Nick Kormeluk - President and Founder Kishore Seendripu - Co-Founder, Chairman, Chief Executive Officer and President Adam C. Spice - Chief Financial Officer and Vice President.

Anil K. Doradla - William Blair & Company L.L.C., Research Division Tore Svanberg - Stifel, Nicolaus & Company, Incorporated, Research Division N. Quinn Bolton - Needham & Company, LLC, Research Division Gary W.

Mobley - The Benchmark Company, LLC, Research Division Ross Seymore - Deutsche Bank AG, Research Division Alex Gauna - JMP Securities LLC, Research Division Jay Srivatsa - Chardan Capital Markets, LLC, Research Division.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the MaxLinear Q1 Earnings Call. [Operator Instructions] As a reminder, today's conference call is being recorded, and at this time, I'd like to turn the conference over to Nick Kormeluk with MaxLinear. Please go ahead, sir..

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's first quarter 2014 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Adam Spice, CFO.

During the course of this conference call, we may make projections or other statements regarding future conditions or events relating to our products and business.

Among these statements, we will provide information relating to our current expectations for the second quarter 2014 revenue, including expectations for revenue growth in our cable, terrestrial, satellite and other target markets; gross profit percentage and operating expenses and our current views regarding trends in our markets, including our views of the potential growth in our cable, terrestrial and satellite markets.

These statements are forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from results reflected in these forward-looking statements. They are subject to substantial risks and uncertainties that could adversely affect our future results.

Our business and future operating results could be adversely affected if our current target markets, including terrestrial, cable and satellite markets, do not grow, or if we are not successful in expanding our target addressable markets through the introduction of new products.

In addition, substantial competition in our industry, potential declines in average selling prices, risks relating to intellectual property protection and outstanding intellectual property litigation and cyclicality in the semiconductor industry could adversely affect future operating results.

A more detailed discussion of these risk factors and other factors you should consider in evaluating MaxLinear and its prospects is included under the caption Risk Factors in our filings with the Securities and Exchange Commission, in particular, our most recently filed 10-K for 2013 and our soon to be filed 10-Q for the first quarter of 2014.

These forward-looking statements are made as of today, and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements. The first quarter 2014 earnings release is available on the company website at maxlinear.com.

In addition, MaxLinear reports gross profit, income or loss from operations and net income loss, and basic and diluted net income loss per share in accordance with GAAP and, additionally, on a non-GAAP basis.

Our non-GAAP presentations exclude the effects of stock-based compensation expense and its related tax effect, accruals under our equity settled performance-based bonus plan, and expenses related to a prior patent litigation matter with Silicon Laboratories and outstanding patent litigation with CrestaTech.

Management believes that this non-GAAP information is useful because it can enhance the understanding of the company's ongoing economic performance. And MaxLinear, therefore, uses non-GAAP reporting internally to evaluate and manage the company's operations.

MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the company internally analyzes operating results. The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today.

The earnings release and reconciliation is available on our website, and we ask that you review them in conjunction with this call. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear..

Thank you, Nick, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the financial highlights, I would like to note that the first quarter of 2014 proved to be another record revenue quarter for MaxLinear. We grew our top line over 22% year-on-year, outpacing many of our semiconductor peers.

Our sequential revenue growth in the quarter reflected a return to strong growth in Cable, which easily offset seasonal weakness in hybrid TV tuner shipment. In particular, we experienced strength in DOCSIS 3.0 modems and gateway applications, Cable, HD DTA and modest contribution of the initial phase of the ramp in Satellite gateway shipment.

We believe that Satellite TV applications represent both an exciting addressable market and a multiyear revenue growth opportunity for MaxLinear. Moving to the financial specifics.

Net revenue in the first quarter of 2014 was $32.5 million, up approximately 3% from fourth quarter of 2013, up 22% from the year-ago quarter and at the high end of our guidance. GAAP and non-GAAP gross margins in the first quarter was 62%, again at the high end of our guidance.

GAAP net loss in the first quarter was $0.9 million or $ 0.02 per diluted share, and non-GAAP net income for the first quarter was $3.7 million or $0.10 per diluted share. I will now discuss current trends in our business. In the first quarter of 2014, Cable returned to growth and stood at 67% of our total revenue versus 65% in the prior quarter.

Consistent with our expectations for the first quarter of 2014, Cable grew approximately 7% sequentially, led by DOCSIS 3.0 applications. Based on our current bookings, billings and backlog, we believe that Cable revenues are poised to grow again in the second quarter of 2014.

Adam, our CFO, will provide more details in his second quarter 2014 guidance a bit later. In the first quarter, we experienced strong demand for our 8-channel DOCSIS 3.0 solution, along with momentum shift in demand toward the 24-channel Full-Spectrum Capture cable receivers addressing 1 gigabit per second DOCSIS 3.0 cable modem applications.

Recently, we also announced that Skyworth, a leading OEM in China, selected our 8-channel RF Cable Receiver SoC for their new family of DOCSIS 3.0 Consumer Premises Equipment. Providing up to 200 megabits per second data speed, Skyworth's CM4100 product serves as a cable broadband network controller for residential and small office applications.

Now moving to the Terrestrial and Satellite TV markets. Based on our prior guidance, we had anticipated a 10% sequential decline in our combined Terrestrial and Satellite revenues for the first quarter of 2014.

However, positively, the continuing initial ramp of our Satellite gateway solutions, combined with the stability in our Terrestrial set-top box business, strongly offset normal seasonal declines in hybrid TV solutions. As a result, combined Terrestrial and Satellite revenues declined only 4% sequentially.

As we look forward, we continue to experience strong demand for our 65-nanometer super radio tuners, addressing a broad range of hybrid TV and set-top box applications. In the Satellite TV market, we continued to see solid follow-through on the early ramp of our Full-Spectrum Capture receiver gateway applications.

We're also excited about the growing design win pipelines that we have garnered at major global satellite pay-TV operators for our digital channel stacking SoC, addressing the large satellite digital outdoor unit market. Here are some specific highlights of our target addressable market expansion and design wins that this is [ph] in Satellite TV.

In the quarter, we announced that Belgium's Unitron Group selected MaxLinear's digital channel stacking single-chip for its new multi-dwelling unit satellite outdoor unit applications. Unitron's multi-dwelling unit solution is capable of distributing 24 channels of satellite content on a single cable to individual apartments from the outdoor dish.

Additionally, GT-SAT International announced designs with MaxLinear's Full-Spectrum Capture satellite receiver in its digital outdoor unit to enable multichannel distribution to the home via a single cable connection.

Lastly, we recently announced a reference design and partnership with STMicroelectronics for next-generation set-top box and gateway platforms. These reference platforms span the full range of pay-TV operator end products from mid-range high-definition set-top box applications to really high-end, ultra high-definition 4K video gateways.

In conclusion, we are pleased to have delivered record revenue of $32.5 million, which represents 22% growth year-on-year. Our revenue growth was driven by a strong resumption of cable shipments, coupled with the soft seasonal decline in Terrestrial revenues and the early phase ramp of Satellite gateway shipment.

We are encouraged by the ongoing initial ramp of satellite gateway products. We are also excited about the growing funnel of design wins in the Satellite TV digital outdoor unit market.

We continue to evaluate and target new addressable markets for our industry-leading broadband Full-Spectrum Capture [indiscernible] technology platform in areas beyond cable, terrestrial and satellite TV applications. Now let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, who will review the financials and our forward guidance..

Thank you, Kishore. I will first review our results, and then briefly discuss our outlook. In summary, our Q1 revenue was $32.5 million, which was at the high end of our prior guidance. As Kishore noted, strengthened cable data and DTA applications and the continued ramp of satellite gateway solutions more than offset seasonal softness in hybrid TV.

Now moving to the rest of the income statement. GAAP and non-GAAP gross margin for the first quarter were approximately 62% of revenue, at the high end of our prior guidance of 61% to 62% on both a GAAP and non-GAAP basis.

This compares to GAAP and non-GAAP gross margin of 61% in the fourth quarter of 2013, and GAAP and non-GAAP gross margin of 63% in the year before.

Our Q1 GAAP operating expenses declined $900,000 sequentially to $20.9 million, which includes $3.4 million of stock-based compensation, $900,000 for an accrual related to our performance-based equity bonus plan for 2014, and $300,000 in net professional fees related to the Cresta Technology patent litigation matter which was disclosed in our previously filed 10-K for the year ended December 31, 2013.

Consistent with 2013, payouts under our 2014 performance bonus plan are expected to be settled in shares of MaxLinear stock. Net of these items, OpEx was $16.3 million, which was $600,000 lower than our flat guidance relative to Q4's OpEx of $16.9 million, and up from $14.2 million in the year-ago quarter.

First quarter GAAP OpEx attributable to R&D was down approximately $1.6 million quarter-on-quarter, and up $1.6 million year-on-year to $13.1 million, which included stock-based compensation of $2.2 million and $500,000 related to the 2014 bonus plan.

Excluding stock-based compensation and bonus plan accruals, R&D was down approximately $1.2 million on a quarter-on-quarter basis to $10.4 million.

Within this sequential decrease in R&D spending, decreases in tape-out and related expenses and stock-based bonus accruals were offset somewhat by modest increases in design tools and payroll step-ups relative to Q4 2014.

First quarter GAAP OpEx attributable to SG&A increased approximately $700,000 quarter-on-quarter, and up $400,000 year-on-year to $7.8 million, which included $1.2 million in stock-based compensation, $400,000 in bonus plan accruals, and $300,000 in net professional fees related to the previously mentioned CrestaTech patent litigation.

Excluding stock-based compensation, bonus plan accruals and the net professional fees related to the CrestaTech patent litigation, SG&A was up $600,000 on a quarter-on-quarter basis to $5.9 million, driven by the full quarter effect of incremental hiring and higher patent filing expenses and facilities expansion related expenses in both India and Carlsbad.

At the end of the first quarter 2014, our headcount was 343, as compared to 337 at the end of the fourth quarter of 2013, and 281 in the year-ago quarter.

We continue to add R&D headcount globally to staff growth initiatives, and are able to drive operating leverage in R&D by appropriately balancing hirings across our R&D centers in the U.S., India, China and Taiwan.

GAAP loss from operations was $800,000 in Q1 compared to the loss from operations of $2.7 million in the prior quarter, and a loss of $2.2 million in Q1 of last year. Non-GAAP income from operations was $3.8 million in Q1, compared to income from operations of $2.3 million in the prior quarter and $2.6 million in Q1 of last year.

GAAP net loss per share in the first quarter was $0.02 on shares outstanding of 34.5 million. GAAP net loss per share included $3.4 million of stock-based compensation expense, $900,000 for an accrual related to our 2014 performance-based bonus plan, and $300,000 in net professional fees attributable to the CrestaTech patent litigation.

This compares to GAAP net loss per share of $0.08 in the prior quarter and a net loss of $0.07 in Q1 of last year. Net of these items, our non-GAAP earnings per share in Q1 were $0.10 on fully diluted shares of 38.3 million, compared to $0.06 per share in Q4 of 2013 and $0.07 per share in Q1 of last year.

Moving to the balance sheet and cash flow statement. Our cash, cash equivalents and investments balance increased $2.3 million sequentially to approximately $89 million, which is an increase of $12 million, as compared to the $77 million in Q1 of last year.

Our cash generated from operations in the first quarter of 2014 was $4.1 million, approximately $1.3 million more than in the fourth quarter of 2014 -- 2013, sorry, and $3.5 million more than the year-ago quarter.

Our days sales outstanding for the fourth quarter was approximately 58 days, or 1 day more than the previous quarter, and approximately 4 days more than in the year-ago quarter. As a reminder, we only recognize revenue on a sell-through basis and as such, we are not subject to revenue fluctuations caused by changes in distributor inventory levels.

Our inventory turns were 4.7 in the first quarter, compared to 5.1 turns in the fourth quarter, and improved relative to 4.2 turns in the year-ago quarter. That leads me to our guidance. We expect revenue in the second quarter of 2014 to be in the range of $34.5 million to $36 million.

Built into this range, we expect Cable revenues to increase approximately 10% sequentially, and Terrestrial satellite revenues to increase approximately 5%. More specifically, within Cable, we expect strength to be concentrated in cable data applications.

And within Terrestrial and Satellite, we expect growth in set-top box applications revenue and continued early ramp of our Satellite gateway receiver products. We expect GAAP and non-GAAP gross profit percentage to be approximately 61% to 62% in the second quarter.

Our gross profit percentage could vary plus or minus 2% depending on product mix and other factors, in particular, the relevant contribution of cable, terrestrial and satellite applications.

We continue to fund strategic development programs targeted at delivering attractive top line growth in 2014 and beyond, with a focus on increasing the operating leverage of the business.

We expect Q2 2014 GAAP operating expenses increase approximately $1.7 million relative to the Q1 2014 quarter to $22.6 million, driven by a seasonal step-up in payroll-related expenses, which includes a full quarter effect of our incremental Q1 hires, anticipated Q2 hirings and our annual merit cycle.

We similarly expect that Q2 2014 non-GAAP operating expenses will increase sequentially by approximately $1.2 million to $17.5 million.

With the increases in previously referenced payroll-related spending, in addition to the increases in project-driven design tools, contract resources and prototyping expenses related primarily to bringing additional satellite offerings to market.

In closing, we are pleased to report record Q1 revenues which were at the high end of our guidance and with accompanying gross margins that were in our long-term targeted range. We remain excited by the follow-through of the revenue ramp in the Satellite TV market, accompanied by a growing design win pipeline with its new TAM expansion opportunity.

And with that, I'd like to now open the call for questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Anil Doradla with William Blair..

A couple of questions. Kishore, can you talk quickly about how much is the 24-channel penetrated? And also, what were the booking trends and you have a solid guidance, but I want to know a little bit about the visibility into the June quarter? And I have a follow-up..

Thank you, Anil. We are very pleased to note that on the cable broadband data applications, we're increasingly seeing the market move towards the 24-channel option. I would say that the momentum is shifting right now as we speak.

But in general, as an overall picture, of our total cable data shipments right now, we are about 30%-odd and increasing of 16- to 24-channel devices, shipping for the data applications.

So to give a little bit more color, we believe that at the end of the year, we will have a substantial majority of our shipments on a run-rate basis moving over to 24-channel devices..

And you guys have a competitive lead there today?.

Absolutely. Today, MaxLinear along with the Intel platform is a very, very elegant solution, with the MaxLinear single-chip, 24-channel content [ph] coupling nicely with the 24-channel 1 gigabit per second data-capable Intel packet. And together, it's a very, very nice elegant solution.

And as against our competitors who have to use a minimum of 3 chips to accommodate the same function at a much -- at a higher cost base than we are today for our customers..

Great.

And you are -- sorry, yes?.

I was going to answer the question on the visibility going into the quarter, you asked that kind of what the bookings look like. So going into the quarter, we were booked around 75% to the midpoint of our guidance range. And then as we kind of entered this call, we were around 90% EBIT [ph]..

Fantastic. And then on the Satellite front, expectations are about $5 million to $12 million for 2014, that's how we were at least earlier in the year.

How are we tracking on that front, and do you think as we exit the year, we'll be higher than this?.

So Anil, I think the [indiscernible] on the satellite ramp has not changed. As -- if you recall, we have started shipping to a major European operator and to a major OEM in Europe. And then we're starting to do pilot runs for another major operator, it's not in Europe. And the big ramp happens in the third, fourth quarter timeframe.

So the bulk of the $5 million to $7 million on a run-rate basis will be really encountered in the fourth quarter of this year, primarily in gateway applications for the Full-Spectrum Capture satellite receivers, but we also hope to have a meaningful statement or a note with the beginning of shipment of the satellite outdoor unit SoC chips that we are now very pleased with the design-in pipeline, and the design wins garnered and momentum at all -- pretty much many of the major pay-TV operators, if not all of the ones that we really care about..

Our next question comes from the line of Tore Svanberg with Stifel, Nicolaus..

A few questions here. First of all, Kishore, you had previously talked about a service provider deployment where you had very high share, and you were expecting that to maybe come down as the year progressed.

Can you maybe update us on that, please?.

Sure. So I think we have -- in the various investor conferences that we had attended, we had given a nice update to that story. All in all, the good news is that it's a very neutral effect on the company with the changes that have happened at only one major operator, namely Comcast.

If you recall, our media server gateway opportunities are with many major operators, [indiscernible] Comcast, Rogers, Liberty Global assets in Europe. So all in all, last year we were about $15 million to $17 million in media server gateway shipments.

This year, we expect that only on the Comcast account, we will be sharing the revenues in the media server gateway opportunity related to the X1 platform. MaxLinear would be receiving the data portion of that which is called the XB [ph] socket for the broadband data gateway. And whereas the video portion will be shared with our competitors.

So on a volume basis, a neutral impact on the revenue. However, we already noted that with the new design-in the chip ASPs have decreased from what used to be around $10 to about $5 to $7. We will be seeing the impact of that revenue decrease in this particular year.

Maybe, Adam, you could simplify that a little bit for me?.

Well, I think another way to answer that question, Tore, is the fact that it's becoming increasingly difficult for us to differentiate between the revenue going into these media server deployments because some operators have these 2 box strategies, where you have the main box, plus the bolt-on additional channel box that Kishore was mentioning, XB [ph] in Comcast's case.

But basically, there's -- and there's other boxes where it is a unified box, so it's all-in-one, in which case we're still seeing that develop very nicely. So in some cases, you'll see a deployment where, yes, you're out of the main box, but you've got the data bolt-on box.

And for us, actually we're seeing strength in our data business as we talked about earlier on the call.

And it's beginning to be increasingly difficult to see whether that data strength is coming from a pure data modem gateway play not associated with a media server deployment, or whether it's in conjunction with a media server deployment as the bolt-on box.

So net-net what we see is very strong demand for video over IP type of services, and so that's driving our data business very strongly, and so you can associate that with media server deployments and also excluding media server deployments..

I just wanted to add that so far currently the exception is Comcast, which is doing this 2-box strategy. The other major operators are still deploying unified media server gateways, with new designs that are deploying 24 channels. And there we will be seeing strengthening in our shipment volume as the year progresses.

So we do expect to see mild revenue decrease associated with the Comcast ASP decrease. But beyond that, we feel very good where we have positioned the server platform..

Yes, that's really helpful. My second question is on your Q2 guidance by segment.

So you're guiding Terrestrial business to grow 5% sequentially, does that mean all subsegments there are going to be up, or is there still some seasonality that would be at the TV business?.

We would like to report that we had some -- we are seeing the resumption of strong growth in ISDB-T broadcast digital TV standard for Latin America shipments. We are seeing growth in that socket, that's driving primarily our growth in the Terrestrial segment.

Also, we are also seeing -- related to Q1, we are seeing hybrid TV to be approximately flat, but as a combined -- but we are seeing increases in shipments for the satellite gateway in the ramp of the satellite gateways. And together, we expect to see growth in our Terrestrial revenues..

Very good. Last question, you sound incrementally more upbeat about design wins for your outdoor business.

Should we or could we expect to see some revenues in outdoor this year? Or are you still expecting that primarily to happen in 2015?.

I think it's very safe to say that we expect the strong ramp to happen in 2015, but we do expect to see some small revenues in Q4 that would be the beginning of the initial phase of outdoor unit deployments with major operators, wherein there could be some pilot quantity shipping, and we'll have very good confidence of the ramp happening in 2015, from Q1 onwards.

So it'd not be unlike what we saw in the satellite gateway shipments last year in Q4, let's say, a sub-million dollar type of revenues, and that would be actually a very strong indicator of a good ramp playing out in 2015.

I do want to make this comment though that, by far, we have a significant lead on our competitors, we're the only ones that are actually designed in and are in a serious phase of validation and completion of validation. Our competitors are anywhere between 6 to 9 months behind us, in the best-case scenario, to be even at that stage that we are in.

So we feel very good that this brand-new class of satellite outdoor units that will be the major deployments and all the bigger operators would have the MaxLinear's products as their primary solution, at least for the first phase of the rollout of these operators..

Our next question is from the line of Quinn Bolton, Needham & Company..

Kishore, I just wanted to come back to the data cable side of the business and ask, it sounds like you're clearly seeing a transition from 8-channel to 24-channel, and wondering is that the primary revenue driver for Cable this year? Or you talked about a pretty efficient solution in partnership with Intel.

Do you think some of your strength might represent or might be a factor of market share gains by Intel on the 24-channel systems?.

I would be -- I would not be forthright if I said that we don't expect share gains, but it's hard to model that at this stage. But the fact that the industry wants to transition to the 24-channel gateways, broadband gateways, should result in some favorable share gains for MaxLinear.

But the overall market itself is bigger than we had assumed and so we're going to see some industry level growth too on the broadband gateways. So we feel very good that both those things will happen in a positive way, driving healthily our Cable revenue growth in the data segment..

Sorry, just a clarification, you said the market is bigger than you expected.

That's specifically for DOCSIS modems or is that for gateways? Can you just clarify that?.

For DOCSIS, we had always talked about DOCSIS market being about 30 million to 35 million units, but all new data indicate around 40 million to 45 million units. So that would indicate a nice growth opportunity for the data gateways..

Got it, okay.

So it's some market growth, potentially some share gains and certainly, some content as you shift to 24-channel?.

Two parts. One is the -- 3 parts, to sum your stuff, what you just told. The market is bigger, therefore, there's going to be market growth, with penetration. Second, the market's transit to 24 channels. And third, the 24-channel transition will help us gain share along with the ASP increase..

Got it, great. And then just a second question on the hybrid tuner opportunity, I think you said it was going to be roughly flattish in the June quarter. It was obviously seasonally slower in March.

Can you give us some sense, how do you see that business, let's just say, on a year-over-year basis in 2014? I think previously, you thought that that could be an opportunity into '15, maybe plus $15 million range in 2014.

Is that still a good estimate, or is that perhaps aggressive at this point?.

Nothing has changed related to the macro sort of statement that we had made. We expect hybrid TV tuner to grow very healthily this year, around $15 million last year to about $25 million this year.

It's just an artifact of what I call timing that I said that the expected hybrid TV revenue in second quarter would be approximately flat with the first quarter.

We actually feel -- not feel, we -- based on the design win pipeline and the rate of shipments, our Terrestrial business would grow at a faster rate than our Cable business this particular year. So we see a healthy growth in our Terrestrial business this year, much healthy growth..

Okay. And then just lastly for Adam, obviously, a big step-up in OpEx here in the June quarter. Some of that merit hiring.

Do you think it flattens out a little bit in the second half of the year, or can you give us any sense for the pattern of OpEx beyond the June quarter?.

Well, I think that the -- one thing that's worthy to note is that in the Q2 guidance that we provided, there really isn't any tape-out expenses in that quarter of note. So I think we will have tape-outs in the second half of the year.

We can't say with exact precision where they fall in Q3 versus Q4, but you can assume that there will be a step-up in tape-out expenses in the second half of the year. But I don't think that anything that we're looking at really takes us outside of, I think, where most people have their estimates for OpEx for the year.

So I think we're in pretty good shape. It's just -- it's going to be a little bit challenging right now, if you want to try to pin me down as to where those tape-outs are going to occur, whether it's Q3 and Q4, just Q3 or just Q4.

You can assume that we've got about -- I think you can assume that we've got a couple of million dollars' worth of tape-outs that are going to work their way into the model expensed in the second half of the year. But again, that's consistent with kind of the vision we provided before as to where we think OpEx ends up for the entire year..

Our next question is from the line of Gary Mobley with Benchmark..

As you're aware, there's a lot of consolidation going on amongst the different cable MSOs, and I'm wondering if you've seen at this point, or expect to see, based on your intel in the supply chain, any sort of disruption in the hardware inventory held by these different operators, and how that may impact MaxLinear?.

So Gary, we are not seeing any negative impact of those announcements. If anything, based on the growth we have seen in Q1 and the good bookings and billings backlog that Adam just mentioned, we feel that there's no such disruption that we can see.

But I just want to characterize it that you have heard of the Netflix buying a dedicated bandwidth below the top; whether it's from Comcast or Verizon, it's all good for us. Because the broadband data bandwidth that will drive this, we are front and center of those capabilities.

With regards to Time Warner versus Comcast, we're actually in both the platforms. And earlier, we were not present strongly at Time Warner a year before, but last year we started penetrating them. So it's not -- so we should not see any disruption because we are ramping into their account.

And already we are a major supplier to the -- in the Comcast account. So if anything, we expect that if they standardize around a common platform, that we would be beneficiaries of that in a bigger way. But it's very hard to predict right now when that would happen. I think to see any impact is a little bit of a ways away to talk about..

Okay, all right. Fair enough. A question for you, Adam. You underspent on non-GAAP OpEx by about $600,000 for the just reported quarter. And then -- a lot of other semiconductor companies have underspent on OpEx as well. Many of them citing difficulty in hiring.

Is that a situation that you're running into, and does that explain the underspend in Q1 and perhaps the incremental increase in the June quarter as well?.

So I would say there's a couple of factors. I don't think that we're having difficulty in hiring. I think that we're actually having a lot of success in hiring very high caliber people.

I think what happened in Q -- not I think, I know what happened in Q1 was that we had a little bit more attrition early in the quarter and the backfilling of those heads took place later in the quarter and earlier in Q1. So it's really a timing issue more than anything else.

I would say that we've not really noticed any significant difference in the hiring environment as far as getting quality people to join the company. And I think on the attrition, those are always a case-by-case basis, where it's not necessarily competitively market-driven. It's performance-driven, in some cases.

I would say that part of what also factored into the shortfall on spending in the quarter was, as I mentioned when Quinn asked his question earlier about difficulty in timing tape-outs, we make some assumptions about whether or not a tape-out is going to happen in the quarter.

Sometimes we do -- we don't need to do a tape-out that we assume that we might need to do. So there were a few factors in there but the primary driver of the shortfall was really headcount related. It was timing more than anything else..

I just want to add, Gary, to Adam's point. The other factor is that when we go up in hiring, we allocate our hiring between India, China, Taiwan and the U.S. centers. And this time, we also benefited from a healthy mix of leverage that came with the hiring, where much of the hiring happened in India design center relative to the United States.

And we're actually very pleased with that, with the outcome, that our strategy of leverage of R&D in the India center is going very well. We have got a brand-new facility there. We have grown to more than 50 people now in India.

And if that mix continues, we would be able to execute in our products without having any of the hiring challenges that other companies may be facing as well..

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

A lot of good bottoms-up questions have been asked, so I just want to ask more of a top-down one on the revenue side of things. You before had laid out a trajectory to get to your $80 million revenue run rate in Satellite, and compare that to how you would do that in Cable.

Can you remind us how that's playing out? And is the trajectory a little more back-end loaded for all the reasons you said before? Basically, any changes in that trajectory, is my first question..

Ross, I would say that really, nothing has changed on that front. I would say that we've been pretty bullish about satellite becoming the next cable-sized opportunity for us. And as we've talked about, Cable, in 2014, is approaching $100 million run-rate business with very nice margins.

We think that Satellite business can do every bit what Cable did over a roughly similar timeframe, let's call that -- call that a 4-year cycle. And we're just starting in that, call this year one of that process.

And as Kishore mentioned earlier, we are very encouraged by the pipeline of design wins and the early lead that we have in the market, particularly in the outdoor units. And also, on the front ends for the gateways. So I think nothing has changed, in fact we feel very, very positive about where we are.

And we'd love it if nothing -- if Satellite became a bigger business than Cable, we wouldn't be disappointed with that either, so nothing's changed..

So if I put that all together, what sort of gross margin implications do we have, if we think conceptually for -- it sounds like more '15 than '14 as far as just generally year-over-year as Satellite becomes bigger?.

I don't think you'll see much influence to the margins from Satellite in 2014, again it's just because of the sheer numbers, right? We've got a pretty big set of legacy businesses in Cable and Terrestrial. So I would say, that you shouldn't really notice any positive or minus, specifically, from satellite contribution.

I would say in 2015, that's really hard to say. I would say that we believe that long-term Satellite is going to have a very consistent margin profile to our Cable business. There's a lot of commonalities, they're both operator-driven businesses, they're very high quality markets.

So we think longer term, that's going to be pretty consistent with our overall corporate average..

I guess my last question, just a little bit more nearer term. You mentioned that you thought Terrestrial would probably grow faster than Cable this year. I assume some of that satellite in the ISDB-T coming back.

Any sort of implications as far as what that means for gross margin?.

No. I -- on the -- I think we've got it all nicely bracketed. I think even though terrestrial set-top box will be the nice -- will grow as strongly as hybrid TV tuners. I think we feel pretty good that we will be around the corporate margin that we've given a long-term range, within 60% to 62%.

And there is a variance around the guidance we gave you of plus/minus 1% or 2%. However, we feel that we should hold to the margin that we have delivered so far, even with the growth in Terrestrial business.

I just want to reiterate that even in the Terrestrial markets relative to the competition, we have an incredibly aggressive competitive die side and package cost structure.

And we do the same thing the Terrestrial ISDB tuner demodulator SoC, so we are very competitive on the margin, even with the ASPs being pretty heavily pressured due to competition in the hybrid TV market, and we are gaining market share as we speak, and we feel that we will do a very good job on revenue increase in both hybrid TV and terrestrial set-top boxes this year..

Yes. I think to add a little more color to that, Ross. I think that one of the questions earlier to Kishore was the, I would say, the revenue slope of hybrid TV in 2014, given the growth expectations and given the fact that it was obviously Q2 guidance being flat to Q1.

So obviously that implies a reasonable hockey stick in the back half of the year for hybrid TV. It's no surprise that hybrid TV does come at lower gross margins than corporate average because of the dynamics that Kishore just mentioned.

So absolutely, growth in Terrestrial, particularly in the hybrid TV, does create pressure on the overall corporate margin. But we do feel like, given all the puts and takes that we believe that we're pretty well positioned to maintain a relatively stable gross margin.

But again, that's probably the most difficult to predict part of our business, and there is a lot of forecast volatility around ASPs and mix impacts. So I think that you highlight a good question. I don't think we can give 100% confidence in saying that it won't have a more negative impact than we're currently seeing as it increases in the mix.

But then again, it's pretty difficult also right now to predict what that mix is going to be because of the strength that we've had in Cable recently too.

So a lot of puts and takes but definitely, increase in the mix of Terrestrial does put pressure on the margins, but we don't think it pushes it out of the long-term range that we've been talking about, which is the 60% to 62% in 2014..

Our next question comes from the line of Alex Gauna with JMP Securities..

I just wanted to know, Kishore, I know you talked about this, and I believe, Adam, you also mentioned that you recognize revenue on sell-through so you have pretty good confidence that there's no inventory in your direct channel.

But even though you haven't said you've seen any effect from the Comcast, Time Warner merger, have you actually gone out into the channel and tried to vet at the end-system box level that we don't have the operators building up any safety stock around this?.

Alex, as far as we're aware, that is not happening. Their industry growth and their revenues on the data side, and they're now upgrading to gigabit per second sort of modems with the 24 channels. And our own inquiries, our own customers, if anything they're accelerating the PO process.

We are -- as Adam said, as of this call, we are 90% booked to the forecast. So I believe that is not the case. However, today is the NPT Show in Los Angeles, and I'll be meeting them again today, and I will make sure to ask the question..

Okay, great. And then I know you talked about the growing funnel of design wins that you've got going on in the ODU market.

At this juncture, are you the only player in the market in any size with -- right now deployable grade silicon, or are you sharing that market and maybe, an idea on what the share might be for you, as you roll towards the end of the year?.

So Alex, I can say, honestly, with the hand on my heart here, that we are the only deployable grade silicon out there in the marketplace right now, despite our competitors' pronouncements of various nature. So I feel that we have the design win momentum. We have [indiscernible] everybody is designing and deploy -- and trialing and validating.

We have got a lead of about 6 to 9 months on anybody out there in the most competitive scenario. So we feel pretty good that we are proliferating our designs in operators beyond the top tier ones now, to the next tier operators of the world on the satellite outdoor unit. So we feel very good about it..

Our next question comes from the line of Jay Srivatsa with Chardan Capital Markets..

Kishore, on the Satellite business, beyond the initial design wins in Europe and in China, what are some of the challenges you face as you look at further penetration in that market? And what do you think MaxLinear has to do to get further traction in the satellite set-top box space?.

So, Jay, just one clarification, in your first part of the question you said Satellite market Europe and China, were you referring to the set-top box or the outdoor unit markets?.

Set-top box. I'm sorry, set-top box..

So I can say to you safely right now that we are not participating in the Chinese set-top box market for Satellite. That tends to be really, really low-end standard definition zapper boxes that go to the gray market, and we don't want nothing to do with that one. So on the -- we are really focused on the Tier 1 operators and the Tier 2 operators.

We've got strong design wins with the major operators in Europe, the biggest ones. And we are working with the United States ones as well, and those in Latin America as well. I think you asked about what steps we need to make sure that we got good growth, what are the challenges. I think the big challenge is timing.

A lot of things come together for the shipments to start. One is a hardware platform validation, other one is software. Software has the biggest, longest lead time. And I would say that, we have crossed all those hurdles.

And on 1 particular platform, we already started shipping to a major operator in Europe, [indiscernible] starting some shipments to a major operator in Latin America. There's some trial revenue already that we have recorded. So I feel that it's just now about timing.

The design wins are in place, the operators are going through the validation of the software. And we feel that much of the risk that we would impose on our side is gone completely. It's all about now with timing of deployments now..

All right. Speaking of China. There is a mandate that's fallen in place starting this year about integrated TVs above a certain size. And the next year, I think it's pretty much encompasses all the TVs.

How do you see that mandate impacting MaxLinear's position there? And do you see a steep ramp-up coming? Or is this more of a gradual transition you expect?.

So we expect a gradual transition. However, as the ramp happens, we are very big beneficiaries. Look at all the major TV makers in China. MaxLinear is the primary chip supplier. We've got great traction there, so we should benefit from it. However, I would caution you that the Chinese market, there is constantly ASP pressure.

So net-net, we will grow our revenues in China as a benefit of this mandate. There's always mandates in China, but the ramps happen slower than what the government would let you think they're going to happen. So I think it would be a slower ramp than is being set up based on the hype that's surrounding it.

But you're already seeing the benefit of it with the growth of our revenues in China on the DTNB [ph], digital iDTV boxes, IBBB [ph] televisions..

Okay. Last question from me. You mentioned the Netflix and Comcast agreement. As you know, Amazon has launched its own set-top box for streaming video.

Do you sense a sense of urgency amongst Comcast and Time Warner to upgrade their networks to higher speed data modems and DOCSIS modems? Or do you feel like what you had talked about earlier in the year continues to be the way the transition will happen?.

I think that they now have a cadence of upgrading their bandwidth almost every 18 months and deployments. That will continue to be the case.

So what I want to talk to you about is moving forward from 24 channels, where does it go next? They would try to go to 32 channels, and that probably could start shipping at the end of the year or the middle of next year.

And then a year later, you would have DOCSIS 3.1 coming into play, and that will increase the broadband bandwidth -- data bandwidth even more. So I feel that this is continuing to -- this need for increasing the bandwidth every 12 to 18 months on the cable operators has continued to persist, and we would strongly benefit from those upgrade cycles..

And at this time, there are no additional questions. I'd like to turn the conference back over to management for any closing remarks..

Thank you, everyone, for attending the call today. As a reminder over the next couple of months, we'll be attending the Deutsche Bank one-on-one conference in San Francisco on May 15. The B. Riley conference in Los Angeles on May 21, the Benchmark one-on-one conference in Milwaukee on May 29, and the William Blair conference in Chicago on June 10.

So we have a heavy investor calendar in front of us. And we are looking forward to those meetings to share our story with all of you. So we thank you all for joining us today, and we look forward to reporting on the progress to you in the next quarter as well. Thank you, operator, and that's the end of the call today..

Thank you, sir. Ladies and gentlemen, this does conclude the MaxLinear Q1 Earnings Conference Call. Thank you very much for your participation. You may now disconnect..