Brian Nugent - Finance and IR Manager Kishore Seendripu - Chief Executive Officer Adam Spice - Chief Financial Officer.

Tore Svanberg - Stifel Gary Mobley - The Benchmark Company Quinn Bolton - Needham & Co. Alex Gauna - JMP Securities.

Good day, and welcome to the MXL Second Quarter Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Brian Nugent. 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 second quarter 2015 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 will 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 third quarter 2015 revenue, including expectations for revenue trends in our cable, terrestrial, satellite, high speed interconnect and other target markets; gross profit percentage and operating expenses, the impact of our recently completed acquisition of Entropic Communications and Physpeed, and other current views regarding trends in our markets, including our current views of the potential for growth in our cable, terrestrial, satellite and infrastructure 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. We 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, satellite and infrastructure markets do not grow as we currently expect, 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 arising from the consolidation of our industry and among broadband operators in our principal target markets, risk relating to intellectual property protection and outstanding intellectual property litigation, integration risks associated with Entropic Communications and other acquisitions if any, and cyclicality in the semiconductor industry could adversely affect future operating results.

A more detailed discussion of these risk factors and other risk 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 Form 10-K for the fiscal year ended December 31, 2014 and our Form 10-Q for the second quarter of 2015 to be filed today, which includes additional discussion of risks affecting MaxLinear’s business.

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 second quarter 2015 earnings release is available on the company’s website at maxlinear.com.

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

Our non-GAAP presentations exclude the effect of stock-based compensation expense and its related tax effects, accruals under our equity settled performance-based bonus plan, outstanding patent litigation with Cresta Tech, deferred merger proceeds, change in fair value of contingent considerations, severance charges, amortization of acquisition related intangibles and inventory step up and any non-recurring acquisition related expenses.

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 its operating results. The full reconciliation of 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, Brian, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the financial highlights, we are pleased to provide our first financial results as a combined company following the acquisition of Entropic Communications on April 30, 2015.

Our second quarter 2015 revenue was $70.8 million, above the midpoint of our recent guidance and up approximately 100% both on a year over year and on a sequential basis.

It included two months of revenue contribution from our Entropic acquisition, revenue from core MaxLinear product lines grew by nearly double-digit percentage sequentially as strong cable data and satellite growth more than offset expected seasonal softness in our terrestrial set-top box and hybrid TV businesses.

Further, cable video revenues normalized following an exceptionally strong Q1.

Shipments of core MaxLinear satellite products consisting of Full Spectrum Capture satellite gateway receiver SoC’s and digital channel-stacking solutions for outdoor units were well ahead of our stated target contribution goal of 10% to the pre-Entropic revenue mix in the second quarter.

In addition, the continued shift towards higher channel count DOCSIS 3.0 modems and gateways resulted mid-teens percentage sequential growth in cable data revenue. Entropic-related revenue was in line with our guidance.

We continue to see strong follow-through of demand across Entropic’s MoCA analog channel stacking and legacy video SoC product portfolio. As a result, we are now a more significant and relevant broadband platform solutions provider to operators globally.

Combined with Entropic, we are in a uniquely strong position to address the key challenges facing our operator partners, which is delivering higher bandwidth into and distributing richer multimedia content throughout the home.

Our strong cash flow generation in the second quarter of 2015 not only reflects momentum in our core business, but also marks a significant progress towards integration of Entropic.

Our recent roadmap progress and customer engagements primarily in the wireless and wired infrastructure market and still strong confidence in our ability to open a large new target addressable market for our RF analog mixed signal communications technology platform, we are in a good position to surpass the $1 million per quarter revenue milestone in contribution from our high-speed fiber infrastructure product in the second half of 2015.

This growing momentum in wired infrastructure solutions combined with our organic product development initiatives in wireless and cable infrastructure reinforce our confidence in our ability to execute on new growth vectors.

These new growth vectors will enable us to diversify further our revenues across broadband cable, satellite, terrestrial, and infrastructure markets.

As a reminder, from our June 8 guidance conference call, we now have three primary areas of business which are categorized to be aligned with the strategic investment and technology platforms leveraged focus. These three categories are first operators category, infrastructure and other category and finally legacy radio SoC category.

In the second quarter of 2015, our operators business grew 84% sequentially and accounted for 75% of our total revenue.

Along with two months of contribution of Entropic’s MoCA and analog channel-stacking products, growth in the core operator businesses more than offset the seasonal decline in operator-driven terrestrial set-top box revenues and a normalization of cable video revenue after a strong Q1.

Specifically, cable data revenue grew in mid-teens percentage sequentially, driven by the continued adoption of higher 24 channel-count DOCSIS 3.0 modems and gateways to operators in North America and Europe.

Consistent with the increasing demand for higher bandwidth offerings, we are also seeing growing interest in our family of 32 channel DOCSIS 3.0 receiver solution. Notably, a few days ago, our partner Hitron announced the first DOCSIS 3.0 32 channel modem gateways for commercial deployment in North America.

These 32 channel platforms enables delivery of up to a gigabit per second downstream bandwidth to meet the rapidly increasing demand for data to the home. Recent operator and OEM customer engagements suggest that there could be a meaningful 32-channel opportunity over the next 12 to 18 months in advance of DOCSIS 3.1 deployment.

As mentioned earlier, contribution from our organic growth initiatives in satellite exceeded our stated target of 10% of pre-Entropic revenue for the second quarter. Production ramps of multiple satellite gateway and digital outdoor unit products at major European and North American operators were the primary factors fuelling this strong growth.

Our infrastructure and other business category, which today primarily consist of consumer direct set-top box and hybrid TV tuners, also includes the future growth initiative in wired and wireless infrastructure application. This category accounted for roughly 7% of overall revenue.

Declines in consumer terrestrial set-top box and hybrid TV revenues were partially offset by growth in shipments of high-speed interconnect products from our Physpeed acquisition and a very modest contribution from Entropic based infrastructure products.

As mentioned earlier, we’re pleased with the product execution and growth in customer engagements for our high-speed interconnect initiatives. We are continuing to build on the foundational technology innovations obtained through our Physpeed acquisition in Q4 of last year.

The combination of Physpeed innovations at MaxLinear’s engineering and operational execution has enhanced our customer credibility and resulting in increasingly meaningful customer engagement.

Already this year, the [indiscernible] expanded family of high-performance TIA amplifier and driver product addressing the ability to 100 gig and 400 gigabits per second fiber-optic data center, metro and long haul data network.

We have now commenced shipments of products addressing these markets, leading with MXL-9201 which is a 32 gigabit per second Quad-Lane Modulator Driver IC, addressing 100 gigabit per second optical datacom network application at a major telecom equipment vendor for optical networks in China.

Finally, moving to our legacy video SoC category, which consist of revenues derived from HD DTA and IPTV SoCs of Entropic revenues were about $12.5 million or 18% of overall revenue.

In conclusion, we are pleased to have delivered a quarter of strong revenue growth driven primarily by strong operator investment in higher bandwidth and richer multimedia content delivery platforms for the subscribers. We are strongly benefiting from our increased customer platform relevancy resulting from the Entropic acquisition.

The unique operational synergies of our combination with Entropic have positioned MaxLinear to deliver improved operating leverage and strong cash flow.

Our revenue diversification and target addressable market expansion into wireless and wired infrastructure markets are gaining momentum driven by the broad applicability of our core analog RF and mixed-signal technology platform for the communications market.

We look forward to sharing some more information throughout the year regarding the progress of our ongoing infrastructure initiative and new developments in our core broadband focused market. With that, let me turn the call over to our Mr. Adam Spice, our Chief financial Officer, for a review of the financials and our forward guidance..

Thank you, Kishore. I will first review our results, and then briefly discuss our outlook. As Kishore noted, our Q2 revenue was $70.8 million, above the mid-point of our prior guidance.

GAAP and non-GAAP gross margin for the second quarter were approximately 38% and 58.4% of revenue, respectively, versus our prior guidance of 41.5% for GAAP and 57.5% for non-GAAP gross margins.

This compares to GAAP and non-GAAP gross margin of 61.2% and 61.3% respectively in the first quarter of 2015, and GAAP and non-GAAP gross margin of 62.5% and 62.6% respectively in the year ago quarter.

Our Q2 GAAP gross profit was impacted by $13.3 million of amortization of inventory step-up related to Entropic products that sold through in the quarter and $1.05 million of purchased intangibles that were amortized to cost of goods sold related to both the Entropic and Physpeed acquisitions as well as a smaller $67 million related to stock based compensation as stock based bonus plans that hit cost of goods sold.

Q2 GAAP operating expenses were approximately $59 million, which included $11.4 million of restructuring charges, $2.8 billion in transaction-related professional fees and $8 million for the amortization of purchased intangible assets acquired from Entropic.

Stock based compensation was $4.7 million and we accrued $2 million related to our performance based equity bonus plans for 2015 and $400,000 of net professional fees related to Cresta Technology’s patent litigation. Consistent with 2014, payouts under our 2015 performance bonus plan are expected to be settled primarily in shares of MaxLinear stock.

Net of these items, non-GAAP opex was $29.3 million, $1.3 million higher than our prior guidance of $28 million; $11.4 million higher than in Q1 of 2015 and up approximately $12.3 million from the year ago quarter.

The overage relative to guidance was a result of under-forecasted depreciation expenses related to the revaluation of acquired assets from Entropic and increases in payroll taxes resulting from a higher stock price in the quarter and its affect on withholding taxes for [indiscernible].

Second quarter GAAP opex attributable to R&D was up approximately $8.7 million quarter on quarter and $10 million year on year at $24 million, which included stock based compensation of $3.1 million, $1.7 million related to the 2015 stock based bonus plan and Physpeed merger proceeds.

Excluding these items, second quarter non-GAAP R&D was up approximately $7.5 million on a quarter on quarter basis to $19.2 million. Within this R&D spending, the largest increases were $3.8 million in payroll related expenses and $4 million in a combination of design tools, licensed IP, occupancy, depreciation and masked expenses.

Second quarter GAAP opex attributable to SG&A was up approximately $12.7 million quarter on quarter and up $14.9 million from the year ago quarter to $23.6 million.

This $12.7 million quarter on quarter increase included $8 million for the amortization of Entropic intangible assets, $300,000 of transaction-related expenses, $300,000 in stock based compensation, $200,000 in stock based stock based bonus plan accruals, $1.5 million of headcount-related increases in payroll, benefits and occupancy, $1.2 million of increased depreciation expenses that were due to the addition of facilities and related equipment and $500,000 increase in outside services related to proxy filings and ongoing ERP systems integration activities, which were partially offset by $300,000 decrease in net professional fees related to the Cresta Technologies’ patent litigation.

Excluding these items, second quarter non-GAAP SG&A was up $3.8 million on a quarter on quarter basis to $10.1 million, driven by $1.5 million of headcount-related increases in payroll, benefits and occupancy, $1.2 million of increased depreciation expense which were due to the addition of facilities and related equipment and $500,000 increase in outside services related to proxy filings and ongoing ERP systems integration activities.

At the end of the second quarter of 2015, our headcount was 531 as compared to 351 at the end of the first quarter 2015 and 362 at the end of the second quarter of 2014.

We continue to evaluate our staffing levels globally, particularly following the acquisition of Entropic to strike a balance between driving near-term bottom line operating leverage and staffing key long-term growth initiatives.

We continue to look to derive operating leverage by appropriately balancing hiring across our locations in the US, India, China and Taiwan. GAAP loss from operations was $32.1 million in Q2 compared to a loss from operations of $4.6 million in the prior quarter and a loss of $300,000 in Q2 of last year.

GAAP net loss per share in the second quarter was $0.58 on basic shares outstanding of 52.6 million. This compares to GAAP net loss per share of $0.12 in the prior quarter and net loss of $0.02 in Q1 of last year.

Non-GAAP earnings per share in Q2 were $0.21 on fully diluted shares of 55.1 million compared to $0.09 per share in Q1 of 2015 and $0.13 per share in Q2 of last year.

Moving to the balance sheet and cash flow statement, our cash, cash equivalents and investment balance increased $800,000 at the end of the quarter to approximately $82.1 million, a decrease of $9.4 million as compared to $91.5 million in Q2 of last year.

Our cash flow from operations in the second quarter of 2015 was $4.6 million versus cash flow of $3.5 million in the first quarter of 2015 and $7.6 million generated in the year ago quarter. Our days sales outstanding for the second quarter was approximately 54 days, 1 day more than both the prior quarter and 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 6.8 in the second quarter, compared to 4.3 turns in the first quarter and 5.1 turns in the year ago quarter.

The increase in turns relative to the first quarter were due to the addition of Entropic inventory. That leads me to our guidance, we expect revenue in the third quarter of 2015 to be in the range of $90 million to $94 million.

Built into this range, we expect operator revenues to account for roughly 73% of revenue, infrastructure and other approximately 9% and video SoC approximately 18%. More specifically, within our operator, we expect growth to be driven by both digital and analog outdoor units as well as the step up in the MoCA related revenue.

Within infrastructure and other, we expect a seasonal recovery in consumer terrestrial set-top box demand to be aided by the continued early ramp in high-speed interconnect revenues. We expect our legacy video SoC to be up nearly solely to the extra month of contribution in Q3.

We expect GAAP and non-GAAP gross profit percentage to be approximately 53% and 57% in the third quarter respectively. Our gross profit percentage forecast could vary plus or minus 2% depending on product mix and other factors, in particular the relative contribution of operator, infrastructure and legacy video SoC applications.

We continue to fund strategic development programs targeted at delivering attractive top line growth in 2015 and beyond with a particular focus on infrastructure initiatives and our goals of increasing operating leverage in the business.

We expect Q3 2015 operating expenses to decrease approximately $9 million quarter on quarter to approximately $50 million, with the largest reductions coming from the fall off in Entropic restructuring and transaction related costs of approximately $14 million.

Reductions in these transaction related costs are expected to be partially offset by a $2 million increase in amortization of purchased intangibles, reflecting the full quarter effect of Entropic, a $1.7 million increase related to full quarter effect of Entropic headcount and other headcount additions, $800,000 increase in depreciation from the full quarter effect of fixed asset additions, a $700,000 increase in stock based compensation, a $500,000 increase in licensed IP for new development projects and a $500,000 increase across a combination of audit and professional services as well as a $300,000 increase in stock based bonus expenses.

We expect Q3 non-GAAP operating expenses will increase $2.7 million sequentially to approximately $32 million, driven by the earlier referenced increases in headcount, depreciation, licensed IP and audit and professional services fees.

In closing, we are pleased to report Q2 revenues that were above the midpoint of our prior guidance and despite the integration execution that contributed to another strong quarter of operating cash flow generation.

In the midst of continued consolidation amongst operators and OEMs, our expanding portfolio of leading technologies position us to continue to benefit from macro bandwidth demand growth.

We are also pleased to report for the penetration of new market opportunities in satellite applications and incremental progress made and confidence in our ability to execute on our strategic wired and wireless infrastructure initiatives. And with that, I’d like to now open the call to questions.

Operator?.

[Operator Instructions] And we’ll take our first question from Ross Seymore with Deutsche Bank..

This is [Gee] for Ross Seymore.

Previously you had provided guidance for the second half, is there any update here?.

Right now, our guidance for the second half stands as we left before. If you really add what we’re guiding for the Q3, we’re still behind the range of guidance we’ve given for the second half of 2015. So Q4 tends to be seasonally down and so we’re being cautious and we do want to get ahead of our [indiscernible] the guidance for the rest of the year..

And the growth in cable in the quarter seems to have been above guidance, the most recent guidance provided in June.

Can you provide some more color on what was different in terms of areas of strength versus what you thought previously?.

I think there is a secular trend for greater and greater bandwidth demand and the operators are deploying accordingly. So as of Q2, we can safely say that we have shifted over to almost close to two-thirds of our cable data mix towards the higher channel count, 24 channel modems.

So if you think about it, about 60% of the data revenues now are converted 24 channel and the rest of it is pretty much primarily 8 channels. So that is the trend that is driving growth in cable, the ASP increase primary..

Lastly, Adam, you mentioned a step up in MoCA expected for the third quarter, is there any further color that you can give here, the conference in the step up in MoCA?.

So if you really think about it, one of the nice things about the synergies of the Entropic acquisition is that we have – we shared a lot of customer channel synergies and they are also commonly present on platforms. This is the case where growth in higher channel count, data modems also helps us, because the Entropic MoCA is also the same platform.

So as you we more and more growth in higher channel data count modems, our revenue contribution in MoCA also steps up. So you are seeing the benefit of that step up in MoCA revenues associated with the higher data bandwidth platforms to major operators in North America..

We will take our next question from Tore Svanberg with Stifel..

First question, could you talk about your visibility for the September quarter, either in terms of backlog or how you feel about bookings right now?.

Right now our backlogs and bookings are very healthy. We are at about 90% plus in our bookings.

Given that so much of the business is now tier 1 customers in North America, Europe and operator oriented and the lead times in this business, so I would say that they are really at a very healthy place in our bookings, however we are entering the volatile period for us between Q3 and Q4.

While we are very encouraged by the bookings or the billings, we are being careful about guidance update for the rest of the year..

And it sounds from your comments, Kishore, that may be 32 channel is starting to come to life, I’m just wondering if you could give us an update on what exactly is happening, because obviously you have a leadership role in 24 channel, I suspect you would have the same in 32 and [this even mean that] may be DOCSIS 3.1 gets pushed out a little bit?.

Here is a bet we have internally that we are going to ship 32 channel before the end of the year, this year. However, here are the dynamics. The major operator is so focused in deploying DOCSIS 3.1 and the lesser operators in North America are why wait for all of the upgrades that are required for DOCSIS 3.1.

In the meanwhile, we can fill the gap with 32 channel because you can safely get to a gigabit plus in data bandwidth. So that’s the dynamic you’re seeing here.

So it is not a generic statement, it is sort of two categories of operators, one operator is completely committed to getting DOCSIS 3.1 as early as possible and there is a group of operators who want to deploy the gigabit bandwidth right away. So you have a dichotomy there. So it should benefit us.

And the reality is that it’s possible that DOCSIS 3.1 gets delayed more than what people – things are always later than you think, so in that context then the 32 channel uptake would be stronger than we are even hoping to be right now. So that’s the dynamic..

And on the Entropic side of the business, so you’re obviously gaining share with your multichannel design wins, does that mean that MoCA is also now gaining share because you’re part of those new systems?.

How do I answer that, I would say that we did not put any work towards gaining share, it turned out the new advanced platform Entropic had already had design wins on the higher channel count data modems and gateways. And MoCA is beginning more ubiquitous in the data gateways.

So as MoCA is becoming a default attached to all of the new platforms, naturally there is a growth in share or revenue if you will and let us not forget that Entropic’s MoCA is the most deployed and the most advanced platform out there.

And our intention and our commitment is the next six months to move product offerings to multi-gigabit MoCA as well. So I think we hope that over the next few years we will be gaining more and more market share and our revenues will accordingly reflect the outcome..

One last question for Adam, Adam, it looks like based on a guidance your operating margins going to come in about 20% for Q3, as you look at the model longer term, is that the number we should think of MaxLinear hovering around, around 20% operating margin?.

I think that’s been our long-term stated goal of getting the business to 20% plus operating margin and at this point we have no reason to change those boundaries.

We did a little bit better than that in the current – this deal is coming together from a synergy perspective, but I think that’s the right place for models to be and that’s certainly we are targeting as a management team to deliver that 20%-ish operating margin on a going forward basis..

Our next question comes from Gary Mobley with Benchmark..

Let’s just start off by asking a question about legacy Entropic set-top box business, can you maybe give us some sort of visual in your narrative as to the tail of that set-top box revenue stream may go up from the current $12.5 million per quarter that you just experienced before it eventually decreases and what are we looking at in terms of timeframe for an eventual decrease?.

That is a very difficult question to answer, because with all the revenue is IPTV clients and DTA SoCs both in cable and satellite operators.

It tends to be very volatile and you have seen recent announcements of major cable operators like Time Warner, Cox, how they are going to aggressively be converting more and more spectrum to digital, for a more data bandwidth delivery.

So obviously being one of the key providers for that market, one of the only qualified solution, obviously we will tend to benefit. Having said that, over what time frame that will plays out is very difficult to ascertain.

Right now the way we have it the – let’s assume that this revenue does not increase that it tails over let’s say 2 to 3 year window so you just start seeing some tailing coming in the – if it happens earlier, later half of 2016, but indications are that that tail will be much slower at this point in time given all the consolidation and industry disturbances that are going on.

And we hope that the last tail longer through 2017, so that’s where we have it. Internally, we are planning to the business around tailing starting in the second half of next year..

I wanted to ask a little bit about your satellite related business, can you talk about the dynamics between the analog and digital side of the business, whether or not the Entropic business that’s lasting longer than what you expected and is that having the sort of impact on your MaxLinear digital business? And then as well, not mistaking you generated roughly $4 million in Q2 from satellite and I’m just curious where that goes for the balance of the year and maybe if you can give us fiscal year 2015 outlook for your satellite related business?.

We are not breaking down our operator businesses, because there are so many ins and outs. However, let me try to answer your question, first with the satellite outdoor units, the analog channel stacking satellite outdoor unit revenue has been primarily concentrated in the major North American operator for Entropic.

And what the digital outdoor unit market serves is that it expands the addressable footprint for satellite operators worldwide, so you a TAM unit expansion. However, the cost of the digital outdoor unit ASP is lower than the analog channel stacking solutions.

Therefore, all in all, we see a modest growth due to TAM expansion while the footprint expands. And so today, I think there will be temporarily a stronger growth because there is some transition happening right now for the analog channel stacking, which we know it takes a long time for the full rollout, maybe two to three years.

But then in the meanwhile, there is some in inventory ordering going on for digital channel stacking. So I think you’d see a little bit higher growth in the beginning, but later on a slow growth moving forward. So I think that’s the landscape of digital outlook units.

I think digital outdoor stack units is the design wins across operators in North America, Europe, the major ones, Latin America and the design win momentum is spreading to Asia as well. So I think when it all breaks out, we look at the satellite outdoor unit as a good growth vehicle for us.

But I want to say something else here, is that, there is an industry dynamic right now, consolidation that’s happened with the – for example, AT&T acquiring DirecTV and there are new quadplay environment that is developing with satellite video and data providers and that may temporarily increase the volume for the satellite outdoor unit and even increases to be a pretty strong increase, because they will try to convert their cellular subscribers to satellite subscribers and vice versa.

But it’s very hard for us to predict that. But we’re optimistic, while not counting on it right now..

If you could just give us an update on sort of the revenue trajectory of the satellite business for the balance of the year..

We mentioned on the last call that we anticipated the mix to begin shifting within the operator business to be increasing towards satellite more in the mix relative to cable, right. So we still forecast the growth in satellite driving that dynamic.

So if you think about that, as we exit 2015, we were indicating that you should see more of a balance, not quite 50-50 split between the cable and satellite businesses across all the various pieces of technology that go in those platforms. But you’ll be approaching more than equal weighting.

But it’s certainly not that today, but we think it’ll trend towards that as we exit 2015..

We’ll take our next question from Quinn Bolton with Needham & Company..

Just wanted to ask – obviously, very strong revenue growth on the cable side of the business here in the first half, we saw a similar dynamic last year, and that led to an inventory correction in the second half of 2014.

Can you give us your sense of what inventory looks like in the channel, perhaps a comment on unit shipments versus ASP growth first half of 2015 versus first half of 2014 just so we can get some sense of inventory levels?.

You’re correct, obviously we went through that rollercoaster last year and we are being very careful, today we’re not planning for any unit expansion, much of the – in fact, all of the growth is coming from conversion from 8 channel to 24 channel product here.

So we’re not being exuberant about it, if that unit growth does come in our favor, we would benefit much more. But right now, we’re not planning on the increase – the increase associated with what we’re guiding right now and what we’ve done in Q2, is not based on the units, unit count growth is much more to do with ASP growth..

And then just coming back on the CoreMAX linear satellite side, I think in your script you said that that was well north of the 10% goal that you’d set for the June quarter.

Is that fairly equally split between the digital ODU, or is that mostly the satellite gateway? And if it’s satellite gateway, is it primarily one customer, or are you now shipping to multiple customers both in Europe and North America on the gateway side?.

Like we said, the way the RAM profile would look like, it’s two thirds would be gateway, approximately one third would be digital satellite outdoor unit. And I think that more or less prevailing, hopefully that answers your question on that front. The second question regarding, is it single customer, it’s multiple customers.

There are major operators in North America and Europe combined.

So the good news is it’s more than one and the fact that there is a strong operator in North America and the consolidation that’s happening in the industry, if we have the subscriber model and quadplay services coming to play, the question mark we have is that would that also increase to greater shipments of gateways as a subset subscribers are being cross fed from the cellular to these satellite revenues.

.

And this may be a related question, but obviously we just saw the AT&T/DirecTV merger close.

Can you give us some sense, did you have any content on the old U-verse platforms? And what’s the dollar content to the extent that a U-verse subscriber shifts over to a DirecTV subscriber? How much content could you pick up with that conversion?.

I have no idea, we can’t answer that question honestly. But you know you satellite gateway receivers [indiscernible] ASPs have a wide distribution and then I think we said average selling prices is between somewhere $5 to $7 and satellite outdoor units in the same range. So I think that ASP answer we can give.

Regarding the subscriber gains or shifts, I think it’s really a wildcard right now. We’re really hoping that it would be a very meaningful one and very positive way for us, but we have no guidance, nor indication either way, I think this is very preliminary speak.

I think by the time that does settles, it’ll be a couple of quarters to get any more clarity as they bake their plans. So I don’t think we have any visibility right now..

So to your first question around the trends between last year and this year on the cable data side, as Kishore mentioned, the units are very consistent year on year. I’d say they’re a little bit more linear this year than they were last year.

Last year was a little more front end loaded, but the absolute number of units year on year, there is growth to the unit, but it’s single digit percentage unit growth. So again, as Kishore mentioned, most of the growth is coming from the conversion from the lower channel count to the higher channel count.

When it comes to the conversion opportunity, I think the best way to look at it and Kishore was getting to that point was if you look at a deployment into a home that is a satellite customer, you’ve got the outdoor unit opportunity on the roof of the house, whether it’s analog or digital.

You’ve got the full spectrum gateway front end, you’ve got the MoCA and you’ve got the IP client exposure. So you can take all of those pieces and the ASPs for all of those are in the same individual ballpark.

So there is really four pieces of technology in those ASP ranges that Kishore mentioned earlier and that can give you a flavor for the rough size of the dollar bomb opportunity per household that if it converted could represent the opportunity for us.

Of course, there could be mixes of market share within each one of those platforms amongst the other providers, but that should give you a pretty decent flavor. I think know roughly the size of the U-verse subscriber base that could ultimately transition overtime, certainly over a number of years.

But that can help you ballpark the size of the opportunity, the conversion opportunity..

Our next question comes from Alex Gauna with JMP Securities..

I wanted to ask about that last question just to confirm, you don’t have any material content, AT&T U-verse today.

Correct?.

It’s absolutely correct..

So then secondarily, Kishore, when you were talking earlier about some of the potential on the ODU as we go from analog to digital, I just wanted to clarify what you were saying. It seems to me like we’re really seeing a pick-up in digital right now.

Are we now in full deployment? And then I just want to make sure, is that in your mind going to be a smooth transition, or do we run into a risk because analog is so much bigger right now that if there’s a pause or a gap, is that a risk in your mind?.

Very good question, I don’t know to answer that question really, because it could go either ways. But I think I would answer the digital audio question a little bit, we’re not in a full rollout right now. It’s preliminary deployment phase. But you get – and there are multiple operators involved, remember that.

It’s not one, whereas the analog channel stacking revenue is concentrated primarily in one big guy and there multiple big guys.

So seeing the digital audio looking healthy and growing because the multiple operators are building inventory, starting to deploy via that analog channel stacking either with a smooth run rate that it used to be and so we’ll have to model it out.

So at one operator, you run the risk that you described out, Alex, like there is a pause in the analog in anticipation of building the digital out. But at the other operators, there is not that risk. So how does A plus B plus C play out, I’d be able not really plate that scenario.

But right now, we’re expecting those events not to happen until the middle of next year..

So the middle of next year is when digital channel stacking goes into full mass rollout..

And it impacts the analog channel stacking is my guess at a particular operator..

Are you winning both with your own developed channel stacking switch as well as Entropic or are you going to retire one and favor the other?.

So it turns out and I think we always maintain that and our solution, our organically developed solution prevail in all the consumer set of application for the dish at the home. However, there is an MDU application where in one particular operator, a big operator, we are supporting the Entropic solution, because of some attributes.

Otherwise, across the board, we have retired the Entropic solution for the outdoor unit. And only at one particular operator, very small volume MDU application because of the unique features for the MDU which we designed to our chip.

We are supporting the Entropic solution because at this operator, we have the home outdoor unit solution and they wanted support for their MDU application, so we said all right, we’re going to support that as well..

And earlier in the call, you said you’re planning your business for DTAs to ramp down or begin ramping down the back half of 2016. And maybe you are being too conservative, and they might last longer if you’re lucky.

How do you actually prepare yourself for that? And can you give us any insights into the product pipeline that might fill that gap that could potentially be created in the back half of next year?.

Right now the indications are not pessimistic, however – and we are really counting on revenue build coming from our fiber data center and long haul metro and high speed interconnect products. And I think in the script that was actually one of the shining ones that we referred [indiscernible] acquisition situation.

Actually, our products were drivers for long haul 100 gig, and that is doing incredibly well, it’s going very strongly. Right now, we’re in ensuring that we are able to supply the highest quality products. So we are internally constrained right now. That’s the great news there.

We did a number of products, whether TIA, the drivers that would drive a lot of revenue growth, provided we can resource it and make sure that we’re in smooth supply point. That’s one area. The other one is MoCA is going to grow strongly and we want to make – and that would help overcome any outcomes on the DTA that are unfavorable.

And the data itself should grow, because we’ll have transitioned fully to the higher channel count product and at the same time we have our new products on the analog components and the data platforms, the PGAs for cable, and on the satellite platforms we have our [indiscernible] conversion analog components.

So we’re relying on these organic products along with Entropic’s MoCA product to power us right through any negative outcome on the DTA. I shouldn’t forget to mention that the satellite gateway is also a lynchpin to that growth curve that we talk about. But if you sum it all up, we don’t expect to be ahead in growth.

The organic business will grow very strongly like they’ve always maintained in the past, about 20% plus growth rate. However, combined as a company, we expect that growth rate will really moderate and be the low teens, things currently are positive for us. That would be my commentary on.

Adam, do you have anything else to add on that?.

I think you touched on the main points. I think the other thing to mention, we did talk a little bit earlier about the opportunities for a more aggressive 32 channel count deployment scenario in 2016, particularly if DOCSIS 3.1 has any deployment and it delays. And if DOCSIS 3.1 deployment delays don’t happen, we benefit from that as well.

So we think there are some upside scenarios that could compensate from headwinds that could develop earlier than anticipated on the IP client side of things. So I think that’s really – and of course, we have other dials that we can turn. And as I said earlier when Tore asked his question, management is committed to our 20% operating model.

And so when you get a change in one part of the P&L, there’s other parts that you utilize to compensate for that. Of course, all this has to be balanced against making sure that we don’t sacrifice the real long term growth opportunities for the business. But we think we’ve got quite a few dials to work with here.

We don’t just have one or two to play with..

We’ll next go to Tore Svanberg with Stifel..

Just a follow-up.

Adam, what type of share count should we use in the September quarter?.

I think modeling somewhere around 62 million is the right place to be..

And then one last one for Kishore. Kishore, I know one of your competitors is in the process of being acquired. I assume that’s not having any impact on business near-term.

But just thinking longer-term, especially when it comes to platforms and things like that, how should we think about the dynamics there?.

Very interesting question and I think that if you just look at the consolidating environment of suppliers and OEMs and where we’re positioned in the cable world, we think that we are crossing our fingers strategically and the distraction associated with that should help us positively, number one.

Number two, I think that this could build a great momentum for our networking solution opportunities in MoCA.

And if you really look at all the chatter around platforms, in the operator broadband platforms, you can see that we’ll have opportunities to differentiate in the platform that are great growth opportunities for us, but not necessarily has interest for a gigantically sized competitor consolidation.

So I think all in all, we see this to be positive for us, we’re having tremendous conversations with operators now.

They are really, really coming to us and I’m quite stunned, they don’t look at us anymore as just a pure front-end company, we also are looking for us to solve their networking challenges with over the top content distribution inside the home as well.

So I think strategically, is it really, really great for us and I don’t know when this will start factoring into revenues, but definitely on the company’s growth horizon, this has to matter.

We are hopeful that we can start sharing more and more of those collaborations and joint partnership, true partnership with operators in the way we announce a product in the first half of next year related to the networking products. So I think that’s where you’ll start seeing the effects of these consolidations..

And it does conclude our question-and-answer session for today. So I’d now turn the call back over to Kishore Seendripu for any additional or closing remarks..

Thank you, operator. As a reminder, we will be participating in the ROTH Capital Datacenter Corporate Access Day on September 9 in San Francisco and the Deutsche Bank Technology Conference on September 17 in Las Vegas, where we hope to see many of you.

We thank you all for joining us today, and we look forward to reporting further progress to you in the next quarter. Thank you very much..

Thank you for your participation. This does conclude today’s call..