MaxLinear (MXL) Q4 2019 Earnings Call Transcript

MaxLinear (MXL -1.21%)
Q4 2019 Earnings Call
Feb 05, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the MaxLinear fourth-quarter 2019 financial results conference call. [Operator instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Brian Nugent. Please go ahead, sir.

Brian Nugent -- Head of Investor Relations

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's fourth-quarter 2019 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO, and Steve Litchfield, chief financial officer and chief corporate strategy officer.

After our prepared comments, 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 2020 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 products and geographic markets including, without limitation, statements concerning growth opportunities for our wireless infrastructure and connectivity markets and for improved revenues in our broadband markets. These forward-looking statements involve substantial risks and uncertainties, including risks arising from competition, the outcome of global trade negotiations, export restrictions, potential supply constraints, 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 risk factors outlined in the risk factors section of our recent SEC filings, including our Form 10-K for the year-ended December 31st 2019 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 2019 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 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 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 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 also being webcast, and a replay will be available on our website for two weeks. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Kishore Seendripu -- Chief Executive Officer

Thank you, Brian, and good afternoon, everyone. Thank you all for joining us today. Our Q4 2019 revenue was $70 million, consistent with our guidance, non-GAAP gross margin improved 150 basis points sequentially, and operating expenses declined on disciplined execution. We also delivered $28.1 million in strong cash flows from operations.

As a percentage of our overall revenue, our connected home business stood at 43%, infrastructure was 29% and industrial multi-market was 28%. We continue to successfully execute on our critical engineering and customer engagement initiatives in our strategic 5G wireless infrastructure, optical data center and high-performance analog markets. In the near-term, we are solidifying our position with our Tier 1 hyper scale data center end customer and are also increasingly confident in the ramp of the industry's first 400-gigabyte PAM 4 deployments in the second quarter of the year. Additionally, our second generation Telluride PAM 4 DSP SOC fiber optic portfolio, optimized for single lambda 100-gig PAM 4 QSFP and SFP modules, is garnering significant traction.

We believe single lambda 100 G, 400 G PAM 4 solutions will dominate data center and 5G front-haul deployments over the next several years. On the technology front, we are excited about taping out our first five-nanometer CMOS test chip which sets the stage for our continued technology leadership in the optical data center and 5G wireless market. In the 5G wireless infrastructure market, we are excited to announce a second win with a large Asian customer in addition to the Tier 1 OEM design win we announced in the last quarter. We expect to realize initial revenue for our 5G wireless RF transceivers in this year which will position us for strong growth beyond 2020.

This design win momentum further confirms our traction in the 5G wireless massive MIMO RF transceiver market. Over the past couple of months, European operators are pushing aggressively toward 400 megahertz bandwidth 5G architectures. Our RF transceiver product is the only industry solution designed to meet this requirement. More broadly, we are engaged with all Tier 1 OEMs and customer feel continues to confirm that our 5G RF transceiver has the highest performance, double the bandwidth and superior system level integration, and up to 50% lower power consumption versus competition.

In 4G and 5G wireless backhaul, our RFSOC is the only solution to support channel aggregation with double data capacity in existing available spectrum for current and future 5G wireless transport networks. As a result, the broad adoption of our disruptive RFSoC continues which will drive backhaul revenue growth in 2020 and beyond. In the near-term, we are experiencing some impact due to supply chain trade restrictions related to China. We are looking forward to sharing more details about our 5G wireless and optical data center customer engagements and road map initiatives at the Mobile World Congress later this month and at OFC in early March, respectively.

Moving on to the connected home market, as expected, during Q4, we saw a temporary pause in our new flagship MoCA platform deployments by our major telco operator and customer. Connectivity remains an important growth driver for this market, and our MoCA and G.hn solutions will benefit from that market dynamic. Our cable data business improved in Q4, though we expect operator deployments will likely be muted for the next couple of quarters. However, we do have improving visibility in this market and are confident in our positioning for the next wave of DOCSIS 3.1 deployments for North America and expansion outside North America.

Overall, we are on track with our strategic diversification initiatives to drive strong future revenue growth in 5G wireless, optical data center and high-performance analog power, industrial markets and establishing our five-nanometer CMOS technology platform for continued leadership in these markets. With that, let me turn the call over to Mr. Steve Litchfield, our chief financial officer and chief corporate strategy officer, for a review of the Q4 business results and our forward guidance.

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Thank you, Kishore. I will first review our Q4 2019 results and then further discuss our outlook for Q1 2020. On revenue of 70 million, the end market demand was consistent with our outlook. We saw our connected home business down 25% sequentially, with step-downs in MoCA due to the pause in a new product ramp; and satellite which has now deteriorated to an insignificant level.

Our infrastructure business increased 2%, driven by an uptick in our high-speed interconnect business with other product categories flat to slightly down. Our industrial multi-market business was down slightly sequentially, much like various peers in these markets. GAAP and non-GAAP gross margins for the fourth quarter were approximately 52.3% and 64.6% of revenue, respectively. This compares to GAAP gross margin guidance of 52 to 52.5%, and non-GAAP gross margin guidance of 63.5 to 64%.

The improvement in the quarter was driven primarily by mix improvements during the quarter. The delta between GAAP and non-GAAP gross margins in the fourth quarter reflects the amortization of 8.5 million of purchased intangible assets from previous acquisitions, and 0.1 million of stock-based compensation. Fourth-quarter GAAP operating expenses were approximately 44.6 million which was slightly above our GAAP guidance of 44, to 44.5 million due to a small restructuring charge during the quarter. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of 8.6 million, amortization of purchased intangible assets of 5.7 million, and restructuring charges of 0.2 million.

Non-GAAP operating expenses were 30 million which was down 0.7 million, sequentially, and consistent with our non-GAAP guidance of 29.5 to 30.5 million due to continued discipline expense management. We have been successful managing the spend during the transitional period. After sequential reductions in the last four quarters, our quarterly non-GAAP opex run rate was down 18% year over year. Moving to the balance sheet and cash flow statement.

Our cash flow generated from operating activities in the fourth quarter of 2019 was 28.1 million versus 21.8 generated in the third quarter of 2019. Our loan balance remains at 212 million, but our net leverage ratio was reduced to below 1.5 times, due to strong cash generation in Q4. We remain consistent in our intentions around our uses of cash with priorities on debt pay down and acquisitions. Our days sales outstanding for the fourth quarter was approximately 66 days which is slightly above the prior quarter days sales outstanding of 64 days.

Our inventory turns increased to 4.1, compared to 3.8 in the third quarter. That leads me to our guidance. We currently expect revenue in the first quarter of 2020 to be approximately 65 million to 70 million, down approximately 3.7%, sequentially, at the midpoint of the guidance range. We expect connected home revenues to be flat to down slightly quarter over quarter with video-related products, largely offsetting expected declines in DOCSIS demand.

We expect infrastructure revenue to be down approximately 10%, owing to weakness in HPA demand in this category, particularly in China, as well as seasonality and other infrastructure categories. We expect our industrial and multi-market to be approximately flat to slightly down as we navigate a market recovery. We expect the first-quarter GAAP gross profit margin to be approximately 53.5% to 54% of revenue, and non-GAAP gross profit margins to be approximately 63.5 to 64% of revenue, down slightly sequentially due to the mix and negative leverage on lower revenue. 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 top line growth in 2020 and beyond with particular focus on infrastructure initiatives and our stated goal of increasing the operating leverage in the business. We expect Q1 2020 GAAP operating expenses to increase approximately 2.2 million quarter on quarter, to a range of 46.5 to 47.5 million, driven mainly by seasonal payroll increases, and to a lesser extent, tools supporting our product development road map. We expect Q1 2020 non-GAAP operating expenses to be up approximately 2.2 million sequentially, to a range of 32 million to 32.5 million. We expect GAAP tax expense to be approximately zero and non-GAAP tax rate of 6%.

We expect interest and other expenses in the quarter to be 2.5 million to 2.6 million. In closing, we are pleased to report continued progress in our infrastructure initiatives, highlighted by our expanding product portfolio and design engagements in 400 gig data center market, engineering and customer milestones in our 5G massive MIMO transceiver platform. While China markets remain turbulent in the near term due to multiple issues, we are beginning to see stabilization in our connected home business, particularly on the cable data side. We will focus on maintaining strong profitability and cash flow generation, as well as executing on our strategic investments.

These infrastructure initiatives and strong engineering execution, combined with upcoming upgrade cycles in the data center and wireless markets, position us well to deliver strong leverage in our business as many of our new product rollouts start to layer in incremental revenue streams in 2020. With that, I'd like to open up the call for questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question today is coming from Quinn Bolton from Needham and Company. Your line is now live.

Quinn Bolton -- Needham and Company -- Analyst

Hey, guys. Congratulations on the second 5G solar transceiver win. Just wondered if you could give us a little bit more detail with that Asian customer. Is that a global or worldwide platform, or will it be targeting geographies, specific geographies, say, China, in particular? And then I got a couple of follow-ups.

Kishore Seendripu -- Chief Executive Officer

So, hi, Quinn, the second design win we have just announced in this call is an Asian OEM, as we mentioned, and the platform is universal. Having said that, they are not a Chinese OEM. And -- but they do have a worldwide presence. They currently ship products into 3G, 4G markets as well.

So geographically speaking, they are present in many places, but the primary focus is in Asia.

Quinn Bolton -- Needham and Company -- Analyst

Got it. Got it. OK. And then second, on the data center business.

You've said now for a while, you think that that business starts to ramp in the second quarter of this year. Wondering if you could just sort of comment across your portfolio. Is the ramp for both DR1 and DR4 modules, or will it start with DR4, DR1, and then you layer in the other over time?

Kishore Seendripu -- Chief Executive Officer

So currently, I just want to remind everybody that 400 gig PAM 4 DSP is our first entry into data center interconnect products, right, and which is based on a single and 100-gigabit technology. So we have two products that are prime for this market. One is a 400 gig PAM 4 DSP with integrated driver and a TIA companion chipset. And also, we are the only ones with an optimized 100-gigabit QSFP DSP solution.

So both these initial ramps in these markets are going to be based on DR1 and DR4, and we expect the other categories, whether it's on the FR foresight to happen following this particular ramp. But the initial ramp and the ramp that is going to happen in these major hyper scale data center is based on DR1 and DR4.

Quinn Bolton -- Needham and Company -- Analyst

Great. And then lastly, for Steve, you mentioned multiple issues in China. Kind of wondering if you might be able to give us a little bit more color. Is this still more trade-related? Is it more coronavirus looking forward or a combination of both, or are there other factors affecting that China business?

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Yeah, Quinn. I mean, actually, just mentioned multiple factors that both are probably influencing our business at this point. So as you're familiar, I mean, we've definitely had the export issues, but we've also seen a fair amount of slowdown just in the recent weeks around the coronavirus as well, so we wanted to highlight both.

Quinn Bolton -- Needham and Company -- Analyst

Thank you.

Operator

Thank you. Our next question is coming from Gary Mobley from Wells Fargo. Your line is now live.

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, guys. Thanks for taking the question. Wanted to focus a bit on the connected home business and think about the different moving pieces? And if I'm not mistaken, the two remaining most influential pieces of that business to be the cable data and the MoCA business that you perhaps have concentrated with Verizon. And so, as we look back per your 10-K filed for the close that looks like your cable data business, specific to your one main customer might have been down, what, 35% in 2019.

As you think about how you have your trailer hitch to, perhaps, the right horse in 2020, how should we think about the diversity, the growing diversity of that cable data business, and what the growth prospects may look like in 2020?

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Yeah, Gary, not a problem. Yeah, so we definitely have had our struggles with our largest customer over the last, say, year and a half. I'd say that we're in a much better position as we sit here going into 2020. I think we're much more confident, have much better visibility in kind of that, as they ramp products and kind of regain share that they really lost in the previous year.

So while it has been disappointing, to date, I mean, I really do feel like things are improving, and we'll see that get back on track in the current year.

Kishore Seendripu -- Chief Executive Officer

And also to mention that where were the most significant contributors to the revenue step-down in this category has been also, the operator spend itself has come down, and that is a bigger contributor than our major customer-specific issues related to acquisition, and so on.

Gary Mobley -- Wells Fargo Securities -- Analyst

OK. As you think about your MoCA business, we believe we're perhaps in the middle, and correct me if I'm wrong, of maybe some inventory digestion as your one main customer there sort of built the channel ahead of service launch and equipment launch. Where do we stand on that front with maybe a return in that business?

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Yeah. Gary, I mean, I think we've brought this up even last quarter as we saw some softness in that ramp, right? They took a lot of product ahead of time, anticipating a much faster ramp. So what we've been pretty clear about is from our expectations and really where we see this today, I mean, we'll we think we see it moving sideways in Q1, and then we'll start to see some return to growth in Q2.

Gary Mobley -- Wells Fargo Securities -- Analyst

OK. And the infrastructure business somewhat starting in a hole in the first quarter was expected to be down 10% sequentially. Do you think this business can grow in 2020? And as we see a rebound off the Q1 base in addition to the PAM 4 ramp and maybe some contribution from the 5G RF transceiver, are there other factors that will help drive the rebound as we look into the balance of 2020?

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

So yeah, absolutely. I mean, so maybe just to get your first question, I mean, do we expect it to grow? Absolutely, we expect it to grow. I mean, I think it can grow in the order of 15 to 20%. That said, we've had a lot of challenges with China.

And as you're familiar, we do have a couple of Chinese -- more than a couple, but several customers in China that make this up. But there have been some headwinds, so I don't think that comes as any surprise. But we do have these new products. We do expect to see them ramp in the coming year.

We absolutely are, as Kishore mentioned earlier, confident in the PAM 4 ramp for this year. So that will start to contribute starting in Q2. And then, you've got massive MIMO probably coming in the second half of the year. So yeah, we remain very excited about the infrastructure business and anticipate growing it nicely this year.

Gary Mobley -- Wells Fargo Securities -- Analyst

OK. I'll hope in the queue. Thank you, guys.

Operator

Thank you. Our next question is coming from Tore Svanberg from Stifel. Your line is now live.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Yeah, thank you. So first question on the connected home, it sounds like maybe it's going to start growing again sequentially in Q2. I know you've just kind of set a little bit of expectation on your infrastructure growth this year. How about connected home? You know, should we think about sort of down 5 to 10%? Any color there would be helpful.

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Hey, Tore. So I think our outlook on the connected home side, so we've been cautious. This has been a tough market to call for us. Clearly, as Kishore had commented on earlier, the operator spend has been the biggest challenge in 2019.

We do anticipate that starting to move in the other direction. But that said, I mean, we expect it to be somewhat muted in the first half of the year. But I do expect to see improvements in cable data, but it's probably in the second half. Hopefully, we'll see the MoCA business, particularly at Verizon pick up as well.

We've been very fairly cautious here and saying that even if it kind of moved sideways from the Q4 results throughout the year that I think that will be good progress toward stabilization, and I think that's what you've heard from us that we see this business stabilizing. And I'm really optimistic that probably in the second half and into 2021, that operator spend picks up and we get back to some normal growth levels.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

That's fair. And as it relates to the second design win, the Asian customer for the 5G transceiver, will that start to generate revenues already this year, or is that more 2021?

Kishore Seendripu -- Chief Executive Officer

We expect it to generate revenue toward the end of this year, I think, definitely, provided data on production ramp is on track. We are ready to supply, so to speak. And because the long lead time market, we were ready, we are ready much earlier than what these wireless OEMs take to qualify and go to production. So we will have some revenue at the end of this year from this particular OEM.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Sounds good. And last question, you mentioned five nanometer. So it sounds you're doing a little bit of a leapfrog here, not really working on seven nanometer. Could you maybe elaborate a little bit on the sort of decision behind that leapfrog?

Kishore Seendripu -- Chief Executive Officer

So one of the interesting things about these markets is they take a long time to bear fruit. They are long lead time markets. In the meanwhile, the long-run lead time, it does not track the rate at which the technology on the CMOS side has moved. So one of the things we have learned in this market is that the incremental gains in changing the node does not really affect the data center decision-making process.

For example, there was a power limit at 16 nanometer which was required to enter the market. And there's a range there. We were the first one to demonstrate the product in 16 nanometer and 400-gigabit, but then it seems that the power differentiation was not -- were not the only determinant of the situation. The maturity of the technology and readiness to product and the need for multiple vendors, right? So going to the next technology node in seven nanometer does not at all create a leap in power reduction.

Now, the latest bid is for data center companies wanting to go to the next leap in technology, 800-gigabit data rates reads. So the seven nanometer is neither here nor there, right? It doesn't improve the power consumption and 400-gigabit nor does it give you the kind of integration levels and power density reductions you need at 800 gigabit. So it seems in my conceded opinion, leapfrogging one technology node going to alternate advanced technology is a much better idea to have a road map where the products all convert generationally than being in the immediate, what I call, incremental technology node. And the cost development differences between seven nanometer, five nanometer are very marginal.

At best, it's a 10 to 15% difference. So you rather do one investment than do two separate investments simultaneously, and that would not fit well with our operating -- opex discipline philosophy.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

That's great color. Thank you, Kishore.

Kishore Seendripu -- Chief Executive Officer

Yep.

Operator

Our next question is coming from Bill Peterson from JP Morgan. Your line is now live.

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

Yeah, hi. Thanks for taking the question. Just wanted to come back, you said that in China, you obviously have the trade issues and you mentioned coronavirus. Can you help quantify, at least to the extent that your guidance is taking into account the coronavirus itself.

And I guess more specifically, what areas would you see any potential weakness? Would this be the industrial? The multi-markets? Or infrastructure? If you can help us understand that thought, that would be great.

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Hey, Bill, this is Steve. So I don't know that we can separate out that impact. So we definitely see some impact there, but the trade situation, in general, continues to weigh a little bit on the infrastructure markets, as well as our industrial multi-market. As you're familiar, I mean, the industrial multi-market, just a much broader base of business, and we've definitely seen weakness in China have some impact there.

But we do expect to start to see a recovery on that particular business. On the infrastructure side, it's had a bigger impact. And then in some respects, seeing that customer base start to look for alternatives is another thing that we've been cautious about in our expectations, and we've tried to be conservative in kind of our outlook as the potential for replacement is there.

Kishore Seendripu -- Chief Executive Officer

And the other thing is that currently, the Chinese New Year keeps getting extended due to coronavirus. It's very, very hard to have meaningful dialogues with the customer base. So going into this call, we worry about how the pattern returns to bookings and backlogs and that sort of thing. So did we -- can we quantify everything? No.

Did we take a cautionary approach? Yes. But have it been cautionary enough? That is a mystery, right? And I think that will be true for all our peers as well, because for us, for sure, it's greatly all our manufacturing happens overseas. Are we going to be supply constrained, or demand-constrained, is very difficult to guess right now. So you know we are being cautious, but we don't know if we have quantified that problem.

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

OK. That's fair. Thanks for the color there. Next question.

Coming back to the optical business. Obviously, you had your ramp of your lead customer. And obviously, the other large U.S. hyper scalers have already wrapped at 200 gig.

I guess, we expect that Microsoft and maybe Alibaba, one of your peers said that another U.S. and China would be ramping later this year than the rest of the big three, two in China, one in the U.S. next year. So I guess, the question is, can you give us an update on where your traction is on the other hyper scalers that you're working with? Recognizing that revenue may be later on, but just trying to get a feel for your design win pipeline with some of the other large hyper scalers.

Kishore Seendripu -- Chief Executive Officer

So, Bill, I just want to clarify here that we entered this market by leapfrogging on the 400-gigabit product which is the next-generation product. And at that point, we made a determination whether it was right for us to enter a 200 gigabit or 400 gigabit, and we chose 400 gigabit. So it's really not -- we are not in a position where we change the designs that are ramping now. But we are in a position to change the landscape on data centers that have not made those decisions, so we are engaged with all of them.

And we have our own unique value proposition, and we are having very constructive meaningful dialogues with them. But I do see the market split. And even if you fast forward three to five years from now, you'll have products that are at 400 gigabit, 200 gigabit, 100 gigabit, so I think it's going to be a colorful market in that sense. But we hope to have the entire product portfolio to have presence in all of these markets, though the timings will be very different when we come out with what.

But there is room for us to do make influential changes in the market directions and also participating in what's already set in the market.

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

OK. If I can ask one more. Can you help us understand how we should think about opex through the year? If there's any, I guess, on large tape-outs, that you anticipate in 2020? Just give us a feel for how we should think about that.

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Sure, Bill. I mean, I guess, without going quarter to quarter, I mean, we do have some mass costs. So the front half of the year is probably more heavily weighted, and then it starts to decline a little bit in Q3 and Q4 just as we progress out the year.

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

Thank you.

Operator

Thank you. Our next question is coming from Christopher Rolland from Susquehanna Financial Group. Your line is now live.

Christopher Rolland -- Susquehanna International Group -- Analyst

Hey, guys. Thanks for the question. So on infrastructure and the pace of the 5G rollout there, you guys talked about China. If I understand that correctly, maybe you're implying it's a 5G pushout in China.

And do you believe that that's the case for all OEMs in China right now or just the ones that you're exposed to? And maybe if you could talk about your customer exposure there and how that works into the ramp. Thanks.

Kishore Seendripu -- Chief Executive Officer

You know, Chris, we were not implying anything to do with 5G at all. We were referring to a slowdown related to supply chain impacts with the trade restrictions and other multiple factors, so to speak, because I don't want to bring up the wires every time. But the impact is more to do with our existing business that is already designed and ramping which is primarily related to our wireless backhaul radio transceivers, and some of our HP, you know, industrial multi-market solutions that ship in China. So there was no difference in our mind to 5G.

In fact, we believe that the -- we will be very correctly positioned for the big ramp in 5G with our offerings, both on our four by four massive MIMO radio transceivers, and our soon to be offerings in eight by eight massive MIMO RF transceivers. We hope to do the first one in the world to make that happen, too, for the next-generation leap and integration. So, no. There is no qualification on the 5G ramp timing at all.

We will be positioned very correctly for that.

Christopher Rolland -- Susquehanna International Group -- Analyst

Great. And then on the infrastructure side, again, the second OEM that you guys were talking about, and even the first OEM, as we try to get our heads around the opportunity here in the economics, how do we think about it? Do we think about 100% attach rate per base station across their whole portfolio, or is this just for a portion of their portfolio? And is there anything that we can think about in terms of chips per base station and ASPs for those chips? Just helping us to kind of broadly frame the opportunity per OEM if we know roughly their share number of base station shift. How can we as analysts kind of frame that opportunity better?

Kishore Seendripu -- Chief Executive Officer

Chris, that's a pretty big question with lots of color there. But clearly, 5G itself is a fraction of what the worldwide base stations today are. The big plays where the ramp is being strongly pushed is in China, then the other ones will follow. America and Europe.

So there is a time delivery in China and Europe. First, China will peak probably in the next two years, and then in a close second, it'll be U.S. and Europe. So it's going to come in waves.

I don't expect the attach rate to be 100%. And secondly, it's going to be a layered process of penetration, right? So if you really think about what happens in base station is much more than a base station, but it's the active antenna systems that are going to have a massive MIMO much more chips content. And that you should look at maybe a 400 to $500 million SAM in active antenna systems. In the next two to three years, you can do a nice growth to get there.

And then on top of that, you need to add the DAS systems, macro base stations and small-cell configurations, or let's call them microcells, and you get to about three quarter billion dollars of addressable SAM on radio transceivers, and that's the market we are going to be participating in. And then our competition at each OEM will be with yet one supplier. They're all choosing two suppliers to diversify the supply chain base. We hope to be the common factor given being the smaller aggressive company, and there'll be a, big less aggressive company as the other supplier, and we hope to split the share with them with each OEM.

Christopher Rolland -- Susquehanna International Group -- Analyst

That was very helpful. Thanks, Kishore.

Operator

Thank you. Our next question today is coming from Alex Vecchi from William Blair. Your line is now live.

Kamil Mielczarek -- William Blair and Company -- Analyst

Hi. This is Kamil Mielczarek on for Alex. So you've talked in the past about PAM 4 potentially being $100 million product line over the next three to four years. Can you provide some detail on the cadence of growth over that time and how 800 G factors in?

Kishore Seendripu -- Chief Executive Officer

Well, you're now talking to 800 G because our Top 2 five nanometer CMOS technology as opposed -- we live in this wonderful world where the richest people want the poorest people to give them all kinds of candies, and that's the data center people, right? So we have to invest in 800 gigabit to actually have them buy our 400 gigabit, right? That's the way to look at the problem. So I don't -- while the first sample of 800 gigabit will happen sometime in the next 15 months or so window, without revealing our time lines to you, by the way, so I would expect that 800 gigabit really won't ship for until three years after today, let's say, you know. Maybe once again, our current Tier 1 hyper scale data center company will be the first one to lead the charge on that, and that's why we are focused on. Really penetrate our relationship with them, stronger, get closer to them.

I think the bulk of the shipments will really be 400 gigabit, 100 gigabit, and 100 gigabit will permeate the entire data center space, the enterprise space, replace existing 25 gigabit and 100 gigabit WDM markets and there's a play for 200 gigabit that's going on right now. And those are the revenues I expect to be shipping for the bulk of the next five years, right? 800 gigabit would be starting to ramp during that window. So whatever revenues we have talked to you about getting to $100 million over the next three years or so time cadence in optical data center interconnect, is really based off our 400-gigabit offering, 100-gigabit offering and a few other things, but I would leave it there.

Kamil Mielczarek -- William Blair and Company -- Analyst

That's helpful. Just as a quick follow-up. Your cash balance is now, I think, at a multiyear high. Can you talk about cash capital allocation plans and share your thoughts around potential M&A?

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Yeah, sure. Actually, yes, cash flow during the quarter was actually very good. We're very pleased with the progress that we're making on that front. With regard to our uses of cash, I mean, it remains the same, continue to do acquisitions, as well as debt pay down.

We're very pleased to see the progress on the leverage, getting our net leverage down to 1.5 times, so we've really made nice progress on that over the last, say, 18 months to 24 months. And so we definitely want to build up cash so that we can look at acquisitions. So we're optimistic that we can get something done in 2020.

Kamil Mielczarek -- William Blair and Company -- Analyst

That's great. Thank you, guys.

Operator

Thank you. Our next question is coming from Tim Savageaux from Northland Capital Markets. Your line is now live.

Tim Savageaux -- Northland Capital Markets -- Analyst

Hi. Good afternoon. A couple of questions. First, on the PAM 4 side, I guess, the commentary early in the call, it was about increasing confidence in the PAM 4 ramp.

I ask what's driving that increase in confidence. And as we get closer to it, any comments on the kind of initial magnitude of that ramp?

Kishore Seendripu -- Chief Executive Officer

So, hi, Tim, we have not met before. But look, this has dragged on for a long time. And as more information comes out, it's very clear that we are farther along in the maturity of the levels of inter ops and at the module level qualification and things like that. So we do feel that there are two vendors that are at the threshold of being fully ready to go, and so, there are a few more things that need to happen in this quarter.

But there's a lead time to order patterns here, and we are very hopeful that that really results in a ramp in Q2. And having said that, the size of the ramp, obviously, that's a little bit mysterious, but we expect an initial spurt and then slowdown and then pick up later on in the second half of the year. That's the usual way things play out. But please keep in mind, it's the first time we're entering data center markets.

This is new for us, how it plays out, right? And we're also looking to see to be extra prepared in case the demand moves much faster than we think.

Tim Savageaux -- Northland Capital Markets -- Analyst

OK. And if I could follow-up and maybe beat this China horse to depth here and really with a focus on trying to discern between kind of demand versus supply side impacts. I think, if anything, we've seen pretty notable strength across the ecosystem in terms of 5G, perhaps 5G-driven mobile front haul and backhaul of late in China. And so, with that in mind, I just want to try and get a better sense of whether you're seeing changes in the demand picture or inability to supply.

And just maybe as an aside, whether we might be seeing a shift from microwave to fiber in China that might be having an impact.

Kishore Seendripu -- Chief Executive Officer

Well, I'll address the last one later. But first and foremost, the demand spikes you're seeing, as I said in front haul, those are really legacy fiber optic solutions for the telecom market. They are not the new enhancement in bandwidth for transport markets. So we are not participating in the older technologies.

Our offerings in 5G are really for the enhanced bandwidth usage cases that is going to be a little bit later, right? So regarding the ability to supply, we will be able to supply, but it's a careful balance between what we have to supply versus where their products the demand is novel, so to speak, right? So given that most of the customers are really on a holiday, and there can be no consensus in terms of how their demands are picking up and the return, we really can't speak for what that plays out to be. But I want to address the last one which you said that is the world -- is China moving from microwave backhaul to fiber optic? No, no, no. China was never a microwave backhaul country for transport. It was always a fiber-based country just like the U.S.

is. But however, the Chinese OEMs are one of the biggest exposures of microwave backhaul transport technologies to the rest of the world. And the rest of the world outside the U.S. and China are very wireless backhaul-oriented.

And those are the markets that ship into. And one of the biggest markets, it's India which itself is evaluating its options with per millimeter microwave, both of which, we have solutions, and we are the only provider for in both these cases as a merchant vendor for the silicon per millimeter wave microwave backhaul.

Tim Savageaux -- Northland Capital Markets -- Analyst

Thanks a lot.

Kishore Seendripu -- Chief Executive Officer

So with that, I want to wrap up this conference call here. So thank you, operator. We also want to let everybody know that we are participating in the SIG 9th Annual Technology Conference on March 12th in New York, the 2020 ROTH Conference in Dana Point, California. And we'll also be hosting investor meetings at the Mobile World Congress on February 25th in Barcelona, Spain.

And at OFC on March 10th in San Diego, California. We hopefully will 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 next quarter.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Brian Nugent -- Head of Investor Relations

Kishore Seendripu -- Chief Executive Officer

Steve Litchfield -- Chief Financial Officer and Chief Corporate Strategy Officer

Quinn Bolton -- Needham and Company -- Analyst

Gary Mobley -- Wells Fargo Securities -- Analyst

Tore Svanberg -- Stifel Financial Corp. -- Analyst

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

Christopher Rolland -- Susquehanna International Group -- Analyst

Kamil Mielczarek -- William Blair and Company -- Analyst

Tim Savageaux -- Northland Capital Markets -- Analyst

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