Mindspeed Technologies Management Discusses Q3 2012 Results - Earnings Call Transcript

| About: Mindspeed Technologies, (MSPD)

Mindspeed Technologies (NASDAQ:MSPD)

Q3 2012 Earnings Call

July 23, 2012 5:00 pm ET


Kevin D. Trosian - Vice President of Business Development and Investor Relations

Raouf Y. Halim - Chief Executive Officer and Director

Stephen N. Ananias - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Quinn Bolton - Needham & Company, LLC, Research Division

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Krishna Shankar - Roth Capital Partners, LLC, Research Division


Welcome and thank you for joining the Mindspeed Technologies' Third Quarter Fiscal Year 2012 Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce Mr. Kevin Trosian, who will chair this afternoon's conference call. Go ahead, sir. You may begin.

Kevin D. Trosian

Thank you, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal third quarter of 2012 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 provide some key milestones for the business, a discussion of our announced restructuring and the strategic focus of the company going forward. Following, Steve Ananias, our CFO, will review fiscal third quarter financial results and provide financial guidance for our fiscal fourth quarter of 2012.

Before we begin, I want to remind you that our comments today will 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 in our target markets; our assessment of growth opportunities in specific product markets; anticipated financial and operational impact of the restructuring that we announced today, including our ability and anticipated time frame to achieve profitability, revenue and margin targets required to achieve profitability and our current expectations for fiscal fourth 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. For example, we cannot provide assurances that our announced restructuring plan will result in our achieving operating profitability within the currently anticipated time frames, if at all.

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 the Picochip acquisition; fluctuations in our operating results and 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 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 year ended September 30, 2011, and will be included in our quarterly report on Form 10-Q for the quarter ended June 29, 2012, as well as 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 excludes stock-based compensation expense and related payroll costs, asset impairments, acquisition-related costs, restructuring charges, reevaluation of contingent consideration, integration costs, employee separation costs, restructuring charges, profit and acquired inventory, amortization of acquired intangible assets and noncash interest expense on convertible notes. 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 Raouf Halim, our Chief Executive Officer. Raouf?

Raouf Y. Halim

Thank you, Kevin, and good afternoon, everyone. I'm pleased to report that Mindspeed achieved the 3 key milestones that we set out last quarter, despite tracing a difficult macro environment. First, we met our revenue goal. Second, we exceeded our gross margin forecast due to strong product mix. And third, our wireless business continues to ramp as expected.

In the quarter, we reported over $4 million in wireless revenue, greater than 10% of total quarterly revenue. Critically, our wireless initiative is well on track. In the quarter, we recorded 3 new design engagements, including one with a new tier 1 European OEM, bringing our total to 28.

And in a strong confirmation of our leadership position in small cell wireless basestations, we are pleased to report that we have production orders on backlog for our 4G LTE Transcede products and the first wave of Korean deployments for this coming calendar fourth quarter.

Now, as I'm sure many of you have seen from today's press release, we have begun a significant global restructuring. At Mindspeed, one of our core operating principles is to evaluate both near-term as well as long-term opportunities in our industry and to align our investments accordingly. In order to remain a global leader in the areas in which we compete, we must adapt to evolving market realities.

Previously, our company have been investing for higher volumes in its more traditional wireline markets. The restructuring we're implementing will rationalize our operating expenses with near-term market realities while maintaining our focus on broadband CPE processors, high-performance analog and small cell wireless basestations. By adjusting our OpEx, we can increase our focus on our growth markets in which we hold significant market share or a sustainable technology lead. And most importantly, these moves accelerate our path to profitability and provide significant earnings leverage as our business grows in fiscal 2013.

While we have initiated the restructuring already this quarter, it was not a rash decision. Stephen, formerly with Broadcom, is focused on balancing our investments in growth initiatives while delivering earnings leverage to our shareholders. And he and his team have been a driving force behind this restructuring.

And just a couple of months ago, we hired Preet Virk from Freescale, bringing with him decades of experience to lead the CCP processor business its next stage of growth.

Before I discuss our actions in detail, I would like to express that these were difficult decisions to make and we do not take these actions lightly. We appreciate the dedication and hard work that all of our employees have put in and recognize that they have built Mindspeed's leadership position across multiple business lines.

We have instituted the plan to reduce quarterly non-GAAP operational expenses by 13% from last quarter to approximately $22 million per quarter, saving approximately $13 million on an annual basis once fully implemented. This, therefore, brings us back to our non-GAAP OpEx levels before we made the Picochip acquisition.

Implementation began this quarter and we expect to reduce our non-GAAP OpEx run rate to our target of $22 million beginning in the fiscal first quarter of 2013, i.e. fully realized next quarter.

With this restructuring, we anticipate that we can reach non-GAAP operating profitability at approximately $37 million of revenue per quarter and the 60% non-GAAP gross margin in the first half of fiscal 2013.

Upon completion of these initiatives, we will have reduced headcount by approximately 15% of our workforce. Ending headcount will be approximately 500 employees. Roughly 1/2 of the restructuring savings will be in SG&A and support functions and the other half in R&D, with the largest reduction coming from our legacy wireline businesses such as our core network, Voice over IP business. When complete, this represents a strategic shift in our R&D investment profile to better align with the exciting growth opportunities ahead for Mindspeed, including broadband CPE processors, high-performance analog and small cell wireless basestations. Stephen will provide more on the financial costs in a few minutes.

As you may have seen in our earnings release, Mindspeed has opened a search for an independent director from the wireless telecommunication service provider industry to add to the breadth of its board. The new independent director is expected to assist the company in its strategic vision for building on its leadership position with small cell wireless basestations and other communications and network infrastructure initiatives. Our board has retained Heidrick & Struggles to conduct the search.

I would now like to turn the discussion to the market opportunities ahead of us. In our CCP business, we are seeing growth opportunities driven by FTTx deployments worldwide and our strong corresponding market share. While fiber-to-the-building, or FTTB, in China remains muted this year, we are seeing fiber-to-the-home demand increasing worldwide for both GPON and GEPON.

The ramp in fiber-to-the-home directly benefits both our CPE processor business, as well as drives the ramp in demand we are witnessing for our PON, PMDs, out of our HPA business.

Looking at our C2K processor platform, we are seeing new opportunities being generated in the storage, security and routing markets for this best-in-class gigabit dual core ARM processor, recording a number of design wins from tier 1 OEMs in these important new areas. We believe this product line provide solid revenue growth potential in 2013.

Moving on to HPA, I'd like to point out that this is a business that we believe is sometimes overlooked. Within HPA, we provide state-of-the-art switching, transport and fiber-to-the-home analog IC solutions for next-generation enterprise, telecom and customer premise gear. This quarter, HPA delivered 8% sequential growth.

For those of you less familiar with this business, it is increasing its leverage to the enterprise and broadcast video infrastructure. In the video market, the 3G-SDI broadcast rollout continues with new studio builds, such as for the 2012 London Olympics, as well as within BRIC countries, transitioning to HD and digital broadcasts. And within data centers, as data rates and protocols continue to advance, our end customers need more advanced chips for signal conditioning and high-speed switching.

And finally but certainly not least, I'd like to provide you with an update on our strategic wireless initiative for the small cell basestation market. As mentioned earlier, we exceeded our goal of 10% of revenue last quarter being generated from wireless and have fully integrated the Picochip acquisition. We believe that Picochip was the right acquisition at the right time, propelling us to the #1 position in the small cell SoC market while bringing us critical 3G HSPA wireless know-how.

As evidenced by recent carrier announcements, dual mode is a critical requirement going forward. We believe we are in the pole position for 3G HSPA, 4G LTE and dual-mode rollouts worldwide, and expect our wireless business to continue growing rapidly.

Recent reports on small cells show a market ready to hit its inflection point, and with what we believe is an available TAM of $1 billion in 2016. Many of you had the chance to learn more about this market on our webinar on June 29th, which is still available for replay on our website.

And in a clear confirmation of our small cell SoC leadership position, we have production backlog for volume deployments of our 4G LTE Transcede products in the December quarter of this year as I mentioned earlier. From a design standpoint, we increased our number of engagements to 28, and importantly, garnered another of the 3 major European OEMs. A number of carriers are readying their networks for large-scale deployments in 2013.

For instance in June, Telefónica indicated that it will launch small cells across Europe and Latin America. Also, Alcatel-Lucent's metrocells were recently highlighted in multiple publications for small cell deployments across high-traffic locations.

We are very excited about the size and growth of this market. But more importantly, we believe we are the best-positioned company to meet the needs of the carriers for dual-mode solutions.

There are a few key requirements that carriers and OEMs request of their SoC supplier, which we believe Mindspeed is uniquely capable of offering. Number one, they are looking for a supplier that has an integrated stack on a single dual-mode SoC. Second, they want a power-optimized solution for high performance. And third, they want to work with companies that have a proven track record of providing systems solutions for carrier networks.

Now to conclude my remarks before turning it over to Stephen, I'd like to lay out 3 key milestones that we expect to achieve in the coming 12 to 18 months. First and foremost, we are committed to reaching non-GAAP operating profitability in the first half of our fiscal 2013. Given the continued weakness in wireline spending and the general macro economic environment, we are rightsizing our company to achieve operating breakeven at modestly higher revenue levels. Furthermore, we expect Mindspeed top line revenue to grow in fiscal 2013 versus 2012, and therefore, expect to deliver to our shareholders significant earnings leverage going forward.

Second, we anticipate stabilizing our non-GAAP gross margins at approximately 58% to 60% for the next couple of quarters. Third, we forecast taking meaningful share in the rapid growth small cell basestation market. We already hold the lion's share of the market for 3G HSPA, and we anticipate garnering significant share in the first wave of 4G LTE deployments in North America, in Japan and of course, in Korea.

I would now like to turn the call over to Stephen to provide more detail on the restructuring on last quarter's financials and guidance. Stephen?

Stephen N. Ananias

Thank you, Raouf. I will now review our financial results for the fiscal third quarter, discuss the financial implication of our restructuring plan and provide our financial outlook for our fiscal fourth quarter of 2012.

First, let's talk about our Q3 performance. Total net revenues for the fiscal third quarter were $35.5 million, consistent with our guidance. Product revenue from our High-Performance Analog business, or HPA, represented 48% of total fiscal third quarter product revenue and increased by 8% sequentially.

Product revenue from our Communications Convergence Processing business, or CCP, contributed 41% of total fiscal third quarter product revenue and decreased 4% sequentially. Lastly, our legacy Wide Area Networking business, or WAN, contributed the remaining 11% of fiscal third quarter product revenue and increased by 1% sequentially.

Product revenue for the fiscal third quarter was split by geographic region as follows. Asia-Pacific at 75%, Americas at 18%, and Europe at 7%. China specifically represented 34% of total fiscal third quarter product revenue. No end customer represented product revenues of 10% or greater in the fiscal third quarter.

Now turning to gross margin. Non-GAAP gross profit was $21.5 million or 60.5% of revenue. This was up sequentially compared to 59.8% of revenue in the prior fiscal quarter.

Total non-GAAP operating expenses were $25.3 million. Fiscal third quarter non-GAAP operating expenses were comprised of research and development expenses of $17 million and selling, general and administrative expenses of $8.3 million. The resulting non-GAAP operating loss for the fiscal third quarter was approximately $3.9 million.

Now finishing the income statement for the fiscal third quarter. Non-GAAP, other income and expenses totaled a net expense of approximately $654,000. This consisted of other income of approximately $84,000 and net interest expense of approximately $738,000. The provision for income taxes was $165,000. Non-GAAP net loss for the fiscal third quarter was approximately $4.7 million and resulted in a non-GAAP net loss per share of approximately $0.12, based on approximately 38.8 weighted average shares outstanding for the quarter.

Turning now to the balance sheet for the fiscal third quarter. Cash and cash equivalents were $55.1 million at the end of the fiscal third quarter of 2012, net of the $30.6 million net proceeds from the convertible notes offering that closed in June, and $7.8 million of cash consumed in the quarter, down from $10.4 million last quarter. Accounts receivable at the end of the quarter were $14.9 million, resulting in net days sales outstanding of 38 days, down from 57 days in the prior quarter. Inventories at the end of the quarter were $9.7 million, resulting in non-GAAP inventory turns of 5.8, up from 5.5 turns in the prior quarter.

Turning to the restructuring we announced earlier today, the plan includes a global reduction in force of approximately 15%, with an ending headcount of approximately 500 employees and the impairment of several facilities. We expect to incur total charges ranging from $4 million to $5 million, of which approximately $3.5 million to $4.5 million will be cash expenditures over the next 3 quarters.

As a result of the restructuring plan, we expect to reduce our non-GAAP operating expenses to $22 million in the December quarter, returning to pre-Picochip acquisition levels. We have completed a very thorough process to evaluate the appropriate levels of investment across our portfolio. Our priority was to protect our investment in the most strategic and highest-returning programs.

Coincidentally, many of the identified reductions were -- consequently, many of the identified reductions were centered on mature core network wireline infrastructure product line. Ultimately, the expense reductions were split roughly equally between R&D and SG&A support function.

While these reductions are difficult to make as they impact people's lives, we believe this action is critical for the long-term health of the company. We are committed to returning the company to profitability in the first half of fiscal 2013 and deliver an increasing value to our shareholders.

Finally, I'd like to provide our outlook for the fiscal fourth quarter of 2012. Generally, orders have picked up, especially for our focused and growth product lines, including CPE processors, fiber-to-the-home PMDs and small cell wireless basestations.

While we expect continued growth from our wireless business, we are mindful of the seasonal summer slowdown this quarter. We expect net product revenue to be flat to down 6% versus last quarter. We expect non-GAAP gross margin to range between 58% and 59%. And with a partial quarter impact from the restructuring, we expect non-GAAP operating expenses to be roughly $24 million in the fiscal fourth quarter of 2012.

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

Question-and-Answer Session


[Operator Instructions] Our first question comes from Quinn Bolton of Needham & Company.

Quinn Bolton - Needham & Company, LLC, Research Division

I know it's tough, but sort of good job on the expense control and your target to getting back to profitability in the first half of next fiscal year. I just wanted to sort of start on that. If I heard you right, I think you said that operating -- to reach operating profitability, you're assuming sort of $37 million in revenue. And so just, I know you're not giving guidance beyond September, but I just want to make sure that I've got that revenue level right for you to hit that operating profitability goal in the first half of next year.

Stephen N. Ananias

Yes, you understand it correctly.

Quinn Bolton - Needham & Company, LLC, Research Division

Great. Second question, you mentioned the new engagement on the Transcede side with a second of the 3 leading wireless OEMs in Europe. I was wondering if you could mention, is that an application that is 4G- or LTE-only or is that engagement now for dual-mode capability?

Raouf Y. Halim

Yes, Quinn, this is Raouf, excellent question. Yes, we're very proud of that instantiation working very closely with that very large OPM/OEM. Initially, in the very first deployment, it's going to be LTE-only, but the accounting on the dual-mode functionality is an upgrade to the platform that they're developing with us right now. So it's going to be both LTE and eventually dual-mode 3G LTE.

Quinn Bolton - Needham & Company, LLC, Research Division

And then, Raouf, you had mentioned that the production orders are on hand for Transcede to begin ramping in the December quarter in Korea. Any sense -- you've grown wireless or wireless for sort tracking in line with plan in the June quarter at roughly $4 million or a little bit more than $4 million. As you proceed into September, December, can you give us some sense as to whether wireless will continue to grow in that time frame despite kind of the tough carrier CapEx level -- sorry, CapEx environment? Or do you expect some pause in wireless before that Transcede business starts to kick-in in the December quarter?

Raouf Y. Halim

So Quinn, as we look at this current September-ending quarter, we believe our wireless revenues continue to grow sequentially. So they're going to be up from the $4 million-plus that we reported this last quarter June quarter. And then, as we hit the December inflection point with deployments of LTE small cells in Korea in addition to our 3G continued growth, we expected that to be a very good quarter for our wireless business, certainly as compared to either the September- or the June-ending quarters.

Quinn Bolton - Needham & Company, LLC, Research Division

Great. And then just last one for Stephen. Stephen, usually on the guidance, you give us some sense of nonoperating expenses and share count. Just wondering if you might have those figures handy for our models?

Stephen N. Ananias

Yes. So the combined other income and expense and provision for income taxes should be approximately $1.1 million, and our average weighted shares outstanding will range between 39 million and 39.5 million shares.


Our next question comes from Dale Pfau of Cantor Fitzgerald.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Could you give us a little bit of idea what your growth rate has been for your new wireless products? I know you didn't acquire Picochip until recently, but over the past year, tell us a little bit what that growth rate has been and what just kind of a CAGR that you would expect over the next several quarters?

Stephen N. Ananias

Sure. The best way to think of this is percent of revenue. And if you go into our fiscal Q1, it was less than 1% of our revenue. In fiscal Q2, it was more than 5% of revenue. And then the most recent quarter, fiscal Q3, it was more than 10% of revenue. So significant growth as a percent of our overall revenues.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

And can I presume that since you're guiding to gross margins in that range, that these products are currently carrying gross margins at least at the corporate average?

Stephen N. Ananias

Yes, the margin profile of our wireless business is slightly below the corporate average which we have guided before. They range between 56% and 60%.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

And would that margin profile will continue for the dual-mode products also?

Stephen N. Ananias

Yes, it's too early to say based on volumes and mix of that business line going forward. But today, it's 56% to 60%.


Our next question comes from Krishna Shankar of Roth Capital.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Yes, as you look at the guidance for Q2, can you talk about the each of the 4 businesses and the drivers there, CCP, HPA, wireless and the legacy business? What's growing, what's shrinking and what's sort of stagnant? Can you give us sense for the drivers in each of the 4 businesses for the September quarter?

Raouf Y. Halim

Yes, Krishna, this is Raouf. Certainly, we can do that. So as we look at our September-ending quarter, fourth fiscal quarter, we are seeing some good trends in the business. We're seeing orders start to pick up, and particularly in the high-growth CapEx categories that we have focused on as a company. For example, our share to 1000, 2000 series of CPE processors for fiber-to-the-home applications, strong order of trends there. As we look at our High-Performance Analog business, in particular our fiber-to-the-home PMDs, backlog is very strong. I think it's close to record levels at this point. So that looks very, very good. Also, as we look at our wireless businesses, we alluded to in the past couple of questions, we are absolutely expecting our wireless business to grow sequentially. Backlog is significantly up, or our wireless SoC processors for shipments in the current quarter as compared to where it was a quarter ago. So we're very pleased with the trends that we're seeing there. We think, overall, perhaps the WAN business and some of our older legacy wireline businesses may be slightly off this quarter, maybe slightly overall the HPA business after 3 quarters of ramping strongly. But I think, Krishna, in particular, as we look at seasonal trends in the summer quarter, we're mindful of the fact that August is always pretty slow. So although we -- this quarter started very strongly, we are anticipating things to slow down a little bit next month, at the month of August, and we're baking that into our guidance at this point. Okay?

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Great. And then it's good to see the wireless business showing good sequential trends. As you look at the business now, where say 6 months ago, and you're quiet with Picochip, can you talk to the adoption of small cell technology by the carriers globally? What's been sort of the positive and what's been the factors which seems to be delaying deployment?

Raouf Y. Halim

Well, I guess, I would say, Krishna, that we're really very encouraged, honestly very, very encouraged by the momentum we're seeing for LTE and ultimately dual-mode small cell basestations. You're probably aware of some of these data points, but we're seeing carriers worldwide pay a great deal of attention to this category of equipment, and a much stronger belief as well as operational plans are being put in place for large-scale deployment of small cells. I'll give you a couple of data points. For example, June of this year, AT&T -- it came clear that AT&T has launched an RFI for small cells that have been advocating for small cells for several years, and now are getting very serious about deployment starting 2013. Verizon is probably -- best guess is that Verizon is probably a little bit ahead of AT&T, in fact, in this regard and are absolutely planning on small cells to enhance LTE capacity, and of course, LTE coverage in general. We are, of course, seeing the early movers, in particular Korea Telecom and SKT, get ahead of the curve. And as I mentioned earlier, we have production orders on backlog from OEMs serving both of Korea Telecom and SKT on the books today. And we think they're going be -- we don't think we know they're going to be the first to deploy LTE small cells on a global basis starting in fact as early as of the December quarter of this year, which is something that we have been saying now for over a year, and we're happy to see it coming to fruition. But beyond Korean carriers, AT&T and Verizon in North America, we're also seeing that Sprint, Telefónica, Vodafone are clearly developing and finalizing their plans for LTE and dual-mode small cell rollouts starting 2015 and beyond. These are carriers that we would consider to be wave 1 LTE small cell carriers. So we're very excited about what we're seeing there. And finally, I'd say a very important data point is that the FCC in the U.S. has actually dedicated a special 100 megahertz band between to 3.5 gigahertz and 3.6 gigahertz specifically for small cells. And that's, as you know, a very big, very valuable asset for the FCC to dedicate to a very important class of new equipment. And I think that's a very strong endorsement of this technology.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

And Stephen, can you talk about the balance sheet in terms of the restructuring actions? And can you talk about the cash burn going into the September quarter?

Stephen N. Ananias

Sure. So from a cash burn perspective, we don't guide cash specifically. As I mentioned in my prepared remarks, we consumed $7.8 million of cash last quarter, we expect cash from operations -- cash burn from operations to narrow in the next quarter. But beyond that, we're not guiding cash. In terms of the restructuring, as I mentioned again in my prepared remarks, we expect total charges to range between $3.5 million to $4.5 million. And the cash charge related to that -- or total charge is ranging from $4 to $5 million in cash. Expense is to be between $3.5 million and $4.5 million.


[Operator Instructions] Our next question comes from Dave King [ph] of B. Riley.

Unknown Analyst

The first question is with a seasonally strong September quarter expected to be flat to down, should we expect December and March quarters, which are seasonally weak, should we expect normal seasonality or should we expect some kind of growth, especially with the way wireless is expected to ramp?

Raouf Y. Halim

So Dave, this is Raouf. We guide one quarter at a time like most of our peers. So it's a little early to provide you comments on December quarter and the March quarter. What we have said very clearly in our prepared comments is that we expect to reach breakeven, non-GAAP breakeven in the first half of our fiscal year, which, of course, ends in March of 2013 at revenue levels that are higher than our current revenue level modestly higher, I'll call it $37 million, and a gross margin of 60%. So we clearly do not anticipate any significant downside from here. And I think it will be fair to read it flat to up from here and certainly in the first half of FY 2013, so in December and the March quarters. Okay?

Unknown Analyst

Okay. And then the OpEx of $22 million, I'm assuming that's $22 million at $37 million. That's how you get to break even or slightly profitable. How much of an incremental growth can you support at $22 million before you start to add back?

Raouf Y. Halim

Sure, Dave. So first of all, $22 million will be realized in our fiscal first quarter, meaning the December-ending quarter, regardless of revenue levels. So we're going to be there starting next quarter, okay? [indiscernible] basis. So that's what we anticipate reporting for the December-ending quarter. It's $22 million in total OpEx, independent of the revenue line. We expect to get to at least $37 million in the first half of FY '13, so either in the March quarter or in the December quarter.

Unknown Analyst

Yes, okay. And then with all this restructuring, post-restructuring, what kind of a revenue mix -- sounds like most of your cut will be from legacy business both. What kind of revenue mix should we expect with the HPA, CCP and WAN?

Raouf Y. Halim

Well, if you look at, let's say, this last quarter, the June quarter that we reported -- that we just reported, HPA was almost half of the revenues, CCP was about 40% and roughly 10% was WAN. Just round numbers. As we look forward to fiscal year 2013, you're going to have a richer mix of CCP, which is where our wireless business resides. So that's not to say that HPA will stay flat or even decline. It will clearly continue to grow because we have some very exciting growth drivers and enterprise video fiber-to-the-home behind our HPA business. So we expect in absolute dollar terms HPA will grow. But we think the blend will be significantly richer of CCP because that's not only where our fiber-to-the-home processors lie, but also our wireless small cell basestation business comes out of. WAN, as a percentage of the blend, will probably decline. We have not invested in WAN solutions for 10 years. And that business is gradually declining over time and it has been. And we continue to expect it to continue doing that. So I think the percentage that will be WAN will go done over time. I hope that answers your question.

Unknown Analyst

I just wanted to clarify. So wireless as in CCP, I thought it was in HPA because isn't that why HPA revenue was up 8% sequentially because of wireless doubling sequentially? I just wanted to clarify.

Raouf Y. Halim

No, no, Dave. Our HPA business, we can speak about this offline, but it's really focused on analog solutions, primarily for enterprise video and fiber-to-the-home. Our wireless SoC revenues are reported within the CCP category.

Unknown Analyst

And the last couple more. On the optical access, how big is that optical access segment right now? And is it mostly in Asia, I guess specifically Japan and China at this point?

Raouf Y. Halim

So our fiber-to-the-x business, our optical access if you will, comprises fiber-to-the-home, fiber-to-the-building, fiber-to-the-node, fiber-to-the-curb, all flavors of optical fiber access technologies. It is served from both our high-performance analog business, where we provide PMDs for optical modules, as well as our CCP business, where we provide triple play processors, voice, video and data CPE processors for the CPE infrastructure. That's within both of those businesses, FTTx is a strong driver for us. And it's certainly strong in China. It's also very strong in Japan where we have a dominant market share at NTT. So very strong business in both of those. I would say, overall, FTTx represents at least 30% or more of total Mindspeed revenues at this point. We expect it to continue to be a strong driver for our business going forward.

Unknown Analyst

Got it. And last question is regarding Picochip. When you made an acquisition, you expected about 50% growth this year, which translates to about $20 million, $21 million. Are you still sticking with that or has that been changed?

Raouf Y. Halim

Yes. So Dave, we are expecting significant year-over-year growth from the Picochip wireless SoCs. Last year, Picochip bid about $14 million of revenue. This year, it was clearly going to be up significantly from there. Whether it's 20, slightly below, slightly above, it's really too early to tell. But we are certain that this business will continue to grow year-over-year. As I mentioned in answer to an earlier question, we have very strong backlog for Picochip processors at this point as compared to the same time last quarter. We're expecting growth this quarter over last quarter for our 3G or Picochip solutions. And in fact, we expect continued growth in the December quarter. Of course, in December, we'll be coupled as well on top of that with our LTE Transcede solutions. We are expecting Picochip to continue growing strongly. We don't know if it's exactly 50%, higher, lower, can't give you an exact number right now. And of course, we just started the second half of the year.


I will now turn the call back over to Mr. Raouf Halim. Go ahead.

Raouf Y. Halim

Thank you all for participating in our call. We look forward to talking to you again in a quarter. Thank you very much and goodbye.


That concludes today's conference. Thank you for your participation. You may now disconnect.

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