MaxLinear, Inc. (MXL) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to MaxLinear Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, August 1, 2013. And I would now like to turn the conference over to Nick Kormeluk, Investor Relations.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's second quarter 2013 financial results. Today's call is being hosted by Kishore Seendripu, CEO; and Adam Spice, CFO. During the course of this conference call, we will make projections or other statements regarding future conditions or events relating to our products and business. Among these statements, we will provide information relating to our current expectations for the third quarter 2013 revenue, including expectations for revenue growth in our cable, terrestrial and other target markets; gross profit percentage and operating expenses; our current views regarding the risk of future mask impairments; and our current views regarding trends in our markets, including the anticipated impact of new design wins and the size and potential for growth in and expansion of our markets, including satellite. These statements are forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from the results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and future operating results could be adversely affected if our current target markets, including cable market, do not grow or if we are not successful in expanding our target addressable markets, in areas such as satellite, through the introduction of new products. In addition, substantial competition in our industry; potential declines in average selling prices; intellectual property litigation, such as pending matters between MaxLinear and Silicon Labs; and the cyclicality in the semiconductor industry could adversely affect future operating results. 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 Factors in our filings with the Securities and Exchange Commission, in particular, our most recently filed 10-K for fiscal 2012, subsequent quarterly filings and our upcoming 10-Q for the second quarter of 2013. These forward-looking statements are made as of today, and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements. The second quarter 2013 earnings release is available on the company's website at maxlinear.com. In addition, MaxLinear reports gross profit, income or loss from operations, and net income or loss and basic and diluted net income or loss per share in accordance with GAAP and, additionally, on a non-GAAP basis. Our non-GAAP presentations exclude the effect of stock-based compensation expense and its related tax effect, expenses of investigation related to export compliance matters, accruals under our equity-settled performance-based bonus plans, expenses associated with our acquisition of certain new market-related technology licenses, expenses related to our current patent litigation matter with Silicon Labs, and mask-related asset impairments. Management believes that this non-GAAP information is useful because it can enhance the understanding of the company's ongoing economic performance. And MaxLinear, therefore, uses non-GAAP reporting internally to evaluate and manage the company's operations. MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the company internally analyzes its operating results. The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release, issued earlier today. The earnings release and reconciliation is available on our website, and we ask that you review them in conjunction with this call. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, 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 second quarter of 2013, we realized double-digit year-over-year revenue growth derived from our industry-leading products, targeting some of the most exciting and dynamic broadband front-end applications, such as cable DOCSIS 3.0 data modems, media server gateways, hybrid televisions and set-top boxes. As a result, in the second quarter, we were able to generate record revenue, increase cash flow from operations and scale revenue from our legacy markets. We also made solid progress towards opening up new market applications, such as satellite-TV, for our industry-leading broadband RF receiver solutions. Moving to the financial specifics. Net revenue in that second quarter was $29.8 million, up 12% from the first quarter of 2013 and up 22% from the year-ago quarter, and about the high end of our guidance. GAAP and non-GAAP gross margin in the second quarter was 58% and 52% of revenue, respectively. GAAP net loss in the second quarter was $2.9 million or $0.09 per diluted share, and non-GAAP net income for the second quarter was $3.8 million or $0.11 per diluted share. I will now discuss current trends in our business. Consistent with our prior guidance, our Cable business continued to grow in the second quarter of 2013, with revenue increasing approximately 8% related to the first quarter of 2013. As such, the increased demand for our cable modems -- cable solutions was broad-based. We experienced solid growth in both cable data and traditional cable video set-top box applications, and stronger double-digit growth coming from our video server gateway applications. This growth was offset by minor weakness in the demand for cable DTA. Here are some of the specifics related our cable revenues. In the second quarter of 2013, cable represented 67% of our total revenue. Momentum continued to build for our next generation DOCSIS 3.0 products, specifically our 16- and 24-channel Full-Spectrum Capture cable receivers, which entered volume production in the second quarter. Additionally, we announced that Hitron has selected our 24-channel Full-Spectrum Capture cable front-end receiver for its new family of DOCSIS 3.0 cable modems and gateways, which are capable of delivering speeds of up to 960 megabits per second or close to 1 gigabit per second via 24 bonded downstream channels. Our Full-Spectrum Capture cable receivers continue to enable new cable applications, such as the video and media server gateway architectures, which is garnering strong momentum in both North America and Europe. We believe that these applications are creating compelling revenue-per-box opportunities for MaxLinear. Moving to the terrestrial and satellite TV markets. Terrestrial revenues increased approximately 23% quarter-on-quarter, reversing the decline observed in the prior quarter. Our ISDB-T Digital TV Standard Terrestrial Tuner/Demodulator SoC solution remained the dominant growth driver of our terrestrial revenue in the second quarter. This solution embraces the satellite pay-TV set-top box market in South America and the digital television market in Japan. We also experienced growth from the continued ramp of our 65-nanometer CMOS Hybrid TV Super Radio solution. Some notable highlights in the terrestrial market in second quarter of 2013 are: Samsung launched mass production of television shipments using our 601 Global Hybrid TV tuner. We believe this design is the first direct silicon tuner onboard implementation inside a Samsung television. It also represents a significant milestone for silicon tuner adoption in the television market by a major television OEM. We announced that several leading OEMs are using our MxL603 silicon tuner device in new Internet video set-top boxes shipping into the U.S. market. These new boxes are enabling the recent major consumer trend of accessing video content from over-the-top videos service providers like Netflix, YouTube, Hulu and Amazon Instant Video. We announced several new terrestrial design wins with leading OEMs for the satellite pay-TV market. Technicolor and Kaon Media have selected our ISDB-T Digital TV Standard Tuner/Demodulator device, MxL683, for new hybrid satellite and terrestrial set-top boxes for deployment in the Latin America pay-TV market. We also announced 2 different platform design wins with STMicroelectronics. One is a DVB-T2 set-top box design using the MxL603 Super Radio tuner for the emerging free-to-air and hybrid terrestrial set-top box markets in Europe and Southeast Asia. The second is a small-form-factor cost-optimized set-top box design for Latin America regions such as Brazil. These digital converter boxes are necessary to ensure that homes will continue to receive free television services after the planned analog broadcast blackout, which is expected to begin in 2015. Moving to the highlights in the second quarter of 2013 of our target and visible market expansion efforts into satellite TV. Here are some highlights: In satellite, we have previously announced partnerships with SES-Astra, Inverto and Abilis Systems to develop the industry's first IP-LNB that utilizes our revolutionary MxL584 Full-Spectrum Capture 8-channel satellite receiver. In the second quarter, we announced a design win into Unitron's 16-channel SAT>IP Multi-Switch targeting multi-dwelling unit applications. SAT>IP Multi-Switches extend the functionality of traditional satellite multi-switches to provide satellite-TV content to IP-enabled devices such as tablets, laptops, smart phones, IP set-top boxes and connected TVs. We are very excited by our close collaboration with major satellite-TV operators in North America and Europe in defining advanced media server gateway and client architectures for the home and for the outdoor unit, also called the LNB. Currently, there are 2 distinct silicon devices for the satellite outdoor unit for LNB market slated for tape-out in the second half of 2013, which has positively impacted our revenues in the latter half of 2014 and beyond. Additionally, in the second quarter of 2013, one of the major North America operators selected MaxLinear to develop advanced broadband receivers for their next generation gateways, to be deployed in 2015. We believe this new opportunity has a very beneficial effect on our strong product-cycle-based revenue growth trajectory, and we are excited to have kicked off this project. In conclusion, we are excited by the broad strength of our Cable business and the resumption of growth in our terrestrial receiver product shipments. We're greatly infused by our steady progress towards realizing the fruits of our 2-plus years of development effort in satellite TV. We're also expanding our target addressable market, with our industry-leading broadband and Full-Spectrum Capture RF front-end technology platform in new markets beyond satellite TV. With that, let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, for the review of our financials and our forward guidance.

Thank you, Kishore. I will first review our results and then briefly discuss our outlook. In summary, our Q2 revenue was a record $29.8 million and above the high end of our prior guidance. As Kishore noted, growth in our revenues from cable was broad-based, and cable continues to be poised to continue to help drive top line growth in 2013. We're also encouraged that the combination of hybrid TV and ISDB-T digital terrestrial TV set-top box applications delivered the anticipated growth in terrestrial revenues in Q2, reversing softness in recent quarters. Now moving to the rest of the income statement. GAAP and non-GAAP gross margins for the second quarter were approximately 58% and 62% of revenue, respectively, versus our prior guidance of 61% to 62% for both GAAP and non-GAAP gross margin. This compares to GAAP and non-GAAP gross margin of 63% in the first quarter of 2013 and 62% in the year-ago quarter. The divergence in GAAP and non-GAAP gross profit in the second quarter was due to approximately $1.1 million of expenses related to the impairment of previously-capitalized production masks, for which future use is no longer expected. Currently, we do not believe there is risk of significant future mask impairments, as the remaining net book value of masks currently capitalized totaled $1.4 million as of June 30, 2013, and we believe our process for determining the capitalization of masks is adequate. Our Q2 GAAP operating expenses were $20.1 million, which includes $3.3 million of stock-based compensation, $1.2 million for an accrual related to the our performance-based equity bonus plan for 2013, and $1.1 million in net professional fees related to the Silicon Labs patent litigation. Consistent with 2012, payouts under our 2013 performance bonus plan are expected to be settled in shares of MaxLinear stock. Net of these items, OpEx was $14.5 million, which was below our prior guidance of $15.5 million, driven primarily by a slower-than-anticipated headcount ramp and continued tight focus on discretionary spending items, and the delay of previously-anticipated Q2 R&D tape-out-related expenses in the quarter. Second quarter GAAP OpEx, attributable to R&D, was up approximately $800,000 quarter-on-quarter to $12.3 million, which included stock-based compensation of $2.2 million, and $900,000 related to the 2013 bonus plan. The increases in R&D spending relative to Q1 2013 were primarily due to increased payroll, stock-based compensation and bonus plan accruals, due in part to the increase in headcount. Second quarter GAAP OpEx attributable to SG&A was up approximately $400,000 quarter-on-quarter to $7.8 million, which included $1.2 million in stock-based compensation, $300,000 in bonus plan accruals and $1.1 million in net professional fees related to Silicon Labs' patent litigation. The increases in SG&A were driven in part by professional fees related to patent filings, commission expenses related to higher revenues, and for payroll-related items similar to those described for R&D. At the end of the second quarter 2013, our headcount was 297 as compared 281 at the end of the first quarter 2013. We continue to add headcount, staff growth initiatives and continue to gain operating leverage in R&D by appropriately balancing hiring across our R&D design centers in the U.S., India, China and Taiwan. GAAP loss from operations was $2.8 million in Q2, compared to the loss from operations of $2.2 million in the prior quarter and GAAP loss from operations of $2.5 million in Q2 of last year. GAAP net loss per share in the second quarter was $0.09 on basic shares outstanding of 33.7 million. GAAP net loss per share includes $1.1 million of expenses related to the impairment of previously-capitalized production masks, for which future use is no longer expected; $3.3 million in stock-based compensation expense; $1.2 million for an accrual related to our 2013 base bonus plan; and $1.1 million in net professional fees attributable to the Silicon Labs' patent litigation. This compares to GAAP net loss per share of $0.07 in the prior quarter and a loss of $0.08 in Q2 of last year. Net of these items, our non-GAAP earnings per share in Q2 was $0.11 on fully diluted shares of 35 million, compared to $0.07 per share in Q1 2013 and $0.05 per share in Q2 of last year. Moving to the balance sheet and cash flow statement. Our cash, cash equivalents and investments balance increased $4 million from Q1 2013 to approximately $81.3 million, and a decrease of $3 million as compared to $84.3 million in Q2 of last year. Our cash generated from operations in the second quarter of 2013 was $6.2 million, approximately $5.4 million more than in the first quarter of 2013 and approximately $5.3 million better than the year-ago quarter. Accounts receivables totaled $17.9 million at the end of the second quarter of 2013 compared to $18 million in the prior quarter and $14.9 million in Q2 of last year. The days sales outstanding for the second quarter was approximately 57 days, or 3 days greater than the previous quarter and approximately 8 days more than the DSOs in the year-ago quarter. The increase in DSOs is largely attributable to revenue being increasingly derived from direct sales rather than through distributors, and our larger direct customers negotiating extended payment cycles. We remain comfortable with the quality of our accounts receivables aging and experienced very limited bad debt expense. As a reminder, we only recognize revenue on a sell-through basis. And as such, we are not subject to revenue fluctuations caused by changes in distributor inventory levels. Our in-house inventory at the end of the quarter was $9.4 million, up approximately $700,000 compared to the $8.7 million in the previous quarter, and up approximately $800,000 versus the year-ago quarter. Our inventory turns improved to 5.2x in the second quarter compared to 4.5 turns in the first quarter and improved relative to the 4.8 turns in the year-ago quarter. That leads me to our guidance. We are pleased to note that we expect revenue in the third quarter of 2013 to increase approximately 4% to 7% sequentially, to $31 million to $32 million. Built into this range, we expect both cable and terrestrial revenues to increase on a quarter-over-quarter basis. More specifically, we expect the growth forecast in cable to come predominantly from data applications, and growth from terrestrials come from hybrid TV tuners. We expect GAAP and non-GAAP gross profit percentage, again, to be approximately 61% to 62% in the third quarter. Our gross profit percentage forecast could vary plus or minus 2% depending upon product mix and other factors, in particular, the relative contribution of cable and terrestrial applications. We continue to fund strategic development programs targeted at delivering attractive top line growth in 2013 and beyond, with the focus on increasing the operating leverage in the business. As we entered 2013, we expected non-GAAP OpEx to be bounded in the range of $14.5 million to $16 million per quarter. As we've put the first half of 2013 in the rearview mirror, we've come in on the low side of OpEx, having reported $14.2 million and $14.5 million in Q1 and Q2, respectively. The combination of these OpEx underages, along with the upside in gross margins, have enabled us to exceed non-GAAP EPS expectations for the last couple of quarters. As Kishore mentioned earlier in the call, we're excited at the opportunities that are being created as a result of our close collaboration with major satellite TV operators in North America and Europe, and we're well underway in executing on these incremental opportunities to drive revenue in 2014 and '15. Relatedly, the OpEx underage of $1 million in Q2 relative to our prior guidance, pushes to Q3 as we incur R&D expense items owing to multiple tape-outs and increased R&D headcount required to address the new satellite gateway opportunity that Kishore mentioned. Specifically, we are augmenting staffing in critical engineering disciplines such as systems, RFIC, field applications, and also in sales account coverage to support these exciting opportunities. We remain committed to increasing the operating leverage in the business and are having great success in balancing this incremental hiring across our R&D design centers in the U.S., India, China and Taiwan. As such, we expect Q3 2013 GAAP operating expenses to increase approximately $3 million relative to the prior quarter to $23 million, with stepped-up payroll-related expenses, which will include the full-quarter effect of our incremental Q2 hires, anticipated Q3 hiring, a step up in Silicon Labs' litigation-related spending, and 40-nanometer R&D mask- and tape-out-related expenses previously mentioned. We expect that Q3 2013 non-GAAP operating expenses will step up a lesser amount of approximately $2 million to $16.5 million, due to previously-referenced payroll-related increases and the step-up due to 40-nanometer R&D mask- and tape-out-related expenses. In closing, we're pleased to report revenues in Q2 that were above the high end of our guidance, combined with gross margin improvements and tight OpEx control that delivered operating leverage in our business model, and correspondingly, positive operating cash flow, along with significant improvements in our non-GAAP bottom line results. Our guidance for Q3 revenues, to grow 4% to 7% despite a challenging macro growth environment, signals confidence in our strong product cycle momentum. With that, I would like to now open the call to questions. Operator?

[Operator Instructions] And our first question comes from the line of Tore Svanberg with Stifel, Nicolaus. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Two questions here. First of all, last quarter, you talked about pretty solid bookings momentum and backlog coverage for Q2. Could you talk about how that stands as we are entering Q3?

This is Kishore. I think we continue to have good momentum in our bookings. We are entering Q3 at about the same rate of bookings we entered in the second quarter -- in the guidance for the second quarter at the end of Q1. So we normally used to have a benchmark of about 2/3 bookings to the guidance. However, as our business is becoming much more operator-centric, we have better visibility, more lead time, and today, we stand in excess of 80% of our bookings for the guidance that we have just given you. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: And the ISDB-T business seems to be quite lumpy. It was down in Q1, up very nicely, Q2. It sounds, from your comments, that it's going to be maybe a little bit slow again in Q3. So could you just elaborate a little bit on the lumpiness there, please?

Tore, so I would not consider the ISDB-T business to be any less or any more lumpy than a typical operator business. If you recall, the ISDB-T Tuner/Demodulator SoCs shipped into the pay-TV satellite operator market in South America predominantly. And so that's an operator-type of bookings. So we have good visibility and we anticipate that we'll have meaningful growth going into the third quarter. So I do not know what caused you to conclude that it was going to be coming down, but that is not the case, actually. It's actually growing. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Okay. No, I thought maybe Adam said that the bulk of the growth from terrestrial is coming from TV tuner, so that's why I came to that conclusion, but that's fair.

No, that's -- sorry, this is Adam. I'll give you a little more clarity. So, yes, you're correct. The majority of the growth that we're forecasting in the terrestrial business for Q3 is going to come from the hybrid TV tuner and not from the ISDB-T. So I would say that your observation, or taking away from my comments that the revenue will be roughly flat from ISDB-T Tuner/Demod quarter-on-quarter, is relatively accurate. We do believe that there's some upside opportunities in that particularly area. But, yes, the growth is predominantly forecast to come from hybrid TV tuner and not from the ISDB-T Tuner/Demod. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Very good. And on the satellite business, it looks like the design wins are piling on now. So should we expect some revenues already here in the second half or is this still primarily a '14 revenue story? And also will you start to breakout revenues from that segment?

It's already like -- we have been consistent about guidance on the satellite revenue starts being in the latter half of this year. And we have always said that we will have meaningful revenue starts from the point of view of the customer profile. However, it would not be meaningful to affect the revenues in this particular year. However, in 2014, we expect them to be pretty strong momentum generators as we approach the second half of next year. So we'll have good revenue growth in the first 2 quarters, but to be meaningful, it will take a little bit more time. So we are not yet sure yet whether we're going to break it up into satellite and terrestrial yet. But eventually, the goal is that will give you a lot of clarity on our satellite growth as well. So we will provide you that breakout, but I'm not sure that's going to happen in the first 2 quarters or so. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: That sounds fair. Last question. You recorded a design win with Samsung for your TV tuner in Q2. I was wondering, does that start to contribute to revenues in Q3 or is that revenue that kicks in later than that?

Well, actually this is one of those -- one of the -- the design wins we have with Samsung, we're pretty excited. It's the first tuner onboard implementation, according to our knowledge, on any of the Samsung TV platforms. And so this was a one-off effort, they started to make -- to see the migration of the tuner on the platform. How successful they going to be? They're really excited, we are very excited. So we are going to be already recording revenue as we speak for this particular model, and we are hopeful that this design will now proliferate to more models in the Samsung TV lineup.

Our next question comes from the line of Ross Seymore with Deutsche Bank.

This is Mike Chu for Ross. Just a question on the fourth quarter. Just wondering what you guys normally see, as far as seasonality goes, for the fourth quarter. And maybe talk about how your expectations for the fourth quarter might be affected by product launches that will be coming late in the year.

Mike, this is Kishore. We have been speaking for the last few quarter about it, when we have had questions about how the fourth quarter and the year shapes up. And we've already expressed apprehension for the fourth quarter, given the record of fourth quarters that we -- that have always been down quarters. However, in our case like, you're right, we pointed out it's a product-cycle driven story. And at this stage, I would argue that we would hope that it's a more flat quarter than a down quarter. However, we would feel more comfortable thinking that -- preparing for a little bit down quarter. The reason being is that any of the new design products we are launching, there are 2 categories: one is the operator category, be it the satellite operator or a cable operator; and the other one is the consumer side. The consumers terrestrial side tends to be turns business, and then the operator side tend to be platforms that are hard to predict when they start launching. So you could have, easily, some slips. So at this stage, I would say that the best case is the fourth quarter is a flat quarter, but I would be cautionary and say we, internally, are preparing for a down fourth quarter.

Makes sense. And just a quick follow-up. Sounds like these new products are starting to ramp pretty quickly. Just wondering, maybe longer term, how do you expect those new products to impact gross margins, and maybe even OpEx puts and takes when these products -- or as these products ramp.

I'll take this question in 2 parts, one is how it affects gross margin, and I'll let Adam comment more on the OpEx side of the equation. On the gross margin side, I think, as a business, in general, MaxLinear looks at market areas where we have the maximum impact with our RF mixed-signal technology. We expect that to bear good high margins with a 6 in front of it. And we do not have any product portfolio that we are pursuing, that would be subtractive to the gross margin that we have today on the corporate gross margin. However, we always said that the gross margins fluctuate based on mix of plus or minus 2%. But looking at the horizon on the product roadmap, we're working on really heavily RF mixed-signal-intensive products and DSP-intensive products. So we expect those margins to remain stable. Would that be fair, Adam?

Yes, I think that's accurate. So I'll take the second piece, Mike, which is the OpEx influence. I think that, as I mentioned in my prepared commentary, the envelope that we were forecasting or expecting the year to be a bit down, so between $14.5 million and $16 million. Again, given our guidance that we just gave for Q3, we're kind of a little bit above that because we've been able to, I'd say, push out some of the costs from the first half a little bit into the second half. So nothing grossly out of our envelope, but just being a little bit over right now. I think that what you're seeing is these new products just require more resources and particularly, not so much from -- I just guess, if you want to look at where the bigger scale requirements are, it's really more on the customer support side of things. It's systems-level, platform, applications-level engineering. And so that's where we're adding the headcount, as I mentioned in my commentary. So I don't think you should expect any significant changes from what we've kind of been pointing folks towards as far as the operating model looks like. It's not a step change. It's not a whole new category of customers. It's not a new type of technology. It's very much in line with what we've been able to grow in our cable business. So hopefully I provided some color. Again, we don't expect any significant step ups as related to these particular product lines that we're entering into.

And also, as we increase our revenues, I think we should start bringing more leverage in the model as we look to the future years. And since the technology platforms substantially doesn't transform, but targets new TAM expansion opportunities, we should be able to slowly grow into the model that Adam speaks about, always about the long-term model for the company.

Our next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton - Needham & Company, LLC, Research Division: Kishore, we just wanted to come back. You went through the satellite design wins and sort of engagements pretty quickly in the prepared comments. But it sounds like you've got a number of designs underway for North American satellite OEMs. Can you just sort of go into a little bit more detail on those different engagements?

You're back, Quinn. I didn't realize you'll be back this time. Okay, just kidding here. The point here is that we are, at some level -- to a level, we have to observe some confidentiality. However, at the higher level, there are 2 categories of products we are working on with the major operators in the world. And if you really look at the major operators in the world, they have their affiliate operators in other parts of the world as well. And the 2 categories of products are: one is with the gateway market, which is the media server client architecture gateway boxes inside the home; and the other one is the outdoor unit, the one that sits outside the home. And so there are 2 categories of outdoor unit, implemented by 2 sets of operators ,[indiscernible], where they use different frequency band. So we have 2 distinct silicons, that's for the outdoor unit LNB that we are just in the middle of a 3-part[ph] Process in the next few weeks. And the other one is the home gateway architecture or the gateway client architecture, where we basically have a Full-Spectrum Capture chip that supports a multitude of channels, that basically they get video decoded or transcoded and distributed over IP to client devices. So those are the 2 categories. Now, getting to the details of the gateway side of the market, the designs basically are in good momentum and we've got design wins in that category. And we have already announced the MaxLinear 584 chip that's for Full-Spectrum Capture production, readiness of the chip for the satellite market. We just released the production mask. It's back. We are pretty excited about how it's doing. On the -- under the -- if you look at the category of the gateway device, that's for a completely new next-generation advanced gateway that is absolutely confidential that we cannot speak about. And we are specifically working with a promised engagement and so plenty of[ph] Business outcomes with the major operator. So this is as far as I can go into it. But I think the math is pretty easy to do. You could take -- look at the major operators, their volumes in North America and Europe and even worldwide, and then they typically work with only 1 or 2 suppliers. And if you think, MaxLinear, the RF front-end player, I think it will be very simplistic to rundown the math on that and you will see that, that is a pretty substantial opportunity for MaxLinear. Quinn Bolton - Needham & Company, LLC, Research Division: Great. And then just a question on that special or specialized gateway that you're working. Is that effectively a custom ASIC for that particular OEM? And if so, is there any kind of development revenue or NRE revenue associated with it? Or are you going to incur those expenses and then just look to recoup those as you go to volume production on that design when it goes to production volume?

Yes, so firstly the device we're working on, initially, of course, it is for these lead operator customer who is driving it, who is guiding it, whom we are working with, obviously. But it's a standard device that we sold to other operators as well. So it is not a custom ASIC for a particular operator, but it's a pretty defined one that is incredibly valuable for this new generation of platforms that is driven by the particularly large operator. So there are no NREs involved. If they were involved, I think Adam would've shared that with you. Generally, we would rather have customer commitments than -- in other forms than particularly seek NRE, because that could usually even reduce our flexibility to be able to sell the chip to other customers. So, no, there are no NREs involved, but there are some level of business engagement commitments involved, which we will share with you as and when they develop. But it's really, really exciting that, as a result of our execution, the prospect of capture with satellite gateways, existing architectures, that we are chosen as the prime candidate to work with to implement the new architecture. So we are really, really excited about it. Quinn Bolton - Needham & Company, LLC, Research Division: Great. And then just, Kishore, any -- can you give us some color in terms of the gateway dollar content opportunity versus the outdoor unit or LNB dollar content. Is one significantly higher than the other? Can you share some sense of the relative opportunity between those 2 applications?

So, I want to be careful with the pricing stuff. But I would say that, generally, no. We have talked about our cable chips being about anywhere between $3 to $6 ranges. I would say that the satellite chips tend to be 2x that of cable. And obviously, the pricing -- in the outdoor unit, you have a competitor substitute product pricing that's an analog-implementation outdoor unit. And so the prices cannot be -- will tend to be in the range of probably $7 to $10, looking forward, whereas the gateway chips could be anywhere between -- on the low end of things, similar numbers. But at the high end, it should be higher than even $10. So that's the breakout, basically, within the 2 products. And then if you go to the gateway, there are 2 kind of gateways, because some of these operators are in countries like South America, where they have a lot of -- terrestrial reception is required in the boxes, and they support terrestrial reception along with satellite reception, an equal number of channels. So if you add the numbers up for our ISDB-T Tuner/Demodulator SoC, one each required per one terrestrial reception and satellite box. If there are 3 or 4 of those, and you add that to 4 of those satellite channel receptions, you can see that the bill of material inside a South America box, for example, could be well in excess of $10. Quinn Bolton - Needham & Company, LLC, Research Division: Great. And then for Adam, I hate to bring up perhaps a sore point. But you mentioned, I think, it was $1.1 million impairment of a mask in the second quarter, where it sounds like you didn't think you'd be able to continue to sell those products. Can you give us a sense, is that just an older terrestrial or older cable product? What was that mask set?

Sure. Actually, Quinn, there were -- that $1.1 million was the aggregation of 2 different mask sets. One was for the terrestrial market, one was for, basically, the first 40-nanometer device that we did for the cable market. And I would say that the good thing about -- to make -- the silver lining in the mask impairments is the fact that we -- it's not like it caused us any kind of revenue interruption, because, basically, it's just customers were migrated to derivative products. So, for example, on the cable side, there's no impediment to ramping our cable full-spectrum solution in that instance, because we had another part that came up and replaced that one. So it was really a matter of doing product enhancements that made the prior masks not have the future value associated with them. So once we had the superior solution that we knew was going to be taken to market, that, that caused us to reassess that and make the impairment as we did. But again, the good news is it's not like it was they we're faulty masks that resulted in product ramped-aways that would influence future revenues. There's absolutely no risk of that. We've already moved on and beyond, and successors are actually shipping already.

And we have shipped some quantities of that impaired mask. It's just that the derivative masks were considered more cost effective and the customers like those more, so we transitioned the customers out to it. And we already in volume shipment of our 265 product, this is a 16-channel and 24-channel product, to our major customers in North America and the ramp has already started.

Our next question comes from the line of Anil Doradla with William Blair. Anil K. Doradla - William Blair & Company L.L.C., Research Division: A couple of questions. You talked about the DTA weakness. Entropic also had that issue. Is this something that you believe is an end market that's in secular decline, or there is some inventory build up? Any thoughts on that would help us.

So Anil, I think, this is a similar situation we are faced with when we are doing an earnings call. Entropic had their earnings call and they gave a pretty negative view on the DTA market. And at that time, we'd answer that. According to our forecasting process, we do not have any of those surprises. However, the DTA weakness is partly related to the fact that the roll out of the DTAs in the cable market are slower than was expected. There's one operator that is doing a pretty aggressive rollout and we cannot supply enough parts. And there's another operator that is sitting on inventory and is doing a much slower process. So all in all, for us, the DTA is not a pretty -- is a smaller fraction of our cable, video and set-top box business. And our forecasting methods tell us that we will not have those kind of surprises. So that's the good news in our side. So with regards to Entropic's case, I cannot speak for their inventory levels or what caused their issues, but we do not have any surprises on our end. It's just a slowdown on one particular operator's rollout, whereas the other operator is rolling out more aggressively and actually wants to pull in orders. So all in all, we are forecasting a weaker DTA, but not being out of the normal, I would say. Anil K. Doradla - William Blair & Company L.L.C., Research Division: So Kishore, it's fair to say that the dynamics in the DTA are totally independent from the dynamics with the 24-channel, 8-channel DOCSIS 3.0?

Absolutely, they're very different. The dynamic on the DTA is actually HD DTA. It's not your traditional -- a standard definition DTA. The cable operators are going to the second wave of DTA deployment, so that they can move their standard definition DTAs -- consumers also to higher definition DTAs, so that they can free up more channels and upgrade them to better services. So it's a very, very different phenomenon. So no impact whatsoever to the rollout of the over-the-top service accessing boxes, or 24-channel, 16-channel data modem gateway addressing products. And frankly, we did read the script for Entropic, and I was surprised how there was such a was a big gap between our expectations and theirs. But I can't speak for them. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Okay, great. Now switching gears to the satellite segment, is it's fair to say that you've already got design wins, or you're still working on the products and it still has to go out and you have to kind of work your way through the design process? I mean, clearly, the body language is very positive, the opportunity is huge and looks like there are not many competitors. But can you walk us through, from a design point of view and ramp point of view, what gives you so much confidence?

So, Anil, yes, we are very excited about satellite. It was a long effort on our part and we were a unique player who came to the market -- to the forefront to develop this kind of product. And at this stage, if I say we do not have design wins, I would be disingenuous. Yes, we have design wins. And secondly is that from the time of the hardware sampling and hardware production readiness, these satellite people take a longer time to launch a box than even the cable people. So we have already been -- our Full-Spectrum Capture satellite product has been designed into a number of boxes in North America and Europe. But there's almost a 1-year lag between the sampling and the ramp. And we're just waiting for them to be -- ready their boxes and get them software-ready and certified and to start rolling them out. And having said that, our production silicon for Full-Spectrum Capture satellite gateway is back, and we are now sampling production silicon for the final certifications. That will take several months. We think some guys will take a little lesser time, others will take longer time. But we should be able to -- we are in the position to ramp this product as the customers give POs, and for which they have given small product quantity POs already. So yes, the song has just started. We're pretty happy, and that's the only reason, at this time, I was bold enough to add a paragraph on satellite piggybacks. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Excellent. And finally, would it be fair to say that the market-share dynamics in the satellite would be similar to that in the cable, where you'll have like a duopoly, and then you could potentially be with almost 50% share, or it's just going to be a little more crowded?

Well, let me put it this way right now. Eventually it will be a duopoly, right? I mean, the front-end side, we are the only one with a silicon that works and that is tested, certified and affords a low power, everything that you need. So we are the only front-end right now. But we should all know it won't last long, it won't lass for beyond 2 to 3 years, 2 years, let's assume. So right now, assuming 50% is a pretty good way to go.

Thank you. I'm showing no further questions in the queue at this time. I would like to turn the conference back over to management for closing remarks.

Well thank you very much everyone, and thank you, operator. As a reminder, I would like to let the folks know that we will be speaking [ph] at the Deutsche Bank Conference in Las Vegas on September 12 and the Stifel Midwest Conference, the one-on-one conference on November 7 in Chicago, I believe, and hope to see many of you there. 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. Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.