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CEVA Inc (NASDAQ:CEVA)
Q3 2020 Earnings Call
Nov 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the CEVA, Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead.

Richard Kingston -- Vice President of Market Intelligence, Investor and Public relations

Thank you, Brandon. Good morning, everyone, and welcome to CEVA's third quarter 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 highlights on the third quarter and provide general qualitative data. Yaniv will then cover the financial results for the third quarter and also provide qualitative data for the fourth quarter and full year 2020. I will 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 fourth quarter and full year 2020; optimism about 5G base station RAN deployments in China; relationship with VTE, and opportunities presented by our stenting and connectivity technologies, optimism about the continued momentum in base station and IoT royalties, market traction associated with a low-end smartphone; and production schedule associated with our ADAS agreement. For information on the factors that could cause the difference in our results, please refer to our filings with the securities and Exchange Commission.

These include: the scope and the 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 IP 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 nonhandset baseband license agreements; the effect of intense and 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.

And with that said, I would now like to turn the call over to Gideon.

Gideon Wertheizer -- Chief Executive Officer

Thank you, Richard. Good morning, everyone, and thank you for joining us today. CEVA delivered a very strong quarter, highlighted by record royalties from our base stations and IoT product category and licensing agreements with major players in key industries. Before we expand on our third quarter results, I would like to acknowledge the tireless effort of our talented employees around the world that continue to deal with the challenges COVID-19 present For their hard work, we are successfully growing our business, keeping the commitment to our customers and maintaining the fast pace of innovation and new technology development.

Thank you all. Total revenue for the third quarter was $25 million, up 6% year-over-year. Our licensing business continues to be solid at $12.4 million for the quarter, up 10% year-over-year. Royalty revenue was $12.5 million, up 3% on a year-over-year basis. We concluded 13 new agreements during the quarter, of which five were for connectivity and eight were for smart sensing. six of those agreements were with first-time customers. Target applications of our new licensing agreement includes strategic design wins for ADAS with one of the largest automotive semiconductor player which I will expand later on the call.

Other target application for our customers this quarter include digital imaging, two wireless stereo airbuds, smart TV and digital conferencing systems for home use, a growing space as more people are switching to work from home permanently and upgrading their home office setups. On royalty revenue, we had a strong quarter, driven by a record shipment for our base station IoT product category, formerly refer to nonhandset products. Royalty revenue from this category grew 86% sequentially and 105% year-over-year to reach a record of $7.9 million. We have benefited from expedited 5G RAN deployment in China, which I will touch on later in the call.

And from series of product launches and shipment enabled by our Bluetooth WiFi and sensor fusion technology. In our handset basement category, we saw a strong recovery from our China-based customers, targeting low peer 4G smartphones and feature funds for India and other developing economies. Royalties from premium tier smartphone declined on a year-over-year basis as new 5G smartphone series launched last month, uses modern from another supplier that does not incorporate our technologies. With that said, our technology remain incorporated in the low-cost smartphone on this customer launched earlier in the year, which continues to have a strong market traction around the world. Let me take the next few minutes to elaborate on two key developments in the quarter.

The first is monumental agreement in the automotive ADAS space, and the second is the underlying drivers that deliver a step-up in 5G RAN royalties. The digital transformation in automotive industry, of which ADAS is a key driver, has led to dramatic increase in the usage of software and AI to analyze data collected by the cameras and radar sensors surrounding the car. Furthermore, among the push by players, such as NVIDIA and Mobileye, our their own closed and vertically integrated solutions, automotive Tier one and OEMs are seeking or an open high-performance technology where they can take advantage of their in-house excellence while not being locked into a certain vendor.

Against this backdrop, our powerful DSPS, AI technologies and our collaborate business model set a comprehensive foundation that enable OEMs to become supplier agnostic and translate their innovation into a competitive edge. In this regard, the unique proposition of our leading-edge sense for DSP, along with our CDNN AI compiler technology, were instrumental in obtaining a new comprehensive agreement we signed in the quarter with a major semiconductor player in the automotive space. This agreement is based on a project, our customer won with a very large automotive manufacturer in Japan, for an ADAS solution for new L2+ and L3 cars, which are projected to start production by 2025.

On 5G RAN, the transition from nonstand-alone to stand-alone mode of 5G new radio is already under way, in particular in China. According to government data, Chinese operators have already deploys 480,000 5G base station as of the first half of the year. This represents about 1/3 of the global RAN market. CEVA is a client beneficiary of this upgrade cycle in China through our strategic relationship with ZTE. China Mobile, China Telecom and China Unicom has engaged ZTE in large-scale for these deployments. As a result, its market share climbed 13 within those operators. Furthermore, in comparison to 4G, 5G presents higher content and a larger addressable market for us resulting from the use of active antenna units, AAU, in the base station-ready units.

Deployment of active antenna settings provide operator with substantial increase in network capacity, data rates, higher energy efficiency and overall lower cost of ownership. The latest advance advancement in active antenna technology require massive DSP computing for MIMO such as massive MIMO and informing, which can optimally served by our advanced CEVA-XC 12 and CEVA-XC 16 DSP. We are, therefore, presented with additional content and higher volume opportunity in addition to our proposition for baseband processing. Royalties for motive antenna has already made noticeable contribution to our third quarter royalty reports. So to summarize, our third quarter performance demonstrated the continued meaningful progress we are making across our businesses.

Our technologies for sensing and connectivity are fundamental to any intelligence device and will lead the transformation in 5G networks and automotive space. We are managing our business for the long-haul and confident in our growth strategy. Yet, we remain determined and focused to drive efficiency and prudency to cope with the ongoing uncertainty COVID-19 projects. Finally, I'd like to thank, again, our customer, partner and see CEVA hard working employees. Your health and safety continues to be our first priority.

With that said, let me hand over the call over to Yaniv for financials and guidance.

Yaniv Arieli -- Chief Financial Officer

Thank you, Gideon. I'll start by reviewing the results of our operations for the third quarter of 2020. Revenue for the third quarter was up 6% to $25 million as compared to $23.5 million for the same quarter last year. It is the highest third quarter revenue we have recorded. The revenue breakdown is as follows: licensing and related revenue was approximately $12.4 million, reflecting 50% of total revenue, 10% higher than $11.3 million for the third quarter of 2019. Royalty revenue was $12.5 million, representing 50% of our total revenue, 3% higher than $12.2 million from the same quarter last year. Royalty revenue from our base station and IoT product lines in the quarter reached a new record high of $7.9 million, up 86% sequentially and 105% on a year-over-year basis.

Only gross margin was 90% on GAAP basis and 91% on non-GAAP basis, all significantly better than what we projected. Non-GAAP quarterly margin excluded approximately $0.2 million of equity-based compensation expense and $0.2 million for the impact of amortization of acquired intangibles. Our total GAAP operating expenses for the third quarter was at the upper range of our guidance at $22.5 million. opex also included aggregated equity-based compensation expense of approximately $3.4 million and $0.6 million for the amortization of acquired intangibles. Our total opex for the quarter, excluding these two items, were $18.5 million, slightly above second quarter level and also at the upper range of our guidance.

Note, the third quarter 2020 financials included a $1 million tax expense due to withholding tax, which cannot be utilized in future years. Our third quarter 2019 financials included a $1 million tax benefit as a result of the successful conclusion of the tax side. U.S. GAAP net loss for the quarter was $0.7 million, and diluted loss per share was $0.03 for the third quarter of this year as compared to net income of $0.8 million and diluted earnings per share of $0.03 for the third quarter of 2019. Non-GAAP net income and diluted EPS for the third quarter was $3.6 million and $0.16, respectively. Our non-GAAP net income and diluted EPS were -- for 2019 were $5.1 million and $0.22, respectively. COVID-related data.

Shipped units by CEVA's licensing during the third quarter of 2020 were 349 million units, up 51% sequentially and 20% up from the third quarter of '19. The 349 million units shipped, 149 million or 43% were for handset base ventures, reflecting a sequential increase of 50% from 99 million units of handset baseband shied during the second quarter of this year and a 12% decrease from 169 million shift a year ago. Our base station and IoT product shipments were a record 200 million units for the quarter, up 52% sequentially and 63% up year-over-year.

As a reminder, we have categorized all our nonhandset basement ships the umbrella of base station and IoT category since the beginning of this year. As for the balance sheet items, as of the end of September, CEVA cash, cash equivalent balances, marketable securities and bank deposits were $153 million. We did not repurchase any shares during the quarter. We have approximately 500,000 shares available for repurchasing. Our DSOs for the third quarter was 57 days, higher than the second quarter level, but lower than the first quarter level. During the quarter, we used $4.3 million of cash from operations, our depreciation and amortization was $1.4 million, and the purchase of fixed assets was $1.2 million, higher than the norm for larger investments in hardware, computer servers and in engineering development software.

At the end of the third quarter, our headcount was 398 people, of which 331 were engineers, slightly down from a total of 401 people at the end of June. Now for the guidance. As demonstrated by our financial results for 2020 thus far, CEVA's product and customer diversity enable us to migrate the disruption of COVID-19 possesses. Amidst continued economic uncertainty we expect our 2020 total revenue to increase over 9% year-over-year to a record annual high of $95 million. We believe the momentum we saw in the third quarter in base station and IoT royalties will extend into the fourth quarter.

In licensing, the demand for connectivity and stenting technologies remain high. We are reluctantly working to translate these opportunities into licensing revenue. Specifically for the fourth quarter, gross margin is expected to be approximately 88% on GAAP and 89% on non-GAAP basis, excluding an aggregate $0.2 million for both equity-based compensation expenses and the sale of nonamortization of other assets.

Opex for the fourth quarter is a forecast to be slightly lower than the last two quarters. GAAP-based opex is expected to be in the range of $21.9 to $22.9 million. Of our anticipated opex for the third quarter, $3.5 million is expected to be attributed to equity-based compensation expense and $0.6 million for amortization. Our non-GAAP opex is expected to be in the range of $17.8 million to $18.8 million. Net interest income is expected to be approximately $700,000. Taxes for the fourth quarter expected to be approximately $600,000, on both GAAP and non-GAAP basis. Last, share count for the fourth quarter is expected to be approximately 23.3 million shares.

And Brandon, you could now open the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Matt Ramsay with Cowen. Please go ahead.

Matt Ramsay -- Cowen -- Analyst

Thank you very much. Good morning. Good afternoon, everybody. I guess, just a quick clarification in your -- I think the line broke up a bit on my end when Gideon was talking about the specific revenue for the base station business in terms of royalties in the quarter. If you could re clarify what that number was and maybe what it was year-over-year? And then the question on that front is with Huawei being under scrutiny and potentially impaired in terms of getting their own silicon from their own silicon division. How are you guys thinking, Gideon, over the next 12 to 18 months, what that might mean for your customers in the 5G base station business about their trajectory of filling in for some of those voids that Huawei might be leaving in the industry? And how that might change how you're thinking about the potential over the next 18 to 24 months for your business and royalties for base stations? Thank you.

Yaniv Arieli -- Chief Financial Officer

Sure. Good morning. I'll start with the first question. No, I don't think there was any line breaking. We didn't mention specifically any numbers related to base stations royalties in the third quarter. We did say, however, that our base station and IoT device, this is the bucket that we are now representing all the more -- the newer technologies and markets that CEVA is engaged in over the years, have reached an all-time record high of $7.9 million. To remind you, that same category for the first half of the year was also $7.9 million.

So within one quarter, we have seen a tremendous growth in our newer market, royalty. Contribution, a big portion of it was from 5G base station ramp-up by ZTE, we did mention that. Small antennas and their market share growth into China, specifically. And the rest, it came across all the industries were active, and we came in at record high Bluetooth royalties, WiFi royalties, sensor fusion royalties. So a lot of different consumer-related devices and infrastructure for 5G help us reach that record number for this quarter. And Huawei, I will refer to Gideon.

Gideon Wertheizer -- Chief Executive Officer

Yes. So Huawei, it's hard to answer how these shape up, though Huawei was strong in the market. First of all, because they were superior in their technology advanced than others in specifically the active antenna that I refer. So I refer in the prepared remarks. So VTE is the second company today that offer an active antenna in production. So in this respect, they are gaining share in China specifically. But how, on a global basis, the share of Huawei were split between Nokia, Ericsson, ZTE, Samsung, these are the names that we do. It's hard to say at this stage.

Matt Ramsay -- Cowen -- Analyst

Got it. Thanks, guys for the detail there. As my second question, Gideon, I understand that there may be some things you can disclose in some of you can't. But I wanted to follow-up further on the new automotive design wins or agreements that you guys have gotten in place now with the Tier one chip supplier that you mentioned. If there's any additional detail that you gave about number of chips per car royalty potential per car, how broad that agreement might be in terms of auto units that it might be exposed to? Any additional details there would be super helpful. And congratulations on that win? Thanks.

Gideon Wertheizer -- Chief Executive Officer

Yes. The automotive is a strategic market that we do. Last quarter, we had a very large deal in the around the power of the car, and now we talk about ADAS. The only thing that I can say is what we said in the prepared ramek. First of all, it's a project, meaning it's a design win, and it's one way peak. Meaning, you to do all -- we access for all the step, and then start of production will be 2025. And the third, there is a sizable large OEM in Japan that drive this project. And the third one, it's a mid-range car, that means volume versus the premium part. So these are the three components that, for now, we can share.

Matt Ramsay -- Cowen -- Analyst

Got it. Thanks very much, guys. I'll come back to you.

Gideon Wertheizer -- Chief Executive Officer

Sure. Thank you.

Operator

Our next question comes from Tavy Rosner with Barclays. Please go ahead.

Peter Zdebski -- Barclays -- Analyst

Hi. This is Peter Zdebski on for Tavy. Congratulations on the great quarter. Maybe first, ask one of the previous questions in a little different way since I would really love some more detail on the base station traction. Could you maybe give us an idea of how many base station units were represented in that $7.9 million of royalties or even some sense of the ASPs there? And then as a follow-up, how do you see the runway in China in terms of the pace of the 5G rollouts and where they are in that deployment cycle?

Yaniv Arieli -- Chief Financial Officer

Yes. Sure. So we don't break out the numbers of specific customer of how many shied. But unfortunately -- but we do bundle it with the 200 million units that reached record high. So of course, base station is on the lower, on smaller quantities of those 200 million, but it's a significant contributor and a step-up from what we had before due to Gilian explained, both supplying the modem as well as the smart antennas, which their volume could be much, much higher than our traditional modem only type of socket. This could be a few tens of antennas per base station, and that's the opportunity we have in the future. But we don't we can and fortunately, open up specific volumes for a specific customer. I hope that helps a bit.

Peter Zdebski -- Barclays -- Analyst

That helps a bit. Thank you. And then as far as do you see this -- the pace of ZTEs rollout accelerating from here? And then how many quarters do you think that could be sustained?

Gideon Wertheizer -- Chief Executive Officer

Yes. I mean the prospects for 5G is -- it's bigger than basis because we speak about base station, and we refer to the big one, the macro base station. But as time goes by and 5G, the technology itself becomes more mature, and that's something that's in year, two years, no more than this, you're going to see smaller scale base station private base stations. So you think about manufacturing line, Toyota, Ford or whatever, and they will can install their own a 5G network, private network where they can use for the robotics with fast connection to the cloud where they do AI.

So we use the term transformation because the way to look on 5G is not just how many big base station you have and how many antenna hook to it, which is also a new one. So -- and that's something that there are a lot of estimation, A file for each other in a big way. So we don't no exactly. But you talk about here in millions of smaller size base station with antennas and all of them. We have the opportunity to have the content force for the baseband and for the active antenna.

Peter Zdebski -- Barclays -- Analyst

That's helpful color. Thank you.

Yaniv Arieli -- Chief Financial Officer

To add one more thing, we talked about the opportunity with ZTE, and it's an operator driven business, per implementation, the city over place of a network, we don't have ahead of time that visibility. It always in the rear. It's when we get the royalty report first specific quarter, we know better what was installed in that specific quarter. Bear in mind that next year, we're also looking to have another OEM start to deploy our solutions, which is Nokia. So as soon as they get into production, it's not going to be on EBT, but another base station. And as Gideon said, on top of that, we have other aspects of 5G and customers in that space that hopefully should be ramping up as well, and we have licensed our technology to them away. And all this is in the pipeline in the coming years.

Peter Zdebski -- Barclays -- Analyst

Great. Thank you for that.

Yaniv Arieli -- Chief Financial Officer

Sure. Thank you.

Operator

[Operator Instructions] Our next question comes from Suji Desilva with Roth Capital. Please go ahead.

Suji Desilva -- Roth Capital -- Analyst

Hi, Gideon. Hi, Yanev. Congratulations on progress here. Looking ahead to calendar year '21, across the non baseband, the 5G base station, the IoT connectivity, the sensors, can you can you talk about the strongest growth opportunities in the calendar '21? Because it seems like all three of those are doing well. I just want to know, maybe rank order, which ones would have the best opportunity for growth contribution looking out to calendar '21?

Yaniv Arieli -- Chief Financial Officer

Yes. Good morning. So I didn't bring my glasses, so I don't see as far. But if I look at only 2020, because of the site vision here, and remember 2020 when we started the year, and this was pre-corona, our target for base station IoT was reached like a $20 million target, which was huge for us. You recall, a few years ago, we were at $4 million a year ago. Last year, we were $13 million. When we talked about '20, '20 is a 50% growth that you don't see in the semi space, in the consumer space. But this is something that we believe that we could reach. With COVID and all the things that are around us these days, we are today much more confident of surpassing that quite nicely and even reaching close to 60% to 70% growth this year in 2020, because of the momentum on all these different markets.

And finally, we're seeing these nice tractions, even better than what we started the year with. Hard to say we didn't do our analysis for 2021 yet, it's still early. We'll do it as we always do in the first call of the year and try to give them more data and insights around that. But for sure, if you look back three or four years where we were with them and where we are today with north of $20 million in all these new markets, it is working out extremely well for us in all the different fronts. And this is part of the growth that we are looking into the future.

Suji Desilva -- Roth Capital -- Analyst

Okay. Thanks, Yaniv. That's helpful. And then perhaps a second question for Gideon. Automotive, congratulations on the win there for me as well. Can you talk about the key factors that are driving CEVA adoption versus competitive solutions? Are there any shifts in automotive architecture or trends going into the L2+ L3 that make the CEVA solution more favorable versus competitors? Thanks.

Gideon Wertheizer -- Chief Executive Officer

Yes. It's -- there is a high-end barrier to get into the automotive market in general. You need to have unique a pedigree, and with we are, in this market, developing relationship with OEM, not just semiconductor for almost four years now. Now specifically populus and entry, just for people that don't really knows what is LT+ or L3. LT+ plus is basically similar to Autopilot that Tesla has today. So it's cautiously autonomous driving. And you have to have a substantial performance capabilities because you have to use many sensors, many cameras, could be 12 cameras, and radars could be up to 16. So you need to fuse them to get a holistic view of 360 degree.

Now our deal is in two fronts. One is our DSP processing, and this specific customer will take the bleeding edge DSP, we came out recently with the new DSP category. It's not just next generation, it's a -- we call it Sans and the theme of sales for is to sense of fusion, meaning combining the inputs from different sensor. That's one element. And the other element is the AI portion. And there also the key entry, the key point there is the software. And we came out early on, almost four years ago, with our compiler technology is we probably see then Cidade network. And that was, in my opinion, instrumental to get the deal because the customer see how it develop an influencing software using our processors and other hardware that they have in the chip or in the system there.

Suji Desilva -- Roth Capital -- Analyst

Okay. Thank you, Gideon. Thanks, guys.

Gideon Wertheizer -- Chief Executive Officer

Thank you, Suji.

Operator

Our next question comes from David O'connor with Exane BNP Paribas. Please go ahead.

David O'connor -- Exane BNP Paribas -- Analyst

Great. Good morning. And thanks for taking my questions. Just a couple of kind of follow-ons on my side. Maybe firstly, getting on the ADAS win. Can you tell us which geography this customer was in? And then the Japanese win at the OEM side, is that a platform win? Or is it just one car? That's my first question. And I have one or two follow-ups.

Gideon Wertheizer -- Chief Executive Officer

No, it's a platform. It's a Japanese OEM. That's the only thing that we can share at this point.

David O'connor -- Exane BNP Paribas -- Analyst

Okay. Got it. Understood. Maybe turning to the base station side. On the active antenna units, how should we model that long term? And can that grow to as big as base station baseband?

Gideon Wertheizer -- Chief Executive Officer

No. Yes, basically, for any baseband, let's say, cheap or baseband that is base station, you're going toward between three to 20 or even more antennas hook together, OK?

Yaniv Arieli -- Chief Financial Officer

So the way to model it is at the main on 3 times, it can go up with 10 times air base stations. Of course, it's different shifts. So the price is also an ASP is different between them. And for now, not all of our customers or players in the industry have that capabilities. We talked earlier of Huawei and ZTE having that. Others will follow, and we have good chances of licensing these technologies to others, but yes, it's not yet across all the industries. So this is something that we have been among the first to have. And we look at it as a nice interesting growth opportunities in the near term, also in the licensing front.

David O'connor -- Exane BNP Paribas -- Analyst

That's helpful. And then maybe as a final one. Can you talk us more a bit on the licensing pipeline as we approach the end of the year and you start to look into next year, what is the kind of status of that right now? Thanks.

Gideon Wertheizer -- Chief Executive Officer

So licensing is looking very solid. We -- the let's say, the hotspot, there are 5G, all the different aspects of the base station I said and about new channels into this market because the antenna portion is because of the volume attract many companies. So by the way, from different age, it could be optical consumer company that interest for this one, it would be a networking company. It could be antenna company. So all of them will try to get a share in this very lucrative space. So there's one hotspot. The other spot is Wi-Fi. All the different aspects due to the access point that people want to move to work from home.

And IoT, defense kind of IoT. Then going forward, we have all the computer vision and AI we have strong interest from all different. People have started talking about AR, now imitation reality, mixed reality to wireless, that's going to huge markets, with pricing all over the place, starting from $20 to $200. So the good thing about -- is that we have those common denominators that allow us to cover all those aspects. And then whether it's high-volume or whether it's a high value market, and that's drive the licensing. It's spread all over the place, you cannot really see with any consolidation. It's everything that relate to IoT, which is sensors or connectivity. That's what we offer.

Yaniv Arieli -- Chief Financial Officer

And one more thing I would add that if you look at an annual basis, we're saying that this year, we will pass $51 million in licensing for the very first time after being at $48 million last year. And before the $48 million, we were at $30 million level for a few years. So within a very short period of time, we jump from $20 million to $30 million to $40 million, down to $50 million for the very first time or more than $50 million in licensing. So those markets and those technologies that we went into really paid off in the R&D investment that we have put over the years has really paid off to increase the licensing activity.

David O'connor -- Exane BNP Paribas -- Analyst

Very helpful. Thank you.

Yaniv Arieli -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Gus Richard with Northland. Please go ahead.

Gus Richard -- Northland -- Analyst

Yes, thanks for taking my question. Just on the ADAS win, is this just cameras and radar that you're doing sensor fusion for? Or does it include LiDAR VIDAR or sonar? Or is that yet to be determined?

Gideon Wertheizer -- Chief Executive Officer

It's all of the above, meaning it's all of those sensors that you mentioned. And here to be, at least from our standpoint, have to be determined what sensor then ended up. For sure, it will be radars and cameras. These are the masters whether they hook lighter there on top of it. It's to be determined.

Gus Richard -- Northland -- Analyst

And just further clarification, there's a lot of vagary around L2+ and L3. Is this targeted toward hands-free highway? Or is it some other incremental improvement over L2?

Gideon Wertheizer -- Chief Executive Officer

Well, I hope people will not use it in cities. But the idea is that you you put it in Autopilot mode, it did by fell, but you still have to hold your hands on the wheel and let it drive. So I think it's a good solid gap filler between here and when you go to 11, four, five, then people, I should say, slip in the car.

Gus Richard -- Northland -- Analyst

Got it. I understand. Thank you for that. And then on the base station, it is your second base station customer contributing to royalty in the third quarter? And if not, when when do you expect that to really start to kick in?

Yaniv Arieli -- Chief Financial Officer

No, we haven't seen yet that in production. This is our second customer. I believe we always reference to their earnings call to their deployment of RE Sharp, which is under way and the modem piece from an RF perspective and the modem piece these days is done by Marvell, and they are talking about the end of the year being ready for production. So it should be early next year in production. And as soon as we get more information from them, we will be happy to share. But for now and this year, it's not yet in the numbers.

Gus Richard -- Northland -- Analyst

Got it. Okay. Thank you so much.

Yaniv Arieli -- Chief Financial Officer

Thanks.

Operator

Our next question is a follow-up from Matt Ramsay with Cowen. Please go ahead.

Matt Ramsay -- Cowen -- Analyst

Thank you guys for letting me jump back in. I think the conversation here has been really helpful on the longer-term drivers of the business. Yaniv, I wanted to ask a little bit about the fourth quarter guidance, if you could maybe walk us through the puts and takes a bit on revenue. It looks like going to be down a couple of million dollars sequentially. Maybe if there's any help you can give on which piece of that decline might be licensing versus royalty, that would be helpful. And then on the royalty side, is the primary driver of it being down sequentially, just the the shift in modem procurement for Apple? Or are there other things that are -- that we should consider? Thank you.

Yaniv Arieli -- Chief Financial Officer

Sure. So on the licensing front, as Gideon said and we mentioned earlier, we're looking at a solid quarter overall, in order to reach that north of $50 million. And we always said that anywhere between the $110ish million to $12 million, something that we are comfortable with. When we were at the $40 million level, it was around the $10-iash million. Now the next step function was a notch higher than that. I think the beginning of the year was stronger in that. We cannot really time the licensing activity.

And when you look at an annual basis, we are very, very happy with the results of this year, and this is where the licensing should fall in somewhere in order to reach that north of $51 million for the year, which was our initial plan, and we have hit the mail on that or planning at least a on lot, as we also realized over the years, especially this year, there are a lot of moving pieces. There are pieces of the timing of introduction of lower cost funds including by lead U.S. handset that came out earlier this year, unexpectedly, and that helped us in the beginning of the year. There was the Q3 ramp-up with the base station side, was because of COVID, there was a lot of consumer devices that for home office given also talked about earlier that they surprised the magnitude of us.

So TV are not necessarily a strong quarter in the second or third quarter of the year to be more of the Christmas-type of quarter, and this year was completely different. So overall, we look at royalties after a very strong Q3 and with many good surprises and shifts there, while looking at something similar for the next quarter. And that's pretty much only to say right down because it's hard to guess. We need to look at the hindsight and get the royalty report and then we calculate the numbers. But we're looking at something quite similar to where we are today.

So I hope that helps. Again, if you compare it to last year, we had a very strong Q4. It's sporadic after being in 2019, Q1, Q2 could see was in the $10 million, $11 million range, and then Q4 suddenly jump. This year, we started with a great momentum in the beginning of the year. That $11 million,$12-ish million level is also something that we're very happy and feel comfortable, and that's pretty much how we see next quarter looking like.

Matt Ramsay -- Cowen -- Analyst

Thank you, Yaniv for all the additional detail. I really appreciate it. All the best guys. Cheers.

Yaniv Arieli -- Chief Financial Officer

Sure. Thank you.

Operator

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

Richard Kingston -- Vice President of Market Intelligence, Investor and Public relations

Thanks, Brendon. 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 report on Form 8-K and accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following virtual conferences in Q4, the Roth Technology Virtual Event on November 11, wells Fargo TMT Summit 2020 on December one and two, Barclays Global Technology, Media and Telecommunications Conference on December nine and 10, and the Oppenheimer 5G Sumit on December 15. For further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Richard Kingston -- Vice President of Market Intelligence, Investor and Public relations

Gideon Wertheizer -- Chief Executive Officer

Yaniv Arieli -- Chief Financial Officer

Matt Ramsay -- Cowen -- Analyst

Peter Zdebski -- Barclays -- Analyst

Suji Desilva -- Roth Capital -- Analyst

David O'connor -- Exane BNP Paribas -- Analyst

Gus Richard -- Northland -- Analyst

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