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CEVA, inc (NASDAQ:CEVA)
Q3 2021 Earnings Call
Nov 9, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the CEVA, Inc. Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor and Public Relations. Please go ahead, sir.

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

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's Third Quarter 2021 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 for 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 2021. 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 statements regarding demand for and benefits of our technologies, expectations regarding market dynamics, including anticipated growth in the cellular IoT market, beliefs regarding benefits and impacts of the Intrinsix acquisition, including expansion into the aerospace and defense market, an ability to offer integrated IP solutions and enrich security and assurance products and guidance and qualitative data for the fourth quarter and full year 2021. 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 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 base station and IoT license agreements; the effect of intense industry competition and consolidation; global chip market trends, including supply chain issues as a result of COVID-19 and other factors and our ability to successfully integrate Intrinsix into our business. 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 -- Chief Executive Officer

Thank you, Richard. It is an exciting time for CEVA. The need for and the deployment of our technologies for the digital transformation era never been more evident Wireless solutions between master are the catalysts for the mergers of new smart devices, among which are navies, earbuds and hearing aids, AR glasses, smart watches, smart home products, Industry 4.0 factory automation, telemedicine and more. Our innovative solutions market reach and strong execution are the drivers for another outstanding quarter of new licensing agreements and royalty progress. Total revenue for the third quarter of 2021 was a record high of $32.8 million, up 31% year-over-year.

The licensing environment continues to be robust and came in at $21.6 million, up 74% year-over-year. Our Bluebud product targeted for TWS earbud, Air glasses and smart watch markets and our WiFi solutions, which are ubiquous across many IoT devices and access point products were key contributors. Also in the quarter, our Intrinsix team executed very well signing important design agreements with Lockheed marking with a major industrial company in the defense space with an innovative wearable device company in the medical space. In total, we signed 25 IP licensing and NRE agreements, of which, 13 were first-time customers. Royalty revenue came at $11.2 million in the quarter, down 11% year-over-year. The royalty contribution from our base station and IoT product category was all-time high, driven by secular growth in Bluetooth, computer vision, sensor fusion and cellular IoT markets.

5G base station run, visibility is lower than normal as the space experiences longer lead time deal supply chain constraint. In total, royalty unit shipment of CEVA base station and IoT-enabled products, were 405 million units in the quarter, up from 200 million units in the third quarter last year. Handset baseband royalty this quarter include the milestone of the first 5G smartphone report we have received of just shy of three million units. This gross driver were muted by a larger-than-expected decline in got revenue. We do not see this decline as a market indicator as the 2G market is still sizable in developing countries, and we have experienced this pattern over the years from time to time in 2G royalties. Let me now make a few remarks on our business in the third quarter.

The first is our WiFi product line, which has become a strong driver for us in recent quarter. The complexity of WiFi technology rises dramatically when moving to a new generation of the standard. This possess technology challenges that defers a growing number of incumbents or new entrants from developing technology in-house and to seek our technology to solidify their time to market. The recent WiFi six and WiFi 6E standards are being rapidly adopted in the latest left of smartphone and router and are expanding to X or headsets such as the recent Metaverse initiative by Meta, formerly Facebook and as well as security camera.

WiFi six is also expected to have a fundamental role in autonomous car, where it will be used to upload the terabytes of data collected every day to the cloud where it will be used for AI-based optimization. CEVA is benefiting from a unique position as the only viable IT suppliers that enable semiconductor companies and OEMs to address the diverse and large market that require WiFi six or 6E and upcoming Wi-Fi seven standard. We have now more than 20 WiFi six customers, and our licensing revenue from this space grew 149% compared to the first nine months last year. We are also seeing good progress in shift CEVA-based WiFi product, which grew 24% to more than 111 million units versus the first nine months of last year.

Second, our customer activities have stepped up as we continue to integrate Intrinsix into CEVA. As we noted in prior calls, our growth strategy is driven, one, Intrinsix experience and customer base in the aerospace and defense market which we believe will enable us to expand into this lucrative space and to our capabilities to offer integrated IP solutions, which combines the CEVA IP portfolio and increase chip design competencies to broaden our impact and to grow our revenue base with strategic customer design.

The third quarter was extremely successful in concluding sizable agreements in the defense and medical space. We booked an important and sizable agreement with Lockheed Martin for DARPA SS ITH program. SS ITH stands for system security interface through hardware and firmware, and aims to revolutionize the way electronic systems our prospected gave different means of expectation. As part of the SS ITH program, CEVA through our subsidiary Intrinsix is involved in the development of new hardware security architecture and related design to to protect against entire classes of vulnerabilities exploited through software and not just specific vulnerability instances.

The methodology is being developed as part of this program will enrich our security and assurance IP, offering bringing new levels of protection who connected cars, wireless communication and other industrial markets. Another project that Intrinsix in concluding during the quarter is with a major U.S.-based defense company for advanced node chiplet design. Chiplet Technology is a new way in semiconductor integration with the goal to cost effectively assemble multiple [Indecipherable] or check let into one small chip package and by such gain time to market and lower anterior to key markets. Chiplet technology is already deploying cloud chips by Intel, Broadcom, AMD and Marvell the Intrinsix with the financial backing of BALPA and its ecosystem partner is aiming to drive chiplet to the defense market and further to proliferate them for commercial applications.

And lastly, regarding our activities and market dynamics in cellular IoT. Cellular IoT model is used in a wide variety of verticals, among which our logistics asset acting industrial, agriculture monitoring, parking payment system automotive connectivity and more. It is a high volume and fast-growing market, forecasted by ABI to reach to 920 million models by 2026, growing at a 29% compound annual growth rate. The main segment in the cellular IoT space is LVR IoT, capturing approximately 40% of the volume and growing 44% CAGR between 2019 and 2025. CEVA has strong traction in the CAT one and NB IoT spaces, the two standards we join which dominate the deployments today.

During the third quarter, we continued to see strong growth in volume, up 356% compared to the third quarter of last year, and received the same report for the first time from a new cellular IoT customer, one of the world's top 10 ranked IC design houses. Europe also prioritizing cellular IoT at the back of its large manufacturing base. We have three widely known European customers that have designed CEVA technology. The first is Nordic Semi, using CEVA for NV IoT with dozens of customers, the second sequence is using our PentaG platform for 5G cellular IoT with number of high-profile design win. The third is an unnamed leading semiconductor who is developing cellular IoT chips targeting its large industrial and smart meter customer base.

So in summary, CEVA is transforming from specialty in DSP core technology to a trusted technology house with a pivotal role in enabling new industries to become connected and sport. Our success is underpinned by our unique strength to combine DSP, AI, software, analog and RF designs into a holistic solution for customer and industry needs. We believe we are at an inflection point to scale our business and strengthen our collaborations with key players across broadening the range of industries.

Finally, we continue to monitor any possible implication of the ongoing supply chain constraint. As commonly acknowledged the semiconductor supply challenges in at our broad industries in different manners, which may translate to lower visibility. With that said, we are on track to meet our targets, and we'll continue to work with our customers and partners to mitigate negative impact.

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

Yaniv Arieli -- Chief Financial Officer

Thank you, Jim. I'll start reviewing our operations and for the third quarter of 2021. Revenue for the third quarter was up 31% to $32.8 million, our second sequential all-time high as compared to $25 million for the same quarter last year. Revenue breakdown is as follows: licensing and are related revenue was approximately $21.6 million in all time high, reflecting 66% of our total revenue, 74% growth from $12.4 million for the third quarter of 2020 and 39% sequential growth. This is the full first quarter that we recognized NRE revenue, which resulted from our acquisition intrinsic back in June. Royalty revenue was down 11% to $11.2 million, reflecting 34% of our total revenues compared to $12.5 million for the same quarter last year.

As Gideon noted, our consistent growth in base station and IoT and the penetration to 5G smartphones is muted by a larger-than-expected decline in 2G royalty revenue. Quarterly gross margins came in better than expected due to lower allocation of Intrinsic NRE cost from the R&D expense line to their cost of goods expense line. Gross margin was 85% on a GAAP basis and 87% on a non-GAAP basis as compared to our 81% to 82% guidance. Non-GAAP quarterly gross margin excluded approximately $0.2 million of equity-based compensation expense and $0.2 million for the impact of amortization.

Total GAAP operating expenses for the third quarter was over the high end of our guidance at $26.3 million due to lower allocation Intrinsix NRE cost from R&D to the cost of goods and for our prior quarter guidance. Such shift between these two expense lines may happen from time to time and are tied to the actual design services performed in the quarter. opex also included an aggregated equity-based compensation expenses of $3.2 million and $1.2 million for the different amortization. Our total non-GAAP opex for the third quarter, excluding these items, were $21.9 million over the high end of our guidance due to the same reason I just stated with regards to the GAAP numbers.

GAAP operating profit for the third quarter was $1.7 million, up from $2,000 in the same quarter a year ago. Non-GAAP operating profit was $6.5 million, up 51% from the third quarter of 2020. For the first nine months of 2021, non-GAAP operating profit was up 69% year-over-year to $15.5 million, illustrating the growing operating leverage we are achieving, while we scale the business. Tax expenses for the third quarter was approximately $1.8 million, a bit higher than forecasted with strong revenue mix and interest for connectivity products originating in France, which have a higher corporate tax rate. U.S. GAAP net loss for the quarter was $0.2 million, and diluted loss per share was $0.01 for the third quarter of 2021 as compared to a net loss of $0.7 million in diluted loss per share of $0.03 for the third quarter of 2020.

Non-GAAP net income and diluted EPS for the third quarter '21 were $4.7 million and $0.20, up 29% and 25% year-over-year we expected. Non-GAAP net income and diluted EPS for the third quarter of 2020 were $3.6 million and $0.16 respected. With respect to other related data, Shipped units by CEVA's licensees during the third quarter of 2021 was 438 million units, up 26% from the third quarter of 2020 reported shipments. The 438 million units reported 33 million units or 8% were for handset baseband chips. Our base station and IoT product shipments were a record 405 million units, up 29% sequentially and 13% year-over-year. Note, bluetooth was a new record of 291 million units for the quarter and cellular IoT, also reached a new record high of million units.

As for the balance sheet items. As of the end of September 2021, we see that cash, cash equivalent balances, marketable securities and bank deposits were $145 million. Our DSOs for the third quarter were 43 days, a bit higher than the prior quarter, but at our normal level. During the third quarter, we generated $6.4 million from operating activities, depreciation and amortization was $1.7 million and the purchase of fixed assets was $0.2 million. At the end of the third quarter, our headcount, including the Intrinsix team, was 485 people, for which 403 are engineers.

Now for the guidance. Our strong top line performance in the first nine months of 2021 was outstanding and provides us with a strong confidence in our business and strategy going forward. We, therefore, are raising our annual revenue guidance up to a new range of $120 million to $122 million. Our licensing business and our market reach is expanding with good backlog and pipeline for the upcoming quarter. We believe the growth trend in the base station and IoT category LTE and 5G will persist into the fourth quarter.

With the extent that such growth in the fourth quarter being subject to any near-term supply chain constraints, specifically for the fourth quarter of 2021. Gross margin is expected to be approximately 82% on a GAAP basis and 84% on a non-GAAP basis, excluding rate $0.3 million for equity-based compensation expense and $0.2 million of amortization. opex for the fourth quarter should be slightly lower than the third quarter. For the fourth quarter, GAAP-based opex is expected to be in the range $25.5 million to $26.5 million.

On the anticipated total operating expense for the fourth quarter of $3.2 million is expected to be attributed to equity-based compensation to $1.2 million to the different amortization. Therefore, our non-GAAP opex is expected to be in the range of $21.1 million to $22.1 million. Net interest income is expected to be approximately $0.3 million. Access for the fourth quarter to be approximately 25% on a non-GAAP basis. And share count for the fourth quarter is expected to be around 23.8 million shares.

And Rocco, we could now open the Q&A session. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] First question comes from Matt Ramsey at Cowen. Please go ahead.

Matt Ramsey -- Cowen -- Analyst

Thank you very much. Good afternoon and good morning everybody. I guess for -- to start off with congratulations on all the progress in the business and the raising of the guidance at all. I just wanted to understand a bit about what happened in the mobile, I guess, baseband or handset units dropping off in such a big way in the results. And Gideon, if you could just walk me through the market dynamics or there a particular licensee situation that went on. It was just kind of -- or were there some reclassification of numbers as you guys refocus the company on on new growth areas? I'm just trying to get my mind around that one a little bit.

Gideon Wertheizer -- Chief Executive Officer

Good morning. Let me to -- Let me go through first on the composition of the royalties, the way we see it. So as we discussed, the base station in IoT category is flourishing. And we have almost all the products that are growing when you look year-over-year, significantly computer vision, bluetooths, cellular IoT sensor fusion. So that's what we plan and aims and how it's kicking. Base station and IoT, we -- it's -- last year, we had a very strong quarter. Everybody went out of the lockdown. So that was the first full quarter of coming out the lockdown. So it's our comparison. But overall, it's moving. We see it also in the design wins that they are getting China Mobile, for example, both big change. Mobile, when you look is -- I would say, generally, it's trending the way we expected.

We see LTE growing, the 5G is right. I mean the 2G is something that we had in the past there could be different treatment. I don't think it's a matter of things or you don't have inventory in these days. It's more like prioritization. We see many chip companies giving priorities on the allocation that they get to the top tier to high end phones and not to this one. From time to time, we do to up because we had last quarter was very significant one. So we move things between quarters. So I would then the 2G, I don't see it's a market items. I think next quarter is a combats the reason that we don't change our guidance as a result. So it's nothing to do with the general trend that we see in the mobile, which is as we expected. And the good thing is that now we are in the 5G.

Yaniv Arieli -- Chief Financial Officer

By the way, Matt, when you look at it from a nine-month perspective, smartphones are up year-over-year for us in volume. And the 2G looks better on a line months comparison, still lower than last year, but this is due to this Q3 pickup, and we think it could pick up next quarter.

Matt Ramsey -- Cowen -- Analyst

Got it. And thank you for that guys. Just one quick little follow-up to that and then one more question. I guess the follow-up is, should I take it from the fact that the mobile run rate came down as much as it is that sort of the headwind from the Intel modem transition in Cupertino is kind of fully behind you guys in the run rate now.

And then my other question is completely unrelated. But Yaniv, on gross margin, you guys came in well above and opex was higher, too. I just wonder, you guys brought in Intrinsix. And I think some of the folks there might have been categorized in cost of goods versus opex that would have been in your old like core business. I mean, working with the auditors and whatever, is there any kind of change in the allocation there? And how should we think about gross margin going forward?

Yaniv Arieli -- Chief Financial Officer

Sure. So let's start with the first one. Apple is still selling iPhone 11 and FD low-cost type of phones, and it's still out there. We don't know until what and how long it stays. But our report for Q3 was stronger than Q2, for example. So it's still there, it's still contributing. And as long as those phones are shipped, we're getting paid, and that's still a contribution much lower than in the past, but still a positive contribution for us. That's the common in Apple. It has nothing to do with those that design loss at the Qualcomm.

On the cost of goods, you are right that the business -- the service business, when you have products recognized revenues, those expenses are or written at the cost of good time. What happened in the last quarter that not all the people, the R&D guys were utilized for those deals. So we're still doing R&D per se for Intrinsix and not services. And therefore, we had a -- unlike what we had forecasted originally in the beginning of the quarter of 81% to 82%, just a bigger portion of them kept still ended R&D for -- whether it's security or chiplets or a bunch of other technologies that intrinsic has today, and we are trying to make an business out of that and to combine it with their ongoing services.

So it has nothing to do with arbiters whatsoever. This is apparently something that could move from quarter-to-quarter, less in our control. And it more depends on the timing of closing the deal and act to start of an employee or engineer starting to make those design services. And as soon as we do, those costs are recorded in cost is not there, it's in R&D. And that could shift and we had about $1 million shift in our expectations in the third quarter. We think that in the fourth quarter, there'll be more and higher revenues from NRE and therefore, higher expenses in COGS is a little bit lower in the R&D line. So that's the shape that could happen from time to time.

Matt Ramsey -- Cowen -- Analyst

Got it. Just to be clear there, Yaniv, so this is just to set the expectations for investors that this could bounce around a little bit on a quarter-by-quarter basis, but it's not really indicative that anything is changing in the business or the accounting. It's just kind of the way that this business could work as you fold in Intrinsix over time. Thank you for taking my questions guys.

Yaniv Arieli -- Chief Financial Officer

Yes, that's exactly the case, Matt, nothing to do with accounting, just the ramp-up of the product. And I'm sure that when we are fully ramped up and have many more customers and prospects, we may have less of that effect because most people will be involved directly with customers.

Matt Ramsey -- Cowen -- Analyst

Thank you.

Operator

And our next question today comes from Tavy Rosner with Barclays. Please go ahead.

Tavy Rosner -- Barclays -- Analyst

Hi, good afternoon and thanks for taking my questions. Did you break out what the interest were new contribution was this quarter? Just trying to get a sense of what organic growth was.

Gideon Wertheizer -- Chief Executive Officer

The interest income, you said?

Yaniv Arieli -- Chief Financial Officer

Intrinsix. No?

Tavy Rosner -- Barclays -- Analyst

Intrinsix.

Yaniv Arieli -- Chief Financial Officer

P-- Intrinsix. Right now, we're looking at it as a one business model where we started off last quarter for the first time with this one month. We stated that it's new. But when we bought Intrinsix, it was around the $20 million run rate. We said in the first earnings call here with the combination. And plus minus is that those are the annual run rate. And the idea for us is not to as Gideon alluded earlier in the prepared remarks, is not just to tackle that market with NRE services, but also with the combination of integrated IP solution. And those are the things that we're working on. And hopefully, that run rate could increase when we offer more IPs to their existing and new customers in the future.

Tavy Rosner -- Barclays -- Analyst

That's helpful. Yes, no, definitely. And just following up on that, were you about to quantify the opportunity within our aerospace and defense?

Yaniv Arieli -- Chief Financial Officer

Well, this is roughly $6 billion market in a year in different chips shipments. And tens of billions of dollars in R&D projects. And the idea for us is to not just to get and to continue and to get larger share in this project, but more to drop in into OIP. And in such a case, you make a combination of IP and services into this one, and that becomes more typical to what we are doing today by licensing of the share of IP. The other approach is to go outside of the defense to large OEMs and to offer them customization of the IP that we have at CEVA. We call it integrated IP solution. It's a more comprehensive solution to the customer, and which -- the benefit for this is higher overall deal size and royalties. And that's exactly what we are doing in this.

Tavy Rosner -- Barclays -- Analyst

Thanks, color. We can go back to the queue. Thank you.

Yaniv Arieli -- Chief Financial Officer

Thank you, Tavy.

Operator

Our next question today comes from Suji Desilva at ROTH Capital. Please go ahead.

Suji Desilva -- ROTH Capital -- Analyst

Hello, Gideon. Congrats on the progress here and the diversification, certainly. A couple of questions about the base station IoT bucket. Now that Bluetooth is strong. I was curious the non-Bluetooth part of base station IoT. Gideon, what do you think are the best growth opportunities over the next several quarters in that? Because I think it's going to be an increasingly important segment to talk about, the non-Bluetooth base station IoT segment.

Gideon Wertheizer -- Chief Executive Officer

So in terms of shipment, there is shipment and there are trends in the market that I can expand on this later. So in terms of shipments, we talked about WiFi. WiFi is growing significantly in terms of units. You see we dramatically cellular IoT. That's another angle. Now that Europe is bringing up this one. It's -- and we have three customers there. So that's another one, computer vision, which comes together with AI. So these are active projects. And when you look year-over-year, it's a substantial growth, and that's a driver. Now we have excellent product for the TWS market where we see now in the licensing, this is what we call the Bluebud. But we expanded on that on the prepared remark, and we have now, I think, three or four licenses just in a very short period. And that will be a driver, in my opinion, in the second half of next year.

Suji Desilva -- ROTH Capital -- Analyst

Okay, thanks. Gideon. And then on Bluetooth, it's just a large part of your units at this point. Is the ASP there relatively static? Or is there an opportunity to uplift the ASP through products as you go forward?

Yaniv Arieli -- Chief Financial Officer

Excellent question, Suji. So the market itself is pretty stable there. It's really volume driven at this point because the price points are obviously the right place in order to tackle such a huge market and consumer and industrial and gaming and everything that's connected to Bluetooth. WiFi is making its first steps because of the advantages of the bandwidth and the technology has really evolved with audio and others. There, the ASPs are higher than, obviously, the Bluetooth. But the combination of higher ASPs overall for CEVA is either combo chips, and we have seen those Bluetooths and WiFi together these days. And on top of that, this is what Gideon talked about the Pico, which is adding either audio or audio and sensor fusion and then the royalties really jump up significantly.

So we have really enjoyed all the different flavors, I would say, of stand-alone Bluetooth, Bluetooth and WiFi and these other new technologies. And I think that's -- So the two new deals for TWS, the first one last quarter and the market is looking very, very hot. It's a nice prospect and achievement for us. Let me give you just an indication on the size of the market. The Bluetooth overall is about four billion units a year. And out of which 1.4 billion units is audio, Bluetooth or TWS. And that's exactly where we want to go because we can -- we're net position, but we will combine these two propositions that's exactly what we -- the reason that we build these blue budget. We can go to the largest market in the later and come out with a higher value. And as such, would be higher.

Suji Desilva -- ROTH Capital -- Analyst

If I could take in one last question. Is the licensing at this run rate, the new level, never how should we think about that?

Gideon Wertheizer -- Chief Executive Officer

No, licensing revenues have increased for this product line. It's a new sort of combination of product for us. It's not a DSP per se, it's not Bluetooth. We are able to charge a premium for that. And I think it also saves money for the OEM or for the chip vendor because they need to deal with two different suppliers and vendors and chips and technologies, you integrate that into one I see. So it's a win-win for both sides, and the licensing activity has been very active grounded. If you look at CEVA, overall, for the first time, north of $20 million, $21 plus-million. These are number that we have never seen before, the old CEVA, and part of it is Intrinsix. Part of it is the new seal of new power kits and new opportunities.

Yaniv Arieli -- Chief Financial Officer

And what we -- another benefit that we see with this licensing is that you get R&D leverage because we are talking about 69% on the nine months -- 69% in operating profit. You saw the volts down year-over-year, but when -- But when you look on the operating, you get substantially benefit.

Suji Desilva -- ROTH Capital -- Analyst

Okay, thanks everybody.

Yaniv Arieli -- Chief Financial Officer

Thank you, Suji.

Operator

And our next questions today come from Martin Yang at Oppenheimer. Please go ahead.

Martin Yang -- Oppenheimer -- Analyst

Hi, good afternoon. Thanks for taking my question. First, I wanted to ask about your traction with customers on WiFi six? And how -- can you maybe give us more details on how the customers are using WiFi six? And what are the high-growth end market applications you're seeing for WiFi six?

Gideon Wertheizer -- Chief Executive Officer

Martin, it's Gideon. The way we see it today, WiFi it is what is called smart home. many Products would be TV, it could be smart speakers, could be security cameras. These are the main driver WiFi six. We start seeing automotive. We start seeing the industrial use cases, but smartphone is a big driver.

Martin Yang -- Oppenheimer -- Analyst

Got it, thanks. My second question is on your traction with smart EMs that are developing or in-house chips, is there any update there? And how have the impact do you think they might be developing their own chips in the current environment?

Gideon Wertheizer -- Chief Executive Officer

Your line is not that clear. Did you talk about smartphone or smart OEMs -- What's SmartFlow smartphone.

Martin Yang -- Oppenheimer -- Analyst

Smartphone OEM, you have signed the baseline and license agreement with you.

Gideon Wertheizer -- Chief Executive Officer

Yes. I mean in terms of landscape in the smartphones, it's pretty similar that used to be. So there are the few OEMs that internalize and do development, we are associated with some of them; some of them are being also. And there are not that many newcomers into the smartphone market. Now we have several other angles into the smartphone and also to the 5G. In terms of smartphone, we are getting into the smartphone to our Wi-Fi and Bluetooth technology because all those smartphone need connectivity.

So we have several OEMs that are using our connectivity IP for smartphone and will ship and it's -- for us, it's indifferent, whether you do baseband or you do connectivity, doesn't matter. To some extent, we're getting higher royalties. So that's one of us. The other approach which I touched in the prepared out is what is called cellular IoT. So it is everything that relates to 5G that is not handset. So it could be net it could be fixed wireless access, which is a very big market. It could be a cellular VPX in automotive.

This is very -- these are very big m arket. And here, the opportunities are much more open, the market is much more fragmented, and the need for a company like us that comes with holistic solution with platform solution, not just component there and that can associate it with services, that's highly valued in this space. And we do get customers on that. I just mentioned three just in Europe that are actively working.

Martin Yang -- Oppenheimer -- Analyst

Thank you.

Gideon Wertheizer -- Chief Executive Officer

Thank you, Martin.

Operator

[Operator Instructions] Next question from Kevin Casey at Rosenblat Securities. Please go ahead.

Kevin Casey -- Rosenblat Securities -- Analyst

Thank you and congratulations on the strong results. I'm wondering if you have conversations with your customers about the supply tightness for next year. what kind of increase in unit shipments? Have they given you anything like this?

Gideon Wertheizer -- Chief Executive Officer

Kevin, it's kind of a $1 million question. People are completely split about the severity of this crisis. I mean, we just don't know. And just to give you an example, it looks like in the third quarter, only chip for iPhone manufacturing. And mobile android was put aside and people that are -- and it's completely different between nodes, between markets. I mean we for sure, we don't know, but I'm telling you that our customers don't know different people have different opinions. So we need to take it step by step, quarter by quarter and moving forward -- backward and see whether -- last year, we were in a better position and was positioned. But it's -- the supply chain is there, and it's unknown to almost everybody. And let's you are a big name and you can changes impact the defined with.

Kevin Casey -- Rosenblat Securities -- Analyst

Okay, thanks. And how about visibility into 5G base station deployments? Do you -- are you seeing any of that coming in 2022?

Gideon Wertheizer -- Chief Executive Officer

Yaniv?

Yaniv Arieli -- Chief Financial Officer

Let me say the driver in the market, the demand is the -- no doubt that the customers, which is the operator are waiting for chips, waiting for systems today. And when you look on a base station, it's not just where we are the baseband workload. It's a bunch of other chips, some of them are are, some of them are in the antenna side. There are systems, there are materials getting there is become complicit. So some of our customers publicly said, it's become challenging, we think we are on track. That's what I'll say.

But -- It goes back to your second previous question about when the supply chain we can see that we know what's going on. Right now, no, but the good news is that demand is there design wins out there, at least from our -- from our customers day standpoint is we need to take it quarter by quarter, try to help them as much as we can and hope for the best. More or less, we're reading the public data that you guys have access to, we don't have yet any specific or special information about 2022 for many of our these station customers or handset customers in that respect.

Kevin Casey -- Rosenblat Securities -- Analyst

Okay, thank you very much.

Yaniv Arieli -- Chief Financial Officer

Thank you,

Operator

Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

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

Thanks, Rocco, and thank you, everybody, 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 investor events, the tenth Annual ROTH Technology event, November 17 and 18 and the fifth Annual Wells Fargo TMT Summit, November 30 through December two and Barclays Global Technology, Media and Telecommunications Conference December seven and eight. 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: 51 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 Ramsey -- Cowen -- Analyst

Tavy Rosner -- Barclays -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

Martin Yang -- Oppenheimer -- Analyst

Kevin Casey -- Rosenblat Securities -- Analyst

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