MaxLinear, Inc

Welcome everybody to the third day of Needham's 26th annual Growth Conference. My name is Quinn Bolton. I'm the Semiconductor Analyst here at Needham & Company. Thank you for joining us. It's my pleasure to host this Fireside Chat with Max Linear. Max Linear, as many of you know, is a leading supplier of RF analog and mixed signal semiconductors for the broadband and connectivity infrastructure and industrial markets. On stage with me is Dr. Kishore Singh Dripu, CEO and Steve Litchfield, CFO and Chief Corporate Strategy Officer, and also has Leslie Green in the audience who handles investor relations. So key short, Steve. Leslie, thank you for joining us. I wanted to start off, guys, with maybe some macro questions or just industry questions. Obviously, the entire semiconductor industry is facing inventory digestion, as you have, particularly in the broadband and connectivity business. But what are your latest thoughts on where we are in that inventory digestion process, and how long does it take to clear inventory in your various end markets?

So I think not much has changed since our last earnings call. We are burning through inventory, right? And we are undershipping demand quite substantially. And if you see what took our revenues down, it's really almost entirely concentrated in the broadband connectivity business. They're one and the same as far as revenues are concerned. But the remaining portions of a business, infrastructure, industrial multi-markets, don't have too much inventory, this thing. So broadband and connectivity, we've been tracking it, and we're vastly under shipping demand, even though the demand seems fine. So we expect that maybe second half of this year is when we will start seeing some recovery to happen. And, you know, it's like fits and starts. We're seeing some cases, some parts are in short supply and you see some bookings and others you don't see. So I think it'll really be the second half of this year. Regarding the infrastructure and industrial multi-market, we don't see, we didn't have that overshipping problem other than some exposure to the macro markets that are softening. So we expect softening in industrial and infrastructure markets in the first half of this year as well. But that's more macro. Macro than really any large-scale inventory issue that we are seeing in the broadband and connectivity space.

If you're right that broadband and connectivity, where you have the bulk of the inventory problem is, you know, clear sort of by the end of the first half and hopefully gets into a better situation in the second half. At what point would you start to expect to see bookings begin to pick up? Is that, you know, a quarter ahead of, you know, kind of the recovery? How far in advance would you start to see it in the order books or at least order trends becoming more consistent?

I mean, typical lead times are 16, 18 weeks, so... 16 weeks before. Yeah, I was going to say it won't be any faster than that. But I guess I would just, I mean, look, I think bookings are improving. I mean, we're starting to see signs of improvement, even on the broadband side. I mean, even where there's inventory in the channel, there's never a perfect mix of inventory, right? So you're starting to see signs. And so things are improving. It's not as much as we want, no doubt about that. But definitely signs of improvement.

Got it. Okay. And you mentioned sort of normal lead time, 16 or so weeks. Are we back to that level at this point? Certainly. Okay. You know, I know there are a lot of folks who would love to know what's going on with the Simo arbitration. I know it's private. So rather than me asking you a lot of questions you can't answer, maybe I'll just open up to you.

Can you give us any update to where we are in the Simo arbitration process? Yep. So, yeah, familiar with the question. Really, not not a lot has changed. Not a lot of an update. So Silicon Motion filed for arbitration in October. We responded. And so now we'll go to Singapore. per our existing contract and go through arbitration. It's expected to take 12 to 18 months. It's all done confidentially, so we don't expect to have a lot of updates for you in between now and then. Another common question, I'll beat you to the punch, is what is the expected outcome? Clearly, we've filed, terminated the deal, don't expect to pay a breakup fee whatsoever. I think their position is they want a breakup fee and legal expenses, damages, et cetera, which, you know, as I'm sure many of you know, typically our position and most people's understanding is that kind of gets incorporated into the breakup fee. So the breakup fee is $160 million. So most folks have kind of framed it around zero to 160. Certainly there could be other outcomes, but that's kind of where most folks frame it. Okay.

Is it a binding process? It is. It is. Okay. So no appeal. So when a ruling is given, it's final and binding. Right. Got it. Okay. Just moving to the broadband connectivity, you recently introduced your PUMA 8 solution. Tell us a little bit about that. I think it has both UltraDOCSIS 3.1 and DOCSIS 4.0. Maybe what is UltraDOCSIS 3.1, and how do you see adoption of PUMA 8 over the next couple of years?

So what we've announced is what is called the PUMA 8 chip, which is basically a full-blown DOCSIS 4.0 chip. And what DOCSIS 4.0 does is that it gets you 10 gigabit downstream just to keep it you know, approximately 10 gigabit downstream speeds and upstream, you can go somewhere between 5 gigabits and 10 gigabits upstream data speeds. So, but the problem with DOCSIS 4.0 deployment, it needs a massive network upgrade, which is very, very expensive. To put it simply, that you need to You need to maintain a certain signal quality to every home that receives DOCSIS 4.0. That means you need to put a lot of hardware in between to make sure the signal doesn't get destroyed as it goes through old, lossy cable coaxial lines. That's the thing. But the trick is how do you provide the speeds to these service providers to enable, to provide that data rate that competes against the fiber guys with existing network. So what we call UltraDocs is, some people call it Enhanced Docs 3.1. So what it does is that it says, okay, guys, today you're getting about less than a gigabit of upstream speed. What we're gonna do is we're gonna shift the partition of how much bandwidth we reserve for upstream and downstream. So we're gonna give you somewhere like three to five gigabits per second upstream speed by occupying more of the cable bandwidth for upstream and shifting the downstream a little bit higher so that you still get somewhere between five to 10 gigabits per second on the downstream. So what that does is it gives a bridge for the cable operators to nicely, we thought, with very little expenditure in the network upgrade for the same box, to scalably use it to transition to 3.1 Ultra DOCSIS and eventually to DOCSIS 4.0 full-blown to get to 10 gigabits per second speed. So it's a cost-effective way of transitioning so that you can pace your CapEx if you're an operator, if you're a service provider, at the rate at which customers will want service to be upgraded. That's the beauty of it.

Got it. So you upgrade the CPE device today with Apuma 8. Yeah. You can enhance the service without doing a lot of network investment. And when they're ready to do the network investment, they've got a DOCSIS 4.0 capable CPE already.

Exactly. They've got the DOCSIS 4.0 capable CPE, and they turn on the DOCSIS 4.0 capability in the network based on the user upgrade point, right, so to speak.

From the cable MSOs, you know, as RFPs are coming out, are they now starting to specify DOCSIS 4.0 or this enhanced or ultra-DOCSIS 3.1 feature, or do you think that those RFPs are still, you know, later this year?

So I would say that when RFPs come out, they want to specify both, right? It has to do this, it has to do that sort of thing. And you'll hear a lot about unified doxes and so on and so forth. That's just the buzzwords for ultra-doxes and then doxes 4.0. So the silicon has to be capable of supporting both, obviously. Okay, okay.

You mentioned competition from fiber, and I know you have a fiber play. What's the size of the overall cable modem gateway market today? Is it growing? Is it actually starting to shrink? I think in the past we probably talked about 30 to 40 million units a year. I'm just trying to level set folks. Is that still the right unit, Tam? I know we're going through an inventory correction, so it's probably not the right, Tam, this year or in 23. But is that kind of still the opportunity for cable, or do you think it has?

Shrunk. Right now, it's definitely shrunk, right? That's why it depends on who you ask the question. But I think it has shrunk. It has pulled back. I don't think it grows. I think it's stable. And then I want to... The units-wise, but there are two kinds of units in cable. One is the gateway units and is the pure modem units. The silicon opportunity in modem is... half the BOM, the bill of material of a gateway, let's say, just to keep it. Because if you look at a modem, it's just got the DOCSIS chip, right? And then it's got the front end for the DOCSIS, right? Whereas a gateway has got the modem, less Wi-Fi, less Ethernet as a connect, you know, the full, and then the network processor that can handle the Wi-Fi routing. So you've got basically a router and a modem combined in one. The other one is a pure modem. So the content is increasing in the gateways, whereas modem, you know, so with the upgrade to the new standard, the ASP is increased by 30%, let's say. Okay. Right? So I don't see, so I say it's a flat TAM if you discount for the inventory correction. If you offset for the inventory correction, probably it's a flat TAM. Okay. Right? And I know there is a lot of talk about subscriber losses to telco and all of that stuff, right? It's very, very, in this period, it's hard to sort of, you know, gauge it, but I think it's a flattish one as well as dollar tax. So you just brought me down a little bit.

Content's going up. So it's kind of flattish, yeah. Share position of broad companies think, and I know there's a lot of noise here in the last year, but do you think it's still roughly a 50-50 split or do you think there's been some share shifts? within cable?

It takes a while to settle down because this whole deployment model of DOCSIS 4.0 versus DOCSIS 3.0, it all has to be solved. And I don't expect substantial shifts. You know, I would say it's always been that world has been 60-40 or 50 plus minus. So could it be 40? Yeah. Could it be 60? Yeah. Don't know. It really varies. So I would say nothing substantial has changed other than the dust has to settle. Who's deploying what on DOCSIS 4.0 versus modems versus gateway space.

Lastly, Puma 8 shipments begin when? Later this year?

I really think that it's really a next year phenomenon for the industry as a whole. I think that The upgradable, scalable Puma 8 equivalent functionality, start shipping, production ready probably first half next year.

Switching to the fiber side of the broadband business, this is obviously smaller, starting from a smaller base. You previously talked about sort of 10 or less than 10 million in 21, I think 30 to 40 or so in 22. You had expectations for growth in 23, but obviously we know the entire broadband business was tough with the inventory correction. Did you actually achieve growth in 23 in fiber? And can you give us any sense of the outlook for 24 in terms of growth in fiber? Sure.

So let's just focus on the past. It was barely anything three years before 22. And then the numbers you said are right, and it was like about 30 in 22. And in 23, we expected double. We didn't quite double, but we actually grew quite substantially. Let's say it's 50 range-ish. So we thought maybe it would be 80 when we told it would double, but it turns out to be something in the 50, 60 range sort of thing. So we kind of did well, but... But there's one tier one operator. So in fiber, our position is most of our shipments have been so far on the SFPs. If you look at the fiber market, there are two deployment models. One is you terminate the fiber at the entry point to the home, and then you connect to an Ethernet gateway router inside the home. That's one way to think about it. The other model is get the fiber straight in and terminate everything in the big gateway box itself. So far, our shipments in PON have been not gateway on the SFPs. That means we've done quite well, actually, very well. But if you look at the gateway, we've just ramped a tier one operator in North America. We got some good traction going on, another tier one operator in North America. In Europe, the bids are going out right now. Frankly, they've been pretty slow, the RFQs, so they'll all be finalized by the end of this year. And then maybe you've got more gateway ramps next year and some other smaller tier two gateways also happening next year. So I think it continues to ramp slower pace and it'll pick up more pace next year. So Pond opportunities almost 2x plus on the cable side. So that's going to be the exciting growth for us since we have such a small position in fiber.

Got it. And competitive landscape, is it mostly Broadcom? Do you see any of the Asian or Taiwanese vendors active in North America and Europe?

So I would say from a full bomb, the entire content platform-wise, it's Broadcom and us, right? But there is Taiwanese vendors, a combination of Aroha, MediaTek, or Cortina sort of thing. There's some combination there where they're usually the third player. And obviously it puts pricing pressure on the ecosystem. That's what they achieve. But generally the way the market plays out is that there's a bias towards a full solution because ultimately it's more cost effective once the pricing pressure is imposed on players. So we expect for us as a growth business, we're not going to be losing share because we're building from one thing to the other. But that's the dynamic there.

Okay. On the connectivity side, maybe just speak a little bit about your design momentum in Wi-Fi 7. I know you've said there's a content uplift as well, and maybe just reiterate what that content uplift is.

So, okay, you know, today all our Wi-Fi revenues are Wi-Fi 6. Wi-Fi 7, we just announced that we have been selected along with three other players as a certification bed. Once again, we had that position in Wi-Fi 6C. We got that again in Wi-Fi 7, which is a big deal, which means that we're automatically qualified. Everybody else who wants to launch a Wi-Fi part, which is not these four players, they have to certify against us. So that's good news. But mostly right now, the RFPs are being issued are for Wi-Fi 7. So the ramp really happens middle of next year sometime. Maybe we will ship some Wi-Fi 7 at the end of the year. But nothing meaningful because the codes are going on now. It takes that long time. Other thing is that iPhone 16 may have Wi-Fi 7. The current new model of iPhone doesn't have Wi-Fi 7. Those are the dynamics that drive it. The content uplift is usually 30%, right? If you look at Wi-Fi 6, maybe it's 8.2%. $15, you know, $8 to $12 to $15. The other one will be, you know, maybe $10 to $20 sort of shift, basically.

And, you know, before the inventory correction, part of the Wi-Fi growth was you'd done very well sort of in the service provider market. You were starting to kind of move a little bit more, I'll call it retail-ish, because I think it's in Asia, the service provider, you know, some of that channel is through the retail market, but, you know, is there an opportunity for Wi-Fi 7 in sort of the retail or that same sort of Asia channel in addition to the more traditional North American European service provider?

Absolutely. We had very strong traction there, and we're getting a bunch of design wins, and we had silicon supply shortage, so we overwhelmingly biased towards supplying the the bigger players, North America customers, so we starved those guys, and therefore, we kind of stopped our own momentum by decision who we allocate the silicon to. So we're back at it again, and definitely the opportunity is there on the service provider class, Wi-Fi, which is kind of a different model retail in China. For example, Huawei and ZTE dominate their market, but on the Wi-Fi, Ethernet, and stuff, we can also ship, basically.

I'm sure you've gotten this question. I'll ask it because I think it leads to a more interesting question. But it's been a few months now since the Vantiva Comscope deal was announced. And Vantiva has been historically more of a Broadcom shop. You've been more of an Aris Comscope shop. You know, some people worry that, geez, maybe they consolidate around one silicon provider. Your thoughts there? The more interesting question is, do you think you see a move away from that OEM gateway model entirely and it becomes more of an EMS or contract manufacturing business?

Okay, so that's a good question. First, let me answer the Vantiva Comscope one. Really, the decisions about who's silicon is used is not made by the OEMs. The operator is the one who chooses it. And for them, supplier diversification is very, very important. So what we expect is that more ODMs become OEM-like and they come on board first, right? And then that's one. So I'm not worried about that. I think the silicon choices are made by the service providers. And when I say that, that means we have more knowledge than that, even to say that we feel confident that the service providers picked the silicon. So we're not worried about that. So I just think who we supply to could change based on decisions to be made, number one. Number two, whether they go EMS, I think they have tried that before. And I think that some have succeeded. We have seen that the satellite world, for example, the DirecTV, and you saw it be Sky in the UK who did that very successfully. But then nobody else has been that successful. I think the operators are moving towards a direction of owning the designs and everything. and giving it to a contract manufacturer to do it as a backup rather than doing it themselves. But they're going to own more and more of the middleware software and above. They're trying to standardize it so that it's just a commoditized situation. Okay.

Lastly, on the broadband business, what are you hearing from the cable or fiber broadband service provider customers in terms of when they think the RDOF or the infrastructure dollars really start to flow?

That's a bigger question. Really, from our point of view, it's, you know, whatever gets deployed, they'll have to use our silicon if it is a pawn side or is it a cable play, right? So we should benefit. But on the pawn side, you benefit from the tier two players. Like the calyxes and the trans and those sorts of things, you know, and we should receive some of that money in some of the form. But it's really for their capital, not, you know, and then it will translate to silicon. So really with this whole inventory stuff, it's very hard to say, you know, how it's going to play out. I think we just give it another six months and, you know, things will clarify a little bit.

Okay. Okay. TBD at the August conference. Yeah.

But you promised me next time you're going to ask me more about infrastructure as well.

Oh, no, I've got six or seven here on infrastructure. In fact, that was where I was going. Obviously, a lot of momentum in data center spending, optical infrastructure, especially as AI continues to be adopted. We talked last week. You seem most excited last week in our meeting about your Keystone DSP and the optical DSP progress you're making. And so maybe give us the latest thoughts on the optical DSP traction you're seeing. Sure.

So I wouldn't specifically bucket around the optical DSP. I think we're very excited about infrastructure. We've been investing for the last five years to build infrastructure business practically from zero.

Right now, the infrastructure business is about $200 million per year, and we could

growth vectors in each or a which in those incremental growth opportunities

data center is the biggest opportunity, right? We expect that the revenues based of...

800 gigabit deployments.

And our anticipation and proof points that are developing about design wins.