Maxlinear Inc (MXL) 2011 Q3 法說會逐字稿

Thank you for standing by. Welcome to the MaxLinear Third Quarter 2011 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode, and following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, November 1, 2011, and I would now like to turn the conference over to Suzanne Craig, 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 third 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 fourth quarter of 2011 revenue, our expectations concerning trends in our cable revenues and our efforts to expand our addressable markets, gross profit percentage and operating expenses, our current views regarding trends in our markets, including the anticipated impact of new design wins and the size and potential for growth in our markets, and our competitive position in our target markets.

These statements are forward-looking statements within the meaning of federal securities laws and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results.

Our business and future operating results could be adversely affected if our target markets, including the cable market, do not grow for any reason or if we are not successful in expanding our targeted addressable markets through the introduction of new products. In addition, substantial competition in our industry, potential declines in average selling prices, and cyclicality in the semiconductor industry could adversely affect future operating results.

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 Risks 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 third quarter of 2011 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, income or loss from operations and net income or loss, and basic and diluted net income or loss per share in accordance with GAAP and additionally on a non-GAAP basis. Our non-GAAP presentation excludes the effect of stock-based compensation expense and its related tax effect and expense incurred in the third quarter of 2011 from applying a valuation allowance against our federal deferred tax assets.

Our 2010 non-GAAP presentation also assumes 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 them to perform comparisons of operating results in a manner similar to how the Company internally analyzes its operating results. The full reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and available on our website, and we ask that you review it in conjunction with this call. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Suzanne, and good afternoon, everyone. Thank you all for joining us today. I am pleased to report third quarter 2011 results that were within the range of our prior guidance despite significant macroeconomic uncertainty in our industry. Net revenue the third quarter was $17.6 million, down 3% over the second quarter of 2011 and down 5% over the year-ago quarter.

GAAP and non-GAAP gross profit for the third quarter was 64% of revenue, higher than the 63% second quarter and within our long-term model of 62% to 65%. Non-GAAP net loss for the third quarter was $1.5 million, or $0.05 per diluted share, with approximately $0.02 of this loss per share related to the tax related FX of stock-based compensation included in our non-GAAP results in the first two quarters of 2011 that reversed in the third quarter as a result of applying a valuation allowance against our federal deferred tax assets.

GAAP net loss for the third quarter was $11.4 million, or $0.35 per diluted share, due primarily to expenses related to applying an $8.2 million valuation allowance against our federal deferred tax assets and stock-based compensation of $2.2 million.

I would like to now first speak to the trends we are seeing in our business. At a very high level, while cable, consumer, and automotive revenues were flat relative to the second quarter of 2011, offset by the anticipated decline in Mobile revenues, there are several positive trends within the cable and consumer segments.

We are clearly in the midst of a strong product-driven revenue growth cycle asserting itself in cable in a beneficial way for our overall business. As a result, we are making excellent progress towards our goal of strong diversification revenues by end application and geography.

We are also excited about our R&D investments in our existing broadband market and newer areas such as MoCA. These new products in our development pipeline will not only increase our target addressable market, but also accelerate our growth and help in further diversifying our revenues in the next 12 to 24 months.

On the operations front, we effectively diversified our manufacturing capability in our latest technology node, namely 65 nanometer CMOS process. Most recently, we announced our 65 nanometer CMOS radio products with the hybrid TV market, which have been qualified for mass production at SMIC in addition to UMC, already a proven supplier of our 65 nanometer CMOS cable SoC products.

Next, I will review each of our four business, starting with cable. Cable now represents approximately 35% of our third quarter 2011 revenue. Growth in cable has effectively countered the decline in sales of our legacy end-of-life-cycle mobile TV products and macro demand softness in the European terrestrial set-top box market.

Our revenue diversification trend by geography is quite strong with Japan now representing only 35% of our overall sales in the third quarter. This compares very favorably to a highly concentrated 60% of our overall sales in 2010 originating in Japan.

In third quarter 2011, North America had a 32% share of our overall revenue. Taiwan at 25% and Europe at about 15% constitute our major emerging sales regions. Despite a very minor increase in our cable revenue relative to the second quarter of 2011, during the third quarter we achieved excellent design win traction across a broad range of cable platforms, expanding the video, data, and voice applications.

In addition to our established strength in the DOCSIS 3.0 cable modem and EMTA market, we are gathering strong momentum in the cable video market, which further validates our cable roadmap strategy and product competitiveness.

Recently, we announced a number of design wins and high volume shipments, including in the DOCSIS 3.0 voice and data market, we have commenced high volume product shipment of our 65 nanometer CMOS eight-channel cable SoC chip to add us in the US and to [Hydron] for Europe.

In the cable video market, our single-channel tuner-demodulator SoC has started shipping to TiVo for use in their four-channel and two-channel video gateway and DVR set-top boxes. We have started shipping our tuner-demodulator SoC and MxL241 into a 14-channel media gateway solution offered by a major US cable OEM addressing US and Canadian MxL markets.

In the connected home cable video market, we have design wins that feed on in its Infinite TV product, which incorporates simultaneous reception of multiple cable channels in a single device using multiple MaxLinear tuner-demodulator chips.

In the China cable digital-to-analog converter set-top box market, we have secured design wins at Shenzhen Skyworth for our RF only cable receiver solution. In the North American HD digital-to-analog converter set-top box market, we have started shipments to two major cable OEMs serving two major cable operators in the United States.

Moving to the consumer market. We saw growth in shipments of terrestrial receivers for the Blu-ray standalone PVR hybrid set-top box and [PCG] application. However, this growth was offset by softness in the digital-to-analog converter set-top box market in Europe, Japan, and Latin America. As a result, our consumer revenues remained flat in third quarter 2011.

Despite the weak macroenvironment for televisions, we are excited about our prospects in the television market. We have easily sampled and secured design wins at two major TV OEMs with our new 65 nanometer CMOS, global standards compliant, hybrid analog/digital TV RF receiver, the MaxLinear MxL601.

We recently announced the Samsung Electro-Mechanics Company has selected MaxLinear's 601 for its next generation ultra-compact front-end modules addressing flat panel TV application. The MxL601 sets a new benchmark for all hybrid, analog, and digital TV reception performance, silicon integration, and power consumption.

Its ultra-low power consumption of 300 milliwatts, 4 millimeter by 4 millimeter QFN package footprint and easy software configurability enables TV and module manufacturers to achieve ultra-small form factors while supporting multiple tuner applications addressing all global television standards.

In automotive TV, as mentioned earlier, shipments of TV-enabled in-cabinet navigation systems for automobiles in Japan were essentially flat quarter-on-quarter. As we have indicated on prior calls, our presence in mobile TV market consists of a mature market for RF receivers, although Japan only has it market and accounts for a small and decreasing portion of our revenue. In the third quarter, less than 5% of our revenues were derived from mobile TV shipment.

In conclusion, in the third quarter we delivered revenue without our guidance and we continue to see strong design win momentum in strategic growth areas for the Company across both cable and consumer applications. Despite the macroeconomic uncertainties, we are forecasting meaningful and positive growth in the fourth quarter driven by our new product cycles in the cable business. 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 will first review our results and then briefly discuss our outlook. In summary, Q3 revenue was down approximately 3% quarter-on-quarter, within the range of our expectations, with relative softness due to a continued push-out of an HD cable [DPA] program, slowdown in DOCSIS 2.0 shipments, and lower than anticipated volumes in DOCSIS 3.0 gateways in the quarter. As Kishore noted, net revenue for the third quarter was $17.6 million and was accompanied by strong design win momentum in key product areas for the Company's future growth.

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 third quarter non-GAAP results exclude the effects of stock-based compensation expense and a valuation allowance that was applied in the quarter for our US deferred tax assets.

Now, moving to the rest of the income statement. GAAP and non-GAAP gross profit for the third quarter was slightly above 64% of revenue, consistent with our prior guidance and within our long-term expected range of 62% to 65%, versus 63% in the second quarter and 70% in the year-ago quarter. Non-GAAP operating expenses, which exclude $2.2 million of stock-based compensation, were $12.3 million, which is slightly lower than the prior quarter. Q3 OpEx included $8.1 million of R&D expense and $4.2 million of SG&A.

On our Q2 call, we had guided to non-GAAP OpEx of $12 million for the third quarter. The slight overage to our $12 million non-GAAP operating expense guidance was driven primarily by an unanticipated metal revision to a 65 nanometer [max set] for new product and development that was expensed during the quarter along with increased expenses related to our stock's implementation efforts.

Headcount increased 237 at quarter end from 233 in the prior quarter and 204 at the end of the third quarter last year. Consistent with our earlier Q1 and 2Q conference calls, our goals in the near to intermediate term is to grow operating expenses at a rate lower than the rate of growth of our revenues. In Q3, with a slight revenue decline, we were able to affect a slight OpEx decline. Our non-GAAP R&D and SG&A spending represented 46% and 24% of our revenue for the quarter, respectively.

Non-GAAP loss from operations was $1 million, or 6% of revenue, in Q3, compared to non-GAAP loss from operations of $900,000, or 5% of revenue, in the prior quarter and non-GAAP income from operations of $2.8 million, or 15% of revenue, in Q3 of last year. GAAP loss from operations was $3.2 million in Q3, compared to $5.7 million in the prior quarter, and GAAP income from operations of $1.6 million in Q3 of last year.

Non-GAAP earnings per share and GAAP's earnings per share in the third quarter were negative $0.05 and negative $0.35, respectively, on fully diluted shares outstanding of 33 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 expense and a valuation allowance that was applied in the quarter to our federal deferred tax assets.

Moving to the balance sheet. Our cash, cash equivalents, and investments balance was approximately $87.9 million, compared to $91.1 million in the prior quarter. Our cash used in operations in the third quarter was $2.7 million. Accounts receivable totaled $8.4 million at the end of the quarter, compared to $8.3 million in the previous quarter. The days sales outstanding for the third quarter were approximately 43 days as compared to 42 days in the previous quarter. 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 $9.2 million, compared to $6.7 million in the previous quarter. And as a result, our inventory turns declined to [3.2] in the third quarter, compared to [4.5] in the prior quarter. Our own inventory levels, consisting primarily of work in process, increased as we elected to build inventory of new product ramps to support up-side opportunities in cable and hybrid TV.

That leads me to our guidance. We expect revenue in the fourth quarter of 2011 to increase by approximately 5% to 8% sequentially. Built into this range we expect our cable revenues to continue to increase on a quarter-over-quarter basis across a broad range of applications on both an absolute and a percentage of total revenue basis, offset somewhat by declines in TV and PCTV applications.

One element of uncertainty for us is the evolving flooding in Thailand and any potential impacts to our customers' supply chain as it relates particularly to hard disk drive. We are in the process of assessing the potential risk to our near-term revenue forecast, but at this time we don't have enough good information to modify our current estimates. As such, our own product supply chain remains secure and is not impacted due to the ongoing tragedy in Thailand.

We expect non-GAAP gross profit percentage to be approximately 63% in the fourth quarter, with our long-term range of 62% to 65%. And as we've indicated in the past, our gross profit percentage forecast could vary plus or minus 2% depending on mix.

We continue to ensure 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 tape out new solutions, including our first 40 nanometer devices, and expect the total ordinary recurring operating expenses will increase by approximately $1 million in the fourth quarter.

In summary, despite macro headwinds, we are expecting growth to resume in the fourth quarter. The continued strong design win momentum we witnessed in the third quarter confirms our expectations for resuming a strong growth trajectory in 2012 and beyond. With that, I would like to now open the call (technical difficulty).

Thank you, sir. We will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Ross Seymore with Deutsche Bank. Please go ahead.

On the cable side and the push-out you talked about last quarter on the media server side and the high definition DTA side of things, can you give us an update on the status of those roll-outs?

Ladies and gentlemen, we apologize for the interruption. We are experiencing technical difficulties. Please do not disconnect. All participants will be placed on a music hold and our conference will resume as soon as the problem has been resolved. Again, please do not disconnect. Thank you for your patience. Mr. Seymore, please continue with your question.

All right, guys. I assume you didn't hear the question?

Right.

Sure. So, let me try this again. Last quarter you talked about a couple of push-outs that your customers were having on the high definition DTA market as well as the media server market. Can you give us an update on the status of those roll-outs, please?

Hi, Ross. This is Kishore. I think Adam in his section of the presentation today talked about the continued push-out of the same high definition DTA product. So while we have started shipments, the anticipated high volume ramp is still slow. So I would say that we will get the bulk of the growth; right now the expectation is towards end of the fourth quarter into the first quarter of next year.

What about on the media server side?

Think those shipments have commenced and we are seeing the benefit of those shipments starting in Q4, and they're going pretty well.

I guess as a follow-up, what are you expectations for the auto part of your business as we look into the fourth quarter?

It's essentially flat in the fourth quarter -- as we look forward from third quarter to fourth quarter, it's essentially -- we are seeing it as being flat -- essentially being flat, I would say, though it's a mild increase, I would say.

I guess my last question is a bigger picture one. Other than the push-outs that we just discussed, what are you seeing from your customers, whether it's the linearity of the orders or what they're doing from an inventory perspective, given the macro softness that so many of your peers are facing?

There are two aspects to our business. One is our existing business in consumer that have a different nature than the ones that are in the cable markets where the lumpiness is expected because it depends so much on the operator behavior and deployment. So we have seen both acceleration of shipments within the quarter and then we have seen some delaying of shipments within the quarter.

With respect to the consumer markets, it's generally -- the pace is not picked up as much and they're ordering as they need; however, we are seeing a certain level of acceleration in ordering towards the end of the 3Q and the beginning of 4Q. So I would say that there's not particular pattern other than the pattern in cable playing out in a lumpy manner as we expect, but most of those changes are in a positive way for the Company.

Great, thank you.

Our next question comes from the line of Anil Doradla with William Blair & Company. Please go ahead.

Hey, guys. A couple of questions. If I look down at the cable, can you give a little bit more color on the breakdown in the third quarter? And as we look out, say, 12 months from now, how should we be looking at cable as maybe a percentage of revenues? And also, the composition of the revenues within the cable. Any color on that?

Okay. Hi, Anil. So, as we mentioned in the call, in the third quarter the cable revenues were about 35% of our overall revenues. So we expect to end the year in about more than the 30% that we had been originally guiding.

So we have strong design win momentum currently, even in the video markets, and that traction is beginning to bear fruits in terms of beginning of shipment of our 65 nanometer multi-channel cable SoC products, which will be beneficial for us in multiple ways.

So we expect our revenues in 2012 from cable to increase quite substantially and we expect them to be in the mid 40 percentage of revenue composition in 2012. So it would be higher, but right now we feel comfortable at that level of composition for our cable revenues.

Okay.

And normally we don't guide out that far, so at this stage this is the best estimate we have.

Right. So if I look at just the cable revenue, would you say it's going to be half and half between video and non-video, or video is going to be a larger proportion?

If you really look at where a strong presence and design momentum from the past [is taken as] either we are substantially stronger in the data and [EMTA] markets. EMTA, as you know, is both data and voice. So in the mean value we've chalking up a lot of design wins in the video market, so we expect that -- we're going to be pretty much --.

There's another segment in the cable market, the gateway market, this so-called media gateway market, which is partly video and partly data. And if you look at those markets, I would say that within those three markets we could probably be equally distributed in cable between the three, we have a greater bias towards data and the EMTA markets.

Okay, good. And finally, on the Thailand flood issue, exactly how would you guys be impacted by Thai flood problem? Can you help us understand?

As you recall, one of the big sections of the Company has been, the last 12 months, is to move the Company towards higher value platforms and multiple-channel receptions be in cable or terrestrial TV reception. That's been the highlight of the way we have moved from the revenue from single-channel set-top boxes to higher tier multiple-channel PVR-type boxes.

So the PVR boxes, you get two kinds of boxes -- one with built-in hard disk; other one with an attachment to the set-top box with a chip as an external attachment. So to the extent that we have revenue originating from suppliers to our customers (inaudible), so we would have some revenue exposure on the PVR box with a hard disk.

But the good news is this, is that we have checked with our customers, they have not forecasted any impact on the PVR boxes with respect to the hard disk availability, though they do caution us that moving into quarter one we are going to be careful about it.

One of the nice things we have learned is many operators have gone directly to the Seagates of the world and have secured guaranteed supply for the PVR boxes that are shipping to the particular end major operators. So we feel pretty comfortable that at this stage in Q4 we don't see exposure to Thailand even from a customer perspective. But beyond that, it's hard to comment at this stage.

All right. Great. Thanks a lot, guys.

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

Hi. This is Eric calling in for Tore. Maybe if I could just start off with the guidance. You're guiding at 5% to 8% growth, but you mentioned some softness in the HD DTA and slowdown in DOCSIS 3.0 shipments. Can you just kind of elaborate a little bit more on that, help us understand that?

I don't think you want to think about slowdown in DOCSIS 3.0 as a slowdown that's going to persist into the fourth quarter or the first quarter. I think we made your comment relative to the shipments we had in Q2 versus Q3, so that's a statement along those lines.

With regards to our guidance about 5% to 8% up in the fourth quarter, that's actually driven by shipment increases in our DOCSIS 3.0 data markets as well. So if you've looked at some of the major cable OEMs that have had their earnings calls, one of them actually mentioned that in this particular quarter for the first time they've hit 50% of their data modem shipments with DOCSIS 3.0.

So we feel that DOCSIS 3.0 data market is [playing] according to our projection at the beginning of the year, so we don't see a slowdown coming due to any DOCSIS 3.0 shipment decreases in the subsequent quarters. It was purely a comment on our internal calculates on the shipment that went out from MaxLinear as a supplier for the DOCSIS 3.0 of Q3 versus Q2.

So we feel that our guidance is pretty narrow and tight relative to the uncertainties we faced last quarter. If you recall, the last quarter's guidance was more broader. We have narrowed it down now to -- I think the midpoint is right now at $18.75 million. And so given the tight range we've given you, we feel that we've got a good certainty of our forecasting for this particular quarter.

I feel the bigger color is that entering the quarter and the few quarters before, the economic uncertainties, were [were just] two-thirds backlog in our forecast, entering the quarter. And I think we are pretty close to recovering to that point right now as we look into quarter four for the guidance this time.

Great, thanks. That was actually one of my questions, about how bookings are shaping up, so it sounds like you're almost tracking towards the three-quarter -- two-thirds, I should say, bookings that you usually have going into the quarter.

If I can just then ask, you talked about entering the quarter, there were some areas where you might have -- thought you could realize some up-side. And your results suggest that you fell within your range, but can you just talk about maybe what happened to those opportunities?

I think the first and foremost thing I want to point out is that none of these fluctuations you have seen with respect to revenues had anything to do with competitive positioning disadvantages. If anything, we have secured our position in cable as a major supplier for the front-end in the advanced cable markets of North America and Europe. So we have not lost any position.

What has happened is that one of the OEMs has began shipment -- in a nice way, one of the OEMs just has delayed their shipments, and each of these OEMs are supplying to different operators. So suffice to say that one of the operators is doing very well, one of the operators is doing not so well. So in balance, I would say that the shift happened in such a manner that the effective volume ramp is delayed relative to where we wanted to be.

And since this is not a perishable market in that sense, we should see -- if they do pick up momentum you should see also a swing in the other direction as well. So this is the classic fortunes, cable markets given in terms of forecasting and we are now getting well equipped to deal with it as we move forward.

Thanks, that's helpful. Maybe just one final one here. Can you just update us on the progress you're making in MoCA and how you expect to compete in this market? Maybe refresh us what your strategy is and how that's progressing. Thank you.

Actually, I'm glad you asked that question. We have now completed the internalization of the MoCA assets we acquired; that's a huge milestone. It involves getting all the ideas that we've acquired, not just verifying them now, configuring the systems to test and modify and be able to develop a platform where we can optimize and build world-class product, which is what we aim to when we enter any market. So if you look at it from that perspective, we're pretty far along in terms of assessing [where are IPs] and what enhancements we need to make, and we are making very good progress along that front.

Regarding the MoCA strategy, it's very clear. It's that MaxLinear's goal and the enhanced investments we have been making of late and the investments we continue to make is to increase our TAM substantially. And the TAM expansion has two parts to it. One is increase our footprint inside our existing platforms and also attacking new markets. Second piece is also -- becoming one of the only suppliers of all the opportunities that a platform would acquire.

So if you look in our cable space, there's a space we entered with demand from operators and OEMs. And there, if you look at the supplier base for MoCA, we feel that with our technology we can bring the world's best MoCA, far superior to anything currently is offered to the market with higher levels of RF integration.

And also, we can bring strategies of combining front-end cable access performance and MoCA performance and increase our footprint in the cable platform so that we can effectively double our ASP and possibly to the platform that we have today in the cable market.

A similar strategy is going to apply in other markets as well. You know that MoCA is fully deployed not only in cable; it is employed in IP boxes such as the Verizon markets. It is being deployed in satellite boxes. So by having MoCA, we effectively increased our addressable and accessible market as well.

So strategy-wise it's clear. MaxLinear wants to be the Company that wherever there's RF, wherever there's modem, wherever there's RF -- heavy RF content and high performance requirement [with lead] distribution or connectivity, we want to own that entire content that surrounds the RF [be it fronted] or distribution, in all the platforms that we exist in today. So in short, that is our strategy, and you should look forward for the Company to continue to invest in that direction as well.

Thanks, I appreciate that.

Our next question is from the line of Quinn Bolton with Needham & Co. Please go ahead.

Great. Thanks. And congratulations on the outlook. Kishore, can you give us a sense -- it sounds like the high-def DTA ramp continues to slip. Can you let us know how much of that program is sort of baked into the guidance you've given now for the fourth quarter?

It's a free world, you can call it a slip. I don't call it a slip. I think it's the way ramps happen. So I would say the slowness of the ramp. With respect to how much of the HD DTA for the cable market we have baked into our forecast, it's pretty modest. And if I'm looking at the data here in front of me, I look at it as that it's a very -- it's around less than 10% of what forecast guidance we have given to you. So I think that number of going to sort of play out pretty nicely because of the conservativeness in our forecast.

But I also want to tell you that we would like to surprise you with that DTA going up and maybe even beat those numbers. So the fact that we've narrowed down the forecast does not imply that the variance on the up-side has subsided at all -- just the opposite.

I guess ultimately what I was trying to drive at is -- I think on the last call you said you thought that could be about a $2 million per quarter opportunity when it hits sort of the high volume ramp. Is that still a good estimate to be thinking about? And if so, it sounds like you're certainly not hitting that high volume or that full $2 million run rate in the fourth quarter.

I would say at this point we are around half of that estimate for fourth quarter, if you want to -- and if you want a little a little bit more clarity (inaudible) we have been with the forecast in the fourth quarter.

Okay, okay. So certainly, if it ramps, could continue to be a tailwind into Q1?

Yes.

Great. And then the second question. You talked about the gateway design wins starting to ramp, and I believe you said that that was a 241-based win. Is that right?

That's right. It's a media gateway platform at a major US OEM that I'm not able to go with a press release for you guys.

Okay. Is that --? Knowing that the 241 is a single-channel device, can you say, do you have just the single 241 or do you have multiple channels and is there an opportunity for 261 or one of your multi-tuner devices in either follow-on gateways from that customer or other gateway customers?

Absolutely. In fact, in this particular platform, the design has been going on for almost 12 months before just that they're -- the shipments have started just about recently. There are actually six single-channel 241 was in the box. There are eight downstream for data and six for video channels. So that's the box.

We have designs going on with the replacement of our single-channel designs beta, but there are more than two PVR-type video channels we're replacing with our 251 product or our 261 product.

If you'll recall, 251 product is the dual-channel tuner-demod SoC product in 65 nanometer and the 261 is an eight-channel tuner-demodulator SoC in 65 nanometer. So we have designs going on, we have started pilot shipments with ten of the customers in this particular space, and that's looking quite healthy. And as we move forward, we'll have more product announcements in the cable area that will showcase our ability to capture multiple channels, even more than the eight we've talked about, in the next three to four months.

Okay. And then turning to the situation on constrained hard disk supply, it seems like your cable revenue in the near-term are still predominantly on the DOCSIS data in the EMTA side. Do you have any significant cable revenue tied into video, PVR, DVR, set-tops on the cable side of the business?

Yes, we have a growing PVR side of the business. But at this point, it's not -- is it small compared to the data part of the business. And then, if you'll recall, I just told we made checks with our customers and we feel that we don't have much hard disk supply exposure to our customers, to our revenues, that are shipping in cable.

But the other point is that even the consumer market with terrestrial markets and hybrid set-top boxes, we have some PVR boxes. And even there, we are happy to share that we don't feel very exposed to this adversely -- to this Thailand situation.

Okay, great. And then just the last one from me, I believe you mentioned that the TV business being a little soft in the fourth quarter. I'm assuming that may just reflect normal seasonality in the TV business. But when do you see --? You've had a couple of big hybrid tuner design wins announced over the last quarter. When do you see the hybrid TV revenue really starting to kick in and drive growth in the TV side of the business?

Okay. I would say that at this time, like we have said before in the previous quarters, we expect that to be the latter half of next year when the ramp sets in full-blown. We're right now, as we speak, we have a backlog for some initial shipments to one of the major customers we talked about with our hybrid TV announcement in this quarter. So that is the beginning of the 601 shipment ramp, if you will. But as we layer in more customers, we think the latter half of 2012 is when you would see hybrid being a true, strong product cycle growth driver for MaxLinear's revenues.

Okay. Great. Thank you, Kishore.

(Operator Instructions)

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

Hey, guys. Thanks for taking my question. First question, Kishore, just on the high level -- you talked about 2012 and the cable opportunity being a nice driver of growth. I was wondering if you could talk about qualitatively some of the other growth drivers from an end-market perspective that we should look to for 2012 growth opportunities.

Yes. So cable is the one that's probably known as a growth driver for MaxLinear. Obviously, our well announced goal of diversifying the revenues by region and application, increasing the TAM and investing heavily towards the direction so that we'd have a sustained growth as a Company and we have new areas we'll be entering next year. And that, in addition to new products that are being launched, to take greater footprint share in our existing consumer terrestrial markets.

So, if you look at one of the areas we've started now recently, shipping, is if you look at satellite set-top box market, in the satellite market in Latin America, much of the content comes from over-the-air terrestrial transmissions. In those boxes, we are shipping the PVR -- terrestrial PVR dual channels into satellite set-top boxes headed to Latin American for some major satellite operators. And those are tuners only at this stage.

So, we will be announcing products that will have multiple tuner demod SoC solutions for even that market as well. So that while it's terrestrial in nature, it's a new end market in satellite, and that would be our first big entry in the -- on a pretty meaningful [ESP] into the satellite set-top box market.

So that will be a growth driver that you guys are not familiar with at this stage. And the next three months, we will be announcing the products that would clearly point in the direction of where MaxLinear is going to head and how it's going to increase the revenues in this market space as well. So that would be a new growth driver.

And then, we also have hybrid TV we've talked about would be a --. I think hybrid TV would be the bigger growth driver in our consumer markets, not only in our hybrid television entry, which we are doing for the first time, but also we announced this product called a 60X super radio family that will not only enter into the hybrid TV market, it would also replace our older 0.18 micron and 0.13 micron radios in existing terrestrial products.

We need to preserve MaxLinear's growth story as well as make good on our long-term gross margin strategy of 62% to 65%. So I think that in a nutshell would be the things you'd watch out for '12 and '13. Obviously, much of our investment in the next nine months would drive revenue in '13 as well in a much (inaudible), in my opinion.

Okay. That's very helpful.

And frankly, internal execution has never been as good as it's been today in a long, long time. And despite the disconnect in the market, I'm pretty excited about where we're headed.

Right. No, that's helpful. Thanks, Kishore. And then a follow-up question, just on the TV landscape, particularly in the digital TV space. I was wondering if you could give us an update on the competitive landscape. Any changes there we should be aware of, or how should we view kind of the competitive position vis-a-vis the competition?

Okay. The good news in digital television, or television in general, is that nothing has changed. But that doesn't mean innovation has stopped. We have announced a 601 plus super radio family that sets the benchmark in performance. And it not only sets the benchmark for performance in hybrid analog/digital reception, but we believe it sets the benchmark in digital television reception as well.

And so the competition landscape regarding digital television only, Japan is the biggest digital-only television market in the world. And there, we have all the major designs and shipments continue. We continue to own shipments of all the major players in a big way.

On the hybrid television side, obviously, the frontrunner has been the last year -- or this year, sorry, has been Silicon Labs' NXP with their hybrid television RF receiver shipment; however, the penetration in the market space has been pretty small. I would say that it's less than 20%.

And I think the acceleration will happen now as the module makers like NuTune and Panasonic Electronic Devices, PED, and those guys get -- the module makers get away from modules and silicon becomes more and more entrenched in the television space. So I think that the growth is [going to] yet to come in hybrid television and we hope to be a big part of it.

The second piece is that now the television makers are suffering from what I call low profitability on the television. They're trying to figure out a way to increase their value. They're trying to increase the multiplicity of received channels inside TVs, just as the Japanese television makers have been doing for years now.

So I think that the RF receiver opportunity in the televisions would increase, where low power would be significantly important and cost would be very important, and I think those are elements that play to MaxLinear's incredible strength and its technology confidence. So we hope to really make good on that promise of the potential for the Company.

Great. Thanks so much, Kishore.

Thank you. Our next question is a follow-up from the line of Tore Svanberg with Stifel Nicolaus. Please go ahead.

Thanks for getting me back again. Can you just comment on the current pricing environment? Do you see any surprises there?

And then, Adam, I may have missed it. I think you said in the prepared remarks -- can you just tell us again what your Q4 guidance is for OpEx? Thanks.

Yes. The Q4 guidance for OpEx was up $1 million from Q3. So we're looking around $13.3 million.

And it's primarily driven by our investments now in 40 nanometer technology. The Company's current developments are all in 40 nanometer devices, where our new investment in MoCA and such product lines where there is going to be significant RF and digital components. Digital componentry would benefit from the smaller technology nodes.

Also, if you'll recall, our radio technology is a very digitally scalable radio technology, so you would get enormous benefits when there's lots of radio componentry on the chip, where that will also scale and give us the best in cost structure for our products to compete in the marketplace. So the 40 nanometer R&D tape-outs are the ones that have led to the increase in OpEx next quarter primarily.

Great. And the pricing environment, have you see any changes there?

The customers always want lower prices, right? So I think that that continues, especially in the, I think, the television markets where they're really hurting on margins and they pushed the pressure down the chain.

But whatever guidance we give you takes the pricing into account. And the normal pricing cycles are twice a year, approximately. Some markets are a little different, and we're not seeing any change from that sort of pricing request behavior from our customers.

Eric, just to give you a little more color on the OpEx growth Q3 to Q4. Kishore mentioned some of the increase driven by the 40 nanometer [mass costs]. Actually, there's investment in 40 nanometer development which is going into licensed IP and some other [NRE] efforts. But the actual 40 nanometer won't hit up until Q1, just to give you some color there.

The majority of the increase in the OpEx growth of $1 million, there is a tape-out cost in there related to a new terrestrial device that's in 65 nanometer. And we do have some other kind of payroll, seasonal-related items that are hitting up in Q4 also.

Okay, thank you very much.

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

Hey, Adam, I just wanted to follow-up on that OpEx question. It sounds like you're up to about $13.3 million in Q4 for OpEx. And if you've got a couple of tape-outs from 40 nanometer in Q1, it sounds like we'd probably have another step up. But how should we be thinking about OpEx through 2012? Is $13.3 million a good base and we model it up kind of on a sequential basis from there or do you see some moderation once you get through some of these heavier tape-out quarters?

I think that certainly we do have the, as we said, the 40 nanometer tape-outs in Q1. I think that what you'll see is a --. And we don't give guidance that far out, so it's hard to say because we're constantly evaluating what the portfolio of investments looks like and we're making trade-offs to get to what we think is a reasonable balance between investments in the near-term in delivering the long-term value.

So it's hard to say right now, really, what the Q1 onward OpEx is going to be nailed down to. But clearly, I think a step up that we saw in -- that we're going to see in Q4, you're going to -- I think I'm pretty comfortable in saying that it's not going to be less than that. You're probably comfortable in modeling a similar step up in Q1 just from a -- again, not without having -- going into all the specifics. And again, there's lots of things that are changing as far as prioritizations within the business.

But it's certainly not going to be, I would say -- modeling a flat to Q4 would not be a realistic expectation looking out to 2012 given what we have to do. And again, we have multiple products that are in the pipeline ranging from the first 40 nanometer cable solutions to some other markets that we're developing. So again, I think that we're certainly going to see a step up from Q4 levels. Where we go beyond that, as we get more color we'll certainly provide that clarity.

Just -- I guess one follow-on. So it sounds like certainly Q4/Q1 you have some good step-ups, some of that related to the max set. Are the [maxed] or the tape-outs, are they sort of concentrated kind of late this year or early this year? Do you see just sort of a steady progression of tape-outs through the year?

I think we're going to have a relatively steady cadence of tape-outs in 2012. But I don't anticipate you'll see a continually ratcheting up of expenses as we move through -- as we progress through 2012. I think we're going to get to a point where we can start to stabilize a little bit more and hopefully start to bring in some operating leverage into the business, where again we have revenue growing faster than our OpEx.

One of the things that's challenging here is with 40 nanometer max sets being in the $1 million range, and certainly we're not counting on rev ones of our devices to go to production. So you've got some engineering mass expenses which are going to be persistent, I think, in 2012.

And then on top of that, we're selectively adding headcount. I don't think we're going crazy and, if you noticed, in the quarter we only added a handful of heads despite having a lot of very challenging development efforts ongoing in the Company. So we're really squeezing the resources that we have to get the most out of them.

But I think that as we look forward to 2012, it's definitely safe to say that we're going to have significant investments in 40 nanometer tape-outs and we're going to have some continued investment in headcount in order to execute on the roadmap. But I do believe that there's going to be a -- I would say certainly probably towards the second of 2012 we'll have more of a flattening out of the operating expenses.

Okay, great. Thank you.

There are no further questions in queue. I would like to turn the call back over to Dr. Seendripu for closing remarks.

Thank you, operator. As a reminder, we will be participating in the Stifel Nicolaus Midwest 101 Conference in Chicago on November 10 and we hope to see many of you then. To conclude, our long-term growth trajectory and growth vectors remain positive and unchanged. Based on quarter three results and quarter four guidance, 2011 continues to unfold with positive design win and business momentum, particularly as it relates to our cable and hybrid TV solutions. We thank you all for joining us today and we look forward to reporting on our progress to you in the next quarter. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude our conference for today. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325 and enter the access code 4481005. We'd like to thank you for your participation and you may now disconnect.