U.S. Markets close in 6 hrs 2 mins

Edited Transcript of MXL earnings conference call or presentation 25-Jul-19 8:30pm GMT

Q2 2019 MaxLinear Inc Earnings Call

CARLSBAD Jul 29, 2019 (Thomson StreetEvents) -- Edited Transcript of MaxLinear Inc earnings conference call or presentation Thursday, July 25, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brian D. Nugent

MaxLinear, Inc. - Head-IR

* Kishore Seendripu

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

* Steven G. Litchfield

MaxLinear, Inc. - CFO & Chief Corporate Strategy Officer

================================================================================

Conference Call Participants

================================================================================

* Alessandra Maria Elena Vecchi

William Blair & Company L.L.C., Research Division - Research Analyst

* David Wayne Haberle

Susquehanna Financial Group, LLLP, Research Division - Associate

* Gary Wade Mobley

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Jeremy Lobyen Kwan

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* JiHyung Yoo

Deutsche Bank AG, Research Division - Research Associate

* Quinn Bolton

Needham & Company, LLC, Research Division - Senior Analyst

* William Chapman Peterson

JP Morgan Chase & Co, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings, and welcome to the MaxLinear Second Quarter 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brian Nugent. Please go ahead, sir.

--------------------------------------------------------------------------------

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 second quarter 2019 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steven 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 third quarter 2019 revenue, gross margin, operating expense, tax expense tax rate and interest and other expense guidance as well as statements relating to trends, opportunities and uncertainties in various products and geographic markets, including, without limitation, statements concerning growth opportunities for our wireless infrastructure and connectivity markets and for improved revenues in our broadband markets.

These forward-looking statements involve substantial risks and uncertainties, including risks arising from competition, the global -- the outcome of global trade negotiations, export restrictions, potential supply constraints, our dependence on a limited number of customers, average selling price trends, risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect, and numerous other risks outlined in the Risk Factors section of our SEC filings, including our previously filed Form 10-K for the year ended December 31, 2018, our Form 10-Q for the quarter ended March 31, 2019, and our Form 10-Q for the quarter ended June 30, 2019, 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 second quarter 2019 earnings release is available in 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 certain future 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 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.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Brian, and good afternoon, everyone. Thank you all for joining us today. Our Q2 2019 revenue was $82.5 million, consistent with our updated guidance. Despite mid-quarter headwinds with the Huawei shipment restrictions, our infrastructure business was up slightly.

Our Connected Home business stood at 47%, industrial and multi-market at 26% and infrastructure at 27% of overall revenue. We continue to execute well on our ongoing infrastructure designing and customer engagement activities in 5G wireless and fiber-optic data center interconnects which our boost our confidence in our infrastructure revenue growth prospects in 2020.

Encouragingly, our industrial multi-market revenues improved across a broad set of distributors and end customers, which we expect to continue into Q3. In the Connected Home market, we continue to navigate soft cable data and satellite end market demand, customer specific challenges related to technology transitions and trade tariffs and weak operator spend.

In the second quarter, our 5G wireless customer designing activities of our industry-leading 40 nanometer CMOS, 4x4 massive-MIMO Quad

RF transceiver SoC solution have accelerated and are generating strong customer traction. As a reminder, our industry-leading 5G RF transceiver delivers the highest performance and widest bandwidth along the superior system-level integration and flexibility at up to 50% lower power consumption than competitor solutions.

As a result, base station engineers will be able to accelerate the development of 5G massive MIMO radios. At the same time, we are also growing our content on a per system basis, enabled by an expanding product offering and Tier 1 strategic customer engagement. Our wireless backhaul business was up double digits sequentially in Q2 despite the suspension of Huawei shipments. Adoption of our wireless backhaul RF transceiver is accelerating which is highlighted by an important design win in India by one of our Tier 1 customers and slated for shipping in Q3.

Our RFSoC is the only solution to support channel aggregation with doubled data capacity in existing available spectrum for our current and future 5G transport networks. As a result, strong operator engagements are leading to a proliferation of our OEM engagements, which we believe supports our expectation of stronger revenue streams in the second half of 2019.

Moving on to data center infrastructure products. Our 400 gigabit PAM4 DSP SoC with integrated laser drivers and companion quad TIA system solution, has made significant progress with our lead optical module and lead Tier 1 hyperscale data center end customer in terms of interoperability testing. This has strengthened our current expectations with respect to revenue growth, market share and the pace of the upgrade cycle.

Our high-performance analog business, primarily in the industrial and multi-market revenues is also gathering momentum. Our universal PMIC or Power Management IC MxL7704 was selected to power the world's most popular single board computer, namely the Raspberry Pi 4. It was the primary driver of our double-digit sequential growth in industry and multi-market revenues in Q2. The MxL7704 is a highly versatile PMIC that enables reprogrammability of recombinant new current settings and limits, power sequencing, power monitoring, telemetry and additional flexibility that are integral to the Raspberry Pi 4 computer. We're also continuing to expand our data center power management presence with a recent design win at Alibaba, a Tier 1 Chinese hyperscale provider.

Going forward, we are pleased that our deepening customer relationships and products in 5G wireless and optical data center infrastructure are opening up new power management opportunities as a bundled offering.

In the Connected Home market, our MoCA business was up significantly quarter-over-quarter due to the ongoing ramp of our MoCA 2.5 solution at Verizon. Additionally, we announced that Cambridge Industries Group has deployed our MoCA 2.5 SoC in the next generation 10-gigabit PON ONT device. In this application, the MoCA based WAN backbone delivers up to 3 gigabits per second high-speed broadband from the ONT which enables gigabit whole-home Wi-Fi coverage for reliable robust 4K video and data services over IP.

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 Q2 business results and our forward guidance.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Kishore. I will first review our Q2 2019 results, and then further discuss our outlook for Q3 2019.

Our revenue of $82.5 million we saw in infrastructure business up 2% sequentially due to increasing demand for our wireless backhaul RF portfolio, which offset some weakness in our HPA business within this category. Our Connected Home business decreased to 11% with strong early stage deployments of our MoCA 2.0 and 2.5 solutions, offset by continued softness in cable and satellite markets.

Our industrial multi-market business was strong, up by 12% sequentially, with broadband -- with broad-based demand improvements, particularly in China, which were aided by focused share gain initiatives. GAAP and non-GAAP gross margins for the second quarter were approximately 53.4% and 63.9% of revenue, respectively. Our non-GAAP gross margin improved 40 basis points sequentially due to improved mix within our reported product categories and operational improvements.

This compares to GAAP gross margin guidance of 53% to 54% and non-GAAP gross margin guidance of 63.5% to 64.5%. The delta between GAAP and non-GAAP gross margin in the second quarter reflects the amortization of $8.5 million of purchased intangible assets from previous acquisitions and $0.1 million of stock-based compensation. Second quarter GAAP operating expenses were approximately $47 million, which was below our GAAP guidance of $49 million to $49.5 million due mainly to lower-than-expected stock-based bonus accruals. GAAP operating expenses included stock-based compensation of $8 million, amortization of purchased intangible assets of $5.8 million and $0.4 million in restructuring.

Non-GAAP operating expenses were $32.8 million, which was down $2.9 million sequentially and below our non-GAAP guidance of $33 million or $33.5 million due to disciplined expense management. We continue to diligently work to moderate the spend during this transitional period with good success. After sequential reductions in 3 of the last 4 quarters, our quarterly non-GAAP OpEx run rate was down 12% year-over-year.

Moving to the balance sheet and cash flow statement. Our cash flow generated from operating activities in the second quarter of 2019 was approximately $12.4 million versus $16 million generated in the first quarter of 2019. We made $15 million in debt prepayments during the quarter towards our term loan as we continue to focus on debt paydown with our cash generation. In addition, we recently made another $5 million debt prepayment during Q3. This brings the total debt prepayment to $198 million and our loan balance down to $227 million.

Our days sales outstanding for the second quarter was approximately 63 days, which was slightly below the prior quarter day sales outstanding of 64 days. Our inventory turns decreased slightly to 3.6 compared to 3.7 in the first quarter.

That leads me to our guidance. We currently expect revenue in the third quarter of 2019 to be approximately $77 million to $83 million, down 30 -- down 3% sequentially at the midpoint of the guidance range. As you recall from our June 4 press release, we ceased shipments to Huawei in accordance with the Bureau of Industry and Security action. We continue to evaluate potential scenarios that would result in legal resumption of shipments to Huawei, including license requests. However, our guidance excludes any potential revenue from Huawei and affiliates, which has sizable impact sequentially.

MaxLinear will continue to comply with all government and legal requirements across our global operations. We cannot predict whether additional government actions may further impact our ability to ship to Huawei as the situation remains dynamic. We hope a resolution of these issues around trade actions is reached as quickly as possible so that market driven trade can resume.

Additionally, one of our test houses in Indonesia, Unisem, Batam, is going through an abrupt shutdown. As a result of the shutdown and ensuing employees strike, we are facing potential supply constraints for roughly 80 products in Q3. We expect Connected Home revenues to be down 5% to 10% sequentially, driven primarily by reductions in satellite demand and subdued recovery on our Connected Home categories due to continued macro headwinds in the cable and satellite markets. We expect a mid-single-digit infrastructure revenue decline owing to the Huawei shipment ban and softness in our HPA business within this category, which also tends to be a little lumpy.

Within industrial and multi-market, we have seen follow through on our improved distributors sell-through patterns, which coupled with the sequential improvement from a couple of key accounts, is expected to yield high single-digit revenue growth. We expect third quarter GAAP gross profit margin to be approximately 52% to 52.5% of revenue and non-GAAP gross profit margins to be approximately 63% to 63.5% of revenue, down sequentially due to a weaker mix, owing mainly to the shift between infrastructure and industrial and multi-market revenue.

As a reminder, our gross profit margin forecast can vary plus or minus 2% depending on product mix and other factors. Even as we are focused on our reducing our run rate spend levels, we continue to fund strategic development programs targeted at delivering strong top line growth in 2019 and beyond, with particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business. As such, we expect Q3 2019 GAAP operating expenses to remain approximately flat quarter-on-quarter within a range of $46.5 million to $47.5 million, driven mainly by the expected increase in our stock-based bonus accrual and mask expenses, partly offset by reductions in professional fees and payroll.

We expect Q3 2019 non-GAAP operating expenses to be down approximately $1.5 million sequentially to a range of $31 million to $32 million. We expect GAAP tax expense to be approximately 0 and non-GAAP tax rate of 5%. We expect interest and other expenses in the quarter to be $2.8 million to $2.9 million.

In closing, we are pleased to report progress in our infrastructure initiatives, highlighted by our expanding design engagements in 400 gig data center market, engineering milestones on our 5G massive-MIMO transceiver platform and expansion of our infrastructure power management portfolio. As we continue to navigate through a turbulent Connected Home environment in the near term, we will continue to maintain strong profitability and cash flow generation as well as continue our pace of strategic investments. These infrastructure investments and strong execution, combined with upcoming upgrade cycles in the data center and wireless markets, position as well to deliver strong leverage in our business as many of our new product initiatives start to generate revenue in the second half of 2019 and into 2020.

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

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question today is coming from Ross Seymore from Deutsche Bank.

--------------------------------------------------------------------------------

JiHyung Yoo, Deutsche Bank AG, Research Division - Research Associate [2]

--------------------------------------------------------------------------------

This is Ji for Ross Seymore. I guess if you could just talk a little bit about the test -- the impact of the test house strike that you mentioned. What category are those 80 products that are impacted by that supply constraint coming from? And is that demand going to be pushed out into the fourth quarter?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So thanks, Ji, for joining us. So that particular product, most of the product is from our HPA portfolio, which falls into the industrial multi-market. But there is, recall, that there is some of that business that rolls up under infrastructure. So probably those 2 categories. We are working diligently and hopeful that things can get resolved sooner rather than later. But we're also looking at all avenues as this is a short-term risk and they definitely shorten the time frame more than we would typically expect in this circumstance.

--------------------------------------------------------------------------------

JiHyung Yoo, Deutsche Bank AG, Research Division - Research Associate [4]

--------------------------------------------------------------------------------

Okay. And then, as a follow up, I guess for -- regarding to Huawei. How much revenue from the third quarter, I guess, is being taken out because of the restriction that's still in place? And has the company already applied for exemptions to that restriction?

--------------------------------------------------------------------------------

Steven G. Litchfield, MaxLinear, Inc. - CFO & Chief Corporate Strategy Officer [5]

--------------------------------------------------------------------------------

So with regard to Huawei, look, in our preannounced earnings report, we talked about the impact of Huawei. We kind of took the midpoint down about $3 million.

So Huawei is not a big enough customer for us to break out specifically, but as far as the impact in Q2, I mean you could expect that it'd be on that order.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Your next question today is coming from Gary Mobley from Wells Fargo Securities.

--------------------------------------------------------------------------------

Gary Wade Mobley, Wells Fargo Securities, LLC, Research Division - Senior Analyst [7]

--------------------------------------------------------------------------------

I want to ask a question about the Connected Home business. According to your guidance for the third quarter, that business is probably about half of where it was 2 years ago and there's numerous reasons for that, I'm sure, but maybe if you can just walk us through the different components of that Connected Home business, what the moving parts are, with the intention to maybe give us a sense of where the bottom might be for that business.

--------------------------------------------------------------------------------

Steven G. Litchfield, MaxLinear, Inc. - CFO & Chief Corporate Strategy Officer [8]

--------------------------------------------------------------------------------

Sure, Gary. Yes, look, so as you know, we don't break out all of the different pieces of it. But in general, I mean there's the cable piece and connectivity piece. I talked a little bit about some of the improvements that are going on in the connectivity side. I mean Verizon's finally ramping this platform, so we're encouraged by the MoCA developments there. But the rest of the business, cable data specifically, as everyone's aware, has continued to drag. Service providers aren't spending, not putting the investments there. We've kind of gotten through the tariffs and yet, spending seems to continue to push out.

So we do see weakness there. I mean I'd like to tell you we're at the bottom. I've said this before. I feel like cable, we're kind of bouncing along the bottom and it is a little deeper than I think than what we had originally anticipated, but we do see light at the end of the tunnel on the cable side. I think the satellite's probably the one that's been worse than expected. Satellite's been tough, just subscribers have been down considerably and -- but I would say at this point in time, I mean the risk has definitely come out. I won't say 100%, but we definitely got a lot of risk out of that business. So as I look out into 2020, that particular piece feels a little bit better just because we're down at much lower levels.

--------------------------------------------------------------------------------

Gary Wade Mobley, Wells Fargo Securities, LLC, Research Division - Senior Analyst [9]

--------------------------------------------------------------------------------

Okay. And as you've been trying to find different growth paths in the infrastructure side of business, I think, there's roughly 5 to 7 of those, and you've had a multi-year investment in that effort. Are there any of those different prongs that you feel less optimistic about today than say, 3 to 6 months ago?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [10]

--------------------------------------------------------------------------------

So Gary, obviously based on our comments just before your questions, we are really excited with infrastructure initiatives. And in the prepared remarks, as Steve refers to confidently increasing in share prospects, that means that our designs are doing well. We talked about content increases that is going to result from expanded portfolio, our ability to offer bundling on that process and as a result of investments in power management. So in general, we're quite excited about where our investments are going and the prospects for the growth are.

On the cautionary side, the timing gives a bigger risk in terms of quarterly kind of estimations. We talked about our 400 gig PAM4 design in process and the interoperability positive outcomes. So our expectations for growth this year from fiber-optic is very, very modest, and we are in the ballpark. So really, nothing to subdue our optimism. Still, these are infrastructure market, they take time. And we were in a nice ramp phase at Huawei, which was part of the calculus. And so there is some level of disappointment about the Huawei situation, but outside of that, we feel very positive.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Our next question today is coming from Bill Peterson from JPMorgan.

--------------------------------------------------------------------------------

William Chapman Peterson, JP Morgan Chase & Co, Research Division - Analyst [12]

--------------------------------------------------------------------------------

It sounds like on the PAM4 side, things are progressing. It's our understanding that some of the 400 gig ramps are really, I guess, coming on fairly strong in the second half of the year. I'm wondering based off of, I guess, your design and interoperability testing going well, should we think of upside to your prior view of single-digit millions?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Bill, I think we have constantly reiterated that we don't expect a strong ramp of 400 gig this year and our expectations have been modest. We stick to it. I think the proof remains based on the milestone activity that we are more correct than otherwise. So I will not change any expectations. And in fact, I think at this point, the pace is not any faster on the way the SoC and the field trials are going on with this big hyperscale data center. So I would not change my view on it. In fact, I would caution you against thinking that it is a big ramp onsetting right now on 400 gigs. If anything, it will be toward the end of the year, not at this stage of the year.

--------------------------------------------------------------------------------

William Chapman Peterson, JP Morgan Chase & Co, Research Division - Analyst [14]

--------------------------------------------------------------------------------

Okay. I know that Huawei is, I guess, it's not broken out as it is construed to have a 10% customer, but I guess my understanding is that you're -- not only you're not shipping, but are you able to engage? Or for example, are some of your projects going to be postponed as a result of lack of engagements -- and when, I guess -- when should we think about that? Is it just going to be when the ban is lifted entirely? Or how should we think about that going forward?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [15]

--------------------------------------------------------------------------------

So Bill, it's a very, very difficult question to answer on these matters, especially given the various legal counsel we are taking, and we want to make sure we abide by the laws of the country. And we are strictly following guidance for multiple advisories here. So -- but I will not conclude anything about our own inability, if we were permitted to do so to be really actively engaged because the products we're referring to are very unique in their attribute. There's no other provider for it. The risk is some substandard, some primitive platforms being reinitiated, but I think that our offerings are so compelling and cost-saving in performance that I think once things clear, we should be able to readily ramp because the designs are done.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

The next question is coming from Alessandra Vecchi from William Blair.

--------------------------------------------------------------------------------

Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

Just a quick question or follow-up on the Unison impact. Can you quantify how much of an impact that was? If, I am correct, 80 products on your industrial multi-market is kind of, is 10% of total products. Is that about right?

--------------------------------------------------------------------------------

Steven G. Litchfield, MaxLinear, Inc. - CFO & Chief Corporate Strategy Officer [18]

--------------------------------------------------------------------------------

Yes, so I mean look, we're not going to break out exactly the number. 80 products sounds like a lot of products, but these are HPA products, so there's less revenue per line item. So I wouldn't say it's a huge number. It's a very low-single digit. So pretty comfortable, but it is a risk that we have in the quarter that we did highlight.

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [19]

--------------------------------------------------------------------------------

And you want to note that we are not the only ones. I think there has been press releases in the preceding weeks from Unisem at Batam, where a number of big suppliers are actually big purchasers. All of their assembly and test services are impacted. And we are a minor player in that. And the governments there are working to resolve the employee strike as a result of their abrupt announcement. So we are really hopeful that, that will not be impactful, but we have to put the cautionary note in the script.

--------------------------------------------------------------------------------

Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

No, no. I understand. I guess I was just trying to back into the difference between guidance and expectations given that you had already removed the Huawei out when you preannounced. The data side.

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [21]

--------------------------------------------------------------------------------

I think you have a good metric, 80 parts out of 1,000 parts. That's not a bad metric to think about it.

--------------------------------------------------------------------------------

Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

And then lastly, you guys have been very, very diligent on the operating expense line. I mean how much is left there? Do we think about Q4 operating expenses starting to reincrease? Is this start of the new baseline level in total of the infrastructure ramp start to contribute?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [23]

--------------------------------------------------------------------------------

So Alessa, I'll let Steve give a little bit more color after my comments here that -- look, I mean that is very, very difficult to say it is more or less there, right? This is a part of the tactical approach and then a part of it is longer-term strategic decision-making process, and that's always blending in. At this point, I would not say that's there more left to come. On the other hand, I do know that next year, heading into the year, we have road map items on infrastructure, but we continue to invest, and we want to invest. It's not even -- because we were leaving too much opportunity on the table there.

So I do expect the OpEx to increase, but Steve may be able to give you a little bit more color here.

--------------------------------------------------------------------------------

Steven G. Litchfield, MaxLinear, Inc. - CFO & Chief Corporate Strategy Officer [24]

--------------------------------------------------------------------------------

I mean I think we've been pretty clear that the OpEx trends down throughout the year and then starts to grow again in 2020. So I don't want to get into specifics on what Q4 guidance is at this point, but as we -- I mean we've consistently said that it kind of trends down throughout the year and then starts to grow again kind of in Q1 of 2020.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Our next question is coming from Quinn Bolton from Needham & Company.

--------------------------------------------------------------------------------

Quinn Bolton, Needham & Company, LLC, Research Division - Senior Analyst [26]

--------------------------------------------------------------------------------

Two quick questions. First, you guys seem to be pretty enthusiastic about the design traction you're getting for the 5G cellular product, but I couldn't quite tell if you were saying that you actually now have design wins for that product or just sort of design-ins or design engagement. So wondering if you can clarify. Do you have kind of confirmed design wins to date? Or are you still working towards those? And then the second question on the industrial multi-market. It sounds like a lot of that strength recently has come from China. I think most of your analog peers are talking about sort of uncertainty in China given the trade tensions.

And so with 2Q and 3Q up nicely in that business, are you worried about sustainability of that demand? Do you think there could be some inventory hoarding going on in that business given trade tensions?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [27]

--------------------------------------------------------------------------------

So Quinn, firstly, I want to address the 5G question that you raise. So you have to keep the perspective of our product investment initiatives. We always work with the product where we have a teaching joint development agreement with a major OEM. We do not kick-off the products. Even though we have such agreements in place, we have to first deliver a product that works very well, which we have done.

Now we are in the process of evaluating it and the design-in support and activity is ongoing. A design win is when the platform is selected and then a timeline set for when that will start ramping. So yes, from that perspective, we have a target timeline for the platform, we are timelines for the evaluation of the design-in process and when a part goes to production and so on. But however, I would not deem it to be a design win in the sense where something could go wrong in between -- I will not want to take you and run there.

Having said that, right, we've got more than 1 OEM in the same timelines. So we feel that whatever we have guided you in terms of expectations about when we expect the 5G revenues to start next year, there's no reason to modify that date at all in terms of delays or such. So yes, technically, no. Materially, yes. And it's more than 1 OEM right now. It's 2 OEMs that are in the same timeline.

Second, the question is, you asked about the high-performance analog market primarily you can call it industrial multi-market and then a portion of it in infrastructure revenues. We also feared that the weakness in demand on these kinds of products that serve the distribution channel and that there is actually a softness in the demand. And actually, there is. However, there are some products that are very specific to MaxLinear that we're in the process of sort of product-to-product cycle revenue ramp and they are overcoming this weakness or softness that our other peers are experiencing.

However, we seem to have for the most part sidestepped it. However, we are seeing weakness in various other parts though at a totality level, we're not seeing that. And next what comes in the future, we cannot predict, right? I mean that's very hard in just sort of a channel sales and not direct sales and direct sales is hard enough.

So however, we've got a whole bunch of new products to be launched by the end of the year. So whatever it is, it should be -- the big thrust over the last 2 years since our acquisition of Exar has been really to overhaul the product road map to bring the world's best products in power management and subsequent (inaudible), and whole bunch of power management products will be announced and released at a very strong clip.

So we feel that will grow. So at this point, I think that we are cautiously optimistic on our industrial multi-market revenues. It's always been our infrastructure investment and the products are now sampling. And to some sense, we are not the gates to put us to go to production. It's our customers that are more of the gates to the timelines on this. So I hope that answers your question.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Our next question is coming from Tore Svanberg from Stifel, Nicolaus.

--------------------------------------------------------------------------------

Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [29]

--------------------------------------------------------------------------------

This is Jeremy calling in for Tore. I just wanted to touch again on the Connected Home business. It sounds like, I mean, you talked in the past about there's been some well-known supply chain challenges in terms of migrating correction facilities out of China. Have those been largely resolved? And is that impacting anything at this point in that business? And secondly, you've talked in the past about DOCSIS 3.1 market share balancing out overtime. Is that something that you're still seeing and anticipating in this business?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [30]

--------------------------------------------------------------------------------

So the first question was about the impact of supply chain transitions at our OEM customers and the second question was about actually macro demand at the operator level and then how our share is being impacted by those decisions.

I think firstly, I didn't want to say that there's been a sharp impact of the satellite side that Steve talked about. And that's really because of whatever -- remember that we want to keep it in perspective this is a good business, it's a very profitable business for us, very, very low investments to support the business. However, the macro demand situation in the satellite market has really weakened quite a bit. And for the forecasted demand, they feel they are sitting on quite a bit of inventory and supply while they figure out what their game plans are. So we are really suffering the video business cord cutting impact.

Having said that, on the cable data side, the cord cutting should work in our favor. However, the cable operators themselves are not spending as much to deploy or to roll out the new platform. So their own spend levels are down. In fact, we suspect the TAM is down as much as 20% to 30% right now in the -- on a run rate basis right now. And within that, we had the supply chain related transition issues and a major OEM of ours who got acquired by [Comcore] and that's more or less getting resolved.

But I think the bigger impact right now is the macro demand softness that we're facing and I think at the beginning of the year, we talked about maybe this year, 2019, we will be down about maybe 15% relative to last year, but it looks like we're quite deeper than that, maybe 25% to 30% range. And really, from a share perspective, I would just give you one color, is that the share loss has really happened where there is a new product platform qualification going on. And the shipment is really happening not from our OEM, but of the other competitor OEM to whom we don't ship, which is the other platform, and I think that's where the share loss has happened.

But you do know that we always talked about market shares in this space being 50% plus/minus 5% or so, and I think we're in the minus side right now, and that will get corrected itself in course of time as we enter the first half of next year.

--------------------------------------------------------------------------------

Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [31]

--------------------------------------------------------------------------------

Great. That's very helpful. And Steve, just a quick question just in terms of CapEx. This quarter was very low. Is that something that -- should we think about being a longer-term shift? Or is this just a one quarter-type thing?

--------------------------------------------------------------------------------

Steven G. Litchfield, MaxLinear, Inc. - CFO & Chief Corporate Strategy Officer [32]

--------------------------------------------------------------------------------

Yes. I think it's a little more one quarter. I mean we -- I don't see anything changing dramatically on that front. I mean we've said that it's typically about $10 million a year and I don't see it changing dramatically from that.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

Our next question is coming from Christopher Rolland from Susquehanna.

--------------------------------------------------------------------------------

David Wayne Haberle, Susquehanna Financial Group, LLLP, Research Division - Associate [34]

--------------------------------------------------------------------------------

This is David Haberle on behalf of Chris. Just a follow-up on the massive-MIMO opportunity. In the past, you guys have talked about that opportunity really being between you and the 2 big analog players, and that if the revenue for that opportunity is split 3 ways, it's really significant revenue for you guys.

When you look at across the competitive landscape there, what gives you confidence in your product that you can come in and take significant share and maybe take a third of the share in 2020 or 2021?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [35]

--------------------------------------------------------------------------------

So I mean, you are absolutely right, we're not the incumbent. We are the new entrant into this market space and our competitive position comes from our product. And that we have built the product, not just without any feedback from OEM. Like we talked about, the Tier 1 teaching OEM customer, we have built the product that they want, that they can use and that's a real next generation product. When those customers move from FPGA-based Backend platforms to ASIC-based deployments and that's when they want a more integrated custom solution. You have to keep in mind that the 5G will not ramp without a massive cost on process because if you look at the proliferation of radio transceivers inside the remote radio unit, cost is incredibly important part. And what did we do for that? We integrated a 4x4 configuration in the 40 nanometers CMOS. None of our competitors have any of that kind of solution. We have dramatically reduced the power consumption by almost half.

And so for our competitors to react, that will take them another 18 to 24 months at the minimum, that's like a world class execution, which we'll give them credit for. Right now, we have the product, we are the ones that ensure the performance and the level of integration and that's what matters. So we feel very, very good that this is going to be sort of a cyclical process, right? You get in, you get the socket, other guys have to catch up, then shares will shift over time. But all in all, on an average, the normal scenario is a third of the market. A best-case scenario should be substantially more than that. So right now, let's go with the third of the market share.

--------------------------------------------------------------------------------

David Wayne Haberle, Susquehanna Financial Group, LLLP, Research Division - Associate [36]

--------------------------------------------------------------------------------

Understood. And then, just following up there, on massive-MIMO. When we think about massive-MIMO, there's also a push to a newer 4G base stations to add massive-MIMO capability. Do you guys benefit from that at all? Or is your solution specific to 5G?

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [37]

--------------------------------------------------------------------------------

Firstly, I think 5G is a catch all, right? Anything that old 4G doesn't do is called 5G. So I don't want to go to the semantics of what is 5G is right now. But you just think of a 4G that demands more massive-MIMO transceivers, is really 4G plus. And actually the initial deployment of 5G are, they are really not 5G, they're 4G plus. And that means more MIMO configuration. Instead of doing 2 x 2 or 3 x 3, they're going 16 x 16 or 32 x 32 in those platforms, sort of a refurbishment of those platforms. And we should benefit from that when that will happen. But right now, we are now in those platforms. The part has just started sampling about 3 or 4 months ago and it's doing well.

But as that picks up momentum, we would be in a place to participate in that. So it should benefit us. But honestly, we talk of TAM and SAM in the 5G space, that part is already included in the mathematics. So I don't think -- it's sort of zero-sum-game between 4G and 5G at that level.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Kishore Seendripu, MaxLinear, Inc. - Co-Founder, Chairman, CEO & President [39]

--------------------------------------------------------------------------------

So thank you operator. We would like the attendees here to know that we will be participating in Jefferies Semis and Communications Infrastructure Conference in Chicago August 27 and the Deutsche Bank's Technology Conference of September 10 in Las Vegas. We hope to see 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 in the next quarter. Thank you.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.