Intel Corporation (INTC) Earnings Call Transcript & Summary

Greetings, and welcome to the MaxLinear conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Nugent, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's pending acquisition of Intel's Home Gateway Platform Division. A press release issued before the open of the market today and supplemental presentation slides detailing the transaction are available in the Investors section of our website at www.maxlinear.com. Today's call will include remarks by Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer; and Dr. Kishore Seendripu, Chief Executive Officer of MaxLinear. We will open the floor for a question-and-answer session following the prepared remarks. This conference call, the associated press release and the presentations made available today contain certain forward-looking statements within the meaning of applicable securities laws, including, without limitation, statements with respect to the anticipated timing of the proposed transactions between MaxLinear and Intel, the anticipated effects of the proposed acquisition on MaxLinear, the prospects for MaxLinear following the proposed acquisition, including, without limitation, expectations with respect to MaxLinear's addressable markets, particularly Wi-Fi; opportunities within those markets and the ability of MaxLinear after the acquisition to serve those markets; the growth strategies of MaxLinear generally and expectations with respect to the impact of the acquisition of MaxLinear's growth strategies; expectations with respect to the products and customers of the company after the proposed acquisition; strategic and financial synergies anticipated to be realized from the proposed acquisition, including the anticipated impact on revenue and gross profit accretion and current unaudited revenue estimates for the quarter ended March 31, 2020. These statements are based on MaxLinear management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements involve substantial risks and uncertainties, including risks arising from the acquisition of Intel's Home Gateway business; the integration of that business into MaxLinear; employee and customer retention; substantial competition in the home gateway market; average selling price trends; risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect; uncertainties arising from the global COVID-19 pandemic; and numerous other risks outlined in the Risk Factors section of our current SEC filings, including our Form 10-K for the year-ended December 31, 2019. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. In addition, we report certain historical financial metrics, including net revenues, gross margins, operating expenses, income or loss from operations, income taxes, net income or loss and net income or loss per share on both GAAP and non-GAAP basis. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. Lastly, this call is being webcast, and a replay will be available on our website for 2 weeks. And now let me turn the call over to Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer of MaxLinear.

Thank you, Brian. As Brian mentioned, we have posted an investor presentation on our website to help guide you through this call. We're very excited to have signed a definitive agreement to acquire Intel's Home Gateway Platform Division. Today, we will provide you the details related to the acquisition and highlight the strategic and financial rationale underpinning it. We will begin on Page 3. We intend to acquire Intel's Home Gateway Platform Division in an asset purchase for $150 million. We have secured $140 million in committed Term Loan A financing, and this, along with balance sheet cash, will be used to fund the acquisition. Pro forma debt at closing represents 2x gross leverage and 1.6x net leverage. MaxLinear has been a successful acquirer, and we believe that the opportunity will be that this opportunity will be another example of our ability to integrate quickly, realize improved efficiencies and aggressively grow the business to drive significant value. Kishore is going to cover the rationale for the acquisition in much greater detail, but I'll provide a basic overview. We're adding an established business with well over a decade of significant investment between Intel and its predecessors. We're adding significant R&D talent globally and world-class IT, particularly in the digital, software and system-level domains. Historically, most of you are likely aware of Intel's presence in cable gateway markets with their SoC products comprising more than 50% of this revenue, while MaxLinear has been a strong partner on Intel's reference platform in this market. We expect the acquisition to significantly bolster the value we bring to our existing customers. The strategic and potentially high-growth component of this deal is the Wi-Fi asset, which has had significant dollars invested into it over the past several years and is approaching several new product ramps. As you know, Wi-Fi assets are extremely valuable in the market right now based on the future growth of this expansive market. We're extremely excited about augmenting the existing Wi-Fi platform with our RF and mixed-signal capabilities. This combination will bring significant value to our customers and partners while significantly expanding the dollar content and strategic relevance of MaxLinear across the broadband markets. Along with the growth opportunity in Wi-Fi and the strategic fit with the gateway business, this combination will bring scale to MaxLinear as well. The added scale that this brings with the comprehensive technology, IP and talent will enable us to bolster existing efforts in the Wi-Fi area, but also continue to grow and develop our infrastructure opportunities with our data center efforts and 5G massive MIMO opportunities. I'm going to circle back to discuss some of the financial metrics and outlook for this business. But first, let me turn the call over to Kishore to discuss the strategic rationale in more detail.

Thank you, Steve. Good afternoon, everyone, and thank you all for joining us today. Turning to Slide 4. We are very excited to have signed a definitive agreement to acquire Intel's Home Gateway Platform Division. Strategically, this acquisition will not only enable us to better serve our customers and operate with partners in the broadband market with also more than doubled our served addressable market, which I'll address in more detail in a moment. Intel's Home Gateway Platform Division comprises Wi-Fi access points, Ethernet and home gateway SoC products deployed across operator infrastructure, infrastructure retail markets sold directly and through distribution. This is a diverse portfolio of established SoCs and components as well as an emerging set of Wi-Fi products, which, combined with the analog front end and wireline connectivity products, should enable us to compete as an end-to-end solutions provider in the broadband cable and fiber markets. Along with strengthening the value we bring to the cable market, we should also be well positioned to expand the presence in retail and fiber to the home markets. In most cases, we have strong relationships with each of the key OEMs in this market, which will be enhanced by bringing together the full suite of the combined businesses together and focusing our sales and marketing efforts across this ecosystem. Intel brings strong design capabilities on a global scale and a unique IP portfolio, which have resulted in a strong competitive position for Intel across multigigabit broadband access markets dominated by 2 players. Intel's global design presence is highly complementary, particularly its strength in Europe, which we expect to better enable us to attract and scale talent, improve customer support and enhance our technology competitiveness, not only in broadband markets, but also in our exciting wireless and optical data center infrastructure market expansion initiatives. Intel's strong culture of engineering and operations excellence is well-aligned with MaxLinear's ambition of becoming a world leader in broadband platforms, connectivity, enterprise and infrastructure. This team has extensive experience navigating through operator qualification hurdles and OEM design iterations to establish itself with proven solutions across broadband access technologies. I want to welcome the talented Intel Wi-Fi access teams to MaxLinear. Perhaps most importantly, the business is on the cusp of unlocking new growth opportunities in the form of Wi-Fi, which we have long sought as a critical missing strategic element in our portfolio. We believe that combining our analog mixed-signal design capabilities with the critical software and system investments Intel has made will enable us to bring to market compelling new next-generation Wi-Fi 6 and 6-plus solutions, addressing a critical operator challenge while adding significant dollar content to our platform. Even prior to our road map enhancements, this Wi-Fi asset has won significant design wins that are just starting to come to market. We expect Wi-Fi to be the catalyst for growth for the overall business. Financially, this acquisition significantly increases our revenue scale and is immediately accretive to free cash flow and non-GAAP earnings. Importantly, this acquisition significantly furthers MaxLinear's stated goal of increased revenue scale while enhancing the value of our analog and mixed-signal footprint on existing Tier 1 customer platforms. Our track record for executing on M&A integration gives us confidence in our belief that both financially and strategically, the acquisition of Intel's Wi-Fi and broadband business will prove to be a very compelling transaction, creating significant value for our shareholders, customers and employees. While we are adding significant scale to our business, this particular asset has some characteristics of a tuck-in in the sense that we are quite familiar with the technology ecosystem and the Intel team, with whom we have spent more than a decade partnering in the cable market. Turning to Slide 5. We estimate that this acquisition will more than double our SAM or served addressable market, with an incremental $4.3 billion market opportunity for the business in 2019, and we estimate that the SAM will grow at a low double-digit rate over the next 4 years. With the Intel asset, we'll be able to meaningfully expand our ownership and autonomy within our existing platforms. Also in the future, by combining Intel's digital back-end and software strengths with MaxLinear's competencies in CMOS-based RF mixed-signal DSP integration, we will be able to further integrate to develop unique platform level solutions. This will enable us to deliver the lowest power, highest performance and lower system cost platform solutions for our customers. It will also enable us to deliver more complete and competitive solutions with higher levels of digital functionality, complementing our analog RF CMOS mixed-signal and DSP-based digital transceiver SoCs. The resulting increase in our dollar content in each of our customer platforms will enable us to deepen our OEM and operate partnerships and drive future growth. Turning to Slide 6. Our businesses are strongly aligned with respect to end markets, customers and sales channels. With respect to products, Intel brings a diverse portfolio of gateway, Wi-Fi and component solutions serving the cable, fiber, fixed wireless access, enterprise and retail markets. Historically, cable gateway products have comprised more than 50% of the business, and this is where MaxLinear is a strong partner on Intel's reference platforms. At the same time, MaxLinear has direct relationships with all the key OEMs and operate their partners in this market. Wi-Fi is ubiquitously present across not only most of cable markets, but also opens up opportunities across the much broader market, which presents a significant, highly strategic growth driver for us going forward. In summary, we believe the complementary nature of this acquisition creates a significantly expanded SAM, increases our revenue scale and should be immediately accretive to non-GAAP EPS and free cash flow generation. With that, let me turn the call back over to Steve for a few more financial and strategic comments.

Thanks, Kishore. We'll give you some color on financial aspects of the acquisition on Slide 7. We expect that Intel asset revenue contribution to be in the range of $60 million to $70 million per quarter in the first full quarter post closing. There are tremendous amount of synergies between the 2 organizations and we look forward to realizing these synergies to drive the financial efficiencies to improve profitability of this business. The size and scale should enable us to see tremendous benefits and the cost of goods sold for the target, and in some cases, the MaxLinear side of the business as well. We are very focused on growing the business while focusing on sustainable products with higher gross margins. MaxLinear has been extremely disciplined in its effort to realize the value out of its portfolio, demonstrating great gross margins since its inception. We expect to reduce overhead support required to run this business and improve margins through cost reductions. We also expect to consolidate existing resources into a combined structure, given significant overlap from the suppliers and vendors. We are confident that the acquisition will be accretive to our operating margins within the first 12 months post closing, and we have confidence in our prospects for overachieving relative to our internal synergy projections based on our extensive acquisition track record dating back to 2014. We expect the transaction to close during Q3 2020, subject to customary closing conditions and regulatory approvals. Lastly, today, we revised our Q1 2020 guidance due primarily to the coronavirus situation. We now expect revenue in the first quarter to be in the range of $61.75 million to $62.25 million. While we are navigating an extremely challenging and uncertain demand environment, there are positive signs in the market as well based on needs in the data center market and 5G infrastructure builds and renewed need for broadband in the home. We remain focused on executing on our new product road map in the infrastructure market, and our portfolio and prospects remain strong in the data center and wireless markets. In summary, we see this transaction as financially and strategically very compelling in its ability to create significant shareholder value. This concludes our prepared remarks. We'll now open the call for questions. Operator?

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

Congratulations on the deal and the accretive nature of the transaction. Just wanted to ask on the Wi-Fi side because that seems like it's driving most of the expected growth going forward. You mentioned a number of design wins that are just beginning to ramp. And wondering if you might be able to provide more detail, how broad are those design wins? Is it with 1 or 2 service providers? Is it broader than that? Is it geographically focused? Just hoping you might be able to provide any more detail? And then I've got a couple of follow-ups.

So thank you, Quinn. Obviously, you're familiar with their presence in the cable broadband market. So there, we have partnered. So you're familiar with all the operators in the Asian, North American, European and Latin America and South American markets. So there are multiple designs that are being -- design wins and ramps expected as these platforms turn over to the higher performance Wi-Fi. And the Intel connected home division secured design wins at many of the major operators in the cable market. Beyond that, there have been significant investments in the fiber 10-gigabit PON markets. And those are primarily focused on the Tier 1 operators in Europe and North America. And there are significant lead design wins that hopefully start ramping sometime towards the end of this year or towards the beginning of next year. Given the coronavirus situation, we have to take a cautious approach, but this is one of the most premium platforms that the Intel connected home division has in its assets. It's a complete BOM platform where the entire system is owned, including the Wi-Fi, the Ethernet and the gateway platform and all the processing associated with it. So it's really the years of R&D investments from the Intel team has led to this position. And given our partnerships, we are very thrilled that we have been given this opportunity to not only acquire the customer relationships that we share, but also the world-class team that comes with it. So we're really super excited about it. And Wi-Fi is the underpinning of these. In the cable market, the BOM expansion comes from really the Wi-Fi design wins that have happened with where we have full visibility on it. On the fiber platform, the 10G PON offering is -- has been in the world for the last couple of years. And now it's at the brink of ramping. And with that, we would get the Wi-Fi growth. Beyond that, there are some retail platforms where the design wins are known. They're major retail players in the access point markets. And those design wins also have been secured. So there are a number of platforms across the operator and the retail on the access point side, that will be ramping into the next 12 months. So that will be a significant growth driver in these markets. Now remember that this is beyond just the -- beyond the broadband access market itself. Wi-Fi is ubiquitous in any broadband access beyond the wireline with its coax or fiber. Broadband is a significant part of 5Gs and the densification of networks in the 5Gs. Wi-Fi is going to be a significant part of that rollout in terms of the network densification. And so is the case with the increasing broadband demand in enterprises, and even inside the home, Wi-Fi is going to be a major player. And combined with a comprehensive offering and connectivity with the Wi-Fi, our own power line and offering with G.hn and as well as the MoCA offering, we will be the most comprehensive offering of multigigabit connectivity solutions inside the home as well, which is -- which then leads to a portfolio that takes us towards the Internet of Things. There's a lot of exciting things, but for now, we need to stay focused on the integration and making sure that we bring this asset intact, especially the people who have developed the entire technology and with our friends and make sure that once we have secured all the promises we have made to our investors and to our employees, we can move forward with more detailed description of our markets.

Great. And then just a follow-up. You sort of touched on the higher dollar content as you bring in the cable modem, the PON or the WiFi. But just, I guess, maybe on the cable side, since I think most of us are familiar with your position in the radios going into cable platforms. Can you talk about what's the dollar opportunity per gateway if you sell both the front-end and the back-end cable modem chip plus the Wi-Fi 6. I mean is that something that takes you into the $20 to $30 of content per gateway? Could it be higher than that?

It's very, very hard to really quantify that. I think it's pure guesswork at this stage. And it varies from platforms. There are multiple grades of SKUs and platform. They are simple cable mode EMTAs. There are fiber offerings that are the mid-end to mid-end and then there's fiber offerings on the high end. And the Wi-Fi is a multi-SKU capabilities all the way from 2x2, 4x4 and 8x8. So there's a lot of flavor there as well. So I'm not yet competent enough to really understand where the average price is at this point.

Understood. And then lastly for Steve. Can you just talk to us about the governmental approvals you'll need before closing the transaction? Is it -- do you need U.S. approval, China approval, any other geography approvals?

Yes. So it's actually pretty modest. We just need HSR approval in the U.S. and we don't see any problems with that, but that should be a pretty quick turnaround. But then we also have work council approvals that we expect to see in a reasonable amount of time. So hopefully, we'll get this thing done in Q3.

The next question is from Gary Mobley of Wells Fargo.

Let me also extend my congratulations on the acquisition. It looks like a really nice acquisition and a solid fit. I wanted to start out by asking about your gross leverage assumption. I think you mentioned 2x gross leverage assumption. And I'm assuming the denominator there is the adjusted EBITDA? Is that right?

Correct.

Okay. And so that indicates, what, $174 million in combined adjusted EBITDA. Is that on a next 12-month basis post-acquisition close?

These are trailing numbers, Gary.

Okay. All right. So I'm assuming this business is somewhat stable with respect to top line, just maybe -- or at least trending in line with the overall market?

Look, Gary, that's a very difficult statement to make in this pandemic environment. I mean clearly, you have seen our own forecast in these markets very fluctuating dramatically. So I would not want to call anything stable in this environment. The design is very stable for sure. Market shares are stable. However, the quantity of the volume is highly volatile. Let's put it that way. And purely driven by the environment we are in right now worldwide, right? So I would love stable, but our design wins are absolutely stable. And the other point I want to make is that this is the first time we'll have stickiness in the platform going to the enormous software and systems investment that are so customized and specialized for a broad platform level offering, and that stickiness is what creates enormous stability, the competency and the IP that goes into -- that went into developing that stuff.

Got you. Okay. This is obviously a 2-horse race in the broadband CPE market. So could you give us some sort of update with respect to where you'll stack up against your other main competitor, both on the RF side and as well with this Puma SoC?

I think our platform has always been superior in performance on the RF side and on the SoC side, and there's been never been dispute about it. The process or technology capabilities that this asset brings are second to none. In fact, a far distant #1 offering, the challenge has always been not having our own Wi-Fi offering the platform historically. And Intel has made significant investment. It's been a 10-year effort. And Intel took a very, very wise step of leapfrogging to the next-generation technologies. As a result, they were the one of the first 2 players to have a Wi-Fi 6 ready even relative to our competitors in terms of a working product. It was the first retail product. And so proven, it is one of the 3 reference platforms to be certified again in the certification body. And so I would say that with the Wi-Fi now firmly in place, it is a second to none platform. And then I think the goal moving forward is how to make -- bring our RF mixed-signal and Intel's digital baseband technologies to create much more SKU and COGS efficiency, where it's multiple packages being reduced to a single package, the testing efficiencies and so on to improving gross margins. While we have been partners, clearly, there are disadvantages of discrete offerings at the front end and the back end from Intel, right? So now we get the chance to put both the pieces together. And that's what will make it even more compelling relative to competition. And the other thing I want to point out is that our competition doesn't have any power management offerings, right? I mean -- and we have been investing significantly through our Exar acquisition in power management. So if we just fast forward to the next layer, next-generation design win opportunities, power is going to be a huge part of it. And that would create also a pretty meaningful expansion in the BOM content in the platform, not just the 2.5 gigabit Ethernet PHY and controller MAC technologies.

The next question is from Ross Seymore of Deutsche Bank.

Congrats on the deal as well. Just wanted to an idea, not in the near term. I know the pandemic makes near-term forecast very difficult. But Kishore, you talked about -- or I think Steve did a low double-digit SAM growth with this. Is that the benchmark that we should look at, this kind of $65 million a quarter run rate growing? Or are there dynamics where you think it would grow faster or slower than that kind of SAM projection over the mid and long term?

Yes. So we didn't talk about the SAM growth, and a lot of that underlying growth is around Wi-Fi and Ethernet. And that's really the exciting part of this. There are certain portions of the assets that are more mature products, legacy products that are lower growth. So I think as you think about the entire asset, it's probably mid-single digits, but over the next 3 to 4 years. With -- as Wi-Fi kind of grows into its size and scale as these design wins start to ramp up, then that, along with the Ethernet piece, create significant opportunities, and hopefully, we can get up to that double-digit rate.

And then I know you talked about getting to operating margin accretion within 12 months. But how do you guys attack the gross margin side? I would assume, as in most of these businesses, the gross margin is dilutive initially. But just talk about any sort of level that it's operating at? And then what are the steps you guys can take to get efficiencies on that line of the income statement?

Yes. So Ross, you're exactly right. We do see -- I mean the gross margin is a big focus for us right now, and it's a focus in every angle, whether it be the size of the business, the focus of the business, what business we're taking as well as the cost structure in COGS as well. That's where we think that we can realize some benefits on both sides. As we move forward together, I think we can realize some efficiencies on that front. But we do see a path to getting it north of 60%. But I think it will take a little bit of time, and it will be dilutive, probably out of the gate. But one of the unique aspects of this transaction is that it is an asset purchase, and so we're able to carve up the pieces that we need to move forward with this. And so a lot of these savings or -- I'll call them savings, but they're really -- the cost structure that we inherit on day 1 enable us to make some meaningful improvements in the gross margins out of the gate.

And also this being an asset purchase, right? They need some level of selectivity on the assets we are acquiring here. So that also helps us out of the gate.

Got it. And my last question, just -- I know that times are very uncertain, but you also pre-announced where your inventories were. Kishore, can you just give a little bit of update on what you're seeing in the market as a whole right now for your existing business? Do you talk about some supply constraints and limitations, et cetera? Any sort of just general update. I doubt you're going to comment on 2Q, but what's going on as you see it at the end of 1Q and maybe early 2Q as far as just the landscape as a whole?

I think in the early part of Q1, we had challenges with the supply chain as China was a prelude to what we are going through in the U.S., right? So -- and China is now back. The supply chain is working. I would say luckily, despite all the efforts we have taken in the past being very deliberate. Luckily for us, the -- our supply chain is naturally fully recovered. And what has been is really matching the demand side to the supply side rather than on the timing of it. But we feel pretty good that in -- at this point, if you were ask me this question about our supply chain right now, it's very robust right now and we see some very good places. For example, we feel that the broadband access in the home demand is looking pretty healthy. And actually it's been better than what it's been in the last couple of quarters. I would definitely say that I still want to hold reservation there. So I think that just being a -- everybody wants broadband at home, right? And so the demand is pretty high. And you know that the streaming companies are trying to deliberately reduce the resolution on the video content that you are seeing. So I think it should help us, though, I don't want to say how much it's going to help us. But on the other hand, there are some of the places where things look a little anemic. So I think in balance, we feel cautiously positive in the new normal world right now. So I wouldn't worry about supply chains looking into Q2. It was really a Q1 event. On the other hand, the demand environment in certain aspects of business is looking quite healthy and actually positive on the broadband side. So it's a mixed bag. So it is what it is, right?

The next question is from Suji Silva of ROTH Capital.

Congratulations on the deal here. Can you talk about the Wi-Fi competitive landscape in the access business and whether you'd envision selling those products, point products outside of the Intel SoC or whether it would be kind of kitted and that's how the landscape would cleave?

So it's a mixed bag, right? On the cable platforms, there is no need for any external process from any one. In fact, the SoC that comes on the connected gateway platforms is probably the world's most capable processor. It can process more bits than the Wi-Fi can spit out even at 10 gigabits, right? So that's pretty good. And so there, we sell it that way. There's retail markets where we sell it as a stand-alone Wi-Fi, with Ethernet and stuff like that, so it's a mixed bag. It depends on the situation. Is it a dedicated apps processor? No, but that will be a very simple benefit of -- from the -- from this really wonderful massively capable SoC that comes in this asset. So I'm pretty excited about the technologies, whether it's Ethernet capabilities inside, network processing or even like Ethernet switch capabilities, but these category of products that have ubiquitous application, whether it's in our 5G infrastructure, transport markets, 5G infrastructure, ODU/IDU markets in backhaul and wireless and millimeter wave, it's going to have applications across the board in sort of the capabilities we'll bring to bear.

Okay. That's very helpful. And Kishore, can you talk about the software intensity of the team you're acquiring? And Wi-Fi is a very big software stack investment versus your team software investment, is it -- is there overlap? Is it a more software intensive business? Is that the kind of intention to build more of a systems business overall?

If you really look at the size of the team, well, we have a pure-play Wi-Fi company only a year ago, Quantenna, and the size of the team is in that range. Obviously, the software team will be a little bit bigger, given the fact that there's also an SOC platform. And you'll do a lot more -- the entire platform has to work to the not just the Wi-Fi stand-alone. And everything has to work seamlessly, and obviously, the software team is in the size of what you saw in Quantenna. So you can assume that to be anywhere between, I don't know, right now, offhand, around 200 to 250 range of people who are in the ballpark of doing software work. Please don't forget that we have our own software team that does the connectivity side. And that has all got the similar capabilities. So it's really a consolidated capability of connectivity assets on the software and system side.

Okay. That's very helpful. Last question on the outlook itself. The -- any update on the data center or 5G wireless infrastructure timing? I know it's very difficult visibility-wise, particularly the large data center customer for the 2Q if that's on track.

Our designing process is on track, and people are doing some really, really interesting creative things in terms of working remotely or in their home garages to test things and things like that. It's a very interesting time. It is a wonderfully creative time of remote working. So those are going well. Obviously, it would be a stretch of imagination to say that the end customer is on track, given that it's a soak-in test on the optical data center for the 400-gigabit case. But I want to share with you that we are having a phenomenal traction on the 100 gigabit per single lambda, dedicate 100 gigabit of PAM4 design wins. We're having great traction across China and the U.S. and in the 400-gigabit side, of course, there's only one data center company that is going to be ramping, and we are going to be one of the suppliers, and that's going very well as well. But remember that there's a deep -- this is a little bit one layer supply chain, which is MaxLinear supplies to an optical PMD company and optical PMD company which sells to the end data center company. And this end data center company clearly is the pioneer and the leader in driving much more network bandwidth, given they're the #1 player in the cloud operations, right? So yes, actually, we're very, quite excited. I'm more excited today about the designing process than I was in the last call and the timing of, unfortunately, we did not -- we could not predict what the impact of this coronavirus is going to be.

The next question is from Christopher Rolland of Susquehanna International Group.

Congrats on the deal. So this, I think, could go 1 of 2 ways from your customers' perspective. They might be excited because Broadcom has packaged a lot of this together, had bundled it, probably adverse pricing, and you guys could benefit there as a holistic provider. But on the other side, you're subscale when compared to Broadcom. So I guess, first of all, have you talked to your customers about this collaboration? And what has the feedback been thus far?

So Chris, on your musings about our competitors and the adverse pricing and so on and so forth, I'm not in a position to comment. I believe markets are efficient, and the prices are the prices, right? Obviously, our customers are great -- are highly supportive of this deal. Intel is a very -- a great corporate citizen. They want to make sure their customers are well taken care of and supported. And frankly, that's the reason they did this deal with us, right, is that we have been partners, they have tested us as a partner, their customers and our customers, joint customers are familiar with who we are. They collaborate over 15 years. Absolutely, they received this very positively. And regarding the scale thing, scale is a very strong statement. Don't confuse revenues with scale because you have to figure out where the money goes in what market. These are very, very dedicated market. And we will have absolutely the same scale they have on technology platforms or better on if you combine fiber and cable and those products and the platform. And we'll bring power management to bear as well. So I feel that scale -- we have not had a disadvantage with scale even before when we worked on the cable side because Intel connected home division operated quite independently. And so the revenue scale company is the combination of the teams and what we can put together in terms of future road maps and synergies on the technology.

Got it. And then probably, if you look at this business now, it's somewhere around breakeven, would be my guess. And you guys probably have a pretty aggressive plan to move that op margin significantly higher more towards your company average. I guess looking at this from an R&D perspective, where I think you're going to get most of this, can you talk to us about the work that needs to be done here? First of all, is this an x86 core? Or do you have to migrate this to ARM or not? Or is it other widely available DSPs? I'm not quite sure there. And are there some other kind of tuck-in technologies that you're either going to have to license or develop around that to get the full platform that you want, something that maybe wasn't included in the deal?

So Chris, one of the great positives of this deal was Intel really made a wholehearted effort to make us hold some in not needing any additional things that we have to acquire or invest in because we are to get out of something, right? They make sure that we have a long road map with access to all the technologies that will be required. So there is no such anxiety at all. We feel very comfortable that we don't invest in new technologies. The portfolio comes with all the processor capabilities that we need, and so the next generation of products will be continuations and revisions rather than brand-new overhauls. And so the other hand, there are regular issues that are related to transfer where third-party IPs -- other companies' IPs are involved from other silicon vendors, let say, the CAD vendors or those kinds of companies. We have to acquire our own permission from them directly to be able to operate the business. What I mean by that, for example, we use EDA design tools for one of the vendors, and we all -- and we need to get their permission to use the tools. But fortunately, these are already suppliers to us. So we feel very comfortable that that won't be too much of a difficult process.

Okay. And so this is not an x86 core in there that you have to migrate to ARM? And then just following up on that. As I look to you guys getting to, let's say, a company op margin, how do I think about this? How much is coming from the R&D side? How much is coming from the COGS side on manufacturing? Is that significant for you guys as well?

Yes, Chris. Yes, I could speak to that. So we talk a little bit about the gross margin seeing the path that gets us north of 60%. We definitely don't start there out of the gate, but there's significant improvements that can be made very quickly to get to that number within, say, 12 months. On the OpEx side and your comment around R&D and just operating margins, in general, you're right. I mean we do see a path to get this well north of our existing operating margins. And part of that comes with the OpEx. Some of that comes through the structure itself from the standpoint that we can realize a lot of synergies between the 2 businesses from the standpoint that we can leverage our sales and marketing efforts, our R&D efforts there. Kishore has spoken a few times today about the leverage that we get even from our existing software capability. So the consolidated effort will enable us to get this north of our existing operating margins.

Got it. And just on the x86 part?

So you have to remember that the connected home group was built over a series of acquisitions in Intel. So I do not know if I can speak for any of this thing, but -- and those companies were not Atom-based, right? So the products that are shipping in revenues are spread over almost all the processes you can think in the world, right? So to the extent that the x86 involved and the products are shipping with that, we have ensured that we have a go-forward plan that Intel is absolutely supportive of it. So I think I will leave it there, okay?

Next question is from Bill Peterson of JPMorgan.

Yes. Congrats on this deal. I guess first question is, if you think about the timing of this, in terms of why now, obviously, it's understood that you together compete with Broadcom. But was there any issues on market share here in the near-term that wanted you to, I guess, take on this asset to have more, I guess, you provide more direction for the long-term combined entity as opposed to always being sort of not -- I don't say reliant, but always just having the partnership with Intel, you can comment on that?

So Bill, I'm not sure exactly your question, but I mean with regard to the timing, we have continued to be very committed to growing our infrastructure business. That's where we've been investing to really diversify the company into more infrastructure data center, 5G efforts, and we're just seeing those start to come to fruition. On the -- we've also been -- we've had tons of resolve around connected home and committed. We've never shied away from our interest in continuing to grow in that market. We've got great market share. This combination allows us really the ability to bring more of a solution to that existing customer base today. And the unique piece here is it brings the Wi-Fi, right? And so by bringing Wi-Fi, that's where the value proposition is, along with some of the Ethernet capabilities that come also gets that connected home group backed up into a higher growth rate going forward.

Okay. So no issues on the near-term in terms of just your own share as it relates to the market. That's kind of always getting that just obviously your business has been coming down...

Yes. Yes. But there's not been a -- when we talk about market share, I mean the challenge that we've -- I mean we've seen a fair amount of challenges over the last 12 to 18 months. Now they're somewhat unique, right? I mean you had a DOCSIS 3.1 ramp that our customer didn't get qualified early on. And so that was part of the dynamic. But then last year, you saw operator spend come down altogether. I think what you've heard from us, even over the last, say, 1.5 quarters, is our commitment on the market share. Market share has been very good. We've not seen us lose any market share. In fact, we've seen the operators really committed to 2 silicon providers here. And that's why I think we're excited about this, and we want to continue to show them that road map and our commitment to this space.

And I also remarked in the earlier part of this session that we are seeing some positives. As we look forward to, we are seeing an uptick in our demand for our broadband products. And you can imagine that that would be true for this asset because we are coupled on the front. So it's really, it's more a positive view rather than that things are probably picking up and some trend reversals on the broadband side. The only reason for the caution is because this corona environment sort of gives you, like, is there a pattern here, right? But clearly, the demand inside the home for people to use broadband and cable is the #1 player in the U.S. that's clearly showing some help, some good help. So we feel that there is no risk to our market share. Market share has always been stable and cable will get back to, over time, to what it was 2 years ago.

Okay. Okay. That's understood. I guess when we look out now a few years, Intel themselves have talked about full duplex. I was hoping you can give us an update on that. And what could this combined entity do to accelerate this or solidify your share? If you can comment on those opportunities as well.

There is one particular case where MaxLinear -- MaxLinear was also investing on the full duplex platform on the project basis and Intel was too, coming at it from a different angle. And so you can see now where sort of project-level synergies are automatic, right? So both parties are pretty strong, full duplex, DSP technologies, but Intel brings with the whole processor capability in terms of the system positioning. And so I think we're in a very, very good position. But I want to tell you that the cable rollout of the DOCSIS 4.0, the standard is just barely being finalized. And then I don't believe it's going to happen any time in the next 2 years from a revenue perspective. So I think we need to focus on DOCSIS 3.1 deploying worldwide in a bigger share and in a bigger way, and that's just beginning to happen.

Yes. I understand. Okay. My last question: I guess when we think about Wi-Fi, how does the combined entity really compete in this space? And we have Broadcom, there's Cypress, NXP, I guess, on with the Quantenna assets. A lot of these players, especially just have really strong positions. What does the Intel team bring uniquely to the table with Wi-Fi 6 in order to compete?

Bill, the players you named are totally very, very different market. They all credible companies, but there's a hodgepodge target markets, you mentioned, right? If you look at the cable platform, there are only 2 players that matter, right, until recently, one was -- one is a Broadcom platform with their Wi-Fi. And on the Intel platform, there was the Quantenna solution at that time. But we all know that at least we feel that in the next -- the platforms that are going to ramp, the Intel Wi-Fi is already designed in. So I think that -- so therefore, I give you the context how it's playing out there, right? So on the access point caliber side, the Cypress offering is not at all valid. That's really a retail IoT-type offering, low end, I would call it, and cost-optimized for those markets. And so that leaves really on the high-end caliber side, there are 3 players, right? One is Broadcom, one is -- one will be the MaxLinear-Intel connected home combination, and Qualcomm. We shouldn't forget that. But the Qualcomm offering is not in the CPE side of the market because on these platforms, you need to have also the access side as an intimate offering with the Wi-Fi. And so in the platforms and markets we are in as a combined entity, in the broadband side, there are really 2 platform offerings. One is the Broadcom platform, and the other one would be the MaxLinear-Intel platform.

Sir, there are no additional questions at this time. I'd like to turn the call back over to Kishore for closing remarks.

Well, thank you very much for joining us today and for your questions. We feel really excited about this combination acquisition that we're able to announce today. We are very confident in our plan to integrate our businesses and unlock the tremendous value, creating really great opportunities for employees, customers and stakeholders with a financially stronger, more competitive enterprise. With that, I want to tell our Intel connected home employees that we really want to welcome to the MaxLinear team, and we're very excited to work together even more closer than before. Thank you very much once again.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.