Greetings, welcome to the MaxLinear fourth quarter 2019 financial results conference call. At this time, all participants are in 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. It's now my pleasure to introduce your host, Brian Nugent. Please go ahead, sir.
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. Numerous other risk factors outlined in the risk factor 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, 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. Now let me turn the call over to Kishore Seendripu, CEO of MaxLinear.
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 hyperscale data center end customer and are also increasingly confident in the ramp of the industry's first 400G PAM4 deployments in the second quarter of the year.
Additionally, our second generation Telluride PAM4 DSP SoC fiber optic portfolio optimized for single lambda 100G PAM4 QSFP and SFP modules is garnering significant traction. We believe single lambda 100G 400G PAM4 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 towards 400 MHz 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 feedback continues to confirm that our 5G RF transceiver has the highest performance, double the bandwidth, and superior system-level integration at 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 back all 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 roadmap 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 5-nm 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.
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%-52.5% and non-GAAP gross margin guidance of 63.5%-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 million-$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 million-$30.5 million due to continued disciplined 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 million 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 x due to strong cash generation in Q4. We remain consistent in our intentions around our uses of cash, with priorities on debt paydown and acquisitions. Our day sales outstanding for the fourth quarter was approximately 66 days, which is slightly above the prior quarter day 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-$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 in 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%-54% of revenue and non-GAAP gross profit margins to be approximately 63.5%-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 ± 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-over-quarter to a range of $46.5 million-$47.5 million, driven mainly by seasonal payroll increases and, to a lesser extent, tools supporting our product development roadmap. We expect Q1 2020 non-GAAP operating expenses to be up approximately $2.2 million sequentially to a range of $32 million-$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-$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 400G 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?
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, 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'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Quinn Bolton from Needham & Company. Your line is now live.
Hey, guys. Congratulations on the second 5G transceiver win. Just wondering 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 specific geographies, say China in particular? I got a couple of follow-ups.
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, but they do have a worldwide presence. They currently ship products into 3G, 4G markets as well. Geographically speaking, they're present in many places, but their primary focus is in Asia.
Got it. Okay. 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 or DR1 and then you layer in the other over time?
Currently, I just want to remind everybody that 400G PAM4 DSP is our first entry into data center interconnect products, right, which is based on a single lambda 100G technology. We have two products that are primed for this market. One is a 400G PAM4 DSP with an integrated driver and a TIA companion chipset. Also, we are the only ones with an optimized 100G QSFP DSP solution. 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 FR4 side to happen following this particular ramp. The initial ramp and the ramp that is going to happen at this major hyperscale data center is based on DR1 and DR4.
Great. Thanks. 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?
Yeah, Quinn. I mean, actually just mentioned multiple factors. Both are probably influencing our business at this point. As you're familiar, 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. We wanted to highlight both.
Thank you.
Thank you. Our next question is coming from Gary Mobley from Wells Fargo. Your line is now live.
Hey, guys. Thanks for taking my question. Wanted to focus a bit on the connected home business and think about the different moving pieces. If I'm not mistaken, the two remaining most influential pieces of that business would be the cable data and the MoCA business that you perhaps have concentrated with Verizon. As we look back per your 10-K file that closed, 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 hitched to perhaps the right horse in 2020, how should we think about the growing diversity of that cable data business and what the growth prospects may look like, in 2020?
Yeah, Gary, not a problem. 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. While it has been disappointing to date, I really do feel like things are improving, and we'll see that get back on track in the current year.
Also to mention that one of 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.
Okay. As you think about your MoCA business, I believe we are perhaps in the middle, and correct me if I am 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?
Yeah, Gary, I think we 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. What we've been pretty clear about, from our expectations and really where we see this today, we think we see it moving sideways in Q1, and then we'll start to see some return to growth in Q2.
Okay. The infrastructure business somewhat starting in a hole in the first quarter with expected to be down 10% sequentially. Do you think this business can grow in 2020? As we see a rebound off the Q1 base, in addition to the PAM4 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?
Yes, absolutely. Maybe just to get at your first question, do we expect it to grow? Absolutely, we expect it to grow. I think it can grow on the order of 15%-20%. That said, we've had a lot of challenges with China, and as you're familiar, we do have a couple of more than a couple, but several customers in China that make this up. There have been some headwinds. I don't think that comes as any surprise. 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 PAM4 ramp for this year. That'll start to contribute starting in Q2. You've got massive MIMO probably coming in the second half of the year. Yeah, we remain very excited about the infrastructure business and anticipating growing it nicely this year.
Okay, I'll hop in the queue. Thank you, guys.
Thank you. Our next question is coming from Tore Svanberg from Stifel. Your line is now live.
Yes, thank you. First question on the connected home. Sounds like maybe, it's going to start growing again sequentially in Q2. I know you just kind of set a little bit of expectation on your infrastructure growth this year. How about connected home? Should we think about sort of down 5%-10%? Any color there would be helpful.
Hey, Tore. 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. That said, we expect it to be somewhat muted the first half of the year. 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 fairly cautious here in saying that even if it kind of moves sideways from the Q4 results throughout the year, that I think that'll be a good progress towards stabilization. I think that's what you've heard from us, that we see this business stabilizing.
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.
That's fair. 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?
We expect it to generate revenue towards the end of this year. I think definitely. Provided their own production ramp is on track, we are ready to supply, so to speak, and because it's a long lead time market, we are ready much earlier than what these wireless OEMs take to qualify and go to production. We will have some revenue at the end of this year from this particular OEM.
Sounds good. Last question, you mentioned 5 nm. It sounds you're doing a bit of a leapfrog here, not really working on 7 nm. Can you maybe elaborate a little bit on the sort of decision behind that leapfrog?
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 ramp lead time, it does not track the rate at which the technology on the CMOS side has moved. 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 nm, which was required to enter the market, and there's a range there. We were the first one to demonstrate the product in 16 nm at 400 G. It seemed that the power differentiation was not the only determinant of the situation. The maturity of the technology and readiness to product and a need for multiple vendors, right?
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, 800G data rates. The 7 nm is neither here nor there, right? It doesn't improve the power consumption in 400G , nor does it give you the kind of integration levels and power density reductions you need at 800 G. It seems, in my considered opinion, leapfrogging one technology node, going to the alternate advanced technology node is a much better idea to have a roadmap where the products all converge generationally than being in the immediate, what I call, incremental technology node. The cost development differences between seven nanometer, five nanometer, are very marginal. At best, it's a 10%-15% difference.
You would rather do one investment than do two separate investments simultaneously, and that would not fit well with our OpEx discipline philosophy.
That's great color. Thank you, Kishore.
Yep.
Thank you. Our next question is coming from Bill Peterson from JPMorgan. Your line is now live.
Hi, thanks for taking the question. I 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? 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 better, that'd be great.
Hey, Bill, this is Steve. I don't know that we can separate out that impact. We definitely see some impact there. 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. We do expect to start to see a recovery on that particular business. On the infrastructure side, it's had a bigger impact. 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.
The other thing is that, currently the Chinese New Year keeps getting extended due to coronavirus. It's very hard to have meaningful dialogues with the customer base. Going into this call, we worry about how the pattern returns to bookings and backlogs and that sort of thing. Can we quantify everything? No. Did we take a cautionary approach? Yes. Have we been cautionary enough? That is a mystery, right? I think that'll be true for all our peers as well. Because for us, for sure, it's critical, all our manufacturing happens overseas. Are we going to be supply-constrained or demand-constrained is very difficult to guess right now. We are being cautious, but we don't know if we have quantified that properly.
Okay. That's fair. Thanks for the color there. Next question, coming back to the optical business. Now you have your ramp of your lead customer, and obviously the other large U.S. hyperscalers already ramped at 200G. 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. I guess the question is, can you give us an update on where your traction is on the other hyperscalers that you're working with, recognizing that the revenue may be later on, but just trying to get a feel for your design win pipeline with some of the other large hyperscalers?
I just want to clarify here that we entered this market by leapfrogging on the 400 G product, which is a next generation product. At that point, we made a determination whether it was right for us to enter at 200 G or 400 G. We chose 400 G. We're not in a position where we change the designs that are ramping now. We are in a position to change the landscape on data centers that have not made those decisions. We are engaged with all of them. We have our own unique value proposition. We are having very constructive, meaningful dialogues with them. I do see the market split. Even if you fast-forward three to five years from now, you'll have products that are at 400 G, 200 G, 100 G.
I think it's going to be a colorful market in that sense. 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. There is room for us to do make influential changes in the market directions and also participate in what's already set in the market.
Okay, thanks. 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, other large tapeouts that you anticipate in 2020, and just give us a feel for how we should think about that.
Sure, Bill. I guess, without going quarter- to- quarter, we do have some mask costs. 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 throughout the year.
Thank you.
Thank you. Our next question is coming from Christopher Rolland from Susquehanna Financial Group. Your line is now live.
Hey, guys. Thanks for the question. 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. Do you believe that that's the case for all OEMs in China right now, or just the ones that you're exposed to? Maybe if you could talk about your customer exposure there and how that works into the ramp. Thanks.
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, which is, I don't want to bring up the wires every time. The impact is more to do with our existing business that is already designing and ramping, which is primarily related to our wireless backhaul radio transceivers and some of our HPA industrial multi-market solutions that ship in China. There is no reference in our mind to 5G. In fact, we believe that we will be very correctly positioned for the big ramp in 5G with our offerings both on our 4x4 massive MIMO radio transceivers and our soon-to-be offerings in 8x8 massive MIMO RF transceivers.
We hope to be the first one in the world to make that happen, too, for the next generation leap in integration. No, there is no qualification on the 5G ramp timing at all. We will be positioned very correctly for that.
Great. Thank you for that clarification. 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 and 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? Is there anything 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 or number of base stations shipped. How can we, as analysts, kind of frame that opportunity better?
Chris, that's a pretty big question with lots of color there. Clearly, 5G itself is a fraction of what the worldwide base stations today are. The other ones will follow, America 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. It's going to come in waves. I don't expect the attach rate to be 100%. Secondly, it's going to be a layered process of penetration, right? If you really think about what happens in base station, it's much more than the base stations. First thing is the active antenna systems that are going to have a massive MIMO, much more chips content.
That you should look at as maybe a $400 million-$500 million SAM in active antenna systems in the next two to three years. You can do a nice growth to get there. On top of that, you need to add DAS systems, macro base stations, and small cell configurations, or let's call them micro cells, and you get to about three-quarter billion dollars of addressable SAM on radio transceivers. That's the market we're going to be participating in. Our competition at each OEM will be with yet one supplier. They are all choosing two suppliers to diversify their 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 at each OEM.
That was very helpful. Thanks, Kishore.
Thank you. Our next question today is coming from Alex Zaki from William Blair. Your line is now live.
Hi. This is Kamil Mielczarek on for Alex. Thanks for taking my question. You've talked in the past about PAM4 potentially being a $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 800G factors in? Thanks.
Oh, wow. You are now talking about 800G because I talked about a 5-nm CMOS technology, I suppose. We live in this wonderful world where the richest people want the poorest people to give them all kinds of candies. That's the data center people, right? We have to invest in 800 G to actually have them buy our 400 G, right? That's the way to look at the problem. While the first samples of 800 G will happen, sometime in the next 15 months or so window, without revealing our timelines to you, by the way. I would expect that 800G really won't ship until three years after today, let's say.
Maybe once again, our current Tier 1 hyperscale data center company will be the first one to lead the charge on that, and that's what we are focused on, really penetrate a relationship with them, stronger, get closer to them. I think the bulk of the shipments will really be 400G , 100G . 100G will permeate the entire data center space, the enterprise space, replace existing 25 G and 100 G, the WDM markets. There's a play for 200 G that's going on right now. Those are the revenues I expect to be shipping for the bulk of the next five years. Right? 800G would be starting to ramp during that window.
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 G offering, 100 G offering, and a few other things, but, I would leave it there.
It's helpful. Thank you. Just as a quick follow-up, your cash balance is now, I think, at a multi-year high. Can you talk about your capital allocation plans and share your thoughts around potential M&A? Thank you.
Yeah, sure. Actually, 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, it remains the same. Continue to look at acquisitions as well as debt paydown. We're very pleased to see the progress on the leverage, getting our net leverage down to 1.5 x. We've really made nice progress on that over the last, say 18 months to 24 months. Definitely want to build up cash so that we can look at acquisitions. We're optimistic that we can get something done in 2020.
That's great. Thank you, guys.
Thank you. Our next question is coming from Tim Savageaux from Northland Capital Markets. Your line is now live.
Hi. Good afternoon. A couple of questions. First on the PAM4 side, I guess the commentary early in the call was about increasing confidence in the PAM4 ramp. I'd ask what's driving that increase in confidence as we get closer to it, any comments on the kind of initial magnitude of that ramp?
Hi, Tim. We have not met before. Look, this has dragged on for a long time, and as more information comes out, it's very clear that we're farther along in the maturity of the levels of interops and at the module level qualification and things like that. We do feel that there are two vendors that are at the threshold of being fully ready to go. 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're very hopeful that really results in a ramp in Q2. Having said that, the size of the ramp, obviously that's a little bit mysterious. We expect an initial spurt and then slow down and then pick up later on in the second half of the year. That's the usual way things play out.
Please keep in mind, this is the first time we're entering data center markets. This is new for us, how it plays out, right? We're also looking to be extra prepared, in case the demand moves much faster than we think.
Okay. Thanks. If I could follow up and maybe beat this China horse to death here, and really with a focus on trying to discern between 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 back haul of late in China. 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 demand, 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.
I'll address the last one later. First and foremost, the demand spikes you're seeing, as you said, in front haul. Those are really legacy fiber optic solutions for the telecom market. 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? Regarding the ability to supply, we will be able to supply, but it's a careful balance between what we have to supply versus which product the demand is knowable, so to speak, right? 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 when they return, we really cannot speak for what that plays out to be.
I want to address the last one, which you said that, is China moving from microwave backhaul to fiber optic? No. China was never a microwave backhaul country for transport. It was always a fiber-based country, just like the U.S. is. However, the Chinese OEMs are one of the biggest exporters of microwave backhaul transport technologies to the rest of the world. The rest of the world, outside of the U.S. and China, are very wireless backhaul-oriented, and those are the markets they ship into. One of the biggest markets is India, which itself is evaluating its options between millimeter wave 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 for millimeter wave and microwave backhaul.
Thanks a lot.
With that, I want to wrap up this conference call here. Thank you, operator. We also want to let everybody know that we're 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.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.