Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MaxLinear Q1 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, May 2, 2012. And I'd now like to turn the conference over to Mr. Nick Kormeluk in Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's First Quarter 2012 Financial Results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Adam Spice, CFO. During the course of this conference call, we will make projections or other statements regarding future conditions or events relating to our products and business. Among other statements concerning future events or projections, we will provide information relating to our current expectations for the second quarter 2012 revenue; estimated accruals relating to potential export control violations; our expectations concerning trends in our cable revenues and our efforts to expand our addressable markets; gross profit percentage and operating expenses; our current views regarding trends in our markets, including the anticipated impact of new design wins and the size and potential for growth in our markets; and our competitive position in our target markets. These statements are forward-looking statements within the meaning of the federal securities laws, and actual results may differ materially from results reflected in these forward-looking statements. They are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and the future operating results could be adversely affected if our target markets, including the cable market, do not grow or if we are not successful at expanding our target addressable markets through the introduction of new products. In addition, substantial competition in our industry, potential declines in average selling prices, the cyclicality in the semiconductor industry could adversely affect future operating results. The potential export control violations present risks of fines, penalties and other enforcement actions from applicable governmental entities. A more detailed discussion of these risk factors and other factors you should consider in evaluating MaxLinear and its prospects is included under the caption Risk…

Thank you, Nick, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the financial highlights, I would like to note that in the first quarter of 2012, we witnessed momentum related to strong sequential growth in our Cable revenues. At the same time, we bolstered our position in the Cable segment with announcements of market-leading, full-spectrum reception cable receivers, representing our fourth generation RF Broadband Reception Technology platform. Additionally, we continue to make significant progress towards expanding our presence in terrestrial markets with exciting new product offering and seeing growth in future markets such as satellite. Now to the specifics. Net revenue in the first quarter was a record high for MaxLinear at $20.7 million, up 7% over the fourth quarter of 2011 and up 22% from the year-ago quarter, which exceeded the high end of our guidance. GAAP and non-GAAP gross profits in the first quarter were 60% of revenue, within our prior guidance range of 61% plus or minus 2%. GAAP net loss in the first quarter was $6.6 million or $0.20 per diluted share, which includes stock-based compensation expenses of $2.2 million, $1 million for an accrual related to our performance-based 2012 bonus plan which, if achieved, will be settled in stock in 2013, approximately $0.3 million in nonrecurring IP license expenses, and $1.1 million in professional fees arising from the voluntary export compliance review initiated by our audit committee. The export compliance matter was disclosed in our fiscal fourth quarter 2011 results and in our most recent form 10-K filed on March 14, 2012. Non-GAAP net loss for the first quarter was $2 million or $0.06 per diluted share. I will now discuss the current trends we are seeing in our business. Cable was once again the highlight of our business…

Thank you, Kishore. I'll first review our results and then briefly discuss our outlook. In summary, Q1 revenue was a record $20.7 million, as Kishore mentioned, above the high end of our guidance, up approximately 7% quarter-on-quarter as compared to our guidance, above 3% to 6%. This was up 22% when compared with the prior year Q1. As Kishore noted, net revenue for the first quarter was driven by very strong sequential performance in Cable, offset by weakness in Terrestrial. It was accompanied by a strong design win momentum across a wide range of product areas. Now moving to the rest of the income statement. GAAP and non-GAAP gross profit for the first quarter was approximately 60% of revenue, within our prior guidance of 61% plus or minus 2 points versus 61% in the fourth quarter of 2011 and 64% in the year-ago quarter. We achieved gross margin stability in the face of significant pricing pressures in certain terrestrial markets as we fought to maintain and grow share in key focus areas such as digital terrestrial set-tops and hybrid TV. Our Q1 GAAP operating expenses were $18.9 million, which includes $2.2 million of stock-based compensation; $1 million for an accrual related to our performance-based bonus plan for 2012, which, if achieved, will be settled in stock in 2013; $300,000 of nonrecurring IP licenses; and $1.1 million in nonrecurring professional fees related to a previously disclosed export compliance-related matter. Net of these items, our OpEx was $14.3 million, which is $1.4 million higher than the prior quarter, slightly lower than our prior guidance. Q1 GAAP OpEx included $11.9 million of R&D expenses, which include stock-based compensation of $1.4 million and $0.3 million for nonrecurring IP licenses. Majority of the $1.7 million step-up in R&D quarter-on-quarter was driven by expenses related to…

[Operator Instructions] Our first question comes from the line of Tore Svanberg with Stifel, Nicolaus.

A few questions here. First of all, looking at Q2, obviously, the growth is going to be pretty strong there. And obviously, Cable continues, but what about Terrestrial? Could you talk a little bit about the dynamics there? Looks like you expect the business to stabilize in Q2. Is that coming from new hybrid TV design wins? Or just help us understand what's happening there.

Torrey, this is Kishore. Okay. So let me get through this year. So Q4 is a seasonally high quarter for the terrestrial set-top box markets, primarily driven through audience in Asia, primarily in China. So we went through the Q4 peak, so in Q1 we got a seasonal debt. At the same time, the revenues in TVs, while they're not -- we have been gaining market shares in designs and revenues, for example, with customers, as we already announced, with Sharp, those have not gone as high as we were expecting at this time of the year. So we expect the growth to start to come in from second quarter onwards. And we are calling most likely the Terrestrial revenues of first quarter 2012 to be the bottom, actually. So we're expecting growth to come stronger in TV as we move through the rest of the year.

That's very helpful. And you had the full-band capture technology launched or announced this quarter, and that's 40-nanometer. First of all, when can we expect to see some revenues there? And then second of all, when can we see some additional products on 40-nanometer later this year?

So we called it full-spectrum capture technology. So those products, actually, are having sampling already for the last 2 months now. And they've got great design traction. However, this is for the cable markets, and usually there is a lag of -- from the starting of sampling to the designing. It will be approximately a year at least when you start seeing revenue shipment in a meaningful way in the new products in the cable market. So I don't think you should expect to see revenues in a meaningful way coming through with the Full-Spectrum Capture products until a year from now at best. In the meanwhile, we have the best wideband spectrum capture tuners, namely MaxLinear 261, that is shipping very strongly. And our 65-nanometer technology note, it will be the mainstay. It's the latest and the great excitement in the marketplace for the DOCSIS 3.0 gateways and modems. And we're very excited over the success it's having in the marketplace. And that builds a nice incumbency position for MaxLinear with our Full-Spectrum Capture cable receiver products that we are sampling now.

Great. And then looking at DOCSIS 3.0, I know you've talked about maybe 70% penetration this year. Is that number still holding at this point?

Actually, we feel that the momentum is pretty strong. If you track some of the major OEMS like Arris, or the end operators like Time Warner or Comcast's earnings releases, it's very clear, and with the recent press releases as well, we're gaining significant traction in converting customers to higher bandwidth services, with 40-megabits-per-second range on an average. And this year, very nice uptake, so I would say at this stage, the 70% milestone mark, we feel very confident about. Can it be better? Based on the euphoria right now, it could be better, but I would still mark to market at a 70% penetration at this stage.

Very good. Just 2 very quick ones for Adam. Adam, first of all, could you -- in light of the $24 million guidance, could you talk a little bit about your visibility there? I know you usually don't give backward numbers, but just from a turns perspective, are you actually going to be needing less this quarter than last quarter?

Yes, Tore, I think that what we do provide in the past is kind of an indication of where we went into the quarter as far as percentage booked to our guidance or to our forecast. And we've ranged anywhere in the last, I'll say, 5 quarters, we've been anywhere between low 50s and low 70s with the normal range of percentage booked around kind of 66%, 67%. We came into this quarter over 80%. So we're sitting very, very well. We don't need a lot of turns business to meet our number, and we're very confident with our number.

Very nice. Last question, at $24 million, I assume you will be cash flow neutral or cash flow positive.

Yes, on a cash flow basis, I think that we'll be -- probably, if you think of neutrality and the cash line, that's probably a pretty good estimate. We might generate a little bit. On a non-GAAP profitability basis, we do see turning the corner in this current quarter. With the $24 million, I think that's consistent with what we've been talking about with breakeven for us around $24 million to $25 million, and given the lower spending that we talked about in our guidance, that's consistent with turning a corner in this quarter.

And our next question comes from the line of Quinn Bolton with Needham & Company.

Kishore, I was wondering if you could talk about the sort of visibility in the Cable business. It's been up pretty strongly now and I think for several quarters in a row. And I guess I just wonder, are there any signs that inventory may be building, or any evidence of strong sell-through? I mean, obviously, with this kind of hockey stick, it's great to see, but it always makes you wonder if it's -- if inventory is accumulating somewhere in the channel. And then I've got a couple of follow-on questions.

So there are only 2 points of checks we can make, right? One is the -- at the OEMs, even if they're manufactured through Asian contract manufacturers, check at the end OEM. And the other place we can check is understanding the operators, where they -- how is the uptake of these new higher bandwidth services. On both measures, I think there's a pretty nice velocity right now. And I can see at the OEM level, the inventory buildup is not there in fact, if anything. I hate to say this because it tends to be a lumpy market in terms of how the ordering patterns go. But I would say they are right now just in time in terms of shipment. So that bodes well at least as far as we go. We can only give our guidance for the quarter, and Adam just said that we got very good booking levels entering the quarter. So I feel that the momentum is there. We're not anywhere where we're building inventory, so -- can I hazard a guess, into the third quarter? Yes, I don't see the buildup will happen into the third quarter on the inventory side. Fourth quarter, that's too far for us to talk about. So I would say at this point, we feel very good that there is actually no inventory in the channel right now.

Okay, great. And then just sort of coming back to that question of the 40-nanometer tape-outs, it looks like that was the reason for the step-up -- or part of the reason for step-up in Q1 and then the step-down in Q2. If you look into the second half of the year, do you start to get more tape-out-heavy? As you continue to roll out new products, you've mentioned some new products and TAM expansion products that you'll be introducing later this year. Just kind of wondering if those have already taped out or whether they are less expensive tape-outs?

Yes, so just to remind folks, so depending on what type of product it is, as far as what category of products and what parts of the markets that we're servicing, if it's a new area versus a legacy market for us determines whether or not we capitalize-masked or gets expensed to R&D. And so the mask that we saw in Q1 in the first 40-nanometer tape-out wasn't R&D-masked, so it was expensed. We do have at least one other 40-nanometer masks that are scheduled for the second half of the year. That will also be treated accordingly in R&D. And that's consistent with what I've been talking to folks about. We've been thinking that the OpEx -- non-GAAP OpEx would be bouncing around kind of the $14.5 million to $15 million per quarter throughout the year. And I think that OpEx [ph] came in lower now, sort of guidance for Q2. So I think you can think of that range as still being $14 million to $15 million on the non-GAAP OpEx, which again includes another R&D 40-nanometer tape-out later in the year. And then we do have some other tape-outs, but some of those are for existing product areas which would be capitalized and amortized over time to COGS.

So I would add one more thing here, Adam, that if you really look at the company as put and taking a lot of measures to get the OpEx under control, and when you talk of step-up in Q1 in the 40-nanometer-related mask expense, it was really slated to go out in Q4 last year. And the way Adam spoke about it was, for Q4 and Q1 combined, our OpEx actually is lower than what we guided for. So I think we are the trend of really being very cognizant about our -- how we operate the company. At the same time, we are being very aggressive about very disciplined investments in TAM expanding activities, trying to go invest towards more higher-tier markets, that are much more very difficult that the value to entries is very high and really coming to our playing field with the extremely tough RF capability requirements. So I think all in all, I think I don't look as Q1 expense being up. I really look at it as an accumulative basis, that we're actually doing better than what we had guided the Street for.

So Quinn, just to come back to your question real directly, you asked whether the tape-outs is related to new TAM expanding areas. That second 40-nanometer tape-out that I mentioned is going to happen in the second half of the year, that is related to a new TAM-expansion effort. And that's why it hits up in the R&D expense category.

Okay, great. And then Tore had asked the question about penetration of DOCSIS 3.0, and I think you felt pretty comfortable about that 70% level this year. I'm just wondering if you had any sense what the split between 4x4 versus 8x4 modems are? I mean, are we seeing pretty strong conversion over to 8x4 architecture or is there still a fair number of 4x4 modems being shipped?

I would say that based on our knowledge, 4x4 is now a discontinued stream. If there is any, that may be very, very miniscule, that we are not really keeping a track of. All new shipments, new designs are 8x4. Actually moving forward, with our latest offerings, with the Full-Spectrum Capture, that game is going to be upgraded to 16x4s and maybe even 32x4 in the future. So really, the market is heading in a direction where simultaneous captures with scalable bandwidth of theoretically unlimited bandwidth is where the market wants to go, and we have the right product category to support that right now.

And our next question comes from the line of Anil Doradla with William Blair.

When I look at kind of big picture, 2012, 2013, can you give us a sense how you would like the cable and video business to look like in terms of split [indiscernible] longer term? And in terms of the Terrestrial, can you walk us through what could potentially happen, the puts and takes on the margin front given that you have been referring to the rise of the hybrid tuner?

Anil, this is Kishore. So I would say that to -- so you had a number of questions in that one. So the first one is on the terrestrial markets. Really the -- looking forward, the terrestrial markets, this also answers your 2013 sort of question, what are the growth drivers heading into 2013, really speaking, Cable is going to be the driver for 2012 in a big way, and we expect hybrid TV to start contributing for us in revenues in a bigger way starting in sometime October, November time frame of this year. So -- and that's the typical design cycle for the big TV launches for 2013 shipment cycle, and we hope to be some of the top players in the TV markets, shipping our MaxLinear601 TV tuner. So with that success comes certain pressure in the margins, I would argue, in the hybrid TV market. And so our expectation is that the consumer markets and the TV markets, the set-top box markets are going to be more pricing sensitive in ways that will put pressure on margins. However, as Adam guided you, looking forward, we are seeing stabilization in gross margin through 2012. And 2013, we'll have similar efforts in place regarding our operating costs. Our COGS models will have transition to newer technology notes. Our products in Cable will have transition to 40-nanometer notes. So all in all, we intend to strive towards the targets that we have guided you of late in the 60% range. And so we believe that's the model we can work toward. And now if you have a hyper success in the hybrid TV market, will that depress the margins? Yes, it would. But that's a good thing because we'll have more contribution dollars, and we'll have more currency to…

Absolutely. Excellent. If I dig a little bit on the Cable side, I mean, based on your vast experience of dealing with these cable operators, from a product cycle point of view, in terms of penetration, in terms of growth, can you give us a sense of how long typical product cycles last? And the second question is people are already talking about DOCSIS 4.0, and how would this current cycle play out in terms of 4.0? So can you give us a sense -- typical -- is the cable product cycle multi-year, multi-quarter, at least from your perspective?

I think consumer DOCSIS 3.0 really got launched now in a really big meaningful way. And looking at the number of years DOCSIS 3.0 actually waited to really even deploy, I would say that DOCSIS 4.0 is pretty far off because of the infrastructure upgrades involved. We are not even -- they have not even started the standardization process yet. The discussions have just started. I think that's -- if you call 5 years, several years away, I think that's a reasonable estimate, and maybe that's a good estimate of being on the positive side of things. And then the DOCSIS 3.0 has just started. And so I think we feel our design wins are multiyear-cycled. So if you consider 2012 and 2013, we feel that our existing MxL261 wideband capture product is well-entrenched, if you will, in it's product category technologically on a power basis, performance basis. It is so far ahead of the rest of the peers that we feel that with the Full-Spectrum Captures, we really have moved the benchmark where the new skin is going to particularly be longer to play out. So we feel it's at least a two-year cycle, the 261 product. And then the other right product right now that will launch into the 2014 time frame and late 2013, and the media, several markets with their Full-Spectrum Capture, so giving you the long answer here is that don't worry about DOCSIS 4.0 right now. We feel that we're in a good position in the gateway and modem markets. We've got product offerings for the video segment. We're having, as Adam mentioned, remarkably positive success in having a good video business growth as it is in this current quarter. So I think the Cable is going to play out for us very meaningfully in a very dependable way over the next 2 years.

[Operator Instructions] Gentlemen, I show no further questions in queue at this time. Please continue.

So thank you, operator. As a reminder, we will be part of spending the Deutsche Bank Semiconductor One-on-One Conference in San Francisco on May 9, as well as the GMP Securities Conference in San Francisco on May 14, and hope to see many of you there. To conclude, the first quarter of 2012 was an eventful quarter with record revenue and a view forward to even stronger growth in the current quarter. We thank you all for joining us today, and we look forward to reporting on our progress to you in the next quarter. Thank you very much.

Ladies and gentlemen, that concludes our call for today. Thank you very much for your participation. You may now disconnect.