Matt Murphy - President, Chief Executive Officer Jean Hu - Chief Financial Officer Ashish Saran - Vice President of Investor Relations

Good day, ladies and gentlemen, and welcome to the First Quarter 2020 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Mr. Ashish Saran, Vice President of Investor Relations. Sir, you may begin.

Thank you and good afternoon everyone. Welcome to Marvell first quarter fiscal year 2020 earnings call. Joining me today are Matt Murphy, Marvell’s President and CEO, and Jean Hu our CFO. I want to remind everyone that certain comments today may include forward-looking statements which are subject to significant risks and uncertainties and 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 press release which we filed with the SEC today and posted on our website, as well as our most recent 10-K and 10-Q filings. We do not intend to update our forward-looking statements. During our call today we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available on our website in the Investor Relations section. With that, I’ll turn the call over to Matt for his comments. Matt?

Great! Thank you, Ashish, and good afternoon to everyone on the call. Before we discuss our recent performance and outlook, I'm going to walk you through the three significant portfolio changes we've recently announced and put them into strategic context. As you may recall, when we began our transformation back in calendar 2016, we restructured Marvell pivoting to a new strategy with an intensified focus on storage and networking as our core markets. We put in place a number of key initiatives to organically improve margins and ignite top and bottom line growth. We delivered significant improvements from these initiatives in 2017 with substantial margin expansion and revenue growth. In November of 2017 we announced our intent to leverage our strong balance and share price to fund the transformational acquisition of Cavium. We closed this highly complementary merger, midway through 2018, adding processing and security to our portfolio, along with additional scale and a more complete networking technology platform. Since then we have successfully completed the integration of Cavium, raised our synergy targets over our initial estimates and driven multiple new high growth factors for the combined company, in 5G, automotive, ARM servers and AI. And as you are well aware, 5G is rapidly emerging as one of the most exciting growth catalysts for Marvell. While we are on this journey, primarily focused on execution and integration, we continue to closely monitor our end markets and the broader semiconductor industry. We recognize that the market was softening late last year, and our view is that after many years of growth, our industry was bound for a contraction, particularly against an increasingly uncertain geopolitical backdrop. Nevertheless we determined that despite the challenging environment, we would sustain our R&D investments and continue to collaborate closely with customers in each of our growth market. And rather than just wait out the down period, we continue to assess the external market for inorganic opportunities and systematically manage our current portfolio to accelerate our pivot to infrastructure solutions. This culminated in the three transactions we recently announced, namely our planned acquisitions of Aquantia and Avera, as well as the divestiture of our Wi-Fi business. I'd like to comment on each specifically. First Aquantia: This is a highly complementary acquisition, which upon closing will immediately add scale and breadth to our PHY business, while also exhilarating our reach into the fast growing Multi-Gig Enterprise and Automotive Ethernet areas. Avera has been very successful with copper PHYs at speeds of 1 gigabit and below, while Aquantia has been a leader in higher speed solutions of 2.5G/5G/10G. And as we look longer term with advanced driver assist and autonomous driving continuing to gain momentum, we expect that our processing security and AI capabilities will add on to our automotive networking platform, to establish Marvell as a leading supplier to the connected car of tomorrow. Second, is our acquisition of Avera, originally part of IBM's Microelectronics business. This acquisition was motivated by the growing list of requests from our customers for new custom products including full ASIC. Avera with its proven track record in ASIC design was the ideal partner to complement our standard products and semi-custom capabilities. We have immediate opportunities in 5G, which we can now transition into design wins. Marvell’s broad technology platform will also enable the Avera team to help us become a leading edge ASIC provider to a wide range of networking and cloud customers. Third, we are equally pleased about the plant sale of our Wi-Fi business to NXP. Marvell has a two decade history delivering innovative Wi-Fi and Bluetooth products and this business has been transformed over the past three years to focus on high performance solutions, including next generation Wi-Fi 6 products. Recently we were approached by several companies interested in acquiring this business to help leverage their scale in the fast growing connected consumer and IoT markets. Unlike Marvell, these companies already possess both micro-controllers and a broad distribution channel critical for these markets, but were missing Wi-Fi capabilities. As we evaluated these opportunities, it became clear to us that our high-performance connectivity assets would yield much greater economic value at a company with a strong Microcontroller franchise than they would as part of Marvell. This resulted in our agreement to sell this business to NXT, fundamentally the transaction value is significantly higher than what we could have extracted from this business over time on our own. While these three announced transactions are significant independent events, they accelerate our strategic transformation into a leading supplier to the infrastructure market and they are a reflection of how we actively manage our overall portfolio and allocate capital to invest in the markets where we can generate the highest returns. Let me just put this into perspective. Once we complete all three transactions, in the first year post close we will be replacing approximately $300 million in Wi-Fi revenue that we are selling for a 6x revenue multiple with greater than $400 million in combined Aquantia and Avera revenue we are purchasing for a 3x revenue multiple. This new revenue will be on a faster growth trajectory and will accelerate Marvell’s ability to capitalize on two critical industry tech trends, 5G and Connected Cars and will also command the higher gross and operating margins over the long term. Proceeds from the sale of the Wi-Fi business will pay for both Aquantia and Avera and will net us at least $500 million in cash to add to our balance sheet. I am also equally excited about the tremendous engineering talent and capabilities these two acquisitions will bring the Marvell. Hiring talented engineers in our industry is highly competitive, so being able to add an entire R&D teams with well-established track records of execution, enables us to capitalize our market opportunities much faster than building teams one hired at a time. We recognize that these are bold moves, and I'm very pleased that we are able to negotiate and announce all three deals in such a short time frame. Over the next year we will be focused on integrating these new businesses and successfully transitioning our Wi-Fi business to NXP, while ramping our newest design wins in 5G, Data Center, Automotive and Enterprise application. Now let's shift gears to discuss our recent performance. Revenue for the first quarter was $662 million, about the midpoint of our guidance range, as our storage revenue was higher than anticipated. Notwithstanding this result, we recognize that the recent increase in trade tensions including U.S. Government Export Restrictions to a Chinese OEM has further dampened demanded in an already challenging macroeconomic environment. These factors are reflected in our outlook for the second quarter. Specifically with respect to the customer export restriction, our direction revenue exposure is approximately a mid-single digit percentage of our total revenue, primarily in our networking business, although there is an impact on storage revenue as well. The export restriction was implemented in the second week of our quarter, limiting revenue from that customer to shipments during that short window. In addition, there are indirect impacts to our business which we cannot quantify, to the extent that some of our other customers products may incorporate Marvell's chips inside. It could also be impacted by the export restrictions. While these issues are obviously beyond our control, we will continue to monitor the situation closely. Now, moving on to the performance of our two core businesses. In the first quarter our Networking Revenue was $341 million, down 12% sequentially. As you may recall, we had expected a double digit sequential decline reflecting seasonality, high inventory control at key customers and a cautious outlook from our Chinese customers. Most product lines decline sequentially, which is not unusual for this time of the year. In addition we saw the start of an expected decline and demand from our base station customers, as they prepare to transition from 4G products to 5G later this year. During this transitional period they are also shipping free 5G base stations, but we do not see the full benefit from these shipments as OEMs are using FPGAs for processing in the interim. Our 5G solutions, including our OCTEON Embedded Processor and Fusion baseband processors remain on track and we have now successfully taped out and sampled both of these products. Our lead customer is set to ramp production on schedule in the fourth fiscal quarter of this year. As I mentioned in our last earnings call, we secured a second Tier 1 OEM design win for our Fusion baseband processor and I'm pleased to report that we are on schedule to sample the semi-custom product in early calendar 2020. Now I’d like to share some new developments for Marvell in the 5G market. As you may know, modern macro-based stations are comprised of two separate sections, the baseband unit and the radio head. Today our processors reside only in the baseband unit with embedded-OCTEON managing control and data-plane functions, while Fusion basebands encode and decode data signals. However, as we have continued to closely partner with our customers, they have asked us to solve power and bandwidth challenges across the entire base station and not just in the traditional baseband unit. I am very pleased to announce that two of these opportunities have now translated into new designed wins. The first is a Front haul Interface Solution that connects baseband units to remote radio heads and 5G deployments. The substantial increase in bandwidth and 5G is driving the need for efficient protocol translations for transport of radio data over Front haul lengths. We expect this custom shift to ramp production in the second half of calendar 2021. Second and even more exciting, we now have our first design win for our processor in the 5G remote radiohead itself. In 5G there is an increase in the use of massive MIMO to enable higher capacity and throughput. The complex beamforming needed in these deployments is generating new demand for our optimized low power processing capabilities, enabling us to capture entirely new content within the radiohead. To meet the fast deployment time line for 5G, customers will go to production with our existing Fusion processor by the end of this fiscal year. On top of this, customers have also engaged with us to architect custom purpose built solutions for massive MIMO processing. This trend greatly expands Marvell’s addressable market. Both of these strategic design wins reflect Marvell’s expanding beach heads in areas that are currently dominated by FPGAs. Driven by the increase in processing requirements in 5G, including in the radiohead, are expertise and power efficiency in processing is opening new, significant opportunities. Together we estimate these wins could add on average approximately $500 of new Marvell content per base station, assuming a conservative 20% of tax rate for massive MIMO and 5G. Industry analyst forecasts are actually predicting higher tax rates within the time frame we expect to start shipping our solutions. These are just two examples from our expanding pipeline. While we have been organically increasing our R&D headcount including the recent opening of our Raleigh design center, the addition of Avera’s talented team and extensive custom design expertise will further accelerate our ability to capitalize on these growing opportunities. Moving now to our second quarter outlook for networking in fiscal 2020. After taking into account the export restriction, we expect revenue to be down slightly on a sequential basis. Without the export restriction, we would expect networking revenue to be up sequentially. Turning your storage business; storage revenue for the first quarter came in above our expectations at $279 million declining 12% sequentially. This expected sequential decline was due to a combination of seasonality and excess inventory in the supply chains of our storage controller customers. Within the quarter fiber channel revenue was weaker than expected, but the shortfall was more than offset by higher than expected revenue from storage controllers. Our fiber channel business was impacted by a very soft server market in the first quarter, the server units declining by about 18% sequentially, much worse than typical mid-single digit seasonal declines. It appeared that the weakness in compute demand extends beyond just the cloud and is now showing up in the enterprise as well. And our storage controller business, while we benefitted from better than expected revenue, we do not think that this was indicative of any real resurgence in demand from the end market. We believe that the upside was primarily driven by a customer building buffers to manage a factory transition. We have taken the dynamic into account in our revenue projections for next quarter. So for the second quarter of fiscal 2020, we expect that the demand for Marvell Storage Controllers will remain soft, reflecting continued weak macro-economic conditions. After incorporating the impact of the export restrictions and accounting for the customer factory transition I just discussed, we expect an approximate mid-single digit sequential decline in our storage, second quarter revenue. Looking at the first two quarters of fiscal 2020 collectively and after adjusting for the export restriction, stored revenue was tracking close to what we would expect given the current market conditions. We continue to believe that we will be under shipping the end market for our storage controllers, through a significant part of this fiscal year. That said our customers continue to signal a strong demand environment in the second half of the year. In the meantime we remain focused on efficiently managing our storage business and continuing to pivot this business towards the enterprise and datacenter market. In closing, despite a challenging macroeconomic environment, we are executing to our strategy and taking bold steps to accelerate our transformation. With the production ramp of our first 5G products on track for later this year and expanding pipeline of design wins, we are well positioned to realize our vision of becoming a leading supplier of Infrastructure Semiconductor Solutions. And with that, I'll turn the call over to Jean for more details on our recent results and our outlook.

Thanks Matt and a good afternoon everyone. I'll start with a reveal of our financial results for the first quarter and then provide our current outlook for the second quarter of fiscal 2020. Revenue in the first quarter was $662 million versus our guidance of $650 million at midpoint. Networking represented 52% of our revenue in the first quarter, with storage contributing 42%. Other product accounted for 6% of revenue. GAAP gross margin was 54.6% and non-GAAP gross margin was 64.1%. GAAP operating expenses were $383 million. Non-GAAP operating expenses were $295 million at the low end of the guidance range you provided in March. We continue to tightly manage OpEx in a difficult environment. I am also very pleased to report that we successfully integrated Marvell and the Cavium ERP systems early in the first quarter. With ERP integration complete, we expect to achieve our OpEx synergy goal from the Cavium acquisition in upcoming second fiscal quarter, six months ahead of our plan. GAAP loss per diluted share was $0.07. Non-GAAP earnings per diluted share was $0.16 at the top end of our guidance range. Now turning to our balance sheet. In the first quarter we paid down $50 million of our long-term debt and returned $89 million to shareholders to $50 million in share repurchases and $39 million in dividends. We exited the quarter with $572 million in cash and cash equivalent and the long term debt of $1.7 billion. As Matt mentioned, through the two acquisitions and the one divestiture, we have actively managed our portfolio to maximize the shareholder returns. We currently plan to use the expected cash proceeds of $1.76 billion from the sale of our Wi-Fi business to pay for both Aquantia and Avera acquisitions. The resulting excess cash is expected to be at least $500 million. In addition, we expect our business will continue to generate a strong free cash flow. As a result, we’ll have significant financial flexibility to pay down debt over the next year, to achieve our target gross debt to EBITDA ratio of 1.5x and also returned a large amount of cash to shareholders through share buyback, while maintaining our current dividend level. As a reminder, we currently have approximately $900 million in outstanding share repurchase authority. Let me now move on to our current outlook for the second quarter of fiscal 2020. This guidance takes into account our estimated revenue impact from U.S. Governments current, as for the restriction to Wi-Fi customers. We expect our revenue to be $650 million, plus or minus 3%. Our expected GAAP gross margin will be approximately between 53% and 54% and non-GAAP gross margin will be in the range of 63% to 64%. This projection for gross margin reflects a weaker product mix, due to impact of export retraction, relatively lower storage revenue and a seasonally strong consumer based product ramp. We do expect our non-GAAP gross margin to return to about 64% in the following quarter. We project our GAAP operating expenses to be between $370 million and $380 million, and the non-GAAP operating expenses to be in the range of $285 million to $290 million. We expect net interest expense to be $19 million and the non-GAAP tax rate to remain at 4.5%. We anticipate GAAP loss per diluted share in the range of $0.09 to $0.05 and a non-GAAP income per diluted share in the range of $0.13 to $0.17. Operator, please open the lines for questions.

Thank you. [Operator Instructions]. Our first question comes from Vivek Arya with Bank of America. Your line is now open.

Thanks for taking my question and congratulations on the Wi-Fi transaction, very impressive. Matt does that exact require China approval, and as part of that would be very helpful if you could help us quantify that revenue and gross margin and OpEx impact from a fiscal ‘20 or ‘21 perspective, so we can focus on your base business.

Sure, yeah hi Vivek. So on the first question, the transaction on Wi-Fi does require China approval and then Jean, do you want to comment on the second part?

Yeah, so on the revenue side for fiscal ‘19 this businesses revenue is approximately $300 million. For fiscal ‘20 it's about the same level. The gross margin is around 50%. I think the operating expense, the operating margin within Marvell is much lower than our corporate average. So it’s around the 15% to 20% of operating margin. So that's the way how you can think about this business.

Got it, and then from a bigger picture perspective, you know at your Analyst Day you had outlined very strong operating model of high single digit kind of sales growth and over 65% gross margin and you know high operating margins. Given all the transactions you have announced Matt, is that still the operating model or should we think about something else at this stage.

No, I think you should think about that as the operating model. You know there's a number of moving pieces, but part of the comprehension of doing all there of these was that we would maintain the operating model that we have committed to and certainly Jean mentioned having Wi-Fi coming out and these two others coming in, plus you know what we're planning on doing with it, we're going to stick to the same operating model.

Okay, thank you.

Thank you. And our next question comes from Ambrish Srivastava with BMO. Your line is now open.

Hi, thank you very much. I apologize for the background noise. Just a question on – Jean, this is for you so that we are all on the same page. Would you rather than we take out the mid-single digits Huawei exposure from our model and if the answer to that is yes, how should we think about modulating OpEx, and I guess gross margin is going to be lowered by 100, 150 bips based on the mix, the Cavium mix to Huawei and then I had a quick follow-up.

Yeah, that’s a good question. So on the Huawei side you know its mid-single digit impact. So in Q2 we have assumed no Huawei shipment for the remaining of the quarter and going forward. So from that perspective, Huawei revenue is complete out after the balance development. And when you think about it from the operating expense perspective right, at first we have to invest in our portfolio and the opportunity to address across all different product lines, different regions. Huawei is only one like mid-single digit revenue customers. So we don't think this Huawei ban will impact our investment level, and of course we are very mindful, we are managing discretionary expense to make sure, you know we are disciplined to manage OpEx. So that’s the way how we are thinking about. We are going to manage it through this Huawei issue and make sure we drive the long term revenue growth and the margin expansion.

Okay, and for my follow-up real quick Matt, I just wanted to make sure I understood this. On the storage side has the outlook changed versus what you are thinking in Q1, or – sorry, when you talked to us last time or is it about the same in terms of as you had said that time that you were shipping below end demand as well. Has anything changed or it’s kind of in line with what you are expecting?

Yeah Ambrish, it’s very much in line you know from where we were a quarter ago. Obviously we had some out performance in Q1 that was relative to this factory transition I mentioned, so no update other than if you think about kind of Q1 plus Q2, it’s in line with what we were discussing the last time we talked and we do believe we're still going to continue to under ship demand in Q2 as well.

Yeah on the gross margin side, maybe I would add to the question you asked on the gross margin side. If you look at our Q2 growth margin there are a few headwinds that impact gross margin. The Huawei ban certainly has some impact, but also we do have a seasonal strong consumer related product brand, which actually has bigger impact. So when you look at going back to Q3, that season impact is going to come down from a mix perspective. So we do expect our gross margin to back above 64%. And as Matt mentioned earlier, we are not changing our long term target model. We continue to believe we will be able to drive our gross margin to go up going forward.

Thanks for circling back on that Jean, I appreciate it. Thank you.

Thank you. And our next question comes in Harlan Sur with JPMorgan. Your line is now open. Harlem, please check your mute button.

Sorry, can you hear me now?

Yeah, go ahead Harlan.

Okay, thank you. Assuming that the Huawei ban continues for the remainder of the calendar year, off of the Q2 guide I would assume that the team would see sort of normal seasonal growth in Q3 and then if you do start shipping 5G to your lead customer and some continued inventory improvements on the storage side, you should probably see some sequential growth in Q4 as well. Is that kind of the right way to think about the overall trajectory of the business for the remainder of the year.

Yeah, I think you're absolutely right. I think of the simple way to look at it is Huawei is about mid-single digit of our revenue, so when you look at your model, the seasonality for Q3, Q4 the simple way to do it, just take out mid-single digit revenue out from the ramp, the typical seasonal ramp from the rest of the quarter will be fine.

Okay, great. And then on the two new 5G opportunities, one is front hall. I assume that it’s the high high-speed security connection. You said calendar year second half ’21 ramp; on the second design win with your processes solution, I'm assuming that this is doing more of the digital front end functionality. When does this design win start to ramp, and are both of these wins with your two existing 5G customers or are they with different 5G customers. Thank you.

Sure, okay. So yes, so you're in the ballpark on the front haul, you know that’s the type of socket we’re talking about. On the second one, it's not doing the digital front end, think of it as when you go to massive MIMOs, every radio is going to have some digital front end processing in it. When you go to a massive MIMO, there is going to be additional processing that's required and so what we're seeing is one of our customers and we're not going to go into who and when as we talk about these different sockets from today, but think of it as that processing needs to get added to support massive MIMO, our products are actually well suited to do that and so those are being designed in and those are going to ramp in Q4 of this year. So that's one that's a pleasant surprise to us.

Thanks Matt.

Thank you. And our next question comes from Ross Seymore with Deutsche Bank. Your line is now open.

Hi, thanks for letting me ask a couple of questions. Matt, first for you on the networking side of things; obviously people know you have taken the Huawei business out, and so that’s in the networking site, but your guidance is for that to be relatively flat or just slightly down I think is what you said. So can you talk a little bit about what's going on with the core business growing, what's driving that and then maybe in a bigger picture sense, what sort of reaction are your other customers having if the Huawei side of the equation can't ship? Are those leading those customers getting more eager to take share and attacked the Chinese market? Is that leading to some of the new design wins you have. Just wanted to see what the competitive reaction is in a broader sense.

Okay, sure, let me take them one at a time. So on the first one, just to go back, you know networking we got it to decline in Q2. What we said was if you put in Huawei back in, so it was apples-to-apples and networking would be up sequentially, so that's a positive. So you should assume ex-Huawei networking is going to increase sequentially. That’s offset a little bit by the fact that some of our customers in 4G, there has been some slowdown there as pre-5G systems are shipping and then there's some anticipation of you know production 5G coming online in the second half. So there’s a few moving pieces, but the net-net is that networking ex-Huawei is up. On the second question, yes, so the design activity we’ve seen on this, take it high level first, is very robust okay. It’s across a number of different products and technologies that we sell across, a number of different customers. None of these design wins are related to any issue with what's going on the Chinese customer that's going through the export restrictions, and whether or not you know the other competitors are going to take share, I think all those CEOs are getting those questions right now and it’s a bunch of articles you can read from those guys about how they are viewing that situation. But just to be clear, the opportunities we see are just a result of quite frankly you know deep engagements with the customers in the space, a very compelling platform of switches, processors, basebands, you know all the key pieces and now some high speed connectivity, all the key pieces that are required to enable 5G, so that’s helpful.

Yeah, it is. And for my follow-up question, switching gears over to the storage side, I know you just answered to a prior question that throughout the first half of the year it's really doing what you had expected. But you mentioned in your preamble that the enterprise side was starting to show signs of weakness and it wasn't just a cloud dynamic anymore. Could you give a little bit more color on that? Is that just within the fiber channel side; is that a broader dynamic and how is that the same as before if it sounds like that’s a new development?

Sure, so I'd say that while we give the commentary around fiber channel, you know the market numbers I gave you which is the 18%, that's a market number, that’s a server decline and you know it's not all cloud. So commentary was really we're seeing some of this in fiber channel, but I think it’s related to a bigger picture and when we up-pack sort of where the market is going, the declines are not all clouded. It’s actually happening in the enterprise space as well, so we thought it would be appropriate to comment on that given that we've got you know reasonable exposure there, and you know you could sort of speculate on why, but I think the bottom line is we see that trend as being, you know not a strong one at this point.

Thank you.

Thank you. And our next question comes from Blayne Curtis with Barclays. Your line is now open.

Hey guys, thanks for taking my question. I have a few – I just wanted to follow-up on Ross’s question, because maybe I missed what you said and I’m just kind of curious what is growing? You said ex-Huawei would be growing in the back half of enterprise being softer. Have you seen any of that softness still into you know your [inaudible] switching?

Hey Ross, this is Jean. So I’ll add some color, right. So when you look at this sequentially, we do see we have a diversified product lines and networking from security, switch, PHY. All those things are actually growing sequentially, which offset the Huawei impact and we're actually very pleased actually with all the networking product to the classical mobile side. The design wins continue to ramp up with different other customers across you know both major OEMs and broad customers outside of China. So that's really what's happening sequentially.

Got you. Thanks Jean, and I do look like Ross, but it's Blayne. The – just maybe follow up on the new design win Matt. I mean obviously the Avera deal gets you access to a lot of these ASIC’s designs, many of them are in the radio and you are talking about Fusion in there. Kind of is that temporarily or is that doing some additional functionality and maybe there is more of a content during the radio head. Just kind of curious to see your perspective?

Yes, just to be super clear, the new opportunity we're speaking about is additional content, okay. So it's independent of the solutions that you mentioned. Now, what I would say is if you think about the long-term where if we can have a strong presence in the digital front-end, and we can have the processing capability for massive MIMO, and then you can think about having all sorts of options to really leverage the technology platform in the company to optimize these designs over time, and I think from a supplier point of view, we are going to be viewed as extremely compelling and having all these pieces. But yes, we're excited to actually be able to – with Avera coming online to be able to participate in that part of the market as well, which we had not previously at Marvell.

Thanks.

Thank you. And our next question comes from Kevin Cassidy with Stifel. Your line is now open.

Yeah thanks. I’ll switch topics a little bit by asking about your Ethernet business. Can you give us an update of what’s happened with the NIC card business and also your new Ethernet Switch that was introduced to some type of design win traction you might have there?

Sure, yeah hi Kevin. So I’ll make a couple of comments. So I think on the Ethernet NIC side, it’s a pretty small business for us. You know you may be familiar with it, it primarily sells under the enterprise. Our cloud position there is small. So think of that as being a smaller business tied to the enterprise cycle. For our new product which is our 12.8 terabit switch, that’s doing really well. You know we introduced it about a quarter ago. Design pipeline looks good. A lot of interest from a number of customers. I’m not really ready to give a detailed update, but I’d say that the traction is very strong for that product and we’ve been very pleased by the reception. So I think you know as time goes on we’ll be happy to update the Investment community about how our Ethernet story plays as we’ve now really entered a brand new segment that we weren’t in before, addressing the higher end you know from 3.2 all the way to 12.8.

Right, and that’s right, I was wondering if you even could give us an estimate of when you’d expect to start to see revenue for that Ethernet switch.

I think it’s still early days Kevin. You know the design cycles depending on the customer tend to be a little bit longer here, so I don’t think I’m quite ready to commit to that. It’s a bit early, but we’ll certainly be happy to do that as we get a little bit closer or make some more progress.

Okay, great, thank you. A - Matt Murphy: You’re welcome.

Thank you. And your next question comes from John Pitzer with Credit Suisse. Your line is now open. John, please check your mute button.

Let’s just move on to the next question please.

Our next question comes from Mark Delaney with Goldman Sachs. Your line is now open.

Yes, good afternoon, thanks very much for taking the question. The first question is, I want to better understand how the company was kind of incorporate some of the broader implications from Huawei and Matt I know you said that you kind of incorporate the mid-single digit. Direct exposures are difficult to gauge and that’s some of the potential knock-on effects to other customer, for example in storage and some of your drive customers have some exposure. Did you factor in any additional conservatism into your guidance and storage and network and you try and think about some of those potential factors. Is there any other color you can give us on how Marvell is thinking about that would be helpful.

Yes, our current assumption is really just to take out this one particular Chinese customer's revenue going forward. Matt mentioned it during his prepared remarks about the potential impact from our other customers. They get impacted which will come to impact us. We are not going to be able to estimate at this point what it means. It's just something we're mindful, but it's not in our current assumption and forecast.

Yes. I think it's absolutely right. I think the assumption we're making is that our customers that we are talking to have comprehended this and their demand signals are sending us, and I think we're mindful of that and certainly hoping that they are doing that. But I think it's – as Jean pointed out, it's really difficult for us to add a judgment on top of somebody else's judgment, and so we're – I think the cleanest way was just to take Huawei out, outside of the numbers, and let's hope that the whole industry has kind of got the same methodology for accounting for this.

Okay, that’s helpful. And my follow-up is just on the strategic roadmap that the company has been underway with in doing the ample of acquisitions and appreciating all the commentary you provided along that front. Assuming all three deals close, you mentioned your cash balance would go up. Should we think about appetite for Marvell to do any additional M&A given the strong balance sheet that would result or would you want to fully integrate Avera, what the people are thinking about any future M&A? Thank you.

’: ’: But Jean, maybe you want to comment on, you know the, I guess you’re already commented on. ’: But Jean, maybe you want to comment on, you know the, I guess you’re already commented on. ’: But Jean, maybe you want to comment on, you know the, I guess you’re already commented on.

Yes.

’:

’: I think, if you think about it, our first priorities that we think we have a tremendous financial flexibility to both buyback some shares and also pay down the debt. So, that will be our focus of cost in the longer term. You know our capital allocation policy has not changed.

Thank you. And our next question comes from Craig Ellis with B. Riley FBR. Your line is now open.

’: ’:

’: I would actually back up the clock a little bit, even go to pre-Cavium, you know when the team arrived here about three years ago, by the way. We – and you are were early on in the story, Craig - we did a lot, okay. We obviously, we pivoted the company around a new strategy. We divested, you know a number of businesses, simultaneously in parallel, by the way, sold building, consolidated design centers, you know tremendous amount of activity and what we learned through that process and what we developed was a very strong culture of execution and doing things on schedule are better and doing them on budget or better. That bode well for when we did Cavium, and that integration as Jean pointed out, very happy with our team. The fact that we were able to do the entire ERP integration in about nine months, ahead of schedule, I mean you can hear horror stories of ERPs gone wrong. You know our team did a fantastic job, from that point of view. ’: I would actually back up the clock a little bit, even go to pre-Cavium, you know when the team arrived here about three years ago, by the way. We – and you are were early on in the story, Craig - we did a lot, okay. We obviously, we pivoted the company around a new strategy. We divested, you know a number of businesses, simultaneously in parallel, by the way, sold building, consolidated design centers, you know tremendous amount of activity and what we learned through that process and what we developed was a very strong culture of execution and doing things on schedule are better and doing them on budget or better. That bode well for when we did Cavium, and that integration as Jean pointed out, very happy with our team. The fact that we were able to do the entire ERP integration in about nine months, ahead of schedule, I mean you can hear horror stories of ERPs gone wrong. You know our team did a fantastic job, from that point of view. ’: I would actually back up the clock a little bit, even go to pre-Cavium, you know when the team arrived here about three years ago, by the way. We – and you are were early on in the story, Craig - we did a lot, okay. We obviously, we pivoted the company around a new strategy. We divested, you know a number of businesses, simultaneously in parallel, by the way, sold building, consolidated design centers, you know tremendous amount of activity and what we learned through that process and what we developed was a very strong culture of execution and doing things on schedule are better and doing them on budget or better. That bode well for when we did Cavium, and that integration as Jean pointed out, very happy with our team. The fact that we were able to do the entire ERP integration in about nine months, ahead of schedule, I mean you can hear horror stories of ERPs gone wrong. You know our team did a fantastic job, from that point of view. ’: I would actually back up the clock a little bit, even go to pre-Cavium, you know when the team arrived here about three years ago, by the way. We – and you are were early on in the story, Craig - we did a lot, okay. We obviously, we pivoted the company around a new strategy. We divested, you know a number of businesses, simultaneously in parallel, by the way, sold building, consolidated design centers, you know tremendous amount of activity and what we learned through that process and what we developed was a very strong culture of execution and doing things on schedule are better and doing them on budget or better. That bode well for when we did Cavium, and that integration as Jean pointed out, very happy with our team. The fact that we were able to do the entire ERP integration in about nine months, ahead of schedule, I mean you can hear horror stories of ERPs gone wrong. You know our team did a fantastic job, from that point of view. ’: ’: ’: ’: ’: ’:

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’: ’: ’: ’: ’: ’: So, I think there are probably people downstream from us probably have a better point of view on that. But, certainly a few high level characterization would be at least networking showing signs of life and some movements, and then storage still under shipping what we think is the end-to-end demand. ’: So, I think there are probably people downstream from us probably have a better point of view on that. But, certainly a few high level characterization would be at least networking showing signs of life and some movements, and then storage still under shipping what we think is the end-to-end demand. ’: So, I think there are probably people downstream from us probably have a better point of view on that. But, certainly a few high level characterization would be at least networking showing signs of life and some movements, and then storage still under shipping what we think is the end-to-end demand.

Thanks, Matt.

Yes.

Thank you. And our next question comes from Srini Pajjuri with Macquarie. Your line is now open.

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Great. Thank you.

Thank you. And our next question comes from Rick Schafer with Oppenheimer. Your line is now open.

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’: But I don’t have all the exact TAM numbers yet. And I think as we - the way I’d say it is, we need to – I want to see how the, this year is playing out in terms of all the things that we’re working on, and then come back to you guys with a more comprehensive view, because it seems like every quarter we’re finding new things, and then it’s you know, I’d rather give a comprehensive update at a later date, [inaudible]. ’: But I don’t have all the exact TAM numbers yet. And I think as we - the way I’d say it is, we need to – I want to see how the, this year is playing out in terms of all the things that we’re working on, and then come back to you guys with a more comprehensive view, because it seems like every quarter we’re finding new things, and then it’s you know, I’d rather give a comprehensive update at a later date, [inaudible]. ’: But I don’t have all the exact TAM numbers yet. And I think as we - the way I’d say it is, we need to – I want to see how the, this year is playing out in terms of all the things that we’re working on, and then come back to you guys with a more comprehensive view, because it seems like every quarter we’re finding new things, and then it’s you know, I’d rather give a comprehensive update at a later date, [inaudible].

Okay, got it, thanks. And then Jean, I know you got a lot on your plate, but just on the Avera, I know you talked about it being a 50% or so gross margin businesses, historically and you’ve talked about improving on that. You know sort of how close do you think the corporate average Avera can eventually get? And sort of how do you get there? What are some of the bigger moving parts? I mean could this be a 60% or better gross margin revenue stream over – I don’t know, over a certain timeline, maybe identify what that timeline might be?

Yes. It will take some time right and the way to think about it is for any new design wins that we are going to get, the gross margin is going to be very similar to Marvell’s corporate average. So when you start to mix the platforms over time, it’s going to migrated to our current gross margin, but it will take time. Remember, all those things have very long cycle, typically the last five years or beyond sometimes, but we are very confident over time it’s going to get there. Secondly right, it’s operationally – we have a really strong operational team. We do think once we integrate Avera into Marvell, we’re going to have the opportunity to improve cost over sales, and that you also help the margin improvement going forward. So we’ll provide you all detailed update when we close the transaction. But we do think we’ll have the opportunity to migrate their gross margin to close to ours over time.

Yes. And what I’d say Rick too, I think one of the variables that I would add on top of what Jean said is that, we have to first get this closed and get the team in, and then really assess the opportunity pipeline because in this business, like actually our, even our standard product business, I mean the ability to command premium margins really comes with the value and the differentiation that you add. And so when we look at our pipeline, we also want to – we’re going to have some flexibility, right, because we’re going to look at okay, how much – you know how many opportunities we have that are just pure, pure ASIC? How many are where we can add Marvell IP to help the customer differentiate, and so that’s going to have a different margin structure, and so you know obviously we’re a company that believes that gross margin equals innovation and that’s what we’re driving in the company. But that being said, we also have to assess the SAM and that’s going to be a part of how that journey goes, as what opportunities we decide to take or not, and what’s the returns on those and the volume. But in any case the journey in that business will be up into the right, both from an operational improvement point of view, as well as on the new designs.

Got it, thanks. That’s great color.

Thank you. And our next question comes from Tim Arcuri with UBS. Your line is now open.

Yes. Hey, this is John on calling in for Tim. Hey, adding my congratulations on the connectivity divestiture, and I mean obviously you know our opinion already over the past year on what you guys should do with that business. But just kind of curious about your perspective, how long were you guys looking at this move?

Which move?

The Wi-Fi.

Well, let’s be clear, you know we were approached on this business, right. We didn’t put it up for sale. We were approached on this business and we were approached by a number of parties and we elected to have those discussions and then it turned out to be a great outcome, but that was really the catalyst. It was just a number of in-bounds that looked compelling and we felt it was our obligations to take those seriously. On our own we were driving that business, right. I mean if you know, I mean we were – that business three years ago was low to mid 30% gross margins that has been declining in revenue. It had you know all kinds of issues and I think credit to the team here really improved that business structurally, re-pivoted it, got their mojo back, and the business has really got into a very good place, and that’s why you can look at the valuation we got for it, because there’s a lot of value that’s been created and I think by the way I think NXP will do a fabulous job with the asset. But yeah, you can see from what was paid for, it’s a good business and we were fully prepared to drive it on our own as well.

Okay, alright. Fair enough. I appreciate the color. As my follow-up, in terms of your storage business, I mean can you give a little bit more color in terms of SSD versus HDD dynamics and what you see for the coming quarter as well?

No, we don’t provide that kind of details, right, because we also have a fiber channel in that business and some of the other product lines. So the way we look at it is actually from – and the market perspective, we look at the client, we look at the enterprise data center, and periodically we’ll provide you with the details of how we are migrating to increasingly address the enterprise and the data center market. That’s how we look at it going forward.

Okay. Thank you.

Thank you. And our next question comes from Gary Mobley with Wells Fargo Securities. Your line is now open.

Hey, everyone. In the interest of time I’ll post both my questions at the same time. In the just concluded April quarter, how much buy ahead was there from Huawei anticipation of the shipment ban? And Jean, you had mentioned in the past that you can bring these non-GAAP OpEx down to perhaps $280 million. And I think you laid out a timeframe of maybe the fourth quarter of fiscal year 2020, and you keep under-promising and over-delivering on that front. So I’m curious in light of the revenue headwinds from Huawei and other factors as well, should we be thinking about maybe something better than $280 million by the end of this fiscal year?

Yeah, so first on the Huawei question, right, the ban happened two weeks into our quarter, so we did not ship too much to then during the first two weeks of the quarter. And if you look back into the last few quarters, it’s very difficult for us to tell how much inventory they are building, but our assessment is we believe the run rate business of Huawei is around the mid-single digit numbers of our revenue, so that’s how we think about it. Secondly, on the operating expense question, I think we continue to target asset in Q4 fiscal ‘20. We’ll get to close to $280 million operating expense, that’s how we are targeting and I think our team has done a great job to manage OpEx each quarter. We’ll continue to be disciplined in managing the OpEx to get to our target level.

Alright, thank you.

Thank you. And our final question comes from Christopher Rolland with Susquehanna International Group. Your line is now open.

Hey guys, two quick ones from me. I guess first of all given the Huawei ban, do you think this is going to help other OEMs guys that you are more exposed to and hence help you guys?

Sure, yeah hi Chris. So on that one again, I think there is quite a bit of commentary on this that’s out there now. I think Ericsson’s been asked, you know Nokia’s been asked, Samsung’s been asked, you know if you go through the list and so you can sort of listen to their view. I mean I think what they’ll tell you there is short-term positive, there is also potentially long-term negative side. It’s hard to call and it’s also hard to call when the situation resolves itself. So we don’t have a particular point of view, other than the customers that we are engaged with are doing well in the market, certainly on their tenders and their bids and their positioning for the deployments coming up, and the design activity with those customers is very, very high. So that’s the commentary I would give you. It’s hard for me to handicap the global base station market puts and takes right now.

Great. And then lastly, have you guys in the industry heard anything about China withholding kind of rare earth materials, and if that would have any effect on the hard disk drive market or do you think that is a kind of low risk, low probability situation?

Yes, don’t know, not the expert on that, although I read in the newspaper over the weekend, kind of thing. So I don’t have a particular view on rentals and then how it’s going to trickle into the supply chain at this juncture.

Perfect! Thanks guys.

Thanks Christopher.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today’s call. I would now like to turn the call back over to Ashish Saran for any further remarks.

Thank you everyone for joining us today and we look forward to seeing you at upcoming conferences. Thanks and goodbye.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program and you may all disconnect. Everyone have a wonderful day!