Maxlinear Inc (MXL) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentleman. Thank you for standing by. Welcome to the MaxLinear Second Quarter 2011 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)

The conference is being recorded today, Thursday, July 28, 2011. At this time I'd like to turn the conference over to Suzanne Craig, 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 2011 financial results.

Today's call is being hosted by Dr. Kishore Seendripu, CEO, and Adam Spice, CFO. During the course of this conference call, we will 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 the third quarter of 2011 revenue, our expectations concerning trends in our cable revenues and our efforts to expand our addressable market, our current views regarding trends in our market, including their size and potential for growth, and our competitive position in our target market.

These statements are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, and actual results may differ materially from results reflects in these forward-looking statements. We 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 including the cable market do not grow for any reasons if we experience substantial competition including as a result of pricing pressure, as the 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 SEC. 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 2011 earnings release is available on the Company website at maxlinear.com, or you may call our offices at area code 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 effects of stock-based compensation expense and its related tax effect and certain other non-recurring items, and assume the conversion at all times during the 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 in March of 2010.

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 to perform comparisons of operating results in the 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, I'd like to turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Suzanne, and good afternoon, everyone. Thank you all for joining us today. I'm pleased to report second quarter 2011 results that reflect the continuation in our sequential quarterly revenue growth. This was achieved despite significant economic uncertainty and end product supply chain disruptions caused by the earthquake in Japan late in the first quarter.

Net revenue in the second quarter was $18.1 million, which was slightly above prior guidance, up 7% compared to the first quarter of 2011 and essentially flat from the year-ago quarter. GAAP and non-GAAP gross profits in the second quarter were 63% of revenue, slightly below our prior guidance of 64%, but within our long-term model of 62% to 65%.

Non-GAAP net loss for the second quarter was $0.6 million or $0.02 per diluted share. GAAP net loss for the second quarter was $4.8 million or $0.15 per diluted share and due primarily to non-recurring licensing cost associated with strategic IP acquisitions made in the quarter.

I would like to now first speak to the trends we are seeing in the marketplace at a very high level. Similar to the dynamics in the first quarter, strengthen in cable and automotive (inaudible) continued headwinds in the consumer and mobile segments.

Our cable business continues to be the most exciting area of growth for the Company. We have not only grown our revenue successfully in the second quarter but also broadened our footprint within this important market. Cable revenue grew by approximately 50% quarter-over-quarter, and now contributes almost 35% of total revenue.

Within cable, revenues associated with DOCSIS 3.0 Gateway and EMTAs more than doubled compared to the first quarter, and more than offsets softness in cable set-top box revenues, which were exceptionally strong in quarter one. We continue to have high growth expectations for DOCSIS 3.0 Gateway and EMTAs supported by design wins such as what we recently announced with Hitron for the European cable market.

Hitron's Voice & Data Wireless Gateway models were designed using our wideband, eight-channel cable, front-end RF system mounted solution to MaxLinear 261 and the Intel Puma 5 chipset, and it supports advanced features, including voice, video and IPv6 router capability.

Speaking to increase diversification within cable in the second quarter, we announced that our MaxLinear 241 single-die, single-channel, tuner demodulator SoC as the design into SiliconDust multi-tuner HDHomeRun PRIME card. SiliconDust HDHomeRun PRIME card connects multiple TV tuners to a home router, allowing access to cable TV programming to home computers, ready to watch or record live HDTV anywhere in the home or your home network.

Again, speaking to the increasing breadth of our cable footprint, we recently announced a major Chinese cable video set-top box design with market leader Shenzhen Skyworth Digital Technology, where they will use the MxL203RF tuner (inaudible) product in a new digital-to-analog converters set-top box for the Chinese cable market.

The new set-top box will come to market in time to help Chinese cable operators manage the switch to digital cable by the year 2015. Analysts estimate that more than 70 million cable customers in China still need to change to digital cable television.

Again, similar to the dynamics that played out in the first quarter, strength in cable was accompanied by growth in automotive, as we saw increased shipments of TV-enabled in-cabin navigation systems for automobiles in Japan. The previously noted strength in cable and automotive was offset somewhat by weakness in consumer.

In the second quarter, we were impacted by slower sales of digital-to-analog converted set-top boxes in markets such as Italy, UK, France, Japan, and South American countries that are in the midst of analog TV broadcast shut-off. Also in Europe, there was softness in demand for IPTV set-top box shipment.

It is important to note that an area of growth within consumers that offsets some of the weakness mentioned earlier included standalone HD and PVR set-top boxes, and the DVB-T Terrestrial digital television standard market in Europe. Additionally, they are increased by significant sequential growth in our MaxLinear 301 hybrid TV tuner product.

The momentum of this hybrid TV tuner solution continues. We announced design wins such as with Mitsumi for its new line-up of hybrid silicon TV tuner modules targeted at hybrid televisions, BluRay recorders and set-top box applications.

As we've indicated on prior calls, our presence in mobile TV consists of a mature market for RF receivers for the Japan-only handset market, and accounts for a small and decreasing portion of revenue at approximately 5%.

The second quarter was an exciting run for us, as we not only successfully grew in cable, but we also took significant steps to expand our TAM and enhance our footprint on key broadband platform.

The strategic IP and licenses from MoCA connectivity products that we acquired in the second quarter, allows us to bring a truly differentiated value proposition to our customers' broadband platform. Adding MoCA to our function portfolio leverages our analog RF front-end multiple radio integration strength, not only for legacy MoCA 1.1 standard based products, but also for emerging MoCA 2.0 based products that cable connectivity markets are evolving towards.

In conclusion, in the second quarter, we delivered revenue slightly above prior guidance and we continue to see strong design momentum. Additionally, we are taking steps to increase our TAM and technology footprint to best-position us for continued growth.

We remain excited by the promising market opportunities and strong secure product strength associated with our new cable and digital television SoCs and hybrid TV tuners for the integrated digital television market.

Now, let me turn the call over to Adam Spice, our Chief Financial Officer, for a review of the financials and our forward guidance.

Thank you, Kishore. I'll will first review our results and then briefly our outlook. In summary, Q2 revenue was slightly above our expectations and strong momentum in cable across voice, video and data applications is encouraging, as is the growing acceptance of our hybrid TV tuner solutions.

As Kishore noted, net revenue for the second quarter was $18.1 million, which reflects strong sequential growth for the business in a challenging economic environment. 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 second quarter non-GAAP results exclude the effect of certain non-recurring IP license acquisitions and stock-based compensation expense and its related tax effect.

Now moving to the rest of the income statement. GAAP and non-GAAP gross profit for the second quarter was 63% of revenue, within the range of our prior guidance of 64%, plus or minus a couple of points, versus 64% in the first quarter and 70% in the year-ago quarter. The lower gross profit percentage in the second versus the first quarter is attributable to the ASP impact of certain terrestrial solutions sold into the European set-top box market.

Customer-specific mix issues in Japan's TV and automotive had a slightly higher manufacturing overhead absorption in the quarter. Non-GAAP operating expenses which excludes $1.4 million of stock-based compensation and $3.3 million of non-recurring IP license charges were $12.4 million, up 12% from the prior quarter, which included $8.5 million of R&D expenses and $3.9 million of SG&A.

On our Q1 call, we had indicated our goal was to grow operating expenses at a rate less than the rate of growth in revenue, which would apply non-GAAP OpEx of less than $11.9 million for the second quarter. Included in the $12.4 million of non-GAAP operating expenses, and the primary driver for spending growing faster than revenue, were charges related to two 65-nanometer [mask] sets.

The bulk of the $3.3 million of non-recurring charges related to acquisition of IP licenses was related to MoCA IP, with the remaining related to other connectivity-related software and IP, for a TAM expansion product area we anticipate being able to discuss later this year.

Headcount increased to 233 at quarter end, from 224 in the prior quarter and 202 at the end of the second quarter last year. The growth in operating expenses is consistent with our TAM expansion goals and initiatives, the benefits of which are now evident in both cable and hybrid TV product ramps. We anticipate being able to discuss additional TAM expansion progress as we move through 2011.

Our non-GAAP R&D and SG&A spending represented 47% and 22% of our revenue for the quarterly, respectively. Non-GAAP loss from operations was $1 million or 5% of revenue in Q2, compared to non-GAAP loss from operations of $300,000 or 2% of revenue in the prior quarter, and non-GAAP income from operations of $2.7 million or 15% of revenue in Q2 of last year.

GAAP loss from operations was $5.7 million in Q2, compared to $1.9 million in the prior quarter and GAAP income from operations of $1.6 million in Q2 of last year. Non-GAAP earnings per share and GAAP earnings per share in the second quarter were negative $0.02 and negative $0.15 respectively on fully diluted shares outstanding of $32 million.

The difference between the fully diluted non-GAAP earnings per share and the fully diluted GAAP earnings per share is primarily due to stock-based compensation spend expense of $1.4 million and its related tax effect, and $3.3 million of non-recurring charges related to the acquisition of IP licenses in the quarter.

Moving to the balance sheet, our cash, cash equivalent and investments balance was approximately $91.1 million, compared to $91.8 million in the prior quarter. Our cash used in operations in the second quarter was $400,000.

Accounts receivable totaled $8.3 million at the end of the quarter, compared to $7.6 million in the previous quarter. The days sales outstanding for the second quarter were approximately 42 days, as compared to 41 days in the previous quarter. As a reminder, we only recognize revenue on a sell-through basis, so we're not subject to revenue fluctuations caused by changes in distributor inventory levels.

Our in-house inventory at the end of the quarter was $6.7 million, compared to $5.2 million in the previous quarter. Despite inventory increasing quarter-over-quarter on absolute terms, our inventory turns improved 4.5 times in the second quarter, compared to 3.8 times in the prior quarter. As relative to Q1, our average inventory per calculating turns was lower.

Our own inventory level, consisting primarily of work in process, increased as we elected to build inventory of new product brands to support upside opportunities in cable and hybrid TV, but also as a result of quarter end softness and certain tuner-only solutions into terrestrial DTA converter box and TV applications into Europe and Japan.

That leads me to our guidance. We expect revenue in the third quarter of 2011 to be in the range of $17.5 million to $18.5 million. We expect similar dynamics in Q3 as played out in Q2. Specifically, we expect our cable revenues to continue to increase on a quarter-over-quarter basis on both in absolute and percentage of total revenue basis offset somewhat by declines in certain other areas of the business.

We expect non-GAAP gross profit percentage to be approximately 64% in the third quarter, within our long-term range of 62% to 65%. And as we've indicated in the past, our gross profit percentage forecast has a variance of plus or minus 2% depending on mix.

We continue to carefully manage our discretionary operating expenses, while ensuring that we fund strategic development programs targeted at delivering top line growth in 2012 and beyond. As such, we are continuing to selectively add key R&D talent, and total ordinary recurring operating expenses will increase modestly in the third quarter.

Excluding approximately $700,000 in non-recurring acquisition of IP license charges we previously disclosed in our July 6th press release and other essential strategic activities, we expect non-GAAP OpEx to be approximately $12 million in the quarter.

In summary, the second quarter reflect exciting progress in the key areas of our business, including a continuation of sequential revenue led by strong contribution from cable across a range of video set-top and advanced DOCSIS data and voice gateway markets.

We continue to be optimistic about our growth trajectory, given the design and momentum and new price developments that are driving expansion of our TAM, and believe we're well-positioned for growth in 2011 and beyond.

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

(Operator Instructions)

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

Hi, guys. Just wanted to get a little bit of color on both how good you think the cable business can be, whether it'd be a percentage of sales target, et cetera, because I think you're above the range you expected to access this year on.

And then the offsets against it -- talk a little bit about what's going on there and when you think that's kind of a legacy business when that's going to be down to a manageable amount. And if it's just an inventory correction, how long do you think that will last?

Okay. Hi, Ross. This is Kishore. I think you asked three questions there. Let me just clarify the questions. The first one was cable as a percentage of revenue. The second business is what shaped the consumer business is -- offsetting the cable revenues. And the third is that, is it a result of inventory correction situation? Is that correct -- the questions?

Yes. I didn't specify that it was the consumer that was the offset, but kind of implied -- what was the offset and why?

Okay. So, cable as you can see is growing very heavily. The best part is the whole cable ramp for us is that it's also (inaudible) our revenues quite strongly from our concentration in Japan. And today, as the result of the cable growth, only 38% of our revenues in this quarter are for Japan and this would continue to go there, and we believe by the end of the year, Japan would be about 25% range of our revenues.

So, having said that, the cable growth is really strong. It's multi-pronged. There are four pieces to it. One is the media server market. One is the video set-top box market. One is the voice and data gateway market. And the final one is the high-definition digital-to-analog converted set-top box market for the North American cable market.

So we saw a particular strength in the voice data gateway market this particular quarter, compared to video set-top boxes in the last quarter. So, we are expecting cable to be growing even stronger in the guidance we provided.

However, there have been some slip-outs in the roll outs of the high-end media server market that we have design in, that we have been selected in. Second, the high-definition DTA market that is related to the Comcast roll-out of [HDTV] products in North America, was slated to start in third quarter, now it's been delayed to the fourth quarter.

So combined with the media server slip-outs and the HDTV market roll-out slip-out, we took a hit in forecasted guidance in the revenues that releases the in-market roll out typical of lumpiness. However, we have been assured that to the extent the [assurances] are coming, that the role of the HDTV product will be towards the end of the third quarter, beginning of the fourth quarter.

So that's the piece where on the guidance piece, you're seeing a lower guidance than you would have assumed because the cable side, which is related to the ramp delay, so to speak on the media servers and HDTV.

On the consumer side, we've seen softness in two areas. First and foremost is the set-top box market for the end market DVB-T Terrestrial market in Europe, and for the ISDB-T set-top box market in South America. I want to remind you that these both end markets of set-top box for us have a new concentration of the digital-to-analog converter set-top boxes related to analog broadcast (inaudible) in many of these countries that seems pretty slow right now on the retail sales.

The other piece is that the Japanese digital television sales have also been slow. While it didn't seem to have dramatically taken a downturn as the result of the earthquake, but nevertheless, it appears that the retail part of the sales is slow and we saw slowness in those revenues for the television market.

I cannot speak at this stage that it is a result of inventory accumulation. I just think that our customers have difficulty forecasting for us. We don't see (inaudible) inventory [shoe]. We believe that it is an end market slowness of retail sales of this product that's affecting us.

So if you combine those, the cable and the consumer related downside in the guidance, cable not being a downside, but a reduction in the upside that are related to the ramps, they're almost 50/50 for us that resulted in the guidance being flat in the ones that Adam just gave you.

So, coming back to the percentage of cable revenues, I think we're on track. We're about track actually right now, the way it's looking. So, (inaudible) a little bit more pronounced because consumer is lower than what is anticipated at the beginning of the year. However, as Adam said, cable is about 35% Q2. And we believe at the end of the year right now, the forecast of revenue for cable as a total part of our revenues will be in excess of 30%.

That you'd feel pretty comfortable about. So, you could imagine that the reach about 30%, the expectation based on the design wins of the ramps, if they play out on the cautious tone we have taken on the cable predictability, we believe that the Q3, Q4 levels will be much higher than the number that Adam has told you on the percentage of cable as a part of our revenue.

Our biggest challenge today is how to forecast the consumer revenues related to these weaknesses in the consumer Japan in these particular geographic regions that we have observed. So, I hope that answer your question as best as I could provide for you.

Yes. Two really quick -- hopefully, quick follow-up. Thank you for all that detail. I guess the first one is the percentage of sales. Are you saying for the full year you'll be kind of over 30%, or ending like as in the fourth quarter you think it would be over 30%?

I think for the ending year it will be an excess of 30%. Obviously, that means in fourth quarter we will be well about that.

Got you. And then the other clarification. You said that the high-end set-top box business in the US was delayed by basically one quarter -- not your fault. The media server side that you said was delayed, is that side -- do you have any clarity when that's supposed to pick up?

So, I think there's a little bit confusion with the two. The high-end media server box market is where there's been some delay. Actually, on the regular server market, we have got a couple of strong design wins with North American operators, maybe one or two in Canada, and one in the northwest of the country for the home IP video server market business.

So that actually has been a very positive. This thing -- I think on the talk for the next quarter, you should see an uptick on that one. So, it's the high-end media server is where the ramp is delayed actually from Q3 to Q4. And at this point, the high-end media server market is not about the hardware design. They're ironing out software issues and things that are really related to pretty higher layer software.

So I cannot give you a strong visibility on that on -- can we be definitive about fourth quarter. But where the real slip has happened is the high definition digital-to-analog converter set-top boxes market, for the cable market North America, which is going to be a very, very large market.

And we we're designed it -- we are designed it and we have standing POs that only a week ago we were asked to stall the shipment so that -- because the ramp has gone delayed, due to some last minute certification issue for major operator to the fourth quarter. It doesn't mean that we will not ship anything Q3.

We expect that could be a last week issue big issue. So it is safer not to forecast that in the guidance we are providing you right now.

Great. Thank you. One really quick last one. Hopefully, it will be -- able to answer really shortly on your side. The size of those opportunities -- if they had been included in your guidance and ramp as expected in the third quarter, what would've the guidance been?

I would say you should assume it should be in that -- $1.5 million to $2 million more.

Great. Thank you.

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

Hey, Kishore. Hey, Adam this is Jason calling in for Quinn. Just a couple of questions on the MoCA IP licensing. Could you guys maybe talk about what type of solution you're planning on developing, be it a standalone or an integrated solution?

And then, how far along in the process are you towards a 2.0 solution? And when do you guys expect to have a product sampling with customers? Thanks.

So, Jason, we're really excited that we have secured the MoCA IP assets that are actually fully 1.1 certified actually. However, the entire market we believe at the time we will be able to intercept will move towards MoCA 2.0, the updated version with channel bonding and supporting more than twice the bandwidth of today's MoCA 1.1.

So that's where the market is converging, in our opinion. And so, we are going to focus on MoCA 2.0 as the real goal. However, MoCA is common to all the platforms where we are present today in the cable side. There's strong footprint on the access side with our wide-band front-end, so MoCA would be a valuable piece and actually quite dramatically expanding our ASP footprint on our platforms.

Our plans today, I think, like any silicon SoC company, we shouldn't assume that development will take anymore less than 24 months to product revenue ramp. So the plan today includes doing a standalone MoCA 2.0 SoC, plus even a consolidation of doing a MoCA RF-only product to support legacy 1.1 solutions.

You will know that in the MoCA 1.1 market, that is today's market, there are three kinds of competitions. One is a standalone 1.1 SoC from the pioneering MoCA 1.0 MoCA market namely Entropic. And the other one is the integrated solution of [broadcom] with any parts of the silicon being integrated, not necessarily all of the RF componentry.

And the third piece of the market is the 1.1 fine (inaudible) component being integrated at the backend offering Intel platform, or a Trident platform or an SG platform. So, an RF-only solution for MoCA 1.1 to meet with those backend providers is an imminent possibility and that could happen in lesser time than the 24 month development time I spoke to you about.

Okay. Great. Thank you. And then I guess just as far as you guys talk about kind of future TAM expansion and the potential for future IP licenses again, could you maybe provide some color on that as far as what we should be looking for and thinking about in terms of what IP you may be targeting, and specifically where you would like to expand your TAM?

Okay. So I think with regard to the financials, if there are any information to provide, I'd let Adam handle that. I mean, it's very clear with the MoCA edition, we at MaxLinear is thinking about it in the entire roadmap and time expansion.

Primarily, we believe it should be about ASP expansion. It should be about the expanding our footprint in platforms. We'd be able to differentiate foothold today with our front-end access, and (inaudible) there is radio -- strong radio challenges.

If you look at the cable broadband platform or even the other markets, today, in all the access platforms that we are in connectivity distribution, really, really for high-end quality of service video and data distribution is going to become a very important and more meaningful part of it.

In order to support greater bandwidth, the nature of the distribution is being upgraded to much more like in the access side, basically multiple channels, be it channel bonded being a fundamental feature to them that plays a strong - plays into strong strength that we have as a [radio-fi] company.

So you should look for us to make any IP acquisitions related with software or hardware IP related, to anything that quality of service distribution or broadbanding of the data distribution in the platforms -- the set-top box platform or the media server platform that we are in today.

I want to tell you that the MoCA TAM is not specific to cable alone. If you look at the MoCA TAM, it's about $30 million to $40 million notes today equally distributed between the satellite and cable, [but it declined] in the servers and also the Verizon server type programs. And so, that also gives us a nice entry point in those markets with the acquisition of MoCA, and as we roll out new products with respect to MoCA.

Yes. Jason, I'll give you a little more color as far with -- as far as modeling going forward. We really haven't quantified the remaining pieces that might be acquired through licensing technology.

In all likelihood we're going to be doing a combination of organic development with our internal capabilities maybe in -- strategically picking up pieces of IP as they fit one way to accelerate things. But right now, we don't have anything internally modeled into kind of big chunks of IP to pick up and pay for like we did with the MoCA deal in this quarter.

I think with -- and as we think about a little bit in the earlier part of the call, the $3.3 million that we discussed was not just MoCA there was some other connectivity related IP and software that we picked that's related to a future product area that we'll be talking about later in the year.

But, again, no big chunks like MoCA right now are currently anticipated, but I can't say that that won't be the case. I think that we were pretty fortunate in having the availability of this IP in the maturity status that it had. I think it saved us a lot of time to market, a lot of potential trial and error, and really derisks the expansion in the relative near-term and immediate term.

Okay. Great. That's very helpful, guys. Thanks. And then I guess just one last one for you, Adam. When you talk about kind of OpEx growth consistent with your TAM expansion goals, how should we start to think about OpEx going forward as you guys kind of bring about these incremental TAM expansion plans?

Again I think the -- aside from these kind of step function big pieces that we picked up kind of like MoCA -- and again we don't have anything right now that's definitive on the roadmap of what we need to pick up -- that you should kind of model a normal kind of growth in OpEx. As you can see, we're not adding a lot of headcount at the time. We're selectively adding. We added less than 10 heads in the quarter.

And I think that if you also look at other items that provide some lumpiness to the OpEx line, it includes things like -- obviously if I mentioned earlier that we had a couple of 65 nanometer mask sets. That kind of lumpiness will continue because we're not at a size yet where we're doing the same number or predictable number of tape-outs in any given quarter.

And also, as you look at the way that we account for mask sets, it differs depending on what type of technology, what kind of market that the technology was taped-out applies to. So, it's kind of difficult to predict. And we look at each mask set on a case-by-case basis, and with our auditors to make sure we're treating them appropriately.

And so, if you look at a market, for example, that's new for us -- a new market expansion, a more conservative approach is taken where you tend to -- we view expense even potentially a production mask of that type of technology. It's always consistent that you, for the R&D mask or kind of preliminary (inaudible) mask, you would expense that regardless of what are you're going into.

But for certain areas, an established part of our business, we would look to capitalize that mask. If it's a new expansion area where there's more just -- by definition, more business risk, that's one where we've taken approach and expend that rather than capitalize it and amortize over time.

So, it's hard. There will be some lumpiness to the P&L, not only driven by these TAM expansion issues, but also just by the fact of what we do with our organic -- or our internal tape-outs of products.

Great. Thank you, guys.

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

Yes. Thank you. A few questions. First of all, you talked a little bit about some of the moving parts in your Q3 guidance as far as the segments are concerned. But can you talk a little bit about your visibility? I'm just trying to understand sort of your backlog trends, maybe linearity of bookings. Just -- so you can put some qualitative concept on what the guidance means. Please.

Sure. So to add a little bit -- additional color there. So, as we've talked on prior calls, we typically go -- in the last few calls, we've gone into the quarter between, you can call it, we're on two-thirds booked, if you will, to our guidance.

Going into the quarter, we were a little lighter than that, and that has let us to this more conservative guidance. I think we see a lot of upside opportunity in our revenue even for the current quarter that we just gave guidance on. But we really haven't counted on that. So, it didn't get baked in to our nominal forecast that we provided here for our guidance.

So, again, a few things influenced the conservativeness of the outlook. I think one is there just been -- we now of course know the nature of the lumpiness as Kishore mentioned when dealing with cable operators. And then, the second piece is just overall macroeconomic conditions are uncertain. And then I think third, the consumer market -- the (inaudible) market, strictly for DTA boxes, like Kishore spoke to earlier, are difficult to predict.

A lot of folks have great models as to when these countries -- we know when the countries are converting over, but it's harder to predict when the consumers actually go out and realize that they want to go enable those extra TV sets in their homes with a converter box. It's much more difficult market to predict.

Very good. And your cable business is on $100 million run rate now. Just based on all the design wins you have -- and I do realize these are sort of like long-term design wins, not just necessarily near-term design wins. Can you maybe quantify a little bit how big that business is becoming more from a design win perspective?

Let's back up one second. You said the cable business is on $100 million run rate. It's not on $100 million run rate.

Sorry, I meant $25 million. Sorry. $25 million all right. Sorry. So I'm just trying to understand from your design wins what type of number are we looking at here over the next year or two.

I think that's, I would say it's in a very, very healthy pace here. I think next year -- we don't give guidance beyond the quarter that's very, very tough for us. But I think that's going to be well north of -- maybe let me say that as a percentage of our revenues, we would expect it to be pretty much in the - somewhere between 30% and 50% of our revenues next year.

Very good. And coming back to MoCA, I mean, I do understand this was opportunistic and things like that. But were you also getting some questions or even pressure from customers as far as acquiring that technology and have it in your roadmap?

So, I won't say pressure. There's a strong desire and request from customer to really be the -- they're really impressed with the technology we bring on the front end on the modems. And because they buy our RF parts, they buy our demodulators, they buy our RF and demod SoCs with multiple channels, and they really feel that we can make massive -- highly differentiated with (inaudible) multiple radios.

And they are not particularly happy with the solutions that are available in the radio front-end -- any of the MoCA providers. And they've been asking us for the longest time, could you please get in to it and do something about it? For us it is very clear, that we would be late for the market, and we just didn't want to do a product that's a pure radio only, though we would always consider that.

It seems that once our cable footprint got established we felt that we should do something about intercepting the market as a turning point goes. And for -- a few months -- a year ago, it was not clear MoCA 2.0 was going to happen. And suddenly, three, four months ago, as the cable [show] onward, all the operators and major players were asking for MoCA 2.0 to be the new RF piece for vendors.

And we thought that was a great interception point given the channel bonding involved in the MoCA of standard. And then, we were -- though we got lucky with this -- in the IP asset acquisition somewhat. However, it was not like we were not looking for it. We were looking for it for the last months. And as it is we got to that point, we turn on a dime and quickly made the decision to move forward with it.

So, yes, customers have strong interest. They want a third player. They want a player who can provide world-class differentiated front-end RF solutions that are highly-integrated, and can really solve all the convergence issues and coexistent issues of MoCA, sitting with a broadband (inaudible) that physically adds over a $1 to $2 (inaudible) external [Bom] in the black form that we could easily significantly reduce by an integration strategy.

Very good. And just sort of two housekeeping ones. I mean, your operating cash flow was fairly neutral in the quarter, yet your stock is trading at two times cash, and you do have plenty of cash. Any thinking about maybe instituting a buyback here at some point?

I can tell you the answer is that we really believe that this is a period where we're doing massive TAM expanded footprint much more, what I call platform like revenue source generating investment we're making, which we can't reveal to you.

In fact, we hope that by the time we do the third quarter call we would be able to share with you design wins and production ramp up of a new product that we have never talked about. We've been told by the customers not to do it ahead of their own announcement.

So, we feel this is the time for us to invest. And I think that we will deploy the cash in meaningful ways with things like MoCA or other TAM expanding activities as being the primary thought process in the Company's mind and not necessarily a buyback. A buyback has not been seriously discussed at all within the - executed or the Board -- Board circle today.

It's a very good --.

Hey, Tore --

Yes. Go ahead, Adam.

To clarify on the use of the cash. As Kishore said, we are certainly looking to deploy cash to help strategically grow the business, but at the same time, I don't want that to be a concern as we've got massive plans to burn through a lot of our cash. That's not the plan.

We don't see the business consuming large amounts of cash in the ordinary course. Even on the MoCA license that we've been talking about. For example, the payments for that were actually spread out over eight quarters. So I don't see right now any huge consumers of our cash. So, I think that we do have a lot of strategic flexibilities of what we do. I'll kind of leave it at that.

Okay. Last question. Can you just give us an update on the insider selling overhang? I know it's hard to get a good read on it, but any information that you could share with us would be helpful. Thank you.

Yes. If you look at the overhang from the VC perspective, there are still somewhere between -- because the numbers move, we don't get real time information on this -- but somewhere between 7 million and 8 million shares that are still held in the hands of our VC investors.

And I would say that one of our major VC holders has not been a seller since the IPO. A couple of the others have. And so, I think it's likely to expect any of our -- from our discussions with them that you'll continue to see some liquidation of their positions over time, which is not unusual for a company in our state and kind of where we -- the timing that we came out.

But we don't have any visibility as to any detailed plans that they have. We just know they kind of -- generally, they talk about continuing the kind of current course and speed of their liquidations that we've seen to-date. Although I will say the four institutional investors (inaudible) are almost. They each have less than 1 million shares. And then, we have two others that both have around 3 million shares.

Very good. Thank you, very much.

Thank you.

(Operator Instructions)

And our next question is from the line of Anil Doradla with William Blair. Please go ahead.

Hey guys. A couple of questions. You guys talked about the potential push-outs on the media server from some of the North American MSOs. Can you handicap the risk associated with maybe push-outs of some of those things from Q4 to Q1 of next year? What gives you confidence that in Q4 it will come to fruition? And I have a couple of follow-ups.

Hi, Anil. The media servers -- the high-end ones, they're pretty complex products and they're having trial rollouts right now as you speak. And so, is it going to happen in Q4? It was supposed to happening in Q3 and it got delayed to Q4. But at this point, I will say that I expect that these roll-out of the media servers is more a late Q4, Q1 item only because of the way things have played out, not because of any real information that tells me that it's going to be the place.

We're ironing out the software issues and generally operators involved, subscriber [models] are involved, and the usage patterns are involved. So it's very hard for me to tell you that that's going to be -- with confidence that it's going to be in Q4. But right now, my assumption is going to be late Q4, early Q1.

Okay. And clearly, as you've pointed out, some of the uncertainty around on the consumer side of your business. Can you give us a little bit more color maybe -- you talked about some gateways in Europe that's a little soft. But can you guys give us a little -- dissect that segment a little bit more?

And it looks like auto is okay for you guys, and how you guys are being able to offset some of the issues on auto versus maybe some of the other guys? Is it mostly because it's aftermarket? I would love to know your thought on that.

So I will give -- the color that I think I've given is that half -- Ross asked about how much would the cable forecast been up if those didn't push out. I said about $2 million. So from a guidance perspective, the balance that maybe whatever you have in your models, I can't specifically to that.

The rest of it comes to consumer, and a substantial portion of it comes from, I would say, more than 50% comes from the converted set-top box market, and the rest comes from -- another 30% comes from digital television. So with respect to automotive, it's not researched, it's in line with our forecasting process not necessarily -- it is resumed to what the levels were on a volume basis compared to last year.

So I think that one of the things that may have happened was that the inventory levels got pinged out in the previous quarters because they really went into freeze mode. And then, they started shipping. And then we've learned that our automotive makers like Toyota are forecasting that this year -- by the end of the year, they'll play some catch up and for the entire production for this year, they may only be 10% to 15% off from where they did last year.

So I think -- we may be seeing some catch up on the auto and that's why we did okay relative to our forecast. But by no means, it is recovered to last year levels. So I think the breakdown - out of the remaining -- out of the $2 million in the cable that is going to push out the converter box, you should divide about 16% and 40% between terrestrial converted set-top box market and digital television.

Okay. And as we look into 2012 and exit 2011, from some mega-trends point of view, I mean, is it primarily going to be a cable play, or there is some yet to be announced absolutely new product categories that you believe will become material in 2012?

I would say that cable will be the shining star because the design wins [only] happen. They will be the run rate situation for quite a bit. However, we have hybrid TV tuner design wins that are happening now. And we'll be announcing a new product that will generate incremental revenue this year, but not meaningful to change forecasting process and that will hit run rate.

And then we got another product lines that will get designed into in the -- late this year and the beginning of next year that will also generate revenue in the latter half of next year.

So I would say -- I would break it down this way. In the first half of the year, you will see cable and hybrid TV as the drivers on the product cycle revenues. Second half of year, you'll have cable and hybrid TV. And two -- the one unannounced product which we hope we share with you -- in the third quarter, and a new product that will launch at the end of the year, beginning of next year.

So, we'll have four products driving revenue growth in the next year.

Okay. Very good. Thank you, very much.

Thank you. And at this time, I'm showing no further questions. I would like to turn the conference back to Mr. Seendripu for any closing remarks.

Thank you, operator. As a reminder, we will be participating in the Morgan Stanley Semiconductor Day in Chicago on August 24th and the Deutsche Bank Technology Conference in Las Vegas on September 15th. And we hope to see many of you then.

To conclude, our longer-term growth trajectory and growth vectors remain positive and unchanged based on Q2 results and Q3 guidance of 2011. It continues to unfold the positive business momentum, particularly as it relates to our cable and hybrid TV solutions. We are especially encouraged by the product cycle revenue growth in our cable segment.

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

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1-800-406-7325, or 30-590-3030 using the access code of 4456771 followed by the pound key. This does conclude the MaxLinear Second Quarter 2011 Earnings Conference Call. Thank you for your participation. You may now disconnect.