Gideon Massey - IR Kishore Seendripu - Co-Founder, Chairman, CEO and President Adam Spice - CFO and VP.

Tore Svanberg - Stifel, Nicolaus & Company Ross Seymore - Deutsche Bank Brian Alger - Roth Capital Partners Christopher Rolland - Susquehanna Financial Group Quinn Bolton - Needham & Company Anil Doradla - William Blair & Company.

Welcome to the MaxLinear 2017 Q1 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Gideon Massey. Thank you. You may begin..

Thank you, Operator. Good afternoon, everyone and thank you for joining us on today's conference call to discuss MaxLinear's First Quarter 2017 financial results. Today's conference call is being hosted by, Dr. Kishore Seendripu, CEO; and Adam Spice, CFO.

During the course of today's conference call, we will discuss our financial performance and review our business activities for the first quarter, specifically the recently closed acquisition of Marvell's G.hn business and the anticipated tender offer close of Exar Corporation. After our prepared comments, we will take questions.

Our comments today will include various forward-looking statements within the meaning of applicable security laws, including, without limitation, statements relating to our current projections, forecasts and expectations with respect to second quarter 2017 revenues and revenue contribution from key product markets, as well as gross profit percentage and operating expenses on a GAAP and non-GAAP basis; the potential impact on our business of recently completed acquisitions; the anticipated closing of our acquisition of Exar and any acquisitions we may pursue into future and our current views regarding opportunities and trends in our market, including our current views of the potential for growth in each of our target markets.

These projections, expectations and other forward-looking statements involve substantial risk and uncertainties in our current -- and our actual results may differ materially from currently forecasted results.

Risks potentially affecting these statements in our business generally include risk related to the closing of Exar Corporation and substantial integration challenges we may face that could affect our ability to realize currently anticipated synergies.

Substantial competition in our markets, in particular, from increasingly large players as our industry consolidates; potentially declines in average selling prices and factors that could adversely affect our operating expenses, such as litigation, asset impairment or restructuring.

In addition, our target markets, including target markets we may pursue through acquisition or -- including our recent acquisition of Marvell's G.hn business and pending acquisitions of Exar, may not grow in the manner or at the rates we currently expect.

We face risks associated with consolidation trends in our operator markets and we face integration risk associated with acquisitions.

For a more detailed discussion of the risks and uncertainties potentially affecting the forward-looking statements we make today in our business generally, we encourage investors to review the sections captioned Risk Factors in our quarterly report on Form 10-Q which we expect to file shortly and our annual report on Form 10-K for the year ended December 31, 2016 which we filed on February 9, 2017.

Any 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 2017 earnings release is available in the Investor Relations section of our website at maxlinear.com.

In addition, we report certain historical financial metrics including gross margin, operating expenses, net income or loss and net income or loss per share on both a GAAP and non-GAAP basis. Our non-GAAP presentation excludes certain expense items as discussed in detail in the press release available on our website.

The press release available on our website also includes a reconciliation of our GAAP and non-GAAP presentations which we encourage investors to review. It is not our intent that the non-GAAP financial measures discussed today replace the presentation of MaxLinear GAAP financial results.

We're providing this information to enable investors to perform more meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations in a manner similar to management's analysis of our business.

We do not provide a reconciliation for forward-looking non-GAAP gross margin and operating expense guidance which excludes estimates for stock-based compensation expense, bonus accruals, acquisition-related expenses and restructuring charges. Each of these expense items is explained in greater detail in the press release.

The timing and amounts of these future expenses which we would need to provide a reconciliation of non-GAAP margin and operating expense guidance are inherently unpredictable or outside our control to predict. Accordingly, we cannot provide a quantitative reconciliation of forward-looking non-GAAP estimates without unreasonable effort.

Material changes to any of these items could have a significant effect on our guidance and future GAAP results. Lastly, this call is being webcast and a replay will be available for 2 weeks. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear..

Thank you, Gideon and good afternoon, everyone. Thank you all for joining us today. Before delving into the financial details, we're very excited to report that Q1 2017 represents MaxLinear's return to sequential revenue growth. Our Q1 2017 revenue was $88.8 million which is about the midpoint of our prior guidance.

We also continue to follow through and make significant progress on our strategic goals of diversifying and expanding our served addressable market.

The close of our acquisition of Marvell's G.hn business on April 5, the anticipated close of our tender offer for Exar Corporation on May 11 and the strong design win and technical milestone achievements around our organic broadband and infrastructure development initiatives, together attest to the rapid progress we have made on our strategy.

In terms of organic development, we're very excited about our progress towards securing key OEM design wins for our PAM-4 100 gigabit per lambda solution. Our PAM-4 solution will be used for optical high speed interconnects in next generation 400 gigabits per second hyper scale data center applications.

This will be an important driver of MaxLinear's revenue growth starting in the second half of 2018. We also recorded our first MoCA 2.1 revenue contribution from a large Tier 1 telco operator in North America. This is an important milestone for our MoCA connectivity market penetration beyond the existing cable and satellite operator markets.

We also commenced initial shipments of our technology leading microwave backhaul CMOS RF transceiver solution spanning 5 gigahertz to 45 gigahertz wireless carrier spectrum. We're resolutely pursuing opportunities to expand our CMOS analog and mixed-signal footprint in our existing broadband operator platform.

At the same time, we're expanding into the large and growing optical interconnect and wireless infrastructure markets. Our twin strategic goals of, one, expanding our footprint in MaxLinear's existing broadband platforms; and two, going into large, high-value infrastructure markets, will be greatly advanced by the acquisition of Exar Corporation.

In addition, Exar brings with it broad and strategic end market diversification into the large industrial and automotive market. At the same time, it strengthens and expands our analog and mixed-signal platform offering in MaxLinear's core markets, with the addition of Exar's proven interface and power management solutions and capabilities.

The combination of these organic and inorganic initiatives increases our confidence in our ability to continue to grow and diversify our revenues. We're also well positioned to become a leader in the high performance analog and mixed signal market. Moving on to our Q1 2017 results.

Our revenue of $88.8 million in Q1 of 2017 was in line with prior guidance, up 2% sequentially and down 30% year-over-year owing to the previously anticipated declines of Entropic end of life satellite analog channel stacking and video SoC products.

I'm very excited with our return to sequential top line growth even as we navigate through the tail end of the declines from our legacy Entropic products. Our return to sequential growth validates our strategy of diversification of revenues across large high-value end markets, consisting of broadband access and communications infrastructure.

In the first quarter, we saw strength across cable, operated terrestrial set-top box, MoCA-based c.Link wireline active infrastructure and 4G wireless carrier access. These revenue strengths overcame declines at satellite outdoor units, long-haul metro optical interconnect and wireless backhaul revenues.

Now moving to the specifics of our business highlights for the first quarter of 2017. Within operator, we see continued strength in our cable data business as we benefit from our strategy of offering our broadband operator customers an expanded portfolio of cohesive platform solutions.

We continue to expand our footprint and value to our customers with our cohesive platform offerings. These include our recently acquired G.hn portfolio, our first post Entropic developed 1 gigabit plus MoCA 2.1 solution which is now being deployed by a Tier 1 telco operator and our cable PGA companion devices.

There continue to be exciting technology expansion opportunities in broadband, such as our upcoming MoCA 2.5 solution which is capable of 3 gigabits per second connectivity speeds. This product's on track to ramp late in the second half of 2017.

Our recently acquired G.hn connectivity and access products, combined with the MoCA-based portfolio, enable us to broadly serve wireline access and broadband connected home applications regardless of the wireline medium. We expect these products will prove to be meaningful revenue contributors to the rest of 2017.

I am pleased to note that the integration of Marvell's G.hn business is proceeding quite smoothly. We're excited by the quality of the team and the deep customer engagements, particularly with large international telcos. We're currently at the very early stages of deployments of our next-generation G.hn wave 2 technology.

We expect our G.hn business to grow strongly through the second half of 2017 and into 2018, albeit off a small base.

Moving to our infrastructure and other business, we experienced weakness in high-speed fiber interconnect revenues, owing to the impact of the weak unit growth in the Chinese market coupled with the ASP reductions we have offered to our customers in January.

Despite the weak macro environment, we're encouraged by our emerging fiber revenue diversification due to the strong customer traction for our 2 trans-impedence amplifier or TIA devices, one servicing the 4 by 2,500 gigabit NRZ data center market and the other addressing 30 kilometer LR 4 telco application.

As mentioned earlier, we're extremely excited by the progress made towards securing our initial Tier 1 OEM design wins for our 400 gigabit PAM-4 data center interconnect solution.

While we're gaining confidence in both our product expansion initiative and their competitive position, in the near term, we're not immune to the headwinds from China which has been commented on by several of our peers.

However, we're benefiting from our end market revenue diversification strategy as we continue to invest in R&D to gain competitive advantage in fiber, even in the face of weak China telco fiber deployments.

In Q1 2017, within our wireless infrastructure, wireless access experienced meaningful sequential revenue growth which was offset by a step back in microwave backhaul following an unexpectedly strong Q4. We're excited about the near term and long term prospects for both our wireless access and microwave backhaul initiatives.

Both are poised to be significant drivers of our infrastructure revenue growth in 2017. Our organically developed microwave backhaul CMOS RF transceiver spanning 5 to 45 gigahertz of carrier spectrum recorded its first meaningful revenue in Q1 2017. We expect to see this product ramp at several large OEMs starting in late to second half 2017.

Given customer engagements and design wins on both the microwave modem and the RF transceiver, combined with the growth potential for our 5G RF transceiver organic development initiative, will enable us to become a leading full platform technology provider in the large and evolving wireless infrastructure market.

We also saw strong sequential growth for our MoCA-based c.Link wireline access solutions. Our MoCA-based c.Link products are being used in last mile high-speed data access and distribution deployments by several Chinese cable MSOs. The recent addition of Marvell's G.hn access solutions further expands our opportunity in this addressable market.

Before I turn the call over to Adam Spice, our Chief Financial Officer, I would like to reiterate that we're extremely pleased to have delivered a strong first quarter with the return to sequential growth in revenue and continued strong cash flow generation.

We're pleased with the increasing diversification of our revenue streams across broadband access and wired and wireless infrastructure. This diversification will be further enhanced with the addition of high-performance analog products, consisting of BOM management enterprise solution through the acquisition of Exar.

We anticipate a tender offer for the acquisition of Exar to close later this week. As we navigate through the rest of 2017, we're excited about our product expansion, strong customer and end market diversification potential and the sustainability of our core broadband infrastructure technology platform.

We look forward to sharing more information regarding the progress of our development initiative in the coming months. Now let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, for a review of the financials and our forward guidance..

Right. Thank you, Kishore. I will first review our Q1 2017 results and then briefly discuss our outlook for Q2 2017. As Kishore noted, our Q1 revenue was $88.8 million, up 2% sequentially, consistent with our guidance. Operator revenues increased 6% sequentially and account for 82% of total revenue in the quarter.

Within operator, we witnessed particular strength in DOCSIS 3.0 24-channel RF receiver SoCs and companion PGAs, an increase in terrestrial receiver shipments to a South American operator as well as seasonal sequential strength in cable video shipments.

Within satellite, growth was driven by 4K gateway front ends, while channel stacking outdoor unit shipments were down, due in large part to continued declines in legacy analog products.

Legacy video SoC revenues derived from the Entropic acquisition came in at a sequentially flat $2.2 million, at the high-end of our expectations or 2% of total revenues. We continue to expect the legacy video SoC business to be at a negligible 1% of our total revenues in 2017. Moving to our infrastructure and other products.

Revenues declined approximately 14% and accounted for roughly 18% of total revenue in the quarter. Within this mix, we witnessed strong sequential growth in wireless access as well as growth in c.Link wireline broadband access in China.

These areas of growth were more than offset by seasonal softness in the consumer TV and set-top box platforms as well as sequential declines in high-speed fiber interconnect and wireless backhaul for reasons referenced earlier in the call by Kishore.

GAAP and non-GAAP gross margins for the first quarter were approximately 59.6% and 62.7% of revenue, respectively, in line with our prior guidance of 60% for GAAP and above our prior guidance of 62% for non-GAAP gross margin.

The upside to non-GAAP gross margin guidance was primarily driven by incremental supply chain cost savings, offsetting the impact of the lower margin terrestrial receiver shipments into a Latin American operator in the quarter.

This compares to GAAP and non-GAAP gross margin of 57.8% and 53.9%, respectively, in the fourth quarter of 2016 and GAAP and non-GAAP gross margin of 59.6% and 61.3% respectively, in the year-ago quarter.

The delta between GAAP and non-GAAP gross margins in the first quarter was primarily acquisition related, reflecting the amortization of $2.7 million of purchased intangible assets and a lesser $100,000 of stock-based compensation and stock-based bonus accruals.

Q1 GAAP operating expenses were approximately $42.5 million which was $1.5 million above guidance, with the overage primarily related to higher acquisition and integration cost that could not be estimated at the time of guidance, partially offset by lower payroll, consulting, prototyping and patent-related spending.

GAAP operating expenses included stock-based compensation and accruals to our stock-based bonus plan of $5.4 million and $1.5 million, respectively, $3.4 million for acquisition and integration costs, $2 million for the amortization of purchased intangible assets and $100,000 for IP litigation costs related to previously disclosed Cresta Tech litigation matter.

Payouts under our 2017 bonus performance bonus plan, if earned, are expected to be settled primarily in shares of MaxLinear stock which are expected to be issued in Q1 2018.

Net of these items, non-GAAP OpEx was $30.1 million which was $900,000 below our prior guidance of $31 million, flat to Q4 2016 and up approximately $600,000 from the year-ago quarter.

First GAAP OpEx -- sorry, first quarter GAAP OpEx attributable to R&D was down approximately $200,000 quarter-on quarter and up approximately $100,000 year-on-year to $23.9 million which included stock based compensation of $3.5 million, $1 million related to 2017 stock-based bonus plan accruals and $100,000 of amortized purchased intangibles.

Excluding these items, first quarter non-GAAP R&D was up slightly quarter-on quarter and up approximately $300,000 year-on-year to $19.3 million.

Within the roughly flat sequential R&D spend, there was $400,000 in higher payroll related expenses, largely owing to the sequential -- sorry, the seasonal payroll tax reset and $200,000 in higher design tools expenses which were largely offset by sequential reductions of $600,000 in prototyping and other project related spending.

First quarter GAAP OpEx attributable to SG&A was up approximately $1.9 million quarter-on quarter and up $5 million in the year-ago quarter to $18.6 million.

GAAP SG&A expenses included $3.4 million in acquisition and integration costs primarily related to the closing of our acquisition of Marvell's G.hn business in early April and our planned acquisition of Exar Corporation.

GAAP SG&A expenses also included $1.9 million for the amortization of acquired intangible assets, $1.9 million in stock-based compensation, $600,000 of stock-based bonus plan accruals and $100,000 for IP litigation costs.

Excluding these items, first quarter non-GAAP SG&A was down slightly quarter-on quarter and up $300,000 from the year-ago quarter to $10.7 million.

Rounding out our commentary on operating expenses, at the end of the first quarter 2017, our headcount was 548 compared to 553 at the end of the fourth quarter of 2016 and 506 at the end of the first quarter of 2016.

We continue to evaluate our staffing levels globally, particularly following our recent acquisition activity, to strike a balance between driving near term operating leverage and staffing key long term growth initiatives.

GAAP income from operations in the first quarter was $10.4 million compared to $8.3 million in the prior quarter and $21.7 million in the first quarter of 2016. GAAP earnings per share in the first quarter were $0.12 on fully diluted shares outstanding of 69.1 million.

This compares to GAAP EPS of $0.12 in the prior quarter and $0.31 per share in the first quarter of 2016. Non-GAAP income from operations was $25.6 million in Q1 compared to income from operations of $25.7 million in the prior quarter and $33.4 million in Q1 of last year.

Non-GAAP earnings per share in the first quarter were $0.33 on fully diluted shares of 69.1 million compared to $0.38 per share in Q4 of 2016 and $0.49 per share in Q1 2016. Moving to the balance sheet and cash flow statement.

Our cash, cash equivalents, restricted cash and investments balance increased $18.1 million in the quarter to approximately $154.9 million and decreased $12 million as compared to the $166.8 million in Q1 of last year.

Our cash flow from operations in the first quarter 2017 was approximately $22.7 million versus the $27.6 million generated in the fourth quarter of 2016 and the $39 million in the year-ago quarter.

Our day sales outstanding for the first quarter was approximately 59 days or 6 days more than the prior quarter and 22 days more than the year-ago quarter.

The increase in days sales outstanding is primarily a function of changes in shipping linearity, as well as a general lengthening of payment terms granted to some of our largest creditworthy direct customers.

As a reminder, we only recognize revenue on a sell-through basis and such, we're not subject to revenue fluctuations caused by changes in distributor inventory levels. Our inventory turns were 4.9 in the first quarter compared to 5 turns in the fourth quarter and 5.4 turns in the year-ago quarter. That leads me to our guidance.

Because we're still in the formal tender offer process, we believe it's prudent to exclude any Exar contributions from our guidance. Pending a successful tender offer and closing, we do plan to provide a combined business update shortly after closing.

Excluding any contributions from Exar, we expect revenue in the second quarter of 2017 to be in the range of $90 million to $94 million. Built in this range, we expect operator revenues to account for roughly 79% of overall revenue and contributions from infrastructure and other to represent the remaining 21%.

More specifically, within operator, we expect growth to be driven primarily by strength across our cable data, satellite digital outdoor unit and broadband connectivity products, partially offset by declines in our residual Entropic legacy satellite stacking and video SoC revenues which we expect to contribute approximately $4 million in the quarter versus contributing approximately $9 million in the Q1 2017 quarter.

Since the legacy video SoC revenue largely supports operator applications, we're including this portion of revenue in operator revenues. Within infrastructure and other, we expect growth from both microwave backhaul and wireline access, with wireline growth derived from both c.Link and G.hn broadband access solutions.

These areas of infrastructure strength are anticipated to be only partially offset by a small step back in wireless access after a strong first quarter and flatness across high-speed optical interconnect and consumer TV applications. That leads me to the remainder of our Q2 2017 guidance.

We expect GAAP gross profit margin, excluding Exar, to be approximately 58% to 59% of revenue and non-GAAP gross profit margins to be approximately 62.5% to 63% of revenue.

The expected sequential decline in GAAP gross margin is primarily due to inventory step ups and amortization of purchased intangible assets related to the closing of our acquisition of Marvell's G.hn business. As a reminder, our gross profit margin percentage forecast could vary plus or minus 2%, depending on product mix and other factors.

We continue to fund strategic development programs targeted at delivering attractive top line growth as we look forward to the second half of 2017 and beyond, with a particular focus on infrastructure initiatives and our goal of increasing the operating leverage in the business.

We expect Q2 2017 GAAP operating expenses to increase approximately $4.5 million quarter-on quarter to approximately $47 million, with the largest increases coming from the amortization of purchased intangibles, headcount additions related to our G.hn acquisition, tape-outs and other project related expenses that were pushed out from Q1.

We expect that Q2 2017 non-GAAP operating expenses will increase approximately $2.5 million sequentially to $32.5 million, driven by the earlier referenced items, excluding the amortization of purchased intangibles.

In closing, we're pleased to report a very busy and eventful Q1 2017, one in which we returned in the quarter to sequential revenue growth while executing on several corporate development projects and organic growth initiatives that should lead to strong future revenue growth and diversification of our product portfolio.

Our pre-closing Exar integration efforts are progressing well and we're encouraged by Exar's March quarter results, published separately today, as highlighted by the 480 basis point and 330 basis point improvements in GAAP and non-GAAP gross margins to 54.2% and 56.7%, respectively.

We remain confident that the Exar and Marvell G.hn acquisitions, combined with the organic initiatives Kishore highlighted earlier will uniquely position MaxLinear shareholders to benefit from the growing demand for broadband across consumer, broadband industrial and network infrastructure platforms.

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

Operator?.

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

Congratulations on the execution in a very busy quarter. First question, could you just talk a little bit more about your infrastructure business, kind of, for the whole year? I know you can't give guidance, but just sort of some of the moving parts.

It sounds like c.Link now is really starting to become more material which I think is a bit of a positive surprise. Obviously, got the new products and new customers and the high speed interconnect business.

How should we just think about how the infrastructure revenue plays out for the whole year, with some of these moving parts?.

Tore, this is Adam. So, yes, I mean, we're encouraged by what we're seeing in our infrastructure business. It's obviously expanding from a footprint, pretty aggressively. I think, based on the guidance we just provided, obviously, we're pointing to a pretty strong growth sequentially from Q1 to Q2.

And I think, probably the most encouraging thing, as I mentioned a little bit earlier, was just the breadth across which we're now realizing these revenues.

It's not just one area that we have 2 different flavors of access, wireline access across MoCA and the G.hn, actually c.Link and G.hn, in addition to wireless backhaul, the microwave backhaul and the wireless access for the 3G and 4G infrastructure markets.

Obviously, the optical interconnect markets which have not only expanded from our 100 gig laser driver to also adding the TIAs that are starting to ramp, as Kishore mentioned in his commentary.

And then also, when Kishore mentioned kind of the encouraging signs that we're seeing on the customer engagement front for our 400 gig solution for the hyper scale market. So I think that you're seeing a very, very rapidly evolving and diversifying infrastructure platform for MaxLinear.

And again, I think you're starting to see the results of that come through not only just in the development initiatives, but also on the revenue fall-through, because again, we're looking at a pretty exciting Q1 to Q2 on the infrastructure ramp side..

Very good. And as my follow-up question, you mentioned that the legacy revenue would be about $4 million in the June quarter. I -- my math, sort of works, maybe legacy video SoC, about $2 million and analog channels which are $2 million. I think you said the outdoor revenue would actually be up sequentially.

So does that mean you're starting to see growth again in the digital part of the outdoor market? And should we think of this $4 million kind of being the baseline, going forward? Or will it probably continue to come down in the second half of the year?.

Yes, so the -- right now, we're looking at growth in our digital channel stacking product, Q1 to Q2, pretty significant growth, actually, Q1 to Q2, so that's encouraging and then the, just the continued decline, as expected on the analog channel-stacking side of things. It was towards the high end of our range for Q1.

We said $5 million to $7 million, it came closer to $7 million for the analog channel-stacking contribution in Q1. That will drop below $4 million in the Q2 period. So we're seeing pretty significant drop off as expected, Q1 to Q2, off a higher base in Q1.

But then again, as I mentioned, the growth in the going forward business which is the digital channel stacking actually, looks encouraging sequentially, Q1 and Q2. So overall, I think you look across channel stacking, Q1 and Q2, it's more flat than growing.

It's really, but it's just -- the mix is changing because analog's declining aggressively while Digital grows aggressively to backfill that hole..

Our next question comes from Ross Seymore with Deutsche Bank..

Just wanted to dig in a little bit into the operator side of things.

In the sequential drop as a percentage of revenues, is it and forgive me if I'm just not doing the math as fast as Tore just did, but if the analog channel-stacking side was flat, what's the headwind in the operator side going into the June quarter? And as we think about that business throughout the year, talk a little bit about DOCSIS 3.1 and when that comes in and how you expect it to contribute to your revenues?.

So Ross, just to clarify, so -- again, when I said, the analog is actually declining and the digital is growing in the channel stacking. So you've got, a, call it a, almost a $3 million decline sequentially in the -- and expected in the analog channel stacking. And then you've got growth of approximately that much to offset that on the digital side.

So think of channel stacking as roughly flat sequentially, but with analog declining and digital growing to offset it..

The DOCSIS 3.1 side?.

No, no. I'm talking about the satellite channel stacking, just --.

The second part of my question, it's -- sorry, Adam..

Okay, second part of the question. So on the DOCSIS side, we're looking at -- consistent with prior years, the first half is looking very good for our DOCSIS business. I think that we're seeing growth in units. I think the content increases from the companion PGA attach rate is helping out quite a bit as well to provide a full platform solution.

Yes, no, I think the first half of 2017 is playing out pretty much as we have expected it from the strength on the cable DOCSIS side..

I guess as a my follow-up, Adam, you talked about OpEx going up a little bit.

You folded in one acquisition and I realized this is all going to change within a short period of time when Exar comes into the fold, but from what you have now with the G.hn side of things, from that $32.5 million OpEx that you just guided to, what would we think about that going forward? Is that the new run rate? Is there synergy opportunities below that? How should we consider OpEx through the rest of the year?.

I think you've found -- when we've had a bunch of acquisition activity like we did in 2016 and 2017 is certainly set off to be no different, in fact, maybe more so, we continue to get synergies as we progress through the year. So I would say it's too early to really say what the, certainly what the second half of OpEx is going to look like.

Again, like you said, it's going to change quite a bit once we move Exar into the fold.

But if you kind of look at MaxLinear's organic business excluding Exar, so like the organic, let's say pre-Exar MaxLinear, I think that $32.5 million is a pretty good proxy for the run rate of our -- of that existing pre-Exar business, because we had a little bit of a step up in Q2 related to some pushouts and tape outs that were going to happen in Q1, pushed into Q2.

But net-net, I think when we entered the year, before we contemplated doing the G.hn acquisition, we were saying that OpEx could kind of range anywhere between, at the low point, could be as low as $29 million, at the high point could be as high as $32 million. And that was kind of a $3 million BOM that we put on any quarter of non-GAAP OpEx.

And so this puts us just a little bit above that high end of that range and again that range didn't anticipate doing this deal which if you look at the expenses related to the Marvell G.hn acquisition, it adds about, call it, $1.5 million of run rate per quarter OpEx.

So you can imagine, if you kind of excluded that from the guidance we just gave for Q2 that would put us more like $31 million which again, would still have been well within that band of $29 million to $32 million. So I think right now, that $32.5 million feels about right, kind of a new level.

Hopefully we continue to get more operational synergies as we progress through the year. I think we've got a history of showing that. But that's -- I think that's a decent place to think of our OpEx excluding Exar on a quarterly basis for the remainder of the year..

Our next question comes from Brian Alger with Roth Capital Partners..

Just curious as the commentary about China, obviously, there's a little bit of exposure there. It seems that, that should be de minimis though, given everything else that's going on within the infrastructure business for us.

Can you maybe characterize the sensitivity that you guys have to that market slowdown?.

Brian, this is Kishore. For us, I think this is -- what's happened in China is a validation of a company that's focused on diversifying revenues across various different infrastructure platforms. All of them are growth platforms in the longer term on a secular basis.

So you saw that there were a number of areas that we grew very nicely, that nicely overcame the declines in fiber in some of the areas. So if we're really pleased that they returned to the sequential growth even in the face of declines in fiber.

Coming to the question of what our sensitivity to the fiber revenues, I want to give you a little bit of an overview, our infrastructure revenues.

Today, all the infrastructure components of our revenue, whether it's wireless, backhaul, wireless access, high-speed interconnect which is another word for fiber and c.Link, G.hn access, each of those categories are in the teens for sure in some cases, in the $20 million plus range, it's very nicely diversified.

So with that commentary, we had begun this year saying that we will be in the revenue range around $25 million and above, maybe as high as $30 million, but given the -- what's happened in China over the first 2 quarters, we feel that the answer is somewhere below that, the $25 million, more like $20 million to $25 million if things occur quickly in Q3.

If they don't, then we're looking at the low side of the $20 million. That is the level of sensitivity we have in terms of the revenue contribution from fiber. Having said that, the second half we anticipate -- we got these high-performance linear TIAs. For the longest time, the market had only one supplier.

Now our product is being designed into various platforms at the various top layers of roses or ICRs. In the long haul, metro markets. I think that when this market recovers, we will definitely be in the pole position competing for those new socket that emerge.

So the TIAs are the most exciting part on the long-haul side for SB, the 32-gigabaud or 45-gigabaud or 64-gigabaud. And then, we have product offerings that are now just beginning to ship in the LR 4 markets for telcos. We're the first ones deploying that with the very new product.

And obviously, at the end of this year, by the end of this year, we'll be sampling our 400 gigabit single lambda, 100 gigabits per lambda, 400 gigabits solution for the hyper scale data centers. So all in all, fiber, what's happening in the Chinese market is a very de minimis impact for us.

Obviously, it subtracts on year-on-year comparisons, that we were going to show to be a pretty strong grower. However, our real growth comes from new products being launched in fiber and gaining more market share in new sockets, while the remaining parts of the company are growing pretty nicely..

I really appreciate the detailed explanation there. It certainly seems like the sensitivity to China is so much less than upside you have, coming from the TIAs as well as the data center side, so thanks again on that. I just have one follow-up.

The wireless backhaul infrastructure that we see coming down the pike for the 5G implementation, appears to be kind of the first phase or the early phase of the deployments.

Where are we -- where is MaxLinear positioned on that? And is that, that still something that's 2 or 3 quarters out before we see an inflection point or is there early signs that it's coming?.

So I think, really speaking, even today as we speak, our run rate revenues come from the 4G LTE markets and the wireless backhaul products associated with that. And as you know, wireless backhaul is really strongly prevalent outside the United States. It's the primary backhaul mechanism outside the U.S. and China markets.

So our growth is coming from those markets. They are sensitive to telco spending. And really, 5G should not impact how wireless backhaul plays out. It's got a steady stream and we're gaining market share and growing the position, both in the modem and we're deploying our RF transceiver.

When 5G happens, right, the real inflection point will come in millimeter wave backhaul, where we would like to deploy a lot more bandwidth and we have the right modem and radio parts for that market as well. And we've got, I would say, almost all of the Tier 1 designs and if not, substantially all of the designs in the marketplace.

So when that 5G happens, we would be in a very good position to benefit from it. I really think that the 5G market really turns the corner sometimes towards the end of next year in terms of meaningful revenues that are substantial in comparison to the microwave backhaul. So I don't see that happening anytime in the next 9 months or so.

It's the second half of 2018 is when you should start seeing some growth in the millimeter wave backhaul revenues..

Our next question comes from Chris Rolland with Susquehanna..

Kind of tying into your last comments, Kishore, I wonder if you had any thoughts on what seems like a bidding war for Straight Path. These guys are in the 28 and 39 gigahertz spectrum. And then also, given your kind of unique ability to address so many frequencies, perhaps you can talk about what you think your biggest opportunities are going to be.

Is it going to be in the kind of 60 gigahertz opportunity? Or do you think something more unique, like a 70 or 80 gigahertz to the millimeter wave stuff you're talking about might be a better market for you?.

So Chris, I cannot comment more about Straight Path. I'm not particularly aware of them.

Having said that, our products range all the way from 5 gigahertz to 45 gigahertz and then beyond that, the millimeter wave product range from -- the modem works across the frequency band from 45 gigahertz to 100 gigahertz, but the radio works between 50 to 80 gigahertz frequencies which is not ramped to production yet.

So I think we would be the only one that has a full system-level solution to address all the frequency regimes that the carriers may choose to deploy for what they call 5G. I want to remind you that 5G has 2 flavors. One flavor is 5G is below 6 gigahertz spectrum. Another flavor of 5G is in the 28 gigahertz and above spectrum.

And the first deployments of 5G will really be in the frequencies below 6 gigahertz, with lots of good coverage because of the nature of the frequency spectrum. And our initiatives in 5G, similar access would address these markets very, very well.

And I still feel the market will not turn the corner on 5G as we all think about is multigigabits per second data rates until the end of 2018 and then it ramps, probably into 2019. And we all know that the way the transition happens from 2G to 3G to 4G, it's been pretty choppy, let's put it that way.

So having said that, this is going to happen below 6 gigahertz first, that's the network deployment. The infrastructure already exists. Whereas for the one beyond 28 gigahertz, it would just be initially a point to point link and our modem and our radio chips will be very well positioned to address those..

Great and then a question for Adam on the gross margin side. Perhaps, Adam, you could talk a bit about kind of the exact supply chain cost savings you were talking about for some of the upside on the quarter.

And then quantify, maybe the drag from Brazil set-top box and maybe comment on other puts and takes as we think about the gross margin equation moving forward here..

Yes. I think -- I mean, the supply chain cost improvements that we got in Q1 were really just a continuation of what our group has -- our supply-chain group's been able to deliver over time.

I think, consistent with a lot of other groups I've worked with in the past, they tend not to give you everything upfront, that they think they can potentially get, so kind of under-commit and over-deliver and I think that's really what we saw in Q1 and it really came across the whole supply chain, whether it's the wafer side, with wafer cost reductions which is really a result of us being able to balance across a variety of foundries.

So we're not limited to one particular foundry. We gain leverage from being able to go across multiple foundries for all of our products, pretty much. And then of course, the team is relentless across, not only the supply-chain team but the engineering team, in getting test time reductions and really dialing in improvements on test time and yield.

So it's really kind of a team effort across supply chain and engineering and it's just something there, the team always seems to -- every time I think I've beaten the sand out of their forecast, they seem to have a bit more left.

So -- it was just consistent with prior quarters, I think you've seen from us -- we usually do a little bit better on gross margin, again, trying to under-commit and over-deliver.

When you look forward, I guess I'll address the second part of your question which is related to the Latin American operator set-top box lower margin contribution, we forecast that pretty well going into the quarter. And we said it was going to be a 2 quarter effect.

It was going to be, kind of we have more contribution in Q1 and Q2 from that particular design win that was shipping. That will tail off as we forecasted, in the second half of the year.

So as [indiscernible] to that, that natural drag on gross margin starts to erode as well as the increased mix from operator, again, gives us confidence that we're in a good gross margin range.

And we're always looking for more, but we think we're in a pretty good position now, having hopefully, set the low watermark in Q1 for gross margins for the year.

And then, as far as the, kind of the rest of the gross margin picture as we move forward, again, as we mix more and more towards infrastructure, that should be beneficial to the long term gross margin target. We said for quite some time that our corporate goal is to be in the 62% to 65% range.

Obviously, as we get more infrastructure, it should skew towards the high end of that range. But I really don't see, right now, I don't see anything significantly kind of north or even north of 63 points in our current line of sight for 2017.

Could that come into focus in 2018 and beyond? It absolutely should, but we -- it's still a little bit too far off to speculate on those kind of improvements..

One of the other challenges we're faced with as we integrate these acquisitions, they come with their own products. And it's very, very hard to rely on their gross margins that we see in the reports, in the -- preceding to our acquisition.

And with confidence, say that the variance on their COG is what we would treat accounting-wise variance as well, right? Those uncertainties really give us some pause before we could really give you more color.

And so I think that as these acquisitions create a little bit more uncertainty on the gross margin variant and this quarter was no different to some degree on that. So we're still assimilating variances that are associated with our microwave for a wireless access product that we acquired from Microsemi, for example and saving the backhaul case.

So I think that gross margins will get healthier. And as Adam said, we don't want to get ahead there without really getting on top of all the minutiae that comes in the variances in COGS..

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

I hate to rain kind of on the cable data parade, but I think almost every year since you guys have been public that you've seen strength in the first half, especially on a unit basis in the cable data modem market, you guys have typically seen seasonal softness, either in Q3, Q4.

Wondering what your thoughts are in terms of seasonal patterns in the cable data market this year, especially with the -- what now appears to be stronger than expected ramp of DOCSIS 3.1. Can that DOCSIS 3.1 ramp offset what otherwise might be normal seasonality in either Q3, Q4? Then I have a couple of follow-ups..

So hey, Quinn. Talking of parades, it did rain in California here. So it did rain on our parade. But having said that, the DOCSIS revenues are strong, but the really coming strong of DOCSIS 3.2 revenues, the 3.1 ramp is just starting and I would not yet blow the bugle here on DOCSIS 3.1 yet.

We hope and anticipate that DOCSIS 3.1 ramps strongly and we're very well positioned to benefit. So if there's upside coming in the second half that to buck the trend that we have talked about in the past or we have been subject to, 3.1 would be it in, a positive way. There is something else going on here when we talk about operator revenues.

In those same cable platforms, we're offering different content day. We offering our PGA ASP associated with their PGA amplifiers. And therefore, that's more ASP than we had before on both our 3.0 platforms, the new 3.0 platforms that have got designed in last year.

And then we've got MoCA flavors on these platforms and then there's also some retail flavors where G.hn is being deployed just slightly on the cable platform. So all in all, there's more ASP today on our platforms. It's incrementally growing as even on the existing 3.0 platforms.

So I think our real cable growth is coming from also ASP increase, while the trends on the telco seasonal behavior, we don't see why that would be any different, unless 3.1 takes off very strongly, because our ASP kind of helps us move ahead of that one as well..

Great. In your script, you seem to be a little bit more upbeat on the potential opportunity around your singular lambda PAM-4, saying that it feels like you're well positioned for several design wins. That seems much more upbeat than perhaps even LFC or the last quarter conference call.

Is there anything that has made you more upbeat about that market? Or is it really still status quo on that product?.

I was probably at upbeat then as well, but maybe I did a better job being quiet about it. So in the script, probably I could not resist revealing that. The reality is this, right, we were the newcomers coming into the market about 2 years ago.

With all our competitors bending their singular lambda something, right? And we said, we took an approach that doesn't make any sense in reducing the cost of ownership per gigabit of transmission. And so we leapt forward and invested in 100 gigabit per lambda.

Turns out there were a couple of other players who are investing in that and our latest intelligence tells us that they've fallen flat on their face in their executions. So suddenly, the traction is really in our direction and I'm taking my bets on MaxLinear that we do execute whatever what we say we will.

So that's why I'm feeling more upbeat because now the deck is completely clear to run the table on the design wins..

Great. Then just wanted to the come back to the c.Link business, I think, going back a couple of years from now, as part of Entropic, it seems like it was a sub $1 million a quarter kind of business, never seemed to get a lot of traction.

If I heard your comments, Kishore, I think you said it may now be a business that could be running close to $20 million a year. I just wanted to confirm that I heard you right. And if so, what's really driving the adoption of that c.Link technology, because MoCA over coaxis is, sorry, over Ethernet has been around for a while.

So what's driving the adoption now?.

I won't call it MoCA over Ethernet, but it's a c.Link access, a distribution to the multi-building unit, et cetera, what you call the last mile, if you will. What's really happened is, what we have done.

What we have done is we've really worked patiently with all the operators, debugged all their issues and their all kinds of compatibility issues, we put a lot of investment in fixing those issues and we also had to depopulate certain deployments that Entropic had, had in the Chinese market.

And so finally, we have cleared the deck for full compatibility, excellent interoperability for all of the c.Link access points on the cable for access solutions in the Chinese market.

So really putting a lot of money and it is not going to be -- I said it will be all of our components are in the teens, but definitely, it's a very growing part of our revenue. And we're quite excited about that part of it. And we look forward more of its growth, actually..

So Quinn, I'd put a little bit more specificity to it. So I think what you heard earlier was, between -- if you look at our wireline access part of infrastructure which goes across the G.hn acquired products from Marvell, plus our c.Link that came from Entropic, those 2 products together, as we exit 2017 will be on a north of $20 million run rate.

So if you look at wireline access on a run-rate basis exiting 2017, it'll be north of $20 million. Per year, not per quarter, per year..

Our next question comes from Anil Doradla with William Blair..

So Kishore, we see a lot of focus on this China and the optical. We saw you guys highlighting this before everyone else. And it's pretty bad out there.

So 2 questions here, will you be the first when it comes to be a leading indicator on the turnaround? And as we've seen in the past, over several years, whenever we get into these territories, a lot of irrational pricing kicks in. We've seen it with tuners. We've seen it in other things. Now granted, we're slightly different here.

But what makes you confident that we won't see some very irrational pricing?.

I never preclude the human ingenuity for irrational behavior. So I would say you're dead on, on that part of it. Having said that, now starts the real competition, right? For the markets are all going up, everybody is feeling all gung-ho about it, because of incumbencies and their shipping.

But now when the pause comes, the newcomers come in and they start staking out the position pretty nicely. So you'd have a new cast of characters at a table.

And we're really excited there's an opportunity, actually, because the market transitions from a limiting market to a linear markets in a big way and we've got all the best parts in the world that we're sampling today in TIA and drivers right now. So regarding being a leading indicator, no, we'll never be the leading indicator of great news.

We generally tend to be leading indicators of, what I call, unfavorable news so that you guys have all the information and we have the luxury to do it as a diversified revenue company. Our strategy is very clear.

We want to be highly diversified, high-value end market-focused revenue company and that affords us to really not focus on one part of our addressable market to drive the company's growth. So I believe that we feel we're honest people, but in all honesty, is helped by our circumstances as well..

Good. And as a quick follow-up, there's a lot of 5G deployments going on in India.

Were you -- did you guys participate through the Microsemi acquisition, some of the wireless infrastructure stuff? Where you part of any of those deployments?.

India leading 5G charge, that....

I mean 4G, sorry, 4G not 5G..

4G. No, most of our deployments of 4G access are in actually the United States. They go to a major Tier 1 player in Europe OEM and they are actually, for the most part, into the United States. So it's really good run rate business.

We also have some -- actually pretty -- but actually our access grew quite nicely and it's still growing because Japan is deploying some high bandwidth access solutions. Let's call it the Japanese version of 5G really, the low frequencies in the 3 gigahertz frequency band.

That's a unique band available in Japan and our solution's the only one that can address that part of the carrier spectrum, because the unique architecture, the EPM micro-semi engineers have designed and we're benefiting from that.

But yes, we're seeing growth for 5G in Japan, but most of our shipment revenues today is in 4G, in the United States, shipping through Europe and OEMs..

Our next question comes from Tore Svanberg with Stifel..

I just had two follow-ups, if you don't mind.

So with c.Link and also the MoCA 2.1 ramping second half of the year, does that mean that MoCA related revenue will actually be up in 2017?.

Let's see. We actually categorize MoCA as part of MoCA c.Link that's infrastructure. The other part is in the operator. Maybe Adam, you could answer that question..

Well, if look at across c.Link and MoCA CPE, yes, there will be, they will increase '16 to '17..

Very good. And Kishore, I was hoping you could just update us on MoCA 2.0 and the -- then MoCA user as a broadband backbone, just any data points, any design wins you have to suggest that, that market will actually indeed take place..

You know, we have the design wins. The deployments are slow. However, we did talk about a new telco in North America deploying our MoCA in the distribution elements of it. So they are using MoCA 2.0 in the -- not in the main gateway, but in the distribution side as both backbone element and in the client device.

That's being designed in and the revenues have started. However on the -- so it's MoCA 2.1, by the way, because it's a gigabit plus solution. 2.0 is a sub 1 gigabit which is about 800 megabits or so. So 2.1 is sort of -- it's got an important threshold, more than 1 gigabit of data.

And the next design phase, we'll actually implement MoCA 2.5 in the gateway we're working with them. We're hoping that ramps at the end of the year. So yes, there is progress being made, but it's actually being lead more by these new telco than our existing cable guys..

Ladies and gentlemen, we reached the end of the question as a session. I'd like to turn the call back over to Kishore Seendripu for closing comments..

Thank you, operator. As a reminder, we'll be participating in the Benchmark Company one-on-one conference in Chicago on June 1, the Stifel 2017 Technology, Internet and Media Conference in San Francisco on June 5 and the William Blair 37th Annual Growth Stock Conference in Chicago in June 13. We hope to see many of you there.

With that being said, we thank you all for joining us today and we look forward to reporting our progress to you in the next quarter..

This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation and have a great day..