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MaxLinear (NYSE:MXL)

Q4 2012 Earnings Call

February 05, 2013 4:30 pm ET

Executives

Nick Kormeluk - President and Founder

Kishore Seendripu - Co-Founder, Chairman, Chief Executive Officer and President

Adam C. Spice - Chief Financial Officer and Vice President

Analysts

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Bobby Gujavarty - Deutsche Bank AG, Research Division

Alex Gauna - JMP Securities LLC, Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to MaxLinear Q4 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, February 5, 2013. I would now like to turn the conference over to Nick Kormeluk with IR Sense. Please go ahead, sir.

Nick Kormeluk

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's Fourth Quarter 2012 Financial Results. Today's call is being hosted by Dr. Kishore Seendripu, CEO and Adam Spice, CFO.

During the course of this conference call, we may make projections or other statements regarding future conditions or events relating to our products and business. Among these statements we will provide information relating to our current expectation, the first quarter 2013 revenue, including expectations for revenue growth in our cable and other product segments; anticipated trends in our cable and terrestrial revenues; and our efforts to expand our addressable markets, gross profit percentage and operating expenses; the potential impact of our pending litigation with Silicon Labs; our current views regarding trends in our markets, including anticipated impact of new design wins and the size and potential for growth on our markets and our competitive position in our target markets.

These statements are forward-looking statements within the meaning of the Federal Securities Laws and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and future operating results could be adversely affected if our target markets, including the cable market, do not grow or if we are not successful in expanding our target addressable markets through the introduction of new products.

In addition, substantial competition on our industry, potential decline in average selling prices, intellectual property litigation such as pending matters between MaxLinear and Silicon Labs, and cyclicality in the semiconductor industry could affect future operating results. A more detailed discussion of these risk factors and other factors used to consider in evaluating MaxLinear and its prospects is included under the caption Risk Factors in our filings with the Security and Exchange Commission, in particular, our most recently filed 10-K for 2012. These forward-looking statements are made as of today, and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements. The fourth quarter 2012 earnings release is available on the company website at www.maxlinear.com.

In addition, MaxLinear reports gross profit, income or loss from operations and net income or loss and basic and diluted net income loss per share in accordance with GAAP. And additionally, on a non-GAAP basis, our non-GAAP presentations exclude the effect of stock-based compensation and its related tax effect, expenses of investigation and estimated fines and penalties related to export-compliant matters, accruals under our equity settled performance bonus plans, expenses associated with our acquisition of certain new market-related technology licenses, a valuation allowance on federal deferred tax assets and expenses related to our current patent litigation matter with Silicon Labs.

Management believes that this non-GAAP information is useful because it can enhance the understanding of the company's economic performance and MaxLinear, therefore, uses non-GAAP reporting internally to evaluate and manage the company's operations. MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results, in a manner similar to how the company internally analyzes its operating results. The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today. The earnings release and reconciliation is available on our website, and we ask that you review them in conjunction with this call.

And now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Kishore Seendripu

Thank you, Nick, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the financial highlights, I would like to note that 2012 marked a year of record revenue for the company. We not only grew our revenues by 36% annually, but we also made focused investments to expand the scope of our business. We are addressing new service provider markets, maintaining our product cycle-driven revenue growth momentum, making progress towards achieving operational scale and improving our profitability.

Most notably, in 2012, we extend our position -- we extended our position in a new DOCSIS 3.0 data standards-based cable growth platform. As a result, our revenues derived from cable more than doubled year-on-year. Additionally, we begun converting design wins into revenue with our best-in-class super radio family of digital and hybrid TV tuner solutions. Simultaneously, we will establish satellite TV as the next major growth opportunity for MaxLinear.

We were able to do this in a challenging macro market environment, and despite the adverse impact on our fourth quarter demand due to several of our cable customers drawing down the inventory levels towards the end of the year. We are rapidly garnering a significant number of design wins in cable, terrestrial TV and in our new target market for satellite application. We remain confident in our competitive position and design win momentum in terrestrial market, enabled by our industry-leading super radio hybrid TV tuner and our tuner-demodulator solution. We are encouraged by our continued technology leadership in cable, with the launch of our fourth-generation broadband RF mixed-signal platform, namely our Full-Spectrum Capture technology.

Our successful target addressable market expansion initiatives into new and emerging satellite market applications leverages this Full-Spectrum Capture platform. We expect our Full-Spectrum Capture technology platform to a wide range of applicability in brand-new large market, such as infrastructure opportunities in wireless, cable, satellite and other broadband data delivery communications markets. We have recently announced major cable and satellite OEM customer design wins for cable data, and cable and satellite video gateways that incorporate our latest Full-Spectrum Capture receiver product.

Moving to the financial specifics. Net revenue in the fourth quarter was $24.8 million, down 11% from the third quarter of 2012, up 29% from a year-ago quarter and slightly below the low end of our guidance. GAAP and non-GAAP gross profit in the fourth quarter was 63% of revenue, well above our prior guidance of 61%. GAAP net loss in the fourth quarter was $4.6 million or $0.14 per diluted share, and non-GAAP net income for the fourth quarter was $0.7 million or $0.02 per diluted share.

As announced earlier, in the fourth quarter of 2012, we repurchased, for $2.8 million, an additional 0.5 million common shares from our only remaining venture capital investor. This new transaction brings the total number of shares purchased -- repurchased from our venture capital investors in 2012 to approximately 2.2 million shares, contributing to a total cash expenditure of $12.1 million. These repurchases will not only address venture capital shareholder and dynamic, but also validate management's confidence in MaxLinear's future growth. We implemented the stock repurchase, while still preserving ample liquidity to fund our future growth initiatives.

I will now discuss current trends in our business. Consistent with our prior guidance, cable revenues in quarter -- Q4 of 2012 declined approximately 10% relative to Q3 of 2012, as some of our larger cable data OEM customers drew down their inventories towards the end of the year. Encouragingly for us, we continue to experience an increasing demand for our cable video application. We are pleased to note that toward the end of the fourth quarter, our bookings for cable data recorded a healthy recovery.

Here are some specifics related to our cable revenues. In the fourth quarter of 2012, cable represented 65% of our total revenue, while cable video revenue grew 10%, it was not sufficient to offset the decline in revenue from DOCSIS 3.0 voice and data gateways, resulting from the previously mentioned inventory correction. We continue to experience strong customer momentum in strategic cabled [indiscernible] technology platforms for our 16-channel and 24-channel Full-Spectrum Capture cable receivers for a broad range of next-generation DOCSIS 3.0 products. Most notably, recently, NETGEAR selected our Full-Spectrum Capture digital cable front-end receiver, MxL267, for the new family of DOCSIS 3.0 cable modems and gateways. NETGEAR gateway product will be the world's first CableLabs-certified high-speed cable data gateway supporting close to 1 gigabit per second data speed.

Moving to the terrestrial and satellite TV markets. Terrestrial revenues decreased by approximately 12% quarter-on-quarter, with particular weakness in Japanese automotive and terrestrial set-top box applications. These decreases are partially offset by growth in our MxL601 hybrid TV tuner and our MxL683 ISDB-T digital TV standard tuner-demodulator SoC solution for Japan and South America.

Some notable highlights in terrestrial and satellite in Q4 2012 are: Mitsumi Corporation started mass production shipment of its latest generation of 6-channel times shift TV network interface module for use by a major Japanese television OEM for ISDB-T digital TV broadcast standard region. It is based on MaxLinear's MxL683 tuner-demodulator SoC. These new-generation of televisions using time-shift technology let consumers automatically record all of the TV programs on their 6 favorite broadcast TV channels within a rolling 15-day period.

SiliconDust selected the MxL603 global digital TV tuner for use in its latest generation of ATSC and DVB-T2 digital TV standard, HDHomeRun products that enabled customers to receive live broadcast television and stream it to any device in the home.

Finally, our first satellite application design win. MaxLinear's MxL584 8-channel, single-chip satellite full-spectrum receiver, will power the next-generation AirScreen satellite-to-IP gateway from Inverto Digital Labs. This satellite-to-IP gateway distributes satellite TV signal in IP or Internet protocol format to a maximum 8 computers, smartphones, tablets, connected TVs or other IP devices.

In conclusion, we are excited by the fact that the fourth quarter brings to a close a strong revenue growth year for MaxLinear. During 2012, we also made significant progress in executing on our vision of expanding our addressable market opportunity with world-leading broadband RF front-end technology solutions.

Now let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, for the review of the financial and our forward guidance.

Adam C. Spice

Thank you, Kishore. I will first review our results, and then briefly discuss our outlook. In summary, our Q4 revenue of $24.8 million is slightly below the low end of our guidance of $25 million to $26 million and proves challenging in the face of late-breaking inventory correction in cable. While our Q4 revenue decline on a quarter-on-quarter basis by 11%, it grew by a robust 29% compared to the year-ago quarter. As Kishore noted, the revenues from cable took a modest step back in the quarter, following 4 consecutive quarters of growth. The weakness in cable was restricted to our DOCSIS 3.0 voice and data modem products, and we estimate the deployment momentum behind DOCSIS 3.0 modems will remain strong with major MSOs in 2013.

Now moving to the rest of the income statement. GAAP and non-GAAP gross profit for the fourth quarter were both approximately 63% of revenue, above our prior guidance of 61%. This compares to 63% in the third quarter of 2012 and 61% in the year-ago quarter. The significant improvement in gross margins relative to our guidance was largely due to a combination of cost improvement driven by our supply chain team, favorable product mix changes and less-than-anticipated declines of our product ASPs.

Our Q4 GAAP operating results -- operating expenses were $20.1 million, which included $2.8 million of stock-based compensation, $1.3 million for an accrual related to our performance-based equity bonus plan for 2012 and $1.1 million in net professional fees related to the Silicon Labs patent litigation and previously disclosed export compliance matter.

As we've discussed previously, payouts under our 2012 performance bonus plan will be settled through shares of MaxLinear's stock. Net of these items, OpEx was $14.9 million, which is in line with our prior guidance of $15 million. Fourth quarter GAAP OpEx included $12.6 million of R&D expenses, which in turn includes stock-based compensation of $1.8 million and $800,000 related to the 2012 bonus plan. The step up in R&D spending relative to Q3 2012, as per the guidance, was primarily due to project-driven engineering expenses related to a 40-nanometer R&D take out targeting our new satellite initiatives.

Fourth quarter GAAP OpEx included $7.5 million of SG&A, which includes $1 million of stock-based compensation, $600,000 in bonus plan accruals and $1.1 million in net professional fees related to Silicon Labs patent litigation and previously disclosed export compliance matter. $1.1 million in net professional fees benefited from a $300,000 accrual reversal for potential fines and penalties arising from any potential violation of U.S. export controls and sanctions laws. We are pleased to note that these U.S. export compliance-related matters have been closed out with the relevant government agency with no resulting fines or penalties.

At the end of the fourth quarter 2012, our headcount was 276, as compared to 264 at the end of the third quarter and 255 at the end of 2011. Within the increased headcount in the quarter, we are beginning to realize the benefits of our efforts to optimize R&D expenses by appropriately balancing hiring across our R&D design centers in the U.S., India, China and Taiwan.

GAAP loss from operations was $4.4 million in Q4 compared to income from operations of $400,000 in the prior quarter, a GAAP loss from operations of $4.2 million in Q4 of last year. GAAP loss from operations was $12.9 million for the full year 2012 versus GAAP loss from operations of $15 million for 2011. GAAP net loss per share in the fourth quarter was $0.14 on fully diluted shares outstanding of $32.6 million. GAAP net loss per share includes $2.8 million in stock-based compensation expense, $1.3 million from the accrual related to our 2012 performance based bonus plan, and $1.1 million net professional fees attributable the Silicon Labs patent litigation. Net of these items, our non-GAAP earnings per share was $0.02. For the full year 2012, GAAP loss per share was $0.40 and non-GAAP income per share was $0.14, compared to full year 2012 GAAP and non-GAAP losses per share of $0.68 and $0.11, respectively, on a fully diluted basis.

Moving to the balance sheet and cash flow statement. Our cash, cash equivalents and investments balance was approximately $77.3 million at the end of the fourth quarter 2012, compared to $80 million in the prior quarter and $85.7 million at the end of 2011. Our cash generated in operations for the fourth quarter 2012 was $1.4 million, approximately $4.9 million less than in the third quarter 2012, and approximately $3.3 million better than the year-ago quarter. As you recall, we used $2.8 million of our cash to buy back 500,000 shares from our lone remaining VC investor in the fourth quarter. This brings the total share repurchase for 2012 to 2.165 million shares for a total of $12.1 million.

Accounts receivable totaled $14.6 million at the end of the fourth quarter compared to $16.3 million in the prior quarter and $10.4 million at the end of 2011. The days sales outstanding for the fourth quarter was approximately 56 days, or 4 days higher than in the previous quarter and 16 days more than the DSOs of 40 days in the year-ago quarter. The year-on-year increase in DSOs is primarily a function of customer mix. As we have moved to a more direct sales for cable customers, we benefited from lower distributor cost, but generally experienced less favorable and slower payment terms that have adversely affect our DSOs -- have affect our DSOs.

We remain comfortable with the quality of our accounts receivable rating, having experienced very limited bad debt expense. As a reminder, we only recognize revenue on a sell-through basis and as such, we're not subject to revenue fluctuations caused by changes in distributor inventory levels.

Our in-house inventory at the end of the quarter was $9.9 million, up approximately $1 million compared to $8.9 million in the previous quarter and up approximately $1.8 million versus the $8.1 million at the end of 2011. Our inventory turns declined 3.9x in the fourth quarter compared 4.7x in the third quarter, and improved relative to the 3.5x at the end of 2011. We continue to elect to build inventory of new products to support upside opportunities, primarily in cable and hybrid TVs. That leaves me to our guidance.

We are pleased to note that we expect revenue in the first quarter of '13 to increase approximately 5% to 10% sequentially to $26 million to $27 million. [indiscernible] to this range, we expect our cable revenues to increase on a quarter-on-quarter basis by approximately 7% to 10%, with growth across all applications, but more so in DOCSIS 3.0 data and voice modems and cable DTA.

In our terrestrial applications, we anticipate revenues to be flat to up 5% on a quarter-over-quarter basis with growth, if any, arriving from sales of our hybrid TV tuners. Recent feedback from our larger customers in the cable and data modem application indicate that the dynamics behind our customers drawing down their inventories in the fourth quarter of 2012 have largely passed. Although bookings continue to lag somewhat relative to recent quarters, we entered -- as we entered the quarter, we registered strong bookings for our cable customers. We are also encouraged by the increased activity in the TV business for our new hybrid TV solutions, which being more of a turns business continues to be difficult to predict accurately with any given quarter.

We expect GAAP to non-GAAP gross profit percentage to be approximately 61% for the first quarter. Our gross profit percentage forecast could vary somewhat depending on product mix and other factors, in particular, the relative contribution of cable and terrestrial applications. We continue to fund strategic development programs targeted at delivering attractive top line growth in 2013 and beyond, with a focus on increasing the operating leverage of the business.

We expect Q1 2013 GAAP operating expenses to be flat relative to the prior quarter at around $20 million, with normal seasonal payroll-related step ups that are further impacted by recent U.S. payroll tax rate changes. Our stepped up payroll-related expenses, include the fourth quarter effect of our incremental Q4 hires and anticipated Q1 hiring. These step ups will be partially offset by a lack of R&D tape-outs expense in the quarter and an anticipated step down in expenses related to the Silicon Labs patent litigation. We expect that Q1 2013 non-GAAP operating expenses will also be relatively flat at $15 million, with payroll associated increases, again, offset by a lack of any expense to R&D 40 nanometer tape-out operating expenses during the quarter.

So in summary, we are pleased to report that despite delivering slightly lower-than-projected revenues in Q4, we realized significant gross margin upside of 200 basis points. OpEx came in on target and we were able to deliver another quarter of positive operating cash flow. More importantly, our guidance for Q1 2013, revenues growing by 5% to 10% over the prior quarter, signals optimism regarding the resumption of product cycle driven top line growth.

With that, I'd like now to open the call to questions. Operator?

Question-and-Answer Session

Operator

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

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

A few questions here. First of all, could you just talk a little bit about you're sort of visibility for the quarter? You mentioned bookings improving towards the end of Q4. Just wondering how that has continued so far in this quarter and how much are you expecting as far as terms is concerned?

Adam C. Spice

Tore, this is Adam. So as I mentioned in the commentary, we went in a little bit light. We went in about -- booked about 77% in the midpoint of the range that we just provided for Q1. So prior -- a couple of quarters, we've gone in more in the low-80s percentile, so we came in a little below that. But I would say that the bookings picked up momentum after we entered the new year. So the amount of current business that we're expecting in Q1 is actually relatively low. We would consider good coverage from backlog and billings to date.

Kishore Seendripu

And Tore, this is Kishore, checking into the cable channel, specifically, we feel we are very strongly positioned to have a pretty robust data modem business growth back off the Q4, step back moving into Q1 and Q2 as well.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. And on gross margin, you guided for 61%, you did the last quarter, you came in quite a bit better. Are you just being conservative or does mix really swing things so much?

Kishore Seendripu

So I think that we really -- when we entered the quarter and we gave you the guidance, we really gave you based on the mix and what we forecast at that particular point in time. So we gave you a very realistic guidance of where we expect the gross margin to be. But having said that, we will always maintain the variance plus or minus 2% relative to the mix. In Q4, we really benefited from the fact that some other benefits of the supply chain vendor mixes that we've been implementing in the early part of the year and the inventories -- and the products that benefit from the COGS improvement, et cetera, started shipping in Q4. And then we had a declining selling revenues of selling the products in the lower end of the gross margin. As a result, the gross margin came up 2% higher. So we really are not being conservative. We try to be as accurate as far as we know at the point we enter this call.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

That's very fair. I'm not sure how much you can say about this, but given ARRIS acquisition of the Google set-top box business, I mean ARRIS is your largest customer, so can you comment on that at all? Is that an opportunity for you? Could that account, potentially, start to grow again? The account meaning the old Motorola account?

Kishore Seendripu

So Tore, even before the acquisition, Motorola -- is a MaxLinear customer, we had press releases, we do ship product to their video segment and to their data segment. But there's a larger opportunity in video -- with Motorola. And Motorola was one of the biggest video players in the cable segment and even beyond the cable segment. For example, they supply to the Verizon platform as well. So I think the great opportunity for us, we have fantastic relationships with ARRIS as one of our premier customers. We're a major supplier to their data business. I think it's a very positive development for us. Having said that, there is going to be time for all the changes that are typically related to the acquisition. So at this point, we are cautiously optimistic about the future with this acquisition, but it's business as usual for us as far as 2013 goes.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. Last question just a housekeeping for Adam. Adam, what tax rate should we use for 2013?

Adam C. Spice

Well, as you know, given our net operating losses, we aren't forecasted to be a tax payer -- a cash tax payer in 2013. But as far as the tax provision, I would say what we've been using is around 20% as a guide post. It's probably a good place to still be.

Operator

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

Bobby Gujavarty - Deutsche Bank AG, Research Division

This is Bob for Ross. I was just curious about the operating expenses. It seems like it's pretty lumpy with the tape-outs. But you do have some color on the headcount. How should we think about it after the Q1? Is there any significant tape-outs that you kind of have in your minds eye at the moment or is it kind of just steady growth as the headcount expand?

Adam C. Spice

I would say, Bob, that yes, obviously, the tape out -- 40-nanometer expense tape-out, obviously, does introduce some lumpiness when you look at the overall size of it. When you take the consideration, the map itself plus wafers with that initial run and PCBs used to deliver samples to customers to support, we can be looking anywhere between $1.25 million to $1.5 million when it's all said and done. We do foresee another 40-nanometer map set in the second half of the year, but as far as the trending of the OpEx throughout the remainder of the year, obviously, we don't give guidance on the current quarter, but I think it's safe to say we don't see any significant step ups beyond tape-out related expenses. We think we're -- it will be modest, I would say, ebbing and flowing between the various lines of the OpEx statement. But you should expect us to be at a relatively tight band, I think, for operating perspective in 2013. And again, the only reason they vary much from where we are in our -- based on our Q1 guidance would be a tape out.

Bobby Gujavarty - Deutsche Bank AG, Research Division

That's very helpful. And I also know you guys -- how about on the CapEx side, is there anything big or lumpy on that side of the business or is that pretty much a steady-state right now?

Adam C. Spice

Yes. A pretty steady-state. There's nothing significant going on, on the CapEx side of things to speak off. Again, I would say just to put probably a little more color on the OpEx, we guided basing it to a non-GAAP OpEx of about $15 million. And again, when I mentioned that the tape-outs could be somewhere between $1.25 million and $1.5 million, when everything is taken into consideration, I think you're also looking at further kind of a full effect of the payroll changes that kind of hit up in the Q2 period, along with our merit process. So overall, I think that you're probably in a range, if you want to take kind of -- like Q1 as being a low point of OpEx for the year at $15 million non-GAAP. I think you could probably peg the high end being somewhere closer to the, call it, $16.5 million and then the other quarter will kind of bounce in between that range.

Operator

Our next question is from the line of Alex Gauna with JMP Securities.

Alex Gauna - JMP Securities LLC, Research Division

I was wondering if you could give us an idea what's the outlook, what might be coming from the DOCSIS 3.0 upgrade cycle, maybe how much a percentage of the mix that is and maybe how far do you think the industry is into the deployment of 3.0 at present?

Kishore Seendripu

Alex, this is Kishore. I think you asked 2 questions there. One is the mix of DOCSIS 3.0 for the industry and the second is, how is that -- how much is it penetrated in the U.S. Is that the correct question?

Alex Gauna - JMP Securities LLC, Research Division

Well, also for you as well, what kind of contributor to you is the seasonal upside here?

Kishore Seendripu

Firstly, we don't calculate it as seasonal upside. It is -- Q4, we went through an inventory down cycle, let's call it, and if you look at the seasonality in the terrestrial business, still with a declining Q4 also for the terrestrial business. So it turns out that our customers have depleted their inventories to a place where they feel now an urgency to build back their inventory position, and the demand seems to be very robust because, as Adam pointed out, the deployment of DOCSIS 3.0 in the U.S. seems to be very strongly progressing. And our estimate is, that last year, maybe of all the DOCSIS modems deployed in the United States, maybe 65% were DOCSIS 3.0 and the rest is DOCSIS 2.0. And the other point is that all the DOCSIS 3.0 that is shipping in the United States now is our kind of DOCSIS 3.0. By that I mean, it's the 8 channel by -- 8 channel down downstream, 4 channels upstream DOCSIS data modems, there are no 4 by 4 modems shipping in the United States. So we feel very good that we are positioned to be in a very good place, along with Intel at our back and to benefit from this upgrade that's happening. The other important point is that, to date, we are now feeling very good that there would be no market share loss related to the Intel-MaxLinear combination platform on the data modem. Regarding this, we had some fears because last year also, we had a very, very good market position on the DOCSIS 3.0 modems vis-à-vis our competitor's platform. So I think that market share seems to continue to hold as we move into Q1. Q4 was purely inventory situation at some of the leading cable customers that MaxLinear has. And looking into this year, once you had 65% to 70% penetration of DOCSIS 3.0, it's hard to say it's going to be 90% to 100%, but it's moving pretty robustly, and we feel very good about it.

Alex Gauna - JMP Securities LLC, Research Division

[indiscernible] I think Adam had said that Q4 strength or mix was favorably influenced by DTA and DOCSIS 3.0. Is DTA also a part of the more favorable outlook in Q1?

Kishore Seendripu

Yes. The DTAs, along with cable modem, the favorable part of the outlook, I think, Adam may give a little bit more color here.

Adam C. Spice

I think you're right. I mean, if you look at what's driving the growth of the cable side, it is disproportionately the DOCSIS 3.0 voice data and the HD DTA portion of our business.

Alex Gauna - JMP Securities LLC, Research Division

And Kishore, in answering the last question, you talked about them building back up inventory. Is there any risk at this juncture do you think that will end up in the lag looking out on into June. I know you only got 2 quarters out, but for billable back up, is that some of the risk factor we should think about or not in your opinion?

Kishore Seendripu

At this point, if you really ask me the question, honestly, I don't have any real negative opinion that, that is going to be the case. Right now, it feels the demand is robust and it's very linear. It turns out that even though our customers pull back some inventory in Q4, when we look at their own shipment, not much has changed. So we took the brunt of that [indiscernible] of the inventories is our view of the situation.

Operator

[Operator Instructions] And we do have a question from the line of Anil Doradla with William Blair.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

A couple of questions. Adam, you talked about some of your growth profiles in terrestrial for Q1, some positive, negative. But as we progress in 2013, how does terrestrial business shape up? Clearly, you're quite bullish with your hybrid TV tuners, but can you give us some color?

Adam C. Spice

Sure. I think that if you look at the growth profile as we see it moving forward to 2013 on the terrestrial side, certainly, we anticipate more growth coming from the hybrid TV, relatively speaking versus the other parts. But we're seeing, also, or forecasting, optimistic growth on the terrestrial set-top box side and non-hybrid TV side. So we talked earlier, on earlier calls, about our ISDB-T tuner-demod solution. That's going to contribute, we believe, to the growth in 2013 as we move forward. But I think it's going to be more growth skewed towards hybrid TV than other parts of our terrestrial portfolio.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

And you said that was more of a turns business rather than bookings, right?

Adam C. Spice

Correct.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

So in terms of visibility, we could see some volatility, or you wouldn't just have visibility more than what 30 days, 40 days or is it one quarter at of time?

Adam C. Spice

Well, I'll let Kishore speak to the final process.

Kishore Seendripu

If you really look at the TV business, we do have a very good visibility of the designs we have won and which platforms we are on and what is going to drive the volume. And TV being the -- again, these are manufacturers in Asia and that ordering patterning are more like turns business, and I think that we, generally, entering the quarter, we are not booked more than, let's say, we are booked less than 2/3 on the terrestrial business, whereas on the cable business, we are booked more than 2/3. I think that would be the kind of color I could provide you with.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Right. One of our checks are pointing that the industry is skipping 16 channels altogether in going from 8 channels to 24 channels, does that resonate well with you guys or do you think that's just not true?

Kishore Seendripu

I think as we move forward in the cable side, we would have a tiered market. You're going to have the 8 channel market, 16 channel market and 24 channel market. I think the 24 channel market, we mentioned NETGEAR being the big -- the first CableLabs-certified data gateway -- that's MaxLinear's product. We are the only ones that have a cable that's supporting 24 channels right now in the industry. And in the 16 channel too, we are the only ones qualified. Actually between these 2 new offerings to the Full-Spectrum Capture position, we feel we are in the poll position to be beneficiaries of that, along with the partners. Having said that, we do believe that the market will be tiered, there will be a lot of 8 channel shipments over the next 2 or 3 years, and they will be overlapping in the following year, there will be more 16 channels and there will be some 24 channels. While people need more data speed, right now the bigger demand of the 24 channel is for more like gateway-type of applications where there's a lot of over-the-top video sort of applications being supported. So for the data modem, voice modem, 16 channel would be the workhorse, for the higher end of videos will be part of the 24 channel will be the bigger drivers. So we don't have philosophical view on this but our own understanding, the market is going to be tiered. Costs is a big driver even for the MSOs.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Great. And final question is, if we step back and look at 2013, 2014, can you remind us once again what are the different layers of growth over your current cable ramp? I know you made some adjustment to R&D investment. So can you remind us how you look at the growth profile over the next 2 years?

Kishore Seendripu

Our cable specific or just?

Anil K. Doradla - William Blair & Company L.L.C., Research Division

No, no, beyond cable. We know -- obviously, we know there are a lot of product cycles taking on cable, but beyond cable.

Kishore Seendripu

I think the cable is still going to be a big -- let's just go down the list here. We got a very, very healthy product cycle portfolio developing now. We have some gaps earlier in the year that are now nicely being closed, so we forecast good, steady growth going forward for the company. Cable is growing a big upward growth into the next 2 to 3 years. In the data, voice modem side with the 16 channel, 24 channel, we'll continue to be a reasonable player, a meaningful player in the space. And we're going to get incremental revenues with ASP increases and new platform where video gateways is going to be replaced by media server type of gateways. And the other big part of cable growth is video boxes. Today, our share of the video market is very low, so we expect to see big growth with this multichannel systems that are going to go to 24 and 32 channels. We're going to have a hybrid video and data gateway. So we have made significant investment in satellite, now it's a public information. We have unveiled the product at CES, and we have announced the design win with Inverto which is a major player for outdoor unit supplying to them to the #1 operator in the world, DirectTV, for example and BSkyB, those operators. So those people who have designed in the satellite IP gateways where satellite televisions are directly going to be distributed over IP. The same product is also distant to go into some major operator platforms in the future, and they're being designed in. So that would drive growth in late 2013 in a minor way, but 2014 will be the big start of the year of the revenues for satellite. We have investments going on in infrastructure and satellite, that will be, hopefully, we'll start paying revenue towards the end of 2014 into 2015. And on the terrestrial side, we expect that the hybrid TV is to be a pretty big growth driver through 2013 and 2014. And our ISDB-T tuner-demodulator to be a growth driver through 2013, 2014 and even into 2015. So that's the -- some of the portfolio of products that are publicly known and that we're investing in right now. And there are a few other we're investing, which we will let you know as time plays out towards the later part of this year.

Operator

Thank you. And we have no further questions at this time. I'll turn it back to management for any closing remarks.

Kishore Seendripu

Thank you very much, everyone. Thank you, operator. As a reminder, we will be participating in the Stifel, Nicolaus Conference in San Francisco on February 7, and we hope to see many of you there. We thank you all for joining us today. And we look forward to reporting on our progress to you in the next quarter. Thank you.

Operator

Ladies and gentlemen, this concludes the MaxLinear Q4 Earnings Conference Call. You may access the replay system by dialing 1 (800) 406-7325 or (303) 590-3030, and entering the access code of 4588060. Thank you for your participation. You may now disconnect.

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