Q4 2019 Earnings Call
Greetings and welcome to the Max linear fourth quarter 2019 financial results Conference call.
At this time, all participants really listen only mode.
Question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press Star Zero Wonder telephone keypad. As a reminder, this conference is being recorded its now my pleasure to introduce your host Brian. Please go ahead Sir.
Thank you operator, good afternoon, everyone and thank you for joining us on todays conference call to discuss Maxlinears fourth quarter 2019 financial results.
Today's Cosby being hosted by Dr., Kishore, Seendripu, CEO, and Steve lunch field, 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 first quarter 2020 revenue gross margin operating expense tax expense tax rate and interest and other expense guidance as well its statements relating to trends opportunities and uncertain.
These in various products and geographic markets, including without limitation statements concerning growth opportunities for our wireless infrastructure and conductivity markets inferred improved revenues in our broadband markets.
These forward looking statements involve substantial risks and uncertainties, including risks arising from competition the outcome of global trade negotiations.
Export restrictions potential supply constraints are dependent on a limited number of customers average selling price trends risks that are markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect and numerous other risk factors outlined in the risk factors.
Action of our recent FCC filings, including our form 10-K for the year ended December 31st 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 fourth quarter 2019 earnings releases available in the Investor Relations section or web site at Maxlinear Dot com.
In addition, we report certain historical financial metrics, including that revenues gross margins operating expenses income or loss from operations income taxes, net income or loss and net income or loss per share I'm, both GAAP and non-GAAP basis, we encourage investors to review the detailed reconciliation of our game.
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 reject certain future charges, including stock based compensation and its associated tax effects Nongaap financial measures discussed today do not replaced the presentation of Maxlinear GAAP financial result.
Okay.
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 caused also being webcast a replay will be available on our website for two weeks and now let me turn the call over to Kishore Seendripu C O Max linear thank you, Brian and good afternoon, everyone. Thank you all for joining US today. Our Q4 2019 revenue was $70 million consistent with our guidance non-GAAP gross.
Margin improved 150 basis points sequentially and operating expenses declined on disciplined execution.
We also delivered $28.1 million in strong cash flows from operations as a person needs of our overall revenue are connected home business stood at 43% infrastructure was 29% and industrial multi market was 28%.
We continue to successfully execute on our critical engineering and customer engagement initiatives, you nonstrategic Fiveg Novartis infrastructure optical data center and high performance analog market.
In the near term solidifying our position with our tier one Hyperscale data center and customer and they're also increasingly confident in the ramp of the industry's first 400 gigabit gigabyte pamfour deployments in the second quarter of the year.
Additionally, our second generation Taylor I am for Dsps, we'll see fiber optic portfolio optimized for single Lambda hundred gig Bam Fourq, you SMB and it'd be more deals is garnering garnering significant traction.
We believe single Lambda Hundredg 400, deep Pamfour solutions will dominate data center and Fiveg French all deployments over the next several years.
On the technology front, we are excited about DB go to our first find out I mean to see most test chip.
Sets the stage for a continued technology leadership in the optical datacenter and Fiveg wireless market.
In the fighting you've artist infrastructure market. We are excited to announce a second win with the large Asian customer. In addition to the do you have an OEM design mean be announcing the last quarter.
We expect to realize the initial revenue for our five D. Var does artist Transceivers in this year.
We should position us for strong growth beyond Twentytwenty.
This design win momentum further confirms our traction in the five you are less massive mimo RF transceiver market.
Over the past couple of months utopian Albany dues are pushing aggressively towards 400 megahertz bandwidth fivea architectures.
Our RF transceiver product is the only industry solution designed to meet this requirement more broadly we had engaged with all do you have an Oems and customer feedback continues to confirm their daughter Fiveg RF transceiver has the highest performance doubled the bandwidth and so btis system level integration and up to 50, Brazil, Lowball Consumptions business competence.
Good.
In Fourg and Fiveg wireless backhaul, our RF associates, the only solution to support China litigation, we've doubled the data capacity in existing available spectrum for current and future Fiveg wireless transport networks as a result, the broad adoption of our disruptive RF and so see continues which will drive backhaul revenue growth in.
We need to Andy and be on in the near term we are experiencing some impact due to supply chain trade restrictions related to China.
We are looking forward to share more details about our Fi D. Var lives in optical datacenter customer engagements and road map initiatives at the mobile World Congress later, this month and that we've see in early March respectively.
Moving onto the connected home market as expected during Q4, we saw a temporary pause in our new flagship.
Got platform deployments by our major telco, operator and customer.
Connectivity remains an important growth driver buddies market, and our moca and she'd audience solutions will benefit from that market dynamic.
Our cable data business improved in Q4 door, we expect Albany to deployments will likely be muted, but the next couple of quarters. However, we do have improving visibility in this market and are confident in our positioning for the next wave of DOCSIS 3.1 deployments for North America and expansion outside North America.
Well it, albeit on track with strategic diversification initiatives to drive strong future revenue growth in Fiveg wireless optical datacenter and high performance analog power industrial markets and establishing our finance, let me just Cmos technology platform for continued leadership in these markets.
With that let me turn the call or what was the Steve Litchfield, Our Chief Financial Officer, and Chief Corporate strategy Officer.
Review of the Q4 business results and our forward guidance.
Thank you for sure.
I will first review our Q4 2019 results and then further discuss our outlook for Q1 2020.
On revenue of 70 million the end market demand was consistent with our outlook. We saw our connected home business down 25% sequentially with step downs and moca due to the pause in a new product ramp and satellite which has now deteriorated to an insignificant level.
Our infrastructure business increased 2% driven by an uptick in our high speed interconnect business with other product categories flat to slightly down.
Our industrial Multimarket business was down slightly sequentially much like various peers in these markets.
GAAP and non-GAAP gross margins for the fourth quarter were approximately 52.3% and 64.6% of revenue respectively.
This compares to GAAP gross margin guidance of 52% to 52.5% and non-GAAP gross margin guidance of 63.5% to 64%.
The improvement in the quarter was driven primarily by mix improvements.
During the quarter.
The delta between GAAP and non-GAAP gross margins in the fourth quarter reflects the amortization of 8.5 million purchased intangible assets from previous acquisitions and point 1 million of stock based compensation.
Fourth quarter GAAP operating expenses were up approximately 44.6 million, which was slightly above our GAAP guidance of 44 to 44.5 million due to a small restructuring charge during the quarter.
GAAP operating expenses included stock based compensation and stock based bonus accruals of 8.6 million.
Amortization of purchased intangible assets of 5.7 million and restructuring charges of point 2 million.
Non-GAAP operating expenses were 30 million, which was down point 7 million sequentially and consistent with our non-GAAP guidance of 29.5 to 30.5 million due to continued disciplined expense management.
We've been successful managing the spend during the transitional period.
After sequential reductions in the last four quarters, our quarterly non-GAAP Opex run rate was down 18% year over year.
Moving to the balance sheet and cash flow statement, our cash flow generated from operating activities in the fourth quarter of 2019 was 28.1 million.
Versus 21.8 generated in the third quarter of 2019.
Loan balance remains at 212 million, but our net leverage ratio was reduced to below 1.5 times due to strong cash generation in Q4.
We remain consistent and our intentions around our uses of cash with priorities on debt pay down and acquisitions.
Our day sales outstanding for the fourth quarter was approximately 66 days, which is slightly above the prior quarter day sales outstanding of 64 days.
Our inventory turns increased to 4.1 compared to 3.8 in the third quarter.
That leads me into our guidance. We currently expect revenue in the first quarter of 2020 to be approximately 65 million to 70 million down approximately 3.7% sequentially at the midpoint of the guidance range.
We expect connected home revenues to be flat to down slightly quarter over quarter.
[noise] video related products, largely offsetting expected declines in DOCSIS demand.
We expect infrastructure revenue to be down approximately 10% oh into weakness in H.P.A. demand in this category, particularly in China, as well as seasonality and other infrastructure categories.
We expect our industrial and multi market to be approximately flat to slightly down as we navigate a market recovery.
We expect the first quarter GAAP gross profit margin to be approximately 53.5% to 54% of revenue and non-GAAP gross profit margins to be approximately 63.5% to 64% of revenue down slightly sequentially due to the mix and negative leverage on lower revenue.
As a reminder, our gross profit margin percentage forecast could vary plus or minus 2%, depending on product mix and other factors.
Even as we are focused on reducing our run rate spend levels. We continue to fund strategic development programs targeted at delivering strong topline growth in 2020 and beyond.
With particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business.
We expect Q1 2020, GAAP operating expenses to increase approximately 2.2 million quarter on quarter to a range of 46.5 to 47.5 million driven mainly by seasonal payroll increases and to a lesser extent tools supporting our product development roadmap.
We expect Q1 2020, non-GAAP operating expenses to be up approximately 2.2 million sequentially.
A range of 32 million to 32.5 million.
We expect GAAP tax expense to be approximately zero and non-GAAP tax rate of 6%.
We expect interest and other expenses in the quarter to be 2.5 million to 2.6 million.
In closing we're pleased to report continued progress in our infrastructure initiatives highlighted by our expanding product portfolio and design engagements and 400 gig datacenter market.
Engineering and customer milestones in our Fiveg massive mimo transceiver platform, while China markets remain turbulence in the near term due to multiple issues. We are beginning to see stabilization in our connected home business, particularly on the cable data side.
We will focus on maintaining strong profitability and cash flow generation as well as Ics executing on our strategic investments.
These infrastructure initiatives and strong engineering execution combined with upcoming upgrade cycles in the data center in wireless markets position us well to deliver strong leverage in our business as many of our new product rollout start to layer in incremental revenue streams in 2020.
With that I'd like to open up the call for questions operator.
Thank you will now be conducting a question and answer session. If you actually placing the question Q. Please press star one on your telephone keypad.
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Our first question today is coming from Quinn Bolton from Needham and company. Your line is now live.
Hey, guys. Congratulations on the second to Fiveg. So they're transceiver. When just wondering if you could give us a little bit more detail what that Asian customer is that a global or worldwide platform at where will it be targeting G. Geographies specific geography say say, China in particular, and then I've got a couple of follow ups.
So high grade in the second design, we have just.
Announced and is called either Aegion OEM as we mentioned and the platform is universal having said that you know, they're not a Chinese OEM and but do you do have a worldwide beds in the current leadership products into into the Threeg fourg markets as well so so.
Geographically speaking there present a.
Many places, but Ah did primary focus is easy in Asia.
Got it got it Okay, and then second on the datacenter business.
You said now for a while you think that that business starts to ramp in the second quarter of this year wondering if you could just sort of comment across your portfolio is is the ramp for both D. R. One and D.R. for modules or will it start with D.R. for D.R., One and then you layer in.
The other overtime.
So the currently I just wanted to remind everybody that you know 400 gig Pamfour DSP is our first entry into data center interconnect products right and we just based on a single Lambda 100 gig gigabit technology. So we have two products that are prime for these market one is appointed gig pamfour.
SBB the integrated driver in a t. a companion chipset and also via the only bonds with an optimized hundred gigabit Qsfptwenty DSP solution. So bold. These initial ramps in these markets are going to be used on d. are running before and we expect the other categories, whether it's on the if our foresight.
To happen following this particular ramp but the initial ramp and the that ramp that is going to happen and these major hyperscale datacenter is based on VR one NDR for.
Great. Thanks, and then lastly for Steve you mentioned multiple issues in China.
And I'm wondering if you might be able to give us a little bit more color is this still more trade related is it more corona virus looking forward or a combination of both are there other factors affecting that China business.
Yeah, Glenn I mean actually just mentioned multiple factors there both are probably influence in our bid business at this point so as you're familiar I mean, we've definitely add to the export issues, but you know we've also seen a fair amount of slowdown just in the recent weeks around the current advise virus as well.
So we wanted to highlight both.
Thank you.
Thank you. My next question is coming from Gary Mobley from Wells Fargo. Your line is now live.
Hey, guys. Thanks for taking my question.
Well it too.
Because the bid on that connected home business and think about different moving pieces and if I'm not mistaken. The two remaining most influential pieces that business to be the cable data in the Moca business you perhaps hat.
Concentrate with horizon.
And so as we.
Look back per your 10-K filed at the close that.
Thank you cable data business specific tier one customer might have been down what 35% in 2019.
Oh, Yes, you think about how you heavier you're a trailer hitch to perhaps the right horse in 2020, how should we think about diversity growing diversity that cable data business and and what the growth prospects may look like in 2020.
Yes, Gary not a problem, yes. So we definitely have had our struggles with our largest customer over the last to say year and a half I'd say that we're in a much better position as we sit here going into 2020, I think we're much more confident have much better visibility.
In kind of that.
As they ramp products and kind of regain share that they really lost in the previous year. So while it has been disappointing.
To date, I mean, I really do feel like things are improving and we'll see that get back on track in the current year.
And also to mention that what are the most significant contributions to the revenue step down in this category has been also the offering to spend itself has come down and that is a bigger to contribute or than our major customer of specific issues related to acquisition ends on.
Okay. As you think about your your smoke business.
I believe were perhaps in the middle.
Correct me, if we're wrong of maybe some maybe twice digestion as your one main customer there.
Sure Bill to channel ahead of a service launch and the quick launch where do we stand on that front with maybe a return in that business.
Yes, Gary I mean, I think we brought this up even last quarter as we saw some softness in that ramp right. They they took a lot of product ahead of time anticipating that much faster ramp. So what we've been pretty clear about is from our expectations and really where we see this today.
Okay. I mean will we think we see see it moving sideways in Q1, and then we will start to see some you know returned to growth in Q2.
Okay, and the infrastructure business somewhat started to hold in the first quarter with expected to be down 10% sequentially.
[music].
I do you think this business can grow in 2020, and as we see rebound off the Q1 base.
In addition to the.
The pamfour ramp and maybe some contribution from the Fiveg RF transceiver.
Are there other doctors that will help drive the rebound as we look into the balance of 2020.
So yes, absolutely I mean, so maybe just to get your first question I mean, do we expected to grow absolutely we expected to grow I mean, I think it can grow on the order, 15% to 20% that said without a lot of challenges with China and as you.
Earlier.
We do have a couple of shiny and it's got more than a couple but [laughter] several customers in China that make this up but there have been some headwinds.
I'm sorry, so I don't think that comes as any surprise, but we do have these new products, we do expect to see them ramp in the coming year. We absolutely are as Kishore mentioned earlier confident in the pamfour around for this year. So that will start to contribute starting in Q2, and then you've got massive mimo, probably coming in the second half.
The year. So yeah. We're we remain very excited about the infrastructure business and anticipating growing and growing at nicely. This year.
Okay I'll hop into key thank you guys.
Thank you. My next question is coming from Tory Sandberg from Stifel. Your line is that a lot.
Yes.
Thank you.
First question on the connected home sounds like maybe it's going to start growing again sequentially in Q2.
I know, you're just kind of said a little bit of expectation on the infrastructure growth this year.
How about connected home.
Should we think about sort of down 5% to 10%.
Any color there would be helpful.
Hey story.
So I think our outlook on the connected home side.
So we've been cautious this has been a tough market to call for us.
Surely is as Kishore had commented on earlier the operator spend has been the biggest challenge in 2019, we do anticipate that starting to move in the other direction.
But that said I mean, we expected to be somewhat muted you know the first half of the year.
But but I do expect to see improvements in cable data, but it's probably in the second half hopefully, we'll see the moca business, particularly a verizon pick up as well, we've been very fairly cautious here and saying that even if it kind of moved sideways from the Q4.
Our results throughout the year that I think that will be a good progress towards stabilization and I think that's what you've heard from us that we see this business stabilizing and <unk> and I'm really optimistic that probably in the second half and into 2021 that operator spend picks up.
And we get back to some normal growth levels.
That's fair and as it relates to the second design win the Asian customer for Fiveg transceiver.
Well that start to generate revenues already this year or is that more 2021.
The expected to generate revenue towards the end of this year I think definitely.
Provided data on production ramp is on track a we are ready to supply so to speak and ER because it's a long lead time market. We've even ready we are ready much earlier than lot. These are wireless Oems take to qualify and go to production. So we relapse in revenue at the end of this year from this particular OEM.
Sounds good last question you mentioned, a five nanometer so sunset you're doing little bit of a leap from here.
You know not nothing is not really working on on seven nanometer.
Can you maybe elaborate a little bit on on the.
Decision behind that that lead fronts.
So you know one of the interesting things of all these markets either they take a long time too bad Frode did a long lead day markets and the Meanwhile, a you know the wrong. The long lead time. He does not track the read that meets the technology on the Cmos a site has moved.
So one of things we have learned it is market. He is that the the incremental gains in changing the note does not really effect.
The data center decision, making process for example of the it was a power limit and 16 nanometer, which was required to enter the market and Ito and is the range. They had we were the first one to demonstrate that product in 16 nanometer at 400 gigabit, but then you know it seemed to the body potentiation was not a one on the only determinant.
All this situation the maturity of the technology and readiness to product and month the need for multiple vendors right. So going to the next acknowledging that noting seven nanometer does not at all create a leap in power production now the latest abilities for datacenter companies wanting to go to the next to leap in technology agent.
Gigabit data data rates, so that seven nanometer is neither here nor there right. It doesn't improve the power consumption and 400 gigabit nor does it give you the kind of integration levels and power density reductions you need at 800 gigabit. So it seems in my conceded obedient Libya Leapfrogging, one technology now.
Good.
You know going to the alternate advance technology is a much better idea to have a roadmap bid the products all converged generationally, then being in that the immediate what I call a incremental technology node and the cost development differences between seven nanometer fine I mean, they're very marginal at best It's a 10 to 15.
Isn't different so you would rather do one investment than doing two separate it investments simultaneously and that wouldn't.
That would not fit well with their all operating Opex disciplined philosophy.
That's great color. Thank you Sean.
Thank you. My next question is coming from Bill Peterson from JP Morgan Your line is not alive.
Yeah, Hi, Thanks for taking the question just wanted to come back you said that in China, you, obviously have that trade issues and you mentioned kind of asking can you help quantify at least to extend thing. Your guidance is taking into account krona virus itself and I guess more specifically what areas would you see any potential weakness of the speedy industrial.
And multi markets or or or infrastructure. If you can help but help us understand that thought or that'd be great.
Hey, Bill this is Steve So I don't know that we can separate out you know that impact so.
We definitely see some impact there, but the trade situation in general continues to weigh a little bit on the infrastructure markets as well as our industrial Mart multi market.
As you're familiar I mean, the industrial multi market just a much broader base of business and and we've definitely seen weakness in China have some impact there, but but we do expect to start to see a recovery on that particular business on the infrastructure side, it's had a bigger impact and then.
In some respects.
C N that customer base start to look for alternatives. You know is another thing that we've been cautious about and you know our expectations and we've tried to be conservative in kind of our outlook as you know the potential for replacement is there and the other thing is that are currently.
The Chinese new year keeps getting extended due to corona wired as is very very hard to have meaningful dialogues with the customer base. So going into this call you know you know.
We have already about how the pattern returns to bookings and backlogs and that sort of thing. So maybe can you quantify everything no did we take a cautionary approach yes.
Vito, but have you been cautionary enough that these a mystery right. So I think that would be true if at all our peers as well and because.
For us for sure and speak to order manufacturing happens overseas are we going to be supply constrained or demand a constraint is very difficult to guess right. Now. So so you know we are being cautious, but you don't know get quantified that properly.
Okay. That's fair thanks to the color there.
Last question coming back to the the optical business.
Obviously, you know your rapidly or your lead customer and obviously the other large U.S. hyperscalers already ramped at 200 gig.
Yes, we expect that Microsoft and maybe Alibaba.
One of your peer said that another U.S., China would be ramping later this year than the rest of the big three two in China. One in the U.S. next year. So I guess the question is can you give us an update on where attraction is on the other hyperscalers that you're working with.
Recognizing that revenue maybe later on but just trying to get us off here design win pipeline with some of the other large hyperscalers.
So bill I, just want to clarify here that we entered as Mark and believe probably on the 400 gigabit product because the next generation product and at that point of you made a determination whether it was right put us into a 100 gigabit our 400 gigabit any chose 400 gigabit so.
So it's it's really not we're starting to position where we changed the designs that are ramping now, but we are in that position to change the landscape on.
On on day doesn't do that have not.
That have not made those decisions will be out engaged with all of them.
And if we ever on unique value proposition. Then we are we are having very constructive meaningful dialogues with them.
I do see the market split.
And even if you fast forward to lead to five years from now you'll have products that are at 400 gigabit 200 gigabit 100 gigabit. So I think is going to be a colorful market in that sense.
But we hope to have the Internet product portfolio do you do have presence in all of these markets, though the timings would be very different when we come out with what my days there is room for us to do Leach.
Influential changes in the market directions, and also party spin what's already said setting the market.
Okay. Thank you second ask what more can you help us understand how we should think about opex for the year. If there's any I guess other large tape outs that that are you anticipating 2020, and just give us itself will help us to talk about that.
Oh sure Bill I mean, I guess without going quarter to quarter. I mean, we do have you know some AFE costs. So the front half of the year as a is probably more heavily weighted and then it starts to decline a little bit in Q3 in Q4, just as much.
As as we progress up here.
Thank you.
Thank you. My next question is coming from Chris We're rolling from Susquehanna Financial Group. Your line is allies.
Hey, guys. Thanks for the question so on infrastructure and the pace of the Fiveg roll out there.
You guys talked about about China.
If I understand that correctly, maybe you're implying.
Five to push out in China.
And do you believe that that's the case for for all Oems in China, right now or just the ones that you're exposed to.
If you could talk about your customer exposure, there how that works and the ramp thanks.
So.
You know is Chris we've been on implying anything to do with Fiveg, it's all be referring to.
The slowdown related to supply chain impacts the trade restrictions and and other multiple factors so to speak to the you know I don't want to bring up the white as every time, but you know the of the impact is more to do with our existing business that is already designing and ramping with geez primary really.
Indoor move artist backhaul radio Transceivers and summarize some upgrades be you know industrial Monday March our initially amongst end markets allusions.
That that ship in China. So there's no difference in our mind to Fiveg. In fact, we believed that the v. would be very encouraging position, but to be grampian fiveg either offerings bolt on or four by four massive mimo REO transceivers and our soon to be offerings in aided by a massive mimo.
I've Transceivers.
You will do the first one in the world to make that happen do for the next generation leap and integration. So no. There's no qualification on the Fiveg DRAM timing it all to be able to be positioned very correctly for that.
Great. Thank you for that clarification.
And and then on the infrastructure side again the.
The second OEM that you guys were talking about an even even the first OEM.
As we try to get our heads around the opportunity here in the economics.
How do we think about it we think about 100% attach rate per base station across our whole portfolio or is this just for a portion of their portfolio.
And is there anything we can think about in terms of chips per base station that asked piece for those chips, just helping us to kind of broadly frame the opportunity per per OEM, if we know.
Roughly how their share number a base station.
How can we as analysts Scott.
Frame that opportunity better.
Yes, that's a pretty big question with lots of color there, but clearly if I need selfie. The is a fraction of ward the worldwide be stations to they are the big plays with the ramp or he is being strongly bush easy in China, then the other ones will follow you know.
Okay and Europe. So there is a time deliberate in China and Europe as China will beat probably in the next two years and then.
To close thinking it would be U.S. and Europe. So it's going to come in waves I don't expect the attach rate to be hundred percent and secondly.
Are you know, it's going to be a layer to process of penetration right. So.
So if you really think about what happens in base station is much more than the base stations busting that is the active antenna systems that are going to have a massive mimo much more chips content.
And that you should look at as that.
Maybe a follow on did you find $10 million Sam in active antenna systems.
A in the next two to three years you can you can do a nice growth to get there and then on top of that you need to add the das systems macro base stations and small cell configurations, or let's call the micro cells and you'll get to about three got a billion dollars of addressable Sam on radio Transceivers, and that's the mark and be able to participating and.
They're not a competition at each OEM in baby, yet one supplier the at all choosing to suppliers to diversify their supply chain base, we hope to be the common factor given be the smaller aggressive company and daily a big or less aggressive company as the other supplier and if you have to spin to share with them at each OEM.
That was very helpful. Thanks Kishore [noise].
Thank you. My next question today is coming from Alexander from William Blair. Your line is allies.
Hi, a this camille meal charge on for Alex Thanks for taking my question.
So a you've talked in the past about Pam four potentially being a 100 million dollar product line over next three to four years or can you provide some detail on the cadence of growth over time, and how 800 GE factors and thanks.
Oh, Wow, you know talking rage energy, because I've talked to find out of major Cmos technology as opposed.
Are you really be leaving this wonderful world, where the richest people want us for his people to give them all kinds of candies, you know and does the data center people right. So we have to invest to 800 gigabit to actually have them by our 400 gigabit right. That's the way to look at the problem. So I had on a while this first samples of 800 gig.
Give me it will happen.
Are you know sometime in the next to 15 months, our sole window without revealing our timelines to you by the way. So ER. So I would expect that agent to give you really want to ship for until three years. After today, Let's say you know maybe maybe once again, our current TGR one hyperscale datacenter company would be the first went to lead the charge on that.
And that's what we're focused on really really been entry door relationship with them stronger to get closer to them I think the bulk of the shipments would really be 400 gigabit under gigabit and hundred gigabit will build permeate the entire data center space at the end enterprise space replace existing 25 gigabit and under do you give it a.
Uh huh.
The WD in markets and ER and you know, there's a blip or 200 gigabit a that's going on right now and those are the those are the revenue they expect to be shipping, but for the bulk of the next five years right 800 gigabit would be starting to ramp during that window. So whatever revenues. We have talk to you about getting $200 million over the next.
Three years or so time cadence in.
Optical datacenter interconnect is really based off our 400 gigabit offering hundred gigabit offering.
ER and if you are the things, but I would leave it there.
That's helpful. Thank you Hi, just a quick follow up your cash balances now I think it a multi year high.
Can you talk about cash capital allocation plans and share your thoughts around a potential M&A. Thank you.
Yes, sure I actually yeah cash flows during the quarter was actually very good we're very pleased with the progress that we're making on that front.
With regard to with regard to our uses of cash I mean, it remains the same continue to look at acquisitions.
As well as a debt pay down and we're very pleased to see the progress on the leverage getting that our net leverage down to 1.5 times. So we've really made nice progress.
On that over the last yes, 18 to 18 months to 24 months and so definitely want to build up cash so that or we can look at acquisitions. So we're optimistic that we can get something done in 2020.
That's great. Thank you guys.
Thank you. My next question is coming from Tim Savageaux.
From Northland Capital markets. Your line is now live.
Hi, Good afternoon, a couple of questions first on the Pam four side I guess the commentary.
Early in the call was about increasing confidence in in the Pam four ramp I ask what what's driving that increasing confidence as soon as we get closer to it.
Any comments on them to kind of initial magnitude of that ramp.
So Oh, hi, Tim a a have you have not met before but.
Look this is this has dragged on for a long time and as more information comes out.
It's very clear that we are farther along in the maturity of the levels, all being drops and ER and you know and the module level qualification and things like that so we do feel that are there are two vendors that are at the threshold off being fully ready to go.
And.
So there are few more things that need to happening this quarter, but there's a lead time to order patterns here and we're very hopeful that a that really resulted in a ramping in Q2.
And having said that you have the the size of that I'm, obviously, that's a little bit mysterious.
But we expect any shills burnt and then slow down and then pick up later on.
In the second half of the year, that's the they usually made things play out but please keep in mind is a first time and entering it as into markets. These new for US how it plays out right. Then we'd also looking to see a to be extremely bad in case, the demand moves much faster than we think.
Okay. Yeah. Thanks, if I can follow up and maybe.
Beat this China horse to death here and really with a focus on trying to discern between.
Kind of demand versus supply side impacts I think if anything we've seen.
Pretty notable strength across the.
The eco system in terms of Fiveg, perhaps fiveg, driven or mobile front haul and backhaul.
Of late in China, and so we're not in mind is where I try to get a better sense or whether you're seeing.
Changes in the demand picture or inability to supply demand.
And just maybe as an aside.
Whether we might be seeing a shift from or from microwave to fiber in China that might be having an impact.
Oh, Oh I'll address the last one later, but first first and foremost.
Or the demand spikes. Your you look at you're seeing as you said in fund tall does it really legacy fiber optic solutions for the telecom market they are not.
The new who enhancement in bandwidth for transport market. So we are not participating the older older technologies.
Our offerings in Fiveg really by the enhances bandwidth. They use each cases that is going to be libbey later right. So.
<unk> regarding the anybody to supply of even to be able to supply. The bad you know, it's a careful balance between what we have to supply versus bid, which brings the demand the ease noble's so to speak right. So and given that most of the customers are really in a holiday and Dick I mean, no consensus into.
So how their demands are picking up in the return really cannot speak for board that please also be but what I wanted to the last one did you said that he is the world East China moving from microwave backhaul to fiber optic Nuno, China was never know microwave backhaul country for transport. It was always a fiber based a country just like the.
With these.
But how are the Chinese Oems are one of the biggest exposures all microwave backhaul transport technologies to the rest of the world.
And the rest of the world outside the U.S. in China are very wireless backhaul oriented and those are the market the ship into.
And on the biggest markets is India, we did sell fees.
Evaluating its options, we do millimeter wave microwave both of which we have solutions and we had only provider for in both of these cases as a much in vendor for the the silicon for millimeter wave and microwave backhaul.
Thanks, a lot.
So with that or you know.
I want to wrap up this conference call here or so thank you operator, we also want to let everybody know they've been participating in the Sig nine the annual Technology Conference on March 12, New York. The 20 duty lot conference in Dana point in California, and will also be hosting investor meetings or the mobile World Congress in.
On February 2050 in Barcelona, Spain, and it always see on March 10th in San Diego, California, We hopefully we'll see many off you there.
That being said thank you all for joining us today, and we look forward to reporting on progress to you next quarter.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you Peter participation today.