Maxlinear Inc (MXL) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MaxLinear fourth-quarter earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Nick Kormeluk with MaxLinear. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's fourth-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 first-quarter 2014 revenue, including expectations for revenue growth in our cable, terrestrial, satellite, and other target markets; gross profit percentage and our operating expenses; and our current views regarding trends in our markets, including our views of the potential for growth in our cable, terrestrial, and satellite markets. These statements are forward-looking statements within the meaning of the federal securities laws, and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risk and uncertainties that could adversely affect our future results.

Our business and future operating results could be adversely affected if our current target markets, including the terrestrial cable and satellite markets, do not grow, or if we are not successful in expanding our targeted addressable markets through the introduction of new products. In addition, substantial competition in our industry, potential declines in average selling prices, risks relating to intellectual property protection and outstanding intellectual property litigation, and cyclicality in the semiconductor industry could adversely affect our 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 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 of these forward-looking statements. The fourth-quarter 2013 earnings release is available on the Company website at MaxLinear.com.

In addition, MaxLinear reports gross profit, income or loss from operations, and net income or loss, and basic and diluted net income or loss per share in accordance with GAAP and additionally on a non-GAAP basis. Our non-GAAP presentations exclude: the effect of stock-based compensation expense and its related tax effect; net expenses associated with a prior export compliance matter; accrual under our equity settled performance bonus plan; 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 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.

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 2013 proved to be another great year for MaxLinear, one in which we grew our top line by 22%, outpacing many of our semiconductor peers. Our revenue growth in 2013 reflected continued momentum in cable across both DOCSIS 3.0 modem and media-server gateway applications, along with a return to year-over-year growth of our terrestrial revenues driven by increased traction in hybrid television.

This time last year we commented on progress being made in establishing the satellite roadmap as the next incremental growth catalyst for MaxLinear. As we exited 2013 and enter 2014, we have begun to deliver on this promise with the successful launch of a broad family of leading technology solutions addressing the satellite-TV market. We are incrementally more positive about our technology position and design win momentum versus where we had hoped to be at this time last year, and believe that satellite-TV applications represent an exciting new addressable market and multiyear growth opportunity for MaxLinear.

Moving to the financial specifics, in the fourth quarter we realized stable revenues in a quarter that has historically been weaker. Net revenue in the fourth quarter of 2013 was $31.6 million, down approximately 1% from the third quarter of 2013, and up 27% from the year-ago quarter, and slightly above the midpoint of our guidance.

GAAP and non-GAAP gross margins in the fourth quarter were 61%. These GAAP and non-GAAP gross margins would have been approximately 62% absent charges related to an inventory reserve taken for certain end-of-life legacy terrestrial products.

GAAP net loss in the fourth quarter was $2.6 million or $0.08 per diluted share. And non-GAAP net income for the fourth quarter was $2.3 million or $0.06 per diluted share, which was impacted by approximately $0.01 a share from the end-of-life inventory-related reserve I talked to earlier.

I will now discuss current trends in our business. In the fourth quarter of 2013, cable mix decreased to 65% of our total revenue versus 70% in the prior quarter. While the prior guidance for fourth quarter of 2013 had contemplated cable being flat to slightly up, we did experience modest seasonality in the cable business, which was made up by strength in other business areas. But as a result, we did experience a decline in our cable business in the quarter of approximately 7%.

While Adam will provide overall revenue guidance for Q1 2014 a bit later, based on our current bookings and backlog we are comfortable that the seasonal decline in cable revenues is behind us and that cable revenues are poised to resume growth in the first quarter of 2014.

Despite the Q4 sales seasonality we experienced in cable, we continue to experience a strong product ramp for our 16- and 24-channel Full-Spectrum Capture cable receivers. In particular, there was strong demand for our 24-count solutions targeting 1 gigabit per second data speed DOCSIS 3.0 cable modem applications. We continue to leverage our Full-Spectrum Capture architecture across a range of cable applications.

In the quarter, we announced that Sagemcom selected our four-channel Full-Spectrum Capture cable receiver SoC for its next-generation cable video set-top box platform. We also announced the MaxLinear 21x family of cable Full-Spectrum Capture receivers, supporting two to four video channels and four DOCSIS 3.0 channels, which enable the design of cost-effective video gateways and DOCSIS 3.0 data modems. These products, in particular, address large emerging markets for cable in China and Latin America.

Moving to the terrestrial and satellite TV market, we are pleased to realize strong growth in our terrestrial and satellite revenues in a quarter that we typically experience seasonality in hybrid television and set-top box businesses. Based on the strength in hybrid television and terrestrial set-top box product shipments, combined with our first product shipment in the satellite gateway market, we achieved sequential quarterly revenue growth of 15%.

In particular, hybrid TV revenues grew strongly as we continue to build momentum in this market. We also experienced recovery in the shipments of ISDB-T broadcast digital TV standard tuner demod and associated solution addressing pay-TV set-top box market in Latin America.

We continue to experience strong demand for our 65-nanomater CMOS hybrid TV Super Radio solution addressing a broad range of television and set-top box applications. In part, the demand for a hybrid television product is driven by countries like China, where the Ministry of Industry and Information Technology has mandated that all shipments of television 40 inches and larger integrate digital terrestrial receivers by January 1, 2014. This digital receiver mandate expands to every television after January 1, 2015.

Some notable highlights in terrestrial in fourth-quarter 2013 are: we announced that Hisense Group, one of China's top TV manufacturers, has started mass production shipments of its latest generation of LED/LCD television that featured the MxL661, which is MaxLinear's sixth-generation CMOS TV tuner for hybrid TV applications. The new tuner uniquely implements on-chip programmable RF-to-IF delay, necessary for TV signal reception in legacy Chinese analog set-top box, cable set-top box, and TV systems with television content-access protection.

At CES we also demonstrated breakthrough terrestrial Full-Spectrum Capture front-end technology with live multichannel reception of over-the-air digital terrestrial TV signals. The introduction of Full-Spectrum Capture technology for terrestrial applications enables television and set-top box manufacturers to offer a truly novel end-user experience, with near-instantaneous channel change, time-shifted viewing, and multiscreen display, without the cost, power, and size penalty of discrete solutions.

Moving to the highlights of our target addressable market expansion, of course, into satellite TV. As mentioned earlier, we were pleased to recently announce that we started production shipments of our MaxLinear [frontend series] family of satellite-TV receivers, associated products, addressing a variety of applications including home media gateways. These SoCs are the first single-chip Full-Spectrum Capture satellite frontend devices on the market that support single and multiple RF inputs and are able to simultaneously receive up to eight satellite-TV channels, utilizing up to eight integrated DVB-S/S2 satellite digital TV standard technology demodulators.

We also recently announced a comprehensive product family of digital outdoor unit products for the satellite TV that feature 24-channels CMOS single-chip Full-Spectrum Capture band translation and digital channel-stacking technology. The availability of these next-generation digital outdoor units is essential to satellite operators' being able to deploy media gateway service set-top boxes inside the home that can simultaneously deliver multiple channels to multiple IP-client devices, such as television screens, IPTV set-tops, smartphones, tablets, and others.

On that note, there have been some question resulting from some comments I made recently at the Needham Conference regarding the legacy analog single-wire module outdoor unit technology for satellite. It appears as though some people may have misconstrued my comments that since the analog single-wire module outdoor unit architecture is higher power than digital outdoor unit technology, the current analog single-wire module deployment present a fire hazard, which is definitely not the case. Also, this is definitely not the point I was trying to make.

Rather, the point and the distinction is that a digital outdoor unit architecture is much more power-efficient when handling the multiplicity of channels that we believe operators will want to deploy in the future. Hopefully this clarifies any fire hazard comment concerns and puts to rest any lack of confidence in the legacy technology regarding safety concerns.

Following on the satellite outdoor unit theme, we have begun gathering design win momentum. Most notably we recently announced that PBI, a leading manufacturer of satellite outdoor unit equipment for large satellite operators, has selected the MxL865 for its new direct broadcast satellite digital outdoor unit, which delivers up to 24 TV channels over a single coaxial cable within the rooftop dish, antenna, and the indoor unit set-top box or gateway.

In conclusion, we are pleased to have delivered revenue of approximately $120 million in 2013, representing an annual growth rate of 22%, driven by strong growth in cable revenues and a return to growth in terrestrial revenues. More significantly, we have executed on creating an exciting new opportunity with the initial shipments of our Full-Spectrum Capture product addressing satellite-TV applications and the announcement of customer design wins in the satellite-TV digital outdoor unit market.

We continue to identify and work towards opening up new target addressable markets for our industry-leading broadband Full-Spectrum Capture RF frontend technology platform in areas beyond cable, terrestrial, and satellite-TV applications. 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, our Q4 revenue was $31.6 million, slightly above the midpoint of our prior guidance. As Kishore noted, strong growth in hybrid TV and terrestrial set-top box shipments was sufficiently strong to largely overcome seasonal softness from our cable customers.

Now, moving to the rest of the income statement. GAAP and non-GAAP gross margins for the fourth quarter were approximately 61% of revenue, versus our prior guidance of 61% to 62% for both and non-GAAP gross margin.

As Kishore mentioned, these GAAP and non-GAAP gross margins would have been 62% absent charges in the quarter for end-of-life inventory reserves on some legacy terrestrial product. This compares to GAAP and non-GAAP gross margin of 62% in the third quarter of 2013, and GAAP and non-GAAP gross margin of 63% in the year-ago quarter.

Our Q4 GAAP operating expenses were $21.8 million, which includes $3.4 million of stock-based compensation, $1.4 million for an accrual related to our performance-based equity bonus plan for 2013, and $100,000 in net professional fees related to the Silicon Labs patent litigation 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 $16.9 million, which is essentially in line with our flat guidance relative to Q3's OpEx of $16.8 million and up from $14.9 million in the year-ago quarter.

Fourth-quarter GAAP OpEx attributable to R&D was up approximately $100,000 quarter-on-quarter, and up $2 million dollars year-on-year to $14.7 million, which included stock-based compensation of $2.2 million and $900,000 related to the 2013 bonus plan. Excluding stock-based compensation and bonus plan accruals, R&D was up approximately $200,000 on a quarter-on-quarter basis to $11.6 million. Within this flattish R&D spending, an increase in tapeout-related cost was largely offset by a decline in embedded IP cost relative to Q3 2013.

Fourth-quarter GAAP OpEx attributable to SG&A was down approximately $2.9 million quarter-on-quarter, and down $500,000 year-on-year, $7 million, which included $1.2 million in stock-based compensation, $500,000 in bonus plan accruals, and $100,000 in net professional fees related to the Silicon Labs patent litigation. Excluding stock-based compensation, bonus plan accruals, and net professional fees related to the Silicon Labs patent litigation, SG&A was slightly down on a quarter-on-quarter basis to $5.25 million.

At the end of the fourth-quarter 2013 our headcount was 337, as compared to 326 at the end of the third quarter of 2013 and 277 heads at the end of 2012. We continue to add R&D headcount globally to staff growth initiatives, and are able to derive operating leverage in R&D by perfectly balancing hiring across our R&D centers in the US, India, China, and Taiwan.

GAAP loss from operations was $2.7 million in Q4, compared to the loss from operations of $4.7 million in the prior quarter, and loss of $4.5 million in Q4 of last year. GAAP loss from operations was $12.4 million for the full-year 2013, versus GAAP loss from operations of $13.1 million for the full-year 2012.

GAAP net loss per share in the fourth quarter was $0.08 on basic shares outstanding of 34.9 million. GAAP net loss per share included $3.4 million of stock-based compensation expense, $1.4 million from accrual related to our 2013 performance-based bonus plan and $100,000 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 and net loss of $0.14 in Q4 of last year.

Net of these items our non-GAAP earnings per share in Q4 were $0.06 on fully diluted shares of 37.5 million, compared to $0.08 per share in Q3 of 2013, and $0.02 per share in Q4 of last year. For the full-year 2013, GAAP loss per share was $0.37, and non-GAAP income per share was $0.32, compared to full-year 2013 GAAP losses per share of $0.40 and 2012 non-GAAP income per share of $0.14 on a fully diluted basis. Both GAAP and non-GAAP earnings per share were negatively impacted by $0.01 for the previously mentioned end-of-life inventory-related reserves recognized in the quarter.

Moving to the balance sheet and cash flow statement, our cash, cash equivalents, and investments balance increased $3.3 million at the end of the year from Q3 2013 to approximately $86 million, which is an increase of $9.1 million as compared to $77.3 million in Q4 of last year. Our cash generated from operations in the fourth quarter of 2013 was $2.8 million, approximately $200,000 less than in the third-quarter 2013 and $1.5 million more than in the year-ago quarter.

Our days sales outstanding for the fourth quarter was approximately 57 days, or 4 days more than in the previous quarter and approximately 1 more day than in the year-ago quarter. As a reminder we only recognize revenue on a sellthrough basis and, as such, we are not subject to revenue fluctuations caused by changes in distributor inventory levels.

Our inventory turns were 5.1 times in the fourth quarter, compared to 5.0 turns in the third quarter, and improved relative to the 3.9 turns in the year-ago quarter.

That leads me to our guidance. We expect revenue in the first quarter of 2014 to be in the range of $31 million to $32.5 million. Built into this range, we expect cable revenues to increase 5% to 10% sequentially, and terrestrial revenues to decline 10%.

More specifically, within cable we expect growth from cable data and DPA applications to more than offset declines in media server gateway and basic cable set-top box. Within terrestrial, we expect modest growth in terrestrial set-top box and the continued early ramp of our satellite gateway receiver products to be more than offset by seasonal declines in hybrid TV.

We expect GAAP and non-GAAP gross profit percentage to be approximately 61% to 62% in the first 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, terrestrial, and satellite applications.

We continue to fund strategic development programs targeted at delivering attractive top-line growth in 2014 and beyond, with a focus on increasing operating leverage in the business. As such, we expect Q1 2014 GAAP operating expenses to be essentially flat relative to the Q4 2013 quarter at $21.8 million, with seasonal stepped-up payroll-related expenses, which will also include the full-quarter effect of our incremental Q4 hires and anticipated Q1 hiring. The increase in payroll-related expenses will be offset by reduced spending on tapeout related activity.

We similarly expect that Q1 2014 non-GAAP operating expenses will be flattish sequentially at approximately $16.9 million, with increases in previously referenced payroll-related spending offset by lower spending on tapeout-related activities.

In closing, we are pleased to report Q4 revenues which were slightly above the midpoint of our guidance and achieved another year of strong double-digit top-line growth. We were also excited by the near- and long-term potential for revenue growth represented by the commencement of product shipments into the satellite-TV market.

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

(Operator Instructions) Anil Doradla, William Blair.

I had a couple of questions. On the terrestrial stuff, Adam or Kishore, can you give us a little bit more color around that inventory reserve? How did it play out? And I have a couple of follow-ups.

Hi, Anil, this is Kishore. You know we had a first-generation product for hybrid TV called MxL301, and there were two things that happened. One is that we are seeing transition pretty much fully to our new product MxL601 and 661s. So we felt prudent that at the end of the year it is a good period to reevaluate our expectations about whether this legacy part would continue to ship the legacy sockets.

We go through the usual analysis every year, and we deemed that it's probably best to do the -- I don't know what the right accounting term is, but write down the inventory against the expectations for purchase orders in the future.

Okay. You talked about on the guidance front, you talked about strength on the DT in cable; but you talked about some softness on the media server gateway. A little bit of color around that.

If you recall, in 2013 we really benefited from the first-time launch of a media server gateway, namely the X1 platform from Comcast. Now along in the Q4 we've been talking about risk associated with the discontinuation of the X1, to be replaced by a new media server gateway platform and where we have started shipping.

So based on our backlog at this point in time, we are taking a conservative view in our forecasting process and assuming that the X1 shipments may be more muted as the transition to the new X2/X3 platforms happens on the media server side. (multiple speakers) Go ahead, please.

No, sorry. Go ahead.

So this is pretty consistent with what we have been telling all along in terms of the transition from the -- that we will be hitting some points where, as X1 comes down, does the successor platform take off at a faster rate, or are we going to go through a bit of a shallow or a down period on X1.

Finally, on 2014 as we look out for the whole year, can you just share with us some of the big growth drivers? I know satellite is going to be one of them. Seems like you guys are doing well on the satellite.

Can you provide us a little bit more big-picture color as the year progresses? Thanks a lot.

I think we are pretty excited looking forward in 2014. We do not provide guidance, of course, for all the quarters ahead. However, on a qualitative front, we did mention in the script that there is a strong pull for the 24-channel Full-Spectrum Capture chips, which is for the 1 gigabit per second speed.

We were worrying at the end of 2013 if the 16-channel platform would be stronger than the 24-channel platform, and it appears right now that definitely the traction is towards the 24-channel platform. And that is good news, because it has a tendency to drive the ASPs higher than a 16-channel platform would. So we anticipate that the cable modem revenues would grow stronger in 2014, based on this optimistic transition that we are seeing to the 24-channel.

We are also seeing some resurgence in the DTA business. I think some of the operators are certainly coming back to life, so we are going to see some strength there.

And we are going to see some momentum pick up on the new generation of gateway platforms, be it North America or Europe. A swing in the direction of headless gateways and some video gateways, and that should pick up some momentum as well.

So cable as a whole we expect to see some very good growth this year. That is the first anchor piece of steady-state revenues that we have today.

On the terrestrial side, we are going to see strong growth in hybrid televisions. You have already seen the effects of that.

It is really clear from our earnings call that for the fourth quarter that hybrid TV pulled us through a softness on the cable side. And we are anticipating that the seasonality in the first quarter would dampen the hybrid television; however, that is not -- but we do expect growth to continue very strongly.

The first quarter is a little bit of a difficult one due to the Chinese New Year, and the manufacturers and customers in our hybrid television being in China as well. So hybrid TV is going to grow very strongly.

The good news here is that the ISDB-T tuner-demodulator associated product, if you recall, for the fourth quarter we forecasted to be down owing to some inventory levels at the pay-TV operators, namely SKY Brasil in South America. However, that seems to have picked up now, so maybe we are in the recovery piece a little bit earlier than we had suggested earlier.

So all in all, the vectors are all in the right direction. We are pretty excited that cable has transitioned to 24 channels. So that is a big exciting news for me.

But even more exciting is that the satellite-TV gateway chips begin to ship in volume production now. We have got some good visibility on POs for the second big socket that are going through the next layer of pilot production.

And thirdly, the satellite outdoor unit design wins are going with very strong momentum. We've had press releases accordingly, from PBI, in terms of (inaudible), ODU manufacturers for the major satellite operators in the world. So that should give you good indication that we are making all the right moves and success in the satellite space as well.

Great. Looking forward to a great 2014. Thanks.

Tore Svanberg, Stifel.

Yes, thank you, and congratulations on the results. I was hoping you could first talk about your visibility for Q1, maybe commenting a little bit on your backlog and recent order trends.

Sure, yes, we can talk, Tore. This is Adam. So we talk on our calls pretty typically about what our bookings look like as we enter the quarter. Consistent with that, we were booked in a very normal range for us as we entered Q1.

So we think the visibility certainly is consistent with the prior quarters. We feel pretty good about the visibility we have based on the guidance that we have provided.

We went into the quarter booked about three quarters to the midpoint of our range which, again, is consistent with the historical. We can be -- in some cases we have been over 80% booked; in some cases we have been in the 50%s and 60%s.

But I would say over the last six to eight quarters, right where we are is pretty much the median. So we feel pretty good.

Very good. It sounds that at the margin you are a little bit more optimistic about your satellite opportunity. I was hoping you could maybe update us on what your revenue expectations are for that market for 2014.

Our revenue expectations for the market are consistent with what we have told earlier, given where we are today. If you recall, we expect satellite revenues in the gateway market to accelerate in the latter half of 2014. So a little bit more -- a little bit distant still, and it is subject -- and timing has a big impact on the total volume of the revenue, it is in the ramp timing.

However, at this point we feel the designs are locked; they are going very well. So we are feeling very, very positive.

On the satellite outdoor unit market, design-ins with the digital channel stacking, that is going very well. We have had a couple of major press releases to the degree; we had demonstration at CES.

Operators are generally very, very strict about confidentiality and what we can share at this stage. But we hope to be on track to start shipping on the outdoor unit market like we did with satellite gateway last year; it was in the fourth quarter of this year.

So these two product cycles will have a nice momentum inside 2015. And if you are a little bit likely you could see some thrust of the momentum in 2014 as well.

So we are getting back to the numbers here, what you asked. I think we told you in the earlier discussions and meetings that we expect satellite revenues to be somewhere between $5 million to $12 million. That still is the range we are maintaining for satellite. It is a big range, but that is subject to ramp timing.

Yes, I think, Tore, on that front, I think we have also -- we have set ourselves an objective of -- we think we have a very good trajectory going if we could exit 2014 where satellite revenue represents somewhere on the order of 10% of total corporate revenues as we exit 2014, on a run rate basis. So I think that would be a good objective measurement for us as to the level of traction we are seeing.

Very good. Kishore, you mentioned your Full-Spectrum Capture technology is starting to gain some traction in terrestrial applications. I was hoping you could talk a little bit about that. What types of applications will we actually see some early revenue from, on Full-Spectrum Capture?

I just want to make some clarification here on that topic. What we demonstrated at CES was the possibilities that the technology present in terms of making terrestrial TV experience to be much more versatile than it is today in television or otherwise. So it is more a showcase of the technology, and there is no direct commitments or design-ins of this technology with any customer yet.

Having said that, we are demonstrating this technology so that we can target multiple opportunities for over-the-top, pure over-the-top content receivers that would like to cut the cord and add terrestrial television content. We would like to target it to televisions where they want fast channel change and picture-in-picture and more than two-channels application. In Japan they do multichannel reception where we are shipping today; but our Full-Spectrum Capture could replace those opportunities.

So all in all, it is an opportunity with potential, but right now we are not at the place where we can talk about design win momentum or real true sampling of this product, outside of a demonstration, at the level where it could be designed into customers' sockets. So I hope I have clarified if any exuberance was there in terms of revenues on this particular product.

No, that's very fair. Last question is on 4K television. I assume with your tuner technology you have some exposure to that market. I know it's still very early days there, too.

But could you explain a little bit how MaxLinear will participate in that market, and if you will participate I guess both from the tuner side and maybe also with some other receivers?

So, first and foremost, the first opportunities for 4K for MaxLinear would be in the gateway market or set-top box market. Those would be the first ones will enable that. It's very -- and that is primarily your technology reasons, because you need more bandwidth for 4K video.

In a cable environment, you have the potential for over-the-top content and a very huge bandwidth with the data modem side, on the DOCSIS side. And you need multiple channels to receive the contents and combine them; and MaxLinear's Full-Spectrum Captures facilitate that. So the cable definitely will be one of the first ones.

On satellite, too, you likewise have to assume the same. And on the television side it is not quite clear yet because right now participation on regular television is [over] there. Television is only with single-channel tuners and that is not still clear to us.

So we expect the first opportunities for shipping in 4K would be with the multichannel tuner demodulator SoCs, of Full-Spectrum SoCs, in cable and satellite markets and with over-the-top content 4K video using a DOCSIS 3.0 data modem side of the business.

That's very helpful. Thank you very much.

Ross Seymore, Deutsche Bank.

Hi. This is Mike Chou for Ross. Thanks for taking my question. Just a question firstly on the cable business in 4Q. It was down a little bit more; you mentioned seasonally. But if you could just give a little color on why it was down maybe a little bit more than you had previously expected.

I wish I could give you more color. There is nothing that is designed-related or demand-related in terms -- it is just the POs, where the POs shrunk in terms of delivery for the Q4.

We have always maintained that this is a very difficult one for us to predict when you operate a business. We have always been told that either Q4 will be down or Q1 will be down, but be prepared for one of them.

So we had good PO coverage getting into the quarter, and we still have -- when we did the earnings call. The last two, three weeks we had a few shifts here and there in terms of delivery; and as a result, we took some hit on that, not unlike what happened the previous year.

But this time it was much more well behaved and more -- we were in the loop as to how it was happening. And there is nothing negative to our products; if anything, we are showing up -- we are seeing a very strong Q1 coming alive in cable, based on the bookings and backlog.

So really it's a nonevent. It is just the vagaries of the operator business, I would argue.

Okay. Then on the media server side, you mentioned earlier about the transition from X1 to X2. Can you just give us a little bit more color on what these implications are to you, maybe going forward, from the transition of X1 to X2? And then maybe on X2 to X3, how does that impact you?

First and foremost, I would like to -- I think we have shared this news with all of you. It is that we are very well positioned with the design wins in successive generations of these media server gateways that -- with the X series; and these go out for a few years out. So very, very well positioned.

And primarily we are positioned with the Intel platform. So I want to make a note of that. So in a way, our success in the server platform, gateway platforms, is intricately linked with our partner also doing a wonderful job, and which they are. So we are having good traction there.

So with regards to the color on the transitions, and we have said this before, in 2013 and latter parts of 2012 we exclusively enjoy the benefits of the media server gateway shipment, the world's first one, which is Comcast; and also in Europe with the [UPC], this was a Samsung box; and in the United States to Comcast through Pace. And so we had 100% of the business.

And we had about $10 to $11 of silicon content inside because we had three chips that were doing multiple channels. Each one doing two channels, and others doing maybe about eight channels. So there were three chips that added up to about $11 to $12.

However, with the success of the [XLN] platform, the volume is promising to be much, much higher. And partly driven by the fact that the costs of the silicon is coming down quite dramatically, we have integrated all those three chips into a single chip, namely our 24-channel chip and 16-channel chip. So our ASP content is coming down to well below that number; let's say to in the range of $5 to$7.

So we are taking an ASP hit. However, the volume is going to grow much more than the decrease of the ASP.

However, here is the issue in this particular year. In the X1 we enjoy 100% market share, but now there is a risk we will have to share this with another platform, and we don't know who that would be. We are forecasting that we will have to; but right now we don't see that threat yet.

So therefore we are predicting some softness in the media server gateway on a dollar basis in this year, but on a volume basis we expect to see a large increase. However, in 2015, after the share split has happened and the volume is much more, we would be [healthily] beyond the place in the media server gateways.

That is the qualitative color on this particular situation. Is that clear?

Oh, no, that's very helpful. Maybe if I could just slip one last one in. I think you guided for OpEx being flat in Q1. If you could just maybe expand on that a little bit, on the trajectory of OpEx through the remainder of the year just trajectory-wise.

Yes, so I think it is difficult. And again, consistent with our guidance practice, we don't go out beyond the current quarter.

What I would say, though, is that consistent with our goal of creating more operating leverage in our business, our goal is to obviously have our operating expenses grow at a rate significantly slower than our top-line growth rate. So I think that based on where the Street has their estimates for 2014, overall I think that we are comfortable that we will be able to generate some incremental leverage in the model.

So I am not ready yet to go out and provide operating expense guidance beyond the current quarter. But we don't see step-function requirements in our roadmap, requiring huge amounts of hiring or significantly different technologies to be acquired and so forth.

But what we are facing in 2014 is a situation where because of some of the design win momentum that we have garnered in some of these newer markets, we do have to put some additional resources behind commercializing our solutions. And we also are facing our first expenses related 20-nanometer designs. That includes incremental costs related to CAD tools and so forth. And of course masks get successively more expensive as you move down the process node curve.

So we don't expect anything out of the ordinary as far as types of increases to our OpEx, and we do think that those are going to occur at a rate slower than our growth in revenue. Hopefully that provides some context for you as to how it can shake out in the year.

No, that's very helpful. Thank you so much.

Quinn Bolton, Needham & Company.

Hey, guys. Nice job on the December results. Wanted just to first clarify, Kishore, your comments on the media gateway revenue for 2014, when you say that units up nicely but revenue down. Was that specifically for your revenue at Comcast, or is that across all carriers for 2014?

Thank you, Quinn. I did not say that revenue is going to be down. I said revenue -- it appears we are conservatively forecasting it to be soft.

And the specific example I've given you, it is for Comcast; you're absolutely right. That is a very good question.

But we do not see that pattern yet on the timing-wise with the shipments in Europe towards the major operators. However, those operators, too, are going through a transition on moving to the lower-cost gateways. So that will happen a little bit later time in the year, rather than these first-quarter, second-quarter concerns we have on the X1 transition.

So we will see some transition effects on the ASP, but we don't know exactly the split or share changes, and then the total volume. So it could well be that the volume and share together actually put our revenues to be actually increasing quite nicely.

So at this stage it is hard for us to quantify that, but -- and we're just taking a conservative position that we will grow modestly in the server gateways this year, like I talked to earlier. And -- but if things play out better, that is nice for us.

Okay, great. And then the second question, just can you talk a little bit about the hybrid TV market? If I went back to the third-quarter conference call, I think you had forecast cable to be up and then terrestrial to be down. Sort of the reverse happened, and I think you explained what happened on the cable side with some order softening late in the quarter.

Can you just describe the terrestrial being up better than what you had expected 90 days ago? It sounds like a lot of that is hybrid TV; and I assume it is mostly market share gains. Because I think seasonality for hybrid TVs in the December quarter typically is down.

I think two things. We don't have the seasonality of a high in hybrid TV but for the fact of it gaining market share. I think this is a true statement that in the sockets outside of Korea -- even in Korea we have some gains; but outside of Korea we are actually having incredible success in all the sockets that are going tuner onboard on regular televisions.

The incumbents' position in the hybrid TV socket outside of Korea so far has not been that strong, except NXP in China. But all our solutions are superior; and as the dust on the legal situation has settled we have been able to really garner more and more market share. And we believe this trend is going to continue through this year and next year as well.

Obviously, the ASPs are under heavy pressure, and we have never been big fans of that. However, it looks like we are having good success with the product cycle drive in terms of hybrid television for us in fourth quarter.

And why Q1 we are guiding to be softer, because we think the seasonality thing. Because a big part of our revenues are in China and in Asian markets in hybrid television, the new sockets. So we are just being careful that that seasonality will impact, until we know after Chinese New Year what that situation would look like.

Okay. Then my last question for Adam, I know you typically don't guide beyond one quarter. But as we wrap up calendar 2013 and some of us roll out our calendar 2015 estimates, tax rate for 2015: is that still expected to be a fairly low amount? Or do you think you will have to reverse the valuation reserve against deferred assets and record a higher tax rate out in 2015?

Right, so as you know, this is one of the areas that is very difficult to predict. Although I can say that based on what we know today, I would not anticipate a reversal of the valuation allowance.

I think that we -- I think you have got -- I know that you understand the underlying rules as to when you revisit that. And of course, we revisit that on an annual basis.

But for now, we don't foresee in the foreseeable future paying cash taxes, given our NOL situation. So the tax provision will continue to be very low, I believe, in 2014 and through 2015, again, as a result of where we are and what the thresholds are for revisiting the valuation allowance.

Okay, great. Thank you.

Alex Gauna, JMP Securities.

Thanks. Kishore, I apologize for asking this so many times, but Comcast on its conference call seemed pretty upbeat on the X1 program. Seemed to be talking about increasing CapEx to pull in that program and accelerate it.

Are you in fact seeing that activity? And if so, the mixed comments you are making around it are really a matter of you don't know which platform is going to ship? Is that what you are talking about?

You're absolutely right. Having said that, the chips for the X1 are different from the new chipset we have for the non-X1 program, the successive generation. Right now we are seeing good order flow for the -- good ramp for the non, for the new chips. However, for the X1 the orders are a bit stalled for those flavors of chip.

So we don't know if they are waiting from a CapEx point of view to add more POs, or they are going to ramp to the successive ones. It is just that it's a slow period where getting interaction with the operators is a bit difficult.

They go through a euphoria following CES, and the dust has to settle. We need a month or two to really get a little bit more, what I call credible information of how this is going to swing.

So if you have heard that, that is right. They are all euphoric. Everybody is going to move to the gateway server more, all over the world, be it in cable or satellite. We see the talk, we see the design-in activity, we see their constant conversation of adding more channels and more features sort of questions.

However, the order situation relative to X1 versus the successor one, we're in a bit of a hold pattern right now. It's related to what is happening specifically to X1 models versus the next-generation models.

Then just to clarify further, I thought I heard you say something about potentially on the ASP front some of the ASPs would be going down. But that stands somewhat antithetical to the migration towards higher channel count solutions. What is going on, on that front?

Yes, to put this in perspective, when the X1 was launched, it was supposed to be a pilot program. They were checking it out.

At that time, MaxLinear, they wanted to do 12 to 16 channels. So what we provided them was an 8-channel cable DOCSIS 3.0 modem chip, our MxL261. And we provided them three of our -- or two of our, depending on which program -- our two-channel cable tuner demodulator solutions. So we were in effect selling them three chips, so the ASP was much higher.

However, now we have specifically integrated all these channels into one single chip. So the ASP has come down on the pricing side quite a bit relative to that $10 to $12 range.

So the ASP decrease is really a simple effect of integration that we have accomplished and, therefore, the ASP is down. But the ASP also projects volume increases quite strongly for the server platform. So we're just in the classic price elasticity on the server platform. So I would not have more color on that.

That makes a lot of sense; that helps. One last quick one if I could. Your results seem a good deal better than many of the peers are talking about in this space. Are there any areas where it is very evident to you that you are taking share, or how you are outperforming some of the others?

Yes. I want to be humble about this whole thing, right? I would like to say I am cautious, right?

So I would like to say that the transitions that are happening to the higher channel platforms and 24-channel, the data gateways or data modems, that transition helps us very profoundly; and hopefully that results in share gains related to competition. So as long as that were to happen we would benefit quite a bit from that.

I think you are seeing the effect of those product executions, which our team did a fantastic job. Our operations team did a wonderful job bringing the cost down and the test time and wafer costs down. And together I think we have been able to drive, along with our partners, a very strong wedge into the competitive advantages in MaxLinear and into platform directions to win market share.

Thank you. Nice quarter.

Gary Mobley, Benchmark.

Hey, guys. Thanks for taking my question. I had a question regarding 4K. I appreciate the fact that the transition to 4K helps your business, drives demand for higher channel count solution, etc. But in some respects you are dependent on your backend partner's support for 4K. And seemingly Broadcom has a lead in addressing this new compression scheme.

I'm just wondering if you are concerned that all about a shortening or smaller window of opportunity for some of your current design wins, based on the pay-TV operators pulling in their time frame for 4K deployments.

Hi, Gary. The simple answer to the question is that right now the 4K is all about really, really high-end. And really I think 4K timeline from a volume perspective is, I think, a couple of years out. That is my own perspective.

However, there really the traction is around HEVC decoding capability, which a number of players offer. Broadcom is definitely one of the leaders, and ST is also very strongly positioned. HEVC is [tough].

So on the video platform side -- and I am speaking generically regarding cable or satellite -- and what we provide in the front is agnostic to whether it is 4K or to HEVC. We provide the tuner demodulator SoC function, and we do the bonding necessary to facilitate a larger bandwidth that the 4K will require. So, we would benefit as long as we are the frontend.

To the extent that we can be on platforms with the backend, whether it's HEVC or 4K, we would have good revenues associated with that. And we expect that to happen much later.

Okay. Adam, I know you don't want to give OpEx guidance for the remaining three quarters of the year. But I am just trying to think about what the normal R&D level is for MaxLinear. Was the Q4 level exceptionally high because of tapeout expenses, and perhaps now Q1 is the new normal?

Gary, I guess if you look at last year, we basically had two periods in 2013: the first half of the year, where the non-GAAP operating expenses were in the $14 million to $14.5 million per quarter; and then in the back half of the year they stepped up about $2 million. And that was primarily driven by tapeout activities, particularly as we were doing devices to enter these new satellite opportunities.

So, in a lot of ways I think that the activity around those fronts will continue as we continue to try to commercialize as many of these new market expansion opportunities as possible, plus keep our cable and our terrestrial roadmaps healthy and vibrant. So as a result, I do think that Q4 is more of a new normal. I don't see us going back down below those levels in 2014.

So I would almost say, rather than say is it a new normal, I think it is certainly a new -- I would say relatively speaking, it's probably a new starting point. Could there be growth off of that? Yes; I think there will be growth off of the Q4 and off of the Q1 guidance for operating expenses.

But again, consistent to what I mentioned earlier, given what we expect to happen on the top line I do believe that we are going to be able to create and sustain operating leverage and increase that as we move through 2014. So that in and of itself should tell you that we are not looking for significant step-ups from what you would -- I coined as the new level. And I don't think it is a wrong way to color it as a new level.

Okay. All right. Thanks, guys.

Jay Srivatsa, Chardan Capital Markets.

Yes, thanks for taking my questions. Kishore, on the satellite side, where now the big boys, EchoStar, DISH, and [eSky], there is a lot of presence of Broadcom solutions ST solutions over there. What in your mind is the challenge to break into some of those designs, and when do you expect to be able to get some success over there?

Hi, Jay. A very good question, and I think we have been very forthright about the satellite gateway opportunities. On the satellite gateway side, unlike the satellite outdoor unit market, we do have to work with a backend platform partner. In that particular space, there are two major players.

I think Broadcom is the number-one player in North America, and ST worldwide with Broadcom shares split the market. We work very closely with ST, so on the gateway side, longer term, we expect to be much more prevalent on the ST platform.

However, there are opportunistic sockets that we hope to secure or have secured in front of other players that are not ST. And that would be more than our anticipation in terms of our business plan and our ROI expectations for those developments.

So you're absolutely right. We have to work with one of those two players. Today we work very closely with ST, and that should yield us very good results.

And moving forward we expect other players like Entropic and ViXS and MStar all to be present in some form, and even Intel. So the ecosystem should expand further where we would be less constrained the way we are today.

Okay. Then on the over-the-top boxes, it looks like this whole cutting the cord business is getting more and more popular in the US and could possibly proliferate into other countries in the coming years. Again, where do you see that opportunity? And how well positioned are you in terms of being able to take advantage of some of the growth in that segment?

Okay. On the cutting the cord opportunity, it is -- even so -- when you cut the cord, the assumption is you are getting your content consumption from over-the-top, right? And you need a broadband connection.

The most prevalent broadband connection in the United States and Western Europe that could handle that kind of video band that is required today is cable. And we develop products that go into the cable modems. So the more [data and] bandwidth you require, the better for us because our products accommodate the number of -- the multiple channels required to provide the broadband data bandwidth. So that is the first one.

When people cut the cord, too, they would like to have access to the local channels and the content that is coming over the air. And we will be able to facilitate in addition the older air terrestrial content with our terrestrial TV tuners, and in the future our Full-Spectrum Capture TV tuner demodulator SoC that are across the geographies of the world.

I have a different view on satellite. That is that satellite today is the TV Anywhere, any location; it's the closest thing to a wireless video for you. Satellite is still going to be a content delivery story, high-quality content.

And the satellite households would have connection to the broadband data band data, and if they want high-quality content they would still subscribe to the satellite services. So, that is of the landscape.

So I think we are very well positioned in the next medium-term or longer-term that we can see, as long as the broadband connections are coming over cable, with the current products to be able to take advantage of the cutting the cord phenomenon.

Thank you. Good luck.

Anil Doradla, William Blair.

Hey, guys. Thanks for taking my question again. Kishore and Adam, when I zoom in again back on the X1, can you give a little bit color on what percentage of revenues is coming from that?

And when I step back and look at what happened in December and March, is it fair to say, had this X1 issue happened sometime say in the middle of the year, the strength, sequential growth rates of business would have overshadowed whatever transitions are happening? Is it just the seasonal aspects of the business, is that amplifying the X1 issue? or any thoughts would be appreciated.

Anil, on the X1 specifics, we actually don't break out that level of detail, so we can't really provide any more color there. I think what we have said consistently throughout 2013, and Kishore mentioned it earlier, that we had the good fortune of having the share as the one major platform was ramping in this application.

So -- and then you got the complexity of transitioning to the successor generations while the legacy generations continue to ship. So part of what you saw in Q4 that contributed to the cable revenue decline overall is we did concede ASP in the legacy box in order to make that attractive, make it have legs going forward for a little bit longer.

So I don't think you can read -- don't try to read too much into the talk about the media server revenues specifically, because again there is lots of moving pieces. There is the consolidation from a three chipset solution to a single chip. There is the addition of a likely other supplier into the mix. There is the transition from the legacy model to the new model, and what that does to your supply chain and what kind of thrash that puts you through.

So it by far is the most murky part of our forecast right now. And we would be not doing anyone a service if we provide -- tried to get people to much confidence in the amount of granularity we really have there or confidence in the forecast. Because there is a lot of moving pieces and it is a dynamic part of our business.

And right now it is just a little more fluid than perhaps we or you would like. But it is just the nature of what it is right now.

So basically, and I think Kishore mentioned, the X1 commentary in the March quarter is largely driven by a degree of conservativeness, rather than clarity, so to speak.

I think so. Because there isn't a lot of clarity. We really don't have a tremendous amount of visibility.

So I would stop short of saying we are guessing, because we're not guessing. We are using the best data that we have. It is just not as much as we have enjoyed in 2013 when we had, I would say, very, very good color and visibility, because there was only one platform at Comcast and we knew we were the sole provider, and we had a very good view.

Now as things become a little more diverse there, as the platform has been successful and it's being deployed more broadly, there is just a few more pieces to try to put together to get a clear picture. And we are not quite there yet.

Okay, great. Thanks a lot, guys.

Thank you. I'm showing we have no more questions at this time. Please continue with any closing remarks.

Thank you, operator. As a reminder, we will be participating in the Stifel Nicolaus Technology and Internet Conference on February 11 in San Francisco, and the JMP Securities Technology Research Conference on March 4 in San Francisco. We hope to see many of you there.

We also thank you for joining us today, and we look forward to reporting on our progress to you in the next quarter.

Thank you.

Ladies and gentlemen, this does conclude our conference for today. We thank you for your participation and you may now disconnect.