I have recently blogged about CEVA acquisition of Riviera Waves, a very positive move to consolidate CEVA leading position of connectivity IP vendor (Bluetooth and WiFi). We know CEVA for years as being the leading supplier of DSP IP cores for the wireless phone market and it look like that we will have to rethink this definition, as the company is currently redefining their addressable market. CEVA still supplies DSP IP cores to support 3G, 4G and now LTE BaseBand, to customer like Intel or Samsung to name a few, enjoying a solid royalty flow. But, if you take a look at the product port-folio and related target applications today and compare it to what it was for example in 2011, you can assess the strong repositioning effort made by the company.
Before looking into the new applications targeted by CEVA, I thought it could be wise to compare the financial results for the second quarter in 2011 and 2014. The license and royalty revenues are very similar for these two quarters and we can’t expect any seasonally effect. Thus you may be critical and remark that the company revenue is flat. If you think further, you then realize that CEVA revenue in 2011 was coming in majority from the wireless phone market. Remember, in 2011 we could see Apple just starting to grow the smartphone business, media tablet was still in the infant stage, the top 5 Application Processor makers list was: Freescale, Marvell, NVIDIA, Qualcomm, and TI.Moreover, the smartphone shipment was 302 million units (in 2010) and the analyst projections in 2011, as you can see below, have appeared to be completely wrong! On top of this, or because of this erratic market, CEVA customer base has completely changed, seeing well established chip makers exiting the market (TI, Broadcom, Marvell, Nvidia and more) and new comers from China coming up to speed and shipping full featured application processors. Staying alive on such a market is certainly a challenge!
Of the eight new license agreements concluded during the second quarter of 2011, seven agreements were for CEVA DSP cores, platforms and software, and one agreement was for CEVA SATA/SAS product lines. Target applications for customer deployment are 4G and 3G baseband processors for handsets, infrastructure, smart grid, portable game consoles and SSD drives. Geographically, four of the agreements signed were in the U.S. and four were in Asia.
During the second quarter of 2014, the Company concluded 11 new license agreements. Six of the agreements were for CEVA DSP cores and platforms, three for Bluetooth and two for SATA. Target applications include LTE-Advanced baseband, audio, connectivity and SSD drives. Geographically, nine of the agreements signed were in the APAC, including Japan, and two were in the U.S.
If we analyze the market data from CEVA with these two extracts, we can first notice that CEVA customer base has definitely move to East (50% in 2011 compared with more than 80% in 2014), which is a good sign that CEVA is moving with the market. Then, analyzing the product mix, CEVA has signed 8 new licenses in 2Q-2011, compared with 11 in 2Q-2014. But, in 2011, 7 were for DSP and 1 for SATA, when in 2014 the difference comes from the 3 licenses signed for Bluetooth. Here comes the positive point, illustrating that CEVA is on track for future growth. The company did not give up with DSP IP products addressing the wireless market, and we can guess that most of the royalty flow is still coming from this market, but CEVA has successively added or rework existing DSP products, to address, Audio (ASSP and always-on audio for Android) application, imaging (MM3000 family) and wireless connectivity.
Wireless connectivity is certainly the most promising product line developed by CEVA, and through the Riviera Waves acquisition. Why? Simply think about all the future stand-alone devices populating the IoT and Digital Home applications. What is the common feature, whatever the application? This stand-alone device will have to be connected! If you don’t want your (digital) home to look like to the backstage of a rock concert, preferably wirelessly connected. If you agree that 3G or LTE is overwhelming for a thermostat or the like, then WiFi or Bluetooth are better candidates.
From the analyst call hold by CEVA on July 31[SUP]st[/SUP], we learn that CEVA foresee 400 million devices to be shipped by 2018, and generating royalties thanks to the Riviera Waves acquisition. Such a number looks reasonable, when compared with analyst forecast showing 30 Billion connected devices. The important point is that CEVA is completely reworking the product port-folio, and the company will not anymore be forced to rely on a single market segment –namely the rather erratic and difficult to forecast wireless phone- to sustain growth and build the future.