邁威爾科技 (MRVL) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Marvell Technology Group's earnings conference call for fiscal fourth-quarter 2011.

I'll be your coordinator for today.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Marvell's Vice President and Corporate Controller, Mr.

Brad Feller.

Please proceed, sir.

Thank you, Derek, and good afternoon.

Welcome to the Marvell Technology Group fourth fiscal quarter and fiscal year-end 2011 earnings call.

I am Brad Feller, Marvell's Vice President and Corporate Controller.

With me on the call today is Dr.

Sehat Sutardja, Marvell's Chairman, President and CEO, and Clyde Hosein, Marvell's CFO.

We will all be available during the Q&A portion of the call today.

If you have not obtained a copy of our current Press Release, it can be found at our Company website under the Investor Relations section at www.marvell.com.

Additionally, this call is being recorded and will be available for replay from Marvell's corporate website.

Please be reminded that this call will include forward-looking statements that involve risks and uncertainties that could cause Marvell's results to differ materially from management's current expectations.

The risks and uncertainties include our expectations about sales of new and existing products and general market trends, statements regarding our financial projections for the first fiscal quarter of 2012, and our expectations about long term growth.

To fully understand the risks and uncertainties that may cause results to differ from our outlook, please refer to Marvell's latest quarterly report on Form 10-Q and subsequent SEC filings for a detailed description of our business and associated risks.

Please be reminded that Marvell undertakes no obligation to revise or update publicly any forward-looking statements.

During our call today, we will make reference to certain non-GAAP financial measures which exclude stock-based compensation expense as well as other charges related to acquisitions, restructuring, gains, and other charges that are driven primarily by discrete events that management does not consider to be directly related to Marvell's core operating performance.

Pursuant to Regulation G, Marvell has provided reconciliations of the non-GAAP financial measures to most directly comparable GAAP measures in Marvell's fourth fiscal quarter and fiscal year-end 2011 earnings press release which has been furnished to the SEC on Form 8-K and is available on Marvell's website in the Investor Relations section at www.marvell.com.

I would now like to turn the call over to Sehat.

Thanks.

Thank you, Brad and good afternoon, everyone.

Today, we reported fourth fiscal quarter 2011 revenues of approximately $901 million, reflecting a 6% sequential decrease from the prior quarter and a 7% increase over the same period a year ago.

We also reported GAAP EPS of $0.33 per share and non-GAAP EPS of $0.40 per share.

For fiscal 2011, our revenues were approximately $3.6 billion, an increase of 29% as compared to fiscal 2010.

Full year GAAP EPS was $1.34, an increase of about 150% year-over-year.

Non-GAAP EPS for the year increased 66% to $1.64 per share from the $0.99 per share in fiscal 2010.

Full year free cash flow was $1.1 billion, up 43% versus the year ago period representing a 30% free cash flow margin.

Our profit levels and free cash flow levels in fiscal 2011 are the highest in the history of the Company.

Performance over the last two years clearly demonstrates our ability to generate solid profitability and cash flow.

Now, let me summarize our results across our end markets.

First, in our networking end market, Q4 revenues were approximately 18% of our total revenues, essentially flat with the prior quarter and consistent with our earlier expectations.

It appears that the inventory issues we experienced last year in these end markets are largely behind us and we should be shipping to end markets from this point on.

Looking forward to the next quarter, we expect revenues to be flattish sequentially in what is otherwise a seasonally low quarter.

For this -- for fiscal year 2011, revenues from our networking end market were about 19% of our total revenues and up approximately 15% year-over-year.

We had an excellent year in our networking end market in fiscal 2011, although the inventory correction during the year did have some impact.

We expect the adoption of our ARMADA XP processors in the networking space to accelerate in fiscal 2012.

We also expect to see meaningful growth of our EPON/GPON combo product as well.

Now moving to our storage end market.

Q4 revenues were approximately 44% of our total revenues, declining about 2% sequentially from the prior quarter, slightly lower than our previous expectations of remaining essentially flat.

It is widely understood that the PC industry growth rates in Q4 were below traditional levels, resulting in lower demand for hard disk drives.

For fiscal 2011, revenues in our storage end market were approximately 46% of our total revenues and increased about 5% from the previous year.

Fiscal 2011 was a challenging one for the PC and the hard drive industry.

After a robust start, we experienced end demand erosion along with an inventory correction in the second quarter following which demand remains essentially flattish for the rest of the year.

For the first quarter of fiscal 2012, we expect those challenges to continue.

In February, consumptions of drives were low as PC manufacturers consumed inventory and waited for new PC processor products to be shipped in volume.

We expect consumption to be -- to pick up in March and April.

The effects of this combined with the normal seasonality in the PC industry expected into Q1 will result in revenues from our storage end markets declining sequentially in the low to mid-single digits.

Now, as you're aware, we had the established technology and market leader in the HDD SoC market.

Last year, we worked closely with two new large customers on multiple new drive programs which are starting to ramp this year.

One's in full production later this year and a lot more next year.

This will further expand our share in the HDD market.

Leveraging our HDD leadership in the HDD market, we have been investing for quite a number of years in the SoC Controllers.

Our early investment in this area is beginning to yield meaningful results.

We have numerous design wins in Tier 1 SoC suppliers, many of which are in production today.

Our revenues in SoC impact has doubled during the last year and we do expect them to at least double again in the coming year.

As you're aware, not everyone can afford the relatively high cost of an [often] SSD solution.

In order to increase the penetrations of SSD to the mass markets, we have extended our technology leadership and developed the hybrid solution which leveraged the low cost of an HDD solution with the performance of an SSD type solution.

One of the first hybrid solutions that we have introduced is 6 gigabit per second SATA controller powered by our HyperDuo technology.

This solution can control both an SSD and HDD to create a low cost, high capacity SDD using a small amount of SDD to boost performance.

Our solution enables breakthrough SSD-like performance while allowing all data to be stored in the traditional, low-cost SATA HDD.

With the announcement of HyperDuo technology we can now extend that leadership to both standalone high performance SSD drives as well as hybrid drives and prevent -- present our customers with a choice of solution depending on their needs.

We expect to see result from our hybrid solution this year.

Yet another opportunity for our SSD technology is to address the very large smartphone market.

The requirements for this market are different than the PC market, that is, requiring small form factor and extremely low power consumption.

We have now developed a family of solution in this market, again, leveraging our technology leadership in the SSD area.

This will further expand our market opportunity of our SSD technology.

Now, turning to our mobile and wireless end market.

Q4 revenues in this end market represents approximately 34% of our overall revenues and declined about 13% sequentially from the prior quarter.

The sequential decline was slightly higher than the 10% decline we had originally anticipated.

During the fourth quarter, one of our cellular customers experienced a shift to moreover 2.5G [H] only entry-level smartphones, an area that we do not currently participate.

This is a result of consumers in many developing countries demanding smartphones, even though their 3G infrastructure in these countries have not yet developed.

This is an interesting phenomenon and demonstrates the need for smartphones versus feature phones in these countries.

This represents a significant new market opportunity for us within these emerging countries.

We have devices to address this entry-level smartphone markets and plan to accelerate the deployment of these solutions to our customers.

Now, the delay of the deployment of 3G networks in many of these countries resulted in the delay in the conversion of these products to 3G products at this one particular customer which will affect our results in the near term.

For fiscal year 2011, our revenues from our mobile and wireless end market represented approximately 31% of our overall revenues, an increase over 110% year-over-year.

For the first quarter of 2012, we expect revenues in this market to decline over 20% driven by primarily seasonality and near term (inaudible) customers in the certain countries to use 2.5 G only solutions and transition to a hot inventory arrangement at this customer.

Now Clyde will elaborate more on this in his remarks.

Fiscal 2011 was a great year for us in our mobile and wireless end market as I indicated earlier.

Our revenues more than doubled in fiscal 2011.

This was a clear indication that our products in both cellular and wireless were very competitive.

We introduced some new, exciting products in the cell phone -- in the mobile and sub-wireless segments and I would like to expand on a few of these.

Last year, we introduced the PXA920.

920 is a single-chip solution enabling mass market availability of high end TD smartphone markets, specifically to address the China market.

These solutions that we provide includes a modem, application processor, power management, RF -- and RF devices.

We are the first and only suppliers in the world with a complete high-performance TD smartphone solution for this market.

As a result, we -- as you have known, we have been working with more than a dozen customers in China to -- for product introductions -- introduce over this coming year.

Last week in fact, ASUS introduced its T10 and T20 series smartphones, based on our PXA920 devices and a platform solution which includes our Wi-Fi -- 802.11n Wi-Fi, Bluetooth 3.0, and FM connectivity.This is just the beginning of a number of smartphones expected to be introduced this year using the 920 and the Wi-Fi combo devices.

At the Mobile Congress last month, we announced the follow-on of the 920 device.

The 978 device is a single-chip solution of TD-SCDMA but now it's combined with gigahertz performance and advanced 3D graphics and 1080p multimedia as well as the traditional 3G UMTS [Release] 7 solution to address the requirements of the rest of the world.

With these new solutions, cell phone OEMs will now no longer need to design separate development platforms to accommodate different wireless standards for the rest of the world in China, and they will be able to target markets around the world, saving design time and development cost.

Now hopefully you can see how our TD platform strategy's unfolding.

In 920 introduced last year, initially targeted TD high-end and as well as [medium end]smartphones; however, over time, as we reduced costs of the silicon, the wafers that were built -- used to build the 920, this platform will quickly transition to low end and high volume smartphones replacing the feature phones which is the sweet spot with a sweet spot market for many of the smartphones in this market while the 978 will emerge as the new high-end TD-SCDMA phone as well as high-end global phone.

Now, moving to our Wi-Fi business.

We introduced recently the industry's first solutions supporting multiple input, multiple output or what we would normally call MIMO Wi-Fi solution.

The 8797 is a combo radio 802.11 except this time, supporting two by two dual-band Wi-Fi SoC configurations designed specifically to support high data rates for the next-generation mobile devices.

As many of you know, the first generation tablets have been designed using -- today, using a one by one Wi-Fi solutions that is originally optimized for the use in smartphones which, of course, focuses only on small form factor, low power and low cost.

Now, today's tablets are used more as a primary web browsing device that requires lots of data to be accessed while people roam around the office and/or their home.

The Wi-Fi solution being used in the current tablets do not provide for this capability.

Using a PC-like solution, we'll consume too much power; this constrains in the existing technologies were the reasons for us to develop the 8797 combo device.

Marvell's new mobile MIMO technology alleviates this challenge by adding a second transceiver supporting a true MIMO configuration.

As a result, our -- the data rates now goes up to 300 megabits per second.

The 8797 combo is intended to double the performance available on today's mobile products, enabling high performance, high bandwidth, multimedia applications.

Now, the 8797 comes equipped with the world's first beamforming technology.

This is a technology that is currently being deployed in LTE base stations.

This is a technology that will allow the Wi-Fi to have much more extensive network range compared to traditional Wi-Fi devices without beamforming capability.

The 8797 also supports Bluetooth LE, or what we call Bluetooth Low Energy, allowing communication with new breed of mobile devices including body sensors for personal health monitoring and remote controls for home automations and auto applications.

The 8797 is also a well-suited to other products that require MIMO Wi-Fi performance such as digital televisions, home media service, even notebook computers and set-top boxes.

In the last five years, we have seen devices being successful not only because of high performance of the silicon but more importantly, because of the performance of the software and applications which plays a critical role in consumer acceptance of such devices.

At Mobile World Congress, we -- Marvell introduced Kinoma, a software platform that is dedicated to dramatically transform the consumer interactions with electronic devices.

Kinoma is a new foundation for creating and delivering fast, simple user experience for a wide range of devices and offers an experience and solution that is truly integrated from silicon to applications, creating new opportunities for OEMs and manufacturers.

We believe Kinoma should improve the look and feel of software by presenting a single interface for the user across many platforms, including TVs, tablets, cell phones, improving the [percentage of] software acceleration while using less memory footprints.

We believe Kinoma will launch to offer customers an integrated solution to allow developers and system integrators to take advantage of the more powerful underlying hardware we offer, while concurrently lowering the costs, resulting in [fast introductions] of lower end smartphones to replace the feature phones, and economic to our [flat] offerings will also help us to transition to a new solution provider.

Now, in summary, the results of our fourth fiscal quarter brings to a close one of the most successful years for Marvell.

Our customers are delighted with our new solution innovation.

During the last fiscal year, we saw an adoption of many of our technologies and we believe that trend will increase this year.

Looking forward, we will further concentrate on innovation, of course, maintaining operational efficiency and cash flow generation.

This is reflected in the R&D expenses necessary to be -- so that we would be -- so we're well positioned for the future.

Now, I would like to turn the call over to Clyde to review our financial results for the fourth quarter and fiscal 2011 and to provide our current outlook for the first quarter of fiscal 2012.

Thank you, Sehat.

Good afternoon, everyone.

As Sehat mentioned, fiscal Q4 revenues came in approximately $901 million, representing a 6% sequential decrease from fiscal Q3 2011 and an increase of 7% from the same period a year ago.

Our overall revenue performance was at the lower end of our prior forecast.

As Sehat indicated earlier, revenues in our mobile and wireless and storage end markets were lower than our expectations.

Our non-GAAP gross margin for the fourth quarter was approximately 59.4%, essentially flat with the third quarter and about 60 basis points lower than the same period a year ago.

This was at about the midpoint of our earlier projected range of 59% to 60%.

Our overall operating expenses for the fourth quarter on a non-GAAP basis were approximately $269 million, the higher end of our earlier forecasted range of $260 million to $270 million.

As compared to the same period a year ago, overall expenses were about 13% higher as we prepared for the launch of several new products coming in fiscal 2012.

R&D expenses for the quarter were approximately $210 million, up about 6% from the last quarter and up about 12% from the same period a year ago.

This was slightly higher than our forecasted range of $200 million to $205 million.

For fiscal 2011, R&D expenses were also higher by about 12% year-over-year.

The increase in R&D expenses was due to higher headcount and new products' introduction expenses as we ramp up to support new customers and designs in the coming year.

SG&A expenses for the quarter were approximately $59 million, slightly lower than our prior forecast of $60 million of $65 million; lower by about 4% sequentially and an increase of about 16% year-over-year.

The SG&A expenses reduction during Q4 was primarily due to lower legal expenses.

For fiscal 2011, SG&A expenses were higher by about 12% due to higher legal expenses including litigation expenses.

This resulted in non-GAAP operating margin of approximately 30% down from the approximately 32% operating margin reported both in the prior quarter and the same period a year ago.

At 30%, our operating margin continues to be in the top tier of our [pay group].

Net interest and other income was a benefit of approximately $10 million, higher than our prior expectations of a $3 million benefit.

The improvement was due to a gain on the sale of a minority equity investment.

On a non-GAAP basis, we recorded tax expenses of approximately $3 million in line with our prior forecast.

Our non-GAAP net income for the fiscal fourth quarter was approximately $273 million, or $0.40 per diluted share, the sequential decline of about $0.05 per share.

During the same period a year ago, we earned $266 million or $0.40 per share.

Shares used to compute diluted non-GAAP EPS during the fourth quarter were approximately 685 million, up from 677 million shares in the prior quarter and higher than the 672 million shares reported in the year-ago period.

Changes in diluted share count are primarily due to shares issued in the period from exercises of options by employees and shares purchased through the ESPP Program, less shares repurchased during the quarter, along with variations in average trade-in prices in the reporting periods which impacts the treasury method of computing diluted share count.

Cash flow from operations for the fourth quarter was approximately $251 million as compared to $368 million reported in the third quarter and lower than the $281 million reported in the same period a year ago.

Free cash flow for our fiscal fourth quarter of 2011 was $213 million, representing a 24% free cash flow margin, compared to free cash flow of $338 million reported in the previous quarter of fiscal 2011 and $253 million in free cash flow reported in the year-ago period.

We define free cash flow as cash flow from operations less capital expenditures and purchases of IP licenses.

This being our fiscal year end, I'd like to also summarize our results on a full year basis.

Fiscal 2011 was a successful year for us.

We ended the year with record revenues, a solid balance sheet and excellent cash flow margins.

We are strategically positioned with new products and new customers beginning to ramp throughout next year.

Revenue for fiscal 2011 was $3.61 billion, an increase of approximately 29% over the $2.81 billion reported for fiscal 2010.

The increase is primarily due to products in our mobile and wireless end markets which increased over 110% year-over-year and our network and end market, which increased by about 15%.

Revenues in our storage end market increased by about 5%.

Within the mobile and wireless end market, we experienced double-digit sequential growth for the first three quarters and ended on a sequential decline, primarily due to seasonality in the gaming systems.

In our networking segment, after a strong first half, we experienced some excess inventory which we believe worked its way through the system by year end.

In storage, after a strong first quarter, the PC industry experienced some inventory digestion and ended somewhat flattish.

The overall results were still impressive with Company revenues increasing 29% year-over-year.

On a non-GAAP basis, full-year gross margins for fiscal 2011 was about 59.7% versus approximately 56.7% reported in the fiscal 2010, an improvement of about 300 basis points year-over-year.

Non-GAAP operating income increased to $1.1 billion or approximately 31% of revenues, over 720 basis points better than the 24% operating margin reported in fiscal 2010.

Non-GAAP net income for the fiscal 2011 was $1.1 billion or $1.64 per diluted share, an improvement of 72% as compared to the $648 million or $0.99 per diluted share reported in fiscal 2010.

Turning to cash flow metrics.

Our free cash flow for fiscal 2011 was approximately $1.1 billion, representing a free cash flow margin of approximately 30%, an improvement of 43% from the $756 million reported in fiscal 2010.

Let me now summarize our quarterly results on a GAAP basis.

We generated GAAP net income of approximately $223 million or $0.33 per diluted share in the fourth quarter 2011 down from the $256 million or $0.38 per share in the prior quarter and higher than the $205 million or $0.31 per share reported in the same period a year ago.

The difference between our GAAP and non-GAAP results during the fourth quarter of fiscal 2011 was due to stock-based compensation expense of approximately $31 million or about $0.05 per diluted share.

Amortization of intangibles represented an approximately $14 million or about $0.02 per diluted share and other non-recurring expenses, primarily restructuring and litigation settlements were approximately $5 million or less than a $0.01 per diluted share.

On a full-year basis, we generated GAAP net income of approximately $904 million or $1.34 per diluted share, a significant improvement from the $353 million or $0.54 per diluted share in the year-ago period.

The major contributions to the improved GAAP profitability were higher revenues and gross profit combined with lower equity compensation and intangible amortization expenses.

Now I'd like to review our balance sheet as of the end of Q4 and our fiscal year.

Cash, cash equivalents and short-term investments were approximately $2.9 billion, up $255 million sequentially and up $1.1 billion from the same period a year ago.

During the fourth fiscal quarter, our overall cash balance was positively impacted by $68 million as employees exercised stock options and purchased shares under our ESPP Program during the quarter.

In connection with our share repurchase program, through the end of February, we have purchased approximately $150 million at an average price of $18.24.

We repurchased approximately $60 million in fiscal Q3, $27 million in fiscal Q4, and about $63 million through the end of February under a pre-determined trading plan.

Accounts receivable was approximately $459 million, down about $9 million sequentially and up $103 million as compared to the same period a year ago.

DSO was 47 days, up from 45 days last quarter and 41 days a year ago.

Net inventories at the end of the fourth quarter were $245 million up from the $228 million reported in the third quarter and $242 million in the year-ago period.

Days of inventory were 59 days, up five days sequentially from the 54 days reported in the previous quarter and down from the 64 days in the year-ago period.

Accounts payable were $332 million, down $20 million sequentially and up $49 million on a year-on-year basis.

Now I'd like to turn to our expectations for the first fiscal quarter of 2012.

We currently project first quarter revenues in the range of $800 million to $850 million.

At the midpoint of this range, this represents a decline of about 8% sequentially.

By end market, at the midpoint of the range we expect storage to decline low to mid-single digits sequentially, networking to be essentially flat, and mobile and wireless to decline over 20%.

The lower revenue forecast is primarily attributable to the mobile and wireless end market.

In this end market, at one of our larger customers, the end customer volumes have shifted to a lower product mix where we do not currently participate.

In addition, we are transitioning to a [hub] inventory arrangement with this customer where we will hold more of the inventory.

As is typical in this transition, we'll see a quarter or so of lower revenue shipments as that customer shifts through inventory on hand before continuing to purchase product from us.

We are currently in this hub arrangement with many of our customers including the customers in our storage end markets.

We expect this inventory transition to be complete in a quarter or so.

I'd like to reiterate that impact of volume and revenue decline on our mobile and wireless end market is not related to design losses as some might speculate.

(inaudible) in customers in the mobile and wireless end market as is currently being experienced at many of our competitors continue to be a seasonal low point at this time of the year and as a result, will unfortunately not offset the effects of the product mix at inventory hub arrangement.

New customers in this end market, for example, customers for our new TD phones are just beginning to ramp.

We expect revenue growth in this end market to resume next quarter as we move past hub inventory issues, new customers ramp-up and other existing [comp] customers follow typical seasonal demand cycles.

In the networking end market we expect revenues in Q1 to remain flattish sequentially.

This is better than typical seasonality where we would see sequential decline of a few percentage points; however, as you recall we have experienced inventory issues in the last two quarters which we believe are now behind us.

In our storage end markets, we expect revenues to decline a few percentage points in the low to mid-single digit range.

We currently project non-GAAP gross margins to be in the range of 59% plus or minus 50 basis points.

We currently anticipate non-GAAP operating expenses to be approximately $280 million plus or minus $5 million.

We anticipate R&D expenses to be approximately $220 million and SG&A expenses of approximately $60 million.

About half of the sequential increase in R&D expenses is people-related and half due to product expenses.

The people-related expenses include a reset of payroll taxes, typical at the beginning of the year, run rate from higher staffing at last fiscal quarter, and some additional headcount to support new programs and customers.

Product-related expenses are primarily from new product introduction.

At the midpoint of our revenue range this translates on operating margin of approximately 25% plus or minus 1 point.

The combination of interest expense and other income together should net out to be approximately a $3 million benefit.

Non-GAAP tax expense should be approximately $2 million.

We currently believe the diluted share count will be approximately 682 million shares.

Taken together we currently project non-GAAP EPS to be $0.30 per share plus or minus $0.02.

On the balance sheet, we currently expect to generate about $120 million in free cash flow during the quarter.

We anticipate our cash balance to be about $3 billion excluding any special items, M&A activity or share buyback.

We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.06 per share plus or minus a $0.01, about $0.05 of this is related to stock-based compensation expense.

This being the year-end report, we typically review and communicate to you our thoughts about our business model.

We communicated our long term business model to you last year.

This model was based on long-term compounded annual growth rate not in any particular period.

Last year we far exceeded that model.

This year, it's starting out with a challenge.

Fiscal 2012 would likely be challenging for us; however, achievement of our business model should not be judged just in Q1 alone.

We expect our revenues to pick up significantly as we move through the year.

Sehat indicated earlier about areas we expect to see exceptional growth from great products and new and existing customer engagements.

Our confidence in our long term business model is not affected by near term and seasonal dynamics.

We encourage you to view the long term business model in the same way.

As we reviewed our business model, we reflected on our ability to generate significant free cash flow.

Last year, we generated $1.1 billion in free cash flow or 30% of revenues and ended with just under $3 billion in net cash.

We also took into consideration the feedback from our investors and others who follow the Company to share some of that cash with our valued shareholders.

In doing so, our Board contemplated these inputs and approved an increase in the share repurchase program from $500 million to $1 billion.

This will still leave us with sufficient resources to allow us to continue to invest organically and potentially acquisitively.

We will continue to evaluate our cash position and all options to return cash to investors and will communicate this to you periodically.

With that, I would like to turn the call over to our Operator to begin the Q&A portion of our call.

Derek?

(Operator Instructions)The first question will come from the line of Sukhi Nagesh from Deutsche Bank.

Please proceed.

Thank you very much.

Clyde or Sehat, the question is on mobile.

Obviously, the [outset] there is a lot weaker than we anticipated.

Maybe you can help us understand if your customer -- large customer there did not move to the [VMI], what would have been the positive impact to your wireless business for the quarter there?

And then again, you mentioned that mobile and wireless was potentially starting to grow again, did [you like] work and you maybe help us understand how we should be thinking about it beyond the April quarter here?

Thanks.

Thank you, Sukhi.

The -- it's difficult to differentiate the difference between the hub and the shift to 2.5G only products because they are all somewhat intermingled.

We did iterate on the call that we expect that end market to show growth in the next quarter and I think we also said that this should last maybe a quarter or so of this particular customer, so I think we expect decent growth in the next quarter but consistent with our practice, we don't want to provide any specifics.

Got it, and then just a follow-up on the operating expense front, you traditionally talked about how, for every $3 of revenue, you'd be spending $1 in OpEx.

How should we be looking at that moving forward, especially in light of the OpEx increase for the current quarter?

Fair question.

I've always reminded folks that was to be measured not on a quarterly basis but an annual basis and I think if you look at fiscal '11 for example, our revenues increased 29% and I think our expenses increased far less than that ratio, so I think we'll accomplish that.

You know we -- Sehat has been very clear about investment.

We invest in -- for the long term.

These are near-term effects and it's not possible to be [down] in OpEx growth or decline consistent with your revenues.

I think if you do that, that would be a recipe for disaster for longer term growth, so I don't think you want to manage that on a quarter by quarter basis in that respect.

It's not that quite a variable model.

Having said that, the increases we are looking at right now are geared to the products that Sehat indicated on his prepared remarks earlier and we do -- this stuff is near term.

It's consistent with the insight I gave you earlier about we expect revenue growth in Q2, so it's not like we can defer, at in the ends they're in team and feel and say (inaudible) -- it takes to bring a lot of these things to market.

For example, the TD phones are just beginning so we do need to invest in that area.

A significant investment.

Yes.

We are very comfortable with the long term metrics that we've provided.

Many of the products that we're building, especially to address these smartphone markets requires a lot of significant investment ahead of the revenue.

So at a given example, the TD smartphones itself alone requires a significant investment; it requires lots and lots of human capital as well as technology investments.

And we're starting to see that, the result of that investments, as I said earlier, out of the more than a dozens of design wins, there are people that are building TD smartphones and by the way, these are high end and as well as medium smartphones initially.

ASUS is the -- just happened to be the first one to be introducing but you'll see more and more of the introduction in an upcoming quarter and two.

So everyone of those customers requires huge amount of supports and the beauty is, these are -- all of the supports, all of the solutions comes from us and we provide all the protocol stacks, the RF, the PMICs, the audio, the Wi-Fi combo, all of the softwares needed to make things happen, the porting the Android's software, and also now with the Kinoma platforms -- porting the Kinoma platform to do solutions.

So our customers would have less headaches to deploy these phones to the market, and so again as I said earlier, as we reduce -- we are able to reduce the cost of these devices in the coming year, we will be able to reduce these costs so that these devices, same devices can go into address the feature phones.

That's for next year.

And then we'll move on to the 978 device to address the high-end markets for the next year.

Thank you.

Your next question comes from the line of Sanjay Devgan from Morgan Stanley.

Hi guys.

Thanks for taking my call.

I was just hoping you could touch on Hitachi and how the ramp there has progressed, how we should view that in terms of why we're not seeing a bigger contribution, and if you can also talk about the other major customer coming on the HD side, timing of the ramp and how we should view that progression?

Sure.

HDST, Hitachi is one of the two new large customers that I mentioned in my remarks that we've been working on for the last year, so we've been working with them on delivering multiple, multiple means more than two, new devices last year.

I don't have it with me whether it's three or four new silicons for them but it's definitely more than two devices to address multiple new programs and these are for a single [height] device drive as well as multiple -- I said single height, I am sorry.

I meant single platform device as well as multiple platform devices to address a slew range -- a whole slew range of storage capacities.

So including 7-millimeter hard drive as well as the traditional 9-millimeter hard drives, or 9.5 millimeter or so drives, so we are very excited actually about the work that we have done with them, so similar things with (inaudible) Seagate so we've also been working very hard to address this.

I can not give you too much color into it yet because as some of these devices are just about to be introduced into the market, but especially, Hitachi has already introduced some devices into the market, you can see some of the drives and they are ramping up.

And as usual as we said earlier in -- not earlier, as we have stated for many, many years, this thing takes some time, it might take several quarters, it might take three quarters, it might take four quarters to fully ramp into full production as this customer replace -- fully ramp up and replaces the traditional lower capacity devices.

So the good thing is every -- okay, as usual, the drive capacity will increase and we are on the new capacity generations so as the old capacity generations ramp down, okay, the only solutions came from us so that's the beauty of it.

So the ramp is really, the revenue is coming.

Okay, thanks, Sehat.

I appreciate the answer.

Your next question comes from the line of Nicholas Aberle from Janney Capital Markets.

Hi guys.

Thanks for taking my question.

Just back on the mobile wireless subject, couldn't really break down the shortfall relative to the mix and what's going on in the hub.

Could you quantify maybe what portion of the business is being impacted by seasonality versus what's going on at this specific customer?

It's like the same thing, Nick.

And there's a lot of moving parts in there.

It was a minimal amount in our Q4 results, obviously a big amount this quarter.

It's obviously difficult to quantify seasonality versus hub, and so --

They're intermingled.

Yes, they're connected.

They're intermingled and connected so but I would reiterate we do expect this end market to grow and that customer to grow.

Got you, and then so how do we think about the transition on the mix side to 2.5G?

Is that something that's going to be permanent now or do you look for it to switch back as we move to the balance of the year?

How should we be thinking about that?

Well, I think the 2.5G is one that we did not anticipate early on.

The fact that many parts of the world, they're still using 2.5G and yet while traditionally they will have only been served with feature phones, more and more of these parts of the world, they are demanding the smartphones, so this is an area that where we have decided now to fully address to provide solutions for these markets.

Now, we do have solutions, okay?

We just are not pushing it to the market and we expect to participate into this market in the next couple quarters or so as the devices are qualified into the market, so I do expect this is a short-term issue to us.

Got you, and then on the hard disk drive side, as you guys said, I mean, it's been a couple of tough quarters, I think four tough quarters in a row.

Do you think it's more -- is demand waned because of the economic conditions or do you think it's a secular tend within the drive space that's been holding back the growth on the storage side?

On the storage, the unit growth actually, (inaudible) when we report the numbers, we report the dollars, so within the dollars, the reported dollar numbers, actually the growth of the units actually is bigger than the dollar.

So really, there's still quite a bit of growth in the market, not as much as what we used to see in the past, so part of it is related to the, I guess, the economic condition in the world and still many parts of the world are under distress, so the consumption of PC is somewhat muted.

Part of it is a small percentage of this could be related to some people are buying smartphones or buying a little bit of tablets, so there's some cross-correlation.

So -- and part of it is also because it's certain -- such a small percentage of the markets, people are starting to use SSD, which we do participate, as I mentioned earlier in my remarks.

We have numerous design wins for our SSD controllers for the Tier 1 markets, so I can only imagine that disk drives goes into high-end laptops which obviously will take some of the markets in the HDD.

But it's an area that we participate so we don't really care one way or the other which way it goes.

If I may add to what Sehat said.

I understand but I think we all follow the PC space a year ago as we discussed earlier on the call, there was inventory correction went to end market fairly quickly, there's been product transitions at the PC processor levels I alluded to that earlier.

So there's a lot of moving parts here.

I think all of these things are contributing to the current environment and I think what you see from us is probably better than what you might, one might expect to see but part of that is the ramp of new customers as well is helping us out.

So I think there's a number of things that's happened over the last three or four quarters in PCs.

I do think with new processor technology coming, inventory should clear out and I think we'll get to more stable environment, albeit as Sehat said, probably more subdued than in the past but I think everyone expects that now.

Maybe I can add a little bit more color to this, specifically with this quarter with the delay of the shipment of this PC platform, there's a certain destruction in the supply chain.

Many of the PCs that are built in, or laptops built in Asia and ship over the shipping lanes, and there's -- this is traditionally this is what's done to reduce costs of the transportation but because of the delay in the shipments of the new PC processors, the supply chain will get disrupted for about maybe two weeks, maybe two and a half weeks or so.

And that -- therefore, specifically this quarter, our customer indicating that -- there's two weeks, two and a half weeks of supply chain disruption that does create an issue with the storage business temporarily.

Okay.

Thanks guys.

Thanks, Nick.

Your next question comes from the line of Harlan Sur from JPMorgan.

Please proceed.

Hi, good afternoon and thank you for taking my question.

Clyde, you mentioned the accelerating revenues in your total business beyond the April quarter and I know that you also mentioned wireless being up in the July quarter.

Is your -- you should have visibility, I mean, is your order and backlog visibility already giving you a high level of confidence about growth in the total business for the July quarter?

No.

It's less orders because people don't give orders.

There's some but if you look at -- when you analyze the reasons why we declined a fair amount of that was seasonality.

So for example, I think it's well documented we have north of 70% share of the gaming systems; well, they typically build up in our Q2 and Q3 and then drain that off in the first half, so that's a part of it.

Second part of it and I think this is a non-trivial part is the ramp of some of these new devices.

Sehat alluded to and it's public now that ASUS launched a couple of devices, we indicated earlier that there are a number of devices that should come in the next few months.

And so new product introduction which we have a fair amount of clarity or create growth is probably the other area that gives us that confidence.

Some of the customers aren't well known to you; once they go public, we can talk about it.

Some we have to keep quiet until they go public.

So it's a combination of seasonality which has caused the subdued early areas and new products related to some of those customers as well as new areas and new customers we ramp up in the near term that gives us that comfort.

I do want to add something.

I do have -- I personally have seen many, many of these handsets myself, on my hands playing around with these new TD handsets for the China market.

So I do feel comfortable that these products will ship in the next quarter or so, as the devices are being qualified by the carrier.

So that's a good thing that the devices are there, so just the qualifications stage needs to be completed and then the order will automatically come and so basically, we need to prepare for building the inventory just to anticipate for this ramp.

Okay, great, and then my follow-up question is the team has had obviously a very good relationship with RIM for many years now.

I'm just trying to figure out what was the rationale for the transition to a hub-based model now.

Is it just simply because Marvell is just a much larger partner into RIM?

I mean, Is it that simple and then on that same front, just want to make sure that on the 3G side that you guys still believe that you retain 70% market share of their non-CDMA product lines now and also going forward?

Thanks.

Thank you, Harlan.

So we said before, this is not a design win or design loss issues so the things we've said in the past continue to play out.

In terms of the timing, we -- yes, we are a much bigger player with them.

I think our revenues last year and performance last year shows that.

It's been discussed for a while.

I think what creates a timing is given the mix right now, we decided might as well get it over with and not have to deal with that.

I think at some point we realize that was inevitable to go there.

We might as well deal with it early, put that behind us and move on and deal with other issues and so that probably more influenced the timing more than anything else.

Okay, thank you very much.

Thanks, Harlan.

Your next question comes from the line of Craig Berger from FBR Capital Markets.

Hi guys.

Thanks for taking my question.

I guess the big picture question is, if I look at your revenues now versus where they were, say a few years ago, there really hasn't been that much growth and that's severely underperformed versus peers and I'm just wondering what needs to change?

Is there something broken?

Is there something broken within the processes with the investment areas?

Maybe you can help me understand the big picture about why growth is going to proceed now where it hasn't in the past.

Craig, I understand I've heard people say that but the mix of our products over the last few years is much different.

I think earlier on this call and a number of people have written about some of the issues related around the PC market and of course, having 60% share of the drive business, we are subject to that and we are subject -- so I think when you look at it, you got to look at the mix of our products.

Sehat and both I indicated earlier, our network and business last year grew 15%.

We said we expect that to grow by at least that much, maybe a little bit more this year and that continues to grow.

Our wireless business grew over 111% last year.

We expect that to have double digit growth again this year, so I think when you analyze it, it's a very good question for people who listen to this call, it's to understand we are shifting our business away from PC-based stuff to non-PC based and those businesses are very successful.

The last thing I would add is, don't judge this by just one or two quarters and we are talking about Q4 and Q1 results.

I think it's unfair to judge those by those results but you look at the product mix and you look at the product line-up we've got, I think we've transformed this Company substantially and I think we will grow in all the right places.

But when you dominate in one area, i.e., PCs, that's been somewhat subdued you're going to have to live through that.

I think we've done that very well and generated a lot of profitability and cash flow through that transition.

So then, as a follow-up maybe a couple programs you've talked about before were the -- some of the China Mobile OPhone programs and also Seagate's set to start ramping on the HTD side.

Is there any way you can help us quantify those opportunities in this calendar year towards getting to that 20% to 25% annual growth target you guys are shooting for?

On the China Mobile, it's -- of course, we have an idea.

The problem with new product introductions is in the new country with smartphones, it's difficult to predict and as people get latched on to that, then you get measured against that.

We have, I think, Sehat indicated more than a dozen customers that are ramping this TD.

We're very excited by it.

Whether it's single digit millions or double digit millions is hard to say but it's certainly $10-ish plus million have been thrown around for this opportunity and we have the lion's share of that.

Whether that's going to play out or not, there's a lot of moving parts to that.

Same thing is with our drive customers.

They have started ramping, the things we control is the products.

We discussed earlier about number of products and we are confident that in months, if not a quarter or so, we would serve all areas of the drive market and that's very confident we will do that but the rate and pace of that ramp is difficult to predict.

I guess instead of giving you what the unit numbers, that is possible with the OPhone or simply any other OS for the TD market, let me give you a number.

I mean, the pricing of those phones.

Last year when they introduced the first generation OPhones, the first generation OPhones was selling for $300, $400 even $500 US, not Chinese dollars, price point, and you can see that for that kind of price point, the volumes, it will be limited.

In contrast, today's -- the 920 devices are targeted for TD smartphones and these are high end smartphones targeted for prices in the range of $100 to $150 smartphones.

Now, so we just need to figure out, okay, we just need -- time will tell what will be the difference in the volumes of the TD smartphones when it's priced between $100 to $150 versus when it was priced at $300 to $500.

Can I just ask one more, you've been talking about the Seagate wins and some of the China Mobile OPhone stuff for almost three years now and I guess my question is did you start talking about it too early?

Have the programs delayed?

Is the technology delayed?

What has changed versus expectations back in fall 2008 on those programs?

Let me address the China OPhone.

You could argue whether we talked about it early or not, that's a fair question, but there has been some challenges.

The underlying Android platforms has gone through a lot of [variations] that caused people to delay.

With any new product, any new technology, you always have issues.

TD is relatively new, certainly in smartphones, so arguably, there were delays but I think that we got to look at the positive side.

We have one customer announced last Friday, that's the beginning of it.

This stuff is real.

This is not fiction in front of us or this is not a promise or something.

This is real and we think this is near term and we can see on this call, it has started and that's the meaningful difference here, Craig.

Okay.

Thanks guys.

Thanks, Craig.

Your next question comes from the line of Uche Orji from UBS.

Please proceed.

Thank you very much.

Can I just switch gears and ask you about networking and within your flattish guidance, can you talk about trends within the sub-segments, carriers, enterprise, small and mid-size businesses, what are you seeing there by way of demand, which areas are stronger, which areas are weaker?

Thank you.

We play mostly in enterprise, Uche, so our presence with carriers and within small businesses it's hard to say, but I'd lean our comments more around enterprise.

It's hard to differentiate whether small business or not.

At least, I couldn't do it here for you on the call so I would characterize stuff as more enterprise.

I think I said earlier that by the middle of last year there was some well documented inventory issues.

I believe we said then it would take about two quarters and its taken two quarters and now we see that behind us and it's a little bit better than seasonal.

Okay.

I mean, I also know you did have some business with data centers and the reason I ask is because there's been very strong comments of internet traffic driving strength in data centers.

Are you seeing this same thing within your networking business?

Yes.

I think that's probably where -- whether it's cloud-based or data center-based.

I think that's where you will see somewhat of the existing stuff, but we indicated -- Sehat indicated earlier that we expect next year, our GPON/EPON combo devices to start taking off.

That's of course related to slightly different parts of the business, but the existing business today I think you'd see the data center spending probably increase in part because of the cloud phenomenon.

Also, there are people building new base stations, as they are starting to move to 4G, they need much higher throughput on the -- in the backbone so those are being built using higher port counts, 10 gigabits backbones.

Right.

A different question.

SSDs and hybrid products, you talked extensively about this, Sehat.

When should we start to see this actually get shipped and when should we think it will be material contribution to the revenues, good for Marvell and positive for the industry, and can you comment as to what your market share is in SSDs?

And also if you can tell us what the related contribution to both pricing and margins compared to hard disk drives?

Thank you.

Sure.

As I mentioned earlier, that last year, our SSD revenue doubled, so, and I also mentioned that this coming year, it will also double.

At least.

At least also double, so and this is just from the products we've built for the standalone high performance SSD controller, so this does not include the devices that I also mentioned earlier but the hybrids.

The hybrids are the new device that we just recently introduced because we started to realize that at the price point of these SSD controllers, only a small percentage of the market can afford to have SSD.

You have everybody wants to have their laptops to have SSD if it's -- if it costs for the same price of the drive, a regular drive, but it's not, it's happened in the next five to ten years, so instead of waiting for that to happen, we proactively are looking to what we can do to make these laptops to have essentially similar performance of an SSD, maybe a little bit less by giving them smaller capacity and use the hybrid solution combining with the traditional SDD and resulting in a one-tenth of the cost, or one-eighth the cost of a pure SSD.

We're talking about not half, but one-eighth the cost, so this is like a major, major cost saving, but as anything, okay, technology is not so easy to deploy.

So we are working with our customer to deploy this solution into the market, so we expect this to be more of a hybrid, to come a little bit later.

In the meantime, the traditional SSD, there's still a lot of headroom for the market to grow as some of the flash -- the multibit, the two bits as well as three bit cells are being introduced into the markets.

These will somewhat reduce the -- also the 2X nanometer flash starting to come into the market.

This somewhat reduces the cost a little bit, but it's not enough to create a huge volume increase, so that's why we are forecasting double, more than double, not 10X.

If you look at the volume, the volume is still quite low.

So if prices get to where it actually could be 10X increase but it's not going to happen any time soon.

Operator, we'll take one last call.

The question will come from Chris Caso from Susquehanna Financial Group.

Please proceed.

Hi guys.

Thanks for taking the question.

If I could just come back to the handset again and just understand correctly, I know you've tried to answer it a couple times, but is it correct to say that at least some part of that down 20% that you're seeing this quarter comes back to you over the next two quarters or so but I guess you guys are saying you don't know the magnitude of that, how much that comes back?Is that the right way to think of it going forward?

Correct.

Yes.

Okay, and I guess what depends on how much of that comes back depends upon the mix between 3G, 2.5G on the product line going forward?

Less of that.

They also have new programs going on 3G.

The 3G -- the newer 3G phones are also being built at lower costs so that will also address some of the emerging markets and now of course, as I said -- we mentioned earlier, we also like to participate on the 2.5G only smartphone markets, some of these markets where the infrastructure is still completely still on the 2.5G networks; yet, they want to have -- where the consumers still wants to have smartphones, not just entry-level smartphones, also advanced smartphones.

We also want to participate in that, so we have solution for that and that will probably take us two quarters or so to materialize.

Okay.

Thank you, Chris.

I'd like to thank everyone for their time today and the continued interest in Marvell.

We look forward to speaking with you in the coming months.

Thank you and goodbye.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.