MaxLinear Inc. Q1 2023 Earnings Call

Speaker 2: breedings and welcome to maxinear's first quarter.

Speaker 2: 2023 earnings conference call.

Speaker 2: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker 2: If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations. Thank you. Performing Basics driver details

Speaker 3: Thank you, Doug, and good afternoon, everyone, and thank you for joining us on today's conference call to discuss Max Lanier's first quarter 2023 financial results. Today's call is being hosted by Dr. Kishore Sindripu, CEO , and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer.

Speaker 3: 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 second quarter, 2023, including revenue, gap and non-gap gross margin, gap and non-gap operating expenses.

Speaker 3: gap and non-gap effective tax rate, gap and non-gap interest and other expenses, and gap and non-gap diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, and uncertainties in various product and geographic markets.

Speaker 3: including without limitations, 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.

Speaker 3: 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.

Speaker 3: including the anticipated timing of the People's Republic of China State Administration for Market Regulation, or SAMR, review, risk related to increased indebtedness, competition, the impacts of global economic downturn, and high inflation.

Speaker 3: The cyclical nature of the semiconductor industry, our ability to obtain or retain government authorization to export certain of our products or technology, ability to support current level of revenue, including the impacts of excess inventory on our customers' expected demand for certain of our products, and a failure to manage our relationships with or negative impacts from third parties.

Speaker 3: today and MaxLinear has no obligation to update or revise any forward-looking statements. The first quarter 2023 earnings release is available in the investor relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics including but not limited to gross margin, operating margin, operating expenses, and interest and other expense.

Speaker 3: on both a gap and non-gap basis. We encourage investors to review the detailed reconciliation of our gap and non-gap presentations in the press release available on our website. We did not provide a reconciliation of non-gap guidance for future periods because of the inherent uncertainty associated with our ability to project certain future.

Speaker 3: as management believes it is useful for investors as it reflects how management 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 Dr. Kishore Sindripu, CEO of MaxLinear. Kishore?

Speaker 4: Thank you, Leslie, and good afternoon, everyone. Our human revenue of $248.4 million was down 15% sequentially and 6% year-on-year basis.

Speaker 4: In Q1, non-GAAP gross margin was 60.3% and non-GAAP operating margin was 27.8% with cash flow from operating activities of $42.2 million.

Speaker 4: Wireless infrastructure at a highlight quarter recording 45% sequential and 41% year-on-year growth, along with strong forward growth momentum. However, our broadband access and connectivity businesses were challenged due to excess inventory in the channel along with seasonality in Q1.

Speaker 4: Our industrial multi market revenues remain stable in what is proving to be a cyclical semiconductor downturn.

Speaker 4: In 2023, MaxRina is continuing to lay the critical groundwork for future growth with design win activity, technology innovation, and customer relationship building spanning fiber broadband, Wi-Fi connectivity, wireless infrastructure, and high-speed data optical standards."

Speaker 4: In 2023, Maxine is continuing to lay the critical groundwork for future growth with design win activity, technology innovation, and customer relationship building spanning fiber broadband, Wi-Fi connectivity, wireless infrastructure, and high-speed data optical data center interconnect enterprise markets.

Speaker 4: We believe that these initiatives will drive future market share gains and further expand silicon content in our proven customer platforms.

Speaker 4: We continue to be encouraged by the strong market adoption of our Wi-Fi 6 and 6C access point solutions and the growing pipeline of new and existing customer design wins in both service provider gateways and third-party standalone routers.

Speaker 4: More importantly, our Wi-Fi 7 products represent the next phase of growth for our connectivity units.

Speaker 4: Our Wave 700 product family is the industry's first and only single chip tri-band Wi-Fi 7 solution targeting access points.

Speaker 4: Due to the highly differentiated performance, power and cost benefits, we expect our V8 700 products to both improve average selling price and drive higher attach rates in our broadband and connectivity businesses.

Speaker 4: Our first wave 700 enabled customer solutions will launch later this year and we expect to ram multiple solutions throughout 2024.

Speaker 4: Regarding our broadband access market, though demand continues to be soft due to excess channel inventory, we are confident in and excited by the longer-term outlook as the multi-year upgrade cycle of infrastructure modernization by both MSOs and telco carriers firmly takes hold..

Speaker 4: Our PON access revenue increased fourfold in 2022, and we are well positioned to continue to share gains in 2023 due to the breadth of our integrated access and connectivity technologies. Our PON access revenue increased fourfold in 2022, and we are well positioned to share

Speaker 4: As the industry migrates from legacy DSL and older PON technologies to 10 GB PON, we expect to go our revenues by expanding market share and customer platform silicon content.

Speaker 4: Moving to wireless infrastructure, we see strong growth momentum throughout 2023 as 5G wireless backhaul deployments of multiband and hybrid mmWave and microwave radios double the silicon content per platform of our modem and RF transceiver products.

Speaker 4: We are very well positioned to benefit from the expanding rollout of e-band millimeter wave technologies across several large geographies including India in conjunction with the proliferation of 5G networks.

Speaker 4: We are currently partnered with tier 1 equipment suppliers to support ongoing 5G network rollouts that will drive our growth through 2023 and beyond.

Speaker 4: In high speed optical data center interconnect, we are in a leading strategic position and have a strong design-win pipeline for our second generation and industry's only 5 nanometer CMOS.

Speaker 4: 400GB and 800GB PAM for production ready silicon.

Speaker 4: We are making good progress with the ongoing qualifications for data setter deployment that will ramp production shipments late this year and continue to do so over the next two years.

Speaker 4: In addition, we have working very closely with HyperScale Data Center, Enterprise and OEM Module customers to address the increasing optical interconnect performance requirements driving the industry's transition to Pondel Gigabit, 800 Gigabit.

Speaker 4: 1.6 terabit and beyond data speeds. We entered 2023, the strong, foreign portfolio, significant market traction, and robots designing activity across all our strategic markets.

Speaker 4: Even as we navigate the ongoing macro-demand weakness with extreme fiscal discipline, we are excited by our design with momentum and our strengthening strategic customer and partner relationships, vertically in Wi-Fi, fiber access, and wireless and optical data center infrastructure.

Speaker 4: We believe that our platform approach driven by strong technology innovation is enabling us to not only secure new business opportunities, but also further expand our silicon continent areas where we have proven success.

Speaker 4: We are also looking forward to our pending acquisition of Silicon Motion, which will further expand the growth opportunities for combined comprehensive product portfolio.

Speaker 4: With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer, and Chief Corporate Strategy Officer.

Speaker 4: Let me now turn the call over to Steve Glitchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve? Hey Steve!

Speaker 5: Thank you, Kishore. Total revenue for the first quarter was 248.4 million down 15% versus Q4 and down 6% of the year over year.

Speaker 5: Broadband revenue was 82 million down 18% versus Q4 and down 39% year on year. And was in line with our expectations entering the quarter. Connectivity revenue in the quarter was 66 million down 37% sequentially, but up 10% year on year.

Speaker 5: as a result of solid demand and growing market opportunity.

Speaker 5: Infrastructure had revenue of 46 million, of 46% versus the prior quarter, and 40% year-on-year.

Speaker 5: Lastly, our industrial and multi-market revenue was 54 million in Q1, flat sequentially and up 50% year-on-year. Gap and non-gap gross margin for the first quarter were approximately 56.5% and 60.3% of revenue.

Speaker 5: The delta between GAP and non-GAP gross margin in the first quarter was primarily driven by 9.3 million of acquisition-related intangible asset amortization.

Speaker 5: First quarter gap operating expenses were 113 million, including stock-based compensation and performance-based equity accruals of 21.6 million combined, acquisition and integration cost of 1.6 million, and amortization of purchase intangible assets of 0.9 million.

Speaker 5: Non-GAP operating expenses in Q1 were 80.8 million, up 2.3 million versus Q4, and at the low end of our guidance range. Non-GAP operating margins for Q1 2023 was 27.8%. GAP interest and other expense during the quarter was 2.2 million.

Speaker 5: and non-GAP interest and other expense was 2.1 million.

Speaker 5: In Q1, cash flow generated from operating activities was 42.2 million.

Speaker 5: We exited Q1 of 2023 with approximately 228 million in cash, cash equivalents and short-term investments.

Speaker 5: Our day sales outstanding for the first quarter was approximately 69 days up from the previous quarter due to shipment linearity. Our gross inventory turns were 2.3 times as we continue to tightly monitor our supply levels. This concludes the discussion of our key one financial results.

Speaker 5: working to optimize the debt structure to lower our expected cost of capital.

Speaker 5: We're excited about the opportunities for our combined business and look forward to bringing our technology focused cultures together very soon.

Speaker 5: With that, let's turn to our guidance for Q2 2023.

Speaker 5: We currently expect revenue for the second quarter of 2023 to be between a 175 million and 205 million.

Speaker 5: Looking at Q2 by end market, we expect broadband and connectivity revenues to be down, Porter over Porter.

Speaker 5: In infrastructure, we are expecting revenue to increase compared with Q1 as demand for our products continues to be strong.

Speaker 5: Lastly, we expect our industrial multi-market revenue to be down quarter over quarter.

Speaker 5: We expect second quarter gap gross profit margin to be approximately 54.5% to 57.5% and non-gap gross profit margin to be in the range of 59.5% and 62.5% of revenue.

Speaker 5: Gross margin is being driven by the combination of near term product, customer, and end market mix.

Speaker 5: We expect you to gap operating expenses to be in the range of 110 million to 116 million.

Speaker 5: We expect Q2 non-GAP operating expenses to be in the range of 79 million to 85 million.

Speaker 5: We expect our Q2 gap tax rate to be approximately 25% and non-gap tax rate to be roughly 10%.

Speaker 5: We expect our Q2 gap and non-gap interest in other expense to be each roughly $4 million.

Speaker 5: We expect our Q2 gap and non-gap diluted share account of 81.5 to 82.5 million. In closing, we are navigating a dynamic environment heading into Q2.

Speaker 5: But solid colleges.

Speaker 5: Solid execution and innovative product offerings are enabling us to maximize strategic business opportunities with continued success.

Speaker 5: We are continuing to lay important groundwork in Wi-Fi, fiber broadband access gateways, and wireless infrastructure that we expect to drive our growth later this year and throughout 2024.

Speaker 5: As always, we will continue to focus on operational efficiencies, physical discipline, and shareholder value, as we optimize for today and plan for an exciting future.

Speaker 5: With that, we'd like to open up the call for questions. Operator.

Speaker 2: Thank you. Please, ladies and gentlemen, at this time we will be conducting a question and answer session.

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Speaker 2: Our first question comes from the line of Quintin, Quint Bolton with Needham & Company. Please proceed with your question.

Speaker 6: Hey guys, obviously a tough guide for the second quarter.

you know down over 20% sequentially. I guess, you know, as you look at the amount of inventory in the channel, is it largely just a broadband effect? Is it affecting connectivity in other end markets? And I guess a follow-up question is, you know,

Given the magnitude of the decline in the June quarter, do you think June is the bottom or do you think you could see even lower revenues in the second half of the year?

Hey, Gwen, thanks for the question. Yeah, so look, the inventory is across all of our end markets, I would say, but definitely broadband and connectivity are the biggest exposures that we have. I mean, there's bits and pieces here and there and other end markets, but broadband and connectivity are definitely the biggest piece.

Look going into the quarter, I think we had originally thought that, you know, we would, we knew there was inventory in the channel, thought we would be able to get through it in kind of the first half of the year. I think at this point we see that kind of bleeding into the second half of the year as we work through this, but I think we remain confident that the in demand is reasonably

of the inventory burn knowing that you might not be back at, you know, consumption levels in Q3, do you think, you know, kind of that inventory clearance is at its greatest level in Q2 or is that just too hard to call?

Yeah, I mean look I don't want to get into guidance out future quarters. I mean I think we're under shipping demand and you know we remain optimistic but the inventory is definitely at higher levels and I think we anticipate it.

Okay, and then I guess it's just a follow-up question on the microwave business which seems like it's driving very strong first half 23 results You know, I know you would said that that business was constrained from substrate availability in 2022, but as you start to ship against that backlog are you concerned that this isn't just creating an inventory?

overhang or an inventory build in that end market or do you have pretty good visibility that what you're shipping in Q1 and Q2 actually sells through and you're not just creating a wireless infrastructure inventory overhang that you have to deal with later this year early next.

So, yeah, definitely, you know, we've been behind here, but we've been playing catchup. But I guess I would reiterate there's a big content increase that's happening, so I don't by any means feel like we're creating this big inventory glut in Q1 and Q2.

This is demand that we, you know, has been needed in the market for some time. We're, I guess, cognizant of the overall wireless infrastructure market. Definitely, I'm sure you and many others have seen some of the slowdowns and some of those key customers. So we're watching that closely, but we...

You know, had great results in key one. We do expect to see that pick up again in two.

results in key one, we do expect to see that pick up again in key two. Thanks for the colors too.

Our next question comes from the line of Ananda Baru with Loop Capital. Please proceed with your question.

Hey, thanks a lot guys, good afternoon, thanks for taking the questions. Yeah, two if I could just real quick. Steve, just taking backing off of those questions. What do you think pricing wise right now and do you expect anything can take place with pricing going forward from what you're seeing now? We have a quick follow up. Thanks.

Yeah, sure, Ananda. I don't think we've seen too much. I mean, there's definitely certain markets that are more sensitive to prices, but I think in general we feel like the prices will hold up here. I don't think there's any doubt. I mean, there's some segments of our market that are more sensitive to prices.

The quick follow up is on the infrastructure market. Can you just impact that in a little more detail, the dynamics that you're seeing there drive the growth? And is it across the business or is it in particular parts of the business?

on the infrastructure market. Can you just, you know, impact that in a little more detail, the dynamics that you're seeing there drive the growth? And is it across the business, or is it in particular parts of the business? Particularly parts of the product line, is it across the product line.

Yeah sure, I mean I think Kishore kind of talked through some of this. So I mean I'd say the biggest piece has been backhaul. I mean I mentioned the content increase but we're you know shipping a lot of the transceiver product now alongside the modems. That's really driving a lot of the big uptick there.

falls into the infrastructure category, but still early days on that, we would expect to see more contribution in 2024.

And is it too early to have a sense with what's going on in Hygroscale? You know, if there's going to be a positive impact there, you know, Microsoft and Google had positive remarks last night, you know, met them, they have positive remarks right now. They had a good quarter.

Is it too early, or is this part of what you're seeing there as well? That's it for me. Thanks. Sure. Thanks, Ananda. Well, I don't think... This is all new incremental business for us. We're excited. Really, the data center demand is what's driving these optical products.

you know, ramps and so still early days. I mean, I think we'll see some early revenues in the second half of this year, but it's really much more about 2024.

you know, ramps. And so still early days. I mean, I think we'll see some early revenues in the second half of this year, but it's really much more about 2024. Awesome. Thanks a lot, guys. Thanks, Steve.

Thanks a lot. Our next question comes from the line of Ross Seymour with Deutsche Bank.

Thanks, Anant. Our next question comes from the line of Ross Seymour with Deutsche Bank. Please proceed with your question.

Hi guys, thanks for having me ask a question. Just going back to the broadband segment since it's your biggest segment. It looks like that could be down, I don't know, 60-70% year over year.

Any idea of how we should judge what true end demand is? If you were shipping to that, you know, if you're kind of, I don't know, 50, 55 million, something like that in the quarter versus a year ago being closer to 140, just trying to judge whenever the inventory is out of the equation what's a realistic landing spot when you get back to normal.

Yeah, Ross, good to hear from you. Look, this is a tough one to call. Definitely as we reflect back on 2022, you know, that number was approaching $500 million. I mean, this year, it's, you know, well below 300. So I don't have a great answer for you, but I might want to guide one segment by quarter.

somewhere in the middle of those two numbers.

Got it. And then I guess pivoting over to the OPEX side of things. You guys did a great job in the first quarter. It's going up a little bit in the second quarter. Any sort of trajectory, how you think of OPEX? Like, why is it going up in the second quarter? And then how should we think about it through the year?

Sure, sure. Yeah, you know, so, so, you know, don't forget, we do have some NRE dollars that kind of sway this year and there because in Q1, we always, we typically see things pick up quite a bit, but some of the timing of some of our NRE dollars that are coming in have kind of skewed this a little bit. We've actually been very busy in Q1, really dialing back our cost, dialing down the...

headwinds that we see, we've jumped in quickly and really dialed back that spending, as you've seen us do in the past during past cycles.

Got you. Then one quick follow up just in general, given the weakness of the market. Have you seen any change in the competitive intensity? You talked a little bit earlier about pricing, but any sort of market share shifts.

competitive intensity changing or is this just kind of the typical cyclical downturn where everybody is just trying to figure out where the bottom is and burn inventory until you get there? Hey Ross, this is Kishor. I think I will give Steve a break here. So not at all, no changes in competitive positioning or new competitors in the horizon. You know, in every market we are.

we are, so we don't see the positive change. But more importantly, the quality of our product offerings is improving quite a bit. We've got a lot of innovations and new product offerings across all our product areas, whether it's fiber pond, whether it's Wi-Fi. Obviously, we've got an exciting competitive position.

the channel. I just want to add a little color to what Steve talked about what is the natural run rate you asked about the broadband. You know, I you know, here I don't want to be giving you a specific number but if you just the way I think about it is if you look at the last two previous years of broadband revenues, you know, maybe it takes us two years to get back there, right? That's the way it looks at it. So because you know, that's the moment that the inertia in the system, right? So...

So therefore, actually, last year's revenues are in fact, a positive indicator of what the future could look like. So I wouldn't look at it as a down statement at all. All in all, we've always done the most exciting work in a tough time, which has been our track record. And...

Actually, we've got a profusely rich portfolio that's developed and is being announced, and will continue to be announced as we move forward.

We've got a profusely rich product portfolio that's developed and will be being announced and continue to be announced as we move forward. Thank you.

a hugely rich portfolio that's developed and is being announced, and will continue to be announced as we move forward. Thank you. Thanks, Ross.

Our next question comes from the line of Tori Savberg with Steeple. Please proceed with your question.

Our next question comes from the line of Tori Savberg with Steeple. Please proceed with your question. Yes, thank you.

If we could just get a little bit more granular on the connectivity side of the business. Obviously broadband's been correcting for a year already, but it looks like connectivity actually started correcting this quarter, this Q1. Just wondering if that's going to have a similar trajectory as broadband or other reasons why or why not that it wouldn't necessarily be the case.

Yeah, Tori. Good question. As you know, this is a really important product line to us and we've seen tremendous amount of growth. I think you, you know, one, we're seeing a lot more attached. So this is all new business. So a little bit different than the gateways side of the equation. So I would not expect.

to see, you know, the same level of decline. That being said, I mean, they're both selling into gateways and so there is some dynamic there where we're impacted. There's a big move from Q4 to Q1. You know, there's a little bit of seasonality in there. We had some large router shipments in Q4 and those were coming down in Q1 kind of as expected to some degree.

So I definitely think that Wi-Fi is going to continue to outpace. I mean, there's more attachment that we can go out and get. And don't forget, you've also got a lot of, you know, ASP increases or just a trajectory that's moving, you know, upwards as we get more succeed. And then, you know, longer term, once we get Wi-Fi 7, you start to see a move up in ASP, and ASP is a longer term.

along the way. Very good. And you mentioned when you were answering one of the questions about the broadband correction, that you're starting to have a better sense for, you know, the amount of inventory that's out there. Can you just add a little bit more on that? You know, is this based on conversations you're having with your customers where they are giving you any signs that things are bottoming or? Yeah, yeah, well, I mean, look, this is a

a lot of markets where you're still short. And so customers aren't really, you know, giving proper information. And I think now that they do have more inventory, we're getting a lot more transparency with the customers because now they're kind of coming clean to some degree and sharing appropriate information. So we feel better that we've got a little bit...

on 800 gigs. So, it's just hoping you could elaborate a little bit more on that, you know, especially the confidence level that that business may actually finally start to contribute more many clips or to revenues late this year.

Well, you know, we're very excited. We, as you see in OFC, we are three or four very meaningful demonstrations and announcements of our fine-animator lowest power, you know, most integrated 800 gig pamphor solution out there is the only fine-animator solution. And on the back of it, we had a number of strong design wins with Tier 1 OEM OEMs.

whose in turn supplied to the data centers. Obviously we work with the data center players and the OEMs to line up our design wins. So we've gone through some of our key OEMs already gone through the known self-interrupts and now they have sampled to the data centers for their...

and these should finish up towards the end of the year. So we feel very, very good that we will be in a position to gain some significant market share as the 800 gig roll rolls are. You have to realize that the 800 gig band 4 as is the first deployment that is starting and we are not behind on that. We are leading in that in that effort.

So, so we feel we feel that the trajectory of this would be we would have shipments that in a second half of this year Which for the qualum ounce and beyond that it rams pretty strongly in next year and the following year and the following year so feel really really good

I think we are pretty much in the year 1 or year module maker that you would think is worthy of us to work with and I feel really good about where we are. It's actually today somebody has the most exciting product that today as you go into the call and it don't have to be optical like I said so that's all good I feel about it.

We are pretty much a tier one or a module maker that you would think is worthy of us to work with. And I feel really good about where we are. It's actually today, somebody has the most exciting product that today, as you go into the call, and it doesn't have to be optical, I said. So that's all good, I feel about it. Very good, thank you so much.

Yep, thanks George. Our next question comes from the line of David Williams with Benchmark Company. Please see with your question.

Yep, thanks George. Our next question comes from the line of David Williams with Benchmark Company. Please see with your question. Hey, good afternoon. Thanks for letting me ask the question.

Maybe Steve, I'm just kind of thinking about the inventory digestion and just those dynamics. It sounds like we're at least starting to hear some, maybe a slower cadence of spending from some of the service riders and operators there. Can you kind of talk about maybe the dynamics that you're seeing between inventory and maybe slowing in demand? Is there...

Do you feel like most of this is really driven by that inventory and not more of a demand cycle? Hey, David. It's a good question. It's something that we're watching closely. I mean, we haven't seen CAPEX levels really change that much. Today, we're naturally watching this closely. I mean, the bigger issue for us right now that we see is just the inventory in the channel. But I guess the way I think about it is it is something that we've got to continue to watch. I think our assumption is that that that in demand does hold up. That spending does hold up.

especially the service provider markets and you know.

The specific OEMs are assigned to specific chip suppliers, as well as specific chip suppliers. So when you talk of inventory levels, they associate with certain chip suppliers, right? Because we sell our own full platform of solutions.

Now, on our platforms, there will be minor components from other manufacturers, but we do not think that those are the determinants of in the way, you know, the inventory is building up in the channel.

So, all non, we don't see a competitive situation where our advantage is be held up because the competitive product is being sold more. And so I think as the cell through happens, we'll burn through the inventory and we should be able to resume our shipments. And we also have to keep in mind that.

We, you know, at the lead times of shrunk in the manufacturing supply base, the our own customers, the OEMs would be, would now go in the other directions where they are in no hurry to place any orders or give us any visibility.

So I would say there would be a bit of an old correction on the inventory in the other direction and given the interest rates as well. So I think you're going to see an unusually low inventory levels before it picks up to normal inventory levels, right? So I think we're planning for that right now.

Fantastic. One more quick one for me. Just Steve on the gross margin, getting a nice lift into the quarter even on the downside of revenue guidance. Can you talk about what's driving the margin there? Is it simply just mix or is there anything else underlying there that we should be thinking about?

Well, I think the majority of it is, Max, and we're pleased to see you know, you saw us come up 70 basis points. Our midpoint of our guidance gets us up another 70. So making nice progress on that front. I'm optimistic as we look into the rest of this year and even into 2024 as...

supply tightness eases, I think we'll have a little bit more pricing power. And so we think that we can continue to lower that cost structure and see better gross margins. Our next washing comes in line of Christopher Rowland with SIG.

Supply tightness eases. I think we'll have a little bit more pricing power and so We we think that we can continue to lower that cost structure and see better gross margins Our next question comes online of Christopher Roland with SIG. Please receive with your question

Hey guys, thanks for the question. Perhaps of the segments that the three that are going to be down, I was wondering if you could force rank perhaps even for the next quarter, whether we should just have them all down. I know you said connectivity would be stronger for the year than the rest, but...

for the next quarter in particular. Yeah, I don't know that Chris, that I can stack rank them for you. I mean, we definitely continuously pressure on the broadband and the connectivity businesses. I mean, our infrastructure business, we think will be up next quarter.

And then, you know, industrial multi-market, a little more flat, just lightly down. Okay, great. Thanks. And then on the 5G part of infrastructure in particular, it really...

kind of feels like an inflection quarter for you guys, which is great to see. I know you guys mentioned India, but I was wondering why this inflection from either a geographic standpoint is it India or why this inflection from a vendor standpoint is...

that I mean 5G is definitely increasing but it's a smaller part of the numbers. The backhaul business has been driving it. It's a pretty diverse, it's a wide set of geographies that we've been selling into it for a while. Would also emphasize you know there's a big content increase as we start to ship more of our transceivers alongside of the modems so that that of course helps.

And that enables us to outpace the overall market growth that I suspect that you're seeing and comparing us to. Excellent. Thanks, guys. Thanks, Chris. Our next question comes from the line of Carl Ackerman with BNP Peraveris. Please proceed with your question. Yes, thank you gentlemen for the questions.

two of my may. In the connectivity business, your cable MSOs are still sweating assets and going through a signature digestion phase, but is there higher intensity discussions of your customers broadening adoption of Wi-Fi 6 and Wi-Fi 6C that

would give them differentiation and would also drive their content higher. If you could talk about that as you think about the growth trajectory of connectivity over the next few cores would be very helpful.

differentiation and would also drive your content higher. I mean, if you could talk about that as you think about the growth trajectory of connectivity of the next few cores would be very helpful. Well

Obviously, our attached business is a significant part of a connectivity business, even as we're developing traction on the third-party router gateways.

So, you know, Wi-Fi 60 is our current platforms that are shipping with the attachments, and we are proliferating our Wi-Fi 60 and other markets where, you know, for example, our cable docks is where we don't have, we're in some, you know, tier two markets, we don't have Wi-Fi attachment.

But really the big growth in content comes from Wi-Fi 7 launch, which will be significant content expansion in terms of dollars. And that will be the next big leg of growth for connectivity in the operator segment.

So I hope you understand that Wi-Fi 6 and 6C are already

Part of the operator deployments today and whatever growth we have with the increase in our Wi-Fi is going to come through expanding our Wi-Fi 6 attached in tier 2 markets.

But the big growth in the tier one markets comes through Wi-Fi 7 or Wave 700 family as part of the solution in the operator platforms.

I understand, thank you for that. If I can pivot to your DSP business or opportunity, Kishore, you mentioned that that's one of your most optimistic areas of your business. So I guess if I could, I'm curious whether the current digestion occurring in optical transceivers has accelerated.

your discussions with cloud and module providers on your 8-grade DSP solution. And as you address that question, there has been much debate on the use cases of linear drives, forces using a DSP, but you would of course be able to address both of them. But do you see linear drive plug-holes?

impeding your design qualifications of your A-HR-G-D-S-P at all. Thank you very much. Let's separate those two questions because the latter one is the flavor of the day. And the former is what people bet their money on.

So our design traction is really primal from the former basically, right? We have a solution on the DSP size that is superior to anybody else's. We have the first finite limit of silicon production. We believe we have a significant lead on competition. So that's where our traction is.

In this particular case, since we didn't have much business, we did not see the impact of that. So our design interaction is independent of what the channel inventory in that space is. The real four categories, almost all the data centers are now converging towards 800 gig solutions with 100 gig per lambda.

really really think that's very premature and the data center people are really not betting their strategies on that and this is really very things going to happen it's going to take a couple of generations for it to really face any maturity if not infant mortality you know it doesn't happen

So, I would leave it at that.

leave it in that. Okay. Very helpful. Thank you.

Thanks, Carl. Our next question comes from the line of Ashley McCurry with Wells Fargo. Please proceed with your question. Hi, this is Ashley McCurry on for Gary Mobley at Wells Fargo. First question being, it looks like your gross margin guide is a little wider than usual. Yes, it is.

I won't go there, but as far as gross margin goes, kind of the midpoint, it is primarily driven by mix. We do continue to see infrastructure holding up very well, that the higher gross margin kind of.

product line and so we do feel confident that we'll continue to see an improvement similar to what we saw last quarter.

Thank you. And then just as a follow up in terms of the FIMO acquisition, do you guys have any visibility into China's Samar's approval process and is there any inequality of comments you guys can give that gives you comfort in that mid-caliere 23 clothes. Yeah, so...

Thanks.

Next question comes from the line of SUJI DeSylvia with Roth Capital. Please proceed with your question. Please proceed with your question.

Hi Kishore, hi Steve. I'm curious if the unit attaches of 6E have cut over from 6 already, or if not, what the timing would be? As, when would you expect Wi-Fi 7 unit attaches to cut over in terms of units versus 6E?

So firstly, the cutover from 6 to 6C has really not happened. 6C is an interim standard between what

The market really wants on the Wi-Fi 7 versus Wi-Fi 6. The difference beating 6C has got enhanced throughput. I don't think there's going to be a cut over from 6 to 6E. Whatever 6E has been designed in, it stays in place and 6 will continue until Wi-Fi 7 takes over.

I think Wi-Fi 7 with one of the biggest broadest adoption and most rapid adoption of any Wi-Fi standard in recent history. So if I were to go by the rate at which the Wi-Fi Alliance, for example, is going to their interop tests and the rate and the rapidity at which they will pick the...

The Wi-Fi Alliance interoperability test bed platforms, they'll pick four or five of those and based on the speed at which is going on, Wi-Fi 7 will be really ready to go by the end of the year, but the adoption itself in a non-consumer markets, I expect to happen in 2024. So really it's a latter half of 2024 cut-over process starting from 6 and 6C to Wi-Fi 7.

That's a very, very good question. You know, in the markets we are in. There's platform changes don't happen frequently, or the cycle is pretty long. So the immediately digestion or burn is well within the time in those of the planning cycles.

So I don't think there's any changes happening on new platform development plans by service providers and carriers. Having said that, I do believe in some form even our customers are going through their OPEX discipline process. So I will not be surprised if it's a slow rollout than originally anticipated.

upgrading from older PON to newer 2.5 gigabit and 10 gigabit PON networks. So I think that the focus of the operators and service and the carriers is right now upgrading the network infrastructure and that's going on quite robustly. So in short we do not see any impact of this inventory accumulation the channel pushing out launches of new product platforms.

Okay, that's the color I was looking for, Kishore, thanks. Yep. There are no more questions in the queue. I'd like to hand the call back to Kishore Cindry Pugh for closing remarks.

Thank you operator. You know, this border we will be participating at the steeple cross-cycline site conference in Boston on June 6th.