Q1 2020 Earnings Call
This call.
So I'm just trying to listen only mode. A brief question. That's session will follow the formal presentation <unk> operators just turn the conference. Please press star zero on your telephone keypad. Please don't just conference is being recorded I would now like turn the conference Orbitz. Your host Brian would you think you may begin.
Thank you operator, good afternoon, everyone. Thank you for joining us on todays conference call to discuss Maxlinears first quarter 2020 financial results.
Today's call is being hosted by Dr. Kishore, Seendripu, CEO and Steve, What's real Chief Financial Officer, and Chief Corporate strategy Officer.
After our prepared comments, we will take questions.
Our comments today include forward looking statements within the meaning of applicable securities laws.
Including statements relating to our guidance for second quarter 2020 revenue.
And GAAP and non-GAAP gross margin and operating expense. In addition, we will make forward looking statements relating to trends opportunities and uncertainties in various product and geographic markets, including without limitation.
That's concerning opportunities arising from our announced definitive acquisition agreement for Intel's home Gateway business growth opportunities for our wireless infrastructure and connectivity markets and opportunities for improved revenues in our broadband markets.
These forward looking statements involve substantial risks and uncertainties, including risks related to our proposed acquisition of Intel's home gateway business such as integration.
And key employee retention risks as well as those.
Arising more generally from competition global trade and export restrictions.
Central supply constraints the impact of the Cobot 19 pandemic are dependent on a limited number of customers average selling price trends and risks that are markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect more information on these and other risk factors is.
Outlined in the risk factor section.
Our recent SEC filings, including our form 10-K for the year ended December 30, Onest 2019, and our first quarter 2020 form 10-Q, which was filed today.
Any forward looking statements are made as of today and Maxlinear has no obligation to update or revise any forward looking statements. The first quarter 2020 earnings release is available in the Investor Relations section of our web site at Max linear Dot com.
In addition, we report certain historical financial metrics, including net revenues gross margins operating expenses income or loss from operations income taxes, net income or loss and net income or loss per share on both GAAP and non-GAAP basis, we encourage investors to review the detailed reconciliation of our gas.
GAAP and non-GAAP presentations in the press release available on our website, we do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project future certain chargers.
Including stock based compensation and its associated tax effects Nongaap financial measures discussed today do not replace the presentation of Maxlinear GAAP financial results were providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business.
Lastly, this call is also being webcast and a replay will be available on our website for two weeks now let me turn the call over to Kishore Seendripu, though the C. Max linear.
Thank you Brian and good afternoon, everyone. We are pleased to report strong gross margins up 60.8% on $62 million of revenues in Q1, 2020, and cash flows from operations of approximately $66.7 million.
It also encouraged by our stabilizing forward outlook is unprecedented govies 19 pan to begin warm and.
Our connected home business stood at 52% of Jordan sales, while infrastructure and industrial multi market revenues represented 28, Buzz and 20 plus in the overall sales respectively.
Despite the band to meet our World class geographically diverse team continues to successfully execute on critical strategic engineering initiatives.
And customer milestones in five you wireless optical data center and high performance analog markets.
All right if any acquisition of entails connected on assets more than doubles, our targeted disciplined market to about $5 billion.
And consists of industry, leading DOCSIS 10, Jeep on fiber and Ethernet broadband access gate be associate technologies.
The only the state of the art wife, I, <unk>, six and by five succeed platform solutions.
Combined with the ongoing Baidu var lists and optical data center infrastructure initiatives ideally positioned at this called the bandwidth expansion and net birdied, a bottleneck opportunities in the cloud as well as into and through out the home.
The disruptive work from home mandates all with the will do to covert 19 are driving an increased focus on bandwidth upgrades.
We're already seeing improvement in demand in backlog in our connected home business and anticipated seeing more.
Turning to some of the highlights in the optical data center market, we are diligently supporting our OEM to ramp the industry's first born gigabit them for deployment.
No deal one Hyperscale data center customer.
Our second generation do right Dsps system on chip solution for single Lambda.
I'm for application was recently recognized as the industry's best buy Twentytwenty Lightwave innovation innovation reviews.
We've also rapidly expanded our industry designer means to several tier one customers, but I wonder if you get them for [noise].
Recently opt Dolby technology, and send data photonics announce something and I bought onto the G. D. Our run optical modules, serving hyperscale data centers using all solution.
We believe single Lambda hundred gigabit pinpointed gigabit ample solutions, but dominated data center and fight D var, let's put it into all deployment over the next several years.
Turning to the fight the violence infrastructure market. We have recently completed the production deep old already industry, leading 40 nanometer Cmos four by four massive mimo Quad RF Transceivers system on chip solution.
Right on track, but initial five GE revenues in 2020 and strong month go beyond.
More broadly we furthered our engagement with all do you have an audience and customer feedback continues to confirm that everybody RF transceiver has the highest performance doubled the bandwidth at 400 megahertz.
And so video system level integration and up to 50% lower power consumption versus competition.
We hope to share more exciting developments in Fiveg access you know next earnings call.
In Fourg and Fiveg wireless front and back call. It also witnessing acceleration in E band millimeter wave design engagements Aviat Technetics gx and seek to each announcing innovative solutions using got 20 Gigabits per second maybe Toby dual mode and.
And 2.5 Gigabits per second microwave microwave modem chipsets.
He bad is very attractive due to larger blocks of available spectrum, and lower licensee costs, especially or five D cell densification.
But the growing base of RF design means for microwave backhaul coming to production and expansion into millimeter wave deployments. They have you ever from leadership position, we are increasingly confident of expanding or wireless backhaul revenue run rate this year and beyond.
Moving onto the connected home market. During Q1, we saw a resumption in our flagship multi gigabit moca wired connectivity platform deployment.
A major fiber telco, operator, and customer as it had an uptick NRG Dod engine business.
Wired connectivity remains an important go driver to leave even long connectivity bought links and our moca and GTAT agents allusions benefit from that market dynamic.
In closing I'm increasingly confident that the impending into kind of get on assets acquisition combined with an organic initiatives in fiveg wireless optical data center and high performance in all markets.
Really uniquely benefit Max negotiated world as bad as big an ever increasing targeted visible market.
Oh challenging broadband connectivity and netbook infrastructure platform applications.
Let me turn the call over to Mr., Steve Litchfield, Our Chief Financial Officer, and cheap corporate strategy Officer.
A review of the Q1 business results and our forward guidance.
Thank you for sure.
First review, our Q1 2020 results and then further discuss our outlook for Q2 2020.
On revenue of 62 million, we saw a connected home business up 7% sequentially with an improvement and moca shipments related to our major telco program.
Our infrastructure business decreased 14% driven by softness and wireless backhaul and a normalization of our high speed interconnect business. After a strong Q4.
Our industrial Multimarket business was down 37% sequentially as seasonal weakness was compounded by pockets of supply challenges related to covert 19 distributor inventory reductions and overall demand weakness.
GAAP and non-GAAP gross margin for the first quarter was approximately 49.6% and 63.8% of revenue respectively.
This compares to GAAP gross margin guidance of 53.5% to 54%.
Non-GAAP gross margin guidance of 63.5% to 64%.
The delta between GAAP and non-GAAP gross margins in the first quarter reflects the amortization of 8.6 million of purchased intangible assets from previous acquisitions and point 2 million of stock based compensation and bonus accrual.
First quarter GAAP operating expenses were approximately 50.9 million, which was above our GAAP guidance of 46.5 to 47.5 million due primarily to acquisition cost.
GAAP operating expenses included stock based compensation and stock based bonus accruals of 9.6 million combined.
Amortization of purchased intangible assets of 5.7 million acquisition cost of 3.3 million.
Restructuring charges, a point 5 million and IP litigation cost a point 1 million.
Non-GAAP operating expenses were 31.7 million, which was up 1.7 million sequentially due primarily to a seasonal step up in payroll taxes and higher design tool spending.
This was slightly below non-GAAP guidance of 32 million to 32.5 million due to continued disciplined expense management.
We have been successfully managing the spend during this transitional period with Q1, non-GAAP opex down 11% year over year.
Moving to the balance sheet and cash flow statement, our cash flow generated from operating activities in the first quarter of 2020 was 6.6 million versus 28.1 million generated in the fourth quarter of 2019.
Our loan balance remained at 212 million and our net leverage ratio was roughly flat at 1.6 times.
We remain consistent and our intentions around our uses of cash with priorities on debt pay down and strategic acquisitions.
Our days so our days sales outstanding for the first quarter was approximately 66 days inline with the prior quarter.
Our inventory turns were down slightly to 4.0 compared to 4.1 in the prior quarter.
That leads me to our guidance.
We currently expect revenue in the second quarter of 2020 to be approximately 60 million to 64 million approximately flat sequentially at the midpoint of the guidance range.
We expect connected home revenues to be down by roughly 15% quarter over quarter with declines across most of our product categories.
Taking with our Q1 results the guidance implies the first half 2020 connected home revenues of approximately 60 million consistent with our prior outlook of approximately $30 million per quarter, albeit uneven.
Looking beyond Q2, improving bookings visibility gives us confidence that our connected home revenues should improve in the second huh.
We expect infrastructure revenue to be up by roughly 15% with improvement across each product category.
We expect our industrial and multi market to increase approximately 15% recovering from an unusually low Q1.
We expect second quarter GAAP gross profit margin to be approximately 49% to 49.5% of revenue and non-GAAP gross profit margin to be approximately 63.5% to 64% of revenue essentially flat sequentially.
As a reminder, our gross profit margin percentage forecast could vary plus or minus 2%, depending on product mix and other factors.
Even as we're 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 Q2 2020, GAAP operating expenses to increase approximately 3.1 million quarter over quarter to a range of $54 million to $55 million.
Driven mainly by seasonal payroll increases and engineering prototype expenses supporting our product development roadmap as well as stock based compensation and bonus accrual.
We expect Q2 2020, non-GAAP operating expenses to be up approximately 1.3 million sequentially to a range of 32.5 million to 33 million.
We expect GAAP tax expense to be approximately zero and non-GAAP tax rate of 6%.
We expect interest and other expenses in the quarter to be $2 million to $2.1 million.
In closing we're pleased to report continued progress in our infrastructure initiatives highlighted by our expanding design engagements in the 100 gig datacenter market expanding adoption of our E band modems and RF Transceivers.
And engineering and customer milestones in our Fiveg massive mimo transceiver platform.
While we see cross currents in our end market dynamics attributed to Cobot 19, we're navigating to the best of our ability supply challenges and potentially further demand disruptions as work from home mandates continue to remain in place.
That said, we remained steady and focused on maintaining strong profitability and cash flow generation, while continuing to execute on our organic infrastructure investments.
Factoring in a financially and strategically compelling acquisition in the Intel transaction. We believe we are uniquely positioned to deliver strong leverage in our business in 2020 and beyond.
With that I'd like to open up the call for questions operator.
Thank you at this time, we conducted a question and answer session.
I would like to ask questions. Please press star one on your telephone keypad a confirmation. So indicate your line is in the question Q you mean for start to fuel at your move your question for the Q for participants using speaker equipment, and maybe let's see to pick up your handset well for person Starkey.
Our first question comes on line of Tory spend work from Stifel. Please proceed with your question.
Yes. Thank you.
First of all.
You are guiding the infrastructure segment to be up 15% sequentially and I think it said all.
Segments will grow could you just elaborate a little bit more on that especially in light of be.
Hyperscale business, taking a breather in Q1.
Yes, absolutely story.
So.
As we really expected coming into Q1, we did expect infrastructure to be down slightly.
In Q2, we expect that to recover a little bit when I see all segments. I mean, the biggest contributor was the backhaul segment and a that's been the biggest portion and so we would expect that to pick up we've talked about a couple of larger OEM deployments that are that are happening that we've won historically.
As we see those start to roll out that'll be a contributor we'll start to see the Hs I business start to ramp in Q2 with more expected in the second half of the year and then X. I'm I'm, sorry high performance analog so high performance analog is another area that was down.
A fair amount in Q1 that will start to see recover in Q2.
Great. Thank you and could you also give us an update on these single Lambda Lambda 100 gig business.
At least based on what I can tell you guys are the only company out there with a solution. There yeah. I mean, if you could talk about design win traction you know or even where some of the deployments are happening at this point.
So I totally I'll take that question.
Yes, you know.
You know as much attention is the 400 gigabits per second market has gotten historically because of.
The did as the market and even bigger addressable markets either single Lambda application of 100 gigabit as you all know did a substantial established market and 25 400 gig a 100 gigabit market using NRG technologies, and the Nashville, Texas, afraid, but really a cost optimized.
Welcome to the single Lambda.
Single 18, 100 gigabit a solution.
And in that market being the power to own below book do you know how border loading critically important and get the only bonds will meet the power budget as it is they'll be able to accelerating momentum in design means and are there with almost all the major.
Do you have been module Oems in various stages of completion and announcements and account is pretty close but it goes to the near the you know so many that 10 Oems.
We expect this market eventually do you believe bigger into single Lambda Marketsite and initial revenues to start outside of the Hyperscale datacenter folks. So the one hyperscale data center, but have you mentioned.
Is sometime in the towards the end of this year or or a little earlier, so we feel very good.
Having good we added we have several quarters of lead on our competition.
And it's a great place for us to be and.
Great just one last question.
The Intel Gateway business or the acquisition is that still on track to closing in early Q3, and could you just update us on which which sort of that hurdles you still have to go through there from a regulatory perspective. Thank you.
Sure Tory.
Steve again, so yeah. So we are on track we still see this closing in the Q3 timeframe hopefully it'll be at the beginning as far as regulatory hurdles. It was really just HSR and we did complete that we've put out a press release regarding that.
The other big when is the weren't council negotiation and that's ongoing but should be on track for a completion in Q3.
And the Board Council negotiations pertain to Europe, specifically, Germany, and Austria in the EU countries and that's really the only a hurdle in front of those right now to close.
Thank you.
Our next question comes on line of Gary Mobley with Wells Fargo, you see with your question.
Hey, guys. Thanks for taking my question.
I'm curious if you've you've heard from.
Some of the cable msos about any sort of impediments to broadband gateway installations, whether or not that is impacting or or implicated in your.
Twoq guidance or or what's your thoughts are on that front.
Hey, Gary I'm happy to give you an update so.
As far as you're talking about impediments to deployments Ah I assume I guess I'll, maybe give you a little bit a general.
Yeah, I'm, just talking about 80 covert 19 related.
Quarantine issues.
Any truck rolls and whatnot.
Right. So there's a lot of these guys you know so truck rolls, we actually saw that in Q1, we saw some impact in Q1, primarily in Asia, where those truck Rolls were limited and now we're seeing them kind of roll around the world, but a lot of these products and part of the interest right now.
The self install capability and that's something that's super critical to our customers to be of not not only because of coven 19, but frankly, just for the economics of at all and so they most all of them now either habits and existing self install capability or ones that they're trying to approve improve upon.
On a going forward and that's one of the big drivers because there is we definitely I've heard a lot about increased demand and wanting to two to get these out quicker. So that they can take advantage of that so we are seeing that right now.
And that is consistent with the optimism in in alternative today regarding the demand in backlog. This building up in the connected on business right now.
Religion towards what we had witnessed over the last several quarters really be hopefully.
Touch food or are seeing a consistent or you know.
No positive outcomes.
Okay, I guess, what we heard a lot. During this earnings season. So far is a lot of semiconductor companies talking about really trying to identify whether strong order trends or are related to true end to ban or whether you know.
Yeah, Ams or distributors or are just buying head out of fear of supply chain bottlenecks do you have any sense as to where your inventories stand out there with your distribution partners and whether or not you know days in the channel. We're we're inc. does increase during the first quarter.
So you know on the sale side on the distribution channel to actually.
We don't see any accumulating situation. If you have very strong sell through as we entered this quarter actually quite strong sell through.
And so even as our backlog is building up or you don't feel that they just didn't exist sort of the stocking going on on Distributers on our products basically right to be gone speak for the rest of the industry.
It'll be I've known as a supplier lead time issue is developing yet we have managed our operations quite effectively so our customers are not to me. It regular long lead times. If you have heard other people Guy do so we don't see any of these a distributor stocking up the them into scenarios if.
We go over the sell through the debt expediency during the quarter, then we would see that maybe the positives and have good demand, but all our products you Gotta noted that in Q1, our industrial month at my market products that.
That are primarily sold through distribution, a we took a huge hit in Q1, but now we see a strong recovery and it started a case of buildup of inventory. The distributors is a strong sell through as well. So I don't think they had an additive necessarily reflect our distribution sales at all so Steve do you want to add anymore color on that.
No I think you covered it kishore yeah.
I mean, we we definitely saw you know a lot of fluctuations in Q1, and we're watching closely but near the tail into the quarter like many others have identified we saw a big pull a lot of increased orders at the end of the quarter, but we sensing that continue but but as Kishore noted its.
Really we're seeing the sell through its not just in the distribution channel at all although I mean, we're absolutely watching it closely just to to manage the numbers.
Alright, Thank you guys.
Our next question comes a lot of Quinn Bolton with Needham and company. Please proceed with your question [noise].
Hey, guys. Congratulations on the results just wanted to follow up on that lead time question. One of your big competitors Broadcom, apparently I put out a letter to its customers stretching out lead times to as long as six months does that prevent present any opportunities for you in the connected home business and perhaps.
More importantly, heavy heard of any problems with Tomahawk three year Tomahawk for based switches that could delay to 400 gig ramp.
At your largest customer and then I'm going to follow.
So he can comment on our.
[noise] competitors lead time issues, it's it's a humalog oh that that as God demands on foundries and assembly and test.
And then it and we are they have their own test facilities in Malaysia and stuff you know my view these monies into CVR log Dom suite, and we barely do any business into Malaysia. So what I can speak for them. Yes, we do have heard about their lead time challenges.
Does this president and all but you need for as we don't know.
We get all these Ah wish that it does present opportunities for as bad.
It's a more recent.
Acknowledgement of lead times on the company to supply chain. So I don't want to complete anything yet but outside of that even out into this call. We see very strong backlog build up not just for you do we had also seeing so the level of momentum towards Q3, though I don't want to talk about Q3.
Given all the volatility related to the pandemic, but at this but we are having strong sell through so I would see our demand is real and hopefully at the next earnings call I can say hey, the recovery has started and connected home University dependable manner. So we feel good VR regarding the 400 gig and.
Tomahawk three or tomorrow for look we're still working with our OEM. We had been assigned to do you have an OEM a a module maker to develop our 400 Gigabits illusion.
So they have had some disruption is because all these companies of all non Chinese.
They have had disruptions due to the growing up and to me and good we are really working very hard through these combination of remote and.
As need based is going to elaborate testing to make sure that beacon come up to speed and start being able to provide.
Continuity for the pilot and the ramp at the large data center customer. So it's hard to say Oh, the large any customer themselves as impacted.
Preschool data set aside but we are doing everything to make show that we're positioned to shape when they're ready to take right. That's been our steadfast goal.
And.
So you know one other things I really want to really acknowledge dollar employees of they've done a phenomenal job under these pandemic in war I mean, I mean, our execution on initiatives.
Have surprisingly being one of the most.
Punctual ones that I've seen in a long long time, which makes me think about the world in general right. So so anyway I'll, let you asked the next question.
Sure. My next question is just sort of a follow up on that backlog building your seen in the connected home business.
Is that fairly broad based is or is that tight perhaps to more of a specific area, we're going through a.
Gateway upgrade.
I'm just trying to get a sense of how broad based that demand is or that that did not inventory, but but the backlog build is.
Looking into the second half in the connected home.
So the a very very good question Jay Engender My sense is that any gave the platform upgrade that any alternatives looking at.
You know given the importance of self installation that Steve talked about the very shy to do any upgrades right now.
Brand, new platforms, and the <unk> and the upgrades in the brand new platforms are really in cost downs.
Right known DOCSIS three point wanting the cable side and on the fiber side or the that the platform that is shipping already ablated ones. So I don't expect any new update platforms that rolled out given the self installation major that they're focused on so the back obviously he is really strong for it.
Existing bank a platform that are already qualified and rolled out ahead of the dynamic situation and so the backlog is consistently for that but do you want to remember that there are two platforms. The DOCSIS 3.0 platforming to pleased.
It's already qualified feed on platforms and that I believe is happening pretty robustly right now, but the open season on rolling on any new newly built or ratified but not.
Sufficient volume shipped a good platform, they're not they're not going on that adventure right now so that that's what I would tell you. Okay. Thank you.
Our next question comes on line of Christopher Rolland Mississippian. Please proceed with your question.
Hi, David Haverly on behalf of Christopher Rolland, Thanks for taking my question.
First on the connected home business, that's one of the puts and takes for the second quarter and the guide down 15% quarter over quarter, there right from what you're seeing from a work from home perspective is that really benefiting Mckenzie dot HSN and how is that being offset by increased cord cutting as live sports guys away kind of what are the puts and takes into.
Thank you and then longer term, what how does work from home and cord cutting play into your forecast.
I think a write off the bat here I want to cut the cord on the cord cutting so to speak I think that the there's no more video business that we care about ours meaningfully in our revenue so that phenomenon doesn't affect as cord cutting I think cord cutting is now given its prevalent is persistent and generally at a singular lever.
We are benefiting from that as a data networks company. So you know, it's very clear now that there's a focus inside the homes and throw the net or whether the data center, along especially everybody's ordering more and more data bandwidth capacity, it's very clear where they did a few office in these room and all of those type of as I've done upgraded stored bandwidth.
Banded boxes right now so I think that is real and everybody is going to have a more robust broadband access and distribution that look inside the homes, even often is a pandemic situations upside that's just a new reality so regarding cord cutting yeah. I mean, that's done for us as far as via concern it's only.
ER.
A world of.
You know what he calls non linear video because basically based on over the top content as friends via concern.
Steve you want a yeah I guess they were the only thing I just I'm kind of provide some more color on was just the mix of the business.
Within the connected home. So we highlighted on the call I mean, Moca GTAT H. and continues to do very well I mean, we do have a very large platform that we saw really moderate in Q4, we're expecting to kind of moved sideways and out I would say it actually picked up quite a bit more than what our original expectations where.
Our so that was a a moca platform, that's doing very well getting a lot of traction on GTAT h. and in Europe as well so that.
That's something that going it's smaller number but a nice contributor in Q1, and we expect that to continue throughout the year.
The one area.
Area satellite was the other one we talked about that that was down quite a bit last quarter.
Satellite now as as we had mentioned was going to be less than $10 million and so it's not as relevant at this point cable data Kishore kind of alluded to this kind of state I would say, it's stabilizing here and we feel really good about a consistent.
I mentioned it in my prepared remarks that we're on track to do you know that $30 million a quarter for the first two quarters now with some of the backlog or kind of filling in the way that it is and some of the insights or the color that we're getting from our customers right. Now we're optimistic that we'll see that pick up in Q.
During Q4.
And we're we're definitely seeing signs of that now.
Got it and I appreciate the color there and I guess for my follow up on industrial and multimedia.
It was weaker than we would have anticipated where there any supply constraints and one Q or to Q.
Segment.
So there were they're in a variety, yes kind of across the board weakness there. We absolutely had a couple of suppliers that we were unable to to deliver product for so that hurt there's really a combination of items that being said late in the quarter, we did see some pick.
Oh, we have gotten production kind of in order our supply chain guys have done a phenomenal job.
Yeah, and addressing a send being responsive and so we've seen nice orders and follow through at the beginning this quarter just in April alone.
Great. Thank you.
Our next question comes on line of Allison's Ritchie with William Blair. He seemed a question.
Hi, guys, just a follow up on the industrial and multi market segment can you maybe help us frame, how we should think about the growth there longer term relative to industry gross.
Yeah, [laughter], so it isn't up one day.
Hey, Alex as steep.
That's a tough when to call no doubt we are going in to the end of last year. We saw the weakness in just in general you know kind of cycle decline, we expected that to continue in Q1, and I would say it did so in earnest.
Now that being said we've already seen you know some nice recovery and so were encouraged but but it is tough to navigate the volatility that being said long term. We felt like this is a business that can grow you know at least right now and kind of a two to three 4% a year.
Sure.
And we've seen a pretty big decline year over year at this point, but no reason to think we don't get back to that and frankly, we talked openly about growing.
This business getting it up to the high single digits with some of the newer products. So we have some new power management products that are coming out of new interface products that we've actually been working on over the last year year and a half expected to hit the market late this year. So you would see contribution more in 2021, probably the second half so I would say that the seed.
Product development investments given the the rest of the end customers and market in ward was originally the XR product portfolio.
It's taken as a while im getting the upgraded products that all getting ready now and are there sampling.
And by the and so I really view that season boost the boosting growth rates are one of these are launch are launching right now so the next year because he brings a strong uptake from those and warrant levels or should we do the increase it's big big them as it is a modeling given the volatility of seem to last several months and couple of.
Quarters. So since we don't know these market like the platform markets as we just wanted to wait and start doing a little bit more sort of you know.
Historical based or planning in terms of order growth you can expect the various products were launching.
Perfect that's really helpful.
And then [laughter] by but I just want to make sure that.
I am personally so pretty excited about the eye, but from an analog components. So.
Absolutely excited about it the board has been doing you know it's all the.
We feel there competitively the bring a lot of capability and IP to this thing and the proof of being a bit putting as these borrowings will be announced that launched and.
I think our customers beloved somewhat someone already loving. It obviously, we have already developed via developing has brought us with customers input right. So it's just that seems to be very stable market and takes long runs you haven't you keep it that's the way look at it.
Understood and then just spending more housekeeping.
Hi.
The you guys have done tremendous job on operating expenses. If memory serves me right you had some big tape out in Q1 in Q2.
And yet the operating starts is there still are so well contained how do we think about sort of opex as we as we move through the second half and into next year.
Yeah, Alex Good question. So we've definitely done I would say I'm kind of given the coven 19 pandemic situation and just overall revenue dynamics, we've tried to be you know as.
Disciplined as possible here, we do have some big ramps are ongoing right now so we we want to make sure that our customers are supporting in every way.
But we've been able to manage some of those expenses and were coming in a little bit below the first half of the year expenses versus where we had originally planned that being said I think opex for the year, while it's still.
It is early you're exactly right. We did have some mask and prototype being a that was going to escalate in Q2, particularly and you see this in our guidance, whereas you were expected to see more come down in the second half it kind of moved sideways, but I think from an annual standpoint, we're pretty close to on track into.
Our original expectations.
Okay.
Being the I think was at that 3 million year over year that I mean I.
We've not give an exact number but somewhere in that ballpark.
It is reasonable yes.
Perfect.
That's super helpful.
That's it for me.
Our next question comes on line up though Peterson with Jpmorgan. Please proceed with your question.
Yes, hi, thanks for taking the question its number one on industrial Multimarket, probably that most questions you got in this segment.
Maybe ever but it's come down pretty meaningfully between power management and interface was was more one more impacted the other and as I guess, you think about the recovery in the second quarter and presumably beyond that what what would be driving more recovery and then you know again, maybe similar question on geography is that primarily in China.
If you can you give any color on.
On worthy issues were and what that brings about into recovery mode.
Yeah, Bill I'm, probably not a huge amount of differentiation between power and interface, but geographically probably does speak volumes are cute Q1 was very weak. That's when you saw a lot of impact in Asia I think Q2.
You are starting to see that recover and I think that you would expect that to come from Asia, China in general is starting to see recovery. So as we look through those orders and a that we're getting right now say in this in this particular month, we're already seeing that recovery recovery happen there. So.
From a geographic standpoint, absolutely ways pretty heavily.
But do you really perplexing for US we've tried to understand it because on the sell through basis or distribution inventories or not.
You know or are things right now so we don't have perplex, because only imagined it to be a.
Brick wall like demand collapse in Asia, especially China for the product because in a manufacturing is come to a grinding halt during those periods. So we cannot see any patterns you have what has happened but the recovery is very strong. So again in Asia. So I think a your guess is as good as ours on this.
Well.
Yes, sure I recognize that and maybe a follow on to an earlier question regarding.
The enertec because it's the wires interconnect business did the 100 gig opportunity again it sounds like you have some pretty good competitive advantages here can you help us I guess size the market opportunity.
Maybe relative to 400 gig and.
It sounds like must be more drilling made in the early next year, but help us understand what the revenue contribution to be.
Later this year.
Oh, it's true that meets early at this point I understand the mix right because our recognition will be based on board, we shipped through the various module makers right so to speak.
But do you really think about the entire market. When you look at all these we both agree but to be the proxy, but everything is on how many you know how many hundreds reports are being sold right and.
Generally if you look at in Denmark at 30% of the market. These data center guys remaining center, 70% is not on a Hyperscale data center folks right. If you just look at and then I've overall market.
I bet you in that 70% of market. That's substantial majority will be a single lane hundred gig gigabits per second market right. So while you at all or sort of you know enamored with the Hyperscale data centers, they would be more daunted Gale 400 get into future at 800 gig products.
But but the remaining 70% of market will be 100 gig single Lambda single Lane markets for a long time to calm so it's a pretty strong replacement market. If you will so.
So, but then based on the speed you could see the mix to be 50 50 in dollar terms, but I can give you. The exact dollar terms right. So you will have good whenever we have voted give you also have 50 or 100 gig backlog.
Dollars wise, probably it's a 50 50.
Okay. Okay. Thanks.
Our next question comes on line of Suji de Silva with Roth Capital. Please proceed with your question.
Hi, Kishore Hi, Steve So I'm just to be clear on the on the large customer 40 gig ramp or what does the linearity that ramp as it starts up it's in the second or third quarter can you give a sense is that the next few quarters.
I see should start linear at all right now.
Yeah, there's not enough any drag that good rights right now so.
Let's put it is definitely.
Let's just celebrated its going to happen I mean, it happens and once we see trends you know I am sure you would all be thrilled that makes you actually can come through on its convictions opened its capabilities and investment a hoops by if you will right and ER. So.
You know, let's let's not only the idea at all right I mean, I don't think linear that all right. So let's keep it that before but 2020 right now but.
Let me just screens per se, but otherwise become because gonna be read one data center customer so.
So you know it would come in Spike and then settle down and then if take towards any quarter three quarters to sit alone honestly.
Let's wait for it to ramp right at the end market itself okay.
Okay appreciate again or sorry, and then I'm I've been asked a question of the connected home I guess my question is really you sound like you're seeing order strength now and that's getting a top in second half 20 is gonna be sell through just what is driving the demand pull from that angle is it just normalization here is there something else going on any color there would be helpful. Thanks.
So look.
Let's let's look at the color here right the demand for broadband at home presumably is increasing.
And therefore opening is are doing well on the data market and they're more interested to spend money on that that's a way to think about it is my thoughts. Okay. So the second piece is that our recovery, we don't have much product in the industry them up their marketing automotive, which anybody's got exposure to automotive I think will continue.
To see.
Or sort of you know the rumblings of picked off it so hopefully articulate issues there really related to the China situation that nothing go to do with the auto so there will be to automotive exposure sort of a manufacturer will slow slowdown. So therefore, we've seen good recovery.
Due to incentives or whatever people picking up manufacturing me picked up in China and other Asian countries.
And then you know a lot of that'd be a in the industrial segment. We also stuff that goes into telcos.
No technical infrastructure as really and those are also being rolled all been fiveg piece I think there's enough incentives on those moisture devices under fiveg equipment, that's being rolled out even though.
Oh it on Fiveg radio Transceivers are yet to ship yet.
So I think the trends on those kinds of things are going to help us right and on the connected home.
It's about time [laughter] wheels are tired right and likely building up and then on the.
You know on the wireless side of that these design wins going on and design wins in the ransom taken time, because each country is going through its own growing shoes or for example in India. The entire BARDA as operators that are the I'd use the spectrum.
You know debt issues that need to pay back the government lots of other kinds of stuff going on and finally, starting to see a pulling through are happening. So we just have new designs that are product cycles that agreed backlog. So that's what drives I think maybe it's hard to start having some good fortune him to be nothing's ever Tony in our direct.
And I just wanted to be careful but you know I'll do my Indian prayers for them Okay.
Thank you Sir thanks to the color.
Our final question comes on line of Tim Savageaux.
Northland Capital markets. Please proceed with your question.
Hi, Good afternoon couple of questions on the infrastructure side of the business.
First with regard to if you want to comment on Q1, that's fine I think because I think.
China with maybe part of the weakness from perhaps the supply and demand perspective.
As you look at this recovery into Q2 and infrastructure I Wonder if you could make any specific comment with regard to.
What you're seeing out of end markets in China, maybe across backhaul or our optical transport or.
Wherever you're participating and I think last quarter, you talked about targeting 15% to 20% growth.
Oh for the infrastructure segment in calendar 20, I Wonder if you could provide an update there. Thanks.
Yeah Tim.
So let me make sure I get all of your question here. So we do see Q2.
Industrial this recovery I mean, we were expecting some softness in Q1, maybe not quite the level that we saw but we were expecting softness in Q1 and expecting that to to start to recover backhaul again I'll reiterate I mean, it's probably the biggest portion of that.
And as you know we can get some some bigger has some bigger recoveries. So that's encouraging high performance analog is probably the one that was impacted more in Q1, and so there's definitely a recovery aspect to that in Q2.
You got HSR high which will start to contribute more in Q2, not not huge I mean, I expect that to contribute much more kind of in the second half of the year and then access a which were you know very excited about probably comes and much later in the year. So that's kind of the way we see it I mean, it's.
As far as the growth for the year I mean look this is a.
Infrastructure as a whole it's something that we've invested heavily in a the business you know, we with what's going on in massive mimo as well as in the data Center I mean, you've heard us talk about those you've heard Kishore talk about it I mean, it's a product lines doing less than 100 million that we think over the next three to four years can be a three to four.
On a million dollars product line and there'll be some big ramps, they're just beginning in the second half of this year in almost each category. So.
Much more significant contribution in 2021. This has nothing to do with the co bid 19 or anything like that these are these are organic ramps that we've been investing then heavily as you're aware, we'll start to really have a much more meaningful impact in 2021.
Okay, and just to clarify quickly I heard your kind of initial discussion on the overall infrastructure drivers I was basically asking if you hadn't the.
Robin carry on China as a driver there in particular.
Across a broad across the infrastructure segments.
So are you know in China or the Fiveg rollout is the big one that will affect as positively, but it really happened towards the end of the are right in the beginning of next year and there's a big tender out or that really sets the stage.
Are they looking at developing new cost on platforms, which is their reenter the market.
And those are still being validated that does the honest ER reality up in fact identified you do a lot gotta been delayed in China also due to the corona situation and or the two big bleak leaders in China or do you all way and are we in a small <unk>.
Company called the Tom that's been mentioned, but you know a that's one of the fight deeply analog in Fiveg becomes the Transload networks are but friday's not a big wireless backhaul up front draw transporting it book in China. So we only been benefit on the access side and not in the transport network.
And then Oh, we do have some optical transport products in T.I. isn't driver be should benefit from that and and on the.
Are you know.
So I think those are the me means main contributions of our growth story in China.
Having said that display is also shipped product for wireless OEM make a big equipment to other countries outside of China, maybe out of the design wins for the wireless backhaul and that's actually the one that's generating momentum right now that Steve in fact talked about it earlier, but microwave and millimeter backlogs going going strongly.
And that's really meant for non China market by Chinese Oems. So those are the areas of infrastructure related growth, we expect over China customers.
Thanks on the data to decide China is still behind right.
That evaluating issues, but I think China, China is quite behind on the I wouldn't want to see quite behind let's assume a yard behind where the U.S. It's currently on the Pamfour sort of you know product lines, but it would be much more interested in 100 gigabit Pamfour solutions. That's the reason I I. We're so excited at 100 gigabit.
Shouldn't be using single Lambda that would eventually find its way the fiveg front, all markets and backbone markets as well okay.
Thanks.
We have reached the end of our question answer session and I would like to turn the floor back over to management for any closing remarks.
Thank you operator.
You know I, just wonder, let everyone know that will be participating in the JP Morgan Global Technology Media and Communications conference on May 12.
The need Ham 15th annual virtual Technology Media conference on May 20, yet the Bank of America 2020, Global Technology Conference on June 3rd and as Steve <unk> Nicholas Twentytwenty across sector insight conference on June eight to June 10.
Just wondering mine every minute all these conferences are going to be held virtually and view of <unk> video if you there.
With that being said thank you all for joining us today.
And we look forward to 40 going abroad as to you next quarter. Thank you very much.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
[music] [noise].
[noise] [noise].
[music].