Maxlinear Inc

NASDAQ:MXL

Earnings Call Transcript 2020-Q2

[Operator]

Hello and welcome to the MaxLinear’s Second Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instruction] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Now my pleasure to turn the call over to Brian Nugent. Please go ahead.

[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 second quarter of 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 the applicable securities laws, including statements relating to our guidance for third quarter 2020 revenue, third quarter revenue growth expectations and our principle target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, tax expense, and effective tax rates and insurance 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 announced definitive acquisition agreement for Intel's Home Gateway business, growth opportunities for our wireless infrastructure and conductivity 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 risks, 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 of 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, 2019, and our second quarter 2020 Form 10-Q, which was filed today. Any forward-looking statements are made as of today and MasLinear has no obligation to update or revise any forward-looking statements.

The second quarter of 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 the 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'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 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 Q2 financial results ahead of our initial guidance. Q2 2020 revenue was up 5% sequentially to $65.2 million, with strong gross margins of 63.7% and operating cash flows of $9.3 million.

In Q2 our Connected Home business stood at 45%, infrastructure at 29% industrial and mark-to-market at 26% of overall revenues. Our business outlook heading into second half has greatly improved with tailwinds in our cable data backed up by strong bookings for Q3. We are benefiting from the demand for greater bandwidth at home in a transformative work-from-home environments that we believe is an emerging long-term trend.

We also saw back in demand for high performance analog products calling a Q1 low. Still in Q2 there were some pockets of weakness due to COVID-19 in our wireless backhaul markets. Despite the challenges related to COVID, our geographically diverse team is successfully executing on critical strategic engineering initiatives and customer milestones in 5G wireless, optical data center and high performance analog market.

We are excited about our upcoming acquisition of Intel’s Home Gateway business, which is expected to close in Q3. This acquisition more than doubled our TAM to about $5 billion. It consists of industry leading DOCSIS, 10-G PON fiber and Ethernet broadband access gateway SoC technologies, along with the state-of-the-art Wi-Fi 6E platform solutions.

Combined with an ongoing 5G wireless and optical data center infrastructure initiatives we are ideally positioned to address all the network bandwidth expansion opportunities and bottlenecks in the cloud as well as into and throughout the home.

The rapidly expanding work-from-home mandates due to COVID-19 are driving bandwidth upgrades, which will strongly benefit our core Connected Home business as well as our companion Intel Connected Home division acquisitions.

Turning to some of the other highlights in optical data center, we continue to support the industry's first 400 Gigabit PAM4 deployment at our Tier-1 hyper-scale datacenter customer. But with that slight delay we remain encourage by our customer's progress and as mentioned earlier, expect to see revenues in the second half of this year.

We are also seeing strong adoption, continued progress with Tier-1 customers for our 100 Gigabit PAM4 for offering leading to early revenues in this year. We believe that Single Lambda 100 Gigabit, 400 Gigabit PAM4 solutions with dominate cloud and edge data into deployments over the next several years and we are well positioned with our early traction.

Turning to 5G wireless infrastructure, I'm excited to announce that we have started sampling our second generation 5G wireless RF transceiver product, which is the industry's first 8x8 MIMO RF transceiver in 40 nanometer CMOS. Our 5G RF transceivers have the highest performance double the bandwidth at 400 megahertz and superior system level integration and power consumption versus competition.

We are looking aggressively to get our lead customers to market bolstering the confidence in realizing initial 5G revenues in 2020 and strong multiyear growth beyond.

In wireless frontload and backload transport, we witness a slowdown in the first half of the year potentially due to COVID-19 related installation delays. However, we do expect the pickup starting in Q3.

We continue to see a push towards even e-ban section deployments and channel aggregation features. We are in a very good position to capitalize on these favorable trends with our 20 gigabits per second millimeter wave dual modem and RF SoC. We expect multiple OEMs around new products with these features in the second half.

In closing, our organic initiatives in 5G wireless, optical datacenter and high performance analog markets, along with the upcoming Intel's Home Gateway business acquisitions will uniquely benefit MaxLinear’s shareholders by existing and expanding 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 Q2 results and our forward guidance.

[Steve Litchfield]

Thank you, Kishore. I will first review our Q2 2020 results, and then further discuss our outlook for Q3 2020. On revenue of 65.2 million we saw our Connected Home business down 10% sequentially, materially less than expected, with declines in our legacy business, partly offset by the improvement in [mocha] (Ph) demand, cable data was down slightly.

Our infrastructure business grew 15%, driven by a strong recovery across our HPA products, and an uptick in high speed interconnect domains, offset by continued macro weakness in wireless backhaul deployments. Our industrial and multimarket business was up 38% sequentially as demand returned after an unusually weak Q1 owing to the COVID dynamic and related distributor inventory reductions.

GAP and non-GAAP gross margins for the first quarter were approximately 50.2% and 63.7% of revenue respectively. This compares the GAAP gross margin guidance or 49.0% to 49.5% and non-GAAP gross margin guidance of 63.5% to 64%. The delta between GAAP and non-GAAP gross margins in the second quarter reflects primarily the amortization of 8.6 million of purchase intangible assets from previous acquisitions.

Second quarter GAAP operating expenses were approximately 55.5 million, which was slightly above our GAAP guidance of 54.0 million to 55.0 million due primarily to higher stock based compensation expense. GAAP operating expenses included stock based compensation and stock based bonus accruals of 15.2 million combined. Amortization of purchase intangible assets of 5.5 million and acquisition costs of 2.1 million.

Non-GAAP operating expenses were 32.6 million, which was up 0.9 million sequentially due primarily to annual merit increases, impacting payroll and prototyping expenses, partly offset by lower travel expenses. This was the low end of the non-GAAP guidance of 32.5 million to 33.5 million, as a result of continued discipline expense management. We have been successfully managing the spend during the transitional period with trailing 12-months 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 second quarter of 2020 was 9.3 million versus 6.6 million generated in the first quarter of 2020.

Our load balance remains at $212 million and our net leverage ratio was 1.7 times. We remained consistent in our intentions around our uses of cash for priorities on debt pay down and strategic acquisition. Our days sales outstanding for the second quarter was approximately 58 days compared to 66 days in the prior quarter. Our inventory turns were flat at 4.0.

That leads me to our guidance. Our guidance excludes the acquisition of Intel's Home Gateway business. We currently expect revenue in the third quarter of 2020 to be approximately $72 million to $76 million, or 13.5% sequentially at the midpoint of the guidance range.

We expect Connected Home revenues to be roughly 20% quarter-over-quarter with growth driven primarily by cable data. We are expecting tailwinds from the work-from-home dynamic, as well as new customer program ramps in the second half of the year. We are working closely with our suppliers to fulfill the increased domain.

We expect infrastructure revenue to be up roughly 10% to 15%, primarily driven by the recovery and back haul demand after two week quarter. We expect our industrial multi-market to be flat to up 5%. We expect third quarter GAAP gross profit margin to be approximately 51.5% to 52.5% of revenue and non-GAAP gross profit margins to be approximately 63.5% to 64.5% of revenue up slightly.

As a reminder, our gross profit margin percentage forecast could vary plus or minus 2% depending on the product mix and other factors. Even we are focused on reducing our run rate spend levels, we continue to fund strategic development programs targeting 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 expects Q3 2020 GAAP operating expenses to increase approximately $5 million quarter-on-quarter to a range of $60 million to $61 million driven mainly by acquisition and integration cost.

We expect Q3 2020 non-GAAP operating expenses to be up approximately $0.4 million sequentially to range of $32.5 million to $33.5 million. We expect GAAP tax expense to be approximately zero and our non-GAAP tax rate of 6%. We expect interest and other expenses in the quarter to be $2.1 million to $2.2 million.

In closing, we are pleased to report continued progress in our infrastructure initiatives with expanding design engagements in the data center market and expanding adoption of our e-band modems and RF transceivers and allows micro market. And further engineering and customer milestones and our 5G massive MIMO transceiver platform.

We are encouraged to see a considerable recovery and our high-performance analog offerings as end market dynamics improved from COVID-19 impacts. The broadband business as expected have seen a nice recovery in 2020, but the work-from-home environment is driving an acceleration of this recovery.

We remain focused on maintaining strong profitability and cash flow generation while continue to execute on our organic infrastructure investments. With these existing initiatives along with the financially and strategically compelling acquisition in the Intel acquisition, we believe that we are uniquely positioned to deliver strong leverage in our business in 2020 and beyond.

With that, I would like to open up the call for questions. Operator.

[Operator]

Thank you. [Operator Instructions] Our first question today is coming from Quinn Bolton from Needham & Company. Your line is now live.

[Quinn Bolton, Needham & Company]

Thank you. congratulations on the nice results and strong thirds quarter outlook. Guys I wanted to start with the Connected Home business up 20% sequentially. Can you give us a sense is that primarily driven by one cable MSO or is it pretty broad based? And if it is sort of driven by one MSO, do you feel that your share is normalizing that that cable operator with the ramp of the lead generation products, and then I have got a follow-up.

[Kishore Seendripu, Chief Executive Officer]

Thank you, Quinn. Our demand is broad based on the operator side, it is not one particular MSO. We are seeing some TAM expansion happening right now with all the MSOs especially in North America. And we are also well positioned based on the backlog that we going to start gaining share in the other MSO. So, we are also seeing in general, a very, very healthy booking for Q3 and beyond. So we feel very good that the recovery is in progress right now.

[Quinn Bolton, Needham & Company]

And then the second question, sounded like the high speed interconnect business was up in the second quarter, but you didn't mention it as a driver of growth in the third quarter. I was wondering you had mentioned that there might have been a slight delay at nearly 400 gig customer. Can you give us an update there, sort of in specifically, are you guys through the interoperability testing at that customer? Are you still in the interrupt testing phase? Thank you.

[Kishore Seendripu, Chief Executive Officer]

So I think that as we look forward the optical data center, whatever revenues we are speaking about, it is more to give you color, how things are progressing, but they are not meaningfully different. It is a bit volatile based on sample quantities or beyond. We have some revenues in TIEs and drivers those are the sort of buckets in which we have the high speed to connect pre-venues.

So really speaking, we have always talked about these major hyper scale data center transition to 400 Gigabit. We are still in the interoperating phase. When you speak of us, we talk about our module customers and really it is not watching our hands, it is about the qualification process of hyper scale data center.

How these module vendors are progressing with their - they need to reach a certain yield and so on and so forth and reliability of supply before that can meaningfully take off. So, at this point in a ship level, we are just supporting our customers as much as we can, because they have to be ready to do manufacturing capability.

[Quinn Bolton, Needham & Company]

Understood. Thank you and congrats again guys.

[Kishore Seendripu, Chief Executive Officer]

Thank you.

[Operator]

Next question today is coming from Tore Svanberg from Stifel. Your line is now live.

[Tore Svanberg, Stifel]

Yes, thank you and good job on turning round here. First question on Connected Home. So that business will be far more than 30 million in Q3. Could you talk a little bit of - is there still some legacy mix in that 30 million, or is it becoming de-minimis at this point?

[Steve Litchfield]

Hey Tore it is Steve. So, the legacy piece is becoming smaller. No doubt about that. In the pickup that we have seen, we highlighted that it was really cable data. Some of the weakness that we saw in Q2 was driven by some of the legacy demand, but it was becoming less and less.

I mean, one of the legacy areas. I mean, we talked about satellites, and that is becoming, a much smaller percentage of the business. I mean, consistent with our earlier remarks that would be less than $10 million this year.

[Tore Svanberg, Stifel]

Very good. And you mentioned a second generation two Telluride. I was just hoping maybe you could talk a little bit about what that means from a market perspective, because obviously this is going to be an eight-by-eight part so and maybe also talked about when you expect that product to generate a meaningful revenue?

[Kishore Seendripu, Chief Executive Officer]

So Tore, I think you misspoke, you are referring to 5G wireless. Yes, we launched the first eight-by-eight MIMO or radio transceiver. The industry from a cost perspective has decided that the more integration is warranted to reduce the cost of 5G deployments. And as 5G deployments have delayed a bit you know the industry's focus has shifted to the eight-by-eight platform.

So, sufficed to say that the most AS application which is a large volume, large MIMO configurations eight-by-eight will become the main mainstay. So, we are in a competition to be among three key players who would be sampling this particular chip, and we are ahead because of a technology lead in CMOS node at the same time for us it was very, very expeditious to execute on an eight-by-eight solution, given that our cost generation product was a four-by-four.

Regarding revenues, we expect the four-by-four to generate initial revenues towards the end of the year, really massive and really we are counting on the eight-by-eight to generate when the platform is fully and after ramps by the end of the first half of next year sometime in the middle of next year. Okay.

[Tore Svanberg, Stifel]

Alright, just one last one. Could you just give us an update on the timing of the Intel acquisition you mentioned obviously, closing in Q3, but any update on the timing and any other hurdles that you have to pass at this point?

[Kishore Seendripu, Chief Executive Officer]

Yes, Tore. So, not a whole lot to update here. We are as we mentioned in the press release confident that we will close this in Q3. There is no more regulatory approvals. So, comfortable on that front and so just working through the final work council issues. And so we hope that we will be announcing that soon.

[Tore Svanberg, Stifel]

Great. Thank you very much.

[Operator]

Thank you. Our next question is coming from Ross Seymour from Deutsche Bank. Your line is now live.

[Unidentified Analyst]

Hi, this is [Jee] (Ph) for Ross Seymour. Thank you for letting me ask question. The industrial and multimarket did quite well growing 38% sequentially. So, I guess beyond the third quarter, how do you see the [IMF SunNet] (Ph) progressing, was it some point of demand or I guess how would you characterize IMF for the second half of the year?

[Kishore Seendripu, Chief Executive Officer]

Yes. Hey Jee. So yes, we did see a nice recovery. We have seen quite a bit of weakness in Q1 of this year. And so we had already seen bookings picking up in early part of the second quarter and demand remained very strong throughout the quarter and continues today. So I'm encouraged by the recovery that we have seen as we look out into Q4 and into 2021.

I mean, I'm optimistic that we start to see this kind of back to some normalcy. We definitely saw, I mean, what amount was real snap back at the beginning of the quarter, but demand has continued, sell through has been good. And so like I said, hopefully we will see some stabilization in this market soon.

[Unidentified Analyst]

And just a housekeeping, I guess looks like CapEx as well as stock based comp was up sequentially quite a bit. So can you talk about how those should trend in the third quarter?

[Kishore Seendripu, Chief Executive Officer]

Yes, I mean, CapEx is consistent with what we have talked about. You know we have talked about it being about $10 million a year and really no major developments on that front. Stock based comp definitely was up in the quarter. A lot of that was driven by some of the performance shares and I wouldn't expect that level of an increase in the future. It was down slightly in Q1 definitely saw an increase in Q2 but shouldn't expect to see that going forward.

[Unidentified Analyst]

Okay. Thank you.

[Operator]

Thank you. Next question today coming from Christopher Rolland of Susquehanna. Your line is now live.

[David Haberle, Susquehanna]

Hi this is David Haberle on behalf of Christopher Rolland. Thank you for taking our question. I guess on Connected Home as we think about some of the legacy business in the headwinds dissipating there. And I understand from toward cautionary this is not de-minimis at this point, but you do have a nice strong kind of tailwind from work-from-home. How are you thinking out growth in this market going forward, is Connected Home - do you believe it is bottomed here in 2Q and can growth from work-from-home trends and cable offset kind of a legacy headwind that are sill heavier?

[Kishore Seendripu, Chief Executive Officer]

Hey David. Yes, so it is encouraging. I think coming into this year, we were really expecting this business to stabilize and kind of get back to low single digit growth rates in 2021. So work-from-home, I think has definitely accelerated that.

And I think the question to me is, I mean, how long does that continue, right? Or how much increased growth that we can see? Because it doesn't seem like - it seems like the economy in general and a lot of the language and many companies out there looking for long-term solutions with work-from-home. So I think this could continue for some time. But I think ultimately, getting back to this kind of low to mid-single digit growth rates is what were our expectations would be.

But just to I guess, alleviate some concerns. I mean at the legacy business. I don't see that as a headwind at all. I mean really have no problems with that. I mean, this is dominated by the cable data business as well as connectivity. And so I don't see that as problematic whatsoever.

[David Haberle, Susquehanna]

Understood. Thank you for that. And then for my follow-up, I wanted to ask about MoCA the comment in the queue about a Connected Home down year-over-year, and partially attributed to MoCA sentiments going to a pause in the ramp. I think you called out though it was up quarter-over-quarter. I just want to see if there is any incremental color on MoCA, kind of where you stand with your large customer in the ramp there. And are there other customers like the breath of that product?

[Kishore Seendripu, Chief Executive Officer]

Yes, sure, sure. No, MoCA, we are actually very excited about MoCA and that ramp with a large customer going forward. We definitely saw strong growth in 2019, saw that pause that we had talked about kind of coming into the first half of the year. But those guys are still struggling a little bit with deployments within the work-from-home environment. And so that has created some, I think short-term issues, but I think those are getting resolved and that is why we are excited about seeing that pick back up and in the second half of the year.

[David Haberle, Susquehanna]

Thank you.

[Operator]

Thank you. Our next question today is coming from Tim Savageaux with Northland Capital Markets.

[Tim Savageaux, Northland Capital Markets]

Hey good afternoon and congrats on the results and outlook. One question, you mentioned pardon me with an infrastructure pick up in high performance analog. I think that is the GI driver stuff that you reference, but with back hauls I wonder if you could talk a little more granularly about what sort of applications are driving that pick up in the HPA business? That is one question. The other one is did you have any 10% customers in the quarter? If so, how big?

[Steve Litchfield]

Yes. So with regards to the drivers, I mean, so, yes, infrastructure was up quite a bit. A lot of that was driven by the HPA recovery, right. So we had seen some weakness in the first half, the first quarter saw nice improvement there and I think we expect to see that kind of picked up in the second half of the year.

And so I mean, as far as giving more granularity, I mean, we have talked about - I mean some of the drivers there is the server business, for example there is other business there, like remote radio heads is another one. I mean there is a number of different areas that we sell into infrastructure, but those are probably the two largest. So I mean, the one customer that we have is Commscope. And so they have been the largest and continue to be.

[Tim Savageaux, Northland Capital Markets]

Okay. Thanks very much.

[Operator]

Thank you. Next question today is coming from Bill Peterson from JP Morgan.

[Unidentified Analyst]

Hi, this is [Alex Kim] (Ph) on behalf of Bill Peterson. I have question on the infrastructure side. First, portfolio growth outlook are you still intact for the single-digit growth around like 5% to 9% year-over-year for 2020?

[Kishore Seendripu, Chief Executive Officer]

I'm sorry, Alex, you are going to have to ask that, you broke up a little bit.

[Unidentified Analyst]

Hi. So I just had a question on the infrastructure side. Are you still on track for mid-single-digit growth around 5% to 9% year-over-year growth for 2020?

[Kishore Seendripu, Chief Executive Officer]

Yes, so we have kind of talked about this a little bit, just giving one quarters worth of guidance. I mean, coming into Q2, we are expecting to see improvements kind of throughout the rest of the year. And I think we continue to be confident in that.

I mean, the one piece that was a little bit different than our expectation was wireless backhaul was weaker than expected in the quarter. But that being said, I think the backlog and the visibility that we have there, we do expect to see nice upticks in Q3 and Q4.

[Unidentified Analyst]

Got it. Thank you. And then on the wired side with the Amazon ramp in the second half on, what do you think is like the revenue opportunity there?

[Kishore Seendripu, Chief Executive Officer]

So, we haven't broken out exactly what that revenue number would be. I still think it is relatively small numbers in Q3 and Q4 and then start to see a more material contribution in the first half of 2021.

[Unidentified Analyst]

Okay, got it. And then what are your thoughts on cloud spending being sustainable for the second half? I know, you mentioned that you have seen a slight delay with your Tier-1 customer on. Can you just talk about the overall market in terms of cloud spending being strong for the second half?

[Kishore Seendripu, Chief Executive Officer]

Yes. Alex, we are probably not in the best position to comment on that. But I mean, I think we talked about our slight delay and I think there is a number of reasons just kind of market environment as a whole. But this is all incremental revenue to MaxLinear. So, I don't know that we are kind of best positioned to comment, because we really don't have any downsides, because it is all upside and incremental revenue to our business.

[Unidentified Analyst]

Okay, got it. Thank you so much.

[Operator]

Thank you. Our next question today is coming from [indiscernible] Capital Markets. Your line is now live.

[Unidentified Analyst]

Hi, good afternoon, you guys really appreciate you guys taking my question. And congratulations on the solid quarter and strong execution. I have two if I could, just starting back out with Connected Home, it sounds like sounds like you guys don't take a longer term growth rate normalized growth rate is going to alter but you did make mention of share gain opportunities along the way.

And if those occur, do you think you can go into those that have normalized growth rate, normalized growth rates from a stronger share position meaning you can level up your revenue run rate. When that that low to mid single digit growth rate occurs,? And then the follow-up.

[Kishore Seendripu, Chief Executive Officer]

Yes, no, no problem. Well, first of all, thanks. Thanks for joining and glad to have you on Board here. So, yes, I mean, I think the answer is absolutely right. I mean, we are working hard to sort of comment a little bit on the share gain potential that we have. We are working diligently to do that.

I mean, the [candidate] (Ph) is really focused around the MaxLinear side, not the acquisition, but it is something that just from an - they are being able to add content going forward is a big opportunity as well as share gains. So, both of those are a focus for the company and we think we have got some good potential to do so.

[Unidentified Analyst]

Excellent. Thanks for that. And then just the delay that you guys mentioned. Is that on the hyper scale cloud side? Or is that on the telecom side? Can you give me your context there?

[Kishore Seendripu, Chief Executive Officer]

On the hyper scale side?

[Unidentified Analyst]

Got it. Okay. Cool. And just that earlier in some of the remarks you mentioned of like, not my paraphrasing, but not to read too much into it. Is that with regards to the delay, or is that is that a separate distinction? Can we not collapses?

[Kishore Seendripu, Chief Executive Officer]

So, I'm not sure which part you are referring to. But I mean, with regard to the optical business of the HSI business, we continue to work with the largest hyper scale customer and excited about seeing these early revenues come in the second half, and then expect to see more material contribution next year.

[Unidentified Analyst]

That is awesome. Okay, Thanks so much. I appreciate it.

[Kishore Seendripu, Chief Executive Officer]

Alright. Thank you.

[Operator]

Thank you. Our next question is a follow-up from Tore Svanberg from Stifel. Your line is live.

[Tore Svanberg, Stifel]

Yes. Thank you. And I apologize for getting my ski resorts mixed up here in the middle of the summer. And thank you for addressing the back home question, but on Telluride will there be a follow-up to this product? And I know for sure in the past I have asked you about the move to seven nanometers. So any updates there?

[Kishore Seendripu, Chief Executive Officer]

Hey Tore of course, there is a follow to this thing. You know, the industry trend right now is that on the 400 Gig, everybody is going to converge on the - I don't want to get into technical details here, but on the electrical interface today you know it is a 50 gigabit electrical interface basically, you will get 400, 500 optical lanes, four lanes of 100 gigabit. And then the electrical side you have eight lanes of 50 gigabit.

The industry is converging towards four lanes of 100 gigabit and four on the optical side and four lanes of 100 gigabit on the electrical side. That is the convergence point next, and that is the next generation chip.

That is also called 400 gigabit band four chip, but there is going to be two flavors of that for the industry lines a 400 gigabit and other one is going to be 800 gigabit, basically eight lanes of 100 gig optic lanes and eight lanes of electrical lanes.

So yes we are following through on the next generation chip. And we are working on a five nanometer solution, not a seven nanometer solution. And I think it will be the first one thousand to five nanometer solution based on what our industry knowledge tells us.

Because we feel that the yields on the seven nanometer are - they do not use EUV lithography and our analysis tells that the power and the yields performance five nanometer is going to be superior to seven nanometers. And the timing will be just right for five nanometer. And we have a lot of interest from the industry to do that. I never mentioned seven nanometer Tore for that reason.

[Tore Svanberg, Stifel]

Got it. Okay. No, that is fair. My last question is back to Connected Home. So with this work-from-home trend that you are seeing are you also starting to see new products launched faster from some of your customers I'm thinking about perhaps XP7 form Comcast you know could that potentially be a catalyst and an uptake cycle for you and if so are you starting to see some of those deployments already?

[Kishore Seendripu, Chief Executive Officer]

Very, very good question Tore. You are absolutely right. We are trying to accelerate XP7 into several versions, but XP7 deployment. Hopefully we are beneficiary of the share shift, share shift is the wrong word. Gaining all these to make share and so that should give us a growth under seeing backlog associated with that.

Having said that as the end point, basically as a customer throughput, that is still not in full steam, but you should expect and our market shift to the XP7 very, very rapidly. And similarly you are seeing moves being made on the Wi-Fi side, you know the other operators to enhance the Wi-Fi as well so XP7 platform benefits from an increased what I call Wi-Fi 6E deployment.

The reason I talk about this is that it portents very, very well for us, because with the acquisition of Intel’s Connected Home assets together with our product portfolio and their Gateway SOC to update Wi-Fi and MoCA and Ethernet, and their Ethernet, we would own different platforms.

And this should really see a benefit of that shared growth, which we have suffered from not having in the last year or so. So yes, that is happening more rapidly, but not rapid enough for us, but still okay. We are happy with that.

[Tore Svanberg, Stifel]

Okay. Thank you.

[Operator]

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

[Kishore Seendripu, Chief Executive Officer]

Thank you, operator. Just want to note here that we will be participating in the BMO Virtual Technology Conference in August 24th and 28th. At the Jefferies 2020 Virtual Semiconductor, IT Hardware & Communications Infrastructure Summit on September 1st to 2nd. And the [indiscernible] Technology Conference at September 14th and 15th.

Just want to reemphasize that all these conferences are virtual, and we hope to connect with many of you there. With that said, I want to thank you all for joining us today. And we look forward to reporting on our progress to you next quarter. Hopefully sooner than that. Thank you very much.

[Operator]

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