JERUSALEM Israeli mobile chip designer Ceva Inc (CEVA.O) said it expected growth in phone upgrades in China to spur earnings per share which dropped 40 percent and missed expectations in the third quarter.
Among the 698 million customers of the world's biggest mobile carrier China Mobile (0941.HK), just 75 million are connected to 3G services, Ceva said.
But Ceva will benefit from a fall in smartphone prices to around $100 and below, Chief Executive Gideon Wertheizer told a conference call of analysts.
Ceva forecast 2012 revenue of $53.1-$54.1 million, compared with a previous estimate of $51.9-$55.9 million and market expectations of $54.3 million. It lowered its earnings per share estimate to 76-80 cents from 78-82 cents.
"Ceva should be past its first-half weakness and should start to show unit and topline growth," said Vijay Rakesh, an analyst at Stern Agee.
Shares in Nasdaq-listed Ceva rose 9.1 percent to $16.53 in morning trade.
Earlier this year, Ceva cut its 2012 earnings and revenue estimates due to weaker-than-expected sales at key customer Nokia NOK1V.HE.
Companies such as Intel (INTC.O), Broadcom (BRCM.O), Spreadtrum SPRD.O and ST Ericsson (STM.PA) (ERICb.ST) license Ceva's technology to build chips known as digital signal processors (DSP).
Ceva said its results continued to be hit by a weak global economy and poor 2G handset sales.
"While general macro-economic concerns adversely impacted our licensing revenue, we continue to see robust demand for our ... DSP technologies from customers targeting next-generation products," said Wertheizer.
"Despite some headwinds in our royalty growth, our wireless customer base made significant inroads into the 3G smartphone space during the quarter," he said.
He cited 7 percent sequential unit growth, key design wins and third quarter production ramp-ups at Huawei, Lenovo, Samsung and ZTE.
Ceva reported third-quarter earnings per share excluding one-off items of 16 cents a diluted share, compared with 26 cents a year earlier. Revenue slid 19 percent to $12 million.
The company was forecast to earn 17 cents a share on revenue of $12.3 million, according to Thomson Reuters I/B/E/S.
Ceva projects fourth-quarter revenue of $12.4-$13.4 million and EPS excluding one-time items of 16-20 cents. Analysts had expected revenue of $13.2 million and EPS of 20 cents.
During the third quarter, Ceva bought back 170,000 of its shares for $2.9 million and said it still has 730,000 shares available for repurchase under its existing buyback programme.
(Editing by David Cowell)