Q4 2022 Maxlinear Inc Earnings Call
Greetings and welcome to the Max linear fourth quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please.
Please note that this conference call is being recorded.
I will now turn the conference over to our host Leslie Green of Investor Relations. Thank you you may begin.
You Diego and good afternoon, everyone and thank you for joining us on today's conference call to discuss black plenty of fourth 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, including forward looking statements within the meaning of applicable securities laws, including statements relating to our guidance for first quarter 2023, including revenue GAAP and non-GAAP gross margin GAAP and non-GAAP operating expenses, GAAP and non-GAAP effective tax.
Right, GAAP and non-GAAP interest and other expenses and GAAP and non-GAAP diluted share Count. In addition, we will be making 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 wireless.
Infrastructure connectivity and industrial markets timing for the launch of our products and opportunities for improved revenue and market share across our target markets. 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 from our proposed merger with silicon motion, including the anticipated timing of the People's Republic of China State administration for market regulation or Sandler reveal.
Risks related to increased indebtedness competition, the impacts of global economic downturn and high inflation, our ability to obtain government authorization to export certain of our products, our technology and our failure to manage our relationships with four negative impact from third parties.
More information on these and other risks is outlined in the risk factors section of our recent SEC filings, including our Form 10-K for the year ended December 31st 2022, 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 fourth quarter of 2022 earnings release is available in the Investor Relations section of our website at Max Lenny Our Dot Com. In addition, we report certain historical financial metrics, including gross margin operating margin operating expenses and interest and other expense 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 did not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock based compensation and its associated tax effects non-GAAP financial measures discussed today are not meant to be considered in isolation.
Or as a substitute for the comparable GAAP financial measures. We are providing this information because management believes it to be useful to investors as it reflects how many I spent that measures. 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 Kishore extent repute CEO of Max linear Kishore. Thank you Leslie and good afternoon, everyone. Our Q4 revenue was $296 million up 2% sequentially and 17% year on year capping a major milestone in fiscal year 'twenty to 'twenty two.
Record revenues, breaking the $1 billion Mark in operating cash flow of $389 million.
Our Q4 non-GAAP gross margin was 59, 6%.
non-GAAP operating margin was 32.5% with cash flows from operating activities of $69.4 million.
As we look forward, we are energized by the near and long term drivers of our growth trajectory.
Banning fiber broadband access gateway Wi Fi connectivity wireless and optical data center and enterprise infrastructure.
Entering 2023, we're confident in our ability to outperform our end markets.
Share gains and expanding silicon content in customer platforms.
Our connectivity business achieved record results with both quarter four.
Quarterly revenue in fiscal 'twenty, two revenue growing nearly 100% year on year.
Our connectivity growth continues to be fueled by the strong market adoption for Wifi, six and succeed access point solutions.
<unk> attach rates in existing customer platforms, and a healthy pipeline of new customer design wins.
Beyond service provider gateway opportunities are ramping design wins in several third party Standalone routers will further expand and diversify our Wifi revenues.
They comprise a new and continuing high volume growth opportunity in 2023.
As we look beyond Wifi, six and succeed our Wifi seven standard compliant. We have 700 product family is currently sampling and he is the industry's first single chip Tri band dwell channel Wifi access point solution.
In the World It will drive increased performance and differentiation higher attach rates E.
ASP improvements and a favorable cost structure versus previous generations and competition.
We expect to see we have 700 enabled customer products' starting late this year.
Turning to broadband coming off several strong quarters of growth in Q4, our revenue declined as expected.
Even as demand moderates to more normalized levels throw in a good period of digesting excess channel inventory. We believe the market is early in a multiyear upgrade cycle of infrastructure modernization by both operators and carriers to enhance customer experience and enable a variety of new revenue generating services.
Market growth in PON is a particular area of strength globally with additional government incentives for fiber upgrades just beginning to roll out later this year.
In this context, we are excited about the solid market traction we have with an industry, leading integrated born and 10 gigabit fiber processor gateway solution.
In 2022, our fiber access revenue increased more than four times from 'twenty to 'twenty, one and we are entering 2023 with strong design win momentum.
Importantly in the fiber bond market, yes.
Relatively small market share today and expect to continue share gains in the coming years with our unique product and technology differentiation.
We currently have multiple customers in North America that being our products, including a large tier one operator.
Design globally beyond North America, along with significant silicon content expansion from our Wifi.
Either that power management and more.
Moving to infrastructure, our wireless infrastructure business grew by over 20%. This past year. Despite a huge shortages of substrates and back in capacity, which resulted in minimal shipments in second half 'twenty to 'twenty two versus demand. However, as we enter Q1, we are excited to see sustained strong demand for a while.
As backhaul and access products.
Along with improvements to our supply chain headwinds.
Throughout 2023, we see great market traction and Theyre excited about wireless infrastructure growth and we continue to benefit from the expanded rollout Paul.
Multi band millimeter wave and microwave backhaul five G platform solutions, because several large geographies.
These multi band platforms normally double or content, but also grew our total addressable units.
In high speed optical data center interconnect, we are a leading strategic position with our second generation and industries only find nanometer Cmos bolder and gigabit Ethernet gigabit basketball product.
Production ready silicon.
We're making good progress in ongoing qualifications and feel confident that our datacenter revenues will grow meaningfully over the next two years.
We're working closely with the Hyperscale data center enterprise and OEM module customers to support the increasing performance requirements.
The industry's transition to 400 gigabit 800 gigabit and beyond.
Our strong Q4 performance on our 'twenty to 'twenty, two revenues of $1 billion plus in operating cash flows of $389 million, our capstone achievements, which are very which gets to be a.
I'm very proud of it.
2022 we also significantly advanced our technology platform.
Expanded our product portfolio offerings.
We have conviction in our strong long term growth, even as we navigate the ongoing macro weakness with extreme discipline. Thanks.
Thanks to our developing technology leadership accelerating design win momentum and expanding target markets, consisting of Wi Fi fiber access wireless and optical infrastructure.
Over the last two years, we have delivered transformative growth and strong financials balancing disciplined expense management and investments in product innovation.
Entering 2023 as a result of our core offering we are once again uniquely poised to grow Max leaving significant profitability levels and increased scale.
Also looking forward to our pending acquisition of Silicon motion and are excited for the future growth opportunities of our comprehensive combined product portfolio.
With that let me now turn the call over to Steve Litchfield, Our Chief Financial Officer, and Chief Corporate strategy Officer.
Thanks sure.
Total revenue for the fourth quarter was $290 6 million up 2% versus Q3 and up 17% year over year broadband revenue was $99 million down 17% versus Q3 and down 23% year on year and was in line with our expectations entering the quarter.
Our connectivity end market had strong growth sequentially in Q4, as a result of solid demand and growing market opportunity connect.
Connectivity revenue in the quarter was $105 million up 27% sequentially and up 99% year on year, our infrastructure end market had revenue of $32 million down 11% versus the prior quarter and flat year on year.
Infrastructure performance was in line with our expectations as a result of ongoing supply constraints and substrates throughout 2022.
Lastly, our industrial and multi market revenue was $55 million in Q4, a 16% sequential increase and an increase of 62% year on year.
GAAP and non-GAAP gross margins for the fourth quarter were approximately 56, 2% and 59, 6% of revenue.
The delta between GAAP and non-GAAP gross margins in the fourth quarter were primarily driven by $9 3 million of acquisition related intangible asset amortization.
The decline from the previous quarter was primarily driven by a mix shift of end market revenues in the quarter.
Fourth quarter GAAP operating expenses were $122 2 million, including stock based compensation and performance based equity accruals of $35 3 million combined.
Acquisition and integration costs of $1 1 million in amortization of purchased intangible assets of $1 3 million.
non-GAAP operating expenses were $78 5 million down $1 9 million versus Q3.
non-GAAP operating margins for Q2, 2022 was 32, 5%.
GAAP interest and other expense during the quarter was <unk> 5 million and non-GAAP interest and other expense was <unk> 4 million.
In Q4 cash flow generated from operating activities was $69 4 million, while cash flow generated for the year increased more than <unk> compared with 2021.
During Q4, we made a $50 million prepayment against our long term debt position, which is at approximately $120 million today and continue to make debt prepayment of priority.
We exited Q4 of 2022 with $207 million in cash cash equivalents restricted cash and short term investments.
Our days sales outstanding for the fourth quarter was approximately 54 days down slightly from 57 days in Q3.
Our gross inventory turns were two six times essentially flat with the previous quarter.
This concludes the discussion of our Q4 financial results before we go to guidance I wanted to give you an update on the status of our pending acquisition of Silicon motion.
We continue to progress with the Sameur approval process and remain optimistic for a mid 2023 close we have fully committed financing for the transaction 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 looking forward to <unk>.
Bringing our two technology focused cultures together soon.
With that let's turn to our guidance for Q1 2023.
We currently expect revenue in the first quarter of 2023 to be between $240 million and $260 million.
Looking at Q1 by end market, we expect broadband revenue to be down quarter over quarter connectivity is expected to be down versus Q4, primarily driven by the timing of Wi Fi shipments between Q4 and Q1.
In infrastructure, we are expecting revenue to increase compared with Q4 and substrate supply constraints continue to ease.
Lastly, we expect our industrial multi market revenue to be down quarter over quarter.
We expect first quarter GAAP gross profit margin to be approximately 55% to 58% and non-GAAP gross profit margin to be in the range of 59% and 62% of revenue.
Gross margin is being driven by a combination of near term product customer and end market mix.
We expect Q1 2023, GAAP operating expenses to be in the range of $114 million to $120 million.
We expect Q1 2023, non-GAAP operating expenses to be in the range of 80 million to $86 million.
We expect our Q1 GAAP tax rate to be approximately 25% and non-GAAP tax rate to be roughly 10%.
We expect our Q1, GAAP and non-GAAP interest and other expense to be roughly $4 million.
And we expect our Q1, GAAP and non-GAAP diluted share count.
Of $81 million to $83 million.
In closing we are navigating a dynamic environment in Q1, but solid execution and innovative product offerings are enabling us to maximize strategic business opportunities with continued success as.
As we enter 2023, we're energized by our traction in Wi Fi fiber broadband access gateways and wireless infrastructure, where our growth drivers are less dependent on macro conditions.
As always we will continue to focus on operational efficiencies fiscal discipline and shareholder value as we optimize for today and plan for an exciting future.
With that we'd like to open up the call for questions.
Operator thank.
Thank you and at this time, we will conduct 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 would 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.
Our first question comes from Alessandra Vecchi of William Blair. Please state your question.
Hi, Thanks for taking my question and congratulations on executing it well, it's probably been a very tough environment.
I'm not I think in the past you've commented on strong backlog. If that's maybe exceeded the year is there any update you can give us on that.
Backlog trends and how you can see.
In backlog on cancellations push outs.
<unk> says et cetera.
Sure Alex.
Yeah. So just briefly on backlog so somewhat consistent with what we've been saying over the last couple of quarters. We have had strong backlog lead times had been long they are definitely getting shorter now and but that being said, we still have a significant amount of backlog.
Consistent with the last two quarters on this call I mean, I've highlighted that customers have been kind of moving around shipment dates and asking for either push outs or cancellations. So we continue to navigate that today as we have been over the last three to six months.
Okay. That's helpful and then on the Wi Fi can streams any more color you can give us there in terms of how to think about the year there as well I think in the past you've talked about over 200 million in revenue do you still see that as possible and do the does the impacting Q1 come back fully in Q2.
Yeah. So on the Wi Fi side, I mean, we had an incredible year I think in 2022, we made lots of progress we were able to increase a lot of our shipments you saw a big pick up in our results in Q4, a lot of that was driven as we got more supply online and customer.
They are definitely taking that so very excited are you talking about that $200 million that we've highlighted as a goal for next year or for 2023.
That remains the goal and we're pushing hard towards it that being said I mean, we are in a pretty difficult environment, where there's a lot of inventory in the channel, but we are continuing to gain good traction we're continuing to see ASP increases and so we're working very hard to get there.
Okay. Thank you with that I'll go back in queue.
Thanks, Alex.
Thank you and our next question comes from Gary Mobley of Wells Fargo Securities. Please state your question.
Hey, guys. Thanks for taking my question I wanted to basically ask about the general tone in the market environment, and maybe more specifically about the 14% sequential revenue decline you're expecting for Q1.
I appreciate you, commenting that broadband and connectivity will both be down sequentially, but between the two what would you say is creating the most amount of headwind or is it sort of equally balanced sort of channel reset.
Yeah, Gary I mean, I'll jump in here I mean.
I mean kind of consistent with my previous comments about just the order rates and visibility I mean, it's definitely cloudy out there and so we're trying to navigate the best we can I think we kind of came into this much later.
Than others. We you know we've continued to see really good demand and and I think overall from a long term perspective. This is kind of multi year broadband cycle.
Continues to be very exciting with the attraction that we're seeing on our fiber product offering as well as Wi Fi is really encouraging I think theres clearly some inventory in the channel that you know that the industry is going to have to work through and you know well, we're doing our best to kind of navigate that with our own business as well.
I mean long term I mean, I feel very good about the progress that we're making.
In each of our end markets with all of our product offerings. So you know you want to look at broadband in two categories right. There's the cable side and the fiber side with fiber side is a contributing growth stay already with share gains and content expansion cable has been a content expansion story and the real next big growth Phillip comes.
DOCSIS 4.2 of launches so I think that the secular growth vectors in place we have the right product offerings.
Indeed, it's very hard to predict what is the channel inventory levels right now or on a on a longer term basis. As we have stated in the script portion of protocol here.
That you know we were really excited weighted Mexican is positioned today.
Got it. Thank you I appreciate the color and just my follow up I wanted to ask about China same or approval process.
What is the communication like with with China's same or are they asking for.
Supportive materials for consideration and have they communicated with you that gives you any cause they communicated with you anything that gives you comfort in the mid 2023 close.
Yeah, Gary with regard to Sam or I mean, we're not going to comment on the dialogue that we have with sameur, but we do remain optimistic as we've consistently said about closing this mid this year.
Got it thank you.
Okay.
Thank you.
And our next question comes from Quinn Bolton of Needham and company. Please state your question.
Hey, guys. Congratulations on a nice close to 2022, obviously the environment any room 23 is a as you said low visibility, but I guess, Steve and Kishore you've talked about inventory in the channel I think in broadband it sounds like Theres. Some in Wi Fi I assume there's probably some in the industrial and multi market.
So I guess my question is typically inventory corrections last longer than a quarter do you expect that to be the case. This time around and can you give us any sense you know.
No.
You think the second half of the year, you start to come back to consumption levels or could the inventory burn potentially last into the second half of 'twenty three.
Hey, Quinn.
This is.
It's a very difficult question.
You were asking we are talking to our Oems and Oems are talking to the operators.
And everybody is trying to get hold of what the total inventory in the channel is.
So while I do not expect the correction to complete the first half of 2023 or projecting far out into the second half of it is very difficult.
Having having said that to you know, we really depend on growth coming in our fiber side the content expansion and.
Our wins.
That ship in outside of the operator gateways or a wifi products as well so why if I E.
<unk> substantially to the operating platform so to speak to a there are growth opportunities in the non operator markets. Our retail router gateway that are more in the operator class. So I would say that I cannot answer your question, it's very cloudy, but I'm optimistic.
As is everybody else that things will revert back in time by the time, we close out 2023.
But for US the growth cycles are really dependent on the on Wifi infrastructure going strongly fiber going strongly and then you know beginning of around but are optical high speed data center interconnect products.
So those are the things that really are we are looking forward to because they set the stage for very strong growth in many years to come.
I guess first to follow up Kishore do you think based on the timing of it.
Third party routers and Wi Fi.
<unk> or share gains in fiber.
The infrastructure ramps, making tell today, whether you think second half of the year is better than first half of the year or is it just too tough to call at this point.
So I'll just jump in real briefly.
Look I think the kind of where we're seeing the inventory is today I mean, we're just beginning this I mean definitely feels like we see some more pain or something some additional decline next quarter and then hopefully we start to see that inventory flush out and we see some things improve as you know they don't improve quickly.
So I don't think we're expecting a dramatic snap back by any stretch of imagination, but but hopefully in the second apples see that inventory clear out and start to see improvements in Q3 and Q4.
We're maintaining a conservative stance right.
About.
About how we plan our annual operating plan and our investments are in a very disciplined and balanced manner and that's one thing we've always done very well throughout our existence as a public company and we will continue to do that.
Understood. Thank you for that color.
Our next question comes from Ross Seymore with Deutsche Bank. Please state your question.
Hey, guys. Thanks for let me ask a question.
Everybody's kind of.
Beat the dead horse about.
Visibility going forward. So let me just try to ask something slightly different.
Ex inventory Kishore or Steve are you seeing any change in the design win frequency in your core areas, whether you know obviously, the new stuff and fiber Wi Fi and optical you're really excited about you mentioned that a bunch of times, but any sort of market share shifts change in design activity given the uncertainty in the market.
Thank you Ross will go beyond the the beating the dead horse so to speak Hey, you have to celebrate the first mixed signal $1 billion plus company in this century right. So he's really really and it's almost at the brink over 20th anniversary of the founding company. So I'm Super excited.
And on coming back to the question of <unk>.
You're asking basically any design win cycles here that are presenting themselves. What is the moment in the market you have to get very very good question actually is quite a bit of a fraud, while from all of these operators. It's a drove it there's rfps out there for next generation platform design ins. So what we do over the next 12 months window will set the stage for the next.
Seven years, because it's a generational technology transformation, that's happening and Wifi seven he's going to stay for a long time from then the innovation cycles would slow down.
And so it's very very important for us to write and a focus on design win momentum and our technology with momentum.
To win these major platforms on the on the PON side on the cable side, we feel quite comfortable that we will maintain our share and win the next generation design. So even even those are in the mix, but you know hold that world works out right. So you asked a very good question and we see in the optical music games of momentum going on in the next generation.
In high speed interconnect this thing so.
We you know I know we.
Talking about this but I wouldn't talk about easy, but it was not feeling good about it let me tell you that after two years of talking about it so that feels good on the wireless infrastructure side lots of conversations on the transport side of next generation designs, but less conversations on what I call access Transceivers, it's almost like okay, we're going to wait for another few years.
But the next generation of you know access strengths that you were sort of technologies. So I would say if you want to really identify where the fraud and momentum is ease in fiber in terms of design win.
What do you call. It play and are there in wireless infrastructure in the transport side of it as all these multi band backhaul and transports millimeter wave and microwave.
And then you know the on the optical side, there is quite a bit of conversations and design win battles about our next generation technologies.
Thanks for all that color I guess as my follow up Steve going over to the Opex side.
You guys have done a great job of controlling that coming in below your guidance and down sequentially in the fourth quarter.
Step up in the first quarter.
The thing to point out there and generally given the uncertain environment on the revenue side of things. What's your strategy on Opex as we think relative to kind of what I guess $83 million you guys guided to in the first quarter, how should we think about that trending throughout 2023.
Yeah, Ross, it's a super important question.
So look as we look at Q1 you.
You have your standard payroll tax increases that do a bump up in Q1. We've also got you know a variety of kind of legal cost that are.
Somewhat onetime in nature, but they do tick up in Q1 look kind of given the revenue declines were were looking very hard in and you'll see us reduce our opex kind of throughout the entire year. So I would expect it to come down slightly in Q2, and then down the rest of the year.
You know really acknowledging the market environment that we're in right now.
Thank you.
Thanks Ross.
Our next question comes from tore Svanberg with Stifel. Please state your question.
Yeah. Thank you if I could just zoom into your broadband.
Business, a little bit more so based on your guidance I mean, it looks like that business is going to be down about 30, 40% from its peak and that's even with the fiber side, obviously growing pretty nicely. So I do appreciate you don't know exactly where the channel inventory is but.
Down 30, 40% do you start to get a sense for when that business will start to flatten out.
It's a great question, we're wrestling with that.
We've seen as I mentioned before you know good backlog numbers and at the same time. There's just you know it's a very murky environment right now and I think with some of the supply chain dynamics, a lot of our customers and their customers naturally have ordered up ahead of that and so we're really wrestling.
With kind of where everything shakes out.
Kind of feels tough in the first half of the year hopefully we start to see some modest improvements in the second half, but I wouldn't say that we're counting on any you know major shifts, but it does feel like we're kind of getting down to the right levels, but I think 2023 youre going to see.
Numbers are going to come down quite a bit with some decent recovery in 2024.
Sounds good that's fair and I noticed you made a small acquisition in the quarter.
I know, it's pretty small but.
Was that.
Just a group of engineers or care to comment on that.
Yeah.
So yeah.
So the small group of engineers.
Looking to kind of reduce our overall consulting cost and so that will end up being a modest cost reduction for the company going forward.
And then just one last question cause Kishore you talked about the.
The broadband business, probably not seeing that.
That next leg up until DOCSIS four so, but what's your best guess on timing there.
When DOCSIS footprint, there will be a more material driver for Mexico.
As a company.
Tori.
We are speaking with the cable side here I think there are two links to the good old right when cable launches a recovery, which would be three ASP expansion and some muted grow right and the first one would be really three don't one with Wifi seven places I mean.
Being a big catalyst for the refresh of the boxes.
And then the other one is a the next generation DOCSIS 4.0.
You know with the with Wi Fi seven so I think that is a sequence of it so.
So I would expect that to happen sometime beginning in the second half of 2024 in terms of these new offerings.
Very helpful. Thank you very much.
Thank you. Our next question comes from David Williams with the Benchmark Company. Please state your question.
Hey, good afternoon, and congrats on the on navigating this this tough environment.
First maybe just wanted to ask do you think that any of the Wi Fi just kind of given the strength that you saw in connectivity sequentially is there anything that you think was pulled forward from the first quarter. This that is contributing to that that 14% sequential decline.
Hey, David I guess, the way I would describe it I mean, we're really playing catch up throughout the year. We're talking about you know trying to capture more of this third party.
Router business, we were able to capture some of that I think as we look into next year between some of the gateway falloff, which is attachment revenue for US and then also some of the additional third party.
Router revenues that I think we were anticipating in the first half really both of them.
<unk> come down a fair amount and a moderate a bit but we are excited about.
That particular business from a diversified revenue stream it's another.
Customer base that we've got design wins and are very excited about so I think it's something that we will continue to fuel growth for us on a go forward basis, but in the short term.
You're going to see connectivity and Wi Fi, specifically come down a little bit in the first half.
Okay, great. Thanks.
And then maybe just from the on the gross margin side.
It was a little bit lower I think this quarter than we expected because of mix it tends to or it looks like it's going to bounce back how much of this and maybe all of it is really driven more by the favorable mix.
And then maybe if you can talk to any of the pricing pressures you're seeing either on the on the sales side or on the input cost side.
Yeah, I mean, so with regard to gross margin. So yeah, just mix related we talked a lot about how some of the newer business. Some of it in the connectivity area was lower margins and then if you recall the infrastructure business.
With the subsidiary, Georgia is really kind of hurt us in Q4, so that'll start to recover and thus the raised guidance in in Q1. So so that's encouraging with regard to the ASP pressure as you know most of our business doesn't have a you know.
Isn't really subjected to a lot of ASP pressure I think around the edges. There's certain places like third party routers that could potentially see that but we're prepared for it and that's one of the things that we're excited about some of the newer products at a lower cost structure on a go forward basis that we remain committed to getting gross margins up to those mid 60.
<unk> levels.
And the ASP pressures in our business really is.
A lot of inventory in the channel like in the broadband side, you know pricing does not change how much you can ship because it's built up in the channel. So the effects are more limited Hollywood or what has happened was that there was a lot of demand scramble.
Last year, and you know, we ordered product that at much higher costs, because the foundries and the packaging companies raised prices quite a bit even though there.
It was like what he called volatile demand choice.
Being spoken about but we paid the extra money to secure more product and now of course are that sort of catches up with you when when the demand now declines right. So so paying more at listening to our customers to get the product.
Or does a bit.
Thanks, So much guys I appreciate it thanks, Dave.
Our next question comes from Christopher Roland with Susquehanna. Please state your question.
Hey, guys. Thanks for the question Greg.
Great to see infrastructure guided up I was wondering if you guys could illuminate a little more.
On the substrate availability.
And are or is there still a shortage going on there you know when do you think we could be at equilibrium and what do you expect more supply to come online into June as well could we potentially see an up quarter there.
Hey, Chris.
On the subsidy to give I don't think anybody would even now see that there's any capacity issues anymore are left in the system for supply I think lot of them are lines down there, but you know the tragedy of the whole process has been that.
You know the way you know.
The qualification process now is either to a place where you know we are in the recovery process and that recovery process has a certain time costa do completely filling our capacity needs for wireless infrastructure and by the time he had second quarter middle large within that would be we should have known that we have we should have known.
Product issues right now the capacity is available, but there is a gestation cycle to ramping up our product because you've got other alternatives that have been calling on them. You don't wanted to stop that in between so I don't see capacity issues moving forward in wireless infrastructure. Once we are past a quarter or so.
That that is very helpful. Thank you and then lastly, kishore or Steve If you guys want to take a shot at this we don't need specific numbers, but maybe looking out.
Over the full year for 'twenty three if you could kind of force rank your outlook just given the drivers that you guys now regarding your four segments.
Kind of force rank growth for us I think that would be very helpful.
I'll take a stab at it.
Look we're not going to guide the entire year.
For the whole company or by end market, but look I mean definitely as I look at 2023 as Kishore just come in on some of the wireless areas. I mean look infrastructure is going to do well this year.
Think the connectivity and and connectivity and broadband area. There is inventory in the first half of the year that we got to work through and that'll be a headwind.
And then the industrial multi market I think will be somewhat subject to this as well.
But you know.
So that's kind of how some of the inventory dynamics play out, but I mean, I really do I know probably gone on about this quite a bit but.
The growth that we're seeing I think we remain very focused on winning more of the fiber business as well as you know getting more market share with some of our Wi Fi offerings as well. So those are things that really lead us out of this you know exiting 'twenty three and then into 2024.
Is it outside factor too.
I don't know how many of you have thought about it is that I mean, China is now as you know I don't know call it COVID-19 or whatever policy whatever you called the policy, but there is free movement now everybody's traveling second half does China really snapback and then does it create a positive vector.
That's the one I am sort of keeping an eye out for.
That's fantastic. Thank you guys. Thanks, Chris.
Our next question comes from Ananda Baruah with loop capital. Please state your question.
Yeah, Hey, guys. Thanks for taking the question Yeah, just a couple if I could.
And with regard he sort of customer vertical is there anything interesting to glean there from a demand perspective.
I don't know about specific customers I mean, we definitely have some you know key one key wins like our tier one operator, that's ramping some of our fiber products I mean, that's very exciting. So early days, we had talked about you know that happened and kind of in the first half of the year. So.
That's something that's probably you know exciting we've got all your our typical customers on the wireless infrastructure side that you know we will definitely see some nice growth in the first half of the year as well and then maybe pointing to kishore his comments a little bit earlier.
We're engaged very closely with a lot of the operators and you know as a lot of those decisions are being made for future platform deployments for fiber or soon to be all Wi Fi seven platforms as well.
Okay got it.
Eastbourne.
And then Steve just I guess on the gross margin.
Yeah, Yeah, I guess what are the what are the kind of pushes and pulls as we go through the year here.
That can move the margin that EMEA and do you expect potential for much needed next.
And if they were to move what would be the thing what would be the thing you know look I don't know.
We had.
You know everything working against US in Q4, I think that definitely improves I mean, and we showed that in the guidance. So I think I do see improvement I don't see big swings.
As we kind of get get through the year I mean, the mix shift itself doesn't change that much in the first half getting infrastructure up and going and seeing some of our backhaul products Transceivers modems et cetera start to ramp will definitely benefit the gross margin line, but I don't know.
No that is you know we're not there with a breakout yet you know much higher just kind of given some of the industry dynamics, but then also you know.
Getting the cost structure in line from our standpoint, right. So we've talked a lot about why five seven are highlighted that that's kind of that first thing single monolithic chip that we can get out cost structure is much lower and so as that business starts to ramp in the second half of next year.
It can be a more meaningful contributor.
That's very helpful. I appreciate it thanks.
Thanks Ananda.
Our next question comes from Sushi de Silva with Roth Capital Partners. Please state your question.
Hi, Kishore Hi, Steve So looking ahead to the Wi Fi wave 700 for the Wifi seven what do you think your design win share.
Would be and that as those start to come in versus the current Wifi 668 will it be similar or is there potential for further gains there.
So sushi.
Look our attach rates on our own platforms with Wifi, six succeed really not even not close to 50%.
So it's less than that so the potential growth is much higher as Viper has become sort of a mandatary attachment to all the broadband access access gateways or even smaller lower tier units. So I I believe that the attach rates will increase quite a bit.
Wi Fi seven design assignments allocation have not happened yet I think they happened towards the end of the year and so there is no such a what he called Slack first and then on consumer market and you know we're not in the consumer market per se, we don't need the client side of the markets are so I think in our case it happens at the end of the year our windows.
And the sort of thing, but the bids the rfps I talked to you about where all the operators are looking at next generation platforms. Wi Fi 70 is an essential part of it. So we had all right now putting in bids that include pricings and things like that.
So just to follow on that Sue G. I mean, we've talked about those attach rates I mean definitely in some of the markets like cable.
We have a higher attach rate, but we've definitely got much more room to go and why buy seven really gives us the ability to go up and get that I'd also just remind you why five seven ASP increases will be significant over Wifi six.
Thanks, Steve very helpful color and maybe the next question is for you Steve I'm, just getting back to the debt related to the planned similar acquisition you talked about some potentially restructure visit revisit that debt and the rates. There can you just elaborate on what that opportunity is for you guys and whether the deal is somewhat contingent on that or it sounded like the deals financed he said so.
So when I get clarity there. Thanks.
Yeah. It's so sure that the deal is financed I mean said in our prepared remarks about us continuing to work on increasing or improving the cost of capital there. So.
Looking to kind of move into the pro rata market, where we can pick up some additional share we've had some interest that comes.
At slightly lower rates and so that's one of the things that we're doing to lower the overall debt cost are clearly interest rates have gone up and while we're very confident on the synergies between the two organizations the cost savings that can be achieved but ultra.
Really the long term growth that we can achieve.
It is very encouraging and exciting at the same time in the short term, we got to make sure that you know.
We're very disciplined around spending, especially in some of these slower periods that we're going through right now.
Great. Thanks, Steve.
Thanks Judy.
Thank you. Our next question comes from Richard Shannon with Craig Hallum. Please state your question.
Oh, Hey, guys. Thanks for taking my questions as well Kishore, maybe I'll ask you to Peel the layer back here a little bit on the optical Pam four, especially looking at 800 gig can you kind of characterize the breadth of your engagements across hyper scaler assume that's really the more important point of influence here, how well youre doing are you expecting.
First or second share position, there and then what kind of timeframe do you expect these wins to be awarded and eventually to ramp.
Okay.
So I think that you know the various hyperscale or is there a ramp into these 800 gig Pam for our 400 gig Pam four or two by 400 gig Pam four.
Even two times 800 into one thinks that a bit Panther.
Four it depends everybody has a different plan, having said that so and everybody is different in the in the timeline, but with some of our leaders of our followers. So here are so on the 400 gig side, we you know that as well in the process, we're working with.
Two hyperscale or <unk>, and the Oems to get design ins and cold and on the agent gets a new one will be the first are the leader in that in terms of you know.
Hasn't been the launch plays out of course, we don't have incumbency, but do we have the best product and we've got good traction with the Oems that supply to do we know.
A couple of hybrid to Hyperscale data centers right. They're the leader. So you just follow them and sometimes so one of them really expects to have a custom product for themselves, so which is a bit out of sync on that one but still for me to be already be a substantial opportunity for growth and we expect.
The initial ramp.
Shipments to start sometime in the second half of this year, probably later than earlier, but however, we would we would have that visibility much earlier, where shipping pilot qualification quantities right now and that is a goal and flushed through the entire chain. So it really sets up a very nice 2024 and if.
You know I would.
I would look at the what happens really as milestones two pointers to what happens in 2024 and beyond.
Okay.
Sure. Thanks for all that detail it's great.
Second question on the fiber business here is you're expecting your nice growth here. This year, maybe you can kind of.
Give it a little bit more color to the geographical split here and he's got a tier one operator here that's in North America, but wondering.
If we're going to see anything material contribution outside the U S, where they're in Europe , or Latin America or other places. So if you can characterize that that'd be great. That's all for me. Thanks, Great Oh on the fiber side actually have done very well, but but I also have to admit that the growth in victories are have comment on the on the lower tier products, where they call it not no.
One gateway products, but my gosh, it's grown so nicely so fast and he's really heavily north America concentration actually substantially.
The big victory ease these tier one operator in North America.
The ramp has started there're boxes in the field, there and and tens of thousands and and you wont see that much of a spike right away in the quarterly revenues because you already took inventory and product earlier on now. This particular, one is probably the world's premier fiber.
Gateway product and it says it is an exemplar for the remaining operators are sending in bids and we reestablished credibility through the shipment to this particular operator. So I think that's what plays out I think the next one would be Europe for us.
And and when we talk of fiber you always talk about the non China market and you know, India and all would come in line over time, potentially but they will tend to be lower tier products like the ones. We are shipping today in North America and pretty good quantities.
Okay, great. Thanks, guys.
Thanks, Richard Thank you and there are no further questions at this time I'll hand, it over to Dr. Kishore syndrome <unk> for closing remarks. Thank you.
Diego, Thank you very much.
I just want to let everybody know that we'll be participating at a the following conferences this year and in short order. This is one of 12 annual Technology Conference in New York, The 35th annual Roth Conference in Dana Point, California.
Capital markets 2020, Investor Conference on March 14th and the William Blair Seventh annual Tech innovators carbon March 15.
In my conclusion I wanted to see that we got a very nice momentum in a large technology portfolio that has developed over the last two years, we had at scale, where we can compete and customers find a strategic at the same time, it's a big celebrate remind stone for us as a mixed signal associate company, having been the first one.
Our company started off for 2000 that is actually hit the $1 billion in revenue.
Point, and so I think it's a great boon for US internally, we are very proud and we are cheering for future success. Thank you very much and see you soon bye.
Thank you that concludes today's conference all parties may disconnect have a great evening.