Sukhi Nagesh - VP, Finance and IR Sehat Sutardja - Chairman and CEO Mike Rashkin - CFO Weili Dai - President and Co-Founder

Sanjay Chaurasia - Nomura Harlan Sur - JP Morgan Doug Freedman - RBC Capital Markets Quinn Bolton - Needham and Company Ryan Carver - Credit Suisse Ian Ing - MKM Partners Daniel Amir - Ladenburg Thalmann Blayne Curtis - Barclays Christopher Rolland - FBR Capital Markets Chris Caso - Susquehanna Mike Burton - Brean Capital Ryan Goodman - CLSA

Good day, ladies and gentlemen and welcome to the Third Quarter 2015 Marvell Technology Group Ltd. 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 fiscal 2015 earnings call. With me on the call today are Sehat Sutardja, Marvell's CEO; Weili Dai, Marvell's President; and Mike Tashkin, 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 web site under the Investor Relations section at marvell.com. We have also posted a summary of our quarterly results in the IR section of our web site for investors. Additionally, this call is being recorded and will be available for replay from our web site. 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 fiscal 2015. To fully understand the risks and uncertainties that may cause results to differ from our expectations and outlook, please refer to today's earning press 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 our 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 settlement and certain one time expenses and benefits that are driven primarily by the 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 web site 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 was 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 HDDs and SSD end markets. Despite the weaker revenue, we continue to focus on tight operational management and deliver margins in 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 this 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 introduce 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 one numerous and major design wins with global tier-1 OEMs for 4G LTE smartphones and tablets, and expect these devices to launch in the first half of next year for entry level, mid range, and high end devices. Furthermore, we have recently introduced new products including our 64-bit quad core ARMADA Mobile PXA1908 and 64-bit octacore 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 required full turnkey support. In response, we are accelerating the introductions of our turnkey LTE platforms, including complete board [ph] 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 we 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 the 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 product 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 solutions 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 traction 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. It is an 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 lightning appliances, home automation and other smartphone and commercial IoT applications across China and North American regions. We are 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 their smartphone edition, and expect this to ramp in the next few quarters. We are an early partner in Apple 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 Chromecast 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 U+, a leading service provider in Korea, launched their 4K platform using our 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 ARMADA 1500 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, traditional TCAM based solutions are finally reaching its limits, both in terms of its capacity and power dissipation. Our Questflo products incorporate the most -- the industry's most advanced algorithmic TCAM technology, specifically addressing carrier class customers. The first device already enables customers to increase such capacity by four times at one-fourth the power compared to current competitors, thus delivering an order of magnitude better performance power metric. We are 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 slow down in carrier spending. However, during the quarter, we saw continued strength for our enterprise Ethernet and PON product lines. For Q4, we are 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 and client applications. Starting with HDDs, our business grew sequentially, and came in better than our expectations. Overall, we continue to improve our share of the total HDD market, driven by increasing tractions of our 500 gigabyte of 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 continue 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 are also on-track to introduce multiple embedded SSD products with 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 and market to decline slightly on normal seasonality. In summary, for Q3, despite weaker revenues, we carefully manage 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, mid-range and high end smartphones, and we are executing well on our product roadmap, 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, set-top box and LTE smartphones. Our storage business remains healthy; driven by continued growth in both HDD and SSDs. Finally, our networking 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 to Mike, to go through 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 this softness in mobile to be temporary, and we expect to pick up starting in the first half of 2015. Despite the short term slowdown, we have maintained our focus on operational efficiency. Year-to-date in fiscal 2015, our revenues have grown by 15% compared to the same period in fiscal 2014. 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 on to 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 fiscal 2015, we currently predict revenues to be in the range of $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 expense to be approximately $320 million, plus or minus $10 million. We anticipate R&D expenses of approximately $265 million, and SG&A expenses of approximately $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 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]. Your first question comes from the line of Sanjay Chaurasia of Nomura. Please proceed.

Well I just had a question on LTE market in China. Could you give us some more color, in terms of this foundation from carrier to open market, and the I have a follow-up?

As you know Sanjay, Weili is here, so I will have Weili to answer this question. Weili?

Thank you, Sehat. Well, as you can see, first half of this year, there are quite a bit of government subsidy to the carrier, 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 is being shifting to more the retailer, as well as the internet online and sales. And this, which caused the softness of our LTE deployment, because the turnkey platform solution is very key. Now having said that, as you heard from Sehat earlier, we are speeding up our engineering efforts, and we hope 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 64-bit SoC, both for quad-core as well as eight-core 4G LTE global FI mode.

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 part B of the question is, what would it take for you to develop your turnkey model, is that going to be more OpEx intensive? What's the impact of developing a turnkey model on OpEx next year?

Turnkey model is more focusing on building the last 1% of the work, building the -- as well as negotiating with the different component supplier, on what are the supported components that would be standardized in the turnkey models. So really, most of the work is none of 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 solutions. 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.

Your next question comes from the line of Harlan Sur of JP Morgan. Please proceed.

Hi, good afternoon and thanks for taking my question. So it would seem that you're pretty close to a bottom on our 3G baseband business? It seems like it has declined at least 30% sequentially each quarter over the past two quarters? So you've got the ramp of your 64-bit platform, looks like the 1908 ultra low cost maybe starts to ramp in Q1. So I guess two questions, do you anticipate your 4G costs in 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 bit of softness. But 4G LTE and we believe 2015, this coming year is going to be a big year for the deployment? And why, because we, one of the leaders, like us is going to drive to the masses, and our recent introduction of 1908, the quad-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, in China, and the other thing is, not only our solution is high performance, its very low power. Now remember, the eight-core 4G LTE, we are one of the player introducing the product, but what we have done is we optimize the solution for performance and also very-very low power, because some of our key competition, they design based on software. So the power consumption is higher, much higher. We also optimize on our AP application processor design, so our die size is very small. I believe its roughly may be more than 20% to 30% kind of range, so overall today, if we are looking at our solutions based on our design win and the feedback from our customer base, and we are covering all the way from entry level smartphones, to mid-range massive market, as well as to high end. And we believe, we are very well positioned to address all segment 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 RMB399 in China, which translates to around $65.

Harlan, do 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 down in Q1?

Well absolutely. Yeah. We are very -- of 2015.

Okay. Then 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 every recently, the special master has agreed to or his okay list [ph], the arrangements that you have made with your surety bondholders. Its I think what the team has been waiting for in order to restart the stock repurchase program, looks like you've 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 a full capability to put $215 million or $218 million of authorization to work in the markets?

Well there never have been any actual restrictions. We have always said that what we are doing is being opportunistic. And so we felt that this was the right time to enter and buy back, and we now have 213 million still authorized and we will continue to buy back.

Okay, thank you.

Your next question comes from the line of Mr. Doug Freedman of RBC. Please proceed.

Hi. Thanks for taking my questions. As we wrap up 2014, I know there was a wide range in 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, China Mobile; I believe its going to be -- for this year would be north of 50 million units.

Is that below next year?

For next year, I am quite confident its probably -- again, this is what I believe will double.

You have a follow-up, Doug? I am sorry, we have missed your question. Can you repeat that please? Sorry Doug, I think we are having a hard time hearing you. We will catch you offline. Tony, can we move to the next caller please?

Your next question comes from the line of Quinn Bolton of Needham and Company. Please proceed.

Hi Sehat. Wanted to follow-up on your design wins for the LTE handsets, 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 low cost 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 feed [ph] and are they still accretive to overall wireless or do you have different expectations now in margins, given the pricing environment in the low end?

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, Yulong Coolpad, Huawei, ZTE and [indiscernible] 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 very complete solution offering for the high end phones, all the way to the near end and to the entry phones. And we are very-very hopeful I believe, that we are going to have very significant growth for the coming year. And as you know, when especially addressing the entry level phones, the margins has got to be challenging, but we continue to optimize our phones. It is my hope that we can grow very high volume, and with our low power, low cost, smaller die size, and as well as the performance, hopefully we can do better from al aspects.

Great. And to add to that, remember we continue to focus on two key metrics right, revenue growth and net income; and as Mike mentioned earlier, if you look at our year-to-date performance on that front, revenue grew in 15% and operating income growing twice that, we are -- we will continue to focus on those key metrics, even though we are in some very priced competitive markets.

Okay, thank you.

Your next question comes from the line of Mr. John Pitzer of Credit Suisse. Please proceed.

Hey, this is Ryan Carver in fro John. Just a question on sort of 3G versus 4G, can you give some color in terms of the mix in the third quarter, and the mix embedded in your guidance, presumably the 3G declines were outpaced sort of 4G, but can you give us some color? I mean did 4G grow in third quarter, and what are the expectations for fiscal fourth quarter?

Hi Ryan, this is Sukhi, we haven't provided that kind of mix in the past, and we refrain from doing that in this call as well. As we mentioned earlier in our prepared remarks, it is -- the overall mobile market has been weak, and I don't think it should come as a surprise to you, given the results of many of our customers and our competitors. So generally I think, all we can say at this point is, it was weak across the board.

Okay. And then just real quick clarification, Weili, you mentioned that calendar 2015 would see a doubling, so I presume that's a 100 million unit expectation for 2015, just a quick clarification on that LTE?

Yes.

And then my last question, if I look at sort of the revenue mix versus the lower cost of goods, it implies sort of a low 30% gross margin for the revenue that was for the shortfall in the revenue, and presuming that most of that -- obviously most of that was in the mobile and wireless. So can we talk through the expectations for what gross margins are going to tend to do going forward? You mentioned that carrier is less of an impact on LTE and you guys are looking at this more turnkey model; does that promote a -- or is that customer base typically one that is more aggressive in terms of the device ASPs, or sort of how should we think about the gross margin progression, as you guys -- as the market kind of shifts from a carrier to a more recent [indiscernible]

The chip business; its actually the opposite. The turnkey model actually will have higher gross margin, because the customers are not investing in R&Ds at all, what they are doing is, they just will be doing the procurements and manufacturings and distributions of the product lines. So if anything, our gross margins can only improve, when we go to the turnkey model.

Right. And so the other thing there Ryan also is, if you look at some of these customers, the ones in the phone line customers, they are not really that -- they are looking at some of these high end devices. We announced one major one 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.

Your next question comes from the line of Mr. Ian Ing of MKM Partners. Please proceed.

Ian, you there?

Could you talk a little bit about networking and Ethernet switching? Looks like Broadcom have this Tomahawk chipset coming out, 40-gig and 100-gig at the datacenter. Talk about competitive landscape there and how much of the white box market you're addressing? Thanks.

We have competitive products. We were maybe a little later in the market. We do have competitive products in the market, as we have seen more of that coming to the market next year. We have a slew of products that are coming to -- we have introduced this year, and -- in the Ethernet side, switch side. So at least for the short term, while you may see some -- you may not see it in the market, we are working actively on design wins for some of the competitive products.

In addition to what Sukhi said, if we look at the Ethernet, the 10-gig F5 solution and we actually lead to 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 defined and developed, cloud infrastructure, this requires storage, networking and computing, and Marvell being addressing end-to-end market, with all the complete technologies, impact -- some a new way of defining and designing solutions for networking infrastructure cloud, and Marvell is actually leading the path. So just stay tuned, we will give you good updates.

We have a lot of different products. In networking, we have our CPUs, we have our Ethernet silicon, we have modem technology, we have basestation technology, programmable processor. So we have a complete portfolio of products, and we should see steady improvement on the networking business as we head into next year.

I think that a lot of times, that people get confused about our networking business. A lot of persons we get comparing against Broadcom. The only thing steps within, we don't have yet the switch fabrics, the very-very high end switch fabrics; and as I mentioned in the last quarter, I think a couple for the last quarter or so, our switch fabrics, our Ethernet-based switch fabrics will be out over the second half of next year, when those are the ones that we have to completely reprog the existing cell-based switch fabric solution. Other than that, we have everything, even we just announced earlier, they are quite slow. A recent area that historically we now play with Broadcom, but now all of a sudden we have the industry best TCAM solution in the market. Its, as I mentioned, four times the capacity and one-fourth the power dissipation. There is a major-major differentiation in today, so this might be like a 99% Broadcom business, and with this technology, you will see soon that a lot of customers tend to move to our solutions.

Thanks. My follow-up is to storage here, so what are you looking for to drive more adoption on the client SSD market? I know memory guys are looking at transitioning to TLC from MLC, is there anything else in terms of some catalysts to drive mortgage option on the client SSD side?

It will be both. If you look at the -- we said very consistently as the price of the flash goes down, the volumes will go up. So there is no way to get around that. Now of course on our side, either we continue to build more advanced SSD solution to deal with the syncing -- the device syncing of the flash; the synching of the flash chips; because as those devices get smaller and smaller, their value [ph] will get worse and worse. So we are not a bottleneck. We are always ahead in terms of developing this technology. So the other part of building the different classes; when we entered this business, we started with a high end device, like the HNL device. As we go to higher volume, okay, we need to reduce that to four channels and eventually fewer channel devices to see the volume -- to take off. But now, they will be fine, the lowest-lowest end, will probably -- the volume would be very-very high, but there will be more companion of the user in the laptop, as a companion to hard disk drive, to be like a hybrid storage capability.

Thanks Sehat.

Thank you, Ian.

Your next question comes from the line of Mr. Daniel Amir of Ladenburg Thalmann. Please proceed.

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, there was a lot of searching in the market through the past year. Has that pretty much played out at this point, and do you feel that you maxed out the share opportunity in the SSD side, or do you think you still have more opportunity for growth there?

SSDs, we still have lot of opportunities. Most of the revenues that we have are still at the higher end; okay, if we -- early adopters tend to be like -- want to have the best performance. Whilst we are trying to address the higher volume markets, then we need to scale down, lower the cost along with it obviously, also lower the performance to get that cost target. So there is still 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 combination.

In terms of a hard disk drive side, past quarter as we have seen, obviously PCs are picking up again, markets stabilizing, what's your assumption I guess into next year for that business, I mean, in terms of overall visibility?

Last quarter I mentioned about this, okay, I believe with the new introductions of Intel, 40-nanometer PC processors, there will be new demands of upgraded PCs, PCs that are 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.

To add on what Sehat said, remember the HDD is not just for PC market. In fact, the overall storage technology 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 are very pleased about this.

We do spend a lot of -- as you know Daniel, we do have expand on a lot of different end markets, and the enterprise is definitely an area of our [indiscernible] as well.

Okay, great. Thanks.

Your next question comes from the line of Blayne Curtis of Barclays. Please proceed.

Hey good afternoon. [indiscernible] questions. I just wanted to better understand the moving features in the mobile and wireless segment in October and January. I just want to confirm, wireless is up and cellular is down and then into the January quarter, are they both seasonal?

In the January quarter, Blayne? Q4, no, well it will be down.

In some sectors, the wireless is more, but as connectivity is more like seasonal, and the wireless is a temporary slowdown in softness. So it’s a very-very short term issue.

And then 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 then if you could just comment on -- if you have seen any new competition come in, to [indiscernible]? Thanks.

As we said earlier, the softness is due to the facet [ph] transition from the carrier market to the open -- what do you call it, the turnkey model. So that's really-really what we refer to, why we say its short term; because fundamentally, if we have actually leading-edge solutions, just the turnkey part of the solutions, won't be there until Q1 next year, and that's why we say, in Q1 it will be available, the turnkey, and then the production will start in Q2.

Also, we mentioned about the mix of the customers, because some of our key customers used to only addressing the carrier market, so now also expanding to address the online as well as retailer. So all this will be helpful for us as well.

So Blayne, as you probably also know, we do have weakness from Korea from not just smartphone manufacturers, right, so that's a pretty well documented weakness. So that's one of the reasons as well.

Okay. 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 yourselves, having primarily the share this year?

Nothing that I know of. I mean, pretty much the only three suppliers; Qualcomm, MediaTek and us, and as you know MediaTek is a two-chip solution still; and LTE is a lot of -- its soft modem technology, so from power point of view, it stays very high. So we are the only ones that have the most -- next to Qualcomm, we are the only one that have this hardware modem.

Which uses very low power.

All right. Thank you.

Your next question comes from Mr. Christopher Rolland of FBR Capital Markets. Please proceed.

Thanks guys. Thanks for the questions. 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?

All right, let's talk about the one chip. So our one chip today is very smaller than MediaTek, even it is able to build a single-chip solution, meaning that once they build a hardware modem, so in my view today, they are still using the soft modem. So assuming they have the hardware modems ready at some point in time, I don't think there is going to be any smaller than our chip. So from the cost point of view, we will -- let's call it that we will be equal. The key that we need to deliver is the turnkey solution, so that we can also address the very large bolus of opportunity in the open market. So really as I said earlier, this is more a temporary advantage that they have right now, on the turnkey model. In terms of performance okay, our performance is world class. Our performance in the processor is -- if its not equal to the best, its better. Our graphics is actually -- we have only proven in every products that we have been, our graphics is better. So I don't think -- just in some parts we say, we are very bullish. A lot of tier-1 customers, we have design wins, because they know, when they evaluate our products, we have leading edge solutions for the price point that they are looking for. So if they want the low cost, they want the 1908, they want the high end, high performance, they have the 1936, the octacore. So they can cover both end of the spectrum of the smartphone, the LTE smartphones.

The other thing I think is also very key, even though some time is a little subtle, is the security capability. And we have what this new generation LTE platform, we have enhanced our security processor. So having a secure platform and technology is very-very key to us.

Okay, great. Thanks. And I guess following up there, if you guys did want to have, sort of 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 bits will -- okay, well 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 does not materially change for the -- especially also, as we consolidate the product lines into fewer and fewer products. This is also the reason why we -- over the last two years, we have been saying that, if we can maintain our OpEx plan, because we could see that those consolidating the product lines into fewer chips, fewer products, will translate into lower costs to us; but because the 48 nanometer also increased the costs, that's why we said flat OpEx as a result.

I'd like to 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; and even with our growth, I think its unusual for companies to be growing and have its OpEx go down at the same time. And introducing the most advanced products in the world. And as we go forward in the following year, we also expect that 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.

Your next question comes from the line of Mr. Chris Caso of Susquehanna. Please proceed.

Yes, thank you. Just a follow-up question with regard to handsets; where do you see your long term competitor advantage in this space? Certainly understand what you're saying in the short term with the turnkey solutions, but once you have those solutions in place, I mean basically, what can Marvell do that the competition that Qualcomms, the MediaTeks can't do, that drive your customers back to 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, introduced 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 its Marvell solution-based, it’s a lot more robust and high performance. So we are very bullish, even though we are 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.

So we have an advantage. On the performance side, what Weili mentioned, is something that people do not talk about, much about our performance or 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 -- we have lot of new technology development in building new system architecture. But this is more longer term, because a lot of these things take time to be adopted into the market. But these are the areas that we are putting a lot of investments, not just for the mobile actually, its for across the company. So the technology that we have 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 see in the game console area, that has historically been seasonally strong for you, there were some mixed signals coming out of your competitors, because you give some details about what you're 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 have in that period?

Absolutely.

Thank you.

Your next question comes from the line of Mr. Mike Burton of Brean Capital. Please proceed.

Hey, thanks for taking my question. 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 is some increased competition from the Taiwanese competitors. And then also, you mentioned you would start to see some embedded revenues in 2015. Should we assume that's more back end of the year, and is it tied to one more flash OEMs, or for a particular standard?

So are you talking about SSDs from the back end of the year, Mike, or --

Well I thought you mentioned embedded, so I assume it was in EMMC that you are talking about? Is it EMMC or UFS?

Yeah, that will be both back end loaded. But as far as pricing, we haven't seen any big changes. We still have -- if you remember on SSDs, we are right now in our fifth generation technology. So on the subject you hear about Taiwanese competition, is just that -- we are just hearing it. I mean, we have significant advantages over many of the players in the market. One of our competitors, has gone away. So we feel pretty strongly about the growth opportunity for our SSD business.

It is an area, SSD, especially when we look to LDPCs, we have very strong IP portfolio. It is an extremely strong IP portfolio. So its an area, that okay, we haven't seen anybody from anyone, especially from Taiwan to be in this area. So nobody is playing into this market. Yet, if you look at the PLCs, especially in the 2G PLCs; without LDPCs, its hopeless. It will be a huge liability issue for the flash manufacturers to deliver SSD without LDPC technology. So we have been in this area for a long time, and we have a lot of proprietary technology, heavily patented technology. So as you go down the road, as we go to play into the embedded space, we have to deploy more and more of this technology, to go after the market, they are traditionally part [ph] of our business. So it’s the opposite. So we are going to go into their sandbox and --

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

And I believe, its 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 feedbacks from some key customers, and they are concerning about the solutions without the security, they don't believe they can even use them.

All right.

Thanks Mike. Tony, we will take one last question please.

Your next question comes from the line of Srini Pajjuri of CLSA. Please proceed.

Hey, thanks for taking the question. This is Ryan Goodman in for Srini. Another question on storage, and specifically on SSDs, you guys put out or introduced an NVME controller in August. Just curious if you could talk about that a bit? What type of markets are you going after with that? Is it more of a high end in even enterprise play, or are you trying to push that into client markets? And then just, any sense of timing and how quickly that type of product can translate to revenue?

We have several products, all the way from the high end [indiscernible] to the entry level. But the biggest opportunity obviously in the entry level side, a decent area there is still very-very new. I don't know if we have announced it yet, but we just recently, that products have passed the compliance test, its in UNH. It’s a consortium run by UNH. So we completely passed their test on the first pass. So this product could be very-very high -- could give us high volumes next year, towards the very low end entry level SSDs, to support both the SATA and PCIE.

Okay, great. Just a different path, do you guys have any update on the CMU litigation? I know probably not a timely detail, but just maybe in terms of what to expect in terms of timing or if the OpEx is probably going to hold kind of at a relatively flat level, and 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 is 1.54 billion last quarter with some royalties after that. Is there an update to that number as well?

The cases proceeding the briefing is about done. I think we are 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 sometime in July, in that timeframe. Your other question was with regard to legal expenses related to that? I believe that, those should decline, now that the briefing is over and so is the oral argument, but basically that should be a much lower amount of expense.

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

In terms of the judgment, the amount of the judgment is still the same. There is the 1.5 and vendors and some ongoing royalties, and that hasn't changed.

Okay. Thank you.

Thank you. And please proceed with closing remarks. End of Q&A

Thank you, Tony. I would like to thank everyone for their time today, and continued interest in Marvell. We look forward to speaking with you in coming months. Thank you and good bye.

Thank you.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation. You may now disconnect. Everyone, have a great day.