Greetings and welcome to the MaxLinear Incorporated Fourth Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Nicholas Aberle, Vice President, Finance and Investor Relations. Thank you, Nicholas. You may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today’s conference call to discuss MaxLinear’s fourth quarter 2021 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. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for first quarter 2022 revenue, revenue growth expectations and our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, effective tax rate and interest and other expense. In addition, we will make forward-looking statements relating to trends, opportunities and uncertainties in various product and geographic markets, including, without limitation, statements concerning opportunities arising from our broadband, wireless, infrastructure and connectivity markets and opportunities for improved revenues across our target markets. These forward-looking statements involve substantial risks and uncertainties, including risks arising from competition, supply constraints facing the semiconductor industry, global trade and export restrictions, the impact of the COVID-19 pandemic, our dependence on the limited number of customers, average selling price trends and risks that our target markets and growth opportunities may not develop as we currently expect and then our assumptions concerning these opportunities may prove incorrect. More information on these and other risks are outlined in the Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2021, which was filed today. Any forward-looking statements are made as of today and MaxLinear has no obligation to update or revise any forward-looking statements. The fourth quarter 2021 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including net revenues, gross margins, operating expenses, income or loss from operations, interest and other expense, income taxes, net income or loss and net income or loss per share 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 associated tax effects. Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear’s GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management’s analysis of our business. Lastly, this call is also being webcast and a replay will be available on our website for two weeks. And now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Nick, and good afternoon everyone. Our Q4 revenue was $247.9 million, up 8% sequentially and 27% year-on-year, with strong contributions from our connectivity and infrastructure end markets. Most notably, Wi-Fi and Ethernet product categories had breakout performances and grew in excess of 40% quarter-on-quarter. We exited Q4 on $100 million annualized Wi-Fi revenue run rate and expect to build upon this momentum throughout 2022. In infrastructure, 5G network build-outs are driving relative strength in 5G wireless access RF transceiver ramps, along with strong demand for wireless backhaul modems and RF transceivers. Our growth in Q4 and 2021 was driven by strong secular growth and company-specific drivers, including silicon content increases, market share gains and solid traction with our new products across all our end markets. This momentum gives us strong confidence in our ability to drive solid growth into 2022. In Q4 2021, non-GAAP gross margin was 61.7%. And our non-GAAP operating margin hit a five-year high of 31%. Our Q4 end market revenue consisted of broadband access at 52%, connectivity at 21%, infrastructure at 13% and industrial multi-market at 14% of overall revenues. Now turning to some of the Q4 business highlights, end market fundamentals within broadband and connectivity space show robust growth trends as carrier and cable operators increase their capital expenses to expand network infrastructure and home CPE equipment capabilities to support the proliferation of bandwidth-intensive consumer applications and services. Operators and carriers are in the early stages of a multiyear network upgrade cycle, which is validated by their recent earnings commentaries on capital expense increases. We also expect the U.S. federal government initiatives such as the Rural Digital Opportunity Fund to stimulate additional demand for delivering fixed broadband services to millions of underserved homes. We are well positioned to grow solidly and to outperform…

Thanks, Kishore. I will first review our Q4 2021 results and then further discuss our outlook for Q1 2022. Total revenue for the fourth quarter was $247.9 million, up 8% versus Q3 and up 27% year-over-year. Broadband revenue in Q4 was in line with our outlook at $129 million, up 3% versus Q3 and 14% higher year-over-year, driven by solid demand across our full portfolio of gateway solutions, including cable, fiber, hybrid DSL and fixed wireless access. Our connectivity end market had a breakthrough quarter in Q3 with a revenue of $53 million, which was up 39% quarter-over-quarter and 53% year-over-year, driven mostly by strength in Wi-Fi and Ethernet. Our infrastructure end market had a solid Q4 with revenue of $32 million, up 10% versus the prior quarter and up nearly 80% year-over-year, largely driven by strength in 5G wireless access and wireless backhaul. Lastly, our industrial and multimarket revenue declined 7% to $34 million in Q4 but increased by 16% year-over-year, coming off a robust performance in the prior period. GAAP and non-GAAP gross margin for the fourth quarter were approximately 57.2% and 61.7% of revenue. Non-GAAP gross margin was up 40 basis points versus the previous quarter, driven by product mix and continued operational efficiencies. The delta between GAAP and non-GAAP gross margins in the fourth quarter was primarily driven by $10.8 million of acquisition-related intangible asset amortization. Fourth quarter GAAP operating expenses were $112.4 million, up sequentially and above the high end of our $105 million to $109 million guidance range, due to higher-than-expected stock-based compensation and performance-based equity accruals, driven by strong fundamentals and stock performance during FY2021. GAAP operating expenses included stock-based compensation and performance-based equity accruals of $28.4 million combined, amortization of purchased intangible assets of $5.9 million and excluded $2 million of R&D…

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Tore Svanberg with Stifel. Please proceed with your question.

Yes, thank you, and congratulations on the strong results. First question for you, Kishore. Kishore, when you were talking about Wi-Fi, you talked about some design wins ramping second half of the year, perhaps outside of your traditional sort of cable markets. Could you just elaborate a little bit on that? And is this really the result of trying to diversify that business beyond traditional cable?

Hi, Tore, thank you. And yes, I think you read that absolutely right. We have one of the most valuable assets in Wi-Fi technology across the world. And it would be really in our interest to expand and address the entire market that’s available for Wi-Fi. And so we have been trying to penetrate markets outside of the operator platforms, and we’ve had very, very good success and we’re gathering momentum on that. And these are on target to start shipping in the second half of 2022. And outside of the supply constraints we are facing, we would be able to even ship a lot more product than we are actually sort of trending in a positive direction or commentary here. So one of the things I do want to mention is that a Wi-Fi 6E and 6 are the premium access point solutions, and you must have seen the most recent announcement in the Wi-Fi Alliance, we’re one of the three platforms to be selected as a test bed. So that really lends a lot of credibility, and with the proliferation of our gateways to our interoperability in other platforms is also very strong. So we’re very pleased with the way our connectivity portfolio is evolving.

Great, thank you. And as my follow-up for you, Steve. Steve, last quarter, I know you entered the quarter with a pretty strong backlog position. Could you just talk a little bit about how the visibility is now going into the March quarter, please?

Yes. Sure, Tore. Absolutely. I mean the – actually, we’re very excited about the bookings. I mean they’ve continued to be very strong backlog. We’ve got solid through kind of the beginning of 2023. And so we’ve never been positioned better with regard to visibility on the backlog.

Great. Thank you, guys and congrats, again.

Great. Thanks, Tore.

Thank you. Our next question is from Quinn Bolton with Needham & Company. Please proceed with your question.

Hey, guys. Congratulations on the nice results. I guess, the first question, Wi-Fi, you guys talked about hitting the $25 million level in Q4, $100 million annualized. It sounds like Wi-Fi should grow sequentially in March, and I know you’re not giving guidance, but you talked about these additional sort of non-carrier platforms beginning to ramp in the second half, which sounds like there’s additional growth that layers on. And so I guess I’m just sort of thinking about Wi-Fi for the year. It feels like you’re on pace to do well north of $100 million. Am I kind of reading the tea leaves right on that?

So yes, Quinn, absolutely. So we are excited. We’ve seen a lot of good traction. We’ve talked a lot about that attach rate. We’re still, I would say, we’re not yet closer to that 100% point on the attach rate, so there’s still a lot of upside coming from that. We’ve got our fiber platforms that are just beginning to ramp. So we’ll see a lot of growth from that this year and the third party that we mentioned earlier. So all that combined, yes, it does feel kind of feel very good going into the year that it will be north of $100 million. And then I think we’re already starting to look out into 2023. And I think you can see the potential being up north of $200 million in 2023.

Great. And second question, just – I know I’ve gotten this question from investors kind of across the semiconductor industry, so looking to 2022. How much of your growth in 2022 do you think comes from your ability to pass along higher input costs in the form of higher ASPs versus how much of the growth is coming from units?

So Quinn, that’s a very complicated question to answer, right? So obviously, we – it’s a very, very competitive landscape we are in, and supply is a very important element of it. So we try to be strategic about what we can – how much of that cost increases we’re incurring we can pass versus not. But ultimately, that’s not a sustainable strategy for growth, right? The growth is going to come through market share expansion, new markets, new product cycles and content increases, right? And for us, the focus has been about connectivity, connectivity, connectivity, infrastructure growth, and new markets in broadband and fiber is a huge area of focus for us, and we’re having very good success as we speak here. So I think that ultimately, when you talk about revenue increases on ASP expansions, our strength comes from our product offering and the value we create. More importantly, the question that really buried underneath is what happens after capacity is restored and you’re not seeing supplier cost, right? As a company, we’ve always had a very, very long-term strategic view. We were upfront of the shortages at least in the beginning of these shortages where we have deployed engineering resources heavily actually, we’re spending a lot of money in trying to find robust long-term sustainable supplier relationships through diversifying our production base. And I think ultimately, that drives cost excellence and sustainable profitability as well. So I think the improvements you are seeing on our side is very naked and very clear in the product portfolio. And I think – because we have an exciting transformation that’s happened over the last two, three years, and you’re seeing the benefit of that. Are we passing some costs through? Of course, we have to and to what our customers doing the same. It’s part of life, right? So yes, I hope, I addressed your question comprehensively.

Yes. No, I understand the strategy. Last quick one for Steve. It looks like you bought back 15 million of stock in the December quarter, looking for something similar again in March. Are you guys sort of thinking now that the buybacks are going to become more of a steady shareholder return program? Or are you just being opportunistic here?

Well, so I mean the Board kind of approved this back last March, and I think we’ve been active in the market over the last couple of quarters. So things have picked up there. I think as far as returning cash to shareholders, I mean, we’ll continue to pay down debt. We’ll continue to buy back the stock just to offset the dilution. And then ultimately, we remain very interested in doing more acquisitions on a go-forward basis.

Got it. Thank you.

Our next question comes from David Williams with The Benchmark Company. Please proceed with your question.

Hey good afternoon. Thanks for let me ask the question. First, it sounds like the 5G build-out or maybe that the 5G wireless is beginning to kind of break loose. Can you talk maybe about the puts and takes there? And how this business ramps as you see over the next maybe three to four quarters?

Yes, David, I mean, I’ll start. Yes, I mean we’re very excited. We’ve seen a lot of really good progress, saw a nice pickup in Q4 from our 5G wireless access, expect that to follow through this year. It’s been – these 5G markets are slowly evolving, so they’ve probably taken a little bit longer, but we’re seeing really good progress at this point. I think we’ve got some of the earlier dynamics around China, have kind of – are behind us at this point. And so we’re starting to see some good traction. We’ve got the 4x4 ramping, 8x8 coming as far as contributing to revenues on a go-forward basis. So – and then our DPD solutions are something else that are also contributing as well.

And Steve, maybe just from – on the gross margin, what leverage do you have that are still available to you? Obviously, pricing is helping a bit. But I guess how sustainable are the margins how do you think about the cadence of that progression as we head through this year? Is this sustainable at these levels? Or will there be some maybe get back as we start thinking about pricing kind of given back as the supply chain normalizes a bit?

Yes. So David, I mean – so we’ve talked a lot about this. I mean going back over a year or so ago, I mean, we’ve been working diligently to get our cost down and really move these gross margins up. I mean a big contributor is just the product mix. So, we’ve got a big growth driver coming from infrastructure and a couple of other products that are contributing, pushing those margins up and then, of course, always working for operational efficiencies. Kishore mentioned a little bit earlier about getting new qualifications, new vendors up and running. So, we’ve got to keep doing that. I think that continues to pay rewards out the rest of this year and next year. And as we continue to work towards that kind of mid-60% number, which we think is our long-term goal.

Great. Thanks, Steve.

Sure. David. Our next question comes from Ananda Baruah with Loop Capital. Please proceed with your question.

Hey guys. Good afternoon. Congrats on the strong execution, the strong results. Thanks for taking the question. A couple, if I could. Any way you just give us some context around of your various businesses, which ones do you think will be the key contributing to the revenue growth this year, the most significant to contributing to the revenue growth this year? It sounds like Wi-Fi, for sure. But what would be some of the key other ones?

Yes. Yes, sure, Ananda. It’s good to talk to you. Absolutely, I mean the connectivity really saw a nice breakout performance last quarter. So that’s going to be a big driver as Wi-Fi continues to grow. I mean from a dollar standpoint, that’s probably a big one. Ethernet is something else that’s really contributed nice. I mean for that matter, or MoCA, our G.hn are all growing right now and expect to grow this year and next year. Broadband is doing extremely well. Infrastructure is doing extremely well. So it’s really good to see the contribution of some of the investments that we’ve made over the years starting to pay off on the infrastructure front. And then industrial multimarket, I mean, it’s kind of a – even on that front, I mean, I’d say that we can see kind of mid-single-digit growth rates this year. So I think all of our end markets are doing very well and some of these investments are starting to really pay-off.

Yes. That’s awesome to hear. And just a quick follow-up, any context – new context to share on the 800G, 5-nanometer conversations that you guys have going on, you have silicon that maybe all of the all of the big U.S. guys right now? And that’s it for me. Thanks.

Let me take the question. So the 800G, we sampled our chip almost a year ago, the 5-nanometer Keystone product family. We are the first 5-nanometer solution for the data centers in the – in what they consider the next transformative place for data bandwidth per lane, right, which is 100-gigabit per lane. And these designs, different data center guys are working on a different cadence, and so that’s going to evolve over the next two to three years. So we are getting designed these into these modules, working with the data center folks. So I don’t think it delivers revenue per – it’s like place – we have to capture a place for the future and the road map. Reverting back to where we started this journey in the optical data center, we tried to leapfrog what was a ramping market 200-gig and move to 400-gigabit market. And being new to the market, even though we were one of the first ones to get there, we have had challenges getting our share of the market early on, owing to incumbent strength in the data center places. And then even as we’re getting qualified, we’ve went into supply chain constraints that has become as – in my script, we talked about dependence on a full Gig solution that has subdued the ramp. However, if you look at the breadth of the product portfolio in the meantime has really expanded to include TIAs, which we have always had. Now we expanded to doing some kind of re-timers, supporting active electrical cables and so on to expand the addressable market. So we’re really feeling very, very bullish about the long-term prospects of our data center initiatives. Just like in 5G wireless, right, it seems that the infrastructure markets take a little longer than we would all like, but we are feeling very excited about where we are.

Yeah, that’s right context. Thanks Kishore. Appreciate it.

Thanks Ananda.

Thank you. [Operator Instructions] Our next question comes from Christopher Rolland with Susquehanna.

Hey, guys thanks for the question. I wanted to dig in a little bit more on the supply chain commentary and any constraints that you guys had there. It sounded like there were some companion components for PAM4 that might have been constrained. Maybe talk about that and how those may come loose, but also where you’re seeing some other constraints as well?

Yes, Chris. So on the optical side, yes, I guess I would say, in this case, our customers are seeing those constraints. And so it’s other components in their system that is limiting them kind of broader than that. I mean we definitely see other situations as many have seen throughout the industry. We’re seeing where our peers aren’t able to deliver, whether it’s analog components or – I mean there’s a variety of shortages out there on the competitive landscape. From a supply standpoint side, so still, we expect to still be constrained on the wafer side. Substrates are still very challenging out there, and we’re working diligently to get other vendors up and other packaging completed in order to get more product out. And I think we’ve been really effective of that. I mean we’ve continued to see really nice increases over the last probably nine months, much higher than what those original expectations. Our engineering and our operations team have done a fabulous job. So we’ve got to keep doing that. And – but I think things are going to continue to show improvement throughout this year.

So having said that, we still have gaps between what our customers need and want versus what we are able to supply. And while we get slow relief, we don’t think we catch up to the full scale demand, whether it’s connectivity or infrastructure, which are two big growth factors for us. And in terms of what we can really do based on our design wins and content increase versus what the reality on the ground is. So I think this is going to be a battle through 2022. But we feel very good that compared to 2021, we as a company will grow pretty substantively.

Thanks, Kishore. And then my second question is around both the Wi-Fi and Ethernet opportunities here. So I think, Steve, you said that the attach rate for Wi-Fi wasn’t quite 100%. I don’t know if you wanted to hazard a guess for us on what that might be. Also, the Ethernet attach here as well? And then just overall, coming off a 40% year, would you like to throw out maybe an expected growth range for that product for 2022 as well? Thanks.

So yes, Chris, I mean, look, we’re – I do think it’s still early days. I mean maybe we’re getting about probably just above half of the SoCs that we’re shipping are shipping with our Wi-Fi product. So I think we definitely got some more upside there. Frankly, really excited about the fiber PON opportunity, right? And we have just as much attach there. I mean we talked about fiber and PON being less than $10 million of our revenue last year. So now going into this year, you’re talking tens of millions of dollars coming from fiber and PON. And I do think it’s pretty early days on that front and so that’s exciting. And then earlier, we talked about Wi-Fi even starting to ship on a stand-alone basis as well. So that will start to contribute more in the second half of this year and into 2023, of course. So yes, I mean, really excited. We’ve seen that business double and hoping to see another doubling in 2023. So exciting times on the Wi-Fi front, and I think you’ll hear more about our Ethernet solutions as well because Ethernet, while it’s an attached product, we have a lot of opportunities with 2.5 and 5 gig going beyond those existing gateways that we’re shipping into.

Thanks, Steve.

Thanks.

Thank you. Our next question comes from Richard Shannon with Craig-Hallum. Please proceed with your question.

Well thanks guys for taking my questions. Maybe the first one here on Wi-Fi, follow-up from your prepared comments about the Wi-Fi outside of your base markets here. Kishore, maybe you can discuss a little bit about the kind of the approach to the market, how you’re winning here? Is this more of a just kind of a socket-by-socket win? Or do you have to deal with the kind of bundling aspects as you go through that? Maybe you can discuss also the markets and the TAM opportunity there? And then how much of your overall Wi-Fi growth you’re expecting from these new markets this year would be great? Thank you.

Richard, that’s a load of questions there. So let me try to just keep it simple. In terms of markets, you all know it’s a big market. We are not clearly focused on handset market, right? We will never be is my thesis, right? And then – but today, what do we have? We are one of the premier access point solution, the latest generation. In fact, even in Wi-Fi 6, we have a solution that is double the bandwidth of anybody else’s Wi-Fi 6 because it was designed to support access point. And it turns out that – so we’re one of the only solutions that can do that with the Wi-Fi 6 product. So we are winning them socket by socket. And why do I say that? Because outside of the operator, we don’t have the benefit of the bundling of solutions, right, operator gateways. And so performance matters, and performance, performance, performance. So we have the performance for the category of products. We are now sort of winning in the marketplace. And one of the missing pieces in our portfolio right now is for these markets, a processor family, which is when you can talk of a bundling opportunity, right? And however, we sell our Wi-Fi, we also have a unique product with the 2.5-gigabit Ethernet PHY, and we also have acquired Ethernet PHY that support 10 gigabit, right? So that’s very, very really, really a valuable portfolio to have for routers, right? So the primary victories are on the router side, and that’s a huge opportunity for us in front of us. And longer term, I mean, I think I’ve hinted about having a bigger portfolio play with processors and so on. That’s going to take a little bit of while to develop. And looking forward, there is the next-generation Wi-Fi 7, which should have a very, very competitive product that brings in all the technologies to bear in an integrated platform. And I think we’re also will be winning quite substantially.

Okay. We look forward to hearing more about that rest of the year. I guess my follow-on question or second question is on the fiber market here. You’ve talked about a kind of a flagship win here. I want to get the update on the status there. And then any follow-on opportunities? And maybe if you want to characterize the comments you made today in the past, I think, about kind of tens of millions of dollars of fiber PON-related revenues. Any way you can help us think through that a little bit more that would be great. Thanks.

Yes. So look, with regard to fiber and PON, I mean that business is really just beginning to ramp. It is still pretty early days but that being said, we shift into some of these customers over the years just in smaller volumes starting to ramp this year. So we’ve got several customers already ramped in the first half of the year. We talked about a large North American carrier that will start to ramp this year as well. That’s on track and very excited to see that grow. I think, frankly, Richard, I mean, this is kind of early days. We have a lot – you’re seeing and hearing a lot more about these carriers rolling out more fiber around the world, moving to 10 gig. That’s exciting for us because these are all new platforms that we’re winning. And we’re winning with similar content as we had in cable, right? I mean we were seeing cable content up in the $30 range. Now you’ve also got that a similar level or a similar opportunity with the fiber and PON guys as well to get that $30-plus of content. So we can get all of those chips in those same gateway opportunities. So early days, I’ve said several times that we see this as hundreds of millions of dollars over the next few years, and I would reiterate that.

Okay, great. Thank you guys.

Thanks, Richard.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Kishore Seendripu for any closing comments.

Thank you, Operator. We will be participating at the following upcoming conferences during Q1, The Susquehanna 11th Annual Technology Conference on March 3rd and the 34th Annual ROTH Conference on March 13. With that being said, we thank you all for joining us today, and we look forward to reporting on our progress to you next quarter.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.