Steve Litchfield: Look, this is a tough one to call. Definitely, as we reflect back on 2022, that number was approaching $500 million. I mean, this year, it’s well below $300 million. So I don’t have a great answer for you. But I mean I don’t want to guide one segment by quarter, et cetera. But I feel like we’re bottoming out here. We’re kind of getting there, hopefully, at this point. We definitely got a little better visibility with regard to what inventory is out there in the channel. But I don’t have an exact number other than say, it’s somewhere in the middle of those two numbers.
Ross Seymore: And then I guess pivoting over to the OpEx side of things. You guys did a great job in the first quarter. It’s gone up a little bit in the second quarter. Any sort of kind of trajectory, how you think of OpEx like why is it going up in the second quarter and then how should we think about it through the year?
Steve Litchfield: So don’t forget, we do have some NRE dollars that kind of sway this here and there, because in Q1, we always — we typically see things pick up quite a bit, but some of the timing of some of our NRE dollars that are coming in have kind of skewed this a little bit. We’ve actually been very busy in Q1 really dialing back our costs, dialing down our overall operating expenses, I think you’ll see that continue to come down post Q2. I think we will likely exit the year closer to $75 million of OpEx. So I think we’ve made good progress there. Definitely kind of given the revenue headwinds that we see, we’ve jumped in quickly and really dialed back that spending as you’ve seen us do in the past, during past cycles.
Ross Seymore: And then one quick follow-up. Just in general, given the weakness in the market, have you seen any change in the competitive intensity? You talked a little bit earlier about pricing, but any sort of market share shifts, competitive intensity changing, or is this just kind of the typical cyclical downturn where everybody is just trying to figure out where the bottom is and burn inventory until you get there?
Kishore Seendripu: I think I’ll give Steve a break here. So not at all, no changes in competitive positioning or new competitors in the horizon. In every market we are today, we’re one of two or three and that positioning has not changed. And if you really think back about the dynamics of the excess channel and the inventory in the markets we are that are pretty sticky, until those inventory burns burn, you have incumbency advantages in the markets we are. So we don’t see the positive change. But more importantly, the quality of our product offering is improving quite a bit. We’ve got a lot of innovations and new product offerings across all our product areas, whether it’s fiber PON, whether it’s Wi-Fi. Obviously, we’ve got an exciting competitive positioning relative to strengthening optical data center infrastructure, the 5-nanometer product and in the wireless infrastructure as well.
And none of these products will be announced as we go through the middle of this year. So no changes. So we just have to wait out this inventory burn through the channel. I just want to add a little color to what Steve talked about, what is the natural run rate, you asked about the broadband. Here, I don’t want to be giving you any specific number. But just the way I think about it is, if you look at the last two previous years of broadband revenues, maybe it takes us two years to get back there, right? That’s the way I look at it, so — because that’s the — that’s the inertia and the system, right? So therefore, actually, last year’s revenues are, in fact, a positive indicator of what the future could look like. So I wouldn’t look at it as a down statement at all.
All in all, we’ve always done the most exciting work in a tough time, which has been our track record. And actually, we’ve got a profusely rich product portfolio that’s developed and will be — is being announced and continue to be announced as we move forward.
Operator: Our next question comes from the line of Tore Svanberg with Stifel.
Tore Svanberg: If we could just get a little bit more granular on the connectivity side of the business. Obviously, broadband has been correcting for a year already. But it looks like connectivity actually started correcting this quarter, this Q1. Just wondering if that’s going to sort of have a similar trajectory as broadband or other reasons why or why not that wouldn’t necessarily be the case?
Steve Litchfield: As you know, this is a really important product line to us. And we’ve seen tremendous amount of growth. I think, one, we’re seeing a lot more attached. So this is all new business. So a little bit different than the gateway side of the equation. So I would not expect to see the same level of decline. That being said, I mean, they’re both selling into gateways. And so there is some dynamic there where we’re impacted. There’s a big move from Q4 to Q1. There’s a little bit of seasonality in there. We had some large router shipments in Q4 and those were coming down in Q1 kind of as expected to some degree. So I definitely think that Wi-Fi is going to continue to outpace, I mean, there’s more attachment that we can go out and get. And don’t forget, you’ve also got a lot of ASP increases or just a trajectory that’s moving upwards as we get more 6E. And then longer term, once we get WiFi 7, you start to see a move up in ASPs along the way.
Tore Svanberg: And you mentioned when you were answering one of the questions about the broadband correction that you’re starting to have a better sense for the amount of inventory that’s out there. Can you just add a little bit more on that? Is this based on conversations you’re having with your customers where they are giving you any signs that things are bottoming?
Steve Litchfield: Well, I mean, look, this is — it’s been an interesting semiconductor cycle, right? I mean we’ve not seen 52-week plus lead times in most of our careers anyway. And so it was somewhat unique, and I think that drove your typical bad behavior where we’re seeing a lot of over ordering. And there’s been a lot of cross currency as well, because there’s a lot of markets where you’re still short. And so customers aren’t really giving proper information. And I think now that they do have more inventory, we’re getting a lot more transparency with the customers, because now they’re kind of coming clean to some degree and sharing appropriate information. So we feel better that we’ve got a little bit better visibility at this point.
Tore Svanberg: Just one last question for Kishore. Kishore, the high speed optical business, I know it’s taken much longer than you would have expected. But coming out of OFC, it does seem like there’s finally some strong design win momentum there, especially on 800 gig. So I was just hoping you could elaborate a little bit more on that, especially the confidence level that, that business may actually finally start to contribute more meaningfully to revenues later this year.
Kishore Seendripu: Well, we’re very excited. As you’ve seen in OFC, we had three or four very meaningful demonstrations and announcements of our 5-nanometer, lowest power, most integrated 800-gig PAM4 solution out there, it’s the only 5-nanometer solution. And on the back of it, we had a number of strong design wins with Tier 1 OEMs who’s in turn supplied to the data centers. Obviously, we work with the data center players and the OEMs to line up our design wins. So we have gone through — some of our key OEMs already gone through, their own self interrupts. And now they have sample to the data centers for their qual cycle and they should finish up towards the end of the year. And so we feel very, very good that we will be in a position to gain some significant market share as 800 gig rolls out.
You have to realize that in the 800-gig PAM4 as it is the first deployment that are starting and we are not behind on that, we are leading in that effort. So we feel that the trajectory of this would be we would have shipments that in the second half of this year, which for the qual amounts and beyond that, it ramps pretty strongly next year and the following year and the following year. So feel really, really good. I think we are pretty much Tier 1 OE module maker that you would think is worthy of us to work with. And I feel really good about where we are. It’s actually today, somebody asked what is the most exciting product you have today as you go into the call, and it has to be optical, I said. So that’s how good I feel about it.
Operator: Our next question comes from the line of David Williams with Benchmark Company.
David Williams: Maybe, Steve, on just kind of thinking about the inventory digestion and just those dynamics. It sounds like we’re at least starting to hear some — maybe a slower cadence of spending from some of the service providers and operators there. Can you kind of talk about maybe the dynamics that you’re seeing between inventory and maybe slowing in demand? Is there — do you feel like most of this is really driven by that inventory and not more of a demand cycle?
Steve Litchfield: It’s something that we’re watching closely. I mean we haven’t seen CapEx levels really change that much. To date, we’re naturally watching this closely. I mean, the bigger issue for us right now that we see is just the inventory in the channel. But I guess the way I think about it is, it is something that we’ve got to continue to watch. I think our assumption is that in demand does hold up, that spending does hold up. And that’s really based on there is an upgrade cycle going on and we do expect to see that continue. But if we see a recession, if we see a major pullback in spending, then yes, that could change the demand levels a little bit.
David Williams: And then from the inventory side, is this more MaxLinear product in the channel or is this maybe peripheral products that are out there that are maybe just slowing some of the uptake?
Kishore Seendripu: In the markets we are in, especially the service provider markets and the specific OEMs are assigned to specific chip suppliers as well with specific suppliers. So when you talk of inventory levels, we are associated with certain chip suppliers, right, because we sell our own full platform of solutions. Now on our platforms, there will be minor components from other manufacturers. But we do not think that those are the determinants in the way the inventory is building up in the channel. So all in all, we don’t see a competitive situation where our inventory to be held here because the competitive product is being sold more. And so I think as the sell-through happens, we’ll burn through the inventory and we should be able to resume our shipments.
You also have to keep in mind that as the lead times have shrunk in the manufacturing supply base, our own customers, the OEMs would now go in the other directions where they are in no hurry to place any orders or give us any visibility. So I would say there will be a bit of an overcorrection on the inventory in the other direction and given the interest rates as well. So I think you’re going to see unusually lower inventory levels before it picks up to normal inventory levels, right? So I think we are planning for that right now.
David Williams: And one more quick one for me. Just, Steve, on the gross margin, getting a nice lift into the quarter, even on the downside revenue guidance. Can you talk about what’s driving the margin there, is it simply just mix or is there anything else underlying there that we should be thinking about?
Steve Litchfield: Well, I think — so I think the majority of it is mix and we’re pleased to kind of see — you saw us come up 70 basis points to our midpoint of our guidance gets us up another 70. So making nice progress on that front. Look, I’m optimistic as we look into the rest of this year and even into 2024 as supply tightness eases, I think we’ll have a little bit more pricing power. And so we think that we can continue to lower that cost structure and see better gross margins.
Operator: Our next question comes from the line of Christopher Rolland with SIG.
