MaxLinear Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 31, 2024

There are 11 speakers on the call.

Operator

Greetings, and welcome to the MaxLinear 4th Quarter and Fiscal 2023 Earnings Call. At this time, all participants are in a listen only mode. A brief 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, Steve Litchfield, CFO and Chief Corporate Strategy Officer.

Operator

Thank you, Steve. You may begin.

Speaker 1

Thank you, Paul. Good afternoon, everyone, and thank you for joining us today in today's conference call to discuss MaxLinear's Q4 2023 financial results. With me today is Doctor. Kishore Sindripu, CEO. After our prepared comments, we will take questions.

Speaker 1

Our comments today include forward looking statements within the meaning of applicable security laws, including statements relating to our guidance for the Q1 of 2024, including revenue, GAAP and non GAAP gross margin, GAAP and non GAAP operating expenses, GAAP and non GAAP interest and other expense and GAAP and non GAAP diluted share count. In addition, we will make forward looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including without limitation, Statements concerning future financial and operating results, opportunities for revenue and market share across our target markets, The effect of seasonality, expected production ramps and timing for the launches of new products, our design win pipeline, demand for and adoption of certain technologies, our serviceable available market, expected customer inventory rationalization, expected incentive programs, the effects of cost reduction measures and product announcements. These forward looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factors section of our recent SEC filings, including our Form 10 ks for the year ended December 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 Q4 2023 and fiscal 2023 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 GAAP and non GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non GAAP presentations and the press release available on our website. We do not provide a reconciliation of non GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future changes, including stock based compensation and its related tax effects as well as potential impairments. Non GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures.

Speaker 1

We are providing this information because management believes it is useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast and 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.

Speaker 2

Thank you, Steve, and good afternoon, everyone. In Q4, our revenues were $125,400,000 and non GAAP gross margin was 61.4%. Our infrastructure end market continues to be the main highlight, growing 30% in fiscal 2023. Entering 2024, are very optimistic about our infrastructure business and believe that it is firmly poised to grow to an annualized revenue run rate of several $100,000,000 over the next 3 years or Underpinning our optimism and growth convictions for our entire business is the successful launch of several new innovative products across infrastructure and connectivity and a robust and growing customer design win pipeline for them. We expect these new high value product cycles to drive revenue growth encompassing high speed optical data center interconnects, wireless access networks, enterprise storage accelerators, enterprise Ethernet and multi gigabit PON, broadband access and Wi Fi connectivity.

Speaker 2

In the high Speed optical data center infrastructure market, we are increasingly bullish and expect to generate tens of 1,000,000 of dollars in revenue this year for our 5 nanometer CMOS 800 gigabit PAM4 DSP family. Early stage revenues have already begun and new production ramps in the second half of the year will drive more meaningful run rate growth in 2025. The ongoing adoption of in the cloud is providing a strong catalyst for the transition to 800 gigabit and beyond speeds. In this high barrier to entry market, Our investment in innovation over several years has enabled us to differentiate with the highly competitive and broad portfolio of PAM4 DSPs, which invariably have the best in class power consumption and performance across optical transceiver, active optical cables and active electrical cables. In wireless infrastructure, despite current slowdown in telco 5 gs wireless access infrastructure spend, There is an expanding global rollout of new millimeter wave and microwave and hybrid backhaul technologies to upgrade wireless transport links from gigabit speeds to tens of gigabits per second data rates.

Speaker 2

As the only full system solution provider of modems and RF transceivers, We will greatly benefit from the significantly increased silicon content per platform in these new links. We also expect strong customer demand as part of a multiyear upgrade cycle entering 2025. Additionally, at Mobile World Congress, in February the end, we'll have new and unique product announcements addressing 5 gs Axeds remote radio units for both massive MIMO and macro base station solutions. We expect our growing portfolio of wireless backhaul and access infrastructure products to drive significant revenue expansion in the near to long term. Within our infrastructure revenues, an exciting new growth driver is our Panther 3 series hardware storage accelerators For the enterprise all flash array and hybrid storage enterprise appliance systems, with the increasing deployments of higher speed, low latency NVMe SSD drives, legacy software based data compression technology Using extremely expensive and power hungry high core count CPUs is no longer viable.

Speaker 2

The scalability and flexibility of the Pantheon 3 DPU architecture allows us to deliver 12:one data reduction, a full suite of security, low power and CapEx cost reduction while providing ultra reliable data protection. We are in production ramp with the Tier 1 leading enterprise storage appliance maker and additional customer product ramps later this year. We expect revenues to double in 2024 with continued strong growth in 2025 and beyond. In Ethernet connectivity, with the recent launch of our new Octal 2.5 Gigabit Ethernet PHY In Space Products, we have expanded our addressable market by $300,000,000 to include both the enterprise and small and medium business switch markets, in addition to our traditional gateway and auto markets. Customers are expected to upgrade today's more than 2,000,000,000 copper 1 gigabit Ethernet ports to 2.5 gigabit Ethernet speeds over time using existing standard CAT 5 cabling.

Speaker 2

We are seeing exciting design win activity for our solution, including a Tier 1 North American enterprise OEM customer that is expected to ramp to production in the mid-twenty 24. As we look ahead, we believe our Ethernet business could reach $100,000,000 over the next 18 to 24 months. Turning to broadband, we continue to gain traction in the fiber PON market with new design wins driving our growth. As In 2023, we began ramping our single chip integrated fiber PON and 10 gigabit processor gateway and connectivity solutions with the major Tier 1 North American service provider. In 2024, we expect to begin ramping a new opportunity with the 2nd major Tier 1 North American service provider.

Speaker 2

This further validates and establishes Max competitive positioning in the fiber POND market. In 2023, our POND revenue was approximately $50,000,000 We expect to be able to more than double our PON revenues over the next 2 years. In connectivity, in what is a major milestone, Our Wi Fi 7 solution was both certified and selected by the Wi Fi Alliance as one of only 4 certified test bed devices for a Wi Fi 7 interoperability and compliance. Our Wave 700 single chip tri band Wi Fi 7 device is an industry first and represents a major step forward for power efficiency, performance and reduced latency. Even as Wi Fi 6 and 6C are reaching peak adoption, Wi Fi 7 is beginning to launch this year in client side mobile phones and PCs.

Speaker 2

We expect service providers to follow soon with their initial rollouts later this year, with adoption peaking in 2 to 3 years. For Max Lear, Wi Fi 7 has the potential to drive significant ASP growth and higher attach rates in our broadband asset platforms versus previous generations. Circumspectly speaking, 2024 is likely to be the start of an exciting period of new product growth and opportunity for MaxLinear. We also expect market headwinds of the past year in broadband connectivity to likely become tailwinds when customer inventory winds down. Most importantly, the investments we made in product innovations across our portfolio are beginning to bear fruit and are opening up new and significant revenue opportunities that we expect will drive our growth for many years to come.

Speaker 2

With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve? Thank you, Kishore.

Speaker 1

Total revenue for the 4th quarter was $125,400,000 down 8% Q3 and down 57% year over year. Broadband revenue for the 4th quarter was $34,000,000 flat versus Q3 and down 66% year over year. Connectivity revenue for the Q4 was 19,000,000 up 26% sequentially and down 82% year over year. As expected, infrastructure revenue for the Q4 was down substantially. Revenue for the Q4 for this end market was $32,000,000 down 37% versus the prior quarter and flat year over year, but grew 30% for fiscal year 2023 as a result of solid demand and growing market opportunity.

Speaker 1

Lastly, our industrial and multi market revenue was $41,000,000 in Q4, up 13% sequentially and down 25% year over year. GAAP and non GAAP gross margin for the 4th quarter were approximately 54.7 percent 61.4 percent of revenue. The delta between GAAP and non GAAP gross margin in the 4th quarter was primarily driven by $8,300,000 of acquisition related intangible asset amortization. 4th quarter GAAP operating expenses were $110,300,000 including stock based compensation and performance based equity accruals of $19,500,000 combined restructuring costs of $10,600,000 related to our Q4 workforce reduction and acquisition integration cost of $1,800,000 Non GAAP operating expenses in Q4 were $75,700,000 up $600,000 versus Q3. We expect to see the benefit of our cost reductions starting in Q1 and throughout FY 'twenty four.

Speaker 1

Non GAAP operating margin for Q4 2023 was 1%. GAAP interest and other expense during the quarter was $900,000 non GAAP interest and other expense during the quarter was $800,000 In Q4, cash flow used in operating activities was $16,600,000 We exited Q4 of 2023 with approximately 1 $188,000,000 in cash, cash equivalents and restricted cash. Our day sales outstanding for the Q4 was approximately 124 days, up from the previous quarter due to shipment linearity. Our gross inventory turns were 1.4, slightly up from Q3 levels. This concludes the discussion of our Q4 financial results.

Speaker 1

With that, let's turn to our guidance for Q1 of 2024. We currently expect revenue in the Q1 of 2024 to be between $85,000,000 105,000,000 Looking at Q1 by end market, we expect all 4 end markets to be down quarter over quarter. We expect 1st quarter GAAP gross margin to to 50 4.0 percent and non GAAP gross margin to be in the range of 59.5 percent 62.5 percent of revenue. Gross margin continues to be stable despite lower unit volumes with range being driven by a combination of near term product, customer and end market mix. We expect Q1 twenty twenty four GAAP operating to be in the range of $115,000,000 to $125,000,000 We expect Q1 twenty twenty four non GAAP operating expenses to be in the range of 70 $1,000,000 to $78,000,000 We expect our Q1 GAAP and non GAAP interest and other expense to be in the range of $1,000,000 to 2,000,000 We expect our Q1 GAAP and non GAAP diluted share count to be approximately 82,300,000 each.

Speaker 1

In closing, we are excited about our market position and growth drivers for 2024. The product innovations that will drive our success in optical WiFi, fiber broadband access gateways, Ethernet and wireless infrastructure are all in market today and gaining customer traction. As always, we will continue our strong focus on operational efficiency, fiscal discipline and shareholder value as we position ourselves for an exciting future. With that, I'd like to open the call for questions. Paul?

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question is from Tore Svanberg with Stifel. Please proceed with your question.

Speaker 3

Yes, thank you. My first question is, so it looks like some of your businesses, Broadband connectivity started stabilizing this quarter. It does sound like you're expecting another step down. So Could you just talk a little bit about the dynamics there, because it's a little bit so counterintuitive that they would stabilize, but then take another step down?

Speaker 1

Sure, Tore. I'll start and Kishore might want to add a little bit. But so first of all, yes, so look, we've been talking about this. I think We've seen inventory in the channel improve and so we're seeing some modest improvements. We spoke last quarter about some And just the simple fact that there is still inventory in the channel and expected to be for the first half of this year.

Speaker 1

So we are getting through it. I think the bigger problems is in the broadband and connectivity side. As we've talked about a little bit, our infrastructure business is going We don't have big inventory overhang in the channel and things slowing down in Industrial Multi Market.

Speaker 3

Very good. And if we now sort of assume that this is a 400,000,000 business, at least if you take Q1, that's the run rate of the business. And I know that you guys segment by 4 business units or segments. But If we think about that $400,000,000 how much of that is kind of cyclical versus secular now because you clearly have a lot of secular That's growing. You would have some great new design wins in optical and so on and so forth.

Speaker 3

So just trying to understand, if we look at that baseline of let's say a quarter of $400,000 run rate, how much of that would be cyclical versus more cyclical? I don't know if there's any way you can talk about that.

Speaker 1

I don't know that I can break that out. And I honestly, Tori, I think I would go back to reiterate, I mean, we see the problems and where we've seen the market declines, the inventory in the channels around broadband and connectivity, these other markets are doing reasonably well. We're managing I mean, there's a little bit of softness on the industrial side, but I would you've seen really good on the infrastructure side and that's where we've got lots of new products. Kishore spoke quite a bit in his portion about some of the newer products in infrastructure, which are all new product revenues that are in the market, in some cases already have some revenues and in other cases they're design wins that are expected to turn into revenues. And so we certainly expect to come out of this thing stronger, a much better company and we've got some exciting new products to do that with.

Speaker 2

And that's also true in the broadband connectivity side, right? We talked about our offerings in the new PON product lines and the Wi Fi 7 connectivity. So what you're seeing right now is really at a place on the broadband connectivity that's At the bottom, it's all noise right now in terms of what's happening on the bookings and the inventory and so on. So once we recover, we expect that the new product cycles and the new products that we announced and we have launched will actually pick up the growth even on the broadband and connectivity side. So I wouldn't discount that there is it's a tale of 2 cities, broadband connectivity and then the other ones that are growing nicely, I think there are growth vectors even in the broadband connectivity side as well as all the strong product the launches that are happening on the infrastructure side.

Speaker 3

Sounds good. I'll go back in queue. Thank

Speaker 1

you. Yes.

Operator

Thank you. Our next question is from Quinn Bolton with Needham and Company. Please proceed with your question.

Speaker 4

Hi, guys. Thanks for taking my question.

Speaker 5

First one is just to ask, what are you guys hearing kind of from end customers about the effects of the infrastructure bill and Matching funds, some of the folks in the broadband space like Harmonic and Calix, I think have said they're expecting a very weak first half as a lot of these folks are holding off to try to put as much of their CapEx into the back half of the year, maybe even next year, where they get one for 1 matching dollars. And so it feels like there's a bit of a shift in CapEx spending to future quarters, do you guys have any thoughts on that? Are you seeing it? I assume that activity is probably exacerbating the inventory burn here in the near term if nobody is spending a lot on the CapEx side.

Speaker 1

I think the way Quinn and I would answer the question, so obviously, we're aware of some of the commentary out around some of the infrastructure bill and the projected subsidies that kind of come along with that. I think we Like at the end of the day, we're kind of going through this inventory correction. A lot of that's driven is impacted by near term or shorter demand, that's clearly been, I'd say, slower than expected. And so it's kind of dragging as far as getting through this inventory. I think what's exciting for us is that we continue to see more telcos build out.

Speaker 1

I mean, they have been aggressive on the CapEx spending. Some of the 2nd tier, 3rd tier, some of those guys are kind of waiting on subsidies and so that it indeed may push 2, 3 quarters. And I don't think that's entirely surprising, but it definitely doesn't help the recovery.

Speaker 2

The way we look at it is like what is the order pattern and when it resurrects itself and how is the inventory burning, the inventory levels are going down. We are beginning to see make progress and see some bookings start to increase. That has actually been positive. Obviously, the bookings are not necessarily due for Q1 or Q2. They spread over the entire year because the lead times are now well established.

Speaker 2

So I really don't think that we can map directly from the statements at some

Speaker 1

of these

Speaker 2

players you mentioned and extrapolate to that our activities. I think what changes in our what happens in our direction is really about when that inventory really depletes and the orders return to some normalcy.

Speaker 5

I mean, I guess if that Activity is happening. It obviously makes for an extended bottom, which I think you're going through now. But I would think at some point, the snapback be pretty steep if guys are just holding off waiting for matching funds. But I guess right now I assume lead times are fairly short And you don't have evidence or strong order activity that would suggest you start to see a stronger recovery at some point, whether it's Q2 or Q3 sounds like visibility in broadband and connectivity is still pretty low. Is that right?

Speaker 2

Yes. I think the short term visibility is one thing, but really, it has to come back strong when the rationalization happens, as we mentioned. And because there will be nothing in the channel to ship basically, right, if that's the extremity of the behavior of the vendors. So you're absolutely right. And I mean that sets up a stage for a nice I don't like to talk a tailwind for 2025, if you will, right, where we get back to being where we legitimately think we are from a company perspective.

Speaker 5

Got it. And then just wanted to ask on the infrastructure side. I know you guys for a quarter or 2 have been talking about your Ethernet design wins in the enterprise and SMB space. But I think if I heard the prepared script right, you're talking about a business that could reach $100,000,000 over the next 18 to 4 months, I just wanted to clarify that you see that level of activity in the Ethernet because that was that certainly if that's right, That was a lot bigger than what I was thinking in terms of your Ethernet opportunity, especially in that kind of timeframe.

Speaker 3

Absolutely.

Speaker 2

With the products that we are pointing to very large ASP devices, We have a unique offering. There's no competing offering in that space in that class of product. And we have good design win pipeline that points to the revenues reaching in that order. Obviously, the revenue includes certain gateway revenues as well, but a substantial portion is also going to be infrastructure basically enterprise Ethernet, which is the more exciting part because it provides a nice foundation for a long term revenue cycle.

Speaker 5

Excellent. Thank you very much.

Operator

Our next question is from Suji Desilva with ROTH MKM. Please proceed with your question. David, is your line on mute?

Speaker 6

Hello, this is David. Can you hear me?

Speaker 1

Yes. Yes, go ahead, David.

Speaker 6

Sorry, it sounded like you called Suji. That's

Speaker 3

all right, David.

Speaker 1

So just a couple of

Speaker 6

quick questions here. But Steve, you guys are going to be down 62% year on year at the midpoint guidance here, how quickly can we expect to see some of these new products and wins really begin to ramp? And what do you think that contribution will be for this

Speaker 1

clients, I think, as inventory corrects, and I think this is why a lot of Investors, etcetera, kind of pointing to 2025. We've talked a lot about 2025. So you can kind of see some normalcy in the business, if you will. But we've talked a lot about what those growth drivers are. I mean, whether they'd be optical, our Ethernet business that Kishore just spoke of, Our storage accelerators, which we spent a little bit of time talking about our Wi Fi business, our PON business, we've been seeing nice growth.

Speaker 1

We will continue to see growth in all those areas. But naturally, it's not as visible with some of the inventory headwinds that we have. And so you'll see a lot more of that that will be delivered in 2025. But a lot of them are in the market and you will see growth. I mean optical is a great example where you will see growth this year from our optical business and but it will be much more meaningful in 2025.

Speaker 6

Okay. That's fair. And

Speaker 5

I guess if

Speaker 6

you kind of look across your distend, your direct customers, is there any way to size the magnitude of the excesses that are still out I know that the burn rate is also challenging, but just trying to understand how much is out there? And then any way to kind of parse out what the end demand softness relative what is just inventory excesses that need to be digested there?

Speaker 1

Look, I mean, I think we I think I said a little earlier, but I mean really that first half of the year is certainly still we've got inventory headwinds, does that bleed into Q3? I don't know, possibly. But I also think that you'll we'll start to get back to revenue growth as well, even though not the entirety of this inventory is completely clean out of the channel.

Speaker 7

Thanks so much, guys. Appreciate it.

Operator

Thank you. Our next question is from Suji Desilva with ROTH MKM. Please proceed with your question.

Speaker 4

Hi, Kishore. Hi, Steve. Can you guys hear me?

Speaker 1

Hey, yes. Hey, Steve.

Speaker 4

Great, good. So sorry about last time. So, I know, Steve, you guided the 1Q to decline sequentially across all the segments. Across all the segments. I'm wondering if you could give us kind of which ones you might expect to decline more or less just a ranking would help.

Speaker 1

Yes. I mean, we're not going to rank them and all of them are down. I mean, where the If I think a little bit of color, I mean, infrastructure as we've talked about, The wireless infrastructure business was super strong kind of the 1st 3 quarters and we had talked about kind of a 2 to 3 quarter low there as that ramps back up. And so that's kind of going as planned. Optical business is doing exceptionally well.

Speaker 1

We're seeing some accelerated orders there. So that's pretty exciting. But again, that's very back end loaded. So first half of the year, we kind of grind higher and we'll definitely see it pick up quite a bit in Q3 and Q4. The broadband business and connectivity business for that matter, I mean, down in Q1.

Speaker 1

And I think it will still struggle in Q2, won't give you a direction, but then they will as that inventory clears, we'll start to see some improvements. Industrial multi markets held up extremely well, but There's some crosscurrents out there that we definitely expect to see that down in Q1 and then hopefully of bounce along the bottom as you get through some inventory and then grow out of that in the back half of the year.

Speaker 4

Okay. Thanks, Steve. And then my other questions on the channel inventory, just some follow ups from before prior questions. It just sounds like maybe Kishore, according to your comments, that some of the guys are looking to take inventory below typical levels, maybe kind of lean it out. Is that Was that what you're implying in terms of what the posture is of the channel and the customers right now?

Speaker 4

I just want to make sure I heard that clearly.

Speaker 2

Absolutely correct. The bias is toward over correction. So the question is, how much inventory is naturally in excess? And we've been about in the last earnings call, I expect I said that maybe another 6 months of it left. Now if they go they lean a little harder on it, Then some bleeding happens into Q3, as Steve mentioned.

Speaker 2

But we have enough growth drivers here, especially the infrastructure. They were optical revenues did not exist, practically 0 in Q4. And now we have said that we are we should see tens of 1,000,000 of revenues in 2024. That means that we got to be a healthy growth happening in Q1 and we momentum to continue and then we got some other production ramps happening and that could be a very nice growth driver. Basically, there's a lot of motion going on.

Speaker 2

But if you look at my prepared remarks, right, the real big growth opportunities are in terms of product cycle commencements are in optical, right? And then we have once the telco softening sort of

Speaker 1

recovers, but still on the backhaul, we expect in the latter

Speaker 2

of the year to revenue to covers, but still on the backhaul, we expect in the latter of the year to revenue to pick up. And then we have our storage accelerators. They were barely any last year. Now they're going to be a pretty strong driver. And then you have Ethernet connectivity and some new design and ramps that will start in the PON side.

Speaker 2

So I think I've listed out in the prepared remarks in the sequence of importance. I think that should provide you color that's a very healthy product cycle ramp comments been happening now that should stand good stead for a few years to come.

Speaker 4

Okay. Thanks, Kishore. Very helpful color. Thanks, Steve.

Speaker 1

Yes. Thanks, C. D.

Operator

Thank you. Our next question is from Christopher Rolland with Susquehanna.

Speaker 8

So your commentary, I guess, around PAM4 ramping in mid-twenty 24 and then more next year, can you talk about DSPs versus selling into AECs, transceivers, AOCs, these kind of special programs that you talked about. Tell us kind of where these are going? And then if you could, what is your value prop? Are you guys faster? Are you lower power?

Speaker 8

Are you competing from a cost dynamic? How are you differentiating in this market to gain traction? Thanks.

Speaker 2

Thanks, Chris. Yes, you're absolutely right. The optical is turning a corner here. We got a few other few more calls in the last phases, hopefully, we get through that expeditiously. But like we said earlier, right, this year we do in the teens to $30 odd 1,000,000 of revenue.

Speaker 2

In optical, we'll be in a very good place next year. And so we are feeling increasingly bullish. Like I said that The value proposition is very, very clear, right. It is we are the only 5 nanometer production ready 800 gigabit PAM4 DSP in the market and even for 400 gigabit PAM4. So naturally, the advantages that are accrued within a lower power.

Speaker 2

And cost excellence comes from multiple factors. 1 is higher levels of integration with integrated laser drivers And lower power reduces the bill of material costs of the customers' modules. Obviously, performance is a given and that can be traded off for power. So that is the only way to enter this market because we have been these are 2nd generation of investment And differentiation is what drives our position vis a vis incumbents who have been shipping for a while in this marketplace. So having said that, currently the revenues we're speaking about are optical transceivers and that is usually the biggest part of the market.

Speaker 2

The next of the market will be active optical cables. And as I've said before, the active electrical cables, we expect in 3 years from now to about 10% of the market. So and whether the active electrical cables are purely 100 gigabit phenomenon or they even move into the 200 gigabit per Lambda solutions that remains to be seen. But as we speak today, Active electrical cable is the smallest piece of the market. And in 3 years from now, we expect it to be about 8% to 10% of the overall for DSP market.

Speaker 2

And there is not much differentiation between the various markets as far as DSP is concerned, But there are differentiations with respect to the laser drivers and such other analog components for power efficiency between active optical cables and active electrical cables. I hope that gives you sufficient color.

Speaker 8

Yes. Perhaps as a second one, MaxLinear probably has the largest peak to trough of all of our covered companies. From peak to now trough, I think you've lost 2 thirds of that peak revenue. So I'd love to know just longer term off of this call it 95 for March, what do you think is a more normalized run rate for you guys, total company over time? And what do you think you're under shipping demand right now, sell in versus sell through, including customer inventories?

Speaker 8

How do you view that? Is it $50,000,000 Is it significantly higher than that on a quarterly basis? How do you view that? Thanks.

Speaker 2

Chris, let me take up the question, then maybe Steve, you can add more color here. Firstly, I think you're referring to the 2 thirds effect from the peak specifically to the broadband business and connectivity business.

Speaker 8

All businesses, but you're at 280 in June of 2022 and you're down to 95?

Speaker 2

Yes. So that is on a quarterly base annualized, right? Obviously, we expect growth to happen towards the second half of this year and that this is our Number 1, just as we are under shipping demand quite extremely right now, considering parts of the business, then the flip side is also true that we all ship demand during the pandemic period, and that's the reason we are here. So I think the answer would be somewhere in between, right, naturally, logically, assuming the product portfolio has not changed, Okay. So the legacy portfolio, as you saw maybe in 2023, let's call it, is I'm just going to do the math here $1,100,000,000 to $700,000,000 somewhere in between, right?

Speaker 2

That's approximately $800,000,000 $900,000,000 business. Now Looking forward, we got all these new product cycle drivers, infrastructure being one of the most interesting ones. And other and then recovery in the and growth in pawn business, which is very, very small fraction of that particular revenues looking back what we talked about. You should see the company get back to the $1,000,000,000 range in the next 2 to 3 years or so, which will be true Assuming that we are predicting this inventory or drag down phenomenon being extreme, As Quinn pointed out, and that there should be a swift recovery once people say, hey, we need to get back to doing business much more in a healthy manner. So I think that we run businesses on a longer cycle basis.

Speaker 2

We do care about quarterly cadence and improvement. And in that context of things, we're building a fantastic portfolio here to smooth out the quarterly cycle growth looking forward. Explaining the past, there's only one elephant in the room and we go about it a 1000 times the last 3 quarters, which is inventory hangover. There's no fundamental problem with the product portfolio, no share losses. In fact, we're adding more robust and market expansive products to our portfolio.

Speaker 2

So I think you should be rest assured that the execution is going very well from a development and product launch

Speaker 8

Do you guys hazard a guess on how the difference between sell in and sell through For Mark?

Speaker 2

And I wouldn't hazard a guess, but the sell in phenomenon, sell through phenomenon is a gain and inventory pile up, right. That's a natural sequence. But to the extent that we are tracking the sell through right now, it's pretty healthy, which only means that we are under shipping demand quite significantly. The inventory is burning

Speaker 7

down. Thanks, Ketur.

Speaker 2

Yes. Thank you, Chris.

Operator

Thank you. Our next question is from Tim Savageaux with Northland Capital Markets. Please proceed with your question.

Speaker 7

Good afternoon, sorry.

Speaker 1

Hey, no problem.

Speaker 7

Can you guys hear me?

Speaker 1

Yes.

Speaker 7

Okay, great. Sorry. First question on pawn. I think you meant did you mention $50,000,000 in revenue for 2023?

Speaker 3

Yes.

Speaker 7

Yes. Okay. And so I imagine that mix looked a lot different at the beginning of the year than the end. Looks like that accounts for a quarter of the revenue. Would you expect in your Q1 guide for PON to be greater than cable, if you will, if we can define it that way for the first time ever.

Speaker 7

And would you expect that to be the case for the whole of 'twenty four? And if so, maybe by what order of magnitude will PON be greater than 50% of broadband revenue? And then I'll follow-up.

Speaker 1

Yes. So Tim, I mean, we talked about in the prepared remarks about that $50,000,000 So we've grown 2 years ago, we were doing less than $10,000,000 So 2 years, we've grown this to $50,000,000 Even in a rough market environment, acknowledge your point about the timing of it. So certainly, the last quarter or so has been tougher. But I guess I would highlight that we've had a big North America telco ramping last year, so that's exciting. More to come.

Speaker 1

I mean, we're confident that we can double this business over the next 2 years. That market also has inventory in the channel. And so we've got to get some through some inventory headwinds. A lot of this product is new product as well. So that will naturally roll out this year and in the back half of this year particularly and kind of gives us confidence in exiting, call it, exiting 25 Around that $100,000,000 target that we highlighted.

Speaker 7

Okay. It seems like it should be more than half in 24, But I'll leave that be.

Speaker 1

We didn't say how much it would be in 24.

Speaker 7

I realize you didn't. I wish you would have.

Speaker 1

Okay. I see your point.

Speaker 7

On infrastructure, Good growth year this year, obviously driven by wireless. And you're obviously facing some tough comps from the first half of the last year, I think in microwave. So I assume you think infrastructure will continue to grow. My question was going to be, what can growth accelerate? And I think that might be a challenge on a percentage basis coming off 30,000,000 but you grew 40,000,000 In absolute dollars in 2023.

Speaker 7

Can you do that again in 20 24?

Speaker 2

It depends a lot on how much wireless holds back in the first half of this year because Whatever wireless is giving up, so to speak, in the softness that we are seeing in the We'll be picking up the slack, the data center business. So I really think it's a mix of factors between optical, Wireless being the 2 big ones, Ethernet and storage accelerators will definitely be new growth drivers. So I'm hopeful It's positive related to last year, but it's on a, what I call, a steep edge. So it could really do better, but we expect definitely flat or better, right, compared to 2023.

Speaker 7

Excellent. And last question for me is, to the extent that that makes infrastructure your largest segment in 2024, which is unlikely to be the case. What are the implications there for gross margins? And do you expect some mix related uplift in margins as a result of that? And that's it for me.

Speaker 1

So you're absolutely right in identifying that infrastructure is higher gross margins. So as infrastructure becomes a bigger part of the portfolio and continues to grow, yes, we will see gross margins improve. I think as I think about gross margin puts and takes in 2024, I mean, look, we're going to see some challenges in the first half of the year For sure, as we kind of work through with the lower revenue numbers, some modest pricing pressures, I mean, typically that's not a big portion of our business, But in these downturns, it can be a little tougher. All that being said, very confident that as infrastructure grows as of the business that we will certainly see movement back towards that kind of mid-sixty point that we've highlighted.

Speaker 2

Okay. Thanks.

Speaker 1

Thanks.

Operator

Thank you. Our next question is from Ananda Baruah with Loop Capital. Please proceed with your question.

Speaker 9

Hey, guys. Yes, thanks. Good afternoon. Thanks for taking the questions. Hey, Amit.

Speaker 1

Yes, just a quick

Speaker 9

one, I guess Hey, Steve. Hey, Kishore. I guess the first one, Kishore is and Steve as well, any context you can This is really on the 400 gs and 800 gs solutions. Any context you can provide on where you are with And I guess anything you can provide on how it is you think about your qualification Like I guess really the TAM, your TAM opportunity, qualification TAM opportunity, you're kind of over the long term in that business? And then I have a quick follow-up also.

Speaker 2

So you're referring to the optical Pam, for data center business, really speaking, we talked about all reports indicate With some level of uncertainty and of what this all AI phenomenon does in terms of exploring the market to be bigger, They expect in 3 years from now, the business about 40,000,000 units or so of DSP transceivers being sold, which is PAM4 DSPs, and that's about anywhere, let's assume, of $1,500,000,000 of addressable silicon. We plan all our activities around 20% to 25% market share of the business. But that entire business is composed of 2 components. One is the legacy 200 gig, 400 gig PAM4 DSPs and 800 gig PAM4 DSPs. Our expectation is 60% of the business, let's call it, close to $1,000,000,000 of addressable SAM in 3 years from now.

Speaker 2

And we plan that a good victory would be for us to have 20% of the business 20%, 25% of the business in the first phase. So I think from that, You can extrapolate that the design win pipeline should from a bottom up basis should be aligned to the top line expectations, give or take a year. So you're looking at that how ultimately, how big can our optical business be. And in this current generation of product offering, we expect it to be anywhere between $150,000,000 to $300,000,000 of revenue, right?

Speaker 9

That's a lot of really good context, Kishore. Yes. No, that's awesome. I appreciate that. I'll do follow ups on the call back in that regard.

Speaker 9

Let me just ask real quick. How is linearity through the quarter, the December quarter? And I guess, you're a month in here, you gave guidance and is there a meaningful shift in linear? I mean, I guess, Really is the guidance a product of what you saw entering this quarter or was there some evidence of softening through the end of the December quarter? And that's it for me.

Speaker 9

Thanks.

Speaker 1

Yes, Nanda. So I don't think we were surprised by the quarter. We knew that it would be somewhat back end loaded. We had a fair amount of backlog going into the quarter and there's certainly some uncertainty around that. I don't think that it deteriorated throughout the quarter by any means.

Speaker 1

It felt kind of as expected. Clearly, Q1 was down probably a little more than where we thought it would be, but I also think it's kind of prudent given the kind of the outlook in the industry and we get through this inventory downturn. So yes, I mean linearity in the quarter was tough. I think the things that we look to, I mean, what are those new demand What are the bookings looking like? We're seeing some decent improvements there.

Speaker 1

People are getting through the inventory. And so Those are the encouraging signs that we see and even speaking to the 1st month of the year as we start to see those signs improve.

Speaker 9

Awesome. That's super helpful, Steve. Thanks.

Speaker 1

Sure. Sure. No problem.

Operator

Thank you. Our next question is from Tore Svanberg with Stifel. Please proceed with your question.

Speaker 3

Yes, thanks. I just had a few sort of housekeeping ones. So maybe on that last topic and the DSO, obviously, very back end loaded quarter. But is that also function just of the really short lead times? And is there a chance that maybe customers even now given the short lead times That this quarter can have a very similar profile, meaning they will order a lot at the end of the quarter?

Speaker 1

I Definitely think that's the case. I mean, this even speaks to Kishore's comment about how the industry overreacts. We've seen customers come in with expedites. And so what happens during these times is, In some cases, they've got a lot of inventory out there, but yet they don't have the right inventory. And that's what I think what we've seen in a lot of cases over a lot of industries, a lot of customers and rather than order it ahead of time and proper lead times, they're waiting to the end hoping that they get product at the last minute.

Speaker 1

So I wouldn't be surprised that we continue to see that in the current quarter.

Speaker 3

Very good. And Steve on the OpEx initiatives that you've done, it doesn't sound like there will be a big impact in Q1. So should we assume that this will have more of an impact than in

Speaker 1

We did take some actions on the OpEx front. They were fairly meaningful offsetting of existing spend. We also had a number of NRE dollars that we had that were contra R and D expenses and they will be declining next year. So the actual cut was fairly sizable. But I think that's what you would typically see from MaxLinear during these downturns.

Speaker 1

We're definitely dialing back the spend. I do expect OpEx things like that, they get rolled into the Q1 of the year. So it's always a little bit higher. We also have more restructuring cost that will are not expected to come out until the end of Q1 or the mid part of Q1. And so, yes, I certainly see further benefits from actions already taken.

Speaker 3

Great. And just so I know the sort of the newer product ramps. So if I sort of caught this correctly, I think you said the PAM4 DSP business being could potentially be between mid teens $30,000,000 this year. Did I hear that right?

Speaker 1

I think that's we don't have an official guide. That is exactly what Kishore said. I think that's in the ballpark of our expectations.

Speaker 3

Got it. And Panther III, I think you expect that business to double. Would Panther III be sort of similar numbers like optical DSP or smaller?

Speaker 2

In the range.

Speaker 3

Got it. Perfect. Thank you, guys.

Speaker 1

Thanks, Troy.

Operator

Thank you. Our next question is from Richard Shannon with Craig Hallum. Please proceed with your question.

Speaker 10

Hi guys. Thanks for getting me in here. I guess I'll ask a question on the fiber business. You talked about it being I think $50,000,000 last year, doubling within a couple of years here. Talked about a second kind of Tier 1 operator in the U.

Speaker 10

S. Ramping up here. To what degree are the 2 major North American operators you talked about kind of driving That business doubling in a couple of years, is it concentrated or not? And is this mostly a North American kind of customer base? Do you expect to

Speaker 1

folks, I mean, they're definitely newer adopters. They're also working on Wi Fi 7. So even future platforms we're already working on. We do have Certainly, plenty of opportunities in Europe as well as those guys kind of transition out of DSL into fiber. So we have a number of opportunities there.

Speaker 1

Those 1 or 2 customers aren't the only ones. We also have some Tier 2 guys in North America that are driving revenues and have been driving revenues and I would expect that to continue this year and into 2025.

Speaker 10

Okay, fair enough. Follow-up on the topic of DSP here in context and I think it's been asked by a couple of other people here earlier today about the goal of getting to A 20% share in this business over time. As you've gone through the qualifications and I think you've mentioned some still ongoing here for ramping later this year or next year. Are we on that track, Kishore, kind of your expectation of getting to that 20% share goal within a few years, Feeling pretty good about that, still think some things to go, maybe just kind of comment on how well that's coming into play?

Speaker 2

Well, yes. I mean, we said for the first time, initial early stage revenues are bigger now. And then we said there are new ramps in the second half. Those are the ones pending the calls happening. If both were to play out, then the numbers will work and those ramps alone should get you into the ballpark in the 3 year window we talked about.

Speaker 2

So getting to the 20% has got some noise around it in terms of Sometimes, it really is the end customer ramp slope rather than whether we get that share or not is our expectations. So if we hit our this year's numbers In the vicinity of the numbers I spoke about, I think that's a reality that's going to play out.

Speaker 10

Okay, fair enough. That's all for me guys. Thank you.

Speaker 1

Great. Thanks Richard.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Kishore Sundripu for any closing comments.

Speaker 2

So thank you. In closing, I would like to say we're excited about our market position and new product cycle growth drivers that are beginning to happen in 2024, and we expect those launches to continue to 2025. The product innovation that will drive in optical, Wi Fi, fiber broadband access, gateway, Ethernet, wireless infrastructure, they're all in the market and are being fueled by our customer traction and design win momentum. As always, we will continue to focus strong in our operational efficiency, fiscal discipline and creating shareholder value as we position ourselves for an exciting future as these products products really reach their full potential in the marketplace. With that, I would like to open the call to questions.

Speaker 2

Sorry, with that, This quarter, we'll be participating in the Susquehanna Technology Conference in New York on 29 February, the JMP Technology Conference in San Francisco on 4th, the Loop Capital Conference in New York on March 12, the ROTH Capital Growth Conference at Dana Point on March 18. Thank you all for joining us today and look forward to speaking with you again soon.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
MaxLinear Q4 2023
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