Q2 2023 MaxLinear Inc Earnings Call
Hello, and welcome to the next one year second quarter 2023 earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. You May press star one at any time. She places the question queue. As a reminder, this conference is.
Being recorded it's now my pleasure to turn the call over to your host Leslie Green Investor Relations. Please go ahead Leslie Thank you, Kevin and good afternoon, everyone and thank you for joining us on today's conference call to discuss Max linear second quarter 2023 financial results today's call is being hosted by Dr. Kishore, <unk> CEO and Steve Litchfield.
<unk>, Chief Financial Officer, and Chief Corporate strategy Officer. After our prepared comments, we will take questions. Our comments today include forward looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the third quarter 2023, including revenue GAAP and non-GAAP gross profit margin gap.
non-GAAP operating expenses, GAAP, and non-GAAP tax rate GAAP, and non-GAAP interest and other expenses and GAAP and non-GAAP diluted share Count. In addition, we will make forward looking statements regarding relating to trends opportunities and uncertainties in various product and geographic markets, including without.
Asian statements concerning opportunities arising from our broadband wireless infrastructure productivity and industrial markets timing for the launch of our products and opportunities for improved revenue and market share across our target markets. These forward looking statements involve risks substantial risks and uncertainties, including risks.
Related to increased indebtedness competition, the impact of a global economic downturn and high inflation, the cyclical nature of the semiconductor industry, our ability to sustain current level of revenue, including from impacts of excess inventory on our customers' expected demand for certain of our products.
Our ability to obtain or retained government authorization to export certain of our products, our technology and a failure to manage our relationships with or negative impacts from third parties more information on these and other risk factors as outlined in the risk factors section of our recent SEC filings, including our Form 10-Q for.
The quarter ended June 32023, which will be filed today any forward looking statements are made as of today and Max linear has no obligation to update or revise any forward looking statements. The second quarter 2023 earnings release is available in the Investor Relations section of our website at Max linear dotcom.
In addition, we report certain historical financial metrics, including but not limited to 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 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 inherent uncertainty associated with our ability to project certain future change shape 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 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 <unk> CEO of Lax linear Kishore.
Leslie and good afternoon, everyone in Q2, our revenues were 183 $9 million.
non-GAAP gross margin was strong at 61% our non-GAAP operating margin came in at 16, 2% and cash flow from operating activities was $36 million.
In Q2 infrastructure was the highlights regarding 6% sequential and 37% a year on year growth, we'd probably be very less backlog continuing to be the strongest driver.
In wireless infrastructure Q2 marked a record revenue contribution for our wireless backhaul business.
Particular wireless backhaul deployment multi band hybrid multi millimeter wave and microwave radios are allowing us to double the silicon content per platform over a modem and RF transceiver products.
Very well positioned to benefit from the expanded rollout of millimeter wave technologies across several large geographies and are currently partnered with tier one equipment suppliers to support ongoing <unk> network Rollouts.
Our high speed optical data center Interconnects, the ongoing adoption of AI in cloud is driving meaningful design win activity for a finance major Cmos Keystone eight gigabit optical Pam four solution the.
The growth in scale of E is accelerating the adoption of 800 gigabit solutions and increasing the need for a broader customer supplier base.
We are strategically positioned with the industry's first find out I mean, just see most bonded gigabit an agent at gigabit Pam four DSP production ready silicon.
Based on our design win activity and ongoing customer to call by pipeline.
Expect to ship small volumes in the back half of this year, leading to volume labs through our 2024.
In Q2 as expected our broadband access connectivity and industrial multi market continue to be challenge, owing to excess customer inventories and the ongoing cyclical semiconductor downturn.
Despite the challenging market in broadband access we continue to have solid market traction with our industry, leading single chip integrated fiber pawn and 10 gigabit processor gateway system solution.
Our Poland acts as revenue continues to show strong growth off a modest base line.
We continue to win new designs due to the breadth of our integrated access and connectivity technologies.
We expect to see a multiyear growth cycle for our solutions as the industry migrates from legacy D. S L and older PON technologies.
Ooh 10 gigabit PON.
Connectivity Dolby at early in the design cycle provides seven we believe that our beef 700 product family.
As the exciting potential to drive significant ESP growth and higher attach rates for our previous generations.
700 is the industry's first and only single chip Tri band Wifi, selling solution targeting access points and gateways.
We expect to be 700 product to ramp across multiple platforms, starting in 'twenty to 'twenty four.
You know to Ethernet connectivity portfolio at Computex in Taiwan, We announced a new four port and eight board.
Two and a half gigabit Ethernet Phy suite solutions for the S N b switch market.
Also our eight.
Gigabit Ethernet phys for the enterprise market.
These new and unique product family, we are enabling the industry's transition from one gigabit to torn up gigabit Ethernet or existing cabling by offering significant performance enhancements.
Media cost structure and power consumption.
Well, we ended a strong positive customer pool and design in activity, we expect to begin revenue ramp in the first half of 'twenty 'twenty four.
In 2023, despite the near term challenging market environment, Max lean he was leading the critical groundwork.
For our future growth and design win activity and technology innovation and customer relationship building spanning.
Fiber and broadband Wi Fi connectivity Ethernet wireless infrastructure and high speed optical data center interconnect and enterprise markets.
Our discipline initiatives are driving a revised design win activities. It goes all our strategic markets.
And we expect to drive new revenue growth opportunities beginning late 2023 and throughout 2024.
We believe that these initiatives will both increase our market share and expand our silicon content in a proven.
Successful customer platforms.
With that let me now turn the call over to Steve Litchfield, Our Chief Financial Officer, and Chief Corporate strategy Officer, Steve.
Thank you Kishore.
Revenue for the second quarter was $183 9 million down, 26% versus Q1 and down 34% year over year.
Broadband revenue was $54 million down, 34% versus Q1 and down 62% year over year.
Connectivity revenue in the quarter was $38 million down, 43% sequentially and down 33% year over year.
Our infrastructure and end market continued to grow in Q2, as a result of solid demand and growing market opportunity.
Infrastructure had revenue of $49 million up 6% versus the prior quarter and 37% year over year.
Lastly, our industrial and multi market revenue was 43 million in Q2 down 20% sequentially and 11% year over year.
GAAP and non-GAAP gross margin for the second quarter were approximately 55.9% and 61% of revenue.
The delta between GAAP and non-GAAP gross margins in the second quarter was primarily driven by $9 1 million of acquisition related intangible asset amortization.
Second quarter GAAP operating expenses were 108, 8 million, including stock based compensation and performance based equity accruals of $16 5 million combined and acquisition and integration cost of $3 7 million.
non-GAAP operating expenses in Q2 were $82 5 million up $1 7 million versus Q1 and slightly above the midpoint of our guidance range.
non-GAAP operating margin for Q1, 2023 with 16, 2%.
Both GAAP and non-GAAP interest and other income during the quarter was $1 2 million.
In Q2 cash flow generated from operating activities was $36 million.
We exited Q2 of 2023 with approximately $246 million in cash cash equivalents and short term investments.
Our days sales outstanding for the first quarter was approximately 77 days up from the previous quarter due to shipment linearity.
Our gross inventory turns were one seven times down from Q1 levels.
This concludes the discussion of our Q2 financial results.
With that let's turn to our guidance for Q3 2023.
We currently expect revenue in the third quarter of 2023 to be between $125 million and $155 million.
Looking at Q3 by end market, we expect all four of our end markets to be down quarter over quarter, driven by continued rationalization of product inventory sitting with both our direct and channel customers.
We expect third quarter GAAP gross profit margin to be approximately 53% to 56%.
And non-GAAP gross profit margin to be in the range of 59.5% and 62, 5% of revenue.
Gross margin continues to be stable, despite lower unit volumes with the range being driven by a combination of near term product customer and end market mix.
We expect Q3 2023, GAAP operating expenses to be in the range of 104 million to $110 million.
We expect Q3, 2023 non-GAAP operating expenses to be in the range of 75 million to $81 million.
For Q3, we expect or we expect to record a negligible gap.
Tax benefit and we expect our non-GAAP tax provision to be approximately zero.
We expect our Q3, GAAP and non-GAAP interest and other expense to be roughly $5 million.
We expect our Q3, GAAP and non-GAAP diluted share count of 82 to 83 million.
Before moving to Q&A I'd like to briefly address the press release, we issued earlier today regarding our previously announced transaction with Silicon motion.
As you saw from our press release, we have exercised our contractual right to terminate the merger agreement.
Please note that we do not intend to share any further detail on this matter at this time in our call today will be focused on our quarterly results.
In closing, we continue to navigate a dynamic environment in Q3.
But on laid important groundwork in strategic applications that will drive our growth as the market recovers, our solid product innovation and execution in Wi Fi fiber broadband access gateways and wireless infrastructure as is positioning us well to capture compelling revenue opportunities in the coming quarters.
As always we will continue our strong focus on operational efficiency physical discipline.
And shareholder value as we optimize for today and plan for an exciting future.
With that I'd like to open up the call for questions operator.
Thank you well now be conducting a question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star.
One one moment please while we poll for questions. Our first question today is coming from Quinn Bolton from Needham <unk> Company. Your line is now live.
Hey, guys, obviously, a dynamic environment for the core business and I guess, you know a quarter ago. You you kind of thought you know you were coming in to <unk> I think what was gonna be a shallower bottom for the September quarter, obviously things are a lot lower than I think what you were thinking 30, I'm sorry, 90 days ago can you give us some sense.
You know how much of this is inventory correction how much of it is that orders of just you know.
Continued to come in at very low levels. We we've heard that from some other semiconductors are companies that have reported to date, but just you know I guess.
As the revenues get lower here in the near term.
Makes the potential over shipments of 21 and 'twenty two seem that much larger. So if you can give us any sense. What you think consumption true consumption of your systems are right now.
Would be helpful for folks.
Yeah, Quinn Oh I'll jump in here, so you're right I mean, I think we talked about this in our previous earnings call. I think originally we thought we would move through the inventory in the first half of the year, it's definitely pushed into the second half I mean, we had a pretty good feel that you know it would be bottoming out in Q3, I think that's still playing.
Now, albeit at a lower level than what we had expected.
The visibility on the bookings side as has been the challenge frankly, we we've not seen tremendous amount of bookings I mean backlog.
We've had a decent level of backlog all year long.
And it's really hard to navigate in that environment and so you know bookings are still a lots of uncertainty out there I mean, I talked about last quarter about demand generally holding up and I think that's still to some extent true I mean, the broadband connectivity side, there probably is a little more softness on that side.
Just from a an overall in demand standpoint, but the but the primary driver here of the bigger decline in Q3 than anticipated. It is strictly that that inventory that's sitting out there.
And I guess is there a risk you think this inventory burn if bookings remain this low end demand certainly doesn't seem like it's recovering.
Strongly I mean is what's the risk that this inventory correction, maybe lingers into the first half of next year.
Yeah, well I mean, I think it's a I think we're all across the industry, you're asking that question I. You know I think we've been under shipping demand I think we remain we see that today that we're still under shipping where the real demand levels are.
But at the same time demand hasn't been robust per se. So I don't think we've burned off that inventory as quick as we thought we would.
You know different end markets are kind of gone through this at different times I mean, you've seen this from other peers that have announced.
And even within our own business broadband connectivity is different than we've seen in industrial Multimarket I mean, we've talked earlier about industrial multimarket holding up although you've seen some cracks there.
Across the industry right. So.
You know it doesn't bleed into the first half of next year I mean, it feels like it's we're going to get through it this year and start to see a little bit of recovery in Q4, but we're watching closely that's for sure.
Understood and then just maybe the last quick one for Kishore you talked about I think some growing design wins on the on the optical DSP side, you know with with some initial volumes in the first half sorry second half of this year and ramp through 'twenty 'twenty. Four can you say are these mostly 400 gig module is 800 gig modules is it a mix is it at multiple hyperscale or Youre just anymore.
I'm on the potential growth on the DSP, because obviously I think investors are looking for ways to sort of play AI trends and it sounds like that might be one of the players Max linear has an autograft today I systems. Thanks.
Queen that thank you.
It really you know it's been a long standing investment of the company are we have been investing now for almost three years, plus and starting out even five years ago actually as a as a business development activity.
And you know we missed the first phase of the actual time for 400 gigabit per Lambda.
And then now we are here, but it would be a very compelling solution would be the 800 gig Pam four you can find out I mean, that's the strategic position of our product and we have a lead time on that one with respect to competition. So the qualifications that are going through a I wouldn't categorize them in two buckets are especially when you talk of design win activity and pipeline.
Actually the module makers right, who are the ones who supply to the data center folks.
And other enterprise players right and especially I, there's a large demand out there and are we at in our activities to get qualified and interrupt our buddies Eaton gig solutions and.
And we have design wins with all the major pretty much all the major Oems are for 800 gigabit and you know unfortunately gigabit backbone for as well, but it's really really the lead and the compelling values and eat into gigabit Pam four and you know you you you attract the design wins because it does.
<unk> footprint is identical and the technology and the phone me. This all very very scalable. So we had also getting dragged along 400 gig Pam four design wins are you also want to keep in mind that.
The the transition of the he's he's going towards either to buy 400 or are we just equal to 800 or just 800 itself. So.
So the clear answer is that the design win pipeline activity is with the OEM module makers the in dropping balls that'd be the module makers in the data center folks.
And so so you have to keep that in mind. So the expectation is that this level of frenetic activity and where the performance is there today, we should be revoked and expect to see some initial volume at the end of 'twenty to 'twenty three.
They really are the ramp happening throughout 'twenty 'twenty four at that point expect to use a very legitimate player in optical Pam four data center cloud market right up until now we had the new entrant breaking into the market.
With a with a compelling strategic product offering.
Thank you Kishore.
Yeah.
Thank you next question today is coming from Karl Ackerman from BNP Paribas. Your line is that life.
Yes. Thank you good afternoon, gentlemen, two questions if I may.
First I was hoping you could discuss cash flow trajectory over the next few quarters.
We're working through this current downcycle and perhaps bottoming in the third quarter.
I'm, particularly interested in and how it relates to working capital I asked because you know I would presume you would have to pay the breakup fee.
Hum.
Two silicon motion, whether it would be in the third quarter. Perhaps later I'm just any comments in terms of capital generation over the next few quarters would be super helpful and I have a follow up yeah. Yeah sure. So first of all based on the press release earlier today and based on US filing an MAA the break fee in this case.
It would not be owed.
So that's the first question with regard to working capital and cash flow generation I think cash flow has been relatively good I think we're doing a pretty good job in a typical down cycle of pulling down inventory I mean, we got inventory down this quarter, which I'm you know clearly started a couple of quarters ago, we start.
Dialing that back I think the operations team did a good job on that front, Unfortunately revenues coming down a little quicker. So days were still up a little bit.
But I think you would expect to see us work that down over the next couple of quarters. We've also done a really good job on Capex capex coming into the year, I guess really going back to some of the restructuring that we did back in February we.
We really dialed back Capex and so I think that's been something that we've.
The team has done a tremendous job that and we we were you know I had the luxury over a couple of years, we did spend as we were ramping up some of these product lines. So we've got a lot of equipment already in house and working and capable. So I think we can actually hold the line on our operating cash flows and once we see this bottoming out.
The revenues will start to generate more cash going forward.
Just to clarify once again by invoking an enemy.
The event and terminating the the acquisition process and procedure.
Oh by the deal terms, we do not owe any breakup fee.
That's clear thank you for that if I could ask a follow up question on the outlook.
Hum.
I'm just curious I guess as we think about the various aspects of your business clearly some are some have.
Trough, but we're certainly been much more challenged than others I think of the infrastructure business is doing quite well the industrial business up until this most recent quarter doing.
Much better than the broadband and connectivity piece of the business. So I guess, if you could just speak perhaps at a higher level, how you think about.
A the.
The the bottoming process of the broadband and connectivity business and then separately the risks and or visibility you have with the infrastructure business and industrial pieces of your business that would give investors some clarity on the stability of the different aspects of your business as we think about.
A bottoming process in demand. Thank you yeah, Yeah of course, yeah, absolutely great Great question, and it's something that you know we're spending a lot of time on and I think Kishore hit on it in his prepared remarks, you know as we look into 2024, you know we have a lot of big growth initiatives have been we've been working on for sometimes.
The infrastructure, you're seeing really nice traction we've gotten really good growth. This year last year, we've been yeah, it's becoming a real sizable entity, it's been a big investment for us It's a big opportunity as we look out over the next two to three years and so as optical starts to kick in and you've already seen the dynamics with wireless.
Structure some.
Some of the improvements there. So we're really I have a good outlook on that side of the equation, but other growth drivers in the business clearly Wi Fi PON are those still are growth drivers, yes, we're in a cyclical downturn no doubt, but there's also big investments being made and so and we've got other areas like our <unk>.
<unk> products with their Panther product, our Ethernet solution.
Solution Ethernet is something that Kishore spoke a little bit about it as a big opportunity for the company.
And I think it's a great example of us really being innovative and coming to market competing against the big guys like Marvell and abroad com in a unique spot in the market with Manhattan and five gig solutions that we can really expand our footprint and I think there's a big need within the market.
Okay.
Yeah.
Thank you.
Sure.
Thank you next question today is coming from Ross Seymore from Deutsche Bank. Your line is now live.
Hi, guys. Thanks for letting me ask a question I guess at the highest of levels. The third quarter Guide I think directionally everybody expected it to be down a bit but this is significantly worse than at least I expected. What gives you confidence that this is cyclical and not something more structural.
So Ross.
That's a very very important question.
Like a big huge inventory buildup is one could argue is not really a cyclical even it is a gigantic even tried in the channel and and so that depletion process really masks any structural shifts that we can glean. The we I look at it as that it is not us that these for us.
He's got a structural shift is that all of our investments and activities and new products are really for new sockets and is there some risk that those get delayed because customers are not you know customers are also delaying their own investments absolutely. So.
I would say that the first thing we need to watch for E. The inventory burn off in the system and then during that period almost of your customers really investing in new platforms, even even if a product is already are they willing to absorb and then every in every market area, we had and he's quite different infrastructure.
They hadn't been its a fewer a lot of new products. You know you you know on a on the quarter, we just announced about $200 million in infrastructure right. That's a major product category on a annualized basis and then you've got a pipeline of optical data center products, New enterprise a switch products for Smbs and you know octal doorknob.
Gigabit fives for enterprise market right. So you can see that and then we have our stories accelerators for enterprise. So you can expect infrastructure to continue growing and it's got the most bundle of products that are new product cycles that are in the corner. So that's a very very exciting area and then if you look at our industrial multi market we are.
Investing in new interface, because that's what actually a big part of the growth that's happened in industrial markets. He's also new products that were launched it has done very very well for us in fact.
Annual basis, probably grow 20% for us right over the last three years or so so that's a growth area. So if you and then you are coming to look at connectivity, it's growing it's growing but a huge part of the revenues attached to our broadband access which is cable and fiber.
On the cable is by far the significant most significant one and then to add on fibre just starting in fiber itself is growing for us so that brings us to the to the corner of cable down right. So what's happening in cable there are some structural shifts going on in cable right. You have seen that the cable guys are competing for subscribers from the wireless probes.
<unk> and the law at the end of the script scrubbers in the database for cable is being eaten away by direct wireless access right. So they are losing subscribers right and then the second part that is happening is that the telcos are oh are more and more aggressively laying on fiber and fiber to the home. So yes. There is a structural shift is happening.
Cable edge.
And really our cable becomes more and more to high in play because of the quality of service on the cable data throughput and the growth is elian Kimberly.
He is going to come through content increase and the platforms through Wifi attached not by volume increases if anything they expect the volume in cable to decrease actually.
By any forecast are the number of cable subscribers has come down as accumulated addressable total market size, especially North America.
Thank you for all that color I guess.
Two quick follow ups, one Steve you mentioned that you hope that the third quarter is indeed the trough.
Do you expect significant growth in the fourth quarter or just as you said the visibility. So limited that you know calling the trough is about as much as you're willing to do Tonight.
Yeah, No I mean, I think we're always conservative about how these things rebound. So I mean, I think a modest improvement in Q4 would be where my expectations are we will see.
And then last just a clarification I know you don't want to talk about the the deal announcement or termination.
The Opex guidance that you have whether it be on the GAAP or the non-GAAP basis for the third quarter is there any significant change in the legal expenses that we should be aware of.
Well on a GAAP basis, I mean, we are definitely spending I mean, there was you know a decent amount of spend in Q2.
You know with this going away I mean that'll reduce our spend in the latter portions of the quarter.
Thank you.
Yeah.
Okay.
Thank you. Your next question today is coming from David Williams from Benchmark Company. Your line is now live.
Hey, good afternoon, and thanks for taking my question.
Maybe Steve if you can maybe give a little more color on the margin side I know, there's a quite a significant decline.
On the revenue side, but just curious how your if it's just mix that you're seeing in terms of maintaining that margin or if there's any other moving pieces there that we should be thinking about.
Yeah, David Thanks for the question Yeah, I mean look I think we've done a really good job on the gross margin side I'm kind of despite the move on the on the lower revenues.
We've held the gross margins I think there's multiple reasons for that I think the mix is playing a role as you're seeing more infrastructure contribution little less connectivity contribution it definitely works in our favor I think just the easing of the supply chain and you know, we're seeing a little bit less pressure on.
And you know our cost going up so that's helpful. As well and then naturally we're always working towards getting a better cost structure for existing products as well.
Even as evidenced as our Wifi southern product go into a single chip I mean, there's there's multiple examples of where we're constantly working towards getting to a better cost structure for our products.
Thanks for the color and maybe Kishore can you give a little more color you talked about this in the script about the AI opportunity and it's driving some some some activity can you talk maybe a little bit about the magnitude of that and maybe what youre seeing relative to AI versus the other trends that have been ongoing for some time.
So I think that we can safely say that the big spend that's happening in our cloud data infrastructure spend is really towards AI processors, there's a massive demand for that and we have all seen the excellent results posted in that area by I mean really on the financial result extra results bolster our really by Nvidia, let's be.
Honest and clear about it I mean, it started all riding on the hoopla right, let's call. It bad so, let's so Nvidia is a big driver.
And ER, and then maybe what and that bleeds through into the data centers right and there's a massive demand for product a massive and he's a very big shortage of supply.
So oh, there's a lot of all the OEM module makers are jockeying for supplier status are you know for these E E means let's pretty David her product needs. So we are we are in the peak of that and hopefully are the calls now that things go well and the demand.
These promising to last quite a bit out and having a strategically very good part where there is very very low power consumption performance and you know quality of performance are very important and we hope to get a piece of the pie as.
As I've said before we are in the optical market not because of a I R. A D V core RF high frequency DSV mixed signal platform that scales from any communication system to any other network communication system and the band for D. S. P. R. Just to manage the manifestation of the platform yet when it comes to that market and we hope to really build a long.
Sucks isn't that marketplace. So if the EIA is driving good grades if it accelerates it's awesome.
But you know we are here to stay to make sure. We're successful the cloud data space.
And that's a larger ambition that ties in with the infrastructure.
Our product lines that were lighter lined up that I talked to when raws on Ross's question on trends.
Thank you.
Thank you next question is coming from tore Svanberg from Stifel. Your line is now live.
Yes, Thank you interesting day in Mexico near Atlanta.
I have a few questions first of all I.
I think you came into the year, but quite a bit of backlog. It sounds like you don't have a lot of orders. So I think that means you're probably seeing some cancellations.
Could you just give us a sense for how those cancellations are headed.
Are they accelerating I think extending longer I mean, there's sort of read you have there because that would obviously determine your conviction in in Q3 potentially being a bottom.
Yeah, I mean, I guess the way I'd answer. The question are we still do have very good backlog.
Still working on the bookings side of the equation. That's you know Unfortunately, the lead times have come down and so customers are waiting longer and with so much uncertainty kind of in the back half of the year I think customers are.
They think lead times are really short now in and in a lot of cases. They also know that plenty of guys have lots of inventory and so they're waiting and so that's been problematic I wouldn't say that we've seen a ton of cancellations. We certainly seen push outs and you know most of these orders are noncancelable nonreturnable orders are so so in most key.
He says they're not cancellations, but we certainly work with our customer base in order to kind of work with them on shipment days.
It sounds good and moving onto this whole topic about you know consumption versus inventory.
And specifically for your broadband business I think it you know it it almost read like a half billion dollar run rate.
Last year now based on my math next quarter or maybe we're looking at like 161 80. So obviously it was way inflated you know back then in.
And it seems like it's pretty depressed right now so any any guesstimate on what the real sort of run rate could potentially be for that business.
Yeah.
It's obviously that is the big question I think you know we're wrestling with that can you sort of spoke a little bit earlier I mean, you know we have great.
<unk> great relationships with these operators with the telcos and so we have you know pretty decent line item visibility, but that being said it is hard to tell right now exactly where that's going to land I mean, theres been a big buildup, we havent certain things going on in the market like refurbishment.
And things like that that we haven't seen in a while those naturally come back into play, but our guys have done this for years and so I think we have a pretty good understanding of it we're going to continue to work.
Originally to kind of dig into what that number lands at I think were.
Confident it sounds strange word are confident that we're under shipping demand I mean, we've seen we know that theres a lot of inventory out there and has been for some time and so where we're getting through that and I think it's still going to take a little bit more time, particularly on the broadband and connectivity side of the business.
It sounds good just last one for Kishore I can sure I know you can't talk about the night, the signed multiyear per se, but just thinking about longer term strategically obviously that asset because it was supposed to give you. Some storage technology Ah you know to continue to improve your position, especially in infrastructure. How should we think about you know that now.
You know that you have terminated the transaction.
You know the determination of the transaction is pretty complex and you know so.
You know not talk to you about that particular, one I do feel that are you know we have the storage accelerators that we have been investing and has really been the enterprise market number one enterprise up lines maker, leading tier one player. He's starting to ship, we expect that business to double next year and grow very very strongly or the <unk>.
Four years in fact, theyre very strong visibility of it.
And I think that's the way we build into the market because of the pure enterprise play in front of and that's all we entered the market that's an organic path to get there.
On the dynamics of the Silicon motion deals those are very different dynamics and then they have got nothing to do with our technology and our strategic view as a whole we play in the market. So our entry into all our roadmap will be falling up our investments and accelerated our technologies.
Last year at the Flash memory summit, we won the <unk>.
Best New innovative product in storage category right. So.
I do believe that you know if you just fast forward.
There are three years or accelerated a business should be anyway between you know $30 million to $50 million revenue per year run rates are based on a single tier one customer.
So I don't think they.
Thank you Jesus on anything has changed on the pieces on the value of the enterprise storage market.
Got it thank you.
Yep.
Thank you. Your next question today is coming from Gary Mobley from Wells Fargo. Your line is now live.
Hey, guys. Thanks for taking my question.
I see per your guidance, you're expecting what a $4 million to $5 million sequential decrease in your opex.
I presume most of that's variable.
A very big reduction.
And we just spoke about some structural changes taking place in broadband cable from slower net new subscriber additions, maybe some share loss to fixed wireless access and whatnot.
So at what point does it make sense to them.
Rightsize the Opex based on some of those structural changes to some of your larger markets.
Okay.
Steve Why did you start off and then I'll Oh well.
I was just you answered the bigger question. So we announced last quarter that we were gonna see declines were expecting to exit the year closer to a 70 $576 million run rate. So we've we've already taken some action earlier in the year, just kind of based on the whole industry downturn I would expect to see some more improvements next year.
Well I would expect opex to come down again in 'twenty 'twenty four just based on kind of projects rolling off and just normal attrition. There. So so I actually see continued improvement on the cost structure side, but I'm sure you can speak to the I think the broadband portion of the question well does suck so Gary.
The structural changes in the broadband really it's primarily like you mentioned I feel constrained to the the cable market.
It's very very clear that the cable market and subscriber base under siege from multiple layers of fixed wireless access in the fiber deployment.
And I think that they will continue to feel the pressure on the cable side. The response has been to move to DOCSIS four behind door right. So from our investment in these investment cycles last about seven years or so new technology points.
And they are largely behind us in terms of the bulk of our own investments in Max linear.
I do not look at Wifi is a cable specific investment right. So I think that structurally the investment levels will go down barring a new new fork in D. C. You know in the in the cable industry.
Industries are you know its ability to compete.
And generally does that mean 70 of cycles and the bulk of the investment is behind but likewise, our expectations. All revenue growth in that sector is really going to come from silicon content increase and not from a pure broadband cable access revenues. So it's more of a platform level revenue and we hope to maintain our revenues on our footprint.
Basis.
Post these inventory burnout, so you're absolutely right I think cable is the either market area and we're looking at it very closely and we have told ourselves well maybe well you know this is maybe the.
We are what are the more last longer lasting generations of cable for deployment and for US our expenses and investments gave us should significantly go down.
I appreciate that color I wanted to ask about.
The impact of some weak north American wireless infrastructure spending as highlighted from some recent guidance and results from some of the larger infrastructure players to what extent it.
Is that impacting your business and as we look through the balance of the year or maybe even longer.
So our big wireless infrastructure growth has really come from mostly going to fight really rollouts, where wireless backhaul is a dominant backhaul mechanism and that's really outside of outside of North America and China. So the North America slowdown does affect somewhat but its not a pronounced impact having said that the.
The the wireless telcos in general whether they are investments in fiber rollout of fiber deployments et cetera, I am sure that as long as they're getting back that somewhat for us. We don't have much exposure to that because they are starting off of a smaller revenue base and they are going are growing our revenue and design win share.
All of that particular area of the market. So there we don't see any slowdown expectations on our fiber growth, but the overall market I do see a slowdown in the wireless telco carrier spend.
We just happened to be the ones that won't be as impacted because we are starting off a smaller base.
Thanks again guys.
Thank you. Your next question is coming from Suzhou Silva from Roth and camera line is now live.
Hi, Kishore Hi, Steve since you're early in the earnings cycle and you guys have been through a lot of cycles I just want to ask I would start with a big.
High level question, what feels most different about this cycle versus past cycles, you've been through I'm, just curious to get your opinion there.
Well you know as I'm actually we have been through similar cycles, right and outcomes, where it's a different phase.
You know I don't know how many of my peers will say it is but it could even look at the extent of that come down because excess inventory channel. It almost feels like semiconductor companies kind of post 2008, I hate to say that but I wouldn't say that okay. So the only difference is the macroeconomic conditions are not the same sentiment that's the difference.
So for us the cycle than they have been gone through have not been related to macro conditions are the semiconductor demand conditions has been to what what kind of transformations Max Liggett was making in the public eye. So as we tried to broaden and diversify our revenues and grow the company we had to go through a painful.
Cycles of where the smaller times to be able to get out of and move towards bigger jams and we went through revenue drops. If you will so for US. This one feels similar the company is going through sort of a transformation right now to position itself to go to 1 billion to $2 billion revenues.
And and that transformation is once again happening in front of your public eyes, so be eat Oh, what happened with Silicon motion B, what happened with the acquisition, we did with our with the Intel connected home assets all of our organic investments in wireless infrastructure or optical data centers, they're all manifestation of cycles that are very unique.
I'm actually in Europe , because you really come across as a public company, that's trying to grow into new markets for me it was never boring.
So there is not a beer to compare as a fresh company that went public. It was a 10 trying to do the things. We are doing so our challenges are unique to us from my experience point of view.
What's happening in terms of demand it really feels like a post 2008 issue without the macroeconomic economic panic and fear that we had at the time.
Hope that answers your question, maybe you weren't expecting that answer, but that's how I look at the world. Okay.
I wasn't quite.
Quite what to expect so thanks for that at the risk of sounding tone Deaf Olof's get asked this question you guys demonstrated the potential for strong debt capacity with the recent down inorganic activity I'm curious if I'm you know thoughts of pursuing alternate acquisitions, where you wanted that versus pausing and what level of.
Of leverage you would consider in that pursuit.
Yeah look I mean, we've always been an acquisitive company and you know we are very excited about our organic growth potential ahead of us.
We've also done lots of good acquisitions over the years and we will certainly get back to that we've got a lot of product areas that we're in very interested in investing in on the infrastructure front on the connectivity front and even on some of the industrial efforts in power management and the like so so we will certainly continue to go down that path I mean, the balance sheet.
It is good.
So a lot of opportunities there.
Look I mean, we evaluate every opportunity that comes our way.
And and we pursue them based on how it increases shareholder value and we are not afraid to do what's in the long term interest of the company.
Can I sneak one in real quick Okay. Sure have you seen the hyperscale guys redesigning and pausing rack designs based on Gen ACI versus past AI efforts or have you not seen that phenomenon.
Look I have not seen any such phenomenon right.
It's it's a it seems like a natural progression as far as the products. When you look at where the data rates and speeds are increasing are in the same you know footprint right. So I I I.
Oh, I really think that our E. I just add the number of Interconnects in the time dramatically will increase because that will become the big growth driver inside the interconnects inside the data center I think the Tam forecasts are with AI will be lot lot more than what we were seeing in the data.
Without this sort of excitement that's built around Chad G. P. D. N E. R. Right. It was yeah. It was always there and its just now there's a need for it and that is certainly you know are exploding.
Thanks, Kishore I appreciate it guys yep.
Thank you. Your next question today is coming from Richard Shannon from Craig Hallum. Your line is now live.
Oh, Hey, guys. Thanks for taking my questions. The first one from for Steve probably more just tactically speaking here in the third quarter I, just wanted to get a sense of which segments, you're expecting to do relatively better or worse and then also as you see the bottoming process to come out.
Manifests itself hopefully in the fourth quarter. They want their segments, where you have incrementally more confidence in that I can probably guess what the answers, but I guess I'd just love to hear parents do their first day.
Yeah look I mean, Q3, I mean, we talked about each of the end markets being down we had a very strong first half of the year with infrastructure and as expected we're seeing a little moderation in the second half just as that business a little lumpier, but as we look into 2024 I mean, you know we.
Do expect to see that recovery really across all of our end markets, you'll start to see that in industrial multimarket youre going to see in broadband connectivity.
And I mean, we've got some underlying growth drivers with all of these I mean, whether it be Wi Fi wins or PON wins, we you know one of the things we haven't talked much about PON continues to do well.
Despite the overall broadband environment, that's something that's doing well I mean, we're underexposed to it. So anything you know any incremental it is a positive and we've got several other good growth drivers such as Ethernet that'll start to drive growth in 2024, so I'm not going to get into guiding what Q4 looks like.
End market.
Okay. That's fair enough Kishore I wanted to follow up on your comments about structural changes here in the cable TV market and obviously as we look forward to our next cycle here. You've obviously you just mentioned you've you've already largely are committed and finished your investments here as we get to DOCSIS 4.0, but.
What's your feeling.
The cable maker or cable operators, particularly in North America about their interest in either accelerating or delaying DOCSIS four <unk> response to these technical or excuse me the structural changes.
It's very very hard to say, they're all just sitting in a lot of inventory.
And are the cable operators and what we are seeing a slowdown our revenues really reflective of a.
The data on a you know well.
The plants right to some degree here and so I think that DOCSIS four point, though.
Well I will start deploying in small quantities and probably in 'twenty 'twenty fives, Randy it starts ramping up because the products are just available Burley and then the platforms that'd be validated and there will be announcements about you know where.
We are doing it but really are the infrastructure spend has not happened on August 4.2, and all of that has to come together. So I think it's really a 2025 event for sort of.
Resumption of growth in our in cable to the higher performing back home.
And so the ASB ASB is going to offset some of the decreases in the volumes in quantities, but.
The net effect of that is not clear yet okay.
Okay Fair enough. That's all for me guys. Thank you.
Thank you. Your next question is coming from Christopher Rolland from Susquehanna. Your line is that life.
Hey, guys. Thanks for the question I'm just back to the inventory kind of burn situation here have you talk to your largest customers are about how much inventory they have or what their inventory plans are I mean, you know for like broadband for example.
I got you guys have like call it $40 million, which is a third of what you were doing a year ago have you talked about planning and.
You know for further out on on what order trends my might be like for them and and just kind of tying on to this as well it doesn't seem like your competitor.
Broadcom in this space.
Having these inventory issues. So is it just a customer dynamic you guys are tied to different customers or.
What what's going on there.
Yeah. So so Chris we certainly have very good visibility on our channel inventory.
So so we you know we've been watching that for the past few quarters, we expect to see us continue to burn down the channel inventory over the next couple of quarters.
I think you know with respect to Broadcom I mean, there are the other big Guy I mean, clearly we don't break out apples to apples comparison. So I don't think you see this.
They're seeing the same dynamics in these markets as we are they've got a lot more exposure to ponds. So it's a little different they have some bigger Wi Fi business. So so again, you can't really compare apples to apples and I and I you know, they're they're seeing that same softness in the areas, where we see the softness I would just reiterate that.
Okay. That's fair Ah I guess, you know if if you do have a little bit of visibility from your guys just talking about the snapback here.
Would you expect any segment beyond and for AR to be up year over year next year.
How should we think about this snapback kind of longer term and do you think we start getting super seasonality in the March is that fair.
Well look I don't want to get into guiding quarter by quarter over the next four to six quarters, but I mean, as we look out into 'twenty four I mean, I think kishore and I have both talked a little bit about some of the growth drivers for next year I mean, there's there's certainly going to be a recovery in all of these markets.
It's tough to forecast a year over year, just because it's kind of the way the shape of the year has gone right. You started out the year on a much higher run rate and so you're going to end up exiting the year on a lower run rate and so that has some some effect, but I mean, certainly youre going to youre going to start to see quarterly improvement off the bottom here you know hopefully as we talk.
About in Q3, and some improvements do we have seasonality. The answer is yes, I mean, we've historically always had a little bit of softness in the in the March quarter as well as Q4 to some degree.
Do we see that again, I mean potentially yes.
I guess lastly for me when it comes to Pam four would you consider like a direct sale of the DSP business.
Do you think that might be a better way to monetize that like.
Is there any hyperscale interest in just buying the part itself. It seems like you know going the road of engaging with cable makers and transceiver makers and it seems like that's it.
That's a pretty a pretty big Slog and then secondly, you know on the AC market D. S piece for AC any update there. Thanks.
So look first of all I mean, as we talked about in our prepared remarks, we're very excited about the optical market. We had been and we're seeing great traction. We're ahead of the competition with our five nanometer products. So I think we're better positioned than we ever happened in this market. We've got our second generation solution. So I think we're really excited I think one of the things.
It's changed since last quarter and you've seen it in very closely I mean, we're seeing the market I mean, we're seeing a little more growth than even what we had expected.
And that's driving a lot of our customer engagements as well. So I mean, there's there's definitely a flurry of things going on it's driving all of the Pam four design wins that we have it's a with regard to the E. E. C market I mean, that's definitely an emerging market that we've talked a little bit around we absolutely are working.
With customers with AUC design wins.
I think if I think about our own revenues, it's probably going to be driven on on our kind of Pam four transceivers first and then he sees because he sees there is still a relatively nascent market as of yet, but I mean over the next couple of three years, we can certainly see it growing.
I don't think I could direct a sale of silicon do data center for them. This is due purely to entertain such a such an engagement.
From a silicon perspective.
Okay understood. Thanks Kishore.
Thank you next question today is coming from Alex, but they're all from loop capital markets. Your line is now live.
Hey, guys. Thanks for taking my question.
Can you guys talk about your ability practices. The scale that you would that you would've gotten with silicon motion, you know whether to future M&A or organic means.
Yeah.
Hi.
Could you repeat the question please.
For sure.
Can you guys talk about your ability to access the scout.
Would've gotten silicon motion deal.
Like whether it's through future M&A or organic means.
Yes. So of course I mean, we're definitely you know we've done a great job over the last whatever 10 years growing organically. We will continue to do that we will definitely do more acquisitions, we've done them I mean, even over the last three years I mean, I think we still more than double the size of the company.
We will be able to continue to do this balance sheet is still very good regenerate tons of cash we will I mean, we were positioned very well to go off and do more acquisitions as well as continue to grow organically, we compete head to head against the big guys every day.
And that's never been a deterrent the innovative product technology capability engineering.
Capabilities that we have will continue to enable us to differentiate and drive more shareholder value.
Yeah.
Awesome. Thank you for that.
That's another question around center of the eye and I apologize you might have addressed this beforehand.
But are you guys experiencing any impact on your 800 G three nanometer getting to market or any increase in customer interest.
Yes.
So far we have Oh, we have just because of our agent gigabit Pam four finance made a product in its traction.
And really the next generation of products. He's really you know the industry has a habit of OFC for us to launch new technologies, and new products, but I really don't see anything grand or brand new coming up that can be absorbed anytime soon I do the next leg of the optical investments our products is really 200 gigabit per lambda.
Dsp's and you should be looking for us to be an investor in their roadmap. So I think that's that's and we constantly evaluate.
Nodes foundries packaging technologies in all all of the gamut of it to build an extremely competitive a low power product, so and cost competitive products. So I think that for now where we're in a good place and we need to make sure we get our fair share of the market in the data center market.
Okay.
Hey, guys.
Thank you.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Keith for some people for further or closing comments well. Thank you operator.
Wanted to let everyone know that this quarter, we will be participating in the virtual Oppenheimer technology Internet and Communications conference on August nine.
The words, you'll need him semiconductor and semi cap Congress in August 23rd the Deutsche Bank Technology Conference in August that he is in Dana point.
And the benchmark TMT conference on September 13 in New York.
With that I want to thank you again, all for joining us today, and we look forward to reporting on our progress to you next quarter. Thank you.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.