Q3 2022 Maxlinear Inc Earnings Call
Ladies and gentlemen.
<unk> the call the conference I'll start.
Yeah.
Yeah.
[music].
Greetings and welcome to my plenty, our Q3 earnings call at this time at this time all participants are in a listen only mode a brief.
A question and answer session will follow the formal presentation.
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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 MS. Grant you may begin.
Thank you Victoria Good afternoon, everyone and thank you for joining us on today's conference call to discuss Max linear third quarter 2022 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 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 fourth quarter of 2020 to revenue revenue growth expectations in our principal target markets and GAAP and non-GAAP gross margin operating expenses effective.
X rate and interest and other expenses. In addition, we will make forward looking statements relating to trends opportunities and uncertainties in various products and geographic markets, including without limitation statements concerning opportunities arising from our broadband infrastructure connectivity and industrial market.
And opportunities for improved revenue across our target markets. Additionally.
Additionally, we may 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 from the current geopolitical concerns competition supply constraints facing the semiconductor.
Industry Global trade and export restrictions the impact of COVID-19 pandemic are dependent on a limited number of customers average selling price trends and the 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 September 32022, which we filed today any forward looking statements are made as of today and that's where they are has no obligation or to update or revise any.
Forward looking statements the third quarter of 2022 earnings release is available on the Investor Relations section of our website at Max linear Dot Com. In addition, we report certain historical financial metrics, including net revenue gross margin operating expenses 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 presentation and the press release available on our website, we do not provide a reconciliation of non-GAAP guidance for future periods because of the.
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 GAAP financial results. We are providing this information to enable investors to perform 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 Doctor key shorts injury boots CEO of Max linear Kishore. Thank you Leslie and good afternoon, everyone. Our Q3 revenue was $285 $7 million up 2%.
Ali.
And 24% year on year basis.
non-GAAP gross margin was 62% and non-GAAP operating margin was 33, 9% with cash flows from operating activities of $61.8 million, we continue to see exciting near and long term growth drivers across fiber access gateways, Wifi connectivity wireless and optical infrastructure and industrial applications.
<unk>, which will allow us to outperform our end markets by our share gains and increase silicon content in customer platforms.
Turning to the business highlights our Wi Fi connectivity business grew robustly in Q3 with revenues more than tripling year over year.
But he is on a revenue run rate. We believe we are well on our way to doubling our mifi revenues in 2022 versus 2021 and all.
On target to deliver 200 million plus in sales in financial year 2023, or.
Our strong Wifi, six and <unk> offerings are expanding their customer platform attach rates and also driving a strong pipeline of new customer design wins.
Also as we continue to strongly Ram product into third party Standalone routers, we are expanding and diversifying our library revenues beyond service provider applications.
Last week, we announced our <unk> 700 product family, which is the industry's first <unk> seven standard Tri band single Chip system on chip solution targeting access points in broadband gateways.
It delivers drugs patient streams simultaneously over two five gigahertz, <unk> and six gigahertz Wi Fi spectrum bands.
700 families couldn't be sampling and we expect to see beef 700 enabled customer product starting in 2023.
Mifi six E six and seven and standard based products represent an unprecedented multiyear growth driver, but my body, but you didn't really in home connectivity speeds close to 20 Gigabits per second.
With each new generation of Wifi, we're increasing our differentiation gaining market share and driving higher platform attach rates.
Average selling prices.
Moving to broadband fiber multiple customers in North America currently wrapping up products, including a large tier one operator, we mentioned before.
In 2020, due our fiber access revenues are expected to increase more than four times versus 2021 with continuing momentum into 2023.
Our latest generation of Amy Van broadband Associates, which we recently announced support multiple access technologies in a single solution.
Putting fiber copper coaxial cable fixed wireless access and Ethernet.
It will enable operators and Oems to cost effectively upgrade their networks and to rapidly rollout new high performance.
Multi gigabit solutions to customers.
Labour broadband represents a very large multiyear revenue growth opportunity for us. So we are excited by the market traction for our industry leading integrated.
Born and 10 gigabit fiber processor gateway associate solution second our significant and growing fiber platform below material content and third are proliferating design wins beyond North America.
Italy ongoing capex commitments from carriers and governmental incentives with fiber upgrades.
Our strong growth catalysts for our broadband revenues.
Moving to infrastructure in five D. Var. This infrastructure revenues grew despite backend packaged substrate substrate supply constraints in Q1 2023 with increases in substrate capacity anticipated.
I'll be better able to address a strong backlog of continuing customer demand for wireless access and backhaul solutions.
Especially benefiting from the expanded rollout of multi band millimeter wave and microwave backhaul platform solutions as a part of new <unk> network rollout across several large geographies such as India.
These multi band platforms more than double our content per platform and grow our addressable units as far as your networks proliferate, we expect our revenues to grow in the near intermediate.
Owing to our industry, leading full system silicon solutions for wireless backhaul and <unk> artist Transceivers.
Moving to the rapidly growing high speed optical data center interconnect market, we are a leading strategic position with the Keystone family of products, which is the industry's only five nanometer Cmos 400, gigabit and Eaton to gigabit Pam four production ready silicon.
Based on the anticipated trajectory of growth in hybrid spiel scale cloud data and processing requirements and our ongoing success with product qualifications at multiple Oems, we feel confident in our ability to strongly grow our data center revenues in the next upgrade cycle.
During Q3, we also announced the availability of Panther III the latest in our Panther series of stories accelerators. We showcase this product at the flash memory summit in Santa Clara, California, really done best offshore for the Flash memory enterprise business application category.
Three opens up new opportunities for us within the enterprise storage market, including all flash Aerie and non volatile memory Express systems with that let me turn the call over to Steve Litchfield, Our Chief Financial Officer, and Chief Corporate strategy Officer.
Thanks Kishore.
Total revenue for the third quarter was $285 7 million up 2% versus Q2 and up 24% year over year.
Broadband revenue was $120 million down, 14% versus Q2 and down 5% year over year and was in line with our expectations entering the quarter, our connectivity and end market.
<unk> had strong growth sequentially in Q3, as a result of solid demand and an easing of Wi Fi supply constraints.
Connectivity revenue in the quarter was $83 million up 46% sequentially and 118% year on year.
Our infrastructure end market had revenue of $36 million flat versus the prior quarter and up 22% year on year.
Infrastructure performance was slightly better than we expected in the quarter.
And was driven by strength in high performance analog mostly offset by ongoing supply constraints and substrates lastly, our industrial and multi market revenue was $47 million in Q3, a 3% sequential decrease and an increase of 30% year on year.
GAAP and non-GAAP gross margin for the third quarter were approximately 58, 6% and 62% of revenue.
The delta between GAAP and non-GAAP gross margin in the third quarter was primarily driven by $9 3 million of acquisition related intangible asset amortization.
Third quarter GAAP operating expenses were $115 5 million, including stock based compensation and performance based equity accruals of $37 million combined acquisition and integration costs of $1 3 million in amortization of purchased intangible assets of $1 5 million.
non-GAAP operating expenses were $80 4 million down $3 9 million versus Q2.
non-GAAP operating margin for Q2, 2022 was 33, 9%.
GAAP interest and other expense during the quarter was $7 4 million and non-GAAP interest and other expense was $7 3 million.
In Q3 cash flow generated from operating activities was 61 8 million and cash flow generation year to date has more than doubled compared with the same period in 2022.
During Q3, we made a $75 million prepayment against our long term debt position and we have subsequently paid down an additional $25 million so far in October .
We exited Q3 of 2022 was slightly over $200 million in cash cash equivalents restricted cash and short term investments.
Our days sales outstanding for the third quarter was approximately 57 days up from 45 days in Q2, largely driven by shipment linearity due to supply constraints for our Wi Fi products.
Our gross inventory turns were two eight times, which were essentially flat from the previous quarter.
This concludes the discussion of our Q3 financial results.
Before we go to guidance I want to give you an update on the status of our pending acquisition of Silicon motion.
On August 31st Silicon motion shareholders approved the acquisition. In addition during Q3, we converted to filing under the normal procedure with Sandler.
We are progressing through the process and believe we remain on track for a mid 2023 close.
We have fully committed financing for this transaction and are actively working to optimize the debt structure to lower our expected cost of capital.
We are excited about the opportunities for our combined business and look forward to bringing our two technology focused cultures together soon.
With that let's turn to our guidance for Q4.
We currently expect revenue in the third quarter of 2022 to be between $285 million and $295 million up approximately 2% at the midpoint of the range versus the previous quarter and up approximately 17% versus Q4 of the prior year.
Looking at Q4 by end market, we expect broadband revenue to be down quarter over quarter.
Connectivity is expected to be up versus Q3, driven by continued strength in Wi Fi.
In infrastructure, we are expecting revenue to be slightly down compared with Q3 as substrate supply issues continue to persist lastly, we expect our industrial multi market revenue to be approximately flat quarter over quarter.
We expect fourth quarter GAAP gross profit margin to be approximately 55, 5% to 58, 5% and.
And non-GAAP gross profit margin to be in the range of 59 and 62% of revenue.
The sequential decline in gross margin is being driven by the combination of near term product customer and end market mix headwinds. In addition to recent supply risk from our lower cost manufacturing manufacturing partners in Asia.
We expect Q4 2022, GAAP operating expenses to be in the range of $114 million to a $120 million. We expect Q4 2022, non-GAAP operating expenses to be in the range of 77 million to $83 million.
We expect our GAAP tax rate to be approximately 30% and non-GAAP tax rate to be roughly 6%.
We expect GAAP and non-GAAP interest and other expense to be roughly $5 million.
In closing, our solid execution and innovative product offerings are enabling us to perform well in a dynamic environment. We believe that we can continue to expand our presence in strategic markets such as Wi Fi.
Fiber broadband access gateways and wireless infrastructure, where our growth drivers are less dependent on macro conditions. We're excited by these developing opportunities to unlock additional business value for our shareholders with that I'll open up the call for questions operator.
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Our first question comes from Quinn Bolton with Needham <unk> co. Please go ahead.
Hey, guys. Thanks for taking my question I guess, Stephen Kishore, I'm surprised a little bit of the volatility between sort of weakness in broadband and shrink and connectivity and I guess, maybe can you provide a little bit more color with what's what's behind the recent weakness in the broadband segment of the market.
And the.
Second question is the Wi Fi seems to be.
Very strongly here in Q3 and end up again in Q4, how sustainable is that do you think there's some catch up revenue is Wi Fi constraints ease.
Do you think there's any inventory building taking place in those Wi Fi components, given some of the past capacity constraints I guess, how how comfortable are you with that the sustainability of Wi Fi business.
At the second half 'twenty two levels.
Hey, Quinn.
I'll start out anyway.
So first of all so the Wi Fi is kind of inline with what we had expected last quarter. We were short on Wi Fi a lot of that driven by supply constraints for so there was a bit of catch up in the current Q3 quarter.
That being said, we see continued growth as we continue to take more market share we've talked about the ASP increases as well and so that's showing more progress and then lastly, the third party routers. We mentioned the third party routers would kind of just get going in the second half of the year as supply comes on.
And that's that's exactly the way, it's playing out we'll start to see that third party router business start to ramp in Q4 and continuing into the first half of the year.
And then just any comments on that on the broadband and fiber and cable.
Business.
Yeah, well I mean, we highlighted.
The progress that we're making on the business.
On the broadband side broadband had been running.
Head I would say a little bit, particularly in the last quarter in Q2, it was growing well north of 20%, we had anticipated that moderating a little bit this quarter and that's exactly what happened so comfortable with the progress on.
On the cable operator side fiber is something we're really excited about we highlighted this in our prepared remarks.
Business is doing well, we're underpenetrated in the market today, we have a lot of new products. We have some new customers that are ramping in the second half of this year, it's still relatively small in the whole scheme of things, but we do see a lot of growth, especially going into 2023, where we think we have the potential to double the fiber revenues are.
Fiber related revenues.
Next year over 22.
Great and then just one follow up on the margins, obviously, it sounds like the mix towards Wi Fi.
In Q4 is behind the kind of lower gross margin as you look out to next year with Wi Fi expected to be 200 million or more do you think that 59 to 62 is is that more where you would expect gross margin to trend next year or do you see strength in infrastructure or other products, perhaps coming back.
Next year that they can walk you back up towards the 62% you had been running at more recently.
Good question. So this ones.
As we look out I don't think our long term view of our gross margins have changed at all.
Little bit of a perfect storm going with the mix, we've been talking about the headwinds on mix that we had been seeing so yes, you're correct in that that Wi Fi ramping in Q4 and into next year is hurting us.
Another piece of the puzzle is infrastructure infrastructure is a little lighter than than originally planned.
Talked about the substrate shortages that we had seen so as those shortages ease I do expect to see more infrastructure revenues improve in Q1 and Q2 of next year.
So we will see gross margins move back up but I think it takes a little bit of time to move back to our long term model.
Got it thank you.
Next question comes from tore Svanberg with T cell. Please go ahead.
Yes, congratulations on the results I had a follow up on the fiber gateway I think you've called out hunting a design win pipeline of more than $300 million.
I'm sure you're not going to give you the exact number but.
Where are we sort of.
And converting that pipeline.
At this point.
So I mean.
With regard to fiber in general we've talked about multiple customers ramping this year, we will see that we've talked about it doubling next year I think we still remain comfortable with that.
I still think it's early days I think that we've talked a lot about this being a multi year cycle as we see more and more folks.
Telecom guys converting over to fiber so we're seeing that around the world.
So it's an exciting area for us.
From a market growth standpoint, but also we've got a lot of new products ourselves that kishore highlighted in his remarks, and so I do think that's a great place to be we're very underpenetrated in the market and I think our customers are looking for some alternatives here.
Very good.
Sure you really called out your wireless infrastructure business.
Should be able to see some strong growth in Q1.
<unk>.
Some of these.
Supply constraints ease I was just hoping you could elaborate a little bit more on that I mean this is obviously a backlog that you already have.
Is it pretty diversified geographically.
Perhaps you can add some color on that.
Hey, jewelry, yes, Oh, we really are seeing a strong continued demand building and as reflected in their bag with a very strong backlog for the next year.
And that started one that'd be the accumulated early in the year and we're just seeing in the next James It's continually building, we really constrained by the special <unk> substrate capacity issues. We have secured dedicated capacity that should come online in Q1, So we should be.
Youll see next year to be a very strong wireless.
Wireless infrastructure year S that so we're getting back to the gross margin comment that is one of the other.
The mix issue that affected us because we could not ship.
Regarding geographic diversity.
Absolutely I mean video AUC major ER Telecom Oems are deploying a wireless <unk> network. Rollouts are you can expect that invaded believe he would be ubiquitously present that these rollouts as a full system solution vendor for for microwave backhaul.
And for millimeter wave modems right. So whenever you hear millimeter wave deployments and more likely than not it's our chips.
So and you know that would be the <unk> rollout to all kinds of backhaul front of all of them, becoming important and I referred to a multi band rollouts not just one kind of backhaul nowadays.
Rolling on in.
Conjunction both millimeter wave and microwave backhaul on the same antenna multiple actually so it is a damn doubling happening right now as we speak.
So geographically we are everywhere right.
Other than <unk>.
We have to follow you as regulatory restrictions on on export control regimes right. So so you can be safe that we are everywhere, the microwave and millimeter wave is being rolled out on the access side.
Geographically the U S is one of the end markets that were very strongly present and there are other markets that are coming online.
Of which some of them are in South Asia and those are just getting started okay.
Great just one clarification question for Steve Steve you called out risks associated with lower cost Asian suppliers. I think that's the first time I've sort of heard that as a risk for gross margin can you just clarify what you meant by that.
Yes, yes.
I'm sure there'll be plenty of commentary around many semiconductor companies, but the new recent export control.
Restrictions that were kind of rolled out last week.
We are assessing how that relates to us I mean on the customer front naturally we're addressing it but then it also applies on the supplier front as well and so some of our existing suppliers.
Are either current suppliers or future suppliers that we have to kind of manage in and that helps us to reduce gross margins long term as we've talked about previously.
Okay. Thank you.
Yeah.
Next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
Hey, guys. Good afternoon, Thanks for taking my question.
Wanted to call out a few things that were highlighted in there in your 10-Q I think you just spoke to maybe one of them.
I noticed that you have a pretty high concentration with one specific customer highlighting the Q, 31% I think that's the highest you've ever had in terms of concentration is that directors had a distributor in its distribution.
What what is the specific drivers to that level of concentration and I also noticed that appears to your supply footprint.
Supply footprint seems to be getting more diverse and.
I'm wondering if anything if there's anything there to read into that.
Yeah Gary.
No problem at all yet so we do we do have two or three customers that are large we did have one in particular that picked up this past quarter as we caught up on our Wi Fi shipments.
So it did it did rise in the last quarter, but I wouldn't say that necessarily changes dramatically from what we've had historically as youre aware theres a number of these gateway suppliers and you know we focus on all of them frankly, and we're looking to grow each of those really.
<unk> chips as well as the operators and I think at the end of the day. These operators are making the big decisions and the big Rollouts and the upgrades that are happening around the world and that's really where we find that we're spending most of our time.
On the near term.
Recently on the supplier side of the equation.
Yeah, I know in the previous quarter. It did diversify a bit there too I would I would say no not a whole lot to read into it.
In the if you look over the last year, it's fluctuated a little bit just do and it kind of goes back to the supply constraints.
We have to get product when we can get product and you saw that in a in a slight increase in our inventory last quarter as we start to build.
More with for future revenue growth.
Okay.
I wanted to I guess, considering the hypersensitivity everybody has with respect to semiconductor cycle I wanted to ask you guys about.
Bookings trends your backlog trends.
Given all of the shifting.
Dynamics and demand and supply where do you guys stand with respect to backlog backlog coverage and your book to bill ratio for the quarter.
So so I think what we found in Q3 was pretty consistent with what our expectations were and I think I even spoke to this last quarter.
You know as lead times have started to shorten we'd seen bookings come down.
No real surprises there I think as we look out into 2023.
Probably well not probably this is the highest level of backlog that the company has ever had so that's really encouraging that being said customer.
Customers are starting to move around on shipment dates I mentioned this last quarter as well. So I think here to not a big surprise, we're watching it closely I think where we're excited.
We've got several growth drivers that we've highlighted fiber infrastructure some of the backhaul things that keeps you were speaking about earlier.
Those businesses are growing nicely and they should be countered to any industry slowdown that inevitably we will see in 2023.
Thanks for that color I appreciate it.
Sure.
Next question comes from Alessandra Vecchi with William Blair. Please go ahead.
Hey, congratulations on a great quarter in a tough environment.
Steve just one for you as a housekeeping questions on Opex you delivered opex.
Although the low end of guide this quarter and you're kind of holding it flat even with what we needed to up in Q4, how do we think about that as supply constraints ease next year calendar no inflation.
Etc.
Yes. So good question I mean, we're.
I would say that we're watching opex closely.
Especially kind of given some of the turbulence that you see in the market and volatility going on so we want to be disciplined in that environment as you've seen us do in the past and I think that kind of shows here. We've also got some offsetting.
In our $8 that are coming in offsetting opex and so that can help fluctuate.
On some of that we do expect probably going into next year your normal beginning of the year.
Taxes, and the like Merit increases definitely we would expect to see go up I think.
With respect to inflation I think we continue to see wage inflation.
And other aspects of inflation in various aspects of our business, but wages are the primary piece and we've definitely seen that and I think that's going to persist for a while as that's typically a lagging indicator.
Yeah, exactly and then not to beat a dead horse, but just on the substrate easing as we move through Q4 into next year. I think you had mentioned in the past diversifying substrate supplier. It's just in line with your commentary for risks around Asian suppliers do you see any potential hiccups.
There as you move through the year.
Uh huh.
Uh huh.
Kishore.
The.
On the substrate supply capacity.
We have been working on these easing of this capacity from I would say.
The first half of the year onwards, it takes a long time to qualify high performance substrates, but really really high frequency applications, they're very few vendors in the world that can support that level of substrate.
Capacity, that's in it into the product design itself and so.
It is going to come online because we know it's going to come online in Q1 number one and these are not.
It really doesn't apply to all the other Asian suppliers that are you know you may have concluded from the remark on suppliers and.
So we had aren't impacted by that however, we are getting dedicated capacity for high performance substrates.
We are enabling a couple of other substrate vendors, who could be potentially capable of giving additional supply.
No risk of any explore regulatory issues.
With these particular substrate supplier that are in what I call deemed friendly countries right. So that's where we are okay.
Perfect that was very helpful. Thank you Kishore.
With that I'll move on.
Thanks, Alex.
Next question comes from David.
With benchmark. Please go ahead.
Hey, good afternoon. Thanks for let me ask the question and congrats on the performance in this environment.
Thanks, Ed.
Yeah, Hey, Steve So maybe maybe first with you just kind of thinking about the scalability of the business now with and you've got revenues that are north of $1 billion now significant growth over the last couple of years, but you've got Wi Fi seven platform that any one or any one gateway processors in the pipeline and a lot of really nice growth drivers here.
And of course are paying for that kicks in perhaps next year, but how do you think about the scalability of the business as you move forward in terms of when you are kind of couple all of this together what does the growth trend looked like if you were thinking you know 18, 24 36 months out.
Yeah, David I mean look we.
We have several product lines that we're very excited about that we've been investing in and I think as I think about some of the longer term growth drivers that you're kind of highlighting that as we look out over the next couple of years.
Infrastructure is something that we've been investing in whether its on the data center front wireless infrastructure front.
That is an area of long term sustained growth that has kind of a large tam associated with it.
We continue I mean, it's really early days I think on the Wi Fi and Ethernet side. These are markets that are well in excess of a couple of billion dollars.
We were beginning the portfolio there I think you'll start to see even more derivatives come off of those existing products and I think that that.
It's an area.
Based on the market size and growth the Asp's I mean, just the silicon content. The complexity of the parts continues to go up and that will benefit from that.
So.
Those are a couple of them clearly the fiber side is something we're very focused on and those gateways and youre seeing five or being rolled out around the world as there's more and more needs. There. You've also got a lot of government subsidies you know really.
Encouraging folks to roll out fiber and so we've got a lot of.
Dedicated effort on that front as well.
Okay. Thanks, so much and then here's one that I'm not sure that that you'll be able to answer, but just kind of thinking about the Sino acquisition and maybe some of the recent restrictions that have gone into place. It seems like that could be a potential headwind for for the <unk> business. How do you think about that is there anything that's changed I guess from your evaluation or just kind of how you're thinking about that.
And any anything meaningful there that you could share.
Look I mean, we are I don't think there is a question that even I can answer right.
Exactly.
So I think we believe that it's incredibly strategic acquisition for us Silicon motion.
Any capitals as into a very scaled our.
Business with really a presence in one of the largest stands in the world for Silicon basically the storage markets.
Be it a truly silicon motions consumer market, but really the goal is really to expand.
Almost zero footprint into enterprise with our presence in the United States. So and if you couple that with the Panther product that we just talked about it's really a nice entry along with our agent Pam four and 400 gig Pam, Florida, the cloud data center markets.
Markets as well so I think it's a very exciting strategic market beyond the benefits of scale on the supplier side it will provide us.
So we remain optimistic and are and we are really really are waiting anxiously anxiously to hear back in terms of when this thing will close a while being cautionary about the timelines.
So no change in our view over the value of the of the transaction.
And we would have done in the first place you would be better than that convinced.
We don't do we will not get into something we don't have real conviction and belief and so.
So pretty excited and the business and their business seem to be not doing any oh, you know what I call. The anything more adverse than we had planned for it because even at the time of the acquisition David some headwinds in the market in the normal cycle for storage and consumer product. So we're comfortable.
With where things are.
Okay, well. Thanks, so much certainly appreciate the color and best of luck on the quarter guys.
Next question comes from Christopher <unk>.
With Susquehanna Financial Group. Please go ahead.
Okay.
Thanks for the question guys I wanted to go back to broadband again, there I didn't I didn't quite understand.
Why we are seeing weakness here, we were a little bit weaker than we had expected for September and then we had oh actually estimated some growth in December as well.
Is this just a mismatch between fiber ramping and weakness in cable or are there some supply issues here as well.
And then.
Would we expect some sort of reacceleration in 'twenty, three and would that be as early as March or how are you guys kind of looking for a reacceleration in that business. Thanks.
Yeah, Chris.
So let me maybe clarify what I said earlier, so we definitely saw.
Look there are some crosscurrents in the business I mean, we do ship a number of different products into these gateways and so they're often mismatches and we definitely saw that in Q2 and Q3, so we're starting to to get through that.
I think the root of your question is maybe a little bit longer term what are we seeing for the broadband business as a whole and I think the way I would.
Characterize it as we look into 2023, I mean, we've had a very strong 2022.
We see the same environment that youre seeing out there.
And being cautious so it wouldn't be surprising to see some moderation next year on the broadband side.
That being said, we've got a lot of new business that will offset any slowdowns that would potentially be there.
And you know some of the fiber businesses that we have just now ramping we've got new customers new products that are all new to us. So that's exciting it's still early days I think.
That business is still.
It's not super material, but tens of millions of dollars of incremental revenue that can come from that business next year.
Should we expect broadband to grow next year or is that a little too optimistic.
As I just stated I mean, I don't think it would be surprising if moderate come down a little bit next year.
Okay fair enough and I'll give you an easy one Steve and then.
And then Kishore a more of a technical question.
Steve Yours is around.
Accounts receivable that was up.
That speak to the linearity or something else and then Kishore.
Considering your Pam four products have you thought about entering the active electrical cable market. Thanks.
So the short answer on the receivables yeah. It was linearity mentioned that in the prepared remarks.
The shortages that we saw kind of late Q2 rolled over into Q3, so definitely the linearity in the quarter was the reason for the receivables went up.
Chris are absolutely are I think we just had this conference where one of the vendors were showing.
Active optical cables with our Pam four solution and there's a lot of demand for utilizing our low power chips and active electrical cables.
So from our perspective.
Just one end applications and as the speeds increase.
Active electrical cables will become more and more important for the the whole side of the interconnect. So yes. We are in this and we have a fantastic solution and there's a lot of demand for that so yes, that's the short answer.
Thank you guys.
Okay.
Next question comes from Amanda Baruah from Loop capital. Please go ahead.
Hey, Yeah. Good afternoon, guys. Thanks for taking the question.
Yeah, a couple for me.
You mentioned in kitchens.
For you as well.
Do you believe you're not seeing.
Any any legitimate impact from from a macro view I think you mentioned you expect to see it in 2023, I think you said you've determined that the boy Oh.
But what do you think you are seeing anything yet.
So.
Look I mean.
It's very you know.
It's one of those things.
You've already that everybody is talking about it so it must be true right and.
And then the.
Other than the behavior of some of our customers who are trying to reschedule deliveries against a very strong backlog and a developing backlog.
You know, it's it's very hard for us to predict.
The future next year and so the assumption is that things are not going to be you know as euphoric as they were last year and even this year, though we are continuing to guide a good quarter again into Q4 right.
So as we are just like everybody is saying things are going to be bad.
<unk> also be prepared for things are bad so.
To give you any more intelligence than that right. So there may be a cautious, but we are focusing on our investments on the strategic Tam expanding products with Atms in the optical side of it. It is in wireless whether it is in fiber gateways and Wifi right. We've talked about all of those products.
And so the way I look at the thing is that longer term can we grow organically from where we are today.
What are the let's go to the Street number is $1 1 billion.
For 2021, 2022, and can we get to $2 billion in five years from now or something and because of the product portfolio and the customer traction and the sort of what I call. The walled garden, if you will up our nature of our product offerings.
There is no reason why we don't have a pathway to that so next year.
Yes.
And then a year since we are since we started the company negotiated downturns, but it says never scared as we have a we've always come out very strong with very strong product portfolio offering.
And I see no reason to change course, and mentality on that one so I hope that answers your question on that yes.
I appreciate it.
I guess, just a quick follow up to that one.
Building on that what what are the what are the businesses that are the areas I guess that you guys see as being most constrained currently and what would you consider to be your strongest.
Your line area.
Could you repeat the question the first part of it please.
Yeah.
So what would your athletes of the of the business you are considered to be the most constrained.
Currently in and then which ones do you see as having the most kind of underlying structural demand.
So you.
You know.
So I think but I think a constraint I think our supply capacity, but we're going to come off that's a play constrains.
By the end of the year in wireless and violence also tend to have some of the strongest if not the strongest undercurrent of demand and we should go very strongly on that one and and the next step would be by by I would say, it's got lots of very very strong growth trajectory in front of it.
And fiber.
Fiber ramp is going to be the honest and that should also give a lot of growth for us cable broadband would be sort of.
As Steve was mentioning sort of moderated downward a little bit.
I think the.
And optical.
The gross figures you should have some strong momentum once it picks up right. So.
Because we are in a pretty good position with respect to our offering on the agent example, importantly band 45 nanometer I think intriguing nice product cycle cadence for Max linear in terms of revenue opportunities with new product offerings that should overcome.
Any negative trends on existing in a larger revenues of the company.
Super helpful. Thanks, So much guys.
Next question comes from Celgene.
With <unk> capital. Please go ahead.
Hi, Kishore, Steve nice job on the margins and the cash generation here in a tough environment. So on.
Optical the ramp the 400 gig data centers, what's the timing of that roughly in.
Are you seeing customer push outs to the macro or the hyperscale data.
Data center guys on on schedule as far as you can tell.
If you look.
On the optical you know like we had said last two years, we have struggled with the gateway convince even there were supply constraints.
And what he called 50 gigabit per Lambda electrical and I know 100 gig per Lambda optical 400 gig solutions.
Hopefully that chapter is behind us in the next generation of upgrade cycle at 100 gig per Lambda and bolt on electrical and the optical side.
And we expect that our revenues are.
Given the availability of production Silicon right now everything goes to plan, we should start.
Our customers should start ramping product in the second half of next year, but we should see revenue picking up leading up into the second half of next year. So.
It would be.
Any.
What they call a delays absolutely when a product is being ramped into production and our own intelligence with regard to.
The latest data center guys out in terms of the Capex and the spend in there.
In the next year.
He is not as current as we would like it to be right now so where they are going full steam ahead with designing with their product. So so I don't know what the extent of our changed level will be overall as data centers go.
Okay helpful color, there and this is a bit of a stretch maybe but.
And you guys used to have the satellite business and there is a big talk now in the market for satellite broadband direct to sell I'm curious if that's an interesting market to Mexican here from a content size opportunity and if.
There's an opportunity there for you guys going forward.
Oh yeah.
So <unk>.
Can I say, okay, but.
All I would say is that.
The obviously the technology of the products that could enable a satellite broadband into the home. However, the ability per satellite to compete in mass market consumption of broadband access at home.
He is really subpar.
Right, because it's really a technology men for rural areas and maybe more zones, you know I don't know, but but as far as where the revenue will be generated in terms of <unk>. I think satellite is really really far behind he is getting a lot more.
Fantasia that glamour due to reasons that are Unbeknownst to me, but.
I don't think it compares at all.
To fiber or even pre fixed wireless access.
Thanks for the very clear opinion contributed.
Yeah.
Next question comes from tore Svanberg with Oh go ahead.
Yeah. Thanks, I just had two quick follow ups.
The first topic is enterprise and you talked about the tenor three.
For storage explanation I'm just wondering if it is that one of those sort of inflection points to give you.
Better traction in enterprise and are you starting to also get some follow through on your Ethernet that Peter as well.
Very good question and the answer to your question is yes, and yes.
So if it happens inflection point in growth in enterprise on the story of the accelerators really happens towards the end of next year, but we're already getting a lead and a demand for <unk> products and.
Martin.
The largest enterprise application storage guy.
And we hope to proliferate other sockets moving forward on the Ethernet side absolutely.
We're getting good traction on the enterprise side, but we're not we're not yet ramping EBITDA socket yet.
Very good and my other follow up was on the third party router business.
Is that primarily a north American market or is that more of a global market.
At this point it.
It is.
I'd say its a global market, it's not a north American market, because I think North America.
Hello, routers tend to be very consumer ish in nature.
But it is globally the model could be quite different and we are even though it's a standalone router market. These are the these are.
What do you call a linkage with our with sort of you know operator clause deployments for Wifi distribution inside the home.
Got it.
I mean, it's still completely new opportunity for you right. I mean, you didn't have any exposure there before yes and in fact, the revenue growth that we're talking about where I think it's quite an are you pointed out whatever disconnects between the broadband revenue in Wi Fi revenue are in terms of the numbers in Wifi is exactly due to that we are ramping very strongly.
Leading to third party the older Wi Fi and and we're having very good success. In fact, you would have had even bigger sexes had we had insufficient capacity over the last two quarters and now with the agenda of schizophrenia in the market.
You know we are a little bit careful that the demand that exists.
We're going to be sticky enough through the through a potential downturn.
That's great color. Thank you.
Alright.
Thank you operator are we will be I, just wanted to let everybody on the call know that we'll be participating at the following conferences. The first one is the Stifel Conference in Chicago on November 10th.
The Roth Conference in New York on November 16, the Credit Suisse Conference in Scottsdale on November 29.
Wells Fargo Carnival, Las Vegas November 30th the Susquehanna, which have gone up and then December 14th.
And the Needham growth Conference in New York on January 10.
So with that I want to thank you all for joining us today on this call and we look forward to reporting on our progress to you next quarter. Thank you bye.
Bye.
This concludes today's conference call.
Disconnect your lines at this time, thank you for your participation.
Okay.
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