邁威爾科技 (MRVL) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Marvell Technology Group first-quarter 2017 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to John Ahn, Head of Investor Relations. You may begin.

Thank you, LaToya, and good afternoon, everyone. Welcome to Marvell Technology Group's first-quarter FY17 earnings call. With me on the call today are Rick Hill, Marvell's Chairman; Matt Murphy, Marvell's President and CEO; and Dave Eichler, Marvell's Interim CFO. We will all be available for the Q&A portion of the call today.

If you have not obtained a copy of our current press release, that can be found at our company website under the investors relations section at Marvell.com. WE have also posted a slide deck summarizing our first-quarter FY17 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 until August 27.

Please be reminded that today's discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. These statements are based on currently available information as of the date of such statements and are subject to risks and uncertainties that could cause our results to differ materially from Management's current expectations. To fully understand the risks and uncertainties that may cause results to differ from our forward-looking expectations and outlook, please refer to today's earnings release, our latest quarterly report on form 10-Q and form10-K 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 except as required under applicable law.

During the call today we will make reference to certain non-GAAP measures which exclude the effect of stock-based compensation, amortization of acquired intangible assets, acquisition-related costs, restructuring costs, litigation settlements and certain expenses and benefits that are driven primarily by discreet 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 first fiscal quarter 2017 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 Dave Eichler.

Thanks, John, and good afternoon. Before I get started, let me say that we anticipate filing our 10-Q for the first quarter of 2017 in the near future and with that we will be current with our required SEC filings and be compliant with listing requirements of NASDAQ.

Let me spend a few minutes highlighting Marvell's financial results for the first quarter of 2017 before turning the call over to Rick Hill, our Chairman. For the first quarter of FY17 we reported revenues of $541 million, which represented a decrease of 12% from the fourth-quarter revenues of $616 million and a 25% decline from $724 million in the first quarter of FY16. The revenue decline in first quarter of FY17 relative to the fourth and first quarters of FY16 was primarily driven by decreased industry demand for HDD products as well as the anticipated decline in revenue resulting from Marvell's exit from the mobile handset business that we announced in September of 2015.

Our first quarter was typically are weaker quarter where we see revenues decline sequentially and the first quarter of FY17 was no exception. Our storage revenues declined 16% sequentially, mainly due to the continued weakness in the HDD industry TAM. This was partially offset by growth in SSD, driven by increased demand. Our networking business increased 5% sequentially due to improved demand for our networking products while our mobile and wireless sales declined 29% sequentially due to the continued ramp down of our mobile handset platform business. Please note that they mobile handset revenues in the first quarter of 2017 were $22 million, down from $69 million in the fourth quarter of FY16 and $65 million in the first quarter of 2016.

Our gross margin percentage for the first quarter of FY17 increased by 120 basis points from 50.9% of net revenues in Q4 of FY16 to 52.1% in Q1 of 2017 and also compares favorably to 51.5% for the first quarter of FY16. Improvement in gross margin was primarily due to the lower percentage of mobile handset revenues. Operating expenses on GAAP basis for the first quarter of 2017 were $311 million, flat with the fourth quarter of FY16 and 14% lower compared to $360 million in the first quarter of 2016.

Please note that R&D expenses in Q1 FY17 were $241 million, or 45% of revenues compared to $240 million, or 39% of net revenues in Q4 and $280 million, or 39% of net revenues in Q1 FY16. The $39 million increase in R&D spending in Q1 2017 compared to Q1 2016 was largely due to restructuring of the mobile handset business which we announced in September that has now been completed. I will talk more about the restructuring in a few minutes. Please note the small increase in R&D spending in Q1 2017 relative to Q4 was largely due to increased payroll cost related to merit increases effective April 1, increased payroll taxes starting in a new calendar year, as well as savings from the holiday shut down in December, which didn't occur in our first quarter of FY17.

SG&A expenses, on the other hand, were $69 million, or 13% of net revenues in Q1 2017 compared to $72 million, or 12% of revenues in Q4 2016 and $80 million, or 11% of net revenues in Q1 2016. Please note that operating expenses on a GAAP as well as a non-GAAP basis for the first quarter of FY17 and the fourth quarter of FY16 include $17 million and $11 million, respectively, of accounting and legal fees related to the audit committee investigation and the related shareholder litigation, investigation by the SEC and the United States Attorney's Office, as well as professional fees.

In summary in Q1 2017, we reported a GAAP net loss of $23 million, or $0.04 per diluted share, compared to GAAP net income of $4 million, or $0.01 per share diluted for the fourth quarter of FY16 and a GAAP net income of $14 million, or $0.03 per share diluted for the first quarter of FY16. We were at essentially breakeven on a GAAP basis in Q1 if you exclude the $4 million restructuring charge coupled with the $17 million of increased legal and accounting fees mentioned earlier.

Now let me spend a few minutes reviewing our finance performance on non-GAAP basis. On a non-GAAP basis, net income for the first quarter of FY17 was $7 million, or $0.01 per share diluted which includes adjustments of approximately $29 million, $25 million of which was related to stock-based compensation and $4 million related to restructuring, $1 million of which was related to the mobile handset business which was completed in Q1 of FY17.

Let me comment for a few minutes on the mobile handset platform restructuring which we announced in September last year. We ended up eliminating 950 positions in the mobile handset business unit, which is 150 less than was expected as we decided to retain more employees and equipment to support the remaining business than was anticipated. The end result of restructuring was that we estimate the annual cost saving of approximately $130 million, including employee-related facilities and equipment costs, which you are now seeing realized in our Q1 R&D spending levels. This compares to the original estimated annual savings on the low end of range of $155 million, or $25 million less.

As I mentioned earlier, our total R&D spending in Q1 of FY17 was $39 million less than Q1 2016, which was largely due to the restructuring of our mobile handset business. Please note more work is needed in the near term in bringing our operating expense levels in line with our revenues and long-term strategy.

Our non-GAAP gross margin for the first quarter of 2017 improved slightly to 52.5% from 51.9% in the fourth quarter, largely due to favorable product mix relating to higher networking sales and lower volume of mobile handset products. Non-GAAP operating expenses in Q1 2017 came in $280 million compared to $267 million in the fourth quarter, a 5% increase and $307 million in the first quarter of FY16, a 9% decline. As I mentioned previously, our GAAP as well as our non-GAAP operating expenses for the first and fourth quarters of FY17 and FY16 include $17 million and $11 million, respectively, of increased legal and accounting fees, which are included in G&A.

In Q4 we had the benefit of a holiday shut down resulted in lower employee cost relative to Q1 which was offset by increased personal cost with the annual merit increase effective April 1 and higher payroll taxes in the new payroll year. The overall [decrease] in Q1 2017 spending compared to Q1 2016 was primarily due to lower R&D spending as the result of a shutdown of the mobile platform business. The end result is that in Q1 FY17 we reported non-GAAP net income of $7 million, or $0.01 per diluted share compared to $0.11 in Q4 2016 and $0.13 per diluted share in Q1 FY16.

Please note, if you exclude the impact of the added legal accounting fees which are included in our non-GAAP operating expenses of $17 million in Q4 of 2017, $11 million in Q4 2017, (sic - see press release "2016") our adjusted non-GAAP EPS would have been $0.05 per share in Q1 2017 versus $0.01 per share as reported, compared to $0.13 as adjusted in Q4 2016 versus $0.11 as reported and $0.13 per share in Q1 FY16.

Net cash provided from operations for the first quarter was negative was $610 million, which reflects the $750 million payment related to Carnegie Mellon University litigation settlement, or a plus $140 million on adjusted basis compared to $53 million in the fourth quarter of FY16 and $59 million in the first quarter of FY16.

With that, I would like to turn the call over to Chairman Rick Hill to provide additional color on Q1 operating result and our Q2 outlook.

Thank you, Dave, and good afternoon, everyone. Thank you for joining our call today.

We're happy to report our first-quarter FY17 earnings today and we are also happy to report that we will be fully caught up on our filings after we file, next week, our 10-Q for this quarter. The first quarter is the seasonally weaker quarter for Marvell, with revenues typically declining sequentially and the first quarter of FY17 has been no exception. We saw our revenue declined by 12% sequentially, mainly due to normal seasonal weaknesses, compounded by a declining HDD market and the previously anticipated drop-off in our mobile and wireless sales as a result of the Company's decision to exit the mobile business. Despite the previously mentioned decline, sales of our net work and SSD products increased during the quarter and partially offset these weaknesses in other areas.

In the storage market, our HDD SOC revenues were negatively affected by continued pressure on overall HDD industry builds, which is correlated with a persistently weak PC demand environment. Now, the HDD decline was partially offset by growth in SSD controller sales, which was driven by improved demand for SSDs. The Company continues to invest in comprehensive solutions that build upon our leading position in the storage market for both HDD and SSD.

In the networking market, sales of our networking solutions grew sequentially in the first quarter of FY17 due to increasing demand in the enterprise and data center application. During FY16, we refocused our engineering and marketing efforts to our core networking technologies for ethernet switches [bys] and embedded networking processors. These efforts helped us to address growth opportunities in cloud data center, enterprise, and carrier migration for infrastructure with higher bandwidth and speed, as well as opportunities arising from investment in the 5G network products. These efforts are starting to manifest in a number of new designs that will enable growth of our networking revenues and improve our market share.

In the wireless connectivity market, our wireless connectivity revenues declined in the first quarter of FY16 given sales of handset-oriented wireless connectivity combo chips were unfavorably affected by our decision to restructure the mobile platform business announced in 2015. The decline in mobile handsets related business was partially offset by increased demand from gaming and multimedia applications. We continue to see greater demand and growth opportunities in enterprise access points, gaming and set top box streaming devices with our new generation of Wi-Fi solutions. We believe the increase in performance of our new solutions with advanced signal processing and location capabilities will enable a significant upgrade cycle in enterprise, service provider and connected home applications.

In the mobile market, sales of our mobile solutions, which include our integrated applications processors, base band modem solutions, declined due to anticipated drop-off resulting from our restructuring of our mobile handset platform business. We are entering the final phases of our restructuring of this business and anticipate the ramp down in revenues to continue through FY17 providing somewhat of a negative drag on revenues.

Let me turn to our outlook and as our financial results mentioned in the press release, we expected revenues to grow to $625 million to $635 million or a sequential growth of 16% at the midpoint. Given that our first-quarter results came in weaker than normal, this expected growth for the second quarter will bring us back in line with a first-half typical expectation. However, it is important to note that the demand environment remains challenging for the semiconductor industry as a whole due to continued global macro economic uncertainty.

Additionally, the shutdown of our mobile handset business combined with the deemphasis of other low-performing and low-margin products last year is anticipated to create revenue headwinds in the near term but should provide improved financial performance in the long term. Consequently, we remain cautious about revenue and margins as we enter the second half of the year. With a new management team and place at Marvell, we are doing all we can to ensure that our cost and expenses are in line with our cautious view on the top line. Matt and his team are working diligently on a long-range plan and we will have more to share with you over the coming months.

Now I like to review our profit and loss guidance for Q2. As we said, revenues for the second quarter ending July 31, 2017 -- 2016 which is FY17, are expected to be in the range of $625 million to $635 million with gross margins on a GAAP and non-GAAP basis expected to be between 52% and 54% of net revenues. GAAP operating expenses are expected to be in the range of $307 million and $317 million, with non-GAAP operating expenses expected to be in the range of $270 million and $280 million, with the difference between the GAAP and the non-GAAP due to stock-based compensation expense. Now the anticipated growth Q2 revenues compared to Q1 is expected to come from all end-market areas, led by storage.

Our estimated non-GAAP operating expense for Q2 is further broken down as follows. R&D spending is expected to be approximately $210 million to $215 million. SG&A expenses between $60 million and $65 million including $15 million in additional legal and accounting fees related to the audit committee investigation and related shareholder litigation, the SEC investigation and other professional fees, which seem to have a long tail on there. Interest, net, and tax expense are expect it to be $3 million positive and $4 million negatively, respectively.

The weighted average diluted share count for Q2 on a non-GAAP basis is estimated to be 527 million shares. In summary, our Q2 GAAP EPS are estimated to be in the range of $0.03 to $0.05 per diluted share while our non-GAAP EPS is in the range of $0.10 to $0.12 per share.

With that, I would like to start turn it over to Matt Murphy to share some thoughts on his first couple of weeks at the helm. Matt?

Thank you, Rick. Good afternoon, everyone, and thank you for joining our call today.

As you are probably aware, we successfully filed the form 10-Qs for Q2 and Q3 of FY16 and form 10-K for FY16 last week. This is obviously a huge milestone for Marvell and I would like to thank the entire Marvell team as well as our advisors for the months of hard work that they put in to make our recent filings possible. We look forward to finally catching up with all of our filings upon the completion of the form 10-Q for the period that we just reported.

Looking ahead, as Rick just alluded to, I've been working closely with my direct staff, employees, and customers to get a detailed assessment of our business and operations in order to help formulate a comprehensive plan for Marvell moving forward. The demand environment remains challenging. We recognize that we need to align our structure to this reality. As I articulated last week in our conference call, I believe the strength of Marvell lies in the talented employees and the innovative technologies that we have here. We must utilize the strength in a targeted efficient manner. This means focusing our efforts on growing profitable business by tightly managing expenses. That is been foremost in our mind as we perform detailed reviews of all of our businesses.

I'm sure many of you have questions on this topic you would like answered today, but we want to make sure that we take a thorough and rigorous approach to our analysis, which will take some time. Therefore I would like to ask you to hold off on such questions until we are ready to roll out our strategy in the coming months.

With that, I'd like to turn the call back over to John to open it up for the Q&A portion.

Okay, thank you, Matt. We will now open the call up for your questions. Please be sure to keep your questions within the scope of the first-quarter results and second-quarter outlook. Please note that we are not in the position to provide long-term guidance or strategies. LaToya, we will take our first question, please.

(Operator Instructions)

Craig Ellis, B Riley.

Thanks for taking the question and thanks for all of the details in the releases. The first question is just on the revenue guidance. I know that you said that revenue growth would be led by HDDs or storage but I'm hoping that you can provide some further color on the growth of the other businesses within that overall 16% guidance.

The growth is from $541 million to between $625 million and $635 million. The growth in storage is up roughly probably in the order of 20%, little bit less than 20% and then of course growth in the networking market of near 10%. That is largely what is driving the growth.

Thanks, Rick. The second question is on gross margins. At the midpoint it would imply about a 50 basis point improvement. I know the guidance for the baseband business is to mix that down over the course of the year, so at the midpoint with the improvement be that smart phones mix out or are there other dynamics that are at play?

There other dynamics as we are continuously looking at our cost structure and were making changes with our new chief operations guy. We are really attacking the cost of goods sold and so I am optimistic that we can meet those numbers and hopefully do better.

Thanks, guys. I will get back in the queue.

Timothy Arcuri, Cowen and Company.

I had two. Rick this is more -- and also Matt, this is more of a big picture question. The thing that everybody always says is well, storages not that great of a business and that they say that drive business is not really growing and SSD is still much, much smaller for you than the drive businesses. Can you just address, sort of, how you see the mix of HDD being flattened down over time and SSD growing, because today I think your HDD business is significantly larger than SDD business.

You're absolutely correct on that, Tim, but as you have seen in some of the announcements there has been somewhat of a rebound in the PC demand business that we are seeing in the short term, okay, with a steady growth in the SSD area. There will be ups and downs in this particular business but basically our second quarter, which shouldn't be all that hard to project since it ends on Saturday, we see it somewhat up. I will let Matt comment what he sees on it as well.

Sure. I would add to that, I think Rick is right. Clearly the HDD portion of our businesses is larger. SSD is smaller but it is growing. All I'd say is in my preliminary reviews with the team, there's plans in place to address what would be a secular decline in sales of hard drives with some alternative strategies and obviously, SSD is a very important part of our future as well. We will get back with you with more details as we roll out our strategies but those are clearly some challenges we have but there's plans in place to address it.

Yes. Clearly, Tim, as you know, in a market where there's secular decline, let's make no mistake about it, hard drives aren't going away any time soon. They are shifting, clearly more to the enterprise area. That offers more value, more complexity, and more opportunity for us in winning share in those areas as well. I think it's a combination of those things that allow us to be modestly optimistic that we can do better in the storage business. All right?

Got it. Thanks. Just to follow-up on that, can you talk a little bit about capital return, Rick? I know it's sort of a discussion point down the road but just generally. You guys have $1.6 billion in cash, no debt, you came through this really terrible drive period and still generated cash and you're actually GAAP breakeven before you take these one-time costs; so what is the minimum cash? You've run many, many businesses so as you look at this, what is the minimum cash that you all think that is needed to run this business?

As I quoted a long time ago at Novellus, you can never be too cash rich in the high tech business. Or too thin, and I gave up on being too thin, so I'm only working on the cash piece. But with all seriousness, the one thing that I hope you would want us to do is take a very, very measured look and with this industry we want to make the right moves and we want to have the ability to make the right moves and we just brought in a new management team. I can assure you it's on the top of our list to discuss with the Board what are capital allocation strategy is.

It isn't going to be that you're going to have to wait forever. We will disclose it in a subsequent call here. But at this point, I'm going to deflect your question because I don't want to get us committed into something that I wouldn't be able to set to execute. Hopefully that is helpful and honest.

Got it, Rick. Thank you so much.

Christian Schwab, Craig-Hallum Capital.

Thanks for taking my question. When you guys look at the business on a go-forward business, if we take away some of a low gross margin products that you began to exit last -- in the last few quarters and we take away all of the mobility business that we're no longer going to be servicing and making. Is the remaining business, should we be thinking about kind of a $2.2 billion business plus or minus $100 million, or how would you look at that?

Well, I am hoping that on an annualized basis we can achieve numbers that are closer to a $2.4 billion range plus or minus $100 million and grow from there. That would be my hope and based on everything I've seen so far, I think it's achievable. Do we have it in the bag yet? It's not in a bag, but we are making progress very, very rapidly.

Okay. Wonderful. Just a follow-up to the previous conference call a week ago when you talked about a margin structure in line or better than industry peers on a operating margin structure, I think we all kind of think about that as 20%-plus or 25%-plus. Is that a fair thought by analyst investors?

Well, we talked last week, I believe, regarding gross margin and I got boxed in to having a six [handle] on my gross margin, which got a lot of activity but as you can see we're inching our way there even with this quarter. We haven't even begun to see some of the savings that we are starting to get in the supply chain. Relative to the operating expenses, obviously there's tremendous room to change where we are today. Clearly, R&D with a three operating handle is not sustainable for long periods of time. We've got to be able to see growth in the top line or reduction in the R&D expense.

Our SG&A if you were to take out our -- this, what I would call, this anvil around our neck with legal and auditing expenses, our SG&A expenses are not out of line from an industry perspective, although we can always get better in all of these areas. So rather than just put a number on it and throw it out on the table, I think things you should be thinking about is that, clearly on an R&D basis we are going to be more focused. It's one of the things Matt and his team are really doing right now is taking a look at where the real opportunities are and focusing our R&D efforts to get the most bang for the buck.

In the operations area, we are really driving the supply chain and the efficiency of our organization to drive up gross margins. We believe there's a lot of room to gain there and some will come in the short term and more will come in the long term. I hope that's helpful, Christian.

One last question if I may. I was surprised to see some enterprise, I would say, drives released by C Gate who continue to use your controllers instead of the controller that they bought from (inaudible) [/Aviago] a few years ago. Can you give us an update on your thoughts on your strength and positioning competitively on the enterprise side of the solid stage drive world?

I think from a standpoint of Marvell's overall performances, we have this ability to get better technical performance in a smaller area than any of our competitors. As a result, it gives our customers a performance advantage that they can monetize and it allows us to even compete with people's internal capabilities. We think that is one of the great strengths of Marvell and we hope to continue to enhance that uniqueness.

Great. No other questions. Thank you.

Quinn Bolton, Needham.

Hi, guys. Nice job on the margins. Just was curious looking at the guidance for storage to be up 20% if I look to HDD TAM now that [Seagate] and (inaudible) both pre-announced [second quarter] results looks like TAM was actually down in June. I'm just wondering as you look at the storage business for the July quarter, do you think that this reflects some of the customers building ahead for the typical second-half seasonality? Or could there be some share shifts in various platforms where you guys may be actually gaining share that helps to account for that strength? I've got a quick follow-up on the mobile business. Thanks.

Since we don't have anything called a pull-in anymore, that's building ahead. Obviously, this time of year is an important build time for the upcoming season. It's still a little bit early. But as I think as I highlighted, there is somewhat of a rebound that has occurred in the PC business and in addition to that, while the total addressable market has gone down somewhat, there are market share wins that we have had within that downward trend market. And so, with those market share wins, we are able to grow this particular quarter, but make no mistake about it, it wasn't a very pretty quarter as far as we are concerned for quarter one.

(Inaudible) can you give us update on where you think your HDD controller market share is? Is mid-60%s kind of good estimate for your current share?

I don't know that we disclose that routinely, what our market share is overall. I'd have to ask somebody who's been here longer. John, do we -- have we ever disclosed that? I don't think so.

In the past, what we've said was we've always at been about 60%-plus share. It's been kind of ebbing and flowing from there. We haven't really given a specific number lately.

Yes. We're going to be at the Citi conference in September and these are all good questions to ask. We will go evaluate whether or not from a Company standpoint it's in their best interest to release those kinds of numbers and to the extent that we can release them and discuss them more, we will be prepared to do it at that time. Thanks for the input.

Just a quick mobile platform, does that include the combo chips, the $22 million in the first quarter? Would that include any combo chips or is that just purely the apps processors and base bands?

No. It would include combo chips.

Okay. Thanks for the clarification.

Ian Ing, MKM Partners.

I think you said smart phones, $22 million the first quarter. Obviously that winds down in future quarters. Just want to clarify, is there a policy of when there's last-time buys in place, so perhaps there could there be some end-of-the-period buys?

Ian, this is John. I think when we announced a restructuring we had placed a one-year last-time buy. We announced that back in September. By the fall of this year will be our last-time buys.

Your question is, is do we expect any large surges? That is not in our forecast.

Okay. That's helpful. In terms of the extra accounting costs and those following incoming quarters, I assume the auditing and legal.

I am pushing them out the door as fast as I can get them. They're like -- their claws stick into the concrete of the walls but we are pushing it.

So you suggest perhaps a gradual wind down in this current fiscal year, then?

I'm hoping it's not gradual, but I can't say anything yet.

Okay. No guarantees.

Not until I can slam the door on their fingers.

Understand. Okay, that is all I had for now. Thank you.

Thanks

John Pitzer, Credit Suisse.

Rick, just going back to the mobile platform, I'm kind of curious when that $22 million of revenue is in no longer in the P&L, what kind of gross margin uplift should we expect? If we were to look at current results ex that mobile platform, how we think about gross margins?

At this juncture, at $22 million, it's not that big a deal. It's pretty much gone out of there. We are getting gross margin improvement because we are operating better, okay? We're just getting more efficient.

That's helpful.

And we have a long way to go on that, believe me.

Rick, for my second question I was glad to see networking grow sequentially in the quarter and your guiding it to grow again. You kind of talked about three buckets inside of networking, ethernet PHY, and embedded processors. I'm curious if you could give us a little bit color of your positioning there, because everyone knows your history in the HDD controller market. You had a strong position in networking. You missed a product cycle. Why the confidence now that you guys have good product cycles set up here for continued growth?

Because I've got confidence in the people. I've been here long enough to know who the people are and who are delivering and their ability to deliver and so I'm pretty bullish.

Is it across the board ethernet PHY and embedded processing or is there areas you are more constructive on?

Well, ethernet certainly I'm very constructive on. PHY I'm getting more constructive on.

Helpful. Thank you.

Stephen Chang, UBS.

Hi, thanks for taking my questions. I also want to start off with the networking business as well. Could you also provide some more color on what's been driving the growth? Is it purely because of new products that are currently ramping that's driving the growth or is there pent up demand or is the macro actually proving enough for some of your enterprise customers such that you're seeing budgets improving right now?

Well, it's largely due to some new product introductions by us, some wins, recover of lost market share wins that we've had and we are digging ourselves out of a hole we created by taking our eye off the ball; and the team now has their on the ball and are executing. It's that simple.

Okay. As my follow-up, I also had a question on the mobile business. If I recall correctly when you guys announced back last September that you are moving away from the smartphone business, I believe that there was still some R&D being maintained on the cellular modem side. Just kind of curious how the products that you were still focusing on over the last several quarters, how that's coming along and whether or not the IoT product strategy is still moving along and generating the expected returns for the original plan?

As I said last time, our major focus at this juncture is back to the core, which is the storage business first and making sure we are optimizing that. Second is networking, which we've realigned our strategy and we are starting to get results with there. Finally, our big opportunity from a standpoint of wireless and gaming and multimedia, that really exploits our high tech capability and our ability to differentiate ourselves. So that's the primary focus at this juncture. Everything else relative to smart phones and that type of stuff is sort of the Internet of Things when somebody -- don't get me wrong, I love the term Internet of Things, I just can't get my hands around which one of those things is going to lead us to the promised land yet. And until we do, it's pretty hard to just allocate willy-nilly R&D dollars to products. So I think that's where we are and I know that's where Matt is.

Okay. Appreciate your color, Rick. Thanks.

Gary Mobley, Benchmark.

Hi, guys. Thanks for taking my question. If I back out the $22 million from mobile handsets from the mobile wireless revenue generated roughly $90 million in revenue in the first quarter, is that steady state business? Is that how we should think about it? Is most of what's remaining there related to gaming and in considering that, what sort of seasonality should we should see off that $90 million base?

I do think it's an area that then is going to be focusing on gaming. It will have seasonality, as you can expect, due to the Christmas season. If you're in a hot product, you take off like a rocket ship and if you're not in a hot product you don't. But I think in the short term we think we are in hot products and so there is upsides but were not planning huge upside with that. Dave, you want to comment on it?

I'm not sure if there's anything I can add to what you already said.

Okay.

If I look at estimates from those who assess the hard disk drive market and the solid state drive market, it looks like the market in the March quarter for hard disk drive units declined about 20% and for solid state drives the market increased about 30%. Contrasting that with maybe a one-month offset and looking at your April quarter results, you're down about 30% year over year. Is most of that disconnect explained by inventory depletion, not only for hard disk drives in the channel but your hard disk drive customers' [depleting] inventory?

No. I mean, I articulated this a week ago that I felt that we had lost some market share in the HDD arena and recently we've won some market share back.

Okay. That's it for me. Thanks, guys.

(Operator Instructions)

Mark Delaney, Goldman Sachs.

Good afternoon. Thanks very much for taking the questions. The first question on hard drive business. I think historically ASPs for controllers have been in the $4 range. Rick, I think you said last week you're hoping to see better trends there going forward from [pre-amps]. You guys have talked about your pricing strategy and potentially being able to optimize pricing going forward. Maybe you can help us think about as you think about those different factors what kind of price per hard drive opportunity you could see going forward.

Well obviously, in the hard drive business it's the typical semi-conductor business of do more and more for less and less until you do everything for nothing. There's constant price pressure there. Now, our strategy clearly is, is that we've got to take that pressure on the price, we've got a make sure that the complete supply chain shares in what's needed in order to continue to get the drive market to grow. But the real big key is in our design capability and our ability to design uniqueness, in that benefits that our customer, namely speed and power consumption primarily along with reliability, which are just sort of entering ante into the marketplace of itself. And we think we have a strong core competency there.

We believe that we can always have an advantage to our competitor from a pricing standpoint because of the performance that we are selling. That's strategically what we are trying to do. If you are asking the question is there pressure on the $4 price, there is some pressure on it but from the standpoint of our products that are differentiated, we are able to maintain those kinds of prices.

That is helpful. For a follow-up on the SSD strength that the Company's been seeing in last couple quarters and you talk about guiding SSDs, I think, up for the next quarter as well, is that regaining market share or is that driven by end-market growth or some combination of the two?

It's a combination of the two.

Thank you.

Rick Schaefer, Oppenheimer.

Hi, this is Cory Vitti on for Rick. In your storage segment, what is your current PC and notebook exposure verses enterprise?

I don't have that number handy.

We don't have it handy. John will get it to you after the call.

Okay. Do you have your current split between HDD and SSD and can you tell us how that compares to your backlog?

We never break that out, as you know, for competitive reasons. We are not ready to break that out at this point.

Okay. Thanks.

There are no further questions in the queue at this time. I will turn the call back over for closing remarks.

Okay, great, thank you, Latoya. I would like to thank everyone for their time today and your continued interest in Marvell. I think Rick mentioned earlier that we are planning on attending the Citigroup conference in New York on September 6 of this year. We look forward to meeting many of you there. Otherwise, we look forward to speaking to you again soon. Goodbye.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.