MXL - NASDAQ

Greetings and welcome to the MaxLinear Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations. Thank you, Leslie. You may begin.

Thank you, Alicia. Good afternoon, everyone and thank you for joining us on today's conference call to discuss MaxLinear's second quarter 2024 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take your questions. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the third quarter 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, channel inventory turnover, new products, including the timing of production launches and of such products, demand for and adoption of certain technologies, our total addressable market, the effects of cost reduction measures. These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factor section of our recent SEC filings, including our Form 10-Q for the quarter ended June 30, 2024 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 second quarter 2024 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we will report certain historical financial metrics, including but not limited to gross margin, operating margin, operating expenses and interest in 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 reconciliation of non-GAAP guidance for future periods, because 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 replay will be available on our website for 2 weeks. And now let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore?

Thank you, Leslie and good afternoon, everyone. Our Q2 revenues were $92 million with a non-GAAP gross margin of 60.2%. In our infrastructure end market, we continue to make good progress with design interaction optical data center as well as wireless access and backhaul products. We are on track to exceed the high end of our expected optical revenue target range of $10 million to $30 million for 2024. We are disappointed by the weakness in our broadband demand due to the prolonged burn-off of the excess customer inventory buildup during the supply chain crisis. We are also seeing continued softness in our telecom markets with added pressure from U.S.-China tensions and regulatory compliance requirement. This is impacting our ability to make shipments which affects our Q2 results and Q3 guidance. Despite the discouragingly slower business recovery than anticipated, multiple factors give us confidence that we are well-positioned to resume growth in '25. Owing to our concerted R&D spend over the last 3 years, we have launched several new products in high-value markets, including optical data center interconnect, enterprise ethernet and storage accelerators, 5G wireless multi-gigabit PON broadband access and Wi-Fi 7 connectivity. These products not only open significant new TAM but are now poised to drive a sustained cycle of revenue growth for the next several years. As a result, we expect strong profitability growth as these products ramp and our large R&D investment spend starts to moderate considerably. Additionally, even though demand in our primary markets remains weak, channel inventory continues to come down and is expected to bottom in the second half of the year. Our sell-through revenues continue to run above our sell-in revenues and we have seen meaningful improvements in our bookings for 4 quarters in a row, along with both expedites and orders within lead times for certain parts. Now, turning to our markets, our infrastructure business, particularly high-speed optical interconnect, remains exciting where we are solidly positioned to exceed $30 million in revenue this year and to deliver meaningful run rate growth in '25. We expect to be in production in the second half of the year with one of our lead data center customers and are progressing well through qualification with others. We are on track to deliver our Rushmore family of 200 gigabit per lane PAM4 SERDES and DSPs in time for the early market adopters of 1.6 terabits per second data speeds. Built on Samsung's leading-edge CMOS, Rushmore delivers best-in-class power consumption and performance across optical transceivers, active optical cables and active electrical cables. Rushmore not only solidifies our long-term optical data center market competitiveness but it will also significantly grow our revenue over the next several years. Industry estimates currently forecasts 50% compounded annual growth rate for PAM4 market shipments through 2027. In 5G wireless infrastructure, revenue grew strongly in Q2 versus the prior quarter in the face of a continuing difficult environment for service provider capital expenditure spend. This growth was driven by hybrid microwave and millimeter wave backhaul technologies that are required to support the increasing transport data rates needed in a slowly but definitely densifying 5G network. We continue to believe wireless access and backhaul can be a $200 million product line over the next 3 to 5 years. Also, within our infrastructure revenues, our Panther III series hardware storage accelerators for the enterprise all-flash array and hybrid storage enterprise appliance systems is providing exciting incremental growth opportunities, particularly in light of the growth in high-speed computing and AI. We are currently in production with a large enterprise OEM and expect additional product ramps later this year with continued growth in 2025 and beyond. In Ethernet connectivity, we continue to expand TAM for our 2.5 gigabit Ethernet product family in Q2 with the announcement of 7 and 10 port switches and 8 port PHYs for the enterprise and small and medium business switch markets. Our Tier 1 North American enterprise OEM customer is expected to ramp to production mid-2025 and contribute to significant Ethernet revenue growth next year. We believe our Ethernet business, including gateways and routers, could reach $100 million run rate over the next 18 to 24 months. Shifting to the broadband front, we are focused on PON for new TAM growth in broadband and are excited by the design interaction for our platform based on our single-chip integrated fiber PON and 10-gigabit processor gateway SOC, coupled with our tri-band Wi-Fi 7 single-chip solution. We have multiple promising ongoing engagements currently, including a second Tier I North American carrier which we believe can become a major opportunity for us in 2025 and 2026. In conclusion, we are excited and confident in our progress in the infrastructure market with our wireless and optical interconnect products, even as we await broadband recovery. In addition, our Ethernet, storage, Wi-Fi 7, Fiber PON, gateway products are all in the market today and are addressing additional new TAM. They have strong customer traction and are poised for meaningful growth. We are optimizing our efforts around these opportunities which will be transformative for our future business while driving maximum value for our customers and shareholders. 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 second quarter was $92 million, down 3% from $95.3 million in the previous quarter. Broadband revenue for the second quarter was $22 million, connectivity revenue was $13 million, infrastructure revenue was $32 million and our industrial multi-market revenue was $25 million. GAAP and non-GAAP gross margin for the second quarter were approximately 54.6% and 60.2% of revenue. The delta between GAAP and non-GAAP gross margin in the second quarter was primarily driven by $5.1 million of acquisition-related intangible asset amortization. Second quarter GAAP operating expenses were $91 million and non-GAAP operating expenses were $74.8 million. The delta between GAAP and non-GAAP operating expenses was primarily due to stock-based compensation and performance-based equity accruals of $14.7 million combined and restructuring costs of $0.9 million related to the workforce reduction initiated in Q4. Non-GAAP loss from operations for Q2 2024 was 21% of net revenue. GAAP and non-GAAP interest and other expense during the quarter was $0.5 million and $0.4 million, respectively. In Q2, cash flow used in operating activities was approximately $3 million. We exited Q2 of 2024 with approximately $186 million in cash, cash equivalents and restricted cash. Our day sales outstanding was down meaningfully in the second quarter to approximately 84 days. Our gross inventory was also down versus previous quarter as we continue to make improvements with inventory turns at 1.1x. This concludes the discussion of our Q2 financial results. With that, let's turn to our guidance for Q3 of 2024. We currently expect revenue in the third quarter of 2024 to be between $70 million and $90 million. Looking at Q3 by end market, we expect broadband and infrastructure to be flat to slightly down, industrial multi-market to be down and connectivity to be slightly up. We expect third quarter GAAP gross margin to be approximately 52.5% to 55.5% and non-GAAP gross margin to be in the range of 57% to 60% of revenue. Gross margin continues to be relatively stable with expected range being driven by the combination of near-term product, customer and end market mix. We expect Q3 2024 GAAP operating expenses to be in the range of $102 million to $108 million. We expect Q3 2024 non-GAAP operating expenses to be in the range of $70 million to $76 million. We expect our Q3 GAAP and non-GAAP interest and other expenses to be in the range of approximately $0 to $2 million each. We expect our Q3 GAAP and non-GAAP diluted share count to be approximately 84.1 million. Based on the slow recovery and the push outs in certain end markets, we have started the process to align our cost structure with the current environment. We expect to realize meaningful savings and operating expenditures and we'll begin to see this benefit in Q3. We feel confident that we can achieve an approximately 20% to 25% reduction in operating expenses for fiscal 2025 over fiscal 2024, while still accelerating our top-line growth in the coming years. The estimated reduction includes the finalization of several key product initiatives for which our investment is now complete. MaxLinear has a solid track record of managing our business through downturns with strong fiscal discipline and focused spending. In closing, we continue to navigate a dynamic environment but we are laying important groundwork and strategic applications that will drive our future growth. Our solid product innovation and execution in optical high-speed interconnects, wireless infrastructure, storage, Ethernet, Wi-Fi and fiber broadband access gateways are positioning us well across a number of exciting markets. As always, we will continue our strong focus on operational efficiency, fiscal discipline and shareholder value as we optimize for today and plan for an exciting future. With that, I'd like to open up the call for questions. Alicia?

[Operator Instructions] Our first question comes from the line of Tore Svanberg with Stifel.

Yes. For my first question, Kishore, could you elaborate a little bit more on what you said about not being able to make shipments in telecom? And how much are we talking about here sort of the what -- had the restrictions not been in place, how much revenue could you have shipped?

Tore, that's exactly right. Towards later in the quarter, we got revocation of a government license to ship some low technology industrial products and some high technology products as well. We were very surprised for it, so that prevented us from shipping revenues in the quarter. With regard to how much it impacted us, Steve, would you want to join?

Yes, Tore, I mean, I don't have a hard number but it's probably in the $5 million to $8 million range for last quarter or Q2 results. And it will have an impact in the second half of the year, probably on the order of $10 million to $15 million.

And as far as the guidance by segments, so I understand why broadband is still sort of flatted down but I'm a little bit surprised with your comment about infrastructure being flatted down especially given your momentum in PAM4 DSP. So does that mean that Q4 will actually be a very strong quarter for PAM4 DSP ramp? Or is there anything else going on in that category?

Actually, Q2 was on track on the optical broadband side. The weakness was on the wireless infrastructure which -- so that -- so you're seeing the blending of the 2 playing out. But actually, optical is doing very well and we're on track. I think we have said categorically that we expect that we're on track and we'll hit the high end or exceed that. Obviously, there are 1 or 2 wild cards in terms of the qualification process. If that were to play out, it's a whole different ramp story as well. So we're being cautious even while we're being confident that we'll hit the high end or exceed the high end of the range we set at the beginning of the year. So we're on track on optical. So I would not look at it as the story why the infrastructure showed some weakness. It's really to do with wireless infrastructure.

And again, for Q3, is that the same comment then? Wireless being weak but optical is actually growing?

That's correct.

Our next question comes from the line of Christopher Rolland with Susquehanna International Group.

So I'd just like to understand, I guess you're saying the inventory drain's going to stop in the back half. Is that across all segments? And then can we talk about end demand, how you see it? Do we see a pick up into '25? And is there something beyond that? Have we seen some share shifts here or anything structural as they move to a competitor or something like that? Just as we start modeling 2025, it's getting hard to think about the return of revenue. So any of these moving parts would be great.

Chris, maybe I'll start and Kishore may have something to add. So I guess I would first say, I mean, we've been struggling to see the inventory dissipate completely, right? And so some of that is still out there. We do feel like we're going to -- I mean, we've seen good signs of improvement throughout the year. Bookings have continued to improve and we've seen inventories -- channel inventories particularly move down. So we're seeing good progress but definitely not as much as we had thought that we would see at this point in the year. But do I expect it to continue to improve? The answer is yes. Broadband, connectivity, industrial, I would say, are definitely weighing more. There's more of that inventory. There's more pressure there. Industrial kind of has this dynamic of China that continues to pressure as well. And then infrastructure, I mean, we've got a lot of good things going. We definitely have telecom, CapEx spend that weighs a bit, as Kishore just spoke to about Q2 and Q3 in the previous question. But I do see improvements in the coming quarters for sure.

So I just would like to add that, I would chalk it up to 3 elements. The -- what I call, the inventory situation is persisting. What that means is that while our sell-through is higher than our sell-in but we are dissipating at a lower speed than we had hoped for. Now, that itself is being impeded by, I would say, that the cap expend that the service providers are really conjecturing. And they're also trying to make a decision because while this is playing out, there have been technology transitions in operator choice. For example, DOCSIS 3.1 to ultra- DOCSIS and DOCSIS 4.0. And then on the fiber side, the switchover from gigabit PONs to 2.5 gigabit and 10G, XGS PON. And so that classic alliance between choosing which way to go is also creating some freeze behavior. So I think we're confronting all of that. Having said that, there are some green shoots in terms of beginning orders. Some positive commentary coming from our OEMs that the inventory is depleting. Unfortunately, not at the rate for us. So how are the positive things are happening? So does this sum up to a dissipated situation -- the inventory dissipating away by the end of the year and first half recovery starts? I think logic would indicate that. Now, given what we just guided for and what we went through, I would say that definitely 2025 recovery on the PON side, we are seeing strong momentum on the Tier 1 player that we already acquired. They seem to be growing and spending at the right level, so we just need to acquire more share on the PON side which we are actually gaining share.

Maybe as a follow-up just on those -- on that booking commentary that you had. Is this improving month-over-month, quarter-over-quarter? And what does it tell you about second half and '25? Like, for example, what is your backlog coverage into the back half or even on that, let's say on that Q3 number? How strong is the backlog coverage for your various businesses?

So, yes, Chris, I'll take that. I mean, we -- in our prepared remarks we talked about we've seen 4 quarters of improvements in bookings. We are seeing kind of quarter-over-quarter improvements at points during the quarter. We don't break out our turns that we normally do but it's still not back to the levels that we would expect it to be at. But are we seeing improvements? Yes. I'll echo what Kishore shared earlier. We've definitely seen inventories come down. But CapEx is definitely still weighing on the overall demand of the market.

Our next question comes from the line of Quinn Bolton with Needham & Company.

I guess I want to just kind of follow-up on Chris's question. This has sort of been 6 quarters in a row now where revenue has been coming down. I think many other semiconductor companies have started to see -- what you're talking about, indications from OEMs that inventory is being digested, bookings starting to increase. Yet you guys keep guiding revenue in the future quarters down. And I think almost every one of your peers is starting to see a revenue recovery. And so I can't help but think that there's got to be some share loss, especially in broadband and connectivity. And I just wondering if you could help us reconcile the improvements in bookings, the getting through the inventory digestion and why revenue keeps going down in those more legacy markets.

There are 2 elements to this, right? There are the legacy markets, DOCSIS 3.1 and the subscriber, they have been facing subscriber losses. They have been shipping refurbishment under a low -- lesser CapEx model. And there is what I call an implicit share situation due to long-term agreements that operators have signed with our competition. So it may -- you could -- technically the amount of shipments is a share shift is potentially possible. However, from a design in perspective and the future new product perspective, I don't think we can yet say that there have been share losses. Having said that, on the PON side, we have gained new design wins so that could technically signal that we are winning design wins. I think here the problems you are citing to are a more, a commentary of the state of the cable subscriber market and the cable spend which has been the dominant source of our broadband revenues. And so I think that is a dynamic we're talking about. Once again, I want to reiterate that as the new -- the transition happened, the new technologies, when they happen, The ASP content increases, the BOM and overall revenue to which we can get back to probably is not impacted as much, even if the share shifts 50% plus minus 10%. That's always been the theme. On the PON market side is where we have a large opportunity to grow, both in content and market wins. I think that's where the broadband growth will come from. So I do not look at it as, this is the market we are in and then we are sort of constrained to the same market we are in. No, absolutely not. All the investments are about the future.

Yes, I guess I was just, obviously broadband is down but connectivity is, there was $10 million last quarter, $13 million this quarter. You guys, I think in '21, did over $150 million in that business. It's hard to think that there isn't share loss there. You've talked about just the Ethernet portion of connectivity could get to $100 million run rate which tells me it doesn't feel like there's a lot of Wi-Fi business going on here. Can you talk about the Wi-Fi business and what you see on that front?

So firstly, I want to give a little bit of color on that, right? The dynamics of Wi-Fi are exactly the same on the dynamics on the cable business. They've been attached at the hip. So when we did $150 million, the broadband business, predominantly cable, was about $700 million or $650 million, somewhere there. So you can run the math at the percentage of the attached rate. Probably the numbers don't change much. If you just take the percentage of Wi-Fi dollars versus the revenues. Now, if you look at the Ethernet guidance was specifically about Ethernet or what Ethernet will get to but we know we have not commented anything about how much Wi-Fi can get to. Having said that, I will say that, does Wi-Fi have a potential to get back to $100 million run rate in the broadband? Absolutely. But that recovers a certain recovery in the cable business, that alone would be sufficient, augmented by the already existing wins in fiber. So you're waiting for the market to recover. So this is not about share loss in terms of Wi-Fi. It's what we attach to on our broadband platforms.

And then just a quick one for Steve. You mentioned taking actions to reduce OpEx heading into 2025. And you talked about, I think, an annual decrease in non-GAAP OpEx of 20% to 25%. If I'm doing my math right, it sounds like OpEx for the year would then average somewhere in the $55 million to $60 million level. Is that right? And if that's the right sort of average, does it sort of start higher in Q1 and trend to that level or below in the second half of the year? Just any sort of shape to that OpEx reduction?

So your math is sound. I think that is exactly the way we're thinking about it. I'm not going to get into granularity on quarter-by-quarter next year but I mean, you're absolutely right. And it's not like it's -- it shouldn't vary that much. Let's put it that way.

Our next question comes from the line of Ross Seymore with Deutsche Bank.

Just to follow-up Quinn's question. Steve, just to make sure I have it right, I know you don't want to do OpEx on a linear basis but is that 20% to 25%? That's the full year on the full year. That's not kind of an exit rate to exit rate? Just to be clear.

Correct. Correct.

At one point, you guys talked about the ability to grow for the rest of the year. Sequentially, obviously, the Huawei or whatever the geopolitical issues are is one aspect that hurts that. Do you think that you can now grow in the fourth quarter sequentially? And if you're not willing to comment on that, just what would be the puts and the takes as you look forward to the fourth quarter? Cyclical stuff versus company specific design wins, whatever you guys can go into would be helpful.

Yes, Ross. Yes, I'm not going to guide Q4. But I mean clearly, it's kind of been frustrating. I feel like it's been a bottoming process. I think we're making really good progress. So I actually do think we'll see some improvements. I'm not going to give you the exact time and date. We've not been super good at projecting that. So I'm not going to start now. But I mean, as far as the indicators, I mean, we've talked about bookings. We've talked about sell-through in general has been very good. So those are, of course, good indicators. I've talked in the past. We continue to see this. We see customers come in kind of frantically ordering inside of our specified lead time. So that's something that is, of course, a good indicator expedites, things like that. I mean, you can definitely feel across the industry, as I think somebody else previously even commented on, I mean, that the inventory is definitely clearing. And end demand, I mean, as CapEx budgets kind of ease a little bit, you're starting to see some of that spending flow on the broadband side you still have some of this federal subsidy money that some of these folks are waiting on but we're starting to hear from the customers that they're starting to invest that money.

And I guess the last question, on the gross margin side of things, you guys have kept it very stable very long, impressively so, given the revenue volatility but it finally seems like it's cracking a bit at the midpoint of your guidance. Is that solely related to just fixed cost coverage given the revenues? Or is there price cut action just because you guys really want to clear out the inventory? What's the reason that the gross margin is down basically a couple of points sequentially?

The midpoint is 55%. Yes, so it is down a little bit and you're absolutely right. It's mostly fixed cost. I mean, the revenues are down quite a bit and it's having an impact. I don't think -- I mean, naturally, I mean, there's certain markets that are more prone to some of this stuff. We talked about China earlier in the call. I mean, some of those markets can be more competitive but I'd say across the board, it hasn't changed that much. And I don't think our long-term outlook has changed at all, so. And keep in mind the mix as infrastructure continues to grow, you're going to see -- that's a healthy, positive contribution to gross margins.

I would say the fixed cost is the biggest contributor to the center point and the volatility has always been there in the mix. Plus minus 2% is what we would always say but we've always done a good job on that. But the pricing pressure is no different than it used to be. We have combinations of great markets and we have some that are a little bit price competitive. So you're right. It's fixed cost coverage, Ross, is the biggest one in my opinion.

Our next question comes from the line of Ananda Baruah with Loop Capital Markets.

I just, really, I guess this one from me, how do you see the linearity through the quarter? Yes, I guess just across the various businesses. And that's it from me.

I think, it's no different than what we had last quarter. I remember distinctly Steve talking about its heavily back and loaded because we're getting into this turns business. The urgency increases as you head towards it, pushing customers, prodding them. Entering the quarter, we had no way of what I would call 2/3 bookings. It's improved but this turns business is really, really, that's what it's become right now. It's blocking and tackling; so I wouldn't say it's linear. I would say it takes a step up in the second half of the quarter as the sales guys and the customers are grappling with the situation.

And is it a case of it just being closed as strong as it might have been able to?

Could you repeat that question, please?

Yes, so is it really what happened towards the end of the quarter? Has it been closed at the pace that you guys thought it could? So softer close?

Yes, I mean, as Kishore stated, I mean, it was kind of back and low to begin with. And so things pushed out into the following quarter. I mean, that's kind of...

And some disappeared, right? So if it had pushed in the next quarter, then we should be a little bit more energized about this quarter on the front but that is not the case because some revenue disappeared, namely the China revenue that we spoke about.

Our next question comes from the line of Karl Ackerman with BNP Paribas.

I have two. First off, could you help frame the size of the opportunity from the second Tier 1 U.S. carrier from what sounds like your single chip integrated PON -- fiber PON and 10 gig processor gateway? And I guess if you address that question, what would dictate that ramp in 2025 versus 2026?

So very, very good question. You can call, if you look at fiber PON, the main players are only 2 players in North America on the, what you would call, Tier 1 OEMs. They are similarly sized on their gateway rollouts, right? So let's assume that they don't turn all their platforms into one kind. Half of their volume splits into another kind. That is the latest offering we have from ours. Let's assume, we get 50% share of that. That's how these operators go. And it could be a $40 million per year opportunity on the gateway side, right? But mind you, we're already shipping them revenue, just ramping on the ONT side which is just basically a fiber termination, the curb or at the home. And that's a high single digit sort of revenue opportunity. So I would say that is the size of the opportunity. And what would dictate the pace of that design win into the gateways? It really depends on their rollout plans. So far, they've been hitting their milestones on RFPs and things like that. They're not delayed. So are there considerations on CapEx sometime at the end of next year? They're always there. So I would say it's '25, '26 time range. And what really matters is are you winning at these Tier 1s or not. In the business we are on, predicting the exact timing of a ramp has been a hazard. And that's why you build the product cycles to be a scaled company, right? So that you cover each other. So we're covering those gaps that are now exposed because of the big supply chain overhang that we have faced in the last 3 years.

I guess for my follow-up, if I may. Just to go back on CapEx, you are taking a meaningful cut to CapEx but are these R&D programs being completed primarily on broadband modems? And I guess more importantly, how quickly could you turn that spending back on in the event a recovery is faster than you anticipate?

Yes, personally, our spending plans are not -- okay, I'm a household man. Obviously, my spending plans are based on my income. There is some guardian of behavior on my end. And the other side is you do have to invest in your children for the future, right? And that's exactly how we think about the problem. So all the roadmap items that needed a heavy spend to produce the next generation of products that have been motivated by our customers are nearing completion. So there are a few other product lines like an optical data center and certain infrastructure areas or a Wi-Fi 8, for example, that we have to continue to invest because they come at a faster pace than, let's say, a broadband fiber situation or a cable dock situation. So I think we're entering a phase of reduced R&D spend which we knew always was going to happen. And so accordingly, the spending goes down. Tempered by the fact that the customers have delayed their launch plans, it also signals to us that we don't have to be exuberant in our own spending for catching their next generation rollout beyond the next generation that we already have completed right now. Remember, there's a long cycle market, the last 5 to 7 years. And the cycles on the investments that are complete have not started yet. They're just threatening to start in the '25, '26 time.

Our next question comes from the line of David Williams with The Benchmark Company.

I guess, Steve, the first thing is just thinking about the visibility of that inventory that's in the channel. I know you've been kind of struggling through understanding where that inventory is. But I guess my bigger question is, do you think that this is just that the inventory is bleeding down more slowly? Or do you think that maybe you just didn't have a good handle on the magnitude of the inventory that was in the channel when we kind of started going through this inventory digestion?

I would say that the -- Steve, you can provide more color. I think the magnitude of the inventory is kind of known, right? Because we ship the product and we track how much our OEMs are shipping. What we cannot quantify is the behavior of the operators in their actions. And that's really always been a very opaque, even in the best of times. So it's not about the size of the inventory. So it's how they are consuming from our OEMs. And then they have their own warehouses and their subscriber situation and then add on to that in the cable case, the refurbishments. Okay? So there are multiple dynamics. So at the end of it, we know the sell-through is slower than what we had anticipated but the sell-through is higher than what we are selling in. And that's running at a pace where that says that is going to take longer. Steve, you want to add any more color?

I think you covered it, Kishore. I mean, we constantly -- I think as we look out into next year, I mean, I think the excitement is not necessarily -- I mean, the inventory is going to take care of itself. I've said this before. It's going to go away. Right now, it's just making sure that we're winning these new platforms. I mean, we talked a little bit about, I mean, the PON platform. We're talking about the transition to Wi-Fi 7. I mean and circling back to the PAM4 opportunity that we have, I mean, these new programs are the exciting ones that are going to drive revenue. And that's really where the focus is at this point. The inventory is kind of down to, albeit disappointing but it's a reasonable level.

And then maybe just on the booking side. I know last quarter you had pointed to bookings improving and you talked about that again this quarter, yet we're still seeing kind of a 16% decline from first quarter to the third quarter. Let's try to square how we're seeing better bookings and things seem to be improving a bit there but we're still not getting the revenue kind of linearity here that we would expect to begin to see on this improving booking side. So I guess maybe you could help me understand how maybe the puts and takes there, how are things a little better in some areas but revenue is still declining and how does that maybe portend to the fourth quarter? Do we continue to see this kind of slide downward? Is there a place where you think that we can go no lower?

Yes. No, I mean, it's the right question. I mean, bookings, I mean, it probably more than anything, it speaks to how bad bookings were 4 quarters ago, right? I mean, the whole industry was back when you had a year's worth of backlog and then bookings really slowed down. And so you can live off of that for some period of time without many bookings, right? And that was certainly the case. But as the industry and MaxLinear kind of gets back to the normalcy, I mean, we would expect to see 30%, 40% turns in our business. And so we're headed in that direction. But I mean, I've stated before, bookings are definitely much improved but they're not to the level that we need them to be at yet. And I mean, that's the crux of the issue.

Our next question comes from the line of Suji Desilva with ROTH Capital.

Steve, you talked about the cost reductions year-over-year. You talked about programs that are kind of winding down. Are there any areas that you're starting to, for lack of a better term, disinvest, kind of pare back roadmap? And are there any areas that are candidates for that if there's a prolonged downturn? Or I mean, you guys are in many, many product areas. I'm wondering if they're all still kind of candidates for growth in the roadmap and investment or whether some areas can be deemphasized if the downturn stays prolonged.

The way product portfolio categories work, we have seen them in the end markets. They all don't need investment simultaneously. You cycle through them, right? And if they're long product life cycles, you don't get into finishing one product and then working on the other in the same market area. I think we're taking advantage of that. The single biggest investment we have been in following our connected home business acquisition from Intel was really getting the roadmap up to snuff on the broadband. That has been the biggest substantial investment we've been making. And the other one is the optical data center. So now we are off that treadmill on the investment side of the broadband but optically we are entering the market. We need to show resolve and commitment to multiple generation of investments. So that's where the focus of the investment is right now. The -- on the wireless infrastructure side, our focus has been on the 5G wireless access with the single chip solution with remote radio units. That's where we're investing. And so if the investment targets have narrowed down and it's much fewer investment product pipeline points than they were when the broadband, the product line had to be really fully invested and up upgraded to where it is today. So it's just the narrowing -- the winnowing process is going on by a self-selection process. So I don't see any great new revelation based on end markets, really. It's just the investment cadence in various markets based on the product life cycles.

And then on the optical side, just trying to kind of get a framework for what calendar '25 run rate can look like. Should we expect multiple customers supporting your '25 revenue or still the lead customer? And maybe you can tie in why you're hitting the 1.6 transition versus a lot of focus on 800G now. Is that a technical reason? Is that a market intercept reason? Any color there would be helpful.

Suji, I think you are sort of a little bit maybe miscommunication on our side here but all our revenue is coming from 800 gig, design into 800 gig. But just like our competitors, we have to invest in the next generation, 200 gigabit per wavelength times 8 channels with the 1.6 terabit generation. And that one won't hit revenues for a while to come on the data center side. But Keystone, our 800 gigabit product with 100 gigabit per lane which is 8 times 100, will be the mainstay of the revenue and the rollout for many years to come. So nevertheless, we still have to invest in 1.6 terabit just to ensure that we have continuity for future. This is one of those investments where you have to make, even though the revenues may not be substantial in the near-term, right? It's just a continuity of our programs.

And the first part of your question, Suji, I mean, there are multiple customers that will drive revenues in '25, for sure.

Even in '24, the revenue we spoke about is not a single customer. Actually, there are at least 3 customers driving the revenue. 3 meaningful customers, not some idly-piddly [ph] ones, right? I just want to be clear.

Our next question comes from the line of Richard Shannon with Craig-Hallum.

I think I'll ask a couple on the broadband topic here. The first one, just kind of putting pen to paper here and splitting that business up between cable and PON, it seems pretty clear that the PON market's bigger than that, if you can just verify that. And then just based, Kishore, I think it was your comments earlier in the Q&A about expecting most of the growth coming from PON in the future which certainly makes sense. I mean, would it make sense that PON will continue to be bigger than cable TV going forward? Do you expect a possible switch over at some point down the line here?

So firstly, we are not in the cable TV market, right? It's really we are in the cable data market. And there are 2 dynamics playing here, right, on the cable side. One is that the cable guys are losing market share to the telcos on the -- for a couple of reasons. Let's leave the reasons aside, on a couple of fronts. And even though you're having the subscriber losses, the BOM content is increasing which will compensate the subscriber losses. They probably see it as a flat time market in dollar terms for us. And then based on the recovery and the share distribution, we expect that we'll be approximately be maybe 50% plus minus, right? That's the expectation. On the PON side, there is -- there these wireless carriers have now gotten a taste of getting broadband subscribers to fixed wireless access. That tends to be on the lower end of the market. And they're augmenting the major fiber PON deployments for the higher end of the markets which so you can see the cable subscribers sort of wanting to now, the cable guys wanting to upgrade their offerings to compete effectively because at the end of the day, cable is about the higher end subscribers, right, mid to higher end. So on the PON side, you've got varied distributions. And in North America, it will tend to be the high-end fiber PON, really, really high-end gateways and so on. Europe will tend to be mid-end to lower-end deployments. And that market is much bigger from a pure access to subscriber base than cable markets. So the PON has a large distinct. But the pricing dynamics are very different in both the markets. So since we have very little or no footprint in fiber PON except the Tier 1 player OEM in North America, the other one we are just starting to win at the brink of winning the socket on the gateway side. We expect our PON market share revenues to continue to grow, while cable we expect it to be at a stable place.

And to be clear, Richard, the PON market is much bigger than the cable market.

Yes. And you've mentioned that many times, so a message certainly received there. My second question here is following-up. And you mentioned this early in response to a question, just kind of alluded to it here again, Kishore, about some sort of contractual level of revenues or share by your competitor that unnaturally keeps their share higher than what you've seen in the past. Under what dynamics, contingencies, et cetera., market transitions, whatever, allow that to end so that you can get back to more of a normal share level and see that get back to where you've seen it kind of plus or minus 10 percentage points [indiscernible ].

Richard, I think you answered that question yourself. This is -- on the future, everything is a green field in terms of market share winnability.

Even on the cable side?

Absolutely.

Our last question comes from the line of Tore Svanberg with Stifel.

Yes. I just had a couple of follow-ups. Back to this export restriction issue, Kishore, again, I guess I'm a little bit confused. I mean we've known about this being an issue in the telecom space but I think you even mentioned some industrial products. So how new of a development is this? Is this something that's going to continue to impact you going forward? When you guide to $80 million [ph], does that mean China now is pretty much de minimis as a percentage of revenue? Just really trying to understand the dynamics there because it's certainly a pretty last-minute development.

Yes, Tore. Look, I think this speaks to the ongoing environment we're in with export controls. It did come late in the quarter, so it was a surprise to us. I mentioned earlier on the order of $5 million to $8 million impact in Q2. Yes, it does impact the second half of the year. Probably $10 million to $15 million. I would not say that it is going to limit our ability to sell in China. No. As you're well aware, I mean, we'll be able to continue to sell in China. So I don't think this is somewhat of a one-off situation with a few products.

But you can confirm that it's not just telecom. It's also an industrial product.

Correct. Yes, that was a broad statement. It wasn't intended to say just telecom. Correct.

And it's not all customers in China. Specific entities.

Last question. So with the new cost structures, is it fair to say that your break-even point will be just under $100 million in quarterly revenue?

I don't think we're going to get into the model right here, Tore but it's a good effort.

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

So thank you all for attending today's conference call. As we navigate through what is a very, what I call a bottoming out of the inventory situation on broadband demand and we look forward optimistically to our success in infrastructure, particularly optical data center. We hope to bring you progress on this in the various investor conferences we are attending in this particular quarter. For that matter, this quarter will be presenting at a number of financial conferences, virtual events and we'll be posting the details on our Investor Relations page. So once again, thank you all for joining us today and we look forward to speaking with you again soon. Thank you very much.