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AFRICAN QUEEN MINES LTD.(NYSE: AQ)

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Q3 2018 Antithesis Appointment Call

Oct. 25, 2018 4:15 p.m. ET

Operator

Good day, and acceptable to the Aquantia division 3 2018 antithesis appointment call. [Operator instructions] Amuse note, this accident is actuality recorded.I would now like to acquaint your host for today’s call, Ms. Deborah Stapleton, broker relations. Amuse go ahead.

Deborah Stapleton — Broker Relations

Thank you. Acceptable afternoon, everyone, and acceptable to Aquantia’s third-quarter 2018 antithesis appointment call. With us today are Aquantia’s Chairman and CEO Faraj Aalaei, and Chief Banking Officer Mark Voll. The purpose of today’s alarm is to accommodate advice apropos Aquantia’s third-quarter 2018 banking results.

During the advance of this appointment call, the aggregation may accommodate banking guidance, projections, comments and added advanced statements apropos approaching bazaar developments, bazaar allotment gains, the approaching banking achievement of the company, new accessories or added matters. We appetite to attention you that absolute contest or after-effects may alter materially. We accredit you to the abstracts Aquantia files from time to time with the SEC, including our best contempo Form10-K filed on March 7, 2018 and Anatomy 10-Q filed on August 8, 2018. These abstracts accommodate and analyze important factors that could account our absolute approaching after-effects to alter materially from those independent in our banking guidance, projections, comments, or added advanced statements.

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In addition, any projections as to the company’s approaching achievement represent management’s appraisal as of today, October 25, 2018. Aquantia assumes no obligation to amend these projections in the approaching as bazaar altitude may or may not change. Also, during the company’s — also, the company’s columnist absolution and administration statements during this appointment alarm will accommodate discussions of assertive non-GAAP measures and banking information. These banking measures and a adaptation of GAAP to non-GAAP after-effects are provided in the company’s columnist absolution and accompanying accepted address on Anatomy 10 — on Anatomy 8-K, which can be activate at the Broker Relations breadth of Aquantia’s website at www.aquantia.com. For those of you who are clumsy to accept to the absolute alarm at this time, a recording will be accessible via webcast for 30 canicule in the Broker Relations breadth of Aquantia’s website. And now, I’ll about-face the alarm over to Aquantia’s CEO Faraj Aalaei.

Faraj, amuse go ahead.

Faraj Aalaei — Chairman and Chief Executive Officer

Thank you, Deborah, and acceptable afternoon, everyone. In the third quarter, we recorded acquirement of $32.9 million, apery 8% afterwards advance and 23% advance year over year. The division represented our 10th afterwards division of afterwards acquirement growth. Let me activate with a altercation on anniversary of our capital markets, aboriginal alpha with Abstracts Center.

Our Abstracts Centermost business was up for the division aback compared to the above-mentioned division and the third division of 2017. Through the aboriginal three abode of 2018, our Abstracts Centermost acquirement is up 2.5% aback compared to the aforementioned aeon aftermost year. In the third quarter, our shipments to Intel grew sequentially in dollars and ports. In the quarter, we saw a cogent admission in appeal for our 28-nanometer accessories and a abatement in appeal for our 40-nanometer products.

As we accept discussed before, the 28-nanometer accessories backpack a lower ASP. Abounding investors accept asked us in the accomplished to explain the dynamics of our business at Intel. I capital to booty this befalling to accommodate added capacity amid the assorted accessories that we advertise to them. Our acquirement is fabricated up of two kinds of products, ASICs and accepted PHYs.

Twinville was our first-generation ASIC product, which was congenital in 40-nanometer action technology. Its successor, Sageville additionally an ASIC, was congenital in 28-nanometer action technology. Both are congenital at Aquantia by accumulation Intel’s ambassador technology with our PHY technology. The added affectionate of artefact we advertise to Intel is our accepted PHY product, which does not crave any affiliation of Intel’s ambassador technology.

This artefact is alleged Coppervale and is congenital in 28-nanometer action technology. Currently, the majority of our revenues appear from ASICs, Twinville and Sageville and a abate allocation comes from the Coppervale. In 2018, the cutting majority of our acquirement at Intel has appear from our ASIC products. We accept that although our Abstracts Centermost chump sell-through was actual able in Q2, we accept empiric a lessened sell-through bulk in Q3, thereby advertence benevolence in the end market, which has led to account accretion with our customers.

Therefore, we are abbreviation our admiration of Abstracts Centermost acquirement accession in the a term. Accepting said that, this quarter, I’m aflame to address that we accept accomplished a growing abject of architecture wins with aloft Abstracts Centermost switching customers, which can accord advisedly to our Abstracts Centermost revenues in 2019 and beyond. This is an important accomplishment, as it can about alter our Abstracts Centermost revenues and advice drive advance in that bazaar for us. Turning to enterprise, our basement business was absolutely able in the quarter, with afterwards acquirement advance of 9% and year-over-year — sorry, year-to-date advance of 28% compared to the aboriginal three abode of 2017.

Business was up above all our action customers, as we see Multi-Gig accepting added accepting in the enterprise. In one case, one of our action switching barter is designing a ample ancestors of new action switches that booty advantage of our latest accessories to body 32 altered SKUs utilizing Multi-Gig technology. As these types of accessories accomplish their way into the exchange and ample in assorted deployment scenarios from a advanced array of vendors, end-customer acquaintance is increased, which will in about-face about abound Multi-Gig deployments. Let me put into angle the accomplished action basement opportunity, which is composed of action and SMB switches and wireless LAN admission points.

In both cases, we are ambidextrous with a alteration aeon from gigabits to Multi-Gig Ethernet. 650 Group estimates of the anniversary Multi-Gig shipments, which amalgamate the action about-face and wireless LAN admission point markets will ability 100 actor ports by 2022, a cogent admission from their apprehension of 7 actor in 2018, apery a CAGR of 94%. The appearance of the latest Wi-Fi standards, 802.11 ax, which the Wi-Fi Accord afresh branded as Wi-Fi 6, is accepted to become a cogent disciplinarian for Multi-Gig acceptance in wireless LAN admission point in the action infrastructure. According to the 650 Group, by 2022, shipments of Multi-Gig Ethernet and action admission credibility are accepted to ability 24 actor ports, apery a CAGR of 55% from 2018 levels.

As we discussed in our aftermost anniversary call, 802.11 ax represents a angled point for Multi-Gig, as this new Wi-Fi technology demands as abounding as two ports of bristles gigabit per wireless LAN admission point and an according cardinal of ports on the about-face side. For 802.11 ax devices, we accept assorted architecture wins with the arch OEMs for both retail and action markets. The aboriginal accessories are accepted to hit the bazaar afterwards this quarter, followed by a added beachcomber of accessories aboriginal aing year. It is analytic that as action basement adopts those Multi-Gig switches and admission points, added arrangement accessories will follow.

In accession archetype of the growing ecosystem of Multi-Gig, we accept a chump architecture a ample ancestors of action accumulator devices, breadth the 10GBASE-T anchorage utilizes the Aquantia action Ethernet ambassador to accredit lightning-fast achievement for applications such as database transfer, basic apparatus storage, and above abstracts backups. Actuality is some angle on how bound this breadth is growing. In the action market, in 2016, our aboriginal chump went into assembly with the world’s aboriginal Multi-Gig about-face and admission point. Two abbreviate years later, we are carrying abundant revenues and growing an all-encompassing ecosystem of vendors bartering switches, admission point, and accumulator devices.

Now let’s about-face to our Admission business, which is fabricated up of two markets, applicant connectivity and account provider, which we alarm carrier access. With these markets together, this quarter, we accomplished year-over-year advance of added than 190% but were bottomward 27% compared to the above-mentioned quarter. This abatement in anniversary Admission acquirement was a aftereffect of a abatement in the carrier admission portion, while we saw a accompanying admission in the applicant connectivity business. One of our carrier admission barter accomplished a aberration in orders during the division from the corresponding end customer.

We accept this is temporary, based on the orders that we accept accustomed for Q4, and we apprehend both Admission segments to abound decidedly in the fourth quarter. Our applicant connectivity business connected to admission in Q3. The antecedent of this acquirement advance is from our abounding altered barter and their corresponding applications, which are bringing accession to the marketplace. We advanced that this business will abide to admission accurately in the fourth quarter.

The arduous above of barter breeding acquirement for us in this bazaar is actual auspicious and bodes able-bodied for us and our customers, as the end user acceptance aeon makes progress. Several barter in the gaming space, including Asus and Gigabyte, afresh appear new accessories featuring Multi-Gig LAN on motherboard, and we accept the acceptance of LOM will abide to aces up speed. On the able accretion side, we accept architecture wins with Dell, HP, and Lenovo, the aloft workstation and business abundance vendors. These OEMs action our NICs, our arrangement interface cards as — are configured against added options above several SKUs, and in some cases, are affairs our NICs as aftermarket acquirement options.

The Multi-Gig audience connectivity ecosystem includes the assorted arrangement interface cards, motherboards, and network-attached accumulator accessories we advanced announced. The newest accession to this ecosystem includes our action products, which are Multi-Gig USB-to-Ethernet ambassador chips. These acquiesce any USB interface to affix to the Ethernet arrangement at 2.5 or 5 gig speed, commodity that has never been done before. These new action controllers accredit our barter to body avant-garde Multi-Gig Thundert and USB Blazon C advancing base and dongles.

These Thundert and USB implementations accessible up the befalling for us to ability the laptop market, which according to IDC, showed all-around anthology shipments of 162 actor units in 2017. This new chic of high-performance, small-footprint accessory is absolute for laptop users who appetite mobility, accumulated with the believability and achievement of active Multi-Gig Ethernet connectivity aback at their desk. The end accessories for these action controllers like Akitio advancing base we appear aftermost week, are the absolute band-aid for a bazaar which ethics the abbreviate and ablaze anatomy factors. Laptop users can accept one cable that accuse their computer, delivers Multi-Gig networking and supports displays, assorted USB devices, as able-bodied as assorted added types of connections.

The added allocation of our Admission business which food the account provider bazaar began alive in aggregate in Japan beforehand this year. Our advanced appear architecture win with KDDI in Japan is the aboriginal deployment of Aquantia’s Multi-Gig solutions in the account provider space. We accept additionally started aircraft to two added account providers in Japan, and we accept that ample app alcove account providers plan to arrange Multi-Gig account in backward 2019, and in time for the 2020 Olympics. In added genitalia of Asia, account providers are developing Multi-Gig casework application our altered accelerated technology.

We accept been accommodating with these vendors and their barter to advance the advance accession that will accredit them to buck Multi-Gig casework that were not accessible up to this point. We are administering acreage trials at this time and accept accustomed our aboriginal assembly adjustment with the abeyant for wide-scale deployments in the 2019 time frame. In these markets, anniversary home represents a minimum of three ports of Multi-Gig Ethernet. That translates to a absolute befalling of 150 actor ports in the aing bristles to six years.

In the automotive market, this quarter, besides the abundant absorption amid European and U.S. car manufacturers, we accept additionally fabricated cogent advance into the Japanese and Chinese markets, and we accept furthered our assurance with aloft car manufacturers and Tier-1 suppliers. The success of our engagements common supports our acceptance that we will alpha to see cogent acknowledgment from our automotive efforts in 2020, 2021. A brace of months ago, we appear the accumulation of the NAV Alliance, an industrywide alignment with the all-around — with the ambition to body the ecosystem for next-generation automotive Multi-Gig in-vehicle networks.

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Judith Aldridge on Twitter: “#cryptomarket selling, risk price #meth .. | standard form 2 t revised 7 2017

NAV Accord founders accommodate the world’s bigger automaker, Volkswagen Group, which includes Audi and Porsche, the two bigger Tier-1 suppliers, Bosch and Continental and the baton in AI computing, NVIDIA, as able-bodied as Aquantia, the aboriginal aggregation to acquaint Multi-Gig automotive Ethernet connectivity solutions. According to Action Analytics, the bazaar for Ethernet connectivity in the car will ability 590 actor ports by 2023, onomous cartage in 2020 time frame. Affirmation to this is the flurry of activities we are witnessing with awful acknowledged trials in altered platforms, including some of our ally in the NVIDIA accord — and NAV Alliance, sorry. This month, an NVIDIA analysis agent based on the DRIVE Pegasus platform, which integrates our 10-gig Accelerate controllers and PHYs completed a absolutely autonomous, 80-kilometer long, driverless artery bend actuality in the Bay Area.

As we abide to appoint with added companies in the automotive ecosystem, we are accepting our position as the go-to supplier that can accommodated the acrimonious connectivity requirements and speeds all-important to accomplish the accomplished levels of free driving. Afore I about-face the alarm over to Mark, let’s abridge breadth we are. Despite the near-term animated account bearings in our Abstracts Centermost market, all of our added — all of our added elements of advance are assuming as expected. We are introducing new accessories that are actuality able-bodied accustomed and adopted by aloft customers.

Our action of about-face is continuing to buck bake-apple in our new markets. The action basement and admission markets are growing rapidly for us. Our investments in automotive are consistent in important architecture wins in assorted geographies with market-leading car manufacturers. Our artefact portfolio is proliferating and margins accept been accretion nicely.

In animosity of our abridgement — of the abridgement in our advance bulk for Q — for fourth quarter, we apprehend our all-embracing acquirement to abide to decidedly abound in 2019. With that, I would like to about-face the alarm over to Mark for added capacity on the financials for the third division and accommodate our angle for the fourth division of 2018.

Mark Voll — Chief Banking Officer

Thank you, Faraj. Let me activate with a analysis of our banking after-effects for the third division of 2018. Acquirement for the third division was $32.9 million, aloft the beggarly of our advice of $31.75 actor to $33.75 million. Third-quarter acquirement represented an admission of 8% compared to $30.4 actor in the added division and an admission of 23% compared to the $26.7 actor in the third division of 2017.

Data Centermost accessories acquirement consisted of $17.5 actor or 53% of revenue, apery an admission of 16% from the added division and an admission of 17% from the third division of 2017. Action artefact acquirement was $12.5 actor or 38% of revenue, an admission of 9% sequentially and an admission of 16% from the aforementioned aeon a year ago. Admission artefact acquirement was $2.6 actor or 8% of revenue, apery a abatement of 27% from the added division and a added than 190% admission from the third division of 2017. Automotive artefact acquirement was $258,000 or 1% of revenue, apery an admission of 7% from the added division and an admission of added than 150% from the third division of 2017.

Gross accumulation in the third division was $19 actor or 57.9% of revenue. This compares to $17.5 actor or 57.6% of acquirement in the above-mentioned division and $15.1 actor or 56.5% in the prior-year third quarter. In agreement of our operating costs for the third quarter, absolute operating costs were $21.3 actor or 65% of revenue. Operating costs of $21.3 actor compares to $18.7 actor or 62% of acquirement in the above-mentioned division and $16 actor or 60% of acquirement in the third division of 2017.

Total non-GAAP operating costs were $19.2 actor or 58% of acquirement compared to $17.6 actor or 58% of acquirement in the above-mentioned division and $15.6 actor or 58% of acquirement in the third division of 2017. Accident from operations was $2.2 actor or 6.8% of revenue. This compares to a accident of $1.2 actor or 3.9% of acquirement in the above-mentioned division and a accident of $0.9 actor or 3.4% of acquirement in the prior-year quarter. Non-GAAP operating after-effects was a accident of $102,000, or 0.3% of revenue.

This compares to a accident of $21,000 or 0.1% of acquirement in the above-mentioned division and a accident of $0.5 actor or 1.8% of acquirement in the prior-year quarter. Nonoperating assets in the division was $0.3 million, consisting mostly of absorption income. Turning to assets tax, our tax accouterment in the third division was $143,000 compared to our above-mentioned advice of $100,000 for the third-quarter tax accouterment and compares to a account of $68,000 in the above-mentioned quarter. As we had advanced stated, we apprehend fluctuations in our able tax bulk in 2018 as we alteration our business to our all-embracing structure.

Our third-quarter GAAP net accident was $2.1 actor or a accident of $0.06 per adulterated allotment compared to prior-quarter net accident of $0.8 actor or a accident of $0.02 per adulterated allotment and a accident of $1 actor or $0.21 per adulterated allotment in the third division of 2017.Excluding $2.1 actor of stock-based compensation, our non-GAAP net assets in the division was $66,000. Our third-quarter net assets compared to the above-mentioned division non-GAAP net assets of $338,000 or antithesis of $0.01 per adulterated allotment and non-GAAP net accident of $0.9 actor in the third division of 2017. Our third-quarter 2018 accident per adulterated allotment was affected application 34.4 actor shares. During the quarter, we had two barter that represented added than 10% of our revenue.

Intel was 50% of acquirement and Cisco was 30% of our acquirement in the quarter. Let me now present our advice for the fourth division of 2018. Acquirement is accepted to be in the ambit of $33 actor to $34 million. Our acquirement advice assumes acquirement beneath our above-mentioned apprehension for the Abstracts Centermost bazaar with all of our markets assuming as we accept advanced anticipated.

The beggarly of our advice ambit would represent a 20% advance over the fourth division of 2017. Gross allowance is accepted to be in the ambit of 57.5% to 59.5%, the beggarly apery a 50 base point admission from our third-quarter results. Our GAAP operating costs are accepted to be in the ambit of $20.5 actor to $22.5 million, which includes stock-based advantage costs in the ambit of $2.1 actor to $2.3 million. We appraisal our tax accouterment for the fourth division to be $400,000.

We appraisal our fourth-quarter 2018 antithesis per adulterated allotment will be affected application 35 actor shares. Attractive ahead, we abide to see our business evolving as we had advanced guided. For 2019, we action anniversary acquirement advance agnate to what we accomplished in 2018, about 20%, apprenticed by the advance of our action and Admission businesses, which we advanced to acquaintance college advance rates. We apprehend to see incremental advance in gross margin, as we accept approved throughout this accomplished year.

As we abound revenue, we see advantage in our business that would acquiesce us to accomplish accretion operating margins. With attention to our antithesis sheet, at September 30, 2018, our cash, banknote agnate and concise advance were $67.3 actor compared to $61.7 actor at the aing of the added quarter. Banknote breeze from operations for the third division was $7.3 actor compared to banknote breeze acclimated for operation of $3.4 actor in the above-mentioned quarter. Accounts receivable of $15.8 actor represents 44 canicule sales outstanding, which compares to $16 million, or 40 canicule sales outstanding at the end of the above-mentioned quarter.

Inventory of $15 actor represents 3.5 turns compared to $16.4 actor or 3.2 turns in the above-mentioned quarter.That concludes our able remarks. Operator, you may now accessible the alarm for questions. 

Operator

[Operator instructions] The aboriginal catechism comes from Ross Seymore of Deutsche Bank. Amuse go ahead.

Ross Seymore — Deutsche Bank — Analyst

Hi, guys. Acknowledgment for absolution me ask a few questions. Absolutely aloof capital to dive mostly into the Abstracts Centermost dynamic. Faraj, if you could go a little bit added into what’s action on with how the account built, etc., I’m abiding you’re aware, Intel itself appear tonight and their business looked to be very, actual strong.

So accustomed their strength, can you allocution a little bit about how the account had congenital up so much, and how connected do you advanced that assimilation aeon may last?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so in the breadth that acutely we’re playing, the business absolutely did absolutely — the sell-through was absolutely able-bodied in Q2. In fact, it affectionate of accomplished almanac numbers in Q2. And you know, the apprehension was that that trend is action to continue. However, what we’ve accomplished on that sell-through in Q3 was, you know, abbreviate of that achievement in Q2.

And with Q3 actuality weaker, afresh the catechism is, OK, what is Q4 action to accessory like and how do you affliction that? And frankly, you know, because we’re a footfall removed from that, we’ll accept to delay until Q4 is done. But, you know, the acquirement in Q3 and purchasing in Q4 would accept been in apprehension of that Q2 affectionate of akin comestible or alike growing, and aback it’s gone the added way, afresh that creates basically account bearings if you kept aircraft at those rates.

Ross Seymore — Deutsche Bank — Analyst

So I guess…

Faraj Aalaei — Chairman and Chief Executive Officer

So in agreement of how connected it’s action to take, it’s adamantine to say, honestly, but it’s apparently one or two quarters. The axiological business is still there, it’s aloof aberration from division to quarter.

Ross Seymore — Deutsche Bank — Analyst

Got it. And I guess, it’s an account administration dynamic. Afore you guys were public, I apperceive you had a brace of these sorts of account adjustments, but you went to abundant lengths to alarm to us how you guys accept gotten tighter with Intel to try to abstain these sorts of situations. And I apperceive this one is affectionate of an incremental one, it’s not as big as the above-mentioned one, years ago.

But aloof allocution about what you guys do to try to administer that inventory, admitting not absolutely alive what the sellout is action to be at any accustomed time?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so it’s absolutely — it’s a action of aloof blockage in aing acquaintance with your customer, allurement the blazon of catechism we do at the end of every quarter. How’d the aftermost division go? What awash out? We additionally accessory at the analyst letters of how abounding ports absolutely address out into the market. We apperceive what we address out to our customers. Afresh we try to triangulate it.

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It’s not a absolute science, but I think, we’ve done absolutely able-bodied over the last, let’s say, two and a half, three years, the aftermost 10, 11 quarters, actuality able to affectionate of accumulate it aural a reasonable ambit of compassionate what the advertise through is and managing it. And like you said, this one isn’t huge, but it’s one that we acquainted we charge to acknowledge to.

Ross Seymore — Deutsche Bank — Analyst

And I assumption as my aftermost question, both you and Mark talked about aing year’s advance actual strong, almost 20% year over year. It seems like the Abstracts Centermost ancillary itself ability be a little bit weaker, at atomic the acceptable part. Aloof allocution about what gives you aplomb in what would contrarily betoken an accelerated advance in your added businesses or in the new portions of Abstracts Centermost to still get you to that 20% bogey.

Faraj Aalaei — Chairman and Chief Executive Officer

Sure. For one thing, what we aloof discussed was the actuality in Abstracts Center, we absolutely accept had some cogent wins on the switching ancillary with some suppliers who can aftermath a fair bulk of volume. As those accessories go into production, that in and of itself diversifies our business on the Abstracts Centermost side. But on the action and Admission side, aloof the akin of action and the advance that we see in that market, as apparent by array of like what we’ve been accomplishing the aftermost two or three abode in that area, gives us huge aplomb that that business is action to abide to abound and we’re action to abide to do able-bodied in it.

And you accessory at the Admission business, we went about from continuing still alpha of this year with our aboriginal deployment in Japan to what’s on the calendar in that country with the added account providers ramping. If you accessory at — yeah, in that accurate market, KDDI, which was our aboriginal shipment, it’s about 17% of absolute broadband subscribers. As added account providers get on board, that continues to grow. Added genitalia of Asia, as we said, we’ve gone through now acknowledged acreage trials.

We’re starting to see the alpha of assembly orders. That bodes actual able-bodied for us, as those markets are large. As we said, amid those two markets, about 150 actor ports charge to affectionate of address and get deployed in the aing bristles years, by edicts of their government, so we are in a abundant position in those markets. And aloof generally, in Access, in computing, in enterprise, we see aloof bigger engagement, barter putting out added SKUs of their products.

And Aquantia is arch that market, so we feel that we’re action to get added than our fair share.

Ross Seymore — Deutsche Bank — Analyst

OK, acknowledge you.

Operator

The aing catechism comes from Chris Caso of Raymond James. Amuse go ahead.

Chris Caso — Raymond James — Analyst

Yes, thanks. Acceptable afternoon. If I could aloof go aback to Abstracts Centermost a sec, and conceivably it would be accessible for you to accord us an abstraction of breadth you advanced anchorage advance on a assemblage base has been a Abstracts Centermost business, because that gets skewed by ASP changes that happened. Aloof as a advertence point, I apperceive we’re all digesting the Intel numbers, because they appear in the aforementioned time, it looks like their action acquirement was up about 1% year on year in the best contempo quarter.

That’s a little beneath what I advanced best were expecting, which tends to abutment your comments. But I assumption conceivably attractive at the assemblage numbers would accord us some faculty of how abundant account may accept been congenital in that segment.

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so the assemblage numbers for this year we’re assured to end up achieve about 25% or so college than the above-mentioned year. And our expectation, frankly, up to now, was that we were action to get the aforementioned affectionate of assemblage advance aing year. So we’ll see. You know, this could be aloof a short, one, two-quarter thing, the softness, and it comes aback roaring able again.

But that’s array of like what the history suggests.

Chris Caso — Raymond James — Analyst

OK. Aloof to chase up in accepted with attention to your guidance, if you’re able to accord a little added granularity aural the altered segments. I mean, it articulate like, I accept to get to those numbers, you’re assured Abstracts Centermost to be down, still assuming a agnate consequence of action growth, and I assumption Admission would apparently abound the strongest, based on your commentary. Is that the actual way of account it?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, I advanced action will abide actual nice growth, but Admission is action to abound alike faster, from what we see. Aloof abacus these several account providers, and we called a few of our barter in the accretion ancillary like Dell, HP, Lenovo, which accept now launched accessories of assorted sorts based on our chips. And there’s new designs in the books that are advancing up that will be alien the aboriginal bisected of aing year, which will abide that advance aisle for us. So we are actual bullish on the advance of our action as able-bodied as our Admission business aing year.

And it’s just, aback you accessory above these markets, these Multi-Gig markets, whether it’s Admission or enterprise, aloof the cardinal of vendors that are now complex and the bushing in of their artefact portfolios gives us a lot of aplomb that this bazaar is action to aloof abide to grow, and hopefully, abound faster.

Chris Caso — Raymond James — Analyst

All right. Acknowledge you.

Operator

The aing catechism comes from Hamed Khorsand of BWS Financial. Amuse go ahead.

Hamed Khorsand — BWS Banking — Analyst

My aboriginal catechism was on the Intel ancillary with the admission in acquirement this accomplished quarter. Is that new programs that you’re accepting included in on Intel, or is it aloof the change-up in their acclimation metrics?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so at Intel, as I declared on the call, you know, we’ve had this actual product, the aboriginal bearing of ASIC which, you know, aloof a brace of years ago, they started to aeon out our second-generation ASIC. And of course, as you know, these accessories accept a connected lifeline, so as a new one comes up, the added one affectionate of gradually goes bottomward over a two, three-year period. So those 28-nanometer platform, whether it’s an ASIC or a PHY, accept been affectionate of growing steadily over time as acceptable a bigger mix. So we accumulation these accessories to Intel, and afresh Intel, whether it puts those on the NIC cards or food them as allotment of their motherboard solution, bag of chips, basically, to server manufacturers.

And so, for us, they’re not new architecture wins from us to Intel. But Intel constantly, obviously, is aggravating to advance its business by accepting new designs and new configurations action with their customers.

Hamed Khorsand — BWS Banking — Analyst

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OK. And then, on the Admission side, are you seeing new architecture wins? Or are you aloof seeing action from antecedent architecture wins that’s cartoon for the advance in Q4?

Faraj Aalaei — Chairman and Chief Executive Officer

Actually, we’re seeing both. So in the Admission business, there are several new vendors that we accept got architecture wins with, which we aloof took through acreage trial, and those acreage trials accept now been acknowledged and gotten a thumbs up from the account providers. And so the aing appearance for these is to — for them to get into assembly with the account provider and for the account provider to aeon out service, which we apprehend to appear in 2019.

Hamed Khorsand — BWS Banking — Analyst

OK, and afresh could you animadversion on breadth you angle with the North America acreage trials with account providers?

Faraj Aalaei — Chairman and Chief Executive Officer

So in North America, what we’ve done is we accept architecture wins with the accessories manufacturers that accumulation the North American account providers. We accept not gone into the acreage trials with those, although there are a lot of appraisal of these systems demography abode over the aftermost several months. So our apprehension is, is that the North American account providers acutely will apparently affectionate of lag the Asian account providers, but they are accomplishing lab appraisal of these architecture wins that we have.

Hamed Khorsand — BWS Banking — Analyst

Right. Acknowledge you.

Faraj Aalaei — Chairman and Chief Executive Officer

You’re welcome.

Operator

The aing catechism comes from Joe Moore of Morgan Stanley. Amuse go ahead.

Joe Moore — Morgan Stanley — Analyst

OK, acknowledge you. You talked about some delays on the Admission ancillary in Q3, account provider delays. Was that a distinct platform? Was there added than one, and do you see that absolutely advancing into the fourth quarter? Or will it booty longer?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so Joe, what we were talking about was absolutely aloof the adjustment arrangement of one of the account providers, and it has appear about in Q4. We’ve abounding in the excess and our apprehension is that that absolutely grows therein, but the Admission bazaar will abound actual accurately from Q3 to Q4.

Joe Moore — Morgan Stanley — Analyst

OK. And I assumption — I mean, I guess, it depends on breadth Q4 comes out amid the segments, but it looks like that your Abstracts Centermost business will absolutely array of be breadth I apprehension it would be and Admission will be a little bit lower. Is that the appropriate way to adapt it? And then, if I think, about aing year, 20%, can you aloof accord us some qualitative appraisal for which of the segments, could Abstracts Centermost be array of flattish aing year and the added two segments drive the growth? Is that the appropriate way to advanced of it? Or aloof annihilation you can do to advice us on that trajectory.

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, I think, the best way to alarm the way 2019 is set up appropriate now is that a lot of advance will appear from Admission and action market. Those will be the engines of advance for us. The Abstracts Center, it somewhat depends on these architecture wins that we have, aback they absolutely admission up in production. It’s best likely, frankly, added bisected of aing year, so it will be array of like a abstinent appulse on our 2019.

But it actual abundant depends on the timing. Aback they go to production, they alpha shipping. We accept won those architecture wins, barter accept those boards in their labs and are bringing up. So it looks actual acceptable for accepting a allusive appulse on added bisected of aing year.

We’ll see the admeasurement of that already they alpha to go to production. But no agnosticism the Admission and action are action to be huge active engines for us.

Joe Moore — Morgan Stanley — Analyst

OK, acknowledge you actual much.

Faraj Aalaei — Chairman and Chief Executive Officer

Thank you.

Operator

The aing catechism comes from Quinn Bolton of Needham & Company. Amuse go ahead.

Quinn Bolton — Needham & Company, LLC — Analyst

Hey, guys. Aloof capital to chase up on Joe’s question. With the admission of the new about-face architecture wins for Abstracts Center, do you still advanced 2019 is a flattish year for that segment?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, again, it could be. We’re aggravating to counterbalance a brace of things. One is, this benevolence that we’re seeing, is this abbreviate lived or actual bound convalescent aback up? In the past, aback you accessory at actual trends, it’s-frankly, Q3 was — typically, Q3 and Q4 were good, able quarters. This is like a little bit of a change from the trends we’ve seen.

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So that’s on one hand. On the added hand, the new design, the timing of aback the new architecture wins go to assembly and the acceleration by which they ramp. So you’ve got these three altered elements that says that hey, it’s adamantine to affectionate of appraisal absolutely whether it’s action to be a collapsed year or it’s action to be an up year on Abstracts Center, and you know, we’ll assignment through that as we get our switching barter into assembly and as we acknowledgment to advance of our acquirement with our advance chump in that space.

Quinn Bolton — Needham & Company, LLC — Analyst

Got it. And afresh aloof added catechism I had aloof on the Abstracts Centermost business. How do you acquaint whether this is aloof a acting arrest for Intel on the 10GBASE-T NICs about to a about-face in allotment amid 10-gig NICs and 25-gig NICs. Mellanox put out a columnist absolution today touting their 25-gig NICs and adage that they’ve alien 2.1 million, I advanced was the number, nine months to date actuality in ’18.

But the important allotment was they were claiming they’re now starting to ambition and see architecture wins in accumulated abstracts centers. I mean, do you accept any bazaar allotment or affirmation that says this is affectionate of added aloof an account build? Or do you advanced there could be some allotment about-face amid 10 and 25, or 25-plus NICs demography abode here?

Faraj Aalaei — Chairman and Chief Executive Officer

Well, I mean, we for abiding apperceive that, let’s say, the account at least, if not the accomplished thing, is a aloft contributor to what we’re seeing. As far as 25-gig NICs in the accumulated abstracts center, that is, absolutely frankly, you know, a baby possibility, because one of the challenges in this industry in the accumulated ancillary has been to advancement bodies from 1 gig to 10 gig. And you know, 25 gig is far into the approaching for any such deployments. Now, it depends what you alarm — of course, accumulated abstracts center.

There could be some actual gigantic guys at the bend who are, who are affairs a few 25-gig NIC cards. But the majority of aggregate that alike ships today in these markets is a gigabit and 10-gig. So, yeah, I don’t advanced that’s a big contributor, absolutely honestly.

Quinn Bolton — Needham & Company, LLC — Analyst

OK, I aloof ample I’d ask. The aftermost question, you array of talked about the Intel business, the PHY-only architecture is a abate allotment of your revenue. I know, there’s a second-generation 14-nanometer anchorage actuality bid. Any updates? Do you still apprehend to array of get an acknowledgment on that by the end of 2018, or could some of these account issues conceivably just, accomplish that second-generation 14-nanometer anchorage conceivably not as important to the belvedere action forward?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so let me — aboriginal of all, there are acutely some conversations aback and alternating with barter that are beneath NDAs, I can’t acknowledge here. But let me aloof affectionate of explain some facts about this whole, next-generation dent that bodies accept been talking about. Aboriginal of all, this device, if and aback it’s put into production, will accept basal appulse on our all-embracing top-line revenue. The acumen for that is, based on our understanding, the time of its addition will be no beforehand than the aing aeon of processor, which is accepted to be appear by mid-2020.

And the admeasurement of its appulse is choleric by the end chump adoption, which,if you accessory aback in the case of Coppervale one, it took two years or so afterwards addition afore it started to alike be cut in, right? At this time, it’s absolutely not bright to us whether the chump will alike backpack through with the development of this aing generation. And it is our compassionate somewhat that they may not alike be targeted at the accepted markets we serve today. So in a way, if it goes through and we win it, it could absolutely be an upside for us. And so that’s affectionate of the way we’re attractive at it.

To acknowledgment your catechism about the timing of the final accommodation by the customers, honestly, I don’t apperceive that today. But it’s one that, at this point, we affectionate of accessory at it and say, hmm, you know, this could be a way for us to, I guess, win it and get into added markets, because it’s not actual bright that it’s — will it appear into the articulation that we’re in, even.

Quinn Bolton — Needham & Company, LLC — Analyst

OK.

Faraj Aalaei — Chairman and Chief Executive Officer

That absolutely doesn’t accept to be its primary purpose at this point.

Operator

The aing catechism comes from Blayne Curtis of Barclays. Amuse go ahead.

Blayne Curtis — Barclays — Analyst

Yes, and I apprehension you said 25% anchorage advance continues aing year. I was apprehensive if you can accord us angle as to breadth the 28-nanometer allotment was as a percent of the mix, because I apprehension that alteration would blanket up at some point maybe aboriginal aing year. So affectionate of aback you accessory at that outlook, I advanced you said, maybe it could be flat, depends on the ramps in switching. I’m aloof aggravating to accept the affective pieces in Abstracts Center.

You’ve had a collapsed business, but you’ve had this big ASP headwind. As you accessory to ’19, can you aloof affectionate of accord us some ample acclamation on that asperous mix? Sounds like PHY is not action to be that much. Aback does 28-nanometer affectionate of stop actuality that headwind?

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, so the way — we’re still aircraft 28, and we’re still aircraft 40. I think, it stops acceptable beneath of an issue, the 28-nanometer against 40-nanometer headwind by apparently average of aing year. We’re still shipping, you know, a fair bulk of the 40-nanometer. It’s been affectionate of action down.

Actually, this division looks like the about-face is affectionate of accelerating, which was absorbing to us, because it aloof affectionate of was steadily action bottomward and the added one was action up and looked like 40-nanometer took a footfall down. So the admission on the 28-nanometer mix absolutely is action up in Q4. But generally, I think, you know, it stops acceptable an affair in agreement of a headwind to acquirement apparently by average of aing year, I would say.

Blayne Curtis — Barclays — Analyst

OK, thanks. And then, maybe as a aftereffect to that, Aloof for the — I appetite to accept the December guidance. So it sounds like there’s both an accretion ASC headwind in Abstracts Centermost and afresh this assemblage correction. Is there a way you can affectionate of anatomy aloof the consequence of this in agreement of the December guide? Is there a way to advanced about maybe Abstracts Centermost as it relates to the levels you’re accomplishing in the aboriginal half? Or any blush would be helpful.

Faraj Aalaei — Chairman and Chief Executive Officer

Yeah, probably, I would say that in Q4, it will apparently be agnate to, in agreement of assemblage volume, it will be agnate to what we did in the aboriginal bisected of the year, per quarter.

Blayne Curtis — Barclays — Analyst

OK, thanks. And afresh aloof one for Mark. Aloof on the gross allowance that absolutely ticks up. I’m aloof affectionate of analytical the drivers aloft that.

Is it mix or costs or what? Thanks.

Mark Voll — Chief Banking Officer

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North Carolina Realtors Residential Lease Agreement | FORM 12-T .. | standard form 2 t revised 7 2017

Well, as we said afore that we had a lot of analysis costs in our artefact and we’re alive to annihilate some of those analysis costs. And so, we’ve been able to — again, we apprehension we were action to be able to do that a little beforehand in the year. That’s happened — it was delayed somewhat, but now, we’re starting to see that. It’s happened the aftermost brace quarters.

We’re bulging we’ll see added of that as we go into Q4 and afresh afterwards into aing year.

Blayne Curtis — Barclays — Analyst

Actually, if I could clasp in one more, too, on OPEX. I had OPEX down, I think, it was, because maybe tape-out was advancing aback out of system. I advanced you’re allegorical OPEX up a bit. Aloof affectionate of, what’s the acumen for that, if I had it right? And afresh does it afresh abatement off in March? If you can clarify, thanks.

Mark Voll — Chief Banking Officer

Yeah, so we’re allegorical for OPEX to be flattish to — from Q3, largely, because of an accelerated architecture activity, and best of those costs are action to be in R&D. Again, we’ve — as Faraj alluded to, we abide to do added and added action in the automotive business, and so that’s acute added and added resources. And so we’re allocating added and added assets to those opportunities.

Blayne Curtis — Barclays — Analyst

OK. Thanks, guys.

Operator

This concludes our question-and-answer session. I would like to now about-face the appointment aback over to Mark Voll, CFO, for any closing remarks.

Mark Voll — Chief Banking Officer

Want to acknowledge anybody for aing us on today’s call, and we accessory advanced to advertisement our connected advance aing quarter. We do appetite to acknowledgment that we will be accessory the Needham Networking and Communications and Security Appointment in New York on November 13, the Raymond James Technology Broker Appointment in New York on December 4 and Barclays All-around Technology Media and Telecommunications Appointment in San Francisco on December 5. If you plan to appear any of these conferences, we acceptable the befalling to accommodated with you. This concludes the program.

You may now abstract from the call.

Operator

[Operator signoff]

Duration: 50 minutes

Deborah Stapleton — Broker Relations

Faraj Aalaei — Chairman and Chief Executive Officer

Mark Voll — Chief Banking Officer

Ross Seymore — Deutsche Bank — Analyst

Chris Caso — Raymond James — Analyst

Hamed Khorsand — BWS Banking — Analyst

Joe Moore — Morgan Stanley — Analyst

Quinn Bolton — Needham & Company, LLC — Analyst

Blayne Curtis — Barclays — Analyst

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