Q3 2021 Maxlinear Inc Earnings Call
[music].
Greetings and welcome to the Max Linear Inc. Q3, 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being rich.
I will now turn the conference over to your host Nick Aberdeen you may begin.
Thank you operator, good afternoon, everyone and thank you for joining us on today's conference call to discuss Max linear as the third quarter of 2021 financial results.
Today's call is being hosted by Dr. Kishore, <unk>, CEO, and Steve Litchfield, Chief Financial Officer, and Chief Corporate strategy Officer.
After our prepared remarks, 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 fourth quarter 2021 revenue.
Revenue growth expectations in our principal target markets.
And non-GAAP gross margin GAAP and non-GAAP operating expenses tax expenses effective tax rate and interest and other expense.
In addition, we will make forward looking statements relating to trends opportunities and uncertainties in various product and geographic markets, including without limitation statements concerning opportunities arising from our wireless infrastructure and connectivity markets and opportunities for improved revenues across our target Mark.
These forward looking statements involve substantial risks and uncertainties, including risks arising from competition supply constraints facing the semiconductor industry global trade and export restrictions the impact of the COVID-19 pandemic, our dependence on a limited number of our customers as.
Selling price trends and risks that are target 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 risks as outlined in the risk factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2020, and our third quarter 2021 Form 10-Q, which we filed today.
Any forward looking statements are made as of today and Max linear has no obligation to update or revise any forward looking statements for the third quarter 2021 earnings release is available in this investor Relations section of our website 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 interest and other expense income taxes, net income or loss and net income or loss per share on both a GAAP and non-GAAP basis.
We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website, we do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges.
Including stock based compensation and its associated tax effects.
Non-GAAP financial measures discussed today do not replace the presentation of Max Linear's GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business.
Lastly, this call is also being webcast and the replay will be available on our website for two weeks.
And now let me turn the call over to Kishore <unk> CEO of Max linear.
Nick and good afternoon, everyone. Our Q3 revenue was $229 8 million.
Up 12% sequentially non-GAAP gross margin was 61, 3% and non-GAAP EPS was <unk> 75.
We also generated record cash flow from operations of approximately $84 million.
Q3 revenue was up 47% year over year with contributions from broadband access connectivity infrastructure and industrial multi market at 55% and 17%, 13% and 16% respectively.
All sales.
Despite that Mike and the industry's ongoing supply chain challenges our financial outlook for Q4 is strong. It reflects continued improvements in our supply chain operations strong secular growth trends across our end markets and our company specific growth drivers.
Turning to some of the Q3 business highlights Broadmoor.
Broadband revenue was $126 million in Q3 up 12% versus Q2, driven by new program ramps share gains content per platform increases and strong end market demand.
As service providers and operators ramp their capital expenses to address new bandwidth intensive consumer application services.
We'll benefit from daves organic mix shift to more technology intensive consumer premise equipment in the near and long term.
It also bidding many platform design across multiple geographies in new end markets, such as fiber broadband where historically, we have had little share.
These design win activities will provide a strong revenue growth over the next several years.
Connectivity revenue was $38 million in Q3 strongly up sequentially at 21%.
We expect Q4 to be our third straight quarter of solid double digit sequential growth are.
Comprehensive connectivity portfolio spans Wi Fi Ethernet and Moca and underpins a strong long term growth trends, we see sustained momentum for our Wifi products as operators address strong consumer demand for robust broadband access and connectivity services.
Over the next several quarters, we expect the launch of a multitude of next generation <unk> platforms, incorporating <unk> 600, and we have 600 released two solutions, including Tri band offerings.
This mix shift to higher value byproducts will drive a higher blended pricing as well.
Also our silicon content will increase materially as the attach rate of our Wi Fi solution to Max <unk> own Gateway Soc.
Greatly increases as operators refresh their gateway platforms in the new upgrade cycle.
In total we expect connectivity to be one of our fastest growing end markets for the next several years.
Moving to infrastructure Q3 revenue of $29 million was essentially flat due to supply chain constraints related to <unk> substrates for wireless backhaul products.
Having said that we expect wireless backhaul to resumed strong growth in Q4.
End market demand providers backhaul products remained strong even as share gain per our microwave RF transceivers accelerates.
Our microwave RF transceiver revenues outside of China will roughly double in financially in 2021.
We expect to post similar growth rates in financial year 2022, or.
Our Pfizer Novartis access RF Transceivers grew substantially off of La <unk> in Q2.
The initial ramp in the North America end market.
We will have meaningful sequential <unk> revenue growth in Q4, and also expect it to be a strong long term growth contributor for us.
In the optical high speed data center interconnect market, we expect modest shipments in Q4, as we initiated shipments of our 400 gig Pam four DSP products door module partners.
Given supply tightness across nearly all components within the optical space, we're building products to intercept anticipated early stage ramps of owner gig Pam four at Hyperscale data centers.
We are expecting strong growth for our bamboo products through 2022.
<unk> bullish on our position as a highly disruptive silicon provider.
Our most recent product Keystone is industry's first financed with 800 gig Pam four DSP product family.
A significant power and performance advantages over the competition.
Based on solid customer sampling and interest we expect a strong design win cycle for Keystone and next generation cloud deployment.
Finally, our industrial multi market revenue grew by 14% to $37 million in Q3.
End market demand continues to be strong across the portfolio with lean channel inventory levels.
In addition, our customer design win funnel for new and existing industry with products continues to expand.
As a result long term, we are confident that our industrial multimarket revenues will grow steadily as we continued to gain market traction for new and existing products.
In summary, our company specific growth drivers are now solidly in place with emphasis on share gains new product cycles, and ingredient silicon footprint with new and existing customers.
All four of our end markets.
<unk> focus on developing new and disruptive technologies across our high value end markets, we expect to outperform semiconductor industry growth rates over the long term.
With that let me turn the call over to Mr. Steve Litchfield, Our Chief Financial Officer, and Chief Strategy Officer.
Sure I will first review our Q3 2021 results and then further discuss our outlook for Q4 2021.
Total revenue for the third quarter was $229 8 million up 12% versus Q2 and up 47% year over year.
Broadband increased by 12% quarter over quarter, driven by strong demand across our full portfolio of gateway solutions connectivity revenue increased by 21% sequentially as we saw broad based strength across Wi Fi Ethernet and Moca infra.
Infrastructure revenue was flat compared with Q2 as supply chain as supply driven softness in wireless backhaul was offset by strong growth in our <unk> wireless access products.
Lastly, our industrial and multi market business was up 14% sequentially as we saw strength in both high performance analog and component demand during the quarter.
GAAP and non-GAAP gross margin for the third quarter were approximately 56, 5% and 61, 3% of revenue.
Non-GAAP gross margin was up 110 basis points versus the previous quarter, driven by product mix and operational efficiency the delta between GAAP and non-GAAP gross margins in the third quarter was primarily driven by $10 7 million of acquisition related intangible asset amortization and <unk> 3 million of stock base.
Compensation and performance based equity.
Third quarter GAAP operating expenses were $106 million down sequentially and at the low end of our initial $106 million to $110 million guidance range GAAP operating expenses included stock based compensation and stock based bonus accruals of $25 6 million combined in.
Amortization of purchased intangible assets of $5 8 million.
Non-GAAP operating expenses were $74 4 million down $8 million versus Q2 and were below the low end of our initial guidance range of $75 five to $79 5 million now.
Non-GAAP operating margin for Q3, 2021 of 29% was up 540 basis points sequentially as meaningful operating leverage was driven by strong revenue growth and lower expenses.
GAAP and non-GAAP interest and other expense during the quarter was $2 7 million.
Cash flow generated from operating activities in the third quarter of 2021 was $84 1 million.
This was up substantially from Q1 levels driven by favorable trends in DSO and higher net income.
We have now generated $152 2 million of operating cash flow through the first nine months of 2021.
We exited Q3 of 2021 with $176 million in cash cash equivalents and restricted cash.
Our days sales outstanding for the third quarter was approximately 42 days down from 60 days as we saw improvements in our shipment linearity.
Our inventory turns were three five times down slightly from Q2.
With that let's turn to our guidance for Q4 'twenty one.
We currently expect revenue in the fourth quarter of 2021 to be approximately $240 million to $250 million up approximately 7% at the midpoint of the range versus the previous quarter and up approximately 26% versus the prior year.
While supply chain issues continue to limit shipments we are seeing a continuation of the supply improvements demonstrated during Q3.
Our operations team remains hard at work with the underlying goal of building the right products at the right volumes to facilitate customer bills and enable them to win in the marketplace. While we don't see supply demand equilibrium happening anytime soon we believe that incremental improvements will be made on a quarterly basis going forward.
Looking at Q4 by end market, we expect broadband revenue to be up quarter over quarter, driven by growth in cable and fiber applications.
Connectivity is expected to be up solidly versus Q3, driven by continued strength across Wi Fi Moca and Ethernet.
We expect infrastructure revenue to be up sequentially in Q4, as wireless backhaul shipments improve and <unk> wireless access continues to ramp.
Lastly, we expect our industrial multi market revenue to be down slightly quarter over quarter coming off a robust Q3 performance.
We expect fourth quarter GAAP gross profit margin to be approximately 55, 5%.
Seven 5% and non-GAAP gross profit margin to be between 60% to 62% of revenue.
As a reminder, our gross profit margin percentage forecast can vary within a given quarter, depending on the product mix and other factors.
We expect Q4, 2021, GAAP operating expenses to be up slightly quarter on quarter to a range of $105 million to $109 million.
We expect Q4 2021, non-GAAP operating expenses to be up slightly from Q3 levels within a range of <unk> $73 million to $77 million.
We expect our GAAP tax rate to be in the range of 15% to 20% and non-GAAP tax rate of 6%.
We expect GAAP interest and other expense to be $2 7 million to $2 8 million and non-GAAP interest and other expense to be $2 6 million to $2 7 million.
In closing.
We continue driving towards delivering sustainable and profitable growth at a faster pace than our semiconductor peer group, we are aggressively investing in key market areas with the goal of expanding our addressable markets, while increasing our silicon content and improving our market share position at.
At a macro level, our end markets are poised to demonstrate growth over the long term driven by the proliferation of global networking and trend toward expanding consumer dependency on reliable and robust connectivity and.
In addition to solid topline growth, we remain committed to delivering significant value for our innovative and differentiated technology portfolio.
While we have made meaningful progress expanding operating margins. We believe there is a there is room for continued improvement as we look to combine a growing revenue profile with a disciplined spending methodologies.
With that I'd like to open up the call for questions operator.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please.
We pull for questions.
Yes.
Our first question is from tore Svanberg with Stifel. Please proceed with your question.
Yes. Thank you.
Great innovations on the strong results and outlook.
I'd like to start on the connectivity side of things.
Sure Steve.
Could you just elaborate a little bit on the content increases that is happening there.
It sounds like you've got quite a bit more coming.
Especially throughout 2022, so any more color you can give on content gains and connectivity will be great.
So maybe I'll just start off yes, we've been talking a lot about these content gains within a gateway and a lot of that is driven by Wi Fi we've seen a substantial increase from Wifi five to Wi Fi six, but we do see this continuing and we talked a little bit about.
That moved from <unk>.
Wifi 626 E and then even long term move into Wi Fi.
Even as well, but we expect.
Those content gains to continue to grow throughout that time, and so youre talking gateways historically, we're running five to $7 and now youre talking well north of $10 of content per gateway.
For Wi Fi.
In addition.
In the past, we do not have much Wi Fi attached or products, even though we added the gateway Soc <unk>, we didn't have.
Much Wi Fi prior to six <unk>.
We have 600 as we call it and now we're replacing existing preexisting Wi Fi legacy solutions with our own Wi Fi. So you got two things going on one is the content per platform is increasing.
One through expanded offerings <unk> Wi Fi second actually getting new Wi Fi sockets in existing platforms that we didn't have before so you're seeing this sort of a snowball.
In a very good way in all of our broadband business is Wi Fi is going to drive a dramatic increase in content per box and in some cases.
30% to 40% degrees in some cases, depending on the box and a bigger increase in the total Bom content.
Very good.
Some of the other IP that you got from your infill Gateway acquisition include torn and Ethernet.
You haven't talked a whole lot about that I mean, obviously, there are smaller businesses, but.
Could you give us an update on some of the opportunities you're seeing for both policy and especially next year.
So.
If you really think about the worldwide market in broadband access we all have to.
We all have to understand that fiber is such a much much bigger opportunity than cable and the most important thing that's happening in the fiber market is that all upgrading the networks to 10 gigabit fallen over time.
And they are symmetric in nature, and therefore, you get through 10 gigabit, both direction and have different tiers in the market for us.
We have the most premier.
<unk>.
Gateway platform with Dsos with the associate processor, the highest in Wi Fi access point, offering the Ethernet and including integrated front.
<unk>. So what we have is is the best offering in the industry out there. So over the last two or three years. The team has been engaged in getting a premier showcase.
Telco provider as the flagship victory, which will then attract other fiber bond players in the world to copy. This flagship carrier and we are very excited because that ramp is going to start sometime in the middle of next year by the operator, but the shipments towards that rollout has already started and Max linear and we are really.
And to play catch up on the supply constraints, we have and really ship big time, so and along with that flagship carrier. We are also winning other flagship carriers in Europe and in smaller carriers elsewhere. So.
Huge upside even think of an accessible fiber market units of about 20 about 75 million boxes worldwide and you would think that that 12 platform that 20% of the market and the mid tier is about 40% 40% of the market. We have a huge runway to growing broadband and at a full category and all of these are pretty high.
And connectivity, especially in the fiber blade. So you should also see connectivity grow so.
Our focus right now is really expand our fiber gateway offerings.
And grow the revenue and all the design wins are taking shape nicely and broadband as a category there should be a huge growth driver for us.
And.
Outside of all the other investments we have been very exciting markets in connectivity infrastructure and high performance analog.
Great and just one last one for Steve Steve gross margins, obviously continues to improve very nicely.
The cost pressure out there right now.
Can you comment on the ability to sustain $60 62 for next year.
Yes, sorry.
So cost pressures are definitely very high right now and we're dealing with those as many in the industry are.
We've been doing our best I think we're very pleased we came in ahead of plan getting above the 60% gross margin level last quarter, and then hitting above 61. This quarter is exciting so in the short term I think we're okay here.
I think we're very comfortable comfortably above the 60% range and we're going to continue to drive that product mix towards the higher <unk>.
Gross margin, we've talked many times that we thought that we can get the overall business kind of up into the mid <unk> kind of based on the mix and the products that we're selling today and we remain confident in that that being said the cost pressures in the short term.
We will continue to work around those.
The big key to our gross margin improvements as Dean.
All of the things, we just talked in the prior questions about product mix changing higher value content and as our high performance analog part of the Arctic.
<unk> continued to improving gross margins and.
With new product additions and revenue growth, which are pretty proprietary nature.
I mean do you see the benefits of that and it should also not forget that.
In protection products, we also sell IP.
The IP revenues that.
Really nice be helping gross margins right now.
Very helpful. Thank you.
Yes.
Our next question is from Quinn Bolton with Needham <unk> Co. Please proceed with your question.
Hey, guys I'll offer my congratulations as well I wanted to follow up on tourist question I think in the past you guys seem to be much more optimistic about growth in the connectivity business, where broadband might be sort of a kind of a lower single digit sort of flatter outlook. It certainly sounds like from some of your comments around upon.
The fiber opportunity that perhaps that.
Growth opportunity in our core broadband business is picking up and I'm wondering can you level set us now on what you think the broadband segment stand alone could grow what kind of CAGR could it grow at say over the next two three years.
Yes, Glenn.
So I don't think that our.
Look we're very excited about broadband, especially as we look out over the next couple of three years, we're seeing a significant amount of infrastructure build out happening upgrades happening.
In the network right and so.
I think we remain very confident in that kind of mid single digits is probably a very reasonable expectation on that front. The connectivity side is we've not wavered on that either we're talking about Wi Fi specifically doubling next year, we're very confident in that I think we're ahead of plan for 'twenty one.
And definitely expect to see significant growth in 'twenty, two as well and it's still pretty early days when it comes to Wi Fi and Ethernet.
I think the key point here is that.
We have not dwelled as much on the fiber platform.
Growth because that's our style we try to when we are when we are really shipping is when we tend to talk about things and I think.
So I think youre right about being bullish on broadband with new growth, obviously, a whole new Tam as being added to our business, which is called fiber and it really plays in very very nicely between the cable operators the telco carrier providers.
And our infrastructure investments in both cable and telco space.
I think all in all.
It's all coming together very nicely.
And it plays to our strengths. So yes, I mean, obviously, Steve as guided to you what he can standby and but.
If I sound, a little bit more bullish you're absolutely right.
Great I appreciate that color I wanted to switch over to the infrastructure business it sounds like.
You will have.
Modest shipments of the Tam for 400 gig DSP in the December quarter, which was kind of higher shipments in 2022 wondering if you could give us sort of any any comments around your visibility into that that business I know, it's a pretty constrained environment.
So wondering if as you look out into 2022 do you have orders or backlog in hand.
Sort of gives you the confidence that that business is going to ramp to.
More significant levels in calendar 2022, and then I know you've been engaged with one hyperscale or for the initial 400 gig designs. It sounds like perhaps those engagements are broadening and so I'm wondering if there's an opportunity to ship 400 gig DSP to a second hyper scaler in <unk>.
<unk> 2022 at this point thanks.
Clearly you always know more about the business then.
I would wager a guess, but anyway. It's interesting you brought up a second hyperscale or on the 400 gig Pam four DSP youre absolutely right.
There is an opportunity.
Maybe end of their Hyperscale are coming online with 400 gig Pam four we're trying to expand our footprint.
Being said that I wish we would further ahead on the optical data center than where we are today and.
Obviously, we are relevant we are the disruptive technology provider and given the changed landscape. The company's loved the fact that there is an aggregate of innovator who is really continuing.
Continuing to invest in focused on investing and in 800 gig Pam four is proof of that having.
Having said that the.
We have struggled with the lack of incumbency in the past and we are overcoming that lack of incumbency and the supply constraints clearly create gives advantage to incumbents and so.
We have been slow on the update however, there is no doubt that this will be a big revenue growth contributors for us in the longer term and next year will be a good year for our growth for us so knock on wood so to speak right.
And then.
If you look ahead.
Two.
Where things are in infrastructure generally as an overview the market is now.
Generation is evolving from 400 gig Pam four and the optical side.
And <unk> eight.
A gig Pam four times eight on electrical side is moving for a pure one to one lane or diabetes 100 gig per lane optical inside 100 gigabit Lane electrical.
The outside so it will be very well positioned and that I think it will be the biggest market that spanned across all data center folks.
<expletive>.
No.
Being consistent and.
And also really not taking our eye off the mark Despite all that regulations, we have been through so far.
Going to pay dividends in the long run for us so I'm pretty confident about that.
Great. Thank you Kishore Steve.
Thanks, Laura.
Our next question is from Ross Seymore with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks for letting me ask a question I'll Echo the congratulations on the strong quarter and guide I wanted to first to them the supply side of the equation, Steve Your Kishore I know, it's tight everybody knows is tight across the whole industry.
It seems like you've talked about incremental loosening, but the size of the upside you delivered in the quarter. The strong guide you gave for the fourth quarter and the fact that your inventory went up the better part of 30% sequentially first.
All sound like we're moving in the right direction. It may be more than an incremental pace is there something I'm missing in there that it is still tight but not nearly as tight as it was any sort of kind of incremental update on that dynamic.
Ross.
Really.
Really zeroed in on.
The fact specific to Max linear so I would really want to give all the credit for the operations and engineering team for lining up alternative suppliers across both packaging and were working feverishly to broaden that so that we can meet the great demand growth, we're seeing in our broadband and connectivity space, especially connectivity and also lining up.
Optical data center that Colin was asking about I think supply is the key for more.
Market share and gain.
And that would that would become an asset for us So our engineering team and <unk> been doing a fantastic job and we have always been created for our size and we continue to do so I also wanted to touch upon the other fact.
Hopefully that has not gotten missed you.
$84 million in cash flow from operations.
And.
In an environment, where we have also grown our inventory levels right.
The business is really very very well positioned to generate a lot of cash and as our operating margin expands.
Uh huh.
That should give us the ability to even expand our supplier base suppliers like anybody. These days relationship with suppliers are becoming more strategic to make investments in them.
Longer term I'm going to take all of those active steps in terms of strategic investments to expand our capacity with a loan to them as well. So I think all of those factors have contributed to what looks like losing for us.
You all know that everybody.
Everybody that suppliers have increased prices by 20% to 30%.
At least so I think we are in a new world and being creative on expanding supplier base is incredibly important.
Thanks for that color I guess I'll sneak in two follow ups and one question.
Somewhat unrelated first is seasonality, even a concept that matters right now, especially in your broadband business or is cyclicality and supply limitations. The more dominant dynamic and then the second and admittedly somewhat unrelated question you guys have done a great job on the Opex side of things is roughly the $75 million or so is that.
The new base off of which we should grow or is there some either lumpiness that we should expect going forward or are they even more opportunities to whittle that down a little bit.
Yes, Ross I mean.
Look with regard to seasonality so over the last few years has been pretty unique right. I mean, you had a pandemic and then yet supply chain shortages. So that's definitely been a bit challenging and thats been the kind of overarching factor that we've had to deal with.
Do think that we'll get back to seeing some seasonality in our business.
I think you probably start to see that sometime next year as well, where typically we would see a stronger Q2 and Q3 so.
I think that will start to move back in that direction.
With regard to Opex.
I mean look I think we've done a pretty good job.
Time to time, I mean, opex is going to be a little bit lumpy.
As it comes I mean, especially where you have got larger mask and things like that.
We've also stated that we would expect opex to grow next year.
At a modest pace I mean, I think we're.
Not an aggressive number but.
But youll see it increase next year as I look in <unk>.
Beyond Q4 naturally in Q1 early in Q2, you've got tax implications and things like that where you would naturally see increases in the first quarter.
But otherwise nothing extraordinary from an opex standpoint going forward.
Great. Thanks, guys.
Sure. Thanks Ross.
Okay.
Our next question is from Tim <unk> with Northland Capital markets. Please proceed with your question.
Hi, good afternoon.
You guys hear me, Okay, Hey, Tim Yes, just fine.
Alright, great.
But when it come back to the kind of broadband growth discussion.
And congrats on the quarter by the way.
And I think it was coming out of Q1 actually.
You guys talked about and this has been true among your competitors as well kind of the broadband business.
Forming from that kind of GDP type growth profile into something more significant.
Hi.
And at that point I think you were targeting mid to high single digits.
What kind of upward revision from that that lower growth rate.
As I listened to your commentary on the fiber side.
We know that sounds pretty incremental to those previous expectations and.
Of course, you've got a much larger competitor not quite the same product profile, but growing well into double digits. This year. So.
And once again the question becomes kind of get you to sign up for a double digit growth rate in broadband and I have a follow up.
Youre very good Tim.
Look I mean, I think we've talked about this.
You talked about it really in the context of connectivity and broadband and we're more than comfortable with double digit growth I mean, we've also right.
I think across the company double digit growth next year seems very reasonable.
Your question about.
Overall long term broadband I mean, as you said kind of mid single digit seems reasonable over the long term look the fiber market is a relatively new market, we are getting penetration and it I mean kishore it spoke to it a little bit earlier that is a much larger market and so are there are some dynamics that can change there absolutely.
<unk>.
Actually as we look out in this upgrade cycle.
And I know you are particularly familiar with a lot of this build out thats happening.
Even governments getting involved I mean, theres, a tremendous amount of dollars being deployed lot of upgrades.
DSL platforms historically, all moving towards fiber, we're seeing a lot of traction we see some of those.
Proposals coming out with ramps in 2023, and so that kind of gives us that confidence that we've talked about before about the double digit growth.
Over the long term as those new programs come in.
Right got it and Youre right start to connectivity and there does.
To make things a little more comparable and get you well into double digits I suppose.
The follow up was on infrastructure and really more short term.
You talked about some supply issues and microwave but.
It sounds like those.
Those loosen up and you get some.
Incremental contributions from both sides.
<unk> and data center.
It seems like your messaging was you expect connectivity of your fastest growing segment.
In Q4 in terms of the guide, but it sounds like infrastructure could be pretty close.
A reasonable analysis there, yes look I mean, I think we feel really good about our Q4 guidance on infrastructure I mean, it's up I think it is I'm not going to give you an exact number on what it is but but it's substantial growth in Q4, I mean, I think we've had a great year this year growing.
The whole year is going to grow on the order of 60% and I think we've got another super strong year coming in 'twenty, two just as optical and <unk> start to take off so so pretty exciting time when it comes to infrastructure.
The other part right.
That.
Through our strategic acquisitions, we have grown the broadband revenue the infrastructure alone. If you look over the last 12 months to 24 months with 12 months alone.
Growing about 50% ish and then you take the previous year. So the trend will continue.
In the grander larger revenue of the company now.
So that gets a little bit loss, but but we've done very well in infrastructure as a company.
Okay. Thanks very much.
Our next question comes from Alessandra Vecchi with William Blair. Please proceed with your question.
Hey, guys I Echo everyone's congratulations on a great quarter I just had a follow up on Ross's question with regards to inventory.
As we as we sort of think about some of the longer jeopardy.
Business line items with Pam four and.
Thank you Brian.
How should we be thinking about.
Dealer or the normalized inventory level in either.
Going forward like in terms of target.
Yeah, Hey, Alex.
If you're referring just to the inventory build that we saw last quarter I mean, it did come up quite a bit I mean, we.
I have a somewhat unique situations. So it was so one I mean big supply chain dynamics right. So we're having to bring in a lot of products. So theres a lot of things in web just to account for the growth.
That we see in 2022 and just over the next few quarters. So we've got to work hard to make that happen.
I mean, we do have kits and a lot of cases, where we're shipping out multiple products that are going into one application so to the extent possible.
Try to accommodate our customers. So that we're not shipping onesie twosies, but were able to ship them all of their products that enable them to satisfy their demands.
So the color to that is that yes, we have inventory growth.
There is.
He is not in equilibrium with respect to the other parts of the kit. So that alone doesn't tell you the answer that our supply is loosening up because we need to add the other other pieces of the shortages.
And then related revenue relative to our revenue growth.
It has not grown enough inventory levels related to the revenue growth. We expect so we're still behind on where we need to be or we could grow into a revenue expectation would have been higher had we add more supply available.
I guess, it's actually what I was trying to get at I wasn't so much worried about the $127 million.
Trying to understand given sort of the change in your business over the last year.
Were you actually like that.
Yes.
The supply equilibrium.
Meaning is it is the target like 120 days or 30 days.
Okay.
Yes, well I mean, it kind of depends on the products, but I mean.
I would expect that and longer term I mean, I think we can keep it under 100 days, but.
Environment right now where everything is quite volatile so it's a little hard to say.
Okay that helps a lot that's what I was trying to get at.
And that's it for me.
Our next question is from David Williams with Benchmark. Please proceed with your question.
Hey, good afternoon, and thanks for letting me ask the question and congrats on the quarter.
Just wanted to ask maybe a little longer term question, but just thinking about the replacement cycle and a refreshed and the <unk>.
<unk> equipment that Youre, obviously doing very well in how does how do those trends typically play out in terms of peak.
What year do you see the peak shipments and then how does that kind of trail off and how do you think I guess, if we think about Wifi six and then transition to 64 that maybe elongate that cycle further app and what you would typically see.
Okay.
Maybe ill.
I'll start out and I'm not sure that I'll get to your question exactly but.
A lot of the cable cycles are quite long right and so that's one of the things that we really like about this business, it's pretty mature industry, they've got 6% to seven years' runway before you see an upgrade.
And so that enables us the investment needs arent quite as substantial Wi Fi slightly different.
There is a much faster cycle much bigger market and frankly, why we're investing heavily in because of the opportunity that we have there.
So that's kind of where we are today.
I don't know if you.
Okay.
If you talk if you talk about product refresh cycles on connectivity right.
In the context of a broadband platform like Steve said take seven year cycles for cable data.
And you probably have two cycles within that seven cycle 70 or cycle, all Wi Fi refresh right.
<unk> Wi Fi goes at a faster cadence because industry generates they cannot afford not to refresh Wi Fi on the other hand, the access fees.
Typically a seven year cycle. So I hope that answered your question on on how did it first cycle plays out.
That was very helpful. Thank you.
And then maybe just on the RF Transceivers for base station deployments in China, I think a little bit slower than we had expected.
Have you seen anything there in terms of a change in that dynamic.
And then maybe if you can talk about your exposure to China, and how youre thinking about the <unk> rollout over maybe the next 12 months.
Right.
Look for us.
We have been hit very very hard by the U S.
Sure.
Position related to <unk>.
Relative to China on <unk> with a large wireless OEM right and that was our that goes our hours our opportunity to be a huge player.
And that has really hurt us big so I think that simply answer to your question what does China mean for us right.
So.
On the other hand, the rest of the Rollouts have been very slow and.
And you'd also see that the.
They're not deploying a huge massive mimo solutions as well as originally expected.
64 by 64 Mimo <unk>. So let me just come down to as that gets the reality is that Didnt mean generally with a large tam. So right now the focus is about getting design wins outside of China with a very.
He is Oems.
And in the industry generally tends to be very slow and.
Frankly, kwanza visa visa is a flattery for those guys.
And you win platform at a time and that will end up do a systematic buildout in revenue growth and not having incumbency has been a challenge as well for US. However, we expect it to be a long term focus and growth opportunity for Max linear.
Fantastic and just one more quick one.
Are you seeing anything in terms of disruptions in China coming through I know the last several weeks, there's been a lot of context around that and just wondering if theres anything youre thinking about into the fourth quarter in terms of supplier or pricing pressures specifically related to the China power shortages.
Yeah, David I don't think Theres anything.
Different over the last week or two and then we're already dealing with I'll put it that way there is plenty of challenges out there I think our operations team.
As work and done a great job, thus far and I think you'll see that in our numbers and we will continue to do that creativity that Kishore mentioned earlier I think he is also a super important from an engineering standpoint that enables us to stay ahead of the competition.
Fantastic. Thanks again appreciate the time guys.
Yes.
Our next question is from <unk> Desilva with Roth Roth Capital. Please proceed with your question.
Sure Hi, Steve Congrats on the strong results here.
On <unk>.
Fiber to the home Wi Fi attach versus cable.
First of all.
What's the mix of Wi Fi you would say is more fiber versus traditional cable and do you have a higher share in fiber and if so why.
So.
Uh huh.
I cannot speak really to hold the share will develop in fiber in the future right, but but right now we are all excited about.
Three years of hard work with regard to the world's Premier carrier.
Going to be rolling out with a product and.
And to full platform accurately right, so and engendering fiber our products via.
It will be both Wi Fi and the access piece combined we will not have will have little or no platforms, where there is no Wi Fi for IMAX linear the capable a little bit different right that was a world. We have been in for a long time, and we have had 50 plus or minus percent market share for years now they're in is where we are.
Replacing existing Wifi solutions on our platforms with our own <unk> solution. So that's where that <unk> build out so it really depends really on the cable is also pretty bifurcated to drive there are people, who buy pure voice and data modems and then I wanted to buy gateways, where viper as part of the full box right. So.
It's too much detail to get into but the way to think about it is that.
In cable, we have an opportunity to take our share position and add more content with Wi Fi in fiber, we are going to gain market share and in every case, we will have our fiber gateway processor.
Wi Fi and Ethernet combined and in some cases Moca also as a part of it.
Okay. Thanks, Peter that's very helpful. And then just a follow up on that one.
In your press release, you talked about.
Both from content and share gain I was curious if those comments were really more specific to Wi Fi or whether there were two or three other areas you'd highlight as content or share gain opportunities near term to help the growth rate.
So I think.
I hate to use dramatic statements like across the board, but there are multiple opportunities right replacement. For example, we are the only one with a premier tuna dedicated to now a gigabit Ethernet phy product right and we are the only ones with the quad.
Gigabit Ethernet phy product right.
So that is now being deployed into the marketplace, we're going to get content increase there and then on Wi Fi side, obviously, we've talked a lot about it right and so I think there are many such opportunities and is powered management.
We're doing some great work in power and it always get lost because we don't have to cover it properly in these forums, we want to stick to the large team, but we have surrounding our SLC platforms with our power solutions.
And that should add bomb EBIT for example to give you an idea.
We ship it on innovative let's say around 20 million units of cable boxes give or take and then you add even a couple of dollars are three of power management content from Mcafee as onto illusions event.
<unk> refresh you can easily see us picking up anywhere between $40 million to $60 million revenue on power alone. So this idea of a content increase is pervasive in our thought process inside the company because they are of the few companies that don't just do mixed signal digital we also can do pure analog products.
Very uniquely differentiating feature aboard Max linear.
Okay, great. Thanks for the color thanks, guys.
Thanks, Susan.
Our next question is from Ananda Baruah with loop capital. Please proceed with your question.
Hey, Yeah. Good afternoon, guys. Thanks for taking my question and congrats on the great results.
A few if I could.
The value.
With the strength in the revenue September quarter, and then in the guide.
Being so much stronger in extreme environments. What you got you. Thank you.
Do you think that well I love to hear the context around what you think is occurring to have a decent strong but.
We think it's also a situation now where maybe just the growth profile is going to be stronger for a while the unit you originally anticipated.
Or should we think of the same kind of growth profile off of a level about the revenue base.
And I just got two quick follow ups after that.
Another.
It's hard to say Im not sure where exactly you are going.
So look I mean, our growth profile I think has improved dramatically call. It over the last 18 months right with the newer products, whether it be some of the Wi Fi product that broadband products and as well as our optical and <unk> product. So so I think we're very confident in that growth profile clearly we've been.
Unlimited with supply we're getting that addressed.
I don't think we find any of the surprising.
I mean, we've had this.
The bookings the backlog the visibility, but in a lot of cases, we've not been able to hit the supply.
So that's improving and I think we're getting better visibility I think we are.
Again, I will mention some of the things that we've done creatively.
To change and to get more supply I think has been important and I think it's enabled us to up these numbers in Q3, Q4, and frankly some of those actions will enable us to take more share in 2022 as well.
Yes, I guess, what I'm asking about is needed in a constrained environment I believe the vast majority of the revenue with organic same correct me if that's wrong.
I just felt like at $25.
Growth rates.
So here's what I'm looking at it.
I'm sure I'm not the only ones doing it.
<unk> been talking about double digit growth gets put up 25% and the constrained environment, where youre guiding to 25% organic in the constrained environment.
Presumably you get less constrained so it seems like Youre, a little bit ahead at least or maybe you just sort of.
Even better than you thought you were originally.
I guess really maybe the question is you can take double digit should we be thinking 20% normalized growth.
And in Australia environment.
We're not going to guide beyond the current quarter we're in.
But do we have substantial upsides in markets that we haven't participated in or there's significant market share gains that we have achieved and will continue to achieve some of the things that kishore spoke to a little earlier on the fiber side of the market.
Very large opportunities that we're seeing early traction on right now and we're always looking to expand.
The overall Tam and ultimately grow the top line faster.
We reiterate that several times in the prepared remarks, just talking about outpacing the semiconductor market and we're very confident that we'll continue to do that.
As we as we continue to be more strategic to our operators and service partners.
They are they are jointly investing in development activities for Max three years, our future roadmap.
Have skin in the game for these people and there we are.
We are also benefiting from their strategic investment in our development. Both in terms of revenue forecast in the future and current versus.
<unk> is also.
The technology, we are developing for them.
Endorsed by them right and whether it's financial or through revenue revenue per cases so.
And we have already been talked about all the other great things that are happening in the infrastructure because of now an enhanced scale.
And we've always back to a lot of technology as a company right. So thats been very critical the other thing I really wanted to spell. Maybe this is this is this is familiar to all of you who have been following Max via prolonged than we have had substantial organic growth over the last 24 months.
And.
The recap or characterization of these revenues that organic ability to grow organically should not be forgotten.
I know there've been some mass beauty is a report out there, but our organic growth has been very very strong as well. So I just wanted to reiterate that fact.
Thanks for that context, and just the follow up is as the gross margins expand should we also expect the operating margins continuing to expand.
Or there might be some investment banking as well.
Gross profit dollars.
So so so I think Ananda, yes, we saw substantial increased 540 basis points.
Operating margin improvement last quarter.
Youll see in our guidance that that goes up again.
When we even say a year year and a half ago, we kind of talked about that ability to get north of 30%.
We're executing on that and very excited about kind of what the future holds there.
I think Steve in your prepared remarks, you did sort of allude to the fact that we should see we'll be spending lesser than the rate of digital revenue is growing and that the operating margin has opportunity to expand further.
Thanks, Andrew and thank you guys.
Our next question is from Sam Peterman with Craig Hallum Capital Group. Please proceed with your question.
Hi, guys Sam on for Richard here.
Two quick ones for me first one on connectivity. It sounds like you guys are pretty confident in Wi Fi doubling next year again, you've got some good visibility there I'm curious how you know moca and G. HN are trending within connectivity as well.
Any kind of visibility you haven't.
The outlook for 2022 that would be great too.
Yes, no problem Sam.
Yes, I mean, moca and G. HN continue to perform extremely well we spoke spoke about it a little bit earlier.
Very strong strong in Q4 actually coming up here. So those areas have been constrained as well as far as getting product, but really good traction with our moca product G HN seeing more and more applications with that as well.
The little bit of a differentiated gilardi Chin Moca right right now most of the revenues of <unk> to churn are more retail oriented and some industrial markets.
Real Iot markets and whereas in moca tends to be much more very very high high quality of service reliable backbone for connectivity services.
Connectivity solutions.
Operator deployments in the home okay.
Okay.
Okay. That's great. Thanks, and then quick just looking at your 10-Q real quick.
It looks like your customer be that I think you guys have picked up from Intel.
It wasn't a 10% customer in the quarter I am curious if you think that will be for the year. If you can just give some color.
Around whether that was customer specific or just other lines of business growing faster there is what's going on there.
Yes, I mean with regard to the top customers I think this applies to all of them.
They all would like to have more product.
So somewhat similar to our end markets. These things are a little difficult to call from quarter to quarter.
But I would say, we're growing significantly with all of our top customers and we're excited about that we also want to.
To execute and get them more products going forward.
Okay. Thanks, guys.
Our next question is from Christopher Roland with Susquehanna. Please proceed with your question.
And Chris are you there.
Yes.
Hey, Chris.
Greater than one might go to the next level.
Come back to Chris.
Okay no problem.
We have reached the end of the question and answer session and I will now turn the call over to management for closing remarks.
Thank you operator.
I just wanted to let everyone know that we'll be participating in the upcoming conferences.
In Q4, maybe Stifel 2021 virtual mid <unk> growth conference on November 11, the benchmark Company 2021 Technology conference on the 17th Roth Capital Partners, 10th annual Technology event on November 18th Credit Suisse 20, <unk> Annual Technology Conference on November 30th Wells Fargo Fifth annual TMT limited into some.
First Barclays logo TMT conference on December seven Oppenheimers, <unk> 14, and the Needham 24th annual growth Conference on January 12, you should be able to see this list on our website. So with that I want to say that thank you all for joining us today and we look forward to reporting on our progress to you next quarter. Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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