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Quantenna Communications, Inc.  (NASDAQ:QTNA)
Q4 2018 Earnings Conference Call
Feb. 04, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good afternoon. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Quantenna Communications Fourth Quarter and Full Year 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the call over to Vern Essi, Director of Investor Relations and Strategic Finance for Quantenna Communications. Please go ahead.

Vernon Essi -- Director, Investor Relations and Strategic Finance

Thank you, Felicia. And welcome everyone to our fourth quarter of fiscal year 2018 earnings conference call. With me today are Dr. Sam Heidari, Chairman and Chief Executive Officer; and Sean Sobers, Chief Financial Officer.

Webcast of this call can be accessed through our website quantenna.com, and will be archived for 90 days. Also, a replay will be available by dialing 800-585-8367 and referencing conference ID number 5966507 shortly after the conclusion of today's call. A copy of today's press release dated February 4, 2019, for the quarter and fiscal year ended December 30, 2018 and related financial tables can be found on the Investor Relations portion of Quantenna's website.

During the course of this conference call, we will make forward-looking statements, including those relating to our preliminary financial results for the fourth quarter and fiscal year 2018 ended December 30, 2018, financial outlook for the first quarter of fiscal year 2019 and beyond; our strategy, future business, and financial performance, our product development and technology, customer relationships and market opportunities, all of which are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, including our Form 10-K filed on February 28, 2018 and subsequent Form 10-Q filings.

These risks and uncertainties may cause actual results to differ materially from those anticipated by these statements. The forward-looking statements made on this call apply only as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call.

Also, please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We've provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings press release.

Before we start our prepared comments, I want to call your attention to our supplementary financial commentary and supplementary earnings presentation, both of which were included in our 8-K filing today and are available in the Download Library section of our Investor Relations website at quantenna.com.

Since we are providing the financial commentary with trended financials, Sean's remarks will be abbreviated, and certain metrics not discussed in today's call, including historical comparisons in GAAP to non-GAAP measures, will appear in these supplementary materials. The financial commentary and earnings presentation should be referenced in conjunction with both today's conference call remarks and the earnings press release issued today.

On our call today, Sam will discuss Quantenna's record-setting financial and customer highlights from the fourth quarter. This will be followed by Sean with a financial overview and guidance. Sam will then conclude our prepared remarks with a discussion of our new Qdock software platform and our Wi-Fi 6 opportunity going forward. We'll then open up the call for question-and-answer.

To accompany other earnings call scheduled today and allow each participant to have an opportunity to ask questions, we request that you limit yourself to one question and one follow-up question during Q&A. If you have more questions, please go back into the queue.

Before I turn the call over to Sam, I'd like to announce the investor conferences that we will be participating in during the first quarter. These include the Morgan Stanley Technology, Media and Telecom Conference on February 25th in San Francisco and ROTH Capital's 31st Annual Conference on March 18th in Orange County , California.

Now, I will turn the call over to Sam.

Sam?

Sam Heidari -- Chairman and Chief Executive Officer

Thank you, Vern. Good afternoon, everyone. We appreciate your interest and support and thanks for joining us today.

We are pleased to report record revenue and earnings for both the fourth quarter and 2018. During the quarter, we demonstrated the success of our new product initiatives and delivered major customer milestones that positions us very well for Wi-Fi 6 transition and continued financial performance.

I'm excited to share these developments. But first, let's briefly review our Q4 and full year financial results Quantenna posted record revenue of $63 million in the fourth quarter, representing 52% annual growth compared to the fourth quarter of 2017. Our non-GAAP EPS was also a record at $0.19.

This marks our 10th consecutive quarter of profitability on a non-GAAP basis. The full year also demonstrated record revenue in the earnings. For 2018, we grew revenue 25% to a record $220 million and grew non-GAAP EPS to a record $0.51.

Turning to our customer activities. Looking at Wave 2, I have discussed in the past that our Wave 2 products have long life cycles. We continue to expand our customer wins, as this technology once targeting the premium highest performance applications is now penetrating today's mainstream opportunities. Since the last call, we announced design wins we carried (ph) in new geographies such as Russia and Malaysia.

We also delivered new applications to existing customers such as Proximus in Belgian. On the application side, we announced a Spartan design win and we look forward to more tractions with the Spartan in 2019. Going forward, we expect to capture even more wins with Wave 2 customers. Furthermore, we view existing Wave 2 designs as a springboard for new wins in the Wi-Fi 6 upgrade cycle, which I will discuss later in the call.

Turning to Wave 3. We commenced shipments to Deutsche Telekom of our full feature 12 mainstream solution into their Gateway product, and we're looking forward to growing our relationship with them in 2019. We are partnering with Starry on an 8x8 Wi-Fi 6-based (ph) technology to enable ultra-fast connectivity to fixed wireless broadband.

Our Wi-Fi technology enables simple and differentiated designs for a variety of other applications. This breakthrough design win further strengthens our positioning with fixed wireless broadband customers, targeting emerging markets and enterprise, as well as upcoming 5G infrastructure applications.

Finally, we are very excited to publicly discuss that Telefonica, a leading global provider has selected us as their strategic partner for their Wi-Fi 6 portfolio of products. Our partnership with Telefonica extents back to the introduction of our original leading edge 11ac products. They have been a great customer and a partner for innovation, including software efforts in mesh and cloud, as well as our silicon solutions in multiple generations of repeaters, gateways and set-top boxes. We have built upon our initial 11ac design win into a portfolio of feature-rich products for Telefonica, and we look forward to our future success together.

Later in the call, I will discuss our Wi-Fi 6 developments and opportunities to bring to Quantenna when the upgrade cycle starts to kick off in late 2019.

But for now, I would like to turn the call over to Sean to discuss our financial results in further detail. Sean ?

Sean Sobers -- Chief Financial Officer

Thanks, Sam. And good afternoon, everyone. As Vernon previously stated, our financial commentary should be referenced in conjunction with both my remarks and the earnings press release issued today.

We reported record revenue of $62.6 million in the fourth quarter. This represents 52% growth over the fourth quarter of last year and 5% sequentially. The sequential growth was driven primarily by the increased deployment of our Wave 3 10G products.

Our 2018 revenue was a record $220.5 million compared to 2017 of $176.4 million. This represents 25% year-over-year growth. Our fourth quarter non-GAAP gross margin was 50.1%, and increased 30 basis points sequentially. This increase was despite the fact that our Wave 3 10G revenue grew 9% over the third quarter. Keep in mind that our 10G revenue carries a lower, though (ph) improving gross margin than our corporate average.

Our 2018 non-GAAP gross margin was 49.7% compared to 50.1% in 2017. The slight decline year-over-year was due to a mix shift reflecting material growth in our Wave 3 10G revenue, which grew 374% annually over 2017. As we have noted on our previous earnings calls, our gross margin is typically impacted by product mix.

Our fourth quarter non-GAAP operating expenses increased 6% sequentially, primarily due to R&D related project spend in the quarter and to a lesser extent, increased headcount and related compensation. Non-GAAP operating expenses were 38% of sales in the fourth quarter, sequentially flat on a percentage basis.

As a result, our operating income was $7 million in the fourth quarter, representing 12% of revenue. Our 2018 non-GAAP operating income was $20 million or 9% of revenue, compared to $10 million in 2017% or 6% of revenue. In the fourth quarter, we generated $5 million in cash from operations or $0.13 per diluted share.

For 2018, we generated a record $25 million in cash from operations, or $0.63 per diluted share. This compares to $7 million or $0.17 in 2017. This cash generation resulted from executing toward our target model of the company as we scale. Fourth quarter GAAP taxes were $2.1 million and non-GAAP taxes were $247,000 .

Our fully diluted non-GAAP EPS, which excludes stock-based compensation and changes in deferred tax balances was $0.19 for the fourth quarter compared to $0.17 for the third quarter and $0.01 for the fourth quarter of 2017. Our fully diluted non-GAAP EPS for 2018 was $0.51, an annual record and almost doubled our 2017 non-GAAP EPS of $0.26.

Turning to the balance sheet. We closed the year with $136 million in cash, cash equivalents and investments. This translates to $3.40 per share on a fully diluted basis.

Accounts receivable ended at $28.3 million or 41 day sales outstanding. This compares to $20.1 million or 30 days in the third quarter. This increase in DSO was due to the timing of our billings and collections within the quarter. Inventory ended at $20.2 million or 6.2 annualized turns in the fourth quarter compared to $21.6 million or 5.5 annualized turns in the third quarter.

Now for discussion of revenue segmentation by Wi-Fi technology. Our legacy 802.11n revenue saw an increase of 58% sequentially in the fourth quarter, and a 49% decline year-over-year compared to the fourth quarter of 2017. We expect this product segment to decline on a sequential basis in Q1 in longer term.

Our 802.11ac Wave2 products grew 2% sequentially in the fourth quarter and 21% year-over-year compared to the fourth quarter of 2017. Our fourth quarter Wave 2 dollar shipments were at record levels. For the first quarter, we anticipate Wave 2 revenue will decline approximately $2 million on a sequential basis. Our Wave 3 10G revenue grew 9% sequentially to another record level. In Q1, we anticipate Wave 3 revenue will decline approximately $3 million on a sequential basis.

I will now cover our guidance for the first quarter of 2019 in more detail. As we have previously noted, the China tariff and global trade situation is expected to impact our near-term business. Additionally, as we scale as a semiconductor company, we are now experiencing signs of seasonality in the first quarter. However, we believe that the long-term demand of our customers and market have not fundamentally changed.

Taking all of this into consideration, we expect first quarter revenue to be between $56 million and $59 million. Given our current outlook for mix between our product segments, we anticipate our first quarter non-GAAP gross margins to be 50.5%, plus or minus 50 basis points.

In the first quarter, we expect operating expenses to be in the range of $23 million to $24 million, with no material sequential change in R&D and SG&A. We remind you that our R&D expenses will generally fluctuate quarter-to-quarter due to the timing of our R&D projects.

In the fourth quarter, we expect our non-GAAP tax amount to be approximately $300,000. Taking these factors into consideration for the first quarter, we anticipate a GAAP earnings per share of $0.02 to $0.04 and a non-GAAP earnings per share of $0.13 to $0.15. Please refer to our GAAP to non-GAAP business outlook reconciliation contained in our earnings release for more information.

To recap, we are excited about the interest we are seeing in our product portfolio, including the opportunities for the Wi-Fi 6 upgrade cycle. And we look forward to updating you on our future success.

I would now like to turn the call over to Sam for concluding remarks. Sam?

Sam Heidari -- Chairman and Chief Executive Officer

Thanks, Sean. To start, let me briefly discuss our formal introduction of Qdock at CES in January. Qdock is a software layer that resides on our silicon solutions. It enables an interface for third-party developers and partners to create new features on our Wi-Fi products.

The list of the third-party applications includes, motion detection, mesh networking, cloud management, security and authentication. By opening up the software layer, we are enabling a developer ecosystem for silicon and new innovative applications for customers. With the Wi-Fi's omnipresence, we are just scratching the surface of possibilities.

Now, let's discuss Wi-Fi 6. WiFi Alliance announced in January that Wi-Fi 6 certification is anticipated in Q3 of this year. We expect this to be a starting point to enable broader adoption of a standard commencing the upgrade cycle. We are excited to capitalize on Wi-Fi 6.

Let me share some details. First, we will have more opportunities for design wins. We are building momentum with our expanding design wins in Wi-Fi 6, including a marquee win with Telefonica. As a reference, back when 11ac standard was introduced, we were a smaller relatively unknown company. Since then, we have grown in size and reputation, and now are regularly invited to compete on just about every major service provider high performance design. Simply put, we believe we'll have many more opportunities to win designs in Wi-Fi 6 than any prior generation.

Second, we are expanding our market opportunities with broader product offerings. Our 10G-AX, coupled with our 5G-AX will be the first time we have multiple product families, ahead of the next Wi-Fi standard. This positions us well to capture increased share in both premium and high-performance mainstream market segments.

Third, a majority of our revenue is targeted to migrate from single band to dual band. This results in more dollar content per design. Keep in mind, all of our Wave 2 products are single-band and we have multiple upgrade options for Wi-Fi 6 using our dual band solutions.

Lastly, Wi-Fi 6 receives the premium ASP. The layer with more (inaudible) features, we expect a material increase in ASPs for Wi-Fi 6 solution. In addition, due to our elegant chip design, our solutions offer a reduced RBOM, which provides a cost saving for customers and results in a win-win.

So bottom line, we are excited about Wi-Fi 6 upgrade cycle and we are most-ready we have ever been for an upgrade cycle. To conclude today's comments, I want to reiterate that I'm very confident of Quantenna's product portfolio as we are targeting opportunities on the horizon. We have demonstrated a strong market penetration and expect to continue our success in the coming years.

Thank you for joining us today. I would like to turn the call over to Vern. Vern?

Vernon Essi -- Director, Investor Relations and Strategic Finance

This concludes our prepared remarks. We'd now like to open up the call for your questions. Felicia?

Questions and Answers:

Operator

At this time, the floor is open for your questions. (Operator Instructions)

Our first question comes from the line of Tore Svanberg with Stifel.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Yes. Thank you, and congratulations on the record results. First question, could you talk a little bit about the dynamics in Q1? You talked about Wave 3 being down $3 million. Is that kind of just like a pause or is it seasonality? So yeah, if you could just talk about the dynamics in Q1, that would be great.

Sean Sobers -- Chief Financial Officer

Hey, Tore. This is Sean. Yeah -- from -- the impact in Q1 is really coming from the tariff and the supply chain kind of shutdowns we talked about in our Q3 earnings call. So, nothing other than that. No pause as it relates to our service provider customers. We actually don't see any demand changes fundamentally from what they want and what they're working on us with. So, it's not related to the tariffs and the supply chain.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Very good. And as my follow-up. Sam, sounds like there's a little bit more credibility now toward Wi-Fi 6 being finally approved in Q3, as you said. But based on your conversations with customers, can you talk a little bit about how they see Wi-Fi 6, would they start deploying earlier, later? Any color there would be helpful. Thank you.

Sam Heidari -- Chairman and Chief Executive Officer

Thanks. I think that as we have mentioned before, the Wi-Fi 6, really the wide adaption is going to come about when there is a certification in place, which is targeted at Q3. And that's -- I think that's what's going to happen. I think that Wi-Fi Alliance making announcements, obviously, gives more credibility for that coming together.

There will be just like 11ac, there will be over a period of time design wins coming together. There is definitely activities today. People are looking at the Wi-Fi 6 solutions to be selected for deployment toward the end of 2019 to 2020. But this activities is not just limited today. They will go on into 2019 and 2020 just like 11ac did over many years. So depending which operator you're talking to and the early adopters versus the follow-ons.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Very helpful. Thank you.

Sam Heidari -- Chairman and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Joe Moore with Morgan Stanley.

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you.

Sam Heidari -- Chairman and Chief Executive Officer

Hi, Joe.

Joe Moore -- Morgan Stanley -- Analyst

Wondered if you could talk about the competitive dynamics around Wi-Fi 6 and what you're seeing there and how you differentiate from the competition?

Sam Heidari -- Chairman and Chief Executive Officer

Right. I think that there is -- nothing has changed fundamentally about Wi-Fi 6 than it was about 11ac or Wi-Fi 5, as they call it now. Basically, the better Wi-Fi is still going to be needed. I think that what Wi-Fi 6 is going to cause is a upgrade cycle because there are certain features, which are going to get into using Wi-Fi 6, which is going to bring benefits into the system.

But definitely, the differentiation such as, well, we have had (ph) 8x8 or other factors that we have built over time are going to carry over to Wi-Fi 6, and we are strongly confident that our differentiation gap will grow even as a function of time. We have built a lot of foundation in 11ac product and that whole thing is going to carry over as a differentiation into a Wi-Fi 6 solutions.

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you. And then with regards to the Q1, the tariff mitigation issue, I guess, as you look back at 2018, was there an inventory build because of that issue, where those numbers kind of too high? And just, qualitatively, any impact on kind of the way you think about full-year 2019 with that?

Sean Sobers -- Chief Financial Officer

No, that's fair. And from an inventory level perspective, we believe they are pretty consistent what we've seen historically. Maybe there was a little bit of ordering in Q4, as it related to the folks who were going to essentially shut down their lines. So, they were trying to wrap some things up and get through the customs and bring this up into the US. But overall, anything from an inventory perspective has already been taken and contemplated into our guidance. So, I don't think there's any more on that.

Joe Moore -- Morgan Stanley -- Analyst

Okay. Thank you very much.

Operator

Your next question comes from the line of Quinn Bolton with Needham & Company.

Quinn Bolton -- Needham & Company -- Analyst

Hey, guys. Congratulations on the results. Wanted just to follow up on Joe's question. If you look at the tariff and supply chain issues, obviously, you've talked about the impact on Q1. But do you see that sort of continuing to affect the business in Q2? And then I've got a follow up.

Sean Sobers -- Chief Financial Officer

Okay. Thanks, Quinn. This is Sean. I think it's pretty much the same thing we said, when we talked in Q3 on Q3 earnings is we think it will take up to about six months to resolve itself. And obviously, people will come on at certain periods of time. People have already moved their lines, so we're starting to see activity. But I think it's more of a first-half situation.

So, I don't think it's magically (ph) gone by the time Q1 is over. But again, overall, it's a temporary thing. So if you look at it, customers themselves, the demand for what they want hasn't changed. It's little bit on the supply chain side.

Quinn Bolton -- Needham & Company -- Analyst

Great. And then just, you mentioned you're starting to see -- as you become a bigger company, you are starting to see some seasonality in the business. I assume that's kind of a comment more around the Wave 2. But as we look out over 2019, is there any sort of specific seasonal pattern you should think we should model for that business? Or how should we be thinking about Wave 2 over the balance of 2019?

Sean Sobers -- Chief Financial Officer

Yeah -- no, I think if we look at seasonality and we get the question a lot. It's more of a Q1 thing and more, let's say, typical of semiconductor companies where it's a little lighter than in Q4, so nothing other than that. And it was fairly insignificant, but we just started to see a little bit better as we opened into Q1.

Quinn Bolton -- Needham & Company -- Analyst

And is that -- just maybe a final follow-up. Just to think about Q1 is probably the trough from a seasonal perspective and then sequential growth rate through the balance of the year?

Sean Sobers -- Chief Financial Officer

Yeah, that's logical.

Quinn Bolton -- Needham & Company -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Ross Seymore with Deutsche Bank.

Ross Seymore -- Deutsche Bank -- Analyst

Hi, guys. Not to beat a dead horse here but the story on the tariff side of things, is it just that the customers while they're in the middle of these moves are burning channel inventory? So, when you come out the other side, true demand will show itself and the inventory will normalize? Or I guess, going back to a prior question, did those customers actually front-run that dynamic by building up some buffer in the meantime ahead of making these moves?

Sean Sobers -- Chief Financial Officer

There's probably a little bit of both depending on who it is. So, I think it's going to be different depending on what service provider was, where they are in the rollout. I think it goes back to the scenario as we get through the first half of the year, it's a temporary thing. The demand from what we're seeing on the service provider side of the end hasn't changed. So, as we get through this, you'll see more normalization.

Ross Seymore -- Deutsche Bank -- Analyst

And I guess, a question on the margin side, two parts to it. You talked about OpEx having no unique aspects to it in the March quarter. Can you just talk about anything you know as far as any difference in normal linearity, timing, tape out, those sorts of things on the OpEx side throughout this year? And is there anything unique on the gross margin side that deferred from the mix-driven dynamics we've been used to with your company in the past, as you look at 2019 as a whole?

Sean Sobers -- Chief Financial Officer

Okay. So, on the OpEx side, I think that -- I think we may or may not mentioned that we had some Q4 activity related to R&D projects to a lesser extent in Q1. So, you're seeing us have a little bit of decline in overall OpEx in Q1.

And then from a gross margin perspective, I don't think there was anything unique there other than the fact that we're starting to see cost optimization, better structuring as it relates to pricing in our costs overall. And the mix helping us improve our overall gross margins and growing to get back to that 50% in gross margin mark.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. Thanks, guys.

Sean Sobers -- Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Blayne Curtis with Barclays.

Blayne Curtis -- Barclays -- Analyst

Hey, guys. Thanks for taking my question. Sorry, if it's repeating here, but I just wanted to understand the dynamics with the tariff. And it is the first time you are seeing seasonality in Wave 3. So, is there a way to quantify that? If you didn't have this potential disruption of the supply chain, would you have seen the seasonality in Wave 3 for the first time? And is there a way to kind of separate the two things out between -- in rough terms, the supply chain disruption and then tariffs, which may be a little bit more longer-lived if it destroys demand?

Sean Sobers -- Chief Financial Officer

Yeah. I think it's a little harder to separate the two out on 10G because it's a select set of customers, so you can see specifically what's going on. You can look in the supply chain. Very much what was happening in 10G was more focused on the production side being down versus seasonality. So, I don't think it's as much there. If I had to kind of take my guess, I think the majority of that -- upper percentages there would be related to the tariff and the supply chain side.

Blayne Curtis -- Barclays -- Analyst

Thanks. And then just, again, on Wave 3, if you could talk about the diversity you're seeing today and then, obviously, you have these wins as it extends in Wi-Fi 6, but you have your lead customer in syndicate. Is there way to kind of give us a perspective as to where that diversity is today beyond the lead customer in the syndicate and then where you see it going?

Sam Heidari -- Chairman and Chief Executive Officer

Yeah. So the ones that we can talk about publicly, and we have announced the Deutsche Telekom story and a portfolio of products, which Telefonica is doing. Even though it's around 11ax, we actually put all of those in pretty much related families because they are built on a same foundation. And as 11ax is rolling out, there are little reasons to deploy Wave 3. But definitely, there is a lot of good interest in that as well.

Besides that, there are other -- there are other design wins that we have not publicly announced and until we get the OK from our customers or the right time to make the announcements. But both of those, I've given a high-level perspective about it.

Blayne Curtis -- Barclays -- Analyst

Thanks, Sam.

Operator

Your next question comes from the line of Charlie Anderson with Dougherty & Company.

Charles Anderson -- Dougherty & Company -- Analyst

Yeah. Thanks for taking my questions and congrats on a real strong year. Just maybe to follow-up on Blayne's question on Wave 3. Kind of curious maybe just numerically, if you could talk about how many customers we are shipping -- you are shipping to service providers end of the year? And then sort of what are your expectations this year in terms of number of service providers taking Wave 3? And then I've got a follow-up.

Sean Sobers -- Chief Financial Officer

Yeah. I think we're all estimating here, staring at each other for a second. To be fair, I think it's about pretty close on the low end of double digits and these are guys that are yet -- these are guys that are up and in full swing of things, and these are guys that are coming up and these are guys that are getting also ready for 11ax as well. So, that's about -- thing about the 10.

Charles Anderson -- Dougherty & Company -- Analyst

Perfect. And then, Sam, you talked to -- I think you referenced 5G opportunities. I imagine there are some opportunities both on a gateway side, but then you would do a Starry kind of almost outdoor solutions. I wonder if maybe you could just expand on what you're seeing in terms of the 5G pipeline and then timing of some of those opportunities? Thanks.

Sam Heidari -- Chairman and Chief Executive Officer

Right. So as upgrade cycle comes along, if you look at our Wave 2 solutions today, we have multiple ways or options to go to 11ax, 10G being the high end of that and 5G would be one step below. But it's still above our competition, targeting the mainstream both in applications and pricing.

So, it's somewhat of a mix between the service providers, as we are looking at the design cycle coming along. Both of this is good for us because both of them are dual-band and are 11ax solutions, and with all the capabilities that we discussed about, the reduction of RBOM and more, it makes very attractive for our customers. So, it is a mix between the two.

What was the second? For 5G. Oh, 5G. I was going to say 5G-AX? All right. There is too many 5Gs here. So, they are just looking at me here. Anyway, the 5G infrastructure, OK. So the story is they are multiple, I mean, we did talk about multiple opportunities when 5G mobile gets rolled out.

And on that one, we have outdoors and then basically, broadband into the home using 5G, which is a great opportunity to have better Wi-Fi inside the home and a newer opportunity, which arises, with someone like a Starry is providing Wi-Fi over 5G frequencies to provide broadband into the home.

And that is an opportunity that obviously we're pretty excited about because historically, we have had some presence in outdoors. And now with Starry, we are strengthening that presence, especially into new applications with 5G being the broadband into the home.

Charles Anderson -- Dougherty & Company -- Analyst

Great. Thanks so much.

Sam Heidari -- Chairman and Chief Executive Officer

Sorry to answer the wrong question first.

Charles Anderson -- Dougherty & Company -- Analyst

That's all right.

Sean Sobers -- Chief Financial Officer

Thanks, Charlie.

Operator

Your next question comes from the line of Gary Mobley with Benchmark.

Gary Mobley -- The Benchmark Company -- Analyst

Hey, guys. So, my congrats on a strong finish to the year. A question about Wave 2 and whether or not it can grow meaningfully in 2019. Just given all the moving parts, you've got some new carriers in Russia, Malaysia and Orange coming on are presumably offsetting maybe some maturity in the AT&T channel. So, all those factors considered, can grow in 2019, that's Wave 2. And if so, are we talking low single-digit percent or double-digit percent?

Sean Sobers -- Chief Financial Officer

Okay. Gary, this is Sean. Yeah, I'll give you a little bit of direction. Obviously, I'm not going to guide whether it's going to grow or what we haven't already guided to for Q1. But generically, as far as the opportunities for Wave 2, they're still out there and still happening. So, wins like we have in Southeast Asia and in kind of Eastern Europe, including Russia, those are opportunities for us to continue to grow and gain kind of opportunities in Wave 2.

I do think there is people starting to make decisions as you migrate from Wave 2 to 11ax in '20 -- late 2019 in 2020 that's going to obviously grow revenue as a total. But from a Wave 2 perspective, there are opportunities there. There are pass there. I think we'll give you more information as we get through and out of Q1.

Gary Mobley -- The Benchmark Company -- Analyst

Okay. For my follow-up, I wanted to ask about the gross margins for Wave 3. Sean, can you give us some indication by order of magnitude how you've managed to improve the gross margins for the Wave 3 products?

Sean Sobers -- Chief Financial Officer

Yeah. So, we've done the things we've been talking about in the last several quarters, which was cost optimization on the chips themselves. So, we've improved the chip cost themselves by how they have been designed, so that helps overall.

We've actually gone through our normal process of negotiating with our vendors to get the best pricing we have. And then we've also, as we've added a diverse set of customers, we are able to kind of diversify across the customer base and improving ASPs. So, that all collectively has continued to improve overall gross margins for the 10G product itself, 10G ac.

Gary Mobley -- The Benchmark Company -- Analyst

All right. Thanks, guys.

Operator

Your next question comes from the line of Alessandra Vecchi with William Blair.

Alessandra Vecchi -- William Blair & Company -- Analyst

Hi, guys. Thanks for taking the question. Just as a continuation on Wave 2, I'm going to approach it from a gross margin standpoint. How should we be thinking about the margins there as you expand to other geographies? Is there room to sort of continue improving that or should we think about it as sort of holding steady?

Sean Sobers -- Chief Financial Officer

Yeah. Alex, this is Sean. I think we've talked about in the past, our Wave 2 products are generally our best overall gross margin products. And as we've looked into expanding into Asia and Eastern Europe and Latin America even, we've been able to keep focus on gross margins and making sure that they don't become a headwind when we go to those markets.

In some cases, when we're going to market with the Spartan or Spartan Essential design, we're actually able to bring out more cost optimized and effective solution to our end customers, which helps them overall pay what we would say is the appropriate price for Wave 2 designs and not have to lower our prices. So, I think as we go into those new areas for us, it's not a headwind to gross margin. We don't expect it to be.

Alessandra Vecchi -- William Blair & Company -- Analyst

Okay. And then just extending that question sort of out to Wave 3. I know it's easy. I mean, sorry, to Wi-Fi 6. I know it's still early, but you guys have sort of talked about not having the same growth -- negative gross margin impact that you had with the 10G product given it's pin-to-pin (inaudible) compatible. But that said, should we still be thinking about a near-term gross margin headwind when that starts to ramp or should it be margin neutral?

Sean Sobers -- Chief Financial Officer

I think, when 11ax rollout -- rolls out, it's built based upon our 10G ac solution. So, 10G-AX is built right on top of that. So, all the benefits that we've had as far as cost optimization, the yield, and all the things that we've been talking about relates to 10G, we're going to enjoy as we roll into 11ax or Wi-Fi 6. And then you add into the premium pricing that 11ax or Wi-Fi 6 is going to bring, I think that's going to be a tailwind to gross margins, not what we experienced when we first rolled out 10G ac. So it's a positive thing.

Alessandra Vecchi -- William Blair & Company -- Analyst

Great. Thank you.

Sean Sobers -- Chief Financial Officer

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Gus Richard with Northland.

Gus Richard -- Northland Capital Markets -- Analyst

Yes. Thanks for taking my question. As you think about your -- the number of accounts (ph) that you've been invited to on Wave -- Wi-Fi 6. As it compares to Wave 3, can you kind of give us some quantification on how much bigger the opportunity you believe AX will be for you?

Sam Heidari -- Chairman and Chief Executive Officer

Yes. Compared to -- Gus, if you compare both to Wave 3 and Wave 2, this is meaningfully bigger. I think that there is more opportunity here. We are getting invited to new accounts that we have never been and obviously, where we are. We do have a relationship and incumbency that helps us to compete, so meaningfully bigger number of the accounts we have been invited to.

Just also remember that Wave 2 or 11ac product design wins were not built overnight. They were built over many years because those design wins came as a function of time. We do expect the same kind of a ramp up in the design wins in the 11ax. All not going to happen at the same time, but I'm not -- I mean, pretty much every design win that is out there, we are competing for it.

Gus Richard -- Northland Capital Markets -- Analyst

Okay. And then to follow-on, as you think about the transition to AX, how do you think about Wave 3 and Wave 2? Will those continue on? Or will they see some slowing momentum as we get closer to the transition deployment of AX?

Sam Heidari -- Chairman and Chief Executive Officer

So, there are two different things here. One is that some of these design wins in Wave 2 event, they have come as -- I mean, as far as like in the last quarter. They have been won recently. They're going to go on for some times, independent of 11ax. They are just making their way into Wave 2 today.

Second thing is, historically, we have seen multiple designs getting deployed in the same service provider for some times. So just because if Wave -- Wi-Fi 6 was introduced, does not mean that Wave 2 or Wave 3 is going to disappear overnight. There might be at a different customer grade that it will reside on is a product, which is maturing the field, both in performance and costs. And it will continue on for some times usually .

Gus Richard -- Northland Capital Markets -- Analyst

Great. Thank you.

Sam Heidari -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question is a follow-up question from Tore Svanberg with Stifel.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Thank you. Sam, how should we track the progress or success of Qdock? Will you announce sort of some of these third-party wins? Or is there going to be a framework that we can track to, obviously, understand the success of Qdock?

Sam Heidari -- Chairman and Chief Executive Officer

Yeah, I'm not sure that we will have a -- I mean we have to think about how we are going to keep tally of these. I'm not sure if we have a way of doing that today. But if you saw the news release, there were five or six partners who announced their partnership around Qdock. We have made announcements with partners such as Aerial who do motion detection, Plume and there were more on that under news release.

So there is a handful of people or more -- who are -- handful of people who have announced and then there is more who are working on this. I think it's going to be a very wide audience. We have had audiences anywhere from our customers are working on this, to maybe universities because it is an easy platform to make developments and who knows what comes out of that as a function of time.

It's easy way for us to scale the feature offerings that we do without requiring a lot of support in that front. And I think there will be a lot of exciting applications coming out of this, that both of us will be surprised by it as a function of time because it is developed by the innovative group of people around the world working on this.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

And should we think of Qdock as sort of getting you more into sort of the IoT space, or will the focus still remain primarily on service providers?

Sean Sobers -- Chief Financial Officer

I think that -- again, the Qdock, it is a platform for third parties to use their imagination what they want to develop. Some of the applications I did mention, such as mesh networking, which is pretty known to motion detection. If there are applications that can be developed using Wi-Fi in the IoT, definitely, it could be a right platform for to develop. But meanwhile because of our incumbency in the service providers, we see the center of the gravity there, but is not limited to that.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you.

Sam Heidari -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question is a follow-up question from Quinn Bolton with Needham & Company.

Quinn Bolton -- Needham & Company -- Analyst

Hi, guys. Just wanted to follow up on the gross margin question. If Wave 2 is your highest gross margin product, how should we think about the transition as AX starts to ramp in 2020? Can AX sort of match the Wave 2 margins or does it come in at a lower margin and potentially serve as a margin headwind?

Sean Sobers -- Chief Financial Officer

No, I don't think it serves as a margin headwind. I guess, it's going to be a tailwind like I said earlier. I think the interesting side is when you look at 11ax, you're going to have kind of three 11ax customers. You are going to have brand new customers with new applications. You're going to have places where we're actually -- and so that'll be greenfield and the margins will be good because the 11ax margins are going to be good.

Then you have a scenario where you're going to replace a Wave 2 solution with a 11ax solution, where you're going to be getting a couple things. You're going to be getting the dual-band solutions. So, you're going to have 2.4 and 5 gigs. So just overall, the expansion of ASP will happen there. And then you're also going to get the 11ax premium pricing.

So again, at the end of the day, it's going to be bigger revenue, plus good margins. And then the last piece is where you're going to replace over time 11ax in the 10G space, where you replace 10Gac with 10Gax. And again, you'll have premium pricing there as well. So, you will have not a margin headwind but a margin tailwind.

Quinn Bolton -- Needham & Company -- Analyst

Great. Thank you.

Sean Sobers -- Chief Financial Officer

Thanks.

Operator

And at this time, there are no further audio questions.

Sam Heidari -- Chairman and Chief Executive Officer

Thank you. On the behalf of Quantenna's worldwide team, I would like to thank you for your interest and continued support. Operator, this concludes the call.

Operator

This concludes today's call. You may now disconnect.

Duration: 41 minutes

Call participants:

Vernon Essi -- Director, Investor Relations and Strategic Finance

Sam Heidari -- Chairman and Chief Executive Officer

Sean Sobers -- Chief Financial Officer

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Joe Moore -- Morgan Stanley -- Analyst

Quinn Bolton -- Needham & Company -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Blayne Curtis -- Barclays -- Analyst

Charles Anderson -- Dougherty & Company -- Analyst

Gary Mobley -- The Benchmark Company -- Analyst

Alessandra Vecchi -- William Blair & Company -- Analyst

Gus Richard -- Northland Capital Markets -- Analyst

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