Inphi Corp
Q2 2019 Earnings Call Transcript

Published: 2 Aug 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to Inphi's Second Quarter 2019 Conference Call. . As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Deborah Stapleton, Investor Relations. You may begin.

[Deborah Stapleton:]

Good afternoon, everyone, and thank you for joining us today to discuss the financial results for the second quarter of 2019. I'm Deborah Stapleton, handling IR for Inphi, and with me today is Inphi's President and CEO, Ford Tamer; and Inphi's Chief Financial Officer, John Edmunds. We'll start off with the safe harbor, then Ford will give you an overview of our business. After that, John will provide a financial summary of Q2 2019 and the outlook for Q3. Then we'll be happy to take your questions. John?

[John Edmunds:]

Thanks, Deb. Please note that during the course of this conference call, we may make projections or other forward-looking statements about Inphi, including references to our prospects and expectations for 2019 and beyond, the projected size of our markets, our customers, market share, new products and design wins. These forward looking statements and all other statements made on this call, which are not historical facts, are subject to a number of risks and uncertainties that may cause actual results to differ materially. These forward looking statements speak only as of today's call. We do not undertake any obligation to provide updates after this conference call. For further information regarding risk factors for our business, please refer to our registration statements as well as our most recent annual and quarterly reports on forms 10-K and 10-Q, all filed with the Securities and Exchange Commission, accessible at www.sec.gov. Please refer in particular to the sections entitled Risk Factors. We encourage you to read these documents. Also during the course of this conference call, we may make reference to non-GAAP financial information. A reconciliation of this information is included in the press release and on our company website at www.inphi.com. This information is not a substitute for GAAP and should only be used to evaluate the company's results in conjunction with corresponding GAAP measures. Now to begin our review of the quarter, let me turn the call over to our CEO, Ford Tamer. Ford?

[Ford Tamer:]

Thanks, John, and thank you for joining us for Inphi's second quarter 2019 earnings update. We have a lot to talk about this quarter. Our business is strong and resilient, despite all the volatility in our markets. Throughout the second quarter, the demand for our PAM DSP, coherent DSP, TiA, driver and silicon photonics solutions was robust. We continue to invest in new products and expect these investments to produce solid revenue and EPS growth in the quarters and years ahead. If you take only one thing away from this call, it is that we have successfully diversified our customer base, and as a result, maintained our revenue growth. In the face of trade issues and Huawei headwinds we encountered during the quarter, Inphi weathered the turbulence and emerged from the quarter stronger and with a more diversified customer base. Specifically, revenue and earnings in the second quarter exceeded our outlook. Q2 revenue of $86.3 million, exceeded the midpoint of our adjusted guidance of $84.3 million, equating to 24% year-over-year growth.

[John Edmunds:]

Thanks, Ford. Now let me recap the key financial results. In the second quarter of 2019, Inphi reported revenue of $86.3 million, which was up 24% year-over-year and up sequentially 5% from Q1. This result was 2% better than the midpoint of our guidance at $84.3 million. To address Q2's performance in more detail, let me start by noting that a great deal of our data center business is being driven by cloud customers. So to be more consistent with the way other companies refer to this part of the market, we have renamed this stream of revenue as cloud. Our cloud products include, for inside data center interconnects, we have the PAM DSP, PAM retimer or CDR as well as PAM, TiAs and drivers. And for between data centers interconnects or DCI, we have a COLORZ product, which is a silicon photonics-based platform solution. Our cloud products were stronger in the quarter, growing 35% sequentially and 72% year-over-year and comprising 59% of total revenues in Q2. This growth was primarily led by our newer PAM DSP products, Polaris and Porrima, including their related chipsets comprised of specific linear amplifiers and drivers. In addition, our growth included our PAM retimer product, Vega. COLORZ was solid and relatively flat with Q1. With the Huawei addition -- I'm sorry, with the Huawei situation, telecom was off this quarter, representing about 36% of our business. However, we do expect some recovery with stronger growth in Q3, especially driven by the coherent DSP. The legacy transport business represented 5% of revenue in Q2 and was down from Q1 by approximately $600,000. In Q2 2019, the GAAP gross margin was 56.9%, down from Q1's 57.9%, primarily due to a higher allocation of stock compensation to cost of revenue. This was associated with an increase in certain program revenue delivery expense. The GAAP gross margins included $9.7 million in acquisition-based adjustments and $1.7 million in stock compensation expense, whereas the non-GAAP numbers do not. Please see the reconciliation in the press release for more detail. Gross margins on a non-GAAP basis in Q2 came in at 70.1%, slightly lower than the midpoint of the guidance based on a heavier mix of cloud business in this quarter. Q2 GAAP net loss was $20.6 million, and then we add back certain standard non-GAAP -- noncash GAAP expenditures of $37.3 million. This data adjustments are for stock compensation, acquisition related accounting and convertible debt cost amortization, which compares to the $37.9 million reported in Q1. The difference is coming from lower overall stock compensation expense in Q2.

[Operator:]

. Your first question comes from Blayne Curtis from Barclays.

[Thomas O'Malley:]

This is Tom O'Malley on for Blayne Curtis. Congratulations on the really good results, particularly in this environment. My first one is around the competitive environment in 400G. You guys have laid out a pretty consistent message on TAM, I think $120 million in 2019 and $320 million in 2020. Can you talk about where you're competition is today, and what you expect of those TAMs for the next 2 years and if anything has change there.

[Ford Tamer:]

Thanks, Tom. This is Ford. Yes, PAM is a very competitive market. The type of market sizing we've been discussing for the past couple of years has proven to be accurate. So we have been discussing a $120 million going to about $320 million. And we're still very much on track for that. So the good news for us is next year, there'd be significant market expansion which should allow us to grow the revenue significantly. So very competitive space. On the DSP side, we've got a few -- sorry, if I look at the competition, it's in 4 buckets. We've got a DSP for 50 gig PAM, we've got a DSP 100 gig PAM, we've got a retimer for 50 gig PAM, we have IP. And so if I look at the various players, you have now some captive competitors like Luxtera at Cisco and Huawei HiSilicon doing their own PAM DSP, and you've got a number of merchant silicon vendor, Broadcom, MaxLinear, MACOM, Semtech, Credo, Marvell. So it's a very crowded space. Call it, 8 or so different competitors in the market. But what we do expect this year, we've had -- we've been consistently saying we got 67% share and we're doing well above that. And next year, we expect that share to be 50% or higher. So we still feel like we've got the products and the positioning and the design win and the customer footprint to achieve this. But it's obviously a very fierce competition, and we've got it keep running fast.

[Thomas O'Malley:]

That's super helpful. And then my second one was really around 5G. You guys brought it up for the first time on the last call and talked about some drivers there. Can you talk about if you've seen that accelerate or if the Huawei headwinds are kind of dampening that? And just what you expect from products sold into that end market?

[Ford Tamer:]

Yes. Good question, Tom. So on 5G, we have discussed on the call that in Q2 and Q3, the revenue from Huawei was becoming small in Q3 -- in Q2 and insignificant in Q3. And as a result, the 5G ramp for us has slowed down. But we expect this to pick back up probably next year as some of these trade issue and Huawei headwind subside.

[Operator:]

Your next question comes from Quinn Bolton from Needham & Company.

[Quinn Bolton:]

I'll echo my congratulations on the strong results again. So Ford, I just wanted to follow up on your comment there regarding the PAM market here in 2019. You'd previously set an expectation to have 2/3 share and it sounds like you're running well above that. Can you give us some sense of how much better than 67% you think you'll capture in 2019? And then I've got a couple of follow-ups.

[Ford Tamer:]

Yes, Quinn, in 2019, we're running well above that. I hope that answers the question.

[Quinn Bolton:]

All right. I figured I'd try. Moving on to the sort of coherent market, M200, can you tell us where you are in the ramp? How many customers are shipping today? Because that seems like that's a pretty good growth driver into the second half of the year.

[Ford Tamer:]

Yes. Thank you, Quinn. So we are at the start of multiple ramp -- of multiple customer ramps and we are doing quite well. As I discussed in my prepared remarks, we do expect increased business coming from Acacia customers coming to us, including the M200. That probably will materialize next year because some of these transitions take some time. But we're very well on the way to grow the M200 nicely in the second half. And right now, we're seeing a significant increase from the first half to the second half, Quinn.

[Quinn Bolton:]

Okay. Great. And then just a follow-up on the Acacia or the coherent DSP market. You guys said when you acquired ClariPhy, they had a development effort for sort of a high 64-QAM, 64 gigabaud, 600 gig per LAN to DSP that you guys sort of took a write-down about a year ago. Given the scarcity value in the high-end DSP market and Acacia being acquired by Cisco, do you have any thoughts around potentially restarting that high-end DSP just to provide a market with another source of supply? Or do you think you'll kind of stay in the lower end of the speed range for the coherent DSPs going forward?

[Ford Tamer:]

Good question, Quinn. So on the new 400 gig offering that is going to service both the ZR market for between data center interconnect as well the ZR plus that would give would give switch or router inside the data center transport-like capabilities as well as some of the long haul and metro. And we're very excited about the new emerging metro market for this new chip. We've done a very nice job positioning ourselves with customers, where our customers are fielding to the market their own captive high-end solution and where they're utilizing Inphi for the midrange of that market. And it's a very nice complementary positioning of our internal, if you want, merchant DSP with the high end effort. And we feel like that's been a very strong win-win, where they can deploy their internal captive, if you wish, resources to the high end and we could complement their efforts with this mid-range product. As we move forward, we've had some of these customers approach us and trying to understand better how we can collaborate better on potentially some of the higher end type of products. And we will only do so if we feel that collaboration can actually expand the market. Our readiness to go into this high-end market is really -- there wasn't much of market available to merchant solution and that high end. If these discussions that are currently underway prove to be different, then we'll revisit the solution -- revisit the road map, but it's too early to say that, Quinn.

[Operator:]

Your next question comes from Tore Svanberg from Stifel.

[Tore Svanberg:]

Congratulations on the execution here. Maybe to just take a step back, Ford. Obviously, you talked about cloud almost offsetting the loss of Huawei. Can you elaborate a little better on where that came from? Were there ? Did you get more share than what you expected? Help us understand all dynamic there, please?

[Ford Tamer:]

Yes. Thank you, Tore. So Tore, it's the same dynamics that we've been discussing and just multiple product cycles going to markets. So I'll highlight all 4. We've seen continued ramp on a 200 gig PAM and -- the 50 gig PAM that's used for 200 and 400 gig type of modules, and that has been driven in large part so far by non-switch application. It's a major cloud application that consumes a lot of data. And the switch application is coming to fruition now in the second half of the year with the 12.8T switches that are going in production. So that's ramp number one. Ramp number two is a 100 gig PAM DSP that is going to 400 gig module, again, in support of the 12.8T switches, and that's ramping nicely. I'll actually mentioned five ramps. Ramp number three is the ramp of our switch from one of our partners that's a non-merchant switch but that's also driving some of the 200 and 400 gig modules in the market. Ramp number four is our PAM retimer or CDR that goes on the line card next to the new generation of switches that support PAM. And basically, we extend the signal reach from that switch to the optical module. And ramp number five is our IP business that has picked up nicely and we expect to continue to pick up in the second half of the year. So if I put these 5 ramps together, Tore, that's really what's driving our business and the strength of the business in the cloud.

[Tore Svanberg:]

Very good. And as my follow-up, you talked a little bit about the coherent DSP dynamics for long haul with Acacia. What about that DCI market? And specifically ZR and ZR plus, how have some of the discussions been with customers since that recent development?

[Ford Tamer:]

Yes. Thank you Tore. So on the ZR for between data center, we're very pleased with the results we've been able to deliver on our main customers there. We have been predicting it's going to be stable and has been stable, and actually we've had b it of upside there compare to our initial forecast. So we're very pleased with the continued strength of our COLORZ product for 80 kilometer, 100 gig between data center. We've picked up a variety of small customers that are giving us a little bit of growth there as well. Moving forward to the new 400 gig ZR, we are extremely bullish about our market position, we feel we're going to be first to market, we feel we're going to have a fantastic solution. We've been told by our customers that we're ahead. And we feel that this is going to be a very significant growth of our business and our TAM starting in mid next year.

[Tore Svanberg:]

Great. Just one last question for John. John, you mentioned the inventory is going to remain elevated for the next few quarters. Does that mean sort of by days, that the inventory days will stay kind of up here for the next 3 to 4 quarters? Or do you have sort of another comment on the actual dollar amount for the next 3 to 4 quarters? I'm just trying to understand the sort of planning there for, obviously, what seems to be some pretty big ramps.

[John Edmunds:]

Yes. I think, Tore, the -- both days and the aggregated inventories levels should come down. It all depends on mix and demand from customers. So we have a fairly broad product set now, so we could have demand in other products from customers where we might need to grow those a bit more while we're poised to supply the high-speed data center products for this growth and ramp in the cloud. A large part of these are covered by POs and it's just a question of timing and moving through a deployment process with these larger customers. So we're not particularly worried about it and we think it will come down and move through accordingly. But we're new -- as a company, we're new to the data center space and we took the advice of customers and followed their request to be ready to supply.

[Operator:]

Your next question comes from Harlan Sur with JPMorgan.

[Harlan Sur:]

Congratulations on the solid execution and strong results. Looking at PAM4 strength in Q2 and your guidance in Q3, is it stronger 200 gig or stronger 400 gig that's driving the upside? And maybe, Ford, if you could just update on, given what you're seeing now, what do you think the mix is going to be like 200 gig versus 400 gig PAM for this year?

[Ford Tamer:]

Harlan, thank you. This is Ford. I appreciate the question. I was waiting for you to ask. But as you can guess, it's a very competitive space right now. We are in the middle of very competitive bake-offs with a number of competitors that have listed. And giving you that breakdown will give up competitive information that we're not ready to share at this point. So I'm sorry, but I'm not going to be able to answer.

[Harlan Sur:]

Yes. Not a problem. May be on the competitive front, in terms of you guys maintaining your kind of 1, 2-step lead over competitors and what we estimate is more like 80% market share. Have you guys started shipping your second-gen 200 gig and 400 gig PAM4 products?

[Ford Tamer:]

Thank you, Harlan. Yes, we have started shipping our second gen and it's actually been received extremely well. And we are going to be ready to ship our third gen by end of the year. So we have a rolling thunder of many releases planned, and we're going to be aggressively investing to open up a further gap between us and the competition.

[Harlan Sur:]

And just one final question. We're hearing from the Broadcom team that shipment outlook for Tomahawk III Jericho 2 looks very strong not just second half of this year but into 2020. You guys are looking for above 2.5x growth in your PAM4 market opportunity next year, while the third-partly research guys are estimating more like 4x, 4.5x increase in 200 and 400 gig port shipments next year. Given what you're hearing, given the third-party guys, are you changing your views on what you expect your market opportunity to look like in 2020?

[Ford Tamer:]

So Harlan, I hope that these third-party research guys are right. We -- they may be. I mean have taken a conservative view of next year because number one, we -- the type of increase would be phenomenal and it'd be a bit too early to call. But also we want to be careful that -- as you mentioned, we have a very high market share today and don't want to assume that we'll keep that high market share into next year. So we're giving ourselves a few degrees of freedom here to do -- step at a time and a quarter at a time, and hopefully we'll be able to give you better outlook later in the year or early next year.

[Operator:]

Your next question comes from Ross Seymore from Deutsche Bank.

[Ross Seymore:]

I'd also add my congrats. I want to follow up to one of Tore's question before. If I remember correctly, you guys had guided, I think the cloud is now named cloud business to rise low to mid-teens I think you said sequentially, and it did significantly better than that. So I know you said you had those 5 drivers, Ford, but what really was the upside relative to your original expectations in the quarter? And then somewhat also segment wise, John, you mentioned you expect a little bit of rebounding in your telecom business in the third quarter, but if we go to pluses and minuses by your three main segments, what you think is going to be driving the roughly 5% sequential growth?

[Ford Tamer:]

Thanks, Ross. So if you look at the first quarter of the year, Ross, the only contributor to revenue in the first quarter really was the 50 gig PAM4 DSP for 200 gig module. So we really had a one of the 5 cylinders firing in the first quarter. As we go into the second quarter the, call it, 3 out of 4 new cylinders are starting to fire. And by the time we get into the second half of the year, we'll all 5 cylinders firing. So we incrementally added products with corresponding ramps and corresponding customers, and we expect that to get even better next year. This year, we expect the revenue to come in from 2 large cloud customers as well as a captive, if you want to switch system customer that's more in the HPC/InfiniBand market, and then a number of system OEMs that are shipping switches with retimers. As we go into next year, we expect at least one more major U.S. cloud and possibly another China-based cloud to add themselves to this. And we expect the number of system OEM that will be taking our retimer solution to market to increase significantly plus the number of design wins at the system OEMs to go significantly higher next year as far as production ramps. So that gives you a feel for the PAM could be rolling thunder where we add products and new customers and new design wins every quarter for the next 6, 7 quarters.

[John Edmunds:]

So Ross, I'll also try to answer your second question. Without getting into detail, I think one of the good parts in our business is -- Ford has already mentioned the amount of product diversity and the amount of customer diversity. We also have the M200 in the coherent DSP side of the business providing for growth and market share gains. So even as that side of the business is suffering a bit from not being able to ship into one of our largest customers, the diversity of the business continues to provide growth opportunities. At the same time, like any company with large customers, there may be lumpiness from one customer to another or one product to another in any given quarter. So again, I think you'll see a multitude of different things driving the growth into Q3. We just happened to mention the coherent DSP and the telco business because it did hit what we think will be a low av in the second quarter and we hope to see that grow into some degree in the third quarter.

[Ross Seymore:]

That's helpful. One follow-up I had after that. Last quarter, you talked a bit about the inventory. I think you said high single-digit millions and you plan to digest that in the back half of the year. I know that whole process gets a lot less predictable given what happened with Huawei, but in general, can you just talk about the inventory situation in the channel specific to that high single-digit level or if there's any other pockets of inventory that you're kind of forecasting to have to deal in the back half of the year?

[Ford Tamer:]

So Ross, this is Ford. I'll just give you one quick comment and then turn it to John to give you more details. Part of the inventory growth is sort of agreements that we've singed with some of the cloud customers as far as keeping a minimum inventory available on hand for, if you wish, square function increases in their demand. And so we started building this and this is part of what's going on from an inventory point of view. Now I'll turn it to John.

[John Edmunds:]

Yes. I think Ford -- Ross, a lot of these product launches and deployments are in the early stages. So I think as a result because we're a long lead time kind item, we've built up inventory, and we haven't seen as much built into the channel, yet there are some. And we have very good partner relationships with the module makers in the cloud here. So for them this is kind of scheduling is par for the course and they both carry upside and they're ready to react to -- and they themselves are looking at diversification possibilities. So I think we're very happy with the relationships we have there, and we're confident that the inventory can move through in various ways. They're not just dependent on a particular deployment, there are several different channels for that inventory to move. And again, we wanted to show our level of investment and commitment to these guys and be ready as these deployments begin and ramp over the next several quarters.

[Operator:]

Your next question comes from Fahad Najam from Cowen and Company.

[Fahad Najam:]

John and Ford, in an effort for transparency, would you mind telling us what your revenue from cloud was? I know you mentioned you had 2 cloud customers, but I'm trying to put a picture together of what cloud really represents for you that portion of your revenue? You've mentioned you're diversifying your customer base. So help us to go to show how much revenue today you are getting from cloud customers?

[Ford Tamer:]

Yes. Fahad, good to hear from you again, by the way. So in total, the cloud business comprise 59% of our revenues in Q2. And the vast majority of that is from actually from cloud customers. So there are other smaller players and different niches that are developing. But again, because the vast majority of this is cloud based, we thought we'd align and associate with other people in the market who are talking about cloud business.

[Fahad Najam:]

Appreciate that. Now I have two questions, kind of related, regarding the PAM4 market outlook, especially from a comparative perspective. Are we open here for the large cloud customers, Microsoft and Amazon, of their decision to wait for the 400 gig optics prices to come down, meaning they're likely to take 400 gig optics in the second half of 2020. What does that mean for our business? Does that mean incremental revenue for you for the retimer business? And if that's the case, I'm assuming they're still going to likely system in the meantime. Does that mean that there is an artificial bump in your retimer business and -- or much of those 400 gig optics are in the market that retimer business tends to go in? I want to understand how the dynamic plays out. And then another related topic. As you've heard often from your competitors, they've come together -- put together this Open Eye MSA. Wanted to get your thoughts on from a comparative perspective, how your solution stacks up if you can address that as well.

[Ford Tamer:]

Sure, Fahad. On the first question, right, John gave you the breakdown of 59% of our $86.3 million in Q2 coming from cloud. And it's actually all PAM-based, right? So we have broken up in the past COLORZ, as what dollar figure they represent and we've been saying it's flat. So you can take COLORZ out of that number and you could see COLORZ is not -- is a small percent of that number. So you could see that in Q2, we had a very significant PAM number. And that's not only coming from 200 gig, it's also coming from 400 gig. And while we're not at liberty to break down for you the 200 versus 400, 400 would be a significant piece of revenue in 2019. And yes, it will increase further in 2020 as other top customers join the first 2. But again, the first 2 are going to be significant in 2019. Regarding the Open MSA -- Open Eye MSA, we don't believe that having a proprietary solution is very useful. I mean we are a merchant solution that's supplies the merchant market, where our customers should be able to mix and match different solutions from different vendors without fear of not having a probability. So right now, we feel that the solutions that are provided by companies like Broadcom and MaxLinear, Marvell, Credo and ourselves are more open to interoperability. And we do expect to Luxtera, Cisco and Huawei PAM DSP to also be interoperable. So you'd end up with into our public solution that can be easily mixed and matched by customers as opposed to these proprietary short-reach only, very finicky solution that you're going to keep tweaking so this thing works. I mean we provide very robust, very high performance, very high reach, very reliable solution. They are going to give you quality, they're going to give you yield. You don't have to worry about tweaking fiber and the stuff stops working. So I mean that's what we provide. And so we're going to win. I mean there's no question that are robust highly yieldable solution over a proprietary, low reach custom solution.

[Fahad Najam:]

Appreciate it. If I man squeeze in one last question and this relates to linearity in the quarter post the Acacia-Cisco announcement. Was there an uptick in your conversations with customers that is fueling your outlook about winning shares from -- with Acacia customers looking to you, look for alternative solutions? Have your interactions increased since that announcement? So assuming it does, we've heard that has been -- do some special works with you, can you comment on any of those linearities seen as soon as that announcement?

[Ford Tamer:]

So part of what we have been doing pre-acquisition, regardless, was already taking share from Acacia. So we are already -- we're into the major Acacia customer taking share. So I mean that is going to only increase. There was a very significant uptick in conversation within 24 hours of the news being announced. And the discussions are being kicked up a couple of level above where we used to have them to the CEO of all of these companies. So we've had some very significant, very serious discussions at a different level across the board on all the system companies and we're very pleased about that. But as I said in my prepared remarks, we don't expect this to translate into much increased revenue until sort of 2020. It takes time for some of these people to design new systems, and so we don't expect that share change to manifest itself until probably mid next year.

[Operator:]

Your next question comes from Hans Mosesmann from Rosenblatt Securities.

[Hans Mosesmann:]

Most of my questions have been answered. But Ford, can you give us a sense of what's happening in China outside of Huawei? And as a follow-on, can local Chinese players do reliably linear TiAs and drivers at this point?

[Ford Tamer:]

Hans, two very good question. So here's another piece of good news is we got to the forecast we got even though there's sluggishness in the China market beyond the Huawei situation. So we're seeing the China market right now as the same thing that happened when ZTE was banned last time. The Chinese carriers are pushing out to tenders to wait for the ban to be lifted. So we're seeing an overall slowdown of the deployment of the 200 gig backbone and that's slowing down our demand for our 64 gigabaud optics like TiA and driver and even DSP in some cases. And so I think that's good news because we got into the numbers we're getting despite that weakness, beyond Huawei. So there is weakness in the China market well beyond Huawei. And pushing out the deployment of the Phase 13 backbone deployment -- outside of the China market, we're seeing strengths driven by the upgrade to 400 gig. So the 400 gig coherent is doing well outside of China and that's helping. But in China itself, to your question, the first question, Hans, we're seeing slowness there. So on the second question, the capability of new indigenous local Chinese companies to compete with us on TiA and driver, we've had many U.S.-based companies and many China-based companies trying to compete with us, and European companies, for that matter, trying to compete us on TiA and driver for the 7 years I've been at Inphi. And so far, the amount of market share they've taken from us is insignificant. Actually, we've actually taken market share from them. So I mean, yes, there'll be incremental funding, there'll be incremental vigor, there'll be a lot of people in China itself that are being funded to go compete with us, but it doesn't change the game. All we're going to have to do is keep running and running even faster. So there'd be more competitors -- and the last time I counted, Hans, there's probably 6 new companies in China that are now being funded to go compete with us on TiA and drivers, and there's probably another 2 or 3 we don't even know about. So the list of 9 competitors maybe is 18, but it hasn't stopped us in the past from keeping our market share and expanding our market share. So we'll have to keep running.

[Operator:]

Your next question comes from Richard Shannon from Craig-Hallum.

[Joseph Flynn:]

This is Joe Flynn on for Richard. Just to expand on the interoperability point that you guys just made, we've seen some commentary just around how crucial it is and possible some delays from competitors testing for interoperability. So I was wondering if you could add any color on that or talk about any maybe early benefit you're saying because of the interoperability.

[Ford Tamer:]

Yes. Thank you, Joe. So we've been working on our PAM solution to interop and take care of things like link training between us and other solutions or to negotiations with other solutions. There's all kind of corner cases on interoperability that we're actually working on with companies such as Broadcom, Marvell, Credo, just to mention a few. And so when you look at a MACOM Semtech, Trident come in with this proprietary solution short-reach only, we don't see any big advantage. I mean the advantage we're going to have is price. So will they be able to take a small percent of the small market -- the niche market that they can potentially work into for customers-only solutions, maybe, but we don't really see this as a big stress.

[Joseph Flynn:]

Okay. Great. And just one more. When you guys talk about the $120 million to $320 million extra TAM, is that -- you're just referring to the Porrima and Polaris chipsets? Or does it include like outside of the kind of buckets you guys have talked about?

[Ford Tamer:]

You could see from -- when Harlan asked the question and cited some of these third-party analyst, the numbers from the third-party analyst probably have that -- those 5 vectors to be a bigger number than our $320 million. We have been referring to the $120 million going to $320 million as all 5 of those vectors together and we have been referring to as DSP and retimer and TiA and driver, so all of the different pieces of solution that we have. But Joe, we may be too conservative here. But we'll have to see it a step at a time.

[Operator:]

Your next question comes from Joe Moore from Morgan Stanley.

[Joseph Moore:]

I wonder if you could talk about just the process with Huawei. You said you've submitted licenses there, I guess some companies are kind of hoping to hear back within a quarterly time frame. I mean is there any way of kind of assessing that? And is that monolithic where there's sort of one license that that means a whole lot? Or are there a whole bunch of licenses that are spread out over a bunch of time?

[Ford Tamer:]

Thanks, Joe. Two very good questions. On the first one, if I could predict how long these export licenses would be, I mean, it'd be a different business, right? On the second part of the questions, yes, we do need everybody to get a license. I mean part of the issue we have today is we -- there are certain components that we can ship to Huawei that are okay to ship under the U.S. EAR. Unfortunately, if they cannot get another piece of the component that's needed for LAN cards, then we cannot ship. I mean they need all of the different pieces to be shipped in order for our solutions to be ordered. And so yes, eventually, we would need all the pieces to be shipped. So not only us to others but others now. But to our understanding and our knowledge, everybody's applied for licenses. So we don't see why somebody would be granted and somebody else would not be. So we expect everybody to be granted together.

[Joseph Moore:]

Okay. And then on the 5G side if it, would you make the same case step to deployment that the tenders and the deployments could get just deferred if this situation persists? Or could the carriers use other base station vendors? And then what -- I mean I would assume there's still a 5G backhaul opportunity regardless of whose base station is going in. So just what are the big gating factors for timing around 5G for you?

[Ford Tamer:]

I mean if we just learned from the last time around, Joe, China has been very good at delaying the deployment and just ordering, everybody was delayed until the ban was lifted. So we don't see -- and this was for the ZTE. Huawei is a significantly bigger player, so we don't see why they'd behave any differently this time around.

[Operator:]

I'm showing no further questions at this time. I would now like to turn the conference back to our speaker, Mr. John Edmunds.

[John Edmunds:]

Thank you. One final note for today. Ford and I, as we've mentioned in the past, have both had 10b5-1 plans, and they've been pending and they may result in sales of some shares for the balance of this year. These sales are for diversification purposes and will generally be less than approximately 5% of our holdings if and when they happen. Inphi plans on attending the Oppenheimer conference in Boston on Tuesday, August 6.; the Jefferies conference in Chicago on August 27; the Deutsche Bank conference in Las Vegas on September 10. Ford and Deborah and I would like to thank you for joining us today, and we look forward to speaking with you again in the future.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now all disconnect.