Maxlinear Inc

NASDAQ:MXL

Earnings Call Transcript 2020-Q1

[Operator]

Greetings, and welcome to the MaxLinear’s Q1 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the conference over to your host, Brian Nugent. Thank you. You may begin.

[Brian Nugent, Investor Relations]

Thank you, operator. Good afternoon everyone and thank you for joining us on today's conference call to discuss MaxLinear's first quarter 2020 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions.

Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for second quarter 2020 revenue, and GAAP and non-GAAP gross margins and operating expense. In addition, we will make forward-looking statements relating to trends, opportunities and uncertainties in various products and geographic markets including without limitation tax expense, tax rate, and interest and other expense guidance, as well as statements relating to trends, opportunities, and uncertainties in various product and geographic markets, including, without limitation, statements concerning opportunities arising from our announced definitive ac agreements for impending Intel’s Home Gateway business. Growth opportunities for our wireless, infrastructure, and connectivity markets and opportunities for improved revenues in our broadband markets.

These forward-looking statements involve substantial risks and uncertainties, including risks related to our proposed acquisition of Intel’s Home Gateway business such as integration and key employee retention risk, as well as those arising more generally from competition, global trade and export restrictions, potential supply constraints, the impact of the COVID-19 pandemic, our dependence on a limited number of customers, average selling price trends and risks that our 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 risk factors is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2019, and our first quarter 2020 Form 10-Q which was 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 first quarter 2020 earnings release is available in the 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, income taxes, net income or loss, and net income or loss per share on both 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 future certain charges, including stock-based compensation and its associated tax effects.

Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear 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 a replay will be available on our website for two weeks.

And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

[Kishore Seendripu, Chief Executive Officer]

Thank you, Brian, and good afternoon everyone. We are pleased to report strong gross margins of 63.8% on $62 million of revenues in Q1 2020 and cash flows from operations of approximately $6.7 million. We are also encouraged by our stabilizing forward outlook in this unprecedented Covid-19 pandemic environment.

Our connected home business stood at 52% of total sales, while infrastructure and industrial multi-market revenues represented 28% and 20% of overall sales respectively. Despite the pandemic, our world-class geographically diverse team continues to successfully execute on critical strategic engineering initiatives and customer milestones in 5G wireless, optical datacenter and high-performance analog markets.

Our acquisition of Intel’s connected home assets more than doubled our target addressable market about $5 billion and consists of industry-leading DOCSIS, 10-G PON fiber and Ethernet broadband access gateway SoC technologies and on with the state-of-the-art Wi-Fi 6 and Wi-Fi 6E platform solutions.

Combined with our ongoing 5G wireless and optical datacenter infrastructure initiatives, we are ideally positioned to address all the bandwidth expansion and network dealer bottleneck opportunities in the cloud, as well as into and throughout the home. The disruptive work from home mandate all over the world due to Covid-19 are driving an increased focus on bandwidth upgrades.

We are already seeing improvements in demand and backlog in our connected home business and anticipate to seeing more.

Turning to some of the highlights, in the optical datacenter market, we are diligently supporting our OEM to ramp the industry’s first 400 Gigabit PAM4 deployment at our Tier-1 hyper-scale datacenter customer. Our second-generation Telluride DSP system-on-chips solution or Single Lambda 100 Gig PAM4 application was recently recognized as the industry’s best by 2020 Lightwave Innovation Reviews

We’ve also rapidly expanded our industry design wins to several Tier-1 customers for 100 Gigabit PAM4. Recently, Optoway Technology and Centera Photonics announced Sub-3.5W 100G DR run optical modules serving hyper-scale datacenters using our solution.

We believe Single Lambda 100 Gigabit and 400 Gigabit PAM4 solutions will dominate datacenter and 5G wireless front haul deployment over the next several years.

Turning to the 5G wireless infrastructure market, we have recently completed the production tape out of our industry-leading 4G nanometer CMOS 4×4 massive MIMO quad RF transceivers system on chip solution. We are on track for initial 5G revenues in 2020 and strong multi-year growth beyond.

More broadly, we have furthered our engagement with Tier-1 OEMs and customer feedback continues to confirm that our 5G RF transceiver has the highest performance, double the bandwidth at 400 megahertz and superior system-level integration at up to 50% low power consumption versus competition.

We hope to share more exciting developments in 5G access in our next earnings call. In 4G and 5G wireless front and backhaul, we are also witnessing acceleration in E-band millimeter wave design engagements with Aviat, Technetix, GiaX and Siklu, each announcing innovative solutions using our 20 Gigabit per second millimeter wave dual modem and 2.5 Gigabits per second microwave modem chipset.

E-band is very attractive due to larger blocks of available spectrum and lower licensing costs, especially for 5G cell densification. With the growing base of RF design wins for microwave backhaul coming to production and expansion to millimeter wave deployments, where we have a firm leadership position, we are increasingly confident of expanding our wireless backhaul revenue runrate this year and beyond.

Moving on to the connected home market, during Q1, we saw resumption in our flagship multi-Gigabit MoCA wired connectivity platform deployment at our major fiber telco operator and customer as, well as an uptick in our G.hn business. Wired connectivity remains an important growth driver to relieve in-home connectivity bottlenecks and our MoCA and G.hn solutions will benefit from that market dynamic.

In closing, I am increasingly confident that the impending Intel connected home assets acquisition combined with our organic initiatives in 5G wireless, optical datacenter and high performance analog markets will uniquely benefit MaxLinear shareholders by addressing an ever-increasing target addressable market of challenging broadband connectivity and network infrastructure platform applications.

With that, let me turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer for a review of the Q1 business results and our forward guidance.

[Steve Litchfield]

Thank you, Kishore. I will first review our Q1 2020 results and then further discuss our outlook for Q2 2020. On revenue of $62 million, we saw the connected home business up 7% sequentially with an improvement in MoCA shipments related to our major telco program.

Our infrastructure business decreased 14% driven by softness in wireless backhaul and a normalization of our high speed interconnect business after a strong Q4. Our industrial and multi-market business was down 37% sequentially, as seasonal weakness was compounded by pockets of supply challenges related to Covid-19, distributor inventory reductions and overall demand weakness.

GAAP and non-GAAP gross margin for the first quarter was approximately 49.6% and 63.8% of revenue respectively. This compares to GAAP gross margin guidance of 53.5% to 54% and non-GAAP gross margin guidance of 63.5% to 64%. The delta between GAAP and non-GAAP gross margins in the first quarter reflects the amortization of $8.6 million of purchased intangible assets from previous acquisitions and $0.2 million of stock-based compensation and bonus accrual.

First quarter GAAP operating expenses were approximately $50.9 million, which was above our GAAP guidance of $46.5 million to $47.5 million, due primarily to acquisition costs. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of $9.6 million combined.

Amortization of purchased intangible assets of $5.7 million, acquisition cost of $3.3 million, restructuring charges of $0.5 million and IP litigation cost of $0.01 million.

Non-GAAP operating expenses were $31.7 million, which was up $1.7 million sequentially due primarily to a seasonal step-up in payroll taxes and higher design tool spending. This was slightly below non-GAAP guidance of $32 million to $32.5 million due to continued disciplined expense management.

We have been successfully managing the spend during this transitional period with Q1 non-GAAP OpEx down 11% year-over-year.

Moving to the balance sheet and cash flow statement. Our cash flow generated from operating activities in the first quarter of 2020 was $6.6 million versus $28.1 million generated in the fourth quarter of 2019. Our loan balance remains at $212 million and our net leverage ratio was roughly flat at 1.6 times. We remain consistent in our intentions around our uses of cash with priorities on debt pay down and strategic acquisition.

Our days sales outstanding for the first quarter was approximately 66 days, in line with the prior quarter. Our inventory turns were down slightly to 4.0 compared to 4.1 in the prior quarter. That leads me to our guidance.

We currently expect revenue in the second quarter of 2020 to be approximately $60 million to $64 million, approximately flat sequentially at the midpoint of the guidance range. We expect connected home revenues to be down by roughly 15% quarter-over-quarter with declines across most of our product categories.

Taking with our Q1 results, the guidance implies the first half 2020 connected home revenues of approximately $60 million consistent with our prior outlook of approximately $30 million per quarter, albeit uneven.

Looking beyond Q2, improving bookings visibility gives us confidence that our connected home revenues should improve in the second half. We expect infrastructure revenue to be up by roughly 15% with improvement across each product category. We expect our industrial and multi-market to increase approximately 15% recovering from an unusually low Q1.

We expect second quarter GAAP gross profit margin to be approximately 49% to 49.5% of revenue and non-GAAP gross profit margin to be approximately 63.5$ to 64% of revenue, essentially flat sequentially.

As a reminder, our gross profit margin percentage forecast could vary plus or minus 2% depending on product mix, and other factors. Even as we are focused on reducing our runrate spend levels, we continue to fund strategic development programs targeted at delivering strong top-line growth in 2020 and beyond. With particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business.

We expect Q2 2020 GAAP operating expenses to increase approximately $3.1 million quarter-over-quarter to a range of $54 million to $55 million driven mainly by seasonal payroll increases and engineering prototype expenses supporting our product development roadmap, as well as stock-based compensation and bonus accruals.

We expect Q2 2020 non-GAAP operating expenses to be up approximately $1.3 million sequentially to a range of $32.5 million to $33 million. We expect GAAP tax expense to be approximately zero and non-GAAP tax rate of 6%. We expect interest and other expenses in the quarter to be $2 million to $2.1 million.

In closing, we are pleased to report continued progress in our infrastructure initiatives, highlighted by our expanding design engagements in the 100-gig datacenter market, expanding adoption of our E-band modems and RF transceivers, and engineering and customer milestones in our 5G massive MIMO transceiver platform.

While we see cross currents in our end-market dynamics attributed to Covid-19, we are navigating to the best of our ability, supply challenges and potentially further demand disruptions, as work from home mandates continue to remain in place.

That said, we remain steady and focused on maintaining strong profitability and cash flow generation, while continuing to execute on our organic infrastructure investments. Factoring in a financially and strategically compelling acquisition in the Intel transaction, we believe we are uniquely positioned to deliver strong leverage in our business in 2020 and beyond.

With that, I’d like to open up the call for questions. Operator?

[Operator]

[Operator Instructions] Our first question from the line of Tore Svanberg from Stifel. Please proceed with your question.

[Tore Svanberg, Stifel]

Yes. Thank you. First of all, you're guiding the infrastructure segment to be up 15% sequentially and I think you said all sub-segments will grow. Could you just elaborate a little bit more on that, especially in light of the hyperscale business taking a breather in Q1?

[Steven Litchfield]

Yes. Absolutely, Tore. So, as we had really expected coming into Q1, we did expect infrastructure to be down slightly. In Q2, we expect that to recover a little bit. When I see all segments, I mean, the biggest contributor was the backhaul segment and that's been the biggest portion, and so we would expect that to pick up.

We’ve talked about a couple of larger OEM deployments that are happening that we’ve won historically as we see start those to roll out. That will be a contributor. We’ll start to see the HSI business start to ramp in Q2 with more expected in the second half of the year. And then, ex – I am sorry, high performance analogs.

So, high performance analog is another area that was down a fair amount in Q1 that we’ll start to see recover in Q2.

[Tore Svanberg, Stifel]

Great. Thank you. And could you also give us an update on the Single Lambda 100 Gig business? At least based on what I can tell you guys are the only company out there with a solution there. Yes, I mean, if you could talk about design win traction or even where some of the deployments are happening at this point?

[Kishore Seendripu, Chief Executive Officer]

So, hi, Tore, I’ll take the question. Yes, as much attention is the 400 Gigabits per second market has gotten historically because of the datacenter market, an even bigger addressable market size is the Single Lambda application of 100 Gigabit.

As you all know, there is a substantial established market in 25/4 100 Gigabit market using NRG technology and the natural success rate but really a cost optimized outcome is the Single Lambda, single lane 100 Gigabit solution. And in that market, being in the power envelope of 3.5 Watt or lower is incredibly important, and we are the only ones who meet the power budget.

As a result, we have an accelerating momentum in design wins and with almost all the major Tier-1 module OEMs in various stages of completion and announcements. And the count is pretty close to near the – some many of the 10 OEMS.

We expect this market eventually to be bigger in the Single Lambda market side and initial revenues to start outside of the hyper-scale data center folks, the one hyper-scale datacenter that we have mentioned is sometime in the – towards the end of this year or a little earlier. So, we feel very good. We are having – we have several quarters of lead on our competition. And it’s a great place for us to be in.

[Tore Svanberg, Stifel]

Great. Just one last question. The Intel Gateway business or the acquisition, is that still on track to closing in early Q3? And could you just update us on which sort of the hurdles you still have to go through there from a regulatory perspective? Thank you.

[Steven Litchfield]

Sure, Tore. It’s Steve again. So, yes, so we are on track. We still see this closing in the Q3 timeframe. Hopefully, it will be at the beginning. As far as regulatory hurdles, it was really just HSR and we did complete that. We put out a press release regarding that. The other big one is the work council negotiation and that’s ongoing, but should be on track for completion in Q3.

[Kishore Seendripu, Chief Executive Officer]

And the work council negotiations pertain to Europe, specifically, Germany and Austria in the EU countries. And that's really the only hurdle in front of us right now to close.

[Tore Svanberg, Stifel]

Okay. Thank you.

[Operator]

Our next question comes from the line of Gary Mobley with Wells Fargo. Please proceed with your question.

[Gary Mobley, Wells Fargo]

Hey, guys. Thanks for taking my question. I am curious if you’ve heard from some of the cable MSOs about any sort of impediments to broadband gateway installations. Whether or not that is impacting or implicated in your Q2 guidance or what’s your thoughts are on that front?

[Steven Litchfield]

Hey, Gary. I am happy to give you an update. So, as far as you are talking about impediments to deployments, I assume, I guess, I’ll maybe give you a little bit of general…

[Gary Mobley, Wells Fargo]

Yes, I am just talking about the COVID-19-related, quarantine issues prohibiting any truck rolls and what not?

[Steven Litchfield]

Yes, right. So, a lot of these guys, the truck rolls, we actually saw that in Q1. We saw some impact in Q1 primarily in Asia where those truck rolls were limited and now we are seeing them kind of roll around the world.

But a lot of these products and part of the interest right now is the self-install capability and that’s something that super critical to our customers to be – not only because of Covid-19, but frankly just for the economics of it all. And so, they – most all of them now either have an existing self-install capability or ones that they are trying to approve – improve upon going forward.

And that’s one of the big drivers, because there is – we definitely have heard a lot about increased demand and wanting to get these out quicker. So that they can take advantage of that. So we are seeing that right now.

[Kishore Seendripu, Chief Executive Officer]

And that is consistent with the optimism in our narrative today regarding the demand in backlog that's building up in the connected home business right now relative to what we had witnessed over the last several quarters, we hopefully touchwood or seeing a consistent positive outcomes.

[Gary Mobley, Wells Fargo]

Okay, I guess, what was hear a lot during this earnings season so far is that lot of semiconductor companies talking about trying to identify whether strong order trends are related to true end demand or whether OEMs or distributors or just buying ahead out of fear of supply chain bottlenecks.

Do you have any sense as to where your inventory is staying out there with your distribution partners and whether or not days in the channel where did increased during the first quarter?

[Kishore Seendripu, Chief Executive Officer]

So, on the sales side, on the distribution channel, actually we don’t see any accumulating situation. We have very strong sell-through as we entered this quarter, actually quite strong sell-through and so, and as our backlog is building up, we don’t feel that there is a sort of a stocking going on - on distributed – on our products basically, right.

We can’t speak for the rest of the industry. We have not had supply or lead time issues developing yet. We have managed our operations quite effectively. So our customers are not in regular long lead times that we have heard other people guide to. So, we are not seeing any of these distributor stocking up inventory scenarios.

If we go with the sell-through that they are experiencing in the quarter, then we would see that maybe it is a positive than of good demand for our products. You've got to note that in Q1, our industrial, multi-market products that were – that are primarily sold through distribution. We took a huge hit in Q1.

But now, we are seeing a strong recovery and it’s not a case of build-up of inventory with distributors. It’s a strong sell-through as well. So I don’t think their narrative necessarily reflects our distribution sales at all. So, Steve, do you want to add any more color on that?

[Steven Litchfield]

No, I think you’ve covered it, Kishore. Yes, I mean, we definitely saw, a lot of fluctuations in Q1 and we are watching closely. But, near the tail-end of the quarter, like many others have identified, we saw a big pull – lot of increased orders at the end of the quarter. But we are sensing that continue.

But as Kishore noted, it’s really – we are seeing the sell-through. It’s not just in the distribution channel at all. Although, I mean, we are absolutely watching it closely, just to manage the numbers.

[Gary Mobley, Wells Fargo]

Gotcha. All right. Thank you guys.

[Operator]

Our next question comes from the line of Quinn Bolton with Needham & Company. Please proceed with your question.

[Quinn Bolton, Needham & Company]

Hey guys. Congratulations on the results. Just wanted to follow-up on that lead time question. One of your big competitors, Broadcom, currently put out a letter to its customers stretching out lead times to as long as six months. Does that prevent – present any opportunities for you in the connected home business?

And perhaps more importantly, have you heard of any problems with Tomahawk 3 or Tamahawk 4 base which is that could delay the 400 Gig ramp at your largest customer? And then I got a follow-up.

[Kishore Seendripu, Chief Executive Officer]

So, we can't comment on our competitors lead time issues. It's a behemoth that has got demands on foundries and assembly and test and we heard they have their own test facilities in Malaysia and stuff . Malaysia is under severe lockdown and we barely do any business in Malaysia. So, while I can’t speak for them, yes, we too have heard about their lead time challenges.

Does it present an opportunity for us? We don’t know. We can always wish that it does present opportunities for us. But it’s a more recent acknowledgement of lead times on the competitor supply chain. So, I don’t want to conclude anything yet. But, outside of that, you and I dig into this call, we are seeing very strong backlog build up, not just for Q2.

We are also seeing certain level of momentum towards Q3. So I don’t want to talk about Q3 given all the volatilities related to the pandemic. But we are having strong sell-through. So, I would say our demand is real. And hopefully, the next earnings call, I can say, hey, the recovery has started in connected home in a very dependable manner.

So, we feel good where we are. Regarding the 400 Gig and Tomahawk 3 or Tomahawk 4, look, we are still working with our OEM. We have been assigned a Tier-1 OEM module maker develop our 400 Gigabit solution.

They’ve had some disruptions, because all these companies have – who are non-Chinese, they have had disruptions due to the Corona pandemic and we are really working very hard through this combination of remote and as need basis go into lab or testing to make sure that they can come up to speed and start being able to provide the continuity for the pilot and the ramp at the large datacenter customer.

So, it’s hard to say, oh, the large end-customer themselves has impacted on the hyper-scale datacenter side. But we are doing everything to make sure that we are positioned to shape when they are ready to take. Right, that’s been our steadfast goal. And so, one other thing I really want to really acknowledge all our employees that they’ve done a phenomenal job under this pandemic environment.

I mean, our execution, our initiatives have surprisingly been on the most punctual ones that I have seen in the long, long time, which makes me rethink about the world in general. Right, So, anyway, I will let you ask the next question.

[Quinn Bolton, Needham & Company]

Sure. My next question is just sort of a follow-up on that backlog building you are seeing in the connected home business. Is that fairly broad based or is that tied perhaps to more of a specific carrier going through a gateway upgrade?

Just trying to get a sense of how broad based that demand is? Or that – not inventory, but the backlog build is looking at the second half in the connected home?

[Kishore Seendripu, Chief Executive Officer]

So, very, very good question. In general, my sense is that, any gateway platform upgrade that any operator is looking at, given the importance of self-installation that Steve talked about, they are very shy to do any upgrades right now. Brand-new platforms and the upgrades in the brand-new platforms are really in cost downs, right now and DOCSIS 3.1 in the cable side and on the fiber side, the platform that are shipping or the upgraded ones.

So I don’t expect any new upgrade platforms rolled out given the self-installation nature that they are focused on. So, the backlog we are seeing is really strong for existing brand platforms that were already qualified and rolled out ahead of the pandemic situation. And so, the backlog is consistently for that. But you ought to remember that there are two platforms.

There is a DOCSIS 3.0 platform being replaced with already qualified 3.1 platforms and that upgrade is happening pretty robustly right now. But the operator is not rolling out any newly built ratified, but not sufficient volume shift upgraded platform. They're not going on that adventure right now. So, that’s what I want to tell you. Okay.

[Quinn Bolton, Needham & Company]

Thank you.

[Operator]

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

[David Haberle, Susquehanna Financial Group]

Hi, it’s David Haberle on behalf of Christopher Rolland. Thanks for taking my question. I guess, first on the connected home business, can you talk about some of the puts and takes for the second quarter and the guide down 15% quarter-over-quarter there. From what you are seeing from a work from home perspective, is that really benefiting MoCA and G.hn?

And how is that being offset by increased cord cutting as live sports goes away? What are the puts and takes in the 2Q? And then longer term, how does work from home and cord cutting play into your forecast?

[Kishore Seendripu, Chief Executive Officer]

So, I think, right off the bad year, I want to cut the cord on the cord cutting, so to speak. I think that the – there is no more video business that we care about or it’s meaningfully in our revenue. So that phenomenon doesn’t affect us cord cutting. I think cord cutting is now given, it’s prevalent, it’s persistent and generally at a secular level, we are benefiting that as a data networks company.

So, it’s very clear now that there is a focus inside the homes and throughout the network with its datacenter or home especially, everybody is ordering more and more data bandwidth capacity. It’s very clear. There are few offer in this room and all of us, at least half of us have done upgraded store bandwidth or bandwidth boxes right now.

So, I think that is real and everybody is going to have a more robust broadband access and distribution network inside the homes even after this pandemic situation subsides. That’s just a new reality. So, regarding cord cutting, yes, I mean, that’s done for us, as far as we are concerned, it’s only a world of, what I call, non-linear video which is basically based on over-the-top content as far as we are concerned. Steve, you want to?

[Steven Litchfield]

Yes, I guess, David, the only thing I’d just provide some more color on was, just the mix of the business within the connected home. So, we highlighted on the call, I mean, MoCA, G.hn continues to do very well. I mean, we do have a very large platform that we saw really moderate in Q4.

We were expecting it to kind of move sideways and I would say, it actually picked up quite a bit more than what our original expectations were. So, that was a MoCA platform. That’s doing very well. Given the lot of traction on G.hn in Europe, as well, so that’s something that going in smaller number, but a nice contributor in Q1 and we expect that to continue throughout the year.

The one area, satellite was the other one. We talked about that. That was down quite a bit last quarter. Satellite now, as we had mentioned was going to be less than $10 million. And so, it’s not as relevant at this point.

Cable data, Kishore kind of alluded at this, kind of – I would say it’s stabilizing here and we feel really good about it – consistent, I mentioned it in my prepared remarks that we are on track to do that $30 million a quarter for the first two quarters.

Now with some of the backlog, kind of filling in the way that it is and some of the insights or the color that we are getting from our customers right now, we are optimistic that we will see that pick up in Q3 and Q4. And we are definitely seeing signs of that now.

[David Haberle, Susquehanna Financial Group]

Got it and appreciate the color there. And I guess, if I may follow-up on industrial and multimedia, so it’s a bit weaker than we would have anticipated. Were there any supply constraints in 1Q or 2Q in the segment?

[Steven Litchfield]

So, there were a variety, yes, it’s kind of across the board weakness that we absolutely had a couple of suppliers that we were unable to deliver products for. So that hurt, really a combination of items. That being said, late in the quarter, we did see some pick up.

We’ve gotten production kind of in order – our supply chain guys have done a phenomenal job in addressing this and being responsive. And so we’ve seen nice orders and fall through at the beginning of this quarter just n April alone.

[David Haberle, Susquehanna Financial Group]

Great. Thank you.

[Operator]

Our next question comes from the line of Alessandra Vecchi with William Blair. Please proceed with your question.

[Alessandra Elena]

Hi guys. Just a follow-up on the industrial and multi-market segment. Can you maybe help us frame how we should think about the growth there longer term relative to industry growth?

[Steven Litchfield]

Yes, this has been a tough one. Hey, Alessa, this is Steve. A tough one to call, no doubt. We - going in to the end of last year saw the weakness in just general kind of cycle decline. We expected that to continue in Q1 and I would say, it’s so in earnest. Now, that being said, we’ve already seen some nice recovery and so we are encouraged, but it is tough to navigate the volatility.

That being said, long-term, we felt like this is a business that can grow at least right now kind of 2%, to 3%, 4% a year. And we’ve seen a pretty big decline year-over-year at this point. But no reason to think that we don’t get back to that and frankly, we’ve talked openly about growing this business getting it up to the high-single-digits with some of the newer products.

So, we have some new power management products that are coming out. Some new interface products that we’ve actually been working on over the last year, year-and-a-half expected to hit the market late this year. So, you would see contribution more in 2021 probably in the second half.

[Kishore Seendripu, Chief Executive Officer]

So, I would say that the product development investments given the breadth of the end-customers and markets within what was originally the XR product portfolio, it’s taken us a while in getting the upgraded products. They are all getting ready now and they are sampling and by the – and so I really, we will see some boost in growth rates, when these are launched or launching right now.

So, I think in next year, we could see pretty strong uptake from those. At what levels, we should be through the increase, it become as it is the model is given the volatility you have seen in the last several months and couple of quarters.

So, since we don’t know these markets like the platform markets as we just want to wait and start doing a little bit more sort of a historical-based planning in terms of what growth you can expect the various products we are launching.

[Alessandra Elena]

Perfect. That’s really helpful. And then, just a...

[Kishore Seendripu, Chief Executive Officer]

But I just want to make sure that, I am personally super excited about the high performance analog components. So, absolutely excited about the products we are doing. It’s all – we feel we will competitively bring a lot of capability and IP to this stream and the proof will be in the - putting as these products will be announced and launched and I think our – the customers will love it.

Some are already loving it. Obviously we are already developing these products with customers input, right? So just that it seems to be a very stable market and it takes long, but once you have it, you keep it. That’s the way I look at it.

[Alessandra Elena]

Understood. And then, just on a more housekeeping item. You guys have done a tremendous job on operating expenses. If memory serves me right, you have some big tape outs in Q1 and Q2. And you had the operating expenses are so well contained. How do we think about sort of OpEx as we move through the second half and into next year?

[Kishore Seendripu, Chief Executive Officer]

Yes, Alessa, good question. So, we’ve definitely done, I would say kind of given the Covid-19 pandemic situation and just overall revenue dynamics, we’ve tried to be as disciplined as possible here. We do have some big ramps ongoing right now. So we want to make sure that our customers are supporting in every way.

But we’ve been able to manage some of those expenses and we are coming in a little bit below the first half of the year expenses versus where we had originally planned. That being said, I think OpEx for the year, while it’s still early. You are exactly right. We did have some mask and prototyping that was going to escalate in Q2 particularly.

And you’ll see this in our guidance, whereas you are expected to see more come down in the second half. It kind of moved sideways. But I think from an annual standpoint, we are pretty close to on track to our original expectations.

[Alessandra Elena]

Okay. That being, I think it was at the $3 million year-over-year?

[Kishore Seendripu, Chief Executive Officer]

I mean, we’ve not given an exact number. But somewhere in that ballpark is reasonable, yes.

[Alessandra Elena]

Okay. Perfect. That’s super helpful. That’s it for me.

[Operator]

Our next question comes from the line of Bill Peterson with JP Morgan. Please proceed with your question.

[Bill Peterson, JP Morgan]

Yes, hi. Thanks for taking the question. It’s another one on the industrial multi-market, probably the most questions you’ve gotten on this segment maybe ever. But it’s comedown pretty meaningfully, between power management and interface, was one more impacted than the other?

And as, I guess, you think about the recovery in the second quarter, and presumably beyond that, will it be driving more recovery? And then, again, maybe similar question on geographies that primarily in China, if you can give any color on where the issues were and what that brings now into recovery mode?

[Steven Litchfield]

Yes, Bill, probably not a huge amount of differentiation between power and interface. But geographically, probably does speak volumes. Q1 was very weak. That’s when you saw a lot of impact in Asia. I think Q2 you are starting to see that recover and I think that you would expect to come from Asia, China, in general starting to see recovery.

So, as we look through those orders and that we are getting right now, say, in this particular month. We are already seeing that recovery happen there. So, from a geographic standpoint, absolutely, weighs pretty heavily.

[Kishore Seendripu, Chief Executive Officer]

And it’s also particularly perplexing for us. We have tried to understand it, because on a sell-through basis, the distribution inventories are not our theme right now. So we also perplexed. So we can only imagine it to be a brick wall like demand collapse in Asia, especially, China for the product, because in manufacturing it’s coming to a grinding halt during those periods.

So, we cannot see any patterns here of what has happened, but the recovery is very strong. So, again, in Asia. So, I think, you don’t get it as good as ours on this one.

[Bill Peterson, JP Morgan]

Yes, very sure. I recognize that. And maybe a follow-on to an earlier question regarding the interconnect business, the wired interconnect business. Does the 100-Gig opportunity, again it sounds like you have some pretty good competitive advantages here.

Can you help us, I guess, size the market opportunity relative to 400 gig and it sounds like this would be more joining later in the year, in the next year. But help us understand what the revenue contribution could be later this year?

[Kishore Seendripu, Chief Executive Officer]

Well, it’s true. I mean, it’s early at this point to understand the mix, right because, our recognition will be based on what we ship to the various module makers, right, so to speak. But if you really think about the entire market, when you look at all this report, we refer to the proxy, but everything is, nominee, how many 100 Gig ports are being sold, right.

And generally, if you look at the entire market, 30% of the market is datacenter guys. The remaining centers 70% is non-hyper-scale datacenter folks, right. If you just look at it’s a nice overall market. And I bet you, in that 70% of market, a substantial majority will be single lane, 100 Gigabits per second market, right.

So, while we are all sort of enamored with the hyper-scale datacenters, they will be more 200 Gig, 400 Gig and in the future, 800 Gig products. But the remaining 70% of the market will be 100 Gig Single Lambda, single lane market for a long time to come. So it's a pretty strong replacement market, if you will.

So, but, then based on the ASPs, you could see the mix to be 50:50 in dollar terms. But I can’t give you the exact dollar terms, right. So, we will have good – whenever we have 400 Gig, we will also have 100 Gig backlog dollars right, probably it’s a 50:50. Okay?

[Bill Peterson, JP Morgan]

Okay. Excellent.

[Operator]

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

[Suji Desilva, ROTH Capital Partners]

Hi, Kishore. Hi, Steve. So, just to be clear on the large customer 400 Gig ramp, what is the linearity of that ramp as it starts up in the second or third quarter? Can you give a sense of that in next few quarters?

[Kishore Seendripu, Chief Executive Officer]

It’s not linear at all right now. It is hardly be linear. There is not enough any track record, right, right now. So, let’s put this – let us just celebrate it’s going to happen. And when it happens and once we see trends, I am sure you will all be thrilled that MaxLinear actually can come through on its convictions of its capabilities and investments probably if you will, right.

And so, let’s not talk about linearity at all, right. I don’t think it’s linear at all, right. So let’s keep it that paper. But for 2020 right now, but - and it’s going to be discrete for say, for a while to come because it's going to big one datacenter customer.

So it'll come in spike and it'll settle down and it’ll take two or three quarters to settle down obviously. So let’s wait for it to ramp, right at the end-market itself. Okay?

[Suji Desilva, ROTH Capital Partners]

Yes, okay. I appreciate the kind of response, Kishore. And then, in fact, then as well a question on the connected home, I guess my question is really, it sound like you are seeing order strength now and that that’s giving you confidence, second half 2020 going to be sell-through. Just, what is driving the demand pool from that angle?

Is it just normalization here? Or is there is something else going on? Any color there would be helpful. Thanks.

[Kishore Seendripu, Chief Executive Officer]

So, let’s look at the color here, right. The demand for broadband at home presumably is increasing. And therefore, operators are doing well on the data markets and they are more interested to spend money on that. That’s the way to think about it. This is my thoughts, okay.

So, the second piece is that, our recovery – we don’t have much product in the industrial multi-market, in automotive, which anybody has got exposure to automotive I think will continue to see sort of the rumbling effect of it.

So, hopefully, our Q1 issues are really related to the China situation and nothing got to do with the – so, if anyone got automotive exposure, sort of a manufacturing slowdown. So therefore, we are seeing a recovery due to incentives of whatever people picking manufacturing being picked up in China and other Asian countries.

And then you – in the industrial segment, there are also stuff that goes into telcos, not telco infrastructures really and those are also being rolled over with 5G. So, I think there is enough incentive on those monitored devices on the 5G equipment that’s being rolled out even though our own 5G radio transceivers are yet to ship yet.

So, I think the trends on those kinds of things are going to help us, right. And on the connected home, it's about time. We're also tired, right, and likely it’s building up.

And then on the wireless side, we’ve had these design wins going on and design wins and the ramps are taking time because each country is going through its own corona issues or for example, India, the entire wireless operators certainly had this huge spectrum debt issue that they have to pay back the government.

A lots of other kinds of stuff going on. And finally we are starting to see a pull-through happening. So we just have new designs that the product cycle that are creating backlog. So that’s what drives. I think, maybe it’s our tone to start adding some good fortune in the base, things have returned in our direction. I just want to be careful, but I will do my Indian prayers for them, okay.

[Suji Desilva, ROTH Capital Partners]

Thanks, Kishore. Thanks for the color.

[Operator]

Our final question comes from the line of Tim Savageaux with Northland Capital Markets. Please proceed with your question.

[Tim Savageaux]

Hi, good afternoon. Couple questions on the infrastructure side of the business. First, with regard to and if you want to comment on Q1, that’s fine, I think, China was maybe part of the weakness from perhaps from a supply and demand perspective. As you look at this recovery into Q2 and infrastructure.

I wonder if you can make any specific comments with regard to what you are seeing out of end-markets in China maybe across backhaul or optical transport or wherever you are participating. And I think, last quarter, you talked about targeting 15% to 20% growth for the infrastructure segment. In calendar 2020, I wonder if you could provide an update there. Thanks.

[Steven Litchfield]

Yes, Tim. So let me make sure I get all of your questions here. So, we do see Q2 in industrial this recovery. I mean, we were expecting some softness in Q1, maybe not quite the level that we saw. But we were expecting softness in Q1 and expecting that to start to recover backhaul.

Again, I’ll reiterate, I mean, it’s probably the biggest portion of that and as you know, we can get some bigger hits, some bigger recoveries. So that’s encouraging. High performance analog is probably the one that was impacted more in Q1.

And so, there is definitely a recovery aspect of that in Q2. You got HSI which will start to contribute more in Q2. Not huge. I mean, I expect that to contribute much more kind of in the second half of the year. And then access, which we are very excited about probably comes in much later in the year. So that’s kind of the way we see it.

I mean, as far as the growth for the year, I mean, look, this is a, I mean infrastructure as a whole, it’s something that we’ve invested heavily in the business with what’s going on in massive MIMO as well as in the datacenter, I mean, you’ve heard us talk about this.

You’ve heard Kishore talk about it. I mean, this is a product line that’s doing less than a $100 million that we think over the next three or four years can be a $300 million to $400 million product line. And there will be some big ramps. They are just beginning in the second half of this year in almost each category. So, much more significant contribution in 2021.

This has nothing to do with the Covid-19 or anything like that. These are organic ramps that we’ve been investing in heavily as you are aware. We’ll start to really have a much more meaningful impact in 2021.

[Tim Savageaux]

Okay. And just to clarify quickly and then I heard your kind of initial discussion on the overall infrastructure drivers. I was basically asking if you had any commentary on China as a driver there in particular across the infrastructure segment. Thanks.

[Kishore Seendripu, Chief Executive Officer]

So, in China, the 5G roll out is a big one that will affect us positively. But it really happen towards the end of the year, right and the beginning of next year and there is a big tender out that really sets the stage. They are looking at developing new cost on platforms, which is where we enter the market and those are still being validated.

That’s just the honest reality of in fact, I think the 5G roll out got a bit delayed in China also due to the Corona situation. And the two big players in China are ZTE, Huawei and a small company called Datang that’s been mentioned. That’s where the 5G play. Along with 5G comes the transport networks. But 5G is not a big wireless back haul or front haul transport network in China.

So we only will benefit on the access side and not in the transport network. And then our – we do have some optical transport product in PIAs and driver, we should benefit from that. And on the – so, I think those are the main constitutions of our growth story in China.

Having said that, these players also ship products for wireless OEM equipment to other countries outside of China, where we have the design wins for the wireless backhaul and that’s actually the ones that generating momentum right now that we in fact talked about it earlier.

But microwave and millimeter backhaul is growing strongly and that’s really meant for non-China market by Chinese OEMS. So, those are the areas of infrastructure-related growth we expect out of our China customers.

[Tim Savageaux]

Thanks.

[Kishore Seendripu, Chief Executive Officer]

On the datacenter side, China is still behind, right? They are evaluating issues, but I think China is quite behind on the – I don’t want to say quite behind. Let’s assume a year behind where the U.S. is currently on the PAM4 sort of product lines. But they would be much more interested in 100 gigabit PAM4 solution.

That’s the reason we are so excited with the 100 Giga bit PAM4 solution using Single Lambda and that would eventually find its way to the 5G front haul markets and backhaul markets as well. Okay?

[Tim Savageaux]

All right.

[Operator]

We have reached the end of our question and answer session. And I would like to turn the floor back over to management for any closing remarks.

[Kishore Seendripu, Chief Executive Officer]

Thank you, operator. I just want to let everyone know that we will be participating in the JPMorgan Global Technology Media and Communications Conference on May 12th; the Needham 15th Annual Virtual Technology and Media Conference on May 20th; the Bank of America 2020 Global Technology Conference on June 3rd and the Stifel Nicolaus 2020 Cross Sector Insight Conference on June 8th to June 10th.

I just want to remind everyone that all these conferences are going to be held virtually and we hope to connect with many of you there. With that being said, we thank you all for joining us today. And we look forward to reporting on our progress to you next quarter. Thank you very much.

[Operator]

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.