Q2 2022 Maxlinear Inc Earnings Call
[music].
Greetings and welcome to the Max Linear Q2 earnings conference call. At this time, all participants are in a listen only mode.
Brief 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. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Leslie Green Investor Relations. Thank you Lesley you may begin.
Paul Good afternoon, everyone and thank you for joining us on today's conference call to discuss Max Lenny Our second quarter 2022 financial results. Today's call is being hosted by Kishore <unk>, CEO and Steve Litchfield, Chief Financial Officer, and Chief Corporate strategy Officer. After our prepared comments, we will take questions.
Our comments today include forward looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the third quarter 2022 revenue revenue growth expectations in our principal target markets and GAAP and non-GAAP gross margin operating 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 broadband wireless infrastructure and connectivity markets and opportunities for improved revenues.
Across our target market.
Additionally, we will make forward looking statements relating to the completion of the pending silicon motion transaction and its anticipated timing. These forward looking statements involve substantial risks and uncertainties, including risks arising arising from current geopolitical concern competition supply.
Facing with semiconductor industry global trade and export restrictions the impact of COVID-19 pandemic, our dependence on a limited number of customers average selling price trends and risks that our 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 is outlined in the risk factors section of our recent SEC filings, including our Form 10-Q for the quarter ended June 30th 'twenty, 'twenty, two 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. The second quarter 2022 earnings release is available in the Investor Relations section of our website at Max linear Dot Com. In addition, we report certain historical financial metrics, including net Rev.
<unk> gross margin operating expense income from operations interest and other expense income taxes net income and net income 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 benefits.
non-GAAP financial measures discussed today do not replace the presentation of Max linear 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 a replay will be available on our website for two weeks and now let me turn the call over to Keith Dr. Kishore seem to reboot CEO of Max linear Kishore. Thank you Leslie and good afternoon, everyone. Our Q2 revenue was $280 million up 6% sequentially and 36%.
Year over year non-GAAP gross margin was 62, 3%.
non-GAAP operating margin was 32 point percent with strong cash flows from operating activities of slightly more than $123 million.
We continue to see robust demand across our expanding product portfolio.
Particular fiber gateway access Wi Fi connectivity and wireless infrastructure are driving exciting growth. They also represented the most significant long term growth drivers for the company with strong market share gains and content increased opportunities, which are independent of general end market trends.
Our long term and ongoing investments towards expanding our product portfolio to address high value adjacent markets are bearing fruit and we are excited about the meaningful multiyear revenue growth opportunities ahead.
Turning to the business highlights near term invited by the industry transition to Wifi, six and Wifi six E is providing as new design wins, along with the higher blended <unk> speeds to continue to drive revenues about market growth.
With each new growth, we are benefiting from improved differentiation increased market share higher attach rates and higher asp's.
In particular, the new Wi Fi standards is a major step up in performance and features which should further accelerate our viper revenue growth mid to longer term, along with driving broadband access gateway platform churn.
During Q2, we also began ramping viper shipments into third party Standalone routers.
The increase momentum continuing into Q3.
This will also beneficially diversify and expand our Viper revenues beyond service provider gateways.
We expect to not only doubled our Viper revenues in 2020 do versus 2021, but also maintained strong momentum to achieve $200 million of sales in 'twenty to 'twenty three.
Moving to fiber broadband access gateways multiple customers in North America are currently ramping our product shipments now.
The backlog is driving growth in 'twenty to 'twenty two.
In 2022, not only on target to increase fiber access revenues by more than four times versus 2021, but also expect strong continued growth into 2023.
In 'twenty to 'twenty three we expect continued accelerated ramp the large tier one customer in North America.
And to also proliferate our solutions into other regions as well.
As you know fiber broadband market is significantly larger than cable broadband, which is currently the larger portion of our sales today.
We are excited and confident in our ability to drive meaningful multiyear growth and market share expansion in the fiber to get to the end market.
Owing to one the ongoing and existing capex commitments from the carriers and governmental incentives, but fiber upgrades to our industry, leading integrated born and 10 gigabit fiber processing Gateway Soc.
And three our significant fiber platform below material content and the breadth of it.
Moving to five your wireless infrastructure, our products continued to grow despite tight back in supply driven by continued strength in access and backhaul demand market share gains and increasing content per platform.
Our backhaul content per platform more than doubled as we ramp our <unk> millimeter wave products into multi band millimeter wave and microwave radios.
During Q2, we announced a single chip solution to enable network Oems and operators to deliver ultra high capacity <unk> payload on existing frequency spectrum.
We also announced enabling a high efficiency power amplifier solution that addresses size weight and power consumption challenges for massive mimo radios.
Speed optical data center interconnect, we have the most advanced final nanometer 800 gigabit Pam four and 400 gigabit Pam four solutions, which are being qualified by multiple Oems targeting hyperscale data centers.
<unk> technology at the right time, we feel positive about our strategic positioning unfold and there are opportunities to grow in 'twenty to 'twenty three.
Before I turn the call over to Steve a few words about our pending acquisition of Silicon motion, which remains on track.
Since me and our leadership teams have been actively engaged in integration planning and I am excited about the opportunities for our combined business.
Our discussions further reinforced to me the potential of the strong innovation, we can bring to the market as a combined company.
Silicon motion is fluid its world class SSD controller technology with great success in its target markets. We look to continue supporting its ongoing efforts to differentiate its products and expand into rapidly growing markets.
Equally consumer and enterprise.
Cited about bringing two technology focused cultures together very soon with that let me turn the call over to Steve Litchfield, Our Chief Financial Officer, and Chief Corporate strategy Officer, Steve.
Sure.
Total revenue for the first quarter was $280 million up 6% versus Q1 and up 36% year over year, we have performed well over the last several quarters in the face of severe supply constraints, both on front and back end manufacturing process and across majority of our product portfolio.
Spite this outperformance we continue to see supply chain challenges and difficulties across multiple product categories, which are hindering our growth opportunities with that said, we posted solid growth in Q2 and anticipate additional progress in Q3.
Broadband revenue in Q2 was in line with our outlook at $139 million up 3% versus Q1, and 20, 23% higher year over year.
Driven by solid demand across our full portfolio of gateway solutions, including.
Cable fiber hybrid DSL and fixed wireless access our connectivity end market was down sequentially in Q2 with revenue of $56 million, which was still up 80% year over year.
The quarter over quarter decline was solely due to Wi Fi supply constraints, which pushed a material amount of shipments into Q3.
As such we are expecting strong sequential Wi Fi growth this quarter.
Our infrastructure end market had a solid Q2 with revenue of $36 million up 8% versus the prior quarter and up 22% year over year.
Largely driven by strength in wireless backhaul and high performance analog.
Lastly, our industrial multimarket market revenue increased by 35% to $48 7 million in Q2.
Strength within this segment was broad based as we benefit from new product and design win ramps and continue to make up ground on supply shortages.
GAAP and non-GAAP gross margins for the second quarter were approximately 58, 7% and 62, 3% of revenue.
The delta between GAAP and non-GAAP gross margin in the second quarter was primarily driven by $9 8 million of acquisition related intangible asset amortization.
Second quarter GAAP operating expenses were $125 3 million with growth being largely driven by silicon motion acquisition related legal cost and timing of certain in our E payments.
Operating expenses included stock based compensation and performance based equity accruals of $29 2 million combined acquisition and integration costs of $6 4 million in amortization of purchased intangible assets of $2 9 million.
non-GAAP operating expenses were $84 3 million up $7 million versus Q1, non-GAAP operating margin for Q2 2022 was 32, 2%.
GAAP interest and other income during the quarter was $4 8 million and non-GAAP interest and other income was $4 9 million.
We had a strong quarter for cash flow in Q2 cash flow generated from operating activities was $123 4 million.
During Q2, we made a $40 million prepayment against our long term debt position and also repurchased over $5 million worth of stock we.
We exited Q2 of 2022 was slightly over $235 million in cash cash equivalents restricted cash and short term investments.
Our days sales outstanding for the second quarter were approximately 45 days essentially flat with Q1 levels. Our gross inventory turns were two six times, which were also flat from the previous quarter.
This concludes the discussion of our Q2 financial results.
Before we go to guidance I want to give you an update on the status of our announced intention to acquire silicon motion.
We are progressing well through the process and believe we remain on track for close by the middle of 2023.
In late June the Hart, Scott Rodino waiting period expired and in early July we submitted the simplified filing with Sandler.
On July 13th our registration statement on form S. Four was declared effective by the SEC.
Furthermore, while we have fully committed financing for the transaction. We are actively working to optimize the debt structure to lower expected cost of capital.
As Kishore mentioned, we are excited about the many business opportunities. This acquisition will provide over the coming years.
While consumer softness is having a near term effect on silicon motions revenues. Its performance has been within the range of our expectations.
Based upon their technology position, we see silicon motion is well positioned to post solid topline growth over a long over the long term in the storage space.
With that let me turn to our guidance for Q3 22.
We currently expect revenue in the third quarter of 2022 to be approximately 280 million to $290 million up approximately 2% at the midpoint of the range versus the previous quarter and up approximately 24% versus Q3 of the prior year.
While backlog continues to be strong we continue to experience supply chain tightness and expect that to continue throughout FY 'twenty two.
Looking at Q3 by end market, we expect broadband revenue to be down slightly quarter over quarter coming off a record level in Q2 <unk>.
Connectivity is expected to be up significantly versus Q2, driven by a material recovery in Wi Fi is supply chain dynamics improve.
In infrastructure, we are expecting revenue to be down slightly compared with Q2.
Demand for our infrastructure solutions continue to be strong, but growth is being constrained in the near term by tightness in substrate availability, specifically for our wireless access and backhaul solutions.
Lastly, we expect our industrial multi market revenue to be slightly down quarter over quarter.
We expect third quarter GAAP gross profit margin to be approximately 57, 5% to 65% in.
non-GAAP gross profit margin to be in the range of 65, and 63, 5% of revenue.
We expect to deliver gross margin within this widened range over the next several quarters with end market mix being the primary factor driving sequential fluctuations.
We expect Q3, 2022, GAAP operating expenses to be down quarter on quarter to a range of $115 million to $121 million.
We expect Q3 22, non-GAAP operating expenses to be roughly flat with Q2 levels within a range of $81 million to $87 million we.
We expect our GAAP tax rate to be approximately 27% and non-GAAP tax rate to be roughly 6%.
We expect GAAP and non-GAAP interest and other expense to be roughly $3 5 million.
In closing, our solid execution and innovative product offerings are enabling us to outperform our market and significantly increase our Tam.
We continue to grow our presence in markets, where we are today underpenetrated driving strong pull through of content and strategic markets, which will continue in FY 'twenty. Three we believe we are well positioned for continued revenue expansion and operating leverage throughout the balance of FY 'twenty, two which will create.
Meaningful value for our shareholders.
With that I'd like to open up the call for questions operator.
Thank you we will now 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 that 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 while we poll for questions.
Thank you. Our first question is from tourists Farnborough with Stifel. Please proceed with your question.
Yes.
Thank you and congratulations on the record revenue.
So it doesn't sound like a whole lot has changed since last quarter with supply being the biggest focus.
Macro obviously.
Has changed I was just wondering from your perspective, and your and your customers. What are some of the puts and takes that you are seeing.
As far as orders and backlog are you starting to see any cancellations or anything like that.
Alright, thank you.
Oh.
Some of the questions on supply that you raised.
Our unique to us because we are growing with the various product cycles, we have with a bomb below material content increase in their various platforms and also our sex of the infrastructure markets in wireless, which all require very specialty substrates advances will see nodes. So we'll be getting a little bit of a lag in relief relief in the supply.
So so that's creating some volatility across our shipments are on the timing of it with Steve referred to in the in the talk here with respect to our backlog it remains quite strong as a as I mentioned in my.
Part of the script here and Sylvia managing against the backlog with respect to our supply.
And I'm trying to make sure that our customers are able to ship the product at this stage. While there is concern in various quarters about the macroeconomic softening, but we feel that given our bom content increase our penetration into new markets with market share gains that we will be able to maintain our momentum in terms of growth as it comes.
So I hope.
That's an answer that is sort of.
It addresses some of the concerns related to our customers that you may have.
Very good thank you for that and that's my follow up question. It sounds like you're very actively trying to diversify.
Beyond cable gateways so far.
Probably gateways being a great new opportunity also pop up.
Getting into.
The third party router market can you just elaborate a little bit on that.
What are some of the ambitions there because obviously theres some theres some big competitors in that market. So yes. If you could just add some color on on your ambitions in those types of markets that'd be great.
So on Venezuela.
Obviously, we are Super excited I mean, if you really put it in context of the amount of revenues. We are talking about Wi Fi as an access point solution I mean, if you can.
There was a company called Montana, and that's been revenues where in this vicinity right. So we've made an enormous progress in terms of home with Texas, We're having in Wifi.
So on the.
While they are a formidable competitor they speak for everybody on the access point side I would say, we are a pretty formidable player, especially in Wi Fi succeed we were the first ones out of the gate with all the bandwidth expansion and the capability that sort of you know Bruce.
Bruce the market provided by seven.
So I think we were the leader in that space on the access point and be getting traction. So far we had been constrained in the previous our ownership structure or our broadband business, where the focus was purely on the platform and we're getting very ready interaction on the non op into market and I think you can be a very significant player.
On the non operator gateways in the body called Standalone router market and they are the challenges that are going to compete purely based sort of IP, but we're also bringing significant volume on the platform to that market as well because where there is Wifi Theres also Ethernet and there's also a power management and we are building a significant power.
The portfolio that we don't normally talk about in this call because it is a part of the Bom expansion. So I think we had a very good position to really get a pretty good share of growth in fact, when we talk of shortages today is really balancing between what we can ship to the operators versus what we can ship to the non standalone router market we are actually.
Strained by supply versus our backlog.
Great. Thank you for that I'll go back in line.
Yeah.
Thank you. Our next question is from Quinn Bolton with Needham <unk> Company. Please proceed with your question.
Hey, guys.
For my congratulations on the strong near term results, but wanted to follow up on the Tories line of questioning obviously the street seems to be very concerned about the macro economy and the potential for the industry to go into a downturn next year and so I guess I'm wondering have you started to see.
Any sort of cancellations I don't think you addressed that specifically are you seeing greater volatility or variability in your weekly order rates was book to bill for the quarter above one.
Just trying to get a handle on whether you're seeing any any change in demand patterns that you know.
Mike.
My my temporary the outlook as we think about 2023.
Before handing it over to Steve to respond a little bit more on that I would say that we have not seen cancellations. There. The backlog is very strong so on the volatility Bard. If there is any let let me get Steve to answer that Steve why don't you take that yes.
Yes, So look I think the way I think about this is kishore kind of talked about a little bit earlier.
We're still very much constrained, we're not keeping up with demand today, so kind of the second half of this year, it's still really just fighting tooth and nail to get enough product for our customers I think as we look into next year and and thinking through talking to the customers. I mean, I think that's where you know and probably like the rest of the world recognize there's things moving around there.
Some uncertainty out there and so we're trying to trying our best to anticipate that and manage that bookings in Q2 were very good.
Look as lead times start to improve which I fully expect they will.
You know, we're going to see that bookings come down a little bit right I think that's a natural that the whole industry would anticipate.
That being said I think what we're also excited about is some of the growth drivers that we have where we're winning share. These multi year growth cycles in upgrades that are happening in broadband some of the things that are happening on the infrastructure side with some of the data center and wireless infrastructure opportunities. So so I think long term feel berry.
Good short term tremendous visibility.
And I think it's that next year uncertainty, that's still kind of looms for everyone. I think we're positioned well to handle it as we gain market share and grow with some of these newer products that we've not had even as late as last year. So.
And I'll throw a two parter for my second question just could you give us some more.
Detail on the breadth of of the fiber gateway wins as I think you said, let's call. It you know.
Multiple guys in North America, I know, there's a lot of activity in Europe , but.
As you look for that more than <unk> increase in fiber gateway revenue this year and further growth next year.
Any more detail you can provide about either content per system or the number of operators just.
How broad diagnosis and then just quickly can you touch on the 400 gig 800 gig Pam opportunity have you started to ship four production, yet or those parts still going through qualification and if so when would you expect those production shipments to commence thank you.
And that was a unique way to get two questions in there I think there was like alright.
But I tried.
So on the fiber side, yes look I mean, we've been shipping you know fiber solutions for some time, we have talked historically about I mean, even in 2021 that being like as low as 10 less than $10 million, that's expected to kind of get up into the $30 million to $40 million range. This year, and then probably double again next year. So we're <unk>.
In a lot of traction we've been chip into tier two guys for quite some time.
We've got a big North American Guy that's starting to ship this year.
Look we've been constrained on all the products going into this space and so we're excited about these new opportunities you mentioned Europe , Yeah, Theres definitely European players that are in the mix that will start to roll out a lot of their upgrades don't happen until 2023, and probably even roll into two.
Thousand 24, and I think that's why we're confident in.
The multi year aspect of this is just because the number of these operators have capex plans that are planned out over the next several years.
And so we see that so it doesn't feel like it's just a short term opportunity Youre also these upgrades also.
Really force everyone to upgrade.
You know for more broadband so it forces you know it kind of puts pressure on the cable guys puts pressure on everyone.
As they're all working on these rollout so excited about the fiber opportunity for sure and you know over the next 18 to 24 months as those days ramp.
So the second part of your question I mean, the 400 gig side I don't know Kishore can probably comment on is the excitement around the five nanometer solution. So you can so quickly obviously you know this is.
Taking longer than what we had hoped for and ramp in the Meanwhile, we the we decided to be the first ones with the fine nanometers illusion for 400 gig eat and eat them for mid single Lane 100 gig Parlando optics support and were getting very very good traction and we're hoping that will be production ready.
Before the end of the year and the customers get launch into production by the second half of next year, So everything on track.
And while we have benefited by being a supplier incumbent in various markets. In these last two years on in new markets, we have had challenges.
Getting a foothold however, this seems very different now and and you know we feel very very good where we are and the traction in the market is going to continue to grow in fact, we will be the first time the entire data center market will converge on a single 800 gig optics and this will be a huge milestone even just like 10 gig was for Ethernet.
And in the data center.
So I think we feel very very well positioned with what's going on right now.
So it's a very positive outlook on it and if it werent I wouldn't be even putting it on the script, let me put it that way. So yes, we got a great technology and there are some tradeshows coming along I think there is and you should look for us to be there and present very strongly.
Perfect. Thank you for all that color guys.
Thank you. Our next question comes from Gary Mobley with Wells Fargo. Please proceed with your question.
Hey, guys. Thanks for taking my question I wanted to double click on Quinn's second three questions and that is about it.
Sort of the market transition away from broadband cable and particularly in the U S to fiber.
Fiber based broadband it seems though we've now seen a shift with a lot of the telcos gaining a lot of net new broadband subs here in the U S at least.
I'm curious.
If if.
This transition to broadband fiber can be accretive to your to your broadband growth.
Based on the idea that you're you're generating.
Generating the same or greater bill material with maybe Wi Fi attach and Ethernet attached and whatnot.
<unk> given the increased size of fiber broadband and also taking into consideration your relative market share in fiber versus here strong market position in broadband cable.
Hey, Gary.
Very good question and the emphatic answer is that cable lease is not going away I mean, the cost economics of cable being a in the various already deploying more and more gigabit spur data reception and also both on the receive side and the <unk>.
The upstream.
These unmatched ride the cost structure, having said that the cable guys are not sitting idle they're upgrading to DOCSIS.
<unk> is 4.0 geez, if you're just going to be very compelling and you should start seeing solutions that are deployed for DOCSIS four point to within the next two years or so so we are investing there as well and so while our cable won't be an exciting growth driver in terms of units, but the bombies steadily increasing for us and.
<unk> is going to keep upgrading and cables and so that's going to be a growth data growth driver primarily from our Bom expansion direction point of view.
With regard to fiber you're absolutely right. The telcos are very earnest about investing more and they're driving a lot of capex, which again ties back to <unk> question about how does next year look right. We've been very good there'll be a product that will keep driving growth and youre also right that the bomb increment than fiber.
It is also going to be a significant if not comparable.
The two cable platforms, but maybe even more.
And so we should see not just incremental growth on fiber related to cable on you know once you add them up but we should also see just raw growth that's going to be pretty strong. So I think it's all good for us, but you are right that the cable growth is not going to be exciting in terms of units, but the bom expansion is going to be.
And they are combating the threat with DOCSIS four point too.
I appreciate the color of the Kishore and Steve I don't know if youre going to go down this path or not but I'll ask the question anyway.
You highlighted some some softness in silicon motions revenue and they just reported results revenue a little below expectations for gross margins to the upside.
So when you announced this acquisition I think the comment was you would expect this deal to be roughly 25% EPS accretive out of the gate and I know, there's a long time between now and when this deal closes and a lot of things from an economic backdrop can change, but are you still standing by that 25% accretion level and can you give us any color.
On sort of the outlook for Silicon motion September quarter.
Yes, Gary.
You're right I'm going to stay away from guiding silicon motions numbers, but.
Some commentary so I think everyone understands the exposure to some of the consumer market and that's in Pcs, but.
Look I mean, we standby. This we're very excited about the opportunity we absolutely are comfortable with our accretion numbers that we shared previously so we're confident in that and just excited about the outlook. So look we didn't do this acquisition for next quarter, we did it for the long term.
And it continues to expand our product portfolio gives us much more scale moving forward and we're very excited about it. So oh, so I think that what Steve said is absolutely correct and ER and even some of the positive dynamics youre seeing value looking into softening on the consumer side are there.
All stuffy contemplated to some degree right. So there's always that calculus on our side too I think what I really want to emphasize.
Gary that perhaps we have not we have not done a good job of how much technology wise. There is sort of you know combined province, with our analog mixed signal digital signal processing capabilities that is going to be even more central as the memory densities increase in fly ash and the defect densities increase we have the IP to bring that to bear.
A very very strong traction.
Traction and our proven storage accelerator and high speed interfaces that are all in designing the enterprise markets. So I think all in all this is going to really get a massive expansion in time for both the companies combined as well so it's very very exciting and.
And really looking forward to the equities you know there'll be a made a commitment to do it you know we cant wait for it to happen.
Okay. Thanks, guys I appreciate it thank you.
Thank you. Our next question is from David Williams with the Benchmark Company. Please proceed with your question.
Hey, good afternoon. Thanks for taking my question and congrats on the quarter.
Just wanted to see maybe if you could talk a little bit about the customer feedback.
Feedback that you've received on time or transaction and just maybe any commentary around that how your customers are seeing it and what your opportunities you think the first synergies between the two companies will be.
So I'm afraid we cannot comment on the customer side of things right, but we definitely can comment about our customers Standalone Max linear and their reaction they're super excited right.
If you look at our broadband platform, there's always a but you know our storage controller device that we can put in a reference design and that creates great growth opportunities in markets. So it can be about pretty wide channel distribution sales. You know you will have noted our industrial multi market is about running at what this quarter was 50.
And so that's a significant channel weakened sales storage onto.
And the general operation its operational keenly provides in terms of advanced technology nodes work document suppliers right.
And what that could potentially means when we have the abnormality of the last two years behind us I think our customers are super excited and so.
So I can speak for our customers, but I cannot speak for their customers right now.
No that's fair and I appreciate the color there. So maybe one for you Steve can you talk maybe a little bit about the gross margin and the leverage there youre running in this kind of 62% range expected just kind of stayed there. How do you think about this longer term as we kind of think about pricing dynamics and supply chain issues and everything as we get into 2023.
Yes, David.
So look I think the team has been working very hard on the on the.
Gross margin side and mix plays a big role here right and so as much as we're fighting everyday on the cost side of the equation. We're also kind of fighting against this mix I mean, you've seen us grow tremendously on Wi Fi side, and so we'll continue to.
No.
I mean, we're winning you sort of talked about the growth that we're seeing and expecting to see north of $200 million next year, I mean with the supply chain dynamics I mean, it can ebb and flow a little bit we've got cost increases coming some of these newer regions or lower cost regions. So we may see some challenges on that front that may impact grow.
Margins.
But overall I don't think our long term view is that that's changed but in the short term, we'll continue to fight all the cost increases and some of the new mixed dynamics that we'll have before us I mean, its fairly public right now read the foundries have gone ahead and declared.
That they're going to increase prices and they have increased prices and our guidance.
Contemplate those increases that we'll have to deal with so when we give you gross margin guidance, we are steadfast on our goals here.
Fantastic. Thanks, so much.
Thank you. Our next question is from synergy.
The silver with Roth capital. Please proceed with your question.
Hi, Kishore Hi, Steve Steve just a question on the Opex guidance flat can you talk about the puts and takes there are there moving parts in there or are you just able to kind of get leverage at this level as you grow the next several quarters yes.
No problem. So I mean, you saw gross Martin Im sorry, Opex move up quarter to quarter, a lot of that was driven by we're seeing more and more in our E N.
In our business, which I think is overall a great thing because it really showed support from the customer base. But these are also projects that we have to navigate and manage and contracts that come in and have a lot of lumpiness to them.
But we've done a pretty good job.
That influenced Q1, so opex came up a little bit in Q2 comfortable that that kind of move sideways, but then.
It's likely to kind of come back down in Q4, Opex overall, a lot of that's driven by more than our he's coming in.
So I think overall, our expectation for Opex for the year is in line with what we thought going into the year.
And the reality is that it also fighting to get hired talented employees and all of the industries facing those dynamics and labor.
Skilled labors.
Still feel shortages of that in terms of where we need and what we need to execute on our projects. So I think.
There's going to be healthy tension in terms of volatility on the opex are relative to that so Steve and me we will have to figure this out together.
Okay. That's helpful color and then on the fiber side, the North America tier one youre ramping as that ramp does that have the initial inflection is it going to have an inflection or is the supply constraints really a question of this customer to kind of have a steady kind of start out of the gate.
So it's still early days on that I mean, we said it would originally and kind of start in the second half of this year I mean supply has been challenging for us, but we're making some good progress so it'll it'll ramp kind of as expected in the second half of this year and into the first half of next year.
Okay. Thanks, Congrats guys.
Thanks.
Our next question is from Ananda Baruah with loop capital. Please proceed with your question.
Hey, Yeah. Good afternoon, guys. Thanks for taking you all thanks for taking the questions.
Yes, good to see things are remaining robust and I guess to that point I'd love to get a little more context from with regard to some of the comments said that each of you may.
Each of you made comments for sure and then the.
And I guess the change is really the context around the comments on interest.
You sort of shed things softened.
In 'twenty, three and going into 'twenty three confidence that.
Confidence that you can support the growth.
Any context around.
To what degree the growth to be supported.
Now looking for a guy yeah.
Yes, so I guess.
With regards to the current levels, Yeah anything you can give us yes, it could be.
Useful.
And then I have a quick follow up also thanks.
Yes.
No question I mean, obviously, we're all kind of trying to navigate what customers are going to do in 2023, right. So I'm not going to stick my neck out here and give you a guidance on 2023.
But all in all I mean, I think we just have to continue to execute infrastructures performing extremely well.
I, absolutely expect that to continue broadband and connectivity both.
Short of supply right now we continue to work hard to get more products for our customers right now.
And so we'll continue to try and navigate that industrial multimarket add tremendous.
Growth last quarter, and we're getting good traction on.
In those markets and so so we will I mean, there were some catch up there from the previous quarter, but as we look into 2023, we've got to continue to execute and get more products out the door and into our customers, saying.
And Steve did you guys.
And the comments that you ensure made.
Did you suggest that there are some customers that are starting to get instead of a little antsy with regard to the macro is that an accurate interpretation and if so why.
Can you give us any sense of what areas of the business or at least what markets.
I mean look I mean, you've you've heard all of this from plenty of our competitors or customers I mean, theres definitely some concern out there about next year. So make no mistake I mean, we've had guys moving around orders we've had moving around orders this year as well as in 2023. So there's no doubt that there's concerns out there right and.
Some of that is based on getting enough product today and some of it's based on shipment dates for next year and how they ramp so yeah things are going to continue to move around in this world.
Is that fairly broad based yes.
Yes, yes across all of the end markets sure.
Cool cool thanks appreciate it.
Thank you. Our next question is from Chris Rolland with S. F. G. Please proceed with your question.
Thanks, guys.
I just wanted to understand supply versus demand here. So.
All three of your segment three of the four segments were guided down.
Is that because supply quarter over quarter is tightening and then does that loosen in <unk> or does demand come into this picture as well.
Yes, so Chris.
I think I mean, we've talked about this it was going on even last quarter that we talked about this infrastructure clearly we definitely have subsidy subs substrate challenges that are continuing to persist and we expected to see that before we start to see things ease in Q4, so that was kind of as expected.
The Wi Fi business definitely was light last quarter, so that impacted connectivity a little bit that will recover very strongly.
This quarter, so supply chain got us in Q2 for sure.
With regard to broadband and we had a really strong Q2, not as many supply challenges, but theres kidding challenges there right. Because these guys. They don't want one they want both products. So so theres challenges their big quarter last quarter.
You'll see some of that moderate this quarter same thing on the industrial Multimarket side definitely continue to see challenges. There we saw some volatility over the first half of the year. We were short in Q1 definitely made up for some of that in Q2.
And so that will moderate a little bit in Q3.
Okay.
Thanks for that clarification.
My second one is a bigger picture.
Question and and that is where do you guys estimate right now your Wifi market share.
And then and then looking out perhaps a few years do you think that'll be consistent with the fiber gateway as well.
And finally.
Any thoughts on what your Wi Fi attach would be there or either your or even your Ethernet attach. Thanks, yeah. Yeah. So I mean look this is exciting right I mean, Wi Fi a lot of our early growth has been getting attached with our with our cable S. O C right.
And so we saw a lot of the growth that's been driven by that we're not at 100% yet, but you know we're getting up in the 78% range. So we've made really good progress amid some of the supply constraints in the lake right trying to keep a balance there.
So that's going extremely well fiber relatively low.
Revenue for us over the years I shared earlier about some of the progress that we're making and how much growth. We're seeing so look that that market. The fiber market is probably two to three times larger than the cable market. So naturally with that comes a lot of Wi Fi product and so we will capture that I mean Kishore talk.
Earlier about some of the gateway products and the content that we have in those gateways and a lot of cases I mean, it's around you know we've talked a lot about this $30 of content in the gateway. Some cases now it's even higher than that in some of the fiber opportunities that we have.
So there continues to be more Wi Fi there and then the third party.
Router opportunity that is a huge opportunity for us it'll start to ramp in the second half of the year and it'll be a big growth driver for US next year. So I don't have an exact I'm not going to share an exact a wi fi market share number, but we're still relatively underpenetrated against the two or three other guys that are in there.
Space.
Thanks, Steve.
Thanks Ruth.
Yeah.
Thank you. Our next question comes from Richard Shannon with Craig Hallum. Please proceed with your question.
Hi, guys. Thanks for taking my questions as well I'll follow up on the topic of Wi Fi here.
Thinking about kind of bridging this year's revenue number into the $200 million plus number for next year I'm wondering how you think about the various contributions from a dollar point of view between kind of three major areas. The cable to fiber and third party routers. So anyone that's gonna be dominant or easily bigger than the other kind of contributing to that growth any way you can characterize that.
Well I mean cable is definitely the bigger contributor right I mean.
As I just mentioned in the previous question be the third party router stuff is just beginning in the second half of the year. We've just not had sufficient supply and that'll start to ease in Q3 and more in Q4.
But we're really just beginning that ramp if you will and that will continue so you'll see a big part of our ramp next year. It will be from third party growers.
Okay Fair enough and then a follow up question and and broadband, especially high where maybe you can talk to the kind of the competitive dynamics here are the wins that you talked about alluded to as well as once you hope to hope to get over the next six to 12 months here.
Are you winning like flagships at some of these large customers or or or you know high end skus or maybe you can characterize how the competitive dynamics play into where you're winning and how you expect that to change and evolve over the next year.
Look I mean.
Yes, we are excited about our growth this year Budd.
And the really larger fiber scheme of things were miniscule right. I mean, we're like single digit percentage at best right and that to pure fiber piece, what I mean is not the game not the processor and not be you know some low end processor and then you know not.
Wi Fi on the high end processor right. So the big growth really next year, we're going to charge because of the flagship players right and then but theres going to be the annuity products with the media and beaches, which is really the meat of the market right. So clearly you always want to come from high end to the low end, that's always been our strategy otherwise youre not appreciating enough.
Now with the big flagship in North America, we have the most premier platform in any gateway in the world.
And that is setting the stage of the as a sort of a pool. If you will from the operators and the customers do our Delaware Midland platforms or to the high end platform. So there'll be a we are in a position to win both the high end Skus into me that skews. So I hope that answers your question.
That's very helpful. Kishore. Thanks, that's all for me.
And you really want to think of the media and as <unk>.
Not small at all it is actually the meat of it.
Excluding China right. If you just look North America and Europe .
The dollars why the high end, maybe equally insights to me then but the building is significant right and so that's that's pretty exciting.
Yeah.
Thank you. Our next question is from Torrey Swanberg with Stifel. Please proceed with your question.
Yes. Thank you I just had a follow up on the industrial and multi market business.
And I understand you know your comments about timing and catch up and things like that but it's approaching the size of your connectivity revenue. It looks like it's going to be this the second strongest growth driver this year. So.
What else is going on there I know youll have some some power products for the server market.
Wondering where we stand there.
Are you also seeing some high asp's from the interface products.
Any more color because obviously this is toby come your second largest growth engine this year beyond connectivity.
Sorry about that question you've got me, so excited but I don't know how to even break it down right lots of exciting things happening in the industrial multi market.
Strong interface ESP growth right and because we have added a lot of new broad expert taking market share gains from our rivals in the industrial space actually.
We don't talk too much about and then in.
And is power management growth.
Yes, you talked about servers, but there is growth happening in non civil market, which is like a major platforms and which hopefully we can we'll get the permission to talk about.
We are waiting for that to happen and and we're also looking at a power management growth in various other platforms that are not that are not ours, which we were putting this category.
And because we have Ethernet for example, it goes every other market then suddenly there's discussion about overpower it there's discussion about our other interface. Other things we can sell them. So this seems to be this scale is giving us a lot of traction, which otherwise standalone three or four years ago. We didn't have the same level of production.
We also added a significant number of skus and products that have been silently growing and so we never had a thematic description about how that growth is coming. So so we have agreed internally that we will do an analyst day.
So that each of our general managers can talk about their businesses and they.
Hopefully it will happen in the next six months and we will get to share more details there.
Sounds good looking forward to it thank you.
Thank you Dori.
With that Ah.
I just want to let you know that we got a big calendar coming year on Investor conferences, we will be so we'll be participating at the following conferences in Q3, we had the Oppenheimer annual technology Internet and Communications conference on August nine the third.
Third annual Needham virtual semiconductor and semi cap conference on August 24, the Deutsche Bank Technology Conference on August 31st and the Wells Fargo leverage Finance conference on September eight so we look forward to.
You know talking to you guys again when until then.
Have a great summer and thank you operator.
Sure.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
Okay.
[music].