Earnings Call Transcript - CEVA Q4 2020

Operator, Operator

Good day, and welcome to the CEVA, Inc. Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor and Public Relations. Please go ahead.

Richard Kingston, Vice President of Market Intelligence

Thank you, Cole. Good morning, everyone, and welcome to CEVA's fourth quarter and full year 2020 earnings conference call. I'm joined today by Gideon Wertheizer, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the fourth quarter and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter and also provide qualitative data for the first quarter and the full year 2021. I'll start with the forward-looking statements. Please note that today's discussion 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 guidance and qualitative data for the first quarter and full year 2021; optimism about 5G base station RAN deployment in China, relationship with ZTE and the opportunities presented thereby; optimism about the continued momentum in our connectivity sensing and AI technologies, ramp up from existing Wi-Fi 4 and 5 customers, optimism that our Bluetooth technologies will allow us to penetrate the high volume smartphone market, our belief for strong licensing revenue in 2021 and potential new licensing engagements and our belief that our royalty growth drivers will more than offset the decline in royalties from the 5G smartphone supplier switch. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the scope and duration of the pandemic; the extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand and the global economy generally; the ability of CEVA's IPs for smarter, connected devices to continue to be strong growth drivers for us; our success in penetrating new markets and maintaining our market position in existing markets; the ability of new products incorporating our technologies to achieve market acceptance; the speed and extent of the expansion of the 5G and IoT markets; our ability to execute more non-handset baseband license agreements; the effect of intense industry competition and consolidation; and global chip market trends. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that said, I would now like to hand the call over to Gideon.

Gideon Wertheizer, CEO

Thank you, Richard. Good morning, everyone and thank you for joining us today. 2020 was an extraordinary year with the COVID-19 pandemic accelerating the adoptions of new technologies and usage models, while presenting uncertainties and enormous operational challenges worldwide. Notwithstanding the circumstances, CEVA had an exceptional year, with all-time high revenues in both licensing and royalties, and substantial market expansion in the 5G RAN, Wi-Fi 6 and automotive spaces. I will elaborate on these developments in more detail later in the call. The fourth quarter was another excellent quarter with revenue and EPS significantly ahead of our expectations. Total revenue for the fourth quarter of 2020 came in at $28.1 million, our second highest quarterly revenue on record. The licensing environment continued to be healthy, at $12.1 million for the quarter, with good demand for our Wi-Fi, Bluetooth and audio DSP products. We signed a record-equaling twenty-one new agreements, of which sixteen were for connectivity and five were for smart sensing. Seven of those agreements were with first-time customers. Target products for our technologies include 5G smartphones, TWS earbuds, cellular IoT for asset tracking, and a wide variety of other IoT devices. Late in the quarter, we signed a comprehensive and sizable license agreement for our connectivity portfolio with a key OEM in the mobile space that is internalizing the developments of Wi-Fi and Bluetooth technologies and intends to deploy our connectivity portfolio across all of its 5G smartphones, TWS earbuds, and other smartphone-related products. This agreement, along with others that we have in our pipeline, reinforces our belief for a stronger and record year in licensing revenue for 2021. Royalty revenue came in at an all-time record high of $16.1 million, up 19% year-over-year. Seasonal strength across our IoT market and strong shipments of 4G smartphones were the key drivers for this exciting record. For the second quarter in succession, we reported all-time high royalty revenue from our Bluetooth, Wi-Fi and sensor fusion products. For the full year 2020, revenue came in at a record-setting $100.3 million, up 15% from 2019. This marks the first time that CEVA has crossed the $100 million annual revenue threshold, a year ahead of our expectation. Licensing and related revenue had a record year with $52.5 million, up 10% from last year. We continue to expand our customer base with a record of 55 license agreements signed, of which 17 were first-time customers. Annual royalty revenue came in at an all-time high of $47.8 million, up 22% compared to 2019. Royalty revenue for our base station and IoT product category grew 72% year-over-year to $22.3 million as the momentum for our large and diverse customer base across multiple end markets continues. Royalty revenue from handsets declined slightly year-over-year, down 3% to $25.5 million. Unit shipments of CEVA-based products grew 27% year-over-year to more than 1.3 billion units, with a record 750 million units from our base station and IoT customers. In perspective, 2020 was a landmark year for both CEVA and our industry. The global pandemic highlighted the impact productivity had on our lives, and acted as a catalyst for rapid change towards digital transformation. It presents a unique set of opportunities for CEVA’s differentiated technology in operational agility, in particular, in four key markets; 5G RAN, Wi-Fi, TWS earbuds and automotive. Let me take the next few minutes to elaborate on these growth drivers and the anchors CEVA has already in place in these lucrative markets. 5G RAN offers data rates and ubiquitous connectivity. The fast rollout of 5G networks today is predominantly aimed at smartphone use cases. According to Ericsson’s most recent mobility report, by the end of 2020, over 1 billion or 15% of the world’s population lives in a 5G coverage area. China, in particular, is very advanced with 70% of the global 5G connection according to GSM Association. Beyond smartphones, 5G offers new growth opportunities regarding URLLC and IoT applications. These applications will be at the center of next-generation technology deployments in industrial robotics, AR, and autonomous cars. The digital transformation and the new applications 5G enables present sizable opportunities for CEVA's 5G RAN technologies, beyond our existing incumbency in baseband. This specifically applies to the growing use of Active Antennas, a new antenna technology that combines arrays of antennas with a DSP to process complex algorithms such as massive MIMO and beamforming for more precise steering of the antenna signal, which gains a substantial boost in capacity and energy efficiencies. The emergence of O-RAN and vRAN aims to transform the telecom industry from relying on proprietary platforms from a limited number of OEMs to a disaggregated network with open interfaces and a multitude of merchant chips from incumbent and new suppliers. Rethink Research expects Open RAN to account for 58% of the overall RAN CapEx spending by 2026. With our second-to-none competitive edge in DSP processors, we empower our existing and upcoming customers to innovate and quickly expand their market reach to the remote radio units and address new opportunities in the RAN space, like private networks, small cells, Fixed Wireless Access, and O-RAN. We are encouraged by the progress ZTE has made in the 5G RAN space, growing its share in the global RAN market from 8% to 11% on a year-over-year basis, according to Dell'Oro, and we expect other customers of ours to go into production in 2021. Wi-Fi is deployed in over 5 billion smartphones and more than 300 million hotspots today. Cisco estimates that more than 50% of the global mobile data traffic is offloaded to Wi-Fi, and this is set to grow to over 70%. AT&T noted that its network experienced 90% Wi-Fi data growth during the pandemic. The new Wi-Fi standards, Wi-Fi 6 and 6E, provide substantially higher data rates of up to 9.6Gbit/s versus 1.3Gbit/s in the prior generation, Wi-Fi 5. Wi-Fi 6 also presents sizable opportunities beyond smartphones and PCs, through the proliferation of connected IoT devices such as smart home appliances, smart TVs, smart speakers, connected cars, and wearables. Our RivieraWaves Wi-Fi 6 IP is at the forefront of the Wi-Fi 6 upgrade cycle and the only IP with a successive record of accomplishment. We have signed to date more than ten Wi-Fi 6 customers, and our existing Wi-Fi 4 and Wi-Fi 5 customer shipments grew more than six-fold in 2020, marking the start of a significant expected ramp-up. In addition, as I noted earlier, Wi-Fi 6, along with our Bluetooth technologies, present opportunities to penetrate the high volume market of smartphones as more OEMs look to internalize wireless connectivity technologies, as well as semiconductors that aim to take advantage of our leadership in the Wi-Fi 6 and Bluetooth domains. The TWS earbuds market presents a lucrative opportunity for CEVA due to its size and roadmap. According to IDC, by 2020, the TWS segment reached 234 million sets and is projected to reach 400 million sets by 2024, representing a CAGR of 14%. The pandemic has expedited the proliferation of TWS as more people have been required to work or study from home and need high-quality earbuds to ensure a good experience. Additionally, large handset OEMs have recently decided to remove complimentary earbuds from new phone packages, paving the way for a large merchant market for TWS earbuds. CEVA already has a strong presence in the TWS earbuds space with our RivieraWaves Bluetooth IP. Overall, our Bluetooth technology has been adopted by more than 80 semiconductors and OEMs to date and powered more than 520 million devices in 2020, up 44% year-over-year. Furthermore, the future TWS earbud designs will progressively seek to add more functionalities while dealing with the challenges of finite space and battery life. Among those functionalities are noise cancellation for adverse environmental conditions, voice recognition, AI, and sensors for activity and health tracking, all relating to technologies that CEVA owns. In the coming weeks, we will officially announce the world’s first comprehensive and open platform for TWS earbuds and hearables that we will license. We have already started to introduce this high-value differentiated IP to lead customers and expect to conclude the first license agreement shortly. Automotive represents 9% of the global semiconductor consumption or $41 billion in sales. Yet, selling into this space requires overcoming large entry barriers and commonly takes between three to five years for semiconductor vendors using new technology to qualify a design at a Tier One or OEM before going into production. As soon as production starts, the product lifecycle in automotive is longer than in most other markets, ensuring a stable source of revenue and profits that align well with CEVA’s R&D investment strategy. In recent years, the automotive industry has undergone a massive technology transformation driven by the adoption of ADAS and electrification. ADAS applications such as Lane Departure Warning, Emergency Braking, Parking Assistance, and Driving Monitoring Systems require high-performance DSPs to process sensory data captured by cameras, radars, Lidars, and other sensors surrounding the vehicle. Automotive electrification is gaining momentum due to increased governmental emphasis on lowering CO2 emissions, especially as threats of climate change present more extreme weather events. Battery management systems play a key role in the electrical powertrain, ensuring high efficiency and longer life of the battery cells. Powertrain vendors and OEMs have recently started to use DSPs along with AI to enhance battery systems for longer drive per charge across diverse environmental and use conditions. Leading Tier Ones and OEMs are increasingly receptive to new DSP advancements and the collaborative business model that CEVA proposes in the ADAS and powertrain sectors. Our latest SensPro2 DSP architecture, the world’s foremost DSP for sensor processing, provides a unified architecture for real-time monitoring and AI processing of sensory data extracted from radars, cameras, Lidar, Cellular V2X, and various environmental sensors. Our CDNN AI toolkit is capable of quantizing, pruning, and optimizing neural networks, speeding up neural network inference processing, which is crucial for fast vehicle response times. These core technologies and competencies were instrumental in securing two key agreements we signed during 2020 with two of the largest automotive semiconductors that plan to use our technologies for powertrain and level 2+ ADAS. We will continue in the coming year to strengthen our relationship with our two key customers and seek to engage with other stakeholders, capitalizing on core technologies and our growing reputation in the automotive segment. This aligns with CEVA’s strong focus and commitment to environmental improvement technologies and products. Before my closing remarks, we wish to express our concerns and sympathies for those affected by the global pandemic. The ongoing situation presents us with numerous challenges, and we continue to focus on the safety of our employees, customers, and suppliers. Our record-setting results for the year demonstrate the breadth of our technology portfolio, its resiliency to global events, and primarily our employees’ focus and devotion to maintain and even exceed the aggressive targets that we set for ourselves. As we enter 2021, we aim to continue to be at the forefront of the digital transformation and capitalize on our core technologies and customer diversity to grow our market share and maximize our return from growing industries, particularly 5G RAN, Wi-Fi, TWS earbuds, and automotive that I previously discussed. These industries present multi-year growth opportunities for our connectivity sensing and AI technologies, and we are well-positioned to capitalize on them. Finally, I would like to thank all of our employees for their hard work, innovation, and fantastic execution, along with our partners, suppliers, and our investors for their confidence and support. We wish you all a healthy, happy, and prosperous year, and please stay safe! With that said, I’ll turn the call over to Yaniv, who will outline our financials and guidance.

Yaniv Arieli, CFO

Thank you, Gideon. Good morning, everyone. I'll start by reviewing the results of our operations for the fourth quarter of 2020. Revenue for the fourth quarter was $28.1 million, down slightly as compared to $28.3 million in the same quarter last year. Revenue breakdown is as follows: Licensing and related revenue was approximately $12.1 million, reflecting 43% of total revenues, which is 18% lower as compared to the fourth quarter of 2019. Royalty revenue was a record $16.1 million, reflecting 57% of our total revenues, up 19% from $13.5 million for the same quarter last year and up 28% sequentially. Base Station and IoT royalty revenue contributed $6.4 million in the quarter, up 50% year-over-year, with all-time record high royalty contributions from our Bluetooth, Wi-Fi and sensor fusion product lines. Quarterly gross margin was 91% on a GAAP basis and 92% on a non-GAAP basis, both higher than projected. Non-GAAP quarterly gross margin excluded approximately $0.2 million of equity-based compensation expenses and $0.2 million of amortization of other assets associated with the Immervision investment. Our total OpEx for the fourth quarter was $23.2 million, just over the high-end of our guidance, mainly due to accrued compensation-related benefits and commission associated with the higher 2020 revenues. OpEx also included an aggregate equity-based compensation expense of approximately $3.4 million, and amortization of acquired intangible assets associated with the acquisition of Hillcrest Labs and Immervision of $0.6 million. Our total OpEx for the fourth quarter, excluding these items, was $19.3 million, about $0.5 million above the high end of our guidance due to the same reasons I just highlighted. U.S. GAAP net income for the quarter was $0.6 million, and diluted earnings per share was $0.03, compared to net income of $3.1 million and $0.14 for the fourth quarter of 2019. Non-GAAP net income and diluted EPS for the fourth quarter of 2020 was $4.7 million and $0.20, respectively, significantly higher than our internal estimates. Of note, the fourth quarter 2020 financials included a $2 million tax expense due to withholding taxes that cannot be utilized in future years. Other related data: shipped units by CEVA licensees during the fourth quarter of 2020 were a record 484 million units, up 39% sequentially, and 35% compared to the fourth quarter of 2019. Of the 484 million units shipped, 217 million units or 45% were for handset baseband chips, reflecting a sequential increase of 45% from 149 million units of handset baseband chips shipped during the third quarter of last year and an 11% year-over-year increase from 196 million units shipped. Our base station and IoT product shipments reached a second sequential all-time record high of 268 million units, up 34% sequentially and up 63% year-over-year. Of the 268 million units, Bluetooth accounted for 187 million units, a new all-time quarterly record high. For the year, our total shipments increased 27% year-over-year to over 1.3 billion units, an all-time record high, which equates to approximately 42 CEVA-powered devices sold every second in 2020. Annual shipments of handsets were flat year-over-year at around 575 million devices. After a slow start to the year, handset shipments from our large China-based customers grew significantly in the second half of the year. Base station and IoT product royalty revenue continued to grow and reached a new record high of $22.3 million, up from $13 million in 2019 and $8.9 million in 2018. In terms of units, base station and IoT product unit shipments were up 60% year-over-year to 750 million units. Overall, we surpassed the $100 million total revenue milestone for the very first time. This significant accomplishment was achieved as a result of an all-time record high licensing annual revenue, which we are very proud of. As for the balance sheets, as of December 31, 2020, CEVA’s cash and cash equivalent balances, marketable securities, and bank deposits were $160 million. We did not repurchase any shares in Q4 and have approximately 498,000 shares available for repurchase. Our DSO for the fourth quarter of 2020 was 48 days. During the fourth quarter, we generated $6.8 million of cash from operations; depreciation and amortization were $1.5 million, and the purchase of fixed assets was $0.4 million. At the end of the year, our headcount was 404 people, of which 335 were engineers, slightly higher than the total of 398 people at the end of September 2020 and 22 people higher than the 382 people at the end of 2019. Now for the guidance, we expect 2021 to be another growth year for CEVA as the momentum for our business continues. We are forecasting total revenue to be just over $106 million for 2021 with growth in both royalties and licensing. Specifically, regarding the royalty revenue forecast, we are taking a wait-and-see approach, as the semiconductor industry is experiencing extended lead times for chip orders and lean inventories, which we expect to last through the first half of the year. Our licensing business continues to be solid with growing opportunities in 5G, Wi-Fi 6, TWS earbuds, and automotive, as Gideon elaborated earlier. We are targeting another record year for licensing, which will set the stage for additional new streams of royalties in the years to come. On the royalty front, we are expecting a decline in royalties from a leading smartphone OEM that has switched to another baseband supplier for its recently launched 5G smartphone lineup. That said, we do maintain our presence in its 4G smartphones and are still expected to ship volume this year. We also see continued progress for our China-based customer, who has recently regained good momentum in low-cost smartphones for emerging markets and has also recently launched its first CEVA-powered 5G chip in China. In our base station and IoT product categories, we expect to continue to outgrow the markets we are targeting. Overall, we believe that new royalty growth drivers will more than offset the decline in royalties from the 5G smartphone supplier switch. On the expense side, we forecast approximately $3 million in additional expenses in 2021 versus 2020 that relate to the devaluation of the U.S. dollar compared to other currencies we use, mainly the shekels and the euros. On the cost of goods, we expect higher non-GAAP expenses of approximately $0.5 million due to more sensor fusion chip sales and other project expenses. On OpEx, with our strong licensing execution in 2020 and even stronger expectations for 2021, we will continue to support these new customers and reinforce our leadership with disciplined investments in R&D. Overall, the non-GAAP OpEx increase will be approximately $6 million, half of which, about $3 million, is attributable to the FX issues I just mentioned. Equity-based compensation is forecast to be approximately the same as 2020, around $13.3 million. Annual gross margins are forecasted to be similar to 2020, in the region of 89% on a GAAP basis and 91% on a non-GAAP basis. Interest income is expected to be slightly lower than 2020 due to the lower interest rate environment, around $600,000 per quarter. The tax rate is expected to be higher on an annual basis due to higher taxes in France for our RivieraWaves business which are projected to be approximately 22% of pre-tax income on a non-GAAP basis. This compares to 2020’s level, excluding $3 million in expenses related to withholding taxes that cannot be utilized in future years. Lastly, the share count for 2021 is expected to be approximately 23.5 million shares. Specifically for the first quarter of 2021, gross margin is expected to be approximately 89% on a GAAP and 91% on a non-GAAP basis. OpEx for the first quarter is expected to be slightly higher than the fourth quarter of 2020. Non-GAAP OpEx is expected to be in the range of $23.2 million to $24.2 million of our anticipated total operating expenses for the first quarter; $3.1 million is expected to be attributable to equity-based compensation expenses, and $0.6 million to amortization. Therefore, our non-GAAP OpEx for the first quarter is forecasted to be in the range of $19.6 million to $20.6 million. Net interest income is expected to be about $0.6 million. Taxes for the first quarter are expected to be $0.5 million on both a GAAP and a non-GAAP basis. The share count for the first quarter of 2021 is expected to be 23.3 million shares. Hey Cole, we could now open the Q&A session.

Operator, Operator

We will now begin the question-and-answer session. And our first question today will come from Matt Ramsay with Cowen. Please go ahead.

Matthew Ramsay, Analyst

Thank you very much. Good morning, everybody. Congratulations, guys, on a strong year, which was challenging from a number of angles obviously. Gideon, I wanted to start, over the last few quarters you've, and particularly today, you've talked much more about the evolution of Wi-Fi for your business, both on licensing and what it might mean for future royalties. I was particularly interested in the comments you made about some large vendors going internal or vertically integrated for their connectivity platforms, not just Wi-Fi but other types of connectivity that might bring home accessories, wireless earbuds, etc. Maybe you could talk a little bit more about that, how pervasive you're seeing that across OEMs? What the merchant suppliers of some of those chips are doing, which may also be your customers? And just how you're seeing that market evolve? What kind of royalty contribution are we thinking about for this business in the next two or three years as it becomes a more material part of your revenue? Thanks.

Gideon Wertheizer, CEO

Hi, Matt. I think now, when it comes to Wi-Fi and Bluetooth and IoT in general, there are two aspects to that. One is what we call in general IoT. Basically, we make a distinction, I saw other people do the same distinction between IoT and non-IoT. Non-IoT is basically the PC, the smartphone and the tablets, and IoT is all the other devices, such as smart TVs, smart home products, cars, everything they download — these three categories. In 2020, this was the first time that the norm, the IoT exceeded itself as the non-IoT, meaning that you have more shipments of devices that are not PC, smartphone, and others being public. In 2026, these will reach 30 billion units. So that's the landscape. There are opportunities that we are targeting in the what we call the IoT and for that purpose, we have all the wireless connections, we have 5G, we have Wi-Fi, we have Bluetooth, and we have cellular IoT or narrowband IoT. So we cover all these angles and whoever of these 30 billion tries to build a product and sets with us in terms of connectivity. Now the second aspect is the smartphone. The smartphone is a big market, a well-defined market, and it has recently become a little bit fragmented in terms of suppliers OEM or building. What we found out is that they come to us as part of their internalization; they talk to us and say 'we need your connectivity technology because we are going to integrate this into our SoCs. We built this SoC, and let's integrate those parts and not be dependent on Qualcomm, MediaTek, and the other giants that dominate the supply chain'. Interestingly enough, we are talking with semiconductor players who say, when it comes to Wi-Fi, maybe we will expedite our entrance into this market and we will license technology because it’s another angle from which we all the time try to enter the mobile space from different angles. We have the 5G, we have the vision, we have sound, and we have connectivity. Anything that relates to mobile is important to us as well.

Matthew Ramsay, Analyst

Thank you. Thank you for the thoughts there, much appreciated. I guess a follow-on question in a different market. You gave a lot of stats, and Yaniv did as well, in the prepared script about the progress in the base station market with ZTE, and maybe you could give us a little bit of an update on the timing of how you're expecting the rollout to take place with Nokia. As we get into 2021, are we on the precipice of that now? Is that baked into some of the royalty comments for calendar 2021? Any comments you could give us about how big that base station opportunity is in the royalty expectation for 2021? That would be really helpful. Thank you.

Gideon Wertheizer, CEO

It's a bit delicate to start speaking about specific customers and regarding the two names that you mentioned. ZTE is shipping, and ZTE is strongly positioned in China and emerging markets, and we don't see any reasons why it will not continue. When it comes to the second customer, let's wait. They are public and will speak for themselves. But as we said in the prepared remarks, we believe we are in the prime time now; we have the platform to build this momentum as well.

Yaniv Arieli, CFO

I would add that in our forecast for this year, we do factor in both of our key customers in production, albeit in different volumes, but we do have that already partially baked into our expectations and plans.

Matthew Ramsay, Analyst

Got it, thank you. And last one from me; I noticed that this smartphone unit for royalties in the fourth quarter were up year-over-year, but the revenue and the revenue per unit were down a bit. I presume that was lower units to Intel and some growth from emerging markets, particularly with Spreadtrum making a bit of a rebound. Is that — do I have that right? What are your expectations for your China-based baseband customer? It sounds like some increased momentum there globally? Is that also taken into account in your forecast for 21? Thank you. Thanks, guys.

Yaniv Arieli, CFO

So yes, there's no doubt that the year started slow, especially for our China-based customer with COVID and the shutdown, and then some of the Indian market was very slow; they got into the shutdown later in Q2. So it had a big effect on us and on them throughout the year. The second half of the year was strong, both from Intel and from Spreadtrum. Obviously, we did not have the new iPhone 12 in Q4, which we did have a year ago, but the rest of the momentum from the other models and the Chinese firms did push up the units. Overall, although we did not have 100% of the U.S. OEM backdrop that we did in 2019, we came in flat in overall units and almost in dollars as well. So, at least for last year, we did not feel the heat from this change or change in vendors. As we said in 2021, we believe that number will decrease a bit, but overall we will be able to more than offset it from the base station and IoT type of devices.

Gideon Wertheizer, CEO

Thank you.

Operator, Operator

And our next question will come from Suji Desilva with ROTH Capital. Please go ahead.

Suji Desilva, Analyst

Good morning, Gideon and Yaniv, congratulations on the progress here. Maybe Yaniv in the licensing area, can you talk about the new kind of quarterly sustainable range would be your annual, just to give us a sense of how you think licenses can progress?

Yaniv Arieli, CFO

Yes, I think we hit a new record both in dollars and number of deals, 55 deals. This quarter was very strong with 21 deals, but we don't necessarily recognize all of those deals. Specifically in Q4, we had a handful of customers, new customers for us, some of them are startups. There were more concerns around upfront payments before we release the technology, and so we did not recognize every one of them. Therefore, it's the wrong math to take the licensing revenues and divide them by 21, which is a bit of a different number. That said, some of these customers will pay us soon, at which point we will deliver and be able to recognize them, hopefully in Q1. Some will take longer; we’ll see. But we have an excellent pipeline to start the licensing year off strong in Q1.

Suji Desilva, Analyst

Yes, that's very helpful. And perhaps a bigger picture question on the royalty growth you're having, as we look ahead to calendar '21, what are two or three royalty growth areas that you're most excited about year-over-year?

Gideon Wertheizer, CEO

Hi, Suji. I think the category outside of the mobile and PC, whether it's Wi-Fi, Bluetooth, or cellular IoT, we see big momentum there. I mean, in terms of the number of products coming very fast, we all sort of products. If you go to Asia, I can't think of any electronic product that doesn’t come with an internet connection. That's the excitement, and that’s what we will strongly impact this year. The other category, of course, is the 5G base stations here. I think in China this year is going to be stronger, and we are optimistic about the second customer coming in as well. What lies ahead of us with all these new use cases is what we cannot now foresee, and it could be this year or next year.

Suji Desilva, Analyst

Okay, and then lastly on connectivity; Bluetooth is very strong over 500 million units last year. What's the expectation for Wi-Fi units relative to Bluetooth? Is it an order of magnitude lower with a higher ASP or can it approach something like a Bluetooth size, unit market? Understanding the Wi-Fi TAM will be helpful?

Gideon Wertheizer, CEO

Wi-Fi is a growing market, both for us and overall. It’s much more used and adopted these last couple of years than four or five years ago, and nobody was using the IP for Wi-Fi; it was just merchant chips at the time. The whole landscape has changed with dozens of deals we have signed. There's been six-fold growth in 2020. I would add that in response to your first question, we anticipate significant Wi-Fi unit growth in 2021 with many more products launching.

Suji Desilva, Analyst

Okay, thanks, guys.

Gideon Wertheizer, CEO

Thank you, Suji.

Operator, Operator

Your next question will come from Tavy Rosner with Barclays. Please go ahead.

Tavy Rosner, Analyst

Hi, thanks for taking my questions and congratulations on the strong results. I just wanted to get back to the guidance for 2021. Maybe I didn't hear properly, but with regards to the royalty forecast, you mentioned that you guys are taking a wait-and-see approach because of some of the slowdown in the semiconductor industry. I guess, do you have a way to normalize that assuming that there is recovery sooner than expected? How meaningful would it be to your revenue forecast?

Gideon Wertheizer, CEO

Hi, Tavy, good morning. So let me correct you on one important thing — there is no slowdown in the semiconductor industry. The problem is the opposite. There is huge demand in the semiconductor industry all over the place, and this is what causes inventory issues and very lean inventories and long lead times. The salaries are fully utilized, which is a great problem to have if you're in the semiconductor space, but it’s not a great experience if you are an OEM needing to get those chips out the door. Eventually, when manufacturing capabilities catch up with this high demand, we should see our customers shipping more, and we will be able to recognize additional revenue on these royalties. We have to keep in mind the many companies in the semiconductor space that reported high demand recently. We don't know; we are not the manufacturers nor do we have a crystal ball, but we just see what's occurring in the industry. We are being patient with a wait-and-see approach and are eager to see how this shifts.

Tavy Rosner, Analyst

Great, thanks for the clarification.

Operator, Operator

And our next question will come from David O'Connor with Exane BNP Paribas. Please go ahead.

David O'Connor, Analyst

Good morning, and thanks for taking my questions, one or two from my side. Maybe firstly one for you Yaniv on the base station IoT. What's the assumption there for 2021? You did 72% in 2020 and 50% in Q4. Is maintaining 50% something you can keep through 2021? And also, can you speak maybe about the assumptions around the first half royalty growth versus the second? I have a follow-up, thanks.

Yaniv Arieli, CFO

Sure, certainly. We are not breaking down the royalties and licensing this year because it's quite difficult to do, and many companies have stopped at giving guidance or qualitative data. We are trying to help out with our models and our best understanding across different industries that we operate in. So, it's really hard to project how these categories will unfold. We believe we'll be able to grow both the licensing and the royalty revenue streams for us. We have seen overall growth. It's just hard to gauge how this will be divided between the two categories. We need to take it one quarter at a time and observe how progress plays out.

David O'Connor, Analyst

Okay, understood. And then maybe a question for Gideon; the strategic agreement with the top-tier smartphone OEM, is this a new customer for CEVA or can you give us any more detail as to the geography there and how long that licensing deal was in the works? Thank you.

Gideon Wertheizer, CEO

Yes, it's a new customer for CEVA. It is in Asia, one of the big Asian companies. Beyond that, you can connect the dots, but it's a sizable customer like any branded OEM.

David O'Connor, Analyst

Understood, thank you. And one last one, if I could squeeze in on the open platform you talked about for TWS earbuds. Can you help us gauge the level of interest there from customers? You mentioned one customer that could be an early adopter; what is the differentiation of that platform versus either what merchant guys have or what other competitors offer? Thank you.

Gideon Wertheizer, CEO

Hi David. I must apologize; we are going to announce this product in the coming weeks, so I don’t want to take the surprise out for our marketing team. That said, TWS is a complex technology. We have advanced connectivity, and CEVA is the only company today in the IP space that has all these capabilities. The idea is to package these components together and offer them as a total solution. It's a unique proposition in the IP space, and we have had discussions with customers about this product. They have been quite happy, given the complexities of building a product of this scale.

David O'Connor, Analyst

That's helpful. Thanks, guys, and congratulations on the strong results.

Gideon Wertheizer, CEO

Thank you, David.

Yaniv Arieli, CFO

Thank you, David.

Operator, Operator

And our next question will come from Martin Yang with Oppenheimer. Please go ahead.

Martin Yang, Analyst

Hi, Gideon and Yaniv. My first question is on your TWS market; perhaps following up on the previous analyst. How fast is the integration of more functionalities into those headsets? Can you help us conceptualize the new dollar content or additional dollar content you will secure once more functions are integrated? Thanks.

Gideon Wertheizer, CEO

Yes, it's a question that we don't really answer about — if you meant the ASP in the chip. But the idea is to price our Bluetooth ASP at a competitive rate, and as a product expands its capabilities, we can increase the ASP. Our strategy is to take advantage of the fact that we have more than 80 customers designing with our connectivity technology; they combine it with other technologies to yield higher value and ASP for us.

Martin Yang, Analyst

So, follow-up on that; can you help us understand how fast you think new functionalities will be implemented in TWS? Are you seeing any major customers starting to integrate more complex functionalities in this year's models, or are they starting to talk about more features for future product roadmaps?

Gideon Wertheizer, CEO

Usually in connectivity, it takes about one new design cycle. I believe the second half of 2020 will be where we start seeing these products in market by next holiday season.

Martin Yang, Analyst

Got it. And my final question is on Wi-Fi 6. Based on your current customer engagement, what new functionalities are you seeing in end products that are realized by Wi-Fi 6, which are not available in previous generations?

Gideon Wertheizer, CEO

Wi-Fi 6 is the new standard for connectivity. Our business is to enable customers to quickly go to market. We see customers moving into new markets, ranging from Wi-Fi access points to a variety of IoT devices, including TVs, smart speakers, and automotive. Our customers are typically new to connectivity and require expertise in delivering total solutions that are standard-compliant and interoperable with every device. This is something we uniquely provide as the only company with this level of expertise in the IP space.

Martin Yang, Analyst

Got it. Thanks.

Gideon Wertheizer, CEO

Thank you.

Operator, Operator

That will conclude our question-and-answer session. I'd like to turn the conference back over to Richard Kingston for any closing remarks.

Richard Kingston, Vice President of Market Intelligence

Great, thank you. Thank you all for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current reports on Form 8-K and accessible through the investor section of our website. With regards to upcoming conferences and events we will be attending, we have the following virtual conferences upcoming; The Susquehanna 10th Annual Technology Conference, March 9 to 11, and the ROTH Virtual Conference from March 15 to 17. Further information on these events and all events that we will participate in can be found on the Investor section of our website. Thank you and goodbye.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.