Walter Jankovic: Yes, certainly, George. Well, as Patrick mentioned earlier, with regards to deployment around 4.0 nodes and their backward compatibility in terms of ability to put those notes in place in the network and not regret putting a 3.1 and having to go back in short order and upgrade to a 4.0 node. So I think we’re seeing a level of planning around that as customers look at how they’re going to leverage our 4.0 nodes that have that backward compatibility. So I think that’s a big driver in terms of the technology transition, specifically to 4.0.
George Notter: Got it. For you, is that a different SKU that you’re selling into a customer like Comcast?
Walter Jankovic: Certainly, 4.0 is a different SKU than 3.1.
Patrick Harshman: Yeah, George, it’s a different hardware design, it’s a different core trip, it’s a different RF design to support the DOCSIS 4 capabilities, so for the edge devices it is a different hardware design and it’s also additional incremental capability functionality on the software — the core software piece.
George Notter: Got it. Right. And, I guess, so the question I’m asking is, is that a source of the softness that you see here in the first part of the year? Customers depleting any remaining inventory of 3.1 nodes in advance of cutting over to 4.0?
Patrick Harshman: So, it’s part of the story. I don’t think it’s the whole story, but for one customer in particular, George, it’s a big part of the story. Yeah, if you’re gearing up for 4.0, you’re not only just right sizing your inventory, you’re actually bleeding your legacy inventory down hard, right? We have another significant customer that for their own reasons is just the natural curve of their ramp-up is still, I’d say, ramping up moderately through the first half and kind of hitting the knee of the curve sometime in Q2 and really getting to a much heavier pace of deployment in Q3 and Q4. That’s a customer who is relatively newer to deployment and that’s consistent with what we’ve seen in the past with other customers who are in their, let’s say, first year of major rollout.
So we’ve got two separate things working at the same time and coincidentally both following the same kind of lighter first half, stronger second half curve kind of multiplying the effect. Did that makes sense?
George Notter: That helps. Thank you, guys, very much.
Patrick Harshman: Thank you.
Walter Jankovic: Thanks, George.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Tim Savageaux of Northland. Please go ahead, Tim.
Tim Savageaux: Thanks, and good afternoon. The question is on kind of the nature of your initial ramp with Charter I guess and what you might expect going forward. And I guess I want to come at that from a couple of directions, first, you saw weaker gross margins in Q4, do we infer that that’s hardware-heavy initial mix or some kind of stocking or there is a relationship there at all remembering that you had a big upfront software license with Comcast at that initial deployment? And then relative to and assuming that most of the charter revenue is — vast majority is Broadband and really wasn’t much in any of anything last quarter, how would you relate that ramp to what you saw historically with Comcast? And I can remember times when you were at similar levels and on up to doing $50 million, $60 million a quarter, probably on the Broadband side.
So when you talk about that second half ramp, should we think about those types of metrics to try and define what you mean with Charter in particular?
Walter Jankovic: Hey, Tim, it’s Walter. So we’re not going to specifically talk about any particular customer’s ramp, but I think there’s a couple of things there that you passed that we’ll address. First of all, in regards to the margins for Q4 in Broadband specifically. So as we highlighted in our opening remarks, we had a significant higher mix of nodes go out in the Q4 time period, more than we had anticipated going into the quarter. Part of that was other customers who came in with orders that they wanted fulfilled in the quarter and so we prioritized that, and so when we look at our mix of business, heavy mix of nodes in Q4 and that drove down the Broadband margin compared to what we’ve seen historically. Second point that I will highlight here in terms of how to think about the margin profile as we move forward, across the customer base as we look at customers in terms of moving forward, customers acquire the nodes, they acquire licenses, software licenses to enable those nodes once those get put into the network and so as we’ve highlighted before, quarter-to-quarter the margins will fluctuate depending on the mix over a longer period of time, such as a year, you average those puts and takes and you’ll see more of a normalized mix of the COS coupled with the nodes that are going out in broadband.
So I addressed a couple of your questions, Tim, is there — maybe there’s something I missed from the ones that you listed out here? Did I address them?
Tim Savageaux: Yeah, I think so. As a follow-up question, you mentioned the prospects for an accelerating growth rate in ’25 as new customers kind of get ramped up, can you offer any kind of commentary because you mentioned over a year gross margins are normalized you’re guiding into the high 40s, let’s say, 47 something like that. As the business scales, if we’re looking at ’25 is 50% on the table from a gross margin perspective or do you expect to hardware mix to be heavy enough that this range is a reasonable range to expect where we are currently? Thanks.
Walter Jankovic: That’s a good question. Tim, the way I would look at FY’24, it’s a transitional year with regards to a lot of nodes that are going out into the networks as we look forward beyond 2024, I would say, that the mix will likely be slightly improved in terms of the mix of our cOS as compared to our hardware. But as you can imagine, there are many factors and some of the ones that Patrick highlighted earlier with regards to our focus around fiber as well that has an impact in terms of the overall margins for the business.
Tim Savageaux: Okay. Thanks very much.
Walter Jankovic: Okay. Thanks, Tim.
Operator: Thank you. I would now like to turn the conference back over to Patrick Harshman for closing remarks. Sir?
Patrick Harshman: Okay. Well, thank you again for joining us today. We’re pleased with our strong quarter and we’re excited about the opportunities ahead of us and we’re determined to execute in 2024, 2025, and beyond. We appreciate your support. We’re confident in our ability to execute and we look forward to continuing to be in close dialog with you as we go forward. Thanks again, everyone. Have a good day.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
