Maxlinear Inc (MXL) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the MaxLinear' Q2 2010 earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

As a reminder, today's conference is being recorded, July 29, 2010. I would now like to turn the conference over to our host, Suzanne Craig with the Blueshirt Group Investor Relations. Please, go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's second quarter fiscal year 2010 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO, and Joe Campa, VP of Finance.

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 related to our current expectation for the third quarter of 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 statements within the meaning of Section 27-A of the Securities Act of 1933, and Section 21-E 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 cyclicality in the semiconductor business, or for other factors.

A more detailed discussion of these risk factors and other factors you should consider in evaluating MaxLinear and its prospects are included under the caption, Risk Factors, in our filings with the SEC. We caution you that such statements are just 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 second quarter of fiscal 2010 earnings press release is available on the Company website at maxlinear.com, or you may call our offices 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 effect of stock-based compensation expense. In addition, our non-GAAP presentations also assume the conversion at all times during the reporting period of our previously outstanding preferred stock.

All shares of preferred stock are converted into common stock immediately prior to the closing of the IPO. Management 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 press 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 second quarter of 2010, there were a number of significant accomplishments, including solid financial results in a record second quarter, increased sales in the consumer, cable and automotive market segments, and strong customer traction with our new product offerings, primarily cable RF receivers system on chip solutions for broadband cable set-top box market.

Starting with a brief recap of our second quarter 2010 financial results. Second-quarter revenue totaled $18.2 million, up 63% from a year ago quarter, up 13% over the first quarter of 2010. GAAP and non-GAAP gross margins were 70% in the second quarter of 2010, compared to 65% in the second quarter of 2009, and 68% in the first quarter of 2010.

GAAP net income was $1.8 million, or $0.05 per diluted share in the second quarter of 2010, as compared to $153,000.00 per share in the prior year and $1.3 million or $0.01 per diluted share in the first quarter of 2010. Non-GAAP net income was $2.9 million or approximately $0.08 per diluted share versus $288,000 or $0.01 per diluted share in the year ago quarter, and $0.07 per diluted share in the first quarter of 2010.

Now, for a brief review of our business. As you know, we are a pioneer of broadband standard CMOS technology-based RF and mixed signal integrated circuits that enable the reception of broadband video and data in a wide range of electronic devices. These are sold ultimately to end-users in the consumer, cable, mobile, and automotive end markets.

Our core CMOS RF technology platform has allowed us to offer a comprehensive set of products, spanning RF receivers to RF receiver system on-chip solutions or SoCs. Our RF receiver SoC products typically combine RF receiver and demodulator functions in a single CMOS die, resulting in a very compact size, extremely low power consumption, and superior levels of integration.

As we recently announced, we have achieved a significant milestone in June this year. As of June this year, we had cumulatively shipped 100 million TV RF receiver ICs. This achievement comes just 12 months after the Company announced that it had surpassed shipments of 50 million TV RF receiver ICs in June 2009. We have doubled our shipments in less than a year, which validates the rapidly growing demand for and the benefits of our products to our customers.

Now, turning to our end markets, there are three key drivers in our broadband video and data markets; rapid worldwide 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 consumer device.

A good example of this multiple receiver demand driver is in a cable set top box or in a cable media gateway. The simultaneous reception of voice, video, data, and IP using advanced DOCSIS 3.0 protocol requires multiple RF receivers and receiver system on chip solutions or SoCs, where each receiver is dedicated to a single function. This imposes severe power budget and price constraints for each receiver, while meeting the stringent RF performance requirements of broadband cable reception.

Our new cable RF receiver system on-chip family, namely the MXL 241 and 242 products, with its superior RF performance, extremely low power and high levels of integration, is gaining steady customer traction in the cable market, which is one of the key end markets that we are addressing today. We are currently in the ramp phase of our commercial shipments of this product to talk to your cable OEM and sending IPTV set-top boxes in the US and Europe.

As you may have seen today, we are very pleased to have announced a key design win with ARRIS in North America. ARRIS, a major set-top box player in North America, has selected MaxLinear's MXL 241 cable RF receivers system on chip for a series of DOCSIS 3.0 gateway products. Our RF receivers for the cable market in China, namely our 201, 202, and 203 RF product family are currently designed into and shipping to two major cable modem manufacturers.

The cable market represents a significant revenue growth driver for us in the midterm. So far, we are tracking with the rollout expectations of our cable products by top-tier cable OEMs supplying to major cable operators that are deploying DOCSIS 3.0 customer premise equipment or CPE.

We have also received our initial customer orders for a digital to analog conversion set-top box application that is slated for a major cable US operator, which is in the midst of an ongoing conversion of its cable infrastructure from an analog network to an all-digital network.

Turning to the consumer market, our RF receivers for the digital television market, primarily for the ISDBT broadcast TV standard in Japan and South America, continued to increase in shipment volumes. We believe that this increased demand for our RF receivers is mainly attributable to the ultra-low power consumption, while meeting the stringent RF performance requirements of digital terrestrial TV reception.

We have also started shipments to manufacturers of digital to analog conversion set-top box products for ISDBT broadcast standard markets in Brazil and Japan. And in the PC TV space, we have secured a new design win at a major US PC OEM for receiving ATSC mobile handheld broadcast television laptops, which have since been approved by the FCC.

In addition, we are making solid progress towards customer design wins at major TV OEMs of our RF receiver products MXL 301, 302 RF for hybrid analog and digital television reception applications. And we have recently secured our first direct on board hybrid TV design, and expect shipments to commence by early 2011. We continue to expect the TV segment to be a major long-term growth driver for the Company.

As you know, currently revenue from our mobile TV segment consists primarily of our mobile TV order receiver shipments for the ISDBT-1 segment broadcast mobile TV standard for the Japanese handset market.

Our new mobile TV receiver SoC, the MXL 750 and 751 products, which integrate the RF receiver and demodulator on a single chip, has secured the first direct on board RF receiver associate design win at a major Japanese handset maker. This win highlights the ease with which our solutions can be integrated, even by OEM customers, who have traditionally relied on module-based solutions.

However, as I mentioned before, we do not expect continued revenue growth in this segment in the near to midterm, primarily due to market growth constraints resulting from uncertainties in worldwide deployment of broadcast mobile TV. Consistent with our expectations last quarter, we believe mobile revenues in the short to midterm represents a small and decreasing percentage of our overall revenue.

In the automotive market, due in part to the increased attach rate of navigation systems with high quality displays, we continue to make good progress and have increased shipments of our RF receiver products for the in-cabin television display applications sold in retail and as a dealer option in autos, in addition to our existing shipments into cars as a factory-built option.

We expect near term growth in this market to be largely dependent on the attach rate of digital television in automotive displays, primarily in retail and as a dealer option. To support anticipated growth in our markets, we are adding sales and support resources in our target geographic markets, and recently established a technical support office in Tokyo, Japan.

At all our market segments, we are aggressively investing in R&D for our next-generation products. These are primarily system on chip products, which combine multiple broadband RF receivers in a single silicon die, with increasing complexity and superior performance, implemented in advanced 65 nm CMOS process technology.

Our new developments represent the fourth and latest generation of MaxLinear's core CMOS broadband RF mix-signal IC, and communication systems technology platform. Our fourth generation products will once again be at the forefront of broadband RF receiver technology, with extremely low power consumption, very high levels of integration, and compact die size, resulting in significant cost savings and performance advantages for our customers.

To facilitate our aggressive R&D initiatives, we have increased our employee base to 202 in the second quarter from 178 in the first quarter, a 75% increase which is attributable to core engineering functions. Overall, we feel positive about the demand for our products, especially driven by the growing market trend of multiple broadband RF receivers and SoCs in a single device enhancing multimedia services, and the demanding requirements of extremely low power and high levels of integration in such applications. We continue to expand and diversify our revenues as well.

In the second quarter of 2010, we increased our number of served customers by over 15%. At the same time, with the ramp to production and shipment start of our cable SoC products in the US and Europe, we have added important geographies to both our end market regions and applications.

Now, let me turn the call over to Joe Campa, our Principal Financial Officer, for a review of the financials and our forward guidance.

Thank you, Kishore. We are very pleased with the results for the second quarter of 2010. I will first review our results, and then briefly discuss our outlook. Revenue for the second quarter was $18.2 million, which represented 13% growth sequentially from the prior quarter, and 63% growth year-over-year. We had only two customers, who each accounted for more than 10% of our revenue, as compared to the same number in the first quarter, and four customers with more than 10% revenue in the second quarter of last year.

In our press release, we have reported both GAAP and non-GAAP results. Please refer to our press release for the detailed reconciliation between GAAP and non-GAAP results. The second quarter non-GAAP results exclude $1.1 million in stock-based compensation expense.

I am moving for the rest of the income statement. Non-GAAP gross margins for the second quarter were 70%, compared to 68% in the first quarter and 65% in the year ago quarter. For the second quarter, we guided 68%, with a 2% plus or minus differential, depending on mix and other factors.

Our actual second-quarter results came into the top band of this range, primarily due to product mix. Non-GAAP operating expenses were $10 million, which included $6.2 million of R&D expenses and $3.8 million of SG&A. Our operating expenses increased 11% on a sequential basis, primarily due to an increase in headcount related expenses and higher distributor commissions, resulting from higher revenues.

As Kishore mentioned earlier, our headcount at quarter end was 202 employees worldwide, compared to 178 at the end of the first quarter, and 121 at the end of second quarter of last year. Our non-GAAP R&D and SG&A spending reflected 34% and 21% of our revenue for the quarter respectively.

Non-GAAP operating income was $2.7 million in the second quarter, compared to $2 million in the prior quarter and $300,000 in the second quarter of last year. Non-GAAP net income was $2.9 million in the second quarter, and we were able to utilize our net operating losses or NOLs to offset taxable income.

Non-GAAP earnings per share in the second quarter were $0.08 on a pro forma fully diluted shares outstanding of $34.5 million. The difference between the fully diluted non-GAAP earnings per share of $0.08 and the fully diluted GAAP earnings per share of $0.05 were due to stock-based compensation expense of $1.1 million in the quarter.

Moving to the balance sheet, our cash and short-term investments balance was approximately $92 million, compared to $94.5 million from the prior quarter. The decrease in cash and short-term investments was due primarily to a timing effect related to shipments to our distributors.

In the second quarter -- customer shipments grew at a faster rate than the replenishment of our distributor inventory levels. We are currently bringing our distributor inventory levels in line with target levels. Our cash outflow from operations in the second quarter was $1.4 million.

Accounts receivable totaled $8.3 million at the end of the quarter, compared to $8.1 million in the previous quarter. Day sales outstanding for the second quarter was approximately 42 days as compared to 48 days in the previous quarter. Inventory at the end of the quarter was $4.2 million, compared to $2.9 million in the previous quarter.

Inventory turns were 5.2 in the second quarter, compared to 7.2 in the prior quarter. Our own inventory levels, consisting primarily of work in process, increased primarily due to the production ramp of our new SoC products.

That leads me to our guidance. We expect revenue in the third quarter of 2010 to be up about 10% over the second quarter in the range of approximately $20 million to $20.5 million. We expect non-GAAP gross margins to be in the range of our first quarter margins at approximately 67% to 68%.

We expect total operating expenses to increase at a rate slightly less than our revenue, with R&D spending increasing at a higher rate than SG&A. We expect to continue investing in R&D to expand and improve our product portfolio, and in our SG&A infrastructure, to support increased revenues worldwide. However, we expect the rate of increase in operating expense to be at a lesser rate than our revenue growth, as we expect continued progress towards our target financial model.

In summary, we believe that our second-quarter results reflect a positive financial business momentum.

With that, I would like to now open the call to questions. Operator?

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session.

(Operator Instructions)

And our first question comes from the line of Ross Seymour with Deutsche Bank. Please, go ahead.

Hi, guys. Congrats on the strong results. Just a question about -- first, looking forward in your revenue guidance, is the mix of that guidance going to change much between your four main segments versus what you saw in the second quarter?

Hello, Ross. This is Kishore. How are you? Yes, the mix is not going to change substantially yet, but the cable product ramp has started, we will start seeing cable to start asserting itself in the higher single-digit numbers as a percentage and then go into the mid to high teens towards the end of the year. So, the composition -- you are going to see some shifts happening, but that is just the beginning of the shift as I just described.

And then I guess it is a mix shift isn't really going to change the gross margin guidance -- admittedly still very impressive, but what would be the reason why versus the second quarter, that it would actually drop sequentially?

So, the second-quarter was a high, because the fluctuation worked in our favor in terms of product mix due to some beneficial effects.

However, the reason we are guiding gross margin more towards the median that we picked in the first quarter is because we are in the beginning of the ramp of both our SoC products. And once that production stabilizes and the yields stabilize, we should be able to get a better sense of the -- where the actual margins will land.

But, I want to get back to one more important point. Even though our gross margins are strong compared to our peers, we want to re-emphasize what MaxLinear is about. We have talked about how we are transitioning as a company from pure RF receiver products to more higher-valued ASPs and greater share of footprint of our customer socket.

So as we embark on this journey of more SoC proportion to our product mix, and as that product mix increases in SoC, even though the segments may be the same, we should see a gradual trending of decrease in gross margins towards the longer-term model, that in the longer-term would be around 62% to 65%.

So, I think this is all in the normal course of things, and we would always take good news when the fluctuation works in our favor. At this stage, we aim to please everyone, and we will stick to our cautious 67% to 68% gross margin.

Great. And then my last question, as far as the distributor side of things, Joe, you gave a little bit of color on that, with the cash and accounts receivable sides of things. Was the read through there that your dollars of inventory actually dropped in the distribution channel in the quarter?

Yes.

If so -- so you are planning to rebuild some of that into the back half of this year?

Again, it is mostly timing, and also the effect of the SoCs. As you know, you know, we are no different than other semiconductor companies with new products, that we're introducing, generally, and you will run a little bit less in your long-term target inventory.

So we are doing that with our SoCs, as well as another product that we are introducing very shortly. But again, mostly just timing, and we will catch up -- so, we are in the process of reaching our target inventory levels very shortly.

And was there any issues with actually meeting demand in the quarter, given that inventory came down, or was that inventory coming down enough to keep your end customers happy?

Ross, no issues whatsoever.

Perfect. Congrats, again. Thank you.

Thank you very much, Ross.

Thank you. Our next question comes from the line of Sanjay Devgan with Morgan Stanley. Please go ahead.an excellent process of reaching our

Hey, guys. Thanks so much for taking my call, and congrats again on the great quarter. Just a couple of questions. I guess, one, as it kind of pertains to the ARRIS announcements that you guys put out today, can you give us a sense -- ?

I guess two questions, one is, can you kind tell us, you know, your best guess on the terms of the DOCSIS 2.0 to 3.0 conversion kind of in North America, where do you think we are? And can you remind us again what your kind of percentage wins are, roughly speaking, in terms of the 2.0 space versus the 3.0

Hey, Sanjay, how are you?

Good, thanks.

You know, the ARRIS press release today was especially satisfying for me, because for the longest time, we have been trying to validate our cable ramp, and now that it is happening, we are happy to share information with you.

First of all, that release highlights three important points about MaxLinear. Our technology in the products and broad-base technology is ideally suited for multiple receivers being received simultaneously with extremely low power. You will see in that announcement that for [voice] applications that reduce the numbers of batteries they used to have in their previous boxes by a factor of two.

Second, the power levels are really, really low. And thirdly, in order to receive all these channels, you need to have interference-free reception in all these multiple channels, and we do that very, very well. So -- and therefore, in all these options, 3.0 platform gateways we feel very, very comfortable that we are very well positioned in a series of sequence of design.

So to answer your question regarding where the rollout of DOCSIS 3.0 in North America are, as I have stated before in the quarter one press call, we are primarily and in fact, I would say almost entirely in DOCSIS 3.0 designs in North America, the exceptions, I will follow up later.

The DOCSIS 3.0 point rollout on a run rate basis at the end of this year, should expect to see about 30% in North America and Europe combined. Then the following year, you should see the range of about 50% on a run rate basis, exiting 2011. And in 2012, DOCSIS 3.0 would reach its full glory and that could depend somewhere -- it is anybody's guess, 80%, 70%, 90%.

We work with a number of backend players, and the market is quite consolidated, it is operator-driven. And in these particular rollouts of DOCSIS 3.0, we are designed in with two of the three backend players. And we feel that if we reach something in the 25% to 35% range of shipments by the end of next year, we would have done a good job of executing.

Having said that, like I told in the end of Q1 call, that we would be very pleased where, if our cable shipments were to reach anywhere between 15% to 25% range on a run rate basis exiting the year. So, everything seems on track, crossed fingers, there is always a risk that the operator has gone for Christmas holidays sometime, but barring that, we should do good.

Great, fantastic. That is all I had. Thank you, guys.

And I just want to catch up on the DOCSIS 2.0, DOCSIS 3.0. We do have DOCSIS 2.0 designs. We got a major design win with the converter set-top box for cable, which is not the same as the retail market sale.

These go through a very big major cable operator in North America, and we just received initial customer POs. So we feel that the long term five to six year shipment rollout with the cable guys. So, that all this should add additional revenue in the cable market for us.

Great. Thank you so much.

Our next question comes from the line of Quinn Bolton with Needham & Company. Please, go ahead.

Hi, Kishore. Hi, Joe. Hey, I just wanted to follow up on that last question. You said, cable -- you are hopeful that cable hits 15% to 25% of sales. Is that exiting this year or is that exiting 2011?

In 2010, on a run rate basis, exiting the quarter is about -- let's pick a median of those two points you have chosen. If you 20% of the revenues on cable on a run rate basis at the end of this year, we know that we are on track for our 2011 expectations for cable as well. So, the number I had given you was on a run rate basis exiting this year, primarily quarter four.

Right. So effectively hitting hopefully 20% plus or minus 5% in the fourth quarter, not certainly for the full year.

Sure.

Great. Second question, just -- obviously the cable ramp, I think a lot of that is SoC product. But I think on the last quarter conference call, you talked about trying to get your mix of SoC up to about that same level of 20%. Is that still a good target or do you think that that is actually accelerating now? It sounds like the cable ramp, you know, looks like it is starting a pretty healthy ramp here.

You know, we hope to meet the numbers. We have set expectations for ourselves and exceeding that would be the goal, of course. So, I would cross my fingers, because cable seems to be in a good ramp, and if you add the DVB-T SoC product to that, we hope to acquit well on that topic.

Okay. Speaking of DVB-T, it looks like at least at the low end DTA segment of that market, I think, two of the partners in Taiwan, both ALI and NovaTech here recently made comments about your service slowdown in their European set-top box markets.

Can you just give us a sense of what you are seeing from customers in that European DVB-T, DTA or higher end premium boxes with PVR capabilities?

So Quinn, obviously the European end markets have been a little bit schizophrenic, and fortunately for us, we have been on this diversification path with our SoCs to higher-end DOCSIS 2.0, MPEG-4, and PVR type boxes with products. So that is all new revenue for us, and that is on the growth.

So, even though we saw a softening on the retail DTA with standard definition, but we are seeing growth in the higher-end boxes. So, we have not felt that impact in a way we would have felt had we not embarked the higher end higher value products that we embarked on in the last nine months.

Great. And then lastly for Joe, you talked about inventory getting worked down at your (inaudible) in the second quarter in Europe in the process of bringing that back up to targeted levels in Q3. Can you just remind us and what your revenue recognition policy is? I think you are sort of on a sell-out basis, I just wanted to confirm that.

Hi. It is on a sell-through basis.

Great. Okay, so it really changes -- it's really the pullout of customers is what we should be tracking.

Right.

Great. Thank you.

Our next question comes from the line of Tore Svanberg with Stifel Nicolaus. Please go ahead.

Hi, this is Eric calling in for Tore. I just had a couple of questions getting back to some of the press releases you had announced, both in the cable side with Netgem and then today's announcement. Could you just give a little more color on those opportunities, maybe in terms of volumes that you expect to achieve? And, is this part of some of the current strength that you are seeing and expecting going forward for the remainder of the year?

So, obviously, for both customer confidentiality as we mentioned and the uncertainty in the operator rollout, we don't share volume expectation. However, I think, I guess related to you guys on the DOCSIS 3.0 rollout for the market so -- and given our design wins with two of the backend players, and how at the end next year at 30% share of that market, you will be very pleased with the outcomes.

So regarding the two press releases, on the Netgem IPTV case, it is another case exactly that plays absolutely to MaxLinear's unique technology platform, where we receive multiple channels at the same time with extremely low power, given the stringent Energy Star and such other energy compliance requirements that are all over the world and enforcing very strongly.

In the Netgem case -- in the Netgem IPTV set top case, it is basically a platform that has got multiple receivers, both for terrestrial and cable to support both PVR and IP reception conditions, for two large Austrian operators. So that is the Netgem IPTV set-top box.

And the other box is the ARRIS box, it is actually an IP gateway, where it actually receives eight channels, four bonded channels and then four independent channels, so that you have versatility, in which channels you receive and what function.

In addition, it has got a bypass mode where you can go into a stealth low power voice reception mode, so that you have lifeline telephony supports with extremely low powered battery backup, wherein we save our customers two full battery cells on the box, which is a huge bond savings.

So, I couldn't think of a better example where we showcase our technology, and the same capabilities now translate to media gateways with 12 channels, eight-channel receptions, and so on. There are higher-order SKUs beyond that. And -- and as and when those things rollout and our customers are willing to be participating in sharing the good news, we will be able to share that with you as well.

Great. Thank you. That is helpful. Staying with the cable theme here, I thought you talk -- is that business trying to ramp up a little bit ahead of what you initially expected? Because I thought maybe you -- going into the first half, it was to be small volumes, or at least a small opportunity, but starting to ramp towards the second half. But do you think -- has that been pulled in a little bit quicker than you had expected, just trying to get a sense of that?

We are pretty much on track, because you know, you really cannot talk about acceleration in the ramp in terms of resolutions of two weeks -- that doesn't happen, at least in our end markets. So, I would say it is on track.

Okay. And then just finally, following up again on gross margins, it seems like it is going to be at an elevated level. At what point do expect that to be trending down towards the target model of 62% to 65%, is that a few quarters out, or is it hard to say at this point?

You know, obviously, we cannot predict precisely. However, if you look at the analyst reports, there is a [natural] assumption of our SoC ramps and the weighted average of basing the volume average of the SoCs with the RF receiver. So, as our SoC possibilities increase, you should see a natural gravity that is the weight of the two factors.

Our long term model, we talk about is it will start beginning to assert itself -- I want to clarify that this is based on our organic growth; sometime in the end of 2011 beginning and probably the middle of 2012 is when it will start asserting itself fully. So until that time, you will see the elevated gross margins.

However, if the SoC ramps really go on a (inaudible), then we will focus on delivering an operating margin and not so much be only gross margin focused -- that is one, because the revenues would really, accordingly also ramp even faster.

But one thing I want to really bring back the theme here is that we are participating in large markets, extremely large markets, huge TAMs, and look at RF receivers, RF demodulators, wall units and revenues associated with it according to IMS Research, about 2011 is about $2.5 billion. Our current revenues and projected revenues are only fraction of those big TAMs.

So therefore, we will attract big competitors out there and we have got some unique technology. However, we mean to use our excellent cost structure on our products, and high differentiation and pricing at the leverage to be able to compete. So, we do not want to set expectations that would deprive us of our competitive weapons at this stage.

Okay, that is helpful. Finally, one other question you had mentioned in the prepared remarks. You had your first digital TV design win. Can you just elaborate a little bit more on that?

So I think -- I want to clarify that. We have been shipping in Tier-I digital television players in digital televisions for a long time now. In fact, we may have shipped more silicon RF receivers in televisions -- albeit for high definition, large screen digital televisions, more than anybody else for silicon out there.

So what I was talking about is the design win for a direct onboard solution for hybrid applications, meaning both analog television and digital television reception, and which we feel will ship in the early part of 2011 and --or during that period.

So, we have been shipping digital televisions for a while now. It is the entre into the hybrid market which we believe will start transition to silicon usage towards the end of 2011 and really 2012 being the full year for RF-only silicon in TV applications.

Okay. Thank you for the clarification. That is all I have. Thanks so much.

Thank you.

(Operator Instructions)

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

Thanks for taking my question. First question is on the revenue upside in Q2. Kishore, could you just talk a little bit more about which end markets (inaudible) came from relative to your original revenue guidance? And also, if this was from just -- from the expected ramps in existing programs or it was (inaudible) new products that were ramping in the quarter?

So, the growth came in multiple segments. We had growth in, like I said, in consumer primarily in digital televisions that when we shipped even more volumes than we were expecting. We had some good growth in automotive in the dealer and the retail options. And then, we also saw the beginning of the ramp in the cable markets. So, the three combined added to the revenue upside in the second quarter for us.

Okay. And I guess, related to the (inaudible) demand and relative to the growth in inventories, I understand that most of the inventory growth was from the (inaudible) products that will be ramping later this year. Were you able to grow your inventories a little bit, just to a more comfortable level, or did you have to drawdown you inventories a bit more on an apples-to-apples basis to get some of the upside in demand?

Steve, actually, we now look at this from a total channel perspective. So if you look at (inaudible) inventory and actually was fairly steady. Just kind of within the two, we saw some drawdown of our (inaudible) inventory buffer, again, it was just a buffer that we normally carry for the normal fluctuations in any given inter-quarter period.

So I think, generally speaking, I am comfortable saying that we are comfortable with our inventory again, broadly speaking, our (inaudible) our [dis-inventory] through the second quarter and into this quarter.

Okay.

It is something that we monitor very carefully.

Okay, thanks for that clarification. Last question, is in regards to some of the headcount you are adding in Japan, especially with the new tech support office in that region. Is that to support existing wins that you accrued recently, or is that in anticipation of new business opportunities in both the automotive and the cable side of the business?

Hi, Steve. This is Kishore. It is a normal course of business as the revenues expand and we are entering a new market segments and expanding our reach. We have expanded our presence there for a number of reasons.

One is -- technical support being one of them, the other one is to expand a roadmap of opportunities and look at longer-term horizons and improve -- and increase our business development presence with the end customers. So that is why we have expanded our presence in our support office in Tokyo, Japan.

Okay. Actually, sorry. One last thing. In terms of your Japan region, I know that digital TV OEMs have been a big driver of your RF receiver, (inaudible) were previously, but in terms of the new hybrid digital analog tuner, how is the evaluation of the new product going so far with some of the traditional customers that you have been looking to sample your product for a while now? I guess, how is that valuation process going and what are the prospects for wins and I guess revenue ramp going into next year?

We have always maintained that the true revenue ramp for silicon RF receivers actually the full year of 2012. There are various number of smaller and midterm designs that are opening up that are being evaluated, and they will probably start getting some revenue towards the end -- towards the later part of 2011.

But I want us to back in and talk about two driving forces in the hybrid TV market. The first one is the transition from can tuners to silicon inside the can, and the second big driver is actually what is happening in the silicon back at the SoCs and not in the RF receivers.

You have new generation of SoC chips that have integrated or beginning to integrate analog demodulators, PVD modeled into the backend chip. As the option of these backend SoCs that happens at a stronger clip, then the RF receivers interfacing with the backend SoCs will become the stronger trend.

So these two trends, in conversions will decide when the revenue ramps for our products will happen, because as you know, in the hybrid market, we are competing for sockets where RF receivers is the primary need for the end markets, and not discrete RF receivers and analog demodulators.

However, in the transitional period, you will see some combination of designs which are RF receivers with discrete analog demodulators or maybe even some small designs where TV manufacturers may experiment with direct onboard solutions to validate the future viability of our RF receivers on board directly.

Okay, great. Thanks for that clarification. Congratulations again on the solid results.

Thank you.

Our next question is a follow-up question from the line of Quinn Bolton with Needham & Company. Please go ahead.

Hey, Kishore, I just wanted to ask if you could make any comments about the China cable market and are there any other opportunities you are seeing in the emerging markets such as India for the receivers?

Hey, Quinn, very good question. With this sort of positive energy, we are not (inaudible) forget China and China is the second biggest cable market. However, it has not adopted 3.0 market, it is primarily a television reception market. Basically, it is a glorified digital to analog converter set-top box.

But recently, the Chinese government has allowed the cable operators to start supporting two-way interactive boxes, meaning that cable modems and such services. So we got two big designs with two major manufacturers of cable modems for DOCSIS 2.0 in China, which I have just talked in my read-up for the analyst call today, and those are very, very encouraging. If that trend continues across a couple of other big players who are the big players in the market, we should expect to see revenue upside.

On the other hand, you also have these regular video reception, digital to analog converter boxes, which is the primary set-top boxes in China, about 30 million units of those, and those have currently been using can tuners and they transition to silicon as well as onboard or inside can, we should see our cable target market to be quite expanded beyond the North American market and the European market.

Great, thank you.

Thank you. And I show no further questions in the queue. At this time, I would like to turn the conference back to management for closing remarks.

Thank you, operator. As a reminder, we will be participating in the Morgan Stanley Semi and Semi-Cap Equipment one-on-one conference Chicago in August, and the Deutsche Bank Tech Conference in San Francisco in September.

So, before I close out, I want to conclude with the statement that we had a very robust, strong quarter and on all fronts, and we are entering the second half of this year with solid financials and steady progress towards the goals we have set out for us that we have shared with you earlier.

And the strong emerging theme of multiple receivers to enhance multimedia services is a trend that is ideally suited for the technology capabilities we bring to this place, with superior RF performance, high levels of integration, and multiple receiver integration in a single-chip.

So with that, thank you all for joining us today, and we look forward to reporting on our progress to you in the next quarter. Thank you very much.

Ladies and gentlemen, this concludes the MaxLinear Q2 2010 Earnings Conference Call. If you would like to listen to a replay of the same conference, please dial 1-800-406-7326 or 1-303-590-3030 and enter the access code of 4328761 followed by the pound. Thank you for your participation. You may now disconnect.