MaxLinear, Inc. (MXL) Q4 2022 Earnings Report, Transcript and Summary

Greetings and welcome to the MaxLinear fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference call is being recorded. I would now turn the conference over to our host Leslie Green of Investor Relations. Thank you. You may begin.

Thank you, Diego and good afternoon everyone and thank you for joining us on today's conference call to discuss MaxLinear's fourth quarter 2022 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today including forward-looking statements within the meaning of applicable securities laws including statements relating to our guidance for the first quarter of 2023 including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP effective tax rate, GAAP and non-GAAP interest and other expenses and GAAP and non-GAAP diluted share count. In addition, we will be making forward-looking statements relating to trends, opportunities, and uncertainties in various product and geographic markets including without limitation statements concerning opportunities arising from our broadband, wireless, infrastructure, connectivity, and industrial markets, timing for the launch of our products and opportunities for improved revenue and market share across our target markets. Additionally, we will make forward-looking statements relating to the completion of the pending Silicon Motion transaction and its anticipated timing. These forward-looking statements involve substantial risks and uncertainties including risks arising from our purposed merger with Silicon Motion including the anticipated timing of the People's Republic of China State administration for market regulation or SAMR review. Risk related to increased indebtedness, competition, the impacts of global economic downturn and high inflation, our ability to obtain government authorization to export certain of our products or technology, and a failure to manage our relationships with or negative impacts from third parties. More information on these and other risks is outlined in the risk factor section of our recent SEC filings, including our Form 10 for the year ended December 31st, 2022, which we filed today. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The fourth quarter 2022 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 margin, operating expenses and interest and other expense on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for the comparable GAAP financial measures. We are providing this information because management believes it to be useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast and a replay will be available on our website for two weeks. And now, let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore?

Thank you, Leslie and good afternoon everyone. Our Q4 revenue was $290.6 million, up 2% sequentially and 17% year-on-year, capping a major milestone in fiscal year 2022 with record revenues breaking the $1 billion mark and operating cash flow of $389 million. Our Q4 non-GAAP gross margin was 59.6% and non-GAAP operating margin was 32.5% with cash flows from operating activities of $69.4 million. As we look forward, we are energized by the near and long-term drivers of our growth trajectory, spanning fiber broadband access gateways, Wi-Fi connectivity, wireless and optical data center and enterprise infrastructure. Entering 2023, we are confident in our ability to outperform our end markets via share gains and expanding silicon content in customer platforms. Our connectivity business achieved record results with both quarter four quarterly revenue and fiscal 2022 revenue growing nearly 100% year-on-year. Our connectivity growth continues to be fueled by the strong market adoption of our Wi-Fi 6 and 6E access point solutions, increased attach rates in existing customer platforms and a healthy pipeline of new customer design wins. Beyond service provider gateway opportunities are ramping design wins in several third-party standalone routers will further expand and diversify our Wi-Fi revenues. They comprise a new and continuing high volume growth opportunity in 2023. As we look beyond Wi-Fi 6 and 6E, our Wi-Fi 7 standard compliant WAV700 product family is currently sampling and is the industry's first single chip tri-band dual channel Wi-Fi access point solution in the world. It'll drive increased performance and differentiation, higher detach rates, ASP improvements, and a favorable cost structure versus previous generations and competition. We expect to see WAV700 enabled customer products starting late this year. Turning to broadband. Coming off several strong quarters of growth, in Q4, our revenue declined as expected, even as demand moderates to more normalized levels through an adverse period of digesting excess channel inventory, we believe the market is early in a multi-year upgrade cycle of infrastructure modernization by both operators and carriers to enhance customer experience and enable a variety of new revenue generating services. Market growth in PON is a particular area of strength globally with additional government incentives or fiber upgrades just beginning to rollout later this year. In this context, we are excited about the solid market traction we have with our industry leading integrated PON and 10 gigabyte fiber processor gateway solution. In 2022, our fiber access revenue increased more than four times from 2021, and we are entering 2023 with strong design win momentum. Importantly in the fiber PON market, we have relatively small market share today and expected continue share gains in the coming years with our unique product and technology differentiation. We currently have multiple customers in North America ramping our products, including a large Tier 1 operator. We are winning designs globally beyond North America, along with significant silicon content expansion from our Wi-Fi, Ethernet, power management, and more. Moving to infrastructure. Our wireless infrastructure business grew by over 20% this past year, despite acute shortages of substrates and backend capacity, which resulted in minimal shipments in second half 2022 versus demand. However, as we enter Q1, we are excited to see sustained strong demand for our wireless back haul and access products, along with improvements to our supply chain headwinds. Throughout 2023, we see great market traction and are excited about wireless infrastructure growth as we continue to benefit from the expanding rollout of multi-band millimeter wave and microwave back haul 5G platform solutions across several large geographies. These multi-band platforms not only double our content, but also grow our total addressable units. In high speed optical data inter interconnect, we have a leading strategic position with our second generation and industries only finite CMOS, 400 gigabit and 800 gigabit PAM4 for production ready silicon. We're making good progress in ongoing qualifications and feel confident that our data center revenues will grow meaningfully over the next two years. We are working closely with hyperscale data center enterprise and OEM module customers to support the increasing performance requirements of the industry's transition to 400 gigabit, 800 gigabit and beyond. A strong Q4 performance on our 2022 revenues of $1 billion plus and operating cash flows of $389 million are capstone achievements, which are very -- which we are very proud of. In 2022, we also significantly advanced our technology platform and expanded our product portfolio offerings. We have conviction in a strong long-term growth, even as we navigate the ongoing macro weakness with extreme discipline. Thanks to our developing technology leadership, accelerating design win momentum, and expanding target markets consisting of Wi-Fi, fiber access, wireless and optical infrastructure. Over the last two years, we have delivered transformative growth and strong financials, balancing discipline expense management, and investments in product innovation. Entering 2023 as a result of our core offering, we are once again uniquely poised to grow MaxLinear its significant profitability levels and increased scale. We are also looking forward to our pending acquisition of Silicon Motion and are excited for the future growth opportunities offer comprehensive combined product portfolio. With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer.

Thanks Kishore. Total revenue for the fourth quarter was $290.6 million, up 2% versus Q3 and up 17% year-over-year. Broadband revenue was $99 million down 17% versus Q3 and down 23% year-on-year, and was in line with our expectations entering the quarter. Our connectivity end market had strong growth sequentially in Q4 as a result of solid demand in growing market opportunity. Connectivity revenue in the quarter was $105 million up 27% sequentially and up 99% year-on-year. Our infrastructure end market had revenue of $32 million down 11% versus the prior quarter and flat year-on-year. Infrastructure performance was in line with our expectations as a result of ongoing supply constraints in substrates throughout 2022. Lastly, our industrial and multi-market revenue was $55 million in Q4, a 16% sequential increase and an increase of 62% year-on-year. GAAP and non-GAAP gross margins for the fourth quarter were approximately 56.2% and 59.6% of revenue. The delta between GAAP and non-GAAP gross margins in the fourth quarter were primarily driven by $9.3 million of acquisition related intangible asset amortization. The decline from the previous quarter was primarily driven by a mix shift of end market revenues in the quarter. Fourth quarter GAAP operating expenses were $122.2 million, including stock-based compensation and performance-based equity accruals of $35.3 million combined. Acquisition and integration cost of $1.1 million and amortization of purchase intangible assets of $1.3 million. Non-GAAP operating expenses were $78.5 million down $1.9 million versus Q3. Non-GAAP operating margins for Q2 2022 was 32.5%. GAAP interest and other expense during the quarter was $0.5 million and non-GAAP interest and other expense was $0.4 million. In Q4 cash flow generated from operating activities was $69.4 million. While cash flow generated for the year increased more than 2x compared with 2021. During Q4, we made a $50 million prepayment against our long-term debt position, which is at approximately $120 million today and continued to make debt prepayment of priority. We exited Q4 of 2022 with $207 million in cash, cash equivalents, restricted cash and short-term investments. Our day sales outstanding for the fourth quarter was approximately 54 days down slightly from 57 days in Q3. Our gross inventory turns were 2.6 times essentially flat with the previous quarter. This concludes the discussion of our Q4 financial results. Before we go to guidance, I want to give you an update on the status of our pending acquisition of Silicon Motion. We continue to progress with the SAMR approval process and remain optimistic for a mid 2023 close. We have fully committed financing for the transaction and have actively working to optimize the debt structure to lower our expected cost to capital. We are excited about the opportunities for our combined business and looking forward to bringing our two technology focused cultures together soon. With that, let's turn to our guidance for Q1, 2023. We currently expect revenue in the first quarter of 2023 to be between $240 million and $260 million. Looking at Q1 by end market, we expect broadband revenue to be down quarter-over-quarter. Connectivity is expected to be down versus Q4, primarily driven by the timing of Wi-Fi shipments between Q4 and Q1. In infrastructure, we are expecting revenue to increase compared with Q4 as substrate supply constraints continue to ease. Lastly, we expect our industrial multi markets revenue to be down quarter-over-quarter. We expect first quarter GAAP gross profit margin to be approximately 55% to 58% and non-GAAP gross profit margin to be in the range of 59% and 62% of revenue. Gross margins being driven by a combination of near-term product, customer and end market mix. We expect Q1, 2023 GAAP operating expenses to be in the range of $114 million to $120 million. We expect Q1, 2023 non-GAAP operating expenses to be in the range of $80 million to $86 million. We expect our Q1 GAAP tax rate to be approximately 25% and non-GAAP tax rate to be roughly 10%. We expect our Q1 GAAP and non-GAAP interest and other expense to be roughly $4 million, and we expect our Q1 GAAP and non-GAAP diluted share count of $81 million to $83 million. In closing, we are navigating a dynamic environment in Q1, but solid execution and innovative product offerings are enabling us to maximize strategic business opportunities with continued success. As we enter 2023, we're energized by our traction and Wi-Fi, fiber broadband access gateways, and wireless infrastructure where our growth drivers are less dependent on macro conditions. As always, we will continue to focus on operational efficiencies, physical discipline, and shareholder value as we optimize for today and plan for an exciting future. With that, we'd like to open up the call for questions. Operator?

Thank you. And at this time we'll conduct our question-and-answer session. [Operator Instructions] Our first question comes from Alessandra Vecchi of William Blair. Please state your question.

Hi. Thanks for taking my question and congratulations on executing and what's probably been a very tough environment. I think in the past you've commented on strong backlog that's maybe exceeded a year. Is there an update you can give us on backlog trends and how you've been seeing movement within backlog on terms of cancellations, push outs, increases, et cetera?

Sure, Alex. Yeah. So just briefly on backlog. So, somewhat consistent with what we've been saying over the last couple of quarters. We have had strong backlog. Lead times had been long. They are definitely getting shorter now and -- but that being said, we still have a significant amount of amount of backlog. Consistent with the last two quarters on this call I mean, I've highlighted that customers have been kind of moving around shipment dates and asking for either push outs or cancellations. So, we continue to navigate that today as we have been over the last three to six months.

Okay. That's helpful. And then on the Wi-Fi constraints, any more color you can give us there in terms of how to think about the year? There as well I think in the past you've talked about over $200 million in revenue. Do you still see that as possible? And do those -- does the impact in Q1 come back fully in Q2?

Yeah. So, on the Wi-Fi side, I mean we had an incredible year. I think in 2022 we made lots of progress. We were able to increase a lot of our shipments. You saw a big pickup in our results in Q4. A lot of that was driven as we got more supply online and customers have definitely taken that. So, very excited. You talk about that $200 million that, that we've highlighted as a goal for next year or for 2023. That remains the goal and we're pushing hard towards it. That being said, I mean, we are in a pretty difficult environment where there's a lot of inventory in the channel, but we are continuing to gain good traction. We're continuing to see ASP increases, and so we're working very hard to get there.

Thank you. With that, I'll go back in queue.

Thanks Alex.

Thank you. And our next question comes from Gary Mobley of Wells Fargo Securities. Please state your question.

Hey, guys. Thanks for taking my question. I wanted to basically ask about the general tone in the market environment and maybe more specifically about the 14% sequential revenue decline you're expecting for Q1. I appreciate you commenting that broadband and connectivity will both be down sequentially, but between the two, what would you say is creating the most amount of headwind? Or is it sort of equally balanced, sort of channel reset?

Yeah. Gary, I mean, I'll jump in here. I mean kind of consistent with my previous comments about, just the order rates and visibility. I mean, it's definitely cloudy out there and so, we're trying to navigate it best we can. I think we kind of came into this much later than others. We continue to see really good demand. And I think overall, from a long-term perspective, this kind of multiyear broadband cycle continues to be very exciting with the attraction that we're seeing on our fiber product offering as well as Wi-Fi is really encouraging. I think there's clearly some inventory in the channel that the industry is going to have to work through. And we're doing our best to kind of navigate that with our own business as well. I mean -- long term, I mean, I feel very good about the progress that we're making in each of our end markets with all of our product offerings.

So, you want to look at broadband in two categories, right? There is the cable side and the fiber side. Fiber side is a continuing growth storey with share gains and content expansion. Cable has been a content expansion story and the real next big growth Philip comes when DOCSIS 4.0 launches. So, I think the secular growth vectors in place, we have the right product offerings. And it's very hard to predict what is the channel inventory levels right now. On a longer term basis, as we have stated in the script portion of our call here that we're really excited where MaxLinear is positioned today.

Got it. Appreciate the color. And as my follow-up, I want to ask about the China SAMR approval process. What is the communication like with China SAMR? Are they asking for supportive materials for consideration? And have they communicated with you that gives you any -- if they communicated with you anything that gives you comfort in the mid-2023 close?

Yeah. Gary, with regard to SAMR, I mean, we're not going to comment on the dialogue that we have with SAMR. But we do remain optimistic as we've consistently said about closing this mid this year.

Got it. Thank you.

Thank you. And our next question comes from Quinn Bolton of Needham & Company. Please state your question.

Hi, guys. Congratulations on a nice close 2022. Obviously, the environment entering 2023 is, as you said, low visibility. But I guess, Steve and Kishore, you've talked about inventory in the channel. I think, in broadband, it sounds like there's some in Wi-Fi. I assume there's probably some in industrial and multi-market. And so I guess, my question is typically inventory corrections last longer than a quarter. Do you expect that to be the case this time around? And can you give us any sense do you think the second half of the year you start to come back to consumption levels or could the inventory burn potentially last into the second half of 2023?

Hey, Quinn, it's -- this is -- it's a very difficult question you're asking. We are talking to our OEMs and the OEMs are talking to the operators, and everybody is trying to get hold of what the total inventory in the channel is. So, while I do not expect the correction to complete in the first half of 2023, we're projecting far out into the second half of that is very difficult. Having said that too we are really depending on growth coming in our fiber side, the content expansion and wins that ship in outside of the operator gateways in our Wi-Fi products as well. So, Wi-Fi, while it is attached substantially to the operator platforms as we speak today, there are growth opportunities in the non-operator markets, retail router gateways that are more in the operator class. So, I would say that I cannot answer your question. It's very cloudy, but I'm optimistic as everybody else that things will revert back in time by the time we close out 2023, right? But for us, the growth cycles really depend on the -- on Wi-Fi infrastructure going strongly, fiber going strongly. And then beginning of a ramp on our optical high speed data center interconnect products. So, those are the things that really we are looking forward to because they set the stage for very strong growth in many years to come.

I guess, as a follow-up, Kishore. Do you think based on the timing of either third-party routers and Wi-Fi deployments or share gains in fiber that the infrastructure ramps. I mean, can you tell today whether you think second half of the year is better than first half of the year? Or is it just too tough to call at this point?

So, I'll just jump in real briefly. Look, I think the kind of where we're seeing the inventory is today, I mean, we're just beginning this. I mean, it definitely feels like we see some more pain or some additional decline next quarter. And then hopefully, we start to see that inventory flush out and we see some things improve. As you know, they don't improve quickly. So, I don't think we're expecting a dramatic snapback by any stretch of the imagination, but hopefully, in the second half, we'll see that inventory clear out and start to see improvements in Q3 and Q4.

See we're maintaining a conservative stance, right, about how we plan our annual operating plan and our investments in a very disciplined balanced manner. And that's one thing we've always done very well throughout our existence as a public company, and we will continue to do that.

Understood. Thank you for that color.

Our next question comes from Ross Seymore with Deutsche Bank. Please state your question.

Hi, guys. Thanks for asking the question. I think everybody's kind of beat the dead horse about visibility going forward. So, let me just try to ask something slightly different. Ex inventory, Kishore or Steve, are you seeing any change in the design win frequency in your core areas, whether obviously the new stuff in fiber, Wi-Fi and optical, you're really excited about? You mentioned that a bunch of times. But any sort of market share shift change in design activity given the uncertainty in the market?

Thank you, Ross. We'll go beyond the beating the dead horse, so to speak. Hey, you have to celebrate the first mixed signal $1 billion plus company in this century, right? So, it's really, really -- and it's almost at the brink of our 20th anniversary as a founding company. So, I'm super excited, right? And coming back to the question of -- you're asking basically, are there any design win cycles here that are presenting themselves, what is the momentum in the market? You asked a very, very good question. Actually, there's quite a bit of a froth from all these operators, et cetera, where there's RFPs out there for next-generation platform design-ins. So, what we do over the next 12-month window, we'll set the stage for the next seven years because it's a generational technology transformation that's happening. And Wi-Fi 7 is going to stay for a long time. From then, the innovation cycles will slowdown. And so, it's very, very important for us to write now focus on design win momentum and technology win momentum to win these major platforms on the PON side. On the cable side, we feel quite comfortable that we'll maintain our share and win the next-generation design. So, even those are in the mix, but you know how that world works out, right? So you asked a very good question. And we see in the optical, there's again some momentum going on in the next-generation high speed interconnect this thing. So, we -- I know we talked about this, but I wouldn't talk about this if I was not feeling good about it. Let me tell you that after two years of talking about it. So that feels good. On the wireless infrastructure side, lots of conversations on the transport side of next-generation designs, but less conversations on what I call access transceivers, it's almost like, okay, we're going to wait for another few years for the next generation of access transceivers sort of technologies. So, I would say if you want to really identify where the froth and momentum is in fiber, in terms of design win, what we call at play and their wireless infrastructure in the transport side, which is all these multi-band backhauls and transports, millimeter wave and microwave and then on the optical side, there is some -- quite a bit of conversations and design win battles about next-generation technologies.

Thanks for all that color. I guess, as my follow-up, Steve, going over to the OpEx side. You guys have done a great job of controlling that coming in below your guidance and down sequentially in the fourth quarter. The step-up in the first quarter, anything to point out there. And generally, given the uncertain environment on the revenue side of things, what's your strategy on OpEx as we think relative to kind of the -- what I guess, $83 million you guys guided to in the first quarter? How should we think about that trending throughout 2023?

Yeah. Ross, it's a super important question. So, look, as we look at Q1, you have your standard payroll tax increases that you bump up in Q1. We've also got a variety of kind of legal costs that are somewhat one-time in nature, but they do tick up in Q1. Look, kind of given the revenue declines, we're looking very hard, and you'll see us reduce our OpEx kind of throughout the entire year. So, I would expect it to come down slightly in Q2 and then down the rest of the year, really acknowledging the market environment that we're in right now.

Thank you.

Thanks Ross.

Our next question comes from Tore Svanberg with Stifel. Please state your question.

Yes. Thank you. If I could just zoom into your broadband business a little bit more. So, based on your guidance, I mean, it looks like that business is going to be down about 30%, 40% from its peak. And that's even with the fiber side, obviously, growing pretty nicely. So, I do appreciate you don't know exactly where the channel inventory is. But down 30%, 40%, do you start to get a sense for when that business will start to flatten out?

It's a great question. We're wrestling with that. We've seen, as I mentioned before, good backlog numbers. And at the same time, there's just -- it's a very murky environment right now. And I think with some of the supply chain dynamics, a lot of our customers and their customers naturally have ordered up ahead of that. And so, we're really wrestling with kind of where everything shakes out. It kind of feels tough in the first half of the year. Hopefully, we start to see some modest improvements in the second half. But I wouldn't say that we're counting on any major shifts, but it does feel like we're kind of getting down to the right levels. But I think 2023, you're going to see -- numbers are going to come down quite a bit with some decent recovery in 2024.

Sounds good. That's fair. And I noticed you made a small acquisition in the quarter. I know it's pretty small, but was that just a group of engineers or care to comment on that?

Yeah. So -- yeah, so the small group of engineers looking to kind of reduce our overall consulting cost, and so that will end up being a modest cost reduction for the company going forward.

Very good. Just one last question because, Kishore, you talked about the broadband business probably not seeing that next leg up until DOCSIS 4. So, what's your best guess on timing there as when DOCSIS 4.0 will be a more material driver for MaxLinear as a company?

So, Tore, we are speaking of the cable side here. I think there are two links to the growth, right? When cable launches a recovery, which would be through ASP expansion and some unit growth, right? And the first one would be really 3.1 with Wi-Fi 7. Wi-Fi 7 being a big catalyst for the refresh in the DOCSIS. And then the other one is the next-generation DOCSIS 4.0 with the Wi-Fi 7. So I think that is a sequence of it. So, I would expect that to happen sometime beginning in the second half of 2024 in terms of these new offerings.

Very helpful. Thank you very much.

Thank you. Our next question comes from David Williams with the Benchmark Company. Please state your question.

Hey, good afternoon and congrats on navigating this tough environment. First, maybe I just wanted to ask, do you think that any of the WiFi, just kind of given the strength that you saw in connectivity sequentially, is there any of that you think was maybe pulled forward from the first quarter that is contributing to that 14% sequential decline?

Hey, David. I guess, the way I would describe it, I mean we were really planning to catch up throughout the year. We're talking about trying to capture more of this third-party router business. We were able to capture some of that. I think as we look into next year between some of the gateway fall off, which is attachment revenue for us. And then also some of the additional third-party router revenues that I think we were anticipating in the first half, really, both of them come down a fair amount, and so moderate a bit, but we are excited about that particular business from a diversified revenue stream. It's another customer base that we've got design wins and are very excited about. So I think it's something that will continue to fuel growth for us on a go-forward basis. But in the short-term, you're going to see connectivity and Wi-Fi specifically come down a little bit in the first half.

Okay. Great. Thanks. And then maybe just on the gross margin side, it was a little bit lower, I think, this quarter than we expected because of mix tends to -- or it looks like it's going to bounce back. How much of this -- and maybe all of it is really driven more by the favorable mix. And then maybe if you can talk to any of the pricing pressures you're seeing either on the sales side or on the input cost side?

Yeah. I mean, so with regard to gross margins, so yeah, just mix related. We talked a lot about how some of the newer business, some of it in the connectivity area was lower margins. And then if you recall, the infrastructure business with the substrate shortages really kind of hurt us in Q4. So that will start to recover and thus, the raised guidance in Q1. So that's encouraging. With regard to the ASP pressure, as you know, I mean, most of our business doesn't have -- isn't really subjected to a lot of ASP pressure. I think around the edges, there are certain places like third-party routers that could potentially see that, but we're prepared for it. And that's one of the things that we're excited about some of the newer products, the lower cost structure on a go-forward basis. So we remain committed to getting gross margins up to those mid 60 levels.

And the ASP pressures in our business really there's a lot of inventory in the channel, like in the broadband side. Pricing does not change how much you can ship because it's built up in the channel. So, the FX are more limited. However, what has happened was that there was a lot of demand scrambled last year. And we ordered product that at much higher costs because the foundries and the packaging companies raised prices quite a bit, even though there was like what I call volatile demand being spoken about, but we paid the extra monies to secure more product. And now, of course, that sort of catches up with you when the demand now declines, right? So, paying more, listening to our customers to get the product sort of also has hurt us a bit.

Thanks so much guys. Appreciate it.

Thanks David.

Our next question comes from Christopher Rolland with Susquehanna. Please state your question.

Hey, guys. Thanks for the question. Great to see infrastructure guided up. I was wondering if you guys could illuminate a little more on the substrate availability. And is there still a shortage going on there? When do you think we could be at equilibrium? And would you expect more supply to come online into June as well? Could we potentially see an up quarter there?

Hey, Chris. On the substrate, I don't think anybody would even now say that there is any capacity issues anymore or less in the system for supply. I think a lot of them are lines down. The tragedy of the whole process has been that the way -- the qualification process now is at a place where we are in the recovery process and that recovery process has a certain time cost into completely feeling our capacity needs for wireless infrastructure. And by the time we hit second quarter middle, lot will end up. We should have no product issues, right? Now the capacity is available, but there is a gestation cycle to ramping up product because we've got other alternatives that we're calling, and we don't want to stop that in between. So, I don't see capacity issues moving forward in wireless infrastructure once we are past a quarter or so.

That is very helpful. Thank you. And then lastly, Kishore or Steve, if you guys want to take a shot at this, we don't need specific numbers, but maybe looking out over the full year for 2023. If you could kind of force rank your outlook, just given the drivers that you guys know regarding your four segments, if you could kind of force rank growth for us, I think that would be very helpful?

I'll take a stab at it. Look, we're not going to guide the entire year for the whole company or by end market. But look, I mean, definitely, as I look at 2023, as Kishore just comment on some of the wireless areas, I mean, look, infrastructure is going to do well this year. I think the connectivity and -- the connectivity and broadband area, there is inventory in the first half of the year that we got to work through, and that will be a headwind. And then the industrial multi-market, I think, will be somewhat subject to this as well. But so that's kind of how some of the inventory dynamics play out. But I mean, I really do -- I know probably gone on about this quite a bit. But the growth that we're seeing I think we remain very focused on winning more of the fiber business as well as getting more market share with some of our Wi-Fi offerings as well. So, those are things that really lead us out of this exiting 2023 and into 2024.

And there's an outside factor, too. I don't know how many of you have thought about it is that, I mean, China is now no COVID or whatever you call the policy, but there is free movement now. Everybody is traveling. Second half does China really snap back and then does it create a positive vector. And that's the one I am sort of keeping an eye out fall.

That’s fantastic. Thank you, guys.

Thanks Chris.

Our next question comes from Ananda Baruah with Loop Capital. Please state your question.

Yeah. Hey, guys. Thank you for taking the question. Yeah. Just a couple if I could. On -- with regards to sort of customer verticals, is there anything interesting to glean there from a demand perspective?

I don't know about specific customers. I mean, we definitely have some key wins like our Tier 1 operator that's ramping some of our fiber products. I mean that's very exciting, so early days. We had talked about that happening kind of in the first half of the year. So that's something that's probably exciting. We've got all your our typical customers on the wireless infrastructure side that we'll definitely see some nice growth in the first half of the year as well. And then maybe pointing to Kishore's comments a little bit earlier, we're engaged very closely with a lot of the operators. And as a lot of those decisions are being made for future platform deployments, for fiber or soon to be all the Wi-Fi 7 platforms as well.

Okay. Got it. That's useful. And then, Steve, just I guess on the gross margin. I guess, what are the kind of pushes and pulls as we go through the year here that can move the margin around? Do you expect -- I mean -- and do you expect potential for much movement? And if they were to move, what would be the thing?

Look, I think we had -- everything working against us in Q4. I think that definitely improves. I mean, we showed that in the guidance. So, I think I do see improvements. I don't see big swings as we kind of get through the year. I mean, the mix shift itself doesn't change that much in the first half, getting infrastructure up and going and seeing some of our backhaul products, transceivers, modems, et cetera, start to ramp will definitely benefit the gross margin line. But I don't know that we're not there with a breakout yet much higher, just kind of given some of the industry dynamics, but then also getting the cost structure in line from our standpoint, right? So, we've talked a lot about Wi-Fi 7 highlighted that that's kind of that first single monolithic chip that we can get out. Cost structure is much lower. And so as that business starts to ramp in the second half of next year, it can be a more meaningful contributor.

That’s very helpful. I appreciate it. Thanks.

Thanks Ananda.

Our next question comes from Suji DeSilva with Roth Capital Partners. Please state your question.

Hi, Kishore. Hi, Steve. So, I'm looking ahead to the Wi-Fi WAV700 for the Wi-Fi 7. What do you think your design win share would be in that as those start to come in versus the current Wi-Fi 6, 6E, will it be similar? Or is there a potential for further gains there?

So, Suji, look, our attach rates on our own platform is Wi-Fi 6, 6E is really not even not close to 50%. So, it's less than that. So, the potential growth is much higher as Wi-Fi has become sort of the mandatory attachment to all the broadband access sort of gateways or even smaller, lower tier units. So, I believe that the attach rates will increase quite a bit. And the Wi-Fi 7 design assignments, allocation have not yet happened yet. I think they happen towards the end of the year. And so, there is no such what I call slack fest in the non-consumer markets, and we are not in the consumer markets, per se. We do in the client side of the market. So, I think, in our case, it happens at the end of the year when the sort of the -- but the bids, the RFPs I talked to you about where all these operators are looking at next-generation platforms, Wi-Fi 7 is an essential part of it. So, we're all right now, putting in bids that include pricings and things like that.

So, just to follow on that, Suji. I mean, we talked about those attach rates. I mean, definitely, in some of the markets like cable, we have a higher attach rate, but we've definitely got much more room to go and Wi-Fi 7 really gives us the ability to go up and get that. I'd also just remind you, WiFi 7 ASP increases will be significant over Wi-Fi 6.

Thanks Steve. Very helpful color. Maybe the next question is for you, Steve. Just going back to the debt related to the planned Silicon acquisition. You talked about some potential to restructure or revisit that debt in the rates there. Can you just elaborate on what that opportunity is for you guys? And whether the deal is somewhat contingent on that? Or it sounds like the deal is financed, you said. So, I just want to get clarity there. Thanks.

Yeah. So, sure. Yeah. The deal is financed. I mean, I said in our prepared remarks about us continuing to work on increasing -- or improving the cost of capital there. So looking to kind of move into the pro rata market, where we can pick up some additional share. We've had some interest. It comes at slightly lower rates. And so that's one of the things that we're doing to lower the overall debt cost. Clearly, interest rates have gone up. And while we're very confident on the synergies between the two organizations, the cost savings that can be achieved, but ultimately, the long-term growth that we can achieve is very encouraging and exciting. At the same time, in the short-term, we got to make sure that we're very disciplined around spending, especially in some of these slower periods that we're going through right now.

Great. Thanks Steve.

Thanks Suji.

Thank you. Our next question comes from Richard Shannon with Craig-Hallum. Please state your question.

Hi, guys. Thanks for taking my question as well. Kishore, maybe I'll ask you to peel the layer back here a little bit on optical PAM4. Especially looking at 800 gig, can you kind of characterize the breadth of your engagements across hyperscalers? I assume that's really the more important point of influence here. How you're doing? Are you expecting kind of first or second share position there? And then what kind of time frame do you expect these wins to be awarded and eventually to ramp?

Okay. So, I think that the various hyperscalers ramp into the 800 gig PAM4 or 400 gig PAM4 or 2 by 400 gig PAM4 or even 2 times into 1.6 terabit PAM4, it depends. Everybody has a different plan. Having said that, so -- and everybody is different in the time line with some of our leaders, some are followers. So here on the 400-gig side, we -- that is well in the process. We're working with two hyperscalers and their OEMs to get design-ins and called. And on the 800 gig, it is the new one, we'll be the first -- the leader in that in terms of as and when the launch plays out. Of course, we don't have incumbency, but we have the best product, and we have got good traction with OEMs that supply to and a couple of two hyperscale data centers, right? They are the leader. So you just follow them. And sometimes, one of them really expects to have a custom product for themselves, which is -- we have a lot of sync on that one. But still, from where we are, it will be a substantial opportunity for our growth. And we expect initial ramp shipments to start sometime in the second half of this year, probably latter than earlier. But however, we would have the visibility much earlier. We are shipping pilot qualification quantities right now and that has to go and flush through the entire chain. So it really sets up a very nice 2024. And I would I will look at the – what happens 2023 as milestones to -- and pointers to what happens in 2024 and beyond.

Kishore thanks for all that. It’s great. Second question on the fiber business here as you're expecting your nice growth here this year. Maybe you can kind of give a little bit more color to the geographical split here. I know you've got a Tier 1 operator here this is in North America. But wondering if we're going to see any material contribution outside the U.S., whether in Europe or Latin America or other places can you characterize that, that would be great. That's all for me. Thanks.

Great. On the fiber side, actually, we've done very well. But I also have to admit that the growth and victory have commented on the lower tier products, what I call non-gateway products. But my gosh, it's grown so nicely, so fast. And it's really heavily a North America concentration actually substantially. And the big victory is this Tier 1 operator in North America that the ramp has started. There are boxes in the field there and in tens of thousands. And you may not see as much of a spike right away in the quarterly revenues because they already took inventory and product earlier on. Now this particular one is probably the world's premier fiber optic gateway product, and it is an exemplar for the remaining operators who are selling in bids and where we establish credibility through the shipment to this particular operator. So, I think that's what it plays out. I think the next one will be Europe for us. And when we talk of fiber, we always talk of the non-China market. India and all would come in line over time potentially, but they will tend to be lower tier products like the ones we are shipping today in North America in pretty good quantities.

Okay. Great. Thanks guys.

Thanks Richard.

Thank you. And there are no further questions at this time. I'll hand it over to Dr. Kishore Seendripu for closing remarks. Thank you. End of Q&A:

Thank you very much. I just want to let everybody know that we'll be participating at the flowing conferences this year in short order. The Susquehanna Twelfth Annual Technology Conference in New York; the 35th Annual ROTH Conference in Dana Point, California; the Loop Capital Markets 2022 Investor Conference on March 14; and the William Blair Seventh Annual Tech Innovators Conference in March 15. In my conclusion, I want to say that we've got a very nice momentum and a large technology portfolio that's developed over the last two years. We are at scale where we can compete and customers find a strategic. At the same time, it's a big celebratory milestone for us as a mixed signal associate company, having -- being the first one company started up for 2,000 that has actually hit $1 billion in revenue point. And so, I think it's a great movement for us. Internally, we are very proud, and we are sharing for future success. Thank you very much and see you soon. Bye.

Thank you. That concludes today's conference. All parties may disconnect. Have a great evening.