Maxlinear Inc (MXL) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the MaxLinear Fourth Quarter 2010 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions)

This conference is being recorded today, Thursday, Feb 3, 2011. I would now like to turn the conference over to Ms. Danielle Ginach of The Blueshirt Group. Please go ahead, madam.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's fourth quarter 2010 financial results. Today's call is being hosted by, Dr. Kishore Seendripu, CEO; Adam Spice, CFO; and Brendan Walsh, VP 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 first quarter 2011 revenues, our current views regarding trends in our market, 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 risk 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 or as a result of cyclicality in the semiconductor business, and for other factors.

A more detailed discussion of these risk factors and other factors you should consider in evaluating MaxLinear and its prospects is included under the caption Risk Factors in our filings with the Securities and Exchange Commission. 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 fourth quarter 2010 earnings 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 profit 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, a one-time adjustment in Q3 associated with an error related to the tax treatment of deferred revenues for 2009 and 2008, and the benefit in Q4 from the release of the valuation allowance related to a federal deferred tax asset.

In addition, our non-GAAP presentations also assume the conversion at all times during their reporting period of our previously outstanding preferred stock. All shares of preferred stock were 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 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 this call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Danielle, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the specifics, I would like to highlight that 2010 was a tremendously successful year for MaxLinear. One where revenues grew 34% year-over-year, while actually increasing gross margins by almost two percentage points to 69%.

Not only did we grow in our existing markets, but we aggressively expanded our TAM by commencing volume shipments into the cable market with industry leading systems-on-chip solution. We made significant investments in other areas yet to be announced that will expand our TAM even further.

All of this was accomplished in conjunction with executing a successful initial public offering that provided us with significant inflow of capital and enhanced our credibility with our customers worldwide.

Now to the specifics; net revenue in the fourth quarter was $15.9 million, which was the high-end of our prior guidance and up 4% from a year-ago quarter and down 14% over the third quarter of 2010.

As mentioned earlier, for the full year, net revenue increased 34%. GAAP and non-GAAP gross profits in the fourth quarter were 66% of revenue, again consistent with our prior guidance. For the full year, GAAP and non-GAAP gross profit was 69% of revenue, which is an improvement of almost 200 basis points over the prior year and significantly at our long-term model of 62% to 65%.

For the fourth quarter, non-GAAP income from operations was 1% of revenue, with a GAAP loss from operations of negative 7% of revenue, with the difference due primarily to stock-based compensation charges. For the full-year, non-GAAP income from operations was 11% of revenue and GAAP income from operations was 5% of revenue.

Non-GAAP net income for the fourth quarter was $0.2 million or $0.01 per diluted share. GAAP net income was $5.7 million or $0.17 per diluted share, and includes a one-time tax benefit related to the release of a valuation allowance on our federal deferred tax assets.

The GAAP net income of $5.7 million would have been a net loss of $1 million or negative $0.03 per diluted share were if not for this one-time tax benefit in the quarter. For the fiscal 2010, non-GAAP net income was $7.9 million or $0.24 per diluted share and GAAP net income, attributable to common stockholders, was $8.9 million or $0.30 per diluted share.

The GAAP net income is attributable to common stockholders because the benefit of the release of the valuation allowance related to federal tax deferred tax assets would have been $2.2 million or $0.08 per diluted share, compared to $0.06 per diluted share for the prior fiscal year.

I would like to now first speak of the trends that we are seeing in the marketplace. As you may recall, late in the third quarter, we saw the impact of current semiconductor market uncertainties in the form of purchase order reduction and/or rescheduling of delivery dates for previously booked shipments by customers.

We believed that our customers' decisions were related to macroeconomic uncertainties in a consumer market and more conservative inventory management by OEMs and not a result of competitive impact to design to both existing and new customer platforms. As the fourth quarter played out, our prior assumptions were proven to be largely accurate.

The slowdown in late third quarter, which continued into Q4, was largely confined to three of our primary end market segments; Japanese digital television receivers for televisions and automotive displays, European set-top boxes, and advanced cable gateways in North America.

In the Japanese digital television receiver segment, a seasonality and the anticipated year-end reduction of low-energy friendly governmental incentives for electronics drove our customers to hold off ordering new products as they worked through their existing inventory.

In the European digital set-top box market, we believe that the weakness was primarily due to recent macroeconomic uncertainties, rather than any socket losses attributable to competition.

In the advanced DOCSIS 3.0 digital cable gateway segment, we continue to experience a slower product trend by the cable MSOs than we had anticipated earlier in the year. However, we are seeing positive signs that this platform is gaining momentum. We're increasingly confident in our prospects in the cable segment given our market leading offering. As Adam will discuss later, we expected the demand we saw -- softening in Q4 is now stabilizing in Q1.

We continue to see strong customer traction with existing sockets under [our] consistently securing new design wins. We currently expect growth resuming 2011 as we enter new product cycle consisting of our RF receivers, systems-on-chip products for North American and European cable markets.

Further, as our customers' inventory levels of our digital terrestrial TV and set-top box products are depleted, we expect a robust new product replenishment cycle.

In the fourth quarter, we continued to gain traction with the market-leading RF receiver and RF receiver SoC solution with design wins across all our market segments. We are particularly encouraged that during the quarter our new high performance and low power cable products achieved meaningful revenue growth, both in terms of absolute dollars and also as a percentage of our revenue.

This growth in cable validates our ongoing strategy of increasing our total available market with innovative new products in both currently served and new product platforms.

As we have mentioned before, MaxLinear is well positioned to take advantage of the global trend of increasing consumer demand for high-speed broadband wireless and wireline connectivity and the proliferation of multi-media content over-the-top services and other services across different broadcast media. These megatrends are driving the need for multiple broadband video and data receivers in a single device.

From the very outset, MaxLinear's growth strategy entailed expanding our presence in broadband markets globally focusing on high differentiated end customer markets such as multiple receiver applications, where power, size and performance are critical.

Third, expanding our customer footprint and ASPs with our revolutionary broadband communication front-end SoCs that incorporate multiple receivers in a single-chip, and finally growing horizontally into adjacent and high-growth communication markets, thereby increasing our total addressable market.

Through 2010, we have made big strides in implementing this strategy, and are confident and its strength is gaining.

I will now review our consumer, cable, automotive, and mobile sectors in this context. In our consumer sector, we saw a stabilization of the revenue run rate in the fourth quarter from our digital television receiver and PC television products.

In the Japanese television market, where we have a leadership position in RF receivers for digital TV reception, we continue to have strong design win momentum. We are building on our early success in this market by focusing on multiple receiver applications such as television and set-top boxes with built-in PVR functionality.

The need for extremely low-power and small size are uniquely addressed by MaxLinear's superior CMOS broadband RF receiver products that are ideally suited for these applications.

During the fourth quarter, we had design win or product shipment announcement with Hitachi Multi-Media Electronics in its lineup of multiple tuner television solutions, and with Orion TV for its latest generation of advanced integrated digital LED televisions for the North American market at Wal-Mart stores.

The Orion TVs are among the first commercially deployed tuner-on-board multiple implementations of hybrid digital and analog TV reception in televisions. With the rollout of new generation backend TV SoCs with integrated analog DVB-T demodulator functionality in late 2011, we expect to benefit from additional designs of our hybrid RF receivers, which directly interface with new backend TV SoCs.

The Japan's transition to ISDB-T standard base digital-only TV broadcast this July and with the start of the rollout of ISDB-T standard digital TV broadcast in South America, we expect our RF tuner product family addressing digital televisions and digital to analog converted set-top boxes to continue to be a mid and long-term growth driver for the Company worldwide.

In the European digital set-top box market, we continue to maintain our strong position in the market and secure new design wins. We recently announced that our DVB-T standard digital television, tuner demodulator SoC products, MxL101 has been deployed in hybrid IPTV set-top boxes by (inaudible) for receiving free-to-air high-definition television channels and Internet content.

We are successfully expanding our footprint in customer devices with our tuner demodulator systems-on-chip product, and expect to benefit from the anticipated rapid growth of hybrid IPTV and PVR set-top boxes in the mid to longer term.

Turning to the cable market, we are pleased to see a continued ramp in the fourth quarter of our cable tuner demodulator systems-on-chip or SoC product. Our cable RF receiver and SoC products together contributed approximately 16% of our revenue in the fourth quarter with approximately 10% in the third quarter.

As cable operators respond to increased competition from satellite and fiber network providers by upgrading to broadband DOCSIS 3.0 digital cable network, the resulting set-top box upgrade cycle represents a significant opportunity for revenue growth. However, the timing of the growth is subject to cable operator rollout plans.

We are now shipping to several major cable OEMs and we continue to have strong design win momentum. Recently, our cable tuner demodulator SoC, MxL241 has been selected for a high definition cable digital to analog set-top box platform slated for deployment by major OEMs in late 2011.

In the third and fourth quarters, we announced two products constituting our fourth-generation platform, mainly MxL261 and MxL251. These are our 65-nanometer CMOS-based digital cable front end SoC products. MxL261 is industry's first 8 channel cable receiver SoC and MxL251 is a dual-channel tuner and QAM demodulator SoC.

These two products allow network operators to increase flexibility to deploy the dealer network at just the multiple channel needs of the large cable video set-top box market and also integrate several costly external components, which reduces PCB board size, external components costs, and vastly simplified customer design.

Our latest 65-nanometer cable SoCs showcase the advantages of MaxLinear's core wideband CMOS RF mixed-signal IC technology platform, which is ideally suited for developing the lowest power and smallest size RF-demodulator multiple-channel SoC solutions that deliver industry-leading functionality and performance.

Currently, there is strong design win momentum during our latest fourth-generation 65-nanometer cable SoCs at most of the major cable OEMs with positive implications for revenue growth in 2012.

Sales of our RF receiver products in the automotive TV market segment were down in the quarter both on an absolute dollar basis and on a relative contribution basis, due to seasonally driven decreased shipments of TV-enabled in-cabin navigation systems for automobiles in Japan. We are expecting revenue for this segment to be stable in Q1 relative to Q4 on an absolute dollar basis.

As we have indicated previously, sales from our mobile TV end market will continue to represent a smaller portion of our revenue. Our primary mobile market today consists of a mature market for RF receivers for the Japanese handset markets and account for a decreasing portion of our revenue, and was approximately 11% in 2010.

Turning to operations, we started mass production shipments of our recently qualified second CMOS foundry for our high volume RF receiver products in 0.13-micron CMOS technology node. In doing so, we have not only expanded our silicon wafer manufacturing capacity, but we have also successfully implemented a multiple supplier-based manufacturing capacity across wafer manufacturing chip assembly tests and packaging.

As we transfer production of a portion of our tuner-only products to the secondary foundry, we expect margin improvements as manufacturing yield stabilize.

In conclusion, in the fourth quarter a combination of macroeconomic uncertainties, Japanese digital television receiver inventory correction and the slow ramp of certain of our advanced cable gateway solution resulted in the lower revenues in Q4 compared to Q3. However, we did see our business stabilize, deliver revenues at high end of our prior guidance and continue to see strong design win momentum.

We are greatly encouraged by quality market opportunities and product cycles in rolling our new cable and digital television SoCs and hybrid TV tuners for TVs in the latter half of 2011. We are also excited by our continued design win momentum indicating a growing revenue pipeline at established industry leaders across our end markets.

Now, let me turn the call over to Adam Spice, our Chief Financial Officer for his review of the financials and a forward guidance, but first a word or two about Adam.

As we announced in late December, we have made a significant addition to our senior management team. Adam comes to us with a distinguished carrier that included several years in various finance roles at Intel, a lead role in business development and mergers and acquisitions at Broadcom, a stint as a VP in product line general manager at Broadcom, and most recently as a CFO of a logistics technology company that was recently sold.

Adam is already establishing himself as an important factor at MaxLinear. With that Adam, please take it away.

Thank you, Kishore. I will first review our results and then briefly discuss our outlook. In summary, Q4 was a challenging quarter for the Company, but the growth drivers remain intact as we move into what we believe will be an exciting 2011.

Net revenue for the fourth quarter was $15.9 million, which represented a 14% decline sequentially from the prior quarter and 4% growth year-over-year. But as Kishore highlighted earlier, for the full-year at $69 million, net revenue increased 34%.

In our press release, we reported both GAAP and non-GAAP results. Please refer to our press release for the detailed reconciliation between GAAP and non-GAAP results. Our fourth quarter non-GAAP results exclude $1.2 million in stock-based compensation expense, and a one-time benefit resulting from the release of the valuation allowance related to federal deferred tax assets of $6.7 million.

Now moving to the rest of the income statement. Non-GAAP gross profit for the fourth quarter was 66% of revenue and consistent with our prior guidance, compared to 70% in the third quarter and 70% in the year-ago quarter, and with 69% for the full year.

The lower gross profit in the fourth quarter was due primarily to product mix, with increased SoC product shipments and also some ASP impact of forward pricing of our tuner only solutions to certain customers. As communicated previously, our gross profit percentage has a variance of plus or minus 2% due to mix, and I would like to reiterate that our long-term gross profit percentage model is in the range of 62% to 65%.

Non-GAAP operating expenses were $10.3 million, up less than 1% from the prior quarter, which included $6.6 million of R&D expenses and $3.7 million of SG&A. For the full year, non-GAAP operating expenses were $39.5 million, representing growth of $10.8 million versus the prior year as we invest in significantly expanding our technology footprint and total adjustable market.

A growing and significant portion of our R&D expenses, approximately 40% of R&D, are related to investments in TAM expansion efforts, which we will disclose over the course of the year. Headcount growth was modest, increasing to 210 at quarter end from 204 in the prior quarter, and 169 at the end of the fourth quarter last year.

Our non-GAAP R&D and SG&A spending represented 42% and 23% of our revenue for the quarter respectively, and were 37% and 21% of our revenues for the full year. Non-GAAP income from operations was $0.2 million in Q4 compared to $2.8 million in the prior quarter, $2.4 million in Q4 of last year and was $7.7 million for the full year.

Non-GAAP net income was $0.2 million in Q4 compared to $2.9 million in the prior quarter, $2.4 million in Q4 of last year, and was $7.9 million for the full year. Non-GAAP earnings per share and GAAP earnings per share in the fourth quarter were $0.01 and $0.17 respectively on a pro forma fully diluted shares outstanding of 34 million.

The difference between the fully diluted non-GAAP earnings per share and the fully diluted GAAP earnings per share is due to stock based compensation expense of $1.2 million in the quarter, offset by a one-time release of a valuation allowance in the amount of $6.7 million related to federal deferred tax assets.

For the full year, non-GAAP net income was $7.9 million or $0.24 per diluted share and GAAP net income attributable to common stockholders was $8.9 million or $0.30 per diluted share. The GAAP net income attributable to common stockholders without the benefit of the release of the valuation allowance related to federal deferred tax assets would have been $2.2 million or $0.08 per diluted share.

Moving to the balance sheet, our cash, cash equivalents and investments balance was approximately $94.5 million, compared to $98 million in the prior quarter. Our cash used in operations in the fourth quarter was $3.5 million, and cash provided by operations for the full year was $4.8 million. Accounts receivable totaled $3 million at the end of the quarter, compared to $4.5 million in the previous quarter.

The days sales outstanding for the fourth quarter were approximately 18 days, as compared to 22 days in the previous quarter. The decrease in accounts receivable on a quarter-over-quarter basis reflects a decrease in shipments to our distributors in the fourth quarter to bring distributor levels more in line with our near-term sell through revenue outlook.

As a reminder, we only recognize revenue on a sell through basis, so we are not subject to revenue fluctuations caused by changes in distributor inventory levels. Our in-house inventory at the end of the quarter was $7.4 million, compared to $6.4 million in the previous quarter.

Our inventory turns were 3.2 in the fourth quarter, compared to 4.1 in the prior quarter. Our own inventory levels, consisting primary of work in process, increased due to a reduced rate of shipment at the channel of our RF receivers for our set-top box products for European end markets over the near term relative to the expected ramp levels of our new cable SoC product.

So that leads me to our guidance. We expect revenue in the first quarter of 2011 to be up approximately 5% on a quarter-over-quarter to $16.7 million. We expect stabilization in the market for our terrestrial products in all regions. In North America and Europe, we expect our cable revenue to continue to increase on a quarter-over-quarter basis on both an absolute and relative percentage basis in Q1 2011.

We expect non-GAAP gross profit percentage to be approximately 64% in the first quarter, driven by the anticipated growth in our lower profit for ASPs cable tuner demod SoC solutions, as a percentage of our revenues and to a lesser extent, due to the impact of ASP pressure resulting from forward pricing our tuner-only solutions to certain customers.

We expect gross profits to stabilize as we improve the yield of our SoC products, and as we continue to transfer production of a certain portion of our tuner-only products to our new secondary foundry supply. Our new foundry supplier is now fully qualified and ready to begin volume production. We expect to begin realizing market benefits from the supplier in Q2 as we work through our existing chip inventory.

We continue to carefully manage our discretionary operating expenses, striving for a proper balance between consistency with revenue growth and a need to continue to fund development programs for 2012 and beyond. As such, we are continuing to selectively add key R&D talent, and I expect total non-GAAP operating expenses to increase in the first quarter from Q4 levels by approximately 7% to $11 million, part of which is the seasonal effect of certain payroll related items.

In summary, we believe that our fourth quarter results reflect the stabilization of our business. We continue to be optimistic about our growth trajectory, given the design momentum and new product developments that continue to drive expansion of our TAM, and believe we are well positioned for growth in 2011 and beyond.

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

Thank you, sir.

(Operator Instructions)

And our first question comes from the line of Tore Svanberg with Stifel Nicolaus. Please go ahead.

Hi, this is Eric calling in for Tore. Thanks for taking the questions. Just a few quick ones here -- with your guidance, what's given you the confidence for -- guiding for the 5% sequential? And can you kind of give us a little more clarity on where you're seeing the strength by segment -- by your primary segments? That will be helpful.

So, hey, Eric, this is Kishore. So, one of these I want to get back to -- which in last quarter we had to revert from talking about is going into quarter, we typically have two-thirds of our sell through basis -- revenue bookings in place. So, based on what we are looking at right now, we feel that we have reasonable expectation and confidence that we are going to be able to guide you to $16.7 million.

The biggest driver right now as you know for 2011, which is a big transition year for us, cable is a new big product cycle driver for us, and cable is -- while it's not on a screaming ramp, it's on a good steady ramp and cable is a big driver.

And so -- and also we're seeing recovery in shipments for products in the set-top box and European markets, or digital television receivers for Japan and also some level of improvements in shipments in our DVB-T terrestrial set-top markets for the higher end PVR and DVR boxes. So based on these on the ground realities, we feel we are able to guide you to $16.7 million with measurable degree of confidence at this stage.

Great. Thanks. And just -- can I get back a little bit to the weakness in the European set-top box market? Can you just give us a little more clarity on the dynamics in that market and how you see that playing out throughout 2011?

Okay. So on the -- there are two aspects to the European set-top box market. As you know, even though China is the destination of our revenues, meant for products that ship into Europe, our direct shipments in Europe also have started increasing. We have strong design win momentum.

We got design wins for the higher end PVR, DVR, MPEG 4 type set-top boxes with major European manufacturers. And so, that's in a good clip. These are tier-one customers, who take a little bit longer to get the design cycle in place and go to production -- that's very dependable. So, that's the highlight of the positive design win momentum.

With regards to the revenues and the dynamics that played out through Q4-Q1, we have two segments; one is basically the digital download converter set-top boxes. As you are aware, about 15% to 20% of our revenues, we have told you, on a run-rate basis are the converter set-top boxes.

So those are the ones that are more subject to fluctuations with the macroeconomic conditions in Europe. And as you're all aware, those were meant for Southern European customers.

And the second part of it is that certain investment parts of Europe have been migrating to the higher-end and MPEG 4 type new higher definition digital broadcast such as [France] and those are on a healthy clip. So all in all, I think Europe is recovering well. It is recovering in the direction where our higher-end, higher-performance SoC products for the MPEG 4 PVR boxes are the ones that are gaining momentum, so feel pretty good about the dynamics in the European market.

Having said that, the wave of transition from digital to -- from analog to digital broadcast, moves from the Western front to the Eastern front in Europe. We should also benefit from the converter box revenues to still grow at a pretty, not in an aggressive pace, but about 5% to 10% even though the percentage revenue of the converter boxes as an overall percentage of our sales is going to decrease as time proceeds.

I hope that answers you question.

That's helpful. Only because earlier in the week, Broadcom had reported their earnings and they reported their earnings and they talked about some weakness in their outlook. Just wondering, are you seeing any of that as well? Obviously, they had addressed some sort of customers ordering ahead of end market demand.

So, are you seeing that sort of dynamic as well?

We do not see the dynamic of ordering ahead of schedule, in fact, we just had the opposite phenomenon coming out of Q4. So, we feel our inventory is correcting; we're getting some stabilization. We have not had any rescheduling of shipments that are slated for Q1 so far and that seems to be the all -- the strong indication for us.

So I think the dynamics are completely different, and the end markets may be also different with respect to the particular company you mentioned.

Great. And one final -- as you look at the TV market, how do you categorize that at this time? And what are your expectations for growth in penetration throughout the year? Thanks.

So, that is what I call the anticipated growth in our own revenues and there is a market dynamic. As you know that -- we as a company have been shipping RF receivers only into the Japanese digital television market for a while now.

And that market is going to go through a hard switch off from analog to digital broadcast, when all the TVs will be digital only -- receiver supporting in nature. So, we could have an explosive increase that we cannot count on nor can we predict.

But at the same time, we see that the temporary hiatus in shipment of digital television receivers in Q4 has now been rectified and we're beginning to receive orders for digital television in Japan as well. The other big growth driver which we'll establish much more in the latter part of 2011 is the hybrid TV RF tuner only products that work in conjunction with backend associated analog demodulator integrated.

We announced our design wins for all the way from 19 inch to 41 inch LED televisions for Orion TV, which is a supplier for the Wal-Mart brand in the United States and those shipments will start as well. So, in fact, this year we expect to see growth in hybrid TVs in the latter part of 2011 for MaxLinear being a good driver as well. So, I hope that gives you some color into the -- into our TV markets for you.

It does. Thanks so much.

Thank you.

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

Hi, guys. Hopefully a simple one, what's your turns assumption for the guidance?

It's not an assumption -- I mean, we are entering the quarter, we are slightly more than two-thirds booked -- more than two-thirds booked entering the quarter. So currently speaking, we feel that the $16.7 million guidance is based on north of the -- well north of the two-thirds bookings that we speak about entering the quarter.

What was the trajectory of business? Last quarter, you talked about everything really falling off a cliff at the end of the quarter. Can you give us an idea of how your business progressed through the latter part of the fourth quarter and even into this year?

Okay. I think we talked about the things taking an adverse turn towards the last few weeks of third quarter when we did the last Q4 earnings and not -- do not speak about the Q4 per se.

Since then, we -- then we had reordering and rescheduling of shipments and that's now stabilized as we talked about, and we turned at the higher end of the guidance for the quarter. But the bigger impact was the push out or rather the slow ramp of our cable products.

And as it turns out, the cable is now continuing to ramp and, in fact, I think Adam spoke cable being about 16% to 17% of our revenues for Q4. So cable is on a steady ramp and that's the new product cycle. And the dynamics all seems to be weighing in the positive direction for cable as we gather increasing momentum for design wins and product shipments from various OEMs.

So with regards to the other products in consumer markets with the digital televisions or set-top boxes, it's a recovery process. And hopefully, we'll have a cross-over point from an equilibrium level in Q3 somewhere as we head towards the end of Q1. So, I think the dynamics are similar to the ones we have talked about. We have not lost any designs and that is the other part of it, because our designs are not done (inaudible).

What I mean is that these are not six month designs, these are sticky sockets with high front-end performances, and so we've not lost any market share to any competition. So I think the recovery will be established as the macroeconomics of inventory correction and European market [entities] reverse themselves.

Got you. On the distribution side of things, I realize you recognize revenue on sell through. But, is the distribution inventory or channel inventory now down to where you believe it is somewhere around neutral, no longer a headwind?

Yes. This is Adam, Ross. So I believe that we are in a process of stabilizing. I think that we do believe that inventory levels will be back to normal by the end of the Q1, certainly in the Q2 timeframe. We don't think that -- we're certainly not building any inventory in the channel that we don't believe will be able to support with -- and ship through customer demand.

Got you. And then the last one from me, just if we aggregate up the puts and the takes on the gross margin side of things, you talked about the reasons that will be a little bit weaker now.

How should I think about the potentially offsetting factors of your SoC business being an increasing part your mix through this year versus the cost savings you can get as yields go up and/or wafer cost go down? Do those get you back to the kind of 67% range? Or, if cable takes off, are we actually going to have risk to the 64 we're guided to?

So the expectation is not risk to 64% but the expectation is not that you're not going to be in the 70% range.

Given the plus/minus 2% fluctuation, we expect on our gross margins, the SoC component increasing, I think that the improvement will be ahead of the 64% as we transition production of the 0.13 micron products and we transition to a 65 nanometer products that increasingly integrates more multiple receivers, so the ASP enhancement at a faster rate -- the cost of adding multiple receivers. So, we should expect these margins to be improve.

But to hazard a guess from 67%, given the variance due to mix of plus/minus 2% I would say, at this point, I will hold on to say that the gross margin will improve, but I don't want to take -- hazard to guess at 67%.

Okay. Great. Thank you.

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

Hey, just wanted to follow-up on Ross' last question there. Kishore, do you think the gross margin is March kind of a trough and then you see a slow, steady perhaps progression through the year as you ramp the yields and increase production at the second foundry?

Yes. This is Adam. I'll take that for Kishore. So, as I mentioned in my segment of the call, part of the dampening of gross margin in Q1 is driven by the fact that we're burning through inventory from our previous supply for some of our solutions.

And it's going to take us the quarter to get through that inventory, and we'll again start to see the benefit of the new second supply lower cost solutions shipping in Q2. So again, I think that, when we look at the mix, we don't believe that the longer term transition or increase in mix of SoC solutions will take us out of our long-term model for gross margin.

So, you shouldn't read our statements about SoC solutions having lower margins than the tuner only solutions. It's a fact that as we continue to increase the mix of SoCs and bring on these lower cost sources of supply, we're going to be able to maintain our model of the 62% to 65%.

Okay. Great. And then just -- Adam, a follow-up on your prepared comments. I think you said that part of the reason for the pressure was lower forward pricing on some of the tuner-only products.

Is that sort of an annual reset or is pricing on those products reset perhaps even as frequently as each quarter? Just trying to get a sense of the dynamic, whether you guys are starting to see competitors coming in, undercutting price and the pricing environment is becoming more aggressive. Or, is this kind of an annual prices reset that takes place near the calendar year?

So obviously, I don't have the full context of all the legacy knowledge here within MaxLinear, but given my prior background, I'm pretty familiar with how the dynamics work. It's certainly not an annual reset. This is kind of -- it's segment by segment; it's not necessarily tied to any one particular product in this case either. So, it's a matter of responding to competitive dynamics within the industry.

We are obviously very aggressive about holding sockets and maintaining our competitive positioning. But we kind of respond, accordingly to each situation differently. So I wouldn't look at this as a kind of a periodic one-year reset of ASPs. And I think we all know that, as we progress through the year, you kind of react as the customer and competitions demand. Right?

So, Quinn, a little bit more color on that. Basically, at a time such as these recovering from trough period in Q4, if you will, it is very, very important to maintain our competitive edge and positioning with our customers.

And given that competition holds on -- has excessive inventory levels and they've not gained any market share, it's very important at this point to go the jugular in terms of market share. And that's what we have sought to establish with our tier-one customers.

So in doing so, it is -- it also implies that we certain mechanisms in place for not having these negotiations repeatedly. And these also benefit for the fact that we have designing that are sticky for typically -- one year period, if you will. And so, while there may be a midyear sort of -- you could expect some discussion in the midyear based on competitive reasons that Adam spent -- talked about.

But, we -- we would call these forward pricing to maintain our market position. And hopefully, we don't see any more deterioration on the ASP side of the equation.

I think the other way to look at it too, to add a little more color is it's a combination of forward pricing at where we previously anticipated having kind of the second lower cost sources of supply available to support that lower pricing.

And so, with the slight delay in ramping to this other supply, we found we're already locked in the price with a customer and then also, having yet to being able to receive or benefit from the lower cost supply to offset that and maintain our margin. And that's again why you're seeing this slight margin degradation in the Q1 period.

Great. The second question for Kishore. You guys were showing some set-top boxes where your tuners were doing the video streams. Can you give us a sense, most of your cable product revenue today I think is on the DOCSIS side, but give us a sense of the timing as perhaps some of these video set-top opportunities begin to ramp for you.

Hey, Quinn, thank you for the question. So, the key [act] for 2012 in terms of revenue growth on the cable side would be video markets. And with our chip that is 65 nanometer fourth generation platform, both the 8 receiver chip and then the two receiver chip, the biggest push is design wins in the video media gateway server markets.

So while I'm not at this stage able to disclose who the players are -- where we have had design wins, but three major high-end designs in video market for really high-end showcase platforms that over the top content delivery and customer in-home distribution service management by the operator platforms.

So we are in those designs, we have secured design wins there. So I believe '12 and '13 will be the big push in the video markets for MaxLinear's cable segment. So, all the revenue we are forecasting for shipments this year and through next year are primarily driven by DOCSIS 3 cable data modem and EMTA market.

So, you're absolutely right. So that is the critical transition that is happening for us now. We are moving on from a design win momentum in the data EMTA markets into the video markets and cable, and we're in great success with our 65 nanometer offering.

While I am not yet able to sort of bound the volume gains and the share gains in the video market yet, which during the latter part of the year we'll be able to discuss, we are pretty pleased about the development.

Do you have any sense of the relative TAM, Kishore, between the data or EMTA side of the TV -- or cable receiver market versus the video side? I mean, are they roughly equal dollar opportunities, or is one significantly lower than the other?

I think the video market opportunity in general would be bigger for a company like MaxLinear, given that there is what I call a divergence in the way the multiple receivers handle a video market versus the data markets. So while the box volumes would be somewhat in the larger for the video market itself, they're not significantly larger than the data and the EMTA markets combined and the converter box market combined for the cable market.

So the difference is in the video market, there are dedicated agile receivers you require -- what means that you need to support dedicated video transport streams available all the time, and as a result they will use multiple receivers even of these multiple receiver SoC chips of ours.

So, our own TAM [confidence as] the video boxes would be maybe a factor of two higher or I don't want to say three yet, but a factor of two higher than the data EMTA market in my opinion.

Great. Thank you. And then just a last one, Kishore you talked about the Japanese analog shutoff in July. Just wondering if you're seeing design activity today for TVs to launch over the summer in Japan that either have a second or a third digital only tuner. Or, does that represent an increase in opportunity for your receivers given that you have a pretty good share in the Japanese TV digital market today?

I think that for the '11 designs, they've already been won and for the -- typically the design cycles for the following year are secured towards the end of the previous year, so to speak. So, are finished securing by the end of the year. So from that token, the multiple receiver digital televisions in the Japanese market, they've already been secured with respect to our design wins.

So, the next time the competition opens up will be the end of '11. So -- and we expect that after the shutoff that that segment of the market will dramatically increase in the terms of the attach rate of multiple receivers today moving from 30% to 50% pretty aggressively. And the expectation is that the Japanese market, all televisions will be multiple receiver markets by the end of '12. So, we should benefit from that process quite significantly.

Though you should also add into the same market expectations of Blu-ray DVD players, and also the digital analog converter set-top boxes that would have a temporary high, if you will, towards the middle of this year. So, it's very hard to forecast the last part of the segment that I talked to you about. But you're absolutely right, the attach rate will increase and we should benefit from that process

Thank you very much.

Thank you.

(Operator Instructions)

Our next question comes from the line of Sanjay Devgan with Morgan Stanley. Please, go ahead.

Hey, guys, thanks for taking my call. Just a couple of questions, I guess, first Kishore, and you talked about the handset opportunity kind of decreasing as a percent of revenue; I think you said it was around 11% in 2010. I was curious about your thoughts on ATSC in the US, if it takes off and potential implications for MaxLinear.

Okay. So -- hi, Sanjay. How are you? So, the ATSC opportunity is specifically ATSC MH, the mobile handheld opportunity. We believe that there is not much handset activity for mobile handhelds for television in the United States yet, and we are not aware of such activity.

However, we are aware of some design activity, and we have design wins in the PC world. In fact, I think ATSC MH designs, without making a broad (inaudible) is that probably that the MaxLinear tuner for ATSC MH applications in the US that will be rolled out in the PC market by some PC OEMs in this year. We should benefit from that.

However, we are not really assigning much volume and revenue value for ATSC MH in this particular year. So the PC is a big upside that we've always been very cautiously -- very cautious about and not really factored any -- much factor other than in our SAM, but -- not on the revenue side. So when that happens, we should benefit, but for now I wouldn't say that is a factor yet.

Okay. Great. That's helpful. And then, just going back to the cable modem opportunity. You talked about how that went from roughly 10% of revenue to 16% in Q4. I was wondering, as we get some of these design win opportunities that is kind of increasingly driving growth in the back half of this year, care to give us an estimate of what portion of your revenue you think that it could compromise by year end?

I think given the guidance in the third quarter and second quarter as well based on design win momentum, and obviously the real [heart burning] is our great friends the MSOs, right. So there's some subjectivity to that -- the highbrows there.

So getting back to the real question, besides my ridiculous humor is that the fact is that, we forecasted that the revenue at the end of the year for 2011 would be about 25% to 30%. Obviously, that's all good tidings, but it is based on this new ramp that we are forecasting as a cautious process.

It could be higher from there, or in the range we have talked about. So the other unknown factor is -- so to speak, is the great design win momentum we have in the video market that Quinn Bolton asked about. And that would be something that could kick in the late part of 2011. And at this point, I'm afraid, that I don't want to talk much about that in terms of our volume and revenues.

But the cable, we've got all the sockets in place, we've got the design win momentum, we got leapfrogged in the technology platform. We've got more exciting stuff coming and -- but the operator subjectivity is something that we have to be obedient to.

But all the vectors in place. And I really want to make sure that, since you've been our good sell-side analyst for us, we really want to give you guys a big victory somehow with this market sometime in the coming future. So, I do hope we can deliver that for you.

Great. Thanks, guys.

Thank you. And our next comes from the line of Anil Doradla with William Blair & Company. Please, go ahead.

Hey, guys, couple of quick questions. If you look at the competitor landscape, some of your peers are talking a lot about the trends in the television, especially the silicon tuners out there. Can you highlight some of your strengths in that market? And what's your strategy on that front?

And on the cable side, clearly you guys have done a great job and you are continuing to ramp. And can you share with us what is it in your solution that provided such a successful presence in terms of design wins and design focus in the cable side?

Okay. Hey, Anil, thank you. So I think you asked multiple questions there. One was tuners only and television. I think that's pretty -- that's a broad swap from analog to hybrid television to digital television.

The second question is, is what is the secret to our technology that makes us such a compelling player on the front-end for our cable market. So first, I'll address the TV question. Firstly, we have very little or a very modest forecast for hybrid TV presence for 2011 and especially late 2011.

So we think that the hybrid TV market for MaxLinear is predicated on two things. Firstly, we are only going to play in this market with tuner-only products for Hybrid TV. We have no interest nor we have a strategy to play with analog legacy demodulators for televisions. We think that's yesterday's market.

Secondly, in line with that strategy, it's predicated on us being able to interface the new generation of TV SoCs with the analog demodulators integrated in the back end.

Our current read of the market and it is proven by our design wins at Orion TV for the North American market, the analog demodulators for the North American are indeed integrated with new generation TV SoCs, and this wave front will move through (inaudible) and other European markets as well.

As that wave sets in with the backend TV SoCs, there will be one solution that will be market -- will prefer and the markets will require. That is a very high performance, extremely low cost, low power, hybrid television tuner. And we intend to be the one that is going to bring that market in 2012 and to '013 timeframe. So, obviously, we are rearing to be that player in that market space.

So I think there's a very, very real position in that market, and there is not that many players who can provide. In fact, to-date, we are the only single silicon die, hybrid TV tuner opening in the marketplace. There's no such offering in the marketplace in CMOS. So to the extent that our competition speaks about it, I would still reiterate my statement.

So getting now into the cable market, it again comes back to the same thing I talked to you about. We do novel wideband architectures that are scalable in digital CMOS technology with Moor's Law.

It relies on a DSP enhanced radio architecture that scales with Moor's Law, allowing us increased benefits of gate density improvements of digital gates in advanced CMOS technology nodes, so that our die shrink dramatically, allowing us more opportunities to integrate much more demodulated content, especially for digital demodulators for OFDM standards and new emerging standards, giving us an ability to increase our ASPs and also profit margins as we add more receivers with decreasing costs of -- incremental cost of additional receivers.

So in the cable market, that is the strategy we deployed of multiple receivers in a single chip which is where the broadband trend is going on. There's a broad megatrend in the world for broadband data view access and over the top content access for consumers.

In the cable, it is exacerbated by the fact the fiber-to-the-home forced the cable players to really upgrade their networks to support broadband data to complete with these fiber and tablet players.

So when we were able to provide a compelling low power solution which is a factor of five lower than any competitor single RF receiver solution, we save our -- the platform incredible amount of power reduction to meet [energy star] requirement along with the cost savings of integrating multiple receivers, we became a compelling choice.

Not only that, we are able to offer roadmap that continue to escalate this front of aggregating all front-end RF and RF receiver and demodulated content in single chip as the needs are going to explode as we move into coming years.

So we not only have an existing solution, we not only have a unique technology that scales in digital CMOS Moor's law, we not only can integrate and increase our ASP and footprint in the customer sockets, but we also set the roadmap that customers need for the future.

So I think those are incredibly important ingredients to be able play in tier-one markets in North American and Europe with cable. And that will be true in all in broadband markets, be it cable, be it satellite, be it fiber or even be it in connectivity market.

So, I think please stay tuned as we unveil the rest of the year and we will be able to talk this same technology through multiple markets with TAM expansions since we have been really investing heavily in R&D and OpEx expansion to really show some aggressive revenue growth or the next few years to come.

Great.

With that, I hope that answers your question. I'm sorry for the longwinded answer.

No, no, that's fine. But coming back to the TV -- one quick question I just wanted. If you believe that the hybrid TV ramp up potentially for MaxLinear would be more of a '12 event and beyond. Is this a long design cycle? I mean, do you feel that when we come to late '11 and we're looking into '12, the competitive landscape would be as it is?

Do you feel -- do you fear that people -- other guys could come into this hybrid TV space? Or, do believe that your competitive advantage that you have is sustainable for you to witness a ramp in 2012 and beyond on the hybrid TVs?

So -- I will answer this question. Will there be more players in hybrid TV -- pure hybrid TV tuner players? Never say never, but I think the performance bar is set and who the players there are going is sort of set I would argue. And we are just entering the market with hybrid tuner-only product waiting for those TV SoCs and that has just started.

And we believe that, we were able to sustain our competitive differentiation now by bringing it to bear on Hybrid TV. And would that be? Extremely small chips, extremely low power, and the best in class by far performance and product cost advantages.

And I think with that we will be able to win. It's not a static market, but it's static in the sense that our own design cycles can target a static looking market because we got some competitive digitally driven product development capabilities and architectures, so we can move faster. So, we see a slower moving competitive landscape. I think we'll be able to assert our competitive advantage.

Very good. Thanks a lot, guys.

Thank you.

(Operator Instructions)

Okay. Thank you very much, everyone. Thank you, operator. As a reminder, we will be participating in the Stifel Nicolaus Annual Technology Conference in San Francisco and the Roth Semi one-on-one day in Laguna Niguel, California later this month, and I hope to see you many of you then.

To conclude, our long-term growth trajectory and growth vectors remain positive and unchanged. Based on our first quarter guidance and our performance over the last year, we are starting off 2011 with positive business momentum.

We are very pleased with the robust growth in 2010, our first public year as a company. Looking to '11, we are excited about our continued technology leadership with the launch of our fourth generation broadband RF mixed signals CMOS technology SoC platform. We look forward to positive momentum and a resumption of our growth story in this new year, primarily driven by new product cycles in our cable and DTV SoC products.

Thank you all for joining us today, and we look forward to reporting on our progress to you in the next quarter. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You many now disconnect.