Good morning. My name is Crystal and I would be your conference operator today. At this time, I would like to welcome everyone to the CEVA first quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Arieli, Chief Executive Officer. Please go ahead.

Thank you. I’m not yet promoted, just Chief Financial Officer. Good morning everyone and welcome to CEVA’s first quarter 2009 earnings conference call. Today’s conference call contains forward-looking statements that involve risks and uncertainties as well as assumptions that if materialize or prove incorrect could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statement and assumption. Forward-looking statements include financial guidance for the second quarter of ‘09, 2009 general outlook, including handset sales for the second half of ‘09, optimism about our market share expansion, new product introductions by our customers, production schedules and our ability to generate revenues from these new products, prospects for the CEVA-XC, our ability to capitalize on the Smartphone, netbook, ultra-low-cost cell phone and 4G LTE trend and anticipated benefit of our cost containment measures. The risks, uncertainties and assumptions include the ability of the CEVA DSP cores and other technologies to continue to be strong growth drivers for us, our success in penetrating new markets and maintaining our market position in existing markets, successive operation of adjustment in producing their anticipated benefits, the possibility that the markets for our technology may not develop as expected or that our customer’s products incorporating our technologies do not achieve market ethics as expected. Our ability to timely and successfully develop and introduce new technologies, general market conditions and competitions and other risks relating to our business, including but not limited to those that are described from time-to-time in our SEC filings. CEVA assumes no obligation to update any forward-looking statements or information, which speak of their representative dates. This conference will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA and myself, Yaniv Arieli, Chief Financial Officer. Gideon will start and cover the business aspects and the highlights from this last quarter, while I will cover the financial results for the first quarter of ‘09 as well as the financial guidance for the second quarter of the year. With that said, I would now like to turn the call to Gideon.

Thanks Yaniv. Good morning everyone and thank you for joining us today. I hope you had the opportunity to review our press release with the results of the first quarter of 2009. During the quarter, we reported total revenues of $9.5 million, which was 6% lower than the first quarter of 2008. Royalty revenue for the first quarter of 2009 was $3.8 million compared to $3.7 million for the first quarter of 2008. Let me take a moment to remind you that our customers report royalties one quarter in arrears, so the first quarter royalties reflecting fourth quarter of 2008 shipment when the industry was already experiencing the severe downturn. With that said and despite the major economic slowdown, our royalty levels increased slightly on a year-over-year basis. This is largely due to our market share expansion in the handset and the growing use of our technologies in the mobile multimedia aspect. During the first quarter, we conclude that nine new license agreements, eight of the agreements were for our CEVA DSP cores platforms and software and one agreement works for our flash technology. Geographically, four of the license agreements are in Europe, three in Asia and two in the U.S. Target application for the licenses concluded during the quarter are mainly 3G and 4G handset, data card, smartphone, mobile multimedia and storage equipment. The first quarter of 2009 was a solid quarter for CEVA. Our revenue came close to the high end of our guidance. On the profitability front, we demonstrated record high achievement in our operating margin for both GAAP and non-GAAP measures as well as record high achievement net income and EPS on a non-GAAP basis. Our non-GAAP operating margin for the first quarter doubled to 20% versus 10% for the first quarter of 2008. Non-GAAP operating…

Thank you, Gideon. I will now review the results of operations for the first quarter of ‘09. Revenue for the first quarter was $9.5 million which was closer to the higher end of our guidance and only 6% lower than $10.1 million for the first quarter of 2008. Revenue breakdown was as follows: Licensing revenue was $4.5 million reflecting 48% of total revenue and essentially flat as compared to the first quarter of ‘08; Royalty revenue was $3.8 million reflecting 40% of total revenue and just slightly higher than the first quarter of 2008. Compared to the fourth quarter of ‘08, royalty revenue showed a decrease of 12%. This may be perceived as not being in line with our seasonal trend where Q1 royalty revenue tends to be highest given the Christmas shipment. However as we’re all aware, Q4 was extremely weak on the demand side due to the financial crisis. Service revenue was $1.2 million reflecting 13% of total revenue and 9% higher than the fourth quarter of 2008 with revenues of $1.1 million. Quarterly gross margins were 87% on US GAAP basis and 88% on non-GAAP basis, excluding equity-based compensation expenses. This is slightly lower than our previous expectation. As for the operating expenses, research and development costs were $4.1 million for the quarter including $0.3 million of equity-based compensation expenses. Sales and marketing cost was $1.6 million including $0.2 million of equity-based compensation expenses, and our G&A cost were $1.5 million including $0.3 million of equity-based compensation expenses. Total operating expenses for the quarter were $7.2 million which include an aggregate equity-based compensation expense of approximately $0.8 million. The level of expenses were significantly lower than our guidance and was primarily a result of better than expected impact of our cost cutting measures taken during the prior…

(Operator Instructions). Your first question comes from the line of Vijay Rakesh - ThinkEquity.

Just looking at the gaming platform, can you give us an idea of how many units you see there for 2009 and what are the next wins that you’re seeing on gaming side here going forward?

Unfortunately we will not, we get our report from the customers that supplies to some of these different models and then products, but this is all under NDA and we can’t reveal specific information about the sales of our customers. In general, as you know we our multimedia platform is involved and doing quite well over the last two years in gaining and market share and in design license activities. Just recently we are seeing more and more ramp up of these types of products in the market with mass production.

Got it. Do you see any additional gaming wins here in 2009, new gaming platform wins?

The relationship, without speaking specifically to the gaming console, the relationship that we have in the consumer space, in the mobile multimedia space is long term. I mentioned in my prepared remark, a follow-on agreement that we have with the Japanese company in the mobile multimedia space and it showed the long term, because it’s a continued project, we have one product that recently went to the market as good traction. Now we won the second generation.

One last question here, on Nokia it looks like Infineon that’s ramping well, it looks like Broadcom starting to ship also. Can you kind of help us understand what your market share trends will be at Nokia, how the shipment should trend ‘09 versus ‘08?

Vijay, again we cannot be specific. One thing that I want to draw your attention and investor attention to what I said about the trend that we saw all of these from the report that we have got for the first quarter shipment. We are gaining significant multitude or significant strengths in the ultra-low-cost, both in the GSM and the CDMA market. The real leading companies that engage with the Tier-1 OEMs in this space are using our technology and this is something that recently started and now gaining momentum.

Your next question comes from the line of Anil Doradla - William Blair & Company. Anil Doradla - William Blair & Company: Good morning guys. Can you give a sense of the breakdown on the royalty side and maybe even on the licensing side between the smartphones and the non-smartphones? I know it looks like you’re more awaited to the ultra-low-cost, but could you give us a sense how did you perform between these two categories?

I will give you the numbers and Gideon will add. So from an overall royalty perspective in Q1, quantity-wise about 60% of our royalties volume was handset driven. It’s more difficult to try to assess the difference, if it’s a feature phone or low-end phone or a smartphone, but I think with what we’ve seen in the last quarter at least, it’s a pretty significant ramp-up in the low-end type of phone. This is one of the bigger market opportunities and volume opportunities for us. Let me just clarify here. We are not biased for one segment of the market or another. Let’s say in Q1 where the ultra-low-cost shipments in China and India was strong and gained momentum, we enjoyed it, but smartphone is definitely a segment that we are well positioned and I mentioned in my remarks LG, Samsung , ASUSTeK and U.S.-based smartphone that use our technology. Going forward we believe the commoditization trend and there is one big Asian company that in the second half of this year will get into mass production with really low cost smartphone, because they managed to integrate both the communication baseband and the multimedia into one chip, and this was starting at the second half of this year. So smartphone is indeed a segment that we expect to gain momentum. Anil Doradla - William Blair & Company: So within the 60% of the volume shipped out, would do you was more 80:20 in favor of the ultra-low-cost or is it even higher than that?

You mean volume-wise or dollar-wise. Anil Doradla - William Blair & Company: Volume-wise.

Volume-wise, I would say might be 75:25, this is a rough. Anil Doradla - William Blair & Company: Okay, good. It looks like most of your success has been in the baseband business. Can you give a little bit color of activity in the application processor space during this quarter and may be going forward?

In the application processor space, our playground is the video and audio. So in the smartphone the Asian company that I mentioned that is going to get into mass production, they are using us for the multimedia. I mentioned in the consumer space, another company in Japan that make use of our technology again, not the baseband but in the multimedia. So the multimedia space is, definitely baseband is our main market solidly and multimedia is something that started to gain momentum say last year, because people understand that in order to be able to support, which is called Internet video, where you download or stream video directly from the internet from YouTube or stuff like this, you need the DSP for this purpose. So at that point we started getting traction and customer base with this one. One more, for downloading the result of marketing information, in China there is a one big name in the PMP and PMP stands for Personal Multimedia Player, but under the Personal Multimedia Player there is range of products like digital picture phone and application processor, the use the same technology based. This company license our technology, licenses our video software, have a chip, going to one production again in the second half of this year. Anil Doradla - William Blair & Company: Just shifting gears to the kind of the macro, can you share with us what you’re hearing from your customers on the inventory levels within the channel whether it’s going down or stabilized or you’re seeing any trends of pick up, any macro comments on that front?

In the cellular space, what we’re seeing is that, they show, I would say, they show one thing up in the second quarter, the forecast is about 10% down in the overall interface 2008, but people are feeling a wait and see mode, not sure about whether it’s just replenishment or just building up inventory or end demand ramping up. Anil Doradla - William Blair & Company: So finally, if you look over the last three months, would you say that overall the end markets you’ve seen a pick up or did you see acceleration in pick-up in the month of March or April, can you give us some color?

We get the report, the royalty reports on a quarterly basis and they don’t have the breakdown, the monthly break down it’s just the numbers for the full quarter. So, we don’t have that type of visibility, but looking at Q1 which is both the seasonal post-Christmas and the that overall slowdown, it seems that Q2 can ramp up from that in volume in the market, of course when we enter Q2 shipments we will report in our next call in Q3 and not in Q2 itself.

Your next question comes from the line of Matt Robison - Wedbush. Matthew Robison – Wedbush : Hi, good morning and congratulations. First of all, can you give the headcount and CapEx if there was any in the quarter?

Yes, headcount were about 175 employees and CapEx was shy of $100,000. Matthew Robison – Wedbush: Okay. Now how should we view the sustainability of that five royalty aspect?

It’s coming really from the mix, as you know the consumer related devices tend to bare higher royalties than some of very high volume ultra-low-cost cell phones. So now we need to continue to monitor the mix and as soon as the consumer gets back to either normal or better than what it showed and performed in the prior quarters then we hope to continue to benefit from that trend, but you’re absolutely right that the average rates per device on a quarterly basis compared to last year and even compared to Q4 it was higher. Matthew Robison – Wedbush: Which quarter wills that single chips low cost smartphone that you talked about those range?

It depends; the ultra-low-cost is not an ultra low performance. So we have the GSM, 2G when you go to next step, this is just recently Infineon announced a design win for EDGE, Nokia and also Broadcom, they are using more advanced DSP. Matthew Robison – Wedbush: You mentioned. I’m speaking specifically for that, it sounds like the first smartphone was a single chip design?

Yes, you mean smartphone, okay. Matthew Robison – Wedbush: Yes.

Okay. But that’s a CEVA. Matthew Robison – Wedbush: Okay. Can you talk a little bit about the design win cycle for XC, the new one?

Yes, that’s a good question. The CEVA-XC, it’s a new architecture. The idea there to have a single platform, the next generation phone will be a multi-purpose one. You run on the same platform, LTE, WiMAX, GPS, WiMAX II and we can support it. Now the production cycle, the mass market will be LTE, we know it’s about 213, three years from now, but you need to take into consideration that there is a design cycle and there is of the chip and there is a design cycle of the phone itself. From now on, people start getting interest in this technology; by the way we are licensing our CEVA-X to 3G, 4G in the next quarter, one of the deals was CEVA-X, 4G or 3.9G which is pretty clear. So, from now on let’s say two years from now we’ll see XC design wins coming at the rate that people will decide through and then starting for 2013 we’ll see it work. Matthew Robison – Wedbush: Okay. So you think the CEVA-XC actual design wins you may not see for another two years?

No, no, no, royalties. Matthew Robison – Wedbush: Okay. That makes more sense. Now, when do you think you’ll get your initial customer commitments to that architecture?

That’s something that we don’t specifically speak, but we hope that in this year overall the later part of this year make that could happen, but again it’s a prediction of specific deal and the specific technology is quite difficult, but that’s what we’re are trying to aim at. Matthew Robison – Wedbush : Are you excepting to be handsets or base stations?

It will be both. It’ll be handset, data cards, and base stations. Matthew Robison – Wedbush: In a base station context, isn’t a little bit different game because handsets you obviously a very tight power and economic template you have to work with. In the base stations, I would see that as a more give and take, there is also in the base stations maybe the notion you have to compete with the roadmap from Texas Instruments, where they may be selling a little bit of futures versus what you have. I know you’ve got pretty strong specs relative to what they have now. How does that competitive dynamic work out?

The difference between handset and base station, one of the things is the power -- by the way base station ultra-power is something that you cannot neglect. The performance need to be higher, the CEVA-XC is what we call scalable architecture. We create a derivative of the architecture that has two times or three times or four times than the handset for the base station purposes. So that’s the XC, now when it comes to TI we are coming with a different angle. TI is using their conventional DSP approach, and associated with SPJ and hardware. We are solving this totally differently, we give one platform, one DSP that you can do everything with hardware, you don’t need hardware, you don’t need SPJ, and everything is software. Right. Matthew Robison – Wedbush: Okay. Getting back to kind of the nuts and bolts in the numbers, your DSO is still low, in fact lower obviously, should we look at that in terms of collections or linearity?

No, just collections based on the deal of that we signed in the previous quarter and throughout the quarter, no special rule there, sometimes it could be back-end loaded and payment term is different and some times the deal could be in the early part of the quarter but the payment terms will be more generous for different reasons. So there is no rules, but just to make sure that you don’t have any bad debts which we do not have over the last couple of years and we manage still to collect from our customer which is the case again. So, no specific rules.

Did you see any change in the tone of customer attitude towards closing deals, licensing deals during the course of the quarter?

No, not really. Some deals we started to make before Q1 and they were actually signed in Q1, some deals were make and close during the first quarter. That’s also something that we’ll be seeing over the last year or two. So as of today we have not encountered any special problem of course as Gideon mentioned earlier every company that we discussed with really needs to make sure for it’s own sake that they need the technology, that they have the roadmap, that they have the customer to bake us through all the roadmap to start a project and as soon as they have that two items then they go ahead and license it regardless of the overall economy, but we haven’t seen any push outs of deals because of that.

Your next question comes from the line of Dan Meron - RBC Capital Management.

Thanks you. It’s Daniel Meron, and congrats on desired profitability here. First of all, just trying to understand the amount of the drop in the next quarter as far as revenue. Is this what you would term as vigorous now or do you think that some of this sequential drop is also related to the macro backdrop?

We said that on the call. There is no doubt that the macro is hurting the consumer side more than it ever heard that before, as I compared the drop in consumer. We don’t have the full visibility here in Q2 or we got a big partial report, but we have some good understanding how this next close is going to look like, the drop this year is much, much more significant in the consumer side than it was in the Q2 of ‘08. With that said, our prospects in market share growth on the handset side are better than it was a year ago. So that manages to offset some of the consumer stuff because it’s not the overall number would have been lower, but traditionally Q2 was always the lowest score for our royalty revenues over the last five years.

Okay, that’s fair. When it comes to the licenses business, obviously this quarter you had a pretty good performance there. Are you hearing any change in the sales cycle length or any indication that customers are trying to squeeze out or alter the R&D spending or do you feel pretty comfortable with that business time right now?

Daniel, consider that licensing is something that depends on the person that you speak with. In general, we don’t see any change in what is called sales cycle, things pretty much looks the same as the year before. The difference is the last mile or the last yard people have to sign an agreement. Companies are grooming engineers and manager and we think about absolute need to license technology now and that’s something that we need to be careful even prudent, because the cycle is not grown, but the last mile when someone at the CEO level has to sign this could turn out to be last minute change and they say let’s be fairly for quarter or the months or so. So this is the difference between today and a year ago, the fact that the whole process could stall at the last minute because someone got the concept.

Again not that we have encountered it last quarter, the general concern in our industry

Okay. And on the buyback you have 100,000 shares left or so, any thought of extending the buyback at this point?

I don’t know right now because we still have a plan in place and it’s been automatic 10V, 51 parameters are all set. As soon as we execute and when we execute the remainder, I assume the Board will discuss what would be the next step. We don’t have any update thus far, if we would, we would update you all of course.

Okay. So may be just under use of cash, I realize that you always look at opportunities, but if you can share with us a little bit more on the strategic feel of how you think you can utilize this cash position with M&A or other venues?

Of course, first of all we want to make sure and we have done that for the last couple of years that an IT business will be a very profitable IT business. The idea here is to leverage the 100% gross margin royalties to adjust your expense levels in a way that you are continuously investing in the business, the new DSP cores, the new platforms, but on the other hand come up with the results and the yields that such a business can earn and I think the indication is based on the first quarter that we came out with are very encouraging. That has a direct effect of what can we do next, of course we do on to and we are looking at just other markets, other ideas, how to expand the portfolio, products and maybe even technologies, but whatever we do if we do have to fall under the same guideline as I just mentioned, has to be something profitable, has to be something that’s in a very similar business model. We’re not going to be a fabulous company, we’re not going to be a hardware manufacturing company, so we have to put it in that context and then you could look around and then strategize if there are any ideas on the table. There aren’t none right now, but our brains are continuing to work even overtime in order to see how could we grow the company and at the end the day of course adds value for the shareholders as we do it.

Okay. And last one from me, if you can provide us with a sense on the operating expense line and how that matches up with the growth that you expect may be down the road. You mentioned I think earlier that this is not the first example. Can you give us a little bit more color on what is the level that we should expect with the certain revenue line or gross or whatever metric we should use with that?

The problem is that we did not give an annual guidance. It’s going to be little bit more difficult this time around than in previous year or quarters, when we do have an annual guidance we’ll share with you to give you the full picture. What I would suggest for the time being is take the very detailed guidance that we gave for Q2 and use that for Q2 and we remind you the non-GAAP figure is $6.3 million to $7.3 million for Q2 operating expenses at about $800, same levels of Q1 for the 123(R) expenses. For the time being until we actually give more detailed guidance in the second half of the year, I would now change the existing model that you’ve out there and keep the older version because we still have things to deal with. We need to see when the slowdown will take effect, we need to decide what to do with the salary freeze that we have of hand; we really squeeze as much as we can our operating efficiency and may be we will want to add some outsourcing or some other activities, professional service in the second half of this year. So, for now without giving any detailed guidance I would just wait and see because we are giving on a quarter-to-quarter basis and then we’ll revisit this and review again the second half numbers when we get closer to that timeframe.

Your next question comes from the line of Robert Morrison - Unidentified Company

I’ve just got a couple of questions. First, can you seriously think about the reception that you’re getting for the HD Audio, what do you see in terms of market size potential?

Reception, we are getting a good indication from customers, I’ll tell you why. The HD Audio is the audio that goes into set-top-boxes, DVD the one that the next generation that will be associated also for HD Video. Now, the performance that you made for the audio purposes is by far, and I’m speaking about three times more performance that you are getting today with your DVD or set-top-box. The companies in the past use in-house developed DSP are now facing a new situation where they need either to redesign a new DSP unlike the economy slowdown or come to us and license the food package. By the way we are offering both the DSP and the structure ready to use. So we are getting very good indications about ability of the technology and in fact that it’s logical to license at this stage. Now, the timing for the license I think what you’ll say, the market size is something that I don’t have everything in front of me, but it’s a range of DTV, Blu-ray DVD, set-top-box. This is something above 150 to 200 million units per year. Now the question is the timing, the consumer market is right now really depressed and companies they do design there are not that many at this stage.

With regard to the HD Audio as well, is this kind of brings you sort of into a new space in terms of who you are competing with, so for instance I’m wondering if this will make you more into a position of direct competition versus imagination technologies.

First of all it indeed bring us to new space, we call this space home entertainment. We were not covering this space in the past. When you go to a new space you have a competitor, Imagination is not a competitor, and Imagination is coming from the graphic space of the complement. They are other competitors, smaller companies and large companies like the Silicon’s [VSP] I think that we are in a better position.

Okay. Lastly I’m concerned a little about the average license fee. For the last quarter, the average is about $500,000 per license deal. My recollection is that when the CEVA-X first came out, there were comments to the effect that those re-licensing for about $1 million a piece that might now be quite right, but I’m wondering is there an industry deterioration in terms of what kind of license fee you can charge or is there a conscious or deliberate shift on CEVA’s part towards greater royalty fees at the expense of the license fee?

Hi, Rob, I’ll answer that. No, I think your conclusion is wrong, let me try to explain. I think it’s quite almost impossible to take the overall license, the quarterly licensing revenue and divided by the number of deals and conclude that this is the newest selling average price for the licensing business. What we have in this quarter and any other, usually limited somewhere between one to three major deals that are for the DSP core themselves, the engine so to speak and then the rest of the deals, the recounts of a new deal because it is a complementary technology. This could be different software codecs like you just mentioned, HD Audio, it could be use video codec, it could be Bluetooth or a SNAP technology, and then if we close a $2 million deal for one or two engines of the DSP cores, we could have two to four smaller deals, $200,000 to $600,000 deals for software implementation and others. You will see when the 10-Q comes out at this quarter that we have four significant 10% customers. We mean that if you the math, you will figure out that we did have a significant number of larger deals as well and the mix season, again the question is are you buying a car or the accessories to the call that you already have in each quarter have a different pace and to it.

Mr. Arieli, do you have any closing remarks?

I want to thank everyone for joining us today and for your continued interest in CEVA. I wanted to notify you that we will be presenting in two investor conference in the month of May. The first will be on May 17 with Oppenheimer 10 Israeli Conference and the second is on May 27, 28 at the Cowen Annual Technology Conference in New York City and we invite you to join us in these two conference and another investor events. Thank you and good bye.

Thank you for joining us today. This concludes our conference call. You may now disconnect.