邁威爾科技 (MRVL) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2015 Marvell Technology Group Limited earnings conference call.

My name is Tony, and I will be your operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Sukhi Nagesh, Vice President of Finance and Investor Relations at Marvell.

Please proceed.

Thank you, Tony, and good afternoon, everyone.

Welcome to Marvell Technology Group's third-quarter FY15 earnings call.

With me on the call today are Sehat Sutardja, Marvell's CEO; Weili Dai, Marvell's President; and Mike Rashkin, 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 the Company website under the Investor Relations section at Marvell.com.

We have also posted a summary of our quarterly results in the IR section of our website for investors.

Additionally, this call is being recorded and will be available for replay from our website.

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

The risks and uncertainties include our expectations about our overall business, our R&D investments, product and market strategy, statements about design wins and market acceptance of our products, statements about general trends in the end markets we serve, including future growth opportunities, statements about market share, statements regarding our financial outlook for Q4 of FY15.

To fully understand the risks and uncertainties that may cause results to differ from our expectations and outlook, please refer to today's earnings release, our 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 all of our statements are made as of today, and Marvell undertakes no obligation to revise or update publicly any forward-looking statements.

During the call today, we will make reference to certain non-GAAP financial measures, which exclude the effect of stock-based compensation, amortization of acquired intangible assets, acquisition related costs, restructuring costs, litigation settlements, and certain one-time expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to our core operating performance.

Pursuant to Regulation G we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second-quarter earnings press release, which has been furnished to the SEC on Form 8-K and is available on our website in the Investor Relations section.

With that, I would now like to turn the call over to Sehat.

Thanks, Sukhi, and good afternoon, everyone.

Today we reported third-quarter financials, which were overall on target with our guidance.

Our revenue for the third quarter was $930 million, which was down 3% from the prior quarter and slightly below our guidance.

Our gross margins was slightly above our guidance, and our EPS was right on target.

The lower revenue in Q3 was mainly due to weaker mobile business and lower revenue from our networking business.

Our storage business, however, grew due to continued strength in both HDD and SSD end markets.

Despite the weaker revenue, we continue to focus on tight operational management and delivered margins and earnings that were either in line or better than expectations.

We delivered the following non-GAAP results for Q3 -- gross margin of approximately 51%, operating margin of 17%, and earnings per share of $0.29.

We also bought back $45 million worth of stock, or 3.7 million shares, during the quarter and paid approximately $31 million in dividends during the quarter.

I would like to provide a brief update on each of our end markets.

First, for our mobile and wireless business, revenue in this end market was soft and declined approximately 13% sequentially.

Despite the short-term weakness, let me stress that we are very bullish about our mobile business.

Recently Verizon launched their XLTE-Ready self-branded Ellipsis 8 tablet in North America.

Also, China's leading consumer brand, Meizu, introduced its high-end flagship MX4 Pro premium 4G LTE smartphone for China Mobile and China Unicom using our LTE modem solutions.

In addition, we have won numerous and major design wins with global Tier 1 OEMs for 4G LTE smart phones and tablets and expect these devices to launch in the first half of next year for entry-level, midrange, and high-end devices.

Furthermore, we recently introduced new products, including our 64-bit quad-core ARMADA Mobile PXA1908 and 64-bit octa-core ARMADA PXA1936.

Many Tier 1 customers in Korea and China will introduce smartphones using these solutions in the first half of next year.

The lower mobile revenue in Q3 was mainly due to the mix of our customer base and the shift from the carrier-driven models to the open market in China, which require full, turnkey support.

In response, we are accelerating the introductions of our turnkey LTE platforms, including complete board layout and software targeting the open market.

Our turnkey solution will be ready in Q1 next year, and we expect revenues starting in Q2.

We are also accelerating the expansion of our LTE solutions to markets outside of China and will subsequently bring our turnkey platforms to these markets.

Now in wireless connectivity, our strong high-end technology continues to be well-received in the market.

For example, our 4x4 11ac device has number one market share in carrier-grade access point, supporting Tier 1 customers like Cisco.

We believe we are well-positioned to further expand into high-performance 4x4 MIMO products categories, in both retail and service provider gateways, with more devices in the pipeline for launch next year.

We are also a strong leader in gaming, with leading solution at both Microsoft and Sony.

Our Q3 revenue in connectivity represented another solid quarter, and our performance, overall, was in line with expectations.

We saw increased production for our industry-leading 11ac 2X2 MIMO and 1x1 combo solution across all major operating systems.

In the coming months, we expect multiple new product launches in tablets, computers, set-top boxes from Tier 1 customers.

For Q4 we expect our mobile and wireless end market to decline slightly on a sequential basis, mainly due to temporary softness in demand in mobile and seasonal declines in connectivity.

Moving next to the IoT market.

As you may recall, we are building general-purpose microcontrollers that have integrated wireless connectivity.

This is in emerging market that has significant growth potential.

As one of the earliest and leading players in this market, our EZ-Connect wireless microcontrollers have been very well-received.

We have a very strong design pipeline across a broad range of applications, including lighting, appliances, home automation, and other [smart home] and commercial IoT applications across China and North American regions.

We already seeing volume ramps from several customers in lighting and home automation product categories.

We recently announced a design win with our EZ-Connect microcontrollers at Xiaomi for enabling the smart home addition and expect this to ramp in the next few quarters.

We're in an early partner in Apple's HomeKit and have a number of Tier 1 customers designing HomeKit products using our EZ-Connect microcontrollers.

We expect these products supporting HomeKit to launch early next year.

Next, moving to our video business.

We are very excited and pleased to see the success of Google Cromecast in the North American, European, South American, and now Asian market.

And our Q3 revenue increased over 30% from the previous quarter.

On the service provider side of the video business, LG Uplus, a leading service provider in Korea, launched their [4k] platform using our of ARMADA 1500 solution.

In addition, several other service providers will start shipping their own versions of IPTV and over-the-counter hybrid set-top boxes using our ARMADA1500 family of video SoCs over the next few months.

Turning next to networking.

Last quarter, we introduced the Questflo product line of breakthrough network search engines that broadens our growing networking product portfolio.

It is widely acknowledged today's traditional TCAM-based solutions are finally reaching its limit, both in terms of capacity and power dissipation.

Our Questflo products incorporate the industry's most advanced algorithmic TCAM technology, specifically addressing carrier class customers.

The first device already enables customers to increase the surge capacity by four times at one-fourth the power, compared to current competitors.

That's delivering an order of magnitude better performance power metric.

We're already actively engaged with multiple customers.

We are extremely excited about the Questflo product and expect revenue from this product family in 2015.

In Q3, our networking revenues declined 7% compared to prior-quarter, following a strong Q2.

This decline was mainly due to the well-documented slowdown in carrier spending.

However, during the quarter, we saw continued strength for our enterprise ethernet and PON product lines.

For Q4, we're expecting our networking business to be relatively flat on a sequential basis, in-line with end market trends.

Next, moving on to storage.

We continue to execute well and revenues came in-line with our expectations, driven by strength in both HDDs and SSDs.

For Q3, revenues from our storage end market increased 3% sequentially.

We continue to see strong demand for our storage products for cloud-based end client applications.

Starting with HDDs, our business grew sequentially and came in better than our expectations.

Overall, we continue to improve our shares of the total HDD market, driven by increasing tractions of our 500 gigabyte per [platter] technology and continued share gains in the enterprise drives.

Next, in SSDs, we saw another strong quarter in Q3, with double-digit sequential growth in both volume and revenue.

We continued our market share gains during the quarter and remain the top SSD controller vendor.

We continue to see growth of our SATA and PCI SSD controllers at multiple customers.

We're also on track to introduce multiple embedded SSD products for the mobile market, for which we expect to see revenues in 2015.

As a result, we believe our storage business remains on track to grow strongly this year and beyond.

For Q4 we expect our storage end market to decline slightly on normal seasonality.

In summary, for Q3 despite weaker revenues, we carefully managed our operations, resulting in margins and earnings that were in-line or better than expectations.

We continue to focus on increasing our operating leverage, and we believe we are on-track to meet our long-term targets.

I want to stress that we have numerous 4G LTE design wins at global Tier 1 customers for entry-level, midrange, and high-end smart phones.

And we're executing well on our product road map, including the accelerations of our turnkey LTE platforms.

We believe all these efforts will position us to benefit greatly in 2015.

Our connectivity business is also poised to grow strongly in 2015, with increased adoptions of our Wi-Fi solutions in enterprise access points, service provider equipments, ultra books, and LTE smartphones.

Our storage business remains healthy, driven by continued growth in both HDDs and SSDs.

Finally, our networking business remains on-track to grow, as we broaden our exposure across enterprise data centers and service provider customers.

With that, I would now like to turn the call over to Mike to go over our third-quarter financial results and fourth-quarter outlook.

Thank you, Sehat, and good afternoon, everyone.

Moving to our financials.

As Sehat mentioned, our third-quarter financial results were overall on target with our guidance.

While revenues were below guidance, our gross margin was above guidance, and our EPS was on target.

We reported revenues of $930 million for the third quarter, which was a decline of 3% sequentially, as a result of weaker mobile sales and softer networking sales to carrier customers.

As Sehat said earlier, we expect the softness in mobile to be temporary, and we expect a pickup starting in the first half of 2015.

Despite this short-term slowdown, we have maintained our focus on operational efficiency.

Year-to-date and FY15, our revenues have grown by 15%, compared to the same period in FY14, while our non-GAAP operating income has grown nearly 30%.

Moreover, our year-to-date mobile and wireless revenue, our largest growth area, have grown by more than 25% compared to last year.

Our improved efficiency will result in greater operating leverage as our growth continues.

Moving onto details on our various end markets.

Our mobile and wireless business declined 13% sequentially and represented 27% of overall sales.

Shipments of our baseband chipsets were weaker sequentially, due to demand softness from our Asian customers.

In networking, our revenue declined 7% sequentially and represented approximately 18% of total sales.

Networking sales in Q3 were lower, mainly due to weaker spending by service providers.

In storage, our overall revenue grew 3% sequentially and represented approximately 49% of total sales.

Q3 sales in this area were in-line with our expectations and driven by growth in both our HDD and SSD businesses.

Moving next to margins and expenses.

Our non-GAAP gross margin for the third quarter was approximately 51%, which was above the midpoint of our guidance range, and improved 40 basis points sequentially.

The main reason for this was a more favorable product mix during the quarter.

Non-GAAP operating expenses came in at $319 million, below our guidance range, due to continued operational discipline across all our businesses.

This resulted in a non-GAAP operating margin of 17% for the quarter, flat sequentially, and 70 basis points better than the midpoint of our guidance range.

Net interest and other income was about $5 million, and we recognized a tax expense of $5 million in the quarter.

This resulted in non-GAAP net income for the third quarter of $155 million, or $0.29 per diluted share.

This was in-line with guidance.

The shares used to compute diluted non-GAAP EPS during the third quarter were 533 million.

Cash flow from operations for the third quarter was $195 million.

And free cash flow for the third quarter was $167 million, or approximately 18% of revenue.

Now, summarizing Q3 results on a GAAP basis.

We generated GAAP net income of $115 million, or $0.22 per diluted share.

The difference between our GAAP and non-GAAP results during the third quarter was mainly due to stock-based compensation expense of $34 million and $4 million expense related to amortization and write-off of intangible assets.

Now turning to the balance sheet.

Cash, cash equivalents, and short-term investments as of the end of the third quarter was approximately $2.4 billion, an increase of 4% from the previous quarter.

We also used $45 million to buy back approximately 3.7 million shares of stock during the quarter.

We currently have about $213 million remaining in our authorized repurchase program, and we will continue to be opportunistic in our buybacks going forward.

We also paid dividends of $31 million in the quarter, or equivalent to $0.06 per share.

Net inventory at the end of the third quarter was approximately $356 million, a decrease of about $38 million from the previous quarter, as we effectively managed down our inventory.

Moving next to our outlook for the fourth quarter of FY15.

We currently project revenues to be in the range of $800 million to $900 million -- $880 million to $900 million.

At the midpoint, this would equate to roughly a 4% sequential decline, in-line with historical seasonal trends.

We expect our storage, mobile, and wireless businesses to decline slightly, while our networking business should be flat with Q3.

We currently project non-GAAP gross margin of 50.5%, plus or minus 100 basis points, and currently anticipate non-GAAP operating expenses to be approximately $320 million, plus or minus $10 million.

We anticipate R&D expenses of approximately $265 million and SG&A expenses of us proximally $55 million.

At the midpoint of our projected guidance, this should translate to a non-GAAP operating margin of approximately 14.5%, plus or minus 100 basis points.

The combination of interest and other income should net out to approximately $2 million, and we expect tax expense to be approximately $2 million.

We currently expect the diluted share count to be approximately 535 million shares.

In total, we currently project non-GAAP EPS to be $0.24 per diluted share, plus or minus a couple of pennies.

On the balance sheet, we currently expect to generate approximately $150 million in free cash flow during the quarter.

We anticipate our cash balance to be about $2.5 billion, excluding any M&A activity, share buyback, or other one-time items.

We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.08 per share.

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

Operator?

(Operator Instructions)

Sanjay Chaurasia, Nomura.

I actually have a question on LTE market in China.

Can you give us some more color, in terms of this transition from carrier to open market?

And then I have a follow-up.

As you know, [Sukhi, Weili's here, so] I will have Weili to answer this question.

Weili?

Thank you, Sehat.

As you can see, first half of this year, there are quite a bit of government subsidy to the carriers, specifically for China mobile.

As you can see, overall volume for the carrier grade type of phones is running very healthy.

Now the second half -- it's been shifting to more the retailer, as well as the Internet online sales.

And this which caused the softness of our LTE deployment because the turnkey platform solution is very key.

Having said that, as you heard from Sehat earlier, we are speeding up our engineering effort.

And we hope the first half of this coming year and we will drive -- be able to deploy and scale with very high volume, using our recent introduction of our 64-bit SoC, both for four-core as well as eight-core 4G LTE global MIMOs.

You have a follow-up, Sanjay?

Sure.

One more question.

Could you tell us about your LTE share this quarter?

Last quarter, you indicated it was roughly 30%.

And the part B of the question is, what would it take for you to develop your turnkey model?

Is that going to be more OpEx, in terms of what's impact of developing the turnkey model on OpEx next year?

Turnkey model is more of focusing on dealing the last 1% of the work, as well as negotiating with the different component suppliers on what are the supported components that will be standardized in the turnkey models.

So really, most of the work is -- none of the engineering work -- more of a business development work.

So in terms of the OpEx side, Sanjay, you shouldn't see any big necessary increases in our OpEx because of the turnkey solution.

We are managing our expenses quite well, and so we should be well within what we expect our OpEx should be.

Thank you, Sanjay.

Thanks

Harlan Sur, JPMorgan.

Hi.

Good afternoon, and thanks for taking my question.

So it would seem that you're pretty close to a bottom on your 3G baseband business.

It seems like it's declined at least 30% sequentially each quarter over the past two quarters.

So you got the ramp of your 64-bit platform.

It looks like the 1908 ultra low-cost maybe starts to ramp in Q1.

So I guess two questions here.

Do you anticipate your 4G crossing over 3G in the April quarter?

And do you expect your mobile segment to actually start to drive some sequential growth in Q1?

Yes.

The answer is yes.

And the other thing is, if you look at the 3G situation, it's a mix of customers.

As you know, our customers in the region of Korea, for example, you see a little softness.

But 4G LTE -- and we believe 2015, this coming year is going to be a big year for the deployment.

Why?

Because we -- more of the leaders like us is going to drive to the masses.

And our recent introduction of 1908, the four-core, as well as the eight-core 1936 -- and that covers the global mode.

And we are very pleased to see our major design wins from customers in Korea and China.

And the other thing is, not only our solution is high-performance, it's very low-power.

Now remember the eight-core 4G LTE -- and we are one of the players introducing the product -- but what we have done is optimized the solution for performance and also very low power.

Because some of our key competitions -- their design based on software, so the power consumption is higher, much higher.

And we also optimize on our [8P] application processor design so our (inaudible) size is very small.

I believe it's roughly maybe more than 20% to 30% range.

So overall, today, if you look at our solution based on our design win and the feedback from our customer base -- and we are covering all the way from entry-level smartphones, to midrange massive market, as well as to high-end.

And we believe we're very well-positioned to address all segments markets.

And it is our mission to drive for the mass deployment of 4G LTE.

So therefore, the cost to the point where people will upgrade to 4G, for example, entry-level phones [believe or not] 4G LTE is CNY399 in China, which translate to around $65.

Harlan, you have a follow-up?

I do have a follow-up.

Just one follow-up on that question.

So Weili, you do expect -- so the team expects the mobile business to start to grow again in Q1.

Absolutely.

Yes.

We are very-- (multiple speakers)

Okay.

Alright.

Okay, great.

I appreciate that, Weili.

Okay.

My follow-up question -- the team has not been very active.

In fact, it hasn't been in the market at all, with the repurchase program over the past four quarters.

So it seems that very recently, the special master has agreed to or is okay with the arrangements that you've made with your surety bond holders.

I think what the team has been waiting for, in order to restart the stock repurchase program -- looks like you repurchased a bit here in Q3.

So should we assume that, on a go-forward basis, there are no more restrictions now on the buyback and that you have the full capability to put the $215 million or $218 million of authorization to work in the markets?

Well, there never have been any actual restrictions.

We've always said that what we're doing is being opportunistic.

And so we felt that this was the right time to enter and buyback.

And we now have $213 million still authorized, and we will continue to buy back.

Okay.

Thank you.

Thanks, Harlan.

Doug Freedman, RBC Capital Markets.

Hi.

Thanks for taking my question.

As we wrap up 2014, I know there was a wide range of expectations on the total units the LTE market would be in China, can you give us an idea of where you think that ended?

And what is the outlook that you have for that market, in terms of units for 2015?

Well, I believe the overall -- let's say, the biggest operator is China Mobile.

Right?

I believe it's going to be -- for this year will be north of 50 million units.

[Capital growth] next year?

Next year, I'm quite confident it probably -- again, this is what I believe -- will double.

Do you have a follow-up, Doug?

Doug?

Hold on.

[Can you] hear me?

Alright.

I'm sorry, we missed your question.

Can you repeat that please?

(technical difficulty)

Sorry, Doug.

I think we're having a hard time hearing you.

We'll catch you off-line.

Operator, Tony, can we move to the next caller, please?

Quinn Bolton, Needham & Company.

Hi, Sehat and Weili.

I wanted to follow up on your design wins for the LTE handset.

As you look into next year, are those all on the new 1936 and 1908 platforms?

And then secondarily, as you ramp the 1908 platform -- the [robust] platform -- and prices come down into the high-single-digit range, can you talk to us about what you see margins at that value segment being?

Can they still -- are they still accretive to overall mobile and wireless, or do you have different expectations now, on margins, given that price environment in the low-end?

First of all, let me address the [customers].

As you can see, so far, we -- this is based on our public announcement -- our customers, such as Samsung, Lenovo, (inaudible), Huawei, and DPE, and [Hyphen], and so on.

Obviously, with our new generation most recent announcement of 64-bit running the latest Android L operating system -- and this is, we believe it has a very complete solution offering for the high-end phones, all the way to the midrange and to the entry phones.

And we are very hopeful.

I believe that we're going to have a very significant growth for the coming year.

And as you know, when you -- especially addressing the entry-level phones, the margin is going to be challenging.

But we continue to optimize our cost.

It is my hope that we can grow very high volumes.

And with our low-power, low-cost, smaller die size and as well as the performance, hopefully we can do better from all aspects.

Right.

And to add to that, remember we continue to focus on two key metrics.

Right.

Revenue growth and [operating income].

And as Mike mentioned earlier, and if you look at our year-to-date performance on that front, revenue growing 15% and operating income grows twice that.

We are -- we continue to focus on those key metrics, even though we are in some very price competitive markets.

Okay.

Thank you.

John Pitzer, Credit Suisse.

Hey.

This is Ryan Carver, in for John.

Just a question on 3G versus 4G.

Can you give some color, in terms of the mix in third quarter and the mix embedded in your guidance?

Presumably, the 3G declines were -- out-paced sort of 4G.

But can you give us some color?

Did 4G grow in third quarter?

And what are expectations for fiscal fourth quarter?

Hi, Ryan.

This is Sukhi.

We haven't provided that kind of mix in the past.

We'll refrain from doing that on this call, as well.

As we mentioned earlier in the prepared remarks, our overall mobile market has been weak.

And I don't think that shouldn't come as a surprise to you, given the results of many of our customers and competitors.

So generally, I think all we can say at this point -- it was weak across the board.

Okay.

And just a real quick clarification.

Weili, you mentioned that calendar 2015 would see a doubling.

So I presume that's 100 million unit expectation for 2015?

Just a quick clarification on that LTE.

Yes.

Okay.

My last question, if I look at sort of the revenue [miss] versus the lower cost of goods, it implies sort of a low 30% gross margin for the revenue -- for the shortfall in the revenue.

And presuming that most of that was -- obviously, most of that was in the mobile and wireless.

So can you talk through the expectations for what gross margins are going to tend to do, going forward?

You mentioned carriers is less of an impact on LTE.

And you guys are looking at this more turnkey model.

Does that promote -- or is that customer base typically one that is more aggressive, in terms of the device ASPs?

Or how should we think about the gross margin progression, as the market kind of shifts from a carrier to a more retailer base?

(Inaudible) business.

You actually see opposite.

Okay?

The turnkey model, actually, will have a higher gross margin because the customers are not investing in R&Ds at all.

What they're doing is, they're just only doing the procurement and the manufacturings and the distributions of the product lines.

So if anything, our gross margins can only improve when we go to the turnkey model.

Right.

And the other thing there, Ryan, also is if you look at some of these customers, right?

The ones in the online customers.

They're not really that -- they're looking at some of these high-end devices.

We announced one more [just recently].

These are high-end devices, and they carry higher pricing.

So obviously, our margins will be better as we move more and more on that front.

Got it.

Thanks everybody.

Ian Ing, MKM Partners.

Ian, you there?

I'm here.

Yes.

Could you talk a little bit about networking and Internet switching?

Looks like Broadcom has this Tomahawk chipset coming out -- 40-gig and 100-gig at the data center.

Talk about competitive landscape there, and how much of the white box market you're addressing.

Thanks.

The networking -- we have competitive products.

We were maybe a little later in the market.

We do have competitive products in the market.

You see more of that coming to market next year.

We have a slew of products that are coming to -- we've introduced this year.

And in the Internet side.

So at least for the short-term, while you may see some -- you may not see it in the market, we are working actually on design wins for some of the competitive products.

And in addition to what Sukhi said, if we look at the Internet, the 10-gig [a fine] solution.

And we actually leading the Broadcom.

And we had major wins at tier 1 customers.

So we are very pleased about that.

And also, overall in terms of today, how the technology are designed and developed -- cloud infrastructure -- this requires storage, networking, and computing.

And Marvell being -- addressing end-to-end market with all the complete technology.

In fact, some are new way of defining and designing solutions for networking infrastructure cloud at Marvell is actually leading the pack.

So just stay tuned.

We'll give you good updates.

We have a lot of different products.

In networking, we have our CPUs, we have our ethernet selection, we have modem technology, we have base station technology, programmable processors.

So we have complete portfolio of products, and we should see steady improvement on the networking business as we head into next year.

I think it's a lot of -- perhaps people are confused about our LTE business.

A lot of prices we get comparing against Broadcom -- the only things that even -- we don't have yet is the switch fabrics, the very high-end switch fabrics.

And as I mentioned last quarter -- I think the last quarter or so -- our switch fabrics, our Internet based switch fabrics will be out toward the second half of next year, and those are the ones that [actually do] -- completely leapfrogs the existing cell based switch fabric solution.

Other than that, we have everything.

I just announced earlier, the Questflo.

This is an area that historically, we did not play in.

But now we have -- suddenly we have -- all of a sudden, we have the industry best TCAM solution in the market.

It's, as I mentioned, four times the capacity and one-fourth the power dissipation.

There is a major differentiation.

And today, okay, this is maybe like 99% of Broadcom business.

With this technology, you'll see soon that a lot of customers are going to move to our solutions.

Thanks for explaining that.

Yes.

My follow-up is in storage, here.

So what are you looking for to drive more adoption on the client SSD market?

I know --remember you guys are looking at transitioning to TLC from NLC.

Is there anything else, in terms of some catalysts to drive more adoption on the client SSD side?

Yes.

All of the above.

If you look at the -- we saved very consistently, and as the price of the [flash] goes down, the volumes will go up.

There is no way to get around that.

Now of course, on our side, either we continue to build more advanced SSD solutions to deal with the sinking -- the device shrinking of the flash chips because as those devices gets smaller and smaller, they [reliability] get worse and worse.

So we are not a bottleneck.

We are always ahead, in terms of developing this technology.

The other factor is building the different classes.

When we entered this business, we started with the higher-end device -- like the [HMO] device.

And as we go to higher volume, we need to reduce that to four channel and eventually even fewer channel devices to see the volumes to take off.

The only time when -- the lowest end will probably -- the volume will be very high.

That will be more a companion of the use in the laptop as a companion to hard disk drive -- to be like a hybrid storage capability.

Thanks, Sehat.

Thank you, Ian.

Daniel Amir, Ladenburg Thalmann.

Thanks a lot.

Thank you for taking my call.

A follow-up question, here, on the storage side.

In terms of share, here, both on the hard disk drive and SSD side, given that your former competitor [let out there was loss absorption] in the market through the past year.

Has that pretty much played out at this point?

And do you feel that you maxed out this year opportunity in the SSD side?

Or do you think you still have more opportunity for growth there?

SSDs are -- still have a lot of opportunities.

Most of the revenues that we have are still at the higher end.

And because early adopters tend to be the ones that have best performance.

As we turn to address the higher volume markets, we need to scale down, lower the costs, and along with it -- obviously -- also lower the performance to get the cost target.

There is still a lot of opportunities in the mainstream SSD.

And further down the road, as I mentioned earlier, is the hybrid.

There will be a huge market of opportunity for building hybrid SSD HDD combinations.

Do you have a follow-up?

In terms of the hard disk drive side -- past quarters we've seen, obviously, PCs picking up again; the market stabilizing.

You know, what's your assumption I guess into next year, for that business, in terms of overall visibility?

Last quarter, I mentioned about this.

I believe with the new introductions of Intel 14-nanometer PC processors, there will be new demands of upgraded PCs.

PCs with better performance, lower power, longer battery life.

So I do believe that there will be increased demands of HDD as a result.

And also SSDs.

That will play into it.

Yes.

To add on what Sehat just said, remember, the HDD is not just for PC market.

In fact, the overall storage technology demand is growing very fast for the cloud infrastructure.

So we believe our leadership in storage technology, whether or not SSD or hard disk drive, and our business is very healthy.

We're very pleased about this.

As you know, Daniel, we do have -- span a lot of different end markets.

And enterprise is definitely an area that we're strong in, as well.

Okay.

Great.

Thanks.

Blayne Curtis, Barclays.

Good afternoon.

Thanks for the questions.

I just wanted to better understand the moving pieces in the mobile and wireless segment in October and January.

I just wanted to confirm -- wireless is up and cellular is down.

And then into the January quarter, are they both seasonal?

In the January quarter?

Yes.

Q4?

No.

It should be -- it will be down, is what we said.

I think [it's what they] (multiple speakers).

It's up.

The wireless is more [as connected to] seasonal.

And the wireless is the temporary slowdown, softness.

So it's very short-term issue.

And in (multiple speakers) the mobile market -- the softness you're seeing in the mobile market, do you think that's indicative of the overall market, or are your customers more levered to the carrier channel?

And if you could just comment on if you've see any new competition come in to (inaudible)?

Thanks.

I think, as we said earlier, the softness is due to the passive transitions from the carrier market to the open -- what do they call it -- the turnkey model.

That's really what we refer to -- why we say it's a short-term.

Because fundamentally, we have actually leading-edge solutions.

Just the turnkey part of the solutions won't be ready until Q1 next year.

That's why we say Q1 will be available -- the turnkey -- and production starting Q2.

Yes.

Also, we mentioned about mix of the customers because some of our key customers, used to only addressing the carrier markets, are now also expanding to address the online as well as retailer.

So all this will be helpful for us, as well.

Yes.

So Blayne, as you probably also know, we do have weakness from Korea from one of our largest smartphone manufacturers.

That's a pretty well-documented weakness.

That's one of the reasons as well.

Great.

And then just, as you look into the designs for the first half of next calendar year, are you seeing any other suppliers entering the market, in addition to Qualcomm and yourself having primarily the share this year?

No.

Not that I know of.

In LTE, pretty much, there are only three suppliers -- Qualcomm, MediaTek, and us.

And as you know, MediaTek is a two-chip solution still.

And the LTE -- a lot of -- it's a soft modem technology.

So from power point of view, it's very high.

We're the only one that have the most -- next to Qualcomm -- we're the only one that have this hardware modem.

Which is for very low power.

Blayne, you have a follow-up?

Alright.

Thank you.

Christopher Rolland, FBR Capital Markets.

Thanks, guys.

Thanks for the question.

Back to the 30% China LTE share for this year.

And that's nice that units may double next year.

When you guys are fully launched on this low-cost model, how do you expect 4G share to trend in 2015?

And then in particular, how do you think you guys are going to cost, compared to the MediaTek one chip solution?

Let's talk about the one chip.

So our chip today is smaller than MediaTek.

Even if they're able to build a single chip solution, meaning that if -- once they build the hardware modem -- remind you, today they're still using the soft modem.

So assuming they have the hardware modem ready at some point in time, I don't think it is going to be any smaller than our chip.

So from the cost point of view, we'll be -- let's call it -- we'll be equal.

The key that we need to deliver is the turnkey solution, so that we can also address the very large volume opportunity in the open market.

So really, [as we said earlier], this is more of a temporary advantage that they have right now on the turnkey model.

In terms of performance, our performance is world-class.

Our performance in the processor is -- if it's not equal to the best, it's better.

Our graphics is actually -- we've already proven -- in every product that we build, our graphics is better.

I don't think -- this is [somewhat as we say], we are very bullish.

A lot of our Tier 1 customers -- we have design wins because they know that when they evaluate our product, we have leading-edge solutions for the price point that they're looking for.

So if they want low-cost, they have the 1908.

They want the high-end, high-performance they have a 1936 -- the octo-core.

So we can -- they can cover both ends of the spectrum of the smartphone -- the LTE smartphones.

And the other thing, I think, is also very key, even though sometimes it's a little subtle, is the security capabilities.

And we have -- for this new generation LTE platform, we have enhanced our security processor.

So having secure platform and technology is very key, also.

Okay, great.

Thanks.

And I guess, following up there, if you guys did want to hazard a guess on 2015 share, that'd be great.

But switching gears -- now that you've moved over to 64-bit mobile chips, what can we expect across the full-line of mobile, across infrastructure products, across set-top box?

And is this going to be increased OpEx costs?

And what's the sort of timing of migration there?

Thanks.

64-bit will -- more and more products will have 64 bits.

But that's already in our plan.

In terms of increased OpEx costs, it does not -- it's not going to materially change, especially also, as we're consolidating the product lines into fewer products.

This is also the reason why we, over the last two years, we've been saying that we can maintain our OpEx flat because we could see that those -- consolidating the product lines into fewer chips, fewer products will translate into lower cost to us.

But because the 48-nanometer also increases the cost, that's why we say flat OpEx as a result.

If I might just say something about OpEx.

We have taken a very strict look at OpEx and determined to keep that at least flat, and actually, we have been declining.

Even with our growth, I think it's unusual for a Company to be growing and have its OpEx go down at the same time.

And introducing advanced products.

And introducing the most advanced products in the world.

And as we go forward in the following year, we also expect that trend in OpEx is going to continue, our growth is going to continue, our OpEx are going to go down, and our operating income leverage is going to increase.

Thanks.

Very helpful.

Thank you, Chris.

Chris Caso, Susquehanna.

Yes.

Thank you.

Just another follow-up question, with regard to handsets and where you see your long-term competitive advantage in the space.

Certainly understand what you're saying in the short term, with the turnkey solutions, but once you have those solutions in place -- basically, what can Marvell do that the competition -- the Qualcomms, the MediaTeks -- can't do that drive your customers back to you over the long run and allow you to get some good margins out of this business?

Let me give you one obvious reason, which is based on track record.

Now remember, several years ago, we introduced our TD-SCDMA 3G Advanced Technology for China Mobile.

And that was our foundation that we built so that, last December, we were the first -- ahead of all competitions -- introduce our 4G TD-LTE advanced technology for China Mobile.

So as a result today, if you -- I don't know if you try these phones in China, the technology there -- whether on 3G or 4G -- if it's Marvell solution based, it's a lot more robust and high performance.

So we are very bullish, even though we're one of the youngest mobile players to enter this market.

But as far as the biggest consumer base in China, and we absolutely have leading technology.

So this is a very obvious advantage.

Yes.

So we have an advantage on the performance side, what Weili mentioned, is something that people do not talk much about -- our performance, our modem throughput, is actually higher compared to anybody else.

So that's proven.

If you talk to the carrier, they will acknowledge that.

So other advantage that we have is that we also have a lot of new technology development in building new system architecture.

But more longer-term, because of lot of these things take time to be adopted into the market.

But these are the areas that we're putting a lot of investments -- not just for the mobile, actually, it's for across the Company.

So the technology that we built will be used across the Company, but will also benefit the mobile business.

Okay.

As a follow-up, could you comment on what you have seen in the game console area?

It's historically been a area seasonally strong for you.

There were some mixed signals coming out of your competitors.

Could you give some details about what you are seeing in game consoles?

So, Chris, on the game console side, it was relatively in line with what our expectation was, heading into the quarter.

I think one of our game console customers was maybe slightly weaker than expected, but overall, there was no big change from our point of view.

And from a content perspective, you guys are maintaining what you had in that area?

Absolutely.

Great.

Thank you.

Mike Burton, Brean Capital.

Hey.

Thanks for taking my questions.

So looking at the storage market -- another nice quarter for SSDs -- can you comment on the current pricing environment in SSDs?

There was some speculation that there's some increased competition from the Taiwanese competitors.

And then also, you mentioned you would start to see somewhat better revenues in 2015.

Should we assume that's more backend of the year, and is it tied to one or more flash OEMs or for a particular standard?

Are you talking about SSDs for the back end of the year, Mike, or--

I thought you mentioned embedded.

So I assumed it was an [EMMC] that you were talking about.

Is it [EMMC] or UFS?

Yes.

That would be, probably, more backend loaded.

But as far as pricing, we haven't seen any big changes.

We still have -- if you remember, in SSDs, we're right now on our fifth-generation technology.

All the stuff that you hear about Taiwanese competition is just that.

You're just hearing it.

We have significant advantages over many of the players in the market.

One of our competitors, as you know, has gone away.

So we feel pretty strongly about the good opportunity for our SSD business.

Yes.

In this area of SSDs, especially when moved to LDPCs, we have very strong [IP] portfolio.

When I say very strong, it's extremely strong [IP] portfolio.

So it's an area that we haven't seen anybody from anyone -- especially from Taiwan -- to be in this area.

So nobody is playing into this market.

So if you look at the TLCs, especially in the 2-D TLCs, without LDPCs, it's hopeless.

It will be a huge liability issue for the flash manufacturers to deliver SSD without LDPC technology.

And we've been in this area for a long time.

And we have a lot of proprietary technology and heavily patented technology.

And as you go down the road, as we go to play into the embedded space, we begin to deploy more and more of this technology to go after the market that traditionally is not our business.

So it's the opposite.

So we're going to go into the sandbox instead of--

We definitely have intentions in going after some of the markets that some of these Taiwanese players have today.

Yes.

And I believe it's very hard for, especially the Taiwanese, players to compete with us because our solution is very high-performance, reliable.

Now remember, for storage, reliability is very key.

Nobody wants to lose data.

And the other thing is security.

We have security features where those Taiwanese guys could not offer.

In fact, recently, we heard feedback from some key customers.

And they're concerning about the solutions without the security -- they don't believe they can even use them.

All right.

Thanks, Mike.

Tony, we'll take one last question, please.

Srini Pajjuri, CLSA.

Thanks for taking the question.

This is Ryan Goodman, in for Srini.

Another question on storage -- specifically on SSDs.

You guys put out -- or introduced -- an NVMe controller in August.

Just curious of you can talk about that a bit.

What type of markets are you going after with that?

Is it more of a high-end, and even enterprise play?

Or are you trying to push that into client markets?

And any sense of timing and how quickly that type of product can translate to revenue?

The NVMe products -- there are several products all the way from the high-end to the entry-level.

But the biggest opportunity, obviously, in the entry-level side.

This is an area that is still very new.

I don't know if we have announced it yet, but we just recently -- that product has passed the compliant test at the [UNH].

It's the consortium run by [UNH].

So we completely past their test on the first pass.

This product could be very high volume -- could give us high volumes next year to address the very low-end entry-level SSDs to support both the SATA and PCIe.

Okay.

Great.

Yes.

Just on a different path -- do you guys have any update on the CMU litigation?

Probably not a ton of detail.

But just maybe, in terms of what to expect, in terms of timing.

Or if the OpEx is probably going to hold at a relatively flat level around $2 million to $2.5 million for the quarter.

And then also, in the 10-Q, I know you guys had put out a specific number for potential damages.

It was $1.54 billion last quarter, with some royalties after that.

Is there an update to that number, as well?

The case is proceeding.

The briefing is about done.

I think we're going to file our reply brief to them, perhaps, today.

And the next step would be oral arguments early next year.

And then hopefully, we will get a decision at the end of -- sometime in July, in that timeframe.

Your other question was in regard to legal expenses related to that.

I believe that those should decline, now that the briefing is over and the oral argument.

But basically, that should be a much lower amount of expense.

Yes.

I don't think we should see a big increase there, on that line, Ryan.

In terms of the judgment, the amount of the judgment is still the same.

Okay.

There's the $1.5 billion.

And then there's some ongoing royalties, and that hasn't changed.

Okay.

Thank you.

Thank you.

And please proceed with closing remarks.

Thank you, Tony.

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

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

Thank you, and goodbye.

Thank you.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation.

You may now disconnect.

Everyone have a great day.