Greetings. Welcome to the MaxLinear Inc. Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host Nick Aberle. You may begin.

Thank you operator. Good afternoon everyone and thank you for joining us on today's conference call to discuss MaxLinear's third 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 remarks, 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 fourth quarter 2021 revenue, revenue growth expectations in our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, tax 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 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 a limited number of our customers, average selling price trends, and risks that our target markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect. More information on these and other risks is outlined in the risk factors section of our recent SEC filings including our Form 10-K for the year ended December 31st, 2020 and our third quarter 2021 Form 10-Q, which we 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 third 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 the 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 Q3 revenue was $229.8 million, up 12% sequentially. Non-GAAP gross margin was 61.3% and non-GAAP EPS was $0.75. We also generated record cash flow from operations of approximately $84 million. Q3 revenue was up 47% year-over-year with contributions from broadband access, connectivity, infrastructure, and industrial multi-market at 55%, 17%, 13%, and 16% respectively of overall sales. Despite the semiconductor industry's ongoing supply chain challenges, our financial outlook for Q4 is strong. It reflects continued improvements in our supply chain operations, strong secular growth trends across our end markets, and our company-specific growth drivers. Turning to some of the Q3 business highlights. Broadband revenue was $126 million in Q3, up 12% versus Q2 driven by new program ramps, share gains, content per platform increases, and strong end market demand. As service providers and operators ramp their capital expenses to address new bandwidth intensive consumer application services. We will benefit from this organic mix shift to more technology-intensive consumer premise equipment in the near and long term. We are also winning many platform designs across multiple geographies in new end markets, such as fiber broadband, where historically we have had little share. These design win activities will provide strong revenue growth over the next several years. Connectivity revenue was $38 million in Q3, strongly up sequentially at 21%. We expect Q4 to be our third straight quarter of solid double-digit sequential growth. Our comprehensive connectivity portfolio spans Wi-Fi, Ethernet, and MoCA and underpins our strong long-term growth trends. We see sustained momentum for our Wi-Fi products as operators address strong consumer demand for robust broadband access and connectivity services. Over the next several quarters, we expect the launch of a multitude of next-generation Tier 1 platforms, incorporating our WAV600 and WAV600 Release 2 solutions, including our triband offerings. This mix shift to higher-value Wi-Fi products will drive higher blended pricing as well. Also, our silicon content will increase materially as the attach rate of our Wi-Fi solution to MaxLinear's own gateway SoCs greatly increases as operators refresh their gateway platforms in the new upgrade cycle. In total, we expect connectivity to be one of our fastest-growing end markets for the next several years. Moving to infrastructure. Q3 revenue of $29 million was essentially flat due to supply chain constraints related to package substrates for wireless backhaul products. Having said that, we expect wireless backhaul to resume strong growth in Q4. End market demand for our wireless backhaul products remained strong, even as share gain for our microwave RF transceivers accelerates. Our microwave RF transceiver revenues outside of China will roughly double in financial year 2021. We expect to post similar growth rates in financial year 2022. Our 5G wireless access RF transceivers grew substantially off a low base in Q2 with an initial ramp in the North America end market. We'll have meaningful sequential 5G revenue growth in Q4 and also expect it to be a strong long-term growth contributor for us. In the optical high-speed data center interconnect market we expect modest shipments in Q4 as we initiate shipments of our 400-gig PAM4 DSP products to our module partners. Given supply tightness across nearly all components within the optical space, we are building products to intercept anticipated early-stage ramps of 400-gig PAM4 at hyperscale data centers. We're expecting strong growth for our PAM4 products through 2022. We remain bullish on our position as a highly disruptive silicon provider. Our most recent product Keystone is the industry's first 5-nanometer 800-gig PAM4 DSP product family, which has significant power and performance advantages over the competition. Based on solid customer sampling and interest, we expect a strong design win cycle for Keystone in next-generation cloud deployments. Finally, our industrial multi-market revenue grew by 14% to $37 million in Q3. End market demand continues to be strong across our product portfolio, with lean channel inventory levels. In addition, our customer design win funnel for new and existing industrial products continues to expand. As a result, long term we are confident that our industrial multi-market revenues will grow steadily as we continue to gain market traction for new and existing products. In summary, our company's specific growth drivers are now solidly in place with emphasis on share gains, new product cycles, and increasing silicon footprint with new and existing customers across all four of our end markets. With a continued focus on developing new and disruptive technologies across our high-value end markets, we expect to outperform semiconductor industry growth rates over the long term. With that, let me turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Strategy Officer.

Thanks, Kishore. I will first review our Q3 2021 results and then further discuss our outlook for Q4 2021. Total revenue for the third quarter was $229.8 million, up 12% versus Q2, and up 47% year-over-year. Broadband increased by 12% quarter-over-quarter driven by strong demand across our full portfolio of gateway solutions. Connectivity revenue increased by 21% sequentially as we saw broad-based strength across Wi-Fi, Ethernet, and MoCA. Infrastructure revenue was flat compared with Q2 as supply-driven softness in wireless backhaul was offset by strong growth in our 5G wireless access products. Lastly, our industrial and multi-market business was up 14% sequentially as we saw strength in both high-performance analog and component demand during the quarter. GAAP and non-GAAP gross margin for the third quarter were approximately 56.5% and 61.3% of revenue. Non-GAAP gross margin was up 110 basis points versus the previous quarter driven by product mix and operational efficiency. The delta between GAAP and non-GAAP gross margins in the third quarter was primarily driven by $10.7 million of acquisition related intangible asset amortization and $0.3 million of stock-based compensation and performance-based equity. Third quarter GAAP operating expenses were $106 million, down sequentially and at the low end of our initial $106 million to $110 million guidance range. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of $25.6 million combined and amortization of purchased intangible assets of $5.8 million. Non-GAAP operating expenses were $74.4 million, down $0.8 million versus Q2 and were below the low end of our initial guidance range of $75.5 million to $79.5 million. Non-GAAP operating margin for Q3 2021 of 29% was up 540 basis points sequentially as meaningful operating leverage was driven by strong revenue growth and lower expenses. GAAP and non-GAAP interest and other expense during the quarter was $2.7 million. Cash flow generated from operating activities in the third quarter of 2021 was $84.1 million. This was up substantially from Q1 levels driven by favorable trends in DSO and higher net income. We have now generated $152.2 million of operating cash flow through the first nine months of 2021. We exited Q3 of 2021 with $170.6 million in cash, cash equivalents and restricted cash. Our days sales outstanding for the third quarter was approximately 42 days, down from 60 days as we saw improvements in our shipment linearity. Our inventory turns were 3.5 times, down slightly from Q2. With that, let's turn to our guidance for Q4 2021. We currently expect revenue in the fourth quarter of 2021 to be approximately $240 million to $250 million, up approximately 7% at the midpoint of the range versus the previous quarter and up approximately 26% versus the prior year. While supply chain issues continue to limit shipments, we are seeing a continuation of the supply improvements demonstrated during Q3. Our operations team remains hard at work with the underlying goal of building the right products at the right volumes to facilitate customer builds and enable them to win in the marketplace. While we don't see supply/demand equilibrium happening anytime soon, we believe that incremental improvements will be made on a quarterly basis going forward. Looking at Q4 by end market, we expect broadband revenue to be up quarter-over-quarter, driven by growth in cable and fiber applications. Connectivity is expected to be up solidly versus Q3 driven by continued strength across Wi-Fi, MoCA, and Ethernet. We expect infrastructure revenue to be up sequentially in Q4 as wireless backhaul shipments improve and 5G wireless access continues to ramp. Lastly, we expect our industrial multi-market revenue to be down slightly quarter-over-quarter coming off a robust Q3 performance. We expect fourth quarter GAAP gross profit margin to be approximately 55.5% to 57.5% and non-GAAP gross profit margin to be between 60% to 62% of revenue. As a reminder, our gross profit margin percentage forecast can vary within a given quarter depending on the product mix and other factors. We expect Q4 2021 GAAP operating expenses to be up slightly quarter-on-quarter to a range of $105 million to $109 million. We expect Q4 2021 non-GAAP operating expenses to be up slightly from Q3 levels within a range of $73 million to $77 million. We expect our GAAP tax rate to be in the range of 15% to 20% and non-GAAP tax rate of 6%. We expect GAAP interest and other expense to be $2.7 million to $2.8 million and non-GAAP interest and other expense to be $2.6 million to $2.7 million. In closing, we continue driving towards delivering sustainable and profitable growth at a faster pace than our semiconductor peer group. We are aggressively investing in key market areas with the goal of expanding our addressable markets while increasing our silicon content and improving our market share position. At a macro level, our end markets are poised to demonstrate growth over the long-term driven by the proliferation of global networking and trend toward expanding consumer dependency on reliable and robust connectivity. In addition to solid top line growth, we remain committed to delivering significant value for our innovative and differentiated technology portfolio. While we have made meaningful progress expanding operating margins, we believe there is room for continued improvement, as we look to combine a growing revenue profile with a disciplined spending methodology. With that, I'd like to open up the call for questions.

At this time we will be conducting a question-and-answer session. Our first question is from Tore Svanberg with Stifel. Please proceed with your question.

Yes. Thank you. And congratulations on the strong results and outlook. I'd like to start on the connectivity side of things. Kishore or Steve, could you just elaborate a little bit on the content increases that's happening there; it sounds like you've got quite a bit more coming especially throughout 2022. So any more color you can give on content gains and connectivity would be great.

So Tore, maybe I'll just start off. Yes we've been talking a lot about these content gains within a gateway and a lot of that is driven by Wi-Fi. We've seen a substantial increase from Wi-Fi 5 to Wi-Fi 6. But we do see this continuing and we talked a little bit about that move from Wi-Fi 6 to 6E and then even long-term move into Wi-Fi 7 as well. But we expect those content gains to continue to grow throughout that time. And so you're talking gateways historically were running $5 to $7 and now you're talking well north of $10 of content per gateway.

In addition, in the past we did not have much Wi-Fi attached to our products. But Tore, even though we are the gateway SoC we didn't have much Wi-Fi prior to 6 to WAV600 as we call it. And now we are replacing existing preexisting Wi-Fi legacy solutions with our own Wi-Fi. So you've got two things going on. One, is the content per platform is increasing, one through expanded offering in Wi-Fi; second, actually getting new Wi-Fi sockets in existing platforms that we did not have before. So you're seeing this sort of a snowball in a very good way in all our broadband business, Wi-Fi is going to drive a dramatic increase in content per box. And in some cases it's a 30% to 40% increase. In some cases, depending on the box, a bigger increase in the total BOM content.

Very good. And some of the other IP that you got from your Intel Gateway acquisition include PON and Ethernet. I know you haven't talked a whole lot about that. I mean obviously they're smaller businesses but could you give us an update on some of the opportunities you're seeing for both PON and Ethernet especially next year?

If we consider the global broadband access market, it's clear that fiber presents a significantly larger opportunity than cable. A key development in the fiber market is the upgrade of networks to 10-gigabit PON, which provides symmetrical speeds in both directions across various tiers. We offer the leading 10G XGS-PON gateway platform, equipped with a top-tier SoC processor and the best Wi-Fi access point, including integrated PON front end. Our offerings stand out as the best in the industry. Over the past few years, our team has been focused on securing a premier showcase telco provider as our flagship success, which is expected to draw other fiber PON players to follow their lead. We are enthusiastic about the upcoming ramp, anticipated to begin in the middle of next year, with shipments already initiated at MaxLinear as we work to overcome supply constraints. In addition to this flagship carrier, we are also gaining traction with other major carriers in Europe and smaller ones elsewhere, pointing to substantial growth potential. With an accessible fiber market consisting of approximately 75 million units globally, where the leading platforms represent 20% and mid-tier platforms account for about 40%, we have a significant growth trajectory in broadband. These platforms come with advanced connectivity, particularly in the fiber sector, driving connectivity growth as well. Currently, our primary focus is on expanding our fiber gateway offerings and increasing revenues, with all design wins developing positively. Overall, broadband is poised to be a major growth driver for us, alongside our other investments in promising markets in connectivity, infrastructure, and high-performance analog.

Great. Just one last one for Steve. Steve, gross margin obviously continues to improve very nicely. With all the cost pressure out there right now, can you comment on the ability to sustain 60% to 62% for next year?

Yes, Tore. So cost pressures are definitely very high right now and we're dealing with those, as many in the industry are. We've been doing our best. I think we're very pleased, we came in ahead of plan getting above the 60% gross margin level last quarter and then hitting above 61% this quarter is exciting. So in the short term I think we're okay here. I think we're very comfortably above the 60% range and we're going to continue to drive that product mix towards the higher gross margin. We've talked many times that we thought that we can get the overall business up into the mid-60s based on the mix and the products that we're selling today and we remain confident in that. That being said, the cost pressures in the short term, we’ll continue to work around those.

The big key to our gross margin improvements has been all the things we just talked in the prior questions about product mix changing, higher value content and as our high-performance analog products continue to improve in gross margins and with new product additions and revenue growth, which are pretty proprietary in nature. I mean, we have seen the benefits of that. And you should also not forget that, with our infrastructure products, we also sell IP revenues that are really nicely helping gross margins right now.

Okay. Very helpful. Thank you.

Our next question is from Quinn Bolton with Needham & Co. please proceed with your question.

Hey, guys. I'll offer my congratulations as well. I wanted to follow-up on Tore's question. I think in the past you, guys seem to be much more optimistic about growth in the connectivity business, where broadband might be sort of kind of a lower single-digit to sort of flatter outlook. It certainly sounds like, from some of your comments around the PON and the fiber opportunity, that perhaps that growth opportunity in the core broadband business is picking up. And I'm wondering, can you level set us now on what you think the broadband segment standalone could grow? What kind of CAGR could it grow at, say, over the next two, three years?

Yes, Quinn. We're very excited about broadband as we look ahead to the next couple of years. There's a significant amount of infrastructure development and upgrades happening in the network. We remain confident that mid-single digits is a reasonable expectation. Regarding connectivity, we haven't changed our stance. We're planning for our Wi-Fi to double next year, and we're confident about that. We're ahead of schedule for 2021 and expect significant growth in 2022 as well. It's still early days for Wi-Fi and Ethernet.

I think the key point here is that we have not focused as much on the growth of the fiber platform because that's our approach. We tend to discuss our progress when we are really shipping products. Quinn, you are correct to be optimistic about broadband with new growth. A whole new total addressable market is being added to our business, which is fiber. It aligns very well with both cable operators, telco carrier providers, and our infrastructure investments in both cable and telco sectors. Overall, everything is coming together nicely and plays to our strengths. Steve has provided guidance that he stands by, and if I sound more optimistic, you are absolutely right.

Great. No, I appreciate that color. I wanted to switch over to the infrastructure business. It sounds like you will have modest shipments to the PAM4 400-gig DSP in the December quarter with kind of higher shipments in 2022. Wondering if you could give us sort of any comments around your visibility into that business? I know it's a pretty constrained environment. So wondering, if as you look out into 2022, do you have orders or backlog in hand that sort of give you the confidence that that business is going to ramp to more significant levels in calendar 2022? And then I know you've been engaged with one hyperscaler for the initial 400-gig designs. It sounds like perhaps those engagements are broadening. And so wondering if there's an opportunity to ship 400-gig DSPs to a second hyperscaler in calendar 2022 at this point? Thanks.

Quinn, you clearly have a deep understanding of this business. It's interesting you mentioned a second hyperscaler for the 400-gig PAM4 DSP. You're correct; there is a chance we might see another hyperscaler using 400-gig PAM4. We are working to expand our presence. However, I do wish we were further along in the optical data center space than we currently are. We do play a relevant role as a disruptive technology provider. Given the evolving landscape, companies appreciate having an aggressive innovator continually investing, which our 800-gig PAM4 clearly demonstrates. That said, we have faced challenges due to our lack of incumbency, and supply constraints have favored established players. This has caused us to be slower in adoption. Nevertheless, I believe this will become a significant contributor to our revenue growth in the long term, and I'm optimistic about next year. Looking at the overall infrastructure, the market is transitioning from 400-gig PAM4 on the optical side and 50-gig PAM4 on the electrical side, moving away from a straightforward one-to-one lane setup. Essentially, that's 100-gig per lane for both optical and electrical connections. We are in a strong position, and I believe that maintaining consistency and focus despite the challenges we've faced will lead to long-term benefits for us. I'm quite confident about that.

Great. Thank you, Kishore, thanks, Steve.

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

Hi, guys. Thanks for letting me ask the question. I'll echo the congratulations on the strong quarter and guide. I wanted to first hit on the supply side of the equation. Steve or Kishore, I know it's tight. Everybody knows is tight across the whole industry. It seems like you talked about incremental loosening, but the size of the upside you delivered in the quarter, the strong guide you gave in for the fourth quarter and the fact that your inventory went up the better part of 30% sequentially. Those all sound like we're moving in the right direction at maybe more than an incremental pace. Is there something I'm missing in there that it's still tight but not nearly as tight as it was? Any sort of kind of incremental update on that dynamic?

Ross, you're really zeroing in on the fact specific to MaxLinear. So I would really want to give all the credit to our operations and engineering team for lining up alternative suppliers across both packaging. And we're working furiously to broaden that so that we can meet the great demand growth we are seeing in our broadband and connectivity space, especially connectivity and also lining up for that optical data center that Quinn was asking about. I think supply is the key for more market share and gain and that would become an asset for us. So our engineering team and operations team are doing a fantastic job. And we've always been creative for our size and we continue to do so. I also want to touch upon the other fact. And hopefully, that has not gotten missed here. We hit $84 million in cash flow from operations and in an environment where we have also grown our inventory levels, right? So the business is really very, very well positioned to generate a lot of cash. And as our operating margin expands that should give us the ability to even expand our supplier base, right? Suppliers nowadays, relationships with suppliers are becoming more strategic. You have to make investments in them longer term. And we're taking all those active steps in terms of strategic investments to expand our capacity for the long term as well. So I think all those factors have contributed to what looks like loosening for us. However, you all know that everybody the suppliers have increased prices by 20% to 30% at least. So I think we are in a new world and being creative in expanding our supplier base is incredibly important.

Thanks for that color. I guess I'll sneak in two follow-ups in one question and somewhat unrelated. First, is seasonality even a concept that matters right now especially in your broadband business or is cyclicality and supply limitations the more dominant dynamic? And then the second and admittedly somewhat unrelated question, you guys have done a great job on the OpEx side of things. Is roughly the $75 million or so, is that the new base off of which we should grow, or is there some either lumpiness that we should expect going forward, or are there even more opportunities to whittle that down a little bit?

Yes Ross. I mean look with regard to seasonality so over the last two years it's been pretty unique, right? I mean you had a pandemic and then you had supply chain shortages. So that's definitely been a bit challenging and that's been the kind of overarching factor that we've had to deal with. I mean I do think that we'll get back to seeing some seasonality in our business. I think you probably start to see that sometime next year as well where typically we would see a stronger Q2 and Q3. So I do think that we'll start to move back in that direction. With regard to OpEx, yes, I mean look I think we've done a pretty good job from time to time I mean OpEx is going to be a little bit lumpy as it comes I mean especially, where you've got larger mask and things like that. We've also stated that we would expect OpEx to grow next year at a modest pace. I mean I think we're – it's not an aggressive number but you'll see it increase. Next year, as I look in out beyond Q4, naturally in Q1, early in Q2, you've got tax implications and things like that where you would naturally see increases in the first quarter. But otherwise, nothing extraordinary from an OpEx standpoint going forward.

Great. Thanks, guys.

Our next question is from Tim Savageaux with Northland Capital Markets. Please proceed with your question.

Hi, good afternoon. You guys hear me okay?

Tim, yes, it's just fine.

All right. Great. I want to come back to the kind of broadband growth discussion. And congrats on the quarter by the way. And I think it was coming out of Q1 actually, where you guys talked about – and this has been true among your competitors as well kind of the broadband business transforming from that kind of GDP type growth profile into something more significant. And at that point I think you were targeting mid-to-high single-digits as a kind of upward revision from that lower growth rate. As I listen to your commentary on the fiber side, that sounds pretty incremental to those previous expectations. And of course you got a much larger competitor, not quite the same product profile, but growing well into double-digits this year. So, once again the question becomes kind of get you to sign up for a double-digit growth rate in broadband? And I have a follow-up.

You're very good Tim. Look, I mean, I think, we've talked about this. We typically talk about it really in the context of connectivity and broadband. And we're more than comfortable with double-digit growth. I mean we've also …

Right.

I believe that double-digit growth across the company next year seems very reasonable. Regarding the long-term outlook for broadband, mid-single-digit growth appears sensible over the long term. The fiber market is relatively new, and we are gaining traction in it. There is a larger market potential here, and certainly, dynamics could change, especially as we enter this upgrade cycle. I know you are aware of the ongoing build-out efforts, including government involvement, which is bringing substantial investment and many upgrades from traditional DSL to fiber. We are experiencing significant traction and have observed proposals being put forward with growth expected in 2023. This gives us the confidence we've previously mentioned regarding the potential for double-digit growth in the long term as these new initiatives come into play.

Right. Got it, and you're right factoring connectivity in there does make things a little more comparable and get you well in the double-digits I suppose.

Yeah.

The follow-up was on infrastructure and really more short-term. You talked about some supply issues in microwave. But it sounds like, as those loosen up and you get some incremental contributions from both, 5G and data center it seems like, your messaging was you expect connectivity to be your fastest-growing segment in Q4 in terms of the guide, but it sounds like infrastructure could be pretty close. Is that a reasonable analysis there?

We feel very optimistic about our Q4 guidance for infrastructure. While I won't provide a specific number, we anticipate substantial growth in Q4. Overall, this year is expected to see around a 60% increase. Looking ahead to 2022, we anticipate another strong year as both optical and 5G begin to accelerate, making this an exciting time for infrastructure.

Through our strategic acquisitions, we have increased our broadband revenue and the infrastructure alone has shown significant growth. Over the past 12 months, it has grown by approximately 50%, and if you consider the previous year as well, the trend is positive for the overall revenue of the company. While this might get overlooked at times, we have performed exceptionally well in terms of infrastructure.

Okay. Thanks very much.

Our next question comes from Alessandra Vecchi with William Blair. Please proceed with your question.

Hey guys. I echo everyone congratulations on a great quarter. I just had a follow-up on Ross' question with regards to inventory. As we sort of think about some of these longer longevity business line items with PAM4 and 5G and now even like your broadband. How should we be thinking about the ideal or the normalized inventory level in either dollars or a day basis going forward like in terms of target?

Yeah, Aless, if you're asking about the inventory increase we experienced last quarter, it did rise significantly. I have a bit of a unique situation here. There are major supply chain dynamics at play, meaning we need to bring in a lot of products. Consequently, we have a lot of items in process to accommodate the growth we anticipate in 2022 and in the coming quarters. We have to put in effort to make that happen. In many cases, we have kits where we ship multiple products for a single application. Whenever possible, we aim to meet our customers' needs by shipping everything they require, rather than just individual items.

We have experienced inventory growth, but it is not balanced with the other components of our kits. This fact alone does not indicate that our supply situation is improving, as we also need to consider the other items that are in short supply. Furthermore, our revenue growth has not kept pace with the inventory levels necessary to meet our expectations. We are still not at the level we need to be for optimal growth. Our revenue projections would have been higher if we had a greater supply available.

I guess it's actually what I was trying to get at. I wasn't so much worried about the $127 million as I was trying to understand given sort of the change in your business over the last year like where you actually want that to go to in a supply equilibrium if that makes sense. Meaning is the target like 120 days or 130 days, or is it...

Yes. Well, I mean it kind of depends on the products. But I mean I would expect that longer term, I mean I think we can keep it under 100 days. But in this environment right now where everything is quite volatile, it's a little hard to say.

Okay. That helps a lot. That's what I was trying to get at. And that's it for me.

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

Good afternoon and thank you for the opportunity to ask a question. Congratulations on the quarter. I have a longer-term question regarding the replacement cycle and refresh in the CPE equipment, which you're clearly succeeding in. How do those trends usually unfold in terms of peak shipments? What year do you anticipate peak shipments occurring, and how does that decline afterward? Additionally, considering the transition from Wi-Fi 6 to 6E, do you think this might extend the cycle longer than usual?

Maybe I'll start. I'm not sure I fully understand your question. The cable replacement cycles are quite long, which is one of the appealing aspects of this business. It's a mature industry with a runway of six to seven years before upgrades are required. This means our investment needs aren't as significant. Wi-Fi operates differently, with a much faster cycle and a larger market. We're heavily investing in Wi-Fi due to the opportunities available. That's the current situation. I'm not sure if you...

If we discuss product refresh cycles in connectivity, particularly in relation to a broadband platform, you can expect a seven-year cycle for cable data, which typically includes two refresh cycles within that period for Wi-Fi. Wi-Fi refreshes occur at a quicker pace due to the industry's necessity to keep updating the technology. Conversely, access fees usually follow a seven-year cycle. I hope this clarifies how the refresh cycle functions.

That was very helpful. Thank you. And then maybe just on the 5G RF transceivers, the base station deployments in China have been I think a little bit slower than we had expected. Have you seen anything there in terms of a change in that dynamic? And then maybe if you can talk about your exposure to China and how you're thinking about the 5G rollout over maybe in the next 12 months?

Okay. Look for us we have been hit very hard by the U.S. position relative to China on 5G access with a large wireless OEM, right? And that was our opportunity to be a huge player and that has really hurt us big. So, I think that simply answers your question what does China mean for us, right? So, on the other hand the rest of the rollouts have been pretty slow. And you're also seeing that they are not deploying a huge massive MIMO solutions as was originally expected. Instead of 64x64 MIMO they are talking about 16x16. So that blending has come down to as I guess reality is setting in generally over a large TAM. So right now the focus is about getting design wins outside of China with the various OEMs and the industry generally tends to be very slow and frankly conservative is a flattery for those guys. And you win platform at a time and that will end up to a systematic build-out in revenue growth and not having incumbency has been a challenge as well for us. However, we expect it to be a long-term focus and growth opportunity for MaxLinear.

Fantastic. I have one more quick question. Are you observing any disruptions in China? I know there has been a lot of discussion around this in recent weeks. I'm curious if you are considering any potential supply or pricing pressures related to the power shortages in China as we move into the fourth quarter.

Yes. David I don't think there's anything different over the last week or two than we're already dealing with. I'll put it that way. There's plenty of challenges out there. I think our operations team has worked and done a great job thus far. And I think you see that in our numbers and we'll continue to do that. That creativity that Kishore mentioned earlier I think is also super important from an engineering standpoint that enables us to stay ahead of the competition here.

Fantastic. Appreciate your time guys.

Our next question is from Suji Desilva with ROTH Capital. Please proceed with your question.

Hi, Kishore. Hi, Steve. Congrats on the strong results here. On fiber-to-the-home Wi-Fi attach versus cable. First of all, what's the mix of your Wi-Fi you would say is more fiber versus traditional cable? And do you have a higher share in fiber? And if so why?

I cannot predict how the share will evolve in fiber moving forward, but currently, we are excited about the results of our three years of work. We have the leading carrier set to launch our product, which includes a complete platform from MaxLinear. Generally, our fiber products will integrate both Wi-Fi and access components, with few or no platforms without Wi-Fi from MaxLinear. The cable sector is different, as we have operated in that space for many years and maintained a market share of approximately 50 percent. We are in the process of replacing existing Wi-Fi solutions on our platforms with our own. The cable market is quite varied, with some customers purchasing only voice and data modems while others opt for gateways that include Wi-Fi as part of the complete package. While there are many details to consider, the key takeaway is that in the cable sector, we have the chance to increase our market presence and add more features through Wi-Fi. In fiber, we anticipate gaining market share, and we will ensure that our fiber gateway processor incorporates both Wi-Fi and Ethernet, along with MoCA in some instances.

Okay. Thanks, Kishore. That's very helpful. And then just a follow-up on that one. In your press release you talked about growth from content and share gains. I was curious if those comments were really more specific to Wi-Fi or whether there were two or three other areas you'd highlight as content or share gain opportunities near term to help the growth?

Suji, I think I should mention that there are multiple opportunities for replacement. For example, we have the only premier 2.5-gigabit Ethernet 5 product, as well as the only quad 2.5-gigabit Ethernet 5 product. These are now being deployed in the marketplace, and we expect to see an increase in content as a result. Additionally, we've discussed opportunities on the Wi-Fi side. There are many such opportunities, including power management, where we are doing significant work. This area often gets overlooked because we struggle to present it well in these discussions. Our focus remains on the large team, but we are integrating our power solutions with our SoC platforms, which should contribute to our bill of materials. For example, we ship around 20 million units of cable boxes. If we add even a couple or three dollars of power management content from MaxLinear's solutions during the next gateway refresh, we could potentially generate between $40 million to $60 million in revenue just from power. The idea of increasing content is a significant focus within our company since we are one of the few that can offer both mixed-signal digital and pure analog products, which sets MaxLinear apart uniquely.

Okay, great. Thanks for that color Kishore. Thanks guys.

Our next question is from Ananda Baruah with Loop Capital. Please proceed with your question.

Good afternoon, everyone. I appreciate you taking my question, and congratulations on the excellent results. I have a few questions, and I will be brief. Considering the strong revenue in the September quarter and the optimistic guidance in a challenging environment compared to what you had expected, could you provide some insight into what you believe is driving such strength? Do you think this indicates a growth profile that may be stronger for a period than you initially thought, or should we anticipate the same growth trajectory based on a higher revenue base? I have two quick follow-up questions as well.

Ananda, I'm not quite sure where you're headed with that. However, I believe our growth profile has significantly improved over the last 18 months, particularly with our new products like the Wi-Fi, broadband, optical, and 5G offerings. We're very confident in that growth profile, although supply constraints have been an issue, which we are addressing. This situation is not unexpected; we have the bookings, backlog, and visibility, but have struggled to meet supply demands. Fortunately, that is getting better, and our visibility is improving as well. We've implemented some creative strategies to enhance supply, which has been crucial for us. These efforts have allowed us to increase our numbers for Q3 and Q4, and will likely help us gain market share in 2022.

Yeah. I guess what I'm asking about Steve is in a constrained environment, I believe the vast majority of the revenue was organic. So correct me if that's wrong, but so you just put up like a 25% in growth rate.

No, no that's true.

Yeah. So I mean here's what I'm looking at. So I'm sure I'm not the only one doing this. You've been talking about double-digit growth just put up 25% in growth rate in a constrained environment or you're guiding to 25% organic in the constrained environment and presumably you'll get less constrained. So it just seems like you're a little bit ahead at least or maybe you're just sort of doing better than you thought you would originally. And I guess really maybe the question is you say double digits should we be thinking 20% normalized growth in a non-constrained environment?

Look we're not going to guide beyond the current quarter we're in. But do we have substantial upside in markets that we haven't participated in? Are there significant market share gains that we have achieved and will continue to achieve, I mean some of the things that Kishore spoke to a little earlier on the fiber side of the market. I mean, there's very large opportunities that we're seeing early traction on right now and we're always looking to expand the overall TAM and ultimately grow the top line faster. I mean, we reiterated that several times in the prepared remarks just talking about outpacing the semiconductor market and we're very confident that we'll continue to do that.

As we adopt a more strategic approach with our operators and service partners, they are collaborating to invest in development activities for MaxLinear. This means that our future road maps include their contributions, and we are benefiting from their investments in our development, both in future revenue forecasts and current technology endorsements. We've also not yet discussed the positive developments in infrastructure due to enhanced scale, which has been a priority for us as a company. I want to emphasize that we have experienced significant organic growth over the past two years. It’s important to acknowledge our capacity for organic growth, despite some misleading reports. Our organic growth has been robust, and I want to reaffirm that fact.

Thanks for that context. And just the follow-up is as the gross margins expand, should we also expect the operating margins to continue to expand, or there might there be some investments you might do with the extra gross profit dollars? Thanks.

So I think Ananda, yes, we saw a substantial increase of 540 basis points in operating margin improvement last quarter. I think you'll see in our guidance that that goes up again. About a year to 1.5 years ago, we discussed our ability to surpass 30%. We are making progress on that and are very excited about what the future holds.

And I think Steve in your prepared remarks you did sort of allude to the fact that we should see, we'll be spending lesser than the rate at which revenue is growing and that the operating margin has the opportunity to expand further. Thanks, Ananda.

Thank you, guys.

Our next question is from Sam Peterman with Craig-Hallum Capital Group. Please proceed with your question.

Hi, everyone. Sam is filling in for Richard. I have two quick questions. First, regarding connectivity, it seems you are quite confident that Wi-Fi will double next year, and you have good visibility on this. I'm interested in how MoCA and G.hn are performing in this area as well. Additionally, any insights you have about the outlook for 2022 would be appreciated.

Yeah. Yeah. No problem, Sam. Yeah. I mean MoCA and G.hn continue to perform extremely well. We spoke about it a little bit earlier. Very strong in Q4 actually coming up here. So those areas have been constrained as well as far as getting product, but really good traction with our MoCA product, G.hn seeing more and more applications with that as well.

There is a notable difference between G.hn and MoCA at the moment. Most of the revenue from G.hn is primarily focused on retail and some industrial markets, including industrial IoT. In contrast, MoCA is used more as a high-quality, reliable backbone for connectivity solutions within operator deployments in the home.

Okay. That's great. Thanks. I noticed in your 10-Q that Customer B, which you acquired from Intel, did not account for 10% of your revenue this quarter. Do you think they will be a 10% customer for the year? Can you provide some insight on whether this was specific to that customer or if other business lines are growing at a faster rate? What’s going on there?

Yeah. Sam, I mean with regard to the top customers, I think we supply to all of them, they all would like to have more product. So somewhat similar to our end markets these things are a little difficult to call from quarter-to-quarter. But I would say we're growing significantly with all of our top customers and we're excited about that. We also want to continue to execute and get them more products going forward.

Okay. Thanks, guys.

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

Hey, Chris are you there? Operator, we might go to the next caller maybe come back to Chris.

Okay. No problem. We have reached the end of the question-and-answer session and I will now turn the call over to management for closing remarks.

Thank you, operator. I just want to let everyone know that we'll be participating in the upcoming conferences in Q4, maybe Stifel 2021 Virtual Midwest Growth Conference on November 11; the Benchmark Company 2021 Technology Conference November 17; ROTH Capital Partners 10th Annual Technology Event on November 18; and Credit Suisse 25th Annual Technology Conference on November 30; Wells Fargo 5th Annual TMT Summit on December 1; Barclays Global TMT Conference on December 7; Oppenheimer 5G Summit on December 14; and the Needham 24th Annual Growth Conference on January 12. You should be able to see this list also on our website. So with that, I want to say that thank you all for joining us today and we look forward to reporting on our progress to you next quarter. Thank you very much.

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