Maxlinear Inc (MXL) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the MaxLinear Third Quarter Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions and instructions will be given at that time. This conference is being recorded today, Wednesday, October 30, 2013.

I would now like to turn the conference over to Mr. Nick Kormeluk. Go ahead sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's third 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 fourth quarter 2013 revenue, including expectations for revenue growth in our cable, terrestrial, satellite and other target markets; gross profit percentage and operating expenses and our current views regarding trends in our markets, including our views of the potential growth for our cable, terrestrial and satellite 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 current target markets, including the terrestrial, cable and satellite markets do not grow or if we are not successful in expanding our target addressable markets through the introduction of new products.

In addition, substantial competition in our industry; potential declines in average selling prices; risk relating to intellectual property, protection and the prevalence of intellectual property litigation in our industry 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, subsequent quarterly filings and our upcoming 10-Q for the third 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 third quarter 2013 earnings release is available on the Company's website at maxlinear.com. In addition, MaxLinear reports growth, profit, income or loss from operations and net income, loss and basic and diluted net income/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, net expenses associated with a prior export compliance matter, accruals under our equity-settled performance-based bonus plan, expenses associated with our acquisition of certain expenses associated with our acquisition of certain new market-related technology licenses, expenses related to prior patent litigation matter with Silicon Laboratories and mask-related asset impairments. 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. The earnings release and reconciliation is also 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 our third quarter 2013 financial results not only represent a record revenue quarter, but also mark a double-digit year-over-year revenue growth for the Company. Our strong revenue growth was derived from our industry-leading products, targeting some of the most exciting and dynamic broadband front-end applications, such as cable DOCSIS 3.0 data modems, cable media server gateways, hybrid televisions and a variety of set-top boxes.

These results and related momentum across markets strengthen our confidence as we focus our investments towards the expansion of our target addressable markets. These new target markets will be ideally suited for our industry-leading, low power, RF mixed signal broadband technology platform. I'm also pleased that MaxLinear was able to satisfactorily settle its intellectual property dispute with Silicon Labs, thereby eliminating customer and investor concerns regarding our ability to ship product into the United States and to fully mitigate related litigation costs.

Moving to the financial specifics, net revenue in the third quarter was $31.8 million, up 7% from the second quarter of 2013 and up 14% from the year-ago quarter and above the midpoint of our guidance. GAAP and non-GAAP gross margins in the third quarter were 62% and 63% of revenue respectively. GAAP net loss in the second quarter (sic - see press release, "third quarter") was $4.9 million or $0.14 per diluted share and non-GAAP net income for the third quarter was $2.9 million or $0.08 per diluted share.

I will now discuss current trends in our business. Consistent with our prior guidance, our cable business continued to grow in the third quarter of 2013 with revenue increasing approximately 11% relative to the second quarter of 2013. We experienced solid double-digit growth across cable data and cable media server gateway applications. Growth in these applications was offset by weakness in the demand for our basic cable set-top boxes and relative flatness in demand for cable, HD, digital-to-analog converter set-top boxes.

Now I will review some of the specifics related to our cable revenues. In the third quarter of 2013, cable revenues increased in the mix and represented 70% of our total revenues, versus 67% in the prior quarter. We continue to experience product ramp for our 16-channel and 24-channel Full-Spectrum Capture cable receivers, which entered volume production in the second quarter of this year. Additionally, we announced that SMC Networks had selected our 16-channel Full-Spectrum Capture digital cable front-end receiver, MxL265, for its new family of DOCSIS 3.0 cable modems and wireless high-speed data gateways for more efficient distribution of video and IP services.

Recently, ZCorum and MaxLinear demonstrated a diagnostics application called RF Inspector, which reports back to the cable operator, spectrum analysis data collected from tens of millions of installed DOCSIS 3.0 cable modems containing MaxLinear RF front-end IC, plus Intel Puma 5 DOCSIS 3.0 processors, which takes advantage of the Full-Spectrum Capture RF functionality that we have inside our chips.

Moving to the terrestrial and satellite TV markets, terrestrial revenues declined modestly by 2% quarter-on-quarter, with strong growth in hybrid TV, offset by softness in terrestrial set-top boxes. Specifically, the softness in terrestrial set-top boxes in the third quarter was a result of stronger-than-anticipated shipments of our ISDB-T broadcast digital TV standard tuner/demodulator SoC solution in the prior quarter. We believe that a greater-than-anticipated shipment of our ISDB-T SoC product in the second quarter is the principal factor behind the current slowdown we're observing and it may take a couple of quarters to return to growth.

As mentioned earlier, we experienced strong growth and demand from the continued ramp of our 65-nanometer CMOS hybrid TV Super Radio solution.

Some notable highlights in terrestrial in the second quarter of 2013 are Samsung launched mass production television shipments using our MxL601 global hybrid TV tuner. We believe this design is the first direct silicon tuner on board implementation by a major tier-1 TV OEM and represents a significant milestone for silicon tuner adoption in TVs.

We continue to see momentum from leading OEMs that are using our MxL603 silicon tuner device in new Internet video set-top boxes shipping into the United States. These new boxes are enabling the recent major consumer trend of accessing video content from over-the-top video service providers like Netflix, YouTube, Hulu and Amazon Instant Video.

We are also encouraged by a recent market feedback regarding the potential for our ISDB-T tuner/demodulator

SoC solution used in digital-to-analog converter set-top box, designed for Latin America region, such as Brazil, where the planned analog TV blackout is expected to begin in 2015.

Moving to the highlights of our target addressable market expansion effort into satellite TV. We announced the [MxL54X] product family of Full-Spectrum Capture satellite tuner/demodulator SoC product, addressing a new generation of multichannel DVB-S and S2 satellite gateway platforms that deliver multi-screen viewing, personal video recorder functionality, emerging catch-up television features and fast channel change capability. These new 40nm digital CMOS solutions enable simultaneous reception of four and up to eight satellite TV channels.

The [MxL54X] satellite product family features MaxLinear's Full-Spectrum Capture technology, which digitizes the entire satellite 950 MHz to 2150 MHz satellite spectrum and replaces up to eight discrete tuners and demodulators with a single chip.

Relatedly, we also announced that satellite TV set-top box manufacturers, Zinwell, in Taiwan has selected the MxL544 Full-Spectrum Capture DVB-S/S2 receivers for a new family of satellite TV home media gateways, which facilitate viewing satellite TV content on multiple screens throughout the home, including televisions, computers, tablets and smartphones. These systems are designed for both Pay TV and three to eight market satellite customers in Asia and Europe.

In conclusion, we are excited by the continued strength of our cable business and the relative stability in our terrestrial receiver product shipments. We are greatly encouraged by our steady progress towards delivering revenue derived from our satellite TV initiatives. We continue to identify and work towards opening up new target addressable markets for our industry-leading broadband Full-Spectrum Capture RF front-end technology platform in areas beyond cable, terrestrial and satellite TV applications.

With that 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'll first review our results and then briefly discuss our outlook.

In summary, our Q3 revenue was a record $31.8 million and above the midpoint of our prior guidance. As Kishore noted, growth in our revenues from cable was derived primarily from data and media server gateway applications. We're also encouraged that the strength in hybrid TV shipments was definitely robust to overcome the unanticipated slowdown in shipments of our ISDB-T digital TV SoC product for terrestrial set-top box applications that Kishore mentioned earlier and which had delivered strong growth in Q2 of this year.

Now moving to the rest of the income statement. GAAP and non-GAAP gross margin for the third quarter were approximately 52% and 63% of revenue respectively, versus our prior guidance of 61%, 62% for both GAAP and non-GAAP gross margin. This compares to GAAP and non-GAAP gross margin of 58% and 62% respectively in the second quarter of 2013 and GAAP and non-GAAP gross margin of 63% in the year ago quarter. The divergence in GAAP and non-GAAP gross margin in the third quarter was due to stock-based compensation and accruals under our 2013 bonus plan.

Our Q3 GAAP operating expenses were $24.5 million, which included $3.4 million of stock-based compensation, $1.5 million from an accrual related to our performance-based equity bonus plan for 2013 and $2.8 million in settlement cost and net professional fees related to the Silicon Labs application matter, which is now settled and for which there are no future payment obligations for MaxLinear.

Consistent with 2012, payouts under our 2013 performance bonus plan are expected to be settled in shares of MaxLinear stock. Net of these items, OpEx was $16.8 million, which was slightly above our guidance of $16.5 million. The minor overage in OpEx was driven primarily by an increase in [CAD tools] expenses, tape-outs and non-recurring facilities-related expenses in the quarter. Third quarter GAAP OpEx attributable to R&D was up approximately $2.3 million quarter-on-quarter to $14.6 million, which included stock-based compensation of $2.2 million and $900,000 related to the 2013 bonus plan. The increase in R&D spending relative to Q2, 2013 were primarily due to 40-nanometer R&D tape-out activity and increased payroll due to increases in headcount.

Third quarter GAAP OpEx attributable to SG&A was up approximately $2.2 million quarter-on-quarter to $10 million, which included $1.3 million in stock-based compensation, $500,000 in bonus plan accruals and $2.8 million in settlement cost and net professional fees related to the Silicon Labs application. The increases in SG&A were driven predominantly by the previously discussed Silicon Labs legal expenses settlement cost. At the end of the third quarter 2013, our headcount was 326 as compared to 297 at the end of the second quarter 2013. We continue to add R&D headcount globally to staff growth initiatives and to gain operating 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 $4.7 million in Q3, compared to loss from operations of $2.8 million in the prior quarter and GAAP income from operations of $500,000 in Q3 of last year. GAAP net loss per share in the third quarter was $0.14 on basic shares outstanding of 34.5 million. GAAP net loss per share included $3.5 million in stock-based compensation expense, $1.5 million for an accrual related to our 2013 performance-based bonus plan and $2.8 million in settlement cost and net professional fees attributable to Silicon Labs patent litigation. This compares to GAAP net loss per share of $0.09 in the prior quarter and net income of $0.01 in Q3 of last year. Net of these items, our non-GAAP earnings per share in Q3 was $0.08 on fully diluted shares of 36.6 million, compared to $0.11 per share in Q2 2013 and $0.13 per share in Q3 of last year.

Moving to the balance sheet and cash flow statement. Our cash, cash equivalents and investments balance increased $1.8 billion from Q2, 2013 to approximately $83 million, which is an increase of $3 million as compared to the $80 million in Q3 of last year. Our cash generated from operations in the third quarter 2013 was $3.1 million, approximately $3.1 million less than in the second quarter of 2013 and $3.2 million less than in the year ago quarter. Our days sales outstanding for the third quarter was approximately 53 days, or three days less than the previous quarter and approximately six days less than in the year ago quarter. As a reminder, we only recognize revenue on a sell-through basis and as such we are not subject to revenue fluctuations caused by changes in distributor inventory levels. Our inventory turns decreased to 5 turns this third quarter compared to 5.5 turns in the second quarter and improved relative to the 4.7 turns in the year ago quarter.

That leads me to our guidance. We again expect revenue in the fourth quarter of 2013 to be in the range of $31 million to $32 million. Built into this range, we expect cable revenues to be approximately flat to slightly up and terrestrial revenues to decline slightly on a quarter-over-quarter basis. More specifically, in cable, we expect modest growth to come from cable data and media server gateway applications, offset by weakness in cable DTAs. We also expect modest seasonal declines in hybrid TV tuner and terrestrial set-top box revenues to be offset somewhat by initial product shipments of satellite receiver solutions.

We expect GAAP and non-GAAP gross profit percentage to be approximately [61% to 62%] fourth quarter. Our gross profit percentage forecast could vary plus or minus 2% depending on product mix and other factors, in particular, the relative contribution of cable and terrestrial applications.

We continue to fund strategic development programs targeted at delivering attractive topline growth in 2013 and beyond and with a focus on increasing operating leverage in the business. We expect Q4 2013 GAAP operating expenses to decrease approximately $2.5 million relative to prior quarter to $22 million, with stepped up payroll related expenses, which will include the full-quarter effect of our incremental Q3 items and anticipated Q4 hirings. The increase in payroll-related expenses will be offset by savings related to the settlement of Silicon Labs litigation spending from prior quarters and reduced spending on [CAD tools] and embedded IPs from (inaudible).

We expect the Q4 2013 non-GAAP operating expenses will be flat sequentially at approximately $16.8 million, with increases in previously referenced payroll-related spending, offset by lower spending on [CAD tools] and embedded IP from (inaudible) activities.

In closing, we're pleased to report revenues in Q3 that were above the midpoint of our guidance, along with better than expected gross margins and a satisfactory IP settlement agreement with Silicon Labs. Given the challenging macro growth condition, we're encouraged by our guidance for flat to slightly down revenues in Q4 and the anticipated commencement of our initial shipments to the satellite market.

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

(Operator Instructions) Tore Svanberg, Stifel.

Yes. Thank you and congratulations on the record revenue. A few questions. First of all, Adam, could you comment a little bit on your sort of relative visibility for the quarter, either by backlog or bookings?

Sure. Yeah. Consistent to how we talk about this in prior quarters, I think we've got pretty good visibility into Q4. As we looked, we kind of -- these are metrics, where we look -- into the quarter booked relative to the midpoint of our guidance. And right now we're comfortable in a similar range to where we historically have been. I think it's a little bit lower than it was in the prior two quarters which were uncharacteristically strong, but we've also had some -- I'll say some fill-in since we entered the quarter they kind of got us back to where we probably were in the prior couple of quarters which were strong also. So we feel pretty good about where we are based on the metrics that we follow for that.

Very good. I think there has been some fears out there about Q4 being down seasonally, at least in cable or maybe even some inventory adjustments. I guess last year was an abnormality, because of some lead times issues of some of your partners. So, could you comment a little bit on how that looks this year in Q4?

I'll let Kishore speak to that one.

Hi, Tore. I think this quarter positively surprisingly for me, it's been a pretty stable follow-through on our forecasting process. The billings and backlogs looks pretty much in line with where we would like to be relative to our guidance. And we do not see any of those issues. On the positive note for us, actually, there is a good strong ramp of the new products that we thought would happen a little later, of our new Full-Spectrum Capture products into media server gateways. That's going pretty strongly. The end customer being Comcast. And so I think that we don't see a potential for the downside that we saw last year, because the growth is primarily been driven by product ramps in the media server gateway applications for us.

Very good. And the two businesses that are sort of taking a near-term pause here ISDB-T and also DTA, what's your best guess on timing on when those business units will potentially grow again?

So, the ISDB-T SoC product ramp that we saw that was quite strong in the second quarter, more than what we had anticipated, it was primarily at the end markets in Latin America where the ISDB-T chip, SoC chip goes in a satellite Pay TV operators as the companion terrestrial reception broadcast TV conduit in a satellite box. And I think they are being cautious in their rollout in terms of trying to manage the inventories and such and so we don't feel there is any pause in the business more than that -- more than the fact that once they catch up, we should recover it in the next two quarters to the levels we had in Q2 and then grow stronger from there. So we are not feeling that negative about it, actually we feel we got the designs locked in, these are pay TV operator businesses. So, there will be a nice pull-through as we go towards the World Cup Soccer and such. So I don't see any concerns on the ISDB-T side.

On the DTA market side, primarily, I think we talked about softness about it even in the prior quarter. And the HD DTA deployments at the major cable operators have taken a pause. So, we expected to see the softness. So, it's not a surprise. However, in the recent Cable Trade Show, the SCTE Show in Atlanta, we had some encouraging news of the -- one of the major operators is actually going to go and renew his deployments in a stronger way in the latter part of the first half of next year. So we should see a strong resumption in growth in HD DTAs if that were to play out in the middle of next year.

Very good. last question on satellite, and by the way, congratulations on your first revenue there. How should we think about the ramp in that business? And then I assume in Q4, it's fairly a low base. But as we go into 2014, how should we think about the ramp in satellite?

So, I'll let Adam give a little bit more color on the actual ramp, because he has got it nicely played out in these forecasting game here. However, the key point is that this is a major, major shipment because we're shipping to a major operator, to probably one of the premier OEM manufacturers for satellite gateways out of Europe. And so that's a big deal and we have never shipped to this customer before in the cable or in the satellite market space. So, we are very, very pleased about it and we'll be able to share more of these as we enter the trade shows and we have announcements to follow.

So, the ramp itself, we expect that the first half of the year, we are being cautious, I think it will be modest, but it will be very meaningful. But the second half of year is where the stronger pickup will come, because a bigger major satellite gateway deploying operator will come online, will have pilot shipments towards the end of the year and the beginning of next year and will start into a big ramp in the second quarter starting. And so, we will see very meaningful revenue in the second half of year. So if you cumulate the revenues, I think, let Adam give some color on that what our expectations on the revenue for the next year on satellites.

Yeah, Tore, I would say that we've been fairly consistent in saying that we expected the revenue in 2013 from satellite to happen in the Q4 window and then it would be to be measurable but not meaningful. And I think that's going to be true. So if you want to call that in the low hundreds of thousands of dollars of contribution in the Q4 period, I think that's where we see things. But I think as Kishore said, it's a very important kind of a watershed for us, where we enter this new market. So that's very encouraging if these things actually start to be deployed.

As far as the 2014, we're not giving guidance beyond the current quarter. I don't want to kind of extend myself too far on what the number could be for the full year 2014. But given where people's expectations are for total corporate revenue, as I look at the consensus numbers out there, I think that there is certainly some expectation for satellites to be contributing to that number and I think we're encouraged that satellite again is going to become a more measurable and meaningful number in 2014 as before. But I don't want to be getting more specific than that.

That's fair. Thanks again and congratulations on the strong quarter.

Thank you.

Ross Seymour, Deutsche Bank.

Hi guys, congratulations from me as well, especially in this earning season it's nice to have a guy that is delivering solidly. Just a question on the gross margin, and the fourth quarter guidance looks like you're guiding it to come down a little bit. Adam, can you just talk us through the puts and takes that go into that guidance please?

Sure. Yeah, I think that Q3 margins did come in obviously stronger than we were expecting to by, call it, 60 basis points on a non-GAAP basis, about 40 basis points on a GAAP and that was really primarily a function of mix. And I think that because again cable grew very strongly and as Kishore mentioned, the mix of data and media server gateway are the platforms where, you know, even there's some benefit [or full] impact of the mix when those are stronger, relative to DTAs obviously in basic set-top boxes.

So as we look forward into Q4, one of the influences there is, even though there's going to be some, as Kishore mentioned, some seasonal softness in hybrid TV, I think that there is -- if you look at one area of our business which is under the most margin or pricing pressure, it would definitely be in that hybrid TV area. So, I would say that it's really a mix impact, even though terrestrial is not going to be significantly more in the overall mix. It's the terrestrial impact within the overall mix that's causing the margin pressure, and again, it's not major. We said 61% to 62% and I think that last few quarters I think we've been a little bit on the conservative side and outpaced the expectations, our internal expectations on that. I don't know that -- I think the range we provided, 61% to 62% is our best estimate right now, would always look to do better than that, but I think that's a reasonable range to be in right now at this point. Our operations team, obviously, strives every quarter to kind of go beyond our expectations and deliver more savings for us, but certainly the hybrid TV market is a very competitive space and it's safe to say that definitely there is competitive pressure there that add influence on margins.

But the positive news there is that we grew hybrid TV very strongly last quarter and it seems that we are having very, very good success in growing hybrid TV revenues and the contribution margins, the dollars from hybrid TV are quite healthy. So we are very happy about that.

Great. And then one follow-up on something you answered to earlier Kishore on the ISDB-T stuff that's taking a little bit of an inventory digestion pause. I just wanted to clarify, is that likely to continue into the first quarter? Is that something that you think you'll absorb all the excess inventory, if that's how you want to describe it, in the fourth quarter and then you could get back to some growth in the first quarter or is it going to take a little longer than that?

I think it's hard to predict at this stage, because so much of it is the Pay TV operator driven revenues. They could just be -- being cautious for the end of the year and they could just turn it on pretty much instantaneously. So, when we go through a forecasting process, including conversations, we have optimism that it's a temporary event that should recover pretty nicely at the beginning of next year. But, however, sometimes, we have seen enough volatility in the operator ordering patterns that we want to be careful and not jump the gun and assume so. So, I would say that at this point it's a 50-50, but given the way the operators react, maybe there is some optimism for on the positive side.

Great. And then just two kind of housekeeping ones. I know you're not going to give the exact size of your expectations for satellite next year, but just conceptually, satellite becoming part of the mix at all and then a growing part of the mix. Do you expect that to be accretive or dilutive to gross margin? And then the second housekeeping one is just on the share count side, with some of the hiring you had etcetera and where the share price has gone, what should we think about for the share count in the fourth quarter? Thank you.

So, [I have] already give a little bit broader theme on the products we look and target, and target addressable markets, we look at -- we never look at products that have margins below our corporate margin in terms of our expectations. So -- and satellite definitely fits that category and we believe that it's going to be very, very helpful for us as our legacy revenues like hybrid TV have decreasing -- margin pressure that something like satellite would definitely give a positive upward push to our gross margin, then we really would like -- we really aim to make sure that we maintain the corporate margin, if not grow it in the first place. So, the satellite will be definitely pushing strong on the gross margin than any of the terrestrial products.

And the share count?

Hey, Ross, I'll take the share -- so, on the share count, there are a couple of things that work. Obviously, we have our normal employee equity-related programs that contribute to the increased share count. And we have our ESPP program. And then we also have the impact of the treasury stock method on our share count, when you look at on a diluted basis, and how that's influenced by an increasing stock price. So given the fact that stock price has been going up, we do have some -- basically some detrimental impact from the treasury stock method. So if you want to think about the area, we reported 36.6 million shares in Q3. I think you can expect that to increase probably 700,000 to 800,000 shares in Q4, which would take you to about 37.4 million.

37.4 million, perfect. Congrats again. Thanks guys.

Thanks Ross.

Quinn Bolton, Needham & Co.

Good afternoon, guys. Let me add my congratulations. [Just] a follow-up on Ross' question. As you come to the end of 2013, it sounds like the bonus awards are going to be paid in stocks. Is there another uptick in share count as you get into the first quarter of next year?

Yeah, Quinn, I think, right now -- we would anticipate to have a similar dilutive impact in Q1 that would show up resulting from the awards that would be accrued for in Q4. And correct, our current anticipation is that we would pay out the bonus if earned in stocks, and which as we did last year. So I think if you want to assume a similar kind of step-up in Q1 that we kind of we saw in the Q3 to Q4, I think that probably that's a safe place to be.

Okay, great.

And of course the unpredictable part of that is the treasury stock method, and moreover the stock price does have a pretty significant influence on it. If you look at the magnitude of the change in Q3 to Q4, the 700,000 to 800,000 shares that I mentioned to Ross earlier, almost half of that is related to the impact of the treasury stock method because of the change in stock price going up.

Okay, great. Second question just on the satellite gateway side of the business, it sounded like one of your biggest concerns about the initial design wins you had was that you were worried that while you had to win, somebody could come in before those got locked down and started to ship and displace even. I'm kind of wondering with some of the initial gateway design starting to ramp here this quarter, do you feel more comfortable that those design wins have now been locked down by the OEMs or even the carriers or operators and those are now kind of solid design wins that should last for a couple of years?

Quinn, I would like to say yes emphatically on the two platforms that we have designed in and right now, I think the designs are locked and there is nothing MaxLinear can do to -- do anymore then if they're locked. Right now, they're going through the qualification cycle. One of the major operators are deploying in Europe along with a major OEM with whom we have never shipped into starting -- taking production quantities now. We feel that these two operator designs have been locked and these are actually major platforms. So, I feel pretty happy that what -- the fears we had, we were concerned about are now pretty much fully eliminated on the these major platforms.

Great. And, Kishore, just to clarify, it's one OEM into two different operators or they are -- is it the same OEM platform into two operators or is it different platforms at that OEM into different operators?

So I would say that there -- the two platforms we talked about are two different operators and right now the OEMs -- we'll be shipping to these operators also two different ones. The one I mentioned in Europe is a very specific one, only because it was a very, very tough one that we have tried to get for years from -- in terrestrial markets and cable markets and the most amazing theme for us is that satellite was the one that brought them into our gamut and because of satellite they are actually going to be using us in cable and terrestrial as well. So, that's a great news here. The other operator is a complete different name, It's one of the world's biggest set-top box player for the satellite market. We have been shipping into them and they'll continue to ship. But both these OEMs, we'll also be targeting other operators in the world and the same designs and platforms will move to other operators. But at this point, we are not aware on the timing of those even, because these particular deployments are the showcase events for the industry in terms of the attractiveness of the media server gateway deployment model. So, we're pretty excited about that.

Great. And then just switching to the cable gateway side of the business, you mentioned that it sounds like you've got a couple of gateways starting to ramp for Comcast. Knowing that gateways are still a fairly small percentage of overall set-top box shipments, do you expect that to be a fairly linear ramp on the gateway side or do you still see it being somewhat lumpy, where you could have a quarter or two of strong orders and then it goes quiet for the next quarter as Comcast digests some of the initial inventory?

So let me address that in two pieces. Right, one is that we were the first one to be deployed in the world's most advanced gateways that any operator tried, namely Comcast, the excellent platform, and that ramp was very, very linear. And that one is continuing to persist, and not be replaced by the newer generation device with respect to the media server gateway of the caliber and capabilities of the excellent platform. We do not know how many quarters it will last. But so far it's pretty steady. The other platform that ramped very strongly, which was not as expected is the pure headless gateway, that means where the video decoding is not inside the server gateway box. Everything is deployed to client devices and that one has ramped quite non-linearly, in a sense that it just went right through and we are very excited about that. And I am not aware, we had a press release on that. So, I want to be very careful. I can't reveal the name, but again, the end customer is still Comcast.

So I think at this point I'd say the model to assume is a linear model, but the big trick with this whole gateway thing is that how much of the X1 versus the non-X1 gateways at an operator like Comcast, what the share of each of these platforms is going to be. So for us, the revenues have been growing very steadily, little bit more than linear in the last quarter, in this quarter, but I would think it will remain linear over the longer period of time.

Okay, great. Thank you. Congrats again.

Thanks Quinn.

Gary Mobley, Benchmark.

Hi guys. Thanks for taking my question. Wanted to start with sort of a multi-part question. Can you confirm whether or not the settlement with Silicon Labs carried any royalty components to it? And I guess related to that, how has the settlement of this litigation impacted the timing of some of your satellite design win ramps?

So, hi Gary. I think in our press release, we've made it very clear that was a mutually respectful satisfactory settlement. In our filings that we did with the SEC, it is very clear that no royalty at all in any of this stuff. It's a mutual cross-license with no ongoing obligations of any payment to each party and we both have freedom to operate with existing products without any concern of IP issues. And the third component to it is that there is a three-year period over which both MaxLinear and Silicon Labs -- will not be any legal entanglement with each other or any product, be it existing product or future product. So I think all in all it's a great outcome for us and hopefully it's for them. And so, we are pretty happy about that.

The second part of the question, how does it affect the satellite ramp, really this one never had any impact on the Company's business relative to non-hybrid TV markets and our customers in cable, our new customers in satellite, they are absolutely comfortable all through with MaxLinear's IP position and they were very convinced that -- convinced of the quality of our product and IP embedded inside it, we convinced them of that. So, there was never ever any threat to our cable or satellite markets at all. So, it was a non-event for that matter on the satellite side.

Okay. I think you mentioned that your cable business grew 11% sequentially. I know you're not going to share with us what the average selling price was on the DOCSIS side, but can you give us a sense how much of that 11% sequential growth was driven by volumes versus an increase in average selling price? And the mood of my question is to try to get a sense of how 16-inch, 24 channel count coming into the fray impacts the overall ASP?

I think you asked a very specific question. I don't know we have that data right in front of us here. But let me give you some general color on the subject. Basically, right now all the deployments that are happening are primarily skewed towards -- if you just look at the entire cable, the big deployments are still on the legacy 8 by 4 platforms. So that's the old product, the 65 nanometer product. On the Full-Spectrum Capture product, a bigger part of the deployments today are 16 channel sales. And, so you would say two-thirds 16 channels, one-third 24 channels. So I would say that the gravity of the deployment is more at the 16 channels [a day] than a 24 channel, but the second half of next year, we would start seeing a move towards the 24 channel, is our expectations.

Yeah, Gary, I think a little more color on that. I think the contribution of the 16 and 24 channel into our total mix of revenue in Q3 was in the single-digit range -- single-digit percentages and we see that growing significantly in Q4 and onwards. So, the transition is definitely happening, but in the current quarter, it was still sub 10% contribution of total revenue.

Okay. Thanks guys.

Alex Gauna, JMP Securities.

Hi, Kishore. I was wondering if you could add a little bit more color around what you've already given us on Comcast. There is the next one, the X2 transition and I know there are a number of different platforms out there. Do you expect things to be stable for you as we move to the X2? Is there an opportunity to pick up some more share and maybe give us an idea of how many of the platforms you are in? Thank you.

It's hard, because we don't -- though we internally track the design wins and the platforms we are on, I would suffice to say today that -- and I think this is largely correct, all the X platforms at Comcast is imagining up and they'd be light. If there are two suppliers, we are definitely on the platform as one of the suppliers, on one of the platforms. So, generally the -- so today though on the X-1 we are there and we are pretty much the exclusive supplier along with the Intel platform and the Intel one is the one that's shipping. And the X-1's life is continuing beyond what the operators assumed, because of the good strong pull off it and it may well continue into the first half of next year and who knows, beyond that. And there's a [successor] platform, I don't know what the exact nomenclature of it is, it's called the [XB3] I think, and that's really -- I don't know how the numbering goes, but that's basically a headless-type gateway and that is shipping pretty strong and that's what we are in right now. That has got our new Full-Spectrum Capture 16 channel deployment that we have benefiting from. And so those are the ones deployed. The remaining ones come in the latter of up next year, latter part of next year. They could well be delayed, but I am very pleased to note that any of the X deployments that are happening, we are very essential and core to those platforms and that's good for us on ASP and stickiness, as the set-top box volumes shift more towards the gateway market.

Okay. Thank you. I was wondering -- I know you've all already given a lot of color on next year, in 2014, and a lot of new programs, but specifically if we think about what normal seasonality might be like in Q1 and your visibility into what kind of offsetting new programs might hit in the first part of the year, I am wondering if you could give some color around that? Thanks.

You wanted some color for Q4, Q1 is the --?

Really Q1 in terms of what we should be expecting some seasonality. I know there are a lot of puts and takes and you're not guiding to that timeframe yet, but maybe to the extent that you can talk about the timing of some of the new platforms that either may or not hit in that timeframe.

Okay. I think, some of the variables would be, and let's just go to the drivers of the company for revenue next year. One is hybrid television and I'm going to start from the products of lesser importance to the products of greater importance for the company. Hybrid television is going to grow strongly. And then we have the HD DTA revenues for cable, we hope that they spring back. And there is possibility for that spring back in terms of the upside. Then we have the ISDB-T SoC product that we refer to. There is great possibility of us springing back on that one. And then you have X1 continuing to be stronger than we forecasted, because we always think X1 is going to be replaced by the subsequent X generation product, but X1 continues and ASP is much higher there. And then the new headless gateway that we are shipping into Comcast could pick up even more strength and that would be even more wonderful for us.

And finally, satellite, I know the satellite could certainly spike up very strongly, because initially the pilot shipments it could spike up very strongly, because both the operators may decide to really go crazy on it and I have seen that in the past and I'm studying operator behaviors and we have seen the other -- the other way around where things get delayed. But at this point in stage, we are having a very conservative view on satellite and hopefully we will be proven wrong. Those are the upsides.

What are the downsides? I guess, I have already answered the downsides of the story too. So that pretty much sums it up, I think. So there are number of drivers for revenue growth and that's what makes next year very interesting and next year also -- it also makes it also pretty challenging in terms of understanding what are the ones that are going to take off and what are the ones that would be slow. But it's an exciting place to be with all the product cycles over the next two years that they are going to be running on basically.

Alright. Thank you, Kishore. Very helpful.

Anil Doradla, William Blair.

Hey guys, thanks. Couple of questions. Broadcom on their earnings call kind of indirectly acknowledged share loss in the modem side, cable modem side and obviously we presume that it's the Intel MaxLinear platform. Would love to seek some kind of color or commentary from you guys on as to, when you guys get in with the against the Broadcom platform, how you guys win? And as a follow-up, can you give an update on the market share for 16, and in 2014, how do you think it will play out, how much do you think you would have in terms of share? Thanks a lot.

Hi, Anil. So let me start with the question at the end that you said, how did the -- how does a platform shakeout happen on the shares of the 16 to 24. I really, really think that you know Broadcom is the formidable player in all these markets and so we never have an overly optimistic assumption about the share wins here. We always assume that the market got split into two. Whenever there is a data gateway, data type market and there is also very strong and -- along with our front-end offering. So we always assume that we'll be getting less share than -- slightly less share than the 50% that is 50 plus, let's say, minus 5%, in the way we model our business. So we never assume that Broadcom loses share, because historically the way it's been is that over a longer period of time it averages to equal shares between both the players. That's number one number.

Number two is when we go to any market in the cable side, for example, and that's true in the satellites, the way MaxLinear wins is really because you now two things happen in tandem. One we have a great partnership with Intel, we always hit time-to-market in a very, very excellent way, we execute incredibly well. And in the RF side, more importantly, we define the power consumption, simplicity, the ease of use and we have the absolute lowest power in the industry and we really indicate all the RF [form] around the front-end silicon that no company does as well as we do. And you know Broadcom offers a full bundled solution, but their RF integration is no where as close to the kind of integration we bring to bear and we'll continue to do that. I think that's where the game is already set when we enter the market. MaxLinear solution is the integration king reducing the expensive RF [bomb], they are the lowest power solution along with Intel's well-established portfolio platform at the bank-end of the software and the ease of use for the bandwidth support and processing capacity. Together, we win against our competition, be it a Broadcom platform or anybody else that we compete with.

I think that would be a summary of it, we do RF better than anybody else can do. The broadband RF, we do even better, we do it with the lowest power, we do it in digital CMOS which is cheaper than everybody else. Our platform gets the cost advantages that we necessarily need and that the yields are far superior to anybody who tries to integrate the whole thing.

Jay Srivatsa, Chardan Capital Markets.

Yeah, thanks for taking my question. Kishore, you just spoke about the advantages that you have on the satellite side. Given that can you highlight - I mean, what are the entry barriers that's taking the process so long for you to penetrate these accounts? I mean, you said you've been trying for a long time and you finally got through, but can you highlight beyond the technological superiority what is keeping the box guys from moving to your solution versus the incumbent?

Okay, I think that first of all had the market not transitioned to over-the-top content delivery, IP-based distribution, multiple channels, simultaneous access, maybe we would have never got this chance, because the platform is not compelling enough to absorb what we have to offer the marketplace. So I really think the biggest barrier to entry was really speaking that it was not an inflection point or a disruptive event in the marketplace that would drive them towards us. So that happened for us. That's the number one thing. So they were looking for a solution that would make that possible in a cost effective manner, in a manner that is very, very attractive for them to do so. That's the server gateway type architectures.

The second piece is that the barriers to entry are really, really relationship oriented as well. We have no established credibility, number two. And so we had to work our way through winning victories in the cable world and proving that we could do that and successful ship product. And number three is, having the access to the right people to make our story and we did that with changes and upgrades in our marketing team that was required that to happen. And then number three piece to the difficulties that we had to surmount, it's a three year long process. The software associated with the certification of the platform with satellite operators is quite tedious, right? I mean, everything is actually certified with operators first, unlike the cable world. If you look at the major operators, they pretty much design their own boxes, run the certification, qualification of each vendor and supplier. So first you need to qualify the operator, then you have to qualify the OEM and then when you re-circle back into design, the specs that are finally they're going to share with you so that you could implement in your chip. So these are the barriers that everybody who enters this market is going to face. In a sense, getting here itself is a big deal, but once we get here that is the barrier to entry for any competitor that may want to enter this space. So, I think what makes it so difficult to get in also is the reason why we will keep this market for that period of lead time in product life cycles. So the difficulties are really, really credibility-related as a company for us to be able to be trusted, for a big operator to take risk in the quality of deployments they like to do on the video side, as satellite operators really do.

Jay, I'd like to add one thing to what Kishore said and we're excited to have you pick up coverage on us and join the effort. I think that one thing that folks who have been following us for a while hopefully will corroborate to the fact that we've been talking about the satellite market for some time and I think that we've pretty much hit the window that we said that we were going to as far as initially getting into this market. So, when Kishore said it took a long time, I think that it definitely took a long time, but I don't think it's really longer than we anticipated. I'd say at the outside, maybe we're a quarter delayed from where we thought we would have been if -- when we had this conversation a year ago. But I think that's actually a pretty tight convergence on where we hope to be. I think we feel very positive about where we are, probably incrementally more positive now about our prospects with satellite than we even where a year ago. So I think -- yeah, I guess give or take a quarter, I think we pretty much hit the marks and we are very excited about where we are.

I think another comment to that is that I think the operators themselves have acknowledged that they've never seen as efficient and expeditious execution for a newcomer in this marketplace with such a complex product as we have delivered. And I think that's the greater source of satisfaction for us than anything else actually. Of course, we love the revenue, but I think that itself is a compliment to the great job our engineering team has done.

Fair enough. In terms of the settlement with SLAB, what does it do in terms of your own market presence? Where there companies or customers who shied away from your product in the past because of these -- because of the pending lawsuit and do you hope that they will come back or I guess sometimes I understand what does the resolution do in terms of just business prospects going forward?

I'd say that first and foremost, it stopped the giant sucking sound and the expenses were legal right, that itself gives you savings there. The second most important thing is that the cloud that surround it are related to our more Tier 1 markets like cable and satellite, it clears the air on that in a public way and reduces the kind of language and protection guarantees that we were being asked to provide by our customers. I think those are the first two tangible benefits.

On hybrid TV, I think the day we got sued was the day we lost the battle to secure certain sockets with some Tier 1 players in Korea. And while we finally broke into those customers in a very, very hard way, but still I think the substantial share of the platform is something that's going to be quite challenging for us to secure, not that we rule it out but I think we've taken the hits on that.

So the customers who really shied away are really maybe one big customer in Japan and two senior ones in Korea. But the remaining ones, I think we never had any problem because they are presence in the US market was quite limited. Unlike these three players that I mentioned about, not their specific names and the lawsuit really pertain only to the US shipment of products. So, all in all, I think we took the hit a year ago and hopefully we'll convert more share of the Korean manufacturers to MaxLinear chips, but we are not -- we are not assuming that that's going to really happen in a timely manner to affect revenues next year.

Thank you.

And there appears to be no further questions at this time, so I'll turn it back to management for any closing remarks.

Well, thank you operator. I just want -- like to remind the -- our listeners here that we'll be participating in the Stifel Midwest one-on-one conference in November 7 and we hope to see many of our investors and you guys there. I also want to thank all of you guys for joining us today and we look forward to reporting on our progress to you in the next quarter, given all the exciting things that are happening on our product cycles here. Thank you very much.

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