Gideon Massey - Investor Relations Kishore Seendripu - Chief Executive Officer Adam Spice - Chief Financial Officer.

Gary Mobley - Benchmark Ross Seymore - Deutsche Bank Tore Svanberg - Stifel Christopher Rolland - Susquehanna Quinn Bolton - Needham & Company Anil Doradla - William Blair Tore Svanberg - Stifel.

Greetings, and welcome to MaxLinear 2017 Third Quarter Conference Call. [indiscernible] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Gideon Massey, Investor Relations. 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 third quarter 2017 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Adam Spice, CFO. After our prepared comments, we will take questions.

Our comments today include forward-looking statements within the meaning of applicable security laws, including statements related to our fourth quarter 2017 revenue, gross margin and operating expense guidance.

And current expectations with respect to the development of our business and target markets, including expectations concerning recent acquisitions. These forward-looking statements involve substantial risks and uncertainty, including risks arising from the competition, average selling price trends and numerous other risks outlined in our SEC filing.

Actual results may differ materially from currently forecasted results.

For a detailed discussion of the risk and uncertainty potentially affecting these forward-looking statements, we encourage investors to review the sections of our SEC filings captioned Risk Factors in our Form 10-K for the year ended December 31, 2016, our Form 10-Q for the quarter ended June 30, 2017, and the Form 10-Q we will file shortly for the quarter ended September 30, 2017.

Any forward-looking statements are made as of today and MaxLinear has no obligation to update or revise any forward-looking statements. The third 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 margins, operating expenses, net income or loss and net income or loss per share on both GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP to non-GAAP presentation in the press release available on our website.

We do not provide a reconciliation of non-GAAP guidance for the future periods because of the inherent uncertainties associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects.

Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear's GAAP financial results. We're providing this information to enable investors to perform more meaningful comparison of our operating results in a manner similar to management's analysis of our business.

Lastly, this call is being webcast and a replay will be available on our website for 2 weeks. And now let me turn the call over to Adam Spice, CFO of MaxLinear, who will present the prepared remarks today, as Kishore Seendripu is recovering from a cold that has affected his voice. So we'll save Kishore for the Q&A portion of the call.

Adam?.

Thank you, Gideon, and good afternoon, everyone. Thank you all for joining us today. We're pleased to report record Q3 2017 revenue of $113.6 million, which was up 9% sequentially and up 18% year-over-year.

We saw strength in our c.Link and G.Now last mile wireline access infrastructure products, sequential growth across our portfolio of satellite gateway and cable video set-top box platforms and we benefited from a full quarter of Exar revenue contribution.

Encouragingly, in Q3 2017, we also experienced resumption of growth in our high-speed optical interconnect products. Our product gross margins were strong at about 60 basis points and 150 basis points above our GAAP and non-GAAP guidance.

Our Q3 non-GAAP OpEx was about $3.1 million below guidance and is primarily attributable to strong Exar-related OpEx synergies that are well ahead of our projections stated at the time of the acquisition. As a result, cash flow from operations was at a record $37.7 million.

We are pleased with these results, especially given the seasonal weakness in our connected home business, weak optical long-haul and metro infrastructure macro spend in China and the sharp roll-off of our legacy Entropic satellite analog ODU and video SoC revenues.

We are steadily transforming into a diversified communications technology leader across data and media with one of the broadest and deepest analog in mixed-signal portfolios in the industry. As a company, we are focused on solving the most complex, high-speed data challenges in the cloud and at home.

We're in the technology forefront of solving data speed and capacity bottlenecks across telecom and wireless carrier networks inside and between data centers and into and throughout the home. Our continued success in our end market diversification efforts is reflected in our Q3 revenues.

Connected home was 58%, infrastructure was 21% and industrial and multimarket was about 21% of overall revenue. Moving on to some of the third quarter's notable business highlights.

Our connected home revenues decreased 17% sequentially, primarily due to the seasonality in our broadband operator revenues and an almost $5 million adverse sequential impact from the last of the roll-offs of the Entropic end-of-life analog channel-stacking and video SoC products.

Despite the normal seasonality in cable data, it registered solid year-on-year growth and continued to serve as a foundation for our broadband business. Within satellite, there was relative strength in European 4K gateway deployments.

And within connectivity, MoCA revenue was down after a strong Q2, while G.hn products continued to grow, albeit from a smaller base. Also of note, we recently announced the partnership with Corinex to create a broadband utility infrastructure solution based on our G.hn powerline technology.

It will be used in smart metering and other smart grid applications, for which there is strong collaborative interest from European utility companies. In connected home, we see a stable DOCSIS 3.0 deployment environment. While delayed, there is now definitive momentum for DOCSIS 3.1 deployment entering 2018 and beyond.

Cable data standards DOCSIS 3.0 and 3.1 are seamlessly compatible with next-generation deployments of cable Full Duplex or FDX data technology. Using DOCSIS FDX technology, cable operators will be able to deliver up to 10 gigabits per second data throughput to the home CPU devices over existing coax cable.

FDX easily matches or exceeds existing symmetric fiber deployments. In this regard, the DOCSIS 3.1 FDX transition represents an exciting investment opportunity for MaxLinear's entry into cable infrastructure.

Specifically, our Full Duplex remote PHY device targeting cable optical fiber nodes in the cable infrastructure market is scheduled to sample in the first half of 2018. We are in the forefront of customer and operating engagements for validating our multi-year investment strategy.

Our infrastructure revenues increased 54% sequentially, also influenced by a full quarter of Exar. Our wireless infrastructure 4G backhaul and access revenues were flat, with strength in Europe being offset by a pause in China.

We have several new major Tier 1 wireless OEM designs in progress for our 5 to 45 gigahertz CMOS single-chip microwave backhaul RF transceiver. We expect revenues from these design wins to ramp throughout 2018 and into 2019.

We were also currently sampling a new microwave wireless multi-gigabit modem chip for 5G network backhaul and front-haul applications. Additionally, we have secured key Tier 1 wireless OEM development partners for a massive MIMO, CMOS, wireless access radio solution targeting 5G macro base stations and 5G active antenna array systems.

Together, our wireless access and backhaul solutions address an extremely large and growing TAM for 5G will be a significant multiyear revenue growth driver.

Within infrastructure, our high-speed optical business was up nearly 50% from its Q2 lows, with a return to growth in long-haul and metro laser drivers and the continuing ramp of our TIA products. We recently successfully taped out our first 400-gig PAM-4 device, which will start sampling in Q1 2018.

Our 400-gigabit per second PAM-4 DSP plus integrated driver and TIA platform will provide us a leadership role in addressing the next major inside the data center upgrade cycle for data speed and capacity.

In the long-haul and metro optical market, we've continued to broaden our portfolio with new offerings of high-performance 32-gigabyte, 45-gigabyte and 64-gigabyte TIAs and drivers for coherent 100-, 200-, 400- and 600-gigabit networks, and in the future, up to 1-terabit speed solutions.

We are increasingly gaining traction in securing customer design wins relative to our competition in the optical market. Lastly, our industrial and multimarket revenues increased 154% sequentially, driven primarily by a full quarter contribution from Exar. Here, our force-touch edge sense technology and smartphones led the way.

This was followed by a strong growth from our distribution channel for our interface and power devices. We have secured several design wins in power management over the last quarter, highlighted by our entry to production at a Tier 1 server OEM in a major computing platform.

We continued to believe that Exar provides a large and exciting opportunity to expand our analog mixed-signal content across a range of communications and industrial and multimarket platforms. It will prove to be an ideal vehicle for our continued end market diversification.

I would like to note that in Q3 of 2017, we brought several multiyear investment and execution projects to a successful close, which addressed the high-value and large TAM, wireless, optical and cable infrastructure markets. We look forward to the impact of these new projects on our future revenues and our growing infrastructure market position.

I'll now move forward with a review of the financials and our forward guidance. I will first review our Q3 2017 results and then briefly discuss our outlook for Q4 2017. Q3 revenue was $113.6 million, up 9% sequentially, net of an $800,000 revenue elimination of preclosing Exar deferred revenues under acquisition accounting.

GAAP and non-GAAP gross margins for the third quarter were approximately 45.6% and 62.5% of revenue, respectively. GAAP gross margin was meaningfully impacted by an Exar purchase accounting, a deferred revenue and a related profit elimination, amortization of purchase intangible assets and amortization of inventory step-up.

Non-GAAP gross margins were 150 basis points above guidance, driven primarily by more favorable product mix.

The delta between GAAP and non-GAAP gross margins in the third quarter was primarily acquisition-related, reflecting the amortization of $10.2 million of inventory step-up, $7.9 million of purchased intangible assets, $800,000 of deferred profits eliminated from the previously mentioned Exar purchase accounting, $100,000 in depreciation of step-up of acquired fixed assets and $100,000 of stock-based compensation and stock-based bonus accruals.

Q3 GAAP operating expenses were approximately $62.5 million, which was $500,000 above the GAAP guidance, with the overage primarily related to IPR&D impairment and restructuring charges related to the Exar acquisition, partially offset by lower prototyping, occupancy and travel expenses.

GAAP operating expenses included amortization of purchased intangible assets of $10 million, stock-based compensation and accruals related to our stock-based bonus plan of $7.3 million and $1.5 million, respectively, $2.2 million in restructuring charges, $2 million in IPR&D impairment charges, $1 million for acquisition and integration costs and $600,000 of depreciation related to a step-up in acquired fixed assets.

Payouts under our 2017 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 $37.9 million, which was $3.1 million below our prior guidance of $41 million, and up approximately $1 million from Q2 2017.

Given our Q3 run rate and our outlook for Q4 non-GAAP operating expenses, we have effectively met our Exar operating expense targets 2 quarters ahead of schedule. Rounding out our commentary on operating expenses, at the end of the third quarter 2017, our headcount was 772 compared to 797 at the end of the second quarter of 2017.

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. Moving to the balance sheet and cash flow statement.

Our cash, cash equivalents, restricted cash and investments balance decreased $16 million sequentially to approximately $74.1 million. Our ending cash position includes outflows of $50 million, which were used to fund the prepayments on our $425 million term loan.

Our cash flow generated from operating activities in the third quarter 2017 was approximately $37.7 million versus $7.1 million used in the second quarter of 2017. We will continue to manage our cash position, targeting a cash balance of $75 million to $80 million, with the remainder of cash generated likely to be utilized for debt repayment.

Our days sales outstanding for the third quarter was approximately 61 days, or 11 days less than in the prior quarter.

The days sales outstanding, while down from an unusually high level in Q2 2017, have turned it higher as changes occurred in shipment linearity and a general lengthening of payment terms granted to some of our largest creditworthy direct customers. Our inventory turns were 3.5 in the third quarter compared to 3.6 turns in the second quarter.

Our inventory turns metric continues to be impacted by the Exar acquisition and their legacy distributor in discrete component intensity, which is a focus of ongoing integration efforts to better align with MaxLinear's target model of approximately 6 inventory turns. That leaves me to our guidance.

We expect revenue in the third quarter of -- in the fourth quarter of 2017 to be in the range of $112 million to $116 million. Built into this range, we expect connected home revenues to account for roughly 58% of overall revenue, contribution from infrastructure to represent 20%, and industrial end market -- multimarket to contribute 22%.

More specifically, within connected home, we expect cable data and conductivity to be flat sequentially, with growth in satellite digital channel stacking partially offset by a decline in cable video after a strong Q3.

Within infrastructure, we expect continued growth of a small base in optical, combined with flatness in wireline access and a step back in wireless infrastructure. Within industrial and multimarket, we expect stability across power management and interface solutions with softness in data encryption and compression.

We expect fourth quarter GAAP gross profit margin to be approximately 47% of revenue and non-GAAP gross profit margins to be approximately 61% to 62% of revenue. As a reminder, our gross profit margin percentage forecast could vary plus or minus 2% depending on mix and other factors.

We continue to fund strategic development programs targeted at delivering attractive top line growth as we look forward in the first half of 2018 and beyond, with a particular focus on infrastructure initiatives and our goal of increasing the operating leverage in the business.

As such, we expect Q4 2017 GAAP operating expenses to be -- decrease approximately $5.5 million quarter-on-quarter to approximately $57 million, with the largest decreases coming from lower restructuring and IPR&D impairment costs.

We expect that Q4 2017 non-GAAP operating expenses to be flat sequentially at $38 million, despite a significant step-up in tape-out expenses, primarily offset by payroll reductions, seasonal travel reductions and lower professional fees.

We expect GAAP and non-GAAP tax rates of 40% and 8%, respectively, and we expect interest expense in the quarter to be $3.7 million.

In closing, we're pleased to report an eventful Q3 2017, one in which we continued our sequential and year-over-year growth -- revenue growth, produced $37.7 million in operating cash flow, paid down $50 million on our term loan and surpassed targeted cost synergies announced at the time of the Exar acquisition.

We have demonstrated our ability to aggressively execute on operating synergies from our acquisitions, highlighted by our ability to pull in and exceed our Exar operating synergy targets during Q3.

We remained confident that the recent acquisitions, combined with organic initiatives highlighted earlier, uniquely position MaxLinear shareholders to benefit from the growing demand for bandwidth across consumer, connected home, wired and wireless networks, and a diverse growing demand for high-performance analog and mixed-signal solutions into industrial, automotive and multimarket applications.

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

Operator?.

Thank you. [Operator Instructions] Our first question is from Gary Mobley with Benchmark. Please proceed with your question..

Hi, guys. Congrats on the -- on some strong OpEx synergies and some good EPS numbers. I wanted to ask a question about the gross margin. In the past, you've communicated a gross margin non-GAAP target of 60%, 61%, and based on your guidance for the fourth quarter, we're going to be around 63%, same as last year, for all of 2017.

So would you care to update today your long-term gross margin outlook now that you've had a chance to review and implement some of the cost synergies with Exar?.

Gary, I guess, I don't think now is really kind of the time to do that. I think that we've been pretty consistent having a gross margin target for the business of 62% to 65%. And I think, right now, there's really no reason to change that, I would say, that band or range of gross margin.

So we're encouraged that we've been able to make some progress on bringing the gross margin up from the Exar acquisition. I think we have a track record of doing that.

I think we had a much bigger challenge when we acquired Entropic and we're successful [indiscernible] about it, I would say, less than a year of bringing the gross margins back up to -- into our target range.

Again, where -- I'd say, right now, based on the guidance we gave for Q4, 61% to 62%, obviously we're still a little bit below that 62% to 65%, or right on that bottom edge. And I think we need a little bit more time to get comfortable with moving into the range and then going beyond that range. I don't think we're comfortable doing that quite yet.

Hopefully down the road, once we get a greater percentage of our mix coming in from infrastructure, that should be a reasonable thing to expect. But right now -- sitting at around 20% of overall revenue coming from infrastructure, we're not quite at a point where it moves the needle enough to change our range..

Okay. And just as a follow-up. I'm assuming with your optical business up 50% quarter-over-quarter, it seems to be a significant change in tone from what you last communicated on this type of conference call. I'm assuming you've seen a recent pickup in China optical.

And related to that, could you give us some sense of visibilities we look into 2018?.

Yes, I'll give a little bit of comment, and then I'll kind of hand it over to Kishore to give you his thoughts to the extent that he can croak that with his voice. But I would say that, certainly, it's gotten better but you have to think it was coming. I mean, Q2 was really the abyss, right, for China optical for us, for our latest driver of business.

The TIAs weren't quite kicking in meaningfully enough.

So I think as we move forward, I think what you're seeing is, yes, there's a rebound that we're seeing off of a horrible bottom in Q2 on the optical laser driver side in China and the metro market deployments to now we're also getting more mix from our TIAs, which is we were hoping to have had at a couple of quarters earlier.

But it's now starting to feed into the model, and that's one of the exciting things to look forward to. As we move into 2018, 2019, there's an increased mix from the TIAs, which gives us diversity not only out of the -- not just metro, but also in the data center.

And then of course, this PAM-4 and DSP that we mentioned earlier in the call is probably the most exciting thing that we had teed up for our [indiscernible] business.

And Kishore, would you like to?.

So Gary, just to give some color on the China thing. I really think that the China market has really not changed any way from Q2 or Q3. So I think you guys heard [indiscernible] call and the CEO very candidly and very transparently was very clear that there's no information to indicate when the recovery happened.

To the extent that we are seeing growth back, it's off of much reduced expectation internally and also that internally. And so of those reduced expectations, we are growing, and primarily due to new design wins with TIA side and some level of inventory depletion at our particular customers.

But by and large, our -- while we have design wins, the momentum is strong in the long-haul inventory market for our TIAs, primarily due to a large inventory buildup from competition at ITR manufacturers and those manufacturers all the way through Q1. So I would not call that anywhere close to what we were anticipating earlier on.

And if you really look at our forecast for 2017, a huge contributor of the disconnect between forward guidance on The Street and what MaxLinear has been driving on a quarterly basis, I mean, I would say that the optical was the biggest disconnect. And so we are still seeing the effects of that.

And then meanwhile, we are doing -- our team is doing a fantastic job on operating synergies, execution of the road map, and we're really excited how infrastructure road map and product development is coming right on track, on time, ahead of the competition and showing all the promise that we have invested in those activities for several years now..

Our next question is from Ross Seymore with Deutsche Bank. Please proceed with your question..

Hi, guys. Just wanted to ask first on the connected home side. I know you have seasonality; and then the legacy side, you said was about a $5 million sequential headwind.

Was there anything beyond the seasonality going on that drove that drop ex the legacy side? And then perhaps more importantly, could you give anymore color on the DOCSIS 3.1 rollout? You said it was a little delayed, but you expressed some confidence that it's going to come in 2018.

Talk a little bit about that gives you that confidence, and generally, what does it mean to your company DOCSIS 3.1 versus the 3.0 generation?.

Thank you, Ross. The question -- I think we have been very transparent. We -- if you just subtract the $5 million dropoff that Adam referred to in the script regarding a very sharp roll-off in the -- on the remaining legacy Entropic items, pretty much attributable to seasonality.

What we are normally seeing when there's a technology transition from, for example, DOCSIS 3.0 or 8-channel to 16-channel to 24-channel is, at this point in the cycle, we would have added an inventory buildup in the channel for the new product entire channel count and greater ASP. So -- and that would have given us some uplift in the ramp.

So that particular ramp has gotten delayed. It should not be any surprise for anyone of you. While we can't speak for other players in the ecosystem, but we are shifting into Canada. We have shipped a bit of DOCSIS 3.1 products. But the big ramp at a major U.S. operator is delayed due to qualification issues across all the platforms.

But now, we do know, as entering this call, those issues are largely behind us and the fact that there is some movement on preordering in terms of backlog. We feel very good that entering 2018, 3.1 is going to be the latest trend. So that's the story of 3.1. So we're going to give you -- emphasize the sharp roll-off in connected home.

The $5 million is primarily due to the legacy shipments of Entropic satellite ODU -- analog satellite ODU and legacy video SoC. But the remaining is largely attributable, I would like to say, 100% attributable to seasonality. The seasonality we're now familiar with, but we're not getting the 3.1 cycle ramp.

It's gotten delayed due to some software system level evaluations and trials at this major operator. So next -- to the next part of your question, what implications are for MaxLinear.

I think now it's clear from what I just said, the implications are clear that we have not -- we should get some revenue lift -- uplift as inventory builds up in preparation for 3.1 launch in Q1.

At the same time, for MaxLinear's perspective, the shift in the ASP mix out says the DOCSIS category of the front-end and as the mix shift from 3.1 -- from 3.0 to 3.1, we more -- we have new bonds in PGAs for 3.1, the programmable gain amplifiers, and then we also get extra lift from the DOCSIS front-end.

There's also MoCA radio but -- on the MoCA side of the story, it's not as clean because on DOCSIS 3.0, we were setting the full system on-chip solution for MoCA. But now, we'll largely sell the MoCA radio on the Intel platform. So there is a small subtraction there but, all in all, for us, it's a mildly positive event.

But more than that, the deployment of 3.1 by all accounts, one of the more fast deployment as you've heard Comcast and this talk about data subscription becoming the big driver of the growth. So we expect revenue growth to come in from unit growth in DOCSIS 3.1. So that will be the upside for MaxLinear..

Got it. And that's very helpful. For my follow-up question, I want to switch over to the OpEx side. Adam, you did a great job in the quarter, of course, and then giving the synergies well ahead of plan. Going forward from here, obviously, you're guiding flat sequentially.

But just as more kind of a directional commentary, how do we think about OpEx from this current base level as we move into 2018?.

Yes, so I -- it's one of the things where we definitely went after the integrating the operating synergies early in the Exar deal after close. I would say that there's a natural -- a little bit of a time delay.

So what you see in the Q3 number is obviously a pretty healthy contribution towards the synergies, but not full run rate because some of the synergy actions that were taken were until later in the quarter. So you certainly didn't see the full run rate of that reflected in the Q3 financials.

So I think there's -- is there more to be had on the synergy front across our business? Yes, certainly there are that haven't been reflected yet because of run rate.

I would say that we would have even significantly lower -- we had sequential down OpEx in Q4 had it not been for a significant step-up in tape-out expenses related to PAM-4 device that we talked about earlier.

So if you kind of want to think about the cost of that, I think I don't want to kind of give those costs now because that's confidential information macro level. But you can imagine -- you can roughly magnitude what that was and what the OpEx would have been had it not been there.

Now that said, Q -- 2018 is going to be a year of tape-outs as well, because as we talk about we've got our cable infrastructure product that's going to be sampling in the first half. We've got our 5G macro base station access transceiver.

So it's been a very heavy development years for us and those are coming to fruition now, and those will be reflected in tape-outs in 2018. So I think what you'll see is not unlike some prior years where it kind of -- it bounces around where there's a tape-out in the quarter.

You can kind of plan one major tape-out every other quarter is kind of my best estimate right now. But I don't think you'll see -- you should -- with the fact, you'll see more of the effects of the synergies in the Q4 run rate kind of moderate when there isn't a tape-out. I think these are kind of our spending levels right about now.

I think if you think about where our guidance was for Q4, I'd say plus or minus $1 million or so around that is probably where we'll be -- where we're targeting for our quarterly run rate in 2018..

Perfect. Thank you..

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

Yes. Thank you. First question is you have 3 really important products sampling very soon, including 5G radio, the single and the PAM-4 DSP and then the FDX fiber node chipset. Could you talk a little bit about what these 3 products really mean for your company over the next few years? Seems like the revenues behind those 3 could be pretty significant.

So you if you could add some color there, that'd be great..

So Tore, this is Kishore. I'll take the question.

Very, very good question, and I think that -- I just want to provide some color to Ross's question on the OpEx is that we did not plan it this way that the revenues will take longer to get back in the growth saddle organic revenues, but you don't have the nature of the quality of the business we have picked.

But to just add to Ross's question, the answer is that now your OpEx is wonderfully beautifully positioned. And as the revenue growth comes in our favor, you can imagine that the EPS leverage of that growth is going to be quite dramatic.

So I think that we're doing all the right things from an R&D execution point of view and now we're gearing for the revenue to pick up. And that won't come fast. It will come in our traditional businesses on the broadband side. You'll have growth in the wireless side, along the backhaul first.

And then you -- we are seeing uptick in our fiber optic presence on the revenues. But the big investments we are making, namely the fiber optic PAM-4 DSP, the cable fiber node chip and then the -- later, the 5G massive MIMO antennary access transceiver, we all have huge TAMs associated with them. But it's not all about the TAM.

Each of those products we are working with [indiscernible] OEM development partners. If you look at the PAM-4 DSP market, the addressable silicon TAM, starting in 2019, it will project out to 2020 or so, is in the billion dollar range.

And then -- so in that market, we expected to start ramping at the end of 2018, beginning of 2019, as The Street chip becomes available from the likes of Broadcom, we should have a great growth vector in front of us.

But even more importantly, today, as of this earnings call, we have clearly shown the world that we are in the leadership position in the PAM-4 DSP with the production grade silicon that our customers can use, and we'll be sampling that very imminently at the first part.

So we expect that in 2022 time frame, the PAM-4 DSP plus optical together should be $100 million to $200 million revenue, realizable revenue for MaxLinear. Then comes the cable fiber node. This revolutionary transition with a coaxial cable is going to support 10-gigabit data services for inside the home symmetry, both downlink and uplink.

You've heard [Alex] talk about it and then Comcast talked about it, the cable full duplex solution.

We now have the opportunity to target directly the cable infrastructure and there the opportunity, if you really look at the silicon TAM and the number of units of fiber nodes that will shift, the number of nodes -- of fiber nodes will exponentially grow as the number of how the service by each fiber node dramatically shrinks because you want to support 10-gigabit for home.

In that scenario, we expect that product is either to be one of the top 2 players in the business. Then, that takes off sometime in 2019 onwards. You should be anywhere between $50 million to $100 million realizable opportunity with what I call less than 40% share of market share assumptions.

Thirdly, what we call the wireless access radio, the 4x4 transceiver for wireless base stations and the active antenna systems. This is 5G. I don't think technologically there's any other company better positioned, both with millimeter wave radio technologies and broadband below 6-gigahertz radio technologies than MaxLinear.

We are working with the top Tier 1 OEM [indiscernible] enjoying development efforts to finish this radio. And we really expect the market to be disputed by China in 2019 beginning sometime.

And we expect that to start going very, very rapidly as the buildout happen to support multi-gigabit services, both for coverage and for capacity improvement using a network of millimeter wave radios in 5G and below 6-gigahertz technologies. You've got to think about that these 5-year systems are not just about your cellphone and smartphone.

It's about automotive self-driving cars, IoT and a myriad of other connected home applications and connected individual and industrial multimarket applications. This will drive a lot of unit growth.

If we just [indiscernible] the amount of radio transceivers, number of channels you require in the projected 5G macro base stations alone in 2020 to 2022, you're talking about addressable market, again, in the $0.75 billion to $1.5 billion of addressable silicon revenue. So -- and we clearly plan to be the top 2 or 3 players in the world.

So we're very excited about it. We've always taken a long-term view of diversification of a good healthy balance with our broadband business and our infrastructure business. It's taking time to get there, but honestly, we are moving faster than we have internally projected, thanks to the excellence execution of the development side inside the company.

However, we cannot overcome the market-level telecom slowdowns and wireless cash you spend that we're going through today that promise to come back in a year or 2 from today. It's a long answer, but I hope that's helpful..

Yes, that's very helpful. And a question for Adam. Adam, it looks like, at least there in your 10-Q that Exar contributed about $35 million in the quarter. Was just wondering what drove that growth. You mentioned force-touch, but if you could give us an update on the Exar business, that'd be great..

I'd say, yes, as we mentioned in the prepared remarks, the force-touch was a significant portion of that. We also just had, I would say, just general strength across that broad kind of interface and power vantage set of solutions.

As you know, it's a very diversified portfolio, and I think we just happen to be right now at a point in time where there's just a very good macro demand across a range of those solutions. So I can't really -- other than the edge sense, there's really nothing that I point you to that disproportionately drove that revenue contribution in the quarter..

Just one last question. The legacy revenue based on my math is now less than 5%.

Would that be accurate?.

The legacy revenue is well less than 5%. I think the legacy revenue was probably less than 1%..

So there's -- I'm talking about both channel stack switch and video SoC..

Yes, the combination of those into Q4 will be around $1 million of that..

That’s great. Thank you so much..

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

Hey, guys. Thanks for the question and I think you kind to answered this in the last one, at least half of it, Adam. So my first one was, are we totally done with analog channel stacking here? So it sounds like. But if you can talk about digital and where we are in the transition here kind of how is that progressing now.

Do you guys kind of have the market share that you wanted? How do you see this to date and then playing out over the next quarter or 2?.

Yes, I'll take the first piece of that and I'll let Kishore kind of expand on it. So in the very near term, we actually are looking at a pretty healthy demand scenario for the digital channel stacking in Q4. So it's part of our guidance. The digital channel stacking is stepping up quite a bit sequentially.

So on that front, I think you have a near-term forecast oriented, things look good on the digital channel second front. As far as the long-term market positioning, I'll let Kishore kind of take that one..

So Chris, that's a very good question on the digital channel stacking.

We -- so this is to back and see that there are not going to be as high in revenues that we had when we just acquired Entropic on analog channel stacking because we've talked about the reasons before, the ASP content for the ODU is lower because of integration that's happened from 3 chips to 1 chip.

And secondly, the transition that's happened, and so being a 1 player supplier to a major operator -- to the 2 major operators in the U.S., now they're splitting that on the digital ODU.

So what are the vectors that determine the digital ODU? So we already talked about how the ASP is lower by a factor of about 40% or so related to that [indiscernible] That's one factor. Second is the share split of the major operators for the satellite operation in the U.S.

But having said that, I just want to qualify that, in the U.S., the satellite operators are having quite a bit of struggle right now in their subscriber base, and that's not very healthy right now.

So we are seeing what I call bouncing around in the ordering patterns, so to the extent that the 2 major satellite operators are still trying to decide whether they will deploy what kind of digital ODUs, the full-blown 4-gig gateway necessitated digital ODUs.

Or the cheaper, lesser version of the digital ODUs, that is going to determine how the North America plays out. For us, the bigger growth we're getting today in digital ODU in design across Europe, across the Sky properties, and other Tier 2 operators that we have talked about earlier on, that's where our digital ODU's growth is coming.

So just a step back and sum out how obviously the digital ODU will play out, we really think that digital ODU in the long term, really in 3 years or so, 4 years even, it's going to be around not quite what we hope for, maybe a $30 million to $35 million revenue opportunity for the company.

And many of the satellite gateway, together satellite is going to be as a combined -- well, somewhere between $50 million and $150 million revenue opportunity for the company. So satellite did not quite pan out the way we wanted, but that's primarily because of the video churn that's happening with cost cutting, and so on, and so forth.

So we are seeing some impact to the macro environment inside the United States. But also in the United States, the video market is quite healthy, the satellite operators, and they are deploying satellite -- new satellite boxes and ODUs, but augmenting them with over-the-top offerings. So that's the nature of the landscape and satellite today..

I see. And you guys didn't have a lot of commentary on your prepared remarks on MoCA and also G.hn. Perhaps you can give us kind of an update and outlook there..

Oh, the G.hn. I know starting from low base on the acquisition is actually doing very well in the sense that it's growing nicely, and we've got a lot of number of new design wins now that are happening in Europe. There's a lot of traction for the last mile access G.Now in China and other operators in Asia. So it's doing very well.

Actually, a very health expectations for growth for G.hn next year. MoCA on the other hand, we -- is a primarily a North American phenomenon. We have some modest success, but last mile access for MoCA, what we call c.Link in China. However, the MoCA is flowing with the cable platforms and a major telecom operator in the U.S.

is now [indiscernible] start deploying -- renewing their investments in MoCA. So MoCA will grow as well in the near to midterm. So I don't think there's any what I call spectacular growth expectations around MoCA. However, from a health point of view, MoCA and G.Now actually are doing quite well. So we're pretty pleased about it.

In fact, we talked about these utility companies, basic utilities in Europe have a mandate to deploy broadband utility connectivity functions for smart metering and smart good systems so that they have a live -- real-time accounting of all the energy consumptions.

And we are partnering with them as we announced a number of design wins and demonstration just recently in press releases..

Great. Thanks, Kishore. Thanks so much..

Thank you..

Our next question is from Quinn Bolton with Needham & Company. Please proceed with your question..

I just wanted to come back to the DOCSIS 3.1 ramp, and curious, you guys seem to have better confidence as you come into 2018. Just wondering, you talked about some forecasts, I guess, moving into the order books.

Is that sort of on the books now to start shipping for the first quarter? Or is that kind of more a second quarter event? Can you give us any sense of timing for that U.S.

MSO?.

Thank you, Quinn. Yes, we have that, but most -- clearly, the goals for this year to -- for us as a company, our anticipation was $1.5 million to $2 million in DOCSIS 3.1 for the year in chip shipments. And those -- part of it is for backlog shipping in preparation for the ramp in Q1, start of ramp in Q1.

The rest of the market or the Canadian operators, which tend to be voice and data gateways.

So yes, we are very -- further along with 3.1 in terms of shipment but not for the flagship operator that we were hoping for, so the confidence comes from the fact that this is -- the level of opportunity of the trials and deployments and the field trials have now reached a kind of conclusive phase that -- for based on our past understanding, it's right poised for ramp entering 2018.

Regarding what are shipments of voice for, we have already shipped some into our major OEMs. We ship to North America, but there's more backlog that really enters into Q1.

So I think that, yes, it's delayed below the expectations of the operator itself, however, much of the issues and challenges they're facing was related to the IoT functionality inside those boxes, nothing to do with the DOCSIS functionality..

And again, Kishore, it sounds like those orders start to ship in Q1 rather than Q2..

Yes, absolutely..

Okay, great. And then just, Adam, just wanted to come back to the....

I just want to clarify that we go to these uncertainty periods regarding Q4 and Q1 every year at this time as we go to the end of Q3. And so if you see some reticence about giving a confirmatory statement about Q1 is partially because of the shyness of the previous years. So you just got to keep that in mind..

Understood. And then for Adam, just on the OpEx. Sounds like you didn't realize sort of a full quarter of all the extra synergies in September, plus you had a big tape-out. So help us walk to the fourth quarter. Sounds like you should get a full quarter of full synergies. You don't have the big tape-out.

Why OpEx flat? What's the offset?.

No, actually that tape-out -- the big tape-out is in Q4. So that's -- there wasn't a big tape-out in Q3, the big tape-out's in Q4..

Got it, got it. And then, as you go into next quarter, it will just be $38 million, plus or minus $1 million, depending on sort of tape-out timing..

Exactly..

[indiscernible] issues in Q1, too. So....

Yes. These are all step-ups in Q1. [indiscernible] Normal stuff. But yes, I mean, the way to think about it is I kind of bracket it somewhere in the $38 million to -- well, actually you want to kind of put a range on it. Probably $38 million to $40 million is probably a safe place to be on a quarterly kind of OpEx run rate..

Okay. And then just on the force-touch or the edge sense, that seems like it's being driven by smartphone applications at least in the near term. It sounds like that was the contributor behind some pretty strong revenue in Exar.

Can you give us any outlook for that part of the business since you come into the December quarter? Does it revert back to more normal levels? Or do you think that, that level of revenue is sustainable for several quarters?.

So let me back up for 1 second. So I know that Ross had a question earlier and he mentioned a $35.5 million -- sorry. It's Tore. I think Tore had a question about $35.5 million of contribution from Exar in the quarter, that's actually -- the $35.5 million is really kind of a combination of Exar plus the Marvell G.hn asset.

So if you want to kind of split that apart, it wasn't -- I don't want people to get overly, I would say, focused on the Exar number, that it's much higher than what people were anticipating it to be. It was really kind of on target with what the predeal estimates were for Exar.

It's about, call it, $33 million and change, $33 million and change, with $2 million and change coming from the G.hn contribution. So back now -- now we've kind of reset that or calibrated that revenue number within the force-touch piece. It's really the function of, right now, all the revenue is coming from one handset design.

There are other design wins that we have that when they ramp, and depending on the timing of those, and of course in the smartphone market, it's very difficult to predict timing and designs kind of come and go pretty quickly. But we do have some pretty encouraging opportunities out there.

I would say that, right now, you should think about the fact that the opportunity for meaningful step-up in that business from current levels is probably in the second half of 2018, at which point, it could step up very meaningfully.

But at this point, I think you should think about the current run rate contribution from that business of roughly kind of, right now, it's probably running a couple million dollars a quarter and that will continue for probably a couple quarters until you get in to -- more closer to the second half of 2018.

And then as far as opportunities or applications outside of the smartphone, clearly, we -- our marketing team is aggressively looking at other opportunities where we can apply the technology.

They've had some pretty promising things that have been drummed up, but some of those will require a little bit more investment in the technology to be more application-specific..

And then lastly, just one around the topic of Exar. I think they had a PowerPoint load design win on some of the HP Burley platforms. Sounds like you're starting to see some nice revenue ramp in that platform..

Beginning all these infrastructure-type revenues, they never start as nicely, smoothly as you want them to. But the design is locked in and is beginning to shift. But because one more platform, the computing platform, which we cannot announce. There the shipments have begun in earnest.

So with that, you've got to look at these parts and think about the revenues are relative to what Exar revenue is. They're meaningful at a MaxLinear revenue. The real bigger opportunity is really when you have a major presence in server.

While we are happy with these revenues that are growing [indiscernible] management side, for us the real bulls-eye is a server where you have [indiscernible] $60 to $100 of all management content because amenity rails and the peripheral rails and the processor rail.

And if you look at the total number of servers, somewhere 10 million to 15 million servers in the world, it will [kill] a $1 billion to $1.5 billion addressability power management business. So yes, this is very exciting for us that a major player like HP is going to be using the product. And yes, it has started to shed now..

[Operator Instructions] Our next question is from Anil Doradla with William Blair..

So if I look at the September quarter, you talked about the $5 million ODU set-top box satellite. For the December quarter, it sounds like the optical is what is creating the delta.

So is it fair to say that the cable part of your business pretty much played as you expected in the September and December quarter?.

It's playing out that way, yes. It's pretty much playing out very similar to prior year's seasonality..

So from a 3.1 point of view, I mean, Kishore talked about kind of 1 million or 2 million, which is primarily non-U.S. shipments. But -- so is it fair to say that, today, when people get the 1 gigabit per second, it is not 3.1.

That's a fair assessment, right, and Today in the U.S.?.

In the U.S., I think that's true..

Okay. And the....

We've talked before about the ability to deploy up to 1 gigabit or beyond with a 32-channel solution, right? So those have been shipping in the market for 18 months..

Right. And by the end of 2018, what proportion do you think of your cable data could be 3.1 or cable part? Any....

I can't speak for the market as a whole, but I can just tell you that one of the admissions of this major operator anecdotally for North America for the -- they think they would like to at last have 1/3 of their DOCSIS shipments, at least 1/3, move to 3.1.

So with the other operators to follow, it's indication of this particular operator to other operators. And if you look at the major operators in the world, the Comcast and Liberty Global, for them, the data part is incredibly important.

So we hope all our own shipments and more than what corresponds to 1/3 of the shipments of this major North American operator. But at this point, that should give you a color of what the front-end of the spear of DOCSIS 3.1 ramp will look like..

And finally, Kishore, the inoperability issues that you're talking about for this North American operator, has it been resolved? Or is it in the process of resolving? I mean, just trying to get a sense that this is like a first half ramp or really it is a second half ramp..

At this point, what I know with this most recent check, largely the -- it's a software issue. That's the good news, not a hardware-related problem anymore. So the software issues we'll get fixed are actually -- from a technical perspective, I'm aware that there'll be nonissues very, very eminently could have found the solutions.

And we really were upgrading those firmware and software. So nothing should delay the hardware ramp because of the software stuff is also upgradable in the field. So right now, it's not that softwares are not working nicely.

It's just that they want a little bit more performance on coexistence of all these IoT radios in the box, and so there's some software tweaking going on..

Our next question is from Tore Svanberg with Stifel..

Yes, just had a follow-up. So $37 million in operating cash from the quarter. So you'll generate significantly more than $100 million next year.

Should we expect you to use that to pay down the debt? And what would you expect the interest expense to be in '18?.

So yes. We've got to set our targets if we have anything more than around $75 million of cash, we sweep it -- we sweep access towards debt repayment, so we -- our stated objective is to pay down roughly $30 million a quarter towards debt.

So if you think about the guidance that we provided just earlier about $3.7 million of interest expense in the quarter. Yes, you can basically do a model of take that $3.7 million is based off an average balance of about $362.5 million in the quarter and then it will be declining basically $30 million a quarter throughout 2018.

And if you want to assume a flat rate, I think that's probably the right way to do it. One thing that we -- gives us confidence and that rate is the fact that we entered into a rate swap agreement basically to take the floating rate LIBOR out of the mix.

And now we have a fixed rate of about 1.75%, plus our current margins were spread on our loan of 250 basis points. So that gives you confidence on how you can now model that..

Okay. And I mean, even with the debt repayment, it's looks like you still have some dry powder left.

So any thoughts about buybacks, especially given how low the stock price is?.

It's always a discussion amongst the board, and so forth and it's something I'm sure that we'll be having again in our next set of board meetings, discussions around different ways to return capital to shareholders, if we believe that's the best path, given all the various investment opportunities we have to grow the business longer term.

So I'd say, right now, we're -- as we've been in the past, we can't really be committal on anything that we do with regards to a share buyback or dividends or anything like that. Right now, we're still very much in the mode of -- our ROIs are pretty big as far as wanting to expand our TAMs.

And also do that not only organically, but also through strategic acquisitions. And even though, we've done a lot of deals in the last 2, 3 years, we still see a fairly active deal funnel out there of opportunities that we -- that we really want to act on.

And I think what we'd use is the incremental debt capacity that's freed up from prepayments on the current Term Loan B to enable those..

Ladies and gentlemen, we've reached the end of our question-and-answer session. At this point, I'd like to turn the call back to management for closing comments..

Great. Thank you, operator. As a reminder, we will be participating in the Stifel One-on-One Growth Conference in Chicago on November 9th, the Crédit Suisse Conference in Phoenix on November 29, and the Needham Growth Conference in New York on January 18, 2018. And 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 on our progress to you next quarter. Thank you..

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