MaxLinear Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2023

There are 12 speakers on the call.

Operator

Greetings, and welcome to MaxLinear's First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thank you, Doug, and good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's Q1 2023 Financial Results. Today's call is being hosted by Doctor. Kishore Sundripu, CEO and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today include forward looking statements within the meaning of applicable securities laws, including statements relating to our guidance For the Q2 2023, including revenue, GAAP and non GAAP gross margin, GAAP and non GAAP operating expenses, GAAP and non GAAP In addition, we will make forward looking statements relating to trends, opportunities and uncertainties in various product and geographic markets, including, without limitation, statements concerning opportunities arising from our broadband, wireless infrastructure, Connectivity and Industrial Markets, timing for the launch of our products and opportunities for improved revenue and market share across our target markets.

Speaker 1

Additionally, we will make forward looking statements relating to the completion of the pending Silicon Motion transaction and its anticipated timing. These forward looking statements involve substantial risks and uncertainties, including risks arising from our proposed merger with Silicon Motion, Including the anticipated timing of the People's Republic of China State Administration for Market Regulation or SAMR review, Risk related to increased share excuse me, risk related to increased indebtedness, competition, the impacts of global economic downturn And high inflation. The cyclical nature of the semiconductor industry, our ability to obtain or retain government authorization to export certain of our products or technology, ability to support current level of revenue, including the impacts of excess inventory on our customers, Expected demand for certain of our products and a failure to manage our relationships with or negative impacts from third parties. More information on these and other risks is outlined in our Risk Factors section of our recent SEC filings, including our Form 10 Q for the quarter ended March 31, 2023, which we filed today. Any forward looking statements Are made as of today, and MaxLinear has no obligation to update or revise any forward looking statements.

Speaker 1

The Q1 2020 3 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including but not limited to gross margin, operating margin, operating expenses and interest and other expense on both a GAAP and non GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non GAAP presentations in the press release available on our website. We did not provide a reconciliation of non GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock based compensation and its associated tax effects. Non GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for the comparable GAAP financial measures.

Speaker 1

We are providing this information because management believes it is useful for investors as it reflects how management measures our business. Lastly, this call is also being webcast and a replay will be available on our website for 2 weeks. And now let me turn the call over to Doctor. Kishore Sundripu, CEO of MaxLinear. Kishore?

Speaker 2

Thank you, Leslie, and good afternoon, everyone. Our Q1 revenue of $248,400,000 Was down 15% sequentially and 6% year on year basis. In Q1, non GAAP gross margin was 60.3% and non GAAP operating margin was 27.8% with cash flow from operating activities of $42,200,000 Wireless infrastructure had a highlight quarter recording 45% sequential and 41% year on year growth, along with strong forward growth momentum. However, our broadband access and connectivity businesses were challenged due to excess inventory in the channel along with seasonality in Q1. Our industrial multi market revenues remain stable in what is proving to be a cyclical semiconductor downturn.

Speaker 2

In 2023, MaxGene is continuing to lay the Critical groundwork for future growth with design win activity, technology innovation and customer relationship building Spanning fiber broadband, Wi Fi connectivity, wireless infrastructure and high speed data optical Data center interconnect to enterprise markets. We believe that these initiatives will drive future market share gains and further We continue to be encouraged by the strong market adoption of our Wi Fi 6 and SysPoint solutions and the growing pipeline of new and existing customer design wins in both service provider gateways and third party standalone routers. More importantly, our Wi Fi 7 products represent the next phase of growth for our connectivity products. Our Wave The 700 product family is the industry's 1st and only single chip tri band Wi Fi 7 solution targeting access points. Due to their highly differentiated performance, power and cost benefits, we expect our Wave 700 products to both improve Average selling price and drive higher attach rates in our broadband and connectivity businesses.

Speaker 2

Our first Wave solutions will launch later this year and we expect to ramp multiple solutions throughout 2024. Regarding our broadband access market, though demand continues to be soft due to excess channel inventory, we are confident in and excited by the longer term outlook As the multi year upgrade cycle of infrastructure modernization by both MSOs and telco carriers firmly takes hold. We have solid market traction with our industry leading single chip integrated fiber PON and 10 gigabit processor gateway solution. Our PON access revenue increased fourfold in 2022 and we are well positioned for continued share gains in 2023 due to the breadth of our integrated Access and Connectivity Technologies. As the industry migrates from legacy DSL and older PON technologies to 10 gigabit PON, we We see strong growth momentum throughout 2023 as 5 gs wireless backhaul deployments of multiband and hybrid millimeter wave and microwave radios Double the silicon content per platform of our modem and RF transceiver products.

Speaker 2

We are very well positioned to benefit from the expanding rollout of e band millimeter wave technologies across several large geographies, including India, In conjunction with the proliferation of 5 gs networks, we are currently partnered with Tier 1 equipment suppliers to support ongoing 5 gs network rollouts That will drive our growth through 2023 and beyond. In high speed optical datacenter interconnect, we are in a leading strategic position We have a strong design win pipeline for a 2nd generation and industry's only 5 nanometer CMOS, four And 800 gig PAM4 production ready silicon. We are making good progress with the ongoing qualifications for data cell deployments that will ramp production shipments Late this year and continue to do so over the next 2 years. In addition, we are working very closely with hyper Data center, enterprise and OEM module customers to address the increasing optical interconnect performance requirements driving the industry's transition to 400 gigabit, 800 gigabit, 1.6 terabit and beyond data speeds. We entered 2023 with a strong For our portfolio, significant market traction and robust designing activity across all our strategic markets.

Speaker 2

Even as we navigate the ongoing macro demand weakness with extreme fiscal discipline, we are excited by our design win momentum and are strengthening DG customer and partner relationships, vertically in Wi Fi, fiber access and wireless and optical data center infrastructure. We believe that our platform approach driven by strong technology innovation is enabling us to not only secure new business opportunities, We'll also further expand our silicon content in areas where we have proven success. We're also looking forward to our pending acquisition of Silicon Motion, which will further expand the growth opportunities for a combined comprehensive product portfolio. With that, let me now turn the call over to Steve Litchfield, Steve, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve?

Speaker 3

Thank you, Kishore. Total revenue for the Q1 was $248,400,000 down 15% versus Q4 and down 6% year over year. Broadband revenue was $82,000,000 down 18% versus Q4 and down 39% year on year and was in line with our expectations entering the quarter. Connectivity revenue in the quarter was $66,000,000 down 37% sequentially, but up 10% year on year. Our infrastructure end market had strong growth sequentially in Q1 as a result of solid demand and growing market opportunity.

Speaker 3

Infrastructure had revenue of $46,000,000 up 46% versus the prior quarter and 40% year on year. Lastly, our industrial and multi market revenue was $54,000,000 in Q1, flat sequentially and up 50% year on year. GAAP and non GAAP gross margin for the Q1 were approximately 56.5 percent 60.3 percent of revenue. The delta between GAAP and non GAAP gross margin in the Q1 was primarily driven by $9,300,000 of acquisition related intangible asset amortization. 1st quarter GAAP operating expenses were $113,000,000 including stock based compensation and performance based Equity accruals of $21,600,000 combined, acquisition and integration cost of $1,600,000 and amortization of $300,000 versus Q4 and at the low end of our guidance range.

Speaker 3

Non GAAP operating margins for Q1 2023 was 27.8 percent. GAAP interest and other expense during the quarter was $2,200,000 and non GAAP Interest and other expense was $2,100,000 In Q1, cash flow generated from operating activities was $42,200,000 We exited Q1 of 2023 with approximately $228,000,000 in cash, cash equivalents and short term investments. Our day sales outstanding for the Q1 was approximately 69 days, up from the previous quarter due to shipment linearity. Our gross inventory turns were 2.3x as we continue to tightly monitor our supply levels. This concludes the discussion of our Q1 financial results.

Speaker 3

Before we go to the guidance, I want to give you an update on the status We continue to progress through the SAMR approval process and remain confident of a mid-twenty 23 close. We have fully committed financing for the transaction and are actively working to optimize the debt structure to lower our expected cost of capital. We're excited about the opportunities for our combined business and look forward to bringing our technology focused cultures together very soon. With that, let's turn to our guidance for Q2 2023. We currently expect revenue for the Broadband and Connectivity revenues to be down quarter over quarter.

Speaker 3

In Infrastructure, we are expecting revenue to increase compared with Q1 as demand for our products continues to be strong. Lastly, we expect our industrial multi market revenue to be down quarter over quarter. We expect 2nd quarter GAAP gross profit margin to be approximately 54.5 percent to 57.5 percent And non GAAP gross profit margin to be in the range of 59.5% 62.5% of revenue. Gross margin is being driven by the combination of near term product, customer and end market mix. We expect Q2 GAAP operating expenses to be in the range of $110,000,000 to $116,000,000 We expect Q2 non GAAP operating expenses to be in the range of $79,000,000 to $85,000,000 We expect Our Q2 GAAP tax rate to be approximately 25% and non GAAP tax rate to be roughly 10%.

Speaker 3

We expect our Q2 GAAP and non GAAP interest and other expense to be each roughly $4,000,000 We expect our Q2 GAAP and non GAAP diluted share count of 81,500,000 to 82,500,000. In closing, we are navigating a dynamic environment heading into Q2, but Solid execution and innovative product offerings are enabling us to maximize strategic business opportunities with continued success. We are continuing to lay important groundwork in WiFi, fiber broadband access gateways and wireless infrastructure that we to drive our growth later this year and throughout 2024. As always, we will continue to focus on operational efficiencies, Fiscal discipline and shareholder value as we optimize for today and plan for an exciting future. With that, we'd like to open up the call for questions.

Speaker 3

Operator?

Operator

Thank you. Our first question comes from the line of Quinn Bolton with Needham and Company. Please proceed with your question.

Speaker 4

Hey, guys. Obviously, a tough guide for the Q2,

Speaker 5

down over 20% sequentially. I guess, As you look at the amount of inventory in the channel, is it largely just a broadband effect? Is it affecting Connectivity in other end markets. And I guess a follow-up question is, given the magnitude of the decline in the June quarter, Do you think June is the bottom or do you think you could see even lower revenues in the second half of the year?

Speaker 3

Hey, Quinn. Thanks for the question. Yes, so look, the inventory is across all of our end markets, I would say, but definitely broadband and connectivity are the biggest exposures that we have. I mean, there's bits and pieces here and there in other end markets, but broadband And assuming that continues to hold up, then we kind of burn through this inventory and we kind of move into 2024 with a really great outlook.

Speaker 5

Do you think your June is the peak Of the inventory burn, knowing that you might not be back at consumption levels in Q3, do you think kind of that Inventory clearance is at its greatest level in Q2 or is that just too hard to call?

Speaker 3

Yes. I mean, look, I don't want to get into guiding out Future quarters, I mean, I think we're under shipping demand and we remain optimistic, but the inventory is definitely at higher levels than I think we had anticipated.

Speaker 5

Okay. And then I guess just a follow-up question on the microwave business, which seems like it's driving very strong First half 'twenty three results, I know you had said that that business was constrained from substrate availability in 2022, but as you start to ship against that backlog, are you concerned that this isn't just creating an inventory Overhang or an inventory build in that end market? Or do you have pretty good visibility that what you're shipping in Q1 and Q2 actually sells through and you're not just Creating a wireless infrastructure inventory overhang that you have to deal with later this year or early next?

Speaker 3

So, yes, definitely, we've been behind here, but we've been playing catch up. But I guess would reiterate, there's a big content increase that's happening. So, I don't by any means feel like we're creating this Big inventory glut in Q1 and Q2. This is demand that we has been needed in the market for some time. We're, I guess, cognizant of the overall wireless infrastructure market.

Speaker 3

Definitely, I'm sure you and many others To see that pick up again in Q2.

Speaker 4

Got it. Thanks for the color, Steve.

Speaker 3

Sure.

Operator

Our next question comes from the line of Ananda Baru with Loop Capital. Please proceed with your question.

Speaker 6

Yes, 2 if I could just real quick. Steve, just piggybacking off of those questions, What are you seeing pricing wise right now? And do you expect anything can take place with pricing going forward from what you're seeing now? And I have a quick follow-up.

Speaker 3

Yes, sure, Ananda. I don't think we've seen too much. I mean, there's definitely certain markets That are more sensitive to prices, but I think in general, we feel like that prices will hold up here. I don't think there's any doubt. I mean, there's some segments of our market that are more, Call it, Asia based, some of our Wi Fi products, for example, we see pricing pressure from time to time there.

Speaker 3

But As a general rule, as you know, most of our markets don't have that the pricing dynamic there.

Speaker 6

Awesome. And just the quick follow-up is on the infrastructure market. Can you just unpack that In a little more detail, the dynamics that you're seeing there drive the growth. And is it across the business or is it in particular parts of the business, Particular parts of the product line, is it across the product line?

Speaker 3

Yes, sure. I mean, I think Kishore kind of talked through some of this. So, I mean, I'd say the biggest piece has been backhaul. I mean, I mentioned the content increase, but we're shipping a lot of the Transceiver product now alongside the modems, that's really driving a lot of the big uptick there and it's in various regions. It's not Just one geography, it's in various geographies.

Speaker 3

Our 5 gs platform is also shipping, it's lower dollar contribution, but it's Definitely continue to improve as well. Optical, as you know, I mean falls into the infrastructure category, but still early days on that. We would expect see more contribution in 2024.

Speaker 6

And is it too early to have a sense With what's going on in hyperscale, if there's going to be a positive impact there, Microsoft and Google had positive remarks last night. Meta may have positive remarks right now. They had a good quarter. Is it too early or is this part of what you're seeing there as well? And that's

Speaker 3

Thanks. Sure. Thanks, Ananda. Well, I don't think this is all new Incremental business for us, we're excited. I mean, clearly, the data center demand is what's driving these optical product Ramps and so still early days.

Speaker 3

I mean, I think we'll see some early revenues in the second half of this year, but it's really much more about 2024.

Operator

Line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Speaker 4

Hi, guys. Thanks for letting me ask a question. Just going back to the broadband segment, Since it's your biggest segment, it looks like that could be down, I don't know, 60%, 70% year over year. Any idea of how we should judge what True end demand is, if you were shipping to that, if you're kind of, I don't know, dollars 50,000,000 $55,000,000 something like that in Quarter versus a year ago being closer to 140. Just trying to judge whenever the inventory is out of the equation, what's a realistic Landing spot when you get back to normal.

Speaker 3

Yes, Ross, good to hear from you. Look, this is a tough one to call. Definitely, as we reflect back on 2022, that number Approaching $500,000,000 I mean, this year, it's well below $300,000,000 So I don't have a great answer for you, but I mean, I want to this point, we've definitely got a little better visibility with regard to what inventory is out there in the channel, But I don't have an exact number other than say, it's somewhere in the middle of those two numbers.

Speaker 4

Got it. And then I guess pivoting over to the OpEx side of things. You guys did a great job in the Q1. It's going up a little bit in the Q2. Any sort of Kind of trajectory, how you think of OpEx, like why is it going up in the Q2 and then how should we think about it through the year?

Speaker 3

Sure, sure. Yes. So don't forget, we do have some NRE dollars that kind of sway this here and there, because in Q1, we always We typically see things pick up quite a bit, but some of the timing of some of our NRE dollars that are coming in have kind of skewed this a little bit. We've actually been very busy in Q1, really dialing back our costs, dialing down our overall operating expenses. I think you'll See that continued to come down post Q2.

Speaker 3

I think we will likely exit the year closer to $75,000,000 of OpEx. So I think we've made good progress there. Definitely kind of given the revenue headwinds that we see, We've jumped in quickly and really dialed back that spending as you've seen us do in the past during past cycles.

Speaker 4

Got you. Then one quick follow-up, just in general, given the weakness in the market, have you seen any change in the competitive intensity? You talked a little bit earlier about pricing, but any sort of market share shifts, competitive intensity changing? Or is this just kind of the typical Cyclical downturn where everybody is just trying to figure out where the bottom is and burn inventory until you get there.

Speaker 2

Hey, Ross, this is Kishore. I think I'll give Steve a break here. So not at all. No changes in competitive positioning or new competitors in the horizon. In every market we are Today, we are 1 of 2 or 3, and that positioning has not changed.

Speaker 2

And if you really think back But the dynamics of the excess channel in the inventory in the markets we are that are pretty sticky until those inventory burns, you have incumbency Babbages in the markets we are, so we don't see the position to change. But more importantly, the quality of our product offerings is improving quite a bit. We got a lot of innovations and new product offerings across all our product areas, whether it's fiber PON, whether it's Wi Fi. Obviously, we've got an exciting competitive positioning relative to business strength in optical data center infrastructure with the 5 nanometer product And in the wireless infrastructure as well. So and none of these products will be announced as we go through the middle of this year.

Speaker 2

So no changes. We just have to wait on this inventory burn through the channel. I just want to add a little color to what Steve talked about what is So, Ron, you asked about the broadband. Here, I don't want to be giving you any specific number, but if just The way I think about it is, if you look at the last 2 previous years of broadband revenues, maybe it takes us 2 years to get back They are right. That's the way to look at it.

Speaker 2

So because that's the moment that's the inertia in the system, right? So therefore, actually last year's revenues are in fact a positive indicator of what the future could look like. So I wouldn't look at it That's a down statement at all. All in all, we've always done the most exciting work in a tough time, which has been our track record and Actually, we got a profusely rich product portfolio that's developed and will be is being announced and will continue to be announced as we move forward.

Speaker 7

Thank you.

Speaker 3

Thanks, Ross.

Operator

Our next question comes from the line of Tore Svanberg with Stifel, please proceed with your question.

Speaker 8

Yes, thank you. If we could just get a little bit more granular on the connectivity Obviously, broadband has been correcting for a year already, but it looks like connectivity actually started correcting this quarter, this Q1. Just wondering if that's going to sort of have a similar trajectory as broadband or other reasons why or why not that wouldn't necessarily be the case?

Speaker 3

Yes, Tore, Good question. As you know, this is a really important product line to us and we've seen tremendous amount of growth. I think 1, we're seeing a lot more attached. So this is all new business. So a little bit different than the gateway side of the equation.

Speaker 3

So I would not expect To see the same level of decline. That being said, I mean, they're both selling into gateways and so there is some dynamic there where we're impacted. It's a big move from Q4 to Q1. There's a little bit of seasonality in there. We had some large router shipments in Q4 And those were coming down in Q1 kind of as expected to some degree.

Speaker 3

So, I definitely think that Wi Fi is going to continue to outpace. I mean, there's more attachment that we can go out and get. And don't forget, you've also got a lot of ASP increases or just a trajectory that's moving Upwards as we get more 6E and then longer term once we get WiFi 7, you start to see a move up in ASPs along the way.

Speaker 8

Very good. And you mentioned when you were answering one of the questions about the broadband correction that you're starting to have a better sense For the amount of inventory that's out there, can you just add a little bit more on that? Is this based on conversations you're having with your customers where they Are giving you any signs that things are bottoming or?

Speaker 3

Yes. Well, I mean, look, this is a it's been an interesting semiconductor cycle, right? I mean, we've not seen 52 week plus lead times In most of our careers anyway, and so it was somewhat unique and I think that drove your typical bad behavior where we're seeing A lot of over ordering and there's been a lot of crosscurrents as well because there's a lot of markets where you're still short And so customers aren't really giving proper information. And I think now that they do have more inventory, we're getting A lot more transparency with the customers because now they're kind of coming clean to some degree and sharing So we feel better that we've got a little bit better visibility at this point.

Speaker 8

Very good. Just one last question for Kishore. Tushar, the high speed optical business, I know it's taken much longer than you would have expected. But coming out of OFC, it does seem like There's finally some strong design win momentum there, especially on 800 gig. So I was just hoping you could elaborate a little bit more on that, especially Confidence level that that business may actually finally start to contribute more meaningfully to revenues late this year?

Speaker 2

Well, we're very excited. We as you've seen in OFC, we had 3 or 4 very meaningful demonstrations and announcements of our 5 nanometer, lowest power, most integrated 800 gig PAM4 solution out there is the only 5 nanometer solution. And on the back of it, we had a number of strong design wins with Tier 1 OEMs, whose interns apply to the data centers. Obviously, We work with the data center players and the OEMs to line up our design wins. So We've gone through some of our key OEMs already gone through their own self interrupts and now they have sampled to the data centers for their Call cycle and these should finish up towards the end of the year.

Speaker 2

And so we feel very, very good We will be in a position to gain some significant market share as the 800 gig rolls out. You have to realize that the 800 gig PAM4 It is the first deployment that is starting and we are not behind on that. We are leading in that effort. So we feel that the trajectory of this would be we would have shipments that in the second half of this year, Which for the qual amounts and beyond that, it ramps pretty strongly next year and the following year and the following year. So feel really, really good.

Speaker 2

I think we are pretty much with a Tier 1 OEM module maker that you would think It's worthy of us to work with and I feel really good about where we are. It's actually today somebody asked me what is the most exciting product Today, as we go into the call, and it has to be optical, I said. So that's how good I feel about it.

Speaker 7

Very good. Thank you so much. Yes. Thanks, Troy.

Operator

Our next question comes from the line of David Williams with Benchmark Company. Please proceed with your question.

Speaker 3

Hey, good afternoon.

Speaker 9

Thanks for letting me ask the question. Maybe, Steve, on just kind of thinking about the inventory digestion And just those dynamics, it sounds like we're at least starting to hear some maybe a slower cadence of Spending from some of the service providers and operators there. Can you kind of talk about maybe the dynamics that you're seeing between inventory and maybe slowing End demand, is there do you feel like most of this is really driven by that inventory and not more of a demand cycle?

Speaker 3

Hey, David. It's a good question. It's something that we're watching closely. I mean, we haven't seen CapEx levels really change that much To date, we're naturally watching this closely. I mean, the bigger issue for us right now that we see is just the inventory in the channel.

Speaker 3

But I guess the way I think about it is, it is something that we've got to continue to watch. I think our assumption is that That in demand does hold up, that spending does hold up. And that's really based on there is an upgrade cycle going on and we do expect To see that continue, but if we see a recession, if we see a major pullback in spending, then yes, that could change the demand levels a little bit.

Speaker 9

Okay, that's fair. Thank you. And then from the inventory side, is this more MaxLinear products in the channel or is this maybe Products that are out there that are maybe just slowing some of the uptake?

Speaker 2

In the markets we are in, especially the service provider markets And specific OEMs are assigned to specific suppliers associated with specific suppliers, so when you talk of inventory levels, they're associated with certain Chip suppliers, right, because we sell our own full platform of solutions. Now, on our platforms, there will be minor components from other manufacturers, Sure is, but we do not think that those are the determinants of in the way the inventory is building up In the channel. So all in all, we don't see a competitive situation where our inventory is being held there because the competitive product is being sold more. And so I think as the sell through happens, we'll burn through the inventory and we should be able to resume our shipments. You also have to keep in mind that we as the lead times have shrunk in the manufacturing supply base, Our own customers, the OEMs would be would now go in the other directions where they are in no hurry to place any orders or give us any visibility.

Speaker 2

So I would say there will be a bit of an old correction on the inventory in the other direction and given the interest rates as well. So I think you're going to see an unusually lower inventory levels before it picks up to normal inventory levels, right? So I think we are planning for that right now.

Speaker 9

Fantastic. One more quick one for me. Just Steve on the gross margin, getting a nice lift Into the quarter, even on the downside of revenue guidance, can you talk about what's driving the margin there? Is it simply just mix or is there anything else underlying there that we should be thinking about?

Speaker 3

Well, I think so I think the majority of it is mix and we're pleased to kind of see you saw us come up 70 basis points. Our midpoint of our guidance gets So making nice progress on that front. Look, I'm optimistic as we look into The rest of this year and even into 2024 as supply tightness eases, I think we'll have a little bit more pricing power. And so we think that we can continue to lower that cost structure and see better gross margins.

Operator

Our next question comes from the line of Christopher Rolland with SIG. Please proceed with your question.

Speaker 10

Hey, guys. Thanks for the question. Perhaps of the segments that the 3 that are going to be down, I was wondering if you could force rank perhaps even for the next quarter, whether we should just have them all down. I know you said connectivity

Speaker 3

Yes. I don't know that, Chris, that I can stack rank them for you. I mean, we definitely continue to see pressure on the broadband And the connectivity businesses, I mean, our infrastructure business, we think will be up next quarter. And then industrial Multi market is a little more flat to slightly down.

Speaker 10

Okay, great. Thanks. And then on the 5 gs Part of Infra in particular, it really kind of feels like an inflection quarter for you guys, which is great to see. I know you guys mentioned India, but I was wondering why this inflection from either like a geographic Standpoint, is it India or why this inflection from like a vendor standpoint? Are you guys Attached to one vendor in particular, why this inflection all in 1 quarter?

Speaker 3

Yes, Chris, don't forget, I mean, so we've got a big base of our businesses is backhaul, right? It's not 5 gs. I mentioned in the Previous remarks that, I mean, 5 gs is definitely increasing, but it's a smaller part of the numbers. The backhaul business Has been driving it. It's a pretty diverse it's a wide set of geographies that we've been selling into for a while.

Speaker 3

Would also emphasize, there's a big content increase as we start to ship more of our transceivers alongside of the modems. So that, of course, helps And that enables us to outpace the overall market growth that I suspect that you're seeing and comparing us to.

Speaker 10

Excellent. Thanks, guys.

Speaker 3

Thanks, Chris.

Operator

Our next question comes from the line of Karl Ackerman with BNP Pete Perevis, please proceed with your question.

Speaker 7

Yes. Thank you, gentlemen, for the questions. 2, if I may. In the connectivity business, your cable MSOs are still sweating assets and going through the signature digestion phase. But Is there higher intensity discussions of your customers broadening adoption of Wi Fi 6 and Wi Fi 6E that Would give them differentiation and would also drive their content higher.

Speaker 7

I mean, if you could talk about that as you think about the growth trajectory of connectivity over the next few quarters would be Very helpful.

Speaker 2

Well, obviously, our attach business is A significant part of our connectivity business even as we are developing traction on in the 3rd party router gateways. So Wi Fi 6 is our current platforms. They're shipping with the attachments and we are proliferating our Wi Fi 6 in Other markets where, for example, our cable docks is where we don't have where in some Tier 2 markets, we don't have Wi Fi attachment. But really the big growth in content comes from Wi Fi 7 launch, which will be significant Content expansion in terms of dollars, and that will be the next big leg of growth for connectivity in the operator segment. So I hope you understand that Wi Fi 6 and 6C are already Part of the operator deployments today and whatever growth we have with the increase in our Wi Fi is going to come through expanding our Wi Fi 6 attached In Tier 2 markets, but the big growth in the Tier 1 markets comes through Wi Fi 7, our Wave 700 family as part of the solution In the operator platforms.

Speaker 7

Understood. Thank you for that. If I could pivot to your DSP business Our opportunity, Kishore, you mentioned that's one of your most optimistic areas of your business. And so I guess, If I could, I'm curious whether the current digestion occurring in optical transceivers has accelerated Your discussions with cloud and module providers on your 800 gig DSP solution. And as you address that question, there has been much debate on the use Cases of linear drives versus using a DSP and but you would of course be able to address both of them.

Speaker 7

But do you see linear drive plug holes impeding your design qualifications of your 800 gig DSP at all? Thank you very much.

Speaker 2

Yes. Let's separate those two questions, Because, Wani, the latter word is the flavor of the day and the former is what people bet their money on. So our design traction is really primarily from the former basically, right? We have a solution on the DSP side That is superior to anybody else's. We are the 1st 5 nanometer silicon production.

Speaker 2

We believe we have a significant lead on competition. So that's where our traction is. With regards to the burning of the inventory in the data center for these DSPs Accelerating our momentum? No, not at all. In fact, we have learned that the inventory in that channel also is significantly high.

Speaker 2

In this particular case, since we did not have much business, we do not see the impact of that. So our design interaction is independent of what the channel inventory in that space is. The real 4, Keri, almost all the data centers are now converging towards 800 gig solutions with 100 gig per Lambda for each 100 people Lambda on the fiber over 8 channels. So The inventory situation has got nothing to do with our traction. On the second part, the linear drive versus is really A discussion that's come with a recent OFC conference and I really, really think that's very premature and the data center people Really not betting their strategies on that.

Speaker 2

And this is really if anything is going to happen, it's going to take a couple of generations for it to really face Any maturity, if not infant mortality, it doesn't happen. So I would leave it at that. Okay?

Operator

Our next question comes from the line of Ashley McCurry with Wells Fargo. Please proceed with your question.

Speaker 11

Hi. This is Ashley McCurry on for Gary Mobley at Wells Fargo. First question being, it looks like your gross margin guide is a little wider than usual. Is that representative Any uncertainty in product mix for 2Q or if not, what are the drivers of that?

Speaker 3

Sure. So, no, I don't think so. On the gross margin side, I mean, look, there's plenty of uncertainty in the world right now. So, I won't To go there, but as far as gross margin goes, kind of the midpoint, it is primarily driven by mix. We do continue to see infrastructure holding up very well.

Speaker 3

That's a higher gross margin kind of product line. And so we do feel confident that we'll Continue to see an improvement similar to what we saw last quarter.

Speaker 11

And then just as a follow-up In terms of the Symo acquisition, do you guys have any visibility into China's SEMA's approval process? And Is there any qualitative comments you guys can give that gives you comfort in that mid calendar year 'twenty three close?

Speaker 3

Yes. So kind of reviewed this in our prepared remarks. Don't have a whole To add, kind of we remain confident, on track. I think things are moving as expected on the SAMA front. And hopefully, we can update you soon on that.

Speaker 1

Thank you.

Speaker 3

Thanks.

Operator

Our next question comes from the line of Suji Desilva with ROTH Capital. Please proceed with your question.

Speaker 7

Hi, Kishore. Hi, Steve. I'm curious if the unit attaches of 6Z have cut over from 6 already or if not, What the timing would be? And if it has, when would you expect WiFi 7 unit attaches to cut over in terms of units versus 6E?

Speaker 2

So firstly, the cutover from 6C to 6C has really not happened. 6C is an interim Standard between what the market really wants on the WiFi 7 versus WiFi 6 And the difference being 6E has got enhanced throughput. And so I don't think there's going to be a cutover from 6E to 6E. Whatever 6e has been designed, it stays in place and 6 will continue until Wi Fi 7 takes over. I think Wi Fi 7 was one of the biggest broadest adoption and most rapid adoption of any Wi Fi standard in recent history.

Speaker 2

So if I were to go by the rate at which the Wi Fi Alliance, for example, is going through this through their interop tests and the rate and the rapidity at which They will pick the Wi Fi Alliance interoperability test bed platforms. They'll pick 4 or 5 of those. And based on the speed at which is going on, Wi Fi 7 will be really ready to go by the end of the year. But the adoption itself in the non consumer markets, I expect to happen in 2024. So really, it's a latter half of twenty twenty four Cutover process starting from 6 and 6C to WiFi 7.

Speaker 2

I hope that answers your question.

Speaker 7

No, that's very helpful, Kishore. Yes. And then just more broadly, I mean, we talked you talked about inventory a lot. I'm just wondering if it's happening that platforms that Upgrades that we're planning to be rolled out are being pushed out just so older platforms can digest this Is that happening as well as the inventory adjustment or is it just that your parts aren't being ordered because they're trying to work down what they have?

Speaker 2

That's a very, very good question. In the markets we are in, those platform changes don't happen frequently The cycle is pretty long. So the inventory digestion or burn It's well within the time windows of this planning cycles. So I don't think there's any changes happening on new From development plans by service providers and carriers. Having said that, I do believe in some form, even our customers are going through their OpEx discipline process.

Speaker 2

So I will not be surprised if it's a slower rollout than originally anticipated. But at this moment, I think operators is more Invested in not backing off on the CapEx for the infrastructure investments, for example, on the DOCSIS side, Preparation on the network itself to upgrade the network to be able to support DOCSIS 4.0 And also you're seeing fiber networks upgrading from older PON to newer 2.5 gigabit and 10 gigabit PON networks. So I think that the focus of the operators and service and the carriers is right now upgrading the network infrastructure And that's going on quite robustly. So in short, we do not see any impact of this inventory accumulation in the channel pushing out launch

Operator

There are no more questions in the queue. I'd like to hand the call back to Kishore Sindripu for closing remarks.

Speaker 2

Thank you, operator. This quarter, we will be participating at The Stifel Cross Sector Insight Conference in Boston on June 6th, that the next conference we'll be participating in. So with that said, I want to thank you all for joining us today, and we look forward to reporting on our progress to you next quarter. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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MaxLinear Q1 2023
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