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MaxLinear Inc  (NYSE:MXL)
Q4 2018 Earnings Conference Call
Feb. 05, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the MaxLinear Fourth Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brian Nugent of Investor Relations. Thank you, sir. You may begin.

Brian Nugent -- Finance and Investor Relations Manager

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's fourth quarter 2018 financial results. Today's call is being hosted by Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared remarks, we will take questions.

Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our first quarter 2019 revenue, gross margin, operating expense, tax expense, tax rate and interest and other expense guidance, as well as statements relating to trends, opportunities and uncertainties in various product and geographic markets, including, without limitation, statements concerning growth opportunities for our wireless infrastructure and connectivity markets and improved revenues in our broadband markets.

These forward-looking statements involve substantial risks and uncertainties, including risks arising from competition, our dependence on a limited number of customers, 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 and numerous other risks outlined in the Risk Factors section of our recent SEC filings, including our previously Form -- filed Form 10-K for the year ended December 31, 2017, our Form 10-Q for the quarter ended September 30, 2018, and our Form 10-K for the year-ended December 31, 2018, which was filed today.

Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The fourth quarter 2018 earnings release is available in the Investor Relations section of our website at maxlinear.com.

In addition, we report certain historical financial metrics, including net revenues, gross margin, 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 encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We do not provide 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're providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to the -- to management's analysis of our business. Lastly, this call is being webcast and a replay will be available on our website for two weeks.

And now, let me turn the call over to Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer of MaxLinear.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks, Brian, and good afternoon everyone. Thank you for joining us today. Kishore unfortunately is unable to join us today, as he is attending to a family matter in India. We expect Kishore back soon and I'm sure you'll see him at an industry conference or an investor event in the coming quarter. Our Q4 2018 revenue was $87.6 million, which was largely consistent with our expectations of strong Infrastructure revenue growth, modest upside in Connected Home and a macro-driven overall industry slowdown related weakness in the Industrial and Multi-market.

Connected Home stood at 49%, Infrastructure at 26% and industrial and Multi-market at 25% of overall revenue. Overall, Q4 revenue was up 3% sequentially, specifically, Connected Home was up 3%, Infrastructure was up 15%, and Industrial and Multi-market was down 6%. In Q4 2018, we delivered solid profitability with earnings modestly above target along with strong operating cash flow of approximately $24 million. While we continue to deliver strong profitability even at lower cable data revenue levels, we are encouraged to report the beginning of an anticipated recovery in our Connected Home business as first outlined back in August.

In Q4, we realized double-digit sequential growth in our cable revenues. While we navigate through the revenue transitions in broadband, timing uncertainty of the new design win ramps in Infrastructure markets and a dynamic macro demand environment, we have made significant progress in reducing our spending levels as reflected in our Q1 OpEx guidance. The expected reduced spend run rate levels not only help maintain profitability in the near term but also create significant leverage when revenues recover and our multi-year Infrastructure product initiatives ramp in the mid-to-longer term.

Overall in 2018, we continue to execute well on our ongoing investment strategy, specifically driving strong revenue growth in Infrastructure and moderate growth in our Industrial and Multi-market, while sustaining our solid, highly profitable business in Connected Home. Multiple key new 5G wireless and data center fiber infrastructure product launches, combined with the strength of our wireless backhaul business and the beginning of the recovery of our broadband business provide us confidence in our ability to realize our strong mid-term and long-term growth aspirations, as well as our ability to scale the business.

Moving on to some of the exciting product and technology highlights in the large and attractive networking infrastructure markets. Our wireless backhaul infrastructure business posted nearly 50% growth in 2018 and is well positioned for double-digit growth in 2019 as well. We continue to drive modem share gains across our broad customer base abetted by the initial ramp-up of our backhaul RF transceiver product with our lead customers. As we have mentioned previously, our RF solution is the only solution to support channel aggregation, which doubles data capacity in existing available spectrum for 4G and future 5G transport networks. As a result, we are witnessing strong operator-driven adoption of our RF solution by backhaul OEMs.

On the 5G wireless access infrastructure side, we are excited to announce that we have taped out our 40 nanometer CMOS wireless, single-chip RF transceiver solution. And we remain on track for customer samples in the first half of 2019. With this major engineering milestone complete combined with our strong and deep engagements with our major wireless OEMs, we are -- who are currently our customers, we are confident of being a major player in the large massive MIMO 5G wireless access infrastructure rollout slated for 2020.

We look forward to sharing more details about our progress at Mobile World Congress in Barcelona later this month. We also made significant progress on the second leg of our multi-year infrastructure initiative with the production tape-out of our first 16 nanometer fiber optic 400 gig PAM4 silicon addressing inside the data center application. We remain confident in our ability to leverage both our strong portfolio and are developing customer engagements to participate in the initial 400G PAM4 deployments supporting a large Tier 1 hyperscale data center buildout. We are on track for initial customer production shipments in Q1 and mass production for the end of 2019.

Our 400 gig PAM4 DSP SOC with this integrated EA-EML drivers offers the industry's lowest power and cost benefits, which positions us strongly to participate in the upcoming data center upgrade cycle. We look forward to sharing more about our progress in the data center market at OFC in early March.

In the Connected Home market, we are a critical partner in the development of new architectures supporting the next-generation multi-gigabit cable gateway access solutions. At CES together with Intel and some of the world's largest cable operators, we announced partnerships to deliver next-generation cable gateway platforms that enable to take 10 gigabit symmetrical links that use the RF full duplex architecture, while maintaining support for legacy DOCSIS devices. In these next-generation platforms, the value of the RF mixed signal --content is expected to double, which will significantly increase our addressable cable data market opportunity.

Moving on to the specifics of our Q4 '18 financial results and Q1 '19 guidance. On revenue of $87.6 million, we saw Connected Home increase 3% driven by double-digit recovery in both our DOCSIS and MoCA businesses, offset by the expected declines in our satellite business. Our Infrastructure business was up 15% sequentially and led by strong broad base sequential growth in our wireless backhaul business. On the Industrial and Multi-market side, sales were down 6% sequentially due to macro pressure across our distributor channel with some influence from the continued trade tensions consistent with the commentary from several of our other analog peers in this space.

GAAP and non-GAAP gross margins for the fourth quarter were approximately 52.4% and 62.7% of revenue, respectively. This compares to GAAP gross margin guidance of 52.5% and non-GAAP gross margin guidance of 63%. The delta between GAAP and non-GAAP gross margins in the fourth quarter reflects the amortization of $8.9 million of purchased intangible assets from previous acquisitions and $0.2 million of stock-based compensation and stock-based bonus.

Fourth quarter GAAP operating expenses were approximately $56.6 million, which was slightly above our GAAP guidance of $56 million due to restructuring related to our cost reduction initiatives. GAAP operating expenses included amortization of purchased intangible assets of $8 million, stock-based compensation and accruals related to stock-based bonus plan of $7.9 million and $2.2 million, respectively, and $1.7 million in restructuring. Non-GAAP operating expenses were $36.7 million, which was up $1.2 million sequentially due to the large 16 nanometer 400 gig PAM4 production mask expense in the quarter, but $0.5 million below our guidance of $37.25 million due to the disciplined expense management.

We have continued diligently working to moderate the spend during this transition period with good success. We expect the core operating expense run rate to come down in the upcoming quarters as we tighten the spend and larger development efforts wind down. However, we expect project related spending will cause some quarter-to-quarter fluctuations within our total spend.

Moving to the balance sheet and cash flow statement. Our cash flow generated from operating activities in the fourth quarter of 2018 was approximately 24.2 million versus 30.7 million generated in the third quarter of 2018. We made $15 million in debt prepayments during the quarter toward our term loan, reducing our net leverage ratio to 1.75 at the end of the fourth quarter. In addition, we recently made another $15 million debt prepayment during Q1. This brings the total debt prepayment to $178 million and our loan balance down to $247 million. Our days sales outstanding for the fourth quarter were approximately 62 days, which was below the prior quarter days sales outstanding of 63 days. Our inventory turns increased slightly to 4.0 compared to 3.8 in the third quarter.

This leads me to our guidance. We currently expect revenue in the first quarter of 2019 to be approximately $82 million to $87 million. We expect Connected Home revenues to be up slightly with improvements in cable revenues, albeit slower due to tariff impacts and supply chain ships, offset by declines in satellite and connectivity.

Within Industrial and Multi-market we see continued softness in the upcoming quarter with revenue expected to be down 6% to 8%, but we hope to offset this overall trend with some new product introductions, as well as market share gains that could help offset. Infrastructure is positioned for strong double-digit growth for 2019, so we expect a pause in the wireless backhaul after an exceptionally strong Q4 and we believe a portion of the decline in our outlook is attributable to the seasonality as well.

We expect first quarter GAAP gross profit margin to be approximately 52.5% to 53.5% of revenue and non-GAAP gross profit margin to be approximately 63% to 64% of revenue, up sequentially due to improved mix. As a reminder, our gross profit margin percentage forecast could vary plus or minus 2%, depending on product mix and other factors. Even as we are focused on reducing our run rate spend levels, we continue to fund strategic development programs targeted at delivering strong topline growth in 2019 and beyond with particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business.

As such we expect Q1 2019 GAAP operating expenses to decrease approximately $0.4 million quarter-on-quarter to range --to a range of $56 million to $56.5 million with the decreases in certain acquisition related purchased intangibles that fully amortized in Q4, offset by increases in restructuring related primarily to our Israel site closure. We expect Q1 2019 non-GAAP operating expenses to be down approximately $0.5 million sequentially to a range of $36 million to $36.5 million, driven primarily by lower tape-out expenses as well as the full quarter impact of our cost reduction initiatives from Q4. We expect GAAP tax expense to be approximately $0.5 million and a non-GAAP tax rate of 7%. We expect interest and other expenses in the quarter to be $3.1 million to $3.2 million.

In closing, we are pleased to report stability in our Connected Home business and strong growth in our Infrastructure business in Q4 as we continue to navigate through a transitional environment in the first half of 2019. We will continue to maintain strong profitability and cash flow generation. Specifically, we have taken decisive and appropriate action to reduce our expense run rate, while maintaining our pace of strategic investments in Infrastructure, High-Performance Analog and Connected Home solutions. These investments combined with our strong execution position, as well to deliver strong leverage in our business, and as many of the new product initiatives start to generate revenue.

With that, I would like to open up the call for questions. Operator?

Questions and Answers:

Operator

Thank you. At this time, we will be conducting the question-and-answer session. (Operator Instructions) Thank you. Our first question is from the line of Quinn Bolton with Needham & Company. Please proceed with your question.

Quinn Bolton -- Needham & Company -- Analyst

Hey, guys. Congratulations on the beginnings of the Connected Home recovery and recovery in cable data. Wanted to focus first on the guidance for the March quarter, a clarification on the Infrastructure business. You said that would pause. Is that sort of expected to be roughly flat in the March quarter or do you expect that to decline modestly given the strength you saw in Q4?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Ye. So I mean, we did see really exceptional strength, Quinn, in Q4. And so, we'll see it pause a little bit. I mean it's probably a little more than normal, but kind of typical seasonality, but we just had a handful of customers that ramped really hard in Q4 and we'll see it moderate in Q1.

Quinn Bolton -- Needham & Company -- Analyst

So it sounds like it will decline modestly in Q1 rather than flat?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, correct. I mean, we gave a little bit of guidance there. And I think you can back into some assumptions on the numbers. We continue to be very excited about the Infrastructure business and our outlook. I mean, we've talked about this business growing on the order of 20% in 2019. And I think we are absolutely on track to do that.

Quinn Bolton -- Needham & Company -- Analyst

Great. And then the second question was just sort of around the PAM4 market. I think you said in the fourth quarter, you had your production tape-out for the 400 gig PAM market. You talked about sort of first shipments in Q1 here and then a customer ramp later in 2019. And I think in the past, Kishore had said, there may be an opportunity to do as many as 250,000 ports of 400 gig in 2019. Is that still a good number, and if so, any chance you'd give us kind of what kind of market share you might be targeting of that 250,000 port opportunity this year?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah. So yeah, Quinn. I mean, we are excited to kind of see this really start to come to fruition here. It's been a lot of work, it's been a long road and we're starting to see the fruits of that now. But still clearly there's a lot of work to do in 2019. We do seem like we're on track. We've talked about production shipments. Well, I mean, we'll see some initial production shipments this quarter. But what we continue to target is more mass production in the second half of 2019.

I mean Kishore has kind of indicated more or less what those ports are and I think that's -- I mean ,we don't have any information that would change that at this point in time. So we do see some -- some revenue contribution in the second half of the year from that product. Yeah.

Quinn Bolton -- Needham & Company -- Analyst

Okay, great. And then I guess just lastly, the cable data has begun to recover. I know you've got some tariff-related issues and channel inventory digestion. But do you still think you can get back to more normalized run rate level say in Q2, Q3 of this year in the DOCSIS 3.1 business?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah. So it is really nice to see this starting to recover. I mean, I think we've been pretty clear about our expectations being somewhat modest in how many quarters that takes to kind of get back to a levelized run rate. Clearly, a lot of -- we've spoken about this previous -- on previous calls and in previous conferences, that our largest customers still had some challenges. And so we've said Q2 to Q3, I mean that one particular customer has announced that the first half of the year that they'll be shut down from production. So that will resume in Q3. So while we definitely expect to be shipping in Q1 and Q2 to some degree, I would say we won't see that run rate really get back to those levels until Q3.

Quinn Bolton -- Needham & Company -- Analyst

Great. Thanks, Steve.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks, Quinn.

Operator

Thank you. Our next question is from the line of Tore Svanberg with Stifel. Please proceed with your question.

Tore Svanberg -- Stifel, Nicolaus & Co., Inc. -- Analyst

Yes, thank you. First question, Steve you talked about broadband recovering and I think you even said you expect MoCA to not only to grow in Q4, but expect to grow in Q1. What's driving the recovery in the MoCA business?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Well, I mean -- Hey, Tore. Thanks for the question. So, it's generally cable data and MoCA coming back. I mean there are some one-off discrete MoCA opportunities, but it's really the combined recovery that we're seeing in that DOCSIS and MoCA business. I will say that -- so we've seen a quarter of recovery. We're going to see that continue through Q1. We've still got some lumps to get through in kind of Q2 , but feel like everything is set out for the second half of the year to see a nice recovery in that business in Q3 and Q4.

Tore Svanberg -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay. And then I was intrigued by what you said about doubling content and cable gateways. Can you elaborate a little bit on what's going on there and when would that kind of come to fruition? I assume that's more of a 2020 event.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah. So this is the full duplex opportunity that we have and we've talked about this for a little while. This is a big opportunity at CES. You heard other MSOs talking about this. Intel had a big announcement about this that we -- and we announced something with them. So this opportunity is still out a few years. I mean the reality is, this is probably a late 2022 to early 2023 opportunity as far as revenue contribution goes.

Tore Svanberg -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay and then just last question on Infrastructure. So, you said you expect it to be up 20% in calendar '19. Should I assume that that's kind of the wireless infrastructure business or is there going to be some meaningful contribution from 10.4 in there as well?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, so the 20% is for all of Infrastructure. Wireless backhaul happens to be the largest portion of it, and so you can expect that to be a meaningful driver. The PAM4 opportunity also we expect to have revenue contribution in 2019. It won't be huge because it doesn't ramp until the second half of the year, but we are absolutely counting on some revenue contribution from that.

Tore Svanberg -- Stifel, Nicolaus & Co., Inc. -- Analyst

Sounds good and congratulations on the strong cash flows.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Great. Thanks, Tore.

Operator

Thank you. Our next question is from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Ross Seymore -- Deutsche Bank -- Analyst

Hi, Steve. Thanks for letting me ask a question. A couple of them quickly. In the Connected Home side of things, it's great to see that that's found a floor and starting to grow again. In the second half of this year, how do I think about the seasonality, which for a number of years, we've learned the hard way that goes down versus the specifics of this year where you're going to have some of the supply chain that's kind of shut down the first half and turning on in the second half? Do you think the net of the seasonality versus those supply chain issues is still a sizable positive or just how are you judging those two apparently offsetting factors?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, it's a good question, Ross. I mean I think we just kind of continue to see things improving there, right? Clearly, the first half of the year is challenging due to -- in particular, this one large customer. I think Q3 picks up significantly. We often do see things moderate in Q4. I'm not sure -- that's still several quarters from now. So it's a little early for us to say, but I do expect a very strong contribution in the second half of the year on the cable side.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. And then on the Industrial and Multi-market side, you're not the only company facing issues there. Any metrics you could provide about either is it all disti (ph), what the disti channel inventory is looking like, how you're thinking about that for the year? I think at the midpoint of your revenue guidance, it's down 15%, 20% year-over-year. Is that just the cycle or is that some of the -- the force touch or something that you guys have strategically tried to exit? Any color that would give us an idea of where that stabilizes and maybe starts to grow would be helpful.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, sure. So now, it's a good question. And obviously this has got a lot of our attention right now kind of given the macro uncertainties. And this has clearly had some impact by the tariffs and just kind of supply chain shifts that we had seen. So with regard to our specific -- I mean you referenced year-over-year numbers. So you're absolutely right. There were some force touch revenues that were in there. We've exited that and so clearly there wouldn't be any contribution going forward. I would say that -- so we've talked about this business kind of growing low-single digits.

I think given the backdrop that we see today, with this kind of inventory correction that we're going through or this -- or the shift due to the tariffs and the like, if I look out -- and I don't want to forecast exactly what we think Industrial market is going to do but clearly, we wouldn't expect that 2% to 3%. I mean, it might be slightly down. Yeah, if I look at 2019 over '18 maybe, it's down low-single digits.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. That's helpful color. And then my last question is on the margin front and specifically on OpEx. You've done a superb job in running a tight ship here. I know there's going to be quarter-to-quarter perturbations. I think last quarter you said that year-over-year the OpEx should still be down. So I guess a two-part question. One, is that still true, and then two, I know you guys did a bunch of investments ahead of these revenue ramps, but is there a level at which you think is the base absolute dollars and where the Company needs to start spending again just to really see the new product engine.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, Ross, this is something that we've been very focused on. We took a lot of actions kind of in Q4 timeframe as far as kind of cleaning out some things, relooking at investments that we've had, kind of looking at returns on those respective investments. And so we really try to take advantage of the opportunity here. We said -- actually said on the last conference call that we were expecting that to be down 3% to 4%. I think at this point, we see this having gone through given the work that we've put into this, that we can see that decline probably as much as 10% now year-over-year in '19 over '18, and this is driven as you pointed out -- I mean, some of these bigger programs are kind of ramping down. Now we do have expenses and we absolutely -- you can imagine right now as we're looking at these ramps on the Infrastructure side for our 5G massive MIMO opportunity, I mean we absolutely have plenty of application engineers and a lot of work and expense going into that in order to assure that ramp.

Same thing with the wireless backhaul, same thing with our PAM4 ramp as well, right. So we want to continue to support that, but yeah, I think we can see close to 10% decline year-over-year. I think your question about kind of going forward, I mean, we've been pretty clear that, that's everything kind of ramping down, cleaning up things, but we would expect that to grow in 2020, definitely less than our revenue run rate, I mean, which we're pretty excited about that revenue run rate in 2020 especially some of these infrastructure ramps that we have going, that are planned for 2020.

Ross Seymore -- Deutsche Bank -- Analyst

Perfect. Thanks for all the color, Steve.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks, Ross.

Operator

Thank you. The next question is from the line of Bill Peterson with J.P. Morgan Chase. Please proceed with your question.

Bill Peterson -- J.P. Morgan -- Analyst

Yeah, hi. Thanks for letting me ask a question. Question in -- about the wireless access market, can you help us understand the ramp of that business in 2019? It sounds like it may -- it may be more in 2020, but trying to get a feel for the size of that opportunity and growth in 2019.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Hey Bill. Thanks for joining us today. So yeah, I mean I can definitely give you a little bit of insight. So 5G massive MIMO opportunity is something that we've been very excited about, just taped out the chip. So we're on track with our original plan, sampling that product in the first half of this year. More than likely you'll see design wins happen in the second half of the year and then you'll see more of the revenue happen in 2020. That's pretty consistent with what we've talked about. I mean with regard -- we haven't necessarily sized exactly what our expectations on revenue are in 2020, but I'll maybe give a little color on the market size itself.

I mean, we've talked about this particular market opportunity to be in north of $500 million. We've talked about the competitive landscape. There's really two to three players here, so conservatively this can be over $100 million a year of a product line for MaxLinear, so very excited about that and excited to see us start to ramp. I mean there's been tons of news out in the market, I mean with the 5G infrastructure and the pace of which it's happening, so naturally we're anxious to see this product get going and really intersect the market in 2019.

Bill Peterson -- J.P. Morgan -- Analyst

Okay, great. Thanks for that color. A question on use of cash. You've taken down debt here, you already -- I guess, already (inaudible) $15 million in the first quarter. How should we think about further debt pay down from here versus maybe other strategic uses such as M&A for this year?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah. So, we've been pretty consistent kind of late last year talking about paying down close to $20 million a quarter, but it's probably a little easier to annualize that at $80 million per year, because this year in particular, it will be a little more back-end loaded. But cash flow has been very good and we're pleased with that. As we look out in those uses of cash, I mean, we've also been open about our intent to continue with acquisitions. I mean, the Company has got a long history there and we want to continue to execute on that front. But until then, we'll continue to pay down debt and we'll keep looking on the acquisition front.

Bill Peterson -- J.P. Morgan -- Analyst

Great. Thanks for that. Good luck.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks, Bill.

Operator

Thank you. Our next question is from the line of Gary Mobley with The Benchmark Company. Please proceed with your question.

Gary Mobley -- The Benchmark Company, LLC -- Analyst

Hey guys, thanks for taking my question. You guys are doing a great job even without Kishore.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks, Gary.

Gary Mobley -- The Benchmark Company, LLC -- Analyst

I wanted to delve a little bit deeper into your guidance for the Connected Home business. Looks like it's expected to be up modestly sequentially in spite of your largest customer dealing with some sub-manufacturing location and is that because of MoCA or is it because of some DOCSIS 3.1 strength offsetting that with some other MSOs like Liberty Global or Charter?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah. So, it's a good question, Gary. I mean, so most of this is driven by cable data and you're right, I mean, our largest customer is kind of going through this manufacturing transition. But we do and we've openly talked about some of the other MSOs like Charter, like Liberty. Those guys are ramping. We've talked previously there's been a lot of questions around DOCSIS 3.1 and what percentage of the business that we were shipping there, I mean that's still running. 30% to 40% of our business is 3.1. So naturally Charter and Liberty, our two strong customers of ours that we are seeing strength in 2019 and so those are big contributors as well. I mean, there's some other things, naturally our G.hn business is going well and I think that's something else that's in the early stages, it will have a nice contribution in 2019 also.

Gary Mobley -- The Benchmark Company, LLC -- Analyst

Okay. Back to Quinn's question about PAM4. You're expecting some early day shipments in the first half of the year for the PAM4 for device. You mentioned one specific hyperscale data center operator. Is that indicative of a full-on design win or is that indicative of some continued evaluations? What can go right there to grow your share with this particular hyperscale guy, or conversely, what can go wrong that would derail your opportunity there?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah. So these are -- I mean these are production parts and consistent with what we've said previously, early stage shipments now, but really mass production in the second half. We've not talked about share. I mean in the end, we believe that there will be multiple suppliers into this market. We think there is kind of two of us leading the way. But there's others kind of around the edges, that we don't want to discount. So we've got a full force effort right now trying to maximize our share naturally. And that we expect to see kind of start to ramp. It won't be huge revenues in 2019, but it will be a good contribution, and that will lead us into 2020 where we think we'll see some significant revenues to grow that Infrastructure business.

Gary Mobley -- The Benchmark Company, LLC -- Analyst

Thanks guys.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks Gary.

Operator

Thank you. The next question is from the line of Suji Desilva with ROTH Capital. Please proceed with your question.

Suji Desilva -- ROTH Capital Partners -- Analyst

Hi, Steve. You've kind of talked about this and with your body language kind of about the Infrastructure business being a short-lived pause here. But can you just give us some color on why you're confident that Infrastructure comes back relatively quickly, let's say, in the second quarter?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Oh, yeah, absolutely. Thanks, Suji. So we have just seen several customers ramp very hard in Q4. I mean that's one of the kind of the nature of this Infrastructure business, right, particularly wireless backhaul. I mean there's only four to five really significant customers here and they can go through some pretty strong ramps and we'll go through these pauses. But the good thing here is we also have very long lead times in these businesses, and so great visibility and particularly here on the wireless backhaul side. So yeah, we do see a pause in Q1, but very confident in the strength that, that recovers in Q2 and then kind of we've got other programs that ramp in Q3 and Q4. So this is clearly a big contributor of our growth in 2019, but the great thing is, is that this visibility, we're very close to this customer base here and confident that we see this roll out.

Suji Desilva -- ROTH Capital Partners -- Analyst

Okay, great, that's very helpful color, Steve. And then on the PAM4 data center side, is the expectation in second half '19 to '20 that it's one hyperscale customer primarily driving your volume or should we expect multiple -- what's the diversification of the initial ramp here customer-wise?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, so I'm not sure if you're aware, but I mean -- so it is just the initial one customer in 2019. Not sure when the other customers, I mean -- so the whole industry we fully expect to move to 400 gig and it's -- we've got multiple customers that we're working with now. They will start to contribute. I'm not sure how much and exactly the timeframe of that. We're clearly working with all the other big hyperscalers, because they seem to be the leaders in this market right now. So we are working with them. We'll see more contribution in 2020 and 2021, kind of dependent on which particular hyperscale are you referring to.

Suji Desilva -- ROTH Capital Partners -- Analyst

Okay, fair enough. And the last question, I know you talked about use of cash and potential strategics. Any thoughts on the portfolio at this point, Steve, is it kind of buttoned down or whether there's other areas that could be deemphasized, divested (ph), and if the force touch was one from last year (inaudible). Where are you in sort of the portfolio rationalization, if there is any left?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Yeah, I mean, so I don't -- we're not looking to exit any particular areas. I mean force touch is gone. But I would say that we continue to focus extensively on the Infrastructure market. That's where a lot of organic R&D investment has gone. It's the same thing with Industrial and Multi-market. We are investing in power and interface. I mean some areas there that I think we can continue to grow our business with our PMICs, very exciting opportunities. And so we want to invest organically, but we'll also look from an acquisition standpoint to continue to grow as well.

Suji Desilva -- ROTH Capital Partners -- Analyst

Okay, helpful. Thanks, Steve.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Thanks.

Operator

Thank you. The next question is from the line of Chris Rolland with Susquehanna. Please proceed with your question.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Hey, Steve. Maybe you could talk about gross margins. So as we move through the year, I think for Q1 you said the gross margins were up on mix. So I guess my question is how these Infrastructure products -- how are they versus Company margins? That was a bit surprising to me given that Infrastructure is mixing down. And then also perhaps talk about how Infrastructure products as they ramp through the year are going to affect gross margin?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Hey, Chris. Yeah, so gross margin is moving around a little bit. And we've talked about this previously -- from the standpoint that Infrastructure over time will drive gross margins up. And I think we remain confident that -- in that today. We've got a little bit of mix. We've got some one-time items, I think in Q1 that have kind of pushed that up a little above what our -- maybe our original -- a little ahead of plan, if you will. That said, given some of the dynamics in the cable market, I wouldn't say we're all the way kind of through this cable ramp. So from a gross margin perspective, we'll still see some fluctuations in Q1 and Q2. And then I think we really start to see strength in Q3 and Q4 to kind of coming back to my point about 2019. It ought to be in the 63.5 (ph), maybe slightly above that for the year.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Okay, great. And then some of your smaller products, any update on your cable fiber node or stuff like G.hn, any smaller products that kind of surprised you either positively or negatively in the quarter?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

So I wouldn't say we had many surprises. I mean we do have -- we always kind of -- some of our tuner business I guess may have contributed in Q4 just from a mix standpoint, probably brought down margins a little bit more than expected. But that'd probably be the only one. Otherwise going forward, contribution within Connected Home, I did mention a little earlier, I do see strength coming from G.hn. That's in a market that we're excited about as we go into the new year. There's just new opportunities that we're starting to see particularly in Europe. And so excited to see that one, not only in Q1, but throughout the rest of the year.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Thanks, Steve.

Operator

Thank you. Our next question is from the line of Alessandro Becky with William Blair. Please proceed with your question.

Alessandra Vecchi -- William Blair -- Analyst

Hey guys, thanks for letting me ask the question. Just on the 5G wireless access line item, you guys have gone extremely optimistic on it and have more so recently. Can you just walk us through some of the dynamics in the sense that some of the semiconductor companies this last quarter that have exposure to 5G have talked about it, ramping a little faster initially that you may have expected, yet you're only going to start sampling your product in Q2. Do we just think about you guys displacing maybe some of the older ADI products once the product's available in early 2020 or is the pie just so large that maybe missing out some of the initial ramp, it doesn't matter?

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Hey, Alex. Thanks for joining us and thanks for the question. So yeah, we are very excited about this 5G massive MIMO opportunity. We're on track with our initial plans and expectations. I mean the excitement on our end, frankly, I think aligns with what the market is seeing right now. Us seeing the adoption happen in 2019 and more opportunities is really right in line with what we would like to see, right. So naturally early stage adoption, you're seeing a lot of strength out of test a measurement guys. You're seeing a lot of strength out of FPGA, guys. So those are natural early stage opportunities, right. I mean even the ADI you've got earlier stage incumbent solutions that may not beat the full mass production solution. And so that's why we feel like we're definitely lined up perfectly to intersect this market right in its early stages. I don't feel like we are late at all. I don't feel -- I mean your comment about, it's a large market and we'll get our share. I mean I think we're very much on track to penetrate this market at the time that we would like to penetrate it, when the biggest kind of most meaningful design wins and opportunities are happening.

Alessandra Vecchi -- William Blair -- Analyst

Got it. That's actually really helpful. That's it from me on my end.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Okay, thanks, Alex.

Operator

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to management for any additional or concluding comments.

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Great, thank you. So, as a reminder, we will be participating in the Morgan Stanley Tech, Media & TCOM Conference on February 28th in San Francisco, the Susquehanna 8th Annual Technology Conference on March 12 in New York, the William Blair Technology One-on-One Conference on March 13th in Boston, and the 31st Annual ROTH Conference in mid-March. We hope to see many of you there.

With that being said, we thank you all for joining us today and we look forward to reporting on our progress to you in the next quarter.

Operator

Ladies and gentlemen, this does conclude today's conference. Again, we thank you for your participation and you may disconnect your lines at this time.

Duration: 44 minutes

Call participants:

Brian Nugent -- Finance and Investor Relations Manager

Steven Litchfield -- Chief Financial Officer & Chief Corporate Strategy Officer

Quinn Bolton -- Needham & Company -- Analyst

Tore Svanberg -- Stifel, Nicolaus & Co., Inc. -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Bill Peterson -- J.P. Morgan -- Analyst

Gary Mobley -- The Benchmark Company, LLC -- Analyst

Suji Desilva -- ROTH Capital Partners -- Analyst

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Alessandra Vecchi -- William Blair -- Analyst

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