Maxlinear Inc (MXL) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the MaxLinear Q1 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

This conference is also being recorded today April 30, 2013. I would now like to turn the conference over to our host, Mr. Nick Kormeluk. Please go ahead, sir.

Thank you, operator. Good morning everyone and thank you for joining us on today's conference call to discuss MaxLinear's first quarter 2013 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 these statements, we will provide information relating to our current expectations for second quarter 2013 revenue, including expectations for revenue growth in our cable and other product segments, anticipated trends in our cable and terrestrial revenues; and our efforts to expand our addressable markets including satellite, gross profit percentage and operating expenses; and 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.

The 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 current target markets, including the cable market, do not grow, or if we are not successful in expanding our target addressable market in such areas as satellite through the introduction of new products.

In addition, substantial competition in our industry, potential declines in average selling prices, intellectual property litigation such as pending matters between MaxLinear and Silicon Labs, 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 Risk Factors in our filings with the Securities and Exchange Commission, in particular, our most recently filed 10-K for fiscal 2012 and our upcoming 10-Q for the first quarter of 2013.

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 first quarter 2013 earnings release is available in the Company's website at MaxLinear.com.

In addition, MaxLinear reports gross profit, income from loss and operations. And net income and basic and diluted net income loss per share in accordance with GAAP, and additionally on a non-GAAP basis. Our non-GAAP presentations excluding the effect of stock-based compensation expenses and its related tax effects, expenses of investigation related to export compliance matters, accruals under our equity settled performance-based bonus plan, expenses associated with our acquisition of certain new market related technology licenses, and expenses related to our current patent litigation matter with Silicon Labs.

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 the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today. The earnings release and reconciliation is available on our website and we ask that you review them in conjunction with this call.

And now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Nick, and good afternoon everyone. Thank you all for joining us today. Before jumping into the financial highlights, I would like to note that in the first quarter of 2013 we experienced a resumption of strong growth in our cable business.

We no longer have concerns regarding the inventory issue experienced in the fourth quarter of 2012. We are also making significant progress towards expanding our presence in our legacy terrestrial market with exciting new product offerings.

We are also excited by the progress we are making toward expanding our target addressable market by driving our industry-leading broadband RF technology into exciting new markets, such as satellite TV and other infrastructure opportunities.

Moving to the financial specifics. Net revenue in the first quarter was $26.5 million, up 7% from the fourth quarter of 2012 and up 28% from the year ago quarter, and right at the midpoint of our guidance. GAAP and non-GAAP gross profit in the first quarter was 63% of revenue, well above our prior guidance of 61%.

GAAP net loss in the first quarter was $2.3 million or $0.07 per diluted share and non-GAAP net income for the first quarter was $2.5 million or $0.07 per diluted share. I will now discuss current trends in our business.

Consistent with our prior guidance, our cable business resumed growth in the first quarter of 2013 with revenue increasing approximately 16% relative to the fourth quarter of 2012 as a large cable data OEM customers return to normal ordering patterns following the Q4 2012 inventory issue.

Encouragingly, the increase in demand for our cable solutions was broad-based. We experienced strong double-digit growth in cable, data, video server gateways and cable digital to analog converter set-top box applications.

Here are some of the specifics related to our cable revenues. In the first quarter of 2013, cable represented 70% of our total revenue. We have a strong customer momentum in strategic next-generation DOCSIS 3.0 products for our 16-channel and 24-channel Full-Spectrum Capture cable receivers, and we expect to be in volume production in the second quarter.

Our Full-Spectrum Capture cable receivers are enabling new cable applications, such as the video and media server gateway architecture, which is garnering strong momentum in both North America and Europe. These applications are creating compelling revenue per box opportunities for MaxLinear.

Now moving to the terrestrial and satellite TV markets. Terrestrial revenues decreased by approximately 10% quarter-on-quarter, primarily due to weakness in the market for digital to analog converter set-top box applications and seasonality in hybrid TV. However, we did see significant momentum in our hybrid TV volume, transitioning from our legacy 130 nanometer CMOS solution in favor of our best in class LXV nanometer CMOS hybrid TV Super Radio solution.

We are also expecting experiment uptick in shipments of our ISDB-T digital TV standard tuner demodulator SoC solutions for the TV market in Japan, and notably, for the satellite pay TV market in South America.

Some notable highlights in terrestrial in the first quarter of 2013 are -- flat-panel TV supplier CVT, one of the world's largest TV solutions providers, launched product shipments in Europe using our MaxLinear 601 global hybrid TV tuner. We announced that -- we also announced that several leading OEMs are using MxL603 silicon tuner device, a new Internet video set-top box, is shipping into the US market.

These new boxes are leveraging the recent major trend of consumers increasingly availing quality over-the-top video content from providers like Netflix, YouTube, Hulu and Amazon Instant Video.

We announced that leading OEMs have also selected our ISDB-T digital TV standard tuner demodulator SoC device MxL683 for new hybrid satellite plus terrestrial set top boxes for deployment in the Latin America pay TV market. Pay TV operators in Latin America are increasingly adding ISDB-T digital TV standard broadcast receivers into existing satellite set-top box platforms to capture the growing number of high-quality, high definition television channels that are broadcast free to air in many cities.

Moving to the highlights in the first quarter of 2013 of our TAM expansion efforts into satellite TV. In satellite we announced a reference platform with Abilis Systems for the world's first satellite home gateway that distributes up to eight satellite TV channels to IP connected devices. Unlike a set-top box, this headless gateway platform is not directly connected to a TV, but instead is network connected and is accessible by multiple screens in a home.

Last, but not the least, MaxLinear has partnered with SES ASTRA, Inverto and Abilis Systems to develop the industry's first IP-LNB.

This IP-LNB is a satellite outdoor unit or your rooftop satellite dish antenna that is not only able to receive up to eight channels of satellite television, but also distributes these channels to the multiple screens inside the home using IP or Internet protocol format.

In conclusion, we are excited by the resumption of strong growth in our cable business, along with addressing earlier fears of [compute] access customer inventory which we are experiencing in the first quarter of 2012.

We are also excited by the opportunity to expand our target addressable market with our industry-leading broadband Full-Spectrum Capture RF front-end technology platform in markets such as satellite TV and other infrastructure opportunities.

Now let me turn the call over to Mr. 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, Q1 revenue of $26.5 million was right at the midpoint of our guidance and brings to a quick ending inventory correction in cable we experienced in Q4.

As Kishore noted, growth in our revenues from cable was road-based and cable seems poised to continue to drive topline in 2013. We believe that the weakness in terrestrial revenues is largely attributable to seasonality, and remain encouraged that a combination of hybrid TV and ISDB-T digital terrestrial TV set-top box applications will contribute to growth in the coming quarters.

Now, moving to the rest of the income statement, GAAP and non-GAAP gross profit for the first quarter were both approximately 63% of revenue, above our prior guidance of 61%. This compares to 63% in the fourth quarter of 2012 and 60% in the year ago quarter. The significant improvement in gross margins relative to our guidance was largely due to favorable product mix changes within cable and terrestrial, and better-than-expected improvements in COGS.

Our Q1 GAAP operating expenses were $18.9 million, which includes $2.8 million of stock-based compensation, $1 million for an accrual related to our performance-based equity bonus plan for 2013, and $1 million in net professional fees related to the Silicon Labs patent litigation.

Consistent with 2012, payouts under our 2013 performance bonus plan and will be settled in shares of MaxLinear stock. Net of these items OpEx was $14.2 million, which was below our prior guidance of $15 million, driven primarily by slower than anticipated headcount ramp and a continued tight focus on discretionary spending items.

First quarter GAAP OpEx attributable to R&D was $11.5 million, which included stock-based compensation of $1.8 million and $600,000 related to the 2013 bonus plan. The declines in R&D spending relative to Q4 2012 were primarily due to the roll off and timing of certain project of an engineering expenses such as [R&D maps], equipment rentals, PCBs, layout consulting, which were offset somewhat by increased spending on payroll related items due to increases in headcount as well as seasonal step-ups in payroll taxes.

First quarter GAAP OpEx attributable to SG&A was flat quarter-on-quarter at $7.4 million, which included $1 million in stock-based compensation, $400,000 in bonus plan accruals, and $1 million in net professional fees related to Silicon Labs patent litigation.

Within SG&A we experienced increases in spending for professional fees related to patent filings and for payroll related items, some of those described for R&D, which were offset by declines in commission expenses and general tight controls on discretionary spending.

At the end of the first quarter 2013 our headcount was 281 as compared to 276 at the end of the fourth quarter of 2012. We continue to selectively add headcount to staff growth initiatives, and continue to look to gain leverage in R&D by appropriately balancing hiring across our R&D design centers in the US, India, China and Taiwan.

GAAP loss from operations was $2.2 million in Q1 compared to the loss from operations of $4.4 million in the prior quarter and GAAP loss from operations of $6.5 million in Q1 of last year.

GAAP net loss per share in the first quarter was $0.07 on basic shares outstanding of 32.8 million. GAAP net loss per share includes $2.8 million in stock-based compensation expense, $1 million for an accrual related to our 2013 performance-based bonus plan, and $1 million in net professional fees attributable to the Silicon Labs patent litigation.

This compares to GAAP net loss per share of $0.14 in the prior quarter, loss of $0.20 -- and loss of $0.20 in Q1 of last year.

Net of these items, our non-GAAP earnings per share in Q1 was $0.07 on fully diluted shares of 34 million, compared to $0.02 per share in Q4 2012 and a loss per share of $0.06 in Q1 of last year.

Moving to the balance sheet and cash flow statement. Our cash, cash equivalents and investment balance was unchanged from Q4 2012 at approximately $77.3 million, and a decrease of $6.1 million compared to the $83.4 million in Q1 of last year. Our cash generated in operations in the first quarter of 2012 was $800,000, approximately $600,000 less than in the fourth quarter of 2012 and approximately $1.9 million better than in the year ago quarter.

Unlike in Q4 2012, we did not repurchase shares from our [loans from the remaining DC] investor in the first quarter.

The accounts receivable totaled $18 million at the end of the first quarter 2013 compared to $14.6 million in the prior quarter and $11.1 million in Q1 of last year. The days sales outstanding for the first quarter was approximately 54 days, or two days lower than the previous quarter, and approximately one day more than the DSOs in the year ago quarter. We remain comfortable with the quality of our accounts receivables aging, having experienced a very limited bad debt expense.

As a reminder, we only recognized revenue on a sell-through basis, and as such, we are not subject to the revenue fluctuations caused by changes in distributor inventory levels. Our in-house inventory at the end of the quarter was $8.7 million, down approximately $1.2 million compared to $9.9 million in the previous quarter, and up approximately $1.9 million versus the year ago quarter.

Our inventory turns improved to 4.5 times in the first quarter compared to 4.1 times in the fourth quarter, and improved relative to the 4.3 times in the year ago quarter.

That leads me to our guidance. We are pleased to note that we expect revenue in the second quarter 2013 to increase approximately 6% to 10% sequentially to $28 million to $29 million. Built into this range we expect both cable and terrestrial revenues to increase on a quarter-over-quarter basis.

More specifically, we expect growth forecasted cable to come predominantly from data and video media server applications, and anticipate growth to come from hybrid TV tuners and our ISDB-T digital TV standard tuner demod SoC solutions in terrestrial.

We expect GAAP and non-GAAP gross profit percentage to be approximately 61% to 62% in the first quarter. Our gross profit forecast could vary somewhat depending on product mix and other factors, in particular, the relative contribution of the cable and terrestrial applications.

We continue to fund strategic development programs targeted at delivering attractive topline growth in 2013 and beyond, with a focus on increasing the operating leverage in the business. We expect Q2 2013 GAAP operating expenses to increase approximately $1.5 million relative to the prior quarter to $20.5 million.

With stepped-up payroll related expenses, which will include the first full quarter effect of incremental Q1 hires, anticipated Q2 hiring, and our annual merit process that took place -- took effect in early April, along with some 40 nanometer mask related expenses.

We expect that Q2 2013 non-GAAP operating expenses will step up approximately $1.5 million to $15.5 million, with similar payroll associated increases referenced for R&D earlier.

In summary, we are pleased to report in line revenues in Q1 combined with significant gross margin upside and OpEx constraints that delivered another quarter of positive operating cash flow, along with significant improvements in both GAAP and non-GAAP bottom-line results.

Our guidance for Q2 2013 revenues to grow 6% to 10% despite the prior strong quarter signals confidence in our product cycle driven momentum.

And with that, I would like to now open the call to questions. Operator.

(Operator Instructions). Tore Svanberg, Stifel Nicolaus.

Congratulations on the results. A few questions here. Maybe you could talk first on how your visibility is right now. Where do you stand from a backlog perspective, and how have bookings been so far in the month of April?

Thank you for the greetings there. But we had pretty strong bookings. Like we entered the Q1 earnings call, we had bookings in excess of 80%. So we feel very good where we are with respect to our bookings at this point in the quarter.

So we have no concerns regarding our book, regarding meeting our guidance range based on the bookings legacy we have had as a percentage entering the quarter.

Very good. And it sounds like both cable and terrestrial will be up in Q2. I think we know what's going on with cable. But can you talk a little bit about how we should think about the terrestrial business both in relation to the TV and the ISDB-T business, how it is going to ramp throughout the year, because I guess Q2 will be the first quarter where you see significant contribution from both?

That is correct. Actually, we did grow some revenue in hybrid TV, though it was almost flattish in the Q1. And we expect Q2 hybrid TV to continue to grow, but the good news here is that in the terrestrial set-top box area, which involves the ISDB-T tuner demodulator SoC for digital TV broadcast in Japan, and even more importantly in South America, volume shipments have started.

And for the first time, a significant portion of our terrestrial set-top box revenues are going to go in favor of operator-driven businesses versus being retail oriented. So the revenue should be more predictable as we go farther and farther ahead into the year and into the next year.

So in sum, I would say that we expect the hybrid TV to grow in the -- grow closer to the double-digit percent. And on the terrestrial set-top box, we extended ramping pretty much from a small number in the ISDB tuner demodulator SoC and the ASP of the chip being much higher because the combined RF and demodulator. We expect to have a significant uptick in the revenues associated with terrestrial set-top boxes.

To be more careful here, the terrestrial solution for set top boxes, because if you recall, based on our press release earlier, the revenue in the South American market comes from satellite operator boxes where they are incorporating the terrestrial tuner demodulator receiver SoC. Does that answer your question?

Yes, no, that is perfect. It sounds like your Full-Spectrum Capture product will be in production in Q2 as well. That sounds to me like it is a bit earlier than expected.

But will we see that product eventually be in production in all your end markets? Maybe you could talk a little bit about which application is going to go into in Q2 and when should we expect Full-Spectrum Capture to be in all your end markets.

The Full-Spectrum Capture is actually really nicely ramping into all the designs. Recently we did have two press releases associated with CableLabs certifications. There was an earlier one that was from NETGEAR, and another one with -- and more recently another modem company did have its CableLabs certifications. That means they're ready to go.

So, however, the one that is entering production in Q2 is a more interesting application. It is probably the highest end, most glamorous media server box that is yet to be deployed by any operator in the world. So it is for a media server type of application where the Full-Spectrum Capture receiver is going to be used.

And we have what I call good backlog to be shipping into this product to a major operator starting sometime now and going well into the end of the quarter and beyond. So the first shipment will actually be in the media server market, which is really exciting. It is a showcase platform.

And on the modem side, we will start shipping towards the end of the quarter. And into the Q3/Q4, we will start layering in all the major modem operators that are our current customers.

Having said that, in the modem data business, modem gateway business, we expect a mix to prevail between -- a substantial majority of the mix to be the previous generation product. And as we head towards the end of the year, you will start seeing more market share shift for our Full-Spectrum Capture with our existing customers. And when you enter 2014, I would say that the share of it will start shifting heavily in the direction of the larger channel modem data gateway systems.

Very good. Just one last question. I was hoping you could give us the current status on the litigation with SLAB. Looks like you had $1 million expense in the quarter. Should we assume that to be the run rate, at least until there is a potential resolution here?

This is Adam. So, on the Silicon Labs litigation, we did see $1 million, which was kind of in the range that we were expecting for the quarter. I think going forward, I would say we are probably heading into a more expensive period of the process for us. So I could see expenses going -- for the next couple of quarters bouncing between $1 million and $1.5 million.

So I think if you picked the midpoint right there, I think you will be pretty close to where we think expenses could come in. Again, unfortunately, it is proving to be an expensive exercise.

And it is all timing driven, because we just recently had the Markman hearing that -- the claim construction for the litigation. And then we enter the preparation for the -- for the court hearing in February of next year.

Very good. Thank you so much.

Ross Seymore, Deutsche Bank.

Congrats on the strong quarter and guide. Just to follow on, on that last question about the litigation, can you just walk us through some of the timetable events that we should be watching for? Is next February now the next time that we should watch out for something to hit the tape?

These things are difficult to predict. I think that right now the major event that happened was the Markman hearing. There wasn't anything, I would say, noteworthy that so much came out of that, other than that the trial continues to proceed forward.

And so what we are really are entering now is -- the expenses that we are going to be incurring are going to be more focused on depos and depo prep and expert witness support, so the traditional meat and potatoes part of a trial prep as Kishore noted earlier. So there is really no established next major event other than heading toward the trial in February 2014.

Got you. Switching off that to more predictable, hopefully, topics, you talked a bit about the TAM expansion, and then you went into some of the terrestrial stuff and the satellite markets in South America, et cetera. As we think about entering the second half of this year, and even thinking about 2014, what are some of the benchmarks we should look for, as far as MaxLinear opening new markets to expand that TAM?

Very good question, and I think, firstly, I would want to establish a benchmark here, is that is MaxLinear credible for -- the [meters] premiums of the satellite market are actually the operator markets.

So the first question one would ask is MaxLinear credible to be in the pay TV operator space related to satellite. I think we have just delivered the first proof by announcing that mass shipments for the pay TV operator in South America, with a major operator, has started now. I think that is the first credibility test.

Now, once we are inside these boxes, you should assume that we have passed all the quality testing and everything required to be able to deliver a high-quality, high-end product that is mandated in these boxes by the major operators. So that is the first proof. So, yes, we are real in this market.

So the next step would be do we have a product that can go into the gateway in these markets. We have announced our Full-Spectrum Capture product.

And to that extent we have also announced design wins with -- for the satellite to IP gateway, as we call, with Abilis. And then the recent (inaudible) ASTRA show the world's first IP-LNB. So there is really, really high end applications that are proof-of-concept that we have a great product.

So, thirdly, what will be the real proof that we are going to be -- we are at a turning point in terms of shipment start for major operators, I would say that sometime in the fourth quarter or so you should start -- you should expect to see some press announcement for MaxLinear regarding some very, very beneficial favorable announcement regarding some design wins associated with some major operator.

I think we are pretty close. We are at a turning point in terms of getting in timeline there. And there is no reason for me to sound not optimistic at this stage about the progress we're making. I think it has been one of the greater examples of some wonderful execution on the side of MaxLinear along with transition to some really advanced technology nodes.

I hope that answers your question.

It does. And my last follow-up one is for Adam. On the gross margin side of things, I know you mentioned mix is what is bringing it down potentially in the second quarter versus the upside you just did in the first quarter. But can you walk us through a little bit about the specifics of what could be going on to bring it down by a 1 point, 1.5 points?

Yes, so I think that it really does go to mix. So I think when you think of the -- we talked about it. We see growth across both cable and terrestrial.

And I think we have been relatively consistent with the fact that in some areas of terrestrial, the margin can be a little bit more of a challenge. Particularly if you look at the ISDB-T product that is going to be ramping that Kishore mentioned is the operator business in Latin America, that comes at somewhat south of the corporate average on a gross margin. So as that starts to ramp up, that has a challenge.

I think we've always been pretty consistent that the hybrid TV revenue comes in at margins that are a little bit challenged. Even though we are moving pretty successfully from our lower margin first-generation 130 nanometer product to our 65 nanometer solution, the margins still are a little bit below gross -- the corporate gross margin average. So it is really just a mix issue.

I think that our ops group, for the last several quarters, has done a really good job in bringing some of our standard cost down even more than we anticipate. So, could they have some more goodies for us in going forward quarters? It is certainly possible. But I think it is prudent to expect that the mix impact is going to be there, and while still keeping us right in the meat of our longer-term range on gross margins.

So I think if we came in at [61.5%, which is the midpoint of the range of 61% to 62%], I think we would be pretty comfortable that we are executing well. And we would like to think there is some upside opportunities to that, but we are not counting on it at this point.

If I can sneak in one more. You mentioned about getting the 65 nanometer part out, to get the cost down on the hybrid side of things. Any way to ballpark what percentage of the hybrid business is already to 65, how far along that transition you are today?

Right now I think you should expect the transition is more than halfway down on the hybrid TV piece of the revenues in the terrestrial market now.

Great, thank you.

Quinn Bolton, Needham.

Congratulations on the nice result and the strong guidance. Kishore, wanted to follow up on Ross's question about the satellite business. You talked about some potential announcements in the fourth quarter with major operators.

I wasn't sure if that was for the satellite to IP bridge products that you have talked about previously, or rather those are more traditional satellite set-top box applications. And then I have got a couple of follow-on questions.

I would say that, first things first, I think the satellite IP announcements have been made. And we really will have more announcements, so you shouldn't expect to see that as any new path-breaking news.

I think what will be more path-breaking for us is more inside the satellite set-top box. In fact, even more so in the higher-end media server type of gateway boxes that the satellite operators want to rollout, an announcement from MaxLinear with the Full-Spectrum Capture satellite chips embedded inside those boxes. That is what you should look forward to. And that is what we are really excited about.

But I think that there is more to it than that. I think I talked about TAM expansion opportunities. We look at TAM beyond just that on year infrastructure side. And I think I would be really thrilled if we can end this year with the announcements even on the infrastructure side with some design wins at some major places.

So I think that is what I would look at in Q4. And maybe I am getting a little ahead of myself here. So I will hold it there.

Okay, and when we see infrastructure is that more back to the DOCSIS [3.1] infrastructure or is that satellite infrastructure?

At this point I would say that it is more satellite infrastructure.

Okay, okay, great. And then just a question on the cable side looking at the second quarter, can you give us some sense as to video versus DOCSIS? It certainly sounds like a DOCSIS inventory has been purged and you're seeing good order grow there. You talked about some strength in gateways. Can you just give a sense what is going on with the DTA side of the video market?

I would say that -- I think that there are two ways to look at it. One, what would be a good result for the Company, I would say right now, if the way you look at is our cable revenues are trending towards 60% data and 40% -- approximately, okay, it is not exact numbers -- 40% is toward video revenue.

So I think it is a very good balance, even though it seems like data tends to be growing more jumpy or sort of things. But I think video has been growing consistently across the quarters, is really exciting for us.

But even more so now it is even more interesting and exciting, because of the existing, in North America and Europe, and this is one thing I talked to in my script section, is that these media server type boxes that are becoming the new trend where people -- the architecture of the media server and then client devices -- what that is doing is that it's taking the traditional video set-top boxes in North America and Europe. It is moving and more towards these video configurations.

If you recall, our share of the video boxes has been low, because that is just the way that market is. But what this does is it brings to our platform to be very strong, which is basically Intel-based platform with a MaxLinear front-end, and that had less gateway type segment of the market, that is where it's growing. That is where [the part] is fitting in.

So I will not be surprised if in 2 to 3 quarters down the road that both the data gateways and the headless server type gateway revenues are growing at an equal pace. And as an overall, cable continues to grow very strongly for MaxLinear.

Okay, and then my last question, I know you're obviously not giving guidance beyond the June quarter, but just trying to think about your views on seasonality. It seems certainly in the terrestrial business it would appear that the September quarter would be the seasonal peak. And I think in years past, you haven't seen that much seasonality in cable.

But can you guys talk about what you would think normal seasonal patterns would be in Q3 and Q4? Or is it really there aren't any strong seasonal patterns? It is really just the timing of product-specific ramps that is most important to driving revenue?

Okay, so let's talk about the new normal, if you will. Right? So what we are seeing is [the reader is] in now in terrestrial, no doubt about it. The two components of terrestrial, whereas the hybrid TV revenues that is TV related, September is the peak quarter.

And the other part of the terrestrial, we have historically had is a digital to analog converter set-top box market.

Now, to be precise, the digital to analog converter set-top box market is dependent on country by country transitions from analog to digital terrestrial transmission. However, the two seem to be tracking the retail behavior of seasonality in the terrestrial as well. So if all our volume may be up or down, but if you look at the gradient through the calendar year, they seem to have the same behavior as the TV market.

And now you come to the cable market. Now we are down to finishing our second December with cable as a part of our revenue in a reasonable way. And what we have noticed consistently is that there is a down quarter in Q4.

And my friends at Intel in the cable side tell me that Kishore, we are down for either Q4 or Q1. If Q4 is a down quarter, Q1 will be recovery. And if Q4 is not a down quarter, Q1 will be a down quarter. So if I go by that, so far that is Q4 is a down quarter.

So, in the new normal with cable part of our portfolio, we now think that Q4 is a flat quarter, flat related to Q3. That is a great outcome. But if it is not, it is going to be a down quarter.

And right now I do not foresee -- [let me -- what would foresee] what will change the dynamic of Q4 being a down quarter. Firstly, in the cable side the video platform takes off much more, and they are deploying this new platform quite a bit.

When I say the video platform, the server gateway platform, because that is just being rolled out. It is a really, really new high-end platform which is going to be brought more and more to the mainstream, and we could be beneficiaries of that, and the ASP per box are big enough that they could really negate any downward trend.

The other piece is that for the first time in entering a terrestrial set-top box market where it is going to be much more -- we are going to have a decent amount of pay TV operator driven revenue being generated in the terrestrial market. And given the fact that these deployments they have in South America in anticipation of the World Cup the following year, if that is going to be a strong deployment, and then we would all come -- any downward trend in Q4.

So I would say two things to watch out how the media server gateway market in cable takes off. Another one is that the deployment by the [pay TV] operators in South America, how they respond to the impending World Cup football in the middle of next year in South America, and in the anticipation of that, how they deploy these boxes in a nice, healthy manner or not. Okay?

Okay, great. Thank you.

Anil Doradla, William Blair.

Congrats on the results. A couple of quick ones. Can you give some color on the channel mix, how -- the breakdown by 8 channels and maybe 16 channels so far?

So basically right now all our cable -- so let us -- you referring to the cable side of the market, because --?

Correct.

We have the terrestrial side of the market as well. In the cable side of the market there is no platform that is in data that is shipping with less than 8 channels.

And what about 24 channels?

The 24 channels designed in that will not be shipping until the end -- later half of this year.

So, if you look at North American cable guys, there talking about 30 megabits per second going to 50 megabits per second sometime in the next month or so. Is that all going to be 8 channels, multiple 8 channels?

Eight -- there will be 16-channel deployments starting sometime in the middle of this quarter onwards.

And can you remind us when you'll have the 24-channel solution?

We already have a 24-channel solution. We have the 8-channel solution, with a 16-channel solution, with a 24-channel solution, and they're all being designed in. They have got design wins as well. It is just the timing of the various OEM operator related deployments.

And so the 24 channels for sure is going to deploy to the latter half of this year. The 16-channel will happen the next three months or so. And the -- it is happening. [We talked to] the video server platform and then the 8-channel is an ongoing deployment on MaxLinear's port.

And on the terrestrial side, would it be fair to say that in 2013 this was a trough; this was a bottom?

I have to look at the data. I would think so.

Okay, great. Thanks a lot, guys.

(Operator Instructions). Alex Gauna, JMP Securities.

I was wondering, Kishore, if you could talk about market share, how you see it evolving right now. Are you making any strides on that front?

And as we start to think about the Full-Spectrum Capture, are there question marks in terms of who wins by securing either, A, the OEM sockets, or, B, those OEMs then, which carriers they lock up? Thank you.

Alex, could you clarify with respect to which market you are referring to?

I am sorry. I am referring to the cable side of things right now, the majority of your business.

Okay. So on the -- thank you -- on the cable side, really speaking MaxLinear's solutions are in the data gateway side -- avidly with the Intel back end platform. And, really, today if you look at -- and we have declared so in our filings, it is that Arris is the biggest player. And they are the biggest player in the data gateway market.

So our share of that OEM today is pretty close to 100% and as a result, with respect to their biggest operator customer we should be in a very, very strong position. And you have recently seen the announcement of Arris Motorola acquisition being complete. And Motorola is also our customer, but we believe that in the Motorola case there is -- they sell both platforms. One is the Intel-based platform; the other one is probably is the Broadcom-based platform.

So having said that, in the combined Arris entity, you will have some small share split there with respect to the data gateways.

On the video server gateways, we shipped -- there are other major players such as Cisco, Technicolor, Arris and even Pace and Motorola as part of Arris. And they are likely -- most of these guys do dual platforms, and currently there is only one platform with a 24 channel capability. That is the MaxLinear Intel-based platform. To the extent that it is critical to operators, we have the edge in that deployment process.

And we hope to be -- and I think we believe we are winning on the video server platform in a very -- let me be careful -- and a very nice way. So that is where we are.

So, all in all, good progress; we are excited about the video server gateway wins as well on the headless gateways, so we don't see any breaks or any impediments at this stage to our momentum in cable. So I hope that answers your question.

It did; very thorough. Thank you very much. And if I could add a follow-up to your answer on the terrestrial side of the business, you gave a lot of the puts and takes on how you saw seasonality evolving. But to ask the question more simply right now, would you think come the September quarter there is an upward bias to gross margins, based on the new product ramps and seasonality with cable, or a downward bias from the more consumer centric nature of the terrestrial? Thanks.

What do you say, Adam?

I think on the gross margin bias, I think that right now we are seeing a pretty strong stability on the gross margin line. When we looked at -- when we went into -- when we were heading into Q1 for our guidance, we were thinking it was going to be 61%. We came in at 63%.

I think that we have been doing better in the last couple of quarters and getting COGS reductions as we talked about earlier. I don't believe right now that there is any strong indication of any major change in either direction for gross margin.

We hope that we can manage the portfolio to deliver pretty consistent gross margins, and I wouldn't be modeling anything significantly different than what we are experiencing right now based in our latest guidance for Q2.

And, also, if I could ask about OpEx as well, we are stepping up here in the June quarter. What do you think in the back half of the year? Does it level out or are there more planned increases as well?

I think, as I talked about in the prior quarters, I think that we are looking to be in a range for OpEx. We came in light in Q1 for the reasons that we already talked about. I think the [15.5] on the non-GAAP side that we pointed to for Q2 is pretty consistent with where we said we would be somewhere between, I would say -- we said we were going to be between [14.5 and 16] for non-GAAP OpEx on a quarterly basis as we move through 2013. I see no reason to think we are going to be outside of those bounds.

So do I think could Q3 be up a little bit from Q2? I think there could be, because there is some -- we have a continued roadmap of 40 nanometer developments, some of which will be R&D tape-outs which will hit the P&L. But we still think, all those things taken into consideration, we think we will be within that range of [14.5 to 16].

But I think we have seen the [14.5] low end happen and I think now for the remainder of the year it is going to be more in the meat of the remainder of that range of somewhere between [15 and 16].

Okay, thanks. Congratulations on the quarter.

(Operator Instructions). I'm showing no further questions at this time. Please continue with closing remarks.

Thank you very much. As a reminder we will be participating in the Deutsche Bank conference in San Francisco on May 9; the JMP conference on May 15; and the B. Riley conference in Santa Monica on May 22. And Adam and I hope to see many of you there.

We thank you all for joining us today and we look forward to reporting on our progress to you in the next quarter as well. Thanks a lot.

This concludes MaxLinear Q1 earnings conference call. Thank you for your participation. You may now disconnect.