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I see that in August there was new unloading by Ceva's (NASDAQ:CEVA) three top executives and outside directors Zvi Limon and Eliyahu Ayalon, continuing a pattern of insider selling by executives and directors over the course of 2010. It's all something of a mystery to me. Back in March of this year, for example, Issachar Ohana, EVP Sales, was dumping shares like there was no tomorrow and one had to figure that there could hardly be a better indicator of weaker sales ahead. Then Q1 and Q2 results came out and they were terrific and Ceva raised its revenue and earnings guidance for the rest of the year. Beyond 2010 the company is projecting earnings within a few years at roughly double the current level. Conventional wisdom would say trust their actions (the selling) more than their words (the projecting) but my gut tells me that the company is being sincere and the business is going very well.

But then why the selling? I can think of a few possible explanations.

First, the sellers in question may simply be so nervous about the financial markets that they choose to sell in spite of Ceva's very low valuation (relative to, say, ARM or Imagination Technologies). This could be seen as difficult to square with the fact that Ceva expanded its share repurchase program at the end of May though, in fairness, the company has not indicated that it has actually repurchased any shares since then.

Second, it may be that the sellers adhere to a somewhat old-fashioned business philosophy which conceives of corporate leadership in terms of hired expertise without any particular need for actual ownership. Under this way of viewing things the primary leadership motivation, aside from salary, is expected to be a sense of duty to the owners, the institution, and perhaps also other stakeholders. In an extreme form of this mindset share ownership might even be seen as somewhat antithetical to the leadership role. Well, I've never been one to complain about an old-fashioned sense of duty and I've long had the impression that there is plenty of it at Ceva.

Of course, it's possible that the sellers all happen to need the money right now or they merely wish to diversify their holdings. It seems unlikely, however, that that could be the whole story given (a) how broad-based the insider selling has been during 2010 and (b) the fact that much of the selling has involved the exercise of share options (and immediate sale of all resulting shares) that expire years from now, in one instance as late as mid-2016. That is a lot of time-value to be giving away.

Am I at the point of saying that investors should disregard all the insider selling? Not for a moment. But I would say that they should at least bear in mind (a) the fact that past insider selling has generally not proven to be a sign that bad news was on the way and (b) Ceva's somewhat unusual culture, as measured by North American standards. I'm less troubled by the insider selling than I would be with a typical Silicon Valley tech company, though I am troubled by it.


Disclosure: Long CEVA

Source: New Round of Ceva Insider Sales