UPDATE 2-Chip firm Ceva cuts outlook on weak 2G handset market
* Q2 revenue $13.6 mln, in line with estimates
* Weak sales of 2G mobile handsets hurt revenues
* Shares down 3.6 pct on Nasdaq
By Tova Cohen
TEL AVIV, July 31 (Reuters) - Israeli mobile chip designer Ceva Inc cut its 2012 earnings and revenue estimates due to weak sales of second generation (2G) mobile handsets, in particular at key customer Nokia.
Ceva Chief Executive Gideon Wertheizer said on Tuesday the second quarter was the first since 2009 that mobile handset sales dropped worldwide.
Ceva's revenue from royalties was negatively impacted by pricing pressures in the 2G market and weakness at Nokia , an important end-customer for Ceva's chips.
Companies such as Intel, Broadcom, Spreadtrum and ST Ericsson license Ceva's technology to build chips known as digital signal processors (DSP).
The decline in 2G handset sales was as a result of economic weakness in developed countries, as well as lower demand in Asia, where customers are awaiting the launch of new and cheaper smartphones.
Wertheizer said 3G phone sales fell 2 percent in the quarter though sales of smartphones based on Ceva's chips rose 16 percent due to the launch of Samsung's Galaxy S3 and the HTC One. He said he expects Ceva to continue to increase its share of the smartphone market as countries such as China move to 3G.
"While the competitive 2G market is experiencing pricing pressure, our volume growth in the lucrative 3G market during the quarter significantly outpaced that of the overall 3G space, as low and mid-range 3G smartphones gain traction," Wertheizer said.
Wertheizer told Reuters in June he expects Ceva to double its share of the 3G market, where it competes mainly against Qualcomm, to 50 percent in three years.
Ceva said it now expects 2012 revenue of $51.9-$55.9 million and earnings per share excluding one-off items of 78 to 82 cents, below a May estimate of $57.2-$61.2 million in revenue and EPS of 87 to 99 cents.
Ceva's shares were down 3.6 percent to $15.00 in early Nasdaq trade.
In May Ceva cut its 2012 earnings and revenue estimates due to weaker-than-expected sales at Nokia.
Ceva reported second quarter earnings per share excluding one-off items of 19 cents a share, compared with 22 cents a year earlier. Revenue fell 6 percent to $13.6 million.
The company was forecast to earn 17 cents a share on revenue of $13.5 million, according to Thomson Reuters I/B/E/S.
Ceva itself had forecast in May revenue of $13-$14 million and EPS excluding one-offs of 15 to 17 cents.
"The second quarter was the strongest licensing quarter in more than three and a half years," Wertheizer said, pointing to a strategic licensing agreement with a top handset manufacturer for a range of 4G LTE (Long-Term Evolution) mobile phones.
The latest agreements form the foundation for future royalty growth, he said, adding he expects revenue from royalties to resume growing in the fourth quarter.
For the third quarter, Ceva forecast revenue of $11.8-$12.8 million and EPS excluding one-offs of 16 to 18 cents. Analysts had projected revenue of $14.45 million and EPS of 23 cents.
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