Ceva Inc. (CEVA), Mid/Small Cap AI Study of the Week

August 15, 2024

Weekly AI Study from the S&P 400 or S&P 600

Company Overview

Ceva Inc., headquartered in Rockville, Maryland, provides innovative silicon and software IP solutions for smart edge products, facilitating efficient data connectivity, sensing, and inference. Their extensive product portfolio includes communications and scalable Edge AI IP, which power advanced smart edge devices in consumer IoT, mobile, automotive, and other sectors. Over 17 billion devices globally utilize CEVA's technology. The company collaborates with more than 400 semiconductor and OEM companies to offer IP that aids in the development of ASICs and ASSPs. CEVA's recent growth areas encompass short-range wireless IPs such as Wi-Fi and Bluetooth, cellular IoT IPs, 5G technologies, sensor fusion AI DSPs, and NPUs for complex AI computations.

CEVA generates revenue through a comprehensive licensing model that includes IP licensing fees, royalties from deployed products, and related support services. The company operates in high-growth markets such as consumer, automotive, industrial, infrastructure, mobile, and PC by offering silicon and software IP for smart edge devices. Their business model focuses on licensing technologies globally to semiconductor and OEM companies, emphasizing research and development over manufacturing. Key products include IPs for 5G, computer vision, sound, AI, Wi-Fi, Bluetooth, UWB, and cellular-IoT solutions, which are vital for wireless communications, sensing, and Edge AI technologies. CEVA aims to expand its product features and customer base, particularly in DSP/AI processing platforms, short-range wireless IPs, and 5G markets.

Strategic initiatives include developing advanced software for wireless and AI products, enhancing AI accelerators and graph compiler technologies for smart edge SoCs, and investing in strategic technologies to enter new markets. CEVA licenses its AI DSPs, NPUs, and wireless connectivity IPs to leading semiconductor and OEM companies globally, with significant revenue from international customers, especially in Europe, the Middle East, and Asia Pacific, including a substantial share from China. The company employs a direct sales force and marketing efforts, such as trade shows and digital marketing, to promote its technology. CEVA's technical support services assist licensees with implementation, training, and product updates, helping to shorten time-to-market for applications. Research and development are core to CEVA's operations, focusing on new product creation and enhancement to meet market needs, despite facing intense competition from major players in the signal processing and AI processor markets.

CEVA relies on patents, trademarks, trade secrets, and copyright laws to protect its intellectual property, holding 157 patents globally with several applications pending. The company is prepared for potential litigation to enforce or defend its IP rights, including indemnification of licensees, which could incur significant expenses. CEVA also emphasizes a robust Human Capital Resources plan focusing on sustainability, employee well-being, diversity, and compliance with ethical and environmental policies.

By the Numbers

Certainly, here's a numerical assessment of the key figures and changes from the reports:

Annual 10-K Report Summary for Fiscal Year 2023:

• Total revenue: $97.4 million (19% decline compared to 2022)
• Licensing and related revenues: $57.6 million (23% year-over-year decrease)
• Royalty revenues: $39.9 million (12% annual decline)
• Royalty growth in Bluetooth, Wi-Fi, and cellular IoT: 5%
• Total unit shipments: 1.6 billion (down from 1.7 billion in 2022)
• Cellular IoT and Audio AI DSP shipments growth: 64% and 56%, respectively
• Revenue concentration: Two customers account for 45% of royalty revenues in 2023
• Revenue growth projection for 2023: 4% to 8%
• Anticipated revenue decline in Q1 2024: 2% to 6% compared to Q4 2023

Quarterly 10-Q Report Summary for Q2 2024:

• Total revenues for Q2 2024: Increased by 24% year-over-year
• Licensing and related revenues for Q2 2024: Up by 28%
• Chipset sales for Q2 2024: 461 million chipsets (24% increase from Q2 2023)
• Royalty revenues concentration for Q2 2024: Top five customers accounted for 63%
• Gross margin for Q2 2024: Improved to 90% (up from 85% in Q2 2023)
• Operating expenses for Q2 2024: Slight increase due to lower research grants and higher sales and marketing expenses
• Income tax expenses for Q2 2024: $1.6 million (up from $0.5 million in Q2 2023)
• Liquidity as of June 30, 2024: $158.4 million (down from $166.5 million at the end of 2023)
• Cash used in operating activities for H1 2024: $9.9 million
• Net cash provided by investing activities for H1 2024: $8.2 million (down from $14.4 million in H1 2023)
• Net cash outflow from financing activities for H1 2024: $1.7 million (compared to a net inflow of $1.7 million in H1 2023)
• Share repurchase in H1 2024: 157,303 shares at an average of $20.83 per share

These figures highlight the company's financial performance, growth areas, and potential risks such as revenue concentration and market volatility. The reports also indicate CEVA's strategic positioning in high-growth markets and its operational resilience despite macroeconomic challenges.