PLX Technology Earnings Call Insights: Next-Generation Design and End Markets

PLX Technology (NASDAQ:PLXT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Next-Generation Design

Christian Schwab – Craig-Hallum Capital: Congratulations on a solid quarter.

David K. Raun – President and CEO: Thank you.

Christian Schwab – Craig-Hallum Capital: As we look to the PCI Express revenue in the second half, can you talk about visibility of next-generation design wins coming to market? I know you talked about the 12 and the 48-lane now in production and that’s what drove the PCI Express switches for Gen3 to double. But we got the 64 through 96 coming in the second half into revenue, can you quantify either the price difference or the size of the design wins based on those type of devices? Or said another way, can you talk about a number of design wins that are ramping – that is causing the growth over the last few quarters versus a year ago and what we could maybe expect in the second half of this year?

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David K. Raun – President and CEO: So, the second half of the year will primarily still be the first Gen3 parts just because of the time for people to do the calls and get into production is quite long, but there will be some new designs from the 64 and 96-lane devices, and they do go with higher ASPs and higher margins. But the overall Gen3 business for us will continue to grow throughout the year because most of these Gen3 designs have not gone into production with the lower lane count, the 12 through the 48. And these are going into everything from line cards to servers to storage systems to routers, which is primarily our historic customer base, and then on top of that we have some business which is much smaller in the high-end PC and the graphic space.

Christian Schwab – Craig-Hallum Capital: Can you quantify for us just roughly, generically, how many design wins we have in the 12 and 48-lane either by number or by customer and how many are currently ramping and how many you would expect to ramp by the end of December?

David K. Raun – President and CEO: Let’s see how can I quantify that. Well, as far as design activity in 2012, over half the design activity was in Gen3, which is a number much larger than the current type of revenue profile we’re seeing. So that’s going to spread out throughout the year. The number of customers; we’re talking about over 100 customers using Gen3.

Christian Schwab – Craig-Hallum Capital: And just on the ASP and margin differential, can you just make sure – I don’t get ahead of myself, just how much more expensive, say, a 96-lane Gen3 switch device will be versus 12 or 48, and is the margin profile a couple of points better or is it more than that?

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David K. Raun – President and CEO: Each device has its own margin profile, the smallest lane counts the 12, 16s would have the lowest and the 48s are nice and healthy and then as you get into the 96 they increase more. But overall at all kind of blends to this high 50s, mid-50s to 60 range. We do have some products that can drift up into the 80% range.

Christian Schwab – Craig-Hallum Capital: Have you guys seen any pickup or strength in the Gen 3 switches for multi-controllers, I would say, drives yet or is that still – I know last quarter you talked about a number of design wins at Tier 1, I think, three Tier 1 designs guys. Have you started to see any measurable revenue from that or is that more of a second half event?

David K. Raun – President and CEO: We’ve had revenue from this. It just hasn’t been the largest part of our business and we continue to see new design wins. We’ve picked up a couple of more solid ones by Tier 1 suppliers this quarter.

End Markets

Krishna Shankar – Roth Capital: Yes, congratulations on some very good results. For the quarter, what was the mix between PCI Express revenues and legacy revenues for Q1?

David K. Raun – President and CEO: 71 and 29.

Krishna Shankar – Roth Capital: Then as you look at the markets, it sounds like you had good momentum in PCI Express Gen 3. How do you see the data center, server, and router market shaping up? I know there have been some comments on macro weakness and IT spending. Can you talk about the specific customers and end markets you’re addressing and the health of those markets?

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David K. Raun – President and CEO: Well, specific customers, I can’t talk about. But relative to the general market, because we’re again newer platforms which are ramping, we see it as positive, the second half of the year. These are where the premier guys, primarily in routers, storage systems and servers. So it’s within all of those.

Krishna Shankar – Roth Capital: And you still – in the ExpressFabric, you said some products will be sampling later this year and revenues late 2014, you said?

David K. Raun – President and CEO: Yeah, so the – although we are supporting customers with different things to allow them to develop using our products, the actual silicon that they would use in the end product will be available near the end of the year.

Krishna Shankar – Roth Capital: And what could that add to your addressable market in terms of revenues over the next couple of years, the ExpressFabric product line?

David K. Raun – President and CEO: Yeah. So the way we look at it is, by the 2015 timeframe, if we’re talking about it, (same), we’re talking about it being about $200 million market and by 2017, a $400 million market. That’s considering explosive growth. If we’re more successful than we think we are, it could be greater than that…

Krishna Shankar – Roth Capital: That includes ExpressFabric and PCI switches, or just ExpressFabric?

David K. Raun – President and CEO: The combination.

Krishna Shankar – Roth Capital: The combination. Okay.

David K. Raun – President and CEO: Yeah, it doubles the business out over time.

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Krishna Shankar – Roth Capital: And Arthur, should we model the legacy revenues as continuing to drift down in 2014 or is that kind of a plateau at which it kind of budget stays beyond the end of 2013?

Arthur O. Whipple – CFO: I think it will continue to drift. I think it will have the same dynamic we had in the first quarter of this year, as we, from time to time, have last time buys on product that were taking the end of life. So it probably not is monotonically down as it will be easy to model. But I think kind of the long-term drift is still the same, and certainly on an annual basis, it’s down into the right 20%-ish depending on what actually happens.

Krishna Shankar – Roth Capital: So, down about 15% to 20% a year?

Arthur O. Whipple – CFO: In that range, yeah. Hard to tell at this moment. Obviously, these products have been in production for 10 to 15 years. At this point they are getting long in the 2. Still great margins and no investment, but long in the 2.

Krishna Shankar – Roth Capital: And then since the IDT deal was aborted, can you talk about the competitive landscape out there, Dave; anything you see in terms of the competitive landscape either in terms of other competitors or new technologies?

David K. Raun – President and CEO: As far as PCI Express and standalone switches, we haven’t seen any new developments to impact the Gen3 product that we’re launching with. We’ve historically seen our primary competitor IDT over the years, but in the Gen3 space we don’t see them very often. And we haven’t seen anyone new show up. When we get into the Express fabric, of course, we’re competing against other things like Ethernet and InfiniBand to coexist with them in the data center…

Christian Schwab – Craig-Hallum Capital: Congratulations on a solid quarter.

David K. Raun – President and CEO: Thank you.

Christian Schwab – Craig-Hallum Capital: As we look to the PCI Express revenue in the second half, can you talk about visibility of next-generation design wins coming to market? I know you talked about the 12 and the 48-lane now in production and that’s what drove the PCI Express switches for Gen3 to double. But we got the 64 through 96 coming in the second half into revenue, can you quantify either the price difference or the size of the design wins based on those type of devices? Or said another way, can you talk about a number of design wins that are ramping – that is causing the growth over the last few quarters versus a year ago and what we could maybe expect in the second half of this year?

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David K. Raun – President and CEO: So, the second half of the year will primarily still be the first Gen3 parts just because of the time for people to do the calls and get into production is quite long, but there will be some new designs from the 64 and 96-lane devices, and they do go with higher ASPs and higher margins. But the overall Gen3 business for us will continue to grow throughout the year because most of these Gen3 designs have not gone into production with the lower lane count, the 12 through the 48. And these are going into everything from line cards to servers to storage systems to routers, which is primarily our historic customer base, and then on top of that we have some business which is much smaller in the high-end PC and the graphic space.

Christian Schwab – Craig-Hallum Capital: Can you quantify for us just roughly, generically, how many design wins we have in the 12 and 48-lane either by number or by customer and how many are currently ramping and how many you would expect to ramp by the end of December?

David K. Raun – President and CEO: Let’s see how can I quantify that. Well, as far as design activity in 2012, over half the design activity was in Gen3, which is a number much larger than the current type of revenue profile we’re seeing. So that’s going to spread out throughout the year. The number of customers; we’re talking about over 100 customers using Gen3…

Christian Schwab – Craig-Hallum Capital: And just on the ASP and margin differential, can you just make sure – I don’t get ahead of myself, just how much more expensive, say, a 96-lane Gen3 switch device will be versus 12 or 48, and is the margin profile a couple of points better or is it more than that?

David K. Raun – President and CEO: Each device has its own margin profile, the smallest lane counts the 12, 16s would have the lowest and the 48s are nice and healthy and then as you get into the 96 they increase more. But overall at all kind of blends to this high 50s, mid-50s to 60 range. We do have some products that can drift up into the 80% range.

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Christian Schwab – Craig-Hallum Capital: Have you guys seen any pickup or strength in the Gen 3 switches for multi-controllers, I would say, drives yet or is that still – I know last quarter you talked about a number of design wins at Tier 1, I think, three Tier 1 designs guys. Have you started to see any measurable revenue from that or is that more of a second half event?

David K. Raun – President and CEO: We’ve had revenue from this. It just hasn’t been the largest part of our business and we continue to see new design wins. We’ve picked up a couple of more solid ones by Tier 1 suppliers this quarter.

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