CEVA (CEVA -1.33%) is a relatively small company -- with a market capitalization just shy of $600 million -- that develops and licenses out digital signal processor (DSP) intellectual properties (IP) that chipmakers integrate into their designs to perform specialized calculations. 

Under CEVA's current business model, the little-known company generates an up-front licensing fee for its IP and is also paid royalties whenever chips incorporating that IP are sold in the marketplace.

After reviewing the company's recent analyst day materials, I'd like to go over three interesting long-term growth opportunities for the semiconductor IP specialist and see if it's a good investment.

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1. Cellular

CEVA's DSPs have long been licensed by makers of cellular baseband chips for smartphones. In fact, according to the company, about 66% of its revenue in 2013 came from licensing fees and royalty payments from smartphone baseband chip sales. Over time, the company has sought to diversify its business -- something that both reduces risks and opens additional growth opportunities -- but even during the first three quarters of 2018, 44% of its sales came from smartphone baseband chips.

Now, smartphone baseband applications should continue to be critical to CEVA's business over the long term. After all, smartphones aren't going anywhere, and the company seems to be well positioned to capitalize on the imminent industrywide transition to 5G wireless. 

What's interesting, though, is that CEVA indicated that it sees significant opportunities in cellular chips beyond smartphones. The company recently talked up how the move to more advanced LTE as well as 5G networks will necessitate "state-of-the-art DSP solution[s] to face new baseband requirements."

CEVA also highlighted how it has "established a tight collaboration with 3 of 5 Tier 1 OEMs" in a bid to make IP that's custom tailored to their needs. This, the company claims, "results in the most sophisticated DSP architectures" and "presents the competition with very high entry barriers." 

Beyond base stations, CEVA is also talking up the opportunity in the Internet of Things (IoT). The idea here is that as more devices become cellular enabled -- something that many think will be catalyzed by the 5G transition -- there will be a corresponding increase in the need for CEVA's related IP. 

2. Computer vision

Another area that CEVA is bullish on is the market for advanced computer vision processing. According to the company, the total market for devices with computer vision/artificial intelligence capabilities is set to swell in the coming years. 

There will be, per CEVA, "[more] than 1.5 billion cameras with computer vision/machine vision shipping by 2022."

That 1.5 billion breaks down as follows: 800 million from smartphones, 70 million from surveillance devices, 375 million from consumer electronics like cameras, 300 million from automotive, and 150 million in industrial. 

To capitalize on this opportunity, CEVA says that its strategy is based on four pillars. Two of them are hardware based and include the company's NeuPro AI processor and CEVA-XM, which is described as a "highly parallel processor for imaging and computer vision."

The other two pillars consist of its neural network software compiler (a compiler is a piece of software that translates human-written code into something that the computer can process) as well as its suite of software development kits.

3. Connectivity

CEVA's DSPs are used in many cellular baseband processors, but the company's technology is also useful in chips that handle Wi-Fi and Bluetooth connectivity as well.

The company claims that by 2022, the number of devices shipping with Bluetooth connectivity will hit 5 billion and the number of Wi-Fi-enabled devices should hit about 3.7 billion. (Many of these devices will have both Wi-Fi and Bluetooth connectivity, so we're not necessarily talking about 8.7 billion distinct device shipments.)

So, CEVA is going to try to capitalize on those large and growing market opportunities.

The company seems to be making solid progress. According to CEVA, its Bluetooth and Wi-Fi IP has been shipped in more than 1.5 billion chips to date. With respect to such chip shipments, CEVA also claims that it has enjoyed a "50% annual growth rate between 2014 [and] 2018." 

It also says that it has more than 150 customers for these designs and that it inks in excess of 25 new deals each year. And finally, CEVA highlighted the fact that it's "consistently first with [the] latest standards," something that should give it a technology edge over rivals.

Investor takeaway

CEVA's growth strategy certainly looks credible. The company has a good position in smartphone baseband chips today and its efforts to capitalize on other markets such as computer vision and non-cellular connectivity look promising, too. 

Its aim is to more than double its royalty revenue in 2022 relative to where it was in 2018. It's also hoping to roughly double its operating margin and triple its earnings-per-share leverage by that time. 

CEVA's financial targets are by no means a slam dunk -- it'll need to execute extremely well to reach them -- but if CEVA can pull it off, then the stock could trade significantly higher than it does today by the time 2022 winds to a close.