MaxLinear, Inc.

Q3 2021 Earnings Conference Call

10/27/2021

spk07: Greetings. Welcome to the MaxLinear Inc. Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Nick Aberle. You may begin.
spk00: Thank you, operator. Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's third quarter 2021 financial results. Today's call is being hosted by Dr. Kishore Sindhripu, CEO, and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared remarks, 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 fourth quarter 2021 revenue, revenue growth expectations and our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, tax expenses, effective tax rate, and interest and other expense. 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 wireless, infrastructure, and connectivity markets and opportunities for improved revenues across our target markets. These forward-looking statements involve substantial risks and uncertainties, including risks arising from competition, supply constraints facing the semiconductor industry, global trade and export restrictions, the impact of the COVID-19 pandemic, our dependence on the limited number of our customers, average selling price trends, and risks that our target markets and growth opportunities may not develop as we currently expect, and that our assumptions concerning these opportunities may prove incorrect. More information on these and other risks is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2020, and our third quarter, 2021, Form 10-Q, 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. The third quarter 2021 earnings release is available in this investor relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including net revenues, gross margins, operating expenses, income or loss from operations, interest and other expense, income taxes, net income or loss, and net income or loss per share 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 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 charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear's GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. Lastly, this call is also being webcast, and the replay will be available on our website for two weeks. And now, let me turn the call over to Kishore Sundripu CEO of MaxLinear.
spk04: Thank you, Nick, and good afternoon, everyone. Our Q3 revenue was $229.8 million, up 12% sequentially. Non-GAAP gross margin was 61.3%, and non-GAAP EPS was 75 cents. We also generated record cash flow from operations of approximately $84 million. Q3 revenue was up 47% year-over-year, with contributions from broadband access, connectivity, infrastructure, and industrial multi-markets at 55%, 17%, 13%, and 16% respectively of overall sales. Despite the semiconductor industry's ongoing supply chain challenges, our financial outlook for Q4 is strong. It reflects continued improvements in our supply chain operations, strong circular growth trends across our end markets, and are company-specific growth drivers. Turning to some of the Q3 business highlights, broadband revenue was $126 million in Q3, up 12% versus Q2, driven by new program ramps, share gains, content per platform increases, and strong end market demand. As service providers and operators ramp their capital expenses to address new bandwidth-intensive consumer application services, We will benefit from this organic makeshift to more technology-intensive consumer premise equipment in the near and long term. We are also winning many platform designs across multiple geographies in new end markets, such as fiber broadband, where historically we have had little share. These design-win activities will provide a strong revenue growth over the next several years. Connectivity revenue was $38 million in Q3, strongly up sequentially at 21%. we expect Q4 to be our third straight quarter of solid double-digit sequential growth. Our comprehensive connectivity portfolio spans Wi-Fi, Ethernet, and Mocha and underpins a strong long-term growth trend. We see sustained momentum for our Wi-Fi products as operators address strong consumer demand for robust broadband access and connectivity services. Over the next several quarters, we expect the launch of a multitude of next-generation Tier 1 platforms, incorporating our Wave 600 and Wave 600 Release 2 solutions, including our tri-band offerings. This makeshift to higher-value Wi-Fi products will drive higher blended pricing as well. Also, our silicon content will increase materially as the attach rate of our Wi-Fi solution to MaxLinux's own gateway SOCs greatly increases as operators refresh their gateway platforms in the new upgrade cycle. In total, we expect connectivity to be one of our fastest-growing end markets for the next several years. Moving to infrastructure, Q3 revenue of $29 million was essentially flat due to supply chain constraints related to packet substrates for wireless backhaul products. Having said that, we expect wireless backhaul to resume strong growth in Q4. End market demand for wireless backhaul products remains strong, even as share gain for a microwave RF transceiver accelerates. Our microwave RF transceiver revenues outside of China will roughly double in financial year 2021. We expect to post similar growth rates in financial year 2022. Our 5G wireless access RF transceivers grew substantially off a low base in Q2 with an initial ramp in the North America end market. We'll have meaningful sequential 5G revenue growth in Q4 and also expect it to be a strong long-term growth contributor for us. In the optical high-speed data center interconnect market, we expect modest shipments in Q4 as we initiate shipments of our 400-gig PAM-4 DSP products to our module partners. Given supply tightness across nearly all components within the optical space, we are building products to intercept anticipated early-stage ramps of 400-gig PAM-4 at hyperscale data centers. We're expecting strong growth for our PAM-4 products through 2022. We remain bullish on our position as a highly disruptive silicon provider. Our most recent product, Keystone, is the industry's first 5-nanometer 800-geek PAM-4 DSP product family, which has significant power and performance advantages over the competition. Based on solid customer sampling and interest, we expect a strong design-in cycle for Keystone in next-generation cloud deployments. Finally, our industrial multi-market revenue grew by 14% to $37 million in Q3. End-market demand continues to be strong across our portfolio with lean channel inventory levels. In addition, our customer design wind funnel for new and existing industrial products continues to expand. As a result, long-term, we are confident that our industrial multi-market revenues will grow steadily as we continue to gain market traction for new and existing products. In summary, our company's specific growth drivers are now solidly in place with emphasis on share gains, new product cycles, and increasing silicon footprint with new and existing customers across all four of our end markets. With our continued focus on developing new and disruptive technologies across our high-value end markets, we expect to outperform semiconductor industry growth rates for the long term. With that, let me turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Strategy Officer.
spk06: Thanks, Kishore. I will first review our Q3 2021 results and then further discuss our outlook for Q4 2021. Total revenue for the third quarter was $229.8 million, up 12% versus Q2 and up 47% year-over-year. Broadband increased by 12% quarter-over-quarter, driven by strong demand across our full portfolio of gateway solutions. Connectivity revenue increased by 21% sequentially as we saw broad-based strength across Wi-Fi, Ethernet, and MoCA. Infrastructure revenue was flat compared with Q2 as supply-driven softness and wireless backhaul was offset by strong growth in our 5G wireless access products. Lastly, our industrial and multi-market business was up 14% sequentially as we saw strength in both high-performance analog and component demand during the quarter. GAAP and non-GAAP gross margin for the third quarter were approximately 56.5 percent and 61.3 percent of revenue. Non-GAAP gross margin was up 110 basis points versus the previous quarter driven by product mix and operational efficiency. The delta between GAAP and non-GAAP gross margins in the third quarter was primarily driven by 10.7 million of acquisition-related intangible asset amortization and 0.3 million of stock-based compensation and performance-based equity. Third quarter GAAP operating expenses were 106 million, down sequentially, and at the low end of our initial 106 to $110 million guidance range. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of 25.6 million combined, and amortization of purchased intangible assets of 5.8 million. Non-GAAP operating expenses were 74.4 million, down 0.8 million versus Q2, and were below the low end of our initial guidance range of 75.5 to 79.5 million. Non-GAAP operating margin for Q3 2021 of 29% was up 540 basis points sequentially, as meaningful operating leverage was driven by strong revenue growth and lower expenses. GAAP and non-GAAP interest and other expense during the quarter was $2.7 million. Cash flow generated from operating activities in the third quarter of 2021 was $84.1 million. This was up substantially from Q1 levels driven by favorable trends in DSO and higher net income. We have now generated $152.2 million of operating cash flow through the first nine months of 2021. We exited Q3 of 2021 with $170.6 million in cash, cash equivalents, and restricted cash. Our day sales outstanding for the third quarter was approximately 42 days, down from 60 days as we saw improvements in our shipment linearity. Our inventory turns were 3.5 times, down slightly from Q2. With that, let's turn to our guidance for Q4 21. We currently expect revenue in the fourth quarter of 2021 to be approximately $240 million to $250 million, up approximately 7% at the midpoint of the range versus the previous quarter, and up approximately 26% versus the prior year. While supply chain issues continue to limit shipments, we are seeing a continuation of the supply improvements demonstrated during Q3. Our operations team remains hard at work with the underlying goal of building the right products at the right volumes to facilitate customer builds and enable them to win in the marketplace. While we don't see supply-demand equilibrium happening anytime soon, we believe that incremental improvements will be made on a quarterly basis going forward. Looking at Q4 by end market, we expect broadband revenue to be up quarter over quarter, driven by growth in cable and fiber applications. Connectivity is expected to be up solidly versus Q3 by continued strength across Wi-Fi, MoCA, and Ethernet. We expect infrastructure revenue to be up sequentially in Q4 as wireless backhaul shipments improve and 5G wireless access continues to ramp. Lastly, we expect our industrial multi-market revenue to be down slightly quarter over quarter, coming off a robust Q3 performance. We expect fourth quarter GAAP gross profit margin to be approximately 55.5%, 57.5%, and non-GAAP gross profit margin to be between 60 to 62% of revenue. As a reminder, our gross profit margin percentage forecast can vary within a given quarter depending on the product mix and other factors. We expect Q4 2021 GAAP operating expenses to be up slightly, quarter on quarter to a range of 105 to 109 million. We expect Q4 2021 non-GAAP operating expenses to be up slightly from Q3 levels within a range of 73 to 77 million. We expect our GAAP tax rate to be in the range of 15 to 20% and non-GAAP tax rate of 6%. We expect GAAP interest and other expense to be 2.7 million to 2.8 million. and non-GAAP interest and other expense to be $2.6 million to $2.7 million. In closing, we continue driving towards delivering sustainable and profitable growth at a faster pace than our semiconductor peer group. We are aggressively investing in key market areas with the goal of expanding our addressable markets while increasing our silicon content and improving our market share positions. At a macro level, our end markets are poised to demonstrate growth over the long term driven by the proliferation of global networking and trend toward expanding consumer dependency on reliable and robust connectivity. In addition to solid top line growth, we remain committed to delivering significant value for our innovative and differentiated technology portfolio. While we have made meaningful progress expanding operating margins, We believe there is room for continued improvement as we look to combine a growing revenue profile with the discipline spending methodology. With that, I'd like to open up the call for questions. Operator?
spk07: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Torres Vanberg with Stifel. Please proceed with your question.
spk13: Yes, thank you, and congratulations on the strong results and outlook. I'd like to start on the connectivity side of things. Kishore or Steve, Could you just elaborate a little bit on the content increases that's happening there? It sounds like, you know, you've got quite a bit more coming, especially throughout 2022. So, you know, any more color you can give on content gains and connectivity would be great.
spk06: So, Tori, maybe I'll just start off. Yeah, we've been talking a lot about these content gains within a gateway, and a lot of that is driven by Wi-Fi. We've seen a substantial increase from Wi-Fi 5 to Wi-Fi 6. But we do see this continuing, and we talked a little bit about that move from Wi-Fi 6 to 6E, and then even, you know, long-term move into Wi-Fi 6. as well, but we expect those content gains to continue to grow throughout that time. And so you're talking gateways, you know, historically were running $5 to $7, and now you're talking well north of $10 of content per gateway.
spk04: For Wi-Fi. That's very helpful. In addition, you know, in the past we did not have much Wi-Fi attached to our products. Even though we are the gateway SOC, we didn't have much Wi-Fi prior to Wave 600, as we call it. And now we are replacing pre-existing Wi-Fi legacy solutions with our own Wi-Fi. So you've got two things going on. One is the content per platform is increasing, one through expanded offering in Wi-Fi. Second, actually getting new Wi-Fi sockets in existing platforms that we did not have before. So you're seeing this sort of a snowball in a very good way. In all of broadband business, Wi-Fi is going to drive a dramatic increase in content per box. And in some cases, it's 30% to 40% increase. In some cases, depending on the box, and a bigger increase in the total BOM content.
spk13: Very good. And some of the other IP that you got from your InfoGateway acquisition include PON and Ethernet. I know you haven't talked a whole lot about that. I mean, obviously, there's smaller businesses, but could you give us an update on some of the opportunities you're seeing for both PON and Ethernet, especially next year?
spk04: So, you know, if you really think about the worldwide market and broadband access, we all have to we all have to understand that fiber is such a much, much bigger opportunity than cable. And the most important thing that's happening in the fiber market is that they're all upgrading the networks to 10 gigabit PON over time, and they are symmetric in nature, and therefore you get true 10 gig in both directions, and there are different tiers in the market. For us, you know, we have the most premier networks 10G XGS PON gateway platform with the SOC processor, the highest 10 Wi-Fi access point offering, the Ethernet, and including integrated PON front end. So what we have is the best offering in the industry out there. So for the last two to three years, the team has been engaged in getting a premier showcase you know, telco provider as the flagship victory, which will then attract other fiber pawn players in the world to copy this flagship carrier. And we are very excited because the ramp is going to start sometime in the middle of next year by the operator, but the shipments towards that rollout has already started at max linear, and we are really trying to play catch up on the supply constraints we have and really shift big time. And along with that flagship carrier, we are also winning other flagship carriers in Europe and smaller carriers elsewhere. So there's a huge upside. If you think of an accessible fiber market, units of about 75 million boxes worldwide, and you would think that the top platforms are 20% of the market and the mid-tier is about 40% of the market, we have a huge runway to grow in broadband as a full category. And all of these have pretty high-end connectivity, especially in the fiber play, so you should also see connectivity grow. So, frankly, our focus right now is really expand our fiber gateway offerings and grow the revenues, and all the design wins are taking shape nicely, and broadband as a category should be a huge growth driver for us. And outside of all the other investments we have in very exciting markets and connectivity, infrastructure and high-performance analog.
spk13: Great. Just one last one for Steve. Steve, gross margin obviously continues to improve very nicely. With all the cost pressure out there right now, can you comment on the ability to sustain 60 to 62 for next year?
spk06: Yeah, Tori. So cost pressures are definitely very high right now, and we're dealing with those, as many in the industry are. We've been doing our best. I think we're very pleased. We came in ahead of plan, getting above the 60% gross margin level last quarter, and then hitting above 61 this quarter. It is exciting. So in the short term, I think we're okay here. I think we're very comfortably above the 60% range, and we're going to continue to drive that product mix towards a higher Gross margin, we've talked many times that we thought that we can get the overall business kind of up into the mid-60s, kind of based on the mix and the products that we're selling today. And we remain confident in that. That being said, the cost pressures in the short term, you know, we'll continue to work around those.
spk04: The big key to our gross margin improvements has been all the things we just talked in the prior questions about product mix changing. higher value content, and as our high-performance analog part, products continue to improve in gross margins and with new product additions and revenue growth, which are pretty proprietary in nature. I mean, we have seen the benefits of that, and you should also not forget that with our infrastructure products, we also sell IP revenues that are really nicely helping gross margins right now.
spk13: Okay? Very helpful. Thank you.
spk07: Our next question is from Quinn Bolton with Needham & Co. Please proceed with your question.
spk10: Hey, guys. I'll offer my congratulations as well. I wanted to follow up on Tori's question. I think in the past you guys seemed to be much more optimistic about growth in the connectivity business where broadband might be sort of a, you know, kind of a lower single digit to sort of flatter outlook. It certainly sounds like from some of your comments around the PON and the fiber opportunity that perhaps that growth opportunity in the core broadband business is picking up. And I'm wondering, can you level set us now on what you think the broadband segment standalone could grow? What kind of CAGR could it grow at, say, over the next two, three years?
spk06: Yeah, Quyen. So, I don't think that our, look, we're very excited about broadband, especially as we look out over the next couple of three years. We're seeing a significant amount of infrastructure build out happening, upgrades happening in the network, right? And so, I think we remain, you know, very confident in that, you know, kind of mid-single digits is probably a very reasonable expectation on that front. The connectivity side is, we've not wavered on that either. We're talking about our Wi-Fi specifically doubling next year. We're very confident in that. I think we're ahead of plan for 21 and definitely expect to see significant growth in 22 as well. And it's still pretty early days when it comes to Wi-Fi and Ethernet.
spk04: I think the key point here is that we have not dwelled as much on the fiber platform Growth because that's our style we try to when we are when we are really shipping is when we tend to talk about things and I think So I think queen you're right about being bullish on broadband With new growth obviously a whole new tab is being added to our business which is called fiber and it really plays in very very nicely between the cable operators the telco carrier providers and And our infrastructure investments in both cable and telco space, I think all in all, it's all coming together very nicely. And it plays to our strength. So, yes, I mean, obviously, Steve has guided to you what he can stand by. But, you know, if I sound a little bit more bullish, you're absolutely right.
spk10: Great. No, I appreciate that, Keller. I wanted to switch over to the infrastructure business. Sounds like you will have modest shipments of the PAM-4 400 gig DSP in the December quarter with kind of higher shipments in 2022. Wondering if you could give us sort of any comments around your visibility into that business. I know it's a pretty constrained environment. So wondering if, you know, as you look out into 2022, do you have orders or backlog in hand that, you know, sort of give you the confidence that that business is going to ramp to, you know, more significant levels in calendar 2022. And then I know you've been engaged with one hyperscaler for the initial 400 gig designs. It sounds like perhaps those engagements are broadening. And so wondering if there's an opportunity to ship 400 gig DSPs to a second hyperscaler in calendar 2022 at this point. Thanks.
spk04: Quinn, clearly you always know more about this business than I would wager a guess. But anyway, it's interesting you brought up the second hyperscaler on the 400 gig PAM-4 DSP. You're absolutely right. There's an opportunity where there may be another hyperscaler coming online with 400 gig PAM-4. We're trying to expand our footprint. Having said that, I wish we were farther ahead on the optical data center than where we are today. And obviously, we are relevant. We are the disruptive technology provider. And given the changed landscape, the companies love the fact that there's an aggressive innovator who is really continuing to invest and focused on investing. And that 800-gig BAM4 is proof of that. Having said that, the, you know, we have struggled with the lack of incumbency in the past. And we are overcoming that lack of incumbency. And the supply constraints clearly give the advantage to incumbents. And so we have been slow on the uptake. However, there is no doubt that this will be a big revenue growth contributor for us in the longer term. And next year will be a good year for our growth for us. So knock on wood, so to speak, right? And then if you look ahead to 2020, to where things are in infrastructure generally as an overview, the market is now, in the next generation, is evolving from 400 gig PAMP 4 in the optical side and 50 times 8, 50 gig PAMP 4 times 8 on the electrical side. It's moving for a pure one-to-one lane. What I mean is 100 gig per lane optical inside and 100 gig per lane electrical at the outside. So So we are very well positioned, and that, I think, will be the biggest market that will span across all data center folks. And I think, you know, being consistent and also really not taking our eye off the mark, despite all the tribulations we have been through so far, is going to pay dividends in the long run for us. So I'm pretty confident about that.
spk10: Great. Thank you, T-Shirt. Thanks, Steve.
spk04: Thanks, Glenn.
spk07: Our next question is from Ross Seymour with Deutsche Bank. Please proceed with your question.
spk09: Ross Seymour Hi, guys. Thanks for having me ask the question. I'll echo the congratulations on the strong quarter and guide. I wanted to first sit on the supply side of the equation. Steve, I know it's tight. Everybody knows it's tight across the whole industry. It seems like you talked about incremental loosening, but the size of the upside you delivered in the quarter, the strong guide you gave in for the fourth quarter, and the fact that your inventory went up the better part of 30% sequentially, Those all sound like we're moving in the right direction at maybe more than an incremental pace. Is there something I'm missing in there that it's still tight but not nearly as tight as it was? Any sort of kind of incremental update on that dynamic?
spk04: Ross, you really zeroed in on the facts specific to MaxLinear. So I really want to give all the credit for operations and engineering team for lining up alternative suppliers across both packaging, and we're working feverishly to broaden that so that we can meet the great demand growth we are seeing in our broadband and connectivity space, especially connectivity, and also lining up for that optical data center that Quinn was asking about. I think supply is the key for more market share and gain, and that would become an asset for us. So our engineering team and operations team are doing a fantastic job, And we've always been creative for our size and we continue to do so. I also want to touch upon the other fact, and hopefully that has not gotten missed here. We hit $84 million in cash flow from operations and in an environment where we have also grown our inventory levels, right? So the business is really very, very well positioned to generate a lot of cash. And as our operating margin expands, you know, that should give us the ability to even expand our supplier base, right? Suppliers like, these days, the relationship with suppliers are becoming more strategic. You have to make investments in them and longer term. And we're taking all those active steps in terms of strategic investments to expand our capacity for the long term as well. So I think all those factors have contributed to what looks like losing for us. However, you all know that everybody, the suppliers, have increased prices by 20% to 30% at least. So I think we are in a new world, and being creative on expanding supplier base is incredibly important.
spk09: Thanks for that, Kala. I guess I'll sneak in two follow-ups and one question, and somewhat unrelated. First, Is seasonality even a concept that matters right now, especially in your broadband business, or is cyclicality and supply limitations the more dominant dynamic? And then the second and admittedly somewhat unrelated question, you guys have done a great job on the OPEC side of things. Is roughly the $75 million or so, is that the new base off of which we should grow, or is there some either lumpiness that we should expect going forward, or are there even more opportunities to whittle that down a little bit?
spk06: Yeah, Russ, I mean, look, with regard to seasonality, so over the last two years it's been pretty unique, right? I mean, you had a pandemic and then you had supply chain shortages, so that's definitely been a bit challenging and that's been the kind of overarching factor that we've had to deal with. I mean, I do think that we'll get back to seeing some seasonality in our business. I think, you know, you probably start to see that sometime next year as well, where typically we would see a stronger Q2 and Q3. So, I do think that we'll start to move back in that direction. With regard to OpEx, yeah, I mean, look, I think we've done a pretty good job. From time to time, I mean, OpEx is going to be a little bit lumpy as it comes, I mean, especially where you've got larger masks and things like that. We've also stated that we would expect OpEx to grow. Next year, at a modest pace, I mean, I think we're, you know, it's not an aggressive number, but you'll see it increase. Next year, as I look in, you know, out beyond Q4, you know, naturally in Q1, early in Q2, you've got tax implications and things like that where you would naturally see increases in the first quarter. But otherwise, nothing extraordinary from an OPEC standpoint going forward.
spk09: Great.
spk06: Thanks, guys. Sure. Thanks, Ross.
spk07: Our next question is from Tim Savigo with Northland Capital Markets. Please proceed with your question.
spk06: Hi. Good afternoon.
spk12: You guys hear me okay?
spk06: Hey, Tim. Yeah, just fine. All right. Great.
spk12: I want to come back to the kind of broadband growth discussion. And congrats on the quarter, by the way. And I think it was coming out of Q1, actually, where you guys talked about, and this has been true among your competitors as well, kind of the broadband business transforming from that kind of GDP type growth profile into something more significant. And at that point, I think you were targeting mid to high single digits as a kind of upward revision from that lower growth rate. You know, as I listened to your commentary on the fiber side, That sounds pretty incremental to those previous expectations. Of course, you've got a much larger competitor, not quite the same product profile, but growing well into double digits this year. Once again, the question becomes, can I get you to sign up for a double digit growth rate in broadband? I have a follow up.
spk06: You're very good, Tim. Look, I mean, I think we've talked about this. We typically talk about it really in the context of connectivity and broadband, and we're more than comfortable with double-digit growth. I mean, we've also, I think, across the company, you know, double-digit growth next year seems very reasonable. Your question about, you know, overall long-term broadband, I mean, it just said kind of mid-single-digit seems reasonable over the long term. Look, the fiber market is a relatively new market. We are getting penetration in it. I mean, Kishore spoke to it a little bit earlier. That is a much larger market. And so are there some dynamics that can change there? Absolutely, especially as we look out in this upgrade cycle. And I know you're particularly familiar with a lot of this build-out that's happening, even governments getting involved. I mean, there's a tremendous amount of dollars being deployed, a lot of upgrades. to DSL platforms historically all moving towards fiber. We're seeing a lot of traction. We see some of those proposals coming out with ramps in 2023. And so that kind of gives us that confidence that we've talked about before about the double digit growth, you know, out over the long term as those new programs come in.
spk12: Right. Got it. And you're right, factoring connectivity in there does make things a little more comparable and get you well into double digits, I suppose. The follow up was on infrastructure and really more short term. You talked about some supply issues in microwave, but it sounds like as those loosen up and you get some incremental contributions from both 5G and data center, it seems like your messaging was you expect connectivity to be your fastest growing segment. In Q4, in terms of the guide, But it sounds like infrastructure could be pretty close. Is that a reasonable analysis there?
spk06: Yeah. Look, I mean, I think we feel really good about our Q4 guidance on infrastructure. I mean, I think it is. I'm not going to give you an exact number on what it is, but it's substantial growth in Q4. I mean, I think we've had a great year this year, you know, growing you know, the whole year is going to grow on the order of 60%. And I think we've got another super strong year coming in 22, just as optical and 5G start to take off. So pretty exciting time when it comes to infrastructure.
spk04: That's the other part, right, is that, you know, through our strategic acquisitions, we have grown the broadband revenue. The infrastructure alone, if you look over the last 12 to 24 months, I mean, 12 months alone, it's grown about 50%-ish, and then you take the previous year, so the trend will continue. In the grander, larger revenue of the company now, you know, that gets a little bit lost, but we have done very well on infrastructure as a company.
spk12: Okay, thanks very much.
spk07: Our next question comes from Alessandra Vecchi with William Blair. Please proceed with your question.
spk03: Hey, guys. I echo everyone's congratulations on a great quarter. I just had a follow-up on Ross's question with regards to inventory. As we sort of think about some of these longer longevity business line items with PAM4 and 5G and now even like your broadband, how should we be thinking about the ideal or the normalized inventory level in either a dollars or a days basis going forward, like in terms of target.
spk06: Hey, Alex. I think if you're referring just to the inventory bill that we saw last quarter, it did come up quite a bit. I have a somewhat unique situation. So one, I mean, big supply chain dynamics, right? So we're having to bring in a lot of products, so there's a lot of things in WIPP, just to account for the growth, you know, that we see in 2022 and just over the next few quarters. So we've got to work hard to make that happen. I mean, we do have kits in a lot of cases where we're shipping out multiple products that are going into one application. So to the extent possible, We try to accommodate our customers so that we're not, you know, shipping onesies, twosies, but we're able to ship them all of their products that enable them to satisfy their demands.
spk04: So the color to that is that, yes, we have inventory growth. However, it is not in equilibrium with respect to the other parts of the kit. So that alone doesn't tell you the answer that our supply is loosening up because we need to add the other pieces of the shortages. And the revenue relative to our revenue growth has not grown enough, the inventory levels relative to the revenue growth we expect. So we're still behind on where we need to be or where we could grow into. Our revenue expectation would have been higher had we had more supply available.
spk03: I guess that's actually what I was trying to get at. I wasn't so much worried about the $127 million as I was trying to understand, given sort of the change in your business over the last year, like where you actually want that to go to in a supply equilibrium, if that makes sense. Meaning, is the target like 120 days or 130 days or is it?
spk06: Yeah, well, I mean, it kind of depends on the products. But, I mean, I would expect that it, you know, longer term, I mean, I think we can keep it under 100 days. But in this environment right now where everything is quite volatile, it's a little hard to say.
spk03: Okay. That helps a lot. That's what I was trying to get at. And that's it for me.
spk07: Our next question is from David Williams with Benchmark. Please proceed with your question.
spk08: Hey, good afternoon, and thanks for letting me ask the question, and congrats on the quarter. I just want to ask maybe a little longer-term question, but just thinking about the replacement cycle and the refresh and the CPE equipment that you're obviously doing very well in, how do those trends typically play out in terms of peaks? what year do you see the peak shipments, and then how does that kind of trail off? And how do you think, I guess, if we're thinking about Wi-Fi 6 and then transition to 6C, will that maybe elongate that cycle further out than what you would typically see?
spk06: Maybe I'll start. I'm not sure that I'll get your question exactly, but so a lot of the cable cycles are quite long, right? And so that's one of the things that we really like about this business. It's a pretty mature industry. They've got six to seven years runway before you see an upgrade. And so that enables us, you know, the investment needs aren't quite as substantial. The Wi-Fi, slightly different. There is a much faster cycle, much bigger market. And frankly, why we're investing heavily is because of the opportunity that we have there. So that's kind of where we are today. I don't know if you...
spk04: You know, if you talk about products refresh cycles on connectivity, right, in the context of a broadband platform, like Steve said, take seven-year cycles for cable data, and you probably have two cycles within that seven-year cycle of Wi-Fi refresh, right? So Wi-Fi goes at a faster cadence because the industry generates, they cannot afford not to refresh the Wi-Fi, On the other hand, the access piece is typically a seven-year cycle. So I hope that answers your question on how the refresh cycle plays out.
spk08: That was very helpful. Thank you. And then maybe just on the RF transceivers, the base station deployments in China have been, I think, a little bit slower than we had expected. Have you seen anything there in terms of a change in that dynamic? And then maybe if you can talk about your exposure to China and how you're thinking about the 5G rollout over maybe the next 12 months.
spk04: Look, for us, we have been hit very, very hard by the U.S. position relative to China on 5G access with the large wireless OEM, right? And that was our opportunity to be a huge player. And that has really hurt us big. So I think that simply answers your question, what does China mean for us, right? So on the other hand, the rest of the rollouts have been pretty slow. And you're also seeing that they are not deploying, you know, huge, massive MIMO solutions as was originally expected. Instead of 64 by 64 MIMOs, they're talking about 16 by 16 MIMOs. So that blending has come down to it. I guess reality has set in generally with a large stamp. So right now, the focus is about getting design wins outside of China with the various OEMs. And the industry generally tends to be very slow. And frankly, conservative is a flattery for those guys. And you win platform at a time, and that will end up to a systematic build-out and revenue growth. And not having income in Z has been a challenge as well for us. However, we expect it to be a long-term focus and growth opportunity for Max Linear. Fantastic.
spk08: And just one more quick one. Are you seeing anything in terms of disruptions in China coming through? I know the last several weeks there's been a lot of context around that. I'm just wondering if there's anything you're thinking about into the fourth quarter in terms of supply or pricing pressures specifically related to the China power shortages.
spk06: David, I don't think there's anything different over the last week or two than we're already dealing with. I'll put it that way. There's plenty of challenges out there. I think our operations team has worked and done a great job thus far, and I think you see that in our numbers, and we'll continue to do that. That creativity that Kishore mentioned earlier I think is also super important from an engineering standpoint that enables us to stay ahead of the competition here. Fantastic. Well, thanks again. Appreciate the time, guys. Thanks.
spk07: Our next question is from Suji Da Silva with Roth Capital. Please proceed with your question.
spk01: Hi, Kishore. Hi, Steve. Congrats on the strong results here. On, you know, fiber to the home, Wi-Fi attached versus cable, you know, first of all, what's the mix of your Wi-Fi you would say is more fiber versus traditional cable? And do you have a higher share in fiber? And if so, why?
spk04: So, you know, I cannot speculate how the share will develop in fiber in the future, right? But right now, we're all excited about, you know, three years of hard work. We got the world's premier carrier, you know, going to be rolling on with our product. And it's a full platform of MaxLinear, right? So, and in general, in fiber, our products will be both Wi-Fi and the access piece combined. We will not have We'll have little or no platforms where there is no Wi-Fi from MaxLinear. The cable world is a bit different, right? That was a world we had been in for a long time, and we have had 50 plus or minus percent market share for years now. Therein is where we are replacing existing Wi-Fi solutions on our platforms with our own Wi-Fi solutions. So that's where that story builds out. It's a very different story, and the cable world is also pretty bifurcated, right? There are people who buy pure voice and data modems, and there are ones who buy gateways where Wi-Fi is part of the full box, right? So it's too much detail to get into, but the way to think about it is that in cable, we have an opportunity to take our share position and add more content with Wi-Fi. In fiber, we are going to gain market share, and in every case, we'll have our fiber gateway processor with Wi-Fi and Ethernet combined. And in some cases, Mocha also is a part of it.
spk01: Okay. Thanks, Kishore. That's very helpful. And then just to follow up on that one, you know, in your press release, you talked about growth from content and share gain. I was curious if those comments were really more specific to Wi-Fi or whether there were two or three other areas you'd highlight as content or share gain opportunities in your term to help the growth.
spk04: Suji, I think I hate to use dramatic statements across the board, but there are multiple opportunities, right, of replacement. For example, we are the only one with a premier dedicated 2.5 gigabit Ethernet 5 product, right? And we are the only ones with a quad 2.5 gigabit Ethernet 5 product, right? And so that is now being deployed into the marketplace. We're going to get content increased there. And then on the Wi-Fi side, obviously, we talked a lot about it, right? And so I think there are many such opportunities. And there's power management. And we're doing some great work in power, and it always gets lost because we don't know how to cover it properly. In these forums, we want to stick to the large theme, but we are surrounding our SOC platforms with our power solutions. And that should add bomb. For example, to give you an idea, we ship around anywhere, let's say around 20 million units of cable boxes, give or take. And then if you add even a couple of dollars or three of power management content from Maximia's own solutions, when the gateways refresh, you can easily see us picking up anywhere between $40 to $60 million revenue on power alone. So this idea of A content increase is pervasive in our thought process inside the company because we're one of the few companies that don't just do mixed signal digital. We also can do pure analog products, which is a very uniquely differentiating feature about MaxLinear.
spk01: Okay, great. Thanks for that call, Akish. Thanks, guys.
spk06: Thanks, Siji.
spk07: Our next question is from Ananda Baruha with Loop Capital. Please proceed with your question.
spk02: Hey, yeah, good afternoon, guys. Thanks for taking the question. And yeah, congrats on the great results. A few if I could, but I'll be quick about it. Just with the strength in the revenue September quarter and then in the guide being so much stronger in a constrained environment than what you guys were thinking, do you think that, well, I'd love to hear the context around what you think is occurring to have it be so strong, but Do you think it's also a situation now where maybe just the growth profile is going to be stronger for a while than you had originally anticipated? Or should we think of the same kind of growth profile off of a leveled-up revenue base? And I just have two quick follow-ups after that.
spk06: Ananda, it's hard to, I'm not sure where exactly you're going. So, look, I mean, our growth profile, I think, has improved dramatically, call it over the last, you know, 18 months, right, with the newer products, whether it be, you know, some of the Wi-Fi products, the broadband products, and as well as our optical and 5G products. So, I think we're very confident in that growth profile. Clearly, we've been limited with supply. We're getting that addressed. I don't think we find any of this surprising. I mean, we've had this, you know, the bookings, the backlog, the visibility, but in a lot of cases we've not been able to hit the supply. And so that's improving. I think we're getting better visibility. I think we're, again, I'll mention, you know, some of the things that we've done creatively to change and to get more supply I think has been important, and I think it's enabled us to up these numbers in Q3, Q4, and frankly some of those actions will enable us to to take more share in 2022 as well.
spk02: Yeah, I guess what I'm asking about, Steve, is in a constrained environment, I believe the vast majority of the revenue was organic. So correct me if that's wrong, but they just put up like a 25% organic growth rate. Yeah, so I mean, here's what I'm looking at. So I'm sure I'm not the only one doing this. You know, you've been talking about double-digit growth, just put up 25% in a constrained environment. Or you're guiding to 25% organic in the constrained environment and, you know, particularly you'll get less constrained. So it just seems like you're a little bit ahead at least, or maybe you're just sort of, you know, doing better than you thought you would originally, you know, and I guess really maybe the question is, you say double digits, you would be thinking 20% normalized growth in a non constrained environment.
spk06: Look, we're not going to guide beyond the current quarter we're in, but do we have substantial upsides in markets that we haven't participated in? Are there significant market share gains that we have achieved and will continue to achieve? I mean, some of the things that Kishore spoke to a little earlier on the fiber side of the market, I mean, there's very large opportunities that we're seeing early traction on right now, and we're always looking to expand the overall TAM and ultimately grow the top line faster. I mean, we reiterated that several times in the prepared remarks, just talking about outpacing the semiconductor market, and we're very confident that we'll continue to do that.
spk04: And, you know, as we continue to be more strategic to our operators and service partners, you know, they are jointly investing in development activities for Max Leaders, so our future roadmaps have skin in the game for these people and they're, you know, so we are also benefiting from their strategic investment in our development both in terms of revenue forecast in the future and current versus also the technology we are developing for them, you know, being endorsed by them, right? And whether it's financial or through revenue purchases. And we have not even talked about all the other great things that are happening in the infrastructure because of now an enhanced scale. And we've always packed a lot of technology as a company, right? So that's been very critical. The other thing I really want to dispel, maybe this is familiar to all of you who have been following MaxView for a long time. We've had substantial organic growth over the last 24 months. And, you know, with the recharacterization of these revenues, that ability to grow organically should not be forgotten. I know there have been some spurious reports out there, but our organic growth has been very, very strong as well. So I just want to reiterate that fact.
spk02: Thanks for that context. And just the follow-up is, as the gross margins expand, do we also expect the operating margins to continue to expand, or might there be some investment we might do with the extra gross profit dollars? Thanks.
spk06: So I think Ananda, yeah, we saw a substantial increase, 540 basis points in operating margin improvement last quarter. I think you'll see in our guidance that that goes up again. When we, even say a year, year and a half ago, we kind of talked about that ability to get north of 30%. We're executing on that and very excited about kind of what the future holds there.
spk04: And I think, Steve, in your prepared remarks, you did sort of allude to the fact that we should see we'll be spending lesser than the rate at which the revenue is growing and that the operating margin has the opportunity to expand further.
spk02: Thanks, Anand. Thank you, guys.
spk07: Our next question is from Sam Peterman with Craig Hallam Capital Group. Please proceed with your question.
spk11: Hi, guys. Sam on for Richard here. Two quick ones for me. The first one, you know, in connectivity, sounds like you guys are pretty confident in Wi-Fi. Doubling next year again, you've got some good visibility there. I'm curious how, you know, Mocha and G.HN are trending within connectivity as well and any kind of visibility you have into the outlook for 2022 there would be great, too.
spk06: Yeah, yeah, no problem, Sam. Yeah, I mean, Mocha and G.HN continue to perform extremely well. We spoke about it a little bit earlier. Very strong in Q4, actually, coming up here. So those areas have been constrained as well as far as getting product, but really good traction with our Mocha product, G.HN, seeing more and more applications with that as well.
spk04: So there's a little bit of a difference with the G.HN Mocha, right? Right now, most of our revenues at G.HN are more retail-oriented and some industrial markets. industrial IoT markets, and whereas Mocha tends to be much more very, very high quality of service, reliable backbone for connectivity solutions inside operator deployments in the home.
spk11: Okay. Okay, that's great. Thanks. And then quick, just looking at your 10 key real quick, it looks like your customer B that I think you guys have picked up from Intel is wasn't a 10% customer in the quarter. I'm curious if you think they will be for the year, if you can just give some color around whether that was, you know, customer specific or just other lines of business growing faster. There's what's going on there.
spk06: Yeah. Yeah. Sam, I mean, with regard to the top customers, I think this applies to all of them. They all would like to have more product. So, so somewhat similar to our end markets. These things are a little difficult to call from quarter to quarter. But I would say we're growing significantly with all of our top customers, and we're excited about that. We also want to continue to execute and get them more products going forward.
spk11: Okay, thanks, guys.
spk06: Thanks.
spk07: Our next question is from Christopher Rowland with Susquehanna. Please proceed with your question.
spk06: Hey, Chris, are you there?
spk07: We have reached the end of the question and answer session, and I will now turn the call over to management for closing remarks.
spk04: Thank you, operator. I just want to let everyone know that we'll be participating in the upcoming conference's In Q4, maybe Stifel 2021 Virtual Midwest Growth Conference on November 11th. The Benchmark Company 2021 Technology Conference on the 17th. Roth Capital Partners 10th Annual Technology Event on November 18th. Credit Suisse 25th Annual Technology Conference on November 30th. Wells Fargo 5th Annual TMT Summit on December 1st. Barclays Global TMT Conference on December 7th. Oppenheimer 5G Summit on December 14th. and the NEADM 24th Annual Growth Conference on January 12th. You should be able to see this list also on our website. So with that, I want to say that thank you all for joining us today, and we look forward to reporting on our progress to you next quarter. Thank you very much.
spk07: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-