MaxLinear, Inc. (NASDAQ:MXL) Q1 2024 Earnings Call Transcript

MaxLinear, Inc. (NASDAQ:MXL) Q1 2024 Earnings Call Transcript April 24, 2024

MaxLinear, Inc. misses on earnings expectations. Reported EPS is $-0.21 EPS, expectations were $-0.2. MaxLinear, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the MaxLinear First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations. Thank you, Leslie. You may begin.

Leslie Green: Thank you, Paul and good afternoon, everyone and thank you for joining us on today’s conference call to discuss MaxLinear’s first quarter 2024 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 the second quarter of 2024, including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense and GAAP and non-GAAP diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including, without limitation, statements concerning future financial and operating results, opportunities for revenue and market share across our target markets, expected production ramps and timing for the launches of new products, our design win pipeline, demand for and adoption of certain technologies, our serviceable addressable market, the effects of cost reduction measures and product announcement.

These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factor section of our SEC filings, including our Form 10-Q for the quarter ended March 31 2024 which we intend to file later today. Any forward-looking statements are made as of today and MaxLinear has no obligation to update or revise any forward-looking statements. The future — the first quarter 2024 earnings release is available on the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including but not limited to, gross margin, operating margin, operating expenses and interest and other expense on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations and the press release available on our website.

We do not provide reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future changes, including stock-based compensation and its related tax effects as well as potential impairments. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. We are providing this information because management believes it is useful to investors as it reflects how management measures 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 Dr. Kishore Seendripu, CEO of MaxLinear. Kishore?

Kishore Seendripu: Thank you, Leslie and good afternoon, everyone. Our Q1 revenues were $95.3 million, posting a non-GAAP gross margin of 60.6%. Overall, we believe that our revenues have reached a bottom and we are now poised for sequential growth in ’24. Our conviction is a result of improving market conditions and exciting new product launches in high-growth markets, including optical data center interconnect enterprise Ethernet and storage accelerators, 5G wireless, multi-gigabit PON broadband access and WiFi connectivity. All of these new products have been launched in the market today and will begin to reshape our revenue profile towards high-value data infrastructure applications. While this market recovery driving improved revenues, our strong fiscal discipline will help us position to deliver highly favorable leverage in our business model.

Highlighting our infrastructure business which we believe is on track to become a $300 million to $500 million business over the next several years, led by solid traction in high-speed optical in the connect market. Coming into 2024, we expect to deliver revenue in the $10 million to $30 million range for the year, we now expect to exceed the high end of the revenue range in 2024. As we demonstrated and announced at the Optical Fiber Conference in San Diego, our 5-nanometer CMOS Keystone 800-gigabit PAM4 DSP is in several reference designs for virtually all of the leading module makers, including Jabil for silicon photonics-based pluggable modules and Optomind for LRO modules which we announced last month. Collectively, we are building an exciting AI-related design win portfolio within the hyperscale and large enterprise markets.

Early stage revenues have already begun and we expect new production ramps later in the second half of the year to drive meaningful run rate growth in 2025. The ongoing adoption of AI in the cloud is providing a strong catalyst for the transition to 800 gigabit and beyond speeds. During Q1, we were very pleased to announce Rushmore family of 200 gigabit per lane, PAM4 SERDES and DSP’s. Built on Samsung’s leading-edge CMOS, it delivers best-in-class power consumption, double the data rates and significantly reduce latency across optical transceivers, active optical cables and active electrical cables. Industry estimates indicate that shipments of PAM4 DSPs are expected to grow at a CAGR of 50% through 2027, providing an exciting opportunity for us to significantly grow our revenue and market presence over the next several years.

In 5G wireless infrastructure, the expanding global rollout of new millimeter wave, microwave and hybrid backhaul technologies to upgrade the data rates of wireless transport links continues to drive our growth and our silicon content per platform. At Mobile World Congress in February, we announced our new and differentiated CRF family, a single-chip platform for 5G Open RAN radio units for both massive MIMO and macro-based station solutions. The response has been overwhelmingly positive. We expect our growing portfolio of wireless backhaul and access infrastructure products to drive significant revenue expansion over a multiyear cycle. Within our infrastructure revenues, our Panther III CDs, hardware storage accelerators for the enterprise all-flash array and hybrid storage enterprise appliance systems is providing exciting incremental growth opportunities particularly with the growth in high-speed computing and AI.

Our Panther III GPU is the only hardware-based solution in the market, delivering 12:1 ratio data compression ultra-reliable data protection, low latency and low power performance. This month, we were excited to announce a collaboration with Dell Technologies to integrate our Panther III storage accelerator into Dell’s PowerMax storage platform to deliver unparalleled performance gains for mission-critical workloads. We are currently in production ramp with the solution and expect additional customer product ramps later this year. We are confident that we can double our storage-related revenues in ’24 with continued strong growth through 2025 and beyond. In Ethernet connectivity with the recent launch of our new Octal 2.5 gigabit Ethernet PHY and switch products, we expanded our addressable market by $300 million to include both the enterprise and small and medium business switch markets in addition to our traditional gateway and router markets.

Customers are expected to upgrade today’s more than 2 billion copper 1-gigabit Ethernet ports to 2.5 gigabit Ethernets speeds over time using the existing standard CAT-5 cabling. We are seeing exciting design win activity for our solution, including a Tier 1 North American enterprise OEM customer that is expected to ramp to production in the late 2024. As we look ahead, we believe our Ethernet business could reach $100 million over the next 18 to 24 months. Turning to broadband. We continue to gain traction in the fiber P — PON market with new design wins driving our growth. As many of you know, in 2023, we began ramping our single-chip integrated fiber PON plus 10-gigabit processor gateway SoC and connectivity solutions with the major Tier 1 North American service providers.

We’re now ramping a new opportunity with the second major Tier 1 North American service provider. Together, these wins confirm our competitive product offering and demonstrate significant growth opportunities for us in the coming years. Last year, our PON revenue was approximately $50 million. We expect to be able to more than double that over the next 2 years. In connectivity, our Wave700 single-chip tri-band, Quad MIMO WiFi 7 device continues to do extremely well in qualifications. We expect service providers to begin the initial rollout late this year with adoption peaking in 2 to 3 years. For MaxLinear WiFi 7 has the exciting potential to drive significant ASP growth and higher attach rates in our broadband access platform versus previous generations.

Overall, as we finally project return to sequential revenue growth, it is both gratifying and exciting to see years of product development and business execution begin to culminate in our next stage of growth as a data-centric infrastructure company. Across our portfolio, we have the right solution production today to meet high-value market trends and drive significant revenue growth. With that, let me turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve?

Steven Litchfield: Thanks, Kishore. Total revenue for the first quarter was $95.3 million, down from $125.4 million in the previous quarter, including both product and IP revenues. Broadband revenue for the quarter was $33 million, connectivity revenue was $10 million, infrastructure revenue was $33 million and our industrial multi-market revenue was $20 million. GAAP and non-GAAP gross margin for the first quarter was approximately 51.7% and 60.6% of revenue. The delta between GAAP and non-GAAP gross margin in the first quarter was primarily driven by $8.2 million of acquisition-related intangible asset amortization. First quarter GAAP operating expenses were $123.9 million and non-GAAP operating expenses were $74.8 million.

The delta between GAAP and non-GAAP operating expenses was primarily due to stock-based compensation and performance-based equity accruals of $24.2 million combined and restructuring costs of $22.6 million related to the workforce reduction initiated in Q4. Non-GAAP loss for operations for Q1 2024 was 18% of net revenue. GAAP interest and other expense during the quarter was $0.5 million, non-GAAP interest and other expense during the quarter was $0.6 million. In Q1, cash flow generated in operating activities was $16 million. We exited Q1 of 2024 with approximately $193 million in cash, cash equivalents and restricted cash. Our day sales outstanding for the first quarter was approximately 121 days. Our gross inventory was down versus the previous quarter, with inventory turns at 0.9x.

This concludes the discussion of our Q1 financial results. With that, let’s turn to our guidance for Q2 of 2024. We currently expect revenue in the second quarter of 2024 to be between $90 million and $110 million. Looking at Q2 by end market, we expect infrastructure, connectivity and industrial multi-market to be up, while broadband will be expected to be down. We expect second quarter GAAP gross margin to be approximately 52.5% to 56.5% and non-GAAP gross margin to be in the range of 58.5% and 61.5% of revenue. Gross margin continues to be relatively stable with the expected range being driven by a combination of near-term product, customer and end market mix. We expect Q2 2024 GAAP operating expenses to be in the range of $103 million to $113 million.

We expect Q2 2024 non-GAAP operating expenses to be in the range of $72 million to $78 million. We expect our Q2 GAAP and non-GAAP interest and other expense to be in the range of approximately $0.5 million to $1 million each. We expect our Q2 GAAP and non-GAAP diluted share count to be approximately 83.5 million. We’re pleased to show progress on our new products, expanding our position in these exciting new growth markets. Our customer traction and design win momentum are producing tangible results that will be increasingly evident in our business in the coming quarters and will reshape our future as a data infrastructure company. The world is undoubtedly moving towards accelerated data architectures and MaxLinear’s core competencies centering around seamless integration and low power efficiency is perfectly suited.

Our optimism and sense of purpose within this new generation of technology is high and we remain deeply committed to delivering strong value to our customers and our shareholders. With that, I’d like to open up the call for questions. Paul?

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Q&A Session

Operator: [Operator Instructions] Our first question is from Quinn Bolton with Needham & Company.

Quinn Bolton: Congratulations on the infrastructure progress especially on optical. I guess I wanted to start there. Can you give us some sense, the revenue ramp this year exceeding now $30 million how concentrated or diversified is that $30 million is that over several module partners? Is it pretty concentrated with 1 or 2 [ph]. And I guess more importantly, as you start to get into volume production in the second half of the year, what kind of growth could you be looking at in calendar ’25, would that business double or more as you hit volume production for the full year on some of these design wins? And then I got a follow-up.

Kishore Seendripu: Quinn, yes, at our Optical Fiber Conference in San Diego, we demonstrated a number of top-tier OEM module makers and OEMs themselves whose products we had on demo, all for our 800-gigabit Keystone product line. As we speak, the design in velocity is pretty strong; and the revenues we have described as shifting our high end of the range for our forecast for this year is driven by more than 1 customers. And I would like to say that those are initial revenue ramps with some good confidence developing on the performance and the stability of the solution. So I think that there’s more to come. Actually, this is just the beginning but it’s not concentrated in 1 customer as we were inquiring about. Now heading into 2025, you can imagine that even many more of these customers will be launching into production while some will be maturing into a peak run rate based on how we exit Q4.

So I expect that we should see a multiplier effect of the revenues of 2024, adding it to ’25 and ’26. And we hope to be in pretty much all the major platforms out there that are going to be pulling in the back end of the data be it AI or the front end with all the major data center players in the market.

Quinn Bolton: So it sounds like certainly line of sight towards $100 million kind of run rate sometime in either ’25 or ’26 based on those comments?

Kishore Seendripu: That’s my expected optimism naturally, right. So based on these revenues, that would not be something that would be far out in projecting.

Quinn Bolton: Got it. And then I just wanted to step back in the script, you both, I think, sounded more confident that when it has reached the bottom that you’ll see sequential growth through the year. And I guess I was just wondering if you could provide some more detail. What gives you confidence that revenue rebound sequentially or grow sequentially through the year? Is that based on design win ramps? Can you give us some sense what you’re seeing in terms of bookings activity? Is backlog starting to build? Is visibility into the second half starting to extend? Any of those types of comments would be helpful.

Kishore Seendripu: So I’ll take this question and then I will hand it over to Steve a little more color. There are 2 things happening, right? Firstly, we have been under-shipping the market throughput demand for a while now. And as we look at the sell-through process of the product right now, it’s very clear that the rate at which we’re shipping is now fallen behind what the sell-through rate is in the channel, so to speak, right? So we feel optimistic that a process has started where we are going to develop the ability to now start shipping more and you’re going to start seeing some equally brand developing between sell-through and sell-in revenues, if you will. So that’s the reason — and that is on the existing designs that have been shipping for the last few years is there are new product revenues.

And then there’s the other leg to our revenues which is the new products which we talked about, be it optical, be it infrastructure products, Ethernet, storage accelerators, they’re all going to be ramping as well. So I think as a combination, while we cannot speak for the trajectory over the next second half of the year but we definitely feel we have entered a phase of sequential growth in 2024 now. So I would say that is the color. Steve, would you want to take the question on the bookings or anything like that, the color on that?

Steven Litchfield: Yes. I think, Kishore, you covered it. I think we’re definitely feeling a lot better about bookings. That’s kind of been over multiple quarters. We’ve seen improvement on that front. And I think the other aspect is some of the new products that Kishore mentioned are going to be ramping in the second half of the year, including some of the optical products. Those orders have already been placed. So we’ve got visibility and so we’re starting to see those improvements.

Operator: Our next question is from Christopher Rolland with Susquehanna International.

Christopher Rolland: The long-term infrastructure guide, the $300 million to $500 million was pretty interesting. When we get there, what does this look like in terms of components? Is the majority DSP in your estimate? Or how does it break down?

Kishore Seendripu: So Chris, we have been talking about a $500 million revenue for infrastructure for quite some time now. And really, there are 3 major legs of growth vectors for our infrastructure revenue. And firstly, today, the revenue is about, give and take, let’s say, it’s at a $200 million run rate for the infrastructure revenues and it comprises primarily of our wireless infrastructure revenue and a little bit of infrastructure and Ethernet. And so — and then if you now layer on top of that the optical products which we talked about could be in the next 3 to 5 years, somewhere between $100 million to $300 million, depending on our market share. And then about that, you layer in a storage accelerator which we’ve been very confident that we will do somewhere between $50 million to $75 million of revenue over the next 2 years.

Then the recent activity and design wins for our Ethernet on the enterprise side, we have a number of legs of growth drivers. So I do not expect it to be DSP, PAM4 dominated. However, I would conclude that the DSP PAM4 if it’s not the number 1, it would be number 2, next to our wireless infrastructure followed by a storage accelerators and Ethernet enterprise solutions. So I think there are a few more components to those revenues but I think I just want to highlight to the big chunks of revenues for infrastructure. And we feel really excited that all these years of dredging on the development in the last several years is now fully in the marketplace and will gather traction.

Christopher Rolland: Secondly, do you now believe you have a good view in the inventory at various levels in the supply chain. Where do you think inventory in terms of subsegments are normalized or close to normal? And where do you think there’s still work to be done?

Steven Litchfield: Yes, Chris, I’ll take that one. So look, I think we continue to see improvements on the inventory side. I mean, particularly in the channel. We’re making progress on our own majorities. But specifically, your question is around channel inventory. I think we’ve seen a lot of improvement. Our biggest headwind have been broadband and connectivity. As we’ve stated, I think this is playing out more or less where we expected that we would still see some headwinds kind of through the first half of this year. I think that’s still the case but I think we’re making good progress. We’re really seeing channel inventory come down. Industrial multi-market is probably the other area that we definitely saw softness last quarter, we’d expect to see some continued headwind, particularly in some of the China markets. But that being said, it doesn’t feel quite as bad as some of the challenges that we’ve had on the broadband and connectivity side.

Operator: Our next question is from Tore Svanberg with Stifel.

Tore Svanberg: Congratulations on the progress on the infrastructure side. So I do have questions there. But I want to start with the DSOs. So they’re still quite elevated. Is this just purely linearity where customers are basically ordering really last minute or anything else going on there, Steve?

Steven Litchfield: The simple answer is yes. I mean, I think we continue to see linearity to be a challenge. And as much as that’s a bad thing, you’re also starting to see some encouraging signs there that I mentioned last quarter about some last-minute shipments and your — this is where customers don’t have great visibility. And at the very end, they recognize that they don’t have the right products to be shipping. So we definitely continue to see that. And those are some of the signs that I think give us confidence that we’re now on track to kind of work our way out of this, right, that the inventory levels are getting down to lower levels, the bookings have improved. And those are the encouraging signs, albeit the quarter was definitely still back-end loaded.

Tore Svanberg: Very good. And I thought connectivity had bottomed but I guess it came in at $10 million this quarter. Could you talk a little bit about what’s going on there? I mean are they still really that much excess inventory? Or would you say that $10 million is sort of like a firm bottom in that part of the business?

Steven Litchfield: Yes. No, no. I understand your comment, believe me. We continue to talk about both of these kind of together, at least right now anyway as far as being inventory that’s sitting in the channel. So that’s continuing to be challenging. We’re seeing good encouraging signs out there on broadband as well as connectivity, WiFi specifically. Kishore included in some of his comments around WiFi 7. But certainly, WiFi 6 is going to continue to ship in volumes over here for the next couple of years. So that’s going to continue. And — but then a majority of our design activity right now is on WiFi 7. And then don’t forget Ethernet. Ethernet is something that’s getting a lot of traction in our gateway products as they upgrade from 1 gig to 2.5 gig.

But you’re also seeing this in the enterprise space, in the industrial space. And I think we’ve really got a great product that’s ramping at the right time. We’ll see a lot of growth and revenue growth from that in 2025, specifically as we do have a couple of new customers that will be ramping.

Tore Svanberg: Great. If I could just finish up, a question for you, Kishore. So obviously, Keystone finally seeing some good traction. Now you announced the Rushmore last month, 200 gig per lane. I mean it sounds like this product is going to be much more, let’s say, target more segments of the market, right? So I think you mentioned going after the AEC market, potentially LRO. Help us understand the difference between those 2 product offerings and how broad you can become in 200 gig?

Kishore Seendripu: So Tore, I just want to clarify that even our Keystone product is a pretty broad application. I think in my part of the script, I was trying to refer that even the 200 gig will be pretty broad. At the OFC conference, we demonstrated active electrical cables. We demonstrated the Y Junction copper cables. And we have also demonstrated a number of other configurations and use cases. And we also demonstrated LROs, right, in the conference. So in fact, we may be one of the first ones who have demonstrated a fully functional LRO for the market. So, I — so what I was trying to get towards the 200 gig per lane is that we are going to do the same thing for the Rushmore product line as well. So yes, the spread is now pretty broad. And those tertiary markets by themselves are large in a dollar way but as a percentage share of the market, even though they’re smaller, so we’ll be playing in all of those markets.

Operator: Our next question is from David Williams with Benchmark Company.

David Williams: I guess Kishore if you could just kind of talk about your focus on the data infrastructure side? And should we think that maybe there’s other segments or portions of the business that maybe aren’t as positive or maybe do not fit that as well going forward? Or is this really — should we just consider this everything kind of growing and fitting into that bucket of data infrastructure as you go forward?

Kishore Seendripu: Could you repeat that question for me, please? I missed the early part of it.

David Williams: Sorry, just about the data infrastructure focus here and if there’s other segments of the business today that maybe aren’t as — did not fit that bucket as nicely?

Kishore Seendripu: No, I think the buckets we’re talking are pretty pure and clean. There is no part of the data center infrastructure that is not directly a PAM4 DSP related product in our portfolio. Typically, it is a PAM4 DSP, along with the TIA, we have the laser drivers fully integrated in our solutions. So it is a very clean fit to the PAM4 DSP addressable market.

David Williams: Great. And then maybe, Steve, just how the bookings trended over the last few months? And if there’s any way to kind of disaggregate maybe some of the legacy products relative to the new products just to get an idea of how the older products are, the demand is picking up there?

Steven Litchfield: Yes, David, I mean with regard to the bookings, we’ve definitely seen multiple quarters of improvements on the bookings front. Some of the newer products now, we mentioned in our prepared remarks about how — these are all in the market in some form or fashion, some at earlier stages than others. So several of those, I mean, like the optical one that I mentioned a little bit earlier, it’s going to ramp in the back half of the year, we need to have orders now. So we’re definitely seeing that happen. Some of the more the broader market offering that we do have that we’ve seen inventory in the channel, we are seeing kind of more recent bookings pick up and — which kind of gives us confidence that we’ll see some continued improvement in Q3 and Q4 later this year. Maybe, next question?

Operator: Our next question is from Ross Seymore with Deutsche Bank.

Ross Seymore: Congrats on returning to growth. First wanted to ask about the cyclical side of things. You talked even in the prior question, Steve, about some better visibility as bookings come up and I know you’re still working through inventory on the broadband and connectivity side. But now that the bookings have improved. Do you have any better idea as to kind of what a normalized revenue run rate is for those businesses because they’re down so much was the prior high artificial or is the current low artificial? Where do we meet in the middle? Any sort of color on that would be helpful.

Steven Litchfield: Yes. Ross, as you know, we’ve been talking about this a lot. And recognizing as customers kind of burn through the rest of that channel inventory kind of what that revenue run rate that you return to. So we’re watching that closely. I mean there are some other dynamics that start to influence that. I mean if I think of broadband specifically, we’ve talked a lot about the PON business. So that will start to influence that. The higher content per box starts to influence that as WiFi 7 comes into play. Market share, I would say, for the most part, hasn’t changed too much. There’s not a lot of customers in this market. So those dynamics really haven’t changed. There’s a limited set of competitors on the WiFi side as well.

And that’s — it’s a story that’s still early days, albeit our WiFi or our connectivity revenues in general were not as strong in the quarter. But I do feel confident that we’re — with the newer products with the higher ASPs that over the next couple of 3 years, as WiFi 7 gets traction in the market that you’re going to see nice revenue growth coming from those parts of the business.

Ross Seymore: I guess as my follow-up then on the OpEx side of things, you guys run a tight ship on that you always have. But with all the opportunities that Kishore talked about. Are those things where the predominance of the OpEx has already been spent? Or is that something that you think you need to ramp the OpEx to take advantage of all these data center infrastructure opportunities?

Kishore Seendripu: Look, there are 1 or 2 product areas, Ross, where we still will be at a pace of investment where we need to catch up and leapfrog the market, right? That’s the — especially the new markets we entered. However, most of the initiatives that we started in the 5 to 6 years ago, be it wireless infrastructure, optical data center, the big TAM defining products have already been launched now. They’re showing good healthy momentum. So it would be normal sustaining R&D work to get to the next generation of products. And the time cycles of these markets outside of the data centers are pretty, what I call, nothing aggressive. So I would say also the data center, our investment pace is going to be quite moderated. And so I don’t see an extraordinary step-up just to keep up with the next product outside of the optical data center markets.

Ross Seymore: Got it. If I could sneak in one more. I think I know the answer but any update on the arbitration process either in timing or any other news?

Steven Litchfield: Yes, really nothing meaningful to update as expected, Ross.

Operator: Our next question is from Tim Savageaux with Northland Capital Markets.

Tim Savageaux: I wanted to go back to the optical data center market opportunity and trying to get a little more color on what’s led you guys to kind of increase your guidance range for the year. I know you had a good OFC show or I guess, how recent is this sort of renewed confidence or increased confidence? And to what do you attribute that thinking of factors, whether it’s a bigger-than-expected market opportunity, stronger-than-expected competitive position? As you look across those, what would you — how would you describe what’s led to this increase in estimate?

Kishore Seendripu: So Tim, I think you have seen a developing optimism and positive tone starting in Q4 last year. And to be honest, now, looking backwards, we had backlog to sort of support that developing optimism. The concerns we had was is it going to be 1 customer or 2 customers or 3 customers? Are we going to have an accumulating roaster roster of customers going into production? So at this point, we do not expect to — at that point in Q4 that we will get to the conference, please where we are, where we already shipped products that would indicate that we are on — definitely on — definitely on to the 10 to 30 and then now developing confidence that will exceed that. So I think the backlog is the first way to look at the situation and say, “Hey, this backlog already somewhere where we can meet the numbers that we originally forecasted, number one.

Number two and there’s more sockets that are converting and they are the ones that have been converted or ramping strongly and they’re inquiring about lead times and bookings.” So that’s what it’s done. It’s really the facts on the ground. And so Yes. In Q4, we had some backlog to support this as some developing optimism, honestly. So it just means that every quarter we have strengthened our confidence as we started shipping in numbers.

Tim Savageaux: Great. And maybe somewhat along those lines. As you look at your guidance for Q2, to the extent you’re looking for some sequential growth in the middle of the range, should we assume that that’s new product driven? And you’ve mentioned a number, whether it’s storage, Ethernet or data center, or are there other factors at work? Obviously, you got broadband coming down. And then as you look toward the higher and lower end of your ranges kind of what are the swing factors driving that range?

Steven Litchfield: Yes, Tim. So you’re right. I mean we kind of highlighted where we thought the end market growth would be from it’s certainly some of these newer products that we’ve been talking about, they will definitely have an impact on Q2. But I’d say, overall, it’s probably the recovery itself, that’s probably helping a little bit more in Q2 and some of the newer products kind of have a layering impact throughout the year.

Operator: Our next question is from Ananda Baruah with Loop Capital Markets.

Ananda Baruah: I guess, 2 for me, if I could. The new products that you have ramping through the year that you have? And maybe just — you can even keep it to sort of Ethernet, optical and storage if you want those are the most important one’s. But I guess the question is, when during the year, like first half, second half, should we expect each of those to begin to make an impact? And I know — Kishore, I know you talked about collectively they each making an impact and giving [indiscernible] the sequential growth. But do you think for the year, there’s kind of 1 — so do you think there’s just sort of 1 or 2 in particular that will make more — the most meaningful impact? Or is it collectively through the year also? And I have a quick follow-up.

Steven Litchfield: Yes, Ananda, maybe I’ll take a stab at it. I mean look, the storage accelerator business — we’ve been in this business for a while. We have some — a new product that’s ramping this year. It will start kind of mid-year and then definitely grow throughout this year and into next year. I mean, a lot of these customers take a little bit longer to ramp because there’s multiple product families. But really encouraging signs as we get more design wins and see more traction there. I mean the optical front, I think we’ve been talking about, I mean, one of the big drivers around optical, is 800 gig. And so 800 gig is certainly going to start this year but you’re going to see more of those volumes happen in 2025 which is exciting, right?

I mean that — but the work itself, that work is going to be done this year. These are really long qualifying cycles. And so that work is being done right now. A lot of that — a lot of those opportunities are being awarded right now. And so we’ve got to close on those opportunities and you’ll certainly see that revenue contribute in the back half of this year but it’s also going to be a big driver in 2025. And on the Ethernet side, even that, I would say there’s some existing 2.5-gig business that’s recovering kind of on the gateway front as the inventory improves but then some of the newer products like in the industrial market, specifically in the enterprise Ethernet market, that’s where we’re seeing a lot more adoption. We’ve got a couple of really large customers that will be ramping probably more in 2025 than in 2024.

So again, each of them kind of have their own time frame that they’re coming in but we have a lot of confidence around each one of them.

Ananda Baruah: That’s super helpful context, Steve. And I guess the follow-up is just sort of your guys’ long-term 35% op margin target. Like what needs to happen over the next kind of couple of years for you to achieve that? And I think the last time you were sort of kissing that, Steve, so the quarterly revenue run rate was high 200 — 280 plus. And so with the new products, do you still need to get back to that revenue level to sort of approach the mid-30s operating margins? So any kind context there would be helpful.

Kishore Seendripu: So Ananda, there is first and foremost, right, there’s a lot of spend even when we were kissing the, as you call, the 35% operating margin, right? There was a lot of investment that was being spent in the new areas that we have entered 5 years ago from a development perspective. Secondly, we had acquired our connected home business and there was a lot of what I call old-stale products. that really needed to be upgraded which usually in silicon world means that we do, right which is — so the OpEx that you saw was had the burden of all of these big undertakings on our own organic side and the ones we had to undertake organically from the acquisition front. So first and foremost, now the OpEx is being brought into control or what I want to call not control is now being rightsized for a normal cadence of investment.

So that’s the first and foremost, benefit of this downturn, if you will. And then when the revenue is growing, so you started getting leverage out of that because we’ve already got a much of this product portfolio behind us. So I think that’s going to accelerate the march towards the 30%, 35% operating margin. So Steve, if you want to add any color on that beyond?

Steven Litchfield: No, I think that’s right. I mean maybe I’d refresh some history here but we — we also had a pretty clear path getting to that number to that over 30% number. Long before we saw $1 billion worth of revenue. So I’m confident that we can get back at a much lower revenue run rate than the $1 billion you referenced.

Operator: Our next question is from Karl Ackerman with BNP Paribas.

Karl Ackerman: Steve, I think you said broadband will be down on revenue in F Q2 but you’re starting to see an improvement in bookings. Are those bookings on the cable side or more on fiber. I ask because you’ve been more weighted toward cable or [indiscernible] fiber and some of the investors have worried that the declines in broadband are more secular than cyclical in nature. And so I guess as you address that question, could you discuss your design engagements with customers on PON that can help drive a much larger recovery in broadband as we think of not just the second half of this year but also going into ’25?

Steven Litchfield: Yes, Karl. Great question. And you’re exactly right. We’ve been more exposed on the cable side but we’re certainly seeing a recovery on both PON and cable. I mentioned earlier the excitement around the PON side. But we’re seeing plenty of activity on the cable side and there’s lots of hype around some of the upgrades that are happening in that market. I mean I don’t think we really carry one way or the other where that growth comes from in broadband. And there are certainly tons of investments happening out there that we’ll be able to benefit from.

Karl Ackerman: Okay. For my follow-up, you introduced several new optical products leveraging your existing 5-nanometer 800-gig DSP technology, including half retimed and full retimed DSPs really for, well, AEC and AOC products. I guess given the confidence that you have on this ramp this year and next year, is most of that coming from half retime DSPs and AEC products, will that be the strongest growth that you see this year?

Kishore Seendripu: I don’t think anybody would volunteer that half retimer [ph] would be any meaningful revenue in this category of products. I would say it’s fully driven by full rate retimer products, if you will, the 800-gig PAM4 or 400-gig PAM4 single lane 100 gigabits, right? So that would be it. It’s pretty simple other than the customer designings with the various optics they use becomes a pretty challenging problem, right? So the DSPs need to be versatile to manage all the various optics every customer uses and then the yield management of that. So I don’t see a half retimer being a big revenue generated at least through 2025.

Operator: Our next question is from Suji Desilva with ROTH MKM.

Suji Desilva: Just maybe a little bit of follow-up on some of the recent questions here. But broadband declining but connectivity increasing. I would — I thought kind of mentally, those were kind of coupled in terms of in the same boxes in broadband but maybe that’s the wrong way to think about it. Can you just talk about that potential disconnect in the guide?

Steven Litchfield: Yes. So you’re right. They’re fairly connected. A lot of the gateways of course, incorporate our Ethernet or WiFi products. And so they normally trade together but I mean they vary a little bit too. I mean we can certainly go out. I mean there’s a lot of opportunities to win more connectivity business. In WiFi, I mentioned a little earlier in the session around Ethernet and some of the opportunities that were growing in the Ethernet market with 2 gig — 2.5 gig adoption within the enterprise market within the industrial market. So from time to time, yes, I mean they don’t necessarily always trade together.

Suji Desilva: Okay. That’s helpful, Steve. And then my other question is on the optical side. I’m just trying to draw path from the prior effort, 400 gig and now 800 gig. Is that lead customer continuing and kind of building on the traction you had with that customer? Do you have additional customers or different customers just to understand how the customer base and traction is developing here?

Kishore Seendripu: I just want to clarify here that the customers — the end customers who are driving 400 gigabit versus 800 gigabit is a completely different sequence now. So they are not the leaders anymore in terms of trying to move aggressively ahead with the higher speeds right now. So I would say that it’s a different set of customers driving 800-gigabit PAM4 revenues, 100 gigabit per lane or 400-gigabit PAM4 revenues with 100 gigabit per lane. So it’s a totally different set of customers but there’s only a few set of customers in the marketplace. So it’s a very small group.

Suji Desilva: Kishore, can you just remind us the competitive landscape and your advantage quickly? I know we talked about OFC but a refresh would be helpful.

Kishore Seendripu: Yes. So from our perspective, we are the only solution that has got a 5-nanometer CMOS, PAM4 DSP with integrated laser drivers, that’s fully in production and is increasingly qualified by others. Now we were not the first ones with 800-gig PAM4. Our competitive solutions are in 7-nanometer. They have — therefore, the incumbency advantages for the company to continue from being ahead on the timing on the sampling of the product. But the good news here is that outside of the NVIDIA customer — market-based supplier base. And the rest of the data centers are moving at a normal cadence of an option of 800-gigabit PAM4. So we are not late to the market. We are in the beta phases of trials and qualifications. So we feel that we have not lost any timing advantage — timing-related positioning with our 5-nanometer solution, even though we are later by several months compared to our competition about 2 years ago, right?

So — so the big disadvantage is a lack of incumbency. The advantage is the product superiority, where the power is significantly lower than our competition by almost 30%. And so whether it’s a module or the chip level positioning, it can vary between 20% and 30% in power reduction. So the low power matters a lot and that is a big advantage. I think everybody needs to meet the performance requirements and go through the drop cycle [ph]. And frankly, even today, that is the biggest mountain we are climbing now even as we are recording revenue with victories, in increments as we ship these products.

Operator: Our final question will be from Richard Shannon with Craig-Hallum.

Richard Shannon: Maybe I’ll throw one out here in the storage space. You reiterated your comments about kind of revenues doubling this year getting to $50 million to $75 million and I think you’ve said in the past and today that this is largely based on single customer. I guess a couple of interlocking questions here first of all, as the announcement with Dell last week, is that the single customer? And then maybe you can talk about building new customers to help maybe provide upside to those numbers over time, how that’s going?

Kishore Seendripu: So I think that we do not — the current shipments of Panther III are based off a single customer would be a fair conclusion based on the press release, I suppose. However, we have always talked about expanding our accelerated products beyond the enterprise market and over time with data — into the data partnerships [ph] with other players, right? So when we talk about a $50 million to $75 million revenue, the question that it is true that revenue forecast is based substantially almost wholly on enterprise storage appliance market and not data center-based market revenue.

Richard Shannon: Okay. Fair enough. Second question is in wireless infrastructure. You talked about, I think, for at least a couple of quarters now talking about calendar ’25 being a strong year. Obviously, you’ve had some inventory burn here on both sides of that business. I guess my question, just from a modeling perspective is, can calendar ’25 be a record year for wireless infrastructure? It seems like you’re down fairly strongly in revenue run rates would seem like a big bar to jump but just curious whether you think that’s possible?

Kishore Seendripu: I would say that ’25 will not be the record year. It will be a growing year. And I think we’ll continue to grow our wireless revenues from our current levels to doubling of those revenues based on the road map and the products we are launching. So I believe from an infrastructure, if it’s a $500 million revenue, you should see your wireless infrastructure, optical being 80% to 90% of the revenue. And the remaining 20%, if you will, of being Ethernet that we’ve already talked about but if you’re an Ethernet storage but really — but each of those individuals have a bigger potential than that [indiscernible]. So $500 million is of revenue by infrastructure is there sort of an imbalance of things based on timing and how the TAM develops, so to speak.

No, absolutely not. ’25 is not going to be a record year because that will be a good thing and will grow beyond that. Thank you very much. With that last question there, I just want to wrap up this session here. And I would like to thank you all and we hope that this quarter, we’re going to see you again. We will be present at the Stifel Cross Sector Insight Conference in Boston and with Northland Securities Virtual Growth Conference, as well. With that, thank you all for joining us today once again and look forward to speaking with you soon. Bye.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.