Overall revenue deemed to outstanding license in execution, which will more than offset the royalty revenue weakness mainly in the first half of the year. As for the expenses associated with RivieraWaves acquisition, they are expected to be approximately $1.2 million net of French R&D credits for the fourth quarter.

In addition we showed record expenses for RivieraWaves employee retention scheme of approximately $0.7 million. In 2015, that number will decrease to approximately $0.5 million and later to $0.4 million per quarter. These expenses are in line with what we had stated in the past. Our guidance for the fourth quarter.

Revenue for the fourth quarter is expected to be in the range of $12.8 million to $14.8 million. Gross margin is expected to be approximately 9% on GAAP basis and 91% on non-GAAP basis excluding equity-based compensation expenses. U.S. GAAP operating expenses are expected to be in the range of $11.6 million to $12.6 million.

Our anticipated total OpEx for the fourth quarter $1.1 million is attributed to equity based compensation expenses and $0.3 million to amortization of acquired intangibles. Our non-GAAP OpEx is expected to be in the range of $10.2 million to $11.2 million.

Net interest income is expected to remain lower and anticipated to be approximately $355 million due to lower cash balances and yields. Tax rate is expected to be approximately 17% for GAAP and non-GAAP basis. Share count for the fourth quarter is expected to be in the range of 20.5 million to 20.7 million shares.

U.S GAAP fully diluted earnings per share is expected to be in the range of $0.00 to $0.02 per share and non-GAAP EPS forecasted excluding aggregate based compensation expense and amortization expenses is expected to be in the range of $0.06 to $0.08 per share. Operator, you could now open the Q&A session please..

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Joseph Wolf of Barclays. Please go ahead..

Thanks. Good morning, guys. So I guess if you look at the royalty business versus the licensing business, how long do we think this maintains, meaning you talked about a pretty long lifecycle until the licensing starts to convert into revenue, but you are starting to see it now.

Do you have approximately pull-through rates and when can we see that being like 15% of revenue? Could that be as early as 2015? And then I guess related to that at the peak of 2G cycle, the royalty was about 60% and the licensing was about 40%.

Is that still the model as you kind of get into this or is it -- is IOT in the next phase of growth big enough, but that’s not the expectation in terms of mix?.

No Joseph. Let me start -- first of all as we said in the prepared remarks, I would say next two or three years we are going to rely on mainly on royalties from LTE, and 3G low cost. And we can elaborate on how we see and the guidance that we said only the share of these fundamentals are intact.

Now with regard to the non-basement and we were very specifically saying that we expect about 700 million to 900 million units in 2018 coming from the new product. Let me explain how this royalty trend is going to shape up.

Basically there are three main differences between the non-baseband market or IOP segment that we are relying and what we are used in the Smartphone.

First of all its is a very segmented market meaning that you have I would say, mainly close to more than 100 in the range of 100 companies that are able to ship in the order of between 10 million to 30 million units a year. So we are going to collect them. Some of them we've already collected.

At least we believe that what we have today is the design that we did in the last 18 months between 35% to 40% of these 600 billion -- or 700 million to 900 million units will come from the existing, the one that we already signed in. So that’s one thing -- its fragmented market you have to accumulate this thing.

The other element is with regard to connectivity.

Connectivity is [not just the main that we have] (ph) just recently and we started to collect just last quarter those licensing is growing well and the third element relates to the vision, mainly to the vision and the infrastructure here because of certification or primitive market takes a long cycle to build.

So on the whole, we are going to see contribution from the project that are going to be released along the way, but if you ask us, we expect that 2018 all these guys will be in '16 heads and will get to this level. I forgot what they are referring to more of a gradual step function.

New customers will be two years new customers from now will take two years and then we will see the full benefit in 2018. Existing customer we are starting now and on top of all that, you have the recovering baseband cycle that is already showing its positive inputs both in Q3 and Q4.

So I have clearly say to one stop shop in 2018, but the gradual increase from different aspect some assuming some will be happening and some will happen as we sign them up and they come up with the chip..

Alright that’s helpful. On the cash balance on your share buybacks right now, this cash balance is still relatively high, but it's lower than it's been.

What absolute level of cash are you guys comfortable with and right now as you like at the new buyback, are you looking at your cash balance or the price of the shares as you decide to repurchase stock?.

Yeah. Right now we are about 128, we still have some pending payments. So I would say that after we conclude and let's not alleviate the sort of 120-ish.

It's still a bit high for this first five company that we are mainly not in 2018 may be, but with that said, we are still looking for other opportunities likely we have done very successfully, I would say with RivieraWaves very close enough in new market. They are relatively small piece of our cash which could take about 120 below the 100-ish.

So partly used by buyback if you find another idea or solution, which could add external growth like RivieraWaves is having from day one with six deals signed just in the last six -- in the last quarter coming from that product line and buyback will take us well below 100, which I think we will be very comfortable with..

Perfect. And just last housekeeping dollar, are you guys -- did you do hedging or starting to help you..

That's what is starting to help us next year. Yes, indeed that looks helpful and we are starting to hedge more 2015 with a very positive effect on the local expenses..

Perfect, thanks guys..

Thank you..

The next question comes from Gary Mobley from Benchmark. Please go ahead..

Hi guys..

Good morning..

You know your royalty revenue it is nice to see it is finally picking up for a couple consecutive quarters. But seemingly there is now a whole lot of positive data points as it relates to your licensees as you mentioned, as we all know Broadcom is getting out of the baseband business. Intel has made the decision to get out of 3G basebands.

And could you give us a sense of what's really driving the royalty revenue right now, it is all Spreadtrum, is it Samsung 4G, is it Intel 4G?.

Yes, first of all you mentioned Broadcom and Intel, you know this market is a few of some gains, you know that Broadcom exiting the market somebody else will take it and specifically Broadcom they are in the 2G wideband CDMA, broadband Intel will pick it and they are picking it all and the same goes for the feature phone.

We still see a sizable volume in feature phone basically what is Intel/Nokia is leaving somebody else is picking it up. So this does not, there is no gains that are getting low mainly toward, let's say others. Now the market for now has different segments of growth.

The first one is LTE, we are consistently growing LTE both in Q2 and now in Q3 which we are guiding there is a growth in LTE. The other area that we are growing in the market is not much actually the market is growing is the 3G wideband CDMA. This is the first time new growth we are seeing significant volumes coming out of this thing.

The other two things are basically guidance on growing more share one is the seasonal trend in our look at the consumer, there is you know high season for Christmas volumes are going up and it will behave like season.

The other things is the feature phone that has volume and if you know Gary there is five billion feature phones install base of feature phones today and the install base of smartphone is about 1.8 billion. These five billion units whether it is going to be translated to smartphone in the three or two years we don’t know.

But it eventually will be translated when maybe the prices will go down, even then hopefully and I think even globally we will win this as highlighted..

Okay, I think Yaniv you mentioned that RiveraWaves concluded about six license deals in the quarter. I am assuming that translates into somewhere between $2 million and $3 million maybe closer to $2 million looking at your license revenue from the acquisition, which maybe at the higher end of the company's historical quarterly range.

And I'm just wondering how much of that particular sales bundle was enhanced by broader CEVA's sales force, I think there are only sales people of RiveraWaves if I'm not mistaken? And how much longer can that sort of sales synergy honeymoon effect continue?.

Yeah, you know, Gary let me you know, dig deeper there seems to be first of all in the DSP side there were two multiyear agreements. And then the majority of the contribution there was also a mobile surveillance vision type of the majority of the contribution came from DSP in terms of revenues, license revenues.

Now in the connectivity this is a bit different in the big picture that we've been DSP the extent in the single year in some cases there are also some customers also want to be made, but it's basically a single layer that lower ISP then DSP, lower license revenues than the DSP..

Okay..

Gary hi. And to that one more color we are not sure those are the right number.

We think it's smaller, again and we didn’t, we said we not opening it up because we are one important unit at the end of the day, but if you look at the deferred revenues in the balances you'll be, it will be significant increase to north of $2 million from traditional few hundred 600,000 or 700,000 that is, it is a little to go away to not do that will shine we will recognize and we will recognize it all the time based on the year of the GAAP rules.

So that's something that with a bigger backlog maybe than we usually and to a quarter into, but you could see it in the deferred not necessarily in the top line yet..

Okay.

All right, you mentioned that I think you had 7 first time licensees and you also mentioned that you had one baseband licensee, was that baseband licensee a first time licensee?.

No it's a different one..

Okay. All right, that's it from me, thanks guys..

Thank you..

The next question is from Matt Robison from Wunderlich Securities. Please go ahead..

Hey thanks.

So I guess just a follow on, on Gary's questions and so should we, and we've seen some pretty dramatic increase in China Mobile LTE subscribers reported, are you starting to see that or is that kind of what we're looking for is Spreadtrum and Leadcore has started to shift in that market, did benefit from that momentum? And I guess, help me, help us understand a little bit like in a little bit more detail on this 15% royalty increase, you know you mentioned Samsung LTE, you mentioned some contribution from Intel.

It feels like it is still mostly Spreadtrum that's really driving the growth there, is that the way to look at it? And I have a couple of other questions..

So I wouldn’t go to name source customers because they are few, but I just need to relate what you need say guidance remark. It's basically a combination of seasonal and market expansion. In terms of seasonal Q3 in general is high season when it comes to even to smartphone and of course in consumer products.

You know there is a pricing point on the smartphone basis.

If you break it down to the segments in the market, you know seeing LTE up in China, but China Mobile from our perspective which is the low end of the LTE market that is still the 3G inventory that they are trying to clean up before they go to the LTE low tier one and then return to China Mobile.

The other end we are seeing growth in the LTE in developed countries and I think we ordered a non China Galaxy, ultra Galaxy note all those selective models are coming both with chips of Intel and chips of Samsung for example.

The other growth engine which I believe will take us, will contribute to us a lot is 3G wideband CDMA going to emerging market these are all those feature phones that I also mentioned to Gary this huge amount of install base of feature phones were going into the, sooner or later well go to smartphone, this will be wideband CDMA 3G smartphones.

And we have a bunch of customers in this product single chips a couple of these strategy mentioned a few are great display they are going to place partnership between Spreadtrum opportunity and this will address this space.

And then the last one is the feature phone, what Nokia, basically Nokia will gradually see this is being picked by some new OEMs and we are seeing volume up there, but it is more likely due to market share, where markets regain then you know growing in the market and the growth will be 2G.

So these are the combinations, seasonal and market expansion..

Other than that I want to also add to what Gideon just explained and to give a little bit color which was up earlier, you know it is not necessarily one customer because if you look at some of the market share in the feature phone, the 2G they had started before the changes in the big changes in the market and Broadcom and Intel we have 60, 60 season up to 70.

That number continues to increase. Maybe after a quarter or two of the hiccup because the industry has to digest these changes we are today at 75% worldwide market share in that segment.

So adding that to what Gideon explained, it doesn’t necessarily mean that change what customers drive that, but volume of that is either be a 75% of it is growth in base and that's the core volume it includes have a replacement cycle with better ASPs for us..

So it sounds like on the China Mobile front and you've actually may got a little bit of a stocking delay around TD-SCDMA getting replaced at the low end by TD-LTE that might help you in the future, but it is not helping you too much now and so it's more outside of China that you seen for this sequential growth in royalties?.

Exactly, yeah right now in the LTE segment it is outside of China..

So I want to ask you Yaniv does the Chief Scientist brand come in, in the third quarter or is it fourth quarter?.

The third quarter and I think we say that ahead of time as well between still the OpEx to be at the lower because of that and we hit the low end of our guidance on a non-GAAP basis..

Yeah that’s right, just confirming that, and it sort of explains the OpEx guidance for the fourth quarter I believe.

And can you roll housekeeping item for operating cash flow and CapEx depreciation and then what was the calls for the write-down on Antcor?.

We feel that, that's a simple one, the depreciation was about $200,000, cap rate was about $600,000 and bear in mind the price now on a GAAP basis you also have the motivation expenses of about $300,000 from the year. Antcor is a privately Greek company in the WiFi space. They were acquired last quarter by a Swiss public company called u-blox.

We had a minority stake, we got our plant there. Essentially they spent for the next five years you may see some windfall from that, but due to the accounting rule we took $400,000 loss today and wrote off completely by the investment.

Maybe we could get something back over the next couple of years, but that is the one-time event that gets us out, the decrease is to zero our holding about them end our start up..

And the operating cash flow?.

Operating cash flow was about $4.8 million..

Our next question is from Suji De Silva from Topeka. Please go ahead..

Good morning guys, nice job on the quarter.

First question in terms of the royalties for 3Q and the guidance for 4Q, is there any remaining Intel, Nokia headwind and did you get any benefit from Broadcom's last time buy with Samsung?.

Is there any headwind in the Intel, probably a little bit.

What about Broadcom, I didn’t get your question?.

Oh, I think Broadcom with the closing the business had some last time sales into Samsung.

I'm wondering if you got unit benefit from that in the third or fourth quarter?.

Oh I think we got yes, they gave them relatively different quarter in licensing, but it is not a game changer. And their royalty is low cost by now grown and we mentioned exiting the market so that's not a big, should not be a big factor going forward. .

Okay great.

And then you know with the work you did with Intel and Spreadtrum, in terms of trying, those guys are trying to compete with Qualcomm and MediaTek, maybe you can talk about the dynamic there and maybe how they are targeting competing to take share? And can you update us on your relationship with MediaTek at this point?.

Yeah, so first of all the investment that Intel made which [is the one with] (ph) Spreadtrum. This is not a investment of a company in a company.

It is something in line of the China government made to ambitious, to significantly transfer the semiconductor industry know that they are importing semiconductor more at the higher data terms than the petrol.

And that’s make them you know a bit crazy about it, but so that’s a big investor and they can be so clear throughout when we come to know how this shakes out but it looks like it will strengthen Spreadtrum with supply may be foundry, technology and we are on stage and they are ambitious of the China government is to build around Spreadtrum an entity that would be with complete MediaTek and Qualcomm this is their ambition, that’s what they want to achieve.

And I think Intel also strongly that is to team up with them it will be for the benefit of them. You know we are exclusively in both companies, so we should take benefit if it. .

Okay, my last question is on Samsung and LTE.

Right now I think it’s shipping in Korea, is that something that they can expand to other geographies or what are the hurdles for doing that?.

There are expanded to Europe, that’s what they said and they're going to focus their technologies on the mid low end which for us is good news because it is volume play and if we think the royalty report. There is a progress on this..

Great, thanks guys..

The next one..

The next question is from Anil Doradla from William Blair please, go ahead..

Hi, guys. Yeah this is John on for Anil, thanks for taking my questions.

First one I had was, if you guys could just provide your market share the baseband market this quarter?.

Yes it’s a 35% on a worldwide basis..

35%?.

Its back to the more normal, we are at normal levels that you're at a while back..

Okay, and then my question was on the royalty side, obviously expecting another strong quarter in Q4 as we look out to 2015 should we kind of expect this traction to continue and may be any additional color on the expectation for non-basebands contribution?.

So we'll probably give much more detailed guidance or at least more color on visibility next quarter when we talk about 2015 is a little bit, it’s pretty matured, but basically the inputs that we're seeing in the information we’re receiving from our customers, especially in Q3 and Q4 we believe that 2015 should be a great year, not to the same extent when we talked about 2018 indeed it could even more than double our royalties just from the add-on in the new markets and we will expand the volume opportunity in the new segment, not the baseband.

But putting that aside to a much lower content for 2015 it should be a growth year to what expect, what expands we will try to give more color as we go along and not today.

Second part of your question was?.

Just maybe any color on the kind of expectations for a non-basebands contribution?.

So, first on the non-baseband was pretty low in this quarter and as we mentioned first yearly inputs from a shift in the market was with Intel and the same. So that’s very encouraging.

Remember also that we mentioned as part of today we monitor your revenues customers one DSP-1 in the automotive industry, shipping products that's brand new, original in Q3.

Again, that all these and Gideon explained these are not on a standalone basis a game changer, but if we have the enough of the sales, revenue customers each contributing his own piece.

To as far as going down, then of course the non-baseband should be much more positive in growth in 2015 compared to this year, which somewhere in the 80 million unit count on an annual basis currently..

Great, thanks guys congrats on the results.

Thank you..

And next question is from Jay Srivatsa from Chardan Capital Markets. Please go ahead..

Yeah, thanks for taking my question. Gideon back to the Shinhwa Group comment, there is some speculation that Intel investment in Shinhwa Group would have may be potentially some foundry agreements and may be down the road try to get Spreadtrum to go with an Intel architecture versus the ARM architecture they currently have.

Are you concerned that any design changes could potentially, you know compromise your position at these companies or do you believe that is not something that would be considered?.

The fact that there will be a nice [chips] (ph) public they say that they are going to have it second half of next year. From our standpoint we are agnostic, I mean it’s our model it's a block that either goes with this superior architecture or other superior architecture, I mean for us we are indifferent.

So I mean, the most important one is that they reconstruct social and stronger.

They are ambitious as I said, they are ambitious that the China government and behind that if you make an entity and compete with Qualcomm and Mediatek and we are getting there because Spreadtrum has strong competency and as the market goes to the low end and become commoditized there’s the [play] (ph)..

Alright and then in terms of your prepared comments about IOT devices getting to a pretty high number by 2018, in order to get there do you believe you have all the components and IP in-house already or do you believe you would have to acquire that some of that IP through potentially some acquisitions down the road?.

Well, that’s a good question. First of all we have the IP based on what we, I outlined already three components that you have you know mainly the process quality.

And [indiscernible] in some products which we are dealing with the Intelligence out of the center and the connectivity, we have the components, we have the technology and I think more important one we have the recognition in the market. We are leader in the Wi-Fi, we are leader in the Bluetooth, we are a leader in Vision and we are leader in IP.

I mean it always kind of categories that I mentioned we are clearly ambitious. And if you ask me, and I also say that out of their volumes from 700 to 900 million became 35% to 40% only we are expecting the scenario will come from customers that we have will be fine. So we need to help them to get to the market and be successful.

The last thing is, we need to get all those small medium size type, I would not say small but medium sized company 10 million to 30 million units a year and plus few big names that we have listed or put in our foundry from the mobile that is a short range for connectivity and vision type of technology in the smartphones space and we will bring it.

So there will be a combination of big names and legal names and it looks good now..

Okay, thank you..

Thank you, Jay. .

Next we have a follow up from Gary Mobley with Benchmark, please go ahead..

Gary Mobley – Benchmark:.

Gary?.

I apologize guys. My follow-up question has to do with trends in our backs is it looking to 2015 the midpoint of the year fourth quarter, non-GAAP OpEx is $10.7 million.

Considering the retention, compensation for RivieraWave the R&D grants and everything else, how would you expect the Q1 and even Q2 OpEx to trend off for that $10.7 million non-GAAP OpEx number?.

Then I will really say again we will do, go in [Mexico] (ph) when we have to, we internally do our planning and forecasting and budgeting for next year that has not been done and completed yet.

So that the guidance for Q2-4 is pretty much in line with season, Q1 and Q2, if you take the average of the $9 million in $8.6 million pre Rivera and add the $1.2 million which is ongoing expense and a pension scheme of 700 this is exactly how we get to $10.7 million, no surprises there.

So overall, that's basically to start off so throughout the year other than having that component is not much difference. As I mentioned the retention is going down away from $700 million to $0.5 million, but that's relatively small right now to talk about the budget that in.

So right now we have been much in this quarter that is it's going to have and that's in line with what we've performed in the past and seems we've that for now..

Okay. All right. Thanks guys..

Sure. Thank you..

This concludes our question and answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks..

Thank you all for joining us today and your continued interest and support of CEVA. We will be attending the following conferences during the fourth quarter and I invite you to join us there. December 9, in San Francisco we will attend the Barclays Global Technology Conference and on December 11 in Chicago is Benchmark Micro Cap Discovery Conference.

Thank you and good bye..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..