Greetings, and welcome to MaxLinear 2017 Third Quarter Conference Call. [indiscernible] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Gideon Massey, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's third quarter 2017 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Adam Spice, CFO. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable security laws, including statements related to our fourth quarter 2017 revenue, gross margin and operating expense guidance. And current expectations with respect to the development of our business and target markets, including expectations concerning recent acquisitions. These forward-looking statements involve substantial risks and uncertainty, including risks arising from the competition, average selling price trends and numerous other risks outlined in our SEC filing. Actual results may differ materially from currently forecasted results. For a detailed discussion of the risk and uncertainty potentially affecting these forward-looking statements, we encourage investors to review the sections of our SEC filings captioned Risk Factors in our Form 10-K for the year ended December 31, 2016, our Form 10-Q for the quarter ended June 30, 2017, and the Form 10-Q we will file shortly for the quarter ended September 30, 2017. Any forward-looking statements are made as of today and MaxLinear has no obligation to update or revise any forward-looking statements. The third quarter 2017 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including gross margins, operating expenses, net income or loss and net income or loss per share on both GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP to non-GAAP presentation in the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for the future periods because of the inherent uncertainties associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear's GAAP financial results. We're providing this information to enable investors to perform more meaningful comparison of our operating results in a manner similar to management's analysis of our business. Lastly, this call is being webcast and a replay will be available on our website for 2 weeks. And now let me turn the call over to Adam Spice, CFO of MaxLinear, who will present the prepared remarks today, as Kishore Seendripu is recovering from a cold that has affected his voice. So we'll save Kishore for the Q&A portion of the call. Adam?

Thank you, Gideon, and good afternoon, everyone. Thank you all for joining us today. We're pleased to report record Q3 2017 revenue of $113.6 million, which was up 9% sequentially and up 18% year-over-year. We saw strength in our c.Link and G.Now last mile wireline access infrastructure products, sequential growth across our portfolio of satellite gateway and cable video set-top box platforms and we benefited from a full quarter of Exar revenue contribution. Encouragingly, in Q3 2017, we also experienced resumption of growth in our high-speed optical interconnect products. Our product gross margins were strong at about 60 basis points and 150 basis points above our GAAP and non-GAAP guidance. Our Q3 non-GAAP OpEx was about $3.1 million below guidance and is primarily attributable to strong Exar-related OpEx synergies that are well ahead of our projections stated at the time of the acquisition. As a result, cash flow from operations was at a record $37.7 million. We are pleased with these results, especially given the seasonal weakness in our connected home business, weak optical long-haul and metro infrastructure macro spend in China and the sharp roll-off of our legacy Entropic satellite analog ODU and video SoC revenues. We are steadily transforming into a diversified communications technology leader across data and media with one of the broadest and deepest analog in mixed-signal portfolios in the industry. As a company, we are focused on solving the most complex, high-speed data challenges in the cloud and at home. We're in the technology forefront of solving data speed and capacity bottlenecks across telecom and wireless carrier networks inside and between data centers and into and throughout the home. Our continued success in our end market diversification efforts is reflected in our Q3 revenues. Connected home was 58%, infrastructure was 21% and industrial and multimarket…

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

Hi, guys. Congrats on the -- on some strong OpEx synergies and some good EPS numbers. I wanted to ask a question about the gross margin. In the past, you've communicated a gross margin non-GAAP target of 60%, 61%, and based on your guidance for the fourth quarter, we're going to be around 63%, same as last year, for all of 2017. So would you care to update today your long-term gross margin outlook now that you've had a chance to review and implement some of the cost synergies with Exar?

Gary, I guess, I don't think now is really kind of the time to do that. I think that we've been pretty consistent having a gross margin target for the business of 62% to 65%. And I think, right now, there's really no reason to change that, I would say, that band or range of gross margin. So we're encouraged that we've been able to make some progress on bringing the gross margin up from the Exar acquisition. I think we have a track record of doing that. I think we had a much bigger challenge when we acquired Entropic and we're successful [indiscernible] about it, I would say, less than a year of bringing the gross margins back up to -- into our target range. Again, where -- I'd say, right now, based on the guidance we gave for Q4, 61% to 62%, obviously we're still a little bit below that 62% to 65%, or right on that bottom edge. And I think we need a little bit more time to get comfortable with moving into the range and then going beyond that range. I don't think we're comfortable doing that quite yet. Hopefully down the road, once we get a greater percentage of our mix coming in from infrastructure, that should be a reasonable thing to expect. But right now -- sitting at around 20% of overall revenue coming from infrastructure, we're not quite at a point where it moves the needle enough to change our range.

Okay. And just as a follow-up. I'm assuming with your optical business up 50% quarter-over-quarter, it seems to be a significant change in tone from what you last communicated on this type of conference call. I'm assuming you've seen a recent pickup in China optical. And related to that, could you give us some sense of visibilities we look into 2018?

Yes, I'll give a little bit of comment, and then I'll kind of hand it over to Kishore to give you his thoughts to the extent that he can croak that with his voice. But I would say that, certainly, it's gotten better but you have to think it was coming. I mean, Q2 was really the abyss, right, for China optical for us, for our latest driver of business. The TIAs weren't quite kicking in meaningfully enough. So I think as we move forward, I think what you're seeing is, yes, there's a rebound that we're seeing off of a horrible bottom in Q2 on the optical laser driver side in China and the metro market deployments to now we're also getting more mix from our TIAs, which is we were hoping to have had at a couple of quarters earlier. But it's now starting to feed into the model, and that's one of the exciting things to look forward to. As we move into 2018, 2019, there's an increased mix from the TIAs, which gives us diversity not only out of the -- not just metro, but also in the data center. And then of course, this PAM-4 and DSP that we mentioned earlier in the call is probably the most exciting thing that we had teed up for our [indiscernible] business. And Kishore, would you like to?

So Gary, just to give some color on the China thing. I really think that the China market has really not changed any way from Q2 or Q3. So I think you guys heard [indiscernible] call and the CEO very candidly and very transparently was very clear that there's no information to indicate when the recovery happened. To the extent that we are seeing growth back, it's off of much reduced expectation internally and also that internally. And so of those reduced expectations, we are growing, and primarily due to new design wins with TIA side and some level of inventory depletion at our particular customers. But by and large, our -- while we have design wins, the momentum is strong in the long-haul inventory market for our TIAs, primarily due to a large inventory buildup from competition at ITR manufacturers and those manufacturers all the way through Q1. So I would not call that anywhere close to what we were anticipating earlier on. And if you really look at our forecast for 2017, a huge contributor of the disconnect between forward guidance on The Street and what MaxLinear has been driving on a quarterly basis, I mean, I would say that the optical was the biggest disconnect. And so we are still seeing the effects of that. And then meanwhile, we are doing -- our team is doing a fantastic job on operating synergies, execution of the road map, and we're really excited how infrastructure road map and product development is coming right on track, on time, ahead of the competition and showing all the promise that we have invested in those activities for several years now.

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

Hi, guys. Just wanted to ask first on the connected home side. I know you have seasonality; and then the legacy side, you said was about a $5 million sequential headwind. Was there anything beyond the seasonality going on that drove that drop ex the legacy side? And then perhaps more importantly, could you give anymore color on the DOCSIS 3.1 rollout? You said it was a little delayed, but you expressed some confidence that it's going to come in 2018. Talk a little bit about that gives you that confidence, and generally, what does it mean to your company DOCSIS 3.1 versus the 3.0 generation?

Thank you, Ross. The question -- I think we have been very transparent. We -- if you just subtract the $5 million dropoff that Adam referred to in the script regarding a very sharp roll-off in the -- on the remaining legacy Entropic items, pretty much attributable to seasonality. What we are normally seeing when there's a technology transition from, for example, DOCSIS 3.0 or 8-channel to 16-channel to 24-channel is, at this point in the cycle, we would have added an inventory buildup in the channel for the new product entire channel count and greater ASP. So -- and that would have given us some uplift in the ramp. So that particular ramp has gotten delayed. It should not be any surprise for anyone of you. While we can't speak for other players in the ecosystem, but we are shifting into Canada. We have shipped a bit of DOCSIS 3.1 products. But the big ramp at a major U.S. operator is delayed due to qualification issues across all the platforms. But now, we do know, as entering this call, those issues are largely behind us and the fact that there is some movement on preordering in terms of backlog. We feel very good that entering 2018, 3.1 is going to be the latest trend. So that's the story of 3.1. So we're going to give you -- emphasize the sharp roll-off in connected home. The $5 million is primarily due to the legacy shipments of Entropic satellite ODU -- analog satellite ODU and legacy video SoC. But the remaining is largely attributable, I would like to say, 100% attributable to seasonality. The seasonality we're now familiar with, but we're not getting the 3.1 cycle ramp. It's gotten delayed due to some software system level evaluations and trials at this…

Got it. And that's very helpful. For my follow-up question, I want to switch over to the OpEx side. Adam, you did a great job in the quarter, of course, and then giving the synergies well ahead of plan. Going forward from here, obviously, you're guiding flat sequentially. But just as more kind of a directional commentary, how do we think about OpEx from this current base level as we move into 2018?

Yes, so I -- it's one of the things where we definitely went after the integrating the operating synergies early in the Exar deal after close. I would say that there's a natural -- a little bit of a time delay. So what you see in the Q3 number is obviously a pretty healthy contribution towards the synergies, but not full run rate because some of the synergy actions that were taken were until later in the quarter. So you certainly didn't see the full run rate of that reflected in the Q3 financials. So I think there's -- is there more to be had on the synergy front across our business? Yes, certainly there are that haven't been reflected yet because of run rate. I would say that we would have even significantly lower -- we had sequential down OpEx in Q4 had it not been for a significant step-up in tape-out expenses related to PAM-4 device that we talked about earlier. So if you kind of want to think about the cost of that, I think I don't want to kind of give those costs now because that's confidential information macro level. But you can imagine -- you can roughly magnitude what that was and what the OpEx would have been had it not been there. Now that said, Q -- 2018 is going to be a year of tape-outs as well, because as we talk about we've got our cable infrastructure product that's going to be sampling in the first half. We've got our 5G macro base station access transceiver. So it's been a very heavy development years for us and those are coming to fruition now, and those will be reflected in tape-outs in 2018. So I think what you'll see is not unlike some prior years where it kind of -- it bounces around where there's a tape-out in the quarter. You can kind of plan one major tape-out every other quarter is kind of my best estimate right now. But I don't think you'll see -- you should -- with the fact, you'll see more of the effects of the synergies in the Q4 run rate kind of moderate when there isn't a tape-out. I think these are kind of our spending levels right about now. I think if you think about where our guidance was for Q4, I'd say plus or minus $1 million or so around that is probably where we'll be -- where we're targeting for our quarterly run rate in 2018.

Perfect. Thank you.

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

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

So Tore, this is Kishore. I'll take the question. Very, very good question, and I think that -- I just want to provide some color to Ross's question on the OpEx is that we did not plan it this way that the revenues will take longer to get back in the growth saddle organic revenues, but you don't have the nature of the quality of the business we have picked. But to just add to Ross's question, the answer is that now your OpEx is wonderfully beautifully positioned. And as the revenue growth comes in our favor, you can imagine that the EPS leverage of that growth is going to be quite dramatic. So I think that we're doing all the right things from an R&D execution point of view and now we're gearing for the revenue to pick up. And that won't come fast. It will come in our traditional businesses on the broadband side. You'll have growth in the wireless side, along the backhaul first. And then you -- we are seeing uptick in our fiber optic presence on the revenues. But the big investments we are making, namely the fiber optic PAM-4 DSP, the cable fiber node chip and then the -- later, the 5G massive MIMO antennary access transceiver, we all have huge TAMs associated with them. But it's not all about the TAM. Each of those products we are working with [indiscernible] OEM development partners. If you look at the PAM-4 DSP market, the addressable silicon TAM, starting in 2019, it will project out to 2020 or so, is in the billion dollar range. And then -- so in that market, we expected to start ramping at the end of 2018, beginning of 2019, as The Street chip becomes available from the likes of Broadcom,…

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

I'd say, yes, as we mentioned in the prepared remarks, the force-touch was a significant portion of that. We also just had, I would say, just general strength across that broad kind of interface and power vantage set of solutions. As you know, it's a very diversified portfolio, and I think we just happen to be right now at a point in time where there's just a very good macro demand across a range of those solutions. So I can't really -- other than the edge sense, there's really nothing that I point you to that disproportionately drove that revenue contribution in the quarter.

Just one last question. The legacy revenue based on my math is now less than 5%. Would that be accurate?

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

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

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

That’s great. Thank you so much.

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

Hey, guys. Thanks for the question and I think you kind to answered this in the last one, at least half of it, Adam. So my first one was, are we totally done with analog channel stacking here? So it sounds like. But if you can talk about digital and where we are in the transition here kind of how is that progressing now. Do you guys kind of have the market share that you wanted? How do you see this to date and then playing out over the next quarter or 2?

Yes, I'll take the first piece of that and I'll let Kishore kind of expand on it. So in the very near term, we actually are looking at a pretty healthy demand scenario for the digital channel stacking in Q4. So it's part of our guidance. The digital channel stacking is stepping up quite a bit sequentially. So on that front, I think you have a near-term forecast oriented, things look good on the digital channel second front. As far as the long-term market positioning, I'll let Kishore kind of take that one.

So Chris, that's a very good question on the digital channel stacking. We -- so this is to back and see that there are not going to be as high in revenues that we had when we just acquired Entropic on analog channel stacking because we've talked about the reasons before, the ASP content for the ODU is lower because of integration that's happened from 3 chips to 1 chip. And secondly, the transition that's happened, and so being a 1 player supplier to a major operator -- to the 2 major operators in the U.S., now they're splitting that on the digital ODU. So what are the vectors that determine the digital ODU? So we already talked about how the ASP is lower by a factor of about 40% or so related to that [indiscernible] That's one factor. Second is the share split of the major operators for the satellite operation in the U.S. But having said that, I just want to qualify that, in the U.S., the satellite operators are having quite a bit of struggle right now in their subscriber base, and that's not very healthy right now. So we are seeing what I call bouncing around in the ordering patterns, so to the extent that the 2 major satellite operators are still trying to decide whether they will deploy what kind of digital ODUs, the full-blown 4-gig gateway necessitated digital ODUs. Or the cheaper, lesser version of the digital ODUs, that is going to determine how the North America plays out. For us, the bigger growth we're getting today in digital ODU in design across Europe, across the Sky properties, and other Tier 2 operators that we have talked about earlier on, that's where our digital ODU's growth is coming. So just a step back and sum out how obviously the digital ODU will play out, we really think that digital ODU in the long term, really in 3 years or so, 4 years even, it's going to be around not quite what we hope for, maybe a $30 million to $35 million revenue opportunity for the company. And many of the satellite gateway, together satellite is going to be as a combined -- well, somewhere between $50 million and $150 million revenue opportunity for the company. So satellite did not quite pan out the way we wanted, but that's primarily because of the video churn that's happening with cost cutting, and so on, and so forth. So we are seeing some impact to the macro environment inside the United States. But also in the United States, the video market is quite healthy, the satellite operators, and they are deploying satellite -- new satellite boxes and ODUs, but augmenting them with over-the-top offerings. So that's the nature of the landscape and satellite today.

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

Oh, the G.hn. I know starting from low base on the acquisition is actually doing very well in the sense that it's growing nicely, and we've got a lot of number of new design wins now that are happening in Europe. There's a lot of traction for the last mile access G.Now in China and other operators in Asia. So it's doing very well. Actually, a very health expectations for growth for G.hn next year. MoCA on the other hand, we -- is a primarily a North American phenomenon. We have some modest success, but last mile access for MoCA, what we call c.Link in China. However, the MoCA is flowing with the cable platforms and a major telecom operator in the U.S. is now [indiscernible] start deploying -- renewing their investments in MoCA. So MoCA will grow as well in the near to midterm. So I don't think there's any what I call spectacular growth expectations around MoCA. However, from a health point of view, MoCA and G.Now actually are doing quite well. So we're pretty pleased about it. In fact, we talked about these utility companies, basic utilities in Europe have a mandate to deploy broadband utility connectivity functions for smart metering and smart good systems so that they have a live -- real-time accounting of all the energy consumptions. And we are partnering with them as we announced a number of design wins and demonstration just recently in press releases.

Great. Thanks, Kishore. Thanks so much.

Thank you.

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

I just wanted to come back to the DOCSIS 3.1 ramp, and curious, you guys seem to have better confidence as you come into 2018. Just wondering, you talked about some forecasts, I guess, moving into the order books. Is that sort of on the books now to start shipping for the first quarter? Or is that kind of more a second quarter event? Can you give us any sense of timing for that U.S. MSO?

Thank you, Quinn. Yes, we have that, but most -- clearly, the goals for this year to -- for us as a company, our anticipation was $1.5 million to $2 million in DOCSIS 3.1 for the year in chip shipments. And those -- part of it is for backlog shipping in preparation for the ramp in Q1, start of ramp in Q1. The rest of the market or the Canadian operators, which tend to be voice and data gateways. So yes, we are very -- further along with 3.1 in terms of shipment but not for the flagship operator that we were hoping for, so the confidence comes from the fact that this is -- the level of opportunity of the trials and deployments and the field trials have now reached a kind of conclusive phase that -- for based on our past understanding, it's right poised for ramp entering 2018. Regarding what are shipments of voice for, we have already shipped some into our major OEMs. We ship to North America, but there's more backlog that really enters into Q1. So I think that, yes, it's delayed below the expectations of the operator itself, however, much of the issues and challenges they're facing was related to the IoT functionality inside those boxes, nothing to do with the DOCSIS functionality.

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

Yes, absolutely.

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

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

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

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

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

Exactly.

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

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

Okay. And then just on the force-touch or the edge sense, that seems like it's being driven by smartphone applications at least in the near term. It sounds like that was the contributor behind some pretty strong revenue in Exar. Can you give us any outlook for that part of the business since you come into the December quarter? Does it revert back to more normal levels? Or do you think that, that level of revenue is sustainable for several quarters?

So let me back up for 1 second. So I know that Ross had a question earlier and he mentioned a $35.5 million -- sorry. It's Tore. I think Tore had a question about $35.5 million of contribution from Exar in the quarter, that's actually -- the $35.5 million is really kind of a combination of Exar plus the Marvell G.hn asset. So if you want to kind of split that apart, it wasn't -- I don't want people to get overly, I would say, focused on the Exar number, that it's much higher than what people were anticipating it to be. It was really kind of on target with what the predeal estimates were for Exar. It's about, call it, $33 million and change, $33 million and change, with $2 million and change coming from the G.hn contribution. So back now -- now we've kind of reset that or calibrated that revenue number within the force-touch piece. It's really the function of, right now, all the revenue is coming from one handset design. There are other design wins that we have that when they ramp, and depending on the timing of those, and of course in the smartphone market, it's very difficult to predict timing and designs kind of come and go pretty quickly. But we do have some pretty encouraging opportunities out there. I would say that, right now, you should think about the fact that the opportunity for meaningful step-up in that business from current levels is probably in the second half of 2018, at which point, it could step up very meaningfully. But at this point, I think you should think about the current run rate contribution from that business of roughly kind of, right now, it's probably running a couple million dollars a quarter and that will continue for probably a couple quarters until you get in to -- more closer to the second half of 2018. And then as far as opportunities or applications outside of the smartphone, clearly, we -- our marketing team is aggressively looking at other opportunities where we can apply the technology. They've had some pretty promising things that have been drummed up, but some of those will require a little bit more investment in the technology to be more application-specific.

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

Beginning all these infrastructure-type revenues, they never start as nicely, smoothly as you want them to. But the design is locked in and is beginning to shift. But because one more platform, the computing platform, which we cannot announce. There the shipments have begun in earnest. So with that, you've got to look at these parts and think about the revenues are relative to what Exar revenue is. They're meaningful at a MaxLinear revenue. The real bigger opportunity is really when you have a major presence in server. While we are happy with these revenues that are growing [indiscernible] management side, for us the real bulls-eye is a server where you have [indiscernible] $60 to $100 of all management content because amenity rails and the peripheral rails and the processor rail. And if you look at the total number of servers, somewhere 10 million to 15 million servers in the world, it will [kill] a $1 billion to $1.5 billion addressability power management business. So yes, this is very exciting for us that a major player like HP is going to be using the product. And yes, it has started to shed now.

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

So if I look at the September quarter, you talked about the $5 million ODU set-top box satellite. For the December quarter, it sounds like the optical is what is creating the delta. So is it fair to say that the cable part of your business pretty much played as you expected in the September and December quarter?

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

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

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

Okay. And the...

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

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

I can't speak for the market as a whole, but I can just tell you that one of the admissions of this major operator anecdotally for North America for the -- they think they would like to at last have 1/3 of their DOCSIS shipments, at least 1/3, move to 3.1. So with the other operators to follow, it's indication of this particular operator to other operators. And if you look at the major operators in the world, the Comcast and Liberty Global, for them, the data part is incredibly important. So we hope all our own shipments and more than what corresponds to 1/3 of the shipments of this major North American operator. But at this point, that should give you a color of what the front-end of the spear of DOCSIS 3.1 ramp will look like.

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

At this point, what I know with this most recent check, largely the -- it's a software issue. That's the good news, not a hardware-related problem anymore. So the software issues we'll get fixed are actually -- from a technical perspective, I'm aware that there'll be nonissues very, very eminently could have found the solutions. And we really were upgrading those firmware and software. So nothing should delay the hardware ramp because of the software stuff is also upgradable in the field. So right now, it's not that softwares are not working nicely. It's just that they want a little bit more performance on coexistence of all these IoT radios in the box, and so there's some software tweaking going on.

Our next question is from Tore Svanberg with Stifel.

Yes, just had a follow-up. So $37 million in operating cash from the quarter. So you'll generate significantly more than $100 million next year. Should we expect you to use that to pay down the debt? And what would you expect the interest expense to be in '18?

So yes. We've got to set our targets if we have anything more than around $75 million of cash, we sweep it -- we sweep access towards debt repayment, so we -- our stated objective is to pay down roughly $30 million a quarter towards debt. So if you think about the guidance that we provided just earlier about $3.7 million of interest expense in the quarter. Yes, you can basically do a model of take that $3.7 million is based off an average balance of about $362.5 million in the quarter and then it will be declining basically $30 million a quarter throughout 2018. And if you want to assume a flat rate, I think that's probably the right way to do it. One thing that we -- gives us confidence and that rate is the fact that we entered into a rate swap agreement basically to take the floating rate LIBOR out of the mix. And now we have a fixed rate of about 1.75%, plus our current margins were spread on our loan of 250 basis points. So that gives you confidence on how you can now model that.

Okay. And I mean, even with the debt repayment, it's looks like you still have some dry powder left. So any thoughts about buybacks, especially given how low the stock price is?

It's always a discussion amongst the board, and so forth and it's something I'm sure that we'll be having again in our next set of board meetings, discussions around different ways to return capital to shareholders, if we believe that's the best path, given all the various investment opportunities we have to grow the business longer term. So I'd say, right now, we're -- as we've been in the past, we can't really be committal on anything that we do with regards to a share buyback or dividends or anything like that. Right now, we're still very much in the mode of -- our ROIs are pretty big as far as wanting to expand our TAMs. And also do that not only organically, but also through strategic acquisitions. And even though, we've done a lot of deals in the last 2, 3 years, we still see a fairly active deal funnel out there of opportunities that we -- that we really want to act on. And I think what we'd use is the incremental debt capacity that's freed up from prepayments on the current Term Loan B to enable those.

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

Great. Thank you, operator. As a reminder, we will be participating in the Stifel One-on-One Growth Conference in Chicago on November 9th, the Crédit Suisse Conference in Phoenix on November 29, and the Needham Growth Conference in New York on January 18, 2018. And we hope to see many of you there. With that being said, we thank you all for joining us today, and we look forward to reporting on our progress to you next quarter. Thank you.

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