Q3 2023 MaxLinear Inc Earnings Call

Okay.

Greetings welcome to maximize your third quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.

Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Leslie Green Investor Relations. Thank you you may begin.

Thank you Sherry good afternoon, everyone and thank you for joining US today on today's conference call to discuss Max Linear's third quarter 2023 financial results today's call is being hosted by Dr. Kishore, <unk>, CEO and Steve Litchfield, Chief Financial Officer, and Chief Corporate strategy Officer. After our prepared comments we will.

Take questions. Our comments today include forward looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the fourth quarter 2023, including revenue GAAP and non-GAAP gross profit margin GAAP and non-GAAP operating expenses, GAAP and non-GAAP tax rate GAAP and non-GAAP.

Interest and other expenses GAAP and non-GAAP diluted share Count. In addition, we will make forward looking statements regard relating to trends opportunities execution of our business plan and potential growth in uncertainties in various product and geographic markets, including without limitation statements concerning opportunities.

Horizon from a broad band infrastructure connectivity industrial multi market as.

As well as inventory levels, the timing for the launch of our products and timing of opportunities for improved revenue and market share across our target markets.

These forward looking statements involve substantial risks and uncertainties, including risks outlined in our risk factors section of our recent SEC filings, including from our Form 10-Q for the quarter ended September 30th when he twenty-three, which we filed today any forward looking statements are made as of today and Max linear has no obligation.

<unk> to update or revise any forward looking statements. The third quarter 2023 earnings release is available in the Investor Relations section of our website at Max linear Dot Com. In addition, we report certain historical financial metrics, including but not limited to gross margin operating margin operating.

<unk> expenses interest and other expense on both a GAAP and non-GAAP basis, we encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website, we do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated.

With our ability to project certain future charges, including stock based compensation and its related tax effects as well as potential impairments.

non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for 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.

<unk> on our website for two weeks and now let me turn the call over to Dr. Kishore <unk> CEO of fact plenty of course, thank you Leslie and good afternoon, everyone. In Q3, our revenues were $835.5 million.

non-GAAP gross margin was 60.8% infrastructure revenues, specifically wireless infrastructure was the main highlight up 1% sequentially and 40% year over year.

Our financial results and outlook continued to reflect the channel inventory overhang, especially in the broadband markets. We expect the effects of the inventory to persist into 2024.

Steve will talk more about the actions, we're taking to align our financial structure.

We continue to make strong progress going on infrastructure business infrastructure represents $50 million in Q3 revenue and has grown substantially since its inception, only a few years ago.

Within infrastructure in viral is expanding <unk> global rollout of new millimeter wave backhaul technologies, and multi band and hybrid millimeter wave and microwave backhaul radios is allowing us to significantly increase the silicon content per platform over more of the modem and RF transceiver products.

In our high speed optical data center interconnect market the ongoing adoption of AI and the cloud is driving exciting design win activity for our finance receivables.

Keystone agent and gigabit optical Pam four solution.

We have ongoing qualifications and multiple hyperscale enterprise opportunities for which we expect to begin ramping in mid 2024.

In Q3, we also announced a new member of our Keystone family, a finance major Keystone Pam four DSP for 400 gigabit didn't agent and gigabit applications with integrated Vixen laser drivers. This product enables best in class Balkans, and Shepherd eight gigabit short reach optical Transceivers and act.

Optical cables for data centers AI and.

In machine learning platforms and high performance computing applications.

Earlier this month at the OCB Global summit in San Jose, We also demonstrated our Keystone solution supporting active electrical cables or he sees Keystone is the only five nanometer product the DSP available today for the easy market, providing best in class power consumption and Programmability.

We are also making exciting progress with our patented three series of stories accelerators for the enterprise all flash array and hybrid storage appliance systems.

Entered initial mass production ramp with the leading enterprise storage appliance vehicles and have visibility into additional new design win volume production ramps next year.

We expect this business to double in 2024 with continued strong growth in 'twenty five and beyond.

Turning to broadband despite the near term challenging environment the longer term outlook for the broadband access networks is solid as the industry migrates from legacy DSL and older Palm technologies to 10 gigabit PON fiber access we continue to ramp with a major north American service provider and a leading edition.

Design wins, including into the tier one service provider, which will begin to contribute revenue in 2024.

With our industry, leading single chip integrated fiber pawn, and then gigabit processing gateway and connectivity solutions.

We expect continued strong design win traction leading to a multiyear fiber broadband build cycle.

Recently, we also announced Puma AE are doctors for point to system on chip cable modem and gateway platform, which enables the speed latency and low power consumption necessary for next generation 10 gigabit service leads for Msos.

We expect to see initial DOCSIS four point of launches in the market as early as the end of 2024.

In connectivity the design activity for our Wifi seven is robust and we anticipate early days the news coming in the second half of 'twenty for Mifi.

Seven is the enhanced ability to efficiently manage the increasing number of connected devices, which have grown tenfold since 2018, and then higher bandwidth requirements in the home as a result globally service providers are embracing the transition Wi Fi seven to improve both user experience and performance for me.

Linear Wi Fi seven is the exciting potential to drive significant ESP growth and higher attach rates in our broadband access platforms versus prior previous generations.

Moving to Ethernet connectivity, we continued to build on our core portfolio of one gigabit Ethernet and doing a gigabit Ethernet Phy technologies.

We not only offer a single and quad one gigabit Ethernet in Buena gigabit Ethernet Phys, but in Q3, we started sampling the industry's first off till 2.5 gigabit Ethernet Phy switch product this new product family of switch significantly expands our addressable market by $300 million through 'twenty.

Operator: Welcome to MaxLinear's third quarter, 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

27, and addresses both enterprise and SMB switch markets as well as the gateway and router market.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

We expect two days more than 2 billion copper one gigabit Ethernet ports in the market or existing gadfly cabling to transition to an optimized and enhanced drawn up gigabit Ethernet offering with a strong design win activity. We expect to begin revenue ramp in the first half of 2024.

Leslie Green: I will now turn the conference over to Leslie Green, investor release. Thanks, you may begin. Thank you, Sherry. Good afternoon, everyone. And thank you for joining us today on today's conference call to discuss MaxLinear's third quarter, 2023 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions.

As we head into 'twenty 'twenty four we are laying the critical groundwork for future growth with robust design win activity and continued technology innovation.

Even as we drive operating efficiencies to navigate near term headwinds. We are excited that many of our investments over the past several years.

Leslie Green: Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the fourth quarter, 2023, including revenue, gap and non-gap growth profit margin, gap and non-gap operating expenses, gap and non-gap tax rate, gap and non-gap interest in other expenses, gap and non-gap diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including without limitations, statements concerning opportunities arising from our broader event, infrastructure, connectivity, industrial multi-market, as well as inventory levels, the timing for the launch of our products and timing of opportunities for improved revenue and market share across our target markets.

Structure broadband access connectivity and high performance analog markets.

Now poised to contribute meaningful revenue with that let me turn the call over to Steve Litchfield, Our Chief Financial Officer, and Chief Corporate strategy Officer.

Steve.

Thank you Kishore.

Total revenue for the third quarter was $135 5 million down 26% versus Q2 and down 53% year over year broadband revenue was 34 million down 36% versus Q2 and down 71% year over year.

Connectivity revenue in the quarter was $15 million down, 60% sequentially and down 82% year over year.

Our infrastructure end market continued to grow in Q3, as a result of solid demand and growing market opportunity infrastructure.

Infrastructure had revenue of $50 million up 1% versus the prior quarter and 40% year over year.

Leslie Green: These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our risk factors section of our recent SEC filings, including from our form 10Q for the quarter ended September 30, 2023, which we filed today. Any forward-looking statements are made as of today and Max linear has no obligation to update or revise any forward-looking statements.

Lastly, our industrial and Multimarket revenue was $36 million in Q3 down 16% sequentially and 24% year over year.

GAAP and non-GAAP gross margin for the third quarter were approximately 54, 6% and 68% of revenue.

The delta between GAAP and non-GAAP gross margin in the third quarter was primarily driven by $8 3 million of acquisition related intangible asset amortization.

Leslie Green: The third 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, interest in other expense 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 do not provide a reconciliation of non-gap guidance for future periods because of the inherent uncertainty associated with our ability to project certain feature charges, including stock-based compensation and its related tax effects, as well as potential impairments.

Third quarter GAAP operating expenses were $91 8 million, including stock based compensation and performance based equity accruals of $8 2 million.

Combined and acquisition and integration costs of $2 2 million.

non-GAAP operating expenses in Q3 were $75 1 million down seven $3 million versus Q2 at the low end of our guidance range.

non-GAAP operating margin for Q3 was 5%.

GAAP interest and other expense during the quarter was $23 7 million driven by the ticking fee from the debt commitment associated with the terminated silicon motion transaction.

Leslie Green: Non-gap financial measures discussed today are not meant to be considered in isolation, or as a substitute for comparable gap financial measures. We are providing this information because management believes it to be useful to investors as it reflects how management measures our business.

non-GAAP interest and other expense during the quarter was $5 3 million.

In Q3 cash flow using used in operating activities was $12 8 million.

We exited Q3, a 23 with approximately $203 million in cash cash equivalents and short term investments.

Operator: Lastly, this call is also being webcast, and the replay will be available on our website for two weeks.

Our days sales outstanding for the third quarter was approximately 106 days up from the previous quarter due to shipment linearity.

Kishore Seendripu: And now, let me turn the call over to Dr. Kishore Singh-Drupu, CEO of Thanks Linear. Thank you, Leslie, and good afternoon, everyone. In Q3, our revenues were $135.5 million, and non-gap gross margin was 60.8%. Infrastructure revenues, specifically wireless infrastructure, was the main highlight, up 1% sequentially, and 40% year over year. Our financial results and outlook continue to reflect the channel inventory or hang, especially in the broadband and Wi-Fi markets. We expect the effects of the inventory to persist into 2024, and Steve will talk more about the actions we are taking to align our financial structure.

Our gross inventory turns were one four down from Q2 levels.

As Kishore mentioned, we've taken meaningful actions to align our cost structure with the current environment and we expect to begin to see the benefit in Q4.

These actions include a head count reduction site consolidation to drive efficiency and scale at our primary sites and more prioritization around the projects.

That we believe will drive growth over the coming years.

Max linear has a solid track record of managing our business through downturns with strong fiscal discipline and focused spending.

Kishore Seendripu: We continue to make strong progress going on infrastructure business. Infrastructure represents $50 million in Q3 revenue and has grown substantially since its inception only a few years ago. With the infrastructure involved as the expanding 5G global rollout of new millimeter wave backhaul technologies and multi-band and hybrid millimeter wave and microwave backhaul radios is allowing us to significantly increase the silicon content per platform of our modern modem and RF transphilo products. In our high-speed optical data center interconnect market, the ongoing adoption of AI in the cloud is driving exciting design in activity for a fine-animator CMOS, Keystone, 800 gigabit optical pamphor solution.

This concludes the discussion of our Q3 financial results with that let me turn to the guidance for Q4 of 2023.

We currently expect revenue in the fourth quarter of 2023 to be between $115 million and 135 million looking.

Looking at Q4 by end market, we expect connectivity and industrial multi market to be up and broadband and infrastructure to be down quarter over quarter.

We expect fourth quarter GAAP profit margin to be approximately $52 five to 55, 5%.

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 the combination of near term product customer and end market mix.

Kishore Seendripu: We have ongoing qualifications in multiple hyper-scale and enterprise opportunities for which we expect to begin ramping in mid-2024. During Q3, we also announce a new member of our Keystone family, a fine-animator Keystone pamphor DSP for 400 gigabit and 800 gigabit applications with integrated VIXIL laser drivers. This product enables best-in-class power consumption for an 800 gigabit short-reach optical transceivers and active optical cables for data centers, EI and machine learning platforms and high performance computing applications.

We expect Q4 2023, GAAP operating expenses to be in the range of $125 million into 135 million.

We expect Q4 2023, non-GAAP operating expenses to be in the range of 72 million to $78 million.

We expect our Q4, GAAP and non-GAAP interest and other expense to be negligible.

We expect our Q4, GAAP and non-GAAP diluted share count to be.

Between $82 five to $83 5 million.

In closing, we continue to navigate a dynamic environment in Q4, but our land important groundwork in strategic applications that will drive our future growth.

Kishore Seendripu: Earlier this month, at the OCP Global Summit in San Jose, we also demonstrated our Keystone solution supporting active electrical cables or AECs. Keystone is the only fine-animator product with DSP available today for the AEC market, providing best-in-class power consumption and programmability. We are also making exciting progress with our Panther 3 series of storage accelerators for the enterprise all-flash airy and hybrid storage appliance systems. We will enter initial mass production ramp with the TA1 leading enterprise storage appliance maker and have visibility into additional new design-win-volume production ramps next year.

Our solid product innovation and execution and Wi Fi fiber broadband access gateways Ethernet and wireless infrastructure is positioning us well across a number of exciting emerging markets as always we will continue our strong focus on operational efficiency fiscal 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 up for questions operator.

Thank you and he would like to ask a question. 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 would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Kishore Seendripu: We expect this business to double in 2024 with continued strong growth in Vion. Turning to broadband, despite the near-term challenging environment, the longer-term outlook for the broadband access networks is solid as the industry migrates from legacy DSL and older pawn technologies to 10 gigabit pawn fiber access. We continue to ramp with the major North American service provider and our layering additional design wins, including another TA1 service provider which will begin to contribute revenue in 2024.

Our first question is from tore Svanberg with Stifel. Please proceed.

Yes. Thank you.

My first question is on broadband and connectivity. Obviously these are both down quite materially year over year from this inventory digestion. It does sound like connectivity may have found the bottom as you're guiding for <unk>.

Kishore Seendripu: With our industry-leading single-ship integrated fiber pawn and 10 gigabit process and gateway and connectivity solutions, we expect continued strong design-win interaction leading to a multi-year fiber broadband growth cycle. Recently, we also announced Puma 8, our docks is 4.0 system-on-chip, cable-monum and gateway platform which enables the speed, latency, and low power consumption necessary for next-generation 10 gigabit service rates for MSOs. We expect to see initial docks is 4.0 launches in the market as early as the end of 2024.

There are first of all I just want to make sure you confirm that and then second of all on broadband are you seeing any sort of bottoming at all in that business given its 34 million run rate.

Yes, the Tories, so so you're right and I think you also rightly looking at broadband and connectivity somewhat together they have been influenced.

By some of the similar dynamics of just a massive amount of inventory that we've seen in the channel. It's definitely persisted you know more than I think what we had anticipated.

Kishore Seendripu: In connectivity, the design activity for a Wi-Fi 7 is robust and we anticipate early revenues coming in the second half of 2024. Wi-Fi 7 has the enhanced ability to efficiently manage the increasing number of connected devices which have grown 10 fold since 2018 and the higher bandwidth requirements in the home. As a result, globally, service providers are embracing the transition to Wi-Fi 7 to improve both user experience and performance. For max-linear, Wi-Fi 7 has the exciting potential to drive significant ASP and higher-attach rates in the broadband access platforms versus previous generations.

But you're you're correct and we did say that we would see connectivity you start to move up a little bit in Q4, and I think for both broadband and connectivity while connectivity has some growth drivers as we've talked about over time that are a little bit better I mean, both are still being influenced by inventory in the channel and I would expect to see that loss.

Through kind of Q1, you know maybe even some residuals in Q2, but but we are seeing improvements I mean, we talked last quarter about bookings I think we're starting to see some bookings. It's still early days are they're not super robust by any means but but there are some encouraging signs nonetheless.

Kishore Seendripu: We're moving to Ethernet connectivity. We continue to build on our core portfolio of one gigabit Ethernet and two and a half gigabit Ethernet 5 technologies. We not only offer single and quad one gigabit Ethernet and two and a half gigabit Ethernet 5s, but in Q3 we started sampling the industry's first octal 2.5 gigabit Ethernet 5 switch product. This new product family of switch significantly expands our addressable market by $300 million through 2027 and addresses both enterprise and SMB switch markets as well as the gateway and router markets.

Great and on infrastructure, obviously that was the highlight this quarter youre expecting that to come down in Q4.

Just hoping you could talk a little bit about the extent of the decline and this is basically just sort of like.

As you know volatility because obviously it was up a lot in common.

But yeah any any any way we should think about infrastructure for the next few quarters would be great.

Yeah, So infrastructure I mean, I think we've been really pleased with infrastructure I think we're making a tremendous amount of progress in a business that we've been investing in heavily for a long time I think as we spoke a over the last couple of quarters. The first half of the year was extremely strong that carried through into Q3.

But you know we still see some of those product ramps, particularly on wireless infrastructure kind of slow down they can be lumpy and so we can see some slowness in Q4, you know that probably carries over to the beginning of the year before it starts to pick back up and grow in 2024.

Kishore Seendripu: As we head into 2024 we are laying the critical groundwork for future growth with robust design in activity and continued technology innovation. Even as we drive operating efficiencies to navigate near-term headwinds we are excited that many of our investments over the past several years in infrastructure broadband access connectivity in high-performance and raw markets are now poised to contribute meaningful revenue.

And there are several contributors beyond wireless right I mean in fact.

To go to data center investments, they're very confident of the progress we're making we expect to see ramps in the middle of next year, we are going through in drop cycles, right now and a lot of design win activity going on whether it is a in transceiver products are in active optical cables or even active electric.

Steve Litchfield: With that let me turn the call over to Steve Litchfield our Chief Financial Officer and Chief Corporate Strategy Officer. Steve? Thanks, Kishore.

Steve Litchfield: Total revenue for the third quarter was 135.5 million down 26% versus Q2 and down 53% year over year. Broadband revenue was 34 million down 36% versus Q2 and down 71% year over year. Connectivity revenue in the quarter was 15 million down 60% sequentially and down 82% year over year. Our infrastructure in market continued to grow in Q3 as a result of solid demand and growing market opportunity. Infrastructure had revenue of 50 million up 1% versus the prior quarter and 40% year over year.

Cables right and then on top of that are there are stories accelerators, which we have not spent nine months a lot of great design win traction a very very strong design win pipeline.

It's going to double next year and do you know a high teens, if you will and then beyond that.

It's going to keep growing very robustly in the next few years do you want to keep in mind. The infrastructure lost revenues last long period of time, that's why they're so like what they have a long lead time. So on the all in all all our anticipation is over the next five years, we should be able to get to double our infrastructure revenues from two days.

Steve Litchfield: Lastly our industrial and multi-market revenue was 36 million in Q3 down 16% sequentially and 24% year over year. Gap and non-gap growth margin for the third quarter were approximately 54.6% and 60.8% of revenue. The delta between gap and non-gap growth margin in the third quarter was primarily driven by 8.3 million of acquisition related intangible asset amortization. Third quarter gap operating expenses were 91.8 million including stock based compensation and performance based equity accruals of 8.2 million combined and acquisition and integration cost of 2.2 million.

$200 million run rate, so maybe in the half a billion dollars vicinity I mean, that's the ultimate goal. We are after and we feel that we're making very good progress towards it.

Great. Thank you for that I'll go back in line.

Thanks Robert.

Our next question is from Quinn Bolton with Needham <unk> Company. Please proceed.

Hey, guys I guess, maybe a follow up on <unk> question, obviously, this inventory correction lasted longer and.

Deeper revenue trough, but you know as you look to next year can you give us any any sense you know how much you're under shipping the channel. These businesses or you know connectivity and broadband down well more than 50% peak to trough do you have any sense, what natural run rate demand is you know what.

Steve Litchfield: Non-gap operating expenses in Q3 were 75.1 million down 7.3 million versus Q2 at the low end of our guidance range. Non-gap operating margin for Q3 was 5%. Gap interest in other expense during the quarter was 23.7 million driven by the ticking fee from the debt commitment associated with the terminated silicon motion transaction. Non-gap interest in other expense during the quarter was 5.3 million. In Q3, cash flow using used and operating activities was 12.8 million, we exited Q3 of 23 with approximately 203 million in cash, cash equivalents and short-term investments. Our day sales outstanding for the third quarter was approximately 106 days up in the previous quarter due to shipment linearity. Our gross inventory turns were 1.4 down from Q2 levels.

Kind of.

You know snap back might you see once for you flushed. This current inventory and then just any thoughts on all of the government spending or government funds that are available for broadband infrastructure when does that start to benefit this business.

Yeah Quinn, so so you're right I mean, it's definitely been worse than anticipated I mean, theres been a big buildup, we've seen some kind of bad practices. Some overbuilding definitely over the last couple of years. That's you know kind of playing out right now.

The common question that we get is what does it recover too and when a I guess I would just say that we're confident that we're kind of seeing the bottoming here.

Steve Litchfield: As Kishore mentioned, we've taken meaningful actions to align our cost structure with the current environment and we expect to begin to see the benefit in Q4. These actions include a head count reduction, site consolidation to drive efficiency and scale at our primary sites. And more prioritization around the projects that we believe will drive growth over the coming years. MaxLinear has a solid track record of managing our business through downturns with strong fiscal discipline and focus spending.

I you raised a couple of good points about the government spending that we've highlighted we have seen capex commitments, you've seen a great transition.

Two to PON more rural areas deploying more broadband and more broadband upgrades I think we continue to see that the outlook that our customers and the service providers in general.

As is the outlook does remain very good.

Steve Litchfield: This concludes the discussion of our Q3 financial results. With that, let me turn to the guidance for Q4 of 2023. We currently expect revenue in the fourth quarter of 2023 to be between 115 million and 135 million. Looking at Q4 by end market, we expect connectivity and industrial multi-market to be up and broadband and infrastructure to be down quarter over quarter. We expect fourth quarter gap profit margin to be approximately 52.5 to 55.5 percent and non-gap gross profit margin to be in the range of 59.5 percent and 62.5 percent of revenue.

So thus our excitement in southern Kishore his remarks around Wi Fi Wi Fi seven some of our PON business. So there are some exciting things going on some of the bigger money like the bead money and some of that just part of that infrastructure bill starts to be deployed or I shouldn't say it gets allocated at the end of next year.

So it's still a little ways off but we're seeing ramps upgrades in Europe in the U S. Over the next two to three years. So we still have good visibility on this end and and do expect to see these upgrades, but in the meantime, Unfortunately, we're having to work through inventory.

Hum you guys thought last quarter that that September would be the bottom obviously, you've updated that guidance today with with December being down.

Steve Litchfield: Gross margin continues to be stable despite lower unit volumes with a range being driven by the combination of near-term product, customer, and end market mix. We expect Q4 2023 gap operating expenses to be in the range of 125 million and 135 million. We expect Q4 2023 non-gap operating expenses to be in the range of 72 million to 78 million. We expect our Q4 gap and non-gap interest and other expense to be negligible. We expect our Q4 gap and non-gap distributed share count to be between 82.5 to 83.5 million.

Are you willing at all to make a comment do you think December is the bottom Steve you mentioned inventory.

Over hanging probably continues through at least Q1 and may be residually into Q2.

The Q1 to be down from from the fourth quarter or is it just too early to call and then I'll have a quick follow up.

Yeah. So so if I recall correctly, so last quarter, we talked about Q4 expecting somewhat of a modest improvement, but we didn't say we would be out of the woods on the inventory side, we expected inventory to last into next year, but that being said, we thought we would see more of a recovery and we didn't see.

Steve Litchfield: In closing, we continue to navigate a dynamic environment in Q4 but are laying important groundwork and strategic applications that will drive our future growth. Our solid product innovation and execution in Wi-Fi, fiber broadband, access gateways, Ethernet, and wireless infrastructure is positioned as well across the number of exciting emerging markets. 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.

So so that that's correct.

As we look out into next year, what's the shape of that look like you know it feels like we get back to the.

The normal seasonality in our business, so I wouldn't I wouldn't be surprised to see softness in Q1.

But then you start to build off of that you know as we've normally what our Q2 and Q through Q3 as you know have been historically much stronger than say Q1 and Q4.

Operator: With that, I'd like to open up the call for questions, operator. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For a participant using speaker equipment and maybe necessary to pick up your hand set before pressing the star. Hughes.

And so I think there are some dynamics of seasonality that are starting to play a role again, but I think.

More than anything right now, it's just getting through the rest of the inventory that's sitting in the channel.

Got it and then just quickly you mentioned some of the actions, you're taking including reduction in fore sight consolidation a prioritization of certain projects yet.

You know your guidance for Opex I think it's flattish sequentially in December kind of in line with where we were already looking for opex to be in Q4, and so I guess I I didn't see much of a change in the Opex outlook are these options I am sorry that the cost reduction plan that you've talked about does that kick in really more in the first half of next year.

Tore Svanberg: Our first question is from Tore Svanberg with Steve Hall, please proceed. Yes, thank you. My first question is on broadband and connectivity. Obviously, these are both down quite materially year-to-year from this inventory digestion. It does sound like connectivity may have found the bottom as you're getting from growth there. First of all, just want to make sure you confirm that. And then second of all on broadband, are you seeing any sort of bottoming at all in that business, given it's 34 million run rate?

75, the right run rate you know kind of as a baseline or do you think it could move lower next year.

So so I'll comment a little bit on just overall.

Our expense reduction efforts right. So we did start early in the year. We've made some changes and then more recently we've made some additional changes that will start to impact Q4 and beyond so you don't see so much in the Q4 timeframe just because its beginning now.

Tore Svanberg: Yeah, Torey. So you're right. And I think you're also rightly looking at broadband and connectivity somewhat together. They have been influenced by some of the similar dynamics of just the massive amount of inventory that we've seen in the channel. Definitely persisted more than I think what we had anticipated. But you're correct. We did say that we would see connectivity start to move up a little bit in Q4. I think for both broadband and connectivity, while connectivity has some growth drivers as we've talked about over time that are a little bit better.

You'll see that continue to come down throughout next year.

Pretty linearly, sometimes that's masked a little bit by some of the N R E.

We take as an offset to opex.

And but I would expect to see the overall opex number declined throughout the year.

And so I think you know I mean, if I was to put a number on it it's probably $2 $85 million to $290 million next year. So that's the kind of the size of the decline and that also offset some additional in our ease that we had taken in which were much larger in 2023.

Tore Svanberg: I mean, both are still being influenced by inventory in the channel. And I would expect to see that last through kind of Q1, maybe even some residuals in Q2. But we are seeing an improvement. I mean, we talked last quarter about bookings. I think we're starting to see some bookings. It's still early days. They're not super robust by any means. But there are some encouraging signs nonetheless. Great. And on infrastructure, obviously, that was the highlight this quarter.

Got it thanks for the initial color scheme.

Sure.

Our next question is from Gary Mobley with Wells Fargo. Please proceed.

Hey, guys. Thanks for taking my question.

Tore Svanberg: You're expecting that to come down in Q4. I'm just hoping you could talk a little bit about the extent of the decline. And it's basically just sort of like volatility because it was up a lot and maybe coming back down. But yeah, any any any way we should think about infrastructure for the next few quarters would be great. Yeah. So infrastructure. I mean, I think we've been really pleased with the infrastructure.

Looking at your largest customer looks like they purchased about $90 million of product from you in the third quarter of last year, that's probably down to something less than $10 million.

In this most recent quarter. So my question is whats the right level for purchases with this customer, which I presume is representative up your broadband cable and Wi Fi business.

And does your current fourth quarter guidance and maybe your longer term view contemplate the transition of this business away from that customer to the hands of somebody else.

Tore Svanberg: I think we're making tremendous amount of progress in a business that we've been investing in heavily for a long time. I think as we spoke over the last couple of quarters, the first half of the year was extremely strong that carried through into Q3. But you know, we still see some of those product ramps, particularly on wireless infrastructure, kind of slowed down. They can be lumpy. And so we can see some slowness in Q4.

So Gary I mean with regard to the some of the disclosures and the top customers and we've had a very large customer for a while I think you've heard us talk about our.

Top customers are often kind of more I'm going to refer to them more as kind of box vendors that kind of sit in between us and the operator, and I think you're well aware of.

Tore Svanberg: You know, that probably carries over to the beginning of the year before it starts to pick back up and grow in 2024. And they are several contributors beyond wireless, right? I mean, in fact, you know, optical data send investment. They're very confident of the progress for making. We expect to see ramps in the middle of next year. We're going through interrupt cycles right now and a lot of design in activity going on, whether it is in transceiver products or in active optical cables or even active electrical cables, right?

Most of these service providers are looking to kind of keep a.

Multiple silicon vendors in the mix so that they've got some leverage we don't see that changing much and so we don't necessarily.

You don't put too much weight on these customers they ebb and flow from time to time and even this year, we've actually seen some of our top customers switch as different service providers start to ramp we've actually seen that through this year and we've seen some nice improvements on some of these newer customers.

Tore Svanberg: And then over and top of that, there is our stories accelerators, which we have not spent time much. A lot of great design interaction, a very, very strong design in pipeline. It's going to double next year into, you know, high teams, if you will, and then beyond that, you know, it's going to keep going very robustly for the next few years. You want to keep in mind the infrastructure last, revenues last a long period of time. That's why they're so like whatever long leading time.

Yeah.

Okay.

A question for Kishore as my follow up Kishore you mentioned in your prepared remarks. Some design win traction I think is how you phrased it for Keystone.

And.

In the in the data center market. So I think he also mention of revenue ramp into the second half of the year, how much visibility do you have at this time and in that revenue ramp and how influential can some of these early days design wins before from accident here.

Tore Svanberg: So on the all in all, our anticipation is over the next five years, we should be able to, you know, get to double our infrastructure revenues from today's $200 million run rate to maybe in the half a billion dollar vicinity. And that's the ultimate goal we are after and we feel that we're making very good progress towards it. Great. Thank you for that. I'll go back in line. Thanks.

So I think there are two parts to this question I mean, the visibility is very very clear right in the sense that you werent directly with the Oems or module makers and these transceivers are.

Our you know cable manufacturers optical cable amount of you directly work with them and you worked with them because they're being aligned up to utilize our silicon.

Quinn Bolton: Our next question is from Quinn Bolton with Needham and Company. Please proceed. Hey, guys, I guess maybe I'll follow up on Tore's question. Obviously, this inventory corrections lasted longer and causing a deeper revenue trough, but as you look to next year, can you give us any sense? How much your undership in the channel? These businesses are area of connectivity and broadband down well more than 50% peak to trough. Do you have any sense what natural run rate demand is?

The end points.

Quinn Bolton: What kind of snapback might you see once we've flushed this current inventory? And then just any thoughts on all of the government spending or government funds that are available for broadband infrastructure? When does that start to benefit this business?

Usually the big data center folks.

And so you have direct visibility now are the timing of when each one each one drams and select and how the distribution portion of the revenue goes.

He is the one that you have a little bit of what I call. The uncertainty of how were the fact that we are in the mix. The fact that in southern calls are going well.

And you know and the interactions that commitment to take us through all the qualification process. The direct visibility you have.

So having said that like I said in my prepared remarks, the drops of calls going on still and we are we feel very good that our silicon is sound and strong and then drops will go favorably.

Quinn Bolton: Yeah, Quinn. So, you're right. I mean, it's definitely been worse than anticipated. I mean, there's been a big build up. We've seen some kind of bad practices, some overbuilding, definitely over the last couple of years. That's kind of playing out right now. Common question that we get is what does it recover to? And when, I guess I would just say that we're confident that we're kind of seeing the bottom in here.

At this at this stage, that's that's our conviction and that's our what I call a.

Reading the tea leaves if you will regarding home, which influences they will have on our revenues absolutely right Ian.

You know, even if you do but you don't do a top dawn game plan you always have to do a bottom up game plan for revenues.

But if I were to map all of that we hope to expect about 20% share sometime in the three to five year window of each of our customers. That's our base plan and if you exceed that you will do much better so how big can the business being five years, obviously it can be something we'd been at 100 to a few hundred million dollars right. That's the wildcard.

Quinn Bolton: You raised a couple of good points about the government spending that we've highlighted. We have seen CapEx commitments. You've seen a great transition to pond more rural areas. It's deploying more broadband and more broadband upgrades. I think we continue to see that the outlook that our customers and the service providers in general have is the outlook does remain very good. So, thus our excitement and some of key shores remarks around Wi-Fi, Wi-Fi 7, some of our pond business.

Here, so, yes, and and that's the basis on which including wireless optical.

Accelerator business, he's where the confidence comes that you know in a five year window, our infrastructure business should be in the in the in the ballpark of.

The final $1 million range right and that's the goal and all of which I would say optical and storage activities of the greatest growth curve ahead of them.

Quinn Bolton: There are some exciting things going on. Some of the bigger money, like the bead money, some of that, just part of that infrastructure bill starts to be deployed. I should say it gets allocated at the end of next year. So, it's still a little ways off, but we're seeing ramps upgrades in Europe, in the US, over the next two to three years. So, we still have good visibility on this and do expect to see these upgrades, but in the meantime, unfortunately, we're having to work through the inventory.

That's good.

Detailed thanks Kishore.

Yes.

Yeah.

Our next question is from Christopher Rolland with Susquehanna. Please proceed.

Hey, guys. Thanks for the question I guess the first one is just kind of the swings that we've seen here from a peak to now trough, you know going from $105 million and connectivity to <unk> 15 for example.

Quinn Bolton: You guys thought last quarter that September would be the bottom. Obviously, you've updated that guidance today with December being down. Are you willing at all to make a comment? Do you think December is the bottom? Steve, you mentioned inventory, you know, overhang probably continues to at least Q1 and maybe resigially into Q2. Could, could, you know, could Q1 be down from the fourth quarters? It's just too early to call and then I'll have a quick follow up.

Have just kind of been incredible so I guess first of all do you kind of do you guys really view this as all inventory digestion like are we done in connectivity I don't see how it can get too much.

You know kind of lower than this but do you have any idea of how much extra inventory is out there in the channel and then moving forward are you know are you guys rethinking kind of systems.

To judge this inventory level Ah that's out there or are there new kind of processes that they can be put in place to have a better view.

Quinn Bolton: Yeah, so if I recall correctly, so last quarter we talked about Q4, expecting somewhat of a modest improvement, but we didn't say we would be out of the woods on the inventory side. We expected inventory to last into next year, but that being said, we thought we would see more of recovery and we didn't see that. So, that's correct. As we look out into next year, what's the shape of that look like?

So.

If you did not analyzing the channel and the inventory Oh.

You know we shouldn't be in this job right in the first place. So obviously, we are analyzing these two debt and sometimes it's very difficult because you know there is a certain level of guarded you know guarded.

Quinn Bolton: You know, it feels like we get back to the normal seasonality in our business. I wouldn't, I wouldn't be surprised to see softness in Q1, but then you start to build off of that. You know, as we normally would, our Q2 and Q3, as you know, have been historically much stronger than thank you one in Q4, and so I think there are some dynamics of seasonality that are starting to play a role again, but I think more than anything right now, it's just getting through the rest of the inventory that's sitting in the chair.

Disposition from your customer to their customers. So the closer they are to you. The more information you can get a little bit more accurate, but I just wanted to hark back a little bit more you know one of the most important thing we need to start guessing you are making educated guesses about when did the orb.

Build star.

Well you know it started let's assume the ore shipments happened, though in the pandemic period over the last two to three years and if you think.

Quinn Bolton: And then, just quickly, you mentioned some of the actions you're taking, including reduction in foresight consolidation, prioritization of certain projects yet. You know, your guidance for OPEC, I think it's flatish sequentially in December kind of in line with where we were already looking for OPEC to be in Q4, so I guess I didn't see much of a change in the OPEC's outlook. Are these options, sorry, the cost reduction plans you've talked about, does that kick in really more in the first half of next year, is 75, the right run rate, you know, kind of as a baseline, or do you think it could move lower next year?

There was a let's assume a 30% lower shipment then youre looking at probably three quarters worth of it leaves actual end demand.

That is sufficiently provision and how far are we into it maybe I didn't do a core profit right. If if that is the logic you go run through as a logical people should then you should start expecting a recovery somewhere in the second half of next year.

Can you dial it didnt within a quarter no. The second part of it is like a you know have the dynamics in the business changed no I mean <unk>.

Quinn Bolton: So I'll comment a little bit on just overall expense reduction efforts, right? So we did start early in the year, we've made some changes and then more recently, we've made some additional changes that will start to impact Q4 and beyond, so you don't see so much in the Q4 timeframe just because it's beginning now. You'll see that continue to come down throughout next year pretty linearly. Sometimes that's masked a little bit by some of the NRE that we take as an offset to OPEC's and but I would expect to see the overall OPEC's number declined throughout the year.

Always a we get excited about is the latest and the greatest new offering technology blah, blah blah and our customers talk about it on a customer's desk I won't talk about it because I hate to say, that's what investors want to hear okay, but real revenues are generated by all the products products that are actually long term, they're sticky because of software or performance or whatsoever.

Quinn Bolton: And so I think, you know, I mean if I was to put a number on it, it's probably 285 to $290 million next year, so that's the kind of the size of the decline. And that also offsets some additional NREs that we had taken, which were much larger in 2023.

And there are also cost are down for the customers. So they can ship more of it in that sense the dining because in June the marketplace in terms of we have a robust Wi Fi six portfolio, we have a robust Wifi seven offering we have DSO CS to complement our broadband Wifi offering right.

Quinn Bolton: Thanks for the additional color scheme.

I know that you know the broadband access it's funny when it does well, it's getting discounted when it goes down well that's the problem.

Honestly, if you step back we're trying to build a broad based portfolio company with potential to generate large profits and earnings per share for our shareholders and at the same time build scale and while investing in what I call more resilient businesses like our infrastructure and so on support so that we can build a comprehensively a large company.

I mean, that's the ultimate goal and no matter what happens now we remain focused on the long term goals and that we're very committed to.

Gary Mobley: Our next question is from Gary Mobley with Wells Fargo, please proceed. Hey guys, thanks for taking my question. Looking at your largest customer, looks like they purchased about $90 million a product from you in the third quarter last year.

Gary Mobley: That's probably down to something less than $10 million in this most recent quarter. So my question is, you know, what's the right level for purchases with this customer which I presume is, you know, representative of your broadband cable and in Wi-Fi business? And does your current fourth quarter guidance and maybe your longer-term view contemplate the transition of this business away from that customer into the hands of somebody else? So Gary, I mean, with regard to some of the disclosures and the top customers, we've had a very large customer for a while.

Thanks for that Kishore, and then secondly about your infrastructure business.

The upside there you guys kind of.

Highlighted millimeter wave and five cheap backhaul.

I would say first of all on the millimeter wave side I think it's been very slow adoption. So it's interesting to see you know you guys picking up why now and then secondly on the five G side, you know we've seen builds really start to slow even in India now.

What are the specific programs that you guys are linked to that are kind of.

Swimming swimming upstream here.

Yeah, just real quick maybe a clarification, Chris I think you are aware most of our business has been backhaul. So you know these backhaul transceivers that we've been shipping.

Gary Mobley: I think you've heard us talk about our top customers are often kind of more, I'm going to refer to them more as kind of box vendors that kind of sit in in between us and the operator. And I think you're well aware of, you know, most of these service providers are looking to kind of keep multiple silicon vendors in the mix so that they've got some leverage. We don't see that changing much and so we don't necessarily, you know, put too much weight on these customers they have and flow from time to time and even this year, we've actually seen some of our top customers switch as different service providers start to ramp. We've actually seen that through this year and we've seen some nice improvements on some of these newer customers.

Shipping this year has been a big driver right, so very different than the market share you know the access five G access markets that youre describing.

And so these are microwave backhaul, that's replacing fiber kind of in between base stations. So so very again just want to emphasize a very different market than the decline that you're referencing which we also see we sell into the wireless access market. We are familiar with it not surprising there has definitely been weakness there.

So, but we've been able to gain traction in some of these other markets that are a little niche a niche here markets.

There are a little bit smaller smaller, but they've been great growth drivers for Max linear.

Hey, there is.

Christopher Murphy: Christopher Murphy.

You know, there's a trend in the microwave and millimeter wave backhaul deployments as well right. The people are deploying more and more multi band deployments and multi multi band I mean like millimeter wave band in the microwave gotten combined radios or hybrid radios, so that increases the content as well, yes, India has been a driver as India was rolling.

Christopher Murphy: Question for Kishore is my follow-up. Kishore, you mentioned your preparing marks, some design wind traction, I think is how you phrased it for Keystone in the data center market. So I think you also mentioned a revenue ramp into the second half of the year.

Kishore Seendripu: How much visibility do you have this time in that revenue ramp and how influential can some of these early days design winds be for MaxLinear? So I think there are two parts of this question. I mean the visibility is very, very clear, right? In the sense that you work directly with OEMs or module makers, with these transceivers or cable manufacturers, optical cable managers, you directly work with them. And you work with them because they are being aligned up to utilize our silicon at the endpoints, which is usually the data center folks. And so you have the direct visibility.

Strongly in <unk> and now we see a slow down so we expected the slowdown as of guidance guided accordingly.

And you also have to keep in mind that we do not have excess inventory and infrastructure channel. We basically we're running short in supply and be supplied to the market. So the growth you're seeing what do you call. It.

They believe it'll pull us out mango upstream. He is really based on the fact that the channel was not well you know or overstocked. So we are shipping to a natural demand now with the slowdown we would be caught up with the slow down as well. So so really the growth is coming in the backhaul to these multi band hybrid deployment, which millimeter wave.

Kishore Seendripu: Now the timing of each one ramps and how the distribution portioning of the revenue goes is the one that you have a little bit of what they call uncertainty off. How are the fact that we are in the mix, the fact that certain calls are going well. And the interactions, the commitment to take us through all the qualification process, the direct visibility you have. So having said that, like I said in my prepared remarks, the interrupts and calls are going on still.

As a part of and you also want to think about the fact that as it as the access bandwidth increase the front haul and backhaul data by he's no longer gonna be provisioned sufficiently bye bye microwave and they have to use millimeter wave it's cost effective to combined with microwave.

And they're making trade off versus fiber. So you can imagine countries like India.

And even in the U S in metropolitan zones, and things like that people are trying to do a lot of hybrid deployments nor does it slow down yes, absolutely we have guided so accordingly, and it's going to be a little what I call. The telecom at Capex being dramatically slowed down as a lot of the telecom Oems have talked about in fact, I'm a pre announce.

Kishore Seendripu: And we feel very good that our silicon is sound and strong and the interrupts will go favorably at this stage. That's our conviction and that's what I call reading the tea leaves if you will. Regarding how much influence they will have on our revenues, absolutely, right? Even if you don't do a top-down game plan, you always have to do a bottom-up game plan for revenues. But if I were to map all of that, we hope to expect about 20% shares sometime in the three to five-year window of each of our customers. That's our base plan. And if you exceed that, you'll do much better.

We should see some impact of it but this is where our infrastructure is going to really be driven by our growth in our storage accelerators and their optical data center investments. So I think it's turning out to be a pretty nice portfolio.

Which I'm quite pleased actually that was being taken taken awhile.

Excellent. Thank you guys.

Yep.

Our next question is from Ross Seymore with Deutsche Bank. Please proceed.

Kishore Seendripu: So how big can the business be in five years? Obviously, it can be some maybe 100 to a few hundred million dollars, right? That's a wild card here. So, yes. And that's the basis on which, including wireless optical, the accelerator business is where the confidence comes that, you know, in a five-year window, our infrastructure business should be in the in the ballpark of, you know, the final million dollar range, right? And that's the goal and all of which I would say optical and storage activities of the greatest growth curve ahead of them.

Kishore Seendripu: That's a good detail.

Hi, guys just wanted to ask a couple of questions for the fourth quarter not going up sequentially was that demand change more inventory was out there than you expected and I know those two things are interlinked.

What changed from three months ago to today that leads to the fourth quarter to be down sequentially.

Yeah, I mean, I think it's exactly as you stated I think it's both right I mean, there's definitely more inventory we saw more push outs I mean, we saw bookings in the quarter. So we saw some improvements but.

But it wasn't as much as what we had originally expected three months ago.

Kishore Seendripu: Next, T-shirt. Yes.

Christopher Rowland: Our next question is from Christopher Rowland with Susquejana. Please proceed. Hey guys, thanks for the question. I guess the first one is just kind of the swings that we've seen here from peak to now trough, you know, going from 105 million in connectivity to 15, for example, have just kind of been incredible. So I guess, first of all, do you guys really view this as all inventory digestion? Like, are we done in connectivity? I don't see how it can get- at Too Much, you know, kind of lower than this. But do you have any idea of how much extra inventory is out there in the channel?

Well honestly.

You know we.

We ourselves are sort of.

Baffles, if you will as to you know how much inventory is out there and the slowdown and how to reconcile that right. So it'll it's.

Getting clearer as the slowing economy sort of resolved to catching up with US I think there are two parallel economies are there right now a take economy and there is a cheap cheap economy and maybe there's a consumer economy I don't know maybe the three of them and we are definitely in the chip economy, and we're seeing some of the downsides of that.

I guess the second question I have two quick follow ups. The first one for next year as a whole I know youre not going to guide to total revenues you talked a little bit about the linearity of it with the seasonal comment earlier, but from.

Kishore Seendripu: And then moving forward are, you know, are you guys rethinking kind of systems to judge this inventory level that's out there are their new kind of processes that they can be put in place to have a better view? So, you know, if you're not analyzing the channel and the inventory, you know, you know, we shouldn't be in this job right in the first place. So obviously we are analyzing these to death and sometimes it's very difficult because, you know, there is a steady level of guarded, you know, guarded, you know, disposition from your customer to their customer.

From a high level, what do you think are the idiosyncratic tailwind or headwinds that you guys as a company have as you look at 'twenty four.

Yeah.

I think it's pretty straightforward I mean.

I don't not going to guide of course next year, but I mean, I think the shape of it as probably the opposite of this year right. I mean, we call. It we started the year, a really strong and we saw that kind of deteriorate to some degree we're working through this inventory and I think you're likely to see us continue to improve in and in a lot of that's coming from just naturally inventory burning off of it.

It's also coming from new programs, new products that are going to ramp in that you know kind of the second half of next year I mean, you've got a lot of new wins coming from optical that starts to ramp next year Wifi seven starts to ramp next year. So say you've got several new programs that are going to ramp on top of the inventory just naturally burn.

Kishore Seendripu: So, the closer they are to you, the more information you get a little bit more accurate. But I just want to heart back a little bit more, you know, one of the most important things we need to start guessing are being educated guesses is about when did the old build start? You know, you know, it started, let's assume the over shipments happened in the pandemic period over the last two to three years.

So both of those will help I mean, I guess the only other thing that I just mentioned on another question was seasonality I think you'd probably see a little bit of softness in seasonality, but I think its more influenced at least in the short term by the inventory that sits in the channel.

Kishore Seendripu: And if you think that there was a let's assume a 30% over ship and then you're looking at probably three quarters worth of at least actual and depend very sufficiently provisioned. And how far are we into it? Maybe we are into a court of it, right? If that is the logic you go run through as all logical people should, then you should start expecting your recovery somewhere in the second half of next year. Can you dial it in within a quarter? No.

Got it and then my last one and forgive me for sneaking in three I know, it's a confidential process and the arbitration with silicon motion, but.

Any sort of update on either the timing or.

A reiteration of what you said before but the timing of it or the potential magnitude.

Oh.

Any sort of color on that is that it tends to be as most frequent question I get.

Again, I appreciate you're somewhat if not significantly limited in what you can say.

Kishore Seendripu: The second part of it is like, you know, have the dynamics in the business change? No. I mean, always we get excited about the latest and the greatest new offering technology blah, blah, blah. And our customers talk a bit and our customers customers talk about it because I hate to say that's what investors want to hear. Okay. But the real revenues are generated by all the products, products that are actually long term, they're sticky because of software or performance or whatsoever.

Yeah, I don't think anything's changed just as we had updated before I mean, the only changes that silicon motion filed for arbitration.

Confidential process, so you're correct in that we can add any more color. There are still expect you know that arbitration process to take 12 to 18 months.

Thank you.

Our next question is from David Williams with Benchmark Company. Please proceed.

Kishore Seendripu: And they're also costed down for the customers so they can ship more of it. In that sense, the dynamic hasn't changed the marketplace in terms of we have a robust Wi-Fi 6 portfolio, we have a robust Wi-Fi 7 offering, we have the SOCs to complement our broadband by Wi-Fi offering, right? I know that, you know, the broadband act is, it's funny, when it does well, it gets discounted, when it goes down, well, that's the problem sort of thing.

Hey, good afternoon. Thanks for taking the question Kishore, maybe you could talk a little bit more about the traction you're seeing in the Keystone platform and what's the magnitude of that ramp do you think for.

For next year.

Is there any maybe just a little more color that you provide around that to help us understand that that traction and growth.

Kishore Seendripu: Now, honestly, if you step back, we're trying to build a broadband portfolio company with potential to generate large profits and earnings per share for shareholders. And at the same time, build scale and while investing in what I call more resilient businesses like our infrastructure and so on support, so that we can build a comprehensively large company. I mean, that's the ultimate goal. And no matter what happens now, we remain focused on the long-term goal, and that we're very committed to. Thanks for that, Keyshore.

You know.

We don't we don't guide to the future and that sort of you know short timelines, but I think from where we are truly a weird weird pilot builds right now as Oh as the euro dropped cycles continue.

So hopefully next year, we had somebody in the teens or beyond that.

And hopefully beyond that because that would be disappointing. It is in the teens and then you know, but I can talk to you in terms of three years in a three year window could be cross $100 million, yes, I mean that would be a natural expectation right. So can we do better than that absolutely that's based on share shifts and at one one.

Kishore Seendripu: And then secondly, about your infrastructure business. The upside there, you guys kind of highlighted millimeter wave and 5G backhaul. I would say first of all on the millimeter wave side, I think it's been very slow adoption.

And card E. The timing of the deployment of multiple data centers and the transition to 100 gigabit per Lambda, whether it's 400 gig or 800 gig or one points extend a bit on the 100 gig platform. If you will.

Kishore Seendripu: So it's interesting to see you guys picking up why now. And then secondly on the 5G side, we've seen builds really start to slow even in India now. What are the specific programs that you guys are linked to that are kind of swimming swimming upstream here? Yeah, just real quick maybe a clarification Chris, I think you're where most of our businesses have been backhaul. So, you know, these backhaul transceivers that we've been champ shipping this year has been a big driver, right.

And so you're counting on multiple players coming on right now we have confirmed transitions from big one Big data Center Guy.

I know that in the Nvidia AI clusters, they are deploying hundred gigabit, but you know what.

Kishore Seendripu: So very different than the market, you know, the access 5G access markets if you're describing. And so these are microwave backhaul, that's replacing fiber kind of in between base stations. So, so very again, just want to emphasize a very different market than the decline that you're referencing, which we also see, we sell into the wireless access market. We are familiar with it, not surprising. There's definitely been weakness there. So, but we've been able to gain traction in some of these other markets, they're a little nitchier markets.

You know, it's like we have land in do it rather than went into it right now so we're trying to win into it and as they increase their supplier base hopefully with one of the selected ones, but I'm not saying that were selected or we are in it. So please don't mistake that I'm just trying to say our focus is right now winning and ends up good luck on.

The share of basically okay.

Okay can you say is that progressing as you would've expected or is it maybe a little slower than you had hoped.

You know it always be slower to me honestly, a it's been a few several years since we've been investing in the optical data center.

And icon every time, you know it seems lower slow for me because I'm dying with anticipation right, so, but but so far we feel very good about where we are and like I said, if you read the tea leaves I should actually be more positively disposed.

Kishore Seendripu: They're a little bit smaller, but they've been great cross drivers per max linear. Hey, it is, you know, there's a trend in the microwave millimeter wave backhaul deployments as well, right. People are deploying more and more multi band deployments and multi multi band, I mean like millimeter wave band microwave kind combined videos or hybrid videos. So, that increases the content as well. Yes, India has been a driver as India was rolling out strongly on 5G.

Then my forecasting willing to give to you.

I think David another positive I mean, you're starting to see you know our IP that we've developed in optical is starting to broaden out we can go after AUC opportunities Aoc opportunities and that really helps us to leverage the development that we've done thus far.

Kishore Seendripu: And now we see a slowdown. So, we expected the slowdown as of guidance guided accordingly. And you also keep in mind that we did not have access inventory and infrastructure channel. We basically were running short and supply and we supply to the market. So, the growth you're seeing what you call ability to pull us out and go upstream is really based on the fact that the channel was not, you know, over over stock.

Kishore Seendripu: So, we're shipping to natural demand now with the slowdown we will be caught up with the slowdown as well. So, so really the growth is coming in the back all to this multi band hybrid deployments, which millimeter is a part of. And you also want to think about the fact that as it has the access bandwidth increase the front all on back all. Data pipe is no longer going to be provisioned sufficiently by by microwave and they have to use millimeter wave.

Those are also types of programs that can ramp quicker.

Versus some of the other transceiver platforms, yes.

Great color. Thanks, a lot and then maybe lastly, just on the carrier or maybe the operator side. If you look out are you hearing anything in terms of at the beginning of the year.

Capex planning or is there any sense of optimism that you are beginning to hear maybe for 2024 deployments and maybe capex spend.

You know it's always the hardest thing in all these years in broadband I can tell you very clearly that.

You know they started the process sometime in Q3, and then you know Q Pedro no anything in Q1.

And by the time you end up Q1, then you know and sometimes they just go super aggressive as well so but these are unique times.

There's a lot of inventory sitting out there even if they are going through that process.

Kishore Seendripu: It's cost effective to in combined with microwave. And they're making trade offers as fiber so you can imagine countries like India. And even in the US in metropolitan zones and things like that people are trying to do a lot of hybrid deployments. Now does it slow down? Yes, absolutely we have guided so accordingly and it's going to be a little what we call the telecom a cap X being dramatically slow down as a lot of the telecom OEMs have talked about in fact summer pre announced right.

Feeling the impact of their opex decisions is going to be delayed for sure right because you're going to be the bleeding everyday invented so you won't feel the urgency they would they would come rushing towards the end of Q4 or in the middle of Q1 in the past fast pre pandemic period, right, but now there's still enough.

And the channel that it's going to be that bad and so we wouldn't be became that signals much.

But I think but I think we should all expect that everybody is going to be tightening their belts right.

Kishore Seendripu: We should see some impact off it, but this is where our infrastructure is going to really be driven by our growth in our storage accelerators and their optical data center investments. So I think it's turning out to be a very nice portfolio, which I'm quite pleased actually there was been taken a while.

You know.

And so it will be subdued whatever theyre going to be up too.

Okay.

Kishore Seendripu: Excellent. Thank you guys.

Our next question is from Karl Ackerman with BNP Paribas. Please proceed.

Thank you private insurance team.

Ross Seymore: Our next question is from Ross Seymore with Duetsha Bain. Please proceed. Hi guys, just one to ask a couple questions for the fourth quarter not going up sequentially. Was that that demand change? More inventory was out there than you expected. I know those two things are interlinked, but what changed from three months ago to today that leads the fourth quarter to be down sequentially?

Two questions.

Hi, Hi.

I guess I first wanted to ask you now that there have been many questions on this call sort of asking whether there.

There are structural impairment to to some of the broadband and connectivity portions of your business.

So I I'd like to ask about your connectivity business, you know how much of that business today.

Yes.

Steve Litchfield: Yeah, I mean I think it's exactly legislative. I think it's both, right? I mean, there's definitely more inventory. We saw more pushouts. I mean, we saw bookings in the quarters, so we saw some improvements, but it wasn't as much as what we originally expected three months ago. Honestly, you know, we ourselves are sort of paffled if you will as to, you know, how much inventory is out there and the slowdown and how to reconcile that, right?

And a rough and tough basis split between wireless and wired I think that would be certainly helpful. As we contemplate some of the car.

Intent drivers like you talked about earlier on this call as it relates to Wifi seven next year as well as some of the growth opportunities today for Wifi six.

Okay.

I would say they have little or no exposure to wireless access from a connectivity side.

To the extent that we have exposure to the wireless access on the broadband connectivity side for our Wi Fi offering it's really in the telco platforms, where they tend to be the the gateway box where for example, they have a fiber upon chip with our gateway processor and Wi Fi and they will be.

Steve Litchfield: So, you know, it's getting clear as the slowing economy sort of is also catching up with us. Because I think there are two parallel economies of the right now, a tech economy and then the cheap economy and maybe the consumer economy. I don't know, there may be three of them. We are definitely in the cheap economy and we're seeing some of the downsides of that.

They will be a what I call our input to that box that comes from our <unk> access video, so very little or no exposure to wireless broadband access gateway access. Okay. So if you take out that on the wireline why aren't we are pretty much hundred person overexposure to wireline access all over.

Steve Litchfield: I guess the second question I have to quick follow up the first one. For next year as a whole, I know you're not going to guide the total revenues. You talked a little bit about the linearity of it with the seasonal comment earlier, but from a high level, what do you think are the idiosyncratic pale winds or headwinds that you guys as a company has as you look at 24? I think it's pretty straightforward.

It may be the let's say, 90% of it and 10% of it is what I called a standalone router gateway that we are we started making progress towards at the beginning of the year to get revenues that are outside of the operator gateways right that that would be the landscape. So you should on a practical terms you should associate.

Steve Litchfield: I mean, I don't I'm not going to guide of course next year, but I mean, I think the shape of it is probably the opposite of this year, right? I mean, we started the year really strong and we saw that kind of deteriorate to some degree working through this inventory. And I think you're likely to see us continue to improve. And a lot of that's coming from just naturally inventory burning off, but it's also coming from new programs, new products that are going to ramp in that kind of the second half of next year.

90% of our Wifi connectivity the views with their wireline broadband access gateways okay.

And maybe Carl just to add on a little bit so don't forget on connectivity side. We also have like Ethernet. So while you know a lot of our declines in the gateway I mean, it's been driven by both Wi Fi and Ethernet.

Steve Litchfield: I mean, you got a lot of new ones coming from optical that starts to ramp next year. Why if I seven starts to ramp next year. So you've got several new programs that are going to ramp on top of the inventory, just naturally burning off. So both of those will help. I mean, I guess the only other thing that I just mentioned on another question was seasonality. I think you probably see a little bit of softness and seasonality, but I think it's more influence, at least in the short term by the inventory that sits in the channel.

One of the big things going on as we're seeing more exposure Kishore shared some commentary around what's going on with this transition in two and a half gig.

We are seeing a lot more interest in that and we do expect to see more growth in 'twenty, four and 25 from from Ethernet as well as of course Wi Fi opportunities.

That's very helpful. I appreciate that color.

For my follow up question I guess, you know our lead times and backlog.

Steve Litchfield: Yeah, and then my last one and forgive me for speaking in three. I know it's a confidential process in the arbitration with silicon motion, but any sort of update on either the timing, you know, a reiteration of what you said before, but the timing of it or the potential magnitude. Any sort of color on that is that tends to be the most frequent question I get and I again, I appreciate your somewhat, if not significantly limited in what you can say.

Back to normal pre COVID-19 levels is that a fair.

A fair way to think about it today and then secondly.

It's nice to see the decline in inventory, but any thoughts in terms of a target level of inventory as you look to manage our expenses over the next couple of quarters. Thank you.

Yeah. That's a good question so I think we.

We've been doing a really good job on inventory as far as bringing it down but we got to do better and we will continue to do better and we jumped on this pretty quick.

Steve Litchfield: Yeah, I don't think anything's changed just as we had updated before. I mean, the only change is that silicon motion file for arbitration, confidential process. So you're correct in that we can add any more color there. Still expect, you know, that arbitration process takes 12 to 18 months. Thank you.

Going all the way back to the tail end of last year.

But unfortunately, the revenue declines just been such that we've not been able to get the inventory out as fast as we'd like to.

With regard to lead times.

With regard to lead times I would say, we're kind of back to normal I mean, we're kind of quoting 16, 18 week lead times, which is pretty typical in our business. I mean, there's a couple of businesses that are probably a little faster than that but but that's kind of our normal. So I wouldn't say that that is problematic whatsoever at this point.

Steve Litchfield: Howard, next question is from David Williams with the Benchmark Company. Please proceed. Good afternoon, thanks for taking the question. Kishore, maybe you could talk a little bit more about the attraction you're seeing in the Keystone platform. And what's the magnitude of that ramp do you think for next year? Is there maybe just a little more color that you've fried around that to help us understand that attraction and growth? We don't guide to the future in that sort of short timelines, but I think from where we are today, we are pilot builds right now as the interops cycles continue.

Backlog.

Also our backlog and bookings so you know bookings as I've talked about I mean have been very low because you had super good backlog for well over a I don't know almost two years now and so now I feel like we're getting through that adjustment phase, where you're going into a quarter with you know whatever 50 <unk>.

60% backlog, whereas you you know historically <unk> been running for the last two years, you've been running at 100% backlog in that and that's changing in that that are getting back into that normal rhythm. That's what we're used to that's what we know and so actually looking forward to kind of getting back some of the uncertainties.

Been around backlog pushing out of a quarter, that's really where the problem has been.

And so we're starting to see that improve but to be honest Steve.

Steve Litchfield: So can we do better than that? Absolutely. That's based on shareships. At the one wild card, the timing of the deployments of multiple data centers in the transition to 100 gigabit per lambda, whether it's 400 gig or 800 gig or 1.6 terabit on the 100 gig platform, if you will. And so you're counting on multiple players coming on right now. We have confirmed transitions from big, one big data center guy. I know that in the indeed a clusters, they are deploying 100 gigabit, but you know what, you know, it's like we have to land into it rather than win into it right now.

The extent that can save you one zero inventory in our books, so that we get the PEO bookings going on our customers say I bet travel support you on that.

Of course.

Thank you.

Thanks Carl.

Our next question is from Anna <unk> with.

With loop capital markets. Please proceed.

Hey, yes, good afternoon, guys. Thanks for taking the question.

Nate maybe just yes kind of.

Calibrate off of that last topic with Carl it it seems like it seems like everything you guys just talked about which suggests that new normalized inventory levels at customers.

Steve Litchfield: So we are trying to win into it. And as the increase their supplier base, hopefully we have one of the selected ones, but I'm not saying that we are selected or we are in it. So please don't mistake that. I'm just trying to say our focus is right no winning and and some good luck on the share basically.

This would be the same as they previously were going in.

Do you think that that's.

Based on what you can see us air.

Sure.

A fair assumption.

I'm not sure that I follow you in under I'm sorry.

Well your customers hold.

David Williams: Okay. Can you say is that progressing as you would have expected or is it maybe a little slower than you hope? You know, it always be slower to me, honestly. It's been a few several years since we've been investing in the optical data center. And I can't every time, you know, it seems slower slow for me because I'm dying with that dissipation, right. So, but so far, we feel very good about their VR and like I said, if you read the tea leaves, I should actually be more positive and disposed than my forecasting will indicate to you.

They probably either inventory level to.

For them they have what they would interpret as normalized inventory levels I would imagine.

And.

That was that looked at particular way going into 2020.

They can change what that looks like fee, but it sounds like when you look at it they can change it higher that could change it lower or they could be but at the same coming out of this.

But it sounds like based on what you are saying well here Here's my thought process is that makes sense. So what I'm, saying like they'd probably say, we want to hold some number of weeks of Max linear inventory.

David Williams: I think David, another positive. I mean, you're starting to see, you know, our IP that we've developed in optical starting to broaden out. We can go after AEC opportunities, AOC opportunities. And that really helps us to leverage the development that we've done thus far. Those are also types of programs that can ramp quicker versus some of the other transceiver platforms. Yes. Great color.

Sure.

Yeah, Yeah. So it sounds like is it sounds like what you're saying is the lead times are back to pretty typical.

We're at 50, 60% backlog.

Sounds like ship out is meaningfully higher then.

And then ship it.

Typical lead times.

So it sounds like you're operating your typical lead times as working capital inventory.

Kishore Seendripu: Thanks so much. And then maybe lastly, just on the carrier or maybe the operator side, if you look out, are you hearing anything in terms of the beginning of the year? CapEx planning or is there any sense of optimism that you're beginning to hear maybe for 2024 deployments and maybe CapEx spend? You know, it's always the hardest thing in all these years in broadband. I can tell you very clearly that. You know, they start their process sometime in Q3 and then, you know, Q4 don't know anything and Q1.

So the 50, 60% backlog that would sort of suggest to me I guess, it really kind of a practical question.

It sounds to me like they're already working you Guy.

It's getting you back to pre Covid inventory levels. I was just wondering if you have an opinion on where that might settle in.

I mean, all selling for them when you guys were flat.

Yeah look I, if I understand you correct. Your question correctly I agree that they I mean, I think the whole industry sees it lead times have come down and so they're waiting they're taking more risk. They know they are actually kind of.

Kishore Seendripu: By the time you end up Q1, then you know, it's sometimes they just go super aggressive as well. So, but these are unique times because there's a lot of inventory sitting out there, even if they're going through that process. I'm feeling the impact of their opEx decisions is going to be delayed for sure, right? Because they're going to be depleting every day. So you won't feel the urgency. They would come rushing towards the end of Q4 or in the middle of Q1 in the past past pre-pandemic period, right?

I'm not sure if we're seeing eye to eye on this but I think customers do have still have if you look across the industry Theres still a lot of inventory either in the channel or even sitting at end customers and so while that is still high I mean, they are still burning that down and but we're getting back to those normal times as I stated I mean, I think it's another cut.

Kishore Seendripu: But now they're still enough inventing the channel that it's going to be dampened. And so we wouldn't be picking up that signal smart. But I think we should all expect that everybody is going to be tightening their bells, right? And so it will be subdued whatever they are going to be up to.

Three quarters, but we are seeing improvements.

Yeah, and I guess the question really was do you think that they settled in at lower levels than previously when things get back to normal yet looked at.

I think yes, I mean, absolutely that's what we see in every cycle.

It swings the other way right they will take more risk they will wait too long.

It's exactly what's going on right now in my opinion across the entire industry is that they are waiting.

Because they either they know where they think they know that there's enough inventory out there and so theyre going to wait as long as they can and nobody's.

Carl Ackerman: I guess I first want to ask, you know, there have been many questions on this call sort of asking whether there are structural impairments to some of the broadband and connectivity portions of your business. So I'd like to ask specifically about your connectivity business, you know, how much of that business today is a rough and tough basis split between wireless and wired. I think that would be certainly helpful as we contemplate some of the content drivers that you talked about earlier on this call as relates to Wi-Fi 7 next year as well as some of the growth opportunities today for Wi-Fi 6.

Every one of these customers their operations guys getting pounded on for having too much inventory, so they're going to they're going to not order and theyre going to risk being late and in this environment, where demand is kind of so so.

That's probably okay.

And then just a quick follow up Keith you mentioned, a couple of times about the storage accelerators.

And picking up in 'twenty, four and then potentially there will be robust for PVA.

Do you any any context around how to tackle those could be.

It's it's very impactful right I mean generally are by and large whenever we invested any new product areas, we hope to build.

Carl Ackerman: Okay, I would say we have little or no exposure to wireless access from a connectivity side to the extent that we have exposure to the wireless access on the broadband connectivity side for our Wi-Fi's offering. It's really in the telco platforms where they tend to be the gateway box where, for example, they have a fiber upon chip with our gateway processor and a Wi-Fi and they will be, they will be what I call input to that box that comes from a 5G access value.

At its peak run cycles I'm, there in the $50 million to $100 million per year product and infrastructure product otherwise the economics don't make sense.

There's a rhythm to it you know what is the next product going to be build and that's one of the things that are sustaining revenue and growth rates are self sustaining growth in revenue and revenue. So it's so that is the expectation for this product that its going to be somewhere in the $50 million to $100 million of your revenue when he did speak revenue.

So it shows you that really rapid go like you said double next year, and maybe grow 50, 60% default a year from there and maybe he needs. The big point gains I mean really the third and the fifth year from Nam right. Hopefully a 30 year note. The 50 year and then it holds there for a long time, and we launch new products and the more important thing.

Carl Ackerman: So very little or no exposure to wireless broadband access access. Okay, so if you take out that on the wireless we are pretty much 100% of exposure to wireless access. However, maybe let's say 90% of it and 10% of it is what I call standalone router gateway that we are we started making progress towards at the beginning of the year to get revenues that are outside of the operator gateways, right. That would be the landscape.

This is where this is the key point here and maybe be inevitable connected the dots really well here is that there is a place a need for these accelerators in the cloud market as well.

As the AI and the cloud and the edge agree the accelerators will become essential to it. So right now we're investigating partnerships with our with you know AI vendors, if you will where there could be a joint offering and we are seeing a lot of what I call the openness for that joint collaboration or join.

Carl Ackerman: So you should have on the practical terms, you should associate 90% of our Wi-Fi connectivity that we use with our wireless broadband access gateways. Okay. And maybe Carl just add on a little bit. So don't forget on connectivity side we also have ethernet. So while you know a lot of our declines in the gateway, I mean it's been driven by both Wi-Fi and ethernet. One of the big things going on is we're seeing more exposure key shortage shared some commentary around what's going on with this transition to two and a half gig. We are seeing a lot more interest in that and we do expect to see more growth in 24 and 25 from ethernet as well as of course the Wi-Fi opportunities.

Carl Ackerman: That's very helpful. I appreciate that color.

This thing and that really is the key to the storage business either the enterprise is going to be a massive consumer of storage.

And latencies in access speeds and all of this is going to be incredibly important at the edge and then even inside the cloud moving forward, even if it's going to get even worse and really this is a play that goes together with all the offerings on the processors as well. So that's the next step in the evolution of our story has accelerated a business.

Maybe the first time I've really connected the dogs in that sense for you.

Steve Litchfield: For my follow-up question, I guess you know our lead times and backlog back to normal, I guess pre-COVID levels is out of fair. Sarah, what are you thinking about it today? And then second, you know, it's nice to see the decline in inventory, but any thoughts in terms of a target level of inventory as you look to manage expenses of the next couple quarters? Thank you. Yeah, it's a good question. So I think we've been doing a really good job on inventory as far as bringing it down, but we got to do better, and we will continue to do better.

That's really helpful context, alright, great. Thanks, guys.

Thanks Ananda.

Our next question is from <unk> Desilva with Roth.

Please proceed hi.

Hi, Kishore Hi, Steve a question about the carrier PON program I'm curious if that is the rollout is happening as you had expected or whether that carriers.

<unk> out or delaying that rollout because of the macro environment.

So you know the they're all it's already happening we've been shipping for a while here actually the only difference is that our the earlier part of the year. The rollout was slower than we expected. So they they were sitting on a bunch of inventory and then they started shipping now they're shipping on a natural cadence and we had already.

Steve Litchfield: We jumped on this pretty quick. Going all the way back to the tail end of last year, but unfortunately the revenue decline has just been such that we've not been able to get the inventory out as fast as we'd like to. With regard to lead times, I would say we're kind of back to normal. I mean, we're kind of quoting 16, 18 week lead times, which is pretty typical in our business.

Where are you on the next generation platform, but my expectation is the next generation is going to be delayed in the existing generation platform with a you know 10 gigabit for ex U S pawn and Wifi six are too which is N and throughput one is going to have a long life.

Steve Litchfield: I mean, there's a couple of businesses that are probably a little faster than that, but that's kind of our normal, so I wouldn't say that that is problematic whatsoever at this point. I mean, the backlog also, backlog and booking. So, you know, bookings as I've talked about, I mean, have been very low because you had super good backlog for well over, I don't know, almost two years now. And so now I feel like we're getting through that adjustment phase where you're going into a quarter with, you know, whatever, 50, 60% backlog, whereas you, you know, historically you've been running for the last two years.

Having said that because the next generation offering as well so I don't think there's any change in plans yet.

There'll be a natural slowdowns in seasonality than that sort of a thing, but nothing out of the ordinary because to start with.

It is not as much inventory on our site as well as in the beginning of the year.

Okay.

Okay sure and then lastly on the at the agency market with an optical that that's kind of coming online here can you help us just think about the relative size do you think that market will be a year or two out versus the oh sees in the passive cables just to understand how big you think that market grows as a share of the cabling.

Steve Litchfield: You've been running at 100% backlog. And that's changing and that getting back into that normal rhythm. That's what we're used to. That's what we know. And so actually looking forward to kind of getting back some of the uncertainties been around backlog pushing out of a quarter. That's really where the problem has been. And so we're starting to see that improve, but we honestly, if to the extent I can say we want zero inventory in our books, so that we get the PO bookings going on a customer side, I bet you have a support you on that. Of course. Thank you.

Operator: Thanks for all.

You know.

Very very interesting question I know, there's a lot of excitement a Z, but he has been a very very tiny market looking backwards.

Right.

The whole rationale for easy comes in as the speeds have increased dramatically. There you know passive corporate cannot meet the performance and you need you know active electrical cables.

For <unk> as well if I'm in a cluster I don't want to do anything with the Auc's right I want to go optical so it's really the mix and match. So this market can be huge gigantic and I think any forecast will underestimate the volume it can be or the long term. It just like USB three point all right. If you can just keep going.

Ananda Baruah: Our next question is from Annada Bura with loop capital markets. Please proceed. Hey, yes.

Ananda Baruah: Good afternoon, guys. Thank you for taking the question. Maybe just, you know, kind of the family right off of that last topic with Carl, it seems like it seems like everything you guys just talked about. What's the guess that new normalized inventory level customers, exiting this would be the same as they previously were going in. You think that that's based on what you can see a fair, fair, fair assumption. I'm not sure that I follow you and I'm sorry.

How are the prices are going to be a lot more.

Optimistic then they really will play out to be right. All in all I expect the market.

Anywhere between $200 million size for the chip guide to as big as the $1 billion for Transceivers and active optical cable and active electrical cable combined but there is very easy.

These cards are the last 20 years of existing as Max linear for me I've never seen a single chip supply in the communications segment more than $300 million of product.

Ananda Baruah: Well, your customers hold, I mean, they probably view their inventory level. To them, they have what they would interpret as normalized inventory levels, I would imagine. And, you know, that was that looked a particular way going into 2020. You know, they can change with that looks like speed, but it sounds like we could they could change it higher, they could change it lower, they could leave it the same coming out of this.

So so the billion dollar time attain a million dollars Tam is my point, so put it differently, it's going to take many generations of products to really acts as the $1 billion Tam and that's going to take a few years to get there, but but I think we're very well positioned with our technology evolution.

Ananda Baruah: But it sounds like based on what you're saying. Well, here's my thought. So does that make sense though when I'm saying like they probably, we say we want to hold some number of weeks of MaxLinear inventory. Yeah, yeah. So it sounds like to the sounds that what you're saying is the lead times are back to pretty typical and you're at 50, 60% backlog. It sounds like ship out is meaningfully higher than, than ship in because you have difficult lead times.

Okay. Thanks Keisha.

Okay.

Our final question is a follow up from tore Svanberg with Stifel. Please proceed.

Yes. Thank you.

I just had a two part question on the recent Commscope ovens.

Deal first.

First of all did that also have an impact on sort of purchasing behavior. Obviously when you have an event like this.

<unk> customers a bit more careful about buying inventory and then the second part of the question does this change anything at all for next thing and the reason I'm asking that question is because you know now that that's going to sort of like two customers and one I would think that the qual for DOCSIS four Plano is going.

Ananda Baruah: You know, so it sounds like they're operating you guys in typical lead times is working down the inventory to the 50, 60% backlog. So that would sort of suggest to me, I guess really kind of the crux of the question. It sounds to me like they're already working you guys as if getting you back to pre-COVID inventory levels. I was just warning if you have an opinion on where that might settle in.

It'd be a bit more simpler.

So if you could answer those two questions would be great. Thanks.

So towards your first part of the question is very very easy I don't think anybody knows which deal happens when it's very nonlinear process M&A activity, having said that there's so much inventory in the channel I don't think this is the deal itself had any impact on that it's really driven by the end market throughput and end market itself has got a lot of inventory sitting.

Ananda Baruah: I mean also inform when you guys reflect. Yeah, look, if I understand your question correctly, I agree that they I mean, I think the whole industry sees that lead times have come down. And so they're waiting, they're taking more risk. They actually kind of I'm not sure if we're seeing eye to eye on this, but I think customers do have still have. If you look across the industry, there's still a lot of inventory either in the channel or even sitting at end customers.

On it right. So I think our customers in the same bad plays we are in number one number two regarding the DOCSIS four point, though cycle, yes, we got a great shape the lowest power. The most beautiful thing in the world that's sort of a chip we have gone back to any competition over there.

Ananda Baruah: And so while that is still high, I mean, they are still burning that down. And but we're getting back to to those normal times as I stated. I mean, I think it's another couple of three quarters, but we are seeing improvements. Yeah, and I guess the question really was do you think that they settle you in at lower levels than previously? What things get back to normal? Yes, I mean, absolutely. That's what we see in every cycle.

Where we have seen debated the DOCSIS cable market plays out it really takes three to four years to get to the Ram point when it hit 50% of the volume is four years to get to 50% of the market and then that seven year life to it right.

Having said that DOCSIS four point, though he is not the same for everybody because already has killed them in the marketplace.

They reduced two flavors of it and it's a very very costly network rollout and I think all but it is going to be very very selective about DOCSIS four point it was going to be a very small share of the market.

Ananda Baruah: It swings the other way, right? They will take more risk. They will wait too long. That's exactly what's going on right now in my opinion across the entire industry is that they are waiting because they either they know or they think they know that there's enough inventory out there. And so they're going to wait as long as they can and nobody's, you know, every every one of these customers, their operations guys getting pounded on for having too much inventory. So they're going to they're going to not order and they're going to risk being late. And in this environment, where demand is kind of so so, that's probably okay.

Hello, where DOCSIS 3.1 has got many flavors, there's something called the ultra DOCSIS three one which is going to meet all of the category of services that the market needs with its 10 gigabit received bandwidth in upstream multi gigabit is going to meet all of those things called a higher split altra DOCSIS three one and that can rollout today based on all of them all of the network.

Are there and I think that's what the operators are going to lean towards and that is going to be 80% of the market and so DOCSIS four point those great, but three point when these even more beautiful ultra DOCSIS 3.1 is what I put my bet on.

Steve Litchfield: And then just quick follow up, Tisha, you mentioned a couple of times about the storage accelerators. And potentially I'm picking up in 24 and then potentially the robust for a few years. Do you any any context around how powerful those could be? It's very impactful, right? I mean, generally by and large, whenever we invested in any new product areas, we we hope to build at its peak, run cycles. I'm there in the $5200 million per year product.

Great perspective, thank you.

Thank you.

We have re thank you.

Oh, sorry go ahead, I was just going to hand, it back over to Dr. T shirts, and give him for closing comments.

So well. Thank you. Thank you operator, so I just wanted to thank you all for attending this call you know I would like to tell you that we'll be participating in a number of conferences in November through January the Stifel Midwest Conference Chicago, Another benign the Roth capital Technology event in New York, a number 15, the UBS Technology conference.

Steve Litchfield: It's an infrastructure product. Otherwise, the economics don't make sense. And there's a rhythm to it. You know, what is the next product going to be built? And that's sort of a thing. There's a sustaining revenue and growth, right? So it's self-sustaining growth and revenue and revenue. So so that is expectation, but it's product that it's going to be somewhere in the $5200 million per year revenue when it hits peak revenue. So initially you have really rapid growth.

In Scottsdale on November 28, the Wells Fargo TMT summit in Rancho <unk>, California on November 29, and the Needham growth Conference in New York on January 18, but that one. Thank you all once again for joining us and we look forward to speaking with you again soon thank you.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Steve Litchfield: Like you said, double next year and maybe go 50, 60% the following year from there. And maybe it hits the peak point. I mean, somebody will be the third in the 50 year from now, right? Hopefully the third year, not the 50 year. And then it holds there for a long time and we launch new products. And the more important thing, and this is where this is the key point here. And maybe we never ever connected the dots very well here is that there is a place and need for these accelerators in the cloud market as well.

[music].

Steve Litchfield: And as the AI in the cloud and the edge degrees accelerators will become essential to it. So right now, we're investigating partnerships with AI vendors, if you will, where there could be a joint offering. And we're seeing a lot of what I call openness for that joint collaboration of a joint listing. And that really is the key to the storage business. The enterprise is going to be a massive consumer of storage.

Steve Litchfield: And they can see the access speeds and all of those going to be incredibly important at the edge and even inside the cloud, moving forward, even with the AI, it's going to get even worse. And really, this is a play that goes together with all the offerings on the AI processors as well. So that's the next step in the evolution of our storage accelerator business. And maybe the first time I really connected the dots in that sense for you.

Yeah.

[music].

Kishore Seendripu: That's a really helpful context. All right, great. Thanks, guys. Thanks, Ananda.

Suji DeSilva: Our next question is from Suji DeSilva with Ross MKM, please proceed. Hi, Kishore, Hi, Steve. Now, a question about the carrier pond program.

Kishore Seendripu: I'm curious if that is the rollouts happening as you'd expected or whether that carrier's, you know, pushing out or delaying that rollout because of the macro environment. You know, the roll is already happening. We've been shipping for this whole year actually. The only difference is that earlier part of the year, the rollout was slower than we expected. So they were sitting on a bunch of inventory and then they started shipping now.

Yeah.

Yeah.

[music].

Yeah.

[music].

Kishore Seendripu: They're shipping on an actual cadence and we're already working on the next generation platform. But my expectation is the next generation is going to be delayed and the existing generation platform with, you know, 10 gigabit pond, XGS pond and Wi-Fi 6 or two, which is the enhanced throughput one is going to have a long life. Having said that because the next generation offering as well. So I don't think there's any change in plans yet.

Kishore Seendripu: There'll be natural slowdowns and seasonalities and that sort of a thing, but nothing out of the ordinary because to start with, it is not as much inventory on our side as well as in the beginning of the year.

Suji DeSilva: Okay, that's helpful. Sure.

Kishore Seendripu: And then lastly on the AEC market with an optical, that's kind of coming online year. Can you help us just think about the relative size? You think that market will be a year or two out versus the AOCs and the passive cables just to understand how big you think that market grows as a share of the cable. You know, that's a very, very interesting question. I know there's a lot of excitement at AEC but AEC has been a very, very tiny market looking backwards.

Kishore Seendripu: The whole rationale for AEC comes in as a speed of increased dramatically where a passive copper cannot meet the performance and you need active electrical cables. There's a plate for AOCs as well. If I'm in an AI cluster, I don't want to do anything with AECs, right? I want to go optical. So it really is a mix and match. So this market can be huge, gigantic, and I think any forecast will underestimate the volume it can be or the long term.

Kishore Seendripu: It's just like USB 3.0, right? It can just keep growing. How are the prices are going to be a lot more optimistic than they really will play out to be, right? All in all, I expect the market, I don't know, in a way between $200 million size for a chip guy to as big as a billion dollars for transceivers, active optical cable and active electrical cable combined. But there are these cars in the last 20 years of existing as Max Leah for me, I've never seen a single chip supply in a communication segment more than $300 million of product.

Kishore Seendripu: The billion dollar tab is my point. So putting differently is good thing. Many generations of products to really access the billion dollar tab, and that's going to take a few years to get there. But I think we're very well positioned with our technology evolution. Kishore.

Tore Svanberg: Our final question is a follow-up from Tore Svanberg. Would people please proceed? Yes, thank you.

Tore Svanberg: I just had a two-part question on the recent com scope of Antifa deal. First of all, did that also have an impact on sort of purchasing behavior? Obviously, when you have an event like this, you know, perhaps customers a bit more, you know, careful about buying inventory. And then the second part of the question, does this change anything at all for MaxLinear? And the reason I'm asking that question is because, you know, now that, you know, it's sort of like two customers in one, I would think that the qual for boxes 4.0 is going to be a bit more simpler.

Tore Svanberg: So if you could answer those two questions, that'd be great. Thanks. So, Tore, you first part of the question is very, very easy. I don't think anybody knows which deal happens when it's a very non-linear process, M&A activity. Having said that, there's so much inventory in the channel. I don't think the deal itself had any impact on that. It's really given by the end market throughput and the end market itself has got a lot of inventory sitting on it, right?

Tore Svanberg: So I think our customers and the same bad plays we are in. Number one. Number two, regarding the docks is 4.0 cycle. Yes, we've got a great chip, the lowest power, the most beautiful thing in the world. That's sort of a chip we have come back to any competition out there. However, we have seen the way the docks is cable market plays out. It really takes three to four years to get to the ramp point where it hit 50% of the volume, at least four years to get a 50% of the market.

Tore Svanberg: And then a seven year life to it, right? Having said that, docks is 4.0 is not the same for everybody. It is already a schism in the marketplace. There are two flavors of it and it's a very, very costly network rollout. And I think operators are going to be very, very selective about docks is 4.0 is going to be a very small share of the market. However, docks is 3.1 has got many flavors.

Tore Svanberg: There's something called the ultra docks is 3.1 which is going to meet all the category of services that the market needs with its 10 gigabit receive bandwidth and upstream multi gigamit. It's going to meet all those things. It's called the higher split ultra docks is 3.1. And that can roll out today based on all the network out there. And I think that's what the operators are going to lean towards. And that's going to be 80% of the market. And so, docks is 4.0 is great. But 3.1 is even more beautiful. Ultra docks is 3.1 is what I put my bet on. Great perspective. Thank you.

Kishore Seendripu: We have reached. Thank you. Sorry. Go ahead.

Kishore Seendripu: I was just going to hand it back over to Dr. Kishore Tindipu for closing comments. Well, thank you. Thank you, operator. So, I just want to thank you all for attending this call. You know, I would like to tell you that we will be participating in a number of conferences in November through January. The steeply midwest growth conference Chicago on November 9th, the Roth capital technology event in New York on number 15.

Kishore Seendripu: The UBS technology conference in Scottsdale on November 28th. The Wells Fargo TMT Summit in Rancho Palace Word is California on November 29th. And the need and growth conference in New York on January 18th. With that, I want to want to thank you all once again for joining us. And we look forward to speaking with you again soon. Thank you.

Operator: This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation. Thank you very much.