March 5 (Bloomberg) -- Ceva Inc., the Israeli chip designer whose products help power Apple Inc.'s iPhone, said its patents may be used in half of all the handsets sold next year as phone makers led by Nokia Oyj reduce costs.

Ceva, which sells designs to semiconductor makers including Infineon Technologies AG, expects 30 percent to 50 percent of mobile phones to use its technology in 2009, Chief Financial Officer Yaniv Arieli said in an interview from Ceva's research center in Herzliya Pituach, Israel. That compares with 12 percent in the fourth quarter of 2007.

``It's a realistic scenario,'' said Daniel Meron, an RBC Capital Markets analyst in Tel Aviv, who has an ``outperform'' rating on the stock. ``Our base scenario is that Nokia comes on board in 2009.''

Mobile-phone makers are seeking new suppliers for chips to speed development as demand from emerging-market countries increases. China, the world's largest handset market, will grow to 738 million mobile subscribers in 2010 from 540 million users last year, according to Canada's IE Market Research Corp.

To help cut costs, Espoo, Finland-based Nokia, the world's biggest handset vendor, said in August that it would develop fewer handset chips and rely on companies including Ceva customers Infineon and Broadcom Corp.

Design Contracts

Ceva rose 1 cent to $8.47 at 4:30 p.m. in Nasdaq Stock Market composite trading. The stock has slumped 31 percent this year.

The biggest risk for Ceva is that a global economic slowdown will reduce consumer demand for handsets, RBC's Meron said.

Ceva's digital-signal processing designs convert analog sounds and images into digitalized data. The San Jose, California-based company competes with ARM Holdings Plc, Tensilica Inc. and chipmakers' in-house design units. Ceva has so far relied on royalties for revenue and plans to get more sales from design contracts this year, Chief Executive Officer Gideon Wertheizer said in the same interview.

Each licensing agreement with a chipmaker earns Ceva between ``hundreds of thousands'' and a ``few'' million dollars. Royalties are tied to sales of the phones and earn the company between 5 cents and 15 cents for every phone sold, he said.

Handset Sales

Global handset sales may climb to 1.24 billion units this year from 1.12 billion units in 2007, according to Researcher Strategy Analytics. Even if sales don't grow in 2009, a third of the market would mean 400 million phones for Ceva, said Arieli.

Ceva forecasts 2008 revenue of $39 million to $41 million, compared with $33.2 million in 2007. Operating expenses, including stock-based compensation, won't exceed $34.8 million, compared with $31.3 million last year, the company said.

``In the last six months there were major developments in the cell-phone market and that will give us a lot of benefits and growth and profitability in the next couple of years,'' Arieli said in the interview.

Ceva also produces chip designs for home entertainment systems and announced five contracts with chipmakers last year for use in products such as DVDs and gaming consoles.

To contact the reporters on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net; David Rosenberg in Jerusalem at drosenberg1@bloomberg.net

Last Updated: March 5, 2008 17:01 EST