Edited Transcript of MXL earnings conference call or presentation 29-Apr-20 8:30pm GMT

Lynne M. Centeno

CARLSBAD May 16, 2020 (Thomson StreetEvents) — Edited Transcript of MaxLinear Inc earnings conference call or presentation Wednesday, April 29, 2020 at 8:30:00pm GMT

* Brian D. Nugent

MaxLinear, Inc. – Head-IR

MaxLinear, Inc. – Co-Founder, Chairman, CEO & President

* Steven G. Litchfield

MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer

Greetings, and welcome to MaxLinear’s Q1 2020 Earnings Call. (Operator Instructions) Please note this conference is being recorded.

I would now like to turn the conference over to your host, Brian Nugent. Thank you. You may begin.

Brian D. Nugent, MaxLinear, Inc. – Head-IR [2]

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today’s conference call to discuss MaxLinear’s First Quarter 2020 Financial Results. Today’s call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions.

Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for second quarter 2020 revenue and GAAP and non-GAAP gross margin and operating expense.

In addition, we will make forward-looking statements relating to trends, opportunities and uncertainties in various product and geographic markets, including, without limitation, statements concerning opportunities arising from our announced definitive acquisition agreement for Intel’s Home Gateway business, growth opportunities for our wireless infrastructure and connectivity markets and opportunities for improved revenues in our broadband markets. These forward-looking statements involve substantial risks and uncertainties, including risks related to our proposed acquisition of Intel’s Home Gateway business, such as integration and key employee retention risks as well as those arising more generally from competition, global trade and export restrictions, potential supply constraints, the impact of the COVID-19 pandemic, our dependence on a limited number of customers, average selling price trends and risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect.

More information on these and other risk factors is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2019, and our first quarter 2020 Form 10-Q, which was filed today. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The first quarter 2020 earnings release is available on the Investor Relations section of our website at maxlinear.com.

In addition, we report certain historical financial metrics, including net revenues, gross margins, operating expenses, income or loss from operations, income taxes, net income or loss and net income or loss per share on both GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project future certain charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management’s analysis of our business. Lastly, this call is also being webcast and a replay will be available on our website for 2 weeks.

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

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [3]

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Thank you, Brian, and good afternoon, everyone. We are pleased to report strong gross margins of 63.8% on $62 million of revenues in Q1 2020 and cash flows from operations of approximately $6.7 million. We are also encouraged by our stabilizing forward outlook in this unprecedented COVID-19 pandemic environment.

Our Connected Home business stood at 52% of total sales, while infrastructure and industrial multimarket revenues represented 28% and 20% of overall sales, respectively. Despite the pandemic, our world-class geographically diverse team continues to successfully execute on critical strategic engineering initiatives and customer milestones in 5G wireless, optical data center and high-performance analog markets.

Our impending acquisition of Intel’s Connected Home assets more than doubles our target addressable market to about $5 billion and consists of industry-leading DOCSIS, 10G PON fiber and Ethernet broadband access Gateway SoC technologies, along with the state of the art WiFi 6 and WiFi 6E platform solutions. Combined with our ongoing 5G wireless and optical data center infrastructure initiatives, we are ideally positioned to address all the bandwidth expansion and network data bottleneck opportunities in the cloud as well as into and throughout the home.

The disruptive work-from-home mandates all over the world due to COVID-19 are driving an increased focus on bandwidth upgrades. We’re already seeing improvements in demand and backlog in our Connected Home business and anticipate it seeing more.

Turning to some of the highlights in the optical data center market. We are diligently supporting our OEM to ramp the industry’s first 400-gigabit PAM-4 deployment at our Tier 1 hyperscale data center customer. Our second-generation Telluride DSP System-on-Chip solution for single lambda 100-gig PAM-4 application was recently recognized as the industry’s best by 2020 Lightwave Innovation reviews.

We have also rapidly expanded our industry design wins to several Tier 1 customers from 100-gigabit PAM-4. Recently, Optoway Technology and Centera Photonics announced sub 3.5 volts, 100G DR1 optical modules, serving hyperscale data centers using our solution. We believe single lambda 100-gigabit and 400-gigabit PAM-4 solutions will dominate data center and 5G wireless front haul deployment over the next several years.

Turning to the 5G wireless infrastructure market. We have recently completed the production tape-out of our industry-leading 14-nanometer CMOS, 4×4 massive MIMO Quad RF transceiver System-on-Chip solution. We are on track for initial 5G revenues in 2020 and strong multiyear growth beyond.

More broadly, we have furthered our engagement with all Tier 1 OEMs, and customer feedback continues to confirm that our 5G RF transceiver has the highest performance, double the bandwidth at 400 megahertz and superior system-level integration at up to 50% lower power consumption versus competition. We hope to share more exciting developments in 5G access in our next earnings call.

In 4G and 5G wireless front and backhaul, we are also witnessing acceleration in E-band millimeter wave design engagements with Aviat, Technetix, GiaX and Siklu, each announcing innovative solutions using our 20 gigabits per second millimeter wave dual modem and 2.5 gigabits per second microwave modem chipsets. E-band is very attractive due to larger blocks of available spectrum and lower licensing costs, especially for 5G cell densification.

With the growing base of RF design wins for microwave backhaul coming to production and expansion to millimeter wave deployments, where we have a firm leadership position, we are increasingly confident of expanding our wireless backhaul revenue run rate this year and beyond.

Moving on to the Connected Home market. During Q1, we saw a resumption in our flagship multi-gigabit MoCA wired connectivity platform deployment at a major fiber telco operator and customer as well as an uptick in our G.hn business. Wired connectivity remains an important growth driver to relieve in home connectivity bottlenecks and our MoCA and G.hn solutions will benefit from that market dynamic.

In closing, I’m increasingly confident that the impending Intel Connected Home assets acquisition, combined with our organic initiatives in 5G wireless, optical data center and high-performance analog markets will uniquely benefit MaxLinear shareholders by addressing an ever-increasing target addressable market of challenging broadband connectivity and network infrastructure platform applications.

With that, let me turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer, for a review of the Q1 business results and our forward guidance.

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [4]

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Thank you, Kishore. I will first review our Q1 2020 results and then further discuss our outlook for Q2 2020. On revenue of $62 million, we saw our Connected Home business up 7% sequentially, with an improvement in MoCA shipments related to our major telco program. Our infrastructure business decreased 14%, driven by softness in wireless backhaul and a normalization of our high-speed interconnect business after a strong Q4. Our industrial and multi-market business was down 37% sequentially as seasonal weakness was compounded by pockets of supply challenges related to COVID-19, distributor inventory reductions and overall demand weakness.

GAAP and non-GAAP gross margin for the first quarter was approximately 49.6% and 63.8% of revenue, respectively. This compares to GAAP gross margin guidance of 53.5% to 54% and non-GAAP gross margin guidance of 63.5% to 64%. The delta between GAAP and non-GAAP gross margins in the first quarter reflects the amortization of $8.6 million of purchased intangible assets from previous acquisitions and $0.2 million of stock-based compensation and bonus accruals.

First quarter GAAP operating expenses were approximately $50.9 million, which was above our GAAP guidance of $46.5 million to $47.5 million, due primarily to acquisition costs. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of $9.6 million combined, amortization of purchased intangible assets of $5.7 million, acquisition costs of $3.3 million, restructuring charges of $0.5 million and IP litigation costs of $0.1 million.

Non-GAAP operating expenses were $31.7 million which was up $1.7 million sequentially, due primarily to a seasonal step-up in payroll taxes and higher design tool spending. This was slightly below non-GAAP guidance of $32 million to $32.5 million due to continued disciplined expense management. We have been successfully managing the spend during this transitional period with Q1 non-GAAP OpEx down 11% year-over-year.

Moving to the balance sheet and cash flow statement. Our cash flow generated from operating activities in the first quarter of 2020 was $6.6 million versus $28.1 million generated in the fourth quarter of 2019. Our loan balance remains at $212 million, and our net leverage ratio was roughly flat at 1.6x. We remain consistent in our intentions around our uses of cash with priorities on debt pay down and strategic acquisition.

Our days sales outstanding for the first quarter was approximately 66 days, in line with the prior quarter. Our inventory turns were down slightly to 4.0 compared to 4.1 in the prior quarter.

That leads me to our guidance. We currently expect revenue in the second quarter of 2020 to be approximately $60 million to $64 million, approximately flat sequentially at the midpoint of the guidance range. We expect Connected Home revenues to be down by roughly 15% quarter-over-quarter with declines across most of our product categories. Taken with our Q1 results, the guidance implies the first half 2020 Connected Home revenues of approximately $60 million, consistent with our prior outlook of approximately $30 million per quarter, albeit uneven.

Looking beyond Q2, improving bookings visibility gives us confidence that our Connected Home revenues should improve in the second half. We expect infrastructure revenue to be up by roughly 15% with improvement across each product category. We expect our industrial and multimarket to increase approximately 15%, recovering from an unusually low Q1. We expect second quarter GAAP gross profit margin to be approximately 49% to 49.5% of revenue and non-GAAP gross profit margin to be approximately 63.5% to 64% of revenue, essentially flat sequentially.

As a reminder, our gross profit margin percentage forecast could vary plus or minus 2% depending on product mix and other factors. Even as we are focused on reducing our run rate spend levels, we continue to fund strategic development programs targeted at delivering strong top line growth in 2020 and beyond, with particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business.

We expect Q2 2020 GAAP operating expenses to increase approximately $3.1 million quarter-over-quarter to a range of $54 million to $55 million, driven mainly by seasonal payroll increases and engineering prototype expenses supporting our product development road map as well as stock-based compensation and bonus accruals. We expect Q2 2020 non-GAAP operating expenses to be up approximately $1.3 million sequentially to a range of $32.5 million to $33 million. We expect GAAP tax expense to be approximately 0 and non-GAAP tax rate of 6%. We expect interest and other expenses in the quarter to be $2 million to $2.1 million.

In closing, we are pleased to report continued progress in our infrastructure initiatives, highlighted by our expanding design engagements in the 100-gig data center market, expanding adoption of our e-band modems and RF transceivers and engineering and customer milestones in our 5G massive MIMO transceiver platform. While we see cross currents in our end market dynamics attributed to COVID-19, we are navigating to the best of our ability, supply challenges and potentially further demand disruptions as work-from-home mandates continue to remain in place.

That said, we remain steady and focused on maintaining strong profitability and cash flow generation while continuing to execute on our organic infrastructure investments. Factoring in a financially and strategically compelling acquisition in the Intel transaction, we believe we are uniquely positioned to deliver strong leverage in our business in 2020 and beyond.

With that, I’d like to open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question from the line of Tore Svanberg from Stifel.

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Tore Egil Svanberg, Stifel, Nicolaus & Company, Incorporated, Research Division – MD [2]

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Yes. First of all, you’re guiding the infrastructure segment to be up 15% sequentially. And I think you said all subsegments will grow. Could you just elaborate a little bit more on that, especially in light of the hyperscale business taking a breather in Q1?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [3]

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Yes. Absolutely, Tore. So as we had really expected coming into Q1, we did expect infrastructure to be down slightly. In Q2, we expect that to recover a little bit. When I think of all segments, I mean, the biggest contributor was the backhaul segment and that’s been the biggest portion, and so we would expect that to pick up. We’ve talked about a couple of larger OEM deployments that are happening that we’ve won historically. As we see those start to roll out, that will be a contributor. We’ll start to see the HSI business start to ramp in Q2 with more expected in the second half of the year. And then a — I’m sorry, high-performance analog. So high-performance analog is another area that was down a fair amount in Q1 that we’ll start to see recover in Q2.

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Tore Egil Svanberg, Stifel, Nicolaus & Company, Incorporated, Research Division – MD [4]

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Great. And could you also give us an update on the single lambda 100-gig business, at least based on what I can tell, you guys are the only company out there with a solution there? Yes, I mean, if you could talk about design win traction or even where some of the deployments are happening at this point?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [5]

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So, Tore, I’ll take that question. Yes, as much attention as the 400 gigabits per second market has gotten historically because of the data center market, an even bigger addressable market size is a single lambda application for 100 gigabit. As you all know, there’s a substantial established market in 25×4 100-gigabit market using NRG technologies. And the natural successive rate but really a cost-optimized outcomes is a single lambda, single lane 100-gigabit solution. And in that market, being in the power envelope of 3.5-volt or lower is incredibly important, and we’re the only ones who meet the power budget. As a result, we have an accelerating momentum in design wins and with almost all the major Tier 1 module OEMs in various stages of completion and announcements. And the count is pretty close to near the — something in the 10 OEMs. We expect this market eventually to be bigger in the single lambda market side and initial revenues to start outside of the hyperscale data center folks, the one hyperscale data center that we have mentioned is sometime in the — towards the end of this year or a little earlier. So we feel very good. We’re having — we have several quarters of lead on our competition, and it’s a great place for us to be in.

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Tore Egil Svanberg, Stifel, Nicolaus & Company, Incorporated, Research Division – MD [6]

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Great. Just one last question. The Intel Gateway business or the acquisition, is that still on track to closing in early Q3? And could you just update us on what sort of hurdles you still have to go through there from a regulatory perspective?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [7]

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Sure, Tore. This is Steve again. So — yes, so we are on track. We still see this closing in the Q3 time frame. Hopefully, it will be at the beginning. As far as regulatory hurdles, it was really just HSR, and we did complete that. We put out a press release regarding that. The other big one is the work council negotiation and that’s ongoing, but should be on track for a completion in Q3.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [8]

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And the work council negotiations pertain to Europe specifically, Germany and Austria in the EU countries. And that’s really the only hurdle in front of us right now to close.

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Operator [9]

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Our next question comes from the line of Gary Mobley with Wells Fargo.

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Gary Wade Mobley, Wells Fargo Securities, LLC, Research Division – Senior Analyst [10]

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I’m curious if you’ve heard from some of the cable MSOs about any sort of impediments to broadband gateway installations, whether or not that is impacting or implicated in your 2Q guidance? Or what your thoughts are on that front?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [11]

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Gary, happy to give you an update. So as far as you’re talking about impediments to deployments, I assume. I guess I’ll maybe give you a little bit of general…

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Gary Wade Mobley, Wells Fargo Securities, LLC, Research Division – Senior Analyst [12]

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Yes, I’m just talking about any COVID-19-related quarantine issues prohibiting any truck rolls and whatnot?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [13]

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Yes, right. So a lot of these guys — so truck rolls, we actually saw that in Q1. We saw some impact in Q1, primarily in Asia, where those truck rolls were limited, and now we’re seeing them kind of roll around the world. But a lot of these products and part of the interest right now is the self-install capability. And that’s something that’s super critical to our customers to be — not only because of COVID-19, but frankly, just per the economics of it all. And so they — most all of them now either have an existing self-install capability or ones that they’re trying to approve — improve upon going forward. And that’s one of the big drivers because there is — we definitely have heard a lot about increased demand and wanting to get these out quicker so that they can take advantage of that. So we are seeing that right now.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [14]

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And that is consistent with the optimism in our narrative today regarding the demand in backlog that’s building up in the Connected Home business right now. Relative to what we had witnessed over the last several quarters, we hopefully touchwood are seeing a consistent positive outcomes.

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Gary Wade Mobley, Wells Fargo Securities, LLC, Research Division – Senior Analyst [15]

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Okay. I guess what we’ve heard a lot during this earnings season so far is a lot of semiconductor companies talking about really trying to identify whether strong order trends are related to true end demand or whether ODMs or distributors are just buying ahead out of fear of supply chain bottlenecks. Do you have any sense as to where your inventory is staying out there with your distribution partners and whether or not days in the channel were did increase during the first quarter?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [16]

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So on the sales side, on the distribution channel, actually, we don’t see an accumulating situation. We have very strong sell-through as we entered this quarter, actually quite strong sell-through. And so even — and as our backlog is building up, we don’t feel that there is a sort of stocking going on distributors on our products, basically, right? We can’t speak for the rest of the industry. We have not had supply or lead time issues developing yet. We have managed our operations quite effectively. So our customers are not any irregular, long lead times that we have heard other people guide to. So we are not seeing any of these distributors stocking up inventory scenarios.

If we go with the sell-through that they’re experiencing in the quarter, then we would say that maybe it is a positive sign of good demand for our products. You’ve got to note that in Q1, our industrial multimarket products that were — that are primarily sold through distribution. We took a huge hit in Q1, but now we’re seeing a strong recovery and it’s not a case of buildup of inventory of the distributors. It’s a strong sell-through as well. So I don’t think their narrative necessarily reflects our distribution sales at all. So Steve, do you want to add any more color on that?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [17]

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No. I think you’ve covered it, Kishore. Yes. I mean, we definitely saw a lot of fluctuations in Q1, and we’re watching closely. But near the tail end of the quarter, like many others have identified, we saw a big pull, a lot of increased orders at the end of the quarter, but we’ve since seen that continue. But as Kishore noted, it’s really — we’re seeing the sell-through. It’s not just in the distribution channel at all. Although I mean, we’re absolutely watching it closely just to manage the numbers.

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Operator [18]

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Our next question comes from the line of Quinn Bolton with Needham & Company.

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Quinn Bolton, Needham & Company, LLC, Research Division – Senior Analyst [19]

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Congratulations on the results. Just wanted to follow-up on that lead time question. One of your big competitors, Broadcom, currently put out a letter to its customers stretching out lead times to as long as 6 months. Does that prevent or present any opportunities for you in the Connected Home business? And perhaps more importantly, have you heard of any problems with Tomahawk 3 or Tomahawk 4 based switches that could delay the 400-gig ramp at your largest customer? And then I got a follow-up.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [20]

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So we can’t comment on our competitor’s lead time issues. It’s a behemoth that has got demands on foundries and assembly and test. And we heard they have their own test facilities in Malaysia and stuff. Malaysia, there is severe lockdown. So — and we barely do any business around Malaysia. So while I can’t speak for them, yes, we too have heard about their lead time challenges. Does this present an opportunity for us? We don’t know. We can always wish that it does present opportunities for us, but it’s a more recent acknowledgment of lead times on the competitor supply chain. So I don’t want to conclude anything yet. But outside of that, even heading into this call, we are seeing very strong backlog buildup, not just for Q2. We are also seeing certain level of momentum towards Q3, though I don’t want to talk about Q3, given all the volatility related to the pandemic, but we are having strong sell-through. So I would say our demand is real. And hopefully, the next earnings call, I can say, hey, the recovery has started in Connected Home in a very dependable manner. So we feel good where we are.

Regarding the 400-gig and Tomahawk 3 or Tomahawk 4, look, we are still working with our OEM. We have been assigned a Tier 1 OEM module maker, develop our 400-gigabit solution. They have had some disruptions because all these companies have — who are non-Chinese, they have had disruptions due to the corona pandemic, and we are really working very hard through this combination of remote and as need basis going into the lab for testing to make sure that they can come up to speed and start being able to provide continuity for the pilot and the ramp at the large data center customer. So it’s hard to say how the large end customer themselves is impacted on the hyperscale data center side, but we are doing everything to make sure that we are positioned to ship when they are ready to take, right? That’s been our steadfast goal.

And so one of the things I really want to — really acknowledge all our employees that they’ve done a phenomenal job under these pandemic environment. I mean, our execution on initiatives have surprisingly been one of the most functional ones that I’ve seen in a long, long time, which makes me rethink about the world in general, right? So anyway, I’ll let you ask the next question.

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Quinn Bolton, Needham & Company, LLC, Research Division – Senior Analyst [21]

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Sure. My next question is just sort of a follow-up on that backlog building you’re seeing in the Connected Home business. Is that fairly broad based? Or is that tied perhaps to more of a specific carrier going through a gateway upgrade? Just trying to get a sense of how broad based that demand is or that — not inventory but the backlog build is looking at the second half in the Connected Home?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [22]

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So the — very, very good question. In general, my sense is that any gateway platform upgrades that any operator is looking at, given the importance of self-installation that Steve talked about, they’re very shy to do any upgrades right now of brand-new platforms. And the upgrades in the brand-new platforms are really in cost downs. Right now DOCSIS 3.1 in the cable side. And on the fiber side, the platform that are shipping are the upgraded ones. So I don’t expect any new upgrade platforms rolled out given the self-installation nature that they are focused on. So the backlog we are seeing is really strong for existing brand platforms that were already qualified and rolled out ahead of the pandemic situation. And so the backlog is consistently for that. But you want to remember that there are 2 platforms. There’s a DOCSIS 3.0 platform being replaced with already qualified 3.1 platforms, and that upgrade is happening pretty robustly right now. But the operator is not rolling out any newly built ratified, but not sufficient volume shift upgraded platform. They’re not going on that adventure right now. So that’s what I would tell you. Okay?

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Operator [23]

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Our next question comes from the line of Christopher Rolland with Susquehanna.

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David Wayne Haberle, Susquehanna Financial Group, LLLP, Research Division – Associate [24]

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It’s David Haberle on behalf of Christopher Rolland. I guess, first, on the Connected Home business. Can you talk about some of the puts and takes for the second quarter and the guide down 15% quarter-over-quarter there? From what you’re seeing from a work-from-home perspective, is that really benefiting MoCA and G.hn? And how is that being offset by increased cord cutting as live sports goes away? Kind of what are the puts and takes into 2Q? And then longer term, how does work from home and cord cutting play into your forecast?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [25]

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So I think right off the bad year, I want to cut the cord on the cord cutting, so to speak. I think that the — there’s no more video business that we care about or is meaningful in our revenue. So that phenomenon doesn’t affect us cord cutting. I think cord cutting is now given, it’s prevalent, it’s persistent and generally, at a secular level, we are benefiting from that as a data networks company. So it’s very clear now that there’s a focus inside the homes and throughout the network whether it’s data center or home, especially, everybody is ordering more and more data bandwidth capacity. It’s very clear. There are a few of us in this room and all of us, at least half of us have done upgraded store bandwidth or bandwidth boxes right now. So I think that is real, and everybody is going to have a more robust broadband access and distribution network inside the homes, even after this pandemic situation subside. That’s just the new reality.

So regarding cord cutting, yes, I mean that’s done for us as far as we are concerned. It’s only a world of what I call nonlinear video, which is basically based on over-the-top content as far as we are concerned. Steve, you want…

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [26]

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Yes. I guess, David, the only thing I’d just kind of provide some more color on was just the mix of the business within the Connected Home. So we highlighted on the call, I mean, MoCA, G.hn continues to do very well. I mean we do have a very large platform that we saw really moderate in Q4. We were expecting it to kind of move sideways. And I would say it actually picked up quite a bit more than what our original expectations were. So that was a MoCA platform. That’s doing very well. We’re getting a lot of traction on G.hn in Europe as well. So that that’s something that — it’s a smaller number, but a nice contributor in Q1, and we expect that to continue throughout the year.

The one area is — satellite was the other one. We talked about that. That was down quite a bit last quarter. Satellite now, as we had mentioned, was going to be less than $10 million. And so it’s not as relevant at this point. Cable data, Kishore kind of alluded to this, kind of — I would say, it’s stabilizing here. And we feel really good about it. Consistent, I mentioned it in my prepared remarks that we’re on track to do that $30 million a quarter for the first 2 quarters. Now with some of the backlog kind of filling in the way that it is and some of the insights or the color that we’re getting from our customers right now, we’re optimistic that we’ll see that pick up in Q3 and Q4. And we’re definitely seeing signs of that now.

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David Wayne Haberle, Susquehanna Financial Group, LLLP, Research Division – Associate [27]

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Got it and appreciate the color there. And I guess for my follow-up on industrial and multimedia. It was a bit weaker than we would have anticipated. Were there any supply constraints in 1Q or 2Q in this segment?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [28]

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So there were a variety, yes, kind of across the board weakness there. We absolutely had a couple of suppliers that we were unable to deliver product for. So that hurt. It’s really a combination of items. That being said, late in the quarter, we did see some pickup. We’ve gotten production kind of in order. Our supply chain guys have done a phenomenal job in addressing this and being responsive. And so we’ve seen nice orders and follow through at the beginning of this quarter, just in April alone.

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Operator [29]

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Our next question comes from the line of Alessandra Vecchi with William Blair.

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Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division – Research Analyst [30]

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Just a follow-up on the industrial and multimarket segment. Can you maybe help us frame how we should think about growth there longer term relative to industry growth?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [31]

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Yes. So this has been a tough one. Alex, this is Steve. A tough one to call, no doubt. We, going into the end of last year, saw the weakness and just general kind of cycle decline. We expected that to continue in Q1, and I would say it did so in earnest. Now that being said, we’ve already seen some nice recovery. And so we’re encouraged, but it is tough to navigate the volatility. That being said, long term, we felt like this is a business that can grow at least right now, kind of 2% to 3%, 4% a year. And we’ve seen a pretty big decline year-over-year at this point, but no reason to think that we don’t get back to that. And frankly, we’ve talked openly about growing this business, getting it up to the high single digits with some of the newer products. So we have some new power management products that are coming out, some new interface products that we’ve actually been working on over the last year, 1.5 years, expected to hit the market late this year. So you would see contribution more in 2021, probably in the second half.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [32]

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So I would say that the product development investments given the breadth of the end customers and markets in what was originally the XR product portfolio, it’s taken us a while in getting the upgraded products. They’re all getting ready now and they’re sampling. And by the — and so I really — we will see some boost — the boost in growth rates once these are launched or launching right now. So I think next year, we should see pretty strong uptake from those. At what levels, should we do the increase, it’s become hazardous to model it given the volatility you’ve seen in the last several months and couple of quarters. So since we don’t know these markets like the platform markets, we just want to wait and start doing a little bit more sort of historical based planning in terms of what growth we can expect with various products we’re launching.

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Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division – Research Analyst [33]

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Perfect. That’s really helpful. And then just…

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [34]

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I just want to make sure that I am personally super excited about the high-performance analog component. So they’re absolutely excited about the products we’re doing. It’s all — we feel we’re competitively, we bring a lot of capability and IP to this thing and the proof will be in the pudding as these products will be announced and launched. And I think our — the customers will love it. Some are already loving it. Obviously, we have already developed — we are developing these products with customers input, right? So just that this seems to be a very stable market and takes long. But once you have it, you keep it. That’s the way I look at it.

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Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division – Research Analyst [35]

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Understood. And then just on a more housekeeping item. The — you guys have done a tremendous job on operating expenses. If memory serves me right, you had some big tape-outs in Q1 and Q2 and yet the operating expenses are still well contained. How do we think about sort of OpEx as we move through the second half and into next year?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [36]

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Yes, Alex, good question. So we’ve definitely done, I would say, kind of given the COVID-19 pandemic situation and just overall revenue dynamics, we’ve tried to be as disciplined as possible here. We do have some big ramps ongoing right now. So we want to make sure that our customers are supported in every way. But we’ve been able to manage some of those expenses, and we’re coming in a little bit below the first half of the year expenses versus where we had originally planned. That being said, I think OpEx for the year, while it’s still — you’re exactly right. We did have some mask and prototyping that was going to escalate in Q2, particularly. And you see this in our guidance. Whereas you’re expected to see more come down in the second half, it kind of move sideways. But I think from an annual standpoint, we’re pretty close to on track to our original expectations.

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Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division – Research Analyst [37]

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Okay. That being, I think, was it the $3 million year-over-year?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [38]

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I mean, we’ve not given an exact number, but somewhere in that ballpark is reasonable, yes.

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Operator [39]

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Our next question comes from the line of Bill Peterson with JPMorgan.

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William Chapman Peterson, JP Morgan Chase & Co, Research Division – Analyst [40]

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It’s another one on the industrial multimarket, probably the most questions you’ve gotten on this segment maybe ever. But yes, it’s come down pretty meaningfully. Between power management and interface was more — one more impacted than the other? And as I guess, you think about the recovery in the second quarter, and presumably beyond that, what will be driving that recovery? And then again, maybe a similar question on geographies that primarily in China. Just if you can give any color on where the issues were and what brings it out into recovery mode?

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [41]

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Yes. Bill, probably not a huge amount of differentiation between power and interface, but geographically, probably it does speak volumes. Q1 was very weak. That’s when you saw a lot of impact in Asia. I think Q2, you’re starting to see that recover, and I think that you would expect that to come from Asia, China, in general, starting to see recovery. So as we look through those orders and that we’re getting right now, say, in this particular month, we’re already seeing that recovery happen there. So from a geographic standpoint, absolutely weighs pretty heavily.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [42]

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And it’s also particularly perplexing for us. We have tried to understand it. Because on a sell-through basis, distribution inventories are not — are thin right now. So we are also perplexed. So we can only imagine it to be a brick wall like demand collapse in Asia, especially China, for the product because manufacturing has come to a grinding halt during those periods. So we cannot see any patterns here of what has happened, but the recovery is very strong. So again, in Asia. So I think your guess is as good as ours on this one.

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William Chapman Peterson, JP Morgan Chase & Co, Research Division – Analyst [43]

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Yes. Sure. I recognize that. And maybe a follow-on to an earlier question regarding the interconnect business, the wired interconnect business. The 100-gig opportunity, again, it sounds like you have some pretty good competitive advantages here. Can you help us, I guess, size the market opportunity maybe relative to 400 gig? And it sounds like this will be more joining later in the year into next year, but help us understand what the revenue contribution could be later this year?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [44]

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It’s true. I mean it’s early at this point to understand the mix, right, because our recognition will be based on what we ship to the various module makers, right, so to speak. But if you really think about the entire market, when you look at all these reports, they refer to the proxy, but everything is, how many 100-gig ports are being sold, right? And generally, if you look at the entire market, 30% of the market is data center guys. The remaining center, 70% is non-hyperscale data center folks, right, if you just look at and analyze the overall market. And I bet you in that 70% of the market, a substantial majority will be single lane, 100 gigabits per second market, right? So while we’re all sort of enamored with the hyperscale data centers, they would be more 200-gig, 400-gig and in the future, 800-gig products. But the remaining 70% of the market will be 100-gig single lambda, single lane markets for a long time to come. So it’s a pretty strong replacement market, if you will. So — I will — so — but then based on the ASPs, you could see the mix to be 50-50 dollar terms, but I can’t give you the exact dollar terms, right? So we will have good — whenever we have 400-gig, we’ll also have 100-gig backlog. Dollars wise, probably it’s a 50-50. Okay?

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Operator [45]

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Our next question comes from the line of Suji Desilva with Roth Capital.

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Suji Desilva, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [46]

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So just to be clear on the large customer 400-gig ramp, what is the linearity of that ramp as it starts up, I assume, the second or third quarter? Can you give us a sense of that the next few quarters?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [47]

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It’s not linear at all right now. It’s hardly linear. There’s not enough any track record, right, right now. So let’s put this — let’s just celebrate it’s going to happen. I mean, it happens. And once we see trends, I am sure you will all be thrilled that MaxLinear actually can come through on its convictions of its capabilities and investment chutzpah if you will, right? And so let’s not talk of linearity at all, right? I mean, I don’t think it’s linear at all, right? So let’s keep it that paper by 2020 right now. But — and it’s going to be discrete for, say, for a while to come because it’s going to be with one data center customer. So it’ll come in spike and it’ll settle down. And then it’ll take 2 or 3 quarters to settle down, honestly. So let’s wait for it to ramp, right, at the end market itself, okay?

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Suji Desilva, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [48]

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Yes. Okay. Appreciate the candid response, Kishore. And then you guys have been asked a lot questions on the Connected Home. I guess my question is really — you sound like you’re seeing order strength now, and that’s giving you confidence second half ’20 is going to be sell-through. Just what is driving the demand pull from that angle? Is it just normalization here? Or is there something else going on? Any color there would be helpful.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [49]

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So look, let’s look at the color here, right? The demand for broadband at home presumably is increasing. And therefore, operators are doing well on the data market, and they are more interested to spend money on that. That’s the way to think about it. This is my thoughts, okay?

So the second piece is that our recovery — we don’t have much product in the industrial multimarket in automotive, which anybody has got exposure to automotive, I think, will continue to see sort of the rumblings effect of it. So hopefully, our Q1 issues are really related to the China situation and nothing got to do with the — so since we don’t have automotive exposure sort of a manufacturer slow down. So therefore, we’re seeing a recovery due to incentives or whatever people picking up — manufacturing being picked up in China and other Asian countries. And then — in the industrial segment, we also stuff that goes into telcos, not telco infrastructures really, and those are also being rolled out with 5G. So I think there’s enough incentives on those monitor devices on the 5G equipment that’s being rolled out, even though our own 5G radio transceivers are yet to — ship yet. So I think the trends on those kinds of things are going to help us, right?

And on the Connected Home, it’s about time. We’re also tired, right, and likely it’s building up. And then on the wireless side, we’ve had these design wins going on and design wins and the ramps have taken time because each country is going through its own corona issues or, for example, India, the entire wireless operators suddenly had this huge spectrum debt issues that they had to pay back the government, lots of other kinds of stuff going on. And finally, we’re starting to see a pull-through happening. So we just have new designs that are product cycles that are creating backlog. So that’s what drives. I think maybe it’s our turn to start earning some good fortune in the way things have returned in our direction. I just want to be careful, but I will do my Indian prayers for them, okay?

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Operator [50]

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Our final question comes from the line of Tim Savageaux with Northland Capital Markets.

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Timothy Paul Savageaux, Northland Capital Markets, Research Division – MD & Senior Research Analyst [51]

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Couple of questions on the infrastructure side of the business. First, with regard to — if you want to comment on Q1, that’s fine. I think — because I think China was maybe part of the weakness from perhaps both a supply and demand perspective. As you look at this recovery into Q2 in infrastructure, I wonder if you can make any specific comments with regard to what you’re seeing out of end markets in China, maybe across backhaul or optical transport or wherever you’re participating. And I think last quarter, you talked about targeting 15% to 20% growth for the infrastructure segment in calendar ’20. I wonder if you could provide an update there.

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Steven G. Litchfield, MaxLinear, Inc. – CFO & Chief Corporate Strategy Officer [52]

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Yes, Tim, so let me make sure I get all of your question here. So we do see Q2 in industrial, this recovery. I mean, we were expecting some softness in Q1, maybe not quite the level that we saw, but we were expecting softness in Q1 and expecting that to start to recover. Backhaul, again, I’ll reiterate. I mean, it’s probably the biggest portion of that. And as you know, we can get some bigger hits, some bigger recoveries. So that’s encouraging.

High-performance analog is probably the one that was impacted more in Q1. And so there’s definitely a recovery aspect of that in Q2. You got HSI, which will start to contribute more in Q2. Not huge. I mean, I expect that to contribute much more kind of in the second half of the year. And then Access, which we’re very excited about probably comes in much later in the year. So that’s kind of the way we see it.

I mean, as far as the growth for the year, I mean, look, this is a — I mean, infrastructure as a whole is something that we’ve invested heavily in the business, with what’s going on in massive MIMO as well as in the data center, I mean, you’ve heard us talk about this. You’ve heard Kishore talk about it. I mean, this is a product line, it’s doing less than $100 million that we think over the next 3 to 4 years can be a $300 million to $400 million product line. And there’ll be some big ramps. They’re just beginning in the second half of this year in almost each category. So much more significant contribution in 2021. This has nothing to do with the COVID-19 or anything like that. These are organic ramps that we’ve been investing in heavily, as you’re aware, will start to really have a much more meaningful impact in 2021.

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Timothy Paul Savageaux, Northland Capital Markets, Research Division – MD & Senior Research Analyst [53]

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Okay. And just to clarify quickly, I heard your kind of initial discussion on the overall infrastructure drivers. I was basically asking if you had any commentary on China as a driver there, in particular across the infrastructure segments?

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [54]

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So in China, the 5G rollout is the big one that will affect us positively, but it will really happen towards the end of the year, right, and the beginning of next year. And there’s a big tender out that really sets the stage. They’re looking at developing new cost on platforms, which is where we enter the market. And those are still being validated. That’s just the honest reality of — in fact, I think the 5G rollout got a bit delayed in China also due to the corona situation. And the 2 big players in China are ZTE, Huawei and a small company called Datang that’s been mentioned, but that would be the 5G play. Along with 5G comes the transport networks, but 5G is not a big wireless backhaul or front haul transport network in China. So we only will benefit on the access side and not in the transport network. And then, however, we do have some optical transport products in TIAs and driver. We should benefit from that. And on the — so I think those are the main constitutions of our growth story in China.

However having said that, these players also ship product for wireless OEM equipment to other countries outside of China, where we have the design wins for the wireless backhaul. And that’s actually the one that’s generating momentum right now that Steve, in fact, talked about it earlier. Microwave and millimeter backhaul is growing strongly, and that’s really meant for non-China market by Chinese OEMs. So those are the areas of infrastructure-related growth we expect out of our China customers.

On the data center side, China is still behind, right? They’re evaluating issues, but I think China is quite behind on the — I don’t want to say quite behind, let’s assume a year behind where the U.S. is currently on the PAM-4 sort of product lines, but they would be much more interested in 100-gigabit PAM-4 solutions. That’s the reason we are so excited with 100-gigabit PAM-4 solution using single lambda that would eventually find its way to the 5G front haul markets and backhaul markets as well. Okay?

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Operator [55]

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We have reached the end of our question-and-answer session. And I would like to turn the floor back over to management for any closing remarks.

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Kishore Seendripu, MaxLinear, Inc. – Co-Founder, Chairman, CEO & President [56]

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Thank you, operator. I just want to let everyone know that we’ll be participating in the JPMorgan Global Technology, Media and Communications Conference on May 12. The Needham 15th Annual Virtual Technology and Media Conference on May 20. The Bank of America 2020 Global Technology Conference on June 3. And the Stifel, Nicolaus 2020 Cross Sector Insight Conference on June 8 to June 10. I just want to remind everyone that all these conferences are going to be held virtually, and we hope to connect with many of you there.

With that being said, we thank you all for joining us today, and we look forward to reporting on our progress to you next quarter. Thank you very much.

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Operator [57]

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This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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