Greetings, welcome to the MaxLinear Inc third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Brian Nugent. Please go ahead.
Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's third quarter 2020 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 guidance for fourth quarter 2020 revenue, fourth quarter revenue growth expectations in our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, tax expenses, and effective tax rate, and interest and other expense.
In addition, we will make forward-looking statements relating to trends, opportunities, and uncertainties in various product and geographic markets, including, without limitation, statements concerning opportunities arising from our recently completed acquisitions of Intel's home gateway business and of NanoSemi, growth opportunities for our wireless infrastructure and connectivity markets, and opportunities for improved revenues across our target markets. These forward-looking statements involve substantial risks and uncertainties, including integration and employee retention risks related to the acquisitions, as well as risks arising more generally in our business from competition, global trade and export restrictions, potential supply constraints, the impact of COVID-19 pandemic, our dependence on a limited number of customers, average selling price trends, and risks that our markets and growth opportunities may not develop as we currently expect, and that our assumptions concerning these opportunities may prove incorrect.
More information on these and other risks is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31st, 2019, and our third quarter 2020 Form 10-Q, 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 third quarter 2020 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 a 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's GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. Lastly, this call is being webcast, and a replay will be available on our website for two weeks. Now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.
Thank you, Brian, and good afternoon, everyone. Our strong Q3 financial results were ahead of our guidance on an organic basis and also include partial quarter contributions from our acquisitions of Intel's broadband and Wi-Fi assets and NanoSemi Corporation. In Q3, revenue was a record high at $156.6 million, up 140% sequentially, representing strong double-digit organic growth and an overall healthy non-GAAP gross margin of 58%. Our connected home business stood at 24%, infrastructure at 14%, industrial multi-market at 10%, and Intel's broadband, Wi-Fi, Ethernet asset acquisitions were at 52% of overall revenues. The stronger than expected broadband revenues were driven both by increase in demand as well as market share gains across multiple product lines. Our wireless infrastructure business also improved significantly, recovering from a weak macro backdrop in the first half of 2020.
Before turning to the business highlights, I'm excited to welcome our NanoSemi Corporation IP and design team. We expect this acquisition will prove to be a game changer for our 5G business. NanoSemi brings existing tier one OEM licenses as it is the only proven open-market solution for digital predistortion technology, which is especially suited for high-power GaN power amplifiers and is also essential for high-performance wideband 5G macro and massive MIMO applications. NanoSemi's IP licensing business also expands the customer base across 5G baseband, test equipment, and other wireless applications. Simultaneously, we are working aggressively to integrate these IPs into our RF transceiver infrastructure products, greatly enhancing our value proposition in 5G massive MIMO systems for both Open RAN and proprietary 5G solutions.
With the addition of NanoSemi, we have significantly bolstered our 5G wireless infrastructure competitive positioning and offerings in this large and rapidly growing 5G market. Turning to some of the Q3 business highlights. In broadband access, our acquired Intel assets immediately double our target addressable market to about $5 billion, consisting of industry-leading DOCSIS, 10G-PON fiber and Ethernet broadband access gateway SoC technologies, combined with the state-of-the-art Wi-Fi 6 and 6E platform solutions. We are ramping shipments to our flagship DOCSIS 3.1 North America cable MSO platform, comprising the full suite of MaxLinear's cable DOCSIS gateway SoCs, including, most importantly, Wi-Fi 6 and 2.5 Gigabit Ethernet. We expect our market share and revenues to grow as deployments resurge due to the work-from-home dynamic and net overall MSO subscriber growth. In connectivity, our new compelling suite of Wi-Fi technologies build upon our existing best-in-class MoCA and G.hn wireline connectivity capabilities.
Our latest Wi-Fi 6E R2 chipset is sampling to customers and is undergoing test bed certification for Wi-Fi Alliance. Notwithstanding the large MSO Wi-Fi design success that I just mentioned, we are still in the early stages of penetrating the large Wi-Fi cable MSO and carrier telco opportunities. In wired connectivity, demand for our flagship MoCA 2.5 is strong at a premier U.S. telco operator, even as it ramps in a new gateway platform at a large Canadian telco. In optical data center, while the industry's first 400G PAM4 deployments are slightly delayed, we are seeing meaningful progress towards mass production at our tier 1 hyperscale data center customer. We are well positioned with the early traction and ongoing adoption by Tier 1 customers for our 100G PAM4 offering also, which we expect to ramp mid-2021 as new designs convert into production platforms.
Both 100 Gb and 400 Gb PAM4 markets continue to have a tremendous growth outlook and will dominate cloud and edge data center deployments over the next several years. With our next generation 5 nanometer CMOS 800 Gb PAM4 SoC product, which we plan to sample in mid-2021, we are confident in our ability to capitalize on this growing long-term optical data center opportunity. Turning to 5G wireless infrastructure market, we saw strong double-digit growth during Q3 as demand recovered from the COVID-related installation delays in first half 2020. In wireless backhaul, MaxLinear's binary RF channel aggregation feature is now a de facto requirement in operator RFQs. This has uniquely positioned us to both win and continue to add several new design wins across tier 1, tier 2, and tier 3 payers.
Meanwhile, we have received strong positive feedback on our new 40 nanometer CMOS 5G RF transceiver SoC, which is the industry's first 8x8 massive MIMO solution. In addition with NanoSemi's strong IP portfolio, we're greatly enhancing our value proposition in 5G massive MIMO systems. We continue to work aggressively to get our lead customers to market to drive strong growth in 2021. In summary, our organic initiatives in 5G wireless, optical data center, and high-performance analog markets, combined with our recent two acquisitions, greatly expand our target addressable market of high value, rapidly growing broadband connectivity and network infrastructure platform applications, which will uniquely drive strong profitable growth in Q4 and beyond. With that, let me turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Strategy Officer.
Thank you, Kishore. I'll first review our Q3 2020 results and then further discuss our outlook for Q4 2020. On revenue of $156.6 million, we saw our connected home business up 30% sequentially, well above guidance, led by strong demand for cable products owing to the work-from-home dynamic and share gains. Our infrastructure business grew 12% sequentially, driven by wireless backhaul and access, partly offset by weakness in our high-performance analog business. Our industrial multi-market business was down 11% sequentially due to end market softness in Asia and inventory reductions. Our broadband and Wi-Fi business acquired through the Intel acquisition accounted for $82.3 million during the quarter, well above our prior estimates. GAAP and non-GAAP gross margins for the third quarter were approximately 42.3% and 58% of revenue, respectively.
This compares to GAAP gross margin guidance of 51.5%-52.5%, and non-GAAP gross margin guidance of 63.5%-64.4%, which excluded the impact of the two acquisitions we made during the quarter. The delta between GAAP and non-GAAP gross margins in the third quarter reflects the amortization of $14.4 million of inventory step-up and $9.9 million of acquisition-related intangible assets, as well as $0.3 million of stock-based compensation and accruals related to our 2020 bonus plan. Third quarter GAAP operating expenses were approximately $100.8 million, which was up quarter-over-quarter due to the acquisitions and acquisition-related charges. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of $22.6 million combined, amortization of purchased intangible assets of $6.1 million, acquisition costs of $7.8 million, and restructuring costs of $3.3 million.
Non-GAAP operating expenses were $61.1 million, up $28.5 million sequentially, due primarily to the impact of two acquisitions that closed during the quarter. Moving to the balance sheet and cash flow statement. Our cash flow used in operating activities in the third quarter of 2020 was $16.6 million versus $9.3 million generated in the second quarter of 2020. Our loan balance stands at $387 million, factoring in the Term Loan A raised this quarter of $175 million for the Wi-Fi and broadband assets acquisition. We remain consistent in our intentions around uses of cash with priorities on debt paydown and strategic acquisitions. Our day sales outstanding for the third quarter was approximately 61 days compared to 58 days in the prior quarter. Our inventory turns were 5.2 compared to 4.0 in Q2. That leads me to our guidance.
We currently expect revenue in the fourth quarter of 2020 to be approximately $185 million-$195 million, up 21% sequentially at the midpoint of the guidance range. While we do expect to adjust our end market reporting breakdown in Q4, we are maintaining the current breakdown in an effort to maintain transparency during this transition. We expect connected home revenues to be up again with growth driven by cable data and connectivity. We're expecting tailwinds from the work-from-home dynamic as well as new customer program ramps to continue in Q4. We are working closely with our suppliers to support the increased demand as supply constraints have become more of a factor in the market. We expect infrastructure revenue to be down, primarily driven by lower wireless revenues related to the China trade dynamics. We expect our industrial multi-market to be down slightly as channel inventory is consumed.
We expect fourth quarter GAAP gross profit margin to be approximately 40%-44% of revenue and non-GAAP gross profit margins to be approximately 56%-59% of revenue. Approximately flat with the mix shift toward broadband and Wi-Fi, partially offset by gross margin improvement in this category. As a reminder, our gross profit margin percentage forecast could vary ±2% depending on product mix and other factors. We continue to fund strategic development programs targeted at delivering strong top-line growth in 2021 and beyond, with particular focus on infrastructure and Wi-Fi initiatives and our stated goal of increasing the operating leverage in the business. We expect Q4 2020 GAAP operating expenses to increase approximately $8 million quarter-on-quarter to a range of $107 million-$111 million, driven mainly by the full quarter impact of amortization of intangibles and stock-based compensation and bonus.
We expect Q4 2020 non-GAAP operating expenses to be up approximately $15 million sequentially to a range of $74 million-$78 million. We expect GAAP tax expense to be approximately zero and non-GAAP tax rate of 6%. We expect interest in other expenses in the quarter to be $4.2 million-$4.3 million. In closing, we are pleased to report improving dynamics in all of our businesses based on strengthening product cycles, improved market dynamics, and share gains. Our infrastructure efforts in PAM4 and 5G continue to set up well with meaningful growth coming next year as production platforms begin to ramp. We are encouraged to see considerable recovery in the broadband business as well as early growth from our Wi-Fi business. We are intent in supporting customers through a dynamic market environment with accelerating demand and emerging supply constraints.
We remain focused on maintaining strong profitability and cash flow generation while continuing to execute on our integration efforts as well as our organic infrastructure developments. With these existing initiatives and our newly acquired assets and their respective growth opportunities, we believe we are uniquely positioned to deliver strong leverage in our business in the remaining portion of 2020 and into 2021. With that, I would like to open up the call to questions. Operator?
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. Your first question comes from line of Gary Mobley with Wells Fargo. Please proceed with your question.
Hey guys, thanks for taking my question. I want to focus on sort of the baseline and gross margin in operating expense from the fourth quarter level once you fully integrate your acquisitions. Thinking about that 57.5% gross margin guidance and the $76 million in OpEx, how do you see any sort of improvement as you further integrate your two recent acquisitions and start to run, I guess, more favorably priced wafers from the Intel business, for example, and then as well some OpEx synergies?
Yeah, Gary, thanks for joining us. I can comment a little bit. I don't think we've found anything different than we initially expected from a kind of a gross margin and the potential that we have on that front. I do expect next year, we've talked about seeing the overall business able to exit the year somewhere in the 60% range. I do see some nice improvements. I expect a pretty good step up in the first half of the year, and then just kind of trending towards that 60%. I think on the OpEx side. We've talked about that there are some transitional services that come with the deal, and that's about six months worth of services. I do expect to see that come down kind of late in Q1. We'll see some nice, well, improvements just as that additional expense comes off.
Overall, just synergies wise and the cost, I think we're very pleased with the progress that we've been making on that front and improving the overall profitability of the business.
Thanks, Steve. As a follow-up, I wanted to focus on the cable data side of the business. It's no wonder you guys are doing well. You can see it, the strong gross sub additions in some of your bigger cable and retail partners, and you can see some strong trends within your largest cable gateway customers. I was wondering if you can put in rank order what is driving that business. Is it just general market uptick in the same demand? Is it increased bill of materials? Is it market share gains, whether it be for you or your cable gateway customers?
Hey, Gary.
Hi.
It's all of those reasons, really. Everybody is upgrading the quality and tier of their bandwidth, not just what they access, but what they distribute around the home. It's driving a lot of upgrade in the boxes that are being deployed. We are now pretty strongly trending towards a full DOCSIS 3.1 rollout in most of the major operators in North America. For us specifically, we had lost market share earlier on at a major cable operator in North America, and now that's in full recovery mode. The good news is that, even so, the bill of materials we are supplying to these operators has increased quite a bit owing to the deployment of our Wi-Fi 6 solutions. They're the best in class today that are there, and so we're getting BOM expansion as well.
I think in addition, it's very clear that the cable MSOs are gaining net subscriber growth beyond just upgrade in the bandwidths and so on so forth. I would say there's some component of a pandemic-driven work from home market dynamic has reinforced the need for more bandwidth, as well as viewing habits have now changed dramatically, and a lot of people are at home now. I think we're benefiting from all of those factors.
Thanks, guys.
Your next question comes from the line of Alessandra Vecchi with William Blair. Please proceed with your question.
Hi. Congratulations on the great results. If we can just touch base a little bit on the infrastructure segment and some of the puts and takes with what I'm assuming is if you can help us sort out the impact of sort of the China ban, as well as maybe the timing of the large hyperscale ramp and how we should be thinking about that.
Okay. Hey, Alex. This is Steve. I'll give you a little bit of a highlight as far as quarter-to-quarter impact, and then maybe if Kishore wants to jump in on some of the PAM4 stuff. First of all, wireless infrastructure did extremely well in Q3. It was a nice recovery that we had anticipated seeing, thought we'd see it in Q2, but definitely happened in Q3. We see some of that fall back a little bit in Q4. Some of it's definitely driven by China. We've talked about that, the Huawei impact specifically. While it's not a huge number for us, we definitely see that come down as we take that out of our numbers completely.
On the optical side, I think we all now know that the PAM4 rollout in general has delayed the 200G PAM4 or 400G PAM4. I think that as a result of that, our own expectation for revenue from the PAM4 market has pushed out as well. Having said that, we have a select number of optical module customers who are getting ready for a potential ramp in the middle of 2021. We are going through the qualification process, which itself is slower than we had expected with a major hyperscale data center customer. That's on the 400G PAM4 side. On the 100G PAM4, it's a more secular profile. It's not specific to any particular data center. The goal of 100G PAM4 has now become how to replace 100G CWDM4, because it really drives the cost down quite dramatically, the cost of the optics.
A lot of customers and companies are preparing for potentially replacing all 100G CWDM4 with 100G single lambda PAM4, be it in enterprise markets or data center markets. I think that's going to be an exciting cycle. Once again, that's also going to be in the mid-2021 onwards. I would say that the delays are disappointing. On the other hand, if you see the latest LightCounting report, it reaffirms that the growth profile of the PAM4 opportunities for data center, whether it's 100G PAM4 or 400G PAM4, the single lambda technologies is a pretty, very strong future outlook.
With our investment in 800G PAM4 as well, with our latest generation with our 5 nanometer investment that we hope to sample in the middle of next year, we'll be in a leadership position in terms of really enjoying as a participant in the future growth of this market opportunity.
Just as a follow-up on the PAM4 discussion, obviously recently there was the announcement that Marvell is acquiring Inphi. Can you walk us through how you potentially think about the competitive dynamic there and if it gives you any opportunity to potentially grab a little bit additional share?
Right now in the PAM4 world, there are three players. We are among them. Marvell was not a participant in the data center market, and I don't see how they bring any additional competitive positioning to the combined Marvell Inphi offering. For us, it's quite exciting because we stand out as a pretty exciting young, agile company that is investing to grow. With our acquisition of Intel's home gateway assets, we also will have the scale to fund 5 nanometer technology nodes because the associate products are pretty big silicon hogs and you always want to be in the latest technology node if you look at Wi-Fi as well. I think we'll be able to amortize and spread the development costs on 5 nanometer across all these platforms. I feel that we're actually in a very strong position.
I think the infrastructure is a long game. I think we have been repeatedly proven wrong where we think that things happen instantaneously. We also have been proven right, like in our wireless backhaul, where revenues really take time to come, but when they come, they are yours for a long time. That's how I would sum it up.
That's really helpful. I'll put myself back in queue. Thank you.
Thanks, Alex.
Your next question comes from the line of Quinn Bolton with Needham & Company. Please proceed with your question.
Hey, guys. I just wanted to follow up on Alex's question. I guess, can you give us some sense, what do you think the holdup has been on the PAM4 qualification? Inphi's been shipping, I think, into that lead hyperscaler now for over a year or so. It doesn't feel like it's a market demand issue. Can you walk us through firmware interoperability testing? Are you running into some issues or what's really behind the delay?
Actually, what you say is a surprise news for me that a competitor is shipping for one full year. In fact, the real delays are, I don't know how much is pandemic related, and then there are China trade related issues with the import tax issues. Whatever qualified vendors are there. The import issues with importation of China has been one blocker, and then there has been emphasis put on the data center to qualify non-China based module makers, and they have been a little bit slower on that with the module companies trying to get ready to get to the qualification. As far as I know, both in 200G PAM4 and 400G PAM4, barely a few tens of thousands of quantities of PAM4 modules have shipped, actually.
In fact, even I've been told that there have been more 400G PAM4 quantity shipped, which itself is a statement, than 200G PAM4. I'm still struggling to understand how a full year of shipments have happened as far as sell-through goes. I cannot speak for sell-in, let's put it that way.
Okay. The second question, Steve, you gave us some insight, I think, into the three traditional buckets of core MaxLinear. I might have missed it, I don't think you gave us an outlook for the acquired Intel business. I assume that's up because you get a full quarter of that business. Any comments you could say about the Intel business would be helpful. I guess where I'm driving at is I'm a little surprised with the gross margins stepping down in the quarter, especially given some of the strength at the core MaxLinear cable data business. Just trying to think through the margin puts and takes into the fourth quarter. Is it just you're getting a lot more contribution from the Intel business and that's what's causing the pressure quarter-over-quarter?
Yes, sure, Quinn. Yeah, no, you're exactly right as you're thinking through that. We definitely have a whole lot more contribution in the quarter. To answer the first part of your question, we do see that continuing to prove, much like our own broadband business, broadband and Wi-Fi from Intel is going extremely well. We do expect that to grow in Q4. Yeah, there's just a bigger contribution from a, frankly, a lower margin product portfolio. That is bringing gross margins down slightly. As I mentioned a little bit earlier, I am confident that we see this recover in the first half of next year, so it does come up. It was down a little bit more, some of it's mix related, but then also you've got infrastructure coming down slightly and off of a very strong Q3.
That combination kind of brings it down a little and then you'll see it move right back up in Q1 and Q2.
Last for me, just on the 5G cellular transceiver. Can you give us any updated thoughts on when you think that starts a meaningful ramp? Is that also mid 2021? Do we need to wait for the second generation 8-channel before that revenue stream becomes meaningful? Just how should we be thinking about 5G? Thank you.
Yeah. On the 5G side, interesting, right? We've talked a lot that we would see a small amount of revenues in the second half of this year, on track to see that. The really more meaningful ramp is next year. It's interesting now with the trade dynamics in China, that's definitely had some impact. I think overall 5G has slowed slightly. I don't know that it changes our outlook that much from an overall revenue expectation in 2021. I think that does definitely start in earnest. I'd mentioned in the prepared remarks about those ramps starting happening in the mid part of the year. We are on track to see that.
Thank you.
Your next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question.
Yes. Thank you and congratulations on the strength here. First question. I looked at your 10-Q and I saw a new sort of revenue breakdown there. Is that how the new revenue breakdown will look like going forward? Can you maybe elaborate on what's the difference between connected home versus broadband/Wi-Fi? Just trying to get everything straight there.
No, sure, Tore. Sorry. We were hoping to actually make that clear in our prepared remarks. The way we broke out the earnings, we wanted to be just kind of transparent and we broke out the Q3 results based on our previous three end markets, and then we had effectively one bucket that was for the broadband and Wi-Fi assets from the Intel acquisition, so that it's very clear. Going forward, as we've stated, we intend to change those end markets. You'll see that on next quarter's earnings call as we break that out separately. The answer to your question is the Intel piece is the broadband and Wi-Fi assets that's broken out in the queue.
Okay. That's great. As my follow-up, you talked about some share gains there, that you benefited from, and obviously all the content growth, but are those share gains mainly on the Wi-Fi side, or have you seen some other products that you've gained some share with?
Tore, no, it's not just Wi-Fi, right? It's a combination. Let's start with the first one, right? In cable, this large MSO, we had lost share and now we're getting the full platform. What does that platform include? Includes MaxLinear front end, it includes the Intel DOCSIS 3.1 SoC, and the gateway processor. It has now the Wi-Fi. It has got the 2.5 Gigabit Ethernet and even MoCA, of course, right? It's got all the combination there. That's pure volume unit growth by share growth. There are other carriers this has been public, for example, CenturyLink is, if you go back to Intel press release from the past, CenturyLink is now ramping various flavors of platforms, where Wi-Fi is an add in the market.
Additionally, we have gotten some share gains versus our competition because there are severe supply shortages and we have gained some market share because supply shortages at our customer's end. You get the full volume impact of growth, right? The BOM increase as well simultaneously. Initially, there have been some component growths at a large U.S. North American telco operator for our MoCA solutions. It's a mix of everything that is nicely recovering on the broadband, whether it's what we call the connected home and the Intel assets that we acquired. Okay?
Okay, great. Just one last one. The 5 nanometer, that's gonna be at your largest foundry today, right?
Excuse me?
Five nanometer.
Is it going to be what? Sorry.
You're partnering with your largest foundry there, right?
Oh.
Five nanometer process technology.
Got it.
Yeah.
Okay. We don't disclose which foundry, but I think it's old news now. There are only two foundries in the world that are 5 nanometer capable, Samsung and TSMC. We are in one of them. That's correct.
Great. Thank you.
Your next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.
Hi, guys. Thanks for all the support and congrats on the strong results and guide. I just wanted to dive a little bit into the fourth quarter. I know you're switching the segments up. Just to split it maybe at a higher level, organic versus inorganic, it seems like you're gonna have 50% more time owning the Intel home gateway business, and then I don't know how much NanoSemi contributes, if any, but out of the $190 million midpoint versus the $156, how much of that is organic versus inorganic, please?
Yeah, so, Ross, we didn't break it out. What we talked about was connected home is up in the quarter, infrastructure's down, industrial will be down slightly, and the Intel business will be up. Change with regard to our expectations on infrastructure. There's probably only one slight difference. The mix is a little bit different, right? The organic growth that we're seeing is really on track with what our original expectations were. The mix is slightly different. Definitely stronger on the connected home side and then a little lighter on infrastructure given the Huawei dynamic.
For my follow-up, I wanted to get into seasonality/sustainability. A big debate in a lot of this broadband business, even amongst your competitors and obviously investors, is just how sustainable is it going to be? Is it a bunch of pull forward because work from home, or does this have legs? Without getting into the persistence of COVID and all that side of the equation, maybe you could just start off with, is there some seasonality to the combination of the connected home and the Intel Home Gateway business we should think about from a revenue perspective as we enter next year? Are you concerned at all that some of this is a bit of a pull forward that will lead to a little bit more of a lull when we get into 2021?
I think the way I would answer it, we're definitely seeing an exceptional level of demand across the board. I would probably start and echo a little bit of what Kishore was sharing earlier. There's a real recovery, an underspend that happened over the last two years. That was on track. We had talked about it earlier in the year. We've seen that. On top of that, I'm sure there's a little bit of work from home demand as well. The other piece of this is that we're winning share back. Some of the supply constraints have hurt some of our competitors, we've definitely been able to take advantage of that. This BOM increase, right?
Bringing more Wi-Fi, bringing more ethernet, this is new dollars that we're bringing to the system that we haven't had historically. Those are pretty big dynamics that are very different. Is there a little bit of that work from home that maybe doesn't replicate? Yeah, potentially. This business, we're very confident we're running at a much, much higher level than what our original expectations were, and that's really driven by share and the content that we have on these boxes.
Having said that, we see a lot of interest in our product offering, we are trying to carefully balance OpEx versus supporting new customers and so on, because software is a huge component of an SoC gateway business. We're trying to modulate the dynamic on profitability versus revenue growth as well. I hate to say we're giving up any revenue, I think there's some truth to that we are dragging a little bit on the expense side so that we can modulate profitability correctly.
I guess the last thing, Ross, just to further clarification and talk about that content increase, because I think that's part of your question as to where that's coming from. A big contributor as we look out into next year is Wi-Fi, right? We've talked a lot about the size of that business. This year for MaxLinear, maybe that's in the $25 million range. Next year, that's expected to probably double or slightly above that. There's good contribution. You talk about, well, where does that upside come from next year? This is all new content that we haven't had historically.
Great. I guess one final one on what Kishore was pointing to about modulating the OpEx side. Steve, you touched a little bit on it before, but on the gross margin side, you said you'd work your way back up to 60% exiting next year. That's helpful as a band for us to think about modeling-wise. From the OpEx side, you're at 76% now in the quarter you're guiding to. I know you said it'll drop a little bit late 1Q, sounds like 2Q. Is there any sort of exit rate that we could think about akin to that 60% gross margin on the OpEx side of things for next year?
I think what we've said on this, I think we've been pretty consistent about it, that there's a lot of cost that we still have to pull out of the business, right? We've got transitional services, but we've also got just efficiencies that have to be realized over the next 12 months. We've talked about being in the low 20s exiting 2021, I think we're on track to do that, I think that was even set out early in April when we initially talked about it. I don't see any problems getting there. I think the real exciting part is we look at the Intel business in particular.
This business can definitely run quite a bit higher than that, and so we'll continue to see those efficiencies realized and that profitability level hit exiting the year and moving into the beginning of the following.
Perfect. Thanks, guys. Congrats.
Sure. Thanks.
Your next question comes from the line of Ananda Baruah with Loop Capital Markets. Please proceed with your question.
Hi, good afternoon, guys. Congrats on the execution and navigating everything you have going on. A couple from me, if I could. Could you actually rank order, Steve, the handful of influences for the broadband business for 2021 that you just went through? I guess, in what order do you think they will be the most incremental? At least anecdotally, that would be helpful. Then I have a quick follow-up. Thanks.
Yeah. I'm not sure that I can rank order them. There's a lot of dynamics going on right now, and it's a little convoluted as these platforms roll out and how much you're gaining on just the difference. Kishore spoke earlier about the share gains that we're getting. Well, we are getting share gains from competitors, but we're also increasing content at the same time. I don't know that I can rank order it. All of them are having a really positive influence, and I think you'll see that continue throughout 2021.
It sounds like you think the least significant is actually the at-home portion of it, of all the variants.
I think it's a smaller portion. I think what people don't realize is that it's a step up that we're achieving through the share gains and the increased content. Around the edges, are we seeing exceptional demand? Yeah, of course. I think a whole lot of this is a more structural change, where we've taken more share and we have more content.
That's very helpful. Just quick follow-up. On the data center at CSPs, I think last quarter, you guys actually made mention, "Hey, listen, we're just starting to lean into this, so maybe don't use us as a proxy for overall spending." I want to ask if you have a sense of what the spending environment is there, because you actually made some comments a few months ago about 100G. Do you feel more comfortable making a hyperscale CSP spending environment kind of statement? If you do, philosophically, how do you see things going on there right now?
I'll take a stab at it of that question. I think you're referring to just data center CapEx trends, right?
Could-
...commented on that last quarter.
...totally. Yeah. Bandwidth specifically, obviously, but yeah. Whatever you have.
It's a little tougher because all this is a new market for us, so it's all upsides in our mind, right? These are new programs. I think Kishore commented on the market outlook. I think what we're hearing from our customers is really encouraging. Since we don't have a huge data center business today, again, it's all upside to us, but I think we're really well-positioned to take advantage of both 100G and 400G markets.
Okay, that's awesome. Thanks a lot, guys. I appreciate it.
Yep. Thank you.
Your next question comes from the line of Bill Peterson with JPM organ. Please proceed with your question.
Yeah. Hi, thanks for taking my question. Nice to see the upside coming from the Intel asset. I have a clarification, then a few questions. You're referring to Huawei. I guess if you can help us understand what they accounted for in the third quarter, and I assume they basically go to zero in the fourth quarter. Are you applying for licenses? I assume you don't have licenses, if you can clarify that.
Yeah, Bill. Good to chat with you. We don't break out exactly what Huawei contributes. We said it was slightly less than $10 million on an annual basis, and so I think you can get a decent feel for that. Yes, we have pulled it out completely out of Q4.
Okay. Just industrial multi-markets, I think you were calling for flat to slightly up, but I guess what didn't happen or what occurred where that ended up being down? I guess more importantly, as you think about a recovery back to kind of a historical 19- plus, 20-plus million range, how should we think about that recovery into next year?
Yeah, Bill. That's an interesting dynamic, right? It's been quite a volatile year. Really big declines in Q1, we saw really strong recovery in Q2. That didn't continue in Q3. We thought it would be flat to slightly up. It did okay in the quarter, it seemed like they were still consuming a fair amount of inventory. We do think, given the trade dynamics, some of the parts that we're participating in, we think this is Chinese customers that are moving to a domestic supplier. Some of that business, we think probably goes away for good. We've seen another portion of it that is kind of some of these video cards that you need to be in the home. That's just taken a longer time to recovery. We do expect that to continue to recover.
I think our really long-term view of our industrial multi-market as well as just our analog business in general, we've got some new power management products as well as interface products. We've been talking about them. They're hitting around this timeframe. First quarter of next year, we'll be sampling. That's the real meaningful stuff that we've been working on over the last, say, year and a half. As those hit the market, start to get some design win traction, that's really the exciting part there. Now, that doesn't necessarily reflect on the short-term dynamics in the kind of industrial multi-market, but I think that's really where we're positioned to come up with some newer products based on these customer inputs.
Okay. I guess the last one. Thanks for providing the disclosures about the broadband and Wi-Fi business, at least for now. It helps us to try to frame the revenue opportunity. I guess I would calculate somewhere close to $110 million-$115 million in the fourth quarter. Hopefully, if you can confirm if that's kind of the right zip code to think about. More importantly, you have a lot of the Wi-Fi business. You sized that this year, potentially next year. Hoping to understand, based off your design win pipeline, where you're picking up maybe some new content in areas like fiber, PON, and Ethernet. When does Wi-Fi 6E start happening? How should we think about the progression of that business as we move through 2021?
Yeah. I think that's a large and long topic. I just want to assure you that it's a very robust pipeline. We hope to share more information on being in the world's premier 10G-PON platform, which is sort of a Mercedes-Benz with all the Wi-Fi and all the MoCA and all the bells and whistles, hopefully at the next call. It's a large topic to cover in this call.
To answer your first question, you're in the right zip code. I think that aligns with what I had said earlier.
Okay, thanks. Good luck as you integrate that asset.
Great. Thanks, Bill.
Your next question comes from the line of Suji Desilva with ROTH. Please proceed with your question.
Hi, Kishore. Hi, Steve. Congrats on the progress here. Maybe you could talk about, since you've been acquisitive to some extent, what your thoughts are on further acquisitions and what kind of balance sheet leverage you might be willing to assume in any additional acquisitions?
Hey, Suji. Yeah. Clearly, and we had mentioned that we do intend to continue to look at acquisitions. Your specific question about leverage and what we're willing to take on, I think we're going to be prudent with our market leverage. I think very fortunate in the way we were able to negotiate the Intel acquisition, where we really didn't take on a lot of additional debt or leverage in that particular acquisition. I think the cash flows are coming in probably a little faster than what we had originally anticipated. That's going very well. Look, we've got two assets, and we're right in the middle of integration, but I think it's progressing well. It is an asset purchase, so a lot of our work was done really early in the process.
I think that positions us well to be able to do something maybe as early as the second half of the year. I don't know that there's an exact number of leverage. I think a lot of that depends on the market environment as well as the asset itself.
Okay, great. I think this question was asked before, just maybe try to ask it in a more general sense. With the new profile of businesses in the portfolio, what does the typical seasonality look like? I don't know if 2021's going to be a typical year or not, but maybe you can just kind of give us some thumbnail for that.
Yeah. The only comment I would make on, do we typically see a little bit of softness in Q1 and softness in Q4. Q2 and Q3 is typically what we would see, and these assets add to that. That's what you would expect to see. What happens in the coming year? Hard to say, right? Because you're seeing a lot of strength. We saw strength in the whole second half of the year. That seems very strong heading into early next year as well. Yeah, we'll definitely watch that to kind of determine how that seasonality rolls out in 2021.
Perfect. Thanks, Steve.
Your next question comes from line of Christopher Rolland with Susquehanna. Please proceed with your question.
Hey, guys. It's David Haberle on behalf of Chris. Congrats on closing the deal and the success that you've had there so far. It certainly seems like it's gone better than expected. If I could on the deal, now that you have the asset under your control, how are you thinking about long-term growth of the total business? Does this weigh on long-term growth at all? It sounds like you have a lot of tailwinds kind of near term helping this business grow into 2021. Longer term, how should we be thinking about growth of just the aggregate MaxLinear business?
Yeah, sure, David. I think we've been pretty consistent in the messaging here. The Intel asset itself, we've talked a lot about what does that growth profile look like. I think in the short term, in the really short term, demand has been very good, and these share gains are definitely contributing. The BOM increases are very meaningful. Overall, I think, kind of that low single-digit growth rate is what our expectations are. I think as Ethernet and Wi-Fi really start to pick up, you can definitely start to see our ability to grow this at faster than that low single-digit number. It's still a little early, and those are fairly small product lines today. I think where we have been investing and really where we're expecting a much bigger growth opportunity is from the infrastructure business.
Kishore, he talked about a little bit earlier, our optical business, still very excited about that market. The market opportunity itself is extremely large, and our positioning with the technology and the products that we have today, I think works out very well. The 5G side, again, is a big investment opportunity, and it's one I think we're positioned to take advantage of. That's really where you see that well over double-digit growth that you'll expect to see over the next 12- 24 months.
Got it, Steve. Thanks for the color there. If I could, also for you, Steve, the gross margin range is a bit wider than normal. Is this just getting a feel for operating the new business and how that's going to play out? Or is there any more uncertainty in this quarter than others in terms of your mix?
Yeah, sure. Look, let's be honest, right? We're doubling the size of our business with a very large acquisition that's done in a carve-out. Look, there's some uncertainty, okay? Moving parts here, I think it would be prudent for us to just have a wider range. What I am confident about is as we move forward, I mentioned this earlier, going into next year, we get away from these transitional services. We own completely that supply chain. Things get a lot clearer, we're a lot more confident, you probably expect to see that range narrow again.
You do want to take into account that Q4 will be the first quarter we even actually learn what the real expenses are in many categories, right? Q3 was a partial quarter, and even in Q4, we have a lot of transitional service expenses. Q2 will be the first clean quarter, actually, with no TSA service costs. I would say that, at this point, we are making, I would say, pretty good, steady progress. I think our track record speaks for itself, that we're very good at really managing our gross margins up. We do a good job of it, and we really have a similar confidence about the acquired assets, that we should do better than what we are seeing at this stage.
Yeah. To Kishore's point, the last acquisition that we did, the business was doing low 50% gross margin. We took it up over 10 points over the next year and a half. We really do have a good track record here. We're really benefiting by strong demand, right? We've just gotten a hold of the business. It's going to take us a little bit of time to improve the gross margin. While it's a little bit lighter in Q4, as we get our hands on this, you're going to see a nice progression on the gross margin going forward.
All right. Thank you.
Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Kishore Seendripu for closing remarks.
Thank you, operator. I just want to let everyone know that we'll be participating at the ROTH Technology Conference on November 11th, the Stifel 2020 Virtual Midwest One-on-One Growth Conference on November 12th, Media and Security Networking Communications Conference on November 17th, the Wells Fargo TMT Summit on December 2nd, Barclays Global TMT Virtual Conference on December 9th-10th. Just a reminder that all of these conferences are virtual, we hope to connect with many of you there. With that being said, thank you all for joining us today. Have a happy Thanksgiving if we don't see you before then or talk to you, we look forward to reporting on our progress to you next quarter.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.