Apr 26, 2007
TRANSCRIPT SPONSOR
Executives
Peter Andrew - VP of IR Scott McGregor - President and CEO Eric Brandt - CFO
Analysts
Michael Masdea - Credit Suisse Alex Gauna - UBS Ross Seymore - Deutsche Bank Srini Pajjuri -Merrill Lynch Cody Acree - Stifel Nicolaus Seogju Lee - Goldman Sachs Adam Benjamin - Jefferies Sanjay Devgan - Morgan Stanley Craig Berger - Wedbush Morgan Shawn Webster - JP Morgan Tim Luke - Lehman Brothers Hun Lee - Global Crown Capital Shaw Wu - American Technology Research
Operator
Welcome to the Broadcom First Quarter Fiscal Year 2007 Earnings Call. During the presentation, all participants will be on a listen-only mode.
Afterwards, we will conduct a question-and-answer session. (Operator Instructions).
As a reminder, this conference is being recorded April 26, 2007. Your speakers for today are Scott McGregor, Broadcom's President and Chief Executive Officer; Henry Samueli, Broadcom's Chief Technical Officer and Co-Founder; Eric Brandt, Broadcom's Chief Financial Officer; Bruce Kiddoo, Vice President and Corporate Controller and Peter Andrew, Vice President of Investor Relations.
I would now like to turn the conference over to Mr. Andrew.
Please go ahead.
Peter Andrew
Thanks, Maria. During this call, we will discuss some factors that are likely to influence our business going forward.
These forward-looking statements include guidance we will provide on future revenue, gross margin and operating expense targets for the second quarter of 2007 and any other future periods and statements about prospects for our various businesses and the development status and the planned availability of new products. It should be clearly understood that our actual results may differ substantially from the forward-looking statements we make today.
Specific factors that may affect our business and future results are discussed in the risk factors section of our annual report on Form 10-K for 2006 and in our other SEC filings. A partial list of these important risk factors is set forth at the end of today's earnings press release.
As always, we undertake no obligation to revise or update publicly any forward-looking statement for any reason. Throughout this call, we will be discussing certain non-GAAP financial measures.
Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the two for the periods reported in this release. Please see the investor's section of our website for reconciliations going back to the beginning of 2005 as well as for additional financial and statistical information, including the information disclosed in accordance with SEC regulation G.
With that, let me turn the call over to Scott.
TRANSCRIPT SPONSOR
Scott McGregor
Thank you, Peter. Broadcom had a good first quarter with revenue coming in a bit better than we previously expected.
In addition, in Q1, we undertook a number of actions that enabled us to generate additional operating expense efficiencies that when combined with our better than expected revenue allowed us to exceed analyst's earnings expectations on a GAAP and non-GAAP basis. In Q1, we also generated about $181 million in free cash flow.
The first quarter was relatively quite from a business and an end-market perspective. However, the first quarter was a very strong quarter from a new product perspective.
I'll talk more about these new products in a few minutes. When you combine this quite environment with a few of our larger customers going through some near-term business transitions, Broadcom is experiencing a lower than normal level of visibility into our near-term results.
We believe that these issues are near term in nature and we remain optimistic regarding growth in the second half of the year. With that, let me now turn the call the over to Eric to talk about the quarter from a financial perspective and provide our guidance for Q2.
Eric Brandt
Thanks, Scott. Overall, we are pleased with our Q1 results.
Revenue of $901.5 million was down $22 million or 2.4% from Q4 2006, but slightly ahead of our expectations. Non-GAAP gross margin of 52.1% was up 20 basis points from last quarter and slightly above our long-term model of 50% to 52% and consistent with our guidance.
Total non-GAAP operating expenses increased by $3.4 million over Q4, principally due to increased headcount costs which were partially offset by efficiencies in prototyping costs and reduced legal expenses. Non-GAAP earnings per share were $0.29 down from $0.31 in Q4, but slightly above analyst's consensus at $0.27 per share.
Free cash flow was $181 million. Our cash and marketable securities on hand decreased by $239 million for the quarter to $2.56 billion driven primary by $425 million in share repurchase settled in the quarter.
Inventory for the quarter decreased by roughly $2 million to $200 million which equates to 8.6 tons. This is our third consecutive quarter with a reduction in inventory.
This demonstrates the excellent work our operation's team has done to adjust our supply in every changing environment. The tons level of 8.6 times remains well above the long-term goal of 7 to 8 tons.
Moving to revenue and gross margin. In the February call, we said that we expected Q1 revenue could be approximately $890 million to $900 million.
We expected a seasonal decline in our more consumer-oriented businesses, which we anticipated will be partially offset by growth in the network, switching and certain areas of our broadband business. This is exactly what occurred.
In other areas, as expected in our enterprise networking business, our switch business and PHY business did grow in Q1. But this growth was offset by softness in sales of controllers due to excess inventory in the server and enterprise client areas, seasonal weakness in the consumer client space.
With respect to our broadband communications market, strong growth of our DSL, digital TV and satellite products were somewhat offset by a decline in sales of our cable set-top box solutions, as one of our major customers shifted their mix to lower-end set-top boxes in anticipation of the CableCARD initiative. In the mobile and wireless business, seasonal decline across the broad was somewhat offset by growth in the voice business.
In terms of revenue distribution for Q1, broadband communications accounted for approximately 39% of total revenue, mobile and wireless for 30%, enterprise networking for 31%. In Q1, we once again had two customers who accounted for 10% and more of our revenue, Motorola and Cisco.
With respect to gross margin, as we forecasted in February, our gross margin rose 20 basis points to 52.1% driven by better pricing as utilization rates of the fabs continue to come down. Moving to operating expenses.
Non-GAAP operating expenses were up $3.4 million or 1.1% from our Q4 levels due to increased investments in R&D and other staff costs of roughly $8 million. Offset by efficiencies and prototyping costs due to increased usage of multi-product wafers or MPWs for new products and a reduction in our legal cost, as we wound down the equity award review and settled the number of suits with Qualcomm that were about to go to trial, where spending typically picks up.
We continue to move forward with our 65 nanometer platform. As in Q4 2006, roughly one-third of our tape-outs in Q1 were 65 nanometer.
As we have said previously, by Q4 2007, we expect almost 90% of our tape-outs will be in 65 nanometer. 65 nanometer is giving us the definite competitive advantage in terms of low power and ability to integrate features and functionality that most of our competition can not achieve, because they simply do not have the product breadth.
In addition, the expanded use of MPWs and other efficiencies have allowed us to implement 65 nanometers more cost effectively. We increased our total company headcount in Q4 '05 to 340 people, to a worldwide headcount of 5,573 people.
This includes over 4,000 employees in engineering or 73% of our total headcount. This has increased from approximately 68% two years ago.
Moving to the balance sheet. Total cash and marketable securities decreased by $239 million to $2.56 billion principally driven by the share repurchase program approved in February.
Consistent with Q4, strong positive cash flow was generated from operations, $222 million with some benefit from proceeds from employee stock option exercises of approximately $57 million net. This was more than offset principally by repurchases of our common stock, capital expenditures, which included our new Irvine campus and the acquisition of LVL7 in the quarter.
We lowered our inventory further in Q1 by approximately $2.4 million to $200.4 million. Inventory turns were 8.6 times in Q1.
The percentage of our sales made to distributors remained low at 14%. As a reminder, we recognized revenue through distributors on a sales out basis.
Our accounts receivable day sales outstanding decreased from 38 days to 37 days due to improved linearity and collections. As mentioned previously, we commenced the new share repurchase program under which we can purchase up to $1 billion of our Class A common stock over the next 18 months.
During the quarter we purchased 13.7 million shares at a cost of $464 million. Settlements for approximately 1 million of those shares occurred in Q2, so that is why you will see a difference in this number versus what is on the cash flow statement.
The objectives of this program are to manage our net share dilution and return capital to our shareholders. While our first priority will always be to invest in the business, we believe that given our strong cash flow and the pace of our investments in future business and emerging areas, this is currently an excellent use of our cash.
Moving to the expectations. Last quarter we tried to nail down what we believe were going to be the most important growth drivers in 2007, and these included Bluetooth, wireless LAN, Ethernet switching and digital TV.
We continue to believe that these will be the growth drivers this year. As noted on our press release we are seeing mixed outlooks from a few of our larger customer, which is causing lower than normal visibility into our near-term results.
As such, we are somewhat more cautious with respect to Q2 guidance. We currently expect Q2 revenue in the range of $890 million to $905 million.
And looking at what we expect to happen in Q2 in broadband communications we expect to see growth in both our cable and satellite set-top box businesses due to seasonal strength, plus the continued migration to higher-end boxes utilizing PVR and HD .We are also seeing modest near-term benefit from the upcoming CableCARD initiative. This will be offset somewhat by softness in cable modems due to excess inventory at one customer.
In mobile and wireless, we expect to see growth to be relatively flat as we anticipate that many of the product lines will ramp in the second half of the year. For Q2 we expect growth in the wireless LAN and VoIP to be offset by customer mix transitions with the Bluetooth area, Scott will talk more about this in a few minutes.
In enterprise networking we expect continued growth within our enterprise switching business offset by weakness in our Ethernet controller business, as we continue to work through excess inventory in the enterprise PC and server markets and some market share erosion due to recent design losses. For non-GAAP gross margin, in Q2 we expect to see continued benefits from the supply chain opening up resulting in a slight increase in Q2 gross margin compared to Q1.
For non-GAAP operating expenses in Q2 we expect continued investments in new products and 65 nanometer process technology, both of which we believe are critical to our revenue growth and gross margin in 2007 and later years. In addition, in Q2 our annual merit compensation increase process takes effect and has roughly a $10 million quarterly impact.
As a result, we expect non-GAAP operating expenses on a dollar basis to increase at a somewhat higher rate than the increase from Q4 to Q1, plus the aforementioned impact of the merit increase. Historically, when our spending increases are above our business model, it is due to specific customer opportunities that we have a good track record of converting to revenue.
However, we remain very conscious of our long-term profitability model and we'll take whatever steps we reasonably can to assure that we operate within that model, while continuing to fund key growth opportunities and other priorities. In addition, we continue to look for and realize efficiencies in our processes.
Cash flow from operations for Q2 is expected to remain strong. Also we anticipate that we will continue to repurchase shares in Q2.
And now, I would like to turn the call back over to Scott to talk about the state of the business. Scott?
Scott McGregor
Thanks Eric. As I mentioned earlier, we had a very strong quarter from a product introduction perspective, but a mixed outlook from a few of our larger customers gives us a lower than normal level of visibility into our near-term results.
As Eric mentioned, these issues are primary in the areas of cable modem, gigabit Ethernet controller and Bluetooth. While each issue is different, we believe these are, in fact, short-term issues.
I'll go into more detail as I walk through the performance at each of our business groups. For mobile and wireless, Q1 was a very strong quarter from a new product introduction perspective in Bluetooth cellular and wireless LAN.
But, from revenue perspective mobile and wireless was down as we expected, mainly driven by seasonality. From a Bluetooth and wireless LAN perspective, we begin sampling a 65 nanometer SoC that combines our market-leading Bluetooth and wireless LAN solutions along with FM radio capabilities.
The key competitive differentiators with this product are; number one, it is available today. Number two, it combines our market-leading Bluetooth with our market-leading wireless LAN capabilities.
Many of our peers are just now starting to bring out their discreet wireless LAN or Bluetooth offering. Number 3, it includes a full software suite, and number 4, it uses leading edge, 65 nanometer process technology that makes it both cost effective and the lowest power solution in the market.
We see strong interest in this product coming from cellular handset and MP3 OEMs, in addition to our traditional PC OEMs. And if we execute properly, we expect end products based on this solution in the market later this year.
Also, within the Bluetooth market, we began shipping two new products specifically tailored to address the needs of the mono handset market. This is a new market for Broadcom and we look forward to products from leading mono handset vendors using these solutions on the store shelves later this year.
In late Q2, you should be able to purchase cellular handsets incorporating Broadcom's Bluetooth plus FM chip. As we mentioned last quarter, we expected to achieve the million unit milestone in Q2.
And we are pleased to announce that we already have passed that milestone. Today, we are shipping our Bluetooth plus FM products to four of the top five cell phone makers.
As we predicted last quarter, Bluetooth in Q1 was down slightly due to seasonality in cellular handsets, offset by record Bluetooth shipments into the gaming and PC markets. As we look into Q2, we anticipate that sales to one of our larger cellular handset customers will decline on the sequential basis.
This is being driven not by market share losses to that customer, but solely due to a muted business outlook. We anticipate that this decline will be partly offset by the ramp up of our standalone Bluetooth products into other Tier 1 cellular handset OEMs.
Plus to ramp up of our new Bluetooth plus FM part into new and existing Tier 1 cellular handset OEMs. In total, we anticipate that Bluetooth will be down slightly in Q2.
For the second half of the year, we expect to see our Bluetooth business grow, driven by overall growth in the market and increased penetration within the cellular handset space. Broadcom is well positioned to continue to gain share by expanding our customer base, expanding into new spaces such as the mono headset market and consolidating multiple technologies into a single SoC.
In wireless LAN, our revenue in Q1 was down slightly as both 802.11g and n sales fell slightly in the quarter. Sales on the client side, both n and g into embedded applications grew on a sequential basis while sales the router market experienced their normal seasonal weakness.
We continue to see additional evidence that the 802.11n market will pick up in the second half of this year, driven by four things. One is increased adoption in the PC and notebook market.
Two, a pick up in the number of products certified by the WiFi Alliance beginning around mid year. Number three, we see retail price points continuing to come down.
And four, we see new categories of products coming to market, such as the Apple TV, which is using Broadcom's silicon. We expect wireless LAN to be a growth driver for Broadcom in Q2 and for the full year.
Voice over IP had a strong Q1, driven by strength in the traditional desktop enterprise phone market. This group also provides the voice capabilities for our broadband modem group.
Voice is an important factor in our broadband modem business, where total voice ports grew sequentially in Q1 and enabled us to get a higher ASP for an integrated voice plus data modem versus a standalone data only modem. Mobile multimedia was down in Q1 as expected, given the seasonal nature of the Mp3 market.
We anticipate providing a wide variety of products into these rapidly evolving platforms as they transform in the future. In the cellular space, we had a very strong quarter from a product announcement and customer engagement perspective.
On the product front, two new products created significant customer interest. Our 65 nanometer EDGE integrated baseband-plus-RF chip and our 65 nanometer monolithic HSDPA baseband.
Once again, both of these products are available today. The EDGE baseband and RF SSC differentiates us from competitor's products and then it also integrates high-end multimedia capabilities, such as full 30 frames per second H.264 hardware accelerators to encode and decode at QVGA resolution.
These products are at price points at or below those of our competitor's offering. In the 3G space, we demonstrated our 7.2 megabits per second HSDPA modem with an integrated application and multimedia processor on a single monolithic chip.
This chip includes a multitude of high-end multimedia and connectivity capabilities leveraging expertise from Broadcom's other ways of business. On the software side, our MStream technology completed live network trials in the US and as expected, exhibited significant and documented improvements in voice quality, improving mean opinion score rating by 0.5 in areas of low signal and interference and increased network capacity without any additional modifications or cost to the network itself.
Our goal remains to get to 10% to 15% share in the cellular handset market by the end of 2009. The other day, our cellular team celebrated the fact that we passed our first million unit 3G baseband milestone.
While we have a long way to go to get to our market share goal, we continue to be pleased with the progress we are making with numerous Tier 1 cellular handset OEMs with these new products. Moving to the broadband area.
We experienced a good quarter of revenue growth driven by our broadband modem, satellite and digital TV lines of business. With respect to broadband modems, as we noted in Q4, we expected DSL to grow in the first quarter and it did.
The inventory issues are clearly behind us and we continue to experience growth in India and China for ADSL2+. While still representing a small percentage of the total DSL market, we also experienced growth in our VDSL2 revenue in Q1 and we achieved another video sell through design-win in Europe that we will ramp in the second half of this year.
We are well positioned in the broadband modem market with our leading data position and strong market leading technologies within Broadcom's portfolio, such as success voice, switching and wireless LAN. Looking into Q2, broadband modems are expected to be down sequentially driven by adjustments in inventory levels by one of our large cable modem customers.
We see this as an isolated Q2 issue as their business remains strong. Total set-top box revenue in Q1 was down slightly.
Satellite experienced a seasonally strong quarter due to strong subscriber additions and a continued mix migration to high-end MPEG-4, HD and CDR enabled boxes. But that was offset by a decline in sales of our cable set-top box solutions.
Sales of our cable set-top box products were down in the quarter as customer shifted their buying mix to take a greater percentage of lower-end boxes prior to the CableCARD cutoff in July. We think that the majority of the build up the set-top boxes is at the low end of the market as these subscribers tend to have higher turnover.
However, we are also seeing some interest in our customer base and taking a bit more of the high-end set-top boxes in Q2 prior to the CableCARD [cost] date. An interesting observation here is that after the CableCARD transition, we believe there is an opportunity to gain share at the lower-end of the market.
Long term, our view has not changed on the potential in either the cable or satellite set-top box markets. But given our size and customer concentration in these end markets, the CableCARD initiative is causing some near term variability in our larger customer's order patterns.
In the next generation HD DVD player market, we continue to make excellent progress, providing solutions for multiple Tier 1 set makers to address the HD DVD and Blu-ray standards. We also took the lead in the universal player market.
We believe that we are currently the only supplier that can provide both the silicon and the software to bring these next generation universal players to market on a timely basis. This highlights one of the key things the Broadcom has been investing in over the last few years, which is our software capability.
Our customers in many of our end-markets want to complete solution plus the ability to differentiate their product. By providing both silicon and a high level of software which is programmable by our customer, they get faster time-to-market while also having a high level of differentiation.
In digital TV, we experienced a nice rebound in our revenue in Q1. We continue to ship product to Tier 1 customers in Japan and Korea in addition to a few other digital TV manufacturers.
As we look into the future, we anticipate signing up additional Tier 1 customers. On the product introduction front; we brought to market our highly integrated 65 nanometer 1080p family and if we execute well, you will see products incorporating that solution available on store shelf in this calendar year.
By providing a complete hardware plus software solution to the digital TV market, we are able to accelerate the time-to-market for many of our customers' products, while enabling their high degree of differentiation. Moving to enterprise networking.
In the enterprise networking market, we experienced a strong quarter in terms of growth for our enterprise switching and PHY lines of business, which was offset by a decline in our controller line of business. In the switching line of business, we experienced growth in fast/gigabyte and 10-gigabyte Ethernet switching products in the first quarter.
This growth is being driven by three things. One, a continued rebound from the inventory correction in late 2006.
Number two, strengthen the carrier Ethernet based switching solutions going into pond 3G IPB slams and metro and Ethernet continues to penetrate deeper into the core of both wired and wireless network. And three, the early adoption of 10-gigabyte Ethernet.
We continue to see a high degree of interest from our customers in designing products will incorporate 10-gig end-to-end including switching, PHY, optical, controller and chipset. According to the January Dell'Oro data, 2007 and 2008 are expected to be the years when the percentage of total port shipped with gigabit Ethernet that really picks up.
And they will be growing from 32% of ports in 2006 to 50% in 2007, to 67% in 2008, even while the total ports grow only 9% in each of those years. Given our market leadership we are well positioned to benefit from this upgrade cycle in the Ethernet switching market.
In the first quarter we also closed the acquisition of LVL7, which will continue to help us provide complete solutions to the small and medium sized business market. The combination of our hardware plus software should once again enable quicker time to market with greater differentiation for our customers.
Our controller line of business came in a bit weaker than we expected in Q1 and it's expected to decline again in Q2. At a high level the Q1 weakness was across our server, enterprise and consumer client product lines and was tied to three things.
Number one is the overall demand in the enterprise fees base, which has been weak from a seasonal perspective. Number two, we've been working through some excess inventory.
And number three, we have lost some designs in the enterprise client gigabit Ethernet space, which will keep pressure on this portion of controller family until the next design cycle. Once again, these designs losses occurred only in the enterprise client gigabit Ethernet space, not the server space, which is where we drive the largest portion of our controller revenue.
These losses came from aggressive marketing and bundling programs from one of our competitors. Given our large market share, we stood above 50% in Q4 and our customer concentration in the gigabit Ethernet controller space we're experiencing some variability in customer ordering products.
As we look into Q2, we believe that the enterprise networking group in total will be flat to up slightly as the renewed momentum in our switching business offsets the expected decline in our controller line of business, showing the benefits of providing a complete end-to-end solution to our customers. So in closing, while it's clear that we are experiencing some near term issues with a few of our larger customers, we remain very optimistic about the second half of the year and the longer term prospects for Broadcom.
Our broad and diverse product portfolio puts us in the best position to benefit from the overall growth in communications markets, as well as the convergence of products, end markets and business models. With that I would like to thank everyone for joining us on this call and we will now open it up to your questions.
Maria we may have the first question.
Operator
Thank you. Yes sir, we have Michael Masdea from Credit Suisse.
Please go ahead.
Michael Masdea - Credit Suisse
Yeah. Thanks a lot.
One of the advantages your business, I guess, is the diversity. But, it seems like it's getting tougher to manage that broad of a business.
Is that fair given we had some of these customers just popup over the years or is it just something else going on here?
Scott McGregor
Well Michael I would say normally the breadth of our business is real advantage, because we have got product cycles going on which offset any one customer or any other things going. I'd say this is an unusual quarter for us because we don't have any strong product cycles kicking in this quarter and at the same time we saw multiple customers falter in some of their own businesses.
So, I would characterize it as an unusual quarter in that respect and so that's why you see us being a little cautious in terms of looking forward.
Michael Masdea - Credit Suisse
Okay. And then you talked about this visibility being less.
What is the turns environment now versus last quarter or the back order book-to-bill or some idea of the visibility?
Scott McGregor
Yeah. I mean, we don't give our book-to-bill ratio.
But, if you take a look at what we've based our guidance upon it's the same methodology that we've always used in the past, which is, we typically enter a quarter with already 80 to 90 plus percent booked.
Michael Masdea - Credit Suisse
That's (inaudible) 16, 142 this quarter.
Scott McGregor
Correct. Michael the challenge for us, it is the challenge for us.
I mean, we often enter the quarter with high level booked. But, what we believe right now is that some of or large customers may not know their true demand for this quarter and next and that's the issue.
And that's why we are being a little cautious in talking about visibility here. We have orders on the books.
We believe they may order some more. But, until we think they are certain of what their own demand is it make us a little more cautious in terms of how to forecast that and that's what you see reflected in our comments today.
Michael Masdea - Credit Suisse
And I guess, really that was my first question, as you are going back to it which is that. Given you have more and more customers, is that getting harder to try to second-guess them.
It sounds like you are doing a good job this quarter in sort of taking things as conservative and looking at what they are doing. But, is that getting tougher for you to do the second-guess to customer?
Scott McGregor
Well, we try not to second-guess customers. What we do try to do though, which I think is actually helped by our breadth.
Is we try to get a good understanding of the markets overall. And there are two things that help us there.
One is, when we have high market share we have very, very good visibility in the overall demand, because we seed across multiple customers. Lot of times our customers will all be bidding on the same project and we will be able to identify that project and we know that only one of them will win it or only some will split it.
So, we have better visibility then you would if you had a smaller market share. The other thing is with a wide breadth across a variety of these markets, we can correlate changes in one with changes in the other.
And so, we do have better visibility. So, I would say the breadth we have is actually an advantage rather than a disadvantage.
I think our view on the overall industry has gone up as our business has broadened.
Michael Masdea - Credit Suisse
One last quick one, if I could. In terms of the bottom-line kind of profitability due for next quarter, are we expecting to be profitable in the next quarter on a revenue level from a GAAP perspective?
I think so, but --?
Eric Brandt
Yeah.
Scott McGregor
Yeah. I mean we don't remember.
We can't give bottom-line guidance, because if we give it on a non-GAAP basis we will have to give on the GAAP basis. All we can do is, we are giving enough data points with respect to our top-line margin trends, so you will be able to get pretty close.
Michael Masdea - Credit Suisse
Okay. Thanks a lot.
Operator
Thank you. Our next question Alex Gauna from UBS.
Please go ahead.
Alex Gauna - UBS
I was wondering, first starting on the OpEx line. It looks like R&D came in a little bit better than I was expecting here.
Can you give some more color on how that might look going forward, particularly with some of the litigation expenses either following off or maybe even picking up again?
Eric Brandt
Well. again, what we've done is we've given you a picture of what we think is going to grow in the OpEx line.
Again, remember that as I mentioned there is the merit increase process, which adds $10 million to the OpEx line from quarter-to-quarter between Q1 and Q2. And then we said that in addition to that it would be up slightly more.
I think one other things we're benefiting from is a lot of our planning around the 65 nanometer cost and as we sort of tape-out and move forward with those things. We are moving down the experience curve.
We are getting some real good cost efficiencies, not just from the multi-product wafers, but also just on mass cost savings. So, that helping us, as we see these things move forward.
And what you are really seeing is really the net impact of the headcount increase to the company. So, I think that we're benefiting from that and that's what you are seeing.
On the legal side, certainly there was a number things on the legal plate at the beginning of the year. A number of those have sort of moved off the plate.
It's too early to say sort of what new things might appear, because we just don't know. But, I would say at least we are true the options issues and Qualcomm, clearly, has taken off the table their suits against us.
So, and we were about to go to trial on those. So, I think that we had a lower run rate, certainly in Q1 and potentially into Q2.
Alex Gauna - UBS
And with regard to the ITC case that recently got pushed out. Can you give me color on why that was pushed out and what you might be expecting here coming upon, I believe it's a 27th to 25th?
Scott McGregor
The ITC decision was moved from May 8th to May 25th and we can't speculate on why the commission chosen particular to move the date out. However, we do expect them to come out on May 28th with a decision on what the remedy should be in the Broadcom versus Qualcomm case.
For those of you who may not be familiar with that. Qualcomm was found to infringe on Broadcom IP, that was a determination already and we are now into the remedy phase.
So in other words, what penalty will be exacted on Qualcomm?
Alex Gauna - UBS
Okay. Last one if I could, on the fundamentals here.
With regards to the set-top boxes, you've mentioned potentially being able to benefit around the CableCARD initiative. At this juncture, is there firm industry conviction that there actually is going to be the initiative pushing through the middle of this summer?
And then specifically, you mentioned mix shift to low and I am kind of curious, more specifically how that exactly helps you?
Scott McGregor
The CableCARD initiative is absolutely going to happen. I mean that's not a doubt.
And I think what's happening right now is that many of the MSOs are trying to get a large number of the low-end products grandfathered into the space. And so, we are seeing a bit of an inventory pick up there.
Now, once the CableCARD initiative has gone further in July, then we do believe that we'll see some improvement in terms of the high-end boxes. And in general, we believe it works in Broadcom's favor in terms of adding additional capability on both sides.
Eric Brandt
So Alex, today we've got very little exposure to the low end of the market. Post CableCARD, we believe that what is in the mid range today will actually be the low end of the market post CableCARD initiative.
Alex Gauna - UBS
So you are anticipating some of the other lower end SKUs get this continued?
Scott McGregor
Correct.
Alex Gauna - UBS
Okay. Thank you.
Operator
Thank you. Our next question comes from Ross Seymore from Deutsche Bank.
Please go ahead.
Ross Seymore - Deutsche Bank
Thanks. Hey, guys.
The customer commentary Scott that you gave a little bit earlier, just trying to go back to that and get my arms around it. It sounds like you are being even a little bit more cautious than your customers.
Is that a fair assertion overall?
Scott McGregor
Well, it's a little hard to tell if you are being more cautious than your customers. I think there are some business challenges we have seen in a few of our larger customers.
And when somebody is moving in terms of their own business, it's often more difficult for them to forecast exactly what their true demand is whereas if their business were a little more steady state. And so, we are just trying to do a good job there and be a little more cautious than you would otherwise be.
Yes.
Ross Seymore - Deutsche Bank
Given one of your larger customer's problems recently, prudent to be a little more cautious than they are it seems. As far as the inventory level, you guys have done a great job on your books.
Generally speaking, are some of the customer problems really that there is excess inventory in between you and them, I'll say end devices and that's part of the problem? Or should we view this as a bigger demand issue?
Scott McGregor
Well, let me start off with that. There is always a question, is it an inventory issue or is it in demand.
If it goes more than a quarter or so, it's probably in demand rather than inventory. We have seen some specific inventory issues.
For example, DSL, we called that one last year. And that's a great example, where there was just more of ordering.
It's a case where we have enough market share in the total market that we have good visibility on the market. We call this as an inventory issue.
I am sure enough we saw a pick up in Q1 and we see that business going strong going forward. So, there are other areas where there's a little more uncertainty on that.
But in general, we think we have good visibility on those. And again when we labeled things as inventory issues, we mean that they are one quarter max two quarter issues in ours.
Ross Seymore - Deutsche Bank
Okay. The last question from me, you talked about kind of lack of product cycles to offset this in the second quarter, but you were confident in the second half of the year.
Above and beyond the seasonality that's pretty normal in the second half of the year. Could you disclose there a few of the product cycles that you except to kick in that would give you growth in addition to that normal seasonality, please?
Scott McGregor
Absolutely. Let me start off in the wireless space with Bluetooth.
Our Bluetooth plus FM parts are going to ramp-in in the cell phone makers and in some of the other PC and gamming boxes. So, that's a very clear product cycle that will go there.
We also see our mono headsets as a new business area for Broadcom. We are really not in that space today.
We have got new products designed in to most of the major mono headset makers today, and those are going to ramp in the second half. So, we will get some definite growth out of that.
Digital television, we have got great new products. The 65 nanometer 10 ADP, complete digital TV on a chip.
Basically, just add a little bit of memory and some tuners and a display and you got a high-end digital TV. That is a great product and we have got a number of customers really scrambling to get that to market as fast as possible.
It's going to be a really killer product we think. In the gigabit Ethernet space, we are seeing some of the people transition with some of our XGS III products ramping up there.
We see quite a variety across the whole market, HD DVD, Blu-ray, towards the end of the year. Wireless LAN is a big one also with 802.11n.
We believe that 802.11n will see dramatic pick up in the second half of the year. Broadcom is designed into five of the top-six PC OEMs and we are designed in all five of the top-five retail customers.
And so that gives us a tremendous opportunity there.
Ross Seymore - Deutsche Bank
Okay. Thank you.
Operator
Thank you. Our next question comes from Srini Pajjuri from Merrill Lynch.
Please go ahead.
Srini Pajjuri -Merrill Lynch
Thank you. Eric, I missed the gross margin guidance.
Could you please give it to us again? Thanks.
Eric Brandt
We did 52.1% this quarter and we said that we believe that there's continued cost reductions in the supply chain. So, up slightly in Q2.
Scott McGregor
That's on a non-GAAP basis?
Eric Brandt
On a non-GAAP basis.
Srini Pajjuri -Merrill Lynch
Okay, great. And then looking into the legal expenses, could you give us some idea, let's say, now if Qualcomm legal issues get resolved.
What kind of savings or what you are spending now and what do you hope to achieve?
Scott McGregor
I don't think we have provided any guidance specifically on our legal spending. If something were to fundamentally change, we would certainly analyze it and come back to you, whether that's in the next conference call or when we would do that.
That's when we would do it. At this point, it's way too early to speculate that and even begin to peel that apart.
Srini Pajjuri -Merrill Lynch
Okay. And then Scott, a couple for you.
First, you said you are very excited about the wireless LAN opportunity. How big is your PC business today?
And my concern is that as Intel comes in with their Centrino, do you expect to maintain your appearance in your four or five customers and expect to maintain your share in this market?
Scott McGregor
Well, I mean we have shares of around 100% with some of those customers today. And to be honest it's unrealistic to expect to maintain 100% as a market share.
And the larger customers are typically multi-stores. We see the same issue today where Intel's come in with G products in that space, with Centrino as you mentioned.
In general, we believe our products are more competitive and more attractive to the OEMs. And the challenge we have is we have to fight against our competitor who throws a lot of MDF dollars at the customers.
And so, it's sort of the battle between the better products and the more MDF dollars. But we do expect to maintain good share in the PC OEMs and see definite growth there.
Given that n is relatively lightly deployed today, there's a definite pick up we are going to see as the year goes on.
Srini Pajjuri -Merrill Lynch
Okay, great. And then finally its looks like it's pretty obvious why Bluetooth and cable set-top box are kind of released now.
But I am surprise that the cable modems are stopped. Could you give us a little bit more color as to why cable modems are stopped this quarter?
Scott McGregor
It's just an inventory issue. We saw that one of our largest customers ordered perhaps more than they needed in the quarter and so that will correct itself in one quarter.
I don't feel concerned there, because over the next couple of quarters they should order more. Their business is strong.
Their sales are good. So, we think that's a self correcting problem.
Srini Pajjuri -Merrill Lynch
Great, thank you.
Scott McGregor
Marrie?
Operator
Your next question comes from Cody Acree from Stifel Nicolaus. Please go ahead.
Cody Acree - Stifel Nicolaus
Scott, earlier you talked about maybe not quite knowing whether or not we are dealing with inventory corrections or weaker orders or just weaker in demand. Can you handicap some of those issues that you are dealing with here in Q2 that you may be have a little more confidence that push through Q2 or get back to some normalcy of consumption trends in Q3 and may be those that you are a little less known?
Scott McGregor
Cody in a general sense it's hard to judge some of those, it's easier to judge others. I mean, the cable modem situation is one where it's very clearly an inventory issue, we understand it and that's straightforward comp.
In the cellular space where we look at Bluetooth customers, for example, we see that some of our customers gain share and some lose share in the overall cellular space. And I think that's a great example where one of our largest customers in the Bluetooth space is seeing some negative affects in their business.
Yet at the same time, we are ramping up significantly in other cellular, first year cellular customers. So, we would expect to offset that and still expect to see growth in our business dramatically going forward, pretty much regardless to what happens in market trends.
And again, as a strategy our goal is to penetrate all of the top players in the market and that makes us unusually resistant to the particular gains of any one of the customers.
Peter Andrew
Yeah. Also remember Cody we are talking about three of our 20 to 21 lines of business right now that are experiencing issues.
Plus we do have a number of product ramps in the second half of the year that believe will offset hopefully if there is any lingering effect of this slowdown that we are seeing.
Cody Acree - Stifel Nicolaus
And then back to the gross margins. There is little bit of a benefit here from supply chain advantages with utilization rates kind of trending where there may.
Do you have any expectation as may be continuing gross margin trends throughout in the year?
Eric Brandt
We set our long term goal as sort of 50% to 52%. I think that's still our long term goal.
Certainly, as we get cost reduction and benefit from the supply chain, we will take them. And that's why, I think, your seeing slightly above our long-term goal.
In addition, there are certain benefits of mix that come and go based on our businesses. So, 50% to 52% we believe is the right number long-term and we believe that systematically we should change that.
We will let you know when we do.
Cody Acree - Stifel Nicolaus
How do the 65 nanometer ramping the things next year and does that potentially have a drivers at our gross market?
Eric Brandt
Well, I mean to start we are as I said about third of our tape-outs our 65 nanometer and we are going hopefully to the 90% by the end of the year and then move from tape-out into the products. So, to the extent you have advantaged products and depending on who the customer is and what the market is, you get certain benefits in pricing.
It's still early to say, but we do think that it gives us the competitive advantage and hopefully we will be able to use that.
Scott McGregor
Cody there are two things you might want to think about. 65 nanometer gives us a definite advantage over our competition.
We think we are there early. We had our mixed-signal and analog stuff moved over 65 nanometer and some people don't even have their digital stuff moved over yet.
And so, we believe that's going to give us very competitive products. They will be smaller in dye area and they will be lower power.
And so, really good advantages, inherent advantages there. In a mature business that allows us to get additional gross margin, because the product is more competitive than the others out there.
In new businesses, we tend to use these unique advantages to get our way into that business. And so for new businesses, we wouldn't necessarily go for margin, we go for market share.
In mature businesses we use 65 nanometer to enhance our margins. So, you can model some of our businesses along those lines.
Cody Acree - Stifel Nicolaus
Perfect. Thanks, very helpful.
Operator
Your next question comes from Seogju Lee from Goldman Sachs. Please go ahead.
Seogju Lee - Goldman Sachs
Great. Thanks.
Scott, just to clarify, you mentioned on the 3G you surpassed 1 million unit chip. That's a cumulative total I am guessing?
Scott McGregor
Yes it is.
Seogju Lee - Goldman Sachs
Okay. And then in terms of just that your expectations for wireless in general.
You continue to hold to the goal for '09, but just how should we expect that to ramp? And just any progress there would be a very helpful.
Scott McGregor
I think you should assume that in 2007 our goal is to win designs. In 2008 you should start to seeing products come out and 2009 has to be all about gaining market share.
So, that's how I would suggest you look for milestones. Right now, we have announced some of the products by which we will gain those design wins.
You'll see some other products come out later in the year. I can't say too much about them.
But those are the products that we believe will sway the major players to look attractively at Broadcom and hopefully design products based on those. Probably, we won't be able to announce those design wins as they happen, which is I assure you is frustrating for you as it is for us.
But that's the nature of that business. 2008 you'll see a lot of those products start to come out and then it is easier.
Once the product comes out somebody will tear it down and we can talk about it. And then 2009 again, we are proud of that million unit milestones and that's great.
But, some our competitors ship that in a couple of days. So, just to put things in perceptive year.
So, important for us to really get those designs with large players. We do focus on the top-tier players.
Those are guys that have the big volume to drive. And if you want to get that kind of market share you have to play with the larger players and that's our strategy.
Seogju Lee - Goldman Sachs
Okay. Great.
And than in terms of the design cycles that you are seeing in wireless handset market?
Scott McGregor
I would say that the design cycles in past range from 18 months for the largest guys to may be 9 months for the more agile, some of the smaller Taiwanese or Chinese players. I think it's interesting.
What happened is that the 18 months guys have brought that down a bit. I'd say they've moved 18 to 16 or 14 aiming for 12 in that space.
And I'd say some of the more aggressive players may be getting down to like 80 in '07. So, the design cycles have come down a little bit.
But, there is still a while. It takes a fair amount of time from when you actually win the design until they actually get the thing out and shipping.
So, you should probably plan 12 to 18 months as a normal for the larger guys.
Seogju Lee - Goldman Sachs
Okay, great. And then last question, in the past you have talked about the 21 business units and you have talked about 3 being above 10% last quarter, with none being above 15%.
Is there update on that for Q1? Thanks.
Scott McGregor
Same metric applies.
Seogju Lee - Goldman Sachs
Okay, great. Thanks.
Scott McGregor
We've a very diverse business and I think that helps us quite a bit and no one of them dominate.
Operator
Thank you. And our next question Adam Benjamin from Jefferies.
Please go ahead.
Adam Benjamin - Jefferies
Yeah, thanks. Can you talk a little bit about the wireless LAN pricing environment, both the g side as well as on the n?
Scott McGregor
I would say that n prices have come down fairly quickly. And so, that's why it's been important for us to moved to 65 nanometer and do other levels of integration there.
So, we've been very aggressively moving in that space. And some other innovations we are doing, we haven't announced yet.
But I think it will be exciting in the market. The g pricings are little more stable.
That's a more mature market and it isn't moving as quickly as n.
Adam Benjamin - Jefferies
So Scott, could you give a little more color in terms of g, what's the multiple of the ASP on n? Or is n still in double digits?
Scott McGregor
N still gets a great premium. And yes, our n prices are in the double digits.
Adam Benjamin - Jefferies
Okay. And then just to follow up on some of the questions in our backs, going forward, you guys have consistently really added a lot of heads.
How should we be thinking about the R&D line? I would expect it to continue to grow.
Seems like you guys had a very solid quarter in that and the guidance is implying limited growth there too. Have you guys changed some of the philosophy recently in terms of your headcount additions that you have previously done?
Scott McGregor
R&D as a percentage of sales increased as you can tell almost full point on a non-GAAP basis to 24.4%, which is above the long-term spending range of 20% to 22%. The last time we ran R&D at this level was back in Q1 of 2005, and Broadcom was investing in areas such as DSL, enterprise networking PHYs, mobile multimedia, Bluetooth and wireless LAN.
And just to put it into prospective, at that point in time, Broadcom generated roughly $550 million of revenue in Q1 of '05. If we look at the total available market opportunity today of the end markets where we are investing in R&D dollars, there are actually bigger than they were in 2005.
We're investing aggressively in cellular, Bluetooth headset, 10-gigabit Ethernet switching and digital TV. In addition, we're spending on integrating more of our wired and wireless products into a single chip which we believe will be a significant differentiator for us in the future.
So as a company, the resources are moving on very significant opportunities and I think as a company, we have a pretty good history of converting those opportunities.
Adam Benjamin - Jefferies
Got you. And last just for Scott, on the second half growth opportunities, can you just lay out may be the top three revenue contributions that are going to be driving the most amount of that growth in the second half?
Scott McGregor
We don't really break them out. We don't orders them in terms of which are the largest.
There's a number that we've mentioned and we have mentioned digital television, Bluetooth, wireless LAN, network switching. Those are the four, I would say, you should definitely look at.
There are others as a well. And one of the things we've found, we have always been surprised, sometimes the ones we think are going to be the biggest, aren't or other surpass them.
Bluetooth was sort of a dark horse for a long time and Bluetooth just took off. And we didn't predict that one and it turned out to be quite a star.
So, it's a little dangerous when you have 21 businesses, each of which has many products and multiple things they are going after. It's hard to handicap which horse is going to win all the time.
I think what excites me though is that we've got a pretty strong stable of [perfects] and we think multiple ones of those are going to win. But this four that I would definitely go for right there.
Adam Benjamin - Jefferies
Okay. And just one quick last question just on, you talked about the FM tuner and Bluetooth solution.
I know you have got a WiFi combo as well. When do you expect that to really be shipping into the marketplace?
Thanks.
Scott McGregor
Bluetooth plus FM, you will be able to buy that probably within this quarter, the latter part of this quarter. That should be out on the shelves.
Adam Benjamin - Jefferies
I was actually saying with WiFi, Scott?
Scott McGregor
With WiFi, you should see that by the end of the year. It requires we execute here but we are pretty good at executing but we are working hard with that.
So, you will see some of that at the end of the year. I think next year is when you are going to see the real pick up in the combo product of combined Bluetooth, wireless, LAN, FM.
But that's a cool part by the way. That is a really great part.
It has just tremendous performance characteristic. It has a lot of good functions and it runs directly off the battery.
No extra power management required. A lot of mixed single stuff integrated into that product.
And so, we think that's going to put a lot of distance between us and others. We had somebody who used to work for one of our competitors come in to our booth and looked at it, and he just said, wow, we got a problem.
So, great product.
Adam Benjamin - Jefferies
Great. That's all I have.
Thanks.
Operator
Thank you. Our next question Louis Gerhardy from Morgan Stanley.
Please go ahead
Sanjay Devgan - Morgan Stanley
Hi, guys. This is actually Sanjay Devgan on behalf of Louis Gerhardy.
Just couple of quick questions. first one is a clarification question on the OpEx guidance for next quarter.
If I am correct, so you guided the $10 million incremental for the merit increases on top of the sequential increase, which is suppose to be greater than the increase that you witnessed in Q1, is that correct?
Scott McGregor
That is correct. Slightly greater than what we experienced in Q1.
Sanjay Devgan - Morgan Stanley
Okay. So if I kind of do the math, just looking at the operating margins just based on the guidance that you provided.
It's going to be the third quarter and where it kind of comes down. Do you think it's possible to get back into your target range by the end of this year or do you think it likely is I guess first half further I guess?
Scott McGregor
I think the answer to that is we don't give guidance beyond the next quarter. We do have a long term goal of 20% in terms of operating margin.
And we are conscious of that. Although, we do recognize, we are making significant investments into large opportunities and one of the benefits of this company is that it does have the intestinal fortitude to sort of invest through the down cycle into things that we believe will drive long term value.
Sanjay Devgan - Morgan Stanley
Okay, understood. And then if I could just, one follow-up question.
This is touching back on the combination Bluetooth WiFi product. What kind of premium do you expect to get with this product relative to a standalone WiFi?
I mean I was thinking like 20-30% or what do you think the premium will be for this product growth if just standalone?
Scott McGregor
Well, you mean standalone if you had a discreet Bluetooth, the discreet wireless LAN and the discreet FM radio?
Sanjay Devgan - Morgan Stanley
Yeah, exactly.
Scott McGregor
I would say we don't so much get a premium on the combination of them. What we do is we save the customer a lot of money.
So, they actually pay less for our combo chip then they would if they had three discreet products. And because of the combination and getting efficiency on the SoC, we actually are decent return on it.
So, it's a great win-win for us and the customer.
Sanjay Devgan - Morgan Stanley
Thank you very much.
Operator
Thank you. Our next comes from Craig Berger from Wedbush Morgan.
Please go ahead.
Craig Berger - Wedbush Morgan
Good afternoon. Thanks for taking my question.
Could you just provide us some commentary on the state of your 2008 TV design wins and kind of how big might that business grow next year?
Scott McGregor
Well, we don't have our 2008 design wins. Yeah, but you probably mean our 2007 design wins that are going to rollout in 2008.
Craig Berger - Wedbush Morgan
Right.
Scott McGregor
Yeah. I mean, we've done pretty well there.
We have already a top Tier in Japan and in Korea and we have in China as well. So, we see quite a few companies overtime moving to the solutions.
It's very compelling. It's save them a lot of money and the image quality is comparable to high-end discreet solutions.
So, they sound quite attractive. I am reluctant to name particular companies.
These guys are pretty shy. So, I can't give you specific names, but we do expect to see additional Tier 1s in that space in combination of Japan and Korea.
And I think the Chinese are definitely players there. And we will also see some pick up in Turkey, which is interesting, because most of the European TV sets are made in Turkey.
Craig Berger - Wedbush Morgan
Okay. And then on the Bluetooth headset opportunity, how big might that be able to grow in the second half or what kind of contribution are you looking for?
Scott McGregor
Well, we have close to 0% market share today and our goal is to become number one in that space. So, to the extent we are successful there and how quickly we can get there, you can get some market statistics.
Peter do you have a market statistic on that and the total size of that market?
Peter Andrew
I mean rough you can look at the market in 2007, it's probably anywhere from 60 million to 80 million units. But one of the challenges that we have is, as Scott tried to hit upon is, we are going from zero right now.
The question is how big and when the customers ramp that's the biggest wildcard in terms of how big we are going to be in this calendar year.
Craig Berger - Wedbush Morgan
Got it. One last question, it's still a little early to be looking at Q3.
But, what's typical seasonality for you guys in the third quarter?
Peter Andrew
So, if you go back and look at our quarterly revenue run rate, since the time we went public. You can see that there really isn't a normal quarterly sequential growth rate that was experienced in our past.
The standard deviation has really been all over, it's actually higher than the mean. Which kind of gets to the fact that we've been highlighting for sometime which is that Broadcom is really a product cycle company.
And we continue to believe and actually the numbers back us up on that answer.
Craig Berger - Wedbush Morgan
Thank you very much.
Operator
Thank you. And going forward please limit your question to one.
Scott McGregor
Who is the next caller?
Operator
We have Shawn Webster from JP Morgan. Please go ahead.
Shawn Webster - JP Morgan
Yeah, thank you. Good afternoon.
On the controller side of the business, can you characterize may be some other things that you guys are thinking about doing or may be you are actively doing to stop the declines that have been happening in the last couple of quarters there. Are you going to getting a little bit more aggressive there to try and win back some of that share?
What's happening there? And I then I have a quick follow up.
Scott McGregor
Well the market declines there is two reasons for the decline. One is market decline and there's not a lot we can do about that, except for you guys all going out and buying a lot of PCs.
In the design loss space, absolutely there. I mean, we are working very aggressively and coming out with some new products that are more aggressive to go back and win that back.
We take that very seriously and we are going to go do our best to win that share back. The problem is that the PC cycle means that you can't win it back next months.
You have to wait for the next design refresh and so that means it's not a one quarter thing. That's one that will be with us for a few quarters.
Shawn Webster - JP Morgan
Okay. So, that wouldn't be one of the segments that will pull you out of the correction from Q1 and Q2?
Scott McGregor
No, that's not.
Shawn Webster - JP Morgan
Right. On your share count, you did a really big buyback.
How should we think about your share count looking forward for the next couple of quarters?
Eric Brandt
Well, I mean there's a couple of things that sort of go on. One is we have our normal sort of equity grant process which is part of the merit increase process.
And than you sort of have the weighted shares outstanding increase associated with any movement in the stock price up or down. We have a $1 billion buyback.
As I mentioned, we have done $464 million of that. We anticipate we will be in the market in Q2 and we will continue to buyback shares.
Our goal is to try to keep that as low as possible relative to the shares we grant. But, with treasury method you will see some increase as the stock moves up.
And I think it's really more if you're calculating the treasury method movement than anything else.
Shawn Webster - JP Morgan
Okay. Thank you.
Operator
Thank you. And our next question Tim Luke from Lehman Brothers.
Please go ahead.
Tim Luke - Lehman Brothers
Thanks. Let me just that clarification of Eric on that question, with respect to your gross margin its going down slightly in the second quarter despite the flashes revenue.
How would you receive that developing through the second half of the year? And then the other question I had is just on the post May 25th ruling, what's the framework of how we should think about you proceeding with the ability to begin to ship WCDMA chips or [having all mastering] towards completing all legal disputes with Qualcomm?
What are some of the (inaudible)?
Eric Brandt
I think in terms of the gross margin again, we don't provide guidance beyond the next quarter. As again, as you look at the goal the company has 50 to 52.
I think we are benefiting from some capacity opportunities in the supply chain. And I think that that helps us.
Whether that persists beyond one quarter? It's hard to say at this point of time.
And there is also a mix component to it too. So, we are certainly pleased that our gross margin is going to run above our targeted range, it appears to in the next quarter on a non-GAAP basis.
It's still early to call the third quarter. But, again it's sort of a product of the supply chain capacity.
And I think also the rate at which customer sort of drive down ASPs as well.
Scott McGregor
Tim, your question on the ITC, it's a little difficult to predict what the outcome will be. On the 25th they could decide that we don't get any remedy at all.
They could decide that they block Qualcomm chips coming in United States, but not cell phones that include them. Or they could do what we've asked, which is that they will block most of all cell phones coming in the United States that have Qualcomm chips in them.
We believe that in order to give us a reasonable remedy the ITC should find for a downstream remedy, which would block those cell phones. So, until we really know the outcome of that it's hard to predict what would happen.
They have very dramatically different outcomes depending on which of those they choose.
Peter Andrew
I also remember it's the same patents that Qualcomm has found to infringe upon in the ITC. We'll go to trial in [St.
Anne] I believe on May 1st or May 2nd.
Scott McGregor
Correct. And we expect that to be about two to three week trial.
So, there is the ITC decision on the 25th. We go to trial on May 1st, May 2nd.
And that will have an outcome fairly quickly, typically a few weeks for those trials since you get a result there. And then also on May 2nd there is hearing in San Diego on where Qualcomm has perjury finding, abused the patent process and has not come clean with the standards organization.
So, we will see result of that on the 2nd.
Tim Luke - Lehman Brothers
Thank you.
Operator
Thank you. Our next question comes from David Wu from Global Crown Capital.
Please go ahead.
Hun Lee - Global Crown Capital
Hi. This is actually Hun Lee talking for David Wu.
Thank you for taking my question. So, certain from our perspective, how many of your 21 business segments you have, there will be revenue decline in the first quarter.
And how many of the business segments are you expect to have a revenue increase in the second quarter?
Eric Brandt
Sure, I mean in a normal quarter we tend to have anywhere from let's say four to six, may be seven lines a business that are down on a quarterly basis. That's little bit too much granularity from me to give you looking at the Q2.
But, just remember on average anywhere from four to six on average are down on a quarterly basis, which implies basically 15 or so to 16 or so are up on a quarterly basis on average.
Hun Lee - Global Crown Capital
Sure. And going on to the gross margin line, I mean obviously you have benefited from lower utilization at foundries, but going forward, when the capacity is getting tighter, so we expect gross margin to come down slightly or the benefits of this 65 nanometer ramp will help on those gross margin lines?
Scott McGregor
Well, certainly as the supply chain tightens up, so does our pricing as well. So, you would see some impacts to the gross margin.
I think as Scott mentioned on the 65 nanometer, it's sort of quits and takes between what we're going after. If it's a new business, as Scott mentioned, we'd be chasing share and be a little tighter on the gross margin.
And to the extent that it's a mature business, where we actually have a significant position there and a branded product, we'd probably be chasing margin a little bit more. So, it's a little hard to call exactly how it's going to play out, which is why I think we don't want to give much more guidance than one quarter on the gross margin.
Hun Lee - Global Crown Capital
Sure. And just a quick one on the digital TV side.
How many of the top five Tier customers, how many all of the five have their design wins in? And just in average or in aggregate, what's the average screen size that you get to beside them?
Scott McGregor
No. I am not going to give you specific numbers but it's more than one.
So, we have significant presence in the top TV makers. An average screen size, I would say it's all over the place.
We have today, there is everything from 17-inch up through 60-inch and were in Plasma, were in LCD and even in some CRT sets.
Hun Lee - Global Crown Capital
Okay. And just a final one.
Have you have any products that's going to address the IPTV opportunities? Thanks.
Scott McGregor
Yes, absolutely. We see IPTV as an interesting future market.
It's probably not as near term as some would predict in our view. But absolutely, we have products there and as those come to fruition, we will announce those.
Hun Lee - Global Crown Capital
Thank you for taking my questions.
Operator
Thank you. And our last question comes from Shaw Wu from American Tech Research.
Please go ahead.
Shaw Wu - American Technology Research
Thanks. Just one quick question.
Can you give an update on iSCSI in terms of what you are seeing there? Is there more market acceptance in that space?
Thanks.
Scott McGregor
I would say, yes. There is, but it's still not an aggressive ramp.
And as we moved to 10 gigabit, we are going to clearly see more adoption of iSCSI protocols for storage. But today, it's still a slow adoption.
So, I wouldn't say you are going to see anything huge at this year, but over '08, '09, '10 I think you will see some pretty serious ramps.
Shaw Wu - American Technology Research
Okay. Thanks.
Scott McGregor
Okay. Thank you.
Operator
Thank you. We have no questions, sir.
Scott McGregor
Thank you very much for everyone joining us today. I appreciate your time and as I hope you heard from our answers to your questions, we are pretty excited about our products going forward.
We think Broadcom is very well positioned in the communication space with a broad portfolio and a lot of exciting products in the future. Thank you very much and will see you in a quarter.
Operator
Gentlemen, this concludes today's conference. Thank you for participating.
You may all disconnect.
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