MACOM Technology Solutions Holdings Inc (MTSI) 2010 Q4 法說會逐字稿

Welcome, and thank you for joining the Mindspeed Technologies fourth quarter fiscal year 2010 conference call. You are in listen-only mode until the question-and-answer session of today's call. It is being recorded. If you do have any objections, please disconnect at this time. I'd like to introduce Andrea Williams, Mindspeed's Vice President of Corporate Communications, who will Chair this afternoon's conference call.

Thank you, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal fourth quarter of 2010 financial results. Our press release, issued this afternoon detailing these results, may be accessed in the Investor section of our website, at www.mindspeed.com. Today, our CFO, Bret Johnsen, will begin the call with a review of the fourth quarter and our financial results. Our CEO, Raouf Halim, will follow Bret with some perspectives on the quarter, and will end by providing first quarter 2011 financial guidance.

Before we begin, I want 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 first quarter of 2011, the future of our business, product features, industry, business and product trends, cycles, new products and markets and potential growth opportunities, domestic and foreign economies and markets for our products, our financial performance and liquidity position, business drivers, design wins, customers and competition, backlog, market share, deployments, expected patent sales, diluted share count, customer demand 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 in our quarterly report on Form 10-Q for the fiscal quarter ended July 2, 2010, and our other filings with the SEC.

During our call today, we will be making reference to non-GAAP financial measures, which exclude patent sales, stock-based compensation expense, and related payroll taxes, amortization of intangible assets, asset impairments, employee separation and employee option exchange costs, legal settlement costs, reverse stock split costs, special charges, gain on debt extinguishments, and non-cash interest expense on convertible senior notes. For a reconciliation of non-GAAP to GAAP financial measures, please refer to the Investor section of our website at www.mindspeed.com and our earnings press release on Form 8-K, furnished to the SEC today. We do not provide a reconciliation of the 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 Johnson, our Chief Financial Officer.

Thank you, Andrea. The fiscal fourth quarter of 2010 was another great quarter of execution for Mindspeed, completing a year of milestone achievements for the Company. This quarter represented our sixth consecutive quarter of sequential product revenue growth and improved non-GAAP operating profitability. The fiscal year of 2010 also represented the best year ever for Mindspeed as a public Company for product revenue, net income, earnings per share, and free cash flow. We ended the year with $43.7 million in cash on our balance sheet, and now have the best net cash balance of the last five years.

Now, turning to a more detailed review of the financial results for our fiscal fourth quarter of 2010. Revenue for the fourth quarter was $57.6 million, including $12.8 million from patent sales. Excluding patent sales, we delivered product revenue of $44.8 million, consistent with the midpoint of our guidance and up 4% sequentially. Product revenue for the full fiscal year 2010, totalled $165.4 million, and was up 36% from the prior year. Revenue from our Communications Convergence Processing business, or CCP, contributed 43% of total fourth quarter product revenue, and increased 6% sequentially and by 35% annually.

The growth in CCP in Q4 was primarily due to the continued strengthening in optical FTTx markets worldwide, driving revenue growth across our Broadband Home Gateway, or CPE, product portfolio. In Q4, our FTTB Access Solutions that sell to China were also stronger than the seasonal trend of the last two years, primarily driven by increased deployments across the three carrier networks in China. Revenue from our High-Performance Analog business, or HPA, represented 33% of total fourth quarter product revenue, and increased by 4% sequentially and 39% annually, making it the fastest growing business unit at Mindspeed. The growth in our HPA business was mainly attributed to strong demand for our carrier, OTN Solutions. In addition, our optical PMD Solutions for FTTH, grew 33% in Q4 over the prior year, and continue to ramp into GPON markets worldwide. Lastly, our Wide Area Networking unit, or WAN, contributed the remaining 24% of fourth quarter product revenue, and declined 1% sequentially. Product revenue for the fourth quarter was split by geographic region as follows--Asia-Pacific at 67%; Americas at 24%; and Europe at 9%. China represented 31% of total fourth quarter product revenue, down from 37% of product revenue in the fiscal third quarter. There was no end customer in the quarter that represented product revenues of 10% or greater.

Now, turning to gross margins. Non-GAAP gross margin was $41.1 million, including $12.4 million from patent sales. Excluding margin benefit from patent sales, non-GAAP gross margin was $28.7 million, or 64% of revenues, which was at the high end of our guidance range and compared to 64.3% of revenues in the prior fiscal quarter. The slight sequential decline in non-GAAP gross margin was primarily due to the effect of product mix in the quarter. Total non-GAAP operating expenses were $24.1 million, which included $2.3 million in costs associated with patent sales. Excluding costs related to patent sales, non-GAAP operating expenses were $21.8 million, consistent with our guidance. Fourth quarter, non-GAAP operating expenses, excluding patents, were comprised of research and development expenses of $12.9 million, and selling, general and administrative expenses of $8.9 million. Patent-related operating expenses of $2.3 million included $1.6 million from SG&A expenses and $700,000 of R&D expenses, and consisted almost entirely of a management bonus accrual, consistent with the bonus plan described in our August 2, 2010, 8-K filing.

The resulting non-GAAP operating income for the fourth quarter was $17 million, including $10.1 million from patent sales. The resulting non-GAAP operating income, excluding patent sales, was $6.9 million, or a 15% non-GAAP operating margin. Now, finishing the income statement for the fourth quarter, non-GAAP Other Income and Expenses and the provision for income taxes, in the aggregate, totalled a net expense of approximately $600,000, consisting of approximately $300,000 for direct interest expense, $100,000 for foreign exchange loss, and $200,000 for the provision for income taxes, which consisted primarily of income tax related to the income from patent sales. An additional item of note this quarter in the reconciliation of GAAP to non-GAAP on the income statement, was an approximate $2 million in special charges. These included approximately $700,000 of asset impairment charges and approximately $1.3 million in restructuring charges that related to the targeted headcount reduction in our WAN and SG&A functions that we announced on our July conference call. Non-GAAP net income for the fourth quarter was $16.4 million, and resulted in diluted non-GAAP earnings per share of approximately $0.46, based on approximately 36 million weighted average shares outstanding for the quarter. Excluding the effect of patent sales, non-GAAP net income was $6.4 million, and resulted in diluted EPS of $0.19.

Looking forward to next quarter, while Raouf will detail our formal guidance in a few minutes, there are a couple of additional items I wanted to point out. First, we expect our non-GAAP Other Income and Expense to be approximately $500,000, including our tax provision. Second, in terms of weighted average shares outstanding for the first quarter, we expect our diluted shares to be between 33.2 million and 33.6 million shares, as the impact of the shares underlying our convertible notes should not be included in our outstanding share count this quarter.

Turning now to the balance sheet for the fourth quarter. During the fiscal fourth quarter of 2010, we generated approximately $9.6 million of cash. This included $7.5 million from the patent sales. The remaining $5.3 million of the $12.8 million of revenue from the patent sales in Q4, was paid to us on October 6, and will be included in our fiscal Q1 cash balance. Cash and cash equivalents totalled $43.7 million at the end of our fourth quarter. Our accounts receivable balance at the end of the quarter was $25.7 million. Included in this amount, was $5.3 million in patent sales that was subsequently received on October 6. This resulted in net days sales outstanding of 41 days, up from 39 days in the prior quarter. Inventory increased from the prior quarter by approximately $800,000, to $10.2 million, resulting in inventory turns of 6.3, down from approximately 6.6 turns in the prior quarter. I would now like to turn the call over to Raouf for some perspectives on the fourth quarter and our outlook.

Thank you, Bret. The fiscal fourth quarter was another great quarter of execution for Mindspeed. Q4 marked our sixth quarter of sequential revenue growth, as we delivered record product revenue and record non-GAAP operating income. Q4 also concluded a fiscal year for Mindspeed in which we grew product revenue 36%, to $165 million, and delivered record profitability. Importantly, we recapitalized our balance sheet and grew our net cash balance by $32.7 million in 2010. Entering our fiscal year of 2011, we have the strongest net cash balance in over five years.

Fiscal 2010 was also a year of record new product introductions for Mindspeed. In total, we debuted 52 new products, including some of the most strategic products in Mindspeed's history. Within our processor division, or CTP, we introduced three new systems on a chip solutions, setting the high-watermark of performance and integration across three distinct communications infrastructure markets. This includes our flagship Transcede family of highly integrated solutions targeting the full range of next generations 3G/4G mobile broadband base stations, from Femto cells Micro cells.

We also introduced the Comcerto 5,000 family of Voice-Over IP and video convergence processors, addressing the next generation of IP media gateways. In addition, we launched a Comcerto 300 XV, our flagship carrier access Voice-Over IP solution, addressing the optical infrastructure market at the time of explosive market growth. The breadth of our CTP portfolio, shipping with tier one OEMs such as ZTE, Huawei, Alcatel Lucent, Nokia Siemens, Ericsson and others, demonstrates the market leadership of our SoC architectures. In High-Performance Analog, we debuted the Amplify family, a signal conditioning portfolio that targets the growing market for server and storage equipment, implementing the latest high data rate standards, including SAS, SATA, PCI Express and Fiber Channel. We also introduced the world's first 288-by 288-asynchronous non-blocking crosspoint switch. The competitiveness of our crosspoint switching and signal integrity portfolio can be judged by the impressive lineup of existing and new customers, including Huawei, ZTE, Hitachi, Quanta, Dell, Oracle, Western Digital and others.

Also within our analog portfolio, we introduced multiple new PMD chip sets for both GPON and GE PON FTTx, further enhancing our leading share in the fast growing fiber-to-the-home market worldwide. Record new product introductions in 2010 were accompanied by a record number of design wins, the highest in the Company's history and up 30% in fiscal 2010 from 2009. Importantly, in 2010, we continued our share capture at our existing tier 1 customers, while successfully diversifying into new customers in the enterprise arena with our Amplify/Analog portfolio. As we discussed at our May Analyst Day, we believe the total addressable market, or TAM, for Mindspeed will triple from approximately $1 billion in 2009 to approximately $3 billion by 2015, given our expansion into the wireless and broader enterprise markets. Looking forward to fiscal 2011 we believe that our three key strategic business drivers are strong, and that we will continue to expand our market share within them. First, the continued ramp of FTTx Optical Infrastructure worldwide. Second, the ramp of High-Performance Analog solutions shipping into carrier OTN and Enterprise segments. And, lastly, the exposure of mobile data traffic that is driving the next generation of 3G/4G wireless infrastructure.

With that, let's talk briefly about each of these strategic business drivers, and what we are seeing for each one of them. First, FTTx Optical Infrastructure. Fiber optic access deployments, including fiber-to-the-building and fiber-to-the-home, were key drivers for our CTP business in 2010, which grew 35% over the prior year. Q4 was another strong quarter for FTTB, in which we enjoyed strong ordering patterns from all three of the key OEMs, shipping into the three carriers in China, namely ZTE, Huawei, and Fiber Home. As we enter the calendar fourth quarter, we have indications from our customers that the typical seasonal weakness we experienced this quarter in China will be somewhat mitigated this year. Currently, we are seeing strength in backlog from all three key infrastructure OEMs for fiber-to-the-building in China suggesting that deployment schedules are progressing through the end of the calendar year at a better-than-seasonal rate. In addition, we are encouraged that initial estimates for port growth for FTTB in China for calendar year 2011 are for approximately 30% growth over 2010, signaling a continued healthy trajectory for our Fiber optic access business in China this fiscal year of 2011.

Also in CCP, Q4 was a record quarter for our Broadband Home Gateway CPE solutions, as they continued to gain significant traction in carrier deployments in Korea, in Singapore, Russia, India, Spain, Brazil, and continue to gain growing share of the Japanese markets, the largest fiber-to-the-home market in the world. TPE has become a significant driver of growth for Mindspeed as our design win pipeline converts into revenue and we continue to win significant new designs with tier one OEMs worldwide. Second, High-Performance Analog carrier and enterprise solutions. We continue to feel optimistic about the multiplicity of strong product cycles, driving our broad analog portfolio for both carrier and enterprise applications. In 2010, our Enterprise Analog business grew 49% year-over-year, and our Carrier Analog business, including our fiber-to-the-home solutions, grew 35% on an annual basis. The Crosspoint business across Carrier and Enterprise in Q4 was particularly robust due to the rapid growth of OTN and core and metro markets. We currently have the most comprehensive and performance portfolio of switching technology, and have leveraged its strength with customers such as Huawei, ZTE, Alcatel Lucent and others.

Finally, the explosion of mobile data traffic is requiring a new class of wireless base station technology and creating the largest Total Addressable Market, or TAM, for Mindspeed. Transcede, which is our processor family for the next generation of 3G/4G wireless base stations, has continued to progress very well through design cycles with tier one OEMs. Since we released Transcede in January of 2010, we have been awarded multiple significant designs for 3G/4G base stations at tier one OEMs, based on the superior scalability and integration of the Transcede architecture. With a number of carriers committed to deploying LTE rising quickly to over 100, and the next generation of base stations moving to SoC architectures, we see Transcede as the most exciting opportunity for Mindspeed today. In 2011, we expect to support a growing number of valuable tier one design wins in wireless infrastructure. We are also investing in the development of the next generation of our Transcede wireless platform solutions in highly advanced semiconductor geometries, and offering multiples of the integration and performance levels of our first generation Transcede SoCs.

With our key strategic business drivers strong, and our design win pipeline robust, as we enter the new fiscal year, we believe that Mindspeed is well positioned for long-term profitable growth. We are, however, currently experiencing some near-term headwinds, primarily related to our legacy WAN business. Over the last six weeks, we have seen a slowdown in customer ordering in core network and wireline markets, particularly in North America and EMEA. Consequently, our backlog going into Q1 is lower than at the same point in Q4, with the predominance of the softness being in our WAN business. We believe this is largely the effect of systems inventory built up during the supply constrained environment of the last few quarters. Based on our channel partners and our customers' current forecasts, we anticipate that the impact on our business will last roughly one to two quarters. On the flip side, our China business is stronger than typical in the current quarter, as we had expected, given that access deployments are ongoing through the end of this calendar year. As we mentioned previously, we are also encouraged that initial estimates for port growth for fiber-to-the-building in China in calendar 2011 are for approximately 30% growth over 2010.

That said, while we now anticipate a slow start to the fiscal year due to the effects of inventory absorption we just discussed, we believe that our fundamental strategic market drivers of Fiber optic access, high-performance analog, and wireless remain strong, bolstered by the transition of our design win pipeline to revenue. Virtually all of the design wins from 2010 were in our CCP and HBA businesses. As these convert to revenue over the next year or two, we expect the legacy WAN business to comprise a smaller and smaller portion of our product revenue, likely materially down from the 27% of total revenue in 2010.

Now, turning to our guidance for the fiscal first quarter of 2011. Based on these and other factors, we expect fiscal first quarter revenues to decline between 8% and 10% from the fiscal fourth quarter of 2010, or to a range of approximately $41.2 million to $40.3 million, excluding the expected $2.5 million in legacy patent sales for Q1 and all Q4 patent sales. We expect fiscal Q1 non-GAAP gross margin to be in the range of 62% to 62.5%, excluding any benefit from patent sales. This gross margin guidance is at the low end of our corporate target range of 62% to 65%.

We expect the majority of the sequential decline this quarter will be due to overall lower overhead absorption as we reduce our inventory build levels to adjust for the changing demand trends we are experiencing this quarter, as well as product mix. We expect our gross margin will return to the range of 63% to 64%, or to the middle of our corporate target range, in the following quarter our fiscal second quarter. We expect non-GAAP operating expenses to be approximately $23 million, up 5% from the previous period.

As mentioned previously, we are supporting a growing design win pipeline, including the latest design wins we have been awarded for Transcede, as well as investing in a broad range of next-generation SoCs and High-Performance Analog solutions. In fiscal 2011, we may see some further sequential increases in operating expenses. However, we believe that this first quarter sequential increase will be the most significant of the fiscal year. Over the course of fiscal 2011, based on the support requirements of our design win pipeline and the market opportunities before us in both wireless and enterprise, we will be making prudent investments for future growth. Importantly, as we make these investments, we expect to maintain a healthy level of profitability throughout the fiscal year.

In closing, I'd like to say that we feel good about what we have accomplished in fiscal 2010. To summarize, we introduced a record number of new products. We scored a record number of design wins for Mindspeed. And we grew our product revenue by 36% by expanding our relationships and market share with our tier one customers. We significantly strengthened our balance sheets and carefully managed our expenses to deliver record profitability while continuing to invest in our next generation of strategic products. Based on this, we enter fiscal 2011 a stronger and more competitive Company. Despite the lumpy nature of telecommunications carrier capital expenditures, I believe that we have an outstanding opportunity ahead as we continue to execute on our core growth drivers. I want to thank our employees, our customers, and our stockholders for their continued support this fiscal year. Operator, we are ready to open the lines for questions.

(Operator Instructions). Our first question comes from Kevin Cassidy at Stifel. Your line is open.

Thanks for taking my questions, and congratulations on a great quarter. Looking at the WAN business, you say that's most of the headwind for the down 8% to 10%? I wonder if you can qualify that a little more.

Well, I would say, Kevin -- this is Bret -- that if you're thinking what is the impact on the WAN business, I would say at this point it's likely greater than 20% quarter-over-quarter.

Okay.

And so, it's clearly the majority of the impact for the quarter.

Okay and -- I'm sorry.

Kevin, this is Raouf. Just to add to that, in the WAN business, where we are seeing the majority of the weakness right now is primarily ATM-centric product lines, which are exposed mainly to 3G wireless backhaul in emerging economies such as China, and also somewhat to the ATM-based router market right here in North America.

Okay. And so, going out two quarters, do you expect that to come back to previous levels, or just still sustain at that current level?

So, I would say overall, Kevin, just to give you a feel for it, obviously we believe that our WAN business has some very, very valuable long-term designs that will continue to ship over the long term. However, we do believe that the other businesses within our Company, namely HP and TCP, will significantly outgrow it. It's tough to predict exactly when and how much. In other words, the timing and degree of recovery in WAN at this point. As you know, the WAN business is not a strategic growth platform for our Company. We're investing all our R&D dollars in CCP and HPA. We do believe, by the way, that the rest of the business will continue to grow at a very healthy double-digit clip, and that we'll comfortably more than offset the decline in WAN. But it is tough to predict exactly when and how much WAN might come back.

Right. Okay, great. Thanks.

Thank you. Our next question comes from Christian Schwab of Craig-Hallum. Your line is open.

Great. Thank you. Bret, on the share count, what is the operating income number on a quarterly basis for the reduced share count to the higher share count on your convert?

Yes, it's approximately $0.12 of GAAP EPS.

Okay, $0.12 of GAAP EPS or lower -- We have the lower share count.

That's right.

And the higher share count on GAAP, higher earnings on GAAP EPS, then we have the higher share count.

That's correct, yes.

Great. Thank you. As we look to the Transcede and the multiple significant design wins that you guys have talked about, can you quantify that? Not necessarily what it means next year, but what you think it means over the next two to three years. The design wins you have in hand without naming people.

Yes, Christian, this is Raouf. As you know, we can't really name customers at this point. It's a little too early to talk about that. You are correct that it's going to take a couple of years before these designs start going to production. But just to kind of give you a sense for the value of these opportunities, first of all, I would say at the top level, the TAM, as we've articulated before, is roughly $1 billion at the semiconductor level for the base station systems on a chip processing that we provide with Transcede. The value of these designs on, let's call it a sort of a full-year basis, vary significantly from one customer to another customer. But if you focus specifically on tier ones, and there's not a very large number, obviously, it's a limited number of tier ones in wireless infrastructure, the range -- and this is a somewhat broad range -- but it starts maybe with $10 million, and could be high as $75 million on an annual basis. So, I know that's a big range. You can think of sort the midpoint of that range for groups of argument, so $30 million to $40 million a year in revenue. Obviously, those are some very significant numbers that we're addressing here, a part of the reason we're investing in our future.

Correct. And would we expect, optimistically then, to be potentially at that midpoint in your fiscal 2012?

I would be reluctant at this point, Christian, to give you specific numbers for fiscal 2012 in terms of incremental revenue coming from wireless. As we mentioned, we're capturing a number of significant tier-one-design wins right now. As you know, it takes time to develop the next-generation bay stations, and it takes time to get them qualified by our customers' customers and ultimately to ramp. So, I think we're going to see some revenue in 2012, Christian, but I wouldn't hang my hat on any particular number at this point. I think some of these designs would be starting to transition into revenue. I think in 2015, we'll see multiple designs that we've captured already, ship in full volume. So it is hard to pin a number to 2012.

That's fair. And then on the WAN side, it's been pretty well publicized by a lot of peers who are also having the same trouble there, and just given the transition to the optical transport network, can you quantify for every $1 we lose in WAN business in the OC-3 to -12, SONET framers and the T1/E1 OC-48 traffic managers. For every $1 that that declines, how much your optical transport network portfolio should go up, not necessarily quarter-to-quarter, but over time?

Yes, definitely, Christian. That's an excellent question, it does not have a real simple answer. You're correct in that we're getting significant share in OTN, optical transport, which is sort of the next generation of packet optical infrastructure, replacing traditional SONET/SDH networks. I don't have, if you want arbitrary-- for you to say we're capturing, for example, $1.50 for every $1 that we lose in traditional ATM. Clearly, we're gaining share in OTN, particularly the switching end of OTN, significantly. We've talked about key customers such as Huawei, such as Infinera, Alcatel Lucent and others. We believe that we have significant share yet to gain, so market share gains ahead of us. And we believe OTN is really still in its first inning. So it is tough to say exactly, but OTN is ramping, and we expect to benefit from both that ramp as well as share capture in the years to come, which I think will more than offset the decline in WAN. You have to remember that our WAN business is not all ATM either. We have DS3 Physical Layer technology, we have HDLC controllers, we have XDSL backhaul applications. So, we have a fairly broad portfolio of legacy WAN products, and not all of it's ATM, by any means.

But, I would assume that ATM is at least half.

Yes, or maybe just a smidge under half, yes.

Okay, roughly 50%. Great. Are you guys in the 1830 box of Alcatel Lucent?

I cannot talk about that at this point. I'm sorry.

Okay. That's fair. Given the significant cash balance, relative historical cash, what is your expectations of what you're going to do with that? Are you going to do share buybacks, are you just going to build that up? What is your plans for the cash and future cash generation over the next few years?

Christian, this is Bret. I would say that it's nice to be in this position, probably for the first time in a number of years, for the Company. And clearly, we're looking at all of our alternatives right now. We have opportunities as far as looking at retirement of our outstanding converts. We have opportunities related to a number of different fronts, and suffice it to say, we can't talk about much more than that right at this point. But, we are exploring all of our alternatives.

On the converts that you have, is there any covenants regarding acquisitions or stock buybacks attached to that convert, where neither of those two things could occur until the debt is paid off?

No, there's no covenants related to that.

Perfect. Great. No other questions. Thank you.

Thank you.

Thank you. Our next question comes from Krishnan Shankar from ThinkEquity. Your line is open.

Yes, congratulations on great growth in your new areas. I had a couple of questions. Can you give us some sense for how the fiber-to-the-home market is ramping for you in the CCP business? And any trends there that you see going into the December quarter. And, secondly, Raouf, when you said that the range of revenues could be $10 million to $70 million, is that for one top tier OEM? Or, is that sort of the collective opportunity in the 4G LTE going out into 2012?

Certainly, Krishnan, this is Raouf. To answer your first question first, fiber-to-the-home market , its implications for our CCP business. The first thing I would say is, in optical infrastructures, I'm sure you know, there's fiber-to-the-building and fiber-to-the-home. We play in both of those markets. First of all, in fiber-to-the-home, we provide a Broadband Home Gateway, CCP processors, sometimes known as our CP portfolio. And in fiber-to-the-building, we provide our Comcerto convergence processors, such as the Comcerto 300 that's garnered a very large number of design wins, it's pretty much the industry's leading platform. What we see in FTTx next year is as follows. We see continued ramp of fiber-to-the-home worldwide. As I mentioned, we are winning a large number of new carriers and carrier deployments with our CPE processors, our Broadband Home Gateway processors I mentioned in our prepared comments, a number of carriers that we have captured over the last year, for instance, in Korea, in Singapore, Russia, India, Spain, Brazil in telephonic and so forth. So, we've captured, I guess I would say, some of the most important fiber-to-the-home deployments worldwide with our CP processors.

And we see that continuing to grow next year by at least a 30% to 50% clip. And then, as far as fiber-to-the-building is concerned, Krishnan, we also see that marketplace growing quite significantly. We see it growing, a, in China, and b, outside of China. So, in China, we expect port growth of at least 30% next year. And outside of China, we're continuing to see fiber-to-the-building being adopted in other BRIC economies around the world. So, net-net, as we believe both pure fiber-to-the-home, as well as fiber-to-the-building, will be growing next year. We're very pleased with our market share in both of those segments. We're looking to some good things in 2011, from FTTx in general. Now, regarding your other question about the range of value in our wireless Transcede design wins, again, I know that's a broad range, but those numbers are per OEM. So, per design win, per OEM, not necessarily indicative of the entire

Okay. And then in your HPA business, can you talk about some of the growth drivers going into 2011? Is this mainly the switches, optical transceivers? What sorts of areas do you see growth there in, and can you quantify that?

Yes, certainly. In HPA, we're really quite bullish on the outlook for our HPA business in 2011. As I mentioned in our prepared comments, there's a multiplicity of strong product picos that our HPA business is addressing at this point, with a very significant market there already and growing. So, specifically, those include OTN, the adoption of optical transport networking worldwide, where we have significant share in the crosspoint switch fabrics with people such as Huawei, ZTE, Alcatel Lucent, and others with OTN solutions. A second important driver for us within Analog is, of course, our video portfolio, high-definition video components for a broadcast studio infrastructure. That, we also expect to grow significantly next year. And also, our PMD, our optical module solutions for fiber-to-the-home. Those solutions grew 35% in 2010 over 2009. We have captured very significant share in GPON, specifically. Historically, we've had the number one position in GE PON, that continues to ramp. However, we've made a very strong entry into GPON. And now, we believe we are the number one optical module PMD component vendor in GPON specifically. So, we're really quite pleased with the breadth of our product portfolio and the end markets, Enterprise, Amplify, crosspoint switches, PMDs, and video solutions across our High-Performance Analog portfolio.

Great. My final question on gross margins, given that you'll have higher growth in some of the new areas, why wouldn't gross margins be higher? I would think that gross margins in HPA and CCP would be higher than some of the legacy business. Can you sort of give us a little more flavor on gross margins near-term?

Sure. Gross margins near term, obviously this particular quarter, we're experiencing headwinds in gross margin related to overhead absorption. We expect that to only be a one-quarter issue, and that we'll bounce right back into the 63% to 64% range next quarter. So, that's really right in the middle of the range of 62% to 65% that we've stated as our target range from a corporate perspective. And, if you look out even into the next quarter, Q2, we think we'll see some benefit from product mix right in line with some of the product mix items that you just referenced with our HPA business being the strongest grower in the Company right now, as well as some other things. And that growth in gross margin does not rely on any resurgence in our WAN business. So, certainly, mix can have an impact on a quarter-to-quarter basis. But overall, we think we're going to stay right in our target operating model range from a gross margin perspective.

Great. Thank you.

Thank you. Next question comes from Blake Harper of Signal Hill. Your line is open.

Thank you. Can you talk about the Amplify product and when do you see some of those design wins turn into revenues, and how you see that ramp playing out? And also, how do you see total new product revenues growing next year, either as a percentage of revenues or the total contribution that they'll have to growth?

Yes, Blake, this is Raouf. To answer your first question regarding Amplify specifically, first of all, our Amplify products as you may know, were introduced earlier in 2010 into the marketplace, targeting specifically blade server, compute, and storage vendors. We're doing very well in terms of design wins. We've been capturing design wins on a consistent and continued basis, some high-value sockets I guess I would say. We have announced a handful of those already. They include names I'm sure you're familiar with, like Hitachi, Dell Computer, even Western Digital, Quanta, Oracle and other players in the enterprise. And we continue to capture, as I mentioned, very high-value, high-margin enterprise sockets. We expect that in 2011, those design wins are going to be in the process of ramping, they will start to ramp in 2011, not necessarily contributing on a full-year basis next year. We expect to call it roughly $10 million of incremental revenue just in the early phase of ramp from these design wins in 2011, and of course contributing a much more material amount to our top line in fiscal year 2012.

The TAM, just to give you a sense for enterprise applications, is about $250 million give or take. So, it's a healthy sized market with ex- in gross margins very consistent with our gross margin profile. So, we're quite pleased with traction there. I think your other question was regarding percentage of revenues, incremental revenues. As we look at our design win pipeline, we see a mix of new designs, some ramp in 2011, some ramp in 2012 and beyond. It's a little too early to give you guidance on 2011 in totality, in other words, broken down by run rate, legacy business, and separate from new design win value. But, we see significant amount of incremental dollars to the topline from our record design win trajectory coming out of fiscal 2010, that I referred to in our prepared comments.

Okay. Thanks, Raouf. And, also, in China, we've usually seen a seasonally stronger first half and then a slower second half. I just wanted to see what it was, what you're seeing that is different, that's driving the strong second half backlog that you have right now. And does that include any impact from China Mobile and their broadband deployment?

Yes, certainly, Blake. Yes, we're very pleased with what we're seeing in China right now. We mentioned on our two previous earnings calls that we felt the second half in China would be stronger than it historically has been, and that's exactly the way it's playing out. What we are seeing for the first time ever is the three primary carriers in China, all deploying FTTx in tandem, namely China Telecom, Unicom and China Mobile. Specifically by carrier, the largest one in terms of deployments remains China Telecom. We have a range of port numbers for China Telecom, sort of in the $25 million to $30 million, maybe higher than -- I mean 30 million subscribers this year, maybe even higher than 30 million. China Unicom, although they did not hit their initial rollout numbers, they probably deployed between five million and six million ports this year. And China Mobile, of course, is ramping, and we expect roughly the same, maybe slightly less than China Unicom from China Mobile this year, for a total of approximately 40 million, again that's 40 million ports in 2010.

Clearly, the tenders that they announced in the first half of this year have been deploying. Although they have not rolled out second-half tenders in 2010, they have certainly been extending the awards that they have given to our customers for FTTB deployments in China. So, they've continued to roll out and install fiber-to-the-building on a fairly large scale in the second half, that's even without new tenders. As we look into 2011, we believe they will be awarding new tenders sometime around the lunar New Year early next year, likely all three of them in a fairly narrow timeframe. And from what we can tell, sort of our bottoms-up analysis from talking to those carriers directly as well as from announcements they have made publicly, is that there's going to be a growth of at least 30%, that's 30% year-on-year in port deployments in 2011 as compared to 2010. I mean, let's face it, at the end of the day, modernization of the communications infrastructure in China is one of the government's top mandates. It's a happening thing, and really only touching a very small percentage of their population so far. This is going to be a multi-year deployment, and it's going to be significant scale. It's already quite significant, and will continue to grow dramatically.

Okay, thanks. That's very helpful. And just one last question. With some of the changes in the industry, have you seen any change in your competitive environment? And would you just be able to comment on the competitive environment in general?

The competitive environment for us has not changed in any material way over the last few quarters. There's competitors that come into our space, there are acquisitions that are made of smaller competitors by bigger companies. There's also people exiting the space. There are some bigger companies that have bought some of our smaller competitors. And we've benefited from that rather quickly, quite frankly, because quite often they lose their focus on the market, there's significant organizational churn. We find ourselves being brought in by our customers to replace those smaller competitors. We've also seen some bigger competitors enter the FTTx market and at this point, there has been absolutely no impact from those moves. So, overall, I would say there has not been any meaningful amount of change in the competitive environment over the last few quarters.

Thanks for answering my questions.

Thank you. Our next question is from Christian Schwab of Craig-Hallum Capital Group. Your line is open.

Great, thank you. Just a couple of follow-ups. On the Amplify-Eye product line, can you break out what you did in fiscal year 2010, since we're looking for $10 million next year?

Yes, Christian, this is Raouf. In 2010, we're really only shipping sample volumes, definitely under $1 million in total revenue. Hundreds of thousands I guess I would say.

Okay. So, we're going to go from a few hundred thousand to $10 million there next year?

Yes, that's about right.

Perfect. And then Bret, the implied guidance for a return to 63% to 64% gross margins in Q2, is that more mix-related or revenue-related? Do we have greater revenue absorption, so should we assume that revenues, on our model at least, tick up 5% to 8% sequentially?Or, is it just truly mix, and revenues could be flat?

Christian, I'm not necessarily giving any guidance related to Q2. First off, it relates to overhead absorption and the fact that we're right-sizing our inventory levels and build levels for the new demand levels that we're seeing. So, typically you see kind of a one-quarter impact related to that, especially for a fab-less Company like ourselves. And that's probably the biggest assumption going into Q2. Beyond that, we do have some mix impacts that can be plus or minus, anywhere from -- anyway, in the tens of basis points, I'll just say. So, we're not assuming, necessarily, that it's revenue-level related at this point.

Okay. Perfect. And then if it's not revenue-related in Q2, then all of these new product introductions that we've spent almost the entire call talking about, is we would assume then, a very back-end loaded growth year.

We're not saying that at this point, either. I think what we're saying is, we expect a one- to two-quarter kind of pause related to specifically our WAN business. And that obviously, visibility is what it is in the semiconductor space. It's tough to go talk about something three or four quarters out. But at this point, we're really only talking about this quarter for specific guidance.

Great. Thank you.

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

Thank you, again, for joining us for our call. And we look forward to speaking with you again soon.