Greetings and welcome to the MaxLinear Fourth Quarter and Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Litchfield, CFO and Chief Corporate Strategy Officer. Thank you, Steve. You may begin.

Thank you, Paul. Good afternoon, everyone, and thank you for joining us today in today's conference call to discuss MaxLinear's fourth quarter 2023 financial results. With me today is Dr. Kishore Seendripu, CEO. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our guidance for the first quarter of 2024, including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense, and GAAP and non-GAAP diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including, without limitation, statements concerning future financial and operating results; opportunities for revenue and market share across our target markets; the effect of seasonality; expected production ramps and timing for the launches of new products, our design-win pipeline; demand for and adoption of certain technologies; our serviceable available market; expected customer inventory rationalization; expected incentive programs; the effects of cost-reduction measures and product announcements. These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31st, 2023, 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 fourth quarter 2023 and fiscal 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 GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations and the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods, because of the inherent uncertainty associated with our ability to project certain future changes, including stock-based compensation and its related tax effects, as well as potential impairments. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. We are providing this information, because management believes it is 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.

Thank you, Steve, and good afternoon, everyone. In Q4 our revenues were $125.4 million and non-GAAP gross margin was 61.4%. Our infrastructure end market continues to be the main highlight, growing 30% in fiscal 2023. Entering 2024, we are very optimistic about our infrastructure business and believe that it is firmly poised to grow to an annualized revenue run rate of several hundred million dollars over the next three years or so. Underpinning our optimism and growth convictions for our entire business is the successful launch of several new innovative products across infrastructure and connectivity and a robust and growing customer design win pipeline for them. We expect these new high-value product cycles to drive revenue growth encompassing high-speed optical data center interconnects, wireless access network upgrades, enterprise storage accelerators, enterprise Ethernet and multi-gigabit PON broadband access and Wi-Fi connectivity. In the high-speed optical data center infrastructure market, we are increasingly bullish and expect to generate tens of millions of dollars in revenue this year for our 5-nanometer CMOS Keystone 800-gigabit PAM4 DSP family. Early stage revenues have already begun and new production ramps later in the second half of the year will drive more meaningful run rate growth in 2025. The ongoing adoption of AI in the cloud is providing a strong catalyst for the transition to 800-gigabit and beyond speeds. In this high barrier to entry market, our investment in innovation over several years has enabled us to differentiate with a highly competitive and broad portfolio of PAM4 DSPs, which invariably have the best-in-class power consumption and performance across optical transceiver, active optical cables, and active electrical cables. In wireless infrastructure, despite current slowdown in telco 5G wireless access infrastructure spend, there's an expanding global rollout of new millimeter wave and microwave and hybrid backhaul technologies to upgrade wireless transport links from gigabit speeds to tens of gigabits per second data rates. As the only full system solution provider of modems and RF transceivers, we will greatly benefit from the significantly increased silicon content per platform in these new links. We also expect strong customer demand as part of a multiyear upgrade cycle entering 2025. Additionally, at Mobile World Congress in February end, we'll have new and unique product announcements addressing 5G access remote radio units for both Massive MIMO and macro base station solutions. We expect our growing portfolio of wireless backhaul and access infrastructure products to drive significant revenue expansion in the near to long-term. Within our infrastructure revenues, an exciting new growth driver is our Panther III Series hardware storage accelerators for the enterprise all-flash-array and hybrid storage enterprise appliance systems. With increasing deployments of higher speed low latency NVMe SSD drives, legacy software-based data compression technology using extremely expensive and power-hungry high core count CPUs is no longer viable. The scalability and flexibility of the Panther III DPU architecture allows us to deliver 12:1 data reduction, a full suite of security, low power and CapEx cost reduction, while providing ultra-reliable data protection. We are in production ramp with the Tier 1 leading enterprise storage appliance maker and expect additional customer product ramps later this year. We expect revenues to double in 2024 with continued strong growth in 2025 and beyond. In Ethernet connectivity, with the recent launch of our new Octal 2.5-gigabit Ethernet PHY and switch products, we have expanded our addressable market by $300 million to include both the enterprise and small and medium business switch markets, in addition to our traditional gateway and router markets. Customers are expected to upgrade today's more than 2 billion copper 1 gigabit Ethernet ports to 2.5 gigabit Ethernet speeds over time using existing standard CAT5 cabling. We are seeing exciting design win activity for our solution, including a Tier 1 North American enterprise OEM customer that is expected to ramp to production in the mid-2024. As we look ahead, we believe our Ethernet business could reach $100 million over the next 18 to 24 months. Turning to broadband. We continue to gain traction in the fiber PON market with new design wins driving our growth. As many of you know, in 2023, we began ramping our single-chip integrated fiber PON and 10 gigabit processor gateway and connectivity solutions with the major Tier 1 North American service provider. In 2024, we expect to begin ramping a new opportunity with the second major Tier 1 North American service provider. This further validates and establishes MaxLinear's competitive positioning in the fiber PON market. In 2023, our PON revenue was approximately $50 million. We expect to be able to more than double our PON revenues over the next two years. In connectivity embodies a major milestone, our Wi-Fi 7 solution was both certified and selected by the Wi-Fi Alliance as one of only four certified Test Bed devices for Wi-Fi 7 interoperability and compliance. Our WAV700 single-chip tri-band Wi-Fi 7 device is an industry first and represents a major step forward for power efficiency, performance and reduced latency. Even as Wi-Fi 6 and 6E are reaching peak adoption, Wi-Fi 7 is beginning to launch this year in client site mobile phones and PCs. We expect service providers to follow soon with their initial rollout later this year, with adoption peaking in two to three years. For MaxLinear, Wi-Fi 7 has the exciting potential to drive significant ASP growth and higher attach rates in our broadband access platforms versus previous generations. Circumspectly speaking, 2024 is likely to be the start of an exciting period of new product growth and opportunity for MaxLinear. We also expect market headwinds of the past year in broadband and connectivity to likely become tailwinds when customer inventory rationalization winds down. Most importantly, the investments we've made in product innovations across our portfolio are beginning to bear fruit and are opening up new and significant revenue opportunities that we expect will drive our growth for many years to come. With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve?

Thank you, Kishore. Total revenue for the fourth quarter was $125.4 million, down 8% versus Q3 and down 57% year-over-year. Broadband revenue for the fourth quarter was $34 million, flat versus Q3 and down 66% year-over-year. Connectivity revenue for the fourth quarter was $19 million, up 26% sequentially and down 82% year-over-year. As expected, infrastructure revenue for the fourth quarter was down substantially. Revenue for the fourth quarter for this end market was $32 million, down 37% versus the prior quarter and flat year-over-year, but grew 30% for fiscal year 2023 as a result of solid demand and growing market opportunity. Lastly, our industrial and multi-market revenue was $41 million in Q4, up 13% sequentially and down 25% year-over-year. GAAP and non-GAAP gross margin for the fourth quarter were approximately 54.7% and 61.4% of revenue. The delta between GAAP and non-GAAP gross margin in the fourth quarter was primarily driven by $8.3 million of acquisition-related intangible asset amortization. Fourth quarter GAAP operating expenses were $110.3 million, including stock-based compensation and performance-based equity accruals of $19.5 million combined. Restructuring costs of $10.6 million related to our Q4 workforce reduction and acquisition of integration costs of $1.8 million. Non-GAAP operating expenses in Q4 were $75.7 million, up $0.6 million versus Q3. We expect to see the benefit of our cost reductions starting in Q1 and throughout FY'24. Non-GAAP operating margin for Q4 2023 was 1%. GAAP interest and other expense during the quarter was $0.9 million. Non-GAAP interest and other expense during the quarter was $0.8 million. In Q4, cash flow used in operating activities was $16.6 million. We exited Q4 of 2023 with approximately $188 million in cash, cash equivalents and restricted cash. Our day sales outstanding for the fourth quarter was approximately 124 days, up from the previous quarter due to shipment linearity. Our gross inventory turns were 1.4, slightly up from Q3 levels. This concludes the discussion of our Q4 financial results. With that, let's turn to our guidance for Q1 of 2024. We currently expect revenue in the first quarter of 2024 to be between $85 million and $105 million. Looking at Q1 by end market, we expect all four end markets to be down quarter-over-quarter. We expect first quarter GAAP gross margin to be approximately 50.0% to 54.0% and non-GAAP gross margin to be in the range of 59.5% and 62.5% of revenue. Gross margin continues to be stable, despite lower unit volumes with the range being driven by a combination of near-term product, customer and end market mix. We expect Q1 2024 GAAP operating expenses to be in the range of $115 million to $125 million. We expect Q1 2024 non-GAAP operating expenses to be in the range of $72 million to $78 million. We expect our Q1 GAAP and non-GAAP interest and other expense to be in the range of $1 million to $2 million. We expect our Q1 GAAP and non-GAAP diluted share count to be approximately $82.3 million each. In closing, we are excited about our market position and growth drivers for 2024. The product innovations that will drive our success in optical Wi-Fi, fiber broadband access gateways, Ethernet and wireless infrastructure are all in market today and gaining customer traction. As always, we will continue our strong focus on operational efficiency, fiscal discipline and shareholder value, as we position ourselves for an exciting future. With that, I'd like to open the call for questions. Paul?

Thank you. We will now begin the question-and-answer session. Our first question is from Tore Svanberg with Stifel. Please go ahead with your question.

Yes, thank you. My first question is about your broadband connectivity segment, which seems to have stabilized this quarter. However, it appears you are anticipating another decline. Could you explain the dynamics at play here? It seems counterintuitive for stabilization to be followed by another drop.

Sure Tore, I'll start and Kishore might add a little bit. But so first of all, yes. So, look, we've been talking about this, I think we've seen inventory in the channel improve. And so we're seeing some modest improvements we spoke last quarter about some seasonality. And just the simple fact that there is still inventory in the channel and expect it to be for the first half of this year. So we are getting through it I think the bigger problems is in the broadband and connectivity side. As we've talked about a little bit our infrastructure business is going extremely well. We don't have big inventory overhang in the channel. Industrial is a little bit mixed. In certain areas where things are going well I wouldn't say there's a massive amount of inventory, but you're also hearing rumblings of some things slowing down in the industrial multi-market.

Very good. And if we now sort of assume that this is a $400 million business, at least if you take Q1 that's the run rate of the business and I know that you guys segment by four business units or segments. But if we think about that $400 million, how much of that is going to cyclical versus secular now because you clearly have a lot of secular stuff that's growing. You would have some great new design-wins and optical and so on and so forth. So just trying to understand, if we look at that baseline of let's say $100 million a quarter, $400 million run rate. How much of that would be cyclical versus more secular? I don't know if there's any way you can talk about that.

I can't provide a breakdown of that. However, I would like to emphasize that we recognize the challenges in the market, particularly with the declines in broadband and connectivity inventory. Other markets are performing relatively well. We are managing the situation, and while there is some softness in the industrial sector, the infrastructure side is performing strongly, which is why we have many new products. Kishore detailed some of these new infrastructure products, which are generating revenue in some cases or are design wins anticipated to yield revenue in the near future. We are confident that we will emerge from this stronger, with exciting new products to support our growth.

It's also true on the broadband and connectivity front. We discussed our new PON product lines and Wi-Fi 7 connectivity. Currently, the situation in broadband connectivity is quite chaotic regarding bookings and inventory. However, once we rebound, we anticipate that the newly launched products will drive growth in broadband and connectivity. It's important to recognize that there are opportunities for growth in broadband and connectivity, alongside the notable progress in other areas.

Sounds good. I'll get back in queue. Thank you.

Yes.

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

Thank you for taking my question. I wanted to ask what you're hearing from end customers about the impact of the infrastructure bill and matching funds. Some companies in the broadband sector, like Harmonic and Calix, have mentioned they expect a weak first half of 2024 as many are postponing their capital expenditures to later in the year, or even next year, to take advantage of one-for-one matching dollars. It seems like there is a shift in capital spending towards future quarters. Do you have any insights on this? Are you noticing similar trends, and I assume this is likely contributing to the inventory reduction in the short term since there’s less spending on capital expenditures right now?

I think Quinn and I would respond by saying that we are aware of the discussions surrounding the infrastructure bill and the expected subsidies associated with it. Ultimately, we are currently undergoing an inventory correction, which is influenced by short-term demand. This demand has been slower than anticipated, contributing to the challenges we face in reducing our inventory. On a positive note, we observe that more telecommunications companies are expanding their operations and have been proactive in their capital expenditures. However, some of the smaller players are waiting for subsidies, which may delay their spending by two to three quarters. While this isn't entirely unexpected, it certainly complicates the recovery process.

We are observing the order patterns and noting that inventory levels are decreasing. Progress is being made, and we are starting to see an increase in bookings, which is a positive sign. However, these bookings are distributed throughout the year, rather than being confined to Q1 or Q2, due to established lead times. Therefore, it's not accurate to directly relate the statements from some industry players to our situation. The key factor for us is when inventory levels deplete and orders return to a more normal state.

I mean, I guess if that activity is happening, it obviously makes for an extended bottom, which I think you're going through now, but I would think at some point the snapback be pretty steep if guys are just holding off, waiting for matching funds. But I guess right now, I assume, lead times are fairly short and you don't have evidence or strong order activity that would suggest you start to see a stronger recovery at some point, whether it's Q2 or Q3. It sounds like visibility in broadband and connectivity is so pretty low, is that right?

Yes, the short-term visibility is one aspect, but it should rebound strongly once the rationalization occurs, as we mentioned. There may be little to ship in the channel if vendors are behaving in an extreme manner. That certainly sets the stage for a positive situation in 2025, where we can return to where we truly believe we should be from a company perspective.

I understand. I wanted to ask about the infrastructure aspect. I know you have been discussing your Ethernet design wins in the enterprise and SMB sectors for the past couple of quarters. If I heard your prepared remarks correctly, you mentioned a business that could potentially reach $100 million in the next 18 to 24 months. I just wanted to confirm that you anticipate that level of activity in the Ethernet space, as it seems much larger than I had initially expected regarding your Ethernet opportunities within that timeframe.

Absolutely. With the products that we are pointing to very large ASP devices, we have a unique offering, there's no competing offering in that space, in that class of product. And we have good design win pipeline that points to the revenues reaching in that order. And obviously, the revenue includes certain gateway router revenues as well, but a substantial portion is also going to be infrastructure, basically enterprise Ethernet which is the more exciting part because it provides a nice foundation but a long-term revenue cycle.

Excellent. Thank you very much.

Thank, Quinn.

Thank you. Our next question is from Suji Desilva with ROTH MKM. Please proceed with your question. David, is your line on mute?

Hello, it's David. Can you hear me?

Yes, yeah go ahead, David.

Sorry, it sounded like called Suji.

It's all right, David.

So, just a couple of quick questions here. But Steve you guys are going to be down 62% year-on-year at the midpoint of the guidance here. How quickly can we expect to see some of these new products and wins where they begin to ramp and what do you think that contribution will be for this year from the new product side, maybe?

Yes, you’re correct. We are experiencing significant annual declines. As inventory levels adjust, many investors are looking towards 2025 for signs of recovery in the business. We've discussed 2025 frequently, as it's expected to bring some normalcy. The growth drivers we've mentioned include our optical and Ethernet businesses, which Kishore just highlighted, along with our storage accelerators and our Wi-Fi and PON businesses, all of which have been showing positive growth. While we anticipate continued growth in these areas, the inventory challenges are obscuring this visibility. You'll see more of this growth materializing in 2025, but many of these products are already in the market and growth is happening. For instance, our optical business is set to contribute growth this year, although its impact will be more significant in 2025.

Okay. That's fair. And I guess we kind of look across your disti and your direct customers, is there any way to size the magnitude of the excesses that are still out there? I know that the burn rate is also challenging, but just trying to understand how much is out there. And then any way to kind of parse out what the in-demand softness relative to what you just inventory excesses that need to be digested there?

I think I mentioned earlier that we still have inventory challenges that may carry into the third quarter. However, I believe we will begin to see some revenue growth, even though not all of the inventory issues are fully resolved.

Thank you. Our next question is from Suji Desilva with ROTH MKM. Please proceed with your question.

Hi, Kishore. Hi, Steve. Can you guys hear me?

Hey. Yeah. How are you, Suji.

Great. Good. Sorry about the last time. So I know Steve you guided the 1Q to decline sequentially across all the segments. I'm wondering if you could give us on which ones you might expect to decline more or less just a ranking would help.

We’re not going to rank the segments as all of them are experiencing a decline. However, to provide some context, the wireless infrastructure business performed very well in the first three quarters, but we expect a two to three quarter dip before it ramps back up, which is in line with our expectations. The optical business is doing exceptionally well with accelerated orders, although it is very backend loaded. We anticipate steady growth in the first half of the year, with a significant increase in Q3 and Q4. The broadband and connectivity sectors struggled in Q1 and are likely to continue facing challenges in Q2, but we expect improvements as inventory issues clear up. The industrial multi-markets have performed well, but there are challenges that may lead to a decline in Q1, with hopes of stable performance as inventory issues are addressed and growth resumes in the latter half of the year.

Thanks, Steve. My other question is about channel inventory, following up on previous inquiries. It seems like some of the individuals are considering reducing inventory to below typical levels. Could you clarify if that was what you meant regarding the current stance of the channel and customers? I want to ensure I understood that correctly.

Absolutely correct. The bias is toward overcorrection. So the question is how much inventory is naturally in excess. We've been discussing in the last earnings call that I expect maybe another six months of it left. If they press harder on it, then some of that may bleed into Q3, as Steve mentioned. However, we have sufficient growth drivers, particularly in infrastructure. Optical revenues were almost nonexistent in Q4, and we anticipate tens of millions in revenue in 2024. This indicates we need to see healthy growth in Q1, and we expect that momentum to carry on. Additionally, we have other production ramps that could drive significant growth. Essentially, a lot is happening. According to my prepared remarks, the major growth opportunities relating to new product cycles lie in optical. We expect revenue to increase in the latter half of the year once the telco softening recovers, particularly in backhaul. Our storage accelerators, which saw very minimal activity last year, are set to become a strong driver. Furthermore, Ethernet connectivity and some new design wins in the PON sector will also contribute. I've outlined these points in my prepared remarks in order of importance, which should give you a clearer picture. We are witnessing a healthy ramp-up in the product cycle that should sustain for the next few years.

Okay. Thanks, Kishore. Very helpful color. Thanks, Steve.

Okay.

Thanks, Suji.

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

Hey, guys, thanks for the question. So your commentary, I guess, around PAM4 ramping in mid-'24 and then more next year. Can you talk about DSPs versus selling into AECs transceivers AOCs, these kind of special programs that you talked about? Tell us kind of where these are going. And then if you could, what is your value prop? Are you guys faster or are you lower power, are you competing from a cost dynamic, how are you differentiating in this market to gain traction. Thanks.

Thanks, Chris. You're absolutely correct. The optical segment is making progress, and we have a few more contracts in the final stages that we hope to complete quickly. As mentioned earlier, if we achieve revenue in the teens to around $30 million in optical this year, we will be in a strong position for next year. We're growing increasingly optimistic. The value proposition is very clear; we are the only production-ready 800-gigabit PAM4 DSP at 5 nanometers in the market, including for 400 gigabit PAM4. The advantages we have are due to several factors, including higher levels of integration, integrated laser drivers, and lower power consumption, which reduce the bill of materials for our customers. Performance is essential, and we can optimize it for power efficiency. This is the only way to penetrate this market, as we're in our second generation of investment, and our differentiation is what sets us apart from competitors who have been in this space longer. Currently, we're focusing on optical transceivers, the largest segment of the market. The next largest segment will be active optical cables, while we expect active electrical cables to constitute about 10% of the market in three years. It remains to be seen whether active electrical cables will remain primarily at 100 gigabit or expand into 200 gigabit solutions. As of now, active electrical cables represent the smallest segment. We anticipate that in three years, they will account for about 8% to 10% of the overall PAM4 DSP market. While there is not much differentiation in DSP among these markets, there are distinctions concerning laser drivers and other analog components for power efficiency between active optical and active electrical cables. I hope this provides the clarity you were looking for.

MaxLinear has likely experienced the largest decline among all our covered companies. From peak to trough, it seems you have lost two-thirds of your peak revenue. Looking ahead, what do you consider a more normalized run rate for the total company over time, particularly in relation to the 95 for March? Additionally, how do you assess the current demand between sell-in and sell-through, including customer inventories? Is your undershipped demand around $50 million, or is it significantly higher on a quarterly basis? What are your thoughts on that? Thank you.

Chris, let me take up the question, then maybe, Steve, you can add more color here. Firstly I think you're referring to the two-thirds effect from the peak or specifically to the broadband business and connectivity business.

All businesses, but you're at 280 and 222, and you're down to 95.

Yes, so that is on a quarterly basis, annualized.

Yeah.

We anticipate growth to occur in the latter half of this year, and we believe this will be a temporary situation. Firstly, while we are currently experiencing significant under shipping demand in certain areas of the business, we also over shipped during the pandemic, which has led us to this point. Therefore, the answer lies somewhere in between. Assuming the product portfolio remains unchanged, we can look back to mid-2023. The legacy portfolio is worth approximately $800 million to $900 million. Moving forward, we have new product cycle drivers, notably infrastructure, as well as recovery and growth in the PON business, which until now has represented a small portion of our revenues. We expect the company to return to the $1 billion range within the next two to three years, assuming the inventory drag down situation is extreme and that there will be a quick recovery as business returns to a healthier state. We operate our businesses with a long-term focus but also emphasize the importance of quarterly performance. In that context, we are building an excellent portfolio to facilitate steady quarterly growth moving forward. Regarding past performance, the main issue we've discussed repeatedly over the last three quarters is the inventory hangover. There is no fundamental issue with our product portfolio or market share. In fact, we are enhancing our offerings with more robust and market-expanding products. You can be confident that our execution is progressing well in terms of development and product launches.

Do you guys hazard a guess on how the difference between sell-in and sell-through for marks?

I can't provide an estimate. However, the current selling trend indicates that there has been an increase in gains along with inventory buildup, which is a typical occurrence. The sell-through rates we are currently observing are quite strong, suggesting that we are significantly undersupplying the demand. As a result, our inventory levels are decreasing.

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

Hey, good afternoon. Sorry.

Hey, no problem.

Can you guys hear me?

Yes.

Okay, great. Sorry. First question on PON, did you mention $50 million in revenue for '23?

Yes.

Yes, okay. And so I imagine that mix looked a lot different at the beginning of year than the end, and it looks like, that accounts for a quarter of the revenue. Would you expect in your Q1 guide for PON to be greater than cable, if you will. You can define it that way for the first time ever. And would you expect that to be the case for the whole of '24, and if so maybe by what order of magnitude will PON be greater than 50% of broadband revenue? And then I'll follow-up.

Yes, Tim. I mean we talked about in the prepared remarks about that $50 million, and so we've grown nicely, right? Two years ago, we were doing less than $10 million. So two years, we've grown this to $50 million even in a rough market environment. I acknowledge your point about the timing of it, so certainly the last quarter or so has been tougher. But I guess I would highlight that we've got a big North America telco ramping last year. So that's exciting. More to come, I mean, we're confident that we can double this business over the next two years. That market also has inventory in the channel. And so we've got to get through some inventory headwinds. A lot of this product is new product as well. So that will naturally roll out this year and in the back half of this year, particularly. And it kind of gives us confidence in exiting, call it exiting '25 around that $100 million target that we highlighted.

Okay. Seems like it should be more than half in '24, but I'll leave that be.

We didn't say how much it would be in '24.

I realize you didn't. I wish you would have.

Okay. I get your point.

On infrastructure good growth year this year, obviously driven by wireless and you are obviously facing some tough comps from the first half of last year, I think in microwave. So I assume you think infrastructure will continue to grow. My question was going to be what can growth accelerate, and I think that might be a challenge on a percentage basis coming up 30, but you grew $40 million in absolute dollars in '23. Can you do that again in '24?

The outcome largely depends on how much wireless performance is impacted in the first half of this year. Any losses in wireless, along with the current softness in telco infrastructure spending, will be offset by growth in the data center business. I believe the key factors will be a combination of optical and wireless, with Ethernet and storage accelerators emerging as new growth drivers. I'm optimistic that our results will be better than last year, but the situation could fluctuate significantly. We anticipate at least stable performance or growth compared to 2023.

Excellent. And then last question from me is, to the extent that that makes infrastructure your largest segment in '24, which unlikely to be the case. What are the implications there for gross margins? And do you expect some mix related uplift in margins as a result of that? And that's it for me.

So you're absolutely right in identifying that infrastructure is higher gross margins. And so as infrastructure becomes a bigger part of the portfolio and continues to grow, yes, we will see gross margins improve. I think as I think about gross margin puts and takes in 2024, I mean, look, we're going to see some challenges in the first half of the year for sure, as we kind of work through with the lower revenue numbers, some modest pricing pressures. I mean, typically that's not a big portion of our business. But in these downturns, it can be a little tougher. All that being said, very confident that as infrastructure grows as a percentage of the business that we will certainly see movement back towards that kind of mid-60 point that we've highlighted.

Okay. Thanks.

Thanks.

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

Hey, guys. Yeah, thanks, good afternoon. Thanks for taking the questions.

Hey, Ananda.

Hey, Steve, hey Kishore. Kishore, could you share any updates on the 400-G and 800-G solution qualifications? Also, how do you view the long-term total addressable market opportunity and qualifications in that segment? I have a quick follow-up as well.

You are referring to the optical PAM4 data center business. We discussed that reports suggest with some uncertainty that the AI trend is likely to expand the market. They anticipate that in three years, around 40 million DSP transceivers, specifically PAM4 DSPs, will be sold, translating to over $1.5 billion in potential market value. We are aiming for a 20% to 25% market share in this sector. The market consists of two main components: the legacy 200-gig and 400-gig PAM4 DSPs, and the newer 800-gig PAM4 DSPs. We expect that about 60% of the business, roughly $1 billion in addressable market size in three years, will come from these areas. We believe achieving 20% to 25% of that business in the initial phase would be a strong outcome. From this, you can infer that our design win pipeline should align with our overall revenue expectations, give or take a year. Therefore, we estimate that our optical business could generate between $150 million and $300 million in revenue with our current product offerings.

Yeah. That's a lot of really good context, Kishore. Yeah, no that's awesome. I appreciate that. I'll do follow-ups on the call back in that regard. Let me just ask real quick. How was linearity through the quarter, the December quarter? And I guess you're a month in here, you gave guidance. And is there a meaningful shift in linear? I mean, I guess, it really is the guidance, a product of what you saw entering this quarter or was there some evidence of softening through the end of the December quarter? And that's it for me. Thanks.

Yeah. Ananda, so I don't think we were surprised by the quarter. We knew that it would be somewhat backend loaded. We had a fair amount of backlog going into the quarter. And there's certainly some uncertainty around that. I don't think that it deteriorated throughout the quarter by any means. It felt kind of as expected. Clearly, Q1 was down probably a little more than where we thought it would be, but I also think it's kind of prudent given the kind of the outlook in the industry, and we get through this inventory downturn. So, yes, I mean, linearity in the quarter was tough. I think the things that we look to, I mean, what are those new demand drivers? What are the bookings looking like. We're seeing some decent improvements there. People are getting through the inventory. And so those are the encouraging signs that we see and even speaking to the first ever month of the year, as we start to see those signs improve.

Awesome. That's super helpful, Steve. Thanks.

Sure, sure, no problem.

Thank you. Our next question is from Tore Svanberg with Stifel. Please proceed with your question.

Yeah, thanks. I just had a few sort of housekeeping ones. So maybe on that last topic in the DSO, obviously, very backend loaded quarter. But is that also function just of the really short lead times? And is there a chance that maybe customers even now given the short lead times that this quarter can have a very similar profile, meaning they will order a lot at the end of the quarter?

I definitely think that's the case. I mean this even speaks at Kishore comment about how the industry overreacts. We've seen customers come in with expedites. And so what happens during these times is, in some cases, they've got a lot of inventory out there, but yet, they don't have the right inventory. And that's what I think what we've seen in a lot of cases, over a lot of industries, a lot of customers and rather than order it ahead of time and proper lead times. They're waiting to the end, hoping that they get product at the last minute. So I wouldn't be surprised that we continue to see that in the current quarter.

Very good. And, Steve, on the OpEx initiatives that you've done, it doesn't sound like there would be a big impact in Q1. So should we assume that this will have more of an impact in Q2 and beyond?

We took significant actions regarding our operating expenses, which effectively offset some of our existing spending. Additionally, we had a number of non-recurring engineering dollars that countered our R&D expenses, but these will decline next year. The reduction we've implemented is considerable, which is typical for MaxLinear during downturns. We are definitely reducing our spending, and I expect operating expenses to decrease throughout the year. It's important to note that the first quarter usually has higher costs due to payroll taxes and bonuses. We also anticipate more restructuring costs that will not be accounted for until the end or the middle of Q1. Overall, I see additional benefits from the actions we've already taken.

Great. Just to clarify on the newer product ramps, if I understood correctly, the PAM4 DSP business could potentially be between mid-teens and $30 million this year. Did I hear that right?

I think we don't have an official guide that is exactly what Kishore mentioned. I believe that is in line with our expectations.

Got it. And Panther III, I think you expect that business to double. Would Panther III be sort of similar numbers like optical DSP or smaller?

In the range.

Got it. Perfect. Thank you guys.

Thanks, Tore.

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

Hi, everyone. I appreciate the opportunity to ask a question about the fiber business. Last year, it was around $50 million, and you mentioned it could double in the next few years. You also referenced a second Tier 1 operator in the US starting to ramp up. How much are the two major North American operators influencing this business growth to reach that doubling target? Is the business concentrated among them, or is it broader? Additionally, do you plan to expand geographically in this area?

So we've talked a lot about the North America folks. I mean, they are definitely newer adopters, they are also working on Wi-Fi 7. So even future platforms we're already working on. We do have certainly plenty of opportunities in Europe as well as those guys kind of transition out of DSL into fiber. So we have a number of opportunities there. The other those one or two customers aren't the only ones. We also have some Tier 2 guys in North America that are driving revenues and have been driving revenues and I would expect that to continue this year and into 2025.

Okay. Fair enough. A follow-up on the topic of DSP here in context and I think it's been asked by a couple of people here earlier today about the goal of getting to a 20% share in this business over time. As you've gone through the qualifications and I think you've mentioned some still ongoing here for ramping later this year or next year. Are we on that track Kishore, your kind of your expectation of getting to that 20% share goal within a few years, feeling pretty good about that because that still think some things to go, maybe just kind of comment on how well that's coming into play.

Yes, we have started to see initial revenues from early-stage projects. We expect new growth in the second half of the year, which is contingent on certain calls. If everything goes as planned, those growth areas should help us reach the targets we discussed for the three-year period. Achieving the 20% market share may face some challenges, particularly if the ramp-up for end customers is slower than anticipated, rather than if we can acquire that share. If we achieve this year's projected numbers, I believe we will be moving in the right direction.

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

Great. Thanks, Richard.

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

So, thank you. In closing I would like to say, we're excited about our market position and new product cycle growth drivers that beginning to happen in 2024 and we expect those launches to continue into 2025. The product innovation that will drive our success in optical Wi-Fi fiber broadband access gateways, Ethernet, wireless infrastructure they're all in the market today and are being fueled by our customer traction and design-win momentum. As always, we will continue to focus strongly on our operational efficiency fiscal discipline and creating shareholder value, as we position ourselves for an exciting future, as these products really reach their full potential in the marketplace. With that I would like to open the call to questions. Sorry. With that, this quarter we'll be participating in the Susquehanna Technology Conference in New York on 29th February, the JMP Technology Conference in San Francisco on March 4th, the Loop Capital Conference in New York on March 12th, the ROTH Capital Growth Conference in Dana Point on March 18th. Thank you all for joining us today and look forward to speaking with you again soon.

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