Northland Capital: CEVA’s DSP Processor to enter Apple’s 5G Modem

Apple is developing its own cellular modem that will be utilized in its 5G-compatible cellphones. The modem will be based on the DSP technology of the Israeli-based CEVA. Apple plann to bring the new modem to the market in the second half of 2022 along with the iPhone 13, and will be installed on all of the models that will follow it. This is according to a report by Gus Richard, an analyst at Northland Capital Markets.

Apple’s modem will likely be based on CEVA’s PentaG 5G platform, which provides full IP and algorithms needed for mobile 5G systems. PentaG contains specialized scalar and vector DSP processors, co-processors, AI processor, accelerators, software and other essential IP blocks, in a highly configurable and modular architecture. It supports all 5G bandwidths, including sub-6 GHz and millimeter waves (mmWave) bands, and allows a bit rate of up to 10Gbps.

Apple’s move began in July 2019, when it signed an agreement to acquire the majority of Intel’s phone modems division, for an estimated $1 billion. Upon completion of the transaction, all 2,200 employees of the division joined Apple. The deal came to fruition due to Intel’s decision to leave the 5G modems for smartphones business. Apple’s decision to build its own modem is a results of a bitter two-year legal dispute with Qualcomm that ended in a dissatisfying compromise.

CEVA is enjoying Intel’s Legacy

Intel’s cellular modems have been based on CEVA’s processor for many years, and in recent years CEVA has intermittently enjoyed and suffered from the changes made by Apple, when it switched between Intel’s and Qualcomm’s modems, and in some cases even split its production capacity between the two. But now the situation is different: Apple will not purchase a modem with CEVA inside – but will purchase the intellectual property directly from CEVA itself.

Richard analyzed CEVA’s sales mix, concluding that the fact that it was unaffected by the China-US trade war, as well as its growing presence in the 5G market, are advancing it toward a trajectory of growth. He therefore gave the company’s share a target price of $48 – compared to the price of $36.8 at which it is currently traded. Along with Apple, CEVA has several key Chinese customers, such as ZTE and Spreadtrum, which is its largest customer and whose sales are expected to rise in the third quarter of the year.

He estimates that next year Nokia will increase the production of 5G base-stations that include CEVA processors. He anticipates a 30%-50% increase in CEVA’s sales during the next 3-5 years in non-mobile fields, such as Wi-Fi, Bluetooth and smart home products, smart TVs, smart light bulbs, control systems, etc. CEVA’s 2019 annual sales totaled $87 million. In the Q2 2020, sales grew by 28% compared to Q2 2019, to approximately $23.6 million.