DSP IP addressing modem for the mobile phone market is still the flagship product and CEVA enjoys design-win at major semiconductor account (one of them being vertical and also selling the smartphone), but the acquisition of Riviera Waves in 2014 has been a strong sign of diversification. CEVA’ port-folio includes signal processing and IP supporting wireless interconnects standards like WiFi and Bluetooth or BLE. If you define a generic architecture supporting IoT, you need processing, short range wireless and sensors.
Historically, CEVA has developed a family of DSP IP cores to support modem for mobile phone application. In the early 2000’s, the top cell phone OEM, Nokia, Ericsson or Motorola were using TI baseband solution, including TI DSP core. But TI DSP was not licensable as an IP which could be used with another ASIC supplier. OEM had to buy the complete solution, branded OMAP later on, to benefit from TI DSP. TI strategy appeared to be great opportunity for CEVA and the company has started to penetrate the mobile phone market with TEAK and TEAK-Lite DSP IP cores.
If we explicit CEVA business model, we better understand the company dynamic. Because CEVA DSP is unique, like can be a processor core (but not a protocol related function like USB or PCI Express controller) the company can define a business model based on up-front license fee plus royalty, usually a small percentage of the chip ASP. Such a model provides several benefits when compared with up-front license fee only. Royalties linked revenues may come several years after the IP design-win. On a long period, the company revenue flow can be smoothed, the royalties being paid by quarter all along the chip production life time. Investors tend to prefer IP vendors who can define a business model based on royalties + up-front license fee to IP vendors using up-front license fee only…
If we consider CEVA, the design-win made during the 2000 decade have generated a revenue flow strong enough to heavily invest into R&D. The company has developed a family of various DSP core, each of them tailored for a specific market segment: CEVA-XC core for baseband, CEVA TeakLite-4 to address Audio/Voice/Sensing and CEVA XM4 and MM-3101 to support Imaging and Vision applications.
CEVA has enjoyed modem design-win at major semiconductor account (including vertical OEM building chips and selling smartphone), even if the company doesn’t disclose royalty revenue by market segment, our guess is that mobile communication generates the higher share. But CEVA is rapidly diversifying; the acquisition of Riviera Waves in 2014 has been a strong sign of this diversification. CEVA’ port-folio includes the various DSP IP families above listed and specific wireless IP supporting interconnects standards like WiFi and Bluetooth, including BLE.
If you define a generic IoT architecture, you need processing, short range wireless and sensors. CEVA has no sensor IP, but the signal directly coming from the sensor, once digitalized, is sent to a DSP. Moreover, if you want to use a low cost sensor, you will need strong and efficient signal processing (coming from CEVA DSP core) to clean and process the sensor output: the better the DSP, the better the result. Once the data has been processed, the system sends the information to an upper level (network, smartphone, base station, etc…) by the means of short range wireless communication like WiFi or Bluetooth Low Energy (BLE), both IPs available on CEVA port-folio.
To develop effective solutions for emerging application and support customers far before generating revenue require R&D resource and funding. Here we come back to the royalty based business model. Just take a look at CEVA revenue for the third quarter of 2015 of $16.2 million. Licensing and related revenue for the third quarter of 2015 was $8.6 million and royalty revenue was $7.6 million, an increase of 42% compared to $5.4 million reported for the third quarter of 2014. We can guess that a significant part of this royalty revenue can be assigned to new project development.
We find an interesting indication in the third quarter of 2015 earnings announcement. CEVA concluded eight new license agreements: three of the agreements were for CEVA DSP cores, platforms and software, and five were for CEVA connectivity IPs. Riviera Waves acquisition is about one year old but more than 50% of the new licenses are coming from connectivity IP. In fact CEVA is not only preparing the future through R&D, the company is already addressing emerging applications built around varieties of connected devices.
Is CEVA healthy IP vendor? In 3Q 2015 CEVA has registered all time high revenue of $16.2 million up 15% year-over-year and royalty revenue of $7.6 million, up 42% year-over-year. We think the real question should be: will CEVA be healthy in 2020?
Thanks to royalty-based business model, CEVA has the opportunity to invest into acquisition (Riviera Waves) and R&D efforts to address emerging applications. This strategy is already successful as CEVA is enjoying this quarter more new licenses with connectivity IP than with DSP IP cores, although Riviera Waves acquisition is about one year old (September 4[SUP]th[/SUP], 2014). If the ultimate question is about CEVA success in 2020, yes we think that the IP vendor should be successful at that date, with a revenue mix made of royalties linked with DSP IP supporting LTE and with license fees generated by interconnect and DSP IP for emerging connected applications.