Greetings and welcome to the MaxLinear Q3 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Leslie Green Investor Relations. Ms.

Green, you may begin. .

Thank you, Victoria. Good afternoon everyone and thank you for joining us on today's conference call to discuss MaxLinear's third quarter 2022 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer.

After our prepared comments, we will take questions.

Our comments today include forward-looking statements within the meaning of applicable securities laws including statements relating to our guidance for the fourth quarter of 2022, revenue, revenue growth expectations in our principal target markets, and GAAP and non-GAAP gross margin, operating expenses, effective tax rate, and interest and other expenses.

In addition, we will make forward-looking statements relating to trends, opportunities, and uncertainties in various product and geographic markets including without limitation statements concerning opportunities arising from our broadband, infrastructure, connectivity, and industrial markets and opportunities for improved revenue across our target markets.

Additionally, we may make forward-looking statements relating to the completion of the pending Silicon Motion transaction and its anticipated timing.

These forward-looking statements involve substantial risks and uncertainties including risks arising from the current geopolitical concerns, competition, supply constraints facing the semiconductor industry, global trade and export restrictions, the impact of COVID-19 pandemic are dependent on a limited number of customers, average selling price trends, and the risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect.

More information on these and other risks is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-Q for the quarter ended September 30, 2022, which we filed today. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements.

The third quarter 2022 earnings release is available on the Investor Relations section of our website at maxlinear.com.

In addition, we report certain historical financial metrics, including net revenue, gross margins, operating expense, income from operations, interest and other expense, income taxes, net income, and net income per share on both a GAAP and non-GAAP basis.

We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website.

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

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

Lastly, this call is also being webcast, and a replay will be available on our website for two weeks. And now, let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear.

Kishore?.

Thank you, Leslie and good afternoon everyone. Our Q3 revenue was $285.7 million, up 2% sequentially and 24% year-on-year basis. Non-GAAP gross margin was 62% and non-GAAP operating margin was 33.9% with cash flows from operating activities of $61.8 million.

We continue to see exciting near and long-term growth drivers a fiber access gateway Wi-Fi connectivity, wireless and optical infrastructure, and industrial applications, which will allow us to outperform our end markets via share gains and increased silicon content in customer platforms.

Turning to the business highlights, our Wi-Fi connectivity business grew robustly in Q3 with revenues more than tripling year-over-year. Based on our revenue run rate, we believe we are well on our way to doubling our Wi-Fi revenues in 2022 versus 2021 and on target to deliver $200 million plus in sales in financial year 2023.

Our strong Wi-Fi 6 and 6E offerings are expanding our customer platform attach rates and also driving a strong pipeline of new customer design wins. Also as we continue to strongly ramp products into third-party stand-alone routers, we are expanding and diversifying our Wi-Fi revenues beyond service provider gateway applications.

Last week we announced our WAV700 product family, which is the industry's first Wi-Fi 7 standard tri-band single-chip system-on-chip solution targeting access points and broadband gateways. It delivers 12 special streams simultaneously over 2.5 gigahertz 5 gigahertz and 6 gigahertz Wi-Fi spectrum bands.

The WAV700 family is currently sampling and we expect to see WAV700-enabled customer products starting in 2023. Wi-Fi 6E, 6 and 7 standard-based products represent an unprecedented multiyear growth driver for Wi-Fi by enabling in-home connectivity speeds close to 20-gigabits per second.

With each new generation of Wi-Fi, we are increasing our differentiation, gaining market share and driving higher platform attach rates and average selling prices. Moving to broadband fiber, multiple customers in North America are currently ramping our products including a large Tier 1 operator we mentioned before.

In 2022, our fiber access revenues are expected to increase more than four times versus 2021 with continuing momentum into 2023. Our latest generation of AnyWAN Broadband SoCs, which we recently announced, support multiple access technologies in a single solution including fiber, copper coaxial cable of cable fixed wireless access and Ethernet.

It will enable operators and OEMs to cost-effectively upgrade their networks and to rapidly roll out new high-performance multi-gigabit solutions to customers. Fiber broadband represents a very large multiyear revenue growth opportunity for us.

So we're excited by first, the market traction for our industry-leading integrated PON and 10-gigabit fiber processor gateway SOC solution; second, our significant growing fiber platform below material content; and third, our proliferating design wins beyond North America.

Additionally ongoing CapEx commitments from carriers and governmental incentives where fiber upgrades provide a strong growth catalyst for our broadband revenues. Moving to infrastructure, in 5G wireless infrastructure revenues grew despite tight back-end package substrate supply constraints.

In Q1 2023, with increases in substrate capacity anticipated, we'll be better able to address a strong backlog of continuing customer demand for wireless access and backhaul solutions.

We are especially benefiting from the expanding rollout of multiband millimeter wave and microwave backhaul platform solutions as a part of new 5G network rollout across several geographies such as in India. These multiband platforms more than double our content per platform and grow our addressable units.

As 5G networks proliferate, we expect our revenues will grow in the near to medium term, owing to our industry-leading full-system silicon solutions for wireless backhaul and our 5G access RF transceivers.

Moving to the rapidly growing high-speed optical data center interconnect market, we have a leading strategic position with our Keystone family of products, which is the industry's only 5-nanometer CMOS, 400-gigabit and 800-gigabit PAM4 production-ready silicon based on the anticipated trajectory of growth in hyperscale cloud data and processing requirements and our ongoing success with product qualifications at multiple OEMs, we feel confident in our ability to strongly grow our data center revenues in the next upgrade cycle.

During Q3, we also announced the availability of Panther III, the latest in our Panther series of storage accelerators. We showcased this product at the Flash Memory Summit in Santa Clara, California, where it won Best of Show for the Flash Memory Enterprise Business Application category.

Panther III opens up new opportunities for us within the enterprise storage market including all-flash-array and nonvolatile memory express systems. With that, let me turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer..

Thanks, Kishore. Total revenue for the third quarter was $285.7 million, up 2% versus Q2 and up 24% year-over-year. Broadband revenue was $120 million, down 14% versus Q2 and down 5% year-over-year and was in line with our expectations entering the quarter.

Our connectivity and end market had strong growth sequentially in Q3, as a result of solid demand and an easing of Wi-Fi supply constraints. Connectivity revenue in the quarter was $83 million, up 46% sequentially and 118% year-on-year. Our infrastructure end market had revenue of $36 million, flat versus the prior quarter and up 22% year-on-year.

Infrastructure performance was slightly better than we expected in the quarter and was driven by strength in high-performance analog mostly offset by ongoing supply constraints in substrates. Lastly, our industrial and multi -market revenue was $47 million in Q3, a 3% decrease and an increase of 30%, year-on-year.

GAAP and non-GAAP gross margin for the third quarter were approximately 58.6% and 62% of revenue. The delta between GAAP and non-GAAP gross margin in the third quarter was primarily driven by $9.3 million of acquisition-related intangible asset amortization.

Third quarter GAAP operating expenses were $115.5 million, including stock-based compensation and performance-based equity accruals of $30.7 million combined acquisition and integration costs of $1.3 million and amortization of purchased intangible assets of $1.5 million. Non-GAAP operating expenses were $80.4 million, down $3.9 million versus Q2.

Non-GAAP operating margin for Q2 2022 was 33.9%. GAAP interest and other expense during the quarter was $7.4 million and non-GAAP interest and other expense was $7.3 million. In Q3, cash flow generated from operating activities was $61.8 million and cash flow generation year-to-date has more than doubled, compared with the same period in 2022.

During Q3, we made a $75 million prepayment against our long-term debt position and we have subsequently found an additional $25 million so far in October. We exited Q3 of 2022 with slightly over $200 million in cash, cash equivalents, restricted cash and short-term investments.

Our days sales outstanding for the third quarter was approximately 57 days, up from 45 days in Q2, largely driven by shipment linearity due to supply constraints for our Wi-Fi products. Our gross inventory turns were 2.8 times which were essentially flat from the previous quarter. This concludes the discussion of our Q3 financial results.

Before we go to guidance, I want to give you an update on the status of our pending acquisition of Silicon Motion. On August 31st Silicon Motion shareholders approved the acquisition. In addition during Q3, we converted to filing under the normal procedure with SAMR.

We are progressing through the process and believe we remain on track for a mid-2023 close. We have fully committed financing for this transaction and are actively working to optimize the debt structure to lower our expected cost of capital.

We are excited about the opportunities for our combined business and look forward to bringing our two technology-focused cultures together soon. With that, let's turn to our guidance for Q4.

We currently expect revenue in the third quarter of 2022 to be between $285 million and $295 million up approximately 2% at the midpoint of the range versus the previous quarter and up approximately 17% versus Q4 of the prior year. Looking at Q4 by end-market we expect broadband revenue to be down quarter-over-quarter.

Connectivity is expected to be up versus 3% driven by continued strength in Wi-Fi. In infrastructure we are expecting revenue to be slightly down compared with Q3, as substrate supply issues continue to persist. Lastly, we expect our industrial multi-market revenue to be approximately flat quarter-over-quarter.

We expect fourth quarter GAAP gross profit margin to be approximately 55.5% to 58.5% and non-GAAP gross profit margin to be in the range of 59% and 62% of revenue.

The sequential decline in gross margin is being driven by the combination of near-term product customer and end-market mix headwinds, in addition to recent supply risk from our lower-cost manufacturing partners in Asia. We expect Q4 2022 GAAP operating expenses to be in the range of $114 million to $120 million.

We expect Q4 2022 non-GAAP operating expenses to be in the range of $77 million to $83 million. We expect our GAAP tax rate to be approximately 30% and non-GAAP tax rate to be roughly 6%. We expect GAAP and non-GAAP interest and other expense to be roughly $5 million.

In closing, our solid execution and innovative product offerings are enabling us to perform well in a dynamic environment. We believe that we can continue to expand our presence in strategic markets such as Wi-Fi, fiber broadband access gateways and wireless infrastructure where our growth drivers are less dependent on macro conditions.

We're excited by these developing opportunities to unlock additional business value for our shareholders. With that, I'll open up the call for questions.

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Quinn Bolton with Needham & Co. Please, go ahead..

Hi, guys. Thanks for taking my question. I guess, Steve and Kishore, I'm surprised a little bit of the volatility between sort of weakness in broadband and strength in connectivity.

And, I guess, maybe can you provide a little bit more color with what's behind the recent weakness in the broadband segment of the market? And the second question is, the Wi-Fi seems to be up very strongly here in Q3 and up again in Q4.

How sustainable is that? Do you think there's some catch-up revenue as Wi-Fi constraints ease, do you think there's any inventory building taking place in those Wi-Fi components given some of the past capacity constraints? I guess, how comfortable are you with that, the sustainability of the Wi-Fi business at the second half 2022 levels?.

Hey, Quinn, I'll start out anyway. So first of all, so the Wi-Fi is kind of in line with what we had expected. Last quarter we were short on Wi-Fi, a lot of that driven by supply constraints. So there was a bit of catch-up in the current Q3 quarter. That being said, we see continued growth as we continue to take more market share.

We've talked about the ASP increases as well. And so, that's showing more progress. And then lastly, the third-party routers. We mentioned that third-party routers would kind of just get going in the second half of the year as supply comes on. And that's exactly the way it's playing out.

We'll start to see that third-party router business start to ramp in Q4 and continuing into the first half of the year..

And then just, any comments on the broadband, the fiber and the cable business?.

Yes. Well, I mean, we highlighted the progress that we're making on the business. On the broadband side, broadband had been running ahead, I would say, a little bit, particularly in the last quarter in Q2 it was growing well north of 20%. We had anticipated that, moderating a little bit this quarter and that's exactly what happened.

So comfortable with the progress on the cable operator side. Fiber is something we're really excited about. We highlighted this in our prepared remarks. It's a business that's doing well. We're underpenetrated in the market today. We have a lot of new products. We have some new customers that are ramping in the second half of this year.

It's still relatively small in the whole scheme of things, but we do see a lot of growth, especially going into 2023, where we think we have the potential to double the fiber revenues or fiber-related revenues next year over 2022..

Great. And then, just one follow-up on the margins. Obviously, it sounds like the mix towards Wi-Fi in Q4 is behind the kind of lower gross margin.

As you look out to next year with Wi-Fi expected to be $200 million or more, do you think that 59% to 62%, is that more where you would expect gross margin to trend next year, or do you see strength in infrastructure or other products perhaps coming back next year that they could walk you back up towards the 62% you've been running at more recently?.

Yes. So, good question. So this one is -- as we look out, I don't think our long-term view of our gross margins have changed at all. A little bit of a perfect storm going with the mix. We've been talking about the headwinds on mix that we have been seeing. So yes, you're correct in that WiFi ramping in Q4 and into next year, is hurting us.

Another piece of the puzzle is infrastructure. Infrastructure is a little lighter than originally planned. We talked about the substrate shortages, that we had seen. So as those shortages ease, I do expect to see more infrastructure revenues improve in Q1 and Q2 of next year.

So, we'll see gross margins move back up, but I think it takes a little bit of time to move back to our long-term model..

Got it. Thank you..

Next question comes from Tore Svanberg with Stifel. Please go ahead. .

Yes. Congratulations on the results. I had a follow-up on the fiber gateway. I think you've called out having a design win pipeline of more than $300 million.

I'm sure, you're not going to give us an exact number, but where are we sort of in converting that pipeline at this point?.

So, I mean with regard to fiber in general, we've talked about multiple customers ramping this year, we'll see that we've talked about it doubling next year. I think we still remain comfortable with that. I still think it's early days.

I think that we've talked a lot about this being a multiyear cycle, as we see more and more folks -- telecom guys converting over to fiber. So we're seeing that around the world. So, it's an exciting area for us from a market growth standpoint, but also we've got a lot of new products ourselves that Kishore highlighted in his remarks.

And so I do think that's a great place to be. We're very underpenetrated in the market, and I think our customers are looking for some alternatives here. .

Very good. And Kishore, you really called out your wireless infrastructure business should be able to see some strong growth in Q1, as some of these supply constraints ease. I was just hoping if you could elaborate a little bit more on that. I mean, this is obviously, a backlog that you already have.

Is it pretty diversified geographically? Perhaps you can add some color on that. .

Hi, Tore. Yes, we really are seeing a strong continued demand building and as reflected in our backlog very strong backlog for the next year. And that's not one that we've accumulated early in the year, and we're just seeing in the next year it's continually building. We're really constrained by the special ABF substrate capacity issues.

We have secured dedicated capacity that should come online in Q1. So we should -- you'll see next year to be a very strong, wireless infrastructure year as at. So getting back to the gross margin comment, that is one of the other mix issues that affected us because we could not ship. Regarding geographic diversity, absolutely.

I mean wherever you see major telecom OEMs deploying wireless 5G network rollouts, you can expect that invariably we would be ubiquitously present at the rollout, as a full system solution vendor for microwave backhaul and for millimeter wave modems, right? So, whenever you hear millimeter wave deployment it's more likely than not it's our chips.

So -- and you know that with 5G rollout, all kinds of backhaul fronthaul are becoming important. And I referred to multi-band rollouts, not just one kind of backhaul. Now they're rolling out in conjunction both millimeter wave microwave backhaul, on the same antenna multiple actually. So there's a TAM doubling up happening right now, as we speak.

So geographically, we are everywhere, right? Other than -- we have to follow US regulatory restrictions, on export control regimes, right? So you can be safe that we are everywhere, wherever the microwave and millimeter wave is being rolled out.

On the access side, geographically US is one of the end markets, that we are very strongly present and there are other markets that are coming online of which some of them are in South Asia and those are just getting started, okay?.

Great. Just one clarification question for Steve. Steve, you called out risks associated with lower-cost Asian suppliers. I think that's the first time I've sort of heard that as a risk for gross margin.

Can you just clarify, what you meant by that?.

Yeah, yeah. This -- I mean I'm sure there'll be plenty of commentary around many semiconductor companies, but the new recent export control restrictions that were rolled out last week we are assessing how that relates to us. I mean on the customer front naturally we're addressing it, but then it also applies on the supplier front as well.

And so some of our existing suppliers are either current suppliers or future suppliers that we have to manage and that helps us to reduce gross margins long-term as we've talked about previously..

Helpful. Thank you..

Next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead..

Hi guys, good afternoon. Thanks for taking my question. I wanted to call out a few things that were highlighted in your 10-Q and I think you just spoke to maybe one of them. I noticed that you have a pretty high concentration with one specific customer highlighted in the Q, 31%. I think that's the highest you've ever had in terms of concentration.

Is that direct or is that a distributor? And if it's distribution, what is the specific driver to that level of concentration? And I also noticed that appears to your supply footprint your fab supply footprint seems to be getting more diverse.

And I'm wondering if anything -- if there's anything there to read into that?.

Yeah, Gary no problem at all. Yeah. So we do have two or three customers that are large. We did have one in particular that picked up this past quarter as we caught up on our Wi-Fi shipments. So it did rise in the last quarter. But I wouldn't say that it necessarily changes dramatically from what we've had historically.

As you're aware there's a number of these gateway suppliers and we focus on all of them frankly and we're looking to grow each of those relationships as well as the operators.

And I think at the end of the day these operators are making the big decisions and the big rollouts and the upgrades that are happening around the world and that's really where we find that we're spending most of our time. On the -- briefly on the supplier side of the equation, yeah, I know in the previous quarter it did diversify a bit.

There too I would say not a whole lot to read into it. In -- if you look over the last year it's fluctuated a little bit just to -- and it goes back to these supply constraints. We have to get product when we can get product and you saw that in a slight increase in our inventory last quarter as we start to build more WIP for future revenue growth..

Okay. I wanted to -- I guess considering the hypersensitivity everybody has with respect to the semiconductor cycle.

I want to ask you guys about your bookings trends, your backlog trends given all this shifting dynamics in demand and supply, where do you guys stand with respect to backlog, backlog coverage in your book-to-bill ratio for the quarter?.

So I think what we found in Q3 was pretty consistent with what our expectations were. And I think I even spoke to this last quarter as lead times have started to shorten we've seen bookings come down. No real surprises there. I think as we look out into 2023 probably, well not probably this is the highest level of backlog that the company has ever had.

So that's really encouraging. That being said customers are starting to move around on shipment dates I mentioned this last quarter as well. So I think here too not a big surprise. We're watching it closely.

I think where we're excited we've got several growth drivers that we've highlighted fiber infrastructure some of the backhaul things that Kishore was speaking about earlier. Those businesses are growing nicely and they should be countered to any industry slowdown that inevitably we'll see in 2023..

Thanks for the color Steve. Appreciate..

Sure..

The next question comes from Alessandra Vecchi with William Blair. Please go ahead..

Congratulations on a great quarter in a tough environment. Steve, just one for you as a housekeeping question on OpEx. You delivered OpEx below the low end of this quarter and are, kind of, holding it flat even with revenues up in Q4.

How do we think about that as supply constraints ease next year counter to inflation et cetera?.

Yes. So good question. I mean, we're -- I would say that we're watching OpEx closely, especially, kind of given some of the turbulence that you see in the market and volatility going on. So we want to be disciplined in that environment as you've seen us do in the past. And I think that kind of shows here.

We've also got some offsetting NRE dollars that are coming in offsetting OpEx and so that can help fluctuate on some of that. We do expect probably going into next year your normal beginning of the year taxes and the like merit increases definitely we would expect to see go up.

I think what -- with respect to inflation I think we continue to see wage inflation and other aspects of inflation in various aspects of our business. But I mean, wages are the primary piece. And we've definitely seen that. And I think that's going to persist for a while as that's typically a lagging indicator. .

Exactly. And then not to beat a dead horse but just on the substrate easing as we move through Q4 into next year.

I think, you had mentioned in the past diversifying substrate suppliers just in line with your commentary for risks around Asian suppliers do you see any potential hiccups there as you move through the year?.

Look the – Hey, Alessandra, this is Kishore. The -- on the substrate supply capacity we have been working on this easing of this capacity from I would say at the first half of the year onwards. It takes a long time to qualify high-performance substrates for really, really high-frequency applications.

There are very few vendors in the world that could support that level of substrate capacity that's inherent into the product design itself. And so it is going to come online because we know it's going to come online in Q1 number one.

And these are not -- and this really doesn't apply to all the other Asian suppliers that you may have concluded from the remarks on suppliers. And so we're not impacted by that. However, we are getting dedicated capacity for our high-performance substrates.

And we are enabling a couple of other substrate vendors who could be potentially capable of giving us additional supply.

So no risk of any export regulatory issues with these particular substrate suppliers that are in what I call deemed friendly countries right? So that's where we are okay?.

Perfect. That was very helpful. Thank you, Kishore. With that I will move on..

Thanks, Alessandra..

Next question comes from David Williams with Benchmark. Please go ahead. .

Hey. Good afternoon. Thanks a lot for letting me ask questions and congrats on the performance in this environment..

Thanks, David..

Hey, Steve. So maybe first with you just kind of thinking about the scalability of the business. Now with you've got revenue that's north of $1 billion now significant growth over the last couple of years. But you've got the Wi-Fi seven platform and the AnyWAN gateway processors in the pipeline and a lot of really nice growth drivers here.

And of course the PAM4 that kicks in perhaps next year.

But how do you think about the scalability of the business going forward in terms of when you, kind of, couple all of this together what does the growth trend look like if you're thinking 18, 24, 36 months out?.

Yes, David. I mean, look we've several product lines that we're very excited about that we've been investing in. I think as I think about some of the longer-term growth drivers that you're, kind of, highlighting as we look out over the next couple of years.

Infrastructure is something that we've been investing in whether it's on the data center front wireless infrastructure front. That is an area of long-term sustained growth that has kind of, large TAMs associated with it. We continue -- I mean, it's really early days.

I think on the WiFi and Ethernet side these are markets that are well in excess of a couple of billion dollars. We're beginning the portfolio there. I think you'll start to see even more derivatives come off of those existing products.

And I think that's an area based on the market size and growth the ASPs I mean just the silicon content, the complexity of the parts continues to go up and that will benefit from that.

So, I mean those are a couple of the -- clearly, the fiber side is something that we're very focused on and those gateways and you're seeing fiber being rolled out around the world as there's more and more needs there. You've also got a lot of government subsidies really encouraging folks to roll out fiber.

And so we've got a lot of dedicated effort on that front as well..

Thanks so much. And then here's one that I'm not sure that you'll be able to answer. But just kind of thinking about the SIMO acquisition and maybe some of the recent restrictions that have gone into place it seems like that could be a potential headwind for the SIMO business.

How do you think about that? Is there anything that's changed I guess from your valuation or just kind of how you're thinking about that transaction? And anything meaningful there that you could share?.

Look I mean we -- I don't think this is a question even I can answer right satisfactorily. So, I think we believe that it's incredibly strategic acquisition for us, Silicon Motion.

It really catapults us into a very scaled business with really a presence in one of the largest TAMs in the world for silicon basically the storage markets, be it today Silicon Motion's consumer markets, but really the goal is really to expand almost a zero footprint into enterprise with our presence in the United States.

So -- and you couple them with the Panther product that we just talked about. It's really a nice entry along with our 800-gig PAM4 and 400-gig PAM4 to the cloud data center markets as well. So, I think it's a very exciting strategic market beyond the benefits of scale on the supplier side it will provide us.

So, we remain optimistic and we are really, really waiting anxiously to hear back in terms of when thing will close, while being cautionary about the time lines. So, no change in our view of the value of the transaction and we would have done it in the first place if we weren't that convinced.

We don't do -- we will not get into something we don't have real firm conviction and belief in. So, pretty excited.

And the business -- and their business seems to be not doing any what I call anything more adverse than we had planned for because even at the time of the acquisition there were some headwinds in the market in the normal cycle for storage and consumer products. So, we are comfortable where things are. .

Very well. Thanks so much. Certainly appreciate the color and best of luck on the quarter guys..

Next question comes from Christopher Rolland with Susquehanna Financial Group. Please go ahead..

Thanks for the question guys. I wanted to go back to broadband again there. I didn't quite understand why we were seeing weakness there. We were a little bit weaker than we have expected for September. And then we'd actually estimated some growth in December as well.

Is this just a mismatch between fiber ramping and weakness in cable, or are there some supply issues here as well? And then would we expect some sort of re-acceleration in 2023? And would that be as early as March, or how are you guys kind of looking for a re-acceleration in that business? Thanks..

Yes, Chris. So, let me maybe clarify what I said earlier. So, we definitely saw -- look there are some crosscurrents in the business. I mean we do ship a number of different products into these gateways. And so there are often mismatches and we definitely saw that in Q2 and Q3. So, we're starting to get through that.

I think the root of your question is maybe a little bit longer term what are we seeing for the broadband business as a whole? And I think the way I would characterize it as we look into 2023 I mean we've had a very strong 2022. We see the same environment that you're seeing out there.

And -- being cautious so it wouldn't be surprising to see some moderation next year on the broadband side. That being said, we've got a lot of new business that will offset any slowdowns that would potentially be there. And some of the fiber businesses that we have just now ramping. We've got new customers, new products that are all new to us.

So, that's exciting. It's still early days. I think that, business is still, it's not super material, but tens of millions of dollars of incremental revenue that can come from that business next year..

Should we expect broadband to grow next year, or is that a little too optimistic?.

So as I just stated, I mean, I don't think it would be surprising, if it moderate or come down a little bit next year..

Okay. Fair enough. And I'll give you an easy one Steve and then Kishore more of a technical question. So Steve yours is around accounts receivable that was up. Does that speak to linearity or something else? And then Kishore considering you have PAM4 products, have you thought about entering the active electrical cable market? Thanks..

So the short answer on the receivables yeah, it was linearity. I mentioned that in the prepared remarks, the shortages that we saw kind of late Q2 rolled over into Q3 so definitely the linearity in the quarter was the reason for the receivables being up..

Chris, absolutely, I think we just had this conference where one of the vendors we're showing active optical cables with our PAM4 solution, and there's a lot of demand for utilizing our low-power chips in active electrical cables.

So from our perspective is just one-end applications and as the speeds increase active electrical cables will become more and more important for the whole side of the interconnect. So yes we are in it and we have a fantastic solution and there's a lot of demand for that. So, yes, I think that's the short answer..

Thank you, guys..

Next question comes from Ananda Baruah with Loop Capital. Please go ahead..

Yeah. Good afternoon, guys. Thanks for taking the question. Yeah, a couple for me. Steve you mentioned and Kishore this could be for you as well. Do you believe you're yet seeing any legitimate impact from macro? I think you mentioned you expect to see it in 2023. I think you used the term inevitably.

But what do you think you're seeing anything yet?.

So look, I mean, it's very – it's one of those things where you worry that everybody is talking about it so it must be true, right? And then we try other than the behavior of some of our customers who are trying to reschedule deliveries against a very strong backlog and a developing backlog, it's very hard for us to predict the future next year.

And so the assumption is that, things are not going to be as euphoric as they were last year, and even this year though we have continued to guide a good quarter again into Q4, right? So we are just like everybody saying things are going to be bad. So we should also be prepared, if things are bad.

So I can't give you any more intelligence than that, right? So, we're very cautious but we are focusing on our investments on the strategic TAM expanding products, whether it is in the optical side, whether it is in wireless, whether it is in fiber gateways and Wi-Fi, right? We talked of all of those products.

And so the way I look at the thing is that, longer term can we go organically from where we are today at whatever this let's go with the Street number is $1-plus billion for 2021, 2022 and can we get to $2 billion in five years from now or something? And based on the product portfolio and the customer traction and the sort of what I call the evolved garden, if you feel nature of our product offerings, there is no reason why we don't have a pathway to that.

So next year is just another year since we started the company where we have negotiated downturns, but it has never scared us. We have always come out very strong with very strong product portfolio offering. And I see no reason to change course in mentality on that one. So I hope that answers your question on that. .

Yeah. Good. That's good context. Kishore I appreciate it. And I guess, as a quick follow-up to that one building on that.

What are the businesses or the areas, I guess that you guys see as being most constrained currently? And what would you consider to be your strongest underlying areas?.

Could you repeat the question the first part of it please? We didn't get..

Yes, absolutely.

So, which aspects of the business do you consider it to be the most constrained currently? And then, which ones do you see as having the most kind of underlying structural demand?.

So, I think -- when I think of constrained, I think of supply capacity, but we're going to come off that supply constraints by the end of the year in wireless. And wireless also has some of the strongest, if not the strongest undercurrents of demand, and we should go very strongly on that one. And the next up would be by Wi-Fi.

I would say, it's got lots of very, very strong growth trajectory in front of it. And fiber ramp is going to be in earnest and that should also give a lot of growth for us. Cable broadband would be sort of, as Steve was mentioning, sort of moderated downwards a little bit.

I think -- an optical, cross fingers here, should have some strong momentum once it picks up, right? So, because we're in a pretty good position with respect to our offering on the 800-gig PAM4 and 400-gig PAM4 five nanometer.

I think we're entering nice product cycle cadence for MaxLinear in terms of revenue opportunities with new product offerings that should overcome any negative trends on existing large revenues of the company..

Helpful, Kishore. Thanks so much, guys..

Thanks, Ananda..

Next question comes from Suji DeSilva with ROTH Capital. Please go ahead..

Hi, Kishore and Steve. Nice job on the margins and the cash generation here in a tough environment.

So, on optical, the ramp of 400, 800-gig at the data centers, what's the timing of that roughly? And are you seeing customer push out to the macro or the hyperscale and data center guys on schedule as far as you can tell?.

Look, on the optical, like we had said, last two years we had struggled with the gains incumbency when there were supply constraints on, what I call 50-gigabit per lambda electrical and 100-gig per lambda optical, 400-gig solutions.

But now, hopefully that chapter is behind us and the next generation upgrade cycle is 100-gig per lambda both on the electrical and the optical side.

And we expect that our revenues given the availability of production of silicon right now, everything goes to plan we should start -- customers should start ramping product in the second half of next year. But we should see revenue picking up leading up into the second half of next year.

So, can there be any, what I call delays? Absolutely, when a product is being ramped in fraction. And however, our own intelligence with regard to where the data center guys are in terms of their CapEx and spend in the next year, is not as current as we would like it to be right now.

So, however, they are going full steam ahead with designing with our product. So, I don't know what the extent of purchase level will be overall as data centers go..

Okay. Helpful color there. And this is a bit of a stretch maybe. But, you guys used to have a satellite business and there's a big talk now in the market of satellite broadband direct to sell.

I'm curious, if that's an interesting market to MaxLinear for content size opportunity and/or -- and if there's an opportunity there for you guys going forward?.

So Suji, what can I say? Okay. But all I would say is that, the -- we obviously have the technology of the products that could enable satellite broadband into the home.

However, the ability for satellite to compete in mass market consumption of broadband access at home is really subpar, right? Because, it's really a technology meant for rural areas and maybe war zones, I don't know. But as far as where the revenue dollars will be generated in terms of home access, I think satellite is really, really far behind.

It's getting a lot more efficient and glamour due to reasons that are unbeknownst to me, but I don't think it compares at all to fiber or even fixed wireless access..

Thanks for the clear opinion, Kishore. .

Next question comes from Tore Svanberg with Stifel. Please go ahead..

Yes. Thanks. I just had two quick follow-ups. The first topic Kishore is enterprise. And you talked about the Panther III for storage acceleration.

I'm just wondering is that one of those sort of inflection points to give you better traction in enterprise? And are you starting to also get some follow through on your Ethernet IP there as well?.

Very good question. The answer to your question is, yes and yes. Okay.

So if you have an inflection point in growth in enterprise the storage accelerators really happens towards the end of next year, right? But we're already getting leading demand for Panther products and with one of the largest enterprise application storage guy, and we hope to proliferate other sockets moving forward.

On the Ethernet side, absolutely, we're getting good traction now on the enterprise side, but we are not yet ramping into that socket yet. .

Very good. And my other follow-up was on the third-party router business.

Is that primarily a North American market, or is that more of a global market at this point?.

It is -- I would say, it's a global market. It's not a North American market, because I think North America standalone routers tend to be very consumerish in nature, whereas normally the model could be quite different.

And we are -- even though it's a standalone router market there is what we call a linkage with sort of operator class deployments for Wi-Fi distribution inside the home..

Got it.

But this is still -- I mean, it's still a completely new opportunity for you, right? I mean you didn't have any exposure there before?.

Yes. And in fact the revenue growth that we are talking about where I think whether it's Quinn or you pointed out whatever disconnect between the broadband revenue and the Wi-Fi revenue in terms of the numbers in Wi-Fi is exactly due to that. We're ramping very strongly into third-party router Wi-Fis and we're having very good success.

In fact we would have had even bigger success had we had sufficient capacity over the last two quarters. And now with the general schizophrenia in the market we are a little bit careful that demand that exists is going to be sticky enough through a potential downturn..

That's great color. Thank you..

End of Q&A:.

All right. Thank you operator. We will be -- I just want to let everybody on the call know that we'll be participating at the following conferences.

The first one is the Stifel Conference in Chicago on November 10; the ROTH Conference in New York on November 16; the Credit Suisse Conference in Scottsdale on November 29; Wells Fargo Conference in Las Vegas on November 30; the Susquehanna Virtual Conference on December 14; and the Needham Growth Conference in New York on January 10.

With that, I want to thank you all for joining us today on this call and we look forward to reporting on our progress to you in the next quarter. Thank you. Bye. .

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation..