Maxlinear Inc (MXL) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MaxLinear Fourth Quarter and Fiscal Year 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)

Today's conference is being recorded February 7, 2012. I would now like to turn the conference over to Gar Jackson, of Investor Relations from IR Sense. Please, go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's Fourth 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 expectation for first quarter 2012 revenue estimated accruals relating to potential export control violation, our expectations concerning trends in our cable revenues, and our efforts to expand our addressable markets.

Gross profit percentage and operating expenses, our current use regarding trends in our markets including the anticipated impact of new design wins and the size of potential for growth in our markets and our competitive position in our target markets.

These statements are forward-looking statements within the meaning of the federal securities laws and actual results may differ materially from results reflected in those 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 market including the cable market does not grow for any reason or if we were not successful in expanding our target addressable market 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.

Our current estimates of accruals relating to potential export control violation are subject to completion of our audit committee review and audit. The potential export control violations present risk of fines penalties and other enforcement actions from applicable governmental entities. A more detailed discussion of these risk factors and other factors you should consider in evaluating MaxLinear and its prospects is included under the caption Risk Factors in our filings with the Securities and Exchange Commission; in particular our most recently filed 10-K and 10-Q.

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 statement. The fourth quarter 2011 earnings release is available on the Company website at maxlinear.com, or you may call our offices at 949-415-7745 and we are happy to provide you a copy.

In addition, MaxLinear reports gross profit income or loss from operations and net income or loss and basic diluted net income or loss per share in accordance with GAAP, and additionally on a non-GAAP basis.

Our non-GAAP presentations exclude the effect of stock-based compensation expense and its related tax effect, as well as intellectual property license acquisition expenses and estimated fines and penalties relating to export compliance matters. Our 2011 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 analyses 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 will turn -- and now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Gar, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the financial highlights, I would like to note that 2011 was a year of great organizational progress and several noteworthy applications in our target markets.

Organizationally, we significantly enhanced the strength and experience of our executive leadership team. We made great strides towards expanding both the scope of our business and our execution capabilities in the face of challenging business conditions not least of which was the tragedy in Japan. We also successfully launched new product lines to counter the decline in revenues from some of our legacy products.

Most notably, in 2011 we firmly established a new growth platform in the cable market, and made disciplined R&D investments to set the stage for future growth in exciting platforms such as hybrid TV, new terrestrial set-top box technologies, satellite gateways and other forthcoming product applications.

Now to the specifics. Net revenue in the fourth quarter was a record high for MaxLinear at $19.3 million, up 9% over the third quarter of 2011 and up 22% from the year ago quarter. GAAP and non-GAAP gross profits in the fourth quarter were 61% of revenue within our prior guidance range of 63% plus or minus 2%.

GAAP net loss in the fourth quarter was $4.7 million, or $0.14 per diluted share which includes stock-based compensation expenses of $2.2 million, approximately $0.3 million in non-recurring IP license expenses and $0.8 million for an export compliant related matter is closed earlier today. Non-GAAP net loss for the fourth quarter was $1.5 million or $0.05 per diluted share.

I will now discuss current trends we are seeing in our business. Cable was a highlight of our business in the fourth quarter increasing almost 30% to represent approximately 40% of our total revenues in the fourth quarter 2011, which easily exceeded our expectations for cable revenues exiting 2011.

We view cable as being in the relatively early stages of growth for us. We are benefiting from the continued deployment of DOCSIS 3.0 voice and data gateway by MSOs, who are addressing the ever increasing secular demand for broadband data and multimedia access at the home.

Even more encouraging for us in cable is achieving a healthy balance between revenue derived from video and data applications, with approximately half of our cable revenue in the fourth quarter derived from video applications. This growth in cable continues to drive further revenue diversification by end-markets with roughly equal revenue contribution across Japan, Europe and North America.

We are positively energized about our R&D investments in our existing broadband markets and in newer areas such as satellite. We continue to believe that these and other incremental investments in our development pipeline will not only increase our target addressable market, but also accelerate our growth and helping further diversifying our revenues in the next 12 to 24 months.

Moving to the terrestrial market, our terrestrial revenues were essentially flat quarter-on-quarter in the fourth quarter of 2011. Strength in revenues from the hybrid and digital TV set-top box markets offset seasonal weakness for PCTV and digital television applications.

We continue to drive the industry with market-leading solutions in key growth areas such as hybrid television commencing volume shipments of our 65-nanometer CMOS, MxL601 hybrid TV tuner solution to a tier-1 TV OEM.

At CES, we announced the MxL683, which is a single chip tuner demodulator RF receiver system on chip solution addressing ISDB-T and SBTVD-T terrestrial broadcast TV standard applications. The ISDB-T and SBTVD-T terrestrial broadcast TV standards are deployed in large population regions consisting of Japan, South America, Indonesia and the Philippines.

This SOC integrates MaxLinear's latest super radio core with the state-of-the-art ISDB-T and SBTVD-T broadcast TV standard demodulator. This chip delivers exceptional system performance even in the extremely difficult terrestrial broadcast TV reception environment encountered in Brazil and other Latin American countries.

We are very excited about this product as it represents our first meaningful design win opportunity into the sizable satellite set-top box market. In many ISDB-T broadcast TV standard regions such as Brazil, simultaneous and dual board satellite and terrestrial reception capability is required in satellite TV deployments.

In conclusion, in the fourth quarter, we delivered revenue that was well above our guidance and represented a record high for the Company. We continue to generate strong design win momentum in strategic growth areas for the Company across both cable and terrestrial TV applications.

We are not only excited about our revenue growth opportunities, but we also look forward to launch our new market-leading product offerings later in 2012 that will significant expand our addressable markets.

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. Before I move into the details of our financial results and guidance, I'd like to discuss the export compliance disclosure in today's Q4 2011 earnings press release. We announced that our audit committee is voluntarily conducting an internal review of MaxLinear's compliance with United States Sanctions Export Control laws relating to Iran.

Today, we made voluntary initial disclosures of potential violations of these laws with the Office of Foreign Assets Control of the Department of the Treasury, and the Bureau of Industry and Security of the Depart of Commerce. Our preliminary unaudited operating results as announced today include $0.8 million of accrual for management's current estimate of civil penalties and fines arising from these potential violations.

Management has based this reserve on information available as of the date of this call. The accrual is only an estimate and it could change materially as our audit committee completes its review and additional information becomes available.

Risks relating to the Export Compliance Review includes among others, uncertainty related to the timing and outcome of the review, the potential for substantial civil penalties in excess of those estimated today, and the potential for government enforcement proceedings. Until the completion of this review, we will not be able to take any questions on this matter.

I will first review on our results and then briefly discuss our outlook. In summary, Q4 revenue was a record $19.3 million and above the high end of our expectations, up approximately 9% quarter-on-quarter and up 22% when compared with the prior year Q4.

At $72 million in revenue for the full year, our revenues were up approximately 5% year-on-year. As Kishore noted, net revenues for the fourth quarter was driven by very strong sequential performance in cable, and was accompanied by strong design win momentum across a wide range of product areas.

In our press release, we reported both GAAP and non-GAAP results. Please refer to our press release for the detailed reconciliation between GAAP and non-GAAP results. Our fourth quarter non-GAAP results exclude the effects of stock-based compensation expense, estimated fines and penalties related to export compliance matters, and the purchase of an IP license.

Now, moving to the rest of the income statement. GAAP and non-GAAP gross profit for the fourth quarter was approximately 61% of revenues within our prior guidance of 63% plus or minus two percentage points, versus 64% in the third quarter and 66% in the year ago quarter, and was 63% for the full year.

The driver for the gross margins coming at the lower end of our range was primarily mix, as revenue upside in the quarter was derived from sales of our lower margin products in the terrestrial set-top box applications serviced by Chinese set-top box makers.

Our Q4 GAAP operating results were 16 million -- sorry, operating expenses were $16 million, which includes $2.2 million of stock-based compensation, $0.3 million of non-recurring IP licenses, and $0.8 million for an export compliance related matter.

Net of these items, our OpEx was $12.9 million which is slightly higher than the prior quarter but well below our guidance. Q4 GAAP OpEx included $10.2 million of R&D expenses, which includes stock-based compensation of $1.4 million and $0.3 million for non-recurring IP licenses.

Q4 GAAP OpEx included $5.8 million of SG&A, which includes $0.7 million of stock-based compensation and $0.8 million for the previously mentioned export compliance matter. Excluding these items, our operating expense increased $9.1 million year-on-year.

For the full year, GAAP operating expenses were $60.3 million, representing growth of $16.7 million versus the prior year, as we continue to invest in transitioning our existing product lines to 65-nanometer and 40-nanometer and investing in new TAM expanding initiatives.

This year-on-year increase in GAAP operating expenses included incremental stock-based compensation of $3.2 million, IP licenses of $3.6 million, and export compliance estimates, fees and penalties of $0.8 million.

At the end of the fourth quarter, our headcount increased to 256 from 237 in the prior quarter, and 210 at the end of the fourth quarter last year. Consistent with prior conference calls, our goal in the near to intermediate term is to grow operating expenses at a rate lower than the rate of growth of our revenues, which we were able to accomplish in Q4 with non-GAAP OpEx growing less than 5% and revenue growth of 9% on a like basis.

GAAP loss from operations was $4.3 million in Q4, compared to $3.2 million in the prior quarter, and GAAP loss from operations of $1.1 million in Q4 of last year. GAAP loss from operations was $15 million for the full year 2011, versus GAAP income from operations of $3.5 million for 2010.

Non-GAAP loss from operations was $1.1 million in Q4, compared to $1.0 million in the prior quarter and non-GAAP income from operations of $0.2 million in Q4 of last year. Non-GAAP loss from operations was $3.3 million for the full year 2011.

GAAP earnings per share and non-GAAP earnings per share in the fourth quarter were negative $0.14 and negative $0.05 respectively on fully diluted shares outstanding of $33 million. The difference between the fully diluted GAAP earnings per share and the fully diluted non-GAAP earnings per share is primarily due to the $2.2 million in stock-based compensation, $0.3 million in non-recurring IP license expense, and $0.8 million expenses related to the previously disclosed export compliance matters.

For the full year, GAAP and non-GAAP loss per share were $0.68 and $0.11 per share respectively on a fully diluted basis.

As noted above, 2011 results included an $8.2 million charge associated with the establishment of a valuation allowance related to the federal deferred tax assets. And 2010 included a one-time tax benefit of $6.7 million associated with the release of a valuation allowance related to federal deferred tax assets for a year-on-year tax-related impact of $14.9 million.

Moving to the balance sheet, our cash, cash equivalents investments balance was approximately $85.7 million, compared to $89.7 million in the prior quarter and $94.5 million at the end of 2010. Our cash used in operations in the fourth quarter was $1.8 million, and $7 million for the full year in 2011.

Accounts receivable totaled $10.4 million at the end of the quarter, compared to $8.4 million in the prior quarter. The days sales outstanding for the fourth quarter were approximately 49 days, as compared to 43 days in the previous quarter, and 18 days at the end of 2010.

The significant delta in DSOs on a year-over-year basis are driven by the front-end loaded Q4 2010 that resulted from an inventory correction in the European terrestrial set-top box market. As a reminder, we only recognize revenues 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 $8.1 million, compared to $9.2 million in the previous quarter and $7.4 million at the end of the year ago quarter. Our inventory turns were 3.5x in the fourth quarter, compared to 3.2x in the prior quarter and 3.2 x in the year ago quarter.

Our own inventory levels, although declining on a quarter on basis, are still higher than our long-term model, as we've elected to build inventory of new products ramping to support upside opportunities primarily in cable and hybrid TV.

That leads me to our guidance. We expect our revenues in the first quarter of 2012 to increase 3% to 6% 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 percentage of total revenue basis offset by declines in terrestrial applications.

And an element of uncertainty still exists with regards to macro supply chain risks related to flooding in Thailand, and any potential impact to our customer supply chain as it relates particularly to hard disk drives. We continue to assess the potential risk to our near-term revenue forecast, but at this time, our business appears to be largely unaffected by the situation in Thailand.

We expect GAAP and non-GAAP gross profit percentage to be approximately flat at 61% in the first quarter. As we've indicated in the past, our gross profit percentage forecast could vary plus or minus 2% depending on mix and other factors.

We continue to ensure that we fund strategic development programs targeted delivering top-line growth in 2012 and beyond. As such, we are continuing to add key R&D talents and tape out new solutions including our fist 40-nanometer devices that we anticipate sampling to customers a bit later in 2012, and expect that GAAP operating expenses, excluding ongoing expenses related to the export compliance matter and non-GAAP operating expenses, will increase by approximately $1.5 million.

We have previously expected non-GAAP operating expenses to step-up linearly %1 million in Q4 of 2011 and Q1 2012. However, the roughly $0.5 million under spend in Q4 has pushed into Q1 2012.

In summary, thanks to particular strength in cable, we are expecting growth to continue in the first quarter of 2012. Our strong design win momentum in both the hybrid TV and cable markets witnessed in the recent quarters bodes well for our growth trajectory in 2012 and beyond.

And with that, I'd like to now open the call for questions. Operator?

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

(Operator Instructions)

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

Yes, thank you. First question on gross margin. You are expecting it to be flat sequentially. And I was just wondering from a mix perspective since terrestrial is going to be down and cable is going to be up how come you want to see a benefit to gross margin?

Hi, Tore, this is Kishore. Hey. Basically, as Adam mentioned in the call, it's primarily due to a mix of the terrestrial converted set-top box business, which is lower margin product than our other products.

On the cable side, the ramp of the brand new 65-nanometer CMOS product line with a better gross margin profile has not yet have been at the pace we are expected. We are still shipping our older 0.13 micron based products in cable, where the cost structure is margin-wise is not as friendly as the newer products that we have launched.

We expect this mix within cable also to change towards the latter part of the year. and so at this stage, the impact of the increased shipments of the converted box terrestrial TV tuners is what caused the degradation in the margin relative to our forecast being at the lower end of the margin profile.

Very good. And could you talk a little bit more about visibility in Q1, you are guiding revenues up 3% to 6% sequentially, just from a turns perspective, how does the visibility fit it based on what you've seen in the last couple of quarters?

So, actually, entering the quarter, this particular period we are trending pretty nicely along what we have typically told you that, entering the quarter in a good situation would be more than two-thirds booked. At this point, at the beginning of Q1, we are doing pretty well along those metrics.

So, I think the turns are there in the right direction for us, and accordingly we have given you guidance on the topic.

Very good. And on this export compliance charge, I know you obviously can't disclose any details, but just so we understand what is it that sort of came about here? I mean, what is that supposedly is the wrong thing to do? Just we understand that better.

According to the advice we've been given by our audit committee, we don't have to take any of this calls, but as stated in the press release, it's related to sales of our terrestrial TV tuners. That's a very standard product for DVB-T applications all over the world with the DVB-T broadcast standard, which is a same one that's used in Iran.

And those have been shipped to distributors and ODMs in Iran. And the review is, if MaxLinear has followed good procedure in terms of our obligations to the letter and law of our country here. So, that's the basic review that's going.

Very good. Last question on R&D. You said that, you keep committing more R&D with both satellite and broadband -- especially on broadband could you elaborate a little bit more on what exactly that entails?

So if you really want to look at the larger spectrum of where when MaxLinear talks of broadband, what we are talking about, we are talking about enhancing the capability of receiving really, really broadband data access in the cable world by allowing really a multiplicity of channels far beyond the eight channels we have in our wideband receivers to really give MSOs to be able to upgrade the amount of bandwidth consumers receive at home.

The other application is really allowing a multiplicity of video channels for -- beyond the ones we support today in our eight channels systems to -- in the media gateway server and headless gateway market. So that's in the cable market, but a similar theme plays out in the broadband market and satellite, for example.

So in the cable sector, enhancing the capability of our broadband front-end access technology far beyond what we have showcased so far. And on the satellite side we are trying -- we are on path to implementing a similar revolutionary technology of implementation to enable the future of media gateways in the satellite markets as well.

So I think at this point, that's what I would like to share. And on the technology front obviously we have already talked about transitioning from 65-nanometer to all our broadband gateway solutions moving towards 40-nanometer CMOS technology, which is where MaxLinear's sort of novel RF mix signal broadband technology can be really showcased where we get the advantage of the shrinking nodes in the digital process, and also the extremely low power implementations for channel of access that we can do in the media gateways with the front-end access in those systems.

Very good. Thank you. I'll go back in queue.

Thank you

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

Hi, guys. Just wanted to clarify, Adam, you said something about the non-recurring IP expense or license expenses, were there any incurred in the December quarter or any included in that $1.5 million step-up for Q1?

So, yes, there was some in the Q4 -- in the (inaudible) quarter and you can see that in our reconciliation in our press release. It was around $300,000 as we disclosed, and we anticipate that there may be a similar amount in the Q1 period.

But, that's -- okay, so -- but that's being excluded from the non-GAAP. So, non-GAAP steps up by $1.5 million. I thought you said GAAP and non-GAAP stepped up by the same amount.

I mean, to be -- to clarify the non-GAAP is going to be stepping by $1.5 million.

Okay, great. And then just, you guys at CES had introduced the new ISDB-T tuner for Latin America I think Brazil in particular. How big of a market do you think that could be? What's the opportunity?

And if I understand that you guys are the only ones to enter a market with a single chip tuner D-MOD, and really the only other player in the market for D-MOD is Toshiba. So, can you talk about the approach how you go to market and how quickly that business could start to ramp?

Quinn, actually we are very excited about the ISDB-T chip tuner demodular SOC. That addresses this extremely large market in Latin America, Philippines, Indonesia and Japan for the terrestrial broadcast reception.

The really big nugget here on the ISDB-T market in Latin America is that, from a regulatory perspective and also from a content perspective, the satellite providers want - or are already implementing ISDB-T terrestrial reception in their media gateway and PVR type reception boxes.

So in those boxes, based on the number of channels of satellites you recieve the expectation is that this is going to be a commensurate number of terrestrial channels that'll be received. As a result, the number of receivers we put into each satellite box is going to increase very significantly.

So from a revenue perspective, given that this particular segment in Latin America we refer to as more a satellite market opportunity for us, the design in cycles are such that we would not calculate on revenues for at least a year from the time of sampling today.

The other big opportunity with the ISDB-T market is also the digital to analog converted box market, set-top box market for the Latin American region as well as the Philippines and the Indonesian market. Over in Japan, there is a -- the whole segment of Blu-ray DVD players with multiple terrestrial reception capability for PVR functions and such, and there is a addressable market for Blu-ray DVDs and as well as set-top boxes and even potentially in regular digital televisions as well.

So, there is a fairly big opportunity. I think we are really looking forward to this product ramping, it positions us very uniquely from a competitive performance perspective and with the lowest power, the smallest size and the best performance in the field out there according to Mackenzie Labs from Latin America.

Great. And then just, I think you talked about the cable mix is now about half or data half or voice. Are this -- on the voice side is it mostly the high-def DTAs? Are you are seeing a good mix of the video set-tops say in multiple geographies? Or, have you started to recognize some revenue from the home gateway application? And if it's not home gateway yet, when do you see the home gateway business ramping?

So, right now, we are having a mix of 50% approximately of cable revenue originating with video applications not voice, and we talk of data -- we are combining data and voice together. So put it differently, 50% of the revenue is video and 50% is data and voice.

So obviously, the big growth has been in the EMT which is data and voice combined, but we have just started shipping into the -- in Q4 into the media gateway or the home gateway market, but we don't expect that to be a huge deployment until the next generation of media gateway will deploy.

In general, the strength of the shipments has been in the EMT markets, and also the data modems, and also cable video PVR markets that are in Europe and in server markets for some North American cable operators.

Okay, great. Thank you.

Thank you.

(Operator Instructions)

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

Hi, guys, just a couple revenue questions first. The automotive and handset side of things, can you give us an idea of where those ended the year and what you expect them to do into the first quarter? And when you get into the first quarter side of things, I know you mentioned that the terrestrial side will be down offset by cable. But, what about the other sub-segments within the -- what you guys label as the consumer business side, the TV side, PCTV et cetera? What do you expect them to do?

Could you repeat that question please again, Ross?

Sure, I guess, there is kind of two parts. One, in the fourth quarter, can you give us an idea of what the auto and handset related business those two sub-segments did? And then, looking forward, what are your expectations for those two?

And then, the parts of the consumer business that you didn't comment on before -- you said terrestrial will be down but the other parts of your consumer business side, do you expect them to rise or fall and why?

So when talk of terrestrial, right now we have combined all the terrestrial TV reception markets into one segment. So you can look at terrestrial today, as consumer auto also combine into the same segment -- same market category for us because they're the same parts.

So to answer your question, on the handset, like we've told you at the last earnings call, handset is pretty much negligible. You should consider it as almost zero, and whatever we have is the end of life remnant revenues that we can get from the handset markets.

On the automotive market we do not see much growth, on the other hand we are seeing some ASP pressure on the automotive market. So we expect some overall revenues in the automotive to decline gradually over this period, over these next few quarters, as we have no new products that are yet being launched into the space.

So, all in all, consumer does combine automotive and whatever remnant handset business we had, which is very little now, I would say [sub] $0.5 million worth in fourth quarter. And you would combine all of those, we are now calling that as terrestrial category for the revenues. So, terrestrial overall is flat compared to last quarter.

Okay. And then switching it over to the gross margin side of things; you talked a little bit about, why mix isn't going to help overall in the first quarter. But, if we think further forward, as the mix within cable goes to the finer geometries, when do you expect that cross-over to occur or you start to get a tailwind in gross margins courtesy of your cable business rather than little bit of an incremental headwind as we've seen now?

Ross, that's a little bit more difficult question to answer in terms of looking forward. But the general dynamic in the gross margins are such -- are this, we have a large product base that is still of 0.13 micron wafers. In fact, the pressure on the gross margins comes from 0.13 micron wafers be it cable or consumer or terrestrial.

In the terrestrial side, we have launched a super radio series, a 65-nanometer CMOS that will replace all our 0.13 micron tuner products. So we should -- we also expect improvements in gross margins, as we shift over to the brand new data tuner product series we are offering on the radio side.

So, on the cable side, simultaneously, we also see the mix change from the 0.13 wafers to 65-nanometer wafers and a year later into 40-nanometer wafers, so that -- which is when we see the margin mix helping the right direction. So, all in all, at this point, we have a quarter-to-quarter view. We have inventory in the pipe that reflects the 6% gross margins that Adam guided to you guys flat from Q4 to Q1 today.

So I think there are going to be beneficial effects on margins on both cable and terrestrial side with the replacement with the new products, the 65-nanometer CMOS. However, we should also keep in mind that as new competitors enter the space, we want to be careful about raising expectation on margin windfalls anytime in the near future, means in the quarter we are guiding forward, and probably little bit leaning forward to the end of the quarter.

So, that is thus far as I can sort of expect to guide you at this stage.

Got it. Then the last question for me is on the OpEx side of things. Adam, you talked about, saving the $0.5 million versus plan in the fourth quarter and pushing that into the first. I assume the $1 million incremental still steps up per your prior plan into the second quarter with tape outs, et cetera.

Is the general plan at the first half is still the bigger increase and then generally flat so in OpEx and the second half as some of those tape outs become in the review window?

Yes, I think so. I mean, the big step-up in Q1 is really -- again we had a -- our first 40-nanometer mask expense is hitting us in Q1. So, that's $1 million right there. And I think that we are expecting the step-ups to moderate as we get out now past Q1. So, I think, you'll see a much flatter increase going forward.

Great. Thank you.

Thank you. And I show no further questions at this time. I would like to turn the conference back to management for any closing remarks.

So, thank you, operator. As a reminder, we will be participating in the Stifel Nicolaus Conference in Dana Point tomorrow on February 8, the Morgan Stanley TMT Conference in San Francisco on February 28, and the Roth Conference in Dana Point in the week of March 12. And we hope to see many of you at these upcoming events.

To conclude, 2011 was an exciting year on many fronts and concluded with a record quarterly revenues; growth from cable that exceed our expectations, along with strong design win momentum and engineering execution for new product initiatives that we believe will serve to grow our revenue opportunities by years to come.

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.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.