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Executives

Kevin Trosian – VP, Business Development and IR

Raouf Halim – CEO

Steve Ananias – CFO

Analysts

Steve Smigie – Raymond James

Quinn Bolton – Needham & Co.

Dale Pfau – Cantor Fitzgerald

Krishna Shankar – Roth Capital

Mindspeed Technologies, Inc. (MSPD) F1Q2013 Earnings Call January 28, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Mindspeed Fiscal First Quarter Earnings Conference for 2013.

At this time all lines are in a listen mode. Later we will conduct a question and answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host today, Kevin Trosian, Vice President, Business Development and Investor Relations. Please begin.

Kevin Trosian

Thank you, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal first quarter of 2013 financial results. Our press release issued this afternoon detailing these results may be accessed in the Investors section of our website at www.mindspeed.com.

Today, our CEO, Raouf Halim, will describe some key milestones for the business, our progress in the wireless small cell market, and the strategic focus of the company going forward. Following, Mr. Halim, Steve Ananias, our CFO, will review fiscal first quarter 2013 financial results and provide financial guidance for our fiscal second quarter of 2013.

Before we begin, I want to remind you that our comments today include forward-looking statements within the meaning of federal securities laws. Forward-looking statements include, among others, statements regarding our expectations, goals or intentions including but not limited to our current assessment of the demand environment and trends in our target markets, including the anticipated environment and trends in fiscal 2013; our assessment of growth opportunities in specific product markets, including wireline and small cell base stations; market share expectations; our current views and anticipated timelines with respect to our ability to achieve or maintain various profitability metrics, including net income and operating profitability on a GAAP and non-GAAP basis, as well as free cash flows; the revenue and margin targets required to achieved these profitability metrics; expectations concerning the operating impact of our most recent restructuring, and our current expectations for fiscal first quarter net product revenue, non-GAAP gross margin and non-GAAP operating expenses.

These forward-looking statements are based on management's current expectations, estimates, forecasts and projections and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements.

Our business is and any financial projections provided today are subject to numerous risks and uncertainties, including our ability to realize the revenue growth anticipated from various product markets, including any incremental revenues realized from our Picochip acquisition; our ability to realize the cost savings anticipated by the most recent restructuring; the impact of any failure to realize anticipated revenue growth or cost savings on our ability to achieve various profitability metrics; fluctuations in our operating results and the potential for future operating losses; loss of or diminished demand from one or more key customers or distributors; our ability to successfully develop and introduce new products, pricing pressures; and the potential for intellectual property and other litigation.

Additional risks and uncertainties that could cause our actual results to differ from those set forth in any forward-looking statements are discussed in more detail under the caption Risk Factors in our annual report on Form 10-K for the fiscal yearend September 28, 2012, our soon-to-be-filed quarterly report on Form 10-Q, and our future filings with the SEC. Forward-looking statements made during this call are made only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise.

During our call today, we will be making reference to non-GAAP financial measures which exclude stock-based compensation expense and related payroll costs, restructuring charges, amortization of intangible assets, non-cash interest expense on convertible notes and asset impairments, among other items. For a reconciliation of non-GAAP to GAAP financial measures, please refer to the Investors section of our website at www.mindspeed.com and our earnings press release and our Form 8-K furnished to the SEC today. We do not provide a reconciliation of the forward-looking non-GAAP measures to GAAP measures because of our inability to project restructuring charges, employee separation costs and stock-based compensation related expenses.

With that, I will now turn the call over to Raoul Halim, our Chief Executive Officer. Raoul?

Raoul Halim

Thank you, Kevin. Good afternoon everyone.

I'm very pleased with Mindspeed's performance this past quarter. Q1 product revenue came in at the high end of our upward revised guidance that we provided in mid-December. Mindspeed recorded $38.4 million in product revenue as well as both operating profitability and net income, ahead of our prior forecast. In fiscal Q1 we reported non-GAAP operating profitability of $1.4 million and net profits of $180,000, after excluding the positive benefits of the $6 million of intellectual property sales. Our profitability was driven by 6% product revenue growth, 255 basis points of higher non-GAAP product gross margins versus the prior quarter, and reduced non-GAAP operating expenses.

On our last conference call we articulated three key milestones that we have set for ourselves internally and also provided to the investment community. These included a commitment to non-GAAP operating profitability in the first half of fiscal 2013, stabilization to modest growth in our core communications processors and HPA businesses, and a meaningful ramp in our small cell business.

I'm very happy to report that we have met or exceeded all three goals. First, not only did we accelerate non-GAAP operating profitability by a quarter, we also achieved non-GAAP positive net income in the quarter as well. Second, we posted another record quarter in HPA, which recorded product revenue of $19.2 million, while our wireline businesses in aggregate were up 4% sequentially.

And turning to the third key metric, we are right on target for our ramp in the small cell base station markets. We deployed our Transcede SoCs in 4G LTE small cell in Korea in the December quarter as expected, posting approximately $500,000 in 4G LTE revenue, which was in line with our target. Critically, with this deployment experience in Korea, we have now hardened our LTE Fi and voice-over-LTE software implementation in readiness for the next wave of small cell deployments, thereby further strengthening our lead in the small cell system-on-a-chip market.

As we move into the March quarter, we expect a doubling or more of our 4G LTE small cell SoC revenue, driven by the ramp of deployment in Korea. We remain on target to reach 150% year-over-year growth in the wireless infrastructure business, with more of the weighting towards the second half of fiscal 2013.

I would now like to take a moment to discuss our product line revenue reporting. Starting this quarter, we will be reporting small cell wireless infrastructure revenue as a standalone category. We have combined the TCP and WAN businesses into communications processors, while HPA will remain unchanged. Therefore, our three reporting units going forward will be Wireless Infrastructure, Communications Processors and HPA. Stephen will dive into more detail later in the call, and in order to make the transition smooth, he will provide our Q1 revenue breakdown in the historical manner as well as the way we will be reporting it from this quarter going forward. For a complete comparison, please refer to today's earnings release on our website. We believe that this reporting structure is better aligned with our investment focus and will provide investors greater transparency into our execution on our stated growth opportunities.

Turning first to our Communications Processors unit which represented 38% of Q1 revenues. We have launched a number of initiatives focused on further increasing our market share in our core service provider provision broadband home router or BHR markets. Conurrently we are broadening our play with our ARM-based communications processors into multiple adjacent vertical markets. These include the service offload platform or SOP, consumer network attached storage or CNAS, and deep-packet inspection or DPI.

Some of you had a chance to see some of these applications being demonstrated at our booth at CES in Las Vegas earlier this month. At CES we showed the industry's first dual Cortex-A9 based processor with a DPI engine. We showed how service providers can manage the precious networking absence by using DPI for application-based traffic management while improving customer's quality of experience.

We also showed our high-performance, low-power CNAS application with integrated 802.11ac support. We have witnessed an upgrade cycle in this market that measures very well with our C2K dual-core ARM-based processors with a Tier 1 customer win in the segment that many of you are likely very familiar with. We are now focusing on other areas to deploy our C2K processor and have a significant win with a Tier 1 North American service provider that launched at CES innovated new home services running in our communications processor.

By targeting these new markets, we believe we can increase our communications processors addressable market by at least $200 million. In fact, from 2009 through 2012, revenue from our communications processors for our core fiber-to-the-home BHR segment alone has grown at a 62% CAGR. We believe we can leverage our ARM-based processor platform into adjacent market with low incremental R&D expense, providing earnings leverage to our model in FY2014. Further, we're seeing a strong push in the fiber-to-the-home market, particularly supported by data points such as the SEC Chairman calling for gigabit Ethernet in all 50 states by 2015.

Overall we expect the Communications Processors business to remain on track to meet our revenue forecast of flat to down 5% for this fiscal year, inclusive of the declining legacy WAN product line.

The second market I'd like to focus on is HPA, which accounted for 50% of our revenue in Q1. This business has continually exceeded our expectations for the last few quarters and has been driven by three factors. First, share gains in broadcast video infrastructure which grew 20% sequentially for us last quarter and where we continue to lead the industry with state-of-the-art cross-point switches and SDI components. Second, sustained growth in OTM infrastructure which leverages our broad portfolio of PMDs and cross-point switches. And third, global fiber-to-the-home deployments which are poised to remain strong in calendar 2013 where we continue to maintain our number one market share position for fiber-to-the-home PMD in both GPON and GEPON markets.

Now I'd like to take a moment to discuss the emerging 100-gigabit Ethernet market where the continued explosion of IP traffic driven by growth in social media and video streaming, sourcing interconnects, from 10 and 40 gigabits per second to 100 gigabits per second in the enterprise. We are currently participating in this market by sampling our clock-and-data recovery or CDR devices for 100-gig optical transceivers and line cards. We have a number of design wins with Tier 1's as customers take advantage of our ultra low-power solutions.

We forecast HPA will grow year over year as approximately 10% in fiscal year 2013, consistent with our prior forecast. In the March quarter, and based on historical buying patterns, we anticipate [to achieve a little] slowdown in HPA followed by a strong ramp in the second half as we saw in fiscal year 2012.

And finally, let me update you on our Wireless Infrastructure business which accounted for 12% of Q1 revenues. Most importantly, 4G LTE small cell rollouts have begun in earnest and we believe Mindspeed is well-positioned in the first wave of deployments. We're on track in every major 4G LTE region in the world with design engagements with the who's who of market-leading OEMs. In fact, we recorded three TD LTE design engagements in the fiscal first quarter, bringing our new total to 34 LTE design engagements, as well as three new TD-SCDMA engagements for the China market. All six of these were in TD, positioning us well in the Chinese and Indian markets, the two largest wireless markets in the world with approximately 1.6 billion subscribers covered by carriers such as China Mobile, Reliance and BSML.

We're in the pole position for the second wave of small cell deployments with TD into China and India regions. As you may remember, last quarter we jointly announced our relationship with China Mobile and are now deploying residential TD-based small cell in China today. With new and greater rollouts of 4G and dual-mode 3G and 4G, we expect the small cell base station market to explode in 2014.

Importantly, we believe we will more than double our 4G LTE small cell revenue in this fiscal second quarter. We expect our overall wireless infrastructure business to grow sequentially in Q2. As we said last quarter, revenues can be lumped in any market. However, we are still comfortable with our forecast of 150% year-over-year growth in fiscal 2013 over 2012, and I'm particularly excited with the new opportunities in Asia Pacific for our TD-based small cell solutions.

As the small cell market grows, we want to make sure the investment community understands our key differentiators, and in particular, why Mindspeed is the leader in the small cell system-on-a-chip market. First, the market has become standardized on the SoC approach versus using discrete processors and FPGAs. Additionally, Mindspeed owns the industry's broadest range of wireless standard radio air interface Fi layer software and can therefore address any region around the globe. And finally, we have carrier-proven, carrier-deployed technology for the typically risk-averse service providers, enabling a smoother testing cycle and faster deployment for our OEM customers. These amongst many other factors have given us the market-leading position for SoC solutions in this growing small cell market. For instance, we are designed into and expect to be shipping our dual-model Transcede SoCs into the world's largest networks in late calendar 2013.

I'm very excited with the opportunities we have in front of us as our investments and restructuring are paying dividends in terms of both growth and profitability. I am particularly enthused with the breadth of opportunities driving new revenue growth across our portfolio in all three businesses as we move through fiscal year 2013 and into 2014. We are committed to driving improved profitability and free cash flow in the second half of fiscal 2013 as we execute on the plans we have laid out internally and to investors.

Finally, before I turn the call over to Steven, I'd like to say we are excited to showcase our products at Mobile World Congress in Barcelona next month, including the demonstration of our dual-mode Transcede system-on-a-chip for combined 3G HSPA and 4G LTE small cell base stations. Our team will be there meeting with customers, partners and analysts. And I look forward to seeing you out there.

With that, I'd now like to turn the call over to Steven to provide more detail on last quarter's financials and our fiscal Q2 guidance. Steven?

Steven Ananias

Thank you, Raoul. I will now review the financial results for our fiscal first quarter of 2013 and provide the financial outlook for our fiscal second quarter. First, let's discuss our Q1 results.

Total product revenue for the fiscal first quarter was $38.4 million, meeting the high end of our revised guidance range provided in December. This represents quarterly product revenue growth of 6%. Please note that the $38.4 million in product revenue does not include the $6 million non-core intellectual property sale we completed in November.

As Raoul mentioned, beginning this quarter we will report our product revenue to better align with our investment focus and provide investors better transparency into the execution on our stated growth opportunities. We have included a summary of fiscal first quarter revenue based on past reporting practices in our earnings press release and on our website.

First, I will discuss our high-performance analog business or HPA. The reporting structure for this business has not changed. Product revenue from HPA represented 50% of total fiscal first quarter product revenue and increase by 8% sequentially to a record $19.2 million.

Now I will introduce the two new reporting units. First, we've created a Communications Processors business unit. This business combines the former communications convergence processing business or CCP and wide-area networking business or WAN, while excluding wireless revenue. Product revenue in the Communications Processors business was $14.6, up 4% sequentially.

Second, we have created a Wireless Infrastructure business unit which historically had been the wireless small cell subcategory within the CCP business. Product revenue in the Wireless Infrastructure business was $4.6 million, up 4% sequentially.

For this earnings call, I will also summarize our revenue results according to the historical reporting units. The CCP business, which included wireless revenue, reported approximately $14.1 million in product revenue and was approximately flat versus last quarter. The legacy WAN business contributed approximately $5.2 million to product revenue.

Product revenue for the fiscal first quarter was split by geographic region as follows. Asia Pacific is 77%, Americas at 14%, and Europe at 9%. China specifically represented 29% of total fiscal first quarter product revenue. No end-customer represented product revenues of 10% or greater in the fiscal first quarter.

Now turning to gross margin. Non-GAAP gross profit was $29.6 million or 61.5% of product revenue, excluding the 520 basis-point benefit from the non-core IP sale. This was up 255 basis points sequentially compared to 58.9% of product revenue in the prior fiscal quarter on a non-GAAP basis. Non-GAAP gross margins exceeded our original guidance due to better product mix and volume.

Total non-GAAP operating expenses were $22.2 million, consistent with our original guidance to reduce operating expenses to the levels prior to the Picochip acquisition. Non-GAAP operating expenses were comprised of research and development expenses of $14.5 million and selling, general and administrative expenses of $7.7 million. The resulting non-GAAP operating income for the fiscal first quarter was approximately $7.4 million or $1.4 million when excluding the benefit of the IP sale, versus a loss of approximately $2 million in the prior quarter.

Now, finishing the income statement for the fiscal first quarter, non-GAAP other income and expenses totaled a net expense of approximately $1.2 million composed primarily of net interest expense. The provision for income taxes was $71,000.

Non-GAAP net income for the fiscal first quarter was approximately $6.2 million, resulting in non-GAAP earnings per share of $0.14 or $180,000 when excluding the benefit of the IP sale.

Turning now to the balance sheet for the fiscal first quarter. Cash and cash equivalents were $51 million at the end of the fiscal first quarter of 2013, up $2 million versus the prior quarter. This included the $6 million in proceeds from the sale of non-core IP and an outflow of approximately $1 million of restructuring payment.

Accounts receivable at the end of the quarter were $16.6 million, resulting in net days sales outstanding of 38 days, up slightly from 36 days in the prior quarter. Inventories at the end of the quarter were $9.2 million, resulting in non-GAAP inventory turns of 6.4 versus 5.7 turns in the prior quarter.

Now I would like to provide the status on the restructuring we first discussed during our fiscal Q3 2012 earnings call. At that time we committed to return our operating expenses back to the pre-Picochip acquisition level. I'm happy to announce we have achieved this goal while remaining fully invested in our most promising opportunities, including wireless infrastructure, high-performance analogs, and communications processors. Most importantly, we accelerated our return to non-GAAP profitability and have significantly narrowed our quarterly cash burn after excluding the proceeds of the IP sale. We will continue to narrow our cash burn in this current fiscal quarter and plan to return to cash flow generation in the second half of fiscal 2013. We remain steadfastly committed to delivering increasing value to our shareholders.

Finally, I'd like to provide our outlook for the fiscal second quarter of 2013. In what is traditionally a weak quarter for our telecom end-markets, we anticipate Q2 product revenue will be approximately flat to up or down 2% compared to product revenue in fiscal Q1. We expect our HPA business to take a short one-quarter breather after four consecutive quarters of record revenue. We expect that the decline in HPA will be offset by growth in our communications processors and wireless infrastructure businesses.

We expect non-GAAP gross margin to range between 60% and 61% and non-GAAP operating expenses to be approximately $22 million. Finally, we expect non-GAAP other income and expense and the provision for income taxes to be approximately $1.1 million and weighted average diluted shares outstanding to range between 40.2 and 40.7 million shares.

Operator, we are now ready to open the lines for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions].

Our first question comes from Steve Smigie with Raymond James. Please go ahead with your question.

Steve Smigie – Raymond James

Great, thanks. First of all, I want to say congratulations on hitting your operating profit targets earlier than expected and also in seeing the realization of your investment in the LTE, you know, baseband getting going and incorporating the Picochip into that, all sort of coming together in one quarter. My first question was just on the rollout in Korea. Can you talk a little bit about how the carriers, you know, interact with you in terms of letting you know what platforms they're deciding to employ so you can sort of figure out what your growth rates will be versus say competitors and how you understand that and you prepare for, you know, manufacturing for that?

Raoul Halim

Yeah, certainly, Steve, it's -- this Raoul -- we work very, very closely with all the major carriers in Korea, as well as other parts of the world, but certainly in Korea specifically, we're very close to SK Telecom and Korea Telecom. We have a very good perspective on their rollout plans, the OEMs that they have selected for those rollouts, and the technical requirements and what's called BMT testing, you know, criteria that they're going to employ to qualify these OEMs and get them ready for deployment. So we do have a very good perspective on the platforms, to your question. We're -- designed the two-thirds of the platforms are shipping into both of those carriers. We have a very good perspective on their deployment plans.

Initially the deployments in Korea are enterprise class, that's what's going on right now. We believe in the second half of 2013 those are going to shift to a mix of both residential and enterprise class base stations. So we're very well-positioned in both of those. If anything, our position in the residential segment is likely to be even stronger than our position in the enterprise class that's going on right now.

Steve Smigie – Raymond James

Okay, great. And just with regard to new products announced at Mobile World Congress, if you see other folks, say, [announcing] [ph] to e-platforms, how long would it typically take for them to catch this? I'm trying to determine how far you're ahead of the competition. It might be let's say they're coming to Mobile World Congress, they announce new platform, is it take, you know, those are designs probably way past for 2013, 2014, is that the right way to think about that or?

Raoul Halim

Yes, that is a good way to think about, Steve. I mean I guess I would say that we do expect a rash of new products to be announced at Mobile World Congress, and this is after all, you know, the transformation of the mobile infrastructure is a great opportunity that certainly we saw much earlier than others, but we're not alone now in understanding and appreciating the opportunity and the size of it. So, yes, we do expect a number of competitive announcements in LTE possibly, even dual-mode. But remember that, you know, we announced our dual-mode solution, in fact acquired Picochip a year ago to accelerate it even further, so we feel that, you know, very conservatively we're at least a year in the lead, Steve, if not more.

Designs have been awarded that will determine revenue streams this year and next year. New design wins are being awarded, and if you noticed, we reported that we had three new LTE engagements just in the past quarter bringing us up to a total of 34. So we're in a very, very good position today, I would say, in the pole position for certainly the first wave and now increasingly the second wave of LTE deployments worldwide.

And finally, I'd say that, you know, the Korean experience, if you will, is very critical to our future in that these are the very first real-world deployments of LTE small cells. We're in the pole position there, we have learned a great deal from these deployments. We have hardened our solution. We have hardened our software, and we're supporting both voice-over-LTE as well as LTE data services on our Transcede solutions. So, you know, when I say we're at least a year ahead of our competitors, I think we're very comfortable with that, it could even be substantially more than that in the lead.

Steve Smigie – Raymond James

Okay. If I could sneak one more in, just if you could talk a little bit about the revenue opportunities that you see from the new processor products released at CES and also just high-performance analog, obviously taking a break this quarter. But just generally, I think you talked a little bit about rollouts starting to pick up in China and elsewhere for the PMD business. A quarter later you're still seeing that acceleration, and should we see that throughout the year?

Raoul Halim

Yes, Steve, that's probably three questions right there.

Steve Smigie – Raymond James

Sorry about that.

Raoul Halim

That's okay. Let me see if I remember all of them. So, regarding revenues from communications processors, the new business that we've announced, and what we're seeing happening there, com processors is a really important platform for us going forward. Within that, you know, of course we comprehend the WAN, the legacy WAN revenue stream which is continuing to decline, but even in the face of that, we expect com processors to be flat, worst case, down 5% in this current fiscal year.

And that is driven by a lot of ramps contained within the same com processor portfolio. You mentioned the products we announced and demoed at CES, in particular the consumer NAS application that we showed over 802.11ac. As we mentioned in our prepared comments, we have a very significant Tier 1 OEM design win in the NAS space that we expect in fact to start contributing revenue late in our fiscal year and ramping very strongly in fiscal year 2014. So that's a big one for us.

The other big one in the com processor segment is service offload platforms or SOP for short. And we have a number of Tier 1 design wins and carriers are just starting to deploy amongst them a very large North American carrier who announced their innovative home services at CES as well. So we do see, you know, a bright future for that business. It's too early to predict how the com processor business might look in 2014, but as we look forward to fiscal '14, we do see a lot of these ramps kicking in and this business conceivably returning to revenue growth on a year-over-year basis as opposed to flat to down 5%.

And then I think you also snuck in a question about China. So let me just tell you what we're seeing in China right now. Obviously it's not new news to you that there's -- or anyone, that there's significant, you know, very senior administration changes going on, you know, governmental types of changes and senior appointments in China. We think that the dust is starting to settle on these changes. And we think as we get past the Chinese Lunar New Year into the latter part of this quarter, you know, these senior appointments will be complete and the administration in China will return to focusing on growth priorities for the country.

And clearly, the communications infrastructure is number one on that list as they have indicated already very publicly. So we do believe orders will come back significantly later in this quarter and of course going into next quarter. But already we're seeing that our backlog out of China is consistent with the backlog as it was in Q2 of last year, so it's not incrementally any softer. And as we look forward to the balance of 2013, we think fiber-to-the-home is going to be a big driver for us and we've seen a range of expectations sort of in the order of 30%, that's three-zero, 30% year-over-year subscriber growth in China. That's an important data point. That will drive our GPON PMDs; the trends there are very good.

We expect a very strong second half for GPON PMDs in HPA, as well as OTN, which optical transport networking, in China. As you know, there are customers, there are people like Huawei, ZTE, Fiber Home and many others serving the local China OTM market as well as of course export out of China into other parts of the world. So we're quite bullish on China and the trends in China as we look past Lunar New Year next month.

Steve Smigie – Raymond James

Okay, great. Thank you very much.

Operator

Your next question comes from Quinn Bolton of Needham & Company. Please go ahead with your question.

Quinn Bolton – Needham & Co.

Hey, guys. Let me offer my congratulations on the return to profitability but also on the strong gross margins. Wanted to start out there if we could on the gross margins. It's nice to see the [six handle] and it looks like you're guiding for 60% to 61% in the March quarter despite the fact that HPA is going to be down seasonally and you get a mix shift back to some of the com processor and the wireless business. I guess my question is, with that mix shift and your ability to guide a 60% to 61%, do you think that we can see 60% plus margins for the rest of fiscal year or are there other product mix that we should be thinking about as we get into the second half of the year that could pull you back into the high 50s?

Steven Ananias

Hi, Quinn, this is Steven. So, yeah, thanks for the question. Yeah, we certainly have had a very nice rich product mix over the last quarter and we expect that mix to be positive again in the second quarter. However, you know, as far as, you know, we're not guiding the rest of the year at this point, but I would like to say, consistent with what we said last quarter where we expect the margins to be in the 58% to 60% range in the second half of the year.

Quinn Bolton – Needham & Co.

And would that just, Steven, reflect then the higher contribution from wireless infrastructure as that business grows 150%, is that sort of the overriding mix shift that probably pulls you back into that 58% to 60% range, or are there other factors as well?

Steven Ananias

Well, we're certainly benefiting from the growing revenue right now and absorption is helping our margins right now as well. And then, yeah, I think as the HPA business, you know, as it gets mixed with the business, you know, as is consistent, I think that's what you'll see in the margin profile going forward.

Quinn Bolton – Needham & Co.

Okay. And then just a second question, I know it's a sort of a smaller part of the business, but the WAN business actually looks like it saw a nice uptick in the quarter. Are you seeing just a generally better environment or stabilization in some of that legacy business such that may not be, you know, kind of a headwind anymore? Do you think that the uptick here in the December quarter, you know, is somewhat temporary and you'll look for declines again beginning, you know, March quarter?

Raoul Halim

Yeah, Quinn, this Raoul. I think in general we are definitely seeing a stabilization in telecom infrastructure, even in what is typically a weak timeframe of the year. And even last quarter we saw it. But if your question is specifically around the WAN platform, you know, the growth last quarter was mainly, not entirely, but mainly in the Ethernet, you know, the carrier Ethernet [MAC] portfolio that's part of our WAN business and was somewhat concentrated in terms of customers.

Longer term we do not believe that WAN will, you know, turnaround and start growing again. We think WAN is, you know, longer term a decliner, so year over year it should be down. And we don’t think it's going to be a particularly significant percentage of revenues by the time we exit fiscal '13 and into fiscal '14, which is why we have chosen to roll it in with our com processors. And our com processors we expect in fact to grow materially over the course of this year and next year, and ultimately return the whole communications processor platform into top-line revenue growth.

So, no, we're not seeing anything, you know, certainly start to dramatically improve in the WAN environment. I'd say overall telecom is stabilizing, that's for sure.

Quinn Bolton – Needham & Co.

Okay. Okay, great. And then just on the wireless business. I think last quarter you'd given us sort of the expectations that Korea ramps first and then Japan and then North America. Can you just give us any updates on how the Japanese and the North American design wins are progressing? Are you still sort of comfortable with sort of middle of calendar year ramp for Japan and kind of a second half of calendar year ramp for North America?

Raoul Halim

Yes. So, Quinn, obviously there we're working very, very closely with the OEMs and the carriers as well to prepare for their, you know, significant field trials and ultimately deployments. As we see it, we're very well-positioned in the first wave. I would say the first part of the first wave, which is obviously in Korea, and we have a dominant market share at this point in Korea, very well-positioned for those deployments as we work our way through this year. But as we look at the balance of that first wave, clearly we see Japan in the second half of 2013 as well. Hard to say if it's calendar Q3 or calendar Q4, Quinn.

It's going to be driven by the, you know, the stability of the field testing and the field trials and so forth. Obviously there we are going to benefit materially again from the experience that we have gained in Korea. We have hardened solutions now which is absolutely not lost on the key OEMs and the Japanese carries. So we think we can be an important factor in helping accelerate that market and get those deployments, you know, to ramp in -- earlier in the second half than perhaps would be the case. But it's really a little too early to predict if it's Q3 or calendar Q4 of this year in Japan.

And yeah, we do see North America, most likely AT&T in fact, in more or less that same timeframe, in late 2013. We're very well-positioned there. As we've mentioned, we have now scored two of the three major European wireless infrastructure OEMs, working very closely with both of them, and I believe both of them will have share at AT&T, and we should be present in those deployments. So we're actually quite excited as we look at the latter part of this year by the combination of those two major geographies.

Finally, not really a factor for 2013 but more for 2014, as I mentioned in our prepared comments, we are establishing a very strong presence in the TD-LTE marketplace. Maybe just to explain it, there's two versions of LTE. There's frequency division or FDD as it's known; that will be the flavor deployed largely in North America, not entirely because Sprint may do more TD, but also in Europe. And then there is the other flavor, TD or time division LTE that will be the dominant air interface standard, certainly in China, in India, and will have significant share as well at Sprint and possibly Softbank Mobile and a number of other carriers.

Longer term, we expect TD to be sort of comparable to FDD in size of subscribers. Some third-party analysts believe it's going to be larger, some believe it's going to be smaller, but certainly comparable anyhow in scale. And we have a very strong presence and growing presence with the market leaders in TD. Now that's more of a 2014 than a 2013 phenomena, but nonetheless it's very important for us as we build our market share not just this year but going forward in subsequent deployment rates.

Quinn Bolton – Needham & Co.

Great. Thanks for that color, Raoul. Thanks, Steven, too.

Operator

Our next question comes from Dale Pfau with Cantor Fitzgerald. Please go ahead with your question.

Dale Pfau – Cantor Fitzgerald

Thank you, gentlemen, for taking my call. Just for reference, could you give me your wireless and your com processor total revenues for last year?

Steven Ananias

For last year, okay. For our fiscal '12?

Dale Pfau – Cantor Fitzgerald

Yes.

Steven Ananias

And you want wireless and coms processors, you said?

Dale Pfau – Cantor Fitzgerald

Yes, your two new segments.

Steven Ananias

Yeah. So the communications processor business in fiscal 2012 was $64.8 million and our wireless infrastructure business was $10.9 million.

Dale Pfau – Cantor Fitzgerald

Great. Thank you very much. And when you talk about your current deployments on the small cells are primarily enterprise, and as we shift to residential, is there significant change in your ASPs and your margin profile on those products?

Raoul Halim

Yeah, Dale, this is Raoul. Yes, certainly there's a distinctive different ASP profile for residential deployments than there is for enterprise, which is why we have two distinct devices. We have the T-2200 which is targeted towards specifically residential and very low-end SMB applications. It will support up to eight LTE concurrent users. And then we have the Transcede 3300 which will go in some applications all the way up to 64, you know, 32 to 64 LTE subscribers. So there are two distinct pieces of sort and two distinct products with different cost margins and obviously optimized for those applications.

The margin profile does change a little bit but not that materially because we have different products for each of those two segments. The volumes obviously are materially different. Residential will be, you know, multiple of enterprise volumes.

Dale Pfau – Cantor Fitzgerald

And how different are your ASPs?

Raoul Halim

Well, ASPs, I'll give you a broad range, it's obviously a competitive market so I have to be careful how much I disclose, Dale, but I would just broadly speaking, ASPs in the residential segment are sort of $15 to $20 and the enterprise segment maybe twice as much or a little more than twice as much.

Dale Pfau – Cantor Fitzgerald

Okay. So when we model, we should model a significant change in the margin between the two?

Raoul Halim

Well, if you want to distill it down to that level, no, you shouldn’t really have a dramatically different gross margin profile. Again we plan our small cell strategy very carefully, particularly in this regard, and you would see that we have invested in a broad portfolio, Dale. So, everything from residential all the way up to Pico sales, and that is one of the unique differentiations for Mindspeed in this marketplace, which is that an OEM customer can actually develop multiple different base stations addressing all the different segments using the same platform, if you will, from Mindspeed and the same API and retool and retarget their software using our silicon across the range.

Dale Pfau – Cantor Fitzgerald

And one quick question about Japan, are they currently in field trials in Japan?

Raoul Halim

Yeah, there's -- not large-scale field trials at this point, Dale, but they're clearly in some level of testing. It's really working -- the carriers are working very closely with the OEMs in finalizing all the future sets and the early trials and so forth. But there's going to be significantly larger level of field trials and early deployment as we move into the second half, mid and second half of 2013.

Dale Pfau – Cantor Fitzgerald

Great. And one last question, as we look into 2014, if we had to take a look at your HPA or your com processors, kind of ignoring the headwind of the WAN, which of those two segments do you think could actually grow faster in 2014?

Raoul Halim

It's a great question, Dale. I'm afraid it's a little too early to answer it, so I'm going to [punt] on that one till we get a little closer to 2014, have a better perspective on how that year is going to play out. But clearly both of those businesses have a number of strong growth initiatives. We're very excited about both of those platforms. I went to some pains to mention some of the initiatives in high-performance analog. We're excited about the enterprise with 100-gig CDRs and other enterprise initiatives, and also in the com processor business. So we see a good balance of growth between the two.

Dale Pfau – Cantor Fitzgerald

Great. Thank you very much.

Raoul Halim

You're welcome.

Operator

Our next question comes from Krishna Shankar with Roth Capital. Please go ahead with your question.

Krishna Shankar – Roth Capital

Congratulations on achieving profitability. Just a couple of quick questions. On the analog business, Raoul, can you -- the 10% sort of growth trajectory that you outlined for fiscal year '13, how much of that is dependent on the macro improving in China versus new products that you mentioned for the high-performance analog business?

Raoul Halim

Sure, Krishna. It's really a blend of the two, as well as some other drivers. For instance, I mentioned our market share capture within the SDI or broadcast studio infrastructure. So it's really a combination of all the above.

I think we have a large number of growth drivers within HPA. It's a broad enough portfolio that we are planning for some segments perhaps not to materialize the way we think, potentially upside in other segments offsetting that. So I think on a net basis, Krishna, you know, I'd say we're comfortable with that 10% year-over-year growth.

Krishna Shankar – Roth Capital

Okay. And then off the I think you said 34 engagements for Transcede so far, or is it 34-plus, three more this last quarter?

Raoul Halim

Thirty-four is the correct number, Krishna.

Krishna Shankar – Roth Capital

Okay. So, can you talk about the process of converting some of those engagements into, you know, design wins and revenues over the next, you know, six to 12 months, and how is that distributed between Japan, North America and Korea?

Raoul Halim

Yeah. So, Krishna, great question. I don’t actually have a breakdown in front of me in terms of percentages of these wins that are in Japan versus Korea versus elsewhere. It's geographically very well-spread. As I mentioned in our prepared comments, we really have a broad range of engagements that are now turning into design wins with the who's who of equipment OEMs I think literally in every major geography around the world. We have a number of very large Tier 1 design wins in Japan proper, some of them are key names of wireless infrastructure that supply entity DoCoMo, KDDI and others. We have a large number of very important marquee design wins in China with Tier 1's and Tier 2's as well. And obviously in Korea as evidenced by our revenue ramp at this point in the game.

You know, the 34 LTE engagements, I would say roughly off the top of my head, roughly a third are now starting to move into some level or large-scale field trials and/or ramps into production. I would say the majority of these 34, maybe not 100%, but the majority sort of somewhere between 25 and 30, I would consider to be official design wins at this point in the game where they have committed to us exclusively, there's orders on the books, they have orders on their books, and a forecast from at least one carrier behind them. So it's a pretty high conversion rate into official design wins, if you will. I would say only a few have not.

And in terms of revenue ramp, you know, that ramp is starting to clarify for us as we work our way through this year. And obviously, again, helped enormously by the credibility we have gained with real live deployments in Korea.

Krishna Shankar – Roth Capital

Great. Thank you.

Operator

Our next question comes from Kevin Caffey with Stifel Nicolaus. Please go ahead with your question.

Unidentified Participant

Calling in for Kevin. Congratulations on establishing an early lead in the small cell market. Can you outline your strategy for maintaining this lead as larger competitors are attracted to the space?

Raoul Halim

Yes, certainly. Is it [Dean]? Did I get that right?

Unidentified Participant

Yes.

Raoul Halim

Yeah. Okay, [Dean]. Yeah, this is Raoul. So, yes, first of all, I would say that our primary competitive advantage in this space is having a very broad and well-tiered system-on-a-chip product offering for these small cell base stations. So if you're an OEM who wants to address this marketplace, you're likely to want to develop a portfolio of products that you can then take to carriers, and Mindspeed is uniquely positioned to support that with a portfolio that shares an API, common architecture, and has already been battle hardened, if you will, in real deployments in Korea. So that's, you know, first and foremost the key competitive advantage that we have. But more important than that is that we have a very broad range of wireless standards air interfaces, so we're the only chip vendor today that supports all different flavors of LTE and all different flavors of 3G HSPA all under one roof.

And in fact, carriers are very comfortable with us because our software is quite mature. They're today deploying it in their networks, deploying our 3G HSPA software on top of Picochip devices in almost 50, that's five-zero, 50 carriers. And of course now with LTE, we're in the lead in the world's first LTE small cell deployment. So again, carrier-proven, battle hardened, if you will, and of course supporting other services such as voice-over-LTE as well. So it's not just LTE, pure LTE, but also VoLTE or voice-over LTE where we are proven and deployed. So I think it really comes down to the quality of the product, the maturity of the software, the experience in both LTE and 3G that keeps us ahead of our competitors.

Unidentified Participant

Thank you. As a follow-up, which process nodes do you foresee and potentially the timing of those for cost competitiveness as the market develops?

Raoul Halim

Yeah, certainly, [Dean]. So today our products are in 32 nanometers, that's three-two, 32 nanometers in volume today. The next [draft of] products is well underway in 28 nanometers, and we expect to be shrinking even below 28 nanometers as we move into 2014 and beyond. So we're well along in 28 at this point and in fact expect to be sampling our customers in 28 before the end of this year.

Unidentified Participant

Thank you, Raoul.

Raoul Halim

You're welcome.

Operator

I am not showing any other questions in the queue. I'd like to turn it back over to Raoul for closing comments.

Raoul Halim

Okay. Thank you very much, and we appreciate your joining the call. Look forward to speaking to you in one quarter. Thank you and have a great day.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference, you may now disconnect. Good day.

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