Maxlinear Inc (MXL) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the MaxLinear First Quarter 2010 Earnings Conference Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the conference will go over questions.

(Operator Instructions)

This conference is being recorded, Wednesday, May 5, 2010. I now hand the conference over to Suzanne Craig. Please go ahead, ma'am.

Thank you Operator. Good afternoon everyone and thank you for joining us on today's conference call to discuss MaxLinear's first quarter fiscal year 2010 financial results. Today's call is being hosted by Kishore Seendripu CEO, Joe Campa Vice President of Finance and Brendan Walsh Vice President of Business Development.

During the course of this conference call, we may make projections or other statements regarding future conditions or events relating to our products and business. Among other statements concerning future events or projections, we will provide information relating to our current expectations for second quarter 2010 revenue, our current views regarding trends in our markets including their size and potential for growth and our competitive position in our target markets. These statements are forward-looking statement within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and are subject to substantial risks and uncertainties that could adversely affect our future results.

Our business and future operating results could be adversely affected if our target markets do not grow for any reason as we currently anticipate. If we experience substantial competition including as a result of pricing pressure, as a result of (inaudible) in the semi conductor business or for other factors. A more detailed discussion of these factors and other factors you should consider in evaluating MaxLinear and its prospects are included under the risk factors in our filings with the Securities and Exchange Commission.

We caution you that such statements are projections. Accordingly, our future results may differ materially from such projections. These forward-looking statements are made as of today and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements. The first quarter of fiscal 2010 earnings release is available on the Company website at MaxLinear.com or you may call our office at 415-217-7722 and we will fax you a copy.

In addition, MaxLinear reports gross margin and net income and basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis. Our non-GAAP presentations exclude the effects of stock based compensation expense. In addition, our non-GAAP presentations also assume the conversion at all times during the reporting period of our previous outstanding preferred stock. All shares of preferred stock were converted into common stock immediately prior to the closing of the IPO. Management this believes that this non-GAAP information is useful because it can enhance the understanding of the Company's ongoing economic performance. And MaxLinear therefore uses non-GAAP reporting internally to evaluate and manage the Company's operations.

MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the Company analyzes its operating results. The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and available on our website. And we ask that you review it in conjunction with this call. And now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you Suzanne and good afternoon everyone. Thank you all for joining us today. We are pleased to report that during the first quarter of 2010 were a number of significant accomplishments including the completion of our initial public offering on the New York Stock Exchange on March 24, audit financial results, increased sales in the consumer cable and automotive market segments and strong customer traction with our new product offerings primarily RF receiver systems on chip solutions for digital terrestrial TV broadcast and cable set-top box market.

I will briefly recap the quarter one 2010 financial results, update you on the trends in our various business segments and touch up on the latest in our technology and product offerings. Joe will then review the quarter one financials in detail and provide guidance for the second quarter 2010. Afterwards, we'll be happy to take your questions.

Starting with the brief recap of financial results, first quarter revenue totaled $16.1 million, up 84% from a year ago. GAAP gross margins were 68% in the first quarter of 2010 compared to 65% in the first quarter of 2009. Non-GAAP gross margin was 68.1% versus 65.1% in the year ago quarter. GAAP net income was $1.3 million or $0.01 per diluted shares in quarter one 2010 as compared to $92,000 and $0.00 in the prior year. Non-GAAP net income was $2 million or $0.07 per diluted share versus $229,000 or $0.01 per diluted share in the year ago quarter.

Our GAAP EPS reflects the onetime non-cash impact of an allocation of earnings to our previously outstanding venture capital preferred stock. Our venture capital preferred stock was outstanding for most of the quarter and converted into common stock at the IPO. Joe will discuss the accounting impact of the preferred stock conversion on a GAAP EPS in his comments later.

Now for a brief review of our business. We are a fabless RF and mixed signal IT company that is pioneering RF receivers and RF receiver systems on chip solutions and standard CMOS process technology. Our RF analog and mixed signal IT solutions enabled the reception of broadband video and data in a wide range of electronic devices sold ultimately to end users in the consumer cable mobile and automotive end market.

The key drivers in our broadband video and data markets are the rapid mobile transition from analog to digital television broadcast that is transforming the way we experience TV. Second, the increasing demand for high-speed broadband wireless and wireline connectivity. And third, the proliferation of multimedia content and services which in turn is increasing the need for multiple broadband RF receivers in a single device. As a result, OEMs are requiring higher levels of integration, lower power and smaller size receiver solutions.

The broadband video and data markets we address are in the early stages of growth. Each of the end markets that we address have very different performance requirements. Mobile TV applications require extremely low power and very small form factors. Televisions with high quality displays require robust and high fidelity TV and data reception. Cable set-top boxes with multiple receivers to a single device require extremely low power for each receiver while receiving the desired signal in an interference rich environment over coaxial cable. Our core CMOS RF technology platform has allowed us to offer a comprehensive set of products spanning RF receivers to RF receivers SoCs or system on chip solutions. Our RF receiver associate products typically combine RF receiver and demodulator functions in a single CMOS [diode] resulting in very compact size, low power and superior levels of integration.

Now let me turn to a discussion of our end markets. We address four major end markets, cable mobile consumer and automotive. These markets are dynamic and are subsequent within these markets are constantly evolving depending on the timing of orders, sales and new product introduction. We therefore will not be providing a specific breakdown of our revenues by end markets as that will not be a meaningful metric for you to track on a quarter to quarter basis. In addition, we sell exclusively to distributers who sell to OEM and we do not always have specific visibility as to how or where our ICs are deployed even though we recognize our revenue on a sell through basis. Our ICs typically address multiple markets and it's difficult for us to accurately ascertain the end application by market segment.

That said, I will be discussing qualitatively how we address each of these markets and how we are seeing our business grow within each of these end markets. Today in the cable market, cable and MSOs are competing with TELCOs for subscriber growth by offering simple play and (inaudible) services supporting simultaneous reception of voice, video, data and IP using advanced digital networks under the DOCSIS 3.0 system.

Each of these services requires a dedicated RF receiver function which dramatically increases the total RF content in a single set-top box. Further, the multiplication of RF receivers in a single device imposes a severe constraint on power budgets and size while meeting the stringent performance requirements of broadband cable reception. Our new cable RF receiver SoC, the MxL24X series with its superior RF performance, extremely low power and high levels of integration is highly differentiated from other company disillusions adjusting this market. We have just started commercial shipments of this product to cable OEMs.

The consumer market for us today primarily consists of four categories of devices with broadcast digital TV reception capability. The first is a traditional TV display with both standard and high definition function. Second, the non-traditional TV devices such as netbooks, PCs and other portable devices. Third, set-top boxes used for high definition TV and video recording and digital to analog conversion. And fourth, IP TV set-top boxes that support free to air TV and cable reception to offload the bandwidth condition and to raise IP networks.

Our new broadband RF receiver SoC the MxL1X series TVs for digital terrestrial television end markets in Europe is now in commercial production. Our global digital terrestrial TV RF receiver MxL5007T recently received certification for DVB-T2 broadcast TV reception by the compliance testing body of the UK DVB-T2 is now being deployed in Europe starting with the UK and is the successor digital television transmission standard to the DVBT format available in Europe.

Today our mobile TV receiver products consist principally of our mobile TV RF receiver in the Japanese handset market. In December, we announced our mobile TV receiver SoC MxL750 and 751 product for Japan and South America which integrates a RF receiver and the demodulator in a single chip along with the necessary interfaces to support broadcast TV cellphones and other portable devices. This product is currently being sampled to modular handset makers in Japan and Korea.

In the automotive market, we have three secured end customers in the Japanese [tier one] automakers by first starting shipments to in cabin display applications sold in retail followed by sales for dealer option in autos and finally into cars as a factory built option.

With the support anticipated growth in our market, we're adding sales and support resources in our target geographic markets and working towards securing additional relationships with top tier OEMs to meet demand as the infrastructure develops and matures. We're also aggressively investing in our product load map and building our core strength in RF (inaudible) and IT and communication systems expertise.

Compared to the year ago quarter, we have increased our employee base from 115 to 170 paid. With a substantial majority of the growth attributable to core R and D functions. Currently amongst our 124 employees in R and D, there are 43 Ph.D., 59 Masters and 21 Bachelor's degree holders. On the IP front, we are continuing to develop a strong patent portfolio. In Q1 we received two additional granted patents in the US and Europe and also filed ten new US patents. This brings our total IP pool to three granted and 61 pending US patents and 7 granted and 34 pending foreign patents. With that, let me turn the call over to Joe Campa our VP of Finance for a review of the financials and our forward guidance.

Thank you Kishore. We are very pleased with the results of the first quarter of 2010. I'll review the results of the quarter and then briefly discuss our outlook. Revenue for the quarter was $16.1 million which represented 6% growth sequentially over the fourth quarter of 2009 and 84% growth year over year. We continued to diversify our customer base. We had two customers who each accounted for more than 10% of our revenue, revenue from our top five customers accounted for 54% of total sales in Q1 as compared to 55% in Q4 of 2009 and 86% in Q1 of last year.

In our press release, we reported both GAAP and non-GAAP results. Please refer to our press release of the detailed reconciliation between GAAP and non-GAAP results. First quarter non-GAAP results exclude $619,000 in stock based compensation expense. Now moving to the rest of the income statement. Non-GAAP gross margins for the first quarter were 68.1% compared to 70.2% in the fourth quarter 2009 and 65.1% in the year ago quarter. Non-GAAP operating expenses were $9 million which included $5.7 million of R and D expenses and $3.3 million of SG and A.

Our operating expenses increased 9% on a sequential basis primarily due to an increase in payroll related expenses. Our head count was 178 employees world-wide at the end of the first quarter compared to 169 at the end of the fourth quarter and 115 at the end of the first quarter last year.

Our non-GAAP R and D and SG and A spending reflected 36% and 20% of our revenue for the quarter respectively. Non-GAAP operating income was $2 million in Q1 compared to $2.4 million in the prior quarter and $0.2 million in Q1 of last year.

Non-GAAP net income was $2 million in Q1 as we were able to utilize our net operating losses or NOLs to offset our taxable income. Non-GAAP earnings per share were $0.07 on a proforma the fully diluted shares outstanding of $28.4 million. Let me briefly discuss the difference between the fully diluted non-GAAP earnings per share of $0.07 and the fully diluted earnings per share of $0.01. Stock based compensation expense of $619,000 accounted for $0.02 per fully diluted share of the difference. Remaining difference of $1.2 million or $0.04 per fully diluted share represents GAAP net income that was allocable to our venture capital preferred shareholders.

Allocable amount to the preferred shareholders was based on the portion of time during the first quarter that the preferred shares were outstanding, which is a period of 82 days out of a total of 90 days. This is in accordance with established guidance for GAAP accounting for earnings per share when there are outstanding preferred shares prior to the close of the IPO.

Due to the March 24th timing of our IPO, approximately 91% of GAAP net income in the quarter was misallocated to preferred shareholders. No dividends were actually paid and all of our preferred shareholders converted to common shares at the time of the IPO.

Moving to the balance sheet, our cash and short-term investments balance was approximately $95 million compared to $18 million in the prior quarter. The increase in cash and short-term investments was primarily attributable to our initial public offering, which closed on March 24 of this year. The IPO resulted in results net of commissions and other expenses of approximately $73 million. Our cash flow from operations for Q1 was $2 million. We have no debt. We have approximately $200,000 in capital lease obligations for lab equipment. We do not expect any additional lease financing going forward.

Accounts receivable total $8.1 million at the end of the quarter compared to $9.7 million in the previous quarter. The days sales outstanding for the first quarter was approximately 46 days. Inventory at the end of the quarter was $2.9 million compared to approximately the same figure in the previous quarter. Our inventory returns improved 7.2 in the first quarter compared to 6.3 in the prior quarter.

That leads me to our guidance. We expect revenue in the second quarter to be in the range of approximately $17 million to $17.5 million. We expect non-GAAP growth margins to be about the same as in Q1 at about 68%. We expect total operating expenses to increase at a rate slightly less than our revenue with R and D spending increasing at a higher rate than SG and A. Our longer term target financial model calls for a gross margin percentage in the 62% to 65% range, R and D spending in the range of 25% to 27% and SG and A in the range of 12% to 15%.

We are targeting operating margins in the 20 plus percent range. We expect to continue investing in R and D, to expand and improve our product portfolio and in our SG and A infrastructure to support increased revenues worldwide. However, we expect the rate of increase in operating expense will be at a lesser rate than our revenue growth as we continue progress towards our target financial model. In summary, we believe that our first quarter results reflect a positive financial and business momentum. With that, now to open the call to questions. Operator?

(Operator Instructions)

And our first question comes from Sanjay Devgan with Morgan Stanley. Please go ahead.

Hello guys. Congratulations on your first quarter under your belt as a public company and congratulations on the great results. Just a couple of questions. In the press release you talked about qualifying additional production capacity to diversify your supply chain. I was wondering if you could kind of just touch on that. What's driving that? And then I guess just further more if you could just talk about your ability to source product both from your foundries as well as your test and assembly suppliers given all the chatter we've heard from other semi companies talking about tightness in the supply chain. So it would be really helpful if you could comment on those.

Hi Sanjay, this is Kishore and Happy Cinqo Di Mayo here in California right now. With that, let me get started. As you -- it's a good question you ask and as far as MaxLinear is concerned we've got all the production capacity we need to meet a forecast revenue for the next quarter and as you project forward regarding our needs. We are fully diversified along our supply chain. At every point in the supply chain we have more than two, actually in most cases, three vendors of the assembly, test, packaging in the section. The only place we are single sourced today is at the foundry.

As you all know, we are sourcing for UMC Foundry. However within the UMC Foundry we are again diversified across two factories, one in Taiwan and one in Singapore. So -- and all our major high volume products run in both of the foundries, that's one of the advantages of our technology. As you know, it's a digital CMOS based process implementation of very complex radios. So we do not see any capacity constraints. That's number one.

Number two, why the diversification of the supply chain? You see we are looking beyond just this calendar year. We are looking forward to the Company and the growth we expect to maintain given the large markets we are playing. And this is one of the risk items that was identified as a part of the diligence process that we went through to the IPO. So we're just being proactive and going ahead of our needs and trying to build additional capacity. And that's still a good thing to do because as a company of our size as the peak seasons build up for many of the other companies who have production capacity, they will have a little bit of jostling and we intend to -- and make sure that we are never subject to any form of inventory depletion effects or others that result from foundries playing a little bit of favorites among suppliers.

That's really helpful. Thanks so much Kishore. Just another question. I guess as you look at your business, can you talk about qualitatively your sell in verse the sell through within the channel this quarter? Any kind of color you can provide there qualitatively would be helpful also.

Hi Sanjay this is Joe.

Hey Joe.

As you know during the road show we mentioned that during the last year in the fourth quarter we were playing a little bit of catch-up because our inventory levels at our distributers had been depleted through the ramp of some of the products we had particularly in the third quarter and the beginning of the fourth quarter. By the fourth quarter we pretty much had caught up and attained what we called -- what we think are appropriate levels. So we maintain that during the quarter which you'll see when we release the 10Q is our deferred net income levels -- first quarter versus the fourth quarter are relatively even. So we feel that we are at the appropriate levels, both inventories within MaxLinear and also at our (inaudible) .

Okay. Great. And then just lastly, the outlook for roughly 7% growth at the midpoint of your guide, can you just talk qualitatively about the end markets that are driving that across your four different markets? If you have to rank them which ones are driving the major growth and how we should think about that?

Yes Sanjay, this is Kishore. As we had pointed out earlier during the road show and as our statements for 2009 indicate to the latter part of the year, the substantial part of the growth is coming from consumer markets. For 2010, cable will be starting to establish itself through the latter part of the year this year. But currently the growth is coming from consumer and automotive markets and through the latter part of the year the cable markets. So on the mobile segment as you know we have a very strong position, the Japanese mobile TV handset market. The other countries that are beginning to evolve on the mobile side.

So we feel that those revenues -- additional revenues will generate towards the latter part of '11 and in '12 onwards. Mobile will establish as a huge growth driver longer-term for the Company. So currently the big growth is seen in consumer markets, automotive markets and cable markets towards the latter part of this year. And within the consumer markets, the bigger growth is coming from what they call the higher end markets with its digital television and the DVR, PVR, MPEG-4 type high definition set-top box markets.

Fantastic. Thank you so much and congratulations guys.

Thanks Sanjay.

Thanks Sanjay.

Thank you, our next question comes from Ross Seymore with Deutsche Bank. Please go ahead.

Hi guys, want to echo this, congratulations. Just looking at some of the cable stuff that you're talking about in the second half of the year that expected to be a driver. I think on the road show you said you had four out of the top five set-top box makers with design ones there. Can you give us an update on the progress there? How we should think about modeling that going forward at least from a qualitative point of view?

I recall on the road show that I was talking four or five in North America and Europe combined. Because clearly you also know there is a DVBT cable market -- pretty gigantic one in China that's developing as well. So in the North American market or the four of five, you look at the entire North American supplier base, it's a very small consolidated list of players. And with all of them we got good programs and engagement.

I think the way to model that without understanding your model, and I don't want to actually, is that all of our designs are with DOCSIS 3.0 systems, gateways or set-top boxes. And you know DOCSIS 3.0 will end up in 2010 maybe on a run rate basis about 30% of the market. And next year the penetration may be about 50% to 60%. And 2012 may be the full glory of DOCSIS 3.0 as we will see at our premises. So I think you want to model the penetration of DOCSIS 3.0 to cable and then at this point it is difficult for us to project how much share we would be having in any of this stuff as the game is evolving right now.

But we feel good, we are very strong position and you also know that our technology is -- cable is the best showcase of MaxLinear's extremely low power, highly integrated radio technology. Where power is a huge driving factor as what Comcast calls the P and E, power and environmental. Power dissipation, the manufacturing ease and environmental friendliness that comes with using our chips, when there are multiple receivers in a single box. So we feel pretty good but to sum it up, you would want to look at DOCSIS 3.0 penetration in the North American cable as a proxy for modeling MaxLinear's ability to grow its revenue.

Great, thanks. And then following up on the consumer side of the equation, I would assume you guys are relatively design driven rather than seasonal trends really driving your business. But how should we think about that consumer business as we look into the second half of the year? Just from a normal seasonal point of view given being in TVs, computer, et cetera given that they tend to be second half weighted.

So I think we expect to see lumpiness in revenues, primarily driven by odds disturbing the profile by new product launches. Because we're a product cycle company and I think you said that. But I think to the extreme about 50% to 65% of revenue is going to originate in consumers we should see seasonality and we expect to see it. However to predict how much percent of seasonality seems its difficult for us given the new product launches we have slated to go and the new skills we are introducing and the design cycles usually do not reach closure in a hurry until they hit the season. So I would say that to the extent that we lack seasonality, you would want to look at it from the percentage of our revenue that originates in consumer markets, about 60% to 65%.

Great, then the last question -- two quick housekeeping ones for Joe. The share account and tax rate going forward how should we think of those two?

On the tax rate, I'd model -- what we're expecting is about 4%. We have the NOL and then you do the AMT calculation, it comes to just a little bit under 4%. And what I'll share with you is an assumption on the fully diluted shares for the second quarter, if you assume the same stock price throughout the quarter -- the end of the quarter, that you had at the beginning of the quarter, we're expecting somewhere around 34.6 million shares.

On a totally diluted basis for Q2, perfect. Thank you.

Going forward the dilution somewhere between 1% to 2%.

Thank you.

(Operator Instructions)

And our next question comes from the line of Stephen Chin with UBS Securities. Please go ahead.

Great thank you and let me please also add my congratulations on the strong end result. Couple questions -- first of all in terms of metrics, can you share with us how many units you have shipped to date? I think in the past you mentioned unit numbers as roughly 50 million and 75 million on the way. Can you share with us how many units you've shipped so far?

So Stephen, hi, how are you? This is Kishore. So, I remember last year June we had a press release that said we had shipped 15 million units cumulatively as a company. Obviously though, based on the revenue growth rate we should be hitting a big milestone somewhere in the middle of this year. But I wouldn't want to have that guess because our revenue accretion is based on a sell through basis and we've been selling models by which we ship products so I would say to the latter part of the -- to this end of second to the third quarter some time, you should see a pretty big number pop up as a cumulative shipments from us. Hopefully we'll turn a digit there.

Okay. Great. On a qualitative basis, can you talk about your backlog levels? I know that you're talking about inventories being adequate currently in the (inaudible) channel and -- I just -- with respect to your ability to meet your revenue targets and whatnot and -- are inventory levels low currently and if so is there any plans to increase the inventory levels? Especially as you see more products enter production as the year progresses in consumer, auto and then cable during the year?

Regarding inventory levels, the inventory levels are a bunch of many things. Where one is different products and what life cycles they are, older generations with the newer generations. However, I would say that broadly speaking the inventory levels that cross our distributor driven revenues we take hold on their stock, about 40 to 60 days worth of it. So we feel pretty good about that based on the demand that we forecast. That we will be able to see -- so we feel very comfortable about that. Regarding --

Backlog.

Regarding the backlog, entering the quarter we typically are about in the range of two thirds booked. So you could say somewhere in 60% to 65% is where we have an end customer backlog we see in the channel. So that's generally higher than regular consumer business. Because of a diversified end market, we've got good visibility entering the quarter regarding the revenues.

Okay, great. Last question I had related to gross margins. Given that you are guiding for roughly flat risk margin in Q2 but a lot of the [repping] revenues that you're going to see is from the consumer markets. Can you help us better understand the type of trend to expect to see throughout the year as you see more business from the automotive and cable markets that are entering the mix that you are going for?

To be honest with you, we have not forecasted the trend per see given the ramp of this new product can slip easily in a few months because there are operators involved. So I think it's hard to model that. However, there are several factors that will drive our gross margins story. Firstly, we like the fact that it's flat. That means 68% are very respectable and strong gross margin profile.

And secondly, as we have told on the road show, there is a fluctuation based on product mix about typically about 2%. It seems looking back at the trends in the past and the percent base of revenues we derived from various sources. So I think 68% is flat but it is equally probable to see an upside and likewise the other direction if you look at 68% as a median for the range. But if you feel pretty comfortable about guiding you at 68% as a median for the range at 68%, that's number one.

Number two, I talked to you about an inability to really forecast gross margins trans-based on new product launches because the timing they are all driven by operative based businesses which is a good thing for MaxLinear. It will create a dependable, nice revenue charting and long sales cycles for the company. However, I can tell you one thing. Our revenues are going to change characteristically from fewer RF receivers to RF receivers on chip solutions. And as a result you should see some weightage coming due to lesser -- to more digit content being integrated to start seeing a slow trending. Very little this year and probably entering next year, very -- for the longer term model of 62% to 65% that we keep -- we emphasis that the corporate longer term market trend. You see a slow trending but nothing really sharp or anything. I think we feel good that the gross margin will hold flat at 68% as we see currently.

Okay. That's very good, thank you very much.

Thank you, our next question comes from the line of Quinn Bolton with Needham and Company. Please go ahead.

Great. Just wanted to follow up first on the gross margin question. The gross margins were down about 200 basis points quarter on quarter in Q1. Is that just really just a mix shift to the consumer business or is there pricing pressure that hit the business?

It's mostly due to product mix and a very tiny fraction that is due to trying to grab more market share in key market the we like. But that -- you should not see the reflect of that in the quarterly results that we have just guided you on. So --

Got you, great. Go ahead.

It is nothing out of the norm. If you look at that 2% fluctuation that I talked to you about. We feel fairly comfortable that there is no harm being done to that part of the income stream yet.

Great. And then you had mentioned the trend towards receiver SOC activity greater dollar content. Can you just give us a rough sense where you are today? I think you talked about the 241 in cable market being and SOC, you talked about I think an SOC for the consumer -- the high end consumer boxes, the MPEG-4 boxes. Where is SOC product today say a percentage total of revs and where might they hit by the end of the year? Just real rough figures.

Let me sort of guide you approximate ranges for the full year revenue. I'm not -- really don't have the detail at that level. But I will say that we would feel very -- on the right track as a company if our associate avenues on a run rate basis at the end of the year are about 20% of revenue. So I think considering the fact that most of the ramps are going to be slated most of the third and fourth quarter, that would be a pretty nice ramp. So I would say at this stage you would see a 20% wait on a run rate basis approximately on the ESPs and the gross margins from our [SOC] product.

Okay, great. And then just lastly you guys get the benefit of CMOS scaling given you a lot of the radio design in digital, can you just give us an update where you stand on the transition to 65 nanometer products? I think most of your production is still at 130 or 110 nanometers, so I would imagine you should get some pretty good benefits from this transition to 65. How does 65 nanometer products roll out over the next year?

With the -- all future developments are in advanced technology now and -- well at this stage we do not want to disclose what those products are and the size of those projects. 65 nanometer and beyond would be the preferred nodes for us because we would get all the benefits of scaling. And at this stage we are in a development phase and none of our products are in 65 nanometers. We will let you know if and when we have any production launched in the 65 nanometer node.

Great, thank you.

Thank you ladies and gentlemen. At this time we like to give participants a final opportunity to ask any additional questions.

(Operator Instructions)

Our next question comes from Nicole Conway with Thomas Weisel Partners. Please go ahead.

Hi, first of all could you just let me know what the CapEx was in the quarter?

Yes. CapEx is about $300,000. And we typically run about 1% to 2% per quarter. We're a fabless Company so our CapEx needs are relatively modest and typically they go towards lab equipment, that sort of thing.

Great, thanks. And then also could you just comment around the competitive front in the quarter if there has been any changes?

As far as the competitive landscape is concerned there -- it's been fairly recent in terms of where we are communicating beyond the S1 and nothing has changed in that landscape. The usual competitors are there be it Maxim, ADI, and those other ones we have declared in our document.

Okay, great, that's it. Thanks.

Thank you and I'm showing no audio questions at this time. I'll turn it back to management for any closing remarks.

Maybe we can take one more question if anybody has. Nobody has? Okay. So thank you everyone for attending the MaxLinear's first earnings call and -- to conclude we have had a strong quarter and we enter the current year with solid financials and steady progress towards the goals we have shared with you today. I want to thank you once again for giving us this opportunity and we hope to report progress on the second quarter in due course. Thank you very much.

Thank you sir. Ladies and gentlemen, this concludes the MaxLinear First Quarter 2010 Earnings Conference Call. You may access the replay system anytime by dialing 1800-406-7325 and entering the access code 4284805. We thank you for your participation and you may now disconnect.