Hello, and welcome to the MaxLinear Second Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to your host, Leslie Green, Investor Relations. Please go ahead, Leslie.

Thank you, Kevin. Good afternoon, everyone, and thank you for joining us on today’s conference call to discuss MaxLinear’s second 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. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the third quarter 2023, including revenue, GAAP and non-GAAP gross profit margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP tax rate, GAAP and non-GAAP interest and other expenses, and GAAP and non-GAAP diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities and uncertainties in various product and geographic markets, including, without limitation, statements concerning opportunities arising from our broadband, wireless infrastructure, connectivity and industrial markets, timing for the launch of our products and opportunities for improved revenue and market share across our target markets. These forward-looking statements involve substantial risks and uncertainties, including risks related to increased indebtedness, competition, the impact of a global economic downturn and high inflation; the cyclical nature of the semiconductor industry; our ability to sustain current level of revenue, including from impacts of excess inventory on our customers; expected demand for certain of our products; our ability to obtain or retain government authorization to export certain of our products or technology; and a failure to manage our relationships with or negative impacts from third parties. More information on these and other risks is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-Q for the quarter ended June 30, 2023, which will be 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 second quarter 2023 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including, but not limited to, gross margin, operating margin, operating expenses and interest and other expense on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We did not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for the comparable GAAP financial measures. We are providing this information, because management believes it to be useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast and a replay will be available on our website for two weeks. And now, let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore?

Thank you, Leslie, and good afternoon, everyone. In Q2, our revenues were $183.9 million and non-GAAP gross margin was strong at 61%. Our non-GAAP operating margin came in at 16.2%, and cash flow from operating activities was $30.6 million. In Q2, infrastructure was the highlight, recording 6% sequential and 37% year-on-year growth with 5G wireless backhaul continuing to be the strongest driver. In wireless infrastructure, Q2 marked a record revenue contribution for a wireless backhaul business. In particular, wireless backhaul deployments of multiband and hybrid millimeter wave and microwave radios are allowing us to double the silicon content per platform, offer modem and RF transceiver products. We are very well positioned to benefit from the expanding rollout of millimeter wave technologies across several large geographies and are currently partnered with Tier 1 equipment suppliers to support ongoing 5G network rollouts. In our high speed optical datacenter interconnects the ongoing adoption of AI in cloud is driving meaningful design win activity for our 5-nanometer CMOS Keystone 800-gigabit optical PAM4 solution. The growth and scale of AI is accelerating the adoption of 800-gigabit solutions and increasing the need for a broader customer supplier base. We are strategically positioned with the industry’s first 5-nanometer CMOS 400-gigabit and 800-gigabit PAM4 DSP production-ready silicon. Based on our design win activity and ongoing customer, call it, pipeline, we expect to ship small volumes in the back half of this year, leading to volume ramps throughout 2024. In Q2, as expected, our broadband access, connectivity and industrial multi-markets continue to be challenged owing to excess customer inventories and the ongoing cyclical semiconductor downturn. Despite the challenging market in broadband access, we continue to have solid market traction with our industry leading single chip integrated fiber PON and 10-gigabit processor gateway system solution. Our PON access revenue continues…

Thank you, Kishore. Total revenue for the second quarter was $183.9 million, down 26% versus Q1 and down 34% year-over-year. Broadband revenue was $54 million, down 34% versus Q1 and down 62% year-over-year. Connectivity revenue in the quarter was $38 million, down 43% sequentially and down 33% year-over-year. Our infrastructure and end market continued to grow in Q2 as a result of solid demand and growing market opportunity. Infrastructure had revenue of $49 million, up 6% versus the prior quarter and 37% year-over-year. Lastly, our industrial and multimarket revenue was $43 million in Q2, down 20% sequentially and 11% year-over-year. GAAP and non-GAAP gross margin for the second quarter were approximately 55.9% and 61% of revenue. The delta between GAAP and non-GAAP gross margins in the second quarter was primarily driven by $9.1 million of acquisition-related intangible asset amortization. Second quarter GAAP operating expenses were $108.8 million, including stock-based compensation and performance-based equity accruals of $16.5 million combined and acquisition and integration cost of $3.7 million. Non-GAAP operating expenses in Q2 were $82.5 million, up $1.7 million versus Q1 and slightly above the midpoint of our guidance range. Non-GAAP operating margin for Q1 2023 was 16.2%. Both GAAP and non-GAAP interest and other income during the quarter was $1.2 million. In Q2, cash flow generated from operating activities was $30.6 million. We exited Q2 of 2023 with approximately $246 million in cash, cash equivalents and short-term investments. Our day sales outstanding for the first quarter was approximately 77 days, up from the previous quarter due to shipment linearity. Our gross inventory turns were 1.7 times down from Q1 levels. This concludes the discussion of our Q2 financial results. With that, let’s turn to our guidance for Q3 2023. We currently expect revenue in the third quarter of 2023 to be…

Thank you. And, I’ll be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Quinn Bolton from Needham & Company. Your line is now live.

Hey, guys. It’s obviously a dynamic environment for the core business. And, I guess, a quarter ago, you kind of thought you were coming in to, I think, what was going to be a shallower bottom for the September quarter. Obviously, things are a lot lower than I think what you’re thinking 30 – 90 days ago. Can you give us some sense, how much of this is inventory correction? How much of it is that orders have just continued to come in at very low levels? We’ve heard that from some other semiconductors companies that have reported to date. But, I guess, as the revenues get lower here in the near-term, it just kind of makes the potential over shipments of 2021 and 2022 seem that much larger. So if you can give us any sense what you think true consumption of your systems are right now, would be helpful for folks?

Yeah, Quinn, I’ll jump in here. So you’re right, I think, we talked about this in our previous earnings call. I think originally we thought we would move through the inventory in the first half of the year. It’s definitely pushed into the second half. I mean, we had a pretty good feel that it’d be bottoming out in Q3, I think that’s still playing out, albeit at a lower level than what we had expected. I think the visibility on the booking side has been the challenge. Frankly, we’ve not seen tremendous amount of bookings, I mean, backlog. We’ve had a decent level of backlog all year long and it’s really hard to navigate in that environment. And so booking is, there’s still a lots of uncertainty out there. I mean, I talked about last quarter about demand generally holding up, and I think that’s still to some extent true, I mean, the broadband connectivity side, there probably is a little more softness on that side just from an overall in-demand standpoint. But the primary driver here of the bigger decline in Q3 than anticipated is strictly that inventory that’s sitting out there.

And, I guess, is there a risk you think this inventory burn if bookings remain this low in-demand certainly doesn’t seem like it’s recovering strongly? I mean, what’s the risk that this inventory correction maybe lingers into first half of next year?

Yeah. Well, I mean, I think, it’s – I think we’re all across the industry asking that question. I think we’ve been under-shipping demand. I think, we remain – we see that today, that we’re still under-shipping, where the real demand levels are. But at the same time, demand hasn’t been robust per se. So I don’t think we’ve burned off that inventory as quick as we thought we would. Different end markets are kind of going through this at different times. I mean, you’ve seen this from other peers that have announced, and even within our own business broadband connectivity is different than we’ve seen in industrial multimarket. I mean, we’ve talked earlier about industrial multimarket holding up, although you’ve seen some cracks there across the industry, right? So does it bleed into the first half of next year? I mean, it feels like we’re going to get through it this year and start to see a little bit of recovery in Q4, but we’re watching closely, that’s for sure.

Understood. And just maybe last quick one for Kishore. You talked about, I think, some growing design wins on the optical DSP side with some initial volumes in the first half – second half of this year and ramp through 2024. Can you say, are these mostly 400-gig modules, 800-gig modules, is it a mix? Is it at multiple hyperscalers? Just any more color on the potential growth on the DSP? Because, obviously, I think investors are looking for ways to sort of play AI trends and it sounds like that might be one of the plays MaxLinear has on growth in AI systems. Thanks.

Quinn, thank you. Absolutely, there’s been a long standing investment of the company. We have been investing now for almost 3 years plus and starting out in 5 years ago, actually, as a business development activity, and we missed the first phase of the actual PAM4 400-gigabit per lambda. And now we are here, but we have a very compelling solution with our 800-gig PAM4 in 5-nanometer solution. That’s the strategic position of our product and we have a lead time on that one with respect to competition. So the qualifications that we are going through, I want to categorize them in two buckets. Firstly, when we talk of design win activity and pipeline, naturally, is the module makers, right? Who are the ones who supply to the datacenter folks and other enterprise players, right, especially in AI? There’s a large demand out there and we are in activities to get qualified and interoped for these 800-gig solutions. And we have design wins with pretty much all the major OEMs for 800-gigabit, and on 400-gigabit PAM4 as well. But it’s really the lead and the compelling values in 800-gigabit PAM4 and you track the design wins, because the design footprint is identical and the technology and the firmware, the software is very scalable. So we are also getting drag along 400-gig PAM4 design wins. You also want to keep in mind that the transition of the – it is going towards either 2 by 400, which is equal to 800, or just 800 itself. The clear answer is that the design win pipeline activity is with the OEM module makers. The interoperab and calls are with the module makers and the datacenter folks. So you have to keep that in mind. So the expectation is with this level of frenetic activity and where the performance is there today, we hoped and expect to see some initial volumes at the end of 2023 and the ramp happening throughout 2024. At that point, expected that we are a legitimate player in optical PAM4 datacenter cloud market, right? Until now, we are the new entrant breaking into the market with a compelling strategic product offering.

Thank you, Kishore.

Thank you. Next question today is coming from Karl Ackerman from BNP Paribas. Your line is now live.

Yes, thank you. Good afternoon, gentlemen. Two questions, if I may. First, I was hoping you could discuss cash flow trajectory over the next few quarters as we’re working through this current down cycle and perhaps bottoming in the third quarter. I’m particularly interested in how it relates to working capital? I ask, because I would presume you would have to pay the breakup fee to Silicon Motion, whether it would be in the third quarter, perhaps later. Just any comments in terms of capital generation over the next few quarters would be super helpful. And I have a follow-up.

Yeah. Sure, Karl. So, first of all, based on the press release earlier today, and based on us filing an MAE, the break fee in this case would not be owed. So that’s the first question. With regard to working capital and cash flow generation, I think cash flow has been relatively good. I think we’re doing a pretty good job in a typical down cycle of pulling down inventory. I mean, we got inventory down this quarter, which I’m clearly started a couple of quarters ago. We started dialing that back, I think the operations team did a good job on that front. Unfortunately, revenue is coming down a little quicker, so days were still up a little bit, but I think you would expect to see us work that down over the next couple of quarters. We’ve also done a really good job on CapEx. CapEx coming into the year, I guess, really going back to some of the restructuring that we did back in February, we really dialed back CapEx, and so I think that’s been something that the team has done a tremendous job at. And we had the luxury over a couple of years. We did spend as we were ramping up some of these product lines. So we’ve got a lot of equipment already in-house and working and capable. So, I think, we can actually hold the line on operating cash flows. And once we see this bottoming out of the revenues, we’ll start to generate more cash going forward.

Just to clarify, once again, by invoking an MAE event and terminating the acquisition process and procedure by the deal terms, we do not owe any breakup fee.

That’s clear. Thank you for that. If I could ask a follow-up question on the outlook. I’m just curious, I guess, as we think about the various aspects of your business, clearly some have troughed or certainly been much more challenged than others. I think of the infrastructure business doing quite well, the industrial business up until this most recent quarter doing much better than the broadband and connectivity business. So, I guess, if you could just speak perhaps at a higher level, how you think about AV [ph] the bottoming process of the broadband and connectivity business? And then, separately, the risks and/or visibility you have with the infrastructure business and industrial pieces of your business that would give investors some clarity on the stability of the different aspects of your business as we think about a bottoming process in demand? Thank you.

Yeah, Karl, absolutely, great question. And it’s something that we’re spending a lot of time on, and I think, Kishore, hit on it in his prepared remarks. As we look into 2024, we have a lot of big growth initiatives that we’ve been working on for some time. The infrastructure you’re seeing really nice traction. We’ve gotten really good growth this year, last year. We’ve been – it’s becoming a real sizable entity. It’s been a big investment for us. It’s a big opportunity as we look out over the next 2 to 3 years. And so as optical starts to kick in, you’ve already seen the dynamics with wireless infrastructure, some of the improvements there. So we really have a good outlook on that side of the equation. But other growth drivers in the business, clearly, WiFi, PON, those still are growth drivers. Yes, we’re in a cyclical downturn, no doubt. But there’s also big investments being made. And we’ve got other areas like our storage products with our Panther product, our Ethernet solution. Ethernet is something that Kishore spoke a little bit about. It’s a big opportunity for the company. And, I think, it’s a great example of us really being innovative and coming to market, competing against some big guys like a Marvell and a Broadcom in a unique spot in the market with 2.5- and 5-gig solutions that we can really expand our footprint. And, I think, there’s a big need within the market.

Thank you.

Sure.

Thank you. Next question today is coming from Ross Seymore from Deutsche Bank. Your line is now live.

Hi, guys. Thanks for letting me ask a question. I guess at the highest of levels, the third quarter guide, I think directionally everybody expected it to be down a bit, but this is significantly worse than at least I expected. What gives you confidence that this is cyclical and not something more structural?

So, Ross, that’s a very important question. A big huge inventory buildup, one could argue is not really a cyclical event, is a gigantic event, right, in the channel. And so that depletion process really masks any structural shifts that we can glean. The way I look at it as that it is not – this for us is not a structural shift, is that all our investments and activities are new products, are really for new sockets. And is there some risk that those get delayed, because customers are not – customers are also delaying their own investments? Absolutely. So I would say that the first thing we need to watch for is inventory burn away in the system. And then during that period, how much are customers really investing in new platforms? Even if our products already, are they willing to absorb, and then every market area we are in is quite different. Infrastructure, the headwinds are fewer, lot of new products on the quarter we just announced with about $200 million infrastructure, right? That’s a major product category on an annualized basis. And then, we’ve got pipeline of optical datacenter products, new enterprise switch products for SMBs and Octal 2.5-gigabit size for enterprise markets, right? So you can see that’s – and then we have our storage accelerators for enterprise. So you can expect infrastructure to continue growing, and it’s got the most bundle of products that are new product cycles that are in the corner. So that’s a very, very exciting area. Then, if you look at our industrial multi-markets, we are investing in new interface product bridges. That’s what actually a big part of the growth that’s happened in industrial markets is also new products that were launched. It has done very, very well for…

Thank you for all that color. I guess, 2 quick follow-ups. One, Steve, you mentioned that you hope that the third quarter is indeed the trough. Do you expect significant growth in the fourth quarter, or just as you said, the visibility is so limited that calling a trough is about as much as you’re willing to do tonight?

Yeah. No, I mean, I think we’re always conservative about how these things rebound. So, I mean, I think a modest improvement in Q4 would be where my expectations are. We’ll see.

And then last, just a clarification. I know you don’t want to talk about the deal announcement or termination. The OpEx guidance that you have, whether it be on the GAAP or the non-GAAP basis for the third quarter, is there any significant change in the legal expenses that we should be aware of?

Well, on a GAAP basis, I mean, we are definitely spending – I mean, there was a decent amount of spend in Q2 with this going away that’ll reduce the spend in the latter portions of the quarter.

Thank you.

Thank you. Next question today is coming from David Williams from Benchmark Company. Your line is now live.

Hey, good afternoon, and thanks for taking my question. Maybe, Steve, if you can maybe give a little more color on the margin side. I know there’s quite a significant decline on the revenue side. But just curious how you are – if it’s just mix that you’re seeing in terms of maintaining that margin or if there’s any other moving pieces there that we should be thinking about.

Yeah, David, thanks for the question. Yeah, I mean, look, I think we’ve done a really good job on the gross margin side kind of despite the move on the lower revenues. We’ve held the gross margins, I think, there’s multiple reasons for that. I think the mix is playing a role as you’re seeing more infrastructure contribution, little less connectivity contribution. That definitely works in our favor. I think just the easing of the supply chain, we’re seeing a little bit less pressure on our cost going up. So that’s helpful as well. And then, naturally, we’re always working towards getting a better cost structure for existing products as well, even as evidence is our WiFi7 product going to a single chip. I mean, there’s multiple examples of where we’re constantly working towards getting to a better cost structure for our products.

Thanks for the color. And maybe, Kishore, can you give a little more color, you talked about this in the script about the AI opportunity and it’s driving some activity? Can you talk maybe a little bit about the magnitude of that and maybe what you’re seeing relative to AI versus the other trends that have been ongoing for some time?

So I think that we can safely say that the big spend that’s happening in cloud data infrastructure spend is really towards AI processors. There’s a massive demand for that. And we have excellent results posted in that area by, I mean, really on the financial results, excellent results posted are really by Nvidia, let’s be very honest and clear about it, rest are all riding on the Hoopla, right, let’s call it back. So Nvidia is the big driver and then maybe what and that leads through into the datacenters, right? And there’s a massive demand per product and massive end [ph] there’s a very big shortage of supply. So there’s a lot of all the OEM module makers are jockeying for supplier status for these AI needs, let’s put it there product needs. So we are in the thick of that and hopefully the calls and other things go well and the demand is promising to last quite a bit out and having a strategically very good part, where there is very, very low power consumption performance and quality of performance are very important. And we hope to get a piece of the pie. As I’ve said it before, we are in the optical market, not because of AI or anything. We have a core RF high frequency DSP mixed signal platform that scales from any communication system to any other network communication system, and the PAM4 DSP are just a manifestation of the platform we have. We’re latecomers to that market and we hope to really build a long-term success in that marketplace. So if the AI is driving it great, if it accelerates it awesome. But we are here to stay to make sure we’re successful in the cloud data space. And that’s a larger ambition that ties in with the infrastructure product lines that we have lined up that I talked to on Ross’s question on trends.

Thank you.

Thank you. Next question is coming from Tore Svanberg from Stifel. Your line is now live.

Yes. Thank you. Interesting day in MaxLinear land. I have a few questions. First of all, I think you came into the year with quite a bit of backlog. It sounds like you don’t have a lot of orders, so I think that means you’re probably seeing some cancellations. Could you just give a sense, Steve, for how those cancellations are headed? Are they accelerating? Are they extending longer? I mean, any sort of read you have there, because that would obviously determine your conviction in Q3 potentially being a bottom.

Yeah, I mean, I guess the way I’d answer the question. We still do have very good backlog. We’re still working on the booking side of the equation that’s – fortunately, lead times have come down and so customers are waiting longer. And with so much uncertainty kind of in the back half of the year, I think, customers, they think lead times are really short now. And in a lot of cases, they also know that plenty of guys have lots of inventory and so they’re waiting. And so that’s been problematic. I wouldn’t say that we’ve seen a ton of cancellations. We’ve certainly seen push outs. And most of these orders are non-cancelable, non-returnable orders. So in most cases they’re not cancellations. But we certainly work with our customer base in order to kind of work with them on shipment dates.

Sounds good. And moving on to this whole topic about consumption versus inventory, and specifically for your broadband business, I think it almost read like $0.5 billion dollar run rate last year. Now, based on my math, next quarter maybe we’re looking at like 160, 180. So, obviously, it was way inflated back then and it seems like it’s pretty depressed right now. So, any guesstimate on what the real sort of run rate could potentially be for that business?

Yeah, obviously that is the big question. I think we’re wrestling with that, Kishore spoke a little bit earlier. We have great relationships with these operators with the telcos, and so we have pretty decent line item visibility. But that being said, it is hard to tell right now exactly where that’s going to land. I mean there’s been a big build up we haven’t certain things going on in the market like refurbishments and things like that that we haven’t seen in a while. Those naturally come back into play, but our guys have done this for years. And so, I think, we have a pretty good understanding of it. We’re going to continue to work diligently to kind of dig into what that number lands at. I think we are confident, sounds strange word, confident that we’re under shipping, I mean, we’ve seen we know that there’s a lot of inventory out there and has been for some time and so we’re getting through that and, I think, it’s still going to take a little bit more time particularly on the broadband and connectivity side of the business.

Sounds good. Just last one for Kishore. Kishore, I know you can’t talk about the SIMO deal per se, but just thinking about longer-term strategically, obviously, that asset was supposed to give you some storage technology to continue to improve your position especially in infrastructure. How should we think about that now that you have terminated the transaction?

The termination of the transaction is pretty complex, so not talking about that particular one. I do feel that we have the storage accelerators that we have been investing and that’s really for the enterprise market. Number one enterprise appliance maker leading Tier 1 player is starting to ship. We expect that business to double next year and grow very strongly over the next 4 years. In fact very strong visibility of it and, I think, that’s the way we build into the market, because the pure enterprise play and that’s how we enter the market that’s an organic path to get there. On the dynamics of the Silicon Motion deal, those are very different dynamics and they have got, I think, our technology and our strategic view as how we play in the market. So our entry into – our roadmap will be following up our investments in accelerator technologies. And last year at the Flash Memory Summit, we won the best new innovative product in storage category, right. So, I do believe that if you just fast forward another 3 years, our accelerator business should be anywhere between $30 million to $50 million revenue per year run rates based on a single Tier 1 customer. So I don’t think anything has changed on the thesis on the value of the enterprise storage market.

Got it. Thank you.

Yeah.

Thank you. Next question today is coming from Gary Mobley from Wells Fargo. Your line is now live.

Hey, guys. Thanks for taking my question. I see, per your guidance, you’re expecting whether $4 million to $5 million sequential decrease in your OpEx? I presume most of that’s a variable reduction. And we just spoke about some structural changes that’s taking place in broadband cable from slower net, new subscriber additions, maybe some share loss to fix wireless access and whatnot. So what point does it make sense to right size the OpEx based on some of those structural changes to some of your larger markets?

Steve, why don’t you start off, then I’ll join.

Well, I’ll just answer the bigger question. So we announced last quarter that we were going to see declines. We’re expecting to exit the year closer to a $75 million, $76 million run rate. So we’ve already taken some action earlier in the year just kind of based on the whole industry downturn. I would expect to see some more improvements next year as well. I would expect OpEx to come down again in 2024 just based on kind of projects rolling off and just normal attrition there. So I actually see continued improvement on the cost structure side. But, Kishore, you can speak to, I think, the broadband portion of the question.

So, Gary, talking the structural changes in the broadband really it’s primarily like you mentioned, I feel constrained to the cable market. It’s very, very clear that the cable market and subscriber base is under siege from multiple players, the fixed wireless access and the fiber deployments and, I think that they’ll continue to feel the pressure. On the cable side, the response has been to move to DOCSIS 4.0, right. So from our investment – and these investment cycles last about 7 years or so new technology points and they are largely behind us in terms of the bulk of our own investments in MaxLinear. I do not look at WiFi as a cable specific investment, right. So I think that structurally the investment levels in cable go down borrowing a new fork in the cable industry’s ability to compete and generally these have been 7-year cycles and the bulk of the investment is behind. But, likewise our expectations of revenue growth in that sector is really going to come from silicon content increase and not from a pure broadband cable access revenues. So it’s more a platform level revenue. We hope to maintain our revenues on a footprint basis post this inventory burnout. So you’re absolutely right. I think cable is the market area and we are looking at it very closely and we have told ourselves well. This may be one of the more longer-lasting generations of cable for deployment, and for us, the expenses in investment cable should significantly go down.

I appreciate that color. I wanted to ask about the impact of some weak North American wireless infrastructure spending as highlighted from some recent guidance and results from some of the larger infrastructure players. To what extent, is that impacting your business as we look through the balance of the year or maybe even longer?

So our big wireless infrastructure growth has really come from – mostly coming 5G rollouts where wireless backhaul is the dominant backhaul mechanism and that’s really outside of North America and China. So the North America slowdown does affect somewhat, but it’s not a pronounced impact. Having said that, the wireless telcos in general, whether they’re investments in fiber rollouts or fiber deployments, et cetera, I am sure that will also get impacted somewhat. For us, we don’t have much exposure to that, because we are starting off a smaller revenue base and we are growing our revenue and design win share of that particular area of the market. So there we don’t see any slowdown expectations on our fiber growth. But the overall as a market, I do see a slowdown on the wireless telco carrier spend. We just happen to be the ones that won’t be as impacted, because we are starting off a smaller base.

Thanks again, guys.

Thank you. Next question is coming from Suji Desilva from ROTH MKM. Your line is now live.

Hi, Kishore. Hi, Steve. Since you’re early in the earnings cycle and you guys have been through a lot of cycles, I just want to ask start with a big high level question. What feels most different about this cycle versus past cycles you’ve been through? I’m just curious to get your opinion there.

Well, actually we have been through two similar cycles, right, and outcomes where it’s a different phase. I don’t know how many of my peers will say this, but if you really look at the extent of the comedown, because excess inventory channel it’s almost feels like a semiconductor [ph] company is kind of post 2008. I hate to say that, but I will say that. Okay. So the only difference is that macroeconomic conditions are not the same sentiment. That’s the difference. So for us, the cycles that we have been gone through have not been related to macro conditions or the semiconductor demand condition. It’s been through what kind of transformations MaxLinear was making in the public eye. So as we tried to broaden and diversify our revenues and grow the company, we had to go through painful cycles of where the smaller TAMs, we had to get out of and move towards bigger TAMs and we went through revenue troughs, if you will. So for us, this one feels similar. The company is going through sort of a transformation right now to position itself to go to $1 billion to $2 billion revenues. And that transformation is once again happening in front of your public eyes. So be it what happened with Silicon Motion, be it what happened with the acquisition we did with the Intel Connected Home assets or our organic investments in wireless infrastructure or optical datacenters. They are all manifestation of cycles that are very unique to MaxLinear, because you rarely come across a public company that’s trying to grow, enter new markets from where it was never born in. So there is not a peer to compare as a fresh company that went public, it was then trying to do the things we are doing. So our challenges are unique to us. So from my experience point of view, what’s happening in terms of demand it really feels like a post-2008 issue without the macroeconomic panic and fear that we had at the time. I hope that answers your question. Maybe you’re not expecting that answer, but that’s how I look at the world.

Okay. I wasn’t sure quite what to expect, so thanks for that. At the risk of sounding tone-deaf, I’ll ask you to ask this question. You guys demonstrated the potential for strong debt capacity with the recent inorganic activity. I’m curious if thoughts of pursuing alternate acquisitions where you are that versus pausing and what level of leverage you would consider in that pursuit?

Look, I mean, we’ve always been an acquisitive company, and we’re very excited about our organic growth potential ahead of us. We’ve also done lots of good acquisitions over the years, and we will certainly get back to that. We’ve got a lot of product areas that we’re very interested in investing in on the infrastructure front, on the connectivity front, and even on some of the industrial efforts and power management and the like. So we’ll certainly continue to go down that path. I mean, the balance sheet is good, so a lot of opportunities there. Look, we evaluate every opportunity that comes our way, and we pursue them based on how it increases shareholder value, and we are not afraid to do what’s in the long-term interest of the company.

Can I sneak one in real quick? Kishore, have you seen the hyperscale guys redesigning and pausing rack designs based on gen AI versus past AI efforts? Or have you not seen that phenomenon?

Look, I have not seen any such phenomenon. But I – it seems like a natural progression as far as the products we look at, where the data rates and speeds are increasing in the same footprint, right. I really think that AI just adds the number of interconnects and the TAM dramatically will increase, because that will become the big growth driver inside the interconnects, inside the data center. I think the TAM forecasts with AI will be lot, lot more than what we were seeing in the datacenter without this sort of excitement that’s built around ChatGPT and AI, right. AI was always there. It’s just now there’s a need for it that is suddenly exploring.

Thanks, Kishore. I appreciate it, guys.

Thank you. Next question today is coming from Richard Shannon from Craig-Hallum. Your line is now live.

Hi, guys. Thanks for taking my questions. First one for, Steve, probably more just tactically speaking here in the third quarter. I just want to get a sense of which segments you’re expecting to do relatively better or worse. And then also, as you see this bottoming process come manifest itself hopefully in the fourth quarter, there are segments where you have incrementally more confidence in that. I can probably guess what the answer is, but I guess I’d just love to hear from you there first. Thanks.

Yeah. Look, I mean, Q3, we talked about each of the end markets being down, got a very strong first half of the year with infrastructure. And as expected, we’re seeing a little moderation in the second half, just as that business is a little lumpier. But as we look into 2024, we do expect to see that recovery really across all of our end markets. You’ll start to see that in industrial multi-market. You’re going to see it in broadband and connectivity. And, I mean, we’ve got some underlying growth drivers with all of these, whether it be WiFi wins or PON wins. One of the things that we haven’t talked much about, PON continues to do well despite the overall broadband environment. That’s something that’s doing well. I mean, we’re underexposed to it. So anything – any incremental is a positive. And we’ve got several other good growth drivers such as Ethernet that will start to drive growth in 2024. So I’m not going to get into guiding what Q4 looks like by end market.

Okay. That’s fair enough. Kishore, I want to follow-up on your comments about structural changes here in the cable TV market and obviously as we look forward to a next cycle here, you’ve obviously just mentioned you’ve already largely committed and finished your investments here as we get to DOCSIS 4.0. But what’s your feeling of the cable maker or cable operators, particularly in North America about their interest in either accelerating or delaying DOCSIS 4.0 in response to these technical – these structural changes?

I mean, it’s very, very hard to say. They’re also sitting in a lot of inventory. And the cable operators and what we are seeing our slowdown of revenue is really reflective of their own plans, right, to some degree here. So I think that DOCSIS 4.0 will start deploying in small quantities. And probably in 2025 is when it starts ramping, because the products are just available barely. And then the platforms have been validated and there will be announcements about we are doing it. But really the infrastructure spend has not happened on DOCSIS 4.0 and all of that has to come together. So I think it’s really a 2025 event for sort of a resumption of growth in cable to the higher performing platform. And so, the ASP is going to offset some of the decreases in the volumes and quantities, but the net effect of that is not clear yet. Okay?

Okay. Fair enough. That’s all for me guys. Thank you.

Yeah.

Thank you. Next question is coming from Christopher Rolland from Susquehanna. Your line is now live.

Hey, guys, thanks for the question. Just back to the inventory kind of burn situation here. Have you talked to your largest customers about how much inventory they have or what their inventory plans are? I mean, for like broadband, for example, I got you guys at like, call it, $40 million, which is one-third of what you were doing a year ago. Have you talked about planning and worked further out on what order trends might be like for them and just kind of tying on to this as well? It doesn’t seem like your competitor, Broadcom in the space is having these inventory issues. So is it just a customer dynamic? You guys are tied to different customers or what’s going on now?

So, Chris, we certainly have very good visibility on channel inventory. We’ve been watching that for the past few quarters. We expect to see us continue to burn down that channel inventory over the next couple of quarters. I think with respect to Broadcom, I mean, they’re the other big guy. I mean, clearly, we don’t break out apples to apples comparisons. I don’t think you see this. I mean, they’re seeing the same dynamics in these markets as we are. They’ve got a lot more exposure to PON, so it’s a little different. They have some bigger WiFi business. So, again, you can’t really compare apples to apples. They’re seeing that same softness in the areas where we see the softness, I would just reiterate that.

Okay. That’s fair. I guess, if you do have a little bit of visibility from your guys just talking about the snapback here, would you expect any segment beyond infra to be up year-over-year next year? How should we think about this snapback kind of longer term? And do you think we start getting super seasonality into March? Is that fair?

Well, look, I don’t want to get into guiding quarter-by-quarter over the next 4 to 6 quarters, but as we look out into 2024, I mean, I think Kishore and I have both talked a little bit about some of the growth drivers for next year. I mean, there’s certainly going to be a recovery in all these markets. It’s tough to forecast year-over-year just because kind of the way the shape of the year has gone, right? You started out the year on a much higher run rate and so you’re going to end up exiting the year on a lower run rate and so that has some effect. But I mean, certainly, you’re going to start to see quarterly improvements off the bottom here, hopefully, as we talked about in Q3 and some improvements. Do we have seasonality? The answer is yes. I mean, we’ve historically always had a little bit of softness in the March quarter as well as Q4 to some degree. Do we see that again? I mean, potentially, yes.

I guess, lastly, for me, when it comes to PAM4, would you consider like a direct sale of the DSP business? Do you think that might be a better way to monetize it? Is there any hyperscale interest in just buying the part itself? It seems like going the road of engaging with cable makers and transceiver makers, and it seems like that’s a pretty big slog. And then secondly, on the AEC market, DSPs for AEC, any update there? Thanks.

So look, first of all, I mean as we talked about in our prepared remarks, we’re very excited about the optical market. We have been – we’re seeing great traction. We’re ahead of the competition with our 5-nanometer products. So, I think, we’re better positioned than we ever have been in this market. We’ve got our second generation solution. So, I think, we’re really excited. I think one of the things that’s changed since last quarter and you’ve seen it very closely. I mean, we’re seeing the market, we’re seeing a little more growth than even what we had expected. And that’s driving a lot of our customer engagements as well. So, I mean, there’s definitely a flurry of things going on. It’s driving all the PAM4 design wins that we have, it’s – with regard to the AEC market, I mean, that’s definitely an emerging market that we’ve talked a little bit around. We absolutely are working with customers with AEC design wins. If I think about our own revenues, it’s probably going to be driven on our kind of PAM4 transceivers first; and then AECs, because AECs are still a relatively nascent market as of yet. But, I mean, over the next couple of three years, we can certainly see it growing.

I don’t think a direct sale of silicon to datacenter. For them, this is too puny to entertain such an engagement from a silicon perspective.

Okay. Understood. Thanks, Kishore.

Thank you. Next question today is coming from Alek Valero from Loop Capital Markets. Your line is now live.

Hey, guys, thanks for taking my question. Can you guys talk about your ability to access the scale that you would have gotten with Silicon Motion deal, whether through future M&A or organic means?

Could you repeat the question, please?

For sure. Can you guys talk about your ability to access the scale that you would have gotten with the Silicon Motion deal like whether through future M&A or organic means?

Yeah. So, of course, I mean, we’re definitely – we’ve done a great job over the last, whatever 5, 10 years growing organically. We’ll continue to do that. We’ll definitely do more acquisitions. We’ve done them, I mean, even over the last 3 years. I mean, I think we’ve still more than doubled the size of the company. We will be able to continue to do this. Balance sheet is still very good. We generate tons of cash. I mean, we are positioned very well to go off and do more acquisitions as well as continue to grow organically. We compete head to head against big guys every day, and that’s never been a deterrent. The innovative product technology capability, engineering capabilities that we have will continue to enable us to differentiate and drive more shareholder value.

Awesome. Thank you for that. And I have another question around Generative AI, and I apologize if you might have addressed this beforehand, but are you guys experiencing any impact on your 800G 3-nanometer getting to market or any increase in customer interest?

Yeah. So far we have discussed about 800-gigabit PAM4 5-nanometer product and its traction, and really the next generation of products is really the industry has a habit at OFC for us to launch new technologies and new products. But I really don’t see anything grand or brand new coming up that will be absorbed anytime soon. I think the next leg of the optical investments, our products is really in 200 gigabit per lambda DSPs. And you should be looking for us to be an investor in their roadmap. So, I think, that’s – and we constantly evaluate nodes, foundries packaging technologies and all the gamut of it to build an extremely competitive low power product and cost competitive product. So, I think that for now, we’re in a good place and we need to make sure we get our fair share of the market in the datacenter market. Okay…

Awesome. See you guys.

Yeah. Thank you.

Thank you. We’ve reached end of our question-and-answer session. I’d like to turn the floor back over to Kishore Seendripu for further closing comments.

Well, thank you, operator. I just want to let everyone know that this quarter we will be participating in the virtual Oppenheimer Technology Internet & Communications Conference on August 9; the virtual Needham Semiconductor and SemiCap Conference on August 23; the Deutsche Bank Technology Conference on August 30 in Dana Point; and the Benchmark TMT conference on September 13 in New York. With that, I want to thank you again all for joining us today and we look forward to reporting on our progress to you next quarter. Thank you.

Thank you. This does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.