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Mindspeed Technologies (NASDAQ:MSPD)

F4Q12 Earnings Call

November 5, 2012 05:00 PM ET

Executives

Kevin Trosian - VP, Business Development & IR

Raouf Halim - CEO

Steven Ananias - CFO

Analysts

Christian Schwab - Craig-Hallum Capital

Quinn Bolton - Needham & Company

Dale Pfau - Cantor Fitzgerald

Krishna Shankar - Roth Capital

Kevin Cassidy - Stifel Nicolaus

Operator

Good ladies and gentlemen and welcome to the Mindspeed Q4 2012 Earnings Conference Call. 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).

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 Sean, and good afternoon to all of you who have joined us for today's conference call to discuss Mindspeed's fiscal fourth 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 describe some key milestones for the business, our progress in the wireless small cell market and a strategic focus of the company going forward. Following, Mr. Halim, Steve Ananias, our CFO, will review fiscal fourth quarter financial results and provide financial guidance for our fiscal first quarter of 2013.

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 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 with respect to our ability to achieve non-GAAP operating profitability and the anticipated time frame for achievement; the revenue and margin targets required to achieve non-GAAP operating profitability, expectations concerning the operating impact of our recently announced 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 recent Picochip acquisition; our ability to realize the cost savings anticipated by the recent restructuring, fluctuations in our operating results and the potential for future operating losses; loss over 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, our most recent quarterly report on Form 10-Q and our future filings with the SEC including our upcoming annual report on Form 10-K for the fiscal year ended September 28th, 2012.

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, revaluation of contingent consideration, integration costs, employee separation costs, profit and acquired inventory, amortization of acquired intangible assets and noncash interest expense on convertible senior 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 Halim

Thank you, Kevin, and good afternoon, everyone. I'm pleased to start by reporting that Q4 revenue came in ahead of the high end of our upwards to rise guidance that we provided in mid-September. Mindspeed recorded $36.3 million in revenue and a narrowed non-GAAP loss per share of $0.09. Further, we continue to achieve the milestones we laid out for you and remain on track for accelerating to profitability and executing on the amounts restructuring from last quarter.

First, regarding the restructuring, we have taken a number of the necessary actions and will continue to execute on our plan of reducing non-GAAP operational expenditures to the $22 to $22.5 million this quarter, our fiscal first quarter of 2015. Second, Q4 non-GAAP gross margin came in at the high end of our guidance range and should remain at the high 50s. And third, we continue to lead the market for small cell base stations in both 3G, HSPA and 4G LTE.

In fact, as we have stated in previous conference calls, this December quarter is the first quarter of production ramp of our 4G LTE Transcede solutions in to the world’s first 4G LTE small cell networks in Korea. Importantly, you likely saw from our press release earlier today that we recently closed the deal to cell patents for a portion of our non-core IP for $6 million providing a nice complement to our cash position. The revenue from the transaction would be recorded in this December quarter but is not reflected in our revenue guidance to be provided later on the call.

During the call today, we will discuss our progress with our wireless initiative, a couple of growth opportunities that we believe are sometimes overlooked such as with high performance analogue and enterprise solutions as well as the acceleration of our move back to profitability, and throughout the call you’ll hear us reiterate what drives Mindspeed and what differentiates us from our competitors.

First and foremost, we compete at the physical layer of the OSI stack where our systems on a chip or SoCs move data around the network. These networks can be either wireline or wireless and can range from the carrier to the enterprise and ultimately past the curb and into the home. The driver of each and one of our product lines is the rapid growth of data traffic carried across packet networks. Our key differentiation versus our competitors is the high level of carrier grade software we provide as well as the level of SoC integration.

The global deployment of fiber broadband access services is a major driver of our wireline business and is more than offsetting our legacy core infrastructure product lines. While the (inaudible) and core infrastructure voice over IP product lines are likely to be relatively flat in 2015, we continue to benefit from the on-going FTTX market expansion across several of our product lines.

First, our optical, physical media devices or PMD solutions are deployed in all categories of fiber deployments from single family unit equipment to multi dwelling unit equipment supporting both GPON and GEPON protocols. Second, our communication process solutions are sold in to fiber-to-the-home deployments where a second box or broadband home router is utilized to process voice over IP and data traffic. Last, our voice over IP solutions are sold into higher density optical access environments such as multi-dwelling units. Based on market research and our internal estimates, we anticipate these optical access product lines can grow at an approximately 10% CAGAR in the aggregate.

Over the past year, we've recorded a number of key design wins in the FTTX space on both the HPA and CCP side of our business that are now ramping into production. We are currently deploying our PON, PMDs into Verizon’s FiOS network, NTT and China Telecom to name a few of the carriers. With the OEM customers such as Motorola, Huawei, ZTE, PMW and others that have Mindspeed chips in their equipments. In general, we see ongoing growth in fiber-to-the-home deployments around the world.

Our analogue business provides state of the art switching, transport and signal conditioning IC solutions for next generation networking and customer premise gear. Another driver of HPA growth is the search in mobile and video traffic. Telecom and enterprise OEMs are upgrading equipment from the core to the EDGE by increasing data rates and densities to satisfy this need. Our high performance analogue products are focused on these market trends and we continue to gain traction with more sophisticated, higher speed and higher density physical layer solutions. Our high performance analogue business continues to grow, delivering record revenues for three quarters in a row as well as for the full fiscal year of 2012 posting $65 million of revenue.

I would now like to focus on a subset of our CCP business namely our communications processors for ZTE networks. Like HPA, our CPE SoCs are benefiting from the fiber transition to the home. Further, we are seeing new areas and opportunities to expand this product line. While we don't want to get ahead of ourselves in terms of revenue forecast for these opportunities, we believe we can leverage this technology platform into new markets with low incremental R&D expense. We anticipate this can provide earnings leverage to our model going forward. Think of it more as a repurposing of our technology platform that will expand our time without having significant incremental investment expenditures. We will keep you up to date on our progress over the next couple of quarters.

I would now like to discuss our outlook for China in 2015. From our order trends in backlog, we have seen our demand profile in China stabilize. While not the high growth market it was in FASB, we believe sales of our products go directly into the Chinese markets would see growth in 2013 versus 2012. This is driven by PON PMDs as well as our cross points into the optical transport networks, coupled with a stable demand profile for our voice over IP processors shipping into China.

And finally, let me take the next few minutes to discuss our largest growth driver which is our wireless base station initiative. As many of you know, we have not entered into this business lightly. We have been investing in it for several years as well as complementing the strategic platform for the Picochip acquisition in early calendar 2012. This December quarter is the first quarter that we ramp our 4G LTE solutions in to Korea. This would be the first commercial deployment of 4G LTE small cells for any OEM or any career. Both Korea Telecom and SK Telecom are leading the charge and we have our Transcede SoCs in four of the six OEMs deploying into their small cell networks.

In the fourth quarter, we recorded three new LTE design engagements bringing our total up to 31 versus 28 in the prior quarter. In addition, Mindspeed’s 3G SoCs are now powering the China Mobile TD and CDMA for residential and enterprise small cell rollout as noted in our press release from this morning. As you might expect with any initial rollout of a new technology, the revenue streams can be a bit lumpy. Fortunately for Mindspeed versus our competitors, we have multiple small cell revenue streams that should help smooth out this lumpiness. We hold the clear leadership position in 3G HSPA holding the lion’s share of the markets. Further, we expect to lair on new regions as they deploy 4G LTE and or dual mode solutions.

We anticipate Japan will be the second major region to deploy small cells after Korea. We believe Japan will launch Microcells first, a segment in which we do not compete today, we expect Japan to shortly follow with Pico, enterprise and residential small cells thereafter, an area in which we do compete. We currently have multiple design engagements for Pico, enterprise and residential small cells with OEMs at major Japanese carriers. We forecast Japan will be followed one to two quarters later with 4G and dual mode deployments in the United States likely by late 2013. Further, we have sockets at two major tier one wireless OEMs that will be deploying to the major US carriers next year. As these new regions come on, and with our exposure to all three early market adopters, we expect the lumpiness of 4G deployments smooth out by the end of 2013. Overall, we expect the continue ramp in wireless from our 3G, dual mode and LTE SoCs, leading to approximately 150% year-over-year growth versus fiscal 2012 with potential upside coming from China. While Steven will provide our formal guidance for this quarter in a minute, I would like to provide some perspectives.

We have a number of important revenue drivers this December quarter, including the ramp of our 4G LTE small cell solutions coupled with the improving wireless business trends from strengths in FTTX solutions. We have very strong backlog trending ahead of the past two quarters. The level of turns we need to achieve our guidance is very low giving us increased confidence in the forecast for our fiscal first quarter. And finally, we are on track with our restricting and are aligning our expenses with forecast revenue bringing non-GAAP OpEx down towards the level it was at prior to the Picochip acquisition.

Now to conclude my remarks before turning it over to Steven, I’d like to lay out three key milestones that we expect to achieve in the coming 12 months. First and foremost, we are comfortable and committed to reaching non-GAAP operating profitability in the first half of our fiscal 2013, so by no later than the March quarter of 2015. We believe we can achieve non-GAAP operating breakeven at modestly higher revenue levels and a stabilized gross margin of between 58 to 60%. As well as non-GAAP OpEx in the $22 million range. Furthermore we expect Mindspeed’s topline revenue to grow in fiscal 2015 versus 2012 and therefore expect to deliver to our shareholders increased earnings leverage going forward.

Second, we will maintain our grow our revenue in our target wireline market segments including high performance analogue and communication processors while leveraging our existing technology with low investment expense.

Third, we forecast a meaningful ramp in the rapid growth small cell base station markets. 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 Korea followed by Japan and North America.

Finally, as we look forward to our fiscal 2013, we expect our wireless revenue to ramp approximately 150% in fiscal 2015 versus 2012. Further, our total wireline revenues are expected to be flat to up 5% in 2015, driven by our product lines with exposure to the FTTX markets. All in all, we have a number of positive drivers leading to our growth forecast for the current quarter as well as growth for the entire fiscal year of 2015.

I would now like to turn the call over to Steven to provide more details and then an update on the restructuring, last quarter’s financials and guidance. Steven?

Steven Ananias

Thank you Raouf. I will now review our financial results for the fiscal fourth quarter including the progress of our restructuring plans as well as pprovide our financial outlook for the fiscal first quarter of 2013. First, let`s discuss our Q4 results. Total net revenues for the fiscal fourth quarter were $36.3 million better than our improved revised guidance in September and up 2% sequentially versus last quarter’s $35.5 million. The sequential growth was driven by our high performance analogues and wireless businesses. Product revenue from our high performance analogue business or HPA represented 49% of total fiscal fourth quarter product revenue and increased by 6% sequentially. Product revenue from our communications convergence processing business or CCP contributed 39% of total fiscal fourth quarter product revenue and decreased 2% sequentially.

Lastly, our legacy wide area networking business or WAN contributed the remaining 12% of fiscal fourth quarter of product revenue and increase by 2% sequentially. Product revenue for the fiscal fourth quarter was split by geographic region as follows. Asia Pacific at 77%, Americas at 17% and Europe at 6%, China specifically represented 38% of total fiscal fourth quarter product revenue. No in customer represent product revenues of 10% or greater in the fiscal fourth quarter.

Now turning to gross margins. Non-GAAP gross profit was $21.4 million or 58.9% of revenue. This was down sequentially compared to 60.5% of revenue in the prior fiscal quarter but at the high end of our forecast due to better product mix and volume. Total non-GAAP operating expenses were $24.4 million as we had forecast based on our restructuring plans announced last quarter. This was lower than the $25.3 million in operating expenses in the prior quarter. Fiscal fourth quarter non-GAAP operating expenses were comprised of research and development expenses of $16.1 million and selling, general and administrative expenses of $8.3 million. The resulting non-GAAP loss for the fiscal fourth quarter was approximately $3 million versus a loss of approximately $4 million in the prior quarter.

Now finishing the income statement for the fiscal fourth quarter. Non-GAAP other income and expenses totaled a net expense of approximately $650,000. This consisted of other income of approximately $450,000 and net interest expense of approximately $1.1 million. The benefit from income taxes was $28,000. Non-GAAP net loss for the fiscal fourth quarter was approximately $3.7 million and resulted in non-GAAP net loss per share of $0.09 based on 39.2 million weighted average shares outstanding for the quarter.

Turning now to the balance sheet for the fiscal fourth quarter. Cash and cash equivalents were $49 million at the end of the fiscal fourth quarter of 2012, net of the $6 million of cash consumed in the quarter. Accounts receivable at the end of the quarter were $14.5 million resulting in net based sales outstanding of 36 days down from 38 days in the prior quarter. Inventories at the end of the quarter were $10.5 million resulting in non-GAAP inventory turns of 5.7 versus 5.8 turns in the prior quarter.

Turning to the restructuring we announced last quarter, our plan included a global reduction in force of approximately 15% in the impairment of several facilities. We plan to reduce quarterly non-GAAP operating expenses by 13% versus our fiscal third quarter saving approximately $13 million on an annual basis once fully implemented which brings us back to our pre-Picochip acquisition non-GAAP operating expense level. The execution of our restructuring remains on track with the plan we have lined last quarter. As part of our restructuring plan, we expect to reduce our non-GAAP operating expenses to range between $22 and $22.5 million in the December quarter. As stated last quarter, the expense reductions are split roughly equally between R&D and SG&A support functions. Our priority is to protect the investment in our most strategic programs that provide the greatest earnings leverage. When complete, this will represent a strategic shift in our R&D investment profile to better align with the exciting growth opportunities ahead for Mindspeed including communications processors, high performance analogue and small cell wireless base station.

As a result of the restricting, we forecast incurring total charges ranging from approximately $4 to $5 million of which approximately $3.5 to $4.5 million will be cash expenditures. We consume less than $1 million in cash in the fiscal fourth quarter related to our restructuring. We are comfortable and committed to returning the company to non-GAAP operating profitability in the first half of fiscal 2013 and delivering increasing value to our shareholders.

Finally, I’d like to provide our outlook for the fiscal first quarter of 2013. Overall, we believe we are well positioned to show continued revenue growth for the company. We have strong backlogs with metrics this quarter turning ahead of the past four quarters. Further, distribution channel inventories continued to decline. We anticipate wireless will continue to grow this quarter driven by the 4G LTE deployments in Korea. We also expect HPA will show another quarter of sequential growth. Based on these trends, we believe product revenue in the fiscal first quarter of 2013 will range between $36.5 to $37.5 million.

Turning to margins, we expect non-GAAP gross margin to range between 58 and 59% consistent with the quarter we just reported and non-GAAP operating expenses to be roughly $22 to $22.5 million a decrease of approximately $2 million or almost 10% quarter-over-quarter. Our guidance for the fiscal fourth quarter of 2013 exclude the $6 million non-core patent sale announced in today’s press release.

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Christian Schwab with Craig-Hallum Capital. Please go ahead with your question.

Christian Schwab - Craig-Hallum Capital

As you look to the Transcede product ramp, I think before you said the Korea ramp could initially start in December with around 500,000 plus or minus in shipments. As we look out to the next one to two years as far as that product line is concerned, and beginning to ramp in Japan and then North America by the end of the year, what kind of revenue range should we be assuming for the next couple of years probably?

Raouf Halim

First of all, let me just say that we are very pleased that we are in fact right on plan with the first ramp of our LTE small cell Transcede solutions in this current December quarter. You may recall we've been expecting that ramp to occur this quarter now for over a year and its right on track. Expectations for revenue from Transcede this quarter are serving the rough $0.5 million to $1 million range that you noted. We expected in fact to continue to grow over fiscal 2015 and beyond. It’s very difficult to predict two years out. But you’re right, as we look into the latter part of next year, of 2013, we’ll see all three major geographies, Japan, North America and Korea, the three we've associated with the wave one of small cell LTE deployments in full swing. So it’s difficult to throw out a range but it’s certainly many, many multiples of the revenue we expect in this first quarter of deployments. I'll leave at that other than commenting that once again our expectations for fiscal ’13 growth of wireless are to be at least 150% growth over FY12 at a minimum.

Christian Schwab - Craig-Hallum Capital

Great and as we look at that, can you remind us what you believe the TAM will be in the next few years, that those chips are targeting?

Raouf Halim

So we think as you look maybe a little further, call it four, five years, the TAM is comfortably approaching $1 billion in the small cell universe that would be comprised of 3G, HSPA, single mode LTE, dual mode 3G and 4G LTE. Eventually, there will also be an LTE advanced component in the small cell universe that will be additive to that so it’s going from a very small market right now to potentially very large market that we enjoy significant share within.

Operator

(Operator Instructions). Our next question comes from Quinn Bolton from Needham & Company. Please go ahead.

Quinn Bolton - Needham & Company

Wanted to come back to wireless. It sounds like it was up sequentially from roughly 4 million in June quarter. Can you give us some sense how much the business increased in September?

Raouf Halim

The wireless business grew roughly 10% sequentially in September over the June quarter.

Quinn Bolton - Needham & Company

And so for the fiscal year it looks like you came in probably just over 10 million for the entire fiscal year?

Raouf Halim

That's correct Quinn.

Quinn Bolton - Needham & Company

And that's the business that you say should grow, but you expect to grow at least 150% in fiscal ’13 versus fiscal ’12.

Raouf Halim

Yes, I think our comment is about the entire wireless business so within that, we expect DLT ramp to continue growth within the 3G segment as well. So it’s really growth at both revenue streams, 3G HSPA as well as a strong grant for 4G LTE together that will grow our wireless business by at least 150% year-over-year.

Quinn Bolton - Needham & Company

And I know that the wireless I think is currently in the CCP business, you’re talking about wireline being flat to up 5% in fiscal ’13 versus fiscal ’12, that's the wireline portion of CCP plus the HPA business?

Raouf Halim

Essentially the way to think about it Quinn is, if you think about our business at a top level, think of it as a wireless small cell base station platform that's growing at the rate that we talked about. The rest of it we characterized as our wireline business which is inclusive of HPA or point legacy WAN business and the voice over IP business. Within that there are some strong growth drivers, enterprise and HPA certainly but we talked to at lengths about FTTX being an important driver for our wireline business. Of course WAN will continue to be flat to down a little bit and so we put it all together. We think our non-wireless business broadly speaking is flat to up 5% and FY’13 over FY’12. Again, inclusive of HPA within that.

Operator

Our next question comes from (inaudible) with Raymond James. Please go ahead with your question.

Unidentified Analyst

Was hoping you could talk a little bit about how you see the mix of your wireless business in 2013 by which I mean, how do you see it with regards enterprise versus residential versus carrier in the small cell side?

Raouf Halim

So at the top level I’d say that as we look to fiscal 2013, we see continued growth in our 3G business coupled with the ramp of 4G LTE initially Korea and then later on in FY’13 Japan and eventually the US. We see the 3G business as being more residential focused, really a service that's targeted towards improving voice coverage, primarily residential as you would see with AT&T, Vodafone and other carriers around the world, not necessarily towards capacity improvements, really more focused on coverage. So we think that they’ll continue to be more residential maybe 80-20, 80% residential, 20% enterprise and carrier. Whereas the initial ramp, 4G LTE is really the reverse of that. Its more focused on the enterprise and carrier of Pico cell deployments at least initially and there may be close to the flip of that is an 80% outdoors and maybe 20% or even less indoor residential. Okay. Over time I think as we get further out to 2014, you’ll see the ramp of LTE residential small cells, you’ll see the ramp of the TD technology in China, for instance TD and CDMA which is 3G in China and also eventually TD LTE in China as well and those will take on flavor certainly of enterprise but also residential installations. So I think initially it’s going to be more pocket oriented, pockets of growth, focus on specific applications, there may be coverage, there may be capacity in the case of LTE but eventually I think you’re going to see both really canvasing the whole space from enterprise carrier in bound to residential.

Unidentified Analyst

And then with regard to your outlook for operating profit, can you just clarify that? I believe you said previously you were thinking it would be June of ’13 when you’ll achieve that and it sound like you’re saying that its March of 13 would be the latest you’d say operating profit breakeven, is that correct or did I misunderstand?

Steven Ananias

Yes, we were consistent on that. Last quarter we guided that, we felt we had reached non-GAAP operating profitability in the first half of our fiscal 2013 and we are reiterating that today.

Unidentified Analyst

And then my final question was just with regard to wireline business particularly fiber or in China. Can you talk a little bit about what you’re hearing from your customers over there? Are you seeing any sort of accelerating spending plans or based in your guidance, if you heard a stronger uptake with that, mean upside or does your guidance there already sort of incorporates some more positive color coming out of your customers there?

Raouf Halim

So to answer your question, very specifically what we are seeing in China is very strong ramp actually for fiber to the home services particularly using the so call GPON flavor of FTTX. We have very high market share with our GPON PMDs out of our HPA business serving China very directly. Customers obviously include ZTE we mentioned, number of other guys TMW, Huawei and others that are critical end customers for us. Of course shipping in to China Telecom, China Unicom and to a less extent China Mobile. So the fiber to the home piece of it is growing rapidly and is definitely a driver for the upside in our high performance analogue business. The other piece of FTTX in China is fiber to the building which historically has driven a lot of revenue out of our CCP portfolio for some of our higher density voice over IP processors. That business has stabilized. It’s starting to grow a little bit. We believe that this will be a year where there is stability coming out of China, if there is any upside to that, and if the carriers in China starting ramping their FTTB deployments and of course it would be upside to our revenue plant.

Operator

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

Dale Pfau - Cantor Fitzgerald

Just to follow up again a little bit on your wireless business, if it was up 10% that puts it about 4.5 million and maybe up another half million in the first quarter, you’ve talked about it being a little bit lumpy over the course of the year though. Any better color on that? Are we going to be skewed more to the second half down perhaps in the March quarter, any idea on how we model your wireless business over the next year?

Raouf Halim

No Dale, we guide the quarter a time as you know. We have strong backlog for wireless. I think we mentioned that in our prepared comments earlier. And yes, we did roughly 4.5 million, maybe just a hair below that in our fiscal fourth quarter. We expect overall as I said about, roughly 150% at least growth for wireless. I mentioned earlier that we expect growth out of both the 3G portfolio as well as of course the ramp of 4G LTE starting with Korea. Hard to say it will be up sequentially every single quarter but with ramps that we’re looking at, I think it’s fair to say that the limiting factor for the ramps is really stability of the technology platforms and the ability of carriers to deploy these small cells as opposed to the end demand from consumers and businesses. The demand is very strong. The need is there. It’s just a matter of how quickly can we satisfy it. So it’s probably one of the most exciting markets frankly Dale, that we have ever been involved in.

Dale Pfau - Cantor Fitzgerald

So assuming you ramped to about 5 million in the first quarter, just based on rough math, you did about 10 million plus or minus in the last fiscal year, up 150% to be 25 million plus or minus, that would be roughly flattish about 5 million run rate each quarter across the next fiscal year. Is that about right?

Raouf Halim

Just use your own numbers here, the 5 million in Q1; it would be growing over the course of fourth quarters to get to 25. We’re growing a little bit, right?

Dale Pfau - Cantor Fitzgerald

It would be growing a little bit, yes.

Raouf Halim

As I said, we expect that to be at least 150% growth year-over-year which I think is pretty strong. There could be upside to that. We think that guidance is a reasonable guidance and the upside could come from a number of areas certainly 4G LTE being one, but also TDS CDMA in China being another very big one. You may have noticed our press release earlier today, joint press release with China Mobile, the world’s largest wireless carrier with about 650 million subscribers. That is a very important deployment as you can imagine focused on TDS CDMA or 3G in particular and that was panned both residential and enterprise flavors. There could be a significant upper to our plan.

Dale Pfau - Cantor Fitzgerald

And one last question on cash. As you ramp the wireless business, is that going to burn cash or should that not be a concern within the overall scheme of the business?

Steven Ananias

I wouldn’t view it as a concern at all. We’re very comfortable with our cash balance right now and I think as we ramp that business, we’re comfortable we have the cash to manage that ramp.

Operator

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

Krishna Shankar - Roth Capital

Yes, let me have my congratulations on the nice results. Can you give us a sense for what bookings did during the quarter and also the state of inventory both on the OEM and distribution channel customers going into the December quarter?

Steven Ananias

So first on our bookings, our bookings are very strong right now. As I mentioned in the prepared remarks, our bookings right now are as strong as they have been over the last four quarters. So we’re very happy with that. And in terms of inventories in their distribution channels, they have continued to decline over the last couple of quarters. So, again some very positive metrics out there in terms of the direction of our business.

Krishna Shankar - Roth Capital

And Raouf can you talk about the competitive landscape and the small cell wireless base station business, what you’re seeing out there?

Raouf Halim

Competitive landscape quite honestly hasn’t changed too much. We continue to compete with TI and Freescale. We see in the residential segment a little more of Broadcom and Qualcomm not unexpectedly. So nothing really substantially that has changed. You may have noticed in our prepared comments we scored another three important LTE design engagements in this past quarter, bringing us up to 31. Overall I’d say we have excellent traction in LT and dual mode LTE 3G small cell. So we’re very pleased with where we are.

Krishna Shankar - Roth Capital

And finally what was the nature of the $6 million IP sale, what era does it relate to and does it have any impact on your ongoing set of use of that IP

Raouf Halim

No. it has no implication at all for ongoing business in our core and intellectual property. As we noted in our press release, these were non-core patent assets. We continue to evaluate our patent portfolio. Over time we’ll make certain decisions about elements of the patent portfolio and the ones that we feel are not core for us, not critical to our future, our growth. We feel comfortable that we can go ahead and market those. This sale in fact, it was completed a few days ago. It’s closed and it’s funded.

Operator

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

Kevin Cassidy - Stifel Nicolaus

And just to follow up on that last comment, with the IP sale, was there any cost associated with it?

Raouf Halim

So Kevin no, there is basically no cost at all associated with it. Just internal administrative stuff.

Kevin Cassidy - Stifel Nicolaus

And you had mentioned that you’re not addressing a micro cell, can you say, is that part of a $1 billion TAM that you mentioned or are you talking about just the other cells, not the micro cell?

Raouf Halim

The micro cell TAM just so you know, we believe is really very small. Overall it’s a very small percentage of the overall small cell TAM. It exists primarily in Japan. From what we can tell, we don't know how long lived it will be. With the vast bulk of the small cell marketplace will be in the Pico cell enterprise and residential segments. That's where the growth will come from.

Kevin Cassidy - Stifel Nicolaus

And just one another question about that. How different masks do you have for the processors to support those Pico cell in enterprise and residential?

Raouf Halim

That's a great question Kevin, unfortunately one that I am not prepared to answer because it discloses competitive information that I’d rather not get into on an earnings call.

Operator

Our next question comes from (inaudible) with Raymond James. Please go ahead.

Unidentified Analyst

Raouf, if you could just give us some color on, is there any feedback you’ve gotten from carriers so far that are using small cell, I am not sure you get to have those discussions but, obviously so far it’s been 3G, but for example it’s like AT&T giving away some of the residential cells. I am just curious, has it been a fairly positive reaction so far to 3G deployment and any sort of initial color. I think you said, you’re going to start roll out LTE in Korea this quarter. Have you seen any of that stuff go live yet on the LTE to get some sort of color on the carrier’s reaction to it so far?

Raouf Halim

Yes definitely. So just to give you a sense for it, the 3G small ell market obviously is very much focused on improving voice coverage. So its solving the voice problem as opposed to necessarily a data or data bandwidth problem for subscribers. Those rollouts continue North America, carriers of course like AT&T, Sprint and others and then in Europe, they continue to grow at Vodafone, a number of other European carriers that we have significant exposure to. The feedback is very good so far. It’s a critical method if you will for carriers to retain subscribers and to reduce subscriber churn. That is proving to be quite effective for them and in many cases that you pointed, they do give away those residential (inaudible) cells just to retain their subscribers in the associated revenue streams. What we are seeing is that in the 4G space, there is a tremendous amount of activity. I think it’s fair to say by virtually every single carrier around the world. They see small cells as a very effective means to transform the networks, CapEx and OpEx effective way to transform the networks, to support the heavy data loads associated with the growth in mobile data traffic and LTE deployments. So it’s really very exciting. We see as I mentioned earlier that the growth of this market is really only limited at this point by the availability of stable carrier grade production ready systems by our customers. The demand is there. Its ubiquitous. We see in Korea to answer your other question, we are absolutely deploying in Korea right now. Carriers have gone through the (inaudible) associated with hardening those small cells, testing them in an environment that is if you will head to a genius environment that has macro cells, micro cells and (inaudible) cells, all together. So they are through those (inaudible). They are through the interoperability testing and they now into the deployment phase. So it’s very exciting to be part of that and to have the number one position in Korea that we enjoy today because it also obviously gives us tremendous credibility in other regions that are about to deploy and will be ramping in 2013.

Unidentified Analyst

Can you give us also an update on sort of cross point switch business, but perspective from the data center important podcast market?

Raouf Halim

Yes Steve, so our cross points are doing very well in fact. We have a very broad range of cross point switches. The high end are very large capacity of raise that go up to very significant densities. Those support optical transport at TO and applications, also enterprise blade servers and other ambulant infrastructure, other applications at the high end. The product range goes all the way down to what we call small signal conditioners that may be as small as 4X4 switches. We’re seeing a lot of action in the low end and the mid-range of the markets driven by a variety of new enterprise and video design wins that we have. Our video business is doing very well as a consequence. So we are seeing that product family continue to grow and it’s got great prospects. It’s obviously a large margin contributor as well for us. So we’re pleased to see that continued growth.

Unidentified Analyst

And any share gains in that market?

Raouf Halim

We've always had very high market share Steven in the cross point switch area. We've had a number of competitors come in and go out. We have never lost much share in that space so we’re very pleased with where we are. Hard to gain a whole lot more market share in that space from where we are.

Operator

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

Raouf Halim

Thank you all very much. We look forward to talking to you next question. Good bye.

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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