MACOM Technology Solutions Holdings Inc (MTSI) 2010 Q1 法說會逐字稿

Welcome, and thank you for joining the Mindspeed Technologies first quarter fiscal year 2010 conference call. Participants will be in a listen-only mode until the question-and-answer session of today's conference, (Operator Instructions).

Also, today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would like to introduce Andrea Williams, Mindspeed's Vice President of Corporate Communications, who will chair this conference call. Thank you. You may begin.

Thank you, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's [first] quarter of 2010 financial results. Our press release issued this afternoon detailing these results may be accessed on our investor website at www.mindspeed.com.

Today, our CFO, Bret Johnsen, will begin the call with a review of the first quarter and our financial results. Our CEO, Raouf Halim, will follow Bret with some perspective on the quarter, a look at our new product announcement today, the flagship Transcede family addressing the 3G broadband wireless infrastructure market, and then he will end by providing second quarter financial guidance.

Safe Harbor statement. Before we begin, I would like to remind you that our comments today will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements include, among others, statements regarding our expectations and financial guidance for our fiscal second quarter of 2010; industry, business, and product trends in cycles; new products and markets; potential growth opportunities; domestic and foreign economies and markets for our products; our financial and liquidity position and performance; business drivers, design wins, customers and competition; monetization of our intellectual property; operating expenses and cost containment; diluted share count, and other anticipated future events and results.

Forward-looking statements made during this call are made only as of the date hereof and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Actual results may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties, including, but not limited to those noted in our earnings release and our Form 10-K for the fiscal year ended October 2, 2009, and our other filings with the SEC.

During our call today, we will be making reference to non-GAAP financial measures, which exclude stock-based compensation expense; employer taxes on stock-based compensation; amortization of intangible assets; employee separation and employee option exchange costs; reverse stock split costs; special charges; gain on debt extinguishment; and non-cash interest expense on convertible senior notes. For a reconciliation of non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today.

Copies of both documents are available in the Investor section of our website at www.mindspeed.com. We do not provide a reconciliation of the forward-looking GAAP -- forward-looking non-GAAP measures to GAAP measures because of our inability to project, special charges, employee separation costs, and stock-based compensation-related expenses.

With that, I would now like to turn the call over to Bret Johnsen, our Chief Financial Officer.

Thank you, Andrea. We continue to make strong improvements in our financial performance during our fiscal first quarter of 2010. Specifically, we continued our focus on delivering earnings leverage in our business model, and delivered record profitability with over 6% non-GAAP operating margin -- the highest the Company has achieved, excluding any patent sales in prior periods.

This significant improvement in operating profitability was due to a combination of 7% sequential revenue growth, improved non-GAAP gross margins, and continued focus on operating expense containment.

Now turning to a more detailed review of the financial results for our fiscal first quarter of 2010.

Revenue for the first quarter was $37 million, up 7% sequentially from the prior quarter. Revenue for the first quarter did not include any patent sales. Revenue from our multi-service access or MSA, voice over IP processor solutions, contributed 38% of total first quarter product revenue, and decreased 2% sequentially, due primarily to the anticipated seasonal softness and demand for our Comcerto voice processing solutions in the optical access space, which was partially offset by the continued ramp of our CPE processors products.

Revenue from high performance analog, or HPA, represented 31% of total first quarter product revenue and increased by 11% sequentially.

Lastly, our wide area networking, or WAN revenue, contributed the remaining 31% of first quarter product revenue and grew 14% sequentially, driven again primarily by improved end demand from customers in North America and Europe.

Product revenue for the first quarter was split by geographic region as follows -- Asia Pacific, approximately 71%; Americas, 23%; and Europe at 6%. China represented 29% of total first quarter product revenue, down from 39% of total product revenue in the prior quarter. We had two end customers in the quarter that represented revenues of 10% or greater. Those customers were Huawei and Cisco Systems.

Now turning to gross margins. Non-GAAP gross margin was $23.6 million or 63.7% of revenue, exceeding our guidance of 62.5% to 63%, and representing the third quarter in a row of improvement in gross margins. This compares to a non-GAAP gross margin of 62.4% in the prior quarter.

The sequential improvement in non-GAAP gross margin is primarily due to the effect of product mix, coupled with manufacturing cost reductions. Total non-GAAP operating expenses were $21.3 million, in line with our stated guidance for the first quarter. First quarter non-GAAP operating expenses were comprised of research and development expenses of $12.3 million, and selling, general and administrative expenses of $9 million.

As I mentioned last quarter, we remain committed to maintaining our operating expenses at the current levels for the remainder of the fiscal year 2010. This resulted in non-GAAP operating income of $2.3 million for a record of over 6% non-GAAP operating margin, excluding patent sales in prior periods.

Finishing the income statement for the first quarter, non-GAAP other income and expenses, and the provision for income taxes in the aggregate, totaled a net expense of approximately $400,000, primarily consisting of approximately $400,000 in direct interest expense.

Two items included in our GAAP earnings results are of note. As we discussed on last quarter's earnings call, we took an approximate $900,000 restructuring charge in the first quarter that consisted primarily of a facilities reduction, as well as a targeted headcount reduction. Additionally, in the first quarter, we adopted FASB ASC470-20 for the accounting of our convertible debt instruments; and in accordance with this standard, have adjusted our prior period financial statements to include non-cash interest expense in our GAAP interest expense calculation.

Moving on to earnings. First quarter non-GAAP earnings were $1.9 million and resulted in a basic non-GAAP EPS of approximately $0.07 based on approximately 28.5 million weighted average shares outstanding for the quarter.

Turning now to the balance sheet. Our accounts receivable balance at the end of the quarter was $12.7 million, resulting in net day sales outstanding of 31 days, which is up from 20 days in the prior quarter. Inventory decreased from the prior quarter by approximately $1.5 million to $9.4 million, resulting in inventory turns of 5.7, up from 4.8 in the prior quarter. We continue to be pleased with our progress in increasing our inventory turns.

On to cash and liquidity. In the first quarter, we generated approximately $1.1 million of cash after taking into account debt retirement of $10.5 million, and ended the quarter with cash and cash equivalents totaling $11.5 million. Additionally, our liquidity position includes our line of credit of up to $15 million, which is currently undrawn with Silicon Valley Bank. We continue to feel comfortable that our current liquidity position is sufficient to run and grow our current operations and does not hinder us with customers or partners.

Additionally, we continue to focus on IP monetization as a strategy to further enhance our liquidity position. We are actively pursuing additional patent sales and remain in discussions with multiple interested parties. However, as we mentioned last quarter, we are unable to predict the timing or amounts we could receive at this point.

I would now like to turn the call over to Raouf for some perspectives on the quarter, a look at our latest product announcement, and our second quarter outlook.

Thank you, Bret. Q1 was another quarter of great execution for Mindspeed, continuing our progress towards our target operating model with strong revenue growth coupled with non-GAAP gross margin improvements. We delivered a record non-GAAP operating margin of over 6%, and we exceeded our expectations by delivering non-GAAP earnings per share of $0.07.

We believe that we can continue to deliver increasing leverage from our business model, as we believe we are well-positioned in multiple, exciting growth product cycles and are comfortable with maintaining operating expenses at the current levels for the remainder of this fiscal year.

Today, we are particularly excited to be unveiling a new flagship family of products addressing the burgeoning 3G/4G broadband wireless infrastructure market. This market, we believe, presents one of the largest potential opportunities in telecommunications infrastructure due to the rapid and accelerating adoption of mobile broadband throughout the world. Our family of Transcede 40 nanometer system-on-a-chip or SoC solutions announced today will target the full range of next-generation mobile broadband stations, ranging from macro cells to pico cells.

The Transcede launch marks the natural progression of our Comcerto processor architecture from Next Gen wireline voice over IP to Next Gen wireless solutions addressing the unprecedented processing requirements of a diversity of 3G/4G mobile base station infrastructure. This market opportunity, we believe, is directly adjacent to our core voice over IP business, and we'll be leveraging our existing sales channel as well as leveraging the same Tier 1 infrastructure customer relationships we enjoy today.

Importantly, the Transcede product development is an opportunity that we have been able to fund organically within our current operating expense structure, and we believe it represents a significant additional growth factor for Mindspeed with similar gross margin characteristics to our current portfolio. We believe that this opportunity represents an incremental total addressable market, or TAM, exceeding $500 million by 2013. I will speak more about this opportunity when I discuss the MSA business in a few moments.

Back to Q1 -- from a revenue perspective, both of our HPA and WAN business units grew very nicely in Q1. As we expected, our MSA business unit declined slightly in Q1 by 2%, due to the seasonal weakness in China for FTTx solutions that sell into the service provider deployments of China Telecom and China Unicom. But this decline was partially offset by the growth of our CPE business.

In general, the revenue growth drivers for Q1 were just as we anticipated on our last conference call. First, we saw continued ramp of our triple play voice, video and data CPE solutions within MSA to customers such as Hitachi and many others. Secondly, our analog business continued to execute well, with growth in crosspoint switch and signal integrity solutions shipping to a highly diversified set of telecommunications, enterprise, and broadcast video OEMs such as Huawei, ZTE, Infinera, Alcatel Lucent, Mitsubishi and others.

Third and finally, the continued recovery of our WAN portfolio of traditional transmission technologies with a fourth quarter of growth, driven by demand particularly in North America and Europe, with customers such as Cisco Systems, Ericsson, Alcatel Lucent, Nokia Siemens, and others.

With that, let's talk briefly about each of our three product areas -- starting with multi-service access or MSA. As we discussed last quarter, two of the most significant near-term growth drivers for Mindspeed are in our MSA division, namely optical access voice over IP and service provider customer premise equipment, or CPE solutions.

MSA revenue declined by 2% sequentially in Q1, due to the anticipated seasonal ordering patterns for the major Chinese customers for the FTTx Metro buildouts in our Access voice over IP business. The estimate of Chinese broadband subscriber deployments for calendar year 2009 by the combination of China Telecom and China Unicom was roughly 20 million, reflecting a strong finish to the year, and significantly exceeding our and our customer's expectations. These deployments, we believe, have fully depleted inventories of finished systems as well as devices in the pipeline.

After our latest visits with our customers in China as well as with key Chinese carriers, we believe that the long-term deployment for FTTx optical access technology remains well on-track, and that the tender process is now underway for a significant number of GE PON deployments in voice and data to commence this quarter.

In fact, the collective indications we have at this time point to the growth of the FTTx broadband subscriber base in China this year to be between 20% and 50% over 2009. We expect this growth to be driven by a combination of China Telecom and China Unicom, with little, if any, contribution by China Mobile in 2010. The China FTTx market is off to a strong start, with Mindspeed backlog from Chinese customers already rebounding at the start of this quarter.

As I mentioned, Q1 was another exciting ramp quarter for our MSA portfolio into CPE applications, and we expect 2010 to be a continuing year of growth for CPE, as our Comcerto 100 CPE processor, chips to Hitachi's fiber-to-the-home gateways of NTT, as well as to multiple other customers in multiple new carrier deployments around the world.

In terms of CPE design wins in Q1, we had another impressive quarter of design wins, primarily driven by continuous strong traction from our Comcerto 1000 family of dual encore CPE processors, with wins spanning multiple market segments, from broadband home routers to fixed WiMAX routers, to enterprise IT PBXs, and across multiple geographies from Europe to Asia-Pacific. These wins included several wins at major ODMs in Taiwan serving the European and North American markets.

Now a bit more on our exciting product launch for the Mindspeed Transcede processor family. Sampling today, the Transcede is the industry's first software scalable, 3G/4G LTE baseband base station SoC. This is an important milestone for Mindspeed as we take our deep expertise in carrier class, multicore processing from our voice over IP business and extend it to the rapidly growing broadband wireless infrastructure market.

Put into more general terms, Mindspeed's Transcede family will help to provide the critical underpinnings for the mobile Internet, which has been called the next great computing cycle capable of delivering 10X growth in broadband connected user devices as compared to previous technologies. Already, mobile Internet traffic has grown as much as 50-fold over the last three years in the AT&T network alone, driven by the advent of 3G smartphones such as the Blackberry and the Apple iPhone. Telcos worldwide face serious challenges, serving what IDC recently forecasted will be 1 billion Internet-enabled mobile devices over the next four years.

According to In-Stat, operators have already spent billions of dollars on 3G networks, and are planning to spend billions more deploying LTE and WiMAX infrastructure, so they can maintain fast-enough networks to support surging data and wireless voice over IP demands. The Transcede family supports the full range of 3G/4G area interface standards, including WCDMA, Time division STDMA, LTE, the Chinese Time division or TD LTE standards, as well as WiMAX.

With Transcede, manufacturers can now build multimode base stations for applications ranging from the industry's first 64-user, pico cell on a chip to the largest macro cells -- all leveraging the same Transcede device family and Mindspeed scalable software architecture.

Fabricated an industry-leading 40 nanometer process technology, Transcede Family system-on-a-chip architecture integrates 26 processor cores, including a mix of high-performance/low-power programmable [CEVA] DSBs, and task-specific hardware acceleration elements, coupled with multiple instances of the latest symmetric multiprocessing or SMP Cortex A-9 processor cores from ARM.

With these processing features, Transcede devices can cut power consumption and deliver significantly better performance than earlier, discreet multi-component solutions, while reducing complexity, and simplifying programming and scalability for platforms with a smaller footprint. We believe Transcede SoCs will help redefine wireless infrastructure economics during what is expected to be a major base station upgrade cycle.

Today, we also announced that ZTE has begun its evaluation of Transcede 4000 in the context of the next generation, baseband base station systems, as they believe application-specific systems-on-a-chip have the potential to become the mainstream approach to address the power cost performance needs of next-generation multi-platform, multi-standards mobile networks. In general, customer interest in Transcede is very high, and we are excited to be working closely with ZTE and many others on this key new initiative.

Moving on to high-performance analog. HPA revenue grew 11% sequentially in Q1. We saw continued strong demand for crosspoint switch solutions in the telecommunications segment, particularly for DWDM transport solutions selling to China, as well as demand in North America and Europe, through customers such as ZTE, Huawei, Infinera and others.

HPA also experienced revenue growth in its broadcast video chipsets in Q1, as well as continued demand for optical modules in GEPON and GPON deployments for Asia, Europe and the US. Generally, we believe the growth trajectory for our analog business is very solid, with numerous growth cycles in switching and signal integrity across multiple verticals such as telecom, enterprise, and broadcast video.

Design win activity was also particularly robust for HPA in Q1, as it was in Q4. HPA has another record number of design wins for signal conditioning solutions as well as a growing number of design wins in the optical PMD segment, as we continue to see positive momentum for the PON market worldwide.

Moving on to WAN, our WAN division grew sequentially by 14% in Q1. This was the fourth quarter in a row that WAN has grown by double-digits after the slowdown we experienced a year ago. Our WAN division is significantly benefiting from a pickup in demand in North America and in Europe.

Large orders for network processors with customers such as Cisco Systems and Ericsson continued from Q4 into Q1, as well as demand for ATM solutions for wireless backhaul applications from customers such as Nokia, Siemens, and others.

As we look out to the full fiscal year of 2010 for Mindspeed, we would like to summarize what we believe are the key growth drivers for the Company.

First, the growth of our voice over IP business across a diverse set of markets, including the ramp of our CPE products; the recovery of access voice over IP in China; and the demand for wireless voice over IP globally.

Secondly, the growth in crosspoint switch signal integrity products, optical PMDs, and broadcast video chipsets within HPA. And third, the recovery after a severe downturn in 2009 of our traditional transmission technologies within WAN.

Now turning to our guidance for the fiscal second quarter of 2010.

We are currently experiencing record backlog levels for this fiscal second quarter. Consequently, we are relying on record low turns to achieve our guidance for this quarter. This marks the fourth quarter in a row that we have experienced sequentially stronger backlog, and is particularly encouraging in what is seasonally a weak quarter.

Also, we believe customer and channel inventories are below seasonal levels. Based on these and other factors, we expect fiscal second quarter revenues to grow between 5% and 9% from the fiscal first quarter of 2010, or to a range of approximately $38.9 million to $40.3 million, excluding any potential patent sales.

This product revenue guidance would represent a growth of between 47% and 52% over the same quarter a year ago. This guidance is based on our expectation of sequential growth in both our high-performance analog and MSA businesses. We expect our WAN business to be seasonally flat to slightly down.

We expect Q2 non-GAAP gross margin to be in the range of 63.5% to 64% -- again, excluding any potential patent sales. We expect non-GAAP operating expenses to be basically flat from the prior quarter at $21.4 million, reflecting continued strong cost-containment discipline by our teams that will continue to drive increasing earnings leverage, as we march towards our target operating model throughout 2010.

Regarding share count, we ended Q1 with a basic share count of 28.5 million shares. In the second quarter, our diluted share count is expected to be between 30 million and 30.5 million shares. Based on this guidance, we also anticipate another record non-GAAP operating margin and record non-GAAP earnings per share in the fiscal second quarter of 2010, excluding any patent sales in prior periods.

In summary, our operating model is stronger than it's ever been, and the revenue growth for Q2 -- our typically seasonally weakest quarter -- is continuing to be driven by the diversity of product cycles across all of our key businesses.

In addition to the financial progress we recognize today, we are also very encouraged by launching the most significant product family of the last five years, which we believe represents the next trajectory of growth for the Company, and which we have been able to fund entirely within our current operating model. We are looking forward to telling you more about this exciting new market opportunity as we head to Mobile World Congress this February.

In summary, I have never been more excited about the future for Mindspeed, and I want to thank our employees, our customers and our stockholders for their continued support.

Operator, we are done. Thank you, and we look forward to speaking to you next quarter.

Questions?

(Operator Instructions). Sandy Harrison.

Thanks and nice work on the Transcede. It looks like it could be a real interesting product.

Thank you, Sandy. It's a very exciting product.

So, just to hit on that while we're there, a couple of things -- one, this is your first move into 40 nanometers. How has that transition been? And do you expect to take advantage of that toe in the water to start bringing other products in there?

Yes. So, Sandy, in short, obviously, the move to 40 nanometers is very critical for our Company. We made that choice approximately a year or so ago, have been working very closely with TSMC on the technology, the underpinnings of the technology, meaning the available core library and other design tools.

We have developed, fabricated, and, in fact, almost completely tested the first silicon in 40 nanometers. And quite frankly, it looks very good and is exceeding our expectations in terms of the performance as well as the power dissipation of the part.

So we have the part; it looks very good. Based on this experience, to answer your second question, we are absolutely expecting to move the bulk of our SoC products to 40 nanometers very quickly.

And then you talked a little bit about sort of what it's doing and where it's going. What are today's -- is there a similar solution out there that you could point to that it's replacing? Or is it a complete different paradigm as far as the way the design process goes?

So, Sandy, to answer your question, the existing product architecture is typically based on a very large number, essentially a farm of off-the-shelf DSBs, most commonly from Texas instruments, separate, and very complex high-end processors to perform the Layer 2 or so-called Mac function, coupled with a large number of power-hungry as well as costly FPGAs. All that is being subsumed into a single Transcede device, so it's a brand-new paradigm for base station systems on a chip.

The closest thing to it is probably some products out of Freescale; but frankly, there's nothing that can come anywhere close to the level of integration, performance, and scalability of the Transcede Family.

Got you. Last one and then, Bret, we didn't forget about you. As far as the ASPs, you talked about this on your product announcement, how many of these chips per -- is it a system? Is it a blade? What should we be thinking of as the potential content for almost the base station, if we could?

So, Sandy, I'll take that. So, depending on the class of base station, it ranges from a single device to perhaps as many as six of these Transcede devices to perform the full baseband implementation.

What's interesting to note here is that wireless infrastructure, as I alluded to in my prepared comments, is experiencing a significant change in paradigm from the traditional sort of macro-station that supports tens, maybe hundreds of thousands of subscribers, to a very broad range of base stations -- everything from a femtocell, which is a few users, all the way up to a macro cell, including, of course, in the middle, pico cells, micro cells and the like.

So, very broad diversity of equipment types. And depending on the capacity of the bay station, you need one or more of these Transcede devices.

We announced today two specific devices, the two first members, the 4000 and the 4020 in the Transcede Family. You can be sure there will be more to follow, as we fill out the complete product offering, covering everything across the entire range.

Got you. And then, lastly, this is the third quarter that you guys have seen some real leverage in the model. And your guiding gross margin is up sequentially, even while WAN, which is your real positive mix, is going to be flat to down-ish. Is this the time to start thinking about a change in the model here? Or how are you able to take advantage of the higher margins on the smaller contribution from WAN this next quarter?

Thanks, Sandy, this is Bret. I'll take that one. So, from a gross margin perspective, we finished at approximately, I think, 63.75%. And I think the midpoint of our guidance for this upcoming quarter is basically flat with that. And the way we're able to achieve that with WAN being down, I think first and foremost, if you look at what's growing in this upcoming quarter, we've said that MSA is growing, right, with China coming back, but we've also said that our HPA business is growing as well.

So if you kind of split those two, as you know that -- our gross margin range isn't that significant between any of our three businesses; but between them, that would be the lowest of the end and the top of the end. So, although WAN could be flat to down slightly, it shouldn't have a large mix impact on gross margin.

Additionally, we are taking advantage of some cost reductions from the manufacturing side that we achieved during last quarter. So, the combination of that -- we're able to keep gross margin relatively flat.

I don't know that I would say there's any change to the model going forward. I think -- we've talked about a range between 62% and 65% gross margin, and we're kind of right in the middle of that range. So we feel like it's pretty consistent with our model at this point.

Great. Thanks for taking my questions. I'll go ahead and drop in the queue. Thanks.

Christian Schwab.

Could you elaborate on the record low number of turns to hit the midpoint of your guidance? Remind us historically what rate of turns you need in the quarter and what your guidance is suggesting.

Yes, Christian, it's Raouf here. You know, we don't actually break out the specific percentage coverage -- backlog coverage and hence, the turns required. I think, suffice it to say, that we are extremely well booked at the start of this quarter. And again, as we said, it's record low turns.

Having said that, the March quarter is the quarter where we typically experienced the lowest levels of turns anyhow. You've got to remember that this is also the quarter when we have Chinese Lunar New Year holiday and most of Asia kind of goes out for a couple of weeks. And so we experience a soft order patch typically in the month of February.

So all that is fully factored into our guidance that we're providing. Again, suffice it to say, we're very comfortable with our backlog position. And we're very pleased that we're this well covered in what is traditionally the weakest quarter of the year.

I would agree. You elaborated on the voice over IP side. Do you guys expect to be shipping sometime this year to China Mobile? Or would you only expect to be shipping to China Telecom and Unicom?

Yes, Christian. Raouf here again. So, we talked about the growth that we expect this year between 20% and 50% in the China FTTx market. That is clearly based on our expectations that China Mobile will have very, very little contribution, maybe none, this year. So it's based essentially exclusively on China Telecom and China Unicom's announced plans already.

China Mobile has made some announcements. And if we take their announcements at face value, we'd expect significantly higher numbers. However, in our experience, it is the case that new carriers with a new technology -- you know, starts and fits -- they have fits and starts; they're not always very consistently ramping towards their goals.

And so in our expectations, we have completely rolled out China Mobile, are counting only on the two carriers who work in the market and have a well-established business model to drive the growth of our China FTTx business this year.

Perfect. And then on the intellectual property, we don't really -- that comes when it comes and discussions are ongoing. Do you guys still anticipate that sometime in 2010 to have IP sales -- maybe they broadly define between what you got in '08 and '09?

You know, I'll take that, Christian. This is Bret. So, on the IP front, we're still dedicating the same resources to this endeavor that we have in the past. And it's tough, as I mentioned, to assess amount and timing of these. It's very unpredictable. So, unfortunately, I don't have anything to update you on as far as what the level would be and when we expect it.

That's fine. If the TAM is $500 million in 2013 for the new product family that we announced today, and we already have ZTE looking at it, what is a fair market share of that TAM that you guys are targeting?

Yes, Christian. So it's Raouf again. So, yes, that TAM, we expect to be growing into quite rapidly as our customer, as you mentioned, being one, but others as well, qualified the Transcede product line; get their systems into their carriers and qualify their systems at their carriers and start ramping.

Today, that TAM or the percentage of the TAM that exists in 2010 is served, as I mentioned earlier, by a very large number of discreet standalone devices -- you know, off-the-shelf DSPs; off-the-shelf high-end processors; and a ton of FPGAs all grouped together into what is typically a very power-hungry and very costly system.

So all that will get subsumed by an extraordinarily efficient Transcede product architecture. And as those design wins start to go to production, we'll see revenues ramp. Our expectation is that this is going to follow largely sort of your typical telecom infrastructure design cycles -- which means just like other infrastructure products, as we sample our customers, and they continue the process of designing and qualifying their systems using Transcede, you're looking at roughly an 18 to 24 month kind of timeframe.

So it's fair to think of it as sort of a second-half 2011 into 2012 kind of ramp. As it happens, we expect it to be quite material for the Company, not only because the TAM is very large, and we're replacing existing silicon and existing systems, but also, quite frankly, because the adoption of 4G wireless is expected to take off in a big way around sort of that same time frame -- late '11 into 2012.

And finally, although you didn't ask about it, I will just remind you that this being an infrastructure market will deliver gross margins very consistent, sort of in the 64%, 65% kind of range as the rest of the Company's portfolio.

Right. And I assume that when you're talking about those ramps, you're talking on a calendar year basis, not on your fiscal year?

Yes. Yes.

Yes. And then my last question, given that we're nearing the -- finally nearing the absorption of Nortel's assets by Ciena and Avaya, do you guys have any increased visibility from those two customers regarding an uptick in business there?

Yes, Christian. It's interesting you bring that up because, literally, just in the last few days, our visibility into the former Nortel product lines and demand going forward has started to improve, and in some cases, improved materially.

We sell, as you alluded to, Metro Ethernet WAN products into many of those platforms; also voice over IP solutions into the former Nortel enterprise PBX business. And demand is coming back very nicely in both of those areas from what are now Ciena and Avaya, to your point.

So, yes, visibility is definitely improving. And from everything we have heard from Avaya and, obviously, from Ciena publicly, those platforms will continue to live for a long time under their umbrellas. So that's looking good.

Good. So we could maybe hope in a perfect world that at some point that business can return maybe close to its former self of sitting somewhere between $2 million to $3 million a quarter?

Yes, you know, it's hard to predict exact numbers, Christian; but it's certainly -- the trajectory looks good and it's on its way back to what we believe is a sustainable level of revenue, possibly in second half of this year into next year. But it's hard to pick an exact dollar number.

Great. Thank you. No further questions.

Mr. Halim, that will end the Q&A segment.

Very well. Thank you very much. Thanks for joining our call today. We look forward to updating you next quarter. Good bye.

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