Peter Andrew - Vice President of Investor Relations Matt Murphy - President and Chief Executive Officer Jean Hu - Chief Financial Officer

Tim Arcuri - Cowen and Company John Pitzer - Credit Suisse Stephen Chin - UBS Joe Moore - Morgan Stanley Chris Rolland - Susquehanna Quinn Bolton - Needham & Company Ross Seymore - Deutsche Bank Gary Mobley - Benchmark Capital Srini Pajjuri - Macquarie Research Atif Malik - Citigroup Blayne Curtis - Barclays Capital Mark Delaney - Goldman Sachs Kevin Cassidy - Stifel Nicolaus Vivel Arya - Bank of America Tom Sepenzis - Northland Capital Markets

Good day, ladies and gentlemen. And welcome to the First Quarter 2018 Marvell Technology Group Ltd, Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time [Operator Instruction]. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Peter Andrew, Vice President of Investor Relations. Please go ahead.

Thank you very much, Jonathan, and good afternoon to everyone. Welcome to Marvell's first quarter of fiscal year 2018 earnings call. Joining me on the call today is Marvell's President and CEO Matt Murphy; and CFO, Jean Hu. Before I turn the call over to Matt, I want to remind everyone that comments today will include forward-looking statements, which are subject to significant risks and uncertainties which could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings release which we filed with the SEC today and posted on our Web site, as well as our most recent 10-K and 10-Q filings. We do not intend to update forward-looking statements. During our call today, we will make references to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available on our Web site in the Investor Relations section. With that, let me turn the call over to Marvell's President and CEO, Matt Murphy.

Thank you, Peter, and good afternoon to, everyone on the call. As I have stated before, Marvell's goal is to deliver semi-conductor solution that move data faster and more reliably than anyone else. Last month, we took another big step towards achieving this goal with the hiring of Neil Kim as our new Chief Technology Officer. And before I review our Q1 results, I want to share some of his background. Neil spent 16 years at Broadcom where he lead IT development, process node roadmaps and engineering execution. He was instrumental to their success. He built their central engineering organization from the ground up. This was considered to be one of the key assets of Broadcom giving them tremendous leverage in R&D as they scale. Here at Marvell, we have an opportunity to improve our engineering efficiency and output and we are fortunate to have Neil on Board. Neil also brings extensive product development experience from his time at Western Digital where he led the engineering organization, hit the ground running and established himself for the catalytic force in our global engineering community. And we expect this team will both improve execution and accelerate development of new technology. Now, let me turn to our Q1 results. The power of Marvell’s new business model helps us generate strong and what is typically our seasonally slow quarter. In Q1 revenue exceeded the midpoint of our guidance and represented 12% year-over-year increase. Our core businesses of storage, networking and connectivity grew 15% year-over-year and now account for 90% of our total sales. This is the third consecutive quarter in which our core businesses grew year-over-year. Our new business model also generated impressive gross margins. In the first quarter, our non-GAAP gross margin rose about 60%, exceeding our 59% forecast and moving us out into the long term range we outlined at our Investor Day. This is an important milestone for the Company, a gross margin level Marvell has not achieved since fiscal 2011. Our improvement in gross margin is the result of a number of changes we have made throughout the Company; strong execution on cost reduction initiatives; yield improvements driven by product and test engineering; better discipline in selling the value of our solutions; exiting non-core lower margin businesses; improved mix within our segments; and the ramp of new products with higher margins. We also significantly improved our non-GAAP operating margin to 21.8%, exceeding our guidance of 20%. This represents an important step towards our long term goal of 30% operating margin. Our revenue growth and operating performance translated into strong free cash flow of $117 million or 20% of sales. I'm also pleased that we returned $196 million to shareholders or roughly 170% of our free cash flow during the past quarter. I'm very pleased with Marvell's financial performance in Q1. Now, turning to our business performance. In Q1, our storage business performed much better than typical seasonality and grew 25% year-over-year. Our SSD revenue grew by double digits sequentially and by triple digit year-over-year. This growth reflects our increased market presence in both the SSD client and enterprise and data center markets. Our success in this market is a direct result of our technology leadership and strong partnerships with tier one customers. We are well positioned that this market continues to grow, and expect it to represent 25% [ph] of our total storage revenue in the second half of fiscal year 2018. In HDD, we experienced very strong growth in the enterprise and data center markets even as our client business declined sequentially. We have assembled the industry of broadest portfolio of SSD and HDD solutions and continue to shift our higher gross revenue segments of the storage market. An example of this shift can be seen in our total enterprise and data center revenue, which more doubled from a year ago and grew 40% sequentially from the fourth quarter. We are pleased with the performance of our storage business and are well positioned to capitalize on the opportunity in this large and growing market. Moving to networking. This business performed well in Q1. Revenue was up 5% from a year ago, representing the fourth consecutive quarter of year-over-year growth. What is even more encouraging is that our switching PHY and SoC products grew double digits year-over-year. As you may remember from our Investor Day, we highlighted our refresh product line in the 25 new products introduced in the last 18 months. I'm pleased to say that we are gaining great traction with our switch and PHY products, targeting 2.55 and 10 gigabit Ethernet market. Marvell's success to-date has been providing switch PHY and SoC solutions for the enterprise campus and SMB market. What is new this quarter is that we’ve been successful in extending design win momentum with our 10 gig solutions into the carrier market for 5G base stations. Our solutions are winning in this market because our products offer both greater port density and the latest software feature set. This enables our solutions to be more flexible and configurable within our customers’ products. Our connectivity business performed better than expected in Q1 with revenue up 3% year-over-year and 16% sequentially, or seasonality and the specific timing of certain customer ramps make this business a bit uneven, revenue growth from Q4 to Q1 was driven by wins in gaming and home media streaming applications. Finally, on the end market adjacencies that we discussed at Investor Day, Marvell has secure multiple design wins in Q1 for our automotive Ethernet and WiFi products with U.S., European and Asian car manufacturers. While these wins are not projected to deliver meaningful revenue until fiscal 2019 and beyond, they do represent an important milestone in Marvell's progress in the automotive market. In summary, it was another solid quarter for Marvell and I want to give credit where credit is due. Our success would not have been possible without the extraordinary efforts of Marvell's employees. I have been so impressed by their contributions and by the speed of which they have work to get the Company back on track. In virtually every Company meeting, employee round table and all way conversation, I reminded we have some of the best talent in the industry and are greatful to all them for their hard work. With that, I’ll turn the call over to our CFO, Jean Hu.

Thank you, Matt. I’ll discuss the highlights for our first quarter for fiscal 2018 and provide our current outlook for continuing operations in the second quarter for fiscal 2018. Our total revenue in first quarter was $579 million. Our car business grow 15% year-over-year and was flat sequentially much better than typical seasonality. In Q1, we had a small one-time benefit of $4.7 million in revenue from reduction in revenue related accrual. Storage accounted for 52% of our revenue and grew strongly on year-over-year basis. As a reminder, we did have a weak Q1 2017 in storage revenue. On sequential basis, it was much stronger than typical seasonality. This strength was driven by the significant ramp of our overall SSD revenue and the growth in HDD underpriced and the data center market, as Matt mentioned earlier, offset by softer than expected HDD client revenue. Network accounted for 25% of our revenue and grew 5% year-over-year in line with our expectations. Connectivity accounted for 13% of our revenue and grew 3% year-over-year and 15% sequentially. Other products accounted for 10% of Q1 revenue, and declined 16% year-over-year, less than we expected as we benefited from some last time buy activity. Our GAAP gross margin for Q1 was 60.2% and our non-GAAP growth margin was 60.4%, above our expectation of approximately 59%. This is an important milestone for Marvell as we are now within our targeted non-GAAP growth margin range as we said at our Investor Day. Please note that our Q1 gross margin also slightly benefited from the accrual reduction noted above. However, excluding this benefit, we are still above about 60% non-GAAP growth margin. GAAP and non-GAAP operating expenses were in line with our guidance range. GAAP and non-GAAP operating margin was 17.1% and 21.8% respectively, better than expected. We are pleased with the result and expect to continue to make progress toward our target of approximately 30% operating margin. Our first quarter GAAP earnings per diluted share was $0.19 and our non-GAAP earnings per diluted share was $0.24, compared to $0.03 per diluted share for the first quarter of fiscal 2017. This improvement demonstrated a strong financial leverage of our new business model. Please note that our Q1 fiscal 2018 GAAP and non-GAAP EPS also included approximately $0.01 per diluted share benefit from the accrued reduction noted above. Free cash flow in the quarter was $117 million and represented about 20% of the sales. We returned about 170% of our free cash flow to shareholders, which includes $30 million in dividend and $166 million in stock re-purchases. Let’s now turn to our balance sheet. At the end of the first quarter, our cash and marketable securities were $1.65 billion or roughly $3.50 per non-GAAP diluted share. Before I provide our Q2 guidance, I am very pleased to report we closed the sale of our LTE thin-modem product line for a purchase price of $45 million on May 17. This product line was classified as part of our other products and category at approximately 5 million in corporate revenue and the gross margin below the corporate average. This divesture was not included in our previously announced discontinued operations. Our original plan was to access the LTE product line through restructuring actions. In Q2, this product line will be classified and added to discontinue operations. Please note our revenue of guidance for Q2 excludes revenue associated with the sale, which had been approximately 5 million for project. Now, turning to Q2 fiscal 2018 guidance. We expect our total revenue from continuing operations to be in the range of $585 million to $615 million. At the midpoint of our guidance, we expect our storage revenue to be flat sequentially and to grow double digit year-over-year. We expect our net working revenue to be approximately flat sequentially. As we said last quarter, we will continue to see the headwinds from the decline of the legacy product line but we do expect the new products ramp to offset the likely decline in the second half of this fiscal year, enabling networking to return to growth. We expect our connectivity revenue to grow more than 30% sequentially and double digit year-over-year, primarily due to a seasonal customer demand in gaining and the growth of our high performance connectivity solutions. At the middle point of our guidance, we expect our car business over storage networking and the connectivity to grow approximately 5% sequentially and year-over-year. We expect our other product categories to decline high single digit sequentially in the second quarter, and represent approximately 8% of our total revenue. As we discussed during our Investor Day, other products to provide a slight headwind to our total revenue growth. But we do expect these products to have a long revenue tail and generate sustained cash flow for the Company. We expect our GAAP and non-GAAP growth margin to be approximately 61%; we expect our GAAP operating expenses to be in the range of $237 million and $247 million; and the non-GAAP operating expenses to be between $215 million and $220 million. Our restructuring plan remains on track. At the middle points of the guidance, we expect to achieve 25% non-GAAP operating margin, making another positive step toward our long term target business model. We anticipate the GAAP income per diluted share in the range of $0.21 to $0.27 and the non-GAAP income per diluted share in the range of $0.26 to $0.30. With that, we’ll now open the line to Q&A. Operator, take the first question.

[Operator Instruction] Our first question comes from the line of Tim Arcuri from Cowen and Company, your question please.

I guess the first question, you talked about some new 10 g was the working. Can you just talk little more about that?

So what we really said in my prepared remarks was one reinforce the messages from Investor Day, which was really that we saw a market transition happening in the enterprise campus, in SMB markets starting now and over the next couple of years, transition to 2.5, 5 and 10 gig deployments. What we said also though that was incremental was that the same solutions for 10 gig that we targeted and we have been successful in in the enterprise areas we are also now getting design wins across several customers and platforms in 5G base station. And so that was encouraging, and I think it speaks to the quality of the product definitions in the engineering and also I would say our improved sales efforts here at Marvell to broaden the set of accounts and customers that we call on and promoting our solutions. So we just highlighted the 10 gig as an incremental opportunity for us in carrier, which we had not talked about in the Investor Day.

And then Jean, the gross margins obviously is very, very strong, it dropped to almost double the revenue year-over-year o some of that cost cutting that. But some of things that I am excited, and I think you talked about as well. Some of the things seem to have long legs to them. So it seems like with what you’ve already done that there is more legs to gross margin, and then there is more you can do. So I guess my question is, is that the right way to think about it that some of the things do have longer legs here, and then is it reasonable to -- I know maybe you don’t want to commit to 65, I know that we’re sort of pushing you on this. But is that an unreasonable number over the longer team? Thank you.

Yes, so I’ll give you some color, but Matt can add more about longer term on gross margin, right. When you look at the gross margin improvement, Matt talked about all the different efforts that we have been making. So when we look at the year-over-year gross margin improvement, really half of them are coming from cost reduction initiatives that Matt had talked about. The other half largely comes from product mix change and just managing our business and operation. So we are very pleased with the margin we achieved because we saw during our Analyst Day, we’ll get here sometime in the first half. So we’re really pleased we actually achieved it earlier. The guidance of 51% in Q2 largely reflects our thinking this is the run rate of gross margin, and those costs were not going to stop here. Matt, anything you…

Sure, maybe I'll add a few comments since I think this will be one of the bigger questions from investors and folks on the phone. So just add to what Jean said, as mostly I think recall when we started this journey from the beginning myself as well the rest of the management team really adopted a mind set and a mentality here as Marvell that really put gross margin as one of the key performance indicators of the Company. We have multiple reasons why we believe that’s important. One of those is that we believe it’s a reflection of the quality of the revenue and the quality of the engineering in the Company. And quite frankly, I don’t think any of us were satisfied at the level of the gross margin that Marvell is delivering in the past. So we made it a priority. But I have also said that there is really been no silver bullet on how we got here. There has been tremendous effort that’s happened, as Jean mentioned, on the operational side with working more closely with our suppliers; better negotiations practices; certainly focusing on things like things like yield; really I think our product and test engineering team has done a great job. Also, I think the benefits of our portfolio management that we did and obviously driving better mix and then being fortunate and having new products ramp, the number of factors it doesn’t stop here. We’re going to continue to put one foot in front of the other and do what we should be doing, which is good general management blocking and tackling. We’re not planning on upping our gross margin range at this point. But certainly, we have continued to make improvements against our internally set targets since we got here. And we’re encouraged by what we see, including the guide that we gave in Q1, which you could also argue have a little bit of mix working against this actually. So we’re not commenting beyond Q2, but it continues to be priority. And I think it's really a reflection of the value that’s actually inside Marvell as we have been fortunate to be part of actually unlocking that over the last nine to 10 months.

Thank you. Our next question comes from the line John Pitzer from Credit Suisse, your question please.

Matt, I guess, given that storage was so much stronger than seasonal in the April quarter. It’s pretty impressive that you guys guiding sequentially flat. I was hoping like you did for April, you might be able to give us a little bit color on the July guide as to how you think SSD versus HDD is doing in the quarter, and I guess even with the HDD client versus enterprise? And I asked the question because there seems to be a lot of investor confirmation that the HDD side of the business has been unusually strong over the last two quarters. And as that rolls off it’s going to be hard for you guys to teaching to grow. And I just want to get your comments on your SSD growth opportunities and your share growth within HDD and enterprise and data center?

I would say first it's at the highest level. We’ve been very encouraged by our progress in the overall storage market. I’d say agnostic stage to SSD with respect to the solutions that we’re delivering and now shipping into the end markets of enterprise and data center, and I think that’s a very positive mix shift for the Company that’s been ongoing since I got here. So between HDD and SSD, as we called out, we had very strong sequential growth into Q1 from Q4. And really what I would say on Q2 is we see that momentum continuing across both SSD and HDD for our solutions that go into the enterprise and data center. On the comment about HDDs running harder, I think that’s been almost the case since I got here. It seems like every quarter sort of keeps doing better from an industry point of view than people think. So we clearly keep our eye on that with respect to what our customers are up to and inventory levels. But we also react to, at the end of the day, we plan our business around what our customers need and that’s reflected in our guide. So I guess what I just again reiterate overall is we’re real positive on our storage business, both in HDD and SSD and I think the mix shift that we are seeing away from traditional PC client type of applications, enterprise an data centers very positive on our goal, whether it's SSD or HDD.

And then may be as a follow up, Jean, given just all the moving parts in the revenue model now, it might be helpful if you can spend just a few minutes trying to level set as to how we should think about seasonality beyond July quarter, and what are the puts and takes on that?

I think that’s something we have been looking at inside the Company. If you look at in the past, our business has changed a lot. So when we look at the seasonality frankly networking tends to be less seasonal. So if you look at our guidance for the Q2, it's really flat sequentially. In the second half, I think our view is actually because the new product cycle we have with all those 25 new products, we do see those products start to ramp up offset the legacy headwinds we set. So for networking that’s how we think about for the rest of the year. For the storage really, I think again the normal seasonality really that’s not we haven't seen played out this year. So it's difficult for us to call any normal seasonality going forward. I think as we guided for Q2, Q3 for many of the year the view we have is again like Matt said this on the enterprise data center side we’ll continue to see the expansion of our business for the rest of the year. So we’ll keep you posted about our progress there for sure.

Thank you. Our next question comes from the line of Stephen Chin from UBS, your question please.

The first one I had was just hoping to get some more color on your SSD sales target for the back half of the fiscal year. I think Matt mentioned 25% to 30% of source sales target, and just given that math compared to where you are today, I think it would imply that this can roughly grow in the low to mid-20s figure? Just relative to your end market for the broader SSD market, do you think you can grow faster in the end market, of course to the 30% range and we’re seeing it at 50% today?

Sure, I'll take a stab at that, and I'll let Jean add any color as appropriate. What I would say is we have -- I would go back even to our November call when we decided to start giving more color around our SSD mix, which I believe was favorably received by everybody. And we had a nice progression from 20% above 20% and then now we’re guiding back half of the year in this 25% to 30% range. So you can make -- you can run your model across that spectrum to see the progress. And I think when you do that certainly would indicate that Marvell is growing faster than -- certainly this past quarter has been growing faster than the end market. And we believe that design when pipeline we have and the opportunities we have will get us to where guided. So I wouldn’t argue with that. I think that we’re not going to give exact specific numbers or specific detail percentile breakouts. But again, on the spirit of investor transparency, we’re just trying to show progress and then you can back to cross that against your own model and for gross rate market share change et cetera. But my summary point would be we just continue to feel very good about our position in that particular business as evidenced by the results not only in Q1 but where we see this ending as we head towards the back half of the year.

Our next question comes from the line of Craig Ellis from B. Riley, your question please.

I wanted to focus on two longer term questions, first following up on some of the end market commentary. Within the connectivity business, Matt, you mentioned that there were some automotive Ethernet wins that would generate revenue in fiscal '19. Can you quantify to the extent that you’re getting those wins either regionally or across customer set, so we can get a sense of the market penetration you may be already achieving relative to some of the comments you made at Analyst Day?

Sure. So just for clarity to back up one step, I think the way to think about the automotive opportunity and what I said in my prepared remarks was we actually saw design wins and momentum continuing to build in both the connectivity side, which is WiFi, WiFi Bluetooth combo chips for automotive, as well as automotive Ethernet, which includes PHYs as well as our switches with integrated PHYs. So number of different products across two different technologies that fit Marvell has considerable expertise and position. And so the way to think about the traction really, which is I think a very positive sign that I’ve seen is that it’s very broad based in nature in terms of geography that we saw wins across all three major regions. And it’s across multiple customers and OEMs as well. And having been involved with automotive for quite a bit of time, almost 10 years now, going back to 2007 when I got really involved with my old company. This concept of Ethernet in the vehicle was around even then, and what we do see is that, that vision of actually upgrading that legacy box in the car connecting all the desperate ECUs on one packet base network is starting to happen. And so we feel like we’re in a good position as Ethernet becomes more prolific in vehicle. And we’re calling out as an FY'19 and beyond, so we’re not quantifying any revenue yet or sizes. But you can imagine we’ll begin to talk more about that as we make progress towards these production ramps. But I think it's just the signal that we’ve got. We’ve got leverage from our existing R&D efforts that we can apply into adjacent markets that are growing very fast where new Sam is actually being created and we think automotive is one of those markets for us.

The follow up question relates to your commentary regarding Neil Kim's appointment as CTO and the question is this. Given his background at really creating significant extensibility to R&D capabilities and the efficiency implication thereto for Marvell, would you expect that to result in increased new product productivity for the team overtime or would it result in lower operating expense versus what we would have expected prior overtime? And are there gross margin implications given what he’ll be doing with the rest of the team? Thank you.

Sure, happy to comment a little bit more on Neil. So the first backdrop I would give is that we possess an incredibly talented engineering organization here at Marvell. And credit continues to go to the founding team of Marvell and the quality of the people that were brought in over many years and established. So we’ve got a phenomenal base of talent to work with. One thing that -- and it's a very creative and innovative and unique engineering team, I think in the industry. What I have observed since coming in is that there is some opportunity I think to put some more discipline and process and measurements and implement, I call them, more industry leading best known message into our engineering organization. And I think Neil is probably one of the best equipped individuals in the industry to actually bring that in. So with that translation for us right now is really getting more output, i.e. higher new product introduction quantity run rate, faster time to market, fewer spend, all these other benefits. So it's not necessarily a direct OpEx savings; although, I think when you start doing all those things, and you get more efficient, you obviously get benefits. But we’re really trying to more and get the team we’ve got actually to be even more productive. With respect to gross margin, I think, the impact I would just see there is it’s very clear in my history and in this industry and it's probably the view of the investor base as well is there’s a high correlation between the margins you can get on a product and the amount of time that takes to develop the product. So if you are first to market and you can have an advantage there, it has a tremendous lever on your gross margins and your profitability and your market position. And so I think as a side benefit by actually improving our new product cycle times and reducing spends, getting things out faster and more efficiently with higher yields, I think it will have all kinds of longer term benefits as you indicate. And I think he is one piece of the puzzle. There is a tremendous workforce here. But I think already he is influence is being felt and were really happy to have him here.

Thank you. And ladies and gentlemen, we do have a full queue this evening, so we ask that you please limit yourselves to one question each. You may get back in the queue as time allows. [Operator Instructions] Our next question comes from the line of Harlan Sur from J. P. Morgan, your question please.

Good afternoon and solid job on the execution and the continued margin expansion. In networking, obviously, I know the sweet spot for the team continues to be enterprise campus SMB, good to see the traction with 10 gig and carriers. But for the cloud datacenter guys, it does seem like the transition to 25 gig per quarter is starting to move at a pretty rapid pace. Just wanted to get an update from you guys on the traction with your 25 gig switch solution, which I think you guys call Bobcat 3, I know you guys were showcasing that at OCP. And then maybe an update on some of the PHY solutions that you have that helps your customers leverage the existing 10 gig and 20 gig infrastructure, but still ratchet up to 25 gigabits per channel. So just wanted to understand that the team is already participating in this upgrade cycle? Thank you.

I think I’d just say the update as we did -- actually, first I would confirm all of your statements are accurate. We do have the products you mentioned now introduced and sampling, and in design win mode. And we called them out at the Investor Day, which I think would news to some investors because I think people had always thought we were this enterprise only campus only focused and this was our first foray. And we’ve been very pleased on both of those products that you mentioned, both attraction we see on our 25 gig switches, as well as the physical interface products on re-timers and repeaters. So that continues I think to track well. We don’t -- it's still early days, but you’re absolutely right that that traction in 25 gig across some of our enterprise customers, by the way also, that are moving up in the enterprise class datacenters, as well as the datacenter guys are moving in that direction. And so we’re pleased with the progress so far. But clearly, the Company's goal is to participate in that continued data center build out opportunity, which I think is a large Sam expansion for the entire industry over the next five years.

Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley, your question please.

So on SSD I wonder if you could talk about the mix of enterprise versus client, you see any differences in those two markets. And then also if you could discuss any tightness of NAND supply, did that help you guys or hurt you guys from a share perspective and customer exposure perspective? Thank you.

Yes, on the SSD side, what we have seen is our SSD business grow sequentially and year-over-year very significantly. And when we look at our enterprise where property mall index in SSD side to enterprise and the datacenter versus our HDD business, but our overall enterprise data center storage revenue have grown significantly during Q1. And so we’re not going to breakdown into exactly how much of our SSDs enterprise or SSD. But over the remaining of the fiscal year, we definitely will tell you that this is the trend of enterprise in datacenter business, both in HDD and SSD how we’re going to progress for the rest of the year. So on the NAND shortage question, we actually -- we have a strong relationship with our tier one OEM customers. So we are actually less impacted by the shortage. We do see some of our tier two customers get impacted. But overall, if we look at our revenue our top three, four customers, they’re all tier one OEMs. So we don’t see the impact there.

Thank you. Our next question comes from line of Chris Rolland from Susquehanna, your question please.

I can't remember the last and I saw a company with double digit revenue growth, and OpEx down 20% year-on-year, so nice job there. Also, a nice sale on the LTE business as well; perhaps I shouldn’t looking it get towards in the month here. Perhaps you can describe the level of interest you have for any other products outside of the G.hn and LTE businesses that you sold in that 100 million that you could potential sell? And then lastly, since you guys are building your cash ops here perhaps your thoughts on M&A, particularly semi-stocks are up year-on-year so strongly?

So on the first one, which was the LTE sale, we were pleased to get that done. As Jean mentioned, that was not originally part of our discontinued ops because we thought the likely of selling it was low. So we were pleased to accomplish that, because I think; one, it's a good team and it's sound a good home with the company that actually wants to invest in this area; and we got $45 million for it. So I think that was a positive. All I would say is on the remaining discontinued ops, we’re still very much tracking to our plan that we announced back in November in our restructuring when we called out the disc ops. I have no updates on any details within that. But you are right, G.hn was part of it and there is some remaining work to be done there. Your second question was around M&A and our cash balance. And I think we’re in a very good position. We have a lot of flexibility at this point given the fact that we have $1.6 billion in cash and now you have seen what kind of operating income we’re generating that we believe we can generate on a go forward basis. And so that’s one where we continue to obviously look, we also understand where valuations are. So that’s always something that’s going to be a balance. But we’re very committed and I’ll just proactively answer this one for future questions that may come in that we’re going to remain very objective around this trade-off between holding enough of fire power versus returning to shareholders and so that’s the discussion that we continue to have on capital returns. I would say that we’re still early in our journey here at Marvell. We continue to make progress every quarter, and the second is that I think from a capital return point of view, as Jean mentioned, we did returned above the run rate that we had committed back in November. And so we’ve done about $290 million out of the $500 million estimate that we had made for the year. And of course with the dividend, you end with a pretty sizable shareholder return last quarter. So we’re going to continue to monitor both, and just keep one foot in front of the other on running our business.

Thank you. Our next question comes from the line of Quinn Bolton from Needham & Company, your question please.

I wanted -- so first on the SSD business. I believe you guys were working on a turnkey solution for the clients and retail side of business. Just wondering if you could give us an update on that? And then just a clarification, I believe you said that the client HDD business is weaker than what you had originally expected when you gave guidance 90 days ago. I am just wondering if you could provide a little bit more color there. What surprised you in that segment of the market?

I'll take the HDD question first then Matt can answer the other SSD 10 gig question. So on HDD side, we did see the revenue on client HDD business was softer than we expected. Although, when we gave the guidance largely toward end of the quarter it’s probably as many of you have seen this, there is some inventory views that we suspect that’s related to that. So for us, we don’t see the end customers but certainly, we see the demand, it’s a little bit softer than what we expected. But overall, frankly, HDD market continues to be quite a stable. I would say, I would add on that one, but it’s a softer than we guided in Q4 when we had our earnings call long time ago.

And then I think on the SSD one. So as we have mentioned, there is a comprehensive efforts inside the Company to align various firmware and software efforts to get to a common full period churn key software solution that can actually run across multiple Marvell controllers. Today, we do have solutions for retail and we have code that shifts with that -- those controllers. And we’ve made some progress there. But that code today is not necessarily scalable across the entire Marvell product set. So I think that’s still a work-in-progress in terms of having, I would call, a more comprehensive solution. But clearly in the areas where we have targeted and had some very focused churn key offerings. We have made progress and that’s also been part of the some of the growth that we have had. So we are participating today, just to be clear, across the entire spectrum of SSD opportunities in retail, in client, which would be PC oriented all the way up to we mentioned a few times, I think this exciting opportunity in the data center.

Our next question comes from the line of Ross Seymore from Deutsche Bank, your question please.

I want to focus on the OpEx and the operating margin, if I could, with my question. Jean, you guys are on a nice trajectory there in delivering on plan. Are you still committed to hitting that $206 million or the $820 million, $830 million run rate in the October quarter? And then as we look past there to get to that 30% operating margin target that Matt you and Jean talked about. Is that going to be achieved more on the revenue growth, leveraging from that existing level of OpEx? Or are there other absolute levels of OpEx or absolute changes in OpEx that would make that drop from dollar perspective?

So on the restructuring side, we’re on track together to the target that we communicated during Investor Day, which is to get it to around between $820 million to $830 million run rate in Q3 of fiscal '18. So we are on track to get to that target. Just as a reminder, our Q4 fiscal '18, we actually will have 14 weeks, so this is whilst the four, five years that you end up catching up with 14 weeks quarter. So if I look at the OpEx model after we achieve our target, I would say, you have to add back that one additional week in Q4. So our operating expense -- we are going to be very disciplined in managing our operating expense going forward. And going back to the model, long term target model, we’re very committed to our 30% operating margin model. As we talked about during the Investor Day, we have the multiple levers, top line revenue growth, gross margin improvements and operating expense efficiency. So when you look at the three levers, we’re going to manage through it, we definitely believe our top line revenue will continue to grow as we communicated to everyone during the Investor Day, then gross margins and other level operating expense will be very disciplined.

Thank you. Our next question comes from the line of Gary Mobley from Benchmark, your question please.

You mentioned in your prepared remarks some last time buyers some benefits from last time buy in the other product category. Is that having some influence on Q2 and can you talk to the magnitude of other revenue impact?

Yes, so just a quick recap, it’s under our other product category. It includes a lot of things -- it includes our printer business, which actually is larger portion of that category. But it also includes application processors, some also the legacy product lines we had form the past. So it's a collection of the product lines, some of them we had last time buys. It's probably below 10% of our Q1 fiscal '18 revenue in that particular category. And it always had some last time buy even in Q2 but overall, we actually going to see once we get at fiscal '18 as I talk about during Investor Day. We are actually going to see this product this other category to be more stable, because then it's primarily going to our printer business, which is not growing but actually it's a very stable and flatter business.

Thank you. Our next question comes from the line of Srini Pajjuri from Macquarie Research, your question please.

I have a clarification and a question. Jean, I think you said networking business still has some legacy that’s declining. Just curious as to if you could clarify how big that legacy business is? And then in terms of my question, the connectivity business, I guess you are guiding from 30% sequential. And I understand there is seasonality. I am just trying to figure out to what extent this is normal seasonality versus new design wins? And then how we should think about seasonality beyond Q2 in connectivity? Thank you.

Yes, on your first question on the networking side, the legacy product lines, it’s about between 15% to 20% of the revenue of our networking business revenue and those product lines actually have long life, they last four, five years. But during the fiscal '18, as we talked about last two quarter, we see some drop for the last quarter and next few quarters. But after that, as I said in the second half, our new product revenue ramp is going to offset that legacy product decline. And your second question is about wireless connectivity, right. On the wireless connectivity side, more than 30% sequential increase is largely driven by the seasonal demand on the gaming side and the some of the connected home solutions. We are also getting tractions on the enterprise access point and some of the high end of performance connected home solutions. I would say this is more seasonal than regular, because we do see the gaming segment has been quite healthy. Typically, for the wireless connectivity business, you will see this quarter is the highest quarter and then it started to come down. Of course after the holiday season here you are going to see seasonal significant decline of wireless connectivity, because the seasonal -- typical seasonal cycle.

Thank you. Our next question comes from the line of Atif Malik from Citigroup, your question please.

If I look at your segment sales, storage was about $5 million below seed expectations, mobile and networking were in line and most of that side came from the other line; and as you’re gliding to 4% decline year-over-year for revenues. How should we think about your revenue growth year-over-year basis in October and January? And what is going to make the growth revenue accelerate? Is it going to be the new products in the networking side or SSD share? Can you just talk about what's going to cause the year-over-year revenue decline to revert its course?

Maybe, I just want to clarify. When you look at our Q2 guidance, at the middle point of our guidance, our storage and networking and connectivity business actually will grow 5% year-over-year. The other category of the products would decline more than 30% year-over-year. So the overall Company at the middle point of our guidance is actually flattish. But our call business is actually growing year-over-year. I think if you think about going forward as we outlined during our Investor Day is we do think our storage business and networking business are going to grow faster than market. And our performance in Q1 is strong validation of that. And our wireless connectivity business is going to grow along the line of the market. That’s how we’re driving the overall business to grow. The other category we said in fiscal '18 is going to decline 30% year-over-year. But beyond of fiscal '18, if you have some slight headwind to our overall revenue growth, but we do believe we’ll be able to grow our overall revenue above the market.

Our next question comes from the line of Blayne Curtis from Barclays, your question please. Our next question comes from the line of Mark Delaney from Goldman Sachs, your question please.

The question is on the enterprise hard drive business, if I understood correctly, that part of the hard drive business was better than what have been expected when you gave guidance. You talked a little bit about what's driving the upside in the enterprise market. Do you think you’re seeing acceleration with some of the share gains or the end market strength? And then maybe you can just help us to understand just the breath of programs that you are targeting for share gains within enterprise HDD controllers? Thank you.

So a couple of things, one is the performance that we saw. We did indicate when we guided and as well as at the Investor Day that that particular segment we were pleased to see new ramps occurring in Q1, which were new programs that we haven't participated in before. And then that occurred, which is good and we continue to see progress there. We are not in the business really of doing back and forth on a share gain discussion. I think the way we think of it is the HDD market overall is fairly established; there is two large players; there is finite set of customers; and really we’re focused on obviously a segment of the market in making progress there, which is the capacity oriented near line drive and enterprise drive. And we’ll continue to do that. But we’re not in the business of trying to call out share gains other than we’re saying that we’ve got some new programs that ramp they were higher than last year and we’re pleased with that progress. And so that’s all I am going to say on the HDD enterprise side. I think it's a good opportunity for Marvell to participate, going forward.

Thank you. Our next question comes from the line of Kevin Cassidy from Stifel, your question please.

On your 25 gig switch, can you say what customers you are getting attraction with? Is it the tier two, tier one light backs or any other above?

I think what I would say is we’re not at liberty at this point to do any specific customer disclosers, just because we don’t have that provision. But what I would say is that there is a lot of interest in the products that the interest is across, I would say, the range of those types of accounts. So it's not something that is targeting at like one or two customers. I think there is going to be -- we are hoping broad based adoption for it. But at this point, we’re still pretty early too in securing those lens, and really kind of running the gauntlet on some of the qualifications we need to do. So I think we’ll probably have to table that one for later as we make progress. But when we can, we’re certainly happy to provide more discloser around that.

Thank you. Our next question comes from a line of Vivel Arya from Bank of America, your question please.

I just wanted to maybe go back to one of the prior questions. There have been some concerns about double ordering and component tightness in the supply chain. Matt, I was just wondering what you have seen. Is there any abnormal behavior in terms of demand that could normalize? Or do you really think that the demand environment stays quite strong and the supply environment is quite balanced a bit? Thank you.

Yes, sure happy to answer that question. I think, I am certainly aware of the commentary that’s been out there from a number of suppliers. I think the lot of commentary has come more out of the component or catalog or mix signal type of analog companies. And we’re not really in that business. So we tend to be fairly specific in the SoCs we sell. We sell finite number of products to some very large customers. Distribution is a pretty small percentage of our sales. So from our point of view, we see the lead time environment supply chain all that’s running very normally here at Marvell. Certainly -- but I have been to enough of these cycles to know sometimes you don’t know when you are in them. But certainly having lived through those, it doesn’t feel like at least we have Marvell experiencing that kind of thing. I think we have seen in the supply chain pockets of tightness depending on the particular supply or the particular -- either process node or thing that we need to procure in order to make our products. But that’s really isolated. So I would say for Marvell we’re probably not the canary and the coal mine on that one.

Our next question comes from the line of Tom Sepenzis from Northland Securities, your question please.

You’ve talked about networking and obviously the strong growth that you’re seeing in the connectivity business. Can you talk a little bit about what your expectations are for storage as a whole in the second half of the year? Obviously, SSDs are doing well. But are HDDs causing a little bit of headwind there, should we expect growth in the second half?

So I think we’ll limit our commentary today around our storage outlook really to the SSD one only, and that was really given to again provide a little more transparency around the progress that we’re making there. And also, I think that -- because that’s a growing market and that pipeline I think is pretty well understood, we were comfortable giving those ranges. I think with respect to calling HDD at this point in the second half, we’re really in the business of guiding one quarter at a time. I don’t really know what that’s going to look like. We’re fairly looking at the indicators. But certainly, as we get into the next quarter call and we have some more visibility or when it’s appropriate, we’d be happy to share our views. But we’re not ready to really make a prediction on the second half at this particular juncture.

Thank you. And this does conclude the question and answer session of today's program. I would like to hand the program back to Matt Murphy for any further remarks.

Thank you very much. Just a couple words here, in closing, I would like to thank everyone for spending some time with us today to talk about Marvell's Q1 results. We are executing well on our plan to transform the Company and deliver shareholder value. And we look forward to updating you on our progress next quarter. Thank you all, and have a good evening.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.