MACOM Technology Solutions Holdings Inc (MTSI) 2012 Q1 法說會逐字稿

Welcome, and thank you for joining the Mindspeed Technologies first quarter fiscal-year 2012 conference call. All parties will be on a listen-only mode until the question-and-answer session of today's call. (Operator Instructions) I'd also like to inform parties that the call 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 afternoon's conference call.

Thank you very much, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal first quarter of 2012 financial results. Our press release issued this afternoon detailing these results may be accessed in the Investors section of our website, at www.mindspeed.com. Today, our CFO Stephen Ananias will begin the call with a review of the fiscal first quarter financial results. Our CEO Raouf Halim will follow Stephen with some perspectives on the quarter, and financial guidance for our fiscal second quarter of 2012.

Before we begin, I would like to remind you that our comments today will include forward-looking statements within the meaning of federal securities laws. Forward-looking statements include, among others -- statements regarding our current expectations for fiscal second quarter net revenues; non-GAAP gross margins and non-GAAP operating expenses; our expectations about the anticipated closing of our acquisition of Picochip, including our views of potential business and operating synergies; the impact of the acquisition on our target addressable market, and anticipated cash requirements for acquisition-related expenses; and our current assessment of the demand environment in our target market. Forward-looking statements are subject to substantial risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements.

The Picochip acquisition is subject to numerous conditions to closing, and we cannot provide assurances that the revenue and expense synergies that we currently anticipate from the acquisition will be achieved. The acquisition presents various business and technology integration risks. In addition, our business and the business of Picochip are subject to numerous additional risks and uncertainties, including -- fluctuations in operating results, and the potential for future operating losses; pricing pressures; loss of, or diminished demand from, one or more key distributors; our ability to develop and introduce new products; and the potential for intellectual property litigation. Forward-looking statements made during the 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.

During our call today, we will also make reference to certain non-GAAP financial measures, which exclude stock-based compensation expense and related payroll costs, acquisition-related costs, employee separation costs, special charges, and non-cash interest expense on convertible senior notes. For a reconciliation of non-GAAP to GAAP financial measures, please refer to the Investors section of our website, at www.mindspeed.com, and our earnings press release and our 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 Stephen Ananias.

Thank you, Andrea. I will start with a detailed review of the financial results for our fiscal first quarter of 2012. Total net revenues for the first quarter were $33.9 million, including $90,000 from patent sales. Excluding patent sales, we delivered product revenue of approximately $33.8 million, exceeding our preliminary results released on January 5. Product revenue for the first quarter of 2012 declined 17% sequentially, and declined 11% year-over-year, as we continue to experience a weaker demand environment related to a slower work-down of inventory levels in the channel.

Product revenue from our Communications Convergence Processing business, or CCP, contributed 44% of total fiscal first quarter product revenue, and decreased 27% sequentially. The decline in CCP in Q1 was due to seasonality in the optical FTTX market, specifically in China, as well as inventory absorption at a key CPE customer in Asia, which we believe is now largely complete.

Product revenue from our High Performance Analog business, or HPA, represented 43% of total fiscal first quarter product revenue, and declined by 2% sequentially. The sequential decline in HPA was attributable to some near-term softness in demand trends in our enterprise segment, which was offset by strong demand for optical PMD solutions shipping into FTTX markets worldwide. Lastly, our legacy Wide Area Networking business, or WAN, contributed the remaining 13% of fiscal first quarter product revenue, and declined by 19% sequentially, as the expected technology shift away from ATM-based products continues.

Product revenue for the fiscal first quarter was split geographic region as follows -- Asia/Pacific at 78%, Americas at 16%, and Europe at 6%. China represented 37% of total fiscal first quarter product revenue, up from 34% of product revenue in the fiscal fourth quarter of 2011. No customer represented product revenues of 10% or greater in the fiscal first quarter.

Now turning to gross margins. Non-GAAP gross profit was $19.7 million, or 58% of revenue, which was down sequentially compared to 61.5% of revenue in the prior fiscal quarter, consistent with our preliminary results. The sequential decrease in non-GAAP gross margin was due to lower than anticipated revenue. Total non-GAAP operating expenses were $22 million, consistent with our stated guidance range. Fiscal first quarter non-GAAP operating expenses were comprised of research and development expenses of $14.3 million, and selling, general, and administrative expenses of $7.6 million. The resulting non-GAAP operating loss for the fiscal first quarter was approximately $2.3 million, or a negative 7% non-GAAP operating margin.

Now, finishing the income statement for the fiscal first quarter. Non-GAAP other income and expenses, and the provision for income taxes in the aggregate, totaled a net expense of approximately $70,000, which consisted of other income of approximately $300,000, net interest expense of approximately $280,000, and approximately $90,000 of tax provision. Non-GAAP net loss for the fiscal first quarter was approximately $2.4 million, and resulted in non-GAAP net loss per share of approximately $0.07, based on approximately 32.9 million weighted average shares outstanding for the quarter.

Raouf will provide our formal guidance in a few minutes, but there are a couple of items I wanted to point out, as we look forward to the next quarter. First, we expect our non-GAAP other income and expense to be approximately $600,000, including our tax provision. This includes approximately $300,000 of interest expense related to our existing convertible debt, and approximately $220,000 of partial quarter interest expense for our new acquisition debt facility. And second, we expect weighted average shares outstanding for the fiscal second quarter to be between 36.5 million and 37 million shares, which includes the new issuance of approximately 5.2 million shares for the acquisition of Picochip.

Turning now to the balance sheet for the fiscal first quarter. Cash and cash equivalents were $42.8 million at the end of the fiscal first quarter of 2012. During the quarter, the Company consumed approximately $2.5 million of cash. The cash consumed was largely due to the net loss from operations, payment towards licensed intangibles, offset by the sale of inventory purchased in prior periods.

Accounts receivable at the end of the quarter were $14 million, resulting in net days sales outstanding of 37 days, up from 30 days in the prior quarter. Inventories decreased from the prior quarter, as expected, by approximately $3.1 million, to $11.1 million, resulting in inventory turn of 5.1, up from a rate of 4.1 turns in the prior quarter.

I would now like to turn the call over to Raouf for some perspectives on the first quarter, and our outlook.

Thank you, Stephen. As Stephen mentioned, the fiscal first quarter was a transitional quarter for Mindspeed, as we continued to experience a weaker demand environment, primarily driven by excess channel inventory. That said, we experienced strong year-over-year revenue growth for CPE processors in Q1, as well as sequential and year-over-year revenue growth for our fiber-to-the-home PMDs within our HPA business. In the near term, our business is increasingly driven by the growth of global demand for both the GPON and GEPON fiber-to-the home markets. Fiber deployment trends remained very strong in China, Japan, Europe, the US, as well as emerging markets such as Russia, India, Brazil and Eastern Europe, and we are well positioned to continue benefiting from these positive trends.

I would now like to provide you with a summary of the progress of our wireless initiative, including the recently announced strategic acquisition of Picochip. As we announced on January 5, as of the end of our December quarter, Mindspeed is now supporting 22 Transcede customer engagements worldwide. These span the range of carrier class 4G LTE micro-based stations from pico, to enterprise, to residential femto applications, targeting from 8 all the way up to 128 LTE users in key service provider LTE network rollouts worldwide.

Commercial LTE network deployments now number up to [15] networks, with a total of 226 launches for LTE deployments planned or in progress in 76 countries worldwide. We expect Transcede-based LTE carrier field trials to begin in this first half of calendar 2012, with several of the largest network operators in Asia, as well as one in the US, and two in Europe. We are pleased with the performance and competitiveness of our Transcede LTE platform, and we are confident that as we progress through these important field trials, Transcede will ultimately offer far superior economics for small cell base stations.

On January 5, we announced the strategic acquisition of Picochip, a leading supplier of integrated system-on-chip solutions for small cell base stations. Following our announcement, we spoke to many of our customers, and the feedback has been overwhelmingly positive. We can see that the customer synergies we expected with the Picochip acquisition are indeed playing out as we thought. Key customers have provided very helpful feedback regarding their requirements for our combined Mindspeed and Picochip offerings moving forward. I believe we have already accelerated our traction with at least five key engagements as a result of articulating a combined best-of-breed technology roadmap for Mindspeed and Picochip.

Let's quickly recap our strategic rationale for the acquisition of Picochip. First, this acquisition propels Mindspeed to the leadership position in an exciting new category of silicon for next generation small cell base stations, significantly expanding our TAM in an explosive growth market. Picochip pioneered the femtocell market, and according to ABI Research is the clear market share leader in 3G HSBA today. Currently, we believe Mindspeed is number one in 4G LTE design engagements for small cells worldwide.

On a combined basis, we will be first to market with 3G HSBA, as well as 4G LTE systems on a chip, and will enable a seamless transition for OEMs and carriers to next generation multi-mode 3G, 4G small cell solutions. Subsequent to this combination, we estimate that Mindspeed's TAM will expand from $700 million in 2011, to $3 billion in 2016, a compounded annual growth rate of 34%.

Second, our combined customer opportunity especially compelling, and positions us to increase our presence at shared customers while engaging new customers with a strong value proposition. Finally, we believe this transaction will be financially compelling. We expect it to accelerate our revenue growth, and to be accretive to non-GAAP earnings per share in the second half of calendar 2012, post the realization of synergies. Currently, we expect to close the Picochip acquisition during February of 2012.

Also in February, we will have our first key trade show presence as a combined company at the high profile Mobile World Congress in Barcelona, Spain. At MWC, we plan to introduce an expanded product line of base station solutions, as well as a compelling product roadmap leveraging the combined capabilities of MIndspeed and Picochip.

With that, let's turn to our guidance for the fiscal second quarter of 2012, as well as some perspectives on the full fiscal year of 2012. Based on the trend of several data points, our perspective is that the demand environment is troughing. First, our tracking of channel inventory has shown a consistent reduction of inventory levels each month during the first fiscal quarter of 2012. Second, our distributor point of sale figures have shown a steady increase for the past two months. Third, we are beginning to see an increasing book-to-bill ratio.

With these positive trends in our base business, combined with a partial quarter contribution from Picochip, we expect fiscal second quarter total net revenues to be within a range a $33.5 million to $35.5 million. We expect fiscal second quarter non-GAAP gross margin to range between 58% and 60%. And we also expect fiscal second quarter non-GAAP operating expenses to be within a range of $25.5 million to $26.5 million. Our fiscal Q2 non-GAAP operating expenses include certain pre-synergy transitional expenses related to our acquisition of Picochip. We expect these transitional expenses to be complete as we enter our fiscal third quarter.

Now, a few forward-looking details on the financial model for the remainder of fiscal-year 2012. We expect strong sequential revenue growth in the third fiscal quarter ending in June, as well as the second half of calendar 2012. Exiting calendar 2012, we believe the non-GAAP gross margin profile for Mindspeed will be approximately 60% to 63%. We expect to realize material operating expense synergies with Picochip entering our third fiscal quarter of 2012. The resulting operating expense structure will normalize at roughly 15% above fiscal Q1 levels. Exiting calendar 2012, we believe our business will be solidly profitable.

In closing, I want to reiterate how excited we are about our acquisition of Picochip. The future has never been brighter for Mindspeed. We believe the combination of forces at Mindspeed and Picochip will not only position us as a leader with the largest carrier infrastructure market Mindspeed has ever addressed, but will also create a stronger and more effective engineering team with which to pursue the $1 billion small cell market opportunity. I want to thank our employees, our customers, our partners, and our stockholders for their continued support.

Operator, we are ready to open the lines for questions.

(Operator Instructions) And our first question comes from Quinn Bolton with Needham & Company. Your line is open.

Hello, Raouf. Hello, Stephen. I was wondering if you could give us any sense of how much stub period revenue you would expect from Picochip in the quarter. Is that a relatively small amount, or do you expect to close the acquisition fairly early in the month of February so you might get as much as two months of revenue in the quarter?

Quinn, this is Raouf. The first thing to keep in mind is the historical profile of revenues for Picochip. They tend to be more second half loaded than first half. So a good profile to think about is roughly 40% of their annual revenues will come in the first six months and 60% in the second six months of any given calendar year. We expect the total revenues this year to grow about 50% from the $15 million level of 2011. We have incorporated a small stub, a rather modest amount of Picochip revenues within this quarter, and the expectation that the closing will be sometime in February.

Keep in mind that even if we do close in early February, Quinn, it takes a few weeks to get supply chains realigned, get operational systems in place and start to recognize revenue for shipments. So we think we have been reasonable in assuming a modest amount of Picochip contribution within this current quarter.

Okay. And then just looking from March into June, if I look at the step up, it looks like Op Ex increases about $3.5 million to $4.5 million in March. You mentioned some transitional expenses, and you obviously haven't had time to realize all the synergies. But if I do the math, looks like Op Ex on an absolute basis should actually step down into the June quarter to somewhere in the level of about $25.3 million, $25.5 million. Is that the right ballpark for sort of the run rate Op Ex levels?

Absolutely. Yes. That is the right way to think about it, Quinn. Right around $25.3 million in the June quarter and beyond is roughly where it's going to be. That is a good number.

The transitional expenses we are going to incur in this current March quarter are primarily related to organizational integration, other transitional expenditures that we will incur on a one-time basis. It's really best to think about the June quarter as a good proxy for the go-forward Op Ex, and again, $25.3 million is a good number to keep in mind.

Great. Then, Raouf, just two quick questions. You talked about obviously seeing the seasonality in the China business and I know that the [ACIS] side of the business does trend to see that pretty strong seasonality in December and March. What do you -- as you look into the March quarter, how do you see the CCP business? Is that looking like it's stabilizing? Do you still have some head winds from seasonality in China? And then, I think you also mentioned a CPE customer that sounded like they were digesting inventory in December. So, sounds like the CPE side should recover in March. Is that the right way to be thinking about those two buckets within CCP?

Yes. We think both of those categories, namely the fiber-to-the-home voice [rec where people told you] addressing the China market, as well as the CPE business addressing China, Japan and other parts of Asia, they are both in a recovery mode, Quinn. So both should be growing within this March quarter over the December quarter. Specifically what we are seeing happening in China is that, of course, this year turns out Chinese New Year is coming a little earlier than it usually does. In fact, people are just starting to come back from holidays over the course of this week into next week. And so we expect roughly two full months of demand recovery in China for fiber-to-the-building and hence, our voice and data solutions addressing that marketplace.

And then, as it relates to the CPE customer, that was a particular Japanese OEM serving NTT specifically, and they were starting to ramp with us in the latter part of last year. Very aggressive ramp. They're doing very well with NTT, and they built up some inventory to make sure that their supply chain was adequately supplied with product. They overbuilt a little bit. That is now essentially completely gone.

Great. Thank you very much.

Our next question comes from Kevin Cassidy with Stifel Nicolaus. Your line is open.

Thanks for taking my question. On this small cell base station you had mentioned five key engagements. Were these five companies, was there an overlap in what Picochip was doing and what you were doing?

Yes, Kevin, this is Raouf. Yes, yes. All five were working with both companies historically. In several cases, they were very pleased with Picochip's technology and the leadership in the small cell market, but somewhat concerned about the financial stability and the long-term prognosis for Picochip and their ability to continue investing, as a small private company. And they very much welcomed the combination in terms of not just providing a very strong technology platform going forward for LTE, HSBA, HSBA+, W-CDMA, and the other key area interfaces, but really from a supplier stability perspective as well. So we've heard a lot of kudos in that regard from the key customers; the real customers that you care about that will drive the majority of our growth going forward. So we're quite pleased with that reaction.

Okay. So you will be able to help them move from the 3G to LTE with Transcede, without a lot of software changes?

Yes. The idea is to integrate the technology very quickly, and to make it seamless from an OEM perspective. So all of those OEMs who have designed in and are shipping Picochip in volume should have a very easy -- I'd like to say painless, it's never painless -- but a very easy path to transition to LTE and multi-mode LTE 3G as well

Great. Thanks. Last year, we had talked a lot about Amplify and maybe that product getting into the server markets. With Romley launch, is there some upside potential for Amplify?

There is some upside potential for Amplify as we work our way through this calendar year of 2012. It's been a little disappointing getting off the ground in 2011, as you may be aware. And late in '11, of course, we had a bit of a hitch, if you will, with Western Digital and the operational issues they had post the Thailand flood. That put a damper on our fiscal Q1 High Performance Analog business. Those issues are quickly getting behind us now. So we do expect this particular portfolio within HPA to do well this year, and certainly better than 2011.

Okay. And maybe just one other question. On the legacy telecom, the WAN business, is this the new level that you think this is a consistent base, or is there more to come out of that?

So, Kevin, I think for awhile we've indicated that we've stopped investing in the WAN portfolio approximately a decade ago. So it's to be expected it will continue to decline on an ongoing basis. We don't really expect any hard or harsh step downs in WAN revenues on a sequential basis, sort of the $4 million to $5 million, give or take, kind of level is appropriate to think about. But it will decline on a year-over-year basis at sort of double digits, teens kind of rate, year-over-year.

Okay. Thank you.

Our next question comes from Scott Searle with B. Riley & Company. Your line is open.

Good afternoon. Raouf, just to clarify in terms of your assumptions for guidance with Picochip, it sounds like very small contribution in this quarter because there is still some variability in the expected closing date. But looking at the core business ex- IP licensing sales that modestly down a couple of percent to up sequentially. Is that the correct way to think about the core business?

Yes, Scott. So first of all, in Picochip, you are correct that we have been conservative. We've assumed a very modest level of contribution from Picochip. That's certainly based on the timing of the close sometime in February. It's not absolutely certain when it's going to happen, a lot of closing conditions, as we've said. But also on top of that, of course, you cannot transfer supply chain immediately upon day one of closing. So there is always some lag in getting supply chain aligned with ours and so forth. All of those have been factored in, we think, reasonably well.

As far as the core Mindspeed business is concerned, as we said in our prepared comments, this business is stabilizing. We are seeing good backlog build, book-to-bill ratio is significantly better than one. I mentioned inventory is depleting in the channel. It's been depleting now for a few months. Point of sale, [distribution] point of sale also picking up. So all of those indicators, I think, point to a stabilizing, flattening out within our core Mindspeed business.

Got you. And just a follow-up on the CCP side of the equation. In terms of the Japanese customer, can you give us some sort of idea of the run rate that they had been running at and how quickly you expect that to come back? And if I recall, I think there was a North American CPE customer that was expected to start ramping up in the current time period. Is that correct, and is that still on track?

So as far as the Japanese customer is concerned, as I mentioned in answer to an earlier question, it's an important design win we scored over a year ago. They launched their deployments with NTT last year, late last year. They filled out the supply chain. They overbuilt a little bit and overfilled the supply chain. So there was a slow down, not quite a pause, but a slow down last quarter with that Japanese customer. They are back in full tilt. In terms of the sizing of it, in terms of millions of dollars, unfortunately I don't have that, Scott, on me. It's sort of in the roughly, call it, roughly $2 million a quarter kind of range. Very rough. Material. But as I said, they are coming back. And we are very pleased with the traction of our CPE business, by the way. Certainly within Japan, but in the non-Japan markets at large, where we are expanding our footprint significantly.

And then, to your question about the North American customer, that is coming along very, very well. We believe that the first carrier to be deploying that, it's actually going to have two [extensions] with AT&T and at Verizon. So it's -- we are looking forward that starting to kick in this calendar year of 2012. It's not there yet, it hasn't ramped yet, but it's built into our outlook for the latter part of this year.

Got you. And to follow-up on the Transcede front. We're finally going to start to get into trials with tier one operators now. Do you have a sense and a clear road map in terms of milestones that are going to need to be hit so you can understand better the potential success rate? As these trials are ongoing, what needs to happen for them to transition to commercial trials? I guess the question being that once they are concluded, and the time line may be in the June to September quarter where we start to see some of those results, that they will start to roll to commercial trials, or does a lot of that need to be determined?

It really depends on the carrier, and it also depends on the OEM. Specific, some of the Asian carriers have really buttoned up plans. Down to the week, in some cases almost to the day, with a very good level of predictability in general. Other carriers have a lot more uncertainty in their plans, Scott. So the answer is not the same for all carriers. But we do have, in aggregate, a strong feeling that we are going to be ramping, say, one to two, maybe at most three quarters post the conclusion of these field trials. The take is quite strong. The demand is very much there. We can see the carriers are beating up on our OEM customers in many cases. You know, seeing a strong pull from their customers, from the consumer base, for LTE. And so I think it's really going to be determined largely by the technical merits and the technical issues, such as interoperability and so forth, in terms of deployment. So it's getting it through the technical part of it, wringing out the problems, the bugs, getting a stable end-to-end service in place. And then I don't think there will be that much of a delay from that point to actual ramp.

Got you. And lastly if I could, your outlook for the June quarter, I think you used the word strongly. How should we think of that in the context of history, or at least recent history? I think the last couple of March to June time periods you have been up in the high single digit range, 7% to 9%. Should we be thinking in line with that or something organically much stronger than that? Thank you.

Scott, obviously we are not providing guidance yet for the June quarter. We look forward to doing that come April. But historically, you're right. We've had high single digits kind of sequential revenue growth. Bear in mind that this time we will have Picochip added to it on a full quarter basis; for the months of April, May, June. So it will be reasonable to think that there will be a good step up in the June quarter over the March quarter, perhaps a little higher, little hotter, if you will, than our historical sequential revenue growth.

Thank you.

Our next question comes from Mark McKechnie with ThinkEquity. Your line is open.

Great. Thanks. A couple of questions here. Maybe first for Stephen, on visibility into this March quarter relative to your guidance. I think -- just want to make sure I heard correctly, Raouf, you talked about the book-to-bill being much better than one. But could you give some metrics in terms of what kind of backlog coverage you have for that March guidance?

To the backlog right now, as Raouf mentioned in his prepared comments, that with the Chinese lunar New Year, we expect to have additional bookings as people come back from their time off. We do expect some additional bookings for the remainder of the quarter. However, again, as you mentioned, when we look at the internal metrics that we track, our channel inventory levels, our book-to-bill ratios, they are all improving and so we are confident on the range that we've provided.

Got you. And, Raouf, is that correct that you said the quarterly book-to-bill was significantly better than one, or is it just on a monthly run rate as you exited the quarter?

No. The book-to-bill at this point is significantly better than one.

Got you. Okay. And then for Raouf, on Mobile World Congress, it sounds like you gave us a short preview of some of the announcements. Two things you said. One was an expanded line of base station solutions and then some more details on the road map. But on the base station solutions, are you talking about moving into higher powered type solutions? Maybe moving closer to a macro cell, or is this just a different configurations, possibly a mixed mode solutions with Wi-Fi or kind of what kind of hints can you give us on that?

Mark, all I'm going to say to that is I hope you can come to MWC and visit with us.

I'll be there.

We will be announcing then products. And just hold your breath, and I hope you'll like what you will hear. It's a little too soon to actually pre-announce.

Good enough. And this question might help out. You talk about a road map. And of course, I guess the Picochip products are built off their own DSP. And of course, your Transcede, a different set of guts there. Do you envision merging those two over time with the Picochip software stack? Or at what point should we start thinking about when you have a fully integrated 3G, 4G-type solution? Or is that too much to ask right now?

Mark, from a silicon architecture perspective, which I think is essentially what you are getting at, as to which of the DSP subsystems will be the platform of choice going forward. I would say there's really two questions you have to answer. There is that question. And then the other question is, what is the protocol processor, sort of the upper layer, layer 2-plus subsystem going to be comprised of? There, the good news is both Picochip and Mindspeed use the ARM embedded processor as the layer 2 and above platform of choice. So we have 100% commonality there. The code runs native. It's obviously immediately supported within the Transcede platform.

As far as the DSP is concerned, you are correct that Picochip historically has implemented their own proprietary PicoArray and PicoXcell DSP architecture. And we have used -- we have licensed the CEVA DSP core, which is doing very well for us. The good news is that Picochip, in fact, has the full software implementation very easily portable to the CEVA platform, which is going to be most likely the platform of choice for us going forward. We'll move into a single-thread architecture that can span everything from low end residential all the way up to metro type implementations, and we'll support all of the various air-interface styles with, if you will, the best in breed implementation, both LTE and 3G HSBA now coming from the well-deployed and highly qualified implementation from Picochip.

Great. That makes sense.

And then finally, you talked about some carrier trials in the first half of this year. Is that -- are you seeing -- maybe describe the activity level. You talked about several large Asian carriers, one US, one Europe. Are these current Picochip customers or are they different, or is there overlap there? And are you getting a sense that the carriers are getting a bit more aggressive now as we move through the year, or maybe perhaps the combination of Picochip has helped things out. But any kind of additional visibility or color you can give us on these trials in Asia, US and Europe. Thanks.

Yes. Certainly. I think there is almost 100% overlap in those carriers that are going to be trialing Transcede LTE with the same -- they are essentially the same carriers who are actually deploying Picochip technology in high volume today in the geographies you mentioned, in the US, in Europe and in APAC, in Asia/Pacific. There is a high degree of overlap. Picochip brings us not only a proven and highly deployed 3G HSBA implementation with those very same carriers, but also brings us even a higher level of intimacy with the decision makers, the CTOs, the operators within those carriers. So it's a highly synergistic combination from that perspective.

I will tell you anecdotally that, as recently as a week ago, I was meeting with some very high profile customers who are indicating that they have a tremendous amount of pull on these micro base stations from some of the largest carriers here in the US. And it's just a matter of please, please get your platform completed, because we have a lot of demand for LTE. And a lot of pressure upon us and upon their own engineering teams to complete the development and hardening of these systems from a perspective of end market demand that is, again, quite strong.

That's great. Okay. Thank you. That's it for me.

Our next question comes from Krishna Shankar with Roth Capital. Your line is open.

Yes. What was the run rate of the Picochip business in the December quarter? And as you look to the June quarter and the second half of 2012, will revenues in the base station business come mainly from Picochip, or will there be some revenues from Transcede -- material revenues in the second half 2012 also?

Krishna, on your first question, first, Picochip revenues in total for calendar year 2011 were approximately $15 million, that's 1-5, $15 million in total revenues. I don't have the breakdown here by quarter, so I don't really know exactly what it was in the December quarter. We expect the revenues, however, to grow at least at the rate of the end market, which is roughly 50% in 2012 over '11. So getting to, call it, roughly $22 million in revenue in total for 2012. And the break down of that, as I mentioned earlier, is roughly 60% of the revenues will come in the second half and 40% in the first half.

Now to your second question, as to whether we will have material Transcede revenues this year, I would say the material wireless revenues this year are really going to be Picochip contributed. We will probably see a little bit of very early pre-production revenues from Transcede in calendar Q4. It's very much a function of how quickly carriers complete field trials, and certainly a function of the rest of the network planning and their ability to integrate these base stations, these LTE base stations, that is, into their existing network with all of the backhaul requirements and so forth. So we again expect, on a full year basis, that in 2015. We will have a full year of Transcede contribution, in addition to Picochip continued growth. But for purposes of 2012, it's going to be almost -- essentially almost entirely Picochip wireless revenues.

Okay. And then turning to the CCP business, do you see growth, strong growth both in the voice over IP business and the home gateway business going into the June quarter? Or what should we think about those two segments of the CCP business?

Yes, Krishna, actually we do expect growth in both of these segments of CCP. As we mentioned earlier, this is the quarter when major networks start coming back with their CapEx plans, particularly in Asia. You see that in China, China Telecom, Unicom, to a lesser extent China Mobile. You see it in Japan at NTT. Once you get past the Chinese New Year, they start -- they come back from the holidays, lock down their Cap Ex for the balance of the calendar year, and they start purchasing in earnest later this quarter and heavily into the June quarter. So that will certainly drive both of those platforms, mainly the voice over IP business, which is addressing China as well as other markets, and also the customer [prem], or CPE, a broadband home router market which is driven a lot by Japan, but also China and other parts of Asia. So yes, to answer your question, both should be growing in the June quarter.

And my final question, what will the Op Ex structure look like starting with the June quarter? Can you sort of give us what the pro forma combined R&D and SG&A run rate might be with the June quarter after Picochip is closed?

Sure. So in terms of the Op Ex structure, what we have said in our prepared statements is we expect the -- once we are completed with the transitional expenses related to the acquisition, we expect to normalize around 15% above where we closed the fiscal first quarter. So that gets you to right around $25.3 million.

Okay. About $25.3 million. Okay. Great. Thank you very much.

Thank you.

Your next question comes from Quinn Bolton with Needham & Company. Your line is open.

Just a quick follow-up question on the HPA business. Raouf, I think you guys have had, it seems, record revenue in the PMD business now for several quarters. How do you see that business growing? Is there any risk that there has been inventory accumulation in PMDs, or are you feeling pretty good about that?

And then second question on HPA, any comments you can make about the crosspoint switch and OTN switching side of the business?

Certainly, Quinn. So on your first question, PMDs, you are absolutely right. That business is doing very well for us and we have been reporting record quarters now for several quarters in a row. That is driven by two factors. Number one is the underlying expansion of fiber-to-the-home subscribers worldwide. It's not just a Japan phenomenon. It hasn't been for a few years. Clearly, China is ramping very strongly. Many other parts of the world, BRIC countries I referred to in our prepared comments are now starting to ramp fiber-to-the-home or fiber-to-the-building services in a big way. We expect that this is just sort of first innings in the FTTX market. So we expect the market to continue growing quite strongly for many years to come.

But the other factor that's driving our PMD revenue growth is the fact that historically we have been more EPON, GEPON or ethernet based. And over the past, roughly, year or so, our team has done a very good job of penetrating the GPON market, which has been predominantly North America as well as parts of EMEA. So it's a combination of inherent market growth and coupled with market share growth together that are driving that business to record revenues every quarter.

Regarding inventory specifically, we do track inventory very closely. As I mentioned in our prepared comments, inventory is coming down very nicely. There was really no aberrative level of inventory of our PMD portfolio that we can see. So we're very comfortable with the PMD business.

Regarding crosspoints addressing the OTN market specifically, first I would say our crosspoint portfolio addresses enterprise applications, addresses video or broadcast studio applications, as well as optical transport, or OTN. We are seeing that OTN is where there was some inventory that built up in calendar Q3 of last year. Post the Japan earthquake, if you remember that phenomena. And is that bleeding off very nicely now. There is a little bit of inventory left, but essentially it will be fully depleted by or before the end of this current quarter. So we are also positive about Cap Ex growth in OTN, the depletion of inventory, and the Crosspoint category starting to grow in outer cores for us.

Great. And then don't know if I missed it, but any comments you can make about the service offload platform and prospects for that side of the CPE business. I know you had talked about that, I think it was on the last quarterly conference call. Wondering if there has been any developments to track in that platform.

Certainly. The service offload platform, I guess I would say in general, is gaining significant momentum worldwide, Quinn. In fact, service offload platforms are already being deployed at Verizon, and will likely deploy later this year at AT&T and Deutsche Telecom. We are in evaluations with carriers -- with all of these carriers, but also at NTT and Telefonica, British Telecom, TELUS, Century Link, Swisscom, Telecom Italia. A whole laundry list of leading carriers worldwide.

Service offload platforms are a really creative way for carriers to deliver advanced services to existing broadband customers, and from that, derive new revenue streams. There's a high level of motivation by all of the carriers I've rattled off, as well as many others worldwide to start deploying service offload platforms in a big way. We have a very good position today. We have a number of very high profile design wins shipping to many of the carriers that I rattled off. And we have a tremendous pipeline of design engagements and very likely design wins in quarters to come. It's interesting you bring it up, Quinn. This is one of the gems, if you will, in our product portfolio that we are looking forward to benefiting from in 2012 and into 2013.

But this sounds like this is still mostly future business. It hasn't ramped significantly yet as of the December or March quarter.

Absolutely right. Yes. Correct.

Got you. Okay. Thank you.

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

Thank you again for joining us for our call. We look forward to speaking with you again soon. Thank you. Good-bye.

Thank you. That does conclude today's conference. Thank you all for participating. You may disconnect your lines at this time.