CEVA, Inc., the quiet giant of silicon intellectual property, just had its Q1 2024 earnings call. On the surface, the results were mixed: royalties showed robust growth, but licensing deals were delayed, leaving analysts with a sense of cautious optimism. However, a deeper dive into the transcript reveals a hidden signal, a potential inflection point that could propel CEVA into a new era of growth and profitability.

The signal is subtle, but undeniable: CEVA is quietly shifting its strategy, moving from a volume-driven model to a value-driven one. This shift is evident in the company's emphasis on licensing next-generation IPs like Wi-Fi 7 and UWB, which command higher fees and royalty rates. It's also reflected in CEVA's focus on delivering integrated solutions, combining its connectivity, sensing, and AI capabilities into comprehensive packages.

This strategy shift is not just a reaction to market conditions; it's a proactive move to capitalize on CEVA's unique strengths. As Amir Panush, CEVA's CEO, pointed out, the company is one of a select few with the technical prowess to develop leading-edge IPs for the increasingly complex world of smart edge devices. By focusing on these high-value solutions, CEVA is positioning itself to extract higher revenues per deal and per unit.

"The potential impact of this shift is significant. Consider the following: * Wi-Fi 7 ASP Growth: CEVA's Wi-Fi 7 IP commands a higher ASP than previous generations, driven by the technology's complexity and higher royalty rates. As Wi-Fi 7 adoption accelerates, this ASP growth could translate into a substantial revenue boost. Let's hypothesize that CEVA captures 10% of the projected 1.7 billion Wi-Fi 7 chipset market by 2028, with an average ASP of $5 per chip. This alone represents a potential annual revenue stream of $850 million. * Integrated Solutions and Deal Size: CEVA's strategy of offering integrated solutions, like the Ceva-Waves Links, is driving larger licensing deals. If this trend continues, CEVA could see its average deal size double or even triple in the next few years, significantly amplifying its revenue growth."

While the company's Q1 licensing results might seem underwhelming, a strategic multi-million dollar deal was closed at the beginning of Q2, signaling a strong start to the quarter and hinting at the potential of CEVA's new strategy. Furthermore, the company's strong backlog provides additional assurance of future revenue growth.

CEVA's focus on operational efficiency further strengthens the case for its future success. The company has successfully kept its operating expenses flat despite expanding its product portfolio and investing in new growth areas. This disciplined approach to spending, combined with the company's high gross margins, creates a powerful recipe for profitability.

CEVA Royalty Revenue Growth by Technology

The following chart shows the year-over-year growth in CEVA's royalty revenue for its key technologies, based on data from the Q1 2024 earnings call.

Beyond the numbers, there are intangible factors that suggest CEVA is on the cusp of something big. The company's recent rebranding, its focus on direct engagement with OEMs, and its partnerships with industry leaders like Arm all point to a newfound confidence and ambition. CEVA is no longer content to be a behind-the-scenes player; it's stepping into the spotlight, ready to lead the charge in the smart edge revolution.

While risks remain, particularly in the volatile semiconductor market, the evidence suggests that CEVA is making the right strategic moves. By leveraging its technological prowess and focusing on value creation, the company is laying the foundation for a bright future. If this hidden signal plays out as predicted, CEVA's quiet years may soon be a distant memory, replaced by the roar of explosive growth.

"Fun Fact: CEVA's technology is embedded in more than 1 billion devices shipped annually. That's roughly one CEVA-powered device for every eight people on Earth!"